Wall Street Week - Full Show 10/14/2022
Searching in vain for solid ground in an escalating Russian war in Ukraine in a troubled global economy. And goodness knows in the British authorities, economic management. This is Bloomberg Wall Street week. I'm David Westin. This week, special contributor Larry Summers of Harvard on the potential next shoe to drop economically.
I doubt we've seen the last mine go off. Some of that may be in the private sector. I think more of them may be international. And former New Jersey Governor and EPA administrator Christine Todd Whitman on a path forward on nuclear energy.
Nuclear power play a huge role, at least in the transition from fossil fuels to renewables. Global Wall Street spent the week trying to get its footing after things only got worse in Ukraine as Russian missiles rained down across the country. And NATO chief Jens Stoltenberg had to reassure us that things weren't about to go nuclear. Russia knows that the nuclear war cannot be won and must never be fought. The IMF released its economic
projections and its chief economist warned that a global recession just may be looming. What we see is that about a third of the global economy is going to be experiencing a contraction this year or next. And if that weren't enough, President Biden told CNN. Recession may come specifically to the United States. I don't think there will be a recession. If it is, it will be a very slight recession.
And then then the CPI numbers came in hotter than expected, with the headline number still up at eight point two percent and core accelerating to six point six percent year over year. It is not a good picture here. Those who were thinking that inflation might drop off fairly quickly are going to be disappointed by the numbers here. In the meantime, over in Great Britain, we had a week of financial turmoil with a very public battle between the Bank of England and Prime Minister Truss's government, which ended up with a new chancellor of the exchequer and her giving up on more of her controversial budget. I want to be honest, this is difficult, but we will get through this storm and we will deliver the strong and sustained grace that can transform the prosperity of our country for generations to come. But the surprises weren't all bad this week, at least not for former Fed chair Ben Bernanke, who was awakened to learn that he shares with two others the Nobel Prize for economics this year. It was completely unexpected.
My wife and I shut off our cell phones. We went to bed last night not thinking about this issue. And it was our daughter in Chicago who was finally contacted and called us on the landline to inform us that this had happened. And the markets had just as hard a time as the rest of us finding its footing with the S&P swinging five points between big losses and big gains on Thursday alone after the CPI numbers came out for the week. The S&P 500 was down one point fifty five percent. The Nasdaq down over 3 percent.
And yield on the 10 year was up over 13 basis points to close the week just above 4 percent. To help us sort out a wild week in the markets. Welcome now, Joanne Feeney, partner in Advisors Capital Management, and Liz Ann Sonders, chief investment strategist at Charles Schwab. So welcome back, both of you, to Wall Street. Let me start with you.
Liz, and what happened this week? I feel like we get hit by a Mack truck. So I think it was probably mostly technical, the reversal that we saw yesterday on an intraday basis in the first part of the day. You did see the swoon take the S&P to below 35, 17. And I'm not a technician, but that level was important because it was a 50 percent retracement of the post pandemic move higher. And and that probably kicked in a combination of buying hedges being taken off, some short covering and that fed on itself through the end of the day. Maybe you could point to the move down in yields yesterday, the move down in the dollar. But that could also help to explain
today's weakness, too, because you saw a reversal there. So join a fair amount of noise. I think it's fair to say the equity markets there. But on Friday, actually, they gave up pretty much everything they got back on Thursday.
So when you net net when you get through it all. What did we learn this week that should affect the market over the longer term? You know, David, I think what we learn is that there's still a lot of risks out there facing the future of the global economy, not just here in the U.S. And those two price reports we got, the PPR and the CPI reinforce the view that inflation is going to be a really hard challenge for the Fed to solve.
There also seems to have removed any wiggle room that people think the Fed has. They're really going to have to be adamant about raising rates to try to constrain liquidity, to try to discourage consumer demand in order for inflation to get under control. There's not a lot of room for them to do anything but raise rates now for the next at least couple of meetings. The market finally perhaps is digesting
that. And there's a lot. Sorry. Go ahead, please. I. I think Joan's absolutely right. And I think there have been these moments where it it seems like whether it's in reaction to things going on in the U.K., that the markets almost
cheering for or looking for some sort of financial system accident because of the messaging from the Fed, from Powell, that they're not going to step in because of financial market weakness across any of the asset markets or just volatility, but financial system instability, maybe what could bring the Fed back in. But even in a situation like that, what they may do is use the tool of their balance sheet or repo facilities versus doing a pivot anytime soon on rates. And I'm not sure that's been fully digested by the market yet. You know, there could be certainly more digestion to come, particularly because the risks that are out there are really unusual. You know, it's not just the inflation problem, right? The U.S. has a labor shortage, born of the pandemic, born of early retirees, born of a lack of legal migration, immigration into the U.S.
