Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Well, our next guest follows the US economy, really the global economy has for decades. Weigh in on the trends that describe us and divide us financially, economically, and so much more. Let's get to the interview this hour with us as Nobel Laureate economist and Columbia professor Joseph Stieglitz. He was an economic advisor to presidents, including chair of the Council of Economic Advisors that was during the Clinton administration.
Former chief economist at the World Bank, He's written numerous books and research papers. His latest book, The Road to Freedom, Economics and the Good Society. He joins us here in New York City. Professor Stieglitz, So great to be talking with you once again. It's been a while, but great to have you here, and we want to talk about the book. But we would be remiss not to ask you your take on today's economic environment and the stickiness
of inflation. What is the smart conversation that you think we should all be having here at Bloomberg when it comes to today's US economic environment.
From the point of view of economics, having two and a half or even three percent inflation is not a big deal. You know, the two percent target was pulled out of thin air. It was not based on economic science. What we want to be sure of is that we don't have runaway inflation. And inflation has clearly been tamed, it's been brought down, it's stable. It lectuates from month to month, but it is not a major problem. We should be focusing on other things, continuing economic growth, making
sure that all Americans share in that growth. Those are the kinds of things that we ought to be thinking more about.
So, Professor Stieglitz, should the Fed abandon the two percent inflation goal? Should they have a different inflation goal, a different metric that they should be held accountable to.
Yes, I think they should. I think they should be talking about keeping it within a range to maybe three,
three and a half four percent. You know, there's actually some economic science that says, especially in a time of major structural change, such as we're going through, having a little higher inflation actually is helpful in reallocating resources in the presence of downward nominal rigidities of wages, because what guides the movement of resources from one place to another is relative wages, and if some wages are sticky downward, you want other wages to go up enough to move labor,
and that means you're going to have to have more inflation. So actually a little higher inflation is actually good for the economy.
Do you think the FEDS management of the economy has been a good one in terms of policy?
Quite frankly no, But bluntly, let's go back to when inflation broke out after the pandemic and the Russian invasion of Ukraine. The question was what was the cause, the primary cause of the inflation. It was unambiguous. It was the pandemic and war related interruptions in supply chains and rising prices caused by shortages of oil and food. It
was demand shifts. People wanted to live in different places, and that meant housing prices went up where there was a scarcity, but didn't go down as much where there was where people didn't want to. Like in parts of New York, raising interest rates actually impedes the ability of the economy to respond to that kind of structural to that kind of challenge. We needed to build more houses in the places where there was a scarcity, and having
higher interest rates actually works makes it more difficulty. They also have a model of the economy that's based on competition. That might have been true some time ago, but we have an economy with a lot of market power at firms are trading off. If they raise their prices, they get more profits today, they lose profits in the future. And in that trade off, if when you raise the interest rate, they value those future losses less, and they were induced to raise their prices, more ms go up.
And a marked aspect of the inflation that we've just been through is that markets have increased enormously.
Hey, Professor Stieglitz, I just wanted to speaking of the FED, Carol, I know you would.
Well one one thing before we have a bigger, broader cust and it's certainly been to jump in on that. Well, what do you think then we should be cutting rates already that were behind the curve right now?
Yes, I think I think the risks are asymmetric. I think with Europe already slowing down in recession, we don't know where China is going to be going. I think uh proudents would have as uh uh going back to a more normal infrast rate. The higher interest rates are are really not going to be taming inflation. That that model was wrong. In another way, they drammatically had said that we're going to need five percent of inflation for five percent unemployment for some time in order to get
inflation down. There were absolutely we got inflation down where in a period where we kept unemployment relatively low. So their analysis of the economy was just off. And meanwhile they have put at risk our banking system. We had a problem in Selcom Valley Bank partly because of the enormous changes in terms structure which their policies led to. And we're facing a deck crisis in the developing countries and emerging markets. So there is enormous one sided risk.
I believe in the policies that they've been pursuing well.
On the FED, Professor Stieglitz, I got to ask you about this Wall Street Journal report that broke last night that said how former Trump administration officials are coming up with plans to take on the independence of the Federal Reserve, essentially at one end of the spectrum, even allowing if President Trump gets re elected him to weigh in on
FED policy when it comes to interest rates. Talk a little bit about your reaction to if this were to come to fruition, how important the independence of the FED is and if that would really put at risk the model of the independence of the US financial system.
Well, I think Trump is himself a major argument why you want to have independence of the FED. You don't want somebody who doesn't understand monetary policy, who would put at risk the long run stability of the economy for the short term electoral advantage of having a hot economy right before an election. That's precisely why there is an argument for independence. So, you know, I believe in the accountability of the FED. It is a public institution. We
had previous chairman of the FED. We're very cognizant that I remember Paul Voker saying Congress created us and Congress can uncreate us. So there is a kind of accountability that responsible to heads of the FAT understand. But we certainly don't want Donald Trump to be running monetary policy.
All right, we do want to dig into your book because you've been thinking a lot about the meaning of freedom, and I think we throw the word a down a lot.
I think the folks who created the United States are founding fathers thought about freedom a lot and the difference though between what that really means, and maybe it comes down to, as you think about it, the values that we all have in society tell us about how we need to kind of maybe redefine freedom and what it means in terms of citizens more broadly and generally, as well as economically in terms of their success.
Sure you know, I approached the issue obviously as an economist, and as an economist we think of freedom is free to do what you can do. What are the choices that you can make. Somebody who is at the point of starvation doesn't really have any freedom. He has to do what he can to survive, and so expanding the set of choices that an individual is available is a way of saying that he has more freedom. And here there are a couple of ideas I put forward in
my book. The first is that in our integrated urban twenty percentury economy, one person does the expansion of his freedom may lead to less freedom of others. Isaiah Berlin, the great Oxford philosopher, put it this way. He said, freedom for the woolfs has often meant death for the sheep. In the context of the US, for instance, freedom to carry in AK forty seven means that people will die, and it means that our school children are not free
from fear. They have to learn what to do if a gunman comes into the classroom, and teachers have to go to school worried about whether they'll be attacked. Freedom not to wear masks is exposed to taking away the freedom of others to live. So we have to balance these freedoms. There are trade offs. Many cases, those trade offs are easy. Freedom to pollute takes away the freedom to have somebody with asthma to even live, let alone the freedom of all of us to live in our Atlanta.
So there, I think we have to constrain the freedom of the pluters and the freedom of exploiters.
So we're talking with Joseph Stieglitz, Nobel Laureate Economists, Professor of economics at Columbia University, and we're talking about his new book, The Road to Freedom economics and the good society. All right, So if wethink Professor Stieglitz the idea of freedom, so it's maybe more inclusive or it's a broader definition. How do we do that within society? With corporations the need to be profitable for those we are in earning season. We look at companies and their reports and that's how
we kind of measure them, grade them. What does government need to do? How can we maybe be better if you will for more?
Well, first, let me emphasize that in the world I've just described, there's an important role for regulations. Corporations often don't like that, but we have to remember us of our economy is to improve the lives and livelihoods of our citizens. It's not the other way around that the economy. The economy is supposed to serve society, not the other way around. There's another aspect. Regulations can't actually expand the freedom of all of us. Think about stop likes. If
we don't have stop stop likes, we have gourdlock. None of us has the freedom to move. Stop likes works are a little bit of coercion, mean that I have to take turns, but by taking turns, we all have more freedom, and that basic idea extends much more broadly. People don't like to pay taxes, that that's a they
often feel kind of coercion. But when those tax revenues are used productively, like they were to invest in the Internet and invest in the m R A platform that led to the vaccine against COVID nineteen, that expands our freedom to do. And so we have to look at this in I would say in a little bit more holistic way.
Well, I want to go to your taxes point, because I'm curious if you could wave a magic wand or implement some sort of tax policy here in the US, what would it be? How could you reinvent it? Would you broaden the tax space, would you lean more on corporate taxes? Would you tax wealth more? What, in your opinion would work?
Well, I begin by analyzing would are some of the key problems on our society basis? And one of them is inequality one of the reasons. And a second problem is the growth of market power, which has been enormous in the last few decades, and those two are obviously linked. When you have more market power, the fruits of that market power go to those at the top. We also
have more economists called monoposity power. Firms have market power over workers and have driven down their wages significantly below a competitive level. So I want to have more anti trust policy, more competitive labor market policies, but that can take time. Meanwhile, there's a lot of monopoly rents, and so part of what I would begin by doing is increasing corporate confix taxes, which are not a tax on return to capital. They are a tax on this monopoly profits.
I'd also like to have environmental taxes. Firms that are engaged, including the environment, ought to pay for the damage that they're doing. Remarkably, America, those at the top pay a lower percentage of their taxes than those down below. Even some of our richest people have commented that they think they're right more wrong.
Well, can I ask you, like on a day when we're looking at a company and forgive me, I'm just singling out because it popped. Shares of Alphabet are now a two trillion dollar market cap company this week, you know, next week. Last week. We've been obsessed with, certainly what we call the Magnificent seven, the big megacap technic companies. They're very big, Amazon we talked with an author recently, so entrenched certainly in our world, and you think about
their reach. Are these the companies, the individuals, whether it's an Amazon, whether it's a Meta, whether it's an alphabet that you think you talked about growth of market power? Is it too much at this point in your view that something needs to be done to rain them in or do the benefits outweigh the downside here?
Well, they do give benefits, but they have a lot of downsides. They need to be better regulated. Europe has done a better job at regulating them. The digital harms are are quite obvious and have been by now well documented. But talking narrowly now about market power, I think we ought to do what we can to limit their market power, but tax the fruits of that market power, the revenues
that they get at a much higher rate. You know, if you ask the question, would Jeff Bezos or the founders of Google or Zuperbird stop working if we tax their wealth in a way, say a three percent? You know, so any answer is obviously they would continue to work.
But do you think that they would leave the United States?
Well, we have imposed what we call an exit tax that those with a lot of wealth and don't feel who don't feel loyalty at the United States can leave. We allow them to leave, but they have to pay a tax that represents attacks on the groups of the wealth that they've accumulated while they've been in the United States. And that tax is significant, and it is a deterrent. And if it's not, it may be that we ought
to consider raising that tax. But I don't think people like Zuckerberg Musk are going to leave the United States. They realize the benefits of American citizenship.
We're speaking right now with Professor Joseph Stieglitz, Nobel Lauriate Economists. He's a professor of economics at Columbia University. He's got a new book out, The Road to Freedom, Economics and the Good Society. Professor, as I mentioned, you are up
at Columbia. You've been there for a long time. We've been watching everything that's been happening on the campus there, as well as campuses including USC Yale, MI T. The list continues to go on here in the United States, as we've seen pro Palestinian protests and encampments take over some of these campuses. Freedom in the academic context, how are you looking at the protest protests and the context of freedom of speech?
That's a good question. I mean, first of let me comment that up where my office is, which is the Manhattanville campus, things are very quiet at the business school. At the Business school, quiet there.
But you've been on campus a long time and you've seen different protests over the years, and it seemed to be I was there when there were protests, and it seems like that's what students are should be doing, exploring and pushing back when they don't feel like things are right. But what is what is the what is it those protests in the context of freedom of speech?
So I agree with you very strongly. I'm actually happy that the students are engaged in the world. You know, that's one of the things I try to get them to be interested in the world, and also to reason about the world, to come to understand it, and to debate how could or should things be changed. So that's a good thing. And in my own life, protests have
played a very important role. Back in nineteen sixty three, I was down there in the march in Washington with Martin Luther King, and you know that speech she gave about I have a dream has been a lifelong inspiration to me. So even civil disobedience in certain circumstances can be an important mechanism for social change. We have a special responsibility, of course, to make sure on our campus that all views get heard, that we can have civil debates,
and so on. The one end, academic freedom is really important, and I really took offense to Speaker Johnson coming up to our campus and calling for the resignation of our president. I hadn't seen anything like that, maybe since the HUAC hearings the House on American Activities Committee back with McCarthy in the fifties. I mean, that kind of direct interference
in academia is just unheard of. And we know some of the Republicans have been trying to undermine universities because universities teach children how to our young our youngsters, our young men and women how to think, and a lot of peopleeople don't like that idea that they should be thinking for themselves. But at the same time, we have to create on campus a community where all voices are heard, and I think we're actually working very much towards that.
There were only a few people raising problems and I think having outside agitators like the speaker is not helpful.
We're going to leave it on that note. We always appreciate hearing you talk about hearing from voices. We always appreciate hearing from you. Professor Stieglitz, Thank you so much, Nobell Lorid Economist Columbia Professor Joseph Stieglitz here in New York City. Check out his book. His latest book, The Road to Freedom, Economics and the Good Society really appreciates spending some time with you.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then Brote Auto with a Bloomberg Business act or wants us live on YouTube.
Intel shares folks, they are down the most in not quite four years, but they're still down about nine and a half percent. Here. This is after the company gave a lot lackluster forecast for the current period and turning this giant tim as we find out, you know, they're in the midst of a turnaround. It's not turning out to be so easy. Yeah.
In fact, here's Intel CEO Pat Gelsinger on the good and the better to come. He joined Bloomberg TV and Radio a little earlier today.
Check it out.
We delivered a solid Q one, right, we met on revenue, we know, beat on earnings a bit tepid in the first half, as we said, but we see a lot of improvement as we go through the year. And with that, obviously the foundry business, as I would say, we're going to see progress on the foundry business every quarter from now for the end of the decade.
That's Pat Gelsinger, Intel CEO, earlier on Bloomberg TV and Radio with more on the company's business and plan turnaround. Back with us as Bloomberg News US Semiconductor and Networking reporter in our San Francisco bureau, Ian King, So, Ian the quarter, what occupies you the most on the release and then after the call with analysts yesterday, because as Carol mentioned, the reaction to the report, at least when it comes to the stock was really swift.
Yeah, I think the quote you played from Pat is relevant here. I mean, you've got a man who hasn't been back at Intel for that long, putting a long term plan together, trying to repair the mistakes made over a decade. Though that plan won't pay off anytime soon, but in the meantime, he's having to give quarterly earnings and anything that's kind of lackluster as the forecast was yesterday, is going to cause concern and that this long time
plan isn't going to pay off. So he's he's selling a bright future while talking about kind of lightless their interim period.
You know, it makes me think about like, every once in a while, I bet a company would just be like, can we just go public for a few years and kind of clear things out, spend, do the reboot, and then we'll come back to the public markets. We've seen it before, but I almost feel like, potentially, you know, Ian, that's what Intel needs right now.
Yeah, I mean that's definitely something that's been talked about by you know, people who sort of look at Intel and where they are and that's you know, that's the position they're in. As we've said that, you know, there's going to have to be significant changes not just at Intel but in this semiconductor industry in general for this
big plan to pay off. The analysts like the strategy, say he's pressing the right buttons, but again, so many variables, so many things have to go right for everything to pay off and Intel become at the level it used to be.
One thing I want to ask you, I mean the foundry business. It's an expensive one, right. I just talked with some investment folks. I was planning for a panel that I'm going to be doing in a couple of weeks. They have lots of money to invest, and one of the themes that was top of mind was reshoring and
the amount of money that they need to invest. The capital spend that we were seeing in the likes of things like semiconductors and the industrial space as a lot of countries, including the United States, are bringing things back home. It's real and some of it has to do with climate change, and you know, companies trying to kind of clean up their supply chains and so closer manufacturers help them do this. This foundry focus. Will it pay off in the long run or TBD?
It's very much a TBD. I mean, as you said, there's a geographical trend here. Intel is building plants in the US. Well, guess what so is some guess what so is? TSMC. If you are out in the market for somebody to make your chips, who are you going to go to right now? We need to remember that Intel is giving over thiy percent of its high end business to TSMC because its plants aren't good enough right now.
Obviously they plan to change that. Obviously they plan to reverse that, but again that's still at the kind of planning implementation phase. So even if you trusted Intel with your crown jewels, why would you do that right now? And that's the problem.
And you mentioned that the CEO, Pat Gelsinger hasn't been back at Intel for very long you went, but he got back there at February of twenty twenty one when he embarked on this turnaround. I'm wondering about patients that investors have based on the folks you talk to your sources, What kind of patients or timeline or runway are they giving Gelsinger here?
Well, I think you just have to look at the stock performance. I mean this year they are second worst performer on the Philadelphia Semiconductor Index. That's not a good recommendation. That's not people excited about his company. And you know, all of the reports, all of the note say exactly the same thing, which is, why would you choose to own Intel right now, and the answer is you probably wouldn't.
So that's a struggle that he's going to face. How that manifests itself, how the board think about that, we don't know yet.
All Right, it's still one hundred and thirty forums one hundred and thirty five billion dollar market cap company, nothing to sneeze at. So what is the value that is Intel at this point?
Well, the value is there are an incumbent still. If you're going to make a standard industry server, you're going to use an Intel zon If you're going to make a PC, more than likely you're going to use one of their core processes. So that you know, there's still a lot of value there. If they can get the manufacturing back to anything like the level that they used to be at, that's a tremendous asset. Very few companies
in the world can actually do that. So all of these things, again, if they manifest themselves in the right direction, are valuable. The problem is, you know, he talked yesterday day about, oh, we're getting into the accelerated market. We're going to have five hundred billion dollars of fresh revenue from this new product we've gotten. Again, that's great, but then you have to compare it to where you might put money. AMD is going to have three and a
half billion dollars from that exact same market. And guess what this year, if analysts are right, in video is going to have a ninety six billion dollar market. So that's ninety six billions versus five hundred million. Are you going to choose?
Who do you compare Intel against? Last question?
Sorry said that against?
Who do you compare Intel against? Like? I just think about it, like we always talk with you that there's a lot of different names, you know, that make up the socks in the chip space, and they're not all the same thing. So who do you compare Intel against? At this point?
Is it?
Is it AMD?
Is it?
Like?
Who is it?
Well, you'd have to compare them to a combination of AMD or in video and TSMC, and by any metric they they just don't measure up right now?
How much more time does Gelsinger have? I lied, I had one more question for you. How much more time ian do you think Elsinger has? And is he the right guy to do it?
Like I say, everybody who all of the analysts say yes, he's got the right plan. Some of them are concerned that he was put in place too late, that things had gone too far. According to what he's the timeline he's setting out, Intel should be back in the lead in manufacturing next year. That that is going to be the real tipping point, the real point where hey, Intel is back and things are going to start to work
in their favor. So sometime next year he's either going to be right or we're going to be looking at him and saying, hey, Pat, you told us and you're not there. I think that will be a significant point for both his tenure and also for Intel's future.
In a Son of the Times, Intel down almost ten percent. I'm looking at the socks. It's actually up, folks, two and a half percent today, and a lot of it is. And Nvidia it is an outperformer. And this is on all the AI excitement again coming off of Alphabet and Microsoft.
Until down thirty seven percent so far this year. I King Bloomberg News US Semiconductor and networking reporter, joining us from San Francisco. Check out all his stuff on Intel.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty.
Last year in the US, start was founded exclusively by women accounted for only two percent of all funding that was invested in BC back startups. This according to the World Economic Forum, citing data from Pitchbook. In Europe, Carol, the numbers were even worse, only one point eight percent of the capital raised went to female founded startups.
All right, so that's how things look when it comes to venture capital. But what about earlier in the fundraising process? How are things looking when it comes to angel investing? Back with us to talk about it with an update. Joe In Corkoran at Corkoran is co chief executive officer and managing partner at Golden Seeds. Just a reminder their network of angel investors exclusively investing in early stage women led companies, and she is joining us from New York City. Joanne,
Good to have you back with us. It's been a little bit of a while, one and a half years. A lot can happen. Certainly a lot has happened. I feel like in the market environment, the business environment, the funding environment. Tell us what's changed since we last talked.
Okay, so let's talk about the markets overall in the US first. So twenty twenty three was a pretty difficult funding environment. Venture capital annual volumes were down, you know, thirty thirty five percent from the previous year, and that was down from the year before that. So but the good thing is that last quarter those flows were back close to the pace of which they were running for a decade, you know, the pace of twenty and seventeen
eighteen before those crazy run ups. So that's good Angel volumes. The angels were also cautious. When you think about it, many angel investors already have investments, they already have a portfolio, and so many of those people pulled back on investments last year because they had to keep their powder dry. Because angels are dependent on follow on rounds from venture
so while ventures clogged, angels have to be cautious. So so far in this year, you know, the first quarter of this year, we are seeing some signs that things are improving, or maybe I should say it this way, they're not getting any worse. So of course we have to consider all the variables.
I'm surprised, Yeah, I'm surprised you're not saying that things are getting better. We've seen a couple of high profile tech IPOs in a recent ways weeks. Why do you think things aren't necessarily getting better better from at least an angel perspective.
Well, things just hold here. That's pretty good because for the last two years things have been getting worse and worse. I don't need for things to get a lot better from here. I just need things to stabilize, right, because then we could go back to business. If you think about it, companies are companies. We're still telling them they need a plan A, B and C because they can't depend on getting an easy A round or B round out of venture Right now. Venture still digesting losses. A
lot of venture funds are still digesting losses. So I don't want to say it's gloomy like it was the last couple of years, but we need a few more quarters to feel like we're back at at a consistent run rate of investment.
You definitely sound subdued, a little bit like and concerned.
You know.
What, what is not happening as a result of the environment That maybe concerns you in terms of especially when it comes to women led investments at that very very early stage.
Well, you know, some good things have happened for women in the angel markets. Okay, I mean the last twenty years since Golden Seeds started has been phenomenally good for women in the angel markets. You know, twenty years ago women got three percent of the capital. Now women founders and co founders get about forty percent of the angel capital.
And the most important thing is that the yield the percentage of companies that seek funding that actually get it is it's just about operable now for male and female entrepreneurs in the angel market. So that's really great progress in the angel markets. And you know why did that happen. I think a lot of the reason for that is that angels in the US, you know, individuals who invest in startup companies, about forty percent of those people are
now women. And that's about I don't know, more than ten times since when we started in two thousand and four. So that's really great.
Hey, Joanne, I just want to jump in. We don't have a ton of time in it, so I want to jump in here. As I mentioned, it's Golden Seed is a network of angel investors that exclusively invest in early stage women led companies. I would imagine somebody listening right now might have the question from a returns perspective, if you're trying to maximize returns, why would you restrict yourself in any way by the type of companies you can invest in.
Well, there's equity issues are one thing, But there is research that say that women are better stewards of capital. I mean, there was a big study put together in twenty in twenty nineteen by Boston Consulting and Mass Challenge that said that, and that's a huge data set. It said that women entrepreneurs generate two times the revenue per dollar of capital invested. So there is research that say
that you want to look at diverse founders. And maybe I don't know why that is exactly, but maybe necessity is the mother of invention. Think about it.
That one thing I do think about when it comes to angel investing, right. You know, you can throw a little bit of money at a business, right and it really can kind of get going, especially in this environment where technology and you know, social and so on and so forth, there's so much a part of sometimes a
business getting going. Having said that how many of the angel investments that get made in your world, how many of them actually turn into something that either gets sold or is fairly profitable.
So, you know, in the angel business and the venture business, we know that about thirty five percent of companies don't return all the capital. We know that in venture, I've seen studies that said it's you know, half. In our twenty years of experience, we've had just about thirty percent
of companies who haven't returned capital. But the rest of our companies, in fact, I looked at it just the other day, of all the money that we've invested, one hundred percent of it has come back in aggregate to our investors, and there's unrealized gains in the in the existing operating companies of about another seventy nine percent. And on average, our companies are still only a couple of years old. So the thing though, is that's across our
whole investor group. So I can't give you a number for any specific investor.
Unfortunately, Joanne, we're seeing so much energy around AI right now, and you've certainly you and the team have made some investments in AI focused companies, certainly, but when you look around the landscape. What's exciting to you right now?
Well, companies using machine learning and AI is that's a that's big an angel investing, but not the large language models that take billions to affect most of the stuff that we see and a good you know, ten percent of our operating companies are machine learning or AI companies. But generally we're looking at companies that are that are solving a very specific business problem or improving a specific business process, and that's you know, been part of our
environment for at least five years. I can give you a couple of cases. We have companies that do scheduling, you know, telephone or text scheduling for real estate companies, for healthcare providers. We have companies that do collections. We have companies that do image creations specifically to match a brand.
We have.
Companies that use machine learning to do antibiotic resistance prediction. So but they're they're using the company and the companies clients' data, So it's not these things where you need billions and billions to get going.
Joan really appreciate you joining us once again here on Bloomberg Business Week. Joined Corcoran co Chief executive Officer and managing partner over at Golden Seeds m Marco.
A journal.
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Right, TikTok, everybody, Just about eighteen minutes left in today's trading session, getting ready to wrap up the week that was and definitely one where we saw a different tone
compared to what we've seen over the last three weeks. Right, I think that we've seen stocks down on a weekly basis, but we are on track for the S and P to see quite a healthy gain, if you will, in the trade, just pulling it up two point eight percent to the episode that was after one two, three weeks of declines Nasdaq one hundred out pacing even that on a weekly basis.
Did you just set that up very well?
Thank you?
I just want to say thank you.
Are welcome, Okay, Well.
Katerina Semonetti is senior vice president at Morgan Stanley Private Wealth Management. Given everything that Carol just said, Katerine, are we we're kind of out of the woods with this sell off that we saw in April.
Well, Tim Carroll, thank you for having me on and Happy Friday. And it just goes to tell us that market is always looking for a reason to stay optimistic, even though you know, of course, when we look at the market performance over the last three weeks, you know, it gives us the pause at the very least as we are entering the second quarter of earnings and as we're questioning ourselves whether the earnings are able to sustain
and support the valuations that are so high. Market had a tremendous increase last year, especially towards the end of the year, on expectations that we are going to see lower rates quite quickly, and seeing inflation not quite at the numbers anywhere nowhere really close to the two percent part that Federal Reserve was hoping to see. Is putting a question whether we're going to see rate cuts, you know, as soon as we expected.
Is it all about ray cuts? I mean, I guess it is. We certainly play it's our favorite, as Tom Kane likes to say in the morning, it's our favorite parlor game, like what's the Fed.
Going to do?
What it's not going to do. But having said that, as long as we have, I mean, we were kind of freaked out, if you will, with a lower growth GDP report backward looking higher inflation, get another one today That kind of says, yep, you know, it didn't come in higher than forecast, but it does remind us that high for longer when it comes to inflation. Having said that, you know, around these conversations, the economy continues to you know, move along and survive, the IMF raising its forecast for
global growth. I don't know, is there something that says maybe the world, certainly the public publicly traded world, is getting is figuring out how to kind of operate in this higher rate environment, which is still kind of more historically in line than what we saw when it was a zero rate environment.
You're absolutely right, and we need to switch the focus from this mathematical you know, is FAD going to give us one rate cuts or two rate cuts or are
we going to get five rate cuts? And we have to look at what functioning in this higher rate environment is going to mean for the profitability of our companies, What is it is going to mean for consumer behavior, who are going to be change their normal habits, you know, normal spending patterns because of the interest rates, and we have to look at it from every which way, and FED absolutely has a very difficult decision in front of them.
They've set the expectations and they've said time and time again that their next move is going to be a cut. But you know, at the same time, you know they
also pride themselves in that data driven approach. And as we look at the earnings, the real focus should be whether current earnings and we're seeing them here in the second quarter, are going to support the valuations that we see inequities and whether our companies are going to be able to stay profitable in this potentially higher for longer environment.
So, Katerina, as the narrative has changed a little bit, and we'll get maybe possibly a tweak on that narrative. We will see when we get the next FED meeting and decision next week. Right, that is certainly a focal point. We get a jobs report after the FED meets next Wednesday. Having said that, you know, what is are you tweaking
at all investor portfolios client portfolios? I understand invest for the long term, but that doesn't mean you don't do some tweaks here and there, So what might they be in this environment?
Well, of course, and tweaks are perfectly normal. You know, first and foremost where of the mindset that no quarter or no month you know, should ever be you know, driving force behind changing the you know, the total large picture strategy.
You know.
But with that in mind, you know, the tweaks that we're doing is focusing to quality, you know, looking at energy, industrials, materials, you know, making sure that not no one sector in our portfolios is over valued, you know, if there is a possibility to rebalance and taque profits because we have positions and sectors that have done so well over the last eighteen months, and this is a perfect opportunity to take some of those games of the table and replace them,
put them into the areas that have not performed well that are positioned to deliver these you know, good results.
So Energy, by the way, it's your second top or best performing major industry group in the S and P five hundred this year. There are eleven. Real Estate is the only one that's down for the year, and that would I would assume to some extent maybe on the rate environment, but down about nine percent. Also concerns that continue, certainly amongst of the office property area and commercial. But energy is up as a group almost fifteen percent. So I mean, is that good. That's pretty good for your
to date. And here we are at the end of April. So you said you like energy. Do you continue to commit to that space?
Absolutely? You know, it's one of our highest convictions. We think that energy is well positioned, not just due to the fact that you know, they were seeing kind current oil prices and production levels, but also due to the valuations and competitive positioning you know of the energy companies. You know, we think that there is you know, some additional growth in that sector, you know, and just the dividends.
If you look at the income generating abilities of the energy companies, they play an essential role in the portfolios.
So where do you not want to be, Katerina?
When we look at the broad picture, you know, we
think that brave cuts are coming in general. Historically, you know, there is a positive reaction by large caps actually the dividend thing stocks, you know, right that immediately following the rate cuts and about six months you know, maybe plus you know, we also see the rest of the market kind of like you know, coming long, you know, so we like the shorter term positioning of the large caps, and we like longer term positioning of small and mid cap.
We also tell investors to take advantage of the higher rates, take advantage of the higher yields, really focus on their fixed income portfolios and make sure that that you know, they're well diversifying, that they are taking advantage of the high yield of preferreds of municipals. Because rates are high right now and we're getting very comfortable with them, but they are not going to be here forever. And this
is a great environment. And over the last couple of weeks we also have seen declines in the prices and fixed income prices. So not only the yields are attractive, but there are also some really you know, interesting buying opportunities out there in the fixed income space.
All right, Katerina, thank you so much. Have a great weekend. Katerina Seminetti, Senior vice President, Morgan Stanley Price but Wealth Management, joining us there in Philadelphia.
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