1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,840 --> 00:00:07,120 Speaker 1: to the markets. This week U S CPI never's reinforcing 3 00:00:07,160 --> 00:00:10,639 Speaker 1: concerns about inflation. The financial stories that chief are worth 4 00:00:10,720 --> 00:00:13,480 Speaker 1: a really different reaction to mark. It's more indications of 5 00:00:13,640 --> 00:00:16,239 Speaker 1: just how hot the U S economy really is, through 6 00:00:16,239 --> 00:00:19,520 Speaker 1: the eyes of the most influential voices, Larry Summers, the 7 00:00:19,560 --> 00:00:22,479 Speaker 1: former tractor secretary, Katherine keening, CEO of the N Y 8 00:00:22,600 --> 00:00:26,160 Speaker 1: Mollins Sam's L Sharman and founder of Equity Group investment 9 00:00:26,200 --> 00:00:30,280 Speaker 1: in Bloomberg Wool Street Week with David Weston from Bloomberg radio, 10 00:00:30,800 --> 00:00:35,080 Speaker 1: ratcheting up the rhetoric over Ukraine and interest rates all 11 00:00:35,080 --> 00:00:38,400 Speaker 1: around the world. This is Bloomberg Wall Street Week. I'm 12 00:00:38,440 --> 00:00:42,199 Speaker 1: David Weston. This week contributors Larry Summers of Harvard on 13 00:00:42,240 --> 00:00:45,040 Speaker 1: those rate hikes and whether we're starting to see some cracks. 14 00:00:45,520 --> 00:00:47,839 Speaker 1: When you get as far behind the curve as the 15 00:00:47,920 --> 00:00:51,480 Speaker 1: Fed did, then you really have to hit the brakes very, 16 00:00:51,560 --> 00:00:54,880 Speaker 1: very hard, and Steve Rattner of willowed advisers on the 17 00:00:55,000 --> 00:00:58,960 Speaker 1: problem with equities. Our equity exposures down to the lowest 18 00:00:59,040 --> 00:01:02,720 Speaker 1: levels that's been are in twelve or thirteen years. Of Existence. 19 00:01:15,480 --> 00:01:17,760 Speaker 1: It was a week of coming to terms with a 20 00:01:17,840 --> 00:01:20,320 Speaker 1: war in Ukraine that he is not going away as 21 00:01:20,319 --> 00:01:22,880 Speaker 1: President Biden went to the United Nations to lay the 22 00:01:22,959 --> 00:01:26,280 Speaker 1: blame squarely on President Putin. This wor. All should see 23 00:01:26,319 --> 00:01:29,840 Speaker 1: these outrageous acts of what they are. Putin claims he 24 00:01:29,959 --> 00:01:34,480 Speaker 1: had to act because Russia was threatened, but no one 25 00:01:34,840 --> 00:01:41,000 Speaker 1: threatened Russia and no one other than Russia sought conference, 26 00:01:41,319 --> 00:01:43,800 Speaker 1: and President Putin warned about just how far he is 27 00:01:43,840 --> 00:01:46,800 Speaker 1: willing to go. I would like to remind those who 28 00:01:46,800 --> 00:01:49,840 Speaker 1: allow themselves to make sus statements about Russia that our 29 00:01:49,880 --> 00:01:54,000 Speaker 1: country also has various means of destruction, which in some 30 00:01:54,040 --> 00:01:57,040 Speaker 1: cases is even more modern than what NATO countries have, 31 00:01:57,680 --> 00:02:00,320 Speaker 1: and when the territorial integrity over a country is written, 32 00:02:00,520 --> 00:02:03,600 Speaker 1: we will certainly use all the means at our disposal 33 00:02:03,680 --> 00:02:07,160 Speaker 1: to protect Russia and our people. This is not a bluff. 34 00:02:07,520 --> 00:02:09,880 Speaker 1: This week we also had to come to terms again 35 00:02:10,240 --> 00:02:14,160 Speaker 1: with tightening monetary policies. Central banks around the world added 36 00:02:14,200 --> 00:02:17,400 Speaker 1: a total of seven hundred basis points to their rates, 37 00:02:17,639 --> 00:02:20,440 Speaker 1: with the Bank of England going up another fifty Swiss 38 00:02:20,480 --> 00:02:23,519 Speaker 1: national bank up, putting it into positive territory for the 39 00:02:23,560 --> 00:02:26,400 Speaker 1: first time in almost eight years, and the Federal Reserve 40 00:02:26,480 --> 00:02:30,160 Speaker 1: adding another seventy five basis points, with no suggestion that 41 00:02:30,240 --> 00:02:33,040 Speaker 1: it is close to being done. We've just moved, I think, 42 00:02:33,080 --> 00:02:35,720 Speaker 1: probably into the very, the very lowest level of what 43 00:02:35,880 --> 00:02:38,400 Speaker 1: might be restrictive, and certainly in my view and the 44 00:02:38,480 --> 00:02:41,040 Speaker 1: view of the committee, there's there's a ways to go, 45 00:02:41,520 --> 00:02:43,760 Speaker 1: and part of the fallout from all that tightening is 46 00:02:43,760 --> 00:02:47,120 Speaker 1: an ever strengthening dollar, with all that means for markets 47 00:02:47,160 --> 00:02:50,679 Speaker 1: and for policymakers. In the end, it seems like the 48 00:02:50,800 --> 00:02:54,280 Speaker 1: Ode currency that will sustainably win discounty will is the dollar. 49 00:02:56,040 --> 00:02:58,120 Speaker 1: But what was good for the dollar was bad for 50 00:02:58,160 --> 00:03:00,959 Speaker 1: just about every other market, that is, with the SMP 51 00:03:01,600 --> 00:03:04,560 Speaker 1: given another four point six percent on the week and 52 00:03:04,600 --> 00:03:07,680 Speaker 1: at one point falling below it's June closing low before 53 00:03:07,840 --> 00:03:11,480 Speaker 1: ending just above it at thirty. The NASAC was off 54 00:03:11,520 --> 00:03:15,400 Speaker 1: just over five percent, despite rally on Friday, and bonds 55 00:03:15,520 --> 00:03:18,239 Speaker 1: basically melted in the heat of the Fed rate increase, 56 00:03:18,440 --> 00:03:20,600 Speaker 1: with the yield on the ten year gaining nearly twenty 57 00:03:20,600 --> 00:03:23,679 Speaker 1: five basis points for the week, while the two year 58 00:03:23,840 --> 00:03:26,440 Speaker 1: was up over thirty basis points, ending at four point 59 00:03:26,520 --> 00:03:30,239 Speaker 1: two percent. To put this rather extraordinary weekend context. Welcome 60 00:03:30,240 --> 00:03:33,239 Speaker 1: now Christina Hooper, she's chief market strategies for INVESCO, and 61 00:03:33,320 --> 00:03:36,680 Speaker 1: Tracy Alloway, Co host of Bloomberg's odd lots podcast. So 62 00:03:36,720 --> 00:03:38,040 Speaker 1: welcome to both of you. Great to have you here 63 00:03:38,040 --> 00:03:41,240 Speaker 1: for about alter. Well, let's start with you, Christina. Is 64 00:03:41,280 --> 00:03:46,520 Speaker 1: The Sky Falling? The Sky is not falling, but markets 65 00:03:46,520 --> 00:03:51,600 Speaker 1: are adjusting to very changing circumstances, if I said that right, 66 00:03:51,760 --> 00:03:55,480 Speaker 1: very changed circumstances. What we are doing is seeing an 67 00:03:55,520 --> 00:03:59,360 Speaker 1: adjustment that is very, very significant, because what the Fed 68 00:03:59,400 --> 00:04:01,680 Speaker 1: and other center banks are doing, as you mentioned in 69 00:04:01,720 --> 00:04:04,960 Speaker 1: the Intro, is very, very significant. This is the analogy 70 00:04:05,000 --> 00:04:08,320 Speaker 1: I'd use. Um, if you're lactose intolerant, you have a 71 00:04:08,320 --> 00:04:11,880 Speaker 1: half a cup of milk, it's a little painful. If 72 00:04:11,880 --> 00:04:14,720 Speaker 1: you have a gallon of milk, it's extraordinarily painful for 73 00:04:14,760 --> 00:04:18,279 Speaker 1: a few hours. And we just drank a gallon of 74 00:04:18,320 --> 00:04:21,480 Speaker 1: milk and we're lactose intolerant. Well, to continue an analogy, 75 00:04:21,480 --> 00:04:23,600 Speaker 1: a little bit crazy. We were told we were going 76 00:04:23,640 --> 00:04:25,400 Speaker 1: to have to drink the gallon of milk. Why didn't 77 00:04:25,400 --> 00:04:27,400 Speaker 1: we believe it? This is what I don't get. So 78 00:04:27,720 --> 00:04:29,720 Speaker 1: I think one of the reasons this week is so 79 00:04:29,760 --> 00:04:32,400 Speaker 1: significant is because it really seems to me like investors 80 00:04:32,400 --> 00:04:35,880 Speaker 1: have woken up to this pain messaging that Jerome POW 81 00:04:36,000 --> 00:04:39,400 Speaker 1: and other fed members have been trying to transmit for many, 82 00:04:39,440 --> 00:04:41,839 Speaker 1: many months now. I mean we even had the minneapolis 83 00:04:41,839 --> 00:04:45,240 Speaker 1: fed president, Neil Cash Kari, come on and say pretty 84 00:04:45,279 --> 00:04:48,640 Speaker 1: much explicitly I would like to see stocks lower. I 85 00:04:48,720 --> 00:04:52,640 Speaker 1: was happy when stocks fell after Jackson Hole. Tighter monetary 86 00:04:52,720 --> 00:04:56,560 Speaker 1: policy works through financial conditions. They need financial conditions to 87 00:04:56,600 --> 00:04:59,800 Speaker 1: get tighter, but for some reason the market has been 88 00:05:00,080 --> 00:05:03,120 Speaker 1: reluctant to take on that messaging. I really think this 89 00:05:03,160 --> 00:05:06,000 Speaker 1: week is sort of the moment that everyone woke up. Now, 90 00:05:06,120 --> 00:05:09,400 Speaker 1: I'm a journalist and I'm not allowed to have official opinions, 91 00:05:09,440 --> 00:05:11,919 Speaker 1: but I would say that anyone who still believes in 92 00:05:11,960 --> 00:05:15,120 Speaker 1: the soft landing prospects, they need to be getting worried 93 00:05:15,160 --> 00:05:17,480 Speaker 1: at this point. The Path to a soft landing seems 94 00:05:17,560 --> 00:05:21,280 Speaker 1: narrower and narrower, almost by fed design. And as a 95 00:05:21,360 --> 00:05:22,960 Speaker 1: journalist you've talked to a lot of people are saying 96 00:05:23,040 --> 00:05:25,800 Speaker 1: something just like that. You're you're being a good reporter there. But, Christina, 97 00:05:25,880 --> 00:05:27,080 Speaker 1: what did you want to say? I was just gonna 98 00:05:27,120 --> 00:05:30,680 Speaker 1: say in fairness. The Fed didn't think it was going 99 00:05:30,720 --> 00:05:34,080 Speaker 1: where it's going. It has. It's its view of inflation 100 00:05:34,160 --> 00:05:36,640 Speaker 1: has evolved dramatically. If we go back to the DOT 101 00:05:36,680 --> 00:05:41,680 Speaker 1: plot from December, the median expected fed funds rate for 102 00:05:41,920 --> 00:05:45,080 Speaker 1: the end of twenty two was point nine. Now we're 103 00:05:45,120 --> 00:05:48,039 Speaker 1: at four point four percent. So we've seen the Fed 104 00:05:48,360 --> 00:05:51,559 Speaker 1: do an incredible Um Turnabou in terms of its views 105 00:05:51,600 --> 00:05:54,720 Speaker 1: on inflation. So that's why I think we had the 106 00:05:55,000 --> 00:05:57,920 Speaker 1: market reaction we did. Not everyone expected it, because we 107 00:05:57,920 --> 00:06:00,479 Speaker 1: didn't exactly know what the Fed was thinking. The whole 108 00:06:00,480 --> 00:06:03,120 Speaker 1: purpose of Tracy, obviously, is to get our arms around inflation, 109 00:06:03,160 --> 00:06:05,240 Speaker 1: which we have not had. We lost control of that, 110 00:06:05,360 --> 00:06:07,200 Speaker 1: a doubt. I think the Fed would admit that as well. 111 00:06:07,560 --> 00:06:09,159 Speaker 1: What is that going to take? What is your reporting 112 00:06:09,200 --> 00:06:11,000 Speaker 1: tell you about it going to shake? And do we 113 00:06:11,040 --> 00:06:12,640 Speaker 1: believe the Fed is up to the test because, as 114 00:06:12,680 --> 00:06:15,520 Speaker 1: Christina just said, they've had to change their theory here. Well, 115 00:06:15,560 --> 00:06:18,120 Speaker 1: I think you are starting to see some signs of 116 00:06:18,200 --> 00:06:20,800 Speaker 1: deceleration and I hate to do the sort of line 117 00:06:20,800 --> 00:06:23,719 Speaker 1: by line CP I analysis. Um, it's probably boring for 118 00:06:23,760 --> 00:06:26,920 Speaker 1: everyone involved, but there are some technical changes coming up 119 00:06:26,960 --> 00:06:29,280 Speaker 1: to health care, for instance, that are expected to take 120 00:06:29,680 --> 00:06:32,719 Speaker 1: some of the acceleration out of the inflation index. But 121 00:06:32,800 --> 00:06:35,520 Speaker 1: I think the big issue here, going back to the 122 00:06:35,560 --> 00:06:39,240 Speaker 1: Fed and what Christina was saying, is they've misjudged the 123 00:06:39,320 --> 00:06:43,719 Speaker 1: lag between rate changes and the impact on the economy 124 00:06:43,720 --> 00:06:47,919 Speaker 1: and they misjudged that going into the crisis or coming 125 00:06:47,920 --> 00:06:50,400 Speaker 1: out of the immediate pandemic. Um the worst of the 126 00:06:50,400 --> 00:06:53,720 Speaker 1: pandemic in March of fast saying thank you so very much, 127 00:06:53,720 --> 00:06:56,520 Speaker 1: tracy allowy and Christina Hooper were staying with as we 128 00:06:56,560 --> 00:06:59,360 Speaker 1: look for some shelter from the market storm for our 129 00:06:59,440 --> 00:07:02,480 Speaker 1: investment and it's next on Wall Street Week on Bloomberg. 130 00:07:04,120 --> 00:07:08,120 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 131 00:07:08,240 --> 00:07:18,120 Speaker 1: Bloomberg radio. First, the US federal government, for the first 132 00:07:18,160 --> 00:07:21,400 Speaker 1: time since Columbus set sail from Spain, had to pay 133 00:07:21,400 --> 00:07:24,800 Speaker 1: a double digit interest rate to borrow money from its citizens. 