Surveillance: Taliban Control With Haass

He's at the Council on Foreign Relations. I can't say enough about their website this morning to give you depth. And also my book of the Summer and Number of Summers Ago the World a brief introduction, I would suggest Ambassador Hass. It needs an update, Richard Ass. I want to get right to it, and I want to get to the movement forward. As I'll speak to Thomas Barfield

coming up. Is this Taliban the same as the talib and of two thousand two if anything gets worse, Tom, because now it's had a chance to regroup, it now has access to American arms, and it's proven it's its resilience and the opposition in Afghanistan is if anything weaker than it was, so it's at least as bad. There's no sign, what you might say, of any mellowing by the Taliban. A careful read of Richard Hass The world

is a vacuum gets filled. It's physics one O one Investador House, I know you took three courses in physics. It Overlain a few years ago. Is the vacuum going to be filled by China with the forty seven mile boarder they have constructed by the British in eight No, the Chinese don't want to get into Afghanistan. What they want tom is to keep essentially Afghanistan out of China. They are worried about their own Muslim minorities. The last

thing they want is for them to be radicalized. Indeed, none of the neighbors, with the exception of Pakistan, I think is a lot of appethete for getting into Afghanistan. They want to keep it orrisks, they want to keep its gons, they want to keep its drugs out of their country. Also, one other thing, they're worried about refugee flows. And that's the other thing that people are going to be focused on. Let's swing five hundred miles west to Iran in the in the wonderful frontline effort that was

done a number of weeks ago. There it is sunny and it is she is that ultimately what this will be about. No, again, I don't see particular friction there between Iran and Afghanistan. We've got problems with Iran, but that's to do with everything they're doing in the region, their nuclear program. This is uh Look, Iran has been helpful in the past twenty years ago, Tom, the Iranians are actually helpful and standing up a post Aliban government

in Afghanistan. Why they want to stable neighbor. They don't want one that's producing and exporting drugs. So I don't think Iran is the place to look either for the problem here or for the solution. So Richard, where do we look? We looked at the allies who feel somewhat betrayed by the U S. No, the answer is there is no solution to look for. This is now the new reality in Afghanistan. It's going to be awful, awful for Afghans. The danger is they invite terrorists back in,

or terrorists invite them themselves back in. Obviously, America's reputation for consistency and reliability has taken a hit. I worry about the long term consequences for Pakistan. It's ironic Pakistan provided a sanctuary which kept the Taliban alive, helped bring us to this point. It's quite possible some in the Taliban may now want to go ahead and further radicalize Pakistan. So in the medium to long run, I would I

would worry about that. But I think for the United States, the focus has got to be on getting as many Afghans who work with us out of that country. It's outrageous that we would leave them behind, that we would abandon them. And then I think we have to go around the world trying to demonstrate that the awful scenes that we're seeing in Afghanistan are not somehow representative of the totality of American foreign policy. We've got to persuade

people that they should not read too much into this. Richard. A lot of officials have said, this is not a war we could win. We basically were keeping the peace and sacrificing American soldiers and frankly soldiers of the Allies to keep a peace that was unnatural in this nation. What do you say to counter that why it was important in your view, for US troops to remain in Afghanistan at a much lower rate than they had been say five ten years ago. Look, we had reduced the

US military presence to around three thousand. There hasn't been an American combat debt for for eighteen months, so this is a situation. I thought that for a relatively modest investment, we were getting good results. The American presence was essential to keep the eight nine thousand Allied troops there, and they provided a psychological and military floor for the Afghans. So no, it wasn't going to give you peace, It

wasn't going to give you a military victory. What it was going to do is avoid bringing about exactly what we're seeing on our screens. And I think sometimes in foreign policy you've how to measure success not by what you accomplish, but but but why what you avert? And by that definition, this was a success and we undermined our own policy. Richard hasas with all of your experience, this comes back to and it's of our childhood Scoop Jackson of Washington State and maybe on the late Donald

