1 00:00:02,529 --> 00:00:05,370 Speaker 1: Bloomberg Audio Studios. Podcasts. 2 00:00:05,690 --> 00:00:06,210 Speaker 2: Radio. 3 00:00:06,650 --> 00:00:07,050 Speaker 3: News. 4 00:00:12,530 --> 00:00:16,680 Speaker 4: This is the Bloomberg Surveillance Podcast. Catch us live weekdays 5 00:00:16,730 --> 00:00:20,220 Speaker 4: at 7 a.m. Eastern on Apple CarPlay or Android Auto 6 00:00:20,300 --> 00:00:23,880 Speaker 4: with the Bloomberg Business App. Listen on demand wherever you 7 00:00:23,920 --> 00:00:27,000 Speaker 4: get your podcasts or watch us live on YouTube. 8 00:00:27,580 --> 00:00:31,790 Speaker 3: Kim Harvey is stick professor at the Fuca School. of business, 9 00:00:31,830 --> 00:00:35,050 Speaker 3: Duke University, all sorts of abilities. I love how he 10 00:00:35,070 --> 00:00:38,190 Speaker 3: was at Chicago, and he did what the brave do. 11 00:00:38,250 --> 00:00:42,290 Speaker 3: He went over to the Stockholm School of Economics, which 12 00:00:42,370 --> 00:00:46,950 Speaker 3: is a whole different twisted view to get perspective. He's 13 00:00:46,990 --> 00:00:51,050 Speaker 3: also an advisor to Duke football as well, 4-0. Paul 14 00:00:51,070 --> 00:00:54,370 Speaker 3: Sweeney of Duke with Professor Harvey. Cam, thanks so much 15 00:00:54,410 --> 00:00:58,170 Speaker 3: for joining us here today. A lot of folks, Cam, 16 00:00:58,210 --> 00:01:01,590 Speaker 3: on Global Wall Street, they've never seen interest rates at 17 00:01:01,630 --> 00:01:04,080 Speaker 3: these levels before, and I'm sure none of your students 18 00:01:04,120 --> 00:01:04,940 Speaker 3: have either here. 19 00:01:05,540 --> 00:01:08,280 Speaker 5: Frame out what this interest rate environment, what does that 20 00:01:08,360 --> 00:01:11,060 Speaker 5: mean for this economy? What does that mean for these markets? 21 00:01:12,459 --> 00:01:17,380 Speaker 6: Yeah, I think that people are generally misinterpreting what's going on. 22 00:01:18,080 --> 00:01:22,569 Speaker 6: So number one, the rate, the yield on the 10-year 23 00:01:23,270 --> 00:01:28,290 Speaker 6: is statistically the highest we've seen in 25 years. But 24 00:01:28,350 --> 00:01:33,280 Speaker 6: you need to keep the context in mind that during 25 00:01:33,410 --> 00:01:37,230 Speaker 6: the past 25 years, we've had these extraordinary events like 26 00:01:37,270 --> 00:01:41,729 Speaker 6: the global financial crisis and COVID that drove the rate 27 00:01:41,810 --> 00:01:45,960 Speaker 6: down to unusually low levels. And where we are right 28 00:01:46,020 --> 00:01:50,280 Speaker 6: now is about average if you look at a longer history. 29 00:01:50,520 --> 00:01:53,100 Speaker 6: And you're correct that many people have not seen rates 30 00:01:53,220 --> 00:01:56,490 Speaker 6: this high, but you need to have a historical perspective 31 00:01:56,890 --> 00:02:00,990 Speaker 6: that the rate that we're seeing today is not abnormal. 32 00:02:01,330 --> 00:02:05,130 Speaker 6: What was abnormal was when the rate was 1%, people 33 00:02:05,170 --> 00:02:09,600 Speaker 6: getting mortgages at 2% or 3%. That's abnormal. So where 34 00:02:09,620 --> 00:02:14,160 Speaker 6: we are today is historically where we've been many times. 35 00:02:14,840 --> 00:02:18,269 Speaker 6: And I also think that the causes of the increases 36 00:02:18,490 --> 00:02:20,770 Speaker 6: in the rate are really misunderstood. 37 00:02:21,490 --> 00:02:22,960 Speaker 7: All right, so I feel a little bit better about 38 00:02:23,000 --> 00:02:25,280 Speaker 7: sitting with my 6% mortgage here. 39 00:02:25,680 --> 00:02:26,620 Speaker 5: Cam, the Fed. 40 00:02:26,580 --> 00:02:29,639 Speaker 7: Continues to talk about this 2% inflation rate. 41 00:02:30,400 --> 00:02:32,620 Speaker 5: I'm wondering if that's the right bogey these days. 42 00:02:32,639 --> 00:02:37,010 Speaker 7: Is inflation in this economy maybe structurally higher than maybe 43 00:02:37,030 --> 00:02:37,549 Speaker 7: it used to be? 44 00:02:38,830 --> 00:02:40,109 Speaker 3: Well, you say this economy? 45 00:02:40,550 --> 00:02:41,950 Speaker 6: Yes. What about the past economy? 46 00:02:42,010 --> 00:02:42,209 Speaker 7: Okay. 47 00:02:42,490 --> 00:02:43,230 Speaker 5: So you just need to. 48 00:02:43,250 --> 00:02:47,840 Speaker 6: Look at the Fed's announcement of the 2% target and 49 00:02:47,880 --> 00:02:52,830 Speaker 6: then look at the average inflation rate. So the Fed 50 00:02:53,410 --> 00:02:57,130 Speaker 6: doesn't do a very good job of the 2%. And 2% 51 00:02:57,130 --> 00:03:01,280 Speaker 6: is an arbitrary number anyways. So the best way to 52 00:03:01,320 --> 00:03:06,020 Speaker 6: think about expected inflation is to look at the TIPS market. 53 00:03:06,600 --> 00:03:09,820 Speaker 6: So you look at the difference between a nominal 10-year 54 00:03:09,860 --> 00:03:14,079 Speaker 6: yield and the real yield, you get expected inflation or 55 00:03:14,100 --> 00:03:21,180 Speaker 6: breakeven inflation. So that breakeven rate today is about 2.36%. 56 00:03:22,330 --> 00:03:22,770 Speaker 3: Yesterday. 57 00:03:23,410 --> 00:03:27,630 Speaker 6: So that means that people don't believe the 2% target. 58 00:03:28,470 --> 00:03:32,459 Speaker 6: And this is really important, that the increase in rates 59 00:03:33,260 --> 00:03:38,690 Speaker 6: that we're experiencing is not due to expected inflation. I 60 00:03:38,710 --> 00:03:42,570 Speaker 6: know it's kind of non-intuitive to people paying over $ 6 61 00:03:42,490 --> 00:03:49,160 Speaker 6: for diesel. But the expected inflation, the break-even inflation, has 62 00:03:49,260 --> 00:03:53,710 Speaker 6: not moved over the past year. So even since the 63 00:03:53,770 --> 00:03:58,830 Speaker 6: invasion or the bombing of Iran, the break-even inflation has 64 00:03:58,890 --> 00:03:59,370 Speaker 6: not moved. 65 00:04:00,070 --> 00:04:01,990 Speaker 3: Professor, I want to get this in two thoughts, and 66 00:04:02,050 --> 00:04:04,030 Speaker 3: one is a victory lap for you and Rob or not. 67 00:04:04,710 --> 00:04:07,750 Speaker 3: But first, if I look at the cacophony on the 68 00:04:07,810 --> 00:04:11,880 Speaker 3: Bloomberg screen, If I look at linkages, say, a French 69 00:04:12,060 --> 00:04:16,339 Speaker 3: debt with Japanese interest rates, these are things that's hard 70 00:04:16,400 --> 00:04:19,960 Speaker 3: for our listeners, our viewers to grasp. Is the easy 71 00:04:20,020 --> 00:04:25,220 Speaker 3: solution to just look at inflation-adjusted real yields? And what 72 00:04:25,240 --> 00:04:28,370 Speaker 3: do you think about the glide path up to new, 73 00:04:28,650 --> 00:04:30,630 Speaker 3: higher American real yields? 