1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,800 --> 00:00:17,880 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,960 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App. 4 00:00:22,320 --> 00:00:25,640 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:26,960 Speaker 1: us live on YouTube. 6 00:00:27,200 --> 00:00:32,360 Speaker 2: Stephen Major is global macro advisor tradition. He is absolutely 7 00:00:32,520 --> 00:00:37,040 Speaker 2: on the high ground of a broader disinflationary tendency. Stephen, 8 00:00:37,080 --> 00:00:40,519 Speaker 2: thank you for your patience and waiting at the NATO meetings. 9 00:00:40,760 --> 00:00:45,919 Speaker 2: Do we still have in place a disinflationary tendency or 10 00:00:46,040 --> 00:00:47,120 Speaker 2: is it unanchored? 11 00:00:48,680 --> 00:00:51,800 Speaker 3: Well, it looks from the basis of the break evens 12 00:00:52,000 --> 00:00:56,960 Speaker 3: that there is the markets belief in disinflation, and clearly 13 00:00:57,040 --> 00:01:00,720 Speaker 3: that's coming from the shop drop in an energy prices 14 00:01:00,800 --> 00:01:02,800 Speaker 3: or at least from the oil price first of all. 15 00:01:03,200 --> 00:01:09,080 Speaker 3: So that is disinflationary and it goes against the mainstream 16 00:01:09,280 --> 00:01:11,039 Speaker 3: consensus view that was. 17 00:01:10,959 --> 00:01:11,959 Speaker 4: For higher inflation. 18 00:01:12,360 --> 00:01:15,280 Speaker 3: Now, I think that that's why it's so powerful for markets, Tom, 19 00:01:15,600 --> 00:01:19,640 Speaker 3: because everyone was positioned for higher inflation and higher inflation 20 00:01:19,760 --> 00:01:22,679 Speaker 3: risk premium, but you just don't see it happening that 21 00:01:22,760 --> 00:01:24,240 Speaker 3: the market is going the other way. 22 00:01:24,720 --> 00:01:26,440 Speaker 4: Now, I think that's interesting. 23 00:01:26,760 --> 00:01:29,880 Speaker 3: Not everyone's agreeing with me, because what's happening is people 24 00:01:29,959 --> 00:01:34,320 Speaker 3: are reading the higher nominal and real yields, which are 25 00:01:34,360 --> 00:01:38,000 Speaker 3: a function of the dropping inflation expectations, and thinking that 26 00:01:38,080 --> 00:01:41,640 Speaker 3: means the economy is going gangbusters what it might be, 27 00:01:42,160 --> 00:01:44,720 Speaker 3: But that's not what the data is telling me. 28 00:01:45,480 --> 00:01:47,800 Speaker 4: So it's a different story. I think. 29 00:01:48,040 --> 00:01:51,440 Speaker 3: I think the market is calling out the consensus view 30 00:01:51,720 --> 00:01:53,880 Speaker 3: that we have strong growth forever and ever. 31 00:01:54,080 --> 00:01:55,400 Speaker 4: I mean, this is the heart of the matter. 32 00:01:55,440 --> 00:01:57,760 Speaker 2: And I'm going to go to Jan Hatzias here at 33 00:01:57,760 --> 00:02:02,640 Speaker 2: Golbyn Sachs, who's really established a disinflationary trend. What's the 34 00:02:02,680 --> 00:02:07,840 Speaker 2: history of getting from Banana Republic nominal GDP and down 35 00:02:07,920 --> 00:02:11,359 Speaker 2: to the disinflation that Stephen Major and Janahatzi as so 36 00:02:11,520 --> 00:02:12,160 Speaker 2: comfortable with. 37 00:02:13,240 --> 00:02:15,519 Speaker 4: Well, it's going to be a gentle transition. 38 00:02:15,639 --> 00:02:19,040 Speaker 3: Tom, and I think that we're all conditioned around these 39 00:02:19,160 --> 00:02:23,280 Speaker 3: kind of big bang sudden changes in market direction. But 40 00:02:23,320 --> 00:02:26,440 Speaker 3: in fact it's happening very quietly under the hood, because 41 00:02:26,480 --> 00:02:29,399 Speaker 3: if you look at nominal bond yields, not very much 42 00:02:29,440 --> 00:02:32,079 Speaker 3: as happening, but you get so much more information by 43 00:02:32,080 --> 00:02:34,680 Speaker 3: focusing on the real yield, The real yield has gone 44 00:02:34,760 --> 00:02:38,160 Speaker 3: up because inflation expectations went down. Now, my point is 45 00:02:38,200 --> 00:02:41,640 Speaker 3: the market is priced for a much higher neutral rate 46 00:02:42,040 --> 00:02:45,399 Speaker 3: than we've had in previous cycles. So just no more 47 00:02:45,480 --> 00:02:48,640 Speaker 3: hikes and then the possibility of some cuts later this 48 00:02:48,760 --> 00:02:52,720 Speaker 3: year or next year is the engine behind a possible 49 00:02:52,760 --> 00:02:56,120 Speaker 3: bond rally starting in the third or fourth quarter. 50 00:02:57,240 --> 00:02:59,400 Speaker 5: Stephen we Ken came into twenty twenty six, and I 51 00:02:59,440 --> 00:03:01,600 Speaker 5: think they can say this call was for a weaker 52 00:03:01,960 --> 00:03:07,640 Speaker 5: US dollar. Then, of course the war with Iran erupted 53 00:03:07,639 --> 00:03:11,079 Speaker 5: and that dynamic has changed. Here We've got a strengthening 54 00:03:11,120 --> 00:03:13,400 Speaker 5: dollar here. How do you think about the currency markets here? 55 00:03:13,400 --> 00:03:15,200 Speaker 5: Where do you see value? 56 00:03:15,400 --> 00:03:18,239 Speaker 3: Well, yeah, we came into this year at one point 57 00:03:18,800 --> 00:03:20,400 Speaker 3: priced for two or three cuts. 58 00:03:20,480 --> 00:03:21,919 Speaker 4: We're now closer to one hike. 59 00:03:22,080 --> 00:03:25,040 Speaker 3: So that's a four a four to twenty five basis 60 00:03:25,080 --> 00:03:28,280 Speaker 3: point move, that's one hundred basis points. So the entire 61 00:03:28,440 --> 00:03:31,160 Speaker 3: explanation of what's going on with bond yields is just 62 00:03:31,240 --> 00:03:33,280 Speaker 3: down to market expectations. 63 00:03:32,680 --> 00:03:33,320 Speaker 4: Around the FED. 64 00:03:33,680 --> 00:03:37,000 Speaker 3: But people are dressing it up as if it's something else, 65 00:03:37,040 --> 00:03:43,240 Speaker 3: something more structural. I don't buy the anti globalization or 66 00:03:43,240 --> 00:03:45,200 Speaker 3: the dedollarization. 67 00:03:44,480 --> 00:03:45,160 Speaker 4: Type of view. 68 00:03:45,880 --> 00:03:49,040 Speaker 3: I think that one's been really. 69 00:03:50,480 --> 00:03:51,520 Speaker 4: Checked out this year. 70 00:03:51,880 --> 00:03:54,640 Speaker 3: Many people were expecting the dollar would suffer because some 71 00:03:54,720 --> 00:03:58,000 Speaker 3: of the geopolitical events, some of the sanctions type of. 72 00:03:58,040 --> 00:04:00,520 Speaker 4: Risk has been there this last few years. 73 00:04:00,760 --> 00:04:04,880 Speaker 3: Maybe the oil price could be denominated in other currencies 74 00:04:04,880 --> 00:04:06,800 Speaker 3: that then the dollar, But in fact I look at 75 00:04:06,800 --> 00:04:10,080 Speaker 3: it and the data says dollar transactions are still strong. 76 00:04:10,920 --> 00:04:15,240 Speaker 3: The majority of trade and transactions in security still goes 77 00:04:15,440 --> 00:04:18,640 Speaker 3: through the dollar. So the dollar movement is at the 78 00:04:18,640 --> 00:04:23,359 Speaker 3: moment quite cyclical and structurally strong. I would say that 79 00:04:23,400 --> 00:04:26,520 Speaker 3: we might lose some of the cyclical support for the 80 00:04:26,600 --> 00:04:30,000 Speaker 3: dollar in the second half, but the structural foundations isn't 81 00:04:30,040 --> 00:04:32,919 Speaker 3: still very much in place. But I don't think I 82 00:04:32,920 --> 00:04:34,599 Speaker 3: don't think there'll be a big move in the dollar. 83 00:04:34,800 --> 00:04:38,120 Speaker 3: I think that you'll see a gradual decline in yields, 84 00:04:38,120 --> 00:04:39,720 Speaker 3: But the dollars holding up pretty well. 85 00:04:40,279 --> 00:04:43,440 Speaker 5: Stephen, in the global bond market, here where do you 86 00:04:43,440 --> 00:04:45,240 Speaker 5: see the best value these days? 87 00:04:45,760 --> 00:04:48,839 Speaker 3: Well, look, the cleanest way to express what's happened with 88 00:04:48,880 --> 00:04:52,479 Speaker 3: real yields is just to buy the tips. Buy tips outright. 89 00:04:52,720 --> 00:04:55,000 Speaker 3: In the five year part of the curve, those yields 90 00:04:55,000 --> 00:04:58,919 Speaker 3: have been moving towards two percent. That's double most measures 91 00:04:58,920 --> 00:05:04,080 Speaker 3: of fed neutral. A more sophisticated way of doing it 92 00:05:03,440 --> 00:05:07,039 Speaker 3: is to position in the curve, so to own the 93 00:05:07,080 --> 00:05:09,760 Speaker 3: bonds in the belly, which could be anywhere between five 94 00:05:09,800 --> 00:05:14,240 Speaker 3: and ten, and just hold them out right. Or to 95 00:05:14,320 --> 00:05:17,120 Speaker 3: sell the longer maturities, say out of thirty year and. 96 00:05:17,080 --> 00:05:17,960 Speaker 4: Buy the five year. 97 00:05:19,000 --> 00:05:21,520 Speaker 3: I think that there's value in those kind of trades. 98 00:05:21,560 --> 00:05:25,120 Speaker 3: And by the way, for me to start recommending steepness. 99 00:05:25,120 --> 00:05:26,440 Speaker 4: Is quite a big change. 100 00:05:27,120 --> 00:05:30,400 Speaker 3: I genuinely don't like steepness as a trade, but I 101 00:05:30,520 --> 00:05:33,479 Speaker 3: think the way that markets priced you are now paid 102 00:05:33,480 --> 00:05:34,679 Speaker 3: for owning the belly of the curve. 103 00:05:35,040 --> 00:05:37,159 Speaker 2: Stem major we got to run here, but you know, 104 00:05:37,400 --> 00:05:40,800 Speaker 2: the basic ideas were really interested in price up, yield down. 105 00:05:41,440 --> 00:05:44,960 Speaker 2: In all that. What happened to west Ham after decland 106 00:05:45,040 --> 00:05:49,359 Speaker 2: Rice left? I mean west Ham tanks decland Rice goes off. 107 00:05:49,640 --> 00:05:52,400 Speaker 2: He's on England. Can Declan Rice? Can they get it 108 00:05:52,440 --> 00:05:54,440 Speaker 2: done for England? This World Club? 109 00:05:55,480 --> 00:06:00,760 Speaker 3: Well, look that result against Mexico, against the chaties of 110 00:06:00,960 --> 00:06:04,840 Speaker 3: altitude and the crowd, and the historical track record and 111 00:06:05,480 --> 00:06:08,080 Speaker 3: all the shenanigans are around the start time and all that. 112 00:06:08,480 --> 00:06:10,920 Speaker 4: I think they did pretty well. And most of the 113 00:06:10,960 --> 00:06:12,160 Speaker 4: British Press. 114 00:06:11,880 --> 00:06:14,000 Speaker 3: Is supporting the idea that was one of the greatest 115 00:06:14,120 --> 00:06:15,680 Speaker 3: performances of England ever. 116 00:06:16,279 --> 00:06:18,680 Speaker 4: So it's going to be interesting that there is a 117 00:06:18,720 --> 00:06:20,360 Speaker 4: path now through to the final. 118 00:06:20,960 --> 00:06:24,240 Speaker 3: But let's be modest about the TOM because I find 119 00:06:24,240 --> 00:06:26,680 Speaker 3: that if I get too optimistic and life has a 120 00:06:26,680 --> 00:06:28,360 Speaker 3: funny way of checking me, well. 121 00:06:28,200 --> 00:06:30,359 Speaker 2: We wouldn't want that. When I'm rooting for Tottenham. I 122 00:06:30,360 --> 00:06:33,920 Speaker 2: mean I'm scarred, and I'm terribly scarred. Here the one 123 00:06:33,920 --> 00:06:39,040 Speaker 2: final question, do you see England France being a spectacular final? 124 00:06:40,080 --> 00:06:42,240 Speaker 3: Well, I just hope that you're supporting England now that 125 00:06:42,279 --> 00:06:45,120 Speaker 3: the US is out in TOM and I'm hoping that 126 00:06:45,200 --> 00:06:47,920 Speaker 3: all of America's supporting England now. I think it would 127 00:06:47,920 --> 00:06:50,400 Speaker 3: be a brilliant final and it would be a very 128 00:06:50,400 --> 00:06:51,840 Speaker 3: close call as to who would win. 129 00:06:52,000 --> 00:06:54,680 Speaker 2: See Paul how he did that without talking about west Ham. 130 00:06:54,839 --> 00:06:56,080 Speaker 4: Yep, he's gifted. 131 00:06:58,040 --> 00:07:00,000 Speaker 2: Stephen Major, Thank you so much. 132 00:07:00,600 --> 00:07:01,280 Speaker 4: Stay with us. 133 00:07:01,560 --> 00:07:04,800 Speaker 2: More from Bloomberg Surveillance coming up after this. 134 00:07:12,040 --> 00:07:15,600 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 135 00:07:15,680 --> 00:07:18,840 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 136 00:07:18,920 --> 00:07:22,560 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app or 137 00:07:22,720 --> 00:07:25,920 Speaker 1: watch us live on YouTube right now for Global Wall 138 00:07:25,960 --> 00:07:30,600 Speaker 1: Street a really important briefing with Michael Darta of Roth Capitol. 139 00:07:31,200 --> 00:07:33,520 Speaker 2: I look, Michael Darta with the question I keep coming 140 00:07:33,600 --> 00:07:37,320 Speaker 2: up with, is the nominal GDP we have is it 141 00:07:37,360 --> 00:07:40,040 Speaker 2: a Darta Banana Republic? I mean, how much are we 142 00:07:40,080 --> 00:07:44,320 Speaker 2: goosen the economy with our inflation and with some form 143 00:07:44,360 --> 00:07:45,480 Speaker 2: of stable GDP? 144 00:07:47,200 --> 00:07:49,960 Speaker 6: Great to be on with you, Tom, Look five point 145 00:07:50,080 --> 00:07:53,920 Speaker 6: four percent. That's the number for nominal GDP. Not for 146 00:07:54,000 --> 00:07:57,760 Speaker 6: the last quarter, but for the last two years. It's 147 00:07:58,000 --> 00:08:01,720 Speaker 6: really been even longer than that. So nominal GDP has 148 00:08:01,760 --> 00:08:06,120 Speaker 6: been steady, but we've been moving through a blizzard of 149 00:08:06,240 --> 00:08:10,560 Speaker 6: supply side shocks tariffs last year, a big energy spike 150 00:08:10,640 --> 00:08:14,240 Speaker 6: this year that's now fortunately unwound. And so when you 151 00:08:14,320 --> 00:08:17,320 Speaker 6: have volatility in the supply side of the economy that 152 00:08:17,440 --> 00:08:20,680 Speaker 6: tends to influence nominal growth a lot less. It just 153 00:08:20,800 --> 00:08:24,560 Speaker 6: changes the composition. Real growth and inflation go in opposite 154 00:08:24,560 --> 00:08:29,160 Speaker 6: directions when you have a supply side shock. So this 155 00:08:29,400 --> 00:08:36,160 Speaker 6: backdrop of super stable, very steady, modest nominal GDP growth 156 00:08:36,760 --> 00:08:40,880 Speaker 6: is a testament to the FED basically getting it correct. 157 00:08:41,080 --> 00:08:45,079 Speaker 6: Under Chairman Powell, and we know that because we've moved 158 00:08:45,080 --> 00:08:48,360 Speaker 6: through these shocks without the business cycle slipping away on US. 159 00:08:48,440 --> 00:08:50,200 Speaker 6: I mentioned this the last time I was on. It 160 00:08:50,240 --> 00:08:53,840 Speaker 6: goes back to the Bernanki, Gertler Watson research of nineteen 161 00:08:53,960 --> 00:08:57,520 Speaker 6: ninety seven where they looked back at the upheaval from 162 00:08:57,559 --> 00:09:00,000 Speaker 6: the oil shocks of the nineteen seventies and can clue 163 00:09:00,360 --> 00:09:03,760 Speaker 6: that most of that damage was due to the imposition 164 00:09:03,800 --> 00:09:05,760 Speaker 6: of restrictive monetary policy. 165 00:09:05,880 --> 00:09:08,200 Speaker 4: Well, the FED didn't do it do that this time, 166 00:09:08,320 --> 00:09:08,960 Speaker 4: and Paul. 167 00:09:08,920 --> 00:09:13,720 Speaker 2: This is the euro distinction, which is austerity is a 168 00:09:13,800 --> 00:09:17,520 Speaker 2: comfort for Europe where we don't do that post bernanc yep. 169 00:09:18,080 --> 00:09:23,120 Speaker 5: Michael, you talked about the real and nominal GDP. So 170 00:09:23,200 --> 00:09:26,000 Speaker 5: what is your implicit inflation call here? I've got oil back, 171 00:09:26,280 --> 00:09:28,760 Speaker 5: you know, sixty nine handle for wtach fude oil is 172 00:09:28,760 --> 00:09:31,360 Speaker 5: my inflation fears? Can we can we take that out 173 00:09:31,360 --> 00:09:32,000 Speaker 5: of the market here? 174 00:09:34,000 --> 00:09:39,160 Speaker 6: Yeah, I'm fairly optimistic here. You know, a few weeks ago, 175 00:09:39,400 --> 00:09:42,760 Speaker 6: FED President John Williams I thought gave a really important 176 00:09:42,800 --> 00:09:46,320 Speaker 6: speech when he talked about the fact that, you know, 177 00:09:46,480 --> 00:09:50,040 Speaker 6: current settings for monetary policy looked about right to bring 178 00:09:50,040 --> 00:09:53,360 Speaker 6: inflation back to target. You know, he has a longer 179 00:09:53,520 --> 00:09:55,680 Speaker 6: horizon looking out to twenty twenty seven. 180 00:09:56,520 --> 00:09:59,880 Speaker 4: But keep in mind that if you look at. 181 00:09:59,280 --> 00:10:03,800 Speaker 6: The bond mark it right now, longer term inflation expectations 182 00:10:04,000 --> 00:10:07,040 Speaker 6: are very muted, and they stay muted through the oil shock, 183 00:10:07,280 --> 00:10:11,000 Speaker 6: and that's based on investors putting their money on the line. 184 00:10:11,720 --> 00:10:13,480 Speaker 6: And so I think if we can have a little 185 00:10:13,520 --> 00:10:15,880 Speaker 6: bit of patience here. I know, obviously the FED is 186 00:10:15,920 --> 00:10:19,480 Speaker 6: overshot the target by five years, but you know the 187 00:10:19,559 --> 00:10:22,960 Speaker 6: last year plus that's really been due to these supply 188 00:10:23,080 --> 00:10:26,840 Speaker 6: side disturbances. So as long as they're keeping nominal growth 189 00:10:26,960 --> 00:10:30,840 Speaker 6: moving in a moderate positive direction, I think these inflation 190 00:10:30,960 --> 00:10:33,760 Speaker 6: rates are going to come down on the headline level. 191 00:10:34,240 --> 00:10:36,559 Speaker 6: I think, you know, we look out over the next 192 00:10:36,600 --> 00:10:40,560 Speaker 6: few quarters, we're going to see a pretty significant disinflation there. So, 193 00:10:41,160 --> 00:10:43,679 Speaker 6: you know, the unraveling of an adverse supply shop, what 194 00:10:43,720 --> 00:10:46,960 Speaker 6: does it do. It changes the composition a nominal in 195 00:10:47,000 --> 00:10:50,240 Speaker 6: a favorable way. You get less inflation and you get 196 00:10:50,280 --> 00:10:54,160 Speaker 6: more real growth. As it stands, the tracking estimates for 197 00:10:54,240 --> 00:10:57,840 Speaker 6: real growth have actually held up exceptionally well in the US. 198 00:10:57,960 --> 00:11:00,360 Speaker 6: I mean, it's really been a resilient economy. So the 199 00:11:00,440 --> 00:11:04,040 Speaker 6: question is, is the FED going to be hiking interest rates 200 00:11:04,080 --> 00:11:07,320 Speaker 6: now as we move forward with this resilient economy, even 201 00:11:07,360 --> 00:11:10,160 Speaker 6: with the oil shock on winding, and we think they're 202 00:11:10,160 --> 00:11:13,679 Speaker 6: going to be pretty patient on any prospective tightening. 203 00:11:14,760 --> 00:11:16,440 Speaker 5: How about on the other side of the equation for 204 00:11:16,679 --> 00:11:19,000 Speaker 5: this FED to reserve on the labor market. It seems like, 205 00:11:19,800 --> 00:11:22,480 Speaker 5: I don't know, everybody who wants a job has a job. 206 00:11:22,520 --> 00:11:25,559 Speaker 5: I see a four point three percent unemployment rate. That's 207 00:11:25,679 --> 00:11:27,200 Speaker 5: about as good as it gets. It seems like, how 208 00:11:27,200 --> 00:11:28,360 Speaker 5: do you think about the labor market? 209 00:11:29,200 --> 00:11:33,120 Speaker 6: Yeah, absolutely, four point two that's a good number. You know, 210 00:11:33,520 --> 00:11:36,920 Speaker 6: same number that we had two years ago, right, some 211 00:11:37,120 --> 00:11:39,840 Speaker 6: are of twenty twenty four, we were right at the 212 00:11:39,880 --> 00:11:42,960 Speaker 6: same level of four point two. So this period of 213 00:11:43,040 --> 00:11:46,679 Speaker 6: nominal stability that the FED is engineered, obviously, you know, 214 00:11:46,760 --> 00:11:50,080 Speaker 6: following a big goof in twenty one in twenty two 215 00:11:50,640 --> 00:11:53,760 Speaker 6: where policy was way too easy. But over the course 216 00:11:53,800 --> 00:11:57,199 Speaker 6: of the last two or three years, this nominal stability 217 00:11:57,280 --> 00:12:00,640 Speaker 6: has been associated with a labor market that's sustained a 218 00:12:00,760 --> 00:12:06,240 Speaker 6: relatively full, quite historically low level of unemployment and underemployment. 219 00:12:06,240 --> 00:12:08,640 Speaker 6: You could throw the U six rate in there as well. 220 00:12:08,920 --> 00:12:12,480 Speaker 6: For some of the conspiracy theorists. Uh, and that's you know, 221 00:12:12,520 --> 00:12:15,400 Speaker 6: that's recently pulled back a bit, but it's essentially at 222 00:12:15,400 --> 00:12:17,800 Speaker 6: the same level that we were observing well over a 223 00:12:17,880 --> 00:12:21,640 Speaker 6: year ago. So stability is the is the name of 224 00:12:21,679 --> 00:12:25,200 Speaker 6: the game here. Now the question comes up what happens 225 00:12:25,200 --> 00:12:29,120 Speaker 6: if the unemployment rate keeps falling in the business cycle 226 00:12:29,160 --> 00:12:31,440 Speaker 6: does heat up as we move into the back of 227 00:12:31,480 --> 00:12:33,040 Speaker 6: the year, And that's really going to be the the 228 00:12:33,480 --> 00:12:35,600 Speaker 6: the debate going on at the FED about whether they 229 00:12:35,640 --> 00:12:38,840 Speaker 6: should take back some of those emergency rain cuts or not. 230 00:12:39,280 --> 00:12:42,040 Speaker 2: Michael, before you go, I mean, Paul. The way Michael 231 00:12:42,120 --> 00:12:45,480 Speaker 2: Darter rules is we get photos. He and the dogs 232 00:12:45,960 --> 00:12:48,720 Speaker 2: went to may Orca, Spain, Okay, and so we get 233 00:12:48,760 --> 00:12:51,800 Speaker 2: we get, we get you know, Darta jumping off cliffs. 234 00:12:52,080 --> 00:12:55,520 Speaker 2: Did you go to Califigera and jump off a ninety 235 00:12:55,559 --> 00:12:56,240 Speaker 2: foot cliff? 236 00:12:58,240 --> 00:12:59,559 Speaker 4: Uh? No, Tim, I didn't. 237 00:12:59,600 --> 00:13:02,320 Speaker 6: But that at photo I think my wife send is 238 00:13:02,360 --> 00:13:05,000 Speaker 6: from my Orca, Spain and that was just a few 239 00:13:05,080 --> 00:13:07,440 Speaker 6: days ago. So yeah, we've had a little bit of 240 00:13:07,440 --> 00:13:08,120 Speaker 6: fun as well. 241 00:13:08,760 --> 00:13:10,720 Speaker 2: Like it's like one of those Apple pl you know 242 00:13:10,760 --> 00:13:15,960 Speaker 2: those Apple TV movies Clandestine Michael Dart and Black and White, yep, 243 00:13:16,080 --> 00:13:18,120 Speaker 2: on that coast of Spain. What did you learn about 244 00:13:18,160 --> 00:13:20,000 Speaker 2: the Spanish economy boom vacation. 245 00:13:21,960 --> 00:13:25,800 Speaker 6: Yeah, I mean obvious, obviously the lens through which I'm 246 00:13:25,880 --> 00:13:29,200 Speaker 6: looking here is pretty narrow, Tom, but it looks like 247 00:13:29,280 --> 00:13:31,559 Speaker 6: things are are pretty strong. You know a lot of 248 00:13:31,640 --> 00:13:36,120 Speaker 6: tourist activity in town, you know, inside Palma. And obviously 249 00:13:36,120 --> 00:13:38,400 Speaker 6: I'm biased, but you know the food in the culture 250 00:13:38,520 --> 00:13:39,960 Speaker 6: is top notch, so big. 251 00:13:40,080 --> 00:13:42,200 Speaker 2: Yeah, you know, with Dart and with the way he rolls. 252 00:13:42,240 --> 00:13:44,680 Speaker 2: You should see the kennel that the dogs go to. Yeah, 253 00:13:44,880 --> 00:13:48,840 Speaker 2: it's like the real Carleton kennel. It's unbelievable. Michael Darta, 254 00:13:48,920 --> 00:13:51,880 Speaker 2: thank you so much. They're a nominal GV. I can't 255 00:13:51,880 --> 00:13:55,600 Speaker 2: convey enough, folks that constructive tone from Darta is not 256 00:13:56,000 --> 00:14:00,880 Speaker 2: within the zeitgeist right now. Stay with the more from 257 00:14:00,960 --> 00:14:03,640 Speaker 2: Bloomberg Surveillance coming up after this. 258 00:14:10,880 --> 00:14:14,480 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 259 00:14:14,520 --> 00:14:17,720 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 260 00:14:17,760 --> 00:14:21,440 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 261 00:14:21,600 --> 00:14:23,240 Speaker 1: watch us live on YouTube. 262 00:14:23,440 --> 00:14:25,000 Speaker 4: We're rocking it with Michael Green. 263 00:14:25,200 --> 00:14:30,280 Speaker 2: Why equals nineteen point ninety three times and exponential function 264 00:14:30,360 --> 00:14:33,840 Speaker 2: of zero point seven to one point eight. No our 265 00:14:34,040 --> 00:14:38,400 Speaker 2: squared of sixty two, which is sprightly to say the lease. 266 00:14:38,760 --> 00:14:42,680 Speaker 2: Michael Green joins US now simplify asset management. 267 00:14:43,120 --> 00:14:43,760 Speaker 4: I love it. 268 00:14:43,960 --> 00:14:48,280 Speaker 2: The thermodynamics of AI, you know, I'm addicted to it. 269 00:14:48,320 --> 00:14:52,000 Speaker 2: To me, it's a closed loop system and it's got 270 00:14:52,040 --> 00:14:57,840 Speaker 2: to be some kinetic energy release. Explain the thermodynamics around 271 00:14:57,880 --> 00:15:01,920 Speaker 2: what I see as a closed loop feeding on itself system. 272 00:15:02,360 --> 00:15:04,600 Speaker 7: Well, I think it means two separate components. When we 273 00:15:04,680 --> 00:15:06,640 Speaker 7: talk about the closed loop with AI, what we're really 274 00:15:06,640 --> 00:15:10,160 Speaker 7: referring to is the financing mechanism that's allowing the acquisition 275 00:15:10,200 --> 00:15:14,560 Speaker 7: of customers, either through guaranteeing debt contracts or by lending 276 00:15:14,600 --> 00:15:17,800 Speaker 7: the money directly in the form of equity investments, et cetera. 277 00:15:18,800 --> 00:15:21,240 Speaker 7: If you are a customer of in Video and you 278 00:15:21,360 --> 00:15:23,360 Speaker 7: borrow the money to buy the in video chips, you 279 00:15:23,400 --> 00:15:26,400 Speaker 7: don't spend much time negotiating the price. And it's really 280 00:15:26,400 --> 00:15:29,000 Speaker 7: that simple. They've been able to manufacture the demand for 281 00:15:29,040 --> 00:15:32,000 Speaker 7: their own chips. How long that continues and how long 282 00:15:32,040 --> 00:15:35,640 Speaker 7: it allows the exceptional profit margins very very hard to know. 283 00:15:36,080 --> 00:15:38,760 Speaker 7: This is the same phenomenons on the late nineteen nineties 284 00:15:38,760 --> 00:15:42,359 Speaker 7: with vendor financing from Cisco. So we know that eventually 285 00:15:42,440 --> 00:15:46,040 Speaker 7: this runs out, the customers ultimately have to be generating profits. 286 00:15:46,120 --> 00:15:48,120 Speaker 2: I am so we got to stop here and review this. 287 00:15:48,640 --> 00:15:53,160 Speaker 2: Paul's got eight questions. I so so so agree that 288 00:15:53,240 --> 00:15:57,560 Speaker 2: it's a Cisco Redux. Explain to the young the Cisco 289 00:15:57,760 --> 00:16:00,080 Speaker 2: moment ninety eight ninety. 290 00:16:01,160 --> 00:16:04,040 Speaker 7: Just like today when AI is the frontier, then it 291 00:16:04,120 --> 00:16:07,280 Speaker 7: was the Internet or the ability to launch web pages, 292 00:16:07,360 --> 00:16:11,400 Speaker 7: customer fronts, online storefronts, etc. In order to do that 293 00:16:11,440 --> 00:16:14,360 Speaker 7: in that time period, it was very hardware intensive build out. 294 00:16:14,400 --> 00:16:16,600 Speaker 7: You had to actually build out your own servers. There 295 00:16:16,680 --> 00:16:19,160 Speaker 7: was no cloud component as you could lease. That's been 296 00:16:19,160 --> 00:16:21,560 Speaker 7: one of the innovations that'sccurred over the last twenty five 297 00:16:21,640 --> 00:16:23,840 Speaker 7: years for the very simple reason that it has become 298 00:16:23,920 --> 00:16:27,720 Speaker 7: phenomenally cheap for people to access. In order to obtain 299 00:16:27,760 --> 00:16:30,800 Speaker 7: that equipment and relatively short supply in the late nineteen nineties, 300 00:16:30,880 --> 00:16:34,280 Speaker 7: Cisco would had basically a monopoly and was able to 301 00:16:34,400 --> 00:16:36,880 Speaker 7: lend the money to customers who would pay the most 302 00:16:36,920 --> 00:16:41,600 Speaker 7: to access it. The validity of those debt contracts ultimately 303 00:16:41,800 --> 00:16:44,600 Speaker 7: became very much in question when we discovered that web 304 00:16:45,360 --> 00:16:50,200 Speaker 7: websites built at exceptionally high cost offering subsidized access to 305 00:16:50,240 --> 00:16:54,360 Speaker 7: consumer products was not a particularly good business, and as 306 00:16:54,400 --> 00:16:58,320 Speaker 7: that collapsed, we ultimately discovered that the profits that Cisco 307 00:16:58,360 --> 00:17:02,880 Speaker 7: had been reporting were radically overstated. They retreated, and we 308 00:17:02,960 --> 00:17:05,919 Speaker 7: had what we called the dot com cycle. Whether that 309 00:17:05,960 --> 00:17:08,240 Speaker 7: plays out this time or not, I'm not entirely certain, 310 00:17:08,280 --> 00:17:11,040 Speaker 7: because I'm not entirely certain it's the exact same mechanism 311 00:17:11,359 --> 00:17:14,000 Speaker 7: as we've discussed over and over and over again, there's 312 00:17:14,040 --> 00:17:16,639 Speaker 7: an alternate source of the bid. This time, it really 313 00:17:16,720 --> 00:17:19,800 Speaker 7: is just the American employees plowing their money into four 314 00:17:19,800 --> 00:17:23,240 Speaker 7: oh one case that is assisting and driving the valuations 315 00:17:23,240 --> 00:17:26,200 Speaker 7: and performance that we're seeing, and that in turn creates 316 00:17:26,200 --> 00:17:28,600 Speaker 7: the incentive that says, hey, you should spend a ton 317 00:17:28,680 --> 00:17:29,200 Speaker 7: of money here. 318 00:17:29,840 --> 00:17:32,880 Speaker 5: So what's the AI play? Visa VI China. I feel 319 00:17:32,880 --> 00:17:34,800 Speaker 5: like we're not paying enough attention to what China is 320 00:17:34,800 --> 00:17:38,160 Speaker 5: doing with AI, But I just feel like they're there 321 00:17:38,200 --> 00:17:39,920 Speaker 5: in a big way, and I just don't know when 322 00:17:39,920 --> 00:17:41,399 Speaker 5: we're going to see it, how we're going to see it. 323 00:17:41,560 --> 00:17:41,679 Speaker 4: Well. 324 00:17:41,680 --> 00:17:43,399 Speaker 7: I think that's really one of the critical things to 325 00:17:43,440 --> 00:17:46,159 Speaker 7: remember is that our competition in nineteen ninety nine. 326 00:17:46,280 --> 00:17:47,119 Speaker 4: Was Canada right? 327 00:17:47,200 --> 00:17:49,879 Speaker 7: It was a nortel. Canada is a wonderful country. It's 328 00:17:49,960 --> 00:17:52,439 Speaker 7: quite large, but it is I know it isn't a 329 00:17:52,480 --> 00:17:55,199 Speaker 7: fantastic Oh that's what happens when you get old. But 330 00:17:55,600 --> 00:17:58,520 Speaker 7: we sit here in reminisce about events gone by. The 331 00:18:00,119 --> 00:18:02,639 Speaker 7: fortunate reality is that we're not paying enough attention to 332 00:18:02,680 --> 00:18:06,280 Speaker 7: what's happening in China. And China has responded, as life 333 00:18:06,280 --> 00:18:09,280 Speaker 7: always does when faced with restrictions. They have been limited 334 00:18:09,280 --> 00:18:12,200 Speaker 7: in their ability to access chips. That has forced them 335 00:18:12,200 --> 00:18:15,320 Speaker 7: to focus on efficiency. It's forced them to reduce their 336 00:18:15,320 --> 00:18:19,160 Speaker 7: reliance on American technology, and they're proceeding at an astonishing rate. 337 00:18:19,320 --> 00:18:22,600 Speaker 2: Jim Chinos lectured me on the neo cloud. 338 00:18:23,280 --> 00:18:23,880 Speaker 4: I think a. 339 00:18:23,840 --> 00:18:27,520 Speaker 2: Week and a half after that lecture, we see Meta 340 00:18:27,560 --> 00:18:31,439 Speaker 2: being very neo cloud and others. The neo cloud, to me, 341 00:18:32,119 --> 00:18:37,120 Speaker 2: is basically a constructed AI server like it's like an 342 00:18:37,200 --> 00:18:42,520 Speaker 2: AWS and Amazon Web Services right. Absolutely, to me, this 343 00:18:42,680 --> 00:18:46,160 Speaker 2: overwhelms everything out there. I mean, it's a no brainer. 344 00:18:46,200 --> 00:18:46,919 Speaker 4: Am I naive? 345 00:18:47,080 --> 00:18:49,159 Speaker 7: Well, what it's telling you is that many of the 346 00:18:49,160 --> 00:18:53,320 Speaker 7: individuals who purchase those incredibly expensive chips with extraordinarily high 347 00:18:53,320 --> 00:18:55,720 Speaker 7: gross margins can't figure out what to do with them, 348 00:18:55,960 --> 00:18:59,120 Speaker 7: thank you, so they're basically putting them into the secondary market. 349 00:18:59,560 --> 00:19:03,520 Speaker 7: This is different than what eventually happens in markets like gold, 350 00:19:03,680 --> 00:19:07,840 Speaker 7: where secondary sales ultimately swamp primary production as prices pushed to. 351 00:19:07,880 --> 00:19:09,040 Speaker 4: New all time highs. 352 00:19:09,680 --> 00:19:14,040 Speaker 7: So we are seeing effectively, you know, incremental supply come 353 00:19:14,119 --> 00:19:16,840 Speaker 7: into the market, not just from the primary sales from 354 00:19:16,960 --> 00:19:19,520 Speaker 7: Nvidia and others, but now from their customers who in 355 00:19:19,560 --> 00:19:22,439 Speaker 7: many ways are competing without underlying demand. 356 00:19:23,680 --> 00:19:26,840 Speaker 5: So all when I listen to the Jensen Wongs of 357 00:19:26,880 --> 00:19:29,480 Speaker 5: the world and other folks within the AI ecosystem, all 358 00:19:29,520 --> 00:19:35,640 Speaker 5: I hear is insatiable demand for compute for just AI capabilities. 359 00:19:36,440 --> 00:19:39,199 Speaker 5: I don't know how to parse that other than I 360 00:19:39,200 --> 00:19:40,879 Speaker 5: think these guys know what they're talking about, But I 361 00:19:40,880 --> 00:19:41,199 Speaker 5: don't know. 362 00:19:41,640 --> 00:19:43,640 Speaker 7: Well, listen, I think they know what they're talking about 363 00:19:43,680 --> 00:19:47,080 Speaker 7: as well, and certainly to their face, they're actually seeing that, 364 00:19:47,200 --> 00:19:51,720 Speaker 7: among other things, if you're Meta or your XAI for example, 365 00:19:51,720 --> 00:19:54,719 Speaker 7: that wants to maintain optionality to that you're not going 366 00:19:54,800 --> 00:19:56,840 Speaker 7: to cancel your contracts and in fact you're going to 367 00:19:56,880 --> 00:19:59,040 Speaker 7: try to keep yours place in line. You're not entirely 368 00:19:59,080 --> 00:20:00,639 Speaker 7: sure how this is going to play out, and the 369 00:20:00,680 --> 00:20:03,480 Speaker 7: costs of doing so are relatively low, so I have 370 00:20:03,560 --> 00:20:07,160 Speaker 7: no doubt that from Invidio's perspective, they see a surplus 371 00:20:07,160 --> 00:20:10,160 Speaker 7: of demand. There's also the simple reality that companies trading 372 00:20:10,160 --> 00:20:12,720 Speaker 7: at very high valuations have to sell a story to 373 00:20:12,760 --> 00:20:16,080 Speaker 7: their customers or to their investors that say, hey, here's 374 00:20:16,080 --> 00:20:18,199 Speaker 7: why we were worth so much. Right, we're going to 375 00:20:18,320 --> 00:20:22,199 Speaker 7: sell cars to the AI universe. Whether that works out 376 00:20:22,280 --> 00:20:24,040 Speaker 7: or not, we can't possibly know yet. 377 00:20:24,920 --> 00:20:29,000 Speaker 2: I made a chart today for Richard Clarinon of CPI 378 00:20:29,560 --> 00:20:34,919 Speaker 2: back twenty years folks, back to Alexis Christopher's ute, and 379 00:20:35,640 --> 00:20:38,040 Speaker 2: I looked at a two percent goal for the FED, 380 00:20:38,320 --> 00:20:40,600 Speaker 2: and you know, I was surprised. In a four year 381 00:20:41,119 --> 00:20:45,280 Speaker 2: presidential moving average, we actually succeeded. It's some form of 382 00:20:45,320 --> 00:20:50,320 Speaker 2: two percent inflation. And then things changed. What's the permanence 383 00:20:50,960 --> 00:20:56,199 Speaker 2: of this new higher inflation after your earthshaking study ninety 384 00:20:56,280 --> 00:21:00,760 Speaker 2: days ago of affordability in America? Kinds of a live 385 00:21:00,760 --> 00:21:03,840 Speaker 2: in this in real time. It's not like the old days. 386 00:21:05,680 --> 00:21:07,600 Speaker 7: It's not like the old days. And part of the 387 00:21:07,720 --> 00:21:10,359 Speaker 7: challenge that we are facing, what you're referring to as 388 00:21:10,400 --> 00:21:12,720 Speaker 7: the piece that released last November, My Life is a 389 00:21:12,720 --> 00:21:15,040 Speaker 7: lie one hundred and forty thousand dollars poverty line that 390 00:21:15,160 --> 00:21:18,080 Speaker 7: got an incredible amount of pushback, but is now actually 391 00:21:18,280 --> 00:21:21,080 Speaker 7: increasingly being shown to be correct, and so we are 392 00:21:21,119 --> 00:21:24,960 Speaker 7: actually seeing growing awareness of the affordability crisis is very real. 393 00:21:25,600 --> 00:21:27,720 Speaker 7: They're two key criteria to understand. 394 00:21:28,280 --> 00:21:29,200 Speaker 4: One is the way you. 395 00:21:29,160 --> 00:21:31,000 Speaker 7: And I think about inflation is a year over year 396 00:21:31,119 --> 00:21:33,640 Speaker 7: change on the price level, and that makes perfect sense 397 00:21:33,640 --> 00:21:37,000 Speaker 7: from an economic standpoint. The problem is once you're underwater, 398 00:21:37,080 --> 00:21:41,119 Speaker 7: once you're spending exceeds your income. If your income and 399 00:21:41,240 --> 00:21:44,400 Speaker 7: inflation match, which the Federal Reserve or the BLS would 400 00:21:44,400 --> 00:21:46,719 Speaker 7: look at and say, hey, this is fantastic. Real wages 401 00:21:46,760 --> 00:21:50,800 Speaker 7: were flat, or real wages grew very slightly, you're still underwater, 402 00:21:50,920 --> 00:21:54,439 Speaker 7: and you're potentially even more underwater. And that is really 403 00:21:54,440 --> 00:21:57,360 Speaker 7: creating conditions under which more and more households are facing 404 00:21:57,400 --> 00:21:59,560 Speaker 7: the life choices that they need to make under a 405 00:21:59,600 --> 00:22:01,879 Speaker 7: calendar basis, do we get married, do we have children, 406 00:22:01,920 --> 00:22:05,440 Speaker 7: et cetera, and choosing to opt out of that process 407 00:22:05,480 --> 00:22:08,800 Speaker 7: that's causing social frustration. The desire is not gone. The 408 00:22:08,880 --> 00:22:10,399 Speaker 7: ability is increasing. 409 00:22:10,119 --> 00:22:13,080 Speaker 2: I would say, Paul the major debate we're having is this, 410 00:22:13,160 --> 00:22:16,920 Speaker 2: do we get back to some form of disinflationary tendency? Yeah, 411 00:22:16,920 --> 00:22:19,080 Speaker 2: I mean away from the politics into November. 412 00:22:19,160 --> 00:22:21,320 Speaker 5: Well, what we saw just from the pandemic is that 413 00:22:21,359 --> 00:22:24,919 Speaker 5: the price increases, but I'm not seeing I see occasionally 414 00:22:24,920 --> 00:22:27,760 Speaker 5: some prices is coming down. But it's just talking about 415 00:22:27,760 --> 00:22:31,640 Speaker 5: the rate of inflation from a higher base. And that's 416 00:22:31,720 --> 00:22:34,200 Speaker 5: where I think most people have a lot of problems. 417 00:22:34,200 --> 00:22:36,240 Speaker 7: And that's what I was referring to with the price level. 418 00:22:36,480 --> 00:22:39,040 Speaker 7: Right when we've had this conversation with people and people 419 00:22:39,080 --> 00:22:41,040 Speaker 7: feel that we are gaslighting them, and we say that 420 00:22:41,119 --> 00:22:44,800 Speaker 7: inflation is buying large transitory in all seriousness, when we 421 00:22:44,880 --> 00:22:47,520 Speaker 7: have a war in the Middle East and gasoline prices 422 00:22:47,560 --> 00:22:51,880 Speaker 7: spike to get a a CPI number that is coincidentally 423 00:22:51,920 --> 00:22:54,119 Speaker 7: timed almost perfectly to the low at the end of 424 00:22:54,160 --> 00:22:58,080 Speaker 7: February and effectively the highs that we've experienced at the 425 00:22:58,119 --> 00:23:01,200 Speaker 7: end of May, you're going to see inflation. 426 00:23:01,680 --> 00:23:02,560 Speaker 2: There's no way around it. 427 00:23:02,600 --> 00:23:05,440 Speaker 7: To only get four percent inflation as measured on a 428 00:23:05,520 --> 00:23:08,160 Speaker 7: year of a year basis is actually pretty remarkably low 429 00:23:08,280 --> 00:23:10,119 Speaker 7: relative to the history that we would have expected. To 430 00:23:10,119 --> 00:23:12,400 Speaker 7: go back and look at the nineteen nineties, for example, 431 00:23:12,400 --> 00:23:17,000 Speaker 7: with the invasion of the attacks against Iraq and desert 432 00:23:17,080 --> 00:23:18,280 Speaker 7: storm a shield. 433 00:23:18,480 --> 00:23:19,560 Speaker 2: You're watching the football. 434 00:23:20,000 --> 00:23:22,120 Speaker 4: I'm not watching the football. Stay with us. 435 00:23:22,359 --> 00:23:25,600 Speaker 2: More from Bloomberg Surveillance coming up after this. 436 00:23:32,840 --> 00:23:36,440 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 437 00:23:36,520 --> 00:23:39,679 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 438 00:23:39,760 --> 00:23:43,160 Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app, 439 00:23:43,320 --> 00:23:45,040 Speaker 1: or watch us live on YouTube. 440 00:23:45,359 --> 00:23:48,480 Speaker 2: The punditry is in full force. People that wandered by, 441 00:23:48,560 --> 00:23:51,640 Speaker 2: they read three books and they're an expert. 442 00:23:52,080 --> 00:23:53,680 Speaker 4: Or you live it. 443 00:23:53,800 --> 00:23:57,560 Speaker 2: Rosecotto Mooeller is the kind of diplomat that we don't 444 00:23:57,560 --> 00:24:00,800 Speaker 2: have enough of there in retreat in the small age. 445 00:24:01,160 --> 00:24:06,159 Speaker 2: She's a former Deputy pre Secretary General of NATO, the 446 00:24:06,200 --> 00:24:12,560 Speaker 2: former Undersecretary of State for Arms Control in International Security. Rose, 447 00:24:12,600 --> 00:24:14,520 Speaker 2: thank you so much for joining us for a four 448 00:24:14,560 --> 00:24:19,480 Speaker 2: hour good conversation. I look Rose, certain, I look Rose 449 00:24:19,520 --> 00:24:24,400 Speaker 2: at the cacophany here. So what can NATO do off 450 00:24:24,440 --> 00:24:26,960 Speaker 2: of the Atlantic Charter of I think it was nineteen 451 00:24:27,080 --> 00:24:32,239 Speaker 2: forty one to the new modern NATO to help with 452 00:24:32,520 --> 00:24:37,040 Speaker 2: arms control from the Finland border all the way down 453 00:24:37,080 --> 00:24:37,680 Speaker 2: to Tehran. 454 00:24:39,520 --> 00:24:42,440 Speaker 8: Well, the first thing that NATO can do is help 455 00:24:42,960 --> 00:24:46,320 Speaker 8: to resolve this war of Russian aggression in Ukraine, and 456 00:24:46,400 --> 00:24:48,760 Speaker 8: that is the key issue that will have to be 457 00:24:48,800 --> 00:24:53,840 Speaker 8: resolved before we can think about a European security architecture 458 00:24:53,960 --> 00:24:58,280 Speaker 8: that I hope will provide mutual predictability and stability for everyone. 459 00:24:59,280 --> 00:25:03,359 Speaker 8: And that includes the aggressors the Russian Federation, but obviously 460 00:25:03,520 --> 00:25:07,280 Speaker 8: must include every NATO member and the NATO partner states 461 00:25:07,760 --> 00:25:10,959 Speaker 8: across Europe and right up to the borders of Asia. 462 00:25:11,359 --> 00:25:13,760 Speaker 8: As you've said, Turkey of course is a NATO member 463 00:25:13,800 --> 00:25:17,760 Speaker 8: state as well, and so their security and stability relies 464 00:25:17,760 --> 00:25:20,159 Speaker 8: on NATO. As we see from this anchor, a summit 465 00:25:20,480 --> 00:25:22,240 Speaker 8: of NATO going on this week. 466 00:25:22,880 --> 00:25:25,840 Speaker 5: Rose, how do you think NATO views the US here 467 00:25:26,160 --> 00:25:29,800 Speaker 5: these days? It feels like, you know, when US went 468 00:25:29,840 --> 00:25:32,800 Speaker 5: into a RAN reported that we did not really consult 469 00:25:32,840 --> 00:25:35,240 Speaker 5: with our NATO allies. Do you think NATO is viewing the 470 00:25:35,320 --> 00:25:36,280 Speaker 5: US these days? 471 00:25:37,880 --> 00:25:41,520 Speaker 8: Apparently NATO is viewed less well by the US public 472 00:25:41,560 --> 00:25:44,240 Speaker 8: than it has been historically. When I was Deputy Secretary 473 00:25:44,320 --> 00:25:49,240 Speaker 8: General and NATO was celebrating its seventy fifth birthday at 474 00:25:49,240 --> 00:25:56,080 Speaker 8: the time, NATO was really quite popular seventy percent or 475 00:25:56,160 --> 00:25:59,000 Speaker 8: more of the US public. That numbers dropped now into 476 00:25:59,000 --> 00:26:02,840 Speaker 8: the fifties evidently, but I think that is likely because 477 00:26:02,920 --> 00:26:05,840 Speaker 8: of the very strong criticism that Donald Trump has directed 478 00:26:05,840 --> 00:26:08,280 Speaker 8: at NATO. And as you know, he's unrelenting on the 479 00:26:08,320 --> 00:26:11,840 Speaker 8: airwaves and in social media. So people are listening to 480 00:26:11,880 --> 00:26:13,960 Speaker 8: that and they say, hey, well, maybe NATO isn't helping 481 00:26:14,040 --> 00:26:16,760 Speaker 8: us so much. But as I see it, NATO is 482 00:26:16,840 --> 00:26:21,320 Speaker 8: in fact taking on the responsibility for conventional defense in Europe, 483 00:26:21,440 --> 00:26:25,600 Speaker 8: just as the Trump administration has demanded. And so I 484 00:26:25,680 --> 00:26:30,360 Speaker 8: do think that in general NATO is serving the US 485 00:26:30,600 --> 00:26:34,919 Speaker 8: interests well. And honestly, also, I think the US public 486 00:26:35,000 --> 00:26:37,720 Speaker 8: is going to bounce back about NATO when they see 487 00:26:37,760 --> 00:26:41,000 Speaker 8: the results of Trump's demands to spend more on their 488 00:26:41,000 --> 00:26:41,600 Speaker 8: own defense. 489 00:26:42,400 --> 00:26:48,120 Speaker 2: I look at this, Madam Secretary, and I say to myself, well, 490 00:26:48,119 --> 00:26:51,720 Speaker 2: the President announced with mister Aridowan an hour ago that 491 00:26:51,880 --> 00:26:54,640 Speaker 2: is cured nine wars or eight wars, Paul, I can't 492 00:26:54,680 --> 00:26:57,720 Speaker 2: remember the count right now. What everybody thinks about domestic 493 00:26:57,760 --> 00:27:03,480 Speaker 2: politics is our military over extended through Washington, through say 494 00:27:03,520 --> 00:27:07,240 Speaker 2: the Navy in San Diego, through our NATO effort in Brussels. 495 00:27:07,520 --> 00:27:11,199 Speaker 2: Is America's military mic just simply over extended. 496 00:27:12,880 --> 00:27:15,720 Speaker 8: It is kind of amusing because Trump claimed when he 497 00:27:15,800 --> 00:27:18,399 Speaker 8: was running for office that he would never launch a 498 00:27:18,440 --> 00:27:20,960 Speaker 8: war in the Middle East, a war of choice in 499 00:27:21,000 --> 00:27:24,400 Speaker 8: the Middle East. But that's exactly what he did. So well, 500 00:27:24,440 --> 00:27:27,560 Speaker 8: there goes campaign promises. I guess many politicians are guilty 501 00:27:27,560 --> 00:27:30,600 Speaker 8: of that. But in any event, you know, the US 502 00:27:30,720 --> 00:27:34,000 Speaker 8: Armed Forces were designed in the wake of World War 503 00:27:34,119 --> 00:27:37,840 Speaker 8: Two to help provide for security around the world, and 504 00:27:37,880 --> 00:27:40,959 Speaker 8: it's that security and predictability on which the health of 505 00:27:40,960 --> 00:27:43,679 Speaker 8: our modern economy is based. If it weren't for the 506 00:27:43,680 --> 00:27:46,800 Speaker 8: fact that the US Navy was operating in both the 507 00:27:46,840 --> 00:27:50,359 Speaker 8: Atlantic and Pacific, really around the world, we wouldn't see 508 00:27:50,400 --> 00:27:53,640 Speaker 8: the straits through which our trade passes, we wouldn't see 509 00:27:53,640 --> 00:27:58,280 Speaker 8: those open, we wouldn't see freedom of passage for commercial 510 00:27:58,280 --> 00:28:00,760 Speaker 8: ships everywhere. So there's a good the reason why the 511 00:28:00,920 --> 00:28:03,560 Speaker 8: US Armed Forces are extended around the world. They have 512 00:28:03,720 --> 00:28:07,720 Speaker 8: provided a central peace through this world war post World 513 00:28:07,760 --> 00:28:11,480 Speaker 8: War two era. Now the question is what's going to happen. 514 00:28:11,640 --> 00:28:14,760 Speaker 8: Trump says he wants to shift the balance to the 515 00:28:14,760 --> 00:28:18,439 Speaker 8: Indo Pacific in order to confront China. And the Europeans 516 00:28:18,440 --> 00:28:22,320 Speaker 8: are left to defend themselves. That is, I think something 517 00:28:22,359 --> 00:28:25,160 Speaker 8: that they can take on because they are strong economies 518 00:28:25,160 --> 00:28:28,199 Speaker 8: and they have been frankly freeloading on the United States, 519 00:28:28,280 --> 00:28:31,040 Speaker 8: not spending enough on their own defense. So let's take 520 00:28:31,080 --> 00:28:34,680 Speaker 8: the bright side and say they're finally shouldering some responsibility. 521 00:28:35,640 --> 00:28:39,040 Speaker 5: Rose with your experience, how do you think the situation 522 00:28:39,240 --> 00:28:42,240 Speaker 5: with Ukraine and Russia plays itself out in over what 523 00:28:42,320 --> 00:28:42,800 Speaker 5: time frame? 524 00:28:44,840 --> 00:28:49,240 Speaker 8: I take very seriously the public stance that Zelensky has 525 00:28:49,280 --> 00:28:53,440 Speaker 8: taken in recent days, and I've long seen how the 526 00:28:53,560 --> 00:28:57,280 Speaker 8: Ukrainians have been able to deny the Russian sea control 527 00:28:57,440 --> 00:29:00,320 Speaker 8: in the Black Sea. You know, they use their their 528 00:29:00,960 --> 00:29:04,640 Speaker 8: small seed groans like you know, they're basically like motor 529 00:29:04,680 --> 00:29:09,960 Speaker 8: boats with explosives on them to really destroy major naval 530 00:29:10,000 --> 00:29:13,000 Speaker 8: ships of the Russian Federation, and that's blocked Russia out 531 00:29:13,000 --> 00:29:15,880 Speaker 8: of the Black Sea, and they've also stopped them on 532 00:29:15,920 --> 00:29:19,080 Speaker 8: the battlefield. So now Zelenski says, we're taking to the 533 00:29:19,120 --> 00:29:22,120 Speaker 8: air and this war will be won with this missile 534 00:29:22,160 --> 00:29:25,920 Speaker 8: duel that's going on between Russia and Ukraine. And Ukrainians 535 00:29:25,960 --> 00:29:28,640 Speaker 8: are very good missile pairs. They have shown that so 536 00:29:28,760 --> 00:29:32,520 Speaker 8: The question now is what about air defense. They are 537 00:29:32,560 --> 00:29:36,400 Speaker 8: not doing well defending against ballistic missiles because the United 538 00:29:36,400 --> 00:29:40,000 Speaker 8: States and its allies are not providing them patriot missile 539 00:29:40,000 --> 00:29:43,560 Speaker 8: defense interceptors. So the problem now is can they improve 540 00:29:43,720 --> 00:29:46,880 Speaker 8: their missile defenses. They're doing great against drones, you know, 541 00:29:46,920 --> 00:29:49,840 Speaker 8: they've mastered that, and in fact, the Middle East other 542 00:29:49,880 --> 00:29:53,320 Speaker 8: places are clamoring for their grone defense systems, but they 543 00:29:53,360 --> 00:29:56,400 Speaker 8: need help to defend against these bigger ballistic missiles. 544 00:29:56,600 --> 00:30:01,280 Speaker 2: One final question, you are expert. I think of Marshall Goldman, 545 00:30:01,440 --> 00:30:04,440 Speaker 2: Angelus Stent and the others that have advantaged us over 546 00:30:04,480 --> 00:30:08,400 Speaker 2: the years in conversation. What's after Putin? 547 00:30:11,240 --> 00:30:13,640 Speaker 8: Well, it could be more of the same. Unfortunately, he 548 00:30:13,840 --> 00:30:17,120 Speaker 8: has created a system in Russia that is very much 549 00:30:17,160 --> 00:30:20,160 Speaker 8: based on the security services, and they have brought on 550 00:30:20,440 --> 00:30:23,720 Speaker 8: a younger generation, so it could be a younger Putin clone. 551 00:30:24,120 --> 00:30:26,560 Speaker 8: We'll have to see. My hope is that they have 552 00:30:26,680 --> 00:30:30,880 Speaker 8: quite a few skilled, more technocratic leaders, people who really know, 553 00:30:31,360 --> 00:30:35,520 Speaker 8: for example, the international economy and banking system, people who 554 00:30:35,880 --> 00:30:39,680 Speaker 8: care about the economy of Russia being healthy going forward. 555 00:30:39,760 --> 00:30:43,200 Speaker 8: So perhaps it could be one of those more technocratic types, 556 00:30:43,720 --> 00:30:48,280 Speaker 8: less security service, less KGB type and that I think 557 00:30:48,320 --> 00:30:54,240 Speaker 8: will be a good perhaps outcome in general, but I 558 00:30:54,360 --> 00:30:58,000 Speaker 8: worry that what we are seeing is the continuation of 559 00:30:58,040 --> 00:31:02,560 Speaker 8: a system of security was KGB rule in in Russia, 560 00:31:02,600 --> 00:31:05,480 Speaker 8: which ends up being a kind of mafia style leadership, 561 00:31:06,000 --> 00:31:08,800 Speaker 8: and I fear that for the nature of Russia. 562 00:31:08,880 --> 00:31:10,760 Speaker 2: And this has been the highlight of our day with 563 00:31:10,840 --> 00:31:13,520 Speaker 2: all that we've done. An anchor with Oliver Crook and 564 00:31:13,560 --> 00:31:17,360 Speaker 2: annre Horden's Deputy Secretary. Thank you so much, Rose gotten 565 00:31:17,720 --> 00:31:21,400 Speaker 2: Muller's service to the nation in too many instances, including 566 00:31:22,160 --> 00:31:27,200 Speaker 2: the Deputy Secretary General of the North Atlantic Treaty Organization. 567 00:31:27,640 --> 00:31:32,480 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apples, Spotify, 568 00:31:32,600 --> 00:31:36,880 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 569 00:31:37,000 --> 00:31:40,240 Speaker 1: seven to ten am Easter and on Bloomberg dot Com, 570 00:31:40,360 --> 00:31:44,200 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 571 00:31:44,480 --> 00:31:47,600 Speaker 1: You can also watch us live every weekday on YouTube 572 00:31:47,880 --> 00:31:49,920 Speaker 1: and always on the Bloomberg terminal.