1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,560 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot 5 00:00:23,560 --> 00:00:30,280 Speaker 1: Com and of course on the Bloomberg Terminal. Joining us now, 6 00:00:30,800 --> 00:00:34,440 Speaker 1: James Stravitas. Of course, his book, My Book of the Summer, 7 00:00:34,960 --> 00:00:39,000 Speaker 1: A summer ago on China two thousand thirty four. We 8 00:00:39,159 --> 00:00:42,000 Speaker 1: read a book on the Black Sea. Admiral Stevidis, of 9 00:00:42,040 --> 00:00:44,519 Speaker 1: course writing for Bloomberg Opinion. You see him often with 10 00:00:44,680 --> 00:00:49,080 Speaker 1: NBC and of course the former Supreme Allied Commander of NATO, 11 00:00:49,560 --> 00:00:52,080 Speaker 1: Admiral Stavidis. Thank you so much for joining us this morning. 12 00:00:52,760 --> 00:00:55,080 Speaker 1: Always a pleasure, Tom and Paul. I want to talk 13 00:00:55,120 --> 00:00:59,240 Speaker 1: about the Black Sea, about how narrow the strait is 14 00:00:59,280 --> 00:01:02,760 Speaker 1: through Istam Bowl, about a need to build a NATO 15 00:01:02,840 --> 00:01:07,960 Speaker 1: presence in Romania to the west of Crimea, and specifically 16 00:01:08,080 --> 00:01:13,120 Speaker 1: the different timelines of the US NATO and a bridge 17 00:01:13,480 --> 00:01:16,600 Speaker 1: to Crimea called the Crimean Bridge down by the Russians. 18 00:01:17,400 --> 00:01:20,200 Speaker 1: It just seems to me the Black Sea is so important. 19 00:01:20,560 --> 00:01:22,800 Speaker 1: Do we need to show the flag now in the 20 00:01:22,880 --> 00:01:27,479 Speaker 1: Black Sea. Oh absolutely, Tom, And you know good news. 21 00:01:27,560 --> 00:01:31,119 Speaker 1: We have four of our absolute top end Aurly Birke 22 00:01:31,240 --> 00:01:36,839 Speaker 1: class Egist destroyers that are stationed homeported in Rhoda, Spain. 23 00:01:36,959 --> 00:01:39,480 Speaker 1: That's the opposite end of the Mediterranean. But that's the 24 00:01:39,520 --> 00:01:45,560 Speaker 1: beauty of a navy. So yeah, but it's a doable commute. 25 00:01:45,680 --> 00:01:50,360 Speaker 1: And my understanding is, um, those plans are in place 26 00:01:50,440 --> 00:01:55,040 Speaker 1: to flush them to the eastern Mediterranean, and perhaps more significantly, Tom, 27 00:01:55,440 --> 00:01:59,919 Speaker 1: for more of that same class of high end missile 28 00:02:00,080 --> 00:02:04,480 Speaker 1: defense destroyers are underway from Norfolk going to back up 29 00:02:04,520 --> 00:02:07,000 Speaker 1: the four destroyers and rode to Spain. That's a pretty 30 00:02:07,000 --> 00:02:10,360 Speaker 1: considerable flotilla. And yes, we are to be moving some 31 00:02:10,400 --> 00:02:14,000 Speaker 1: of those ships into the Black Sea. Admiral, as you 32 00:02:14,040 --> 00:02:17,200 Speaker 1: step back and look at this thing holistically, what do 33 00:02:17,320 --> 00:02:19,920 Speaker 1: you think, based upon your experience at NATO, what do 34 00:02:19,960 --> 00:02:23,960 Speaker 1: you think Mr Putin's is really looking for here? It 35 00:02:24,000 --> 00:02:27,080 Speaker 1: just seems oddly out of time and place to be 36 00:02:27,160 --> 00:02:32,080 Speaker 1: massing troops and tanks on an eastern European border. Um. 37 00:02:32,120 --> 00:02:35,800 Speaker 1: I think Putin's after three things. One is he loves 38 00:02:35,880 --> 00:02:39,640 Speaker 1: being the center of attention, and he is playing to 39 00:02:40,280 --> 00:02:44,280 Speaker 1: his population. He's playing to the nations around the Periphry 40 00:02:44,320 --> 00:02:47,280 Speaker 1: of Russia, so he likes being the center of attention, 41 00:02:47,360 --> 00:02:50,520 Speaker 1: even in the middle of the Olympics. For example, Number two, 42 00:02:50,960 --> 00:02:56,079 Speaker 1: he wants to crack the suberenity of Ukraine. He knows 43 00:02:56,120 --> 00:02:58,799 Speaker 1: he will never be able to completely dominate it, pull 44 00:02:58,880 --> 00:03:01,120 Speaker 1: it back to the Soviet Union, that's what he wants. 45 00:03:01,160 --> 00:03:04,560 Speaker 1: He knows that's not going to happen. But by annexing 46 00:03:04,600 --> 00:03:07,760 Speaker 1: the Crimea, creating this land bridge, Tom talked about a 47 00:03:07,760 --> 00:03:12,160 Speaker 1: moment ago he has the ability to um effectively take 48 00:03:12,160 --> 00:03:15,240 Speaker 1: their sub reignity away. And third, and finally, he wants 49 00:03:15,280 --> 00:03:18,520 Speaker 1: to divide US. He wants to divide NATO. He would 50 00:03:18,520 --> 00:03:21,240 Speaker 1: love to see the Germans, for example, not stand quite 51 00:03:21,280 --> 00:03:23,920 Speaker 1: strongly with US. I think they will, But he wants 52 00:03:23,960 --> 00:03:27,280 Speaker 1: to divide the NATO alliance. So those are his three objects. 53 00:03:27,440 --> 00:03:31,080 Speaker 1: General Austin of course, with his effort in Germany early 54 00:03:31,120 --> 00:03:33,800 Speaker 1: in his career, and then the Central Command of course, 55 00:03:33,840 --> 00:03:38,200 Speaker 1: with a real understanding of Putin as the Eurasian dominant leader. 56 00:03:38,720 --> 00:03:40,560 Speaker 1: I want to go back to how we're gonna say 57 00:03:40,640 --> 00:03:44,280 Speaker 1: face here, admiralism. I'm sure you've studied at work college 58 00:03:44,360 --> 00:03:49,880 Speaker 1: is George Anderson, chief of Naval Operations Cuba missile crisis, 59 00:03:50,440 --> 00:03:53,960 Speaker 1: said to President Kennedy, Mr President, the Navy will not 60 00:03:54,160 --> 00:03:57,760 Speaker 1: let you down. How does the Secretary of Defense not 61 00:03:57,960 --> 00:04:03,440 Speaker 1: let down? Mr? Biden? In the Allies? He will do 62 00:04:04,720 --> 00:04:08,520 Speaker 1: two fundamental things. One and I see Lloyd Austin, who 63 00:04:08,560 --> 00:04:12,480 Speaker 1: I know extremely well. He's a contemporary of mine west 64 00:04:12,480 --> 00:04:16,120 Speaker 1: Point Grad. We won't hold that against him, but I 65 00:04:16,200 --> 00:04:21,520 Speaker 1: know General indeed, as Secretary Austin, he's doing it today 66 00:04:21,680 --> 00:04:25,520 Speaker 1: in Brussels. He is being a strong, forceful voice for 67 00:04:25,600 --> 00:04:29,520 Speaker 1: Alliance unity at number two. On the war fighting side 68 00:04:29,520 --> 00:04:31,760 Speaker 1: of this thing. We're not going to send troops into Ukraine, 69 00:04:31,800 --> 00:04:33,919 Speaker 1: nor should we. But we ought to be flooding the 70 00:04:34,040 --> 00:04:39,120 Speaker 1: zone with our military, armament, intelligence and cyber and the 71 00:04:39,160 --> 00:04:42,120 Speaker 1: Secretary of Defense is doing that as well. Your wonderful 72 00:04:42,160 --> 00:04:46,520 Speaker 1: book two thousand thirty four is about three parties trying 73 00:04:46,560 --> 00:04:49,920 Speaker 1: to save face. The Cuban missile crisis was to get 74 00:04:49,920 --> 00:04:53,400 Speaker 1: an exit for Kristcheff to save face. How do we 75 00:04:53,480 --> 00:04:59,840 Speaker 1: assist this interesting guy from Moscow to save face? Well, 76 00:04:59,839 --> 00:05:02,680 Speaker 1: he is in every sense a character out of a 77 00:05:02,800 --> 00:05:06,640 Speaker 1: Dustoyevsky novel. You can stop reading CIA reports if you 78 00:05:06,640 --> 00:05:09,880 Speaker 1: want to understand Putin and read Russian literature, which is 79 00:05:10,000 --> 00:05:13,000 Speaker 1: to say, he has a very dark side. And Tom, 80 00:05:13,040 --> 00:05:16,080 Speaker 1: you're on the right note. We need to provide a 81 00:05:16,200 --> 00:05:18,839 Speaker 1: climb down for him if we want to avoid a 82 00:05:18,880 --> 00:05:23,600 Speaker 1: massive war, a scaled war in southeastern Europe. So here's 83 00:05:23,640 --> 00:05:26,640 Speaker 1: what I would do. Go to him at the table 84 00:05:27,160 --> 00:05:31,400 Speaker 1: and say, let's talk about conventional forces, rebalancing them on 85 00:05:31,440 --> 00:05:35,600 Speaker 1: both sides of the border. Let us put missile defense 86 00:05:35,760 --> 00:05:38,520 Speaker 1: on the table. That's something that we have pushed. He 87 00:05:38,560 --> 00:05:41,160 Speaker 1: would like us to reduce our commitment there. I think 88 00:05:41,200 --> 00:05:44,400 Speaker 1: we can talk about that. And third, and finally, let's 89 00:05:44,400 --> 00:05:50,400 Speaker 1: have a conversation about intermediate cruise missiles, intermediate range cruise missiles, 90 00:05:50,400 --> 00:05:52,640 Speaker 1: which both nations have walked away from an I n 91 00:05:52,640 --> 00:05:55,560 Speaker 1: F treaty point being that's all very technical sounding, Tom 92 00:05:55,760 --> 00:05:59,920 Speaker 1: and Paul, But Um, these are things that he understand 93 00:06:00,000 --> 00:06:04,120 Speaker 1: as we understand they They create points of negotiations. So 94 00:06:04,200 --> 00:06:08,719 Speaker 1: we can, as Churchill said, um, talk talk talk, not 95 00:06:09,160 --> 00:06:11,839 Speaker 1: war war war. I think that's where we want to 96 00:06:11,920 --> 00:06:14,920 Speaker 1: land here, right and Tom, we have some headlines acrossing 97 00:06:14,920 --> 00:06:17,800 Speaker 1: the Bloomberg terminal, Biden says, President Biden says probability of 98 00:06:17,800 --> 00:06:22,000 Speaker 1: invasion is quote very high. Biden says he has no 99 00:06:22,279 --> 00:06:25,919 Speaker 1: plans to call Putin Admiral. Just wondering here. Um, you 100 00:06:25,960 --> 00:06:29,200 Speaker 1: know you mentioned one of the key strategic aims of 101 00:06:29,240 --> 00:06:33,080 Speaker 1: Putin is to test NATO. It appears to me, and 102 00:06:33,120 --> 00:06:35,600 Speaker 1: again I'm of an age when I remember when NATO 103 00:06:35,760 --> 00:06:38,279 Speaker 1: was a real thing, when you were commanding it. It 104 00:06:38,320 --> 00:06:42,080 Speaker 1: seems like NATO's standing pretty strong, pretty united right here. 105 00:06:42,320 --> 00:06:45,320 Speaker 1: What is your take. I'm very proud of the Alliance 106 00:06:45,360 --> 00:06:48,279 Speaker 1: at this moment, and I think the Secretary General, who's 107 00:06:48,320 --> 00:06:52,240 Speaker 1: a tough minded former Prime Minister of Norway, he sounds 108 00:06:52,279 --> 00:06:56,560 Speaker 1: like a Viking. He's a serious guy, and with Lloyd 109 00:06:56,600 --> 00:06:59,760 Speaker 1: Austin standing next to him, the Alliance is hanging together. 110 00:07:00,200 --> 00:07:04,400 Speaker 1: Let's be candid here. Watched Germany because Germany's economy is 111 00:07:04,480 --> 00:07:08,560 Speaker 1: so intertwined because of the potential of nord Stream to complications. 112 00:07:08,600 --> 00:07:13,320 Speaker 1: But so far, the brand new Chancellor of Germany, Chancellor Schultz, 113 00:07:13,800 --> 00:07:17,520 Speaker 1: is holding strong with the Biden team and with the Alliance. 114 00:07:17,640 --> 00:07:20,760 Speaker 1: If you're just joining us, James trevidis with this this morning. 115 00:07:20,800 --> 00:07:25,000 Speaker 1: We extend our conversation here on Bloomberg Radio across America. 116 00:07:25,080 --> 00:07:28,400 Speaker 1: We do with futures a negative thirty, the vix point 117 00:07:28,440 --> 00:07:31,560 Speaker 1: seven four and headlines continuing to come out. Secretary B. 118 00:07:31,600 --> 00:07:34,720 Speaker 1: Lincoln scheduled to speak at the United Nations. Here somewhere 119 00:07:34,720 --> 00:07:38,680 Speaker 1: in the vicinity of the ten o'clock, our emeral stevinus, I, 120 00:07:38,680 --> 00:07:40,920 Speaker 1: I want to go back to the to do here, 121 00:07:41,480 --> 00:07:44,360 Speaker 1: and I take it off of Anglo Miracle two thousand 122 00:07:44,400 --> 00:07:48,280 Speaker 1: and fourteen, the time of crimea, the time where dreams 123 00:07:48,320 --> 00:07:52,320 Speaker 1: were shattered in the western central Europe over how we 124 00:07:52,360 --> 00:07:55,480 Speaker 1: would deal with Russia. And she was heated in comments 125 00:07:55,480 --> 00:07:59,040 Speaker 1: and said, forget about the nineteenth century, the twentieth century, 126 00:07:59,080 --> 00:08:03,160 Speaker 1: World War two A we must look forward. What are 127 00:08:03,160 --> 00:08:08,800 Speaker 1: we looking forward to? Now? First, let's pause and just 128 00:08:08,880 --> 00:08:13,400 Speaker 1: say Angela Merkel is a remarkable leader of Germany, four 129 00:08:13,520 --> 00:08:16,800 Speaker 1: time Chancellor of Germany, and as steered detonation through some 130 00:08:17,040 --> 00:08:21,880 Speaker 1: very complicated times and grew up herself in East Germany 131 00:08:22,120 --> 00:08:25,440 Speaker 1: with a Russian boot on her throat, so she knows 132 00:08:25,600 --> 00:08:28,239 Speaker 1: what she's talking about here. What we look forward to, 133 00:08:28,240 --> 00:08:31,880 Speaker 1: tom is all the things we've commented on this morning, 134 00:08:31,920 --> 00:08:35,160 Speaker 1: which is keeping the democracies aligned. And here I don't 135 00:08:35,200 --> 00:08:39,440 Speaker 1: mean just NATO, adding to that NATO mix of thirty 136 00:08:39,440 --> 00:08:46,360 Speaker 1: democracies focusing on Australia, on Japan, on South Korea, on India. 137 00:08:46,400 --> 00:08:50,200 Speaker 1: Over time, we need to create a mass, a critical 138 00:08:50,280 --> 00:08:54,920 Speaker 1: mass of democracies who can stand against these authoritarians. And 139 00:08:54,960 --> 00:08:57,000 Speaker 1: I'll conclude here Tom by saying what we ought to 140 00:08:57,000 --> 00:09:00,520 Speaker 1: be worrying about in this moment is that convert urgents 141 00:09:00,520 --> 00:09:05,640 Speaker 1: of Russian and Chinese and are drawing closer together. This 142 00:09:05,720 --> 00:09:08,200 Speaker 1: is so important. As we talked to Angela Stent the 143 00:09:08,240 --> 00:09:11,880 Speaker 1: other day on Bloomberg, surveillance of a return almost to 144 00:09:11,880 --> 00:09:15,320 Speaker 1: a Yalta structure, which is where China stepped in for 145 00:09:15,400 --> 00:09:17,959 Speaker 1: so many decades as part of the debate, and that 146 00:09:18,000 --> 00:09:22,720 Speaker 1: redounds Paul and particularly in terms of Travitis's navy of 147 00:09:22,840 --> 00:09:27,160 Speaker 1: Black Sea and Ukraine over to the foremost straight. Yeah, 148 00:09:27,440 --> 00:09:29,120 Speaker 1: I don't know. I'd love to get your views here, 149 00:09:29,240 --> 00:09:31,959 Speaker 1: just on the China angle. Here. If I'm president, she 150 00:09:32,640 --> 00:09:35,960 Speaker 1: I've got the Olympics. I want the world's attention on me. 151 00:09:36,960 --> 00:09:39,080 Speaker 1: How do you think China is thinking about what's going 152 00:09:39,160 --> 00:09:41,680 Speaker 1: on in Europe? Does it have you know, skin in 153 00:09:41,720 --> 00:09:45,000 Speaker 1: the game, or is it just gonna stay outside? It 154 00:09:45,080 --> 00:09:51,080 Speaker 1: will stay outside, and President G is undoubtedly grumpy about 155 00:09:51,200 --> 00:09:55,640 Speaker 1: what is occurring in terms of the spotlight swinging almost 156 00:09:55,640 --> 00:10:00,160 Speaker 1: inexorably back to Vladimir Putin. But President G had his 157 00:10:00,280 --> 00:10:03,040 Speaker 1: eyes not on the Olympics. His eyes are on the 158 00:10:03,080 --> 00:10:06,560 Speaker 1: twentie Party Congress late this year, when he will bring 159 00:10:06,640 --> 00:10:10,000 Speaker 1: forward his candidacy for a third five year term as 160 00:10:10,000 --> 00:10:12,840 Speaker 1: the leader of China. So he wants a year of 161 00:10:12,920 --> 00:10:16,800 Speaker 1: living quietly ahead. He's going to get it. I've got 162 00:10:16,800 --> 00:10:21,360 Speaker 1: to go back, Admiral, to soldiers and sailors at risk. 163 00:10:22,080 --> 00:10:26,120 Speaker 1: The Black Sea is so contained anyway, I would suggest 164 00:10:26,200 --> 00:10:30,320 Speaker 1: most of our listeners have this understanding. There's a narrow 165 00:10:30,400 --> 00:10:33,400 Speaker 1: straight office table. It's romantic, as I'll get out. Paul 166 00:10:33,440 --> 00:10:36,079 Speaker 1: and from Russia would love Sean Connery, right, you know, 167 00:10:36,480 --> 00:10:40,120 Speaker 1: but that's not the reality. What is the reality, Admiral, 168 00:10:40,200 --> 00:10:45,280 Speaker 1: of the constraint of an eighteen mile straight The reality 169 00:10:45,559 --> 00:10:50,920 Speaker 1: is a number of international treaties and conventions that limit 170 00:10:51,080 --> 00:10:54,880 Speaker 1: the size and tonnage of worships that can pass through it. 171 00:10:54,880 --> 00:10:59,080 Speaker 1: It is also your point, Tom, highly constrained water space. 172 00:10:59,280 --> 00:11:04,600 Speaker 1: And when you what American destroyers, Romanian frigates, Bulgarian mind 173 00:11:04,640 --> 00:11:10,200 Speaker 1: sweepers operating alongside Russian destroyers Ukrainian patrol boats. It is 174 00:11:10,240 --> 00:11:13,320 Speaker 1: a tight little space in there. And here's what I 175 00:11:13,360 --> 00:11:17,080 Speaker 1: worry about. The captains of those ships are young men 176 00:11:17,160 --> 00:11:21,080 Speaker 1: and women. They're people in their thirties. I was thirty 177 00:11:21,160 --> 00:11:23,640 Speaker 1: six years old when I took command of an Harleyburg 178 00:11:23,679 --> 00:11:26,600 Speaker 1: class destroy These are young people, and their crews are 179 00:11:26,720 --> 00:11:32,720 Speaker 1: even younger, and so the possibility of a discalculation in 180 00:11:32,800 --> 00:11:36,360 Speaker 1: this sight water space is significant. We ought to worry 181 00:11:36,360 --> 00:11:38,680 Speaker 1: about that, must We just thank you so much, of course, 182 00:11:38,720 --> 00:11:40,839 Speaker 1: the book two thousand and thirty four, and we thank 183 00:11:40,880 --> 00:11:50,560 Speaker 1: them for perspective. Today, let's get to it on radio 184 00:11:50,559 --> 00:11:54,040 Speaker 1: and television. We monitor the headlines, particularly from Moscow, eight 185 00:11:54,080 --> 00:11:57,520 Speaker 1: hours in advance. Let's call it four am. I believe 186 00:11:57,559 --> 00:12:01,360 Speaker 1: it is four am in a four pm rather in Moscow, 187 00:12:01,920 --> 00:12:05,160 Speaker 1: long agoing far away. As I talked to David Rubinstein yesterday, 188 00:12:05,200 --> 00:12:08,520 Speaker 1: there was a small matter of Cuba and a missile crisis. 189 00:12:08,600 --> 00:12:11,959 Speaker 1: I remember clearly as a child my father saying years 190 00:12:11,960 --> 00:12:14,880 Speaker 1: on that they hid the newspapers from us. Michael Holland 191 00:12:14,920 --> 00:12:18,200 Speaker 1: was colding court on the football field hit St. Edwards 192 00:12:18,200 --> 00:12:22,080 Speaker 1: in Cleveland during the Cuban missile crisis. Michael, one question 193 00:12:22,520 --> 00:12:26,960 Speaker 1: on the geo politics of the moment and our combined history. 194 00:12:27,240 --> 00:12:31,000 Speaker 1: Do you push it aside when you have money at risk? 195 00:12:32,960 --> 00:12:35,440 Speaker 1: Absolutely not, Tom. I think that all of the things 196 00:12:35,480 --> 00:12:38,440 Speaker 1: that you've been reporting this morning are part of the 197 00:12:38,559 --> 00:12:44,880 Speaker 1: UH battle for investment survival. There's a a recurrence of 198 00:12:45,320 --> 00:12:49,880 Speaker 1: things that are going on right now, including the comments 199 00:12:49,920 --> 00:12:52,680 Speaker 1: about Saudi Arabian where they are and what was going 200 00:12:52,720 --> 00:12:56,360 Speaker 1: on back then we had the Arab oil embargo Saudi Arabia. 201 00:12:56,360 --> 00:13:00,320 Speaker 1: In the middle of that, prices went up dramatically. I 202 00:13:00,360 --> 00:13:04,200 Speaker 1: think the concern that a number of people have recently voiced, 203 00:13:04,240 --> 00:13:10,679 Speaker 1: smart people like Charlie munger Uh are echoing the problems 204 00:13:10,720 --> 00:13:13,600 Speaker 1: that inflation, which many people who are listening to this 205 00:13:13,720 --> 00:13:17,880 Speaker 1: call right now have never experienced. Back in the nineteen fifties, 206 00:13:18,440 --> 00:13:20,000 Speaker 1: it was one of the worst things that happened to 207 00:13:20,160 --> 00:13:24,120 Speaker 1: our country because the most vulnerable and the least able 208 00:13:24,160 --> 00:13:26,240 Speaker 1: to cope with inflation are those who are hurt the 209 00:13:26,280 --> 00:13:29,160 Speaker 1: most by inflation. If we get it again, it's going 210 00:13:29,200 --> 00:13:31,880 Speaker 1: to be very ugly. Part of the problem is people 211 00:13:31,920 --> 00:13:35,280 Speaker 1: haven't experienced it, so people are easily into denial. I 212 00:13:35,280 --> 00:13:38,120 Speaker 1: believe the Fed Minutes had a two point six percent 213 00:13:39,200 --> 00:13:44,199 Speaker 1: forecast for inflation several quarters out. I hope they're right, Michael. 214 00:13:44,240 --> 00:13:46,800 Speaker 1: Let's talk about the fancy land of the FED forecast, 215 00:13:47,320 --> 00:13:49,480 Speaker 1: not my words, the words of the former New York 216 00:13:49,480 --> 00:13:51,800 Speaker 1: FED president built out the least come on this. Probably 217 00:13:51,800 --> 00:13:55,440 Speaker 1: I'm called the fancy land the dot ploto just north 218 00:13:55,440 --> 00:13:58,120 Speaker 1: at two percent we're trying to work out, Michael, not 219 00:13:58,200 --> 00:14:00,400 Speaker 1: the stand of the journey. Most people assume that March 220 00:14:00,720 --> 00:14:03,760 Speaker 1: the pace of the Germany and the destination. How far 221 00:14:03,840 --> 00:14:04,960 Speaker 1: do you think this fe is going to have to 222 00:14:04,960 --> 00:14:09,680 Speaker 1: push it? Um, My guests and I have great humility 223 00:14:09,720 --> 00:14:12,320 Speaker 1: when it comes to predicting, Jonathan, as you know, my 224 00:14:12,480 --> 00:14:14,840 Speaker 1: guess is that it's going to be much more than 225 00:14:14,880 --> 00:14:18,800 Speaker 1: anyone in February of two thousand twenty two believes. Right now, 226 00:14:19,200 --> 00:14:23,119 Speaker 1: I think that we we've listened this morning and previously 227 00:14:23,200 --> 00:14:28,160 Speaker 1: to all of the supply problems, supply chain problems, energy problems. 228 00:14:28,800 --> 00:14:32,880 Speaker 1: Labor is actually the largest component of the concern that 229 00:14:34,000 --> 00:14:37,920 Speaker 1: hyper inflation is caused by. So I think that the 230 00:14:37,960 --> 00:14:40,480 Speaker 1: fact we don't have a lot of people who are 231 00:14:40,520 --> 00:14:43,960 Speaker 1: looking for jobs right now, we have a scarcity of 232 00:14:44,040 --> 00:14:48,920 Speaker 1: labor bespeaks higher inflation. Wage price spiral is a phrase 233 00:14:48,960 --> 00:14:51,480 Speaker 1: that we used to hear years ago. So this is 234 00:14:51,520 --> 00:14:54,240 Speaker 1: an important point, Michael, because if the feed is forced 235 00:14:54,240 --> 00:14:57,400 Speaker 1: to move well more than the market is currently expecting, 236 00:14:57,800 --> 00:15:00,280 Speaker 1: are you basically saying there is no way for the 237 00:15:00,320 --> 00:15:07,360 Speaker 1: Fed to adequately address the inflationary pressures without causing a recession? Uh? Lisa, 238 00:15:07,440 --> 00:15:12,200 Speaker 1: In a word, yes, Paul Volker came into his position 239 00:15:12,280 --> 00:15:16,080 Speaker 1: to try to cure the ugly ugliness of inflation he got. 240 00:15:16,240 --> 00:15:20,080 Speaker 1: He started in August nineteen seventy nine. I wrote it down. Um, 241 00:15:21,160 --> 00:15:25,760 Speaker 1: inflation peaked in nineteen at four percent. Long treasuries went 242 00:15:25,800 --> 00:15:31,360 Speaker 1: to fourteen fifteen percent in nineteen one. Um, the we 243 00:15:31,440 --> 00:15:34,200 Speaker 1: had ten years of I can't believe I'm saying all 244 00:15:34,200 --> 00:15:37,440 Speaker 1: these negative things, but I'm just repeating history here. Um. 245 00:15:38,000 --> 00:15:40,920 Speaker 1: It's these things are possible because they're possible for people 246 00:15:40,920 --> 00:15:44,120 Speaker 1: who are serious about their own investments. Battle for investments. 247 00:15:44,120 --> 00:15:47,400 Speaker 1: Your volva will requires to say it's possible. So what 248 00:15:47,440 --> 00:15:50,680 Speaker 1: would you do if if if you had some certainty 249 00:15:50,680 --> 00:15:53,440 Speaker 1: that it might happen? So what would you do? What 250 00:15:53,480 --> 00:15:55,400 Speaker 1: would you What are you doing if you're if you're 251 00:15:55,400 --> 00:15:58,760 Speaker 1: seeing this as a likely possibility. Well, one of the things, Lisa, 252 00:15:59,000 --> 00:16:01,960 Speaker 1: people will will throw up the you know stocks are 253 00:16:01,960 --> 00:16:05,320 Speaker 1: an inflation headge Well, that's true if you have moderate inflation. 254 00:16:05,640 --> 00:16:09,000 Speaker 1: When you have a seriously large inflation, which we may 255 00:16:09,040 --> 00:16:12,720 Speaker 1: or may not have, again, humility rules my comments. Um, 256 00:16:12,760 --> 00:16:17,000 Speaker 1: I believe that you have a situation where all markets, 257 00:16:17,040 --> 00:16:20,240 Speaker 1: the tradeable markets are affected negatively. You say, well, what 258 00:16:20,280 --> 00:16:22,280 Speaker 1: about gold. Take a look at the history of gold, 259 00:16:22,440 --> 00:16:24,240 Speaker 1: what about real estate? Take a look at the history 260 00:16:24,240 --> 00:16:26,320 Speaker 1: of real estate in these periods. When you go back 261 00:16:26,320 --> 00:16:28,560 Speaker 1: to the nineteen seventies and nineteen eighties and you read 262 00:16:28,560 --> 00:16:31,600 Speaker 1: the history, you say, all markets are affected. It's only 263 00:16:31,640 --> 00:16:34,479 Speaker 1: a question of where do you lose the least money. 264 00:16:34,560 --> 00:16:36,480 Speaker 1: One of the things that the people listening to this 265 00:16:36,600 --> 00:16:40,520 Speaker 1: forecast or lack of forecast, I should say, would would 266 00:16:40,680 --> 00:16:42,840 Speaker 1: be wise to think about, is that even though you 267 00:16:42,920 --> 00:16:48,320 Speaker 1: lose money holding cash, um, you lose less than if 268 00:16:48,360 --> 00:16:52,320 Speaker 1: you own long treasuries. Because when you own long treasuries 269 00:16:52,400 --> 00:16:55,120 Speaker 1: and rates go from where they are now to where 270 00:16:55,120 --> 00:16:58,840 Speaker 1: they were the years ago in hyper inflation, you lose 271 00:16:59,040 --> 00:17:01,960 Speaker 1: a ton of money. And you're supposed to be safe 272 00:17:02,000 --> 00:17:04,280 Speaker 1: in the bond. So bones are a bad place to be. 273 00:17:04,600 --> 00:17:08,280 Speaker 1: Stocks are are less bad. Michael. We appreciate your time. 274 00:17:08,320 --> 00:17:11,359 Speaker 1: You are a true market historian, and I always learned 275 00:17:11,359 --> 00:17:14,280 Speaker 1: something speaking to you, Michael Holland that of Holland and Company. 276 00:17:14,320 --> 00:17:21,440 Speaker 1: Thank you, sir. I've stated their data dependent. I believe 277 00:17:21,480 --> 00:17:25,960 Speaker 1: that's what Kathleen Bustan has written. She's chief US financial 278 00:17:25,960 --> 00:17:29,520 Speaker 1: economist at Oxford Economics. Kathy, I look at the data, 279 00:17:29,560 --> 00:17:33,119 Speaker 1: and I even look at the tertiary data Empire this Philadelphia, 280 00:17:33,200 --> 00:17:36,639 Speaker 1: that seven other industries. You know, I don't know what 281 00:17:36,720 --> 00:17:40,600 Speaker 1: does the tertiary and secondary data say about the growth 282 00:17:40,840 --> 00:17:45,520 Speaker 1: first derivative in America? Well, hi time, happy to be 283 00:17:45,640 --> 00:17:47,920 Speaker 1: with you. Um So, I think, on one hand, we 284 00:17:47,960 --> 00:17:52,320 Speaker 1: are seeing some impact from Omicron, but but overall it's 285 00:17:52,359 --> 00:17:55,080 Speaker 1: it's rather limited when we look at the tertiary or 286 00:17:55,440 --> 00:17:58,280 Speaker 1: the you know, the headline data. Uh and I say 287 00:17:58,320 --> 00:18:02,439 Speaker 1: that particularly retail. So UM this week really surprised to 288 00:18:02,520 --> 00:18:05,960 Speaker 1: the upside that the increase was more than almost more 289 00:18:05,960 --> 00:18:09,840 Speaker 1: than double the consensus expectations, and and the core number, 290 00:18:10,160 --> 00:18:12,600 Speaker 1: which feeds into consumer spending is part of GDP, was 291 00:18:12,680 --> 00:18:15,840 Speaker 1: quite strong. So bottom line, UM, we thought that GDP 292 00:18:16,200 --> 00:18:18,879 Speaker 1: would be about flat for the first quarter, largely due 293 00:18:18,920 --> 00:18:21,760 Speaker 1: to O macron maybe even could turn negative, and now 294 00:18:21,800 --> 00:18:24,760 Speaker 1: it looks to be solidly positive, probably somewhere between one 295 00:18:24,800 --> 00:18:27,760 Speaker 1: to two UM. And then that means that going into 296 00:18:27,880 --> 00:18:31,200 Speaker 1: Q two, things health conditions look better, um, the economy 297 00:18:31,240 --> 00:18:34,200 Speaker 1: should get back onto a more robust path. So I think, 298 00:18:34,400 --> 00:18:36,840 Speaker 1: net net, we're looking at it still an economy that's 299 00:18:36,880 --> 00:18:39,920 Speaker 1: really quite healthy and demand is really strong. Kathy, let's 300 00:18:39,920 --> 00:18:41,440 Speaker 1: dig into that a little bit, because actually, if you 301 00:18:41,440 --> 00:18:44,439 Speaker 1: look at the Atlanta Now GDP NOW index, you actually 302 00:18:44,520 --> 00:18:50,000 Speaker 1: see the expectations for Q one GDP skyrocketing after yesterday 303 00:18:50,080 --> 00:18:52,600 Speaker 1: or after the retail sales number that we got yesterday. 304 00:18:52,640 --> 00:18:55,680 Speaker 1: What in that gave you that kind of confidence? Considering 305 00:18:55,680 --> 00:18:57,399 Speaker 1: the fact that a lot of people pointed to the 306 00:18:57,440 --> 00:19:01,240 Speaker 1: inflation adjustments and other adjustments around the edges that would 307 00:19:01,320 --> 00:19:05,560 Speaker 1: leave it with a pretty tepid type of feel. Yeah, 308 00:19:05,600 --> 00:19:08,080 Speaker 1: I mean no doubt that the nominal number is much 309 00:19:08,119 --> 00:19:10,600 Speaker 1: greater than, you know, faster than than the real But 310 00:19:10,960 --> 00:19:14,360 Speaker 1: even when we adjust for inflation, which surprised the upside 311 00:19:14,400 --> 00:19:19,040 Speaker 1: in January, you're still very strong momentum, you know, coming 312 00:19:19,080 --> 00:19:21,080 Speaker 1: into the start of the year for the consumer. I 313 00:19:21,080 --> 00:19:23,920 Speaker 1: remember that that was way down by Omicron we start 314 00:19:24,440 --> 00:19:28,280 Speaker 1: service you know, UM portion of retail sales was quite weak, 315 00:19:28,359 --> 00:19:30,560 Speaker 1: so we do think services are going to be weak 316 00:19:30,640 --> 00:19:33,920 Speaker 1: as part of consumer spending. But the adorables and non 317 00:19:34,000 --> 00:19:37,800 Speaker 1: durable goods orders were very strong in purchases. And so 318 00:19:38,000 --> 00:19:42,280 Speaker 1: as we rotate UM back to in person services UM 319 00:19:42,320 --> 00:19:44,560 Speaker 1: as things you know, health conditions to get better, that 320 00:19:44,600 --> 00:19:47,720 Speaker 1: should only support consumer spending for the rest of the year. Cathy, 321 00:19:47,760 --> 00:19:50,320 Speaker 1: we of course done expected to get a foreign policy 322 00:19:50,480 --> 00:19:52,680 Speaker 1: crystal ball and tell us what's going to happen with Ukraine. 323 00:19:52,960 --> 00:19:55,400 Speaker 1: I do wonder though, whether you've developed a fuller understanding 324 00:19:55,400 --> 00:19:58,280 Speaker 1: of what it would mean various scenarios, what they would 325 00:19:58,320 --> 00:20:03,000 Speaker 1: mean for the Federal Reserve and mark. It does complicate 326 00:20:03,040 --> 00:20:06,159 Speaker 1: things when things are already quite complicated. UM. You know, 327 00:20:06,240 --> 00:20:09,520 Speaker 1: one hand, we worry about the the impact on inflation, 328 00:20:09,600 --> 00:20:14,320 Speaker 1: oil prices UM, you know, surging higher UM. That's going 329 00:20:14,359 --> 00:20:18,159 Speaker 1: to affect headline UM and and cordate inflation pressures are 330 00:20:18,160 --> 00:20:21,399 Speaker 1: still quite high UM. And then the uncertainty factor, right, 331 00:20:21,440 --> 00:20:25,000 Speaker 1: how does that affect asset markets and financial conditions overall? 332 00:20:25,280 --> 00:20:29,280 Speaker 1: And what's the feedback through Europe and the trade channel? 333 00:20:29,320 --> 00:20:31,800 Speaker 1: Things like that. Um, it's not the direct impact, of 334 00:20:31,800 --> 00:20:35,600 Speaker 1: course for us, but to see uncertainty, how do you 335 00:20:36,280 --> 00:20:40,040 Speaker 1: monitor the Wall Street and Kathy, your whole career has 336 00:20:40,080 --> 00:20:42,520 Speaker 1: been away from this, which I give you great credibility 337 00:20:42,600 --> 00:20:47,800 Speaker 1: on the pace of rate hikes, the parlor game of 338 00:20:47,920 --> 00:20:52,320 Speaker 1: gues estimating out within a green span measured mode, where 339 00:20:52,359 --> 00:20:56,120 Speaker 1: we're going, what's the level of certitude of that belief 340 00:20:56,359 --> 00:21:02,280 Speaker 1: or the probability of that outcome? Much less than in 341 00:21:02,359 --> 00:21:05,160 Speaker 1: the past, although you know there's always great uncertainty when 342 00:21:05,160 --> 00:21:08,919 Speaker 1: you're forecasting, um, the rate path. Um. You know, I 343 00:21:08,960 --> 00:21:12,080 Speaker 1: think at this point what the fit reserve is trying 344 00:21:12,119 --> 00:21:15,640 Speaker 1: to grapple with is how quickly to get back to neutral? 345 00:21:15,720 --> 00:21:18,320 Speaker 1: And do they even need to go restrictive? And what 346 00:21:18,520 --> 00:21:21,880 Speaker 1: is neutral? Um? You know, there's probably a range of 347 00:21:22,040 --> 00:21:24,359 Speaker 1: the fit reserved think it's around two and a half percent, right, 348 00:21:24,359 --> 00:21:26,879 Speaker 1: but there's a range around that we would say somewhere 349 00:21:26,920 --> 00:21:29,439 Speaker 1: around two. It's probably somewhere between you know, one and 350 00:21:29,440 --> 00:21:32,679 Speaker 1: a half to maybe slightly over two. How quickly do 351 00:21:32,760 --> 00:21:34,920 Speaker 1: they need to get back to that? And how much 352 00:21:35,000 --> 00:21:37,960 Speaker 1: can the financial conditions and the economy handle that? Right? 353 00:21:38,359 --> 00:21:41,240 Speaker 1: I would say from my perspective. Tom, I was a 354 00:21:41,240 --> 00:21:44,359 Speaker 1: little weary about this parlor game of five, six, seven 355 00:21:44,440 --> 00:21:47,320 Speaker 1: rate hikes, but um, I'm also quite interested with how 356 00:21:47,359 --> 00:21:50,320 Speaker 1: well the financial markets have handled pricing in you know, 357 00:21:50,359 --> 00:21:52,840 Speaker 1: six or seven rate hikes. So we actually just um 358 00:21:52,920 --> 00:21:57,640 Speaker 1: decided that that seven is probably a good enough estimate 359 00:21:57,680 --> 00:21:59,560 Speaker 1: for for this year. And we're actually in the fifty 360 00:21:59,560 --> 00:22:08,240 Speaker 1: basis camp for more. Yeah, so we we we just shifted. 361 00:22:08,359 --> 00:22:10,600 Speaker 1: It's you know, we we looked at the inflation numbers 362 00:22:10,760 --> 00:22:15,320 Speaker 1: and the January numbers really just um, we're far faster 363 00:22:15,400 --> 00:22:18,240 Speaker 1: than we thought. So now you're peaking inflation faster. We 364 00:22:18,280 --> 00:22:20,760 Speaker 1: still think it's going to decelerate through the rest of 365 00:22:20,800 --> 00:22:23,520 Speaker 1: the year, but the peak is higher. And when we 366 00:22:23,600 --> 00:22:27,399 Speaker 1: go through our estimates, we get inflation prror inflation above 367 00:22:27,480 --> 00:22:30,640 Speaker 1: three percent, and we think that's unacceptably high for the Fed. 368 00:22:30,760 --> 00:22:32,840 Speaker 1: So we have to hear from power, right, we have 369 00:22:32,880 --> 00:22:34,520 Speaker 1: to hear from power. We have to hear from Brainerd 370 00:22:34,520 --> 00:22:37,119 Speaker 1: and Williams. We have it, and that's really going to 371 00:22:37,160 --> 00:22:40,280 Speaker 1: be the key. Are they leading towards fifty or I 372 00:22:40,280 --> 00:22:44,040 Speaker 1: would just add one other thing that in our analysis, right, 373 00:22:44,480 --> 00:22:48,160 Speaker 1: we think that starting with fifty and then pulling back 374 00:22:48,240 --> 00:22:51,560 Speaker 1: to more traditional twenty five basic point increments is easier 375 00:22:51,600 --> 00:22:54,240 Speaker 1: for the markets to handle than starting with and say, oh, 376 00:22:54,320 --> 00:22:57,879 Speaker 1: now we need to go fifty. That could be more destabilizing. Kathy, 377 00:22:57,880 --> 00:22:59,840 Speaker 1: You're not alone. You've got company, and thank you for 378 00:23:00,040 --> 00:23:01,760 Speaker 1: ring the lead. That's our fault for not teasing with 379 00:23:01,840 --> 00:23:05,719 Speaker 1: that and not starting with that. Let's finish on this, Kathy. 380 00:23:05,880 --> 00:23:08,560 Speaker 1: I've heard repeatedly over the last couple of days that 381 00:23:08,680 --> 00:23:11,640 Speaker 1: if they don't deliver what you're talking about, it would 382 00:23:11,640 --> 00:23:15,240 Speaker 1: amount to an easing of financial conditions. Do you believe so? 383 00:23:15,760 --> 00:23:19,520 Speaker 1: And how much of a problem would that be? Well, 384 00:23:19,560 --> 00:23:24,040 Speaker 1: I think it could, um, you know, disappoint the markets 385 00:23:24,040 --> 00:23:27,240 Speaker 1: that thinking that the feed is not really worried about 386 00:23:27,280 --> 00:23:30,119 Speaker 1: their credibility and really fighting inflation as much as they should, 387 00:23:30,119 --> 00:23:33,199 Speaker 1: so it could backfire would be adverse for the for 388 00:23:33,320 --> 00:23:36,840 Speaker 1: market reaction, um in that sense. And it's it's a 389 00:23:36,880 --> 00:23:39,400 Speaker 1: little hard to say whether financial conditions were necessarily easy, 390 00:23:39,440 --> 00:23:42,359 Speaker 1: but they wouldn't be going necessarily in a way that 391 00:23:42,359 --> 00:23:44,480 Speaker 1: the markets would feel comfortable, and I think that we 392 00:23:44,640 --> 00:23:47,560 Speaker 1: would problem. Listen, they've got the markets thinking fifty, fifty 393 00:23:47,560 --> 00:23:49,800 Speaker 1: and fifty basis points when we'll take it at this point. 394 00:23:50,040 --> 00:23:52,960 Speaker 1: Kathy awesome, as always, it's good to catch up with you, 395 00:23:53,040 --> 00:24:00,400 Speaker 1: Kathy Boss. It's there of Oxford Economics market if joint 396 00:24:00,440 --> 00:24:05,240 Speaker 1: is now scenic level, Mattrice straight, do you want to 397 00:24:05,240 --> 00:24:08,800 Speaker 1: talk about Selene a little bit later? Marvin g Political 398 00:24:08,880 --> 00:24:11,959 Speaker 1: tensions once again waking up, trying to process, trying to 399 00:24:12,240 --> 00:24:15,280 Speaker 1: digest various headlines. How do you think cold of this 400 00:24:15,960 --> 00:24:19,320 Speaker 1: influences a particular Central Bank decision that takes place on 401 00:24:19,520 --> 00:24:22,880 Speaker 1: much six state? Yeah, I mean, from from defense perspective, 402 00:24:22,880 --> 00:24:24,520 Speaker 1: I don't think it's gonna affect it at all. I mean, 403 00:24:24,560 --> 00:24:29,199 Speaker 1: certainly a war is um an altering event, particularly if 404 00:24:29,200 --> 00:24:32,040 Speaker 1: it's a significant one. But with the tensions that have 405 00:24:32,119 --> 00:24:34,879 Speaker 1: been around, um, I think the feed has made it 406 00:24:34,880 --> 00:24:38,480 Speaker 1: clear that they're playing catch up, and you know, march 407 00:24:38,600 --> 00:24:40,600 Speaker 1: marches are given in you know, we debate whether it's 408 00:24:40,640 --> 00:24:44,160 Speaker 1: twenty five or fifty, and whether May and June are 409 00:24:44,240 --> 00:24:48,480 Speaker 1: are are equally live at those levels. Do you believe, Marvin, 410 00:24:48,760 --> 00:24:53,720 Speaker 1: the corporations domestically and frankly globally can adapt to what 411 00:24:53,840 --> 00:24:58,200 Speaker 1: they've been given. Yeah, yeah, I I do. I mean 412 00:24:58,560 --> 00:25:02,840 Speaker 1: they have u from a financial engineering perspective. They've been 413 00:25:02,960 --> 00:25:06,240 Speaker 1: very quick to embrace and ultimately reshape their balance sheets 414 00:25:06,280 --> 00:25:09,760 Speaker 1: in a way UM that buys them flexibility. UM. And 415 00:25:09,840 --> 00:25:12,320 Speaker 1: you know, these are port or for profit organizations that 416 00:25:12,400 --> 00:25:17,679 Speaker 1: have been nimble UM to change to rapidly changing conditions, 417 00:25:17,720 --> 00:25:19,880 Speaker 1: both from a global perspective as well as just from 418 00:25:19,880 --> 00:25:22,600 Speaker 1: the mobility perspective UM. And you've seen that they've been 419 00:25:22,640 --> 00:25:24,919 Speaker 1: able to to to navigate it. So I I do 420 00:25:25,040 --> 00:25:28,720 Speaker 1: believe that that's one of the strengths in the equity markets. Well. 421 00:25:28,920 --> 00:25:30,919 Speaker 1: Of course, a lot of people have been making this 422 00:25:31,000 --> 00:25:33,000 Speaker 1: in for a while, even when this wasn't the case, 423 00:25:33,320 --> 00:25:35,200 Speaker 1: and you do wonder how much it's gotten ahead of things, 424 00:25:35,280 --> 00:25:38,439 Speaker 1: especially as you've seen the biggest inflows into equity funds 425 00:25:38,720 --> 00:25:40,960 Speaker 1: versus bond funds so far this court going back to 426 00:25:41,000 --> 00:25:44,800 Speaker 1: two thousand thirteen. Can that continue, especially when you see 427 00:25:44,840 --> 00:25:48,200 Speaker 1: the likes of roadblocks and some of these other pandemic 428 00:25:48,240 --> 00:25:53,960 Speaker 1: aerostocks absolutely get pummeled and returned to pre pandemic normalcy. Yeah, yeah, 429 00:25:54,000 --> 00:25:59,040 Speaker 1: I mean it's it's it's this often UM described aspect 430 00:25:59,080 --> 00:26:02,520 Speaker 1: of asset management and in equity management, that you're looking 431 00:26:02,520 --> 00:26:04,639 Speaker 1: for the winners, and it's a stock pickers market. I 432 00:26:04,640 --> 00:26:07,159 Speaker 1: would argue that that's always the market. UM. You know, 433 00:26:07,200 --> 00:26:11,560 Speaker 1: that's that's what professionals get ultimately paid for. I mean, 434 00:26:11,600 --> 00:26:15,400 Speaker 1: we're seeing demand for treasuries. UM. The fact that we've 435 00:26:15,480 --> 00:26:18,200 Speaker 1: repriced as munch as we have and still have a 436 00:26:18,240 --> 00:26:20,960 Speaker 1: two percent ten year UM and unfortunately to a certain 437 00:26:20,960 --> 00:26:23,960 Speaker 1: to be flattening the curve UM shows that that there 438 00:26:24,000 --> 00:26:27,040 Speaker 1: is a fixed income component component associated with that. UM. 439 00:26:27,040 --> 00:26:29,600 Speaker 1: I do think, I do think equity markets still have 440 00:26:30,000 --> 00:26:32,439 Speaker 1: a bit of a cat curtsy. It might not necessarily 441 00:26:32,480 --> 00:26:34,760 Speaker 1: be US and US growth stocks the way it had 442 00:26:34,800 --> 00:26:37,320 Speaker 1: been for the last two to five years. UM. There's 443 00:26:37,359 --> 00:26:43,160 Speaker 1: there's potential diversification looking for value outside, particularly geographically. But 444 00:26:43,160 --> 00:26:45,159 Speaker 1: but equity still do have a cat curtsy in this 445 00:26:45,240 --> 00:26:48,000 Speaker 1: In this discussion, Marvin, are you actually advising people to 446 00:26:48,080 --> 00:26:50,280 Speaker 1: buy a longer dated bonds right now in the US? 447 00:26:51,119 --> 00:26:53,159 Speaker 1: I mean, I I actually do. I actually do like 448 00:26:53,240 --> 00:26:55,520 Speaker 1: treasuries in here. UM. I think you see from a 449 00:26:55,520 --> 00:27:00,919 Speaker 1: geo political perspective just how demand for that security is 450 00:27:00,960 --> 00:27:04,120 Speaker 1: from from a hedging perspective as well as as well 451 00:27:04,160 --> 00:27:06,879 Speaker 1: as our long term view that we're not going to 452 00:27:07,000 --> 00:27:11,600 Speaker 1: see yields get back to the pre pandemic neutral rate levels. 453 00:27:11,680 --> 00:27:13,720 Speaker 1: I think we're dealing with the different type of environment 454 00:27:13,720 --> 00:27:15,840 Speaker 1: that way moving love. I'm gonna leave it that say 455 00:27:15,920 --> 00:27:18,280 Speaker 1: thank you for catching out with this man that of 456 00:27:18,400 --> 00:27:26,240 Speaker 1: stay straight. Right now, we're gonna do something domestic and 457 00:27:26,280 --> 00:27:29,239 Speaker 1: we are gonna look at something really interesting, because I 458 00:27:29,320 --> 00:27:33,639 Speaker 1: was floored when he became the chief executive officer of Automation. 459 00:27:33,720 --> 00:27:38,000 Speaker 1: Of course, automation hugely visible within the distribution and sale 460 00:27:38,080 --> 00:27:41,840 Speaker 1: of automobiles and trucks in America. And Michael Manly is 461 00:27:41,880 --> 00:27:45,800 Speaker 1: not just another CEO. This is someone steeped in the 462 00:27:45,840 --> 00:27:49,560 Speaker 1: FIA religion, the Chrysler religion. I think, you know, you 463 00:27:49,600 --> 00:27:52,480 Speaker 1: would even understand, Mike Manly that in my childhood it 464 00:27:52,520 --> 00:27:55,320 Speaker 1: was a Renault, not Renault. I mean, I go back 465 00:27:55,560 --> 00:27:59,320 Speaker 1: that far enough. Just simply let us start away from 466 00:27:59,359 --> 00:28:04,680 Speaker 1: earning with how you survive this year? Use cars? Wow, 467 00:28:04,960 --> 00:28:11,120 Speaker 1: new cars not? How's the year been? Well? I think 468 00:28:11,560 --> 00:28:15,240 Speaker 1: I think if you've really identified it. On the one hand, 469 00:28:15,240 --> 00:28:18,439 Speaker 1: we've had significant demand, as you know, and we've been 470 00:28:18,480 --> 00:28:20,480 Speaker 1: able to fulfill that on the used car side and 471 00:28:20,520 --> 00:28:22,840 Speaker 1: on the new car side. It's basically working as closely 472 00:28:22,880 --> 00:28:24,480 Speaker 1: as we can with the O E M S to 473 00:28:24,560 --> 00:28:26,399 Speaker 1: try and predict what we're actually going to receive in 474 00:28:26,440 --> 00:28:27,919 Speaker 1: the month, and most of it when it hits the 475 00:28:27,920 --> 00:28:30,440 Speaker 1: ground is sold, so that's kind of in and out, 476 00:28:30,560 --> 00:28:33,240 Speaker 1: and the most important thing is to keep our customers 477 00:28:33,280 --> 00:28:36,520 Speaker 1: informed about when their vehicles are arriving. Frankly, my autoguy, 478 00:28:36,640 --> 00:28:40,040 Speaker 1: Lisa Bramos, here's fourteen questions. Let me slip one in here. 479 00:28:40,440 --> 00:28:43,360 Speaker 1: Are we going to buy electric cars? Is there a 480 00:28:43,440 --> 00:28:47,000 Speaker 1: real belief here that whether they're a Portia or whatever 481 00:28:47,320 --> 00:28:50,120 Speaker 1: or not something in the middle or the great desire 482 00:28:50,160 --> 00:28:55,800 Speaker 1: of a cheap electric car, is America going to buy them? 483 00:28:55,880 --> 00:28:58,840 Speaker 1: America will buy electric cars, I have no doubt. The 484 00:28:59,040 --> 00:29:02,040 Speaker 1: important question is over what time frame will they Will 485 00:29:02,080 --> 00:29:04,520 Speaker 1: they cover the entire industry. I think what we're seeing 486 00:29:04,600 --> 00:29:06,600 Speaker 1: is a big increase, but as you and I both know, 487 00:29:06,960 --> 00:29:09,440 Speaker 1: that's a very specific demographic. There's buying them at this 488 00:29:09,480 --> 00:29:11,760 Speaker 1: moment in time. And what we need to see happen 489 00:29:11,800 --> 00:29:14,160 Speaker 1: if there's going to be mass adoption is two things. Frankly, 490 00:29:14,560 --> 00:29:16,760 Speaker 1: need to have an infrastructure that people are very comfortable 491 00:29:16,800 --> 00:29:19,080 Speaker 1: with it they can use on a daily basis, and 492 00:29:19,120 --> 00:29:20,680 Speaker 1: we need to work with the O e m s 493 00:29:20,720 --> 00:29:23,000 Speaker 1: to drive those prices down so they become much more 494 00:29:23,040 --> 00:29:25,760 Speaker 1: affordable to the heart of the market, and when they 495 00:29:25,920 --> 00:29:28,440 Speaker 1: when those two things happen, you're going to see adoption 496 00:29:28,520 --> 00:29:30,240 Speaker 1: rates rise. But it's not going to be this year. 497 00:29:30,680 --> 00:29:32,440 Speaker 1: One thing a lot of people are struggling with is 498 00:29:32,520 --> 00:29:35,560 Speaker 1: how much is structural and how much it was cyclical. 499 00:29:35,680 --> 00:29:38,000 Speaker 1: How much of the bump that you got and frankly 500 00:29:38,280 --> 00:29:42,560 Speaker 1: all auto dealerships, god was because of the tight supplies 501 00:29:42,960 --> 00:29:46,720 Speaker 1: driving people to no pun intended to buy more vehicles. 502 00:29:46,880 --> 00:29:49,280 Speaker 1: How much of that will persist and give you that 503 00:29:49,400 --> 00:29:54,640 Speaker 1: pricing power that's just been extraordinary. So you I'm going 504 00:29:54,680 --> 00:29:56,800 Speaker 1: to turn to our fourth quarter results because I think 505 00:29:56,800 --> 00:29:58,760 Speaker 1: if you look at those, you get a partial answer, 506 00:29:58,760 --> 00:30:02,000 Speaker 1: and then then I'll expand that. One of the things 507 00:30:02,000 --> 00:30:04,360 Speaker 1: that I think most organizations have done during the pandemic 508 00:30:04,520 --> 00:30:06,680 Speaker 1: is really look at their cost base, and we have 509 00:30:06,760 --> 00:30:10,960 Speaker 1: removed significant cost and that is absolutely structural, because what 510 00:30:11,000 --> 00:30:13,960 Speaker 1: we've had to do is create efficiency in productivity in 511 00:30:13,960 --> 00:30:15,960 Speaker 1: a different way, and we're very confident that that will 512 00:30:15,960 --> 00:30:19,520 Speaker 1: survive beyond the pandemic. I think the increase that we've 513 00:30:19,560 --> 00:30:22,440 Speaker 1: seen in terms of after sales revenue with more miles 514 00:30:22,520 --> 00:30:25,200 Speaker 1: driven as we get out of the pandemic, that naturally, 515 00:30:25,240 --> 00:30:28,080 Speaker 1: in my view, is going to continue as well use volume. 516 00:30:28,720 --> 00:30:31,840 Speaker 1: Use volume has been good and will I think be sustained. 517 00:30:31,840 --> 00:30:34,000 Speaker 1: So we come back to margin, and the big question 518 00:30:34,080 --> 00:30:37,240 Speaker 1: is new vehicle margin. Who's notwithstanding the fact that new 519 00:30:37,280 --> 00:30:40,040 Speaker 1: vehicle volume is down, it's been more than compensated for 520 00:30:40,080 --> 00:30:43,200 Speaker 1: a big spike in margin. But when I stepped back, 521 00:30:43,400 --> 00:30:46,560 Speaker 1: what we're doing is actually selling new vehicles around M 522 00:30:46,640 --> 00:30:48,640 Speaker 1: S r P. I mean, that's what we were supposed 523 00:30:48,680 --> 00:30:51,560 Speaker 1: to do. So what the pandemic actually did was press 524 00:30:51,560 --> 00:30:54,960 Speaker 1: a reset button on the balance of infantry. Now the 525 00:30:55,120 --> 00:30:57,479 Speaker 1: key question is are we going to take the lessons? 526 00:30:57,480 --> 00:30:59,200 Speaker 1: Are we going to take the advantage of that reset 527 00:30:59,240 --> 00:31:01,880 Speaker 1: button that's been rest and in conjunction with the O 528 00:31:01,920 --> 00:31:04,840 Speaker 1: E M, just keep the balance. We need to maintain 529 00:31:05,360 --> 00:31:08,840 Speaker 1: good new car pricing. I think you'll see some mitigation 530 00:31:08,880 --> 00:31:11,240 Speaker 1: in terms of margin on new cars, but I really 531 00:31:11,240 --> 00:31:13,400 Speaker 1: believe that lesson is now embedded and they will not 532 00:31:13,480 --> 00:31:16,120 Speaker 1: return in my view back to the two thousand, two 533 00:31:16,120 --> 00:31:19,120 Speaker 1: thousand seventeen margins. Just to be very clear, So the 534 00:31:19,280 --> 00:31:22,720 Speaker 1: M S r P that's manufacturers suggested retail price, you 535 00:31:22,760 --> 00:31:24,800 Speaker 1: think that we are going to head back to a 536 00:31:24,920 --> 00:31:28,840 Speaker 1: level that is more in tandem with that suggested retail price. 537 00:31:29,200 --> 00:31:32,280 Speaker 1: How do you then expect to sustain some of the momentum? 538 00:31:32,280 --> 00:31:35,400 Speaker 1: And you talk about the efficiencies, but is there also 539 00:31:35,440 --> 00:31:39,520 Speaker 1: an intention by dealerships to keep supplies tight, to have 540 00:31:39,680 --> 00:31:42,720 Speaker 1: an order flow, to have something in order to continue 541 00:31:43,200 --> 00:31:49,040 Speaker 1: maintaining margins to some degree. So when I talk about 542 00:31:49,040 --> 00:31:52,480 Speaker 1: our volumes alternations volumes last year, only two of the 543 00:31:52,560 --> 00:31:55,440 Speaker 1: vehicles we sold were above m SRP, So the vast 544 00:31:55,480 --> 00:31:58,800 Speaker 1: majority of our of our new vehicle invoices were at 545 00:31:58,880 --> 00:32:02,000 Speaker 1: or below MSRP. And that's been able to achieve that 546 00:32:02,080 --> 00:32:04,920 Speaker 1: because of a better balance between supply and demand, and 547 00:32:05,000 --> 00:32:09,000 Speaker 1: I think with additional inventory coming in with the demand 548 00:32:09,040 --> 00:32:11,920 Speaker 1: that's there, we should be able to maintain that pricing 549 00:32:11,920 --> 00:32:15,320 Speaker 1: position because we are talking about a reduction in the 550 00:32:15,400 --> 00:32:19,120 Speaker 1: significant discounts that were required when all of the industry 551 00:32:19,200 --> 00:32:22,800 Speaker 1: was sat on a multiple of stock that we have today. 552 00:32:22,880 --> 00:32:25,680 Speaker 1: So there was a complete imbalance really between that supply 553 00:32:25,720 --> 00:32:28,760 Speaker 1: and demand. So we've had this reset button now and 554 00:32:28,920 --> 00:32:31,040 Speaker 1: inventory levels are low, in fact they're too low, so 555 00:32:31,080 --> 00:32:33,840 Speaker 1: there's an opportunity I think to build inventory levels up 556 00:32:34,360 --> 00:32:36,760 Speaker 1: not to where they were before, but continue to keep 557 00:32:36,760 --> 00:32:39,560 Speaker 1: that balance between supply and demands so that we're selling 558 00:32:39,560 --> 00:32:41,760 Speaker 1: at M s r P. Michael Manly, thank you so 559 00:32:41,840 --> 00:32:43,480 Speaker 1: much for joining us. We need to move on to 560 00:32:43,680 --> 00:32:46,160 Speaker 1: headlines at the moment, but the chief executive officer of 561 00:32:46,160 --> 00:32:49,640 Speaker 1: our nation in the battles of this pandemic and moving 562 00:32:49,960 --> 00:32:54,120 Speaker 1: units to America in trucks encourage. This is the Bloomberg 563 00:32:54,200 --> 00:32:58,280 Speaker 1: Surveillance Podcast. Thanks for listening. Join us live week days 564 00:32:58,320 --> 00:33:01,440 Speaker 1: from seven to ten m East earned on Bloomberg Radio 565 00:33:01,680 --> 00:33:05,280 Speaker 1: and on Bloomberg Television each day from six to nine 566 00:33:05,360 --> 00:33:09,760 Speaker 1: am for insight from the best in economics, finance, investment, 567 00:33:09,920 --> 00:33:14,920 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 568 00:33:15,000 --> 00:33:18,840 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 569 00:33:18,960 --> 00:33:23,080 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg