1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: I mean may not have an overall recession, We're having 3 00:00:04,400 --> 00:00:06,960 Speaker 2: a rolling recession. To conge roll looks pretty strongly when 4 00:00:07,000 --> 00:00:07,680 Speaker 2: it comes to jobs. 5 00:00:07,720 --> 00:00:09,880 Speaker 3: The financial stories that shape our world. 6 00:00:09,960 --> 00:00:13,640 Speaker 2: Three major regional bank failures send shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,480 Speaker 2: We're all trying to figure out what to make of 8 00:00:15,600 --> 00:00:17,000 Speaker 2: generative AI. 9 00:00:16,920 --> 00:00:19,320 Speaker 3: Through the eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 11 00:00:22,560 --> 00:00:25,279 Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of 12 00:00:25,280 --> 00:00:26,280 Speaker 2: the Columbia Business School. 13 00:00:26,280 --> 00:00:30,120 Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 14 00:00:30,280 --> 00:00:34,520 Speaker 2: Different summer holidays. Secretary Yelling goes to Beijing, Opek goes 15 00:00:34,560 --> 00:00:37,279 Speaker 2: to Vienna, and the Fed stays home. To ponder those 16 00:00:37,400 --> 00:00:40,800 Speaker 2: jobs numbers. This is Bloomberg Wall Street Week. I'm David Weston. 17 00:00:41,880 --> 00:00:45,400 Speaker 2: This week's special contributor Larry Summers on those jobs numbers 18 00:00:45,400 --> 00:00:48,040 Speaker 2: and what they tell us about where long term rates 19 00:00:48,080 --> 00:00:51,879 Speaker 2: are headed. Credit expert pornam Apuri of HPS on the 20 00:00:51,920 --> 00:00:55,320 Speaker 2: continued resilience in the credit markets and whether it will last. 21 00:00:55,560 --> 00:00:58,639 Speaker 4: Private credit market continue to grow and. 22 00:00:58,680 --> 00:01:02,880 Speaker 2: Colony Capital founders, I'm investing in the Gulf States, and 23 00:01:02,920 --> 00:01:05,200 Speaker 2: how it led him to a New York courtroom. 24 00:01:05,520 --> 00:01:07,920 Speaker 5: I thought, this is a great opportunity to start shipping 25 00:01:07,959 --> 00:01:23,040 Speaker 5: at the system from somebody outside of the system. 26 00:01:23,080 --> 00:01:25,240 Speaker 2: With the fourth of July holiday in the United States 27 00:01:25,280 --> 00:01:28,360 Speaker 2: and Wimbledon underway in England, it was time this week 28 00:01:28,360 --> 00:01:31,720 Speaker 2: to focus on summer holidays. The president g over in 29 00:01:31,800 --> 00:01:34,240 Speaker 2: China didn't get much of a summer break from disappointing 30 00:01:34,280 --> 00:01:35,200 Speaker 2: economic numbers. 31 00:01:35,520 --> 00:01:37,920 Speaker 1: The reality is is that people have given up on 32 00:01:37,959 --> 00:01:41,320 Speaker 1: the Chinese recovery. China's moving off its old economic growth model, 33 00:01:41,400 --> 00:01:43,880 Speaker 1: but it hasn't moved comfortably into what's. 34 00:01:43,720 --> 00:01:47,040 Speaker 2: Next, even as Beijing welcomed Treasury Secretary Yellen for a 35 00:01:47,120 --> 00:01:49,520 Speaker 2: visit to try to keep the conversation. 36 00:01:49,200 --> 00:01:57,040 Speaker 6: Going consp more regular channels of communication. 37 00:01:57,680 --> 00:02:02,480 Speaker 2: Eature Marching Countries members started their July in Vienna, with 38 00:02:02,560 --> 00:02:06,000 Speaker 2: Saudi Arabia kicking things off by extending its unilateral oil 39 00:02:06,000 --> 00:02:06,840 Speaker 2: production limits. 40 00:02:07,000 --> 00:02:09,840 Speaker 7: We had to do it because there was another ask 41 00:02:10,160 --> 00:02:15,959 Speaker 7: for the more immediate expectations of their market that the 42 00:02:16,000 --> 00:02:17,239 Speaker 7: operplus would need to do. 43 00:02:17,560 --> 00:02:21,040 Speaker 2: While Swedish Prime Minister Ulf Christerson traveled to Washington for 44 00:02:21,120 --> 00:02:24,639 Speaker 2: talks with President Biden, including on his country's admission to NATO. 45 00:02:24,880 --> 00:02:27,040 Speaker 2: But with all the traveling around, it was good to 46 00:02:27,080 --> 00:02:30,359 Speaker 2: know that the Federal Reserve remained on the job in Washington, 47 00:02:30,560 --> 00:02:33,400 Speaker 2: as we got minutes from its most recent rate meetings, 48 00:02:33,560 --> 00:02:36,000 Speaker 2: which showed that they weren't entirely on the same page 49 00:02:36,120 --> 00:02:38,240 Speaker 2: last month about whether they should pause. 50 00:02:38,480 --> 00:02:41,399 Speaker 8: The idea of slowing down the pace of rate increases 51 00:02:41,440 --> 00:02:45,080 Speaker 8: and continuing to slow the pace of rat increases makes sense, 52 00:02:45,320 --> 00:02:45,520 Speaker 8: and I. 53 00:02:45,520 --> 00:02:48,840 Speaker 4: Think more restrictive monetary policy will be needed to achieve 54 00:02:48,880 --> 00:02:50,880 Speaker 4: the FOMC schools of stable prices. 55 00:02:53,000 --> 00:02:54,440 Speaker 2: Then at the end of the week, we got the 56 00:02:54,520 --> 00:02:57,240 Speaker 2: job's umbers for June, with a little something for everyone. 57 00:02:57,320 --> 00:03:00,200 Speaker 2: The US added two hundred nine thousand new jobs than 58 00:03:00,240 --> 00:03:03,120 Speaker 2: the month before and less than anticipated, but still the 59 00:03:03,200 --> 00:03:05,840 Speaker 2: unemployment number still went down by a tenth the three 60 00:03:05,840 --> 00:03:08,959 Speaker 2: point six percent, and wage growth accelerated to an annual 61 00:03:09,000 --> 00:03:12,040 Speaker 2: pace of four point four percent. The equity markets, well, 62 00:03:12,040 --> 00:03:13,880 Speaker 2: they weren't really sure what to make of it all, 63 00:03:13,960 --> 00:03:17,040 Speaker 2: with the SMP down over one percent but still ending 64 00:03:17,040 --> 00:03:19,440 Speaker 2: at four to three nine eight that is well above 65 00:03:19,480 --> 00:03:22,680 Speaker 2: the Bloomberg Elves media estimate of forty one hundred for 66 00:03:22,760 --> 00:03:25,880 Speaker 2: the year end, while the NASDAG gave up almost one percent. 67 00:03:26,240 --> 00:03:28,239 Speaker 2: But the real action this week, The real action was 68 00:03:28,280 --> 00:03:30,440 Speaker 2: over in the bond market, where the yield and the 69 00:03:30,480 --> 00:03:33,679 Speaker 2: two year went above five percent on Thursday, settling down 70 00:03:33,720 --> 00:03:36,040 Speaker 2: a bit on Friday to close at three point four 71 00:03:36,080 --> 00:03:40,040 Speaker 2: point nine three three, while the tenuere added twenty two 72 00:03:40,040 --> 00:03:42,880 Speaker 2: basis points to stay above four percent at four point 73 00:03:43,320 --> 00:03:46,040 Speaker 2: five eight to take us through the holiday shortened week 74 00:03:46,040 --> 00:03:48,680 Speaker 2: in the markets. Welcome back now, Dave Bianco. He is 75 00:03:48,840 --> 00:03:52,160 Speaker 2: chief investment and strategist at WDS. Thanks for coming back 76 00:03:52,200 --> 00:03:54,040 Speaker 2: with this. Dave, great to have you here, so give 77 00:03:54,120 --> 00:03:56,040 Speaker 2: us your sense of what the markets did this week. 78 00:03:56,080 --> 00:03:58,000 Speaker 2: As I say, the aquite markets weren't quite sure about it, 79 00:03:58,040 --> 00:04:00,400 Speaker 2: but boy, the bond market really reacted. What do the 80 00:04:00,480 --> 00:04:01,480 Speaker 2: jobs numbers tell us? 81 00:04:01,920 --> 00:04:05,920 Speaker 6: Today's jobs Friday and leading up to it during the week, 82 00:04:05,920 --> 00:04:08,600 Speaker 6: there are other indicators for the jobs market suggesting that 83 00:04:08,800 --> 00:04:11,280 Speaker 6: the jobs market's still very healthy and a lot of 84 00:04:11,360 --> 00:04:15,240 Speaker 6: job creations still occurring, particularly at services. So the jobs 85 00:04:15,320 --> 00:04:20,039 Speaker 6: report was a little softer than the bond market feared. 86 00:04:20,360 --> 00:04:22,640 Speaker 6: But you have to realize the bond market was really 87 00:04:22,680 --> 00:04:26,280 Speaker 6: fearful of a super strong jobs report that would make 88 00:04:26,320 --> 00:04:28,920 Speaker 6: the Fed have to do more than one or two 89 00:04:29,080 --> 00:04:35,120 Speaker 6: heights from here. And the jobs report when it came in, 90 00:04:35,640 --> 00:04:39,640 Speaker 6: we saw a couple of things. One the two year yield, sorry, 91 00:04:39,640 --> 00:04:43,880 Speaker 6: the two yearield fell below five percent, but the ten 92 00:04:43,960 --> 00:04:47,239 Speaker 6: year yield rose above four percent and it stayed above 93 00:04:47,279 --> 00:04:49,440 Speaker 6: four percent today. I think the action on the ten 94 00:04:49,480 --> 00:04:51,640 Speaker 6: year yield is the really interesting action this week. 95 00:04:51,800 --> 00:04:54,200 Speaker 2: Well, are we through? Are we getting to a breakthrough 96 00:04:54,240 --> 00:04:56,360 Speaker 2: on bonds here? Basically? Are we breaking through to new 97 00:04:56,480 --> 00:04:58,800 Speaker 2: levels in the tenure? And for them out of the two. 98 00:04:59,279 --> 00:05:04,080 Speaker 6: That's the interesting question. It's are we walking into a 99 00:05:04,120 --> 00:05:07,279 Speaker 6: new norm? And is that new norm the old norm 100 00:05:07,400 --> 00:05:10,200 Speaker 6: from ten to twenty years ago. I think what's happening, 101 00:05:10,240 --> 00:05:13,960 Speaker 6: particularly in the ten year yield being over four percent, 102 00:05:14,440 --> 00:05:16,599 Speaker 6: is that the bomb markets starting to run out of 103 00:05:16,640 --> 00:05:20,360 Speaker 6: patience for the FED to win this inflation war. Inflation 104 00:05:20,560 --> 00:05:24,119 Speaker 6: is coming down, but it's coming down too slowly because 105 00:05:24,120 --> 00:05:26,840 Speaker 6: it's been two years now that inflation has been well 106 00:05:26,839 --> 00:05:30,000 Speaker 6: above the Fed's target. And if it doesn't come down quicker, 107 00:05:30,240 --> 00:05:32,080 Speaker 6: I think the bomb market's going to lose its patience. 108 00:05:32,160 --> 00:05:33,760 Speaker 2: Well, and if you look at things like the ten 109 00:05:33,800 --> 00:05:37,840 Speaker 2: year break even versus the PCE core numbers. There's a 110 00:05:38,080 --> 00:05:41,240 Speaker 2: very substantial difference now that there hasn't been historically, and 111 00:05:41,400 --> 00:05:43,039 Speaker 2: one of those I guess it has to come down 112 00:05:43,080 --> 00:05:44,680 Speaker 2: or come up. That's right. 113 00:05:44,760 --> 00:05:46,960 Speaker 6: So when you look at ten year treasury yields at 114 00:05:46,960 --> 00:05:50,160 Speaker 6: about four percent, the break even or essentially the inflation 115 00:05:50,279 --> 00:05:53,600 Speaker 6: expectation embedded in that four percent yield is about a 116 00:05:53,680 --> 00:05:57,760 Speaker 6: two and a quarter percent break even inflation expectation as recall. 117 00:05:57,880 --> 00:06:02,640 Speaker 6: So essentially the long term has been saying it believes 118 00:06:02,640 --> 00:06:04,839 Speaker 6: the Fed that the FED is going to get inflation 119 00:06:04,920 --> 00:06:08,039 Speaker 6: back to its two percent target, but eventually is not 120 00:06:08,240 --> 00:06:10,520 Speaker 6: good enough. I think the bomb market's at the stage 121 00:06:10,520 --> 00:06:13,919 Speaker 6: whered saying you need to move faster because if we 122 00:06:14,000 --> 00:06:18,040 Speaker 6: have to reassess the risk of another inflation outbreak, and 123 00:06:18,080 --> 00:06:20,239 Speaker 6: you take more than a year or two to solve 124 00:06:20,240 --> 00:06:22,599 Speaker 6: the problem, it takes you two to three or more 125 00:06:22,680 --> 00:06:25,200 Speaker 6: years to get back to target. The bomb market's going 126 00:06:25,240 --> 00:06:28,359 Speaker 6: to have to reprice its inflation expectation and risk premium. 127 00:06:28,520 --> 00:06:31,600 Speaker 2: As a student of the markets, what is your best 128 00:06:31,640 --> 00:06:33,760 Speaker 2: sense of how long the FED has If I can 129 00:06:33,760 --> 00:06:35,440 Speaker 2: put it that way, we're going to get CPI data. 130 00:06:35,480 --> 00:06:37,240 Speaker 2: Next week, we're going to ask other data coming in. 131 00:06:37,560 --> 00:06:39,360 Speaker 2: We most of us expect that there's going to be 132 00:06:39,360 --> 00:06:41,640 Speaker 2: a twenty five point basis point increase in July. Right, 133 00:06:41,720 --> 00:06:44,120 Speaker 2: the question is what happens in September? What happens after September? 134 00:06:44,160 --> 00:06:45,240 Speaker 2: How long does the FED have? 135 00:06:45,440 --> 00:06:47,719 Speaker 6: So now we're going into the back half of twenty 136 00:06:47,760 --> 00:06:51,640 Speaker 6: twenty three, and the first two years were that period 137 00:06:51,680 --> 00:06:53,800 Speaker 6: of time where the bomb market is willing to give 138 00:06:53,839 --> 00:06:57,599 Speaker 6: the FED a couple of passes. But now, if inflation 139 00:06:57,720 --> 00:07:00,559 Speaker 6: doesn't get down faster, I don't think the FED will 140 00:07:00,560 --> 00:07:03,760 Speaker 6: be forgiven by the bomb market over the long term. 141 00:07:03,880 --> 00:07:05,599 Speaker 6: I think what you'll have is that the four percent 142 00:07:05,600 --> 00:07:08,400 Speaker 6: ten year treasure yield and perhaps even higher than that, 143 00:07:09,600 --> 00:07:12,840 Speaker 6: stays there even as the economy continues to slow, because 144 00:07:12,840 --> 00:07:16,360 Speaker 6: the bomb market wants compensation for this elevated inflation risk 145 00:07:16,400 --> 00:07:17,400 Speaker 6: in this decade that we're in. 146 00:07:17,600 --> 00:07:20,400 Speaker 2: If in fact, we're baking in higher levels for the tenure, 147 00:07:20,480 --> 00:07:22,520 Speaker 2: let's just stay on the tenure here. What does that 148 00:07:22,560 --> 00:07:24,960 Speaker 2: mean for the equity market? Because there's a discount factor here, 149 00:07:24,960 --> 00:07:27,680 Speaker 2: and typically equity valuations go down, and particularly in some 150 00:07:27,720 --> 00:07:29,640 Speaker 2: of the growth stocks such as tech right, which has 151 00:07:29,680 --> 00:07:31,080 Speaker 2: been doing pretty well well. 152 00:07:31,320 --> 00:07:34,200 Speaker 6: This week is about interest rates, and we'll continue to 153 00:07:34,240 --> 00:07:36,600 Speaker 6: watch interest rates over the rest of the year. Next 154 00:07:36,640 --> 00:07:39,480 Speaker 6: week we get some more reports on earning season. I 155 00:07:39,520 --> 00:07:41,760 Speaker 6: think earnings will be about fifty five dollars in the quarter, 156 00:07:41,840 --> 00:07:44,640 Speaker 6: or two hundred and twenty dollars for this year. The 157 00:07:44,720 --> 00:07:48,400 Speaker 6: SMP's trading at twenty times this year's earnings estimate, and 158 00:07:48,480 --> 00:07:52,080 Speaker 6: tech the tech sectors trading at thirty times this year's 159 00:07:52,120 --> 00:07:57,560 Speaker 6: earnings estimate. The higher interest rates go, the stronger the 160 00:07:57,640 --> 00:08:00,760 Speaker 6: earnings growth and real earnings growth that needs be generated 161 00:08:00,800 --> 00:08:04,160 Speaker 6: by the SMP and the tech sector to justify these valuations. 162 00:08:04,280 --> 00:08:07,600 Speaker 6: The valuations are very demanding and they're not being helped 163 00:08:07,960 --> 00:08:08,880 Speaker 6: by these interest rates. 164 00:08:09,000 --> 00:08:11,680 Speaker 2: Okay, so let's assume for the moment that earnings actually 165 00:08:11,680 --> 00:08:13,920 Speaker 2: measure up and actually support those valuations. Where's it going 166 00:08:13,960 --> 00:08:18,240 Speaker 2: to come from? Is that from price equity ratios? Is 167 00:08:18,240 --> 00:08:20,080 Speaker 2: that from top line growth? Where are we going to 168 00:08:20,080 --> 00:08:20,400 Speaker 2: find it? 169 00:08:20,720 --> 00:08:22,200 Speaker 6: Well, most of the top line growth that we're seeing 170 00:08:22,240 --> 00:08:25,080 Speaker 6: is really just inflation and basically the same things occurring 171 00:08:25,200 --> 00:08:28,280 Speaker 6: at earnings. And I do expect fifty five dollars of 172 00:08:28,280 --> 00:08:30,360 Speaker 6: earnings for the second quarter which would be down a 173 00:08:30,400 --> 00:08:34,400 Speaker 6: few percent from last year. But earnings at the SMP 174 00:08:34,480 --> 00:08:37,080 Speaker 6: have been about fifty five dollars per share on a 175 00:08:37,120 --> 00:08:40,760 Speaker 6: seasonally adjusted basis for the past two years, so earnings 176 00:08:40,760 --> 00:08:44,840 Speaker 6: have been flat since late twenty twenty one. Where's the 177 00:08:44,840 --> 00:08:48,440 Speaker 6: earnings growth going to come from? Well, that's why the 178 00:08:48,480 --> 00:08:52,000 Speaker 6: whole market's just overly counting on tech to make up 179 00:08:52,040 --> 00:08:54,640 Speaker 6: for what's likely a mnemic earnings growth everywhere else. 180 00:08:54,840 --> 00:08:57,120 Speaker 2: Tech and particularly some big tech, has really been dragging 181 00:08:57,120 --> 00:09:00,800 Speaker 2: the market average up. Without a doubt that's come down 182 00:09:01,040 --> 00:09:02,400 Speaker 2: or does the rest of the market catch up? 183 00:09:02,760 --> 00:09:02,920 Speaker 1: Right? 184 00:09:03,000 --> 00:09:07,080 Speaker 6: I believe that mark the tech sector is due for 185 00:09:07,120 --> 00:09:08,840 Speaker 6: a correction. I don't know if it's in the coming 186 00:09:08,960 --> 00:09:10,880 Speaker 6: days weeks, but I think over the course of the 187 00:09:10,880 --> 00:09:14,440 Speaker 6: rest of the year that the tech sector will correct 188 00:09:14,440 --> 00:09:17,840 Speaker 6: by about ten percent. And for those who are in 189 00:09:17,880 --> 00:09:19,840 Speaker 6: the debate about will the rest of the market catch 190 00:09:19,920 --> 00:09:22,400 Speaker 6: up to tech, will that bring the market to even 191 00:09:22,520 --> 00:09:25,160 Speaker 6: new highs for the year? I doubt it. I think 192 00:09:25,160 --> 00:09:27,000 Speaker 6: in order to be bullish on the market, you need 193 00:09:27,000 --> 00:09:30,079 Speaker 6: to believe that tech goes even higher. I don't think 194 00:09:30,120 --> 00:09:32,760 Speaker 6: it's likely that the rest of the market will drive 195 00:09:34,040 --> 00:09:37,800 Speaker 6: the overall market higher. If tech doesn't climb higher itself. 196 00:09:37,760 --> 00:09:38,559 Speaker 2: AI going to save this. 197 00:09:39,480 --> 00:09:43,320 Speaker 6: AI may save the decade in terms of productivity and 198 00:09:43,440 --> 00:09:46,280 Speaker 6: decent economic growth, but I don't think AI is going 199 00:09:46,320 --> 00:09:48,640 Speaker 6: to save the really weak earnings growth I see for 200 00:09:48,640 --> 00:09:49,880 Speaker 6: the S and P for the rest of the year. 201 00:09:49,960 --> 00:09:52,880 Speaker 2: What about government investment, because we have Bidenomics now as 202 00:09:52,920 --> 00:09:57,000 Speaker 2: President Biden Fairmount investment coming into industrial policy exactly right 203 00:09:57,040 --> 00:09:59,920 Speaker 2: as we had in Japan in the eighties. Is that 204 00:10:00,120 --> 00:10:02,559 Speaker 2: likely the kicking to really help drive growth and productivity? 205 00:10:02,600 --> 00:10:03,640 Speaker 2: And if so, how long does it take? 206 00:10:03,800 --> 00:10:07,040 Speaker 6: Well, it will take time. We'll find out what returns 207 00:10:07,040 --> 00:10:08,960 Speaker 6: on investment and what productivity we get out of that 208 00:10:09,040 --> 00:10:12,680 Speaker 6: over time. But in the meantime, we do see investment 209 00:10:12,760 --> 00:10:17,199 Speaker 6: in manufacturing capacity in the United States, but manufacturing output 210 00:10:17,400 --> 00:10:20,600 Speaker 6: has been weak and we are still in this manufacturing recession. 211 00:10:20,840 --> 00:10:23,000 Speaker 6: It's all on the service side of the economy that's 212 00:10:23,040 --> 00:10:24,160 Speaker 6: booming right this moment. 213 00:10:24,360 --> 00:10:25,960 Speaker 2: David's always a treat to have you with us, Thank 214 00:10:25,960 --> 00:10:28,880 Speaker 2: you so much. That's David Bianco of DWS coming up 215 00:10:28,920 --> 00:10:31,559 Speaker 2: our special contributor Larry Summers on what the jobs numbers 216 00:10:31,559 --> 00:10:33,480 Speaker 2: tell us about the strength of the economy and where 217 00:10:33,600 --> 00:10:36,160 Speaker 2: long term interest rates are headed. That's next on Wall 218 00:10:36,200 --> 00:10:42,000 Speaker 2: Street Week on Bloomberg. 219 00:10:54,320 --> 00:10:58,560 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 220 00:10:58,679 --> 00:10:59,600 Speaker 3: Bloomberg Radio. 221 00:11:05,960 --> 00:11:07,960 Speaker 2: This is Wall Street Week. I'm David Weston. We're delighted 222 00:11:08,000 --> 00:11:10,560 Speaker 2: now have to have our special contrader, Larry Summers of 223 00:11:10,640 --> 00:11:12,719 Speaker 2: Harvard to help take us through the job's numbers and 224 00:11:12,800 --> 00:11:14,680 Speaker 2: other eco numbers. What they told us is week Larry, 225 00:11:14,720 --> 00:11:16,360 Speaker 2: great to have you back with us. What did you 226 00:11:16,360 --> 00:11:17,840 Speaker 2: make of the jobs numbers? And by the way, there 227 00:11:17,840 --> 00:11:19,959 Speaker 2: were other eco numbers as well this week. 228 00:11:19,920 --> 00:11:21,440 Speaker 1: David, these are hot numbers. 229 00:11:21,760 --> 00:11:26,600 Speaker 8: The rate of job creation is twice as great as 230 00:11:26,720 --> 00:11:30,680 Speaker 8: the growth in the number of adults in an economy 231 00:11:30,760 --> 00:11:38,360 Speaker 8: that's already overheated. That's not consistent with bringing inflation down 232 00:11:38,400 --> 00:11:42,320 Speaker 8: to its target level. And you see that in the 233 00:11:42,360 --> 00:11:47,560 Speaker 8: wage data, which is pointing to inflation way above. 234 00:11:48,600 --> 00:11:50,480 Speaker 1: The Fed's target. 235 00:11:51,240 --> 00:11:55,480 Speaker 8: We've got a low unemployment rate at three point six percent, and. 236 00:11:55,440 --> 00:11:57,560 Speaker 9: If you look at any of the other labor market 237 00:11:57,600 --> 00:12:01,880 Speaker 9: indicators that we got this week, quit rate, the level 238 00:12:01,920 --> 00:12:07,560 Speaker 9: of vacancies, the layoff rate, the insured unemployment data, all 239 00:12:07,600 --> 00:12:11,520 Speaker 9: of that, based on past patterns, is suggesting an even 240 00:12:11,600 --> 00:12:16,040 Speaker 9: tighter unemployment rate than the three point six percent. 241 00:12:16,679 --> 00:12:19,439 Speaker 1: So I think we've got an economy. 242 00:12:18,840 --> 00:12:25,400 Speaker 8: That is currently very strong, not sustainably strong in terms 243 00:12:25,440 --> 00:12:29,079 Speaker 8: of the rate of job creation, and not very surprisingly 244 00:12:29,200 --> 00:12:34,760 Speaker 8: given that strength, we continue to have inflation and indicators 245 00:12:34,760 --> 00:12:40,400 Speaker 8: of forward inflation well above target. So I think the 246 00:12:40,440 --> 00:12:45,160 Speaker 8: market is right to judge that once again the Fed 247 00:12:45,320 --> 00:12:51,520 Speaker 8: has underestimated inflation for basically the eighth quarter in a row. 248 00:12:51,960 --> 00:12:59,520 Speaker 8: They've been surprised on what's happened to inflation, and because 249 00:12:59,559 --> 00:13:03,080 Speaker 8: there's a ris on what's happening with inflation and the 250 00:13:03,120 --> 00:13:06,480 Speaker 8: strength of the economy, they're going to be surprised by 251 00:13:06,520 --> 00:13:12,000 Speaker 8: what they have to do to interest rates. And so 252 00:13:12,640 --> 00:13:17,680 Speaker 8: I think that you've seen an appropriate adjustment in medium 253 00:13:17,800 --> 00:13:22,280 Speaker 8: term interest rates to this reality. My best guess is 254 00:13:22,800 --> 00:13:28,280 Speaker 8: that you're going to see further adjustment as the data 255 00:13:28,400 --> 00:13:33,439 Speaker 8: continues to come in. But I think it's a mistake 256 00:13:33,559 --> 00:13:38,280 Speaker 8: to be distracted by the wiggles. Yes, the ADP number 257 00:13:38,400 --> 00:13:42,960 Speaker 8: yesterday was super duper strong, and today's number was. 258 00:13:42,880 --> 00:13:44,600 Speaker 1: Not nearly as strong as. 259 00:13:44,480 --> 00:13:48,240 Speaker 8: The ADP number, But if you step back to the 260 00:13:48,320 --> 00:13:54,199 Speaker 8: bigger picture, nobody thinks we can continue indefinitely to create 261 00:13:54,320 --> 00:14:01,320 Speaker 8: jobs twice as fast as the adult population grow. That 262 00:14:01,400 --> 00:14:05,120 Speaker 8: means we're having tighter and tighter labor markets, and that 263 00:14:05,200 --> 00:14:10,880 Speaker 8: means an inflationary picture, and the Fed's going to have 264 00:14:11,040 --> 00:14:12,840 Speaker 8: to respond to that. 265 00:14:13,240 --> 00:14:15,480 Speaker 2: Larry, you were one of the very first, maybe the 266 00:14:15,640 --> 00:14:17,880 Speaker 2: very first to identify this risk Kreen Wall Street, but 267 00:14:17,920 --> 00:14:20,720 Speaker 2: also in your pieces for the Washington Post. I guess 268 00:14:20,720 --> 00:14:23,400 Speaker 2: the two questions that occur to anyone is number one, 269 00:14:23,520 --> 00:14:25,680 Speaker 2: what's it going to take for the FED to get 270 00:14:25,760 --> 00:14:28,200 Speaker 2: really inflation or control number one? Number two is why 271 00:14:28,240 --> 00:14:29,080 Speaker 2: has it taken so long? 272 00:14:29,320 --> 00:14:32,640 Speaker 8: It's taken so long because we started out so late, 273 00:14:33,400 --> 00:14:39,600 Speaker 8: and given how late we started, we didn't move sufficiently 274 00:14:40,240 --> 00:14:46,520 Speaker 8: because we believed mistakenly that the neutral interest rate was 275 00:14:46,560 --> 00:14:51,880 Speaker 8: still very low, and we believed mistakenly that raising interest 276 00:14:51,960 --> 00:14:58,000 Speaker 8: rates would have large impacts on the economy that were 277 00:14:58,400 --> 00:15:05,119 Speaker 8: greater than the impacts of interest rates in the current structure, 278 00:15:05,960 --> 00:15:12,360 Speaker 8: And we haven't really recognized that it's a basic feature 279 00:15:12,400 --> 00:15:18,000 Speaker 8: of the inflation process that while you get transitory fluctuations, 280 00:15:18,720 --> 00:15:24,680 Speaker 8: you don't stop an underlying wage inflation without having a 281 00:15:25,080 --> 00:15:29,880 Speaker 8: significant slowdown in economic activity. And since we haven't yet 282 00:15:29,920 --> 00:15:34,920 Speaker 8: had a significant slowdown in economic activity. It shouldn't be 283 00:15:35,000 --> 00:15:42,320 Speaker 8: surprising that we've still got inflation well above target, nor 284 00:15:42,440 --> 00:15:46,920 Speaker 8: should anybody take comfort from the fact that the components 285 00:15:46,960 --> 00:15:53,080 Speaker 8: of inflation that everybody recognized were transitory. The fact that 286 00:15:53,200 --> 00:15:57,240 Speaker 8: they've come down, in some cases even going into reverse, 287 00:15:58,040 --> 00:16:01,920 Speaker 8: is better than if they have, much better than if 288 00:16:01,960 --> 00:16:02,600 Speaker 8: they hadn't. 289 00:16:03,160 --> 00:16:05,000 Speaker 1: But nobody ever thought. 290 00:16:04,760 --> 00:16:08,560 Speaker 8: We were in underlying eight percent inflation country when we 291 00:16:08,600 --> 00:16:10,960 Speaker 8: were having eight percent inflation. 292 00:16:11,520 --> 00:16:12,880 Speaker 1: So the fact that. 293 00:16:12,600 --> 00:16:19,680 Speaker 8: The rate has come down shouldn't be confused with saying 294 00:16:19,760 --> 00:16:22,520 Speaker 8: that we can be confident that we're on a path 295 00:16:22,640 --> 00:16:26,400 Speaker 8: of this all being okay, and certainly not worth saying 296 00:16:26,480 --> 00:16:29,840 Speaker 8: that we're We can be confident that we're on a 297 00:16:29,880 --> 00:16:33,840 Speaker 8: path for this all being okay without the FED doing 298 00:16:34,000 --> 00:16:41,080 Speaker 8: more to raise race. So anything's possible, and all of 299 00:16:41,120 --> 00:16:45,160 Speaker 8: these judgments stated are statistical. Maybe we'll get a big 300 00:16:45,200 --> 00:16:49,680 Speaker 8: productivity boom out of AI very quickly, though I think 301 00:16:49,760 --> 00:16:56,640 Speaker 8: that's unlikely. Maybe the inflation process will behave very differently 302 00:16:57,280 --> 00:17:02,680 Speaker 8: than it has in the past, But I think the 303 00:17:02,680 --> 00:17:05,879 Speaker 8: best guess has to be that the FED is going 304 00:17:05,960 --> 00:17:07,560 Speaker 8: to have to raise rates more. 305 00:17:08,240 --> 00:17:10,000 Speaker 2: Let I want to turn to a different subject here 306 00:17:10,040 --> 00:17:12,320 Speaker 2: that you wrote about in the Washington Post this week, 307 00:17:12,520 --> 00:17:14,240 Speaker 2: and that is the so called the front of action 308 00:17:14,320 --> 00:17:16,439 Speaker 2: decision coming out of the Supreme Court. Station you not 309 00:17:16,600 --> 00:17:18,560 Speaker 2: only are an esteemed economist, you not only were section 310 00:17:18,600 --> 00:17:21,960 Speaker 2: of the Treasury. He also ran Harvard for some time. 311 00:17:22,920 --> 00:17:25,879 Speaker 2: You really lay out there how difficult this issue is, 312 00:17:25,920 --> 00:17:28,119 Speaker 2: that it's a broader issue, it's an important issue of 313 00:17:28,119 --> 00:17:30,240 Speaker 2: their broader issue. Then simply raise. 314 00:17:30,320 --> 00:17:32,960 Speaker 1: I wish the Supreme Court hadn't acted. 315 00:17:33,040 --> 00:17:36,119 Speaker 8: I wish it had let the world continue on the 316 00:17:36,160 --> 00:17:41,560 Speaker 8: path that it was. Let private institutions make their choices 317 00:17:41,680 --> 00:17:46,280 Speaker 8: about how they're going to pursue fairness as they see it. 318 00:17:47,040 --> 00:17:52,080 Speaker 8: But right now there's a critical choice that leading universities face. 319 00:17:53,280 --> 00:17:57,119 Speaker 8: One option is that they can gerrymander the inflation, the 320 00:17:57,480 --> 00:18:02,600 Speaker 8: admissions criteria and change just exactly how they do it, 321 00:18:02,640 --> 00:18:07,800 Speaker 8: and encourage people to put certain sentences in their essays 322 00:18:07,840 --> 00:18:11,920 Speaker 8: and do away with standardized tests that have a lot 323 00:18:11,960 --> 00:18:16,919 Speaker 8: of information, and fight to try to keep the exactly 324 00:18:17,080 --> 00:18:21,440 Speaker 8: same percentages of racial groups where they are. 325 00:18:22,280 --> 00:18:23,200 Speaker 1: That's one approach. 326 00:18:23,840 --> 00:18:28,440 Speaker 8: I think if they do that, they will be increasingly resented. 327 00:18:28,280 --> 00:18:30,000 Speaker 1: By the broad public. 328 00:18:30,680 --> 00:18:38,439 Speaker 8: They will diminish the intellectual quality of their classes, and 329 00:18:38,560 --> 00:18:43,640 Speaker 8: in fact, they will have done very little to promote 330 00:18:43,800 --> 00:18:49,439 Speaker 8: social justice. The alternative path is that they step back 331 00:18:50,160 --> 00:18:55,040 Speaker 8: and that they recognize that really the important test for 332 00:18:55,160 --> 00:19:01,160 Speaker 8: them in this era is their overall contribution to opportunity 333 00:19:01,240 --> 00:19:05,000 Speaker 8: in America, and if that's what they want to maximize, 334 00:19:05,520 --> 00:19:09,800 Speaker 8: it'll be a very different path. No more legacy admissions, 335 00:19:10,640 --> 00:19:15,359 Speaker 8: no more special admissions for people who've been coached extensively 336 00:19:15,880 --> 00:19:22,840 Speaker 8: to be good at aristocratic sports, deciding to expand their 337 00:19:22,840 --> 00:19:27,320 Speaker 8: class sizes so that more can benefit from what they bring, 338 00:19:28,040 --> 00:19:33,400 Speaker 8: and not defining their greatness by just how exclusive they are. 339 00:19:34,800 --> 00:19:40,240 Speaker 8: Using the power of distance education for their education to 340 00:19:40,320 --> 00:19:44,000 Speaker 8: be defined by more than what happens in the fall 341 00:19:44,080 --> 00:19:49,080 Speaker 8: and spring semester on their campus, but training teachers during 342 00:19:49,119 --> 00:19:51,800 Speaker 8: the summering able. 343 00:19:51,560 --> 00:19:55,159 Speaker 1: Students with computers. 344 00:19:55,720 --> 00:20:05,840 Speaker 10: And crucially crucially turn their energy two strengthening what happens 345 00:20:05,960 --> 00:20:12,119 Speaker 10: in our public schools across the country. Look David, only 346 00:20:12,520 --> 00:20:16,280 Speaker 10: about one and a half percent of the students who 347 00:20:16,480 --> 00:20:21,040 Speaker 10: score in the top ranges of the SATA are African 348 00:20:21,040 --> 00:20:26,199 Speaker 10: American YEP. Until we fix that, no durable solution to 349 00:20:26,280 --> 00:20:29,800 Speaker 10: these problems. That needs to be a crucial part of 350 00:20:29,840 --> 00:20:32,560 Speaker 10: the mission of our elite schools. 351 00:20:32,240 --> 00:20:34,840 Speaker 2: So terribly important, so profound. Thank you so much, great 352 00:20:34,880 --> 00:20:36,439 Speaker 2: to have you back with us. That's our special Conturlly 353 00:20:36,560 --> 00:20:40,760 Speaker 2: Larry Summers coming up. The oil and gas riches of 354 00:20:40,800 --> 00:20:43,720 Speaker 2: the Gulf States have given them enormous funds to invest 355 00:20:43,720 --> 00:20:46,920 Speaker 2: in the West, but they're also attracting substantial investments from 356 00:20:46,960 --> 00:20:49,560 Speaker 2: the West. Tom Barrick has been an active player in 357 00:20:49,600 --> 00:20:53,160 Speaker 2: the region for decades. He'll tell us what he has learned. 358 00:20:54,040 --> 00:20:59,439 Speaker 5: If we're not there to hand in glove fix the 359 00:20:59,480 --> 00:21:03,720 Speaker 5: rest of the things they need, China will be there. 360 00:21:05,200 --> 00:21:07,320 Speaker 2: This is Wall Street Week on Bloomberg. 361 00:21:08,520 --> 00:21:12,760 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 362 00:21:12,880 --> 00:21:14,080 Speaker 3: Bloomberg Radio. 363 00:21:22,160 --> 00:21:25,520 Speaker 2: The Gulf States. Since oil was first discovered in Saudi 364 00:21:25,520 --> 00:21:28,919 Speaker 2: Arabia in nineteen thirty eight, the region has dominated the 365 00:21:28,920 --> 00:21:32,320 Speaker 2: world of geopolitics because of its rich deposits of oil 366 00:21:32,359 --> 00:21:35,879 Speaker 2: and gas, and this week Saudi Arabia once again sought 367 00:21:35,880 --> 00:21:39,120 Speaker 2: to assert its power by extending production limits. 368 00:21:39,520 --> 00:21:43,240 Speaker 11: We needed to head on, reach out to these issues, 369 00:21:43,880 --> 00:21:48,800 Speaker 11: attend to them, and go for what we think would 370 00:21:48,840 --> 00:21:52,480 Speaker 11: be that I tricipy to attend to this market situation, but. 371 00:21:52,520 --> 00:21:54,800 Speaker 2: For investors it's not just a question of what Saudi 372 00:21:54,880 --> 00:21:57,359 Speaker 2: Arabia and the UAE will mean for the price of 373 00:21:57,400 --> 00:22:01,359 Speaker 2: oil or cutter for natural gas, but also what investments 374 00:22:01,400 --> 00:22:03,320 Speaker 2: they'll make with all those revenues. 375 00:22:03,840 --> 00:22:10,200 Speaker 12: Secondly, what we see in the golf is a remarkable 376 00:22:10,320 --> 00:22:16,520 Speaker 12: determination to pursue reforms. There are some putting that the 377 00:22:16,600 --> 00:22:21,680 Speaker 12: fortunes of the golf are oil and gas. In fact, 378 00:22:21,920 --> 00:22:27,679 Speaker 12: the fortune of the golf is decisiveness in putting economy 379 00:22:27,800 --> 00:22:30,200 Speaker 12: on long term sustainable path. 380 00:22:30,800 --> 00:22:34,359 Speaker 2: Investments like the Kingdom's public investment fund in ev makers, 381 00:22:34,480 --> 00:22:36,120 Speaker 2: Rivian and Lucid. 382 00:22:36,040 --> 00:22:38,920 Speaker 7: They're not really just about EV's, They're about the whole 383 00:22:38,920 --> 00:22:41,240 Speaker 7: ecosystem that comes with EV's and technology. 384 00:22:41,440 --> 00:22:43,880 Speaker 5: We're making bets for the future and for the green 385 00:22:43,920 --> 00:22:44,640 Speaker 5: future as well. 386 00:22:45,160 --> 00:22:48,240 Speaker 2: Or it's l iv Golf venture being merged with the PGA. 387 00:22:49,080 --> 00:22:52,280 Speaker 13: I think getting together is the best thing for golf. 388 00:22:52,440 --> 00:22:55,119 Speaker 13: This fight that was going on in the lawsuits that 389 00:22:55,160 --> 00:22:59,320 Speaker 13: were raging in a one side the golfers from Live 390 00:23:00,240 --> 00:23:04,520 Speaker 13: you know, taking shots at the PGA and vice versa. 391 00:23:04,840 --> 00:23:06,560 Speaker 13: That's not constructive for the game. 392 00:23:06,960 --> 00:23:09,679 Speaker 2: The UAE is one of the largest shareholders of the 393 00:23:09,720 --> 00:23:13,240 Speaker 2: Carlisle Group and recently agreed to acquire a seventy percent 394 00:23:13,320 --> 00:23:17,280 Speaker 2: equity stake in Fortress from Softbag, but Alla will own 395 00:23:17,400 --> 00:23:21,000 Speaker 2: seventy percent of Fortress equity while Fortress Management will hold 396 00:23:21,000 --> 00:23:24,440 Speaker 2: a thirty percent equity interest. But the investment funds don't 397 00:23:24,480 --> 00:23:27,359 Speaker 2: only flow from the Gulf States to the West. Saudi 398 00:23:27,400 --> 00:23:30,320 Speaker 2: Arabia looks to raise some of the five hundred billion 399 00:23:30,359 --> 00:23:34,040 Speaker 2: dollars it needs to build NEO from Western investments. We 400 00:23:34,200 --> 00:23:37,359 Speaker 2: had really significant interest from the market. 401 00:23:37,880 --> 00:23:42,199 Speaker 12: Twenty three financial institutions participated in the close of the Degree 402 00:23:42,240 --> 00:23:43,400 Speaker 12: and Hydrogen and. 403 00:23:43,480 --> 00:23:47,560 Speaker 2: According to UN statistics, the UAE is the largest recipient 404 00:23:47,600 --> 00:23:54,080 Speaker 2: of foreign direct investment in West Asia. And to take 405 00:23:54,119 --> 00:23:56,600 Speaker 2: us through the possibilities of investing in the golf, welcome 406 00:23:56,640 --> 00:23:59,400 Speaker 2: now someone who has spent his career there is Tom 407 00:23:59,400 --> 00:24:02,399 Speaker 2: Barrick under of Colony Capital. Tom. Great to have you here. 408 00:24:02,400 --> 00:24:03,800 Speaker 2: Thank you so much for being on Wall Street week. 409 00:24:04,000 --> 00:24:04,560 Speaker 1: Great to be with you. 410 00:24:04,680 --> 00:24:04,840 Speaker 5: David. 411 00:24:04,880 --> 00:24:06,479 Speaker 2: Thank as I say, you really have spent your career 412 00:24:06,560 --> 00:24:10,080 Speaker 2: in and around the golf. Give us an investors perspective 413 00:24:10,160 --> 00:24:12,479 Speaker 2: right now in the golf, where are their opportunities but 414 00:24:12,520 --> 00:24:13,720 Speaker 2: also where are their perils? 415 00:24:15,400 --> 00:24:19,120 Speaker 5: So it's always been a misunderstood era, right, because it's 416 00:24:19,160 --> 00:24:21,760 Speaker 5: tribes and flags. When we talk about the golf there's 417 00:24:22,080 --> 00:24:25,840 Speaker 5: fifty four countries really that make up kind of the 418 00:24:26,720 --> 00:24:30,840 Speaker 5: consortium of golf countries for big ones. But if you 419 00:24:30,840 --> 00:24:35,080 Speaker 5: think about it, the resource curse, so from nineteen sixty on, 420 00:24:35,359 --> 00:24:38,960 Speaker 5: the discovery of oil and gas in the small populations 421 00:24:39,840 --> 00:24:44,440 Speaker 5: led them in really a seventy year period to dominate 422 00:24:44,520 --> 00:24:49,840 Speaker 5: the investible world. So from producing oil and gas being 423 00:24:49,840 --> 00:24:55,399 Speaker 5: the beneficiary of receiving those dollars up until now to 424 00:24:55,440 --> 00:24:57,760 Speaker 5: reinvest in them and saying we've got a diversify. We 425 00:24:57,840 --> 00:25:03,679 Speaker 5: have growing populations were now becoming more astute and aligned 426 00:25:03,880 --> 00:25:07,720 Speaker 5: in the international economy. How do we diversify, What do 427 00:25:07,760 --> 00:25:11,040 Speaker 5: we diversify into? And remember the constituencies. It's not a 428 00:25:11,080 --> 00:25:15,200 Speaker 5: pension fund, so they're investable universe of the big sovereign 429 00:25:15,240 --> 00:25:17,600 Speaker 5: wealth funds, which by the way, are the largest investors 430 00:25:17,640 --> 00:25:24,840 Speaker 5: in the world today. Idea, Mubadala, PIF kia Qia are 431 00:25:25,840 --> 00:25:29,920 Speaker 5: multi thousand investment groups investing in all asset. 432 00:25:29,680 --> 00:25:31,080 Speaker 1: Classes around the world. 433 00:25:31,240 --> 00:25:33,960 Speaker 5: So the goal at the moment is for them to 434 00:25:34,000 --> 00:25:37,919 Speaker 5: diversify outside investments and at the same time start moving 435 00:25:37,960 --> 00:25:42,199 Speaker 5: their own economies and their own young populations to a 436 00:25:42,840 --> 00:25:47,320 Speaker 5: non resource based economy. That's the biggest challenge in most 437 00:25:47,400 --> 00:25:52,840 Speaker 5: of these countries. The royal family directs the politics, and 438 00:25:52,880 --> 00:25:57,560 Speaker 5: the politics is also driving the business decisions. So you 439 00:25:57,600 --> 00:26:03,120 Speaker 5: have the same individuals positions that are looking at these 440 00:26:03,840 --> 00:26:07,040 Speaker 5: big themes over long periods of time. And the constituency 441 00:26:07,119 --> 00:26:10,200 Speaker 5: is the legacy. It's not for the retirement of individuals, 442 00:26:10,840 --> 00:26:11,600 Speaker 5: so it's booming. 443 00:26:12,200 --> 00:26:16,119 Speaker 2: Whenever one invests cross border, there's political risk involved. How 444 00:26:16,160 --> 00:26:19,080 Speaker 2: does one assess the political risk in that region? Certainly 445 00:26:19,080 --> 00:26:22,000 Speaker 2: we've seen it flare up in Saudi Arabia in various ways. 446 00:26:22,760 --> 00:26:24,520 Speaker 2: How does one assess that and make sure that you're 447 00:26:24,560 --> 00:26:27,920 Speaker 2: protected from that possibly affecting your investment. 448 00:26:28,480 --> 00:26:32,720 Speaker 5: Slowly and carefully. I'm a great example of that. So 449 00:26:34,920 --> 00:26:41,320 Speaker 5: I think for all business men, soft diplomacy is part 450 00:26:41,359 --> 00:26:44,159 Speaker 5: of the goal that you're trying to reach longline relationships, 451 00:26:44,680 --> 00:26:47,160 Speaker 5: understanding the geopolitical risks of where you are, the rule 452 00:26:47,200 --> 00:26:51,480 Speaker 5: of law, the cultural orientation. We've always talked about this 453 00:26:51,600 --> 00:26:56,119 Speaker 5: cultural sickth sense, but foreign policy has so much to 454 00:26:56,200 --> 00:26:59,200 Speaker 5: do with it, especially in this region. It's a dangerous place. 455 00:26:59,280 --> 00:27:03,720 Speaker 5: Why is it danger because all of these countries have 456 00:27:03,760 --> 00:27:09,679 Speaker 5: been our allies really from the beginning of. 457 00:27:09,680 --> 00:27:11,000 Speaker 2: World War One. 458 00:27:12,040 --> 00:27:16,000 Speaker 5: They as a group are the largest buyers of US 459 00:27:16,000 --> 00:27:22,320 Speaker 5: military equipment. Sada, Arabia, katar Abu Dhabi are our largest 460 00:27:22,359 --> 00:27:26,679 Speaker 5: foreign buyers of US military and we have military agreements 461 00:27:26,720 --> 00:27:31,160 Speaker 5: with all of them. But foreign policy ebbs and flows 462 00:27:31,320 --> 00:27:33,480 Speaker 5: in that part of the region, and as we've seen 463 00:27:33,520 --> 00:27:36,600 Speaker 5: now with sanctions, for instance in Russia and the threat 464 00:27:36,600 --> 00:27:41,399 Speaker 5: of sanctions elsewhere, the rule of law sometimes is confusing 465 00:27:41,480 --> 00:27:45,720 Speaker 5: to them as to the difference between foreign policy, military policy, 466 00:27:45,880 --> 00:27:48,200 Speaker 5: business practice, business diplomacy. 467 00:27:48,960 --> 00:27:51,639 Speaker 2: Time you refer to your personal experience and being exposed 468 00:27:51,680 --> 00:27:53,160 Speaker 2: to some of the risks and what you call soft 469 00:27:53,200 --> 00:27:56,760 Speaker 2: power with investing. You obviously were indicted in nine counts, 470 00:27:57,119 --> 00:28:00,800 Speaker 2: you had a seven eight week trial and New York 471 00:28:00,840 --> 00:28:03,520 Speaker 2: you were quitted on all charges. Must say, what did 472 00:28:03,560 --> 00:28:05,960 Speaker 2: you learn from that experience that would be helpful to others. 473 00:28:06,760 --> 00:28:14,840 Speaker 5: In twenty sixteen, Bob Muller started investigating President Trump for Russia, 474 00:28:16,160 --> 00:28:20,600 Speaker 5: and by the way, I have nothing but respect for 475 00:28:20,680 --> 00:28:22,639 Speaker 5: Muller and his team. They did the job they were 476 00:28:22,640 --> 00:28:25,320 Speaker 5: supposed to do, and they did it elegantly in the 477 00:28:25,359 --> 00:28:26,960 Speaker 5: manner of which it was supposed to be done. And 478 00:28:27,040 --> 00:28:31,160 Speaker 5: during that time he had asked me to testify voluntarily, 479 00:28:31,200 --> 00:28:34,919 Speaker 5: which I did, And this was about Russia. But in 480 00:28:34,960 --> 00:28:43,400 Speaker 5: that process the Gulf States were starting to surface for interest. 481 00:28:44,040 --> 00:28:51,400 Speaker 5: Never never for any evil purpose, never for any attendant purpose, 482 00:28:51,680 --> 00:28:55,120 Speaker 5: just saying in this campaign, we don't know who Donald 483 00:28:55,120 --> 00:28:55,640 Speaker 5: Trump is? 484 00:28:57,120 --> 00:28:58,240 Speaker 2: Who is Donald Trump? 485 00:28:58,880 --> 00:29:00,480 Speaker 5: I thought this for me at the time time was 486 00:29:00,720 --> 00:29:03,880 Speaker 5: an incredible opportunity. I mean, you and I have talked before. 487 00:29:04,280 --> 00:29:05,440 Speaker 2: Was never really political. 488 00:29:06,000 --> 00:29:08,400 Speaker 5: Donald have been a friend of mine forever. I thought, 489 00:29:08,440 --> 00:29:10,760 Speaker 5: this is a great opportunity to start shipping at the 490 00:29:10,840 --> 00:29:14,200 Speaker 5: system from somebody outside of the system. So what got 491 00:29:14,240 --> 00:29:19,240 Speaker 5: confused with me was my interaction, which was always business. 492 00:29:20,240 --> 00:29:22,560 Speaker 5: As I said that the rulers of all these countries 493 00:29:22,720 --> 00:29:25,760 Speaker 5: also are the ones making all the business decisions. So 494 00:29:25,840 --> 00:29:30,880 Speaker 5: the sovereign wealth funds ultimately are governed and ruled by 495 00:29:30,920 --> 00:29:36,080 Speaker 5: a monarchy. These are ham monarchies, never inappropriate. The big 496 00:29:36,120 --> 00:29:39,760 Speaker 5: funds uh Ada Mubattle is run by some of the 497 00:29:39,800 --> 00:29:44,880 Speaker 5: brightest young professionals. Ever, as is qia as is Pif, 498 00:29:46,320 --> 00:29:52,600 Speaker 5: never an ounce of impropriety, and on the heels of 499 00:29:52,720 --> 00:29:56,320 Speaker 5: the Moeler investigation, some of the prosecutors when they left 500 00:29:56,440 --> 00:29:59,440 Speaker 5: go back into their own regimes. By the way, let 501 00:29:59,480 --> 00:30:02,840 Speaker 5: me just start was saying, people are always asking me, 502 00:30:02,920 --> 00:30:05,880 Speaker 5: is that Are the prosecutors corrupt? Are they evil? Did 503 00:30:05,880 --> 00:30:09,080 Speaker 5: this come from Merrick Garland? Was he targeting you? And 504 00:30:09,880 --> 00:30:11,240 Speaker 5: my answer is absolutely not. 505 00:30:11,800 --> 00:30:14,000 Speaker 2: Thank you so much for ving Walster. We really appreciate it. 506 00:30:14,000 --> 00:30:16,640 Speaker 2: That's Tom Barrett. He's the founder of Colony Capital. 507 00:30:18,600 --> 00:30:19,040 Speaker 1: Coming up. 508 00:30:19,160 --> 00:30:22,720 Speaker 2: People keep waiting for reel cracks in credit. Portam Apori 509 00:30:22,760 --> 00:30:25,400 Speaker 2: of HPS. It tells us whether they are coming. 510 00:30:26,360 --> 00:30:29,600 Speaker 4: You've got spreads that are actually not that wide and 511 00:30:29,800 --> 00:30:34,080 Speaker 4: perhaps not representative of the risk in the corporate credit market. 512 00:30:35,520 --> 00:30:37,600 Speaker 2: This is Wall Street Week on Bloomberg. 513 00:30:38,600 --> 00:30:42,800 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 514 00:30:42,920 --> 00:30:43,840 Speaker 3: Bloomberg Radio. 515 00:30:50,320 --> 00:30:52,920 Speaker 2: This is Wall Street Week. I'm David Weston. Solid jobs 516 00:30:53,000 --> 00:30:55,640 Speaker 2: numbers out this week underscored the likely to have another 517 00:30:56,080 --> 00:30:59,240 Speaker 2: FED rate hike later this month, with more possible in 518 00:30:59,280 --> 00:31:02,800 Speaker 2: the fall, posing further challenges for the credit markets. Were 519 00:31:02,840 --> 00:31:06,080 Speaker 2: welcome now a credit expert. She's Pronum a Pori, governing 520 00:31:06,120 --> 00:31:09,320 Speaker 2: partner of HPS Investment Partners. So Portuma, thank you so 521 00:31:09,440 --> 00:31:11,880 Speaker 2: much for joining us. Let's start with that question of 522 00:31:11,920 --> 00:31:14,640 Speaker 2: monetary policy. People are expecting the FED to keep hiking 523 00:31:14,640 --> 00:31:15,200 Speaker 2: at least. 524 00:31:15,040 --> 00:31:15,680 Speaker 1: For a while. 525 00:31:16,040 --> 00:31:18,880 Speaker 2: What does that mean for the credit markets you deal with. 526 00:31:20,480 --> 00:31:23,760 Speaker 4: Yeah, so we generally deal with leverard credit, and I 527 00:31:23,800 --> 00:31:26,240 Speaker 4: think that we are of the view that they're lazy 528 00:31:26,320 --> 00:31:29,200 Speaker 4: to be one more hike, maybe there's two more hikes. 529 00:31:29,600 --> 00:31:32,000 Speaker 4: I think that in general we're sort of closer to 530 00:31:32,040 --> 00:31:33,920 Speaker 4: the end of said hikes than obviously we are at 531 00:31:33,920 --> 00:31:36,160 Speaker 4: the beginning. So I think we're coming to the tail 532 00:31:36,240 --> 00:31:39,320 Speaker 4: end of the hike cycle, and people are starting to 533 00:31:39,320 --> 00:31:41,520 Speaker 4: now look at twenty four and you know, when is 534 00:31:41,520 --> 00:31:43,719 Speaker 4: the FOD going to cut and what's going to are 535 00:31:43,800 --> 00:31:46,280 Speaker 4: the what are the indicators they're looking at that would 536 00:31:46,320 --> 00:31:47,000 Speaker 4: make them cut. 537 00:31:47,400 --> 00:31:49,400 Speaker 2: So when I checked it this morning on the Bloomberg, 538 00:31:49,600 --> 00:31:52,560 Speaker 2: the spread for high yields just take high yield with 539 00:31:52,640 --> 00:31:55,760 Speaker 2: something like above four hundred and fifty bases points, Where 540 00:31:55,760 --> 00:31:57,360 Speaker 2: do you expect that to be going? Is that where 541 00:31:57,360 --> 00:31:59,120 Speaker 2: we end up? Or is that going to continue to rise? 542 00:31:59,120 --> 00:31:59,920 Speaker 2: And so when. 543 00:32:01,240 --> 00:32:03,960 Speaker 4: Yeah, so I think you got a big push and pull, 544 00:32:03,960 --> 00:32:07,080 Speaker 4: which is that base rates are pretty high in north 545 00:32:07,120 --> 00:32:10,560 Speaker 4: to five percent uh, and then you've got spreads that 546 00:32:10,600 --> 00:32:14,760 Speaker 4: are actually not that wide and perhaps not representative of 547 00:32:14,800 --> 00:32:18,120 Speaker 4: the of the risk in the corporate credit market. And 548 00:32:18,160 --> 00:32:20,200 Speaker 4: I would actually say that's true for investment grade as well. 549 00:32:20,200 --> 00:32:22,920 Speaker 4: I think investment grade is you know, one forty over 550 00:32:22,960 --> 00:32:25,680 Speaker 4: plus or minus and high yields in the sort of 551 00:32:25,720 --> 00:32:29,440 Speaker 4: load of mid four hundreds over. So I think our 552 00:32:29,520 --> 00:32:33,160 Speaker 4: view is credit spreads are not indicative of risk necessarily. 553 00:32:33,560 --> 00:32:37,480 Speaker 4: Yields all in are reasonably wide. So that's the that's 554 00:32:37,520 --> 00:32:41,320 Speaker 4: the trick, and I would suspect that you'll see spreads 555 00:32:41,320 --> 00:32:45,600 Speaker 4: go a little wider, primarily because we do think you're 556 00:32:45,600 --> 00:32:48,520 Speaker 4: going to continue to see some margin deterioration for lever 557 00:32:48,720 --> 00:32:51,800 Speaker 4: credit Number one and number two. We do think we're 558 00:32:51,800 --> 00:32:54,080 Speaker 4: in a bit of a longer sort of higher for 559 00:32:54,160 --> 00:32:57,840 Speaker 4: longer rate environment which will which will pressure cash flows 560 00:32:57,880 --> 00:32:59,080 Speaker 4: as well for corporates. 561 00:32:59,360 --> 00:33:01,280 Speaker 2: Well, it take us through how it works in credit, 562 00:33:01,280 --> 00:33:03,600 Speaker 2: the mechanics of it, because I've seen some reports that 563 00:33:03,640 --> 00:33:07,000 Speaker 2: there may be a delayed response because some companies, and 564 00:33:07,000 --> 00:33:08,880 Speaker 2: this is both for investment grade but also for high 565 00:33:08,960 --> 00:33:12,959 Speaker 2: yield or leverage loans locked in rates you know, at 566 00:33:13,000 --> 00:33:15,560 Speaker 2: a lower rate that's coming due in the next couple 567 00:33:15,600 --> 00:33:17,400 Speaker 2: of years. I'm told a fair amount of money is 568 00:33:17,440 --> 00:33:19,560 Speaker 2: coming due and it may be a little difficult to 569 00:33:19,560 --> 00:33:21,520 Speaker 2: get refinanced at acceptable levels. 570 00:33:23,160 --> 00:33:26,560 Speaker 4: Yes, I'd sort of take that into two pieces. So 571 00:33:27,320 --> 00:33:29,880 Speaker 4: in general, you got a bunch of fixed rate bonds, 572 00:33:29,880 --> 00:33:32,200 Speaker 4: whether that be investment grade or high yield bonds that 573 00:33:32,280 --> 00:33:34,040 Speaker 4: were issued at a different moment in time in the 574 00:33:34,080 --> 00:33:38,000 Speaker 4: market when the five year and the tenure were significantly lower. 575 00:33:39,200 --> 00:33:42,120 Speaker 4: Those fixed rate bonds are a real asset right now 576 00:33:42,440 --> 00:33:44,719 Speaker 4: in the in the current rate environment. I think on 577 00:33:44,760 --> 00:33:47,680 Speaker 4: the on the second ended spectrum, you've got the loan market, 578 00:33:47,760 --> 00:33:51,200 Speaker 4: which is a large, large market, which is all anchored 579 00:33:51,200 --> 00:33:53,520 Speaker 4: on a base rate plus a spread. And so as 580 00:33:53,560 --> 00:33:56,160 Speaker 4: that base rates moved from you know, one percent to 581 00:33:56,520 --> 00:33:59,600 Speaker 4: north of five percent, that's her businesses a lot. So 582 00:34:00,040 --> 00:34:02,880 Speaker 4: if you think about sort of corporate balance sheets, you know, 583 00:34:02,920 --> 00:34:07,320 Speaker 4: and incremental four hundred basis points of cost of leverage 584 00:34:07,360 --> 00:34:11,279 Speaker 4: on their debt stack that is loan related has been 585 00:34:11,360 --> 00:34:12,920 Speaker 4: pretty painful as. 586 00:34:12,760 --> 00:34:17,200 Speaker 2: We look toward refinancing. Has the bargaining power shifted between 587 00:34:17,239 --> 00:34:19,760 Speaker 2: the lender and the barrow or There was report actually 588 00:34:19,840 --> 00:34:23,160 Speaker 2: just this week that KKR had to make concessions lenders 589 00:34:23,200 --> 00:34:25,879 Speaker 2: to refinance a deal in a Dutch food company without 590 00:34:25,880 --> 00:34:27,920 Speaker 2: talking about the specifically of that. Are you seeing that 591 00:34:27,920 --> 00:34:30,439 Speaker 2: phenomenon or do you expect it more generally? We had 592 00:34:30,440 --> 00:34:34,399 Speaker 2: covenant light, maybe we're going away from that. Yeah. 593 00:34:34,400 --> 00:34:37,520 Speaker 4: I'd also answer that in two ways. So the first 594 00:34:37,600 --> 00:34:41,560 Speaker 4: is it depends. The answer is true, some of these bigger, 595 00:34:41,640 --> 00:34:46,520 Speaker 4: well known businesses that are large, large corporate capital structures, 596 00:34:46,840 --> 00:34:48,960 Speaker 4: there are some covenants and stuff that are getting put 597 00:34:49,000 --> 00:34:51,880 Speaker 4: in place when they're being issued through the liquid markets. 598 00:34:52,960 --> 00:34:54,839 Speaker 4: But I wouldn't say there's been a huge seat change. 599 00:34:54,840 --> 00:34:58,240 Speaker 4: It's gotten better, but I wouldn't say there's tons of covenants. 600 00:34:58,280 --> 00:35:01,200 Speaker 4: I think the documentation structures certainly gotten better though, So 601 00:35:01,400 --> 00:35:04,120 Speaker 4: I think that's one too, is the loan and high 602 00:35:04,160 --> 00:35:07,520 Speaker 4: yield space. The issuance numbers have been very indemic this year, 603 00:35:08,320 --> 00:35:11,320 Speaker 4: so there hasn't actually been a ton of net new issuance. 604 00:35:11,840 --> 00:35:13,759 Speaker 2: Okay, Pornema, thank you so much for being on Wall Street. 605 00:35:13,760 --> 00:35:18,239 Speaker 2: We really appreciate it. That's PORNIMFORI. She's at HPS Investment Partners. 606 00:35:18,640 --> 00:35:20,480 Speaker 2: That does it for this episode of Wall Street Week. 607 00:35:20,560 --> 00:35:23,160 Speaker 2: I'm David Weston. This is Bloomberg. See you next week.