This is Bloomberg Wall Street Week.
I mean may not have an overall recesion, we're having a rolling recession to kind of role looks pretty strongly it is when it comes to jobs.
The financial stories that shape our world.
Three major regional bank failures send shockwaves through the banking system. We're all trying to figure out what to make of generative AI through.
The eyes of the most influential voices.
Welcome down, Doctor Paul Krugman, Ryan Moynihan, a Bank of America, Zebra Lair of the Paulson Institute, Glen Hubbard of the Columbia Business School.
Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
War in Israel takes a pause, the world takes another shot at dealing with climate, and we say goodbye to two giants, one in diplomacy and the other an investment. This is Bloomberg Wall Street Week. I'm David Weston. This week's secial contributor. Larry Summers on the legacies of Henry Kissinger and Charlie Munger. Johnny Fion of B and P Paraba on what his clients are telling him.
Part of them are expecting actually to access Captain Walkeet.
At a later time when waits normalized.
And Joe said of thor equities on the investment opportunities in Mexico.
We think this is another one of those golden opportunities where we're.
For all the global Wall Street watched this week as Israel's warld Hamas went on a temporary hiatus as Israel stopped its military operations in a deal that brought some of the hostages home.
The approach that we're taken with Israel and quite frankly with our partners in the region is working.
It's getting aid into people that needed.
And Elon Musk used the opportunity to travel to the war zone to counter accusations that his post on X was anti Semitic and to offer to help rebuild Gaza once things.
Are over, those who are intentioned motor must be inutralized. Then the propaganda west.
Off the world gathered in Dubai for COP twenty eight and the latest efforts to get a move on in dealing with climate, with US officials once again expressing hope.
I'm confident that Copple provided an opportunity both to identify the opportunities that this energy transition is providing and to build the broad international coalition.
Even as more than seventy thousand delegates we're talking about fossil fuels opiqu plus met in Vienna to review restrictions on all production.
It could be simply that OPEC plus decides to curtail supply and we get a bread going back up to the low nineties as a result of that. It's a question of how much they curtail supply by, but that's the biggest risk right now.
Two towering figures on Global Wall Street said goodbye this week as America's foremost diplomat for a generation and more. Henry Kissinger left us at the age of one hundred, and Warren Buffett's longtime partner, Charlie Munger, passed away at age ninety nine. On the economic front, the United States continued its strong performance, with GDP growing at a robust five point two percent clip. And when you put that strong economic perform together with a FED that seems to
be sickly it may well be done with hiking. Well, what you get are some pretty happy markets, as the S and P five hundred added another eight tens of percent to end the week at forty fifth five ninety four, which is above where the Bloomberg Elves Equities and the analysts thought we would end up twenty twenty three, and by that way above even where they think we're going to end up at the end of twenty twenty four,
which is forty five hundred. The Nasdaq was up four tens of percent for the week, while the yield on the tenure was down nearly twenty six basis points for the week to end at four point two one. For her perspective on these markets and what they are telling us about investing today, we welcome now Catherine Keating. She's bny MELON, Global head of Wealth Management Casin. Welcome back. Great to have you back on wallshreet.
Great to be here, David, thank you.
So let's start with some of those data. I mean, we got some really robust data we talked about this week, but it's it's just the latest and quite a few series of data that are pretty encouraging with the economy.
Yeah.
So the real story in markets has been the month of November, obviously, and the market's digesting really four pieces of important data. The first one, of course, inflationation continues to go down, but we see disinflation broadening. We see it in goods, we see it in services, and we see it in big ticket items like shelter and automobiles. So that's the first thing inflation. Second thing, labor market softening a bit. That's a good sign for lower inflation
as well. We see the unemployment rate drifting up a bit three point nine percent, still very low historically, unemployment claims drifting up a bit. And then the real news, I think was the following the bond market digesting that huge move in tenure treasury rates in the month of November, sixty basis points down from a four eighty eight down sixty to twenty eight.
That's an enormous.
Move in financing costs, not just for the federal government, of course, but for anyone who borrows consumers with mortgages and car loans, local governments, companies, very big news. And then the last thing that the market was digesting is after three quarters in a row of negative earnings growth in the SMP five hundred, we actually had positive earnings this quarter, four percent growth, eighty percent of companies beating expectations.
So the market digested all of that, and you said it, we had a rally at everything.
So I'm going to say I find this a little humbling because if you go back to the end of twenty twenty two, I'm not sure we would have predicted any of this. So why did so many of us get this so wrong?
So, David, as you know, history has taught us that when you have inflation in the economy and you have the Federal Reserve raising interest rates to slow the economy, ninety percent of the time you end up in a recession.
So here we are.
We're twenty months in to a very fast and very aggressive FED hiking cycle, and there's no recession in sight.
Why is that?
I think many people underappreciated the change in two pillars of the economy, consumers and large companies. Consumers, of course seventy percent of the economy. The consumer balance sheet has changed dramatically since the financial crisis. First, consumers are twice as wealthy twenty percent wealthy or just since the beginning of this decade, thanks to stock markets and real estate appreciation. Second of all, they've been borrowing less. The financial crisis
was a terrible crisis for the consumer. They've been borrowing much more prudently. You see ten percent or so of their disposable income now going to borrowing costs. That was close to fifteen percent before the financial crisis. But the most important thing when you look at consumer balance seats is two thirds of consumer borrowing is their mortgage. Those mortgages have been refinanced at very low rates. They're going to stay that way for a while. Corporate America sort
of the same thing. Big companies before the crisis. They would borrow in short term markets commercial paper. Those rates are very high. Now companies aren't doing that. Instead, they did what consumers did, and they took advantage of low rates.
In twenty twenty and twenty twenty one, the SMP five hundred taking refinancing debt, issuing new debt at low rates and terming it four years, five years, six years, ten years, and so that has made both the consumer and large companies less sensitive to interest rate increase.
Great to have you back on, Thank you so much, says Cosiarkidi of Nymelan.
We have always thought of foreign policy and economic policy as something that has clear cut terminal dates, and that you are either in a condition of conflict or in a condition of blissful peace in the nineties. If we do it properly, we will live in a less dangerous world, but one which will never be totally without problems, and in which the subtlety of American of American statesmanship in adjusting the various balances both political and economic, will be
severely tested. But if we do it well, it could be an extraordinarily creative period.
Henry Kissinger defined the world of diplomacy for two generations, remaking the geopolitical map of Asia and the Middle East. A Jewish refugee who fled Nazi Germany for the United States, Kissinger returned as a US Army private to serve in the Battle of the Bulge. After the war, Kissinger became doctor Kissinger when he earned a PhD in political science,
and then joined the Harvard faculty. When Richard Nixon became president in nineteen sixty nine, he appointed Henry Kissinger as his national security advisor and used him to open a window to China that made the current economic miracle possible. To most people.
In nineteen sixty eight sixty nine, it seemed inconceivable that the US could have a relationship with such an extreme, zealous regime as Mao Zedong's remember, the Cultural Revolution was in full space and most people thought the regime was just nots so the very idea of trying to establish a relationship was a minority pursuit.
Kausinger also negotiate a peace treaty between Israel and Egypt and a ceasefire with Syria that brought calm to a region that had been upended by wars since the end of World War Two. Kasinger also played the lead role and negotiating an end to the United States involvement in a conference in Vietnam, which earned him the Nobel Peace Prize in nineteen seventy three. Doctor Kissinger's role in the
world was not without controversy. He was accused of pursuing an illegal military offensive and laois in Cambodia, as well as playing a role in coups in Chile and Argentina that resulted in repressive regimes. And this is the thing.
That critics of Henry Kistinger have always struggled with. They've been very bad at setting the crimes of the Pinitiate in the context of the Cold War. When you see it in the context of the Cold War. To realize that the war crimes the crimes against humanity being perpetrated by communist regimes or at a much larger scale than those that were perpetrated by regimes of the right. And this is really the important thing one has to bear
in mind. Henry Kistinger said even before he went into government that foreign policy was very often a choice between evils, and the job was to try to choose the lesser evil.
Every president since Nixon turned to Henry Kissinger for advice on foreign policy. He was the author of influential books, from his first on Europe in the Wake of Napoleon, published in nineteen fifty seven, up to Leadership six Studies in World Strategies, published last year. Just last month, Henry Kissinger appeared to give a speech at the annual Al Smith Dinner in New York. At the end of that speech, he said, quote, A great leader is the giver and
protector of our hopes. Henry Kissinger dead at age one hundred. Coming up Riturn to our special CONTRIBITTERA Larry Sumrso Harvard for his thoughts on the lives and legacies of two towering figures, Henry Kissinger and Charlie Munger. That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David Weston, and were welcome to our very special contributor here in Wall Streetek. He is Larry Summons of Harvard. Larry, thank you so much for being with us here in New York. It has been quite a week where we lost Charlie Munger, we lost we lost Henry Kissinger, and then on Friday we actually lost Saturday O'Connor as well. I know you knew Henry, well you knew Charlie Munger. Talk about Henry Kissinger in your experience.
He was an extraordinary man.
It was extraordinary to see somebody in their eighties and then in their nineties, and then one hundred years old, so incredibly intellectually vital looking to learn about AI, speaking to most of the world's leading statesman every several months.
He was fully engaged.
And active in the way that many people half his age wouldn't.
Have had the energy and the drive to do. He was somebody who always thought.
In the large verst understanding broad historical forces or shaping relationships between countries that forming a conception of strategy. From that conception of strategy working to tactics. It was anything but the day to day political thrust of statements that so often seems to preoccupy leaders these days. He surely didn't get everything right, but he certainly was always trying to reason from the large to reason down. And I learned from his deep, li in a way tragic.
Sensibility.
He was the idealist as realist he and the realist as idealist Henry, maybe because of how and where he grew up in Germany in the nineteen thirties, feared disorder, feared chaos, feared the complete triumph of passion over reason. And his determination was to bring about stability, not because he somehow thought that the pride of nations and strength was what was most important, but because when there was the containment of evil, that was when people had an opportunity to live and flourish.
The partner of Warren Buffett important. What effect did he have on writ large?
You know?
I think the first thing to say is that Charlie and Henry had something very important in common. They had different interests, they had different styles, they had different ways of speaking, but they both had a deep commitment to seeing the world as it was, not as they wanted it to be. And they began by trying to see
things as realistically, as clinically accurately as possible. And that was the basis for decision, whether it was political and diplomatic decision in Henry's case, whether it was financial and investment decision in Charlie's case. What I got from both of them was this commitment to detached observation as a prelude to taking action, you know, buy Warren's testimony. Charlie provided a really extraordinary insight, he said, and it's different
than the old fashioned and traditional value investing credo. Charlie rejected the idea of buying fair companies at great prices. He thought you'd ultimately do better buying great companies at fair prices. And that philosophy of finding the best, making sure you weren't overpaying, and then sticking with it is one that has certainly served certainly served him, and certainly
served warn well. But I saw it. Charlie was in a lat wasn't involved a law of Harvard Law School while I was the president of Harvard, and he had a view. It was clear there was a logic, he was prepared to argue and.
Defend it. He too was an extraordinary figure.
And you have to also look at both Henry and Charlie and see the power of staying curious. They stayed with it to the very end, and I think their curiosity, their love of reading, their love of discussion, their love of argument, was part of what caused them to flourish for so very long.
Well, maybe a reach, but I think you're really emulating that and staying curious as you've now taken this role with Open Ai. You talk about Henry Kissinger with Open Air. You're taking it on. Let me ask you, frankly, why did you take the job and what do you hope to do with it?
I thought that, as I said on your show, that this was something that was extraordinarily important. You know, no one can be certain whether this is once a decade technology, a once a half century technology, a once a century technology, a once a millennium technology. You know and can know that for sure, but it sure looks like it's awfully important to develop rapidly and safely and to disseminate effectively.
And well so, when I was offered an opportunity to be part of contributing to that and overseeing to make sure that that was effectively done, and to do it working with some very great people. I thought it was a real opportunity and I was glad to do it.
I don't want to take anything way for your technological expertise, but when what you just said safely strikes me as probably part of what you're going to be focused on, and that gets to questions of governance about how you handle this technology wherever it's going and how a powerful may be. Do you have an overall sense of what you need to do to government to get this safely part right?
You know, David, I've been on the job two days and they're going to send me the onboarding packet for the board on Sunday. So I shouldn't be saying too much at all because I don't know enough.
Here's some things I think I know.
I think I know that a company like this has to be prepared to cooperate doesn't mean always agree with, but cooperate with key government officials on regulatory issues, on
national security issues, on development of technology issues. I think I know also, and this is integral to the structure of open AI, where the for profit entity is itself a creature of a not for profit ENTITYE that this needs to be a corporation with a conscience, and that we need to be always thinking about the multiple stakeholders in the development of this technology, and as a board member, that will be part of my responsibility working with other board members to.
Make that certain.
You know, my colleague at Harvard Lake, colleague Ken Galbret, said that conscious is the knowledge that someone is watching, and I think it's the responsibility for everybody involved in this to be thinking very carefully always about both opportunities and uncertainties and to make sure that those are balanced in the best way that's possible.
Claria, it's really great to have you with us, as it always is. There's a very special contributor, Lary Summers of Harvard and this is Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Supply chains. Until the pandemic struck, most of us gave them little thought, apart from those working in shipping and procurement. But then we were hit with the reality that critical supplies for healthcare and much more came from one country China, presenting the need to diversify any supply chains are complicated.
Your viewers know this from the business world that look the semiconductor value chain.
It stretches across the globe and goes around at least three times.
Now, companies and countries are moving quickly to reinforce and diversify their supply chains, with President Biden this week announcing a White House Council on Supply Chain Resilience.
Let me be clear, in any corporation that's not brought their prices back down even as inflations come down, even the supply chains have been rebuilt, It's time to stop the price gouging.
And with the new emphasis on alternative suppliers comes the movement of capital and investment, creating investment alternatives to China.
I think some of the emerging markets outside of China have done relatively well. These include places like India, include places like Indonesia, Mexico, Brazil, and even some places in Eastern Europe like Greece and even Poland. These countries have done well, still relatively small to absorb too much capital. Where you can see that this sort of new era is beginning.
It ticks a while one of the beneficiaries is Mexico, whether it's in trade.
The main issue with China is exports. They declined significantly in terms of what they export to the US over the last five years, and that I think until they can turn that around, that's going to be an issue. And there's other countries that are benefiting from this, like Mexico with.
Its near shoring or in real estate.
I would say there's great opportunity is in Mexico in the industrial space and particularly along the border, and you have a lot of multinational companies that are located there looking for logistics and distribution type space.
Or in manufacturing.
There are going to be markets that kind of in Mexico where you know, more things are being made there. Again, and some of the restrictions that have been applied to China have benefited the Mexican economy.
Putting Mexico high end Jamie Diamond's list of investment opportunities, We've doubled.
A triple or capital here in the last six years.
We cover more clients in private banking, investment banking, sm management, so.
Our is total.
I think it's one of the great opportunities I put in Mexico if you had to pick a country, this might be the number one opportunity to give us the investors perspective on Mexico. We welcome now Joseph Sitt. He's founder and chairman of Thor Equity, who's Sore Urban Unit is the largest real estate developer in Mexico. So, Joe, thank you so much for being here. It's great to have you. First of all, give us a sense of just how big you are in Mexico.
In terms of the company, we're probably the largest individual developer in the retail asset class and the hospitality asset class. And then because we're in so many things from industrial, manufacturing, condominiums, etc.
Etc.
We're probably top two, top three developer in the country today.
So why are you there?
Opportunity and I would call it both opportunity growth and alternative when you think of the world and the world how things are changing, Mexico is becoming quite the answer to some of the United States's economic problems, and by being that solution, it's been wonderful for them as a country. I would say it's four things that really make up their economy, their drive. One is their local specialty assets. I call it it's avocados, it's tequila, and it's beer.
We know it is, you know, going out and having that drink of beer and having the dip and have the tequila, et cetera, et cetera.
But it really is a product.
That's been growing. I mean, if you think of tequila thirty years ago, did you really go to a bar and hear a friend order at tequila? Not really. And so Mexican culture has gone global, It's gone viral. Sort of what happened to sushi forty or fifty years ago happened to Mexico. And then the second thing is remittances. You know, a lot of Mexicans and Americans, because of the close relationship between our countries, really transverse.
Back and forth.
And then probably the thing that's been the buzzword for the last thirty or sixty days is near Shuri. You know, we as a country, we see the world sort of bifurcating multipolar conflict. Mexico's a great solution. It's right here in our backyard. It's easy. Labor is actually cheaper than labor is in China. The people are hard working, they're industrious.
The commuting point, the logistics for a container ship is free relative to shipping it from China, and so it's really become the Chinese alternative.
So, Joe, you've described an investment opportunity, A big investment opportunity in Mexico typically was an opportunity money rushers in, capital rushes in and it becomes fully priced. Where are we in that cycle? How far? How close are we to fully pricing the assets in Mexico? So it's not quite the deal it was before.
Excellent question, and often people generalize by the country, but you've got to also look at the specifics, meaning by the asset classes. For example, near Shuring, you had one hundred and twenty companies announce investments in Mexico so far the first half of this year about twenty nine billion in US dollars investment. The forty one percent increased from last year. Based upon the early research, it's looking like next year is going to.
Double on that.
So I would say from the industrial opportunity, I think we're in the very very early innings of it, probably the earliest innings amongst the different food groups. In fact, one of the things that I've often bumped into my challenges with investors as well, as sometimes, as we said the media is we're often at thor sometimes a little bit too early. We don't try to be the first, as I often say, we try to be the fastest second, but it's not until the third or fourth or fifth
that the investors get it. And same thing happened with us in investing in Dubai, as you and I had spoken about, you know, four years ago. Same thing happened to us talking about Red States versus the Blue States and investing in red states fifteen years ago. And we think this is another one of those golden opportunities where we're early. We're just in the beginning of the second inning with a lot of runway, and those investors that act quickly now to mind that opportunity.
Will get that benefit.
If they wait, call it three years or four years or five years, then it starts getting priced in. I would say retail is probably already priced in, and I would say condominium's second home tourism, while growing, is probably somewhere in the middle there. So I would say ahead of the curve is industrial probably already valued, well is retail. And as I often joke to give the expression to my team, I say, ride the horses, feed the lions,
and shoot the dogs. I would call the office market there probably the dog, and I would say the industrial market is probably the lion.
Jui, you're clearly bullsh on Mexico's investment opportunity. Compare it with small turn is. We had Steve Schwartzman just this week say he thought, when it came to real estate, Europe was a great opportunity. Right now, how do you compare Mexico with Europe with some Asian alternatives?
Well, Steve is a friend, I'm a fan of him and John Gray, both super smart guys. We often compare notes and look at ourselves as a miniature version thematic investor that then develops specialties in different areas. So I don't doubt what he's saying. We've got an office in most of the major metropolitan cities inside of Europe.
Very active market for us.
But I would say a lot of the early low hanging fruit in Europe has been mined. But where the opportunity in Europe is much more because of the dislocation, because of financial markets.
So, Joe, what about geopolitics and particularly politics when it comes to Mexico. That's often been an issue for investors. We have an election coming up. Where does that stand today?
You know, when Amlo was going through his election cycle, it's scared the bgbi's out of local players and candidly myself. Amlo then came in and he sounded good. He was a good hearer of what people were saying, but wasn't a good listener, I'm sorry to say. And so I really think that Mexico did well in spite of itself. Now the politics is much better. Either way, We're getting a woman for the first time as the president of Mexico.
It'll either be Claudia Scheinbaum or to be sociated with god Viz. Both of them pro business listeners, touching their communities and really caring about their constituents at all levels and not just considering Rederick to be the answer. They're thoughtful about the jobs, etc. So I would say that's probably my overall number one most exciting thing today that I'm about that I'm excited about about the future of Mexico for the business community.
Thank you so much for being on Wall Street week. Hoef you come back. This is great. As Joe said of thor equities coming up, telling the difference between what's fake and what's not? With or without artificial intelligence. That's next on Wall Street Week on Bloomberg, Finally, one more
thought authentic. The Merriam Webster Dictionary defines it as worthy of acceptance or belief, as conforming two or based on fact and Miriam Webster has also deemed it to be the word of the Year, explaining that the line between real and fake has become increasingly blurred, which may just be the understatement of the year. Certainly, some of the
tech communities seem to be struggling with the difference. Sponsors canceled the Software Developer Conference this week after speaker's profiles on the website turned out to be fake, leading several tech executives to pull out, including one from Microsoft who posted that he had been duped by the fake speakers.
There was a lot of concern that there was a plot to make the account or to make the conference look more diverse than it really was.
The once vaunted Sports Illustrated took down articles from its site after allegations it had used artificial intelligence not only to write the stories, but also to credit them to fictitious reporters, complete with profiles. Something SI's parent company denies, but says it is investigating further blurring that line between the authentic and the fake. But all of that is nothing compared with the current poster child for confusing fact
with fiction, Congressman George Santos from Long Island. Representative. Santos continues to claim that life is treating him unfairly, even after an indictment and a move by his colleagues to expel him from the House of Representatives for making up more things than we have time to go.
Through pursue it to Article one, Section five, clause two of the Constitution of the United States, Representative George Santos b and he hereby is expelled from the House of Representatives.
In the world of business, Elon Musk certainly has his work cut out for him, sorting through over one hundred million posts on his ex social media site to separate what's true from what's not, and, for that matter, what's
just downright malicious. But for Musk right now, the problem isn't so much what's falls as what is undeniably true, like the fact that he reposted something that much of the world regarded as antisemitic, which triggered advertisers like Apple, Disney and IBM to pull their money from the site.
This company X Twitter has spent months basically doing damage control over Elon Musk's posts.
Apparently as a make good mister Musk traveled to a war zone this week and offered to help rebuild Gaza. Once the fighting has stopped.
Those who are intentioned motor must be inutralized, then the deep propaganda west stop.
Well.
I hope he will be involved in it.
Toptel.
As mister Musk struggled to deal with how he's marketing X, another business leader took a very different approach. One of the great brand builders of our time, Martha Stewart, has of course, made a series of TV commercials with Snoop Dogg, Do I Smell That's Right? On Due Time? And then posed for the cover of the Sports Illustrated Swimsuit edition
at the age of eighty one. Now, Miss Stewart has taken yet another step to keep her profile high, this time by offering a stay at a two bedroom cottage on her estate in Bedford, New York, through Airbnb, complete with a brunch with Martha herself, all at the bargain basement price of eleven dollars and twenty three cents talk about marketing. The world was reminded this week of just what the word authentic really means when it comes to investing, with the passing of Charlie Munger at the age of
ninety nine. As the longtime partner of Warren Buffett, Charlie made money for Berkshire Hathaway shareholders the old fashioned way. He earned it by doing his homework, making a few big decisions and staying with them and in the process made his historic returns. When it comes to Charlie Munger and Warren Buffett, there was no fiction. It was all fact.
I think I fixed one flaw in my life. I got over having tantrums when I was about four or five. But every other flaw I have I haven't fixed.
I've just counterbalanced it, both offsetting virtues.
That does it for this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.