Wall Street Week - Full Show 04/22/2022
Slowing growth rising inflation and Putin's war in Ukraine takes a new dark turn. This is Bloomberg Wall Street week. I'm David Westin. This week Steve Rattner of Willett Advisors reacts to Secretary Yellen thoughts on the economy. The Fed is concerned about inflation. I know they'll try to achieve a soft landing with some skill and some luck. We'll have a very good year. And on this Earth Day and for nuking of Bank of America on work climate efforts head in the wake of the Ukraine war. If you thought it was bad it turns out it's worse in terms of climate change. Once again we all spent a good part of the week focused on the war in Ukraine with the beginning of what looked to be a major battle for the Donbas and people like former Secretary of Defense Leon Panetta saying the key is doubling down on the economic sanctions. I think the most important thing for the United States right now is to remain united with our NATO allies
to continue to put pressure on the sanctions and try to squeeze them and enforce them even as President Putin claimed that those economic sanctions weren't working. We can now confidently say that such policy of sanctions towards Russia has failed. The economic blitzkrieg strategy didn't work. And when we weren't watching video from Ukraine some of us may have been watching Netflix but as it turns out not nearly enough of us. Let's take a look at this. They are looking at first quarter streaming paid
net change. Wow. Negative. Two hundred thousand. That was for estimates. I've been up two and a half million. That is a big decline here. Leading CO CEO Reed Hastings to throw out some alternatives like for example putting some ads in our Netflix feed lot bigger fan of consumer choice and allowing consumers who would like to have a lower price and our advertising tolerant get what they want. Makes a lot of sense. Washington spent the week hosting economic officials from all around the world for the World Bank IMF meetings with the recurrent theme of lesser growth as summarized by the IMF chief economist compared to our January forecast. We have revised up projection for global growth downwards to three point six percent in both
2022 and 2023 even as Fed official after Fed officials said that the priority had to be inflation which means raising the rates. We're really going to be raising rates and getting expeditiously to levels that are more neutral. And then that are actually tight tightening policy. If that turns out to be appropriate once we get there. And the markets. Well the markets were listening. Sure Pollack said at least this time particularly the equity markets with the
Nasdaq down a whopping three point eight percent for the week pointing toward what could be the worst month for the tech heavy index since Lehman collapse back in 2008 while the S&P 500 was down two point seventy five percent. And the yield on the 10 year Treasury will it just kept on climbing. Ending the week over two point nine for their thoughts on what the markets were reacting to. Welcome now Barbara. And Bernard he's founder and CEO of Win Quest Capital. And Rik Reeder BlackRock CIO of Global
Fixed Income and head of its global allocation team. So Rick I'll start with you. I mean I'm not the professional you are but it doesn't look at the market's very happy this week if I can put it that way. No I mean a boy it was it got a dose of tightening financial conditions in an aggressive way. When. When you're Powell talks about Volcker and being aggressive on inflation and consequently the idea you're going to tighten financial conditions. That is the environment where the bond
market and the equity market don't don't do particularly well. So you saw that play out in a pretty extraordinary way. You mean not just where the market's soft. Do you think there were a couple of things are interesting. One it was the bond market that was leading the equity market the equity markets amazingly resilient till the last couple of days. And it was almost like that note. The memo got through that gosh we're tightening financial conditions. Rates have moved significantly higher than
the equity market turned down. But you know it's a market ripe with uncertainty lack of conviction and you're seeing that play through. So so Barbara and is this a matter of the OMXS just finally catching up with the bond markets and saying oh you know what we are going to tighten. I think so. You know in our industry is the whole mantra of the Fed. And I don't think you should hear. They've been very clear that the narrative is no longer transitory that they're going to
front load hikes. And that's what the market is only pricing in. And know it's very interesting because while Jerome how she crushed the cyclical parts of the economy that he can control. I worry about what's he going to do about the sources that inflation that he can't control. Well that's a really good question. For example supply chain right. Barbara. Correct. Absolutely. And you know there is no interest rate that can solve the inflationary effects of demobilization and
effectively over the last three decades we've had minimal geopolitical risk and that's encouraged managements to outsource and offshore. And that was great for margins and shareholder returns. But just in time has become just in case. And now that we've a pandemic and a war and those efficient supply chains are now coming across as very vulnerable and fragile in the face of exotic mass shocks. And so what I fear that there is no rate of interest rate that can fix that. And there is no quick fix to that which is why I believe inflation will be here for longer than the market is anticipating. So Rick what should the realistic target for the Fed be at this point. I mean you always talk about 2 percent. We're way past 2 percent. I don't think we're going back there anytime soon. What's a realistic target.
So you know it's a question of how much the Fed feels like they need to get visas to get its tightening. As Chair Powell would describe the thing that is ironic about this period of tightening is you're starting to see cracks in the system in terms of the economy starting to moderate in a pretty significant way in that you're seeing that in some consumption data you're seeing that in some of the corporate data. And so it's a tricky time. I mean it's so mostly and I think the Fed is going to overshoot and try and try and bring down inflation. Barbara said is right. You've got you know when you when you talk about the shocked effect on food from the Ukrainian dynamic when you talk about the shock effect that's also had on energy. Talk about supply. You talk about China locked down now and creating an exacerbation of the supply chain issues. These are
tricky things for the Fed to deal with by the way without hurting employment. You know what you want to keep doing is keep closing the income gap. Keep people working. Start bringing more people in the workforce. There's still a there are not enough people in the workforce today. So it's a very delicate balance. I think the Fed as the chair said I think they need to move expeditiously. And it's part of why I think you could get. You're going to get a 50 basis point hike I believe in May. And you could get a while probably 50 basis point hikes in the subsequent two meetings. That could go a bit more than that. And
if you move quicker and then take a look and see how things how the economy is developing I think as a prescribed path from here. Barbara I think my contract and required now to ask about hard and soft landings. I think that's the required question to ask now. What about that. I mean we have Chairman Yellen. I'm sorry. Treasury Secretary Yellen actually telling us this week she hopes with some luck that they can actually have a soft landing. We heard Chair Powell say he's really shooting for a soft landing where the chances. I don't see it. It's really tricky. There's so many things that are unprecedented unprecedented about this time. Typically you would be rising rates into an accelerating growth. And here it's inflation isn't just a problem in the U.S. It's global. So and
so everywhere governments are trying to raise rates. And so that's particularly tricky. The other thing is I think you have to differentiate between asset inflation and price inflation. When you have asset inflation that's celebrated as a boom. Stocks and houses and risk free price inflation affects affordability. And that's what we're seeing now. It's food and energy. So rates might bring down asset inflation might bring down the multiple on the market to a more normalized 15 percent but 15 times. But what do you do about price inflation when it's driven by a permanently altered supply chain. So if this is super super tricky. On top of that you are now lapping this month actually the last stimulus check. So I see this as a bit
of a Wile E. Coyote moment for the consumer whereas they're faced with higher inflation. The average basket today cost fifty two hundred more than it did last year. It's time for the consumer plus higher inflation and higher and higher interest rates. So this is this is very tricky. I'm very happy that unemployment
rates are so low. But the reality is real wage growth is not rising. It's falling. So you manage last time I checked a fair amount of money for BlackRock over there. Give us some investment of ISE. You manage both fixed income and equities. The the yields have really gone up on bonds. Is it to be time to buy bonds. I know you brought a chart will show up for our TV audience. You can describe it about the yields between dividend companies as opposed to fixed income. Yeah I mean I actually think you pull that off shows that this is pretty remarkable dynamic. You know I just feel like there's this extraordinary focus in the equity market about what earnings are going to do. But really what is it what do you think about how I think about
equities. It's really your cash flow relative to your cost of finance it. And and you think about what that means in terms of what people have been doing the last few years is gosh I get no yield on my fixed income. I got to go to equities look at that chart and look at particularly the yellow line shooting. Higher Fed raises rates. You can buy investment grade credit
dramatically cheaper prices 300 basis points cheaper prices. And then the differential between dividends and what you can get on investment grade credit collapses meaning a there's an alternative. Gosh I don't have to own equities for my for my income. I don't they don't dividends. I can actually get it in more liquid and more quite frankly more liquid form. I can get it in higher quality form. And so I think this is part of why that delayed reaction function of the equity market was so pro sports so extraordinary is like it wasn't they weren't getting this chart for a while. So. So what do you do with that. Well I
think you got to be a bit careful about equities here for a period of time. You know the straight off last couple of days is starting to bring some multiples some interesting levels. I still believe you have to be a bit cautious on equities. I think by the end of the year equities will trade higher. But I think you have to be cautious today. And you know one of the things we're doing now is A we're holding a lot of cash. When financial conditions tight we think that is that is a useful utility. And then you know we're starting to wade our way into some of this investment grade credit some of these municipal bonds that all of a sudden are getting a 4 percent. You go and you go out the curve and you're getting 5 percent or a bit more on that. Those
