This is Bloomberg Wall Street. We turn our attention to the markets this week. U s CPI never's reinforcing concerns about inflation. The financial stories that chief are worth a really different reaction to Mark. It's more indications of just
how hot the U. S. Economy really is. Through the eyes of the most influential voice of Larry Summers, the former Treator Secretary Katherine Keene, CEO of the n Y mom Sam's l Sharmon and founder of Equatic Group Investment in Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This hasn't happened in Japan in decades and decades to the present Prime minister is a very solid guy. Japan
is a very very stable ally. It is cleaning out of the will of the parliamentary Conservative Party that that should be a new leader of that party, and that for a new prime minister. Two world leaders gone, Boris Johnson from Scandal and Shinzo Abe from an Assassin's Bullet. This is Bloomber of Wall Street Week. I'm David Weston. This week special contributor Larry Summers on how we can have our recession with full employment it's not something we
have ever seen before. And Deborah Jackson of plumb Alley on what a downturn could mean pre venture capital. Will the market be there? In my opinion, look at look at history. Two influential leaders left the world stage this week. First, British Prime Minister Boris Johnson quit after a soap opera played out at Number ten Downing Street, a board bullying and abuse of power anywhere in this party or in any other party. None of that explains why he promoted
him in the first place. I'm not going to trivialize what it's absolutely true, Mr Speaker, that it was raised with me. I greatly regret that he continued in office, ultimately leading to Prime Minister Johnson stepping down and triggering a search for a new government. And then at the end of the week, an assassin took the life of former Japanese Prime Minister Shinzo Abe. It was for us,
clearly it was great leader or death. NATO Secretary of General Stoltenberg said that he would welcome Sweden and Finland into the Alliance and said, by the way, there's room for more. This is an historic day for Philon, for Sweden, for natal and for you Atlantic security, while minutes from the fo MC meeting last month did nothing to suggest that the FED is looking to back off of its
tightening path regardless of the recession risk. In recent discussions, Pale has been very very clear that that he understands they have a big problem and they need to be
more and more restrictive. In the midst of the turmoil, the Great and the Good of media and Tech gathered for their annual Sun Valley retreat with Discoveries, David Zaslow saying the downturn could be good for his media behemoth, a lot of termoils hitting a lot of opportunity, and with all that, the week still wasn't over, with US jobs numbers on Friday coming in higher than anticipating in number and a bit lower in wage growth, indicating that
the economy is still strong, much stronger, as it turned out than Elon Musk's promised to buy Twitter. Because Friday evening we learned that Mr Musk had thought better of the deal he'd offered and was calling the whole thing off. Well,
what did the markets make of all this wild week? Well, stocks were up, with the SMP five hundred higher by just under two percent and the NASDAC rising four point six percent, while bonds sold off a bit, leaving the ten year yield just above three percent rather than just under as it was last week, and the dollar posted another week of games here to help us sort it
all out? Or liz Ane Saunders, chief strategist for Charles Schwab and then only Causeway Capital Management, fundamental portfolio manager. So let me start, Lisane, if I could with you, what did we learn from the markets this week on the economy? You know, if we start with the job's number, I don't want to say on the surface it was strong. I think there was you could you could nip pick a little bit with the average work week down as
you mentioned, David, wages coming down. But I think that the shift in the market maybe had less to do with some change and outlook for the economy, because you just sort of, for whatever reason, saw speculative juice is sort of kick in again, the leadership back in those highly speculation driven, lower quality segments of the market, which at this point looks a little bit more like your typical bear market rally where you see just some counter
trend moves versus new assessment of either the plaction or the economic landscape. And I'm not sure that the jobs data changed that to any significant degree either. So only what about from your point of view as a as an investor, here is it time to say maybe there is an area for a bear market rally or is this just a tiny blip? You know, the real earnings hit will come in second half, as we're seeing, we're hearing from companies, especially retailers, saying they're already seeing weakness
from consumers. And I believe this is a tiny blip. Rates are up, you know, investment sentiment is down, and consumers, especially to the middle to the lower level of income level, they're getting squeezed. And we're already seeing consumer downtrading. Listen, what about the consumer of the U. S economy? And we kind of the consumer yet again, I don't think so.
I don't know that we see a significant implosion. But what you're seeing in the data already is a slowdown and demand is slow downa spending, specially in the stay at home area, the goods oriented side of the economy, which if there's a silver lining, that bodes well for those components of metrics like CPI and inflation, because that was the breeding ground for the inflation problem with which
we're still dealing. So that's a positive sign. You know, there's this debate out there about excess savings and and the strength of household balance sheets. David, we talked about that earlier, and the only rub with that analysis if you do it in the aggregate, it doesn't pick up the fact that most of that call it excess savings is concentrated up the income spectrum. So I think that the surge that was represented by the consumer in the economy coming out of the lockdowns, I think that's that's
very much in the review. It's such a good point. Thank you so much, liz Ane Saunders and Eli will be staying with us as we turned to some investment advice in a somewhat conflicted market. That's gonna have next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. But even
the slowdown seemed to be slowing down. While the mixed news they are carried some unexpected blessings, such as a temporary drop in the unemployment rate, the hope that the recession might squeeze out substantial amounts of inflation seemed to be generally fading even in the government's forecasts, and so with eminently good cause to panic and crash the stock market, that perverse little devil rallied and surged. And that was the way Lewis Roguiser saw it on Wall Street. We've
been in the back in the fall of nine. We were trying to address a much bigger beast of inflation and looking for an economic downturn to do the trick liz Ane Saunders of Charles Schwab and Ellen Lee of Causeway Capital Management have saved with us. So let me start to you with you about specific investment advice, because I came across this and find it in shreaking idea of idiosyncratic self help. I think you call it what
does that tell us about a company? So basically, i'd caused we were looking at companies on a bottom up basis. So I'm trying to find, you know, risk reward where we're taking a conservative view on the outlook of the company, but there are things within the control of the company where the company can increase its earnings and better the business model of the company. So an example, I will use. Here is a company called Unilever, you know, based in
UK slash Netherlands, a massive consumer company. They recently had Nelson Pelts, a share older activists come in and join the board. And this is actually great news because the restructuring that they had take on themselves, you know, is going to be accelerated by a shareholder minority shareholder advocate to push things forward. They had not been as good as pushing the innovations as in a timely manner. We believe an activists being there will really push the management
to accelerate that timetable. And this has nothing to do with the economic slowdown we talked about in the previous segment, because they're doing things internally to really energize their sales and ultimately increased earnings of the company. So listen, I love me put that and sell with different terms which Ellen may agree with or disagree with. You know, we
say a rising tide lifts all boats. I think what you're saying is that when the tides that going up, you have to find some boats that float a little better than other boats do. What are you looking for is and in terms of advising people on investments right now, yeah, so we have. We've really been taking more of a factor based approach versus say, either a sector based approach or trying to pick your traditional style boxes of large cap small cap growth value. And really what the theme
has been around the factors we've been emphasizing. It's sort of a quality wrapper um and almost hybrid factors where where you look for reasonable value. But also especially in what we think, and I know Ellen agrees, we're go heading into I think a more earnings constrained environment. So when that happens, earnings become more dear and there's more
value than two. Companies that have that higher profitability, have that positive earnings revisions trends, while also keeping a mind the need to have strong free cash flow, healthy balance sheet with high cash, low debt. You sort of look at the macro picture, see what's lacking, and then look for companies that have that in relative terms, and you can apply factor based analysis or factor based screening, and Bloomberg has great data on factors across the spectrum of
large cap small cap. You can look for growth characteristics in stocks that live in the value indexes and vice versa. So I think it's you're less constrained when you take a factor approach, then if you're just trying to make a sector caller to let me put a geographic lens on this if I could, and I'll start with you here.
What about your What about China? Some people are investors are saying right now China is a good place for example, to look because they're loosening monetary policy at the same time the rest of the world is tightening it. I think in you know, China recently, there's been a lot of bad news price then because of the regulatory risk and the COVID policy. And as an investor myself looking at companies on the bottom up basis, you know, the fact that there is you know that they're they're in
a loosening policy. Plus you know, hopefully in in the foreseeable future, the zero COVID policy goes away. I think there are companies like Macau, casino operators like Las Vegas, Sands or Sands China that could really benefit from a reopening of the country. And hence, you know, we find those opportunities to be very attractive in the current time. And in the case of Europe, you know, you you
you mentioned earlier in the segment. You know, dollar has never been stronger, and now you know with your of what it's based with the Ukraine situation, there's gonna be
a lot of fiscal spending to beef uppets infrastructure. I know there's a lot of concerns about recession because energy prices are going up, But if you are able to find companies where they're going to be beneficiaries of more spending because energy infrastructure has to go, has to be beefed up, you will find good opportunities in those markets
as well los An opportunities geographically. So I think there's still probably some storms that are going to have to be weathered globally with with bouts of volatility, especially given what's going on in currency markets, and not to mention the war and the impact on the consumption side of
economies in UH in Europe. But I think, thinking from a more secular standpoint longer term, I think when we whenever we do come out of this, I like to think of as a dual cycle when we're through the bear mark it, when we're through the recession that that
I think is either happening or will happen. What tends to happen when you come out of those dual cycles, especially if they're global in nature, is you tend to see a change and where leadership resides from a macro perspective, And it is our view that we're going to see more the greater benefits of diversification outside the United States. That's different than saying we think, you know, non US is going to handle the outperform US, but there hasn't
been that benefit of that global diversification. We think that's the next secular shift. Is that I can't let you go over that as well, Leon Musk and Twitter here, I know you don't like to invest by sectors. Does that phenomenon tell us anything about the sector of tech? Or is it should use the word idiosyncratic when it comes to along Musk, I don't think it's it's a news slash that he's a bit of a quirky guy.
So I think making a broader inference about the industry um, at least at this point, I think is a is a stretch. I think it is more idiosyncratic that the popular word of our segment here today. Does that sound right to you? Ellen? Totally agree? Okay, that's nice to end a note of agreement here many thanks now to Ellen Lee of Causeway Capital Management and also to liz Anne Saunders of Charles Schwab coming up. The economic slowdown is hitting the public markets hard, but what's going on
behind the scenes in venture capital? We asked Deborah Jackson of plumb Valley. This is Wall Street Week on Bloomberg. Neil Armstrong waited six hours and thirty nine minutes to step onto the surface of the moon. Jackie Robinson waited twenty months to play his first game with the Brooklyn Dodgers, and even DiCaprio had to wait twenty two years to win an oscar. You can wait until your destination. Don't text and drive, Visit stop Text Stop rex dot Org.
A message brought to you by the National Highway Traffic Safety Administration, Project yellow Light and the AD Council. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Whether you call it a recession, there's probably close to a fifty chance. Maybe it's a bit less than that that we've had two negative quarters in a row or not. I think there's nothing inevitable about this recession. There is no question at this point that the economy is slowing
changing the world. Whether it's the world of stocks, we're pretty close, you know, it's um it's sort of a losing game to who call the bottom of the market or of credit. Spreads were again much lower than you might look at from a tenure average relative to economic outcomes. But what about the world of patient capital, capital directed toward long term innovation capital that's meant to change the world.
President Biden's Special Climate Envoy John Kerry thinks that there's a lot of money in venture capital still headed toward new technologies, directed to the energy transition. It is appropriate, I think, to have a gas transition while you bring technology to scale that is going to change altogether what we're doing. And frankly, it's about a trillion dollars a
venture capital already moving towards these new technologies. But others like Ben at Coasla of Coastal Ventures, think the downturn will have to effect at least the more vulnerable venture capital firms. So I do think given the hype we've seen the last five years, we will see decline and returns. The good firms continue to be disciplined about valuations. But I do think in general for the industry will see
a decline, the best phones will still do well. Debord Jackson's at the very center of venture capital with the firm that she founded and now runs. It's called plumb Alley. And we welcome right now to Wall Street Week. Great to have you here, Debora, Thank you for joining us. Thank you for having me, David. So, the big question is there's a downturn, without doubt, you look at the markets with its equities or dead or whatever downturn, is
it affecting venture capital? And if so, how well the big macro issues that we're facing in the public markets like inflation, um, supply chain challenges, and also things like the recent Supreme Court ruling that would affect EPA regulations. All of those factors come into play for the public markets. They also have implications in the private markets. However, the
private markets are very, very different. So the private markets, when you think of venture investors are looking at the medium term time frame, not like short day to day trading and immediate effects, but more over a course of seven years for a series A level financing, and so there are it's a it's a medium term kind of investor mentality that's happening. I think it's important to know that there is so much money that's been put out into venture capital over the last few years. We had
a record amount it was over the previous year. So you think about it, we have this huge amount of capital that's already been deployed into early stage companies. We also have about six hundred thirty million billion of dry powder that's already been raised and ready to deploy. So what does that mean? That really means that these venture firms, early stage companies have a lot of fuel in the tank to keep going to weather this current market situation?
Does that large amount of money, even huge amount of money, make your job more difficult? You're looking for presently for really great opportunities. If there are a lot of people in there, maybe maybe not as disciplined as plumb Alley is. What does that mean to valuations? Are people overbidding? Do you have a tough time finding a prop or prices for what you want to invest in? Yes? So at plumb Alley were very, very focused on the fundamentals. And
I come from Wall Street. I spent twenty years on Wall Street at Goldman and other places, as do my team members. So we come at looking at venture from a kind of fundamental point of view, which means, do the companies have revenue, do they have real customers? Do they have a real product that we need in the world. If the answer to that is yes, then you drill
down and look at the numbers. And in our case, the companies that we funded have revenues, but we only look at you know, six to seven times current revenues for a SAS company, and in the market that number has been about twelve times revenues. So we have seen this situation where valuations have been way overpriced um and I think that's a reflection of the fact there is so much capital coming into the market. When there's a lot of capital in the market, it pumps up valuations.
But that's also presumably part why there's a lot of dry powder. Because if you if you're only willing to go to seven times and people are spending twelve times, you don't spend the money. You have to set on your money until you find the proper valuation. Where are the opportunities that you find right now? That makes sense? Well, we we've invested now sixty million in twenty seven companies, so we've been at this for five years, so we have had the opportunity to see the market change over time,
but we have stuck to our knitting. We have stuck to the fundamentals, which is do what are the revenues? What is the company actually doing? Is the company essential for our future survival and for more productivity and industry? Does it really matter versus companies that are sort of optional like dog walking apps. Deborah Jackson, thank you so much for joining. Debora Jackson is with Plumber Alley coming up. We wrap up the week with our special contributor, Larry
Summers of Harvard. That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Weston. We are joined once again this week by our very special contribute to the Wall Street Week. He is Larry Summers of Harvard. So, Larry, thanks so much for your coming to us, actually from Sun Valley. It's good of you to do. We've lost It strikes me two world leaders in a sense this week, in very different circumstances. Boris Johnson of course forced to
step down as Prime Minister of the United Kingdom. But then at the end of the week we lost to an assassin's bullet Shinzo Abe, the longest serving Japanese prime minister in history. I wonder is this telling us anything larger about the state of the world When we have these sorts of events in a single week. You know what, The assassination of shin zhuo Abi in Japan is a tragedy. Is a tragedy for his family, It is a tragedy for Japan. It is a tragedy for the Japanese American relationship,
which is a lynchpin of our whole approach to Asia. Ultimately, I think it is a global tragedy, and I have to think about what it represents, and it represents a manifestation of a kind of swirling anger that seems far too pervasive in our politics almost everywhere in the world. In a very different way, Brexit Boris Johnson's ascendency represents that kind of swirling anger, and his ultimately falling UH from power is a product of these kinds of divisions.
And we certainly see this Uh in our own country, with the question of wordly succession of power on table, with the bitter controversies that surround UH the Supreme Court. And so I think Ultimately all of us have to reckon with UH. This UH rage um. That seems to be a feature that cuts across very very many societies, and that is going to be a a framing aspect as we discuss the more narrow particulars of economic policy
going forward. Larry strikes me that former Premnister Abbe had fairly profound I believe macro economic effect, unlike a lot of prime ministers and have matter of presidents. Even had it named after him, abanamics, what was aminamics? And in
the end did it work? Abanomics was an attempt to jolt UH the Japanese economy out of two decades of secular stagnation and disinflation, with radically expansionary policy, both on the fiscal side and on the monetary side, and with UH structural policies like major efforts to get women working and enfranchised in UH the labor force. And I think one would have to say that it was a success by the standards of what had come before, but it was not a fully mission accomplished in terms of what
was happening UH in UH Japan. But I think it will be remembered as one of the more aggressive and successful reprogrammings of macroeconomic strategy that we've seen in a
long time. And if, as I fear um after this current inflationary episode, the issues of absorbing savings secular stagnation that we've talked about on and off on this show recur in Europe and in the United States, then I think that a economic legacy will be studied very very carefully, because in some sense Japan was the first to experience UH, the challenge of demographic UH contraction and of excess saving,
but it may not ultimately be the last. Bringing back the United States and some of those questions you just mentioned about inflation. We got jobs numbers at the end of this week, higher in the terms of the overall addition to jobs at the same time a little lower than was expected by some, at least in the way increases. What did you make of the jobs numbers? Look, I think we have a very ambiguous UH economy right now. We've got indicators of strength in many in many sectors,
particularly travel and services. This was a strong employment report. Once again, in an economy where the labor force only grows by fifty or seventy five thousand people a month, you can't forever be creating three d and seventy five
thousand UH jobs. UH. There's nothing here to suggest that the economy is currently collapsing into recession, and we certainly could have seen a wage inflation number that was much more alarming, and so from that point of view, I think there was a little bit of reassurance on inflation here, but we still have a very ambiguous UH picture. I don't think that this changes fundamentally the picture we had
UH coming in. So I think that most people are saying there's little in these jobs numbers they would indicate to the Federal Reserve that they should back off at least yet the rate hikes. Do you agree with that? And what factors should they be looking at as they determine whether, in fact and when they should back off. I think that there's nothing here that should change somebody's mind in a major way about what monetary policy is going to need to need to do at the next meeting,
or at UH probably the meeting after UH. The next meeting, I think what would UH start to change things would be very strong have a is that the economy was slowing substantially in an across the board way with respect to consumption and investment demand. I think if you saw a precipitous decline in the level of vacancies and level of labor turnover, that would be an indicator that I
would be watching. But as long as we're in almost unpressed were actually unprecedented territory in terms of the ratio of job openings to unemployed people, I don't think we can stop being uh concerned about inflation. Larre, It's always so helpful to hear from you. Thank you so much. That's Larry Summers. Our very special contribute here in Wall Street Week is of course from Harvard University. Finally, one
more thought. Suddenly everyone's an expert on the economy. When President Biden first proposed that massive one point nine trillion dollar American Rescue Plan back in January of two one, our own special contributor, Larry Summers was first to say there was just too big, particularly coming after two earlier rounds. You're talking about something that relative to the GDP GAP's six times as large. But White House economists said it
was needed and would not be inflationary. Getting the state of the problem and of the economy, risks of doing too little far outweigh the risks of doing too much, and Federal Reserved Chair J Powell, who by the way, is trained as a lawyer, not an economist, stuck with the transitory claim as long as he could before finally admitting that he had been wrong. What did we get wrong? And that really was looking at these supply side issues
and believing that they would be resolved relatively quickly. But at least that was a bunch of economists disagreeing with one another. Now we're going way past those trained in the dark arts of economics. Inflation rules the game. Latian fears are in your head. Inflation is high. Inslation, that's the bigger problem right now. It is understandable that the
President has to weigh in on the issues. So last week Mr Biden, who by the way, as a lawyer, took to Twitter to explain why he thought gas prices are too high, blaming the companies reaping record profits. I call on the companies to pass this along, every penny of this eighteen cent reduction to the consumers. But then Jeff Bezos, whose degrees are in electrical engineering and computer science,
decided to give the president a lecture on economics. Responding again on Twitter, calling Biden's words misdirection or a deep misunderstanding, which in turn led John Kirby from the White House, who's a retired rear admiral trained in international relations and national security, to spring the president's defense. Anybody that knows President Biden knows he's plain spoken, and he tells me exactly what he's thinking and in terms that everybody can understand.
So I think we obviously take great exception at the idea that this is somehow miss direction and not to be left out of all the fun President of Vladimir Putin of Russia apparently decided to impose his own solution for inflation by imposing an excess profits tax on gas
prop without all that fancy economic talk. In the end, it is easy for those of us to second guests those who are making the decisions, particularly when they seem to be going wrong or at least have unintended consequences, which brings us back to that font off so much wisdom from over a century ago. It was former President Teddy Roosevelt at the Sorbonne who said, it is not the critic who counts, not the man who points out
how the strong man stubbles. The credit belongs to the man who is actually in the arena, who at the best knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least fails while daring greatly. There is no question that President Biden, the one now in Roosevelt's arena, has dared greatly when it comes to the economy. Now we all have to hope for all of our sake, the there's triumph at the end of this rocky road. That does it For
this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week. M