1 00:00:05,160 --> 00:00:09,240 Speaker 1: Welcome to the Bloombergs Surveillance podcast name Tom Keene, along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrill and Lisa are Brownwitz Jaylie, we bring 3 00:00:13,160 --> 00:00:17,160 Speaker 1: you insight from the best and economics, finance, investment and 4 00:00:17,280 --> 00:00:23,360 Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg 5 00:00:23,400 --> 00:00:29,640 Speaker 1: dot Com and of course on the Bloomberg terminal. Very 6 00:00:29,640 --> 00:00:31,520 Speaker 1: pleased to say that we have an annual tradition here 7 00:00:31,520 --> 00:00:33,879 Speaker 1: at Bloomberg Surveillance. We catch up with Im Bremer and 8 00:00:33,880 --> 00:00:36,720 Speaker 1: the team at Eurasia Group to go through the top 9 00:00:36,920 --> 00:00:40,120 Speaker 1: ten risks Eurasia Groups Top ten Risks and at number 10 00:00:40,159 --> 00:00:42,520 Speaker 1: four is China at Home. We're lucky to have both 11 00:00:42,520 --> 00:00:45,800 Speaker 1: Iam Brema and Elizabeth Economy with us of the Hoover Institute, 12 00:00:45,800 --> 00:00:47,839 Speaker 1: and Lisa wanted to start with this quote in the report, 13 00:00:48,200 --> 00:00:52,080 Speaker 1: foreign firms will face an increasingly difficult environment inside China, 14 00:00:52,120 --> 00:00:54,320 Speaker 1: the two way political risk of operating in both the 15 00:00:54,440 --> 00:00:57,960 Speaker 1: US and China, the task of keeping both Washington and 16 00:00:58,080 --> 00:01:00,920 Speaker 1: Beijing happy, and perhaps Le's we can extend it further, 17 00:01:00,960 --> 00:01:04,280 Speaker 1: the task of keeping a progressive consumer in America happy 18 00:01:04,480 --> 00:01:08,000 Speaker 1: and an increasingly nationalistic one in China happy. To list 19 00:01:08,000 --> 00:01:10,400 Speaker 1: how tough is that going to be. Yeah, I think 20 00:01:10,480 --> 00:01:14,240 Speaker 1: it is a pretty significant and growing challenge. UM. I 21 00:01:14,280 --> 00:01:18,160 Speaker 1: think many companies are trying to navigate a sort of 22 00:01:18,240 --> 00:01:21,840 Speaker 1: a growing sense that, um, not only do the US companies, 23 00:01:21,880 --> 00:01:24,319 Speaker 1: not only do they need to be concerned about national 24 00:01:24,400 --> 00:01:28,280 Speaker 1: security issues, which have long been present sort of in 25 00:01:28,680 --> 00:01:31,080 Speaker 1: U s foreign policy and for an economic policy right 26 00:01:31,120 --> 00:01:34,760 Speaker 1: to ensure that companies aren't exporting technology that can be 27 00:01:34,880 --> 00:01:39,039 Speaker 1: used by other countries that might pose a national security threat. 28 00:01:39,080 --> 00:01:43,119 Speaker 1: But now increasingly we're dealing with human rights issues as well, 29 00:01:43,240 --> 00:01:46,759 Speaker 1: human rights abuses. And this is particularly important, of course 30 00:01:46,760 --> 00:01:49,680 Speaker 1: in the context of China, where we've seen, you know, 31 00:01:49,760 --> 00:01:53,360 Speaker 1: any very repressive regime under Sident King beginning in twenty 32 00:01:53,800 --> 00:01:56,120 Speaker 1: to the point now that we have you know, over 33 00:01:56,200 --> 00:02:00,080 Speaker 1: a million of Chinese own citizens, the weaker Muslim in 34 00:02:00,160 --> 00:02:03,880 Speaker 1: sin Jong, you know, in labor and and re education camps, 35 00:02:03,920 --> 00:02:06,920 Speaker 1: detained there against their their will. And so, you know, 36 00:02:07,000 --> 00:02:10,960 Speaker 1: how does American business respond to this? And I think 37 00:02:11,000 --> 00:02:14,000 Speaker 1: increasingly Congress and the Biden administration are taking a very 38 00:02:14,040 --> 00:02:16,960 Speaker 1: tough line on this. So I think you are finding 39 00:02:17,080 --> 00:02:20,800 Speaker 1: American companies trying to figure out how to navigate in 40 00:02:20,880 --> 00:02:25,079 Speaker 1: a very new environment. UM. And and in fact, as 41 00:02:25,080 --> 00:02:28,480 Speaker 1: you suggest, the Chinese consumer. Then when companies do stand 42 00:02:28,520 --> 00:02:31,640 Speaker 1: up and say, yes, we're not sourcing from Sindown, right, 43 00:02:31,639 --> 00:02:34,600 Speaker 1: We're not sourcing from this region, We're we're not taking 44 00:02:34,840 --> 00:02:37,600 Speaker 1: any products that are the results of forced labor from 45 00:02:37,680 --> 00:02:40,560 Speaker 1: these weavor Muslims, then you have the Chinese consumers on 46 00:02:40,600 --> 00:02:44,440 Speaker 1: the other and threatening to boycott. And we've seen companies 47 00:02:44,480 --> 00:02:48,160 Speaker 1: like HM and Nike and others facing threats or actual 48 00:02:48,639 --> 00:02:51,840 Speaker 1: boycotts of some sort as a result of these companies 49 00:02:51,840 --> 00:02:54,400 Speaker 1: trying to do the right thing in terms of human rights. 50 00:02:54,440 --> 00:02:57,080 Speaker 1: So it is a very tricky situation. And for a 51 00:02:57,080 --> 00:02:58,840 Speaker 1: long long time, these companies have been able to sit 52 00:02:58,880 --> 00:03:00,960 Speaker 1: on the fence, play the progress of card at home 53 00:03:01,000 --> 00:03:03,400 Speaker 1: in America, then go abroad and do whatever the Chinese 54 00:03:03,440 --> 00:03:05,440 Speaker 1: Communist Party needs them to do. The Disney Company, the 55 00:03:05,440 --> 00:03:08,160 Speaker 1: Walt Disney Company a fantastic example of that, doing all 56 00:03:08,200 --> 00:03:11,320 Speaker 1: it can to embrace the Chinese Communist Party to remain 57 00:03:11,639 --> 00:03:14,080 Speaker 1: to have access to make sure their movies are shown. 58 00:03:14,120 --> 00:03:16,520 Speaker 1: At the same time, and we have a government in 59 00:03:16,560 --> 00:03:21,000 Speaker 1: America accusing the Chinese Communist Party of genocide, and what 60 00:03:21,120 --> 00:03:24,080 Speaker 1: on earth do you advise a multinational operating of both 61 00:03:24,120 --> 00:03:28,160 Speaker 1: America and China right now to do Yeah, how do 62 00:03:28,160 --> 00:03:30,720 Speaker 1: you How do you be a woke CEO for domestic 63 00:03:30,760 --> 00:03:37,160 Speaker 1: audience and participate in an expanding market that you want 64 00:03:37,240 --> 00:03:40,960 Speaker 1: to be in When the American political leadership is saying 65 00:03:41,000 --> 00:03:44,160 Speaker 1: that that country is committing genocide, Well, obviously you have 66 00:03:44,240 --> 00:03:46,520 Speaker 1: to speak out of two sides of your mouth, and 67 00:03:46,560 --> 00:03:49,160 Speaker 1: you get caught when you're doing that, and it's difficult, 68 00:03:49,200 --> 00:03:53,680 Speaker 1: it's very uncomfortable. Look, most American CEOs, despite all of 69 00:03:53,680 --> 00:03:55,760 Speaker 1: the problems that Liz and I have been talking about 70 00:03:55,800 --> 00:03:59,400 Speaker 1: this morning, want to do more business in China. They 71 00:03:59,440 --> 00:04:01,840 Speaker 1: believe that China is going to continue to expand. It's 72 00:04:01,840 --> 00:04:04,200 Speaker 1: an enormous consumption market. They don't want to leave it 73 00:04:04,240 --> 00:04:08,040 Speaker 1: on the table. And yet they know that anything that 74 00:04:08,080 --> 00:04:10,920 Speaker 1: they say about that, or said about that to them 75 00:04:11,120 --> 00:04:13,840 Speaker 1: is going to be problematic for you. Saw Ray Dalio 76 00:04:13,960 --> 00:04:17,040 Speaker 1: on c NBC a while ago just get absolutely hammered 77 00:04:17,040 --> 00:04:19,680 Speaker 1: in the United States for saying, Hey, like I am 78 00:04:20,000 --> 00:04:22,200 Speaker 1: talking about human rights, where am I going to invest? 79 00:04:22,400 --> 00:04:25,600 Speaker 1: I'm just trying to make money. I mean, CNBC Bloomberg. 80 00:04:25,600 --> 00:04:27,919 Speaker 1: We're talking to capitalists here, people that are trying to 81 00:04:27,960 --> 00:04:30,799 Speaker 1: make money, and yet the domestic audience is saying that's 82 00:04:30,839 --> 00:04:32,680 Speaker 1: not enough. You've got to do less. With at the 83 00:04:32,680 --> 00:04:35,520 Speaker 1: Beijing Olympics coming up, and the Biden administration trying to 84 00:04:35,560 --> 00:04:38,960 Speaker 1: square the circle by saying we're gonna diplomatically boycott. But 85 00:04:39,040 --> 00:04:41,760 Speaker 1: the companies, the American companies that are going over there 86 00:04:41,760 --> 00:04:45,440 Speaker 1: and sponsoring, they can still sponsor. Yet we know that 87 00:04:45,640 --> 00:04:48,279 Speaker 1: so many senators and members of the House are going 88 00:04:48,360 --> 00:04:52,240 Speaker 1: to be scrutinizing and criticizing those companies for doing precisely that. 89 00:04:52,320 --> 00:04:56,160 Speaker 1: One more I'll mention Elon Musk, you know, wealthiest man 90 00:04:56,240 --> 00:05:00,080 Speaker 1: in the world, has been enormously you know, sort of 91 00:05:00,120 --> 00:05:03,400 Speaker 1: the critical of the US government, the SEC for going 92 00:05:03,480 --> 00:05:07,000 Speaker 1: after him, making life challenging for him. And yet in 93 00:05:07,520 --> 00:05:12,840 Speaker 1: China he is incredibly supportive of the Chinese Communist Party, 94 00:05:13,080 --> 00:05:16,200 Speaker 1: and it's becoming incredibly difficult for him to continue to 95 00:05:16,279 --> 00:05:19,839 Speaker 1: do that. His SpaceX UH company in the United States, 96 00:05:19,839 --> 00:05:22,359 Speaker 1: which gets a lot of money mostly from NASA and 97 00:05:22,360 --> 00:05:26,280 Speaker 1: the Pentagon, now the Chinese government saying, hey, what's going on. 98 00:05:26,360 --> 00:05:28,080 Speaker 1: You almost hit one of our you know, one of 99 00:05:28,080 --> 00:05:30,719 Speaker 1: our satellites. Um that that all of that is a 100 00:05:30,920 --> 00:05:34,080 Speaker 1: very serious problem for American corporates that are trying to 101 00:05:34,120 --> 00:05:38,640 Speaker 1: avoid politics, politics won't avoid them. Yeah, and Elon Musk, 102 00:05:38,680 --> 00:05:40,560 Speaker 1: I think is a is a very special case in 103 00:05:40,600 --> 00:05:43,800 Speaker 1: so many ways. But I see it here in with 104 00:05:43,920 --> 00:05:49,400 Speaker 1: the leaders of especially German export oriented companies. Right, they 105 00:05:49,440 --> 00:05:51,960 Speaker 1: are not alone though it's not just the corporates. The 106 00:05:52,000 --> 00:05:56,680 Speaker 1: government's here also seem to want to build and and 107 00:05:56,760 --> 00:05:59,720 Speaker 1: hold on to strong ties to the Chinese economy. And 108 00:05:59,760 --> 00:06:03,520 Speaker 1: way is that the Americans in Washington, d C. Wouldn't 109 00:06:03,520 --> 00:06:07,719 Speaker 1: necessarily support. You know, the funny thing is you talk 110 00:06:07,760 --> 00:06:12,760 Speaker 1: to the American leaders privately, and they recognize that the 111 00:06:12,800 --> 00:06:17,240 Speaker 1: private sector wants to do more business, and they recognize 112 00:06:17,360 --> 00:06:20,400 Speaker 1: that the interdependence of the United States in China is 113 00:06:20,440 --> 00:06:23,800 Speaker 1: actually really important to our own national interests, our own 114 00:06:23,880 --> 00:06:27,240 Speaker 1: national security. But they can't say that publicly. You know why, 115 00:06:27,360 --> 00:06:31,920 Speaker 1: because Biden lost votes in swing states in because he 116 00:06:32,000 --> 00:06:35,160 Speaker 1: was perceived as Beijing Biden as soft on China. The 117 00:06:35,200 --> 00:06:37,120 Speaker 1: Republicans hit him on that, and they will not make 118 00:06:37,160 --> 00:06:40,640 Speaker 1: that mistake again, so publicly they must come across as 119 00:06:40,720 --> 00:06:44,280 Speaker 1: much tougher on the corporates, and tougher on the bankers, 120 00:06:44,440 --> 00:06:47,680 Speaker 1: and tougher on anyone that's saying that, you know, China 121 00:06:47,760 --> 00:06:49,479 Speaker 1: is a great place to be and that's why you 122 00:06:49,520 --> 00:06:52,400 Speaker 1: see even the Biden administration talking about the Chinese committing 123 00:06:52,400 --> 00:06:55,440 Speaker 1: genocide on the ground. That makes it much more uncomfortable 124 00:06:55,440 --> 00:06:58,040 Speaker 1: and difficult for the American corporates to operate. There's no 125 00:06:58,120 --> 00:07:00,679 Speaker 1: question that it's extremely uncomfortable. Lucky to have the Embrema 126 00:07:00,720 --> 00:07:02,680 Speaker 1: with us this morning at the Raged Group, and thank you, 127 00:07:02,839 --> 00:07:06,360 Speaker 1: says Elizabeth Economy of the Hoova Institute and the author 128 00:07:06,600 --> 00:07:09,200 Speaker 1: of the Third Revolution List. Great to catch up. Thank 129 00:07:09,240 --> 00:07:17,600 Speaker 1: you joining us now once again on the top risk 130 00:07:17,640 --> 00:07:21,000 Speaker 1: for and also joining us Jane Harmon, President Emerita of 131 00:07:21,000 --> 00:07:24,640 Speaker 1: the Wilson Center and former member of Congress ian the 132 00:07:24,720 --> 00:07:27,520 Speaker 1: U S midterms make the list of these risks. When 133 00:07:27,520 --> 00:07:30,280 Speaker 1: we talk about the political environment in the United States, 134 00:07:30,400 --> 00:07:32,920 Speaker 1: especially on a week that brings the one year anniversary 135 00:07:32,960 --> 00:07:35,960 Speaker 1: of January six, are we more divided now than we 136 00:07:35,960 --> 00:07:40,280 Speaker 1: were a year ago? Yeah, I mean we've learned literally 137 00:07:40,360 --> 00:07:44,840 Speaker 1: zero lessons from the election of two thousand twenty and 138 00:07:44,840 --> 00:07:47,559 Speaker 1: and that's a that's a serious problem. This was the 139 00:07:47,600 --> 00:07:50,880 Speaker 1: most dysfunctional and delegitimized election of our lifetimes in the 140 00:07:50,960 --> 00:07:54,880 Speaker 1: United States, and we've done literally nothing to fix the 141 00:07:54,960 --> 00:07:59,800 Speaker 1: underlying problems. Indeed, the Republican Party is more controlled by 142 00:08:00,000 --> 00:08:03,560 Speaker 1: President Trump today, and more Republicans believe that the election 143 00:08:03,640 --> 00:08:07,160 Speaker 1: was stolen today than did on January sixth. And the 144 00:08:07,200 --> 00:08:10,560 Speaker 1: likelihood is, of course overwhelmingly that the Republicans are going 145 00:08:10,600 --> 00:08:14,119 Speaker 1: to take the House, they may take the Senate um 146 00:08:14,160 --> 00:08:17,680 Speaker 1: in midterm elections, and they'll take it with an underlying 147 00:08:17,760 --> 00:08:22,200 Speaker 1: message that the election of was stolen. This is deeply 148 00:08:22,440 --> 00:08:26,040 Speaker 1: problematic and a pivotal midterm election, probably the most important 149 00:08:26,040 --> 00:08:29,240 Speaker 1: mid term of our lives. Well, and Jane, what's the 150 00:08:29,240 --> 00:08:31,040 Speaker 1: picture that Ian is painting here is one of a 151 00:08:31,160 --> 00:08:35,480 Speaker 1: very politically divided United States, one that doesn't necessarily project 152 00:08:35,480 --> 00:08:37,920 Speaker 1: a picture of strength to the rest of the world. 