Bloomberg Wall Street Week: Harman, Patterson, Lehr

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wynhan a back of America, Will Smart CEO Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio. Suspended animation as the world puts aside issues of inflation and earnings and FED policy and even COVID for a week consumed with war in Ukraine. This is Bloomberg Wall

Street Week. I'm David Weston. This week, there was plenty going on, from the price of oil, as Dan Y're gonna h s market discussed, Some say we're gonna have over a hundred dollar oil for much of the year, to what Jeffrey You of b n Y Melon says, is the central banks concerned about inflation expectations becoming unanchored. This strikes at the heart of what central banks are worried about right now, as in a d anchoring of

infacion expectations. But despite all that was happening around us, we spent the week focused on the geopolitical crisis in Ukraine. As President Putin recognized what purported to be independent republics in the eastern part of the country, the West imposed limited sanctions. In response, I'm going to begin to impose sanctions and response far beyond the steps we and our allies and partners implemented. And then on Thursday, Russia did

with the United States had been warning about. It launched a full scale invasion of Ukraine, triggering much broader sanctions from the West and plunging Europe into the largest armed conflict in de Gates, he has much larger ambitions in Ukraine. He wants to, in fact, re established the former Soviet Union. For her sense of where this crisis his head, and we turned out to Jane Harmon. She's President Emerita of the Wilson Center and she's the author of Insanity Events

about foreign policy for the United States. Jane, thank you so much for being with us. What is your initial take. We have a lot of developments yet to come, but as of right now, where do you think this is unfolding? Well, let me say that the book you just plugged, thank you David for always doing that, makes the point that when the Cold War ended, we had no strategy for what the world would look like. We thought we won,

Russia lost, and everybody wants to be us. Well, oops, we missed the rise of terrorism, we missed the rise of China, which doesn't want to be us, and we missed the sense of huge grievance that Vladimir Putin is now uh following through with by Russia, which did lose. But unlike World War Two, where we helped those we conquered become allies and friends Germany and Japan, this time we just rub rubbed Russia's nose in it. And so we're now paying a penalty for all three things. What

do I think is going to happen? Uh? It looks pretty certain that Putin has outgunned, out classed the the the the fight of of Ukrainians, and in some way in the next few days there will be some bad resolution in Ukraine. I just hope that the courageous leader there Zelenski, who has shown so much fight and so much bravery, unlike Gani in Afghanistan, who escaped the country before it fell. UH will be safe. I hope he will be safe. UM. But I don't think this is

where it stops. I think the ambitions of of Putin. Maybe we should give him a red hat that says nate Russia great again, our way beyond this, and he's trying to take down the liberal world order that we formed after and take advantage of the fact that there is still some disagreement among Europeans and European institutions at US. I commend President by for lashing US up to partners and allies and UH doing with them everything that's doable.

And I do think there will be more sanctions by all of them and US, both on individuals and on UH banks and institutions, and those sanctions will bite. I don't want them to bite the Russian people. I really want them to bite Putin and the collector Prats who are doing this. Jane, you mentioned Afghanistan in a more recent time, but let's go back a little bit of Afghanistan. Because Russia went into Afghanistan at one point they spent quite a few years in there and it came to

tears in the end. Do we have any sense do you have any sense at this point of the likelihood that infect Russia will simply be able to make you create a vassal state and that's done with, or they could have a protracted conflict the way they did in Afghanistan.

I think this could be even worse than Afghanistan. Um I was on the magn that's the square in in uh In, Ukraine and Kiev in looking at the little memorials that were put up to the folks who gave their lives to topple this Russian puppet Janakovich, and that led to free and fair elections first of Poorshenko, who's there uh In in Ukraine right now strapping on his weapon, and then following him to Zelenski, And so Ukraine has been a Western free democracy for seven plus years, even

with Russian interference in the eastern part the don Bus. And I don't think these folks are going away or given up. And I think this is gonna be an ugly story if if, if Russia tries to occupy the country, and I don't think Ukraine is gonna surrender easily, and this is not going to be just not gonna be a cake walk for Russia. Jane Len double back on something you said that you thought that this one was not necessarily the end for President Putin's point view of

horry wants to go. That's something that's certainly President Biden said this week. So how nervous does President Putin have to be about triggering that Article five of NATO if it goes into places like Poland for example. Well, it's it's interesting, Um, the NATO was only invoked Article five once, and that was after nine eleven. We didn't ask for it, Nick Burns. Uh, this mutual friend of our, David who was going to represent the Sun China was then the

ambassador to NATO, and they didn't ask us. They just voked Article five to come to our defense after nine eleven. Um, since then it's never been invoked. But you're right, Uh, Poland is a NATO country. We're sending additional troops and the whole compliment of NATO troops is increasing. Thank you so much, Jane, Really wonderful to have you with us at Jane Harmon, She's President Emerita of the Wilson Center.

