Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. This is a
Speaker 1: great pleasure. Not that Jack Lou working for Joe Monkly
Speaker 1: years ago in Massachusetts, did it awfully young, but he
Speaker 1: did it across multiple platforms of public service. You know
Speaker 1: Jack Lou as a former United States Secretary of Treasury,
Speaker 1: but far more was his tour of duty at state beforehand.
Speaker 1: We're honored to the Secretary could join us this morning,
Speaker 1: Jack Lou. I want to go to Leon Panetta's and
Speaker 1: Cindy r comments equating Afghanistan to Bay of Pigs of
Speaker 1: ninety sixty one, from Kubble to Havana and south of
Speaker 1: Havana on the shore in April of nineties one. Are
Speaker 1: there similarities for this nation? Okay? I think we're going
Speaker 1: through an incredibly tragic time right now with the fall
Speaker 1: of Afghanistan, and I think the moment calls for looking
Speaker 1: forward not back. UM. The evacuation of people who want
Speaker 1: to leave Afghanistan is the job right now. I think
Speaker 1: the fact that that operation is moving ahead shows that
Speaker 1: there was in fact planning to deal with a great
Speaker 1: deal of uncertainty. There'll be time after this to look
Speaker 1: back and to ask the question there have been different decisions.
Speaker 1: I think for right now, the job number one is
Speaker 1: to keep moving forward and to get as many people
Speaker 1: Americans and people cooperated with and helped our effort there
Speaker 1: who want to leave the country out of the country.
Speaker 1: Oh agree, You've been a class act about avoiding the
Speaker 1: Republican Democrats sniping the snark moments that we see day
Speaker 1: after day after day, but assistance with the institutional weakness
Speaker 1: perhaps that was there with the Trump administration. Did any
Speaker 1: of this occur because state was institutionally weaker or our
Speaker 1: intelligence communities were institutionally weaker? I think the four years
Speaker 1: of the Trump administration weakened many institutions, UM in terms
Speaker 1: of the ability of experts to voice their views and
Speaker 1: express them and have them considered. Uh, in terms of
Speaker 1: the people left behind and the need to rebuild. So
Speaker 1: I think the damage is brought. I've seen it in
Speaker 1: all the agencies that I have been at in the past.
Speaker 1: I think that going forward, the job of rebuilding is
Speaker 1: well under way. Um, but it takes time. And uh,
Speaker 1: I'm not sure the extent to which the current circumstance
Speaker 1: can be tied to anything specific in that regard, but
Speaker 1: I do think that there was a legacy of serious
Speaker 1: damage in many of the agencies Jack as a former
Speaker 1: US Treasury secretary, which the US do with respect to
Speaker 1: the financial assets of the Taliban of Afghanistan at a
Speaker 1: time when there is this sort of peace offering, But
Speaker 1: history has a very different story to tell. I think
Speaker 1: the burden of proof is on the Taliban going forward.
Speaker 1: We have too much experience from the past to take
Speaker 1: at their word that anything is going to be different.
Speaker 1: I certainly hope that there will be a difference, but
Speaker 1: I think the question of whether or not to treat
Speaker 1: the government as a legitimate government, as a partner to
Speaker 1: open financial flows and the like, has to come after
Speaker 1: there's more evidence of what that government is going to do.
Speaker 1: They've clearly learned that they need to talk differently than
Speaker 1: they did in the nineteen nineties. We now have to
Speaker 1: learn whether they're going to active, So how concerned are
Speaker 1: you that, as we have this controversy surrounding the Biden administration,
Speaker 1: that we're hitting a potential debt ceiling debate that could
Speaker 1: rival two thousand and eleven. And we have an infrastructure
Speaker 1: plan that may get through at least the billion dollar one.
Speaker 1: But that really is called into question when you look
Speaker 1: at the three and a half trillion dollar Reconciliation Act.
Speaker 1: How close are we to another debt ceiling tobaccle akin
Speaker 1: to what we saw a decade ago. Well, I'm not
Speaker 1: sure I would conflate the issues of what's going on
Speaker 1: in Afghanistan with the question of the debt limit. I
Speaker 1: think before the events of the last week, UH, there
Speaker 1: was considerable uncertainty as to how the debt limit would
Speaker 1: be resolved. That remains the case. I think it's extremely
Speaker 1: dangerous for so many senators, Republican senators to sign on
Speaker 1: to a letter saying they will not support a debt
Speaker 1: limit increase. Procedurally, it's very challenging unless you get some
Speaker 1: bipartisan support. Uh. Their pathways are there, but there are fewer,
Speaker 1: and the reality is that limit is the final, not
Speaker 1: the first decision. It's to pay old bills, not new bills.
