WEBVTT - Surveillance: U.S. Debt & Afghanistan With Lew 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.319 and of course on the Bloomberg terminal. This is a 0:00:30.360 --> 0:00:33.000 great pleasure. Not that Jack Lou working for Joe Monkly 0:00:33.080 --> 0:00:37.040 years ago in Massachusetts, did it awfully young, but he 0:00:37.120 --> 0:00:40.519 did it across multiple platforms of public service. You know 0:00:40.640 --> 0:00:44.080 Jack Lou as a former United States Secretary of Treasury, 0:00:44.280 --> 0:00:47.879 but far more was his tour of duty at state beforehand. 0:00:48.200 --> 0:00:51.519 We're honored to the Secretary could join us this morning, 0:00:51.800 --> 0:00:54.560 Jack Lou. I want to go to Leon Panetta's and 0:00:54.640 --> 0:00:59.480 Cindy r comments equating Afghanistan to Bay of Pigs of 0:00:59.600 --> 0:01:03.440 ninety sixty one, from Kubble to Havana and south of 0:01:03.520 --> 0:01:08.360 Havana on the shore in April of nineties one. Are 0:01:08.400 --> 0:01:12.800 there similarities for this nation? Okay? I think we're going 0:01:12.880 --> 0:01:18.319 through an incredibly tragic time right now with the fall 0:01:18.360 --> 0:01:21.880 of Afghanistan, and I think the moment calls for looking 0:01:21.920 --> 0:01:26.240 forward not back. UM. The evacuation of people who want 0:01:26.240 --> 0:01:30.000 to leave Afghanistan is the job right now. I think 0:01:30.040 --> 0:01:33.240 the fact that that operation is moving ahead shows that 0:01:33.280 --> 0:01:36.160 there was in fact planning to deal with a great 0:01:36.200 --> 0:01:40.600 deal of uncertainty. There'll be time after this to look 0:01:40.640 --> 0:01:45.280 back and to ask the question there have been different decisions. 0:01:45.600 --> 0:01:49.440 I think for right now, the job number one is 0:01:49.520 --> 0:01:52.760 to keep moving forward and to get as many people 0:01:52.800 --> 0:01:57.120 Americans and people cooperated with and helped our effort there 0:01:57.560 --> 0:01:59.640 who want to leave the country out of the country. 0:01:59.680 --> 0:02:02.640 Oh agree, You've been a class act about avoiding the 0:02:02.720 --> 0:02:06.960 Republican Democrats sniping the snark moments that we see day 0:02:07.080 --> 0:02:12.160 after day after day, but assistance with the institutional weakness 0:02:12.280 --> 0:02:16.760 perhaps that was there with the Trump administration. Did any 0:02:16.800 --> 0:02:21.760 of this occur because state was institutionally weaker or our 0:02:21.880 --> 0:02:28.040 intelligence communities were institutionally weaker? I think the four years 0:02:28.040 --> 0:02:32.799 of the Trump administration weakened many institutions, UM in terms 0:02:32.960 --> 0:02:38.280 of the ability of experts to voice their views and 0:02:38.400 --> 0:02:41.800 express them and have them considered. Uh, in terms of 0:02:41.840 --> 0:02:45.480 the people left behind and the need to rebuild. So 0:02:45.520 --> 0:02:48.320 I think the damage is brought. I've seen it in 0:02:48.360 --> 0:02:52.320 all the agencies that I have been at in the past. 0:02:53.040 --> 0:02:56.800 I think that going forward, the job of rebuilding is 0:02:56.880 --> 0:03:00.480 well under way. Um, but it takes time. And uh, 0:03:00.880 --> 0:03:03.959 I'm not sure the extent to which the current circumstance 0:03:04.000 --> 0:03:07.000 can be tied to anything specific in that regard, but 0:03:07.080 --> 0:03:09.520 I do think that there was a legacy of serious 0:03:09.600 --> 0:03:12.120 damage in many of the agencies Jack as a former 0:03:12.200 --> 0:03:14.880 US Treasury secretary, which the US do with respect to 0:03:14.880 --> 0:03:18.520 the financial assets of the Taliban of Afghanistan at a 0:03:18.600 --> 0:03:21.519 time when there is this sort of peace offering, But 0:03:21.720 --> 0:03:25.119 history has a very different story to tell. I think 0:03:25.120 --> 0:03:29.080 the burden of proof is on the Taliban going forward. 0:03:29.680 --> 0:03:34.080 We have too much experience from the past to take 0:03:34.639 --> 0:03:36.840 at their word that anything is going to be different. 0:03:37.320 --> 0:03:40.120 I certainly hope that there will be a difference, but 0:03:40.640 --> 0:03:44.760 I think the question of whether or not to treat 0:03:44.840 --> 0:03:49.040 the government as a legitimate government, as a partner to 0:03:49.160 --> 0:03:53.520 open financial flows and the like, has to come after 0:03:54.080 --> 0:03:57.720 there's more evidence of what that government is going to do. 0:03:58.640 --> 0:04:01.800 They've clearly learned that they need to talk differently than 0:04:01.840 --> 0:04:03.920 they did in the nineteen nineties. We now have to 0:04:04.000 --> 0:04:07.440 learn whether they're going to active, So how concerned are 0:04:07.480 --> 0:04:11.320 you that, as we have this controversy surrounding the Biden administration, 0:04:11.760 --> 0:04:14.440 that we're hitting a potential debt ceiling debate that could 0:04:14.520 --> 0:04:17.440 rival two thousand and eleven. And we have an infrastructure 0:04:17.480 --> 0:04:21.320 plan that may get through at least the billion dollar one. 0:04:21.400 --> 0:04:23.680 But that really is called into question when you look 0:04:23.680 --> 0:04:26.520 at the three and a half trillion dollar Reconciliation Act. 0:04:26.760 --> 0:04:30.159 How close are we to another debt ceiling tobaccle akin 0:04:30.200 --> 0:04:33.080 to what we saw a decade ago. Well, I'm not 0:04:33.160 --> 0:04:36.440 sure I would conflate the issues of what's going on 0:04:36.680 --> 0:04:39.800 in Afghanistan with the question of the debt limit. I 0:04:39.839 --> 0:04:44.200 think before the events of the last week, UH, there 0:04:44.279 --> 0:04:47.120 was considerable uncertainty as to how the debt limit would 0:04:47.120 --> 0:04:51.960 be resolved. That remains the case. I think it's extremely 0:04:52.040 --> 0:04:56.960 dangerous for so many senators, Republican senators to sign on 0:04:57.040 --> 0:04:59.480 to a letter saying they will not support a debt 0:04:59.520 --> 0:05:03.800 limit increase. Procedurally, it's very challenging unless you get some 0:05:03.839 --> 0:05:08.000 bipartisan support. Uh. Their pathways are there, but there are fewer, 0:05:08.520 --> 0:05:11.720 and the reality is that limit is the final, not 0:05:11.800 --> 0:05:16.440 the first decision. It's to pay old bills, not new bills. 0:05:16.560 --> 0:05:19.720 And you know when we saw in twenty seventeen an 0:05:19.839 --> 0:05:22.680 enormous increase in the debt through the tax cut, when 0:05:22.680 --> 0:05:26.320 we saw through the spending through the Trump years, enormous 0:05:26.360 --> 0:05:31.039 increases in the deficit, and the bipartisan moved to respond 0:05:31.120 --> 0:05:34.800 appropriately to COVID. I didn't hear people saying we're going 0:05:34.839 --> 0:05:36.800 to come back later and say we're not going to 0:05:36.960 --> 0:05:40.200 raise the debt limit. It's wrong. It's a self inflicted 0:05:40.240 --> 0:05:42.400 wound if we end up with a crisis that can 0:05:42.560 --> 0:05:46.880 be completely avoided. I hope that the pathway towards resolving 0:05:46.920 --> 0:05:51.200 it is relatively clear and quick. But if I had 0:05:51.240 --> 0:05:54.200 to guess, there's going to be some choppiness between now 0:05:54.200 --> 0:05:56.640 and when it's done, and we know from experience that 0:05:56.760 --> 0:05:59.279 that causes a great deal of anxiety. This is not 0:05:59.360 --> 0:06:02.400 a moment when there's anymore anxiety, Jack lou I don't 0:06:02.440 --> 0:06:05.200 know if you wanted through the philosophy department at Harvard, 0:06:05.240 --> 0:06:08.400 but there is the concentration, and so much of that 0:06:08.560 --> 0:06:11.440 is studying the different philosophers, and I think of John 0:06:11.520 --> 0:06:15.960 Kelvin in America's deep seated aversion to debt, and yet 0:06:16.000 --> 0:06:18.120 here we are with a debt and a deficit that 0:06:18.200 --> 0:06:21.880 how Brown and others never ever would have perceived it 0:06:21.920 --> 0:06:25.640 would be. And speak to conservatives now in their concern 0:06:25.920 --> 0:06:30.039 about the fact we have too much debt. You know, Tom, 0:06:30.120 --> 0:06:33.560 I've actually stayed consistent through a period when so many 0:06:33.600 --> 0:06:37.640 people who have have deviated from their traditional views on 0:06:38.520 --> 0:06:41.520 deficits and debt. I didn't hear a lot of concerns 0:06:41.560 --> 0:06:45.040 from conservatives about deficits and debt when we were cutting 0:06:45.080 --> 0:06:48.600 taxes in a way that was irresponsible at a time 0:06:48.600 --> 0:06:52.080 when the economy was very healthy. UM, I think it 0:06:52.120 --> 0:06:54.600 was appropriate for both sides to say we're not going 0:06:54.640 --> 0:06:57.640 to worry about the deficit of the debt at the 0:06:57.760 --> 0:07:00.640 height of the COVID crisis. You look what's going on 0:07:00.839 --> 0:07:04.320 right now. Congress is working with the administration to pay 0:07:04.440 --> 0:07:10.200 for the biggest investment in my professional career in terms 0:07:10.240 --> 0:07:15.200 of domestic priorities, critical investments, important investments. I think the 0:07:15.240 --> 0:07:18.960 debate in Congress will come down to how much willingness 0:07:19.080 --> 0:07:22.920 is there to pay for these investments, and that will 0:07:22.960 --> 0:07:26.160 dictate the size of the package. I think the hopeful 0:07:26.600 --> 0:07:30.520 sign is that there is considerable consensus on a very 0:07:30.640 --> 0:07:34.040 large coal of offsets to pay for a significant investment. 0:07:34.400 --> 0:07:37.960 It's fundamentally different than saying devil may care, let the 0:07:38.000 --> 0:07:41.120 next generation pay for it. In terms of the cost 0:07:41.160 --> 0:07:44.679 of servicing the debt. With the near zero interest rates 0:07:44.760 --> 0:07:47.640 that we're seeing for the next five ten years, that 0:07:48.400 --> 0:07:51.880 sustainment of payment of debt service is not the issue. 0:07:52.520 --> 0:07:54.600 I actually think the challenge is coming out of this 0:07:54.760 --> 0:07:59.559 getting back to a more traditional view that over time, 0:07:59.600 --> 0:08:01.880 when the economy is doing well, you need to pay 0:08:01.920 --> 0:08:04.200 for what you do and work at reducing the deficit, 0:08:04.600 --> 0:08:07.080 and when the economy is in trouble, you use your 0:08:07.080 --> 0:08:11.040 fiscal cannon to deal with that challenge. We're now at 0:08:11.040 --> 0:08:14.440 an ambiguous moment coming out of the COVID crisis. Everything 0:08:14.600 --> 0:08:17.200 is uncertain. You were talking earlier in the program about 0:08:17.200 --> 0:08:20.400 the dark room. We don't know where the virus is going. 0:08:20.680 --> 0:08:24.960 We don't know if full employment will be sustained. You know, 0:08:25.040 --> 0:08:27.880 I think we're doing the right things making sure our 0:08:27.920 --> 0:08:31.679 economy comes back strong and sustainably out of the worst 0:08:31.680 --> 0:08:35.439 crisis that I've ever seen. Jack. We appreciate time. So 0:08:35.679 --> 0:08:37.360 it's gonna hit from you, Jack Lee, that they form 0:08:37.400 --> 0:08:47.480 a U. S. Treasury Secretary Sovereign Wealth fund discussions are 0:08:47.520 --> 0:08:51.880 usually pretty dry, pretty bureaucratic. You can't do that with 0:08:52.040 --> 0:08:55.720 the Norwegian Sovereign Wealth Fund CEO John Farrell. You're gonna 0:08:55.720 --> 0:08:59.920 have a discussion with a guy truly outstanding at absolutely 0:09:00.040 --> 0:09:03.200 turn in the hedge fund business and quite the controversy 0:09:03.240 --> 0:09:06.400 as he took over in Norway's large pile of money. 0:09:06.360 --> 0:09:08.400 And tell this one is a monster. It's one point 0:09:08.440 --> 0:09:10.800 for trillion dollars. And I'm pleased to say that Nikolai 0:09:10.840 --> 0:09:15.199 Tanger joins us now the Norwegian Selvereign Wealth Fund CEO. Nikolake, 0:09:15.240 --> 0:09:17.040 great to have you with us. You made some headlines 0:09:17.080 --> 0:09:18.880 over the past week with this quote. I'm gonna read 0:09:18.880 --> 0:09:21.400 it for our audience. I think probably inflation is the 0:09:21.400 --> 0:09:24.160 biggest threat to capital markets that we're seeing now. It 0:09:24.200 --> 0:09:26.640 will probably hit the portfolio in a way that we 0:09:26.679 --> 0:09:29.240 have not seen before. Nikolai, what did you mean by that? 0:09:30.800 --> 0:09:32.920 I mean that we are at a situation now where 0:09:33.600 --> 0:09:36.640 the bond wheels are extremely low and the stock market 0:09:36.760 --> 0:09:41.160 is extremely high, and so therefore any main change in 0:09:41.160 --> 0:09:43.880 invlation will will hit both part of the portfolio. You know, 0:09:44.240 --> 0:09:45.840 and in the past, is it's one of them and 0:09:45.880 --> 0:09:48.880 not the other. But this time we can move in. 0:09:49.120 --> 0:09:50.880 Both can move in this generation. So do you have 0:09:50.960 --> 0:09:54.520 to do things differently now with that in mind? Well, 0:09:54.559 --> 0:09:56.280 we are a very long term investing you know, and 0:09:56.360 --> 0:09:59.640 we are so big it's kind of difficult to move around. 0:09:59.640 --> 0:10:02.960 And and we are in a way also to too 0:10:02.960 --> 0:10:07.000 big for you know, counterparties. So uh, given that we 0:10:07.040 --> 0:10:09.800 have a time horizon for our investments of thirty two 0:10:09.880 --> 0:10:12.559 hundred years, we uh, we will probably have to sit 0:10:12.600 --> 0:10:14.839 through it. You understand more than most it's not what 0:10:14.920 --> 0:10:17.120 you own, it's what you choose not to oan. When 0:10:17.160 --> 0:10:19.280 you're this big, Nicolain, what are you choosing not to 0:10:19.400 --> 0:10:24.080 oan right now? And why? Well, we are quite index 0:10:24.160 --> 0:10:26.360 inari and the way we run a old portfolio, but 0:10:26.440 --> 0:10:31.520 we also have various things that we don't own for e. 0:10:31.720 --> 0:10:35.080 S G reasons. We started to sell down various things 0:10:35.520 --> 0:10:37.560 already back in two thousand and twelve and that's been 0:10:37.600 --> 0:10:39.280 a that's been a good strategy for the fund. So 0:10:39.320 --> 0:10:41.960 that's something we will increase going forward. What does that 0:10:42.000 --> 0:10:44.439 mean for the regional bias going forward as well? Nikola, 0:10:44.440 --> 0:10:46.480 I'm thinking about China e M. Do you have to 0:10:46.480 --> 0:10:50.479 reduce that because of the s G concerns. No, not necessarily. 0:10:50.480 --> 0:10:52.880 We have roughly five percent of the fund invested in China. 0:10:52.960 --> 0:10:54.800 It's uh, you know, it's one of the biggest markets 0:10:54.840 --> 0:10:56.959 in the world. It's done as it's done really well 0:10:57.000 --> 0:10:58.880 for us, and so we continue to be invested there. 0:10:59.080 --> 0:11:02.080 Some people call it investable. I've heard that from Martial 0:11:02.120 --> 0:11:04.520 Waste over the last couple of weeks. I've heard it 0:11:04.559 --> 0:11:06.800 from others too. Do you think it still is investable? 0:11:06.840 --> 0:11:10.480 And why? Well, I think it's investable. You have a 0:11:10.520 --> 0:11:12.560 lot of great companies there. You've got some good technology 0:11:12.600 --> 0:11:16.120 companies there, so we have we have a large positions 0:11:16.160 --> 0:11:18.160 there and we're really believe in a lot of those 0:11:18.200 --> 0:11:21.840 business models. The regulatory shift, though, can happen overnight. Nicola 0:11:21.880 --> 0:11:23.800 have to believe in the business model. You have to 0:11:23.800 --> 0:11:26.920 have some predictable regulation there as well, some kind of 0:11:26.960 --> 0:11:30.440 certainty looking forward several years through your time arizing a 0:11:30.440 --> 0:11:33.760 whole lot longer. Do you have that with China? Well, 0:11:33.800 --> 0:11:35.720 I think we haven't certainty all over the place. You know, 0:11:35.840 --> 0:11:39.800 we haven't certainty in all markets. So it's the nature 0:11:39.800 --> 0:11:43.240 of it. It's a bit different in Jana, but that's 0:11:43.559 --> 0:11:46.080 that's life as an investor. Do you think things are 0:11:46.120 --> 0:11:48.640 changing more rapidly over the last couple of weeks there 0:11:48.720 --> 0:11:52.839 the last couple of months. Yeah, things are. Things are 0:11:52.920 --> 0:11:55.480 changing quite quickly, and we've got people on the ground, 0:11:55.520 --> 0:11:58.440 We got good bms. We are looking at these things 0:11:58.480 --> 0:12:01.320 and that that makes the necessary adjustments. In the pod, 0:12:01.559 --> 0:12:04.960 let's talk about your pms. You've brought on sports psychologists. 0:12:05.080 --> 0:12:07.319 I know this is in an area of interest for you, 0:12:07.400 --> 0:12:09.920 to prepare your PMS for things maybe they've not been 0:12:10.120 --> 0:12:13.000 prepared for. Can you walk me through how you're managing 0:12:13.080 --> 0:12:16.040 the people within the fund and the changes you're trying 0:12:16.040 --> 0:12:19.840 to make. Yeah, so, um, we do this despite me 0:12:19.960 --> 0:12:22.280 being pretty pathetic in sports, right, So I have absolutely 0:12:22.360 --> 0:12:25.200 nothing to bring to the party as a as an athlete, 0:12:25.280 --> 0:12:28.320 but I have seen how sports psychologists can help us 0:12:28.520 --> 0:12:32.240 do different things because what we do is is very 0:12:32.880 --> 0:12:35.840 is very tricky. It's you know, high achievers and so on. 0:12:35.880 --> 0:12:39.679 And I would say the main parts is it's resilience 0:12:39.920 --> 0:12:42.240 and it's bounced back ability. How do you get back 0:12:42.280 --> 0:12:44.679 when you had losses? How do you manage to take 0:12:44.720 --> 0:12:46.760 the same type of risk even when you've been through 0:12:46.800 --> 0:12:50.640 a puff you know patch, That's the that's the key 0:12:50.679 --> 0:12:52.480 I think, Nicola, can you give me an example of 0:12:52.520 --> 0:12:55.000 real life example in your times managing money where that 0:12:55.040 --> 0:12:59.560 has helped, where you've seen that change developed with a PM. Well, 0:12:59.679 --> 0:13:03.280 it's how me, for instance, uh, during my during the 0:13:03.360 --> 0:13:06.000 last eight to ten years, but where I have actively 0:13:06.480 --> 0:13:10.400 used as sports psychologists has made me come through in 0:13:10.440 --> 0:13:13.040 a mentally better state, you know, some of the really 0:13:13.120 --> 0:13:16.120 volative periods. I think it's a complete no brainer. You know, 0:13:16.679 --> 0:13:19.000 going forward from here, you're also listening to earnings calls. 0:13:19.040 --> 0:13:22.800 I know you've done interrogation training over in Norway as well, Nick, 0:13:22.840 --> 0:13:24.320 Can I just give me a flavor of that. How 0:13:24.320 --> 0:13:26.520 helpful that is to understand the kind of questions you 0:13:26.559 --> 0:13:28.559 need to be asking on an earning call, what you 0:13:28.600 --> 0:13:31.120 need to be listening for, the tone of the delivery 0:13:31.320 --> 0:13:33.200 from the c suite, and a kind of red flags 0:13:33.200 --> 0:13:35.040 shou'd be looking for on calls like that as well. 0:13:37.160 --> 0:13:40.319 You know, UM spend kind of ten years learning it. 0:13:40.320 --> 0:13:42.439 It's not something you could just kind of teach in 0:13:42.440 --> 0:13:45.160 in six seconds. But everything from just how you ask 0:13:45.280 --> 0:13:48.680 questions that you don't link together different types of questions 0:13:48.960 --> 0:13:51.240 that you look at, what managements are not answering as 0:13:51.320 --> 0:13:54.720 much as what they actually are answering, looking for various 0:13:54.720 --> 0:13:58.000 small words called qualifiers and so on, just the whole 0:13:58.080 --> 0:14:01.160 range of techniques that we need to apply. Herenicolasangan very 0:14:01.280 --> 0:14:03.400 very experienced managing money. It's good to catch up. So 0:14:08.880 --> 0:14:12.000 let's let's such seguy here, John into what lindsay Pigs 0:14:12.080 --> 0:14:15.520 of Stephle is worried about. And that is the strength 0:14:15.640 --> 0:14:18.600 the power of the American consumer. We see that in 0:14:18.679 --> 0:14:22.240 Target moments ago with some very good numbers to share. Uh, 0:14:22.400 --> 0:14:25.480 buy back announced and uh, you know, the stocks are 0:14:25.560 --> 0:14:28.600 churning here on what I'm gonna call really really pretty 0:14:28.600 --> 0:14:32.480 good numbers. It'll be interesting to see targets digital presence 0:14:32.520 --> 0:14:34.680 after what we saw from Walmart and a little bit 0:14:34.720 --> 0:14:37.840 of digital worry yesterday at Walmart. But we'll give you 0:14:37.840 --> 0:14:40.400 those headlines as they come in and go to dr 0:14:40.440 --> 0:14:43.040 Pigs that lindsay, I look at where we are on 0:14:43.160 --> 0:14:46.840 the consumer is it is there a clarity to what 0:14:46.880 --> 0:14:49.520 the consumers doing right now or is it a mystery 0:14:49.560 --> 0:14:52.240 into the end of the year. Well, I think the 0:14:52.280 --> 0:14:55.440 consumers are relatively solid footing. We do see that there's 0:14:55.440 --> 0:14:59.320 a tremendous amount of wealth that has been accumulated over 0:14:59.360 --> 0:15:01.520 the past six twelve months. But we also know that 0:15:01.560 --> 0:15:04.080 a tremendous amount of stimulus, which has been provided on 0:15:04.080 --> 0:15:08.040 a monthly basis to millions of Americans, is beginning to fade. 0:15:08.080 --> 0:15:11.120 And I think we see that pullback of stimulus reflected 0:15:11.120 --> 0:15:14.720 in yesterday's retail sales numbers coming in at a big disappointment. 0:15:16.040 --> 0:15:18.800 So going forward, how much you looking at this idea 0:15:19.080 --> 0:15:22.000 that we're seeing sentiment decline, like the University of Michigan's 0:15:22.200 --> 0:15:26.120 sentiment survey showed retail sales disappoint How much can we 0:15:26.200 --> 0:15:30.000 tell that consumers truly are feeling the crimp of higher 0:15:30.040 --> 0:15:33.320 prices and spending less as a result. Well, I think 0:15:33.320 --> 0:15:35.280 they are feeling the crimp re quire prices as we 0:15:35.360 --> 0:15:38.560 know that the CPI is up near six percentences an 0:15:38.600 --> 0:15:42.720 incredibly elevated level of costs for consumers, and we see 0:15:42.720 --> 0:15:46.080 that not only translating into how consumers are shifting the 0:15:46.080 --> 0:15:49.360 goods and services in their basket, but the overall nominal 0:15:49.400 --> 0:15:52.080 decline and how they're willing to spend. Now you layer 0:15:52.120 --> 0:15:56.520 on this growing fear of the rise of delta variants, 0:15:56.520 --> 0:16:01.120 so case numbers, hospitalizations, death rates constantly in the news headlines, 0:16:01.400 --> 0:16:04.400 creating a level of fear that while we may not 0:16:04.480 --> 0:16:08.960 go back to the ownerous restrictions that we saw during UH, 0:16:09.280 --> 0:16:11.680 we are starting to see mass mandates come back in 0:16:11.960 --> 0:16:16.479 and even the fear itself could serve to curtail consumer 0:16:16.560 --> 0:16:19.480 behavior in terms of going out into the market, feeling 0:16:19.480 --> 0:16:23.040 comfortable interacting in crowds or around other people, and that 0:16:23.160 --> 0:16:26.840 could slow the recovery the labor market, slow overall demand 0:16:26.880 --> 0:16:29.680 in the economy, and of course, by extension, then reduced 0:16:29.720 --> 0:16:32.600 the outlook for overall GDP. Lindsay, there's an argument that 0:16:32.640 --> 0:16:36.760 there's a psychological difference between spending higher spending money on 0:16:36.880 --> 0:16:40.560 higher prices with stimulus checks versus money that you earned, 0:16:40.800 --> 0:16:43.400 and as the stimulus text where off and people actually 0:16:43.480 --> 0:16:46.160 see that they're spending the money that they get in 0:16:46.200 --> 0:16:49.760 their paycheck on that much higher food bill, that they're 0:16:49.800 --> 0:16:52.840 going to spend less and cut back more. Do you 0:16:52.920 --> 0:16:55.720 see evidence to support this. I don't know if we 0:16:55.800 --> 0:16:58.120 see evidence of this point yet, but we do hear 0:16:58.200 --> 0:17:03.280 peripheral UH and and anecdotal reports that consumers are increasingly 0:17:03.320 --> 0:17:06.680 sensitive of spending that hard earned money as opposed to 0:17:06.720 --> 0:17:08.639 a check that is coming in the mail. Now, of course, 0:17:08.800 --> 0:17:10.960 we're sort of splitting hairs when we talk about the 0:17:11.040 --> 0:17:14.760 decision to spend well there, spend funds on an elevated 0:17:14.840 --> 0:17:18.480 price item. But for the average American when they see 0:17:18.520 --> 0:17:23.200 that check dwindle ever so uh more quickly in terms 0:17:23.240 --> 0:17:26.000 of filling up the family car, buying groceries. When it 0:17:26.119 --> 0:17:29.480 is your hard earned money as opposed to tax dollars, 0:17:31.040 --> 0:17:34.760 it takes a bigger hits to uh to that that 0:17:34.760 --> 0:17:37.040 that mental outlook that you have for not only your 0:17:37.080 --> 0:17:40.919 financial condition, but for the halfway for the economy, Lindsay 0:17:40.960 --> 0:17:43.320 and the clear and present. There's many people looking at 0:17:43.359 --> 0:17:46.359 two thousand g d P over six percent off of 0:17:46.400 --> 0:17:49.280 a boom economy. You've got a more cautious view a 0:17:49.400 --> 0:17:52.600 g d P under six percent as well. I've got 0:17:52.680 --> 0:17:56.600 target giving me high single digit look forward. Can we 0:17:56.720 --> 0:18:00.960 get that? Can we get not a saggy economy like three, 0:18:02.000 --> 0:18:05.240 but a less than boom economy as you call for, 0:18:05.720 --> 0:18:08.320 and still have corporate America do well and have the 0:18:08.320 --> 0:18:11.840 consumer du well. Absolutely, I think the back half of 0:18:11.880 --> 0:18:14.720 the year is going to be noticeably reduced from what 0:18:14.800 --> 0:18:16.560 we saw in terms of six and a half percent 0:18:16.960 --> 0:18:19.120 across the first six months. Now, that's not to say 0:18:19.160 --> 0:18:21.960 that the economy is losing significant momentum or that the 0:18:22.040 --> 0:18:25.359 recovery itself is losing footing, but we're looking at the 0:18:25.440 --> 0:18:29.400 composition of growth, and when you talk about that government component, 0:18:29.480 --> 0:18:33.960 trillions upon trillions upon trillions of dollars no longer contributing 0:18:34.280 --> 0:18:36.359 to growth. In the back half of the year, we 0:18:36.440 --> 0:18:39.479 would expect that headline number to subside, and we are 0:18:39.520 --> 0:18:41.919 looking for a number closer to three to four percent 0:18:42.040 --> 0:18:44.560 GDP in the latter six months of the year. Now, 0:18:44.600 --> 0:18:47.879 going forward, there's a bigger concern that as we start 0:18:47.920 --> 0:18:52.679 to see the economy recalibrate and consumers slow down to 0:18:52.800 --> 0:18:57.800 a more sustainable pathway based on income growth, it's likely 0:18:57.840 --> 0:19:00.200 we returned back to the growth levels that we saw 0:19:00.320 --> 0:19:04.600 the end of so prior to the pandemic, which as 0:19:04.640 --> 0:19:07.439 you remember, is closer to about two p Let me 0:19:07.480 --> 0:19:09.520 make a right angle turn. Then, if we get a 0:19:09.560 --> 0:19:14.480 pigs economy and we get a consumer that's more cautious, 0:19:14.600 --> 0:19:20.159 more measured, how do they afford real estate. It's a 0:19:20.160 --> 0:19:23.240 good question, and it's something that I think policymakers are 0:19:23.359 --> 0:19:26.280 very concerned about. In fact, we've heard from several FED 0:19:26.280 --> 0:19:29.960 presidents argue that asset persases are no longer helping in 0:19:30.080 --> 0:19:34.280 terms of job creation, but there instead mostly helping drive 0:19:34.400 --> 0:19:37.800 up prices of interest rate sensitive goods such as homes 0:19:37.840 --> 0:19:41.160 and cars. And of course to that point, we've seen 0:19:41.200 --> 0:19:44.440 home prices specifically have risen dramatically over the past year. 0:19:44.800 --> 0:19:48.800 The SMPK Siller Home Price Index up over sixt in 0:19:48.840 --> 0:19:51.080 the past twelve months, and this is marking the biggest 0:19:51.200 --> 0:19:55.200 gain in available data going back to So there is 0:19:55.240 --> 0:19:58.680 a very big concern that a lot of these accommodative policies, 0:19:58.720 --> 0:20:02.240 both on the monetary and the fiscal front, while benevolent 0:20:02.480 --> 0:20:06.720 in intention, are actually creating more barriers, more burdens to 0:20:06.840 --> 0:20:11.320 sustainable longer term growth for the consumer, for the economy. 0:20:11.560 --> 0:20:15.159 As we look out beyond lindsay, thank you. We have 0:20:15.200 --> 0:20:16.960 to leave it that we appreciate it's on this morning, 0:20:17.000 --> 0:20:25.800 Lindsay p X and that stay Folk Chief Economist. A 0:20:25.840 --> 0:20:28.280 lot of people get lettered up over Jackson Hole. I've 0:20:28.280 --> 0:20:31.320 been there many many times. It's truly an academic conference. 0:20:31.359 --> 0:20:34.120 There's boring papers that Michael McKee reads cover to cover. 0:20:34.480 --> 0:20:36.840 I'll take one or two of the papers typically and 0:20:36.880 --> 0:20:40.359 read them cover to cover, but too often they really 0:20:40.400 --> 0:20:42.600 work at the Kansas City Fed to make it a 0:20:42.680 --> 0:20:47.080 constructive snooze fest. James Bianco knows this Bianco research, and 0:20:47.119 --> 0:20:50.760 he joins us now for really my first conversation on 0:20:50.880 --> 0:20:54.320 what the Central Bank will do? What does Chairman Powell 0:20:54.400 --> 0:20:59.399 Jim Bianco not want to do in Wyoming. He doesn't 0:20:59.400 --> 0:21:02.000 want to cause waves. He doesn't want to cause problems, 0:21:02.040 --> 0:21:04.639 similar to what he did in December of two thousand 0:21:04.640 --> 0:21:08.919 and eighteen when he talked about the taper was on 0:21:09.000 --> 0:21:11.400 automatic pilot and it was going to be like watching 0:21:11.440 --> 0:21:14.600 paint dry, and it greatly upset the market, leading to 0:21:14.640 --> 0:21:17.520 the pul pivot two weeks later. What he wants to 0:21:17.560 --> 0:21:21.080 do is lay out a plan to begin a taper 0:21:21.200 --> 0:21:23.679 sometime next year, and he's gonna put a lot of 0:21:23.720 --> 0:21:25.919 caveats in it. And those caveats are going to be 0:21:26.000 --> 0:21:30.400 provided that the economic growth continues and provided that there 0:21:30.520 --> 0:21:33.200 is no surprises to the economy. And that's going to 0:21:33.280 --> 0:21:36.800 be a shout out to if delta continues to rise 0:21:37.240 --> 0:21:39.920 and restrictions. I don't want to see lockdowns, but restrictions 0:21:39.920 --> 0:21:44.480 on the economy continue, that could derail the plan. For tapering, Jim, 0:21:44.480 --> 0:21:46.879 A lot of people are looking for taper talk. However, 0:21:46.880 --> 0:21:49.000 we've already gotten some sense that one of the main 0:21:49.040 --> 0:21:52.600 topics will be income inequality actually contributing to low rates 0:21:52.640 --> 0:21:55.640 going forward, and what FED policy can do about that. 0:21:56.000 --> 0:21:59.240 As a market watcher, how much are you looking at 0:21:59.280 --> 0:22:02.800 that as possibly giving more of a sense of what's 0:22:02.800 --> 0:22:07.560 to come than people are perhaps expecting. Well, income inequality 0:22:07.600 --> 0:22:11.600 is a big problem, and the federal reserves, big picture 0:22:11.760 --> 0:22:15.679 policy can contribute to that, but the immediate policy, when 0:22:15.680 --> 0:22:19.160 I mean immediate here year to year, it's it's very 0:22:19.240 --> 0:22:22.000 hard to say that they're going to adjust policy either way, 0:22:22.040 --> 0:22:25.320 because if they were going to talk about income inequality, 0:22:25.359 --> 0:22:27.639 I really think that what they should be doing is 0:22:27.760 --> 0:22:31.359 raising rates they or they should be tapering faster because 0:22:31.359 --> 0:22:35.560 I think it's this low rate creating this speculative atmosphere 0:22:35.920 --> 0:22:40.120 in financial markets that is contributing to income inequality. So yeah, 0:22:40.160 --> 0:22:42.119 I think they're going to talk about it. I hope 0:22:42.160 --> 0:22:45.520 they acknowledge their role in it, although sometimes I have 0:22:45.600 --> 0:22:48.159 my doubts, and I'll see what they want to do, 0:22:48.200 --> 0:22:50.800 but more likely it's going to be on the regulatory side, 0:22:50.840 --> 0:22:53.080 if anything. Jim You're not alone in saying this. A 0:22:53.119 --> 0:22:55.480