1 00:00:00,520 --> 00:00:03,760 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,840 --> 00:00:07,120 Speaker 1: to the markets this week. U S CPI nevers 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 --> 00:00:22,920 Speaker 1: former Treator Secretary, Katherine Keating, CEO of the n Y Moms, 8 00:00:22,960 --> 00:00:26,239 Speaker 1: Sam's l Sharmon and founder of Equity Group Investment. In 9 00:00:26,320 --> 00:00:30,280 Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio. 10 00:00:30,560 --> 00:00:34,320 Speaker 1: It is a process of choosing political candidates for the fall, 11 00:00:34,520 --> 00:00:38,000 Speaker 1: of strengthening the coalition, confronting Russia, but most of all 12 00:00:38,360 --> 00:00:41,240 Speaker 1: of coming to terms with a tightening FED. This is 13 00:00:41,240 --> 00:00:45,920 Speaker 1: Bloomberg Wall Street Week. I'm David Weston. This week's special 14 00:00:45,960 --> 00:00:49,120 Speaker 1: contributor Larry Summers of Harvard on what can get the 15 00:00:49,280 --> 00:00:53,840 Speaker 1: job done? On inflation This is a feature not above 16 00:00:54,400 --> 00:00:59,680 Speaker 1: associated with the tightening of monetary policy. And Tom Tapira 17 00:00:59,720 --> 00:01:02,280 Speaker 1: of g t I S Partners on risks to the 18 00:01:02,320 --> 00:01:07,560 Speaker 1: housing market. As interest rates rise, the consumers stretch and 19 00:01:07,600 --> 00:01:09,720 Speaker 1: that is certainly going to be an issue on a 20 00:01:09,760 --> 00:01:26,480 Speaker 1: going forward basis. This week we did a lot of 21 00:01:26,640 --> 00:01:30,880 Speaker 1: preparing recurring to add Sweden and Finland to NATO when 22 00:01:30,880 --> 00:01:32,920 Speaker 1: the leaders of the two countries paid a visit to 23 00:01:33,000 --> 00:01:36,880 Speaker 1: President Biden at the White House. Well, it's incredibly historic 24 00:01:37,000 --> 00:01:41,560 Speaker 1: and this completely reshapes the post called war security alliance 25 00:01:41,680 --> 00:01:48,680 Speaker 1: in Europe. Finland and Sweden make NATO stronger. Preparing for 26 00:01:48,760 --> 00:01:52,520 Speaker 1: midterm elections less than six months away, as five states 27 00:01:52,560 --> 00:01:56,280 Speaker 1: held primaries, though in Pennsylvania, Republicans have some more work 28 00:01:56,360 --> 00:02:01,080 Speaker 1: to do, as Senate candidate Dave McCormick explained, Now, we 29 00:02:01,160 --> 00:02:05,080 Speaker 1: have tens of thousands of mail in balloasts that have 30 00:02:05,200 --> 00:02:08,640 Speaker 1: not been counted. But we could see the hath a head, 31 00:02:09,000 --> 00:02:12,760 Speaker 1: We could see Dandre ahead. But no one and I 32 00:02:12,840 --> 00:02:15,560 Speaker 1: mean no one, is preparing harder than FED Chair J. 33 00:02:15,680 --> 00:02:20,080 Speaker 1: Powell preparing for the next round of rate hikes. Inflation 34 00:02:20,200 --> 00:02:22,960 Speaker 1: is coming down. That's what we really need to see. Honestly, 35 00:02:22,960 --> 00:02:25,040 Speaker 1: We'll just where we will go until we feel like 36 00:02:25,160 --> 00:02:28,120 Speaker 1: we're at a place where we can where we can 37 00:02:28,160 --> 00:02:34,280 Speaker 1: say yes, financial conditions are an inappropriate place. Equity markets 38 00:02:34,280 --> 00:02:36,720 Speaker 1: this week, believe the Chair, and if that weren't enough, 39 00:02:36,880 --> 00:02:39,920 Speaker 1: then chilling news out of retailers like Target and Walmart 40 00:02:39,960 --> 00:02:43,560 Speaker 1: reinforce the idea that harder times may lie ahead. With 41 00:02:43,639 --> 00:02:46,000 Speaker 1: the SMP down for the seventh week in a row, 42 00:02:46,240 --> 00:02:49,320 Speaker 1: the longest losing streaks since two thousand one, and though 43 00:02:49,400 --> 00:02:52,160 Speaker 1: it flirted with the bear market, it came back late 44 00:02:52,240 --> 00:02:56,560 Speaker 1: on Friday, ending just above thirty nine hundred, down three 45 00:02:57,000 --> 00:02:59,760 Speaker 1: overall for the week, while the NAZAC, already in bear territory, 46 00:03:00,120 --> 00:03:02,680 Speaker 1: was down another three point eight percent this week. But 47 00:03:02,760 --> 00:03:05,200 Speaker 1: the bond market was a different story, with a tenure 48 00:03:05,320 --> 00:03:07,600 Speaker 1: rallying for the second week in a row, ending up 49 00:03:07,600 --> 00:03:10,880 Speaker 1: with a yield below two point eight percent. Tell us 50 00:03:10,880 --> 00:03:13,000 Speaker 1: sort it all out. We welcome to Bob Michael, he's 51 00:03:13,000 --> 00:03:16,040 Speaker 1: ce IO of Global fixed Income, Currency and Commodities at 52 00:03:16,120 --> 00:03:19,880 Speaker 1: JP Morgan Asset Management, and Sarah Maleck, chief investment officer 53 00:03:19,960 --> 00:03:21,799 Speaker 1: at now Vene. So welcome both of you. It's great 54 00:03:21,800 --> 00:03:23,640 Speaker 1: to have you here. Sarah'm gonna start with you because 55 00:03:23,639 --> 00:03:26,520 Speaker 1: it was so much activity in equities this week. What happened? 56 00:03:26,760 --> 00:03:29,280 Speaker 1: Daven There was three key drivers for the market this week. 57 00:03:29,320 --> 00:03:32,679 Speaker 1: First was the retail wreckage, which shocked investors on Wednesday 58 00:03:32,680 --> 00:03:36,080 Speaker 1: because we saw demand destruction. Consumers are not willing to 59 00:03:36,120 --> 00:03:39,600 Speaker 1: pay anything for goods anymore. And secondarily, we finally did 60 00:03:39,640 --> 00:03:42,680 Speaker 1: see that shift in spending from goods to services, but 61 00:03:42,760 --> 00:03:45,120 Speaker 1: it came with a healthy dose of inventory building up. 62 00:03:45,120 --> 00:03:47,800 Speaker 1: On the good side, this is not good for retailer's 63 00:03:47,840 --> 00:03:50,040 Speaker 1: business model. So Bob Sarah says, maybe the faith can 64 00:03:50,040 --> 00:03:52,200 Speaker 1: take its foot off the gas on interest rate heights. 65 00:03:52,320 --> 00:03:53,800 Speaker 1: What do we see in the bond market, because we 66 00:03:53,840 --> 00:03:56,080 Speaker 1: had seen that really dramatic ramp up in the yield 67 00:03:56,080 --> 00:03:57,680 Speaker 1: of the tenure and then it sort of plateaued the 68 00:03:57,760 --> 00:04:00,400 Speaker 1: last couple of weeks. Well, David, unlike the equity market, 69 00:04:00,480 --> 00:04:03,560 Speaker 1: the bond market actually found solid footing this week. And 70 00:04:03,600 --> 00:04:07,360 Speaker 1: it all started when FED expectations of rate hikes settled 71 00:04:07,360 --> 00:04:09,480 Speaker 1: at around two and three quarters percent a year. And 72 00:04:09,800 --> 00:04:12,240 Speaker 1: I know that's two percent from where we are now, 73 00:04:12,520 --> 00:04:14,800 Speaker 1: but earlier this month it was at three percent, and 74 00:04:14,840 --> 00:04:17,040 Speaker 1: the concern was that it was headed north to three 75 00:04:17,080 --> 00:04:21,120 Speaker 1: and a half or higher. Once FED rate hike expectations 76 00:04:21,120 --> 00:04:24,479 Speaker 1: settled down, the treasury market settled down. You said we're 77 00:04:24,480 --> 00:04:26,920 Speaker 1: at two eighty. Last week we were at three twenty, 78 00:04:26,920 --> 00:04:29,279 Speaker 1: and again the concern was that we were headed to 79 00:04:29,360 --> 00:04:32,359 Speaker 1: three fifty. It feels as though the market is getting 80 00:04:32,440 --> 00:04:35,560 Speaker 1: very comfortable with the narrative that the path to a 81 00:04:35,640 --> 00:04:39,400 Speaker 1: three percent FED funds rate will be enough for now 82 00:04:39,440 --> 00:04:42,560 Speaker 1: to slow down growth and inflationary pressures, or at least 83 00:04:42,560 --> 00:04:45,080 Speaker 1: get the Fed to pause. Now. Look, I'll admit it 84 00:04:45,120 --> 00:04:49,000 Speaker 1: wasn't a perfect bond market. Corporate credit still had a 85 00:04:49,000 --> 00:04:53,080 Speaker 1: tough week, Thanks very much equity market and Sarah. It 86 00:04:53,240 --> 00:04:56,440 Speaker 1: was the lousy earnings that Sarah talked about, and we 87 00:04:56,520 --> 00:04:59,520 Speaker 1: had high yield yielding now eight percent. It started the 88 00:04:59,560 --> 00:05:03,640 Speaker 1: month at seven percent. Bob, Sarah raised, recession. How do 89 00:05:03,680 --> 00:05:06,320 Speaker 1: you see the likeliest recession? I think most people I've 90 00:05:06,320 --> 00:05:07,919 Speaker 1: talked to not over the next twelve months, But you 91 00:05:07,920 --> 00:05:10,599 Speaker 1: go about twenty four months, it's different. I think when 92 00:05:10,600 --> 00:05:13,080 Speaker 1: you look at the next twelve months in the US, 93 00:05:13,200 --> 00:05:16,000 Speaker 1: you still have to get through this summer where there's 94 00:05:16,040 --> 00:05:18,800 Speaker 1: a lot of pent up demand for travel and leisure, 95 00:05:18,960 --> 00:05:22,320 Speaker 1: and unemployment is still very low, wages are going up. 96 00:05:22,640 --> 00:05:24,640 Speaker 1: I think when you start to get out eighteen to 97 00:05:24,760 --> 00:05:27,160 Speaker 1: twenty four months, and then you're looking at a lot 98 00:05:27,200 --> 00:05:30,160 Speaker 1: of things, you're looking at where rates will be. The 99 00:05:30,200 --> 00:05:33,760 Speaker 1: cumulative impact of rate hikes, we think they'll be about three. 100 00:05:34,400 --> 00:05:37,000 Speaker 1: You're looking at the bite that inflation will have taken 101 00:05:37,040 --> 00:05:39,880 Speaker 1: out of the economy. You'll have another year year and 102 00:05:39,880 --> 00:05:42,919 Speaker 1: a half of higher inflation than the consumer would like 103 00:05:42,960 --> 00:05:46,440 Speaker 1: to see. You'll have a strong dollar. It's still possible 104 00:05:46,520 --> 00:05:50,320 Speaker 1: for the Fed to engineer a soft landing, but frankly, 105 00:05:50,480 --> 00:05:54,039 Speaker 1: it looks very aspirational when you figure they have to 106 00:05:54,080 --> 00:05:58,159 Speaker 1: battle the highest rate of inflation in forty years and 107 00:05:58,600 --> 00:06:01,880 Speaker 1: drain away the greatest amount of liquidity we've seen in 108 00:06:01,920 --> 00:06:04,680 Speaker 1: the history of Earth. So Sarah Bob's right, what does 109 00:06:04,680 --> 00:06:07,000 Speaker 1: that say to equities? I think you know, for equities 110 00:06:07,040 --> 00:06:11,040 Speaker 1: it definitely leads to more downside in a recession innary environment. 111 00:06:11,080 --> 00:06:12,880 Speaker 1: They have not priced in. And but that's also why 112 00:06:12,920 --> 00:06:15,159 Speaker 1: we're looking for those companies that are less dependent on 113 00:06:15,240 --> 00:06:17,960 Speaker 1: economic growth. That does lead us to growth stocks. They 114 00:06:18,000 --> 00:06:20,159 Speaker 1: have some of the worst returns here to day. And 115 00:06:20,160 --> 00:06:23,279 Speaker 1: then also fundamentally strong sectors. Energy as a sector we 116 00:06:23,320 --> 00:06:26,960 Speaker 1: still like because of the fundamentals tight supply, demands remain 117 00:06:27,040 --> 00:06:30,520 Speaker 1: reasonably strong, and producers are being very disciplined. And then finally, 118 00:06:30,560 --> 00:06:33,120 Speaker 1: dividend growers. If you look at history, companies that have 119 00:06:33,200 --> 00:06:36,120 Speaker 1: strong balance sheets cash flow can continue to grow their dividends. 120 00:06:36,200 --> 00:06:39,080 Speaker 1: They'll give you that portfolio protection within equities and should 121 00:06:39,120 --> 00:06:41,480 Speaker 1: perform quite well while the friend raises heights and be 122 00:06:41,560 --> 00:06:44,280 Speaker 1: defensive during a recession. Okay, Sarah, Bob, we're gonna be 123 00:06:44,320 --> 00:06:45,800 Speaker 1: staying with us because we want to put some money 124 00:06:45,800 --> 00:06:47,880 Speaker 1: to work here. We're gonna ask them for some investment 125 00:06:47,920 --> 00:06:50,800 Speaker 1: advice given what we are seeing in this tumultuous market. 126 00:06:50,920 --> 00:07:02,520 Speaker 1: That's next on Wall Street we on This is Bloomberg 127 00:07:02,560 --> 00:07:12,400 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. This 128 00:07:12,560 --> 00:07:14,440 Speaker 1: was the week when the stock market stage what it 129 00:07:14,480 --> 00:07:18,680 Speaker 1: you sphemistically calls a correction, plunging below the one thousand 130 00:07:18,680 --> 00:07:21,720 Speaker 1: mark for the first time since mid November. Came amid 131 00:07:21,760 --> 00:07:24,720 Speaker 1: growing investor concern over the state of a dollar at 132 00:07:24,760 --> 00:07:28,520 Speaker 1: home and abroad domestically, how much it's going to cost 133 00:07:28,560 --> 00:07:32,640 Speaker 1: in terms of escalating interest rates on the dollar and abroad, 134 00:07:32,720 --> 00:07:34,840 Speaker 1: how much it's going to be worth in terms of 135 00:07:34,840 --> 00:07:39,560 Speaker 1: other currencies whose relative value was on the rise. That, 136 00:07:39,680 --> 00:07:41,600 Speaker 1: of course, is Lewis Rock has around Wall Street Week 137 00:07:41,840 --> 00:07:44,720 Speaker 1: nearly fifty years ago. Now remindings of the similarities and 138 00:07:44,760 --> 00:07:47,000 Speaker 1: for them, mat of the differences as well between then 139 00:07:47,040 --> 00:07:50,080 Speaker 1: and now. Sarah Maleck of Nouven and Bob Michael of 140 00:07:50,200 --> 00:07:52,440 Speaker 1: JP Morgan have stayed with us. So Bob, will we 141 00:07:52,520 --> 00:07:54,600 Speaker 1: come back to you. It is a different time, although 142 00:07:54,600 --> 00:07:56,800 Speaker 1: there are some similarities. I'm not sure I there's a 143 00:07:56,840 --> 00:07:59,640 Speaker 1: correction or we're actually seeing a downright to bear market 144 00:07:59,720 --> 00:08:02,440 Speaker 1: right now. But let's talk about investment in fixed income. 145 00:08:02,720 --> 00:08:05,640 Speaker 1: Where are their opportunities from your point of view. By 146 00:08:05,640 --> 00:08:07,720 Speaker 1: the way, I hope it's a correction, because if I'm right, 147 00:08:07,800 --> 00:08:09,720 Speaker 1: I think it took about ten years for the doubt 148 00:08:09,800 --> 00:08:14,280 Speaker 1: to get back up above a thousand from that taping. Look, 149 00:08:14,560 --> 00:08:18,000 Speaker 1: when we look at the repricing in the bond market, 150 00:08:18,080 --> 00:08:20,520 Speaker 1: it's been dramatic. For the first four or five months 151 00:08:20,520 --> 00:08:22,760 Speaker 1: of the year. It's been the worst bond market in 152 00:08:23,040 --> 00:08:25,680 Speaker 1: history by a lot of measures. We want to take 153 00:08:25,720 --> 00:08:28,360 Speaker 1: advantage of that. We think it's gone too far. I 154 00:08:28,440 --> 00:08:31,160 Speaker 1: was in Kentucky visiting clients. There was a lot of 155 00:08:31,160 --> 00:08:34,520 Speaker 1: discussion about municipal bonds and there are a lot of 156 00:08:34,520 --> 00:08:38,199 Speaker 1: individual and institutional investors that are looking at muni bonds 157 00:08:38,280 --> 00:08:41,000 Speaker 1: yielded one percent a year and they're now yielding over 158 00:08:41,080 --> 00:08:44,559 Speaker 1: three percent on a taxable equivalent yield that's about five 159 00:08:45,360 --> 00:08:49,480 Speaker 1: and municipal finances actually look pretty good. The other area 160 00:08:49,559 --> 00:08:52,920 Speaker 1: that we're getting back into that looks pretty attractive to us. 161 00:08:52,960 --> 00:08:56,040 Speaker 1: I touched on earlier. It's high yield. You're at an 162 00:08:56,120 --> 00:08:59,120 Speaker 1: eight percent yield, You're at seven percent at the start 163 00:08:59,120 --> 00:09:01,440 Speaker 1: of the month, you are four and a half percent 164 00:09:01,600 --> 00:09:04,720 Speaker 1: at the story of the year. A pretty dramatic repricing, 165 00:09:04,960 --> 00:09:07,439 Speaker 1: and I think a lot of investors have just fled 166 00:09:07,480 --> 00:09:10,240 Speaker 1: the market and forgotten that it's a cleaner market. Six 167 00:09:10,280 --> 00:09:13,600 Speaker 1: percent of the market defaulted away in twenty You've got 168 00:09:13,640 --> 00:09:17,040 Speaker 1: a lot of middle American industrial companies in there with 169 00:09:17,080 --> 00:09:20,080 Speaker 1: great fundamentals. To me, that's where a lot of value exists. 170 00:09:20,120 --> 00:09:21,760 Speaker 1: I want to come back to high yields. But Sarah, 171 00:09:21,760 --> 00:09:23,679 Speaker 1: what about munis, because I think you're interested in those 172 00:09:23,679 --> 00:09:27,120 Speaker 1: as well. Right. Yeah, for fixed income in general, rising 173 00:09:27,200 --> 00:09:29,200 Speaker 1: rates are going to be aheadman, But similar to Bob, 174 00:09:29,240 --> 00:09:32,160 Speaker 1: we don't see rates rising to the degree that they 175 00:09:32,200 --> 00:09:34,760 Speaker 1: have year today. So for fixed income, there are areas 176 00:09:34,760 --> 00:09:36,880 Speaker 1: where you can lean in municipal bonds to do have 177 00:09:36,920 --> 00:09:39,280 Speaker 1: strong fundamentals at the front end of the curve. We're 178 00:09:39,280 --> 00:09:42,360 Speaker 1: seeing high yields and in taxbill fixed income, we like 179 00:09:42,480 --> 00:09:45,559 Speaker 1: corporate credit those companies and sectors with strong balance sheets, 180 00:09:45,559 --> 00:09:48,200 Speaker 1: but also emerging markets. In hield, you're getting a good 181 00:09:48,200 --> 00:09:50,040 Speaker 1: return now, much better than you did in the past. 182 00:09:50,040 --> 00:09:52,040 Speaker 1: So both all of those are areas that we like 183 00:09:52,120 --> 00:09:56,080 Speaker 1: in taxible, fix and munis. So I'm really curious about 184 00:09:56,080 --> 00:09:57,680 Speaker 1: the high yield because there's a lot of talk about 185 00:09:57,720 --> 00:10:00,720 Speaker 1: possible the spreads, as they say, blowing out on high yields. 186 00:10:00,720 --> 00:10:02,440 Speaker 1: So you don't want to be high yields when that happens. 187 00:10:02,520 --> 00:10:04,240 Speaker 1: Are you confident that's not going to happen? And when 188 00:10:04,240 --> 00:10:05,840 Speaker 1: you have rising range, don't you have to be worried 189 00:10:05,840 --> 00:10:10,000 Speaker 1: about some defaults? Um you have to worry about defaults 190 00:10:10,200 --> 00:10:14,600 Speaker 1: right before recession. And our analysis shows that any backup 191 00:10:14,800 --> 00:10:18,600 Speaker 1: in high yield credit spreads is a buying opportunity unless 192 00:10:18,600 --> 00:10:22,040 Speaker 1: a recession is imminent. Expecting one two years out is 193 00:10:22,040 --> 00:10:25,760 Speaker 1: an imminent because we know anything can happen. So for us, 194 00:10:26,120 --> 00:10:29,440 Speaker 1: credit quality still looks great. The yield is there. There's 195 00:10:29,440 --> 00:10:31,680 Speaker 1: a lot of money on the sidelines that needs to 196 00:10:31,720 --> 00:10:35,320 Speaker 1: put yield into their portfolios. As long as things remain stable, 197 00:10:35,360 --> 00:10:38,280 Speaker 1: we think that money will come in and support the market. Sarah, 198 00:10:38,320 --> 00:10:40,480 Speaker 1: you mentioned earlier some of the equities you're interested in. 199 00:10:40,520 --> 00:10:43,880 Speaker 1: You mentioned energy for example, you mentioned Microsoft, maybe Costco. 200 00:10:44,080 --> 00:10:46,480 Speaker 1: What makes you interested in those particular sorts of equities? 201 00:10:47,240 --> 00:10:49,640 Speaker 1: So within energy, we love the fundamentals of the sector 202 00:10:49,679 --> 00:10:53,880 Speaker 1: type supply, strong demand, produced discipline. Particularly refiners we think 203 00:10:53,920 --> 00:10:56,400 Speaker 1: can benefit if benefit at this point in the cycle. 204 00:10:56,640 --> 00:10:58,680 Speaker 1: Within the fank socks, we don't think that they're dead. 205 00:10:58,679 --> 00:11:00,640 Speaker 1: You just need to be selective. Look for ones with 206 00:11:00,760 --> 00:11:04,360 Speaker 1: less competition, more of a unique business model. Not only Microsoft, 207 00:11:04,520 --> 00:11:06,960 Speaker 1: but Amazon. They had a very tough quarter that they've 208 00:11:06,960 --> 00:11:09,880 Speaker 1: really in a sense overinvested in their logistics. They have 209 00:11:10,040 --> 00:11:13,040 Speaker 1: no so much control over their global distribution. It's going 210 00:11:13,080 --> 00:11:15,120 Speaker 1: to be a positive for them and pay off in 211 00:11:15,120 --> 00:11:16,839 Speaker 1: the long term. We don't look at Amazon as a 212 00:11:16,920 --> 00:11:19,280 Speaker 1: post pandemic SOOFT that's just going to suffer from here. 213 00:11:19,760 --> 00:11:22,160 Speaker 1: So on the on the fixed income side, is there 214 00:11:22,200 --> 00:11:24,760 Speaker 1: a corporate bond sort of tracking of what Sarah just 215 00:11:24,760 --> 00:11:26,520 Speaker 1: said in the equity side, are those the corporate bonds 216 00:11:26,559 --> 00:11:30,000 Speaker 1: you're most interested in? UM, I think it's just so 217 00:11:30,160 --> 00:11:33,800 Speaker 1: broad based. Now everything got thrown away. I wish I 218 00:11:33,840 --> 00:11:37,440 Speaker 1: could say there was a particular market or sector but 219 00:11:38,040 --> 00:11:41,160 Speaker 1: everything cheapened up so dramatically. It's just a matter of 220 00:11:41,200 --> 00:11:44,240 Speaker 1: going in, having the nerve to buy when everyone else 221 00:11:44,320 --> 00:11:46,640 Speaker 1: is selling, and just hanging on for a little bit 222 00:11:46,679 --> 00:11:48,800 Speaker 1: and ride through the volatility. But what if, in fact 223 00:11:49,200 --> 00:11:51,600 Speaker 1: there is more of a chance of recession than we're anticipating. 224 00:11:51,720 --> 00:11:53,520 Speaker 1: How do you hedge against that? How do you protect 225 00:11:53,520 --> 00:11:56,120 Speaker 1: yourself up? Well, I think there are a couple of things. 226 00:11:56,120 --> 00:11:58,520 Speaker 1: One is you have to go up in credit quality, 227 00:11:58,880 --> 00:12:02,800 Speaker 1: because if in fact we do go into recession, then 228 00:12:02,880 --> 00:12:05,320 Speaker 1: you are going to see default rates go up. Then 229 00:12:05,360 --> 00:12:07,880 Speaker 1: there's going to be a flight to quality. So not 230 00:12:08,000 --> 00:12:10,880 Speaker 1: only do you want higher quality corporate bonds, you want 231 00:12:10,960 --> 00:12:13,840 Speaker 1: government bonds again, regardless of the yield. We've seen that 232 00:12:13,920 --> 00:12:16,920 Speaker 1: you could be anything in the government bond market, and 233 00:12:16,920 --> 00:12:19,040 Speaker 1: then you want to still stay in the dollars. So 234 00:12:19,080 --> 00:12:22,040 Speaker 1: those are the kinds of things where you would go 235 00:12:22,120 --> 00:12:26,320 Speaker 1: to a recession became really probable near term. So, Sarah, 236 00:12:26,360 --> 00:12:28,400 Speaker 1: what about the dollar? I mean, we heard there Mr 237 00:12:28,440 --> 00:12:31,720 Speaker 1: Rukheiser so fifty years ago talking about the dollar. Boy, 238 00:12:31,760 --> 00:12:33,880 Speaker 1: we've had a very strong dollar. This week we saw 239 00:12:33,920 --> 00:12:35,560 Speaker 1: maybe a little bit of a backing off in the 240 00:12:35,559 --> 00:12:37,400 Speaker 1: strength of the dollar, do you have a theory on 241 00:12:37,400 --> 00:12:39,520 Speaker 1: the dollar and how does it affect your investment strategy. 242 00:12:40,440 --> 00:12:42,800 Speaker 1: I hate to say anything different than lou Rukheiser, but 243 00:12:43,040 --> 00:12:45,679 Speaker 1: are we are in the camp that the dollars should 244 00:12:45,679 --> 00:12:48,240 Speaker 1: remain pretty strong in the US is a safe haven trade. 245 00:12:48,440 --> 00:12:51,400 Speaker 1: There's so many geopolitical risks out there, from the rush 246 00:12:51,440 --> 00:12:54,360 Speaker 1: of Ukraine's situation to the lockdowns in China and the 247 00:12:54,360 --> 00:12:56,800 Speaker 1: supply chain issues that they're having, and also can that 248 00:12:56,960 --> 00:13:00,440 Speaker 1: monetary policy really have an impact? So we're very selective 249 00:13:00,480 --> 00:13:02,760 Speaker 1: non US. We only like Latin America at this point 250 00:13:02,760 --> 00:13:06,000 Speaker 1: in emerging markets, dollar remains strong as the US raises 251 00:13:06,040 --> 00:13:08,400 Speaker 1: interest race you think that you know that's it's flat, 252 00:13:08,520 --> 00:13:11,120 Speaker 1: that likely remains pretty strong going. So Sara also wants 253 00:13:11,120 --> 00:13:12,560 Speaker 1: to ask you the same question as Bob on the 254 00:13:12,600 --> 00:13:15,160 Speaker 1: equity side. For example, if you thought there was a 255 00:13:15,280 --> 00:13:17,960 Speaker 1: larger chance of recession than you've said so far, how 256 00:13:18,000 --> 00:13:20,680 Speaker 1: would you headge against that? Well, first of all, I 257 00:13:20,679 --> 00:13:22,880 Speaker 1: think market time ring is a loser's game. The market 258 00:13:22,880 --> 00:13:25,119 Speaker 1: can turn on a dime. We've seen that happen consistently 259 00:13:25,160 --> 00:13:27,600 Speaker 1: this week. So we don't recommend people trying to get 260 00:13:27,640 --> 00:13:29,320 Speaker 1: in and out of the market. This is where you 261 00:13:29,360 --> 00:13:32,880 Speaker 1: need to be diversified, disciplined averaging into the market, and 262 00:13:32,880 --> 00:13:34,520 Speaker 1: then you just need to look for those companies that 263 00:13:34,559 --> 00:13:37,680 Speaker 1: are resilient in those sectors where they can continue to 264 00:13:37,840 --> 00:13:40,680 Speaker 1: perform well because they have the profitability, they have pricing 265 00:13:40,720 --> 00:13:43,880 Speaker 1: power to overcome inflation, strong free cash flow, strong balance 266 00:13:43,920 --> 00:13:46,760 Speaker 1: Shee sets where we'd be positioning inequities, say out of 267 00:13:46,800 --> 00:13:49,880 Speaker 1: you know, unprofitable technology companies where you know you might 268 00:13:49,920 --> 00:13:52,040 Speaker 1: have they might have a hard time surviving during a 269 00:13:52,080 --> 00:13:55,560 Speaker 1: deep recession. And Bob sort of finally, Warren Buffe and 270 00:13:55,600 --> 00:13:57,160 Speaker 1: others have said, you want to buy when others are 271 00:13:57,200 --> 00:13:59,280 Speaker 1: selling in the reverse? Right right now, as you look 272 00:13:59,280 --> 00:14:01,280 Speaker 1: at the marketplace, where are people selling that you'd like 273 00:14:01,320 --> 00:14:04,920 Speaker 1: to buy, they're making a mistake. Well, I think we've 274 00:14:04,960 --> 00:14:08,040 Speaker 1: talked about corporate bonds. I think that was a big mistake. 275 00:14:08,400 --> 00:14:10,640 Speaker 1: I think there was a lot of selling of municipals. 276 00:14:10,679 --> 00:14:12,680 Speaker 1: I don't think that was a mistake. I think what 277 00:14:12,920 --> 00:14:15,480 Speaker 1: that was the technicals because they had to rap cash 278 00:14:15,559 --> 00:14:18,600 Speaker 1: to pay capital gains taxes at the start of the year. 279 00:14:18,920 --> 00:14:21,920 Speaker 1: I think some of the emerging market debt sectors look 280 00:14:21,960 --> 00:14:24,080 Speaker 1: pretty attractive to me. I'm glad you raised that because 281 00:14:24,120 --> 00:14:25,800 Speaker 1: I was going to ask about outside the United States. 282 00:14:25,840 --> 00:14:28,760 Speaker 1: You think emerging markets maybe attractive on the fixed incomes out, Yeah, 283 00:14:28,800 --> 00:14:31,800 Speaker 1: because they've gone through a rate adjustment. If you look 284 00:14:31,840 --> 00:14:34,760 Speaker 1: at the US, we've done two rate hikes for seventy 285 00:14:34,800 --> 00:14:37,520 Speaker 1: five basis points. If you look at the emerging market 286 00:14:37,560 --> 00:14:41,640 Speaker 1: since the start of we've had something like a hundred 287 00:14:41,720 --> 00:14:46,760 Speaker 1: and thirty rate hikes for accumulative eleven thousand basis points. 288 00:14:47,080 --> 00:14:50,680 Speaker 1: There are high real yields there. They front run the inflation. 289 00:14:50,800 --> 00:14:53,080 Speaker 1: They're in a good spot. This has been a great discussion. 290 00:14:53,120 --> 00:14:55,160 Speaker 1: Thank you so much to Bob Michael of JP Morgan 291 00:14:55,280 --> 00:15:03,520 Speaker 1: and Sarah Manic a movine. This is Bloomberg Wall Street 292 00:15:03,560 --> 00:15:14,800 Speaker 1: Week with David Weston from Bloomberg Radio. The housing housing 293 00:15:14,800 --> 00:15:17,400 Speaker 1: a kind of climate and climate and climate housing. We 294 00:15:17,520 --> 00:15:20,560 Speaker 1: all need it. There isn't enough of it, and prices 295 00:15:20,680 --> 00:15:23,120 Speaker 1: are going up. Part of the problem is that we 296 00:15:23,280 --> 00:15:26,920 Speaker 1: never really recovered from two eight. According to Jonathan Gray 297 00:15:27,040 --> 00:15:31,120 Speaker 1: of Blackstone, the challenge on housing has been many years 298 00:15:31,120 --> 00:15:34,040 Speaker 1: in the making. If you step back and look at 299 00:15:34,080 --> 00:15:39,120 Speaker 1: the supply picture, we have been building housing at half 300 00:15:39,240 --> 00:15:43,760 Speaker 1: the rate we did prior to the financial crisis and 301 00:15:43,840 --> 00:15:47,880 Speaker 1: the Fed's monetary support for mortgages has helped stimulate the market. 302 00:15:48,280 --> 00:15:52,640 Speaker 1: It was very hard to understand why when we were 303 00:15:52,640 --> 00:15:55,160 Speaker 1: in the midst of the biggest house price run up 304 00:15:55,240 --> 00:15:59,600 Speaker 1: ever that the FED was by mortgage back securities on 305 00:15:59,800 --> 00:16:03,760 Speaker 1: us substantial scale. But now mortgage rates are pushing the 306 00:16:03,800 --> 00:16:07,600 Speaker 1: other way, climbing back up over five driving the Housing 307 00:16:07,640 --> 00:16:11,440 Speaker 1: Sentiment index down the most since the pandemic, which leads 308 00:16:11,520 --> 00:16:15,680 Speaker 1: Wells Fargo CFO Mike Santa Masino to anticipate softening in 309 00:16:15,720 --> 00:16:17,760 Speaker 1: the market. I think we've seen you know, if if 310 00:16:17,760 --> 00:16:20,080 Speaker 1: it's not the largest increase in mortgage rates in a 311 00:16:20,160 --> 00:16:22,920 Speaker 1: quarter ever, it's pretty close, um, and so I think 312 00:16:22,920 --> 00:16:25,760 Speaker 1: that's definitely going to have an impact on the mortgage market. 313 00:16:26,000 --> 00:16:29,520 Speaker 1: And this week's mortgage applications seem to prove that point. 314 00:16:30,000 --> 00:16:33,760 Speaker 1: Down eleven percent, people are not entering into contracts, are 315 00:16:33,760 --> 00:16:40,880 Speaker 1: trying to buy homes anymore because it costume much and 316 00:16:40,920 --> 00:16:43,880 Speaker 1: to take us through this housing market. Welcome now. Tom Shapiro, 317 00:16:44,080 --> 00:16:46,760 Speaker 1: He's president and chief investment officer of G T I 318 00:16:46,920 --> 00:16:49,960 Speaker 1: S Partners. They manage about four point three billion dollars 319 00:16:50,000 --> 00:16:52,400 Speaker 1: in real estate assets. Tom, thanks so much for joining 320 00:16:52,480 --> 00:16:54,200 Speaker 1: us on Wall Street Week. First of all, I want 321 00:16:54,200 --> 00:16:56,400 Speaker 1: to start with your take on where the housing market 322 00:16:56,440 --> 00:16:59,040 Speaker 1: is right now. We've seen some slowing even this week 323 00:16:59,080 --> 00:17:01,440 Speaker 1: with some new house in sales as well as existing 324 00:17:01,480 --> 00:17:04,919 Speaker 1: housing sales. Sure that first, thank you so much for 325 00:17:05,000 --> 00:17:07,560 Speaker 1: having me on the show. Why don't I just give 326 00:17:07,560 --> 00:17:10,159 Speaker 1: you a little anecdotal evidence of what we're seeing in 327 00:17:10,160 --> 00:17:13,439 Speaker 1: the field right now. Our home sales are down about 328 00:17:13,560 --> 00:17:17,359 Speaker 1: fifteen to but that's a headline number, and you know, 329 00:17:17,400 --> 00:17:19,480 Speaker 1: I think it would be helpful to kind of dig 330 00:17:19,680 --> 00:17:22,520 Speaker 1: a little bit deeper into that number. The reason, for 331 00:17:22,600 --> 00:17:25,879 Speaker 1: the most part is down is because we can't deliver homes. 332 00:17:25,920 --> 00:17:30,119 Speaker 1: We're still having tremendous supply chain issues. Also, we find 333 00:17:30,160 --> 00:17:32,560 Speaker 1: that a lot of home builders are actually holding back 334 00:17:32,800 --> 00:17:35,520 Speaker 1: on the number of homes they want to deliver, and 335 00:17:35,560 --> 00:17:38,520 Speaker 1: that is for a couple of reasons. One inflation because 336 00:17:38,600 --> 00:17:40,239 Speaker 1: costs keep going up and they don't know what it's 337 00:17:40,240 --> 00:17:43,720 Speaker 1: gonna actually cost to finish the house. And and too 338 00:17:44,280 --> 00:17:47,080 Speaker 1: they want to ride up the home price appreciation. So 339 00:17:47,400 --> 00:17:49,480 Speaker 1: I would say, for the most part right now, while 340 00:17:49,520 --> 00:17:52,800 Speaker 1: we see a fifteen to slow down in sales, your 341 00:17:52,840 --> 00:17:56,240 Speaker 1: over year, a lot of that is because of other 342 00:17:56,480 --> 00:17:59,879 Speaker 1: extraneige issues. It's more of a delivery issue than is 343 00:18:00,040 --> 00:18:03,440 Speaker 1: demand issue. With that said, we're definitely starting to see 344 00:18:03,480 --> 00:18:06,760 Speaker 1: a pullback. We're starting to have to go deeper into 345 00:18:06,880 --> 00:18:09,720 Speaker 1: our wait lists. But every house at this point that 346 00:18:09,760 --> 00:18:12,080 Speaker 1: we deliver in the markets were in, we are selling. 347 00:18:12,680 --> 00:18:15,440 Speaker 1: But I think we have to be careful about what 348 00:18:15,600 --> 00:18:17,480 Speaker 1: we see, you know, on a going forward basis, because 349 00:18:17,560 --> 00:18:19,640 Speaker 1: definitely we're starting to see things slowing down. But that's 350 00:18:19,640 --> 00:18:21,720 Speaker 1: a really helpful way of putting up because we're having 351 00:18:21,720 --> 00:18:24,159 Speaker 1: those discussions about the overall economy. Is it supply, is 352 00:18:24,160 --> 00:18:26,560 Speaker 1: it demand? Is I understand you've got a supply problem 353 00:18:26,680 --> 00:18:29,160 Speaker 1: because the supply change. People say that's going to go away? 354 00:18:29,240 --> 00:18:33,440 Speaker 1: Is it going away? And how's it? Well, it's not. 355 00:18:33,600 --> 00:18:37,160 Speaker 1: I mean, we definitely have issues. We have problems getting 356 00:18:37,160 --> 00:18:41,280 Speaker 1: trusses and windows and appliances. Um, we're delivering homes with 357 00:18:41,359 --> 00:18:44,960 Speaker 1: plywood windows at times. Um, it's we're having all sorts 358 00:18:44,960 --> 00:18:47,000 Speaker 1: of issues. And of course you know the war in 359 00:18:47,119 --> 00:18:49,880 Speaker 1: Ukraine and what's go on in China and the work 360 00:18:49,920 --> 00:18:55,600 Speaker 1: stoppage is there. Um, the deliveries and transportation is an issue, 361 00:18:55,640 --> 00:18:57,760 Speaker 1: and jobs are an issue, and trades are an issue, 362 00:18:58,040 --> 00:19:01,960 Speaker 1: so it's gotten marginally are but we still have tremendous 363 00:19:02,000 --> 00:19:05,119 Speaker 1: supply chain issues. Uh. And look if you look at 364 00:19:05,920 --> 00:19:09,600 Speaker 1: how many houses were delivering a year in total, this 365 00:19:09,680 --> 00:19:12,720 Speaker 1: is all all forms, it's about one point two million 366 00:19:13,240 --> 00:19:16,320 Speaker 1: housing units a year, which is sort of in equilibrium. 367 00:19:17,800 --> 00:19:20,520 Speaker 1: So Tom, some of the issue can be on the 368 00:19:20,520 --> 00:19:23,200 Speaker 1: demand side. At some point. We've heard about mortgage rates 369 00:19:23,200 --> 00:19:25,600 Speaker 1: going up to what five point five percent something like that, 370 00:19:25,880 --> 00:19:28,000 Speaker 1: so that must affect it to some extent. Are you 371 00:19:28,040 --> 00:19:30,480 Speaker 1: seeing some effects with that because we also have the 372 00:19:30,480 --> 00:19:32,359 Speaker 1: FED is going to start selling off some of those 373 00:19:32,440 --> 00:19:36,960 Speaker 1: mortgeback securities. Yeah, for sure. I mean, look, the consumer stretched, 374 00:19:36,960 --> 00:19:39,520 Speaker 1: so why are they stretched a stretch because of inflation? 375 00:19:39,920 --> 00:19:42,919 Speaker 1: So we have all sorts of issues. We have gas 376 00:19:42,960 --> 00:19:46,439 Speaker 1: prices are more expensive, and we have the costs of 377 00:19:46,440 --> 00:19:48,719 Speaker 1: food is more expensive, and of course, as you point out, 378 00:19:48,760 --> 00:19:51,680 Speaker 1: mortgage rates are our own issues. So the consumer is 379 00:19:51,760 --> 00:19:54,480 Speaker 1: stretch and that is certainly going to be an issue 380 00:19:54,480 --> 00:19:56,800 Speaker 1: on a going forward basis on housing. But we are 381 00:19:56,840 --> 00:19:59,920 Speaker 1: seeing you know, people taking less options, they're going to 382 00:20:00,040 --> 00:20:03,560 Speaker 1: slightly smaller unit types UM and their renting, So we 383 00:20:03,600 --> 00:20:06,520 Speaker 1: aren't necessarily seeing a slowdown at this point because of 384 00:20:06,560 --> 00:20:09,199 Speaker 1: Morgan traits. But again, I think we have to be careful. 385 00:20:09,280 --> 00:20:11,600 Speaker 1: I think, you know, the crystal ball says it's going 386 00:20:11,640 --> 00:20:13,919 Speaker 1: to get a lot worse. We're not seeing it today, 387 00:20:13,960 --> 00:20:15,359 Speaker 1: but I think in the future where I'm going to 388 00:20:15,400 --> 00:20:19,080 Speaker 1: see a slowdown. Um And as I mentioned, so we're 389 00:20:19,119 --> 00:20:21,960 Speaker 1: seeing your over your decline at this point isn't a 390 00:20:22,000 --> 00:20:25,560 Speaker 1: demand issue. But I think we shouldn't kid ourselves that 391 00:20:25,600 --> 00:20:27,800 Speaker 1: we are seeing it again. Our traffics down in a 392 00:20:27,840 --> 00:20:30,360 Speaker 1: lot of our communities. It is starting to slow down. 393 00:20:30,400 --> 00:20:32,320 Speaker 1: So I think we're gonna start to see the slowdown 394 00:20:32,320 --> 00:20:34,600 Speaker 1: common The next couple of quarders, Tom, thank you so 395 00:20:34,680 --> 00:20:36,520 Speaker 1: much for joining us at Waalter Week today. That is 396 00:20:36,560 --> 00:20:41,840 Speaker 1: Tom Shapiro of G T I S Partners. Coming up. 397 00:20:41,920 --> 00:20:44,359 Speaker 1: We wrap up a week with our special contributor, Larry 398 00:20:44,400 --> 00:21:05,840 Speaker 1: Summers of Harvard. This is Bloomberg Wall Street Week with 399 00:21:05,920 --> 00:21:16,160 Speaker 1: David Weston from Bloomberg Radio. This is Wall Street Week. 400 00:21:16,160 --> 00:21:18,280 Speaker 1: I'm David western We are joined once again by our 401 00:21:18,359 --> 00:21:20,639 Speaker 1: very special contributor in Wall Street Week. He is Larry 402 00:21:20,720 --> 00:21:23,480 Speaker 1: Summers of Harvard. So, Larry, this was quite a week 403 00:21:23,480 --> 00:21:25,720 Speaker 1: in the market. You saw equity markets and really selling 404 00:21:25,760 --> 00:21:28,000 Speaker 1: of rather substantially. It's got a lot of people nervous. 405 00:21:28,400 --> 00:21:31,119 Speaker 1: Is that gonna help or hurt the Fed's effort to 406 00:21:31,200 --> 00:21:34,640 Speaker 1: address inflation? I think it's part of the Fed's efforts 407 00:21:34,680 --> 00:21:40,360 Speaker 1: to address inflation. The way monetary policy works is by 408 00:21:40,440 --> 00:21:44,600 Speaker 1: raising the costs of capital and discouraging investment. The way 409 00:21:44,640 --> 00:21:49,400 Speaker 1: it works is by reducing wealth, which reduces spending. This 410 00:21:49,480 --> 00:21:53,399 Speaker 1: is part of the process. This is a feature, not 411 00:21:53,520 --> 00:21:58,960 Speaker 1: a bug, associated with uh the tightening of monetary policy 412 00:21:59,040 --> 00:22:03,080 Speaker 1: that we've had, and the reason I've been reasonably confident 413 00:22:03,160 --> 00:22:06,919 Speaker 1: that the economy will slow down but not so confident 414 00:22:07,000 --> 00:22:11,520 Speaker 1: about just where interest rates will go is because of 415 00:22:11,560 --> 00:22:16,720 Speaker 1: the uncertainty about what economists call the transmission mechanism, how 416 00:22:16,840 --> 00:22:20,480 Speaker 1: large a decline in markets, how much of a discouragement 417 00:22:20,520 --> 00:22:23,880 Speaker 1: of housing you get as rates go up. Well, it's 418 00:22:23,880 --> 00:22:26,200 Speaker 1: at that very point. What is the risk from where 419 00:22:26,240 --> 00:22:29,119 Speaker 1: you see it right now, of the Fed essentially getting 420 00:22:29,160 --> 00:22:31,480 Speaker 1: cold feet as we see the markets really come up 421 00:22:31,520 --> 00:22:35,200 Speaker 1: substantially SMP now really in bear market territory. What's the 422 00:22:35,280 --> 00:22:37,800 Speaker 1: risk that they'll let up too soon on the interest 423 00:22:37,880 --> 00:22:42,760 Speaker 1: rate hikes. Look, there's two risks in a situation UH 424 00:22:42,920 --> 00:22:46,960 Speaker 1: like this, that we overshoot the runway and that we 425 00:22:47,640 --> 00:22:52,280 Speaker 1: land the plane too hard, and those are both very 426 00:22:52,359 --> 00:22:58,600 Speaker 1: real risks in UH this situation. It's a very very 427 00:22:58,680 --> 00:23:03,080 Speaker 1: difficult landing that the FEDS attempted. Is I've said on 428 00:23:03,160 --> 00:23:06,560 Speaker 1: your show before, David, there's never been a moment when 429 00:23:06,600 --> 00:23:12,000 Speaker 1: we had unemployment below four an inflation above four when 430 00:23:12,040 --> 00:23:16,000 Speaker 1: we avoided having a recession within the next two years, 431 00:23:16,119 --> 00:23:20,240 Speaker 1: And that just goes to show the huge difficulty of 432 00:23:20,280 --> 00:23:24,840 Speaker 1: the task UH that is before the FED. My own 433 00:23:24,920 --> 00:23:29,040 Speaker 1: judgment is that it's distinctly more likely than not probably 434 00:23:29,160 --> 00:23:31,760 Speaker 1: two and three or three and four, that we will 435 00:23:31,800 --> 00:23:35,399 Speaker 1: have a recession that will start UH sometime within the 436 00:23:35,440 --> 00:23:38,280 Speaker 1: next two years. When we look at the markets right now, 437 00:23:38,320 --> 00:23:40,560 Speaker 1: a lot of this reaction we think is a reaction 438 00:23:40,600 --> 00:23:43,160 Speaker 1: to the possible of higher interest rates. Is it possibly 439 00:23:43,160 --> 00:23:46,000 Speaker 1: it's actually bleeding over into the underlying economy itself. Because 440 00:23:46,040 --> 00:23:48,720 Speaker 1: we also saw some retail sales numbers that concern people 441 00:23:48,760 --> 00:23:52,280 Speaker 1: from Walmart and from Target this week. Maybe people aren't 442 00:23:52,400 --> 00:23:54,600 Speaker 1: spending as much money. We also have seen some softening 443 00:23:54,640 --> 00:23:57,160 Speaker 1: housing numbers. There are various indications and by the way, 444 00:23:57,640 --> 00:23:59,120 Speaker 1: a lot of the things that people are buying, their 445 00:23:59,160 --> 00:24:03,480 Speaker 1: buying with increase credit card loans. So I think that 446 00:24:04,080 --> 00:24:08,199 Speaker 1: the prospect of recession is looking much more real to 447 00:24:08,359 --> 00:24:12,920 Speaker 1: markets right now than it was a few months ago. 448 00:24:13,440 --> 00:24:16,320 Speaker 1: You see that in UH the way in which certain 449 00:24:16,359 --> 00:24:19,879 Speaker 1: retail stocks have been hammered. You see that in the 450 00:24:19,920 --> 00:24:26,680 Speaker 1: way some credit spreads have UH widened UM and it's 451 00:24:26,760 --> 00:24:31,400 Speaker 1: just you see it in the behavior of the overall 452 00:24:31,640 --> 00:24:38,200 Speaker 1: UH market. So I think you still have UM more 453 00:24:38,320 --> 00:24:40,920 Speaker 1: room to go. And as I say, I do think 454 00:24:41,040 --> 00:24:46,439 Speaker 1: we're unlikely to get out of this with sustained expansion. 455 00:24:46,680 --> 00:24:48,520 Speaker 1: There are some thoughts. There are other ways as well 456 00:24:48,560 --> 00:24:51,159 Speaker 1: to address the inflation problem. One of the suggestions is 457 00:24:51,320 --> 00:24:55,600 Speaker 1: increasing corporate taxes. That's something suggested by President Biden. Mr Bizos, 458 00:24:55,840 --> 00:24:57,840 Speaker 1: Amazon came out against that. You had a little bit 459 00:24:57,880 --> 00:25:02,640 Speaker 1: of a disagreement on Twitter this week. I've been hardly 460 00:25:02,880 --> 00:25:06,800 Speaker 1: consistently supportive of everything the White House has said on 461 00:25:07,960 --> 00:25:12,359 Speaker 1: fiscal UH policy, and now I haven't been consistent with 462 00:25:12,440 --> 00:25:18,280 Speaker 1: everything they've said on policy towards business UH either. And 463 00:25:18,480 --> 00:25:23,000 Speaker 1: I've got great respect for Jeff Bezos as a business 464 00:25:23,119 --> 00:25:26,280 Speaker 1: leader and as an observer of the economy, but I 465 00:25:26,320 --> 00:25:29,600 Speaker 1: didn't really see his point. It seemed to me that 466 00:25:29,840 --> 00:25:34,080 Speaker 1: it was pretty natural to raise corporate taxes so as 467 00:25:34,160 --> 00:25:38,200 Speaker 1: to reduce spending when you had an economy that was overheating. 468 00:25:38,720 --> 00:25:43,000 Speaker 1: And it seemed to me pretty reasonable strategy to try 469 00:25:43,040 --> 00:25:47,000 Speaker 1: to raise taxes to reduce spending in ways that would 470 00:25:47,040 --> 00:25:51,280 Speaker 1: affect the most fortunate people in uh, the society. And 471 00:25:51,280 --> 00:25:54,280 Speaker 1: it seems to me that that's what President Biden was 472 00:25:54,800 --> 00:25:57,720 Speaker 1: is trying to do, and that's what he pointed up 473 00:25:57,760 --> 00:26:02,919 Speaker 1: in his remarks. So I didn't understand why, uh Jeff 474 00:26:02,960 --> 00:26:07,439 Speaker 1: Bezos was suggesting that they were somehow an obfiscation or 475 00:26:07,520 --> 00:26:13,120 Speaker 1: somehow an inappropriate uh kind of commentary. You can agree 476 00:26:13,240 --> 00:26:18,960 Speaker 1: or disagree with the President's policy, but I found Bezos's comments, 477 00:26:19,119 --> 00:26:22,679 Speaker 1: uh to be somewhat off base. Another way that President 478 00:26:22,680 --> 00:26:25,320 Speaker 1: Body suggests we might address some of the inflation problem 479 00:26:25,440 --> 00:26:28,080 Speaker 1: is by more vigorous enforcement and trusts. We had the 480 00:26:28,680 --> 00:26:31,000 Speaker 1: Assistant of Trade General for antitrust this week come out 481 00:26:31,000 --> 00:26:33,480 Speaker 1: and say he thinks he's got some problems with private equity. 482 00:26:33,480 --> 00:26:35,240 Speaker 1: What do you make of the efforts at the FTC 483 00:26:35,520 --> 00:26:38,560 Speaker 1: and the Probate of Justice on a trust front. I'm 484 00:26:38,680 --> 00:26:44,040 Speaker 1: very worried about whether they are in the right direction. 485 00:26:44,800 --> 00:26:46,679 Speaker 1: I don't think there's any question that we need to 486 00:26:46,720 --> 00:26:50,200 Speaker 1: step up INTI trust enforcements in America. I don't think 487 00:26:50,200 --> 00:26:53,800 Speaker 1: there's any question that there are areas where we have 488 00:26:54,040 --> 00:26:57,879 Speaker 1: too much monopoly power that should be process that should 489 00:26:57,880 --> 00:27:04,679 Speaker 1: be prosecuted prince ably, where individual firms are merging to 490 00:27:04,880 --> 00:27:09,520 Speaker 1: get excessive market shares in particular industries, and the budgets 491 00:27:09,520 --> 00:27:13,119 Speaker 1: of those agencies have been allowed to erode in ways 492 00:27:13,160 --> 00:27:18,159 Speaker 1: that are quite damaging. What I think is badly misguided 493 00:27:18,480 --> 00:27:24,080 Speaker 1: and potentially dangerous to our economic future is the set 494 00:27:24,119 --> 00:27:28,600 Speaker 1: of doctrines that people jokingly referred to as hipster uh 495 00:27:28,720 --> 00:27:36,199 Speaker 1: antitrust or the new Brandisians after Justice brandis. That's a 496 00:27:36,359 --> 00:27:43,560 Speaker 1: theory that says antitrust shouldn't be about maximizing benefits to consumers, 497 00:27:43,560 --> 00:27:50,520 Speaker 1: but should be about some other different set of abstract objectives. 498 00:27:51,160 --> 00:27:55,159 Speaker 1: And I think that tilts very easily into a kind 499 00:27:55,200 --> 00:27:59,840 Speaker 1: of dangerous populism. If the head of the antitrust Division 500 00:28:00,400 --> 00:28:06,280 Speaker 1: thinks that there are mergers that are headed towards monopoly, 501 00:28:06,359 --> 00:28:09,040 Speaker 1: he should try to block those mergers. If the head 502 00:28:09,040 --> 00:28:13,359 Speaker 1: of the antitrust Division believes that there are companies that 503 00:28:13,440 --> 00:28:20,240 Speaker 1: are engaged in inappropriate exclusionary business practices, he should prosecute 504 00:28:20,240 --> 00:28:22,800 Speaker 1: those companies. Okay, there are one quick one here. At 505 00:28:22,840 --> 00:28:25,480 Speaker 1: the end, there was a big objection from the shareholders 506 00:28:25,520 --> 00:28:28,920 Speaker 1: to Jamie Diamond's conversation was a fifty million dollar bonus 507 00:28:28,920 --> 00:28:30,360 Speaker 1: that they were going to pay him that they really 508 00:28:30,400 --> 00:28:33,680 Speaker 1: objected to. What did you say that? Look, I think 509 00:28:33,720 --> 00:28:36,840 Speaker 1: taxes ought to be more progressive, and so Jamie Diamond, 510 00:28:37,440 --> 00:28:39,440 Speaker 1: Jamie Diamond and everyone else who makes a lot of 511 00:28:39,480 --> 00:28:43,320 Speaker 1: money ought to be uh paying more in taxes that 512 00:28:43,480 --> 00:28:46,040 Speaker 1: ought to be much harder for them to pass large 513 00:28:46,080 --> 00:28:50,600 Speaker 1: fortunes to UH their kids. But God, if you look 514 00:28:50,680 --> 00:28:56,960 Speaker 1: at what Jamie Diamond has contributed to the market value 515 00:28:57,240 --> 00:29:02,360 Speaker 1: of the share owners of JP Morgan, I don't think 516 00:29:02,360 --> 00:29:08,000 Speaker 1: there's anything unreasonable about his being paid and making as 517 00:29:08,080 --> 00:29:11,560 Speaker 1: much money in a year as a really great pro golfer. 518 00:29:12,440 --> 00:29:20,400 Speaker 1: And uh, so I was surprised at those objections. I 519 00:29:20,440 --> 00:29:26,000 Speaker 1: think the way to get at issues of inequity is 520 00:29:26,160 --> 00:29:33,520 Speaker 1: to have more progressive taxation, more burdensome taxation on the states, 521 00:29:34,160 --> 00:29:39,600 Speaker 1: get rid of a whole set of UH loopholes, but 522 00:29:40,160 --> 00:29:46,000 Speaker 1: driving people out of leading public companies into the private 523 00:29:46,080 --> 00:29:50,320 Speaker 1: sphere away from public companies. I don't think that's smart 524 00:29:50,400 --> 00:29:53,680 Speaker 1: strategy for our country. Okay, thank you so much. Always 525 00:29:53,680 --> 00:29:55,760 Speaker 1: great to have you this. That's Larry Summers of Harvard 526 00:29:55,760 --> 00:29:59,440 Speaker 1: are very special contributor here on Wall Street Week. Finally, 527 00:29:59,560 --> 00:30:04,280 Speaker 1: one more thought, the unknown unknown. That's what Donald Rumsfeldt 528 00:30:04,400 --> 00:30:07,400 Speaker 1: warned about when he was Defense secretary. There are things 529 00:30:07,400 --> 00:30:10,120 Speaker 1: we know, things we know our issues but don't know 530 00:30:10,160 --> 00:30:12,880 Speaker 1: the answer to, and then there are the things we 531 00:30:12,920 --> 00:30:16,400 Speaker 1: don't even know. We don't know. Right now, investors face 532 00:30:16,520 --> 00:30:21,000 Speaker 1: their fair share of known unknowns, like where inflation is heading. 533 00:30:21,120 --> 00:30:22,840 Speaker 1: You know it's not going to be good for a while, 534 00:30:23,040 --> 00:30:26,360 Speaker 1: Whether we're facing a recession next year, every single American 535 00:30:26,360 --> 00:30:29,480 Speaker 1: workers going backwards right at this minute, whether China's problems 536 00:30:29,480 --> 00:30:33,760 Speaker 1: with COVID will continue, our supply chain problems. Clearly China's 537 00:30:33,760 --> 00:30:36,920 Speaker 1: industrial might was slowed by the lockdowns. What the endgame 538 00:30:37,160 --> 00:30:40,840 Speaker 1: is for Russia's war with Ukraine. I think the off 539 00:30:40,920 --> 00:30:44,720 Speaker 1: ramps have gotten slightly narrower. And of course, whether we're 540 00:30:44,720 --> 00:30:49,280 Speaker 1: facing another wave of COVID cases, are organizing hospitalizations arising, 541 00:30:49,440 --> 00:30:53,479 Speaker 1: But those are the known unknowns, Congress has now added 542 00:30:53,520 --> 00:30:56,360 Speaker 1: an unknown unknown to the list we need to be 543 00:30:56,400 --> 00:31:01,880 Speaker 1: worried about UFOs. The House Intelligence Committee's Subcommittee on Terrorism 544 00:31:02,040 --> 00:31:05,480 Speaker 1: held hearings this week to get some answers on unidentified 545 00:31:05,520 --> 00:31:09,760 Speaker 1: flying objects. We have seen an increasing number of unauthorized 546 00:31:09,840 --> 00:31:13,320 Speaker 1: and or unidentified aircraft or objects in military controlled training 547 00:31:13,360 --> 00:31:17,440 Speaker 1: areas and training ranges and other designated airspace. And in 548 00:31:17,480 --> 00:31:20,200 Speaker 1: case you wonder why our Congress was so much else 549 00:31:20,200 --> 00:31:22,280 Speaker 1: on its plate, has decided to take up the question 550 00:31:22,280 --> 00:31:25,400 Speaker 1: of UFOs. Fear not, it's been on the case for 551 00:31:25,520 --> 00:31:29,720 Speaker 1: over fifty years now, dating back to Gerald Ford, now 552 00:31:29,720 --> 00:31:32,400 Speaker 1: when he was president, but when he was House Minority 553 00:31:32,480 --> 00:31:36,240 Speaker 1: Leader and organized the hearing after complaining the testimony from 554 00:31:36,360 --> 00:31:41,200 Speaker 1: an Air Force expert calling reported sightings swamp gas was flippant. 555 00:31:42,000 --> 00:31:44,960 Speaker 1: So as you go through your portfolio and consider the 556 00:31:45,040 --> 00:31:48,760 Speaker 1: upside and downside risks, you might want to include the 557 00:31:48,760 --> 00:31:53,280 Speaker 1: possibility of alien intervention. That, as Rod Serling put it, 558 00:31:53,600 --> 00:31:57,200 Speaker 1: we've moved into a land of both shadow and substance, 559 00:31:57,920 --> 00:32:01,000 Speaker 1: between light and shadow. It is an area which we 560 00:32:01,120 --> 00:32:04,640 Speaker 1: call the twilight zone. I'll leave it to you decide 561 00:32:04,680 --> 00:32:07,160 Speaker 1: whether that's a risk to the upside or a risk 562 00:32:07,280 --> 00:32:10,080 Speaker 1: to the downside. That does it. For this episode of 563 00:32:10,120 --> 00:32:13,000 Speaker 1: Wall Street Week, I'm David Weston. This is Bloomberg. See 564 00:32:13,040 --> 00:32:21,360 Speaker 1: you next week.