Bloomberg Wall Street Week: Moynihan, Rattner, Summers

most influential voices. Larry Summer is the former Treasury Secretary Bryan Wenthan a backup America, Will Smart CEO Charlie Sharp, Bloomberg wool Street Week with David Weston from Bloomberg Radio coming to terms with the pandemic that just won't quit, and with a Russian threat to Ukraine. This is Bloomberg

Wall Street Week. I'm David Weston. The week began with President Biden confronting Russian President Putin over Russia's military build up along Ukraine's borders, with National Security Advisor Jake Sullivan reporting the US made it clear that it would take

action in response to any invasion. Told President Putin directly that if Russia further invade Ukraine, the United States and our European allies would respond to strong economic measures, but as important as geopolitics are, the continued fight over COVID remains the number one thing we all confront with Spikes and cases and fears of O Macron leading to shutdowns, as British Prime Minister Boris Johnson said his country was

urging people to stay home from Monday. You should work from him if you can, But there was also hope, hope that vaccinations and boosters would offer us a better alternative to shutting down and staying home, and Johnson and Johnson CEO Alex Gorski expressed confidence that science will help us get past the crisis in the new year. Obviously we're navigating our way through the pandemic uh and there's likely to be twists and turns and ups and downs.

That being said, I'm optimistic and in the end, despite some high inflation numbers, the markets decided to choose hope over anxiety this week, giving equities their best rally in ten months and take the sp all time high, getting over three point eight percent on the week, with an etact just behind posting three point six percent gains, while the yield curves steepen just a little bit, leaving the

ten year yields still below one. To explain what she makes all this, we welcome now our contributor Asani Beschelas. She's the founder and CEO of Rock Creek, So Asani, we really need your advice here. What's going on the market is really on the tear this week by and large after last week, sort of selling up a bit, despite the inflation, despite the despite the virus. Why David, great to be on with you today, and it's again

about COVID. Right, COVID news were really bad when we heard about omicron and COVID news this week as people got more data on omicron and not that it's not a problem, but seems to be milder, seems to be spreading, but not uh, you know, not as scary as some variants could have been. I think has calmed the market so as people are sort of moving on where there's more clarity on the FED position on both taper and

probably interest rate increases. But of course we have the inflation scared at the same time coming up well, and there was the question how sure are we about the Fed? I mean, j Pow has made it clear they're going to advance. It appears in the next meeting coming up, the tapering of the bond buying. But some people are saying he's going to go faster than even he thinks, and they may end up at a higher point. What

do you think? And can he do that without really rocking the boat so much that it hurts the economy. I agree that tapering will start sooner and go faster than was his original plan, and um and I think that it is overdue. But the important thing is that the Fed has really had got two jobs right. It's

inflation and employment. And on the employment side there is sort of a new twist that both you may remember Treasury Secretary Janet Yellen has been emphasizing it, so has um FED chair power, which is equitable employment and more equity in growth. And I think that is where, you know, it may lead to slightly different actions, which might mean that while inflation you know, is what about six point eight percent, it might go up too close to seven

percent and peak around seven percent. But my view is that it will come down to about half of that um you know, towards the end of next year, as the supply chains go away, but also as some hopefully some of the build back better UM actual actions get implemented and we start having some of the supply chain issues get resolved a little faster. I've signed you at Rock Creek are an investor rather than a trader, so you look over the longer term. You're not in another market,

as I understand it. Constantly. At the same time, some people are saying that we should get used to higher inflation, not six point eight percent, but signalically higher than we have on trend. If it's true, if we're set for three percent or even four percent, lurry summers, and what does that do to investor? How has that changed your portfolio? So two things. One is depends on how this inflation

gets translated. For example, a lot of people say, you know, wages are going up and that's a bad thing, but really in economics one on one depends on exactly where the wage growth is happening. If the wage growth is happening at the lowest income levels, and that is actually the case, um, but don't forget those income Those wages are so very low that you know, increase is very little on a on a very small base, right, So

if you have higher growth on wages. What you're going to have is potentially more ability to buy goods by that group, which has a higher consumption rate than higher income goods and UH and higher growth in the longer run. Now, the other side of this is as I think some of these very short short I would call it short term, not just supply chain, you know, but the fact that people were reading about inflation got them to buying more.

The fact that we have some issues with specific issues because of COVID that happened with for example, not you know, car companies selling their fleets or not investing last year. We're seeing that impact this year as they invest next year, we're not going to have those same pictures. So you know, we might be closer to my my assumption is closer to three or three and a half percent, but that will go down over time, so not so concerned about that. Thank you. So it's always a pleasure to have you

with us. As Sonny Bachelors, she is the founder and the CEO of Rock Creek. Coming up, we get a preview of what to expect in the new year from the Chairman and CEO of Bank America, Bryan moynihan. That's next on Water with on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is

Wall Stree Week. I'm David Weston. Two twenty one has been another wild year with a continued fight against the pandemic, continued fiscal and monetary stimulus, and growing inflation concerns buffeting investors. But as we come to the end of the year, we asked Brian moynihan at Back of America to take a look at what he sees ahead in twenty two. So, Brian, it's coming to the end of the year, let's look forward to two thousand twenty two and what you could anticipate.

First of all, let me ask you how uncertain is it? Because right now we're looking at the various banks and the projections, for example on SMP five where it ends up, it's a wider range we've seen a long time. It does that indicate there's less certainty about where we're headed in two. I think if you look at the economic projections,

they're close or bunched. Those have to do with multiple evaluations coming in some of the you know, you've seen the I p O S trade down, and I think people are starting to say, Okay, this just can't keep going in one direction. So you're seeing start to people start to disperse. I think around this question of where they think the market evaluation is and whether the earnings growth can sustain. And if you earning growth slows down, theoretically market evaluation how to slow down, first by just

math and then by multiple contractions. So I think I think that's more of the thing. But if you look at the economy side, you know, we're at four two percent for next year and two point two for the year after, and I think you know that's you know, that's a slowdown from this year. But the roalities sort of has to slow down. I mean, in in in the federal raised rates to make sure it does because inflation and other things. So I think we we feel very strongly what we see in our customer base is

is consistent with four plus growth. What we see on the commercial side and consumer side. Now, the risk of that is still this pandemic. And so the other thing you see this dispersion when you have a you know, this new variant surface and people you see people taking different actions around the world, and we'll shut down and will not people start to make decisions based on that and in terms of their valuations and points. And the good news is between because the great health care systems

we have and great science we have. You know, the vaccines out there, it's effective. It may have to be changed and play with, but you're seeing the impact less so far. Alcome what and we'll see what happens. But that's a big uncertainty that that Trump's every other thing you're talking about. You're not an epidemiologist, as far as I know, I'm not, Goodness knows. But you talk to a lot of experts. You have people you touch to

all the time. Your best guest, do you think by the end of two we will have this largely behind its the pandemic, Not to say it's all gone, but we won't have to deal with the day in and day out, you know. I think the risk is the

variant that the vaccines really don't work against. And and so if you unwind the decision path by the people in charge of government and making rules, it's gonna be if my I c U s are overwhelmed, if my hospitals are overwhelmed, I have to slow down activity to keep people away from each other, you know, to avoid that outcome because you can't have people dying in the hall. That's just not fair. And so remember back in the early pandemic, the field hospitals were being built. We need

thirty thousand ventilators. We didn't use them, all of it. And but the good news as the treatments in the monoclona and advising pills and all those things. So I'm not I can't make the uh, the medical prediction, but our experts say this, we are. We've come from that where it was just immediately had to get people away with all these tools, the treatment, vaccines, understanding disease better, the speed at which it can be adapted to to

where you know, so the waggle around and outcomes faster. Right, So if you look the market, there's a chart the other day you saw, you know, it took this long for the market to recover the first time, and it's gone any edge time and new variants come up, and that's because of confidence that you can get behind it.

I think that means you're in an you know, the endemic type of situation as opposed to the pandemic, which means we're gonna be living with this and there's gonna be ebbs and flows, and I think that's what people are for seeing. Twenty two is about now take a wool a wat to get used to that fact, you know, and and and and that will be interesting to see how society adopts. But you know, with with what's going on in other countries, you see in them start to

adjust because there's one fundamental differences. The vaccine levels are just not there they are in the United States. So the judgment by a person here given this aime set of facts could be different based on that fact alone. Putting aside the pandemic, and recognize that's a big thing to put aside, but put takeing that out of the careation for a second. When you take a look at the markets, typically valuations were based on corporate earnings and

that should be a function of growth. You say, growth looks pretty solid. Maybe it won't be as high as it was this year, but pretty solid. But there's another factor which is also margins and profitability. How concerned are you going about inflation and their ability to erode corporate margins. So at the end of the consumer they have more money to spend their all their employed and wages are

growing fast. They ability to absorb price increases, you know, is there now people don't like to give them price increases, and that's white companies have different strategies and different pricing schemes. But the reality is is you'd be more afraid if if the I'm not sure if the pressure came through on the supply side without the consumers and the condition they're in, I'd be more afraid of that question. And right now, if companies tell us they're able to pass

through price, either be two B or B two. See in other words, that um and and shortages. I mean people buy no matter what. So restaurant pricing, hotel pricing, trip pricing, you know, people run special and stuff. It's all elevated and and that will come through. So I think you have to start with the consumer being in great shape, having money employed in wages rising and frankly freed up to do more. And that's then you back

into that. Think about all the cars that didn't get sold because the chip short At some point, the chips are there, and those you know that sixteen million down to twelve or thirteen million rate moves back up, and so I think there's that's just that housing. You know, people are still buying homes. There's a shortage of homes, therefore wible demand. They're you've got to get prices back

in control. Frankly there, But so I think, yeah, I think I'd be more afraid of the margin question for companies if you didn't have these you know, in the end of the day, it's a consumer drives the economy two thirds of the activity or whatever the right words are, if they didn't have the money spent and they do. It looks right now for what the FED share has said that we're looking at two is being a pivot

year with respect to monetary support for the economy. How concerned are you about the rapidity with which they tighten them might supply because theoretically we could do some damage. Yeah, well they have to they have to slow down. You don't raise rates and expect the economy not to change outcome when you have inflation. And so that's the economics

one I want about the thing. But let's let's back up to this this FED you have saying general people two thousand nineteen economy, economy, excize today excise it could be bigger probably this quarter. Unemployment three point six or four point two already. At the year end, we'll see where we are. But my guess is closer to that number. The consumer, all that fiscal stimulus went on, and so you think about all that, and you're saying, wait a second.

You know the voages have grown dramatically since then, and I expect to grow faster rate. I think they have to bring the rates up. The pace will always be based on their view, but I think what's more, it's going to be more on people's minds. Goes back to the question the pathway of the virus. We have we won the war, or if we won most of the war and the war still out in front of us. And I hope and pray that the first is true.

But I think that will affect their pace more than anything else, because they're always trying to make the judgment, because they're making the judgment based on the facts, and it actually has impact in the future. But I think from a maths you know, the employment, full employment, stable pricing,

you could move rates up and relatively quickly. I think the US be slow because I think no matter what we think we know, we'll know other things about this virus every day, week, month, and I think that will keep changing their ebbs and flows, but they're gonna be careful not to get ahead of it. But on the other hand, they have to resolute to get it, get

the rate structure back. In the rate structure almost two percent fed funds and two percent tenure to you're saying, so, what's different, Same size economy, same unemployment, more money in people's accounts, more spending, more final demand. At some point, you've got to bring the structure back. Thanks to Brian moynihan,

Chairman and CEO of Bank of America. Coming up, we convene our roundtable together in the studio with contributors Larry Summers of Harvard and Steve Rattner of Will of Advisers. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

This is Walton. I'm David Weston. I am delighted to say that for the first time in nearly two years, we are back around our real roundtable in New York with our contributor Larry Summers of Harvard and also our contrautor Steve Radner of Will Advisers and they're responsible for investing the personal and philanthropic assets of Michael R. Bloomberg, our founder and majority shareholders. So Larry, let's start with you. On Friday, we got CPI numbers. As predicted, they came

in hot headline number six. You've been talking about this for some time. What are we learning about inflation that we didn't know before? We're having it confirmed that it's

not transitory. And I think everybody recognizes now with the statements from Chairman Powell, with the statements from Secretary Yellen, that this isn't going to just go away of its own accord, that the Fed is going to have to take substantial action to control inflation unless there's some kind of other adverse development of crack and markets or something

of that kind. But we put in motion for the first time in forty years, excessive inflation caused by overheating of the economy, and that's going to have to be worked out of the system. And that's probably not going to be such an easy thing. Well, I'll tell about that how easy it is, Steve, do you agree with that analysis, and if so, what are the prospects that in fact the FED can slow this thing out down

without really causing some damage the economy. Well, I completely grew with Larry, and I think you have to recognize it's a problem that was not created in two months, as a problem creator over the last two years, and so it's going to take multiple years, certainly to work it out. I know, I want to predict that we're going back to where we were in the late seventies.

But I was sitting in the washingbur the New York Times when Paul Vulkan announced his new inflation policy, and I watched all that happen, and it took multiple, multiple years and a terrible a recession to get it out of the system. So it is gonna be painful, and it's going to be painful for growth. It's gonna be painful for jobs. And we do have an election coming next year, which is going to be complicated. Hilarious. Listen to the White House. They admit there's inflation, Uh, they

still say maybe transitory. And one of thing they point to is gas prices. They said, that's really artificially spiked it up, that's leveling off. Maybe we don't have as bigger problem. What about the difference between headline and so called core Look there's surely our transitory elements and inflation, no question about it. But here's the thing, David. If you look at annual rates, if you take this month's number and you annualize it, it's ten. So a lot

of that is, no doubt transitory. But to say that a lot of it is transitory is not to say that it's going to get anywhere near price stability on its own. And there's another point, which is we always talk about the things that are high and might be transitory. House prices on every index, rental prices on every index except the CPI or up over the last year. The vast majority of that is not yet in the c p I, so it's probably coming. Every business person I

talked to says the same thing. They say, we're gonna have much higher labor costs going forward to retain our people. We're gonna have higher input costs, and it's kind of okay because we're gonna be able to pass it on. Well, that's an environment where there are pressures in many places for rising prices, not for uh, falling prices. You know, one of the sectors that's been very benign over the

last time last while is medical services. But as you see all the nurses who are quitting, there's gonna be pressure there. As you see all the backlogs of elective procedures from the last year or two, they're gonna be back lugs. Uh there. So I think we're going to in trend um inflation way above two, perhaps in the four percent or even higher range, unless something happens to break the current mood, to break uh the current trend, And I don't think it's gonna be three rate increases

or two rate increases uh next year. I mean, remember this, crucially, monetary policy today is far looser than it was a year ago. Looser is measured by real interest rates. Looser is measured by financial conditions. Looser is measured by the size of the Federal Reserves balance sheet. So we've got looser monetary policy even as job vacancies are way up, and even as inflation is way up as well. So

Steve Larry says we should be having hykes. He's been talking about this for the better part of a year now. Uh do you think we should have more than three rate hikes next week, next month, next year? Well, I don't know yet. We have you know, obviously, as Janet Young used to say, you know, the FETE is data driven and you take each each month or quarter at

a time. But I agree with I agree with pretty much everything everything Larry said, But I would just make this point, Like we talked about oil having leveled off, there's no guarantee that oil is going to stay where it is. You know, it's not a function of some specific supply disruption of something that's can be easily corrected. It's largely a function of global demand. And global demand

isn't going down at the moment. And so I think there is a lot of not just in Core, I think there's a lot of inflation that is really stuck in the economy. And yeah, I think I think Larry's right. If the FETE is really serious about getting back to an average of two, it is going to take a lot more than three rate hikes over some period of time. Okay,

so that was terrific, great start here. We're gonna come back with Larry Summers and Steve Redder just short time from now to address the really pressing problem of COVID nineteen and now homocron. And 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 western We were back with our Real roundtable in New York with Larry Summers of Harvard and Steve Runner

of Willard Advisers. So Steve, let me turn to you as an investor on behalf of Mike Bloomberg. One of the big stories, not just the week this week, but this year is the COVID villars. Now we have the omo cron variant. None of us, I dare say, are epidemiologists. We can't know what's going on. And by the way, even if we were, I don't know that we could predict what's happening with virus. But as an investor, what do you do about that? Because it could well affect

your investments? Of course it has has affected our investments, and I would say in several decades of investing, I've never been in a position where I had to analyze things like this that went way beyond the normal parameters you look at as an investor. And so it has introduced the level of altility into the markets is level. It's introduced level of inefficiency in the markets. You see stocks reacting in strange ways and uh and and not anticipating events the way the market is usually good at.

And so it has made life very very complicated an economistillary. One of the things that may well affect is the supply chain problem that you just mentioned in the the last segment. I think one of the big questions about any time we're talking pandemic is the way I like to say it is, how does it affect the number of bartenders

relative to the number of our customers? Because the thing about the pandemic is that it affects both demand and supply, and so you know it's gonna be bad for the level of output because there's gonna be less demand and less supply. But with less demand and less supply, you don't know what it's going to mean for prices. And that's one of the puzzles in a lot of the discussion. Everybody said a year ago, that a year and a half ago, that we needed all kinds of stimulus because

um of the pandemic coming. Now there are many people who say the FED doesn't need to tighten because the pandemic is gonna end and people are gonna come back to work. Those can't both be are unlikely to both UH be proper logical UH propositions. I think O Macron does introduce substantial uncertainty UH into the future, and probably even more for emerging markets than for the United States and UH and Europe. It does certainly put an extra

range of uncertainty. And I also think that we shouldn't be so callous as to analyze it entirely through the prism of markets or the prism of GDP statistics. Even if we don't. Even if it doesn't have any effect on mobility and lock up policies and people are still flying UH planes, a much more pervasive virus is going to have a set of human consequences well. As fair point. I know you'd agree with that, Steve first and Foremo

it's a matter of personal health and safety. But it does affect investments and does affect money as a practic matter. You have investments around the world, not just in the United States. Are you seeing a divergence among the markets according to actually the COVID, I mean right now we see very different approaches. I mean China really locks down pretty quickly to try to protect themselves. You're parts of it now. Are starting to really shut things down. Do

you see divergence an investment based on that? Not? Not really. You know, they are pursuing different strategies, but I'm not sure whether the COVID strategies are uh the biggest driver of economic differences. I mean, for example, China, there's an enormous amount going on in China President Gy. I mean, we don't have time to talk about it today, but he's fundamentally changing the nature of China's approach to the

market economy. That is far more important than the fact that China has its own approach to COVID versus how England approaches it, or how Austrian approaches or this or that. So so, Larry, what about that the approach of shutting down as opposed to vaccinating, two very different courses, have different economic effects. Yeah, they do, certainly while you're locking down.

I think what I have been struck by in general is that the policies seem to have more effect on the timing of the disease then they do on the overall level of the disease. That if you lock up, then you reduce the disease substantially for a while, but you have to unlock at some point and then you get most of the cases that you avoid it. If you look at the different countries within Europe, there are a lot of different strategies, but less difference in result.

Part of what I think has to be a concern. You know, when people talk about China, they always talk about every grand and that is certainly a very big concern. But China, which has had nothing much happened that has increased its immunity levels, uh virtually none of the disease vaccines that appear to not be nearly as strong as the ones we've used. How they're gonna work their way out of they're totally locked up situation, I think is a very big challenge. And the longer they stay locked up,

the bigger that challenge is going to be. They're gonna have Olympics which are opening up, and Steve Well, they're not gonna open up for the Olympics. They're gonna do the Olympics in a bubble. And look what I've heard

about China and their vaccination strategy. Nobody knows, of course, the speculation among people who know something is that between now and a year from now and the next Party Congress occurs, they will figure out how to vaccinate people with vaccines that actually work, and they will then start to open up. Is that right I have? I have no idea, but let me just say two other quick things. One, I do think we're learning to live economically with the virus.

I send some of my colleagues among people I deal with, so far, no one is flustered that much by Oh my cron. We're still in the office, people are still having meetings and so on, and it's something we're gonna have to live with, like hijackings on airplanes, and us have another way to approach it. The second quick thing I'd say is, I don't believe that the reason people are not working now is because of the virus generally

obvious exceptions. I think the reason they're working right now, frankly, as many of the don't have to. They have strong balance sheets, they don't want to go back to an Amazon warehouse. I don't want to go to an Amazon warehouse, and so they're taking their time and figuring out what they want to do. And there are eleven million jobs open out there, and they know they can get one

whenever they want. On a really important point, let's wrap this up now looking forward in two if we could, let me start with you, as you look forward to the new year, what do you think the biggest downside risk is that we face. I think the three risks inflation and over extended markets are the three biggest risks we face, and I'm not sure in what I'm not

sure in what order. And I would also say the geopolitics of China, Russia and Iran, all of which your potential sources of crisis in the next year, is an additional concern. Give us one minute on sing and you identified omicron is a big risk. Are we testing enough in this country? No? We we we're fixing it now, but we're a year late too pervasive cheap tests that you can give to guests to your home and get

a result in fifteen minutes. And the faster we move on that, and the stronger we move on that, and the more universally we move on that, the better it will be. So, Steve, same question, you looking at two biggest risk. I agree with Larry's through three risks, but I think the first one and the third one are linked. And I think when you get to the question why the markets so so frothy. I think my own personal view is that the vast majority majority of the reason

is the FED. That when you take interest rates to zero, you know, it's tina, what we call tina, there is no alternative, and people come into the markets. And what you see happening right now is that every time this talk of interest rates going up, the stocks that get hardest are the growth stocks because their cash flows are so far out in the future that when you put a discount rate on it, values go down as interest

rates go up. And so I think the market is not really responding to uh international strategic issues it might if they became more severe. I think the markets responding almost entirely the interest rates. And if the FED starts down this path, I think it is going to be a tough ride for the market. Well that's my question, because it started on the path. We've had it pretty clearly from J. Powell. They're going to start down the path.

Question of how fast and how far so? Do you think would you feel better if there was a bit more of a taper tantrum. I'm not asking for a taper tantrum. And obviously part of why I think the FED has moved so slowly is to avoid a taper taper tantrum. I think they've successfully mitigated the effects of stopping the asset purchases the twenty billion a month. I

think the markets accepted that. I'm not sure the markets ready for three interest rate increases next year, and I think that may come as a shock to the inventially the precedent. This has been a great round table back again after almost two years, I think many thanks to Larry Summers of Harvard and Steve Rattner of will It Advisors. Finally,

one more thought the geo politics parts. Yet once again this week, the United States made it official it would not be sending any delegation to the Beijing Winter Olympics next year. The Biden administration will not send any diplomatic or official representation to the Beijing two Winter Olympics and Paralympic Games, given the Pierre scenes, ongoing genocide and crimes against a humanity in Jin John and other human rights abuses.

The White House Press Secretary Jen Saki said that the administration would be backing Team USA, albeit from a pretty big distance. This is hardly the first time that we've seen the Olympics used as a lever in geopolitics, going all the way back to the nine Olympics in Moscow, when President Jimmy Carter didn't just keep American officials away, he kept US athletes from competing after Russia invaded Afghanistan.

I can't say at this moment, but other nations will not go to the Summer Olympics in Moscow, hours will not go, and the effect well, Russian troops stayed in

Afghanistan for another nine years. But what might hurt more than the loss of a few officials up in the stands at the games might be if corporate sponsors pulled out their support, something that Richard has of the Council and Form Relations has warned about right now in a world in which corporations are far more vulnerable uh to political pressures from investors and others, I wouldn't be surprised if both governments and corporations essentially decided to hold back

from China, and then there's a threat that China just might not get to see some sports at all, as in the case of the World Tennis Association, which has pulled all of its matches from China out of concern over the fate of China's only number one tennis player in history, Ms Pung Shwi, after she accused of former senior government official of sexual assault and then she disappeared.

Longtime Olympics official Dick Pound explains all kinds of people who are trying to get in touch with her to make sure that she was alive and healthy and not in captivity and all of those starts of things. But if we really want to get China's attention, maybe we're better off using sports as a carrot instead of a stick. Just remember all the way back in one what happened when a simple table tennis match paved the way for President Nixon to go to China. And the rest, as

they say, is history. That does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.