Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot
Speaker 1: Com and of course on the Bloomberg terminal right now.
Speaker 1: And we have really tried to be careful with authorities
Speaker 1: and experience on this horrific war or invasion, or as
Speaker 1: Mr Putin calls it, operation. We've been honored with a
Speaker 1: guest we've had, starting with Angela Stent, General Hodges, General Kimmitt,
Speaker 1: and now Seth Jones. He's with a Center for Strategic
Speaker 1: and International Studies and in America. He is our definitive
Speaker 1: expert on guerrilla warfare. Seth, thank you so much for
Speaker 1: joining us. General Kimmitt was chilling as an infantry officer
Speaker 1: describing the guerrilla war to come in urban Ukraine. Describe
Speaker 1: what we will see well, I think what we're likely
Speaker 1: to see is Russian forces continuing to push into urban
Speaker 1: terrain in Ukraine, into cities like Kiev in particular. It's
Speaker 1: the capital and the Russians to be met with fire
Speaker 1: from the top buildings, snipers fire from inside building, fire
Speaker 1: from around buildings, as the entire Ukrainian population rises up
Speaker 1: to attempt to pick apart Russian forces in city. So
Speaker 1: it's those kinds of campaigns destroy cities, So we're bound
Speaker 1: to see sad destruction in Ukrainian cities. Does Russia have
Speaker 1: the material or critically, do they have the will to
Speaker 1: make Kiev look like Aleppo? The Russians do have the
Speaker 1: ability to use our tillery, to use aircraft and to
Speaker 1: drop both dumb and smart bombs in Kiev and to
Speaker 1: turn it into Aleppo. What they don't have is, uh
Speaker 1: the ability to to to hold the territory. The Russians
Speaker 1: didn't have to do it in Aleppo. They had the Syrians,
Speaker 1: they have Lebanese has Blah hold the territory. The Russian
Speaker 1: forces will have to do it, and I don't know
Speaker 1: that they will they'll be able to stomach the bloodshed
Speaker 1: that has I mean, they've already lost more soldiers in
Speaker 1: two weeks in Ukraine than the US lost in twenty
Speaker 1: years in Afghanistan. And so that we have from the
Speaker 1: U S authorities the threat of possibly biological or chemical
Speaker 1: weapons being used on Ukraine by Russia. This according to
Speaker 1: statements over the weekend from this administration. What would the
Speaker 1: US response be to something like that, Well, I'll tell
Speaker 1: you what it should be. I mean the I don't
Speaker 1: know why the US is now holding back on providing aircraft,
Speaker 1: including ME, to the Ukrainians. The Russians are willing to
Speaker 1: ramp up this war right now, and if they use
Speaker 1: chemical weapons, I mean this, We're we're in a very
Speaker 1: different ball game. I mean this, These are war crimes.
Speaker 1: So the president of Russia should be treated as such
Speaker 1: if that's what he uses. So you said, if that's
Speaker 1: what this is. And I do wonder because right now
Speaker 1: we're hearing so many talks about talks, possible negotiations, some
Speaker 1: possible optimism. Do you hear any optimism from the developments
Speaker 1: on the ground and from the intel that you're getting
Speaker 1: that there could be an off ramp to this conflict.
Speaker 1: I think it's always important to talk about off ramps
Speaker 1: and to look for them. I do not see the
Speaker 1: Russians at this point looking for an off ramp that
Speaker 1: is acceptable to the Ukrainian population or NATO right now.
Speaker 1: That is my worry is that we can talk about
Speaker 1: off ramps, but an acceptable one. We'll have to see,
Speaker 1: Seth Jones. Over the weekend there were just terrific articles,
Speaker 1: thoughtful articles by experts. I'll lining the failure of the
Speaker 1: political and military leadership in Russia to put together the
Speaker 1: kind of legitimate force that you served under, an advised
Speaker 1: to How weak is Russia? Do we are? Do we
Speaker 1: deceive ourselves? Well? I think what we've seen with the
Speaker 1: Russians right now is they have been entirely incapable of
Speaker 1: putting together an effective ground invasion in Ukraine. They haven't
Speaker 1: done much of that in the past. They've also entirely
Speaker 1: misread and this is part of it, is partly an
Speaker 1: intelligence problem. Entirely misread both how the West was going
Speaker 1: to respond as well as the Ukrainian population. So these
Speaker 1: are huge strategic miscalculations by senior Russian government officials, and
Speaker 1: I haven't seen them improve that much over the last
Speaker 1: three weeks. How far away is a sniper? This is
Speaker 1: the core of your work, and this is really difficult work, folks,
Speaker 1: said Mr Jones. Does Dr Jones excuse me? Seth Jones?
Speaker 1: How far away is a sniper? When a snipe? Very
Speaker 1: sniping well, you can be at very close range. Uh,
Speaker 1: you know, you can be a hundred feet, you can
Speaker 1: be uh much further than a football field, much further
Speaker 1: than a hundred yards. You could be over a thousand
Speaker 1: depends on the type of weapon that you have, the
Speaker 1: type of sniper rifle, as well as how how accurate
Speaker 1: and good you are. So you've got options, which is
Speaker 1: the point. That's the urban warfare seth. I'm looking at
Speaker 1: the situation shifting further west over the weekend, as you saw,
Speaker 1: and I'm sure you're more on top of than us.
Speaker 1: We saw a strike on a military base and you
Speaker 1: crained fifteen kilometers away from Poland. And we saw a
Speaker 1: language change from the Russians as well, when they declared
Speaker 1: the convoys of military surprise from NATO to Ukraine were
Speaker 1: now seen as quote legitimate targets. So can we just
Speaker 1: start with how you reacted, how you're thinking about that
Speaker 1: quote legitimate targets on the backs now of military supplies
Speaker 1: from NATO to Ukraine. Well, I'm not surprised at all
Speaker 1: that that the Russians are starting to conduct these kinds
Speaker 1: of attacks. I mean, the reason is very straightforward. Is
Speaker 1: the Russian ground force are getting hammered right now with
Speaker 1: javelins and stingers, so both good the ground and air elements.
Speaker 1: So this is an attempt because the supply is coming
Speaker 1: into Ukraine have been so successful at hitting Russian forces,
Speaker 1: they're now trying to interdict and destroy. So I'm not
Speaker 1: surprised at all. The concern is how close they're getting
Speaker 1: to the Polish border. And one stray missile that goes
Speaker 1: into Poland and hits eighty second airborne forces puts this
Speaker 1: ward a very different direction. Well, says, can you talk
Speaker 1: to me about that, because for myself, certainly not an
Speaker 1: expert from the outside, looking again, just how far is
Speaker 1: fifteen kilometers in your world? It's not very far at all.
Speaker 1: I mean literally, one cruise missile or even a ballistic
Speaker 1: missile that's uh guidance package is off kilter, doesn't amount functions,
Speaker 1: and that's that's not a very long distance for that
Speaker 1: stray missile to go in a different direction. It's happened
Speaker 1: with US cruise, ballistic and mortar shells. So again, hit
Speaker 1: hitting eighty second airborne soldiers near the border would would
Speaker 1: would kill the US and suddenly we'd be in a
Speaker 1: different world. Well, and That's where I wanted to go.
Speaker 1: How high is the threshold for US military for frankly
Speaker 1: European troops to fight directly with the Russians. Are we
Speaker 1: getting closer and closer to it? Well? I do think
Speaker 1: we are getting closer, and uh, you know, the the
Speaker 1: US has to has to now begin to think about
Speaker 1: what war would look like if that's the direction the
Speaker 1: Russians take this. I think the US at this point
Speaker 1: does not want to get directly involved in the war.
Speaker 1: But if US soldiers are killed by Russian missiles, um,
Speaker 1: coming off of aircraft or maritime vessels in the Black Sea, um,
Speaker 1: you know, that's gonna that's gonna be a very difficult
Speaker 1: decision for the US. I mean, the population is going
Speaker 1: to want a response. Yeah, and that's actually what you said.
Speaker 1: Also with a strong response to war crimes as you
Speaker 1: called them, with a chemical attack or a biological attack.
Speaker 1: What would that look like if there were direct combat
Speaker 1: between US and Russian troops? Well, uh, the question is
Speaker 1: is whether if Russian and US or other NATO troops
Speaker 1: were engaged in direct combat, could you sort of contain it.
Speaker 1: I think the issue is, uh, you know, it might start,
Speaker 1: for example, with aircraft striking various targets. Uh. You know,
Speaker 1: large numbers of of US forces crossing the border would
Speaker 1: probably be not the first option. It would probably be
Speaker 1: air air assets being used and the possibility of having
Speaker 1: US aircraft taken down. But I think that's sort of
Speaker 1: inching towards you know, broader ground engagements. Ground engagements would
Speaker 1: be a very serious concern. Seth a clinic as always
Speaker 1: and we're lucky to catch up with you, you know that,
Speaker 1: Seth Jones there of C S I S. This is
Speaker 1: a great joy in studio where this is someone with
Speaker 1: a rarity of rains within England, which is what I
Speaker 1: call the triangle degree from Cambridge Oxford in the London
Speaker 1: School of Economics. Also Lignozed with their service to Europe
Speaker 1: and her Britain, a global head of Foreign exchange strategy
Speaker 1: at RBC. Thrilled to have you in studio today. Euro
Speaker 1: came at one sixteen gyrations down to eighty five gyrations
Speaker 1: up that Germany didn't like as well. Where is fair
Speaker 1: value on euro war or no war? It's a great
Speaker 1: question because actually when we updated our forecasts following the
Speaker 1: invasion of Ukraine, we didn't really change them. We kind
Speaker 1: of nudged the short term marked market, but left the
Speaker 1: year and forecasts and change because a lot of what
Speaker 1: I thought was going to drive euro dollar this year
Speaker 1: is actually playing out what John just mentioned around you know,
Speaker 1: resetting terminal value for the FED. It's that difference in
Speaker 1: policy does in folks. We're talking to someone here with
Speaker 1: physics and economics, so we're gonna go all x X
Speaker 1: sign even though we usually don't do that on Monday.
Speaker 1: The terminal value is not only about the magnitude of
Speaker 1: the value, it's about the win of it out the
Speaker 1: X axis. Do we extend our view in lar or
Speaker 1: do we come in closer? A great question, and not
Speaker 1: one I think which anybody can answer at the moment,
Speaker 1: not least of which policymakers. You know. I think we've
Speaker 1: seen it both with the ECB last week and with
Speaker 1: Chairman Pale in his testimony. They're trying to maximize their
Speaker 1: optionality for that precise reason. So we know that finance
Speaker 1: ministers are meeting in the euro region in order to
Speaker 1: determine what the fiscal spending plan will be going forward,
Speaker 1: how to support the region, what's currently baked into the euro,
Speaker 1: how much fiscal support, there's a little bit in there.
Speaker 1: But traditionally people have been a little bit skeptical that
Speaker 1: the Europeans will really deliver because of the opposition from
Speaker 1: the core, from Germany, the Netherlands, you know, the more hawkish,
Speaker 1: fiscally hawkish countries. And yet in this crisis we've seen
Speaker 1: previously unthinkable things have So I wouldn't rule anything out, certainly,
Speaker 1: not when you have the escalating situation between Russian and Ukraine.
Speaker 1: All right, but if we do get some sort of
Speaker 1: fiscal response, do you expect some upside surprise to the
Speaker 1: euro And I asked this because there seems to be
Speaker 1: a lot of bad news baked in and this divergence
Speaker 1: between the US and the euroregion, and some people say
Speaker 1: it has a lot further to go to punish euro However,
Speaker 1: if we do get this fiscal support, that could be
Speaker 1: a game changer. Do you agree. Look, I think it's
Speaker 1: definitely a game changer in the yields space. From the
Speaker 1: currency point of view, this is not going to be
Speaker 1: an easy economic environment for Europe, and the kind of
Speaker 1: conditions under which we would get that big fiscal support
Speaker 1: would be the more extreme crisis conditions. You have to
Speaker 1: balance one against the other. So, you know, don't get
Speaker 1: me wrong, We've definitely found opportunities to be tactically long euro.
Speaker 1: We were longer a spelling last week. It worked out
Speaker 1: very well, But as a core position, I'm not looking
Speaker 1: to get long euro, you know, targeting the kind of
Speaker 1: one sixteens, one eighteens that a lot of people had
Speaker 1: at the start of the year. Is this a Euro
Speaker 1: story or is this a dollar story? And I asked
Speaker 1: this because the dollar has been behaving and continues to
Speaker 1: be amid this turmoil. Is that really what we're seeing
Speaker 1: and we'll continue to see going forward. We have seen
Speaker 1: a lot of independent euro weakness, and last week was
Speaker 1: really a story of independent euro strength and more just
Speaker 1: short covering rather than some fundamental shift and outlook. You know. So, yes,
Speaker 1: the dollar has been acting as a haven, but there's
Speaker 1: been a lot of very specific euro weakness. Look at
Speaker 1: your card, your asy, you're a quwie. It's not just
Speaker 1: been about the dollar. Tell me about the Pacific rim
Speaker 1: in turmoil today, COVID, the war obviously Russia, China, and
Speaker 1: just as a general measure, when you wake up in
Speaker 1: the morning and look at you three bloombergs, how do
Speaker 1: you measure stress on a Pacific rim in the old
Speaker 1: days dollar? Again, it was a simple answer. I don't
Speaker 1: buy that anymore. What's the measurement we should use? Yeah,
Speaker 1: Dollargan is going through an interesting transition moment um. I
Speaker 1: think the Australian dollar for a lot of people is
Speaker 1: still that proxy your Chinese growth, and you can look
Speaker 1: at it against the U. S Dollar, you can look
Speaker 1: at against the euro. It depends what you're trying to measure.
Speaker 1: You know, are you trying to measure kind of Russia
Speaker 1: Ukraine risks against what's going on in the Pacific rim?
Speaker 1: Euros is a good way, you know. Okay, this is fascinating.
Speaker 1: Ossie ran Minby, is it? Is it worth looking at
Speaker 1: for listeners and viewers again trying to get a Pacific
Speaker 1: riom gauge. So the remember is a tricky one only
Speaker 1: because it's manipulated. It's not kind of clean mond So
Speaker 1: you know, when when you look at sing dollar, another
Speaker 1: one which is which is managed. But the end I
Speaker 1: think is actually more interesting than we give it credit
Speaker 1: for at the moment, because it comes back to something
Speaker 1: you guys were talking about earlier around regime change. And
Speaker 1: the fact is that depending on what happens to bonds
Speaker 1: and equities, the combination of the two, we could see
Speaker 1: dollar yan higher or we could see it quite a
Speaker 1: lot lower. And I don't think market should be certain
Speaker 1: yet that dollar yan is just what is your call
Speaker 1: on you in here? I mean it's stunny. I was
Speaker 1: I mentioned David mal past years ago with bear Stearns
Speaker 1: now at the World Bank looking at one twenty or
Speaker 1: even one thirty week week week end, but that was
Speaker 1: a long time ago. What is the RBC call on yen?
Speaker 1: I mean, we do have a call for dollagan trading
Speaker 1: higher into the end of the year, towards one twenty.
Speaker 1: The fact is, though there are a lot of dunsaid
Speaker 1: risks that that make it very difficult to put on
Speaker 1: long term positions in the end. Clearly, if equities roll
Speaker 1: out of bed, you'll get yea and going up against
Speaker 1: everything bother us. I like that, John, instead of saying plunge,
Speaker 1: we can say roll out of bed. I mean, it's
Speaker 1: it's the same thing till it's same think I said
Speaker 1: in US thank you the global ahead of ex strategy
Speaker 1: at our VC looking at some of the dynamics in
Speaker 1: this f X market this morning. This is a joy.
Speaker 1: Megan Green has put together a Princeton, Oxford Academics of
Speaker 1: exceptionally thoughtful and transatlantic essays on economies. She now has
Speaker 1: to confront war. She is global chief Economist to Krall,
Speaker 1: but far more at the chad a mouse and truly
Speaker 1: are transatlantic source Megan Green, I want to discuss today Germany.
Speaker 1: And at the bottom you go all Patrick O'Brien, I
Speaker 1: mean Napoleonic wars, and you say time is of the essence.
Speaker 1: What is the time is of the essence for the
Speaker 1: new German government? Well, I think for the new German
Speaker 1: government time is of the essence mostly applies to the
Speaker 1: policy mix that they're going to be applying to what's
Speaker 1: going on um and with respect to the economy and
Speaker 1: also the conflict between Russia and Ukraine. And and by
Speaker 1: that I refer to the policy mix between fiscal and
Speaker 1: monetary policy. The e c V came out last week
Speaker 1: pretty hawkish, accelerating their tapering process so that they can
Speaker 1: start hiking rates um if they actually stopped buying bonds,
Speaker 1: though the ECB won't be able to reduce yields from
Speaker 1: creeping up, particularly in peripheral countries. At the same time,
Speaker 1: the EU is recognizing it needs to become a big
Speaker 1: spender on things like defense, subsidies for energy, the Green
Speaker 1: Transition UH, and so the EU is trying to come
Speaker 1: together and figure out some way to raise money for
Speaker 1: that um. The time is really crucial, though, because the
Speaker 1: E s P will stop its asset purchases in the
Speaker 1: third quarter of this year. It could take that long
Speaker 1: for EU leaders to act really put together some kind
Speaker 1: of package so that the reduced its its energy depends
Speaker 1: on Russia and other things. The nightmare scenario is that
Speaker 1: both sides fail, so the ECB stops buying bonds and
Speaker 1: the EU doesn't pull it together, and then Europe's really
Speaker 1: in a vine. Are you optimistic they can go all
Speaker 1: Conrad out an hour. At the beginning of the German
Speaker 1: post World War two experiment, they didn't have a choice.
Speaker 1: They had to rebuild. Is that enthusiasm out there, Is
Speaker 1: there a Conrad at an hour out there? Well, there
Speaker 1: is enthusiasm for that, surely. But we just of course
Speaker 1: had the pandemic and the EU came together and issued
Speaker 1: debt jointly to fund or response to the pandemic. I'd
Speaker 1: say that crisis was probably a bit more acute than
Speaker 1: this one, and so there is a question about whether
Speaker 1: they can do it this time. The new German government's
Speaker 1: coalition agreement for bids any more recovery funds. The German
Speaker 1: Finance minister is pretty set against it. There are other
Speaker 1: frugal countries in northern Europe that are also aren't interested. So,
Speaker 1: as always is the case with the EU, time will tell,
Speaker 1: and they'll probably do something at the very last minute.
Speaker 1: But in the past the ECB has always had to
Speaker 1: be the one to step in uh and and be
Speaker 1: the only game in town, and so that may well
Speaker 1: happen this time as well. Of course, they don't have
Speaker 1: that much ammunition megan, So I do wonder whether a
Speaker 1: recessionary environment in Europe is not a given, but seems
Speaker 1: much more of a certainty to you. I think stactulation
Speaker 1: is very likely in Europe. I'm not sure that they'll
Speaker 1: go into recession, but certainly a scenario where you've got
Speaker 1: virtually no growth across Europe and really high inflation. That's
Speaker 1: my base case scenario at this point, and and that
Speaker 1: of course is the ECB is absolute worst nightmare. So
Speaker 1: in my view, you know, the FED is taporing first
Speaker 1: and then we'll hike rates. The ECB has been intent
Speaker 1: on taking the same path. I think actually the ECB
Speaker 1: is making a big mistake and should have done it
Speaker 1: the other way around, played with rates while continuing to
Speaker 1: buy assets, because that's going to keep borrowing costs low
Speaker 1: so that European governments can borrow and spend in the
Speaker 1: very short term. In the US, given the fact that
Speaker 1: there does seem to be a similar reliance the FED
Speaker 1: to try to equalize some of the inflation, how realistic
Speaker 1: is that? I mean, if the US doesn't see stag inflation,
Speaker 1: how concerned are you about other economic ramifications, particularly when
Speaker 1: it comes to inequality. Well, so, you know, I think
Speaker 1: that the US is further away from stagflation than Europe is.
Speaker 1: Our recovery is much further ahead. Um. But you know,
Speaker 1: the FED absolutely has to start hiking, if not for
Speaker 1: any other reason that it needs to maintain some credibility,
Speaker 1: keep inflation expectations grounded in terms of inequality. Actually, you know,
Speaker 1: I think the FED gets a worse rap than it
Speaker 1: probably should. The FEDS winding down its bond buying purchase
Speaker 1: purchases program, So it's finishing tapering, but uh, you know,
Speaker 1: and that has really boosted asset prices. But we don't
Speaker 1: know the alternative that if the FED hadn't stepped in
Speaker 1: to make markets in March, unemployment would be a whole
Speaker 1: lot higher, and that would have implications for inequality as well.
Speaker 1: So I think the role of central banks in in
Speaker 1: driving inequality higher is more ambiguous than most economists really jest.
Speaker 1: I think, you know, we don't know what the alternative
Speaker 1: scenario might have been, but it would have been lower growth,
Speaker 1: and that might have been worse for low income families. Megan,
Speaker 1: you mentioned earlier Europeans frugal countries. Is America a frugal country?
Speaker 1: That's a great question. Um, you know, our debt burden
Speaker 1: would suggest not really. Uh, we did spend really big
Speaker 1: in the pandemic. That's partly why we've seen broader based inflation,
Speaker 1: uh in the aftermath, and say Europe for example. Um.
Speaker 1: That being said, it's it's become really difficult for Congress
Speaker 1: to pass any kind of fiscal spending package, and so
Speaker 1: the US is getting more frugal than it was, certainly,
Speaker 1: But you know, I think I view it as us
Speaker 1: taking our foot off the accelerator a little bit rather
Speaker 1: than slamming on the brakes. In terms of fiscal stimulus,
Speaker 1: I think we could still get more pieces of the
Speaker 1: build back better. Legislation passed through Congress is kind of
Speaker 1: one off pieces of legislation, So there might be a
Speaker 1: bit more spending ahead, but it will be you know,
Speaker 1: over ten years and largely backloaded. Um So, I think
Speaker 1: the brunt of the fiscal stimulus of the US has
Speaker 1: to provide us probably behind us. What might come up
Speaker 1: now is support for Americans who are paying really high
Speaker 1: prices at the pump, and so we might get some
Speaker 1: sort of alleviation given the spike and energy prices that
Speaker 1: we have seen and are bound to see going forward.
Speaker 1: Looking for something similar out of Europe too, Megan. Wonderful
Speaker 1: to catch up with you, especially on Europe and the
Speaker 1: Anatist states. Macan Green that of the Crawl Institute, all
Speaker 1: spani in time, Kene, Let's get right to it with
Speaker 1: Sea Bree's done in Florida. Doug cast joins us this morning. Doug,
Speaker 1: you and I remember when Bolivia, in a bunch of
Speaker 1: banana republics, said we're gonna lose our shirt and tin,
Speaker 1: and they forced Lamy to shut down the tin market
Speaker 1: so the tin cartel could be restructured and saved. We've
Speaker 1: got this. I had Chrysler debt, you know, with Rattner
Speaker 1: two thousand nine. Same idea, where a market maker takes
Speaker 1: over and says you can't make money going the other way.
Speaker 1: That happened the other day in Nickel in London. Did
Speaker 1: they do the right thing to shut down the London
Speaker 1: Meadow Exchange or should they have left the lungs prosper.
Speaker 1: That's not my area of expertise, to be quite, but
Speaker 1: you've come on, but you've been doing this for years.
Speaker 1: Believe I believe that they should have kept the market open,
Speaker 1: and uh, I believe more of the lazy fair attitude
Speaker 1: towards these exchanges. I think it's more dangerous when you
Speaker 1: close markets. I agree. And now we've got a well,
Speaker 1: we got a close Russian market right now. What does
Speaker 1: that signal to do? When they yeah? You know, I
Speaker 1: think it was Benjamin Disraeli, who was England's Exchequer, once
Speaker 1: famously said, what we've learned from history is that we
Speaker 1: haven't learned from history. All these things rhyme um, and
Speaker 1: we lived in this flat, interconnected world um, and contain
Speaker 1: contagion is is omnipresent um. To me, what it's what
Speaker 1: you're saying is that we should have a sense of history,
Speaker 1: We should read books, We should go to our library
Speaker 1: because it gives us hints having they have to navigated
Speaker 1: this market which has seemingly no memory from day to day.
Speaker 1: You know, Doug, that's kind of where I wanted to
Speaker 1: go here. I mean, there's so much geopolitical risk out
Speaker 1: there that I think a lot of investors really having
Speaker 1: a hard time pricing in irrespective of what the Federal
Speaker 1: Reserve is going to do, irrespective of what corporate earnings
Speaker 1: are going to do. What do you tell your clients
Speaker 1: when they call up saying, how should I price in
Speaker 1: the risk of Russia or with China still having lockdown
Speaker 1: discussions here and key industrial parts of the country. How
Speaker 1: do you kind of walk them or talk them off
Speaker 1: the ledge. Yeah, I think that as we um as
Speaker 1: we exist today in mid March, to quote, uh A
Speaker 1: credence clear award is John Fogetty. There's a bad moon rising. Um.
Speaker 1: I spent the last few months saying that I'm selling
Speaker 1: with their buying. And it's clear to me that in
Speaker 1: looking at the massive declines of all these speculative jew
Speaker 1: jaws and now the broader market, that the that the
Speaker 1: era of irresponsible volitionists is now over. And the probability
Speaker 1: is that early January late uh December marked a very
Speaker 1: important broad and distributive market top. So I expect that
Speaker 1: will see more fragility, more volatility, and less and less
Speaker 1: liquidity in the markets and months ahead, much like we've
Speaker 1: seen recently. And the risks have certainly been skewed to
Speaker 1: the downside and they remain so in terms of I mean,
Speaker 1: the critical question poland Tom is is how to navigate
Speaker 1: a market with such volatility and such uncertainty. And as
Speaker 1: I started by saying, I go to my library and
Speaker 1: there's one book that answers then answer to me the
Speaker 1: question of how I should be navigating a period of uncertainty.
Speaker 1: And it's contained in a single book. Um, you guys
Speaker 1: have probably not even read the book, but it's SETH
Speaker 1: Clarmen's Margin of Safety, which was written in I believe,
Speaker 1: and the book costs about forty dollars. You can't buy
Speaker 1: it now. Unfortunately, it's very expensive. If you go on
Speaker 1: eBay or Amazon, it's almost three thousand dollars of copy.
Speaker 1: And as Buffett said, prices, what you pay value is
Speaker 1: what you get. And my advice is to read the
Speaker 1: book borrowed from a rich friend, so you can learn
Speaker 1: a couple of lessons. The first lesson is that Clarmen
Speaker 1: makes the case that US value investors always make that
Speaker 1: investors are too often lawered by the prospect of instant millions.
Speaker 1: And the message should sound familiar to investors in arc
Speaker 1: um in looking at her constituent holdings and looking at
Speaker 1: many of our you know, Seabreeze, Shorts, d n A s,
Speaker 1: Sleep Number one, like Berkeley, all the carve Anna, all that.
Speaker 1: But but the second thing, and the most important thing
Speaker 1: to specifically answer your question, Paul Um, how do you?
Speaker 1: How do you practically and tactically guide yourself through a
Speaker 1: difficult market filled with uncertainty? And I'm of the basic
Speaker 1: view that we're in this opportunistic trading and not investing
Speaker 1: buy an hold market. And he tells this great story
Speaker 1: and it's just been It's brief, uh set does He
Speaker 1: talks about an old story about the market crazy and
Speaker 1: Sardine trading. When the sardines disappeared from their traditional waters
Speaker 1: in Monterey, California, the commodity trade has bid them up
Speaker 1: in the price of the Cannas sardine sword. One day,
Speaker 1: a buyer decided to treat himself to an expensive meal
Speaker 1: and actually opened the canon started eating. He immediately became
Speaker 1: ill ill and told the seller the sardines were no good.
Speaker 1: The seller said, you don't understand these are not eating sardines,
Speaker 1: that you're trading sardines. So I basically have adopted an
Speaker 1: approach of a trading sardine, not at eating sardine approach.
Speaker 1: Keeping my var loan something you discussed on Friday on
Speaker 1: the show Tom, value at risk, and we were up
Speaker 1: in January at sea breeze. We're up in February and
Speaker 1: month to date we're up as well in March. Can
Speaker 1: you measure or find cover in persistency of revenue growth,
Speaker 1: persistency of iba margins, persistency of net income? Does that
Speaker 1: a value here? It has less value in a rising
Speaker 1: grain environment? Tom, I agree that, so, Doug. I mean,
Speaker 1: you know a lot of our listeners are looking at
Speaker 1: their apps, of their brokerage accounts because we all now
Speaker 1: have gone digital and everything financial services. Nobody goes unto
Speaker 1: a branch anymore, and they're seeing their SMP index funds down.
Speaker 1: Is the SMP gonna be higher at your end on
Speaker 1: a year over year basis? Do you think? I have
Speaker 1: absolutely no clue, but I will tell you that you
Speaker 1: know I'm I could comfortably give you the bear case.
Speaker 1: But on the positive side, let me explain what temper
Speaker 1: is my negativity. UM. The SMP is down by eleven
Speaker 1: point eight percent in the first forty eight trading days
Speaker 1: of the year. It's the fourth worst start of the
Speaker 1: year in history, the worst five starts prior to this.
Speaker 1: We're in two thousand nine with COVID the depression thirty
Speaker 1: three thirty five period. They mounted tremendous comebacks to in
Speaker 1: the year in a strong positive territory. And secondly, UM
Speaker 1: bonds are down five percent. That's not taste, believe it
Speaker 1: or not, for the worst year in history, and the
Speaker 1: second worst was under three percent. Finally, it feels much
Speaker 1: worse tom but the SMPS max draw down this year
Speaker 1: was thirteen and that's right in line with the median
Speaker 1: intra year to draw down since night. So these factors
Speaker 1: keep me from getting terribly barrel. And we haven't seen
Speaker 1: the Catharsis yet earlier. Speaking of Catharsis, Dog, we didn't
Speaker 1: want Jon for investment, Like, come on, the Yankees. Take
Speaker 1: the big guy from Minnesota and the Twins is a
Speaker 1: game changing for the dreaded Yankees. I direct message you
Speaker 1: and I'll repeat what I said. I hate Sanchez. I
Speaker 1: literally think he's the worst base center in baseball. He's
Speaker 1: certainly the worst defensive catcher. I'm gonna miss Geo. Um
Speaker 1: Josh is great. Had to be done. Now we need
Speaker 1: a first basement or a center fielder. Very good Dog cast.
Speaker 1: Thank you so much, Mike d I lights it's cast.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg. M