Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Here
Speaker 1: in the United States and worldwide. It's all been about
Speaker 1: elevated volatility. Is that elevated volatility technical or is it
Speaker 1: a change in perceptions of risk worldwide and financial markets.
Speaker 1: I'm pleased to say that we're joined by a fantastic
Speaker 1: guest on Bloomberg Radio. It's Mike Wilson, the Morgan Stanley
Speaker 1: chief US equity strategist and the c I oh for
Speaker 1: Morgan Stanley. Might always got a can shout with you.
Speaker 1: What a week so far? It's a little bit of
Speaker 1: action we haven't had any awhile. It's actually refreshing many
Speaker 1: ways because it's been so stagnant for so long. We're
Speaker 1: now kind of shaking the trees a little bit. And
Speaker 1: I think the big question folks are asking, is this
Speaker 1: just a correction and an overbought market or is there
Speaker 1: actually a regime shift happening beneath the surface, and we
Speaker 1: think it's a bit bit of both. So walk me
Speaker 1: through why you see indications of a of a regime
Speaker 1: shift at this point when a lot of people come
Speaker 1: on this show inside what was seen in the last
Speaker 1: few days. It's purely technical and not fundamental. The reason
Speaker 1: why is because of sequencing, right, So if you I
Speaker 1: mean the ball shock happened really Monday and Tues Monday
Speaker 1: overnight as a result of the correction we had last
Speaker 1: the week prior. And then if you if you're really
Speaker 1: objective about it, the reason we had a correction a
Speaker 1: week prior was because rates kind of broke through some
Speaker 1: levels where it started to affect valuations in the equity market,
Speaker 1: and that was the real kickoff move. So you have
Speaker 1: to ask yourself why did that evaluation gap down happen?
Speaker 1: It happened because we finally reached a point where rates
Speaker 1: are now potentially a gating factor on this nirvana equity
Speaker 1: bowl market we've been in. Do you see volatile? It's normalizing?
Speaker 1: What is normal right now? Certainly sub tent wasn't normal,
Speaker 1: So so what is normal and what are we going
Speaker 1: back to? Well? Normals fourteen uh and the US equity
Speaker 1: market and we've been you know, as you said subten,
Speaker 1: So we're making We're gonna make our way back to fourteen.
Speaker 1: I don't think there's any doubt that the real question
Speaker 1: is what's the path and do we need to overshoot
Speaker 1: fourteen for a while. You know, everybody talks about the
Speaker 1: FED now talking about they're going to overshoot their target
Speaker 1: and inflation. Well why can't we overshoot the target and
Speaker 1: volatility too? I mean, this is these are moving pieces,
Speaker 1: you know, it's it's interesting everybody, you know, I always
Speaker 1: likes to point to the FED, you know, as the
Speaker 1: Fed's fault, the set and the other. You know, markets
Speaker 1: are dynamic, and uh, you know I would say that
Speaker 1: market participants are is you know, guilty of you know
Speaker 1: markets overshooting is you know, they have to take the bait, right,
Speaker 1: they have to go there. So there was a big
Speaker 1: strategy last year. It was the short volved strategy. And
Speaker 1: I want to ask you whether you think that actually
Speaker 1: contributed towards love of flatility and now those products cease
Speaker 1: to exist, whether it also means that actually we can
Speaker 1: expect high folatility because we won't have these products they're
Speaker 1: suppress sink. It just walk me through those two points. Yeah,
Speaker 1: so look, first of all, you have to understand why
Speaker 1: is why has volatively been low. There was a you know,
Speaker 1: a call last year some people were making back in
Speaker 1: August that the markets were really complacent and volves too
Speaker 1: is too low, and we we just actually disagreed with
Speaker 1: at that time because valls low for the last several
Speaker 1: years for fundamental reasons. The fundamental reasons are, we have
Speaker 1: a synchronous global recovery. There's no part in the world
Speaker 1: that's seeing you know, deteriorating economic conditions. We have the
Speaker 1: lowest earnings estimate dispersion we've seen in forty years. So
Speaker 1: if there's no estimate dispersion, then why should there be
Speaker 1: volatility in the marketplace. So it was fundamentally driven. And
Speaker 1: then of course, you know, people get a little too
Speaker 1: carried away with it and they start trying to make
Speaker 1: money on that trend. It's a trend following. And so
Speaker 1: we then saw structured products and notes and things that
Speaker 1: tied into this low vollity targeting strategy not to mention
Speaker 1: risk parity and variable nuities which targeted then as well.
