Bloomberg Wall Street Week - June 28th, 2024

This is Bloomberg Wall Street Week.

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Through the eyes of the most influential voices.

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Wall Street Week with David Weston from Bloomberg Radio.

To President's debate, the Yen struggles and voters head to the polls in France. This is Bloomberg Wall Street Week. I'm David Weston.

This week.

Roger Altman of.

Evercore on what's at stake in the US elections?

Did voters are queasy? Your sour about the economy?

Very lovely of the Peterson Institute on the Chinese economy on the eve of the.

Third plumm He needs to find a way to restore confidence while also helping to transition.

And Ray McGuire of Lozard on the wad wave of investment needs coming our.

Way one would be generative AI in the drop down box. There is a mount of capital that we're going to need to ploy in order to support generative AI.

We begin with the markets, where the S and P five hundred reach for yet another record high on Friday, but fell down to give up eight tens percent for the week. Overall still and end of the quarter at fifty four to sixty, and that is just above the Bloomberg L's year end media number of fifty four to fifty. The NAAZAC was up point twenty four percent on the week, while the yield and the tenure gained thirteen basis points, almost all of it on Friday, to end the week

Know, David, I think it does.

This is a good example of summer aduldrums. Sell them may and go away. I really think people should pay attention to these elves. I mean it is a bit different than back with Lewis ru Kaiser, but they were very predictive and powerful. And the fact that they're saying that this is where the market may be at the end of the year.

Look at the French election.

Look how non US and particularly Europe has sold off in anticipation in that election. I think we're going to see a lot of volatility in the fall and concern about how this election goes. Last night was I had nightmares. That was not a good feeling after that. So I just think the market is really capped out in here and probably it may hit another highway, but it's going to be trading sideways for a while.

So go below the.

Top line number to what's going on below. Because it's a pretty concentrated market. It's really just envidiing a couple other related stocks driving it is that going to continue? Is there going to be any broadening this market at all?

Everybody would like to see it, but the Russell two thousand is not confirming, and I don't think you will. It isn't It is an AI market that is the whole focus, that is the growth potential, and at the start we're just going to see, as we're already seeing now with some of the early products, some value but not a lot of revenue. And so I don't think the rest of the market. The economy is okay despite what you're last night. The economy is okay, but it's

I just don't see the gas to take it farther.

Of course, at custors, you put a lot of money to work for a long time. I mean, and you got to have a long term time horizon given what you're doing with pensions. There is the market indicating something longer term about AI and what it could mean for fundamental growth.

Yeah.

Absolutely, I mean you look at at Nvidia, that stock alone is up two hundred percent one year return right now. That expectation of opportunistic growth and the expectation of efficiency in the markets and in the economy, Wall Street is always overshooting and over stimistic. And you already saw some sellback two weeks ago in Nvidia because almost every mutual fund I look at even some of the value funds hold in Vidia in their holdings.

You couldn't afford not to.

But that's going to run out of gas because it's the old question of fear of missing out. I think it's finally reaching the point. It's got tremendous grow threate twenty five percent in sales, but the recognition is it can't go to the moon.

And where are the other stocks?

So I think the market the narrow leadership is always a concern, but we're not going to see that broad build out for a while. I think June thirty is a classic time for four h one k investors to grab that statement and then diversify. They're going to find their overweight stocks, and they're probably overweight tech stocks. This is a good time to rebalance and to move some money, a little bit into bonds and a little bit into other types of mutual funds.

Chris, thanks so much for being with us today, for all you've contributed to Wall Street Weeks through the years, and for spending part of your very last day on the job of Counselor's here with us. We look forward to seeing Chris again in his new life. Longtime friend of Wall Street Week, he is mister Chris Almen. This week, Bloomberg Invests convened in Lower Manhattan to talk with some of the leaders of Global Wall Street about what investors

That goes to kind of a macro opportunities that we have, and I would put him in five categories. One would be generative AI in the drop down box there is the amount of capital that we're going to need deploy in order to support generative AI data centers as an example.