Rumsfeld and others, it's this thing called neo conservatism. How do the neo conservative crew pick up the pieces in your Washington a much or neo conservatives matter a whole lot right now because they haven't an ambitious farm policy. They want to transform the world. They're often want the

United States to act alone. I would think Tom the biggest challenge for the United States right now, and by the way, across his party lines, just like Afghanistan policy was something that crossed party lines, is that we do too little, that the United States essentially pulls back from the world, focuses on our challenges here at home, and essentially under reaches in the world. And if I were wire Las crystal Ball, I would be more worried about

American underreach going forward than overreach. Well, I mean, did you go to zacurious post American world? What does our post Afghanistan world look like? Well, in Afghanistan, it looks horrific. Uh, you know, we'reund the rest of the world. That's up for GUS still for us to determine. Are we going to stand by our allies, Are we going to stand up to Russia and China? Are we going to actually do more to combat climate change? To improve global health?

Machinery there's nothing about Afghanistan, TOM that stops UPS from increasing our exports of COVID vaccines. There's nothing about Afghanistan, TOM that stops UPS from joining the Asia Pacific Regional trade Agreements. I can go on. So again, I disagree fundamentally with what the last administration and this one have done in Afghanistan, but that doesn't stop us from doing other smart things in the world which are just to

sort of put a bow on this. You were talking about this concern about allies and the perception of the United States and the trustworthy US of some of the assertions and involvement that the US has had. You're concerned about under involvement with some of these other initiatives that you're talking about, whether it's combating global warming, whether it's combating the pandemic. How much cloud has President Biden lost on the international stage among allies who already are somewhat

skeptical of the U s promises. Look, this is I'm not going to sugarcoat it. This is this is a bad thing. He gained some cloud by the original response to COVID increasing vaccine production and distribution. He gained cloud by the performance of the US economy. This is clearly a setback. That said he's got three and a half years to to go to to to make a record, But there's no way this is anything but something significant

in the deficit columns. This this, this will hurt both the reality and the perception of the United States in the world, and it reinforces a narrative that was already out there, which is that Disunited States is different than the old United States that had tremendous staying power throughout the Cold War. Richard tremendous pace in Project Syndicate over the weekend. Thanks for writing now before we let you go, a message for this administration. We've heard a limited amount

from the President over the weekend. What's your number one question for them this morning? What more can they do to help these Afghans who are trapped in the country and are vulnerable. It's I just find that I find it painful to to watch. I think we've got to do more to help them. We can't simply be focused

on getting Americans out. And then the real question is what we've been talking about here, how do we how does this administration prove to the world that American foreign policy should not be understood through this lens or or prison. We have got to be active and we've got to be smart elsewhere. We can't undo the mistakes we've made in Afghanistan. Let's be blunt. Doesn't mean though, we have to make mistakes elsewhere. Important words this morning, Richard, Thank you.

Richard has their Council on Foreign Relations President. Right now, we're gonna digress with Christopher Morange. He's the Valley Funds, their chief investment officer. Of where the value is right now, Chris Marangie, where is the value going into September of two thousand twenty one. Oh, it's certainly harder to find than a year ago, but there is still value out there in the market. And the question is is now the time to jump back in the reflation trade if

you missed it nine months ago? And I think typically yes, there are some areas that were um, perhaps exuberant uh and have now corrected. UM. Still like areas like live entertainment between we think we'll come back strongly again this fall into next year. UM. You know as well as UH,

the consumer impulse to purchase is still there. UM. Obviously, as we heard from Kate, you know, some supply chain issues which are constraining of the ability to meet that demand you've got, And folks on radio, you need to understand that the secret weapon of Christopher Marange is all the Manila full olders he's got over his left shoulder, covering every company out there. What is the knowledge base that you and Mario Gabelly have right now company to company?

Do you have a confidence in what you're hearing or is it a mystery for you into the next round of conference calls? Yeah, so, you know, we don't put a lot of weight in things like the Empire in decks. We you know, we're listening to what companies are saying on their conference calls. What are they saying some of those meetings, and and it's pretty much universally the demand

is there. It's hard to meet that demand. Um supply chain issues affecting not just manufacturing companies, but you know, service companies that just can't get the stuff to install in people's homes for example. And and the concern one concern is that could worsen is as the rest of the world is China and Asia in particular, you know, deal with the delta variant. How concerned are you about margin pressures. This seems to be one of the dividing

factors between the bulls and the bears. Are the less bullish of for US equities, Yeah, you know, the we tend to focus. We we love companies obviously that have uh pricing power. We've always focused on those kind of companies, UM, you know, companies with the control scarce resources, whether that's uh, you know, broadband, UM, consumative brand of products, UM, waste collection, et cetera, and um. You know, they've been able to take price and pass some of that probably through a

maintain margin. But yeah, it's gonna it's gonna be hard. You know, a lot of companies benefited in the first and second quarter from the tail winds of cutting causes deeply in the crisis a year ago, and now those costs are gonna start coming back, and so it is something that we're watching and we're a little concerned about for the next year. I don't think you're focused on

value right now. We're hearing a real bifurcation between those who say it's time to keep leaning into the cyclical trade, especially after the under underperformance of late and others who say stick with big text, stick with some of these names to just have incredible amounts of cash and relatively small staffs compared to the overall revenue. Where do you weigh in on this and why? Yeah, you know, I tend to lead toward the former that that there's still

some likes to the to the cyclical trade. Um. You know, there are you know, a few specific big tech names, Glogle in particular, which we own, um that actually benefit from both sides. They are both the reopening play and a quarantine play. If you can keep both things. You know, they are a major beneficiary of their turn of advertising, particularly as really relates to things like travel, um and

so um. You know, you have to look company by company and not just make judgments about individual sectors, which is ya, all these Minila folders here, that's good. Let's make a judgment about one of the wheelhouses of good belly over the years, and that is this whole entertainment streaming telephone, cell phone infrastructure. When you guys are way out front on what John Malone wrought, where are you now on all that stuff that we use every day? Yeah? So you know, we used to define the world as

distribution versus content. Um. Yeah, that's a little bit of uh of a fake um uh break. But I still think distribution is very important. The broadband company's high pricing power the warrior has been and always will be what does the government do about that? And so far, you know, the infrastructure Bill is probably a net positive for the broadband companies to the extent that it funds you know,

additional build out and gets the additional customers. But but that regulatory uh sort of democles is out there, and obviously the fid administration seems to be swinging that more aggressively. Late. On the content side, you know, a lot of questions about what happens with theatrical and the streaming wars continue. It was a little bit of a lake wabby gone in the second quarter where pretty much all the streaming services did a little bit better than everyone expected. But

that's probably gonna change at some point. The consumer will have too many services choose from Chris, you mentioned policy, and I do want to sort of end here where we begin, which is Afghanistan, and how much that actually does put a kink in a President Biden's ability to push through his policy, to push through his three and a half trillion dollar human infrastructure bill, let alone the bipe partisan bill that has about five fifty billion dollars

of spending. How are you looking at this? You trading on this in any way? Yeah? You know, I think one of the when um, when it became probable that Biden would get elected and was in fact elected, we anticipated higher tax rates and built those into our company models. And obviously we haven't seen that just yet. You know that will have to be paid force in the in the reconciliation, and so tax rates aren't going to go up, but I think they probably go up less than maybe

we expected a year ago. Uh, and so that's a sort of a plus. Um. But you know, this is gonna put additional pressure on inflation, which we look at and U I think we mentioned Afghanistan parked the price that directly into the market, but you probably some additional defense spending and the risk premium in general just has to go up. Chrismin Ranky back in the office going to say that, Chris, it's gonna catch out. Chrismin RANKI that Betty funds the value. Let's get to the discussion

right now. What we're gonna do here is really focused on setting up your end of August here into the end of the third quarter in September. No one better to do that than with someone managing real money, no coorum is it invest goo And what's really interesting to be you know, while you're in the crosshairs the hardest part of the market right now, which is intermediate bonds. What are you doing on the duration bet right now?

Is you, by portfolio mandate, are caught in the crosshairs of this market right so on the duration mandate, we're staying largely close to neutral. I think it makes sense to have a bit of a steep neer on here UM if you have more of a multisector account UM, but from the duration standpoint, in our intermediate bond fund

vers staying clothed the neutral. And then we would recommend for high yield UH portfolio managers to add some defensive or you know, maybe UM other growth related asset managers to add some defensive assets here, like the intermediate bond fund or investment grade UM just because there are like you. You are were just referring to a lot of blooming and uncertainties around and you said, the ball market is

not reacting. It's all it's because we're waiting on Wednesday, were waiting on the Emblom see minutes and the taper, the big taper debata on timing. We all started to say some discrimination just in terms of credit quality and the degree to which you are exposed to things like the doubts of variant. No Whill, is that encouraging for you? Is that a healthy sign that the credit market is functioning that way? So we are seeing it. So earning

the earning season was very healthy. Earnings growth was very strong. UM where that strength came in was a little bit bifurcated, but we expect overall the earnings growth to continue and to and leveraging to continue. The delta variant we have to watch very closely. Of course, we don't see it necessarily impacting our base case for growth. Really the most impact has been the supply destructions from it UM, and

that's something that we have to watch closely. But the demand is still there, so ultimately that just kind of maybe flattens the trajectory of growth, but that doesn't necessarily take it away. Does it make sense, Noel to then that high yield bonds are under performing investment grade? The high yeld bonds, Yes, for um. For most of this year, high yield bonds have done really well, triple seeds have

done really well. Premium and new issue has not necessarily been very attractive lately, and I think that's why we're seeing some of that um that peel back in in high yield bonds, just taking a broader step back. Mark Howard of b MP Pariva was on the show earlier and he was saying that right now, where there is no problem, you can keep leaning into risk, But longer term we're setting ourselves up for some inequalities within the

markets and potential. I don't want to say bubbles, but bubbles particularly with respect to you a certain credit borrowing. What's your sense of that? Do you agree that this is going to become a serious problem in a couple of years time. So this is something that we definitely have to watch and could be a problem in a

couple of years time. But what we're watching, i'd say over the next three to six months, after we get the taper announcement out of the way, and you know whether or not it's going to be a taper tantrum and whether or not we learn from history is up for debate. But um, in the next three or six months, we do want to stay nimble here because that's when

the FED hikes start to get priced in. That's when the market turns to focus on the actual f MC mandate, So employment coming down and whether or not inflation is going to be transitory, and how sticky those sticking components just can really be. So walk me through your approach to floating right with that in mind, to a whow what is it said? Right now? I'd have a little bit of floating rate just to kind of take some down some of your exposure to high yield be because

they're still is You're still getting compensated there. The demand and technicals they are still very strong, still seeing for in demand in both floating rate and investment grade and some crossover in high yields. So I think it makes sense to diversify, or I'm always kind of selling the

diversification picture because it does make sense here. There's still a little bit of value to to be had in the floating rate hed your conviction about the future, while conviction about high rights or a hedge that we might get them. Um, I think we're gonna see higher rates from here. It's just gonna be a little bit messier, um than you know, over the next several weeks, we just have a lot of uncertainty and um, that's gonna

be definitely something to watch. If we get past the taper and it kind of u is quiet, then I expect the rates to continue to steepen out because we do continue to expect growth to be robust, and that's ultimately going to push this curve steeper. What is the goal over the next three to five years. Is it to clip a coupon or can you actually find total return? I think you can find total return, but it's gonna be more on a sector basis um or specific bond basis.

