1 00:00:00,080 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,680 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Here 5 00:00:33,720 --> 00:00:36,280 Speaker 1: in the United States and worldwide. It's all been about 6 00:00:36,360 --> 00:00:41,080 Speaker 1: elevated volatility. Is that elevated volatility technical or is it 7 00:00:41,120 --> 00:00:44,640 Speaker 1: a change in perceptions of risk worldwide and financial markets. 8 00:00:44,640 --> 00:00:47,120 Speaker 1: I'm pleased to say that we're joined by a fantastic 9 00:00:47,120 --> 00:00:49,760 Speaker 1: guest on Bloomberg Radio. It's Mike Wilson, the Morgan Stanley 10 00:00:49,840 --> 00:00:52,839 Speaker 1: chief US equity strategist and the c I oh for 11 00:00:53,000 --> 00:00:54,920 Speaker 1: Morgan Stanley. Might always got a can shout with you. 12 00:00:54,960 --> 00:00:57,080 Speaker 1: What a week so far? It's a little bit of 13 00:00:57,080 --> 00:01:00,280 Speaker 1: action we haven't had any awhile. It's actually refreshing many 14 00:01:00,280 --> 00:01:03,360 Speaker 1: ways because it's been so stagnant for so long. We're 15 00:01:03,360 --> 00:01:05,320 Speaker 1: now kind of shaking the trees a little bit. And 16 00:01:05,360 --> 00:01:07,319 Speaker 1: I think the big question folks are asking, is this 17 00:01:07,800 --> 00:01:10,400 Speaker 1: just a correction and an overbought market or is there 18 00:01:10,440 --> 00:01:13,440 Speaker 1: actually a regime shift happening beneath the surface, and we 19 00:01:13,440 --> 00:01:15,160 Speaker 1: think it's a bit bit of both. So walk me 20 00:01:15,200 --> 00:01:18,120 Speaker 1: through why you see indications of a of a regime 21 00:01:18,160 --> 00:01:19,959 Speaker 1: shift at this point when a lot of people come 22 00:01:20,000 --> 00:01:21,440 Speaker 1: on this show inside what was seen in the last 23 00:01:21,440 --> 00:01:24,319 Speaker 1: few days. It's purely technical and not fundamental. The reason 24 00:01:24,319 --> 00:01:26,840 Speaker 1: why is because of sequencing, right, So if you I 25 00:01:26,840 --> 00:01:29,920 Speaker 1: mean the ball shock happened really Monday and Tues Monday 26 00:01:29,959 --> 00:01:33,520 Speaker 1: overnight as a result of the correction we had last 27 00:01:33,600 --> 00:01:35,959 Speaker 1: the week prior. And then if you if you're really 28 00:01:36,000 --> 00:01:38,080 Speaker 1: objective about it, the reason we had a correction a 29 00:01:38,120 --> 00:01:40,200 Speaker 1: week prior was because rates kind of broke through some 30 00:01:40,319 --> 00:01:45,080 Speaker 1: levels where it started to affect valuations in the equity market, 31 00:01:45,120 --> 00:01:47,200 Speaker 1: and that was the real kickoff move. So you have 32 00:01:47,240 --> 00:01:50,600 Speaker 1: to ask yourself why did that evaluation gap down happen? 33 00:01:50,680 --> 00:01:53,320 Speaker 1: It happened because we finally reached a point where rates 34 00:01:53,320 --> 00:01:57,800 Speaker 1: are now potentially a gating factor on this nirvana equity 35 00:01:57,840 --> 00:02:00,760 Speaker 1: bowl market we've been in. Do you see volatile? It's normalizing? 36 00:02:01,120 --> 00:02:04,920 Speaker 1: What is normal right now? Certainly sub tent wasn't normal, 37 00:02:05,080 --> 00:02:06,560 Speaker 1: So so what is normal and what are we going 38 00:02:06,560 --> 00:02:10,000 Speaker 1: back to? Well? Normals fourteen uh and the US equity 39 00:02:10,040 --> 00:02:12,160 Speaker 1: market and we've been you know, as you said subten, 40 00:02:12,840 --> 00:02:15,560 Speaker 1: So we're making We're gonna make our way back to fourteen. 41 00:02:15,760 --> 00:02:18,040 Speaker 1: I don't think there's any doubt that the real question 42 00:02:18,080 --> 00:02:20,720 Speaker 1: is what's the path and do we need to overshoot 43 00:02:21,200 --> 00:02:23,400 Speaker 1: fourteen for a while. You know, everybody talks about the 44 00:02:23,400 --> 00:02:25,280 Speaker 1: FED now talking about they're going to overshoot their target 45 00:02:25,360 --> 00:02:27,920 Speaker 1: and inflation. Well why can't we overshoot the target and 46 00:02:28,000 --> 00:02:30,320 Speaker 1: volatility too? I mean, this is these are moving pieces, 47 00:02:30,760 --> 00:02:32,799 Speaker 1: you know, it's it's interesting everybody, you know, I always 48 00:02:32,800 --> 00:02:34,079 Speaker 1: likes to point to the FED, you know, as the 49 00:02:34,120 --> 00:02:36,080 Speaker 1: Fed's fault, the set and the other. You know, markets 50 00:02:36,080 --> 00:02:39,000 Speaker 1: are dynamic, and uh, you know I would say that 51 00:02:39,040 --> 00:02:42,160 Speaker 1: market participants are is you know, guilty of you know 52 00:02:42,240 --> 00:02:45,000 Speaker 1: markets overshooting is you know, they have to take the bait, right, 53 00:02:45,000 --> 00:02:46,320 Speaker 1: they have to go there. So there was a big 54 00:02:46,360 --> 00:02:48,680 Speaker 1: strategy last year. It was the short volved strategy. And 55 00:02:48,720 --> 00:02:51,120 Speaker 1: I want to ask you whether you think that actually 56 00:02:51,120 --> 00:02:54,239 Speaker 1: contributed towards love of flatility and now those products cease 57 00:02:54,320 --> 00:02:57,120 Speaker 1: to exist, whether it also means that actually we can 58 00:02:57,160 --> 00:02:59,600 Speaker 1: expect high folatility because we won't have these products they're 59 00:02:59,600 --> 00:03:02,480 Speaker 1: suppress sink. It just walk me through those two points. Yeah, 60 00:03:02,520 --> 00:03:04,359 Speaker 1: so look, first of all, you have to understand why 61 00:03:04,440 --> 00:03:06,800 Speaker 1: is why has volatively been low. There was a you know, 62 00:03:06,800 --> 00:03:08,639 Speaker 1: a call last year some people were making back in 63 00:03:08,680 --> 00:03:11,360 Speaker 1: August that the markets were really complacent and volves too 64 00:03:11,560 --> 00:03:13,840 Speaker 1: is too low, and we we just actually disagreed with 65 00:03:13,880 --> 00:03:16,000 Speaker 1: at that time because valls low for the last several 66 00:03:16,080 --> 00:03:18,679 Speaker 1: years for fundamental reasons. The fundamental reasons are, we have 67 00:03:18,680 --> 00:03:21,280 Speaker 1: a synchronous global recovery. There's no part in the world 68 00:03:21,360 --> 00:03:24,360 Speaker 1: that's seeing you know, deteriorating economic conditions. We have the 69 00:03:24,400 --> 00:03:27,920 Speaker 1: lowest earnings estimate dispersion we've seen in forty years. So 70 00:03:27,960 --> 00:03:30,359 Speaker 1: if there's no estimate dispersion, then why should there be 71 00:03:30,440 --> 00:03:33,680 Speaker 1: volatility in the marketplace. So it was fundamentally driven. And 72 00:03:33,720 --> 00:03:36,080 Speaker 1: then of course, you know, people get a little too 73 00:03:36,120 --> 00:03:38,120 Speaker 1: carried away with it and they start trying to make 74 00:03:38,160 --> 00:03:41,080 Speaker 1: money on that trend. It's a trend following. And so 75 00:03:41,200 --> 00:03:43,640 Speaker 1: we then saw structured products and notes and things that 76 00:03:43,920 --> 00:03:46,560 Speaker 1: tied into this low vollity targeting strategy not to mention 77 00:03:46,680 --> 00:03:49,119 Speaker 1: risk parity and variable nuities which targeted then as well. 78 00:03:49,640 --> 00:03:51,640 Speaker 1: And and then of course we had a catalyst with 79 00:03:51,760 --> 00:03:54,600 Speaker 1: rates moving up and all of that came crashing down. 80 00:03:54,640 --> 00:03:58,400 Speaker 1: And that's and that's always what happens. Good morning, Tom Kane, 81 00:03:58,480 --> 00:04:01,880 Speaker 1: good morning. Just very happy that our cohenk has joined 82 00:04:01,960 --> 00:04:05,640 Speaker 1: us in the studio. You know, take my entourage of course, 83 00:04:06,000 --> 00:04:09,120 Speaker 1: from the TV to radio. The entourage is very difficult 84 00:04:09,120 --> 00:04:11,400 Speaker 1: to get into the radio control which was there and 85 00:04:12,080 --> 00:04:16,680 Speaker 1: the doors. They'm sure I get a Jamila which is 86 00:04:16,880 --> 00:04:20,359 Speaker 1: somebody said, what's it Jamala? Jamila? Is this gorgeous hot 87 00:04:20,440 --> 00:04:24,200 Speaker 1: tea with honey and also the name of one of 88 00:04:24,200 --> 00:04:26,599 Speaker 1: your producers a thing as well. It's just Jamie, I mean, 89 00:04:26,720 --> 00:04:30,960 Speaker 1: you know, and and it is absolutely phenomenal. Uh. It's 90 00:04:31,000 --> 00:04:33,960 Speaker 1: gotten me, seriously, it's gotten me through the last look 91 00:04:34,000 --> 00:04:38,960 Speaker 1: at sterling hand Yeah, big moves. I think I think 92 00:04:39,080 --> 00:04:41,240 Speaker 1: send a communication from the Bank of England's pretty clear, 93 00:04:41,279 --> 00:04:43,080 Speaker 1: isn't it. We need another rate hike. Get ready for one. 94 00:04:43,360 --> 00:04:46,840 Speaker 1: Most people pricing that in for May of this year. Tom, 95 00:04:47,000 --> 00:04:48,840 Speaker 1: If you told me to halve months ago we get 96 00:04:48,839 --> 00:04:50,920 Speaker 1: two hikes in the space of a year, I might 97 00:04:50,960 --> 00:04:54,560 Speaker 1: have laughed. But if we would get to one forty sterling, 98 00:04:54,640 --> 00:04:56,920 Speaker 1: nobody believed that. No, we were in the low one 99 00:04:57,000 --> 00:05:00,440 Speaker 1: twenties it's just twelve Jeffrey, you killed that? How Rhetecker? 100 00:05:00,480 --> 00:05:02,400 Speaker 1: I believed that a great job at Morgan Stanley on 101 00:05:02,440 --> 00:05:04,719 Speaker 1: that too. And and yet here we are Mike Wilson. 102 00:05:05,120 --> 00:05:09,159 Speaker 1: This talks about what we heard from Mervin King, Rick Michigan, 103 00:05:09,720 --> 00:05:13,279 Speaker 1: Robert Kaplan and Axel Weber. Is there seemed to be 104 00:05:13,520 --> 00:05:18,280 Speaker 1: limited degrees of freedom when you get this kind of volatility? 105 00:05:18,720 --> 00:05:22,800 Speaker 1: Is that true that the choices that bankers and institutions 106 00:05:22,800 --> 00:05:26,440 Speaker 1: could make get gummed up when you have volatility or 107 00:05:26,440 --> 00:05:31,960 Speaker 1: its volatility ultimately actually a good thing for Chairman Powell. Well, 108 00:05:32,080 --> 00:05:35,200 Speaker 1: I look, it definitely brings clarity, like we're we're in 109 00:05:35,240 --> 00:05:38,200 Speaker 1: price discovery mode now right, we know you know and 110 00:05:38,360 --> 00:05:41,039 Speaker 1: and and that, and so that's why there's no leadership, 111 00:05:41,080 --> 00:05:43,080 Speaker 1: you know. With The most interesting development, the last I 112 00:05:43,080 --> 00:05:45,520 Speaker 1: think forty eight hours is not getting enough press, is 113 00:05:45,960 --> 00:05:49,360 Speaker 1: that we we have not seen any shift in leadership 114 00:05:49,520 --> 00:05:52,000 Speaker 1: either way in the client has been across the board. 115 00:05:52,000 --> 00:05:53,600 Speaker 1: And that's very unusual because typically when you have a 116 00:05:54,160 --> 00:05:56,640 Speaker 1: risk off event like this, usually what happens as the 117 00:05:56,680 --> 00:05:59,480 Speaker 1: market goes after where the portfolios are exposed, So you 118 00:05:59,480 --> 00:06:02,000 Speaker 1: would think them momentum would have been hurt. It didn't 119 00:06:02,000 --> 00:06:04,640 Speaker 1: momentum is actually held in Okay, agreed, and so we 120 00:06:04,680 --> 00:06:07,440 Speaker 1: haven't had the portfolio disruption yet. I think that's to come. 121 00:06:07,480 --> 00:06:10,640 Speaker 1: I think we're gonna have portfolio disruption now the next 122 00:06:10,680 --> 00:06:12,960 Speaker 1: couple of weeks, which is going to actually force people's hands. 123 00:06:13,320 --> 00:06:16,159 Speaker 1: One thing that we've seen in our data is even 124 00:06:16,160 --> 00:06:18,799 Speaker 1: though we had this ball shock and some people monetize 125 00:06:18,839 --> 00:06:21,360 Speaker 1: the few puts that were out there, put put buying 126 00:06:21,440 --> 00:06:24,040 Speaker 1: is not picked up, meaning people are still not hedged. 127 00:06:24,080 --> 00:06:26,880 Speaker 1: They're still buying the story of buying it, but they're 128 00:06:26,920 --> 00:06:29,000 Speaker 1: not selling it either. So that we have not seen 129 00:06:29,040 --> 00:06:31,280 Speaker 1: people heads. We have not seen people produced their portfolio 130 00:06:31,279 --> 00:06:33,920 Speaker 1: exposures because they haven't been punished for yet. So what's 131 00:06:33,920 --> 00:06:35,680 Speaker 1: gonna happen the next two weeks is the market's going 132 00:06:35,720 --> 00:06:37,800 Speaker 1: to figure out is this a regime shift that I 133 00:06:37,839 --> 00:06:39,760 Speaker 1: need to worry about from a structural standpoint, or is 134 00:06:39,760 --> 00:06:41,800 Speaker 1: it's just a temporary pause. We think it's more of 135 00:06:41,800 --> 00:06:44,800 Speaker 1: the ladder. Then we need we need new leadership to emerge. 136 00:06:45,080 --> 00:06:47,159 Speaker 1: And that's what's that's what's we're really watching in the 137 00:06:47,200 --> 00:06:50,000 Speaker 1: next two weeks. Futures up a negative five rather futures 138 00:06:50,040 --> 00:06:53,320 Speaker 1: negative five the VIX point six seven. I was just 139 00:06:53,360 --> 00:06:57,360 Speaker 1: gonna say, John Ferrell, price discovery is Mr Wilson uses it. 140 00:06:57,720 --> 00:07:00,200 Speaker 1: Price discovery is what happens when you get a be 141 00:07:01,520 --> 00:07:04,680 Speaker 1: you get price discovery. To the vet bil Vet Bill, 142 00:07:05,839 --> 00:07:09,160 Speaker 1: let's start with cleaning the carpets. When let's start let's 143 00:07:09,200 --> 00:07:12,360 Speaker 1: start with that. Let's start with clearing market a little bit, 144 00:07:12,480 --> 00:07:17,120 Speaker 1: Mike Willson. Typically the volatility curve, the VIX curve stepens 145 00:07:17,160 --> 00:07:19,920 Speaker 1: the further you go out, and that's quite intuitive. The 146 00:07:19,920 --> 00:07:22,520 Speaker 1: further you go out, the more uncertain things are, therefore 147 00:07:22,640 --> 00:07:26,400 Speaker 1: implying volatility should be higher in the future. What we 148 00:07:26,480 --> 00:07:30,440 Speaker 1: have right now is complete opposite. So at the front 149 00:07:30,520 --> 00:07:32,880 Speaker 1: end you have an inverted curve pretty much. So the 150 00:07:32,960 --> 00:07:36,160 Speaker 1: term structure looks very very weird on the VIX right now, 151 00:07:36,360 --> 00:07:38,280 Speaker 1: and I'm trying to understand when that's going to shake out. 152 00:07:38,280 --> 00:07:40,440 Speaker 1: How long it takes to shake out, So we talked 153 00:07:40,480 --> 00:07:42,640 Speaker 1: about this earlier. It takes a couple of weeks typically, 154 00:07:42,720 --> 00:07:45,720 Speaker 1: So when once you see the inversion of the VIX curve, 155 00:07:46,080 --> 00:07:49,240 Speaker 1: that's a good sign. That means that risk is getting repriced. 156 00:07:49,760 --> 00:07:51,400 Speaker 1: And we've seen that. Let me give give you, and 157 00:07:51,440 --> 00:07:53,400 Speaker 1: also I'll put in equity terms, which is very simple 158 00:07:53,400 --> 00:07:57,640 Speaker 1: to understand. We picked at ps UH in December, right 159 00:07:57,640 --> 00:08:00,640 Speaker 1: when the tax bill passed at eighteen point five times 160 00:08:00,640 --> 00:08:04,200 Speaker 1: forward twelve UH. In the overnight session Monday night, we 161 00:08:04,240 --> 00:08:06,480 Speaker 1: got down at sixteen times. All right, that's a pretty 162 00:08:06,480 --> 00:08:10,280 Speaker 1: healthy reset on price price discovery. Okay, I think sixteen 163 00:08:10,280 --> 00:08:12,600 Speaker 1: times it's probably too cheap. That doesn't mean we're not 164 00:08:12,600 --> 00:08:14,440 Speaker 1: going to go back down there, and we test that level. 165 00:08:14,800 --> 00:08:18,400 Speaker 1: The VIX curve inversion is part of that price discovery 166 00:08:18,400 --> 00:08:20,200 Speaker 1: process to people are saying, I don't know where we're 167 00:08:20,200 --> 00:08:22,160 Speaker 1: gonna sell out. Let me protect myself. I'm gonna pay 168 00:08:22,240 --> 00:08:24,440 Speaker 1: up for ball in the short term if I want 169 00:08:24,440 --> 00:08:27,200 Speaker 1: to buy puts, and the market is very confused, so 170 00:08:27,320 --> 00:08:29,640 Speaker 1: we suspect that curve will flatten out over the next 171 00:08:29,640 --> 00:08:32,000 Speaker 1: two weeks. It typically does unless there's something systemic going on, 172 00:08:32,120 --> 00:08:34,600 Speaker 1: which we do not think it's a new higher elevated 173 00:08:35,600 --> 00:08:38,120 Speaker 1: so you're gonna get it will flatten, but it'll stay 174 00:08:38,160 --> 00:08:41,080 Speaker 1: at a higher realized level than what we've been when 175 00:08:41,120 --> 00:08:43,760 Speaker 1: we've been at Mike Wilson, generous of your time this morning. 176 00:08:43,800 --> 00:09:00,720 Speaker 1: He is with Mr Gorman's Morgan Stanley, what a joy 177 00:09:00,720 --> 00:09:03,760 Speaker 1: to speak with Douglas Cass. Sbior's partners. Uh, Doug, one 178 00:09:03,760 --> 00:09:06,520 Speaker 1: of the great things we've been doing here in surveillance. 179 00:09:06,559 --> 00:09:10,160 Speaker 1: Mervin King yesterday, Rick Michigan of Colombia, and then today 180 00:09:10,520 --> 00:09:15,080 Speaker 1: President Capital of Dallas, and then axel Weber of UBS. 181 00:09:15,160 --> 00:09:17,760 Speaker 1: And within all that, there's certain moments, Doug. As you know, 182 00:09:17,880 --> 00:09:20,240 Speaker 1: it's it's not like the whole conversation. You get this 183 00:09:20,280 --> 00:09:25,479 Speaker 1: one little phrase. An axel Weber talked about his worry 184 00:09:25,520 --> 00:09:30,920 Speaker 1: of market based finance. It's not it's not two thousand seven, 185 00:09:31,360 --> 00:09:34,880 Speaker 1: two thousand eight. There were other issues then, leverage, example, 186 00:09:35,720 --> 00:09:39,800 Speaker 1: lack of huge exposure by banks. But axel Weber now 187 00:09:39,840 --> 00:09:43,400 Speaker 1: talking about market based finance, and that brings us over 188 00:09:43,440 --> 00:09:48,679 Speaker 1: to this risk parity idea. Doug Cass, what is risk parity? 189 00:09:49,440 --> 00:09:54,079 Speaker 1: Risk parity is an attempt to maximize return and minimize 190 00:09:54,200 --> 00:10:00,000 Speaker 1: risk by UM placing bets on different asset classes, typically 191 00:10:00,920 --> 00:10:04,560 Speaker 1: placing a bit on the relationship between bonds and stocks 192 00:10:05,679 --> 00:10:15,480 Speaker 1: UM and when that relationship MUF where it's been historically UM, 193 00:10:15,520 --> 00:10:19,640 Speaker 1: there is a tendency, a need to de leverage and 194 00:10:19,720 --> 00:10:24,200 Speaker 1: to cover short volatility positions and to be clear, away 195 00:10:24,280 --> 00:10:29,360 Speaker 1: from the vixed trade, the general fixed income risk parity 196 00:10:29,440 --> 00:10:33,440 Speaker 1: trade has been working like a charm for many many quarters, 197 00:10:33,480 --> 00:10:36,200 Speaker 1: hasn't it right? And all of a sudden it's it's 198 00:10:36,240 --> 00:10:38,640 Speaker 1: reversed and we saw our stocks go down at the 199 00:10:38,679 --> 00:10:42,200 Speaker 1: same time bond prices went down and yields went up. 200 00:10:43,000 --> 00:10:46,720 Speaker 1: You know, it seems to me that that that January 201 00:10:46,760 --> 00:10:50,520 Speaker 1: and early February will be looked at as a semilinel 202 00:10:50,600 --> 00:10:54,400 Speaker 1: point in time with regard to these instruments. I think 203 00:10:54,440 --> 00:10:57,960 Speaker 1: in January we experienced peak Hubris, and we had this 204 00:10:58,000 --> 00:11:04,440 Speaker 1: ministreme moment in mix and the market was basically underpricing risk. 205 00:11:05,320 --> 00:11:08,360 Speaker 1: It was building up excesses in a low vall setting, 206 00:11:08,520 --> 00:11:11,160 Speaker 1: and we knocked on the door of euphoria last month. 207 00:11:11,280 --> 00:11:13,679 Speaker 1: Here is the key question, then, Douglas cass And you 208 00:11:13,679 --> 00:11:17,760 Speaker 1: know this because you've been there. You have a structure, 209 00:11:17,800 --> 00:11:23,160 Speaker 1: Things change and you have to re hedge within moving 210 00:11:23,559 --> 00:11:27,920 Speaker 1: markets that really hasn't been tested yet, has it. No, 211 00:11:28,200 --> 00:11:31,840 Speaker 1: it was tested Friday, which will likely go down to 212 00:11:32,080 --> 00:11:36,200 Speaker 1: paraphrase Don McLean in his song American Pie the day 213 00:11:36,240 --> 00:11:40,840 Speaker 1: the short volatility trade died. Okay, But there's other asset 214 00:11:40,840 --> 00:11:44,559 Speaker 1: classes where we really haven't tested it yet, right, that's correct, 215 00:11:44,559 --> 00:11:48,480 Speaker 1: attends you know, we're in as Freedman Tom Friedman says, 216 00:11:48,559 --> 00:11:52,480 Speaker 1: we're in this flat and interconnected world. So all asset 217 00:11:52,600 --> 00:11:56,920 Speaker 1: classes have have a correlation of one these days, so 218 00:11:57,000 --> 00:11:59,760 Speaker 1: it seeps into different asset classes, and the system is 219 00:11:59,800 --> 00:12:03,920 Speaker 1: so leveraged that de risking occurs, and what they were 220 00:12:03,960 --> 00:12:10,400 Speaker 1: buying they sell in this shocking environment like with portfolio insurance, 221 00:12:10,880 --> 00:12:14,160 Speaker 1: where bias by high and sellers through. But if you 222 00:12:14,200 --> 00:12:16,480 Speaker 1: go to the basic idea, and I'm quoting here from 223 00:12:16,480 --> 00:12:19,800 Speaker 1: the American philosopher John Tucker, if you have faith in 224 00:12:19,880 --> 00:12:23,520 Speaker 1: God above, if the Bible tells you so, I'm kidding, folks, 225 00:12:23,559 --> 00:12:29,520 Speaker 1: that's from American pie. But the faith in interest rate. Yeah, 226 00:12:29,880 --> 00:12:32,760 Speaker 1: except these guys aren't driving Chevy's. They've been driving Bentley's 227 00:12:32,760 --> 00:12:35,040 Speaker 1: because they've been making a lot of money. Doug casts 228 00:12:35,520 --> 00:12:39,000 Speaker 1: in the Bible here the you know whoever I'm talking to, folks, 229 00:12:39,000 --> 00:12:42,160 Speaker 1: whether it's not seeing teleb or Douglas cast, there's a 230 00:12:42,240 --> 00:12:46,040 Speaker 1: Bible of belief. What's gonna go wrong with that Bible 231 00:12:46,200 --> 00:12:49,120 Speaker 1: of belief? When we see a thirty year bond at 232 00:12:49,120 --> 00:12:52,080 Speaker 1: a three thirty or a ten ure yield pops three 233 00:12:52,120 --> 00:12:55,800 Speaker 1: point four three point zero four. Who knows. But but 234 00:12:56,000 --> 00:12:58,720 Speaker 1: what's gonna happen to that bible that will be in 235 00:12:58,760 --> 00:13:04,400 Speaker 1: trouble at that point? Costs um very quietly. Corporate America 236 00:13:04,520 --> 00:13:07,320 Speaker 1: has leveraged up, and we know the problem of the 237 00:13:07,360 --> 00:13:11,080 Speaker 1: public sector because you know, to paraphrase Howard Marks, we've 238 00:13:11,080 --> 00:13:16,199 Speaker 1: lost physical discipline with the tax bill. Um. The interesting 239 00:13:16,240 --> 00:13:20,599 Speaker 1: thing to me is that um um, we may be 240 00:13:20,960 --> 00:13:25,720 Speaker 1: entering what I describe as portfolio insurance part do last 241 00:13:25,760 --> 00:13:31,000 Speaker 1: scene in October, and perhaps that should be our trading 242 00:13:31,080 --> 00:13:34,600 Speaker 1: template over the term. In other words, if history rhymes, 243 00:13:35,040 --> 00:13:38,560 Speaker 1: we look at what happened to equity back in October 244 00:13:39,040 --> 00:13:43,679 Speaker 1: and November and December. I do know when SMP futures 245 00:13:43,720 --> 00:13:46,960 Speaker 1: dropped by fifty five handles on no News, as it 246 00:13:47,000 --> 00:13:49,760 Speaker 1: did in the last twenty five minutes of trading yesterday, 247 00:13:50,040 --> 00:13:53,200 Speaker 1: you know we have a problem. And I would say 248 00:13:53,240 --> 00:13:54,719 Speaker 1: that there are a lot of people you know. The 249 00:13:54,840 --> 00:13:58,920 Speaker 1: question is is was Monday and Tuesday as it relates 250 00:13:59,080 --> 00:14:03,680 Speaker 1: to uh an unwinding of the short VIX trade? Was 251 00:14:03,720 --> 00:14:07,360 Speaker 1: that address rehearsal? And I would just say that last November, 252 00:14:07,400 --> 00:14:10,840 Speaker 1: Bank of America estimated that there was over over one 253 00:14:10,880 --> 00:14:15,800 Speaker 1: point five trillion linked to volatility links strategies UM. You 254 00:14:15,840 --> 00:14:18,959 Speaker 1: know risk parity. You mentioned all trending, vault targeting c 255 00:14:19,160 --> 00:14:22,360 Speaker 1: t A s. So if it took nearly a decade 256 00:14:22,400 --> 00:14:24,080 Speaker 1: for the number of e t s and e t 257 00:14:24,280 --> 00:14:27,200 Speaker 1: n s to outnumber the amount of publicly traded companies 258 00:14:27,240 --> 00:14:30,160 Speaker 1: on the exchanges, and it took nearly a decade for 259 00:14:30,240 --> 00:14:36,200 Speaker 1: the quand strategies UM to surpass active investing, something makes 260 00:14:36,240 --> 00:14:39,280 Speaker 1: me think that this size makes shift in the market 261 00:14:39,320 --> 00:14:42,800 Speaker 1: and a one point five trillion dollars invested in volatility 262 00:14:42,920 --> 00:14:46,120 Speaker 1: link strategies that took ten years in the making to 263 00:14:46,240 --> 00:14:49,760 Speaker 1: develop is not going to end in three trading sessions? Doug? 264 00:14:49,800 --> 00:14:52,160 Speaker 1: What's so important here? And this alludes again to dr 265 00:14:52,600 --> 00:14:55,760 Speaker 1: Vember of ubs is important comments today on market based 266 00:14:55,840 --> 00:14:58,920 Speaker 1: finance and what I'm calling the shadow vics economy, and 267 00:14:58,960 --> 00:15:02,560 Speaker 1: by economy I means the trading economy. Doug Cass, do 268 00:15:02,600 --> 00:15:05,720 Speaker 1: you have a real worry about over the counter structures 269 00:15:05,760 --> 00:15:08,479 Speaker 1: away from visible e t f s and other prospective 270 00:15:08,600 --> 00:15:12,040 Speaker 1: items that when we go we don't know that they're 271 00:15:12,120 --> 00:15:16,320 Speaker 1: right now we're going to discover this real quickly. Yeah, 272 00:15:16,640 --> 00:15:21,040 Speaker 1: I remember when you know, I have been outspoken about 273 00:15:21,080 --> 00:15:24,840 Speaker 1: the market's vulnerability to these volatility link strategies for about 274 00:15:24,840 --> 00:15:27,720 Speaker 1: a year. I remember doing the same thing about c 275 00:15:27,840 --> 00:15:30,800 Speaker 1: D O S and nine in two thousand seven, and 276 00:15:30,840 --> 00:15:36,960 Speaker 1: no one was concerned, and the general consensus view that 277 00:15:37,120 --> 00:15:40,040 Speaker 1: was that there would be no contagion. And look what happened. 278 00:15:41,400 --> 00:15:46,800 Speaker 1: These instruments virtually crippled and bankrupted the world's financial system. 279 00:15:46,840 --> 00:15:50,360 Speaker 1: So we don't know what's out there. Well we know 280 00:15:50,520 --> 00:15:52,160 Speaker 1: what what are you gonna do now? You say you're 281 00:15:53,040 --> 00:15:55,240 Speaker 1: in cash, you just sort of what I'm gonna do 282 00:15:55,360 --> 00:15:59,000 Speaker 1: is the coo Larry David. I'm trying to elevate small 283 00:15:59,040 --> 00:16:03,120 Speaker 1: talk to medium too. You should be concerned about these instruments. 284 00:16:03,240 --> 00:16:07,680 Speaker 1: You should use volatility opportunistically if you want them. If 285 00:16:07,680 --> 00:16:10,120 Speaker 1: you're short and you buy, you know, and stocks are 286 00:16:10,240 --> 00:16:13,000 Speaker 1: violently lower, you should be covering. And if you're a 287 00:16:13,080 --> 00:16:15,680 Speaker 1: value investor, you should buy be buying what you like 288 00:16:16,160 --> 00:16:20,040 Speaker 1: during these periods of the equilibrium, but the price probably 289 00:16:20,400 --> 00:16:22,520 Speaker 1: going to continue for a long time. You look at 290 00:16:22,560 --> 00:16:27,240 Speaker 1: what happened in after the portfolio insurance crash. There was 291 00:16:27,280 --> 00:16:30,200 Speaker 1: a test you know, you had turned around Tuesday, after 292 00:16:30,320 --> 00:16:34,760 Speaker 1: Monday's big schmicing, you had a day rally, and then 293 00:16:34,800 --> 00:16:37,680 Speaker 1: you had a test the following week, and then back 294 00:16:37,680 --> 00:16:40,280 Speaker 1: in it rallied, and then you had another test, the 295 00:16:40,320 --> 00:16:43,560 Speaker 1: final successful test in early December. So I think you're 296 00:16:43,560 --> 00:16:46,920 Speaker 1: gonna you're gonna basically follow the same pattern. Cass, thank 297 00:16:46,960 --> 00:16:49,720 Speaker 1: you so much, greatly appreciate with severies partners, some perspectives 298 00:16:49,720 --> 00:17:04,840 Speaker 1: they're using with the tinge of history. I'd love to 299 00:17:04,880 --> 00:17:08,080 Speaker 1: hear from all of our listeners. David emails in. He 300 00:17:08,200 --> 00:17:14,400 Speaker 1: says Tom not enough tar Heels Duke basketball discussion him. 301 00:17:14,520 --> 00:17:18,440 Speaker 1: We've been remiss. We're not talking tar Heels and Duke. 302 00:17:19,760 --> 00:17:22,760 Speaker 1: We gotta find the nearest approximation to that, which would 303 00:17:22,760 --> 00:17:27,080 Speaker 1: be I mean, it's tonight, eight pm tonight, right in 304 00:17:27,160 --> 00:17:29,080 Speaker 1: Chapel Hill, so it should be another great game. But 305 00:17:29,480 --> 00:17:31,640 Speaker 1: the Dukes are doing better this year. You're doing better. 306 00:17:31,680 --> 00:17:33,520 Speaker 1: They're doing very well. But they're very young, lots and 307 00:17:33,560 --> 00:17:35,640 Speaker 1: lots of freshman, lots of one and done. So coach 308 00:17:36,040 --> 00:17:38,280 Speaker 1: has to, you know, make them into a team by March. 309 00:17:38,320 --> 00:17:40,160 Speaker 1: And that's his that's what he said. But we're getting 310 00:17:40,240 --> 00:17:43,320 Speaker 1: right towards March. Baptis it's February, and like like, Duke's 311 00:17:43,359 --> 00:17:46,880 Speaker 1: doing better, Virginia's killing Virginia's great, Virginia beat Duke. Duke 312 00:17:46,920 --> 00:17:48,960 Speaker 1: loss to St. John's last weekend, and then St. John's 313 00:17:48,960 --> 00:17:52,920 Speaker 1: beat number one in Villanova. So it's been Dave, David, 314 00:17:52,960 --> 00:17:55,840 Speaker 1: if you're listening, that's it. We're doing. No more basketball talking. 315 00:17:55,920 --> 00:17:58,960 Speaker 1: We don't care about the tar Heels, don't care about David. 316 00:17:59,000 --> 00:18:02,000 Speaker 1: You are so news. But you read this on Twitter 317 00:18:02,520 --> 00:18:04,399 Speaker 1: and I looked at their press release. It was almost 318 00:18:04,400 --> 00:18:06,919 Speaker 1: an adult press release, wasn't it. Yeah, and they actually 319 00:18:06,960 --> 00:18:09,920 Speaker 1: made gap earnings for the for the first time, so 320 00:18:10,119 --> 00:18:12,359 Speaker 1: uh yeah, So I think, you know, we got a 321 00:18:12,160 --> 00:18:15,000 Speaker 1: relief rally here. The stock has been beaten down. Now 322 00:18:15,119 --> 00:18:17,359 Speaker 1: we see some green shoots that maybe, uh, some of 323 00:18:17,359 --> 00:18:19,800 Speaker 1: the changes they've made to the companies, to the offering, 324 00:18:20,119 --> 00:18:21,760 Speaker 1: you know, might be you know, resonating with with their 325 00:18:21,840 --> 00:18:23,960 Speaker 1: users and with advertisers. Well, Sweeney, you're on all of 326 00:18:23,960 --> 00:18:27,639 Speaker 1: Bloomberg Intelligence, you and your entire team and me. We 327 00:18:27,760 --> 00:18:30,959 Speaker 1: know they don't have mass, they don't have scale, they 328 00:18:31,040 --> 00:18:34,359 Speaker 1: got lousy revenue growth. Did I read a press release 329 00:18:34,440 --> 00:18:37,320 Speaker 1: today which is basically ship shaping them to be a 330 00:18:37,400 --> 00:18:40,560 Speaker 1: taken out possible, but it's gonna be much more expensive 331 00:18:40,560 --> 00:18:42,920 Speaker 1: than it was, you know, three to six, six months ago. 332 00:18:43,000 --> 00:18:44,720 Speaker 1: But I think you know what they've got going for 333 00:18:44,800 --> 00:18:47,399 Speaker 1: them now? Tit the extent that somebody wants three fifty 334 00:18:47,400 --> 00:18:51,000 Speaker 1: million uh subscribers a social network of three or fifty 335 00:18:51,160 --> 00:18:54,800 Speaker 1: uh increasingly engaged users. Um is now there's some green 336 00:18:54,800 --> 00:18:57,240 Speaker 1: shoots to say, Okay, maybe this business has righted itself. 337 00:18:57,280 --> 00:18:59,480 Speaker 1: Maybe it's found kind of a little bit way forward 338 00:18:59,520 --> 00:19:01,600 Speaker 1: from a pro perspective. So if if you're a Google 339 00:19:01,640 --> 00:19:04,760 Speaker 1: and you're looking for a social network to cobble onto 340 00:19:04,840 --> 00:19:07,520 Speaker 1: your massive platform, maybe now you have a little bit 341 00:19:07,520 --> 00:19:09,560 Speaker 1: more confidence in the business. You're just gonna have to 342 00:19:09,560 --> 00:19:11,360 Speaker 1: pay more than you would have three or six months ago. 343 00:19:11,480 --> 00:19:14,840 Speaker 1: Paul Sweeney, How is it that for all previous quarters 344 00:19:14,880 --> 00:19:17,680 Speaker 1: I was always informed that the most important and only 345 00:19:17,760 --> 00:19:22,159 Speaker 1: relevant number was how many monthly active users there are 346 00:19:22,400 --> 00:19:26,440 Speaker 1: of Twitter? That actually declined, at least in the United States. 347 00:19:26,920 --> 00:19:30,920 Speaker 1: Why do investors now seem to throw out that, turn 348 00:19:31,040 --> 00:19:34,320 Speaker 1: that into a footnote, and turn a ninety one million 349 00:19:34,359 --> 00:19:37,719 Speaker 1: dollar profit after being a being a public company for 350 00:19:37,760 --> 00:19:40,920 Speaker 1: four years and a real company for twelve. How Why 351 00:19:41,000 --> 00:19:43,119 Speaker 1: is it that that becomes the headline. I think the 352 00:19:43,160 --> 00:19:45,560 Speaker 1: investors that are left in this stock have said, Okay, 353 00:19:45,640 --> 00:19:48,879 Speaker 1: we're three or fifty million users, the monthly active users 354 00:19:48,960 --> 00:19:50,920 Speaker 1: that ain't gonna good grow anymore. We're not going to 355 00:19:50,960 --> 00:19:54,120 Speaker 1: be a billion dollar user base like Facebook or Instagram. 356 00:19:54,280 --> 00:19:56,360 Speaker 1: What we are going to be is a much more 357 00:19:56,520 --> 00:19:58,920 Speaker 1: engaged user base. And that's what we're going to pitch 358 00:19:58,920 --> 00:20:01,320 Speaker 1: to advertisers, the fact that users are more engaged. So 359 00:20:01,359 --> 00:20:03,800 Speaker 1: we're not looking at monthly active users, but the bulls 360 00:20:03,800 --> 00:20:07,040 Speaker 1: are looking at daily active users, which were up twelve 361 00:20:07,119 --> 00:20:09,399 Speaker 1: percent year of a year. That was the metric that 362 00:20:09,480 --> 00:20:12,720 Speaker 1: has become the metric that has kind of replaced monthly 363 00:20:12,720 --> 00:20:15,520 Speaker 1: active users because a monthly active user story isn't very good. 364 00:20:15,680 --> 00:20:18,280 Speaker 1: So that's the don't raise the bridge, lower the river 365 00:20:18,400 --> 00:20:22,320 Speaker 1: exactly exactly and and uh, we'll see, but for this quarter, 366 00:20:22,400 --> 00:20:25,919 Speaker 1: that's that was enough. So who would buy it? You know, 367 00:20:25,960 --> 00:20:28,080 Speaker 1: I don't know anybody again, anybody who's looking for a 368 00:20:28,160 --> 00:20:31,560 Speaker 1: big social who you know doesn't have a big social play. 369 00:20:31,600 --> 00:20:36,879 Speaker 1: Is that Google? Is that Apple? Um Disney? Uh? Possibly possibly, 370 00:20:36,920 --> 00:20:38,439 Speaker 1: but you know they've got enough on their plate now 371 00:20:38,480 --> 00:20:40,919 Speaker 1: with trying to close sixty billion dollars or the assets 372 00:20:40,960 --> 00:20:43,280 Speaker 1: from from news Corps. But you know, but it's now 373 00:20:43,280 --> 00:20:46,760 Speaker 1: getting I think probably too expensive for any traditional media company. 374 00:20:46,760 --> 00:20:48,359 Speaker 1: I think now you're looking tech and you're just looking 375 00:20:48,400 --> 00:20:51,280 Speaker 1: at tech. Who somebody who doesn't have a big social 376 00:20:51,359 --> 00:20:53,080 Speaker 1: platform per se and that you know again, then the 377 00:20:53,240 --> 00:20:56,440 Speaker 1: number one name that I hear most of investors is Google. Um, 378 00:20:56,480 --> 00:20:59,720 Speaker 1: it's still you know, a relatively small acquisition for Google. 379 00:20:59,880 --> 00:21:04,200 Speaker 1: Is Twitter a growth story? Uh? No? Um? Right now? 380 00:21:04,240 --> 00:21:06,280 Speaker 1: We had two percent growth in revenue and that was 381 00:21:06,320 --> 00:21:08,119 Speaker 1: the first growth we've had in four years. So no, 382 00:21:08,240 --> 00:21:11,680 Speaker 1: it's not because internet advertising is growing fifteen to twenty 383 00:21:11,760 --> 00:21:13,680 Speaker 1: percent a year and they only grew two percent. So 384 00:21:14,080 --> 00:21:16,760 Speaker 1: it's an engagement story, and it's you know, we'll see 385 00:21:16,800 --> 00:21:19,879 Speaker 1: some question, where's the advertising revenue? I'm on Twitter all 386 00:21:19,920 --> 00:21:22,920 Speaker 1: the time and I never see it. We're we're Facebook, 387 00:21:22,960 --> 00:21:25,439 Speaker 1: I see it. Yeah, where is it? It's it's in 388 00:21:25,480 --> 00:21:28,480 Speaker 1: the feed. Maybe you're just not targeted by their advertisers. 389 00:21:28,480 --> 00:21:32,200 Speaker 1: I don't know, maybe the market Well, why target anybody 390 00:21:32,240 --> 00:21:34,800 Speaker 1: that has lots of users? Yeah, and lots of followers, 391 00:21:34,840 --> 00:21:39,359 Speaker 1: I beg your pardon, lots of supposable income. Yeah, So No, 392 00:21:39,480 --> 00:21:43,080 Speaker 1: they're I mean, they're the advertisers are there. But the 393 00:21:43,160 --> 00:21:45,399 Speaker 1: advertisers that you really want to see, the big brand 394 00:21:45,440 --> 00:21:48,040 Speaker 1: advertisers of Coca Cola is at General Motors and and 395 00:21:48,080 --> 00:21:50,840 Speaker 1: they're not They're they're on Facebook, they're on Instagram because 396 00:21:50,840 --> 00:21:53,840 Speaker 1: each of those platforms books. Yeah, not even Snap a 397 00:21:53,840 --> 00:21:55,240 Speaker 1: little bit. But you know, you gotta be somewhere where 398 00:21:55,240 --> 00:21:57,080 Speaker 1: you can get a billion, a billion five users, and 399 00:21:57,359 --> 00:22:01,440 Speaker 1: those opportunities are limited, and they're pretty much you know, YouTube, Facebook, 400 00:22:01,440 --> 00:22:04,000 Speaker 1: Instagram kind of thing. Juda Martin Adams killed it yesterday. 401 00:22:04,000 --> 00:22:06,960 Speaker 1: Can I just say she was an equity and analysis 402 00:22:06,960 --> 00:22:09,200 Speaker 1: and the heat of it all and she just killed 403 00:22:09,240 --> 00:22:10,960 Speaker 1: a past tweene you thank you so much with Bloomberg 404 00:22:10,960 --> 00:22:29,280 Speaker 1: Intelligence on Twitter. With James Trevidis, you've got to outline 405 00:22:29,280 --> 00:22:31,359 Speaker 1: your topics because we could go with the Altimo for 406 00:22:31,400 --> 00:22:34,480 Speaker 1: an hour, and we will today on parades and then 407 00:22:34,480 --> 00:22:37,560 Speaker 1: on the Olympics, Vice President Pence uh and what we're 408 00:22:37,600 --> 00:22:40,960 Speaker 1: doing with our two Koreas, And so we begin with 409 00:22:41,080 --> 00:22:43,840 Speaker 1: James Trevidis. I do want to say that I wandered 410 00:22:44,840 --> 00:22:47,560 Speaker 1: a pim with the beast, the new puppy of the 411 00:22:47,600 --> 00:22:50,919 Speaker 1: house by the bookshelves the other day, and there was 412 00:22:51,119 --> 00:22:54,560 Speaker 1: The Leader's Bookshelf, which I really can't say enough about. 413 00:22:54,600 --> 00:22:57,520 Speaker 1: It was my book of the summer a few years ago. 414 00:22:57,680 --> 00:23:01,479 Speaker 1: James Trevidis with seventy books that you need to know. 415 00:23:01,760 --> 00:23:04,400 Speaker 1: From his book The Leader's Bookshelf. I just can't say 416 00:23:04,520 --> 00:23:10,200 Speaker 1: enough about the quality everybody in The Leader's Bookshelf. Admiral paraded, 417 00:23:10,640 --> 00:23:13,760 Speaker 1: and as you say, and you're wonderful essay, pushing against 418 00:23:13,840 --> 00:23:18,439 Speaker 1: the president. You enjoyed praying for rain at Annapolis, hoping 419 00:23:18,480 --> 00:23:21,119 Speaker 1: like crazy you would not have to parade as a midshipman, 420 00:23:21,160 --> 00:23:24,520 Speaker 1: didn't you? I did, And I can assure you all 421 00:23:24,600 --> 00:23:27,320 Speaker 1: four thousand members of the Brigade of Midshipman hate to 422 00:23:27,480 --> 00:23:30,200 Speaker 1: march in parades. No one likes them. So that's kind 423 00:23:30,200 --> 00:23:32,240 Speaker 1: of reason why it doesn't make a lot of sense. 424 00:23:32,320 --> 00:23:35,879 Speaker 1: You're taking a long weekend away from all these troops 425 00:23:35,880 --> 00:23:38,159 Speaker 1: who have to set up the parade route. They have 426 00:23:38,200 --> 00:23:40,879 Speaker 1: to create the security, they have to move their tanks 427 00:23:40,920 --> 00:23:43,920 Speaker 1: to Washington, they have to march, they have to clean 428 00:23:43,960 --> 00:23:46,040 Speaker 1: it all up afterward. It's really not a good deal 429 00:23:46,119 --> 00:23:49,399 Speaker 1: for the troops. Tom But within second, oh, please go ahead, 430 00:23:49,480 --> 00:23:53,680 Speaker 1: please please Adamiral, go ahead. Secondly, you know that this 431 00:23:53,760 --> 00:23:57,200 Speaker 1: isn't huge money, but it's probably twenty to thirty million dollars. 432 00:23:57,240 --> 00:23:59,360 Speaker 1: We've probably got better used for that kind of funding. 433 00:23:59,400 --> 00:24:02,000 Speaker 1: And Thirdly, and I think this is most important TOIME. 434 00:24:03,119 --> 00:24:06,399 Speaker 1: We're a big, powerful, capable military. We don't need to 435 00:24:06,440 --> 00:24:10,159 Speaker 1: act like North Korea and put on these silly parade. 436 00:24:10,359 --> 00:24:12,080 Speaker 1: I just don't think it makes a lot of sense. 437 00:24:12,119 --> 00:24:16,320 Speaker 1: It's just an anecdote, folks. I enjoyed the Bestill Day parade, 438 00:24:16,680 --> 00:24:18,960 Speaker 1: Pim Fox. I got a glimpse of Charles de gaul 439 00:24:19,560 --> 00:24:22,320 Speaker 1: and it was a fragile France. They were coming out 440 00:24:22,320 --> 00:24:26,359 Speaker 1: of World War Two, They had some challenging politics and 441 00:24:26,400 --> 00:24:29,520 Speaker 1: it was fraught with the fragility of France. Admiral. We 442 00:24:29,560 --> 00:24:33,320 Speaker 1: don't have that fragility, do we not at all? And 443 00:24:33,480 --> 00:24:36,520 Speaker 1: this time you have put your finger precisely on this. 444 00:24:36,720 --> 00:24:40,840 Speaker 1: I think nations that need to show off. We've mentioned 445 00:24:40,840 --> 00:24:43,720 Speaker 1: North Korea, We've mentioned France in those days. I think 446 00:24:43,760 --> 00:24:46,320 Speaker 1: it's the third one to think about it. The Soviet Union, 447 00:24:46,720 --> 00:24:49,480 Speaker 1: which used to play the how big is my missile game, 448 00:24:49,560 --> 00:24:52,960 Speaker 1: pushing it down the streets of Moscow, and it just 449 00:24:53,400 --> 00:24:56,439 Speaker 1: is not what you have to do. We have quiet 450 00:24:56,480 --> 00:24:59,320 Speaker 1: confidence we are the most lethal military in the world. 451 00:24:59,359 --> 00:25:02,280 Speaker 1: We don't need to right add most of Rita's Let's 452 00:25:02,280 --> 00:25:05,240 Speaker 1: turn our attention now if we can to the Olympics 453 00:25:05,280 --> 00:25:09,360 Speaker 1: and North and South Korea. The younger sister of the 454 00:25:09,400 --> 00:25:14,000 Speaker 1: occurred North Korean leader is scheduled to attend. They're gonna 455 00:25:14,040 --> 00:25:18,840 Speaker 1: do up closing personal weather Well, well, let's we'll see 456 00:25:18,840 --> 00:25:21,479 Speaker 1: whether they do up closing personal with her. But I 457 00:25:21,520 --> 00:25:24,120 Speaker 1: want to get your thoughts on whether this could indeed 458 00:25:24,720 --> 00:25:29,360 Speaker 1: mark some kind of change or at least the modest 459 00:25:30,000 --> 00:25:33,240 Speaker 1: improvement in the relationship between North and South Korea and 460 00:25:33,280 --> 00:25:36,440 Speaker 1: therefore between the United States and North Korea. I think 461 00:25:36,520 --> 00:25:40,160 Speaker 1: you've correctly categorized it as modest um. There is a 462 00:25:40,200 --> 00:25:43,280 Speaker 1: sliver of hope here, and we should focus on it 463 00:25:43,400 --> 00:25:46,800 Speaker 1: and see what can grow from this tiny little seed. Uh. 464 00:25:46,800 --> 00:25:49,080 Speaker 1: And this, in the end is the historic purpose of 465 00:25:49,119 --> 00:25:51,320 Speaker 1: the Olympics. If you go back even to ancient Greece, 466 00:25:51,400 --> 00:25:53,919 Speaker 1: this was the time when you stopped fighting, you came together, 467 00:25:54,000 --> 00:25:59,240 Speaker 1: and sometimes there can be positive results. I wouldn't overweighted, 468 00:25:59,280 --> 00:26:03,480 Speaker 1: I wouldn't necessarily better on it. Things will probably get 469 00:26:03,520 --> 00:26:06,439 Speaker 1: better before they'll get worse again if you will. But 470 00:26:06,520 --> 00:26:09,439 Speaker 1: I think for the next to three weeks there is 471 00:26:09,480 --> 00:26:12,640 Speaker 1: a small opening North Korea, South Korea. If we could 472 00:26:12,720 --> 00:26:16,480 Speaker 1: bring the United States and China into the equation, go 473 00:26:16,600 --> 00:26:20,040 Speaker 1: from two party communication, if you will, to four party 474 00:26:20,160 --> 00:26:22,320 Speaker 1: I think we'd have a chance of moving something here. 475 00:26:22,720 --> 00:26:25,400 Speaker 1: Let's face it. In the end, all roads to Pyunyang, 476 00:26:25,560 --> 00:26:29,359 Speaker 1: the capital of North Korea, lead through Beijing. I wonder 477 00:26:29,359 --> 00:26:31,000 Speaker 1: if I could just turn your attention now. I know 478 00:26:31,040 --> 00:26:32,840 Speaker 1: I'm kind of going off script, Tom, but I just 479 00:26:32,920 --> 00:26:36,199 Speaker 1: had to draw on the admiralst expertise because we have 480 00:26:36,320 --> 00:26:41,880 Speaker 1: a NATO member, Turkey that is involved in a conflict 481 00:26:42,080 --> 00:26:44,560 Speaker 1: that in one way or another seems to be in 482 00:26:44,640 --> 00:26:48,000 Speaker 1: direct opposition to US stated policy. I wonder if you 483 00:26:48,040 --> 00:26:50,600 Speaker 1: could just give us your thoughts about Turkey and whether 484 00:26:50,640 --> 00:26:55,720 Speaker 1: that is a potential UH point of conflagration that may 485 00:26:55,960 --> 00:26:58,679 Speaker 1: end up being much more important than we currently believe. 486 00:27:00,560 --> 00:27:02,760 Speaker 1: As you know, I spent four years as this Supreme 487 00:27:02,800 --> 00:27:06,800 Speaker 1: eli Commander of NATO and I've operated with commanded Turkish 488 00:27:06,840 --> 00:27:09,240 Speaker 1: troops in combat. I want to start by saying a 489 00:27:09,640 --> 00:27:13,679 Speaker 1: they're very capable and professional and be uh. They have 490 00:27:14,680 --> 00:27:18,639 Speaker 1: a lot of capability. And see they were contributors to 491 00:27:18,680 --> 00:27:21,880 Speaker 1: the alliance. We had Turkish troops in Afghanistan, in Libya, 492 00:27:21,920 --> 00:27:25,800 Speaker 1: in the Balkans, in Syrian fact on missions there. So 493 00:27:26,320 --> 00:27:29,679 Speaker 1: they have been historically quite good. Now here's the problem 494 00:27:29,800 --> 00:27:36,520 Speaker 1: they are Turkey is deeply concerned about the Kurdish situation. 495 00:27:36,600 --> 00:27:40,560 Speaker 1: They have what they perceive as Kurdish terrorists operating against them, 496 00:27:41,000 --> 00:27:45,320 Speaker 1: and those Kurdish forces have become the object of a 497 00:27:45,359 --> 00:27:49,000 Speaker 1: Turkish incursion in Syria and it does put us in 498 00:27:49,080 --> 00:27:52,719 Speaker 1: opposition with Turkey. And this is the biggest problem in 499 00:27:52,760 --> 00:27:57,200 Speaker 1: the region because it could conceivably crack the alliance. So 500 00:27:57,359 --> 00:27:59,800 Speaker 1: what should we do. We should be working with our 501 00:28:00,000 --> 00:28:04,440 Speaker 1: Turkish allies, and they are our allies, to create kind 502 00:28:04,480 --> 00:28:07,680 Speaker 1: of a buffer zone between Turkey and these Kurdish forces. 503 00:28:07,720 --> 00:28:10,040 Speaker 1: I think that's possible to do. It's going to be 504 00:28:10,160 --> 00:28:14,639 Speaker 1: very delicate diplomacy, and it will require us continued attention 505 00:28:14,800 --> 00:28:18,119 Speaker 1: over the weeks and months ahead. Um well, I'm reading 506 00:28:18,160 --> 00:28:22,160 Speaker 1: to Pim's well taken point on Turkey Thomas Madden's wonderful 507 00:28:22,200 --> 00:28:25,480 Speaker 1: one volume on Venice, and a few years ago, Venice 508 00:28:25,520 --> 00:28:29,160 Speaker 1: was worried about controlling the Eastern Mediterranean. How does our 509 00:28:29,280 --> 00:28:34,960 Speaker 1: navy move around the Mediterranean, the Bosphorus and into the 510 00:28:35,040 --> 00:28:39,560 Speaker 1: Black Seat. Can we just go where we want to go, uh, 511 00:28:39,680 --> 00:28:43,520 Speaker 1: to get into the Black Sea. Turkey controls, as you know, Tom, 512 00:28:43,600 --> 00:28:47,400 Speaker 1: the Strait that leads into the Black Sea. Um. This 513 00:28:47,480 --> 00:28:50,520 Speaker 1: is another reason that this is so important to keep 514 00:28:50,520 --> 00:28:54,800 Speaker 1: Turkey on side in this alliance. The Act the Strait 515 00:28:54,960 --> 00:28:58,640 Speaker 1: is governed by what's called Montro Convention, which has limits 516 00:28:58,680 --> 00:29:01,160 Speaker 1: on the size of ships and a number of very 517 00:29:01,200 --> 00:29:05,240 Speaker 1: technical aspects. UM. But we're in a vastly better place 518 00:29:05,280 --> 00:29:08,520 Speaker 1: than we were, say in the fifteen hundreds when the 519 00:29:08,560 --> 00:29:13,320 Speaker 1: Ottoman Empire, the predecessor of today's Turkey, was battering the 520 00:29:13,360 --> 00:29:17,560 Speaker 1: gates of Venice. On battering the gates at the Vienna. 521 00:29:17,920 --> 00:29:21,480 Speaker 1: We've defeated them in the ocean at La Ponto. Um. 522 00:29:21,520 --> 00:29:24,200 Speaker 1: This is a situation we don't want to return to. 523 00:29:24,320 --> 00:29:26,680 Speaker 1: We want to keep Turkey with us in the navy. 524 00:29:26,720 --> 00:29:28,400 Speaker 1: Did you ever have to do the thing where in 525 00:29:28,400 --> 00:29:30,920 Speaker 1: your admiral's outfit you had to steer a gondola with 526 00:29:31,080 --> 00:29:34,320 Speaker 1: that or you know, way aubof the ground. Of course 527 00:29:34,320 --> 00:29:36,720 Speaker 1: I did, Tom, and I sang at the same time, 528 00:29:36,880 --> 00:29:39,479 Speaker 1: and that's an important part of learning to be an admiral, 529 00:29:39,600 --> 00:29:43,120 Speaker 1: the politics of being an admiral. Then US one oh one. 530 00:29:43,200 --> 00:29:45,280 Speaker 1: I held it. I was holding his bags while he 531 00:29:45,320 --> 00:29:49,640 Speaker 1: was doing I could just see Travilla, the gondola through theails. 532 00:29:49,920 --> 00:29:58,920 Speaker 1: Thank you, James Trevisa Toughs. Thanks for listening to the 533 00:29:58,960 --> 00:30:05,440 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 534 00:30:05,800 --> 00:30:10,040 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 535 00:30:10,080 --> 00:30:14,280 Speaker 1: Tom Keene before the podcast. You can always catch us worldwide. 536 00:30:14,800 --> 00:30:15,880 Speaker 1: I'm Bloomberg Radio