WEBVTT - Trade Wars Not the Biggest 2018 Risk, Purves Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.720 Bloomberg dot com, and of course, on the Bloomberg. Joining 0:00:33.800 --> 0:00:36.200 us now is Michael Purvis Whiting and co chief global 0:00:36.240 --> 0:00:39.760 strategist and head of equity Derivatives, Michael GOODMANNY. She said, 0:00:39.800 --> 0:00:42.559 it doesn't sound like two countries gunning for a trade war, 0:00:42.680 --> 0:00:45.199 does it not at all? I mean, it is a 0:00:45.479 --> 0:00:48.920 it's a curious uh think of for for Trump to 0:00:48.960 --> 0:00:51.640 be offering up if he wants to, you know, reduce 0:00:51.680 --> 0:00:55.720 the trade war uh clouds and have them paid from 0:00:55.720 --> 0:00:58.880 the horizon. Uh. I think just you know, given how 0:00:58.920 --> 0:01:02.080 sensitive that that company has been from a national security 0:01:02.120 --> 0:01:04.200 point of view. UM. But certainly you know, when you 0:01:04.200 --> 0:01:06.280 when when you see you know, manum is going to 0:01:06.360 --> 0:01:09.800 be uh uh you know, hanging out with the Vice 0:01:09.800 --> 0:01:12.240 Premier of China and all that, it does look like, 0:01:12.680 --> 0:01:14.760 you know, sort of a budding romance, if you will, 0:01:15.040 --> 0:01:20.440 UM between these two countries. And that's obviously very you 0:01:20.480 --> 0:01:22.679 know that that's one less worry factor for the markets. 0:01:22.840 --> 0:01:24.120 We all saw the tweet from the President of the 0:01:24.200 --> 0:01:26.760 United States, Presidency of China and I are working together 0:01:26.800 --> 0:01:30.720 to give massive Chinese phone company ZTE away to get 0:01:30.760 --> 0:01:33.880 back into business fast. Too many jobs in China lost. 0:01:34.240 --> 0:01:38.000 Commerce Department has been instructed to get it done. Still 0:01:38.040 --> 0:01:40.679 trying to work out what gets it done means. As 0:01:40.720 --> 0:01:43.480 you say, Michael, this is a company that has been 0:01:43.520 --> 0:01:47.200 a national security issue that the Republicans themselves were quite 0:01:47.240 --> 0:01:50.200 firm with President Obama and his administration for not doing 0:01:50.320 --> 0:01:53.280 enough around this company, and now it seems like it's 0:01:53.320 --> 0:01:57.320 a a bargaining chip at a broader issue, right. Uh, 0:01:57.680 --> 0:02:00.360 you know, it's it's uh, you know, weaving its specific 0:02:00.440 --> 0:02:04.240 corporate situations into foreign policies always is always a tricky 0:02:04.320 --> 0:02:07.600 path there, but but this one especially so given you know, 0:02:07.720 --> 0:02:10.160 it will be interesting to see how how the more 0:02:10.200 --> 0:02:12.840 mainstream Republicans you know, react to that, let alone the 0:02:12.880 --> 0:02:15.360 Democrats waking up this morning to kind of strip out 0:02:15.400 --> 0:02:18.400 the nuances of z T and what's happening with various 0:02:18.480 --> 0:02:21.200 companies and how transactional this seems to be. You'd have 0:02:21.240 --> 0:02:22.880 to say, Michael, if this was your key risk for 0:02:22.919 --> 0:02:25.040 twent and the idea that a trade war was going 0:02:25.080 --> 0:02:27.880 to one fall between China and the United States. These 0:02:27.880 --> 0:02:30.760 headlines are somewhat bullish, on't they. Yeah, yeah, yeah, as 0:02:30.800 --> 0:02:33.359 as we're talking about it's it's it's one less sort 0:02:33.400 --> 0:02:36.640 of risk to U to worry about. I I personally 0:02:36.720 --> 0:02:40.079 was never looked at the trade wars as being um 0:02:40.120 --> 0:02:43.799 and I'm not sure anyone really did as being you know, um, 0:02:43.919 --> 0:02:47.160 the the most dominant or or most palpable risk for 0:02:47.240 --> 0:02:50.839 the markets this year. Certainly obviously something to be monitoring there. 0:02:50.880 --> 0:02:52.799 But you know, I think in the back of a 0:02:52.840 --> 0:02:55.000 lot of people's minds, people thought it would be a 0:02:55.000 --> 0:02:57.440 lot of a lot of bark and probably a lot 0:02:57.520 --> 0:02:59.600 less bite as you got in down into the granular 0:02:59.639 --> 0:03:02.200 details and and but you know, with this news breaking 0:03:02.240 --> 0:03:06.480 up with the weekend, it certainly seems um, perhaps even 0:03:06.480 --> 0:03:09.040 a less so. Yes, Michael Purvis with us with Weeden 0:03:09.280 --> 0:03:13.600 is well, Michael, I literally named vix charts Purvous charts. 0:03:14.160 --> 0:03:17.240 You are a great student of the vix. What is 0:03:17.280 --> 0:03:21.760 the distinctive feature of a VIX twenty two to thirteen 0:03:21.919 --> 0:03:25.680 this time around? Is it correlated to equities? That's the 0:03:25.760 --> 0:03:30.000 spot The present vix versus future vixes. What's the pro 0:03:30.160 --> 0:03:33.880 nuance in this move? I think what's really defined the 0:03:34.000 --> 0:03:37.880 vix UH over the last several weeks um is how 0:03:37.920 --> 0:03:40.839 it has been behaving relative to the other vixes TOM. 0:03:40.880 --> 0:03:43.360 In other words, there's a VIX for the Russell two thousand, 0:03:43.440 --> 0:03:46.560 the small caps, there's a VIX for eurostocks. There's the 0:03:47.560 --> 0:03:51.600 VIX right, there's always the Pharaoh vix UH. There there's 0:03:51.640 --> 0:03:54.800 also you know a bunch of alatility metrics across assets. 0:03:54.800 --> 0:03:56.760 There's a VIX for the nd X, which is really 0:03:56.840 --> 0:03:59.560 kind of tracks the UH, much more sensitive to the 0:03:59.720 --> 0:04:03.320 the big tech companies. And what I find fascinating right 0:04:03.320 --> 0:04:05.880 now is that if you look at typically the VIX 0:04:06.000 --> 0:04:08.600 trades at a discount to most of these other vixes, 0:04:08.680 --> 0:04:11.080 But if you look at it recently, it's actually trading. 0:04:11.120 --> 0:04:14.200 It's been trading at a pretty consistent premium, or at 0:04:14.280 --> 0:04:17.320 least at very historical levels relatively the other ones. The one, 0:04:17.640 --> 0:04:20.640 the one other VIX that it's not trading at a 0:04:20.720 --> 0:04:23.520 premium two is the what's called the v X and 0:04:23.600 --> 0:04:26.080 or the VIX for the nd X. And what that 0:04:26.200 --> 0:04:29.960 is telling me is that this you know, higher NIX 0:04:30.080 --> 0:04:33.240 range is really not about It's really not about you know, 0:04:33.400 --> 0:04:37.839 um interest rates, uh, you know, spiraling ever higher. Um. 0:04:37.880 --> 0:04:40.840 It's really about what happened, um, you know back with 0:04:41.480 --> 0:04:46.960 this this Facebook uh Cambridge analytical scandal several weeks back, 0:04:47.400 --> 0:04:50.000 and whether the markets were going to re rate Facebook 0:04:50.040 --> 0:04:52.320 and its peers and Fang and for the matter in 0:04:52.400 --> 0:04:55.560 tech lower there. And that's why, you know, the two 0:04:55.680 --> 0:04:57.960 big outperformers from the ballside have been the VIX and 0:04:57.960 --> 0:05:01.000 this and this and this VIX for the NDA. I 0:05:01.040 --> 0:05:04.000 think that's what you're seeing is is that those clouds 0:05:04.000 --> 0:05:06.440 are fading and that's allowing the VIX to you know. 0:05:06.600 --> 0:05:09.880 So this is a really interesting point. So we had 0:05:09.920 --> 0:05:13.080 the VOLE blow up of February where these short volatility 0:05:13.080 --> 0:05:16.920 products completely failed and a lot of people said, we're 0:05:16.960 --> 0:05:20.080 moving into a regime of higher volatility. We couldn't possibly 0:05:20.160 --> 0:05:23.720 go back to because what was going to happen to 0:05:23.880 --> 0:05:26.559 the world was gonna end. We couldn't possibly go back 0:05:26.800 --> 0:05:30.800 to the VOLE levels of seventeen. But if the question is, 0:05:31.120 --> 0:05:33.120 and the premise, your premise right now is that this 0:05:33.200 --> 0:05:36.080 was a text story, then I'll ask the question again, 0:05:36.200 --> 0:05:40.320 can we go back to the lower volatility range. I 0:05:40.360 --> 0:05:45.760 think I think it is a look, two thousand seventeen 0:05:45.839 --> 0:05:49.440 was distinguished by having the lowest realized volatility on in 0:05:49.560 --> 0:05:53.520 decades um uh and and and and more vixed nine 0:05:53.560 --> 0:05:56.200 prints than any other year in the in the in 0:05:56.240 --> 0:05:59.280 the vix's history, we even had a few ticks below 0:05:59.360 --> 0:06:02.360 nine and le January getting back to those levels I 0:06:02.440 --> 0:06:04.880 think is a real push if for nowhere the reason 0:06:04.920 --> 0:06:07.680 that we do have higher interest rates, and you can't 0:06:07.680 --> 0:06:10.040 be dismissed of higher interest rates in the volatility story. 0:06:10.080 --> 0:06:11.960 I just think that what's dominant right now is the 0:06:12.000 --> 0:06:16.760 tech the tech situation there. But um uh, you know, 0:06:16.920 --> 0:06:21.359 if we could we see twelves and thirteens, absolutely, and 0:06:21.400 --> 0:06:24.880 I mean we we are the christ on Friday and 0:06:24.880 --> 0:06:26.800 and and so, could we see a lot more of 0:06:26.839 --> 0:06:29.360 this sort of let's call it, you know, eleven twelve 0:06:29.400 --> 0:06:32.839 to fifteen rather than sort of fifteen to twenty going forward? Yeah, 0:06:32.839 --> 0:06:34.760 I mean I think that's really a function of whether 0:06:34.800 --> 0:06:38.680 that ultimately, whether that tech dip gets bought that the 0:06:38.680 --> 0:06:42.560 the you know, if if I've been arguing time that 0:06:42.560 --> 0:06:48.279 that so goes tech uh particularly fang so goes the 0:06:48.279 --> 0:06:51.600 the SPX and so goes the vix. It's incredibly it's 0:06:51.680 --> 0:06:55.920 it's become absolutely integrated into overall US equity story. As 0:06:55.960 --> 0:06:58.520 a strategy standpoint, where do you make up oil seventies 0:06:58.560 --> 0:07:02.560 six sixty brand up to seventy thirty nine in two 0:07:02.640 --> 0:07:06.320 cups of coffee this morning? Obviously, the backdrop here out 0:07:06.320 --> 0:07:08.880 on the social feed, in the various news agencies is 0:07:08.920 --> 0:07:12.480 what's going on in Gaza. I've got seven Palestinians killed, 0:07:12.600 --> 0:07:17.120 Nine Palestinians killed according to CNN International, Reuters has ten. 0:07:17.760 --> 0:07:20.280 Even in folks, I'm very unsure what that number is. 0:07:20.320 --> 0:07:23.360 That's just what we're seeing within the feed right now. 0:07:23.800 --> 0:07:26.200 There's geo political risk out there. Do you have a 0:07:26.240 --> 0:07:29.040 point in your head where a certain Brent price or 0:07:29.080 --> 0:07:33.240 West Texas Intermediate price gets Michael Purvis's attention. Well, I 0:07:33.600 --> 0:07:35.680 think the move that we're we've all been looking for, 0:07:35.800 --> 0:07:38.520 and even if some of this Middle East headlines were 0:07:38.520 --> 0:07:43.000 not there, uh, particularly you know, the Gaza headlines, I 0:07:43.000 --> 0:07:47.040 think people sort of feel that there's enough momentum right now. 0:07:48.440 --> 0:07:51.120 Take out seventy that paint that paints a path towards 0:07:51.120 --> 0:07:53.600 eighty pretty well. I know there's a lot of calls 0:07:53.600 --> 0:07:55.440 out there for a hundred And I'm not an oil 0:07:55.480 --> 0:07:58.600 expert by any stretch, but I would say that that, um, 0:07:58.640 --> 0:08:01.720 I think, you know, getting above eight on w T 0:08:01.880 --> 0:08:04.440 I does seem like that's a lot of work to do. 0:08:04.520 --> 0:08:07.800 You're gonna need something more than just some Gaza headlines 0:08:08.480 --> 0:08:11.040 and iron um to get there. There's a lot of 0:08:11.280 --> 0:08:14.600 technical resistance at the eighty dollar level there. But but look, 0:08:14.720 --> 0:08:16.640 you know, I mean it's still striking. Is that we're 0:08:16.640 --> 0:08:19.160 talking about, you know, seventy crude? Right? I mean he 0:08:19.200 --> 0:08:21.360 would have guessed, you know, six months ago, nine months ago, 0:08:21.520 --> 0:08:23.560 very few people are out there on that. You know, 0:08:23.680 --> 0:08:26.640 twenty six dollars was not that long ago. This is great. 0:08:26.720 --> 0:08:30.880 Courier dude showed up today. Michael Purvis showed up. Did 0:08:30.880 --> 0:08:33.959 you ride a bicycle and in the ring? I did? 0:08:34.000 --> 0:08:35.640 I bike as much as I can. You like, live 0:08:35.679 --> 0:08:40.880 two blocks away, so it's it's the fastest way to 0:08:40.920 --> 0:08:47.280 get around. Thank you, Michael, Chief global strategist and head 0:08:47.280 --> 0:08:49.760 of Equity Derivatives to Package and I got to get 0:08:49.760 --> 0:09:05.160 over near the Hilt Motel. We're gonna do a couple 0:09:05.200 --> 0:09:08.439 of themes here. Isaac Wiltanski with us with a compass 0:09:08.480 --> 0:09:11.240 point really did dive into just sort of the news 0:09:11.280 --> 0:09:15.160 flow of the week. Isaac um. A really really strong 0:09:15.240 --> 0:09:18.200 supporter of my work well over a decade has been 0:09:18.280 --> 0:09:21.640 Richard Clarada, who is going to be upfront and the 0:09:21.679 --> 0:09:25.720 beauty contest tomorrow morning for the Senate Banking Committee to 0:09:25.840 --> 0:09:29.920 replace Stanley Fisher as the PhD type is Vice Chairman 0:09:29.920 --> 0:09:33.400 of the Fed. Dr Clarata, folks I've always associated with 0:09:33.440 --> 0:09:38.959 Columbia University, has written definitive work on dynamics stochastic general 0:09:39.040 --> 0:09:41.520 equilibrium theory. There'll be a quiz at the end of 0:09:41.520 --> 0:09:47.560 this UH section as well, Isaac, Isaac, so we don't 0:09:47.600 --> 0:09:50.920 do DSGE theory on a Monday morning. Who is Richard 0:09:50.960 --> 0:09:55.080 Clarida and why will you lean forward during his testimony tomorrow? 0:09:57.040 --> 0:10:00.600 I think Richard Clarida is going to be c as 0:10:01.120 --> 0:10:07.000 UH the center of economic hat on the Federal Reserve 0:10:07.080 --> 0:10:12.080 Board under President Donald Trump, and one of the viewpoints 0:10:12.120 --> 0:10:15.520 here in d C has been that Chairman Powell is 0:10:15.679 --> 0:10:19.640 more of a has more markets experience and not as 0:10:19.800 --> 0:10:23.840 much economic background, and so the Trump white House was 0:10:23.960 --> 0:10:28.400 clearly and I think undeniably looking for someone to sit 0:10:28.440 --> 0:10:31.600 in that vice chairman's role that number two spots, who 0:10:31.640 --> 0:10:34.600 has written papers like the one that you just discussed, 0:10:34.920 --> 0:10:38.679 and who can delve deeply with the staff there on 0:10:38.760 --> 0:10:42.240 economic theory. And so I think the hearing tomorrow, which 0:10:42.240 --> 0:10:46.920 will actually include um both Richard Clarada and Michelle Bowman, 0:10:47.120 --> 0:10:50.200 who is also nominated to the board. She's nominated for 0:10:50.240 --> 0:10:54.679 a spot that's reserved for someone with community banking expertise. 0:10:55.200 --> 0:10:57.320 I think that the focus is going to be on 0:10:58.080 --> 0:11:01.120 Mr Clarada because he is seen as one of these 0:11:01.160 --> 0:11:05.720 pillars of economic thought for the for the Powell Federal Reserve, Isaaca, 0:11:05.720 --> 0:11:06.959 I have to say, out of all the things that 0:11:07.000 --> 0:11:10.080 we've wasted our time talking about since November twenty sixteen, 0:11:10.360 --> 0:11:13.280 the Federal Reserve under this administration is one of them. 0:11:13.280 --> 0:11:17.920 I lost count of how many economists were worried about 0:11:17.960 --> 0:11:21.199 the replacements filling the seats on the Federal Reserve that 0:11:21.240 --> 0:11:24.400 would be nominated by this administration when actually looking back 0:11:24.480 --> 0:11:29.200 on it, they've been really mainstream candidates. This administrations has 0:11:29.280 --> 0:11:32.360 filled the empty seats at the Federal Reserve with some 0:11:32.559 --> 0:11:37.600 with some fantastic names, nothing controversial about it. I think 0:11:37.640 --> 0:11:39.559 you hit the nail on the head there. Look this 0:11:39.559 --> 0:11:41.920 this Federal Reserve Board, at least the members that we 0:11:42.000 --> 0:11:46.720 have so far are centrists and pragmatists. Now, part of 0:11:46.760 --> 0:11:49.200 that is the realization that it is hard to get 0:11:49.280 --> 0:11:53.200 someone through the Senate. Still, the average length of confirming 0:11:53.240 --> 0:11:57.599 someone for those individuals who are lucky enough to be confirmed, 0:11:58.080 --> 0:12:01.280 is about eighty or so days right now in the U. S. Senate. 0:12:01.320 --> 0:12:03.720 And that's the longest at least out of that I've 0:12:03.720 --> 0:12:07.400 counted out of the past five administrations. So it takes 0:12:07.440 --> 0:12:10.640 a considerable amount time. And so part of that is 0:12:10.640 --> 0:12:12.800 is the realities of the Senate. But I think part 0:12:12.840 --> 0:12:17.920 of it is the Trump administration's acceptance of the importance 0:12:18.160 --> 0:12:21.600 of the economy within their broader storyline. And you can't 0:12:21.640 --> 0:12:24.319 mess around with the frind if the economy is going 0:12:24.360 --> 0:12:27.280 to be part of your your political storyline, if you're 0:12:27.320 --> 0:12:30.160 just joining us. I Boltansky with his compass point out 0:12:30.160 --> 0:12:32.720 of Ohio, Wesley and a really good feeling for the 0:12:32.800 --> 0:12:37.600 nitte gritte of Washington, d C Isaac, John Swann, er uh, 0:12:37.640 --> 0:12:39.720 Mike Allen, I can't remember who wrote it, talked about 0:12:39.720 --> 0:12:43.600 the exhaustion and the few members of the Trump team 0:12:43.679 --> 0:12:46.800 on trade that's not only China, China, China, like we 0:12:46.840 --> 0:12:50.040 haven't the headlines this morning, but also NAFTA as well. 0:12:50.400 --> 0:12:56.680 How thinly staffed is the Trump trade team. I think 0:12:57.040 --> 0:12:59.120 it's something that I've noticed over the past few months. 0:12:59.120 --> 0:13:02.319 When you walk around own some of these buildings, whether 0:13:02.320 --> 0:13:05.240 it's a Commerce department or the Treasury or any of 0:13:05.280 --> 0:13:08.120 the other major agency, you see that there are a 0:13:08.160 --> 0:13:12.400 lot of empty offices, and that has a toll. And 0:13:12.480 --> 0:13:16.400 the US, especially on trade, is facing battles on a 0:13:16.480 --> 0:13:20.200 number of fronts, and these battles take up hundreds and 0:13:20.280 --> 0:13:24.559 thousands of pages of paper. Yeah, I mean you did interrupt, 0:13:24.559 --> 0:13:27.559 but just because of time. How does Canada in Mexico 0:13:27.600 --> 0:13:32.800 adapt to the facts we have an exhausted NAFTA team. Well, 0:13:32.840 --> 0:13:37.800 I think the positive here is the deadline, albeit a 0:13:38.600 --> 0:13:42.600 somewhat squishy deadline on May seventeenth to get a NAPTA 0:13:42.640 --> 0:13:47.600 deal announcement. Look, deadlines are are able to catalyze action 0:13:47.640 --> 0:13:50.280 in DC more so than anything else. So yes, the 0:13:50.360 --> 0:13:53.199 NAFTA team is tired, but I think speaker Ryan say, 0:13:53.240 --> 0:13:56.680 it's setting a quasi deadline of May seventeenth for a 0:13:56.679 --> 0:14:00.360 deal announcement. NAFTA it's going to catalyze movement here decay, 0:14:00.520 --> 0:14:03.160 and this of course needs to happen. The deadlines need 0:14:03.240 --> 0:14:07.120 to be hit in and thereabouts because the midterms are 0:14:07.120 --> 0:14:09.280 coming up, Isaac, so they need to deal before that. 0:14:09.280 --> 0:14:12.000 I want you to help sort of translate something for me. 0:14:12.040 --> 0:14:14.960 The president's waiting. The following presidency of China and I 0:14:15.000 --> 0:14:17.559 are working together to give massive Chinese phone company z 0:14:17.720 --> 0:14:20.160 t E a way to get back into business fast. 0:14:20.160 --> 0:14:22.520 Too many jobs in China lost. Commerce Department has been 0:14:22.520 --> 0:14:26.240 instructed to get it done. Z t E. ISAAC was 0:14:26.280 --> 0:14:30.400 a national security issue for good reasons. A blockade was 0:14:30.440 --> 0:14:32.920 put on it. What does it mean when the President 0:14:32.960 --> 0:14:36.440 turns around and says, I've instructed the Commerce Department to 0:14:36.600 --> 0:14:41.240 get it done? What happens next? I think? I think 0:14:41.240 --> 0:14:43.280 there's only one takeaway that you can have from the 0:14:43.360 --> 0:14:46.720 President's tweeting that and that policy reversal. It's at the 0:14:46.800 --> 0:14:50.440 president c z T is a bargaining chip in the 0:14:50.600 --> 0:14:54.560 broader negotiation between China and the EU. Okay, Isaac, you're 0:14:54.600 --> 0:14:57.040 expert on this. Can that happen? I don't have any 0:14:57.040 --> 0:14:59.880 answer on this Monday morning. Granted, its news overnight is 0:15:00.040 --> 0:15:04.120 essentially and over the weekend, can you use a sanctioned 0:15:04.240 --> 0:15:10.480 international offender as a quote bargaining chip unquote. You know, 0:15:10.520 --> 0:15:12.800 there's a saying that a law is only as strong 0:15:12.880 --> 0:15:15.800 as the most recent congress, meaning that Congress can change 0:15:15.800 --> 0:15:19.800 anything that a previous congress is done. A administrative action 0:15:19.960 --> 0:15:23.480 is largely as strong as the most recent administration. And 0:15:23.520 --> 0:15:26.360 so yes, I think that the President as of last night, 0:15:26.400 --> 0:15:29.320 with that tweet, made it clear that ZTE is on 0:15:29.440 --> 0:15:31.400 the table and it's going to be part of a 0:15:31.440 --> 0:15:34.880 negotiation between China and US as as trade talks continue. 0:15:35.040 --> 0:15:38.440 So trade sulks resumed this week. The top Chinese economic 0:15:38.480 --> 0:15:41.320 advisor to president she coming over to Washington, d c. 0:15:41.880 --> 0:15:45.160 Isaac's attentions actually easing. Is that's what you're seeing and 0:15:45.760 --> 0:15:47.480 what to what extent can we get a deal? And 0:15:47.560 --> 0:15:51.440 what does that deal look like. I think that both 0:15:51.480 --> 0:15:54.720 sides realize that it is in their own best interest 0:15:54.800 --> 0:15:56.760 to step back from the cliff, which is part of 0:15:56.800 --> 0:15:58.680 the reason that I think they will step back from 0:15:58.680 --> 0:16:02.240 the cliff. The more bargaining ships that we put on 0:16:02.280 --> 0:16:04.280 the table, and it's clear that the President view z 0:16:04.440 --> 0:16:07.160 t E as a bargaining ship, the more of those 0:16:07.200 --> 0:16:09.760 that we have on the table, the easier it is 0:16:09.840 --> 0:16:13.960 to craft a space saving deal that will at least 0:16:14.000 --> 0:16:16.400 get us back to the trade the tont that we 0:16:16.880 --> 0:16:20.680 had only a few months ago. Isaac wouldn't find a 0:16:20.840 --> 0:16:23.920 question if we could. We're following Gaza, the news out 0:16:23.920 --> 0:16:26.320 of Gaza, folks, I want to be very careful about 0:16:26.320 --> 0:16:28.480 the news flow there. Michael Barr in New York and 0:16:28.520 --> 0:16:32.040 our other team across the nation will have updates on 0:16:32.120 --> 0:16:36.840 that within minutes. But Isaac, the movement of the embassy 0:16:36.880 --> 0:16:40.840 to Jerusalem, we had Michael Arnod of Israel on our 0:16:40.920 --> 0:16:43.480 our head of all of our Israel and Palestinian coverage. 0:16:43.720 --> 0:16:46.520 He was great. How does this play in the Beltway? 0:16:47.040 --> 0:16:50.560 How does the move of this embassy play in your 0:16:50.600 --> 0:16:56.200 Washington Beltway? You know, it's difficult to tell at the moment, 0:16:56.640 --> 0:16:59.720 especially given the headlines that we're seeing cross and and 0:16:59.760 --> 0:17:01.720 I want to be careful as well, but I can 0:17:01.760 --> 0:17:05.400 tell you those policy experts that that I follow generally 0:17:05.520 --> 0:17:08.560 view this is more of a symbolic move than a 0:17:08.680 --> 0:17:13.040 substantive move. But as we know, in foreign affairs, symbolism matters, 0:17:13.320 --> 0:17:16.240 and so um I think at the moment, everyone is 0:17:16.320 --> 0:17:19.400 just watching to see what happens more so than anything else. 0:17:19.520 --> 0:17:22.640 Isaac Boltansky thinking so much, great update? Why why Range? 0:17:22.920 --> 0:17:25.720 Why did I'll get it out? John three to one? 0:17:26.280 --> 0:17:31.960 Why did Ranging update? Very much? With compass point as well, 0:17:44.680 --> 0:17:47.720 Stephen Roschuto with us, it was wonderful to have on. 0:17:48.320 --> 0:17:52.480 We're trying to slice in dice well the American consumer, 0:17:52.920 --> 0:17:58.160 he is with miserable UH securities. UH. Their chief US 0:17:58.240 --> 0:18:01.520 economists as well, like US, will start with inflation because 0:18:01.560 --> 0:18:05.359 that's where President mr was as well. It's certainly not 0:18:05.560 --> 0:18:09.720 runaway inflation. Is it really higher inflation? Well, I think 0:18:09.760 --> 0:18:13.040 you've seen general upward drift and inflation. The question is 0:18:13.040 --> 0:18:16.120 what's been the driving factor. I think the driving factor 0:18:16.320 --> 0:18:19.840 was a sixteen month slide in the dollar that eliminated 0:18:19.920 --> 0:18:25.040 some of the global deflationary pressures from dampening domestic price pressures. 0:18:25.040 --> 0:18:27.399 And now I think the dollars turn corner and I 0:18:27.440 --> 0:18:30.439 think the upward movement and the dollar will tend to 0:18:30.480 --> 0:18:33.400 moderate the inflation environment again, and I think that's gonna 0:18:33.400 --> 0:18:35.359 be the big surprise for people. My question, Steve on 0:18:35.359 --> 0:18:39.640 a Monday, is there's a certitude about three or four 0:18:39.760 --> 0:18:43.159 rate increases and all my radar go up. When I 0:18:43.240 --> 0:18:45.920 use the word, everybody's just certain they've got this all 0:18:46.000 --> 0:18:49.879 figured out. We know it is a real risk factor. 0:18:50.080 --> 0:18:51.920 I mean I was one of the first ones who 0:18:51.960 --> 0:18:54.119 moved from two to four rate hikes, and to be 0:18:54.160 --> 0:18:55.600 honest with you, I did it with the hope that 0:18:55.600 --> 0:18:58.919 would eventually be the first one to move back from four. Uh. 0:18:59.000 --> 0:19:00.719 And I continue to look for the data. And that's 0:19:00.720 --> 0:19:02.560 why I think the retail sales numbers and the housing 0:19:02.640 --> 0:19:04.760 numbers that we're gonna have out this week are very, 0:19:04.840 --> 0:19:07.560 very critical in that environment. And I think dovetailing on 0:19:07.600 --> 0:19:10.200 the backdrop of what we saw from benond inflation readings 0:19:10.600 --> 0:19:13.280 last week, I think those factors could come in to 0:19:13.400 --> 0:19:16.600 suggest that four may not be necessary. But for right now, 0:19:16.840 --> 0:19:19.760 it's still our forecast. But we're looking for evidence that 0:19:19.800 --> 0:19:22.119 we think will come through allows us to move it 0:19:22.160 --> 0:19:24.440 back and step back from a four. Right hya that's 0:19:24.440 --> 0:19:26.479 back on targets. Steve On They why do they need 0:19:26.520 --> 0:19:29.359 to back off? Well, the question is how far do 0:19:29.400 --> 0:19:32.320 you need to go before you cause something to go wrong? Um, 0:19:32.359 --> 0:19:34.800 the curve is flattening rather dramatically, and if you go 0:19:34.840 --> 0:19:37.280 back and look at the last three long business cycles 0:19:37.640 --> 0:19:40.240 the FED, and they've been long business cycles because inflation 0:19:40.280 --> 0:19:43.440 didn't manifest themselves, manifests itself. And this time through it's 0:19:43.480 --> 0:19:46.680 exactly the same environment. And each time that they continued 0:19:46.760 --> 0:19:48.679 to push the front end of the curve up, they 0:19:48.720 --> 0:19:50.320 got into an environment where there was some kind of 0:19:50.320 --> 0:19:53.439 financial hiccup which was unnecessary. And I think this is 0:19:53.440 --> 0:19:55.119 one of the reasons why they should learn from the 0:19:55.200 --> 0:19:57.320 lessons of three out of three, which is a very 0:19:57.400 --> 0:20:01.240 very abnormal process in an economy to have three times 0:20:01.240 --> 0:20:03.919 in a row the same thing developed. And I'm afraid 0:20:03.960 --> 0:20:07.320 that if they continue to push for the four over time, 0:20:07.600 --> 0:20:09.239 that we'll get to a curve that will be so 0:20:09.320 --> 0:20:11.359 flat that it will cause a financial hiccup to a car. 0:20:11.520 --> 0:20:13.720 Do you think in the curve is artificial or it's 0:20:13.760 --> 0:20:16.320 something to actually pay attention to? And from what I've heard, 0:20:16.359 --> 0:20:18.720 so fine, you don't think it's official so artificial, So 0:20:18.760 --> 0:20:21.800 why isn't it? I don't think it's artificial because the 0:20:21.840 --> 0:20:24.320 ft is unwinding, there's been a big uptick in supply. 0:20:24.720 --> 0:20:26.560 A number of things that should have pushed the long 0:20:26.680 --> 0:20:29.560 end of the curve up haven't. There's a global grab 0:20:29.680 --> 0:20:32.159 for yield. There's a global glab grab for duration. We 0:20:32.160 --> 0:20:34.840 saw the announcement over the weekend of the large UK 0:20:34.960 --> 0:20:38.639 pension fund that's opted to move out into US treasuries 0:20:38.680 --> 0:20:41.520 to grab the yield. Environment. On one of your own stories, 0:20:41.560 --> 0:20:44.080 I saw recently that you had a one ninety yield 0:20:44.119 --> 0:20:47.200 on Australian bonds zero precent real yields. I think that's 0:20:47.200 --> 0:20:50.760 the environment that's grabbing it. Step Shot so with us 0:20:50.760 --> 0:20:54.200 this warning, Mr shootos with a missoo where he is 0:20:54.240 --> 0:21:11.840 their chief US economist of of all things UH. Here 0:21:11.880 --> 0:21:14.239 to help us learn more about what is going on 0:21:14.440 --> 0:21:17.880 in the Middle East currently is Jonathan ferzigera Bloomberg Middle 0:21:17.920 --> 0:21:21.720 East politics reporter. And Jonathan, I wonder if you could 0:21:21.760 --> 0:21:24.040 just give us a little bit of a history lesson 0:21:24.080 --> 0:21:27.440 to understand how we got to this situation and why 0:21:27.680 --> 0:21:31.560 the location of the US embassy in Jerusalem is such 0:21:31.600 --> 0:21:39.679 a contentious issue. Sure, Jerusalem has resonances for billions of 0:21:39.680 --> 0:21:43.720 people around the world. Is a Jewish, Christian, Muslim, It 0:21:44.840 --> 0:21:47.960 is the site of some of the holiest places for 0:21:48.040 --> 0:21:52.159 all the fates um in. Now we're going back around 0:21:52.400 --> 0:21:58.159 seventy years and the Israel has established the idea was 0:21:58.200 --> 0:22:00.560 that Jerusalem was going to be a capital for both 0:22:01.520 --> 0:22:05.280 Israel Jewish state and the Palestinian state. That didn't happen. 0:22:05.720 --> 0:22:11.800 UH Israel UM and the Arab nations around it went 0:22:11.840 --> 0:22:17.399 into a war Israel one, it established the capital, and 0:22:17.480 --> 0:22:21.760 virtually nobody, no other state in the world, very few 0:22:22.200 --> 0:22:25.680 UH recognized it as a capital. So now seven years 0:22:25.800 --> 0:22:28.239 later Trump has done that. Okay, But but Jonnath, let 0:22:28.240 --> 0:22:30.960 me just break in and understand, because there there was 0:22:31.560 --> 0:22:37.640 obviously many combatants in that war of n and Jordan's 0:22:38.680 --> 0:22:43.480 was involved in a way that shaped the future of Jerusalem, 0:22:43.560 --> 0:22:48.400 did it not? Okay? So Jordan's int eight wound up 0:22:48.960 --> 0:22:55.400 as the occupying power U over Jerusalem and the West 0:22:55.400 --> 0:22:59.119 Bank that's half of Jerusalem, East Jerusalem, so the city 0:22:59.200 --> 0:23:03.919 was split. It was split until nineteen sixty seven Jordan's 0:23:04.280 --> 0:23:07.600 had control of it, and then in the nineteen sixty 0:23:07.600 --> 0:23:12.159 seven more the sixty war, UH Israel captured East Jerusalem 0:23:12.240 --> 0:23:15.520 and the West Bank and they've been in charge since 0:23:15.560 --> 0:23:18.400 they've been next the city. And again that hasn't been 0:23:18.400 --> 0:23:22.360 recognized by most countries. And at that time, just to 0:23:22.400 --> 0:23:25.320 be clear, at that time, in the Old City, because 0:23:25.320 --> 0:23:27.760 there's the new City. In the Old City of Jerusalem. 0:23:27.800 --> 0:23:30.320