WEBVTT - Surveillance: BOJ Kicks Off Central Bank Decisions 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.160 the Bloomberg Terminal and the Bloomberg Business App. We are 0:00:30.200 --> 0:00:33.960 living it right now. A brief from Mark McCormick, Global 0:00:33.960 --> 0:00:37.560 Head of Foreign Exchange in EM Strategy TD Securities. Mark, 0:00:37.600 --> 0:00:40.080 and why don't you to explain to our audience why 0:00:40.120 --> 0:00:43.839 a super strong dollars from twenty twelve and a super 0:00:43.880 --> 0:00:45.640 week yen is disturbing? 0:00:47.520 --> 0:00:49.000 Well, I think of what it does is it just 0:00:49.040 --> 0:00:52.120 shows the massive divergence you have between central banks. I 0:00:52.120 --> 0:00:54.280 think one of the things that you can unpack is 0:00:54.280 --> 0:00:56.800 there are certain currencies that care about growth, there's certain 0:00:57.240 --> 0:00:59.960 currencies that care about commodities, there's certain currencies that care 0:01:00.080 --> 0:01:03.200 about different relative central bank functions. The thing that the 0:01:03.360 --> 0:01:05.640 end cares a lot about is the ten year point 0:01:06.040 --> 0:01:07.920 to look at euro. Euro cares about the two year 0:01:07.959 --> 0:01:10.080 point of the curve. More than say the ten year 0:01:10.319 --> 0:01:12.240 and if you take the combination of what we had, 0:01:12.280 --> 0:01:14.039 and this is one of the most important things going 0:01:14.080 --> 0:01:16.920 on effects is the relative terms of trade shift. Japan 0:01:17.040 --> 0:01:20.600 is also a massive importer of energy and other commodities. 0:01:20.600 --> 0:01:22.560 So you take the commodity story, you take the great 0:01:22.600 --> 0:01:26.240 differential story, and now you take the aggressive bear steepening 0:01:26.240 --> 0:01:28.880 of the US curves this summer, and you've got basically 0:01:28.920 --> 0:01:32.000 a trifective things that will weaken the end quite considerably 0:01:32.040 --> 0:01:33.480 unless the BOJ does something. 0:01:33.280 --> 0:01:36.120 Well to the trifecta. Let's go to Mondel of Columbia. 0:01:36.160 --> 0:01:38.360 I mentioned this with Vice Chairman Clara to the other day. 0:01:38.400 --> 0:01:41.720 He will join US folks for our special FED coverage. 0:01:41.760 --> 0:01:44.160 Look for that? Is that tomorrow? Yes, it's tomorrow. The 0:01:44.160 --> 0:01:46.760 FED meeting is too more might people have just briefed 0:01:46.800 --> 0:01:49.120 me and Mark I'm looking at that. I want to 0:01:49.120 --> 0:01:52.400 echo what I talked to Professor Clara about, which is 0:01:52.480 --> 0:01:56.680 something has to give here. When something gives, what is 0:01:56.720 --> 0:02:00.000 the instability our audiences should be worried about? 0:02:01.160 --> 0:02:02.640 Well, I think of the context of the end, what 0:02:02.760 --> 0:02:05.680 needs to give is the actual the currency itself. As 0:02:05.720 --> 0:02:08.400 you mentioned, there is a very interesting policy mix where 0:02:08.480 --> 0:02:12.400 fiscal policy is actually quite favorable in forms of in 0:02:12.480 --> 0:02:15.200 terms of growth, also inflation. You see the BOJ is 0:02:15.240 --> 0:02:18.079 expecting higher inflation to kind of be a bit more sticky, 0:02:18.120 --> 0:02:20.440 I think, than markets are looking for. And they've also 0:02:20.480 --> 0:02:23.160 basically said we don't have a cap anymore. It can 0:02:23.200 --> 0:02:24.880 go above one percent. So I think what they're trying 0:02:24.880 --> 0:02:27.160 to do is synchronize themselves a little bit, which which 0:02:27.200 --> 0:02:31.079 has been US yield rising, which would contain the weakness 0:02:31.080 --> 0:02:34.079 in the end, But this is not a policy mix 0:02:34.160 --> 0:02:38.400 that is coherent and it is no longer sustainable. So 0:02:38.440 --> 0:02:39.960 I think a big thing is what we're going to 0:02:39.960 --> 0:02:42.720 see is things are going to change. It will change abruptly, 0:02:43.040 --> 0:02:44.959 but I think the movement that we had overnight where 0:02:44.960 --> 0:02:47.280 they said there's no longer a one percent cap, is 0:02:47.320 --> 0:02:51.280 actually quite a significant change. But it will take time 0:02:51.320 --> 0:02:53.959 for this to work through the market. So again i'd 0:02:54.000 --> 0:02:56.680 say that the thing that needs to break is yields 0:02:56.680 --> 0:02:59.040 needs to be higher, yet needs to be stronger. It's 0:02:59.040 --> 0:03:00.800 just going to take more time because we also need 0:03:00.840 --> 0:03:02.919 to see a peak in the US yield story, which 0:03:02.960 --> 0:03:05.280 again is not even about the FED anymore. When we 0:03:05.280 --> 0:03:07.160 talk about the ten year yield. It's more about supply 0:03:07.200 --> 0:03:09.480 and demand for ten year bonds. 0:03:09.800 --> 0:03:12.680 This is a big mishmash. Do you have a sense 0:03:12.760 --> 0:03:15.360 of what the response mechanism from the Bank of Japan is, 0:03:15.400 --> 0:03:17.839 what the lines in the sand are, what they're sort 0:03:17.880 --> 0:03:20.240 of looking at. I mean, we were talking about some 0:03:20.360 --> 0:03:23.080 of the opacity that they put forward overnight. 0:03:24.880 --> 0:03:27.640 It's very tricky because I think obviously most central banks 0:03:27.720 --> 0:03:30.120 it's very common language. At this point, they care more 0:03:30.120 --> 0:03:32.680 about the currency movements. So the end has not been 0:03:32.720 --> 0:03:35.240 as volatile. So as you can see, we have not 0:03:35.680 --> 0:03:37.480 the report came out this morning like they did not 0:03:37.600 --> 0:03:40.760 intervene last month. So I think I don't think there's 0:03:40.760 --> 0:03:42.720 a red line per se. I think they're all kind 0:03:42.720 --> 0:03:45.240 of doing what everyone in the market's doing. They're very 0:03:45.280 --> 0:03:48.440 confused about the drivers, They're very confused about the actual 0:03:48.520 --> 0:03:51.520 themes in the market. FX has become very challenged, I 0:03:51.520 --> 0:03:54.160 think for many people. So I think the line in 0:03:54.200 --> 0:03:57.440 the sand is you're kind of thinking it's loose fiscal policy, 0:03:57.600 --> 0:04:02.119 loose monetary policy, weakest currency on record. It deviated from 0:04:02.120 --> 0:04:05.360 our longer term models by you know, magnitudes, you know, 0:04:05.400 --> 0:04:07.360 our longer term fair value model and dollar again is 0:04:07.680 --> 0:04:10.520 in one twenties. So what you're kind of looking for 0:04:10.640 --> 0:04:12.920 is like the pressure points that will cause these things 0:04:12.920 --> 0:04:14.560 to break. And again, I think a big part of 0:04:14.600 --> 0:04:18.040 it is US data needs to roll over, US yields 0:04:18.080 --> 0:04:19.840 need to come down a little bit, and the BOJ 0:04:20.000 --> 0:04:21.520 I think the one thing that we're very out of 0:04:21.560 --> 0:04:23.520 consensus on is we are looking for them to move 0:04:23.560 --> 0:04:26.520 out of NERP next year because of the wage pressure 0:04:26.520 --> 0:04:30.600 we're seeing in Japan right around the Shuto wage negoiation negotiations, 0:04:30.640 --> 0:04:34.120 we should see higher wages and as a result of 0:04:34.200 --> 0:04:37.080 you know, essentially higher wages and higher nominal rates coming up, 0:04:37.080 --> 0:04:40.560 we should see real rates in Japan move substantially in 0:04:40.600 --> 0:04:42.640 their favor versus the US next year. 0:04:42.760 --> 0:04:44.960 When you take a step back, there's a question of 0:04:45.000 --> 0:04:47.200 slowly or all at once, And you were saying it 0:04:47.200 --> 0:04:50.640 will be all at once at some point. How disruptive 0:04:50.880 --> 0:04:52.479 is this going to be at a time when so 0:04:52.480 --> 0:04:56.279 many people were talking about Japanese flows underpinning are basically 0:04:56.320 --> 0:04:59.960 suppressing yields globally and really keeping things a little bit 0:05:00.080 --> 0:05:00.680 more in sync. 0:05:01.680 --> 0:05:03.680 Yeah, I think that's a that's a big component because 0:05:03.680 --> 0:05:05.760 I think since the summer, since the BOJ let the 0:05:06.000 --> 0:05:09.200 the you know, kind of opened up the yield curve 0:05:09.240 --> 0:05:12.719 control the suppression they had on it. We have seen 0:05:12.800 --> 0:05:14.960 term premium rise across the world. We have seen the 0:05:15.000 --> 0:05:16.960 US ten year rise. So I do think that there 0:05:17.040 --> 0:05:20.680 is a blowback here that's happening slowly behind the scenes. 0:05:20.720 --> 0:05:22.240 And again, I think a lot of people will make 0:05:22.240 --> 0:05:25.600 the point that the ten year yield is now advanced 0:05:25.600 --> 0:05:29.320 above FED expectations for twenty twenty four. It's above data surprises, 0:05:29.360 --> 0:05:32.919 it's above US data trends. It's no longer reflecting the 0:05:32.960 --> 0:05:35.160 correlations we saw in July. So I do think that 0:05:35.200 --> 0:05:37.960 the BOJ and the fact that they're kind of moving 0:05:37.960 --> 0:05:40.599 out of it. Obviously quantitative tightening has a component of 0:05:40.640 --> 0:05:43.719 this as well, but the BOJ does have the ability 0:05:43.760 --> 0:05:46.280 to kick start, you know, rises in the US ten years. 0:05:46.279 --> 0:05:48.480 Well, bring up this board again on television and radio. 0:05:48.520 --> 0:05:50.560 I have to review you this. I didn't do this. 0:05:50.720 --> 0:05:52.880 Simon did this in the control and he's been reading. 0:05:52.920 --> 0:05:56.360 Michael Rosenbergen for inn Exchange. Bring up that board again here. Yeah, 0:05:56.560 --> 0:06:00.400 one fifty one week week week end two year yield 0:06:00.720 --> 0:06:04.719 finally above zero ten year yield almost one percent. Those 0:06:04.720 --> 0:06:08.320 are unimaginable numbers to pros mark. Is this going to 0:06:08.440 --> 0:06:11.720 end stochastically? I talked to Martin Feldstein about this years ago, 0:06:12.120 --> 0:06:15.479 Like Looney, let's go to Toronto Dominion Bank. Looney goes 0:06:15.560 --> 0:06:17.560 up one thirty eight, you get up to one forty 0:06:17.560 --> 0:06:21.159 two and it gets fixed. Is that where we're heading, 0:06:21.400 --> 0:06:23.360 where the system just fixes itself. 0:06:24.839 --> 0:06:24.919 No. 0:06:25.040 --> 0:06:27.800 I think the system's quite dynamic. I think that that's 0:06:27.839 --> 0:06:30.680 the interesting point. Like we brun out variations of lots 0:06:30.720 --> 0:06:33.080 of different types of tools and models and different things. 0:06:33.120 --> 0:06:35.000 We're trying to understand what's going on in the market. 0:06:35.800 --> 0:06:37.760 As I mentioned, the things that are driving a weaker 0:06:37.839 --> 0:06:40.520 yen are fundamentally based. They make they make a lot 0:06:40.560 --> 0:06:42.760 of sense. And again the commodity story behind the scene 0:06:42.839 --> 0:06:46.159 is quite quite important, especially from the handover to last year, 0:06:46.200 --> 0:06:49.120 because what it does is it eliminates the trade surplus 0:06:49.120 --> 0:06:51.240 and the trade surplus plus the current account plus the 0:06:51.320 --> 0:06:54.000 balance of payments that is FX. You know, essentially everything 0:06:54.040 --> 0:06:55.640 we talk about every day is trying to think about 0:06:55.640 --> 0:06:57.719 how do we predict the balance of payments? So for 0:06:57.800 --> 0:06:59.560 the end, I don't think any of this is stable. 0:06:59.560 --> 0:07:03.159 I think is very unstable. Equilibrium even the shorter term 0:07:03.160 --> 0:07:05.320 models that we look at that we use for trading 0:07:05.360 --> 0:07:10.760 ideas Dollar Interview one five based on redifferentials and equities 0:07:10.760 --> 0:07:12.280 and risk and these kind of things. So it's even 0:07:12.360 --> 0:07:14.880 deviated now because you know markets are looking for a 0:07:14.920 --> 0:07:16.520 trend to trade in dollar again, is the only one 0:07:16.520 --> 0:07:17.600 that makes any sense right now? 0:07:17.720 --> 0:07:20.320 Three people just drove off the Garden State Parkway. There's 0:07:20.320 --> 0:07:22.600 your Global Wall Street Brief and foreign exchange. If you 0:07:22.680 --> 0:07:25.160 only understood half of that like I did. He's Mark 0:07:25.240 --> 0:07:28.360 McCormick of TD Securities. 0:07:32.600 --> 0:07:34.560 John Solstice has been listening to this and wants to 0:07:34.560 --> 0:07:36.360 weigh out on the Bunker Remo and beyond. And I'll 0:07:36.400 --> 0:07:37.760 let you get to that, but first I want to 0:07:37.760 --> 0:07:41.280 start to say how much are you basically saying we've 0:07:41.400 --> 0:07:42.920 just a run out of time to get to that 0:07:42.960 --> 0:07:43.960 forty nine hundred mark? 0:07:44.800 --> 0:07:45.000 Yeah? 0:07:45.320 --> 0:07:49.920 Really, really is? We We had to right size our expectations. 0:07:49.960 --> 0:07:54.400 We always suggest that to do investors as they as 0:07:54.440 --> 0:07:57.040 they consider what happens when markets. 0:07:56.880 --> 0:07:57.840 Are are in. 0:07:59.560 --> 0:08:02.200 Royal and so to speak. And what we've got to 0:08:02.240 --> 0:08:05.160 consider here is the calendar is telling us that we're 0:08:05.160 --> 0:08:11.120 getting close to a year end. The average rallies are positive. 0:08:11.200 --> 0:08:13.880 You know, we get positive rallies after a dip like 0:08:13.920 --> 0:08:19.720 we've seen traditionally or historically, but it's smaller amounts and 0:08:19.800 --> 0:08:24.400 there are still lots of uncertainty that bears and nervous 0:08:24.400 --> 0:08:30.520 investors and those who are skeptics can use to take 0:08:30.600 --> 0:08:33.960 more profits out of the fabulous rally that we're still 0:08:34.000 --> 0:08:37.040 living off from the lows of October twelfth of last year. 0:08:37.679 --> 0:08:40.160 I feel like one just after another is basically coming 0:08:40.160 --> 0:08:42.719 on and saying give investors a prozac, because frankly, there 0:08:42.760 --> 0:08:44.560 is a lot of optimism. They're just not seeing it. 0:08:44.640 --> 0:08:48.480 How much can you really hinge unfundamentals if the sentiment 0:08:48.640 --> 0:08:51.560 is just so gloomy and prepared for the worst. 0:08:54.000 --> 0:08:57.040 The problem is, I think that when you're in a 0:08:57.040 --> 0:09:01.520 FED funds high cycle, it takes a while before the 0:09:02.520 --> 0:09:05.600 marketplace gets a sense that the FED is indeed not 0:09:05.679 --> 0:09:09.120 trying to destroy things, and that the FED might actually 0:09:09.200 --> 0:09:15.280 succeed at its goals. The Fed isn't it isn't infallible, 0:09:15.640 --> 0:09:21.640 but the FED has a remarkably simple a mandate essentially, 0:09:22.000 --> 0:09:26.560 you know, stable economic growth with maximum employment. Of course, 0:09:26.600 --> 0:09:28.840 what is it. A few weeks ago, I think was 0:09:28.880 --> 0:09:33.400 the daily quote on the Bloomberg was Martin Scorsese, and 0:09:33.480 --> 0:09:36.160 it was something that like simple is the best, but 0:09:36.240 --> 0:09:39.440 it's the hardest to achieve. Well, that's what happens in 0:09:39.480 --> 0:09:43.319 a FED funds hike cycle. But what happens is eventually 0:09:43.760 --> 0:09:47.840 the marketplace. And you can see it related to higher 0:09:47.880 --> 0:09:52.560 prices being accepted by consumers and business in that you 0:09:52.559 --> 0:09:55.959 were just mentioning before there's a sense, Okay, we can 0:09:56.000 --> 0:09:58.760 deal with this now and we keep moving forward. The 0:09:58.760 --> 0:10:02.600 FED has been so set in applying it's mandate that 0:10:02.720 --> 0:10:06.520 it hasn't knocked a part the resilience in the consumer, 0:10:07.080 --> 0:10:09.520 in business and the overall economy. 0:10:10.000 --> 0:10:13.720 That's just an extraordinary John Michael McKee with a brilliant 0:10:13.760 --> 0:10:16.400 idea on the Magnificent Seven. He's going back to the movie. 0:10:16.400 --> 0:10:20.120 He's looking at YOU'L. Brenner, Steve McQueen, Charles Bronson, Robert Vaughan, 0:10:20.800 --> 0:10:24.000 James Coburn, Horse Bucklets and Brad Dexter. I mean they 0:10:24.040 --> 0:10:25.960 were the Magnificent seven. What do you do with the 0:10:26.000 --> 0:10:29.959 modern Magnificent seven? Is Apple going to deliver here? And 0:10:30.440 --> 0:10:33.080 if you're going gloomy forty four hundred, do you sell 0:10:33.120 --> 0:10:35.400 your big tech Well. 0:10:35.280 --> 0:10:38.920 I'm not gloomy of four hundred at all. I'm just 0:10:38.920 --> 0:10:41.200 saying it's more realistic from here to the end of 0:10:41.240 --> 0:10:43.960 the year. Just wait until we put in our Brice 0:10:44.040 --> 0:10:47.200 target for next year. That'll be later on. 0:10:47.240 --> 0:10:50.199 Oh good, and no one's watching here, Come on compliance 0:10:50.240 --> 0:10:51.440 at opcos not watching. 0:10:51.480 --> 0:10:52.280 Give me a number. 0:10:52.440 --> 0:10:55.200 Can you pop a five thousand for next year? 0:10:55.720 --> 0:10:58.560 To do it? I got, I got compliance breeding down 0:10:58.600 --> 0:11:01.040 my back. But when we look at things are getting 0:11:01.080 --> 0:11:05.240 better and we think we're going to see competition return 0:11:05.800 --> 0:11:08.640 in a lot of spaces, and competition is when all 0:11:08.640 --> 0:11:11.560 of a sudden you've got everybody is passing on the 0:11:11.600 --> 0:11:14.920 old higher prices getting away with it. And then some 0:11:15.559 --> 0:11:19.200 guy in business or gal discovers the idea of well 0:11:19.240 --> 0:11:21.000 maybe if I give up a little bit what I 0:11:21.040 --> 0:11:24.360 get in per unit costs, maybe I can make it 0:11:24.440 --> 0:11:28.440 up big time and volume. And that'll happen across the sectors. 0:11:28.480 --> 0:11:32.040 But in the meantime, tech is empowering everything, and we 0:11:32.120 --> 0:11:34.679 don't mean it like in some kind of a moonshot, 0:11:35.160 --> 0:11:40.040 but it exists. Today. Corporations are doing better navigating very 0:11:40.080 --> 0:11:43.280 tough environments. Well, it's the financial advices. Whether it was 0:11:43.280 --> 0:11:51.280 the pandemic, post pandemic, the supply chain stabilization, the getting 0:11:51.320 --> 0:11:54.760 away from one country centricity in terms of the global 0:11:54.800 --> 0:11:58.640 supply chain. All of this technology is enabling a lot 0:11:58.679 --> 0:12:01.800 of things both for the can consumer as well as 0:12:01.840 --> 0:12:06.040 for business. And it's it's a dramatic change that combined 0:12:06.080 --> 0:12:11.880 with sensitivity by the FED communication transparency that we think 0:12:12.000 --> 0:12:14.320 is you know, the branking legacy that is still being 0:12:14.400 --> 0:12:18.079 practiced by Jerome Howell in his own way. Yeah, you know, 0:12:18.520 --> 0:12:19.400 positive effect. 0:12:19.520 --> 0:12:22.040 I keep thinking the economy is not the stock market, 0:12:22.200 --> 0:12:24.800 and this is not necessarily a stock market that's representative 0:12:24.840 --> 0:12:27.960 of the broader economy that really is maybe the Russell 0:12:28.000 --> 0:12:31.880 two thousand or the banking index, the regional Banking Index. 0:12:32.360 --> 0:12:35.920 Does your optimism bleed over to small caps, to the 0:12:36.280 --> 0:12:37.319 KBW index? 0:12:38.400 --> 0:12:41.600 Well, I'd say not necessarily to the k b W. 0:12:42.000 --> 0:12:45.319 Yet we've got to wait for the economy to show 0:12:45.760 --> 0:12:50.120 a greater sustainability going forward and not as many concerns 0:12:50.160 --> 0:12:54.320 in terms of commercial real estate and subbrime auto loans 0:12:54.320 --> 0:12:57.160 and things like that. But what we would say is 0:12:57.480 --> 0:13:00.400 when we when we look at this picture where all 0:13:00.400 --> 0:13:03.480 things are getting better, it's been led by the large 0:13:03.520 --> 0:13:06.080 caps but if we get to that point where we 0:13:06.200 --> 0:13:11.440 get to see the sustainability of the economic expansion, of 0:13:11.559 --> 0:13:15.320 becoming predominant in the picture, you're going to want to 0:13:15.360 --> 0:13:19.240 own smalls and mid caps, and you probably want to consider, 0:13:19.840 --> 0:13:23.800 for instance, we're near market cap agnostic in some ways 0:13:23.840 --> 0:13:27.720 because our goal is beyond we're intermediate to longer term investors, 0:13:28.040 --> 0:13:33.319 and the valuations are ridiculously low in many quality indices 0:13:33.360 --> 0:13:35.199 of the small caps and mid caps. 0:13:35.600 --> 0:13:49.120 Joss Dolphis thank you so much, greatly appreciating this should 0:13:49.120 --> 0:13:52.720 be a two hour conversation. I can't say enough about 0:13:52.760 --> 0:13:57.120 the work of doctor Miller. He is Aaron David Miller. 0:13:57.160 --> 0:13:59.960 He's a senior fellow the Carnegie Endowment for in an 0:14:00.120 --> 0:14:03.120 national piece. The signal is from the University of Michigan 0:14:03.200 --> 0:14:07.800 Definitive and International Relations. And he wrote a book in 0:14:07.880 --> 0:14:13.760 two thousand and eight. It was shockingly, shockingly prescient fifteen 0:14:13.840 --> 0:14:18.760 years on about the mess we're in in the Eastern Mediterranean. 0:14:19.120 --> 0:14:21.560 Aaron David Miller, thank you so much for joining us 0:14:21.560 --> 0:14:24.600 this morning. When you wrote your masterpiece in two thousand 0:14:24.640 --> 0:14:28.000 and eight, did you expect the tragedy we're living now? 0:14:30.160 --> 0:14:34.120 I expected John at an unresolved Israeli Palestinian conflict driven 0:14:34.160 --> 0:14:38.240 by a proximity problem. Israelis and Palestinians are living on 0:14:38.280 --> 0:14:40.960 top of one another, and frankly, I think it was 0:14:41.000 --> 0:14:45.640 Mark Twitter said that proximity breachs contempt and children. I 0:14:45.760 --> 0:14:49.400 figured that this conflict would endure, It would go through 0:14:49.400 --> 0:14:53.480 periods of accommodation, perhaps as it did, but also periods 0:14:53.520 --> 0:14:56.920 of conflict that we've seen. But I think I, for one, 0:14:56.960 --> 0:14:59.480 I'll put myself at the top of the list, never 0:14:59.520 --> 0:15:05.160 anticipate paid the kind of trigger to this particular phase 0:15:06.040 --> 0:15:08.640 of the Israeli Palestinian conflict. That is to say, what 0:15:08.720 --> 0:15:14.720 happened on October seven, with Hamasa's brutal and savage attack 0:15:15.080 --> 0:15:21.000 and it's wilful and intentional, indiscriminate murder of men, women 0:15:21.040 --> 0:15:24.760 and children. I did not anticipate that, and clearly, in 0:15:24.840 --> 0:15:27.680 what probably one of the two greatest intelligence failures in 0:15:27.720 --> 0:15:31.000 the history of the State of Israel, neither did the Israelis. 0:15:31.920 --> 0:15:35.960 Aaron David Miller. Robert Gates writes a piercing essay and 0:15:36.040 --> 0:15:39.200 the New Foreign Affairs magazine. I read every word of it. 0:15:39.280 --> 0:15:43.040 The former Defense Secretary and head of CIA on a 0:15:43.120 --> 0:15:49.120 dysfunctional America, a dysfunctional superpower. You are someone that straddled 0:15:49.120 --> 0:15:52.160 the line. I would say, within the politics of Washington, 0:15:52.760 --> 0:15:58.720 what's Aaron David Miller's best practice? Now for the Biden administration. 0:16:00.000 --> 0:16:02.520 Come to this particular crisis. Remember, we now have an 0:16:02.600 --> 0:16:05.840 archa crisis. We have a major crisis in the Middle 0:16:05.880 --> 0:16:09.320 East with the potential of escalade. Even further, if you 0:16:09.440 --> 0:16:11.560 end up with in Israeli his bull of war, You're 0:16:11.560 --> 0:16:14.720 going to see, not to mention the prospects of Iranian 0:16:14.760 --> 0:16:18.160 involvement and direct conversation between Israel and I Ran, which 0:16:18.200 --> 0:16:21.360 would lead to spiking oil prices and plunging financial markets, 0:16:21.400 --> 0:16:24.760 and even more uncertainty with respect to the global economy. 0:16:25.000 --> 0:16:28.360 You've got Russia's invasion of Ukraine, You've got tensions in 0:16:28.400 --> 0:16:34.040 the Indo Pacific. Look, I long believe you know. I'm 0:16:34.080 --> 0:16:38.840 a follower reinhold Nebe approximate solutions to insoluble problems. This 0:16:39.000 --> 0:16:42.800 is a world that cannot be resolved. That is to say, 0:16:43.040 --> 0:16:45.920 I'm not sure there is one conflict factor you could 0:16:45.920 --> 0:16:49.800 identify that had a definitive, a comprehensive solution. This is 0:16:49.840 --> 0:16:55.920 all about smart, smart management and a judicious and very 0:16:56.280 --> 0:16:59.920 balanced view of the projection of American power in air 0:17:00.280 --> 0:17:03.360 is that in fact we can, we can and effect. 0:17:03.400 --> 0:17:07.080 But no, this is not a world to be redeemed 0:17:07.240 --> 0:17:10.320 or resolved. It's want to be managed if we're lucky 0:17:10.359 --> 0:17:11.000 and smart. 0:17:11.320 --> 0:17:14.040 Aaron David Miller Robert Kaplan's new book, The Loom of 0:17:14.080 --> 0:17:15.919 Time is my book of the year. It's just a 0:17:16.000 --> 0:17:19.240 sprawling treatise from Morocco all the way over to Persia, 0:17:19.600 --> 0:17:24.080 indeed on to Afghanistan as well. And what permeates Caplin's 0:17:24.160 --> 0:17:27.679 real politic is the basic idea that we have a 0:17:27.800 --> 0:17:32.960 human rights led foreign policy. Is our human rights led 0:17:33.040 --> 0:17:36.919 foreign policy at risk given what we see in the 0:17:36.920 --> 0:17:38.520 Eastern Mediterranean region. 0:17:39.200 --> 0:17:41.600 You know, Caplin's you a really smart guy. Based on 0:17:41.720 --> 0:17:45.480 my experience John working for Republicans and Democrats over a 0:17:45.600 --> 0:17:49.960 thirty year period from Jimmy Carter to Bush forty three, 0:17:50.480 --> 0:17:52.960 I don't think we have a human rights based policy. 0:17:53.640 --> 0:17:59.000 In fact, human rights democracy promotion, responsibility to protect, the intervention, 0:17:59.440 --> 0:18:04.360 to to prevent or even respond to mass killings, from 0:18:04.400 --> 0:18:07.480 the Holocaust at Cambodia to Rwanda to Dartford to Sauth, 0:18:07.520 --> 0:18:11.239 Sudan to Syria. Where has the United States been with 0:18:11.320 --> 0:18:14.679 respect to the protection of human rights. I'm not saying 0:18:14.720 --> 0:18:17.760 that that is a role we need to play and 0:18:17.840 --> 0:18:20.280 can't play all the time, but I think human rights 0:18:20.080 --> 0:18:26.400 is a factor. But based on my experience from Carter 0:18:26.480 --> 0:18:29.480 to Bush forty three, it's rarely at the top of 0:18:29.520 --> 0:18:30.080 our agenda. 0:18:30.160 --> 0:18:33.359 There's been shades of isolationism there, even off of the 0:18:33.400 --> 0:18:36.960 shock of Jimmy Carter and the Iranian hostage crisis. And 0:18:37.000 --> 0:18:41.159 I believe seventy nine, what does our new isolationism look like. 0:18:42.600 --> 0:18:47.200 I'm not sure. Well, clearly we're not there now. I mean, 0:18:47.240 --> 0:18:52.040 I think the America first notion, although I think that 0:18:52.280 --> 0:18:56.040 largely would translate into putting America last. We've got to 0:18:56.080 --> 0:18:59.080 find the right balance, John, between doing too much in 0:18:59.080 --> 0:19:01.840 the world and not doing enough. One of my former 0:19:01.920 --> 0:19:04.480 VOUSE bosses, medal In Albert, referred to the United States 0:19:04.480 --> 0:19:07.240 as the indispensable power. You know, and I remember what 0:19:07.680 --> 0:19:11.000 de gaul said about the cemeteries of France. They're filled 0:19:11.040 --> 0:19:15.159 with indispensable people. We can't be the indispensable power if 0:19:15.160 --> 0:19:19.160 indispensability means that we need to be everywhere, to everyone 0:19:19.680 --> 0:19:24.080 all the time. We have a dysfunctional political system. That's 0:19:24.119 --> 0:19:27.840 the strength, by the way repairing that is critically important 0:19:28.080 --> 0:19:34.000 for our capacity to lead, not by the what it was, 0:19:34.400 --> 0:19:38.119 Joe Biden says, not by the example of our power, 0:19:38.200 --> 0:19:40.959 but by the power of our example. There is something 0:19:41.000 --> 0:19:41.280 to that. 0:19:42.280 --> 0:19:46.040 From where you sit in international relations. Is our pentagon 0:19:46.160 --> 0:19:50.520 properly funded? And specifically does the Navy have enough ships 0:19:50.520 --> 0:19:51.440 and submarines? 0:19:52.119 --> 0:19:56.560 Probably know, and no, I suspect, even though there some 0:19:56.680 --> 0:19:59.760 will argue that our defense budget is way out of whack, 0:20:00.960 --> 0:20:03.199 It'll be fascinating to try to see how we're going 0:20:03.280 --> 0:20:07.480 to resource going forward because each of these problems I 0:20:07.560 --> 0:20:10.480 referred to what you're seeing in the Middle East right now, 0:20:10.640 --> 0:20:15.000 Russia's warview against Ukraine which seems to be forever, and 0:20:15.040 --> 0:20:18.680 the prospects of arising China in the Indo Pacific. All 0:20:18.720 --> 0:20:21.640 of these things have to be properly resourced. And that's 0:20:21.680 --> 0:20:25.320 a concern that I have, given the nature of our 0:20:25.359 --> 0:20:26.480 domestic politics. 0:20:26.760 --> 0:20:29.639 One final questionnaireon to circle back to your two thousand 0:20:29.640 --> 0:20:34.000 and eight treaties, there is a much too promised land. 0:20:34.440 --> 0:20:39.280 What should we advocate to Israel and the Palestinians in 0:20:39.280 --> 0:20:40.719 this November. 0:20:41.000 --> 0:20:43.040 You know, a lot of people I respect John believe 0:20:43.080 --> 0:20:45.720 that the so called two state solution has gone the 0:20:45.720 --> 0:20:49.520 way of the Dodo. I understand the argument, but frankly, 0:20:50.160 --> 0:20:53.480 it's the least bad solution to this conflict. Israelis and 0:20:53.520 --> 0:20:56.800 Palestinians need to separate from one another through negotiations. There's 0:20:56.840 --> 0:21:01.160 no precedent that I can think of of two two 0:21:01.240 --> 0:21:04.879 national movements, one of state, a nonstate actor seeking to 0:21:04.920 --> 0:21:10.080 become a movement living happily ever after under one roof. 0:21:11.040 --> 0:21:15.480 It's Cyprus, Lebanon, Syria, Iraq. I mean, the beat goes on, 0:21:16.200 --> 0:21:18.280 so it's not it's just a hop, skip and a 0:21:18.400 --> 0:21:21.480 jump to understanding that if in fact you're going to 0:21:21.520 --> 0:21:25.159 have anything resembling a conflict ending solution, I'm choosing my 0:21:25.200 --> 0:21:28.600 words very carefully here. You really do need to have 0:21:28.720 --> 0:21:32.320 separation through negotiation, maybe into a confederation at some point, 0:21:32.920 --> 0:21:38.480 but you need to satisfy the political, territorial, emotional, psychological, 0:21:38.600 --> 0:21:41.800 and religious underpinnings of this conflict. The only thing that 0:21:41.880 --> 0:21:47.840 does that, in my judgment, is to separate through negotiation 0:21:48.400 --> 0:21:56.320 state of Israel living peacefully next door to a Palestinian polity. 0:21:56.800 --> 0:21:59.640 That to me is the only way to even begin 0:21:59.720 --> 0:22:00.760 to think about fixation. 0:22:01.160 --> 0:22:03.280 Aaron David Miller, thank you so much for the brief. 0:22:03.320 --> 0:22:11.840 Hugely valuable with the Carnegie Endowment for International Peace. Stephen 0:22:11.920 --> 0:22:15.080 Stanley joins us at right now with Santander or US 0:22:15.080 --> 0:22:19.920 Capital Markets. You are acclaimed for analysis and GDP. How 0:22:19.920 --> 0:22:22.520 does the bond market affect your analysis? 0:22:23.960 --> 0:22:27.480 You know, I think the Fed is overstating the importance 0:22:27.520 --> 0:22:30.680 of this little backup in bonnials that we've seen over 0:22:30.720 --> 0:22:34.120 the last month. As we talked about the last time 0:22:34.160 --> 0:22:35.960