And that problem is not one that the Fed can solve. And so they still have very high consumer demand and a shortage of supply no matter what the Fed does to try to curtail demand. There's gonna be spillovers, too, also curtailing the recovery of supply from the pandemic. So they're sort of fighting this problem without having all the tools that are needed. And, you know, the risks that are out there haven't really abated in many ways, although finally we're starting to see earnings estimates come down and market expectations adjust to those risks.
Suzanne, I wonder whether part of the problem we have right now is it's not all bad. There are parts of the economy that actually continue to be quite strong. It's sort of like we've gone from a unipolar to a multipolar world. We've gone to a multipolar economy.
It feels like that we have. And I think that's what's particularly unique about the pandemic. The nature of it, how it unfolded is that we we've been in this rolling cycle. So during the throes of the pandemic, when all the stimulus kicked in, both on the monetary side and on the fiscal side, that stimulus and demand associated with it was forced to be funneled into the good side of the economy because of the absence of access to services that became the breeding ground for the inflation with which we're still dealing. Then as you saw reopening, you saw that pared down demand on the good side, you saw pent up demand on the services side. That tends to be the stickier components of inflation.
So even though we're seeing disinflation now on the good side, we've got it on the services side. So it's very different than your typical slowdown, downturn, recession, whatever you want to term it, because at least the last two, the Covid recession, the global financial crisis, in essence, the bottom fell out all at once in the economy. This is happening in a unique way because it's sort of shifting through the economy and hitting pockets at different times. And some areas of the economy are still expanding, even as some parts like pieces and smartphones, where a lot was purchased during the years of the panic, the worst of the pandemic. Now those sales coming down, but look at auto production. That industry is still suffering from a
lack of the chips needed to finish off cars. And they're putting cars in inventory waiting for that last ship to arrive, for example. And the semiconductor companies that supply them still have a very long runway of demand ahead of them.
So there are parts of the economy that are still expanding, while others are being hit by lower consumer demand from high inflation, from the change in sentiment, from spending on goods to services. So that's why I think it's become very hard to say, well, what kind of a recession might we get? Is it going to be broad based like recessions in the past or is going to be more specific where lower middle and, you know, consumers suffering from the higher interest are suffering from deflation, really curtail their spending like Wal-Mart saw? Right. But whereas the higher end retailers are doing fine so far. So it is a very challenging time to forecast where the U.S. economy is going and how much unemployment might be created because of this constraint on liquidity from the rate increases. That means it's still possible to find potentially investments that do lead to to growth overall, even the near term as some of these industries continue to recover.
And you know, Joe, to your point about the the the upper end is in better shape as witnessed by what the retailers are saying. There's also that potential pressure just on psychology because of the wealth effect, given that even though the excess savings story has merit up the income spectrum, they're also challenged by not just equity market losses, but bond market losses, real estate losses. So I think that's why I think we all have to be careful about extrapolating that excess savings up the income spectrum as a guaranteed feed into the consumption side of the economy. I think even there, there might be some hesitancy. Joe, on last thought here, I will talk
about when is the market buy them out? What is the bad news about that? When do we know we've got it all out? We know how to deal with the world from here. Well, I think you almost never know that ever. I mean, think about the risk the global economy is facing, right? It's not just the US and inflation problems globally. Right. We have the war in Ukraine and there are some maybe a low probability, but very large risks associated with that. And then you have China and there continuing 0 Covid policy, which seems to be having rolling disruptions to supply, which don't help our inflation problem. And now we have more of an economic war against China with the latest round of restrictions on exports of semiconductor equipment and high level chips.
And the real question there is, will, there'll be retaliation from China in terms of restrictions against access to the Chinese market, which is still, you know, hope to be one of the fastest growing markets in the world. And now we might find that U.S. companies don't get access to that. So. So we shouldn't assume that the worst is is in at this point. And we should expect that markets are going to continue to be volatile as some of those risk get realized or clarified.
Joanne Feeney and Liz Ann Sonders, we'll be staying with us as we try to figure out what to do with our money in these turbulent times. That's coming up next on Wall Street. I'm Bloomberg. Well, this was the week when Wall Street got much of what it had been asking for and then decided quite characteristically that it didn't like it. The economy is submarine down as requested. Industrial production took its worst fall in more than a year. Business inventories are rising
ominously, and the Housing Industry Trade Association said its members were virtually out of business. That, of course, was Lewis Rukeyser on Wall Street back in 1981, but not forty one years ago now, when all the markets wanted was a slowing economy and the lower interest rates that they thought would come with that. The big move that week was a romantic comedy. You may not remember it with Burt Reynolds named Paternity. And the number one song was Arthur's theme from that Dudley Moore film named Arthur. Now, the problems are very different as interest rates are on the way up, not down, and the economy is still very robust by most measures.
Still with us are Joanne Feeney of Advisors Capital Management and Liz Ann Sonders of Charles Schwab. So joining me come to you, the question is, what do we do with our money in this world? Where does it make sense to invest with this much volatility, as much uncertainty? It's really been challenging time for investors and it really depends what sort of timeframe you have as an investor. You know, if if you're in retirement, what you probably need is some assurance that you're going to be able to get the cash flow you need off of your portfolio. And so one of the things we've done for our clients in that kind of situation is to create portfolios with above average dividend yields. On the one side, and now as bond yields are rising and we've kept our duration relatively short, we've been able to let bonds mature and then re up at higher yield. So, you know, one area to go to is some
relatively stable companies, whether it's General Mills or an V or, you know, some of the others in consumer staples and in energy that have, you know, dividend yields in the 4 5, 6 percent range. And that way they can still get that income and they can ride out the volatility in the stock prices and wait this out. And then that gives our clients a fair bit of comfort. But, you know, it hasn't been easy, really, for anybody. But that's one way to deal with the volatility.
Suzanne, what are you recommending these days? Well, first, I absolutely agree with Joanne that there's no there's no cookie cutter answer to a question like that. It really does depend on who the investor is, their risk tolerance, their past experience, their time horizon, whether their financial risk tolerance and their emotional risk tolerance, whether it is a narrow gap between the two or a wide gap between the two. But I think we're in a part of the market cycle right now where you want to actually focus on fundamentals and ISE. I know that sounds trite and sounds what we're always supposed to do. But gone are the days where you could look at segments of the market components of, say, big tech and look at it monolithically, make an assumption that they're all going to go up simultaneously. There's much more differentiation in the market right now. And I'd say, look for where things are,
dear. From a macro perspective. So we have declining earnings revisions in the aggregate. So look for the factor around positive earnings revisions, positive earnings, surprise. We know we're in a rising interest rate environment. So companies with strong balance sheets, low debt, high cash flow, strong free cash flow and low lower volatility is kind of a quality wrapper. And I think that's the best type of approach in this environment. And the last thing we've suggested for
those investors who who can do it, if you were a rebalance, are based on the calendar, maybe instead of doing it once a year, once a quarter, let your portfolio and the volatility associated with dictate the timing of taking advantage of the volatility by, you know, adding into weakness, trimming into strength relative to your overall strategic asset allocation. Joanne, what about the possibility of fixed income at this point? I mean, for a long time you didn't want to be in bonds given what's going on bonds, but those yields really come up. They're yielding something now and they do generate cash. It's sort of like dividends, right? Yeah, absolutely right. You know, we're getting in the order of
six plus percent in yields in our all investment grade fixed income solution. And when you pair that with a balanced strategy, with the equity front, you know, you can generate a pretty nice cash flow for clients. And so if you keep duration short and you're really careful about selecting credit quality because credit spreads have widened here. So you want to be careful that you're not adding risk to the side of your portfolio, that it's supposed to be sort of the suspenders on the pants. Right. To provide more stability.
And so that's one thing we've done and it's helped our clients feel a lot more comfortable in this kind of environment. Less than a year to the point yet where you'd consider duration that is going longer duration for its income might. My colleague Kathy Jones is a regular guest on on Bloomberg. She's our fixed income strategist and in sort of 4 ish percent range.
But we have suggested you consider lengthening duration. But I agree with everything that Joanne said, too. I think there are finally opportunities here.
We've gone from from a teen environment. There is not no alternative to TR. There is an alternative and there is income and fixed income again. And their strategies fit more active strategies that you can apply to take advantage of this move up in yields even well down the duration spectrum, you're actually generating a yield. If inflation ever came down, we might actually have positive real yields. We're not quite there yet, but I think
we'll get there. Well, you know, Suzanne, I wanted to pick up that was exactly the point I was going to make is the challenge is that inflation is so high that even if you're getting those appealing yields on fixed income, you're still losing purchasing power. And so that's why we continue to counsel. If the client has appropriate risk tolerances and time horizon, the equity side can help you offset the cost of inflation. You know, for example, one of the stocks in one of these portfolios is McDonald's. Now, what you want is to find a company like that that has good cash flow that can continue to pay its dividend, but more importantly, even can raise its dividend year after year.
And they just announced this week a 10 percent increase in their dividend. So you're being compensated more than compensated for that cost of inflation, eroding the purchasing power of your money. And that's something that you're more likely to get on the equity side than you are on the on the fixed income side. Listen, we're spending so much time on
rates and growth and for that matter, geopolitics and things like Ukraine, our earnings, we are in earnings season now. We had the first four banks come out this week with their earnings, which actually were pretty reassuring to a lot of people. Is there a possibility that could help the investor right now to the upside? Yes, it's possible. I think the rub, though, is that even if we end reporting season with some sort of positive beat rate, we have to recognize that estimates have been coming down since the April May period of time, both for the second half of 2022 and the first half of 2023. So it it has been a lowered bar and much like the second quarter. We're still early, but expectations are
that energy pretty much as all the earnings growth. So consensus right now, once the quarter is all said and done, a month from now or so, you'll have 3 percent overall S&P earnings growth, b, exclude energy that goes down to minus 3 percent. And that's if that's the case. That would be worse than the second quarter.
And I think the path of least resistance for estimates is still down. I'd also say really important to watch and listen in earnings season, not just for did you beat your numbers or your profit margins, but your profit margin outlook if you're a multinational company, the impact of the incredibly strong dollar, whether you're hedging it or not. The impact of inflation, whether you have a lot of fixed costs or variable costs, what your labor costs are. So I think it's a lot of the details under the surface that are matter as much as just the top line reading when you take into account earnings right now and your investment decisions. What do you anticipate? Well, you know, estimates have come down a lot. You know, as Liz Ann was saying, the
real question I think around this earnings season is going to be guidance. And given the uncertainty, the real risks that are out there, I think companies are going to be extremely cautious. And I think investors expect that it's really kind of a waiting game. We don't know if when how large a recession will be, how broad it will be. So we're going to investors are going to look to companies to get some clues about that. The companies that are out there on the ground, whether it's a Texas Instruments providing chips to the auto industry, you know, or a company providing chips to Apple.
And in that guidance, I think investors are going to learn from. And I don't think they're going to hope for too much. I think we're expecting not very strong guidance for the fourth quarter. I think a lot of companies are going to defer and say we're going to be more cautious, we're going to cut some costs. Were preparing for things to slow down. And that's that doesn't necessarily mean you have to change your investment allocations, though, because if you're in it, not for the next six months, but you're in it for a couple of years, three years, five years. Right now, we have a lot of stocks that have become relatively inexpensive.
So a little hope out there, at least. Thank you so much to Joanna Feeney and Liz Ann Sonders. Great to have you with us. Coming up, we're going take a look at what's happening next week on global Wall Street. That's next on Wall Street, week on Bloomberg. This is Wall Street week. I'm David Westin. It's time now to look ahead to next week on global Wall Street, starting with Juliette Saly in Singapore. Thanks, David.
China will dominate the agenda in the week ahead following the party Congress. The PRC sets its one year rate. On Monday, Bloomberg Economics expects it to remain unchanged. Tuesday, we'll see a data blitz with
third quarter GDP likely to show only a weak recovery and September activity, highlighting consumption, weakness and the important role public investment is playing in propping up the overall recovery. Elsewhere, bank Indonesia is likely to hike by 50 basis points and Australia will probably report moderate jobs growth for September. Now over a Guy Johnson in London guy, the UK will remain the centre of attention both in Europe and globally Monday.
The big question will the gilt market be able to cope without the recent support provided by the Bank of England? Or will Governor Bailey be forced to step back in? We've got gilt auctions peppered throughout the week. Wednesday we get inflation data. We also get housing data. And then on Friday we get retail sales. Plus we've got S&P and Moody's both updating the UK credit rating. We've got earnings also throughout the week.
Feed Johnston Known and Nestlé are reporting Tuesday on Wednesday, Wednesday. We also see the chip equipment maker RSM El reporting numbers. Pay attention to that one. And then on Thursday, we'll get a B.B. Volvo and L'Oreal.
A focus on earnings in the week ahead with reports from Bank of America, Goldman Sachs, Horizon, Netflix, Tesla and IBM. But also pay close attention to chip equipment maker LAM. Research for semiconductor industry is reeling right now from the Biden administration's new restrictions on doing business with China, restrictions that hit it at a time when the industry was already grappling with a slowdown in demand. Economic data next week include industrial production, housing starts and existing home sales elsewhere. Shareholders of Spirit Airlines are scheduled to vote on whether to move forward with Jet Blue's three point eight billion dollar offer to buy the company. And if you're a sports fan, a great week
ahead for you. The NBA regular season tips off on Tuesday and Major League Baseball's postseason advances with the league championship games thanks to Juliette Saly, Guy Johnson and Romaine Bostick. Coming up, if we're really serious about getting to zero emissions, experts say expanded nuclear power has to be part of the plan.
We'll talk about the challenges and the opportunities with Christine Todd Whitman, former administrator of the Environmental Protection Agency. This is Wall Street week on Bloomberg. Net zero emissions. It's a lofty goal, but time's a wasting. Just ask John Kerry, President Biden's special climate envoy.
Many companies are making promises to be a net zero by 2050. But the reality is, unless you do enough between now and 2030, you can't hit that zero 2050. And if we're really going to get there, Bill Gates says the math makes a pretty compelling case for nuclear power. You get a million times as much energy per reaction as you do burning hydrocarbons. And so it's very advantaged if you do the design. Right.
Nuclear physicist and former Energy Secretary Ernest Moniz says it won't get done without a public private partnership. I think what we need to see is governments moving together with the financial sector and with the equipment providers to get new power plants over the finish line. But partnership or not, convincing the public about safety may remain an issue given high profile accidents like Fukushima, Japan, in 2011, when an earthquake led to a disaster at the plant, causing tens of thousands of evacuations. All the nuclear power plants in this country, they operate really on this precipice of normal routine operation on one side and catastrophic accident on the other. And that's it. It's unclear exactly when you'll fall to one side or the other, but it's certainly possible. So the question is, what will it take? How safe it can be and how soon can we get there? Even for some who initially opposed the idea, but now embrace it.
Given this challenge we face today and given the progress of fourth generation nuclear. Go for it and get us some answers to these very important questions. We turn now to Christine Todd Whitman. She is president of Whitman Strategies. She is, of course, the former governor of the state of New Jersey and the former administrator of the EPA. So welcome to Wall Street Week. Really good to have you with us, Governor.
You've dealt with nuclear energy for years now. So give us your sense of the role of nuclear energy potentially in getting to net zero. Well, I think nuclear play a huge role, at least in the transition from fossil fuels to renewables.
Renewables are not yet based energy. Their peak shaving and we're a 24/7 society, as is the rest of the world. The world is 24/7 and nuclear is the only forward based power that releases no regulated pollutants or greenhouse gases, wireless producing power. And we have an incredible safety record here in this country on nuclear and actually with few obviously very huge exceptions being Chernobyl and what happened in Fukushima Daiichi.
Overall, worldwide, it's been it's been safe and getting safer all the time. I mean, the U.S. Nuclear Regulatory Commission is considered the gold standard on regulatory oversight of nuclear reactors. I don't think, given cost and time, that we're going to see any more large reactors built in this country. Certainly they are being built in China. They're being built around the world. And we can certainly play a part in developing the parts for those reactors.
But I see the future for nuclear right now being in the small modular reactors. Well, let's get to that and what we're first told. Give us a sense of the scope of it already. One of the things I have learned is nuclear is actually one of the few things that really don't have emissions that can be taken to scale.
I think something like 20 percent of energy in United States is generated by 70 percent in France right then. You know, you saw an example of what happens when you take nuclear off line. When California took the San Onofre nuclear reactor off line. Their emissions went up and the cost of their energy went off. I mean, it was totally counter to
everything that they were hoping to achieve in my mind. And so what I found over time is that even if you have an opportunity to talk to people and answer their very real questions, I mean, it's it's normal to have questions about the safety and you should ask them. But the answers are really good and they're based on our history. You can prove that, in fact, these things work.
And once you do that with people, they get much more comfortable with the idea of nuclear or it's just that for so long it's been used as, frankly, a fundraiser. A lot of times for the environmental groups. And we need to get the public to understand, particularly with the new small modular reactors that are built in a contained facility, they can be placed on site. They're much safer technology. They're a much safer way to produce the nuclear energy. So overall, there are really, I believe,
have the potential to make a huge difference, particularly if you think about the rural parts of America where you're not on the grid or you're not close to the grid. You can take a small modular reactor and provide power for an entire town or an entire business. So they have a lot of potential there. So let's pursue that question of safety, because that is a lot of people's minds, without a doubt. And as you've mentioned, we've had some horrific instances. Is the issue with safety that people don't realize that actually the track road is quite good for nuclear? Or is it technological developments such as, as you're referring to, a small module reactors? No, I think it's because people just don't know.
They don't understand. I mean, I get a lot of questions. I used to in the past about, well, what about the spent rods? And first of all, I tell them from all that, when the time we had a hundred and two nuclear reactors in this country and you took all those spent rods and you put them in one place, you'd fill up one football field to the height of the goalpost. They might have gotten slightly above that now because this was data from several years ago. But the point being, it's not this massive thing's size of the state of Vermont that people kind of have in their minds. And the other thing is that what's in those spent rods is 90, 87 to 90 percent fissionable material, meaning unused energy.
And in France and Japan, they've figured out how to reprocess that and get the energy out of those rods, rendering that what you have is the quote unquote, bad stuff, two down to 15 percent, let's say. And it can't be used in a nuclear weapon. So it's much easier to store, much less to store.
You have a lot of unused power just sitting there and these spent rods. And we should be using that technology as well. And people have to understand and when you explain it, them, you can't take one of these rods from a nuclear reactor and put it in a missile.
It's not the same technology. It won't work that way. And the other thing that we explained to them, because one of the most immediate issues that we had in this country was Three Mile Island. And when that went down, the operators in the utility itself, in the reactor itself, were never exposed to high levels of radiation. And they've been tracked ever since. And there were no releases into the community. And even those who were right there in the reactor. Had no adverse reaction to what
happened. In fact, it was because they overrode the system really that you had the partial meltdown. Fukushima Daiichi. That wasn't because of the earthquake,
it was because of the tsunami. And that was because they had their backup power, their generator located physically in the reactor building. After 9/11, our Nuclear Regulatory Commission said to our nuclear industry, you've got to move those out. They cannot be co-located with the reactor itself. So we that kind of thing can't happen
here anymore. Just this week, we saw an announcement of a deal to acquire Westinghouse Electric, basically on the premise that, in fact, we're going to have more nuclear energy. Do you anticipate that in United States? Well, I certainly hope we do. But it was not even 10 years ago, I guess there were two four proposed reactors, two in Georgia and two in South Carolina. And we were very hopeful that those were going to come in on budget on time. And they both ran over and the utilities decided in each case that it just wasn't worth going forward. So it is a question of cost and
regulatory hurdles. But you want to have those regulations in place because that's what protects the community and make sure things are safe and streamlined, how you approach them so that you make them go through all the hoops they have to for safety. But to put it to the front of the line to get this power online, the big problem we have, though, when you talk about all of this is the grid itself is old. It needs to be revamped. It can't handle a lot of new power coming in. And that's one of the big challenges that seems to get overlooked a lot when we're talking about these issues.
Again, you go back to small modular reactors, which can actually function on their own. What about the grid? Are we investing in the grid? We have the bipartisan infrastructure bill. We also have the so-called Inflation Reduction Act, which had money in there as well.
Is there money in there for the grid? Is it enough? There is money in there for the grid, whether it's enough or not. I doubt it. Hopefully the money that's there will be spent in a way that ensures that nothing is wasted.
Because we need every penny of it. Certainly every penny that's in there is needed to get the grid updated to where it needs to be in order to accept the new power, whether it's from nuclear or renewables. I mean, they're going to depend on that as well. OK. Governor, thank you so very much for being with us. Really appreciate this. Former Governor Christine Todd Whitman now with Whitman's strategy.
My pleasure. Coming up, we wrap up the week with our special contributor, Larry Summers of Harvard. That's next on Wall Street week on Bloomberg. This is Wall Street week. I'm David WESSEL. Welcome once again, our very special contributor to Wall Street Week.
He is Larry Summers of Harvard. So, Larry, we got the CPI numbers in that we'd waited for this week. And, boy, they came in hot and expected. It's been doing this repeatedly. Now, what do you read in these numbers?
Not so much hotter than I expected. Inflation's got a lot of momentum. The best single measure is to look out for inflation as a kind of super core measure, which is wages where you can look at the median components of inflation. They've just been running strong for a long time and not decelerating. So I think Team Transitory is engaged in
a lot of wishful thinking. And I must say that I'm struck by the hypocrisy of some friends of mine like Paul Krugman, who are very quick now to focus on housing and the fact that the private indices lead the public indices when the private indices are looking soft, but were entirely unwilling to credit that argument or to pay attention to the private indices. Some months ago, when the private indices were obviously pointing to an acceleration of inflation. So I think we've got to be very, very
careful here if we want to be credible about containing inflation. How much momentum is built in inflation and how can you tell? What are you looking at right now? Telling you what happens in the fourth quarter and as we go into next year? I'm looking at core measures, I'm looking at super core measures that take housing out, take these cars out. In addition to taking food and energy out, I'm looking at the so-called median inflation component. Whatever product it is, that's right in the middle. I'm looking at the so-called trimmed mean that looks at the middle half of the distribution of product prices. And very crucially for me, I'm looking
at wages, which is a kind of super core measure because labor goes into everything. And all of those are saying that inflation's not really coming down very fast if it's coming down at all and that it's way above the 2 percent target or any acceptable level. Besides the CPI numbers, Larry, a very big story throughout the week has been and continues to be Great Britain, where you had the Bank of England come in with their emergency buying of long term gilts. That is due to expire on Friday, the end of this week. Same time we now have less trust coming out and making some changes.
Give us your take on what's going on in the British economy and more importantly, the management of the British economy. Look, I think this is probably going to be a textbook case of crisis creation, followed by crisis mismanagement. I'd be surprised if we were in the seventh inning of this particular set of challenges. I have said before that people now, I think, understand very clearly that when you do a military intervention, you should never give a sunset date when you're going to leave because it just emboldens the opposition. And I think something similar is true of last resort finance, where the kind of deadline in the Bank of England gave, I think is asking for trouble down. Down the road. So I think we're going to see more
tremors, more aftershocks, more problems. At the same time, I think we need to recognize that as serious as the British policy errors were, this might well not have happened if global economic conditions were more normal. And the kind of excesses we've had in the system mean we're in very complicated territory. Well, exactly, Larry. I guess I'm asking two things that we have global slowdown. IMF this week came out and said we're looking at a global slowdown. At the same time, we have central banks
in the development countries really all raising rates at the same time. What is the likelihood we're going to see similar won't be the same, but similar sorts of problems elsewhere, possibly when it comes to very highly leveraged places and places that are more difficult to see. Some of the private credit, some of the nonbank banks, I doubt we've seen the last mine go off. Some of them may be in the private
sector. I think more of them may be international. You know, something that disappointed me at the IMF World Bank meetings this week was the number of countries who are reporting that they're having substantial difficulty in getting market access. And I must say, I'm sort of disappointed
by the official sector people, people from the ministries of finance and the central banks who are talking about how we're going to work with the private sector to catalyse trillions of dollars of finance for green transitions that all these countries but don't seem to be doing anything about the fact that many of these countries can't even issue a bond today. So I think there's a whole set of very important challenges with respect to developing countries and emerging markets. And I'd have to say that I don't feel those challenges were really met this week. There are some fires burning and the fire department is still mostly in the station. So as we speak to you, you are in Washington for those IMF World Bank meetings and the IMF. As a practical matter, you were very
outspoken in Project Syndicate piece, also actually speaking with David Malpass, the head of the World Bank, about the role of the World Bank right now on things like sustainability. What is going on there? Is the World Bank playing the role it should be playing and what should it be doing? No, I think it is playing its usual roles in its usual way. And I think generally the economic crisis of the moment demands major changes in approach. Just as the security crisis in Ukraine demanded major changes in approach, and we're not really quite seeing it. Yeah. The World Bank needs to be much more aggressive in the use of its balance sheet and it also needs to get much more capital and instead of having a fight about which of those two things is more important. We need to do both of them because the one mistake we're certain not to make is over investing in the green transition. And so we need to make sure we're doing
everything we can to support that transition. So if there is a lack there, Larry, often that light comes from a lack of leadership. Do we not have the leadership we need either from the United States Treasury, the White House, or, for that matter, at the World Bank? I mean, would you ever consider taking over that role? I think that we do need leadership that points towards larger changes in business as usual than we're seeing in the financial area. And I think there's some mistakes being made right now at a very, very difficult moment in Africa, at a very, very difficult moment in Latin America, at a very, very difficult moment in parts of Asia. Larry, one piece of news which was actually really hit the markets but has not gotten too much attention, is what the United States to expect. A semiconductors and China chips market really went down substantially. It took a lot of the tech with it at a
time of so much difficulty globally. One of the possible effects of those sorts of trade actions. You know, the kind of large scale cut off on cooperation in semiconductors that the Biden administration announced. I don't think it's possible to pass an overall judgment on that without understanding the security risks that they saw, which depend on classified information, which those of us on the outside don't have. But this was a highly consequential increase in economic aggressiveness.
This is different than a trade fight over a specific product or a specific trade practice. This was a pretty across the board effort in something that's very, very difficult to challenge. China's ability to grow and to develop technology. And so I think it's going to have some far reaching implications. Larry, finally, we did have the announcement of three of your fellow economists receiving jointly Nobel Prize for economics this week.
Tell us about what you took away from that award. Look, I think it was the analytical recognition of something that practical people had known for a long time, which is that banks in finance are different, that they're subject to confidence crises that are kind of apart from the fundamentals of what's going on. And that you've got to be very mindful in public policy to maintain confidence in financial leader mediation in a way that's a bit different than you have to with respect to manufacturing companies or airlines or something else. That was very fundamental research, theoretical research in the case of Diamond and Deb, vague using mathematics. Careful historical study.
In the case of Anki, that I think served him very well during his time at the Fed. OK. Thank you so much to Larry Summers, our very special contributor here at Wall Street. Week. Coming up, you can't always get what you want no matter how much you're willing to pay for it. That's next on Wall Street week on Bloomberg. Finally, one more thought when money is no object.
Watch out. They say the one with the most toys wins. And let's face it. Toys usually cost money. And the bigger the toy, the more money it costs. Take, for example, Jeff Bezos, new yacht, the largest sailing yacht in the world at four hundred seventeen feet and costing upwards of five hundred million dollars. Or Elon Musk agreeing to plunk down forty four billion dollars for the prize of owning Twitter, something most people think is worth a lot less than the price tag. That is if he ends up paying it.
So there's two options here. One. You know, the deal falls apart and stock NIKKEI has been sort of artificially inflated. It's going to crash or if things go the way Twitter wants. Then they get the guy in charge who, you
know, for the last three months has been saying that Twitter's been lying about its user base. But what happens when you spare no expense? Go all in. Put all your chips on the table and don't win your dream prize.
Consider the case of Hillary Clinton's campaign spending one point four billion dollars on the 2016 presidential race, substantially more than Donald Trump's 960 million dollars. And coming up short, this is not exactly the speech at the capital I hoped to be giving after the election. More poor Columbia Pictures, which in 1997 decided to make Ishtar figuring anything with Dustin Hoffman and Warren Beatty just couldn't fail. But for some reason, a movie about two lounge singers involved in a coup in the made up country of Ishtar didn't quite land with the audiences. Columbia lost around 40 million dollars on the deal, almost one hundred million dollars adjusted for inflation today. And the dud established Ishtar as the
synonym for box office flop. RTS wastes. Does this look like an Alix Steel ISE those vultures? And now we can add Steve Cohen to the list of those who went big and lost. The hugely successful hedge fund manager paid around 2.5 billion dollars to buy the New York Mets. And this year took it to number one, at least in player salaries. But sad to say, for fans of the Amazons. No one in payroll doesn't mean no one on the diamond.
The team lost the third game of the wildcard playoff. By a score of six to nothing was executing pitches and the wheels fell off. I don't know why. We just couldn't figure out a way to get some runs, some offense going, leaving Mr. Cohen to spend the winter going back to
first base and thinking hard about whether that 278 million dollars in player salaries just maybe wasn't enough to get to this great point. And they have all this momentum behind them. And then they blow it. That's the Mets. That's Mets betting that does it for this episode of Wall Street Week. I'm David Westin. This is Bloomberg.
See you next week.