WEBVTT - Surveillance: US Midterm Elections 0:00:05.080 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance, an Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:30.320 dot Com, and of course on the Bloomberg Terminal. Bruce 0:00:30.400 --> 0:00:32.760 Casman joins US now chief economist and had a global 0:00:32.800 --> 0:00:35.919 economic research at JP Morgan. Bruce, fantastic to cash up 0:00:35.960 --> 0:00:39.200 with you, sir. It's divided government the best now come. 0:00:39.200 --> 0:00:41.600 As far as your concern, do you have any pushback 0:00:41.800 --> 0:00:46.000 against that whatsoever? Well, I think divided government means you're 0:00:46.000 --> 0:00:49.400 not going to get very strong action in terms of 0:00:49.440 --> 0:00:52.840 things like fiscal policy and in the context of how 0:00:52.960 --> 0:00:55.360 high are deficit is and how much we've already done. 0:00:55.920 --> 0:00:58.800 That's a good thing. I think the concern is that 0:00:58.920 --> 0:01:00.960 if you have a need for action because of the 0:01:01.000 --> 0:01:04.240 recession or some other crisis, it's gonna be hard to 0:01:04.280 --> 0:01:08.440 see government mobilized. Also, you have to worry about brinksmanship, 0:01:08.640 --> 0:01:11.960 things like death ceiling crisis, government shutdowns. Those are going 0:01:12.000 --> 0:01:14.600 to come back into the picture. Uh. Clearly, as we 0:01:14.720 --> 0:01:20.800 moved towards next year to first we blame politicians for inflation? 0:01:21.280 --> 0:01:28.200 Can politicians cure high inflation? I think inflation is always 0:01:28.240 --> 0:01:31.319 an interaction between things happening in the global economy which 0:01:31.319 --> 0:01:34.080 are not in the hands of politicians, and also what 0:01:34.200 --> 0:01:36.800 the political economy, not only the central banks do in 0:01:36.880 --> 0:01:39.600 response to that. Uh. And I think what we could 0:01:39.760 --> 0:01:42.600 say about the inflation spiked over the last year and 0:01:42.680 --> 0:01:46.360 a half is it's not primarily a central bank phenomenon, 0:01:46.480 --> 0:01:50.160 not primarily a political phenomenon. But how this is going 0:01:50.200 --> 0:01:52.200 to play out over the next couple of years is 0:01:52.480 --> 0:01:56.520 largely going to be a response by policy how much 0:01:56.520 --> 0:01:59.480 they're committed to bringing it down. Um, we think that 0:01:59.560 --> 0:02:01.720 inflation and is moving down, and it's going to move 0:02:01.760 --> 0:02:04.560 down in the core number this week, and I think 0:02:04.640 --> 0:02:07.040 we'll continue, but it's not going to move down by 0:02:07.080 --> 0:02:09.520 it by enough to get us back to two percent, 0:02:09.880 --> 0:02:12.520 and that's going to require the FED and unfortunately probably 0:02:12.560 --> 0:02:14.959 at some point require a recession in the US to 0:02:15.040 --> 0:02:18.840 deliver that. Unwine Bruce La, what components are you watching 0:02:18.840 --> 0:02:21.440 within the inflation prynt to understand the pace of how 0:02:21.480 --> 0:02:24.480 much is coming down? Well, I think what we're gonna 0:02:24.520 --> 0:02:29.239 see is UH really a big dynamic of goods prices moderating. 0:02:29.280 --> 0:02:31.520 The energy story is going to pop up this month, 0:02:31.560 --> 0:02:34.160 but it's still on a broad downward trajectory. But I 0:02:34.200 --> 0:02:38.720 think core goods fall both because supply UH side pressures 0:02:38.760 --> 0:02:41.880 around the pandemic are starting to ease, as well as 0:02:41.880 --> 0:02:44.600 the dollar having moved up here. We see import prices 0:02:44.600 --> 0:02:47.520 falling for five straight months in the US. That's going 0:02:47.560 --> 0:02:50.040 to be magnified by what's happening in the auto sector, 0:02:50.080 --> 0:02:53.239 where prices are coming down. Is also some help coming. 0:02:53.280 --> 0:02:56.280 I think in healthcare prices in the CPI that's a 0:02:56.280 --> 0:02:59.200 bit more of a technical issue, but rental shelter price 0:02:59.240 --> 0:03:00.840 inflation is going to be the fact that that's going 0:03:00.880 --> 0:03:03.280 to keep things up here and prevent us from getting 0:03:03.280 --> 0:03:05.640 a more substantial fall in the next number of months. 