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Speaker 1: As we move towards US elections in November, we're taking

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Speaker 1: a look at what the policies of the candidates could

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Speaker 1: mean for the economy and for business. Last week we

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Speaker 1: heard from ecconnist Larry Summers. This week we're joined by

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Speaker 1: Steve Rattner. He's chairman and CEO of Will Advisors, which

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Speaker 1: invest the personal and philanthropic assets of Michael Bloomberg. He

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Speaker 1: is our founder and majority Sheridan. Welcome back, Steve. Good

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Speaker 1: to have you.

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Speaker 2: Great to be here, David.

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Speaker 1: Now, we don't know who the candidates are first of all,

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Speaker 1: so early on, but we have two front runners in

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Speaker 1: the president, President Joe Biden, and the once president maybe

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Speaker 1: future president Donald Trump. Just taking those examples, what do

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Speaker 1: we think we know about what the economic policies would

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Speaker 1: look like under those two presidents.

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Speaker 3: Well, they have vastly different visions. Of course, Joe Biden

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Speaker 3: is a kind of FDR democrat lean in government, can

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Speaker 3: be a positive force in the economy. Let's pass the

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Speaker 3: infrastructure bill, Let's implement the IRA and so on and

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Speaker 3: so forth, and so I think you'd expect him to

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Speaker 3: do more of the same. I think there's a real

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Speaker 3: question about who's going to control Congress, which may limit

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Speaker 3: his degrees of freedom. The budget deficit is two trillion dollars,

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Speaker 3: and I think people are starting to focus on that,

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Speaker 3: which will limit his degrees of freedom. But there's still

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Speaker 3: an enormous amount of implementation that he can and should

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Speaker 3: do of the laws already pass, as well as a

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Speaker 3: lot of stuff that can be done regulatorily. And this

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Speaker 3: is not what I happen to agree with. But for example,

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Speaker 3: the extraordinarily robust anti trust enforcement that's going on at

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Speaker 3: the moment, I think you see all that from him.

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Speaker 3: I think Donald Trump has gone even further into the

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Speaker 3: populist's world, based on the rhetoric at least, and based

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Speaker 3: on the advice he's getting from people like Bob Leiitthheuser,

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Speaker 3: And you're going to see a very protectionist, mercantilist economic policy,

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Speaker 3: including things like banning imports of television sets from China,

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Speaker 3: which seems kind of ridiculous. We import all our bicycles

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Speaker 3: from China. We're going to stop having bicycles and so on.

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Speaker 3: So he's got all of that, and I think you

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Speaker 3: will see an absolutely opposite regulatory approach from what you

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Speaker 3: would see from Joe Biden in terms of a thousand

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Speaker 3: flowers bloom. Let people go do what they want, and

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Speaker 3: let's roll back the regulatory state.

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Speaker 1: So a lot of the traditional accountmis might really take

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Speaker 1: issue with some of what Donald Trump is proposing. But

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Speaker 1: what about global Wall Street Because as you described that,

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Speaker 1: you know a lot of more governments, more regulation on

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Speaker 1: the one hand, less government, less taxes, I would say,

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Speaker 1: less government vote than the other. A lot of the

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Speaker 1: business community would say, well, the second one sounds better

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Speaker 1: to me.

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Speaker 4: Sure.

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Speaker 3: Look, there are a lot of people who basically on

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Speaker 3: Wall Street who you and I would know, who voted

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Speaker 3: for Trump once or even twice basically to look, I

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Speaker 3: don't like the guy, but I like the policies, and

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Speaker 3: they got what they wanted, the tax of the TCGA,

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Speaker 3: the Tax Cut and Jobs Act.

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Speaker 2: Being the most prominent.

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Speaker 3: But you'll remember a lot of us kind of got

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Speaker 3: this wrong on election night when it looked like Trump

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Speaker 3: was going to win. Initially, the market crash, then people

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Speaker 3: said wait a minute, Like three o'clock in the morning,

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Speaker 3: they said, oh, wait a minute, the markets sort up again,

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Speaker 3: and it kind of took off from there, and then

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Speaker 3: you had COVID and whatnot. This time may be more

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Speaker 3: complicated because Trump's policies are not mainstream Republican orthodoxy.

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Speaker 2: He's often the populist world.

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Speaker 3: Will all these tariffs business hate with shutting down immigration,

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Speaker 3: which business hates, They need the workers.

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Speaker 2: So I don't know.

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Speaker 3: That global Wall Street and plus all of his anti

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Speaker 3: democratic authoritarian talk, I think it scares people. And so

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Speaker 3: I'm not sure whether the Wall Street will react well

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Speaker 3: to another Trump victory.

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Speaker 1: What about the protection of stanse because he has said

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Speaker 1: ten percent tais across the board Robert leihe has refde

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Speaker 1: He's written a book that says we'll keep going, We'll

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Speaker 1: keep increasing until we eliminate the trade deficit. What could

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Speaker 1: that do to the economy, perhaps not just the United States,

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Speaker 1: but also globally. I mean, we had something called smooth Hawlly,

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Speaker 1: as I would go back in nineteen thirty.

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Speaker 3: Yeah, and smooth Haully didn't cause the depression. It exacerbated it,

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Speaker 3: the depression and the crash that happened before smooth Hally.

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Speaker 3: People thought smooth Holly was a solution to it, and

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Speaker 3: of course it just made the problem more. It was

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Speaker 3: like leeching people in the old days and that's kind

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Speaker 3: of what it is. I don't think there's any debate

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Speaker 3: among serious economists. From a macroeconomic standpoint, trade is good.

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Speaker 3: Therefore moving against trade is bad in terms of the

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Speaker 3: impact on the overall economy. Whether we go into a

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Speaker 3: crash and the depression, I'm not sure I would predict that,

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Speaker 3: but it's bad on a micro level. The problem with

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Speaker 3: free trade, so to speak, is that there were jobs lost.

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Speaker 3: The opening of China into the WTO unabashedly, unquestionably caused

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Speaker 3: US manufacturing jobs, but the overall economy was better. Everything

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Speaker 3: you and I bought was cheaper and better because it

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Speaker 3: was made in China.

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Speaker 2: And yeah, we can reverse all that.

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Speaker 3: We can ban television sets and bicycles from China, and

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Speaker 3: the consequences would be not I don't think disastrous, but

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Speaker 3: they would be noticeably bad.

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Speaker 1: You mentioned anti democratic initiatives? Is they can be called

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Speaker 1: President Trump? What about the rule of law? That feels

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Speaker 1: a bit abstract At the same time, how much of

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Speaker 1: our economy is really based on the fact that we

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Speaker 1: sort of know how the legal system works, how the

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Speaker 1: courts will rule in a given case in a commercial dispute,

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Speaker 1: for example, or when bonds go bad.

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Speaker 2: We know what that is.

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Speaker 1: If that got undermined, what could that do to our economy?

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Speaker 3: Look, the rule of law is fundamental to the function

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Speaker 3: of a capitalist, free enterprise society. Look around the world

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Speaker 3: at countries and you say, you know the economic development

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Speaker 3: people say, Okay, well what do we need to do

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Speaker 3: to get this country moving again? Rule of law is

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Speaker 3: always like number one, two, or three. It's at the

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Speaker 3: top of every list. So obviously stepping back from that

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Speaker 3: could have pretty bad consequences. He hasn't really said too

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Speaker 3: much about that yet, so we don't really know. And look,

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Speaker 3: it's uncharre waters for us. We've never had a president

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Speaker 3: or even a candidate seriously say I'm going to.

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Speaker 2: Roll back the rule of law. But it would be bad.

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Speaker 3: We all know it would be bad. How bad I'm

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Speaker 3: not sure I'm ready to predict that yet.

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Speaker 1: Steve Branner will stay with us to go through the

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Speaker 1: lay of the investing land in twenty twenty four. Past

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Speaker 1: performance is no guarantee of future results. It's true for investments,

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Speaker 1: and it's certainly true for entire years. The overall performance

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Speaker 1: of twenty twenty three was encouraging in many ways, with

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Speaker 1: inflation coming down while inflation adjusted income went up.

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Speaker 5: History was not a good guide to twenty twenty three.

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Speaker 5: Some things really were different this time around, at least

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Speaker 5: so far that inflation unemployment trade off that people thought

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Speaker 5: would be require a severe recession in order to bring

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Speaker 5: inflation down hasn't come to fruition.

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Speaker 1: The economy exceeding expectations in growth and jobs.

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Speaker 6: Labor is in a stronger position than it has been

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Speaker 6: for much of the past few decades. Unemployment is very low,

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Speaker 6: the economy is very strong.

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Speaker 2: That's the shortage of labor.

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Speaker 6: The labor market has changed after the pandemic, and so

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Speaker 6: there's a sense that labor is in a stronger position.

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Speaker 1: And certainly the stock market way out performing what we

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Speaker 1: expected for the year. What an incredible year for equities.

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Speaker 4: I was wrong.

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Speaker 1: I predicted David that the markets would be down this

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Speaker 1: year because while ge the Fed raised.

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Speaker 7: Interest rates five and twenty five percent, should have had

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Speaker 7: a rough market.

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Speaker 1: But one way in which twenty twenty three was not

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Speaker 1: at all encouraging was in climate change, giving us the

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Speaker 1: hottest year on record.

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Speaker 7: What we're seeing now is just repeated examples of natural disasters,

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Speaker 7: climate extremes happening at scales we haven't seen before in

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Speaker 7: places we haven't seen them occur before, and so we're

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Speaker 7: really in this period of growing natural disaster risk, and.

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Speaker 1: Now we're on to twenty twenty four and the need

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Speaker 1: to anticipate how much the trends we saw last year

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Speaker 1: will continue into the new year, or for that matter,

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Speaker 1: whether we were reading the signals correctly even last year.

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Speaker 4: Inflation looks relatively under control, but there's a lot going

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Speaker 4: on underneath the surface, and there are still substantial risks.

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Speaker 4: My gut is still that the market is underestimating the

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Speaker 4: inflation risks in the current situation, and therefore probably overestimating

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Speaker 4: the amount of FED cutting that is going to take place.

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Speaker 4: But it's a fairly close call for.

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Speaker 1: His views on the investment terrain in twenty twenty four.

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Speaker 1: Steve Rehtner Will Advisors has stayed with us. Steve created

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Speaker 1: those twenty twenty three charts we showed you as part

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Speaker 1: of the year interview for the New York Times. So

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Speaker 1: great charts. We've borrowed them from you, Steve, but give

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Speaker 1: us a sense of going forward. You had the ones

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Speaker 1: that define twenty twenty three. Let's talk about what looks

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Speaker 1: like from your pointview of twenty four pur Let's start

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Speaker 1: with the first one. You had, inflation and rates. Right now,

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Speaker 1: there's a lot of higher rates, inflation seeds to be

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Speaker 1: coming out down just in the United States as well

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Speaker 1: as around the world.

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Speaker 2: Inflation has definitely done better than any of us thought.

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Speaker 3: The economy has remained stronger even in the context of

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Speaker 3: out of a low unemployment rate and inflation coming down.

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Speaker 3: I think it's important to note, as Larry Summers has

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Speaker 3: done repeatedly on your program, that for all of the celebration,

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Speaker 3: we're not a two percent yet. Wage growth is sole

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Speaker 3: running at around four percent. If you assume one or

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Speaker 3: even one and a half percent productivity, it implies on

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Speaker 3: underlying rate of inflation of around three, which is what

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Speaker 3: core inflation is roughly running at.

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Speaker 2: So the question is as it gets to two.

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Speaker 3: So I don't believe the FED is going to raise

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Speaker 3: interest rates again unless something really untoward happens.

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Speaker 2: But I think it would be really hard for.

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Speaker 3: Power to start cutting rates with inflation not yet even

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Speaker 3: at as target. The market obviously has assumed substantial rate

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Speaker 3: cuts this year. Most of the people I know and

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Speaker 3: talk to, including my own colleagues, I think generally, we

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Speaker 3: feel that the idea of six rate cuts one hundred

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Speaker 3: and twenty five to one hundred and fifty basis points

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Speaker 3: of rate cuts this year seems pretty unrealistic to us,

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Speaker 3: And therefore you have to raise the question, what's the

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Speaker 3: implication of that for the market, which obviously looks very

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Speaker 3: closely at what the FED and where rates are in

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Speaker 3: terms of an alternative investment.

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Speaker 2: Place.

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Speaker 1: So how does it inform your decisions as someone who

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Speaker 1: oversees investment with a lot of money about equities, Because

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Speaker 1: earlier a year or more ago, you were on this

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Speaker 1: program saying you're not so excited about equities because the

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Speaker 1: rates are high, They're going to go higher and that's

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Speaker 1: going to really cut into the value of equities given

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Speaker 1: the discount rate. At this point, do you feel better

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Speaker 1: about equities, given the fact that you think probably it's

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Speaker 1: not going to go a lot higher.

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Speaker 3: Well, first, you are nice now not to get two

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Speaker 3: in my face about last year. But I'm going to

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Speaker 3: do a mea culpa and say, I think I don't

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Speaker 3: think almost anybody I know in the investing business expected

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Speaker 3: what happened. Obviously had the magnificent seven, but even aside

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Speaker 3: from that, the S and P in the market's performed

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Speaker 3: much better in light of those. Rates right now are

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Speaker 3: kind of where they were a year ago. But the

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Speaker 3: market is, depending on how you want to measure it,

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Speaker 3: anywhere from fifteen to twenty five to forty percent higher

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Speaker 3: than it was. So that's kind of an odd development,

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Speaker 3: frankly relative to history. Anyway, look looking ahead, I think

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Speaker 3: we feel that rates are not going to go up anymore.

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Speaker 3: You did have at the end of the year a

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Speaker 3: nice surge and things like biotech stocks that have been hit.

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Speaker 2: Hard by rates.

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Speaker 3: So we're cautiously optimistic or at least not scared about

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Speaker 3: the market this year because we don't see the FED

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Speaker 3: raising rates again. Corporate profits are projected to be up

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Speaker 3: a little bit, not a huge amount. The S and

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Speaker 3: P multiple is still high, but it all seems kind

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Speaker 3: of manageable in the US.

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Speaker 1: Growth in the US for the moment, because a year

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Speaker 1: ago many eccounts were predicting a recession, didn't have it.

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Speaker 1: Last year, not clear at all we're going to have

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Speaker 1: it even in twenty twenty four. At this point, what

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Speaker 1: are you looking at for growth of the United States

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Speaker 1: going forward?

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Speaker 3: I have no more wisdom than any economist does. I

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Speaker 3: think the consensus is for a small amount of growth,

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Speaker 3: something less than one percent. The problem with predicting recessions

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Speaker 3: it's a little bit like the old road Runner cartoon.

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Speaker 2: You're running, you're running around something, You look down and

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Speaker 2: there's nothing below you.

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Speaker 3: If you look back, I think you would find that

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Speaker 3: more often than not, people did not say we were

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Speaker 3: in a recession until we were well into the recession,

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Speaker 3: and so I just there are signs of the economy

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Speaker 3: starting to weaken a little bit. The jobs market is

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Speaker 3: weaking a little bit, Retail sales are weakening on an

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Speaker 3: inflation adjusted basis a little bit. You do see signs

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Speaker 3: of stresses and strains, savings rates, credit card usage, subprime

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Speaker 3: auto delinquencies, things like that. I'm not predicting a recession.

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Speaker 3: I'm just saying that we're close enough to the edge

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Speaker 3: that it could easily tip either way, in my opinion.

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Speaker 1: One of the things that you focused on, including in

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Speaker 1: your church for the New York Times, were on wages

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Speaker 1: and particularly what happened with labor unions, which is a

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Speaker 1: big story in twenty twenty three. Right now, last time

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Speaker 1: I checked, real wages are actually going up somewhat slightly.

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Speaker 1: In the United States, it's supposed going down. That's on

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Speaker 1: the one hand, bad for margins for corporations, on the

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Speaker 1: other hand, good for consumers because they have more money spun.

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Speaker 1: It's been As you look into twenty twenty four and beyond,

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Speaker 1: what do you think is going to happen with wages?

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Speaker 3: Yeah, Look, there's no question that part of why the

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Speaker 3: economy was so strong this in twenty twenty three relative

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Speaker 3: to what people expected was because there was more purchasing power.

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Speaker 3: Inflation came down a lot and and wage growth went

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Speaker 3: up a little bit. And second, you have this very

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Speaker 3: large budget office. It's two zillion dollars, so the government's

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Speaker 3: doing its part in terms of wages. I think you're

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Speaker 3: going to see continuing upward pressure on wages. I don't

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Speaker 3: see a wage price explosion. I think I do think

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Speaker 3: that expectations have been managed well by the FEDS, rate

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Speaker 3: increases and other things, and so you don't see an

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Speaker 3: an economist would sa and unanchoring of inflationary expectations. They

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Speaker 3: seem to be under control. So I think you're going

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Speaker 3: to continue to see wage growth in the four four

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Speaker 3: and a half maybe five percent range. And then therefore

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Speaker 3: you're going to continue to see inflation maybe in the

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Speaker 3: three percent range, and then the question will be.

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Speaker 2: What does the FED do about it.

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Speaker 3: I believe the FEDS Summary of Economic Projections would have

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Speaker 3: inflation pretty close to two by the end of next year.

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Speaker 3: I'm not one hundred percent sure we're going to get there,

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Speaker 3: and as I said, I don't see them raising rates.

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Speaker 3: I just see them delaying rate cuts if we don't

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Speaker 3: get there.

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Speaker 1: See one of the things you focus on is immigration.

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Speaker 1: You do it in the charts for the year end

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Speaker 1: of twenty twenty three. You've written otherwise from the New

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Speaker 1: York Times on immigration. Immigration is an issue certainly politically

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Speaker 1: we have a lot of people coming across the border.

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Speaker 1: We of northern cities, including run by democratic mayor's really

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Speaker 1: upset about it. At the same time, we need a

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Speaker 1: certain number of workers coming in. Give us your views

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Speaker 1: on where we're going with immigration in this country.

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Speaker 3: Well, I got into the David because I was looking

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Speaker 3: at China, and China's population is projected to fall from

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Speaker 3: a billion four to seven hundred and seventy million by

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Speaker 3: the end of the century because of the fertility rate

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Speaker 3: and the fact that they have emigration. The three hundred

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Speaker 3: thousand Chinese year leave and nobody comes. Because of monocultural society.

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Speaker 3: We take in a million a year legally, and if

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Speaker 3: you just want to maintain our population, given our fertility rate,

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Speaker 3: you have to take in four million a year or

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Speaker 3: else our population will start to decline. So we need

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Speaker 3: these people. We have a three point seven percent unemployment rate.

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Speaker 3: They're not going to take away American jobs. But it

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Speaker 3: is the most divisive political issue. And frankly, President Biden

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Speaker 3: didn't say open borders, but he conveyed a sense that

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Speaker 3: we wanted people to come here back from the first

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Speaker 3: day of his inauguration. And the result is you have

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Speaker 3: three million people a year now crossing the southern border

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Speaker 3: and going through our crazy, convoluted system. And the Republicans

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Speaker 3: therefore have no political incentive really to solve this problem.

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Speaker 3: By knowns that the country, even including Democrats, are very

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Speaker 3: unhappy with our immigration policy.

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Speaker 2: And I be a deal in Congress.

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Speaker 3: I think they're going to announce something this week, but

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Speaker 3: I'm not that optimistic it's going to get passed.

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Speaker 1: And finally, Steve, because you take a longer view as

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Speaker 1: an investor, are we just going to in a period

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Speaker 1: where investors have to have lower expectations. We had an

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Speaker 1: extraordinary period if essentially I will call it free money,

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Speaker 1: and that benefited us in all sorts of ways, including investors.

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Speaker 1: I would say, there's a lot of talk right now

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Speaker 1: that we just have to lower our expectations about what returns,

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Speaker 1: regular expected returns will be going forward. Do you share

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Speaker 1: that view?

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Speaker 3: Sure, and I share it for the reason you said,

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Speaker 3: But I also share it and I don't have these

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Speaker 3: numbers in my head.

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Speaker 2: By the following point, if you look.

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Speaker 3: Back at what the market did in a five year

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Speaker 3: period or ten year period, starting in each year, you

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Speaker 3: will find that in years where the PE ratio was

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Speaker 3: as elevated it is today, the market's performance and ensuing

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Speaker 3: five and ten years was pretty modest.

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Speaker 2: It was positive, but it was sort of low.

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Speaker 3: Mid single digitus is my recollection, and so a lot

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Speaker 3: of this is where you start from, and we're starting

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Speaker 3: from a very high level. Oh sure, I think our

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Speaker 3: expectations are fairly muted, and you and I had a conversation.

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Speaker 3: I think last time, we're doing a lot more in credit,

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Speaker 3: because if you can make ten percent in very senior

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Speaker 3: well secured credit, versus what we think the market's going

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Speaker 3: to do. We are still shifting our dollars in that direction.

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Speaker 1: Okay, thank you so much. Always great to have you

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Speaker 1: with us. That's Steve Rattner of Willet Advisors.