1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,320 Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,720 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Veronica Clark 7 00:00:30,800 --> 00:00:33,800 Speaker 1: of course at the City Group, Veronica, not only do 8 00:00:33,880 --> 00:00:37,040 Speaker 1: you talk about the place of inflation right now, but 9 00:00:37,120 --> 00:00:40,080 Speaker 1: you say, if anything, you'll be surprised to the upside. 10 00:00:40,479 --> 00:00:46,640 Speaker 1: What parts of American inflation push us to the upside? Yeah, yeah, 11 00:00:46,680 --> 00:00:48,960 Speaker 1: when we do our places and forecasts, Yeah, we really 12 00:00:49,000 --> 00:00:52,400 Speaker 1: do a very detailed bottoms up forecast. And we're still 13 00:00:52,400 --> 00:00:55,200 Speaker 1: seeing strengthen things like shelter prices. I think everyone could 14 00:00:55,200 --> 00:00:59,200 Speaker 1: be maybe overestimating how quickly those still might slow. But 15 00:00:59,320 --> 00:01:02,280 Speaker 1: really it comes down to those core non shelter service prices. 16 00:01:02,320 --> 00:01:04,920 Speaker 1: That's what Powell has focused us on. Those can stay 17 00:01:04,959 --> 00:01:09,440 Speaker 1: persistently strong. Things like medical services, recreation can definitely see 18 00:01:09,480 --> 00:01:13,200 Speaker 1: a lot of upside there. Still, let's focus on medical inflation. 19 00:01:13,280 --> 00:01:17,000 Speaker 1: It's such a large part of the inflation pie. What 20 00:01:17,200 --> 00:01:20,320 Speaker 1: is your year over year forward on medical inflation? Dare 21 00:01:20,360 --> 00:01:23,400 Speaker 1: I say it's double digit. I don't know if we'll 22 00:01:23,440 --> 00:01:25,920 Speaker 1: quite get to double digits, but I think we can 23 00:01:25,959 --> 00:01:29,720 Speaker 1: definitely see that that component picking up, not even necessarily 24 00:01:29,760 --> 00:01:31,880 Speaker 1: in CPI data that we're going to get tomorrow, but 25 00:01:31,920 --> 00:01:34,679 Speaker 1: I would look more for PPI data later in the week. 26 00:01:34,760 --> 00:01:37,320 Speaker 1: That's what will matter for pc inflation. But you can 27 00:01:37,360 --> 00:01:40,720 Speaker 1: definitely see that running consistently at five, you know, maybe 28 00:01:40,720 --> 00:01:43,440 Speaker 1: six percent, you know, getting closer to double digits. Maybe 29 00:01:43,440 --> 00:01:46,759 Speaker 1: not quite there yet, though, Veronica, you think this federal 30 00:01:46,760 --> 00:01:48,720 Speaker 1: reserve can go further? You in a team over a 31 00:01:48,800 --> 00:01:52,200 Speaker 1: city group. The big question at standing is ultimately, to 32 00:01:52,280 --> 00:01:54,400 Speaker 1: what extent the banking stress of the last month is 33 00:01:54,400 --> 00:01:57,240 Speaker 1: a substitute for right hikes? Veronica, Why do you and 34 00:01:57,320 --> 00:01:59,160 Speaker 1: the team think that what we've seen develop in the 35 00:01:59,240 --> 00:02:02,960 Speaker 1: last month is contained, that the worst of it is done. Yeah, 36 00:02:03,000 --> 00:02:05,760 Speaker 1: I think we're seeing things stabilized now. And it's not 37 00:02:05,840 --> 00:02:09,399 Speaker 1: that we wouldn't expect no impact on activity or inflation 38 00:02:09,560 --> 00:02:12,520 Speaker 1: from tightening lending. And this is probably does mean that 39 00:02:12,600 --> 00:02:15,920 Speaker 1: lending standards tighten more and credit pulls back a bit more. 40 00:02:16,400 --> 00:02:18,400 Speaker 1: But we should have already been expecting some of that, 41 00:02:18,440 --> 00:02:20,680 Speaker 1: of course, you know, from from higher rates, and it's 42 00:02:20,720 --> 00:02:22,600 Speaker 1: not that you're going to see it immediately. You know, 43 00:02:22,639 --> 00:02:24,959 Speaker 1: this is much more a second half of the year, 44 00:02:25,160 --> 00:02:28,120 Speaker 1: end of the year type issue for the broader economy 45 00:02:28,680 --> 00:02:30,160 Speaker 1: and then for the Fed that you know, the more 46 00:02:30,200 --> 00:02:33,560 Speaker 1: near term pressing issue is that you'll still have three 47 00:02:33,600 --> 00:02:37,320 Speaker 1: months or so at least of pretty consistently strong inflation prints, 48 00:02:37,600 --> 00:02:40,160 Speaker 1: and it seems hard to see a scenario where they're pausing, 49 00:02:40,440 --> 00:02:43,560 Speaker 1: where we're still running course CPI at point five every month. 50 00:02:45,040 --> 00:02:47,720 Speaker 1: Just to frame the current split the divergence, you're well 51 00:02:47,760 --> 00:02:50,280 Speaker 1: aware that the market is trading well below the FETs 52 00:02:50,720 --> 00:02:53,079 Speaker 1: dolt fe year end for NICA. You're on the other 53 00:02:53,120 --> 00:02:56,200 Speaker 1: side of this, you're well above the dolt for year end. 54 00:02:56,480 --> 00:02:58,400 Speaker 1: Just give me some numbers on that. Why'd you see 55 00:02:58,400 --> 00:03:01,480 Speaker 1: the terminal write still for this federal se Yeah, we 56 00:03:01,919 --> 00:03:04,200 Speaker 1: still have that terminal rate at five and a half 57 00:03:04,200 --> 00:03:07,240 Speaker 1: to five seventy five, So that's twenty five basis point 58 00:03:07,320 --> 00:03:11,040 Speaker 1: hike in May, another in June, another in July. And 59 00:03:11,080 --> 00:03:13,680 Speaker 1: again it comes down to this timing issue. Where it 60 00:03:13,760 --> 00:03:16,840 Speaker 1: will have tomorrow's CPI report before the May meeting. It's 61 00:03:16,880 --> 00:03:19,239 Speaker 1: probably a lower bar for them to hike still in May. 62 00:03:19,320 --> 00:03:22,320 Speaker 1: You know, that's what the dots show. But before the 63 00:03:22,440 --> 00:03:24,919 Speaker 1: June meeting, after the May meeting will have two more 64 00:03:24,960 --> 00:03:28,440 Speaker 1: CPI prints, and those look like they can stay consistently strong. 65 00:03:28,760 --> 00:03:30,440 Speaker 1: And then at the June meeting, you know, we'll have 66 00:03:30,480 --> 00:03:34,000 Speaker 1: an update to projections for inflation growth and the dots, 67 00:03:34,639 --> 00:03:37,080 Speaker 1: and it seems unlikely to us that the Fed will 68 00:03:37,120 --> 00:03:39,840 Speaker 1: have to be revising higher their inflation forecast and then 69 00:03:39,920 --> 00:03:43,160 Speaker 1: not still hiking. I think that that keeps them going 70 00:03:43,360 --> 00:03:45,760 Speaker 1: the markets. Of course, we'll just get their overtime as 71 00:03:45,760 --> 00:03:50,720 Speaker 1: we get consistently strong inflation data. For this is really important. 72 00:03:50,720 --> 00:03:53,360 Speaker 1: What you just said there's stopped the show. You and 73 00:03:53,360 --> 00:03:58,800 Speaker 1: Andrew are reaffirming a set of rate moves higher. So 74 00:03:58,840 --> 00:04:00,800 Speaker 1: when you talk to Keith with I mean, I know 75 00:04:00,840 --> 00:04:03,800 Speaker 1: you're not on speaking terms, but how does your banking 76 00:04:03,880 --> 00:04:08,520 Speaker 1: team at City Group adapt in I guess the crisis 77 00:04:08,640 --> 00:04:13,200 Speaker 1: is over, but adapt to flows in banking giving your 78 00:04:13,320 --> 00:04:16,560 Speaker 1: economic call? How do they adapt to that? Yeah, I 79 00:04:16,640 --> 00:04:19,240 Speaker 1: certainly don't want to speak for them, but I think 80 00:04:19,279 --> 00:04:21,680 Speaker 1: you know the system as a whole. You know, we 81 00:04:21,760 --> 00:04:24,480 Speaker 1: know that there are these issues, but it does seem like, 82 00:04:24,800 --> 00:04:28,440 Speaker 1: you know, the fed's facilities are working to control liquidity 83 00:04:28,440 --> 00:04:31,400 Speaker 1: issues and that if things do stabilize. Well, we know 84 00:04:31,480 --> 00:04:33,440 Speaker 1: that the FED has all of those other tools to 85 00:04:33,480 --> 00:04:36,039 Speaker 1: deal with financial stability, but we do still have this 86 00:04:36,160 --> 00:04:39,240 Speaker 1: price stability problem. And their only tool really deal with 87 00:04:39,279 --> 00:04:44,040 Speaker 1: inflation is rates. So so where does a money market 88 00:04:44,080 --> 00:04:45,359 Speaker 1: fund go? I mean, I don't want you to be 89 00:04:45,360 --> 00:04:48,200 Speaker 1: a rate strategist for City Group, but if I got 90 00:04:48,200 --> 00:04:52,120 Speaker 1: the own horse Clark call, I think I'm looking at 91 00:04:52,120 --> 00:04:54,880 Speaker 1: a money market fund to five and a half or 92 00:04:54,920 --> 00:04:58,839 Speaker 1: even higher percent, right, Yeah, I mean yeah, we certainly 93 00:04:58,880 --> 00:05:02,479 Speaker 1: would have yeah, short term guilds going higher. Again, you 94 00:05:02,480 --> 00:05:04,880 Speaker 1: could see more more deposit outflows, of course, but we 95 00:05:04,880 --> 00:05:07,920 Speaker 1: were that was already happening even even before the banking crisis. 96 00:05:08,480 --> 00:05:10,120 Speaker 1: But that is what needs to happen. You know, you 97 00:05:10,200 --> 00:05:13,039 Speaker 1: need people to stop spending. You know, you need credit 98 00:05:13,160 --> 00:05:16,000 Speaker 1: to contract, and that's what slows the economy and brings 99 00:05:16,040 --> 00:05:20,599 Speaker 1: down inflation. Johnny, you know, I look at this, John, 100 00:05:20,720 --> 00:05:23,760 Speaker 1: and besides, your compliance officer just fell off the chair. 101 00:05:24,480 --> 00:05:27,680 Speaker 1: Listen to that. I mean, if you get a city 102 00:05:27,760 --> 00:05:31,760 Speaker 1: group framework. What does that do to so for Libra 103 00:05:31,960 --> 00:05:34,760 Speaker 1: all the IRA Jersey stuff, what does that do to 104 00:05:34,920 --> 00:05:38,000 Speaker 1: somebody watching this or listening to this, to that money 105 00:05:38,040 --> 00:05:42,640 Speaker 1: market choice five point six five percent, that's not five percent, 106 00:05:42,880 --> 00:05:45,200 Speaker 1: that's a bigger percent with a vengeance. Did you go there, 107 00:05:45,240 --> 00:05:47,320 Speaker 1: so Veronico which you pointed out that would be a 108 00:05:47,320 --> 00:05:50,039 Speaker 1: feature and not a bug of monasty policy. This is 109 00:05:50,040 --> 00:05:52,479 Speaker 1: what they're trying to achieve. But given what we've seen 110 00:05:52,560 --> 00:05:54,320 Speaker 1: develop in the last month, do you not think that 111 00:05:54,320 --> 00:05:58,400 Speaker 1: would contribute to renewed stress in a financial system? Yeah, 112 00:05:58,760 --> 00:06:01,120 Speaker 1: it's that's certainly a risk skin We have seen some 113 00:06:01,160 --> 00:06:03,320 Speaker 1: of those cracks show up at this point. But I 114 00:06:03,320 --> 00:06:05,000 Speaker 1: mean I think that for the FED, at least, you know, 115 00:06:05,040 --> 00:06:08,120 Speaker 1: they would see there all their other tools that they've used, 116 00:06:08,160 --> 00:06:11,359 Speaker 1: you know, the new facility, the discount window as helping 117 00:06:11,400 --> 00:06:15,479 Speaker 1: to control those financial stavility issues. And it is a 118 00:06:15,520 --> 00:06:17,880 Speaker 1: really tough situation. I'm not saying it's a it's an 119 00:06:17,880 --> 00:06:19,920 Speaker 1: easy thing for them. It could be an uncomfortable a 120 00:06:19,920 --> 00:06:22,680 Speaker 1: couple of months here, but you do still unfortunately have 121 00:06:22,720 --> 00:06:26,240 Speaker 1: an inflation issue. Can we talk about what's developed in 122 00:06:26,279 --> 00:06:29,120 Speaker 1: the labor market as well, on Friday, what we saw 123 00:06:29,240 --> 00:06:33,119 Speaker 1: was a really resilient NFPN on fun payrolls print. Once again, 124 00:06:33,200 --> 00:06:36,600 Speaker 1: we've had a year of those just upside surprise, upside surprise, 125 00:06:36,640 --> 00:06:38,560 Speaker 1: but I don't think we've had a downside surprise since 126 00:06:38,560 --> 00:06:41,560 Speaker 1: the March report, which came in early April of last year. 127 00:06:41,800 --> 00:06:43,600 Speaker 1: For because some people look back to the data of 128 00:06:43,680 --> 00:06:46,479 Speaker 1: last week and they're looking for noise versus signal. Was 129 00:06:46,520 --> 00:06:50,479 Speaker 1: the data before the payrolls print the noise or the 130 00:06:50,520 --> 00:06:53,400 Speaker 1: signal because we had a string of misses going into 131 00:06:53,440 --> 00:06:57,320 Speaker 1: that print. Yeah. Yeah, we had some software im readings, 132 00:06:57,360 --> 00:07:01,680 Speaker 1: We had job openings that came down revisions to initial 133 00:07:01,760 --> 00:07:04,440 Speaker 1: and continuing jobs. Claims that maybe those look a lot 134 00:07:04,520 --> 00:07:08,000 Speaker 1: higher now and are trending a bit higher. I would say, 135 00:07:08,279 --> 00:07:10,160 Speaker 1: you know, a lot of this data we should still 136 00:07:10,200 --> 00:07:13,160 Speaker 1: take with somewhat of a grain of salt, especially that 137 00:07:13,240 --> 00:07:16,360 Speaker 1: claims data there looks like to some seasonal pattern that 138 00:07:16,520 --> 00:07:20,400 Speaker 1: didn't get worked out with some seasonal factor revisions. And 139 00:07:20,440 --> 00:07:22,600 Speaker 1: I would say, you know, all of it is consistent 140 00:07:22,640 --> 00:07:25,160 Speaker 1: with you know, an economy that should be slowing but 141 00:07:25,160 --> 00:07:27,440 Speaker 1: but certainly is not you know, headed off a cliff 142 00:07:27,440 --> 00:07:30,680 Speaker 1: into an immediate recession. But we should be expecting, you know, 143 00:07:30,720 --> 00:07:33,960 Speaker 1: ism services in a fifty fifty five rage, we should 144 00:07:34,040 --> 00:07:37,080 Speaker 1: be expecting job openings to be coming down. And I 145 00:07:37,080 --> 00:07:39,480 Speaker 1: think you know the labor market data of course on Friday, 146 00:07:39,760 --> 00:07:42,320 Speaker 1: it is still a very strong labor market. The unemployment 147 00:07:42,360 --> 00:07:44,800 Speaker 1: rate is still very low. It looked a lot like 148 00:07:44,800 --> 00:07:47,720 Speaker 1: a twenty nineteen kind of jobs print. But when you're 149 00:07:47,800 --> 00:07:51,520 Speaker 1: running core inflation that's pretty consistently at five percent, you 150 00:07:51,600 --> 00:07:53,440 Speaker 1: have to be worried that, you know, a tight labor 151 00:07:53,480 --> 00:07:55,520 Speaker 1: market like that will just add to the upside risk 152 00:07:55,520 --> 00:07:59,600 Speaker 1: for inflation. Ironica, this was quite as a white four o'clock. 153 00:07:59,640 --> 00:08:02,320 Speaker 1: Then I've a city working alongside Andrew Holland Hoist with 154 00:08:02,360 --> 00:08:14,440 Speaker 1: a col F effete to take rights to five fifty. 155 00:08:15,560 --> 00:08:19,520 Speaker 1: This is an extremely important conversation because of the number 156 00:08:19,520 --> 00:08:22,280 Speaker 1: of narratives in Washington and all my years of doing this. 157 00:08:22,640 --> 00:08:25,360 Speaker 1: The spring meetings of the IMF and MOROCCO later this 158 00:08:25,440 --> 00:08:28,480 Speaker 1: year in October, there's five six. It's like it's like 159 00:08:28,520 --> 00:08:31,720 Speaker 1: Howard Johnson's years ago. They're twenty eight flavors of narratives 160 00:08:32,160 --> 00:08:34,760 Speaker 1: and where we're heading. A student of this is Douglas 161 00:08:34,840 --> 00:08:39,720 Speaker 1: Rhdicker managing partner International Capital Strategies, but far more and 162 00:08:39,960 --> 00:08:42,960 Speaker 1: a former executive board member of the IMF and affiliated 163 00:08:43,000 --> 00:08:46,880 Speaker 1: with democratic politics in Washington. Doug, thank you so much 164 00:08:46,880 --> 00:08:49,040 Speaker 1: for joining us. You're advass or a million years ago 165 00:08:49,400 --> 00:08:51,400 Speaker 1: and you're sitting there and they go, look, I am F. 166 00:08:51,559 --> 00:08:54,559 Speaker 1: There's two narratives. What happened? Why do we have fourteen 167 00:08:54,640 --> 00:08:57,800 Speaker 1: narratives now? Oh? Look, I don't think you can start 168 00:08:57,880 --> 00:09:00,240 Speaker 1: with the IMF of twenty thirty four years ago. I 169 00:09:00,240 --> 00:09:03,120 Speaker 1: think it's a completely different institution I think right now, 170 00:09:03,360 --> 00:09:05,560 Speaker 1: and it has very little to do in the IMF 171 00:09:05,559 --> 00:09:07,360 Speaker 1: and more to do with the world. So I guess 172 00:09:07,440 --> 00:09:10,400 Speaker 1: we're better off if there's not one overwhelming crisis. If 173 00:09:10,400 --> 00:09:13,160 Speaker 1: you go back to the Greek crisis, the Euro crisis, COVID, 174 00:09:13,240 --> 00:09:16,559 Speaker 1: even in Russia, Ukraine, those were dominant themes that squeezed 175 00:09:16,600 --> 00:09:18,920 Speaker 1: everything else side of the room. I guess, if you 176 00:09:18,920 --> 00:09:21,240 Speaker 1: want to look at this through rose colored glasses, the 177 00:09:21,280 --> 00:09:24,600 Speaker 1: fact that we have multiple different narratives is probably better 178 00:09:24,640 --> 00:09:27,360 Speaker 1: than we're all overwhelmed by a single one. That doesn't 179 00:09:27,400 --> 00:09:30,040 Speaker 1: mean any single one of those is easy to resolve, 180 00:09:30,160 --> 00:09:31,680 Speaker 1: or the week is going to come out with anything 181 00:09:31,679 --> 00:09:34,280 Speaker 1: that is concrete, but at least it's better than one 182 00:09:34,320 --> 00:09:37,400 Speaker 1: thing that everybody's focused on because it's existential. There is 183 00:09:37,440 --> 00:09:39,680 Speaker 1: in the financial times today and I've been searching for 184 00:09:39,720 --> 00:09:42,640 Speaker 1: this for three years, folks, three years. What's the right 185 00:09:42,760 --> 00:09:46,280 Speaker 1: phrase for the attitude we have from the Great Financial 186 00:09:46,320 --> 00:09:49,640 Speaker 1: Crisis and Russia? Sharma X Morgan Stanley at the Rockefeller 187 00:09:49,720 --> 00:09:55,280 Speaker 1: Foundation absolutely nails it this morning, calling it the rescue culture? 188 00:09:55,520 --> 00:09:58,760 Speaker 1: Is that what we're trapped in where every institution goes 189 00:09:58,880 --> 00:10:00,959 Speaker 1: there could be no pain, there could be no anks, 190 00:10:01,080 --> 00:10:03,800 Speaker 1: nobody can go out of business. Every deposit's got to 191 00:10:03,880 --> 00:10:07,560 Speaker 1: be covered. Do we have an international rescue culture? We 192 00:10:07,600 --> 00:10:10,280 Speaker 1: have a domestic international rescue culture. We have an international 193 00:10:10,320 --> 00:10:14,560 Speaker 1: rescue culture, whether it's called rescue culture or an entitlement culture. Yeah, 194 00:10:14,640 --> 00:10:18,080 Speaker 1: I think everybody assumes that there's a put, some form 195 00:10:18,120 --> 00:10:21,120 Speaker 1: of put. Whether that put is a central bank put 196 00:10:21,360 --> 00:10:24,440 Speaker 1: or a fiscal authorities put or an IMF put. Everybody 197 00:10:24,440 --> 00:10:27,920 Speaker 1: feels somewhat entitled. You've got me sounding much more pessimistic 198 00:10:27,960 --> 00:10:30,240 Speaker 1: and negative than I thought I would be. But the 199 00:10:30,240 --> 00:10:33,360 Speaker 1: fact of the matter is, Yes, imagine if Bramo was 200 00:10:33,440 --> 00:10:38,200 Speaker 1: here walking out, do you think that sense of encondlement 201 00:10:38,320 --> 00:10:42,160 Speaker 1: is mispiced. Well, I guess it's well placed if in 202 00:10:42,240 --> 00:10:46,600 Speaker 1: the end those authorities actually blink and write the checks. Right. So, 203 00:10:46,960 --> 00:10:49,679 Speaker 1: if the game is do we want to avoid another Lehman? 204 00:10:49,880 --> 00:10:55,360 Speaker 1: If that's the moral hazard play, then fundamentally, countries believe, countries, companies, 205 00:10:55,440 --> 00:11:00,320 Speaker 1: investors believe that when things get really bad, somebody, thing, 206 00:11:00,400 --> 00:11:02,840 Speaker 1: some institution is going to bail me out of the 207 00:11:02,880 --> 00:11:07,280 Speaker 1: worst consequences. And to date that's been a fairly solid bet. 208 00:11:07,520 --> 00:11:10,520 Speaker 1: I don't think it's sustainable, but you know, not being 209 00:11:10,559 --> 00:11:13,960 Speaker 1: sustainable can be two years, twenty years. I mean there's 210 00:11:13,960 --> 00:11:15,920 Speaker 1: a long time. Right in the long run, we're all dead. 211 00:11:16,360 --> 00:11:18,520 Speaker 1: What did we learn last month with re cost to 212 00:11:18,600 --> 00:11:22,400 Speaker 1: exactly this? Well, so what I think it's too early 213 00:11:22,480 --> 00:11:27,559 Speaker 1: to know what the long term consequences are of SVB, credit, Swiss, etc. 214 00:11:27,800 --> 00:11:30,000 Speaker 1: And by the way, I divide the two into totally 215 00:11:30,000 --> 00:11:32,360 Speaker 1: different camps, but let's lump them together for the purposes 216 00:11:32,360 --> 00:11:35,920 Speaker 1: of this, which is to say yes rather than letting 217 00:11:36,160 --> 00:11:42,400 Speaker 1: unfettered capitalism creative destruction play out. Everything is systemic. You 218 00:11:42,440 --> 00:11:44,319 Speaker 1: want to know what it is? We learned? We learned it. 219 00:11:44,480 --> 00:11:49,640 Speaker 1: Everything is systemic. So when SVB is suddenly systemic. It 220 00:11:49,679 --> 00:11:52,600 Speaker 1: was the sixteenth largest bank in the country. It was 221 00:11:52,720 --> 00:11:56,440 Speaker 1: not systemic by traditional metrics. But suddenly, when it turns 222 00:11:56,440 --> 00:11:59,000 Speaker 1: out that your Zoom call might not happen on Monday 223 00:11:59,080 --> 00:12:02,400 Speaker 1: because Zoom was a big deposit or at SVB, that's systemic. 224 00:12:02,600 --> 00:12:04,760 Speaker 1: I don't know if that's how we contemplated systemic when 225 00:12:04,800 --> 00:12:07,000 Speaker 1: we started there. So if everything is now systemic, is 226 00:12:07,000 --> 00:12:10,920 Speaker 1: it just implied that old deposits are in short? Oh? Look, 227 00:12:11,080 --> 00:12:14,600 Speaker 1: I think that both Secretary Yellen and other authorities have 228 00:12:14,640 --> 00:12:17,440 Speaker 1: gone very far to making sure that they send the 229 00:12:17,480 --> 00:12:22,320 Speaker 1: message that implicitly yes, but explicitly they don't have the 230 00:12:22,360 --> 00:12:26,240 Speaker 1: congressionally mandated authority to say yes. So they're saying yes 231 00:12:26,240 --> 00:12:29,520 Speaker 1: with a caveat, or they're saying no with an asterisk. Yes, 232 00:12:29,600 --> 00:12:31,720 Speaker 1: but we can't say yes. But yeah, go to sleep 233 00:12:31,720 --> 00:12:35,000 Speaker 1: at night thinking and knowing that your deposits are in short. Dog, 234 00:12:35,080 --> 00:12:39,560 Speaker 1: your work is to combine economics with law years ago, 235 00:12:39,679 --> 00:12:44,360 Speaker 1: scotton arps and all that. And then Salomon Brothers is well, 236 00:12:44,400 --> 00:12:47,959 Speaker 1: I am fascinated how you respond to an I am 237 00:12:48,000 --> 00:12:52,160 Speaker 1: F five year call of economic gloom of global GDP 238 00:12:52,840 --> 00:12:55,560 Speaker 1: three percent or less malpass came out at World Bank 239 00:12:55,880 --> 00:12:58,440 Speaker 1: and had a two handle on some form of present 240 00:12:58,840 --> 00:13:04,520 Speaker 1: global growth. That's not Barack Obama's better America or better 241 00:13:04,600 --> 00:13:07,520 Speaker 1: global How do we get so negative, so fast, so 242 00:13:07,720 --> 00:13:12,560 Speaker 1: entrenched in our gloom? So I have high regard for 243 00:13:12,640 --> 00:13:16,680 Speaker 1: the economic teams at the Bank and the Fund, and 244 00:13:16,800 --> 00:13:19,959 Speaker 1: there's a caveat coming. There's a butt. The butt is 245 00:13:20,440 --> 00:13:23,360 Speaker 1: there's a certain amount of group think that trickles into 246 00:13:23,360 --> 00:13:26,800 Speaker 1: a lot of this, and so you have desk economists 247 00:13:26,840 --> 00:13:31,520 Speaker 1: who factor in their individual country projections into the regional, 248 00:13:31,840 --> 00:13:35,600 Speaker 1: into the WO or the GFSR, and what you end 249 00:13:35,720 --> 00:13:42,600 Speaker 1: up with is not necessarily a holistic, strategically oriented five 250 00:13:42,679 --> 00:13:46,439 Speaker 1: year forecast. It's almost bottoms up, to the point where 251 00:13:46,480 --> 00:13:51,959 Speaker 1: it's two bottoms up. That's the single best discussion of that. Ever, 252 00:13:52,200 --> 00:13:55,839 Speaker 1: i'll take it one step too far. Maybe it's the 253 00:13:56,000 --> 00:13:58,640 Speaker 1: space to make the accusation that some of these full 254 00:13:58,720 --> 00:14:04,040 Speaker 1: costa political and not Bison economics. It depends on how 255 00:14:04,040 --> 00:14:06,720 Speaker 1: you define political. And what I mean by that is 256 00:14:06,880 --> 00:14:09,040 Speaker 1: I actually think there's a lot of people who are 257 00:14:09,160 --> 00:14:12,439 Speaker 1: very technocratic, who keep their heads down, who have their 258 00:14:12,559 --> 00:14:15,319 Speaker 1: pencils to their papers or the equivalent, and they are 259 00:14:15,400 --> 00:14:18,440 Speaker 1: making their forecasts based on their best estimates without regard 260 00:14:18,440 --> 00:14:20,840 Speaker 1: to politics. I think there are some other decisions at 261 00:14:20,840 --> 00:14:26,080 Speaker 1: these institutions program lending, certainly policy choices that are highly politicized, 262 00:14:26,160 --> 00:14:28,520 Speaker 1: probably more than ever before, or at least in the 263 00:14:28,560 --> 00:14:30,960 Speaker 1: last several decades. Let's the dog you're being way to 264 00:14:31,040 --> 00:14:33,800 Speaker 1: pullite Kenneth Rogoff, who's got a non equates with the 265 00:14:33,800 --> 00:14:38,240 Speaker 1: International Monetary Fund. Ken's bend borderline scathing that the IMF 266 00:14:38,240 --> 00:14:41,000 Speaker 1: has become the World Bank. Do you agree, Well, it 267 00:14:41,040 --> 00:14:44,520 Speaker 1: hasn't become, but it's certainly trending in that direction. I 268 00:14:44,600 --> 00:14:47,960 Speaker 1: think the current managing director of the ims instincts and 269 00:14:48,080 --> 00:14:51,320 Speaker 1: experience are much more aligned with her experience at the 270 00:14:51,360 --> 00:14:54,120 Speaker 1: World Bank. And I would make the counter argument that 271 00:14:54,200 --> 00:14:57,400 Speaker 1: David Malpass in taking a harder line on lending to 272 00:14:57,560 --> 00:15:00,400 Speaker 1: China or enforcing China to the table to be more 273 00:15:00,440 --> 00:15:04,960 Speaker 1: transparent and more conciliatory towards debt restructure, and has taken 274 00:15:05,000 --> 00:15:08,280 Speaker 1: a more stingy which would traditionally be seen as an 275 00:15:08,280 --> 00:15:11,440 Speaker 1: IMF style approach to some of the emergency lending coming 276 00:15:11,440 --> 00:15:14,720 Speaker 1: out of coaching. Should we make some news? He and 277 00:15:14,760 --> 00:15:16,600 Speaker 1: you suggested that Joe Gavis should be at the World 278 00:15:16,640 --> 00:15:18,720 Speaker 1: Bank and Maupass should be at the IMS. Oh, I 279 00:15:19,120 --> 00:15:21,720 Speaker 1: would never make a suggestion about personnel at that level 280 00:15:21,720 --> 00:15:24,960 Speaker 1: when those decisions have already been taken, whether in fact 281 00:15:25,240 --> 00:15:28,880 Speaker 1: they were the perfect fit for the job under the 282 00:15:28,960 --> 00:15:32,840 Speaker 1: circumstances that we now have. Let's say, I think both 283 00:15:32,840 --> 00:15:35,960 Speaker 1: of them have done an admirable job in their current positions, 284 00:15:36,040 --> 00:15:38,240 Speaker 1: and I wish them the best. They were given a pandemic, 285 00:15:38,280 --> 00:15:40,960 Speaker 1: we got to remember absolutely, and they were they inherited. 286 00:15:41,040 --> 00:15:43,520 Speaker 1: As I say, this China card, which you know, the 287 00:15:43,520 --> 00:15:45,880 Speaker 1: IMAT traditionally spent a lot of time as it should. 288 00:15:45,880 --> 00:15:49,040 Speaker 1: It's it's man they dealing with debt restructuring, debt relief, 289 00:15:49,400 --> 00:15:53,560 Speaker 1: debt issues and emerging markets and frontier markets, and that 290 00:15:53,840 --> 00:15:56,880 Speaker 1: certainly is something that each one of them has handled 291 00:15:56,880 --> 00:15:59,760 Speaker 1: in a different way. Tuck, this was great. Should do 292 00:15:59,840 --> 00:16:02,160 Speaker 1: this more often. We should come down, come down to 293 00:16:02,240 --> 00:16:04,600 Speaker 1: DC just to catch up with Doug Douglas roddicker there 294 00:16:04,840 --> 00:16:10,560 Speaker 1: on the World Bank and the IMF. Let's get straight 295 00:16:10,600 --> 00:16:12,680 Speaker 1: to Mike Schumach at the global head of macro Strategy 296 00:16:12,880 --> 00:16:14,960 Speaker 1: at whilst Fargo. Mike, great to have you with us, 297 00:16:14,960 --> 00:16:17,760 Speaker 1: sir as always good to see Mike. Good morning. Let's 298 00:16:17,800 --> 00:16:20,000 Speaker 1: talk about the call from City. We'll kick things off 299 00:16:20,040 --> 00:16:23,480 Speaker 1: there City Ronica Clark on this program thirty minutes ago 300 00:16:23,800 --> 00:16:26,480 Speaker 1: talking up rates of five fifty to five seventy five 301 00:16:26,720 --> 00:16:30,240 Speaker 1: on FED funds. Mike, are you in that capital. No? 302 00:16:30,360 --> 00:16:32,440 Speaker 1: And at this point, Ian look, the third wants to hike, 303 00:16:32,640 --> 00:16:35,720 Speaker 1: probably wants maybe twice more, but it's really torn because 304 00:16:35,720 --> 00:16:39,160 Speaker 1: it's got these VA's troubles and regional banks get into 305 00:16:39,280 --> 00:16:42,240 Speaker 1: five seventy five seems like a stretch impossible. No, but 306 00:16:42,280 --> 00:16:45,520 Speaker 1: we're not in their camp right now. At the moment, 307 00:16:45,520 --> 00:16:48,080 Speaker 1: the conversation shifted, Mike has gone away from how father 308 00:16:48,160 --> 00:16:51,400 Speaker 1: fed will go to how Father'll have to cut back. Mike. 309 00:16:51,520 --> 00:16:55,160 Speaker 1: The IMF putting out its research it's outlook, suggesting that 310 00:16:55,640 --> 00:16:59,480 Speaker 1: rates will return to pre pandemic levels. Mike, would you 311 00:16:59,520 --> 00:17:03,120 Speaker 1: go that now? I look, the IMF's entitled to make 312 00:17:03,160 --> 00:17:06,320 Speaker 1: forecasts like anybody else. But here's the thing, John, when 313 00:17:06,359 --> 00:17:08,480 Speaker 1: you think about the dynamics over the last six to 314 00:17:08,520 --> 00:17:12,720 Speaker 1: twelve months, complete shift in psychology, Inflation still stubborn in 315 00:17:12,760 --> 00:17:15,080 Speaker 1: a lot of countries. I think that's going to keep 316 00:17:15,160 --> 00:17:18,680 Speaker 1: rates pretty well above pre pandemic levels for a long time, 317 00:17:18,800 --> 00:17:21,320 Speaker 1: so back to twenty nineteen levels, not any time soon, 318 00:17:21,440 --> 00:17:26,840 Speaker 1: many many years. Is your macro strategy, Mike Schumacher based 319 00:17:26,880 --> 00:17:31,360 Speaker 1: around service sector core not coming down? I mean you've 320 00:17:31,359 --> 00:17:36,080 Speaker 1: got a better view on headline core is somewhat persistent here. 321 00:17:37,000 --> 00:17:43,479 Speaker 1: What does service sector core do to the Wells Fargo call? Yeah, frankly, 322 00:17:43,520 --> 00:17:45,879 Speaker 1: time people care a lot about service sector core because J. 323 00:17:46,040 --> 00:17:48,560 Speaker 1: Powell cares about it. So I'm in that camp too, 324 00:17:48,680 --> 00:17:50,960 Speaker 1: Mister Powell's important to you, it's important to me, it's 325 00:17:50,960 --> 00:17:55,080 Speaker 1: important new investors. So we've got core staying pretty stubborn, 326 00:17:55,200 --> 00:17:59,119 Speaker 1: frankly for a while. So yes, you probably see some moderation, 327 00:17:59,320 --> 00:18:01,399 Speaker 1: maybe not much in a couple of days or tomorrow, 328 00:18:01,440 --> 00:18:04,080 Speaker 1: I guess when it comes out, but fairly soon, but 329 00:18:04,200 --> 00:18:06,520 Speaker 1: still well above where the Fed wants it to be. 330 00:18:06,760 --> 00:18:08,639 Speaker 1: So we're all looking at that. We focus on it, 331 00:18:08,680 --> 00:18:12,480 Speaker 1: but not anywhere near the comfort zone yet. So if 332 00:18:12,480 --> 00:18:14,480 Speaker 1: I stay on J. Powell, then look at the three 333 00:18:14,480 --> 00:18:16,640 Speaker 1: month T bill, and then I look at the three 334 00:18:16,640 --> 00:18:20,919 Speaker 1: month T bill guestament out eighteen months this morning, I 335 00:18:21,040 --> 00:18:25,679 Speaker 1: see a very sustained three months yield. Does that drive 336 00:18:25,880 --> 00:18:30,480 Speaker 1: even higher in the coming quarters. Yeah, it's really interesting 337 00:18:30,520 --> 00:18:33,200 Speaker 1: time to think about just how much easing the market's 338 00:18:33,200 --> 00:18:36,440 Speaker 1: priced in. So it's got these two factors out there. 339 00:18:36,520 --> 00:18:39,760 Speaker 1: One inflation bad FED wants to squel chip that implies 340 00:18:39,800 --> 00:18:44,600 Speaker 1: more hikes. Number two financial system angst rickety structure, etc. 341 00:18:45,000 --> 00:18:47,080 Speaker 1: Than apply a lot more cuts. We think there are 342 00:18:47,080 --> 00:18:49,679 Speaker 1: too many cuts priced in, both for this year and 343 00:18:49,840 --> 00:18:52,040 Speaker 1: for next year. The big test is going to come 344 00:18:52,080 --> 00:18:53,920 Speaker 1: in the second part of this month, a lot of 345 00:18:54,000 --> 00:18:57,480 Speaker 1: earnings releases. If the system gets past that, I think 346 00:18:57,520 --> 00:19:00,000 Speaker 1: you'll see the number of cuts priced for twenty three 347 00:19:00,080 --> 00:19:02,320 Speaker 1: and twenty four go down a lot, and that should 348 00:19:02,320 --> 00:19:05,639 Speaker 1: push up things like the two year yield. Bring it 349 00:19:05,680 --> 00:19:09,600 Speaker 1: in close. A managing director of the IMF just emailed 350 00:19:09,600 --> 00:19:13,280 Speaker 1: me and says, ask Schumacher, what we see tomorrow? Mike Schumacher, 351 00:19:13,720 --> 00:19:17,600 Speaker 1: what do we see tomorrow on the inflation report? Yeah, 352 00:19:17,680 --> 00:19:19,760 Speaker 1: focus on Coral. We've got that coming in at point 353 00:19:19,800 --> 00:19:23,360 Speaker 1: four percent, and that's probably not going to shock anybody time. 354 00:19:23,440 --> 00:19:25,920 Speaker 1: But we think about how the market reacts to surprises 355 00:19:25,960 --> 00:19:28,800 Speaker 1: as well. In in our view, it's very skewed. So 356 00:19:28,880 --> 00:19:31,840 Speaker 1: let's say Core comes in hot point five point six. 357 00:19:32,240 --> 00:19:34,119 Speaker 1: We think you get much more of a reaction to 358 00:19:34,160 --> 00:19:36,480 Speaker 1: a hot print than a week one, because again, the 359 00:19:36,560 --> 00:19:39,760 Speaker 1: FED wants to hike, and in our simple calculus, the 360 00:19:39,840 --> 00:19:43,920 Speaker 1: Fed's going to ease only if something breaks. So Core 361 00:19:44,000 --> 00:19:46,640 Speaker 1: coming in at point four point five even point three 362 00:19:46,800 --> 00:19:49,520 Speaker 1: doesn't really change that aspect of the Fed's decision making 363 00:19:50,200 --> 00:19:54,399 Speaker 1: two banks breaking, John, didn't get it, Dog. That's the question, 364 00:19:54,480 --> 00:19:59,720 Speaker 1: isn't it hasn't something broken? Something additional? John, So something 365 00:20:00,280 --> 00:20:02,040 Speaker 1: you've got a huge band aid on it, whether it's 366 00:20:02,080 --> 00:20:05,280 Speaker 1: Credit SWEETE, whether it's SVB, take your pick. And now 367 00:20:05,280 --> 00:20:07,960 Speaker 1: it's the question of, as your last guest pointed out, 368 00:20:08,359 --> 00:20:10,640 Speaker 1: where is the strike on that put? Is that put 369 00:20:10,720 --> 00:20:14,240 Speaker 1: still there? Should investors rationally think it is? Perhaps so? 370 00:20:14,480 --> 00:20:16,600 Speaker 1: But you need to have the least for the FED 371 00:20:16,600 --> 00:20:19,639 Speaker 1: to come in or the ECB or the SNB another 372 00:20:19,680 --> 00:20:22,800 Speaker 1: big debacle out there for the markets to become even 373 00:20:22,840 --> 00:20:27,080 Speaker 1: more unnerved. Well, they immediate concerned with Spilova, Mike. If 374 00:20:27,119 --> 00:20:29,800 Speaker 1: you drawn conclusions on how much Spilova we're going to 375 00:20:29,840 --> 00:20:34,520 Speaker 1: see from those incidents really tough to see and quantify 376 00:20:34,560 --> 00:20:37,760 Speaker 1: at this point, John, SVB, it seems like it's pretty localized. 377 00:20:37,800 --> 00:20:40,440 Speaker 1: When you think about Credit Sweee it's a more challenging, 378 00:20:40,520 --> 00:20:44,160 Speaker 1: difficult unwind. But assuming that deal close is pretty soon, 379 00:20:44,240 --> 00:20:46,639 Speaker 1: probably not a ton of spillover. But I think the 380 00:20:46,680 --> 00:20:49,200 Speaker 1: bigger issue is, in particular in the US, you've got 381 00:20:49,240 --> 00:20:52,000 Speaker 1: thousands of banks in a particular or something like a 382 00:20:52,119 --> 00:20:55,000 Speaker 1: hundred that range between ten billion and one hundred billion 383 00:20:55,000 --> 00:20:57,199 Speaker 1: in assets. We simply don't have a lot of visibility 384 00:20:57,640 --> 00:21:00,520 Speaker 1: into those balance sheets. So structures right now the huge 385 00:21:01,160 --> 00:21:04,680 Speaker 1: but collectively, could there be a problem perhaps what Michael 386 00:21:04,760 --> 00:21:06,600 Speaker 1: keep returning to the question I've returned to them, what 387 00:21:06,640 --> 00:21:08,960 Speaker 1: are the longer variable lacks of a banking shock? And 388 00:21:09,080 --> 00:21:11,119 Speaker 1: is it too soon to draw conclusions? If you the 389 00:21:11,160 --> 00:21:13,000 Speaker 1: Federal Reserve and you sit there on May third, do 390 00:21:13,040 --> 00:21:15,920 Speaker 1: you have the incoming information, the sufficient information you need 391 00:21:16,240 --> 00:21:19,520 Speaker 1: to make that cool? No, you don't know at that point. 392 00:21:19,600 --> 00:21:21,560 Speaker 1: You'll know if you had an immediate problem that's going 393 00:21:21,600 --> 00:21:23,560 Speaker 1: to be evident in the next week or two. But 394 00:21:23,680 --> 00:21:26,359 Speaker 1: there simply is not enough time to know. Is the 395 00:21:26,440 --> 00:21:29,439 Speaker 1: system really on solid footing right now? A lot of 396 00:21:29,440 --> 00:21:31,920 Speaker 1: clients talk about things like commercial real estate, where does 397 00:21:31,960 --> 00:21:34,439 Speaker 1: echo Probably doesn't look that great. Will the fed up 398 00:21:34,440 --> 00:21:37,000 Speaker 1: that information on the third? No, I doubt it. What 399 00:21:37,119 --> 00:21:40,000 Speaker 1: about deposit flight deposit beatas how much does having an 400 00:21:40,040 --> 00:21:42,960 Speaker 1: iPhone and a fancy app change those beatas well? They 401 00:21:43,000 --> 00:21:45,800 Speaker 1: get faster, they get higher, but to what degree we 402 00:21:45,880 --> 00:21:49,120 Speaker 1: can't tell. Neither can the FED quite yet, Mike, John 403 00:21:49,119 --> 00:21:51,600 Speaker 1: Williams and the New York Fed said, basically, it's not 404 00:21:51,640 --> 00:21:54,240 Speaker 1: our fault. It's not because we went from zero to 405 00:21:54,280 --> 00:21:57,399 Speaker 1: four point five five percent in a space of twelve months. 406 00:21:57,640 --> 00:21:59,840 Speaker 1: We didn't have anything to do with this these incidents 407 00:22:00,000 --> 00:22:03,760 Speaker 1: maybe asyncratic, Mike, would you take the same page as 408 00:22:03,840 --> 00:22:07,000 Speaker 1: John Williams at the New York Fed? Well, I think 409 00:22:07,000 --> 00:22:09,879 Speaker 1: you've got to focus on monetary policy versus the Fed's 410 00:22:09,920 --> 00:22:12,960 Speaker 1: regulatory authority, and does it make a lot of sense 411 00:22:13,000 --> 00:22:16,119 Speaker 1: to have those really embedded in the same institution. We 412 00:22:16,240 --> 00:22:18,479 Speaker 1: did a call recently with Sheila Beart. She said, no, 413 00:22:18,880 --> 00:22:22,280 Speaker 1: they should be split to some degree. So monetary policy, yes, 414 00:22:22,280 --> 00:22:24,720 Speaker 1: it's been aggressive, but frankly, the FED weight a long 415 00:22:24,760 --> 00:22:27,399 Speaker 1: time to get tough too. It could have moved certainly 416 00:22:27,440 --> 00:22:29,160 Speaker 1: back in twenty one. I think that would have helped 417 00:22:29,240 --> 00:22:34,120 Speaker 1: quite a bit, and it chose to wait the governorship, 418 00:22:35,880 --> 00:22:48,439 Speaker 1: thank you, sir. So Unfortunately we have to do an 419 00:22:48,480 --> 00:22:53,639 Speaker 1: audible with John Bolton, former National security advisor to President Trump, 420 00:22:54,000 --> 00:22:57,480 Speaker 1: Ambassador to the United Nations under George W. Bush. And 421 00:22:57,560 --> 00:23:00,720 Speaker 1: for those of you in radio, Bolton appears today with 422 00:23:01,000 --> 00:23:04,400 Speaker 1: arm in sling. No doubt one of the people going 423 00:23:04,440 --> 00:23:07,400 Speaker 1: after Bolden. What did you do to the other guy, Ambassador? 424 00:23:07,440 --> 00:23:10,040 Speaker 1: Did you hit him hard? It was pretty Graham. I 425 00:23:10,080 --> 00:23:14,080 Speaker 1: have to say, I'm sure it was some Bolton drama there. 426 00:23:14,160 --> 00:23:16,280 Speaker 1: Let's get to the drama of the moment, and I 427 00:23:16,320 --> 00:23:21,080 Speaker 1: want to begin with a Wall Street Journal reporter jailed 428 00:23:21,400 --> 00:23:24,960 Speaker 1: in Russia. You have been inflammatory and said throw the 429 00:23:25,000 --> 00:23:28,119 Speaker 1: bums out, you want the ambassador of Russia to be 430 00:23:28,200 --> 00:23:34,320 Speaker 1: removed from the soil of United States of America. Discussed that. Well, look, 431 00:23:34,359 --> 00:23:38,920 Speaker 1: this is obviously an entirely political decision by the Kremlin. 432 00:23:39,320 --> 00:23:43,080 Speaker 1: They're taking this reporter hostage. They're accusing him of espionage. 433 00:23:43,560 --> 00:23:46,160 Speaker 1: We know that's not true, because it's been a long 434 00:23:46,200 --> 00:23:49,560 Speaker 1: long time since we've used reporters for that purpose in 435 00:23:49,640 --> 00:23:53,160 Speaker 1: order to protect them from exactly this kind of thing. Clearly, 436 00:23:53,520 --> 00:23:57,040 Speaker 1: the Russians want to exchange the reporter for something. We 437 00:23:57,080 --> 00:24:00,920 Speaker 1: don't know what yet. But I think instead of pleading 438 00:24:00,960 --> 00:24:03,960 Speaker 1: with him to let this hostage go and he is 439 00:24:03,960 --> 00:24:06,959 Speaker 1: a hostage and effect. I think we've got to declare 440 00:24:07,000 --> 00:24:09,640 Speaker 1: the Russian ambassador persona non grid. I think we ought 441 00:24:09,680 --> 00:24:12,560 Speaker 1: to go to our NATO allies and ask them to 442 00:24:12,600 --> 00:24:14,640 Speaker 1: do the same, because it could have happened to any 443 00:24:14,680 --> 00:24:18,320 Speaker 1: one of their journalists. A strong response is the only 444 00:24:18,359 --> 00:24:21,280 Speaker 1: thing the Russians understand, and if we don't, if we 445 00:24:21,320 --> 00:24:23,800 Speaker 1: don't start now, Gershkevich could be in jail for a 446 00:24:23,800 --> 00:24:27,840 Speaker 1: long time. Best of Bolton, I want to continue this discussion, 447 00:24:27,880 --> 00:24:30,399 Speaker 1: but because of time in such an ample news flow, 448 00:24:30,440 --> 00:24:33,840 Speaker 1: we've got to move on, John Bolton, we have an 449 00:24:33,840 --> 00:24:36,560 Speaker 1: intelligence lead. This is not Matt Damon, and I know 450 00:24:36,640 --> 00:24:38,240 Speaker 1: Matt Damon was going to play the part of you 451 00:24:38,359 --> 00:24:41,600 Speaker 1: in another movie. It's not the Bourne identity, it's not 452 00:24:41,720 --> 00:24:46,280 Speaker 1: paper under park benches, and that this is your world 453 00:24:46,680 --> 00:24:52,560 Speaker 1: being affected by digital technology digital media. Do we need 454 00:24:52,600 --> 00:24:59,160 Speaker 1: to radically change our intelligence distribution because of new technology? Well, 455 00:24:59,200 --> 00:25:01,440 Speaker 1: I think there's a lot we can do to safeguard 456 00:25:01,520 --> 00:25:04,879 Speaker 1: classified material better, and I would certainly say, based on 457 00:25:04,960 --> 00:25:08,439 Speaker 1: what we know publicly, the presumption at this moment is 458 00:25:08,520 --> 00:25:11,520 Speaker 1: this is some kind of leak out of the Pentagon 459 00:25:11,680 --> 00:25:15,080 Speaker 1: or other US sources, and we don't know whether we're 460 00:25:15,080 --> 00:25:17,480 Speaker 1: at the end of it or not. It could be more. However, 461 00:25:17,960 --> 00:25:20,719 Speaker 1: I would also caution at this point that we not 462 00:25:20,800 --> 00:25:25,399 Speaker 1: draw too many conclusions that this could be an influence 463 00:25:25,440 --> 00:25:28,879 Speaker 1: operation by somebody we don't know who. And once you 464 00:25:28,920 --> 00:25:32,840 Speaker 1: get into the world of counter intelligence, it makes being 465 00:25:32,880 --> 00:25:36,400 Speaker 1: in a hall of mirrors look easy. It's very complicated, 466 00:25:36,440 --> 00:25:40,760 Speaker 1: and depending on how sophisticated the actor might be, really 467 00:25:40,800 --> 00:25:44,480 Speaker 1: can wrench your mind around. So we've seen some anomalies 468 00:25:44,520 --> 00:25:48,800 Speaker 1: in what's been reported. Just this morning in South Korea, 469 00:25:48,880 --> 00:25:52,320 Speaker 1: South Korea Time, the government there said that the information 470 00:25:52,440 --> 00:25:56,439 Speaker 1: that looked to be leaked about about their consideration of 471 00:25:56,480 --> 00:26:01,320 Speaker 1: selling artillery shells to Ukraine was false. So we don't 472 00:26:01,400 --> 00:26:05,440 Speaker 1: know whether that's disinformation too. But all I'm saying is, well, 473 00:26:05,480 --> 00:26:09,000 Speaker 1: I don't have any basis on which to contest what 474 00:26:09,119 --> 00:26:11,000 Speaker 1: seems to be the case that this is a US 475 00:26:11,119 --> 00:26:14,240 Speaker 1: league and therefore a huge US problem. I just think 476 00:26:14,600 --> 00:26:17,879 Speaker 1: we need to be very careful before we jumped to 477 00:26:17,880 --> 00:26:22,159 Speaker 1: too many conclusions. Look at this, ambassador. I'm gonna do 478 00:26:22,200 --> 00:26:25,040 Speaker 1: an audible here, and it's just a general question for 479 00:26:25,080 --> 00:26:30,920 Speaker 1: the American public, not Republican democrat in your experience, how 480 00:26:31,000 --> 00:26:36,520 Speaker 1: removed is the intelligence community's process in day to day 481 00:26:36,560 --> 00:26:41,359 Speaker 1: grind from the way it's perceived by Hollywood. Is Hollywood 482 00:26:41,440 --> 00:26:44,359 Speaker 1: accurate or are they just off the mark on a 483 00:26:44,440 --> 00:26:49,240 Speaker 1: movie by movie basis. Well, the Hollywood movies are very exciting, 484 00:26:49,280 --> 00:26:51,960 Speaker 1: and some of that does occur. But but you know, 485 00:26:52,040 --> 00:26:55,520 Speaker 1: we collect the huge amounts of intelligence through what we 486 00:26:55,640 --> 00:27:00,840 Speaker 1: call euphemistically national technical means, meaning electronic and other forms 487 00:27:00,880 --> 00:27:05,080 Speaker 1: of surveillance. Frankly, we need a lot more human intelligence 488 00:27:05,119 --> 00:27:08,920 Speaker 1: collection than we have, and we need a greater clandestine 489 00:27:09,000 --> 00:27:12,600 Speaker 1: operations capability than we have. I think puritans in the 490 00:27:12,680 --> 00:27:17,159 Speaker 1: foreign policy establishment have looked down on clandestine operations for 491 00:27:17,200 --> 00:27:20,440 Speaker 1: a long time. We're in a very dangerous world. Could 492 00:27:20,520 --> 00:27:24,119 Speaker 1: we could use a lot more? But it's it's something 493 00:27:24,160 --> 00:27:26,760 Speaker 1: I think Americans, if they really knew what our intelligence 494 00:27:27,080 --> 00:27:30,000 Speaker 1: collection capabilities were, would be very proud of what we're 495 00:27:30,040 --> 00:27:33,679 Speaker 1: able to do. John Bolton, I want to move to 496 00:27:33,720 --> 00:27:40,399 Speaker 1: the bipartisan thrust of Washington against China. Is it should 497 00:27:40,400 --> 00:27:44,679 Speaker 1: we be cautious because there's such a fixed bipartisan nature 498 00:27:45,119 --> 00:27:50,200 Speaker 1: to our anger over China? Do we overreact? Well? I 499 00:27:50,240 --> 00:27:53,119 Speaker 1: don't think we've overreacted yet, and I agree with you 500 00:27:53,200 --> 00:27:56,560 Speaker 1: that there's certainly an unusual character, the bipartisan nature of 501 00:27:56,600 --> 00:27:59,080 Speaker 1: the concern about China. But I do think the underlying 502 00:27:59,119 --> 00:28:03,320 Speaker 1: concern is one. I think China is essentially an existential 503 00:28:03,359 --> 00:28:05,679 Speaker 1: threat to US and the West as a whole in 504 00:28:05,720 --> 00:28:08,359 Speaker 1: the century, and their challenge is really across the board. 505 00:28:08,400 --> 00:28:11,720 Speaker 1: It's not just political and military, although it's very much 506 00:28:11,720 --> 00:28:15,360 Speaker 1: in those sectors. It's economic as well. Decades of stealing 507 00:28:15,359 --> 00:28:20,480 Speaker 1: our intellectual property, discriminating against foreign investors and traders, manipulating 508 00:28:20,480 --> 00:28:24,760 Speaker 1: the international financial system to its advantage. There's a lot 509 00:28:24,800 --> 00:28:27,160 Speaker 1: that's gone on for a long time we're just really 510 00:28:27,200 --> 00:28:30,400 Speaker 1: beginning to appreciate and catch up to. So I think 511 00:28:30,480 --> 00:28:35,640 Speaker 1: the bipartisan concern here is warranted. Among others, who's talked 512 00:28:35,640 --> 00:28:40,320 Speaker 1: to James Stravitas, of course, the former admiral about a 513 00:28:40,360 --> 00:28:43,280 Speaker 1: Pacific Rim build out. I know that the United States 514 00:28:43,280 --> 00:28:47,200 Speaker 1: has a new dialogue with the Philippines among others. Does 515 00:28:47,280 --> 00:28:51,040 Speaker 1: Bolton suggest that we need to rebuild out our military 516 00:28:51,560 --> 00:28:55,240 Speaker 1: in the Pacific Rim, not just for Taiwan, but also 517 00:28:55,360 --> 00:28:58,720 Speaker 1: for the South China. See, I think we need to 518 00:28:58,720 --> 00:29:01,320 Speaker 1: rebuild it across the board. I think the next American 519 00:29:01,360 --> 00:29:05,000 Speaker 1: president needs defense budget increases in the range of what 520 00:29:05,120 --> 00:29:08,400 Speaker 1: Ronald Reagan did during his presidency, maybe even more. I 521 00:29:08,400 --> 00:29:12,120 Speaker 1: think that implies even greater cuts to domestic expending to 522 00:29:12,160 --> 00:29:15,360 Speaker 1: get our deficit down. But let's be clear, we've been 523 00:29:15,400 --> 00:29:17,720 Speaker 1: asleep at the switch for a long time here. The 524 00:29:18,040 --> 00:29:20,160 Speaker 1: going back to the end of the Cold War, people 525 00:29:20,160 --> 00:29:21,960 Speaker 1: said it was the end of history. We had a 526 00:29:21,960 --> 00:29:24,560 Speaker 1: peace dividend. We've got to put all that behind us. 527 00:29:24,600 --> 00:29:27,200 Speaker 1: We face a very wide range of threats. Let's just 528 00:29:27,240 --> 00:29:30,040 Speaker 1: take the Pacific. Get a map out that has the 529 00:29:30,080 --> 00:29:32,360 Speaker 1: Pacific Ocean in the middle of it. It's a long 530 00:29:32,440 --> 00:29:36,640 Speaker 1: way away. We need probably fifty more naval war vessels 531 00:29:36,760 --> 00:29:39,840 Speaker 1: in our fleet just to deal with the Pacific, let 532 00:29:39,840 --> 00:29:43,800 Speaker 1: alone increases for the rest of the world. John Bolton, 533 00:29:44,040 --> 00:29:47,280 Speaker 1: what's so important here is those of us of a 534 00:29:47,360 --> 00:29:53,480 Speaker 1: certain vintage remember our intelligence misestimates of the Soviet Union. 535 00:29:54,040 --> 00:29:57,800 Speaker 1: Do you have a confidence in our intelligence of China? 536 00:29:58,000 --> 00:30:02,239 Speaker 1: Or do we make the same gauging misguiding that we 537 00:30:02,320 --> 00:30:04,320 Speaker 1: did with the Soviet Union? Do we know what we're 538 00:30:04,360 --> 00:30:07,840 Speaker 1: talking about with Beijing? Well, I think we've got pretty 539 00:30:07,840 --> 00:30:10,560 Speaker 1: good estimates on key areas. Some of it's visible to 540 00:30:10,680 --> 00:30:15,120 Speaker 1: us already. Their capabilities for offensive cyber operations, for example, 541 00:30:16,040 --> 00:30:21,040 Speaker 1: the military build up that they've undertaken in anti access 542 00:30:21,280 --> 00:30:24,880 Speaker 1: area denial weapons to push us back from the western 543 00:30:24,920 --> 00:30:29,240 Speaker 1: shores of the Pacific, Their anti satellite weapons capabilities to 544 00:30:29,320 --> 00:30:32,240 Speaker 1: blind our eyes in the sky and time of crisis 545 00:30:32,320 --> 00:30:36,080 Speaker 1: or conflict, that is out there, as is the evidence 546 00:30:36,120 --> 00:30:40,320 Speaker 1: of things like weaponizing what otherwise look like commercial companies 547 00:30:40,560 --> 00:30:44,640 Speaker 1: Wahwei Zte. They're not telecommunications firms. They're arms of the 548 00:30:44,760 --> 00:30:48,960 Speaker 1: Chinese state trying to take control of fifth generation telecommunications. 549 00:30:50,200 --> 00:30:53,240 Speaker 1: John Bolton, thank you for joining Bloomberg Surveillance this morning. 550 00:30:53,360 --> 00:30:56,400 Speaker 1: Former Ambassador Bolton, of course, is work with the National 551 00:30:56,480 --> 00:31:02,280 Speaker 1: Security Council as well. Always Controversy. Subscribe to the Bloomberg 552 00:31:02,320 --> 00:31:06,320 Speaker 1: Surveillance podcast on Apple, Spotify, and anywhere else you get 553 00:31:06,360 --> 00:31:11,120 Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern. 554 00:31:11,560 --> 00:31:15,600 Speaker 1: I'm Bloomberg dot Com, the iHeartRadio app, tune In, and 555 00:31:15,640 --> 00:31:19,280 Speaker 1: the Bloomberg Business app. You can watch us live. I'm 556 00:31:19,280 --> 00:31:24,040 Speaker 1: Bloomberg Television, and always I'm the Bloomberg Terminal. Thanks for listening. 557 00:31:24,520 --> 00:31:27,360 Speaker 1: I'm Tom Keane, and this is Bloomberg.