WEBVTT - Bloomberg Wall Street Week: August 5th, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.600 to the markets this week. Us CPI members reinforcing concerns 0:00:07.600 --> 0:00:10.800 about inflation. The financial stories that chief are worth a 0:00:10.840 --> 0:00:13.760 really different reaction to mark. Its more indications of just 0:00:13.960 --> 0:00:16.360 how hot the U. S economy really is. Through the 0:00:16.400 --> 0:00:19.759 eyes of the most influential voices. Larry Summers, the former 0:00:19.800 --> 0:00:22.800 Treatory Secretary, Katherine Keating, CEO of v n Y Mallin 0:00:22.960 --> 0:00:26.239 Sam's l Sharmon and founder of Equatic Group Investments. In 0:00:26.320 --> 0:00:30.280 Bloomberg Wall Street Week with David Weston from Bloomberg Radio, 0:00:30.360 --> 0:00:34.600 speaker Pelosi goes to Taiwan, Open goes small in response 0:00:34.640 --> 0:00:37.640 to President Biden's plea for more oil, and central banks 0:00:37.680 --> 0:00:40.960 big go big in the struggle to tame inflation. This 0:00:41.000 --> 0:00:44.520 is Bloomberg Wall Street Week. I'm David Weston. This week 0:00:44.600 --> 0:00:47.640 contributors Larry Summers, Oh Harvard on a higher rate and 0:00:47.760 --> 0:00:51.159 lower employment and Steve Ratner of Will and Advisors on 0:00:51.240 --> 0:00:54.400 what the Inflation Reduction Act could mean for Wall Street. 0:00:54.800 --> 0:00:56.760 So I think this is good for investors and that 0:00:56.920 --> 0:01:13.240 it brings against some stability to fiscal policy. Affer it 0:01:13.400 --> 0:01:16.440 was a week full of signaling as Speaker of the House, 0:01:16.520 --> 0:01:19.280 Nancy Pelosi went to Taiwan to send a signal to 0:01:19.400 --> 0:01:24.360 China about US commitments. Today, our delegation, bes Don very 0:01:24.440 --> 0:01:29.120 proud came to Taiwan to make unequippically clear we will 0:01:29.160 --> 0:01:32.839 not abandon our commitment to Taiwan, and we were proud 0:01:32.880 --> 0:01:36.840 of our enjoying friendships, while China sent back its own 0:01:36.880 --> 0:01:40.560 signal of displeasure with the visit. We will do what 0:01:40.640 --> 0:01:43.040 we say, and let me say that to these measures 0:01:43.040 --> 0:01:47.440 will be firm, strong and effective and open. Plus responded 0:01:47.520 --> 0:01:51.320 to President Biden's requests for more production by increasing its limits, 0:01:51.360 --> 0:01:54.760 but by a very modest one thousand barrels a day, 0:01:54.840 --> 0:01:57.760 which Almas Hochstein of the State Department said was nice 0:01:58.120 --> 0:02:00.840 but not enough. The importance of the President has is 0:02:00.840 --> 0:02:03.800 not discussing barrels with with any country. He has been 0:02:03.920 --> 0:02:06.000 very clear that he wants to see all prices come down, 0:02:06.240 --> 0:02:08.480 and he wants to see gasoline prices come down. But 0:02:08.560 --> 0:02:11.280 it wasn't just geopolitics this week. We also spent a 0:02:11.400 --> 0:02:14.120 fair amount of time getting signals from our central banks, 0:02:14.400 --> 0:02:16.720 whether it was the Bank of England on Thursday raising 0:02:16.800 --> 0:02:21.320 rates fifty basis point as they battled even higher inflation CPR. 0:02:21.360 --> 0:02:24.400 Inflation is not expected to peak at just over and 0:02:25.000 --> 0:02:27.480 key four of this year and to remain at very 0:02:27.520 --> 0:02:31.560 elevated levels, stout much of three or various FED members 0:02:31.639 --> 0:02:35.000 all week long trying to walk back Chapal's statement for 0:02:35.080 --> 0:02:37.959 the last week that we were close to the neutral rate. 0:02:38.480 --> 0:02:41.440 We are a long way away from achieving an economy 0:02:41.480 --> 0:02:43.600 that is back at two percent inflation, and that's where 0:02:43.639 --> 0:02:48.480 we need to get to. And then then came Friday, 0:02:48.480 --> 0:02:50.799 and boy did we get a signal with jobs numbers 0:02:50.800 --> 0:02:53.679 coming in twice what was expected for five DWY eight 0:02:53.680 --> 0:02:57.080 thousand people, and June was revised up as well, with 0:02:57.160 --> 0:03:00.400 wages increasing at an annual pace of five point two percent. 0:03:00.840 --> 0:03:04.400 Not surprisingly, this gave the bond market yet another abrupt turn, 0:03:04.680 --> 0:03:06.919 and the ten year yield, which had dropped to near 0:03:06.960 --> 0:03:09.360 two point five percent earlier in the week, shot up 0:03:09.360 --> 0:03:11.600 again to end the week at two point eight three. 0:03:12.400 --> 0:03:15.720 And while equities were volable, they weren't as bad as bonds, 0:03:15.960 --> 0:03:19.440 with the spending the week up just over one third 0:03:19.440 --> 0:03:23.079 of a percent, while the NASDAC moved back toward bold territory, 0:03:23.120 --> 0:03:25.600 at least for a time. Ending the week up over 0:03:25.720 --> 0:03:28.519 two percent. Here to tell what's sort through yet another 0:03:28.600 --> 0:03:30.880 challenging week for the economy and for the markets, we 0:03:30.960 --> 0:03:34.040 welcome to Mahajen. She is chief investment strategist at Edward 0:03:34.080 --> 0:03:37.440 Jones and senior Markets editor for Bloomberg John Author. So 0:03:37.520 --> 0:03:39.240 welcome both you to Walster. We're good to have you here. 0:03:39.360 --> 0:03:42.440 More start with you, and certainly those jobs numbers really 0:03:42.480 --> 0:03:45.520 got our attention on Friday. We're really dominant. What did 0:03:45.520 --> 0:03:48.680 they tell the markets? Yeah, look, David, it's hard to 0:03:49.160 --> 0:03:52.600 really say that we're in a recessionary environment with jobs 0:03:52.640 --> 0:03:56.840 going increasing over five hundred thousand, five hundred thousand this month. Now, 0:03:56.920 --> 0:03:59.640 keep in mind the U. S economy has started here 0:03:59.680 --> 0:04:02.240 from the position of strength. So while we could see 0:04:02.280 --> 0:04:06.080 weakening in the jobs figures, in economic in earnings data 0:04:06.160 --> 0:04:08.920 in the months ahead, we certainly are nowhere near what 0:04:08.960 --> 0:04:12.680 we'd call an economic downtour or recessionary environment. Now, now, 0:04:12.800 --> 0:04:15.080 what were the market implications of this move? While you 0:04:15.160 --> 0:04:16.960 touched on some of them, but one thing we saw 0:04:17.120 --> 0:04:20.280 right off the bat, the expectations of a seventy five 0:04:20.320 --> 0:04:25.000 basis point FED rate hike really skyrocketed between yesterday and today, 0:04:25.080 --> 0:04:29.240 yesterday's probability thirty. Today we have a sixty percent probability 0:04:29.279 --> 0:04:31.719 of a seventy bas point rate hike again by the 0:04:31.720 --> 0:04:34.440 Federal Reserve in September. The second thing we saw was, 0:04:34.480 --> 0:04:37.080 of course, those yields, so treasury yields both on the 0:04:37.120 --> 0:04:39.240 tenure and the two year. Now keep in mind the 0:04:39.279 --> 0:04:41.680 two year tends to be a proxy of what the 0:04:41.680 --> 0:04:43.680 Fed may do in the next couple of years or 0:04:43.720 --> 0:04:48.279 so both skyrocketed higher um, but we continue to have 0:04:48.360 --> 0:04:52.080 what we call an inverted yield curve. So historically this 0:04:52.120 --> 0:04:57.160 inverted yield curve does provide a leading indicator of recessionary environment, 0:04:57.240 --> 0:04:59.839 but there is some lag to at six to eighteen months. 0:05:00.200 --> 0:05:03.920 So net net, we saw a market that absorbed this 0:05:04.080 --> 0:05:08.560 higher jobs figure, absorbed a potentially more aggressive FED. But 0:05:08.720 --> 0:05:11.280 what we did see under the surface was that some 0:05:11.360 --> 0:05:15.240 of those growth parts of the market, longer duration, tech, speculative, 0:05:15.279 --> 0:05:18.599 higher valuation parts the market did underperform again today, and 0:05:18.680 --> 0:05:21.560 that might be a thing we see going forward as well. So, John, others, 0:05:21.640 --> 0:05:23.839 you follow central banks all around the world all the time, 0:05:23.880 --> 0:05:27.039 including the Federal Reserve. Did the Friday numbers make the 0:05:27.080 --> 0:05:30.279 Feds already difficult job harder or didn't make it easier. 0:05:30.839 --> 0:05:35.479 I think it made it easier. They are people. I 0:05:35.560 --> 0:05:39.680 don't think myself that Pwell tried to be that dubbish 0:05:39.920 --> 0:05:42.920 last week. I think he meant to give the impression 0:05:42.920 --> 0:05:46.599 that he was still very much committed to a more 0:05:46.640 --> 0:05:51.719 hawkish series of rateykes. He was open to the the 0:05:52.240 --> 0:05:55.279 claim that he was just not credible for a while. 0:05:55.320 --> 0:05:57.479 The number of people who are convinced that the Fed 0:05:57.520 --> 0:06:01.560 will have to turn turn around swiftly because the economy 0:06:01.640 --> 0:06:05.440 will be two week it has been strong, that's been whin. 0:06:05.640 --> 0:06:09.640 We've had this really remarkable fall back down in yields, 0:06:10.600 --> 0:06:14.719 and with numbers like that, it's very hard to criticize 0:06:14.760 --> 0:06:21.000 them for tightening rates this Obviously, the the employment picture 0:06:21.040 --> 0:06:24.360 could scarcely be stronger. Thank you so much for John 0:06:24.440 --> 0:06:26.600 Arthur's Bloomberg and Mono my hygen of Edward Jones. They're 0:06:26.600 --> 0:06:28.280 gonna be staying with us as we talk a look 0:06:28.320 --> 0:06:31.320 at what else may be driving the markets, particularly in geopolitics, 0:06:31.600 --> 0:06:33.800 and where those markets may be headed. That's coming up 0:06:33.800 --> 0:07:02.159 next on Wall Street Week on Bloomberg. This is Bloomberg 0:07:02.200 --> 0:07:11.960 Wall Street Week with David Weston from Bloomberg Radio. This week, 0:07:12.360 --> 0:07:15.640 China did some saber rattling versus the US. Where does 0:07:15.760 --> 0:07:17.920 China fit in your thought process in the future? Are 0:07:17.920 --> 0:07:21.760 there any significant investment implications with what's going on in China? Well, 0:07:21.800 --> 0:07:24.120 in my group, I think that China is the biggest 0:07:24.400 --> 0:07:28.840 potential growth vehicle for Boeing. UH. Two years ago, Boeing 0:07:29.120 --> 0:07:32.920 delivered about six of their total aircraft output went to China. 0:07:33.200 --> 0:07:35.480 It slipped down a little bit the last two years, 0:07:35.760 --> 0:07:37.680 but we anticipate, say, as we get back to the 0:07:37.680 --> 0:07:42.440 turn of the century, it could go sixteen. That was 0:07:42.480 --> 0:07:45.280 Michael Holland and Peter s Oritis on Wall Street. We've 0:07:45.320 --> 0:07:48.800 back in and once again this week China was in 0:07:48.920 --> 0:07:51.920 the news with Speaker Pelosi's controversial trip to Taiwan and 0:07:52.000 --> 0:07:55.960 China's rather strong reaction which certainly caused a geopolitical stir 0:07:56.280 --> 0:07:58.840 but didn't have any effects on the markets or potential 0:07:58.840 --> 0:08:00.880 effects on the global ecount of me. Here to help 0:08:01.000 --> 0:08:03.600 us answer those questions and more are Monoma Hygen of 0:08:03.720 --> 0:08:07.240 Edward Jones and Bloomberg's senior Markets editor John Author. So, John, 0:08:07.280 --> 0:08:09.800 you actually wrote a column earlier this week noting in 0:08:09.840 --> 0:08:13.160 the bond market reaction, apparently in part to Nancy Pelosi's visit. 0:08:13.400 --> 0:08:17.720 But do you think it has longer term ramifications. I 0:08:17.720 --> 0:08:22.280 I fear it has very much greater and longer term ramifications, 0:08:22.320 --> 0:08:26.840 and I'm a little concerned both how quickly the bond 0:08:26.880 --> 0:08:30.080 market got worried. We had a brief period of not 0:08:30.200 --> 0:08:32.360 much more than twenty four hours when there was really 0:08:32.400 --> 0:08:37.120 quite intense demand for treasuries born on the classic desire 0:08:37.160 --> 0:08:41.079 for a safe haven. Uh. And more or less as 0:08:41.080 --> 0:08:44.600 soon as Nancy Pelosi's plane and landed in Taiwan without 0:08:44.640 --> 0:08:49.440 the Chinese trying to shoot it down, I'm only slightly exaggerating, 0:08:50.160 --> 0:08:54.280 the market rebounded as though everything was everything was okay. 0:08:55.160 --> 0:08:58.559 And certainly the degree of saber rattling we're seeing a 0:08:58.720 --> 0:09:06.319 present from China is quite concerning. It's conceivable that this 0:09:06.520 --> 0:09:12.120 speaker's trippers in some way called China's bluff. I'm not 0:09:12.160 --> 0:09:15.120 a military strategist, but plenty of people are pointing out 0:09:15.160 --> 0:09:19.040 that um Taiwan is an island a hundred miles away 0:09:19.080 --> 0:09:23.240 from China. It will make um. Russia couldn't make a 0:09:23.240 --> 0:09:27.440 good job of invading Ukraine. China actively invading Taiwan is 0:09:27.440 --> 0:09:32.240 going to be orders of magnitude hardaer um. So whether 0:09:32.600 --> 0:09:36.040 arguably the risk of a total breakdown and return to 0:09:36.120 --> 0:09:43.320 conflict is is still quite slim um, but that there's 0:09:43.320 --> 0:09:47.520 no question. If this leads to a serious worsening in 0:09:47.960 --> 0:09:51.720 the US Chinese relations from where they are now, or 0:09:51.960 --> 0:09:58.160 which we must all hope not outright conflict, that's very serious. 0:09:58.200 --> 0:10:01.360 That's any an when you look at it, that's going 0:10:01.360 --> 0:10:04.400 to be bad. What about your perspective, And not just 0:10:04.480 --> 0:10:06.920 limited to China, We have an awful lot of geopolitics 0:10:06.960 --> 0:10:10.360 going on, as John just referred to briefly in various respects. 0:10:10.520 --> 0:10:13.240 Do you think geopolitics is affecting the markets right now 0:10:13.320 --> 0:10:15.479 or do they have enough to worry about, whether it's inflation, 0:10:15.600 --> 0:10:18.960 or whether it's supply chains, or whether it's the Fed. Yeah, 0:10:19.000 --> 0:10:21.240 you know, David, this year we we actually got an 0:10:21.240 --> 0:10:25.240 outsized amount of geopolitics impacting markets directly, of course, starting 0:10:25.240 --> 0:10:28.679 with that Russia Ukraine conflict, which not only kind of 0:10:28.720 --> 0:10:32.360 exacerbated the inflationary problems, but I've really put upward pressure 0:10:32.360 --> 0:10:36.360 on oil, energy, grain prices across the globe. And then 0:10:36.400 --> 0:10:39.120 of course we did shift some focus to China, but 0:10:39.400 --> 0:10:41.959 because of the lockdowns and the on and off lockdowns 0:10:42.040 --> 0:10:46.560 created tensions and supply chain created some demand, reopening and 0:10:46.600 --> 0:10:50.080 then shutting down once again. And then of course, with 0:10:50.400 --> 0:10:53.400 Nancy Pelosi's trip this week, we started to think about 0:10:53.440 --> 0:10:57.000 maybe another tail risk emerging in geopolitics, which is uh, 0:10:57.200 --> 0:11:01.120 the China Taiwan situation, which could potentially, at least in 0:11:01.120 --> 0:11:04.440 an investor's mind, could be a Russia Ukraine two point oh, 0:11:04.480 --> 0:11:07.000 and keep in mind the implications would be quite a 0:11:07.040 --> 0:11:11.480 bit more severe. Supply chains and inflationary pressures again could 0:11:11.520 --> 0:11:15.160 be exacerbated to more even more extreme level. So for now, 0:11:15.200 --> 0:11:17.200 in our view, we think it's a tail risk, but 0:11:17.240 --> 0:11:20.040 certainly one that's worth monitoring, and certainly one that we're watching. 0:11:20.080 --> 0:11:23.000 Could intensify in headlines if we see you know, another 0:11:23.080 --> 0:11:28.160 similar type of trip negotiation discussion UM, but hopefully for now, 0:11:28.200 --> 0:11:31.280 a tail risk that has a lower probability than UM 0:11:31.360 --> 0:11:33.280 certainly what we saw in Russia and Ukraine. So, to 0:11:33.320 --> 0:11:35.960 translated into investment advice, if you would here, does that 0:11:36.040 --> 0:11:38.319 mean if I'm an investor, for my portfolio, I should 0:11:38.320 --> 0:11:42.240 look at more defensive investments, whether it's equities or dead Yeah, 0:11:42.240 --> 0:11:44.320 you know, I think in the near term. So look, 0:11:44.360 --> 0:11:47.400 we've had a great run rebound off the lows of 0:11:47.480 --> 0:11:51.040 mid June across equity markets and even in fixed income 0:11:51.160 --> 0:11:56.640 so inequities, we've seen the SMP rally nearly underneath the surface, 0:11:56.720 --> 0:11:59.120 the growth parts of the market, technology, et cetera, up 0:11:59.160 --> 0:12:03.400 nearly twenty per set um. Similarly, fixed income rebounded offloads 0:12:03.440 --> 0:12:06.160 as well. Now going forward, if we start to see 0:12:06.320 --> 0:12:08.640 yields move higher, you know, we've had a really nice 0:12:08.679 --> 0:12:10.960 move downward and yields, but keep in mind we still 0:12:10.960 --> 0:12:13.920 have the FED in play. We still have quantitative tightening 0:12:13.920 --> 0:12:16.800 and play which could put upward pressure and yields. If 0:12:16.800 --> 0:12:20.959 that occurs, we could probably once again see growth start 0:12:21.000 --> 0:12:24.199 to underperform or lag again. So in our view, as 0:12:24.240 --> 0:12:26.920 we get through the next few months, as those earnings 0:12:26.960 --> 0:12:30.520 and economic data perhaps start to soften catch up with 0:12:30.520 --> 0:12:33.080 what we've seen in equity markets earlier this year, we 0:12:33.080 --> 0:12:37.240 would advise a more defensive tilt, value oriented defensive sectors 0:12:37.280 --> 0:12:41.080 and equities and fixed income UM. But if and when 0:12:41.160 --> 0:12:44.840 we do get inflation kind of in earnest moving lower 0:12:45.200 --> 0:12:47.960 um the FED in earnest able to pause, that's really 0:12:47.960 --> 0:12:50.880 when we see a pickup and risk assets, but perhaps 0:12:51.000 --> 0:12:54.040 a shift towards growth once again, and that's when you'd 0:12:54.040 --> 0:12:56.720 start layering in and barbelling growth. But for now, we'd 0:12:56.720 --> 0:13:00.680 say stay invested, stay perhaps somewhat defensive, and the months ahead. 0:13:00.920 --> 0:13:04.360 So so, John just overly simplistic here briefly, Does that 0:13:04.400 --> 0:13:06.360 mean I actually have more bonds than I thought I should? 0:13:06.679 --> 0:13:09.560 That is a very difficult one. I tend to be 0:13:09.679 --> 0:13:13.800 somewhat bearish on bonds. I think that there is a 0:13:13.920 --> 0:13:18.360 risk that the peak for the tenure rate isn't in yet. Uh, 0:13:18.400 --> 0:13:21.800 And that is a that is a means that you 0:13:21.880 --> 0:13:24.280 probably don't want to pile too much, too heavily into 0:13:24.520 --> 0:13:30.280 into bonds. My best guess, because all of us have 0:13:30.400 --> 0:13:32.640 to contend with the fact that that we don't really 0:13:32.720 --> 0:13:36.720 know that the lack of good precedents for what happens 0:13:36.800 --> 0:13:39.880 to the world in twenty means that there is also 0:13:39.920 --> 0:13:41.760 a lack of good precedents for what we should be 0:13:41.800 --> 0:13:46.360 expecting now. My best guess is that rates probably have 0:13:46.640 --> 0:13:50.040 to rise higher to choke off inflation. The rule of 0:13:50.080 --> 0:13:54.520 thumb is that inflation doesn't go down doesn't peak until 0:13:55.920 --> 0:13:59.360 the interest rate exceeds the inflation rate. That implies that 0:13:59.400 --> 0:14:01.480 we're going to be going I would say above for 0:14:01.840 --> 0:14:06.360 cents at least. Uh. That would mean that you would 0:14:06.360 --> 0:14:11.760 want to be getting into more defensive kinds of stocks 0:14:11.760 --> 0:14:15.240 that actually benefit from higher rates. Just Mona said, is 0:14:15.559 --> 0:14:20.240 basically value if you want it. In terms of hel risks, 0:14:20.320 --> 0:14:24.360 there's this machiavellian possibility of getting into chipmakers that aren't 0:14:24.480 --> 0:14:29.000 from Taiwan. If that happens there, then there you know, 0:14:29.160 --> 0:14:31.880 there is something a lot more scarce Steve Chips. Yeah, there, 0:14:31.880 --> 0:14:34.200 there you go. There's an interesting investment of chipmakers are 0:14:34.280 --> 0:14:36.960 not in Taiwan. Thank you so much, Tomonomo, Hydgen of 0:14:37.040 --> 0:14:43.040 Edward Jones and Bloomberg's own John Author's coming up. Democrats 0:14:43.200 --> 0:14:46.160 like their new reconciliation package. They call it the Inflation 0:14:46.240 --> 0:14:49.440 Reduction Act, and some economists won't. They like it too, 0:14:49.760 --> 0:14:52.720 But what would it mean for investors? We asked Steve 0:14:52.800 --> 0:14:56.040 Ratner of Will Advisors. That's next on Wall Street Week 0:14:56.320 --> 0:15:03.040 on Bloomberg. This is Bloomberg Wall Street Week with David 0:15:03.080 --> 0:15:12.680 Weston from Bloomberg Radio. Well, this is really a very 0:15:12.760 --> 0:15:16.920 comprehensive and historic piece of legislation. Joe Manchin, he made 0:15:16.960 --> 0:15:20.360 a terrible deal. Leave it to Congress to surprise us 0:15:20.680 --> 0:15:24.120 take two of our biggest problems. Inflation. We have a 0:15:24.240 --> 0:15:28.000 serious inflation challenge which is hitting economies around the click 0:15:28.000 --> 0:15:33.080 globe and climate. As the climate crisis gets worse, extreme 0:15:33.120 --> 0:15:37.520 weather will pose a rapidly growing danger to a rapidly 0:15:37.760 --> 0:15:42.040 growing number of communities. Put them together in one big 0:15:42.080 --> 0:15:45.240 package and give it the attractive name of the Inflation 0:15:45.440 --> 0:15:50.520 Reduction Act. This bill will reduce inflationary pressures on economy. 0:15:50.960 --> 0:15:53.000 In the end, it all came down to getting West 0:15:53.120 --> 0:15:56.880 Virginia Senator Joe Mansion to sign on. This is fighting inflation. 0:15:56.920 --> 0:16:00.600 This is all about the the absolute horrible position that 0:16:00.680 --> 0:16:03.800 people are in now because of the inflation cost and 0:16:03.920 --> 0:16:07.800 senator mentions. Republican colleagues like Pat Toomey of Pennsylvania can't 0:16:07.800 --> 0:16:12.640 believe he went along. It's a very significant corporate tax increase, 0:16:12.760 --> 0:16:16.640 mostly focused on manufacturers, which is a bad idea. It's 0:16:16.640 --> 0:16:20.320 combined with price controls on prescription drugs. I've been asking 0:16:20.360 --> 0:16:22.480 myself what does Joe Mantion get out of this? But 0:16:22.640 --> 0:16:26.720 thus far, economists like Larry Summers think the Inflation Reduction 0:16:26.720 --> 0:16:30.560 Act maybe just what the doctor ordered. I was glad 0:16:30.640 --> 0:16:32.880 to see the bill. I think it's going to reduce 0:16:32.920 --> 0:16:35.840 the rate of inflation, because it's going to reduce deficits 0:16:35.880 --> 0:16:39.600 and demand over time, because it's going to use the 0:16:39.680 --> 0:16:45.160 federal government's power to negotiate lower prices for pharmaceuticals, and 0:16:45.280 --> 0:16:53.480 because it's going to increase uh supply of energy. So 0:16:53.520 --> 0:16:55.800 economists really like the Inflation Reduction Act. But what does 0:16:55.840 --> 0:16:57.760 it mean for investors? To get an answer to that, 0:16:57.760 --> 0:16:59.920 we're gonna turn to someone who invests a fair amount 0:16:59.920 --> 0:17:03.360 of capital. He is Stephen Ratner. He's chairman and CEO 0:17:03.640 --> 0:17:07.200 of Willard Advisors. They invest the personal and philanthropic assets 0:17:07.320 --> 0:17:09.520 of Michael R. Bloomberg, who, of course is our founder 0:17:09.760 --> 0:17:11.800 and majority of Sheherrelder See. Thanks so much for being 0:17:11.800 --> 0:17:14.000 back on Wall Street. League, of course, love to be here. 0:17:14.119 --> 0:17:16.040 So you wrote a terrific not ed piece for The 0:17:16.040 --> 0:17:18.720 New York Times this week and which you said, these 0:17:18.720 --> 0:17:21.000 are pretty strong words. I must say. Do you think 0:17:21.040 --> 0:17:23.040 that this may be one of the best packages that 0:17:23.080 --> 0:17:26.120 you can remember Congress giving birth to? So you think 0:17:26.119 --> 0:17:28.359 it's a good idea for the country. What does it 0:17:28.400 --> 0:17:32.520 mean for investors? I think for investors it's it's basically positive. 0:17:32.560 --> 0:17:34.640 I think we're making progress on a number of our 0:17:34.640 --> 0:17:38.200 really important problems, climate being first and foremost among them. 0:17:38.400 --> 0:17:40.800 That's good for the country. It's ultimately good for investors. 0:17:41.280 --> 0:17:45.120 I think prescription drugs may not pricing may not be 0:17:45.440 --> 0:17:48.399 absolutely great for every farmer company in America, but for 0:17:48.440 --> 0:17:50.760 the average in America, and it will eventually give them 0:17:50.760 --> 0:17:53.920 more spending power and the afford the ability to buy 0:17:53.920 --> 0:17:58.000 other things, and that helps the economy. The minimum corporate tax, 0:17:58.480 --> 0:18:00.480 it's just something we needed to do. I think the 0:18:01.240 --> 0:18:04.439 Trump t c j A was so widely unfair in 0:18:04.560 --> 0:18:06.399 terms of the amount of the business rollbacks. At this 0:18:06.480 --> 0:18:09.720 broad back, I would note that after the mansion proposal 0:18:09.880 --> 0:18:12.840 was very surprisingly announced, as you know, nobody thought this 0:18:13.000 --> 0:18:15.960 was coming. But after it was announced, the stock market 0:18:15.960 --> 0:18:18.080 in the next several days had several of its best 0:18:18.119 --> 0:18:22.000 days throughout the difficult period. So obviously investors were not 0:18:22.040 --> 0:18:24.719 put off by this thing, and indeed even encouraged by 0:18:24.760 --> 0:18:26.879 the idea of progress in Washington. One of the things 0:18:26.920 --> 0:18:30.119 Republicans I think done, for example Pat too Many from Pennsylvania, 0:18:30.359 --> 0:18:33.040 is to say that corporate minium attacks effectively would take 0:18:33.119 --> 0:18:36.200 some of the benefits away from the expensing of capital investment, 0:18:36.359 --> 0:18:39.960 will deter capital investment corporations ultimately hurt us in terms 0:18:39.960 --> 0:18:42.720 of investment in terms of growth. Well, the first part 0:18:42.720 --> 0:18:44.200 of that is right. We are taking some of the 0:18:44.240 --> 0:18:47.600 centers away. Although we're doing it, we're not really directly 0:18:47.640 --> 0:18:50.640 taking them away. We didn't roll back the depreciation provision. 0:18:50.680 --> 0:18:53.840 We simply put a minimum tax on all the corporate profits, 0:18:53.840 --> 0:18:55.920 so that in fact leaves most of the investment in 0:18:56.000 --> 0:18:58.320 sentiment place. But there are those those who felt that 0:18:58.320 --> 0:19:00.320 that was simply too much when it was as the 0:19:00.359 --> 0:19:04.120 t c J. Why I give companies right off upfront? 0:19:04.359 --> 0:19:06.320 Is that really going to change the investment that much? 0:19:06.400 --> 0:19:08.320 Is it really the way you want to run tax policy? 0:19:08.560 --> 0:19:10.119 And I don't think there's a lot of evidence that 0:19:10.240 --> 0:19:12.680 had much of an impact on investment, so I don't 0:19:12.680 --> 0:19:15.080 buy that. I think I think the problem of investment 0:19:15.080 --> 0:19:17.760 here is there are not enough profitable opportunities out there, 0:19:18.000 --> 0:19:19.919 not that companies are worried about their tax rate or 0:19:19.960 --> 0:19:22.040 they don't have the cash or something like that. One 0:19:22.040 --> 0:19:25.240 of the aspects of this, obviously is the inflation reduction, because, 0:19:25.280 --> 0:19:27.919 as I understand, of reducing the deficit, actually paying for 0:19:28.040 --> 0:19:31.080 it having more in revenue than the costs going out. 0:19:31.520 --> 0:19:34.560 What does that due to investors? Well, first, on the 0:19:34.600 --> 0:19:38.000 inflation thing, the Republicans have created I think a false 0:19:38.000 --> 0:19:40.520 psychotomy away they have made. They made the point or 0:19:40.600 --> 0:19:44.440 claimed this wouldn't really reduce inflation, and that's not untrue. 0:19:44.600 --> 0:19:46.679 It's impact on inflation in the first few years is 0:19:46.680 --> 0:19:49.359 relatively small. It gets a bit larger in the out years. 0:19:49.560 --> 0:19:51.600 But the most important thing is that it is a 0:19:51.640 --> 0:19:54.919 reversaile policy from the last several packages we've passed that 0:19:54.960 --> 0:19:57.760 have been highly inflationary. So I think this is good 0:19:57.760 --> 0:20:00.720 for investors and that it brings against some ability to 0:20:00.760 --> 0:20:03.080 fiscal policy in Washington for the first time in a 0:20:03.119 --> 0:20:06.639 long time, a fiscal policy package that actually does at 0:20:06.720 --> 0:20:11.120 least lean against inflation, even if the total impact isn't enormous. 0:20:11.160 --> 0:20:13.440 If this package, and again we're assuming for the moment 0:20:13.440 --> 0:20:16.520 that it gets enacted, if it in fact gets enacted, 0:20:16.840 --> 0:20:19.080 is the benefit to investors mainly sort of the rising 0:20:19.080 --> 0:20:21.479 tide notion. I mean, it's the macro that everything goes 0:20:21.560 --> 0:20:23.880 up until we're all better off, or are the specific 0:20:23.920 --> 0:20:26.880 sectors that actually would be more attractive to investors such 0:20:26.920 --> 0:20:30.119 as you mentioned climate and energy. Probably yes, the rising 0:20:30.119 --> 0:20:32.479 tide is certainly the overarching part of this. It's not 0:20:32.520 --> 0:20:35.439 a complicated package that doesn't have that many provisions in it, 0:20:35.920 --> 0:20:38.760 so it's really it really is climate and prescription drugs 0:20:38.800 --> 0:20:41.280 and then obviously some of the tax stuff. So in 0:20:41.359 --> 0:20:43.280 climate and I don't think anyone yet has really been 0:20:43.359 --> 0:20:45.720 a comb through all the little minutia. Thank you so 0:20:45.800 --> 0:20:48.320 much so Stephen Radder, he's the chairman and CEO of 0:20:48.320 --> 0:20:52.560 will It Advisors. My pleasure. Thank you. Coming up, we 0:20:52.600 --> 0:20:55.080 wrap up the week once again with our special contributor 0:20:55.200 --> 0:20:58.360 Larry Summers of Harvard. That's next on Wall Street Week 0:20:58.640 --> 0:21:05.000 on Bloomberg. This is Bloomberg Wall Street Week with David 0:21:05.040 --> 0:21:14.959 Weston from Bloomberg Radio. This is Wall Street Week. I'm 0:21:15.000 --> 0:21:17.199 David western We end the week as we always do 0:21:17.280 --> 0:21:19.840 with our special contributor Larry Summers of Harvard. So, Larry, 0:21:19.880 --> 0:21:22.280 thank you so much for joining us. Let's address that 0:21:22.359 --> 0:21:25.440 big number that came out on Friday. Five thousand new 0:21:25.520 --> 0:21:28.080 jobs also were vision up in June, and by the way, 0:21:28.160 --> 0:21:30.200 wages up at a rate of five point two percent 0:21:30.280 --> 0:21:31.879 year a year. President Biden came out and said this 0:21:31.880 --> 0:21:34.320 shows that his economic policy is working. What did you 0:21:34.359 --> 0:21:36.760 make of those numbers? I think it's more mixed. I 0:21:37.119 --> 0:21:41.520 celebrate all the extra jobs, and that's surely a good 0:21:41.520 --> 0:21:45.399 thing to see. But my principal concern, as you know, David, 0:21:45.480 --> 0:21:48.920 has been that we've got an overheated economy, and then 0:21:49.119 --> 0:21:52.200 if you overheat the economy longer and longer, you get 0:21:52.240 --> 0:21:55.600 more and more inflation and bigger and bigger problems down 0:21:55.640 --> 0:22:00.879 the road. And everything in this number says to me, overheating, 0:22:01.440 --> 0:22:06.800 not yet under control, not our path to being under control. 0:22:06.840 --> 0:22:12.080 So I was actually not gratified by these numbers, but 0:22:12.680 --> 0:22:17.040 my concern was actually magnified. So what message does this 0:22:17.160 --> 0:22:20.200 send to the Fed? Do you think? Look, I don't 0:22:20.240 --> 0:22:24.119 think the Fed has the thread right now. As I 0:22:24.160 --> 0:22:27.640 said on this show last week, I think the idea 0:22:27.760 --> 0:22:31.720 that we're at the neutral rate, we're near the neutral rate, 0:22:32.440 --> 0:22:38.000 is not a defensible concept. And now when we're seeing 0:22:38.480 --> 0:22:44.800 wage inflation unambiguously after this number accelerating, after this number, 0:22:44.840 --> 0:22:48.720 after the e c I, after the Atlanta Fed, we have, 0:22:49.119 --> 0:22:55.800 by every reasonable measure of core inflation um inflation running 0:22:55.880 --> 0:23:00.680 somewhere plus or minus uh five. That is more than 0:23:00.720 --> 0:23:04.719 it was when Richard Nixon UH put price controls in 0:23:04.840 --> 0:23:11.400 place that is not acceptable by any dimension. And if 0:23:11.440 --> 0:23:15.480 we don't act on it, and act strongly on it, 0:23:15.880 --> 0:23:20.560 and that means raising real interest rates UH significantly, then 0:23:20.600 --> 0:23:24.719 we're just setting the stage for stagflation. Here's what I'm 0:23:24.840 --> 0:23:29.680 very worried about. Because we've seen the movie before. I'm worried, 0:23:29.800 --> 0:23:32.959 and I was interested to see that Paul Krogman, who 0:23:33.000 --> 0:23:35.960 has hardly agreed with me in general on these things, 0:23:35.960 --> 0:23:40.800 expressed exactly this concern UH. Today. I'm worried that we're 0:23:40.800 --> 0:23:47.240 gonna see some good news on non core inflation, on commodities, 0:23:47.520 --> 0:23:51.480 on what's happened in gasolene, for example, and we're gonna 0:23:51.520 --> 0:23:54.920 see a bit of economic slowing, and that's gonna lead 0:23:54.960 --> 0:23:58.080