Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Robert not
Speaker 1: is absolutely unique out of the University of California at
Speaker 1: Finn Kitlin, also called Santa Barbarad. He did one of
Speaker 1: the hardest things you can do in research. He did
Speaker 1: brilliant research and then kept doing it. That is an
Speaker 1: extremely rare commodity in the racket. To say his Chairman
Speaker 1: of Research Affiliates barely describes his contribution to the Chartered
Speaker 1: Financial Analyst program and to thinking out there about what
Speaker 1: to do and what not to do, rob or not.
Speaker 1: Thank you so much, and you know someone's going to
Speaker 1: say you're barish and that we'll forget about that. What's
Speaker 1: the biggest mistake right now in a type two construct?
Speaker 1: What's a thing desperately not to do right now? I
Speaker 1: think the most serious mistakes investors make our performance chasing
Speaker 1: whatever has done well by more whatever has faltered shun it,
Speaker 1: and secondly blinders focusing strictly on domestic opportunities. I'm not
Speaker 1: barish when things are cheap. Stocks outside the US are
Speaker 1: reasonably cheap. Value stocks outside the US are very cheap,
Speaker 1: and we find all sorts of narratives relating to China,
Speaker 1: relating to Ukraine for not investing outside the US. But
Speaker 1: the US has priced it more than twice the valuation
Speaker 1: to pulls of non US stocks. And so to avoid
Speaker 1: those two mistakes, it's awfully useful to think in terms
Speaker 1: of forward returns, not past returns, and forward returns are
Speaker 1: simply a function of what's the yield, what's the historical
Speaker 1: growth in income? And if there's any valuation mean reversion
Speaker 1: towards historic norms, is that going to help you or
Speaker 1: her get Do you suggest that on a national basis,
Speaker 1: US basis, or even international basis, that we're going to
Speaker 1: have a regime shift in what our interest rate will
Speaker 1: be that will allow for the fiction of a better
Speaker 1: nominal GDP, a better animal spirit out there, but in
Speaker 1: the long run won't pay off. Does Rob or not
Speaker 1: have to shift up from an anchored two percent to
Speaker 1: some kind of new interest rate regime. I think we
Speaker 1: are in a transition from a failed experiment with near
Speaker 1: zero and negative interest rates. That effort to stimulate an
Speaker 1: already growing economy was beyond foolish, and I think we're
Speaker 1: seeing the beginnings of a regime shift back to a
Speaker 1: point where interest rates matter. Think of interest rates as
Speaker 1: a speed bump if you are. If you have a
Speaker 1: speed bump on a street that's too high, it stops
Speaker 1: the traffic. If you have a speedbump that's nonexistent, you're
Speaker 1: going to get the occasional reckless driver driving way too fast.
Speaker 1: And the same thing applies with interest rates. When interest
Speaker 1: rates are too high, the economy is shuttered. Interest rates
Speaker 1: now or back to some semblance of normal. People talk
Speaker 1: about Powell channeling his inner volcre pardon me, Vulcar took
Speaker 1: the short rate to five hundred basis points above the
Speaker 1: preceding peak in inflation today, that would mean making the
Speaker 1: Fed funds rate fourteen percent. He's not channeling an inner Volker.
Speaker 1: He's dabbling with increasing rates in a fashion that hopefully
Speaker 1: won't do too much damage. And it's all based on
Speaker 1: a very naive neo Kinsian view that you have to
Speaker 1: you have to wreck the economy in order terranean inflation.
Speaker 1: Rob or not help me with the idea of my
Speaker 1: theme for twenty twenty three, which is, if we get
Speaker 1: a normal rate regime, something many of our listeners and
Speaker 1: viewers have never experienced. Let's say we get back to
Speaker 1: a regime of sixteen, seventeen, even twenty years ago, that
Speaker 1: we will see what I call the great zombie roll up,
Speaker 1: and that there's all sorts of companies out there, domestic
Speaker 1: and international that just aren't going to make it. How
Speaker 1: can you profit from that? Well, you can profit from
Speaker 1: that by investing broadly diversified into markets that are cheap,
Speaker 1: and we'll cush in the damage of those. You can
Speaker 1: avoid that damage by looking at quality metrics and not
Speaker 1: investing in companies that are highly likely to go bust.
Speaker 1: You can measure interest rate sensitivity for companies and companies
Speaker 1: that have large debt, be very wary. Don't own them
Speaker 1: unless they're really cheap. And there's a lot of companies
Speaker 1: in the meme stock community that have huge debt, and
Speaker 1: as that debt gets repriced, they're likely to struggle so
Speaker 1: the notion that high interest rates are going to hurt
Speaker 1: the value stocks is actually way too simplistic. I look
Speaker 1: at one of the great quotes last year, something I
Speaker 1: think that you will appreciate Nasiemtoleb always controversial, saying, well,
Speaker 1: the physics is back, the gravity's back, and the equations,
Speaker 1: and you've certainly alluded to that, Rob. What I notice
Speaker 1: also is we've become addicted in our modern to bringing
Speaker 1: in our hold period of average investments from years into months,
Speaker 1: if dare I say not even days as well. If
Speaker 1: we get the tile up gravity, if we get the
Speaker 1: world you talk about, obviously I agree with you, are
Speaker 1: we going to learn that we have to have a
Speaker 1: longer holding period for our investments. I think holding period
Speaker 1: should be a function of where your personal skill set is.
Speaker 1: If your skill is in short term trading, I would
Speaker 1: never advocate that Kim Griffin take up the idea of
Speaker 1: bicycle investing. He's doing the rest of us a huge
Speaker 1: favor by trying to scalp a fraction of a penny
Speaker 1: off of every trade you make. It gives you great liquidity,
Speaker 1: and so focus on what you're good at. I'm focused
Speaker 1: on long term I'm a long term investor. I want
Speaker 1: short term investors to be there to provide the liquidity,
Speaker 1: and folks who are not do it a short term
Speaker 1: but playing the short term game. They're also providing liquidity,
Speaker 1: but they're likely to get badly hurt, and they often do.
Speaker 1: Let me finish up, Rob with the arch question. All
Speaker 1: my radars up on this is I've got the usual
Speaker 1: active managers trotting out telling me this is the time
Speaker 1: for active to outperform, and many of them ascribe to
Speaker 1: your international view, Rob, are not an update on active
Speaker 1: versus passive? Please, I think the whole active versus passive
Speaker 1: thing is a complete distraction active managers. The passive managers
Speaker 1: own the market. That means that if you take them
Speaker 1: out of the equation, what you're left with is that
Speaker 1: same portfolio. That's what the active managers did. You out
Speaker 1: so the active an active manager can win, but generally
Speaker 1: only if another active manager is losing. So it's a
Speaker 1: silly game to say this is a great environment for
Speaker 1: active investors or a great environment for passive. The before
Speaker 1: fee performance of actively manage mutual funds is nearly identical
Speaker 1: to that of passive and it always has been and
Speaker 1: it always will be. So the key question is can
Speaker 1: you choose active managers who are likely to have an
Speaker 1: edge and whose success will be funded by other active
Speaker 1: managers who bets don't work. Look for that in your investing,
Speaker 1: rob We got to leave it there. Robert Not, thank
Speaker 1: you so much with research affiliates, and I really can't
Speaker 1: say the uniqueness of his research energy. No one has
Speaker 1: done more in securities research over a longer time than
Speaker 1: Robert Not. Check out so much of his work with
Speaker 1: the CFA program in Charlottesville, Virginia, joining us now always
Speaker 1: lecturing on econ one on one. Francis Donald Global Chief
Speaker 1: Economists Strategists Manual Life of Canada and America. Francis, good
Speaker 1: to see you again. Let me cut to the chase.
Speaker 1: We have a fed in action. They are wildly expost
Speaker 1: what is the data after the fact that matters. There's
Speaker 1: a lot of data that matters. But I suspect we're
Speaker 1: going to be moving away from the traditional what is GDP,
Speaker 1: what is the unemployment rate? What is CPI? We're going
Speaker 1: to have to get a lot deeper moving forward. And
Speaker 1: that's because well, the nature of growth and how the
Speaker 1: slowdown in the pack in the economy is likely to
Speaker 1: be uneven. Yes, we are probably going to see a
Speaker 1: lower unemployment rate than we have and past slowdown orbit sessions,
Speaker 1: but the composition of it will matter. For example, during
Speaker 1: COVID we had millions of millions of job losses, but
Speaker 1: they were a low wage job that didn't hit GDP.
Speaker 1: In the coming we might those tech in finances having
Speaker 1: a larger impact, and inflation will be problematic because it's
Speaker 1: not about the headline number anymore. It's going to be
Speaker 1: about what segment of remaining inflation is interest rate sensitive
Speaker 1: or not. So Unfortunately, that level one data is not
Speaker 1: going to be enough to tell the story or what
Speaker 1: the Fed's going to do anymore. We're gonna have to
Speaker 1: work a little bit harder. In twenty twenty three, explain
Speaker 1: the goods services partition of inflation. Explain those two vectors.
Speaker 1: As we look at the vectors to march, well, this
Speaker 1: one in some ways of straightforward. We know the unlined
Speaker 1: from COVID is going to push down on the good
Speaker 1: side and services where you have that remaining component. But
Speaker 1: I'm looking a little bit further than that, which is
Speaker 1: right now, we still have inflation that is interest rate sensitive,
Speaker 1: it matters. We're really pulling down on that excess savings
Speaker 1: the demand side of the equation. But it's not so
Speaker 1: much goods and services that keeps me up at night.
Speaker 1: It's supply versus demand. And when we get to later
Speaker 1: this year, how is the FED going to be commenting
Speaker 1: we're combating the remaining inflation which is food price inflation
Speaker 1: centric or do you a political driven or ESG driven.
Speaker 1: We're going to have to have a moment, not just
Speaker 1: from the Fed but from global central bankers, and I
Speaker 1: think it's going to start this year. So they have
Speaker 1: to admit their ability to control that CPI number is
Speaker 1: waging both on a cyclical factor in this year and next,
Speaker 1: but also on a structural basis. And franstis with that
Speaker 1: in mind, when nice I we want to get sufficient
Speaker 1: and restrictive, what does that mean? Your guess is as
Speaker 1: good as mind. But I think what they're looking for
Speaker 1: is more balanced in the economy, and of course they
Speaker 1: are getting it. They got a lot of it in
Speaker 1: twenty twenty two. Here we are talking about what does
Speaker 1: the landing look like? I'm looking backwards at twenty twenty
Speaker 1: two and saying that looked like the landing. To me,
Speaker 1: we had significant drawn down and housing a bear market
Speaker 1: in the s and P. Did that not qualify as
Speaker 1: the significant slowdown? Now we're looking down, we're saying we're landed.
Speaker 1: The question is do we hit the wall at the
Speaker 1: end of this runway. That's what we're focusing on moving forward.
Speaker 1: What is the wall at the end of the run wife,
Speaker 1: recession or the fact that you think they're going to
Speaker 1: have to accept the hire and fly right. Yeah, I
Speaker 1: think it's a little bit of the two of them,
Speaker 1: but it depends on your timeline. When I look at
Speaker 1: the wall at the end of the runway, what concerns
Speaker 1: me actually isn't two quarters of negative growth that hasn't
Speaker 1: been for the last year. It's this concept of something
Speaker 1: we've been discussing internally which puts a pit in my stomach,
Speaker 1: a concept like rolling recessions or when you look back
Speaker 1: in history sometimes we see these periods of expansion downturns
Speaker 1: that fluctuate very quickly, very difficult to manage money in
Speaker 1: that type of environment. And if we're heading into a
Speaker 1: period where GDP is oscillating around zero, slightly above slightly below,
Speaker 1: we're going to spend all our time arguing over whether
Speaker 1: or not it qualifies as a recession or not focusing
Speaker 1: on the big story, which is we are not in reflation.
Speaker 1: We're much closer to stagflation. We are not in the
Speaker 1: roaring twenties. We're going to be in a slower growth
Speaker 1: environment with a lot of particularities that we have not
Speaker 1: seen in the past. What is your when on this, Francis?
