Bloomberg Wall Street Week: Klein, Kelton, Hooper

most influential voices. Larry Summer is the former Treasury Secretary Bryan wynhan Beck of America, Will CEO Charlie Sharp Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is Bloomberg Wall Street Week. I'm Romain Bostick in for David Weston. This week. Professor Stephanie Kelton, author of The Deficit myth on economic experimentation. We are in an experimental economy. After this crisis, we really saw fiscal policy engage in

a way that it didn't after the financial crisis. And special contributor Larry Summers on the continuation of trade tensions between the US and China. I hope there's some kind of ongoing channel so as to manage potential crises five point four. That's the statistic for the week. It was the headline consumer price index number for June, and it was the strongest jump in inflation in more than a decade. You exclude food and gas, it ends up being the

biggest jump in three decades. Even if you back out the cost to shelter and the cost of use cars, the remaining goods and services in the index rose by the most in two decades. That CPI report for the month of June left no doubt that the US is battling a problem of rising prices. What is in doubt whether those inflationary pressures will be long lasting or temporary.

Critics argue inflation is being fanned by the FED, a FED that insists on holding interest rates near zero and is yet to detail when it will fully scale back its multibillion dollar monthly purchases of treasuries and mortgage backed securities. Lawmaker's grilled FED chair J. Powell, who defended the current

standstill on monetary policy. Inflation has increased notably and will likely remain elevated coming months before moderating, and even as the economy seems to be roaring back, the FIT is still concerned that the pre pandemic normal is not here yet. While reaching the standard of substantial further progress is still a ways off, participants expect that progress will continue. The spread of the COVID delta variant is proof of the

slow slog. It's now the dominant strain in Spain and in the UK, and it accounts for almost sixty percent of the cases right here in the US, widening the gulf between the unvaccinated and vaccinated communities. And while the government's central bank waits and sees the big Wall Street banks, they show just how complicated things are in this economic recovery.

Investment banking divisions they're doing well helping corporate clients adjust their finances, but revenue growth on most trading desk that's been cooling as the market swings subside. And then while consumers are spending more and swiping their credit cards more frequently,

they're also borrowing less money to do so. Joining us right now our roundtable, invest Co chief Global market strategist Christina Hooper and bloom Intelligence senior analyst Allison Williams joining us here today to talk down about what happened really this week, and Christina, we really have to start with that CPI data, followed by the PPI data, which seemed to ratify the guests the fears of a lot of people that inflation is certainly real. The big question here

is whether it's transitory. And I'm wondering whether you at all got a little bit rattled by some of the data that we saw this week. I actually didn't get very rattled at all, Romane, and I'll tell you why. Um, we have gone through an extraordinary period in economic history. We essentially shut down the economy, UH, and then after a very significant period, we reopened it. So we have an incredible amount of pent up demand. We have elevated

household savings. UH. We have lots of liquidity in general because we've had very significant fiscal and monetary stimulus, and so um, there is a lot of money chasing too few goods and services. Now, this int might be higher than what FED officials expected, but they have said over and over again that they did expect inflation to spike, and I think that's key. This is not this should

not come as a huge surprise. Yes, maybe it's a little higher than most expect um, but there's nothing that I've seen that changes my mind that this is likely mostly transitory inflation, so that so far investors did that mean that they should remain pro risk, pro duration absolutely. I think what we need to do is take a step back and look at where we are in the economic cycle, and the US really has just entered the

expansion phase of the economic cycle. What we know from history is that typically that's a period in which risk at risk assets outperform UH and UM. Usually it's stocks that outperform risky bonds. So it's an environment that I think is a positive for the stock market, and I expect that monetary policy remains very supportive even if we see the start of normalization. So to me, this is

a time to be risk on. So Allison Williams, a lot of people are really sort of trying to get a read here on where we stand in the economic cycle. This week, of course, we got earnings from all of the major US banks here, and usually they kind of serve as a barometer, I guess for economic sentiment. What do we learn from them this week? I think we learned that the economy is very healthy, and to some extent, we saw most of the trends that we saw were

in line with our expected. A couple were a little bit outsized, so net interest income continuing to drift lower. Credit super strong, UM, great numbers from the bank, not just the reserve releases that we read so much about,

but the underlying credit strong and then UM. When you talk about the reserve releases, this is effectively the money they were setting aside for bad loans, right, correct, So if we think about the reserves UM a year ago, banks had no idea, none of us had any idea how bad things would get, so they were very conservative in terms of setting money aside. As things are getting better, they're releasing those reserves and that feeds into the income statement.

And so there is a lot of volatility when you look at the overall EPs numbers, but I think from a core trends also generally healthy, although as I said

that it's it's a little bit of a mix. So those banks that rely more on that interest income, like a Bank of America or well as far ago, some of the regional banks that are covered by Herman chan Um really have seen some softness and a lot of that is really just due to the lack of borrowing our Thanks to Christina Hooper of Investco and Allison Williams of Bloomberg Intelligence. Coming up Netflix, it's adding a new wrinkle to the streaming wars with its plans to offer

video games alongside Britain. We talked to the former CNN president John Klein about the fight to stand out in the streaming world. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is Bloomberg Wall Street Week. I'm Romain Bostick in for David weston the lockdowns of boosted Netflix. But next week investors will get a chance to see whether the streaming giants growth will hold in the post

pandemic world. We saw dramatic pull in UH for their subscriber growth. The bump was enormous. You can't sustain that. Obviously, the question was when would that slow down and how dramatically would slow down. Well, now we have the answer.

The key number to watch will be subscriber growth. A Bloomberg Intelligence analysis of Censor tower data suggests global demand for Netflix is moderating, with the number of downloads in May and June were bounding a little from March and April when reopenings took a toll on adding new subscribers. Netflix has done better than I think many people thought

in terms of the doctrines. A few banks one the competition from Disney and in a T and T and others uh two uh international expansions or something of the Disney Plus is Netflix's most formidable rival, but the streaming service still has a lot of catching up to do. Disney Plus had a hundred and three million global subscribers that compares the Netflix is two hundred and eight million. Disney Plus has a strong presence in Europe and in India,

where Carrie streaming service hot Star. There's a new Marvel series, Loki, which debuted on Disney Plus last month, and that may have given the streaming service a last minute subscriber pans for the quarter are signed up to. Growth continues both domestically and internationally, and I have to say that we've now launched a number of markets, I think fifty nine markets across the world, and we've not been disappointed yet.

The streaming world is expected to get even bigger. A new PwC report predicts streaming is going to generate ninety four billion dollars in revenue by the end of that's up from the pandemic. Brought new entrance into the streaming wars with the launch of NBC Universal's Peacock and Discovery Plus.

I think there's only a handful of truly global, you know, greater than a hundred million subscriber based type of services that can that can exist alright, Netflix setting a high bar for its competitors, of course, with that TV and film content. Now the streaming giant said to be expanding into video games, joining us right now. John Klein, you know him, of course as a former president of CNN. He's now the co founder of Hanged Media. He knows

a lot about keeping eyeballs glued to the screen. John. Even before this announcement here about the foray into video games, we had seen Netflix experiment with live events and merchandizing a lot of things that are more than just the content of watching a television show or a movie. Here is this the future of streaming. This is what it's going to be. It's the present of streaming. Because streaming

has become the central entertainment activity for everybody. H COVID helped accelerate that, and that trend is not going away. Wait until they start getting into a R and VR, and you know, there's been a lot of experiments with that all ready, but that's all going to be filtered through your streaming service as well, So there's a lot more to come. So what does that mean though for

some of these smaller streaming services. I saw a statistic saying that, you know, as of last month, there were almost two hundred streaming services available here in the US, some of them obviously very niche. And then of course you have the big players like Amazon, Apple, Netflix, Disney Plus. Here is there room for a niche service that it

just may be doing one small thing. It's really tricky because one thing that we've all seen in the past year is that streaming is an incredibly expensive business to be in. Disney just announced that they're going to be spending thirty billion dollars a year on content for Disney Plus, and they thought they were going to be spending about half that, and they've realized that they have two seriously

up the anti. Because you think about your own streaming habits, you can binge an entire season of a show and one night if you're really into it, and these services are all having a scram about to catch up to make sure that they're shoveling enough content onto their services. That's why you've seen Netflix add so many foreign produced shows.

I mean, I'll bet you've watched at least one Netflix show that had subtitles last year, right, And that's because they just kind of ran out of US created content, partly due to COVID and partly because consumer habits are just out just out of control, and it's going to take a lot of resources to catch up to that, which means that smaller niche players are going to have to add double down on the ultra niche and over deliver on their customer acquisition tactics so that the cost

of acquiring a subscriber drops to make up for the the increasing cost of content. But it's gonna be tough. Think of it this way. The tech companies have so many more resources to deploy against content costs than traditional media companies do. Apple alone has a higher market cap than a combination of Disney, Netflix, Comcast, Horizon, you know, And it's so they can enter this business whole hog,

and they've barely begun to fight. So it's going to be it's going to be a very expensive proposition to be in the streaming business. Given the expense of that proposition, do you anticipate any sort of meaningful consolidation. I think there's going to have to be among the streaming also rans or the smaller players. I mean, it just isn't going to make sense to some of these companies to

spend the kind of money that's necessary. For example, if your NBC Universal and you're planning to spend seventeen billion dollars this year on Peacock, you might pause and say, well, first of all, where is that going to come from. We're gonna have to cannabalize some of our other core businesses and they're gonna have to be willing to do that.

And will they be you know, will they pull money away from the TV networks, from the local TV stations that they've got in order to fundness, or might they you know what, maybe we ought to pair up with somebody like a CBS or or warners. Should we should Comcast jump in to the bidding for Warner Media and and and grab that away. Well, that raises an interesting

question here about the future of live television. John. Obviously, you ran CNN for our several years out here in the US here, and I'm curious, is there still a place for live news, live sports in a streaming world where we want to see everything on demand. Well, news is one of the few areas that that's actually growing during the streaming boom, and I think it will continue to because it's just a very tough proposition to watch news later, you know, on demand, you do want to

see it as it's unfolding. Sports is gonna evolve because it used to be and has been up until now, a mainstay of traditional television delivery. But Amazon just paid a billion dollars for the rights to Thursday Night Football starting. That's the first for a streaming service to pay that kind of money, So, uh, you know that that's gonna that's that is a bell weather for a big change, and I think you're gonna begin to see sports go

to pay as well. And our thanks to Tap Media chairman and former CNN president John Klein coming up here. Fed share Pal says central banks can still help get the economy back on track, but modern monetary theory experts like Stephanie Kelton say holding down rates may not be the best way to manage inflation. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. M Romaine Bostick in

for David Weston. The FED jumped into action at the height of the pandemic, and it helped fill in the gap while lawmakers came up with fiscal stimulus plans, but FED share j Pal says it's still too soon to think about pulling back that aid now. Inflation is jumping and the FIT doesn't seem to be in any rush to raise rates. Modern monetary theory experts say that is not just the FITS responsibility. Fiscal policy should also play

a role in controlling inflation. Stephanie Kelton, a professor of economics at stony Brook University, is a leading expert on MMT. She joins us right now, Stephanie, as we speak today, all of the debate out there right now is about inflation. Is it going to be long lasting or is it going to be transitory? When you look at the latest data that we got, what type of inflationary pressures are you actually seeing yourself? And do you see those as

being permanent? When I look at the data, what I think mostly this looks like are the growing pains of an economy that's emerging from a pandemic and reopening. And we see a lot of videosyncratic UH pressures and supply chain issues and UM backlogs and that sort of stuff. So I think, by and large, what it looks like to me is the kind of thing that frankly, we

had ticipated right coming out of the pandemic. And so it's pretty hard for me to see the kinds of things that I think you would need to be in place in order to get this sort of entrenched inflation that begins to feed on it. So so I I guess I situate myself pretty squarely in the in the transitory camp. Yeah, and there's certainly an element of the inflationary pressures we have that we're certainly predictable, given just how volatile the economic crisis was, the COVID crisis, and

how volatile things have been coming out of it. Here. But as we sort of get to the other side of this economic cycle, there's a lot of debate right now about additional fiscal spending, additional fiscal stimulus, whatever you wanna call it, is it just throwing another log on the fire of an economy that's already hot, or is this something that maybe has a place here in our policy and in the way we spend government money. Well, I think it's the ladder. I think that most of

what we're hearing about right now. Right we're hearing about maybe three and a trillion dollar um human infrastructure bill coming maybe alongside the more traditional so called heart infrastructure. And I don't think the administration is thinking of this as as stimulus. I'm certainly not thinking of this as stimulus.

I'm thinking of this more the way I think they are, which is, you know, doing things that will strengthen some of the fragility that's been baked into our system by you know, longstanding policy decisions were trying to redress, uh some things, fix some of the deficits in the real economy, and lay a foundation for a really sustainable and inclusive recovery.

So I think they're looking at this as an opportunity to strengthen the social safety net, make investments skin things like education and healthcare, just places where we have underinvested for decades. And we've heard that message, of course from the Biden administration and some of his allies in Congress.

We've also heard this idea here that sort of inequalities need to be addressed, particularly inequalities that we're sort of laid bare based on the policies coming out of the last big financial crisis in two thousand and eight two thousand ten. Here, what type of steps do you think that the Biden administration and hopefully Congress can sort of

take so that we don't repeat some of those same mistakes. Well, I think that what we're hearing articulated from the administration right is that the goal is to make investments at

the bottom that grow from the middle out. So instead of you know, this sort of top down, trickle down sort of uh, you know, policy prescription that we've tried again and again uh and and watched fail, that this time is different, that this time we want to see the government making investments and things like early childhood education and the caring economy, um, you know, broadening the scope for infrastructure investment, college education, elder care, and and the

rest of it. So I think, you know, we're looking at the potential for millions and millions of good paying jobs, many of them for people, in fact, most of them for people with um little if any college education. So this really is an opportunity to, you know, provide a good, solid foundation for a recovery that aims squarely at those

at the bottom in the middle of the economic income distribution. So, professor you mentioned the sort of top down nature of economic policy that has been basically the dogma now for several decades. A lot of people have bought into it on both sides of the political spectrum. There's an argument to be made that there has been a spate of prosperity in this country that I guess can be attributed

to that top down policy. Is there a sense here that the boom bus cycles we've been through over those last few decades since that top down policy became the sort of dogma, that that is a contributor to it, or is there something else here that maybe we should be looking at. Well, I think there's something else. I

think know. The reality is that we've got a lot of studies now, and some pretty big ones that have been done looking at the longer term effects of the supply side policies, and they really have been a failure. These have not been successful policies, and they've been tried decades upon decades, and what we've ended up with is widening gaps between those at the very top and everybody else.

Income in wealth, inequalities have widened. We haven't gotten the kinds of wage growth and inclusive and sustainable growth for the middle class. We've seen middle class jobs and workers fall behind for decades. So I think it is time to shift gears. Thanks to Stephanie Flanders of Stony Brook University and the author of the Deficit Myth. 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 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is Bloomberg Wall Street Week, arm Romain Bostick in for David Weston and now Here to discuss some of the economic developments of the week. We're joined by our special contributor, economists Larry Summers. Larry, I want to start with some developments that occurred towards the end

of the week. On Friday, we got an advisory out of the Biden administration, the Treasury, the State Department, the Homeland Security Department, and the Commerce Department, all putting out an advisory warning US companies about the risks of doing business in Hong Kong, saying the business environment over there has deteriorated given China's recent pushup to I guess control

what goes on in that territory there. The relationship between the U S and China, the economic dialogue between the U S and China, seems to be getting worse, not better. I think that's right. I think there are plenty of issues on both sides. You look at many of the things that China has done. It's not just Usibly, the United States Investment degree meant that China and the EU had reached our on the rails China's encountering UH friction all over the world. I am concerned about the canceling

of dialogue. It seems to me that in many ways, the more fundamental your disagreements, the more important it is that there be some form of UH communications. So I don't think we're in any position to have a partnership with UH China. We're competing with them in very full

spectrum ways. But the strategy of not having UH dialogue and not being interested in communication, it seems to me, is one that UH concerns me and whether it's called a strategic economic dialogue, whatever it is UH called, I hope there's some kind of ongoing channel so as to manage potential crises and so that we're in a position to address difficult issues when an if they arise. I think we need to recognize that we're in a kind

of unprecedented situation. When we were UM in a significantly adversarial relationship with the Soviet Union, there was vastly less interdependence than there is today. And so with this degree of disagreement, this degree of interdependence, UH is a new kind of relationship, and we're all feeling our way, and I'm not counseling us to not aggressively pursue our interests. I think we do need a kind of UH firmness and directness that we always haven't had, But I I

do wish we were providing for some continuing conversation. That interdependence is certainly a critical difference here between how the us UH is dealing with China and how the situation it had with the Soviets. I am curious though there has been a push here to try to make some U S industries a little bit more economically independent from the Chinese supply chain here. And obviously we know that is a tough thing to do here, given just how

supply chains are set up here. But do you think that there is a case to be made that the US can be a more of a manufacturer of its own goods, more of an assembler of its own goods, and less reliant on China and other foreign nations remain. I think one needs to distinguish between security and UH independent. Yes, I think we need to be conscious and careful about

being vulnerable. I think it was a very concern in situation that the US couldn't get acces two masks early in UH the pandemic, and so yes, I do think we need to pay attention to Some people have put it just in time as well as UH just in case, as much as we pay attention to just in time. But does that mean the production needs to be located in the United States rather than in countries were allied with, like those in Canada and Europe. I think that's a mistake.

Does that mean that those strategies should be motivated not by secure supplies but instead by aspirations to return jobs to the United States. I'm not sure that when they're framed that way they are particularly sound. I think the Trump administration made a serious error to which the Biden administration and as I think not uh corrected uh fully of forgetting that when you raise the price of inputs,

you reduced the competitiveness of US producers. And so when imported goods are an import to our manufacturing and we restrict those imports, we make our manufacturing less uh competitive. And so all of that is I think issues that we need to recognize. So yes, I would take on board the idea of resilience and containing supply chains, but no, I surely would not uh frame this in terms of

maximizing manufacturing jobs. That's a kind of old fashioned Latin American notion that didn't work very well in Latin America, and I think ultimately over the long term, won't work so well here. All right. So the other big development this week, of course, was the latest inflation data, the CPI numbers and the pp I numbers both running hot, both adding to the evidence here that inflation is certainly real. J Pal the fetch here was on Capitol Hill for

his semi annual testimony. He acknowledges. His exact quote was, inflation is not moderately above two percent, it's well above two percent. But then he did ask and ask his own question here, basically is where are we six months from now? Basically raising this question about whether the pressures or we're seeing out there are transitory, whether they will dissipate once some of the supply chain bottlenecks are finally worked out here. What's your general view here right now

on where we stand with these inflation pressures. I think most of the observers are framing the question the wrong way Room made. They're framing it as is inflation transitory? Look the at an annualized rate, the inflation rate was eleven this month. Yes, that is transitory. There's no question at all that that is transitory. There is no question that the figures were pushed up by transitory factors and used cars and other things. But that's not the important question.

The important question is whether of the eleven percent, nine percent was transitory, eight percent was transitory, or six or seven percent were transitory, six or seven percent was transitory. Then we've got inflation running at four or five percent, and we've got a real problem. Uh, in the country. So one's not addressing the issue usefully simply by remarking

that there's a lot of transitory inflation. I look at what's happening in the labor market, where we've got job shortages to UH in terms of the ability to fill jobs to an unprecedented degree, where workers are quitting at a very large UH rate, and I see real cause for concern that waging lation is starting to UH accelerate. I look at what's happening in the housing market, where

everybody I know who's trying to rent a house. Every statistic I see, whether it's from San Francisco or from Cincinnati, whether it's from New York, or whether it's from rural Iowa is saying that the housing market is on fire, both for renters and owners. I see none of that in the statistics. And it looks to me the statistics are the official price INDUSESE and it looks to me like either those statistics are wrong or more likely that

inflation is going to UH come. And so I think that inflation is with us thanks to our special contributor, Larry Summers of Harvard. Now, finally, one more thought. Next week marks the fifty second anniversary of the Apollo eleven mission to the Moon, a human setting foot on soil

other than the Earth's. It was a dramatic culmination of your is long space race between the Soviets and the US, and while rooted in national security and national pride, it ended up being a springboard for technological advancement like we had never seen before, a third Industrial Revolution that hastened the development of automation and computing, and it laid the groundwork for many of the things we take for granted

today mobile phones, food preservatives, air purifiers, cordless tools, wireless headsets, memory, foam, mattresses. So many little things owe directly to one big thing, the push to explore space. That push then was led by the government, but now a new era of space exploration is a foot, and it's being led by private

industry and private individuals. Bezos, Branson, Musk, billionaire entrepreneurs whose ambitions there I say, maybe a little bit less noble and much more profit oriented, to be sure, than what spawned the nineteen sixties space race. But once you dig beneath the billionaire bravado, something important is actually taking place here.

Real science, real research, real human progress, It's likely no coincidence that Bezos chose to stage the first crude mission of his Blue Origin space graph for July, the anniversary of Neil Armstrong's milestone. Bezos has already compared the spectacle of space tourism to the airplane barn stormers of a hundred years ago, whose flying acrobatics seemed trivial at the time, but they helped fuel public fascination and an acceptance of a new and of course now common mode of transportation,

the airplane. Elon Musk and SpaceX, they've shown you can shave millions of dollars off the cost of launches with reusable rocket boosters, an idea that was nothing more than

science fiction just a few decades ago. The experimentation by these individuals, along with the continued involvement of the government NASA in the US and space agencies in China, Europe, India, Russia, the UAE, they're actively leading to scientific advancement in jet propulsion, mining, farming, water extraction, laser communication, and radio shielding, all providing valuable

insight into how humankind could adapt to much harsher environments. Now, it's unclear what the endgame is for this renewed push to explore the ultimate frontier. But if the nineteen sixty Space race was any guide, then the sky is not the limit that does it. For this episode of Wall Street Week, arm Romaine Bostick, this is Bloomberg.