1 00:00:00,520 --> 00:00:03,680 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,880 --> 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 --> 00:00:22,880 Speaker 1: former Treachery Secretary, Katherine Keening, CEO of v n Y Moms, 8 00:00:22,960 --> 00:00:26,239 Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in 9 00:00:26,320 --> 00:00:30,280 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio, 10 00:00:30,720 --> 00:00:34,400 Speaker 1: looking for answers about those flying some things we're shooting down, 11 00:00:34,520 --> 00:00:36,880 Speaker 1: about where the economy is added at, about when we 12 00:00:36,920 --> 00:00:40,080 Speaker 1: will bump up against that debt ceiling. This is Bloomberg 13 00:00:40,080 --> 00:00:43,919 Speaker 1: Wall Street Week. I'm David Weston. This week's special contributor 14 00:00:44,000 --> 00:00:46,920 Speaker 1: Larry Summers of Harvard, about whether all that good news 15 00:00:46,960 --> 00:00:50,360 Speaker 1: about the economy is really all that good. The risk 16 00:00:50,640 --> 00:00:55,120 Speaker 1: is that we're gonna hit the brakes very very hard. 17 00:00:55,960 --> 00:00:59,800 Speaker 1: Famed retailer Mickey Drexler about the challenges facing stores to 18 00:01:00,040 --> 00:01:03,800 Speaker 1: a I don't thinks are calm at all, not even 19 00:01:03,840 --> 00:01:07,160 Speaker 1: close and Jillian Tette at the Financial Times on why 20 00:01:07,240 --> 00:01:09,280 Speaker 1: we should be paying a lot more attention to the 21 00:01:09,280 --> 00:01:13,679 Speaker 1: world's other central banks. Actually, what's happening at other central 22 00:01:13,680 --> 00:01:30,959 Speaker 1: banks outside of FED matters enormously. It was a mixed 23 00:01:31,200 --> 00:01:34,160 Speaker 1: even confusing week for global wall streets, starting with all 24 00:01:34,240 --> 00:01:38,240 Speaker 1: those unidentified high altitude objects we've been shooting down, with 25 00:01:38,360 --> 00:01:42,000 Speaker 1: the NFC's Admiral Kirby insisting the US is just airing 26 00:01:42,120 --> 00:01:44,760 Speaker 1: on the side of caution, even though we had no 27 00:01:44,840 --> 00:01:51,440 Speaker 1: indications that any of these three objects were surveilling. Who 28 00:01:51,440 --> 00:01:54,520 Speaker 1: couldn't rule that out? And so there, you know, you 29 00:01:54,520 --> 00:01:56,000 Speaker 1: want to air on the side of safety here in 30 00:01:56,080 --> 00:01:59,160 Speaker 1: terms of protecting our national security interests, while the Chinese 31 00:01:59,200 --> 00:02:04,480 Speaker 1: Foreign Ministries ekesperson insisted that we were overreacting. China firmly 32 00:02:04,480 --> 00:02:07,400 Speaker 1: opposed this and we'll take countermeasures in accordance with the 33 00:02:07,480 --> 00:02:11,320 Speaker 1: law against the relevant US entities that undermine China's sovereignty 34 00:02:11,360 --> 00:02:15,920 Speaker 1: and security and resolutely safeguard national sovereignty and legitimate rights 35 00:02:15,919 --> 00:02:19,040 Speaker 1: and interest. And we didn't get much more clarity from 36 00:02:19,080 --> 00:02:22,120 Speaker 1: the economic numbers this week, with the consumer price index 37 00:02:22,160 --> 00:02:25,600 Speaker 1: showing inflation coming down but not as fast as we thought. 38 00:02:25,960 --> 00:02:29,640 Speaker 1: And high retail sales numbers, pointing to continued consumer strength 39 00:02:29,880 --> 00:02:33,360 Speaker 1: despite the higher interest rates, which led people like Richmond 40 00:02:33,360 --> 00:02:36,520 Speaker 1: Fed President Thomas Barkin to take both sides the trade 41 00:02:36,720 --> 00:02:40,080 Speaker 1: on additional rate hikes. We may or may not choose 42 00:02:40,120 --> 00:02:43,280 Speaker 1: to take frates up further if inflation continues to persist, 43 00:02:43,280 --> 00:02:45,320 Speaker 1: but we'll have to see what happens. The White House 44 00:02:45,360 --> 00:02:48,720 Speaker 1: got new economic leadership when Brian Deves turned over the 45 00:02:48,760 --> 00:02:51,919 Speaker 1: reins at the National Economic Council, and a Brainerd came 46 00:02:52,000 --> 00:02:55,280 Speaker 1: over from the FED to take those reins. Something says 47 00:02:55,480 --> 00:02:59,359 Speaker 1: she's well prepared to handle. Just brace us breath of 48 00:02:59,440 --> 00:03:02,440 Speaker 1: expertise and context, having not only been afit front and 49 00:03:02,520 --> 00:03:05,640 Speaker 1: center of East macroeconomic debates, but also having worked at 50 00:03:05,680 --> 00:03:09,000 Speaker 1: treasury end at the NBC and over it all hangs 51 00:03:09,080 --> 00:03:11,840 Speaker 1: the threat of default as we approached that debt ceiling 52 00:03:11,919 --> 00:03:14,800 Speaker 1: sometime in the next few months, though the exact date 53 00:03:15,200 --> 00:03:18,959 Speaker 1: is far from certain. The urgent thing is when is 54 00:03:19,040 --> 00:03:22,320 Speaker 1: the so called X date, the deadline for a debt 55 00:03:22,320 --> 00:03:24,920 Speaker 1: limit deal. The official word from the CBO is that 56 00:03:25,000 --> 00:03:27,880 Speaker 1: deadline is going to be sometime between July and September. 57 00:03:29,720 --> 00:03:32,320 Speaker 1: What did the markets make of all the confusion this week. Well, 58 00:03:32,360 --> 00:03:35,520 Speaker 1: the SMP five hundred started the week optimistic but lost 59 00:03:35,560 --> 00:03:38,640 Speaker 1: the optimism by Friday, ended up down three tenths of 60 00:03:38,680 --> 00:03:41,640 Speaker 1: a percent. The NANAZAC also got a bit gloomier as 61 00:03:41,640 --> 00:03:44,200 Speaker 1: the week went on, but didn't lose all of its momentum, 62 00:03:44,360 --> 00:03:46,600 Speaker 1: eking out a gain of six tenths of a percent, 63 00:03:46,960 --> 00:03:49,720 Speaker 1: and the bond market either reflected or caused what was 64 00:03:49,760 --> 00:03:52,760 Speaker 1: going on elsewhere, adding eight basis points to the yield 65 00:03:52,760 --> 00:03:54,680 Speaker 1: on the tenure to help us sword it all out 66 00:03:54,760 --> 00:03:57,920 Speaker 1: right now, we welcome now Monama Hodgen. She is senior 67 00:03:57,960 --> 00:04:01,680 Speaker 1: investment strategist at Edward Jones and Rebecca Patterson, until recently 68 00:04:01,720 --> 00:04:04,400 Speaker 1: chief investment strategist at Bridgewater. So thank you both for 69 00:04:04,440 --> 00:04:05,960 Speaker 1: being back with this mode. Let me start with you. 70 00:04:06,320 --> 00:04:08,240 Speaker 1: What do you think the markets made of all the 71 00:04:08,240 --> 00:04:11,480 Speaker 1: conflicting information this week? Yeah, thanks David. Look, it was 72 00:04:11,520 --> 00:04:13,480 Speaker 1: almost like a tale of two markets, at least for 73 00:04:13,520 --> 00:04:15,840 Speaker 1: the first half of the week. Uh, certainly when we 74 00:04:15,920 --> 00:04:18,360 Speaker 1: got both the cp I and pp I data. As 75 00:04:18,400 --> 00:04:21,640 Speaker 1: you noted, yes, it did come down from the prior month, 76 00:04:21,920 --> 00:04:25,240 Speaker 1: but it also remains pretty elevated. Inflation is sticky across 77 00:04:25,279 --> 00:04:29,000 Speaker 1: the board. Both headline and core inflation probably not coming 78 00:04:29,040 --> 00:04:32,120 Speaker 1: down as much as investors would have liked to see. 79 00:04:32,200 --> 00:04:35,560 Speaker 1: But you know, equity markets actually took this somewhat with 80 00:04:35,600 --> 00:04:38,080 Speaker 1: a grain of salt, in fact, maybe focusing a little 81 00:04:38,120 --> 00:04:41,560 Speaker 1: bit more on that better retail sales number. Jobless claims 82 00:04:41,560 --> 00:04:44,359 Speaker 1: still were very low this week. But bond markets, on 83 00:04:44,400 --> 00:04:47,440 Speaker 1: the other hand, they had been pricing in this hotter 84 00:04:47,480 --> 00:04:50,520 Speaker 1: than expected inflation um pretty much all week. We saw 85 00:04:50,640 --> 00:04:53,000 Speaker 1: yields move up the ten year and the two year 86 00:04:53,440 --> 00:04:55,680 Speaker 1: or higher this week almost you know, between ten and 87 00:04:55,720 --> 00:04:59,479 Speaker 1: fifteen basis points, so a pretty substantial move in one week. 88 00:04:59,760 --> 00:05:02,840 Speaker 1: And of course we saw FED funds futures, so market 89 00:05:02,920 --> 00:05:06,560 Speaker 1: expectations of Fed rate hikes those started to creep higher 90 00:05:06,680 --> 00:05:10,120 Speaker 1: as well. So prior to Tuesday's inflation reading, a lot 91 00:05:10,200 --> 00:05:13,520 Speaker 1: of market participants thought maybe two twenty five basis point 92 00:05:13,600 --> 00:05:16,520 Speaker 1: rate hikes um in the March and May meetings. Now 93 00:05:16,560 --> 00:05:19,720 Speaker 1: we're seeing an increased probability of a third rate hike 94 00:05:20,080 --> 00:05:22,400 Speaker 1: in June of twenty five basis points as well. That 95 00:05:22,400 --> 00:05:24,640 Speaker 1: would bring us to a terminal rate of about five 96 00:05:24,680 --> 00:05:27,840 Speaker 1: and a half percent. So clearly bond markets are starting 97 00:05:27,880 --> 00:05:30,520 Speaker 1: to price in a Fed that could be higher for 98 00:05:30,600 --> 00:05:33,479 Speaker 1: longer for some time. Equity markets By the end of 99 00:05:33,480 --> 00:05:35,880 Speaker 1: the week they started to catch on as well. Perhaps 100 00:05:36,240 --> 00:05:38,320 Speaker 1: uh that message was reinforced by some of the Fed 101 00:05:38,360 --> 00:05:41,359 Speaker 1: speakers we heard on Thursday afternoon. We even indicated a 102 00:05:41,400 --> 00:05:44,120 Speaker 1: fifty basis point rate hike maybe still on the table. 103 00:05:44,640 --> 00:05:47,200 Speaker 1: But net net, we'd say after a pretty good start 104 00:05:47,240 --> 00:05:50,760 Speaker 1: to the year, both equity and bond markets may start 105 00:05:50,760 --> 00:05:53,479 Speaker 1: to see a bit more volatility as we see inflation 106 00:05:53,520 --> 00:05:55,880 Speaker 1: stick here, a Fed not done, and of course an 107 00:05:55,880 --> 00:05:58,359 Speaker 1: economy that's trying to get through it all. Okay, Rebecca, 108 00:05:58,480 --> 00:05:59,920 Speaker 1: what do you say, I mean, where are we on 109 00:06:00,000 --> 00:06:01,600 Speaker 1: a terminal rate? How much of what we're seeing in 110 00:06:01,640 --> 00:06:05,040 Speaker 1: equities is really driven by the discounting of the value 111 00:06:05,040 --> 00:06:07,400 Speaker 1: of future earnings. So I think the rise in the 112 00:06:07,440 --> 00:06:11,400 Speaker 1: discount rate um discounted cash flows definitely part of the 113 00:06:11,480 --> 00:06:13,880 Speaker 1: drag on stocks later in the week. This week, both 114 00:06:13,920 --> 00:06:17,679 Speaker 1: the data, the hot economy, plus the very explicit language 115 00:06:17,680 --> 00:06:19,560 Speaker 1: from the FED speakers that it is going to be 116 00:06:19,640 --> 00:06:21,880 Speaker 1: higher for longer, that was a big part of it. 117 00:06:21,960 --> 00:06:23,640 Speaker 1: And then if the FED is really going to get 118 00:06:23,680 --> 00:06:27,000 Speaker 1: to its goal to percent inflation, it's going to need 119 00:06:27,080 --> 00:06:30,320 Speaker 1: to cool down the economy enough to reduce that wage inflation, 120 00:06:30,680 --> 00:06:32,960 Speaker 1: which means we're also going to be looking at softer 121 00:06:33,040 --> 00:06:35,400 Speaker 1: earnings ahead. So I think you're going to get one 122 00:06:35,520 --> 00:06:37,279 Speaker 1: or the other, or a combination of both in the 123 00:06:37,279 --> 00:06:40,360 Speaker 1: months ahead, and that is the downside risk for stocks. 124 00:06:41,080 --> 00:06:42,920 Speaker 1: I'm curious what do you make of this talk on 125 00:06:43,040 --> 00:06:45,360 Speaker 1: part of Wall Street there may be no landing, not hard, 126 00:06:45,440 --> 00:06:48,320 Speaker 1: not soft, that we may actually just tolerate a higher 127 00:06:48,400 --> 00:06:50,880 Speaker 1: level of inflation for longer and not try to get 128 00:06:50,920 --> 00:06:52,560 Speaker 1: all the way down. What do you make of that? 129 00:06:52,640 --> 00:06:56,960 Speaker 1: Is there any plausibility to that? Almost zero in my mind. 130 00:06:57,120 --> 00:07:00,040 Speaker 1: I mean, the idea that the Feed is going to 131 00:07:00,040 --> 00:07:04,400 Speaker 1: tolerate inflation being significantly higher than target for a prolonged period, 132 00:07:04,839 --> 00:07:08,800 Speaker 1: putting its own credibility at risk, makes zero sense to me. 133 00:07:08,960 --> 00:07:11,559 Speaker 1: I think the Fed is going to keep tightening until 134 00:07:11,600 --> 00:07:14,120 Speaker 1: it's confident that inflation is going to get to target. 135 00:07:14,120 --> 00:07:17,240 Speaker 1: But even more importantly, the market still pricing in rate 136 00:07:17,360 --> 00:07:20,840 Speaker 1: cuts in four and beyond, and the Fed is not 137 00:07:20,880 --> 00:07:23,480 Speaker 1: going to be looking at that until inflation is below 138 00:07:23,560 --> 00:07:26,640 Speaker 1: target and or the economy has cooled to a degree 139 00:07:27,000 --> 00:07:30,280 Speaker 1: that the unemployment rate is significantly higher for those things 140 00:07:30,320 --> 00:07:33,800 Speaker 1: to happen, you're going to have a lot of economic slowdown, 141 00:07:33,920 --> 00:07:36,440 Speaker 1: which obviously is going to feed through into earning. So 142 00:07:36,480 --> 00:07:40,200 Speaker 1: are we close to economic slowdownloading? Yeah, you know, look 143 00:07:40,240 --> 00:07:42,680 Speaker 1: with an unemployment rate at three point four percent, that's 144 00:07:42,720 --> 00:07:46,440 Speaker 1: a multidecade low. A recession or even an economic downturn 145 00:07:46,560 --> 00:07:49,200 Speaker 1: is clearly not imminent. But keep in mind the labor 146 00:07:49,280 --> 00:07:52,760 Speaker 1: market historically has been a lagging indicator. And in fact, 147 00:07:52,800 --> 00:07:54,840 Speaker 1: when you look at some of the leading indicators of 148 00:07:54,840 --> 00:07:57,840 Speaker 1: the economy, whether it's what we got this morning conference 149 00:07:57,880 --> 00:08:01,000 Speaker 1: board leading economic indicators which were negative for the six 150 00:08:01,080 --> 00:08:03,080 Speaker 1: month in a row, or if you look at that 151 00:08:03,200 --> 00:08:06,600 Speaker 1: yield curve which has been inverted since mid July UM 152 00:08:06,640 --> 00:08:09,440 Speaker 1: even things like I S M on the manufacturing side clearly, 153 00:08:09,440 --> 00:08:13,720 Speaker 1: but even services trending lower. Those are more leading indicators 154 00:08:13,760 --> 00:08:16,280 Speaker 1: of the economy. And of course the big one if 155 00:08:16,320 --> 00:08:18,680 Speaker 1: the FED is going to continue two to three more 156 00:08:18,760 --> 00:08:23,200 Speaker 1: rate hikes, that all has a lag impact on economic growth. 157 00:08:23,280 --> 00:08:26,520 Speaker 1: And so yes, the labor market in January gain five 158 00:08:26,600 --> 00:08:29,200 Speaker 1: hundred thousand plus jobs. But the question you have to 159 00:08:29,240 --> 00:08:32,880 Speaker 1: ask yourself is will that pace of gains be maintained? 160 00:08:32,960 --> 00:08:35,600 Speaker 1: Can it be maintained over the next you know, call 161 00:08:35,640 --> 00:08:37,920 Speaker 1: it six to twelve months. In our view, we're probably 162 00:08:37,920 --> 00:08:40,160 Speaker 1: going to get a softening both in the unemployment rate 163 00:08:40,480 --> 00:08:43,400 Speaker 1: UM and those job gains, but importantly for the FED 164 00:08:43,440 --> 00:08:46,200 Speaker 1: will probably also see a softening in wage growth as well. 165 00:08:46,360 --> 00:08:49,400 Speaker 1: That's really where they are looking to for inflation to 166 00:08:49,480 --> 00:08:53,239 Speaker 1: come down, that non housing services inflation they've been referencing 167 00:08:53,280 --> 00:08:55,640 Speaker 1: for the last few months now. UM, they're waiting for 168 00:08:55,679 --> 00:08:58,720 Speaker 1: wage gains to soften, and they'll continue until they see 169 00:08:58,720 --> 00:09:01,560 Speaker 1: that likely. And if I can jump in Mona, when 170 00:09:01,600 --> 00:09:04,800 Speaker 1: I look at UM, what what are we going to 171 00:09:04,840 --> 00:09:06,880 Speaker 1: see in the labor markets. One area that I think 172 00:09:06,920 --> 00:09:09,600 Speaker 1: it's overlooked a bit as the small business segment. You know, 173 00:09:09,640 --> 00:09:12,280 Speaker 1: the tech sector, big headlines, but it's two percent of 174 00:09:12,320 --> 00:09:14,959 Speaker 1: the labor force service sector and a lot of those 175 00:09:14,960 --> 00:09:18,200 Speaker 1: are small businesses. If you just take hospitality and healthcare, 176 00:09:18,280 --> 00:09:22,440 Speaker 1: just those two of the labor force and the small 177 00:09:22,480 --> 00:09:25,520 Speaker 1: businesses and the service sector businesses say they still can't 178 00:09:25,520 --> 00:09:28,240 Speaker 1: get enough workers. So I think the wage pressure is 179 00:09:28,280 --> 00:09:30,400 Speaker 1: there for the short term, although I agree with you 180 00:09:30,520 --> 00:09:33,640 Speaker 1: medium term, I think we will see some deflating. The 181 00:09:33,679 --> 00:09:36,480 Speaker 1: other thing that I'm watching really carefully as household debt. 182 00:09:36,600 --> 00:09:39,440 Speaker 1: And one thing that came out this week from the 183 00:09:39,480 --> 00:09:43,199 Speaker 1: Federal Reserve was a report on Q four fourth quarter 184 00:09:43,280 --> 00:09:48,120 Speaker 1: household debt. We had the biggest nominal increase in twenty years. 185 00:09:48,160 --> 00:09:51,000 Speaker 1: That's both mortgages and credit cards. And credit cards to 186 00:09:51,040 --> 00:09:55,079 Speaker 1: me is the wily coyote moment um. Right now, investors 187 00:09:55,160 --> 00:09:57,960 Speaker 1: have run down their savings, they're still spending their supporting 188 00:09:58,000 --> 00:10:01,320 Speaker 1: those retail sales by using credit, but that credit debt 189 00:10:01,400 --> 00:10:04,680 Speaker 1: is quickly rising. Uh. And at some point the rates 190 00:10:04,920 --> 00:10:08,120 Speaker 1: plus the reduction and incomes as jobs start to dissipate 191 00:10:08,160 --> 00:10:10,280 Speaker 1: a little bit, that's going to cause us to fall 192 00:10:10,320 --> 00:10:12,280 Speaker 1: off the cliffer, or maybe I should say blow up 193 00:10:12,320 --> 00:10:15,320 Speaker 1: the balloon. Yeah, no, there's a great point. And look, 194 00:10:15,360 --> 00:10:18,160 Speaker 1: the consumer drives the economy, and those credit card numbers 195 00:10:18,160 --> 00:10:21,520 Speaker 1: are ones to watch because yes, we've had an excess 196 00:10:21,520 --> 00:10:23,720 Speaker 1: of savings coming out of the pandemic, but we're seeing 197 00:10:23,760 --> 00:10:26,559 Speaker 1: that slowly being drawn down. And of course the next 198 00:10:26,600 --> 00:10:29,520 Speaker 1: shoe to drop will be can consumers pay off these 199 00:10:29,559 --> 00:10:32,400 Speaker 1: credit card bills that they're accumulating. Also keep in mind, 200 00:10:32,440 --> 00:10:35,080 Speaker 1: and this is just anecdotal, but the tech layoffs we've 201 00:10:35,080 --> 00:10:37,040 Speaker 1: been seeing. Look, technology is a small part of the 202 00:10:37,080 --> 00:10:39,920 Speaker 1: overall labor economy, but a lot of those have not 203 00:10:39,960 --> 00:10:42,640 Speaker 1: flown through yet into jobless claims because of course there 204 00:10:42,679 --> 00:10:45,520 Speaker 1: are severance packages, there's a delay and when you actually 205 00:10:45,760 --> 00:10:48,840 Speaker 1: file the claims, etcetera. So we may start seeing somewhat 206 00:10:48,840 --> 00:10:51,160 Speaker 1: of a pickup even from the layoff announcements we've seen 207 00:10:51,200 --> 00:10:55,440 Speaker 1: thus far, And Rebecca Patterson will be staying with us 208 00:10:55,440 --> 00:10:57,880 Speaker 1: as we consider what we may have missed or at 209 00:10:57,920 --> 00:10:59,959 Speaker 1: least not paid enough attention to, over the course of 210 00:11:00,040 --> 00:11:03,720 Speaker 1: the busy week. That's next on Wall Street pet On Bloomberg. 211 00:11:05,520 --> 00:11:09,760 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 212 00:11:09,840 --> 00:11:19,319 Speaker 1: Bloomberg Radio. Those fickle friends in Japan dealt a blow 213 00:11:19,400 --> 00:11:22,360 Speaker 1: to the heart of the US bond market when the 214 00:11:22,400 --> 00:11:25,480 Speaker 1: Bank of Japan's announcement that it wouldn't be buying more 215 00:11:25,559 --> 00:11:30,080 Speaker 1: of its own country's bonds and thereby prompting lower rates worldwide, 216 00:11:30,800 --> 00:11:34,360 Speaker 1: panicked US bond buyers and led to what has become 217 00:11:34,400 --> 00:11:37,080 Speaker 1: the worst two weeks so off in the treasury market 218 00:11:37,559 --> 00:11:40,760 Speaker 1: in three and a half years. Long term rates here 219 00:11:40,800 --> 00:11:44,600 Speaker 1: have risen from five point zero three to five point 220 00:11:44,679 --> 00:11:49,040 Speaker 1: four three percent, the highest since August in just a Fortnite. 221 00:11:49,800 --> 00:11:52,200 Speaker 1: That was Lewis R. Kaiser on Wall Street week back 222 00:11:52,240 --> 00:11:55,560 Speaker 1: in Februar, a time like now when we were paying 223 00:11:55,600 --> 00:11:58,640 Speaker 1: attention to tightening monetary policy in Japan and a rising 224 00:11:58,840 --> 00:12:01,439 Speaker 1: rate environment the United States. Back then, the number one 225 00:12:01,480 --> 00:12:05,199 Speaker 1: movie was the action Thurler Payback starring Mel Gibson, and 226 00:12:05,240 --> 00:12:08,640 Speaker 1: the number one song was Angel of Mind by Monica 227 00:12:09,040 --> 00:12:11,520 Speaker 1: Mona Mahagen and Rebecca Patterson are still with us. Rebecca, 228 00:12:11,520 --> 00:12:14,720 Speaker 1: I want to ask you to sing thank you. That's 229 00:12:14,720 --> 00:12:18,360 Speaker 1: good for everyone. But it was a packed week. What 230 00:12:18,480 --> 00:12:20,160 Speaker 1: did you see this with it? Maybe we didn't pay 231 00:12:20,280 --> 00:12:25,280 Speaker 1: enough attention to well. I think US debt is front 232 00:12:25,280 --> 00:12:27,760 Speaker 1: and center for investors. Everyone knows that we have a 233 00:12:27,760 --> 00:12:32,079 Speaker 1: debt ceiling coming and probably a showdown, hopefully not as 234 00:12:32,120 --> 00:12:36,160 Speaker 1: bad or not worse than when equities fell about in 235 00:12:36,200 --> 00:12:39,240 Speaker 1: the weeks following. But I think the thing that some 236 00:12:39,320 --> 00:12:43,400 Speaker 1: investors might be missing or underestimating. The Congressional Budget Offices 237 00:12:43,480 --> 00:12:46,680 Speaker 1: report also talked about the debt outlook now that we're 238 00:12:46,679 --> 00:12:50,240 Speaker 1: in a slightly higher interest rate environment and we continue 239 00:12:50,280 --> 00:12:52,800 Speaker 1: to load on debt with some of the provisions we 240 00:12:52,880 --> 00:12:57,439 Speaker 1: made reasonably so, probably during COVID we needed to do something. 241 00:12:57,440 --> 00:12:59,960 Speaker 1: We could argue how much. But when you look at 242 00:13:00,000 --> 00:13:04,640 Speaker 1: the CBOs report, if we extend existing tax and spending provisions, 243 00:13:04,920 --> 00:13:07,360 Speaker 1: we're going to have debt to GDP in ten years 244 00:13:07,400 --> 00:13:10,640 Speaker 1: of a hundred and thirty percent. So you mentioned Japan 245 00:13:10,920 --> 00:13:13,160 Speaker 1: earlier in the segment. Yep, we're looking at that kind 246 00:13:13,160 --> 00:13:16,320 Speaker 1: of stuff. The other one that struck me is that 247 00:13:16,400 --> 00:13:19,359 Speaker 1: the interest payments on our debt are going to increasingly 248 00:13:19,400 --> 00:13:22,320 Speaker 1: have a crowding out effect. Uh And if you look 249 00:13:22,400 --> 00:13:25,199 Speaker 1: just at the next five years the CBO's estimates, it 250 00:13:25,240 --> 00:13:27,960 Speaker 1: would suggest that our interest rate payments on our debt 251 00:13:28,200 --> 00:13:33,040 Speaker 1: will be greater than defense spending altogether. That's scary, and 252 00:13:33,080 --> 00:13:36,319 Speaker 1: it's going to mean that government, which is already very polarized, 253 00:13:36,320 --> 00:13:39,440 Speaker 1: will have to make some very difficult fiscal trade offs. 254 00:13:39,880 --> 00:13:42,200 Speaker 1: And it's already challenging and it's going to get worse. 255 00:13:42,760 --> 00:13:45,319 Speaker 1: It's not good news necessarily. Now what you mona, is 256 00:13:45,320 --> 00:13:47,439 Speaker 1: there anything you've actually noticed this week you think we're 257 00:13:47,440 --> 00:13:50,160 Speaker 1: not at least paying enough attention to Yeah, And by 258 00:13:50,160 --> 00:13:51,880 Speaker 1: the way, that debt sailing one is a great one. 259 00:13:51,880 --> 00:13:54,160 Speaker 1: It will probably start flaring up again come July or 260 00:13:54,200 --> 00:13:57,000 Speaker 1: August of this year. Um. But yeah, Another one that 261 00:13:57,040 --> 00:14:01,280 Speaker 1: we've been paying attention to closely, David, is the earnings outlook. 262 00:14:01,360 --> 00:14:02,760 Speaker 1: And you know, keep in mind we're in the middle 263 00:14:02,760 --> 00:14:06,040 Speaker 1: of Q four earnings right now. Um, they're trending towards 264 00:14:06,040 --> 00:14:08,880 Speaker 1: a negative five percent growth rate. But in fact, when 265 00:14:08,880 --> 00:14:11,440 Speaker 1: you look at Q one and Q two earnings forecast 266 00:14:11,559 --> 00:14:13,679 Speaker 1: now they have come down quite a bit, so we're 267 00:14:13,679 --> 00:14:17,040 Speaker 1: looking at negative five percent and negative three percent, respectively. 268 00:14:17,400 --> 00:14:20,440 Speaker 1: So that brings us to three back to back quarters 269 00:14:20,480 --> 00:14:23,440 Speaker 1: of negative earnings growth in the SMP five hundred. So 270 00:14:23,480 --> 00:14:25,280 Speaker 1: of course, you know, while we may not be seeing 271 00:14:25,280 --> 00:14:28,840 Speaker 1: that technical negative GDP growth, we are looking at a 272 00:14:28,840 --> 00:14:31,800 Speaker 1: potential earning slump ahead of us, and so it'll be 273 00:14:32,000 --> 00:14:34,560 Speaker 1: interesting to see and probably not as likely for markets 274 00:14:34,560 --> 00:14:36,960 Speaker 1: to be able to power right through that. But perhaps 275 00:14:36,960 --> 00:14:40,520 Speaker 1: something that investors have not yet um seen or been 276 00:14:40,520 --> 00:14:42,960 Speaker 1: thinking about hasn't yet come quite to the forefront and 277 00:14:42,960 --> 00:14:46,280 Speaker 1: the headlines either. The other interesting part of the earning story, 278 00:14:46,280 --> 00:14:50,800 Speaker 1: of course is three broadly, earnings expectations have come down. 279 00:14:50,800 --> 00:14:52,960 Speaker 1: They were about ten percent plus coming into the year, 280 00:14:53,000 --> 00:14:55,720 Speaker 1: and they're now closer to two percent, but perhaps a 281 00:14:55,720 --> 00:14:58,760 Speaker 1: little bit more downside to go in those downward earning 282 00:14:58,760 --> 00:15:02,400 Speaker 1: revisions as well. So until that kind of bottoming process 283 00:15:02,400 --> 00:15:05,240 Speaker 1: and earnings happens, um, it will be difficult to stage 284 00:15:05,240 --> 00:15:08,240 Speaker 1: a more sustainable recovery. So I do think that's something 285 00:15:08,240 --> 00:15:10,800 Speaker 1: to keep in mind, especially looking at Q four, which 286 00:15:10,840 --> 00:15:13,440 Speaker 1: is still looking a little elevated in our view. UM. 287 00:15:13,560 --> 00:15:15,360 Speaker 1: But you know, I think the earnings picture in the 288 00:15:15,400 --> 00:15:17,600 Speaker 1: next couple of quarters it will be a little bit 289 00:15:17,600 --> 00:15:19,320 Speaker 1: of a tough one. And I think if I could 290 00:15:19,320 --> 00:15:22,760 Speaker 1: pick up monan something you said, a sustainable move, I 291 00:15:22,800 --> 00:15:24,760 Speaker 1: think that is going to be the key for this year. 292 00:15:24,920 --> 00:15:27,960 Speaker 1: Last year we had some pretty long lasting trends. I 293 00:15:28,000 --> 00:15:29,560 Speaker 1: think this year is going to be like a ping 294 00:15:29,600 --> 00:15:32,440 Speaker 1: pong or a pickleball match, where it's just going back 295 00:15:32,480 --> 00:15:36,280 Speaker 1: and forth. You'll get some data that suggests this immaculate disinflation, 296 00:15:36,320 --> 00:15:38,920 Speaker 1: and then the next month will have something hotter than expected, 297 00:15:39,240 --> 00:15:42,480 Speaker 1: and the changes and expectations for liquidity, the changes and 298 00:15:42,600 --> 00:15:45,160 Speaker 1: expectations and earnings is going to keep us back and forth. 299 00:15:45,200 --> 00:15:47,480 Speaker 1: And I think for investors, we don't want to take 300 00:15:47,560 --> 00:15:49,760 Speaker 1: our eye off the ball the longer term trend, and 301 00:15:50,080 --> 00:15:52,160 Speaker 1: I agree with you, I think the risk is that 302 00:15:52,480 --> 00:15:56,280 Speaker 1: we could get an earnings recession even within the volatility 303 00:15:56,360 --> 00:15:58,840 Speaker 1: along the way. It sounds like a lot of volatility 304 00:15:58,840 --> 00:16:01,280 Speaker 1: coming up. Thank you so much to Monoma Hodgen and 305 00:16:01,320 --> 00:16:04,520 Speaker 1: Rebecca Patterson for joining us, and then this edition of 306 00:16:04,520 --> 00:16:07,920 Speaker 1: Wall Street Week, and welcome back. Now somebody who regularly 307 00:16:07,920 --> 00:16:10,720 Speaker 1: contributes to Wall Street Week. She's Jillian Ted. We know 308 00:16:10,920 --> 00:16:13,680 Speaker 1: her as head of the editorial board and editor at 309 00:16:13,760 --> 00:16:16,480 Speaker 1: large for the Financial Times. But now she's about to 310 00:16:16,520 --> 00:16:19,920 Speaker 1: add a new title, which is Provost of King's College, Cambridge. 311 00:16:20,000 --> 00:16:23,320 Speaker 1: That comes, I guess with the new term in October. Congratulations, 312 00:16:23,360 --> 00:16:25,120 Speaker 1: Thank you very much. Indeed, it's been like going to 313 00:16:25,200 --> 00:16:30,119 Speaker 1: hog Walls form for academics, but economists because John Mannikin's, 314 00:16:30,120 --> 00:16:32,720 Speaker 1: of course, came from King's College. So very excited, an 315 00:16:32,720 --> 00:16:36,200 Speaker 1: honorable tradition you're following. So, Jillian, we're watching the markets 316 00:16:36,240 --> 00:16:37,960 Speaker 1: all the time, of course, to see particularly how the 317 00:16:37,960 --> 00:16:40,280 Speaker 1: equity markets are reacting to what they think the Feds 318 00:16:40,280 --> 00:16:42,840 Speaker 1: are going to do. We had pretty robust economic numbers 319 00:16:42,840 --> 00:16:45,840 Speaker 1: in the United States this week, but at the same 320 00:16:45,880 --> 00:16:48,600 Speaker 1: time we aren't focused quite as much on the quantitative 321 00:16:48,680 --> 00:16:51,440 Speaker 1: tightening part. There's a lot of concern about liquidity. You 322 00:16:51,440 --> 00:16:54,640 Speaker 1: have some interesting thoughts on liquidity. Well, there's two points 323 00:16:54,640 --> 00:16:57,560 Speaker 1: I want to make. Firstly, that people in the markets 324 00:16:57,600 --> 00:17:01,280 Speaker 1: are unsurprisingly very obsessed with what the FED is doing. 325 00:17:01,720 --> 00:17:06,119 Speaker 1: Every time j. Powe coughs, investors go mad um. And 326 00:17:06,160 --> 00:17:09,359 Speaker 1: they're also very very focused on the American data on 327 00:17:09,440 --> 00:17:13,480 Speaker 1: inflation and growth, which again is totally understandable. But if 328 00:17:13,520 --> 00:17:17,240 Speaker 1: you look more broadly right now, there's potentially two things 329 00:17:17,240 --> 00:17:20,520 Speaker 1: they're missing. One is a fact that actually what's happening 330 00:17:20,520 --> 00:17:25,159 Speaker 1: at other central banks outside the FED matters enormously, because 331 00:17:25,359 --> 00:17:27,960 Speaker 1: quite apart from what the ECB is doing, you've got 332 00:17:27,960 --> 00:17:31,320 Speaker 1: the People's Bank of China, which has been engaged in 333 00:17:31,359 --> 00:17:34,639 Speaker 1: the recent months on something of a massive support program, 334 00:17:34,720 --> 00:17:38,280 Speaker 1: and you've got to Bank of Japan that's about to 335 00:17:38,280 --> 00:17:40,640 Speaker 1: get a new governor, which still appears to be taking 336 00:17:40,640 --> 00:17:44,280 Speaker 1: a very devilish stance, and that is effectively putting more 337 00:17:44,359 --> 00:17:47,119 Speaker 1: liquidity into the markets. In fact, I was looking at 338 00:17:47,200 --> 00:17:50,360 Speaker 1: some great research from Matt King at City earlier today 339 00:17:50,359 --> 00:17:52,159 Speaker 1: which says that if you look at the p BOC 340 00:17:52,480 --> 00:17:55,320 Speaker 1: and the b o J together, they've added almost a 341 00:17:55,359 --> 00:17:59,080 Speaker 1: trillion dollars liquidity to the markets since last October. And 342 00:17:59,119 --> 00:18:01,560 Speaker 1: the reason that matters is is that I am one 343 00:18:01,560 --> 00:18:03,800 Speaker 1: of those people who believe that what's happening to as 344 00:18:03,840 --> 00:18:08,240 Speaker 1: surprises is not driven just by the latest data on CPI, 345 00:18:08,400 --> 00:18:11,359 Speaker 1: but liquidity and how much money is swirling around the system. 346 00:18:11,400 --> 00:18:13,919 Speaker 1: And Joan, let me add one other potential complication, and 347 00:18:13,960 --> 00:18:16,720 Speaker 1: that's the debt selling crisis and apparably not too strong 348 00:18:16,720 --> 00:18:18,840 Speaker 1: a word to say crisis looming in the United States. 349 00:18:18,920 --> 00:18:20,679 Speaker 1: You know, so well, there's been a lot of concern 350 00:18:20,720 --> 00:18:23,680 Speaker 1: about what the FED might be doing with liquidity here 351 00:18:23,680 --> 00:18:26,399 Speaker 1: because of the debt track crisis really comes on as 352 00:18:26,440 --> 00:18:28,280 Speaker 1: this summer, We're gonna have some challenges. How does that 353 00:18:28,400 --> 00:18:31,080 Speaker 1: play against the liquidity issue? Well, that's a critical issue, 354 00:18:31,119 --> 00:18:33,480 Speaker 1: and that I already column about that recently, pointing out 355 00:18:33,560 --> 00:18:36,160 Speaker 1: that there's never a great moment to have a debt crisis, 356 00:18:36,600 --> 00:18:39,600 Speaker 1: but it's a particularly bad moment when you are embarked 357 00:18:39,600 --> 00:18:43,639 Speaker 1: on this astonishing monetary policy experiment called quantitative tightening or 358 00:18:43,680 --> 00:18:47,520 Speaker 1: attempted quantitative tightening, because the scale of what the FED 359 00:18:47,600 --> 00:18:49,560 Speaker 1: is trying to do in terms of shrinking the balant sheet, 360 00:18:49,880 --> 00:18:51,639 Speaker 1: leaving aside the issue of what the Bank Bank of 361 00:18:51,720 --> 00:18:53,840 Speaker 1: Japan is doing, the scale of what the Fed is 362 00:18:53,880 --> 00:18:57,600 Speaker 1: doing is really very significant. And one of the things 363 00:18:57,600 --> 00:19:01,240 Speaker 1: that concerns me is that we know the treasuries market 364 00:19:01,840 --> 00:19:05,879 Speaker 1: is actually quite fragile in terms of its underlying structure. 365 00:19:06,600 --> 00:19:08,879 Speaker 1: Um The reasons a bit complex and two comments to 366 00:19:08,920 --> 00:19:10,800 Speaker 1: go into, but is to do with the fact that 367 00:19:10,840 --> 00:19:13,679 Speaker 1: you don't really have market makers in the system anymore 368 00:19:13,760 --> 00:19:17,080 Speaker 1: keeping markets stable in a crunch. We saw what that 369 00:19:17,160 --> 00:19:20,600 Speaker 1: means in March during the early days of COVID, when 370 00:19:20,600 --> 00:19:23,720 Speaker 1: the treasury markets came really close to seizing up completely. 371 00:19:24,240 --> 00:19:28,679 Speaker 1: We've had other mini flash crashes and worrying periods as well. 372 00:19:29,280 --> 00:19:32,600 Speaker 1: And if we have a debt ceiling crisis coupled with 373 00:19:32,640 --> 00:19:36,399 Speaker 1: the fat that essentially the BED is trying to stop 374 00:19:36,440 --> 00:19:38,720 Speaker 1: buying government bonds and we don't yet know who's going 375 00:19:38,760 --> 00:19:42,040 Speaker 1: to buy them instead, you've got the makings of if 376 00:19:42,080 --> 00:19:45,280 Speaker 1: not a new crisis, then certainly a lot of risks. 377 00:19:45,320 --> 00:19:47,440 Speaker 1: Thank you so much to Jillian Ted of the Financial 378 00:19:47,480 --> 00:19:51,639 Speaker 1: Times income October. She's going to be provost of King's College, Cambridge. 379 00:19:53,480 --> 00:19:55,479 Speaker 1: Coming up, we'll wrap up the week with our special 380 00:19:55,480 --> 00:19:58,320 Speaker 1: contributor Larry Summers oft Harvard. That's the next on Wall 381 00:19:58,359 --> 00:20:09,040 Speaker 1: Street Week On Bloomberg. This is Wall Street Week. I'm 382 00:20:09,119 --> 00:20:11,720 Speaker 1: David West. We welcome back now our very special contributor 383 00:20:11,800 --> 00:20:14,399 Speaker 1: here he is Larry Summers of Harvard. So, Larry, it 384 00:20:14,520 --> 00:20:17,120 Speaker 1: was quite a week this week for economic numbers, certainly 385 00:20:17,160 --> 00:20:19,199 Speaker 1: the United States. We had the CPI numbers, we had 386 00:20:19,240 --> 00:20:22,200 Speaker 1: the PPI numbers. We also had retail sales numbers. And 387 00:20:22,520 --> 00:20:24,280 Speaker 1: what I took away from it is, you know what, 388 00:20:24,359 --> 00:20:26,159 Speaker 1: We're not close to a recession, that's for sure. On 389 00:20:26,200 --> 00:20:28,720 Speaker 1: the other hand, that inflation is not coming down very fast? 390 00:20:28,920 --> 00:20:31,520 Speaker 1: Do we need to rethink exactly what we're doing as 391 00:20:31,520 --> 00:20:35,000 Speaker 1: we try to approach inflation? David, Here's how I think 392 00:20:35,040 --> 00:20:38,760 Speaker 1: about it. Uh, the Fed's been trying to put the 393 00:20:38,800 --> 00:20:41,879 Speaker 1: brakes on, and it doesn't look like the brakes for 394 00:20:42,000 --> 00:20:46,359 Speaker 1: getting much traction. And when your brakes don't get much traction, 395 00:20:47,040 --> 00:20:51,560 Speaker 1: two things happen. You can be moving too fast, that's 396 00:20:51,600 --> 00:20:55,320 Speaker 1: the inflation pressure, and you can be setting yourself up 397 00:20:55,960 --> 00:21:01,280 Speaker 1: for some kind of collision or crap down the road. 398 00:21:02,080 --> 00:21:06,320 Speaker 1: And both of those things I think are real risks. Uh. 399 00:21:06,800 --> 00:21:12,800 Speaker 1: In Uh, this environment, we clearly have an economy where 400 00:21:12,960 --> 00:21:18,640 Speaker 1: demand is super strong, the highest ratio of vacancies to unemployment. 401 00:21:18,760 --> 00:21:24,840 Speaker 1: We've ever seen retail sales on fire. The economy creating 402 00:21:24,960 --> 00:21:30,440 Speaker 1: jobs faster right now than population growth by a factor 403 00:21:30,560 --> 00:21:35,040 Speaker 1: of five in the latest month. If you look at 404 00:21:35,080 --> 00:21:40,920 Speaker 1: the broadest measures of inflation, the media inflation component at 405 00:21:40,920 --> 00:21:45,760 Speaker 1: its highest rate in UH forty years, running close to 406 00:21:46,240 --> 00:21:53,800 Speaker 1: seven percent, a general broadening of UH price pressures. So 407 00:21:54,240 --> 00:21:59,720 Speaker 1: that has got to cause real concern about inflation. It's 408 00:21:59,720 --> 00:22:04,119 Speaker 1: got at least raise a question about the paradigm market 409 00:22:04,160 --> 00:22:09,719 Speaker 1: observers have had of how many basis point increases before 410 00:22:09,760 --> 00:22:14,639 Speaker 1: the long pause and move towards decrease. It raises the 411 00:22:14,680 --> 00:22:20,720 Speaker 1: possibility that we're not landing at a terminal rate sometime 412 00:22:20,760 --> 00:22:23,840 Speaker 1: in the next several months, or that we're gonna have 413 00:22:23,920 --> 00:22:27,640 Speaker 1: to go back to hitting the brakes UH harder by 414 00:22:27,680 --> 00:22:31,240 Speaker 1: more than twenty five basis points. At the same time, 415 00:22:31,800 --> 00:22:35,040 Speaker 1: the Fed has to be very careful. I don't think 416 00:22:35,119 --> 00:22:40,679 Speaker 1: those who think inflation is slowing therefore it's obvious that 417 00:22:40,760 --> 00:22:45,200 Speaker 1: we've got to hit the brakes very hard necessarily are right. 418 00:22:45,920 --> 00:22:49,560 Speaker 1: Because if you look at accumulations of inventories, if you 419 00:22:49,640 --> 00:22:53,359 Speaker 1: look at what's happened to the savings rate, if you 420 00:22:53,440 --> 00:22:58,440 Speaker 1: look at how many firms have built up their payrolls. 421 00:22:59,000 --> 00:23:03,360 Speaker 1: If you look at signs of a bit of euphoria 422 00:23:03,840 --> 00:23:08,159 Speaker 1: coming back into some stock markets, you also have the 423 00:23:08,280 --> 00:23:13,280 Speaker 1: possibility of that widely coyote moment that I've been referring 424 00:23:13,359 --> 00:23:17,800 Speaker 1: to that could come not next month, but could come 425 00:23:18,000 --> 00:23:22,159 Speaker 1: sometime in the next uh few months. So so Larry 426 00:23:22,440 --> 00:23:24,800 Speaker 1: to oversimplify this, let me give you a multiple choice 427 00:23:24,920 --> 00:23:28,440 Speaker 1: quiz here with the FED in March fifty basis points 428 00:23:28,520 --> 00:23:31,439 Speaker 1: rather than twenty five, or stick at and add another 429 00:23:31,440 --> 00:23:34,280 Speaker 1: twenty or two down the road, or do we just 430 00:23:34,400 --> 00:23:39,040 Speaker 1: not know? I think we don't know. Uh. The case 431 00:23:39,359 --> 00:23:45,159 Speaker 1: for moving slowly is that when you move slowly, you 432 00:23:45,280 --> 00:23:49,760 Speaker 1: preserve the option not to do the last move once 433 00:23:49,800 --> 00:23:52,919 Speaker 1: you're sure that a move is necessary. I don't think 434 00:23:52,960 --> 00:23:59,479 Speaker 1: there's any great advantage to delaying, uh that move, and 435 00:24:00,200 --> 00:24:05,800 Speaker 1: so that's why I think there are more possibilities open 436 00:24:06,520 --> 00:24:11,879 Speaker 1: at this point. But I think the risk is that 437 00:24:12,040 --> 00:24:16,280 Speaker 1: we're gonna hit the brakes very very hard, and then 438 00:24:16,400 --> 00:24:19,880 Speaker 1: when we hit the brakes very very hard, that's going 439 00:24:20,040 --> 00:24:23,080 Speaker 1: to kick in. At the same time that some of 440 00:24:23,119 --> 00:24:28,280 Speaker 1: those negative cyclical dynamics about rising savings and excess inventory 441 00:24:28,359 --> 00:24:32,160 Speaker 1: and so forth are kicking in and that could produce 442 00:24:32,520 --> 00:24:37,520 Speaker 1: uh the the dangerous drop off. So let's go from 443 00:24:37,520 --> 00:24:39,200 Speaker 1: the Fed to the fiscal side, from the monetary of 444 00:24:39,200 --> 00:24:41,840 Speaker 1: the fiscal side. We had a CBO report out that said, actually, 445 00:24:42,080 --> 00:24:44,119 Speaker 1: the debt situation is worse than we thought, as we 446 00:24:44,160 --> 00:24:47,040 Speaker 1: are now confronting a debt ceiling deadline sometime this summer. 447 00:24:47,040 --> 00:24:49,679 Speaker 1: We're not sure exactly when it is. How bad is 448 00:24:49,720 --> 00:24:51,760 Speaker 1: the problem and what do you look at as a 449 00:24:51,800 --> 00:24:54,359 Speaker 1: macroeconomist to figure out how bad the problem is? Because 450 00:24:54,400 --> 00:24:56,320 Speaker 1: one of the issues is the more we have to 451 00:24:56,359 --> 00:24:58,480 Speaker 1: service the debt, the less money we have to spend 452 00:24:58,480 --> 00:25:01,480 Speaker 1: on other things that might be investments in the economy. Look, 453 00:25:01,520 --> 00:25:07,560 Speaker 1: I think that CBO report is concerning, and while there 454 00:25:07,560 --> 00:25:11,160 Speaker 1: are lots of pots and takes, my guess is that 455 00:25:11,840 --> 00:25:16,640 Speaker 1: the ultimate debt trajectory may well run higher than CBO 456 00:25:16,920 --> 00:25:20,440 Speaker 1: is saying. It assumes that FED funds is going to 457 00:25:20,560 --> 00:25:23,399 Speaker 1: settle for the long term at two and a half 458 00:25:23,960 --> 00:25:28,240 Speaker 1: without there being a recession. That strikes me as having 459 00:25:28,359 --> 00:25:31,000 Speaker 1: much more room to be too low than to be 460 00:25:31,720 --> 00:25:37,520 Speaker 1: too high. CBO does its job, which is predict current policy, 461 00:25:38,119 --> 00:25:41,240 Speaker 1: but my guess is that spending in the national security 462 00:25:41,280 --> 00:25:44,399 Speaker 1: area is going to have to rise significantly over the 463 00:25:44,400 --> 00:25:49,800 Speaker 1: next decade given the threats UH that we are facing. 464 00:25:50,520 --> 00:25:54,840 Speaker 1: CBO does its job and assumes current law, which is 465 00:25:54,880 --> 00:26:00,679 Speaker 1: that all the tax cuts legislated in or gonna phase 466 00:26:00,720 --> 00:26:07,400 Speaker 1: out in. But I'd be surprised if that was actually true. 467 00:26:08,040 --> 00:26:13,000 Speaker 1: And so you add all that up, and I think 468 00:26:13,160 --> 00:26:18,200 Speaker 1: that where they're looking for debt to g PE ratios 469 00:26:18,680 --> 00:26:23,600 Speaker 1: to go to a hundred and twenty of UH debt 470 00:26:23,640 --> 00:26:28,199 Speaker 1: an increase of about over a decade, My suspicion is 471 00:26:28,280 --> 00:26:33,399 Speaker 1: it could easily be over a decade, and that in 472 00:26:33,480 --> 00:26:37,520 Speaker 1: turn will push put pressure on interest rates, which will 473 00:26:37,600 --> 00:26:44,760 Speaker 1: put pressure on the increase the deficit, and so you 474 00:26:44,840 --> 00:26:49,639 Speaker 1: get a little bit of a vicious UH cycle. I 475 00:26:49,720 --> 00:26:55,200 Speaker 1: don't think this is an imminent emergency. I don't think 476 00:26:55,240 --> 00:26:59,440 Speaker 1: it's something that will be any kind of crisis if 477 00:26:59,480 --> 00:27:05,320 Speaker 1: it is not dealt with UH this UH year. I 478 00:27:05,359 --> 00:27:10,600 Speaker 1: think those who somehow use fiscal concern as an excuse 479 00:27:10,760 --> 00:27:15,000 Speaker 1: to not raise the debt limit are exacerbating all of 480 00:27:15,040 --> 00:27:21,480 Speaker 1: the UH fiscal risks. But I do think we've got 481 00:27:21,480 --> 00:27:28,160 Speaker 1: to recognize UH that unless UH interest rates really revert 482 00:27:28,760 --> 00:27:32,800 Speaker 1: to very low levels, which is certainly possible. It is 483 00:27:32,840 --> 00:27:38,119 Speaker 1: what happened in the era of UH secular stagnation that 484 00:27:38,560 --> 00:27:42,240 Speaker 1: I think we are going to have fiscal problems and 485 00:27:42,320 --> 00:27:48,000 Speaker 1: fiscal challenges that we are going to have to address. Finally, Larry, 486 00:27:48,160 --> 00:27:51,000 Speaker 1: next week that G twenty finance ministers and center bankers 487 00:27:51,000 --> 00:27:53,400 Speaker 1: will be meeting over in India. They've got a fair 488 00:27:53,440 --> 00:27:55,879 Speaker 1: amount to address here, so which you've to raise, do 489 00:27:56,040 --> 00:27:59,240 Speaker 1: Walter before, for example, some of the debt relief that 490 00:27:59,320 --> 00:28:00,919 Speaker 1: needs to be given to some of the poorest countries 491 00:28:00,960 --> 00:28:03,520 Speaker 1: in the world, and also what we're gonna do with 492 00:28:03,640 --> 00:28:06,119 Speaker 1: climate finance for some of those poorest countries. What are 493 00:28:06,160 --> 00:28:09,959 Speaker 1: you looking for in the G twenty meetings. I hope 494 00:28:10,320 --> 00:28:17,200 Speaker 1: that we're gonna see UH continued UH good work along 495 00:28:17,240 --> 00:28:21,800 Speaker 1: the lines of very powerful calls that Jenny Yellen has 496 00:28:21,840 --> 00:28:27,960 Speaker 1: made for World Bank reform. I hope we're going to 497 00:28:28,200 --> 00:28:34,840 Speaker 1: see some progress on the debt issues. I think there's 498 00:28:34,840 --> 00:28:40,680 Speaker 1: a need for careful thinking about funding the ongoing economic 499 00:28:40,800 --> 00:28:46,880 Speaker 1: challenges and the ultimate reconstruction in Ukraine. And I think 500 00:28:46,960 --> 00:28:55,520 Speaker 1: this issue of global economy where there's UH substantial inflationary 501 00:28:55,600 --> 00:29:00,800 Speaker 1: pressure and the breaks are having very uneven effects and 502 00:29:01,200 --> 00:29:04,760 Speaker 1: how that's going to play out is going to be 503 00:29:04,800 --> 00:29:09,640 Speaker 1: an important area that ministers and the governors are going 504 00:29:09,680 --> 00:29:13,960 Speaker 1: to have to UH discuss. We haven't talked about it 505 00:29:14,040 --> 00:29:18,280 Speaker 1: on the show, David, but there's been a kind of 506 00:29:18,400 --> 00:29:23,520 Speaker 1: possible Enron moment UH in India, and I imagine with 507 00:29:24,160 --> 00:29:29,600 Speaker 1: UH India emerging as the world's largest country and UH 508 00:29:29,760 --> 00:29:34,160 Speaker 1: the meeting taking place UH in India, there's gonna be 509 00:29:34,160 --> 00:29:38,440 Speaker 1: a lot of curiosity from all present about how that's 510 00:29:38,480 --> 00:29:43,280 Speaker 1: gonna play through and what if any larger systemic implications 511 00:29:43,320 --> 00:29:47,080 Speaker 1: that's gonna have for India. Really interesting point. Thank you 512 00:29:47,120 --> 00:29:49,680 Speaker 1: so much, Larry Summers of Harvard our special contribute here 513 00:29:49,920 --> 00:29:53,959 Speaker 1: on Wall Street Week coming up. Sometimes it's hard as 514 00:29:54,040 --> 00:29:57,480 Speaker 1: to see what's right in front of us. That's next 515 00:29:57,520 --> 00:30:08,640 Speaker 1: on Wall Street Week on Bloomberg. Finally, one more thought. 516 00:30:09,040 --> 00:30:12,360 Speaker 1: The Case of the purloined Letter or spy balloon or 517 00:30:12,560 --> 00:30:16,480 Speaker 1: crypto Scheme. In eighteen forty four, Edgar Allan Poe wrote 518 00:30:16,480 --> 00:30:19,520 Speaker 1: a mystery about finding an incriminating a letter where no 519 00:30:19,600 --> 00:30:23,240 Speaker 1: one thought to look right in plain sight. It turns 520 00:30:23,240 --> 00:30:25,280 Speaker 1: out that things really haven't changed all that much in 521 00:30:25,320 --> 00:30:28,840 Speaker 1: the last hundred and seventy nine years, consider, most recently 522 00:30:28,960 --> 00:30:32,960 Speaker 1: the strange case of the Chinese spy balloon. We were shocked, 523 00:30:33,280 --> 00:30:36,000 Speaker 1: shocked when the good people of Montana looked up to 524 00:30:36,040 --> 00:30:39,000 Speaker 1: see a balloon the size of three school buses hovering 525 00:30:39,080 --> 00:30:42,480 Speaker 1: sixty thousand feet above their heads, and I have no 526 00:30:42,560 --> 00:30:46,160 Speaker 1: idea what it is. After much consideration and a leisurely 527 00:30:46,200 --> 00:30:49,360 Speaker 1: trip across the country, an F twenty two raptors shot 528 00:30:49,360 --> 00:30:52,640 Speaker 1: it down just off the coast of South Carolina, down, 529 00:30:53,120 --> 00:30:56,360 Speaker 1: leaving behind some debris and a lot of debate about 530 00:30:56,400 --> 00:30:58,880 Speaker 1: what it was, what it was doing, and how long 531 00:30:58,960 --> 00:31:01,880 Speaker 1: this sort of thing had been going on. Many people, 532 00:31:02,720 --> 00:31:07,040 Speaker 1: intentionally or otherwise have been given the impression that a 533 00:31:07,080 --> 00:31:11,320 Speaker 1: couple of weeks ago, our skies were clear, and then 534 00:31:11,440 --> 00:31:16,240 Speaker 1: all of a sudden, we have spa balloons and other identified, 535 00:31:16,360 --> 00:31:21,480 Speaker 1: unidentified flying objects training down on a slight confetti. That 536 00:31:21,680 --> 00:31:24,640 Speaker 1: is not accurate. But it turns out that it shouldn't 537 00:31:24,640 --> 00:31:27,360 Speaker 1: have been such a mystery. According to The New York Times, 538 00:31:27,360 --> 00:31:31,320 Speaker 1: a Chinese aeronaic scientist, Woogie, had told a state run 539 00:31:31,400 --> 00:31:34,520 Speaker 1: news outlet back in two thousand nineteen about his new 540 00:31:34,600 --> 00:31:37,840 Speaker 1: high altitude balloon, which he said could be used for 541 00:31:38,360 --> 00:31:42,760 Speaker 1: you Guessed It surveillance, and he conveniently included a video 542 00:31:42,840 --> 00:31:47,280 Speaker 1: showing its track across North America, exclaiming, look, there's America 543 00:31:47,920 --> 00:31:51,040 Speaker 1: all hiding in plain sight on the internet for the 544 00:31:51,120 --> 00:31:54,440 Speaker 1: last four years, which only adds to a long list 545 00:31:54,480 --> 00:31:57,720 Speaker 1: of things that we should have seen coming, like, for example, 546 00:31:57,840 --> 00:32:00,440 Speaker 1: Bernie made Off not being entirely on the up and 547 00:32:00,560 --> 00:32:03,920 Speaker 1: up after he'd reported above market gains for his investors 548 00:32:04,000 --> 00:32:07,800 Speaker 1: year after year after year with nary a loss along 549 00:32:07,800 --> 00:32:10,680 Speaker 1: the way. All of the victims clapped as soon as 550 00:32:10,680 --> 00:32:13,800 Speaker 1: they heard the sentencing from Judge Jenny Chin. Bernard made 551 00:32:13,800 --> 00:32:15,800 Speaker 1: Off will go to prison for more than the rest 552 00:32:15,800 --> 00:32:17,960 Speaker 1: of his life. He is seventy one years old. He 553 00:32:18,040 --> 00:32:21,520 Speaker 1: was sentenced to the maximum one fifty years in prison. 554 00:32:21,960 --> 00:32:24,880 Speaker 1: Or the possibility that anything could go wrong in giving 555 00:32:24,920 --> 00:32:27,840 Speaker 1: some two billion dollars to a thirty year old Samuel 556 00:32:27,880 --> 00:32:31,440 Speaker 1: Bankman freed to set up a crypto empire. This is 557 00:32:31,520 --> 00:32:34,360 Speaker 1: a big moment in history, one of the biggest fraud 558 00:32:34,400 --> 00:32:38,120 Speaker 1: cases in American history. Or the very idea that the 559 00:32:38,200 --> 00:32:41,480 Speaker 1: Russians would actually invade Ukraine a year ago, despite the 560 00:32:41,520 --> 00:32:43,800 Speaker 1: fact that President Putin had said he would do just 561 00:32:43,920 --> 00:32:46,920 Speaker 1: that and had masked thousands of troops all along the 562 00:32:46,960 --> 00:32:50,240 Speaker 1: border for just that very purpose. We're working to pursue 563 00:32:50,320 --> 00:32:55,200 Speaker 1: the Polacy in every possible venue, but we also know 564 00:32:55,320 --> 00:32:59,600 Speaker 1: that the Pomacy will not succeed in an atmosphere of 565 00:33:00,000 --> 00:33:04,640 Speaker 1: at and military escalation. So it's not just in Casablanca 566 00:33:04,800 --> 00:33:07,760 Speaker 1: that we're surprised by what we should have known all along. 567 00:33:08,080 --> 00:33:10,600 Speaker 1: I'm shocked, shocked to find the gambling is going on 568 00:33:10,680 --> 00:33:14,720 Speaker 1: in here. Thank you very much. That does it for 569 00:33:14,720 --> 00:33:16,920 Speaker 1: this episode of Wall Street Week. I'm David Weston. This 570 00:33:17,000 --> 00:33:18,600 Speaker 1: is Bloomberg. See you next week.