WEBVTT - Surveillance: Market Optimism with Kaminski 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brawmowitz Jaily, 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 --> 0:00:23.799 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.320 and of course, on the Bloomberg Terminal. Bob Miller, head 0:00:30.320 --> 0:00:34.400 of America's Fundamental fixed income truly with decades of experience, 0:00:34.800 --> 0:00:38.560 Bob Miller, what is the symbolism if the Lehman Barclays 0:00:38.600 --> 0:00:44.400 Bloomberg Total Return aggregate index breaks down to new lower 0:00:44.479 --> 0:00:47.960 price and a higher yield, how do you redefine the 0:00:48.040 --> 0:00:54.440 bear market if we get that technical breakdown? Well, good morning, Tom, 0:00:54.560 --> 0:00:56.280 I hope all of you are well. It's good to 0:00:56.280 --> 0:00:59.960 be with you. Um. Look, I I we we think 0:01:00.080 --> 0:01:04.040 that yields are now reasonable. So yes, they can you know, 0:01:04.080 --> 0:01:06.440 prices can go down and yields can go higher from here. 0:01:06.880 --> 0:01:11.040 But but we're in the range of reasonable fixed income offers. 0:01:11.480 --> 0:01:16.080 You know, some some reasonably attractive opportunities today after for 0:01:16.120 --> 0:01:19.200 the first time since two thousand and eighteen UM and 0:01:19.200 --> 0:01:22.440 and certainly after the period of of no opportunity two 0:01:22.520 --> 0:01:25.360 years ago and a year ago. So you can build 0:01:25.360 --> 0:01:29.000 a high quality portfolio that has a four to five 0:01:29.040 --> 0:01:33.400 percent yield, including treasuries, you know, high quality credit even 0:01:33.480 --> 0:01:36.039 high quality adds some high quality high yield in the 0:01:36.120 --> 0:01:38.040 eight and a half to nine percent range. You can 0:01:38.080 --> 0:01:41.120 build a pretty attractive portfolio for the first time in years, 0:01:41.640 --> 0:01:45.399 and specifically in US fixed income. And we think that 0:01:45.400 --> 0:01:47.880 that's uh, that's something that investors ought to be thinking 0:01:47.920 --> 0:01:50.240 about for the next year. No doubt, things have been 0:01:50.680 --> 0:01:54.440 ugly this year, and and there's no near term relief 0:01:54.480 --> 0:01:58.240 in sight. But valuations matter, and and these valuations look 0:01:58.360 --> 0:02:02.080 look reasonable to us. They look reasonable compared perhaps to 0:02:02.160 --> 0:02:05.440 a year ago. They won't necessarily look as reasonable any year. 0:02:05.560 --> 0:02:08.360 If ten your treasury yields are five, where some people 0:02:08.440 --> 0:02:10.880 are gonna be suggesting they could be. Are you in 0:02:10.960 --> 0:02:13.520 the camp that says that we have seen peak yields 0:02:13.560 --> 0:02:16.280 on tenure, that we're close to it, even as we 0:02:16.320 --> 0:02:18.760 do see them start to climb and push up against 0:02:18.760 --> 0:02:20.519 and test some of the highs that we've seen of 0:02:20.560 --> 0:02:23.799 the cycle. Yeah, at least I don't know if we've 0:02:23.840 --> 0:02:26.200 seen the peak, but but I think we're close. Me 0:02:26.600 --> 0:02:30.440 because we're in the camp that inflation is going to decelerate, 0:02:30.560 --> 0:02:33.920 growth is going to decelerate. I think it's a it's 0:02:33.960 --> 0:02:37.359 it's it's really important to keep in mind the magnitude 0:02:37.400 --> 0:02:40.120 of the financial conditions tightening that the Fed has engineered. 0:02:40.160 --> 0:02:42.600 In just six months time, they're going to raise rates 0:02:42.639 --> 0:02:46.239 by another seventy most likely in less than two weeks time, 0:02:46.639 --> 0:02:49.640 pushing the funds right to three. That's in a six 0:02:49.639 --> 0:02:52.679 month period of time, three basis points off zero, six 0:02:52.919 --> 0:02:55.560 d basis points annualized. Right, this is this is not 0:02:55.840 --> 0:02:59.680 an insignificant move. It's a it's a meaningful move, and 0:02:59.680 --> 0:03:03.040 and takes time, right the famous long and variable legs. 0:03:03.280 --> 0:03:06.640 It takes time for policy adjustments easing and tightening to 0:03:06.720 --> 0:03:09.360 work their way through all of the cracks in the economy. 0:03:09.639 --> 0:03:13.160 It's coming, I think it'll be. It'll be very unlikely 0:03:13.240 --> 0:03:15.400 that we we look up in three to six months 0:03:15.480 --> 0:03:19.880 time and growth and inflation haven't slowed by a sufficient 0:03:19.880 --> 0:03:23.000 amount that the Fed is probably able to pause with 0:03:23.160 --> 0:03:26.240 rates around four percent and just sit there for a while. 0:03:26.360 --> 0:03:29.120 So in order to get a five ten year on 0:03:29.160 --> 0:03:31.920 a one year horizon, a lot of things have to 0:03:31.960 --> 0:03:35.480 go wrong, right, I just that just maybe it could be, 0:03:35.640 --> 0:03:37.760 but but a lot of things already have gone wrong, 0:03:37.800 --> 0:03:40.640 and I think it's it's a little dangerous to extrapolate 0:03:40.960 --> 0:03:44.640 the last nine months into the next nine months without 0:03:44.640 --> 0:03:49.520 considering what's happening to financial conditions in the US economy. 0:03:49.680 --> 0:03:53.320 They are tighter, yeah, though you do still see the 0:03:53.360 --> 0:03:55.880 consumer having some strength, particularly with oil prices or at 0:03:55.920 --> 0:03:58.640 least gasoline prices coming down a bit. Have we fully 0:03:58.800 --> 0:04:01.560 taken into account the fact that Europe has also moved 0:04:01.560 --> 0:04:04.000 away from negative fielding machine with the biggest ever rate 0:04:04.040 --> 0:04:07.640 hike at the ECB meeting last week, and it's poised 0:04:07.640 --> 0:04:10.720 to do more. That there is a cohesive and global 0:04:10.840 --> 0:04:14.040 synchronized rate hiking cycle that we really haven't seen in 0:04:14.080 --> 0:04:18.039 modern history. Yeah, it's a great point, and it would 0:04:18.120 --> 0:04:22.120 I would argue that that adds to the the reality 0:04:22.160 --> 0:04:25.200 of financial conditions tightening in a lot of different places, 0:04:25.240 --> 0:04:28.960 not just the United States, and that will ultimately have 0:04:29.120 --> 0:04:33.360 a delayed but but likely a real impact on growth 0:04:33.400 --> 0:04:36.640 and inflation over the next year or two. Keep in mind, 0:04:36.680 --> 0:04:39.280 there's one central bank that that isn't participating that we 0:04:39.360 --> 0:04:42.120 think will will likely be forced to buy their own 0:04:42.120 --> 0:04:45.680 inflation dynamics in Japan. Sometime over the next six to 0:04:45.760 --> 0:04:48.120 nine months, we wouldn't be at all surprised to see 0:04:48.160 --> 0:04:51.760 the yield curve control um program that's been in place 0:04:51.800 --> 0:04:55.120 for some time at a minimum adjusted slightly, if not 0:04:55.279 --> 0:04:59.000 adjusted by you know, a reasonable amount. I probably gotta 0:04:59.000 --> 0:05:01.680 pick up on that phonic question, what does that mean? 0:05:02.120 --> 0:05:04.680 And how would the rest of the global bond market 0:05:04.720 --> 0:05:08.599 response to a move like that? Yeah, so, Jonathan, great question. 0:05:08.640 --> 0:05:10.640 That that's where like if you asked me, what's the 0:05:10.680 --> 0:05:13.719 scenario where the question Lisa mentioned about a five percent 0:05:13.760 --> 0:05:17.200 treasury yield? What what's this? What's the scenario where that's 0:05:17.200 --> 0:05:21.400 a reality? It's either it's either just unbelievably persistently high 0:05:21.440 --> 0:05:24.960 inflation um that the FED cannot get under control, so 0:05:25.000 --> 0:05:28.120 the front end is likely at five if not higher, 0:05:28.640 --> 0:05:33.520 or it's some resumption of global term premium by the 0:05:33.760 --> 0:05:37.320 you know, the ECB not only not only turning off QUI, 0:05:37.440 --> 0:05:40.839 but perhaps even pursuing some balance you run off, and importantly, 0:05:40.920 --> 0:05:44.400 the Bank of Japan abandoning yield curve control. I think 0:05:44.440 --> 0:05:47.520 all of that, each one of those is individually pretty 0:05:47.560 --> 0:05:50.599 pretty low odds. But but that is the scenario where 0:05:50.600 --> 0:05:52.520 if you want to get really bearish on bonds, I 0:05:52.520 --> 0:05:55.080 think you've got to have something like that in mind, Bob, 0:05:55.120 --> 0:06:03.520 Thank you. Katy. Kamensk joins out. It's been a joy 0:06:03.560 --> 0:06:06.800 to speak to a chief research strategist at Alpha Simplex 0:06:07.240 --> 0:06:10.000 about trend because she off of Andrew lowd M I 0:06:10.080 --> 0:06:13.599 t is a slave to trend is full disclosure. I 0:06:13.680 --> 0:06:16.800 am too, Katy. What is the trend now and is 0:06:16.800 --> 0:06:19.559 the trend different than what we saw in the last 0:06:19.560 --> 0:06:23.160 two weeks of June. Yes, I mean, I think we've 0:06:23.200 --> 0:06:27.360 seen the short bond signals as well as long long 0:06:27.400 --> 0:06:30.800 positioning and dollar be very dominant recently. But in the 0:06:30.839 --> 0:06:33.479 last two weeks we've really seen an influx of risk 0:06:33.560 --> 0:06:36.920 on behavior, a lot of buying pressure, particularly in the 0:06:36.960 --> 0:06:40.440 equity sector. And this is somewhat of an indication that 0:06:40.480 --> 0:06:43.840 people are getting optimistic, they're ready to put money back 0:06:43.880 --> 0:06:46.200 in the market. But the question is going to be 0:06:46.400 --> 0:06:50.720 is it too early? That's the question that cities asking. 0:06:51.000 --> 0:06:52.760 This is what Andrew hollen Host and the team had 0:06:52.800 --> 0:06:54.840 to say this morning. They published just moments ago. Read 0:06:54.880 --> 0:06:57.880 through it. Despite the pricing in of hikes, risk on prevails. 0:06:57.920 --> 0:07:00.160 The message at Jackson Hall was clear the FED will 0:07:00.200 --> 0:07:04.400 lean against LUCA financial conditions until inflation has convincingly slowed 0:07:04.720 --> 0:07:06.479 the team. Ever, City go on to say, maybe the 0:07:06.480 --> 0:07:09.520 FED will be incentivized to push against the nice and 0:07:09.800 --> 0:07:13.280 risk rally. Do you agree with that, Katy? I do 0:07:13.360 --> 0:07:15.400 agree with it, but I also think it could take 0:07:15.440 --> 0:07:18.680 longer than people expect. And the fact that the FED 0:07:18.800 --> 0:07:21.600 is remaining steady is they're setting a signal that they're 0:07:21.680 --> 0:07:24.280 thinking a little differently than the market. And I think 0:07:24.280 --> 0:07:26.920 we've been the most surprised to see that the market 0:07:27.240 --> 0:07:31.400 is more optimistic than FED commentary, and that suggests that 0:07:31.440 --> 0:07:34.000 there's perhaps maybe a little bit more that we need 0:07:34.040 --> 0:07:36.880 to think about going forward, and that we might see 0:07:36.880 --> 0:07:38.960 a little bit of reversion. We'll see what the CPI 0:07:39.080 --> 0:07:41.640 looks like today, but you know, you're gonna have to 0:07:41.680 --> 0:07:44.640 see how winter unfolds and how we handle some of 0:07:44.640 --> 0:07:47.960 these energy issues and other problems. We haven't even really 0:07:48.000 --> 0:07:50.480 seen q T yet, so I think it's going to 0:07:50.560 --> 0:07:52.840 take time to know. But I'm a little bit less 0:07:52.840 --> 0:07:56.800 optimistic than the market think. Katie John was talking earlier 0:07:56.840 --> 0:08:00.320 about how we should just interview with med medeollergists all day, 0:08:00.360 --> 0:08:03.360 and that might be as good as interviewing prognosticators on 0:08:03.360 --> 0:08:05.760 the market, because that might be what determines the market. 0:08:05.880 --> 0:08:08.440 So what is the bond response? What is the stock 0:08:08.520 --> 0:08:12.720 response to uh, really cold winter one in which the 0:08:12.800 --> 0:08:16.720 energy shortfall becomes more acute. I mean this is a 0:08:16.800 --> 0:08:19.760 serious issue because if you see people dealing with higher 0:08:19.800 --> 0:08:22.360 interest rates in terms of their payments, and you're also 0:08:22.400 --> 0:08:25.600 seeing people dealing with higher costs, it could really be 0:08:25.640 --> 0:08:29.320 a difficult situation, particularly for Europe UM and so I 0:08:29.360 --> 0:08:32.000 think people really need to think about looking at those 0:08:32.040 --> 0:08:35.040 prices as we roll into the winter season. We're just 0:08:35.160 --> 0:08:38.959 now starting to move towards December contracts and farther out 0:08:39.040 --> 0:08:41.080 in the curve. So I do agree with John that 0:08:41.480 --> 0:08:43.160 you know, it's really going to depend on how we 0:08:43.160 --> 0:08:49.319 weather the winter um as as the price pressure is real. Katie, 0:08:49.320 --> 0:08:51.600 we're speaking with you after you got a thirty eight 0:08:51.640 --> 0:08:55.400 percent gain in Alpha Simplex's main fund as a result 0:08:55.440 --> 0:08:58.880 of selling short bonds, something that hasn't worked for years. 0:08:59.240 --> 0:09:02.480 At what point do double down on that short position 0:09:02.600 --> 0:09:04.080 at a time where you think the market's getting it 0:09:04.120 --> 0:09:08.640 wrong and underestimating the Feds resolve. So I think one 0:09:08.640 --> 0:09:10.719 thing to know about trend falling is what we do 0:09:10.840 --> 0:09:13.360 is follow trends, And the truth is that the market, 0:09:13.440 --> 0:09:17.439 particularly in really difficult environments, is often a better bastion 0:09:17.640 --> 0:09:22.040 of information than one individual or anyone particular view. And 0:09:22.080 --> 0:09:24.240 so what we've seen now, which is kind of why 0:09:24.280 --> 0:09:27.440 I'm saying it's surprising, is that short bond trends are 0:09:27.480 --> 0:09:31.079 still there, that positioning is still very strong in the data, 0:09:31.440 --> 0:09:34.360 and we could definitely see even though rates are reasonable 0:09:34.640 --> 0:09:38.960 than becoming more unreasonable in the short term. Can you 0:09:39.600 --> 0:09:44.800 corral a short bond bond priced down yield up into 0:09:44.840 --> 0:09:49.200 an equity bet on trend? Yes, I mean as once 0:09:49.280 --> 0:09:52.040 we see that things have leveled out. I think I've 0:09:52.080 --> 0:09:54.319 always said that this is an an equity story, it's 0:09:54.320 --> 0:09:57.200 a bond story. So once we see that bonds have 0:09:57.320 --> 0:09:59.839 stabilized and we have a much more healthy curve and 0:10:00.000 --> 0:10:02.920 more of a risk premium out in the curve, so 0:10:02.960 --> 0:10:05.240 we see much more of a steeper curve, I would 0:10:05.280 --> 0:10:07.679 think that that's really sort of a risk on signal 0:10:07.840 --> 0:10:09.959 that where you can all start to think about those 0:10:09.960 --> 0:10:14.400 premiums as opposed to the potential destruction of great rises, 0:10:14.440 --> 0:10:17.199 because we all forget even though it's better going forward, 0:10:17.640 --> 0:10:20.920 the bonds were now really take a hit. They all 0:10:20.960 --> 0:10:24.040 felt that this year. Okay, let's go mathy here. We're 0:10:24.040 --> 0:10:26.360 doing this on a Monday. We can go math Monday 0:10:26.400 --> 0:10:30.199 here as well. Is the disinversion of the curve important 0:10:30.360 --> 0:10:33.160 or is it the first derivative rate of change of 0:10:33.240 --> 0:10:38.040 sad disinversion? For me, it's much more the inversion of 0:10:38.080 --> 0:10:40.079 the curve that's going to matter. I mean, that tells 0:10:40.120 --> 0:10:43.640 us something about the disparity between what we're thinking about 0:10:43.679 --> 0:10:46.040 short term rates and long term rates. And if you 0:10:46.080 --> 0:10:50.240 look empirically at signals in terms of trend and direction 0:10:50.320 --> 0:10:53.280 of bonds, you see that bonds have tended to fall 0:10:53.320 --> 0:10:56.320 when the curve is more inverted. And thus, if we 0:10:56.360 --> 0:10:59.280 continue to see that inversion signal, we're going to see 0:10:59.320 --> 0:11:02.959 that there's some sort of bearished you on bonds until 0:11:03.000 --> 0:11:05.200 we can kind of see that longer term risk premio, 0:11:05.400 --> 0:11:08.760 that steepness really be an issue. So I'd say first 0:11:08.760 --> 0:11:13.680 derivative Ketty Kamisney, thank you for Alpha simplex, the lightst 0:11:13.679 --> 0:11:26.000 in the bond market. So right now we turn to Ukraine. 0:11:26.040 --> 0:11:30.440 Has been a absolutely unique weekend of infantry movement, which 0:11:30.480 --> 0:11:33.959 means only we can speak with General Hodges. Ben Hodges 0:11:34.040 --> 0:11:37.120 is a former Commanding General for US Army Europe. He 0:11:37.240 --> 0:11:39.720 is a perching chair and Strategic Studies at super But 0:11:39.960 --> 0:11:42.880 so importantly, Ben Hodges, I'm going to go back to 0:11:43.000 --> 0:11:46.640 you doing what you do best. You were an instructor 0:11:47.440 --> 0:11:51.680 at the United United States Army Infantry School. When you 0:11:51.800 --> 0:11:56.800 instruct infantry, and particularly if the Ukraine's going after rapidly 0:11:56.920 --> 0:12:03.400 retreating Russians, what should they do? Uh? Three things? Number one, 0:12:03.760 --> 0:12:06.320 do not let up the pressure. Do not give the 0:12:06.400 --> 0:12:10.240 Russians a chance to stop and turn around and fight, 0:12:10.400 --> 0:12:15.480 So that that's number one. Number two, keep using your 0:12:15.679 --> 0:12:21.160 combined arms in other words, infantry, tanks, artillery, engineers, all 0:12:21.200 --> 0:12:24.200 of these things working together. That's what Ukraine is doing 0:12:24.280 --> 0:12:27.040 so well, and that the Russians have not done well. 0:12:27.080 --> 0:12:32.520 And then finally, unleash Ukrainian air power. Um, even though 0:12:32.559 --> 0:12:35.560 the Russians had all the advantages, they've never been able 0:12:35.600 --> 0:12:38.839 to dominate the airspace over Ukraine. And I think Ukrainians 0:12:39.040 --> 0:12:42.760 are gonna try and take advantage of that. This conversation 0:12:42.840 --> 0:12:46.040 reminds me of one U. S. Grant, an unknown going 0:12:46.080 --> 0:12:49.720 down the Mississippi River and teaching the North how to 0:12:49.840 --> 0:12:53.719 prosecute a full force invasion. What do we need from 0:12:53.720 --> 0:12:57.160 the Ukraine's Ukrainians now to be like Grant in our 0:12:57.280 --> 0:13:00.160 civil war? Is it simply they need more MATI You're 0:13:00.160 --> 0:13:04.320 real well, for sure, they have the same sort of 0:13:04.320 --> 0:13:07.560 strategic eye as General Grant did. That this is about 0:13:07.880 --> 0:13:11.520 you have to crush your enemy. And that's that's from 0:13:11.520 --> 0:13:14.800 President jelinskying down. He said, this thing started with Crimeana, 0:13:14.920 --> 0:13:17.920 is going to end with Crimea. And so what they 0:13:17.960 --> 0:13:20.439 do need from us, of course two things. When they 0:13:20.480 --> 0:13:23.920 need continued delivery of the type of weapons and ammunition 0:13:23.960 --> 0:13:27.920 that are helping them make the difference to destroy Russian logistics, 0:13:27.960 --> 0:13:32.840 destroy Russian command and control, but also the sanctions that 0:13:32.960 --> 0:13:36.680 the sanctions really are having an effect on Russia's ability, 0:13:37.200 --> 0:13:42.199 both in terms of their own defense industry, but also domestically. 0:13:42.240 --> 0:13:44.680 I think more and more Russian people are beginning to 0:13:44.840 --> 0:13:50.440 feel this war that Pugin was trying to shield from them. Well, 0:13:50.559 --> 0:13:52.520 Lieutenant General, that's why I wanted to go. Because there 0:13:52.600 --> 0:13:56.760 is some discussion about the possibility of conscription. If Vladimir 0:13:56.800 --> 0:13:58.400 Putin does not want to come to the table does 0:13:58.440 --> 0:14:00.120 not want to come to some sort of resolution, and 0:14:00.559 --> 0:14:02.880 if he is running out of troops, as the reports 0:14:02.920 --> 0:14:07.240 have suggested, what is Vladimir's Vladimir Putin's response to this. 0:14:07.480 --> 0:14:11.320 How concerned are you about some retaliatory measure that we're 0:14:11.360 --> 0:14:16.040 perhaps not expecting. Well, you're right that they have a 0:14:16.160 --> 0:14:20.080 very serious manpower problem. Uh in the Russian military, which 0:14:20.120 --> 0:14:22.600 is not doesn't sound like what I would have said 0:14:22.880 --> 0:14:26.760 a year ago. Uh. Most of their recruits now, many 0:14:26.760 --> 0:14:30.600 of them are conscripts, come from a way outside of Moscow, 0:14:30.640 --> 0:14:35.040 in St. Petersburg. The Kremlin has tried to avoid drafting 0:14:35.160 --> 0:14:38.360 anybody from the two major metropolitan areas because again they 0:14:38.360 --> 0:14:41.440 want to shield the public from what's happening in Ukraine. 0:14:41.880 --> 0:14:45.200 Uh that nobody wants to fight, nobody wants to get 0:14:45.240 --> 0:14:47.240 involved in this war. They know what's going to happen 0:14:47.320 --> 0:14:50.360 if they do get sent into Ukraine. So I think 0:14:50.440 --> 0:14:54.520 part of the reason President Putin has avoided doing this 0:14:55.360 --> 0:14:59.960 general mobilization is because he wants to preserve the fairy tale. 0:15:00.320 --> 0:15:03.320 But also they'll be humiliated. People will not show up. 0:15:03.600 --> 0:15:06.800 They don't have the equipment to to equip that at 0:15:06.880 --> 0:15:10.280 the uniforms and weapons to equip another hundred thousand troops, 0:15:10.680 --> 0:15:13.240 and it would still be months before they would be 0:15:13.880 --> 0:15:17.440 effective in any way. So attend in general, how does 0:15:17.480 --> 0:15:21.320 this end? And does it reassert Russia as a member 0:15:21.360 --> 0:15:24.479 of the global economy or does it leave it incredibly isolated. 0:15:25.760 --> 0:15:28.040 I think it's gonna be a long time before we 0:15:28.120 --> 0:15:31.880 can look at Russian and work with them as if 0:15:31.920 --> 0:15:37.400 things are quasa normal. Um this will end. I believe 0:15:37.840 --> 0:15:40.640 early next year. The Ukrainians are going to push the 0:15:40.680 --> 0:15:44.320 Russians back to the twenty three February line before the 0:15:44.440 --> 0:15:46.440 end of this year. I believe, of course I could 0:15:46.440 --> 0:15:48.240 be proven wrong here in another month or two, but 0:15:48.640 --> 0:15:50.640 that's how I think that's going to happen. And then 0:15:50.760 --> 0:15:55.200 Crimea probably early sometime next year, a combination of fighting 0:15:55.240 --> 0:15:59.440 and perhaps some negotiated conclusion. But the Ukrainians are not 0:15:59.480 --> 0:16:02.400 going to start, nor should they stop. What does Russia 0:16:02.440 --> 0:16:04.640 look look like when this is over? Of course I 0:16:04.760 --> 0:16:08.640 cannot for sure what kind of friction and things are 0:16:08.640 --> 0:16:12.600 happening inside the Kremlin. We're all seeing various reports of 0:16:12.880 --> 0:16:15.200 things that are happening. There, a lot of finger pointing, 0:16:15.320 --> 0:16:18.400 and people may start falling out of windows again. I mean, 0:16:18.600 --> 0:16:20.800 it's going to be a pretty rough scene around Moscow, 0:16:20.880 --> 0:16:24.000 I think for the next few months. General, thank you, 0:16:24.160 --> 0:16:26.120 we appreciate it's on today, said ben Hall. It just 0:16:26.200 --> 0:16:28.320 that a form of commanding general for the U S 0:16:28.320 --> 0:16:35.680 Sami Shulmanack now joins us for an important briefing. Why 0:16:35.720 --> 0:16:37.920 is this important? He is one of the great students 0:16:37.960 --> 0:16:41.960 of continental economics. It matters for America right now with 0:16:42.040 --> 0:16:45.080 the trading relationships that we have, Shelle, what is the 0:16:45.200 --> 0:16:49.680 distinctive uncertainty you have in the fourth quarter. You are 0:16:49.800 --> 0:16:52.960 covering on a global basis, but you are covering for 0:16:53.080 --> 0:16:58.200 Europe a continent in war. What is the distinctive uncertainty 0:16:58.240 --> 0:17:02.200 you face in the fourth quarter? Well, you know, Q 0:17:02.400 --> 0:17:06.280 three we still had some support from the fact that 0:17:06.320 --> 0:17:09.040 we reopen our economy a bit later than the US. So, 0:17:09.160 --> 0:17:12.520 for instance, we had really nice spending on tourism, recreational 0:17:12.560 --> 0:17:15.560 activities and and so forth. That goes away in in 0:17:15.640 --> 0:17:19.360 Q four, and we have this major uncertainty on the 0:17:19.359 --> 0:17:21.800 price of gas, and beyond the price of gas, the 0:17:21.920 --> 0:17:26.639 availability of gas. So at this juncture we're still waiting 0:17:26.680 --> 0:17:30.080 for the details of the EU policy on on the 0:17:30.119 --> 0:17:34.080 possibility of of gas rationing and how the electricity marks 0:17:34.160 --> 0:17:37.000 can be can be reformed um and we need to 0:17:37.000 --> 0:17:39.399 to know whether or not they will need to be 0:17:39.560 --> 0:17:43.119 some actual rationing of of gas of energy in general 0:17:43.480 --> 0:17:47.399 this winter, because this could have a drastic impact on GDP. 0:17:47.520 --> 0:17:53.920 If you forced to stop production of energy spending companies, 0:17:54.080 --> 0:17:57.960 you will have a direct impact on GDP. The backdrop 0:17:58.000 --> 0:18:01.880 appear as well over the weekends. Electoral tumult in Canada, 0:18:02.080 --> 0:18:06.160 certainly the election in Sweden and a coming election of 0:18:06.200 --> 0:18:10.320 some form in Italy as well give us the political 0:18:10.760 --> 0:18:14.440 backdrop is it folds into two thousand and twenty three 0:18:14.800 --> 0:18:19.840 and in Europe in recession, well, Italy is important obviously 0:18:19.880 --> 0:18:25.160 because all the polls are saying that uh, the frater 0:18:25.440 --> 0:18:29.560 Italia is probably going to to win in coalition with 0:18:29.560 --> 0:18:34.240 with Lega and for the Italian and there are questions 0:18:34.280 --> 0:18:39.280 obviously as to their approach to the commitments of Italy 0:18:39.320 --> 0:18:42.600 towards towards Europe. To be fair, Georgia Malone is the 0:18:42.680 --> 0:18:46.840 leader of Franti Italia has mellowed a loss honor and 0:18:46.960 --> 0:18:50.840 European rhetorics to the market is probably you know, are 0:18:50.880 --> 0:18:53.960 ready to to give some some leeway to a new 0:18:54.000 --> 0:18:58.240 government in Italy in September. But mordinally, um, if you 0:18:58.320 --> 0:19:01.199 look beyond the elections per se, what we've had so 0:19:01.240 --> 0:19:05.520 far is a willingness by government's across Europe to accommodate 0:19:06.080 --> 0:19:09.679 the shock from a rising energy prices um with rising 0:19:09.720 --> 0:19:13.440 interest rates. It's going to be increasingly promatic for these 0:19:13.440 --> 0:19:17.600 governments to maintain this kind of physical policy, and obviously 0:19:17.960 --> 0:19:22.520 this could lead to some political trouble down the road. 0:19:22.560 --> 0:19:25.200 So we are in sort of a tipping point for now. 0:19:25.240 --> 0:19:28.720 Governments in journal has been able to mitigate a lot 0:19:29.040 --> 0:19:32.199 of the rowing impact of the rising gas prices. That 0:19:32.359 --> 0:19:35.720 may become more complicated as we get into days of 0:19:35.760 --> 0:19:39.320 twenties three. Sorry, I want to double down on this 0:19:39.359 --> 0:19:42.000 a little bit because we are here in London as 0:19:42.040 --> 0:19:44.920 this sort of see change happens on multiple prongs. Whether 0:19:44.960 --> 0:19:46.879 it's the loss of the Queen who has reigned for 0:19:46.920 --> 0:19:50.040 seventy years, or whether it's the loss of negative yields, 0:19:50.040 --> 0:19:52.199 which had been the base case for for more than 0:19:52.240 --> 0:19:55.200 a decade, whether it's this energy crisis. And the point 0:19:55.200 --> 0:19:57.879 that you just made is incredibly important that governments have 0:19:57.960 --> 0:20:01.040 not realized that the more the e c B hikes rates, 0:20:01.080 --> 0:20:03.640 the more unable they will be to plug the pain 0:20:03.840 --> 0:20:05.760 for a lot of the residents. What are you looking 0:20:05.800 --> 0:20:08.560 at in terms of translating into GDP growth in the 0:20:08.600 --> 0:20:12.720 euroregion as a response to exactly that dynamic that something 0:20:12.800 --> 0:20:16.719 has to give here, Yes, I mean basically what's happening 0:20:16.800 --> 0:20:20.560 is that's we are mitigating the current shock. I mean 0:20:20.600 --> 0:20:23.000 you can see that everywhere in Europe, including now in 0:20:23.080 --> 0:20:25.879 the UK, which was hesitant actually as to whether they 0:20:25.920 --> 0:20:28.760 would mitigate the shock. They are they are going to 0:20:28.880 --> 0:20:32.680 cap energy prices, so the depth of the recession which 0:20:32.760 --> 0:20:35.280 is looming right now is probably going to end up 0:20:35.320 --> 0:20:37.520 shallower than one we could have fear just a few 0:20:37.520 --> 0:20:40.040 months ago. But at the same time, what we're doing 0:20:40.240 --> 0:20:45.240 is that we are obviously increasing public deficits, increasing public debt. 0:20:45.600 --> 0:20:48.320 So at some point, and we don't know exactly when, 0:20:48.359 --> 0:20:52.200 we're probably in three or in twenty twenty four at 0:20:52.320 --> 0:20:55.520 at the latest, there will need to be some efforts 0:20:55.600 --> 0:21:00.679 on on physical policy. This will probably have the dampening 0:21:00.760 --> 0:21:03.600 impact on domestic demands. So in a way, we are 0:21:04.280 --> 0:21:08.679 uh just changing the timing of the pain, and it 0:21:08.760 --> 0:21:11.040 makes sense. I mean, we need to deal with the 0:21:11.119 --> 0:21:14.080 current energy crisis right now, but this will come at 0:21:14.080 --> 0:21:16.359 a price, and the price is likely to be some 0:21:16.560 --> 0:21:21.080 measure of austerity in twenty twenty three or again at 0:21:21.119 --> 0:21:24.960 the latest in there were reports over the weekend deal 0:21:25.200 --> 0:21:31.119 of manufacturers in Germany industrial companies closing down their plants 0:21:31.160 --> 0:21:34.000 at different times or early curtailing some of the activity 0:21:34.000 --> 0:21:37.120 in response to the energy concerns. The energy cost, how 0:21:37.200 --> 0:21:40.320 much is that going to really affect the restoring the 0:21:40.560 --> 0:21:44.280 desire to try to avoid the interest rate hit and 0:21:44.320 --> 0:21:46.840 the currency hit that a lot of nations have been 0:21:46.880 --> 0:21:50.440 feeling now. I mean, it's it's it's it's a it's 0:21:50.440 --> 0:21:55.000 a big issue for for Germany because the industrial specialization 0:21:55.080 --> 0:21:59.520 of Germany make them very sensitive to the price of energy. 0:21:59.640 --> 0:22:03.240 Beyond the fact that they've made themselves reliant on Russian gas, 0:22:03.600 --> 0:22:08.240 the very fabric of German industry is quite energy energy intensive. 0:22:08.560 --> 0:22:12.560 So there are questions actually as to how this model 0:22:12.600 --> 0:22:18.400 could continue of maintaining on German territory those energy engency 0:22:18.440 --> 0:22:21.480 of engency of companies. Um, it's not the first time 0:22:21.520 --> 0:22:25.679 that we have questions as to the German industrial model, 0:22:25.880 --> 0:22:29.760 their reliance on exports. This question is becoming even more 0:22:29.760 --> 0:22:34.439 crucial today. So what's what's helping Germany obviously is that 0:22:34.480 --> 0:22:38.480 they have massive policy space. They don't have much of 0:22:38.520 --> 0:22:41.920 the hupper pacted public debt. They can actually take time 0:22:42.119 --> 0:22:45.879 to you know, uh rejig the way their economy is 0:22:45.880 --> 0:22:49.240 specialized at the moment. But yeah, there are questions specifically 0:22:49.280 --> 0:22:53.680 to Germany at the moment to borrow for me and Brammer, 0:22:54.320 --> 0:22:57.760 what is the power of Brussels now, the force of 0:22:57.800 --> 0:23:01.639 Brussels right now or is it every nation for itself 0:23:03.640 --> 0:23:07.040 actually full full standing. I would say that the level 0:23:07.080 --> 0:23:09.520 of silarity that has been achieved in Europe in the 0:23:09.560 --> 0:23:13.760 face of this crisis is quite high, mainly have, for instance, 0:23:13.760 --> 0:23:17.320 this principle of European solidarity on gas. It was not 0:23:17.520 --> 0:23:21.280 obvious and it has been actually a confirmed. The French 0:23:21.359 --> 0:23:25.960 president said publicly in a TV address that from the 0:23:26.000 --> 0:23:30.879 winter would actually help Germany with the gas supply this winter. 0:23:31.200 --> 0:23:34.840 So actually there's quite a bit of saadity. One of 0:23:34.880 --> 0:23:38.439 the issues we have, however, is that there's an issue 0:23:38.480 --> 0:23:41.880 in terms of of leadership. Mario Dragi is nonger going 0:23:41.920 --> 0:23:44.040