But over the next three or five years, while the the you know, of course, when we get into the five year scenario, it's hard, of course to call that far out. But the ultimate goal would be to clip the coupon, diversify ad where there is value and complacency within markets and complacency within sectors. No, we've gotta leave

it that it's gonna catch up. And this fixed income market, now i'll call him that invest portfolio manage you what we've always tried to do here is John Lisa and I are committed to bringing you the experts you know on China, Folks, that the expert is Jonathan Spence and its classic to Search for Modern China. What is the

Search for Modern China? For Afghanistan? It is Thomas Barfield out of Penn and Harvard, holding court in anthropology at Boston University, and he's president of the American Institute for Afghanistan Studies and his red covered book, a cultural and political history. Trust me, folks, this is the absolute singular one volume on the real Afghanistan. Professor Barfield, thank you so much for joining us. We're honored. I must ask of the people of your institute. Are they safe in Afghanistan? Uh?

We don't know. My director got out to Delhi um last week and we're trying to move our staffs there if they have visas. But you know, all air traffic has gone so um they're in safe houses in Kabble. But we're watching what's what's going to happen, Professor Barfield, just because the time I've got to get to the advanced moment as we wait to hear from the President in the coming hours. Or is is there a risk here?

Of a Sunni Shia civil war among the tribes that you are expert on, including the Taliban and their dominance versus to the west of Hussari and their relationship with Iran. Probably not, because the Ars are too weak to take on a central government. And also they're in the center of the country. They don't border Iran. It's difficult to run in if you don't have a sanctuary, as the Taliban did in Pakistan. Is this the same Taliban as twenty years ago or is it so different now? You

need to brief us on that distinction. That is what everybody is waiting to see. Um. The talk out of Doha is smoother. Um. Their opposition to even photographs and television, you know in the nineteen nineties. Now they're very immediate media savvy. Uh. They're big problem is, all right, they've

taken over the country, how do you govern it? And they lacked the capacity to govern, And the question is what kind of compromises are they willing to make to keep the country functioning so that they can, you know, have their ideology predominant and not to involved into a civil war. Professor, That's exactly where I wanted to go and I'm wondering if you could elaborate on that. I was reading reports of civil servants just not showing up to work because they were worried about the Taliban and

how they would be treated. The Taliban said, please come back to work, try to restore confidence. They didn't all come back to work, and then they started to take a harder line and people started to come back out of fear. The reports really highlight the difficulty in ruling out of fear. Do you see any signs that the Taliban is adjusting strategy or trying to consolidate power against behind a ruler who can actually impose some sort of

discipline and also some sort of respect in the population. Well, we don't even know who's a Taliban ruler, right, So one of the thanks were looking for is what he is. The Taliban government in the nineteen nineties, Mullah Omar never even came to Cobble. He ran Afghanistan sort of out of his bedroom in Condahart, all right. So you had a government in Cobble and the guy that led it not even bothering to show up in the capital. The other thing is, if you go back Afghanistan, is seeing

these transitions before. When the Soviet back regime fell, essentially the bureaucrats went to work for the Mujahadeen. So a lot of the fear right now, how are we going to be treated as the civil servants? But I I remember being in the shower when the Mujahadeen shadow Minister of Agriculture I wanted some statistics. He says, I'll ask the ministry and cobbalize that. How can you do that? He says, they serve whatever government And he got the statistics he wanted, and they send a little nest to

come to power. Remember where bureaucracy. So we're what we're watching that it's just unknowable because it's happened so fast. Thomas Barfield, there is a professor at Boston University by the name of Basevich who has sacrificed his son to these wars. In the distance from base of Itch to Barfield is a distance of can we export liberal democracy?

Have we learned a final lesson here in this debacle that we cannot export liberal democracy at the risk of our soldiers and at the risk of our debt and deficit. I would say probably not. We probably learned a lesson for the next ten years. But it's like the British who got badly burned in the first Anglo Ascan Wars, that they never go back in. They re invaded it and then decided it was not a good idea and

went back out. Um countries like people kind those as as things fade and sometimes not to remember the things they should are. The Taliban tribal You're infinitive work is the anthropology of Afghanistan. Is the Taliban part of the tribes that you write about. No, that's one of their advantages because they're not tribal. They can bring all of these tribes that would otherwise be rivals with one another, and they call for unity in the name of God.

Who can resist good? I mean the Taliban in nineties with the first government in Afghani history that was ruled by mullus Um. But the advantage they had was they could say we do not represent tribe, their regional interest. Even if you've done down a little bit, then maybe they did um. And they seem to have really surprising this time because it's historically and I would still looking at the interviews the leaders are speaking and pushed out.

But they took the north First, that's the non Plushtun region of the country. The ashraf Ghani regime had to do something really bad to alienate all the non Plushtuns in the north so that they were willing to a lie with with with the Taliban. So um, it's it's not tribal. A much needed level of detail there from Thomas Bonfield. Thomas, thank you, Professor of anthropology at Boston University and president of the American Institute for Afghanistan Studies.

There is no one, and I mean no one in the investment community who is educated on what experts think about stars, about Avian influenza and about the present pandemic. And David Kotalk of Pennsylvania and Florida, he's somewhere out west right now singing John Denver songs and he joins us here from Cumberland Advisors. David, your latest UH memo is striking for the three articles you attach on pediatric hospitalizations. Bonus, you're living this in Florida. What have you learned? We've

learned that uncertainty is a powerful forecasting tool. It tells you nothing. Risk is one thing. You can estimate it. You can have science, you can measure things you can create probabilities. Uncertainty does not permit that we are living in uncertainty with delta and the variants, and we have a massive failure in the public health system in the United States and most of the world. And that was

the conclusion Tom and Lisa in Maine. David Kotok when I look at when I when I look at where we are right now at dovetails into economic data like Empire manufacturing, which was very, very weak. Are you pricing, in your view for a slowdown or disappointment in GDP. The answer is yes, And the sentiment into haiters that just came out drive that home very strongly. In our portfolios.

In our US et F models, we are up to twenty eight percent cash and we have doubled the market weight of the entire healthcare sector in the broad sense of the word, because we believe that the variant evolution and public health demands on the healthcare system and the companies that provide the resources to fight COVID are going to go on for several years. So the answer is yes, David.

Percent cash at a time when bulls cake get bullish enough and our upgrading their forecasts what's the trigger, what's the catalyst to cause a sell off that could actually allow you to deploy some of that cash. We don't know. We're looking at the sentiment collapsed, Lisa. That was a very strong Michigan data and it also captured the huge political divide in the country when you dissected the data.

And what do we know from Neil Ferguson's wonderful work which Bloomberg has helped tell the world about, every single pandemic has led to a recession following it, and every single pandemic has had led to major structural political change and geopolitical events. There's been no exception in history. Neil established that in his work. And we don't know. We're uncertain as to what's gonna come in this structure, but we do know something is going to come. It's major changes.

I don't buy the two months recession we've just had, but the NBER said it's over. I don't think we've had the shock yet. Well, what would you say to people who look at corporate earnings and say they're phenomenal, who look at the fact that rates are going to be low for a very long time and say there is no alternative. I mean, there are some strong arguments for risk right now. No, I would agree with that.

And when uncertainty gives way to some risk and we can begin to measure more impacts, the answer would be s. We just had a quarter where we had over fifty dollars in earnings out and the SNP and the trend is higher. By the way, when you shift labor share away because you have sick people and dead people and reluctant people to work, you alter the mix between capital and labor. We're doing that. Capital wins. There's winners and losers and bandemics, and the stock markets one of the winners.

I can see a longer term trajectory from the stock market to six or seven thousand with three hundred dollars in morning. David, I don't care who caught the biggest fish. Oh, I can't go to that one because that one creates a bunch of opinions. Let's just say we had great fishing, great conversations, and it was nice to have the gathering back. If I can add one very quick, please hudent vaccine

passport requirement. Guides, lodge and guests if they didn't want to conform they couldn't come, and everybody was a team player from all over the country. David Kotak, Stay Healthy, David kote Cumberland Adviser c i O, and truly the streets experts on collating call using in all of this research on these medical issues. This is the Bloomberg Surveillance Podcast.

Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to The VALA's podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg m