WEBVTT - Surveillance: U.S. to Ban Russian Oil 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownowitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.280 To find Bloomberg Surveillance on Apple podcast, sun Cloud, Bloomberg 0:00:23.360 --> 0:00:29.120 dot Com, and of course on the Bloomberg terminal. Right now, 0:00:29.560 --> 0:00:32.280 tim Na Tanners joins us a medal and mining analyst 0:00:32.360 --> 0:00:36.239 at Wolf Research. Is exquisite on what you do with 0:00:36.400 --> 0:00:39.879 all this stuff because you turn it into steel and 0:00:40.000 --> 0:00:42.880 other stuff. We're thrilled she could join us on short 0:00:42.960 --> 0:00:46.600 notice this morning. Tim night, you're in Toledo at CLFS 0:00:46.680 --> 0:00:51.560 hot Requetted Factory. You're in a factory in Toledo, Ohio 0:00:51.960 --> 0:00:54.680 where they take all this stuff we're talking about and 0:00:54.720 --> 0:00:58.120 they actually make stuff. What are the people in Toledo 0:00:58.200 --> 0:01:02.160 in that factory think of the commodity cycle we're in 0:01:02.240 --> 0:01:06.560 right now? Well, thank you for having me. Good morning. Um. 0:01:06.680 --> 0:01:11.000 The fact is that the situation and Russie Ukrainian invasion 0:01:11.080 --> 0:01:14.840 is critical for raw materials across our coverage, and in 0:01:14.840 --> 0:01:18.120 particular when we look at the steel industry, the big 0:01:18.160 --> 0:01:22.520 impact is the complete squeeze on raw materials, and so 0:01:22.640 --> 0:01:25.240 this facility actually in Toledo, Ohio is a is a 0:01:25.240 --> 0:01:28.759 real hedge for cliffs which we cover UM in enabling 0:01:28.800 --> 0:01:32.600 them to buffer themselves against this super squeeze in pig iron. 0:01:33.360 --> 0:01:35.920 Russia and Ukraine comprised two thirds of the of the 0:01:36.040 --> 0:01:39.000 US pig iron imports, and so this is the nice 0:01:39.040 --> 0:01:42.560 offset made in the USA to that import situation. Could 0:01:42.640 --> 0:01:47.280 you substitute in your world if there's a given raw 0:01:47.360 --> 0:01:51.680 material from Russia? Is it easy to substitute Chile as 0:01:51.760 --> 0:01:56.040 one example? No, No, it's really not UM and I 0:01:56.080 --> 0:01:58.600 think you know, of course, it depends on the commodity, right. 0:01:58.600 --> 0:02:00.480 I can't make a blanket statement. But if you look 0:02:00.480 --> 0:02:02.560 at Palladium, which we don't cover, but you can see 0:02:02.600 --> 0:02:05.520 it's twenty Russia and like I mentioned with figure and 0:02:05.560 --> 0:02:09.079 it's two thirds UM Ukraine and Russia, and the alternative 0:02:09.120 --> 0:02:12.239 is Brazil, and they certainly can't compensate for that lost production. 0:02:12.680 --> 0:02:14.359 And you think about a mind, you know, it's really 0:02:14.400 --> 0:02:17.040 not a switch that you flip, right, and even if 0:02:17.040 --> 0:02:19.239 it were, you know, you take even if you did 0:02:19.240 --> 0:02:22.200 have capacity, you would take you know, easily three six 0:02:22.280 --> 0:02:25.680 twelve months to restart many of these many production facilities 0:02:25.680 --> 0:02:28.360 are off for a reason because it's antipated technology. They 0:02:28.360 --> 0:02:30.960 don't have the electricity or the labor, and it's it's 0:02:30.960 --> 0:02:33.680 hard for producers to decide to make that decision anyway, 0:02:33.720 --> 0:02:35.560 because they don't know how long this is gonna last, 0:02:35.600 --> 0:02:38.520 and it's an economic, very big economic decision to them. 0:02:38.639 --> 0:02:40.840 Tim now were prepared for some sort of announcement from 0:02:40.880 --> 0:02:45.160 President Biden about bands on imports of Russian crude. What 0:02:45.240 --> 0:02:48.720 would the consequences be to the medals market if there 0:02:48.800 --> 0:02:51.680 was a similar ban on aluminum, on ten on some 0:02:51.760 --> 0:02:55.560 of these other medals that really are significantly imported from 0:02:55.639 --> 0:03:00.800 Russia to the United States. Look, um, you know, the 0:03:00.840 --> 0:03:04.400 aluminum market is a global market. The America's are net 0:03:04.440 --> 0:03:08.720 short aluminum. But um, you know, already the market until 0:03:08.800 --> 0:03:11.280 a couple until this morning, I guess, was pricing in 0:03:11.400 --> 0:03:14.200 a pretty big shortfall. So it's hard to figure exactly 0:03:14.240 --> 0:03:16.360 what happens. But net net, I mean, Russia is about 0:03:16.360 --> 0:03:19.400 six of the aluminum market. That one in particular we 0:03:19.480 --> 0:03:22.080 think is very affected because it's not only the direct 0:03:22.160 --> 0:03:26.359 Russia production Ukraine production, but also the impact indirectly on 0:03:26.480 --> 0:03:28.720 higher power prices in Europe. So that's why I think 0:03:29.200 --> 0:03:31.760 is one of the commodities that's most squeezed right now. 0:03:32.000 --> 0:03:33.440 But you also look at anything with a lot of 0:03:33.520 --> 0:03:36.280 energy in put. You look at zinc, zinc refineries, prices 0:03:36.280 --> 0:03:38.960 are up. Russia is a huge producers of nickel. I 0:03:39.000 --> 0:03:41.640 think you can see what's happened with nicol recently. It's 0:03:41.680 --> 0:03:44.600 it's a phenomenal emiens. There's a little scary if you 0:03:44.600 --> 0:03:46.600 need it right well, but exactly that's where I was 0:03:46.600 --> 0:03:49.720 going to go. The financialization of the commodities market. You're 0:03:49.760 --> 0:03:52.240 talking about the on the ground, getting the metal out 0:03:52.240 --> 0:03:54.160 of the ground and giving it to people who need 0:03:54.160 --> 0:03:56.800 it for products, etcetera. And yet we're dealing with something 0:03:56.800 --> 0:04:01.120 that's highly financialized, highly leveraged, and you're seeing massive disruptions. 0:04:01.160 --> 0:04:02.760 How much are the moves that we're seeing in some 0:04:02.840 --> 0:04:05.800 of the pricing due to that and not necessarily the 0:04:05.800 --> 0:04:08.720 true shortfalls or a gauge of supply and demand in 0:04:08.760 --> 0:04:12.880 the physical market physically, these these products are short when 0:04:12.880 --> 0:04:15.280 we're talking about anything trade on the elemy. Prior to 0:04:15.360 --> 0:04:19.200 these disruptions, the markets were already very tight. Now that said, 0:04:19.200 --> 0:04:22.799 if if this situation will resolve tomorrow. Hypothetically, of course, 0:04:23.160 --> 0:04:25.680 you know, the commodities would would definitely retreat in the 0:04:25.680 --> 0:04:29.040 case of nicol for example. But there's been actual physical 0:04:29.040 --> 0:04:33.360 disruptions of aluminum production in Ukraine about a large facility 0:04:33.400 --> 0:04:36.000 and refinery there, So it's a little bit of both. 0:04:36.040 --> 0:04:38.880 But yeah, there's no quick production fixed, and in some 0:04:38.960 --> 0:04:42.239 cases there have been you know, irreparable you know, damage 0:04:42.279 --> 0:04:44.640 done to ports and infrastructure that are going to have 0:04:45.520 --> 0:04:48.360 longer lasting effects. Ten forty five East, we will hear 0:04:48.360 --> 0:04:51.760 from the President of the United States on holding Russia 0:04:51.880 --> 0:04:54.400 accountable ten forty five East, and will we hear from 0:04:54.440 --> 0:04:57.400 the President of the United States on holding Russia accountable. 0:04:57.800 --> 0:05:00.040 As we reported this morning, according to people from the 0:05:00.080 --> 0:05:02.240 day with the mats out that the President is set 0:05:02.320 --> 0:05:06.360 to band us impults of Russian crude as soon as today. 0:05:06.440 --> 0:05:08.920 So somewhere here from the President should be hidden from 0:05:08.920 --> 0:05:11.040 the President in the next couple of as. I'm bringing 0:05:11.080 --> 0:05:12.640 up Brent Crude here to see if we have enough 0:05:12.720 --> 0:05:15.840 lift up or one level. Yes, we come up nicely. One, 0:05:16.800 --> 0:05:19.880 not up through one yet. That's my key level. I'm 0:05:19.920 --> 0:05:24.240 Brent Crude, Jim. I'm fascinated within the hyper detail of 0:05:24.279 --> 0:05:27.799 your note and your visits that there's always that great 0:05:27.880 --> 0:05:32.159 mystery of China and their inventories of medals. In the 0:05:32.240 --> 0:05:34.919 years that I've done this, it's always a great mystery. 0:05:35.080 --> 0:05:37.680 Do you have any understanding of what the true story 0:05:37.800 --> 0:05:42.919 is of China's inventory of these raw materials or finished products. 0:05:44.640 --> 0:05:47.040 I can't say that I've figured out China, and definitely 0:05:47.040 --> 0:05:49.640 not that angle either, but I would say that, um, 0:05:49.720 --> 0:05:51.640 you know, it definitely depends on the commodity. But if 0:05:51.680 --> 0:05:54.200 we're talking about some of these base medals, you know 0:05:54.279 --> 0:05:57.080 China is not a natural producer of them. If you're 0:05:57.080 --> 0:06:00.240 talking about aluminum and steal, yes, they are under the 0:06:00.279 --> 0:06:03.000 market and could amp up if they needed to. But 0:06:03.200 --> 0:06:04.880 if they'd have to have the raw materials, and that's 0:06:04.920 --> 0:06:07.279 where the squeezes. It's an iron art's and cool, it's 0:06:07.279 --> 0:06:10.000 in alumina and box site, and that's where it's a 0:06:10.080 --> 0:06:12.400 cost problem, maybe not a scarcity problem. If they do 0:06:12.480 --> 0:06:16.279 decide to ramp up. Can we have a technological application 0:06:16.839 --> 0:06:20.400 given this crisis where we are more efficient with our 0:06:20.440 --> 0:06:23.760 medals finishing our medals product I think of new core 0:06:23.920 --> 0:06:27.000 years ago and what new core rought. Can we have 0:06:27.080 --> 0:06:31.640 another technological leap in your world if it's so expensive again, 0:06:32.880 --> 0:06:34.640 look these you know. I think this will be a 0:06:34.680 --> 0:06:36.400 wake up call to the markets to say, look, do 0:06:36.480 --> 0:06:39.360 we really want to see a commodity that's so dependent 0:06:39.440 --> 0:06:42.359 on Russia, Ukraine or on any given region. Right. And 0:06:42.400 --> 0:06:44.480 I think that over time there'll be more and more 0:06:44.520 --> 0:06:48.240 initiatives to develop technologies and alternatives. However, we're not talking 0:06:48.279 --> 0:06:51.880 about you know, months or quarters. We're talking about several years. 0:06:51.920 --> 0:06:53.440 And I think by the end of the decade you'll 0:06:53.480 --> 0:06:56.839 you'll see again more alternatives to to um, you know, 0:06:57.000 --> 0:07:00.520 raw materials, and you're seeing already efforts to mine um 0:07:00.600 --> 0:07:03.839 off the ocean floor, which could supplement nickel, for example, 0:07:03.839 --> 0:07:06.720 which is particularly scarce. Jim, all morning, we've been talking 0:07:06.760 --> 0:07:09.240 about how long the conflict will last and what the 0:07:09.279 --> 0:07:13.080 longer term ramifications will be on the economy as well 0:07:13.080 --> 0:07:15.080 as on some of these specific markets. Can you give 0:07:15.160 --> 0:07:17.600 us a sense of how difficult it is to turn 0:07:17.720 --> 0:07:20.360 off some of these inputs in terms of where we 0:07:20.400 --> 0:07:23.400 import some of these products and then turn them back on. 0:07:23.440 --> 0:07:25.480 I mean, how long do you expect some of these 0:07:25.480 --> 0:07:30.360 disruptions to last, regardless of how long the conflict persists. Yeah, 0:07:30.400 --> 0:07:32.520 that's a that's a great point, I think. I mean, 0:07:32.560 --> 0:07:35.440 if we're talking about the infrastructure. I'm not an expert 0:07:35.480 --> 0:07:37.760 in the conditions of the rails and the ports, but 0:07:37.840 --> 0:07:40.480 from our understanding, you know those have been damaged and 0:07:40.520 --> 0:07:43.040 so that would have to be repaired. Um I heard 0:07:43.040 --> 0:07:45.560 that half of the rails at operating out of Ukraine. 0:07:45.600 --> 0:07:48.000 We're not operable, but then half are, so that would 0:07:48.040 --> 0:07:50.600 just be a bottleneck obviously. And then in terms of 0:07:50.640 --> 0:07:53.080 whether it's a mine or whether it's an operating facility. 0:07:53.120 --> 0:07:56.640 You know um an alumina refinery in um Ukraine, that's 0:07:56.680 --> 0:07:59.920 one point seven five million tons of significant producer globally. 0:08:00.360 --> 0:08:02.240 When you shut that down, it doesn't you know, you 0:08:02.280 --> 0:08:04.240 can't flip a switch and we start that. Plus you 0:08:04.240 --> 0:08:05.920 need to have material on the ground to run it 0:08:05.920 --> 0:08:08.640 and have a power supply, so that could take you know, 0:08:08.680 --> 0:08:11.240 at best, you know, months to restart. And then if 0:08:11.280 --> 0:08:13.640 you have a steel mill orderly shut down, it could 0:08:13.640 --> 0:08:15.560 be quick to restart and if you have a mind, 0:08:15.640 --> 0:08:17.720 you know, you could restart it. But again it depends 0:08:17.760 --> 0:08:21.080 on having the people, the power, the materials on the ground. 0:08:21.360 --> 0:08:23.320 I think the bigger question is what's the state of 0:08:23.360 --> 0:08:26.240 the country when you know things are resolved and how 0:08:26.320 --> 0:08:28.640 quickly they can try to produce again. So far it 0:08:28.680 --> 0:08:32.440 seems like there's actually still um shipments of oil and 0:08:32.440 --> 0:08:34.760 shipments of iron ore and met coal even asked of 0:08:34.880 --> 0:08:37.160 last week. So you know, I think it'll just be 0:08:37.200 --> 0:08:40.080 slow moving at first. When things are referred, it's him 0:08:40.200 --> 0:08:41.839 to thank you, it's him to town. As that of 0:08:42.040 --> 0:08:51.760 a wolf research. Victoria Fernandez joins the chief market strategist 0:08:51.960 --> 0:08:54.040 at cross Mark just to get the lay of the land, 0:08:54.040 --> 0:08:56.800 to try to figure out what you do, Victoria, what 0:08:56.840 --> 0:09:02.160 have you not done in the last thirteen days. Well, actually, Tom, 0:09:02.240 --> 0:09:04.320 we've been doing what we had been doing in the 0:09:04.360 --> 0:09:07.240 thirteen days before that. We've been in the market. We've 0:09:07.240 --> 0:09:09.480 been trimming names that have been higher. We've been going 0:09:09.520 --> 0:09:11.880 in and buying names that have taken a hit and 0:09:11.880 --> 0:09:14.080 have come back, and they've been on our shopping list 0:09:14.360 --> 0:09:16.640 and whether that's going to be value names, it's a 0:09:16.679 --> 0:09:19.920 few tech names. We've been in the market trying to 0:09:19.960 --> 0:09:23.120 be opportunistic and trade some of these um these names 0:09:23.120 --> 0:09:25.920 that are there in order to build our portfolio. Obviously, 0:09:25.920 --> 0:09:28.480 our outlook is a little more cautious than where we 0:09:28.480 --> 0:09:30.600 were before, so we could be a little more choosy 0:09:30.640 --> 0:09:32.720 on the names that we have, but we still think 0:09:32.720 --> 0:09:35.680 there's some buying opportunities here. Have you focused more on 0:09:35.720 --> 0:09:38.840 America because we were not making a joke about it, 0:09:38.880 --> 0:09:41.240 But the reality is is in ways we go buy 0:09:41.280 --> 0:09:45.160 international by e M, by this, by that, And yet 0:09:45.200 --> 0:09:48.000 it seems over the recent years we all come back 0:09:48.040 --> 0:09:51.320 to mother America in the big caps of America. Is 0:09:51.320 --> 0:09:53.160 that what we're gonna do here in the next year. 0:09:54.120 --> 0:09:56.400 I think you're gonna see that, Tom. And it's interesting because, 0:09:56.480 --> 0:09:58.199 as you know, Bob doll our c i O, one 0:09:58.200 --> 0:10:00.600 of his predictions at the beginning of this year was 0:10:00.640 --> 0:10:05.160 that we might see international stocks finally outperform US domestic stocks. 0:10:05.320 --> 0:10:06.960 And now we have to look at that and say, 0:10:07.040 --> 0:10:09.880 because of where we stand with the Russia Ukraine issue, 0:10:10.240 --> 0:10:12.480 are we going to see that happen? And now I'm 0:10:12.520 --> 0:10:14.840 not so sure. There's been a big shift in that 0:10:14.920 --> 0:10:18.280 European economic recovery, and we have to wonder is that 0:10:18.320 --> 0:10:21.360 going to be long lasting? You talked about duration of inflation. 0:10:21.760 --> 0:10:25.000 The duration of this incursion is really going to weigh 0:10:25.320 --> 0:10:28.280 on the economics of both Europe and the US, and 0:10:28.400 --> 0:10:31.120 that could shift where people are investing. Right now, we're 0:10:31.120 --> 0:10:34.560 focusing more at the US Victoria. We were talking earlier 0:10:34.559 --> 0:10:37.839 with Margie Patel and she was talking about her optimism 0:10:37.880 --> 0:10:41.360 that this conflict would resolve itself relatively quickly and that 0:10:41.400 --> 0:10:44.640 there will be buying opportunities. I do wonder, though, what 0:10:44.720 --> 0:10:47.800 the longer term ramifications are for the volatility that we're 0:10:47.840 --> 0:10:51.680 seeing in the commodity space, the incredible surge in oil prices, 0:10:51.720 --> 0:10:55.240 and frankly, the lack of dependability in basic staples like 0:10:55.280 --> 0:10:59.040 wheat and corn. Yeah, I mean luckily, so when we 0:10:59.080 --> 0:11:01.960 talk about the dray shot of this, the longer it 0:11:02.000 --> 0:11:04.959 goes on, obviously the larger the ramifications are, and that's 0:11:04.960 --> 0:11:07.360 going to be to investor sentiment. I mean, you look 0:11:07.400 --> 0:11:11.199 at consumer confidence numbers over the last week, the daily numbers. 0:11:11.240 --> 0:11:15.040 Surprisingly they've moved a little bit higher. Normally they're highly 0:11:15.040 --> 0:11:18.000 correlated with gas prices, so it's a little surprising. But 0:11:18.080 --> 0:11:20.480 the longer this goes on, it's gonna hit investor sentiment. 0:11:20.720 --> 0:11:23.560 It's obviously going to hit inflation for the longer term 0:11:23.600 --> 0:11:26.200 instead of maybe the spike that we were expecting. It's 0:11:26.240 --> 0:11:30.199 gonna affect currencies. I mean we saw how the euro 0:11:30.280 --> 0:11:33.440 swissy went under parody this week, so you're gonna affect 0:11:33.480 --> 0:11:36.280 the currencies. And then obviously we're talking about that European 0:11:36.360 --> 0:11:40.200 economic recovery. As COVID retreated, that's going to be affected 0:11:40.240 --> 0:11:43.280 as well. So there are longer lasting effects. The longer 0:11:43.320 --> 0:11:46.240 this goes on, the question is does China step in 0:11:46.280 --> 0:11:48.680 and pick up enough of the slack from what the 0:11:48.760 --> 0:11:51.240 West in Europe is not going to do with Russia 0:11:51.520 --> 0:11:53.720 she kind of buffer the situation a little bit and 0:11:53.760 --> 0:11:57.079 allow Putin to continue. Victoria, thank you as always, or 0:11:57.200 --> 0:12:04.040 Fernanders there a cross mark global investments. Yea, we get 0:12:04.040 --> 0:12:06.600 a domestic perspective now. She's been more than patient in 0:12:06.640 --> 0:12:10.240 this hour in joining us. Diane Swuk, chief economist at 0:12:10.280 --> 0:12:14.600 Grant Thornton. Diane, I'm absolutely fascinated in all of your 0:12:14.640 --> 0:12:17.920 commitment to our Fed Day coverage as well. What kind 0:12:17.960 --> 0:12:20.960 of Fed Day do you expect that we'll see given 0:12:21.040 --> 0:12:26.240 this historic news slow Well, the timing just couldn't come 0:12:26.240 --> 0:12:29.480 at a worse time, as it's adding fuelton already well 0:12:29.600 --> 0:12:33.280 kindled inflation fire for the Federal Reserve, and we've seen 0:12:33.600 --> 0:12:36.880 certainly J. Powell's commitment to still raise rates by a 0:12:36.960 --> 0:12:39.640 quarter point at the March meeting, and I think it's 0:12:39.640 --> 0:12:42.440 really important to understand that we risk seeing a much 0:12:42.480 --> 0:12:46.920 more entrenched inflation, not exactly the same as the nineteen seventies, 0:12:46.960 --> 0:12:52.200 but your eerie resemblance. And in his Cuss testimony to Congress, 0:12:52.200 --> 0:12:54.520 he made a point of saying, we are looking at 0:12:54.520 --> 0:12:59.000 the nineteen seventies as a benchmark to avoid, not to repeat. Well, 0:12:59.040 --> 0:13:01.920 that means that the Federal Reserve has to actually combat 0:13:02.120 --> 0:13:05.079 a lot of the demand side of this inflation, even 0:13:05.120 --> 0:13:08.360 as we're seeing the supply shocks pile through from Russia. 0:13:08.520 --> 0:13:12.400 You and I have lived the measured of Alan Greenspan 0:13:12.880 --> 0:13:16.079 with this warr in Ukraine. Can the Fed and their 0:13:16.120 --> 0:13:19.880 well meaning economists, Can they just get away from measured 0:13:20.240 --> 0:13:22.920 and say, look, we're gonna act, We're gonna raise rates, 0:13:22.960 --> 0:13:28.400 but it's a one off. I think they have to 0:13:28.480 --> 0:13:31.280 be very cognizant of saying they're not going to allow 0:13:31.360 --> 0:13:35.040 inflation to get out of the out of control any further. 0:13:35.240 --> 0:13:37.520 They're already behind the curve. This puts some in a 0:13:37.679 --> 0:13:40.360 very bad position, and I think one of the hard 0:13:40.400 --> 0:13:42.800 things for the Federal Reserve is the tight rope that J. 0:13:42.960 --> 0:13:45.760 Paul is going to be walking between wanting to raise 0:13:45.880 --> 0:13:50.000 rates and stem inflationary pressures and stop inflation from becoming 0:13:50.200 --> 0:13:55.360 a recession with stay inflation without tipping financial markets into 0:13:55.720 --> 0:13:58.960 a larger credit market seizure that would do the job 0:13:59.000 --> 0:14:02.320 for the FED be much harder to recover from, and 0:14:02.360 --> 0:14:04.679 that's a very fine tight rope to walk at this 0:14:04.760 --> 0:14:07.120 stage of the game. Diane. There's also the question of 0:14:07.120 --> 0:14:10.480 the economic bleed through of higher gas prices as they 0:14:10.480 --> 0:14:14.199 do reach the highest at least a nominal basis on record, 0:14:14.480 --> 0:14:18.800 what is the consequence for the average American family, Given 0:14:18.840 --> 0:14:21.480 the gas prices are now north of four dollars a gallon, 0:14:23.520 --> 0:14:26.720 but we've done calculations last year it was almost a 0:14:26.760 --> 0:14:30.720 thousand dollars per household, the record increase on a nominal 0:14:30.760 --> 0:14:33.280 basis that we saw in prices at the pump coming 0:14:33.280 --> 0:14:37.080 out of the pandemic. Now this adds another eight hundred 0:14:37.120 --> 0:14:40.840 and fifty nine dollars per household, and that wipes out 0:14:40.960 --> 0:14:44.760 much of the excess savings in the lower certainly quartile 0:14:44.920 --> 0:14:48.080 of household that they were able to hold. And that's 0:14:48.080 --> 0:14:50.640 at a time when they're also those households at the 0:14:50.640 --> 0:14:54.440 bottom also getting released slammed. That's at the same time 0:14:54.480 --> 0:14:57.600 that they're much more vulnerable to the rising rents and 0:14:57.760 --> 0:15:00.280 escalating rents that we're seeing out there and all the 0:15:00.320 --> 0:15:03.800 other aspects of inflation. It really is a very different 0:15:03.800 --> 0:15:07.760 sort of inequality issue that we're facing because also those 0:15:07.800 --> 0:15:10.840 who can work from home have the ability to hedge 0:15:10.840 --> 0:15:14.200 against and blunt the blow of higher commute costs, when 0:15:14.200 --> 0:15:16.440 those who have to work in person in lower wage 0:15:16.560 --> 0:15:20.080 jobs cannot blunt that blow of higher commute costs, and 0:15:20.160 --> 0:15:23.800 that's all compounding the inflationary impact on them. So do 0:15:23.840 --> 0:15:26.960 you think that, Diane, potentially we could avoid returning to 0:15:27.040 --> 0:15:30.120 some sort of recessionary environment and response to the oil shock, 0:15:30.480 --> 0:15:33.600 and yet see a massive increase in inequality or do 0:15:33.640 --> 0:15:35.600 you think that both could occur. Do you think that 0:15:35.640 --> 0:15:38.480 this could actually be a shock that changes the trajectory 0:15:38.560 --> 0:15:43.200 in a more meaningful way. Unfortunately, I think the risk 0:15:43.280 --> 0:15:45.560 is that it changes in a much more meaningful way. 0:15:45.800 --> 0:15:48.760 Going into this crisis, we were looking at sort of 0:15:48.800 --> 0:15:51.000 the fog of war and what kinds of sort of 0:15:51.040 --> 0:15:55.359 decision rules and scenarios out there, and unfortunately, our resilience 0:15:55.440 --> 0:15:57.960 through this as an economy as a double edged sword, 0:15:58.040 --> 0:16:01.680 because it sort of suggests that of FED can't afford 0:16:01.800 --> 0:16:04.280 not to raise rates at the same time that we're 0:16:04.360 --> 0:16:08.080 hitting demand with higher energy prices, and the two colliding 0:16:08.480 --> 0:16:11.920 means that we likely will need to see a slowdown 0:16:12.000 --> 0:16:16.000 that actually bleeds into unemployment to derail the inflationary pressures 0:16:16.040 --> 0:16:18.920 we see in our best case scenarios. Right now, we're 0:16:18.960 --> 0:16:21.520 looking at an almost stall out of growth in the 0:16:21.560 --> 0:16:24.080 second half of the year that is not technically a recession, 0:16:24.280 --> 0:16:27.200 but not enough to hold the unemployment rate down after 0:16:27.240 --> 0:16:29.440 it falls further in the first half of this year. 0:16:29.840 --> 0:16:32.600 That is not a great scenario to have, and that's 0:16:32.760 --> 0:16:36.760 without the additional supply chain bottlenecks that you were talking 0:16:36.760 --> 0:16:39.480 about earlier, which I think are very important because again 0:16:39.520 --> 0:16:43.440 they had insult to injury and an already bad inflation scenario, 0:16:43.960 --> 0:16:47.200 and they continue to contribute to shortages out there. Dan, 0:16:47.520 --> 0:16:50.000 What would holding rates where they are do, What would 0:16:50.040 --> 0:16:53.200 actually a more devish approach from the FED actually accomplish 0:16:53.360 --> 0:16:58.560 in this market and frankly, in this economy. My concern 0:16:58.680 --> 0:17:01.200 is that holding rates at their instant level right now, 0:17:01.240 --> 0:17:04.600 given the kind of momentum we've already seen, is that 0:17:04.640 --> 0:17:09.040 we would see a more entrenched inflation already seen. Expectations 0:17:09.040 --> 0:17:12.199 on inflation have risen, they will rise more, and that 0:17:12.240 --> 0:17:16.360 means expectations for people pushing it onto employers. I've talked 0:17:16.400 --> 0:17:19.520 to many employers who are now getting complaints by their 0:17:19.560 --> 0:17:22.119 workers that did not get as bigger raises as the 0:17:22.240 --> 0:17:25.200 entry level workers got, and they're not keeping up with inflation. 0:17:25.680 --> 0:17:28.080 That's how it's a different way of getting to the 0:17:28.160 --> 0:17:30.879 nineties seventies. But I think it's an important thing to 0:17:30.960 --> 0:17:34.080 be thinking about, is that you risk a much more entrenched, 0:17:34.359 --> 0:17:39.000 longer lived, stagflationary environment, and the FED can't afford that either. 0:17:39.400 --> 0:17:42.359 That is the American observation of the day. Diane Swonk, 0:17:42.440 --> 0:17:50.960 thank you so much. With Grant Thornton, there we stopped 0:17:51.160 --> 0:17:53.760 and pause now and we do with truly and I 0:17:53.760 --> 0:17:57.000 mean this with all sincerity. One of the original founders 0:17:57.640 --> 0:18:00.879 of a woman's place in the securities business, and it 0:18:01.040 --> 0:18:04.199 is m Malletti who long ago Lisa was it a 0:18:04.240 --> 0:18:08.320 shop called Strong, and through various permutations, is now with 0:18:08.440 --> 0:18:10.560 all spring and she is one of the nation's great 0:18:10.720 --> 0:18:15.879 value managers. M Letty, good morning, Good morning, Tom, and Lisa, 0:18:16.000 --> 0:18:18.320 thanks for having me on. I want to talk about 0:18:18.359 --> 0:18:22.720 in your research note you say women investors have the edge. 0:18:23.280 --> 0:18:29.320 Pray tell well, I think both you and Lisa really 0:18:29.920 --> 0:18:33.440 know and appreciate the dangers of group think and so 0:18:33.800 --> 0:18:37.080 um to get out of that in our industry, we 0:18:37.160 --> 0:18:39.520 have to get out of the box and have a 0:18:39.560 --> 0:18:43.320 collection of people who are diverse, who come from different backgrounds, 0:18:43.320 --> 0:18:46.320 different places that can bring a different perspective, right, And 0:18:46.680 --> 0:18:50.720 I do think and believe that females bring different perspectives 0:18:50.760 --> 0:18:54.560 into this business than males. Okay, maybe maybe no better 0:18:54.600 --> 0:18:57.840 than one another, but together collectively it is better. So 0:18:57.920 --> 0:19:00.280 and dovetail that into the moment that we're in right now. 0:19:00.320 --> 0:19:02.280 Where is the group think right now at a time 0:19:02.320 --> 0:19:05.879 when people don't know what to think? Mm hmm, Well, 0:19:05.920 --> 0:19:10.080 I think the group think right now is there's a 0:19:10.119 --> 0:19:13.159 lot of uncertainty. We don't have a lot of answers, 0:19:13.800 --> 0:19:18.680 and how do you make calm decisions at times where 0:19:18.960 --> 0:19:21.760 there's a lot of emotion controlling the market, right, and 0:19:22.280 --> 0:19:24.800 a lot of different opinions about what's going on? But 0:19:25.600 --> 0:19:28.480 what I'm focused on, what our investment teams are. Just 0:19:28.840 --> 0:19:32.240 get back to the basics, follow your investment process and 0:19:32.320 --> 0:19:35.920 let that be the guide. And certainly you take inputs 0:19:35.920 --> 0:19:38.760 from all professionals in a lot of different areas, a 0:19:38.760 --> 0:19:41.600 lot of expertise, but you bring that together through the 0:19:41.600 --> 0:19:44.200 investment process. So are we going all Greek medicine here 0:19:44.200 --> 0:19:47.000 and say, first, do no harm? Is that the basic idea? 0:19:47.920 --> 0:19:52.800 I think the basic idea is, Look, the market was 0:19:52.840 --> 0:19:56.560 surprised by this. Most investors were surprised by this. The 0:19:57.119 --> 0:20:01.560 natural trigger um for most people, I think is to 0:20:01.640 --> 0:20:05.280 say I don't want anything to do with any area 0:20:05.280 --> 0:20:09.720 of the market that can be impacted by Russia, including 0:20:09.800 --> 0:20:13.240 any emerging market. And I think you know, that's where 0:20:13.240 --> 0:20:16.280 we have to pause and say, is that really the 0:20:16.400 --> 0:20:20.080 right way to think when you're allocating capital or do 0:20:20.160 --> 0:20:23.919 we just have to look at this more holistically and say, 0:20:23.960 --> 0:20:28.560 this event definitely has caused change. Let's look at the changes, 0:20:28.960 --> 0:20:32.840 but not have a quick trigger on, you know, changing 0:20:32.880 --> 0:20:37.199 allocations dramatically. So what's your sort of contrarian idea of 0:20:37.240 --> 0:20:39.320 the day in terms of what you are actually doing 0:20:39.400 --> 0:20:41.360 or not doing with your money? The other people I'm 0:20:41.400 --> 0:20:44.199 moving in the opposite direction from you know. So I 0:20:44.240 --> 0:20:46.879 think there's a couple of areas in the market that, um, 0:20:47.400 --> 0:20:49.959 you know, you don't have to get all out of equities, 0:20:50.359 --> 0:20:53.960 you can. I think the small cap space is very interesting. 0:20:54.680 --> 0:20:58.760 It is trading at a historically low or a history 0:20:58.880 --> 0:21:03.920 gap relative large cap in terms of evaluation perspective, and 0:21:04.280 --> 0:21:06.720 you know it's closed a little bit recently, but there's 0:21:06.760 --> 0:21:11.240 more room to go to go there. There's also less 0:21:11.280 --> 0:21:14.639 impact from some of these global issues on the smaller companies. 0:21:14.960 --> 0:21:17.479 I think healthcare is interesting, right, we're talking about all 0:21:17.520 --> 0:21:20.479 the industries that are impacted. Health Care is an area 0:21:20.960 --> 0:21:25.400 that underperformed last year that has the ability I think 0:21:25.480 --> 0:21:28.240 this year as people are looking for areas where there's 0:21:28.240 --> 0:21:32.399 more stability to really outperform. So those are the types 0:21:32.440 --> 0:21:35.800 of things that we're looking at. There's difference between going 0:21:35.840 --> 0:21:39.440 out and actively buying and convincing yourself not to sell, 0:21:39.760 --> 0:21:42.720 and those are two important points right now at a 0:21:42.800 --> 0:21:46.439 time when so many people are contemplating cash. Are you 0:21:46.480 --> 0:21:51.440 doing more of the former or the latter. It's a combination, Lisa, honestly, right, 0:21:51.480 --> 0:21:53.800 I think what you want to do as an investor 0:21:54.000 --> 0:21:57.720 is really make sure you own the best companies that 0:21:57.720 --> 0:22:01.480 are best positioned. So sometimes that does include making some 0:22:01.560 --> 0:22:04.600