WEBVTT - Surveillance: Bullard Says Faster Is Better 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.520 dot Com, and of course on the Bloomberg Terminal. The 0:00:29.640 --> 0:00:32.600 perfect conversation. Now, Mike McKee, as always one of the 0:00:32.640 --> 0:00:34.880 best in the world, the best at following this fat 0:00:34.920 --> 0:00:37.920 sitting down with the St. Louis Fed President Jim blad 0:00:38.000 --> 0:00:40.440 My good morning to you, Buddy, Good morning to you John, 0:00:40.479 --> 0:00:42.920 and good morning to you Jim Bullard. Thank you for 0:00:43.000 --> 0:00:45.400 joining us on Bloomberg Radio on TV. Thank you thanks 0:00:45.400 --> 0:00:47.879 for coming out to our new museum here. Yeah, this 0:00:47.960 --> 0:00:51.320 is the Money Museum. It's fascinating and if you're in St. Louis, 0:00:51.600 --> 0:00:54.080 you should come visit it. We're sitting right next to 0:00:54.120 --> 0:00:57.000 the sign that talks about hyper inflation, so it's it's 0:00:57.160 --> 0:00:59.960 it's sort of a perfect spot for us here this morning. 0:01:00.720 --> 0:01:03.640 A week ago, you were the lonely dissenter looking for 0:01:03.680 --> 0:01:08.360 a fifty basis point rate increase. Now the chair has 0:01:08.400 --> 0:01:11.200 all but promised a fifty basis point increase at least 0:01:11.200 --> 0:01:13.280 that's the way the markets are taking it at the 0:01:13.360 --> 0:01:17.960 main meeting. What happened in the last week, I think, 0:01:18.240 --> 0:01:20.720 I mean, those that are interested can read my dissent 0:01:20.800 --> 0:01:23.120 statement which is out last Friday and is on our 0:01:23.160 --> 0:01:27.960 web page. Uh. I think the FED needs to move 0:01:27.959 --> 0:01:32.200 aggressively to keep inflation under control. Our policy as we 0:01:32.240 --> 0:01:35.280 sit here today is still a very large balance sheet 0:01:35.319 --> 0:01:38.440 and very very low policy rate. We need to get 0:01:38.440 --> 0:01:41.679 to neutral at least so that we're not putting upward 0:01:41.720 --> 0:01:45.480 pressure on inflation during this period when we have uh 0:01:45.600 --> 0:01:49.279 much higher inflation than we're used to in the US economy. Well, 0:01:49.400 --> 0:01:51.480 when you say we have to get to neutral, how 0:01:51.560 --> 0:01:55.120 quickly you have been arguing for more than two d 0:01:55.240 --> 0:01:59.160 basis points. Yeah, I think faster is better. And I 0:01:59.200 --> 0:02:04.440 think the nineteen tightening cycle or removal of accommodation cycle 0:02:04.640 --> 0:02:09.160 is probably the best analogy here. That one was quite successful. 0:02:10.200 --> 0:02:13.120 The FED moved three basis points in a single year 0:02:13.720 --> 0:02:18.560 and then made some adjustments afterwards. In the result was 0:02:18.680 --> 0:02:20.920 that we hit our two percent inflation target over the 0:02:20.960 --> 0:02:24.240 next ten years. The economy boomed in the second half 0:02:24.240 --> 0:02:27.280 of the nineties, So I think this is a situation. 0:02:27.360 --> 0:02:30.440 It's like that we came out of the pandemic, we 0:02:30.520 --> 0:02:33.080 got surprised by inflation. But now what you have to 0:02:33.080 --> 0:02:36.760 do is move the policy rate up discreetly a fair amount, 0:02:37.320 --> 0:02:40.600 not to be too disruptive, but I think fifty basis 0:02:40.600 --> 0:02:44.720 point moves would definitely be in the mix. And UH 0:02:44.840 --> 0:02:47.160 and then get to a level that we can be neutral, 0:02:47.240 --> 0:02:49.240 and then from there we can decide if we want 0:02:49.280 --> 0:02:54.200 to be restrictive in put further downward pressure on inflation. 0:02:54.240 --> 0:02:56.679 But right now we're putting upward pressure on inflation. It's 0:02:56.680 --> 0:03:00.200 a wrong place to be given where inflation is well. 0:03:00.400 --> 0:03:02.920 As I noted, the markets, whether you look at swaps 0:03:03.000 --> 0:03:06.600 or futures, are now pricing in fifty for May fourth. 0:03:07.360 --> 0:03:09.560 The Fed doesn't like to surprise the markets. Should we 0:03:09.639 --> 0:03:13.440 assume that that's what you're gonna do? Well, I you 0:03:13.440 --> 0:03:15.480 know I can't. I'm just one person on the committee. 0:03:15.520 --> 0:03:18.600 I don't know where the rest of the committee will be, 0:03:18.800 --> 0:03:21.720 and the chair has to manage that process. Um. I 0:03:21.800 --> 0:03:26.559 thought that was good speech yesterday that laid out the situation, 0:03:26.720 --> 0:03:28.320 and we'll see where we are when we get to 0:03:28.360 --> 0:03:33.160 May fourth. Now, the economic data have been closely watched. 0:03:33.200 --> 0:03:36.040 But from what you're saying, it doesn't sound like it 0:03:36.120 --> 0:03:39.400 really matters between now and May that we're too low 0:03:39.880 --> 0:03:42.440 in terms of the Fed funds rate and inflation is 0:03:42.440 --> 0:03:45.880 too high and those are the only two considerations. Well, 0:03:45.920 --> 0:03:48.400 that's a big picture, and I think that's right that 0:03:48.720 --> 0:03:51.880 we don't really need a lot of more data here. 0:03:51.920 --> 0:03:54.600 But you never know in this world and in this business, 0:03:54.680 --> 0:03:57.960 you can always get surprised. Obviously, we've got geopolitical risk 0:03:58.040 --> 0:04:01.920 out there. I guess my feeling on that is that, UM, 0:04:01.960 --> 0:04:04.160 you know, we can't wait for that to get resolved. 0:04:04.400 --> 0:04:06.800 This could go on for a very long time. UH, 0:04:07.000 --> 0:04:11.040 and certainly geopolitical tensions, even if the war ended tomorrow, 0:04:11.080 --> 0:04:13.400 the tensions would last for a long time. So I 0:04:13.400 --> 0:04:16.680 think the best contribution we can make is to get 0:04:16.720 --> 0:04:19.400 our house in order and make sure that the US 0:04:19.480 --> 0:04:23.320 economy is doing as well as we can uh achieve. 0:04:23.720 --> 0:04:26.960 And UH that will be the best that we can 0:04:27.000 --> 0:04:30.240 do to contribute to the global situation without going all 0:04:31.320 --> 0:04:35.400 our star on everybody. Uh. The idea of neutral is 0:04:35.440 --> 0:04:39.920 a moving target. Different people think of different levels. UM. 0:04:40.360 --> 0:04:44.760 One analyst summed up your policy right now as the 0:04:44.800 --> 0:04:48.000 feed is going to keep hiking until something breaks. Is 0:04:48.000 --> 0:04:51.080 that the best way to think about it? Now, that's 0:04:51.080 --> 0:04:52.520 not a good way to think about We're gonna go 0:04:52.560 --> 0:04:55.640 to neutral, which is the place where we're not putting 0:04:55.720 --> 0:04:58.239 upward pressure on inflation. You don't want to put upward 0:04:58.240 --> 0:05:01.359 pressure on inflation where you've got headline cp I, you know, 0:05:01.440 --> 0:05:04.440 close to eight percent here and probably more to come 0:05:04.520 --> 0:05:08.120 in the in the inflation reports ahead. So we want 0:05:08.120 --> 0:05:10.159 to get to neutral so that we're not putting upward 0:05:10.200 --> 0:05:13.200 pressure and probably get to a restrictive policy. So we're 0:05:13.240 --> 0:05:16.800 putting some downward pressure. History tells us that the faster 0:05:16.920 --> 0:05:20.200 we move to that situation, the better chance we'll have 0:05:20.279 --> 0:05:24.359 of moving inflation back to target and getting a boom 0:05:24.360 --> 0:05:26.720 in the U. S economy too. What's neutral to you 0:05:28.080 --> 0:05:31.800 on the funds rate? I've got two percent. That's because 0:05:31.880 --> 0:05:35.960 my our star is lower than others. I'm willing to 0:05:36.000 --> 0:05:39.120 go with a zero our star. So that's lower than 0:05:39.240 --> 0:05:43.040 other estimates that are out there. So I'd be uh 0:05:43.279 --> 0:05:45.640 two hundred basis points on the funds rate, but I 0:05:45.760 --> 0:05:48.080 want to go to three hundred this year's to get 0:05:48.120 --> 0:05:51.920 mildly restrictive, uh, and then that will help us turn 0:05:51.960 --> 0:05:56.640 inflation around, and hopefully we'll also get some moderation inflation 0:05:56.680 --> 0:05:59.960 from other sources. What you worry about is inflation psychology 0:06:00.040 --> 0:06:02.840 getting embedded in the economy. What are people in your 0:06:02.839 --> 0:06:08.480 district CEO is telling you about shortages, supply chain problems, 0:06:08.520 --> 0:06:15.159 and about what they're able to charge pricing power. Well, 0:06:15.240 --> 0:06:19.440 most disturbingly, they're telling me of the pricing power is 0:06:19.480 --> 0:06:22.560 not a problem, that they're able to raise prices and 0:06:22.760 --> 0:06:26.640 pass on the higher costs to their customers. So that's 0:06:26.720 --> 0:06:29.479 the exactly the kind of situation that you don't want. 0:06:29.560 --> 0:06:32.000 You want them to be more worried about losing market 0:06:32.040 --> 0:06:36.320 share when they raise prices, and so for that dynamic 0:06:36.400 --> 0:06:38.720 has been worrisome to me, and that's something I think 0:06:38.760 --> 0:06:42.440 we need to get under control. I think discrete adjustment 0:06:42.520 --> 0:06:47.159 to the policy rate would help break the inflation psychology 0:06:47.160 --> 0:06:51.000 and help keep inflation under control in that sense. Uh, 0:06:51.040 --> 0:06:55.680 they're also saying a great deal about supply chain issues 0:06:55.920 --> 0:06:59.080 and how those are going to continue, and they will 0:06:59.080 --> 0:07:03.000 probably not get solved anytime soon. We may have to 0:07:03.040 --> 0:07:06.800 wait out into three That's way too long for this 0:07:06.880 --> 0:07:09.120 policy process. So I don't think we can just wait 0:07:09.120 --> 0:07:11.600 for that to happen. What about the balance sheet, which 0:07:11.760 --> 0:07:15.600 your best guess is the best course for reducing the 0:07:15.640 --> 0:07:19.000 balance sheet and what effect would it have on interest rates? Yeah, 0:07:19.080 --> 0:07:21.720 I said in mind a sent statement that I'd be 0:07:21.760 --> 0:07:24.240 happy to just get started on the balance sheet runoff. 0:07:24.680 --> 0:07:29.440 Now I think we overstated our welcome on purchases. You know. Uh, 0:07:29.520 --> 0:07:32.520 it's always hard to make these judgments. But in retrospect, 0:07:33.160 --> 0:07:35.640 looks like we allowed the balance sheet expansion to go 0:07:35.720 --> 0:07:40.720 on too long. So I'm be happy with uh. Sooner 0:07:40.840 --> 0:07:43.120 is better. Uh. I would have been happy to do 0:07:43.160 --> 0:07:47.000 it at this meeting, this previous meeting last week. I 0:07:47.040 --> 0:07:49.600 see no reason to just not to just get going 0:07:49.640 --> 0:07:52.200 on that process. We've got a long ways to go 0:07:52.240 --> 0:07:56.720 on that dimension as well. The balance sheet approaching nine trillion, 0:07:56.960 --> 0:07:59.640 you know, pre pandemic it was four trillions, So you've 0:07:59.680 --> 0:08:03.760 got a lot of uh, a lot of balance sheet 0:08:03.760 --> 0:08:06.960 reduction that can go on. It would be passive runoff 0:08:07.760 --> 0:08:11.680 before we let you go. How would you advise people 0:08:11.760 --> 0:08:15.040 to look at the Summary of Economic projections and make 0:08:15.160 --> 0:08:17.680 sense of it given that it says interest rates are 0:08:17.680 --> 0:08:21.640 gonna rise to be restrictive and inflation is going to 0:08:21.760 --> 0:08:24.520 just drop off over the next three years, but unemployment 0:08:24.600 --> 0:08:28.880 is not going to move at all. Well, the real 0:08:28.920 --> 0:08:32.920 economy is doing very well. The US economies, even with 0:08:33.040 --> 0:08:36.480 geopolitical risk, is expected to grow at above trend pace 0:08:36.800 --> 0:08:39.480 this year, next year, even the year after that, and 0:08:39.520 --> 0:08:43.160 a lot of forecasts. So UM, that's going to continue 0:08:43.200 --> 0:08:46.480 to put downward pressure on the unemployment rate and continue 0:08:46.520 --> 0:08:50.559 to have UM an even stronger labor market. Um. If 0:08:50.600 --> 0:08:54.440 you look at the Kansas City FEDS Labor Market Conditions Index, 0:08:54.559 --> 0:08:57.360 it's almost at an all time high here. Uh, it 0:08:57.400 --> 0:08:59.280 probably is going to go to an all time high. 0:08:59.440 --> 0:09:02.120 So one of the best labor markets in a generation. 0:09:03.000 --> 0:09:06.760 So I just think that that, you know, the real 0:09:06.800 --> 0:09:10.400 side of that kind of with continued reopening, uh following 0:09:10.480 --> 0:09:14.000 as the pandemic continues to fade. Here, I think there's 0:09:14.000 --> 0:09:15.920 a lot of reasons to think that we'll have a 0:09:16.679 --> 0:09:20.480 robust economy going forward, and that suggests robust labor markets 0:09:20.800 --> 0:09:23.480 going forward. So what we have to do is adjust 0:09:23.559 --> 0:09:26.720 the policy rate and discreetly get to the right level. 0:09:26.880 --> 0:09:29.160 Then we can make adjustments from there and you can 0:09:29.200 --> 0:09:32.040 get a soft landing. And I think so, Jim, but 0:09:32.160 --> 0:09:35.800 we did, We're gonna do it again. Jim Bullard, President 0:09:35.840 --> 0:09:37.439 of the St. Louis FET, thank you very much for 0:09:37.520 --> 0:09:46.360 joining us this morning. T k is missing out today. 0:09:46.440 --> 0:09:48.880 Can we say that you agree some Kings missing out 0:09:48.920 --> 0:09:51.640 in a major way. When this invasion started a month ago, 0:09:52.200 --> 0:09:54.760 Tom wanted one person on the show, and it's our 0:09:54.760 --> 0:09:57.080 next guest, and Tom's not here, And if Tom was here, 0:09:57.200 --> 0:09:59.640 the introduction front next guest would be about thirty minutes long. 0:09:59.679 --> 0:10:02.679 For good reason. Angela Stent joins us now, the nonresident 0:10:02.760 --> 0:10:05.480 Senior Fellow at the Brookings Institution and the author of 0:10:05.520 --> 0:10:11.120 Putin's World, Russia against the West and with the rest Angela, 0:10:11.280 --> 0:10:16.080 let's start here. There is this Western centric conversation that 0:10:16.240 --> 0:10:18.640 there is some instability building in the Russian government, that 0:10:18.679 --> 0:10:22.000 we could have regime change, that Putin could fall. Can 0:10:22.040 --> 0:10:24.199 you give me your line of thinking, God, what's happening 0:10:24.400 --> 0:10:28.200 within Russia? Yes, I think many of us are clutching 0:10:28.440 --> 0:10:31.720 straws and there's wishful thinking here. I mean, what do 0:10:31.800 --> 0:10:35.000 we know? There are some rumors that some high level 0:10:35.080 --> 0:10:39.800 intelligence people have either been arrested or fired and blamed 0:10:40.000 --> 0:10:43.080 for obviously the failure of intelligence at the beginning of 0:10:43.120 --> 0:10:46.880 that war, but these are just snippets. We know that 0:10:47.160 --> 0:10:51.360 there have been demonstrations against the war, that thousands of 0:10:51.400 --> 0:10:54.559 people I think at least ten thousand people have been arrested. 0:10:54.920 --> 0:10:57.720 They can face up to fifteen years in prison for 0:10:57.800 --> 0:11:01.600 their protests. We know that to render thousand Russians approximately 0:11:01.640 --> 0:11:04.120 have left since the beginning of the war, and they've 0:11:04.160 --> 0:11:06.480 gone to Europe other parts of the former Soviet Union. 0:11:06.679 --> 0:11:10.120 But we really don't have any proof that in Putin's 0:11:10.200 --> 0:11:14.120 inner circle there is any plot afoot, and it really 0:11:14.120 --> 0:11:16.720 would have to be his inner circle. He's very much 0:11:16.760 --> 0:11:19.880 in a bubble. He doesn't see very many people. Yes, 0:11:20.040 --> 0:11:23.800 some of the oligarchs have obviously complained about what's happened 0:11:23.800 --> 0:11:28.000 to them, uh and uh. They they've lost their yachts 0:11:28.000 --> 0:11:31.160 and their homes. We know that. And we heard rumors 0:11:31.200 --> 0:11:35.040 that the head of the Central Bank, Albero Mabiullina, wanted 0:11:35.080 --> 0:11:37.480 to resign, but she's still in her post. So I 0:11:37.480 --> 0:11:41.120 think we have to be very cautious about assuming that 0:11:41.360 --> 0:11:45.040 a palace coup is underway. At the moment, Putin appears 0:11:45.080 --> 0:11:49.440 to be firmly in the saddle. He's obviously isolated. He's 0:11:49.520 --> 0:11:52.520 lashing out verbally as we saw. But when we saw 0:11:52.600 --> 0:11:55.839 this big rally last Friday that he had in the 0:11:55.880 --> 0:12:00.480 stadium they're celebrating the anniversary of the annexation of Premier uh, 0:12:00.480 --> 0:12:03.360 he seemed to be very much in Church Angelo. When 0:12:03.400 --> 0:12:05.679 it comes to lashing out. How much are we going 0:12:05.720 --> 0:12:08.280 to see an escalation in the types of weapons used 0:12:08.480 --> 0:12:11.600 in some of the methodologies that Putin opts for in 0:12:11.760 --> 0:12:13.560 light of just what you talk about, the fact that 0:12:13.559 --> 0:12:17.680 he has cornered and isolated. Well, we're seeing obviously the 0:12:17.720 --> 0:12:22.839 bombardment of cities. We're seeing a humanitarian catastrophe there is 0:12:22.880 --> 0:12:25.880 you know, our government is warning that the Russians may 0:12:26.000 --> 0:12:29.640 use chemical weapons. They've been warning that for at least 0:12:29.679 --> 0:12:32.079 I think a week, and of course Putin has made 0:12:32.160 --> 0:12:35.520 veiled hints about the potential use of nuclear weapons or 0:12:35.600 --> 0:12:38.240 a tactical nuclear weapons. So I think we do have 0:12:38.360 --> 0:12:41.280 to watch out. If you go back to the Syrian playbook, 0:12:41.640 --> 0:12:44.680 the way that the Russians behaved there with the indiscriminate bombing, 0:12:44.880 --> 0:12:47.000 the raising to the ground of the city of Aleppo, 0:12:47.320 --> 0:12:50.240 and the use of some chemical weapons, we just we 0:12:50.640 --> 0:12:52.480 do have to watch out for that, and that of 0:12:52.520 --> 0:12:56.080 course is a major concern going forward Angela. It has 0:12:56.120 --> 0:12:59.320 been suggested by the Biden administration as well as others, 0:12:59.360 --> 0:13:02.120 that putin his ultimate ambition does not end with Ukraine. 0:13:02.120 --> 0:13:04.000 What he would really like to see is a return 0:13:04.440 --> 0:13:07.920 to the Soviet Union in some sense. If that is true, 0:13:08.080 --> 0:13:10.680 what does that mean about the likelihood of a lasting 0:13:11.000 --> 0:13:14.280 peace agreement or at the very least an agreement at all. 0:13:16.120 --> 0:13:20.560 So you might get an agreement to end this war eventually. Um, 0:13:20.600 --> 0:13:23.920 we know, you know what clearly involved Ukrainian neutrality. The 0:13:24.040 --> 0:13:27.280 question is what about Premia and the and the don Bass, 0:13:27.400 --> 0:13:31.720 the southeastern uklaying region. Uh, that's a possibility. We're not 0:13:31.840 --> 0:13:35.960 nearly there yet. But beyond that, if the Russians managed 0:13:36.000 --> 0:13:40.560 somehow to prevail, Yes, Putin's ambitions go beyond Ukraine. He's 0:13:40.600 --> 0:13:44.559 talked about a new Slavic Union state comprised of Russia, 0:13:44.800 --> 0:13:49.120 Jelous and Ukraine. That's a possibility. Um. But he's also 0:13:49.240 --> 0:13:52.199 hinted that Russia has its sides even further west, that 0:13:52.320 --> 0:13:54.920 it wants to re establish a sphere of influence not 0:13:55.000 --> 0:13:57.880 only in the post Soviet space, but maybe in central 0:13:57.920 --> 0:14:01.160 and Eastern Europe too. So I think the likelihood of 0:14:01.200 --> 0:14:04.559 a lasting peace agreement. This is really quite far off, 0:14:04.840 --> 0:14:06.560 and we really then we would have to have all 0:14:06.600 --> 0:14:10.240 the party sitting down, as Mr Popnisker said, and and 0:14:10.400 --> 0:14:14.880 rethinking euro Atlantic security going forward. And that's a major test. 0:14:15.160 --> 0:14:18.840 And at that title of your book, Putin's World, Russia 0:14:18.880 --> 0:14:22.000 against the West with the rest? Can we talk about 0:14:22.000 --> 0:14:23.920 the rest when we think about the rest? Now increasingly 0:14:24.000 --> 0:14:26.200 we just think about China, And I wonder if the 0:14:26.240 --> 0:14:28.840 rest wants to be with Putin for much longer here? 0:14:29.280 --> 0:14:31.720 Do you think a that China will back away from 0:14:31.720 --> 0:14:34.120 its relationship with Russia because of developments on the ground 0:14:34.320 --> 0:14:37.440 and be do you actually believe that Vladimir Putin would 0:14:37.480 --> 0:14:40.640 listen to Jijing Ping if president she trying to intervene. 0:14:42.200 --> 0:14:44.280 I don't think China is going to back away from 0:14:44.280 --> 0:14:46.280 its relationship with Russia. I think China is in a 0:14:46.320 --> 0:14:49.440 difficult position because obviously Putin wouldn't have gone ahead and 0:14:49.480 --> 0:14:52.240 done this had he not thought that he had Chinese support. 0:14:52.600 --> 0:14:56.640 But Pain has cultivated this relationship with Bondema Putin. I 0:14:56.640 --> 0:14:59.680 mean it's a mutual cultivation and they see each other 0:15:00.240 --> 0:15:04.640 as authoritarian leaders determined to push back against a world 0:15:04.800 --> 0:15:07.560 order that was imposed by the United States and its allies. 0:15:08.080 --> 0:15:11.040 So I think I think we should not expect China 0:15:11.280 --> 0:15:14.320 to back away from back in Russia. But of course 0:15:14.840 --> 0:15:18.560 Chinese major banks now are apparently complying with some of 0:15:18.560 --> 0:15:21.880 the sanctions. It'll it'll be tricky for the Chinese to 0:15:22.000 --> 0:15:25.360 avoid having a major economic problem with the West because 0:15:25.360 --> 0:15:28.880 of the sanctions. But I think they will remain back 0:15:28.960 --> 0:15:32.160 as of Russia, even though they repeat that they believe 0:15:32.200 --> 0:15:36.600 in the territorial integrity and sovereignty of Ukraine. India is 0:15:36.640 --> 0:15:40.040 another country to watch. The Indians have not criticized the Russians. 0:15:40.200 --> 0:15:42.720 They're not going along with the sanctions. They have their 0:15:42.720 --> 0:15:46.360 own issues with China. They have a huge arms relationship 0:15:46.560 --> 0:15:50.560 with Russia. And then you have African country South Africa, 0:15:51.040 --> 0:15:53.640 you have compus in the Middle East, in Latin America. 0:15:53.720 --> 0:15:56.600 So we have to remember that the West is united 0:15:56.800 --> 0:16:00.520 in its condemnation of Russia and its horror up this war, 0:16:00.760 --> 0:16:03.040 but much of the rest of the world isn't because 0:16:03.080 --> 0:16:05.960 it also has a much more skeptical view of the 0:16:06.040 --> 0:16:08.120 United States. And you know, we are so lucky to 0:16:08.160 --> 0:16:10.400 catch up with you today. Come back soon, please, And 0:16:10.480 --> 0:16:13.320 to the stand there of the Brookings institution, and of 0:16:13.360 --> 0:16:22.240 course later one an author. Let's get to Francisco Blanche 0:16:22.240 --> 0:16:24.680 they had a global commodities and derivative research and be 0:16:24.680 --> 0:16:27.280 a very global research and Francisco. Let me throw this 0:16:27.280 --> 0:16:29.640 one out there, the animey. How much credibility is the 0:16:29.640 --> 0:16:34.560 anime lost in the last few weeks, Hey, John, Well, 0:16:34.560 --> 0:16:37.760 it's it's been a messive process, that's for sure, UM. 0:16:37.800 --> 0:16:41.360 But one of the advantages of having multiple exchanges around 0:16:41.400 --> 0:16:43.600 the world is that we've continued to see a live 0:16:43.840 --> 0:16:48.000 prize for Nickel in Shanghai. So even though we've we've 0:16:48.000 --> 0:16:51.320 had some disruptions in trading for several days, I think 0:16:51.360 --> 0:16:54.200 at least there's been a reference out there that people 0:16:54.240 --> 0:16:57.280 could track and that's been a positive I think compared 0:16:57.360 --> 0:17:01.080 to private prior prior crisis Francisco, how much more do 0:17:01.160 --> 0:17:04.280 we have to see of these clearinghouses getting disrupted or 0:17:04.320 --> 0:17:08.040 even the consequence of them increasing their marginal requirements in 0:17:08.119 --> 0:17:10.720 order to avoid some sort of disruption like that leading 0:17:10.760 --> 0:17:14.240 to lower liquidity. Well as as you know, since the 0:17:14.240 --> 0:17:16.560 financial crisis, we've been concentrating a lot of the risks 0:17:16.600 --> 0:17:20.560 on on exchanges UM and UM and obviously that's that's 0:17:20.800 --> 0:17:23.399 I think partly creating some of the problems, but also 0:17:23.560 --> 0:17:28.080 remembers as volativity in commodity markets goes up to unprecedented levels, UH, 0:17:28.080 --> 0:17:31.240 it really is hard to avoid bringing up those margin 0:17:31.320 --> 0:17:34.040 calls or or bringing up those margins in in in 0:17:34.040 --> 0:17:36.639 the commorities that people trade, because the risk is just 0:17:36.720 --> 0:17:39.120 simply a lot higher. And we've seen that with Nickel, 0:17:39.200 --> 0:17:42.160 with that other commority markets and UM. I even think 0:17:42.200 --> 0:17:44.760 that some of the weakness we saw in oil UH 0:17:44.880 --> 0:17:46.760 in the last week and a half or so was 0:17:46.800 --> 0:17:50.760 related to the liquidation of of long positions linked to 0:17:50.800 --> 0:17:53.560 increase margin calls and and of course, as you probably know, 0:17:53.680 --> 0:17:58.280 open interests has actually fallen in oil despite the incredible 0:17:58.480 --> 0:18:01.000 risks that we are running here with the war in 0:18:01.000 --> 0:18:03.720 in in the Ukraine still unfolding and still at you know, 0:18:03.720 --> 0:18:07.040 a crucial point, I would say, I'm reading side of 0:18:07.119 --> 0:18:10.400 energy aspects actually pointed to that phenomenon is a reason 0:18:10.400 --> 0:18:13.480 why oil prices are so low, not so high, and 0:18:13.520 --> 0:18:16.320 she actually thinks that Brent could get up to one fifty. 0:18:16.359 --> 0:18:18.520 I think you agree with her that by June we 0:18:18.520 --> 0:18:20.840 could see Brent get up to one fifty, but then 0:18:20.920 --> 0:18:23.760 quickly fall back down. Do you still believe that it 0:18:23.760 --> 0:18:26.480 will quickly fall back down based on the fact that 0:18:26.480 --> 0:18:29.440 a lot of people expect a prolonged conflict and prolonged 0:18:29.440 --> 0:18:34.159 consequences in the commodity markets. Well so, so our our 0:18:34.240 --> 0:18:37.720 scenario since October of last year was a spike to 0:18:37.760 --> 0:18:41.200 a barrel by the summer, and we we had that 0:18:41.359 --> 0:18:44.840 view based on a post COVID demand recovery on limits 0:18:45.080 --> 0:18:47.320 to how much open can previews, on limits to how 0:18:47.359 --> 0:18:50.360 much shale is likely to respond, and of course inventories 0:18:50.400 --> 0:18:52.320 which which are still very low. I think what the 0:18:52.440 --> 0:18:56.639 Ukraine crisis has done is probably the entire expectation by 0:18:56.640 --> 0:18:59.720 at least barrel. So we we actually do have a 0:18:59.760 --> 0:19:03.200 one fifty or target for the summer in our baseline scenario, 0:19:03.400 --> 0:19:06.440 and an average of one then for a year um. 0:19:06.640 --> 0:19:08.560 It could still get worse, right, I mean, I don't 0:19:08.560 --> 0:19:11.560 want to sugarcoat this. It's a very bad situation. And 0:19:11.760 --> 0:19:16.879 uh Europe could still opt to restrict Russian oil purchases, 0:19:16.920 --> 0:19:19.840 in which case we would see meaningfully higher prices. That's 0:19:20.040 --> 0:19:22.840 what we call our ugly scenario is where where Russian 0:19:22.920 --> 0:19:25.439 supplies not only get disrupted by a million or a 0:19:25.440 --> 0:19:27.360 million a half barrels a day, but up to four 0:19:27.400 --> 0:19:29.480 million barrels a day in the market of course of 0:19:29.480 --> 0:19:32.720 a hundred million barrels, where Russia actually supplies about eight 0:19:33.200 --> 0:19:36.240 two to the global to to to to dive global markets. 0:19:36.240 --> 0:19:40.080 So um, so things are not great and could still 0:19:40.080 --> 0:19:42.760 get a lot worse. Um and uh. And actually, if 0:19:42.760 --> 0:19:45.720 you look at the petroleum product markets, we've seen diesel 0:19:45.800 --> 0:19:50.880 prices already surpassing the high points or that we saw 0:19:50.920 --> 0:19:52.880 back in thus and and uh it's also an eight, 0:19:53.160 --> 0:19:55.159 so it's not just cruel it itself. It's also of 0:19:55.240 --> 0:19:58.680 petroleum products. And again, diesel is the basis of the economy, 0:19:58.720 --> 0:20:02.000 is the basis of everything we from from harvesting to industry, 0:20:02.280 --> 0:20:04.600 and diesels connected to the JEFF fuel which is obviously 0:20:04.600 --> 0:20:07.960 flying but also trucking. So so really the backbone of 0:20:07.960 --> 0:20:10.680 the economy is being very impacted by these exceptionally high 0:20:10.720 --> 0:20:13.280 fuel prices. It's it's it's the new fangs, you know, 0:20:13.320 --> 0:20:18.520 it's it's fuel, agriculture, airspace. Um it's also nuclear and 0:20:18.560 --> 0:20:23.119 renewals and of course gold and critical medals. Um. So, 0:20:23.119 --> 0:20:25.320 so it's all of that that's kind of come back 0:20:25.359 --> 0:20:29.879 into four with um with the crisis, So Francisco, you 0:20:29.920 --> 0:20:32.960 mentioned they're an ugly scenario. In the ugly scenario, what 0:20:33.000 --> 0:20:35.199 does that equate to in terms of a dollar figure 0:20:35.400 --> 0:20:37.720 on a barrel of crude? How is that different from 0:20:37.720 --> 0:20:39.639 your base case of a hundred and fifty by summer? 0:20:40.680 --> 0:20:42.600 Our our right with scenario is two hundred dollars of 0:20:42.640 --> 0:20:44.720 barrel plus and uh and and the way we get 0:20:44.720 --> 0:20:47.359 there again is pretty simple, right, I mean, if you 0:20:47.440 --> 0:20:50.639 think about every million barrels a day of disruptions from 0:20:50.760 --> 0:20:53.760 Russia equates to twenty to twenty five a barrel on 0:20:53.880 --> 0:20:57.000 the price. So if we get to you know, we 0:20:57.040 --> 0:21:00.760 go from a million plus to uh to to four 0:21:01.000 --> 0:21:04.320 million or so, we have to add sixty to seventy 0:21:04.359 --> 0:21:07.240 lords of barrel to to our our our our baseline 0:21:07.240 --> 0:21:11.120 spike scenario. Um and um And as I said, I mean, 0:21:11.160 --> 0:21:15.200 I think that's been it's been so difficult to impose 0:21:15.600 --> 0:21:19.040 restrictions on Russian exports because at the end of the day, 0:21:19.040 --> 0:21:23.959 when you when you sanction a commodity of a very 0:21:24.000 --> 0:21:27.560 large producer, you're ultimately gonna end up paying a higher 0:21:27.560 --> 0:21:30.200 price as a large importer. And of course, the European 0:21:30.280 --> 0:21:34.639 Union is one of the world's largest importers together with China, 0:21:35.240 --> 0:21:39.880 so so restricting the supplies of energy from your largest supplier, 0:21:39.920 --> 0:21:43.639 which again Russia supplies a third of europe soil and 0:21:44.200 --> 0:21:48.520 your gas essentially with just significantly elevate energy prices which 0:21:48.520 --> 0:21:50.640 are already at record levels. So that's why I think 0:21:50.640 --> 0:21:54.320 there's been a lot of um political debate there. Well, Francisco, 0:21:54.359 --> 0:21:57.280 let's talk about other sources that supply that. What assumptions 0:21:57.320 --> 0:22:00.520 are you making about potentially more capacity come online from 0:22:00.560 --> 0:22:03.960 OPEC plus or from the shail patch, well from from 0:22:03.960 --> 0:22:09.280 OPIC plus it obviously I think that the big I 0:22:09.280 --> 0:22:11.960 think the big potential supply editions could come from Saudi 0:22:12.000 --> 0:22:16.639 Arabia or from from the Emirates United Are Emirates. We've 0:22:17.000 --> 0:22:19.760 we've also seen some progress being made on the run 0:22:19.840 --> 0:22:22.919 nuclear Deal, which could all surprise some relief. If you 0:22:22.960 --> 0:22:25.399 put together all of those, there could be up to 0:22:25.840 --> 0:22:28.919 let's say, up to three million barrels day of incremental supply. 0:22:28.960 --> 0:22:32.600 I'm talking about Iran, Saudi Arabia and Emirates trying to 0:22:32.640 --> 0:22:36.000 max out production. The issue is, of course, with the 0:22:36.200 --> 0:22:39.080 very low inventory levels that we have, if we max 0:22:39.160 --> 0:22:42.560