Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession. We're having
Speaker 2: a rolling recession. To kind of roll looks pretty strongly
Speaker 2: it is when it comes to jobs.
Speaker 1: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI through.
Speaker 1: The eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School. Bloomberg Wall Street Week with David
Speaker 2: Weston from Bloomberg Radio. No end, insight for war in Gaza,
Speaker 2: for inflation, and despite it all, for strong markets. This
Speaker 2: is Bloomberg Wall Street Week. I'm David Weston. This week
Speaker 2: we'll talk with Richard has of Centerview Partners on the
Speaker 2: uncertain path for US foreign policy. In an uncertain world,
Speaker 2: we could be a great power.
Speaker 3: You need to be predictable and reliable, and right now
Speaker 3: I'm not sure that's consistent with the reality of American politics.
Speaker 2: And with Bob Steele, a parrella Weinberg on the global
Speaker 2: surge in infrastructure investing.
Speaker 4: There's a special role for the private sector that I
Speaker 4: believe can do, in many cases a better job of organizing, executing, planning,
Speaker 4: and delivering on the ambition that government has outlined.
Speaker 2: But we start with inflation, the subject global Wall Street
Speaker 2: has been focused on for the last three years. Back
Speaker 2: in twenty twenty one, some were warning us inflation was
Speaker 2: about to come roaring back, including Jillian Tat as the
Speaker 2: Financial Times.
Speaker 5: If you do have a big fiscal steamers package from
Speaker 5: Joe Biden's incoming administration, and if that coincides with the
Speaker 5: pandemic vaccine gradually spreading across the country and reducing the
Speaker 5: pandemic fears, you could have those two factors coming together
Speaker 5: and create quite a big upsearch and growth later this year.
Speaker 2: And our special contributor Larry Summers of.
Speaker 6: Harvard, My guess is that at the end of the year,
Speaker 6: inflation will for this year come out pretty close to
Speaker 6: five percent.
Speaker 2: Even as Fedchair j Powell at the time was telling
Speaker 2: us they couldn't really see that inflation yet.
Speaker 3: We expect readings on inflation to move up.
Speaker 1: That's called base effects.
Speaker 7: That'll be a temporary effect and it won't really signal anything.
Speaker 2: But by March of twenty twenty two, the FED had
Speaker 2: changed its tune and undertook a series of rate hikes,
Speaker 2: adding five hundred basis points over seventeen months.
Speaker 3: Inflation is much too high, and we understand the hardship
Speaker 3: it is causing, and we're moving expeditiously to bring it
Speaker 3: back down.
Speaker 2: Whether they expecting inflation to be a problem or not,
Speaker 2: pretty much everyone was surprised when the Fed's tough medicine
Speaker 2: didn't seem to phase the jobs market, taking a soft
Speaker 2: landing that seemed like a long shot and turning it
Speaker 2: into what may be the likely result.
Speaker 1: Nobody expected this.
Speaker 8: If we look back, we had inflation that went up
Speaker 8: during COVID, a FED raised interest rates, Inflations come down
Speaker 8: very consistently, so that was kind of expected. What didn't
Speaker 8: happen was unemployment didn't go up, growth didn't slow down.
Speaker 2: Then this week we got a reminder that we aren't
Speaker 2: past the inflation dragon yet, as USCPI numbers came in
Speaker 2: surprisingly hot, holding at three point nine percent year over year,
Speaker 2: way above that two percent target. To take us through
Speaker 2: the CPI numbers is the person who has warned us
Speaker 2: about the risks for three years now. Our special contributor
Speaker 2: Larry Summers of Harvard. So, Larry, thanks all very much
Speaker 2: for being with us. I suspect that you being right
Speaker 2: about this is not really good news necessarily. But where
Speaker 2: are we right now in your estimation inflation. It's certainly
Speaker 2: not at the five or six number level, but it
Speaker 2: doesn't look like it's getting out to two.
Speaker 6: Look, it's always a mistake to over interpret one month's number,
Speaker 6: and that's especially true in January, where calculating seasonality is difficult.
Speaker 6: I think I think we have to recognize the possibility
Speaker 6: of a mini paradigm shift. The soft landing paradigm. With
Speaker 6: the assumption that inflation was headed down to two in
Speaker 6: a tranquil, healthy real economy has certainly been called into
Speaker 6: question by these data. There had been a strong assumption
Speaker 6: that housing was headed towards being a major inflationary force.
Speaker 6: That doesn't show up in these numbers on owner occupied housing,
Speaker 6: And as I've looked carefully at these numbers, I think
Speaker 6: there's good reasons for that. The idea is that when
Speaker 6: we judge the cost of owner occupied houses, we try
Speaker 6: to estimate what it would cost to rent the residents
Speaker 6: in question, and many people have done that by looking
Speaker 6: at at all rentals, but most rentals are apartments and
Speaker 6: those don't have much to do with the price of
Speaker 6: owner occupied housing.
Speaker 1: If you look at the data focus.
Speaker 6: On single family housing houses with lawns and suburbs and
Speaker 6: the like, you don't get nearly as deflationary picture. The
Speaker 6: model I've been using for several years now with my
Speaker 6: co authors at the NBER is still looking for three
Speaker 6: four percent owner equivalent rental inflation through the remainder of
Speaker 6: this year. That's thirty percent of core CPI inflation. If
Speaker 6: it's running at three and a half, that uses up
Speaker 6: a lot of the room there is, and under a
Speaker 6: two percent inflation target, I think the Fed is going
Speaker 6: to have to be very careful. They were never right
Speaker 6: to be focused on March for a cut. I had
Speaker 6: been saying that that seemed pre mature, and they they
Speaker 6: and the markets.
Speaker 1: Have come around on that.
Speaker 6: I think that may is odds off at this point
Speaker 6: and probably should be odds off.
Speaker 1: And gosh, I think we've.
Speaker 6: Got to recognize what no one's talking about. There's a
Speaker 6: meaningful chance, maybe it's fifteen percent that the next move
Speaker 6: is going to be upwards in rates, not downwards in rates.
Speaker 6: You know you use a metaphor, David, that I used
Speaker 6: to use on this show. The worst thing you can
Speaker 6: do when the doctor prescribes you antibiotics is finish part
Speaker 6: of the course.
Speaker 1: Feel better, give up on.
Speaker 6: The antibiotics because you don't like taking them, and see
Speaker 6: what happens. The disease tends to come back, and it
Speaker 6: tends to be harder to go after the second time,
Speaker 6: and interst rates elevated to contain inflation are like antibiotics.
Speaker 1: So I think the FED has.
Speaker 6: To be very careful in this environment.
Speaker 1: And I think that.
Speaker 6: Many people who confused what they wanted with what was
Speaker 6: real were in much too much of a hurry to
Speaker 6: declare that we were obviously in a phase of major easing.
Speaker 1: With respect to monetary policy.
Speaker 2: So, Larry, let me continue your analogy to a disease,
Speaker 2: and perhaps what we have here is we're not recovering
Speaker 2: fully to two percent. On the other hand, the fevers
Speaker 2: not spiking up to five, six, seven percent the way
Speaker 2: it was before. What happens that we have just a
Speaker 2: low grade fever at the three to three plus level.
Speaker 2: What does that mean for the economy.
Speaker 6: Gosh, German Powell has said so many times two percent,
Speaker 6: two percent, two percent. As you'll recall from our previous conversations,
Speaker 6: I didn't think it was a great idea to have
Speaker 6: had so specific and tight a target, but we've had one,
Speaker 6: and we've set it, and we've repeated it a large
Speaker 6: number of times. If we decide that two sort of
Speaker 6: has lost its meaning and it's not something we have
Speaker 6: to accept when there's strong political pressures to ease, if
Speaker 6: we send that signal, I wonder why anyone would believe
Speaker 6: that we're going to stick with two and a half
Speaker 6: or three or whatever it is that we settle into.
Speaker 6: And then when that feeds into expectations.
Speaker 1: It'll get harder to hold the level we have.
Speaker 6: And of course we are headed into David, as populist
Speaker 6: election period is you or I can remember in our lifetimes,
Speaker 6: and we usually think of the FED as a bulwark
Speaker 6: against populism, not as a reinforcer of populist pressures.
Speaker 2: Let's continue on the subject of that populist election, as
Speaker 2: you call it, and specifically respect a fiscal policy. You
Speaker 2: and I have talked before about the deficit and the
Speaker 2: debt that is mounting here. I know you've just helped
Speaker 2: want something new called the Tax Reform Project, and in
Speaker 2: the introduction that you talk about that issue of the
Speaker 2: debt and the deficit, but it's somewhat of a new approach.
Speaker 2: There are a lot of people who have tax policies,
Speaker 2: but we haven't heard from the practitioners.
Speaker 1: Yeah.
Speaker 6: So I'm supporting my former student and wonderful colleague, Natasha
Speaker 6: Saren at the Ye Law School, who's the driving force.
Speaker 6: She's focused on IRS reform, and we're focused on IRS reform.
Speaker 1: Just to enforce the tax law we have.
Speaker 6: And there was important new research showing that from the IRS,
Speaker 6: showing that if we're able to carry through on the
Speaker 6: eighty billion dollar program that was part of President Biden's
Speaker 6: Recovery Act, that can pay off ten to one in
Speaker 6: eight hundred and fifty billion dollars of revenue collections, in
Speaker 6: addition to making our tax code fairer. And that's where
Speaker 6: tax reform discussions should start.
Speaker 2: And finally, Larry, there's a lot of talk about commercial
Speaker 2: real estate, particularly in the office space area. Obviously, the
Speaker 2: increased interest rates and failure to return to the office
Speaker 2: on some parts is really putting pressure on the valuations.
Speaker 2: So clearly there are some people who are hurting because
Speaker 2: of the reduced valuations. But my question is is a
Speaker 2: matter of individual banks for that matter, as well as
Speaker 2: owners being hurt or is there a potential for a
Speaker 2: more systemic problem here with commercial real estate.
Speaker 6: I think that this is something that our Central Bank
Speaker 6: is right to be looking at, and right to be
Speaker 6: looking at with an awareness that almost always in the
Speaker 6: past we have acted too slowly to force banks to
Speaker 6: stop distributing capital, to force banks to raise.
Speaker 1: New capital where that's appropriate, to.
Speaker 6: Force banks to fortify liquidity. I think it would be
Speaker 6: much more productive for our central bank to be focused
Speaker 6: on the question of real estate portfolios in the banks
Speaker 6: they supervise what the genuine value and credit worthiness of
Speaker 6: those assets is. I think that would be a much
Speaker 6: more productive focus for the Fed than some of the
Speaker 6: more abstract and politically driven arguments about various kinds of
Speaker 6: capital charges on the largest banks. The second set of
Speaker 6: arguments is an important one to have, but I think
Speaker 6: it's less urgent.
Speaker 1: Than the first.
Speaker 2: Okay, Larry, thank you so very much for joining us again.
Speaker 2: That's our special contributor here on Wall Street Week. He
Speaker 2: is Larry Summers of Harvard. Coming up, we'll take a
Speaker 2: look at how the markets responded to those CPI numbers
Speaker 2: with Lisa Erickson of US Bank Wealth Management. That's next
Speaker 2: down Wall Street Week on Bloomberg. This is Bloomberg Well
Speaker 2: Street Week with David Weston from Bloomberg Radio. This is
Speaker 2: Wall Street Week. I'm David Weston. Infrastructure has gone from
Speaker 2: the boring building of roads, bridges, and water systems to
Speaker 2: be all the rage, not just the United States, but
Speaker 2: all around the world. Bob Steel Pirella Weinberg helped put
Speaker 2: together one of the biggest deals in recent years, BlackRock's
Speaker 2: purchase of Global International Partners for twelve and a half
Speaker 2: billion dollars. But when we sat with Bob, we started
Speaker 2: with the larger contexts.
Speaker 4: I try to think about this with a bit of
Speaker 4: an on ramp into the conversation. You know, for thousands
Speaker 4: of years we had an agrarian economy. For a little
Speaker 4: more than one hundred years, we transitioned to an industrial economy,
Speaker 4: and now we're in the stage of moving to a
Speaker 4: knowledge and global economy. And each one of those economies
Speaker 4: required a different set of foundational infrastructure in order to
Speaker 4: allow the economy to succeed. And so there are lots
Speaker 4: of transitions going here, and there'll be lots of spending
Speaker 4: required to organize that transition. You're right, there's an energy
Speaker 4: transition underway, but there's also a transition with regard to
Speaker 4: how we move goods and services in a global economy, Ports, airports,
Speaker 4: things like that, and the digital infrastructure required too. And
Speaker 4: we all grew up where we built a highway system
Speaker 4: in America to move cars. Now we need the digital
Speaker 4: infrastructure to move data, which is the equivalent of in
Speaker 4: my mind, of the highway of knowledge for the future.
Speaker 4: So all of these things are coming together. Yes, energy
Speaker 4: transition is a large part of it, but I think
Speaker 4: it's much more than that.
Speaker 2: Well, given the size of it, it's too big for
Speaker 2: either the private sector to do it by itself, or
Speaker 2: for that matter, for government to do it by itself.
Speaker 2: What is the relationship to you, to the private and
Speaker 2: the public as we move into this transformation you describe
Speaker 2: in infrastructure, Well.
Speaker 1: Let's think about it together.
Speaker 4: First of all, it's up to government and our elected
Speaker 4: officials to organize the projects and the rules and regulations
Speaker 4: for how the economy should be set and that's their
Speaker 4: job is to lay out what's the destination or the blueprint.
Speaker 4: And I think that, but when you get to implementing that,
Speaker 4: I believe there's a special role for the private sector
Speaker 4: that I believe can do, in many cases a better
Speaker 4: job of organizing, executing, planning, and delivering on the ambition
Speaker 4: that government is outlined that the government's going to write
Speaker 4: the rules on energy transition, what are the requirements for cars,
Speaker 4: what are this and that? But it's up to business
Speaker 4: to respond and work with government in order to lay
Speaker 4: down the tracks to accomplish this and take us to
Speaker 4: the destination that our elected officials have organized in response
Speaker 4: to what we all think and need.
Speaker 2: The government has laid down a lot of infrastructure track
Speaker 2: in the last three years through the Inflation Reduction Act,
Speaker 2: the Bipartisan Infrastructure Bill, and the Chips and Science Act.
Speaker 4: I think that the three examples you gave of legislation
Speaker 4: and direction from the federal government are all in the
Speaker 4: right way, and they're serving as a stimulant to basically
Speaker 4: encourage this type of investment. We know that the Chips Act,
Speaker 4: while controversial, is going to bring new focus to the
Speaker 4: semiconductor industry. In the United States, and the group on
Speaker 4: behalf of Secretary Romundo that's organizing that are working hard
Speaker 4: to make sure the money is allocated in the right
Speaker 4: way to the right place, so that when we come
Speaker 4: back in three to five years, we've really made progress.
Speaker 4: And think about that for a second. It was a
Speaker 4: government organized project. The government's brought in outsize advisors to
Speaker 4: help them allocate the capital.
Speaker 1: The capital will.
Speaker 4: Go to companies who now are going to be managing
Speaker 4: that way. That seems to me like a good combination
Speaker 4: of interest and skills where hopefully we'll make progress on this,
Speaker 4: but it's going to take a long time.
Speaker 2: Whatever the efforts of the US government, it's not alone
Speaker 2: in pushing hard on infrastructure, particularly when it comes to chips,
Speaker 2: and particularly when it comes to China.
Speaker 9: You know, it's easy to imagine a fantasy world in
Speaker 9: which no one's subsidizing, but that's just.
Speaker 1: Not the world that we live in.
Speaker 9: And in fact, China started as semi connecer subsidies first
Speaker 9: and twenty fourteen sheet called to Conductors of core technology,
Speaker 9: and China started setting up its first government backed investment
Speaker 9: funds to pour money into the chip industry.
Speaker 1: And so whether you're the.
Speaker 9: US or Japan or Europe, You've got to act with
Speaker 9: that as a fact. That's just a given, and you're
Speaker 9: going to devise your policy around that. And I think
Speaker 9: one of the reasons why the US Congress passed the
Speaker 9: Chips Act was because they realized that there were US firms,
Speaker 9: US based firms that were getting more money in subsidies
Speaker 9: from foreign governments than from the US government. And so
Speaker 9: given those circumstances, it wasn't a surprise that the US
Speaker 9: companies were moving manufacturing overseas. And so given the scale
Speaker 9: of Chinese subsidies, I think a lot of governments are saying,
Speaker 9: we may not like industrial policy, we'll be skeptical of it,
Speaker 9: but what is the alternative.
Speaker 2: Given the size of the need and the opportunity, the
Speaker 2: government alone can't drive the transformation and infrastructure that's needed.
Speaker 2: Including large nonprofit foundations like the Rockefeller Foundation.
Speaker 10: Every big company out there should be a big part
Speaker 10: of this transition. If you run a food company, you
Speaker 10: should join a coalition we're helping to establish that wants
Speaker 10: fifty percent of your supply chains to be from regenerative agriculture,
Speaker 10: agriculture that actually sequesters carbon and avoids releasing unnecessary carbon
Speaker 10: into the atmosphere, and those types of transitions are going
Speaker 10: to be fundamentally commercial transitions.
Speaker 2: One way to let the marketplace direct all this capital
Speaker 2: to the most effective uses is through a voluntary carbon market.
Speaker 11: So I think these are very practical issues. Now combine
Speaker 11: that with governments and NGOs who are trying to come
Speaker 11: up with realistic solutions, and they need concessionary capital. They
Speaker 11: need first lost money. This is where I think that
Speaker 11: the voluntary carbon markets can help, because companies that are
Speaker 11: making every effort to get to either carbon neutrality or
Speaker 11: net zero nonetheless can't get there because the infrastructure isn't
Speaker 11: in place or technology isn't in place.
Speaker 2: When it comes to global investment in infrastructure, it's not
Speaker 2: just a need. Major players see it as a ripe opportunity.
Speaker 2: As we saw in the recent acquisition of Global Infrastructure
Speaker 2: Partners by black Rock.
Speaker 12: This is going to be the golden age of infrastructure investing,
Speaker 12: both in terms of the need for capital as well
Speaker 12: as investors who want that capital. Okay, and so the
Speaker 12: question we asked ourselves was how can we accelerate the
Speaker 12: pace at which we're getting things done? Investing new assets
Speaker 12: as well as getting.
Speaker 1: Pension funds, wealth funds'.
Speaker 12: Asset managers to give us additional capital. And so if
Speaker 12: you look at the marriage between ourselves and Blackrock, Rob
Speaker 12: Commuter said it was one plus one equals four. I'm
Speaker 12: not sure whether it was four or five oh three,
Speaker 12: but he's certainly had right that one plus one is
Speaker 12: more than two. As Larry said, perfect mirror images of
Speaker 12: each other. They have a great infrastructure business, but very
Speaker 12: complimentary with us. We do large cap transactions, they do
Speaker 12: mid cap transactions. They have a terrific infrastructure of debt business.
Speaker 12: It's primarily investment grade. OS is primarily below investment grade.
Speaker 12: They have an infrastructure solutions business, which we don't have.
Speaker 12: So you put these two businesses together, we can go
Speaker 12: to governments, We can go to companies large, small, medium
Speaker 12: size and offer them an integrated solution.
Speaker 4: The conversation you had with Larry and Bayou highlighted this idea.
Speaker 4: Our firm was the advisor, one of the advisors on
Speaker 4: that transaction, and I think what you're seeing and what
Speaker 4: Larry and Bio talked about, was that there's a global
Speaker 4: demand for capital, private capital to go with government capital
Speaker 4: in order to organize these large and important products. And now, David,
Speaker 4: the scale of these projects is so large, they're just
Speaker 4: a small handful of firms that can provide the capital,
Speaker 4: of which the combined Blackrock GIP combination will be one
Speaker 4: of the leaders. But there's different types of capital. The
Speaker 4: way I think about it is the government can provide
Speaker 4: some of the foundational capital to size the risk so
Speaker 4: that it's appropriate for private capital to come in. Some
Speaker 4: of these projects are so big and they're subjects to
Speaker 4: change by the population and by legislators and regulators. That's
Speaker 4: not the right risk for private people to underwrite. That
Speaker 4: should be underwritten by government. And then private capitals should
Speaker 4: come in to work with the projects once they're defined,
Speaker 4: and that's what the infrastructure investors have been able to accomplish.
Speaker 4: And so providing the private capital, and I think also
Speaker 4: private capital speaks to the issue you were just talking about,
Speaker 4: is where do you get the discipline to manage the
Speaker 4: projects well, to make the hard decisions and allocate capital
Speaker 4: in the right way. I think that when private capital
Speaker 4: is part of the equation, that brings that skill to
Speaker 4: the table and ensures that the project turns out in
Speaker 4: a better, more efficient more focused fashion than if it
Speaker 4: were just a government project.
Speaker 2: And that GP expertise in putting together and running big
Speaker 2: projects was an important part of what Blackrock saw when
Speaker 2: it made its twelve and a half billion dollar investments.
Speaker 7: They invest in major and larger projects than what we
Speaker 7: did in infrastructure, like Gatwick Airport and Sydney Airport, but
Speaker 7: they're particularly superb in the operational efficiencies of these investments.
Speaker 1: They improved the quality of service.
Speaker 7: And so if you think about what we have brought
Speaker 7: at Blackrock over the last eight years in infrastructure, what
Speaker 7: GP has been doing since two thousand and six, the
Speaker 7: two organizations look like a perfect match. And then you
Speaker 7: overlaid the cultural connection, and we always underestimate the cultural connection.
Speaker 2: Though GIP, now combined with black Write is one of
Speaker 2: the biggest global infra structure players, it is far from
Speaker 2: the only one.
Speaker 13: It's not just GIPS, not just black Rock. If you
Speaker 13: look at pro logis, if you look at really any
Speaker 13: large company investing in infrastructure or logistics looking at two areas.
Speaker 13: One is clean energy and energy transition in order to
Speaker 13: reduce costs and increase reliability and reduce risks. And also
Speaker 13: AI obviously and those are getting more and more intentwined,
Speaker 13: and inter relationship between AI and clean energy I think
Speaker 13: will be an interesting area to watch.
Speaker 2: When we're talking the trillions of dollars that will be
Speaker 2: needed for infrastructure investment around the world, you simply can't
Speaker 2: get there without major roles for the private sector and
Speaker 2: for the markets.
Speaker 4: I trust the marketplace and business on behalf of the
Speaker 4: marketplace with their ambitions to organize how to pursue the path,
Speaker 4: and so that'll be the idea. We know that we
Speaker 4: have an issue with greenhouse gases, and we know we
Speaker 4: have an issue with the carbon aspect of the economy. Now,
Speaker 4: as I said when I started, there were one hundred
Speaker 4: years of the industrialization of America and the driving energy
Speaker 4: form came from hydrocarbons, and that was successful. It lowered
Speaker 4: the price of energy, and we know low energy prices
Speaker 4: and energy availability are very progressive positive aspects for growing
Speaker 4: the economy. And we became connected to that form of
Speaker 4: energy and it accomplished a lot of great things. Now
Speaker 4: we're at a point we recognize that's not the right
Speaker 4: path for the future, so we're going to pivot. We
Speaker 4: know the large generators of greenhouse gases, we know its transportation,
Speaker 4: we know it's heating, we know its industrial, we know
Speaker 4: all the different things that are and we're going to
Speaker 4: have to make adjustments to each one of those things
Speaker 4: by public policy, and then I think the marketplace can
Speaker 4: respond by helping to organize it in the right way.
Speaker 2: Coming up, wars in Ukraine and Gaza, military pressure from
Speaker 2: whoever wins the White House in November, they will face
Speaker 2: a range of challenges and opportunities. We go through them
Speaker 2: with Richard Hawes, a Center View partner.
Speaker 3: Our ability to set a model that the rest of
Speaker 3: the world respects, that's questionable.
Speaker 2: That's next on Wall Street Week on Bloomberg. This is
Speaker 2: Wall Street Week. I'm David Weston. Whoever is elected President
Speaker 2: of the United States in November, they will face a
Speaker 2: daunting list of foreign relations challenges, and in some ways,
Speaker 2: the two most likely candidates, President Joe Biden and Foreign
Speaker 2: President Donald Trump, have distinctly different policies when it comes
Speaker 2: to dealing with the world. To give us a sense
Speaker 2: of the challenges and the approaches, welcome back now, Richard
Speaker 2: Hawes of Set of You Partners. Richard is President Emeritus
Speaker 2: of the Council Foreign Relations, and he writes a weekly newsletter.
Speaker 2: I recommend on subsect. It's called home in a way, Richard.
Speaker 2: Great to have you back with us. Great to be back, David. So,
Speaker 2: first of all, talk about the campaign. Traditionally it's thought
Speaker 2: that are not elected based on foreign policy.
Speaker 1: Is not going to be true.
Speaker 2: This time, for better or worse, that will be true.
Speaker 3: I actually think Joe Biden's done a pretty good job
Speaker 3: on foreign policy.
Speaker 2: I might have one or.
Speaker 3: Two areas I disagree, but whatever you think about it,
Speaker 3: I don't think voters are going to have that. Foremost
Speaker 3: in their minds might be questions of his age, or
Speaker 3: mister Trump's legal issues, maybe questions of the border, or inflation,
Speaker 3: you name it. What's so interesting, David, though, is even
Speaker 3: though most voters won't vote on the basis of foreign policy,
Speaker 3: whoever's elected, given what you said in the lead in
Speaker 3: the differences, this election will have enormous consequences for the
Speaker 3: world and for America's relationship with the world.
Speaker 2: Yeah. One of the things that strikes me George W.
Speaker 2: Bush did not run on foreign policy, and yet he
Speaker 2: ended up being a foreign policy president, whether he wanted
Speaker 2: to or not. So give us a sense of some
Speaker 2: of the differences you think on some of the key
Speaker 2: issues warn Ukraine. Continuing, You've got Middle East, you've got climate,
Speaker 2: you've got China. What are some of the differences between
Speaker 2: these two people.
Speaker 3: Well, actually, China is one of the areas that differences
Speaker 3: might not be that great. They're pretty tough on China economically,
Speaker 3: not so clear about geopolitically, Mister Biden is tough, not
Speaker 3: clear about Donald Trump on trade. Need the one of
Speaker 3: them as much of an enthusiast for trade. As you've noticed,
Speaker 3: both wanted to get out of Afghanistan. But that probably
Speaker 3: ends most of the similarities Ukraine. Obviously fundamental differences. Joe
Speaker 3: Biden has really made that the centerpiece of his foreign policy.
Speaker 3: More broadly, the centerpiece of his foreign policy his allies.
Speaker 3: It's an ally first approach. He sees allies as giving
Speaker 3: us a real comparative advantage, a way of leveraging American power.
Speaker 3: Donald Trump sees allies as an albatross, as free rioters.
Speaker 3: He doesn't much care about them, doesn't much care about
Speaker 3: Ukraine's fate. That's probably the biggest single difference. Climate change, though,
Speaker 3: is also fundamental. Last time mister Trump was in he
Speaker 3: took the United States out of the so called Paris process.
Speaker 3: Joe Biden did the ira very much once in America,
Speaker 3: more than pull its weight in the climate area. Middle
Speaker 3: East is more complicated. Not clear that either would have
Speaker 3: a whole lot of influence over this Israeli government. Mister
Speaker 3: Biden may try to have more influence. Not clear though
Speaker 3: that it's leading too much. When mister Trump was president,
Speaker 3: he wasn't much interested in the Palestinian issue. Joe Biden, however,
Speaker 3: is big difference, big difference there Iran. Neither one is
Speaker 3: quite sure what to do. Iran is getting closer to
Speaker 3: nuclear weapons capability. Donald Trump somewhat argue he'll pave the
Speaker 3: way to that by pulling the United States out of
Speaker 3: the nuclear agreement. Joe Biden wanted to get the United
Speaker 3: States back in. It didn't work either way. Who's ever elected,
Speaker 3: He's going to have to deal with an Iran that's
Speaker 3: probably on the so called threshold of a nuclear agreement.
Speaker 3: Plus should make a really good point more broadly, you
Speaker 3: don't know what's going to happen.
Speaker 2: Richard's such a treat having you on Wall Street Week.
Speaker 2: Always thank you so much. That's Richard has of Centerview Partners.
Speaker 2: The markets reacted to those CPI numbers this week as
Speaker 2: the S and P five hundred. We gave up four
Speaker 2: tens percent, but still ended over five thousand, which puts
Speaker 2: it ten points above the Bloomberg El's year end median
Speaker 2: number of forty nine to fifty. The NASDAC lost one
Speaker 2: point three percent, while the yield on the tenure was
Speaker 2: up ten basis points to end the week, it's just
Speaker 2: about four point three percent. To explain the market's reaction,
Speaker 2: we welcome down Lisa Erickson, head of Public Markets at
Speaker 2: US Bank Wealth Management. Lisa, thank you so much for
Speaker 2: being back with us. So we heard from Larry about
Speaker 2: what happened to the economy. Tell us about how the
Speaker 2: markets reacted to those numbers.
Speaker 14: That we got really certainly a seesaw week in the market.
Speaker 14: And to your point, on the back of those hot
Speaker 14: CPI numbers, the market really had a tough reaction. And
Speaker 14: if we were to step back and really think about
Speaker 14: what was driving that tough reaction, it really would be
Speaker 14: well captured by the words growth inflation puzzle, and what
Speaker 14: I mean by that is really up to this point,
Speaker 14: and as mister Summers had mentioned, we really had a
Speaker 14: situation where the market was looking at everything in a
Speaker 14: very goldilocks fashion. We've had inflation coming down, and yet
Speaker 14: growth has remained in the Okay zone, slowing a little bit,
Speaker 14: but generally beating some expectations. And really, what happened with
Speaker 14: that Tuesday hot CPI print is a market finally realized,
Speaker 14: oh my goodness, it's not necessarily a straight line down
Speaker 14: on inflation, and therefore the Fed may not be able
Speaker 14: to cut interest rates as quickly as we think. And
Speaker 14: so really that there was that difficult reaction on Tuesday,
Speaker 14: and then again today when some of those more tough
Speaker 14: PPI numbers as well also rattled markets to a little bit.
Speaker 2: We've been in a bull market when it comes to equity.
Speaker 2: Is how much of that is because of anticipated cuts
Speaker 2: the fake ause you heard Larry say, I don't think
Speaker 2: it's any time to cut anytime soon. In fact, there's
Speaker 2: even a chance fifteen percent chance the next move will
Speaker 2: be up the market, I suspect are not prepared for that.
Speaker 14: Well, certainly when we have looked at the data and
Speaker 14: analyzed really what's been driving markets really over the last
Speaker 14: many months, it has been highly correlated with the fact
Speaker 14: that rates, our expectations have been very sanguine, and so
Speaker 14: that really has been a very recent driver actually until
Speaker 14: really the more recent past, when some of these positive
Speaker 14: surprises that we're getting on macroeconomic indicators indicating growth being
Speaker 14: better than expected has then further carried the rally. But again,
Speaker 14: both of these things are still very much in focus,
Speaker 14: and again I think what you see from the reaction
Speaker 14: this past week is that again if we continue to
Speaker 14: see concerns that inflation may throw off that FED rate
Speaker 14: cut path that the market was expecting, we can have
Speaker 14: a pretty tough reaction.
Speaker 2: We've certainly have been in a bold market, a lot
Speaker 2: that's been driven by that magnificent seven whatever you want
Speaker 2: to call them. How concentrated is the drive in the
Speaker 2: markets at this point or are you seeing some dispersion.
Speaker 14: Well, certainly, throughout twenty twenty three and most of this
Speaker 14: year to date, we have continued to see leadership to
Speaker 14: your point, really from the largest stocks within the market,
Speaker 14: as well as very concentrated in terms of more secular
Speaker 14: growth names, particularly technology. Now, what's been interesting since we've
Speaker 14: flipped the calendar on twenty twenty four is we've certainly
Speaker 14: had some spouts of smaller companies and cyclical companies really
Speaker 14: trying to come back to the fore but they really
Speaker 14: have not been able to maintain a steady run at it,
Speaker 14: such that the leadership again remains very concentrated. And that
Speaker 14: is one of the reasons why even though we recognize
Speaker 14: the macro fundamentals have generally been okay again with inflation
Speaker 14: coming down and growth doing okay, we have not really
Speaker 14: feelt like there's an all clear signal because when you
Speaker 14: look at how the market is reacting to that, again,
Speaker 14: it's very concentrated and we haven't seen a sustained rally
Speaker 14: to broaden out the breadth of participation.
Speaker 2: Where do you stand possible opportunities for investors on either
Speaker 2: the fixed income side or the equity side right now?
Speaker 14: Well, certainly, even though again we don't see a necessarily
Speaker 14: a fat pitch in terms of being over enthusiastic on
Speaker 14: for example, or overly pessimistic as well, within certain areas,
Speaker 14: we do see some opportunities. So if we take the
Speaker 14: fixed income markets, for example, we do see some really
Speaker 14: interesting opportunities to pick up extra income. A great area
Speaker 14: for example is non agency mortgages. These our securities that
Speaker 14: are backed by mortgages that are not necessarily sponsored by
Speaker 14: the US agency market, but nonetheless have very strong fundamentals
Speaker 14: behind them. And as we know, the housing market has
Speaker 14: continued to be supported by quite a bit of demand
Speaker 14: for people wanting to move into their own ownership, and
Speaker 14: as we continue to track the credit supporting that, it's
Speaker 14: very strong. And yet these securities offer some nice extra yield,
Speaker 14: again just because they are a little bit more complex
Speaker 14: market for investors to understand. So that's just one example
Speaker 14: of an area where again there's some extra yield that
Speaker 14: could be picked up with very strong fundamentals.
Speaker 2: Always good to have extra yield things. Thank you so much,
Speaker 2: li so always great to have you with us. That
Speaker 2: is Lisa Erickson of US Bank. Finally, one more slag.
Speaker 2: The German World War II General Irwin Rommel said, don't
Speaker 2: fight a battle if you don't gain anything by winning.
Speaker 2: I learned that lesson at my first Annual Shareholders Medium
Speaker 2: Capital Cities ABC. I was a brand new general counsel
Speaker 2: and I was proud that we'd won the battle of
Speaker 2: keeping a shareholder initiative off the ballot after taking it
Speaker 2: into the SEC. As I sat in front of hundreds
Speaker 2: of shareholders on the dais with the chairman, CEO and CFO.
Speaker 2: I watched in dismay as person after person stood up
Speaker 2: and told us we should be ashamed for not putting
Speaker 2: their idea on the ballot for the meeting, and every
Speaker 2: one of those shareholders won a nun's habit or a
Speaker 2: priest's schollar. It turned out that the initiatives had come
Speaker 2: from a group of Roman Catholics, and my chairmen and
Speaker 2: CEO were devout Catholics. As we walked off that stage,
Speaker 2: the CEO said to me, quietly but firmly, make this
Speaker 2: go away, which of course I did. This week we
Speaker 2: had more than one example of people fighting battles with
Speaker 2: questionable results even if they win. Farmers from the United
Speaker 2: States to India to Spain are up in arms about
Speaker 2: higher costs on climate regulations, with the most militant in France,
Speaker 2: where they shut down the capitol.
Speaker 15: We share the goals, for example, the protection of nature,
Speaker 15: because we all live in nature and with nature, and
Speaker 15: the best ambassadors for nature are the farmers themselves, and
Speaker 15: important is for us that we find common solutions.
Speaker 2: But it's not clear what farmers will gain given what
Speaker 2: climate change is doing. To their livelihood.
Speaker 16: If you take, for example, the Western United States everything
Speaker 16: west of my house in Colorado, the combination of specialty
Speaker 16: products or a portfolio of different types of products which
Speaker 16: are having different price and supply and demand dynamics exacerbated
Speaker 16: a course by terrible drought conditions unevenly distributed across the
Speaker 16: entire Western United States, the story there is of a
Speaker 16: net decline of net farm income on I can sayalidated basis.
Speaker 2: We've known all about Elon Musk's odd battle with Bob
Speaker 2: Eiger for not advertising on X, but then again, Bob
Speaker 2: may now be picking his own battle with an important
Speaker 2: partner of his. Reports are that the NFL is none
Speaker 2: too pleased with plans for ESPN to form a joint
Speaker 2: sports streaming service with Fox and Warner Brothers Discovery, something
Speaker 2: put together in secret. At the same time, the reported
Speaker 2: of the NFL was considering an investment in ESPN.
Speaker 1: Is certainly an unusual situation.
Speaker 6: They haven't decided who's going to manage it yet, but
Speaker 6: you can imagine they'll be fights over controlled and payments
Speaker 6: and strategy and things like that.
Speaker 2: Of course, the most renowned picker of battles may be
Speaker 2: our former President Donald Trump, who has made no secret
Speaker 2: of his skepticism on NATO. This week, the former president
Speaker 2: raised the decibel level by taking on pretty much all
Speaker 2: of NATO, saying he told at least one NATO member
Speaker 2: that he would welcome President Putin's attacking them if they
Speaker 2: didn't meet their commitments for defense spending.
Speaker 1: They said, you got to pay up. They asked me
Speaker 1: that question.
Speaker 17: One of the presidents of the big country stood up, said, well, sir,
Speaker 17: if we don't pay and we're attacked by Russia, will
Speaker 17: you protect us? I said, you didn't pay you delinquent?
Speaker 17: He said, yes, let's say that happened.
Speaker 1: No, I would not protect you.
Speaker 17: In fact, I would encourage them to do whatever the
Speaker 17: hell they want.
Speaker 2: And then there was the biggest battle of them all.
Speaker 2: That is, of course, the Super Bowl or Everyone expected
Speaker 2: a knock down, drag out fight to the finish between
Speaker 2: the San Francisco forty nine ers and the Kansas City Chiefs,
Speaker 2: which is what we got with the Chiefs winning in overtime.
Speaker 2: But what we might not have expected was a separate
Speaker 2: battle on the sidelines between Chiefs star tight end Travis
Speaker 2: Kelcey and his coach Andy Reid. He subsequently quipped that
Speaker 2: rather than cursing him out the way the lip readers
Speaker 2: said he had, he really said something much nicer.
Speaker 1: I was just telling him how much I love him.
Speaker 2: But in the end, despite picking a battle with his coach,
Speaker 2: mister Kelsey did get the big reward of a kiss
Speaker 2: from none other than, of course, Taylor Swift. That does
Speaker 2: it for this episode of Wall Street. I'm David Weston.
Speaker 2: This is Bloomberg. See you next week.