Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. Us CPI members reinforcing concerns
Speaker 1: about inflation. The financial stories that chief are worth a
Speaker 1: really different reaction to Mark. It's more indications of just
Speaker 1: how hot the U. S. Economy really is. Through the
Speaker 1: eyes of the most influential voices. Larry Summers, the former
Speaker 1: Trickery Secretary, Katherine Keening, CEO of v n Y mallin
Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Getting tired of higher interest rates, chasing stubborn inflation, of
Speaker 1: government's offering more of the same, and of a war
Speaker 1: with much more at stake than just money or politics.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. This
Speaker 1: week our contributors Larry Summers on the Fed decision Day Wednesday,
Speaker 1: followed by the jobs numbers on Friday. Good news is
Speaker 1: economy looking robust? Uh? The bad news is not much
Speaker 1: evidence of inflay. Shouldn't restraint yet? In train? And Steve
Speaker 1: Rattner on what's at stake for investors as Americans go
Speaker 1: to the polls in the mid term elections. I think
Speaker 1: the elections are uguely consequential for investors because there's a
Speaker 1: lot of stake here. This week, it sometimes felt like
Speaker 1: it was more of the same, starting with the next
Speaker 1: phase of Russia's war in Ukraine, which saw Russia targets
Speaker 1: civilian facilities. As explained by John Kirby of the National
Speaker 1: Security Council, we know that this has yet another way
Speaker 1: here air strikes, a lot of missiles fired at in
Speaker 1: particular to capital, fired at both power and water facilities.
Speaker 1: Even as the First Lady of Ukraine, Orleana's Olenska, told
Speaker 1: the world just how hard it is really for the Ukrainians.
Speaker 1: Nobody can't imagine how Ukrainians z threat is not just
Speaker 1: Ukrainian U for Ukraine. For US, fatigue means that we
Speaker 1: would perish. Meanwhile, the rest of the world continued to
Speaker 1: wrestle with the effects of the war, including higher energy prices,
Speaker 1: with President Biden promising to take action and blaming the problem,
Speaker 1: at least in part on the all companies record profits
Speaker 1: today are not because you're doing something new or innovative.
Speaker 1: Their profits are windfall of war In Brazil and In Israel,
Speaker 1: new elections yielded old results, with former president Lula da
Speaker 1: Silva narrowly winning re election to the presidency. We've been
Speaker 1: covering the Brazil election, of course. It's a historic narrow
Speaker 1: victory of Lucy Nazio, Lula the Silva, the former president,
Speaker 1: and Benjamin Netanya, who heading to a fifth stint as
Speaker 1: Prime Minister of Israel. In Israel, the fifth election in
Speaker 1: four years appears ready to return Benjamin Netanya, who to power.
Speaker 1: But the main events for Global Wall Street this week
Speaker 1: came from the central banks, first and foremost from the
Speaker 1: Federal Reserve, which on Wednesday did as expected and raised
Speaker 1: interest rates another seventy five basis points, with more to come.
Speaker 1: According to chair at J. Powell, we still have some
Speaker 1: ways to go, and incoming data since our last meeting
Speaker 1: suggests that the ultimate level of interest rates will be
Speaker 1: higher than previously expected. While the Bank of England came
Speaker 1: in with its biggest increase in more than three decades Thursday,
Speaker 1: and Governor Andrew Bailey warned about what could happen if
Speaker 1: they don't take steps now. If we do no time
Speaker 1: false free now, it will be us later on. And
Speaker 1: that's the full cost Way. I'm publishing today's shows. It
Speaker 1: is a tough right ahead. And then we ended the
Speaker 1: week with US jobs numbers which came in higher than expected,
Speaker 1: adding another two in sixty one thou jobs with wages
Speaker 1: going up another four tenths of evercent over the month
Speaker 1: of September, which could have sent markets into a tizzy,
Speaker 1: but didn't as equities had already taken a hit from
Speaker 1: what chair Powe had to say back on Wednesday. For
Speaker 1: the week overall, the sp gave up three point the
Speaker 1: NAZAC was five point six, and the year of the
Speaker 1: ten ure was about sixteen basis points. End in the
Speaker 1: week at four point one six. Take us through the
Speaker 1: week in the markets. Welcome now, Charmian, most of our
Speaker 1: Rockmani Goldman Sex, chief investment officer for Wealth Management, and
Speaker 1: Sarah Kettter, co founder and CEO of Causeway Capital. So
Speaker 1: welcome both of you back to Wall Street. We're good
Speaker 1: to have you here. Let me start you with you, Sarah,
Speaker 1: if I may, so, what's an investor to do with
Speaker 1: what they saw this week? A lot of turmoil, no
Speaker 1: doubt about it, David, and strong payroll data makes the
Speaker 1: FED jump much more difficult. This um labor supply shortage
Speaker 1: situation is quite concerning. So it looks as if the
Speaker 1: FED is going to have to continue raising rates, and
Speaker 1: this creates a tremendous headwind for the US market and
Speaker 1: for markets around the world where central banks have to
Speaker 1: move up, if not un lockstep with the FED, they
Speaker 1: too have to be tightening in order to quill inflation
Speaker 1: that is global Charman, I wonder did j Pal get
Speaker 1: us ready for this to some extent. I'm assuming he
Speaker 1: didn't have any idea what the numbers are gonna look like,
Speaker 1: but he sort of warned this on Wednesday what they're
Speaker 1: gonna have to do. When we think of this number, though,
Speaker 1: I don't think we have as pessimistic of you and
Speaker 1: as pessimistic read. In fact, you could see what happened
Speaker 1: to the market today at the end of the day,
Speaker 1: and you could say, in fact, the market is probably
Speaker 1: saying it's not as bad a number from a tightening
Speaker 1: in a recession perspective. So in fact, our view is
Speaker 1: that if you look at the non farm payroll numbers,
Speaker 1: at the beginning of the year, they were averaging over
Speaker 1: three months about six hundred. The last three months now
Speaker 1: are about two nine thousand, so that's nearly more more
Speaker 1: than half. So that's a significant slowdown in the economy
Speaker 1: that we're seeing. And then if you look at the
Speaker 1: average hourly earnings and you look at what the latest
Speaker 1: three numbers are about three point nine percent. The prior
Speaker 1: three months it was five point two. So directionally between
Speaker 1: what the FED has been doing and JED really financial
Speaker 1: conditions in the United States. Things are slowing down and
Speaker 1: it's not insignificant. So the question is how much does
Speaker 1: the FED need to tighten to lower those numbers even further.
Speaker 1: And our view is that they do have more to go,
Speaker 1: but I'm not sure the idea that it's definitive they
Speaker 1: have to go to five percent or five and a quarter.
Speaker 1: It's not so obvious to us, Okay. Charmie Ramani of
Speaker 1: Golden Sex and Sarah Ketter of Causeway Capital, we're staying
Speaker 1: with us as we focus on sell investments outside the
Speaker 1: United States and what we expect from China, emerging markets,
Speaker 1: and Europe. This is Wall Street Week on Bloomberg. This
Speaker 1: is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Wall Street really loves ambiguity because the truth is that
Speaker 1: while the midterm election results scarcely constituted a warm vote
Speaker 1: of confidence in President Reagan's economic program, they were far
Speaker 1: from the Democratic landslide that some pre election forecasters were predicting. Indeed,
Speaker 1: the actual result, Republicans holding the Senate and losing twenty
Speaker 1: six seats in the House, was remarkably closed to the
Speaker 1: figures I gave on this program last week. That was Lewis,
Speaker 1: of course, on Wall Street week after another midterm election,
Speaker 1: two years into a new president. That president was President Reagan,
Speaker 1: and it was two when it didn't come out quite
Speaker 1: as badly as Republicans had feared. Sometimes the Democrats this
Speaker 1: year are hoping for the time. Movie back then was
Speaker 1: First Blood starting to Sylvester Salona as Vietnam Vet John Rambo.
Speaker 1: The number one song was Up Where We Belonged by
Speaker 1: Joe Crocker and Jennifer Warren. Still with us are Sarah
Speaker 1: Header of Causeway Capital and Shermane most of our Rachamani
Speaker 1: of Goldman, Sachs So Sherman maybe some parallels with but
Speaker 1: one thing is very different is there wasn't a lot
Speaker 1: of US investment in China back flash forward today, where
Speaker 1: are you on China, and we just come through the
Speaker 1: twenties National Congress. In general, we've had a very strong
Speaker 1: US pre eminence view, recommending clients have a significant overweight
Speaker 1: to US equities and in turn a significant underway to
Speaker 1: emerging markets, which includes China. If you actually go back
Speaker 1: and look at the returns from the trough of the
Speaker 1: global financial crisis to the present, you will see that
Speaker 1: US equities are up about sixteen on an annualized basis
Speaker 1: and five percent in China on an annualized basis. But
Speaker 1: actually one needs to look at the impact of that compounding.
Speaker 1: Is this chart that you just put up, if you
Speaker 1: had had a hundred dollars and put it in US
Speaker 1: equities today, you would have seven hundred fifty dollars if
Speaker 1: you would put it in China hundred and eighty eight dollars,
Speaker 1: not even a quarter of those returns. Now that has
Speaker 1: prompted some people to say, well, that actually means China
Speaker 1: is very attractive. We actually think that is not attractive.
Speaker 1: China's growth will be much slower than people that expect
Speaker 1: going forward. China has overinvested in property, in infrastructure. They
Speaker 1: have a major demographic problem. So when we actually look
Speaker 1: at it on a forward basis, we think the earnings
Speaker 1: will not be there to even support these valuations. There's
Speaker 1: so much truth in that about China. It's just so
Speaker 1: interesting to see though, that much of the big sell
Speaker 1: off started in just one last year. China is currently
Speaker 1: thirty percent roughly of the Emerging Market benchmark, so it's
Speaker 1: really important, and it has both bullied up the benchmark
Speaker 1: and dragged it down. But there's China and Taiwan together
Speaker 1: or some forty five percent of the index. You sort
Speaker 1: of can't get away from China if you want to
Speaker 1: invest in emerging markets, and one way or another, their
Speaker 1: growth rates have tended, they've tended to be faster than
Speaker 1: the US in the past, and to your poor sharp,
Speaker 1: to your point, Charmie, they are slowing. But the opportunities there,
Speaker 1: because it's just such an enormous market, are really hard
Speaker 1: to pass up. I think the property sector is horrible,
Speaker 1: and what place had the worst property wipe out we
Speaker 1: can think of in the late eighties. It was Japan,
Speaker 1: and yet there was still money to be made in
Speaker 1: that would ended up being rather a stagnating situation if
Speaker 1: stock selection was good. So we're never writing off China.
Speaker 1: But what's irresistible about emerging markets, again with China as
Speaker 1: an anchor tenant, is that it's trading it just twenty
Speaker 1: year low in price to book value, and then on
Speaker 1: a price to earnings basis, it's also at this extraordinary
Speaker 1: bouncing along it's twenty year low versus the US market
Speaker 1: and the world index. So at some point in time
Speaker 1: you have to say the price is right for emerging
Speaker 1: markets led by China, There's no doubt about that, Sarah.
Speaker 1: But when we actually look at the price, we think
Speaker 1: you need to think about the sector weights. So emerging
Speaker 1: markets in general all and that applies to China as well,
Speaker 1: have a very different mix in terms of the sector
Speaker 1: exposure relative to the US. So on the surface, when
Speaker 1: you're looking at the discount from to China or emerging
Speaker 1: markets or even developed markets relative to the U S,
Speaker 1: it looks like it's very low. But on the other hand,
Speaker 1: if you adjust for the sector weights, meaning for example,
Speaker 1: technology is of the S and P five and less
Speaker 1: in China, less in emerging markets, and maybe even less
Speaker 1: than half in developed markets. If you adjust the sector weights,
Speaker 1: then these countries and regions are not as cheap as
Speaker 1: it appears, in fact suddenly emerging markets instead of being
Speaker 1: for example, let's say a multiple of sixteen for the
Speaker 1: US versus tent for emerging markets, once you adjust the weights,
Speaker 1: it's more like fourteen and a half times forward earnings.
Speaker 1: So in fact, if you adjust the sector weight, then
Speaker 1: we don't think these markets look at as cheap, and
Speaker 1: historically that discount has not always been in an indicator
Speaker 1: of good forward returns. But Sarah, you mentioned a very
Speaker 1: important point, which is stock selection. It doesn't mean that
Speaker 1: stock selection can't add value, but when we look at
Speaker 1: the countries in aggregate and broadly at sectors, we just
Speaker 1: don't find them attractive at all. Yeah, it's a very
Speaker 1: good point about sectors, and and i'd argue this think
Speaker 1: about in terms of value versus growth. The growth part
Speaker 1: of the emerging market benchmark doesn't still look pricey. But
Speaker 1: if you strip out the stocks that are in that
Speaker 1: lower valuation group, they have they just they're at loaves
Speaker 1: that we haven't seen in a long time. They're very,
Speaker 1: very compelling, and they can find those across sectors, which
Speaker 1: is pretty useful, but only for China. The catalyst will
Speaker 1: make China much more interesting it's just a recovery. And
Speaker 1: if it turns out, the head of our China office
Speaker 1: in Shanghai tells us, next March is likely the date
Speaker 1: at which the gradual reopen becomes less gradual. To the
Speaker 1: point was so obvious that they can't be denied by
Speaker 1: the party leaders. That will create an economic tail wind
Speaker 1: for China, even with a very tough property market, and
Speaker 1: it could interestingly coincide with what is still slowing in
Speaker 1: the rest of the world, making China relatively attractive. So Sarah,
Speaker 1: I suspect we're all looking for bargains and trying to
Speaker 1: avoid falling knives, right, whether it's China or somewhere else.
Speaker 1: Talk about Europe. Are there bargains in Europe at this point?
Speaker 1: Where is that a falling knife? Will? It fell with
Speaker 1: the Russia invasion of Ukraine in February. Europe was just
Speaker 1: awful and it continued to be awful. And the cyclical
Speaker 1: part of Europe any type of manufacturing, any users of
Speaker 1: natural gas were sold off heavily by markets. Materials within
Speaker 1: that chemicals, so many stocks trading at discounts to book
Speaker 1: value that indicated apocalypse. So yes, bargains in Europe and
Speaker 1: they're still there. Some of those stocks have improved, but
Speaker 1: to the degree there isn't a harsh winter and Europe
Speaker 1: doesn't consume all of its energy it's gas storage reserves,
Speaker 1: which we think it won't. It looks as if we're
Speaker 1: can squeak through this winter and perhaps even next. Meanwhile,
Speaker 1: there's a feverish effort there to build LERG terminals and
Speaker 1: ensure that there's a regasification capability. This all takes time,
Speaker 1: but Europe is united around their concern. Thank you so much.
Speaker 1: SHO mean most of our ROCKMANI have Goldman Sax and
Speaker 1: also Sarah Header of Causeway Capital coming up. Control of
Speaker 1: the U s. Congress maybe up for grabs at the
Speaker 1: mid term elections on Tuesday, but what is its stake
Speaker 1: for investors? We as Steve Rattner a Willow Advisers. That's
Speaker 1: next on Wall Street Week. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Tuesday's the day
Speaker 1: for Americans to decide who will be in charge up
Speaker 1: on Capitol Hill for the next two years. With expectations
Speaker 1: for the Republicans to retake control of the House. Republicans
Speaker 1: have a lot of optimism going into the election, and
Speaker 1: the Senate pretty much a toss up. No one knows
Speaker 1: exactly what's going to happen with the Senate with race
Speaker 1: is just too close to call. But as much time
Speaker 1: and attention as we're paying to the mid terms, what
Speaker 1: real difference will the outcomes make for global? Wall Street
Speaker 1: Republicans like Kevin Brady claim they will make sure less
Speaker 1: money goes to the government, which will benefit business. You'll
Speaker 1: see a push for less government spending, less taxes, and
Speaker 1: less regulation to drive up inflation. You'll see a push
Speaker 1: for more American made energy, while Democrats claim that it's
Speaker 1: all about fairness. They're gonna shut down the government by
Speaker 1: not providing the votes to pay our federal debt. This
Speaker 1: is irresponsible, but some who follow it closely, like Libby
Speaker 1: can Trail of PIMCO, question how much will really change
Speaker 1: one way or the other. Practical differences between Republicans taking
Speaker 1: back just the House and taking back both the House
Speaker 1: and the Senate are really diminimous. And to give us
Speaker 1: some answers to what difference the midterm elections might make
Speaker 1: for real investors, we now welcome somebody who is putting
Speaker 1: real money to work. He's Steve Ratner. He is chairman
Speaker 1: and CEO of Will Advisors. They invest the personal and
Speaker 1: philanthropic assets help Michael or Bloomberg of course, the man
Speaker 1: who founded our company and still owns most of the shares.
Speaker 1: So welcomes. Great to have you back in Moll Street week.
Speaker 1: So you've had experience in Washington as well as in
Speaker 1: New York on Wall Street. We spend a lot of time,
Speaker 1: people get paid a lot of money trying to analyze
Speaker 1: these elections about what they will mean for investors. What's
Speaker 1: your experience. I think the elections are ugely consequential for
Speaker 1: investors because there's a lot of stay there. Take for example,
Speaker 1: tax policy. If you want lower taxes for wealthy people
Speaker 1: in business, then obviously there's one team that you want
Speaker 1: to vote for. If you want lower taxes for working
Speaker 1: people and people below, then it's another team you want
Speaker 1: to it for. There's all kinds of policy decisions. We've
Speaker 1: seen an enormous amount of legislative activity these last two years,
Speaker 1: particularly this year, and that's the kind of thing that
Speaker 1: happens after an election. So as you say, we've had
Speaker 1: a lot of legislation through Congress, is the last Congress,
Speaker 1: and particularly given the fact that it was really evenly
Speaker 1: divided in Congress. So looking back before we look forward,
Speaker 1: do you think overall that was good for investors? Not
Speaker 1: so good. I'm not sure it was great for investors,
Speaker 1: but a lot of it was stuff that we really
Speaker 1: needed to do for the sake of our economy, particularly
Speaker 1: the climate change. I don't think we should kid ourselves.
Speaker 1: Addressing climate change is going to be expensive for companies
Speaker 1: and therefore for investors, but we have to do it.
Speaker 1: Prescription drug costs we have to get under control. So
Speaker 1: I think from an investor's point of view, some of
Speaker 1: this may cost them some money, but I think there
Speaker 1: were things that had to be done for society as
Speaker 1: a whole. Looking forward to the midterms, we don't know
Speaker 1: what the results will be, obviously, but some people are
Speaker 1: projecting we could have a switch in the majority in
Speaker 1: either the House or the Center, even conceivably in both
Speaker 1: if you get a divided moment, which is what that
Speaker 1: would be. Essentially, is that a potentially good for investors
Speaker 1: simply because they won't do very much at all, They
Speaker 1: can't get much done and there's some stability. Yes, I
Speaker 1: think you're right. If we have divided government, it's highly unlikely,
Speaker 1: particularly in the run up to another presidential that we're
Speaker 1: going to get much done. Look depends what you think
Speaker 1: the alternative is. If you think the alternative was a
Speaker 1: Congress in a White House controlled by people who essentially
Speaker 1: wanted to make investors happy, then obviously that's not as good,
Speaker 1: and vice versa. I happen to personally believe we still
Speaker 1: have huge problems in this country that we need to address,
Speaker 1: long term structural problems like the debt and the deficit,
Speaker 1: for example, and having government frozen is not really the
Speaker 1: way it's supposed to work. You're supposed to be a
Speaker 1: legislate every year, not just every year out of one
Speaker 1: year out of five four or something like that. You
Speaker 1: oversee the investment of a lot of money, and not
Speaker 1: necessarily investing yourself, but really overseeing people who do that.
Speaker 1: In the course of doing that, do you take an
Speaker 1: account which industries, which companies might do better under republican
Speaker 1: administration rather than the democratic one. Sure, you can easily see.
Speaker 1: And as you point out, most of our money is
Speaker 1: invested through other managers who do actual stock picking and
Speaker 1: so forth. But we spend a lot of time meeting
Speaker 1: with them, as you would imagine, And yes, absolutely they
Speaker 1: think a lot about what might happen in Washington, how
Speaker 1: that would affect the investability to use a word that
Speaker 1: might not be a word of different sectors, different industries,
Speaker 1: different companies. So sure, what goes on in Washington. I
Speaker 1: don't think any investor would tell you that what goes
Speaker 1: on in Washington isn't incredibly consequential for the economy, and
Speaker 1: therefore we all pay a lot of attention to it.
Speaker 1: This week, we had the FED Reserve come out raised
Speaker 1: interest rates another seventy five basis points. Uh. If you
Speaker 1: can compare and to trust FED decisions on where we
Speaker 1: are on the ten year yield, for example, versus who's
Speaker 1: in charge of Congress, which is more consequential potentially for investors. Well,
Speaker 1: I personally think the FED is the biggest game in
Speaker 1: town in terms of affecting the economy. I'm not quite
Speaker 1: a Milton Freedman monitorist, but I believe enough in the
Speaker 1: power of monetary policy to believe that it's uh. It
Speaker 1: is the biggest thing that affects the economy, and by
Speaker 1: the way, it probably affects the stock market even more
Speaker 1: directly in a sense. What interest rates go up, it's
Speaker 1: the enemy of stock prices. They tend to go down.
Speaker 1: And you've seen that happen this year, and vice versa.
Speaker 1: During two thousand one, when the FED poured all that
Speaker 1: liquidity into the market, the market went up. The old
Speaker 1: saying don't fight the Fed. So I watched the FED
Speaker 1: very closely, and I think it is It is far
Speaker 1: more of an influence on the economy than Congress. Steve,
Speaker 1: so great to have you back on Wall STI thank
Speaker 1: you so much. Let's Steve Brantner. He is chairman and
Speaker 1: CEO of will It Advisors. Coming up, we'll wrap up
Speaker 1: the week with special contributor to Larry Summers of Harvard.
Speaker 1: That's next on Wall Street Week on Bloomberg. Okay, this
Speaker 1: is Wall Street Week. I'm David Western. Were joined once
Speaker 1: again by our very special contributor on Wall Street Week,
Speaker 1: he Larry Summers of Harvard. So Larry, welcome back. We
Speaker 1: had a lot of economic news this week. We had
Speaker 1: jobs numbers and we had FED results. Of course, let's
Speaker 1: start with the jobs numbers, because they came in I
Speaker 1: think at least readily strong. How did you interpret them?
Speaker 1: I saw it the same way. Look, the population only
Speaker 1: grows by about fifty adults a month, so anytime you
Speaker 1: have two hifty uh jobs, you're growing at a rate
Speaker 1: that you're not going to be ultimately able to uh sustain.
Speaker 1: It shows that still the economy is uh looking quite strong,
Speaker 1: no recession. UH. Soon you saw wages UH tick up.
Speaker 1: So the good news is economy looking robust. UH. The
Speaker 1: bad news is not much evidence of inflation restraint yet
Speaker 1: in train. Of course, when j Pal the Chairman of
Speaker 1: the Federal Reserve spoke earlier on Wednesday, he didn't know
Speaker 1: of those jobs nuber of me. I don't believe. At
Speaker 1: the same time what he said anticipated just what you
Speaker 1: just said is that inflation continues, they're gonna have to
Speaker 1: keep hiking. I assume you thought what they did made sense. Yeah.
Speaker 1: I think there was a little bit of bouncing around
Speaker 1: immediately after the statement, But after Chairman Powell's press UH conference,
Speaker 1: I thought the necessary and right signal um has been
Speaker 1: sent that the Fed is determined to stay the course
Speaker 1: with respect to inflation, that a sensible judgment of where
Speaker 1: the terminal rate, how high FED funds will ultimately have
Speaker 1: to go, has gone up given the strong inflation numbers,
Speaker 1: the strong UH employment numbers UH that we've seen, and
Speaker 1: that the FED is determined. So I thought those were
Speaker 1: very much the right kind of signals for the FED
Speaker 1: to send. I think it's appropriate. I think we are
Speaker 1: starting to get some little suggestion in the data we
Speaker 1: don't know yet, and we always have to remember about lags,
Speaker 1: that the effective interest rates on slowing the economy might
Speaker 1: in total be somewhat less than many people supposed. And
Speaker 1: if that's right, I think it's going to be pressure
Speaker 1: for interest rates to be pushed up further in order
Speaker 1: to get done the necessary inflation UH restriction. So I'm
Speaker 1: moving upwards my view on the possibilities for UH the
Speaker 1: terminal rate. It's not what I would expect, but it
Speaker 1: would not surprise me if the terminal rate UH reached
Speaker 1: UH six or more. And I think the FED has
Speaker 1: to be noticing that there's been started to be some
Speaker 1: upwards moves in inflation expectations, albeit from low levels, and
Speaker 1: that's got to be a source of concern of for
Speaker 1: them as well. Learning we're also beginning to get some suggestions,
Speaker 1: including even by some economists like Marks Andy, that in
Speaker 1: fact the real cause of the inflation is more a
Speaker 1: matter of supply rather than demand, and because of that,
Speaker 1: it's not going to be really effective to just try
Speaker 1: to coach HEIL demand to increase rates, and therefore by
Speaker 1: the beginning of next year, maybe they should start cutting back.
Speaker 1: What do you make of that suggestion. I have to
Speaker 1: respectfully say that I can't really see a lot of
Speaker 1: logic in UH the views that Zany and those like
Speaker 1: him are expressing. Look, the basic fact is that the
Speaker 1: way you tell a supply shock from a demand shock,
Speaker 1: both of them raise prices, but when there's a supply shock,
Speaker 1: quantity falls. When there's a demand shock, output is strong,
Speaker 1: and output has been very strong. Employment has been very strong.
Speaker 1: The people who talk about supply shocks, it's really just
Speaker 1: the last readoubt of team transitory. First it was a
Speaker 1: story about UH COVID UH ending quickly. Then it was
Speaker 1: a story about COVID ending UH slow, ending slowly. It
Speaker 1: keeps bouncing around what the story is. We've still got
Speaker 1: high core inflation and gasolene prices were mostly down for
Speaker 1: a period of UH more than more than three months,
Speaker 1: So I don't hear the story. Very simple ways of
Speaker 1: looking at the data look at what's happening to uh
Speaker 1: nominal GDP total dollar volume of g g P. If
Speaker 1: that's going up rapidly, that tells you that demand is
Speaker 1: going up strongly. Learn another issue that it's rearing its head.
Speaker 1: You've seen this issue before, and that's the death ceiling
Speaker 1: up in Congress, because we're gonna be pushing up against
Speaker 1: it sometime in the new year, maybe not even too
Speaker 1: far in the new year. We're now seeing some talking
Speaker 1: on Capitol Hill that perhaps particularly Republicans, if they come
Speaker 1: into power, will actually hold that hostage to get some
Speaker 1: other changes they want, particularly in things like entitlements. What's
Speaker 1: your experience with the death celling? What should we be doing?
Speaker 1: There are a lot of bad ideas in American politics,
Speaker 1: but I think it's close to the worst idea in
Speaker 1: American politics that we should hold hostage the credit worthiness
Speaker 1: of the country threatening to default for the first time
Speaker 1: in two hundred and fifty years, and the ransom that
Speaker 1: people want is taking social Security benefits away from retiree
Speaker 1: not a single one of whom gets more than from
Speaker 1: Social Security. It is almost impossible to see a worse idea,
Speaker 1: either in terms of the hostage taking or the desired,
Speaker 1: uh ransom. The right thing to do is for us
Speaker 1: to raise that debt ceiling for a long time so
Speaker 1: it won't be a political football. And I hope that
Speaker 1: as many responsible Americans as possible can say, look, yes, yes,
Speaker 1: I am four entitlement reform. I am four looking at
Speaker 1: the long run deficit picture. But hostage taking to cut
Speaker 1: social Security is wrong. And I hope some of the
Speaker 1: business leaders who watched this show, whose packs are giving
Speaker 1: money to support the people who are advocating that, will
Speaker 1: convey that as responsible financial leaders, they know that their
Speaker 1: companies at all fellow citizens have a have a stake
Speaker 1: in the United States, uh, not playing games of chicken
Speaker 1: with our country's credit worthiness. Thank you so much. That's
Speaker 1: Larry Summers are very special contributor here in Wall Street Week.
Speaker 1: He is, of course from Harvard University. Finally, one more thought,
Speaker 1: second acts. There what most of us hoped for, but
Speaker 1: f Scott Fitzgerald once thought Americans may not get. History
Speaker 1: is full of people who were counted out and came back,
Speaker 1: sometimes even stronger than ever, like Richard Nixon losing to
Speaker 1: jfk X and coming back to take the presidency, go
Speaker 1: to China and win re election by the second largest
Speaker 1: margin ever, though it did end rather badly with that
Speaker 1: whole Watergate thing. I shall leave you this office with
Speaker 1: regret at not completing my turn, but with gratitude for
Speaker 1: the privilege of serving a sure president. And Steve Jobs
Speaker 1: driven from the company he founded, only to return when
Speaker 1: Apple was at death's door, because Apple needs to find
Speaker 1: where it is still incredibly relevant and focus on those
Speaker 1: areas Apple has neglected its core assets for a while
Speaker 1: and take it to greater things than anyone could have imagined,
Speaker 1: revolutionizing the way we communicate and live our lives. These
Speaker 1: are not three separate devices. This is one device. Family
Speaker 1: are following it iPhone or Michael Jordan's who retired after
Speaker 1: winning three NBA championships, went to play baseball sort of,
Speaker 1: and then returned to the Bulls to three p yet again,
Speaker 1: there is a reason you call somebody the Michael Jordan's
Speaker 1: of He is the definition of somebody so good at
Speaker 1: what they do. But those, those are the second acts
Speaker 1: that worked. There are others that didn't go so well,
Speaker 1: like Teddy Roosevelt, who wanted his second acts so badly
Speaker 1: that he turned on his own Republican Party when it
Speaker 1: refused to nominate him, created the ill fated Bull Moose
Speaker 1: Party and succeeded only in putting Democrat Woodrow Wilson in
Speaker 1: the White House or Tiger Woods, arguably the greatest golfer
Speaker 1: of all time, who crashed and burned figuratively and then
Speaker 1: literally and valiantly tried to come back and play through
Speaker 1: the pain, which we all watched with sympathy and yes,
Speaker 1: a bit of regret. My body certainly can get better, um,
Speaker 1: but realistically not a whole lot that forty six. You
Speaker 1: don't quitte heil as well as you do twenty six.
Speaker 1: This week we got our fair share of new second
Speaker 1: acts to watch, with Louis and Nacio Lula da Silva
Speaker 1: becoming the once and future president of Brazil, narrowly beating
Speaker 1: out the current president, JayR. Bosonaro. Prasilian President Jaya Bosonara
Speaker 1: has broken his silence on his election and lost, promising
Speaker 1: to respect the constitution, but still stopping short of formally
Speaker 1: conceding and talk about a comeback. Less than three years ago,
Speaker 1: Lula was in a Brazilian prison on money laundering charges,
Speaker 1: released only when a higher court ruled that the original
Speaker 1: sensing court didn't have jurisdiction to convict him in the
Speaker 1: first place. And then there's the biggest comeback kid of
Speaker 1: them all, bb Net and Yahoo over in Israel, poised
Speaker 1: to come back for a fifth time as Prime Minister,
Speaker 1: ducking and weaving and moving ever further towards the religious right,
Speaker 1: but doing whatever it takes to survive former Israeli Prime
Speaker 1: Minister of Venue Maneta, who looks poised to return to
Speaker 1: power after the fifth selection since two thousand nine. Time
Speaker 1: will tell whether the second acts of Messrs Lula Da
Speaker 1: Silva and Netanya, who looked more like Tiger Woods or
Speaker 1: like Steve Jobs. A lot of times people think they're crazy,
Speaker 1: but in that craziness we see genius that does it.
Speaker 1: For this episode of Wall Street Week, I'm David Weston.
Speaker 1: This is Bloomberg. See you next week. M