Just where I wanted to go, which is the role of private versus public as we go forward. As you look at from your point of view at LAZARD, what it's the right role for the government, what's the right role for the private sector in supplying the capital that's needed.

It's going to have to be a partnership, especially for the elements of the macro transit order for us to compete, it's going to have to be public private partnerships, which we're seen in many ways. I think with the IRA and with the Chips Act and look at a number of private enterprises that are involved in that with the support of the government. So there's those partnerships, and each one of these macro themes is going to have to be public private partnerships. As we reglobalize, how do we

Let me pick up on one of the things you've mentioned a couple times is workers, the number of workers, trained workers, specificlarly trained works or to grow as an economy, you need more laborers. In the recent past, it appears that we've been sustained to some extent by legal immigration, actually legal migrants being added as a workforce. What's the role of immigration in terms of the growth of this economy.

Well, apart from the political implication that first of all, we need to make certain that the workforce that we currently have as a workforce that is trained to be able to address the huge opportunities the demand for labor. In my senses that as you think about the IRA and you think about projects like Gateway, and you think about the organizations today that train the labor, that there's a tremendous opportunity for us to continue to invest in that.

When we talk about things like generative AI as well as energy transition. It's hard to have that discussion without talking about China somehow, because China has really put a lot of investment into those There's obviously national security issues of the China at the same time, how can we get along if I can put it that way with China in terms of economies, so that we both get the best of it without conceding or compromising our national security.

So I would say when it comes to generator of AI that we are ahead in the actual general of AI, the technology of generative AI, and if you look at who are the architects of that, they reside in this country. So I take confidence in that when it comes to

That was Ray McGuire of Lizard coming up. The Chinese Communist Party begins its Third Party Plenum next month in Beijing. We go over the state of the Chinese economy and what will be on the agenda with Mary Lovely, senior fellow of the Peterson Institute.

He has put his money down on innovation and so called high quality development.

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. Next month, the Chinese Communist Party will hold its delayed plan on economic issues for a preview of what we should look for. We welcome now very Lovely, Peterson Institute for International Economics, Senior Fellow. So, Mary, welcome back. Great to have you here now. As I understand, typically this Third Plan and does focus on some ecademic issues. Going back in history, there were some major announcements coming out. This one's been

Well, I think it was delayed because the president president, she was focused on other events, and there may be more in the background that we don't know. One of the interesting things about the Third Planum is that it allows for a bit of horse trading economic reforms, as China needs to undertake create some winners and losers, and so the planem allows a chance for multiple issues we put on this table on the same time, so that maybe I lose in some ways, I win in others.

Mary, let me put you in President G's chair right now as he looks at his economy. What do you think his top priorities are. We have the property issues you described, local government, You've got use unemployment, which is an issue. You've got deflation in a lot of places. But what do you think are the big priorities for him?

Well, we've written recently about what we think of as China's stuck transition. So China is transitioning from its old growth model to a new growth model, a new growth model that really is just being born. And President she himself has warned about breaking the old before building the new. So I think that's really his problem right now. We see weak domestic demand, low consumer sentiment, well business sentiment, some signs of exit of foreign investors.

So we have some work to do on the short run to revive the economy in the short run.

A little bit longer term, there's lots and lots of challenges. He has put his money down on innovation and so called high quality development. This encompasses reforms to very broad sectors of the economy. But nevertheless, these things are things that need to be done, and the changes need to

Mary tell us about the relationship between the Chinese economy and the economies of the rest of the world, and particularly start with the United States in particular. So a lot of talk about US so called Second China Shock, a lot of concern about subsidies of businesses over there with experts United States. I could start with evs, electric vehicles. By the way, Europe's concerned about that as well. How big an issue is that for China.