134 00:07:24,800 --> 00:07:28,840 Speaker 1: For six months and two days. After treasury bills added 135 00:07:28,880 --> 00:07:32,040 Speaker 1: this new chorus of how high the moon the nation's 136 00:07:32,080 --> 00:07:35,560 Speaker 1: banks began to limb their version, taking the prime rate 137 00:07:35,680 --> 00:07:38,880 Speaker 1: charge to the nation's biggest corporations to an unheard of 138 00:07:39,040 --> 00:07:43,440 Speaker 1: thirteen percent. Previously unheard of, that is now you've heard 139 00:07:43,440 --> 00:07:46,760 Speaker 1: it here. That, of course, was Lewis Rucker on Wall Street, 140 00:07:47,000 --> 00:07:49,160 Speaker 1: way back in September of nineteen seventy nine. That was 141 00:07:49,160 --> 00:07:52,160 Speaker 1: when inflation was running at just under twelve percent. The 142 00:07:52,240 --> 00:07:55,760 Speaker 1: most popular movie was alien and the Doobie brothers topped 143 00:07:55,760 --> 00:07:57,920 Speaker 1: the charts with what a fool belief is. One of 144 00:07:57,920 --> 00:08:00,160 Speaker 1: my personal favorites still were the Sur Christi, you know, 145 00:08:00,200 --> 00:08:03,440 Speaker 1: Hooper of INVESTCO, and Bloomberg's Tracy Alloway, I wanna pick 146 00:08:03,440 --> 00:08:05,160 Speaker 1: on you from it here on the dead side, borrowing 147 00:08:05,240 --> 00:08:07,880 Speaker 1: money at double digit numbers. We're not there at this 148 00:08:07,920 --> 00:08:10,320 Speaker 1: point now. Well, at the same time, what is this 149 00:08:10,440 --> 00:08:13,120 Speaker 1: environment we just described going to do for the asset 150 00:08:13,400 --> 00:08:15,720 Speaker 1: of Fixed Income? Yeah, you know, we were talking about 151 00:08:15,760 --> 00:08:18,320 Speaker 1: financial conditions earlier, and I think one of the weird 152 00:08:18,440 --> 00:08:23,200 Speaker 1: things about recent market moves and history has been how 153 00:08:23,560 --> 00:08:26,800 Speaker 1: sing wine the credit markets have been about inflation and 154 00:08:26,880 --> 00:08:30,400 Speaker 1: higher interest rates. And I've seen various theories. Um, you know, 155 00:08:30,440 --> 00:08:33,959 Speaker 1: today we actually finally saw leverage loans the benchmark Indus 156 00:08:34,080 --> 00:08:37,920 Speaker 1: down to like nineties three dollars, but even then eight 157 00:08:38,080 --> 00:08:42,440 Speaker 1: five is generally considered the distressed level. So what's going on? 158 00:08:42,440 --> 00:08:45,240 Speaker 1: One theory I've seen, and you know, it's kind of 159 00:08:45,280 --> 00:08:48,720 Speaker 1: a sort of moral hazard argument. But there are people 160 00:08:48,760 --> 00:08:51,320 Speaker 1: who say because the Fed came in last time with 161 00:08:51,400 --> 00:08:54,920 Speaker 1: the corporate bond purchasing program maybe that's one reason we 162 00:08:54,960 --> 00:08:57,200 Speaker 1: haven't seen the market panic, because they think if things 163 00:08:57,200 --> 00:08:59,240 Speaker 1: get bad enough while the Fed will come in and 164 00:08:59,280 --> 00:09:01,760 Speaker 1: it'll buy some bonds. Well, last time it didn't even 165 00:09:01,800 --> 00:09:04,200 Speaker 1: have to buy bonds. It just announces that it's going 166 00:09:04,280 --> 00:09:06,920 Speaker 1: to buy bonds and everything is fine. But I think 167 00:09:06,960 --> 00:09:10,280 Speaker 1: people are looking for that pressure and you are starting 168 00:09:10,280 --> 00:09:12,679 Speaker 1: to see some signs of it around the edges. So, 169 00:09:12,760 --> 00:09:16,240 Speaker 1: for instance, we saw triple C rated junk bonds to 170 00:09:16,240 --> 00:09:18,679 Speaker 1: take a little bit of a hit, but not nearly 171 00:09:18,800 --> 00:09:22,120 Speaker 1: what you would have assumed looking at stocks. So what's 172 00:09:22,160 --> 00:09:25,360 Speaker 1: your reaction to that, Christina? is any for fixed income 173 00:09:25,440 --> 00:09:28,079 Speaker 1: right now, sort of a haven in this very tumultuous 174 00:09:28,120 --> 00:09:31,160 Speaker 1: time in the markets? Yeah, I mean, first I have 175 00:09:31,240 --> 00:09:33,640 Speaker 1: to say it all depends on your time horizon. Um, 176 00:09:33,679 --> 00:09:37,160 Speaker 1: but and so I believe very strongly that it's important 177 00:09:37,160 --> 00:09:39,480 Speaker 1: if you've got a long time horizon. You shouldn't panic 178 00:09:39,520 --> 00:09:42,000 Speaker 1: in this environment. I mean, let's look at fixed income, 179 00:09:42,080 --> 00:09:45,480 Speaker 1: floating rate, but there's a variety of areas Um investment 180 00:09:45,480 --> 00:09:47,840 Speaker 1: grade credit looks good. Um, I think we just have 181 00:09:47,920 --> 00:09:51,000 Speaker 1: to recognize that we're going through this adjustment period. We're 182 00:09:51,040 --> 00:09:53,760 Speaker 1: going back to the old normal. I mean presumably if 183 00:09:53,760 --> 00:09:56,000 Speaker 1: the Fed doesn't cut rates again right and and that 184 00:09:56,120 --> 00:09:59,679 Speaker 1: was a time that was fairly good for for equities 185 00:09:59,720 --> 00:10:02,120 Speaker 1: and fixed income. Um, I think it's important to have 186 00:10:02,200 --> 00:10:05,240 Speaker 1: alts in there too. Um. But it is not the 187 00:10:05,360 --> 00:10:07,680 Speaker 1: end of the world, as we talked about before, it's 188 00:10:07,760 --> 00:10:10,080 Speaker 1: just we're going through a change. Well, we're talking about 189 00:10:10,120 --> 00:10:13,120 Speaker 1: fixed income, whether it's loans or its bonds. We had 190 00:10:13,440 --> 00:10:17,200 Speaker 1: one story this week's Citrix, where they basically were borrowing 191 00:10:17,240 --> 00:10:19,320 Speaker 1: a lot of money and the banks went out and 192 00:10:19,320 --> 00:10:21,560 Speaker 1: syndicated that that would be just fine. They ended up 193 00:10:21,600 --> 00:10:23,439 Speaker 1: losing something like six hundred million dollars in the deal. 194 00:10:23,480 --> 00:10:25,520 Speaker 1: They had to eat that money. What happened there? Is 195 00:10:25,559 --> 00:10:28,160 Speaker 1: that a one off, or does that say something broader? Well, 196 00:10:28,240 --> 00:10:30,560 Speaker 1: to me this is sort of the tail end of 197 00:10:30,600 --> 00:10:33,320 Speaker 1: that buyout boom and a lot of the credit market 198 00:10:33,400 --> 00:10:36,800 Speaker 1: excesses that you've seen in recent years. And One reason 199 00:10:36,920 --> 00:10:40,120 Speaker 1: why leverage loans in particular are getting so much focused 200 00:10:40,240 --> 00:10:43,360 Speaker 1: right now is because if you look at which asset 201 00:10:43,440 --> 00:10:46,960 Speaker 1: classes had the most Um, I'm going to say enthusiasm. 202 00:10:47,720 --> 00:10:49,440 Speaker 1: Leverage loans would be one of them. You know, we 203 00:10:49,520 --> 00:10:51,880 Speaker 1: had concerns about the quality of some of those loans 204 00:10:51,880 --> 00:10:54,080 Speaker 1: for a while. We had, at various points in time, 205 00:10:54,160 --> 00:10:57,160 Speaker 1: US regulators trying to improve the quality of the market. 206 00:10:57,559 --> 00:11:00,280 Speaker 1: And now, as interest rates get higher, a lot of 207 00:11:00,280 --> 00:11:03,120 Speaker 1: that pressure lands on floating rate loans because the companies 208 00:11:03,160 --> 00:11:04,760 Speaker 1: that took them out are going to have to start 209 00:11:04,760 --> 00:11:08,120 Speaker 1: paying more to keep up with those benchmark interest rates. 210 00:11:08,200 --> 00:11:10,559 Speaker 1: And that's why you have people who are well, at 211 00:11:10,559 --> 00:11:12,840 Speaker 1: Morgan Stanley for instance, who are looking at the leverage 212 00:11:12,920 --> 00:11:15,840 Speaker 1: loan market as the sort of Canary in the coal 213 00:11:15,920 --> 00:11:19,559 Speaker 1: mine of how the market is viewing recession risk. But again, 214 00:11:19,679 --> 00:11:22,720 Speaker 1: we're not quite there. Eight five is usually the level 215 00:11:22,840 --> 00:11:25,880 Speaker 1: of distress. We are at something like nine three now. 216 00:11:26,040 --> 00:11:28,720 Speaker 1: So further to go. If you're really looking for a 217 00:11:28,720 --> 00:11:32,120 Speaker 1: sign that the market is panicking. If that's a fixed income, 218 00:11:32,440 --> 00:11:34,679 Speaker 1: what about equities? Doesn't make any sense to buy equities. 219 00:11:34,720 --> 00:11:38,160 Speaker 1: Typically when the discount rate goes up, equities go down, 220 00:11:38,240 --> 00:11:40,599 Speaker 1: and certainly we're seeing that right now in the equity markets. 221 00:11:40,679 --> 00:11:43,720 Speaker 1: Sure well, I do absolutely believe that unless you have 222 00:11:43,760 --> 00:11:46,319 Speaker 1: a three or four month time horizon, you should be 223 00:11:46,880 --> 00:11:49,760 Speaker 1: keeping your equity exposure and looking for opportunities to add 224 00:11:49,800 --> 00:11:53,080 Speaker 1: to it. Um. Yes, there is that adjustment period when, 225 00:11:53,160 --> 00:11:57,040 Speaker 1: when rates go up, Um, we do see equities tend 226 00:11:57,080 --> 00:12:00,320 Speaker 1: to go down. But Um, we also tend to see 227 00:12:00,320 --> 00:12:03,720 Speaker 1: a recovery. It doesn't last forever. In fact, during a 228 00:12:03,800 --> 00:12:07,319 Speaker 1: whole uh fed rate high cycle, usually by the end 229 00:12:07,640 --> 00:12:11,240 Speaker 1: we come up with positive performance for equities, and leading 230 00:12:11,280 --> 00:12:14,320 Speaker 1: the way is typically the higher valuation names that got 231 00:12:14,440 --> 00:12:18,560 Speaker 1: hit hardest first. Um. So this is, you know, this 232 00:12:18,640 --> 00:12:21,040 Speaker 1: is to be expected. It's not fun, but it is 233 00:12:21,080 --> 00:12:23,960 Speaker 1: to be expected. Um, the kind of behavior was seeing, 234 00:12:24,000 --> 00:12:26,520 Speaker 1: given the kind of dramatic increase in rates. But that 235 00:12:26,679 --> 00:12:29,480 Speaker 1: is not, Um, the end for equities. So you might 236 00:12:29,520 --> 00:12:33,040 Speaker 1: actually add, at least selectively, to growth right now. Absolutely, 237 00:12:33,480 --> 00:12:35,640 Speaker 1: as as coming out of it faster than the others, 238 00:12:35,640 --> 00:12:38,079 Speaker 1: do you think? I do. I do believe that. For sure, 239 00:12:38,960 --> 00:12:43,360 Speaker 1: evaluations are higher there. They tend to get hit hard, 240 00:12:43,600 --> 00:12:48,600 Speaker 1: but Um, but they're also significant growth prospects, growth potential 241 00:12:48,640 --> 00:12:51,680 Speaker 1: there at a time when the economy is clearly slowing down. 242 00:12:52,600 --> 00:12:56,120 Speaker 1: So Tracy. What do you see in other asset classes? 243 00:12:56,160 --> 00:13:00,960 Speaker 1: And let me name two at random cash and commodities. Cash, 244 00:13:01,120 --> 00:13:04,120 Speaker 1: I mean cash is looking okay right now. I guess 245 00:13:04,200 --> 00:13:07,840 Speaker 1: you're only losing eight percent per year versus what like 246 00:13:08,720 --> 00:13:11,360 Speaker 1: on some other stuff. But when we're talking about cash, 247 00:13:11,400 --> 00:13:14,480 Speaker 1: I mean it's got to be in the dollar. That's 248 00:13:14,600 --> 00:13:17,720 Speaker 1: the only thing that's really working at the moment. Cash. 249 00:13:17,880 --> 00:13:19,720 Speaker 1: We used to say cash is king, now we say 250 00:13:19,840 --> 00:13:22,120 Speaker 1: the dollar is king. And not only is the dollar king, 251 00:13:22,200 --> 00:13:24,800 Speaker 1: it is a king with a wrecking ball going through 252 00:13:24,840 --> 00:13:27,440 Speaker 1: other asset classes. But from what you said, the very 253 00:13:27,480 --> 00:13:30,280 Speaker 1: fact that the dollar goes up makes commodities don't go 254 00:13:30,360 --> 00:13:33,439 Speaker 1: down in general over time, and so that means commodities 255 00:13:33,480 --> 00:13:35,680 Speaker 1: aren't so attractive, you think, to investors right now. Well, 256 00:13:35,679 --> 00:13:38,040 Speaker 1: that's exactly right, and I think that's one reason why 257 00:13:38,080 --> 00:13:41,240 Speaker 1: the recent environment has been so painful for a lot 258 00:13:41,280 --> 00:13:43,480 Speaker 1: of people, because I think back to the beginning of 259 00:13:43,480 --> 00:13:47,000 Speaker 1: the year, commodities, we're seen as this inflation hedge Um, 260 00:13:47,040 --> 00:13:48,679 Speaker 1: a bit of a risk off hedge. You know, if 261 00:13:48,679 --> 00:13:51,120 Speaker 1: you're worried about what's going on with Russia and the Ukraine, 262 00:13:51,160 --> 00:13:54,040 Speaker 1: you can buy some wheat exposure, buy some oil exposure. 263 00:13:54,280 --> 00:13:57,200 Speaker 1: You have a nice little offset to macro risk. That 264 00:13:57,240 --> 00:14:00,200 Speaker 1: shows up in the sort of headline indussees. That's not 265 00:14:00,280 --> 00:14:03,680 Speaker 1: working anymore and I think that's one reason why the 266 00:14:03,800 --> 00:14:06,920 Speaker 1: environment has been so difficult for investors. The only good 267 00:14:06,960 --> 00:14:09,240 Speaker 1: news that I kind of see here is, you know, 268 00:14:09,280 --> 00:14:12,440 Speaker 1: people have been having to deal with these really binary 269 00:14:12,480 --> 00:14:15,719 Speaker 1: potential outcomes for most of the summer. You know, does 270 00:14:15,760 --> 00:14:19,640 Speaker 1: inflation stay high, do we get the dreaded wage price spiral, 271 00:14:20,120 --> 00:14:23,040 Speaker 1: or does the Fed come in, raise interest rates, bring 272 00:14:23,080 --> 00:14:26,160 Speaker 1: down inflation and you get that knock on recession effect? 273 00:14:26,840 --> 00:14:29,360 Speaker 1: I think the good news here is we're moving away 274 00:14:29,440 --> 00:14:32,680 Speaker 1: from that really binary tail risky environment and we seem 275 00:14:32,760 --> 00:14:36,720 Speaker 1: to be moving closer to that recession scenario. I know 276 00:14:36,800 --> 00:14:39,560 Speaker 1: I'm scraping the bottom of the barrel by saying recession 277 00:14:39,600 --> 00:14:41,560 Speaker 1: is good for investors at this point in time, but 278 00:14:41,640 --> 00:14:43,680 Speaker 1: at least you know where you're headed. Thank you so 279 00:14:43,840 --> 00:14:46,600 Speaker 1: very much to blue ory's own Tracy Alloway, and to 280 00:14:46,720 --> 00:14:52,120 Speaker 1: Christina Hooper INVESCO. Coming up the times, they are changing, 281 00:14:52,200 --> 00:14:54,560 Speaker 1: and not necessarily in a good way when it comes 282 00:14:54,560 --> 00:14:57,360 Speaker 1: to equities. We talked with Steve Ratner will it advisors 283 00:14:57,400 --> 00:15:00,400 Speaker 1: about what the regime change in monetary policy means for 284 00:15:00,640 --> 00:15:07,320 Speaker 1: equity investors. This is Wall Street Week on Bloomberg. This 285 00:15:07,640 --> 00:15:12,120 Speaker 1: is Bloomberg Wall Street Week with David Weston from Bloomberg radio. 286 00:15:20,480 --> 00:15:23,040 Speaker 1: All good things must come to an end, and if 287 00:15:23,080 --> 00:15:25,440 Speaker 1: we still had any doubts, this week saw the Fed 288 00:15:25,520 --> 00:15:28,720 Speaker 1: move even farther away from easy money, as the center 289 00:15:28,760 --> 00:15:31,960 Speaker 1: bank raised rates again and signaled a good deal yet 290 00:15:32,120 --> 00:15:34,200 Speaker 1: to come. What we think we need to do is 291 00:15:34,240 --> 00:15:36,680 Speaker 1: to move our policy rate to a restrictive level that's 292 00:15:36,680 --> 00:15:40,600 Speaker 1: restrictive enough to bring inflation down to two percent, and 293 00:15:40,600 --> 00:15:42,880 Speaker 1: the Bank of England followed suit. This is still the 294 00:15:42,880 --> 00:15:46,240 Speaker 1: biggest box box hike since black Wednesday thirty years ago, 295 00:15:46,600 --> 00:15:49,880 Speaker 1: while the Swedish Central Bank went even further, raising rates 296 00:15:49,880 --> 00:15:53,080 Speaker 1: a full one basis points. That shift in the entire 297 00:15:53,160 --> 00:15:57,400 Speaker 1: regime of monetary policy reverberates throughout investments, with rates on 298 00:15:57,480 --> 00:16:00,000 Speaker 1: the ten year and the two year treasuries shooting up 299 00:16:00,400 --> 00:16:04,280 Speaker 1: and the dollar continuing to strengthen. You've got two year 300 00:16:04,320 --> 00:16:08,840 Speaker 1: treasuries at almost, you know, highest levels we've seen in forever. 301 00:16:09,200 --> 00:16:12,520 Speaker 1: And where does that leave equities? They're certainly well off 302 00:16:12,560 --> 00:16:15,160 Speaker 1: from their highs. It's never a good sign when you 303 00:16:15,200 --> 00:16:18,040 Speaker 1: get these big rallies and then followed by three straight 304 00:16:18,080 --> 00:16:20,840 Speaker 1: weeks of declines and you just can't seem to hold 305 00:16:20,840 --> 00:16:23,080 Speaker 1: onto some of these games. But does that make them 306 00:16:23,120 --> 00:16:25,600 Speaker 1: a bargain? We have seen in the path that as 307 00:16:25,600 --> 00:16:30,440 Speaker 1: we enter into recessions, value companies, value stocks, tend to 308 00:16:30,760 --> 00:16:33,960 Speaker 1: have declines and earnings well, growth stocks actually tend to 309 00:16:33,960 --> 00:16:36,800 Speaker 1: hold up fairly well. Or have we yet to see 310 00:16:36,880 --> 00:16:39,120 Speaker 1: the bottom when everyone's on the sort of race to 311 00:16:39,160 --> 00:16:41,240 Speaker 1: the bottom of you know, who can get more Barish, 312 00:16:41,280 --> 00:16:43,680 Speaker 1: who can have the more outlandished the forecast? I think 313 00:16:43,720 --> 00:16:46,040 Speaker 1: I just told you where market psychology is right now. 314 00:16:46,520 --> 00:16:49,320 Speaker 1: You sentiment different ways. To measure right it's a global 315 00:16:49,360 --> 00:16:56,440 Speaker 1: financial crisis slows and to take us through whether it 316 00:16:56,440 --> 00:16:58,760 Speaker 1: really makes sense to be investing in equities these days, 317 00:16:58,920 --> 00:17:01,280 Speaker 1: we turned to somebody who's it is to invest a 318 00:17:01,320 --> 00:17:04,359 Speaker 1: substantial amount of money. He is Stephen Ratner, the chairman 319 00:17:04,400 --> 00:17:07,800 Speaker 1: and CEO of Willed Advisors, which invests the personal and 320 00:17:07,840 --> 00:17:10,880 Speaker 1: Philanthropic assets of Michael R Bloomberg. He is our founder 321 00:17:11,080 --> 00:17:13,800 Speaker 1: and majority shareholders. So, Steve, thanks so much for being 322 00:17:13,800 --> 00:17:16,760 Speaker 1: back on Wall Street Week. There's a lot of being 323 00:17:16,760 --> 00:17:20,520 Speaker 1: talked about equities, particularly as interest rates rise. Give us 324 00:17:20,520 --> 00:17:22,879 Speaker 1: a sense where you are on equities right now as 325 00:17:22,920 --> 00:17:24,520 Speaker 1: an investment and you're not a trader. You do it 326 00:17:24,520 --> 00:17:27,240 Speaker 1: over the medium and longer term. We're not traders and 327 00:17:27,280 --> 00:17:30,200 Speaker 1: I've always said to everybody that market timing is for fools. 328 00:17:30,240 --> 00:17:33,240 Speaker 1: I think every smart investor, successful investor, has pretty much 329 00:17:33,240 --> 00:17:36,000 Speaker 1: said that. But of course we do have opinions about 330 00:17:36,000 --> 00:17:38,240 Speaker 1: the equity markets and at the margin we do make 331 00:17:38,320 --> 00:17:42,080 Speaker 1: tactical tweaks and shifts to try to accommodate our view, 332 00:17:42,560 --> 00:17:44,800 Speaker 1: and I would say that we have been very, very 333 00:17:44,800 --> 00:17:48,080 Speaker 1: cautious about equities for some months now. Our equity exposures 334 00:17:48,160 --> 00:17:50,639 Speaker 1: down to the lowest levels that's been in our twelve 335 00:17:50,680 --> 00:17:54,520 Speaker 1: or thirteen years of existence and we remain cautious, and 336 00:17:54,640 --> 00:17:58,399 Speaker 1: interest rates are the biggest factor in that decision. So 337 00:17:58,600 --> 00:18:00,879 Speaker 1: just to take us through exactly how higher interest rates, 338 00:18:00,920 --> 00:18:02,800 Speaker 1: which we're having, not just the United States but almost 339 00:18:02,840 --> 00:18:05,760 Speaker 1: globally at this point, how does it express itself in 340 00:18:05,800 --> 00:18:07,600 Speaker 1: the value of the equities? Is that a matter of 341 00:18:07,600 --> 00:18:10,600 Speaker 1: the slowdown the economy overall, less demand for business? Is 342 00:18:10,600 --> 00:18:13,040 Speaker 1: it a matter of evaluations? How does it feed through 343 00:18:13,080 --> 00:18:16,320 Speaker 1: to equities? Certainly there are effects on the economy overall 344 00:18:16,440 --> 00:18:18,639 Speaker 1: and one needs to think about it. But I my 345 00:18:18,720 --> 00:18:20,879 Speaker 1: observation over I don't know, forty years or so of 346 00:18:20,880 --> 00:18:23,600 Speaker 1: watching equity markets is that they are keenly attuned to 347 00:18:23,680 --> 00:18:27,719 Speaker 1: interest rates as a more direct transmission mechanism to equity prices, 348 00:18:27,720 --> 00:18:31,680 Speaker 1: simply because interest rates are a discount, our discount rate 349 00:18:32,000 --> 00:18:35,360 Speaker 1: on future cash flows. And it's not a coincidence that 350 00:18:35,400 --> 00:18:37,840 Speaker 1: you've had the so called unprofitable tech with the longest 351 00:18:37,840 --> 00:18:40,760 Speaker 1: state in cash flows suffering the worst than this down 352 00:18:40,840 --> 00:18:43,760 Speaker 1: draft that is interest rate related, in my opinion, and 353 00:18:43,800 --> 00:18:46,600 Speaker 1: some of the more near term cash flow producing companies 354 00:18:46,960 --> 00:18:49,520 Speaker 1: suffering less. I think there's a very, very direct correlation 355 00:18:50,080 --> 00:18:52,800 Speaker 1: between the investment opportunity and fixed income or an interest 356 00:18:52,920 --> 00:18:58,280 Speaker 1: rates versus inequities. That suggests perhaps the sell equities might 357 00:18:58,280 --> 00:19:00,000 Speaker 1: make more sense than other equities, that is to say 358 00:19:00,040 --> 00:19:03,960 Speaker 1: those that are generating real profits today. Cash today maybe 359 00:19:04,119 --> 00:19:06,680 Speaker 1: a safer bed than those where it's really in the outyears. 360 00:19:07,080 --> 00:19:09,479 Speaker 1: In terms of this factor, there's no question about it. 361 00:19:09,720 --> 00:19:11,600 Speaker 1: And again you can see it in the numbers over 362 00:19:11,640 --> 00:19:14,199 Speaker 1: the last nine months or so since the equity markets 363 00:19:14,200 --> 00:19:17,840 Speaker 1: really started rollover, which is which is the fact that 364 00:19:17,920 --> 00:19:22,119 Speaker 1: longer dated cash flows, the further out you get, biotech startups, 365 00:19:22,240 --> 00:19:25,200 Speaker 1: growth companies have been hit the worst. The Nasdaq is 366 00:19:25,240 --> 00:19:28,120 Speaker 1: down a lot more than the SMP. Not a coincidence, 367 00:19:28,560 --> 00:19:30,520 Speaker 1: but you say have been hit the worst. There are 368 00:19:30,520 --> 00:19:34,320 Speaker 1: those who really are fans of growth stocks who say, 369 00:19:34,359 --> 00:19:36,320 Speaker 1: you know what, they've already taken a hit. That what 370 00:19:36,359 --> 00:19:38,800 Speaker 1: happens actually when you go into a slowdown recession. They 371 00:19:38,800 --> 00:19:40,760 Speaker 1: take the hit up front, but then they come out 372 00:19:40,800 --> 00:19:42,800 Speaker 1: of it faster and better. Well, I'd like to see 373 00:19:42,800 --> 00:19:45,400 Speaker 1: their evidence and support of that. And again, if you're 374 00:19:45,400 --> 00:19:48,040 Speaker 1: talking about an economic slowdown, we could have that conversation. 375 00:19:48,119 --> 00:19:50,080 Speaker 1: That may come out at a different place. If you're 376 00:19:50,080 --> 00:19:52,600 Speaker 1: talking about a situation which there's no evidence at all 377 00:19:52,960 --> 00:19:55,160 Speaker 1: that we're at the end of an interest rate cycle, 378 00:19:55,560 --> 00:19:58,080 Speaker 1: then I would push back. And in fact, if you 379 00:19:58,119 --> 00:19:59,960 Speaker 1: look at the market as a whole, I believe it's 380 00:20:00,040 --> 00:20:03,200 Speaker 1: true that the market has never really turned upward until 381 00:20:03,560 --> 00:20:06,080 Speaker 1: the Fed has been done tightening. And again, there's no 382 00:20:06,119 --> 00:20:08,880 Speaker 1: evidence the Fed has nearly done tightening. So the Fed 383 00:20:08,960 --> 00:20:11,680 Speaker 1: has been pretty explicit they're going to keep tightening for 384 00:20:11,760 --> 00:20:14,639 Speaker 1: quite a while. Do you have any projections as you 385 00:20:14,680 --> 00:20:17,480 Speaker 1: think about your investments? Do you try to have any 386 00:20:17,480 --> 00:20:20,120 Speaker 1: sense of how long that might be and frankly, even 387 00:20:20,119 --> 00:20:22,560 Speaker 1: with the terminal, right might be. Well, we think about 388 00:20:22,600 --> 00:20:25,000 Speaker 1: it more in terms of over under. If you look 389 00:20:25,000 --> 00:20:28,160 Speaker 1: at the market, the credit markets have been wildly behind 390 00:20:28,160 --> 00:20:30,879 Speaker 1: the curve in predicting. The fedsman behind the curve and 391 00:20:30,880 --> 00:20:33,520 Speaker 1: the credit markets behind the Fed in terms of their 392 00:20:33,520 --> 00:20:38,560 Speaker 1: interest rate expectations and and so if you basically say, okay, well, 393 00:20:38,600 --> 00:20:41,040 Speaker 1: the equity markets are taking their queue from the credit markets, 394 00:20:41,280 --> 00:20:42,840 Speaker 1: you can see why we had this sort of mini 395 00:20:42,920 --> 00:20:44,399 Speaker 1: bull run, if you want to even call it that, 396 00:20:44,520 --> 00:20:47,159 Speaker 1: this summer when it looked like maybe interest rates for 397 00:20:47,200 --> 00:20:49,520 Speaker 1: starting the plateau or something like that. Steve, thank you 398 00:20:49,600 --> 00:20:51,560 Speaker 1: so much. Really great to have you the Stephen Ranner. 399 00:20:51,680 --> 00:20:56,919 Speaker 1: He's the chairman and CEO of Willet Advisors. Coming up, 400 00:20:56,960 --> 00:20:58,800 Speaker 1: we wrap up the week, as we always do, with 401 00:20:58,800 --> 00:21:01,840 Speaker 1: our special contribuity Larry Summers of Harvard at next on 402 00:21:01,920 --> 00:21:12,280 Speaker 1: Wall Street Week on Bloomberg. This is Wall Street Week. 403 00:21:12,320 --> 00:21:14,359 Speaker 1: I'm David Weston and were welcome back once again our 404 00:21:14,359 --> 00:21:17,920 Speaker 1: special contributor, Larry Summers of Harvard. So, Larry, obviously very 405 00:21:17,920 --> 00:21:20,160 Speaker 1: big news this week from the FAD. What was your 406 00:21:20,160 --> 00:21:22,199 Speaker 1: reaction to what you saw in what they did but 407 00:21:22,240 --> 00:21:25,080 Speaker 1: also heard from them. Look, I think they're moving in 408 00:21:25,440 --> 00:21:32,879 Speaker 1: uh necessary, painful uh direction. It's clear that they're manifesting 409 00:21:33,040 --> 00:21:39,600 Speaker 1: determination on inflation, that they're recognizing that you don't stop 410 00:21:40,440 --> 00:21:46,000 Speaker 1: cars that's going much too fast in a completely comfortable 411 00:21:46,320 --> 00:21:51,720 Speaker 1: uh way. I think that is all welcome. I still 412 00:21:51,760 --> 00:21:56,679 Speaker 1: think they're too optimistic about how easy it's uh going 413 00:21:56,760 --> 00:22:02,000 Speaker 1: to be. Their forecasts that unemployment will be four and 414 00:22:02,040 --> 00:22:05,800 Speaker 1: a half percent, even as unemployment comes down, even as 415 00:22:05,840 --> 00:22:11,280 Speaker 1: inflation comes down to two I think is a very 416 00:22:11,320 --> 00:22:16,240 Speaker 1: optimistic view. It was also very optimistic when it was 417 00:22:16,359 --> 00:22:22,840 Speaker 1: echoed by Secretary Yelling. It's the right thing to hope for, 418 00:22:23,520 --> 00:22:27,760 Speaker 1: but we're not gonna beat the level of inflation that 419 00:22:27,840 --> 00:22:33,679 Speaker 1: we have now out of the system without some quite 420 00:22:33,720 --> 00:22:38,840 Speaker 1: substantial dislocations. No one should take any satisfaction in those 421 00:22:38,840 --> 00:22:44,400 Speaker 1: dislocations or want uh those uh dislocations or want to 422 00:22:44,440 --> 00:22:51,959 Speaker 1: see anyone unemployed. But the necessary medicine from where we 423 00:22:52,040 --> 00:22:57,879 Speaker 1: are is likely to involve a recession, as Sherman Powell 424 00:22:58,000 --> 00:23:05,360 Speaker 1: is being increasingly clear UH in recognizing. So I'm glad 425 00:23:05,400 --> 00:23:11,440 Speaker 1: to see the Fed adjusting in the direction of seeing 426 00:23:11,440 --> 00:23:16,359 Speaker 1: the need for more tightening and recognizing that unfortunately, that 427 00:23:16,520 --> 00:23:21,680 Speaker 1: tightening will have consequences that we've been talking about on 428 00:23:21,760 --> 00:23:26,040 Speaker 1: this show uh for a year. I still think there 429 00:23:26,040 --> 00:23:28,560 Speaker 1: may be a bit of underestimation of what's going to 430 00:23:28,640 --> 00:23:33,200 Speaker 1: be necessary in terms of tightening, but policy is now 431 00:23:33,920 --> 00:23:38,960 Speaker 1: much closer, uh, certainly with current market expectations uh, to 432 00:23:39,040 --> 00:23:44,120 Speaker 1: the appropriate place. The markets now expecting that fed funds 433 00:23:44,200 --> 00:23:50,320 Speaker 1: will be four and three quarters per cent next uh May. 434 00:23:50,680 --> 00:23:53,160 Speaker 1: Little wasn't much more than a year ago that they 435 00:23:53,160 --> 00:23:56,600 Speaker 1: were forecasting that it would be zero or very close 436 00:23:56,640 --> 00:24:01,240 Speaker 1: to that uh next May. That's a age or change. 437 00:24:01,720 --> 00:24:04,160 Speaker 1: But when you get as far behind the curve as 438 00:24:04,200 --> 00:24:07,040 Speaker 1: the Fed did, then you really have to hit the 439 00:24:07,080 --> 00:24:11,000 Speaker 1: brakes very, very hard, as you know well. There it's 440 00:24:11,000 --> 00:24:13,920 Speaker 1: not just the United States, it's also, for example, Great Britain, 441 00:24:13,960 --> 00:24:16,200 Speaker 1: and it strikes me there's a big contrast there. Certainly, 442 00:24:16,240 --> 00:24:18,359 Speaker 1: Bank of England says we've got a tightening that went 443 00:24:18,440 --> 00:24:20,439 Speaker 1: up fifty basis points this week, but in the meantime 444 00:24:20,520 --> 00:24:22,639 Speaker 1: you've got a new government over there that's going for 445 00:24:22,680 --> 00:24:25,919 Speaker 1: a fiscal stimulus, tax cutting, and whereas at least the 446 00:24:25,920 --> 00:24:27,880 Speaker 1: bode administration is getting out of the way of the Fed. 447 00:24:28,000 --> 00:24:28,960 Speaker 1: What do you make of what's going on in the 448 00:24:29,080 --> 00:24:35,640 Speaker 1: UK makes me very sorry to say, but I think 449 00:24:35,720 --> 00:24:41,400 Speaker 1: the UK is behaving a bit like an emerging market 450 00:24:41,560 --> 00:24:48,359 Speaker 1: turning itself into a submerging uh market. There's nothing in 451 00:24:48,359 --> 00:24:53,480 Speaker 1: the pattern of market response in the UK that suggests 452 00:24:53,520 --> 00:24:59,040 Speaker 1: anything but fear rather than confidence in the policy approaches 453 00:24:59,560 --> 00:25:04,000 Speaker 1: h being taken. It would not surprise me if the 454 00:25:04,040 --> 00:25:09,000 Speaker 1: pound eventually gets below a dollar if the current policy 455 00:25:09,119 --> 00:25:16,240 Speaker 1: path is maintained. This is simply not a moment for 456 00:25:16,280 --> 00:25:22,880 Speaker 1: the kind of naive, uh wishful thinking supply side economics 457 00:25:23,359 --> 00:25:30,680 Speaker 1: uh that is being pursued in Britain. Between Brexit, how 458 00:25:30,720 --> 00:25:34,920 Speaker 1: far the Bank of England got behind the curve, uh 459 00:25:34,960 --> 00:25:41,080 Speaker 1: and now these uh fiscal policies, I think Britain will 460 00:25:41,160 --> 00:25:48,040 Speaker 1: be remembered for having pursued the worst macro economic policies 461 00:25:48,119 --> 00:25:54,760 Speaker 1: of any major uh country in a long time. I 462 00:25:54,800 --> 00:25:59,200 Speaker 1: hope that at some point this policy pack goods will 463 00:25:59,240 --> 00:26:05,800 Speaker 1: be reversed or that somehow I am misjudging uh the situation, 464 00:26:06,400 --> 00:26:12,480 Speaker 1: but I am very fearful for Britain on the path 465 00:26:12,640 --> 00:26:16,119 Speaker 1: that it is traveling. Well, let's even go beyond the 466 00:26:16,160 --> 00:26:19,720 Speaker 1: United States. In the UK, this week center banks around 467 00:26:19,720 --> 00:26:22,720 Speaker 1: the world at its seven D basis points to interest rate. 468 00:26:22,800 --> 00:26:25,639 Speaker 1: So it's a global phenomenous point. The one thing that 469 00:26:25,680 --> 00:26:28,639 Speaker 1: comes out of all of it is a newly strengthened dollar. 470 00:26:28,760 --> 00:26:31,359 Speaker 1: I mean it sets record after record after record. What 471 00:26:31,440 --> 00:26:34,440 Speaker 1: does that mean for the global economy? Look, a strong 472 00:26:34,560 --> 00:26:39,800 Speaker 1: dollar is causing inflation in the United States to be 473 00:26:39,920 --> 00:26:44,159 Speaker 1: lower than an otherwise would be because it reduces import prices, 474 00:26:44,920 --> 00:26:51,119 Speaker 1: but it's pushing inflation up everywhere else. And because the 475 00:26:51,280 --> 00:26:57,480 Speaker 1: dollars the currency of international trade, it's taking lubrication out 476 00:26:57,520 --> 00:27:01,320 Speaker 1: of the system and it's putting x or burdens on 477 00:27:01,440 --> 00:27:04,320 Speaker 1: countries that have borrowed, because when they've borrowed in for 478 00:27:04,160 --> 00:27:09,080 Speaker 1: a foreign currency, it's usually been in the dollar. So 479 00:27:09,400 --> 00:27:17,200 Speaker 1: this is going to complicate uh macroeconomic management in uh 480 00:27:17,560 --> 00:27:24,720 Speaker 1: many countries. There's going to be continuing, I fear, uh distress. 481 00:27:25,680 --> 00:27:30,560 Speaker 1: Countries are attempting to counteract this with intervention, as the 482 00:27:30,640 --> 00:27:37,680 Speaker 1: Japanese UH did. I think we've mostly learned that when 483 00:27:37,720 --> 00:27:42,879 Speaker 1: you're intervening against the trend, when you're intervening against the 484 00:27:42,920 --> 00:27:47,480 Speaker 1: direction of monetary policy, which is certainly the case in Japan, 485 00:27:48,200 --> 00:27:52,919 Speaker 1: your intervention is as likely to create opportunities for speculators 486 00:27:53,440 --> 00:27:56,959 Speaker 1: as it is to really be effective in changing the 487 00:27:57,040 --> 00:28:02,000 Speaker 1: path of UH currencies. So I think this is going 488 00:28:02,080 --> 00:28:07,120 Speaker 1: to be an issue that is going to be with 489 00:28:07,359 --> 00:28:14,000 Speaker 1: us uh for uh some time. But I suspect for 490 00:28:14,640 --> 00:28:18,919 Speaker 1: the period ahead countries are going to have to be 491 00:28:18,960 --> 00:28:24,080 Speaker 1: adjusting to a very strong US dollar. This week we 492 00:28:24,200 --> 00:28:26,760 Speaker 1: learned the Tom Brady is his own form of maybe 493 00:28:26,840 --> 00:28:28,760 Speaker 1: quiet quitting. He's just gonna work four days a week 494 00:28:28,760 --> 00:28:31,119 Speaker 1: from now and he's gonna take Wednesday's off. Is there 495 00:28:31,160 --> 00:28:33,280 Speaker 1: are a larger issue here, to think in the United 496 00:28:33,240 --> 00:28:36,000 Speaker 1: States economy of people not being willing to work so hard? 497 00:28:36,640 --> 00:28:42,120 Speaker 1: I'm seeing some evidence of that, at least anecdotally. People 498 00:28:42,160 --> 00:28:46,960 Speaker 1: may work a bit shorter hours when they're working at home. 499 00:28:47,560 --> 00:28:51,959 Speaker 1: People maybe just a little more prone, uh in an 500 00:28:51,960 --> 00:28:54,680 Speaker 1: economy that is so red hot and where you can 501 00:28:54,680 --> 00:29:00,880 Speaker 1: get a new job easily, to tell their bosses where 502 00:29:01,040 --> 00:29:06,320 Speaker 1: to take it. We've had this phenomenon for the last 503 00:29:06,360 --> 00:29:11,840 Speaker 1: half year or so of terrible, terrible productivity performance. Some 504 00:29:11,960 --> 00:29:15,160 Speaker 1: of that's probably just an offset to the strong performance 505 00:29:15,240 --> 00:29:19,120 Speaker 1: we had earlier, but it may be that people are 506 00:29:19,160 --> 00:29:23,560 Speaker 1: just working a little less hard. You know, if everybody 507 00:29:23,640 --> 00:29:27,880 Speaker 1: worked a seven hour and forty five minute day rather 508 00:29:27,960 --> 00:29:31,720 Speaker 1: than an eight hour day. Practically, that would be the 509 00:29:31,800 --> 00:29:39,160 Speaker 1: equivalent of a three percent uh wage increase or, equivalently, 510 00:29:39,880 --> 00:29:44,920 Speaker 1: three decline in UH productivity. Okay, Larry, thank you so much. 511 00:29:44,960 --> 00:29:46,600 Speaker 1: Always great to have you with us as our special 512 00:29:46,640 --> 00:29:49,840 Speaker 1: contributor in Wall Street Week. He's Larry Summers of Harvard. Finally, 513 00:29:49,960 --> 00:29:53,840 Speaker 1: one more thought. Investments are going down the drain. The 514 00:29:53,920 --> 00:29:57,280 Speaker 1: era of cheap money brought with it some pretty loft evaluations, 515 00:29:57,320 --> 00:30:00,280 Speaker 1: particularly when it comes to tech firms, with evaluations so 516 00:30:00,400 --> 00:30:03,160 Speaker 1: rich that they were expressed as price to sales rather 517 00:30:03,200 --> 00:30:06,120 Speaker 1: than price to earnings, with Google peaking at a price 518 00:30:06,360 --> 00:30:10,840 Speaker 1: eight point nine times as sales, Netflix reaching over fourteen 519 00:30:10,960 --> 00:30:14,080 Speaker 1: time sales at one point, and facebook making it up 520 00:30:14,080 --> 00:30:18,440 Speaker 1: to just under fifteen time sales. Well, those wells of 521 00:30:18,520 --> 00:30:21,400 Speaker 1: easy money are drying up and with them some of 522 00:30:21,440 --> 00:30:25,160 Speaker 1: the astronomical valuations. All because the Federal Reserve, like just 523 00:30:25,200 --> 00:30:28,160 Speaker 1: about every other central bank in the developed world, is 524 00:30:28,200 --> 00:30:31,240 Speaker 1: committed to raising rates to get inflation backed down towards 525 00:30:31,320 --> 00:30:34,280 Speaker 1: that two PC target. We're not at that level. Clearly 526 00:30:34,320 --> 00:30:37,760 Speaker 1: today we're, you know, we're just uh, we've just moved, 527 00:30:37,800 --> 00:30:40,320 Speaker 1: I think, probably into the very, the very lowest level 528 00:30:40,560 --> 00:30:44,000 Speaker 1: of what might be restrictive. But never fear. There is 529 00:30:44,160 --> 00:30:47,320 Speaker 1: one place where evaluations are as high as a tidal 530 00:30:47,360 --> 00:30:50,720 Speaker 1: wave or even higher. But it's not in tech, it's in, 531 00:30:51,240 --> 00:30:59,760 Speaker 1: wait for it, sewers. Yes, sewers, home to teenage mutant 532 00:30:59,840 --> 00:31:03,080 Speaker 1: in to charitles, legends of alligators and, of course, tons 533 00:31:03,120 --> 00:31:07,200 Speaker 1: and tons of waste and water treatment. In a Bloomberg column, 534 00:31:07,240 --> 00:31:09,960 Speaker 1: Le And dunning takes us through a deal announced for 535 00:31:10,000 --> 00:31:13,320 Speaker 1: the renewables company next era energy to buy the sewer 536 00:31:13,360 --> 00:31:17,000 Speaker 1: and water system of Towa Mensin. That's a small township 537 00:31:17,080 --> 00:31:20,200 Speaker 1: thirty miles north of Philadelphia. And the price. The price 538 00:31:20,240 --> 00:31:22,680 Speaker 1: was a hundred and fifteen million dollars. Now that's not 539 00:31:22,760 --> 00:31:25,800 Speaker 1: a big deal for a hundred and seventy billion dollar company, 540 00:31:25,840 --> 00:31:28,440 Speaker 1: but take a look at the valuation, a whopping at 541 00:31:28,440 --> 00:31:32,640 Speaker 1: twenty one times revenue, way more than apple or Microsoft 542 00:31:32,720 --> 00:31:36,880 Speaker 1: or facebook ever dreamed of. Next era executive promised the 543 00:31:36,880 --> 00:31:39,840 Speaker 1: town council that not all of that purchase price would 544 00:31:39,840 --> 00:31:43,120 Speaker 1: be reflected in higher rates. We offered a hundred and 545 00:31:43,160 --> 00:31:47,080 Speaker 1: fifty million dollar purchase price and, as I think it's 546 00:31:47,160 --> 00:31:49,840 Speaker 1: very important to express that we do not intend to 547 00:31:49,880 --> 00:31:53,560 Speaker 1: recover that full purchase price from the customers. But whether 548 00:31:53,600 --> 00:31:56,720 Speaker 1: customers foot the whole bill or not, next era looks 549 00:31:56,760 --> 00:31:59,920 Speaker 1: to make money on this deal. Rates for water expe 550 00:32:00,200 --> 00:32:03,080 Speaker 1: to ramp up substantially in coming years. And if you're 551 00:32:03,080 --> 00:32:05,960 Speaker 1: a resident of tower, means and there are definitely some 552 00:32:06,120 --> 00:32:10,240 Speaker 1: remaining questions. Why are we selling this stick? This is 553 00:32:10,240 --> 00:32:13,640 Speaker 1: a gold mine. Why are you doing this? That does 554 00:32:13,680 --> 00:32:15,960 Speaker 1: it for this episode of Wall Street Week. I'm David Weston. 555 00:32:16,160 --> 00:32:18,000 Speaker 1: This is Bloomberg. See you next week.