are pretty attractive particularly if you think the economy is slowing. You're talking about the top part of the capital stock and you'd end a pretty good yield. So what we're starting to wade in. But I but you know the primary objective today is be conservative. And so we start to see the Fed make you know which I think if I may meet and you're going to start to lay out more
of the plan on how much you're going to go on rate how much you going to move the balance sheet which is I would argue a bigger impact if you drain liquidity from the system. So you know patience is at the top of my investment pyramid today. That's very good advice. And again for our ready audience for that chart showed was basically that yield on the investment grade 3 year was really coming up and meeting and even going a little bit behind and beyond. I think the high dividend yield on corporates. So Rick Rieder and Barbara and Vernon we'll be staying with us. We're going to focus on the consumer so much of
our economy and whether it can save us from the hard landing that many are fearing right now. It's coming up next on Wall Street week on Bloomberg. And the country's trade balance which had been delivering its own brand of bad news for many a month. Some are assaulted in February and recorded the biggest one month surplus in American history. Part of the reason was that importers had been
stockpiling oil the previous month in advance of the imposition of President Ford's new tariff. Oil imports in February thus declined to the lowest level since the 1973 embargo. But still there was no arguing with a nine hundred million dollar surplus. And a lot of European speculator decided that it was time to start accumulating dollars instead of other currencies. That was Luis her hairdresser on Wall Street week back in 1975. In fairness Mr. Brookhiser yes Sommers did wear our hair that way
back in 1975. It was a very different era when the United States actually ran a trade surplus for that month instead of the 90 billion dollar monthly deficit that we're running now. Still with us are Rick Reeder of BlackRock and Barbara Ann Bernard of Wind Crest Capital. So Barbara and let me come to you specifically on the consumer because it's so much at the heart
of our economy. We talked this week with the chair and CEO of Bank of America Brian Moynihan who said he's looked at the consumer from where he sits. He has a lot of access in the consumer data. He says it's really very strong and that will take us through the tightening that we're looking forward from the Fed. You agree.
So I think what I was talking about was what he was saying currently and this week the market got excited about housing starts. I think those are lagging indicators and you can't create Alpha if you're driving with the rearview mirror. If you look at how sales to me. That's far more indicative of what is going on in the S&P homebuilder index. Wouldn't be down 28 percent this year if we didn't have a problem. National home sales have been down in three of the four last months. So the consumer is not feeling as good as they did this time last year. And if we just want to look at sales and retail sales 20 21 is
an uncomfortable year. That was peak sales for peak sales. Peak retail sales. Retail sales were up seventeen point two percent in 2021. So every company is facing really tough comps. And I think the street is extrapolating the strength of the consumer in 2021. And it's not going to happen. So I look at companies that look like they're on 10 times earnings but on a normalized earnings number they're more like 30 times. And I can give you multiple
examples of that. So just tax relief right now given we're estimates are we are very short. Discretionary consumer. So give us a couple examples when you run toward in that world Barbara and what do you run away from. OK so let's look at Tesla. They had a great great quarter this week. And I would say that's good. They've got purchasing power but that to me is not indicative of what's going on in the auto market. If you look at a CarMax or car or an auto leads this morning they've had a
terrible time. And so you look at something like CarMax and 50 percent of their profits are from auto sales. So that's a function of commission and volume. Last year they sold eleven point seven million cars in the great financial crisis. They sold nine and a half. A normalized number is 10 and a half. So I don't think they're going to do eleven point seven million car
sales this year. The other 50 percent of their earnings are from OMXS and that's a function of spreads and loan loss provisions both of which are below a normalized number. So in my math the carbon CarMax is over earning by 10 percent on the top line. And it was over earning finance. And so that's 30 percent over earning. So on LEAP. Yes a five dollars and 15 times multiply get a 75 target and the stock's at 90 today. So this is what I mean about ISE comparable comps and unrealistic expectations. This is a Rick were you on the consumer right now because it's so important. I
mean when you talk to people like Secretary Yellen she points to the strength in the job market. Is that going to get us through. So I think it's more complex. I Lisa Abramowicz said around the housing market housing markets it is going through a stagflation very dynamic. There is an affordability problem that is that is profound. You're seeing mortgage applications drop as a result of that. Homebuilders such as you are saying is definitely down. I completely agree with that. I think you're going to see consumption slowing. You are seeing that because of this dynamic around where fuel prices are where food prices are. So you are seeing some pullback from the consumer. But I think it's much more complex around I mean not
quite frankly my career. I've never seen a consumer more loaded loaded for bear than they are than they are today. So you with some of the stocks I mean it's two and a half trillion of savings that the consumer still has. We tracked this number really closely to an in the still of savings from the fiscal stimulus. You also as you saw you have a job market that is legislatively white hot. And consumers tend to spend based on they're there. And you're saying by the way the quits rate is really high. And that's when the when the when individuals are confident in their job prospects. And in the end the consumer has delivered and actually looked at something today that first time in 30 years
cash on hand is higher than debt for consumers. That is a pretty extort. That's generational change. So I think I think Berman is right around. The consumer can wait and be patient when it sees prices that are extremely high and you compare them to where they were what consumption was last year before these prices were high. I do think you'll see some pullback about. But you know I'm pretty far from this is a recession a recession or a construct. When you've got this sort of firepower by the way sitting on corporate balance sheets as well you've got that sort of firepower. So I'm a bit more enthusiastic about the consumer can be in good shape and be supportive. But but agree with the fact they can be patient and pull back when when you see the
prices of food escalate so quickly which they will continue to do. Barbara is the household balance sheet going to protect us from recession. I hear what you're saying but when you look at that two and a half trillion and you just look at just what rates are done on a 30 year mortgage for the average homeowner the average mortgage expenses. Five hundred dollars more per month at six thousand dollars a year. You add that to higher gas prices higher rent
higher food and you can see how you can blow through that two to half trillion extra savings pretty quickly. So I just you know Rick I agree that you know consumers in better shape than perhaps they were when they had more debt. But I also think the cost of living is just so much higher today that when real weekly average earnings are down and retail sales are down. Right. That combination of lower spending and lower earnings over the last 60 years has always meant you're heading into a
recession. And that's where we are. Both of those figures are negative for average weekly earnings. The numbers down negative three point three percent year on year. And retail sales are now negative one point six percent year on year. So that tells you the consumer isn't feeling healthy. And in addition to that they no longer have the stimulus checks. So does the consumer have more money. No I don't think they do. It's not incoming anyway. Rick one last point briefly if we can. We haven't talked at all about China. The shut down in China is that gonna have a substantial thanks in our economy. So I mean China is is almost 20 percent of the global economy. When do you when you create a dynamic of a shutdown not only
does it impact the economy in terms of consumption in China and the effect that has on the global economy particularly things like commodities that are building products et cetera it is pretty significant. And then when you talk about supply chains shut down how big multinational companies have to deal with where they shut down or that it will have an impact. Listen the thing I think you have to put into perspective with that is is the fact that China is putting in a tremendous amount of monetary stimulus. Probably look at the last three days what's happened to their currency. They're letting their currency weaken. They've been very clear about about the triple R in terms of how they're going to be accommodative from that perspective. And so there was a twenty four point plan they put in place. So China joined is pretty extraordinary. Their ability
to address these issues. But in the near-term it's a slowdown. And it has global ramifications and it's a multifaceted way. OK. Thank you so much. Now I want to say this is a very special week for various reasons including as I understand it it includes the day that Barbara Ann Bernard was born. So we all owe you a happy birthday Barbara Bernard. Thank you so much. We're using some of your birthday to be with us here on Wall Street. It was really great to have you with us. Thanks so much to Barbara Ann Bernard
of Wynn Chris Capital and to of course Rick Reeder of BlackRock. Coming up we're going to take a look at what's coming up on global Wall Street next week. And this is Bloomberg. This is Wall Street. I'm David Westin. It's time now to take a look at what's coming up next week on global Wall Street starting with Haslinda Amin in Singapore. David thank you. All eyes on the DOJ meeting in the week ahead.
Will Governor Kuroda change the policy settings in the back of tenure. KGB yield reaching the bank's upper limit. Also the slumping yen. Will the bogey intervene to provide support. Japan's policy divergence along with its trade deficits has sent the yen to a 20 year low vs. the USD. That spunky investor speculation the DOJ could take a less aggressive stance in its QE policy to avoid adding momentum to yen selling. This is one DOJ meeting you want to watch Danny over to you. Thanks. How's Linda. And the coming week the continued war in Ukraine evolves rapidly. We're looking at Russia that's launched a new offensive in what the foreign minister there Lavrov has hailed as the second phase of the war in Ukraine specifically Russia looking to take more of the east concentrating on the Don Bass region as they changed the contours of this war to be less of an urban more and more open spaces. At the same time we'll continue to look at the international reaction. Finland for example has
started their debate about joining NATO. Sweden is expected to follow shortly behind. Now Romaine Bostick in New York. Thanks Danny. The busiest week of the earnings season is ahead with about one hundred and eighty of the S&P 500 companies scheduled to report Coca-Cola Whirlpool and Activision Blizzard. Release earnings on Monday. Three on Microsoft and General Motors are on Tuesday. Kraft Qualcomm and Metta arrived Wednesday. Apple Amazon and Intel are on Thursday. And rounding out the week on Friday. Chevron Exxon Mobil and Apathy. The week will also be jam packed with economic data including durable goods. New home sales and the first look at GDP numbers from last quarter. A Bloomberg News survey of seventy two economies shows
gross domestic product likely expanded at a 1 percent annualized rate in the first quarter. That would represent a significant slowdown from the five point seven percent pace that we saw in 2021. David thanks. Linda Mean Dani Burger and Romaine Bostick. Coming up we thought we were on a track towards zero emissions but has the war in Ukraine derailed us. We talk with Anthony KUHN at Bank of America. This is Wall Street week on Bloomberg.
What a difference a war makes. President Biden started his tenure pledging to cut back on the use of fossil fuels. If we act to save the planet we can create millions of jobs and economic growth and opportunity to raise the standard of living amongst everyone around the world. But that was before a resurgent global economy and the war in Ukraine sent the price of oil and of gas at the pump skyrocketing. I'm doing everything I can to bring down the price to address prudent pricing. That's why authorize the release of 1 million barrels per day for the next six months first from our Strategic Petroleum Reserve. So what about all those concerns about the effect of fossil fuels on climate. Did one war in Ukraine undo all those best laid plans. Well at least one energy industry participant Anglo American CEO Mark Cutifani says it's only a temporary setback. The transition to renewables and green energy is going to stall for a short period of time and then it's going to race
like it. So I think there's a negative consequence on renewables in the very short term but long term everyone's going to push hard to get their renewable strategies in place. And it gives a broader perspective on how the war in Ukraine may or may not be affecting the quest to get to zero emissions.
Welcome now. And for nukes. And she is the chair of Bank of America Europe. And she for many years has been something of a pioneer. I must say in. Yes she and great to have you back with us on Wall Street. We thank you for being here. First of all give us a sense of the extent to which this war may have either suspended or at least prolonged long some of the fight on climate. Well thanks for having me David. And I have to say I do agree with Mr Cutifani in terms of the short term problem. If.
Russia accounts for about 40 percent of Europe's natural gas imports obviously and they've now committed that by the end of the year they'll cut those by two thirds. We're gonna have a scramble. You've seen what the US is willing to do in terms of shipments etc. to the EU. So we're going to have a short term problem on fossil fuels and the use of gas oil and I think actually an uptick in the use of coal. However it's really laid bare this issue of.
Our overdependence on fossil fuels. The indisputable science of the international panel on climate change that says if you thought it was bad it turns out it's worse in terms of climate change. We're not nearly on track to keep to this one point five degrees Celsius temperature rise by the end of the century. So we've got a problem in that the science says we're not getting there. We're too heavily dependent on fossil fuels. And fossil fuels are as it turns out kind of dicey at the moment in terms
of ability to even get them. So I think that you're going to see and we are seeing just in our own businesses a focus on renewables as a risk Americans and obviously a risk mitigate against the climate issues at the same time. But a risk mitigate against being so dependent on other nations that we may be at war with any given point. Well you mentioned in the goals that we all have to give you one point five degrees centigrade and we've got a lot of fairly ambitious targets being set by various countries and the United States including President Biden as well as by corporations before the war in Ukraine happen. Were we on track to meet those commitments. Maybe not. But we were close. So the commitments were that you had about 90 percent of the global GDP that was committed to net zero. Most of them felt that they would make it. Now this is countries and companies shall we say were en route to make it by 2050 maybe 2060. But that was a reach. Now what we're dealing with is
we've got a little bit of a setback. And I think there are bigger issues at play which is where's the money. And that just hasn't been accounted for. When I say where is the money. It has been estimated out of COP 26. The U.N. climate conference COP 26 that we would need four to five trillion dollars a year. So annually for the next decade maybe 30 years. So at least 10 more likely 30 years to ameliorate this problem. And where is the money. So that's the really issue at the moment. Just be very
practical about it. You could roll up all the governments and all the philanthropy in the world. And if you don't put capital markets into this it's not happening. And we don't have that synergy between capital markets and governments the way we have where we have had enormous problems in the past. So armaments during World War Two even Covid to to be able to make and distribute the vaccines that were needed globally. You needed this composition of companies and governments to come together. And I think that's what's needed here. And I must say you wrote I think as a
fashion column for Bloomberg on this very subject certainly made me aware of things I hadn't thought of because we've heard about carbon offsets in the past or corporations buy trees to plant things like that. But you have a different way of enlisting capital markets as you say. Explain how you think it might work. Thanks. So if you give me minutes slightly complicated and I hope I am going to resist the the alphabet soup and acronyms that you so often hear. But just really practically speaking if we and we do emit about fifty three billion tonnes of CO2 a year. How are we going to decarbonise the world over time. OK that's that's the problem statement. So let's just use companies right now because I know more about capital markets and companies than I know about government. So I'll just take that on. If that were
the denominator then what you're talking about is all the companies in the world right now there are 5000 top companies 450 financial firms. One hundred and thirty trillion dollars that have already said yes. We'll get to net zero. So we're well on our way here of commitments. If if they all would make a commitment to try to get first to carbon neutrality what does that mean. It means that you buy you renew it you buy your electricity from renewables you reduce your water usage your paper usage your fleet of cars or until our electric cars you buy sustainable aviation fuel for your airplanes and so on and so forth. Even if you did all of that and that would be hard to do. And it will take several years for companies to get there.
Even if you did all of that you just simply can't get all the way there because the grids are not all connected. The world is in different shapes in terms of iterations of emerging markets versus mature markets. So let's just suspend disbelief and say you can get 90 percent of the way there. Now you have a 10 percent delta. Now let's go back to that. Fifty three billion
tons of emissions every year a sea of CO2. OK so 10 percent would be 5 billion tons that we were trying to now make up for. Are you with me. Yes I am. OK. So how do you deal with that right now. The way that people have been dealing with it in the early stages is to to buy an offset. And what an offset is is you're essentially decarbonising the world outside your own
parameters. So you are either planting trees or preserving trees creating forests preserving forests. And in doing that you are reducing CO2 but not within your own framework. So you're buying it elsewhere but you are reducing that emission. Well there are only so many trees not only so many forests in the world. So last year. All in that represented three hundred and fifty million tonnes of CO2. I just told you that we need to annually at least do if we did this formula 5 billion. Where are we going to get them. We don't have enough nature based solutions. Therefore let's use that money to buy into green technology. The International Energy Agency says we aren't even halfway there to even
imagining what kind of energy companies and solutions and technologies we need to solve the problem. So let's put our money there. Get get credit for offsets and and get this thing going on a scalable accelerated way that it just isn't today. So you'll have private companies ISE that is essentially putting the capital into developing new technology. We need things like green hydrogen things like that that we need desperately. Do we need the government to be
involved this can capital markets and private sector do it on their own or do we need government. Maybe not even in terms of regulation but at least in terms of monitoring and giving a standard. We need we need the government now. Right now this whole schematic of offsets of of doing a carbon audit of disclosing of buying offsets. That's all done outside of
government. It's changing however. Why is it changing. Because the EU is set laws regulations and rules. That's changed things. They've set a taxonomy that's like an encyclopedia of what is one. And they've set a framework for disclosure and they've set a timetable. So given that we now are off to the races and recently the SCC Securities Commission has said hey you know what all these companies that are saying that they're going to go net zero. We we can't. We don't have a law for that. But we do have a law for disclosure. We do have a rule for disclosure. So disclose it. So now what you have is in the EU it's a law. In
the US it's rules and regulations we're going to have to disclose that brings daylight in transparency. You know we've had for years this T CFD the task force on climate related disclosures a voluntary program. But. Now that the FCC is in and now that the EU is set rules I think that's the role government is going to play. And I think that if they
would encourage us to look at offsets again disclosing all transparent. But if they would encourage this we could accelerate the pace and we could actually be putting money into technologies. We're going to need and we don't have them as I say. I think it's a fascinating alternative. Some of those offer offsets to reduce the capital market. Thank you so much for bring it to us. That's an Vonnie Quinn of Bank of America. Coming up Secretary Janet Yellen thoughts on China inflation and the world economic order. And Steve Rattner of Willett Advisors for his reactions. This is Wall Street week on Bloomberg.
The Fed is concerned that deflation with no clear thinking will be removing accommodation to try to get things done get control. But I know they'll try to achieve a soft landing and lend some skill and some luck. We'll have a very big year for the US economy in terms of the job market this coming year. That of course was Treasury Secretary Janet Yellen talking to us at the very end of the week after those IMF and World Bank meetings in Washington to go through what the secretary had to say to us. We welcome now Steve Rattner who's chairman and CEO of Willett Advisors which invest the personal and philanthropic funds of Michael Bloomberg the founder and majority owner of our parent company. So thank you so much for being back on Wall Street week. Let's start with what we just heard from Janet
Yellen. With some luck and some skill we can get to what they call a soft landing. It's the thing has replaced Goldilocks I guess. And what we say every single day year you square something up for me. How strong is the consumer. How strong is the household balance sheet. Is that enough to get us through the tightening. We're looking at the consumer and the household balance sheets are still exceptionally strong. There's still over two trillion dollars I believe at last count of so-called excess savings above historic trends in the hands of households roughly half from stimulus and other kinds of government assistance and roughly half from money they could spend during the pandemic. And that will that will
certainly forestall a recession for a good while. I'm not at all of the camp of those who think that a recession is likely this year or probably even the second half a first half rather of next year. But at some point it becomes anybody's guess whether we'll get through this without a recession. Well anybody's guess. But square one thing for us. You could Steve. We have a lot of cars. We surveyed 72 economists here at Bloomberg that say after two years out or so it looks like there really is a significant not not certain but it's again a chance. We also had Bank of America survey fund managers who say that's really a big concern of theirs. Why are they worried about it. Because this really has Larry Summers just pointed out
repeatedly on your show and elsewhere. History is not on the side of a soft landing. There's really no precedent for bringing an economy this overheated with inflation whether it's transitory permanent or whatever. Her running at this rate down to anything that looks like 2 percent without there being a recession it will require the skill of of the most experienced pilot in the world which you that kind of a soft kind of a soft landing. You have to really cool off demand. You'd have to unfortunately raise the unemployment rate gets some slack into the labor market. And that's a level of precision that economics is sort of a science but it's not that kind of a starts. So obviously the Fed has in its mandate price stability. And so it's sort of its primary responsibility of addressing the inflation that people are concerned about. At the same time it's
not necessary. All alone there are other things that we've done. One thing other things I asked Janet Yellen the treasury secretary about was why there weren't other things such as relieving some of the tariffs that so-called Trump tariffs. This is what she said about that. I think gas prices peaked and is now come down some from their peak. We're working very diligently on supply chain issues to get our ports working better. We're re-examining carefully or
trade strategy with respect to China. And you know I think it's worth considering. We certainly want to do what we can to address inflation. So worth considering is always what she said Steve. I'm sure you saw that Peterson to report that came out this week that said if you took away those so-called Trump tariffs it will reduce inflation as much as one point three percent. And that would not necessarily toward recession. So why aren't we doing it. Because their politics is involved in all these kinds of things and actually even in the media by saying politics there are multiple considerations involved all these things. We have a complicated bill. I don't I'm not here to say they shouldn't eliminate the chaff. I think probably they should. But we do have a complicated relationship with China. There are many issues on the table. Maybe they weren't put in place in the most thoughtful way. But we do have a trade issue of China. So you
could make an argument. But look the administration is also doing things that actually increase the inflation problem. I think Larry has also pointed out on the show but certainly other people have pointed out that extending the moratorium on student debt repayments however meritorious and humane that may be another read for other reasons does simply increase demand and therefore increases inflation as well. So there are always multiple multiple considerations in all these decisions. But look fundamentally everything that Secretary Yellen said is very much at the margin. The core of the problem is that we have an overheated economy. The Fed went way too far. The fiscal policy went way too far. We're talking about trillions of dollars of excess fiscal policy trillions of dollars of excess monetary stimulus tweaking a few terrorists here. There is not going to make up for the mistakes that have been made so far.
Steve one of the things that Secretary Yellen has talked about is making some changes in the entire international system by which we control the global economy so-called Bretton Woods that both the agreements and the institutions. I asked her whether she really want to make some fundamental changes or whether there's more tweaking around the edges. This is part of what she said. The world has changed in very significant ways and I think that
does require a rethink of the organization and some of the specific mandates that we give the IMF the World Bank and the WTO. So Steve how fundamentally should we be looking at these institutions. It is a very different world not least because we have China now close second inclusive and creative Cushing and perhaps taking over the United States in terms of the Dow Jones position in the world. And it has a very different way of
regulating economy. Do we need to take a fresh look at things like the IMF. Sure it would be great. We are talking about what almost seventy five years ago almost exactly seventy five years I guess. So it's pretty random words since all this was put in place. And so for example the IMF was created in part to help stabilize exchange rates and what everybody thought was going to
be a fixed exchange rate world. Well in August of 1971 all that changed and we're actually seeing a completely different exchange rate environment. And so there's absolutely no question that we take another look whether it's a deep restructuring or a sudden change not more modest changes in both those organizations. We would be a good thing.
I'm just not sure where you rank that in the list of priorities to things we have to deal with and the likelihood of getting international cooperation especially from the Chinese not some kind of dramatic rethinking of those two organizations. But she's actually you can't argue with her logic in her points on that. Yeah I want to talk about the likelihood of getting it done that you just mentioned because it's also a different world than it was afterward to at least what I read about it. The ISE this was really in a very dominant position globally and could really not perhaps have its way but really had a large influence. It would be a very different matter today in part because of Chinese you suggest. But in general it's a more evenly distributed world. Oh you're completely right about that. I should have said that myself.
But if you go back to Bretton Woods essentially Britain was kind of. Well we're not exactly kind of a Britain was trying to maintain its preeminence in the world financial order and have if not a seat at the head of the table at least right next to the head of the table. But it had no ability to actually enforce that or implement that. And so amidst tortuous negotiations led by Harry DAX White we eventually basically said it's gonna be our way or the highway and we got our way. You're absolutely right. We can't do that with respect to China or a number of other players in this world. And so it would have to be a far more consensual and therefore more difficult and therefore more improbable negotiation. Also Bretton Woods was essentially it was like the old phrase don't let a crisis go to waste. We had to do
something at the end of World War Two in terms of how the international monetary and economic order would work. There's not quite that same pressure today. So this I think most people look at as a nice to have not a must have and that also makes it a lot harder to get it done and that the same crises. But we have different crises now because we have some autocracies up against some democracies. Sure sure. And a lot of what's going on out of the world is a test of different forms of government and which one would prevail. The Soviets were very difficult to predict pregnant
woods and eventually I think opted out of a bunch of the stuff kingdom very reluctantly. My history isn't quite that good but it was difficult even than that. And you can imagine what it would be like today with the Chinese. So yeah all that makes it fairly improbable on a with the secretary. I think the list of issues that we are facing this would not be one that would be at the top. And we need a John Maynard Keynes to boot. Thank you so much Steve Rattner with advisors for being with us today.
Coming up barbarians at the gate or a billionaire at the tweet. Elon Musk tries his hand at a different kind of revolution. This is Wall Street week on Bloomberg. Finally one more thought swipe right swipe left meets the world of global finance. The power and the mischief of social media brings a host of possibilities to mind. From the romance of Tinder to the envy are many so-called friends elicit with their carefully manicured Instagram posts of their beautiful lives. But what happens when the power of instant global post meets
financial markets. Well one thing is the bald guy also known as the chief economist at the Institute of International Finance. Dr. Robin Brooks has become a social media heartthrob. Well at least in Brazil he has whereas analysis of the real. And in particular his conclusion that he is greatly undervalued has garnered him a devoted social media following for his every tweet. I think my favorite quote in this story was from his kids when he said I mean that's just my stupid dad is stupid. Dad is crushing in economics. Now the Brooks followers are unquestionably loyal but they are only one hundred fifty thousand strong which doesn't begin to compete with Mr Elon Musk's eighty two point four million followers which has gotten him in trouble with the FCC in the past when he talked about things he should not have been talking about things that move the market for Tesla stock and got him put in the securities law penalty box. When you sign an agreement with the Securities and
Exchange Commission with the blessing of a federal judge I just think you've got to be held to the deal. You struck me. Well not to be deterred you Don Musk has now decided he wants to buy the entire Twitter company or at least he says he does. Though he does admit it might not all work out. Do you think this will be somewhat painful. And I'm not sure that I will actually be able to acquire it. And how is Mr. Musk conducting his campaign for a hostile takeover. You guessed it by way of Twitter. You know
what happens when the world's richest man tweets he at your workplace at a relatively small science magazine. I mean imagine how that would feel. That was Bloomberg's Conrad Quilty Harper who in a prior life was on the management team of a small digital publication. When Elon Musk used Twitter to explore buying the company. In the end that one didn't work out but it did cause a fair amount of excitement and yes consternation along the way. And is one of the few who have actually experienced a musk Twitter overture. Conrad has some advice for people like Twitter. You have to take the medium of humor seriously. I think in this kind of bowl game. So Twitter. Good luck with that. A serious sense of humor that does it for this
episode of Wall Street Week. I'm David Westin. This is Bloomberg. See you next week.