Over China, it's a very big issue, and we've seen this in their diplomatic response to the US claims of overcapacity city. They have consistently said that the world needs their green energy products. They've doubled down on their strategy. It's not unusual in China for there to be lots of sort of ramp and growth, particularly because a lot of industrial policy is uncoordinated.

It's done through the.

Provinces, and then there's a period of rationalization, and we're seeing some of that right now, as some firms are surely going to exit because of weak earnings or even losses that overwhelmed their ability to stay in business. So we're seeing China rationalize at the same time that we're seeing the West say, hey, no way are we going to experience what we experienced before.

We're going to take preventative steps. And we saw President Biden.

Just a few weeks ago levy tariffs on evs, solar, medical equipment, and other products as a way to get ahead of this so called new wave of Chinese exports.

Let's talk about those preventative measures, as you call them. I wonder, as far as you can discern, what is US policy economically, specifically with respect to China right now. There was a time when we talked about decoupling. He said decoupling was way too much because it's too large an economy, that it was de risking. But it seems like we're de risking an awful lot of what China's trying to give us.

Yeah.

I mean every step we take seems to be more toward decoupling really than de risking. And the reason I say that is because de risking would have a specific targets. You know, when President Biden puts tariffs on medical supplies coming out of China, in some sense, that's a bit de risking because we saw during the pandemic that we were overrelianed on China for personal protective equipment and other medical supplies.

So that would be a form de risking. But we see so.

Many different approaches to moving away from China, Marriott.

We have an election going on here in the United States coming up in November, and of course President Trump when he was president, really took a very strong stance on China. It's not at all clear that President Biden backed off that for all the reasons you just described, in some ways even went further with it. How much of a difference do you think it makes in US China relations which man is the next president United States?

I think it makes profound difference. President Biden has been more effective, I think in terms of hitting China in ways that matter for US security, in particular the export controls and the key to the success of the export controls has been coordination with other nations, in particular Japan and Europe, who hold key.

Parts of the semiconductor supply chain.

Without that coordination, the export controls would not be effective. President Trump is promising ten percent tacks across the board on all nations, so called flat sixty on China. This is a clear signal to the other nations that the US is in it for itself, American first, and I think it would really undermine a lot of the policies that we're taking to push back on Chinese policies that we think are unfair, but also to diversify the global economy.

Mary, it's always such a treat to have you. Thank you so much for your time. That is Mary Lovely of the Peterson Institute. American voters will choose between two very different approaches to business and the economy at the polls this November. For his views on the possible consequences, we welcome back now Roger Oltman. He's founder and senior chairman of Evercore. So Roger, always great to have you with us. We're looking forward to this election. In whichever

Well, there are, as you say, two very different visions, and.

Voters will have the chance.

To render a verdict, so to speak, on President Biden's record because it's right now, whereas President Trump's was a.

Few years ago.

There are two main takeaways from the question of Biden's record. On the one hand, I think most presidents, including the two I serve David would be very.

Proud to have the basics of his record.

Sixteen million new jobs created, an unemployment rate below four percent for one of the longest stretches in American history, huge increases in private investment and consisting growth. Even at this very moment four years after this recovery, began, which would have been in the second half of twenty twenty, as COVID lessened it a bit. We're growing at about two point seven two point seventy five percent right this minute, and to be doing that this late in a recovery

And why is that?

And I think the answer is this much discussed topic of affordability. It is true that grocery prices, gasoline prices, shelter costs have all risen in the low twenty percent range since President Biden took off us and I'm talking about absolute.

Levels of increase.

In other words, grocery prices in generally are about twenty one percent higher today than they were in President Biden took office.

And voters are unhappy about that.

Fortunately for President Biden, we're seeing some better news on that grocery prices actually fell last month. The inflation rate is coming down handsomely or nicely. CORECEE, which is the Fed's favorite measure, is already below two percent based on the latest data. And the Biden team is working over time on a.

Series of initiatives to do better.

Medicare, prescription drugs, insulin costs, junk fees, and a list of things which they are working hard on to lower costs for everyday Americans. And they fully admit that prices are still too high for middle class families.

So it's a bit of a split screen question.

And we have four and a half months to go roughly before election day, and that seems to me the core question is by the time election day really comes, will voters have a better view of the Biden economy

You know, the people who run American business, how do they feel about the Biden record?

Well, a few comments on that.

I serve twice in the Treasury at length, and part of my responsibilities involved interacting a lot with business, and the business community always wants certain change. That's the nature of that interaction. I think you put your finger pretty well on it. The macro from the business community's point of view is very good. At this very moment. All the major stock indencies are around all time highs. The last few weeks have been a pretty major rally and

And we're still seeing consistent growth. As I mentioned.

So the macro from a business community's point of view is good. Yes, there are a lot of people in the business community that think the Biden administration is doing too much from a regulation point of view. They don't like the stance of the FTC and the Justice Department, for example, on any trust and some of course in the energy industries don't like some of the regulation that

Okay, I do like to say Roger Altman will be staying with us as we focus in on where the economy is today and particularly what is driving the markets. That's coming up next on Wall Street Week on bloomberth.

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

This is Wall Street Week. I'm David Weston. Roger Altman of Evercore has remained with us. Roger, thank you for staying with this. I want to talk about the economy. We talked about it earlier a bit, but specifically what's the relationship with what the economy is doing right now and the markets are doing, because, as you said, the markets really are i'll use my expression shooting the lights out right at the moment.

I think it's a pretty clear relationship. David.

We're in a Goldie Locks moment in terms of the economy, and in particular we're seeing some modest slowing. Retail sales were actually down last month. There's some modest loosening in labor markets. Unemployment rate went up a touch, ratio of job vacancies.

To unemployed workers went down a bit.

And that's slowing is enabling or facilitating a lower inflation rate. As I mentioned earlier, Core PCE is already below two percent CPI, Core CPI just above three, and inflation is headed towards the Fed's long term two percent target, which in turn will allow the FED to cut. At the moment, it looks like once or twice during the remainder of twenty twenty four, with the final amount of cuts depending

It looks to us at.

Evercore, as though the US economy is growing about two point seven percent, I don't see any sharp slowing of that. Emphasize sharp in the office, and parenthetically, corporate profits are doing well. The markets look at that and say, this is exactly what we wanted. We wanted inflation to come down, which allows the FED to cut the Federal Fund's rate and turn toward monetary ease. That's now happening looks like

So it couldn't be better.

From a financial market point of view and open market indust rate, it's apart from what the FED controls have fallen quite a bit.

The yield on the ten year.

Terasury I mentioned in the earlier segment is at about forty basis points in the last two weeks, and that's a big move. So from a market point of view, it could be better. From in terms of macroeconomics, which I think is why all the major indocies are right around records, there's a whole separate question within the market.

But that's not driving all stocks. That's just driving a component of them.

I want to talk about AI, but before we do that, let me ask you about that growth rate, which is above historical trend lines. It's above what economists tell us is the potential of the economy. So ironically, the economy is generating more than what economists say, is the potential Can you have Heaven forbid too much of a good thing? I mean, sooner or later that has to come in line?

Does it not a medium and longer term?

Yes?

But I think there are two factors that explain why the economy, or at least above other factors, is suing so well.

One is there's been a.

Surge, remarkable surge in private fixed investment during the Biden presidency, especially the last year year and a half.

It's way and I think from memory, and.

This number might be wrong, but I think it's I think it's eight hundred billion above the trend. That would have been a step would have been normal prior to the last two years, in other words, what the trend would have been as compared to what it actually is today. A lot of that, By the way, it's far an investment,

The second factor is immigration.

Most of the rest of the world doesn't have much immigration, but the United States, and people of course are very hotly debate whether they like the way it's playing out. But the United States, historically and continuing right through this moment, is benefiting from consistent levels of immigration, which means that our labor force continues to grow, unlike, for example, Western Europe,

Above trend Roger will come back to artificial intelligence generative AI as we call it.

Here.

You actually are working with corporations. You're seeing what's going on right now. It seems like every CEO has to invoke AI in their earnings called no matter what, and as soon as they do, their price goes up with their stock. How much of this is a proper reaction to the markets, and how much could be an overreaction to markets? I mean, how real is this in your assessment?

Well, two part answer, I'm not smart enough to know whether valuing Nvidia at three point four trail, which is the current value, is sensible or it isn't I've done this or I've worked around finance.

In finance for a long time and.

Valuations constantly change, and I've learned essentially that there's no such things as the correct valuation because someone there's so much psychology that is involved in valuations. So I don't know whether the market is overreacting to this or not. But as to whether from an industrial point of view, AI and generative generative AI is profound or not, the answer I think clearly is yes, it is profound. Yes

Including in the next few years.

I think what a lot of people may not have internalized yet is how fast it's happening.

So valuations it beats me.

But in terms of the real economy and growth and industrial transformation, yes it's real.

Roger. It's always so helpful to talk to you. Thank you so much for your time. That's Roger Altman of Evercore. All things come to those who wait. You may remember the slogan from Heinz Ketchup commercials or a Guinness Stout campaign, but it goes back at least as far as the nineteenth century and an English poem by Lady Mary Montgomery Curry.

Julian should never have spent a single day in prison.

But today we celebrate because today Julian is free.

This is a huge win for Australia and for Australian democracy.

This is a huge win for free speech.

To be sure, there are some who continue to wait for things to come their way, like the crypto community waiting for SEC approval of a second spot etf this one for Ether, though SEC chaired Gensler says they have the key to their own jail and can end it whenever they want.

It's really about the asset managers making the full disclosure so that those registrations statements can go effective.

And those lawyers know what that is. It's smoothly functioning.

It's really up to the asset managers to make the proper disclosures.

Currency traders keep waiting for Japan to raise its interest rates and give some life to the end after twenty five years of zero or negative interest rates, but in the meantime saw the END fall to its lowest level against the dollar in nearly forty years.

It's now just question of managing the downward descent of the END rather than changing policy. They're not going to be able with intervention alone to stem this.

For the big US banks, it looks right now like waiting is the best way for things to come their way, as Federal bank regulars got so much criticism of their proposal to increase reserve requirements that they've gone back to the drawing board to start from scratch.

If I were a betting person, I'd take the ladder or a reproposal, because I think the changes will be so significant, But it's probably not much more than a coin flip.

Banks and all the rest of us continue to wait for the Federal Reserve to back off those high rates it took up by five hundred basis points in record time.

What matters is that first rate cut is indeed a light switch, because what that signals is the FED believes that it has won the war on inflation, and so it's all downhill from there in terms of rates.

But this week we were told once again that we'd have to be patient.

With significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy. The timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks.

Then there's what may be the biggest weight of them all, at least for New York City, where we've been waiting for over one hundred years for the promised extension of the Second Avenue subway line. After tearing down the elevated rail lines in the forties and fifties and anticipation of imminent subway service, construction finally got underway in nineteen seventy two and then was suspended for over thirty years for

First conceived of in the twenties.

Now eighty five years later, construction is blasting forward. So far, officials have yet to raise the money or even budget the remaining phases that will extend and complete the line.

Over a century of waiting was supposed to be drawing to a close this year, as revenues from congestion pricing were going to fund finally finishing the Second Avenue Subway. But then, as it had so many times before, the funding disappeared, at least for now.

It's fifteen billion dollars directly to the MTA, and that will spar at least another five billion in terms of federal funds. That's a twenty billion dollar infusion to the transit system. It also would have resulted in more than fifteen billion dollars in bonds that were going to be issued, So it's a real blow financially to the region.

We can only hope that Lady Curry was right, that it will come if we wait long enough. That does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.