Bloomberg Wall Street Week - December 29th, 2023

This is Bloomberg Wall Street Week.

And we may not have an overall recession, we're having a rolling recession to kind of roll 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

Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

Christmas and New Year's come to much of the world, but war takes no holiday in the Middle East or in Eastern Europe. This is Bloomberg Wall Street Week. I'm David Weston, this week's special contributor to Larry Summers of Harvard on why we didn't get that recession we expected this year, but.

I'm not terribly surprised that we haven't seen a recession in twenty twenty three.

Very Lovely of the Peterson Institute on China's continuing economic struggle to rebound from the COVID lockdown, the Deeps and some Malays.

We think still lies within the population and within people's expectations for the future.

And Scott Bach of Greenhill on what's really going on in places like penn and Harvard.

Dollars are absolutely free to give to whatever organizations they want or not to went to withhold for any reason they choose to, but they're not shareholders, so I don't think they should have a particularly loud voice, and how a university is a run.

Most of global Wall Street spent the week celebrating the holidays, taking a break from earnings reports and the FED and the eco data, but there was no break for those waging war in Ukraine and in Gaza, as Ukrainian forces hit a Russian warship and shot down several fighter jets, and in the Middle East, Israeli forces continued to seek out Hamas militants and Huthi rebels hit targets in the

Unlike the last couple of holiday shopping seasons, we had to wait until the very.

Last minute to see those consumer dollars flow through well.

Apple got a temporary reprieve of the ban on its watches as the Court of Appeals sorts out whether it infringe japan covering sensors to monitor blood oxygen levels.

They have to stay until the US Customs makes a decision on a software fix that Apple submitted to the government.

Equity markets eked out another up week despite a bit of a selloff on Friday, as SMP five hundred gained just over three tenths of one percent for the week, but that put it up a whopping twenty four percent for the year as a whole, ending at forty seven sixty nine. That's way above the median estimate of our Bloomberg els for this year and only a bit under the estimate of forty eight to thirty two for the

You, well, apple slider, But that's okay, Happy new year to you, David. And it really the year that deserves the toast. I'm right there with Larry.

I mean, I.

Expected a recession, but we certainly didn't have one. And it's a spectacular year of twenty double digit, twenty percent, just amazing.

So what about on the equity side of over twenty percent or even over forty percent on the NASDAK how much of that was just the anticipation of FED cuts.

Well, you know, it all happened in the last quarter of the year, because really, when you look at the equally weighted SMP five hundred that was actually negative back at Halloween and then had a huge rally here at the end. It was really those seven magnificent socks and on the Nasdaq. That really shows up. Best year since ninety nine. Now that's a lot to celebrate. But wait

So what does that say to set up next year twenty twenty four? For you? You have a lot of money at work. How are you taking a look at twenty twenty four? How are you positioning yourself?

Well, first, I'm celebrating because thanks to this market, all time record high for our fund three hundred and twenty seven billion dollars, but I have to tell you there are certainly dark clouds on the horizon. I think the FED has pulled off the soft landing, but we still have a lot of risks that we have to get through. And you know, hope does triumph over experience. I know Larry Summers likes to say that it shouldn't, but sometimes it does. And right now I'm hopeful. I think the

Will open back up.

So Chris, I'm going to let you get back to your celebrations. Really great to have you with us once again. Happy New Year, my friend. Great to have you with us.

Happy New Year and toil walls three week. Thank you very much. David, good to see you.

That's Chris Allen of Calsh's. Year ago, China was emerging from its COVID lockdown and just about everyone expected a sharp economic upturn. It didn't quite work out that way. To explain what happened and give us a sense of what's likely to come in the new year, we welcome back now Mary Lovely. She's a senior fellow at the Peterson Institute for International Economics. Mary, great to have you

Well, I mean, in some sense, it had things that went wrong and things that went right. I mean what went wrong, of course, is that one estimated one point four million people died from the quick spread of the virus through the economy through the population.

On the other hand, it.

Did go through the country at very rapid pace, and recovery began before I think many of.

Us expected that it would.

The second quarter was particularly tough, high levels of unemployment fall and industrial production falling consumption. But then by probably by the middle of summer, you know, they had basically hit the atom and we're beginning to bounce back. The bounce has been significant. They're on track to record about five or five point two percent GDP growth for twenty

Mary, you refer to a general malaise going on. What can the government, what can presidentation pin do to address that malaise.

I think one of the main things that private businesses want is more clarity on how private businesses are going to be regulated and how the push toward economic securitization is going to impact their businesses. We saw the rollout of the counter espionage rule this year that gave a lot of businesses a pause.

What kind of data.

Could be transferred into.