74 00:04:32,110 --> 00:04:37,349 Speaker 6: Yeah, so this is exactly the right question to ask. 75 00:04:37,770 --> 00:04:41,350 Speaker 6: So thank you for asking it. So the rate has 76 00:04:41,410 --> 00:04:45,620 Speaker 6: gone up, and it's not because of an increase in 77 00:04:45,680 --> 00:04:49,460 Speaker 6: expected inflation. So that's very, very clear, even though people 78 00:04:49,520 --> 00:04:53,360 Speaker 6: talk about it all the time. It's not due to 79 00:04:53,980 --> 00:05:00,400 Speaker 6: an increase in the riskiness of U.S. government debt. Because 80 00:05:00,750 --> 00:05:01,520 Speaker 6: if the U.S. 81 00:05:01,730 --> 00:05:04,029 Speaker 5: Ever defaulted, it would. 82 00:05:03,910 --> 00:05:07,730 Speaker 6: Be through printing money to pay the coupons and interest, 83 00:05:08,290 --> 00:05:11,860 Speaker 6: and that would be reflected in in expected inflation. And 84 00:05:11,900 --> 00:05:15,400 Speaker 6: I've already mentioned expected inflation is identical as to where 85 00:05:15,430 --> 00:05:20,350 Speaker 6: it was a year ago. So it's also the case 86 00:05:20,430 --> 00:05:24,070 Speaker 6: if you look at the spread between, let's say, corporate 87 00:05:24,089 --> 00:05:28,539 Speaker 6: debt and treasury debt, that hasn't moved either. So the 88 00:05:28,580 --> 00:05:32,279 Speaker 6: key thing that's moved in the economy, whether it is 89 00:05:32,300 --> 00:05:36,180 Speaker 6: a corporate bond or the government bond, is the expected 90 00:05:36,640 --> 00:05:40,700 Speaker 6: real interest rate. And this goes all the way back 91 00:05:40,760 --> 00:05:44,690 Speaker 6: to my dissertation at the University of Chicago that shows 92 00:05:44,900 --> 00:05:50,029 Speaker 6: there is a positive relation between expected real growth. And 93 00:05:50,050 --> 00:05:53,650 Speaker 6: the expected Brill rate. The reason that rates are going 94 00:05:53,790 --> 00:05:58,830 Speaker 6: up is because of higher expected real economic growth. It's 95 00:05:58,920 --> 00:05:59,539 Speaker 6: that simple. 96 00:05:59,900 --> 00:06:03,300 Speaker 3: He was in class with Frank Knight in 1921. I mean, 97 00:06:03,339 --> 00:06:05,159 Speaker 3: you know that's the way it is. Okay, I've got 98 00:06:05,200 --> 00:06:07,200 Speaker 3: to do a victory lap here, folks. And Matt Brill, 99 00:06:07,220 --> 00:06:10,820 Speaker 3: thank you so much for waiting. Kim Harvey, folks, is 100 00:06:10,880 --> 00:06:13,820 Speaker 3: my essay of the year. This year, the essay is 101 00:06:13,860 --> 00:06:19,469 Speaker 3: a research report. Rob Arnott, Christopher Brightman, Campbell R. Harvey, 102 00:06:21,570 --> 00:06:27,090 Speaker 3: and Omid Shakaria. It is an absolute must-read in March 103 00:06:27,390 --> 00:06:30,660 Speaker 3: on fundamental growth. Cam Harvey, quickly, because I've got to 104 00:06:30,700 --> 00:06:33,700 Speaker 3: get to Matt Brill. We are taught that cheap is 105 00:06:33,760 --> 00:06:39,080 Speaker 3: value and expensive is growth. Wrong explanation point. Why is 106 00:06:39,100 --> 00:06:42,030 Speaker 3: your essay with Rob my essay of the year? 107 00:06:44,339 --> 00:06:50,230 Speaker 6: Yeah, so people misunderstand value and growth investing. So often 108 00:06:50,990 --> 00:06:56,390 Speaker 6: the growth stocks are anti-value. So if you're expensive, you're growth. 109 00:06:57,380 --> 00:07:00,280 Speaker 6: And what we do is just focus on growth. Think 110 00:07:00,320 --> 00:07:04,339 Speaker 6: about sales growth. Think about R & D growth. So 111 00:07:04,480 --> 00:07:09,540 Speaker 6: why not look at growth when you're investing in growth? Indeed, 112 00:07:09,720 --> 00:07:11,960 Speaker 6: if you think of the major indices like the Russell 113 00:07:11,960 --> 00:07:16,250 Speaker 6: 1000 value, Russell 1000 growth, you put those together equally, 114 00:07:16,550 --> 00:07:21,170 Speaker 6: you get the market portfolio, the Russell 1000. So what's 115 00:07:21,270 --> 00:07:25,570 Speaker 6: not in value is in growth. And it's not just Russell, 116 00:07:25,610 --> 00:07:29,570 Speaker 6: but the other index providers also. So we made the case, 117 00:07:30,120 --> 00:07:33,280 Speaker 6: if you're a value and growth investor, why would you 118 00:07:33,340 --> 00:07:38,720 Speaker 6: invest in expensive low growth stocks? That makes no sense. 119 00:07:38,880 --> 00:07:39,600 Speaker 3: We've got to leave it there. 120 00:07:39,640 --> 00:07:43,180 Speaker 6: If you're buying the market, you're buying expensive low growth. 121 00:07:43,640 --> 00:07:45,960 Speaker 6: So it's a different way. 122 00:07:46,360 --> 00:07:47,840 Speaker 3: Paul and I want to get you back on here 123 00:07:47,880 --> 00:07:49,720 Speaker 3: before the end of the year, Cam Harvey, to talk 124 00:07:49,780 --> 00:07:54,950 Speaker 3: about this extraordinary research. Basically, he says growthiness wins. Lots 125 00:07:54,970 --> 00:08:00,410 Speaker 3: to talk about there. Cam Harvey at Duke. Stay with us. 126 00:08:00,730 --> 00:08:03,970 Speaker 3: More from Bloomberg Surveillance coming up after this. 127 00:08:11,220 --> 00:08:14,830 Speaker 4: You're listening to the Bloomberg Surveillance Podcast. Catch us live 128 00:08:14,910 --> 00:08:16,990 Speaker 4: weekday afternoons from 7 to 10 a.m. 129 00:08:17,030 --> 00:08:17,429 Speaker 1: Eastern. 130 00:08:17,530 --> 00:08:20,830 Speaker 4: Listen on Apple CarPlay and Android Auto with the Bloomberg 131 00:08:20,850 --> 00:08:21,450 Speaker 4: Business app. 132 00:08:21,650 --> 00:08:23,370 Speaker 1: Or watch us live on YouTube. 133 00:08:23,870 --> 00:08:26,970 Speaker 3: Kate Luff walked in. She said, Tom, what's the 30-year bond? 134 00:08:27,010 --> 00:08:31,180 Speaker 3: Because everybody's looking at it. 5.66%. Kate Luff driving all 135 00:08:31,200 --> 00:08:34,640 Speaker 3: her retail banking. It's Citigroup. I love her notes. They're 136 00:08:34,660 --> 00:08:38,540 Speaker 3: like bullet points. central right now. I got to go. 137 00:08:38,559 --> 00:08:41,959 Speaker 3: I got eight ways to go here on retail banking, 138 00:08:42,740 --> 00:08:45,980 Speaker 3: but everybody's trying to get an edge and you're doing 139 00:08:46,000 --> 00:08:49,540 Speaker 3: it with something called city premium boost. Is that like 140 00:08:49,580 --> 00:08:53,000 Speaker 3: a Christmas card, a Christmas club account on steroids? 141 00:08:53,750 --> 00:08:56,750 Speaker 8: No, I would say it's relationship banking actually in action. 142 00:08:56,970 --> 00:09:00,870 Speaker 8: So when you think about city premium boost, we're actually 143 00:09:00,890 --> 00:09:03,510 Speaker 8: rewarding clients for some of the banking behavior they do today. 144 00:09:04,020 --> 00:09:06,339 Speaker 8: On top of all the things we give in relationship tiers, 145 00:09:06,380 --> 00:09:10,800 Speaker 8: like advisors or relationship managers, lifestyle. But I talk about 146 00:09:10,850 --> 00:09:16,030 Speaker 8: relationship banking because it's super important. It's just not transactional 147 00:09:16,090 --> 00:09:20,370 Speaker 8: yield chasing. It's really valuing clients who are deepening their 148 00:09:20,390 --> 00:09:21,230 Speaker 8: relationship with us. 149 00:09:21,929 --> 00:09:26,090 Speaker 3: What's your distinction versus the 14 other flavors out there? Yeah. 150 00:09:26,590 --> 00:09:30,570 Speaker 8: So it's both value and rate, as well as actually relationships. 151 00:09:30,990 --> 00:09:33,230 Speaker 8: And simplicity. Again, we start with the client. We have 152 00:09:33,270 --> 00:09:35,730 Speaker 8: about $ 3 trillion off of us in my business alone 153 00:09:35,770 --> 00:09:38,930 Speaker 8: and wallet. And we know clients are, when you look 154 00:09:38,960 --> 00:09:41,640 Speaker 8: at our Citi Gold, Citi Premium Boost, if you do 155 00:09:41,640 --> 00:09:45,440 Speaker 8: $ 5, 000 in direct deposit or $ 25, 000 in investments, you have 156 00:09:45,480 --> 00:09:47,720 Speaker 8: an always-on savings rate. You don't have to go to 157 00:09:47,740 --> 00:09:50,500 Speaker 8: the high-yield competitors anymore. You don't have to go to 158 00:09:50,540 --> 00:09:54,150 Speaker 8: a sweep into money market funds. It's simplicity of being 159 00:09:54,190 --> 00:09:57,209 Speaker 8: able to consolidate your relationships. And we know our clients 160 00:09:57,250 --> 00:10:00,250 Speaker 8: are doing this behavior anyway. They're just doing it not 161 00:10:00,330 --> 00:10:01,030 Speaker 8: always with us. 162 00:10:00,990 --> 00:10:04,670 Speaker 7: Right Citi just opened a bank a branch right across 163 00:10:04,700 --> 00:10:08,240 Speaker 7: the street from Bloomberg HQ here on Lexington Avenue. Why 164 00:10:08,580 --> 00:10:11,140 Speaker 7: talk to us about the, the value of a branch 165 00:10:11,179 --> 00:10:13,260 Speaker 7: in a world of digital this and digital that, and 166 00:10:13,280 --> 00:10:14,059 Speaker 7: everything's on my phone. 167 00:10:14,260 --> 00:10:18,140 Speaker 8: Yeah, there's two parts. So one of the 59th and 168 00:10:18,240 --> 00:10:20,920 Speaker 8: Lex branch is beautiful. We have a new branch manager, Kevin, 169 00:10:20,940 --> 00:10:25,660 Speaker 8: you should meet him. But really it's people still need 170 00:10:26,059 --> 00:10:30,100 Speaker 8: advice for those higher level transactions. That's why you see 171 00:10:30,140 --> 00:10:34,120 Speaker 8: our clients are about two times more affluent than the 172 00:10:34,420 --> 00:10:38,470 Speaker 8: market itself. They're seeking advice. So we still need physical locations. 173 00:10:38,970 --> 00:10:41,689 Speaker 8: And what we're doing is we know foot traffic has 174 00:10:41,730 --> 00:10:46,070 Speaker 8: dropped in banks more broadly. We're actually using that for outreach. 175 00:10:46,150 --> 00:10:49,790 Speaker 8: We're using AI to help arm our advisors and our 176 00:10:49,809 --> 00:10:51,670 Speaker 8: bankers of what do clients need. 177 00:10:52,570 --> 00:10:55,010 Speaker 3: The charge card derby. I mean, do we need to 178 00:10:55,050 --> 00:10:59,860 Speaker 3: get steeled for a fancy charge card being $ 1, 000? annual fee. 179 00:10:59,880 --> 00:11:04,280 Speaker 3: I know you're below that with American airlines, but I mean, Paul, 180 00:11:04,300 --> 00:11:06,500 Speaker 3: the fees are nuts. 181 00:11:06,540 --> 00:11:09,080 Speaker 5: It's all over this stuff. She's got a million cards 182 00:11:09,140 --> 00:11:10,300 Speaker 5: in premium. 183 00:11:10,350 --> 00:11:13,550 Speaker 3: This premium to people like, like bread, Brian Kelly was 184 00:11:13,590 --> 00:11:16,809 Speaker 3: in the points guy. He has 27 charge cards in 185 00:11:16,870 --> 00:11:19,030 Speaker 3: his wallet. Is that good, man? 186 00:11:19,050 --> 00:11:22,410 Speaker 8: I would say if you take a step back, you're right. 187 00:11:22,460 --> 00:11:25,660 Speaker 8: City does not have that level of fees, but even 188 00:11:25,720 --> 00:11:28,480 Speaker 8: if you look in my world, Clients are looking for 189 00:11:28,520 --> 00:11:33,480 Speaker 8: more transparency and less gotcha, less friction. In retail banking especially, 190 00:11:33,540 --> 00:11:36,270 Speaker 8: cards has always evolved this way, right? There's different value. 191 00:11:36,710 --> 00:11:39,430 Speaker 8: But in retail banking, the industry has competed off friction. 192 00:11:40,050 --> 00:11:43,630 Speaker 8: What we're actually transitioning to is competing off value, especially 193 00:11:43,670 --> 00:11:47,050 Speaker 8: as AI and searching and the transparency and data around 194 00:11:47,090 --> 00:11:50,679 Speaker 8: the market is so much more achievable for any client 195 00:11:50,700 --> 00:11:54,040 Speaker 8: to understand. you have to actually compete off value. So 196 00:11:54,080 --> 00:11:58,079 Speaker 8: I think the fees, especially in retail banking, are a 197 00:11:58,100 --> 00:11:58,840 Speaker 8: term of the past. 198 00:11:59,640 --> 00:12:03,569 Speaker 7: What are younger demos doing? How are they banking these days? 199 00:12:04,330 --> 00:12:07,910 Speaker 8: Yeah, so same thing. Actually, what surprises me the most 200 00:12:08,010 --> 00:12:11,170 Speaker 8: when we did research, about 73% of Gen Z clients 201 00:12:11,190 --> 00:12:13,929 Speaker 8: still want to branch because they still need some of 202 00:12:13,950 --> 00:12:16,699 Speaker 8: that safety net of, I don't know everything I don't 203 00:12:16,740 --> 00:12:18,980 Speaker 8: know yet, right? They don't know what questions to ask. 204 00:12:19,360 --> 00:12:20,920 Speaker 8: Even if they have an AI tool to help them, 205 00:12:21,300 --> 00:12:23,000 Speaker 8: they still need to know what questions to ask. 206 00:12:23,330 --> 00:12:27,189 Speaker 3: I have to ask this. Yesterday for your Tepper School 207 00:12:27,370 --> 00:12:31,650 Speaker 3: at Carnegie Mellon was an extraordinary day. Our Lisa O'Brien 208 00:12:31,670 --> 00:12:35,630 Speaker 3: was in conversation with a gentleman from Citadel of a 209 00:12:35,710 --> 00:12:40,410 Speaker 3: ginormous amount of money to make the food better at Tepper. 210 00:12:40,690 --> 00:12:43,880 Speaker 3: Alan Meltzer once took me to the student union to 211 00:12:43,929 --> 00:12:48,260 Speaker 3: improve the food. As someone, an alumni of Carnegie Mellon University, 212 00:12:48,380 --> 00:12:52,980 Speaker 3: what's it like having $ 3 billion thrown at your institution? 213 00:12:53,820 --> 00:12:56,209 Speaker 8: It's a proud day for all of us. Tepper and 214 00:12:56,610 --> 00:12:58,710 Speaker 8: CMU is an extraordinary institution. 215 00:13:00,550 --> 00:13:00,950 Speaker 5: I'm glad. 216 00:13:01,130 --> 00:13:03,030 Speaker 8: There are a lot of smart people there that are 217 00:13:03,070 --> 00:13:06,150 Speaker 8: doing great things, and this investment just helps drive that further. 218 00:13:06,220 --> 00:13:10,160 Speaker 8: So a proud day for all alumnus of Carnegie Mellon yesterday. 219 00:13:10,520 --> 00:13:13,300 Speaker 3: Somehow I can think there's going to be a Citibank branch. 220 00:13:14,450 --> 00:13:17,070 Speaker 7: So the CMU fighting women. 221 00:13:17,090 --> 00:13:17,929 Speaker 5: What do you do that? 222 00:13:18,090 --> 00:13:18,470 Speaker 3: Yes. 223 00:13:18,530 --> 00:13:20,630 Speaker 5: What are the, what's the mascot of this? 224 00:13:20,690 --> 00:13:22,470 Speaker 8: We're the, uh, fighting tartans. 225 00:13:22,710 --> 00:13:27,069 Speaker 3: Tartans. Oh, the tartans. I watched a football game once 226 00:13:27,809 --> 00:13:31,209 Speaker 3: up on the field. It's a small thing called buggy 227 00:13:31,630 --> 00:13:33,990 Speaker 3: where you take someone like Kate left and you throw 228 00:13:34,030 --> 00:13:37,360 Speaker 3: her down a hillside in a little engineered tube thing 229 00:13:37,410 --> 00:13:38,720 Speaker 3: and you're sure she's going to die. 230 00:13:39,690 --> 00:13:40,590 Speaker 5: That's what they do out there. 231 00:13:40,630 --> 00:13:44,550 Speaker 3: That's the way they roll in Pittsburgh. Kate Luff, thank 232 00:13:44,580 --> 00:13:47,300 Speaker 3: you so much. She's with Citigroup driving all of their 233 00:13:47,320 --> 00:13:53,500 Speaker 3: retail effort. Stay with us. More from Bloomberg Surveillance coming 234 00:13:53,630 --> 00:13:54,590 Speaker 3: up after this. 235 00:14:01,860 --> 00:14:05,439 Speaker 4: You're listening to the Bloomberg Surveillance Podcast. Catch us live 236 00:14:05,520 --> 00:14:07,600 Speaker 4: weekday afternoons from 7 to 10 a.m. 237 00:14:07,640 --> 00:14:08,059 Speaker 1: Eastern. 238 00:14:08,140 --> 00:14:11,420 Speaker 4: Listen on Apple CarPlay and Android Auto with the Bloomberg 239 00:14:11,460 --> 00:14:12,059 Speaker 4: Business app. 240 00:14:12,260 --> 00:14:14,000 Speaker 1: Or watch us live on YouTube. 241 00:14:14,420 --> 00:14:16,920 Speaker 3: Okay, so I usually look at the incredible statistics of 242 00:14:16,940 --> 00:14:20,200 Speaker 3: the Bloomberg folks. And I got one year. I didn't 243 00:14:20,240 --> 00:14:21,880 Speaker 3: know we could do these decimals, Paul. 244 00:14:22,120 --> 00:14:22,370 Speaker 5: Oh, yeah? 245 00:14:22,730 --> 00:14:24,470 Speaker 3: One year up 1,059%. Five year, 85%. I think it's 246 00:14:24,530 --> 00:14:32,450 Speaker 3: per year. The Sharpe ratio, I'd never seen that Sharpe ratio. 247 00:14:33,190 --> 00:14:37,350 Speaker 3: Joining us now with an original excellence, John Kartzonis. He's 248 00:14:37,810 --> 00:14:41,470 Speaker 3: with Breakwave Partners here on shipping. Eric Belchunas says you 249 00:14:41,490 --> 00:14:44,790 Speaker 3: have the number one performing ETF on shipping. I look 250 00:14:44,850 --> 00:14:47,890 Speaker 3: at to the moon, which is what shipping has done, 251 00:14:47,960 --> 00:14:51,020 Speaker 3: and your returns are extraordinary. In the last 90 days, 252 00:14:51,100 --> 00:14:56,800 Speaker 3: up 441% on your shipping ETF. Doesn't it just at 253 00:14:56,860 --> 00:15:00,640 Speaker 3: some point reverse and can I respectfully say crash? 254 00:15:02,110 --> 00:15:06,489 Speaker 9: That's an excellent question. I think that, yes, probably it 255 00:15:06,570 --> 00:15:08,010 Speaker 9: will at some point. I'm not sure if it's going 256 00:15:08,050 --> 00:15:11,110 Speaker 9: to be a crash, but freight rates have to adjust 257 00:15:11,750 --> 00:15:13,770 Speaker 9: because at the end of the day, who is paying 258 00:15:13,810 --> 00:15:17,420 Speaker 9: that is the consumer, right? You're paying about 30 bucks 259 00:15:18,460 --> 00:15:21,520 Speaker 9: a barrel to move the oil from the Middle East 260 00:15:21,640 --> 00:15:25,090 Speaker 9: to wherever it's going. If you go back a year ago, 261 00:15:25,130 --> 00:15:28,170 Speaker 9: it was like probably two bucks. This is not sustainable 262 00:15:28,470 --> 00:15:29,390 Speaker 9: by any means. 263 00:15:29,430 --> 00:15:31,210 Speaker 3: How do you hedge shipping rates? 264 00:15:32,870 --> 00:15:35,670 Speaker 9: Well, these are the freight futures that our ETFs hold, right? 265 00:15:35,730 --> 00:15:37,820 Speaker 9: I mean, like other futures that you have, oil futures, 266 00:15:37,880 --> 00:15:40,910 Speaker 9: you have like interest rate futures, stock futures. You can 267 00:15:40,980 --> 00:15:46,160 Speaker 9: hedge this probably not as a consumer, but for industrial players. 268 00:15:47,020 --> 00:15:49,660 Speaker 9: The question here is like when, it's not if. And 269 00:15:49,700 --> 00:15:53,600 Speaker 9: I think the when has been... around this crisis for 270 00:15:53,640 --> 00:15:56,560 Speaker 9: a while now. Could be six months, could be next month, 271 00:15:56,580 --> 00:15:59,710 Speaker 9: could be a year, nobody knows. But what is driving 272 00:15:59,770 --> 00:16:02,650 Speaker 9: that is significant inefficiencies. 273 00:16:03,250 --> 00:16:03,790 Speaker 5: Around the world. 274 00:16:04,470 --> 00:16:07,250 Speaker 7: We had an energy analyst sitting in that seat yesterday morning, 275 00:16:07,850 --> 00:16:10,240 Speaker 7: Paul Sankey, saying the only reason oil is getting through 276 00:16:10,260 --> 00:16:11,640 Speaker 7: the Strait of Hormuz is because the U.S. 277 00:16:11,680 --> 00:16:14,380 Speaker 5: Navy is there kind of making sure that happens. But 278 00:16:14,770 --> 00:16:16,370 Speaker 5: How long can the U.S. Navy stay in the Strait 279 00:16:16,390 --> 00:16:17,869 Speaker 5: of Hormuz? How long do we want to spend the 280 00:16:17,930 --> 00:16:21,030 Speaker 5: money to do that? If the Navy were to pull out, 281 00:16:21,430 --> 00:16:22,950 Speaker 5: that Strait would be closed tomorrow, wouldn't it? 282 00:16:24,200 --> 00:16:24,920 Speaker 3: Probably will. 283 00:16:24,940 --> 00:16:28,900 Speaker 9: I mean, the costs are significant, right? And that's why 284 00:16:29,820 --> 00:16:32,060 Speaker 9: ship owners are getting paid this amount of money to 285 00:16:32,100 --> 00:16:34,450 Speaker 9: go through the Strait of Hormuz. Whether that's insurance, that's 286 00:16:34,500 --> 00:16:36,810 Speaker 9: like the extra risk that you're taking. You have seafarers 287 00:16:36,850 --> 00:16:39,890 Speaker 9: on board, right? explosions left and right, this is not 288 00:16:39,970 --> 00:16:43,390 Speaker 9: an easy thing to do. But yeah, the costs are significant. 289 00:16:43,470 --> 00:16:44,910 Speaker 9: And at the end of the day, it's the consumer 290 00:16:44,930 --> 00:16:47,020 Speaker 9: who's paying this cost because it's the delivered price of 291 00:16:47,060 --> 00:16:48,120 Speaker 9: the barrel that matters. 292 00:16:49,120 --> 00:16:50,900 Speaker 7: And it's not just the Strait of Hormuz. I mean, 293 00:16:50,920 --> 00:16:54,820 Speaker 7: there's hot spots all around the world. I mean, just 294 00:16:54,880 --> 00:16:57,380 Speaker 7: talk to us about, are we in a new world 295 00:16:57,420 --> 00:17:02,630 Speaker 7: of shipping costs and inflation associated with that? Because I'm not, again, 296 00:17:02,910 --> 00:17:04,690 Speaker 7: I'm not sure the Strait of Hormuz ever goes back. 297 00:17:05,130 --> 00:17:07,240 Speaker 7: I don't know what's going on with the Houthis in 298 00:17:07,260 --> 00:17:07,880 Speaker 7: the Red Sea. 299 00:17:08,000 --> 00:17:11,540 Speaker 5: I don't know where that goes. You know, where do 300 00:17:11,580 --> 00:17:14,760 Speaker 5: we go here? The Suez Canal, the Panama Canal, there's 301 00:17:15,080 --> 00:17:15,980 Speaker 5: trouble all over the place. 302 00:17:16,359 --> 00:17:19,070 Speaker 9: I think, you know, this is definitely unprecedented. And that's, 303 00:17:19,119 --> 00:17:21,930 Speaker 9: I'm not saying that lightly. If you go back decades, 304 00:17:22,290 --> 00:17:25,229 Speaker 9: even centuries, when you look, when you never had disruptions 305 00:17:25,250 --> 00:17:28,190 Speaker 9: in happening at the same time in the most important 306 00:17:28,570 --> 00:17:30,590 Speaker 9: waterways in the world, right? You have the Red Sea, 307 00:17:30,650 --> 00:17:33,109 Speaker 9: you have the Arabian Sea, you have the Black Sea, right? 308 00:17:33,470 --> 00:17:35,940 Speaker 9: You know, the heating vessels all over the world. So 309 00:17:36,760 --> 00:17:39,160 Speaker 9: we're definitely in a new paradigm. And I think, like, 310 00:17:39,940 --> 00:17:43,480 Speaker 9: you know, whether that continues, I don't know. But the 311 00:17:43,520 --> 00:17:45,710 Speaker 9: inflation is not showing up in the price of oil. 312 00:17:45,910 --> 00:17:47,710 Speaker 9: It's showing up in the price of refined goods. 313 00:17:48,150 --> 00:17:49,050 Speaker 5: That's what matters. 314 00:17:49,630 --> 00:17:53,590 Speaker 9: And this includes the price of freight and includes what 315 00:17:53,609 --> 00:17:55,750 Speaker 9: they call the crack spread, right, the profit that the 316 00:17:55,770 --> 00:17:59,470 Speaker 9: funders make. But it's the end user price that matters. Diesel, 317 00:17:59,510 --> 00:18:01,090 Speaker 9: gasoline is not the price of oil. 318 00:18:01,390 --> 00:18:05,540 Speaker 3: John, within your set of large cash position and your 319 00:18:05,580 --> 00:18:11,639 Speaker 3: set of futures, you have TD3C forward freight agreement. I 320 00:18:11,680 --> 00:18:17,300 Speaker 3: guess 270,000 megatons, whatever, Middle East Gulf to China, Rastanur 321 00:18:17,320 --> 00:18:23,200 Speaker 3: to Ningbao. Describe what that future contract actually protects or guesses. 322 00:18:23,530 --> 00:18:28,510 Speaker 9: Well, this corresponds to the expected price of freight, how 323 00:18:28,570 --> 00:18:31,550 Speaker 9: much you have to pay to move oil from the 324 00:18:31,590 --> 00:18:34,909 Speaker 9: Middle East to China, right? It's a futures contract. And 325 00:18:34,950 --> 00:18:37,869 Speaker 9: that historically has been a way for, let's say, a 326 00:18:37,890 --> 00:18:42,190 Speaker 9: refiner to hedge their transportation costs. This has exploded because 327 00:18:42,250 --> 00:18:44,429 Speaker 9: right now to cross the Strait of Hormuz, you have 328 00:18:44,470 --> 00:18:47,810 Speaker 9: to pay tens of millions of dollars. And that's why 329 00:18:47,830 --> 00:18:49,869 Speaker 9: you have basically the performance you had in freight. 330 00:18:50,770 --> 00:18:54,300 Speaker 7: If I'm an insurance company, am I insuring a tanker 331 00:18:54,390 --> 00:18:58,520 Speaker 7: going through the Strait of Hormuz? Are these guys insured 332 00:18:58,560 --> 00:19:00,119 Speaker 7: going through there or are they just kind of winging it? 333 00:19:00,730 --> 00:19:01,330 Speaker 5: Good question. 334 00:19:01,369 --> 00:19:03,550 Speaker 9: I mean, at the end of the day, insurance is, 335 00:19:03,770 --> 00:19:07,690 Speaker 9: you know, in these types of risk is the whole 336 00:19:07,730 --> 00:19:10,930 Speaker 9: value of the cargo, right? It's not like our car insurance. 337 00:19:11,619 --> 00:19:16,700 Speaker 9: It's totally different here. Maybe some, maybe not all of them. 338 00:19:17,440 --> 00:19:20,300 Speaker 9: It's a very, very gray area right now what's happening there. 339 00:19:20,980 --> 00:19:25,400 Speaker 3: Take your world over to our listeners and viewers. For example, 340 00:19:25,940 --> 00:19:28,340 Speaker 3: real worry in Europe about how we're going. 341 00:19:28,240 --> 00:19:30,480 Speaker 5: To heat this winter. 342 00:19:31,000 --> 00:19:32,899 Speaker 3: Or I can go to your Simon School at the 343 00:19:32,980 --> 00:19:37,240 Speaker 3: University of Rochester, where in 1934 it was 22 degrees 344 00:19:37,300 --> 00:19:40,639 Speaker 3: below zero. How does this pull into us if we 345 00:19:40,680 --> 00:19:43,990 Speaker 3: have a difficult winter like last winter? 346 00:19:44,090 --> 00:19:47,270 Speaker 9: Yeah, I think like diesel is the biggest worry here, right? 347 00:19:47,310 --> 00:19:49,950 Speaker 5: I mean, that's what matters in this instance. 348 00:19:52,210 --> 00:19:56,929 Speaker 9: The issue, again, goes back to the infrastructure refining. Shipping, 349 00:19:57,020 --> 00:19:59,320 Speaker 9: I mean, yeah, you pay a price, but probably there 350 00:19:59,340 --> 00:20:01,659 Speaker 9: are enough ships to move oil. But on the refining side, 351 00:20:01,720 --> 00:20:05,619 Speaker 9: you had a lot of infrastructure destruction happening, both in 352 00:20:05,640 --> 00:20:10,520 Speaker 9: the Middle East, as were obviously in the Russian refinery system. 353 00:20:10,960 --> 00:20:13,619 Speaker 9: So this is not something that's going to be solved overnight. 354 00:20:14,730 --> 00:20:17,820 Speaker 9: even if you release oil inventories, even if you have, obviously, 355 00:20:17,900 --> 00:20:20,060 Speaker 9: now the transit of crude oil from the Hormuz is 356 00:20:20,300 --> 00:20:24,170 Speaker 9: kind of approaching pre-war levels. But at the end of 357 00:20:24,190 --> 00:20:27,270 Speaker 9: the day, it's the refined product that matters, and that's SCARE. 358 00:20:27,619 --> 00:20:29,790 Speaker 3: Thank you so much for coming in. I really appreciate 359 00:20:29,850 --> 00:20:34,770 Speaker 3: Eric Balchunas talking this up. John Kartzonis is Breakwave Partners, 360 00:20:34,930 --> 00:20:43,879 Speaker 3: and look for their incredible ETF, BWET, Boy Walter Edward Tom. BWET, 361 00:20:44,240 --> 00:20:49,940 Speaker 3: that's done better than good, to say the least. Stay 362 00:20:49,980 --> 00:20:53,850 Speaker 3: with us. More from Bloomberg Surveillance coming up after this. 363 00:21:01,109 --> 00:21:04,710 Speaker 4: You're listening to the Bloomberg Surveillance Podcast. Catch us live 364 00:21:04,800 --> 00:21:06,860 Speaker 4: weekday afternoons from 7 to 10 a.m. 365 00:21:06,920 --> 00:21:07,320 Speaker 1: Eastern. 366 00:21:07,420 --> 00:21:10,700 Speaker 4: Listen on Apple CarPlay and Android Auto with the Bloomberg 367 00:21:10,740 --> 00:21:13,240 Speaker 4: Business app or watch us live on YouTube. 368 00:21:13,619 --> 00:21:16,170 Speaker 3: Indeed, our honor, Jack Devine with us, of course, with 369 00:21:16,310 --> 00:21:19,010 Speaker 3: all of his service to the nation with the Central 370 00:21:19,090 --> 00:21:24,990 Speaker 3: Intelligence Agency. Can't say enough about his work. Katie Greifeld, 371 00:21:25,010 --> 00:21:27,580 Speaker 3: I have to blame. Okay. She's out, you know, with 372 00:21:27,800 --> 00:21:30,260 Speaker 3: New Offspring, and she called me up and said, Tom, 373 00:21:30,280 --> 00:21:31,600 Speaker 3: you have to watch The Americans. 374 00:21:31,619 --> 00:21:32,320 Speaker 7: Awesome. 375 00:21:32,340 --> 00:21:35,000 Speaker 3: Which is this whole Soviet, you know, CIA kind of 376 00:21:35,140 --> 00:21:41,300 Speaker 3: FBI thing. Here's the real world. Dmitry Polyakov, Adolf Tolkachev, 377 00:21:41,720 --> 00:21:47,560 Speaker 3: Valery Martinov, and Sergei Motorin all killed off of Aldrich Ames. 378 00:21:47,720 --> 00:21:53,459 Speaker 3: Jack Devine, you worked with Aldrich Ames before... his defection, 379 00:21:53,500 --> 00:21:57,560 Speaker 3: I guess, to the Russians as well. Are those risks 380 00:21:57,680 --> 00:22:01,639 Speaker 3: still apparent today? It's theater for us now. It wasn't 381 00:22:01,700 --> 00:22:02,500 Speaker 3: theater for you. 382 00:22:03,300 --> 00:22:06,260 Speaker 2: It's inherent in the business, Tom. In fact, there was 383 00:22:06,320 --> 00:22:10,700 Speaker 2: a case that the Justice Department just released about a 384 00:22:10,770 --> 00:22:13,899 Speaker 2: group of Russians operating in the United States with plans 385 00:22:14,109 --> 00:22:19,530 Speaker 2: towards disrupting activities in the United States and possible assassination. 386 00:22:19,590 --> 00:22:23,359 Speaker 2: It's pretty old World War II fashion activities. But in 387 00:22:23,380 --> 00:22:26,740 Speaker 2: the case of Rick Ames, there's so many in history, 388 00:22:26,760 --> 00:22:28,820 Speaker 2: the Cambridge Five that betrayed people. 389 00:22:29,780 --> 00:22:31,860 Speaker 1: In Ames' case, he. 390 00:22:31,820 --> 00:22:34,730 Speaker 2: Was disaffected, and what he did is he walked into 391 00:22:34,750 --> 00:22:37,629 Speaker 2: the Russian embassy. He thought he could handle them. He 392 00:22:37,650 --> 00:22:40,090 Speaker 2: thought he could give them a little bit. The second 393 00:22:40,130 --> 00:22:42,470 Speaker 2: time he walked out, he gave up those names, 11 394 00:22:42,470 --> 00:22:45,939 Speaker 2: of them. They were all killed. So that risk is 395 00:22:46,020 --> 00:22:48,540 Speaker 2: inherent in the spy business, and that's why I think 396 00:22:48,640 --> 00:22:51,020 Speaker 2: all of us in it spend a lot of time 397 00:22:51,080 --> 00:22:53,939 Speaker 2: trying to protect those people. But the best way to 398 00:22:53,960 --> 00:22:57,250 Speaker 2: catch a spy is to have a spy inside the system. 399 00:22:57,910 --> 00:22:59,330 Speaker 2: So that's part of our. 400 00:23:00,869 --> 00:23:03,050 Speaker 7: How do you change the spy business? Because it seems 401 00:23:03,090 --> 00:23:08,940 Speaker 7: like it just makes everybody potentially smarter, more capable, but 402 00:23:09,400 --> 00:23:11,860 Speaker 7: that can also go on to the bad guys as well. 403 00:23:12,040 --> 00:23:14,120 Speaker 5: How is the CIA thinking about that? 404 00:23:14,760 --> 00:23:17,460 Speaker 2: It's between a sensuous dream and a nightmare. 405 00:23:18,330 --> 00:23:18,460 Speaker 8: Yep. 406 00:23:19,090 --> 00:23:23,060 Speaker 2: What you have is the incredible concentration of information. 407 00:23:23,170 --> 00:23:23,700 Speaker 3: Unbelievable. 408 00:23:23,720 --> 00:23:26,120 Speaker 2: I remember the first time I walked into the agency 409 00:23:26,160 --> 00:23:27,680 Speaker 2: and they gave us a tour. They took us down 410 00:23:27,700 --> 00:23:30,960 Speaker 2: to the records room, a football field of index cards. 411 00:23:31,400 --> 00:23:32,840 Speaker 2: And then they took us to a room with all 412 00:23:32,880 --> 00:23:35,410 Speaker 2: the files. And they were all labeled in different colors. 413 00:23:35,550 --> 00:23:37,330 Speaker 2: And their job was to integrate it. But when you 414 00:23:37,369 --> 00:23:40,870 Speaker 2: got into the system, you found that it was highly stovepipe. 415 00:23:40,990 --> 00:23:42,810 Speaker 2: So what we're looking at, there are two big threats 416 00:23:42,830 --> 00:23:45,470 Speaker 2: that I think we need to concentrate. One is how 417 00:23:45,570 --> 00:23:49,109 Speaker 2: centralized are we going to make this work? powerful tool 418 00:23:49,140 --> 00:23:53,410 Speaker 2: in the intelligence business. And the Chinese are going for concentration. 419 00:23:53,910 --> 00:23:54,469 Speaker 5: The U.S. 420 00:23:54,470 --> 00:23:57,930 Speaker 2: 's normal tendency in the intelligence world is to break 421 00:23:57,970 --> 00:24:02,210 Speaker 2: it down, compartment it. And I'm just concerned that that 422 00:24:02,250 --> 00:24:04,300 Speaker 2: will slow us down. 423 00:24:04,320 --> 00:24:04,940 Speaker 5: But there are risks. 424 00:24:05,000 --> 00:24:08,540 Speaker 2: The second big risk is the speed of decision-making. So 425 00:24:08,700 --> 00:24:12,300 Speaker 2: the new world of intelligence, in the core part that 426 00:24:12,340 --> 00:24:15,080 Speaker 2: Tom and I were talking, is still there. But the 427 00:24:15,240 --> 00:24:19,660 Speaker 2: how you handle warfare... How you handle operations are all 428 00:24:19,700 --> 00:24:22,820 Speaker 2: going to be AI driven. And where do you get 429 00:24:22,920 --> 00:24:25,510 Speaker 2: the human in there? And how do you keep the 430 00:24:25,530 --> 00:24:29,030 Speaker 2: human in, for example, the finger on the nuclear weapon? 431 00:24:29,570 --> 00:24:32,710 Speaker 2: It's scary, but it's irresistible. 432 00:24:33,710 --> 00:24:37,550 Speaker 7: During this second Trump administration, it seems like certain departments, 433 00:24:37,810 --> 00:24:41,170 Speaker 7: when we think about geopolitical policymaking, whether it's the State 434 00:24:41,190 --> 00:24:44,449 Speaker 7: Department or some of the services like the CIA or 435 00:24:44,470 --> 00:24:45,679 Speaker 7: the FBI, may be taking a. 436 00:24:47,430 --> 00:24:49,310 Speaker 5: Back, you know, taking a. 437 00:24:49,750 --> 00:24:53,490 Speaker 7: Step back vis-a-vis the president and his ability to execute policy, 438 00:24:54,170 --> 00:24:56,950 Speaker 7: what is the state of our State Department, our intelligence community, 439 00:24:57,470 --> 00:25:00,169 Speaker 7: and is it of a concern that, in fact, the 440 00:25:00,210 --> 00:25:02,840 Speaker 7: executive branch is taking more of these responsibilities? 441 00:25:03,260 --> 00:25:04,479 Speaker 2: Well, I'd make two quick points. 442 00:25:04,760 --> 00:25:05,149 Speaker 3: One is. 443 00:25:06,180 --> 00:25:07,980 Speaker 2: The same people that went in when I went in 444 00:25:08,000 --> 00:25:11,020 Speaker 2: are the same type of people going in today, and 445 00:25:11,100 --> 00:25:14,790 Speaker 2: rightfully so, more diversified. But they're the same types of 446 00:25:14,850 --> 00:25:18,129 Speaker 2: mindset and reason. What really matters, and we have a 447 00:25:18,170 --> 00:25:22,070 Speaker 2: presidential system, it's amazing the impact that a president has. 448 00:25:22,710 --> 00:25:26,419 Speaker 2: Very quickly, I'll just describe Reagan and Carter. 449 00:25:26,580 --> 00:25:27,080 Speaker 1: Big shift. 450 00:25:27,730 --> 00:25:31,290 Speaker 2: But what was interesting with Carter, he wore cardigan sweaters. 451 00:25:32,150 --> 00:25:34,460 Speaker 2: Next thing you know, the entire seventh floor were wearing 452 00:25:34,500 --> 00:25:38,560 Speaker 2: cardigan sweaters. Reagan came in and put a suit and 453 00:25:38,580 --> 00:25:40,680 Speaker 2: tie on, but they wore brown suits. Next thing I know, 454 00:25:40,760 --> 00:25:42,900 Speaker 2: I'm surrounded with guys who have never worn a brown 455 00:25:42,960 --> 00:25:45,930 Speaker 2: suit before. I'm saying the system is resilient, but you 456 00:25:45,990 --> 00:25:49,170 Speaker 2: cannot underestimate the power of the personality of the president. 457 00:25:49,990 --> 00:25:51,949 Speaker 2: And it comes from a very good place. I want 458 00:25:51,970 --> 00:25:55,890 Speaker 2: to satisfy the president. But in the intelligence business, part 459 00:25:55,910 --> 00:25:57,879 Speaker 2: of your job is to make him uneasy, give him 460 00:25:57,900 --> 00:26:00,180 Speaker 2: the information that he doesn't want to be comfortable with. 461 00:26:00,260 --> 00:26:03,500 Speaker 2: So I think the State Department is still the State 462 00:26:03,520 --> 00:26:07,460 Speaker 2: Department with high-quality people, CIA. It's all about where is 463 00:26:07,480 --> 00:26:08,780 Speaker 2: the leadership going to take us. 464 00:26:08,900 --> 00:26:10,609 Speaker 3: I'm going to be rude. I'm going to cut to 465 00:26:10,630 --> 00:26:12,889 Speaker 3: the chase, and I've got to do this with Jack Devine, 466 00:26:12,910 --> 00:26:16,209 Speaker 3: with his folks at ARC, and that group, truly legendary. And, 467 00:26:16,670 --> 00:26:19,330 Speaker 3: you know, the quiet awards that they have at CIA, 468 00:26:19,350 --> 00:26:23,070 Speaker 3: he's won every one of them. The cardinal question I 469 00:26:23,350 --> 00:26:27,490 Speaker 3: hear every day is given this world turned upside down 470 00:26:27,510 --> 00:26:30,889 Speaker 3: and basically I think intelligence run out of the Oval 471 00:26:30,990 --> 00:26:35,660 Speaker 3: Office or maybe with Secretary Hegseth, can we get back 472 00:26:35,840 --> 00:26:39,240 Speaker 3: to what we knew with Bill Burns or are we 473 00:26:39,400 --> 00:26:42,760 Speaker 3: irreparably changed in our intelligence? 474 00:26:43,830 --> 00:26:48,109 Speaker 2: I think the intelligence business is sitting on more information 475 00:26:48,250 --> 00:26:52,100 Speaker 2: and the military than they've ever had. The information is 476 00:26:52,600 --> 00:26:56,300 Speaker 2: no doubt of a high quality. And the issue is 477 00:26:56,540 --> 00:27:00,600 Speaker 2: not so much whether we have it. What happens after 478 00:27:00,619 --> 00:27:03,840 Speaker 2: you deliver it? And if you're delivering it, and I'm 479 00:27:03,880 --> 00:27:08,220 Speaker 2: assuming and hoping that people do, you have to stay 480 00:27:08,240 --> 00:27:11,110 Speaker 2: on your ground. A public servant needs to say, you know, 481 00:27:11,119 --> 00:27:12,970 Speaker 2: if you're walking to say, hey, the truth will set 482 00:27:13,010 --> 00:27:16,190 Speaker 2: you free, etched in a wall. So, Tom, I don't 483 00:27:16,250 --> 00:27:19,540 Speaker 2: think it's that we don't have the goods. And the 484 00:27:19,600 --> 00:27:22,629 Speaker 2: question is, how does one interpret it and how do 485 00:27:22,670 --> 00:27:25,690 Speaker 2: you act upon it? And that is as variable as 486 00:27:25,770 --> 00:27:26,890 Speaker 2: I just stated with Paul. 487 00:27:27,090 --> 00:27:27,209 Speaker 3: Yep. 488 00:27:27,850 --> 00:27:30,399 Speaker 7: Jack, you've had so much experience from your time at 489 00:27:30,440 --> 00:27:32,780 Speaker 7: CIA dealing with what was then the Soviet Union. 490 00:27:33,660 --> 00:27:37,810 Speaker 5: Now it's Russia. How do you think Russia, Ukraine plays out. 491 00:27:37,850 --> 00:27:38,070 Speaker 7: Mr. 492 00:27:38,109 --> 00:27:40,830 Speaker 5: Putin does not seem, we all know the Russians can 493 00:27:40,850 --> 00:27:42,490 Speaker 5: play the long game here. How do you think he's 494 00:27:42,560 --> 00:27:43,239 Speaker 5: viewing it right now? 495 00:27:43,720 --> 00:27:45,280 Speaker 2: I think he had a deal when he was in Alaska, 496 00:27:45,320 --> 00:27:48,240 Speaker 2: didn't take it. I think deep down inside, he probably 497 00:27:48,300 --> 00:27:52,060 Speaker 2: should have taken it. And the more I read about 498 00:27:52,119 --> 00:27:54,620 Speaker 2: war fighting in the Ukraine and now in the Crimea 499 00:27:54,660 --> 00:27:58,240 Speaker 2: and what they're doing. If you're inside the inner circle 500 00:27:58,420 --> 00:28:00,910 Speaker 2: of Russia, you have to be scratching your head about 501 00:28:01,010 --> 00:28:05,190 Speaker 2: what's going on and how this is going to play 502 00:28:05,270 --> 00:28:07,290 Speaker 2: out in our favor. How do we turn the table? 503 00:28:07,330 --> 00:28:14,300 Speaker 2: So I think he's in an increasingly treacherous water. Dictators 504 00:28:14,340 --> 00:28:16,800 Speaker 2: can stay in treacherous rural waters, but it takes an 505 00:28:16,960 --> 00:28:19,560 Speaker 2: iron hand. So I think he's in a much more 506 00:28:19,660 --> 00:28:23,120 Speaker 2: vulnerable position, not by elections and so on. But we've 507 00:28:23,180 --> 00:28:26,420 Speaker 2: crossed that stalemate point, and he's lost a lot of momentum, 508 00:28:26,440 --> 00:28:29,879 Speaker 2: a lot of power around the world. His economy is extraordinary. 509 00:28:30,660 --> 00:28:32,810 Speaker 2: I think he needs to think about retirement plans. 510 00:28:33,470 --> 00:28:38,470 Speaker 3: What's Hollywood get most wrong about CIA, FBI? 511 00:28:39,200 --> 00:28:41,330 Speaker 2: Well, how good looking to the CIA people are. 512 00:28:41,380 --> 00:28:44,800 Speaker 3: Oh, come on. I mean, come on. I mean, you 513 00:28:44,820 --> 00:28:48,420 Speaker 3: guys are all out of central casting. You've never seen anybody. 514 00:28:48,620 --> 00:28:51,280 Speaker 2: Tom, you've never seen anybody on TV that looks like me. 515 00:28:51,900 --> 00:28:55,440 Speaker 3: Kelly, what's her name in the Americans? I mean, come on. 516 00:28:55,480 --> 00:28:58,520 Speaker 3: She's a babe. KGB. Yeah. What do we most get 517 00:28:58,580 --> 00:29:02,240 Speaker 3: wrong in our Hollywoodization of your world? 518 00:29:02,270 --> 00:29:04,530 Speaker 2: I think Hollywood does a very good job in looking 519 00:29:04,590 --> 00:29:05,410 Speaker 2: over the horizon. 520 00:29:05,670 --> 00:29:06,690 Speaker 3: Jason Bourne. Yep. 521 00:29:07,360 --> 00:29:09,900 Speaker 2: But what they show you is it's integrated. All the 522 00:29:09,940 --> 00:29:12,660 Speaker 2: capabilities are integrated. You hit the button, everything goes. It's 523 00:29:12,680 --> 00:29:16,800 Speaker 2: like slow horses over in England. The show called 24 Hours. 524 00:29:17,500 --> 00:29:18,980 Speaker 2: And I don't know why it took them so long 525 00:29:19,000 --> 00:29:22,390 Speaker 2: to get it done. So Hollywood gets the time frame 526 00:29:22,590 --> 00:29:27,130 Speaker 2: off and understandably. But the second thing I think where 527 00:29:27,170 --> 00:29:28,670 Speaker 2: they do a great service is. 528 00:29:28,630 --> 00:29:29,630 Speaker 5: They look over their eyes. 529 00:29:30,030 --> 00:29:32,330 Speaker 2: But you have to realize that the minute you're watching, 530 00:29:32,910 --> 00:29:34,340 Speaker 2: it's not yet quite the reality. 531 00:29:35,150 --> 00:29:37,520 Speaker 3: Did you watch Slow Horses? I did. Are the British 532 00:29:37,540 --> 00:29:40,040 Speaker 3: that messed up? Yeah. 533 00:29:40,060 --> 00:29:42,420 Speaker 2: Well, we could spend a lot of time on operations 534 00:29:42,440 --> 00:29:43,320 Speaker 2: that went south. 535 00:29:43,960 --> 00:29:46,880 Speaker 3: Okay, we'll do that. Jack Devine, thank you. Honored to 536 00:29:46,920 --> 00:29:50,190 Speaker 3: have you in here today. Truly legendary. The Arkin Group 537 00:29:50,250 --> 00:29:53,350 Speaker 3: and the Council on Foreign Relations. Jack Devine with us 538 00:29:53,450 --> 00:29:58,080 Speaker 3: on the intelligence and the risk-taking. to protect america. 539 00:29:57,900 --> 00:30:02,830 Speaker 4: This is the bloomberg surveillance podcast available on apple spotify 540 00:30:02,950 --> 00:30:06,670 Speaker 4: and anywhere else you get your podcasts listen live each 541 00:30:06,730 --> 00:30:11,290 Speaker 4: weekday 7 to 10 a.m eastern on bloomberg.com the iheart 542 00:30:11,310 --> 00:30:14,920 Speaker 4: radio app tune in and the bloomberg business app you 543 00:30:14,960 --> 00:30:18,400 Speaker 4: can also watch us live every weekday on youtube and 544 00:30:18,580 --> 00:30:20,120 Speaker 4: always on the bloomberg terminal 545 00:30:23,430 --> 00:30:24,190 Speaker 1: Thank you.