Latest / Bloomberg Intelligence / Energy Driven Inflation Risks, Mounting US Debt & The Case Against Cutting Social Security

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Energy Driven Inflation Risks, Mounting US Debt & The Case Against Cutting Social Security · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Bloomberg Money.
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  Speaker 4: This is the Bloomberg Money Podcast. I'm Scarlett Fu with
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  Speaker 4: Good noon, everyone. Bloomberg Money, our show on personal finance, retirement,
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  Speaker 4: and wealth management. I'm Scarlett Fu. Tom Keen is off today.
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  Speaker 4: Coming up on the show today, Richard Haass, Centerview Partners
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  Speaker 4: Senior Counselor and President Emeritus of the Council on Foreign Relations.
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  Speaker 4: He makes the case that a strong foreign policy begins
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  Speaker 4: with meeting domestic challenges like a swelling national debt or
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  Speaker 4: a lopsided economy. Plus, we've got Ellen Zentner, Morgan Stanley
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  Speaker 4: Wealth Management Chief Economic Strategist and Global Head of Thematic
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  Speaker 4: and Macro Investing. She's done a ton of work on
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  Speaker 4: longevity and the new long-term opportunities that that creates. But first,
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  Speaker 4: let's get a snapshot of where things stand in the markets.
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  Speaker 4: Stocks are rising on a combination of falling oil prices
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  Speaker 4: and in pretty much as expected CPI report. For the Dow,
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  Speaker 4: the S & P and the Nasdaq, the first gain
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  Speaker 4: in five days. Notable that the S & P is
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  Speaker 4: still about 1.6% shy of a record high set back
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  Speaker 4: on Friday. August 13th. The VIX currently down right now
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  Speaker 4: to about 15, but it did get above 18 yesterday.
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  Speaker 4: Let's look at the cross asset board because yields are
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  Speaker 4: backing off from multi-year highs. The 10-year yield now at 4.94%.
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  Speaker 4: It almost touched 5% overnight. but has managed to back
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  Speaker 4: away from that level. Dollar index, little change at this hour.
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  Speaker 4: And oil prices retreating after yesterday topping 104 a barrel.
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  Speaker 1: That is the U.S.
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  Speaker 4: Benchmark WTI. It was a four standard deviation move, I'm told.
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  Speaker 4: Tom Keen actually texted me and told me that. And
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  Speaker 4: diesel prices, of course, you know, a product of oil
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  Speaker 4: rising past $ 6 a gallon. We're going to get into
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  Speaker 4: all of that shortly. So let's get into the conversation
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  Speaker 4: right now, because joining us at the Money Desk this
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  Speaker 4: afternoon is Bloomberg Money Managing Editor Nikki Waller. Bloomberg Intelligence
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  Speaker 4: ETF Senior Analyst Eric Valtrunis, our Washington correspondent Tyler Kendall
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  Speaker 4: in New York today, and Bloomberg Opinion columnist Alison Schrager,
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  Speaker 4: who's also author of the upcoming book, Worth the Risk,
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  Speaker 4: the seven myths that keep us from taking the chances
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  Speaker 4: we need to take. So we got to start with
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  Speaker 4: the big data point today, which was inflation. And Alison,
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  Speaker 4: those numbers came out today at consumer prices, wholesale prices
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  Speaker 4: came out Previously, they pretty much met or rose slightly
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  Speaker 4: more than expected. So a rate hike feels, what, inevitable
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  Speaker 4: at this point? Well, it was warm, but not hot.
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  Speaker 5: And so the market's now pricing in maybe two rate
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  Speaker 5: hikes later this year. I think the question is, though,
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  Speaker 5: is that really going to be enough? I think what
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  Speaker 5: we're starting to see is maybe sort of what we
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  Speaker 5: don't want to realize, which is inflation might just sort
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  Speaker 5: of be settling around 2.5%, 3%. And sort of this
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  Speaker 5: nice deflationary pressure that we had is played out. And
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  Speaker 5: if we really want to get inflation back to 2%,
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  Speaker 5: it's going to really take more than tough talk and
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  Speaker 5: a couple of rate hikes. And are we really willing to.
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  Speaker 4: Do what it takes to decrease demand?
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  Speaker 5: Because what we do is a lot of this inflation
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  Speaker 5: pressure is from supply things like energy. So you're going
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  Speaker 5: to have to really bring down demand based on where
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  Speaker 5: it is now to get your hands around inflation. And
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  Speaker 5: it's not clear we really have the appetite for that. Right.
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  Speaker 4: That would require a series of rate hikes, not just
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  Speaker 4: one 25 basis point hike. Potentially a recession. Or a recession. Nikki,
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  Speaker 4: you've been looking into the data points of the inflation report.
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  Speaker 4: What did you pick up?
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  Speaker 6: So one thing to look at is not just what
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  Speaker 6: happened last month, but what is going to happen in
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  Speaker 6: the future. We saw the other big number that you
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  Speaker 6: mentioned earlier, that diesel went up to $ 6 a gallon.
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  Speaker 6: That shows up in the CPI. Fuel costs, obviously, a
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  Speaker 6: huge part of that number. But the other thing that
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  Speaker 6: we're going to see with all of those costs is
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  Speaker 6: that Diesel is the price of getting your groceries to
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  Speaker 6: the grocery store. So even more price hikes are in
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  Speaker 6: store for things like the bananas and beans that you're
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  Speaker 6: going to be buying at the grocery store right now.
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  Speaker 7: Yeah, you know, when it comes to this oil spike
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  Speaker 7: and the Iran situation, there's been this like back and forth.
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  Speaker 7: with the president, you know, wanting to have peace talks
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  Speaker 7: when oil goes too high because he's well aware he
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  Speaker 7: does not want to have rates go up. It's horrible
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  Speaker 7: for the economy. I think the stock market is kind
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  Speaker 7: of a governing force over the whole apparatus. And so
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  Speaker 7: the idea that oil goes up, stocks go down, there's
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  Speaker 7: always reversal. So I think that's going to keep inflation
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  Speaker 7: in check. And I'm going to take the under on
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  Speaker 7: the rate hikes and go with zero.
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  Speaker 1: Or even a cut.
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  Speaker 4: You've been sticking to this point for a long time
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  Speaker 4: because it all goes back to the president does not
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  Speaker 4: want rate hikes. He wants rate cuts. And it's pretty straightforward.
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  Speaker 3: Yeah.
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  Speaker 7: I mean, he sat there and interviewed this guy and
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  Speaker 7: I'm sure it came up. And I just think that's it.
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  Speaker 7: People overthink it.
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  Speaker 4: People overthink it. So, Tyler, you're here in New York.
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  Speaker 4: But of course, there's a lot of action in Dallas
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  Speaker 4: and you helped cover what was going on at the
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  Speaker 4: first ever midterm convention held by the Republicans. Did they
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  Speaker 4: bring up gas prices? Did they bring up affordability concerns?
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  Speaker 8: It's interesting because how we did see it brought up
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  Speaker 8: was through what is considered to be a rather unusual
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  Speaker 8: proposal with this potential for a $ 5, 000 check to be
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  Speaker 8: sent to Americans if Republicans end up winning both chambers
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  Speaker 8: of Congress. We have to say that we did have
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  Speaker 8: the NEC director, Kevin Hassett, on Bloomberg Television earlier today
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  Speaker 8: who said that maybe this could be done through a
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  Speaker 8: reconciliation package, which we should put context behind. That would
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  Speaker 8: mean that Congress would have to get involved, even if
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  Speaker 8: the president has previously floated that maybe he could do
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  Speaker 8: it without their authority. I'll also point out we hear
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  Speaker 8: a lot from the president about tariff revenues.
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  Speaker 1: Our own analysts have crunched the numbers.
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  Speaker 8: This could be a $ 1 trillion proposal when we talk
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  Speaker 8: about all the concerns with the deficit, how difficult it
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  Speaker 8: is to politically cut spending in Washington. But after those
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  Speaker 8: tariff rebates, refunds from the Supreme Court case, I think
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  Speaker 8: this year we're on track for somewhere close to $ 115 billion.
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  Speaker 8: So we are much farther away from that trillion-dollar mark.
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  Speaker 4: And so, Allison, I want to come to you because
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  Speaker 4: that's an interesting point. The tariff revenue that came in,
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  Speaker 4: I mean, that does help at least slow the growth
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  Speaker 4: of our national debt, doesn't it?
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  Speaker 1: It does.
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  Speaker 5: I mean, that was one of the benefits, supposedly. I mean,
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  Speaker 5: I don't think it's going to take care of our
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  Speaker 5: debt problem. And when I try to be generous about tariffs,
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  Speaker 5: as an economist, I hate them.
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  Speaker 4: But, you know, it is a consumption tax, and I
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  Speaker 4: like those.
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  Speaker 5: But the problem is, I mean, I don't know how
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  Speaker 5: realistic this $ 5, 000 check is, but I think we saw
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  Speaker 5: during the pandemic that sending everyone a check is then inflationary.
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  Speaker 2: Yeah.
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  Speaker 4: And then increases the debt.
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  Speaker 5: So, you know, you're sort of then in a bit
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  Speaker 5: of a pickle that, you know, no tariff revenue, even
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  Speaker 5: if we're tariffing 20 percent, is going to get you
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  Speaker 5: out of, especially because that's another hit to prices.
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  Speaker 4: You know, we had the consumer sentiment report coming out
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  Speaker 4: of University of Michigan, and it shows sentiment, people feeling
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  Speaker 4: lousier about the economy because of the rising gas prices,
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  Speaker 4: the rising diesel prices, Nikki, that you mentioned. But it always...
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  Speaker 4: splits along whether you're a Democrat or a Republican, doesn't it?
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  Speaker 1: It does.
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  Speaker 6: And I think we see much more positive views of
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  Speaker 6: the economy on the red side of the House. At
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  Speaker 6: the same time, I think it is deteriorating broadly as
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  Speaker 6: people are experiencing the economy and not feeling.
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  Speaker 5: Good about it.
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  Speaker 4: Tyler, have the Democrats come up with any kind of
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  Speaker 4: counter-programming to what the Republicans said at the midterm convention
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  Speaker 4: to get their base fired up?
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  Speaker 8: I love that you asked this because this is actually
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  Speaker 8: every question that we asked every Democrat that joined us
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  Speaker 8: this week on Bloomberg television. It's difficult at this moment because,
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  Speaker 8: in one regard, Democrats have the ability to kind of
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  Speaker 8: sit back and say that they don't control Congress at
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  Speaker 8: this point, so they're going to let Republicans run with
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  Speaker 8: what has been negative polling on this. I would point out,
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  Speaker 8: In the consumer sentiment reading, we're seeing only 35 percent
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  Speaker 8: of Republicans believe that the government is doing a good
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  Speaker 8: job with the economy. That is at the lowest level
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  Speaker 8: since President Trump took office. But Democrats face headwinds of
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  Speaker 8: their own, including intraparty fighting.
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  Speaker 4: But you look at the stock market, Eric, and I
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  Speaker 4: pointed out it's still about 1.6 percent shy of its
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  Speaker 4: record high. I mean, the stock market keeps chugging along
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  Speaker 4: because of corporate profits. And I know you've been making
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  Speaker 4: the case for a while now that the stock market
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  Speaker 4: is America's retirement vehicle and policymakers can't let it fail.
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  Speaker 7: Yeah, the political pressure is just it's going to get grow.
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  Speaker 7: It's going to grow and grow, especially as Alison said,
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  Speaker 7: you know, as Lynn Alden says, nothing stops this train.
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  Speaker 7: Both parties are going to spend. There is no nobody's
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  Speaker 7: going to who wants to tax or cut benefits.
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  Speaker 2: It's just politically unpopular.
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  Speaker 1: So the more the stock.
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  Speaker 7: Market becomes the retirement vehicle for Americans. and creates the
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  Speaker 7: wealth effect for the top spenders, it's going to be
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  Speaker 7: a problem if it goes down too much.
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  Speaker 1: And I think.
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  Speaker 7: Investors sense this, because the Fed and the Treasury has
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  Speaker 7: stepped in in times past. That's why VU and CHIL exist.
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  Speaker 7: You just buy VU, and you don't do anything, and
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  Speaker 7: it tends to work out. So through all these headlines,
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  Speaker 7: all year, past 18 months, VU has just taken in
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  Speaker 7: about a billion a day, as well as a bunch
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  Speaker 7: of other ETFs that do the same thing.
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  Speaker 5: And that also puts a ceiling on how much they
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  Speaker 5: can increase rates, because If they increase rates, that lowers
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  Speaker 5: stocks because that's the discount rate.
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  Speaker 4: And if they're taking out everyone's retirement.
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  Speaker 5: Wealth, yeah.
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  Speaker 6: And when you look at retirement wealth, it is higher
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  Speaker 6: than it's ever been. Americans have an average of, I think,
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  Speaker 6: $ 151, 000 in their 401ks. And we just reported from Fidelity
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  Speaker 6: last week that the number of 401k millionaires is higher
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  Speaker 6: than ever before.
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  Speaker 4: It's a matter of whether people do anything with it
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  Speaker 4: because it's on paper, right? It's not actualized just yet,
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  Speaker 4: but it creates that wealth effect. So put this all together, Eric,
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  Speaker 4: because you talk about voo and chill. You wrote the
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  Speaker 4: book on Vanguard and its founder, Jack Bogle. I've heard
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  Speaker 4: you use Vanguard as both an adjective and a verb.
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  Speaker 4: the first person to do that. Why does Vanguard matter
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  Speaker 4: so much to how we save and how we invest?
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  Speaker 7: Yeah, because they made everything basically free. I mean, they
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  Speaker 7: created what's an investor utopia right now. You can basically just,
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  Speaker 7: you don't have to.
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  Speaker 1: Get out of bed.
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  Speaker 4: You could get, you just pick up your phone, type.
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  Speaker 7: A few things and own anything under the sun for
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  Speaker 7: almost no fee. And if Bogle hadn't set up Vanguard
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  Speaker 7: to be a mutually owned company that lowered fees naturally
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  Speaker 7: over 50 years, none of this would exist. There would
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  Speaker 7: really be no economic incentive to go this low. But honestly,
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  Speaker 7: he did it. We call it the Vanguard effect or
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  Speaker 7: the Bogle effect. And it's now hitting active. Even active
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  Speaker 7: is now getting cheap. So investors are in a very
• 10:41
  Speaker 7: good period right now and also.
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  Speaker 1: Think that's why they don't leave.
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  Speaker 7: It's not just the Fed put but they feel like
• 10:46
  Speaker 7: they found a product they can get married to. They
• 10:48
  Speaker 7: don't need to date anymore with different active managers. They
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  Speaker 7: just buy Vu, and they're off the market.
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  Speaker 4: Vu and chill, or Vu and retire at this point.
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  Speaker 4: All right, thank you so much to our roundtable, Bloomberg
• 10:58
  Speaker 4: Money Managing Editor Nikki Waller, Bloomberg Intelligence ETF Senior Analyst
• 11:02
  Speaker 4: Eric Bautrunas, Bloomberg Opinion Columnist Allison Schrager, and Bloomberg Washington
• 11:06
  Speaker 4: Correspondent Tyler Kendall in New York today.
• 11:10
  Speaker 1: You're listening to Bloomberg Money.
• 11:12
  Speaker 4: Stay with us for more to come after this.
• 11:19
  Speaker 1: Welcome back to Bloomberg Money. I'm Scarlett Fu.
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  Speaker 4: Joining us now is Richard Haass, Centerview Partners Senior Counselor
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  Speaker 4: and President Emeritus at the Council on Foreign Relations. And
• 11:28
  Speaker 4: of course, we're pleased to have you here on this
• 11:30
  Speaker 4: 25th anniversary of 9-11. We're going to talk about foreign policy,
• 11:34
  Speaker 4: but more importantly, we're going to talk about domestic policy, too,
• 11:37
  Speaker 4: and the health of our domestic institutions. One of your
• 11:40
  Speaker 4: thesis is that foreign policy begins at home. American power
• 11:43
  Speaker 4: is not just nuclear weapons or aircraft carriers. It rests
• 11:47
  Speaker 4: on the economic, political and social strength of the U.S.
• 11:50
  Speaker 2: Itself.
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  Speaker 4: So my question to you, Richard, is how strong are
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  Speaker 4: these foundations of American power in September 2026?
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  Speaker 2: Short answer, Scarlett, is they're not as strong as they were.
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  Speaker 2: And the short answer is there's not they're not as
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  Speaker 2: strong as they need to be. People don't have the
• 12:05
  Speaker 2: same confidence us. They don't see us the same way
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  Speaker 2: politically whether it's January 6th or other sorts of polarization Economically,
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  Speaker 2: they look at the scale of our debt and basically
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  Speaker 2: say are you Americans? Willing and able to deal with
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  Speaker 2: your obligations your responsibilities because you're not just any other country.
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  Speaker 2: We are dependent Upon you they look at frictions in
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  Speaker 2: our society. So yeah, I think there's a There's unfortunately
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  Speaker 2: real reason to be concerned about, if you will, the
• 12:34
  Speaker 2: state of the country.
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  Speaker 4: And it creates a permission structure for other countries to
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  Speaker 4: do something similar for other actors to kind of follow
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  Speaker 4: in our footsteps.
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  Speaker 2: Well, we're certainly not setting an example a lot of
• 12:43
  Speaker 2: them would want to emulate. That was the whole idea
• 12:45
  Speaker 2: of soft power. that people would see the vibrancy of
• 12:48
  Speaker 2: our economic system, our political system, our society, and they'd say, hey,
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  Speaker 2: we want to be more like them. I don't think
• 12:54
  Speaker 2: a whole lot of other countries are doing that. Plus,
• 12:57
  Speaker 2: we're not leaning on them in the same way. I mean,
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  Speaker 2: we're not going to push them, shall we say. To
• 13:02
  Speaker 2: the contrary, you had these elections in Germany the other day.
• 13:05
  Speaker 2: Instead of expressing concerns, about our right wing pro-Russia and
• 13:10
  Speaker 2: sympathetic to the Nazi past party, you have the president
• 13:13
  Speaker 2: and Elon Musk congratulating them. So yeah, we're in a
• 13:15
  Speaker 2: very different place.
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  Speaker 1: So the president has pulled the U.S.
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  Speaker 4: Out of all kinds of multilateral organizations and agreements. You've
• 13:21
  Speaker 4: made the argument that this kind of retreat would ultimately
• 13:24
  Speaker 4: make Americans feel less secure and less prosperous. And we
• 13:27
  Speaker 4: see this reflected in lots of consumer sentiment surveys. Explain
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  Speaker 4: the connection here. Why should an American who is struggling
• 13:34
  Speaker 4: with housing, with health care, with retirement care whether Washington
• 13:38
  Speaker 4: continues to underwrite global order?
• 13:41
  Speaker 2: Because what happens there doesn't stay there. Here we are today,
• 13:44
  Speaker 2: 25 years after 9-11. What was one of the great
• 13:47
  Speaker 2: lessons of 9-11? That stuff happening in places like Afghanistan
• 13:52
  Speaker 2: could travel here. You had Saudis getting trained by terrorists
• 13:57
  Speaker 2: in Afghanistan, coming over here, killing nearly 3,000 people in
• 14:01
  Speaker 2: a single day. What does that tell us? The idea
• 14:04
  Speaker 2: of a border. We have to rethink it. Well, more recently, COVID.
• 14:08
  Speaker 2: What began, whether it was in a market or a
• 14:09
  Speaker 2: laboratory in Wuhan, China, again came here and killed so
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  Speaker 2: many Americans. Look at trade. All the Americans who lost
• 14:17
  Speaker 2: their jobs because of trade or new technology, or in
• 14:20
  Speaker 2: some cases have gotten jobs because of the ability to
• 14:23
  Speaker 2: export to others. So the idea of foreign policy being foreign,
• 14:27
  Speaker 2: we really need a new template for that. We have
• 14:29
  Speaker 2: to understand that what happens here, your first question, affects
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  Speaker 2: what goes on elsewhere, but also the other way. These
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  Speaker 2: two oceans, the Atlantic and the Pacific, whatever else they are,
• 14:38
  Speaker 2: they're not moats. We are affected by what goes on elsewhere.
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  Speaker 4: Let's talk about fiscal policy because today, collectively, we're seeing
• 14:45
  Speaker 4: the bond market and economists sending warning signals about the
• 14:49
  Speaker 4: national debt, more than $ 40 trillion. How high does that
• 14:52
  Speaker 4: $ 40 trillion of national public debt rank as a national
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  Speaker 4: security issue?
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  Speaker 2: It is a national security issue because the rest of
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  Speaker 2: the world loses confidence in our ability to manage our economy.
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  Speaker 2: They'll move away from the dollar. They'll stop financing the debt.
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  Speaker 2: We will then have to take all sorts of economic measures,
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  Speaker 2: for example, raising rates, not to cool an overheated economy,
• 15:14
  Speaker 2: but simply to attract the financing that we want and need.
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  Speaker 2: And then we're not going to have that money. available
• 15:21
  Speaker 2: for other things, whether it's to build better schools or
• 15:23
  Speaker 2: build bridges or be nice to have some high-speed rail
• 15:25
  Speaker 2: in this country. And we could go down the list.
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  Speaker 2: There's a million things we won't be able to do.
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  Speaker 2: We've already kind of gotten close to that point. The
• 15:33
  Speaker 2: service on the debt, essentially paying the interest on our debt,
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  Speaker 2: is now greater than what we spend on defense. That
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  Speaker 2: is crazy. This is money going down the drain. We
• 15:42
  Speaker 2: want to spend money, the budget, on productive things. We
• 15:46
  Speaker 2: want to invest in ourselves and our own future. We
• 15:48
  Speaker 2: don't want to simply pay off our past profligacy, and
• 15:51
  Speaker 2: that is what we're doing.
• 15:52
  Speaker 4: Well, it brings to mind this erosion of trust. And
• 15:56
  Speaker 4: it's not just foreign countries' trust in America. It's also
• 16:00
  Speaker 4: our own trust in ourselves. There's a new poll from
• 16:02
  Speaker 4: APNORC that shows more Americans have stopped believing in the government.
• 16:07
  Speaker 4: Public trust in federal government information about inflation and cost
• 16:10
  Speaker 4: of living is now 18 percent from 26 percent in 2024.
• 16:13
  Speaker 4: Trust in information about the labor market down to 15 percent.
• 16:17
  Speaker 4: Trust in elections and politics down to 13 percent. Can
• 16:21
  Speaker 4: government or our institutions rebuild or repair that trust, Richard?
• 16:25
  Speaker 2: First of all, it's really depressing to hear statistics like that.
• 16:28
  Speaker 2: That's kind of what you get when politicians continually tear
• 16:33
  Speaker 2: down the government, raise questions about the legitimacy of our elections.
• 16:37
  Speaker 2: When we looked at it, take the 2020 elections, we
• 16:39
  Speaker 2: looked at it. It's 60 court cases. There was nothing there.
• 16:42
  Speaker 2: when you have people talking about the deep state as
• 16:45
  Speaker 2: though the government, the tens of millions of Americans who
• 16:48
  Speaker 2: work for the government, are somehow something else. No, they're us.
• 16:51
  Speaker 2: They're our wives, our husbands, our children, our neighbors. And
• 16:55
  Speaker 2: we want the best and brightest to go into government.
• 16:58
  Speaker 2: We need to trust our country, our government, because we're
• 17:00
  Speaker 2: so affected by its decisions, what it does and doesn't do. Look,
• 17:05
  Speaker 2: it's going to take a few things. It's going to
• 17:06
  Speaker 2: take leadership that stops tearing us down. That would help
• 17:10
  Speaker 2: from the top, but also from the bottom. We need to,
• 17:12
  Speaker 2: for example, have civics taught in our schools. You should
• 17:15
  Speaker 2: not be able to get a high school or college degree,
• 17:18
  Speaker 2: I would argue, without understanding the basics of democracy, the
• 17:21
  Speaker 2: relationships between this country and its individual citizens, your rights,
• 17:25
  Speaker 2: but also your obligations. What do you owe this country?
• 17:27
  Speaker 2: We want more people to do public service, whether it's
• 17:30
  Speaker 2: military or civilian, international or domestic. You have to rebuild
• 17:34
  Speaker 2: the bonds that made this country so special. So when
• 17:36
  Speaker 2: de Tocqueville came over here, what, 200, 150 years ago,
• 17:40
  Speaker 2: he looked at America and he said, wow, this is
• 17:42
  Speaker 2: a country that works together, that's unified. Again, here we are, 9-11.
• 17:46
  Speaker 2: What happened after 9-11?
• 17:48
  Speaker 3: Unity.
• 17:49
  Speaker 2: We came together. What did President Bush do? He went
• 17:51
  Speaker 2: to the mosque in Washington and said, we are all Americans.
• 17:55
  Speaker 2: Whatever our religion, however we dress, we have to be
• 17:58
  Speaker 2: there for one another. We need to hear a little
• 18:00
  Speaker 2: bit more of that.
• 18:01
  Speaker 3: All right.
• 18:01
  Speaker 4: A fired up Richard Haass here on the 25th anniversary
• 18:03
  Speaker 4: of 9-11. You're going to stick with us right now.
• 18:06
  Speaker 4: Later on, according to that survey, more and more young
• 18:08
  Speaker 4: people are also looking at other ways of building wealth.
• 18:12
  Speaker 4: They're considering things like sports gambling and prediction markets as
• 18:15
  Speaker 4: a form of investing. That's something we'll get into a
• 18:17
  Speaker 4: little bit later on. This is Bloomberg Money. You're listening
• 18:24
  Speaker 4: to Bloomberg Money. Stay with us for more to come
• 18:26
  Speaker 4: after this.
• 18:34
  Speaker 1: This is Bloomberg Money. I'm Scarlett Fu.
• 18:36
  Speaker 4: Back with us is Richard Haass, Senior Counselor at Centerview
• 18:39
  Speaker 4: Partners and formerly with the Council of Foreign Relations. Bloomberg
• 18:43
  Speaker 4: Money is our show on personal finance, retirement, wealth management.
• 18:47
  Speaker 4: What's your personal strategy for investing, for saving?
• 18:50
  Speaker 2: Look, I'm not smart enough to do market timing, so
• 18:52
  Speaker 2: I tend to invest for the long term. I'm also
• 18:55
  Speaker 2: heavily diversified. I'm uneasy right now. I'm a pessimist by nature,
• 19:00
  Speaker 2: as you know, from having had me on various shows.
• 19:03
  Speaker 2: And there are times in life, I think, to make money,
• 19:05
  Speaker 2: and there's also times in life not to lose money.
• 19:07
  Speaker 2: So I would think I'm increasingly in the latter camp.
• 19:10
  Speaker 2: So I'm still pretty invested. I'm also not a kid anymore.
• 19:12
  Speaker 4: Because of where you are in your investing career or
• 19:14
  Speaker 4: because of where we are geopolitically?
• 19:16
  Speaker 2: The idea that we're going to get through the next
• 19:18
  Speaker 2: couple of years without some type of a crisis. We
• 19:20
  Speaker 2: haven't had a recession in a decade and a half.
• 19:22
  Speaker 2: We talked about the $ 40 trillion debt. You have to
• 19:25
  Speaker 2: be a real optimist to think that something's not going
• 19:28
  Speaker 2: to happen. Energy infrastructure has not, for the most part,
• 19:30
  Speaker 2: been destroyed in this war. What happens if that were
• 19:33
  Speaker 2: to change? And then you would have $ 200 a barrel. So,
• 19:36
  Speaker 2: you know, when you get older, you've got to have
• 19:39
  Speaker 2: a more conservative investing posture. So I've dialed down gradually.
• 19:43
  Speaker 2: Not flipped the switch, but dialed down.
• 19:45
  Speaker 9: All right.
• 19:45
  Speaker 4: Before I let you go, I've always wanted to ask
• 19:46
  Speaker 4: you about your connection to the Big Lebowski. Because the dude...
• 19:49
  Speaker 4: quoted President George H.W. Bush and his comment on how
• 19:53
  Speaker 4: this will not stand, this aggression, in the context of
• 19:56
  Speaker 4: a rug dispute. You played a key role in shaping H.W.
• 20:00
  Speaker 4: Bush's policy response that led to that famous line, didn't you?
• 20:05
  Speaker 2: Well, this is taking an interesting turn. Yeah, I met
• 20:08
  Speaker 2: the president on the South Lawn that day. This was,
• 20:11
  Speaker 2: I think, it was the Sunday of the war. He
• 20:13
  Speaker 2: was coming back from Camp David. I handed him a message,
• 20:17
  Speaker 2: but it was his line. It was not from me.
• 20:19
  Speaker 2: And he basically said, what have we heard from all
• 20:21
  Speaker 2: of our allies? What happened? Has Saddam made any moves out?
• 20:23
  Speaker 2: And he got really angry when I told him what
• 20:26
  Speaker 2: was happening and what was not happening. And then that
• 20:29
  Speaker 2: was him. That was from his heart. This aggression against
• 20:32
  Speaker 2: Kuwait will not stand. And it really is and was
• 20:35
  Speaker 2: the signature line of his presidency. I remember Colin Powell,
• 20:38
  Speaker 2: who was then the chairman of the Joint Chiefs of Staff,
• 20:40
  Speaker 2: got really furious with me, saying, you put the president
• 20:43
  Speaker 2: up to saying that. We haven't made this decision yet.
• 20:46
  Speaker 2: I said, take it to the boss.
• 20:47
  Speaker 4: It wasn't you. It was him. But it was your
• 20:49
  Speaker 4: policy suggestion, I suppose, that pushed him in that direction. Richard,
• 20:54
  Speaker 4: always appreciate your time. Thank you so much. Richard Haass,
• 20:56
  Speaker 4: formerly with the Council of Foreign Relations. Now, Social Security
• 21:00
  Speaker 4: will start running out earlier than expected. These are according
• 21:03
  Speaker 4: to the latest projections. And some fiscal hawks say that's
• 21:06
  Speaker 4: a good thing because the benefits are too high and
• 21:08
  Speaker 4: they're not meant to be the sole source of income
• 21:10
  Speaker 4: for a middle class retirement. Bloomberg Opinion's Catherine Ann Edwards disagrees.
• 21:15
  Speaker 4: She writes, rather than seeing Social Security as a reflection
• 21:18
  Speaker 4: of 1935's problems, the goal should be to see the
• 21:22
  Speaker 4: program as an answer to 2026's problems.
• 21:25
  Speaker 1: Catherine joins us now to discuss.
• 21:28
  Speaker 4: So, Catherine, Social Security was created in 1935. The country
• 21:32
  Speaker 4: was in a very different place with very different demographics.
• 21:35
  Speaker 4: There have been changes instituted along the way, but not enough. So,
• 21:39
  Speaker 4: is it just time to make a change to it?
• 21:41
  Speaker 10: Well, it's absolutely time to make a change to it
• 21:43
  Speaker 10: because the trust fund will be depleted in the fourth
• 21:45
  Speaker 10: quarter of 2032. What I argue is not to treat
• 21:48
  Speaker 10: this upcoming trust fund depletion as an accounting exercise. We
• 21:53
  Speaker 10: know how to make a, you know, a budget balance,
• 21:56
  Speaker 10: at least when it comes to Social Security. But that's
• 21:59
  Speaker 10: missing the overall point of the program, to have a
• 22:01
  Speaker 10: compact between citizens and their government, to provide economic security
• 22:05
  Speaker 10: at some minimum level going forward. And in 1935, one
• 22:09
  Speaker 10: of the most pressing issues was the desperate poverty of
• 22:12
  Speaker 10: elderly Americans, the number who were showing up to work
• 22:14
  Speaker 10: lines because they simply did not have anything else. Social
• 22:17
  Speaker 10: Security solved that problem. It did an outstanding job. But
• 22:20
  Speaker 10: that doesn't mean that the answer in 2026 is to
• 22:23
  Speaker 10: therefore cut and say mission accomplished. We should think about
• 22:25
  Speaker 10: this very successful tool that the federal government has and
• 22:28
  Speaker 10: how to deploy it in other cases.
• 22:30
  Speaker 2: Right.
• 22:30
  Speaker 4: There have been changes along the way, the most major
• 22:33
  Speaker 4: reform coming in 1983. What was the thinking in 1983
• 22:36
  Speaker 4: in terms of how to approach Social Security?
• 22:39
  Speaker 10: That the trust fund was about to be depleted and
• 22:41
  Speaker 10: they needed to do something in order to balance the
• 22:42
  Speaker 10: program's finances.
• 22:45
  Speaker 1: Social Security really has two eras.
• 22:46
  Speaker 10: In the first half of its 91-year existence, it was
• 22:50
  Speaker 10: a program that was constantly being changed.
• 22:51
  Speaker 1: It was added to, it was expanded, who was covered,
• 22:54
  Speaker 1: what situations was covered.
• 22:55
  Speaker 10: It was not at the start of the program in
• 22:57
  Speaker 10: 1935 that there were benefits for survivors or children, that
• 23:00
  Speaker 10: it covered disability, that it covered all workers, or that
• 23:03
  Speaker 10: the benefits were set in stone. In the first four
• 23:05
  Speaker 10: and a half decades, it was a lot of experimentation.
• 23:08
  Speaker 10: What do we want this program to look like How
• 23:09
  Speaker 10: do we make it work? Once it hit a pretty
• 23:12
  Speaker 10: dire fiscal state in the end of 1982 leading into 1983,
• 23:17
  Speaker 10: we passed a massive reform, and it's been basically in
• 23:20
  Speaker 10: a glass box ever since. We haven't touched it in
• 23:23
  Speaker 10: any significant way. That's the entirety of my lifetime and
• 23:27
  Speaker 10: almost five decades in between reforms.
• 23:29
  Speaker 1: That's a mistake in and of itself.
• 23:31
  Speaker 10: This is a program that benefits from responding to the
• 23:34
  Speaker 10: needs of Americans.
• 23:35
  Speaker 1: I think there's some people who.
• 23:36
  Speaker 10: Would argue that because of the actual dollar amount of
• 23:39
  Speaker 10: the benefits, maybe they're too high today. I think that
• 23:42
  Speaker 10: that's relatively inaccurate, considering that the replacement rates of benefits
• 23:46
  Speaker 10: are meant to be even over generations. I mean, the
• 23:49
  Speaker 10: question is, what are the other problems that Americans are facing?
• 23:52
  Speaker 10: Is there some way that we could continue to expand
• 23:54
  Speaker 10: this program or think creatively about benefits given today's economy?
• 23:59
  Speaker 4: What's the number one solution you can come up with,
• 24:01
  Speaker 4: at least short term, to kind of address this? I
• 24:03
  Speaker 4: don't know if that's even possible at this point, but
• 24:05
  Speaker 4: should there be one?
• 24:07
  Speaker 10: There's no smoking gun, all we need to do is
• 24:10
  Speaker 10: pull out this secret thing and then Social Security is
• 24:12
  Speaker 10: fixed for forever. We need to make a lot of
• 24:14
  Speaker 10: changes to the program, especially on the revenue side.
• 24:17
  Speaker 1: But there's also ways to expand it.
• 24:19
  Speaker 10: Social Security could be the source of a universal paid
• 24:22
  Speaker 10: family medical leave program so that every worker in the
• 24:24
  Speaker 10: United States has dignity when for some reason life happens
• 24:27
  Speaker 10: and they can't go to work for a few months.
• 24:29
  Speaker 10: Social Security could be the program that administers a fully
• 24:33
  Speaker 10: federal and generous unemployment system especially in the face of
• 24:36
  Speaker 10: the impending AI job loss that so many people are
• 24:39
  Speaker 10: worried about.
• 24:39
  Speaker 1: This is a program that.
• 24:41
  Speaker 10: Functions extremely well, that has very low administrative costs and
• 24:44
  Speaker 10: extremely high trust from the United States people, something that
• 24:47
  Speaker 10: the rest of government cannot say at the current moment.
• 24:50
  Speaker 4: So let's use this tool as what.
• 24:52
  Speaker 1: I try to advocate.
• 24:53
  Speaker 4: Yeah, that goes back to the poll that we were
• 24:55
  Speaker 4: just telling everyone about. Catherine, thank you so much. Catherine
• 24:57
  Speaker 4: Ann Edwards of Bloomberg Opinion on Social Security and why
• 25:01
  Speaker 4: it should be not fixed, but I should say it
• 25:05
  Speaker 4: should be preserved the way it is. Joining us right
• 25:07
  Speaker 4: now on Bloomberg Money is Ellen Zentner. She is chief
• 25:10
  Speaker 4: economic strategist and global head of thematic and macro investing
• 25:13
  Speaker 4: at Morgan Stanley Wealth Management to talk about personal investing, retirement,
• 25:17
  Speaker 4: and how you plan for your wealth. But I want
• 25:20
  Speaker 4: to get your reaction, first of all, to Social Security.
• 25:23
  Speaker 4: What does the projection of Social Security running out earlier
• 25:26
  Speaker 4: than anticipated mean for how someone manages their personal finances?
• 25:29
  Speaker 4: I guess it depends on whether you're a baby boomer,
• 25:31
  Speaker 4: you're Gen X, or you're manual. Yeah, absolutely.
• 25:33
  Speaker 1: I mean, I'm Gen X and I remember my parents
• 25:35
  Speaker 1: telling me when I was younger, don't count on Social Security. And,
• 25:40
  Speaker 1: I mean, the way costs are going in this economy,
• 25:42
  Speaker 1: maybe my Social Security would help pay for a few
• 25:44
  Speaker 1: groceries by the time I can collect. But anyhow, you know,
• 25:50
  Speaker 1: I have just come off a marketing trip to see
• 25:54
  Speaker 1: a lot of our clients on the West Coast. There's
• 25:58
  Speaker 1: not one meeting that goes by where they don't ask
• 26:00
  Speaker 1: about Social Security, about the sustainability of our federal debt.
• 26:04
  Speaker 1: These are things that families are really concerned about. And
• 26:07
  Speaker 1: as an economist, for Social Security, we have an aging population.
• 26:12
  Speaker 1: We know this. We've got a lot of aging baby
• 26:14
  Speaker 1: boomers aging out of the labor market. We need a
• 26:17
  Speaker 1: very robust replacement rate, meaning bodies coming into the labor
• 26:21
  Speaker 1: market and paying into the Social Security system. And, of course,
• 26:25
  Speaker 1: that is waning. We heard Catherine talk about possibly AI
• 26:28
  Speaker 1: taking jobs. We don't have population growth in this economy.
• 26:32
  Speaker 4: Immigration has been cut off.
• 26:34
  Speaker 2: Right.
• 26:34
  Speaker 1: And we just had the slowest growth in our country's
• 26:36
  Speaker 1: history in population. Birth rates are falling. And so just
• 26:40
  Speaker 1: for like. conversation starter just to get people saying, what?
• 26:45
  Speaker 1: I'll say things like, thank God for AI because we
• 26:49
  Speaker 1: don't have the bodies that we need. And so you
• 26:54
  Speaker 1: unit economic tax, the robotics, humanoids, all of these things
• 27:00
  Speaker 1: that are replacing labor, and that's what's paying into the system.
• 27:04
  Speaker 1: And I think that's where we're headed. Because that's what
• 27:06
  Speaker 1: fills the coffers of Social Security. This feels very dystopian. Well,
• 27:10
  Speaker 1: you constantly have to have, well, right, but, well, look
• 27:14
  Speaker 1: at the world that we're living in and look at
• 27:15
  Speaker 1: the technological advancements that we're going through. So we have
• 27:18
  Speaker 1: to think outside of the box of how do you
• 27:20
  Speaker 1: continue to fill those coffers of Social Security. It's a
• 27:22
  Speaker 1: revenue problem. And that would bring in more revenues.
• 27:27
  Speaker 4: So you've done a lot of proprietary work on longevity,
• 27:30
  Speaker 4: and this is kind of some of what you think
• 27:32
  Speaker 4: about as well. You point out that fertility rates are declining,
• 27:35
  Speaker 4: having kids super expensive, so fewer people are doing that,
• 27:38
  Speaker 4: and people are living longer. Are we going to end
• 27:41
  Speaker 4: up with a lot more older adults who are driving
• 27:43
  Speaker 4: the economy? Their spending is the engine of this economy?
• 27:46
  Speaker 1: Not necessarily. I would think of it as... With each
• 27:49
  Speaker 1: generation that comes along, they've got different priorities and they
• 27:52
  Speaker 1: do spend differently. I think what I would do is
• 27:55
  Speaker 1: focus on more the aging of the population. And the
• 28:00
  Speaker 1: demographers believe that people who are 65 today in developed
• 28:03
  Speaker 1: countries with good access to health care are going to
• 28:07
  Speaker 1: live into their 90s. That's not even children that are
• 28:12
  Speaker 1: born today where they believe more than 50% of children
• 28:15
  Speaker 1: born today will live to be 100. We have more
• 28:19
  Speaker 1: clients than I can count that are in their 90s,
• 28:23
  Speaker 1: that are over 100. And so what we've been focused
• 28:27
  Speaker 1: on is when we are living longer, which is a
• 28:30
  Speaker 1: great thing, what do we do when people that would
• 28:34
  Speaker 1: normally inherit in their 40s, in their 50s, and use
• 28:38
  Speaker 1: that to buy a home or pay off their mortgage
• 28:40
  Speaker 1: or put their kids through college, what do they do
• 28:43
  Speaker 1: when they're inheriting in their 60s and their 70s? So
• 28:46
  Speaker 1: we have to think about wealth and transferring wealth in
• 28:50
  Speaker 1: a different way. Because as we live longer, we might
• 28:53
  Speaker 1: have different chapters of ourselves in the labor force. We
• 28:57
  Speaker 1: might pass on money beforehand. We might do a lot
• 29:00
  Speaker 1: more generation skipping. Planning, financial planning has to change overall.
• 29:05
  Speaker 4: It's become a lot more complex, hasn't it, to plan
• 29:08
  Speaker 4: for your finances, to plan for a transfer of wealth.
• 29:11
  Speaker 4: especially since you're saying different stages, it might happen early
• 29:15
  Speaker 4: on and then it might have to happen again.
• 29:16
  Speaker 3: Yeah.
• 29:17
  Speaker 1: And what I've been telling clients that I've been meeting with,
• 29:20
  Speaker 1: because on the wealth side of the business is very
• 29:23
  Speaker 1: personal conversations and they're very hyper-personalized. And so, you know,
• 29:28
  Speaker 1: as an economist, yes, the equity market is going like gangbusters.
• 29:34
  Speaker 1: Everybody's seen their financial wealth increase, but it's still the
• 29:38
  Speaker 1: case that the bulk of of wealth creation in the U.S.
• 29:42
  Speaker 1: is generally through homeownership. And you've got a generation that
• 29:46
  Speaker 1: is just shut out of homeownership. So we talk about
• 29:49
  Speaker 1: it taking a village to raise a child. It takes
• 29:51
  Speaker 1: a village to buy a home. And so just helping
• 29:55
  Speaker 1: the next generation, you're sitting on the wealth. It's compounding.
• 29:59
  Speaker 1: A lot of people don't even realize how much it's compounding.
• 30:03
  Speaker 1: By the time they retire, they think they're retiring with
• 30:05
  Speaker 1: a few million dollars, and they find out they're retiring
• 30:08
  Speaker 1: with $ 10 million.
• 30:08
  Speaker 4: They had no idea that that was coming.
• 30:10
  Speaker 1: And they had no idea. And so give it to
• 30:12
  Speaker 1: your children. Help them buy a home, that first home.
• 30:14
  Speaker 1: Help them start to create wealth that way.
• 30:17
  Speaker 4: So the other thing about the people who figure out
• 30:18
  Speaker 4: that they actually have a lot of money, oftentimes that's
• 30:21
  Speaker 4: women because they tend to outlive men. What do we
• 30:24
  Speaker 4: know about how women approach saving and spending that's different
• 30:28
  Speaker 4: than men?
• 30:28
  Speaker 1: It is different than men. So we have more than
• 30:31
  Speaker 1: $ 130 trillion in wealth transfer that's coming. More than $ 50
• 30:36
  Speaker 1: trillion of that will go to women first. Exactly what
• 30:39
  Speaker 1: you said. It's not our fault. We live longer. So,
• 30:42
  Speaker 1: and they behave differently. We find that they are much
• 30:47
  Speaker 1: more apt to invest in philanthropic activities and impact investing.
• 30:53
  Speaker 1: And they just move through the world differently. They are
• 30:57
  Speaker 1: more involved in education and healthcare. Oftentimes, the oldest, and
• 31:01
  Speaker 1: it happens to be female in the family, the oldest
• 31:04
  Speaker 1: child is the caregiver. for the aging parents. And so
• 31:08
  Speaker 1: they've got different priorities. And so we try to do
• 31:12
  Speaker 1: deep dives into understanding how women invest differently so we
• 31:15
  Speaker 1: can prepare our financial advisors for that coming wealth transfer.
• 31:20
  Speaker 4: And we're starting to see that already take place, and
• 31:22
  Speaker 4: it's only going to accelerate in the next 20, 30 years.
• 31:25
  Speaker 3: It is.
• 31:25
  Speaker 1: And I'll tell you what's really interesting that's coming up
• 31:27
  Speaker 1: in conversations as well is that in 2008 with the
• 31:31
  Speaker 1: financial crisis, we were really— we economists were really worried about
• 31:36
  Speaker 1: millennials because— In social economics, we believe that your entire
• 31:41
  Speaker 1: lifetime earnings is determined by where we are in the
• 31:44
  Speaker 1: business cycle when you graduate. And it took them so
• 31:47
  Speaker 1: long to get jobs. But you look today at new
• 31:50
  Speaker 1: data from the Fed, and if you take the median
• 31:52
  Speaker 1: age of a millennial today, they are very much better
• 31:57
  Speaker 1: off than baby boomers were at that age, than Gen X,
• 32:01
  Speaker 1: my generation, was at that age. Because of the stock market.
• 32:03
  Speaker 1: Because of the stock market and the accumulation of wealth.
• 32:04
  Speaker 1: So they've caught up.
• 32:06
  Speaker 4: All right. Growth stocks and being aggressive in their allocation then. Ellen,
• 32:10
  Speaker 4: thank you. A pleasure. And really, come back to Bloomberg
• 32:13
  Speaker 4: Money soon. Ellen Zentner, Morgan Stanley Wealth Management.
• 32:17
  Speaker 1: Really appreciate it. Thank you.
• 32:23
  Speaker 4: Bloomberg Money is your new destination for personal finance. This
• 32:26
  Speaker 4: is a cross-platform effort that extends beyond your television screen,
• 32:29
  Speaker 4: including our new digital hub at Bloomberg.com slash money. And
• 32:33
  Speaker 4: one story that caught my eye this week was about
• 32:36
  Speaker 4: online gambling. According to a new Bank of America report,
• 32:39
  Speaker 4: one in five respondents to the survey saw sports betting
• 32:42
  Speaker 4: as an investment, or at least one kind of investment.
• 32:45
  Speaker 4: This week at Bloomberg's Power Players event held here in
• 32:47
  Speaker 4: New York, I sat down with the president of FanDuel
• 32:49
  Speaker 4: and directly asked him if he thinks that sports betting
• 32:51
  Speaker 4: is a form of entertainment or some kind of investing.
• 32:54
  Speaker 4: Here's what he said.
• 32:56
  Speaker 9: It's primarily, it's pretty much purely entertainment for me personally,
• 33:01
  Speaker 9: and I think that's the way, that's the experience of
• 33:04
  Speaker 9: most of the customers on our platform. I think you're
• 33:06
  Speaker 9: not going to hear us talk about to our customers
• 33:11
  Speaker 9: about spending time on FanDuel as a place that they're
• 33:13
  Speaker 9: going to be investing their money for return.
• 33:18
  Speaker 4: Bloomberg's Zijia Song wrote the story about this report, and
• 33:20
  Speaker 4: she joins us now. So what surprised you in the
• 33:23
  Speaker 4: findings of this report? Because you've written about how the
• 33:26
  Speaker 4: lines are blurring for young investors between sports betting and investing.
• 33:30
  Speaker 3: Yeah, exactly. I think this report really provides a new
• 33:34
  Speaker 3: insight into kind of the recovery ratio for investors.
• 33:39
  Speaker 4: Actually, not investors, bettors in this instance. There you go.
• 33:42
  Speaker 4: Freudian flip there. Exactly.
• 33:44
  Speaker 3: So this Bank of America report shows that for every
• 33:48
  Speaker 3: dollar that's put into these online betting companies, which includes
• 33:52
  Speaker 3: sports betting sites like FanDuel or prediction markets, only 75
• 33:57
  Speaker 3: cents are recovered. Of course, some of the winnings might
• 34:00
  Speaker 3: stay on the platform so that people can roll that
• 34:03
  Speaker 3: into future wagers. But it really shows that online betting
• 34:07
  Speaker 3: is really not a form of sustainable income or payment.
• 34:11
  Speaker 4: All right, Zi Jia, thank you so much. Zi Jia
• 34:13
  Speaker 4: Song with the latest on how increasingly scores of young
• 34:17
  Speaker 4: sports fans are placing their first bets and treating it
• 34:20
  Speaker 4: as investing. This is the Bloomberg Money Podcast, bringing you
• 34:35
  Speaker 4: a smart look at the forces shaping your financial life.
• 34:38
  Speaker 4: I'm Scarlett Fu with Tom Keen. You can watch the
• 34:40
  Speaker 4: show live on Bloomberg Television every Friday at noon, Wall
• 34:44
  Speaker 4: Street time. Subscribe to the podcast on Apple, Spotify, or
• 34:47
  Speaker 4: anywhere you listen. And as always, on the Bloomberg Terminal
• 34:50
  Speaker 4: and the Bloomberg Business app.