Speaker 1: Welcome to Bloomberg opinion. I'm Vonnie Quinn. This week, the
Speaker 1: odds are two and three. will end up with the
Speaker 1: negotiation starting at some point in the next six to
Speaker 1: twelve months. Admiral James De Brit us with a military
Speaker 1: appraisal of Russia's position, seven months and counting into its
Speaker 1: war on Ukraine. This has Vladimir Putin taunts Kiev and
Speaker 1: its allies with implicit threats of nuclear escalation and orders
Speaker 1: the mobilization of as many as three hundred thousand reservists.
Speaker 1: Also referendums in four regions. First, though, to the F
Speaker 1: O MC decision. In the United States, another seventy five
Speaker 1: basis points and fed funds rate increases and more hawkish
Speaker 1: talk on inflation. Longer term inflation expectations appear to remain
Speaker 1: well anchored, but that is not grounds for complacency. The
Speaker 1: longer the current bout of high inflation continues, the greater
Speaker 1: the chance that expectations of higher inflation will become entrenched.
Speaker 1: Bloomberg Opinions Jonathan Levin and John Author is joining. We've
Speaker 1: written down a plausible path and it will will be enough.
Speaker 1: I'm quoting there directly from Fed Chrome Powell, Jonathan Levin.
Speaker 1: This plausible path, very different from what we saw in
Speaker 1: the last stop plot. Does it look plausible to you? Yeah,
Speaker 1: I mean, I think one thing that's sort of interesting
Speaker 1: to observe is that, you know, J pal is sort
Speaker 1: of insinuating that this is it, this is plausibility we
Speaker 1: have for you know, but the pace of the revisions
Speaker 1: has not slowed down at all. If you just go
Speaker 1: back in history a little bit, right in December, three
Speaker 1: fed funds rate was expected to be at one point six.
Speaker 1: March we bumped it up to two point eight. June
Speaker 1: we bumped it up to three point eight. September we
Speaker 1: bumped it up to four point six. As sort of
Speaker 1: Hawk ish takeaway from all of this, from the trajectory itself,
Speaker 1: might be the trajectory of the revisions is going to
Speaker 1: have to probably slow down a little bit until it
Speaker 1: really feels like we're at the top dance. One pointing
Speaker 1: out that this is the highest fed funds rates in
Speaker 1: spurserns collampsed in March, which is kind of hard to believe,
Speaker 1: but at the same time it's not. In some is John.
Speaker 1: It's also the fifth rate like this year. What's been
Speaker 1: what's going on? Well, I think, as you bring in
Speaker 1: bear sterns, I think there is a fairly real sense
Speaker 1: that this is our final, at long, long, long, long
Speaker 1: last exit from the conditions of the global financial crisis.
Speaker 1: I that something like what is happening now is what
Speaker 1: I thought was going to happen sometime around about two
Speaker 1: thousand and ten. But it's amazing how long logic takes
Speaker 1: to work itself out in the real world. So it's
Speaker 1: obviously there's been a risk that eventually you'll see rates
Speaker 1: go up and inflation return, and amazingly it took over
Speaker 1: a decade before it happened. But now you do see
Speaker 1: somehow or other we are going to finally get back
Speaker 1: to something that's more like the world from before the
Speaker 1: crisis than from after it, if you want to comparison.
Speaker 1: I mean at this point I just wonder you have
Speaker 1: a crisis after some pretty bad monetary policy and then
Speaker 1: various monetary mistakes along the way. You bump along and
Speaker 1: you only finally jolt out of that crisis after there's
Speaker 1: been a truly horrible external shock, World War Two and
Speaker 1: the pandemic. Just wonder whether in another generation's time they'll
Speaker 1: see that the decade we've just lived through in the
Speaker 1: thirties as being very similar in financial terms. Well, it's
Speaker 1: funny that you mentioned that because, Jonathan Levin, do you
Speaker 1: agree with me that Fed your Powell almost gave a
Speaker 1: little mini economics lecture at one point during the news
Speaker 1: conference answering a question when he talked about the fact
Speaker 1: that if we can get things back to the two
Speaker 1: percent inflation target, that we could have business cycles that
Speaker 1: are ten years long at least, because that's what we've
Speaker 1: been having. You know, feder pell was playing a little
Speaker 1: bit of a politician here, because he's in a very
Speaker 1: typical place. The fact of the matter is, if you
Speaker 1: just look at the rather conservative estimate for where employment
Speaker 1: is going to have to be, you know this economy
Speaker 1: is going to have to raise more than a million jobs. Right.
Speaker 1: That's very difficult to go out and tell the American people.
Speaker 1: So at the same time he's trying to justify this
Speaker 1: sort of barbaric process and say, you know, look, this
Speaker 1: is this is ugly, this is like surgery. Right, we
Speaker 1: need to go out and do damage to the economy
Speaker 1: in order to make it better in the long term,
Speaker 1: and this is this sort of justification that the economic
Speaker 1: orthodox he keeps coming back to. This may be bad,
Speaker 1: some people may have a really tough run of it,
Speaker 1: but in the long run you can't have sustainable business
Speaker 1: cycles unless you get volatile prices under control. And just
Speaker 1: for points of comparison, he could have gone the full
Speaker 1: Andrew Bailey, because the last Bank of England's meeting was
Speaker 1: about as spectacularly negative as you could possibly imagine a
Speaker 1: central banker would ever be. Britain was going to go
Speaker 1: into recession any day now out and stay there for
Speaker 1: the whole of next year. And I mean he also
Speaker 1: made which is an awful political Faux Pa. He urged
Speaker 1: people not to ask for more money, which doesn't go
Speaker 1: well with the new chancellor saying that he's not going
Speaker 1: to put any limits on bankers bonuses anymore. But anyway,
Speaker 1: there was that possibility of really just saying, I'm sorry, guys,
Speaker 1: call a spade a spade. This is going to hurt
Speaker 1: far better some pain now than worse pain later. Well,
Speaker 1: chair Powell didn't do that, Jonathan, and even though the
Speaker 1: market came away with the idea this was a very
Speaker 1: hoggish some who I basis point hike, he also wouldn't
Speaker 1: go so far as to say, look, we are going
Speaker 1: to have millions more unemployed. We need to have millions
Speaker 1: more unemployed. He said that the costs. Let me get
Speaker 1: the exact quote. If our projections are close to right,
Speaker 1: you will see that the costs in unemployment are meaningful.
Speaker 1: That's not millions of jobs loss, but in fact that's
Speaker 1: what it means exactly. I mean, you know, my takeaway
Speaker 1: is that he took the juring summary of economic projections.
Speaker 1: A lot of people have said that the Ted was
Speaker 1: in fantasy land here. What the Fed is doing is
Speaker 1: it's bumping itself in a pessimistic direction and it now
Speaker 1: finds itself probably somewhere between Wall Street and Larry Summer's
Speaker 1: Olivier Blanchard. But I got to say there's still an
Speaker 1: awfully lot closer to Wall Street than they are to
Speaker 1: the summer's take, which is essentially that you know, just
Speaker 1: to get to neutral unemployment rate in this atmosphere you
Speaker 1: have to be at about five and quite possibly, in
Speaker 1: order to rain in this inflation, they would say you
Speaker 1: might have to go to six or seven percent unemployment,
Speaker 1: and that definitely implies some sort of meaningful recession. So
Speaker 1: how do we see markets adjust? John Author's we saw
Speaker 1: the two year yield topping four percent, but the ten
Speaker 1: year rate declined. Now does that signal that the market
Speaker 1: is anticipating the Fed will gets booked at some point
Speaker 1: and freeze increases, or what exactly is that? I mean?
Speaker 1: The other thing is the thirty year yield declines more
Speaker 1: so apparently the ten very abstres parts of the yield
Speaker 1: curve is now inverted. Um that, I have to admit,
Speaker 1: was one part of what went on that I find
Speaker 1: initially quite difficult to explain. I think you probably can
Speaker 1: in terms of just prior expectations. I think the bond
Speaker 1: market is braced for something was more realistic coming in,
Speaker 1: and I think the hawkishness from Powell helped convince people
Speaker 1: that that you'll have not a pivot per se, but
Speaker 1: enough of an aggressive fed to squelch the economy for
Speaker 1: quite a while and thereby justify lower longer term yields.
Speaker 1: Jonathan Evin, what was your interpretation of the moves and
Speaker 1: the yield curve? Yeah, I gotta agree with John. Very
Speaker 1: difficult to interpret. But I will make one sort of
Speaker 1: separate observation, which is that Powell has really gotten rather good,
Speaker 1: at least comparatively speaking, at manageing financial conditions, and I
Speaker 1: thought that, you know, one of the better moments. We
Speaker 1: all knew that he became much more self aware of
Speaker 1: going into Jackson hole and he knew that he needed
Speaker 1: to keep interest rates up, probably needed to keep risk
Speaker 1: assets down, and he seems to have remembered these lessons.
Speaker 1: There was a great moment when Powell was like yeah,
Speaker 1: you know, I probably shouldn't answer your same question because
Speaker 1: he you know, he has become very self conscious about
Speaker 1: the fact that these dog on markets seemed to rally
Speaker 1: every time he goes before the microphone at one of
Speaker 1: these events. Yes, it's one of the things. I've been
Speaker 1: putting together charts for what I'm going to try writing
Speaker 1: about it. It is extraordinary how expectations in funds features
Speaker 1: got almost all the way up to four percent for
Speaker 1: the end of this year after the May CPI print,
Speaker 1: which came out in June and which was a real,
Speaker 1: real shock. There and then the market basically spent the
Speaker 1: entire summer convince seeing itself that rates wouldn't have to
Speaker 1: go up that much. So the estimates for where rates
Speaker 1: will be only four months from now have written by
Speaker 1: more than a full percentage point since the last fom C,
Speaker 1: which is bizarre. There's not been that big a change
Speaker 1: in concition, yes, and and, and there's not been that
Speaker 1: obvious a change in in messaging. Okay, Jackson hole arguably
Speaker 1: hawked things up a bit, but I don't think it
Speaker 1: was so much more hawkish than my interpretation of what
Speaker 1: PAL said after the previous fo MC. So that there
Speaker 1: is a hope springs eternal might well be something we
Speaker 1: should all bear in mind when covering a covering markets. Well,
Speaker 1: speaking of questions, there was, as there always is, the
Speaker 1: question of you know, monetary policy operates on a lag
Speaker 1: and I think our own Michael Mckee asked how will
Speaker 1: you know, or will you even know, if you've gone
Speaker 1: too far? And Jonathan, the third chair, did acknowledge, as
Speaker 1: is obvious, that monetary policy and the moves have been
Speaker 1: impacting some parts of the economy, interest rates and that
Speaker 1: of parts of the economy, but it's hard to know
Speaker 1: at what point it will impact the broader economy and
Speaker 1: by how much, and so on. Do they have any
Speaker 1: kind of sense of when that will happen or are
Speaker 1: they just a little mind. Still, the short answer is
Speaker 1: they don't know. I mean, as you say, they have
Speaker 1: great not great. They have reasonable visibility into something like
Speaker 1: the housing market, but you know the way that the
Speaker 1: economy is constantly evolving and given the fact that they
Speaker 1: haven't been in a fight like this for decades, they
Speaker 1: really have no idea how it's going to affect and
Speaker 1: with what kind of lag it's going to affect, say,
Speaker 1: consumer segments of the economy, which we know is extraordinarily
Speaker 1: important in the United States. So you know, the bottom
Speaker 1: line is I think they're going off of rules of
Speaker 1: some are in house economists at a long likes to
Speaker 1: say that the lag is something like twelve to eighteen months.
Speaker 1: That's what I tend to go by and I think
Speaker 1: they're going off of rules of pumb that are no
Speaker 1: better than the ones we have at our disposal. Well,
Speaker 1: according to the new SCB headline, inflation won't return to
Speaker 1: the Fed's price target of two until twenty twenty five.
Speaker 1: And we're still in two, let's be clear, and that
Speaker 1: seems beautable to me. And what's quite intriguing also, though,
Speaker 1: about the dots compared to previous years is if you
Speaker 1: look at the estimates for where rates are going to
Speaker 1: be at the end of twenty four and twenty five.
Speaker 1: They look more like a random scatter plot for a
Speaker 1: raw shark test than anything. I think there was no
Speaker 1: more than four governors agreed on any one rate for
Speaker 1: the end of four and the spread was something like
Speaker 1: one and a half one and three quarters percentage points.
Speaker 1: And similarly it's kind of all over the place, right, Jonathan? Yeah,
Speaker 1: and when you're talking about long term inflation objectives, you're
Speaker 1: still in the throes of this debate about between two
Speaker 1: and three. How much does it actually matter? I tend
Speaker 1: to be in the camp that, as far as the
Speaker 1: average American it doesn't matter so much. It only sort
Speaker 1: of matters because the Fed has gone out and made
Speaker 1: this promise and now it sort of has to keep
Speaker 1: it lest it lose its credibility for the next inflation. Well,
Speaker 1: I'm going to get your thoughts on the next increase.
Speaker 1: Sent basis points and then fifty, Jonathan. Yeah, it seems
Speaker 1: reasonable at this point. It almost doesn't feel like what
Speaker 1: happens at the next couple of meetings is that consequential.
Speaker 1: It's really just all about where are we going? And
Speaker 1: probably even more importantly, how long are we going to
Speaker 1: stay there? Yeah, it's just about getting it up there,
Speaker 1: isn't it? John? Yeah, I think the path for the
Speaker 1: next few months for policy is very straightforward, barring either,
Speaker 1: you know, a major geopolitical shock, we've got a picture
Speaker 1: of Volodomy Zelenski on the TV screens around us at
Speaker 1: the moment, or a financial crisis, some really major financial accident,
Speaker 1: which really doesn't look all that likely still. I think
Speaker 1: it's a question of we know roughly what the route
Speaker 1: is for the next few months and then so much
Speaker 1: is about everybody sort of sitting back very tensely in
Speaker 1: the breach position or whatever to see exactly how fast
Speaker 1: inflation does come under control, how what happens to the
Speaker 1: labor market, and very many, number of very intelligent, very
Speaker 1: decent people have been arguing in good faith in all
Speaker 1: kinds of directions over that. We will all learn. Nobody
Speaker 1: knows which way that's going to go, but ultimately the
Speaker 1: courses sets and we just need to see what actually
Speaker 1: happens to the economy. You know, it's really all over
Speaker 1: the place. I mean I noted that, you know, two
Speaker 1: of the most popular e t f s were like
Speaker 1: one to three months treasury bills and the prow sharees
Speaker 1: q q q, which offers a three times leveraged play
Speaker 1: on the Naz Bak. So you know, with all the
Speaker 1: cross currents in this market, I don't expect there to
Speaker 1: be any resolution between. Is this a massive buying opportunity
Speaker 1: for real, or is this at the moment to run
Speaker 1: for cover liquidate everything? That's quite a barbell. That really
Speaker 1: is quite something. Bloomberg opinions. John Authors and Jonathan live
Speaker 1: in there. Russia's war in Ukraine had some turning points
Speaker 1: this week, with Ukraine retrieving a swathle of land previously
Speaker 1: held by Russian forces and Vladimir Putin announcing reserve troop
Speaker 1: mobilization and referendums and territories of eastern Ukraine. I asked
Speaker 1: Admiral James De Rita's Bloomberg opinion columnist and NATO's Sixteenth
Speaker 1: Supreme Allied Commander, also former commander of US Southern Command,
Speaker 1: to join Admiral Yale Historian Timothy Snyder often says that
Speaker 1: military history is not covered as much as it should be.
Speaker 1: So we concentrate on things like strategy or somebody's thinking
Speaker 1: that they're paramounting conversations about war. So let's start there.
Speaker 1: What do we know right now about what shape Russia
Speaker 1: is in militarily, talking hardware, from tanks to drones, battlefield artillery,
Speaker 1: ammunition and so on. In terms of the systems they
Speaker 1: need to prosecute the war in Ukraine, they're in very
Speaker 1: bad shape, and that means manpower, particularly trained soldiers. They've
Speaker 1: evidently lost around eighty thousand killed or grievously wounded. They've
Speaker 1: lost thousands of tanks, thousands of armored personnel carriers. Their
Speaker 1: grown fleet has been destroyed. That's why they're seeking additional
Speaker 1: help from Iran. So the systems they need to conduct
Speaker 1: a ground war against a well equipped, high morale ground
Speaker 1: force like the Ukrainians are very low. Funny, it's important
Speaker 1: to remember there are other parts of the Russian military
Speaker 1: they are quite capable and remained so, notably their submarine force,
Speaker 1: their nuclear forces, their long range bomber forces. None of
Speaker 1: those have been touched by the Ukrainians, but that forward
Speaker 1: ground element has been decrimented I'd say at least fifty
Speaker 1: and that's quite markable at six months of war. Are
Speaker 1: you suggesting that Russia could somehow change this theater into
Speaker 1: something different. I think Vladimir Putin today is looking at
Speaker 1: options to use other longer range systems to attack Ukraine,
Speaker 1: and that could mean using long range bombers to go
Speaker 1: after the electric grid or the water supplies. It could
Speaker 1: mean a massive cyber attack, something we have been watching
Speaker 1: for but he has not yet chosen to undertake. It
Speaker 1: could be the use, at the very dark end of
Speaker 1: the spectrum, of a chemical weapon, which he would no
Speaker 1: doubt try and false flag attributed it to the United
Speaker 1: States or Ukraine. But because his ground forces have been
Speaker 1: so decremented and have failed him, he's looking at other
Speaker 1: options from a military perspective. How easy would it be
Speaker 1: for him to mobilize any of those sorts of efforts?
Speaker 1: Would it just be a question of giving the order?
Speaker 1: It would be. This is the tragedy of the situation
Speaker 1: in which the Ukrainians find themselves, which is that effectively
Speaker 1: they have a massive sanctuary state, that would be Russia,
Speaker 1: where they are proscribed from attacking Russia. They can't reach
Speaker 1: into Russia and attack those sites because they don't want
Speaker 1: to escalate the war and drag NATO into it. So
Speaker 1: the Ukrainians have a very tough situation in that Russia
Speaker 1: can operate from sanctuary basis and strike into Ukraine. What
Speaker 1: would Vladimir Putin have to take into account international relations wise,
Speaker 1: in order to escalate? He's obviously had conversations with president
Speaker 1: she recently. You mentioned Iran. He's maybe not getting the
Speaker 1: support that he would like from both of those countries.
Speaker 1: Would that matter to him? Increasingly it is mattering to him,
Speaker 1: and very recently, of course, in Uzbekistan, the meeting of
Speaker 1: the Shanghai Cooperative Organization and Um the meetings that he
Speaker 1: had there were tepid at best in terms of the
Speaker 1: level of support from Russia, Iran in India. Frankly, moody
Speaker 1: in public really chastise Putin's good to see. So he's
Speaker 1: got a weak international flank there and on the other
Speaker 1: side the United States, NATO, Japan, the Pacific democracies are
Speaker 1: very unified at this point. So Putin has not only
Speaker 1: the military problems we just spoke about and not only
Speaker 1: the economic problems, he's got a significant diplomatic shortfall as well.
Speaker 1: So it seems what you're saying is that a ground
Speaker 1: war offensive to continue. That would be quite difficult for
Speaker 1: President Putin, but he does have other options. At the
Speaker 1: same time, the opinion columnists, Leonid Breshitski talks about Russian apathy,
Speaker 1: and we're seeing internal descent now as well from many,
Speaker 1: dozens of municipal leaders. Will that play a part in
Speaker 1: Putin's decision? So far it will not. He still maintains
Speaker 1: brutal control over the levers of power. It seems every
Speaker 1: week I hear about a new Russian oligarch who mysteriously
Speaker 1: falls out a window of a six more hospital or
Speaker 1: suddenly goes overboard from his yacht. But those cracks are widening,
Speaker 1: and it's not just the oligarch Spannia, it's also on
Speaker 1: his right, and there is a right of Putin in Russia,
Speaker 1: hard right that's saying, Mr Putin, take the gloves off,
Speaker 1: and they're sort of advocating for all the kind of
Speaker 1: escalations you and I just talked about. And then, finally,
Speaker 1: a woman named Ala Pugasheva, who has been described to
Speaker 1: me as kind of a combination of Brittany Spears at
Speaker 1: Taylor Swift, one of the most popular Russian pop music stars,
Speaker 1: has just come out against the war. There are cracks
Speaker 1: emerging and Putin is going to have to deal with
Speaker 1: that as well. We know Ukraine took Marcas much as
Speaker 1: ten percent of the territory that Russia had seized. It
Speaker 1: was seen as a major win for Ukraine. But given
Speaker 1: everything you've just said, can we actually say that Russia
Speaker 1: is losing the war? Is that something that could change
Speaker 1: very quickly? I think the Ukrainians conducted a very smart surprise,
Speaker 1: almost attack, of Blitzkrieg like, and they've taken thirty square
Speaker 1: miles back. Putin's forces stumbled out of those territories. But
Speaker 1: I think your fundamental point is the right one, which is, yeah,
Speaker 1: it's too soon to say who's winning who's losing. At
Speaker 1: the moment the momentum has shifted and it is clearly
Speaker 1: on the side of the Ukrainians. But it's going to
Speaker 1: get harder because Putin's forces are compressing back into smaller
Speaker 1: territorial areas that they've held since is on. The defense
Speaker 1: is a better military position. You have to have three
Speaker 1: times as many troops to over come strong defensive positions.
Speaker 1: All of that, I think, is going to make it
Speaker 1: harder in the months ahead for Ukraine to replicate the
Speaker 1: rather sweeping character of what they've been able to accomplish.
Speaker 1: We talked a little bit about what Russia has at
Speaker 1: its disposal militarily. What does Ukraine haven't need militarily, from
Speaker 1: hardware to all of the other types of artillery that
Speaker 1: you spoke about? They're very well supplied at this point.
Speaker 1: But I'll give you three things that I think are
Speaker 1: on President Zelinski's wish list. One, and at the top
Speaker 1: of that list, is a long range surface to surface,
Speaker 1: highly accurate missile called a tacums. It's an acronym and
Speaker 1: a tacoms is like High Mars, which everyone has learned
Speaker 1: what the High Mars is. High Mars has a range
Speaker 1: of about fifty miles. A tacum is high Mars on steroids.
Speaker 1: It goes two hundred miles. So it would allow the
Speaker 1: Ukrainians to reach even deeper behind the front lines of
Speaker 1: Russia and disrupt their logistics, their command and control. That's
Speaker 1: way up his list. Number two, President Zelinsky would like
Speaker 1: fighter aircraft. It ideally loved F sixteens from the United
Speaker 1: States had welcomed MiG twenty nine for Poland. He needs
Speaker 1: more fighter aircraft. And number three, he would still like
Speaker 1: additional sea going cruise missiles to take the fight to
Speaker 1: the black sie fleet. Beyond those three systems, and those
Speaker 1: are big, important systems, but everything else has been putting
Speaker 1: the hands of the Ukrainians and they're putting into good use.
Speaker 1: Would everything you just mentioned be enough to counter if
Speaker 1: Russia were to mobilize its submarine fleet, for example, as
Speaker 1: he mentioned earlier? I think that what Putin's next big
Speaker 1: challenge is, and you mentioned the word, it's mobilization. He
Speaker 1: is going to have to mobilize troops. That's his biggest
Speaker 1: shortfall at this point and obviously you can build troops
Speaker 1: in a factory. You have to mobilize them, draft them,
Speaker 1: can script them, given uniforms, train them, put them into
Speaker 1: the fight. That's when your base at home really starts
Speaker 1: to dislike what's happening, just like occurred for the United
Speaker 1: States during the war in Vietnam. What brought down the
Speaker 1: United States is participation that were in many ways was
Speaker 1: the unpopularity of the draft. Putin knows that that's a
Speaker 1: big challenge for him coming up. And let's move to
Speaker 1: a different theater, though one hesitant to use the word
Speaker 1: theater because the activities may not meet the criteria for
Speaker 1: that word, and obviously I'm talking about China and Taiwan.
Speaker 1: It was quite striking to hear it spelled out by
Speaker 1: the presidents on CBS of sixty minutes that US troops
Speaker 1: would be involved. So physical troops involved, but when US
Speaker 1: forces defend the island? Yes, if in fact there was
Speaker 1: an unprecedented attack. Is that a departure? Admiral, it was
Speaker 1: read by some as a departure. But, as has happened
Speaker 1: once or twice over the last year, President Biden makes
Speaker 1: a fairly general statement like that and then the next
Speaker 1: day the White House comes out and says there has
Speaker 1: been no change in US policy. So US policy, Vanni,
Speaker 1: as you know, is strategic ambiguity, meaning we're not going
Speaker 1: to define whether or not we're going to be involved
Speaker 1: militarily in China decides to invade Taiwan. That's been our
Speaker 1: policy for over fifty years. That hasn't changed. I think
Speaker 1: the problem is many commentators and analysts look at this
Speaker 1: as an on and off switch. Either we're going to
Speaker 1: fight or we're not going to fight. It's more a
Speaker 1: real stat which is the dimmer that you have in
Speaker 1: your dining room to bring the lights up or down,
Speaker 1: and that re is stat. I think what the president
Speaker 1: was signaling is that Re is stat is ramping up,
Speaker 1: meaning we're going to provide more advanced equipped, more training,
Speaker 1: more engagements, more diplomatic visits. He's signaling Beijing that the
Speaker 1: United States is going to be involved. I don't think
Speaker 1: he's trying to define exactly what our involvement will be.
Speaker 1: So any act of military operation would be something like training.
Speaker 1: It wouldn't actually be fighting. It could be or it
Speaker 1: might be involved in actual fighting, and that's precisely what
Speaker 1: we're trying to convey to Beijing. Is that ambiguity, because
Speaker 1: it complicates Chinese planning, in other words, that China knew
Speaker 1: that we were not going to be involved in fighting
Speaker 1: at all. That might change their calculus and make it
Speaker 1: more aggressive if they have to consider whether we would
Speaker 1: or wouldn't step into combat roles. That complicates their thinking,
Speaker 1: that creates deterrence. Hopefully that avoids the conflict. Admiral, you mentioned,
Speaker 1: or at least I know that you have some ideas
Speaker 1: about who's to blame for growing nuclear arsenal's. Perhaps this
Speaker 1: is a good time to elaborate a little bit. I'm
Speaker 1: not thinking nuclear arsenals are in fact growing globally, and
Speaker 1: that concerns me a lot. Unfortunately, all of the instability
Speaker 1: in the world creates incentives for nations that are not
Speaker 1: nuclear aren't to think about it. So a prime example
Speaker 1: would be Iran, which doesn't have a nuclear weapon as
Speaker 1: far as we know right now, but is certainly very
Speaker 1: close to stepping across that threshold. If they do so,
Speaker 1: the Saudis will probably think very strongly about stepping across
Speaker 1: that threshold. Kim Johnn has nuclear weapons. I think over
Speaker 1: time that causes both Japan and South Korea to think
Speaker 1: about stepping over that threshold. The point is, instability in
Speaker 1: the Global System undermines nations confidence in not crossing that
Speaker 1: nuclear line. That worries me a lot. In today's environment,
Speaker 1: how approximate would a nuclear option be for somebody like
Speaker 1: Vladimir Putin, particularly if he thinks that he's going to,
Speaker 1: quote unquote, lose, which just isn't an option for him. Yeah,
Speaker 1: this is in the category of we want to avoid,
Speaker 1: I think, backing Vladimir Putin into a corner. We need
Speaker 1: to keep open the lines of communication, we need to
Speaker 1: be open to negotiation, we need to encourage our Ukrainian
Speaker 1: partners to be open to negotiation, as distasteful as that
Speaker 1: will be to them in the face of, for example,
Speaker 1: the horrible human rights violations we've seen by Russian troops.
Speaker 1: All of that makes this hard, but compared to stumbling
Speaker 1: into a nuclear conflict, we need to keep those lines
Speaker 1: of communication open. Would Putin use a new Bonney? I
Speaker 1: don't think so. I think you would perhaps use a
Speaker 1: chemical weapon or Weapono mass destruction. But even Putin, I
Speaker 1: don't think, wants to go down in history as someone
Speaker 1: who's used nuclear weapon, particularly in a war of choice
Speaker 1: like he's engaged in. I think it's unlikely. Ultimately, I'm
Speaker 1: really hope. So this conflict has been going on for
Speaker 1: seven months now. As you watch and analyzes and get
Speaker 1: updates day today, how long do you believe this advanced
Speaker 1: and retreat could carry on for before there's some kind
Speaker 1: of end point or beginning point for negotiations or something
Speaker 1: like that? I think the beginning point for negotiations is
Speaker 1: probably at least six months away, but I don't think
Speaker 1: it's years away, and the reason is because Putin is
Speaker 1: running out of resources, as we just discussed, and over
Speaker 1: on the Ukrainian side, over time the West will become
Speaker 1: less forthcoming with all of the assistance and all of
Speaker 1: the cost there will be big forces at work that
Speaker 1: will move the Russians and the Ukrainians towards some kind
Speaker 1: of negotiation. You saw that, I think, in Uzbekistan in
Speaker 1: the messages that Putin was receiving both from President G
Speaker 1: and Promodi of India. They'll be pressure on both sides
Speaker 1: to get to a negotiation. I think it's probably minimum
Speaker 1: six months away, and how long that negotiation might take
Speaker 1: could be a while, but in my view the odds
Speaker 1: are two and three. will end up with the negotiation
Speaker 1: starting at some point in the next six to twelve months.
Speaker 1: And finally, Admiral, when the world's focus is on one theater,
Speaker 1: one area or another, obviously markets want to find out
Speaker 1: if there if there's something that's going to jump out
Speaker 1: of them out of the blue. Right. So, are there
Speaker 1: any other areas of the world that we are now
Speaker 1: not focusing on that you were perhaps worried about? I'll
Speaker 1: give you to one is Iran. In the Middle East.
Speaker 1: It appears increasingly unlikely that the Iranians and or the
Speaker 1: West are willing to re enter the nuclear deal. The
Speaker 1: J C P O a. If Iran walks away from
Speaker 1: that deal, look for the Iranians to begin to push
Speaker 1: up the amplitude of their activities, potentially going after the Saudis,
Speaker 1: potentially continuing their support in Yemen, in Lebanon, in Syria.
Speaker 1: Look for more instability in the Middle East. We haven't
Speaker 1: really been thinking much about the Middle East. We've been
Speaker 1: focused on Ukraine and Russia and China Taiwan. Watch for
Speaker 1: the Middle East. And the second thing is not a place.
Speaker 1: It's cyber and cyber security. I think if Putin continues
Speaker 1: to fail militarily in a conventional battlefield, may move towards
Speaker 1: cyber and that could lead to major cyber disruptions, certainly
Speaker 1: in Ukraine, but perhaps in western Europe and the United
Speaker 1: States as well. Admiral James, stupidas that does it for
Speaker 1: this week's Bloomberg opinion. Were also, by the way, available
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Speaker 1: Were produced by Eric Mallow and you can reach us
Speaker 1: on twitter at Valley Quinn, or email the Equinat Bloomberg
Speaker 1: dot net. Until next time on Bloomberg opinion. H