Surveillance: U.S. Debt & Afghanistan With Lew

did it across multiple platforms of public service. You know Jack Lou as a former United States Secretary of Treasury, but far more was his tour of duty at state beforehand. We're honored to the Secretary could join us this morning, Jack Lou. I want to go to Leon Panetta's and Cindy r comments equating Afghanistan to Bay of Pigs of ninety sixty one, from Kubble to Havana and south of Havana on the shore in April of nineties one. Are

there similarities for this nation? Okay? I think we're going through an incredibly tragic time right now with the fall of Afghanistan, and I think the moment calls for looking forward not back. UM. The evacuation of people who want to leave Afghanistan is the job right now. I think the fact that that operation is moving ahead shows that there was in fact planning to deal with a great

deal of uncertainty. There'll be time after this to look back and to ask the question there have been different decisions. I think for right now, the job number one is to keep moving forward and to get as many people Americans and people cooperated with and helped our effort there who want to leave the country out of the country.

Oh agree, You've been a class act about avoiding the Republican Democrats sniping the snark moments that we see day after day after day, but assistance with the institutional weakness perhaps that was there with the Trump administration. Did any of this occur because state was institutionally weaker or our

intelligence communities were institutionally weaker? I think the four years of the Trump administration weakened many institutions, UM in terms of the ability of experts to voice their views and express them and have them considered. Uh, in terms of the people left behind and the need to rebuild. So I think the damage is brought. I've seen it in all the agencies that I have been at in the past. I think that going forward, the job of rebuilding is

well under way. Um, but it takes time. And uh, I'm not sure the extent to which the current circumstance can be tied to anything specific in that regard, but I do think that there was a legacy of serious damage in many of the agencies Jack as a former US Treasury secretary, which the US do with respect to the financial assets of the Taliban of Afghanistan at a time when there is this sort of peace offering, But

history has a very different story to tell. I think the burden of proof is on the Taliban going forward. We have too much experience from the past to take at their word that anything is going to be different. I certainly hope that there will be a difference, but I think the question of whether or not to treat the government as a legitimate government, as a partner to open financial flows and the like, has to come after there's more evidence of what that government is going to do.

They've clearly learned that they need to talk differently than they did in the nineteen nineties. We now have to learn whether they're going to active, So how concerned are you that, as we have this controversy surrounding the Biden administration, that we're hitting a potential debt ceiling debate that could rival two thousand and eleven. And we have an infrastructure plan that may get through at least the billion dollar one.

But that really is called into question when you look at the three and a half trillion dollar Reconciliation Act. How close are we to another debt ceiling tobaccle akin to what we saw a decade ago. Well, I'm not sure I would conflate the issues of what's going on in Afghanistan with the question of the debt limit. I think before the events of the last week, UH, there was considerable uncertainty as to how the debt limit would

be resolved. That remains the case. I think it's extremely dangerous for so many senators, Republican senators to sign on to a letter saying they will not support a debt limit increase. Procedurally, it's very challenging unless you get some bipartisan support. Uh. Their pathways are there, but there are fewer, and the reality is that limit is the final, not the first decision. It's to pay old bills, not new bills.

And you know when we saw in twenty seventeen an enormous increase in the debt through the tax cut, when we saw through the spending through the Trump years, enormous increases in the deficit, and the bipartisan moved to respond appropriately to COVID. I didn't hear people saying we're going to come back later and say we're not going to raise the debt limit. It's wrong. It's a self inflicted wound if we end up with a crisis that can be completely avoided. I hope that the pathway towards resolving

it is relatively clear and quick. But if I had to guess, there's going to be some choppiness between now and when it's done, and we know from experience that

that causes a great deal of anxiety. This is not a moment when there's anymore anxiety, Jack lou I don't know if you wanted through the philosophy department at Harvard, but there is the concentration, and so much of that is studying the different philosophers, and I think of John Kelvin in America's deep seated aversion to debt, and yet here we are with a debt and a deficit that how Brown and others never ever would have perceived it would be. And speak to conservatives now in their concern

about the fact we have too much debt. You know, Tom, I've actually stayed consistent through a period when so many people who have have deviated from their traditional views on deficits and debt. I didn't hear a lot of concerns from conservatives about deficits and debt when we were cutting taxes in a way that was irresponsible at a time when the economy was very healthy. UM, I think it was appropriate for both sides to say we're not going to worry about the deficit of the debt at the

height of the COVID crisis. You look what's going on right now. Congress is working with the administration to pay for the biggest investment in my professional career in terms of domestic priorities, critical investments, important investments. I think the debate in Congress will come down to how much willingness is there to pay for these investments, and that will

dictate the size of the package. I think the hopeful sign is that there is considerable consensus on a very large coal of offsets to pay for a significant investment. It's fundamentally different than saying devil may care, let the next generation pay for it. In terms of the cost of servicing the debt. With the near zero interest rates that we're seeing for the next five ten years, that sustainment of payment of debt service is not the issue.

I actually think the challenge is coming out of this getting back to a more traditional view that over time, when the economy is doing well, you need to pay for what you do and work at reducing the deficit, and when the economy is in trouble, you use your fiscal cannon to deal with that challenge. We're now at an ambiguous moment coming out of the COVID crisis. Everything is uncertain. You were talking earlier in the program about the dark room. We don't know where the virus is going.

We don't know if full employment will be sustained. You know, I think we're doing the right things making sure our economy comes back strong and sustainably out of the worst crisis that I've ever seen. Jack. We appreciate time. So it's gonna hit from you, Jack Lee, that they form a U. S. Treasury Secretary Sovereign Wealth fund discussions are usually pretty dry, pretty bureaucratic. You can't do that with

the Norwegian Sovereign Wealth Fund CEO John Farrell. You're gonna have a discussion with a guy truly outstanding at absolutely turn in the hedge fund business and quite the controversy as he took over in Norway's large pile of money. And tell this one is a monster. It's one point for trillion dollars. And I'm pleased to say that Nikolai Tanger joins us now the Norwegian Selvereign Wealth Fund CEO. Nikolake, great to have you with us. You made some headlines

over the past week with this quote. I'm gonna read it for our audience. I think probably inflation is the biggest threat to capital markets that we're seeing now. It will probably hit the portfolio in a way that we have not seen before. Nikolai, what did you mean by that? I mean that we are at a situation now where the bond wheels are extremely low and the stock market is extremely high, and so therefore any main change in

invlation will will hit both part of the portfolio. You know, and in the past, is it's one of them and not the other. But this time we can move in. Both can move in this generation. So do you have to do things differently now with that in mind? Well, we are a very long term investing you know, and we are so big it's kind of difficult to move around. And and we are in a way also to too

big for you know, counterparties. So uh, given that we have a time horizon for our investments of thirty two hundred years, we uh, we will probably have to sit through it. You understand more than most it's not what you own, it's what you choose not to oan. When you're this big, Nicolain, what are you choosing not to oan right now? And why? Well, we are quite index inari and the way we run a old portfolio, but we also have various things that we don't own for e.

S G reasons. We started to sell down various things already back in two thousand and twelve and that's been a that's been a good strategy for the fund. So that's something we will increase going forward. What does that mean for the regional bias going forward as well? Nikola, I'm thinking about China e M. Do you have to reduce that because of the s G concerns. No, not necessarily. We have roughly five percent of the fund invested in China. It's uh, you know, it's one of the biggest markets

in the world. It's done as it's done really well for us, and so we continue to be invested there. Some people call it investable. I've heard that from Martial Waste over the last couple of weeks. I've heard it from others too. Do you think it still is investable? And why? Well, I think it's investable. You have a lot of great companies there. You've got some good technology companies there, so we have we have a large positions there and we're really believe in a lot of those

business models. The regulatory shift, though, can happen overnight. Nicola have to believe in the business model. You have to have some predictable regulation there as well, some kind of certainty looking forward several years through your time arizing a whole lot longer. Do you have that with China? Well, I think we haven't certainty all over the place. You know, we haven't certainty in all markets. So it's the nature of it. It's a bit different in Jana, but that's

that's life as an investor. Do you think things are changing more rapidly over the last couple of weeks there the last couple of months. Yeah, things are. Things are changing quite quickly, and we've got people on the ground, We got good bms. We are looking at these things and that that makes the necessary adjustments. In the pod, let's talk about your pms. You've brought on sports psychologists. I know this is in an area of interest for you, to prepare your PMS for things maybe they've not been

prepared for. Can you walk me through how you're managing the people within the fund and the changes you're trying to make. Yeah, so, um, we do this despite me being pretty pathetic in sports, right, So I have absolutely nothing to bring to the party as a as an athlete, but I have seen how sports psychologists can help us do different things because what we do is is very is very tricky. It's you know, high achievers and so on. And I would say the main parts is it's resilience

and it's bounced back ability. How do you get back when you had losses? How do you manage to take the same type of risk even when you've been through a puff you know patch, That's the that's the key I think, Nicola, can you give me an example of real life example in your times managing money where that

has helped, where you've seen that change developed with a PM. Well, it's how me, for instance, uh, during my during the last eight to ten years, but where I have actively used as sports psychologists has made me come through in a mentally better state, you know, some of the really volative periods. I think it's a complete no brainer. You know, going forward from here, you're also listening to earnings calls. I know you've done interrogation training over in Norway as well, Nick,

Can I just give me a flavor of that. How helpful that is to understand the kind of questions you need to be asking on an earning call, what you need to be listening for, the tone of the delivery from the c suite, and a kind of red flags shou'd be looking for on calls like that as well. You know, UM spend kind of ten years learning it. It's not something you could just kind of teach in

in six seconds. But everything from just how you ask questions that you don't link together different types of questions that you look at, what managements are not answering as much as what they actually are answering, looking for various small words called qualifiers and so on, just the whole range of techniques that we need to apply. Herenicolasangan very very experienced managing money. It's good to catch up. So let's let's such seguy here, John into what lindsay Pigs

of Stephle is worried about. And that is the strength the power of the American consumer. We see that in Target moments ago with some very good numbers to share. Uh, buy back announced and uh, you know, the stocks are churning here on what I'm gonna call really really pretty good numbers. It'll be interesting to see targets digital presence after what we saw from Walmart and a little bit

of digital worry yesterday at Walmart. But we'll give you those headlines as they come in and go to dr Pigs that lindsay, I look at where we are on the consumer is it is there a clarity to what the consumers doing right now or is it a mystery into the end of the year. Well, I think the consumers are relatively solid footing. We do see that there's a tremendous amount of wealth that has been accumulated over

the past six twelve months. But we also know that a tremendous amount of stimulus, which has been provided on a monthly basis to millions of Americans, is beginning to fade. And I think we see that pullback of stimulus reflected in yesterday's retail sales numbers coming in at a big disappointment.

So going forward, how much you looking at this idea that we're seeing sentiment decline, like the University of Michigan's sentiment survey showed retail sales disappoint How much can we tell that consumers truly are feeling the crimp of higher

prices and spending less as a result. Well, I think they are feeling the crimp re quire prices as we know that the CPI is up near six percentences an incredibly elevated level of costs for consumers, and we see that not only translating into how consumers are shifting the goods and services in their basket, but the overall nominal

decline and how they're willing to spend. Now you layer on this growing fear of the rise of delta variants, so case numbers, hospitalizations, death rates constantly in the news headlines, creating a level of fear that while we may not go back to the ownerous restrictions that we saw during UH, we are starting to see mass mandates come back in and even the fear itself could serve to curtail consumer behavior in terms of going out into the market, feeling

comfortable interacting in crowds or around other people, and that could slow the recovery the labor market, slow overall demand in the economy, and of course, by extension, then reduced

the outlook for overall GDP. Lindsay, there's an argument that there's a psychological difference between spending higher spending money on higher prices with stimulus checks versus money that you earned, and as the stimulus text where off and people actually see that they're spending the money that they get in their paycheck on that much higher food bill, that they're going to spend less and cut back more. Do you

see evidence to support this. I don't know if we see evidence of this point yet, but we do hear peripheral UH and and anecdotal reports that consumers are increasingly sensitive of spending that hard earned money as opposed to a check that is coming in the mail. Now, of course, we're sort of splitting hairs when we talk about the decision to spend well there, spend funds on an elevated price item. But for the average American when they see that check dwindle ever so uh more quickly in terms

of filling up the family car, buying groceries. When it is your hard earned money as opposed to tax dollars, it takes a bigger hits to uh to that that that mental outlook that you have for not only your financial condition, but for the halfway for the economy, Lindsay and the clear and present. There's many people looking at two thousand g d P over six percent off of a boom economy. You've got a more cautious view a g d P under six percent as well. I've got

target giving me high single digit look forward. Can we get that? Can we get not a saggy economy like three, but a less than boom economy as you call for, and still have corporate America do well and have the consumer du well. Absolutely, I think the back half of the year is going to be noticeably reduced from what we saw in terms of six and a half percent

across the first six months. Now, that's not to say that the economy is losing significant momentum or that the recovery itself is losing footing, but we're looking at the composition of growth, and when you talk about that government component, trillions upon trillions upon trillions of dollars no longer contributing to growth. In the back half of the year, we would expect that headline number to subside, and we are looking for a number closer to three to four percent

GDP in the latter six months of the year. Now, going forward, there's a bigger concern that as we start to see the economy recalibrate and consumers slow down to a more sustainable pathway based on income growth, it's likely we returned back to the growth levels that we saw the end of so prior to the pandemic, which as you remember, is closer to about two p Let me make a right angle turn. Then, if we get a pigs economy and we get a consumer that's more cautious,

more measured, how do they afford real estate. It's a good question, and it's something that I think policymakers are very concerned about. In fact, we've heard from several FED presidents argue that asset persases are no longer helping in terms of job creation, but there instead mostly helping drive up prices of interest rate sensitive goods such as homes and cars. And of course to that point, we've seen home prices specifically have risen dramatically over the past year.

The SMPK Siller Home Price Index up over sixt in the past twelve months, and this is marking the biggest gain in available data going back to So there is a very big concern that a lot of these accommodative policies, both on the monetary and the fiscal front, while benevolent in intention, are actually creating more barriers, more burdens to sustainable longer term growth for the consumer, for the economy.

As we look out beyond lindsay, thank you. We have to leave it that we appreciate it's on this morning, Lindsay p X and that stay Folk Chief Economist. A lot of people get lettered up over Jackson Hole. I've been there many many times. It's truly an academic conference. There's boring papers that Michael McKee reads cover to cover. I'll take one or two of the papers typically and read them cover to cover, but too often they really work at the Kansas City Fed to make it a

constructive snooze fest. James Bianco knows this Bianco research, and he joins us now for really my first conversation on what the Central Bank will do? What does Chairman Powell Jim Bianco not want to do in Wyoming. He doesn't want to cause waves. He doesn't want to cause problems, similar to what he did in December of two thousand and eighteen when he talked about the taper was on automatic pilot and it was going to be like watching paint dry, and it greatly upset the market, leading to

the pul pivot two weeks later. What he wants to do is lay out a plan to begin a taper sometime next year, and he's gonna put a lot of caveats in it. And those caveats are going to be provided that the economic growth continues and provided that there is no surprises to the economy. And that's going to be a shout out to if delta continues to rise and restrictions. I don't want to see lockdowns, but restrictions on the economy continue, that could derail the plan. For tapering, Jim,

A lot of people are looking for taper talk. However, we've already gotten some sense that one of the main topics will be income inequality actually contributing to low rates going forward, and what FED policy can do about that. As a market watcher, how much are you looking at that as possibly giving more of a sense of what's

to come than people are perhaps expecting. Well, income inequality is a big problem, and the federal reserves, big picture policy can contribute to that, but the immediate policy, when I mean immediate here year to year, it's it's very hard to say that they're going to adjust policy either way, because if they were going to talk about income inequality, I really think that what they should be doing is raising rates they or they should be tapering faster because

I think it's this low rate creating this speculative atmosphere in financial markets that is contributing to income inequality. So yeah, I think they're going to talk about it. I hope they acknowledge their role in it, although sometimes I have my doubts, and I'll see what they want to do, but more likely it's going to be on the regulatory side, if anything. Jim You're not alone in saying this. A lot of people saying that FED policy has actually contributed

to widening income inequality. And it goes to a broader point. Have we reached the three rushold at which FED policy is viewed as perhaps harming more than helping on the margins, not only with respect to inflating asset prices, but also at a time when consumer prices are increasing at a faster pace that many people had expected. Yeah, if you look at financial markets, let's take the stock market, the dirty little secret is it's not cheap. You know, there

are booming earnings. What you're paying for those earnings. The valuations in the market are near the two thousand peak valuations. But the justification is twofold one earnings are very strong and to J. Paul's got your back. And if that creates an environment where there is a change in policy, like inflation is perceived to be persistent instead of transitory, that could lead to a sharp pullback in market. So they're setting up markets that they need to continue to

get constant good news to go up. Now they have for nearly a year now, they've been be getting constant good news to go up. But if that day ever comes that it doesn't, they could be setting it up for a bigger fall than you would otherwise. See Jim, could you help us understand why yields are where they are? Even fed share? J Powell has said he doesn't quite understand why they are as low as they are. You say, perhaps it makes sense if you take a look at

growth outlook, not necessarily inflation. Can you only elaborate? Yeah, I think if you if you look at I've been looking at the reopening stocks and index of them, and they have been dramatically underperforming the market since the March peak, which also happens to be one the tenure yield peaked. And if you overlay a chart of reopening stocks relative

performance to the tenure yield, it's the same thing. What that suggests is that the market is more focused on growth as it fears that growth is going too slow. And we're not talking recession here. We're talking about from a very high level six percent or so GDP estimates down to something a little bit less than that. As growth slows, so do interest rates. At growth picks up, so would interest rates. And the biggest driver I think of growth slowing is the fear of restrictions from the

delta variant as we see more and more. I'm in Chicago and just yesterday they announced that starting Friday, everybody has to wear a mask indoors. More stuff like that will be coming and coming and coming, And that's the fear Jim at Jackson Hole. There'll be a lot of academic papers and I'm gonna pick on the vice Chairman of the feder Richard Clarida, with his wonderful dsge or that he did with Girdler years ago. I believe does any of the theory that we have now apply to

the actual debates of Jackson Hole? Does dynamics, stochastic general equilibrium theory actually matter in the mill you were in? You know, the best Federal Reserve officials to listen to are the ones that recently leave. Dan Carillo was at the FED during the financial crisis. Left in two thousand seventeen and gave a speech at Brookings where he said

the FED has no working theory on inflation. That if you test any theory you want rational expectations anchoring monetary velocity of money, it just doesn't pan out in the statistics that it is a good explanation of what causes inflation. We are all kind of in the dark, and I think Rich Clarada is also in the dark. He's been

a big advocate of inflation being well anchored. There's arguments to be made that it's becoming unanchored because you've seen the big rise in the inflation expectations, especially like the University of Michigan survey. And it's going to be very difficult for the FED because they want to project certainty or they want to project calm that we've got this figured out where inflation is going to go, it's going to be transitory. But the fact of the matter is

they don't know, We don't know. Inflation is a very difficult thing to get your head around, and it's a very difficult thing to understand. So it's a big gas and we'll have to see and some of those papers I think should address that the next week. And that's

such a great line. We've got to leave that, Jim Bianca, that at Bianca Research the President, because when you leave Lisa, you get to say what you really think things have changed in the last I'm gonna say one week, we are interested now again in immigration, possibly migration from Afghanistan to various and sundry Western countries certainly a topic at hand. Before this event, David Rubinstein and the Carlisle Group spoke to someone who has lived this, and of course it's

the David Rubinstein Show. We'll tell you about that here in a moment. Mr Rubinstein joins us. Right now, I think David of Art, Gregorian and there Armenian exercise and now Mr Afagen, Mr Gyan and others have stated, we were immigrants, we came here, we were successful. This can work tell us about his path to the United States into Great Wealth. For those who don't know, he's the chairman of Moderna and the person who really seated the company was his idea. UM. It's an incredible story. He's

an Armenian refugee from Lebanon. He grew up in Lebonom and his parents were Armenian of origin, went to Canada, got a degree at McGill, came to m I p got a PhD, and basically started companies. He's now started seventy six companies and many of them have been fabulously successful. He's now running something called Flagship Pioneering, which comes up with new ideas for biotech investing and starts companies, many of which become successful like Moderna, though that's by part

of the most successful. How can guys like you compete with guys like him for intellectual excellence? Doesn't he have the upper hand over private equity and other sources of venture capital. Well, there's no doubt that people who are immigrants often tend to be very hard working and very smart and uh, and then they are the leaders of

many entrepreneurial ventures. On the other hand, private equally people are investing with him and alongside him, and so I wouldn't say it's competitive, but there's no doubt that he is a unique force. He is now running this venture operation which creates companies like Moderna, and Moderna is a company which has increased in value about a hundred times from the initial money that he put in. I think it was eleven million dollars initially put in. It's a

hundred times since then. And he has become very wealthy, and he's giving away a lot of his money various causes, including immigration related things and helping Armenia. But he's very very interested in biotech. He's also very much at the center of the health catastrophe that has unfolded and will likely be a mainstay going forward as we rely on vaccinations and potentially booster shots to ward off following variations of this virus. There is a question of booster shots.

What does he foresee in terms of demand going forward, in terms of the need that we will have for ongoing shots. Well, just as we are getting used to over many years having a flu shot every year, I think his views will be getting a kind of a moderner or a visor or some equivalent shot for this type of virus every year. And right now the FDA is probably going to say we need to have a

booster shot. I think they Biden administration is now promoting the idea of a booster shot for those people that have had the original moderner or visor Johnson Johnson shots. And I think once you have the booster shot, I think you'll be seeing this every year, and I think his company is probably going to be benefiting from it. David, You're on the front lines of this issue both as the interviewer for these shows that are phenomenal every week

as well as CEO and chair of Carlisle Group. And I'm wondering whether you've mandated vaccines, how closely you're watching how this is unfolding on a national level, from a corporate and federal level, to determine how to create policy going forward for you employees. Well, I think Carlong has decided that it's employees when they come back to work,

should be vaccinated. Um. There obviously are some medical and religious reasons why some might not be able to be, but we think in our offices, and I think this is true of all the major corporations that I've been talking to regulately, they think it's much better for their employees to be vaccinated. That will be Carlos policy. David, your thoughts is someone who attends world events. You and I have shared the stage a Dablos, There's many other

events as well. Your thoughts on Afghanistan and particularly the elite of Afghanistan, the people that have provided innovation there for let's say ten years, maybe fifteen years. What is next? It's a sad situation for Afghanistan and a sad situation for our country. The most important thing now is dealing with the humanitarian issues of getting people out who can

help with our country. Hopefully our US government will be able to work out the ways that can be done, but it's not going to be pleasant, not gonna be easy, it's not gonna be quick. So clearly some mistakes were made, as as the administration has said. But then before we figure out who who made what mistakes and how we can correct them in the future, we've got to deal with the present problem of getting people out who were loyal to the United States and the Allies in trying

to prevent the Palaban from taking over. David Reubinstein, thank you so much with the Carlisle Group and of course host of the David Rubinstein Show, Peer to peer Conversations. 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 Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg