This is Bloomberg Wall Street Week.
And we may not have an overall recession, we're having a rolling recession. To kind of roll looks pretty strongly.
It is when it comes to jobs, the financial stories that shape our world.
Three major regional bank failures send shockwaves through the banking system. We're all trying to figure out what to make of generative AI.
Through the eyes of the most influential voices.
Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, deebro Lair of the Paulson Institute, well then Hubbard of the Columbia Business School.
Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
It is all about the regulation for China, for banks, for drugs, and certainly for crypto. This is Bloomberg Wall Street Week. I'm David Weston. This week special contributor Larry Summers of Harvard on the jobs numbers out on the eve of Labor Day.
I still think the road to a soft landing is a very difficult one, but this was a step down that road.
Chipwar author Chris Miller, on which chips matter in our race with China.
Holding China back has taken on more prominence in recent.
Years and former cars are Steve Rattner of will A Advisors on what's at stake in the Joya W's battle with automakers, including a potential strike of one hundred and fifty thousand workers.
This is certainly the most the highest likely good of the strike in a number of years, and probably more than fifty percent.
Global.
Wall Street spent this last week of summer focused on regulation, at least for those not getting a few remaining days at the beach. Regulation was certainly high on the agenda for Commerce Secretary Romando on her China visit this week, telling authorities there that regulatory uncertainty is driving investment away.
I hear about, you know, unfairness, arbitrary decisions, a lack of due process, raids on their businesses that don't want to explain, tens of millions of dollars in fines for reasons that aren't clear. And as long as that is happening on the ground, that makes it very risky for you as businesses to do business.
Yes.
Back in Washington, President Biden proudly unveiled new regulations to start negotiations with drug companies over prices for a list of popular pharmaceuticals.
In January of twenty twenty six, the new prices will go into effect. We're not stopping there. Next year, medicaires will select more drugs for negotiations, so more America get more savors on life saving medications they need deserve.
While across town, the fdiic imposed new demands on regional banks holding long term debt, even though the banks themselves don't see the need.
I see this as a real debate between the banking industry and the regulators. And the regulators are rightfully on course to ensure a resilient banking system when you look at the history of the last fifty years. But the bank industry is correct and say look at the last ten years and low losses are half at the prior level.
And a federal appeals court down in Atlanta pushed the SEC a big step closer to approving cryptocurrency ETFs, something companies like a Gray Scale have been pursuing for a good long time.
We purposely decided to set up shop in the US, make use of existing rules and regulations, and it's our intention to continue to do so right enabling investors to access this innovative asset class, but in a way that feels traditional, familiar, and again within those regulatory constraint to say that they're often used to.
What all, those regulations did not get in the way of the jobs marker, at least not this month, as the US added another one hundred and eighty seven thousand jobs.
The revisions to last month took that number down some and unemployment went up from three point five to three point eight percent, but simply because more people were coming into the workforce, the markets were entirely sure what to make of the numbers, ending the day a bit mixed, but for the week overall it was all good, with the S and P five hundred and up two and a half percent, ending the week at forty five to fifteen. That's fifteen points above the median number where our Bloomberg
ls think will end up the year. Well, the NATSUK was up three point twenty five percent and the ten year yield lost six basis points to end up just over four point one point seven. To help us make sense of all this, we welcome now Peter Borish. He's chairman and CEO of Computer Trading Corporation. Peter thank you so much for being on Wall Street week. Welcome.
So it's pleasure of bulls.
A lot of bulls about equities right now. You have some doubts about it. Why do you have some doubts, Peter, Well, when you look at.
The strength of the markets, in particularly the interest rate market, and as well as what the FED GDP now came out today with growth over five percent, it's hard to think that the Fed is going to pause right here. And in fact, our thinking is that the Fed may raise,
it may hold on. I don't think it's going to raise again the rest of this year, but there's very low probability that the Fed cuts between now and election day, and the yield curve itself, which as we know has been inverted, is likely to move back towards its normal state.
And if you think about that, if you have four percent nominal growth, then the FED now was over five and then you have two percent real interest rates, you could see that the ten year, which is at four seventeen as you just showed, could easily go towards where the FED funds rate is, which is five and a half to six percent, by the middle of the next year.
And those higher rates are just about never good for accuracies now, But there are other issues out there as well. We have a looming possible strike with you, maybe a government shutdown. But what are the risks in the fourth quarter for the economy?
Well, if we have a government shutdown and you know that Congress comes back in next week, and think about all the spending that needs to take place. You had the hurricane in Florida, you had the tragedy in Hawaii. If all of that is shut down, that could really significantly slow the economy. But it's temporar, so the FED is not likely to do anything or go off course.
That could then be very challenging for equity markets because with government spending going down, aggregate demand will be reduced in proportion and that will hurt stocks.
So, Peter, what does that tell you as an investor? Where do you run to hide if in fact we have some of these risks out there.
Well of the great places to hide, of course, is in short term treasuries because they're paying a high yield, they're safe. It keeps you out of the whole debate of you know, are they going to raise is the yield career going to move? And I always say, the hardest thing in life is to rebalance a portfolio. And if you've had a great run this year, particularly in some of the tech names going back and rewaiting your portfolio to where your weights should be as an investor
is something to do. It's always a challenge to do that because everybody thinks that it's going to continue to go higher. But with volatility goes up, those stocks that have gone up the most are also likely to be the most volable.
So with volatility, if in fact does go up, Peter, does that mean you want to be as short term as you can across the board, whether it's cash or short term bombs, whether it's something else.
I think you want to go shorter term because that's the nature of volatility and uncertainty. And from that cut type of perspective, when you look at the breakout of energy, when you look at the strength of the dollar, these things are all telling you that the US economy is far stronger relative to the rest of the world, and that's going to continue to put pressure on rates, particularly on the longer end, and that will likely add to stress in the equity market.
Peter. One last one here, China. China's the news just about every single day. The economy is not going as well as President you would like it, keep trying to do something to show it up. How does that affect the United States economy? And for that mare US investors, Well.
China is kind of exporting deflation. You could see that in the relative value of the wand versus the dollar, and in markets all marginal demand matters. If China is not supplying that in their case being the largest or the second largest economy, depending on how you measure it, that will then put stress on prices, and that in itself is a little deflationary, which is ironic right. Higher energy prices where demand is an elastic, causes some substitution effect.
A stronger dollar is also deflationary, and that too could be a stress point for profit margins for companies as we go into fourth quarter earnings in October.
Peter, really great to have you please come back for wall streaming. That's Peter Borsh of computer trading. And as we get into this Labor Day weekend in the United States, we turned to Lewis Rockeiser remind us about what this weekend looked like back in nineteen eighty nine, a time like now when the dollar was strong, but when consumer debt was on the way down rather than on the way up.
Indeed, this Labor Day week found all the financial markets laboring a bit themselves, while bonds encouraged by a husky dollar, and the late report on lower consumer debt finished with a gain. Stocks went down for the first time in ten weeks.
This is Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David Weston. We're joined once again by our very special contributor here in Wall Street Week. He is Larry Summers of Harvard. So, Larry, you have been concerned about inflation for some time now, and you suggested that maybe we need to see a little looser labor market if we're going to get our arms right. Given the jobs numbers that came out on Friday, are you feeling a little more sanguine about inflation today?
I think these were good numbers. The economy still looks strong, with reasonably robust employment growth slightly greater than expected. Hours per week ticked up, which is another favorable indicator. Yes, the unemployment rate went up but it was driven by the fact that more people want to be working and have been pulled into the labor force, and that all happened with wage growth slightly less than was expected. So I think it's a mistake to make definite judgments based
on one number. But this is certainly a favorable set of numbers, which should please policymakers both on Constitutional you and on Pennsylvania Avenue. I still think the road to a soft landing is a very difficult one, but this was a step down down that road.
So let me pick up an analogy, and you've used on this program before about trying to land the plane. Given these numbers, is at least it look like that we're on the right glide path. Not saying we'll succeed, but we're at least on the right path.
These numbers are consistent with very optimistic scenarios. I don't think they determine that they're in a very optimistic scenario. But there are all sorts of things that could have been alarm bells in today's numbers that didn't ring. And that alarm bell that didn't ring, like Sherlock Holmes proverbial dog that didn't bark, is a meaningful that should be recognized, you know, David, as I look to the wage picture, though, I do see and I think it's very hard for
anybody to evaluate the significance of this. A degree of labor restiveness in our country, potential strike activity that.
We have not seen in a very long time.
The Hollywood writers are getting attention, joined by the actors.
There was a.
Quite strong wage settlement that was probably not consistent with two percent inflation at UPS a few weeks ago. And of course the big thing out there is the talks between the automobile companies and the auto workers. That's traditionally been a major template in the economy. The union is very ambitious in what it is asking for, and there's been a lot of a lot of workers left behind and the companies have done well. So one can understand
the union being very ambitious. But how that works through, both in terms of potential disruption to the economy if there's a strike and in terms of inflation pressures is going to be something people need to watch over the next month.
Let's turn to the international fraud if we could. We were all focused on j Pol and Jackson Hole last week, but there were it was the meeting of the Bricks, so called Bricks, where they added another six countries. So this organization, originally it wasn't an organization at all. It was sort of something developed by Goldman Sachs for investment pursoes. Now it takes on a life of its own. It's
a wide range of economies. They've added all the way from Argentina on the one hand, to sid Arabia and another. Is this a potential economic threat or challenge at least to the United States?
I think right now it's a symptom of our failure. It's a symptom of the sin of bipartisan economic nationalism in our country. We are not able to sustain support for trade agreements. We have great difficulties sustaining support for contribution to international organizations. We have lagged in our boldness in putting forth proposals to address global challenges. And so it's natural that the FORUA where we're seen as leaders start to recede, and there starts to be a demand
for other forums. And so I think if we want to address this, we are going to have to move away from the economic nationalism that was so central to President Trump, that was really the essence of what he said, don't cooperate with other nations, just compete with other nations. But that, frankly, has been maintained in the last while, with our emphasis on various kinds of import restrictions, our emphasis on By America policies, our reluctance to introduce trade.
Okay, Larry, thank you so very much for being back with us, as Larry Summers of Harvard our special contributor here on Wall Street Week. Commerce Secretary Romando spent part of the week in Beijing trying to build a foundation for future US China relations, an important part of which we'll center on semiconductors, to say us through what is at stake and what the realistic options may be. We're welcome now, Associate Professor of International History at tuft's Fletcher School,
Chris Miller. Doctor Miller is the author of Chip War, The Fight for the World's most Critical Technology. So, Professor, thanks so much for joining us. I've learned what I know know about chips mainly from your book, so thank you very much for that. Let me start with the most basic question. If we talk about a race between the United States and China right now in high tech, particularly involving these semiconductor these chips. Who's ahead and how far?
Well, today there's an international coalition of the US, Japan, the Netherlands, and Taiwan, all of whom produce technologies that are necessary for advanced chip making. The most advanced chips themselves are actually manufactured largely in Taiwan, which is multiple generations ahead, almost a decade ahead of the capabilities that the leading Chinese firms have.
When we talk about chips, one of the things that secuar Armando emphasized, and we've heard it before from the adminstration emphasizes this week was we want to separate national security concerns from basic commercial concerns in our competition with China. Is that doable when we're talking about these very very high end, cutting edge chips.
Well, there are certain types of chips that are only used in civilian or old to use the military applications. But when you're looking at the chips that are used for training AI systems, they're used in both. The exact same type of chip that can train a car to drive autonomously can also be used to train a drone to fly autonomously. There's just no technological way of differentiating.
And that's why the US controls on the transfer of AI chips to China are going to have both a military but also a civilian and commercial impact.
So far, we've been talking about export restrictions, other restrictions to keep China from catching up. What about attempts to really build up the capability of the United States and
other Western countries. And let's talk specifically about the Chips and Science Act, because that was built of something that we needed to do so that we had our own home grown How realistic is that we can, through the Chips and Science Act and other activities, build up our capacity here to match, for example, what we're seeing with TSMC over in Taiwan.
Well, the US is never going to be independent in semiconductors because the supply chain is just too and related with Taiwan, with Japan, with Europe. But the goal of the Chips and Science Act is to put more money behind equalizing the cost of producing chips in the US relative to other places in Asia.
Okay, Chris, thank you so much for being this really appreciated best. Professor Chris Miller of the Fletcher School at Tufts coming up as the US heads into labor day. The auto industry heads toward a standoff in two weeks with the three major automakers. We go over the bidding and the likelihood of a major strike. With the man who ran President Obama's successful effort to remake the auto industry, Stephen Rattner of Willet.
Advisors, Hi'm a great believer in unions. While when you start talking about work goals, then you start cutting into productivity.
That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
The most pro union president in American history, that's what Joe Biden proudly calls himself.
I made a commitment I'd be the most pro union president of American history. I'm keeping that problem.
And this summer he's getting the chance to prove it, as a series of labor disputes have hit the country in rapid sequence, starting with the threatened strike of UPS workers avoided when management agreed to a very large pay raise.
First year.
Analysts eight ya Hearts out UPS drivers could make one hundred and seventy thousand dollars a year in annual paying benefits thanks to a new five year contrent.
Added to the ongoing strike by Hollywood writers who were followed out the door by the actors, with the prospect of it going well into the ball.
All of our members know that they are fighting for something that is existential for them. This is about the future of being able to be an actor in this industry. It's about making sure AI doesn't take away their jobs.
And now we have what may be the biggest one of all is the un AW is threatened to strike forward and perhaps others unless its demands are met. With a deadline looming not long after Labor Day.
We have a potentially massive auto strike on the horizon. You have the head of the United Autoworkers Union is now threatening to strike against gm Ford and Stilantis, the Big Three, unless workers get a forty six percent raise, a return to traditional pensions, and a thirty two hour work week.
Liz Schuler, the head of the afavel Cio, says there are larger issues at stake for the workers.
It's about workers feeling taken for granted, having sacrificed through a pandemic, workers feeling disrespected knowing that they have sacrificed for these companies, and yet the in an era of record profits, that these companies can't find just a little bit more to take care of the people who are making them successful.
But employers like UPS warned that accommodating all the union demands can only hurt their performance.
Looking at expense in the US sect, the union wage rate increases, including in our new labor agreements in the first year, are higher than we originally planned.
However, it all comes out. The one thing that's for sure is that taking the uaw's one hundred and fifty thousand employees out of the jobs market would pose a major problem for the US economy.
We have our auto sector coming back strong.
We have deep investments in this transition to electric vehicles, so we want to continue those trends going to take us through where we are on the UAW negotiations. Welcome now someone who knows the US auto industry like few others. Stephen Ratner headed President Obama's Task Force on the Auto industry in two thousand and nine, leading to its restructuring,
and many would say it's salvation. He is chairman and CEO of Will and Advisors, which invests the personal and philanthropic assets of Michael Bloomberg, who of course is our founder and majority shareolder Steve, thanks so much for being back with us. You do know these things so terribly well. Give us your sense for a distance. I understand you in the negotiations, But what is separating the two sides in UW on the one hand and the big three automakers on the other.
I would say, roughly, there's something the size of the Pacific coach. This is really a scary situation. We've had many, many labor negotiations between the autoworkers and the UAW of over the decades. We've had some strikes, unfortunately, but some of them probably were inevitable or even perhaps necessary. This situation is really scary for a number of reasons. First, you have a very very activist, a new UAW leader who I do not know personally, but who has said,
you know, very very inflammatory things. Didn't do the traditional GM or autoworker initial handshake, which you know is just symbolic. He doesn't have to do that, but has based it.
But more importantly, has put out a set of demands publicly, which is unusual in itself, that are an utter laundry lists from everything from a thirty two hour week to a four hour week, to more holidays, more job restrictions, to restoration, to find benefitsion, pension pensions, just a long, long list of stuff that is just beyond the pale in terms of any auto company's stability to meet it.
Now, one of the things that Sean Fain and I guess his name of the head of the UAW has said is they need to make up for some lost time. There has been a lot of inflation, as we know, they were operating under a labor contract that really didn't allow that inflation to take into account. Can you separate at what is truly making up for lost time catching up with where they should be, maybe advancing a bit as opponent to opposed to fundamentally changing the business model for the auto companies.
Well, I think that when you talk about asking for pay increases, and they've asked for very large pay increases as well, that sort of falls into the loss making up for lost time category, although I would acknowledge that, or I would note that they did get fairly substantial profit sharing bonuses as solving the auto companies being more profitable, they have had wage increases and so on. So it's not like they took massive pay cuts in recent years
during this inflationary period. But the bigger thing of concern to me is everything around the actual pay level, and it includes It includes things like that the number of hours work, more overtime, kicks in, how many holidays you get, how many personal days off you get, things like that. But here's David, the thing that is the scariest of
all to me, which is work roles. I'm a great believer in unions, O a great believer in the right and the ability of unions to bargains for higher compensation and for certain kinds of other benefits, healthcare, things like that that we all know are important now for workers to have. Well, when you start talking about work roles, then you start cutting into productivity, and then we start going down a silpery slope We've been down before with bad effects. When we got involved with the auto sector
at a general mode. In particular, I remember there were something like three hundred job classifications of general motives. If you were an electrician, you couldn't touch a pie a piece of plumbing. If you were a truck guy, you couldn't you couldn't do something else. And so on and so forth, and it makes for a highly inefficient production
process and works. So that get true ultimately of everybody, and the unions have come back now and asked for the reinstitution of some, happily not all of the kinds of work rules that we had before two thousand and nine, and that kind of rolling back of this sort of wholesale rolling back of the clock is a very dangerous
place to be. But let me say one other thing. You, in terms of all of these wage settlements and negotiations see going on, whether it's UPS, whether it's in the auto industry, whether it's whatever, you have to really separate in a way. I know the sudden sound necessarily completely fair, but you have to separate the so called trainable sectors from the untradeable, non trading sectors like services. Paying the
UPS workers more absolutely contributes to inflation. It affects every American ships something by UPS and obviously benefits the UPS workers. Doing something similar in a tradable sector by which we general need goods that can be traded across borders, you do run into international competitive misions if we and this was part of what ailed the industry back in two
thousand and nine. If you were the yin and the yang of this is that you raise wages too much, then production will flow somewhere else, most notably in Mexico, which has had a disproportionate share of production increases in the last fifteen years. Or it will flow from the north, from the unionized black plants in the north to the non umuonized plants in the South that are operated by a lot of the flying companies that are coming here.
And that does save jobs in America, but they're much less renative jobs, and they're located in places in the country that perhaps don't even need the jobs as much. So there's a lot of complexity to what is a fair and appropriate level of wages once you start getting into these tradeable sectors.
How big apartment is that As the auto industry looks, both workers and employers look forward to a very different world with electric vehicles.
Yeah, that's definitely a complicating factor. Electric car plants electric cars in general require many few man hours that of labor to make because I'm sure you know a fewer movie quirts and so forth, and so in the long run, it does raise the question of the leveling extent of auto jobs that we're going to need in this country anywhere else for that matter. It's not all gonna be done by robots, don't get me wrong, But is there going to be some cap with some lessening of the
number of jobs we need? And then you have these new and I think you're speaking particularly a Ford which has these strength venture battery plans. Should they be unionized or not be unionized? And again I would come back to the same sort of Transted trade offs that if you unionize them, if you impose the same kinds of restrictions, requirements, and so forth on those plants that we do on traditional assembly plants, then a lot of those jobs may
not end up coming here. Whatever number of jobs there are in the electric battery area, some of them will not come here because it'll just become too expensive to make the stuff here. So there's going to be compromising on both sides. We have to find happy media.
Thank you so much, Steve, always so great to have you on Wall Street Week. That's Steve Ratner of Willett Advisors coming up. It's not just the auto industry that's going through labor strife this summer. We'll talk with the dean of the Cornell School of Industrial and Labor Relations, Alexander Colvin. Take us through the apparent shift and why it is happening.
Now, technology and changes and how it affects work, it being one of the real central drivers of change.
That's next time 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. As we approach Labor Day in the United States, it's not just the car companies contending with labor unrest. We've also dodged the strike bullet with UPS and we're well into a prolonged walkout by directors and actors in Hollywood. For a broader perspective on labor management relations, we welcome now Alexander Colvin. He's dean at the Cornell School of the Industrial and Labor Relations. So, Dean, thank you so much for being
with us. You do give us a broader perspective. Is it just our imagination or is there a shift going on right now and the relative balance between labor and management.
I think there really is a shift going on, and it's a function of labor having a bit more power right now. The labor market's tight, and so that always gives labor unions more power. But I also think there's something within the labor movement. There's been more organizing, more activism towards strikes, and so all these things are combining to give labor some more power than it's had for a while.
So you pointed out that the labor market has been tight, we are starting to get a little bit of indication. Maybe there's some loosening that jolts numbers. This week, we're a little bit looser than expected. As sooner or later, the labor mark will adjust itself, I assume, And so the question is what will be left, if anything, of this shift at that point, or is this just a relatively short cycle.
We always see the ups and downs the labor market. There is a cyclicality to it over time, and that affects labor's barring power. But I do think there could be some lasting effects of this period. Labor's catching up after having fallen behind for a period. So I think they are looking to use the power they have right now to lock in some gains to really catch up to where they fell behind for quite a while, particularly on issues like wages.
Okay, doctor Cauflin, thank you so much for being this's always good to talk to. That's act to our Alexander Colvin of the Cornell School of Industrial and Labor Relation. Finally, one more thought. Sports are as necessary to divert the mind as the body, so wrote English author and bookseller John Dunton in seventeen oh seven. And this summer we've had plenty to divert both our minds and our bodies, even if New York fans haven't had much to cheer
about when it comes to their baseball teams. This week we had the return of gymnastics legend Simone Biles, winning a record eighth national title, ten years after she won her first at the age of sixteen.
We're proud of Simone.
I mean, it looks she's proven the outest shadow of a doubt that she's maybe the top gymnast ever in the history of the sport.
And another legend, Lionel Messi, debuted for his Inter Miami team and scored a spectacular goal in the eighty ninth minute. Even if you wouldn't talk about it with reporters after the.
Match, Honestly, the messy moment has sort of bridged that gap, and now soccer is front of mind for the general public here in the United States.
If gymnastics in football, and by the way, are we still calling it soccer in the United States. Well, in any event, if all that isn't enough, others are trying to add some more exotic fare to our list of diversions, like anaak Jane working on bringing cricket to the wilds of Texas.
We're putting in great infrastructure and getting the top players in the world to come here and play.
But not everyone has gotten with the program of helping us find our favorite sports diversions, like President Maduro of Venezuela, who picked this summer to go after pickleball because of concern it was getting too popular in his very troubled country and was taking up too much space. Unfortunately, this summer, we've also seen a return of questions about the participation
of women at the highest levels of our sports. When the head of Spain's national football federation, Luis Rubialis, snatched defeat from the jaws of victory after his country's team won the Women's World Cup, and he decided to celebrate by placing his hands behind the head of a star player, Jennifer Hermoso, and kissing her full on the lips. So maybe it's only fitting that we end our sports summer
on two high notes. Over ninety two thousand fans gathered to watch a women's volleyball match, a record for any women's sporting event.
Ever, I think the biggest thing is women's sports are a big deal.
Here and this week the greats of tennis gathered once again at the US Opened in Flushing, Queens, celebrating on opening night a true sports milestone. Turning to the woman who led the charge, tennis legend Billy Jean King, who told a crowd that included former First Lady Michelle Obama, quote, We're here to celebrate a moment fifty years ago that changed our sports and all sports forever. Equal prize money at the US Open. Sometimes sports is much more than
just a diversion that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.