WEBVTT - Bloomberg Wall Street Week - March 3, 2023 0:00:00.520 --> 0:00:03.960 This is Bloomberg Wall Street. We turn our attention to 0:00:04.000 --> 0:00:08.360 the markets this week. USCPI never's reinforcing concerns about inflation, 0:00:08.480 --> 0:00:11.600 the financial stories that cheap our world, a really different 0:00:11.600 --> 0:00:14.680 reaction to markets. More indications of just how hot the 0:00:14.800 --> 0:00:17.280 US economy really is. Through the eyes of the most 0:00:17.360 --> 0:00:21.400 influential voices Larry Summers, the former Treachery Secretary, Katherine Keene, 0:00:21.600 --> 0:00:24.680 CEO of the ny Mellen Sam's l Sherman Pan, founder 0:00:24.680 --> 0:00:28.080 of Equity Group Investment in Bloomberg Wall Street Week with 0:00:28.160 --> 0:00:33.159 David Weston from Bloomberg Radio. New beginnings for Britain's relations 0:00:33.159 --> 0:00:36.800 with Europe, for America's semiconductor industry, and maybe for the 0:00:36.880 --> 0:00:40.080 Chinese economy. This is Bloomberg Wall Street Week. I'm David 0:00:40.120 --> 0:00:44.199 Weston this week special contributor to Larry Summers on signs 0:00:44.200 --> 0:00:48.479 of a Chinese resurgence. When a populations deciding to have 0:00:48.880 --> 0:00:53.640 half as many children have that revolution in six years, 0:00:54.120 --> 0:00:57.360 it says there's some very fundamental concerns about the future 0:00:57.400 --> 0:01:00.760 in that society. Renee James of am Here on the 0:01:00.840 --> 0:01:05.399 bold new US industrial policy for semiconductors. It's brought the 0:01:05.480 --> 0:01:08.840 importance of semi conductors in the semiconductor industry into the 0:01:08.959 --> 0:01:12.480 public discourse and Professor Melissa Carney of the University of 0:01:12.520 --> 0:01:16.400 Maryland on investing in the future workers of America. We 0:01:16.520 --> 0:01:19.840 have the tools and the resources to reduce child poverty 0:01:19.840 --> 0:01:24.360 in this country, which would remove major impediments to children's 0:01:24.440 --> 0:01:27.640 learning cognitive development. That is a way to invest in 0:01:27.680 --> 0:01:43.320 our future. Everywhere you look. This week, Global Wall Street 0:01:43.400 --> 0:01:45.720 seemed to be turning over a new leaf, with the 0:01:45.840 --> 0:01:49.120 UK and the EU patching things up over Northern Ireland 0:01:49.360 --> 0:01:52.520 announced in the shadow of Windsor Castle prod. Prime Minister 0:01:52.720 --> 0:01:56.880 Rishi Sunac un confident the Windsor Framework that we announced 0:01:57.240 --> 0:01:59.920 resolves the issues that people have with a protocol. It 0:02:00.000 --> 0:02:02.920 restores balance to the Belfast Good Friday Agreement and that's 0:02:02.920 --> 0:02:07.880 what was needed. And President Ursula underlying this new framework 0:02:07.920 --> 0:02:11.000 will allow us to begin a new chapter. It provides 0:02:11.080 --> 0:02:14.760 for long lasting solutions that both of us are confident 0:02:15.480 --> 0:02:18.840 will work for all people and businesses in Northern Ireland, 0:02:19.320 --> 0:02:23.280 Solutions that respond directly to the concerns they had raced. 0:02:23.840 --> 0:02:27.079 While the United States moved forward with the first stage 0:02:27.120 --> 0:02:30.160 of its Chips and Science Act, investing billions of dollars 0:02:30.160 --> 0:02:34.880 to bring semiconductor manufacturing back to America's shores. Everybody knows 0:02:34.880 --> 0:02:36.720 that this little chip that we have as part of 0:02:36.760 --> 0:02:38.520 everything that we do in our life, and most of 0:02:38.520 --> 0:02:42.040 them are manufactured overseas. So the idea here is to 0:02:42.160 --> 0:02:46.120 bring those manufacturing capabilities back home. Not to be outdone, 0:02:46.400 --> 0:02:48.880 China got into the act with pm I numbers way 0:02:48.919 --> 0:02:53.760 above expectations, indicating its economy maybe roaring back faster than 0:02:53.960 --> 0:02:58.160 was thought. There was a rebound expected when the Chinese 0:02:58.240 --> 0:03:01.200 came out of their lunar New Year, but this has 0:03:01.240 --> 0:03:04.320 been much stronger than people thought, and paving the way 0:03:04.360 --> 0:03:07.760 for President She's coronation at the National People's Congress at 0:03:07.760 --> 0:03:12.239 the beginning this weekend. This is really the last act 0:03:12.280 --> 0:03:18.080 of the transition poor She shanping into his third term, 0:03:18.120 --> 0:03:22.480 but from the time he was given the third term 0:03:22.639 --> 0:03:26.040 at the Party Congress. So now the costs of She 0:03:26.240 --> 0:03:32.600 Shinping's policies have been piling up and markets pretty much 0:03:32.639 --> 0:03:34.639 picked up on the upbeat. Mood of the week is 0:03:34.639 --> 0:03:36.640 the SMP five hundred made up put at a loss 0:03:36.760 --> 0:03:39.760 last week, adding one point nine percent, while the Nasdaq 0:03:39.880 --> 0:03:42.920 was up almost two point six percent. Bon yields surged 0:03:42.960 --> 0:03:45.680 on Thursday, with the ten year well above four, but 0:03:45.760 --> 0:03:48.200 then settled back down under three point nine six for 0:03:48.240 --> 0:03:50.520 a gain of just over four basis points for the 0:03:50.560 --> 0:03:53.520 week overall. Here for their interpretation of what the markets 0:03:53.520 --> 0:03:56.119 were trying to tell us this week are Amy wu Silverman, 0:03:56.200 --> 0:03:59.240 she is head of Derivative Strategy at RBC Capital Markets, 0:03:59.360 --> 0:04:03.760 and David Beyond Cio America's for DWS Group. So welcome 0:04:03.760 --> 0:04:05.080 both of you. Great to have you here day. We 0:04:05.120 --> 0:04:06.800 got to start with you. What did you hear out 0:04:06.800 --> 0:04:11.120 of the markets this week? Confusion? It was an up week, 0:04:11.160 --> 0:04:13.160 and I'm glad that the machines have been shut off, 0:04:13.200 --> 0:04:16.040 but it was a very volatile week. The market was lower, 0:04:16.080 --> 0:04:19.039 the market was up. I think the main issue for 0:04:19.160 --> 0:04:22.359 the week was the culmination of the realization that we 0:04:22.400 --> 0:04:24.760 don't know what's going to happen with inflation over the 0:04:24.800 --> 0:04:27.960 course of this year, so inflations back. What's the Fed 0:04:28.040 --> 0:04:31.800 going to do about it is a big question? Amy, Yeah, 0:04:31.880 --> 0:04:35.159 you know, look, I would say the derivative market echoed 0:04:35.200 --> 0:04:38.360 that to some degree. Even though we ended the week up, 0:04:38.440 --> 0:04:41.320 what we saw was actually a lot of hedging during 0:04:41.320 --> 0:04:44.080 this whole week, So you know, as the market kind 0:04:44.080 --> 0:04:47.400 of wrestles with concerns about inflation, what you're actually seeing 0:04:47.440 --> 0:04:51.440 as investors going out buying downside protection kind of four 0:04:51.480 --> 0:04:54.680 to six months out, wrestling with where this terminal weight 0:04:54.760 --> 0:04:56.600 is going to be, and the sentiment is still leaning 0:04:56.600 --> 0:04:58.800 pretty Barishley, So what does that tell you when people 0:04:58.839 --> 0:05:00.880 are really buying those hedges four to six months out? 0:05:00.880 --> 0:05:02.760 As you say, what are they anticipating four to six 0:05:02.800 --> 0:05:06.240 months from now? So you know, the derivatives market, it 0:05:06.279 --> 0:05:08.720 has to be very specific, so meaning if you don't 0:05:08.760 --> 0:05:10.800 get the timing right, it doesn't really matter if you 0:05:10.800 --> 0:05:13.440 get the direction right. And so you know, they're essentially 0:05:13.480 --> 0:05:16.120 saying four to six months from now there is going 0:05:16.160 --> 0:05:18.520 to be some sort of reckoning. We're either going to 0:05:18.560 --> 0:05:20.760 be on the right glide path to a soft landing 0:05:21.279 --> 0:05:24.479 or unfortunately, we may be wrestling with a terminal rate 0:05:24.520 --> 0:05:28.000 that is actually much higher than initially expected and that 0:05:28.000 --> 0:05:30.240 could cause downside to the market. Dude, I'm curious about 0:05:30.240 --> 0:05:32.440 this glide path to a soft landing. Are he talks 0:05:32.480 --> 0:05:35.080 about that? Are we on the right guide path or 0:05:35.160 --> 0:05:37.359 do we even know at this point? Because we thought 0:05:37.360 --> 0:05:39.880 that we thought inflation is coming down. We've had some 0:05:39.960 --> 0:05:41.840 data in recent weeks in the game maybe not so 0:05:41.880 --> 0:05:44.320 fast you maybe the airport's moving around. It's one of 0:05:44.360 --> 0:05:46.800 those pop up airports in it. Well, the lights for 0:05:46.960 --> 0:05:50.200 landing are still on. There's still a chance. But so 0:05:50.279 --> 0:05:54.480 much data has come in suggesting that inflation sticky, particularly 0:05:54.520 --> 0:05:58.960 at services. Service demand is strong. Thus jobs are still 0:05:59.000 --> 0:06:02.040 strong and really tight labor market. And I think you've 0:06:02.080 --> 0:06:04.320 got a labor market that's not too pleased with the 0:06:04.400 --> 0:06:07.680 pay they're getting. You still have prices rising faster than 0:06:07.760 --> 0:06:13.200 wages and wages rising faster than productivity. So the path 0:06:13.240 --> 0:06:16.800 to a soft landing is getting trickier. But I think 0:06:16.839 --> 0:06:19.159 there's still time and maybe just a little bit of 0:06:19.279 --> 0:06:22.200 time left for the FED to act aggressively and bring 0:06:22.240 --> 0:06:24.800 down inflation. For talk about the FED acting exactly, we're 0:06:24.800 --> 0:06:26.800 going to hear from Jpal next week two days a 0:06:26.800 --> 0:06:29.920 testament on Capitol Hill at a time when he was saying, 0:06:29.960 --> 0:06:32.040 don't worry so much about inflation. He said, if it comes, 0:06:32.080 --> 0:06:33.880 we will have the tools to deal with it. Does 0:06:33.920 --> 0:06:35.600 it look like he does have the tools right now 0:06:35.680 --> 0:06:38.440 or if are those tools working? They have the tools, 0:06:38.800 --> 0:06:42.159 And he said if inflation comes and they've reiterated that 0:06:42.200 --> 0:06:45.000 they are data dependent, that they're not on a predestined 0:06:45.040 --> 0:06:48.000 course in terms of the terminal rate destination, how high 0:06:48.040 --> 0:06:52.400 will they go? And there's no certainty or pre planned 0:06:53.040 --> 0:06:56.240 amount of rate increases from here, So be data dependent 0:06:56.680 --> 0:07:00.719 and consider strongly consider a larger hike the March meeting. 0:07:00.920 --> 0:07:02.400 So what are you seeing in the derivative market when 0:07:02.440 --> 0:07:04.000 it comes to things like the rates, Because there are 0:07:04.000 --> 0:07:05.839 people talking about five and a half more or less 0:07:05.880 --> 0:07:07.680 terminal rate, but now people are starting to say, may 0:07:07.680 --> 0:07:09.920 it'll be six, Maybe we'll have to keep going. Given 0:07:09.960 --> 0:07:12.520 the data we've had from the economics lately, what are 0:07:12.560 --> 0:07:16.239 you seeing in derivatives? So one thing about derivatives markets 0:07:16.360 --> 0:07:18.680 is they really think about what the tail is. So 0:07:18.760 --> 0:07:21.000 right now I would say that twenty five basis points 0:07:21.000 --> 0:07:23.960 of the next meeting is still kind of consensus, but 0:07:24.080 --> 0:07:28.280 that tail of fifty basis points has actually risen, and 0:07:28.320 --> 0:07:31.400 we're seeing investors play that either through rates options, through 0:07:31.440 --> 0:07:34.560 sofa options, or through equity options. And you really see that, 0:07:34.680 --> 0:07:37.560 David in the market structure as well, because we've really 0:07:37.600 --> 0:07:40.960 taken the tenor of the average option down from something 0:07:41.000 --> 0:07:43.320 like a month to a week or a day because 0:07:43.360 --> 0:07:46.360 people are playing these data points so specifically because they 0:07:46.400 --> 0:07:48.760 matter so much. Well, I want to talk about this 0:07:48.840 --> 0:07:50.600 a week or a day? What did it do to 0:07:50.640 --> 0:07:53.160 have an option it's for one day or less than 0:07:53.200 --> 0:07:55.440 a day. It seems to be a big upswing in that. 0:07:55.680 --> 0:07:58.840 I guess I started with memestocks. Actually it did, and 0:07:59.000 --> 0:08:01.360 it's you know, for some one like myself who's been 0:08:01.360 --> 0:08:04.720 watching the rotis market for twenty years, it's just unbelievably 0:08:04.760 --> 0:08:09.440 shocking because right now almost half of all volume in 0:08:09.480 --> 0:08:12.760 the entire SMP five hundred isn't concentrated in options that 0:08:12.800 --> 0:08:15.680 are less than a data expiration. That really tells you 0:08:15.720 --> 0:08:18.400 one how much the market structure has changed, especially on 0:08:18.480 --> 0:08:21.000 days like today where it doesn't seem to fit the 0:08:21.040 --> 0:08:25.560 market narrative. But secondly, you know, it exacerbates this intra 0:08:25.640 --> 0:08:28.160 day volatility that you haven't seen in a way since 0:08:28.200 --> 0:08:30.960 prior to the pandemic. It's really changed the market structure 0:08:31.000 --> 0:08:32.319 of the day to day. So this is why I 0:08:32.360 --> 0:08:34.640 would get about that, David. I would think normally, given 0:08:34.640 --> 0:08:36.480 all the uncertainty out there, people would be saying I 0:08:36.480 --> 0:08:38.680 don't want to take as much risk, but trading in 0:08:38.760 --> 0:08:41.160 options for less today sounds like a pretty risky venture. 0:08:42.040 --> 0:08:43.920 I guess some investors don't want to pay for the 0:08:43.960 --> 0:08:46.040 time value, and maybe they think they've got the right 0:08:46.080 --> 0:08:49.920 trade for the day. I would simply say that that's 0:08:49.920 --> 0:08:53.079 why I don't read into any one day's market activity. 0:08:53.160 --> 0:08:55.480 It's been volatile. I think that's the message in the 0:08:55.520 --> 0:08:58.640 equity market and the derivatives market. This week was especially 0:08:58.720 --> 0:09:01.200 volatile and the bond market, and that is the root 0:09:01.240 --> 0:09:03.320 of a lot of the uncertainty out there. Where are 0:09:03.840 --> 0:09:06.920 yields heading both short term interest rates and longer ten 0:09:06.960 --> 0:09:10.120 year treasury bond yields. And the ten year yield poked 0:09:10.120 --> 0:09:13.160 its head up above four percent this week, and I 0:09:13.200 --> 0:09:16.080 think that's a reminder the bond market only has so 0:09:16.160 --> 0:09:19.040 much patience, and I think it's running out for inflation 0:09:19.080 --> 0:09:20.640 to come down faster. So I put you in the 0:09:20.679 --> 0:09:22.760 spot here because I think you used the derivative person. 0:09:23.040 --> 0:09:25.000 Are your derivatives taking some of the value away from 0:09:25.000 --> 0:09:27.080 the signals we're getting at the equity markets because we 0:09:27.080 --> 0:09:30.000 can't quite tell it's all about options. You know, whenever 0:09:30.280 --> 0:09:32.679 folks need someone to blame, they usually come back to 0:09:32.720 --> 0:09:34.600 the derivatives, So so you know, I'll just take one 0:09:34.640 --> 0:09:37.640 for the team there. But you know, one thing we've 0:09:37.679 --> 0:09:40.240 spoken about with investors is people used to use the 0:09:40.360 --> 0:09:42.800 VIX as a signal. It's quite a common signal for 0:09:42.880 --> 0:09:45.959 a risk. The VIX has broken down. So the correlation 0:09:46.080 --> 0:09:48.079 between the market and the VIX used to be if 0:09:48.080 --> 0:09:50.240 the VIX went up, the market should be going down, 0:09:50.400 --> 0:09:53.080 and vice versa. They've been going in the same direction 0:09:53.160 --> 0:09:55.640 for a while. And part of it is the VIX 0:09:55.760 --> 0:09:59.880 isn't capturing what's happening in traday. It's essentially what's capturing 0:10:00.000 --> 0:10:01.920 it's happening kind of on a one month out basis, 0:10:02.160 --> 0:10:04.600 but all the action is really really short dated, and 0:10:04.679 --> 0:10:08.960 so even some of our old standard indicators, if you will, 0:10:09.040 --> 0:10:12.520 for volatility are are having to be reframed. Okay, thank 0:10:12.559 --> 0:10:15.200 you so much to David Bianco and when Amy wu Silverman, 0:10:15.240 --> 0:10:16.839 they're both going to stay with us. We're gonna show 0:10:16.840 --> 0:10:18.160 you the question of how do we make some money 0:10:18.160 --> 0:10:20.160 out of all this uncertainty? And by the way, does 0:10:20.200 --> 0:10:22.800 any of it reside in China? That's going up next 0:10:22.800 --> 0:10:37.240 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:10:37.320 --> 0:10:47.040 Street Week with David Weston from Bloomberg Radio. We are 0:10:47.080 --> 0:10:52.520 in a period where country companies are copying the capitalist system. 0:10:52.559 --> 0:10:57.600 They're privatizing government owned businesses everywhere, They're privatizing pension systems, 0:10:57.880 --> 0:11:00.680 and it's just a fantastic time to be in the 0:11:00.720 --> 0:11:04.559 financial business and you have the opportunity to participate in 0:11:04.679 --> 0:11:09.320 this global growth. That was then City Group CEO Sandy 0:11:09.360 --> 0:11:12.440 Wild on Wall Street Week back in November of two thousand, 0:11:12.440 --> 0:11:14.240 when the number one movie in the country was How 0:11:14.320 --> 0:11:16.880 the Grinch Stole Christmas? The number one sawing in the 0:11:16.880 --> 0:11:19.640 country was Come On Over, Baby by the Backstree Boys, 0:11:19.840 --> 0:11:22.360 and China was well on its way to join the WTO, 0:11:22.720 --> 0:11:25.680 raising hopes its style of running economy might be coming 0:11:25.760 --> 0:11:28.480 on over toward the Western Way. Still with us our 0:11:28.520 --> 0:11:31.880 Amy Wu Silverman of RBC and David Bianco of DBAWS, 0:11:31.920 --> 0:11:33.680 so we talked about the markets. In the last segment, 0:11:33.840 --> 0:11:35.480 Amy gives us a sense of where the opportunities and 0:11:35.559 --> 0:11:37.160 let me ask you specifically, do you think there are 0:11:37.160 --> 0:11:39.040 opportunities in China? Given we're about to go into the 0:11:39.080 --> 0:11:42.640 NBC or C presidents g reupt, I do I think 0:11:42.640 --> 0:11:46.400 their opportunities and options in China specifically because there's an event, 0:11:46.960 --> 0:11:48.880 and that's what options love the most. They love to 0:11:48.960 --> 0:11:51.920 play an event because anything that could potentially increase your 0:11:52.000 --> 0:11:55.280 volatility can increase the value of your options. So for 0:11:55.320 --> 0:11:57.839 folks who have been looking at the China reopening story, 0:11:57.920 --> 0:12:00.079 that may be a way to get back in to 0:12:00.240 --> 0:12:04.640 ashr FXI em calls, which we've seen before in the 0:12:04.640 --> 0:12:06.880 beginning of the year, and maybe reloaded. Now, what about 0:12:06.920 --> 0:12:09.680 other sectors, David, haven't you mentioned banks? What about big tech? 0:12:09.720 --> 0:12:11.920 For example? They had a hard year last year. Where's 0:12:11.920 --> 0:12:15.840 it this year? It's off to traffic. Start the proper tech, 0:12:16.200 --> 0:12:19.120 the proper tech titans, the ones that are in the 0:12:19.120 --> 0:12:23.360 technology sector have held up really well. And I think 0:12:23.400 --> 0:12:26.640 part of that is the people are seeking the stability 0:12:26.679 --> 0:12:29.880 of those businesses, the strength and resilience of those businesses. 0:12:29.880 --> 0:12:32.280 And don't forget those are strong balance sheets with a 0:12:32.280 --> 0:12:35.439 lot of cash, earning more interest income than they did 0:12:35.440 --> 0:12:38.199 in the year's past. But we also try to look 0:12:38.200 --> 0:12:40.960 at the market as to where's their upside that's worth 0:12:41.000 --> 0:12:44.200 the risk. I see that in healthcare there's more risk, 0:12:44.280 --> 0:12:48.160 but good upside. And banks and tech were underweight now 0:12:48.200 --> 0:12:52.440 we've moved more significantly underweight. On it. We're sticking more 0:12:52.480 --> 0:12:56.559 things like communications where we see more of a price 0:12:56.640 --> 0:13:00.280 discount and more upside worth the risk there. What do 0:13:00.320 --> 0:13:03.200 you think about healthcare? David mentioned it. Yeah, it's interesting. 0:13:03.240 --> 0:13:06.760 We just went through an exercise essentially through our universe 0:13:06.800 --> 0:13:10.560 of covered companies within the RBC universe, and we essentially 0:13:10.600 --> 0:13:13.160 looked at their sharp ratiows. We just said, given that 0:13:13.200 --> 0:13:16.040 the risk free rate has gone so much higher, you know, 0:13:16.120 --> 0:13:19.720 where's your excess return attractive per level volatility? And healthcare 0:13:19.800 --> 0:13:22.080 is actually one of the sectors that is ranking quite well. 0:13:22.280 --> 0:13:25.040 It's interesting. Healthcare you think is a strong one. Yes, 0:13:25.200 --> 0:13:27.240 it had a tough start, as I think there are 0:13:27.320 --> 0:13:30.160 investors running to the circicles, or running to the defensives, 0:13:30.240 --> 0:13:33.440 or maybe leaving the equity asset class to go into bonds, 0:13:33.480 --> 0:13:37.720 which is an alternative, powerful alternative. At this stage, healthcare 0:13:37.760 --> 0:13:39.839 got left behind. But I think that's the sector for 0:13:39.920 --> 0:13:42.880 the decade. Where we're talking about equities, obviously we're talking 0:13:43.080 --> 0:13:46.280 in part about earnings expectations. Where are we on earnings? 0:13:46.280 --> 0:13:49.720 So we bottomed out? No, they keep drifting down almost 0:13:49.720 --> 0:13:54.480 in the painful, steady gradual drip of downward earnings estimates. 0:13:54.559 --> 0:13:57.120 For especially the first half of this year. I think 0:13:57.160 --> 0:14:00.560 at the best SMP earnings will be flat at about 0:14:00.559 --> 0:14:03.040 two hundred and twenty two dollars, which is what hernings 0:14:03.040 --> 0:14:05.920 were last year. So, Amy, as I understand sharp ratio, 0:14:05.960 --> 0:14:09.040 which is limited. It's a combination of volatility and return. 0:14:09.200 --> 0:14:11.360 But you're in really yet when you look at that, 0:14:11.440 --> 0:14:14.880 where do you see the highest volatil the highest return. Yeah, 0:14:14.920 --> 0:14:17.679 So essentially what the sharp ratio is saying to you is, 0:14:17.840 --> 0:14:20.280 you know, for the level of heartache, the level of 0:14:20.400 --> 0:14:23.080 risk that I'm taking, where are you getting your most return. So, 0:14:23.440 --> 0:14:25.880 as I mentioned, healthcare was one of the sections we 0:14:25.920 --> 0:14:28.680 looked at which looks attractive and interestingly, the other is 0:14:28.760 --> 0:14:31.840 large cap technology, and the reason is actually not related 0:14:31.880 --> 0:14:34.320 to the excess return. It's actually because the volatilities come 0:14:34.320 --> 0:14:37.040 in on a twelve month basis in those stocks. Okay, 0:14:37.040 --> 0:14:38.560 thank you so much. It's really great to have both 0:14:38.560 --> 0:14:40.600 of you with us today for this discussion. That's Amy 0:14:40.640 --> 0:14:43.040 wu Silverman of RBC Capital Markets, by the way, a 0:14:43.040 --> 0:14:45.720 derivative person as you might have noticed, and David Bianco 0:14:45.880 --> 0:14:49.640 of DWS America. And one of the things we focus 0:14:49.720 --> 0:14:52.720 on here are the long term prospects for investors, and 0:14:52.880 --> 0:14:57.200 necessarily those prospects depend upon our growth, and that is 0:14:57.240 --> 0:15:00.760 a dependent upon the size and the quality of our workforce. 0:15:01.000 --> 0:15:03.080 And when we talk about that, we necessarily have to 0:15:03.080 --> 0:15:06.480 think about our children. Melissa Carney, Professor of Economic University 0:15:06.480 --> 0:15:09.320 Marian has been focusing on just this subject and she 0:15:09.480 --> 0:15:11.880 joins us once again on Walstert Week. Welcome back, Melissa. 0:15:11.920 --> 0:15:15.080 It's great to have you here, so thanks for having me, David. So, 0:15:15.640 --> 0:15:18.240 we tend to think about children and the future workforce 0:15:18.240 --> 0:15:20.000 in terms of education and goodness, does we have a 0:15:20.000 --> 0:15:21.920 lot we can do in this country about this. But 0:15:22.120 --> 0:15:24.280 you point out that from the pandemic we saw something 0:15:24.280 --> 0:15:27.360 about not just the education but the care for our children. 0:15:28.600 --> 0:15:31.480 It's exactly right. So everybody is behind the need for 0:15:31.520 --> 0:15:35.640 a skilled workforce and boosting educational attainment, and everyone's behind 0:15:35.680 --> 0:15:38.440 improving schools. But the truth of the matter is the 0:15:38.520 --> 0:15:42.120 kid's home life really dictates their ability to thrive and 0:15:42.240 --> 0:15:45.120 learn in schools, and we don't do nearly enough in 0:15:45.120 --> 0:15:47.480 this country to make sure that the material needs of 0:15:47.520 --> 0:15:50.160 our nation's children's are being taken care of. We have 0:15:50.280 --> 0:15:53.400 millions of children show up at school every day with 0:15:53.440 --> 0:15:56.640 the burdens of poverty or economic and security. They're too 0:15:56.680 --> 0:15:59.840 tired or hungry or stress to learn to the fullest 0:15:59.840 --> 0:16:04.040 of their ability. What was amazing during the pandemic is that, 0:16:04.240 --> 0:16:08.480 somewhat surprisingly, we actually managed to reduce child poverty in 0:16:08.520 --> 0:16:11.120 this country by a half or a third. I mean, 0:16:11.120 --> 0:16:15.160 this was really a historic accomplishment. And so how did 0:16:15.160 --> 0:16:19.280 we do that? Well, Congress extended the child tax credit, 0:16:19.400 --> 0:16:22.640 made it more generous, increase the full credit amount from 0:16:22.680 --> 0:16:26.160 two thousand to three thousand dollars thirty six hundred dollars 0:16:26.160 --> 0:16:28.960 for a child under the age of six, and it 0:16:29.000 --> 0:16:33.400 made the credit fully refundable, which meant that even parents 0:16:33.560 --> 0:16:35.600 who didn't work, who had no earnings, could get the 0:16:35.640 --> 0:16:38.080 full credit amount. And the upshot of that was a 0:16:38.200 --> 0:16:41.680 historic reduction in child poverty. And I think that means 0:16:42.160 --> 0:16:45.800 looking for a bipartisan way forward to an enhanced child 0:16:45.800 --> 0:16:48.400 tax credit. So coming back to the investment question, I mean, 0:16:48.680 --> 0:16:50.760 we're not continuing that program the way it was, at 0:16:50.800 --> 0:16:54.720 least not as of right now. Objections have been cost 0:16:54.880 --> 0:17:00.120 too much money and it actually discourage his work. That's right. So, Congress, 0:17:00.200 --> 0:17:04.720 despite everybody the celebrated reduction in child poverty. Congress did 0:17:04.840 --> 0:17:07.920 not make the expansion of the child tax credit permanent, 0:17:08.320 --> 0:17:11.680 and a few there were a few key hangoups, political hangoups, 0:17:11.680 --> 0:17:14.560 reasonable hangoups. So one was the worry that if we 0:17:14.760 --> 0:17:18.160 permanently sent checks to out of work parents of three 0:17:18.200 --> 0:17:21.240 thousand or thirty six hundred dollars, that would actually induce 0:17:21.600 --> 0:17:23.760 too many parents to leave the workforce. That was a 0:17:23.800 --> 0:17:27.639 really big hangoup with congressional Republicans, as you mentioned. Another 0:17:27.680 --> 0:17:31.000 worry was that it was too expensive. It added, you know, 0:17:31.000 --> 0:17:33.119 over one hundred billion dollars to the cost of the 0:17:33.160 --> 0:17:36.639 existing child tax credit. We propose that parents who are 0:17:36.680 --> 0:17:38.959 out of work only get half of the full amount, 0:17:39.320 --> 0:17:41.600 and then the full credit amount of three thousand or 0:17:41.640 --> 0:17:44.960 thirty six hundred that could phase in steeply. And so 0:17:45.000 --> 0:17:48.959 what does this do? This rewards work, This incentivizes parents 0:17:49.000 --> 0:17:51.320 to go to work, and it still gets a lot 0:17:51.400 --> 0:17:55.520 of money material resources to these very low income families. 0:17:55.560 --> 0:17:57.240 The phase and is I understand that means if I 0:17:57.320 --> 0:17:59.840 make more money as somebody who has half of the style, 0:18:00.600 --> 0:18:05.040 I get some more of my full credit incrementally exactly 0:18:05.119 --> 0:18:07.640 as you go to work. For every hundred dollars you earn, 0:18:07.800 --> 0:18:11.640 you get thirty dollars until you hit the full credit amount, right, 0:18:11.680 --> 0:18:14.480 So we're increasing the return to an hour of work. 0:18:14.880 --> 0:18:17.480 On the issue of the child tax credit during the 0:18:17.560 --> 0:18:21.120 twenty twenty one expansion being too expensive, well, a lot 0:18:21.160 --> 0:18:25.720 of the additional income was actually not going towards fighting 0:18:25.760 --> 0:18:28.960 child poverty or bolstering the income of low income families. 0:18:29.160 --> 0:18:31.359 A lot of that was the full credit three thousand 0:18:31.440 --> 0:18:35.080 dollars thirty six hundred dollars was going very high income families. 0:18:35.400 --> 0:18:38.240 So there's a way to keep the cost down. Target 0:18:38.280 --> 0:18:41.760 the resources on children and families for whom this money 0:18:41.760 --> 0:18:45.000 will make a real difference. It would really increase their 0:18:45.040 --> 0:18:48.520 ability to pay the rent, to buy nutritious food, to 0:18:48.640 --> 0:18:52.119 pay for high quality childcare. Target the resources were we 0:18:52.280 --> 0:18:55.960 know there's a real large social return, and do it 0:18:56.000 --> 0:18:59.399 in a way that doesn't discourage parental work. Again, there's 0:18:59.400 --> 0:19:02.679 an easy path forward here. It's obvious. It's just playing 0:19:02.680 --> 0:19:05.760 with the policy parameters, and we can't afford not to 0:19:05.800 --> 0:19:08.120 do this as a country. Professor, thank you so much 0:19:08.160 --> 0:19:10.920 for being back with us. That is Professor Melissa Carney 0:19:11.080 --> 0:19:15.840 of the University of Maryland. Coming up, we wrap up 0:19:15.840 --> 0:19:18.680 the Week with special contributor Larry Summers of Harvard. That's 0:19:18.760 --> 0:19:24.520 next on Wall Street Week on Bloomberg. This is Bloomberg 0:19:24.560 --> 0:19:35.080 Wall Street Week with David Weston from Bloomberg Radio. This 0:19:35.200 --> 0:19:37.320 is Wall Street Week. I'm David Weston. We're joined once 0:19:37.359 --> 0:19:40.160 again by our very special contributor, Larry Summers of Harvard. So, Larry, 0:19:40.280 --> 0:19:41.880 we spent a lot of the week trying to figure 0:19:41.880 --> 0:19:43.879 out is the FED ahead of the behind? Where the 0:19:43.880 --> 0:19:46.480 markets and relationship? Where is the Fed compared to where 0:19:46.520 --> 0:19:48.560 it thought it was going to be, what its plan is? 0:19:48.920 --> 0:19:52.280 The Fed is behind the curve. There have been six 0:19:52.400 --> 0:19:56.760 jolts to the FED in the last six weeks. The 0:19:56.840 --> 0:20:01.280 seasonal adjustments of the CPI took the trend downwards in 0:20:01.359 --> 0:20:07.080 inflation during twenty twenty two out of the data. The 0:20:07.200 --> 0:20:11.280 inflation figures for the last several months of twenty twenty 0:20:11.280 --> 0:20:17.080 two were revised upwards, further taking any sign of declining 0:20:17.200 --> 0:20:25.440 inflation out. We got a CPI number that was very 0:20:26.400 --> 0:20:30.960 disappointing in terms of how high the level and the 0:20:31.080 --> 0:20:38.600 core was, and that was reinforced by the pc information 0:20:39.320 --> 0:20:45.639 when it came in. All the indicators for January read 0:20:45.800 --> 0:20:52.240 strong suggesting that monetary policy has not yet gotten substantial 0:20:52.359 --> 0:21:01.160 traction in slowing the fullness of the aggregate economy dawn. 0:21:02.119 --> 0:21:10.119 The wage inflation numbers, as they have been revised, no 0:21:10.280 --> 0:21:16.600 longer show the kind of reductions that we had been expecting, 0:21:17.119 --> 0:21:23.840 or many had been expecting to see. And you see 0:21:24.000 --> 0:21:31.200 interest rates move to ratchet upwards with the ten year 0:21:31.359 --> 0:21:37.640 crossing four and the two year reaching record levels. Put 0:21:37.680 --> 0:21:43.359 all that together, and I think a reasonable assessment of 0:21:43.480 --> 0:21:46.879 where the fat is would say that they have not 0:21:47.040 --> 0:21:53.520 been this far behind the curve for a year or so. 0:21:55.560 --> 0:22:03.320 Once again, the forces the arguments made by Team Transitory 0:22:03.680 --> 0:22:11.840 have unfortunately looked more like wishful thinking. And you can 0:22:11.960 --> 0:22:18.040 see that in the evolution of rhetoric from we will 0:22:18.080 --> 0:22:22.800 have a soft landing towards it's possible that we will 0:22:22.880 --> 0:22:26.560 have a soft landing. Of course, it is possible that 0:22:26.800 --> 0:22:31.840 we will have a soft landing, but maximizing that limited 0:22:31.920 --> 0:22:37.360 prospect depends upon realistically assessing the situation. Okay, once they've 0:22:37.400 --> 0:22:40.680 assessed the situation realistically, if they're behind the curve, how 0:22:40.680 --> 0:22:42.560 do they catch up? What do they do going forward? 0:22:42.560 --> 0:22:45.640