Speaker 1: And and then of course we had a catalyst with
Speaker 1: rates moving up and all of that came crashing down.
Speaker 1: And that's and that's always what happens. Good morning, Tom Kane,
Speaker 1: good morning. Just very happy that our cohenk has joined
Speaker 1: us in the studio. You know, take my entourage of course,
Speaker 1: from the TV to radio. The entourage is very difficult
Speaker 1: to get into the radio control which was there and
Speaker 1: the doors. They'm sure I get a Jamila which is
Speaker 1: somebody said, what's it Jamala? Jamila? Is this gorgeous hot
Speaker 1: tea with honey and also the name of one of
Speaker 1: your producers a thing as well. It's just Jamie, I mean,
Speaker 1: you know, and and it is absolutely phenomenal. Uh. It's
Speaker 1: gotten me, seriously, it's gotten me through the last look
Speaker 1: at sterling hand Yeah, big moves. I think I think
Speaker 1: send a communication from the Bank of England's pretty clear,
Speaker 1: isn't it. We need another rate hike. Get ready for one.
Speaker 1: Most people pricing that in for May of this year. Tom,
Speaker 1: If you told me to halve months ago we get
Speaker 1: two hikes in the space of a year, I might
Speaker 1: have laughed. But if we would get to one forty sterling,
Speaker 1: nobody believed that. No, we were in the low one
Speaker 1: twenties it's just twelve Jeffrey, you killed that? How Rhetecker?
Speaker 1: I believed that a great job at Morgan Stanley on
Speaker 1: that too. And and yet here we are Mike Wilson.
Speaker 1: This talks about what we heard from Mervin King, Rick Michigan,
Speaker 1: Robert Kaplan and Axel Weber. Is there seemed to be
Speaker 1: limited degrees of freedom when you get this kind of volatility?
Speaker 1: Is that true that the choices that bankers and institutions
Speaker 1: could make get gummed up when you have volatility or
Speaker 1: its volatility ultimately actually a good thing for Chairman Powell. Well,
Speaker 1: I look, it definitely brings clarity, like we're we're in
Speaker 1: price discovery mode now right, we know you know and
Speaker 1: and and that, and so that's why there's no leadership,
Speaker 1: you know. With The most interesting development, the last I
Speaker 1: think forty eight hours is not getting enough press, is
Speaker 1: that we we have not seen any shift in leadership
Speaker 1: either way in the client has been across the board.
Speaker 1: And that's very unusual because typically when you have a
Speaker 1: risk off event like this, usually what happens as the
Speaker 1: market goes after where the portfolios are exposed, So you
Speaker 1: would think them momentum would have been hurt. It didn't
Speaker 1: momentum is actually held in Okay, agreed, and so we
Speaker 1: haven't had the portfolio disruption yet. I think that's to come.
Speaker 1: I think we're gonna have portfolio disruption now the next
Speaker 1: couple of weeks, which is going to actually force people's hands.
Speaker 1: One thing that we've seen in our data is even
Speaker 1: though we had this ball shock and some people monetize
Speaker 1: the few puts that were out there, put put buying
Speaker 1: is not picked up, meaning people are still not hedged.
Speaker 1: They're still buying the story of buying it, but they're
Speaker 1: not selling it either. So that we have not seen
Speaker 1: people heads. We have not seen people produced their portfolio
Speaker 1: exposures because they haven't been punished for yet. So what's
Speaker 1: gonna happen the next two weeks is the market's going
Speaker 1: to figure out is this a regime shift that I
Speaker 1: need to worry about from a structural standpoint, or is
Speaker 1: it's just a temporary pause. We think it's more of
Speaker 1: the ladder. Then we need we need new leadership to emerge.
Speaker 1: And that's what's that's what's we're really watching in the
Speaker 1: next two weeks. Futures up a negative five rather futures
Speaker 1: negative five the VIX point six seven. I was just
Speaker 1: gonna say, John Ferrell, price discovery is Mr Wilson uses it.
Speaker 1: Price discovery is what happens when you get a be
Speaker 1: you get price discovery. To the vet bil Vet Bill,
Speaker 1: let's start with cleaning the carpets. When let's start let's
Speaker 1: start with that. Let's start with clearing market a little bit,
Speaker 1: Mike Willson. Typically the volatility curve, the VIX curve stepens
Speaker 1: the further you go out, and that's quite intuitive. The
Speaker 1: further you go out, the more uncertain things are, therefore
Speaker 1: implying volatility should be higher in the future. What we
Speaker 1: have right now is complete opposite. So at the front
Speaker 1: end you have an inverted curve pretty much. So the
Speaker 1: term structure looks very very weird on the VIX right now,
Speaker 1: and I'm trying to understand when that's going to shake out.
Speaker 1: How long it takes to shake out, So we talked
Speaker 1: about this earlier. It takes a couple of weeks typically,
Speaker 1: So when once you see the inversion of the VIX curve,
Speaker 1: that's a good sign. That means that risk is getting repriced.
Speaker 1: And we've seen that. Let me give give you, and
Speaker 1: also I'll put in equity terms, which is very simple
Speaker 1: to understand. We picked at ps UH in December, right
Speaker 1: when the tax bill passed at eighteen point five times
Speaker 1: forward twelve UH. In the overnight session Monday night, we
Speaker 1: got down at sixteen times. All right, that's a pretty
Speaker 1: healthy reset on price price discovery. Okay, I think sixteen
Speaker 1: times it's probably too cheap. That doesn't mean we're not
Speaker 1: going to go back down there, and we test that level.
Speaker 1: The VIX curve inversion is part of that price discovery
Speaker 1: process to people are saying, I don't know where we're
Speaker 1: gonna sell out. Let me protect myself. I'm gonna pay
Speaker 1: up for ball in the short term if I want
Speaker 1: to buy puts, and the market is very confused, so
Speaker 1: we suspect that curve will flatten out over the next
Speaker 1: two weeks. It typically does unless there's something systemic going on,
Speaker 1: which we do not think it's a new higher elevated
Speaker 1: so you're gonna get it will flatten, but it'll stay
Speaker 1: at a higher realized level than what we've been when
Speaker 1: we've been at Mike Wilson, generous of your time this morning.
Speaker 1: He is with Mr Gorman's Morgan Stanley, what a joy
Speaker 1: to speak with Douglas Cass. Sbior's partners. Uh, Doug, one
Speaker 1: of the great things we've been doing here in surveillance.
Speaker 1: Mervin King yesterday, Rick Michigan of Colombia, and then today
Speaker 1: President Capital of Dallas, and then axel Weber of UBS.
Speaker 1: And within all that, there's certain moments, Doug. As you know,
Speaker 1: it's it's not like the whole conversation. You get this
Speaker 1: one little phrase. An axel Weber talked about his worry
Speaker 1: of market based finance. It's not it's not two thousand seven,
Speaker 1: two thousand eight. There were other issues then, leverage, example,
Speaker 1: lack of huge exposure by banks. But axel Weber now
Speaker 1: talking about market based finance, and that brings us over
Speaker 1: to this risk parity idea. Doug Cass, what is risk parity?
Speaker 1: Risk parity is an attempt to maximize return and minimize
Speaker 1: risk by UM placing bets on different asset classes, typically
Speaker 1: placing a bit on the relationship between bonds and stocks
Speaker 1: UM and when that relationship MUF where it's been historically UM,
Speaker 1: there is a tendency, a need to de leverage and
Speaker 1: to cover short volatility positions and to be clear, away
Speaker 1: from the vixed trade, the general fixed income risk parity
Speaker 1: trade has been working like a charm for many many quarters,
Speaker 1: hasn't it right? And all of a sudden it's it's
Speaker 1: reversed and we saw our stocks go down at the
Speaker 1: same time bond prices went down and yields went up.
Speaker 1: You know, it seems to me that that that January
Speaker 1: and early February will be looked at as a semilinel
Speaker 1: point in time with regard to these instruments. I think
Speaker 1: in January we experienced peak Hubris, and we had this
Speaker 1: ministreme moment in mix and the market was basically underpricing risk.
Speaker 1: It was building up excesses in a low vall setting,
Speaker 1: and we knocked on the door of euphoria last month.
Speaker 1: Here is the key question, then, Douglas cass And you
Speaker 1: know this because you've been there. You have a structure,
Speaker 1: Things change and you have to re hedge within moving
Speaker 1: markets that really hasn't been tested yet, has it. No,
Speaker 1: it was tested Friday, which will likely go down to
Speaker 1: paraphrase Don McLean in his song American Pie the day
Speaker 1: the short volatility trade died. Okay, But there's other asset
Speaker 1: classes where we really haven't tested it yet, right, that's correct,
Speaker 1: attends you know, we're in as Freedman Tom Friedman says,
Speaker 1: we're in this flat and interconnected world. So all asset
Speaker 1: classes have have a correlation of one these days, so
Speaker 1: it seeps into different asset classes, and the system is
Speaker 1: so leveraged that de risking occurs, and what they were
Speaker 1: buying they sell in this shocking environment like with portfolio insurance,
Speaker 1: where bias by high and sellers through. But if you
Speaker 1: go to the basic idea, and I'm quoting here from
Speaker 1: the American philosopher John Tucker, if you have faith in
Speaker 1: God above, if the Bible tells you so, I'm kidding, folks,
Speaker 1: that's from American pie. But the faith in interest rate. Yeah,
Speaker 1: except these guys aren't driving Chevy's. They've been driving Bentley's
Speaker 1: because they've been making a lot of money. Doug casts
Speaker 1: in the Bible here the you know whoever I'm talking to, folks,
Speaker 1: whether it's not seeing teleb or Douglas cast, there's a
Speaker 1: Bible of belief. What's gonna go wrong with that Bible
Speaker 1: of belief? When we see a thirty year bond at
Speaker 1: a three thirty or a ten ure yield pops three
Speaker 1: point four three point zero four. Who knows. But but
Speaker 1: what's gonna happen to that bible that will be in
Speaker 1: trouble at that point? Costs um very quietly. Corporate America
Speaker 1: has leveraged up, and we know the problem of the
Speaker 1: public sector because you know, to paraphrase Howard Marks, we've
Speaker 1: lost physical discipline with the tax bill. Um. The interesting
Speaker 1: thing to me is that um um, we may be
Speaker 1: entering what I describe as portfolio insurance part do last
Speaker 1: scene in October, and perhaps that should be our trading
Speaker 1: template over the term. In other words, if history rhymes,
Speaker 1: we look at what happened to equity back in October
Speaker 1: and November and December. I do know when SMP futures
Speaker 1: dropped by fifty five handles on no News, as it
Speaker 1: did in the last twenty five minutes of trading yesterday,
Speaker 1: you know we have a problem. And I would say
Speaker 1: that there are a lot of people you know. The
Speaker 1: question is is was Monday and Tuesday as it relates
Speaker 1: to uh an unwinding of the short VIX trade? Was
Speaker 1: that address rehearsal? And I would just say that last November,
Speaker 1: Bank of America estimated that there was over over one
Speaker 1: point five trillion linked to volatility links strategies UM. You
Speaker 1: know risk parity. You mentioned all trending, vault targeting c
Speaker 1: t A s. So if it took nearly a decade
Speaker 1: for the number of e t s and e t
Speaker 1: n s to outnumber the amount of publicly traded companies
Speaker 1: on the exchanges, and it took nearly a decade for
Speaker 1: the quand strategies UM to surpass active investing, something makes
Speaker 1: me think that this size makes shift in the market
Speaker 1: and a one point five trillion dollars invested in volatility
Speaker 1: link strategies that took ten years in the making to
Speaker 1: develop is not going to end in three trading sessions? Doug?
Speaker 1: What's so important here? And this alludes again to dr
Speaker 1: Vember of ubs is important comments today on market based
Speaker 1: finance and what I'm calling the shadow vics economy, and
Speaker 1: by economy I means the trading economy. Doug Cass, do
Speaker 1: you have a real worry about over the counter structures
Speaker 1: away from visible e t f s and other prospective
Speaker 1: items that when we go we don't know that they're
Speaker 1: right now we're going to discover this real quickly. Yeah,
Speaker 1: I remember when you know, I have been outspoken about
Speaker 1: the market's vulnerability to these volatility link strategies for about
Speaker 1: a year. I remember doing the same thing about c
Speaker 1: D O S and nine in two thousand seven, and
Speaker 1: no one was concerned, and the general consensus view that
Speaker 1: was that there would be no contagion. And look what happened.
Speaker 1: These instruments virtually crippled and bankrupted the world's financial system.
Speaker 1: So we don't know what's out there. Well we know
Speaker 1: what what are you gonna do now? You say you're
Speaker 1: in cash, you just sort of what I'm gonna do
Speaker 1: is the coo Larry David. I'm trying to elevate small
Speaker 1: talk to medium too. You should be concerned about these instruments.
Speaker 1: You should use volatility opportunistically if you want them. If
Speaker 1: you're short and you buy, you know, and stocks are
Speaker 1: violently lower, you should be covering. And if you're a
Speaker 1: value investor, you should buy be buying what you like
Speaker 1: during these periods of the equilibrium, but the price probably
Speaker 1: going to continue for a long time. You look at
Speaker 1: what happened in after the portfolio insurance crash. There was
Speaker 1: a test you know, you had turned around Tuesday, after
Speaker 1: Monday's big schmicing, you had a day rally, and then
Speaker 1: you had a test the following week, and then back
Speaker 1: in it rallied, and then you had another test, the
Speaker 1: final successful test in early December. So I think you're
Speaker 1: gonna you're gonna basically follow the same pattern. Cass, thank
Speaker 1: you so much, greatly appreciate with severies partners, some perspectives
Speaker 1: they're using with the tinge of history. I'd love to
Speaker 1: hear from all of our listeners. David emails in. He
Speaker 1: says Tom not enough tar Heels Duke basketball discussion him.
Speaker 1: We've been remiss. We're not talking tar Heels and Duke.
Speaker 1: We gotta find the nearest approximation to that, which would
Speaker 1: be I mean, it's tonight, eight pm tonight, right in
Speaker 1: Chapel Hill, so it should be another great game. But
Speaker 1: the Dukes are doing better this year. You're doing better.
Speaker 1: They're doing very well. But they're very young, lots and
Speaker 1: lots of freshman, lots of one and done. So coach
Speaker 1: has to, you know, make them into a team by March.
Speaker 1: And that's his that's what he said. But we're getting
Speaker 1: right towards March. Baptis it's February, and like like, Duke's
Speaker 1: doing better, Virginia's killing Virginia's great, Virginia beat Duke. Duke
Speaker 1: loss to St. John's last weekend, and then St. John's
Speaker 1: beat number one in Villanova. So it's been Dave, David,
Speaker 1: if you're listening, that's it. We're doing. No more basketball talking.
Speaker 1: We don't care about the tar Heels, don't care about David.
Speaker 1: You are so news. But you read this on Twitter
Speaker 1: and I looked at their press release. It was almost
Speaker 1: an adult press release, wasn't it. Yeah, and they actually
Speaker 1: made gap earnings for the for the first time, so
Speaker 1: uh yeah, So I think, you know, we got a
Speaker 1: relief rally here. The stock has been beaten down. Now
Speaker 1: we see some green shoots that maybe, uh, some of
Speaker 1: the changes they've made to the companies, to the offering,
Speaker 1: you know, might be you know, resonating with with their
Speaker 1: users and with advertisers. Well, Sweeney, you're on all of
Speaker 1: Bloomberg Intelligence, you and your entire team and me. We
Speaker 1: know they don't have mass, they don't have scale, they
Speaker 1: got lousy revenue growth. Did I read a press release
Speaker 1: today which is basically ship shaping them to be a
Speaker 1: taken out possible, but it's gonna be much more expensive
Speaker 1: than it was, you know, three to six, six months ago.
Speaker 1: But I think you know what they've got going for
Speaker 1: them now? Tit the extent that somebody wants three fifty
Speaker 1: million uh subscribers a social network of three or fifty
Speaker 1: uh increasingly engaged users. Um is now there's some green
Speaker 1: shoots to say, Okay, maybe this business has righted itself.
Speaker 1: Maybe it's found kind of a little bit way forward
Speaker 1: from a pro perspective. So if if you're a Google
Speaker 1: and you're looking for a social network to cobble onto
Speaker 1: your massive platform, maybe now you have a little bit
Speaker 1: more confidence in the business. You're just gonna have to
Speaker 1: pay more than you would have three or six months ago.
Speaker 1: Paul Sweeney, How is it that for all previous quarters
Speaker 1: I was always informed that the most important and only
Speaker 1: relevant number was how many monthly active users there are
Speaker 1: of Twitter? That actually declined, at least in the United States.
Speaker 1: Why do investors now seem to throw out that, turn
Speaker 1: that into a footnote, and turn a ninety one million
Speaker 1: dollar profit after being a being a public company for
Speaker 1: four years and a real company for twelve. How Why
Speaker 1: is it that that becomes the headline. I think the
Speaker 1: investors that are left in this stock have said, Okay,
Speaker 1: we're three or fifty million users, the monthly active users
Speaker 1: that ain't gonna good grow anymore. We're not going to
Speaker 1: be a billion dollar user base like Facebook or Instagram.
Speaker 1: What we are going to be is a much more
Speaker 1: engaged user base. And that's what we're going to pitch
Speaker 1: to advertisers, the fact that users are more engaged. So
Speaker 1: we're not looking at monthly active users, but the bulls
Speaker 1: are looking at daily active users, which were up twelve
Speaker 1: percent year of a year. That was the metric that
Speaker 1: has become the metric that has kind of replaced monthly
Speaker 1: active users because a monthly active user story isn't very good.
Speaker 1: So that's the don't raise the bridge, lower the river
Speaker 1: exactly exactly and and uh, we'll see, but for this quarter,
Speaker 1: that's that was enough. So who would buy it? You know,
Speaker 1: I don't know anybody again, anybody who's looking for a
Speaker 1: big social who you know doesn't have a big social play.
Speaker 1: Is that Google? Is that Apple? Um Disney? Uh? Possibly possibly,
Speaker 1: but you know they've got enough on their plate now
Speaker 1: with trying to close sixty billion dollars or the assets
Speaker 1: from from news Corps. But you know, but it's now
Speaker 1: getting I think probably too expensive for any traditional media company.
Speaker 1: I think now you're looking tech and you're just looking
Speaker 1: at tech. Who somebody who doesn't have a big social
Speaker 1: platform per se and that you know again, then the
Speaker 1: number one name that I hear most of investors is Google. Um,
Speaker 1: it's still you know, a relatively small acquisition for Google.
Speaker 1: Is Twitter a growth story? Uh? No? Um? Right now?
Speaker 1: We had two percent growth in revenue and that was
Speaker 1: the first growth we've had in four years. So no,
Speaker 1: it's not because internet advertising is growing fifteen to twenty
Speaker 1: percent a year and they only grew two percent. So
Speaker 1: it's an engagement story, and it's you know, we'll see
Speaker 1: some question, where's the advertising revenue? I'm on Twitter all
Speaker 1: the time and I never see it. We're we're Facebook,
Speaker 1: I see it. Yeah, where is it? It's it's in
Speaker 1: the feed. Maybe you're just not targeted by their advertisers.
Speaker 1: I don't know, maybe the market Well, why target anybody
Speaker 1: that has lots of users? Yeah, and lots of followers,
Speaker 1: I beg your pardon, lots of supposable income. Yeah, So No,
Speaker 1: they're I mean, they're the advertisers are there. But the
Speaker 1: advertisers that you really want to see, the big brand
Speaker 1: advertisers of Coca Cola is at General Motors and and
Speaker 1: they're not They're they're on Facebook, they're on Instagram because
Speaker 1: each of those platforms books. Yeah, not even Snap a
Speaker 1: little bit. But you know, you gotta be somewhere where
Speaker 1: you can get a billion, a billion five users, and
Speaker 1: those opportunities are limited, and they're pretty much you know, YouTube, Facebook,
Speaker 1: Instagram kind of thing. Juda Martin Adams killed it yesterday.
Speaker 1: Can I just say she was an equity and analysis
Speaker 1: and the heat of it all and she just killed
Speaker 1: a past tweene you thank you so much with Bloomberg
Speaker 1: Intelligence on Twitter. With James Trevidis, you've got to outline
Speaker 1: your topics because we could go with the Altimo for
Speaker 1: an hour, and we will today on parades and then
Speaker 1: on the Olympics, Vice President Pence uh and what we're
Speaker 1: doing with our two Koreas, And so we begin with
Speaker 1: James Trevidis. I do want to say that I wandered
Speaker 1: a pim with the beast, the new puppy of the
Speaker 1: house by the bookshelves the other day, and there was
Speaker 1: The Leader's Bookshelf, which I really can't say enough about.
Speaker 1: It was my book of the summer a few years ago.
Speaker 1: James Trevidis with seventy books that you need to know.
Speaker 1: From his book The Leader's Bookshelf. I just can't say
Speaker 1: enough about the quality everybody in The Leader's Bookshelf. Admiral paraded,
Speaker 1: and as you say, and you're wonderful essay, pushing against
Speaker 1: the president. You enjoyed praying for rain at Annapolis, hoping
Speaker 1: like crazy you would not have to parade as a midshipman,
Speaker 1: didn't you? I did, And I can assure you all
Speaker 1: four thousand members of the Brigade of Midshipman hate to
Speaker 1: march in parades. No one likes them. So that's kind
Speaker 1: of reason why it doesn't make a lot of sense.
Speaker 1: You're taking a long weekend away from all these troops
Speaker 1: who have to set up the parade route. They have
Speaker 1: to create the security, they have to move their tanks
Speaker 1: to Washington, they have to march, they have to clean
Speaker 1: it all up afterward. It's really not a good deal
Speaker 1: for the troops. Tom But within second, oh, please go ahead,
Speaker 1: please please Adamiral, go ahead. Secondly, you know that this
Speaker 1: isn't huge money, but it's probably twenty to thirty million dollars.
Speaker 1: We've probably got better used for that kind of funding.
Speaker 1: And Thirdly, and I think this is most important TOIME.
Speaker 1: We're a big, powerful, capable military. We don't need to
Speaker 1: act like North Korea and put on these silly parade.
Speaker 1: I just don't think it makes a lot of sense.
Speaker 1: It's just an anecdote, folks. I enjoyed the Bestill Day parade,
Speaker 1: Pim Fox. I got a glimpse of Charles de gaul
Speaker 1: and it was a fragile France. They were coming out
Speaker 1: of World War Two, They had some challenging politics and
Speaker 1: it was fraught with the fragility of France. Admiral. We
Speaker 1: don't have that fragility, do we not at all? And
Speaker 1: this time you have put your finger precisely on this.
Speaker 1: I think nations that need to show off. We've mentioned
Speaker 1: North Korea, We've mentioned France in those days. I think
Speaker 1: it's the third one to think about it. The Soviet Union,
Speaker 1: which used to play the how big is my missile game,
Speaker 1: pushing it down the streets of Moscow, and it just
Speaker 1: is not what you have to do. We have quiet
Speaker 1: confidence we are the most lethal military in the world.
Speaker 1: We don't need to right add most of Rita's Let's
Speaker 1: turn our attention now if we can to the Olympics
Speaker 1: and North and South Korea. The younger sister of the
Speaker 1: occurred North Korean leader is scheduled to attend. They're gonna
Speaker 1: do up closing personal weather Well, well, let's we'll see
Speaker 1: whether they do up closing personal with her. But I
Speaker 1: want to get your thoughts on whether this could indeed
Speaker 1: mark some kind of change or at least the modest
Speaker 1: improvement in the relationship between North and South Korea and
Speaker 1: therefore between the United States and North Korea. I think
Speaker 1: you've correctly categorized it as modest um. There is a
Speaker 1: sliver of hope here, and we should focus on it
Speaker 1: and see what can grow from this tiny little seed. Uh.
Speaker 1: And this, in the end is the historic purpose of
Speaker 1: the Olympics. If you go back even to ancient Greece,
Speaker 1: this was the time when you stopped fighting, you came together,
Speaker 1: and sometimes there can be positive results. I wouldn't overweighted,
Speaker 1: I wouldn't necessarily better on it. Things will probably get
Speaker 1: better before they'll get worse again if you will. But
Speaker 1: I think for the next to three weeks there is
Speaker 1: a small opening North Korea, South Korea. If we could
Speaker 1: bring the United States and China into the equation, go
Speaker 1: from two party communication, if you will, to four party
Speaker 1: I think we'd have a chance of moving something here.
Speaker 1: Let's face it. In the end, all roads to Pyunyang,
Speaker 1: the capital of North Korea, lead through Beijing. I wonder
Speaker 1: if I could just turn your attention now. I know
Speaker 1: I'm kind of going off script, Tom, but I just
Speaker 1: had to draw on the admiralst expertise because we have
Speaker 1: a NATO member, Turkey that is involved in a conflict
Speaker 1: that in one way or another seems to be in
Speaker 1: direct opposition to US stated policy. I wonder if you
Speaker 1: could just give us your thoughts about Turkey and whether
Speaker 1: that is a potential UH point of conflagration that may
Speaker 1: end up being much more important than we currently believe.
Speaker 1: As you know, I spent four years as this Supreme
Speaker 1: eli Commander of NATO and I've operated with commanded Turkish
Speaker 1: troops in combat. I want to start by saying a
Speaker 1: they're very capable and professional and be uh. They have
Speaker 1: a lot of capability. And see they were contributors to
Speaker 1: the alliance. We had Turkish troops in Afghanistan, in Libya,
Speaker 1: in the Balkans, in Syrian fact on missions there. So
Speaker 1: they have been historically quite good. Now here's the problem
Speaker 1: they are Turkey is deeply concerned about the Kurdish situation.
Speaker 1: They have what they perceive as Kurdish terrorists operating against them,
Speaker 1: and those Kurdish forces have become the object of a
Speaker 1: Turkish incursion in Syria and it does put us in
Speaker 1: opposition with Turkey. And this is the biggest problem in
Speaker 1: the region because it could conceivably crack the alliance. So
Speaker 1: what should we do. We should be working with our
Speaker 1: Turkish allies, and they are our allies, to create kind
Speaker 1: of a buffer zone between Turkey and these Kurdish forces.
Speaker 1: I think that's possible to do. It's going to be
Speaker 1: very delicate diplomacy, and it will require us continued attention
Speaker 1: over the weeks and months ahead. Um well, I'm reading
Speaker 1: to Pim's well taken point on Turkey Thomas Madden's wonderful
Speaker 1: one volume on Venice, and a few years ago, Venice
Speaker 1: was worried about controlling the Eastern Mediterranean. How does our
Speaker 1: navy move around the Mediterranean, the Bosphorus and into the
Speaker 1: Black Seat. Can we just go where we want to go, uh,
Speaker 1: to get into the Black Sea. Turkey controls, as you know, Tom,
Speaker 1: the Strait that leads into the Black Sea. Um. This
Speaker 1: is another reason that this is so important to keep
Speaker 1: Turkey on side in this alliance. The Act the Strait
Speaker 1: is governed by what's called Montro Convention, which has limits
Speaker 1: on the size of ships and a number of very
Speaker 1: technical aspects. UM. But we're in a vastly better place
Speaker 1: than we were, say in the fifteen hundreds when the
Speaker 1: Ottoman Empire, the predecessor of today's Turkey, was battering the
Speaker 1: gates of Venice. On battering the gates at the Vienna.
Speaker 1: We've defeated them in the ocean at La Ponto. Um.
Speaker 1: This is a situation we don't want to return to.
Speaker 1: We want to keep Turkey with us in the navy.
Speaker 1: Did you ever have to do the thing where in
Speaker 1: your admiral's outfit you had to steer a gondola with
Speaker 1: that or you know, way aubof the ground. Of course
Speaker 1: I did, Tom, and I sang at the same time,
Speaker 1: and that's an important part of learning to be an admiral,
Speaker 1: the politics of being an admiral. Then US one oh one.
Speaker 1: I held it. I was holding his bags while he
Speaker 1: was doing I could just see Travilla, the gondola through theails.
Speaker 1: Thank you, James Trevisa Toughs. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio