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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot

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Speaker 1: Com and of course on the Bloomberg terminal right now.

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Speaker 1: And we have really tried to be careful with authorities

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Speaker 1: and experience on this horrific war or invasion, or as

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Speaker 1: Mr Putin calls it, operation. We've been honored with a

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Speaker 1: guest we've had, starting with Angela Stent, General Hodges, General Kimmitt,

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Speaker 1: and now Seth Jones. He's with a Center for Strategic

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Speaker 1: and International Studies and in America. He is our definitive

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Speaker 1: expert on guerrilla warfare. Seth, thank you so much for

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Speaker 1: joining us. General Kimmitt was chilling as an infantry officer

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Speaker 1: describing the guerrilla war to come in urban Ukraine. Describe

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Speaker 1: what we will see well, I think what we're likely

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Speaker 1: to see is Russian forces continuing to push into urban

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Speaker 1: terrain in Ukraine, into cities like Kiev in particular. It's

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Speaker 1: the capital and the Russians to be met with fire

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Speaker 1: from the top buildings, snipers fire from inside building, fire

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Speaker 1: from around buildings, as the entire Ukrainian population rises up

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Speaker 1: to attempt to pick apart Russian forces in city. So

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Speaker 1: it's those kinds of campaigns destroy cities, So we're bound

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Speaker 1: to see sad destruction in Ukrainian cities. Does Russia have

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Speaker 1: the material or critically, do they have the will to

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Speaker 1: make Kiev look like Aleppo? The Russians do have the

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Speaker 1: ability to use our tillery, to use aircraft and to

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Speaker 1: drop both dumb and smart bombs in Kiev and to

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Speaker 1: turn it into Aleppo. What they don't have is, uh

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Speaker 1: the ability to to to hold the territory. The Russians

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Speaker 1: didn't have to do it in Aleppo. They had the Syrians,

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Speaker 1: they have Lebanese has Blah hold the territory. The Russian

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Speaker 1: forces will have to do it, and I don't know

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Speaker 1: that they will they'll be able to stomach the bloodshed

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Speaker 1: that has I mean, they've already lost more soldiers in

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Speaker 1: two weeks in Ukraine than the US lost in twenty

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Speaker 1: years in Afghanistan. And so that we have from the

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Speaker 1: U S authorities the threat of possibly biological or chemical

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Speaker 1: weapons being used on Ukraine by Russia. This according to

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Speaker 1: statements over the weekend from this administration. What would the

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Speaker 1: US response be to something like that, Well, I'll tell

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Speaker 1: you what it should be. I mean the I don't

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Speaker 1: know why the US is now holding back on providing aircraft,

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Speaker 1: including ME, to the Ukrainians. The Russians are willing to

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Speaker 1: ramp up this war right now, and if they use

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Speaker 1: chemical weapons, I mean this, We're we're in a very

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Speaker 1: different ball game. I mean this, These are war crimes.

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Speaker 1: So the president of Russia should be treated as such

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Speaker 1: if that's what he uses. So you said, if that's

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Speaker 1: what this is. And I do wonder because right now

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Speaker 1: we're hearing so many talks about talks, possible negotiations, some

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Speaker 1: possible optimism. Do you hear any optimism from the developments

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Speaker 1: on the ground and from the intel that you're getting

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Speaker 1: that there could be an off ramp to this conflict.

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Speaker 1: I think it's always important to talk about off ramps

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Speaker 1: and to look for them. I do not see the

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Speaker 1: Russians at this point looking for an off ramp that

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Speaker 1: is acceptable to the Ukrainian population or NATO right now.

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Speaker 1: That is my worry is that we can talk about

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Speaker 1: off ramps, but an acceptable one. We'll have to see,

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Speaker 1: Seth Jones. Over the weekend there were just terrific articles,

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Speaker 1: thoughtful articles by experts. I'll lining the failure of the

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Speaker 1: political and military leadership in Russia to put together the

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Speaker 1: kind of legitimate force that you served under, an advised

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Speaker 1: to How weak is Russia? Do we are? Do we

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Speaker 1: deceive ourselves? Well? I think what we've seen with the

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Speaker 1: Russians right now is they have been entirely incapable of

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Speaker 1: putting together an effective ground invasion in Ukraine. They haven't

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Speaker 1: done much of that in the past. They've also entirely

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Speaker 1: misread and this is part of it, is partly an

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Speaker 1: intelligence problem. Entirely misread both how the West was going

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Speaker 1: to respond as well as the Ukrainian population. So these

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Speaker 1: are huge strategic miscalculations by senior Russian government officials, and

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Speaker 1: I haven't seen them improve that much over the last

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Speaker 1: three weeks. How far away is a sniper? This is

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Speaker 1: the core of your work, and this is really difficult work, folks,

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Speaker 1: said Mr Jones. Does Dr Jones excuse me? Seth Jones?

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Speaker 1: How far away is a sniper? When a snipe? Very

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Speaker 1: sniping well, you can be at very close range. Uh,

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Speaker 1: you know, you can be a hundred feet, you can

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Speaker 1: be uh much further than a football field, much further

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Speaker 1: than a hundred yards. You could be over a thousand

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Speaker 1: depends on the type of weapon that you have, the

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Speaker 1: type of sniper rifle, as well as how how accurate

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Speaker 1: and good you are. So you've got options, which is

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Speaker 1: the point. That's the urban warfare seth. I'm looking at

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Speaker 1: the situation shifting further west over the weekend, as you saw,

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Speaker 1: and I'm sure you're more on top of than us.

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Speaker 1: We saw a strike on a military base and you

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Speaker 1: crained fifteen kilometers away from Poland. And we saw a

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Speaker 1: language change from the Russians as well, when they declared

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Speaker 1: the convoys of military surprise from NATO to Ukraine were

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Speaker 1: now seen as quote legitimate targets. So can we just

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Speaker 1: start with how you reacted, how you're thinking about that

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Speaker 1: quote legitimate targets on the backs now of military supplies

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Speaker 1: from NATO to Ukraine. Well, I'm not surprised at all

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Speaker 1: that that the Russians are starting to conduct these kinds

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Speaker 1: of attacks. I mean, the reason is very straightforward. Is

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Speaker 1: the Russian ground force are getting hammered right now with

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Speaker 1: javelins and stingers, so both good the ground and air elements.

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Speaker 1: So this is an attempt because the supply is coming

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Speaker 1: into Ukraine have been so successful at hitting Russian forces,

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Speaker 1: they're now trying to interdict and destroy. So I'm not

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Speaker 1: surprised at all. The concern is how close they're getting

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Speaker 1: to the Polish border. And one stray missile that goes

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Speaker 1: into Poland and hits eighty second airborne forces puts this

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Speaker 1: ward a very different direction. Well, says, can you talk

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Speaker 1: to me about that, because for myself, certainly not an

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Speaker 1: expert from the outside, looking again, just how far is

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Speaker 1: fifteen kilometers in your world? It's not very far at all.

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Speaker 1: I mean literally, one cruise missile or even a ballistic

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Speaker 1: missile that's uh guidance package is off kilter, doesn't amount functions,

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Speaker 1: and that's that's not a very long distance for that

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Speaker 1: stray missile to go in a different direction. It's happened

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Speaker 1: with US cruise, ballistic and mortar shells. So again, hit

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Speaker 1: hitting eighty second airborne soldiers near the border would would

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Speaker 1: would kill the US and suddenly we'd be in a

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Speaker 1: different world. Well, and That's where I wanted to go.

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Speaker 1: How high is the threshold for US military for frankly

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Speaker 1: European troops to fight directly with the Russians. Are we

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Speaker 1: getting closer and closer to it? Well? I do think

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Speaker 1: we are getting closer, and uh, you know, the the

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Speaker 1: US has to has to now begin to think about

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Speaker 1: what war would look like if that's the direction the

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Speaker 1: Russians take this. I think the US at this point

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Speaker 1: does not want to get directly involved in the war.

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Speaker 1: But if US soldiers are killed by Russian missiles, um,

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Speaker 1: coming off of aircraft or maritime vessels in the Black Sea, um,

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Speaker 1: you know, that's gonna that's gonna be a very difficult

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Speaker 1: decision for the US. I mean, the population is going

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Speaker 1: to want a response. Yeah, and that's actually what you said.

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Speaker 1: Also with a strong response to war crimes as you

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Speaker 1: called them, with a chemical attack or a biological attack.

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Speaker 1: What would that look like if there were direct combat

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Speaker 1: between US and Russian troops? Well, uh, the question is

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Speaker 1: is whether if Russian and US or other NATO troops

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Speaker 1: were engaged in direct combat, could you sort of contain it.

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Speaker 1: I think the issue is, uh, you know, it might start,

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Speaker 1: for example, with aircraft striking various targets. Uh. You know,

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Speaker 1: large numbers of of US forces crossing the border would

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Speaker 1: probably be not the first option. It would probably be

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Speaker 1: air air assets being used and the possibility of having

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Speaker 1: US aircraft taken down. But I think that's sort of

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Speaker 1: inching towards you know, broader ground engagements. Ground engagements would

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Speaker 1: be a very serious concern. Seth a clinic as always

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Speaker 1: and we're lucky to catch up with you, you know that,

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Speaker 1: Seth Jones there of C S I S. This is

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Speaker 1: a great joy in studio where this is someone with

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Speaker 1: a rarity of rains within England, which is what I

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Speaker 1: call the triangle degree from Cambridge Oxford in the London

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Speaker 1: School of Economics. Also Lignozed with their service to Europe

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Speaker 1: and her Britain, a global head of Foreign exchange strategy

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Speaker 1: at RBC. Thrilled to have you in studio today. Euro

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Speaker 1: came at one sixteen gyrations down to eighty five gyrations

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Speaker 1: up that Germany didn't like as well. Where is fair

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Speaker 1: value on euro war or no war? It's a great

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Speaker 1: question because actually when we updated our forecasts following the

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Speaker 1: invasion of Ukraine, we didn't really change them. We kind

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Speaker 1: of nudged the short term marked market, but left the

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Speaker 1: year and forecasts and change because a lot of what

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Speaker 1: I thought was going to drive euro dollar this year

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Speaker 1: is actually playing out what John just mentioned around you know,

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Speaker 1: resetting terminal value for the FED. It's that difference in

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Speaker 1: policy does in folks. We're talking to someone here with

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Speaker 1: physics and economics, so we're gonna go all x X

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Speaker 1: sign even though we usually don't do that on Monday.

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Speaker 1: The terminal value is not only about the magnitude of

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Speaker 1: the value, it's about the win of it out the

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Speaker 1: X axis. Do we extend our view in lar or

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Speaker 1: do we come in closer? A great question, and not

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Speaker 1: one I think which anybody can answer at the moment,

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Speaker 1: not least of which policymakers. You know. I think we've

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Speaker 1: seen it both with the ECB last week and with

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Speaker 1: Chairman Pale in his testimony. They're trying to maximize their

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Speaker 1: optionality for that precise reason. So we know that finance

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Speaker 1: ministers are meeting in the euro region in order to

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Speaker 1: determine what the fiscal spending plan will be going forward,

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Speaker 1: how to support the region, what's currently baked into the euro,

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Speaker 1: how much fiscal support, there's a little bit in there.

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Speaker 1: But traditionally people have been a little bit skeptical that

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Speaker 1: the Europeans will really deliver because of the opposition from

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Speaker 1: the core, from Germany, the Netherlands, you know, the more hawkish,

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Speaker 1: fiscally hawkish countries. And yet in this crisis we've seen

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Speaker 1: previously unthinkable things have So I wouldn't rule anything out, certainly,

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Speaker 1: not when you have the escalating situation between Russian and Ukraine.

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Speaker 1: All right, but if we do get some sort of

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Speaker 1: fiscal response, do you expect some upside surprise to the

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Speaker 1: euro And I asked this because there seems to be

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Speaker 1: a lot of bad news baked in and this divergence

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Speaker 1: between the US and the euroregion, and some people say

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Speaker 1: it has a lot further to go to punish euro However,

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Speaker 1: if we do get this fiscal support, that could be

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Speaker 1: a game changer. Do you agree. Look, I think it's

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Speaker 1: definitely a game changer in the yields space. From the

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Speaker 1: currency point of view, this is not going to be

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Speaker 1: an easy economic environment for Europe, and the kind of

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Speaker 1: conditions under which we would get that big fiscal support

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Speaker 1: would be the more extreme crisis conditions. You have to

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Speaker 1: balance one against the other. So, you know, don't get

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Speaker 1: me wrong, We've definitely found opportunities to be tactically long euro.

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Speaker 1: We were longer a spelling last week. It worked out

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Speaker 1: very well, But as a core position, I'm not looking

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Speaker 1: to get long euro, you know, targeting the kind of

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Speaker 1: one sixteens, one eighteens that a lot of people had

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Speaker 1: at the start of the year. Is this a Euro

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Speaker 1: story or is this a dollar story? And I asked

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Speaker 1: this because the dollar has been behaving and continues to

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Speaker 1: be amid this turmoil. Is that really what we're seeing

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Speaker 1: and we'll continue to see going forward. We have seen

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Speaker 1: a lot of independent euro weakness, and last week was

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Speaker 1: really a story of independent euro strength and more just

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Speaker 1: short covering rather than some fundamental shift and outlook. You know. So, yes,

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Speaker 1: the dollar has been acting as a haven, but there's

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Speaker 1: been a lot of very specific euro weakness. Look at

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Speaker 1: your card, your asy, you're a quwie. It's not just

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Speaker 1: been about the dollar. Tell me about the Pacific rim

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Speaker 1: in turmoil today, COVID, the war obviously Russia, China, and

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Speaker 1: just as a general measure, when you wake up in

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Speaker 1: the morning and look at you three bloombergs, how do

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Speaker 1: you measure stress on a Pacific rim in the old

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Speaker 1: days dollar? Again, it was a simple answer. I don't

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Speaker 1: buy that anymore. What's the measurement we should use? Yeah,

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Speaker 1: Dollargan is going through an interesting transition moment um. I

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Speaker 1: think the Australian dollar for a lot of people is

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Speaker 1: still that proxy your Chinese growth, and you can look

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Speaker 1: at it against the U. S Dollar, you can look

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Speaker 1: at against the euro. It depends what you're trying to measure.

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Speaker 1: You know, are you trying to measure kind of Russia

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Speaker 1: Ukraine risks against what's going on in the Pacific rim?

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Speaker 1: Euros is a good way, you know. Okay, this is fascinating.

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Speaker 1: Ossie ran Minby, is it? Is it worth looking at

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Speaker 1: for listeners and viewers again trying to get a Pacific

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Speaker 1: riom gauge. So the remember is a tricky one only

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Speaker 1: because it's manipulated. It's not kind of clean mond So

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Speaker 1: you know, when when you look at sing dollar, another

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Speaker 1: one which is which is managed. But the end I

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Speaker 1: think is actually more interesting than we give it credit

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Speaker 1: for at the moment, because it comes back to something

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Speaker 1: you guys were talking about earlier around regime change. And

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Speaker 1: the fact is that depending on what happens to bonds

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Speaker 1: and equities, the combination of the two, we could see

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Speaker 1: dollar yan higher or we could see it quite a

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Speaker 1: lot lower. And I don't think market should be certain

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Speaker 1: yet that dollar yan is just what is your call

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Speaker 1: on you in here? I mean it's stunny. I was

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Speaker 1: I mentioned David mal past years ago with bear Stearns

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Speaker 1: now at the World Bank looking at one twenty or

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Speaker 1: even one thirty week week week end, but that was

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Speaker 1: a long time ago. What is the RBC call on yen?

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Speaker 1: I mean, we do have a call for dollagan trading

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Speaker 1: higher into the end of the year, towards one twenty.

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Speaker 1: The fact is, though there are a lot of dunsaid

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Speaker 1: risks that that make it very difficult to put on

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Speaker 1: long term positions in the end. Clearly, if equities roll

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Speaker 1: out of bed, you'll get yea and going up against

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Speaker 1: everything bother us. I like that, John, instead of saying plunge,

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Speaker 1: we can say roll out of bed. I mean, it's

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Speaker 1: it's the same thing till it's same think I said

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Speaker 1: in US thank you the global ahead of ex strategy

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Speaker 1: at our VC looking at some of the dynamics in

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Speaker 1: this f X market this morning. This is a joy.

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Speaker 1: Megan Green has put together a Princeton, Oxford Academics of

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Speaker 1: exceptionally thoughtful and transatlantic essays on economies. She now has

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Speaker 1: to confront war. She is global chief Economist to Krall,

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Speaker 1: but far more at the chad a mouse and truly

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Speaker 1: are transatlantic source Megan Green, I want to discuss today Germany.

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Speaker 1: And at the bottom you go all Patrick O'Brien, I

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Speaker 1: mean Napoleonic wars, and you say time is of the essence.

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Speaker 1: What is the time is of the essence for the

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Speaker 1: new German government? Well, I think for the new German

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Speaker 1: government time is of the essence mostly applies to the

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Speaker 1: policy mix that they're going to be applying to what's

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Speaker 1: going on um and with respect to the economy and

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Speaker 1: also the conflict between Russia and Ukraine. And and by

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Speaker 1: that I refer to the policy mix between fiscal and

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Speaker 1: monetary policy. The e c V came out last week

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Speaker 1: pretty hawkish, accelerating their tapering process so that they can

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Speaker 1: start hiking rates um if they actually stopped buying bonds,

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Speaker 1: though the ECB won't be able to reduce yields from

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Speaker 1: creeping up, particularly in peripheral countries. At the same time,

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Speaker 1: the EU is recognizing it needs to become a big

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Speaker 1: spender on things like defense, subsidies for energy, the Green

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Speaker 1: Transition UH, and so the EU is trying to come

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Speaker 1: together and figure out some way to raise money for

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Speaker 1: that um. The time is really crucial, though, because the

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Speaker 1: E s P will stop its asset purchases in the

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Speaker 1: third quarter of this year. It could take that long

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Speaker 1: for EU leaders to act really put together some kind

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Speaker 1: of package so that the reduced its its energy depends

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Speaker 1: on Russia and other things. The nightmare scenario is that

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Speaker 1: both sides fail, so the ECB stops buying bonds and

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Speaker 1: the EU doesn't pull it together, and then Europe's really

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Speaker 1: in a vine. Are you optimistic they can go all

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Speaker 1: Conrad out an hour. At the beginning of the German

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Speaker 1: post World War two experiment, they didn't have a choice.

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Speaker 1: They had to rebuild. Is that enthusiasm out there, Is

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Speaker 1: there a Conrad at an hour out there? Well, there

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Speaker 1: is enthusiasm for that, surely. But we just of course

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Speaker 1: had the pandemic and the EU came together and issued

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Speaker 1: debt jointly to fund or response to the pandemic. I'd

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Speaker 1: say that crisis was probably a bit more acute than

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Speaker 1: this one, and so there is a question about whether

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Speaker 1: they can do it this time. The new German government's

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Speaker 1: coalition agreement for bids any more recovery funds. The German

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Speaker 1: Finance minister is pretty set against it. There are other

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Speaker 1: frugal countries in northern Europe that are also aren't interested. So,

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Speaker 1: as always is the case with the EU, time will tell,

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Speaker 1: and they'll probably do something at the very last minute.

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Speaker 1: But in the past the ECB has always had to

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Speaker 1: be the one to step in uh and and be

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Speaker 1: the only game in town, and so that may well

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Speaker 1: happen this time as well. Of course, they don't have

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Speaker 1: that much ammunition megan, So I do wonder whether a

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Speaker 1: recessionary environment in Europe is not a given, but seems

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Speaker 1: much more of a certainty to you. I think stactulation

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Speaker 1: is very likely in Europe. I'm not sure that they'll

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Speaker 1: go into recession, but certainly a scenario where you've got

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Speaker 1: virtually no growth across Europe and really high inflation. That's

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Speaker 1: my base case scenario at this point, and and that

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Speaker 1: of course is the ECB is absolute worst nightmare. So

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Speaker 1: in my view, you know, the FED is taporing first

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Speaker 1: and then we'll hike rates. The ECB has been intent

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Speaker 1: on taking the same path. I think actually the ECB

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Speaker 1: is making a big mistake and should have done it

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Speaker 1: the other way around, played with rates while continuing to

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Speaker 1: buy assets, because that's going to keep borrowing costs low

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Speaker 1: so that European governments can borrow and spend in the

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Speaker 1: very short term. In the US, given the fact that

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Speaker 1: there does seem to be a similar reliance the FED

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Speaker 1: to try to equalize some of the inflation, how realistic

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Speaker 1: is that? I mean, if the US doesn't see stag inflation,

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Speaker 1: how concerned are you about other economic ramifications, particularly when

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Speaker 1: it comes to inequality. Well, so, you know, I think

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Speaker 1: that the US is further away from stagflation than Europe is.

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Speaker 1: Our recovery is much further ahead. Um. But you know,

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Speaker 1: the FED absolutely has to start hiking, if not for

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Speaker 1: any other reason that it needs to maintain some credibility,

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Speaker 1: keep inflation expectations grounded in terms of inequality. Actually, you know,

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Speaker 1: I think the FED gets a worse rap than it

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Speaker 1: probably should. The FEDS winding down its bond buying purchase

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Speaker 1: purchases program, So it's finishing tapering, but uh, you know,

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Speaker 1: and that has really boosted asset prices. But we don't

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Speaker 1: know the alternative that if the FED hadn't stepped in

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Speaker 1: to make markets in March, unemployment would be a whole

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Speaker 1: lot higher, and that would have implications for inequality as well.

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Speaker 1: So I think the role of central banks in in

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Speaker 1: driving inequality higher is more ambiguous than most economists really jest.

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Speaker 1: I think, you know, we don't know what the alternative

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Speaker 1: scenario might have been, but it would have been lower growth,

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Speaker 1: and that might have been worse for low income families. Megan,

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Speaker 1: you mentioned earlier Europeans frugal countries. Is America a frugal country?

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Speaker 1: That's a great question. Um, you know, our debt burden

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Speaker 1: would suggest not really. Uh, we did spend really big

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Speaker 1: in the pandemic. That's partly why we've seen broader based inflation,

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Speaker 1: uh in the aftermath, and say Europe for example. Um.

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Speaker 1: That being said, it's it's become really difficult for Congress

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Speaker 1: to pass any kind of fiscal spending package, and so

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Speaker 1: the US is getting more frugal than it was, certainly,

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Speaker 1: But you know, I think I view it as us

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Speaker 1: taking our foot off the accelerator a little bit rather

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Speaker 1: than slamming on the brakes. In terms of fiscal stimulus,

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Speaker 1: I think we could still get more pieces of the

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Speaker 1: build back better. Legislation passed through Congress is kind of

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Speaker 1: one off pieces of legislation, So there might be a

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Speaker 1: bit more spending ahead, but it will be you know,

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Speaker 1: over ten years and largely backloaded. Um So, I think

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Speaker 1: the brunt of the fiscal stimulus of the US has

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Speaker 1: to provide us probably behind us. What might come up

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Speaker 1: now is support for Americans who are paying really high

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Speaker 1: prices at the pump, and so we might get some

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Speaker 1: sort of alleviation given the spike and energy prices that

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Speaker 1: we have seen and are bound to see going forward.

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Speaker 1: Looking for something similar out of Europe too, Megan. Wonderful

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Speaker 1: to catch up with you, especially on Europe and the

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Speaker 1: Anatist states. Macan Green that of the Crawl Institute, all

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Speaker 1: spani in time, Kene, Let's get right to it with

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Speaker 1: Sea Bree's done in Florida. Doug cast joins us this morning. Doug,

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Speaker 1: you and I remember when Bolivia, in a bunch of

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Speaker 1: banana republics, said we're gonna lose our shirt and tin,

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Speaker 1: and they forced Lamy to shut down the tin market

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Speaker 1: so the tin cartel could be restructured and saved. We've

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Speaker 1: got this. I had Chrysler debt, you know, with Rattner

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Speaker 1: two thousand nine. Same idea, where a market maker takes

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Speaker 1: over and says you can't make money going the other way.

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Speaker 1: That happened the other day in Nickel in London. Did

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Speaker 1: they do the right thing to shut down the London

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Speaker 1: Meadow Exchange or should they have left the lungs prosper.

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Speaker 1: That's not my area of expertise, to be quite, but

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Speaker 1: you've come on, but you've been doing this for years.

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Speaker 1: Believe I believe that they should have kept the market open,

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Speaker 1: and uh, I believe more of the lazy fair attitude

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Speaker 1: towards these exchanges. I think it's more dangerous when you

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Speaker 1: close markets. I agree. And now we've got a well,

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Speaker 1: we got a close Russian market right now. What does

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Speaker 1: that signal to do? When they yeah? You know, I

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Speaker 1: think it was Benjamin Disraeli, who was England's Exchequer, once

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Speaker 1: famously said, what we've learned from history is that we

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Speaker 1: haven't learned from history. All these things rhyme um, and

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Speaker 1: we lived in this flat, interconnected world um, and contain

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Speaker 1: contagion is is omnipresent um. To me, what it's what

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Speaker 1: you're saying is that we should have a sense of history,

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Speaker 1: We should read books, We should go to our library

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Speaker 1: because it gives us hints having they have to navigated

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Speaker 1: this market which has seemingly no memory from day to day.

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Speaker 1: You know, Doug, that's kind of where I wanted to

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Speaker 1: go here. I mean, there's so much geopolitical risk out

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Speaker 1: there that I think a lot of investors really having

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Speaker 1: a hard time pricing in irrespective of what the Federal

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Speaker 1: Reserve is going to do, irrespective of what corporate earnings

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Speaker 1: are going to do. What do you tell your clients

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Speaker 1: when they call up saying, how should I price in

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Speaker 1: the risk of Russia or with China still having lockdown

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Speaker 1: discussions here and key industrial parts of the country. How

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Speaker 1: do you kind of walk them or talk them off

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Speaker 1: the ledge. Yeah, I think that as we um as

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Speaker 1: we exist today in mid March, to quote, uh A

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Speaker 1: credence clear award is John Fogetty. There's a bad moon rising. Um.

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Speaker 1: I spent the last few months saying that I'm selling

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Speaker 1: with their buying. And it's clear to me that in

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Speaker 1: looking at the massive declines of all these speculative jew

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Speaker 1: jaws and now the broader market, that the that the

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Speaker 1: era of irresponsible volitionists is now over. And the probability

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Speaker 1: is that early January late uh December marked a very

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Speaker 1: important broad and distributive market top. So I expect that

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Speaker 1: will see more fragility, more volatility, and less and less

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Speaker 1: liquidity in the markets and months ahead, much like we've

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Speaker 1: seen recently. And the risks have certainly been skewed to

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Speaker 1: the downside and they remain so in terms of I mean,

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Speaker 1: the critical question poland Tom is is how to navigate

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Speaker 1: a market with such volatility and such uncertainty. And as

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Speaker 1: I started by saying, I go to my library and

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Speaker 1: there's one book that answers then answer to me the

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Speaker 1: question of how I should be navigating a period of uncertainty.

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Speaker 1: And it's contained in a single book. Um, you guys

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00:24:07,720 --> 00:24:09,920
Speaker 1: have probably not even read the book, but it's SETH

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Speaker 1: Clarmen's Margin of Safety, which was written in I believe,

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00:24:15,680 --> 00:24:18,760
Speaker 1: and the book costs about forty dollars. You can't buy

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00:24:18,800 --> 00:24:22,000
Speaker 1: it now. Unfortunately, it's very expensive. If you go on

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00:24:22,160 --> 00:24:25,240
Speaker 1: eBay or Amazon, it's almost three thousand dollars of copy.

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00:24:25,800 --> 00:24:28,480
Speaker 1: And as Buffett said, prices, what you pay value is

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Speaker 1: what you get. And my advice is to read the

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Speaker 1: book borrowed from a rich friend, so you can learn

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00:24:33,600 --> 00:24:36,600
Speaker 1: a couple of lessons. The first lesson is that Clarmen

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00:24:36,720 --> 00:24:40,760
Speaker 1: makes the case that US value investors always make that

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Speaker 1: investors are too often lawered by the prospect of instant millions.

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00:24:45,160 --> 00:24:48,000
Speaker 1: And the message should sound familiar to investors in arc

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00:24:48,920 --> 00:24:53,159
Speaker 1: um in looking at her constituent holdings and looking at

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00:24:53,240 --> 00:24:56,080
Speaker 1: many of our you know, Seabreeze, Shorts, d n A s,

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00:24:56,480 --> 00:25:01,040
Speaker 1: Sleep Number one, like Berkeley, all the carve Anna, all that.

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Speaker 1: But but the second thing, and the most important thing

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Speaker 1: to specifically answer your question, Paul Um, how do you?

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00:25:08,960 --> 00:25:12,440
Speaker 1: How do you practically and tactically guide yourself through a

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Speaker 1: difficult market filled with uncertainty? And I'm of the basic

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Speaker 1: view that we're in this opportunistic trading and not investing

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Speaker 1: buy an hold market. And he tells this great story

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00:25:24,119 --> 00:25:27,600
Speaker 1: and it's just been It's brief, uh set does He

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00:25:27,760 --> 00:25:30,320
Speaker 1: talks about an old story about the market crazy and

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Speaker 1: Sardine trading. When the sardines disappeared from their traditional waters

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00:25:34,800 --> 00:25:37,800
Speaker 1: in Monterey, California, the commodity trade has bid them up

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Speaker 1: in the price of the Cannas sardine sword. One day,

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00:25:40,640 --> 00:25:43,800
Speaker 1: a buyer decided to treat himself to an expensive meal

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00:25:43,880 --> 00:25:47,200
Speaker 1: and actually opened the canon started eating. He immediately became

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00:25:47,240 --> 00:25:50,280
Speaker 1: ill ill and told the seller the sardines were no good.

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00:25:50,320 --> 00:25:53,679
Speaker 1: The seller said, you don't understand these are not eating sardines,

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00:25:53,720 --> 00:25:58,919
Speaker 1: that you're trading sardines. So I basically have adopted an

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Speaker 1: approach of a trading sardine, not at eating sardine approach.

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Speaker 1: Keeping my var loan something you discussed on Friday on

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00:26:06,680 --> 00:26:10,080
Speaker 1: the show Tom, value at risk, and we were up

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00:26:10,119 --> 00:26:12,520
Speaker 1: in January at sea breeze. We're up in February and

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00:26:12,600 --> 00:26:14,400
Speaker 1: month to date we're up as well in March. Can

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00:26:14,440 --> 00:26:19,920
Speaker 1: you measure or find cover in persistency of revenue growth,

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00:26:20,080 --> 00:26:25,240
Speaker 1: persistency of iba margins, persistency of net income? Does that

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00:26:25,359 --> 00:26:29,720
Speaker 1: a value here? It has less value in a rising

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00:26:29,760 --> 00:26:34,239
Speaker 1: grain environment? Tom, I agree that, so, Doug. I mean,

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Speaker 1: you know a lot of our listeners are looking at

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00:26:37,560 --> 00:26:40,280
Speaker 1: their apps, of their brokerage accounts because we all now

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00:26:40,440 --> 00:26:43,720
Speaker 1: have gone digital and everything financial services. Nobody goes unto

477
00:26:43,720 --> 00:26:47,040
Speaker 1: a branch anymore, and they're seeing their SMP index funds down.

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00:26:48,400 --> 00:26:50,680
Speaker 1: Is the SMP gonna be higher at your end on

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00:26:50,760 --> 00:26:53,760
Speaker 1: a year over year basis? Do you think? I have

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00:26:53,920 --> 00:26:58,800
Speaker 1: absolutely no clue, but I will tell you that you

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00:26:58,880 --> 00:27:02,320
Speaker 1: know I'm I could comfortably give you the bear case.

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00:27:02,880 --> 00:27:05,520
Speaker 1: But on the positive side, let me explain what temper

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00:27:05,600 --> 00:27:10,159
Speaker 1: is my negativity. UM. The SMP is down by eleven

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00:27:10,240 --> 00:27:12,520
Speaker 1: point eight percent in the first forty eight trading days

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00:27:12,560 --> 00:27:15,440
Speaker 1: of the year. It's the fourth worst start of the

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00:27:15,520 --> 00:27:18,800
Speaker 1: year in history, the worst five starts prior to this.

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00:27:19,000 --> 00:27:25,080
Speaker 1: We're in two thousand nine with COVID the depression thirty

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00:27:25,119 --> 00:27:31,840
Speaker 1: three thirty five period. They mounted tremendous comebacks to in

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00:27:32,119 --> 00:27:36,119
Speaker 1: the year in a strong positive territory. And secondly, UM

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00:27:36,600 --> 00:27:39,520
Speaker 1: bonds are down five percent. That's not taste, believe it

491
00:27:39,560 --> 00:27:41,720
Speaker 1: or not, for the worst year in history, and the

492
00:27:41,800 --> 00:27:45,560
Speaker 1: second worst was under three percent. Finally, it feels much

493
00:27:45,600 --> 00:27:49,280
Speaker 1: worse tom but the SMPS max draw down this year

494
00:27:49,359 --> 00:27:52,200
Speaker 1: was thirteen and that's right in line with the median

495
00:27:52,359 --> 00:27:55,960
Speaker 1: intra year to draw down since night. So these factors

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00:27:56,119 --> 00:27:59,360
Speaker 1: keep me from getting terribly barrel. And we haven't seen

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00:27:59,400 --> 00:28:02,640
Speaker 1: the Catharsis yet earlier. Speaking of Catharsis, Dog, we didn't

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00:28:02,640 --> 00:28:06,200
Speaker 1: want Jon for investment, Like, come on, the Yankees. Take

499
00:28:06,280 --> 00:28:09,359
Speaker 1: the big guy from Minnesota and the Twins is a

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00:28:09,480 --> 00:28:13,560
Speaker 1: game changing for the dreaded Yankees. I direct message you

501
00:28:13,880 --> 00:28:16,920
Speaker 1: and I'll repeat what I said. I hate Sanchez. I

502
00:28:17,080 --> 00:28:20,480
Speaker 1: literally think he's the worst base center in baseball. He's

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00:28:20,520 --> 00:28:24,720
Speaker 1: certainly the worst defensive catcher. I'm gonna miss Geo. Um

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00:28:25,160 --> 00:28:28,040
Speaker 1: Josh is great. Had to be done. Now we need

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00:28:28,119 --> 00:28:31,680
Speaker 1: a first basement or a center fielder. Very good Dog cast.

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00:28:31,760 --> 00:28:34,800
Speaker 1: Thank you so much, Mike d I lights it's cast.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

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00:28:41,200 --> 00:28:44,160
Speaker 1: us live weekdays from seven to ten a m Eastern.

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00:28:44,480 --> 00:28:48,440
Speaker 1: I'm Bloomberg Radio and on Bloomberg Television each day from

510
00:28:48,560 --> 00:28:53,800
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

511
00:28:54,000 --> 00:28:58,960
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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00:28:59,080 --> 00:29:02,880
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg. M