Speaker 1: And you know when we saw in twenty seventeen an
Speaker 1: enormous increase in the debt through the tax cut, when
Speaker 1: we saw through the spending through the Trump years, enormous
Speaker 1: increases in the deficit, and the bipartisan moved to respond
Speaker 1: appropriately to COVID. I didn't hear people saying we're going
Speaker 1: to come back later and say we're not going to
Speaker 1: raise the debt limit. It's wrong. It's a self inflicted
Speaker 1: wound if we end up with a crisis that can
Speaker 1: be completely avoided. I hope that the pathway towards resolving
Speaker 1: it is relatively clear and quick. But if I had
Speaker 1: to guess, there's going to be some choppiness between now
Speaker 1: and when it's done, and we know from experience that
Speaker 1: that causes a great deal of anxiety. This is not
Speaker 1: a moment when there's anymore anxiety, Jack lou I don't
Speaker 1: know if you wanted through the philosophy department at Harvard,
Speaker 1: but there is the concentration, and so much of that
Speaker 1: is studying the different philosophers, and I think of John
Speaker 1: Kelvin in America's deep seated aversion to debt, and yet
Speaker 1: here we are with a debt and a deficit that
Speaker 1: how Brown and others never ever would have perceived it
Speaker 1: would be. And speak to conservatives now in their concern
Speaker 1: about the fact we have too much debt. You know, Tom,
Speaker 1: I've actually stayed consistent through a period when so many
Speaker 1: people who have have deviated from their traditional views on
Speaker 1: deficits and debt. I didn't hear a lot of concerns
Speaker 1: from conservatives about deficits and debt when we were cutting
Speaker 1: taxes in a way that was irresponsible at a time
Speaker 1: when the economy was very healthy. UM, I think it
Speaker 1: was appropriate for both sides to say we're not going
Speaker 1: to worry about the deficit of the debt at the
Speaker 1: height of the COVID crisis. You look what's going on
Speaker 1: right now. Congress is working with the administration to pay
Speaker 1: for the biggest investment in my professional career in terms
Speaker 1: of domestic priorities, critical investments, important investments. I think the
Speaker 1: debate in Congress will come down to how much willingness
Speaker 1: is there to pay for these investments, and that will
Speaker 1: dictate the size of the package. I think the hopeful
Speaker 1: sign is that there is considerable consensus on a very
Speaker 1: large coal of offsets to pay for a significant investment.
Speaker 1: It's fundamentally different than saying devil may care, let the
Speaker 1: next generation pay for it. In terms of the cost
Speaker 1: of servicing the debt. With the near zero interest rates
Speaker 1: that we're seeing for the next five ten years, that
Speaker 1: sustainment of payment of debt service is not the issue.
Speaker 1: I actually think the challenge is coming out of this
Speaker 1: getting back to a more traditional view that over time,
Speaker 1: when the economy is doing well, you need to pay
Speaker 1: for what you do and work at reducing the deficit,
Speaker 1: and when the economy is in trouble, you use your
Speaker 1: fiscal cannon to deal with that challenge. We're now at
Speaker 1: an ambiguous moment coming out of the COVID crisis. Everything
Speaker 1: is uncertain. You were talking earlier in the program about
Speaker 1: the dark room. We don't know where the virus is going.
Speaker 1: We don't know if full employment will be sustained. You know,
Speaker 1: I think we're doing the right things making sure our
Speaker 1: economy comes back strong and sustainably out of the worst
Speaker 1: crisis that I've ever seen. Jack. We appreciate time. So
Speaker 1: it's gonna hit from you, Jack Lee, that they form
Speaker 1: a U. S. Treasury Secretary Sovereign Wealth fund discussions are
Speaker 1: usually pretty dry, pretty bureaucratic. You can't do that with
Speaker 1: the Norwegian Sovereign Wealth Fund CEO John Farrell. You're gonna
Speaker 1: have a discussion with a guy truly outstanding at absolutely
Speaker 1: turn in the hedge fund business and quite the controversy
Speaker 1: as he took over in Norway's large pile of money.
Speaker 1: And tell this one is a monster. It's one point
Speaker 1: for trillion dollars. And I'm pleased to say that Nikolai
Speaker 1: Tanger joins us now the Norwegian Selvereign Wealth Fund CEO. Nikolake,
Speaker 1: great to have you with us. You made some headlines
Speaker 1: over the past week with this quote. I'm gonna read
Speaker 1: it for our audience. I think probably inflation is the
Speaker 1: biggest threat to capital markets that we're seeing now. It
Speaker 1: will probably hit the portfolio in a way that we
Speaker 1: have not seen before. Nikolai, what did you mean by that?
Speaker 1: I mean that we are at a situation now where
Speaker 1: the bond wheels are extremely low and the stock market
Speaker 1: is extremely high, and so therefore any main change in
Speaker 1: invlation will will hit both part of the portfolio. You know,
Speaker 1: and in the past, is it's one of them and
Speaker 1: not the other. But this time we can move in.
Speaker 1: Both can move in this generation. So do you have
Speaker 1: to do things differently now with that in mind? Well,
Speaker 1: we are a very long term investing you know, and
Speaker 1: we are so big it's kind of difficult to move around.
Speaker 1: And and we are in a way also to too
Speaker 1: big for you know, counterparties. So uh, given that we
Speaker 1: have a time horizon for our investments of thirty two
Speaker 1: hundred years, we uh, we will probably have to sit
Speaker 1: through it. You understand more than most it's not what
Speaker 1: you own, it's what you choose not to oan. When
Speaker 1: you're this big, Nicolain, what are you choosing not to
Speaker 1: oan right now? And why? Well, we are quite index
Speaker 1: inari and the way we run a old portfolio, but
Speaker 1: we also have various things that we don't own for e.
Speaker 1: S G reasons. We started to sell down various things
Speaker 1: already back in two thousand and twelve and that's been
Speaker 1: a that's been a good strategy for the fund. So
Speaker 1: that's something we will increase going forward. What does that
Speaker 1: mean for the regional bias going forward as well? Nikola,
Speaker 1: I'm thinking about China e M. Do you have to
Speaker 1: reduce that because of the s G concerns. No, not necessarily.
Speaker 1: We have roughly five percent of the fund invested in China.
Speaker 1: It's uh, you know, it's one of the biggest markets
Speaker 1: in the world. It's done as it's done really well
Speaker 1: for us, and so we continue to be invested there.
Speaker 1: Some people call it investable. I've heard that from Martial
Speaker 1: Waste over the last couple of weeks. I've heard it
Speaker 1: from others too. Do you think it still is investable?
Speaker 1: And why? Well, I think it's investable. You have a
Speaker 1: lot of great companies there. You've got some good technology
Speaker 1: companies there, so we have we have a large positions
Speaker 1: there and we're really believe in a lot of those
Speaker 1: business models. The regulatory shift, though, can happen overnight. Nicola
Speaker 1: have to believe in the business model. You have to
Speaker 1: have some predictable regulation there as well, some kind of
Speaker 1: certainty looking forward several years through your time arizing a
Speaker 1: whole lot longer. Do you have that with China? Well,
Speaker 1: I think we haven't certainty all over the place. You know,
Speaker 1: we haven't certainty in all markets. So it's the nature
Speaker 1: of it. It's a bit different in Jana, but that's
Speaker 1: that's life as an investor. Do you think things are
Speaker 1: changing more rapidly over the last couple of weeks there
Speaker 1: the last couple of months. Yeah, things are. Things are
Speaker 1: changing quite quickly, and we've got people on the ground,
Speaker 1: We got good bms. We are looking at these things
Speaker 1: and that that makes the necessary adjustments. In the pod,
Speaker 1: let's talk about your pms. You've brought on sports psychologists.
Speaker 1: I know this is in an area of interest for you,
Speaker 1: to prepare your PMS for things maybe they've not been
Speaker 1: prepared for. Can you walk me through how you're managing
Speaker 1: the people within the fund and the changes you're trying
Speaker 1: to make. Yeah, so, um, we do this despite me
Speaker 1: being pretty pathetic in sports, right, So I have absolutely
Speaker 1: nothing to bring to the party as a as an athlete,
Speaker 1: but I have seen how sports psychologists can help us
Speaker 1: do different things because what we do is is very
Speaker 1: is very tricky. It's you know, high achievers and so on.
Speaker 1: And I would say the main parts is it's resilience
Speaker 1: and it's bounced back ability. How do you get back
Speaker 1: when you had losses? How do you manage to take
Speaker 1: the same type of risk even when you've been through
Speaker 1: a puff you know patch, That's the that's the key
Speaker 1: I think, Nicola, can you give me an example of
Speaker 1: real life example in your times managing money where that
Speaker 1: has helped, where you've seen that change developed with a PM. Well,
Speaker 1: it's how me, for instance, uh, during my during the
Speaker 1: last eight to ten years, but where I have actively
Speaker 1: used as sports psychologists has made me come through in
Speaker 1: a mentally better state, you know, some of the really
Speaker 1: volative periods. I think it's a complete no brainer. You know,
Speaker 1: going forward from here, you're also listening to earnings calls.
Speaker 1: I know you've done interrogation training over in Norway as well, Nick,
Speaker 1: Can I just give me a flavor of that. How
Speaker 1: helpful that is to understand the kind of questions you
Speaker 1: need to be asking on an earning call, what you
Speaker 1: need to be listening for, the tone of the delivery
Speaker 1: from the c suite, and a kind of red flags
Speaker 1: shou'd be looking for on calls like that as well.
Speaker 1: You know, UM spend kind of ten years learning it.
Speaker 1: It's not something you could just kind of teach in
Speaker 1: in six seconds. But everything from just how you ask
Speaker 1: questions that you don't link together different types of questions
Speaker 1: that you look at, what managements are not answering as
Speaker 1: much as what they actually are answering, looking for various
Speaker 1: small words called qualifiers and so on, just the whole
Speaker 1: range of techniques that we need to apply. Herenicolasangan very
Speaker 1: very experienced managing money. It's good to catch up. So
Speaker 1: let's let's such seguy here, John into what lindsay Pigs
Speaker 1: of Stephle is worried about. And that is the strength
Speaker 1: the power of the American consumer. We see that in
Speaker 1: Target moments ago with some very good numbers to share. Uh,
Speaker 1: buy back announced and uh, you know, the stocks are
Speaker 1: churning here on what I'm gonna call really really pretty
Speaker 1: good numbers. It'll be interesting to see targets digital presence
Speaker 1: after what we saw from Walmart and a little bit
Speaker 1: of digital worry yesterday at Walmart. But we'll give you
Speaker 1: those headlines as they come in and go to dr
Speaker 1: Pigs that lindsay, I look at where we are on
Speaker 1: the consumer is it is there a clarity to what
Speaker 1: the consumers doing right now or is it a mystery
Speaker 1: into the end of the year. Well, I think the
Speaker 1: consumers are relatively solid footing. We do see that there's
Speaker 1: a tremendous amount of wealth that has been accumulated over
Speaker 1: the past six twelve months. But we also know that
Speaker 1: a tremendous amount of stimulus, which has been provided on
Speaker 1: a monthly basis to millions of Americans, is beginning to fade.
Speaker 1: And I think we see that pullback of stimulus reflected
Speaker 1: in yesterday's retail sales numbers coming in at a big disappointment.
Speaker 1: So going forward, how much you looking at this idea
Speaker 1: that we're seeing sentiment decline, like the University of Michigan's
Speaker 1: sentiment survey showed retail sales disappoint How much can we
Speaker 1: tell that consumers truly are feeling the crimp of higher
Speaker 1: prices and spending less as a result. Well, I think
Speaker 1: they are feeling the crimp re quire prices as we
Speaker 1: know that the CPI is up near six percentences an
Speaker 1: incredibly elevated level of costs for consumers, and we see
Speaker 1: that not only translating into how consumers are shifting the
Speaker 1: goods and services in their basket, but the overall nominal
Speaker 1: decline and how they're willing to spend. Now you layer
Speaker 1: on this growing fear of the rise of delta variants,
Speaker 1: so case numbers, hospitalizations, death rates constantly in the news headlines,
Speaker 1: creating a level of fear that while we may not
Speaker 1: go back to the ownerous restrictions that we saw during UH,
Speaker 1: we are starting to see mass mandates come back in
Speaker 1: and even the fear itself could serve to curtail consumer
Speaker 1: behavior in terms of going out into the market, feeling
Speaker 1: comfortable interacting in crowds or around other people, and that
Speaker 1: could slow the recovery the labor market, slow overall demand
Speaker 1: in the economy, and of course, by extension, then reduced
Speaker 1: the outlook for overall GDP. Lindsay, there's an argument that
Speaker 1: there's a psychological difference between spending higher spending money on
Speaker 1: higher prices with stimulus checks versus money that you earned,
Speaker 1: and as the stimulus text where off and people actually
Speaker 1: see that they're spending the money that they get in
Speaker 1: their paycheck on that much higher food bill, that they're
Speaker 1: going to spend less and cut back more. Do you
Speaker 1: see evidence to support this. I don't know if we
Speaker 1: see evidence of this point yet, but we do hear
Speaker 1: peripheral UH and and anecdotal reports that consumers are increasingly
Speaker 1: sensitive of spending that hard earned money as opposed to
Speaker 1: a check that is coming in the mail. Now, of course,
Speaker 1: we're sort of splitting hairs when we talk about the
Speaker 1: decision to spend well there, spend funds on an elevated
Speaker 1: price item. But for the average American when they see
Speaker 1: that check dwindle ever so uh more quickly in terms
Speaker 1: of filling up the family car, buying groceries. When it
Speaker 1: is your hard earned money as opposed to tax dollars,
Speaker 1: it takes a bigger hits to uh to that that
Speaker 1: that mental outlook that you have for not only your
Speaker 1: financial condition, but for the halfway for the economy, Lindsay
Speaker 1: and the clear and present. There's many people looking at
Speaker 1: two thousand g d P over six percent off of
Speaker 1: a boom economy. You've got a more cautious view a
Speaker 1: g d P under six percent as well. I've got
Speaker 1: target giving me high single digit look forward. Can we
Speaker 1: get that? Can we get not a saggy economy like three,
Speaker 1: but a less than boom economy as you call for,
Speaker 1: and still have corporate America do well and have the
Speaker 1: consumer du well. Absolutely, I think the back half of
Speaker 1: the year is going to be noticeably reduced from what
Speaker 1: we saw in terms of six and a half percent
Speaker 1: across the first six months. Now, that's not to say
Speaker 1: that the economy is losing significant momentum or that the
Speaker 1: recovery itself is losing footing, but we're looking at the
Speaker 1: composition of growth, and when you talk about that government component,
Speaker 1: trillions upon trillions upon trillions of dollars no longer contributing
Speaker 1: to growth. In the back half of the year, we
Speaker 1: would expect that headline number to subside, and we are
Speaker 1: looking for a number closer to three to four percent
Speaker 1: GDP in the latter six months of the year. Now,
Speaker 1: going forward, there's a bigger concern that as we start
Speaker 1: to see the economy recalibrate and consumers slow down to
Speaker 1: a more sustainable pathway based on income growth, it's likely
Speaker 1: we returned back to the growth levels that we saw
Speaker 1: the end of so prior to the pandemic, which as
Speaker 1: you remember, is closer to about two p Let me
Speaker 1: make a right angle turn. Then, if we get a
Speaker 1: pigs economy and we get a consumer that's more cautious,
Speaker 1: more measured, how do they afford real estate. It's a
Speaker 1: good question, and it's something that I think policymakers are
Speaker 1: very concerned about. In fact, we've heard from several FED
Speaker 1: presidents argue that asset persases are no longer helping in
Speaker 1: terms of job creation, but there instead mostly helping drive
Speaker 1: up prices of interest rate sensitive goods such as homes
Speaker 1: and cars. And of course to that point, we've seen
Speaker 1: home prices specifically have risen dramatically over the past year.
Speaker 1: The SMPK Siller Home Price Index up over sixt in
Speaker 1: the past twelve months, and this is marking the biggest
Speaker 1: gain in available data going back to So there is
Speaker 1: a very big concern that a lot of these accommodative policies,
Speaker 1: both on the monetary and the fiscal front, while benevolent
Speaker 1: in intention, are actually creating more barriers, more burdens to
Speaker 1: sustainable longer term growth for the consumer, for the economy.
Speaker 1: As we look out beyond lindsay, thank you. We have
Speaker 1: to leave it that we appreciate it's on this morning,
Speaker 1: Lindsay p X and that stay Folk Chief Economist. A
Speaker 1: lot of people get lettered up over Jackson Hole. I've
Speaker 1: been there many many times. It's truly an academic conference.
Speaker 1: There's boring papers that Michael McKee reads cover to cover.
Speaker 1: I'll take one or two of the papers typically and
Speaker 1: read them cover to cover, but too often they really
Speaker 1: work at the Kansas City Fed to make it a
Speaker 1: constructive snooze fest. James Bianco knows this Bianco research, and
Speaker 1: he joins us now for really my first conversation on
Speaker 1: what the Central Bank will do? What does Chairman Powell
Speaker 1: Jim Bianco not want to do in Wyoming. He doesn't
Speaker 1: want to cause waves. He doesn't want to cause problems,
Speaker 1: similar to what he did in December of two thousand
Speaker 1: and eighteen when he talked about the taper was on
Speaker 1: automatic pilot and it was going to be like watching
Speaker 1: paint dry, and it greatly upset the market, leading to
Speaker 1: the pul pivot two weeks later. What he wants to
Speaker 1: do is lay out a plan to begin a taper
Speaker 1: sometime next year, and he's gonna put a lot of
Speaker 1: caveats in it. And those caveats are going to be
Speaker 1: provided that the economic growth continues and provided that there
Speaker 1: is no surprises to the economy. And that's going to
Speaker 1: be a shout out to if delta continues to rise
Speaker 1: and restrictions. I don't want to see lockdowns, but restrictions
Speaker 1: on the economy continue, that could derail the plan. For tapering, Jim,
Speaker 1: A lot of people are looking for taper talk. However,
Speaker 1: we've already gotten some sense that one of the main
Speaker 1: topics will be income inequality actually contributing to low rates
Speaker 1: going forward, and what FED policy can do about that.
Speaker 1: As a market watcher, how much are you looking at
Speaker 1: that as possibly giving more of a sense of what's
Speaker 1: to come than people are perhaps expecting. Well, income inequality
Speaker 1: is a big problem, and the federal reserves, big picture
Speaker 1: policy can contribute to that, but the immediate policy, when
Speaker 1: I mean immediate here year to year, it's it's very
Speaker 1: hard to say that they're going to adjust policy either way,
Speaker 1: because if they were going to talk about income inequality,
Speaker 1: I really think that what they should be doing is
Speaker 1: raising rates they or they should be tapering faster because
Speaker 1: I think it's this low rate creating this speculative atmosphere
Speaker 1: in financial markets that is contributing to income inequality. So yeah,
Speaker 1: I think they're going to talk about it. I hope
Speaker 1: they acknowledge their role in it, although sometimes I have
Speaker 1: my doubts, and I'll see what they want to do,
Speaker 1: but more likely it's going to be on the regulatory side,
Speaker 1: if anything. Jim You're not alone in saying this. A
Speaker 1: lot of people saying that FED policy has actually contributed
Speaker 1: to widening income inequality. And it goes to a broader point.
Speaker 1: Have we reached the three rushold at which FED policy
Speaker 1: is viewed as perhaps harming more than helping on the margins,
Speaker 1: not only with respect to inflating asset prices, but also
Speaker 1: at a time when consumer prices are increasing at a
Speaker 1: faster pace that many people had expected. Yeah, if you
Speaker 1: look at financial markets, let's take the stock market, the
Speaker 1: dirty little secret is it's not cheap. You know, there
Speaker 1: are booming earnings. What you're paying for those earnings. The
Speaker 1: valuations in the market are near the two thousand peak valuations.
Speaker 1: But the justification is twofold one earnings are very strong
Speaker 1: and to J. Paul's got your back. And if that
Speaker 1: creates an environment where there is a change in policy,
Speaker 1: like inflation is perceived to be persistent instead of transitory,
Speaker 1: that could lead to a sharp pullback in market. So
Speaker 1: they're setting up markets that they need to continue to
Speaker 1: get constant good news to go up. Now they have
Speaker 1: for nearly a year now, they've been be getting constant
Speaker 1: good news to go up. But if that day ever
Speaker 1: comes that it doesn't, they could be setting it up
Speaker 1: for a bigger fall than you would otherwise. See Jim,
Speaker 1: could you help us understand why yields are where they are?
Speaker 1: Even fed share? J Powell has said he doesn't quite
Speaker 1: understand why they are as low as they are. You say,
Speaker 1: perhaps it makes sense if you take a look at
Speaker 1: growth outlook, not necessarily inflation. Can you only elaborate? Yeah,
Speaker 1: I think if you if you look at I've been
Speaker 1: looking at the reopening stocks and index of them, and
Speaker 1: they have been dramatically underperforming the market since the March peak,
Speaker 1: which also happens to be one the tenure yield peaked.
Speaker 1: And if you overlay a chart of reopening stocks relative
Speaker 1: performance to the tenure yield, it's the same thing. What
Speaker 1: that suggests is that the market is more focused on
Speaker 1: growth as it fears that growth is going too slow.
Speaker 1: And we're not talking recession here. We're talking about from
Speaker 1: a very high level six percent or so GDP estimates
Speaker 1: down to something a little bit less than that. As
Speaker 1: growth slows, so do interest rates. At growth picks up,
Speaker 1: so would interest rates. And the biggest driver I think
Speaker 1: of growth slowing is the fear of restrictions from the
Speaker 1: delta variant as we see more and more. I'm in
Speaker 1: Chicago and just yesterday they announced that starting Friday, everybody
Speaker 1: has to wear a mask indoors. More stuff like that
Speaker 1: will be coming and coming and coming, And that's the
Speaker 1: fear Jim at Jackson Hole. There'll be a lot of
Speaker 1: academic papers and I'm gonna pick on the vice Chairman
Speaker 1: of the feder Richard Clarida, with his wonderful dsge or
Speaker 1: that he did with Girdler years ago. I believe does
Speaker 1: any of the theory that we have now apply to
Speaker 1: the actual debates of Jackson Hole? Does dynamics, stochastic general
Speaker 1: equilibrium theory actually matter in the mill you were in?
Speaker 1: You know, the best Federal Reserve officials to listen to
Speaker 1: are the ones that recently leave. Dan Carillo was at
Speaker 1: the FED during the financial crisis. Left in two thousand
Speaker 1: seventeen and gave a speech at Brookings where he said
Speaker 1: the FED has no working theory on inflation. That if
Speaker 1: you test any theory you want rational expectations anchoring monetary
Speaker 1: velocity of money, it just doesn't pan out in the
Speaker 1: statistics that it is a good explanation of what causes inflation.
Speaker 1: We are all kind of in the dark, and I
Speaker 1: think Rich Clarada is also in the dark. He's been
Speaker 1: a big advocate of inflation being well anchored. There's arguments
Speaker 1: to be made that it's becoming unanchored because you've seen
Speaker 1: the big rise in the inflation expectations, especially like the
Speaker 1: University of Michigan survey. And it's going to be very
Speaker 1: difficult for the FED because they want to project certainty
Speaker 1: or they want to project calm that we've got this
Speaker 1: figured out where inflation is going to go, it's going
Speaker 1: to be transitory. But the fact of the matter is
Speaker 1: they don't know, We don't know. Inflation is a very
Speaker 1: difficult thing to get your head around, and it's a
Speaker 1: very difficult thing to understand. So it's a big gas
Speaker 1: and we'll have to see and some of those papers
Speaker 1: I think should address that the next week. And that's
Speaker 1: such a great line. We've got to leave that, Jim Bianca,
Speaker 1: that at Bianca Research the President, because when you leave Lisa,
Speaker 1: you get to say what you really think things have
Speaker 1: changed in the last I'm gonna say one week, we
Speaker 1: are interested now again in immigration, possibly migration from Afghanistan
Speaker 1: to various and sundry Western countries certainly a topic at hand.
Speaker 1: Before this event, David Rubinstein and the Carlisle Group spoke
Speaker 1: to someone who has lived this, and of course it's
Speaker 1: the David Rubinstein Show. We'll tell you about that here
Speaker 1: in a moment. Mr Rubinstein joins us. Right now, I
Speaker 1: think David of Art, Gregorian and there Armenian exercise and
Speaker 1: now Mr Afagen, Mr Gyan and others have stated, we
Speaker 1: were immigrants, we came here, we were successful. This can
Speaker 1: work tell us about his path to the United States
Speaker 1: into Great Wealth. For those who don't know, he's the
Speaker 1: chairman of Moderna and the person who really seated the
Speaker 1: company was his idea. UM. It's an incredible story. He's
Speaker 1: an Armenian refugee from Lebanon. He grew up in Lebonom
Speaker 1: and his parents were Armenian of origin, went to Canada,
Speaker 1: got a degree at McGill, came to m I p
Speaker 1: got a PhD, and basically started companies. He's now started
Speaker 1: seventy six companies and many of them have been fabulously successful.
Speaker 1: He's now running something called Flagship Pioneering, which comes up
Speaker 1: with new ideas for biotech investing and starts companies, many
Speaker 1: of which become successful like Moderna, though that's by part
Speaker 1: of the most successful. How can guys like you compete
Speaker 1: with guys like him for intellectual excellence? Doesn't he have
Speaker 1: the upper hand over private equity and other sources of
Speaker 1: venture capital. Well, there's no doubt that people who are
Speaker 1: immigrants often tend to be very hard working and very
Speaker 1: smart and uh, and then they are the leaders of
Speaker 1: many entrepreneurial ventures. On the other hand, private equally people
Speaker 1: are investing with him and alongside him, and so I
Speaker 1: wouldn't say it's competitive, but there's no doubt that he
Speaker 1: is a unique force. He is now running this venture
Speaker 1: operation which creates companies like Moderna, and Moderna is a
Speaker 1: company which has increased in value about a hundred times
Speaker 1: from the initial money that he put in. I think
Speaker 1: it was eleven million dollars initially put in. It's a
Speaker 1: hundred times since then. And he has become very wealthy,
Speaker 1: and he's giving away a lot of his money various causes,
Speaker 1: including immigration related things and helping Armenia. But he's very
Speaker 1: very interested in biotech. He's also very much at the
Speaker 1: center of the health catastrophe that has unfolded and will
Speaker 1: likely be a mainstay going forward as we rely on
Speaker 1: vaccinations and potentially booster shots to ward off following variations
Speaker 1: of this virus. There is a question of booster shots.
Speaker 1: What does he foresee in terms of demand going forward,
Speaker 1: in terms of the need that we will have for
Speaker 1: ongoing shots. Well, just as we are getting used to
Speaker 1: over many years having a flu shot every year, I
Speaker 1: think his views will be getting a kind of a
Speaker 1: moderner or a visor or some equivalent shot for this
Speaker 1: type of virus every year. And right now the FDA
Speaker 1: is probably going to say we need to have a
Speaker 1: booster shot. I think they Biden administration is now promoting
Speaker 1: the idea of a booster shot for those people that
Speaker 1: have had the original moderner or visor Johnson Johnson shots.
Speaker 1: And I think once you have the booster shot, I
Speaker 1: think you'll be seeing this every year, and I think
Speaker 1: his company is probably going to be benefiting from it. David,
Speaker 1: You're on the front lines of this issue both as
Speaker 1: the interviewer for these shows that are phenomenal every week
Speaker 1: as well as CEO and chair of Carlisle Group. And
Speaker 1: I'm wondering whether you've mandated vaccines, how closely you're watching
Speaker 1: how this is unfolding on a national level, from a
Speaker 1: corporate and federal level, to determine how to create policy
Speaker 1: going forward for you employees. Well, I think Carlong has
Speaker 1: decided that it's employees when they come back to work,
Speaker 1: should be vaccinated. Um. There obviously are some medical and
Speaker 1: religious reasons why some might not be able to be,
Speaker 1: but we think in our offices, and I think this
Speaker 1: is true of all the major corporations that I've been
Speaker 1: talking to regulately, they think it's much better for their
Speaker 1: employees to be vaccinated. That will be Carlos policy. David,
Speaker 1: your thoughts is someone who attends world events. You and
Speaker 1: I have shared the stage a Dablos, There's many other
Speaker 1: events as well. Your thoughts on Afghanistan and particularly the
Speaker 1: elite of Afghanistan, the people that have provided innovation there
Speaker 1: for let's say ten years, maybe fifteen years. What is next?
Speaker 1: It's a sad situation for Afghanistan and a sad situation
Speaker 1: for our country. The most important thing now is dealing
Speaker 1: with the humanitarian issues of getting people out who can
Speaker 1: help with our country. Hopefully our US government will be
Speaker 1: able to work out the ways that can be done,
Speaker 1: but it's not going to be pleasant, not gonna be easy,
Speaker 1: it's not gonna be quick. So clearly some mistakes were made,
Speaker 1: as as the administration has said. But then before we
Speaker 1: figure out who who made what mistakes and how we
Speaker 1: can correct them in the future, we've got to deal
Speaker 1: with the present problem of getting people out who were
Speaker 1: loyal to the United States and the Allies in trying
Speaker 1: to prevent the Palaban from taking over. David Reubinstein, thank
Speaker 1: you so much with the Carlisle Group and of course
Speaker 1: host of the David Rubinstein Show, Peer to peer Conversations.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg