No end in sight for war in Gaza, for inflation,
and despite it all, for strong markets. This is Bloomberg Wall Street Week. I'm David Westin. This week, we'll talk with Richard
HAASS of CENTERVIEW Partners on the uncertain path for U.S. foreign policy in an uncertain world. It'll be a great power. You need to be predictable and reliable. And right now, I'm not sure that's consistent
with the reality of American politics. And with Bob Steele,
a Perella Weinberg on the Global surge in infrastructure investing,
there's a special role for the private sector
that I believe can do in many cases, a better job of organizing, executing, planning and delivering on the ambition that government has outlined. But we start with inflation. The subject global Wall Street has been
focused on for the last three years. Back in 2021, some were warning us
inflation was about to come roaring back, including Gillian Tett
in the Financial Times. If you do have a big fiscal
stimulus package from Joe Biden's incoming administration, and if that coincides
with the pandemic vaccine, gradually spreading across the country
and reducing the pandemic fears, you could have those two factors
coming together and create quite a big upsurge in growth later
this year. And our special contributor,
Larry Summers of Harvard. My guess is that at the end of the year,
inflation will for this year come out pretty close to 5%,
even as Fed Chair Jay Powell at the time was telling us they couldn't
really see that inflation yet. We expect readings on inflation
to move up. That's called base effects. That'll be a temporary effect
and it won't really signal anything. But by March of 2022,
the Fed had changed its tune and undertook a series of rate hikes, adding
500 basis points over 17 months. Inflation is much too high
and we understand the hardship it is causing, and we're moving
expeditiously to bring it back down. Whether they expect inflation
to be a problem or not, pretty much everyone was surprised when the Fed's tough medicine
didn't seem to phase the jobs market, taking a soft landing
that seemed like a long shot and turning it into
what may be the likely result. Nobody expected this. If we look back, we had inflation
that went up during COVID. The Fed raised interest rates. Inflation has come down very consistently. So that was kind of expected. What didn't happen was unemployment
didn't go up. Growth didn't slow down. Then this week, we got a reminder
that we aren't past the inflation dragon yet as US
CPI numbers came in surprisingly hot, holding a 3.9% year over year. Way above that
2% target to take us through these CPI numbers is the person who has warned us
about the risks for three years now. Our special contributor,
Larry Summers of Harvard. So, Larry,
thanks very much for being with us. I suspect that you being right about
this is not really good news necessarily. But where are we right
now, in your estimation, in inflation? It's certainly not at the five
or six number level, but it doesn't look like it's
getting better, too. Look, it's always a mistake overinterpret one month's number,
and that's especially true in January. We're calculating
seasonality is difficult, but I think we have to recognize
the possibility of a mini paradigm shift. The soft landing paradigm
with the assumption that inflation was headed down
to two in a tranquil, healthy real economy has certainly been called
into question by these data. There had been a strong assumption
that housing was headed towards
being a major inflationary force. That doesn't show up in these numbers
on owner occupied housing. And as I've looked
carefully at these numbers, I think there's good reasons for that. The idea is that when we judge
the cost of owner occupied houses, we try to estimate what it would cost
to rent the residence in question. And many people have done that
by looking at all rentals. But most rentals are apartments
and those don't have much to do with the price of owner
occupied housing. If you look at the data
focused on single family housing, houses with lawns and suburbs
and the like, you don't get nearly as deflationary
a picture. The model
I've been using for several years now with my coauthors at the NBER is still looking for three 4% owner equivalent rental inflation
through the remainder of this year. That's 30% of core CPI inflation. If it's running at three and a half,
that uses up a lot of the room there is under under
a 2% inflation target. I think the Fed
is going to have to be very careful. They were never right to be focused on March for a cut. I had been saying that
that seemed premature and they they in
the markets have come around on that. I think that may is odds off at this point
and probably should be odds off and gosh, I think we've got to recognize
what no one's talking about. There's a meaningful chance
maybe it's 15%, that the next move is going to be upwards
in rates, not downwards in rates. You know, you use a metaphor,
David, that I used to use on this show. The worst thing you can do
when the doctor prescribes you antibiotics is finish
part of the course. Feel better,
give up on the in the antibiotics because you don't like taking them
and see what happens. The disease tends to come back and it tends to be harder
to go after the second time. And interest rates elevated to contain
inflation are like anti biotics. So I think the Fed has to be very careful in this environment and I think that many people who confused what they wanted with
what was real were in much too much of a hurry
to declare that we were obviously in a phase of major
easing with respect to monetary policy. So, Larry,
let me continue your analogy to a disease. And perhaps what we have here
is we're not recovering fully to 2%. On the other hand, the fever's not spiking up to five, six,
7% the way it was before. What happens if we have just a low grade
fever at the three, three plus level? What does that mean for the economy? GHOSH
Chairman Powell has said so many times 2%, 2%, 2%, as you'll recall,
from our previous conversations. I didn't think it was a great idea to
have had so specific and tight a target. But we've had one and we've said it and we've repeated it
a large number of times. If we decide that to sort of has lost
its meaning and it's not something we have to, except
when there's strong political pressures to ease, if we send that signal, I wonder why anyone would believe that we're going to stick with two and a half or three or whatever it is that we settle into, and
then when that feeds into expectations, it'll get harder
to hold the level we have. And of course we are
headed into David as populist election period is you or I can remember in our lifetimes, and we usually think of the Fed as a bulwark against populism, not as a reinforcer of populist pressures. Let's continue on the subject
of that populist election, as you call it, and specifically
the specter of fiscal policy. You and I have talked before
about the deficit and the debt that is mounting here. I know you've just helped launch something
new called the Tax Reform Project. And in the introduction
that you talk about that issue of the debt and the deficit,
but it's somewhat of a new approach. There are a lot of people
who have tax policies, but we haven't heard
from the practitioners. Yes. So I'm supporting my former student and wonderful colleague,
Natasha Safran at the Yale Law School, who's the driving force. She's focused on IRS reform
and we're focused on IRS reform
just to enforce the tax law we have. And there was important new research showing that from the IRS, showing that if we're able to carry
through on the $80 billion program that was part of President Biden's
recovery Act, that can pay off 10 to 1 in $850 billion of revenue collections, in addition
to making our tax code fairer. And that's where tax reform
discussions should start. And finally, Larry, there's a lot of talk about commercial real estate,
particularly in the office space area. Obviously, the increased interest rates
and failure to return to the office on some parts is really putting pressure
on the valuations. So clearly, there are some people who are hurting
because of the reduced valuations. But my question is,
is it a matter of individual banks for that matter, as well as owners
being hurt, or is there a potential for a more systemic problem here
with commercial real estate? I think this is something
that our central bank is right to be looking at and right
to be looking at with an awareness that almost always in the past we have acted too slowly to force banks to stop distributing capital,
to force banks to raise new capital where that's appropriate, yet
to force banks to fortify liquidity. I think it would be much more productive for our central bank to be focused on the question of real estate portfolios in the banks they supervised and what the genuine value
and credit worthiness of those assets is. I think that would be
a much more productive focus for the Fed than some of the more abstract and politically driven arguments about various kinds of capital charges on the largest banks. The second set of arguments
is an important one to have, but I think it's less urgent than the than the first. Okay, Larry, thank you
so very much for joining us again, that's our special contributor
here on Wall Street Week. He is Larry Summers of Harvard. Coming up, we'll take a look
at how the markets responded to those CPI numbers
with Lisa Erickson of US Bank Wealth Management. That's next. On Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. The markets reacted to those CPI numbers
this week as the S&P 500 gave up 4/10 of a percent, but still ended over
5000, which puts it ten points above the Bloomberg year
end median number of 4950. The Nasdaq lost 1.3%,
while the yield on the ten year was up ten basis points to end the week
at just about 4.3%. To explain the market's reaction,
we welcome now Lisa Eriksson, head of public markets
at US Bank Wealth Management. Lisa,
thank you so much for being back with us. So we heard from Larry
about what happened to the economy. Tell us about how the markets
reacted to those numbers that we got. Well, it was really
certainly a seesaw week in the market. And to your point on the back of those hot CPI numbers,
the market really had a tough reaction. And if we were to step back and really think about what was driving
that tough reaction, it really would be well captured
by the words growth inflation puzzle. And what I mean by that is really up
to this point, and as Mr. Summers had mentioned,
we really had a situation where the market was looking at everything
in a very Goldilocks fashion. We've had inflation coming down
and yet growth has remained in the okay zone, slowing a little bit, but
but generally beating some expectations. And really what happened with that Tuesday
hot CPI print is the market finally realized, oh my goodness, it's not necessarily
a straight line down on inflation and therefore the Fed may not be able to
cut interest rates as quickly as we think. And so really that there was
that difficult reaction on Tuesday and then again today when some of those
more tough PII numbers as well. Also rattled markets, too, a little bit. We've been in a bull market
when it comes to equities. How much of that is because
of anticipated cuts of the Fed? Because you heard Larry say, I don't
think it's any time to cut anytime soon. And in fact, there's even a chance,
50% chance the next move will be up. The markets,
I suspect, are not prepared for that. Well, certainly when we have looked
at the data and analyzed really what's been driving markets really over
the last many months, it has been highly correlated with the fact that rates our expectations have been very sanguine. And so that really has been
a very recent driver, actually, until really the more recent past
when some of these positive surprises that we're getting on macroeconomic
indicators indicating growth being better than expected
has then further carried the rally. But again, both of these things
are still very much in focus. And again,
I think what you see from the reaction this past week is that, again,
if we continue to see concerns
that inflation may throw off that Fed rate cut path that the market was expecting,
we can have a pretty tough reaction that we sort of
have been in a bull market. A lot of that's been driven by that magnificent seven,
whatever you want to call them. How concentrated is the drive
in the markets at this point or are you seeing some dispersion? Well, certainly throughout 2023 and most of this year to date,
we have continue to see leadership. To your point, really from the largest stocks within the market,
as well as very concentrated in terms of more secular growth
names, particularly technology. Now, what's been interesting
since we've put the calendar on 2024 is we've certainly had some spouts
of smaller companies and cyclical companies
really trying to come back to the fore, but they really have not been able
to maintain a steady run at it such that the leadership again
remains very concentrated. And that is one of the reasons. While even though we recognize
the macro fundamentals have generally been okay, again, with inflation
coming down and growth doing okay, we have not really feel like
there's an all clear signal because when you look at
how the market is reacting to that, again, it's very concentrated
and we haven't seen a sustained rally to broaden out
the breadth of participation. Where do you see possible opportunities for investors on either
the fixed income side or the equity side? Right now? Well, certainly, even though, again, we don't see a necessarily
a fat pitch in terms of being overenthusiastic on equities for example,
are overly pessimistic as well. Within certain areas,
we do see some opportunities. So if we take the fixed income markets,
for example, we do see some really interesting
opportunities to pick up extra income. A great area, for example, is non-agency
mortgages. These are securities
that are backed by mortgages that are not necessarily sponsored
by the U.S. agency market, but nonetheless
have very strong fundamentals behind them. And as we know, the housing market
has continued to be supported by quite a bit of demand for people
wanting to move into their own ownership. And as we continue to track the credit
supporting that, it's very strong. And yet these securities offer
some nice extra yield. Again, just because they are a less. More a little bit more complex market
for investors to understand. So that's just one example of an area
where, again, there's some extra yield that could be picked up
with very strong fundamentals. Always good to have you.
Thank you so much, Lisa. Always great to have you with us. That is Lisa Ericson of US Bank. Coming
up, it's not just the federal government that has a problem with deficits. We talk with Bob Steele, Perella, Weinberg
about the fiscal challenges facing New York
and other big cities around the country. There's no choice of not balancing our budget that's required. That's next. On Wall Street Week on Bloomberg. On Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. Cities around the country
are facing new fiscal challenges as the cost of accommodating
a flood of immigrants comes on top of other costs
that were already rising. New York is no exception,
with a budget deficit projected to be $7 billion this year and rising to $20
billion over the next three years. One of those trying to help Mayor Adams
and his financial teams deal with these issues is Bob Steele. He's vice chairman of Perella
Weinberg. Bob, welcome back. Great to have you. You know, to
be here, David, and thanks for having me. You know where you speak. You served as deputy mayor under Mike
Bloomberg, the owner of Bloomberg L.P.. Where are we right now
in the budget deficit? Why do we have this big hole? Well, let's go back and think about this
together, David, how we got here? You know, we have two issues,
the way I would think about it. The first and most immediate
is that we've had this surge of immigrants and migrants
coming to New York City. Almost 170,000 have come to New York. And and that is a fact. And the mayor and his administration
did a a strong job of responding
to this change of migrants coming. And they've done a good job
of organizing services for them. But it was done very quickly and stood up as fast
as it could be in response to the flood. Now we're recognizing this is an issue
that's going to be with us for a bit. We need to organize ourselves
to take care of it and manage it in a more organized, efficient and cost
effective way going forward. The issue of the migrants is probably half of the described 7 billion ish problem
that we're dealing with. So roughly half
the second half comes from expenses that were in many cases
came out of the pandemic and services were provided in support of our citizens
as part of the pandemic. And now the aid from
the federal government is receding and some of these services
are still continuing. So that's creating this gap. So those are the two issues. And Mayor Adams asked for a group of us. There are about a handful were people
that worked in city government, worked in the budget office,
come from labor, come from business, organized in part
by the New York City Partnership to work with his budget office to figure out ways
we can make suggestions. But those are the two issues
that we're thinking about. Bob, you were responsible for economic development, right,
as a mayor under Mike Bloomberg. Is there a possibility
this is a timing issue? And by that I mean this. Economists tell us that overall
economic growth is driven in part by the number of workers. These migrants that have come in
have the potential to be workers to add to the economy. Is it possible that over time it actually
could be a help to the New York economy? David, I think you really hit the
the nail on the head that basically our city for New York
has an amazing history for over 400 years. We all know that that immigrants
have been the foundation of New York City. We also know from economists
that immigrants are a special active
ingredient to the economy of New York. Immigrants start new businesses. They they're more creative. They work longer hours. So over time,
these new New Yorkers will be an asset. But it is a shock to us
currently to organize the processes and the services for them
and to get them their foot on that first rung of the ladder so they can start
be contributors to the New York economy. Bob, talk about the other half of the problem, as you described it,
which is the build up of some costs for good and sufficient reason
when there was money coming in for the federal government
tied to COVID that now we no longer have. It's always hard to cut. You know that. I know that in business it's
not easy to cut light, easy to expand. How realistic is it politically to make
the sort of cuts that need to be made? Well, we're going to have to. So there's no choice of not balancing
our budget that's required. So we're on the mission to solve
that puzzle of balancing the budget. You're correct that costs
are always difficult to take out. I think to David and in this situation,
the amount of cost that we have to take out are higher than a normal recession
or a normal impact. So it's really important
we can't solve these by reducing by 5% across all the different agencies. We're going to have to be quite strategic
about what areas can we reduce and what areas
really just have to stay as they are. You know, people have expectations for New York. We're a class of one in terms of world
class cities. People expect New York to be safe, clean
and provide a certain level of services. So we're going to have to be very careful in how we organize the reductions
that we're going to have to do. And it can't be done
across the board in a uniform way. But instead,
this is where the budget director in the mayor's administration
and I think have the right idea. But it's a balance. And, you know, we have the city
council has a point of view. We have
the administration has a point of view. And we have Albany, the governor and the legislators in Albany
that have a point of view. And so balancing the different
perspectives of all these people is really the challenging puzzle
that we're trying to help solve. Well, thanks so much.
That's really helpful. I'm still going to be staying with us as we turn to the global push
for infrastructure investment. That's next. On Wall
Street Week on Bloomberg. That's next. On Wall
Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. Infrastructure has gone from the boring building of roads, bridges
and water systems to be all the rage, not just the United States,
but all around the world. Bob Steele Perella. Weinberg helped put together
one of the biggest deals in recent years BlackRock's
purchase of global international partners for 12 and a half billion dollars. But when we sat with Bob,
we started with the larger context. I try to think about this with a bit of an
on ramp into the conversation. You know, for thousands of years
we had an agrarian economy. For little more than 100 years,
we transitioned to an industrial economy, and now we're in the stage of moving
to a knowledge and global economy. And each one of those economies
require a different set of foundational infrastructure
in order to allow the economy to succeed. And so there are lots of transitions
going here, and there'll be lots of spending required
to organize that transition. You're right,
there's an energy transition underway, but there's also a transition with regard
to how we move goods and services
in a global economy. Ports, airports, things like that. And so and the digital infrastructure
required to. And, you know, we all grew up where we built
a highway system in America to move cars. Now we need the digital infrastructure
to move data, which is the equivalent of in my mind, of the highway of knowledge
for the future. So all of these things are coming
together. Yes, energy
transition is a large part of it, but I think it's much more than that. Well, given the size of it, it's too big
for either the private sector to do it by itself or for that matter,
for government to do it by itself. What is the relationship of the private
and the public as we move into this transformation
you describe in infrastructure? Well, let's let's think about it together. First of all, it's up to government and our elected officials
to organize the projects and the rules and regulations
for how the economy should be set. And that's their job, is to lay out
what's the destination or the blueprint. And I think that. But when you get to implementing that,
I believe there's a special role for the private sector
that I believe can do in many cases, a better job of organizing,
executing, planning and delivering on the ambition
that government has outlined, that the government is going to write
the rules on energy transition. What are the requirements for cars,
what are this and that? But it's up to business to respond
and work with government in order to lay down the tracks
to accomplish this and take us to the destination
that our elected officials have organized in response
to what we all think in these. In the US, the government has laid down
a lot of infrastructure track in the last three years
through the Inflation Reduction Act, the bipartisan Infrastructure bill
and the Chips and Science Act. I think that the three examples you gave of legislation and direction
from the federal government are all in the right way,
and they're serving as a stimulant to basically encourage
this type of investment. We know that the CHIPS Act,
while controversial, is going to bring new focus to the semiconductor industry
in the United States and the group. On behalf of Secretary Raimondo
that's organizing that are working hard to make sure the money is allocated
in the right way to the right places, so that when we come back in 3 to 5 years,
we've really made progress. And think about that for a second. It was a government organized project. The government brought in outside advisors
to help them allocate the capital. The capital will go to companies who now
we're going to be managing that way. That seems to me like a good combination of interest and skills where hopefully we'll make progress on this,
but it's going to take a long time. Whatever the efforts of the US government,
it's not alone in pushing hard on infrastructure, particularly when it comes to chips
and particularly when it comes to China. You know, it's easy
to imagine a fantasy world in which no one subsidizing, but
that's just not the world that we live in. And in fact, China started
its semiconductor subsidies first in 2014. She called semiconductors
a core technology, and China started setting up its first government
backed investment funds to pour money into the chip industry. And so whether you're the US or Japan or Europe,
you've got to act with that as a fact. That's just a given and you got to devise
your policy around that. And I think one of the reasons
why the US Congress passed the CHIPS Act was because they realized
that there were U.S. firms US based firms
that were getting more money in subsidies from foreign governments
than from the US government. And so given those circumstances,
it wasn't a surprise that US companies were moving
manufacture overseas. And so given the scale of Chinese subsidies,
I think a lot of governments are saying we may not like industrial policy,
we would be skeptical of it. But what is the alternative? Given the size of the need
and the opportunity, the government alone can't drive the transformation
in infrastructure that's needed, including large nonprofit foundations
like the Rockefeller Foundation. Every big company out there should be
a big part of this transition. If you run a food company,
you should join a coalition. We're helping to establish that once 50%
of your supply chains to be from regenerative agriculture, agriculture
that actually sequesters carbon and avoids releasing
unnecessary carbon into the atmosphere. And those types of transitions are going to be fundamentally
commercial transitions. One way to let the marketplace direct
all this capital to the most effective uses
is through a voluntary carbon market. So I think these are very
practical issues. Now combine that with governments and NGOs who are trying to come up
with realistic solutions and they need concessionary capital,
they need first loss money. This is where I think
that the voluntary carbon markets can help because companies
that are making every effort to get to either
carbon neutrality or net zero nonetheless can't get there
because the infrastructure isn't in place or technology isn't in place when it comes
to global investment in infrastructure. It's not just a need. Major players
see it as a ripe opportunity. As we saw in the recent acquisition
of global infrastructure Partners by BlackRock, this is going to be
the golden age of infrastructure investing both in terms of the need
for capital as well as investors who want that capital. Okay. And so the question we asked ourselves was
how can we accelerate the pace at which we're getting things done,
investing in new assets as well as getting pension funds as well, funds, asset
managers to give us additional capital. And so if you look at the the the marriage
between ourselves and BlackRock, Rob commuter said it was one plus
one equals four. I'm not sure whether it was four or five or three, but he's certainly right
that one plus one is more than two. As Larry said, perfect mirror
images of each other. We have a great infrastructure business,
but very complementary with us. We do large cap transactions,
they do mid-cap transactions. They have a terrific infrastructure debt
business. It's primarily investment grade. Ours is primarily below investment grade. We have an infrastructure solutions
business which which we don't have. So you put these two businesses together,
we can go to governments, we can go to companies large, small, medium sized
and offer them an integrated solution. The conversation you had with Larry
and by you highlighted this idea. Our firm was the advisor,
one of the advisors on that transaction. And I think what you're seeing
and what Larry, and by you talked about was that there's a global demand
for capital, private capital to go with government capital in order to organize these large
and important products. And now, David,
the scale of these projects is so large, and they're just a small handful of firms
that can provide the capital of which the combined BlackRock GAAP
combination will be one of the leaders. But there's different types of capital. The way I think about it is
the government can provide some of the foundational capital
to size the risk. So that it's appropriate
for private capital to come in. Some of these projects are so big
and they're subject to change by the population
and by by legislators and regulators. That's not the right risk
for private people to underwrite. That should be underwritten by government. And then private capital
should come in to work with the projects once they're defined. And that's what the infrastructure
investors have been able to accomplish. And so providing the private capital
and I think also private capital speaks to the issue. You were just talking about is where do you get the discipline
to manage the projects well, to make the hard decisions
and allocate capital in the right way? I think that when private capital is part of the equation
that brings that skill to the table and ensures that the project
turns out in a better, more efficient, more focused fashion
than if it were just a government project. And that gives expertise in putting together and running
big projects was an important part of what BlackRock saw when it made its 12
and a half billion dollar investment. They invest in major and larger projects
than we did in infrastructure like Gatwick Airport and Sydney Airport,
but they're particularly superb in the operational efficiencies
of these investments. They improve the quality of service. And so if you think about what we have
brought at BlackRock over the last eight years in infrastructure,
what GIP has been doing since 2006, the two organizations
looked like a perfect match and then you've overlay
the cultural connection and we always underwrite,
estimate the cultural connection though. JP Now combined with BlackRock,
is one of the biggest global infrastructure players,
it is far from the only one. It's not just JP, it's not just BlackRock. If you look at Prologis,
if you look at really any large company investing in infrastructure or logistics,
looking at two areas, one is clean energy and energy transition
in order to reduce costs and increase reliability
and reduce risks and also air obviously. And those are getting more
and more intertwined and interrelationship between AI and clean energy, I think
will be an interesting area to watch when we're talking
the trillions of dollars that will be needed for infrastructure
investment around the world. You simply can't get there without major roles for the private sector
and for the markets. I trust the marketplace and business on behalf of the marketplace with their ambitions to organize
how to pursue the path. And so that'll be the idea. We know that we have an issue
with greenhouse gases and we know we have an issue
with the carbon aspect of the economy. Now, as I said, when I started, there were 100 years
of the industrialization of America and the driving energy form came from
hydrocarbons, and that was successful. It lowered the price of energy. And we know low energy prices and energy
availability are very progressive,
positive aspects for growing the economy. And we became connected to that form of energy
and it accomplished a lot of great things. Now we're at a point we recognize
that's not the right path for the future. So we're going to pivot. We know the large generators of greenhouse
gases. We know which transportation, we know
it's heating, we know it's industrial, we know all the different things that are and we're going
to have to make adjustments to each one of those things
by public policy. And then I think the marketplace
can respond by helping
to organize it in the right way. Coming up, wars in Ukraine and Gaza. Military pressure from China. Whoever wins the White House in November, they will face a range of challenges
and opportunities. We go through them
with Richard HAASS of Centerview Partners. Our ability to set a model that the rest
of the world respects that's questionable. That's next on Wall Street
Week on Bloomberg. That's next on Wall Street
Week on Bloomberg. This is Wall Street Week. I'm David Westin. Whoever is elected president
of the United States in November, they will face a daunting list
of foreign relations challenges. And in some ways,
the two most likely candidates, President Joe Biden and former President
Donald Trump, have distinctly different policies
when it comes to dealing with the world. To give us a sense of the challenges
and the approaches, we welcome back now
Richard HAASS of Centerview Partners. Richard is president emeritus
of the Council on Foreign Relations, and he writes a weekly newsletter
I recommend on Substack. It's called Home and Away. Richard,
great to have you back with us. Great to be back, David. So,
first of all, talk about the campaign. Traditionally, it's
thought that presidents are not elected based on foreign policy. Is that good to be true this time, too? For better or worse, that will be true. I actually think Joe Biden's done
a pretty good job on foreign policy. I might have. One or two errors.
I disagree. But whatever you think about it, I don't think voters are going to have
that foremost in their minds. Might be questions of his age or Mr. Trump's legal issues, maybe questions
of the border or inflation, you name it. What's so interesting,
David, though, is even though most voters won't vote on the basis of foreign policy,
whoever is elected, given what you said in the lead
in the differences, this election will have enormous
consequences for the world and for America's relationship
with the world. Yeah, one of the things it strikes me that
George W Bush did not on foreign policy. And yet he ended up being a foreign policy
president whether he wanted to or not. So give us a sense
of some of the differences, you think, on some of the key issues of war in Ukraine. You've got Middle East,
you've got climate. You've got China for some of
the differences between these two people. Well, actually, China's one of the areas
the differences might not be that great. They're they're both pretty tough on China
economically. Not so clear about geopolitically, Mr. Biden. This tough
not clear about Donald Trump on trade. Neither one of them as much
of an enthusiast for as you've noticed. Both wanted to get out of Afghanistan,
but that probably ends most of the most of the similarities. Ukraine,
obviously fundamental differences. Joe Biden has really made
that the centerpiece of his foreign policy more broadly. The centerpiece of his foreign
policy is allies. It's an ally first approach. He sees allies as giving us a real comparative advantage,
a way of leveraging American power. Donald Trump sees
allies as an albatross as free rioters. He doesn't much care about them,
doesn't much care about Ukraine's fate. That's
probably the biggest single difference. Climate change,
though, is also fundamental. Last time Mr. Trump was only took the United States
out of the so-called Paris process. Joe Biden did. The IRA
very much wants America to more than pull its weight in the in the climate area. Middle East is more complicated. Not clear that either would have a whole lot of influence
over this Israeli government. Mr. Biden
may try to try to have more influence. Not clear, though,
that it's leading to too much. When Mr. Trump was president, he wasn't much
interested in the Palestinian issue. Joe Biden, however, is a big difference. Big difference there. Iran, Neither one is quite sure
what to do. Iran is getting closer to nuclear weapons
capability. Donald Trump, some would argue, helped
pave the way to that by pulling the United States out of the
the nuclear agreement. Joe Biden wanted to get the United States
back in, and it didn't work either way. Who's ever elected? He's going to have to deal with an Iran
that's probably on the so-called threshold of of a nuclear agreement. Plus,
you make a really good point more broadly. You don't know what's going to happen. We tend to think of what's at stake
for the United States in the president. I wonder what's at stake potentially for Europe in this election,
because you mentioned Ukraine. NATO's just this week.
This has been in the news. Given what former
President Trump had to say about inviting President
Putin to invade a country, if you want to,
but also on the trade front. President Trump, when he was president,
was that particularly friendly to Europe? What's at stake for Europe
and the pressures that we put on Europe, if, in fact, Donald
Trump pursues the things he says he made big, big, big differences. And I think one of the reasons
Europe is now so focused, almost obsessed with with with our politics. Donald Trump represents
potentially a fundamental departure. NATO's American commitment to Europe
has really been the mainstay of our relationship with the world
for, what, three quarters of a century? It is not clear that Donald Trump values
that. Not clear
that he would continue to support it. And he doesn't have to pull the United
States out of NATO's formally in order to essentially undermine the value
the of the commitment. If Joe Biden is elected, you know, it's
going to pretty much continue. But I think a fundamental question
mark over America's commitment, not just to Ukraine,
but to Europe across the board. Indeed, one of the things going on
in Europe now, David, is how do we how did they prepare for this possibility,
either if Trump were elected or even if he's not, if Congress
begins to get in the way of like they are. In the case of Ukraine, though,
really interesting conversations are taking place in Europe about
how they become either less dependent on the United States, more self reliance
or some combination of the two. One of the things you've written about,
talked about and written about for years is the connection between domestic
strength and our position in the world. You wrote a book on the subject, actually,
a fascinating book. What about the choice between these two
individuals and strength at home? I mean, on the one hand,
it doesn't look like either one of them wants to address
the deficit. The debt. Right. On the other hand, Donald Trump
wants to have a lot more fossil fuels. Joe Biden doesn't. So on the Joe Biden, interestingly,
we are the largest fossil fuel producer, oil
and gas producer in the in the world. But I think it is true to use the title,
the foreign policy does begin at home. It doesn't end there, as I once
pointed out in the conversation with Mr. Trump. But it does begin there. I think either one of them
potentially faces political dysfunction. That's why the elections this fall matter,
not just the presidential election. I assume there's going to be
a Republican Senate. How the House goes could have
a really big impact on the ability of, say, a Joe Biden to to govern
if he were to be reelected. You mentioned the deficit and the debt. I don't see either side
with real enthusiasm to address entitlements, can't do anything
about interest on the debt. People are uncomfortable
dealing with taxes and so forth. Discretionary domestic spending
is too small to have or real impact. So one assumes that our debt
is going to climb. The only question is, is is how fast under
either this questions of immigration, this questions of public education,
we can go there'll be real differences domestically. And I think yeah our ability
to set a model that the rest of the world respects
that that that's questionable. Our ability to to get things done
that's really questionable and that will that will undermine American foreign
policy if we don't have the resources, we don't have the necessary continuity
to be a great power, you need to be predictable and reliable. And right now, I'm not sure that's consistent
with the reality of American politics. Richard, such a treat
having a Wall Street week always. Thank you so much. That's
Richard HAASS of Centerview Partners. Coming up, when winning a battle may be worse than losing it. That's next. On a Wall Street week on Bloomberg. On a Wall Street week on Bloomberg. Finally, one more thought. The German World War two,
General Erwin Rommel, said don't fight a battle
if you don't gain anything by winning. I learned that lesson at my first annual
shareholders meeting of Capital Cities. AVC I was a brand new general counsel,
and I was proud that we'd won the battle of keeping a shareholder initiative
off the ballot after taking it to the SEC. As I sat in front of hundreds
of shareholders on the dais with the chairman, CEO and CFO. I watched in dismay as person
after person stood up and told us we should be ashamed for not putting
their idea on the ballot for the meeting and every one of those shareholders
worn a nun's habit or priest's collar. It turned out that the initiatives
had come from a group of Roman Catholics, and my chairman and CEO
were devout Catholics. As we walked off that stage,
the CEO said to me quietly but firmly, Make this go away, which of course I did. This week
we had more than one example of people fighting battles
with questionable results. Even if they win, farmers
from the United States to India to Spain are up in arms about higher costs
on climate regulations, with the most militant in France
where they shut down the capital. We share the goals, for example,
the protection of nature, because we all live in nature
and with nature and the best ambassadors for nature
are the farmers themselves. And important
is for us that we find common solutions. But it's not clear
what farmers will gain, given what climate change
is doing to their livelihood. If you take, for example, the Western United States, everything
west of my house and in Colorado, the combination of specialty products,
a portfolio of different types of products which are having different price
and supply and demand dynamics exacerbated,
of course, by terrible drought conditions unevenly distributed
across the entire western United States. The story there is of a net decline of net
farm income on a consolidated basis. We've known all about Elon Musk's odd
battle with Bob Iger for not advertising on X,
but then again, Bob may now be picking his own battle
with an important partner of his. Reports are that the NFL is none too
pleased with plans for ESPN to form a joint sports streaming service
with Fox and Warner Brothers Discovery, something put together in secret
at the same time that reported the NFL was considering
an investment in ESPN. There's is certainly an unusual situation. They haven't decided who's
going to manage it yet, but you can imagine
there'll be fights over control and payments and strategy
and things like that. Of course, the most renowned
picture of battles may be our former president, Donald Trump, who has made
no secret of his skepticism about Naito. This week, the former president
raised the decibel level by taking on pretty much all of Naito, saying
he told at least one NAITO member that he would welcome
President Putin's attacking them if they didn't meet their commitments
for defense spending. They said you got to pay up. They asked me that question. One of the presidents of a big country
stood up, said, well, sir, if we don't pay and we're attacked
by Russia, will you protect us? I said you didn't pay your delinquent. He said, Yes, let's say that happened. No, I would not protect you. In fact, I would encourage them
to do whatever the hell they want. And then there
was the biggest battle of them all. That is, of course, the Super Bowl,
where everyone expected a knockdown, drag out fight to the finish between
the San Francisco 40 Niners and the Kansas City Chiefs, which is what we got
with the Chiefs winning in overtime. But what we might not have expected
was a separate battle on the sidelines between Chiefs star tight
end Travis Kelce and his coach, Andy Reid, triggered apparently by Kelsey's
displeasure at not being on the field. He subsequently quipped
that rather than cursing him out the way the Lip readers said he had,
he really said something much nicer. I was just telling him
how much I love him. But in the end, despite
picking a battle with his coach, Mr. Kelsey did get the big reward of a kiss
from none other than, of course, Taylor Swift. That does it for this episode of Wall
Street Week. I'm David West and this is Bloomberg. See you next week.
