1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,320 Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,760 Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Robert not 7 00:00:31,240 --> 00:00:35,120 Speaker 1: is absolutely unique out of the University of California at 8 00:00:35,120 --> 00:00:38,879 Speaker 1: Finn Kitlin, also called Santa Barbarad. He did one of 9 00:00:38,880 --> 00:00:42,440 Speaker 1: the hardest things you can do in research. He did 10 00:00:42,479 --> 00:00:46,520 Speaker 1: brilliant research and then kept doing it. That is an 11 00:00:46,520 --> 00:00:50,880 Speaker 1: extremely rare commodity in the racket. To say his Chairman 12 00:00:50,920 --> 00:00:55,520 Speaker 1: of Research Affiliates barely describes his contribution to the Chartered 13 00:00:55,640 --> 00:00:59,680 Speaker 1: Financial Analyst program and to thinking out there about what 14 00:00:59,720 --> 00:01:02,960 Speaker 1: to do and what not to do, rob or not. 15 00:01:03,080 --> 00:01:05,000 Speaker 1: Thank you so much, and you know someone's going to 16 00:01:05,040 --> 00:01:08,080 Speaker 1: say you're barish and that we'll forget about that. What's 17 00:01:08,120 --> 00:01:11,280 Speaker 1: the biggest mistake right now in a type two construct? 18 00:01:11,600 --> 00:01:17,720 Speaker 1: What's a thing desperately not to do right now? I 19 00:01:17,760 --> 00:01:23,360 Speaker 1: think the most serious mistakes investors make our performance chasing 20 00:01:23,680 --> 00:01:29,120 Speaker 1: whatever has done well by more whatever has faltered shun it, 21 00:01:29,840 --> 00:01:37,520 Speaker 1: and secondly blinders focusing strictly on domestic opportunities. I'm not 22 00:01:37,600 --> 00:01:40,800 Speaker 1: barish when things are cheap. Stocks outside the US are 23 00:01:41,400 --> 00:01:45,840 Speaker 1: reasonably cheap. Value stocks outside the US are very cheap, 24 00:01:46,240 --> 00:01:50,840 Speaker 1: and we find all sorts of narratives relating to China, 25 00:01:50,960 --> 00:01:56,680 Speaker 1: relating to Ukraine for not investing outside the US. But 26 00:01:56,840 --> 00:01:59,680 Speaker 1: the US has priced it more than twice the valuation 27 00:02:00,120 --> 00:02:04,080 Speaker 1: to pulls of non US stocks. And so to avoid 28 00:02:04,120 --> 00:02:08,360 Speaker 1: those two mistakes, it's awfully useful to think in terms 29 00:02:08,360 --> 00:02:12,120 Speaker 1: of forward returns, not past returns, and forward returns are 30 00:02:12,160 --> 00:02:15,280 Speaker 1: simply a function of what's the yield, what's the historical 31 00:02:15,320 --> 00:02:19,840 Speaker 1: growth in income? And if there's any valuation mean reversion 32 00:02:19,880 --> 00:02:21,920 Speaker 1: towards historic norms, is that going to help you or 33 00:02:21,919 --> 00:02:25,280 Speaker 1: her get Do you suggest that on a national basis, 34 00:02:25,440 --> 00:02:29,519 Speaker 1: US basis, or even international basis, that we're going to 35 00:02:29,600 --> 00:02:33,240 Speaker 1: have a regime shift in what our interest rate will 36 00:02:33,320 --> 00:02:37,080 Speaker 1: be that will allow for the fiction of a better 37 00:02:37,160 --> 00:02:41,400 Speaker 1: nominal GDP, a better animal spirit out there, but in 38 00:02:41,440 --> 00:02:44,320 Speaker 1: the long run won't pay off. Does Rob or not 39 00:02:44,560 --> 00:02:47,960 Speaker 1: have to shift up from an anchored two percent to 40 00:02:48,120 --> 00:02:53,280 Speaker 1: some kind of new interest rate regime. I think we 41 00:02:53,360 --> 00:02:59,280 Speaker 1: are in a transition from a failed experiment with near 42 00:02:59,440 --> 00:03:06,160 Speaker 1: zero and negative interest rates. That effort to stimulate an 43 00:03:06,200 --> 00:03:12,679 Speaker 1: already growing economy was beyond foolish, and I think we're 44 00:03:12,680 --> 00:03:16,360 Speaker 1: seeing the beginnings of a regime shift back to a 45 00:03:16,440 --> 00:03:19,520 Speaker 1: point where interest rates matter. Think of interest rates as 46 00:03:19,560 --> 00:03:23,680 Speaker 1: a speed bump if you are. If you have a 47 00:03:23,720 --> 00:03:27,240 Speaker 1: speed bump on a street that's too high, it stops 48 00:03:27,240 --> 00:03:30,799 Speaker 1: the traffic. If you have a speedbump that's nonexistent, you're 49 00:03:30,800 --> 00:03:34,440 Speaker 1: going to get the occasional reckless driver driving way too fast. 50 00:03:34,920 --> 00:03:38,720 Speaker 1: And the same thing applies with interest rates. When interest 51 00:03:38,840 --> 00:03:42,760 Speaker 1: rates are too high, the economy is shuttered. Interest rates 52 00:03:42,840 --> 00:03:46,720 Speaker 1: now or back to some semblance of normal. People talk 53 00:03:46,760 --> 00:03:53,280 Speaker 1: about Powell channeling his inner volcre pardon me, Vulcar took 54 00:03:53,760 --> 00:03:57,560 Speaker 1: the short rate to five hundred basis points above the 55 00:03:57,600 --> 00:04:01,640 Speaker 1: preceding peak in inflation today, that would mean making the 56 00:04:01,720 --> 00:04:05,840 Speaker 1: Fed funds rate fourteen percent. He's not channeling an inner Volker. 57 00:04:06,960 --> 00:04:14,760 Speaker 1: He's dabbling with increasing rates in a fashion that hopefully 58 00:04:14,760 --> 00:04:17,359 Speaker 1: won't do too much damage. And it's all based on 59 00:04:17,400 --> 00:04:21,200 Speaker 1: a very naive neo Kinsian view that you have to 60 00:04:21,680 --> 00:04:24,960 Speaker 1: you have to wreck the economy in order terranean inflation. 61 00:04:25,240 --> 00:04:28,200 Speaker 1: Rob or not help me with the idea of my 62 00:04:28,320 --> 00:04:30,880 Speaker 1: theme for twenty twenty three, which is, if we get 63 00:04:30,920 --> 00:04:34,039 Speaker 1: a normal rate regime, something many of our listeners and 64 00:04:34,120 --> 00:04:36,400 Speaker 1: viewers have never experienced. Let's say we get back to 65 00:04:36,440 --> 00:04:40,440 Speaker 1: a regime of sixteen, seventeen, even twenty years ago, that 66 00:04:40,600 --> 00:04:43,440 Speaker 1: we will see what I call the great zombie roll up, 67 00:04:43,800 --> 00:04:46,880 Speaker 1: and that there's all sorts of companies out there, domestic 68 00:04:46,960 --> 00:04:51,120 Speaker 1: and international that just aren't going to make it. How 69 00:04:51,160 --> 00:04:54,920 Speaker 1: can you profit from that? Well, you can profit from 70 00:04:54,920 --> 00:05:00,279 Speaker 1: that by investing broadly diversified into markets that are cheap, 71 00:05:00,360 --> 00:05:04,560 Speaker 1: and we'll cush in the damage of those. You can 72 00:05:06,040 --> 00:05:09,640 Speaker 1: avoid that damage by looking at quality metrics and not 73 00:05:09,760 --> 00:05:13,440 Speaker 1: investing in companies that are highly likely to go bust. 74 00:05:14,800 --> 00:05:19,640 Speaker 1: You can measure interest rate sensitivity for companies and companies 75 00:05:19,640 --> 00:05:24,360 Speaker 1: that have large debt, be very wary. Don't own them 76 00:05:24,400 --> 00:05:27,000 Speaker 1: unless they're really cheap. And there's a lot of companies 77 00:05:27,600 --> 00:05:32,040 Speaker 1: in the meme stock community that have huge debt, and 78 00:05:32,400 --> 00:05:36,760 Speaker 1: as that debt gets repriced, they're likely to struggle so 79 00:05:36,800 --> 00:05:40,040 Speaker 1: the notion that high interest rates are going to hurt 80 00:05:40,080 --> 00:05:43,920 Speaker 1: the value stocks is actually way too simplistic. I look 81 00:05:43,960 --> 00:05:46,240 Speaker 1: at one of the great quotes last year, something I 82 00:05:46,320 --> 00:05:50,520 Speaker 1: think that you will appreciate Nasiemtoleb always controversial, saying, well, 83 00:05:50,560 --> 00:05:53,320 Speaker 1: the physics is back, the gravity's back, and the equations, 84 00:05:53,520 --> 00:05:56,920 Speaker 1: and you've certainly alluded to that, Rob. What I notice 85 00:05:57,040 --> 00:06:01,480 Speaker 1: also is we've become addicted in our modern to bringing 86 00:06:01,480 --> 00:06:05,919 Speaker 1: in our hold period of average investments from years into months, 87 00:06:06,279 --> 00:06:09,400 Speaker 1: if dare I say not even days as well. If 88 00:06:09,400 --> 00:06:12,120 Speaker 1: we get the tile up gravity, if we get the 89 00:06:12,160 --> 00:06:15,520 Speaker 1: world you talk about, obviously I agree with you, are 90 00:06:15,520 --> 00:06:17,159 Speaker 1: we going to learn that we have to have a 91 00:06:17,240 --> 00:06:25,360 Speaker 1: longer holding period for our investments. I think holding period 92 00:06:25,440 --> 00:06:28,479 Speaker 1: should be a function of where your personal skill set is. 93 00:06:29,839 --> 00:06:33,320 Speaker 1: If your skill is in short term trading, I would 94 00:06:33,360 --> 00:06:37,000 Speaker 1: never advocate that Kim Griffin take up the idea of 95 00:06:37,360 --> 00:06:40,679 Speaker 1: bicycle investing. He's doing the rest of us a huge 96 00:06:40,680 --> 00:06:44,320 Speaker 1: favor by trying to scalp a fraction of a penny 97 00:06:44,720 --> 00:06:48,160 Speaker 1: off of every trade you make. It gives you great liquidity, 98 00:06:48,800 --> 00:06:53,039 Speaker 1: and so focus on what you're good at. I'm focused 99 00:06:53,040 --> 00:06:57,360 Speaker 1: on long term I'm a long term investor. I want 100 00:06:57,640 --> 00:07:02,120 Speaker 1: short term investors to be there to provide the liquidity, 101 00:07:02,480 --> 00:07:06,679 Speaker 1: and folks who are not do it a short term 102 00:07:07,240 --> 00:07:10,800 Speaker 1: but playing the short term game. They're also providing liquidity, 103 00:07:10,880 --> 00:07:15,240 Speaker 1: but they're likely to get badly hurt, and they often do. 104 00:07:16,680 --> 00:07:19,520 Speaker 1: Let me finish up, Rob with the arch question. All 105 00:07:19,520 --> 00:07:21,840 Speaker 1: my radars up on this is I've got the usual 106 00:07:21,920 --> 00:07:25,440 Speaker 1: active managers trotting out telling me this is the time 107 00:07:25,440 --> 00:07:28,640 Speaker 1: for active to outperform, and many of them ascribe to 108 00:07:28,720 --> 00:07:33,320 Speaker 1: your international view, Rob, are not an update on active 109 00:07:33,400 --> 00:07:38,000 Speaker 1: versus passive? Please, I think the whole active versus passive 110 00:07:38,040 --> 00:07:44,320 Speaker 1: thing is a complete distraction active managers. The passive managers 111 00:07:44,440 --> 00:07:48,880 Speaker 1: own the market. That means that if you take them 112 00:07:48,880 --> 00:07:51,160 Speaker 1: out of the equation, what you're left with is that 113 00:07:51,200 --> 00:07:54,720 Speaker 1: same portfolio. That's what the active managers did. You out 114 00:07:55,200 --> 00:07:59,720 Speaker 1: so the active an active manager can win, but generally 115 00:07:59,720 --> 00:08:03,960 Speaker 1: only if another active manager is losing. So it's a 116 00:08:04,000 --> 00:08:06,640 Speaker 1: silly game to say this is a great environment for 117 00:08:06,680 --> 00:08:10,960 Speaker 1: active investors or a great environment for passive. The before 118 00:08:11,160 --> 00:08:16,240 Speaker 1: fee performance of actively manage mutual funds is nearly identical 119 00:08:16,320 --> 00:08:19,560 Speaker 1: to that of passive and it always has been and 120 00:08:19,640 --> 00:08:22,760 Speaker 1: it always will be. So the key question is can 121 00:08:22,800 --> 00:08:26,840 Speaker 1: you choose active managers who are likely to have an 122 00:08:27,040 --> 00:08:32,600 Speaker 1: edge and whose success will be funded by other active 123 00:08:32,640 --> 00:08:37,720 Speaker 1: managers who bets don't work. Look for that in your investing, 124 00:08:38,520 --> 00:08:40,440 Speaker 1: rob We got to leave it there. Robert Not, thank 125 00:08:40,440 --> 00:08:42,800 Speaker 1: you so much with research affiliates, and I really can't 126 00:08:42,800 --> 00:08:46,839 Speaker 1: say the uniqueness of his research energy. No one has 127 00:08:46,880 --> 00:08:50,120 Speaker 1: done more in securities research over a longer time than 128 00:08:50,240 --> 00:08:52,520 Speaker 1: Robert Not. Check out so much of his work with 129 00:08:52,600 --> 00:09:06,880 Speaker 1: the CFA program in Charlottesville, Virginia, joining us now always 130 00:09:06,960 --> 00:09:09,880 Speaker 1: lecturing on econ one on one. Francis Donald Global Chief 131 00:09:09,880 --> 00:09:14,160 Speaker 1: Economists Strategists Manual Life of Canada and America. Francis, good 132 00:09:14,160 --> 00:09:16,920 Speaker 1: to see you again. Let me cut to the chase. 133 00:09:17,000 --> 00:09:21,120 Speaker 1: We have a fed in action. They are wildly expost 134 00:09:21,600 --> 00:09:26,839 Speaker 1: what is the data after the fact that matters. There's 135 00:09:26,880 --> 00:09:29,400 Speaker 1: a lot of data that matters. But I suspect we're 136 00:09:29,400 --> 00:09:32,680 Speaker 1: going to be moving away from the traditional what is GDP, 137 00:09:32,920 --> 00:09:35,480 Speaker 1: what is the unemployment rate? What is CPI? We're going 138 00:09:35,559 --> 00:09:38,080 Speaker 1: to have to get a lot deeper moving forward. And 139 00:09:38,120 --> 00:09:40,920 Speaker 1: that's because well, the nature of growth and how the 140 00:09:40,960 --> 00:09:43,040 Speaker 1: slowdown in the pack in the economy is likely to 141 00:09:43,120 --> 00:09:45,800 Speaker 1: be uneven. Yes, we are probably going to see a 142 00:09:45,880 --> 00:09:49,120 Speaker 1: lower unemployment rate than we have and past slowdown orbit sessions, 143 00:09:49,120 --> 00:09:52,480 Speaker 1: but the composition of it will matter. For example, during 144 00:09:52,520 --> 00:09:55,680 Speaker 1: COVID we had millions of millions of job losses, but 145 00:09:55,679 --> 00:09:58,360 Speaker 1: they were a low wage job that didn't hit GDP. 146 00:09:58,800 --> 00:10:01,480 Speaker 1: In the coming we might those tech in finances having 147 00:10:01,520 --> 00:10:04,760 Speaker 1: a larger impact, and inflation will be problematic because it's 148 00:10:04,760 --> 00:10:07,080 Speaker 1: not about the headline number anymore. It's going to be 149 00:10:07,120 --> 00:10:10,679 Speaker 1: about what segment of remaining inflation is interest rate sensitive 150 00:10:10,800 --> 00:10:13,760 Speaker 1: or not. So Unfortunately, that level one data is not 151 00:10:13,880 --> 00:10:16,160 Speaker 1: going to be enough to tell the story or what 152 00:10:16,200 --> 00:10:18,320 Speaker 1: the Fed's going to do anymore. We're gonna have to 153 00:10:18,320 --> 00:10:21,199 Speaker 1: work a little bit harder. In twenty twenty three, explain 154 00:10:21,280 --> 00:10:26,559 Speaker 1: the goods services partition of inflation. Explain those two vectors. 155 00:10:26,920 --> 00:10:30,400 Speaker 1: As we look at the vectors to march, well, this 156 00:10:30,440 --> 00:10:33,440 Speaker 1: one in some ways of straightforward. We know the unlined 157 00:10:33,480 --> 00:10:35,600 Speaker 1: from COVID is going to push down on the good 158 00:10:35,640 --> 00:10:38,600 Speaker 1: side and services where you have that remaining component. But 159 00:10:38,640 --> 00:10:40,599 Speaker 1: I'm looking a little bit further than that, which is 160 00:10:40,720 --> 00:10:43,880 Speaker 1: right now, we still have inflation that is interest rate sensitive, 161 00:10:43,920 --> 00:10:47,040 Speaker 1: it matters. We're really pulling down on that excess savings 162 00:10:47,080 --> 00:10:49,160 Speaker 1: the demand side of the equation. But it's not so 163 00:10:49,280 --> 00:10:51,280 Speaker 1: much goods and services that keeps me up at night. 164 00:10:51,480 --> 00:10:55,280 Speaker 1: It's supply versus demand. And when we get to later 165 00:10:55,320 --> 00:10:57,560 Speaker 1: this year, how is the FED going to be commenting 166 00:10:57,679 --> 00:11:01,280 Speaker 1: we're combating the remaining inflation which is food price inflation 167 00:11:01,360 --> 00:11:04,320 Speaker 1: centric or do you a political driven or ESG driven. 168 00:11:04,480 --> 00:11:06,040 Speaker 1: We're going to have to have a moment, not just 169 00:11:06,040 --> 00:11:08,680 Speaker 1: from the Fed but from global central bankers, and I 170 00:11:08,720 --> 00:11:11,120 Speaker 1: think it's going to start this year. So they have 171 00:11:11,160 --> 00:11:14,320 Speaker 1: to admit their ability to control that CPI number is 172 00:11:14,360 --> 00:11:17,440 Speaker 1: waging both on a cyclical factor in this year and next, 173 00:11:17,440 --> 00:11:19,840 Speaker 1: but also on a structural basis. And franstis with that 174 00:11:19,880 --> 00:11:22,200 Speaker 1: in mind, when nice I we want to get sufficient 175 00:11:22,200 --> 00:11:26,320 Speaker 1: and restrictive, what does that mean? Your guess is as 176 00:11:26,320 --> 00:11:28,360 Speaker 1: good as mind. But I think what they're looking for 177 00:11:28,559 --> 00:11:31,440 Speaker 1: is more balanced in the economy, and of course they 178 00:11:31,440 --> 00:11:32,960 Speaker 1: are getting it. They got a lot of it in 179 00:11:33,040 --> 00:11:35,559 Speaker 1: twenty twenty two. Here we are talking about what does 180 00:11:35,559 --> 00:11:38,440 Speaker 1: the landing look like? I'm looking backwards at twenty twenty 181 00:11:38,480 --> 00:11:40,600 Speaker 1: two and saying that looked like the landing. To me, 182 00:11:40,760 --> 00:11:43,600 Speaker 1: we had significant drawn down and housing a bear market 183 00:11:43,600 --> 00:11:45,840 Speaker 1: in the s and P. Did that not qualify as 184 00:11:45,880 --> 00:11:49,240 Speaker 1: the significant slowdown? Now we're looking down, we're saying we're landed. 185 00:11:49,400 --> 00:11:51,600 Speaker 1: The question is do we hit the wall at the 186 00:11:51,679 --> 00:11:55,040 Speaker 1: end of this runway. That's what we're focusing on moving forward. 187 00:11:55,200 --> 00:11:56,839 Speaker 1: What is the wall at the end of the run wife, 188 00:11:56,880 --> 00:11:58,839 Speaker 1: recession or the fact that you think they're going to 189 00:11:58,880 --> 00:12:01,880 Speaker 1: have to accept the hire and fly right. Yeah, I 190 00:12:02,200 --> 00:12:03,880 Speaker 1: think it's a little bit of the two of them, 191 00:12:03,880 --> 00:12:06,679 Speaker 1: but it depends on your timeline. When I look at 192 00:12:06,679 --> 00:12:08,760 Speaker 1: the wall at the end of the runway, what concerns 193 00:12:08,840 --> 00:12:11,760 Speaker 1: me actually isn't two quarters of negative growth that hasn't 194 00:12:11,800 --> 00:12:14,160 Speaker 1: been for the last year. It's this concept of something 195 00:12:14,200 --> 00:12:16,960 Speaker 1: we've been discussing internally which puts a pit in my stomach, 196 00:12:17,040 --> 00:12:20,160 Speaker 1: a concept like rolling recessions or when you look back 197 00:12:20,200 --> 00:12:23,160 Speaker 1: in history sometimes we see these periods of expansion downturns 198 00:12:23,200 --> 00:12:26,880 Speaker 1: that fluctuate very quickly, very difficult to manage money in 199 00:12:26,880 --> 00:12:29,200 Speaker 1: that type of environment. And if we're heading into a 200 00:12:29,280 --> 00:12:33,120 Speaker 1: period where GDP is oscillating around zero, slightly above slightly below, 201 00:12:33,320 --> 00:12:35,200 Speaker 1: we're going to spend all our time arguing over whether 202 00:12:35,280 --> 00:12:38,240 Speaker 1: or not it qualifies as a recession or not focusing 203 00:12:38,240 --> 00:12:40,840 Speaker 1: on the big story, which is we are not in reflation. 204 00:12:41,080 --> 00:12:43,840 Speaker 1: We're much closer to stagflation. We are not in the 205 00:12:43,880 --> 00:12:46,520 Speaker 1: roaring twenties. We're going to be in a slower growth 206 00:12:46,559 --> 00:12:48,800 Speaker 1: environment with a lot of particularities that we have not 207 00:12:48,840 --> 00:12:51,320 Speaker 1: seen in the past. What is your when on this, Francis? 208 00:12:51,360 --> 00:12:54,040 Speaker 1: I mean, we had Matt Lazettian from Deutsche Bank who 209 00:12:54,120 --> 00:12:57,520 Speaker 1: was brilliant on a delayed recession call when is the 210 00:12:58,480 --> 00:13:02,480 Speaker 1: is the when not of recession or nbeer recession, but 211 00:13:02,640 --> 00:13:07,720 Speaker 1: what is the when of outright stagflation? I heard that interview, 212 00:13:07,760 --> 00:13:09,120 Speaker 1: I thought it was great, and I'm going to agree 213 00:13:09,160 --> 00:13:11,400 Speaker 1: with Matt that it's towards the end of twenty twenty 214 00:13:11,440 --> 00:13:14,640 Speaker 1: three is the problem, and especially around June July. This 215 00:13:14,679 --> 00:13:17,199 Speaker 1: is when the year over year comps for inflation get 216 00:13:17,240 --> 00:13:19,199 Speaker 1: a little bit trickier and a concerned. That's when the 217 00:13:19,280 --> 00:13:22,800 Speaker 1: momentum and disinflation begins to pause out and based on 218 00:13:22,800 --> 00:13:26,640 Speaker 1: our traditional leading indicators of the economy, by the mid 219 00:13:26,720 --> 00:13:29,360 Speaker 1: to end of twenty twenty three, that's when we're probably 220 00:13:29,360 --> 00:13:31,240 Speaker 1: going to start to see the consumer and the jobs 221 00:13:31,240 --> 00:13:34,280 Speaker 1: picture begin to decline. But at the same time, Tom, 222 00:13:34,360 --> 00:13:37,600 Speaker 1: we have to evaluate those leading indicators. Should we rely 223 00:13:37,679 --> 00:13:39,840 Speaker 1: on them the same way that we have in the past. Francis, 224 00:13:39,880 --> 00:13:42,680 Speaker 1: I want to segui here over to your knowledge of 225 00:13:42,760 --> 00:13:48,120 Speaker 1: Canadian macroeconomics. What could your own Powell learn from the 226 00:13:48,160 --> 00:13:52,000 Speaker 1: Bank of Canada. I look at select developed nation banks 227 00:13:52,760 --> 00:13:56,160 Speaker 1: and they're taking a different path than the FED. What's 228 00:13:56,160 --> 00:14:01,040 Speaker 1: a lesson learned from the Bank of Canada for Washington. Well, 229 00:14:01,160 --> 00:14:04,000 Speaker 1: here's the challenge in Canada and then many of the 230 00:14:04,120 --> 00:14:08,240 Speaker 1: smaller developed economies. You have even less ability to control 231 00:14:08,280 --> 00:14:10,960 Speaker 1: inflation with your domestic interest rates. And this is what 232 00:14:11,080 --> 00:14:13,360 Speaker 1: the bigger bind for the FED going into the next 233 00:14:13,440 --> 00:14:16,280 Speaker 1: year is that if you're Australia or Canada, you're at 234 00:14:16,280 --> 00:14:18,920 Speaker 1: the point where your impact on your economy from higher 235 00:14:18,960 --> 00:14:22,400 Speaker 1: interest rates becomes much more severe, particularly because of the 236 00:14:22,480 --> 00:14:26,120 Speaker 1: housing reliance, and your ability to control inflation begins to decline. 237 00:14:26,360 --> 00:14:28,320 Speaker 1: So when I think about the FED versus the Bank 238 00:14:28,360 --> 00:14:31,160 Speaker 1: of Canada, what I see is the problematic situation where 239 00:14:31,200 --> 00:14:34,200 Speaker 1: the FED can tighten global financial conditions, but the Bank 240 00:14:34,240 --> 00:14:37,160 Speaker 1: of Canada cannot. It's going to create a much bigger 241 00:14:37,200 --> 00:14:39,920 Speaker 1: divide between these secial banks moving forward. I mean, John, 242 00:14:39,960 --> 00:14:41,360 Speaker 1: this is what it's about. I set her up with 243 00:14:41,440 --> 00:14:43,640 Speaker 1: that question to go to. You imagine the Bank of 244 00:14:43,760 --> 00:14:46,760 Speaker 1: England and what they have to do or ECB. If 245 00:14:46,840 --> 00:14:50,320 Speaker 1: Jerome Powell legs it out with inversion of ninety five 246 00:14:50,400 --> 00:14:53,400 Speaker 1: one hundred basis points, with the thirty year mortgage going 247 00:14:53,440 --> 00:14:56,120 Speaker 1: through to new high interest rates, or the Bloomberg Total 248 00:14:56,160 --> 00:14:59,920 Speaker 1: Return INDECKS moving down in price to under October level, 249 00:15:00,240 --> 00:15:02,240 Speaker 1: what does that mean for the other banks? They were 250 00:15:02,280 --> 00:15:04,800 Speaker 1: all wrestling with similar issues though, And I think Francis 251 00:15:04,800 --> 00:15:07,640 Speaker 1: you've touched on it the character of this new economy 252 00:15:07,920 --> 00:15:10,600 Speaker 1: that we might face labor hoarding. Can you work a 253 00:15:10,640 --> 00:15:12,280 Speaker 1: little bit more on that, Francis, just go through it 254 00:15:12,320 --> 00:15:15,800 Speaker 1: piece by piece, the post pandemic labor market realities. What 255 00:15:15,880 --> 00:15:18,200 Speaker 1: are they? Do you think that just haven't been accepted 256 00:15:18,240 --> 00:15:21,880 Speaker 1: just yet. Well, let's keep it simple. Take a look 257 00:15:21,920 --> 00:15:25,800 Speaker 1: at the employment to population ratio. What percentage of Americans 258 00:15:25,880 --> 00:15:30,080 Speaker 1: are working? Forty percent of Americans are not working. Move 259 00:15:30,120 --> 00:15:33,440 Speaker 1: aside the labor first participation rate in all of its equivalence. 260 00:15:33,920 --> 00:15:36,360 Speaker 1: We're also looking at an economy where we have fewer 261 00:15:36,400 --> 00:15:40,000 Speaker 1: people than before the pandemic. We're missing over two million workers. 262 00:15:40,240 --> 00:15:42,200 Speaker 1: Where did they go? A lot of them retired early, 263 00:15:42,240 --> 00:15:44,240 Speaker 1: a lot of them got set up with this market, 264 00:15:44,360 --> 00:15:46,920 Speaker 1: a lot of them are dealing with cuttlecare and health issues. 265 00:15:47,240 --> 00:15:49,120 Speaker 1: We have not come to the reality yet that our 266 00:15:49,160 --> 00:15:53,720 Speaker 1: concepts of demand and supply for labor for wages may 267 00:15:53,760 --> 00:15:56,680 Speaker 1: not work the same way our textbooks told them told 268 00:15:56,760 --> 00:15:59,480 Speaker 1: us they did for the last several decades. So our 269 00:15:59,560 --> 00:16:02,760 Speaker 1: new questions on how evaluate what brings labor back to 270 00:16:02,840 --> 00:16:04,560 Speaker 1: the market, I think those are going to have to 271 00:16:04,640 --> 00:16:07,480 Speaker 1: change pretty significant. Francis, what is it do you think 272 00:16:07,760 --> 00:16:12,680 Speaker 1: that brings labor back to this market? Well, we know 273 00:16:12,840 --> 00:16:15,440 Speaker 1: from history if you make people poor enough, they will 274 00:16:15,480 --> 00:16:17,800 Speaker 1: have to go back to work. But is that what 275 00:16:17,800 --> 00:16:19,800 Speaker 1: we should be doing? And is that what central banks 276 00:16:19,800 --> 00:16:21,800 Speaker 1: should be doing? And this is the big challenge I 277 00:16:21,840 --> 00:16:24,000 Speaker 1: have when I hear central bank saying we're going to 278 00:16:24,040 --> 00:16:26,880 Speaker 1: reduce demand to bring him back into supply. But when 279 00:16:26,880 --> 00:16:30,240 Speaker 1: you have supply shops that are continuous, is really the 280 00:16:30,760 --> 00:16:34,320 Speaker 1: medicine worth secure in this particular environment? What is the 281 00:16:34,400 --> 00:16:36,840 Speaker 1: rule of the the central bank control insleation and employment or 282 00:16:37,120 --> 00:16:39,560 Speaker 1: make the lives of the citizens of this country better. 283 00:16:39,760 --> 00:16:41,960 Speaker 1: This is going to be a problematic question for central 284 00:16:41,960 --> 00:16:44,960 Speaker 1: banks moving Forwarding the next question further down the road, 285 00:16:45,240 --> 00:16:48,440 Speaker 1: do you think politically that these institutions are going to 286 00:16:48,520 --> 00:16:51,920 Speaker 1: come into some real trouble once people start to figure 287 00:16:51,960 --> 00:16:54,400 Speaker 1: out the electrics starts to fick around, that their vote 288 00:16:54,400 --> 00:16:57,480 Speaker 1: in the election is perhaps less important than what happens 289 00:16:57,600 --> 00:17:02,760 Speaker 1: across the road the feder Reserve. Well, we're certainly, i 290 00:17:02,800 --> 00:17:06,199 Speaker 1: think already beginning to see the challenges associated there that 291 00:17:06,520 --> 00:17:09,480 Speaker 1: when you begin to recognize what impacts your mortgage and 292 00:17:09,800 --> 00:17:12,480 Speaker 1: how much things cost, that really that's more of a 293 00:17:12,520 --> 00:17:15,760 Speaker 1: monetary policy question. We're all not just a general public, 294 00:17:15,800 --> 00:17:18,040 Speaker 1: but financial services are also going to have to have 295 00:17:18,080 --> 00:17:21,520 Speaker 1: a moment where we realize monetary policy dominance, which has 296 00:17:21,720 --> 00:17:24,240 Speaker 1: ruled so much in the way that we invest money 297 00:17:24,240 --> 00:17:27,760 Speaker 1: and live our lives. Maybe see that challenging, especially because 298 00:17:27,840 --> 00:17:30,720 Speaker 1: moving forward, the insallation in the system is likely to 299 00:17:30,800 --> 00:17:34,280 Speaker 1: become less interest right sensitive, not more. We're gonna have 300 00:17:34,359 --> 00:17:36,600 Speaker 1: to have a moment where we come and recognize that 301 00:17:36,800 --> 00:17:39,159 Speaker 1: central banks need to do it, investors need to do it. 302 00:17:39,280 --> 00:17:42,080 Speaker 1: Eventually the general public will do it too. Francis, we've 303 00:17:42,119 --> 00:17:44,040 Speaker 1: missed you. It's good to have you back. And happy 304 00:17:44,040 --> 00:17:46,080 Speaker 1: birthday for last week because we didn't get to do 305 00:17:46,119 --> 00:17:48,640 Speaker 1: this last week. Thank you. Francis Donald a manual Life 306 00:17:48,680 --> 00:17:55,520 Speaker 1: Investment Management. It is joy to bring in out Jay Bryson. 307 00:17:55,640 --> 00:17:58,000 Speaker 1: He is chief economist at Wills Figer with a truly 308 00:17:58,080 --> 00:18:01,800 Speaker 1: international band. Jay, let me start with the basic idea. 309 00:18:02,080 --> 00:18:05,240 Speaker 1: Is Jerome Powell the banker to the world? Is he 310 00:18:05,320 --> 00:18:07,399 Speaker 1: the central banker to the world now in honor of 311 00:18:07,440 --> 00:18:10,720 Speaker 1: Bill Rhodes? Yeah, I mean I think in general, I 312 00:18:10,760 --> 00:18:13,760 Speaker 1: think you know, the Chairman of the Federal Reserve over 313 00:18:13,840 --> 00:18:18,160 Speaker 1: or the number of years, has been the most important banker. Now, 314 00:18:18,440 --> 00:18:20,760 Speaker 1: you know, is he banker to the world? Is he 315 00:18:20,760 --> 00:18:23,000 Speaker 1: here to bail out the rest of the world? No, 316 00:18:23,119 --> 00:18:26,640 Speaker 1: not necessarily right, they only have really two objectives. That's 317 00:18:26,920 --> 00:18:29,320 Speaker 1: inflation in the United States and the unemployment. Right, but 318 00:18:29,359 --> 00:18:32,280 Speaker 1: clearly the central of the Federal Reserve is the most 319 00:18:32,280 --> 00:18:34,960 Speaker 1: important central bank in the world. My recollection is you 320 00:18:35,040 --> 00:18:38,760 Speaker 1: memorize the tailor rule watching March Madness down at Chapel 321 00:18:38,840 --> 00:18:42,720 Speaker 1: Hill many many years ago. I miss this Today one 322 00:18:42,720 --> 00:18:45,600 Speaker 1: of our previous guests, Jay had it out how distorted 323 00:18:45,640 --> 00:18:49,680 Speaker 1: the tailor rule is once again Towardsten Slock, suggesting up 324 00:18:49,720 --> 00:18:53,399 Speaker 1: near a nine even ten percent Taylor rule. What's the 325 00:18:53,560 --> 00:18:58,399 Speaker 1: Powell rule right now? What's the equation Jerome Powell's using 326 00:18:58,680 --> 00:19:02,840 Speaker 1: if the Tailor rule is busted? Well, so you think 327 00:19:02,840 --> 00:19:05,200 Speaker 1: about the Taylor role. I mean there's you know, two 328 00:19:05,640 --> 00:19:08,159 Speaker 1: two variables in there. Well, one would be inflation and 329 00:19:08,280 --> 00:19:11,120 Speaker 1: one would be you know, the unemployment rate or the 330 00:19:11,200 --> 00:19:15,880 Speaker 1: gap there I'll put gap and I think there, Um, 331 00:19:16,280 --> 00:19:20,960 Speaker 1: the the overwhelming weight is on inflation right now. Yeah, Um, 332 00:19:21,160 --> 00:19:24,080 Speaker 1: that's that's and it's you know, the FED right now 333 00:19:24,240 --> 00:19:27,240 Speaker 1: is much more reactionary than forward looking. I mean, you know, 334 00:19:27,280 --> 00:19:30,080 Speaker 1: if you think back to uh Jackson Hole a few 335 00:19:30,119 --> 00:19:33,440 Speaker 1: years ago, I mean essentially throughout the forward looking sort 336 00:19:33,440 --> 00:19:36,719 Speaker 1: of stuff, our square starred et cetera, et cetera. It's 337 00:19:36,760 --> 00:19:38,720 Speaker 1: it's all about where is the economy right now? And 338 00:19:38,720 --> 00:19:41,160 Speaker 1: they're kind of really trying to feel their way in. 339 00:19:41,240 --> 00:19:44,880 Speaker 1: But again, it's all about inflation right now. Um, we're 340 00:19:44,920 --> 00:19:47,520 Speaker 1: all the big all the weight is, it's so much 341 00:19:47,600 --> 00:19:52,480 Speaker 1: of this is our complete focus on the FED. Are 342 00:19:52,520 --> 00:19:54,560 Speaker 1: we going to be doing this all year? I mean 343 00:19:54,600 --> 00:19:58,520 Speaker 1: the fed derby, the dots derby, the Michael McKee, Derby J. Bryson. 344 00:19:58,520 --> 00:19:59,880 Speaker 1: Are we going to be doing this for the rest 345 00:19:59,880 --> 00:20:02,760 Speaker 1: of of the year, you know? I think so, Tom. 346 00:20:02,840 --> 00:20:04,840 Speaker 1: I think it's going to be a high weight on 347 00:20:05,000 --> 00:20:07,280 Speaker 1: what the FED is doing now. If we get in, 348 00:20:07,320 --> 00:20:09,160 Speaker 1: you know, a few months from now and it looks 349 00:20:09,200 --> 00:20:12,720 Speaker 1: like the economy is really starting to slip, I think 350 00:20:12,720 --> 00:20:16,480 Speaker 1: what really becomes important now or initial jobless claims and 351 00:20:16,520 --> 00:20:19,760 Speaker 1: other labor market sort of variables. But for the foreseeable future, 352 00:20:19,760 --> 00:20:21,439 Speaker 1: I think it's really all about the Fed. Can we 353 00:20:21,720 --> 00:20:24,920 Speaker 1: I'm looking into this almost as domestic final sales, can 354 00:20:25,000 --> 00:20:28,960 Speaker 1: we quote unquote slip or can we just say it's 355 00:20:28,960 --> 00:20:33,399 Speaker 1: the housing market and other financial distortions slipping and the 356 00:20:33,440 --> 00:20:36,320 Speaker 1: rest of it does pretty well? Like durable goods just showed. 357 00:20:36,640 --> 00:20:40,800 Speaker 1: How does that Nick's play out? Yeah, So, you know, 358 00:20:41,000 --> 00:20:44,240 Speaker 1: if you think about the consumer right now, the consumer 359 00:20:44,320 --> 00:20:47,680 Speaker 1: is very very strong financially, and so you could have 360 00:20:47,720 --> 00:20:51,600 Speaker 1: a recession this year in say manufacturing, you know, strong dollar, 361 00:20:51,800 --> 00:20:54,120 Speaker 1: weaker growth than the rest of the world. You could 362 00:20:54,119 --> 00:20:56,159 Speaker 1: have weakness in the housing market. I mean, that's what 363 00:20:56,160 --> 00:20:58,920 Speaker 1: we've seen for the last you know, almost year now. 364 00:20:59,200 --> 00:21:02,439 Speaker 1: But consumer spending could continue to hold in there, and 365 00:21:02,520 --> 00:21:05,439 Speaker 1: given the fact that consumer spending is seventy percent of 366 00:21:05,440 --> 00:21:07,679 Speaker 1: the economy, you could have a few sectors in the 367 00:21:07,680 --> 00:21:10,959 Speaker 1: economy in kind of a recession and the overall economy 368 00:21:11,000 --> 00:21:13,840 Speaker 1: wouldn't necessarily to tip into recession. I mean, I mean, 369 00:21:13,840 --> 00:21:15,240 Speaker 1: it's right where I wanted to go, as you got 370 00:21:15,280 --> 00:21:19,480 Speaker 1: an nbeer recession here, and I note yield's coming in 371 00:21:19,560 --> 00:21:22,120 Speaker 1: abruptly here. Two year yield into four point seven eight 372 00:21:22,160 --> 00:21:25,440 Speaker 1: percent down three basis points. Ten year yield migrates away 373 00:21:25,480 --> 00:21:28,639 Speaker 1: two down two basis points with a little bit, just 374 00:21:28,720 --> 00:21:30,800 Speaker 1: a little bit of curve in version. I don't oversell 375 00:21:30,920 --> 00:21:34,280 Speaker 1: that future is up thirty jay, I look at the 376 00:21:34,400 --> 00:21:38,119 Speaker 1: stew as Lisa would say that we're in and to me, 377 00:21:38,240 --> 00:21:41,160 Speaker 1: I want to just as you said, partition it. If 378 00:21:41,160 --> 00:21:45,560 Speaker 1: we slow down, we don't all slow down, do we. No, 379 00:21:45,760 --> 00:21:47,720 Speaker 1: that's right. I mean, you know the economy. You know, 380 00:21:47,800 --> 00:21:50,640 Speaker 1: there's lots of different sectors in the economy. You think 381 00:21:50,720 --> 00:21:53,520 Speaker 1: back tom about you know, back to two fifteen, two 382 00:21:53,400 --> 00:21:57,000 Speaker 1: thousand sixteen, China was having some real problems. The manufacturing 383 00:21:57,000 --> 00:21:59,360 Speaker 1: sector back then was in a recession. The overall US 384 00:21:59,440 --> 00:22:02,080 Speaker 1: economy was not in a recession, so you can have 385 00:22:02,200 --> 00:22:05,920 Speaker 1: different sectors going down and not the whole ship going down. Now, 386 00:22:06,320 --> 00:22:08,919 Speaker 1: if some of those sectors go down a lot, like 387 00:22:09,000 --> 00:22:12,200 Speaker 1: manufacturing and housing, and then you start to get job 388 00:22:12,240 --> 00:22:14,600 Speaker 1: losses in there, then it does start to bleed into 389 00:22:14,640 --> 00:22:17,280 Speaker 1: other sorts of sectors in the economy. So it's a 390 00:22:17,320 --> 00:22:20,640 Speaker 1: really tricky situation that the FED finds itself in right now. 391 00:22:20,960 --> 00:22:24,160 Speaker 1: Ja Bryson to the global footprint, which you commanded for 392 00:22:24,280 --> 00:22:28,679 Speaker 1: years at Wells Fargo. How urgent is it for IMF 393 00:22:28,800 --> 00:22:31,080 Speaker 1: right now? You've got the Nigerian elections in that, But 394 00:22:31,760 --> 00:22:34,960 Speaker 1: how how of a moment is it right now for 395 00:22:35,000 --> 00:22:39,360 Speaker 1: the International Monetary Fund? Well, you know, if you look 396 00:22:39,400 --> 00:22:41,560 Speaker 1: around the world right now, you know, most of the 397 00:22:41,600 --> 00:22:45,320 Speaker 1: world is slowing down right now. You know, if you 398 00:22:45,359 --> 00:22:47,239 Speaker 1: look at Europe and now, it's not as bad as 399 00:22:47,359 --> 00:22:50,040 Speaker 1: what it was saying, you know six months ago when 400 00:22:50,160 --> 00:22:53,440 Speaker 1: energy prices were through the roof over there. You know, fortunately, 401 00:22:53,440 --> 00:22:56,680 Speaker 1: when you look around the world, there are not signs 402 00:22:56,760 --> 00:23:01,760 Speaker 1: of big debt bubbles we had say twenty years ago 403 00:23:01,960 --> 00:23:05,480 Speaker 1: in Asia places like that. Right So obviously, you know 404 00:23:05,520 --> 00:23:08,680 Speaker 1: the IMF is you know, obviously very very important institution 405 00:23:08,760 --> 00:23:12,360 Speaker 1: around the world. But in My sense is the overall 406 00:23:12,400 --> 00:23:16,160 Speaker 1: global economy right now is okay, but you know, it's 407 00:23:16,200 --> 00:23:20,320 Speaker 1: obviously the fraught geopolitical situation, potential for lots of different 408 00:23:20,320 --> 00:23:22,760 Speaker 1: sorts of shocks, and so it's good to have that 409 00:23:22,840 --> 00:23:25,879 Speaker 1: backstop of the IMF there if in fact it's needed. 410 00:23:26,520 --> 00:23:28,720 Speaker 1: Jay Brickson, thank you so much for joining us today 411 00:23:28,720 --> 00:23:31,280 Speaker 1: with Wells Fargo their chief economists here. It really can't 412 00:23:31,280 --> 00:23:34,040 Speaker 1: say enough about what their team has done for us 413 00:23:34,119 --> 00:23:48,400 Speaker 1: here in the ambiguities of the moment, joining us now, 414 00:23:48,480 --> 00:23:51,119 Speaker 1: and I want to do a really more focused discussion 415 00:23:51,160 --> 00:23:54,159 Speaker 1: here on the distance across what, in my ute was 416 00:23:54,200 --> 00:23:57,480 Speaker 1: the foremost straight Trust me, there's been people from Taiwan 417 00:23:57,960 --> 00:24:00,399 Speaker 1: over the years, led by Scarlet Food, that grabbed me 418 00:24:00,440 --> 00:24:02,240 Speaker 1: by the bow times it shut up. This is the 419 00:24:02,280 --> 00:24:05,960 Speaker 1: way it is. Libby Cantell is expert in looking at 420 00:24:06,000 --> 00:24:09,000 Speaker 1: the way it is in Washington. She's head of public 421 00:24:09,040 --> 00:24:12,320 Speaker 1: policy at PIMCO. Libby, I want to get away from 422 00:24:12,320 --> 00:24:16,359 Speaker 1: the zeitgeist bologny and know that Pelosi made a trip 423 00:24:16,400 --> 00:24:20,960 Speaker 1: to Taiwan, the former speaker, but other politicians have followed 424 00:24:21,119 --> 00:24:28,239 Speaker 1: on what is our relationship with Taiwan right now? Yeah? Well, 425 00:24:28,240 --> 00:24:31,720 Speaker 1: good morning, Tom starting out with the light questions here 426 00:24:31,760 --> 00:24:33,960 Speaker 1: on a Monday morning. Yeah, I mean, you know, I 427 00:24:34,000 --> 00:24:38,480 Speaker 1: think the sort of the purpose of certainly former Speaker 428 00:24:38,520 --> 00:24:42,240 Speaker 1: Pelosi and then the delegation that just would actually last 429 00:24:42,280 --> 00:24:45,879 Speaker 1: week is to, in many ways, I think, send a 430 00:24:45,880 --> 00:24:49,920 Speaker 1: pretty strong signal to China that the United States will 431 00:24:49,960 --> 00:24:54,800 Speaker 1: continue to support Taiwan. Now, of course, our policy in 432 00:24:54,880 --> 00:24:57,960 Speaker 1: terms of strategic ambiguity has not changed in terms of 433 00:24:58,040 --> 00:25:01,280 Speaker 1: kind the one the one China policy, but we are, 434 00:25:01,520 --> 00:25:04,240 Speaker 1: I think very much sort of sending a signal that, 435 00:25:04,359 --> 00:25:08,600 Speaker 1: should that change, should China in particular do anything to 436 00:25:08,640 --> 00:25:12,960 Speaker 1: disrupt that very kind of fragile, tenuous relationship, that the 437 00:25:13,080 --> 00:25:16,840 Speaker 1: United States will will sort of back up Taiwan. And 438 00:25:16,880 --> 00:25:19,800 Speaker 1: of course there's some preemptive measures that the United States 439 00:25:19,880 --> 00:25:21,879 Speaker 1: is taking in terms of providing arms and what have 440 00:25:22,000 --> 00:25:24,639 Speaker 1: you to make Taiwan sort of a porcupine, so to speak, 441 00:25:25,480 --> 00:25:28,120 Speaker 1: in terms of being able to defend itself. But again, 442 00:25:28,160 --> 00:25:31,960 Speaker 1: I think these visits in themselves are very symbolic in 443 00:25:32,040 --> 00:25:34,200 Speaker 1: terms of sending a signal to China that the United 444 00:25:34,240 --> 00:25:39,120 Speaker 1: States well is monitoring this relationship. Perfectly said, They're symbolic, 445 00:25:39,359 --> 00:25:42,879 Speaker 1: except all of a sudden the Secretary Defense is talking 446 00:25:42,920 --> 00:25:46,439 Speaker 1: to mister Marcos, the younger of the Philippines about I 447 00:25:46,480 --> 00:25:50,399 Speaker 1: believe for bases over there and there's relationships with Japan. 448 00:25:50,480 --> 00:25:54,639 Speaker 1: Do you see in the Republican Democrat bipartisan debate on 449 00:25:54,840 --> 00:26:00,720 Speaker 1: China a new Pacific rim policy of Capitol Hill in Washington. 450 00:26:02,040 --> 00:26:04,879 Speaker 1: I think politically that's quite it's quite difficult to do 451 00:26:04,920 --> 00:26:07,720 Speaker 1: anything formal. Of course, as you as you know, Tom, 452 00:26:07,720 --> 00:26:10,639 Speaker 1: the Trans Pacific Partnership was in some ways trying to 453 00:26:10,680 --> 00:26:14,280 Speaker 1: get to that and trying to isolate China, at least 454 00:26:14,359 --> 00:26:17,359 Speaker 1: economically from a trade perspective. But I do think that 455 00:26:17,440 --> 00:26:20,720 Speaker 1: sort of a de facto policy is emerging, both from 456 00:26:20,760 --> 00:26:24,399 Speaker 1: the administration's perspective and also a Capital Hill perspective to really, um, 457 00:26:24,680 --> 00:26:27,280 Speaker 1: you're do to try to try to alienate China or 458 00:26:27,320 --> 00:26:32,120 Speaker 1: try to isolate China geographically, John, this is chilling, and 459 00:26:32,160 --> 00:26:35,880 Speaker 1: that it's a discussion from my youth. It's like it's 460 00:26:35,920 --> 00:26:39,080 Speaker 1: like a war back to I'm guessing off the top 461 00:26:39,119 --> 00:26:40,840 Speaker 1: of my head seventy two. Well, there was a how 462 00:26:40,880 --> 00:26:43,399 Speaker 1: we'd left some of this behind, Tom, But it's so 463 00:26:43,440 --> 00:26:45,840 Speaker 1: many different ways. Yes, you're very well said, Thank you, 464 00:26:45,840 --> 00:26:49,080 Speaker 1: you're well said, so you didn't great, but you were 465 00:26:49,160 --> 00:26:51,520 Speaker 1: Wilson Libya. I want to go to a publication in 466 00:26:51,600 --> 00:26:53,600 Speaker 1: Germany that came out with a report last week that 467 00:26:53,680 --> 00:26:57,000 Speaker 1: a Chinese manufacturer was in discussions with Russia to sell 468 00:26:57,080 --> 00:27:00,080 Speaker 1: them drones. Libby, the United States and the administration and 469 00:27:00,119 --> 00:27:02,680 Speaker 1: have been very transparent about the intelligence they've been receiving. 470 00:27:02,720 --> 00:27:05,119 Speaker 1: They say it's a risk, we want to understand what 471 00:27:05,119 --> 00:27:07,720 Speaker 1: the consequences might be. Maybe what you have in mind 472 00:27:07,880 --> 00:27:11,080 Speaker 1: if that did so happen. Yeah, I mean, I think John, 473 00:27:11,160 --> 00:27:13,280 Speaker 1: you're exactly right that the administration is really trying to 474 00:27:13,320 --> 00:27:16,080 Speaker 1: be as sort of transparent and forthcoming here in terms 475 00:27:16,119 --> 00:27:18,879 Speaker 1: of their warnings to China. Of course we don't. It 476 00:27:18,880 --> 00:27:21,480 Speaker 1: doesn't seem like we have intelligence that they are providing 477 00:27:21,640 --> 00:27:25,200 Speaker 1: military or lethal aid to Russia, but a pretty stark 478 00:27:25,240 --> 00:27:28,040 Speaker 1: warning from Blanket, from secondary State blank and other folks 479 00:27:28,480 --> 00:27:31,520 Speaker 1: that if they should that there will be consequences. In 480 00:27:31,600 --> 00:27:35,000 Speaker 1: terms of those consequences, John, there are secondary sanctions that 481 00:27:35,080 --> 00:27:36,960 Speaker 1: has been something sort of on the tip of the 482 00:27:37,040 --> 00:27:40,520 Speaker 1: tongue of many members of Congress really since the Russian 483 00:27:40,520 --> 00:27:43,080 Speaker 1: invasion of Ukraine, and a sort of this view that 484 00:27:43,240 --> 00:27:46,640 Speaker 1: China has been, you know, kind of complicit in all 485 00:27:46,680 --> 00:27:49,720 Speaker 1: of this, so I think secondary sanctions would absolutely be 486 00:27:49,720 --> 00:27:52,000 Speaker 1: on the table, and then more export controls. Of course, 487 00:27:52,000 --> 00:27:56,040 Speaker 1: we saw the administration move forward with pretty punitive export controls, 488 00:27:56,160 --> 00:28:00,760 Speaker 1: pretty focused however, on advanced semiconductor chips that could also 489 00:28:01,160 --> 00:28:04,359 Speaker 1: expand to other sectors. Should again, should there be intelligence 490 00:28:04,400 --> 00:28:07,119 Speaker 1: that China is providing lethal age to Russia. Of course 491 00:28:07,119 --> 00:28:09,240 Speaker 1: there isn't that yet. We should we should just clarify. 492 00:28:09,920 --> 00:28:12,040 Speaker 1: But if there, if that shouldn't come to sort of 493 00:28:12,040 --> 00:28:14,960 Speaker 1: public lights. I think that Congress in particular will move 494 00:28:15,720 --> 00:28:17,879 Speaker 1: forward pretty quickly on this. Libby, Can we talk about 495 00:28:17,880 --> 00:28:19,800 Speaker 1: a couple of cross currents at the moment, then, so 496 00:28:20,000 --> 00:28:22,880 Speaker 1: the administration seems to be on the same page as Congress, 497 00:28:22,920 --> 00:28:25,520 Speaker 1: both Republicans and Democrats when it comes to containing so 498 00:28:25,680 --> 00:28:29,560 Speaker 1: the competitives, the economic threat that maybe the Chinese communist poses. 499 00:28:29,840 --> 00:28:31,800 Speaker 1: At the same time, we seem to have this fraying 500 00:28:32,119 --> 00:28:35,439 Speaker 1: when it comes to supporting Ukraine and the military effort 501 00:28:35,680 --> 00:28:39,040 Speaker 1: in Ukraine within Washington, DC. If we put all of 502 00:28:39,080 --> 00:28:43,400 Speaker 1: that together, and let's say we face the very real possibility, possibility, 503 00:28:43,480 --> 00:28:47,200 Speaker 1: probability of ending up in a proxy war with China 504 00:28:47,280 --> 00:28:51,760 Speaker 1: in Ukraine. What would support look like in Congress to 505 00:28:51,920 --> 00:28:57,200 Speaker 1: continue funding the military effort of Ukraine against Russia. Yeah, 506 00:28:57,200 --> 00:28:58,560 Speaker 1: I think I think, just to be clear, I think 507 00:28:58,600 --> 00:29:01,200 Speaker 1: the administration wants us to be a proxy war at all. 508 00:29:01,320 --> 00:29:03,960 Speaker 1: And I would say m John that although there have 509 00:29:04,000 --> 00:29:06,280 Speaker 1: of course been a lot of media reports about the 510 00:29:06,400 --> 00:29:10,160 Speaker 1: softening support, especially among Republicans in terms of supporting Ukraine, 511 00:29:10,240 --> 00:29:13,640 Speaker 1: I think that's a bit overstated. You would, I would 512 00:29:13,640 --> 00:29:16,440 Speaker 1: contend that the Center has very much held in terms 513 00:29:16,480 --> 00:29:20,400 Speaker 1: of the support for Ukraine. You had Minority Leader Mitch 514 00:29:20,440 --> 00:29:26,880 Speaker 1: McConnell very emphatically saying that the support for Ukraine will continue. 515 00:29:26,920 --> 00:29:28,760 Speaker 1: That may come with more conditions, a little bit more 516 00:29:28,800 --> 00:29:31,920 Speaker 1: oversight from this Republican House in particular, but I think 517 00:29:31,960 --> 00:29:34,640 Speaker 1: we should not, you know. The sort of the point 518 00:29:34,720 --> 00:29:37,600 Speaker 1: here is that there is a lot of Congressional support 519 00:29:37,680 --> 00:29:40,680 Speaker 1: for Ukraine regardless of what happens with China, and then 520 00:29:40,720 --> 00:29:43,200 Speaker 1: of course avid does devolve into a proxy war, which 521 00:29:43,200 --> 00:29:45,880 Speaker 1: again I don't think anybody wants, particularly in the administration. 522 00:29:46,400 --> 00:29:48,600 Speaker 1: I think you can you'll continue to see even more 523 00:29:48,640 --> 00:29:52,280 Speaker 1: support lebby quick questions sharp Sigui if I may in 524 00:29:52,360 --> 00:29:56,000 Speaker 1: the headlines of the papers today. Is this never ending 525 00:29:56,160 --> 00:30:01,680 Speaker 1: legal debate on student loans? Is that age Washington or 526 00:30:01,800 --> 00:30:04,520 Speaker 1: is that a story that's off the radar. No, I 527 00:30:04,560 --> 00:30:07,200 Speaker 1: think it's very much engaged Washington. It's also a really 528 00:30:07,240 --> 00:30:11,120 Speaker 1: important issue for a lot of Democratic voters, in particular 529 00:30:11,120 --> 00:30:14,240 Speaker 1: a lot of young voters. More broadly, so I think 530 00:30:14,240 --> 00:30:15,840 Speaker 1: a lot of folks are going to be watching this, 531 00:30:16,160 --> 00:30:18,000 Speaker 1: you know, I think, you know, our view has been 532 00:30:18,120 --> 00:30:22,040 Speaker 1: that the legal justification for the student loan cancelation was 533 00:30:22,080 --> 00:30:25,280 Speaker 1: a bit tenuous. Even speaker performer super Pelosi had said 534 00:30:25,320 --> 00:30:27,200 Speaker 1: that Congress neated to do it, and Joe Briden had 535 00:30:27,520 --> 00:30:29,520 Speaker 1: had said that at one point as well, that is 536 00:30:29,560 --> 00:30:32,960 Speaker 1: actually in Congress's remet, not the administration. So, you know, 537 00:30:32,960 --> 00:30:35,800 Speaker 1: I think we would be surprised if the court sided 538 00:30:35,840 --> 00:30:38,400 Speaker 1: with the administration. But of course a court decision probably 539 00:30:38,480 --> 00:30:40,040 Speaker 1: is not going to come until you know, next year, 540 00:30:40,360 --> 00:30:42,680 Speaker 1: sort of later this year, excuse me, um, So you know, 541 00:30:42,680 --> 00:30:44,600 Speaker 1: we'll have to see. But yes, I think that lots 542 00:30:44,640 --> 00:30:47,480 Speaker 1: of people will be paying attention to those those arguments 543 00:30:47,520 --> 00:30:49,880 Speaker 1: this week in front of the Supreme Court. Maybe this 544 00:30:49,920 --> 00:30:52,520 Speaker 1: was nice, it's been so long, you know, maybe spen 545 00:30:52,520 --> 00:30:59,480 Speaker 1: affording us never I'd rather, I'd rather you've be talking 546 00:30:59,520 --> 00:31:01,880 Speaker 1: about the Denver brocos, though at least you know well 547 00:31:03,160 --> 00:31:05,800 Speaker 1: to do that. It's so depressing that you know, you know, 548 00:31:05,840 --> 00:31:09,040 Speaker 1: we can thank you. Let me, can't that a fim cutt. 549 00:31:09,600 --> 00:31:13,440 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and 550 00:31:13,600 --> 00:31:17,920 Speaker 1: anywhere else you get your podcasts. Listen live every weekday, 551 00:31:18,080 --> 00:31:21,560 Speaker 1: starting at seven am Eastern. 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