Let me come back. The Market's response to the war in Ukraine with Kate Moore, Black Rock and Rebecca Patterson of Bridgewater Associates. This is Bloomberg Wall Street Reek. I'm David Weston. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Ukraine dominated a tumultuous week of trading, with the SMP five hundred falling into correction Territory and Thursday only to climb back up to two for the week.

The Nasdaq was up also by one point six percent, while the Tenure veered from a yield of under one point eight five to over two point oh, ending the way just under the two point oh mark. An oil Oil, of course, got hit the most by the uncertainty over Ukraine. Brent shot up to over one five dollars of barrel after news of the invasion hit on Thursday, and then settled back down to nine dollars of barrel when it appeared that sanctions wouldn't hit the energy sector as hard

as was thought, at least for now. To to help us understand the market reactions welcomed now. Kate Moore she's head of Thematic Strategies at black Rock Financial Management, and Rebecca Patterson Bridgewater, director of Investment Research. So let me start with you, Rebecca, what about what happened with equities

this week? It was all over the place. Well, you know, obviously we were all focused on the Ukraine and what was happening there, But UM, I think it's important to remember that the markets are always being driven by a myriad of factors. Ukraine was front and center, but we also were in a period where we had a lot

of buybacks going on. A lot of those tech companies that had sold off a lot probably benefited from that as we got into end of the week, and of course we're going into month and rebalancing, and so that can also cause a lot of trading. So even when things are very whippy and you don't always say, how does this tie to the headlines with Ukraine, it's important to remember that there's a lot of things going on

behind the scenes. In addition to that, obviously that was the most important thing, and as you said, the possibility that sanctions won't be as hard as they might be at least for now, UM might have also helped us get a little bit of a reprieve towards the end of the week. Kate, Yeah, I know, you're very interesting resources companies. What happened with resources companies? We actually had

a phenomenal week once again for resources companies. You know, in the US, the x m E, which is the sp by D Mining E t F, hit a ten year high uh and globally we've seen the same kind of thing across resources companies. You know, it has been a phenomenal rally driven by both good supply demand dynamics as well as some concern over ongoing supply disruptions, particularly from the rush of Ukraine situation. So you have both the geopolitical and the fundamental side really backing up an

incredibly strong rally in a sector. When you think about the miners in particular that have been so unloved for so long. It was a place I played in in a many parts of my career. I had a dust off some of my playbooks and some of my skills there.

One thing I'd add to what Kate just said on some of these resource companies is even before Ukraine and the threat to supplies that that implies, we already had a situation where demand obviously very very strong with all the fiscal and monetary stimulus after COVID, But then on top of that, a lot of these sectors has seen under investment for years, so supplies were already somewhat low before we had this demand shock, and now we're in

a situation where supplies aren't even close to what we need. Whether we're talking about oil with under investment both in the US and by OPEC countries, whether we're talking about a lot of crops. We've seen under investment in the last couple of years, partly a weather situation, but supplies very low and in the metals, and so demand is improving after o macrons starting to fade. Hopefully the Ukraine

situation won't dent that too much. So you have strong demand and these supplies that can't keep up, and this just creates an additional risk on supply. So I think to Kate's point, some of these companies look like a good inflation hedge, and they're also just in a great position to benefit from that increased demand. Yeah. I would add on to something else for Becca saying, which is in addition to what's happening in the very near term

around supply demand. There's also a longer term demand story. A lot of these miners produce metals that are actually incredibly important for the energy transition and for electric vehicles,

and we're seeing them undersupplied in the market. We've also seen like some metals like aluminium, for example, or some resources like aluminum um, you know how, kind of a bit of a backlash against you know how some of the that is produced, and so aluminum producers that use natural gas or cleaner energy to produce are coming into favor. It is a place where I think we'll see continued

support for prices over the medium term. Rebecca, this is a geopolitical crisis with a specific location, which is Europe, and we saw at various times this week a really different reaction in the markets depending on Europe versus the United States. Do you think that will persist? Unfortunately, I do. You know, we we don't know the duration or the degree of the Ukraine crisis, and so obviously that matters. But even if there aren't the worst possible sanctions on energy,

they want to get the energy flows to Europe. A third of Russians oil exports go through the Ukraine. So if you have a situation where they can't get the flows through, You're gonna see higher prices no matter what's going on with the sanctions. So what Europe seeing is greater risk of what I'd call a stagflationary shock, where inflation, which is already more than double the ECB the European Central Banks target, is going higher and at the same

time growth is going lower. Part of it is a sentiment shock, but part of it is the inflation eroding people's disposable income. Do they just have less to spend? So the good news is that going into this shock, growth was improving, so they're starting from a strong place. The question is how far does this pull them back? And then how does the European Central Bank respond more to growth or more to the inflation. They're in a

really difficult position. Okay, I wonder about Europe in general, because before this all happened, there were those who were saying this was gonna be the year for Europe. Finally we're gonna have the year for Europe because valuations were very attractive, there was gonna be better growth. Does this change that dynamic or did you believe in it to

begin with? Yeah, David, I never believed in it to begin with, and I think those folks that work with me know that, well, let's not call myself a euroskeptic, but someone who doesn't believe that buying European index exposure

makes sense in most scenarios. When you buy Europe, get a lot of exposure to what I would consider lower quality, lower growth companies, big exposure to the Bank's, big exposure to some you know, companies that I would think of as having more stagnant business models and don't have kind of dynamic flow. So it was not something I was

really excited about to begin with. And I think one of the things that's not fully priced into European equities right now is the extent to which that which this Russia Ukraine conflict UH could lead through into European growth. I think it's incredibly important to be selected in your

European investments at this point. There are plenty of great, high quality companies that are not just going to be geared towards domestic growth, and I think that's where we need to focus our attention when we think about exposure to the region. One thing I'd add to your point, Kate, if we're looking for catalysts that could affect our outlook on growth in Europe would be what happens fiscally. So Europe is getting its act together this year. They're all

talking about what should our fiscal framework be. Their fiscal policy right now, they're set to start imposing their old policies. Pre pandemic policy is next year, but they may decide because of the Russia Ukraine conflict, to give another extension, so letting governments spend a little bit longer, not putting that austerity straight jack and back on. If they do that, that could be another support to growth that I don't

think is discounted in prices right now. We should know that around mid year, So in addition to what the European Central Bank does, how they respond, this would be another important catalyst that I think could affect views. Again, I agree with you, Kate, certain stocks more than others. Many thanks that a Kate Moore, Black Rock and Rebecca

Patterson of Bridgewater Associates, Director of Investment Research. Coming up, Debra Lair of the Pulse and Institute on the China piece of the puzzle that's coming up next on Wall Street Week, and we are on Bloomberg this is Bloomberg Wall Street Week with David Weston from Bloomberg Radio China. It's been the economic success story of the last half century, as g d P and per capita GDP have gone up faster than any economy in history. But now some

people see some problems developing. Whether it's the struggling property sector flagged by investors like George Soros, China is facing an economic crisis centered under real estate rclipt, which has been the main engineer of growth ever since she Deven came to power, or the policy at zero tolerance for COVID that experts like Amish Adelage of Johns Hopkins find just plain wrong. COVID zero was wrong from the beginning.

If someone wrote that on an essay question on a test, I would say that's a wrong answer to how you deal with this type of a virus. Factors that lead our special Wall Street we contributor Larry Summers to suggest we may be overestimating China's economic strength and underestimating its problems. Consider the possibility that we may be underestimating uh China his challenges now, and we need to be particularly careful about being overly provocative too. And for more on China.

We're going to turn out to I'll call her our resident expert on China. She's Deborah Laire. She is the CEO of Edelman Global Advisory as well as the executive director of The Pulse Sinister. Welcome back to Wall Street. It's good to have you here, very delighted. So you understand President gy and China better than most Americans do. Give us a sense of how he looks at this year going into two. Well, this is a really important

year for she didn't paying for many different reasons. It's he started his reselection campaign leading up to a potential third term as president. He is still managing the economy coming out of COVID. He is facing the big question of how to reopen after the zero tolerance policy and COVID lockdown, and now his new friend Ladimir Putin has put him in a very difficult position as he has to choose between the relationship with Russia and the relationship

still with the West then particularly the United States. So what about that relationship. We saw the two of them together at the beginning of the Winter Olympics, sort of pledging their troth if I can put it that way, They're really supporting one another at the same time, Often people who are autocratic don't like violations of boundaries. And now we have Russia invading Ukraine. What is China's position here and to what extent will they help Russia out

by buying things like oil and wheat? Great, Well, you know, it's it's I guess a certain irony that it's the fiftieth year to celebrate Nixon's kind of visit to China and the reopening of the relationship, which was really driven um as a way to counterbalance Russia. And we're now back in looking at this triangle. Russia's move has put to Jumping in a very difficult position because traditionally the

Chinese position is not to violate national sovereignty. On the other hand, Vladimir Putin is making certain arguments about a historical legacy that resonate for China when it comes to its position on Taiwan. But China is still very dependent on the West. Looking ahead at the economy, you know, we've we've talked a lot and there's been a lot of discussion about what the impact of COVID in the

lockdown has been on the Chinese economy. Well, it's we've looked really at some of the fundamentals, not as much as you would be led to believe that the real drags on the economy have been a tight monetary policy. They have been the lack of semiconductor chips because of U S sanctions, and the energy shortage. She has been

starting to address all of that. They're looking at ramping up monetary policy with a stimulus program in this first quarter because that will start to hit come October November,

just as he is standing for his reselection. But also he's been addressing the energy shortage, looking at what's going to happen with rush to China just signed long term contracts when Vladimir Putin was there in early February at the start of the Olympics for wheat where Russia and the Ukraine or some of the largest growers, and for oil. But if the oil prices go up to you know, they're already hitting a hundred a hundred and fifty, people

are speculating even two hundred. This is going to have a significant impact on the Chinese economy and their ability to maintain even what we speculate will be a five percent goal of growth this year. What about the growth level, because China has really been an engine for growth globally, not just within China. Globally it is slowing down somehow

badly is it slowing down? Well, if you look at last year and you talk about the effect of COVID putting aside kind of this, these talks of the lockdown in the supply chain, if you look at the numbers, it's unbelievable. They had an absolute banner year when it came to production and when it came to exports. So the supply chain kind of hold ups weren't necessarily from China, accept in some isolated cases when they did close down a port for a COVID scare or something like that.

They really were an engine of growth with the rest of the world. Now this is going to be a supply shock to the rest of the world, and what Russia has done is going to have an impact on global growth and that is definitely getting hit China because they still are dependent on these export markets. Okay, thank you so much, Devor. That's Deborah Lair of the Pulse and Institute. Coming up. We wrap up the week with special contributor Larry Summers of Harvard. This is 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. We're joined once again by our very special contributor for Wall Street Week. He is Dr Larry Summers of Harvard. So, Larry, it's good to see you again. This has been a rough week. I think it's fair to say the big event of the week was that a full scale invasion the likes of which we haven't

seen since World War Two of Russia into Ukraine. What are your thoughts overall what we've seen this week From the perspective of six months ago, this is a shock from the perspective of what had been unfolding and what U.

S Intelligence had been telling us. Um it wasn't that surprising when it came, But make no mistake, I think there's a real chance that this is going to be one of those moments like January six, like nine eleven, like November two, that echoes through UH history that this kind of naked aggression could take place in UH Europe, that there could be the kind of emerging alliance that

we have seen between Russia and China. At the same time means that we are in a very different world than many of us had thought we were headed into. The United States faces far graver challenges to its security than anyone would have thought likely even UH several years ago, and that's going to have ramifications or needs to have ramifications for almost every aspect of our national life. History

has not ended. We are engaged in the kind of struggle that Lincoln UH spoke of about whether government by the people for the people can long endure. That is a challenge domestically, that is a challenge globally, and anyone who thinks that it is not a challenge to their ability to flourish and profit as a business is making an enormous mistake, because if we lose this UH struggle, it is not only our freedom and our security, but

our prosperity that will be at peril. The thoughts of all of us, I'm sure our first with the men, women and yes children Ukraine and what they are going through right now, and also the issues of the world order that you're raising, which are very profound. At the same time, this could have as well some profound economic consequences, particularly in the world in the United states, particularly where

we have a fair amount of inflation. What do you think the economic implications of this geopolitical crisis could be, David, It's not gonna be good. UM. The direction is stagflationary. The direction is both to raise prices. We're seeing that in oil and energy and other commodity markets. The direction is also to UM reduce reduce the level of demand and spending as those price increases, UH sap purchasing UH power.

So the very difficult job that the FED had already made for itself by falling so far behind UH the curve has become that much more difficult with what we have seen. The danger is that Team Transitory will morph into Team It's a supply shock caused by oil and find further excuse to avoid taking the necessary steps to UH contain inflation, and therefore postpone the ultimate UH reckoning and make more serious What is what needs to be done UH to UH contain inflation. The argument will be

made that we can't afford restrictive policies. The problem is that we also can't afford an entirely unsustainable economic path that will ultimately set the stage for more economic distress, more pain, and more UH, reduction in employment for the most vulnerable people in our society. This is a very serious moment, and it's a moment when policy makers have great responsibility to do things that are not easy. Larry, I don't know if his team transitory or app but

respected economists I know you respect him. A former classmate. Here's Paul Krugman weighed in on the inflation question, at least one aspect of it this week in the New York Times, where he essentially, if I can summarize it, took issues with what he called sort of technocrats who were distancing themselves from the Biden administration by criticizing some of the politically popular things that have been suggested, such as, for example, suspending the tax on gasoline, something you commented

on last weekend this program. I got a reaction from you. I saw on Twitter. Paul's a brilliant guy, but on this I think he is way off base. We would not be where we are if any of the economists who saw inflationary danger last summer had been prepared to speak up and express UH their concerns. By giving air to the bogus view that inflation has something to do with greed. Distinguished economists are delaying the moment at which

it will be confronted in a serious UH way. I am not worried about independent economists speaking their mind when they're out of government, rather than maintaining some kind of loyalty to a political UH viewpoint. I am worried about columnists who choose to use their influence is distinguished economists only to reinforce the prejudices and instincts of a particular political constituency that I think is a much greater UH danger.

Paul Krugman is the world's most distinguished international economists. Let's hear his views opposing protectionism. Let's hear his views recognizing the importance of international interconnection in holding down UH prices. Let's hear him. Let's hear him UH be prepared to challenge policy approaches that almost all economists recognize are misguided. So letry Let's take a moment here at the end

to look forward to next week. We're gonna have the first You'll Stay in the Union dress from President Biden on Tuesday evening. That's always an important and yes, challenging speech for a president. It's going to be particularly so I suspect this. You're given what you've just been saying about inflation, but also the war in Ukraine. What would you like to hear from President Biden on Tuesday? You know, I think there are things that are more important than

the usual laundry list of UH policy proposals. I'm hoping to see a real change in tone from the president. At a certain point, President Roosevelt shifted from being the end of depression president to being the win the war president. President Biden needs to shift from being the protect the middle class from the pandemic president to being prepare America for the strong uggle ahead of President. We don't need a middle class foreign policy now. We need a safe

and secure world UH policy. UH. Now, we don't need efforts to provide particular tax cuts or particular benefits to particular constituencies. We need a return to the spirit of President Kennedy, who, at a moment when the country was challenged, asked America not what their country could do for them,

but what they could do for their country. And so I hope that President Biden will recognize the gravity of UH the moment, will signal the necessary UH pivot given what is happening in Russia, What is happening in Nina, What is happening to the two of them together, And what is happening to our own democracy? Our own democracy.

When a former president just fourteen months thirteen months out of office is calling the leader of a country who launches a world war a genius, that is a grave threat and it points to a kind of polarization in our society that the president needs to address. That doesn't mean particular issues about particular aspects of the way registration rules work in particular states. It means the broad character

of our democracy. Important moment, well said, thank you very much to Larry Summer at Harvard are very special contributor here on Wall Street Weak and this is Wall Street Week on Bloombrook