153 00:08:37,920 --> 00:08:40,000 Speaker 1: As the US in a position right now to be 154 00:08:40,080 --> 00:08:44,160 Speaker 1: a leader on the global stage. Not so much. Um 155 00:08:44,280 --> 00:08:47,960 Speaker 1: Ian has just produced a wonderful report on political risk 156 00:08:48,679 --> 00:08:51,760 Speaker 1: going around the world. And I've been in Europe three 157 00:08:51,760 --> 00:08:55,840 Speaker 1: times in the past few months, and people there are 158 00:08:55,960 --> 00:08:59,839 Speaker 1: very worried. They don't see the Biden administration delivering on 159 00:09:00,000 --> 00:09:03,040 Speaker 1: what had promised, but they also understand the under and 160 00:09:03,240 --> 00:09:05,760 Speaker 1: underlying reason. Maybe some of it has to do with 161 00:09:05,760 --> 00:09:08,280 Speaker 1: the Biden administration. But a big underlying reason is that 162 00:09:08,360 --> 00:09:12,200 Speaker 1: Congress is totally dysfunctional. And something that's in an Even's 163 00:09:12,280 --> 00:09:15,560 Speaker 1: report that got my attention is is UH the comment 164 00:09:15,679 --> 00:09:19,000 Speaker 1: that the only thing possibly worse than President Trump being 165 00:09:19,000 --> 00:09:22,559 Speaker 1: re elected is President Trump being not being re elected. UM, 166 00:09:22,640 --> 00:09:26,320 Speaker 1: the point of which is underlying lack of confidence in 167 00:09:26,480 --> 00:09:29,439 Speaker 1: our voting structure. And you know, I'm listening to all 168 00:09:29,480 --> 00:09:33,040 Speaker 1: this talk about inflation big problem and about whether we 169 00:09:33,080 --> 00:09:35,760 Speaker 1: could pass any form of build back better. I think 170 00:09:35,760 --> 00:09:38,880 Speaker 1: it is crucial for Congress to pass UH some form 171 00:09:38,920 --> 00:09:42,920 Speaker 1: of voting rights reform, or else we may be abdicating 172 00:09:43,720 --> 00:09:49,320 Speaker 1: our our democratic voting process and letting elected legislators are 173 00:09:49,320 --> 00:09:55,680 Speaker 1: appointed electors election officials UH decide what the vote is 174 00:09:55,840 --> 00:10:01,080 Speaker 1: after people's valid votes are discountant. So, Jan Jane, what 175 00:10:01,200 --> 00:10:04,240 Speaker 1: exactly do you mean by that? In which direction would 176 00:10:04,240 --> 00:10:07,679 Speaker 1: this reform go? Are you saying that the Congress should 177 00:10:07,720 --> 00:10:11,640 Speaker 1: pass UH laws that require you to prove your identity, 178 00:10:11,960 --> 00:10:15,280 Speaker 1: prove your citizenship, and limit the amount of absentee voting 179 00:10:15,280 --> 00:10:19,280 Speaker 1: that can happen so that people on the right have 180 00:10:19,480 --> 00:10:23,960 Speaker 1: more faith in the system. Well, I want people on 181 00:10:24,200 --> 00:10:27,520 Speaker 1: across the spectrum to have more faith in the system. Uh. 182 00:10:27,559 --> 00:10:30,679 Speaker 1: It is true than in our constitution that the states 183 00:10:30,679 --> 00:10:34,880 Speaker 1: set the terms of elections, but the federal government does 184 00:10:35,000 --> 00:10:40,360 Speaker 1: have UH, and our constitution does creempt certain aspects of this. 185 00:10:40,720 --> 00:10:43,680 Speaker 1: And it is appropriate, for example, for the federal government, 186 00:10:43,720 --> 00:10:47,200 Speaker 1: which has done this, to declare voting machines critical infrastructure. 187 00:10:47,240 --> 00:10:51,240 Speaker 1: It's also appropriate for the federal government to decide, uh, 188 00:10:51,280 --> 00:10:55,640 Speaker 1: you know what our basic conditions of counting votes. And 189 00:10:55,800 --> 00:10:59,400 Speaker 1: Joe Manchin, his name comes up every five minutes, has 190 00:10:59,440 --> 00:11:02,800 Speaker 1: set out some terms that he would accept on voting rights, 191 00:11:02,840 --> 00:11:06,040 Speaker 1: and they seem broadly acceptable. And so I think it 192 00:11:06,160 --> 00:11:08,800 Speaker 1: is crucial for Congress to act soon before all of 193 00:11:08,800 --> 00:11:11,760 Speaker 1: these laws take effect there in nineteen or twenty states, 194 00:11:12,160 --> 00:11:16,440 Speaker 1: and we end up with a hot mess after November. 195 00:11:18,880 --> 00:11:22,360 Speaker 1: Hotter Mass right, because it's already pretty messy. Ian. Let 196 00:11:22,400 --> 00:11:24,040 Speaker 1: me get back to you and ask you about the 197 00:11:24,080 --> 00:11:29,559 Speaker 1: international reputation of the US in terms of dependability. Was 198 00:11:30,559 --> 00:11:39,959 Speaker 1: the withdrawal from Afghanistan really damaging to the US reputation? Um? 199 00:11:40,040 --> 00:11:45,000 Speaker 1: The way that the withdrawal was executed was damaging, perhaps 200 00:11:45,080 --> 00:11:48,800 Speaker 1: most so with America's Gulf allies, who are going to 201 00:11:48,880 --> 00:11:55,920 Speaker 1: be affected by the Taliban running Afghanistan, the refugees, the radicalism, 202 00:11:55,960 --> 00:11:59,600 Speaker 1: more than anybody else, the Emiratis, for example, the Saudist 203 00:11:59,640 --> 00:12:03,839 Speaker 1: for examp apple um. But but I think much more broadly, 204 00:12:04,120 --> 00:12:09,000 Speaker 1: the issue is that of the underlying American political system. 205 00:12:09,080 --> 00:12:12,600 Speaker 1: That's what's damaging America's ability uh to be seen as 206 00:12:12,640 --> 00:12:17,280 Speaker 1: credible going forward. Jane hit on this. We have just 207 00:12:17,440 --> 00:12:21,000 Speaker 1: had successful elections in some of the world's biggest and 208 00:12:21,080 --> 00:12:25,679 Speaker 1: richest democracies, in Germany, in Japan, in Canada in the 209 00:12:25,760 --> 00:12:29,920 Speaker 1: last few months. No problem, no dysfunction, uh, no questions 210 00:12:29,960 --> 00:12:34,160 Speaker 1: of legitimacy. The United States, on the other hand, increasingly 211 00:12:34,280 --> 00:12:37,440 Speaker 1: has a fundamental structural issue. But whether or not the 212 00:12:37,480 --> 00:12:41,679 Speaker 1: average American believes in its political system, what it stands for, 213 00:12:41,920 --> 00:12:45,280 Speaker 1: whether the elections are legitimate, whether the two parties are 214 00:12:45,320 --> 00:12:49,840 Speaker 1: equally uh legitimate in a representative democracy. These are fundamental 215 00:12:49,920 --> 00:12:52,240 Speaker 1: and profound issues that are not only not about to 216 00:12:52,280 --> 00:12:55,360 Speaker 1: be resolved in the mid terms, but are very likely 217 00:12:55,440 --> 00:12:58,040 Speaker 1: to get aproximately worse. And I agree completely with Jane 218 00:12:58,360 --> 00:13:01,160 Speaker 1: that voting rights is becoming much more important than build 219 00:13:01,160 --> 00:13:04,160 Speaker 1: back better. But voting rights is not about mansion. Voting 220 00:13:04,280 --> 00:13:06,680 Speaker 1: rights is about cinema. She is the vote that you 221 00:13:06,720 --> 00:13:09,040 Speaker 1: have to actually get to make voting rights happen, and 222 00:13:09,120 --> 00:13:11,880 Speaker 1: so far she looks un gettable. People I talked to 223 00:13:11,920 --> 00:13:14,160 Speaker 1: in the Senate tell me that is probably not going 224 00:13:14,200 --> 00:13:17,120 Speaker 1: to happen this year. And so again, your baseline when 225 00:13:17,120 --> 00:13:20,120 Speaker 1: you think about the top risks for two for the 226 00:13:20,240 --> 00:13:23,880 Speaker 1: United States is probably one of the more negative calls 227 00:13:23,920 --> 00:13:26,040 Speaker 1: that you have. You wish when I first started this, 228 00:13:26,240 --> 00:13:30,000 Speaker 1: the firm in the United States was never on this 229 00:13:30,080 --> 00:13:35,400 Speaker 1: list because, frankly, the question of American democracy represented democracy, 230 00:13:35,480 --> 00:13:38,240 Speaker 1: legitimacy of our institutions was something you could count on, 231 00:13:38,320 --> 00:13:40,959 Speaker 1: something the markets could count on, something our allies could 232 00:13:41,000 --> 00:13:44,240 Speaker 1: count on, something even our adversaries had to count on, 233 00:13:44,360 --> 00:13:47,960 Speaker 1: even if they didn't like it. That is no longer true, 234 00:13:48,440 --> 00:13:52,520 Speaker 1: and obviously that's a dominant issue for anyone considering what 235 00:13:52,640 --> 00:13:54,520 Speaker 1: the state of the world is going to be going forward. 236 00:13:54,720 --> 00:13:56,560 Speaker 1: How do you think, Jane, the rest of the world 237 00:13:56,600 --> 00:13:58,720 Speaker 1: is going to view this? Then we're trying two stories together. 238 00:13:58,800 --> 00:14:00,920 Speaker 1: Hit the number one risk Last year you write a 239 00:14:00,960 --> 00:14:04,079 Speaker 1: group was number forty six. It was this presidency. Now 240 00:14:04,080 --> 00:14:06,679 Speaker 1: it's the mid terms at number three, Jane, that's got 241 00:14:06,679 --> 00:14:08,520 Speaker 1: to be music to the ears of the likes of Russia. 242 00:14:08,720 --> 00:14:11,440 Speaker 1: The Chinese Communist Party who were thinking looking ahead to 243 00:14:11,559 --> 00:14:15,040 Speaker 1: say places like Taiwan looking at Ukraine right now, Jane, 244 00:14:15,080 --> 00:14:17,080 Speaker 1: what does it mean for their view that decisions that 245 00:14:17,120 --> 00:14:20,240 Speaker 1: they make the likes of Russia the likes of China. Well, 246 00:14:20,280 --> 00:14:22,600 Speaker 1: I don't think they're unhappy to see dysfunction in the 247 00:14:22,680 --> 00:14:27,080 Speaker 1: United States, and in various ways they're exploiting. Surely Russia is. 248 00:14:27,160 --> 00:14:30,240 Speaker 1: And Ian's report points out that we should expect more 249 00:14:30,360 --> 00:14:36,400 Speaker 1: disinformation um through social media for um that will. I 250 00:14:36,440 --> 00:14:40,280 Speaker 1: think that's dead right on China. China has a lot 251 00:14:40,280 --> 00:14:43,080 Speaker 1: of its own problems, again pointed out in the report. 252 00:14:43,360 --> 00:14:46,720 Speaker 1: But again, but I think since we have made China 253 00:14:47,240 --> 00:14:51,080 Speaker 1: a focus of our foreign policy and the rhetoric has 254 00:14:51,080 --> 00:14:55,800 Speaker 1: been pretty harsh, Shijin Ping is again probably quietly smiling 255 00:14:55,840 --> 00:14:59,840 Speaker 1: at our dysfunction. What worries me and Afghanistan is emblematic 256 00:15:00,080 --> 00:15:03,400 Speaker 1: thing is we may be targeting the right issues, but 257 00:15:03,520 --> 00:15:08,320 Speaker 1: our execution is poor. Leaving Afghanistan was a mess, uh, 258 00:15:08,320 --> 00:15:12,280 Speaker 1: and there was pre planning by the Widen administration, but 259 00:15:12,600 --> 00:15:15,280 Speaker 1: there's all this finger pointing about we had a hard 260 00:15:15,320 --> 00:15:20,600 Speaker 1: deadline with that wasn't based on UH situationally based, and 261 00:15:20,960 --> 00:15:24,080 Speaker 1: we didn't let the military apt sooner and blah blah 262 00:15:24,080 --> 00:15:27,120 Speaker 1: blah are intel, which was pretty bad. I've heard this 263 00:15:27,200 --> 00:15:30,600 Speaker 1: from a very important member of the Senate, projecting a 264 00:15:30,600 --> 00:15:36,920 Speaker 1: pretty bad mess was ignored, etcetera because the President decided 265 00:15:37,000 --> 00:15:40,040 Speaker 1: we had to leave. I'm not against ending the military mission, 266 00:15:40,360 --> 00:15:42,600 Speaker 1: but I think that as the world looked at this, 267 00:15:42,720 --> 00:15:47,880 Speaker 1: and as Europe felt discounted, NATO did not feel fully consulted. UH. 268 00:15:47,920 --> 00:15:51,440 Speaker 1: There was a huge tale on this that was very 269 00:15:51,440 --> 00:15:54,720 Speaker 1: negative and it has hurt us ever since. And I 270 00:15:54,760 --> 00:15:58,080 Speaker 1: don't think we should be abdicating our role as the 271 00:15:58,120 --> 00:16:00,400 Speaker 1: international global leader. I just wrote a U COmON this. 272 00:16:00,920 --> 00:16:03,280 Speaker 1: Since the Cold War, America has not had a foreign 273 00:16:03,360 --> 00:16:08,200 Speaker 1: policy strategy for the world, and I think it's long overdue. 274 00:16:08,280 --> 00:16:10,800 Speaker 1: Biden had the beginnings of this, and I salute him 275 00:16:10,840 --> 00:16:13,360 Speaker 1: for it. It was human rights, it was working with allies, 276 00:16:13,400 --> 00:16:18,840 Speaker 1: it was surging diplomacy, it was making foreign policy relevant 277 00:16:18,920 --> 00:16:22,160 Speaker 1: to Americans average Americans. All of these are good things, 278 00:16:22,280 --> 00:16:24,880 Speaker 1: but now we have to execute Jane. When you hear 279 00:16:24,920 --> 00:16:30,800 Speaker 1: the President say America's back, do you believe him? I 280 00:16:30,880 --> 00:16:34,120 Speaker 1: want to believe him. Europe doesn't believe him. Uh. He 281 00:16:34,400 --> 00:16:37,400 Speaker 1: came to a G seven meeting a year ago and 282 00:16:37,440 --> 00:16:41,840 Speaker 1: said America is back. And then the Afghanistan departure happened 283 00:16:41,920 --> 00:16:45,920 Speaker 1: last summer, and then the messaging around the Australian nuclear 284 00:16:45,960 --> 00:16:50,720 Speaker 1: sub deal happened, which even he confessed was very clumsy. Uh, 285 00:16:50,760 --> 00:16:53,720 Speaker 1: we can do better. His team is good. I'm not 286 00:16:54,160 --> 00:16:57,480 Speaker 1: ragging on the administration's team, but I'm ragging on a 287 00:16:57,560 --> 00:17:03,840 Speaker 1: process that, somehow, uh doesn't convey the kind of competence 288 00:17:04,320 --> 00:17:08,640 Speaker 1: UH and planning that he should be known for. I mean, 289 00:17:08,680 --> 00:17:11,440 Speaker 1: he was the chairman of the Senate Foreign Relations Committee 290 00:17:11,480 --> 00:17:14,679 Speaker 1: for a long time. He has long experience, UH, and 291 00:17:14,800 --> 00:17:17,400 Speaker 1: he knows everybody, and a lot of them work for him. 292 00:17:17,440 --> 00:17:21,160 Speaker 1: And so just let's hope that two is a better beginning, 293 00:17:21,480 --> 00:17:24,600 Speaker 1: although it is fraught with this other controversy around build 294 00:17:24,640 --> 00:17:29,920 Speaker 1: back better inflation, COVID never ending made a surge, possibly 295 00:17:30,000 --> 00:17:33,800 Speaker 1: peak uh and UH, as far as I'm concerned, this 296 00:17:34,040 --> 00:17:38,240 Speaker 1: this looming voting rights catastrophe, and we've got about ninety 297 00:17:38,240 --> 00:17:39,920 Speaker 1: seconds left. I was going out of the top ten 298 00:17:40,040 --> 00:17:43,159 Speaker 1: risks from last year, and I noticed one miss, I 299 00:17:43,160 --> 00:17:45,040 Speaker 1: think one miss from you writer group was the belief 300 00:17:45,040 --> 00:17:49,160 Speaker 1: that energy prices would remain low. One win was Turkey. 301 00:17:49,280 --> 00:17:51,560 Speaker 1: Turkey in your top ten last year, it's in your 302 00:17:51,560 --> 00:17:54,960 Speaker 1: top ten again this year. It's sixty seconds. And why 303 00:17:55,000 --> 00:17:59,200 Speaker 1: the concern about Turkey again this year? Look, I mean 304 00:17:59,400 --> 00:18:03,680 Speaker 1: inflation and spiraling, unemployment really high, and Urdawan and his 305 00:18:03,800 --> 00:18:07,400 Speaker 1: Ak Party are at record lows right now. And he 306 00:18:07,600 --> 00:18:11,760 Speaker 1: is not someone oriented towards representative democracy. He is willing 307 00:18:11,840 --> 00:18:14,800 Speaker 1: to cause lots of repression at home and also be 308 00:18:14,920 --> 00:18:17,600 Speaker 1: much more experimental in his foreign policy, with plenty of 309 00:18:17,600 --> 00:18:20,080 Speaker 1: places he can cause trouble in the region. Think about 310 00:18:20,119 --> 00:18:23,560 Speaker 1: Greek Greece and Cyprus, Think about Syria, think about Libya, 311 00:18:23,720 --> 00:18:27,359 Speaker 1: think about Nagono, Karabak and Armenia, Azerbaijan. This is a 312 00:18:27,359 --> 00:18:29,520 Speaker 1: country that is headed for trouble right now, a hell 313 00:18:29,600 --> 00:18:32,040 Speaker 1: of a lot faster than any other major emerging markets 314 00:18:32,080 --> 00:18:33,520 Speaker 1: out there. It's a country that a lot of us 315 00:18:33,600 --> 00:18:35,720 Speaker 1: care about and should be doing a lot better, but 316 00:18:35,800 --> 00:18:38,920 Speaker 1: the politics have gotten in the way. And wonderful congratulations 317 00:18:38,960 --> 00:18:40,919 Speaker 1: to you and the team. I don't know, a fantastic 318 00:18:40,920 --> 00:18:42,479 Speaker 1: piece of work to kick off a new year. Im 319 00:18:42,560 --> 00:18:46,040 Speaker 1: Brema of Eurasia and to Jane Harmon of the Wilson Center, Jane, 320 00:18:46,040 --> 00:18:54,119 Speaker 1: thank you to you as well, joining us now a 321 00:18:54,160 --> 00:18:58,640 Speaker 1: big equity market bull, Ben Laidler Global Market Strategistic Eats 322 00:18:58,720 --> 00:19:00,640 Speaker 1: or Ben, let's just start right here and not bury 323 00:19:00,720 --> 00:19:03,679 Speaker 1: the lead. We've had three years of double digit gains. 324 00:19:04,280 --> 00:19:08,000 Speaker 1: You think we can make a year for bend later? Why? 325 00:19:08,800 --> 00:19:12,919 Speaker 1: I think we're still significantly underestimating the earning story. Consensus 326 00:19:12,920 --> 00:19:16,120 Speaker 1: earnings growth globally for this year is is well under 327 00:19:16,160 --> 00:19:19,800 Speaker 1: ten percent in a year when GDP growth is going 328 00:19:19,800 --> 00:19:22,760 Speaker 1: to be nearly twice long term average levels. And companies 329 00:19:22,800 --> 00:19:25,600 Speaker 1: have shown us throughout last year, but they are more 330 00:19:25,640 --> 00:19:29,600 Speaker 1: than capable off setting all these cost pressures that they're seeing. 331 00:19:30,160 --> 00:19:33,600 Speaker 1: And I think valuations can stay very high. The FED, 332 00:19:33,640 --> 00:19:35,760 Speaker 1: I think, is going to move, you know, very slowly 333 00:19:36,119 --> 00:19:39,280 Speaker 1: off a very low interest right no on, but bond 334 00:19:39,359 --> 00:19:42,199 Speaker 1: hills are going to stay reasonably low. And this is 335 00:19:42,200 --> 00:19:45,240 Speaker 1: a market that's changed over the last sort a couple 336 00:19:45,280 --> 00:19:48,840 Speaker 1: of decades. It's just full of um you know, bigger, 337 00:19:49,200 --> 00:19:53,119 Speaker 1: more profitable, more sustainably profitable companies. And I think you 338 00:19:53,160 --> 00:19:56,320 Speaker 1: put those two things together, earnings numbers which should probably 339 00:19:56,320 --> 00:19:59,399 Speaker 1: be twice as high as they are right now, and valuations, 340 00:19:59,400 --> 00:20:00,960 Speaker 1: which I think I to come down a bit, but 341 00:20:00,960 --> 00:20:03,040 Speaker 1: but not much. And I think those of your ingredients, 342 00:20:03,280 --> 00:20:05,239 Speaker 1: so I think, I think the biggest risk remains not 343 00:20:05,280 --> 00:20:08,600 Speaker 1: being in equities rather than being out of equities. Well, 344 00:20:08,640 --> 00:20:11,280 Speaker 1: let's focus on one of those points that this thesis 345 00:20:11,320 --> 00:20:14,320 Speaker 1: is predicated on, and that is persistently lower yields. How 346 00:20:14,400 --> 00:20:16,560 Speaker 1: low do they have to stay? What is the threshold 347 00:20:16,600 --> 00:20:19,000 Speaker 1: for equities to still be supported? And not just in 348 00:20:19,080 --> 00:20:22,760 Speaker 1: terms of the nominal yield, but really yields as well. Yeah, 349 00:20:22,760 --> 00:20:25,159 Speaker 1: I mean that's obviously been a huge um you know, 350 00:20:25,160 --> 00:20:27,879 Speaker 1: tell went frequities. But I don't think it changes you 351 00:20:27,880 --> 00:20:30,760 Speaker 1: know that soon, right, I mean we're coming off you know, 352 00:20:30,760 --> 00:20:33,639 Speaker 1: your typical FED cycle is three or four basis points. 353 00:20:34,000 --> 00:20:36,600 Speaker 1: This will probably may be something like half that, and 354 00:20:36,680 --> 00:20:39,760 Speaker 1: it will be much slower and much longer. I think 355 00:20:39,800 --> 00:20:42,400 Speaker 1: that gives you know, that gives economies, that gives markets, 356 00:20:42,400 --> 00:20:45,560 Speaker 1: that gives stocks just a very long time, if you 357 00:20:45,680 --> 00:20:48,200 Speaker 1: like to sort of grow into this and and and 358 00:20:48,200 --> 00:20:50,680 Speaker 1: and the the impact I think that here and now 359 00:20:50,720 --> 00:20:54,000 Speaker 1: impact is going to be on valuations and evaluations opticularly 360 00:20:54,040 --> 00:20:56,080 Speaker 1: look high. I do think that I do think the 361 00:20:56,080 --> 00:20:57,840 Speaker 1: world has changed. Not only a bond yield is going 362 00:20:57,880 --> 00:21:00,720 Speaker 1: to stay low and move up slowly. And to specifically 363 00:21:00,720 --> 00:21:03,119 Speaker 1: answer your point, I think the tipping point is quite 364 00:21:03,119 --> 00:21:06,440 Speaker 1: a long way off. You know, yields are heavily, heavily negative, 365 00:21:07,080 --> 00:21:12,000 Speaker 1: and even even in nominal terms, um, they're still extraordinarily low. 366 00:21:12,560 --> 00:21:14,600 Speaker 1: And again, I think the market has changed. I think 367 00:21:14,640 --> 00:21:17,920 Speaker 1: there's sort of intellectual sort of laziness, so one times 368 00:21:17,920 --> 00:21:20,520 Speaker 1: earnings versus a long term marriage of sixteen for you know, 369 00:21:20,560 --> 00:21:23,639 Speaker 1: the SMP five p you know, the long term average 370 00:21:23,680 --> 00:21:26,320 Speaker 1: is not relevant anymore. The tech sector is twice as large. 371 00:21:26,640 --> 00:21:28,919 Speaker 1: It's pretty much the most profitable sector in the market, 372 00:21:28,960 --> 00:21:30,600 Speaker 1: and it's still got a lot of growth. That's a 373 00:21:30,720 --> 00:21:33,600 Speaker 1: huge change to the composition of this market, which we 374 00:21:33,720 --> 00:21:36,359 Speaker 1: haven't had didn't have twenty thirty years ago. Do you 375 00:21:36,359 --> 00:21:38,560 Speaker 1: think tech will be able to retain its leadership of 376 00:21:38,680 --> 00:21:41,280 Speaker 1: this market? Though, Banner? Is that going to shift shift elsewhere? 377 00:21:43,440 --> 00:21:46,520 Speaker 1: I think the so called everything Raley continues. I mean, 378 00:21:46,560 --> 00:21:49,480 Speaker 1: you look at your your equal weighted SMP five hundred. 379 00:21:49,800 --> 00:21:53,119 Speaker 1: You know outperformed the weighted SMP five hundred last year, 380 00:21:53,240 --> 00:21:55,159 Speaker 1: not about a lot, but it does tell you that 381 00:21:55,240 --> 00:21:58,080 Speaker 1: everything did pretty well last year. I mean the thought 382 00:21:58,119 --> 00:21:59,679 Speaker 1: that this is a sort of tech led market, that 383 00:21:59,720 --> 00:22:02,600 Speaker 1: it's come plea depend on tech tax is important, but 384 00:22:02,640 --> 00:22:04,880 Speaker 1: it's not the only driver here. I mean last year 385 00:22:04,960 --> 00:22:07,080 Speaker 1: was about a lot more than tech, and I think 386 00:22:07,080 --> 00:22:09,639 Speaker 1: that continues this year. I think tech are sort of 387 00:22:09,640 --> 00:22:11,640 Speaker 1: the new defensives, and you definitely want to own them, 388 00:22:11,960 --> 00:22:13,640 Speaker 1: but I don't think they're going to be the leadership 389 00:22:13,680 --> 00:22:15,600 Speaker 1: this year. I think you want the cheaper segments. I 390 00:22:15,600 --> 00:22:17,480 Speaker 1: think you want the higher growth segments. I think that's 391 00:22:17,520 --> 00:22:20,040 Speaker 1: what's going to lead this year. Are you Are you 392 00:22:20,119 --> 00:22:23,240 Speaker 1: worried then about profit margins getting hit hard by inflation? 393 00:22:25,040 --> 00:22:28,520 Speaker 1: Not really, I mean to legitimate question. The market is 394 00:22:28,560 --> 00:22:30,760 Speaker 1: clearly worried about it, which is why you've got these 395 00:22:30,880 --> 00:22:33,760 Speaker 1: very low earnings growth expectations for this year. But I 396 00:22:33,800 --> 00:22:36,240 Speaker 1: think we've if you, I think we've probably had the 397 00:22:36,280 --> 00:22:39,440 Speaker 1: peak of inflation pressure on margins, and companies are still, 398 00:22:39,520 --> 00:22:42,800 Speaker 1: at least in the US are reporting that profit margins 399 00:22:42,840 --> 00:22:44,920 Speaker 1: for the second quarter in a row, which is the 400 00:22:44,960 --> 00:22:48,080 Speaker 1: highest ever. I think companies in this environment where growth 401 00:22:48,119 --> 00:22:50,440 Speaker 1: remained strong, which I think is going to continue into 402 00:22:50,480 --> 00:22:53,720 Speaker 1: this year, companies are showing you they can they can 403 00:22:53,760 --> 00:22:56,159 Speaker 1: offset it, they can mitigate it. And I think you 404 00:22:56,200 --> 00:22:59,159 Speaker 1: know a that continues be there are big segments of 405 00:22:59,200 --> 00:23:02,239 Speaker 1: the market when margins are still super depressed. I mean 406 00:23:02,240 --> 00:23:05,199 Speaker 1: all these reopening segments, which I think incrementally through this 407 00:23:05,280 --> 00:23:08,159 Speaker 1: year we'll get those margins back. I think that's the 408 00:23:08,200 --> 00:23:10,720 Speaker 1: story we should also be talking more about and will 409 00:23:10,760 --> 00:23:13,320 Speaker 1: be an offset to UM. You know any of these 410 00:23:13,320 --> 00:23:15,119 Speaker 1: and you know if I'm wrong, and you know the 411 00:23:15,240 --> 00:23:17,920 Speaker 1: more mainstream companies do see pressure on their margins. The 412 00:23:17,960 --> 00:23:20,960 Speaker 1: year progressive. What a way to start two, Ben Laydler 413 00:23:20,960 --> 00:23:23,240 Speaker 1: of Etara Ben I say it often every time you 414 00:23:23,320 --> 00:23:25,920 Speaker 1: join us. You've been bullish. You've been right, Ben, Thank 415 00:23:25,960 --> 00:23:35,080 Speaker 1: you sir. When we're looking at such massive numbers and Keyley, 416 00:23:35,280 --> 00:23:38,240 Speaker 1: we've been covering this for a few days of more 417 00:23:38,280 --> 00:23:41,159 Speaker 1: than a million, now more than two million cases a 418 00:23:41,280 --> 00:23:45,479 Speaker 1: day globally, and that's got to be a drastic underestimate, right, 419 00:23:45,520 --> 00:23:48,320 Speaker 1: because most people who test positive for COVID or have 420 00:23:48,440 --> 00:23:51,320 Speaker 1: it and don't even test positive never tell any public 421 00:23:51,359 --> 00:23:54,680 Speaker 1: health officials. UM, you're gonna send a lot more people 422 00:23:54,720 --> 00:23:57,239 Speaker 1: to the hospital, and that's the big concerns. So do 423 00:23:57,280 --> 00:23:59,800 Speaker 1: you does does Eric Adams make the right move for 424 00:24:00,000 --> 00:24:01,840 Speaker 1: parents and for kids, or does he make the right 425 00:24:01,840 --> 00:24:05,120 Speaker 1: move for healthcare workers. That's what I think the interesting 426 00:24:05,440 --> 00:24:08,000 Speaker 1: debate is. Yeah, it's a very very good question. Matt, 427 00:24:08,080 --> 00:24:10,639 Speaker 1: let's pose it now. Tjadoshua starf seen visting of the 428 00:24:10,720 --> 00:24:14,000 Speaker 1: Johns Hopkins Bloomberg School of Public Health. When you think 429 00:24:14,000 --> 00:24:17,119 Speaker 1: about schools in particular and children, where we've seen pediatric 430 00:24:17,160 --> 00:24:20,679 Speaker 1: hospitalizations actually on the rise amid the spread of this variant, 431 00:24:20,960 --> 00:24:23,320 Speaker 1: do you think keeping schools open is the right move? 432 00:24:24,520 --> 00:24:28,000 Speaker 1: I do. I think so with the appropriate precautions. I 433 00:24:28,160 --> 00:24:31,479 Speaker 1: do think that the doctor from Northwestern had it right 434 00:24:31,640 --> 00:24:35,880 Speaker 1: that if done well, school is you know, relatively safe 435 00:24:35,960 --> 00:24:41,520 Speaker 1: environment for kids UM masking tests. Especially during this surge 436 00:24:41,560 --> 00:24:45,080 Speaker 1: of cases, I think it is very important for kids 437 00:24:45,160 --> 00:24:48,080 Speaker 1: to be in school, and I think the chance of 438 00:24:48,160 --> 00:24:51,640 Speaker 1: school becomes an explosive source of new infections is low 439 00:24:51,720 --> 00:24:55,880 Speaker 1: with precautions, but explosive new infections is really what we've seen, 440 00:24:56,400 --> 00:24:59,840 Speaker 1: not in schools specifically, but generally. Ten million cases in 441 00:25:00,080 --> 00:25:03,359 Speaker 1: just a week. Are we reaching a peak of this wave? 442 00:25:03,480 --> 00:25:07,560 Speaker 1: Considering how quickly it is spreading through the population. I 443 00:25:07,640 --> 00:25:10,120 Speaker 1: think at a certain point it really has to slow down. 444 00:25:10,200 --> 00:25:12,760 Speaker 1: And that's probably within a couple of weeks or a 445 00:25:12,840 --> 00:25:15,760 Speaker 1: few weeks away UM, and that's I think going to 446 00:25:15,840 --> 00:25:19,960 Speaker 1: be good news. The question is can we keep hospitalizations 447 00:25:20,040 --> 00:25:23,800 Speaker 1: down enough during this period so we're not swamping hospitals, 448 00:25:23,880 --> 00:25:27,200 Speaker 1: because even though there's a less risk of getting hospitalized 449 00:25:27,920 --> 00:25:30,720 Speaker 1: with a macron um, it's still a risk. And with 450 00:25:30,920 --> 00:25:35,159 Speaker 1: so many people infected, you see numbers increasing in the hospital. 451 00:25:35,200 --> 00:25:38,040 Speaker 1: I heard from some doctors saying it's a lot of patients, 452 00:25:38,080 --> 00:25:40,960 Speaker 1: but the good news is they're not as sick overall 453 00:25:41,200 --> 00:25:45,000 Speaker 1: as they were back in the delta wave. Dr Sharkstein, 454 00:25:45,119 --> 00:25:49,680 Speaker 1: how reliable are tests? You know? I keep talking to 455 00:25:49,800 --> 00:25:53,719 Speaker 1: people who UM went to a party with someone who 456 00:25:53,800 --> 00:25:56,399 Speaker 1: tested negative right before the party, but then on the 457 00:25:56,520 --> 00:25:59,439 Speaker 1: day after or the day after that UM they tested 458 00:25:59,480 --> 00:26:01,399 Speaker 1: positive of and then all of a sudden, every one 459 00:26:01,440 --> 00:26:03,159 Speaker 1: of the party's got it. I mean, how much can 460 00:26:03,200 --> 00:26:07,000 Speaker 1: we rely on these lateral flow tests. That's a really 461 00:26:07,119 --> 00:26:09,840 Speaker 1: great question because in the United States we have a 462 00:26:10,040 --> 00:26:13,120 Speaker 1: great faith in testing. We just assume that the test 463 00:26:13,280 --> 00:26:15,600 Speaker 1: is going to give us the answer, and it's very 464 00:26:15,720 --> 00:26:18,960 Speaker 1: hard to process the fact that there are cases that 465 00:26:19,240 --> 00:26:23,359 Speaker 1: the tests will miss and testing only helps in aggregate. 466 00:26:23,440 --> 00:26:26,440 Speaker 1: If everybody's testing, then we're gonna have fewer overall cases. 467 00:26:26,560 --> 00:26:29,040 Speaker 1: But that doesn't mean you couldn't get into trouble in 468 00:26:29,119 --> 00:26:31,760 Speaker 1: a situation just like that in a party. And I 469 00:26:31,880 --> 00:26:34,520 Speaker 1: think that people have to check their risk tolerance and 470 00:26:34,600 --> 00:26:37,520 Speaker 1: realize that they're lowering the risk where everybody's getting tested, 471 00:26:37,880 --> 00:26:40,320 Speaker 1: but they're not eliminating it. And you just have to 472 00:26:40,400 --> 00:26:43,399 Speaker 1: be judicious about you know what, what you want to do, 473 00:26:43,520 --> 00:26:47,160 Speaker 1: what's valuable to you and um and keeping in mind 474 00:26:47,280 --> 00:26:51,040 Speaker 1: the limits of the testing. What's your take, by the way, 475 00:26:51,240 --> 00:26:55,040 Speaker 1: on flights, on the safety of being inside a giant 476 00:26:55,080 --> 00:26:58,040 Speaker 1: aluminum to with a few hundred other people for a 477 00:26:58,119 --> 00:27:00,920 Speaker 1: few hours, you know, two years on Because before this 478 00:27:01,960 --> 00:27:06,439 Speaker 1: um COVID pandemic, I thought everybody gets sick on planes. 479 00:27:06,520 --> 00:27:09,000 Speaker 1: That's just part of traveling. You get sick. That's why 480 00:27:09,119 --> 00:27:13,640 Speaker 1: somebody invented airborne and made a billion dollars off of it. However, 481 00:27:14,119 --> 00:27:20,560 Speaker 1: throughout this pandemic, talking to airline executives and engineers, I've 482 00:27:20,640 --> 00:27:24,359 Speaker 1: come to believe that maybe it is uh cleaned out 483 00:27:24,560 --> 00:27:27,919 Speaker 1: air safer place to be as long as everyone's masked. 484 00:27:28,240 --> 00:27:31,120 Speaker 1: How do you view it? Yeah, I mean I think 485 00:27:31,200 --> 00:27:33,520 Speaker 1: everything's relative. I mean compared to just sitting at home 486 00:27:33,560 --> 00:27:36,159 Speaker 1: and doing nothing, it's going to be riskier. But there 487 00:27:36,320 --> 00:27:38,880 Speaker 1: is a pretty frequent air exchange. You have the chance 488 00:27:38,920 --> 00:27:40,440 Speaker 1: to wear a mask, and of course you have the 489 00:27:40,520 --> 00:27:43,720 Speaker 1: chance to be vaccinated and boosted. So someone who's vaccinated 490 00:27:43,760 --> 00:27:46,560 Speaker 1: and boosted and mass and an airplane that is not 491 00:27:47,160 --> 00:27:49,520 Speaker 1: a very high risk for sitting there. I think it's 492 00:27:49,560 --> 00:27:52,600 Speaker 1: pretty low. Um. And again it boils down to risk tolerance. 493 00:27:52,640 --> 00:27:55,600 Speaker 1: People who want to avoid the virus at all costs, 494 00:27:55,720 --> 00:27:58,040 Speaker 1: no matter what, they're going to be stuck at home. 495 00:27:58,240 --> 00:28:00,320 Speaker 1: But you can now and I think it's get to 496 00:28:01,119 --> 00:28:03,119 Speaker 1: two and we say we look, we're going to go 497 00:28:03,240 --> 00:28:05,959 Speaker 1: back to living our lives. We're going to figure out 498 00:28:06,000 --> 00:28:08,560 Speaker 1: a way through this. You have to take calculated risks, 499 00:28:08,600 --> 00:28:12,600 Speaker 1: and air travel I think is reasonable under the circumstances. Now, 500 00:28:13,000 --> 00:28:15,840 Speaker 1: in the middle of a huge wave of a macron um, 501 00:28:15,960 --> 00:28:17,480 Speaker 1: I think there's some things that we're going to do 502 00:28:17,560 --> 00:28:19,920 Speaker 1: differently in our lives. But once that's behind us, I 503 00:28:19,960 --> 00:28:22,920 Speaker 1: think we're gonna see two play out a little differently. 504 00:28:23,720 --> 00:28:26,479 Speaker 1: All right, Thank you so much to Joshua Sharfstein at 505 00:28:26,480 --> 00:28:29,440 Speaker 1: the Johns Hopkins Bloomberg School of Public Health. Appreciate your time, 506 00:28:29,680 --> 00:28:37,240 Speaker 1: and happy New Year to you. We had a heck 507 00:28:37,320 --> 00:28:39,760 Speaker 1: of a one in the sp if I've oundered up. 508 00:28:41,200 --> 00:28:43,720 Speaker 1: Month of December is the best best December in terms 509 00:28:43,760 --> 00:28:47,400 Speaker 1: of performance since two thousand and What do we do now? 510 00:28:47,640 --> 00:28:49,640 Speaker 1: Let's bring in Doug cast because he's got some thoughts 511 00:28:49,680 --> 00:28:53,480 Speaker 1: on this stuff. Doug Cast, Sea Breeze Partners President, Doug, 512 00:28:53,960 --> 00:28:58,400 Speaker 1: what's on your radar for two is related to these markets? 513 00:28:58,440 --> 00:29:03,040 Speaker 1: What are you telling your clients? Well, I would start 514 00:29:03,120 --> 00:29:07,600 Speaker 1: by saying that that last year began with this a 515 00:29:07,800 --> 00:29:11,840 Speaker 1: marriage of monetary and physical policies, something that we've never 516 00:29:12,000 --> 00:29:15,840 Speaker 1: seen or I've never seen in my investment career, and 517 00:29:16,000 --> 00:29:19,960 Speaker 1: it's ending with a potentially failed bill better bill, and 518 00:29:20,080 --> 00:29:22,400 Speaker 1: a central bank that's quickly getting out of the bond 519 00:29:22,440 --> 00:29:25,120 Speaker 1: bonding business. So I would say that the setup for 520 00:29:25,920 --> 00:29:30,560 Speaker 1: two is far different than UM. I expect economic growth 521 00:29:30,600 --> 00:29:35,760 Speaker 1: will slow relative to consensus expectations, and that inflationary pressures 522 00:29:35,800 --> 00:29:40,440 Speaker 1: will continue in the face of supply dislocations influenced in 523 00:29:40,520 --> 00:29:44,680 Speaker 1: large measure because of country and business restrictions UM and 524 00:29:44,800 --> 00:29:49,760 Speaker 1: that will serve to result in disappointing corporate profits dog 525 00:29:49,760 --> 00:29:53,120 Speaker 1: Happy New Year. I'm what, I'm very happy here happy, 526 00:29:53,880 --> 00:29:57,040 Speaker 1: I'm very curious why, and a lot of folks kind 527 00:29:57,040 --> 00:30:00,920 Speaker 1: of two outlooks. I'm not seeing it of geopolitics and 528 00:30:00,960 --> 00:30:04,560 Speaker 1: there yet every day we seem to be talking about Russia, China, Turkey. 529 00:30:05,360 --> 00:30:08,040 Speaker 1: How do you or perhaps why do you not price 530 00:30:08,120 --> 00:30:11,480 Speaker 1: that into a market right now? Well, I do a 531 00:30:11,600 --> 00:30:16,760 Speaker 1: surprise list very similar to UM my friend Byron ween UM, 532 00:30:17,680 --> 00:30:19,160 Speaker 1: and I do it every year. I've been doing it 533 00:30:19,240 --> 00:30:22,640 Speaker 1: for twenty years. Besides running the new hedge funds Cebris Partners, 534 00:30:23,080 --> 00:30:26,240 Speaker 1: I've been blogging for twenty four years on the street 535 00:30:26,280 --> 00:30:28,880 Speaker 1: dot COM's Real Money pro site. And I write this 536 00:30:29,040 --> 00:30:32,040 Speaker 1: list of surprises and I have a bunch of them 537 00:30:32,120 --> 00:30:36,760 Speaker 1: this year which incorporate that concern. One of my concerns 538 00:30:36,840 --> 00:30:40,720 Speaker 1: is that what little is left of global harmony is 539 00:30:40,880 --> 00:30:46,240 Speaker 1: up ended in a year characterized by um expanding geopolitical 540 00:30:46,320 --> 00:30:50,880 Speaker 1: tensions on three continents. I Ran and Israel obviously, China 541 00:30:50,920 --> 00:30:54,479 Speaker 1: and Taiwan and Russian Ukraine. And it's a big negative. 542 00:30:56,040 --> 00:30:57,880 Speaker 1: So how does that play out? I mean, you know, 543 00:30:58,320 --> 00:31:01,240 Speaker 1: I think one of the things that the market seem 544 00:31:01,360 --> 00:31:05,480 Speaker 1: to be discounting Doug is that it's all gonna work 545 00:31:05,560 --> 00:31:09,360 Speaker 1: out here? Are you suggesting that these risks are perhaps 546 00:31:09,360 --> 00:31:12,400 Speaker 1: a little bit more than this market's discounting. I think 547 00:31:12,440 --> 00:31:14,240 Speaker 1: we have a lot of surprises in store and a 548 00:31:14,280 --> 00:31:18,320 Speaker 1: lot of risks in store for this year. UM, be 549 00:31:18,360 --> 00:31:20,600 Speaker 1: happy to go over a couple of surprises really quickly, 550 00:31:20,680 --> 00:31:23,960 Speaker 1: to give us a couple of your favorites. Sure, my 551 00:31:24,240 --> 00:31:26,520 Speaker 1: my number one favorite, and I can expand upon it. 552 00:31:26,800 --> 00:31:28,800 Speaker 1: Is that it's going to be clear by the end 553 00:31:28,840 --> 00:31:33,040 Speaker 1: of two that we are faded for another Trump Clinton 554 00:31:33,120 --> 00:31:36,840 Speaker 1: presidential race in four But it's not the Trump you 555 00:31:37,080 --> 00:31:42,640 Speaker 1: you think. Um, I'm with it that well, Um I 556 00:31:43,360 --> 00:31:48,600 Speaker 1: the surprises that President Biden becomes sufficient sufficiently incapacitated such 557 00:31:48,720 --> 00:31:51,760 Speaker 1: that President Harris becomes the first female president of the 558 00:31:51,800 --> 00:31:55,440 Speaker 1: United States, and she immediately becomes in effect a lame 559 00:31:55,560 --> 00:32:00,440 Speaker 1: duck president. Uh and unfortunately has no significant so successful 560 00:32:00,520 --> 00:32:05,000 Speaker 1: legislative accomplishments over the next year. And um so both 561 00:32:05,320 --> 00:32:09,240 Speaker 1: um J J and Ping and Vadimia putin immediately put 562 00:32:09,320 --> 00:32:13,040 Speaker 1: Harris to the test with a series of foreign policy crises, 563 00:32:13,120 --> 00:32:14,880 Speaker 1: and she proves not to be up to the task. 564 00:32:15,640 --> 00:32:19,240 Speaker 1: And the November midterm elections results in the landslide for 565 00:32:19,280 --> 00:32:21,680 Speaker 1: the Republicans who take the Senate and win a sizeable 566 00:32:21,760 --> 00:32:25,160 Speaker 1: majority in the House. That's not this coount in the market. 567 00:32:25,200 --> 00:32:28,360 Speaker 1: Done now. And so meanwhile, I think, at the same 568 00:32:28,440 --> 00:32:31,960 Speaker 1: time Biden gets sick, Donald Trump also becomes ill and 569 00:32:32,000 --> 00:32:35,480 Speaker 1: announces that he won't run for president. So this is 570 00:32:35,560 --> 00:32:38,160 Speaker 1: the surprise. It creates his wide open field the nomination 571 00:32:38,240 --> 00:32:41,600 Speaker 1: in both parties, and probably sometime in the second half 572 00:32:42,120 --> 00:32:45,360 Speaker 1: of next year. This year, excuse me, Nicki Haley announces 573 00:32:45,600 --> 00:32:49,479 Speaker 1: she'll run for president and assumes the de facto mantle 574 00:32:49,520 --> 00:32:52,440 Speaker 1: of the party's leadership and takes a strong lead towards 575 00:32:52,520 --> 00:32:56,120 Speaker 1: that Republican presidential nomination. And then at the same time, 576 00:32:56,240 --> 00:33:00,440 Speaker 1: leading Democrats speak out and encourage surprisingly Hillary Clinton to 577 00:33:00,520 --> 00:33:05,320 Speaker 1: run again. Though she remains um publicly uncommitted, she's clearly 578 00:33:05,400 --> 00:33:10,320 Speaker 1: interested in, according to numerous sources, is seriously considering a run. Now. 579 00:33:10,440 --> 00:33:12,320 Speaker 1: The most interesting twist of this whole thing is that 580 00:33:12,440 --> 00:33:18,120 Speaker 1: privately the former president who's ill, uh lobbies, postures and 581 00:33:18,240 --> 00:33:22,280 Speaker 1: grooms his daughter Vanka to run for president, and almost overnight, 582 00:33:22,640 --> 00:33:26,440 Speaker 1: when her or his and her political ambitions are revealed, 583 00:33:26,880 --> 00:33:30,360 Speaker 1: Ivanka takes a significant lead over Hailey, as her father's 584 00:33:30,400 --> 00:33:34,880 Speaker 1: supporters quickly returning for it. So given which, by the way, 585 00:33:35,240 --> 00:33:38,680 Speaker 1: they concluded Clinton in response and a hasty response to 586 00:33:38,720 --> 00:33:42,200 Speaker 1: Trump's declaration, Clinton announces their plan. So again the stage 587 00:33:42,240 --> 00:33:45,520 Speaker 1: is set for Trump Clinton, but different, different Trump. Yeah 588 00:33:45,680 --> 00:33:49,320 Speaker 1: that sounds I mean, this is a Netflix, uh movie. 589 00:33:49,440 --> 00:33:52,760 Speaker 1: I think you just novella sketched out for that can't 590 00:33:52,760 --> 00:33:56,320 Speaker 1: be good for risk assets here, are you? I mean 591 00:33:56,360 --> 00:33:58,960 Speaker 1: I gotta think that. I know you went negative on 592 00:33:59,040 --> 00:34:02,320 Speaker 1: the market several months ago. Are you more so now? 593 00:34:02,400 --> 00:34:04,360 Speaker 1: Are you doubling down now? Because that's the scenario that 594 00:34:04,400 --> 00:34:07,440 Speaker 1: you just spelled out A it's a great Netflix novello, 595 00:34:07,520 --> 00:34:11,240 Speaker 1: but it's also not good for stock markets. Yeah, practically speaking, 596 00:34:11,320 --> 00:34:16,600 Speaker 1: besides the likely rate hikes, and I believe the FET 597 00:34:16,719 --> 00:34:21,080 Speaker 1: is going to be far more aggressive than people expect. Remember, Paul, 598 00:34:21,120 --> 00:34:24,399 Speaker 1: the FETE is ending a one point five trillion dollar 599 00:34:24,520 --> 00:34:27,759 Speaker 1: quantitative easing program in the next three months. That's more 600 00:34:27,840 --> 00:34:30,719 Speaker 1: than q E one and q E two combined, and 601 00:34:30,800 --> 00:34:33,640 Speaker 1: it's almost above the size of the q E three. 602 00:34:34,200 --> 00:34:36,320 Speaker 1: So the liquidity FORCET is being turned off. At the 603 00:34:36,360 --> 00:34:41,000 Speaker 1: same time, banks outside the US are tightening and UM. 604 00:34:41,320 --> 00:34:45,000 Speaker 1: So my scenario is basically that we have been stoking 605 00:34:45,080 --> 00:34:48,880 Speaker 1: a very dangerous asset bubble fueled by that liquidity of policy. 606 00:34:49,360 --> 00:34:53,080 Speaker 1: We have deepened income and wealth inequality, and we're embarking 607 00:34:53,120 --> 00:34:57,360 Speaker 1: on a policy of money printing that has generated inflation 608 00:34:57,440 --> 00:35:00,520 Speaker 1: from which it is hard to escape. So my scenario 609 00:35:00,680 --> 00:35:02,600 Speaker 1: is the following. I think we're gonna have a general 610 00:35:02,840 --> 00:35:06,840 Speaker 1: valuation reset lower And if you look over history, on average, 611 00:35:07,239 --> 00:35:09,560 Speaker 1: a hundred basis point rise in the FED fund rates, 612 00:35:09,600 --> 00:35:13,239 Speaker 1: which I think will get this year, is typically associated 613 00:35:13,280 --> 00:35:17,320 Speaker 1: with at least a fifteen percent valuation adjustment lower. And 614 00:35:17,400 --> 00:35:21,800 Speaker 1: if you consider where today's elevated valuations are, that reset 615 00:35:21,880 --> 00:35:24,840 Speaker 1: has the potential of being more than the historic average. 616 00:35:25,320 --> 00:35:27,319 Speaker 1: I believe as a result of the rate increase, we're 617 00:35:27,320 --> 00:35:30,120 Speaker 1: gonna see a hard rotation from growth to value. If 618 00:35:30,160 --> 00:35:34,000 Speaker 1: you combine the reset lower and this rotation and disappointing 619 00:35:34,040 --> 00:35:38,480 Speaker 1: earnings growth UM, it could translate into negative negative overall 620 00:35:38,560 --> 00:35:43,200 Speaker 1: returns for the smp UM. I think that, as I said, 621 00:35:43,280 --> 00:35:45,880 Speaker 1: the Fed is going to be far more aggressive than 622 00:35:45,920 --> 00:35:50,800 Speaker 1: as reflected in general expectations, and less liquidity could result 623 00:35:50,880 --> 00:35:53,359 Speaker 1: in a mark reduction and flows into equity funds, which 624 00:35:53,400 --> 00:35:58,560 Speaker 1: have been the store that stirs the drink. UM. We've 625 00:35:58,640 --> 00:36:01,840 Speaker 1: had unprecedented fuel in the markets. As I said, the 626 00:36:01,920 --> 00:36:05,440 Speaker 1: set up for two is far different than one, and 627 00:36:05,480 --> 00:36:08,960 Speaker 1: I don't think people are realizing that. UM. The set 628 00:36:09,000 --> 00:36:10,960 Speaker 1: up is far different than any other time in the 629 00:36:11,040 --> 00:36:14,520 Speaker 1: last thirteen years, and we've had positive returns basically in 630 00:36:14,680 --> 00:36:17,400 Speaker 1: all but one of those years. In fact, seventeen out 631 00:36:17,440 --> 00:36:21,400 Speaker 1: of the last nineteen years we have shown positive SMP returns. 632 00:36:21,480 --> 00:36:25,360 Speaker 1: So UM fiscal and monetary policy is no longer unbounded 633 00:36:25,719 --> 00:36:28,719 Speaker 1: and we're likely well passed the points of peak economic 634 00:36:28,760 --> 00:36:33,640 Speaker 1: activity and peak liquidity. Hey Doug, thanks so much for 635 00:36:33,760 --> 00:36:37,360 Speaker 1: joining us. Always love getting your perspective on these markets unique, 636 00:36:37,400 --> 00:36:41,759 Speaker 1: if nothing else. Doug cast Seabree's partners president giving us 637 00:36:41,880 --> 00:36:45,239 Speaker 1: his thoughts on these markets, including his fifteen surprises for 638 00:36:46,600 --> 00:36:50,319 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 639 00:36:50,440 --> 00:36:53,800 Speaker 1: us live weekdays from seven to ten AMI Eastern on 640 00:36:53,880 --> 00:36:58,080 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 641 00:36:58,239 --> 00:37:03,080 Speaker 1: to nine am for site from the best in economics, finance, investment, 642 00:37:03,239 --> 00:37:08,239 Speaker 1: and international relations. And subscribe to the Surveillance Podcast on 643 00:37:08,360 --> 00:37:12,160 Speaker 1: Apple Podcast SoundCloud, bloomberg dot com, and of course, on 644 00:37:12,280 --> 00:37:16,400 Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg.