WEBVTT - Surveillance: Russia Tensions with Stavridis 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.560 Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot 0:00:23.560 --> 0:00:30.280 Com and of course on the Bloomberg Terminal. Joining us now, 0:00:30.800 --> 0:00:34.440 James Stravitas. Of course, his book, My Book of the Summer, 0:00:34.960 --> 0:00:39.000 A summer ago on China two thousand thirty four. We 0:00:39.159 --> 0:00:42.000 read a book on the Black Sea. Admiral Stevidis, of 0:00:42.040 --> 0:00:44.519 course writing for Bloomberg Opinion. You see him often with 0:00:44.680 --> 0:00:49.080 NBC and of course the former Supreme Allied Commander of NATO, 0:00:49.560 --> 0:00:52.080 Admiral Stavidis. Thank you so much for joining us this morning. 0:00:52.760 --> 0:00:55.080 Always a pleasure, Tom and Paul. I want to talk 0:00:55.120 --> 0:00:59.240 about the Black Sea, about how narrow the strait is 0:00:59.280 --> 0:01:02.760 through Istam Bowl, about a need to build a NATO 0:01:02.840 --> 0:01:07.960 presence in Romania to the west of Crimea, and specifically 0:01:08.080 --> 0:01:13.120 the different timelines of the US NATO and a bridge 0:01:13.480 --> 0:01:16.600 to Crimea called the Crimean Bridge down by the Russians. 0:01:17.400 --> 0:01:20.200 It just seems to me the Black Sea is so important. 0:01:20.560 --> 0:01:22.800 Do we need to show the flag now in the 0:01:22.880 --> 0:01:27.479 Black Sea. Oh absolutely, Tom, And you know good news. 0:01:27.560 --> 0:01:31.119 We have four of our absolute top end Aurly Birke 0:01:31.240 --> 0:01:36.839 class Egist destroyers that are stationed homeported in Rhoda, Spain. 0:01:36.959 --> 0:01:39.480 That's the opposite end of the Mediterranean. But that's the 0:01:39.520 --> 0:01:45.560 beauty of a navy. So yeah, but it's a doable commute. 0:01:45.680 --> 0:01:50.360 And my understanding is, um, those plans are in place 0:01:50.440 --> 0:01:55.040 to flush them to the eastern Mediterranean, and perhaps more significantly, Tom, 0:01:55.440 --> 0:01:59.919 for more of that same class of high end missile 0:02:00.080 --> 0:02:04.480 defense destroyers are underway from Norfolk going to back up 0:02:04.520 --> 0:02:07.000 the four destroyers and rode to Spain. That's a pretty 0:02:07.000 --> 0:02:10.360 considerable flotilla. And yes, we are to be moving some 0:02:10.400 --> 0:02:14.000 of those ships into the Black Sea. Admiral, as you 0:02:14.040 --> 0:02:17.200 step back and look at this thing holistically, what do 0:02:17.320 --> 0:02:19.920 you think, based upon your experience at NATO, what do 0:02:19.960 --> 0:02:23.960 you think Mr Putin's is really looking for here? It 0:02:24.000 --> 0:02:27.080 just seems oddly out of time and place to be 0:02:27.160 --> 0:02:32.080 massing troops and tanks on an eastern European border. Um. 0:02:32.120 --> 0:02:35.800 I think Putin's after three things. One is he loves 0:02:35.880 --> 0:02:39.640 being the center of attention, and he is playing to 0:02:40.280 --> 0:02:44.280 his population. He's playing to the nations around the Periphry 0:02:44.320 --> 0:02:47.280 of Russia, so he likes being the center of attention, 0:02:47.360 --> 0:02:50.520 even in the middle of the Olympics. For example, Number two, 0:02:50.960 --> 0:02:56.079 he wants to crack the suberenity of Ukraine. He knows 0:02:56.120 --> 0:02:58.799 he will never be able to completely dominate it, pull 0:02:58.880 --> 0:03:01.120 it back to the Soviet Union, that's what he wants. 0:03:01.160 --> 0:03:04.560 He knows that's not going to happen. But by annexing 0:03:04.600 --> 0:03:07.760 the Crimea, creating this land bridge, Tom talked about a 0:03:07.760 --> 0:03:12.160 moment ago he has the ability to um effectively take 0:03:12.160 --> 0:03:15.240 their sub reignity away. And third, and finally, he wants 0:03:15.280 --> 0:03:18.520 to divide US. He wants to divide NATO. He would 0:03:18.520 --> 0:03:21.240 love to see the Germans, for example, not stand quite 0:03:21.280 --> 0:03:23.920 strongly with US. I think they will, But he wants 0:03:23.960 --> 0:03:27.280 to divide the NATO alliance. So those are his three objects. 0:03:27.440 --> 0:03:31.080 General Austin of course, with his effort in Germany early 0:03:31.120 --> 0:03:33.800 in his career, and then the Central Command of course, 0:03:33.840 --> 0:03:38.200 with a real understanding of Putin as the Eurasian dominant leader. 0:03:38.720 --> 0:03:40.560 I want to go back to how we're gonna say 0:03:40.640 --> 0:03:44.280 face here, admiralism. I'm sure you've studied at work college 0:03:44.360 --> 0:03:49.880 is George Anderson, chief of Naval Operations Cuba missile crisis, 0:03:50.440 --> 0:03:53.960 said to President Kennedy, Mr President, the Navy will not 0:03:54.160 --> 0:03:57.760 let you down. How does the Secretary of Defense not 0:03:57.960 --> 0:04:03.440 let down? Mr? Biden? In the Allies? He will do 0:04:04.720 --> 0:04:08.520 two fundamental things. One and I see Lloyd Austin, who 0:04:08.560 --> 0:04:12.480 I know extremely well. He's a contemporary of mine west 0:04:12.480 --> 0:04:16.120 Point Grad. We won't hold that against him, but I 0:04:16.200 --> 0:04:21.520 know General indeed, as Secretary Austin, he's doing it today 0:04:21.680 --> 0:04:25.520 in Brussels. He is being a strong, forceful voice for 0:04:25.600 --> 0:04:29.520 Alliance unity at number two. On the war fighting side 0:04:29.520 --> 0:04:31.760 of this thing. We're not going to send troops into Ukraine, 0:04:31.800 --> 0:04:33.919 nor should we. But we ought to be flooding the 0:04:34.040 --> 0:04:39.120 zone with our military, armament, intelligence and cyber and the 0:04:39.160 --> 0:04:42.120 Secretary of Defense is doing that as well. Your wonderful 0:04:42.160 --> 0:04:46.520 book two thousand thirty four is about three parties trying 0:04:46.560 --> 0:04:49.920 to save face. The Cuban missile crisis was to get 0:04:49.920 --> 0:04:53.400 an exit for Kristcheff to save face. How do we 0:04:53.480 --> 0:04:59.840 assist this interesting guy from Moscow to save face? Well, 0:04:59.839 --> 0:05:02.680 he is in every sense a character out of a 0:05:02.800 --> 0:05:06.640 Dustoyevsky novel. You can stop reading CIA reports if you 0:05:06.640 --> 0:05:09.880 want to understand Putin and read Russian literature, which is 0:05:10.000 --> 0:05:13.000 to say, he has a very dark side. And Tom, 0:05:13.040 --> 0:05:16.080 you're on the right note. We need to provide a 0:05:16.200 --> 0:05:18.839 climb down for him if we want to avoid a 0:05:18.880 --> 0:05:23.600 massive war, a scaled war in southeastern Europe. So here's 0:05:23.640 --> 0:05:26.640 what I would do. Go to him at the table 0:05:27.160 --> 0:05:31.400 and say, let's talk about conventional forces, rebalancing them on 0:05:31.440 --> 0:05:35.600 both sides of the border. Let us put missile defense 0:05:35.760 --> 0:05:38.520 on the table. That's something that we have pushed. He 0:05:38.560 --> 0:05:41.160 would like us to reduce our commitment there. I think 0:05:41.200 --> 0:05:44.400 we can talk about that. And third, and finally, let's 0:05:44.400 --> 0:05:50.400 have a conversation about intermediate cruise missiles, intermediate range cruise missiles, 0:05:50.400 --> 0:05:52.640 which both nations have walked away from an I n 0:05:52.640 --> 0:05:55.560 F treaty point being that's all very technical sounding, Tom 0:05:55.760 --> 0:05:59.920 and Paul, But Um, these are things that he understand 0:06:00.000 --> 0:06:04.120 as we understand they They create points of negotiations. So 0:06:04.200 --> 0:06:08.719 we can, as Churchill said, um, talk talk talk, not 0:06:09.160 --> 0:06:11.839 war war war. I think that's where we want to 0:06:11.920 --> 0:06:14.920 land here, right and Tom, we have some headlines acrossing 0:06:14.920 --> 0:06:17.800 the Bloomberg terminal, Biden says, President Biden says probability of 0:06:17.800 --> 0:06:22.000 invasion is quote very high. Biden says he has no 0:06:22.279 --> 0:06:25.919 plans to call Putin Admiral. Just wondering here. Um, you 0:06:25.960 --> 0:06:29.200 know you mentioned one of the key strategic aims of 0:06:29.240 --> 0:06:33.080 Putin is to test NATO. It appears to me, and 0:06:33.120 --> 0:06:35.600 again I'm of an age when I remember when NATO 0:06:35.760 --> 0:06:38.279 was a real thing, when you were commanding it. It 0:06:38.320 --> 0:06:42.080 seems like NATO's standing pretty strong, pretty united right here. 0:06:42.320 --> 0:06:45.320 What is your take. I'm very proud of the Alliance 0:06:45.360 --> 0:06:48.279 at this moment, and I think the Secretary General, who's 0:06:48.320 --> 0:06:52.240 a tough minded former Prime Minister of Norway, he sounds 0:06:52.279 --> 0:06:56.560 like a Viking. He's a serious guy, and with Lloyd 0:06:56.600 --> 0:06:59.760 Austin standing next to him, the Alliance is hanging together. 0:07:00.200 --> 0:07:04.400 Let's be candid here. Watched Germany because Germany's economy is 0:07:04.480 --> 0:07:08.560 so intertwined because of the potential of nord Stream to complications. 0:07:08.600 --> 0:07:13.320 But so far, the brand new Chancellor of Germany, Chancellor Schultz, 0:07:13.800 --> 0:07:17.520 is holding strong with the Biden team and with the Alliance. 0:07:17.640 --> 0:07:20.760 If you're just joining us, James trevidis with this this morning. 0:07:20.800 --> 0:07:25.000 We extend our conversation here on Bloomberg Radio across America. 0:07:25.080 --> 0:07:28.400 We do with futures a negative thirty, the vix point 0:07:28.440 --> 0:07:31.560 seven four and headlines continuing to come out. Secretary B. 0:07:31.600 --> 0:07:34.720 Lincoln scheduled to speak at the United Nations. Here somewhere 0:07:34.720 --> 0:07:38.680 in the vicinity of the ten o'clock, our emeral stevinus, I, 0:07:38.680 --> 0:07:40.920 I want to go back to the to do here, 0:07:41.480 --> 0:07:44.360 and I take it off of Anglo Miracle two thousand 0:07:44.400 --> 0:07:48.280 and fourteen, the time of crimea, the time where dreams 0:07:48.320 --> 0:07:52.320 were shattered in the western central Europe over how we 0:07:52.360 --> 0:07:55.480 would deal with Russia. And she was heated in comments 0:07:55.480 --> 0:07:59.040 and said, forget about the nineteenth century, the twentieth century, 0:07:59.080 --> 0:08:03.160 World War two A we must look forward. What are 0:08:03.160 --> 0:08:08.800 we looking forward to? Now? First, let's pause and just 0:08:08.880 --> 0:08:13.400 say Angela Merkel is a remarkable leader of Germany, four 0:08:13.520 --> 0:08:16.800 time Chancellor of Germany, and as steered detonation through some 0:08:17.040 --> 0:08:21.880 very complicated times and grew up herself in East Germany 0:08:22.120 --> 0:08:25.440 with a Russian boot on her throat, so she knows 0:08:25.600 --> 0:08:28.239 what she's talking about here. What we look forward to, 0:08:28.240 --> 0:08:31.880 tom is all the things we've commented on this morning, 0:08:31.920 --> 0:08:35.160 which is keeping the democracies aligned. And here I don't 0:08:35.200 --> 0:08:39.440 mean just NATO, adding to that NATO mix of thirty 0:08:39.440 --> 0:08:46.360 democracies focusing on Australia, on Japan, on South Korea, on India. 0:08:46.400 --> 0:08:50.200 Over time, we need to create a mass, a critical 0:08:50.280 --> 0:08:54.920 mass of democracies who can stand against these authoritarians. And 0:08:54.960 --> 0:08:57.000 I'll conclude here Tom by saying what we ought to 0:08:57.000 --> 0:09:00.520 be worrying about in this moment is that convert urgents 0:09:00.520 --> 0:09:05.640 of Russian and Chinese and are drawing closer together. This 0:09:05.720 --> 0:09:08.200 is so important. As we talked to Angela Stent the 0:09:08.240 --> 0:09:11.880 other day on Bloomberg, surveillance of a return almost to 0:09:11.880 --> 0:09:15.320 a Yalta structure, which is where China stepped in for 0:09:15.400 --> 0:09:17.959 so many decades as part of the debate, and that 0:09:18.000 --> 0:09:22.720 redounds Paul and particularly in terms of Travitis's navy of 0:09:22.840 --> 0:09:27.160 Black Sea and Ukraine over to the foremost straight. Yeah, 0:09:27.440 --> 0:09:29.120 I don't know. I'd love to get your views here, 0:09:29.240 --> 0:09:31.959 just on the China angle. Here. If I'm president, she 0:09:32.640 --> 0:09:35.960 I've got the Olympics. I want the world's attention on me. 0:09:36.960 --> 0:09:39.080 How do you think China is thinking about what's going 0:09:39.160 --> 0:09:41.680 on in Europe? Does it have you know, skin in 0:09:41.720 --> 0:09:45.000 the game, or is it just gonna stay outside? It 0:09:45.080 --> 0:09:51.080 will stay outside, and President G is undoubtedly grumpy about 0:09:51.200 --> 0:09:55.640 what is occurring in terms of the spotlight swinging almost 0:09:55.640 --> 0:10:00.160 inexorably back to Vladimir Putin. But President G had his 0:10:00.280 --> 0:10:03.040 eyes not on the Olympics. His eyes are on the 0:10:03.080 --> 0:10:06.560 twentie Party Congress late this year, when he will bring 0:10:06.640 --> 0:10:10.000 forward his candidacy for a third five year term as 0:10:10.000 --> 0:10:12.840 the leader of China. So he wants a year of 0:10:12.920 --> 0:10:16.800 living quietly ahead. He's going to get it. I've got 0:10:16.800 --> 0:10:21.360 to go back, Admiral, to soldiers and sailors at risk. 0:10:22.080 --> 0:10:26.120 The Black Sea is so contained anyway, I would suggest 0:10:26.200 --> 0:10:30.320 most of our listeners have this understanding. There's a narrow 0:10:30.400 --> 0:10:33.400 straight office table. It's romantic, as I'll get out. Paul 0:10:33.440 --> 0:10:36.079 and from Russia would love Sean Connery, right, you know, 0:10:36.480 --> 0:10:40.120 but that's not the reality. What is the reality, Admiral, 0:10:40.200 --> 0:10:45.280 of the constraint of an eighteen mile straight The reality 0:10:45.559 --> 0:10:50.920 is a number of international treaties and conventions that limit 0:10:51.080 --> 0:10:54.880 the size and tonnage of worships that can pass through it. 0:10:54.880 --> 0:10:59.080 It is also your point, Tom, highly constrained water space. 0:10:59.280 --> 0:11:04.600 And when you what American destroyers, Romanian frigates, Bulgarian mind 0:11:04.640 --> 0:11:10.200 sweepers operating alongside Russian destroyers Ukrainian patrol boats. It is 0:11:10.240 --> 0:11:13.320 a tight little space in there. And here's what I 0:11:13.360 --> 0:11:17.080 worry about. The captains of those ships are young men 0:11:17.160 --> 0:11:21.080 and women. They're people in their thirties. I was thirty 0:11:21.160 --> 0:11:23.640 six years old when I took command of an Harleyburg 0:11:23.679 --> 0:11:26.600 class destroy These are young people, and their crews are 0:11:26.720 --> 0:11:32.720 even younger, and so the possibility of a discalculation in 0:11:32.800 --> 0:11:36.360 this sight water space is significant. We ought to worry 0:11:36.360 --> 0:11:38.680 about that, must We just thank you so much, of course, 0:11:38.720 --> 0:11:40.839 the book two thousand and thirty four, and we thank 0:11:40.880 --> 0:11:50.560 them for perspective. Today, let's get to it on radio 0:11:50.559 --> 0:11:54.040 and television. We monitor the headlines, particularly from Moscow, eight 0:11:54.080 --> 0:11:57.520 hours in advance. Let's call it four am. I believe 0:11:57.559 --> 0:12:01.360 it is four am in a four pm rather in Moscow, 0:12:01.920 --> 0:12:05.160 long agoing far away. As I talked to David Rubinstein yesterday, 0:12:05.200 --> 0:12:08.520 there was a small matter of Cuba and a missile crisis. 0:12:08.600 --> 0:12:11.959 I remember clearly as a child my father saying years 0:12:11.960 --> 0:12:14.880 on that they hid the newspapers from us. Michael Holland 0:12:14.920 --> 0:12:18.200 was colding court on the football field hit St. Edwards 0:12:18.200 --> 0:12:22.080 in Cleveland during the Cuban missile crisis. Michael, one question 0:12:22.520 --> 0:12:26.960 on the geo politics of the moment and our combined history. 0:12:27.240 --> 0:12:31.000 Do you push it aside when you have money at risk? 0:12:32.960 --> 0:12:35.440 Absolutely not, Tom. I think that all of the things 0:12:35.480 --> 0:12:38.440 that you've been reporting this morning are part of the 0:12:38.559 --> 0:12:44.880 UH battle for investment survival. There's a a recurrence of 0:12:45.320 --> 0:12:49.880 things that are going on right now, including the comments 0:12:49.920 --> 0:12:52.680 about Saudi Arabian where they are and what was going 0:12:52.720 --> 0:12:56.360 on back then we had the Arab oil embargo Saudi Arabia. 0:12:56.360 --> 0:13:00.320 In the middle of that, prices went up dramatically. I 0:13:00.360 --> 0:13:04.200 think the concern that a number of people have recently voiced, 0:13:04.240 --> 0:13:10.679 smart people like Charlie munger Uh are echoing the problems 0:13:10.720 --> 0:13:13.600 that inflation, which many people who are listening to this 0:13:13.720 --> 0:13:17.880 call right now have never experienced. Back in the nineteen fifties, 0:13:18.440 --> 0:13:20.000 it was one of the worst things that happened to 0:13:20.160 --> 0:13:24.120 our country because the most vulnerable and the least able 0:13:24.160 --> 0:13:26.240 to cope with inflation are those who are hurt the 0:13:26.280 --> 0:13:29.160 most by inflation. If we get it again, it's going 0:13:29.200 --> 0:13:31.880 to be very ugly. Part of the problem is people 0:13:31.920 --> 0:13:35.280 haven't experienced it, so people are easily into denial. I 0:13:35.280 --> 0:13:38.120 believe the Fed Minutes had a two point six percent 0:13:39.200 --> 0:13:44.199 forecast for inflation several quarters out. I hope they're right, Michael. 0:13:44.240 --> 0:13:46.800 Let's talk about the fancy land of the FED forecast, 0:13:47.320 --> 0:13:49.480 not my words, the words of the former New York 0:13:49.480 --> 0:13:51.800 FED president built out the least come on this. Probably 0:13:51.800 --> 0:13:55.440 I'm called the fancy land the dot ploto just north 0:13:55.440 --> 0:13:58.120 at two percent we're trying to work out, Michael, not 0:13:58.200 --> 0:14:00.400 the stand of the journey. Most people assume that March 0:14:00.720 --> 0:14:03.760 the pace of the Germany and the destination. How far 0:14:03.840 --> 0:14:04.960 do you think this fe is going to have to 0:14:04.960 --> 0:14:09.680 push it? Um, My guests and I have great humility 0:14:09.720 --> 0:14:12.320 when it comes to predicting, Jonathan, as you know, my 0:14:12.480 --> 0:14:14.840 guess is that it's going to be much more than 0:14:14.880 --> 0:14:18.800 anyone in February of two thousand twenty two believes. Right now, 0:14:19.200 --> 0:14:23.119 I think that we we've listened this morning and previously 0:14:23.200 --> 0:14:28.160 to all of the supply problems, supply chain problems, energy problems. 0:14:28.800 --> 0:14:32.880 Labor is actually the largest component of the concern that 0:14:34.000 --> 0:14:37.920 hyper inflation is caused by. So I think that the 0:14:37.960 --> 0:14:40.480 fact we don't have a lot of people who are 0:14:40.520 --> 0:14:43.960 looking for jobs right now, we have a scarcity of 0:14:44.040 --> 0:14:48.920 labor bespeaks higher inflation. Wage price spiral is a phrase 0:14:48.960 --> 0:14:51.480 that we used to hear years ago. So this is 0:14:51.520 --> 0:14:54.240 an important point, Michael, because if the feed is forced 0:14:54.240 --> 0:14:57.400 to move well more than the market is currently expecting, 0:14:57.800 --> 0:15:00.280 are you basically saying there is no way for the 0:15:00.320 --> 0:15:07.360 Fed to adequately address the inflationary pressures without causing a recession? Uh? Lisa, 0:15:07.440 --> 0:15:12.200 In a word, yes, Paul Volker came into his position 0:15:12.280 --> 0:15:16.080 to try to cure the ugly ugliness of inflation he got. 0:15:16.240 --> 0:15:20.080 He started in August nineteen seventy nine. I wrote it down. Um, 0:15:21.160 --> 0:15:25.760 inflation peaked in nineteen at four percent. Long treasuries went 0:15:25.800 --> 0:15:31.360 to fourteen fifteen percent in nineteen one. Um, the we 0:15:31.440 --> 0:15:34.200 had ten years of I can't believe I'm saying all 0:15:34.200 --> 0:15:37.440 these negative things, but I'm just repeating history here. Um. 0:15:38.000 --> 0:15:40.920 It's these things are possible because they're possible for people 0:15:40.920 --> 0:15:44.120 who are serious about their own investments. Battle for investments. 0:15:44.120 --> 0:15:47.400 Your volva will requires to say it's possible. So what 0:15:47.440 --> 0:15:50.680 would you do if if if you had some certainty 0:15:50.680 --> 0:15:53.440 that it might happen? So what would you do? What 0:15:53.480 --> 0:15:55.400 would you What are you doing if you're if you're 0:15:55.400 --> 0:15:58.760 seeing this as a likely possibility. Well, one of the things, Lisa, 0:15:59.000 --> 0:16:01.960 people will will throw up the you know stocks are 0:16:01.960 --> 0:16:05.320 an inflation headge Well, that's true if you have moderate inflation. 0:16:05.640 --> 0:16:09.000 When you have a seriously large inflation, which we may 0:16:09.040 --> 0:16:12.720 or may not have, again, humility rules my comments. Um, 0:16:12.760 --> 0:16:17.000 I believe that you have a situation where all markets, 0:16:17.040 --> 0:16:20.240 the tradeable markets are affected negatively. You say, well, what 0:16:20.280 --> 0:16:22.280 about gold. Take a look at the history of gold, 0:16:22.440 --> 0:16:24.240 what about real estate? Take a look at the history 0:16:24.240 --> 0:16:26.320 of real estate in these periods. When you go back 0:16:26.320 --> 0:16:28.560 to the nineteen seventies and nineteen eighties and you read 0:16:28.560 --> 0:16:31.600 the history, you say, all markets are affected. It's only 0:16:31.640 --> 0:16:34.479 a question of where do you lose the least money. 0:16:34.560 --> 0:16:36.480 One of the things that the people listening to this 0:16:36.600 --> 0:16:40.520 forecast or lack of forecast, I should say, would would 0:16:40.680 --> 0:16:42.840 be wise to think about, is that even though you 0:16:42.920 --> 0:16:48.320 lose money holding cash, um, you lose less than if 0:16:48.360 --> 0:16:52.320 you own long treasuries. Because when you own long treasuries 0:16:52.400 --> 0:16:55.120 and rates go from where they are now to where 0:16:55.120 --> 0:16:58.840 they were the years ago in hyper inflation, you lose 0:16:59.040 --> 0:17:01.960 a ton of money. And you're supposed to be safe 0:17:02.000 --> 0:17:04.280 in the bond. So bones are a bad place to be. 0:17:04.600 --> 0:17:08.280 Stocks are are less bad. Michael. We appreciate your time. 0:17:08.320 --> 0:17:11.359 You are a true market historian, and I always learned 0:17:11.359 --> 0:17:14.280 something speaking to you, Michael Holland that of Holland and Company. 0:17:14.320 --> 0:17:21.440 Thank you, sir. I've stated their data dependent. I believe 0:17:21.480 --> 0:17:25.960 that's what Kathleen Bustan has written. She's chief US financial 0:17:25.960 --> 0:17:29.520 economist at Oxford Economics. Kathy, I look at the data, 0:17:29.560 --> 0:17:33.119 and I even look at the tertiary data Empire this Philadelphia, 0:17:33.200 --> 0:17:36.639 that seven other industries. You know, I don't know what 0:17:36.720 --> 0:17:40.600 does the tertiary and secondary data say about the growth 0:17:40.840 --> 0:17:45.520 first derivative in America? Well, hi time, happy to be 0:17:45.640 --> 0:17:47.920 with you. Um So, I think, on one hand, we 0:17:47.960 --> 0:17:52.320 are seeing some impact from Omicron, but but overall it's 0:17:52.359 --> 0:17:55.080 it's rather limited when we look at the tertiary or 0:17:55.440 --> 0:17:58.280 the you know, the headline data. Uh and I say 0:17:58.320 --> 0:18:02.439 that particularly retail. So UM this week really surprised to 0:18:02.520 --> 0:18:05.960 the upside that the increase was more than almost more 0:18:05.960 --> 0:18:09.840 than double the consensus expectations, and and the core number, 0:18:10.160 --> 0:18:12.600 which feeds into consumer spending is part of GDP, was 0:18:12.680 --> 0:18:15.840 quite strong. So bottom line, UM, we thought that GDP 0:18:16.200 --> 0:18:18.879 would be about flat for the first quarter, largely due 0:18:18.920 --> 0:18:21.760 to O macron maybe even could turn negative, and now 0:18:21.800 --> 0:18:24.760 it looks to be solidly positive, probably somewhere between one 0:18:24.800 --> 0:18:27.760 to two UM. And then that means that going into 0:18:27.880 --> 0:18:31.200 Q two, things health conditions look better, um, the economy 0:18:31.240 --> 0:18:34.200 should get back onto a more robust path. So I think, 0:18:34.400 --> 0:18:36.840 net net, we're looking at it still an economy that's 0:18:36.880 --> 0:18:39.920 really quite healthy and demand is really strong. Kathy, let's 0:18:39.920 --> 0:18:41.440 dig into that a little bit, because actually, if you 0:18:41.440 --> 0:18:44.439 look at the Atlanta Now GDP NOW index, you actually 0:18:44.520 --> 0:18:50.000 see the expectations for Q one GDP skyrocketing after yesterday 0:18:50.080 --> 0:18:52.600 or after the retail sales number that we got yesterday. 0:18:52.640 --> 0:18:55.680 What in that gave you that kind of confidence? Considering 0:18:55.680 --> 0:18:57.399 the fact that a lot of people pointed to the 0:18:57.440 --> 0:19:01.240 inflation adjustments and other adjustments around the edges that would 0:19:01.320 --> 0:19:05.560 leave it with a pretty tepid type of feel. Yeah, 0:19:05.600 --> 0:19:08.080 I mean no doubt that the nominal number is much 0:19:08.119 --> 0:19:10.600 greater than, you know, faster than than the real But 0:19:10.960 --> 0:19:14.360 even when we adjust for inflation, which surprised the upside 0:19:14.400 --> 0:19:19.040 in January, you're still very strong momentum, you know, coming 0:19:19.080 --> 0:19:21.080 into the start of the year for the consumer. I 0:19:21.080 --> 0:19:23.920 remember that that was way down by Omicron we start 0:19:24.440 --> 0:19:28.280 service you know, UM portion of retail sales was quite weak, 0:19:28.359 --> 0:19:30.560 so we do think services are going to be weak 0:19:30.640 --> 0:19:33.920 as part of consumer spending. But the adorables and non 0:19:34.000 --> 0:19:37.800 durable goods orders were very strong in purchases. And so 0:19:38.000 --> 0:19:42.280 as we rotate UM back to in person services UM 0:19:42.320 --> 0:19:44.560 as things you know, health conditions to get better, that 0:19:44.600 --> 0:19:47.720 should only support consumer spending for the rest of the year. Cathy, 0:19:47.760 --> 0:19:50.320 we of course done expected to get a foreign policy 0:19:50.480 --> 0:19:52.680 crystal ball and tell us what's going to happen with Ukraine. 0:19:52.960 --> 0:19:55.400 I do wonder though, whether you've developed a fuller understanding 0:19:55.400 --> 0:19:58.280 of what it would mean various scenarios, what they would 0:19:58.320 --> 0:20:03.000 mean for the Federal Reserve and mark. It does complicate 0:20:03.040 --> 0:20:06.159 things when things are already quite complicated. UM. You know, 0:20:06.240 --> 0:20:09.520 one hand, we worry about the the impact on inflation, 0:20:09.600 --> 0:20:14.320 oil prices UM, you know, surging higher UM. That's going 0:20:14.359 --> 0:20:18.159 to affect headline UM and and cordate inflation pressures are 0:20:18.160 --> 0:20:21.399 still quite high UM. And then the uncertainty factor, right, 0:20:21.440 --> 0:20:25.000 how does that affect asset markets and financial conditions overall? 0:20:25.280 --> 0:20:29.280 And what's the feedback through Europe and the trade channel? 0:20:29.320 --> 0:20:31.800 Things like that. Um, it's not the direct impact, of 0:20:31.800 --> 0:20:35.600 course for us, but to see uncertainty, how do you 0:20:36.280 --> 0:20:40.040 monitor the Wall Street and Kathy, your whole career has 0:20:40.080 --> 0:20:42.520 been away from this, which I give you great credibility 0:20:42.600 --> 0:20:47.800 on the pace of rate hikes, the parlor game of 0:20:47.920 --> 0:20:52.320 gues estimating out within a green span measured mode, where 0:20:52.359 --> 0:20:56.120 we're going, what's the level of certitude of that belief 0:20:56.359 --> 0:21:02.280 or the probability of that outcome? Much less than in 0:21:02.359 --> 0:21:05.160 the past, although you know there's always great uncertainty when 0:21:05.160 --> 0:21:08.919 you're forecasting, um, the rate path. Um. You know, I 0:21:08.960 --> 0:21:12.080 think at this point what the fit reserve is trying 0:21:12.119 --> 0:21:15.640 to grapple with is how quickly to get back to neutral? 0:21:15.720 --> 0:21:18.320 And do they even need to go restrictive? And what 0:21:18.520 --> 0:21:21.880 is neutral? Um? You know, there's probably a range of 0:21:22.040 --> 0:21:24.359 the fit reserved think it's around two and a half percent, right, 0:21:24.359 --> 0:21:26.879 but there's a range around that we would say somewhere 0:21:26.920 --> 0:21:29.439 around two. It's probably somewhere between you know, one and 0:21:29.440 --> 0:21:32.679 a half to maybe slightly over two. How quickly do 0:21:32.760 --> 0:21:34.920 they need to get back to that? And how much 0:21:35.000 --> 0:21:37.960 can the financial conditions and the economy handle that? Right? 0:21:38.359 --> 0:21:41.240 I would say from my perspective. Tom, I was a 0:21:41.240 --> 0:21:44.359 little weary about this parlor game of five, six, seven 0:21:44.440 --> 0:21:47.320 rate hikes, but um, I'm also quite interested with how 0:21:47.359 --> 0:21:50.320 well the financial markets have handled pricing in you know, 0:21:50.359 --> 0:21:52.840 six or seven rate hikes. So we actually just um 0:21:52.920 --> 0:21:57.640 decided that that seven is probably a good enough estimate 0:21:57.680 --> 0:21:59.560 for for this year. And we're actually in the fifty 0:21:59.560 --> 0:22:08.240 basis camp for more. Yeah, so we we we just shifted. 0:22:08.359 --> 0:22:10.600 It's you know, we we looked at the inflation numbers 0:22:10.760 --> 0:22:15.320 and the January numbers really just um, we're far faster 0:22:15.400 --> 0:22:18.240 than we thought. So now you're peaking inflation faster. We 0:22:18.280 --> 0:22:20.760 still think it's going to decelerate through the rest of 0:22:20.800 --> 0:22:23.520 the year, but the peak is higher. And when we 0:22:23.600 --> 0:22:27.399 go through our estimates, we get inflation prror inflation above 0:22:27.480 --> 0:22:30.640 three percent, and we think that's unacceptably high for the Fed. 0:22:30.760 --> 0:22:32.840 So we have to hear from power, right, we have 0:22:32.880 --> 0:22:34.520 to hear from power. We have to hear from Brainerd 0:22:34.520 --> 0:22:37.119 and Williams. We have it, and that's really going to 0:22:37.160 --> 0:22:40.280 be the key. Are they leading towards fifty or I 0:22:40.280 --> 0:22:44.040 would just add one other thing that in our analysis, right, 0:22:44.480 --> 0:22:48.160 we think that starting with fifty and then pulling back 0:22:48.240 --> 0:22:51.560 to more traditional twenty five basic point increments is easier 0:22:51.600 --> 0:22:54.240 for the markets to handle than starting with and say, oh, 0:22:54.320 --> 0:22:57.879 now we need to go fifty. That could be more destabilizing. Kathy, 0:22:57.880 --> 0:22:59.840 You're not alone. You've got company, and thank you for 0:23:00.040 --> 0:23:01.760 ring the lead. That's our fault for not teasing with 0:23:01.840 --> 0:23:05.719 that and not starting with that. Let's finish on this, Kathy. 0:23:05.880 --> 0:23:08.560 I've heard repeatedly over the last couple of days that 0:23:08.680 --> 0:23:11.640 if they don't deliver what you're talking about, it would 0:23:11.640 --> 0:23:15.240 amount to an easing of financial conditions. Do you believe so? 0:23:15.760 --> 0:23:19.520 And how much of a problem would that be? Well, 0:23:19.560 --> 0:23:24.040 I think it could, um, you know, disappoint the markets 0:23:24.040 --> 0:23:27.240 that thinking that the feed is not really worried about 0:23:27.280 --> 0:23:30.119 their credibility and really fighting inflation as much as they should, 0:23:30.119 --> 0:23:33.199 so it could backfire would be adverse for the for 0:23:33.320 --> 0:23:36.840 market reaction, um in that sense. And it's it's a 0:23:36.880 --> 0:23:39.400 little hard to say whether financial conditions were necessarily easy, 0:23:39.440 --> 0:23:42.359 but they wouldn't be going necessarily in a way that 0:23:42.359 --> 0:23:44.480 the markets would feel comfortable, and I think that we 0:23:44.640 --> 0:23:47.560 would problem. Listen, they've got the markets thinking fifty, fifty 0:23:47.560 --> 0:23:49.800 and fifty basis points when we'll take it at this point. 0:23:50.040 --> 0:23:52.960 Kathy awesome, as always, it's good to catch up with you, 0:23:53.040 --> 0:24:00.400 Kathy Boss. It's there of Oxford Economics market if joint 0:24:00.440 --> 0:24:05.240 is now scenic level, Mattrice straight, do you want to 0:24:05.240 --> 0:24:08.800 talk about Selene a little bit later? Marvin g Political 0:24:08.880 --> 0:24:11.959 tensions once again waking up, trying to process, trying to 0:24:12.240 --> 0:24:15.280 digest various headlines. How do you think cold of this 0:24:15.960 --> 0:24:19.320 influences a particular Central Bank decision that takes place on 0:24:19.520 --> 0:24:22.880