1 00:00:00,240 --> 00:00:04,960 Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 2 00:00:05,040 --> 00:00:07,360 Speaker 1: The economy is in the process of rebounding. Will the 3 00:00:07,400 --> 00:00:10,479 Speaker 1: Federal Reserve have its own digital currency? The financial stories 4 00:00:10,520 --> 00:00:12,879 Speaker 1: that cheap hard work. Many people think the eels are 5 00:00:12,880 --> 00:00:15,080 Speaker 1: just going to keep marching up. We have more spending 6 00:00:15,120 --> 00:00:17,200 Speaker 1: coming out of Congress. One of the big questions I 7 00:00:17,200 --> 00:00:19,880 Speaker 1: think on investor's minds inflations through the eyes of the 8 00:00:19,880 --> 00:00:23,560 Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary 9 00:00:23,640 --> 00:00:27,240 Speaker 1: Bryan wynhand a backup America, Will Smart, CEO of Charlie Sharp. 10 00:00:27,360 --> 00:00:31,560 Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio. 11 00:00:32,240 --> 00:00:35,240 Speaker 1: The new year picks up right where last year left 12 00:00:35,240 --> 00:00:39,199 Speaker 1: off with COVID, the Fed and jobs. This is Bloomberg 13 00:00:39,240 --> 00:00:43,760 Speaker 1: Wall Street Week. I'm David Weston. It was a whole 14 00:00:43,840 --> 00:00:46,400 Speaker 1: new year this week, but in some ways it felt 15 00:00:46,440 --> 00:00:50,520 Speaker 1: like an extension of one, with the explosion in omicron 16 00:00:50,600 --> 00:00:53,520 Speaker 1: cases continuing to set new records in the United States 17 00:00:53,560 --> 00:00:57,160 Speaker 1: and for that matter, around the world. COVID in the 18 00:00:57,320 --> 00:01:00,280 Speaker 1: environment here and in the world is probably here to day, 19 00:01:00,320 --> 00:01:03,760 Speaker 1: but COVID as we're dealing with it now is not 20 00:01:03,800 --> 00:01:06,720 Speaker 1: here to state, but so far the cases appeared to 21 00:01:06,760 --> 00:01:09,400 Speaker 1: be less severe, and the new mayor of New York, 22 00:01:09,560 --> 00:01:12,520 Speaker 1: Eric Adams, spoke for many when he said, we just 23 00:01:12,720 --> 00:01:16,200 Speaker 1: need to move forward and get our lives back. The 24 00:01:16,280 --> 00:01:19,160 Speaker 1: city is going to function, going to be safe, and 25 00:01:19,200 --> 00:01:21,600 Speaker 1: we're going to stay open. When it comes to the FED, 26 00:01:21,840 --> 00:01:24,240 Speaker 1: we learned this week that it really means what it 27 00:01:24,280 --> 00:01:28,360 Speaker 1: says about tightening monetary policy, releasing minutes from its December 28 00:01:28,400 --> 00:01:32,200 Speaker 1: meeting saying that quote, it may become warranted to increase 29 00:01:32,280 --> 00:01:35,040 Speaker 1: the federal funds rate sooner or at a faster pace, 30 00:01:35,480 --> 00:01:38,520 Speaker 1: and even that reducing the balance sheet may come on 31 00:01:38,600 --> 00:01:42,520 Speaker 1: the heels of any rates tightening, which Michael Cantopolis of 32 00:01:42,600 --> 00:01:47,400 Speaker 1: Richard Bernstein said wasn't necessarily expected March a live meeting 33 00:01:47,440 --> 00:01:50,680 Speaker 1: for hikes. I think the only surprise perhaps was sort 34 00:01:50,680 --> 00:01:53,360 Speaker 1: of the view on the balance sheet runoff, and if 35 00:01:53,400 --> 00:01:56,000 Speaker 1: we had any doubts remaining about the FED meeting being 36 00:01:56,120 --> 00:01:58,400 Speaker 1: live in March, they may have been answered when the 37 00:01:58,480 --> 00:02:01,919 Speaker 1: job's numbers came in on Friday, disappointing on the overall number, 38 00:02:01,960 --> 00:02:04,920 Speaker 1: but showing robust growth in wages of four point seven 39 00:02:04,920 --> 00:02:07,720 Speaker 1: percent year every year and an unemployment rate falling down 40 00:02:07,720 --> 00:02:10,800 Speaker 1: to three point nine percent, way below what anyone expected 41 00:02:10,840 --> 00:02:14,079 Speaker 1: at this point. The markets took this eventful week as 42 00:02:14,080 --> 00:02:16,920 Speaker 1: a rerating of risk, with the SMP five hundred down 43 00:02:16,960 --> 00:02:19,400 Speaker 1: almost two percent for the week, it's worse start to 44 00:02:19,480 --> 00:02:22,120 Speaker 1: a year since two thousand sixteen, while the NAZAC was 45 00:02:22,200 --> 00:02:24,840 Speaker 1: even worse, down over four and a half percent, and 46 00:02:25,000 --> 00:02:27,919 Speaker 1: bonds sold off, with the ten year yield adding over 47 00:02:28,000 --> 00:02:30,919 Speaker 1: twenty five basis points ending up over one point seven 48 00:02:31,040 --> 00:02:33,840 Speaker 1: six percent. Here to explain this wild first week of 49 00:02:33,880 --> 00:02:36,480 Speaker 1: the new year are Katie Coach Goldman Sachs Global co 50 00:02:36,639 --> 00:02:39,519 Speaker 1: head of Fundamental Equity Funds and Greg Peters co c 51 00:02:39,680 --> 00:02:42,440 Speaker 1: i O of PGIM Fixed Income. So welcome both of 52 00:02:42,440 --> 00:02:44,400 Speaker 1: you to be back on Wall Street week. Greg'm gonna 53 00:02:44,400 --> 00:02:46,960 Speaker 1: start with you, because to some exsect, fixed income bonds 54 00:02:47,000 --> 00:02:49,880 Speaker 1: really drove a lot of the week. Explain what happened here, 55 00:02:49,880 --> 00:02:52,160 Speaker 1: because we did have the Fed minutes, but but we 56 00:02:52,160 --> 00:02:55,360 Speaker 1: were getting increased to rates even before we got to 57 00:02:55,440 --> 00:02:58,880 Speaker 1: the minutes. Yea, So the markets were skinnish before the minutes, 58 00:02:59,000 --> 00:03:01,359 Speaker 1: and then the minutes came Man, and as you mentioned, 59 00:03:01,440 --> 00:03:04,880 Speaker 1: David it bits, they reaffirmed what they said before. The 60 00:03:04,960 --> 00:03:07,760 Speaker 1: surprise was though the balance sheet runoff. I think that 61 00:03:08,080 --> 00:03:12,239 Speaker 1: did take investors by surprise, But what you really experienced 62 00:03:12,240 --> 00:03:15,560 Speaker 1: this week was just a rerating of the FED. Uh. 63 00:03:15,600 --> 00:03:19,959 Speaker 1: And so you've seen FED hikes pulled forward more aggressive 64 00:03:20,560 --> 00:03:23,840 Speaker 1: over the near term, and I think the markets didn't 65 00:03:23,919 --> 00:03:26,200 Speaker 1: like that. Now. I think it's important to go back 66 00:03:26,240 --> 00:03:31,000 Speaker 1: in time though, So March wasn't even on the table contemplated. Uh, 67 00:03:31,080 --> 00:03:33,359 Speaker 1: you know, six months ago, three months ago, and now 68 00:03:33,400 --> 00:03:37,440 Speaker 1: it's a live meeting, so it really representative of how 69 00:03:37,520 --> 00:03:42,000 Speaker 1: quickly the FED has kind of shifted gears here. So 70 00:03:41,880 --> 00:03:44,840 Speaker 1: it's okay. Over to you on the equity side. Equities 71 00:03:45,000 --> 00:03:47,640 Speaker 1: might have reacted violent to this, I wouldn't say they did. 72 00:03:47,640 --> 00:03:49,720 Speaker 1: The main story I thought from the week you correct 73 00:03:49,760 --> 00:03:52,200 Speaker 1: me on equities was able to tech. Yeah, tech had 74 00:03:52,360 --> 00:03:55,000 Speaker 1: a very disappointing week of performance. Let me let me 75 00:03:55,040 --> 00:03:58,160 Speaker 1: just back up and say that we have had the 76 00:03:58,200 --> 00:04:01,000 Speaker 1: worst start to equity market since two thousands and sixteen, 77 00:04:01,040 --> 00:04:03,440 Speaker 1: and kind of big picture, we've had this twelve years 78 00:04:03,880 --> 00:04:06,600 Speaker 1: um of a great environment of rates going down and 79 00:04:06,640 --> 00:04:08,960 Speaker 1: markets going up, and we're all kind of getting used 80 00:04:09,000 --> 00:04:11,400 Speaker 1: to a new normal um and so that's played out 81 00:04:11,440 --> 00:04:14,280 Speaker 1: and the volatility that we've had, and we're now down 82 00:04:14,600 --> 00:04:16,400 Speaker 1: more than one and a half percent year to date 83 00:04:16,440 --> 00:04:19,520 Speaker 1: on equities. As you pointed out, the locus of a 84 00:04:19,560 --> 00:04:22,520 Speaker 1: lot of that pressure has been in technology UM the 85 00:04:22,600 --> 00:04:25,040 Speaker 1: reason for that, and people have varying levels of familiarity. 86 00:04:25,080 --> 00:04:27,039 Speaker 1: So I'll just say is that UM, when you look 87 00:04:27,080 --> 00:04:29,600 Speaker 1: at tech companies, most of the values far out at 88 00:04:29,680 --> 00:04:32,640 Speaker 1: terminal values. So when the rate curve steepens, that part 89 00:04:32,640 --> 00:04:35,520 Speaker 1: of the market sells off the most. It's really raising 90 00:04:35,560 --> 00:04:37,919 Speaker 1: this question for everybody who's had a lot of capital 91 00:04:38,000 --> 00:04:41,240 Speaker 1: allocated to tech UM is tech over UM? Is this 92 00:04:41,400 --> 00:04:44,000 Speaker 1: the end of of tech out performance? We we don't 93 00:04:44,040 --> 00:04:46,640 Speaker 1: think that's the case. We continue to have UM a 94 00:04:46,680 --> 00:04:49,640 Speaker 1: lot of capital committed there. We appreciate there's gonna be 95 00:04:49,680 --> 00:04:53,040 Speaker 1: some near term headwinds, but very long term, even medium 96 00:04:53,040 --> 00:04:55,680 Speaker 1: to long term, we know that even the companies in 97 00:04:55,720 --> 00:04:57,400 Speaker 1: the value part of the market that are leading the 98 00:04:57,480 --> 00:05:00,320 Speaker 1: market market now. So take banks for example, one of 99 00:05:00,360 --> 00:05:02,320 Speaker 1: the number one things that they're going to spend money 100 00:05:02,320 --> 00:05:06,600 Speaker 1: on over the coming years is innovating themselves on AI, UH, 101 00:05:06,720 --> 00:05:10,360 Speaker 1: cyber security, moving workloads to the cloud. And so we 102 00:05:10,400 --> 00:05:13,680 Speaker 1: know that all companies, regardless of whether their value or growth, 103 00:05:13,880 --> 00:05:16,240 Speaker 1: are going to be doing a lot of tech spending 104 00:05:16,520 --> 00:05:19,000 Speaker 1: and that should actually included these companies over the medium 105 00:05:19,040 --> 00:05:21,680 Speaker 1: to long term. So we would encourage people to look 106 00:05:21,680 --> 00:05:26,200 Speaker 1: at these dislocations as as opportunities to pick up exposure selectively. 107 00:05:26,480 --> 00:05:28,440 Speaker 1: So thank you mentioned the jobs numbers. Why don't you 108 00:05:28,480 --> 00:05:30,200 Speaker 1: unpack that a little bit? What jumped out at you. 109 00:05:30,480 --> 00:05:32,279 Speaker 1: One of the things that I noticed, obviously was the 110 00:05:32,360 --> 00:05:36,560 Speaker 1: increase in wages. Absolutely, uh. That was a clear focus 111 00:05:36,680 --> 00:05:40,760 Speaker 1: from a market perspective. The headline number was disappointing. Let's say, 112 00:05:40,839 --> 00:05:43,680 Speaker 1: you know, a hundred ninety nine new ads, but I 113 00:05:43,680 --> 00:05:46,200 Speaker 1: think you have to look at the four month average, 114 00:05:46,200 --> 00:05:49,240 Speaker 1: which is substantially higher. It's about three sixty nine. So 115 00:05:49,360 --> 00:05:54,040 Speaker 1: what the market really looked at closely was the acceleration 116 00:05:54,480 --> 00:05:57,560 Speaker 1: uh in wages, and so I will say, we haven't 117 00:05:57,560 --> 00:06:02,039 Speaker 1: seen those wages create of broader inflation pressures. But that's 118 00:06:02,080 --> 00:06:05,640 Speaker 1: the worry. I think that's the classic economic worry, uh 119 00:06:05,680 --> 00:06:09,240 Speaker 1: that the many have, and that's why you've you've seen 120 00:06:09,279 --> 00:06:12,160 Speaker 1: the rhetoric really shift and get cemented around that March 121 00:06:12,240 --> 00:06:15,960 Speaker 1: meeting be being in place. So it's really about wages. 122 00:06:16,440 --> 00:06:20,479 Speaker 1: As UH investors and economists in particular are worried about 123 00:06:21,160 --> 00:06:25,560 Speaker 1: wages really kind of infiltrating the entire system, thereby creating 124 00:06:25,600 --> 00:06:29,200 Speaker 1: broad based inflation. But the wage issue, in my mind, 125 00:06:29,480 --> 00:06:33,000 Speaker 1: is an important positive development, not a negative one, and 126 00:06:33,040 --> 00:06:36,479 Speaker 1: I think it's been flipped around unnecessarily. Yeah, it's always 127 00:06:36,480 --> 00:06:38,200 Speaker 1: easier to criticize when we're off with the bleachers. And 128 00:06:38,279 --> 00:06:40,599 Speaker 1: that's on the arena, right, Thank you so much. Greg 129 00:06:40,640 --> 00:06:42,560 Speaker 1: Peters and Katie Cash. They're both gonna stay with us 130 00:06:42,720 --> 00:06:44,680 Speaker 1: as we turn from this week in the market's the 131 00:06:44,800 --> 00:06:47,760 Speaker 1: longer term implications for investors. That's gonna up next on 132 00:06:47,800 --> 00:06:59,680 Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week. 133 00:07:00,000 --> 00:07:03,560 Speaker 1: If David Weston from Bloomberg Radio. Still with us are 134 00:07:03,600 --> 00:07:06,599 Speaker 1: Greg Peters of PGM Fixed Income and Katie Cotch of 135 00:07:06,600 --> 00:07:09,200 Speaker 1: Goldman Sachs. So, Katie, let's turn from this week to 136 00:07:09,240 --> 00:07:11,360 Speaker 1: the longer term with respect to equities first, and we'll 137 00:07:11,360 --> 00:07:15,200 Speaker 1: turn to Greg on fixed income as we go into two. 138 00:07:15,480 --> 00:07:19,280 Speaker 1: You draw an interesting distinction between disruptors and disrupt dead. 139 00:07:19,800 --> 00:07:21,720 Speaker 1: Tell us about some of the disruptions you're looking at 140 00:07:21,760 --> 00:07:24,400 Speaker 1: coming up this year for equities or whenever we turned 141 00:07:24,480 --> 00:07:26,440 Speaker 1: the page on the calendar for a new year. We 142 00:07:26,480 --> 00:07:29,200 Speaker 1: do like to do some longer term thinking about where 143 00:07:29,200 --> 00:07:31,320 Speaker 1: we've come from an equity markets and where we're going. 144 00:07:31,400 --> 00:07:33,640 Speaker 1: And I just think it's really interesting to know we 145 00:07:33,680 --> 00:07:36,360 Speaker 1: were looking at the top ten companies as at the 146 00:07:36,400 --> 00:07:39,280 Speaker 1: beginning of two and if you go back twenty years, 147 00:07:39,320 --> 00:07:42,520 Speaker 1: there's actually only one that's still a top ten company, 148 00:07:42,520 --> 00:07:46,320 Speaker 1: which is Microsoft UM and it's five x over that period. 149 00:07:46,520 --> 00:07:49,280 Speaker 1: The nine others on that list have actually detracted a 150 00:07:49,360 --> 00:07:53,200 Speaker 1: total of two thirty five billion of market cap over 151 00:07:53,240 --> 00:07:56,240 Speaker 1: that period, and I think that just underscores the importance 152 00:07:56,280 --> 00:07:58,880 Speaker 1: of of being on the right side of the disruption 153 00:07:59,280 --> 00:08:01,440 Speaker 1: um and picking the companies that you think are going 154 00:08:01,520 --> 00:08:04,640 Speaker 1: to drive forward good fortunes in the future. We're really 155 00:08:04,680 --> 00:08:07,400 Speaker 1: focused just to end on on three main themes going 156 00:08:07,440 --> 00:08:09,120 Speaker 1: into this year, but I actually think they're going to 157 00:08:09,200 --> 00:08:12,600 Speaker 1: be relevant for investors for most of the decade. And 158 00:08:12,640 --> 00:08:15,840 Speaker 1: those themes are the future of healthcare, everything from genomics 159 00:08:15,840 --> 00:08:18,760 Speaker 1: to robotic surgery. The future of the planet, So this 160 00:08:18,840 --> 00:08:21,840 Speaker 1: idea of transitioning to a more sustainable planet. Yes it's 161 00:08:21,880 --> 00:08:27,400 Speaker 1: about renewables, but also UM sustainable consumption, circular economy, were 162 00:08:27,440 --> 00:08:30,360 Speaker 1: invested in a company, for example, that recycles genes. And 163 00:08:30,360 --> 00:08:33,760 Speaker 1: then finally we're talking about tech earlier. We're big believers 164 00:08:33,800 --> 00:08:36,400 Speaker 1: that we need to invest beyond the fangs, down the 165 00:08:36,440 --> 00:08:39,199 Speaker 1: market cap and around the world because tech power is 166 00:08:39,200 --> 00:08:42,440 Speaker 1: going to get diffused out of Silicon Valley um into 167 00:08:42,480 --> 00:08:44,480 Speaker 1: the smaller cap part of the market. But also have 168 00:08:44,559 --> 00:08:48,640 Speaker 1: many local winners around emerging markets. Take pack Sagora, for example, 169 00:08:48,640 --> 00:08:51,400 Speaker 1: and a company listed in Brazil. It's a micro merchant 170 00:08:51,480 --> 00:08:54,040 Speaker 1: expert and payments in Brazil. And so these are some 171 00:08:54,080 --> 00:08:55,640 Speaker 1: of the themes that we think are gonna matter in 172 00:08:56,360 --> 00:09:00,120 Speaker 1: two but well beyond. For long term oriented investors, those 173 00:09:00,160 --> 00:09:02,480 Speaker 1: are some great macro things. That's keep an eye and 174 00:09:02,520 --> 00:09:04,880 Speaker 1: Greg come over to you. I'm gonna make it simple. 175 00:09:04,960 --> 00:09:07,040 Speaker 1: Perhaps it is. It looks at me for fixed income 176 00:09:07,080 --> 00:09:09,600 Speaker 1: it's really all about the FED and frankly, whether there 177 00:09:09,640 --> 00:09:11,440 Speaker 1: might be a policy error. I mean, because now we 178 00:09:11,480 --> 00:09:13,880 Speaker 1: know we're gonna have some tapering of the buying, we're 179 00:09:13,880 --> 00:09:15,880 Speaker 1: gonna have some rate increases, and now this week we 180 00:09:15,880 --> 00:09:18,520 Speaker 1: found out we're gonna actually have some quanditive tape tightening. 181 00:09:18,520 --> 00:09:20,920 Speaker 1: It looks like no, I completely agree. I think the 182 00:09:21,000 --> 00:09:24,360 Speaker 1: fundamental risk for the markets this year, not just fixed 183 00:09:24,360 --> 00:09:28,080 Speaker 1: income but broadly speaking UH is a central bank policy 184 00:09:28,160 --> 00:09:32,360 Speaker 1: error and it looks like we're creaning towards that. And look, 185 00:09:32,400 --> 00:09:36,240 Speaker 1: it is a very difficult environment to ascertain UH. You 186 00:09:36,280 --> 00:09:42,199 Speaker 1: know that so much is clouded by COVID opening, reopening, closures, 187 00:09:42,320 --> 00:09:46,280 Speaker 1: those types of things. But but for us, we're looking 188 00:09:46,320 --> 00:09:49,200 Speaker 1: at the fixed income market in several ways. First from 189 00:09:49,240 --> 00:09:52,800 Speaker 1: a yield perspective, with the tenure currently just called it, 190 00:09:53,880 --> 00:09:56,600 Speaker 1: that's exactly where we hit in March of last year. 191 00:09:57,280 --> 00:09:59,839 Speaker 1: That was the top. I think we're getting close to 192 00:10:00,040 --> 00:10:03,520 Speaker 1: the top in yield once again, so it might overshoot. 193 00:10:03,559 --> 00:10:06,080 Speaker 1: So the near term is always more difficult, of course, 194 00:10:06,440 --> 00:10:09,840 Speaker 1: but I think you know, looking out over time at 195 00:10:09,880 --> 00:10:13,360 Speaker 1: one seventy five ten year we actually see value there. 196 00:10:13,440 --> 00:10:16,920 Speaker 1: And we see value because we think there's a gravitational 197 00:10:17,200 --> 00:10:21,880 Speaker 1: pull towards disinflation. There's a demographic issue here in the 198 00:10:22,000 --> 00:10:25,360 Speaker 1: U S and globally UH and UH in many resuspects. 199 00:10:25,840 --> 00:10:28,240 Speaker 1: And let's not forget we put on a lot of 200 00:10:28,320 --> 00:10:32,000 Speaker 1: debt to fight the virus and that acts as a 201 00:10:32,800 --> 00:10:36,360 Speaker 1: draw and growth. So for that reason we're we're actually 202 00:10:36,360 --> 00:10:41,640 Speaker 1: pretty constructive as yields kind of hit these levels here. Uh, 203 00:10:41,640 --> 00:10:43,720 Speaker 1: and so we might be wrong over the near term, 204 00:10:43,800 --> 00:10:46,400 Speaker 1: of course, as things have a tendency of overshooting. I 205 00:10:46,520 --> 00:10:49,800 Speaker 1: think six months and twelve months from now, Uh, you'll 206 00:10:49,800 --> 00:10:52,440 Speaker 1: be rewarded. So I'm gonna guess, Katie. But I'm gonna 207 00:10:52,440 --> 00:10:54,320 Speaker 1: guess that if in fact Greg is right that we're 208 00:10:54,320 --> 00:10:56,520 Speaker 1: talking one seventy five, it could overshoot for a time 209 00:10:56,520 --> 00:10:58,400 Speaker 1: to come back down. You're gonna be fine with that. 210 00:10:58,400 --> 00:11:00,920 Speaker 1: On the equity side, yeah, we should it. Equity markets 211 00:11:00,920 --> 00:11:03,120 Speaker 1: should be able to digest them. Just to be very 212 00:11:03,160 --> 00:11:05,840 Speaker 1: clear on our outlook. While we do expect volatility and 213 00:11:05,880 --> 00:11:07,640 Speaker 1: as you mentioned at the outset, we haven't had a 214 00:11:07,679 --> 00:11:10,720 Speaker 1: great start, we do actually think equity markets at golden 215 00:11:10,760 --> 00:11:13,240 Speaker 1: success that management. We believe that they will out perform 216 00:11:13,320 --> 00:11:14,960 Speaker 1: cash and bonds. So we do think it's the right 217 00:11:15,000 --> 00:11:17,880 Speaker 1: asset class to be in. One might need to look 218 00:11:17,920 --> 00:11:20,280 Speaker 1: further than the broad US equity market, which has been 219 00:11:20,480 --> 00:11:22,959 Speaker 1: a great thing to own the last twelve years. That 220 00:11:23,040 --> 00:11:24,560 Speaker 1: was the best thing to own in the markets. You 221 00:11:24,559 --> 00:11:26,959 Speaker 1: may need to look further to that abroad to emerging 222 00:11:27,000 --> 00:11:29,760 Speaker 1: markets for small cap but we do expect equity markets 223 00:11:29,800 --> 00:11:32,200 Speaker 1: to outperform, and that field level should be should be 224 00:11:32,240 --> 00:11:34,000 Speaker 1: fine for equity market. Well, let's just pick up on 225 00:11:34,000 --> 00:11:35,760 Speaker 1: that emerging markets here and go back to Greg for 226 00:11:35,800 --> 00:11:37,640 Speaker 1: a moment, because Greg, and You've thought a fair amount 227 00:11:37,640 --> 00:11:39,360 Speaker 1: about what's going on with China, because China is off 228 00:11:39,400 --> 00:11:41,440 Speaker 1: to a rather rocky start at the beginning of years 229 00:11:41,440 --> 00:11:44,240 Speaker 1: as well in their property market, and so the debt 230 00:11:44,320 --> 00:11:46,640 Speaker 1: over there, what do you make of emerging market debt, 231 00:11:46,679 --> 00:11:50,840 Speaker 1: either China or otherwise. So China and emerging market probably 232 00:11:50,920 --> 00:11:54,080 Speaker 1: have been a value trap, right, Uh, until one of 233 00:11:54,080 --> 00:11:57,000 Speaker 1: the oddities of the recovery here that typically kind of 234 00:11:57,040 --> 00:12:01,959 Speaker 1: emerging markets have a higher beta component versus developed markets, 235 00:12:01,960 --> 00:12:04,079 Speaker 1: and you haven't seen that, and there's reasons behind it, 236 00:12:04,200 --> 00:12:07,920 Speaker 1: of course. Uh. And so in fixed income uh e 237 00:12:08,200 --> 00:12:11,199 Speaker 1: M has underperformed UM, and so I think it might 238 00:12:11,240 --> 00:12:13,960 Speaker 1: be a tad early still. But you know, as I 239 00:12:14,040 --> 00:12:17,559 Speaker 1: look at two thousand and twenty two, I'm looking at 240 00:12:17,559 --> 00:12:23,360 Speaker 1: emerging markets as an area for real alpha opportunity. So UM, 241 00:12:23,520 --> 00:12:26,640 Speaker 1: I think it's been a value trap for good reason. 242 00:12:26,840 --> 00:12:30,240 Speaker 1: But I think it's changing and pricing is changing. Uh. 243 00:12:30,280 --> 00:12:33,320 Speaker 1: And of course it's predicated on central bank policy there 244 00:12:33,360 --> 00:12:36,120 Speaker 1: as well as UH you need to see inflation kind 245 00:12:36,120 --> 00:12:39,319 Speaker 1: of come off the boil, but but see real opportunities 246 00:12:39,360 --> 00:12:42,200 Speaker 1: and China is not what it used to be, and 247 00:12:42,240 --> 00:12:45,199 Speaker 1: I think investors need to kind of get a grip 248 00:12:45,240 --> 00:12:49,160 Speaker 1: around that new reality, which is China is slowing and 249 00:12:49,160 --> 00:12:53,360 Speaker 1: will continue to slow UM and it's just a natural 250 00:12:53,440 --> 00:12:56,920 Speaker 1: kind of maturation process right of the economy. So it 251 00:12:56,960 --> 00:13:01,000 Speaker 1: has a very different UH input into the global economy 252 00:13:01,040 --> 00:13:04,440 Speaker 1: as a result, and I think over time investors will 253 00:13:04,440 --> 00:13:08,040 Speaker 1: continue to kind of understand what that really beats Kenny. 254 00:13:08,120 --> 00:13:10,839 Speaker 1: One thing that we dealt with in we're still dealing 255 00:13:10,880 --> 00:13:13,960 Speaker 1: with today is semiconductors, And I wonder about the semiconductor 256 00:13:14,040 --> 00:13:16,360 Speaker 1: sector and how you see it developing because obviously we've 257 00:13:16,400 --> 00:13:19,360 Speaker 1: had a real shortage, real supply chain problems there as 258 00:13:19,400 --> 00:13:22,120 Speaker 1: a fairly concentrated supply. At the same time, there's a 259 00:13:22,120 --> 00:13:24,839 Speaker 1: lot of talk about huge investment in production, including in 260 00:13:24,840 --> 00:13:28,040 Speaker 1: the United States. Yeah, SEMy, when we look at twenty 261 00:13:28,080 --> 00:13:30,680 Speaker 1: two is a year. Last year was recovery markets up. 262 00:13:31,520 --> 00:13:34,240 Speaker 1: We're really focused on resilience across a lot of things 263 00:13:34,280 --> 00:13:36,719 Speaker 1: as being a great investment opportunity in the supply chain 264 00:13:36,800 --> 00:13:39,319 Speaker 1: is certainly one, and Sammy's is the most important part 265 00:13:39,400 --> 00:13:42,439 Speaker 1: of it. Also very relevant to China, which Greg just 266 00:13:42,480 --> 00:13:45,800 Speaker 1: spoke about so very big picture. Twelve percent of US 267 00:13:45,840 --> 00:13:49,960 Speaker 1: GDP roughly runs through the factory floors of Taiwan because 268 00:13:50,080 --> 00:13:52,800 Speaker 1: there is one company in Taiwan that has the ability 269 00:13:52,880 --> 00:13:55,240 Speaker 1: to manufacture at the leading edge of logic, which is 270 00:13:55,280 --> 00:13:57,560 Speaker 1: about five nimes. And I'm not going to go into 271 00:13:57,600 --> 00:13:59,720 Speaker 1: too much detail, but the headline is in the US 272 00:13:59,800 --> 00:14:02,880 Speaker 1: we really can only manufacture at ten nanometers and that's 273 00:14:02,920 --> 00:14:05,720 Speaker 1: a problem because all of the technology we've spoken about 274 00:14:05,760 --> 00:14:08,000 Speaker 1: on this segment that we're so excited about, whether it's 275 00:14:08,000 --> 00:14:12,719 Speaker 1: the cloud, ai Fi, g et cetera, their chip dependent technologies, 276 00:14:13,200 --> 00:14:15,880 Speaker 1: and we do not as a country, and actually the 277 00:14:15,960 --> 00:14:18,640 Speaker 1: Chinese feel the same way, want to be dependent on 278 00:14:18,640 --> 00:14:21,240 Speaker 1: one public company. From the perspective of the US and 279 00:14:21,280 --> 00:14:24,400 Speaker 1: what many people would argue as a hot geopolitical zone 280 00:14:24,760 --> 00:14:27,840 Speaker 1: for the manufacturing of our most important technologies and for 281 00:14:27,920 --> 00:14:30,600 Speaker 1: a very significant portion of GDP. Thank you so much 282 00:14:30,640 --> 00:14:32,280 Speaker 1: for great peters of Peach and fix income and to 283 00:14:32,360 --> 00:14:37,000 Speaker 1: Katie Catch of Golden Sacks coming up, the threat to 284 00:14:37,040 --> 00:14:40,320 Speaker 1: capitalism if we don't start building bridges to a dynamic 285 00:14:40,480 --> 00:14:43,760 Speaker 1: and disruptive future instead of building walls to try to 286 00:14:43,840 --> 00:14:46,400 Speaker 1: keep it away. We talked with Glenn Hubbard of the 287 00:14:46,400 --> 00:14:49,720 Speaker 1: Columbia Business School about his new book, The Wall and 288 00:14:49,840 --> 00:14:53,360 Speaker 1: the Bridge. We all often talk about the growth and 289 00:14:53,520 --> 00:14:56,800 Speaker 1: dynamism side of capitalism. That's why we're in the game. 290 00:14:56,880 --> 00:15:02,200 Speaker 1: It's hugely important. The web site of it's des This 291 00:15:02,440 --> 00:15:07,680 Speaker 1: is Wall Street Week on Bloomberg. This is Bloomberg Wall 292 00:15:07,720 --> 00:15:14,400 Speaker 1: Street Week with David Weston from Bloomberg Radio. Walls, we 293 00:15:14,480 --> 00:15:17,040 Speaker 1: spent much of the nineties tearing them down, whether the 294 00:15:17,080 --> 00:15:24,080 Speaker 1: physical kind Mr garbuschov teared down this wall or the 295 00:15:24,120 --> 00:15:27,880 Speaker 1: walls of tariffs and regulation. But then competition from foreign 296 00:15:27,920 --> 00:15:30,760 Speaker 1: goods and from technologies started to hit people where it 297 00:15:30,920 --> 00:15:35,040 Speaker 1: hurt in their jobs. Our jobs are going to Mexico, 298 00:15:35,440 --> 00:15:38,800 Speaker 1: our jobs are going to other countries. China and others 299 00:15:38,920 --> 00:15:41,840 Speaker 1: are making our product. We don't make it anymore, and 300 00:15:41,880 --> 00:15:45,520 Speaker 1: so some have started building walls again. But former Columbia 301 00:15:45,560 --> 00:15:48,600 Speaker 1: Business School dean Glenn Hubbard says it's bridges to help 302 00:15:48,600 --> 00:15:52,000 Speaker 1: workers a just change, rather than walls to protect workers 303 00:15:52,000 --> 00:15:54,680 Speaker 1: that we really need. In the Wall and the Bridge, 304 00:15:54,760 --> 00:15:57,840 Speaker 1: Hubbard proposes a series of private and government programs to 305 00:15:57,880 --> 00:16:01,000 Speaker 1: help workers build a bridge to the future, because in 306 00:16:01,040 --> 00:16:05,360 Speaker 1: the end, even painful change is essential to capitalism, which, 307 00:16:05,560 --> 00:16:08,680 Speaker 1: echoing Ken Langon, is the system that in the long 308 00:16:08,760 --> 00:16:12,400 Speaker 1: run will do the most people the most good, which 309 00:16:12,440 --> 00:16:19,400 Speaker 1: works better for everybody. There's no doubt in my mind capitalism. 310 00:16:19,400 --> 00:16:21,560 Speaker 1: And we're delighted to be joined now by one of 311 00:16:21,560 --> 00:16:24,000 Speaker 1: our regular contributors here in Wall Street. He's Glenn Hubbard, 312 00:16:24,080 --> 00:16:28,320 Speaker 1: former chairman of the coustal chanoccivisers, certainly of Columbia Business School, 313 00:16:28,440 --> 00:16:30,480 Speaker 1: and most important for this purpose, the author of the 314 00:16:30,480 --> 00:16:32,640 Speaker 1: new book, The Wall and the Bridge. Glenn, thank you 315 00:16:32,720 --> 00:16:35,360 Speaker 1: so much for being back with this. It's a fascinating book, 316 00:16:35,400 --> 00:16:37,920 Speaker 1: an important book. In reading through it, I have the 317 00:16:37,960 --> 00:16:40,640 Speaker 1: strong sense part of your motivation was you have some 318 00:16:40,760 --> 00:16:44,360 Speaker 1: concerns for the future of capitalism because to some extent, 319 00:16:44,680 --> 00:16:47,800 Speaker 1: inherent in capitalism is a dynamism and creativity that can 320 00:16:47,880 --> 00:16:50,640 Speaker 1: lead to some destructive qualities. I think it's under present 321 00:16:50,800 --> 00:16:52,720 Speaker 1: right data. You know, it's it's like a coin with 322 00:16:52,800 --> 00:16:58,160 Speaker 1: two sides, economists, policymakers, business people. We often talk about 323 00:16:58,160 --> 00:17:01,760 Speaker 1: the growth and dynamism side of capitalism. That's why we're 324 00:17:01,760 --> 00:17:04,840 Speaker 1: in the game. That's hugely important. The flip side of 325 00:17:04,880 --> 00:17:08,920 Speaker 1: its disruption. Many of us, frankly, most of us win 326 00:17:09,160 --> 00:17:11,199 Speaker 1: from a lot of the disruptions I talked about in 327 00:17:11,240 --> 00:17:13,840 Speaker 1: the book, but not everybody. And I think we have 328 00:17:13,920 --> 00:17:17,119 Speaker 1: to notice those who have been left behind and figure 329 00:17:17,119 --> 00:17:19,240 Speaker 1: out how do we get everybody to be able to 330 00:17:19,280 --> 00:17:22,320 Speaker 1: participate in our economy. Not a new idea, it was 331 00:17:22,359 --> 00:17:25,640 Speaker 1: actually Adam Smith's idea. We need to put the liberal 332 00:17:25,800 --> 00:17:30,399 Speaker 1: back in neoliberalism, classical liberal, that is aut Smith. Let 333 00:17:30,400 --> 00:17:34,399 Speaker 1: me ask you, as an economist, does dynamic capitalism and 334 00:17:34,440 --> 00:17:38,000 Speaker 1: inherently lead to increasing inequality? I don't know about that, 335 00:17:38,040 --> 00:17:41,720 Speaker 1: but it certainly needs to generate churn and disruption. You know, 336 00:17:41,800 --> 00:17:44,960 Speaker 1: many jobs and industries that exist today didn't exist a 337 00:17:45,080 --> 00:17:49,280 Speaker 1: hundred years ago. That's the good news. The flip side 338 00:17:49,280 --> 00:17:53,560 Speaker 1: of that is that people's livelihoods, communities, firms, and industries 339 00:17:53,600 --> 00:17:57,000 Speaker 1: can be at risk. That too, is not a bad 340 00:17:57,040 --> 00:17:59,880 Speaker 1: thing as long as we prepare people. You know, when 341 00:18:00,000 --> 00:18:02,879 Speaker 1: Adam Smith talked about the wealth of nations, he talked 342 00:18:02,880 --> 00:18:06,280 Speaker 1: about competition and openness, and those are good things. But 343 00:18:06,359 --> 00:18:08,720 Speaker 1: I think if Smith were alive today, he would talk 344 00:18:08,760 --> 00:18:11,679 Speaker 1: about the ability to compete in the world we have 345 00:18:11,840 --> 00:18:15,920 Speaker 1: with technological change and globalization. Is everybody really at the 346 00:18:16,040 --> 00:18:19,320 Speaker 1: starting line. I think that's the inequality that would have 347 00:18:19,320 --> 00:18:22,639 Speaker 1: worried Smith and should worry us glat In your book, 348 00:18:22,840 --> 00:18:25,840 Speaker 1: there's a lot of talk about dynamism, creativity, innovation, and 349 00:18:25,880 --> 00:18:28,399 Speaker 1: how important it is for a society for growth and 350 00:18:28,440 --> 00:18:30,320 Speaker 1: for the individuals in it. At the same time, you 351 00:18:30,400 --> 00:18:33,879 Speaker 1: have a distributive notion as well, called mass flourishing that 352 00:18:34,040 --> 00:18:36,320 Speaker 1: you actually go back to Adam Smith and say Mas 353 00:18:36,359 --> 00:18:40,480 Speaker 1: was consistent with Adam Smith talked to us about mass flourishing. Well, 354 00:18:40,480 --> 00:18:43,480 Speaker 1: mass flourishing is more than GDP. You know, when Smith 355 00:18:43,480 --> 00:18:46,680 Speaker 1: wrote The Wealth of Nations, there was no GDP, although 356 00:18:46,760 --> 00:18:51,080 Speaker 1: he did talk about maximizing the size of output. I 357 00:18:51,119 --> 00:18:54,159 Speaker 1: also think of the Smith of the theory of moral sentiments, 358 00:18:54,160 --> 00:18:57,840 Speaker 1: where he used an expression mutual sympathy that today we 359 00:18:57,920 --> 00:19:01,920 Speaker 1: might call empathy. I think the eyed economic ideas everybody 360 00:19:01,920 --> 00:19:06,480 Speaker 1: in the book, everybody participating, everybody flourishing into the minds 361 00:19:06,520 --> 00:19:11,440 Speaker 1: of the classical economists, flourishing men participating in the economy, 362 00:19:11,720 --> 00:19:15,480 Speaker 1: the ability to have meaningful work, And I think that's 363 00:19:15,520 --> 00:19:17,480 Speaker 1: really what the book is about how do you build 364 00:19:17,520 --> 00:19:20,320 Speaker 1: bridges to that kind of work. A bridge either takes 365 00:19:20,320 --> 00:19:23,119 Speaker 1: you to somewhere or brings you back, and taking you 366 00:19:23,240 --> 00:19:26,359 Speaker 1: two could be preparing you for the jobs of today 367 00:19:26,359 --> 00:19:30,520 Speaker 1: and tomorrow, and taking you back is rethinking social insurance. 368 00:19:30,600 --> 00:19:33,720 Speaker 1: We have a way to reconnect people who fall out 369 00:19:33,720 --> 00:19:36,159 Speaker 1: of the boat to the boat. And what if you 370 00:19:36,280 --> 00:19:38,879 Speaker 1: knew for a certainty that in order to have truly 371 00:19:39,000 --> 00:19:41,520 Speaker 1: mass flourishing you had to give up some of the dynamism. 372 00:19:41,600 --> 00:19:44,399 Speaker 1: Would you make that trade? I wouldn't, And that's the 373 00:19:44,440 --> 00:19:46,199 Speaker 1: point of the book. It's I think there are a 374 00:19:46,280 --> 00:19:49,760 Speaker 1: number of people that I note in the book that 375 00:19:49,800 --> 00:19:52,320 Speaker 1: Adam Smith would school if you were here today, to 376 00:19:52,480 --> 00:19:55,480 Speaker 1: suggests that you can just sort of haircut dynamism. The 377 00:19:55,520 --> 00:19:59,480 Speaker 1: real issue is compensating people who have been left behind. 378 00:19:59,600 --> 00:20:02,640 Speaker 1: We we have old expressions in economics. The same professor 379 00:20:02,720 --> 00:20:06,160 Speaker 1: who told you that on trade is good, or technological 380 00:20:06,200 --> 00:20:09,720 Speaker 1: advances are good, he or she also told you that's 381 00:20:09,800 --> 00:20:13,840 Speaker 1: because the gainers can compensate the losers. And by compensation, 382 00:20:14,000 --> 00:20:16,399 Speaker 1: what I talk about is not writing people of check 383 00:20:16,640 --> 00:20:21,080 Speaker 1: or pinching them off, but investing in getting people connect, 384 00:20:21,560 --> 00:20:26,240 Speaker 1: preparing people for work, and preparing people who got left behind. 385 00:20:26,760 --> 00:20:28,800 Speaker 1: That's something we used to do in the country, the 386 00:20:28,920 --> 00:20:31,679 Speaker 1: land grant colleges of the nineteenth century, the g I 387 00:20:31,760 --> 00:20:34,800 Speaker 1: Bill of the twentieth century. I suggest ways we can 388 00:20:34,840 --> 00:20:38,000 Speaker 1: bring those life to life today. Glenn Hubbard, thank you 389 00:20:38,040 --> 00:20:40,600 Speaker 1: so very much. He's the author of this terrific, fascinating 390 00:20:40,600 --> 00:20:42,840 Speaker 1: and really important new book, The Wall in the Bridge. 391 00:20:42,840 --> 00:20:45,520 Speaker 1: Of course, he's from Columbia Business School. Thank you, Glenn. 392 00:20:47,560 --> 00:20:49,760 Speaker 1: Coming up, we wrap up the week, as we always 393 00:20:49,760 --> 00:20:56,200 Speaker 1: do with special contributor Larry Summers of Harvard work irustrating um. 394 00:20:56,400 --> 00:21:02,600 Speaker 1: The turning down the temperature in the economy. I think 395 00:21:02,760 --> 00:21:06,600 Speaker 1: is uh going to be very challenging. From here. That's 396 00:21:06,640 --> 00:21:13,040 Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg 397 00:21:13,119 --> 00:21:17,320 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. This 398 00:21:17,400 --> 00:21:19,400 Speaker 1: is Wall Stree Week, clim David west Center, and we're 399 00:21:19,400 --> 00:21:21,520 Speaker 1: delighted now to be joined once again for the first 400 00:21:21,560 --> 00:21:23,679 Speaker 1: time in the new year by our special contributor, his 401 00:21:23,760 --> 00:21:26,400 Speaker 1: Hilarry Summers, will Harvard. So happy new year, Larry. Great 402 00:21:26,440 --> 00:21:28,119 Speaker 1: to have you with us. Let's start with the big 403 00:21:28,160 --> 00:21:30,760 Speaker 1: news of the week, perhaps came on Friday with those 404 00:21:30,800 --> 00:21:33,720 Speaker 1: jobs numbers where people were a bit disappointing the overall number, 405 00:21:33,760 --> 00:21:35,120 Speaker 1: but there were a lot of other numbers in there 406 00:21:35,200 --> 00:21:37,560 Speaker 1: to suggest that we've got a pretty robust labor market. 407 00:21:38,320 --> 00:21:42,520 Speaker 1: This is a strong report. After this report, the vacancies 408 00:21:42,560 --> 00:21:45,800 Speaker 1: to unemployment ratio is going to be higher than it's 409 00:21:46,560 --> 00:21:51,640 Speaker 1: ever been. We saw wage growth rates, depending on which 410 00:21:51,680 --> 00:21:55,840 Speaker 1: measure you used, seven to eight percent annualized rates in 411 00:21:56,400 --> 00:21:59,040 Speaker 1: the last month, and if you look at the sequence 412 00:21:59,080 --> 00:22:04,880 Speaker 1: of reports, uh, it's been accelerating. The job The establishment 413 00:22:04,960 --> 00:22:10,680 Speaker 1: number was disappointing, but the previous months were substantially revised upwards, 414 00:22:10,720 --> 00:22:14,679 Speaker 1: and I suspect this one will be as well. I 415 00:22:14,720 --> 00:22:19,639 Speaker 1: don't think anybody can look at this labor market and 416 00:22:19,760 --> 00:22:25,119 Speaker 1: this job's report and believe that we have a sustainable 417 00:22:25,200 --> 00:22:28,800 Speaker 1: degree of heat in the labor market. The level of 418 00:22:28,840 --> 00:22:31,440 Speaker 1: heat that we have in the labor market is consistent 419 00:22:31,560 --> 00:22:37,520 Speaker 1: not just with high inflation, but it's consistent with accelerating inflation. 420 00:22:38,119 --> 00:22:41,680 Speaker 1: And there isn't going to be a path to less 421 00:22:41,760 --> 00:22:48,920 Speaker 1: inflation without a cooler labor market. And I think that 422 00:22:49,000 --> 00:22:53,159 Speaker 1: has to be uh sobering so learned last year, the 423 00:22:53,200 --> 00:22:55,119 Speaker 1: FED seemed to be reassured at least for part of 424 00:22:55,160 --> 00:22:56,920 Speaker 1: the year that there was some slack in the labor 425 00:22:56,960 --> 00:22:59,680 Speaker 1: market that which absorbs the inflation. Is there any doubt 426 00:22:59,760 --> 00:23:01,520 Speaker 1: in your mind right now that we're in full employment 427 00:23:01,520 --> 00:23:03,359 Speaker 1: because we not only had these numbers, we also had 428 00:23:03,520 --> 00:23:05,800 Speaker 1: the Jolts numbers come out and where we're record numbers 429 00:23:05,800 --> 00:23:09,359 Speaker 1: of quits. David, Uh, I've been doing this long enough 430 00:23:09,440 --> 00:23:14,880 Speaker 1: that there's always doubt in my mind. Nothing is certain, 431 00:23:15,480 --> 00:23:22,800 Speaker 1: but the probability that we are past a sustainable level 432 00:23:22,840 --> 00:23:26,800 Speaker 1: of heat in the economy is higher than I can 433 00:23:26,840 --> 00:23:31,520 Speaker 1: remember it at any point in the forty years that 434 00:23:31,840 --> 00:23:36,159 Speaker 1: I've been UH watching these things. I think that the 435 00:23:36,280 --> 00:23:41,760 Speaker 1: FAT is recognizing that, and that's why they've executed in 436 00:23:41,840 --> 00:23:48,439 Speaker 1: the last three months such a strong pivot from talk 437 00:23:48,520 --> 00:23:54,160 Speaker 1: of transitory inflation and the need to ensure employment targets 438 00:23:54,200 --> 00:23:57,760 Speaker 1: and the need to guard against inflation, which was their 439 00:23:58,760 --> 00:24:03,080 Speaker 1: rhetoric just a few months ago, to a focus on 440 00:24:04,200 --> 00:24:10,760 Speaker 1: inflation UH now to accelerating the tightening, to UH signaling 441 00:24:10,760 --> 00:24:15,880 Speaker 1: the very real and even likely possibility of rate increases 442 00:24:16,240 --> 00:24:22,480 Speaker 1: in UH March. UH. We are well into the adjustment 443 00:24:22,600 --> 00:24:28,720 Speaker 1: of monetary policy. My own view is that UH, the 444 00:24:28,760 --> 00:24:33,760 Speaker 1: FED and the markets are still not recognizing what's likely 445 00:24:33,840 --> 00:24:38,120 Speaker 1: to be necessary. The market judgment and the fed's judgment 446 00:24:38,880 --> 00:24:43,919 Speaker 1: is that UH, you can somehow contain this inflation without 447 00:24:44,040 --> 00:24:47,639 Speaker 1: rates ever rising above two and a half percent UH 448 00:24:47,680 --> 00:24:50,480 Speaker 1: in terms of the FED funds rate. I don't think 449 00:24:50,600 --> 00:24:54,399 Speaker 1: that's very likely to turn out to be right. And 450 00:24:54,440 --> 00:24:57,120 Speaker 1: if it does turn out to be right, it's only 451 00:24:57,200 --> 00:25:02,280 Speaker 1: because the economy is extraordinarily vulnerable to rate increases, which 452 00:25:02,320 --> 00:25:07,040 Speaker 1: will mean problems of its own. So I think we're 453 00:25:07,080 --> 00:25:11,760 Speaker 1: headed into a very challenging period for the FED in 454 00:25:11,880 --> 00:25:16,840 Speaker 1: terms of executing a soft landing. UM. It looks to 455 00:25:16,920 --> 00:25:22,720 Speaker 1: me like we're gonna need some meaningful deceleration in nominal 456 00:25:22,760 --> 00:25:26,280 Speaker 1: wage growth, not necessarily in real wage growth, but in 457 00:25:26,400 --> 00:25:32,600 Speaker 1: nominal UH wage growth. And if we don't have much 458 00:25:32,640 --> 00:25:38,920 Speaker 1: experience of getting such decelerations in nominal wage growth without 459 00:25:38,960 --> 00:25:44,920 Speaker 1: a substantial UM, well at least some slow down UH 460 00:25:45,200 --> 00:25:53,320 Speaker 1: in UH the economy. So orchestrating UM, the turning down 461 00:25:53,359 --> 00:25:58,399 Speaker 1: the temperature UH in the economy, I think is UH 462 00:25:58,720 --> 00:26:01,240 Speaker 1: going to be very challenge eaging from here. Well, let's 463 00:26:01,240 --> 00:26:04,680 Speaker 1: pick up exactly on that point, orchestrating this cooling down, 464 00:26:04,800 --> 00:26:06,440 Speaker 1: because we also had a piece of news out that 465 00:26:06,560 --> 00:26:08,879 Speaker 1: the markets alely reacted to this week, which is the 466 00:26:08,920 --> 00:26:11,400 Speaker 1: FED minutes from the December meeting, and which they said, 467 00:26:11,400 --> 00:26:13,640 Speaker 1: not only we're going to talk about tapering, we might 468 00:26:13,680 --> 00:26:16,720 Speaker 1: well have rate increases more and sooner than we thought. 469 00:26:16,760 --> 00:26:19,040 Speaker 1: And by the way, we might get the quantitative the 470 00:26:19,320 --> 00:26:22,520 Speaker 1: cutting are actually we're gonna actually tighten the quantitative easing 471 00:26:22,680 --> 00:26:25,440 Speaker 1: instead of just tapering. Is that enough? And by the way, 472 00:26:25,440 --> 00:26:28,480 Speaker 1: can they do all that stuff in the time allotted, David, 473 00:26:28,480 --> 00:26:33,399 Speaker 1: They can make the choices that they want to that 474 00:26:34,320 --> 00:26:37,000 Speaker 1: they want to make. Certainly, there have been periods when 475 00:26:37,040 --> 00:26:42,600 Speaker 1: the FED was raising rates uh basis points uh in 476 00:26:43,640 --> 00:26:49,000 Speaker 1: a given at every meeting for periods of a year 477 00:26:49,680 --> 00:26:54,639 Speaker 1: or or more. So it's certainly something that is uh 478 00:26:54,920 --> 00:26:58,280 Speaker 1: technically possible. I think the I think what we're going 479 00:26:58,400 --> 00:27:05,000 Speaker 1: to find out is what the vulnerability of the economy 480 00:27:05,160 --> 00:27:12,000 Speaker 1: is to rate increases. If that vulnerability is not greater 481 00:27:12,160 --> 00:27:16,879 Speaker 1: than it has been historically, then it's really quite unrealistic 482 00:27:17,000 --> 00:27:20,480 Speaker 1: to think that we're going to keep inflation under control 483 00:27:20,600 --> 00:27:25,960 Speaker 1: with two percent rates. It may be, as some argue 484 00:27:26,480 --> 00:27:30,480 Speaker 1: that because of greater levels of debt, because asset prices 485 00:27:30,520 --> 00:27:36,440 Speaker 1: are substantially inflated. The economy is more vulnerable than usual 486 00:27:37,040 --> 00:27:43,679 Speaker 1: UH to rate increases or to UH quantitative tightening. So 487 00:27:43,760 --> 00:27:48,440 Speaker 1: it's not an easy UH balance that they're going to 488 00:27:48,560 --> 00:27:53,520 Speaker 1: have to strike. My guess is that we're headed into 489 00:27:53,520 --> 00:27:57,919 Speaker 1: a difficult period because I don't think that inflation is 490 00:27:57,960 --> 00:28:01,400 Speaker 1: likely to come down very quickly. And indeed it's almost 491 00:28:01,400 --> 00:28:05,760 Speaker 1: baked in that the annualized inflation figures are going to 492 00:28:05,840 --> 00:28:10,000 Speaker 1: be rising for UH the next several months because of 493 00:28:10,040 --> 00:28:17,480 Speaker 1: the very UH flattering compares or very low compares in 494 00:28:17,680 --> 00:28:23,800 Speaker 1: January and February of UH last year. So my own 495 00:28:23,840 --> 00:28:29,320 Speaker 1: sense is really of the difficulty UH of this, and 496 00:28:29,359 --> 00:28:34,560 Speaker 1: the challenge for the FAT is that they're likely to 497 00:28:34,680 --> 00:28:41,239 Speaker 1: see some amount of UH fluctuation in financial markets and 498 00:28:41,680 --> 00:28:49,520 Speaker 1: concern about growth before they see the declines in inflation 499 00:28:50,040 --> 00:28:52,760 Speaker 1: that are substantial, and then they're going to have a 500 00:28:53,440 --> 00:28:56,000 Speaker 1: very difficult Then they have a very difficult set of 501 00:28:56,040 --> 00:28:58,600 Speaker 1: decisions to make. Well said, thank you so much once 502 00:28:58,600 --> 00:29:01,000 Speaker 1: again for being with us as our very special contributor 503 00:29:01,000 --> 00:29:04,880 Speaker 1: in Wall Street Week. He is Larry Summers of Harvard. Finally, 504 00:29:05,040 --> 00:29:07,560 Speaker 1: one more thought, and this time it's not from me. 505 00:29:07,720 --> 00:29:11,000 Speaker 1: It's from Carlisle co founder David Rubinstein about the events 506 00:29:11,000 --> 00:29:13,680 Speaker 1: of a year ago when a mob stormed the Capitol 507 00:29:13,720 --> 00:29:16,320 Speaker 1: building to stop one of the most important steps in 508 00:29:16,360 --> 00:29:20,080 Speaker 1: the U s Constitutional process, the counting of the electro votes. 509 00:29:20,600 --> 00:29:24,280 Speaker 1: His reflections my lifetime, January six will be an important 510 00:29:24,360 --> 00:29:27,040 Speaker 1: day because that is the day when we had an 511 00:29:27,080 --> 00:29:30,160 Speaker 1: invasion the capital, the first time it's happened since eighteen 512 00:29:30,240 --> 00:29:33,320 Speaker 1: fourteen when the British invaded our country, and nobody really 513 00:29:33,360 --> 00:29:35,560 Speaker 1: thought this should happen, and so it's amazing to me 514 00:29:35,640 --> 00:29:37,880 Speaker 1: that it didn't happen. But more amazing to me is 515 00:29:37,960 --> 00:29:41,120 Speaker 1: that one year later, one year later, we are still 516 00:29:41,160 --> 00:29:45,120 Speaker 1: in the same situation. If if we didn't prevent another 517 00:29:45,160 --> 00:29:49,920 Speaker 1: thing by having copsure military people there, today, I suspect 518 00:29:49,920 --> 00:29:52,080 Speaker 1: you could have another invasion of the capital. There are 519 00:29:52,080 --> 00:29:54,280 Speaker 1: a lot of people who really really are upset with 520 00:29:54,480 --> 00:29:57,360 Speaker 1: the way the election went against Donald Trump, or the 521 00:29:57,400 --> 00:29:59,640 Speaker 1: way that other things have happened, And so I do 522 00:29:59,720 --> 00:30:01,360 Speaker 1: think there are a lot of people in this country 523 00:30:01,360 --> 00:30:04,160 Speaker 1: today who do believe the election was stolen. There are 524 00:30:04,160 --> 00:30:05,840 Speaker 1: a lot of people in this country day who believe 525 00:30:05,920 --> 00:30:09,320 Speaker 1: that those who stormed the capital were not insurrectionists, but 526 00:30:09,440 --> 00:30:12,920 Speaker 1: just tourists and not doing anything that's inappropriate. And as 527 00:30:12,960 --> 00:30:15,200 Speaker 1: a result, I think the country is bitterly divided. It's 528 00:30:15,240 --> 00:30:17,440 Speaker 1: not as bit as a civil war, but which it's 529 00:30:17,480 --> 00:30:19,920 Speaker 1: clearly a country is divided, and it's reflected in the Congress. 530 00:30:19,960 --> 00:30:22,600 Speaker 1: The Condress is bitterly divided. Nothing is really getting done 531 00:30:22,600 --> 00:30:25,479 Speaker 1: of any consequence because the country is really bitterly divided. 532 00:30:27,120 --> 00:30:30,120 Speaker 1: Into the capital knowing they are marketing, the business community, 533 00:30:30,120 --> 00:30:32,520 Speaker 1: I think, is disappointed that the country hasn't moved on. 534 00:30:32,800 --> 00:30:36,680 Speaker 1: What business people like is certainty, predictability, and right now 535 00:30:36,720 --> 00:30:39,680 Speaker 1: there's a lot of uncertainty and a lot of predictability 536 00:30:39,680 --> 00:30:41,680 Speaker 1: about what the federal government is going to do. So 537 00:30:41,760 --> 00:30:44,360 Speaker 1: I think that the business community by and large wishes 538 00:30:44,400 --> 00:30:46,600 Speaker 1: we had moved forward and we were not in a 539 00:30:46,640 --> 00:30:49,000 Speaker 1: situation we are today. But the business community is a 540 00:30:49,040 --> 00:30:51,880 Speaker 1: realistic community and they recognize it. Right now, the country 541 00:30:51,920 --> 00:30:54,960 Speaker 1: is fairly divided, the Congress is fairly divided. It's unlikely 542 00:30:55,160 --> 00:30:57,880 Speaker 1: we're gonna get major legislation one way or the other 543 00:30:57,960 --> 00:31:01,320 Speaker 1: the President Biden wants so, I the Business Committee would 544 00:31:01,320 --> 00:31:03,800 Speaker 1: like to not be involved in commenting on this. The 545 00:31:03,840 --> 00:31:06,000 Speaker 1: Business Committee, which is this is behind us, but the 546 00:31:06,000 --> 00:31:09,440 Speaker 1: Business Committee recognizes that for the foreseeable future, we're gonna 547 00:31:09,440 --> 00:31:11,440 Speaker 1: be living with his division in the country and this 548 00:31:11,480 --> 00:31:14,000 Speaker 1: bitter the division is going to be. How the increasing, 549 00:31:14,080 --> 00:31:19,360 Speaker 1: not decreasing. Yeah, the rule of law did prevail. There 550 00:31:19,360 --> 00:31:22,720 Speaker 1: were sixty five lawsuits that were filed by the people 551 00:31:22,720 --> 00:31:25,280 Speaker 1: who thought the election was stolen, and sixty five times 552 00:31:25,280 --> 00:31:27,360 Speaker 1: the courts threw them out. So the rule of law 553 00:31:27,440 --> 00:31:30,000 Speaker 1: did prevail. And the truth is that the rule of 554 00:31:30,040 --> 00:31:32,440 Speaker 1: law does prevail in this country. And the truth is 555 00:31:32,480 --> 00:31:36,280 Speaker 1: the military, now know, was not prepared to overtake the government, 556 00:31:36,400 --> 00:31:38,479 Speaker 1: though there were some people in the administration I think 557 00:31:38,520 --> 00:31:40,880 Speaker 1: who wanted that to happen, but the military state out 558 00:31:40,920 --> 00:31:43,080 Speaker 1: of it, and the rule of law did prevail. Whether 559 00:31:43,120 --> 00:31:45,080 Speaker 1: it will prevail in the future, I don't know, but 560 00:31:45,240 --> 00:31:47,240 Speaker 1: right now I think the rule of law is going 561 00:31:47,320 --> 00:31:49,480 Speaker 1: to prevail the United States. And that is one thing 562 00:31:49,520 --> 00:31:51,360 Speaker 1: that people around the rest of the world really admire 563 00:31:51,640 --> 00:31:54,320 Speaker 1: us for, which is the rule of law does exist 564 00:31:54,320 --> 00:31:56,960 Speaker 1: in this country. And despite the events of January six, 565 00:31:57,200 --> 00:32:01,520 Speaker 1: rule of law did prevail. That does it. For this 566 00:32:01,560 --> 00:32:04,480 Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg. 567 00:32:04,760 --> 00:32:07,400 Speaker 1: See you next week,