WEBVTT - Bloomberg Wall Street Week - July 7th, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession, We're having 0:00:04.400 --> 0:00:06.960 a rolling recession. To conge roll looks pretty strongly when 0:00:07.000 --> 0:00:07.680 it comes to jobs. 0:00:07.720 --> 0:00:09.880 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.280 --> 0:00:34.520 Different summer holidays. Secretary Yelling goes to Beijing, Opek goes 0:00:34.560 --> 0:00:37.279 to Vienna, and the Fed stays home. To ponder those 0:00:37.400 --> 0:00:40.800 jobs numbers. This is Bloomberg Wall Street Week. I'm David Weston. 0:00:41.880 --> 0:00:45.400 This week's special contributor Larry Summers on those jobs numbers 0:00:45.400 --> 0:00:48.040 and what they tell us about where long term rates 0:00:48.080 --> 0:00:51.879 are headed. Credit expert pornam Apuri of HPS on the 0:00:51.920 --> 0:00:55.320 continued resilience in the credit markets and whether it will last. 0:00:55.560 --> 0:00:58.639 Private credit market continue to grow and. 0:00:58.680 --> 0:01:02.880 Colony Capital founders, I'm investing in the Gulf States, and 0:01:02.920 --> 0:01:05.200 how it led him to a New York courtroom. 0:01:05.520 --> 0:01:07.920 I thought, this is a great opportunity to start shipping 0:01:07.959 --> 0:01:23.040 at the system from somebody outside of the system. 0:01:23.080 --> 0:01:25.240 With the fourth of July holiday in the United States 0:01:25.280 --> 0:01:28.360 and Wimbledon underway in England, it was time this week 0:01:28.360 --> 0:01:31.720 to focus on summer holidays. The president g over in 0:01:31.800 --> 0:01:34.240 China didn't get much of a summer break from disappointing 0:01:34.280 --> 0:01:35.200 economic numbers. 0:01:35.520 --> 0:01:37.920 The reality is is that people have given up on 0:01:37.959 --> 0:01:41.320 the Chinese recovery. China's moving off its old economic growth model, 0:01:41.400 --> 0:01:43.880 but it hasn't moved comfortably into what's. 0:01:43.720 --> 0:01:47.040 Next, even as Beijing welcomed Treasury Secretary Yellen for a 0:01:47.120 --> 0:01:49.520 visit to try to keep the conversation. 0:01:49.200 --> 0:01:57.040 Going consp more regular channels of communication. 0:01:57.680 --> 0:02:02.480 Eature Marching Countries members started their July in Vienna, with 0:02:02.560 --> 0:02:06.000 Saudi Arabia kicking things off by extending its unilateral oil 0:02:06.000 --> 0:02:06.840 production limits. 0:02:07.000 --> 0:02:09.840 We had to do it because there was another ask 0:02:10.160 --> 0:02:15.959 for the more immediate expectations of their market that the 0:02:16.000 --> 0:02:17.239 operplus would need to do. 0:02:17.560 --> 0:02:21.040 While Swedish Prime Minister Ulf Christerson traveled to Washington for 0:02:21.120 --> 0:02:24.639 talks with President Biden, including on his country's admission to NATO. 0:02:24.880 --> 0:02:27.040 But with all the traveling around, it was good to 0:02:27.080 --> 0:02:30.359 know that the Federal Reserve remained on the job in Washington, 0:02:30.560 --> 0:02:33.400 as we got minutes from its most recent rate meetings, 0:02:33.560 --> 0:02:36.000 which showed that they weren't entirely on the same page 0:02:36.120 --> 0:02:38.240 last month about whether they should pause. 0:02:38.480 --> 0:02:41.399 The idea of slowing down the pace of rate increases 0:02:41.440 --> 0:02:45.080 and continuing to slow the pace of rat increases makes sense, 0:02:45.320 --> 0:02:45.520 and I. 0:02:45.520 --> 0:02:48.840 Think more restrictive monetary policy will be needed to achieve 0:02:48.880 --> 0:02:50.880 the FOMC schools of stable prices. 0:02:53.000 --> 0:02:54.440 Then at the end of the week, we got the 0:02:54.520 --> 0:02:57.240 job's umbers for June, with a little something for everyone. 0:02:57.320 --> 0:03:00.200 The US added two hundred nine thousand new jobs than 0:03:00.240 --> 0:03:03.120 the month before and less than anticipated, but still the 0:03:03.200 --> 0:03:05.840 unemployment number still went down by a tenth the three 0:03:05.840 --> 0:03:08.959 point six percent, and wage growth accelerated to an annual 0:03:09.000 --> 0:03:12.040 pace of four point four percent. The equity markets, well, 0:03:12.040 --> 0:03:13.880 they weren't really sure what to make of it all, 0:03:13.960 --> 0:03:17.040 with the SMP down over one percent but still ending 0:03:17.040 --> 0:03:19.440 at four to three nine eight that is well above 0:03:19.480 --> 0:03:22.680 the Bloomberg Elves media estimate of forty one hundred for 0:03:22.760 --> 0:03:25.880 the year end, while the NASDAG gave up almost one percent. 0:03:26.240 --> 0:03:28.239 But the real action this week, The real action was 0:03:28.280 --> 0:03:30.440 over in the bond market, where the yield and the 0:03:30.480 --> 0:03:33.679 two year went above five percent on Thursday, settling down 0:03:33.720 --> 0:03:36.040 a bit on Friday to close at three point four 0:03:36.080 --> 0:03:40.040 point nine three three, while the tenuere added twenty two 0:03:40.040 --> 0:03:42.880 basis points to stay above four percent at four point 0:03:43.320 --> 0:03:46.040 five eight to take us through the holiday shortened week 0:03:46.040 --> 0:03:48.680 in the markets. Welcome back now, Dave Bianco. He is 0:03:48.840 --> 0:03:52.160 chief investment and strategist at WDS. Thanks for coming back 0:03:52.200 --> 0:03:54.040 with this. Dave, great to have you here, so give 0:03:54.120 --> 0:03:56.040 us your sense of what the markets did this week. 0:03:56.080 --> 0:03:58.000 As I say, the aquite markets weren't quite sure about it, 0:03:58.040 --> 0:04:00.400 but boy, the bond market really reacted. What do the 0:04:00.480 --> 0:04:01.480 jobs numbers tell us? 0:04:01.920 --> 0:04:05.920 Today's jobs Friday and leading up to it during the week, 0:04:05.920 --> 0:04:08.600 there are other indicators for the jobs market suggesting that 0:04:08.800 --> 0:04:11.280 the jobs market's still very healthy and a lot of 0:04:11.360 --> 0:04:15.240 job creations still occurring, particularly at services. So the jobs 0:04:15.320 --> 0:04:20.039 report was a little softer than the bond market feared. 0:04:20.360 --> 0:04:22.640 But you have to realize the bond market was really 0:04:22.680 --> 0:04:26.280 fearful of a super strong jobs report that would make 0:04:26.320 --> 0:04:28.920 the Fed have to do more than one or two 0:04:29.080 --> 0:04:35.120 heights from here. And the jobs report when it came in, 0:04:35.640 --> 0:04:39.640 we saw a couple of things. One the two year yield, sorry, 0:04:39.640 --> 0:04:43.880 the two yearield fell below five percent, but the ten 0:04:43.960 --> 0:04:47.239 year yield rose above four percent and it stayed above 0:04:47.279 --> 0:04:49.440 four percent today. I think the action on the ten 0:04:49.480 --> 0:04:51.640 year yield is the really interesting action this week. 0:04:51.800 --> 0:04:54.200 Well, are we through? Are we getting to a breakthrough 0:04:54.240 --> 0:04:56.360 on bonds here? Basically? Are we breaking through to new 0:04:56.480 --> 0:04:58.800 levels in the tenure? And for them out of the two. 0:04:59.279 --> 0:05:04.080 That's the interesting question. It's are we walking into a 0:05:04.120 --> 0:05:07.279 new norm? And is that new norm the old norm 0:05:07.400 --> 0:05:10.200 from ten to twenty years ago. I think what's happening, 0:05:10.240 --> 0:05:13.960 particularly in the ten year yield being over four percent, 0:05:14.440 --> 0:05:16.599 is that the bomb markets starting to run out of 0:05:16.640 --> 0:05:20.360 patience for the FED to win this inflation war. Inflation 0:05:20.560 --> 0:05:24.119 is coming down, but it's coming down too slowly because 0:05:24.120 --> 0:05:26.840 it's been two years now that inflation has been well 0:05:26.839 --> 0:05:30.000 above the Fed's target. And if it doesn't come down quicker, 0:05:30.240 --> 0:05:32.080 I think the bomb market's going to lose its patience. 0:05:32.160 --> 0:05:33.760 Well, and if you look at things like the ten 0:05:33.800 --> 0:05:37.840 year break even versus the PCE core numbers. There's a 0:05:38.080 --> 0:05:41.240 very substantial difference now that there hasn't been historically, and 0:05:41.400 --> 0:05:43.039 one of those I guess it has to come down 0:05:43.080 --> 0:05:44.680 or come up. That's right. 0:05:44.760 --> 0:05:46.960 So when you look at ten year treasury yields at 0:05:46.960 --> 0:05:50.160 about four percent, the break even or essentially the inflation 0:05:50.279 --> 0:05:53.600 expectation embedded in that four percent yield is about a 0:05:53.680 --> 0:05:57.760 two and a quarter percent break even inflation expectation as recall. 0:05:57.880 --> 0:06:02.640 So essentially the long term has been saying it believes 0:06:02.640 --> 0:06:04.839 the Fed that the FED is going to get inflation 0:06:04.920 --> 0:06:08.039 back to its two percent target, but eventually is not 0:06:08.240 --> 0:06:10.520 good enough. I think the bomb market's at the stage 0:06:10.520 --> 0:06:13.919 whered saying you need to move faster because if we 0:06:14.000 --> 0:06:18.040 have to reassess the risk of another inflation outbreak, and 0:06:18.080 --> 0:06:20.239 you take more than a year or two to solve 0:06:20.240 --> 0:06:22.599 the problem, it takes you two to three or more 0:06:22.680 --> 0:06:25.200 years to get back to target. The bomb market's going 0:06:25.240 --> 0:06:28.359 to have to reprice its inflation expectation and risk premium. 0:06:28.520 --> 0:06:31.600 As a student of the markets, what is your best 0:06:31.640 --> 0:06:33.760 sense of how long the FED has If I can 0:06:33.760 --> 0:06:35.440 put it that way, we're going to get CPI data. 0:06:35.480 --> 0:06:37.240 Next week, we're going to ask other data coming in. 0:06:37.560 --> 0:06:39.360 We most of us expect that there's going to be 0:06:39.360 --> 0:06:41.640 a twenty five point basis point increase in July. Right, 0:06:41.720 --> 0:06:44.120 the question is what happens in September? What happens after September? 0:06:44.160 --> 0:06:45.240 How long does the FED have? 0:06:45.440 --> 0:06:47.719 So now we're going into the back half of twenty 0:06:47.760 --> 0:06:51.640 twenty three, and the first two years were that period 0:06:51.680 --> 0:06:53.800 of time where the bomb market is willing to give 0:06:53.839 --> 0:06:57.599 the FED a couple of passes. But now, if inflation 0:06:57.720 --> 0:07:00.559 doesn't get down faster, I don't think the FED will 0:07:00.560 --> 0:07:03.760 be forgiven by the bomb market over the long term. 0:07:03.880 --> 0:07:05.599 I think what you'll have is that the four percent 0:07:05.600 --> 0:07:08.400 ten year treasure yield and perhaps even higher than that, 0:07:09.600 --> 0:07:12.840 stays there even as the economy continues to slow, because 0:07:12.840 --> 0:07:16.360 the bomb market wants compensation for this elevated inflation risk 0:07:16.400 --> 0:07:17.400 in this decade that we're in. 0:07:17.600 --> 0:07:20.400 If in fact, we're baking in higher levels for the tenure, 0:07:20.480 --> 0:07:22.520 let's just stay on the tenure here. What does that 0:07:22.560 --> 0:07:24.960 mean for the equity market? Because there's a discount factor here, 0:07:24.960 --> 0:07:27.680 and typically equity valuations go down, and particularly in some 0:07:27.720 --> 0:07:29.640 of the growth stocks such as tech right, which has 0:07:29.680 --> 0:07:31.080 been doing pretty well well. 0:07:31.320 --> 0:07:34.200 This week is about interest rates, and we'll continue to 0:07:34.240 --> 0:07:36.600 watch interest rates over the rest of the year. Next 0:07:36.640 --> 0:07:39.480 week we get some more reports on earning season. I 0:07:39.520 --> 0:07:41.760 think earnings will be about fifty five dollars in the quarter, 0:07:41.840 --> 0:07:44.640 or two hundred and twenty dollars for this year. The 0:07:44.720 --> 0:07:48.400 SMP's trading at twenty times this year's earnings estimate, and 0:07:48.480 --> 0:07:52.080 tech the tech sectors trading at thirty times this year's 0:07:52.120 --> 0:07:57.560 earnings estimate. The higher interest rates go, the stronger the 0:07:57.640 --> 0:08:00.760 earnings growth and real earnings growth that needs be generated 0:08:00.800 --> 0:08:04.160 by the SMP and the tech sector to justify these valuations. 0:08:04.280 --> 0:08:07.600 The valuations are very demanding and they're not being helped 0:08:07.960 --> 0:08:08.880 by these interest rates. 0:08:09.000 --> 0:08:11.680 Okay, so let's assume for the moment that earnings actually 0:08:11.680 --> 0:08:13.920 measure up and actually support those valuations. Where's it going 0:08:13.960 --> 0:08:18.240 to come from? Is that from price equity ratios? Is 0:08:18.240 --> 0:08:20.080 that from top line growth? Where are we going to 0:08:20.080 --> 0:08:20.400 find it? 0:08:20.720 --> 0:08:22.200 Well, most of the top line growth that we're seeing 0:08:22.240 --> 0:08:25.080 is really just inflation and basically the same things occurring 0:08:25.200 --> 0:08:28.280 at earnings. And I do expect fifty five dollars of 0:08:28.280 --> 0:08:30.360 earnings for the second quarter which would be down a 0:08:30.400 --> 0:08:34.400 few percent from last year. But earnings at the SMP 0:08:34.480 --> 0:08:37.080 have been about fifty five dollars per share on a 0:08:37.120 --> 0:08:40.760 seasonally adjusted basis for the past two years, so earnings 0:08:40.760 --> 0:08:44.840 have been flat since late twenty twenty one. Where's the 0:08:44.840 --> 0:08:48.440 earnings growth going to come from? Well, that's why the 0:08:48.480 --> 0:08:52.000 whole market's just overly counting on tech to make up 0:08:52.040 --> 0:08:54.640 for what's likely a mnemic earnings growth everywhere else. 0:08:54.840 --> 0:08:57.120 Tech and particularly some big tech, has really been dragging 0:08:57.120 --> 0:09:00.800 the market average up. Without a doubt that's come down 0:09:01.040 --> 0:09:02.400 or does the rest of the market catch up? 0:09:02.760 --> 0:09:02.920 Right? 0:09:03.000 --> 0:09:07.080 I believe that mark the tech sector is due for 0:09:07.120 --> 0:09:08.840 a correction. I don't know if it's in the coming 0:09:08.960 --> 0:09:10.880 days weeks, but I think over the course of the 0:09:10.880 --> 0:09:14.440 rest of the year that the tech sector will correct 0:09:14.440 --> 0:09:17.840 by about ten percent. And for those who are in 0:09:17.880 --> 0:09:19.840 the debate about will the rest of the market catch 0:09:19.920 --> 0:09:22.400 up to tech, will that bring the market to even 0:09:22.520 --> 0:09:25.160 new highs for the year? I doubt it. I think 0:09:25.160 --> 0:09:27.000 in order to be bullish on the market, you need 0:09:27.000 --> 0:09:30.079 to believe that tech goes even higher. I don't think 0:09:30.120 --> 0:09:32.760 it's likely that the rest of the market will drive 0:09:34.040 --> 0:09:37.800 the overall market higher. If tech doesn't climb higher itself. 0:09:37.760 --> 0:09:38.559 AI going to save this. 0:09:39.480 --> 0:09:43.320 AI may save the decade in terms of productivity and 0:09:43.440 --> 0:09:46.280 decent economic growth, but I don't think AI is going 0:09:46.320 --> 0:09:48.640 to save the really weak earnings growth I see for 0:09:48.640 --> 0:09:49.880 the S and P for the rest of the year. 0:09:49.960 --> 0:09:52.880 What about government investment, because we have Bidenomics now as 0:09:52.920 --> 0:09:57.000 President Biden Fairmount investment coming into industrial policy exactly right 0:09:57.040 --> 0:09:59.920 as we had in Japan in the eighties. Is that 0:10:00.120 --> 0:10:02.559 likely the kicking to really help drive growth and productivity? 0:10:02.600 --> 0:10:03.640 And if so, how long does it take? 0:10:03.800 --> 0:10:07.040 Well, it will take time. We'll find out what returns 0:10:07.040 --> 0:10:08.960 on investment and what productivity we get out of that 0:10:09.040 --> 0:10:12.680 over time. But in the meantime, we do see investment 0:10:12.760 --> 0:10:17.199 in manufacturing capacity in the United States, but manufacturing output 0:10:17.400 --> 0:10:20.600 has been weak and we are still in this manufacturing recession. 0:10:20.840 --> 0:10:23.000 It's all on the service side of the economy that's 0:10:23.040 --> 0:10:24.160 booming right this moment. 0:10:24.360 --> 0:10:25.960 David's always a treat to have you with us, Thank 0:10:25.960 --> 0:10:28.880 you so much. That's David Bianco of DWS coming up 0:10:28.920 --> 0:10:31.559 our special contributor Larry Summers on what the jobs numbers 0:10:31.559 --> 0:10:33.480 tell us about the strength of the economy and where 0:10:33.600 --> 0:10:36.160 long term interest rates are headed. That's next on Wall 0:10:36.200 --> 0:10:42.000 Street Week on Bloomberg. 0:10:54.320 --> 0:10:58.560 This is Bloomberg Wall Street Week with David Weston from 0:10:58.679 --> 0:10:59.600 Bloomberg Radio. 0:11:05.960 --> 0:11:07.960 This is Wall Street Week. I'm David Weston. We're delighted 0:11:08.000 --> 0:11:10.560 now have to have our special contrader, Larry Summers of 0:11:10.640 --> 0:11:12.719 Harvard to help take us through the job's numbers and 0:11:12.800 --> 0:11:14.680 other eco numbers. What they told us is week Larry, 0:11:14.720 --> 0:11:16.360 great to have you back with us. What did you 0:11:16.360 --> 0:11:17.840 make of the jobs numbers? And by the way, there 0:11:17.840 --> 0:11:19.959 were other eco numbers as well this week. 0:11:19.920 --> 0:11:21.440 David, these are hot numbers. 0:11:21.760 --> 0:11:26.600 The rate of job creation is twice as great as 0:11:26.720 --> 0:11:30.680 the growth in the number of adults in an economy 0:11:30.760 --> 0:11:38.360 that's already overheated. That's not consistent with bringing inflation down 0:11:38.400 --> 0:11:42.320 to its target level. And you see that in the 0:11:42.360 --> 0:11:47.560 wage data, which is pointing to inflation way above. 0:11:48.600 --> 0:11:50.480 The Fed's target. 0:11:51.240 --> 0:11:55.480 We've got a low unemployment rate at three point six percent, and. 0:11:55.440 --> 0:11:57.560 If you look at any of the other labor market 0:11:57.600 --> 0:12:01.880 indicators that we got this week, quit rate, the level 0:12:01.920 --> 0:12:07.560 of vacancies, the layoff rate, the insured unemployment data, all 0:12:07.600 --> 0:12:11.520 of that, based on past patterns, is suggesting an even 0:12:11.600 --> 0:12:16.040 tighter unemployment rate than the three point six percent. 0:12:16.679 --> 0:12:19.439 So I think we've got an economy. 0:12:18.840 --> 0:12:25.400 That is currently very strong, not sustainably strong in terms 0:12:25.440 --> 0:12:29.079 of the rate of job creation, and not very surprisingly 0:12:29.200 --> 0:12:34.760 given that strength, we continue to have inflation and indicators 0:12:34.760 --> 0:12:40.400 of forward inflation well above target. So I think the 0:12:40.440 --> 0:12:45.160 market is right to judge that once again the Fed 0:12:45.320 --> 0:12:51.520 has underestimated inflation for basically the eighth quarter in a row. 0:12:51.960 --> 0:12:59.520 They've been surprised on what's happened to inflation, and because 0:12:59.559 --> 0:13:03.080 there's a ris on what's happening with inflation and the 0:13:03.120 --> 0:13:06.480 strength of the economy, they're going to be surprised by 0:13:06.520 --> 0:13:12.000 what they have to do to interest rates. And so 0:13:12.640 --> 0:13:17.680 I think that you've seen an appropriate adjustment in medium 0:13:17.800 --> 0:13:22.280 term interest rates to this reality. My best guess is 0:13:22.800 --> 0:13:28.280 that you're going to see further adjustment as the data 0:13:28.400 --> 0:13:33.439 continues to come in. But I think it's a mistake 0:13:33.559 --> 0:13:38.280 to be distracted by the wiggles. Yes, the ADP number 0:13:38.400 --> 0:13:42.960 yesterday was super duper strong, and today's number was. 0:13:42.880 --> 0:13:44.600 Not nearly as strong as. 0:13:44.480 --> 0:13:48.240 The ADP number, But if you step back to the 0:13:48.320 --> 0:13:54.199 bigger picture, nobody thinks we can continue indefinitely to create 0:13:54.320 --> 0:14:01.320 jobs twice as fast as the adult population grow. That 0:14:01.400 --> 0:14:05.120 means we're having tighter and tighter labor markets, and that 0:14:05.200 --> 0:14:10.880 means an inflationary picture, and the Fed's going to have 0:14:11.040 --> 0:14:12.840 to respond to that. 0:14:13.240 --> 0:14:15.480 Larry, you were one of the very first, maybe the 0:14:15.640 --> 0:14:17.880 very first to identify this risk Kreen Wall Street, but 0:14:17.920 --> 0:14:20.720 also in your pieces for the Washington Post. I guess 0:14:20.720 --> 0:14:23.400 the two questions that occur to anyone is number one, 0:14:23.520 --> 0:14:25.680 what's it going to take for the FED to get 0:14:25.760 --> 0:14:28.200 really inflation or control number one? Number two is why 0:14:28.240 --> 0:14:29.080 has it taken so long? 0:14:29.320 --> 0:14:32.640 It's taken so long because we started out so late, 0:14:33.400 --> 0:14:39.600 and given how late we started, we didn't move sufficiently 0:14:40.240 --> 0:14:46.520 because we believed mistakenly that the neutral interest rate was 0:14:46.560 --> 0:14:51.880 still very low, and we believed mistakenly that raising interest 0:14:51.960 --> 0:14:58.000 rates would have large impacts on the economy that were 0:14:58.400 --> 0:15:05.119 greater than the impacts of interest rates in the current structure, 0:15:05.960 --> 0:15:12.360 And we haven't really recognized that it's a basic feature 0:15:12.400 --> 0:15:18.000 of the inflation process that while you get transitory fluctuations, 0:15:18.720 --> 0:15:24.680 you don't stop an underlying wage inflation without having a 0:15:25.080 --> 0:15:29.880 significant slowdown in economic activity. And since we haven't yet 0:15:29.920 --> 0:15:34.920 had a significant slowdown in economic activity. It shouldn't be 0:15:35.000 --> 0:15:42.320 surprising that we've still got inflation well above target, nor 0:15:42.440 --> 0:15:46.920 should anybody take comfort from the fact that the components 0:15:46.960 --> 0:15:53.080 of inflation that everybody recognized were transitory. The fact that 0:15:53.200 --> 0:15:57.240 they've come down, in some cases even going into reverse, 0:15:58.040 --> 0:16:01.920 is better than if they have, much better than if 0:16:01.960 --> 0:16:02.600 they hadn't. 0:16:03.160 --> 0:16:05.000 But nobody ever thought. 0:16:04.760 --> 0:16:08.560 We were in underlying eight percent inflation country when we 0:16:08.600 --> 0:16:10.960 were having eight percent inflation. 0:16:11.520 --> 0:16:12.880 So the fact that. 0:16:12.600 --> 0:16:19.680 The rate has come down shouldn't be confused with saying 0:16:19.760 --> 0:16:22.520 that we can be confident that we're on a path 0:16:22.640 --> 0:16:26.400 of this all being okay, and certainly not worth saying 0:16:26.480 --> 0:16:29.840 that we're We can be confident that we're on a 0:16:29.880 --> 0:16:33.840 path for this all being okay without the FED doing 0:16:34.000 --> 0:16:41.080 more to raise race. So anything's possible, and all of 0:16:41.120 --> 0:16:45.160 these judgments stated are statistical. Maybe we'll get a big 0:16:45.200 --> 0:16:49.680 productivity boom out of AI very quickly, though I think 0:16:49.760 --> 0:16:56.640 that's unlikely. Maybe the inflation process will behave very differently 0:16:57.280 --> 0:17:02.680 than it has in the past, But I think the 0:17:02.680 --> 0:17:05.879 best guess has to be that the FED is going 0:17:05.960 --> 0:17:07.560 to have to raise rates more. 0:17:08.240 --> 0:17:10.000 Let I want to turn to a different subject here 0:17:10.040 --> 0:17:12.320 that you wrote about in the Washington Post this week, 0:17:12.520 --> 0:17:14.240 and that is the so called the front of action 0:17:14.320 --> 0:17:16.439 decision coming out of the Supreme Court. Station you not 0:17:16.600 --> 0:17:18.560 only are an esteemed economist, you not only were section 0:17:18.600 --> 0:17:21.960 of the Treasury. He also ran Harvard for some time. 0:17:22.920 --> 0:17:25.879 You really lay out there how difficult this issue is, 0:17:25.920 --> 0:17:28.119 that it's a broader issue, it's an important issue of 0:17:28.119 --> 0:17:30.240 their broader issue. Then simply raise. 0:17:30.320 --> 0:17:32.960 I wish the Supreme Court hadn't acted. 0:17:33.040 --> 0:17:36.119 I wish it had let the world continue on the 0:17:36.160 --> 0:17:41.560 path that it was. Let private institutions make their choices 0:17:41.680 --> 0:17:46.280 about how they're going to pursue fairness as they see it. 0:17:47.040 --> 0:17:52.080 But right now there's a critical choice that leading universities face. 0:17:53.280 --> 0:17:57.119 One option is that they can gerrymander the inflation, the 0:17:57.480 --> 0:18:02.600 admissions criteria and change just exactly how they do it, 0:18:02.640 --> 0:18:07.800 and encourage people to put certain sentences in their essays 0:18:07.840 --> 0:18:11.920 and do away with standardized tests that have a lot 0:18:11.960 --> 0:18:16.919 of information, and fight to try to keep the exactly 0:18:17.080 --> 0:18:21.440 same percentages of racial groups where they are. 0:18:22.280 --> 0:18:23.200 That's one approach. 0:18:23.840 --> 0:18:28.440 I think if they do that, they will be increasingly resented. 0:18:28.280 --> 0:18:30.000 By the broad public. 0:18:30.680 --> 0:18:38.439 They will diminish the intellectual quality of their classes, and 0:18:38.560 --> 0:18:43.640 in fact, they will have done very little to promote 0:18:43.800 --> 0:18:49.439 social justice. The alternative path is that they step back 0:18:50.160 --> 0:18:55.040 and that they recognize that really the important test for 0:18:55.160 --> 0:19:01.160 them in this era is their overall contribution to opportunity 0:19:01.240 --> 0:19:05.000 in America, and if that's what they want to maximize, 0:19:05.520 --> 0:19:09.800 it'll be a very different path. No more legacy admissions, 0:19:10.640 --> 0:19:15.359 no more special admissions for people who've been coached extensively 0:19:15.880 --> 0:19:22.840 to be good at aristocratic sports, deciding to expand their 0:19:22.840 --> 0:19:27.320 class sizes so that more can benefit from what they bring, 0:19:28.040 --> 0:19:33.400 and not defining their greatness by just how exclusive they are. 0:19:34.800 --> 0:19:40.240 Using the power of distance education for their education to 0:19:40.320 --> 0:19:44.000 be defined by more than what happens in the fall 0:19:44.080 --> 0:19:49.080 and spring semester on their campus, but training teachers during 0:19:49.119 --> 0:19:51.800 the summering able. 0:19:51.560 --> 0:19:55.159 Students with computers. 0:19:55.720 --> 0:20:05.840 And crucially crucially turn their energy two strengthening what happens 0:20:05.960 --> 0:20:12.119 in our public schools across the country. Look David, only 0:20:12.520 --> 0:20:16.280 about one and a half percent of the students who 0:20:16.480 --> 0:20:21.040 score in the top ranges of the SATA are African 0:20:21.040 --> 0:20:26.199 American YEP. Until we fix that, no durable solution to 0:20:26.280 --> 0:20:29.800 these problems. That needs to be a crucial part of 0:20:29.840 --> 0:20:32.560 the mission of our elite schools. 0:20:32.240 --> 0:20:34.840 So terribly important, so profound. Thank you so much, great 0:20:34.880 --> 0:20:36.439 to have you back with us. That's our special Conturlly 0:20:36.560 --> 0:20:40.760 Larry Summers coming up. The oil and gas riches of 0:20:40.800 --> 0:20:43.720 the Gulf States have given them enormous funds to invest 0:20:43.720 --> 0:20:46.920 in the West, but they're also attracting substantial investments from 0:20:46.960 --> 0:20:49.560 the West. Tom Barrick has been an active player in 0:20:49.600 --> 0:20:53.160 the region for decades. He'll tell us what he has learned. 0:20:54.040 --> 0:20:59.439 If we're not there to hand in glove fix the 0:20:59.480 --> 0:21:03.720 rest of the things they need, China will be there. 0:21:05.200 --> 0:21:07.320 This is Wall Street Week on Bloomberg. 0:21:08.520 --> 0:21:12.760 This is Bloomberg Wall Street Week with David Weston from 0:21:12.880 --> 0:21:14.080 Bloomberg Radio. 0:21:22.160 --> 0:21:25.520 The Gulf States. Since oil was first discovered in Saudi 0:21:25.520 --> 0:21:28.919 Arabia in nineteen thirty eight, the region has dominated the 0:21:28.920 --> 0:21:32.320 world of geopolitics because of its rich deposits of oil 0:21:32.359 --> 0:21:35.879 and gas, and this week Saudi Arabia once again sought 0:21:35.880 --> 0:21:39.120 to assert its power by extending production limits. 0:21:39.520 --> 0:21:43.240 We needed to head on, reach out to these issues, 0:21:43.880 --> 0:21:48.800 attend to them, and go for what we think would 0:21:48.840 --> 0:21:52.480 be that I tricipy to attend to this market situation, but. 0:21:52.520 --> 0:21:54.800 For investors it's not just a question of what Saudi 0:21:54.880 --> 0:21:57.359 Arabia and the UAE will mean for the price of 0:21:57.400 --> 0:22:01.359 oil or cutter for natural gas, but also what investments 0:22:01.400 --> 0:22:03.320 they'll make with all those revenues. 0:22:03.840 --> 0:22:10.200 Secondly, what we see in the golf is a remarkable 0:22:10.320 --> 0:22:16.520 determination to pursue reforms. There are some putting that the 0:22:16.600 --> 0:22:21.680 fortunes of the golf are oil and gas. In fact, 0:22:21.920 --> 0:22:27.679 the fortune of the golf is decisiveness in putting economy 0:22:27.800 --> 0:22:30.200 on long term sustainable path. 0:22:30.800 --> 0:22:34.359 Investments like the Kingdom's public investment fund in ev makers, 0:22:34.480 --> 0:22:36.120 Rivian and Lucid. 0:22:36.040 --> 0:22:38.920 They're not really just about EV's, They're about the whole 0:22:38.920 --> 0:22:41.240 ecosystem that comes with EV's and technology. 0:22:41.440 --> 0:22:43.880 We're making bets for the future and for the green 0:22:43.920 --> 0:22:44.640 future as well. 0:22:45.160 --> 0:22:48.240 Or it's l iv Golf venture being merged with the PGA. 0:22:49.080 --> 0:22:52.280 I think getting together is the best thing for golf. 0:22:52.440 --> 0:22:55.119 This fight that was going on in the lawsuits that 0:22:55.160 --> 0:22:59.320 were raging in a one side the golfers from Live 0:23:00.240 --> 0:23:04.520 you know, taking shots at the PGA and vice versa. 0:23:04.840 --> 0:23:06.560 That's not constructive for the game. 0:23:06.960 --> 0:23:09.679 The UAE is one of the largest shareholders of the 0:23:09.720 --> 0:23:13.240 Carlisle Group and recently agreed to acquire a seventy percent 0:23:13.320 --> 0:23:17.280 equity stake in Fortress from Softbag, but Alla will own 0:23:17.400 --> 0:23:21.000 seventy percent of Fortress equity while Fortress Management will hold 0:23:21.000 --> 0:23:24.440 a thirty percent equity interest. But the investment funds don't 0:23:24.480 --> 0:23:27.359 only flow from the Gulf States to the West. Saudi 0:23:27.400 --> 0:23:30.320 Arabia looks to raise some of the five hundred billion 0:23:30.359 --> 0:23:34.040 dollars it needs to build NEO from Western investments. We 0:23:34.200 --> 0:23:37.359 had really significant interest from the market. 0:23:37.880 --> 0:23:42.199