Speaker 1: I mean, we had Matt Lazettian from Deutsche Bank who
Speaker 1: was brilliant on a delayed recession call when is the
Speaker 1: is the when not of recession or nbeer recession, but
Speaker 1: what is the when of outright stagflation? I heard that interview,
Speaker 1: I thought it was great, and I'm going to agree
Speaker 1: with Matt that it's towards the end of twenty twenty
Speaker 1: three is the problem, and especially around June July. This
Speaker 1: is when the year over year comps for inflation get
Speaker 1: a little bit trickier and a concerned. That's when the
Speaker 1: momentum and disinflation begins to pause out and based on
Speaker 1: our traditional leading indicators of the economy, by the mid
Speaker 1: to end of twenty twenty three, that's when we're probably
Speaker 1: going to start to see the consumer and the jobs
Speaker 1: picture begin to decline. But at the same time, Tom,
Speaker 1: we have to evaluate those leading indicators. Should we rely
Speaker 1: on them the same way that we have in the past. Francis,
Speaker 1: I want to segui here over to your knowledge of
Speaker 1: Canadian macroeconomics. What could your own Powell learn from the
Speaker 1: Bank of Canada. I look at select developed nation banks
Speaker 1: and they're taking a different path than the FED. What's
Speaker 1: a lesson learned from the Bank of Canada for Washington. Well,
Speaker 1: here's the challenge in Canada and then many of the
Speaker 1: smaller developed economies. You have even less ability to control
Speaker 1: inflation with your domestic interest rates. And this is what
Speaker 1: the bigger bind for the FED going into the next
Speaker 1: year is that if you're Australia or Canada, you're at
Speaker 1: the point where your impact on your economy from higher
Speaker 1: interest rates becomes much more severe, particularly because of the
Speaker 1: housing reliance, and your ability to control inflation begins to decline.
Speaker 1: So when I think about the FED versus the Bank
Speaker 1: of Canada, what I see is the problematic situation where
Speaker 1: the FED can tighten global financial conditions, but the Bank
Speaker 1: of Canada cannot. It's going to create a much bigger
Speaker 1: divide between these secial banks moving forward. I mean, John,
Speaker 1: this is what it's about. I set her up with
Speaker 1: that question to go to. You imagine the Bank of
Speaker 1: England and what they have to do or ECB. If
Speaker 1: Jerome Powell legs it out with inversion of ninety five
Speaker 1: one hundred basis points, with the thirty year mortgage going
Speaker 1: through to new high interest rates, or the Bloomberg Total
Speaker 1: Return INDECKS moving down in price to under October level,
Speaker 1: what does that mean for the other banks? They were
Speaker 1: all wrestling with similar issues though, And I think Francis
Speaker 1: you've touched on it the character of this new economy
Speaker 1: that we might face labor hoarding. Can you work a
Speaker 1: little bit more on that, Francis, just go through it
Speaker 1: piece by piece, the post pandemic labor market realities. What
Speaker 1: are they? Do you think that just haven't been accepted
Speaker 1: just yet. Well, let's keep it simple. Take a look
Speaker 1: at the employment to population ratio. What percentage of Americans
Speaker 1: are working? Forty percent of Americans are not working. Move
Speaker 1: aside the labor first participation rate in all of its equivalence.
Speaker 1: We're also looking at an economy where we have fewer
Speaker 1: people than before the pandemic. We're missing over two million workers.
Speaker 1: Where did they go? A lot of them retired early,
Speaker 1: a lot of them got set up with this market,
Speaker 1: a lot of them are dealing with cuttlecare and health issues.
Speaker 1: We have not come to the reality yet that our
Speaker 1: concepts of demand and supply for labor for wages may
Speaker 1: not work the same way our textbooks told them told
Speaker 1: us they did for the last several decades. So our
Speaker 1: new questions on how evaluate what brings labor back to
Speaker 1: the market, I think those are going to have to
Speaker 1: change pretty significant. Francis, what is it do you think
Speaker 1: that brings labor back to this market? Well, we know
Speaker 1: from history if you make people poor enough, they will
Speaker 1: have to go back to work. But is that what
Speaker 1: we should be doing? And is that what central banks
Speaker 1: should be doing? And this is the big challenge I
Speaker 1: have when I hear central bank saying we're going to
Speaker 1: reduce demand to bring him back into supply. But when
Speaker 1: you have supply shops that are continuous, is really the
Speaker 1: medicine worth secure in this particular environment? What is the
Speaker 1: rule of the the central bank control insleation and employment or
Speaker 1: make the lives of the citizens of this country better.
Speaker 1: This is going to be a problematic question for central
Speaker 1: banks moving Forwarding the next question further down the road,
Speaker 1: do you think politically that these institutions are going to
Speaker 1: come into some real trouble once people start to figure
Speaker 1: out the electrics starts to fick around, that their vote
Speaker 1: in the election is perhaps less important than what happens
Speaker 1: across the road the feder Reserve. Well, we're certainly, i
Speaker 1: think already beginning to see the challenges associated there that
Speaker 1: when you begin to recognize what impacts your mortgage and
Speaker 1: how much things cost, that really that's more of a
Speaker 1: monetary policy question. We're all not just a general public,
Speaker 1: but financial services are also going to have to have
Speaker 1: a moment where we realize monetary policy dominance, which has
Speaker 1: ruled so much in the way that we invest money
Speaker 1: and live our lives. Maybe see that challenging, especially because
Speaker 1: moving forward, the insallation in the system is likely to
Speaker 1: become less interest right sensitive, not more. We're gonna have
Speaker 1: to have a moment where we come and recognize that
Speaker 1: central banks need to do it, investors need to do it.
Speaker 1: Eventually the general public will do it too. Francis, we've
Speaker 1: missed you. It's good to have you back. And happy
Speaker 1: birthday for last week because we didn't get to do
Speaker 1: this last week. Thank you. Francis Donald a manual Life
Speaker 1: Investment Management. It is joy to bring in out Jay Bryson.
Speaker 1: He is chief economist at Wills Figer with a truly
Speaker 1: international band. Jay, let me start with the basic idea.
Speaker 1: Is Jerome Powell the banker to the world? Is he
Speaker 1: the central banker to the world now in honor of
Speaker 1: Bill Rhodes? Yeah, I mean I think in general, I
Speaker 1: think you know, the Chairman of the Federal Reserve over
Speaker 1: or the number of years, has been the most important banker. Now,
Speaker 1: you know, is he banker to the world? Is he
Speaker 1: here to bail out the rest of the world? No,
Speaker 1: not necessarily right, they only have really two objectives. That's
Speaker 1: inflation in the United States and the unemployment. Right, but
Speaker 1: clearly the central of the Federal Reserve is the most
Speaker 1: important central bank in the world. My recollection is you
Speaker 1: memorize the tailor rule watching March Madness down at Chapel
Speaker 1: Hill many many years ago. I miss this Today one
Speaker 1: of our previous guests, Jay had it out how distorted
Speaker 1: the tailor rule is once again Towardsten Slock, suggesting up
Speaker 1: near a nine even ten percent Taylor rule. What's the
Speaker 1: Powell rule right now? What's the equation Jerome Powell's using
Speaker 1: if the Tailor rule is busted? Well, so you think
Speaker 1: about the Taylor role. I mean there's you know, two
Speaker 1: two variables in there. Well, one would be inflation and
Speaker 1: one would be you know, the unemployment rate or the
Speaker 1: gap there I'll put gap and I think there, Um,
Speaker 1: the the overwhelming weight is on inflation right now. Yeah, Um,
Speaker 1: that's that's and it's you know, the FED right now
Speaker 1: is much more reactionary than forward looking. I mean, you know,
Speaker 1: if you think back to uh Jackson Hole a few
Speaker 1: years ago, I mean essentially throughout the forward looking sort
Speaker 1: of stuff, our square starred et cetera, et cetera. It's
Speaker 1: it's all about where is the economy right now? And
Speaker 1: they're kind of really trying to feel their way in.
Speaker 1: But again, it's all about inflation right now. Um, we're
Speaker 1: all the big all the weight is, it's so much
Speaker 1: of this is our complete focus on the FED. Are
Speaker 1: we going to be doing this all year? I mean
Speaker 1: the fed derby, the dots derby, the Michael McKee, Derby J. Bryson.
Speaker 1: Are we going to be doing this for the rest
Speaker 1: of of the year, you know? I think so, Tom.
Speaker 1: I think it's going to be a high weight on
Speaker 1: what the FED is doing now. If we get in,
Speaker 1: you know, a few months from now and it looks
Speaker 1: like the economy is really starting to slip, I think
Speaker 1: what really becomes important now or initial jobless claims and
Speaker 1: other labor market sort of variables. But for the foreseeable future,
Speaker 1: I think it's really all about the Fed. Can we
Speaker 1: I'm looking into this almost as domestic final sales, can
Speaker 1: we quote unquote slip or can we just say it's
Speaker 1: the housing market and other financial distortions slipping and the
Speaker 1: rest of it does pretty well? Like durable goods just showed.
Speaker 1: How does that Nick's play out? Yeah, So, you know,
Speaker 1: if you think about the consumer right now, the consumer
Speaker 1: is very very strong financially, and so you could have
Speaker 1: a recession this year in say manufacturing, you know, strong dollar,
Speaker 1: weaker growth than the rest of the world. You could
Speaker 1: have weakness in the housing market. I mean, that's what
Speaker 1: we've seen for the last you know, almost year now.
Speaker 1: But consumer spending could continue to hold in there, and
Speaker 1: given the fact that consumer spending is seventy percent of
Speaker 1: the economy, you could have a few sectors in the
Speaker 1: economy in kind of a recession and the overall economy
Speaker 1: wouldn't necessarily to tip into recession. I mean, I mean,
Speaker 1: it's right where I wanted to go, as you got
Speaker 1: an nbeer recession here, and I note yield's coming in
Speaker 1: abruptly here. Two year yield into four point seven eight
Speaker 1: percent down three basis points. Ten year yield migrates away
Speaker 1: two down two basis points with a little bit, just
Speaker 1: a little bit of curve in version. I don't oversell
Speaker 1: that future is up thirty jay, I look at the
Speaker 1: stew as Lisa would say that we're in and to me,
Speaker 1: I want to just as you said, partition it. If
Speaker 1: we slow down, we don't all slow down, do we. No,
Speaker 1: that's right. I mean, you know the economy. You know,
Speaker 1: there's lots of different sectors in the economy. You think
Speaker 1: back tom about you know, back to two fifteen, two
Speaker 1: thousand sixteen, China was having some real problems. The manufacturing
Speaker 1: sector back then was in a recession. The overall US
Speaker 1: economy was not in a recession, so you can have
Speaker 1: different sectors going down and not the whole ship going down. Now,
Speaker 1: if some of those sectors go down a lot, like
Speaker 1: manufacturing and housing, and then you start to get job
Speaker 1: losses in there, then it does start to bleed into
Speaker 1: other sorts of sectors in the economy. So it's a
Speaker 1: really tricky situation that the FED finds itself in right now.
Speaker 1: Ja Bryson to the global footprint, which you commanded for
Speaker 1: years at Wells Fargo. How urgent is it for IMF
Speaker 1: right now? You've got the Nigerian elections in that, But
Speaker 1: how how of a moment is it right now for
Speaker 1: the International Monetary Fund? Well, you know, if you look
Speaker 1: around the world right now, you know, most of the
Speaker 1: world is slowing down right now. You know, if you
Speaker 1: look at Europe and now, it's not as bad as
Speaker 1: what it was saying, you know six months ago when
Speaker 1: energy prices were through the roof over there. You know, fortunately,
Speaker 1: when you look around the world, there are not signs
Speaker 1: of big debt bubbles we had say twenty years ago
Speaker 1: in Asia places like that. Right So obviously, you know
Speaker 1: the IMF is you know, obviously very very important institution
Speaker 1: around the world. But in My sense is the overall
Speaker 1: global economy right now is okay, but you know, it's
Speaker 1: obviously the fraught geopolitical situation, potential for lots of different
Speaker 1: sorts of shocks, and so it's good to have that
Speaker 1: backstop of the IMF there if in fact it's needed.
Speaker 1: Jay Brickson, thank you so much for joining us today
Speaker 1: with Wells Fargo their chief economists here. It really can't
Speaker 1: say enough about what their team has done for us
Speaker 1: here in the ambiguities of the moment, joining us now,
Speaker 1: and I want to do a really more focused discussion
Speaker 1: here on the distance across what, in my ute was
Speaker 1: the foremost straight Trust me, there's been people from Taiwan
Speaker 1: over the years, led by Scarlet Food, that grabbed me
Speaker 1: by the bow times it shut up. This is the
Speaker 1: way it is. Libby Cantell is expert in looking at
Speaker 1: the way it is in Washington. She's head of public
Speaker 1: policy at PIMCO. Libby, I want to get away from
Speaker 1: the zeitgeist bologny and know that Pelosi made a trip
Speaker 1: to Taiwan, the former speaker, but other politicians have followed
Speaker 1: on what is our relationship with Taiwan right now? Yeah? Well,
Speaker 1: good morning, Tom starting out with the light questions here
Speaker 1: on a Monday morning. Yeah, I mean, you know, I
Speaker 1: think the sort of the purpose of certainly former Speaker
Speaker 1: Pelosi and then the delegation that just would actually last
Speaker 1: week is to, in many ways, I think, send a
Speaker 1: pretty strong signal to China that the United States will
Speaker 1: continue to support Taiwan. Now, of course, our policy in
Speaker 1: terms of strategic ambiguity has not changed in terms of
Speaker 1: kind the one the one China policy, but we are,
Speaker 1: I think very much sort of sending a signal that,
Speaker 1: should that change, should China in particular do anything to
Speaker 1: disrupt that very kind of fragile, tenuous relationship, that the
Speaker 1: United States will will sort of back up Taiwan. And
Speaker 1: of course there's some preemptive measures that the United States
Speaker 1: is taking in terms of providing arms and what have
Speaker 1: you to make Taiwan sort of a porcupine, so to speak,
Speaker 1: in terms of being able to defend itself. But again,
Speaker 1: I think these visits in themselves are very symbolic in
Speaker 1: terms of sending a signal to China that the United
Speaker 1: States well is monitoring this relationship. Perfectly said, They're symbolic,
Speaker 1: except all of a sudden the Secretary Defense is talking
Speaker 1: to mister Marcos, the younger of the Philippines about I
Speaker 1: believe for bases over there and there's relationships with Japan.
Speaker 1: Do you see in the Republican Democrat bipartisan debate on
Speaker 1: China a new Pacific rim policy of Capitol Hill in Washington.
Speaker 1: I think politically that's quite it's quite difficult to do
Speaker 1: anything formal. Of course, as you as you know, Tom,
Speaker 1: the Trans Pacific Partnership was in some ways trying to
Speaker 1: get to that and trying to isolate China, at least
Speaker 1: economically from a trade perspective. But I do think that
Speaker 1: sort of a de facto policy is emerging, both from
Speaker 1: the administration's perspective and also a Capital Hill perspective to really, um,
Speaker 1: you're do to try to try to alienate China or
Speaker 1: try to isolate China geographically, John, this is chilling, and
Speaker 1: that it's a discussion from my youth. It's like it's
Speaker 1: like a war back to I'm guessing off the top
Speaker 1: of my head seventy two. Well, there was a how
Speaker 1: we'd left some of this behind, Tom, But it's so
Speaker 1: many different ways. Yes, you're very well said, Thank you,
Speaker 1: you're well said, so you didn't great, but you were
Speaker 1: Wilson Libya. I want to go to a publication in
Speaker 1: Germany that came out with a report last week that
Speaker 1: a Chinese manufacturer was in discussions with Russia to sell
Speaker 1: them drones. Libby, the United States and the administration and
Speaker 1: have been very transparent about the intelligence they've been receiving.
Speaker 1: They say it's a risk, we want to understand what
Speaker 1: the consequences might be. Maybe what you have in mind
Speaker 1: if that did so happen. Yeah, I mean, I think John,
Speaker 1: you're exactly right that the administration is really trying to
Speaker 1: be as sort of transparent and forthcoming here in terms
Speaker 1: of their warnings to China. Of course we don't. It
Speaker 1: doesn't seem like we have intelligence that they are providing
Speaker 1: military or lethal aid to Russia, but a pretty stark
Speaker 1: warning from Blanket, from secondary State blank and other folks
Speaker 1: that if they should that there will be consequences. In
Speaker 1: terms of those consequences, John, there are secondary sanctions that
Speaker 1: has been something sort of on the tip of the
Speaker 1: tongue of many members of Congress really since the Russian
Speaker 1: invasion of Ukraine, and a sort of this view that
Speaker 1: China has been, you know, kind of complicit in all
Speaker 1: of this, so I think secondary sanctions would absolutely be
Speaker 1: on the table, and then more export controls. Of course,
Speaker 1: we saw the administration move forward with pretty punitive export controls,
Speaker 1: pretty focused however, on advanced semiconductor chips that could also
Speaker 1: expand to other sectors. Should again, should there be intelligence
Speaker 1: that China is providing lethal age to Russia. Of course
Speaker 1: there isn't that yet. We should we should just clarify.
Speaker 1: But if there, if that shouldn't come to sort of
Speaker 1: public lights. I think that Congress in particular will move
Speaker 1: forward pretty quickly on this. Libby, Can we talk about
Speaker 1: a couple of cross currents at the moment, then, so
Speaker 1: the administration seems to be on the same page as Congress,
Speaker 1: both Republicans and Democrats when it comes to containing so
Speaker 1: the competitives, the economic threat that maybe the Chinese communist poses.
Speaker 1: At the same time, we seem to have this fraying
Speaker 1: when it comes to supporting Ukraine and the military effort
Speaker 1: in Ukraine within Washington, DC. If we put all of
Speaker 1: that together, and let's say we face the very real possibility, possibility,
Speaker 1: probability of ending up in a proxy war with China
Speaker 1: in Ukraine. What would support look like in Congress to
Speaker 1: continue funding the military effort of Ukraine against Russia. Yeah,
Speaker 1: I think I think, just to be clear, I think
Speaker 1: the administration wants us to be a proxy war at all.
Speaker 1: And I would say m John that although there have
Speaker 1: of course been a lot of media reports about the
Speaker 1: softening support, especially among Republicans in terms of supporting Ukraine,
Speaker 1: I think that's a bit overstated. You would, I would
Speaker 1: contend that the Center has very much held in terms
Speaker 1: of the support for Ukraine. You had Minority Leader Mitch
Speaker 1: McConnell very emphatically saying that the support for Ukraine will continue.
Speaker 1: That may come with more conditions, a little bit more
Speaker 1: oversight from this Republican House in particular, but I think
Speaker 1: we should not, you know. The sort of the point
Speaker 1: here is that there is a lot of Congressional support
Speaker 1: for Ukraine regardless of what happens with China, and then
Speaker 1: of course avid does devolve into a proxy war, which
Speaker 1: again I don't think anybody wants, particularly in the administration.
Speaker 1: I think you can you'll continue to see even more
Speaker 1: support lebby quick questions sharp Sigui if I may in
Speaker 1: the headlines of the papers today. Is this never ending
Speaker 1: legal debate on student loans? Is that age Washington or
Speaker 1: is that a story that's off the radar. No, I
Speaker 1: think it's very much engaged Washington. It's also a really
Speaker 1: important issue for a lot of Democratic voters, in particular
Speaker 1: a lot of young voters. More broadly, so I think
Speaker 1: a lot of folks are going to be watching this,
Speaker 1: you know, I think, you know, our view has been
Speaker 1: that the legal justification for the student loan cancelation was
Speaker 1: a bit tenuous. Even speaker performer super Pelosi had said
Speaker 1: that Congress neated to do it, and Joe Briden had
Speaker 1: had said that at one point as well, that is
Speaker 1: actually in Congress's remet, not the administration. So, you know,
Speaker 1: I think we would be surprised if the court sided
Speaker 1: with the administration. But of course a court decision probably
Speaker 1: is not going to come until you know, next year,
Speaker 1: sort of later this year, excuse me, um, So you know,
Speaker 1: we'll have to see. But yes, I think that lots
Speaker 1: of people will be paying attention to those those arguments
Speaker 1: this week in front of the Supreme Court. Maybe this
Speaker 1: was nice, it's been so long, you know, maybe spen
Speaker 1: affording us never I'd rather, I'd rather you've be talking
Speaker 1: about the Denver brocos, though at least you know well
Speaker 1: to do that. It's so depressing that you know, you know,
Speaker 1: we can thank you. Let me, can't that a fim cutt.
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