Whom It's very unclear what happens when one does transfer data that the government decides x posts should not have been transferred. I think the government has tried to clarify this, but part of the way Chinese legal system works is to allow for a significant amount of interpretation.

And that means, from the point of view.

Of businesses, vulnerabilities ambiguities that raise uncertainty for them that it has a chilling effect.

What about the debt situation? We hear a lot about the debt born, particularly by local governments, and there's some move for the national government to take over some of the debt design understand it, but there's a lot of debt overhanging in China. Is that limit presidencies options in dealing with the Malays well, the.

Central government has taken the unusual step of issuing bonds and then providing them to the local governments to spend so I think the central government recognizes that, you know, local government finances.

Are quite fragile.

They have moved also to ask state banks to provide more credit for property developers, particularly to complete units which have already been purchased.

So what this does is it.

Gives new cash to companies which may be unable to pay old loans, and it really begins to absorb that debt within the state banking system.

Mary, thank you so very much, really great to have you with us. That is Mary Lovely, senior fellow at the Peterson Institute. And this is Walter's 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 take us through this year that is now ending twenty twenty three and look forward to twenty twenty four. We welcome to our very special contributor here on wal Street. He's Larry Summers of Harvard. So Larry, thanks so much for being with us at the very end of the year. Here looking back at twenty twenty three, there was an issue about inflation, about how we can get on control what caused it, and team Transitory led perhaps by Paul

I think there's some of both.

Look to start with, we basically got an outcome that was closer to Team Transittories prediction. Inflation came down with policy. That is what their opponents were insisting on interest rates, far beyond what they were recommending, far beyond what the FED was predicting as of almost any date in the recent past.

So the record's a bit ambiguous.

Yes, absolutely, there have been important supply elements. I have always stressed that we never were an eight percent or a seven percent inflation country that because of bottlenecks, a variety of prices went up, adding to inflation, and they would then come down subtracting from inflation. I'm not sure we're really a two percent target inflation country in any durable sense. I look, for example, at the five point two percent wage increase the federal.

Government just gave at strike activity.

It's more than it's been in.

A decade, at still tight labor.

Markets, at potential geopolitical risks in commodity markets, at the fact that house prices have really started to turn back up, and I'm far.

From sure where we're going to go on inflation.

So to declare that proverbial soft landing to have taken place seems.

To me to be premature.

So I think we're still in an ambiguous situation. I've been saying, David on your show for close to a year now that there are three possibilities that the economy.

Turns down quickly, that.

The economy achieves the proverbial soft landing, and that in a sense, we don't ever achieve a secure landing, and inflation never really gets down to target and even reaccelerates. Obviously, we didn't see the hard landing in twenty twenty three.

So Lariy, we look at these questions not only because they're interesting historically, but to give us some direction for the future where we should be had. And so as you look at the risk as you describe them, what about the symmetry of them, Because some people are concerned that we have a bigger risk of a recession if we keep type policy than we do of inflation running away.

I think they're both very real risks.

I'm a little surprised by the view that puts primary emphasis on the recession risk, given what's happened to financial conditions in the last two months, the stock market's taken off again. House prices are now rising at a six or seven percent annual rate, long term interest rates and

And finally, Larry, twenty twenty three was a year of geopolitical strife. We started it with the war in Ukraine continuing. We added then the attack of Hamas on Israel and the difficulties that's raised in the Middle East for so many people. We have continued tension with China. As you look at the macroeconomics of twenty twenty four, how did geopolitics fit in.

The post Cold War? Holiday from history is over.

The world is once again a very dangerous place, with the prospect of war between major powers. The way and which which the United States has conceived itself in terms of national security.

Is no longer viable.

We are going to have to invest substantially more in all aspects of national security that ranges from increased defense spending well above current projections, to thinking about national security issues as we think about our educational system as we did after Sputnik, to thinking about our investment in connections all over the world.

Larry, thank you so much for being with us here at the end of the year, but thank you for all your contributions on Wall Street throughout the year. That is Larry Summers, our special contributor. He is, of course from Harvard. Coming up the Hamas attack on Israel and October led to dramatic developments in the Middle East that spilled over on the college campuses in the United States.

And I don't think trustee should overreact in this situation of what could be a short term crisis.

That's next on Wall Street Week on Bloomberg.

This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

Unrest on college campuses in the aftermath of the Hamas attacks on Israel, American University has been thrust into a national fight over lines between healthy debate and destructive invective. We've had major donors condemned administrations for tolerating co where some students no longer feel safe.

The underlying culture that permitted this to happen is just so strong, and until there is a moment of self reflection where we're not dealing with just anti Semitism, we're dealing with the culture that allowed this to happen, there really is going to be no progress, and to date there's been no progress. There's really not a question of free speech. This is a question of favored speech and disfavored speech, and an institutional psychology and an institutional culture.

We've had college presidents called before Congress and asked to condemn calls for genocide.

I am asking specifically calling for the genocide of Jews? Does that constitute bullying? Harassment?

If it is directed and severer pervasive, it is harassment.

So the answer is yes.

It is a.

Context dependent decision, Congresswoman, It's.

A context dependent decision. That's your testimony today. Calling for the genocide of Jews is depending upon the context, that is not bullying or harassment.

We've had former college presidents insists that there's been a basic breakdown in who's responsible for what's going on in our academic communities.

I think for some years now they have been substantially a wall, a wall as the climate of hypersensitivity has developed, a wall as the relationship between the university and external communities has broken.

Down, leaving us to yearn for a world where we can disagree, even strongly disagree, without deterring others from speaking out.

I suspect something will happen, but I don't know that Congress will do anything. I think the university boards are probably going to be more sensitive to these issues. There is going to be more security for certain students there for sure, But I think there'll be more of a move towards a University of Cago approach where more people are allowed to say what they think without feeling that if they say something that's unpopular they'll be criticized or harmful, and.

To take us through what some of these speechs look like from the inside. Welcome now, Scott back. He is chairman of Green Hill. Until recently he was chair of the Board of Trustees of the University of Pennsylvania. Welcome to Wall Street. WEEG really appreciate you being here, Scott, First of all, give us a sense from the insight, because yourself from the inside. What do you think is going on and what should we learn from the experience?

Well, look, I think we've had a bit of a crisis on some of the leading elite universities in America in the last few months, and we haven't had one of a long time. It's really been a long period of quiet and progress at those schools. And so there are a number of questions that have been raised and haven't been raised.

In quite a while.

And what about the response to people a little rusty? I mean, I went to school back in the seventies when there was a lot of this going on. In fact, the administrations were used to dealing with demonstrations. Is part of the issues that, in fact the administrations haven't been used to this day is to have to get the rule book back out.

I think that's exactly right.

And frankly, trust these having given governance a thought in a very long period of time, you don't tend to think about governance where everything's going great. But when you have something that creates a controversy, suddenly people look back at that. And I think a lot of trustees. You know, maybe have forgotten that the way universities are governed, that's a combination of trustees, a president, and the administration, and also the faculty play an important role.

Well, we'll talk about that for about governance specifically, because we've had for example at pen but also Harvard other places. Donors really speak out very forcefully, even make demands, as they would put it, about changes we made back when I was practicing law. I know you did as well. We talk about a bad volleyball team. Wherever he goes to the same position. What are the respective positions if it's done properly, of the trustees, the president, admistration, the faculty,

Look, I think to start with donors, I think donors are absolutely free to give to whatever organizations they want or not to, and to withhold for any reason they choose to.

But they're not shareholders, so I don't think.

They should have a particularly loud voice in how a university is run. There is a governance system that set in place for decades, if not centuries in many cases, and that involves really trustees, the administration of the faculty, Historically, trustees really focused on the financial viability of the organization. They did the budget, they did review the audit of the financials, they invested the endowment. They made sure that the entity was going to be viable for the long term,

You mentioned two areas, academics on the one hand, finances any other. Obviously, you're a prime example of somebody who's really really knowledgeable and finance. It makes sense to have you on a board and indeed share of a board. There is a third area, though, which I would call reputational risk, I mean existential risk for the institution that

Well, I think clearly if it's an existential sort of threat, I mean, everybody needs to be involved in that. I don't think trustees can sort of seize control, nor can the president do whatever the president wants to do or the faculty take charge either. Probably needs to be everybody involved in something like that. But I don't think trustees should overreact in the situation of what could be a

By the way, there's another player that's got involved here, and that's the United States Congress, because the president of Pennsylvania as well as Harvard MIT will call before Congress what, if anything, is the proper role of the government and try to influence the way this is handled on college campuses.

Well, I think the government has a very big role, of course in public universities and a smaller role in private universities.

But you know, governments get involved in.

A lot of ways in any institution in American life, So you have to be ready to deal with congressional or other government inquiries when they come. And they they do provide financial support to even the most private of universities in the sense of research funding and things like that. So they're going to have their legitimate questions from time

For a long time.

I mean, I think it's important to remember, you know, elite universities in America are the envy of the world. I mean, people all over America go to great links to get into these places. People from all over the world. Do You don't see a lot of you know, kids from New York City trying to go to a foreign university to get to their degree. You see a lot of them in Europe and Asia, Latin America else who are trying to come to America to get a degree because they see real value to that.

In the nineteen sixties and into the seventies, part of what we saw in college campus was a reflection more broadly what was going on in society. I wonder if that's part of what we're seeing now, because generally across socity there is more polarization. People are more outspoken, they're more actually of course with one another in the nature of the discourse. And if that's right, what can campuses do, what can colleges do maybe to help us more broad in society deal with some of these issues.

Look, I think that's a major factor here.

There we are in a more divide at society, and the divisions tend to be quite deep, and people tend to see things in a black or white way. There's a lot of the voices you hear are on the extreme right. You're the extreme right, the extreme lap. I do think it's important, and I've tried to convey in some of the comments I've made in recent days and weeks that you know, what you see in social media, what you see maybe in a newspaper quote, what you see in a clip on television is a very small

Why do you step down because you could still contribute to the solution, could you not?

I could certainly.

I mean, I felt like our board got particularly divided at one point, and I felt like, clearly there is a debate, and it's not just a pend, it's a number of schools across America about the role of trustees, faculty and administration and managing universities. I think that's a very important debate, and frankly, I felt like I could contribute more to that debate from the outside than the inside.

You can't.

You have to be very very careful what you say because you're speaking for the whole entity, a whole large group of trustees. If you're on the outside, you can speak more freely. And I think I have contributed, and hopefully even these comments here will help people understand that there's not.

A huge crisis.

It's a small percent, very very small percent of the students that are doing things that would be troubling for most people. Yes, there are things you can do about that, but we shouldn't fundamentally tear.

Up a governance model that's worked for a very, very.

Long time and made our universities the envy of the world because of a very short term crisis.

Scott, you certainly have helped me a lot understand from a really useful perspective what's going on. Thank you so much to Scott Bach. He is chairman of Greenhill. Coming up, does crime have its own internal rate of return? That's next on Wall Street Week on Bloomberg.

This is Bloomberg Well Street Week with David Weston from Bloomberg Radio.

This is Wall Street Week. I'm David Weston. US markets are ending up the year on an up note, but there are at least some economists who are seeing some headwinds for the global economy overall. For her views on the economy in twenty twenty three and what we're expecting in twenty twenty four. Welcome back now, Jennis Everly, she's preferred of finance at the Northwestern Kellog School. Professor. Thanks so much for being back with us on Wall Street. We're good to have you here.

It's my pleasure. It's good to see you.

We spent a lot of twenty trees who it felt like fighting against inflation in the United States, but more broadly, have we largely put that behind us? Do you think as we're going to twenty twenty four.

When we last spoke, we noted that that in some cases, the past is not a great guide to the present, and the last.

Few years have really been outside the data that we're used to seeing, especially in the in recent history over the post tour period, and twenty twenty three is a great example of that history was not a good guide to twenty twenty three. Some things really were different this time around.

What about supply chains when this comes to China, because it appears there's been some reformation of supply chains, maybe pulling back some from China and maybe going to some place like India or Southeast Asia or even Mexico. As we go into twenty twenty four, do you see potential for resurgence and growth in some of those areas.

It's not as if China has moved out of the supply chain.

They just maybe occupy.

They've moved up and down the supply chain, in particular up the supply chain and to become suppliers to other manufacturers. So they still play a very important role which will help their economy, help them to remain stronger. And then you see this diversification moving down the supply chain which will help other countries in Southeast Asia in particular, but also in Mexico for example.

Professor great to have you back on Wall Street. Weig, thank you very much, appreciate your being here. That is Professor Janie Everley of Northwestern's Kellogg School. Finally, one more thought. Back in eighteen sixty, the UK Law magazine wrote that crime does not pay, saying that the benefit of prison was providing time to reflect on that basic maxim and through much of history it seems to have been true.

If you did utilize the fictional statements that mister Madoff was creating you would be in effect reinforcing defraud, letting the fraudster decide the outcome, which certainly would be far from fair under any circumstances.

But they say the exception proves the rule, And this week Global Wall Street got what appears to be a big exception to the rule about crime not paying. This was the year that Chung BEng Jao or cz as his friends going, pleaded guilty to a host of federal criminal charges for the way he ran and finance the largest crypto exchange in the world. The message here should be clear. Using new technology to break the law does not make you a disruptor, it makes you a criminal.

No one is above the law, and it is my responsibility and my duty and my job to enforce it.

Under US law, we presume all defendants are innocent until proven guilty, and mister Trump is certainly no ext At this point, it's far from clear whether or when any of these accusations will even make it to a jury, and by that time he could well be president once again, thank you. But in the meantime, it appears that even the act of charging him with crimes may be paying off, at least when it comes to fundraising. That does it for this episode of Wall Street Week, I'm David Weston.