0:03:05.720 --> 0:03:08.560 We think we're on track for point for this week. 0:03:08.919 --> 0:03:11.200 Point three is in the next three or four months. 0:03:11.200 --> 0:03:13.960 That's a significant step down, but it's not bringing us 0:03:13.960 --> 0:03:16.800 back to where we need to be. Bruce. Over the 0:03:16.800 --> 0:03:20.480 past few weeks, we've been talking extensively about whether it's 0:03:20.480 --> 0:03:23.640 reopening in China, whether an acceleration than the Chinese economy 0:03:23.680 --> 0:03:25.680 would be a good thing, very bad thing, right, And 0:03:25.720 --> 0:03:28.440 from a supply chain perspective, perhaps that would be a 0:03:28.440 --> 0:03:31.480 good thing for the US economy, and we're broadly because 0:03:31.480 --> 0:03:33.320 it eases some of those pressures that we're seeing, for 0:03:33.320 --> 0:03:35.480 example with the iPhone fourteen right now. But on the 0:03:35.480 --> 0:03:38.600 flip side, there is this question of bidding up a 0:03:38.600 --> 0:03:41.400 lot of commodities, and this question of competition, and this 0:03:41.520 --> 0:03:44.400 question of well does that increase demand so much that 0:03:44.400 --> 0:03:47.000 the supplies can't keep pace? So how do you even 0:03:47.000 --> 0:03:51.000 begin to think about this? Well, I think the the 0:03:51.000 --> 0:03:54.440 the issue about the supply chain in China normalizing and 0:03:54.560 --> 0:03:58.200 Asian more generally, is a big disinflationary impulse, and that 0:03:58.320 --> 0:04:01.200 is built into our forecast. I actually think the big 0:04:01.240 --> 0:04:04.360 story about China is how much is it's slowing after 0:04:04.400 --> 0:04:07.960 a reopening bounce in the third quarter. The housing sector 0:04:08.080 --> 0:04:11.600 is problematic, Uh, there still is COVID problems, you know. 0:04:11.640 --> 0:04:14.800 So we see China actually slowing quite sharply into year end, 0:04:15.000 --> 0:04:18.160 probably growing less than five percent, which for China is 0:04:18.200 --> 0:04:20.960 a relatively weak outcome. So from our point of view, 0:04:20.960 --> 0:04:23.279 the bigger issue on Chinese is going to be a 0:04:23.360 --> 0:04:26.320 negative impulse on global demand. Obviously if it was strong, 0:04:26.760 --> 0:04:29.560 that would tilt in the other direction on the global 0:04:29.600 --> 0:04:32.960 inflation scene. Bruce. Over the last twelve months or so, 0:04:33.040 --> 0:04:35.679 this administration a few times has floated some tram balloons 0:04:35.720 --> 0:04:39.560 around changing policy over the tariffs on China. The one 0:04:39.600 --> 0:04:42.120 thing that people agree on down here in Washington, d C. 0:04:42.600 --> 0:04:45.839 Is a strong tough stance against the Chinese Communist Party. 0:04:45.880 --> 0:04:47.560 Are you expecting that to change it so all after 0:04:47.560 --> 0:04:51.680 these mid terms? Not? Really. There may be some opportunity 0:04:51.720 --> 0:04:54.920 for a relaxation on tariffs, It's not built into our forecast. 0:04:55.480 --> 0:04:57.440 If that would happen, it would help a little bit 0:04:57.440 --> 0:05:01.360 on the inflation scene. I don't think that's going to 0:05:01.440 --> 0:05:03.719 be the main story on US inflation, and I don't 0:05:03.720 --> 0:05:05.719 think it's going to be the main story in US policy. 0:05:05.920 --> 0:05:07.960 Where I think you're correct. I think in tech, I 0:05:08.000 --> 0:05:11.200 think in other errors we're getting tougher. There's more of 0:05:11.240 --> 0:05:15.120 a decoupling taking place here and more I think contentious 0:05:15.160 --> 0:05:19.159 policy that's going to continue in US China relations. Hey, Bruce, 0:05:19.160 --> 0:05:21.480 wonderful to hear from you so wise, Bruce. Kassman. There 0:05:21.720 --> 0:05:29.600 of JP Mulcan asset management right now joining US in 0:05:29.720 --> 0:05:32.159 Arkansas has been a wonderful support to the show. His 0:05:32.279 --> 0:05:35.279 name is french Hill. He is the Republican from Arkansas 0:05:35.520 --> 0:05:38.680 waiting for election results tonight. I don't know french if 0:05:38.720 --> 0:05:41.160 I can say widely presumed, but at least I can 0:05:41.200 --> 0:05:44.920 say in the zeitgeist as a Republican victory, french Hill 0:05:45.000 --> 0:05:48.400 with the victory tonight be like the shock that we 0:05:48.520 --> 0:05:55.040 saw in Well, Tom Lasia, Jonathan, great to be with you. 0:05:55.040 --> 0:05:56.880 You know, I don't think it will be the shock 0:05:57.000 --> 0:06:01.320 we had in n because Republicans said and charge UH 0:06:01.440 --> 0:06:05.080 in the House of Representatives for forty years at that point, 0:06:05.640 --> 0:06:08.960 so we've seen the House flip before in the last decade. 0:06:09.320 --> 0:06:12.960 House Republicans are ready UH to lead on trying to 0:06:12.960 --> 0:06:18.080 control inflation, go back to pre pandemic spending priorities, lead 0:06:18.120 --> 0:06:22.960 on unleashing American energy and focusing on security, security in 0:06:22.960 --> 0:06:26.240 our communities, at the border and the challenges that we 0:06:26.360 --> 0:06:30.680 face around the world. Is the largest superpower? How is 0:06:30.760 --> 0:06:35.880 your party in majority in the House distracted by former 0:06:35.960 --> 0:06:39.440 President Trump, who has every right to run again, but 0:06:39.560 --> 0:06:45.159 distracted by that moment. Well, President Trump is a fighter. 0:06:45.279 --> 0:06:47.919 President Trump has strong views and there's no doubt that 0:06:48.000 --> 0:06:52.159 members of Congress. Uh, many members of Congress follow his 0:06:52.320 --> 0:06:54.919 views on topics, and so if he weighs in on 0:06:54.960 --> 0:06:57.960 a topic in the midst of a debate in the House, 0:06:58.000 --> 0:07:00.520 I don't have any doubt that he would have uh 0:07:00.560 --> 0:07:04.680 influence inside the Republican Party. Look, that's the mission of 0:07:05.000 --> 0:07:07.560 Kevin McCarthy, who I expect to be elected as the 0:07:07.600 --> 0:07:11.440 Speaker of the House if the Republicans take control tonight, 0:07:12.040 --> 0:07:15.280 and Kevin will have that responsibility to build a consensus 0:07:15.680 --> 0:07:18.920 among a majority of Republican members on how to go 0:07:19.040 --> 0:07:23.120 forward on these critical issues. French, there's an assumption in 0:07:23.400 --> 0:07:27.080 markets and beyond, certainly in Europe, that Republicans right now 0:07:27.160 --> 0:07:30.480 are less excited about continuing some of the aid to 0:07:30.640 --> 0:07:34.840 Ukraine and want to focus more on reducing inflation domestically 0:07:34.920 --> 0:07:38.040 on keeping natural gas here in the United States. What's 0:07:38.040 --> 0:07:40.560 your view on that. Should there be some sort of 0:07:40.600 --> 0:07:46.760 restriction on exports if prices do rise beyond a certain amount, Well, 0:07:46.800 --> 0:07:50.440 we do face a tough winner and energy markets with 0:07:50.760 --> 0:07:54.320 rising prices, and we don't have supply where we want it. 0:07:54.640 --> 0:07:59.080 I think the President's proposal of cutting the Strategic Patrol 0:07:59.120 --> 0:08:03.080 and Reserve by two million barrels down to level was 0:08:03.120 --> 0:08:06.680 a bad and dangerous policy. And this is exactly why, Lisa, 0:08:06.760 --> 0:08:10.160 because that strategic petroleum reserve is in case of major 0:08:10.280 --> 0:08:13.480 shortage and impact on the US. So I think he's 0:08:13.520 --> 0:08:17.440 contributed to this enter crisis this winter by the decision 0:08:18.160 --> 0:08:20.320 in all fairness, So natural gas is a different story, right, 0:08:20.360 --> 0:08:22.960 and the natural gas exports from the US is really 0:08:22.960 --> 0:08:26.480 what's in question, because that's really what Europe and Germany 0:08:26.480 --> 0:08:29.200 in particular really needs right now. So what would your 0:08:29.240 --> 0:08:32.320 stance be on the threshold to restrict some of that 0:08:32.400 --> 0:08:37.040 of those exports. Well, I wouldn't restrict exports unless we 0:08:37.040 --> 0:08:41.120 rent an absolute energy emergency here, which we have. We 0:08:41.200 --> 0:08:43.160 need to be smart about and that's why I raised 0:08:43.360 --> 0:08:46.440 the reserve on the oil side. But look, Europe needs 0:08:46.520 --> 0:08:49.280 natural gas and Joe Biden has been terrible on producing 0:08:49.360 --> 0:08:52.320 natural gas here. He's taken a lot of decisions that 0:08:52.360 --> 0:08:55.600 have made it very hard to get our inner gendersty 0:08:55.679 --> 0:08:59.600 back up to pre pandemic production and with a positive outlook, 0:09:00.120 --> 0:09:03.040 that production will produce a solid internal rate of return 0:09:03.080 --> 0:09:05.679 in the future, because we need to be having our 0:09:05.760 --> 0:09:08.120 natural gas here, but we need to be exporting natural 0:09:08.160 --> 0:09:10.840 gas and this energy crisis to our allies in Europe, 0:09:11.360 --> 0:09:13.840 A Congressman, isn't the damage done? And even if we 0:09:13.880 --> 0:09:17.120 get a Republican Congress from these midtimes, if you're an 0:09:17.160 --> 0:09:20.120 oil producer right now trying to make multi decade decisions 0:09:20.480 --> 0:09:25.680 as far as that concerned, isn't this story over? Well? 0:09:25.960 --> 0:09:27.839 I don't think so, Jonathan. I think we have to 0:09:27.960 --> 0:09:31.880 be four in all the above energy policy during this transition, 0:09:31.960 --> 0:09:34.439 whether you're in Europe or the United States or in Asia. 0:09:34.559 --> 0:09:38.240 We need to be moving to natural gas from coal, 0:09:38.400 --> 0:09:41.280 We need to be investing in nuclear, and we need 0:09:41.320 --> 0:09:45.200 to have our energy companies recognize and governments have to 0:09:45.240 --> 0:09:48.080 recognize that it takes a hundred million barrel a day 0:09:48.160 --> 0:09:53.199 equivalent to run the global industrial economy. And to premature 0:09:53.280 --> 0:09:57.199 lee cut that back or injure it without the offsetting 0:09:57.600 --> 0:10:01.120 cleaner alternatives, you're in troub well as an economy, and 0:10:01.160 --> 0:10:03.640 the Third World will pay the highest price not only 0:10:03.679 --> 0:10:08.199 from exporting America's inflation, but by these policies that curtail 0:10:08.320 --> 0:10:11.840 the use of energy in the Third World. Congressman, fantastic 0:10:11.840 --> 0:10:14.160 to catch up with you, Sa french Hill as a wife, 0:10:16.120 --> 0:10:28.320 Thank you, sir. We go to the other side and 0:10:28.520 --> 0:10:33.480 arguably the most interesting Democrat Party experiment in America, and 0:10:33.520 --> 0:10:36.800 that is Vermont. I spoke with Senator Lahy a number 0:10:36.800 --> 0:10:39.920 of weeks ago his wonderful new book out the Path 0:10:40.000 --> 0:10:42.200 of Senator lay over the decades, and it's been a 0:10:42.240 --> 0:10:46.120 path shared by his colleague Peter Welch as well, Congressman 0:10:46.120 --> 0:10:48.120 and of course in a dash for the Senate here 0:10:48.679 --> 0:10:53.480 on this Tuesday. Uh, let me start with a Vermont tradition, Congressman, 0:10:53.520 --> 0:10:57.559 will you vote early? Will you vote often? Well, I'll 0:10:57.640 --> 0:11:01.440 vote early to vote often. It's a cargo tradition. So 0:11:01.760 --> 0:11:04.960 just one and done. We'll we'll leave that to Mayor 0:11:05.040 --> 0:11:07.440 Daily and the rest. I need to talk about the 0:11:07.480 --> 0:11:11.120 transformation of Vermont and what is unspoken. I remember White 0:11:11.200 --> 0:11:15.760 River Junction years and years ago, impoverished up the Connecticut River, 0:11:16.240 --> 0:11:19.240 and it is now bustling. It is a boom economy 0:11:19.280 --> 0:11:22.720 with an unemployment rate I believe under two percent. What 0:11:22.920 --> 0:11:27.800 is the Vermont pixie dust that makes for prosperity? Well, 0:11:28.840 --> 0:11:31.520 White Rivers where I first came nineteen seventy four, and 0:11:31.559 --> 0:11:33.720 it was the town you described, and now it's doing 0:11:33.760 --> 0:11:36.760 extremely well. But you know, I think there's a real 0:11:36.840 --> 0:11:41.240 civic tradition here where our businesses UH and our government 0:11:41.240 --> 0:11:44.560 had worked very well together in a partnership, and we've 0:11:44.600 --> 0:11:49.440 had a commitment to our environment through Republican and Democratic governors. 0:11:49.480 --> 0:11:52.920 We've had a commitment to in tough times trying to 0:11:52.920 --> 0:11:56.920 support people who needed help UH, and then lower taxes 0:11:56.960 --> 0:12:00.040 when when times were good. So there's I think a 0:12:00.720 --> 0:12:05.720 very functional government here through Republican and Democratic administrations where 0:12:05.720 --> 0:12:11.040 there's been UH, social liberalism and economic stewardship UH. And 0:12:11.240 --> 0:12:14.760 we pay our bills here in Vermont. As time moves on, 0:12:15.400 --> 0:12:20.160 as Senator Sanders retires, Senator Lady retires, do you suggest 0:12:20.240 --> 0:12:24.439 a Democratic Party that will move to a national center 0:12:25.080 --> 0:12:30.800 away from a more East coast and West coast liberality. Well, 0:12:31.160 --> 0:12:33.920 you know, let's define that liberality. I think what has 0:12:33.960 --> 0:12:35.480 worked for us, and I think it is good for 0:12:35.559 --> 0:12:41.400 the National Democratic Party UH is to have a commitment 0:12:41.440 --> 0:12:44.600 to the environment and understanding that there's got to be 0:12:44.679 --> 0:12:48.800 partnerships between government and the private sector in order to 0:12:48.840 --> 0:12:51.480 get things done. And frankly, I think that's what you 0:12:51.520 --> 0:12:54.320 see with the Inflation Reduction Act on the climate change 0:12:54.320 --> 0:12:57.439 where there's a lot of tax incentives that's going to 0:12:57.520 --> 0:13:01.600 help create a market dynamic. Uh. And there's a there's 0:13:01.600 --> 0:13:05.320 a good deal of civic cooperation you're in where people 0:13:05.360 --> 0:13:08.760 here listen more than they talk, where when we disagree 0:13:08.800 --> 0:13:11.599 with somebody, we don't assume bad motives. I mean, I 0:13:12.160 --> 0:13:15.080 actually think the way we do things here in Vermont. 0:13:15.160 --> 0:13:17.840 We've got a Republican governor, and we've got a Democratic 0:13:17.880 --> 0:13:21.800 plus independent of course in Bernie Sanders in the in 0:13:21.840 --> 0:13:26.880 the Congress, but where that mutual respect is something that 0:13:26.960 --> 0:13:30.160 we need. Uh. And we certainly don't have election deniers 0:13:30.200 --> 0:13:33.560 here in the state of Vermont. But congressmen talking about 0:13:33.840 --> 0:13:37.120 the green transition, there's been so much pushback of late 0:13:37.240 --> 0:13:40.480 because of the need to invest in fossil fuels in 0:13:40.520 --> 0:13:43.320 the near term. How do you dovetail a message that 0:13:43.440 --> 0:13:46.319 is supportive for the oil and gas that people rely 0:13:46.360 --> 0:13:48.439 on to heat their homes in a winter that's going 0:13:48.480 --> 0:13:52.559 to potentially be fraught with very high prices with the 0:13:52.600 --> 0:13:55.640 idea that you need to invest long term, with the 0:13:55.679 --> 0:13:58.040 idea that people don't want to spend too much money 0:13:58.040 --> 0:14:01.920 in the face of inflation. Well, no, you're exactly right. 0:14:02.040 --> 0:14:04.000 I Mean, the bottom line here is if we're going 0:14:04.040 --> 0:14:06.240 to get to clean energy, and I think everybody knows 0:14:06.360 --> 0:14:09.640 we need to do that. It's got to be affordable. Uh. 0:14:09.760 --> 0:14:11.280 You know, if a person is going to want to 0:14:11.280 --> 0:14:14.120 get a truck and they want an off in fifty electric, 0:14:14.200 --> 0:14:17.960 that ultimately has to be an affordable purchase for them. 0:14:18.480 --> 0:14:21.440 And that's in order for that to happen. And this 0:14:21.520 --> 0:14:26.160 has been the case in many other technological transformations. Government 0:14:26.240 --> 0:14:29.960 policy plays a big role with tax incentives that then 0:14:30.240 --> 0:14:33.560 encourage private investment. We saw that with solar, the cost 0:14:33.600 --> 0:14:36.720 of panels coming way down, but that we are not 0:14:36.880 --> 0:14:39.320 yet there in some of these how they are areas 0:14:39.440 --> 0:14:44.040 like the electric vehicles. Uh in so I think the 0:14:44.200 --> 0:14:48.960 combination of public policy and incentives to make that gradual transition. 0:14:49.320 --> 0:14:51.720 But in the meantime, you know, if people are going 0:14:51.800 --> 0:14:53.400 to get through the winter, we've got to make sure 0:14:53.440 --> 0:14:56.000 that they have affordable eating fuel and that will be 0:14:56.200 --> 0:14:58.760 a big issue for us. I think when we return 0:14:58.800 --> 0:15:02.960 to Washington, Congressman, are you worried about the perception of 0:15:02.960 --> 0:15:06.280 the Democratic Party is have having gotten too extreme on 0:15:06.320 --> 0:15:10.840 the left side. Well, it's certainly in the campaign. You know, 0:15:11.000 --> 0:15:14.520 the campaign reduces things down to kind of an absurd 0:15:14.960 --> 0:15:18.960 narrow definition. Uh. And in fact, when you look at 0:15:18.960 --> 0:15:24.960 our record, there has been significant focus on economic development, 0:15:25.120 --> 0:15:28.160 in jobs and uh. You know, the big challenge we're 0:15:28.200 --> 0:15:31.360 facing right now is coming out of COVID. We've got 0:15:31.360 --> 0:15:34.520 inflation in this country, but we've got inflation around the world. 0:15:34.520 --> 0:15:36.800 It's even worse than ours, and we've got to take 0:15:36.800 --> 0:15:39.160 the steps to bring it down. And the choice that 0:15:39.280 --> 0:15:42.480 we have here, this is what is going to await 0:15:42.600 --> 0:15:46.240 us tomorrow after we get the verdict of the voters. 0:15:47.320 --> 0:15:51.200 We've got history with this Republican Party, particularly in the House, 0:15:51.720 --> 0:15:54.480 where they're pretty extreme policies, and we'll be hearing a 0:15:54.520 --> 0:15:57.400 lot of talk about getting government spending under control by 0:15:57.440 --> 0:16:01.440 reducing social security. Will have a lot of discussion about 0:16:01.520 --> 0:16:06.080 getting the government spending under control by defaulting on our debt. 0:16:06.200 --> 0:16:09.560 We've been through that and colleagues of mine in the 0:16:09.600 --> 0:16:13.400 House are saying that they want to default time the 0:16:13.640 --> 0:16:17.280 debt unless they get their way on their spending proposals. 0:16:17.680 --> 0:16:21.120 So there's a lot of jeopardy here depending on what 0:16:21.240 --> 0:16:23.960 the outcome of the selection is. Where we start going 0:16:24.480 --> 0:16:27.600 in the House back to the impeachment's impeachment and Hunter 0:16:27.640 --> 0:16:30.760 Biden maybe the impeachment of Joe Biden, default time, the 0:16:30.800 --> 0:16:33.760 debt is the threat government shutdown, and all of that's 0:16:33.840 --> 0:16:39.080 chaos for the well being of our of our economy. Comblishment, 0:16:39.160 --> 0:16:41.040 thanks for paying with us today, pay to watch that. 0:16:41.160 --> 0:16:49.000 Thank the accomlishment. Right now we drive forward the conversation 0:16:49.120 --> 0:16:52.800 with a Beltway insider with the Rock Creek crew. Alfia 0:16:52.880 --> 0:16:55.680 dor Walla joins us. Now they're managing director. Thank you 0:16:55.760 --> 0:16:57.640 so much for getting up. It's way too early for 0:16:57.720 --> 0:17:00.480 what I mean. Even on election day, Washington doesn't get 0:17:00.520 --> 0:17:03.560 up to Oh no, we're we're up. We're financed people, 0:17:03.640 --> 0:17:08.359 so we're up. It's exciting. Explain election day in Washington. 0:17:08.560 --> 0:17:12.040 French Hill was in Arkansas as you should be today. 0:17:12.720 --> 0:17:16.000 Is Washington deserted on election Day? You know? I don't 0:17:16.000 --> 0:17:17.760 know if it's as exciting as people want to think 0:17:17.800 --> 0:17:20.800 Washington is on the election day. Everyone's working from home anyway, 0:17:20.880 --> 0:17:23.400 especially the government. So I don't know if we are 0:17:23.440 --> 0:17:25.800 getting a lot of excitement today. And I think markets are, 0:17:26.000 --> 0:17:29.120 as you said, pricing in a little bit of a split. Um. 0:17:29.160 --> 0:17:31.320 You know, Congress, and what that means for markets, What 0:17:31.359 --> 0:17:33.760 are the risks around that for you? From your perspective, 0:17:33.880 --> 0:17:36.080 is that good or bad? Because we're told overwhelmingly it 0:17:36.200 --> 0:17:38.200 is good, you know, I mean, you could be in good. 0:17:38.240 --> 0:17:40.640 It could be right, less inflationary pressure because you don't 0:17:40.640 --> 0:17:42.400 have as much fiscal spending. You could see a week 0:17:42.440 --> 0:17:45.600 or dollar, all of those things could price into markets, 0:17:45.680 --> 0:17:48.879 and um, you know, be being a little bit more positive. 0:17:48.920 --> 0:17:51.000 But honestly, I do think that the midterm elections will 0:17:51.040 --> 0:17:53.960 just be a small blip in what we see in markets. Unfortunately, 0:17:54.080 --> 0:17:56.080 everyone's kind of probably sick and tired of hearing this, 0:17:56.160 --> 0:18:00.000 but it's all about inflation once the longer term consequence 0:18:00.160 --> 0:18:02.560 of the fisc corresponse probably not being there regardless of 0:18:02.560 --> 0:18:05.720 who gets elected into the White House. Even Yeah, no, 0:18:05.800 --> 0:18:07.440 I mean, I think it's interesting because we don't talk 0:18:07.440 --> 0:18:09.560 a lot about the Inflation Reduction Act as well, right, 0:18:09.600 --> 0:18:12.320 and the investment implications of the i r A. We've 0:18:12.320 --> 0:18:14.080 been looking a lot and doing a lot of research 0:18:14.119 --> 0:18:16.359 to see what are the different areas that we can 0:18:16.400 --> 0:18:18.399 actually invest in that are going to get tail winds 0:18:18.440 --> 0:18:21.160 from some of that IRA money. And there are places 0:18:21.160 --> 0:18:25.280 and there's pockets of opportunity there. You manage cautious money, 0:18:25.520 --> 0:18:29.000 conservative money, if there's a new risk free rate. I 0:18:29.040 --> 0:18:31.760 mentioned the two year yield where it is. How does 0:18:31.800 --> 0:18:35.320 that change? And I don't mean it's a direct pension basis, 0:18:35.680 --> 0:18:39.879 but how does it change the actuarial or return assumption 0:18:40.440 --> 0:18:43.320 of international money. It's part of the building blocks of 0:18:43.320 --> 0:18:45.720 your capital market return assumptions, right, And we manage money 0:18:45.760 --> 0:18:48.320 for endowment's foundations, pensions. They want to have their money 0:18:48.400 --> 0:18:51.600 there in perpetuity and so having um you know, these 0:18:51.600 --> 0:18:53.480 type of rates. In the fixed income market, we are 0:18:53.480 --> 0:18:55.920 talking so much more about how to manage our fixed 0:18:55.960 --> 0:18:58.840 income exposure. One of the best trades now is putting 0:18:58.880 --> 0:19:01.440 your cash in six months. Else, how do you manage 0:19:01.440 --> 0:19:04.680 your fixed income losses of the last couple of years, 0:19:04.680 --> 0:19:07.800 everybody's enjoyed that, yeah, you know, I mean sixteen what 0:19:07.920 --> 0:19:10.879 the US bond market is down about sixteen percent this year, right, 0:19:10.920 --> 0:19:14.919 Equity markets are down about We've had a very diversified 0:19:14.920 --> 0:19:18.680 fixed income exposure. We've also included tips gold floating rate funds. 0:19:18.920 --> 0:19:20.639 There are a lot of pockets. We've stayed away from 0:19:20.680 --> 0:19:23.600 high yield, so we've been very short duration as well, 0:19:23.640 --> 0:19:25.919 which has actually helped us manage our and limit our 0:19:25.960 --> 0:19:28.119 losses on the downside. One thing we've been trying to 0:19:28.160 --> 0:19:31.680 work out is whether we operate with the underlying assumption 0:19:31.800 --> 0:19:34.400 that we're going to have FED funds to say three 0:19:34.400 --> 0:19:36.760 point five to five for the next couple of years. 0:19:37.000 --> 0:19:39.560 It's that your basic assumption now. It is our basic 0:19:39.600 --> 0:19:41.880 assumption right now. But we are looking very closely right 0:19:41.920 --> 0:19:43.960 and when the Fed's gonna pause, when they're going to pivot, 0:19:43.960 --> 0:19:46.240 and that's going to completely change some of the rotation 0:19:46.280 --> 0:19:48.040 in terms of portfolios and where you want to be 0:19:48.080 --> 0:19:50.359 putting your money. You might want to be increasing your duration, 0:19:50.400 --> 0:19:53.240 you might want to be increasing or fixed fixed income exposure. 0:19:53.240 --> 0:19:54.960 You're gonna want to see where equities are in terms 0:19:54.960 --> 0:19:57.680 of valuations across the globe. When do you think you'll 0:19:57.680 --> 0:20:01.240 see sixty kind of portfolio start to reassert itself in 0:20:01.240 --> 0:20:04.879 a positive way? I think you know, I mean timeline. 0:20:04.680 --> 0:20:06.760 I I think you're out at least twelve eighteen months 0:20:06.760 --> 0:20:08.760 before you start to see any sort of appreciation in 0:20:08.760 --> 0:20:12.280 the in the sixty type of portfolio. And we're looking 0:20:12.320 --> 0:20:15.000 for just a diversified portfolio a lot of alternatives today 0:20:15.000 --> 0:20:17.560 as well. Where does the diversification come from? Then, if 0:20:17.560 --> 0:20:20.840 we're basically faced with a positive equity bond correlation for 0:20:20.880 --> 0:20:23.600 the foresamable future. You talked about diversifying. Where does it 0:20:23.600 --> 0:20:25.280 come from. So we have the advantage of being able 0:20:25.280 --> 0:20:27.439 to invest in private markets, right, And as much as 0:20:27.480 --> 0:20:29.880 we've seen valuations come down in private markets as well, 0:20:29.920 --> 0:20:32.159 they haven't come down as much in public markets. And 0:20:32.200 --> 0:20:34.920 there's so much innovation going on, and there are lots 0:20:34.920 --> 0:20:37.320 of sectors that are actually less cyclical. I mean, there 0:20:37.320 --> 0:20:39.920 are less economically sensitive and less cyclical than what we're 0:20:39.920 --> 0:20:42.439 seeing in tech today. So we're investing in food, we're 0:20:42.480 --> 0:20:45.320 investing in agg we're investing in climate related areas, all 0:20:45.359 --> 0:20:46.760 things that we think are going to be ten year 0:20:46.800 --> 0:20:50.120 or fold investment. Private markets adjusted, Yet when you look 0:20:50.119 --> 0:20:52.240 at them, if they really adjusted yet, well, private markets 0:20:52.280 --> 0:20:54.680 never adjusted. That's the beauty of private markets, right. Okay, 0:20:55.280 --> 0:20:57.480 nothing doesn't trade, doesn't mean that it doesn't go down 0:20:57.480 --> 0:20:59.320 in value. Do you think that anyone's going to have 0:20:59.359 --> 0:21:02.120 to sell and walk in the decline that people are Yeah, 0:21:02.240 --> 0:21:04.080 that's the point. So if you look at the venture 0:21:04.160 --> 0:21:05.680 side of things, right, if you look at some of 0:21:05.720 --> 0:21:08.160 the companies that are most well run, they have twenty 0:21:08.200 --> 0:21:10.480 four eighteen to twenty four months of runway in terms 0:21:10.480 --> 0:21:12.680 of cash. That's not that that could get you through 0:21:12.720 --> 0:21:14.359 a period where you don't have to go to market 0:21:14.480 --> 0:21:16.439 very soon. So there's going to be a bifurcation in 0:21:16.520 --> 0:21:18.199 terms of companies that have been able to manage their 0:21:18.320 --> 0:21:20.119 balance sheets well and those that haven't, even in the 0:21:20.160 --> 0:21:24.359 private markets. Got to say it aside that of Rock 0:21:24.440 --> 0:21:36.520 Cli Croup, Dan, you're going to joins us this morning, 0:21:36.840 --> 0:21:40.919 Commanding Heights. It is the most optimistic modern treatment of 0:21:41.040 --> 0:21:46.080 capitalism that is out there. Has the optimism evaporated when 0:21:46.080 --> 0:21:49.080 you look at the commanding Heights of America? Have we 0:21:49.320 --> 0:21:52.440 given up the optimism? I think certainly. We can put 0:21:52.440 --> 0:21:55.120 it Tom in terms of the balance of confidence in markets, 0:21:55.280 --> 0:21:58.160 which was very strong, has received and it has shifted. 0:21:58.200 --> 0:22:01.200 We've seen, you know, in terms of the last four years, 0:22:01.560 --> 0:22:03.800 really since the financial crisis of two thousand and eight, 0:22:04.080 --> 0:22:07.560 kind of reassertion of stronger government role across the economy. 0:22:08.359 --> 0:22:09.800 Lisa and Joe, I want to jump in here with 0:22:09.800 --> 0:22:12.280 a lot of other questions in a two hour conversation 0:22:12.320 --> 0:22:14.240