1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:32,480 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Joining 5 00:00:32,600 --> 00:00:35,360 Speaker 1: us now for the main event, Greg Valier, Horizon Investment 6 00:00:35,400 --> 00:00:39,480 Speaker 1: c I and Peter Hooper, Deutsche Bank Chief Economist. Greg 7 00:00:39,479 --> 00:00:43,360 Speaker 1: the latest Gary Cone resigns the conclusion of some market 8 00:00:43,360 --> 00:00:46,879 Speaker 1: participants means that this is a shift of this administration 9 00:00:46,920 --> 00:00:52,360 Speaker 1: towards protectionism. Is that your view? Greg? Absolutely? Jonathan, the 10 00:00:52,600 --> 00:00:55,880 Speaker 1: free traders have lost. I think this means nafter is 11 00:00:55,920 --> 00:00:59,760 Speaker 1: on sin I's I think new sanctions against China are imminent, 12 00:01:00,280 --> 00:01:04,000 Speaker 1: and maybe most intriguingly, there is an open rebellion among 13 00:01:04,120 --> 00:01:08,160 Speaker 1: Republicans in Congress. Well, there's a vacuum in the White 14 00:01:08,160 --> 00:01:10,600 Speaker 1: House now, and who's it going to be filled by? Gregg? 15 00:01:10,640 --> 00:01:13,480 Speaker 1: There's a vacancy that Cone leaves open. Do you see 16 00:01:13,520 --> 00:01:17,200 Speaker 1: Peter Navarro stepping into the fold? Yes, I do. I 17 00:01:17,200 --> 00:01:20,600 Speaker 1: think he has seduced Trump with his ideas on trade 18 00:01:20,680 --> 00:01:24,800 Speaker 1: protectionism and into that vacuum. I think we will see Navarro, 19 00:01:26,360 --> 00:01:30,720 Speaker 1: also Ross and some other people are protectionists as well. 20 00:01:31,040 --> 00:01:34,880 Speaker 1: But this is a significant shift. Peter Hooper, How significant 21 00:01:34,920 --> 00:01:36,759 Speaker 1: is this because for the past five days we've been 22 00:01:36,760 --> 00:01:39,600 Speaker 1: talking about it, and to some extent, the market has 23 00:01:39,640 --> 00:01:42,040 Speaker 1: been fading the risk of this materializing. Do you need 24 00:01:42,080 --> 00:01:44,880 Speaker 1: to rethink the potential that we are going to get 25 00:01:44,880 --> 00:01:48,600 Speaker 1: the kind of things we feared a year ago. Absolutely, 26 00:01:48,760 --> 00:01:50,520 Speaker 1: you know, you know, I think there must be something 27 00:01:50,520 --> 00:01:53,120 Speaker 1: else going on, maybe the potentially good news out of 28 00:01:53,160 --> 00:01:56,760 Speaker 1: North Korea. But uh, you know, there are several signs 29 00:01:56,760 --> 00:02:00,200 Speaker 1: that are troubling here. Mr. Mr Cohn's departure certainly a 30 00:02:00,240 --> 00:02:05,120 Speaker 1: serious one. But last week we had a key Chinese 31 00:02:05,200 --> 00:02:10,959 Speaker 1: figure figure from leaders in China in Washington uh uh 32 00:02:11,960 --> 00:02:15,680 Speaker 1: uh destined to be the Vice Premier and uh certainly 33 00:02:15,720 --> 00:02:19,200 Speaker 1: the CSAR of Economic Policy in China. It was an 34 00:02:19,200 --> 00:02:26,079 Speaker 1: opportunity to discuss, it was an opportunity to negotiate. Uh. 35 00:02:26,360 --> 00:02:29,079 Speaker 1: My team in in China tell tells me that there 36 00:02:29,440 --> 00:02:33,600 Speaker 1: is a willingness there to to to to begin to 37 00:02:34,120 --> 00:02:37,680 Speaker 1: make progress in areas where it's it's it's badly needed. 38 00:02:37,919 --> 00:02:43,760 Speaker 1: Reducing China's restrictions on US imports etcetera. But the view 39 00:02:43,800 --> 00:02:46,480 Speaker 1: in China now is that this opportunity was not taken, 40 00:02:46,520 --> 00:02:50,239 Speaker 1: that the administration uh sort of dropped the ball or 41 00:02:50,480 --> 00:02:54,240 Speaker 1: or did not want to make progress in that conection. 42 00:02:54,240 --> 00:02:57,919 Speaker 1: So it's it's looking more confrontational, and that's that's troubling. 43 00:02:58,880 --> 00:03:02,840 Speaker 1: I think. I think that the arture of a voice 44 00:03:02,880 --> 00:03:08,359 Speaker 1: like Cones and the administration, if you wonder where's where, 45 00:03:08,360 --> 00:03:10,160 Speaker 1: where are things going to go? What what kind of 46 00:03:10,200 --> 00:03:13,320 Speaker 1: advice is the president going to get here? Is it 47 00:03:13,400 --> 00:03:16,480 Speaker 1: going to be totally one sided in a direction that 48 00:03:17,280 --> 00:03:21,040 Speaker 1: does not bode well for for global trade. Greg Valier, 49 00:03:21,200 --> 00:03:23,640 Speaker 1: the perception on Wall Street is very, very important. The 50 00:03:23,680 --> 00:03:28,359 Speaker 1: perception was for for them, this was the representative of individuals, investors, 51 00:03:28,560 --> 00:03:31,240 Speaker 1: pro market forces in the shape of Garry Cone. Greg. 52 00:03:31,280 --> 00:03:35,680 Speaker 1: As you look within the White House right now, who's left, Well, 53 00:03:35,720 --> 00:03:38,760 Speaker 1: you've got Manuchin. I think he lacks the gravitas frankly 54 00:03:38,960 --> 00:03:42,640 Speaker 1: of Cones, but Manuchin would be a moderating for some 55 00:03:42,720 --> 00:03:46,520 Speaker 1: of the defense officials would be moderating forces, and maybe 56 00:03:46,600 --> 00:03:50,000 Speaker 1: j Powell. I think the new FET chairman could also 57 00:03:50,080 --> 00:03:53,440 Speaker 1: be a restraining force, telling the presidents that if we 58 00:03:53,560 --> 00:03:56,040 Speaker 1: keep this up, if we get more and more sanctions. 59 00:03:56,200 --> 00:03:58,920 Speaker 1: It just means inflation coming into this country. That's the 60 00:03:59,400 --> 00:04:02,040 Speaker 1: thing once you have. But the money question, Greg, you're 61 00:04:02,120 --> 00:04:04,200 Speaker 1: very good at this in your research note, is the 62 00:04:04,240 --> 00:04:08,080 Speaker 1: mid term elections are restraining force? Does the president you know, 63 00:04:08,120 --> 00:04:10,839 Speaker 1: he's so oblivious to so many things? Is he oblivious 64 00:04:11,120 --> 00:04:15,360 Speaker 1: to the mid term elections? Maybe he's so shortsighted, Tom 65 00:04:15,440 --> 00:04:18,520 Speaker 1: that he was aiming at this U special House race 66 00:04:18,839 --> 00:04:22,200 Speaker 1: outside of Pittsburgh next week, hoping that that could influence 67 00:04:22,279 --> 00:04:24,720 Speaker 1: that race. But longer term, I don't think this is 68 00:04:24,760 --> 00:04:27,320 Speaker 1: a good story for the Republicans in the fall. I 69 00:04:27,360 --> 00:04:30,800 Speaker 1: think they're going to lose the House, Senate they'll probably keep, 70 00:04:31,120 --> 00:04:34,760 Speaker 1: but more instability, more uncertainty is not a good story 71 00:04:34,760 --> 00:04:37,560 Speaker 1: for the party in power. Well, Greg, this rises the 72 00:04:37,640 --> 00:04:39,400 Speaker 1: question if we go into the midterms, what is the 73 00:04:39,440 --> 00:04:41,719 Speaker 1: message that comes from the Republican Party, Because at the 74 00:04:41,720 --> 00:04:44,200 Speaker 1: moment it's certainly not coherent. The President is pushing for 75 00:04:44,240 --> 00:04:47,359 Speaker 1: Cubs against China, Paul Ryan, the Leader of the House, 76 00:04:47,640 --> 00:04:50,040 Speaker 1: is saying no, thank you. So what is the overall 77 00:04:50,120 --> 00:04:52,479 Speaker 1: message of the Republican Party going gets the mid terms 78 00:04:52,520 --> 00:04:55,760 Speaker 1: on an issue as impulled inness trite I I think 79 00:04:55,760 --> 00:04:58,400 Speaker 1: the message has to be the tax cuts of work. 80 00:04:58,480 --> 00:05:01,160 Speaker 1: The economy is good, on employment is low. They've got 81 00:05:01,160 --> 00:05:03,880 Speaker 1: a hope by Labor Day this economy is even stronger 82 00:05:04,040 --> 00:05:06,360 Speaker 1: and they can credit the tax cuts. But you're right 83 00:05:06,400 --> 00:05:09,560 Speaker 1: on trade. When you've got Mitch McConnell and Paul Ryant 84 00:05:09,839 --> 00:05:12,680 Speaker 1: saying this is really a dumb idea and it asked 85 00:05:12,680 --> 00:05:16,400 Speaker 1: a more voter confusion, that's not going to help the Republicans. Peter, 86 00:05:16,480 --> 00:05:19,000 Speaker 1: how do you read what the overall message is from 87 00:05:19,000 --> 00:05:23,720 Speaker 1: the Republican Party on such a key issue. Well, at 88 00:05:23,720 --> 00:05:28,839 Speaker 1: this point it's clearly divided. Um and Uh. One hopes 89 00:05:29,200 --> 00:05:32,800 Speaker 1: that the more rational voices on on trade, we're gonna 90 00:05:32,800 --> 00:05:38,400 Speaker 1: win out um but but it's increasingly uncertain. But he's 91 00:05:38,440 --> 00:05:43,080 Speaker 1: he's marginalized, Thank you, Vice Chairman Clara. At least I 92 00:05:43,080 --> 00:05:47,240 Speaker 1: guess we've got something they're like in state, Peter Hoopert, 93 00:05:47,760 --> 00:05:53,920 Speaker 1: he's marginalized. The voice of the Peter Hooper's out there hasn't. Well, 94 00:05:54,000 --> 00:05:59,600 Speaker 1: he's got Kevin Hassett, Chairman of University of Pennsylvania, who 95 00:06:00,200 --> 00:06:03,080 Speaker 1: is a sound economist, a good economist. I think um 96 00:06:03,520 --> 00:06:08,440 Speaker 1: uh and hopefully fair will be listened to. In such 97 00:06:08,440 --> 00:06:12,800 Speaker 1: a manner. David Malpass ex bear Stearns providing some wisdom 98 00:06:12,800 --> 00:06:16,640 Speaker 1: there as well. But but the essentially as the White 99 00:06:16,640 --> 00:06:20,880 Speaker 1: House is John Ferrell mentioned earlier devoid of internationalists, uh 100 00:06:20,920 --> 00:06:26,560 Speaker 1: increasingly so I agree fully that the FED is going 101 00:06:26,600 --> 00:06:30,080 Speaker 1: to be playing an increasingly important role here. Certainly, if 102 00:06:30,120 --> 00:06:33,640 Speaker 1: we go down the road of a any kind of 103 00:06:33,680 --> 00:06:37,960 Speaker 1: major trade disruption UM, FED policy is going to be 104 00:06:38,040 --> 00:06:42,440 Speaker 1: going to become increasingly important. Although there their ammunition is 105 00:06:42,880 --> 00:06:45,240 Speaker 1: to deal with a major downturn at the point is 106 00:06:45,279 --> 00:06:47,719 Speaker 1: somewhat limited. Greg Valley, We've had a couple of false 107 00:06:47,720 --> 00:06:50,239 Speaker 1: alarms in markets over the last week as we've dived 108 00:06:50,240 --> 00:06:54,880 Speaker 1: into the subject of protectionism. This morning, futures are down aggressively, 109 00:06:54,920 --> 00:06:57,520 Speaker 1: so by almost one percent on the SMP five hundred. 110 00:06:57,560 --> 00:06:59,719 Speaker 1: You see that bid going into haven assets as well. 111 00:07:00,120 --> 00:07:02,240 Speaker 1: What would be your advice be to investors on a 112 00:07:02,279 --> 00:07:04,760 Speaker 1: morning light this morning, and how do you get across 113 00:07:04,839 --> 00:07:09,360 Speaker 1: that this morning is different and that things have changed. Well, 114 00:07:09,400 --> 00:07:11,320 Speaker 1: I would probably say that we have to wait out 115 00:07:11,360 --> 00:07:14,840 Speaker 1: the store. The economic fundamentals are still solid. We could 116 00:07:14,840 --> 00:07:18,000 Speaker 1: get a decent jobs report on Friday that could make 117 00:07:18,080 --> 00:07:20,760 Speaker 1: people think about the next issue. That the economy is 118 00:07:20,960 --> 00:07:23,360 Speaker 1: is real hot, so I I don't think this is 119 00:07:23,400 --> 00:07:25,520 Speaker 1: the end of the world. What's the old French adage 120 00:07:25,600 --> 00:07:29,160 Speaker 1: that the cemeteries are filled with important people. I mean 121 00:07:29,240 --> 00:07:32,760 Speaker 1: everyone's replaceable. I mean Cone was a sort of a 122 00:07:32,800 --> 00:07:37,440 Speaker 1: square peg in a round hole. A democrat. Uh, he's replaceable. 123 00:07:37,720 --> 00:07:40,760 Speaker 1: I think the fundamentals still will dominate in this market. 124 00:07:41,120 --> 00:07:42,840 Speaker 1: Who would have thought that this position would be so 125 00:07:42,920 --> 00:07:45,040 Speaker 1: important to the market. Can you imagine if an individual 126 00:07:45,040 --> 00:07:47,680 Speaker 1: that filled this position several administrations, a go at, a 127 00:07:47,720 --> 00:07:50,880 Speaker 1: departed Tom King have this kind of effect on financial 128 00:07:51,960 --> 00:07:54,800 Speaker 1: To Mr Spirling, Jean Spurling, good morning. You're right, but 129 00:07:55,360 --> 00:07:57,600 Speaker 1: I think so much of this is John is not 130 00:07:57,720 --> 00:08:01,480 Speaker 1: just one position, but is both Dr Hooper and Mr 131 00:08:01,560 --> 00:08:07,160 Speaker 1: Bellier suggests it is a sequence of events, including completely 132 00:08:07,240 --> 00:08:12,800 Speaker 1: as a backstory the news of Ms Conway yesterday with 133 00:08:12,880 --> 00:08:16,320 Speaker 1: you know, some kind of Hatchack violations. I mean it's 134 00:08:16,360 --> 00:08:20,280 Speaker 1: the aggregate the perception of the overall direction of this administration. 135 00:08:20,320 --> 00:08:22,360 Speaker 1: I think on the morning like today, Greg Valier has 136 00:08:22,400 --> 00:08:24,960 Speaker 1: been greater catch out with you Horizon Investment ce IO 137 00:08:25,120 --> 00:08:38,920 Speaker 1: and to Peter Hooper at the Whische Bank Chief Economy, 138 00:08:41,880 --> 00:08:45,920 Speaker 1: we were efforting Alfred Marshall seeing if he could come 139 00:08:45,920 --> 00:08:49,240 Speaker 1: on the show today. That was challenging since he wrote 140 00:08:49,720 --> 00:08:56,120 Speaker 1: most of his prime work is classic work, and but 141 00:08:56,240 --> 00:08:59,640 Speaker 1: we can do as well with the single best research 142 00:08:59,760 --> 00:09:04,160 Speaker 1: no John and I saw yesterday, which was Stephen Englander. 143 00:09:04,360 --> 00:09:07,880 Speaker 1: He is a giant in foreign exchange dynamics. And Stephen 144 00:09:07,920 --> 00:09:11,880 Speaker 1: Englander yesterday wrote a tour to force must read for 145 00:09:11,920 --> 00:09:17,400 Speaker 1: President Trump on the difference between tariffs working around price 146 00:09:17,840 --> 00:09:25,120 Speaker 1: change and quotas working around quantity change. Here begins your 147 00:09:25,200 --> 00:09:30,040 Speaker 1: lesson and the President's lesson today on trade responsiveness. Stephen, 148 00:09:30,080 --> 00:09:33,080 Speaker 1: wonderful to have you with this police. Does the President 149 00:09:33,160 --> 00:09:37,720 Speaker 1: want a tariff or a quota? I think he thinks 150 00:09:37,720 --> 00:09:40,240 Speaker 1: he wants a tariff because everybody kind of knows what 151 00:09:40,280 --> 00:09:44,280 Speaker 1: a tariff is. Um In practice, it's going to turn 152 00:09:44,280 --> 00:09:47,400 Speaker 1: out that he wants the quota, and that American business 153 00:09:47,400 --> 00:09:49,600 Speaker 1: wants a quota, and even foreign business wants a quota. 154 00:09:50,440 --> 00:09:54,199 Speaker 1: The reason is this that with a with with a tariff, 155 00:09:54,240 --> 00:09:57,800 Speaker 1: he can uh foreign businesses can cut their prices on 156 00:09:58,120 --> 00:10:00,680 Speaker 1: US businesses start raising their price Say, is the means 157 00:10:00,679 --> 00:10:03,280 Speaker 1: that there's more you know the foreign producers can you know, 158 00:10:03,360 --> 00:10:06,320 Speaker 1: can creep back into the market with a quota, there's 159 00:10:06,360 --> 00:10:08,559 Speaker 1: more certainty. You kind of know you're going to take 160 00:10:08,559 --> 00:10:12,200 Speaker 1: out ten percent of before and fly into the market. Okay, 161 00:10:12,240 --> 00:10:15,560 Speaker 1: So China goes after Harley Davidson, and now, folks, for 162 00:10:15,640 --> 00:10:19,719 Speaker 1: your partial differential Wednesday, here we go, Steve Anglander. Does 163 00:10:19,760 --> 00:10:25,240 Speaker 1: Harley Davidson want to sell fewer units to China? Or 164 00:10:25,280 --> 00:10:28,080 Speaker 1: can they play with price and stay with terrorists? Which 165 00:10:28,080 --> 00:10:31,200 Speaker 1: way does it cut for Harley Davidson? You know, I 166 00:10:31,240 --> 00:10:33,880 Speaker 1: think in practice they would say that they want to 167 00:10:33,920 --> 00:10:37,240 Speaker 1: sell as much as they can. In um, I mean 168 00:10:37,320 --> 00:10:38,760 Speaker 1: I saw you. In principles they would say they want 169 00:10:38,800 --> 00:10:40,680 Speaker 1: to sell as much as they can. In practice, they'll 170 00:10:40,679 --> 00:10:44,080 Speaker 1: take margin over volume any day. You said something in 171 00:10:44,080 --> 00:10:47,240 Speaker 1: this report that I thought was fascinating. The surprising pot 172 00:10:47,720 --> 00:10:53,160 Speaker 1: is that foreign produces win. How does that happen? Stave? Well, 173 00:10:53,240 --> 00:10:57,920 Speaker 1: because the the objective, you know, from a domestic producer perspective, 174 00:10:58,080 --> 00:11:01,160 Speaker 1: is to get prices higher. But weren't producers are already 175 00:11:01,360 --> 00:11:04,440 Speaker 1: more competitive by definition because they're selling and they have 176 00:11:04,480 --> 00:11:08,120 Speaker 1: a big market share. So their profit margin in which 177 00:11:08,320 --> 00:11:11,559 Speaker 1: orda gets augmented by the degree to which prices go up. 178 00:11:11,840 --> 00:11:14,120 Speaker 1: So there is they do fine and then they cut 179 00:11:14,120 --> 00:11:17,679 Speaker 1: out to at least profitable exports and they don't care. John, 180 00:11:17,720 --> 00:11:19,640 Speaker 1: I don't want to interrupt, but this is so crucial 181 00:11:19,840 --> 00:11:23,840 Speaker 1: that dr Engler just said their margin over volume that 182 00:11:24,040 --> 00:11:28,439 Speaker 1: is ekano babel for labor gets killed. Yeah, that's really 183 00:11:28,480 --> 00:11:32,280 Speaker 1: what that means. Just so we understand the partial differentials 184 00:11:32,320 --> 00:11:37,280 Speaker 1: of margin, squeeze it over volume, which is a unit count. Steve, 185 00:11:37,520 --> 00:11:39,240 Speaker 1: I want to fold in this kind of framework for 186 00:11:39,280 --> 00:11:42,439 Speaker 1: thinking about trade dynamics into the FX market, and I 187 00:11:42,480 --> 00:11:44,240 Speaker 1: want you to help me understand why over the last 188 00:11:44,280 --> 00:11:47,000 Speaker 1: five days e m f X has done absolutely nothing. 189 00:11:47,400 --> 00:11:48,959 Speaker 1: I mean, if I tell someone that this was the 190 00:11:49,000 --> 00:11:50,840 Speaker 1: story of the last five days, and perhaps they've been 191 00:11:50,880 --> 00:11:53,080 Speaker 1: on a beach and they came back and I said, 192 00:11:53,080 --> 00:11:54,840 Speaker 1: here's the story, this is what's happened over the last 193 00:11:54,840 --> 00:11:57,000 Speaker 1: five days. Guess what the pace so did. And then 194 00:11:57,040 --> 00:12:01,520 Speaker 1: I told them it did nothing. It was dead flat. Why, Steve, Look, 195 00:12:01,520 --> 00:12:05,480 Speaker 1: I think the market is becoming inured to this. Uh 196 00:12:05,559 --> 00:12:07,920 Speaker 1: if you think that this is fire and thunder like 197 00:12:08,160 --> 00:12:11,080 Speaker 1: six months ago with with Korea, and you look at 198 00:12:11,120 --> 00:12:13,640 Speaker 1: what President Trumps was saying yesterday, So I think this 199 00:12:13,720 --> 00:12:16,560 Speaker 1: is just the market has come to believe that these 200 00:12:16,600 --> 00:12:19,960 Speaker 1: opening salvalls should be discounted, looked at with a grain 201 00:12:20,000 --> 00:12:22,160 Speaker 1: assault and let's see how it plays out. So it's 202 00:12:22,200 --> 00:12:25,320 Speaker 1: I think that there's a fear of selling too fast 203 00:12:25,600 --> 00:12:29,000 Speaker 1: because we've seen these overreactions and it's been painful. Do 204 00:12:29,040 --> 00:12:31,560 Speaker 1: you have to actually readdress that and have a different 205 00:12:31,559 --> 00:12:34,000 Speaker 1: interpretation of it, because in some people's minds, they wake 206 00:12:34,080 --> 00:12:36,800 Speaker 1: up this morning and they say Gary Cone goes. That 207 00:12:36,920 --> 00:12:40,480 Speaker 1: means therefore that tariffs or quote is whatever they may be. 208 00:12:40,720 --> 00:12:44,520 Speaker 1: But protectionist policies are more likely. Is that the equation 209 00:12:44,559 --> 00:12:46,240 Speaker 1: that you've worked out this morning, Stave or is it 210 00:12:46,240 --> 00:12:49,520 Speaker 1: different for you? You know, I think that some form 211 00:12:49,600 --> 00:12:53,120 Speaker 1: of protectionist policies is going to come in. I think, 212 00:12:53,600 --> 00:12:55,600 Speaker 1: you know, it's likely to end up in quotas because 213 00:12:55,600 --> 00:12:58,120 Speaker 1: every almost everybody is happy for in labor gets crushed. 214 00:12:58,160 --> 00:13:00,960 Speaker 1: As he said, Um, you know, the question is really 215 00:13:00,960 --> 00:13:03,640 Speaker 1: who replaces them. I think if it's somebody that's perceived 216 00:13:03,679 --> 00:13:06,720 Speaker 1: as market friendly, as as Larry Cutlow, and he told, look, 217 00:13:06,840 --> 00:13:10,920 Speaker 1: you know, suck it on trade. Um, everything else is 218 00:13:11,120 --> 00:13:13,440 Speaker 1: you know, it's going to be more market friendly, supply 219 00:13:13,520 --> 00:13:15,319 Speaker 1: side friendly. I think the market will be able to 220 00:13:15,360 --> 00:13:17,560 Speaker 1: deal with it and understand that it is kind of 221 00:13:17,559 --> 00:13:20,840 Speaker 1: a limited moves that they're making in one dimension to 222 00:13:20,920 --> 00:13:25,160 Speaker 1: fulfill very clear election promises that the president made back 223 00:13:25,200 --> 00:13:28,800 Speaker 1: in two thousand sixteen, and it's paid a Navara. I 224 00:13:28,840 --> 00:13:31,520 Speaker 1: think that's harder because I think that the you know, 225 00:13:31,559 --> 00:13:34,199 Speaker 1: he's known for his views on trade, he's not really 226 00:13:34,200 --> 00:13:38,760 Speaker 1: known for his views on other economic issues. And the 227 00:13:38,800 --> 00:13:41,080 Speaker 1: one thing that Gary Coleen brought into the National Economic 228 00:13:41,160 --> 00:13:43,920 Speaker 1: Council was the ability to administer and to push stuff through, 229 00:13:43,960 --> 00:13:49,080 Speaker 1: and his managerial ability is very uncertain. Steve, we have 230 00:13:49,240 --> 00:13:51,960 Speaker 1: to have a dollar call. And I will say, with 231 00:13:52,120 --> 00:13:55,760 Speaker 1: great respect for the great analysis of the last six 232 00:13:55,840 --> 00:14:00,160 Speaker 1: days is there's a real ambiguity almost j curved is 233 00:14:01,000 --> 00:14:05,360 Speaker 1: to take a trade idea two dollar strong or dollar 234 00:14:05,600 --> 00:14:08,920 Speaker 1: week forget about the Jake Curvin nous. A year from now, 235 00:14:08,960 --> 00:14:12,840 Speaker 1: two years from now, if the president affects these policies, 236 00:14:13,240 --> 00:14:17,240 Speaker 1: what does it mean for the dollar? You know, I 237 00:14:17,480 --> 00:14:20,280 Speaker 1: think that if he does it to the limited degrees 238 00:14:20,320 --> 00:14:23,440 Speaker 1: I expect to the the end to be I think 239 00:14:23,440 --> 00:14:25,360 Speaker 1: the dollar will end up stronger because they think that 240 00:14:25,360 --> 00:14:27,400 Speaker 1: the U. S. Economy is better than than people are 241 00:14:27,400 --> 00:14:31,120 Speaker 1: giving get credit for and that the um you know, 242 00:14:31,120 --> 00:14:34,320 Speaker 1: the US economy will be fine. Um. I think, you know, 243 00:14:34,320 --> 00:14:37,640 Speaker 1: if you're talking about six months, it's clear that um, 244 00:14:37,920 --> 00:14:39,960 Speaker 1: at least to me, that foreign central banks want to 245 00:14:40,720 --> 00:14:44,680 Speaker 1: um sell dollars and that there's downward dollar pressure. So 246 00:14:44,760 --> 00:14:46,600 Speaker 1: I think that you know, we're likely to see dollar 247 00:14:46,640 --> 00:14:50,160 Speaker 1: weakness persists three months, six months, until it becomes clear 248 00:14:50,200 --> 00:14:52,000 Speaker 1: that the U s economy is actually you know, in 249 00:14:52,440 --> 00:14:54,920 Speaker 1: pretty good shape. Stavidespect to take a while. Is it 250 00:14:54,960 --> 00:14:56,640 Speaker 1: too much for a jump to say that we're witnessing 251 00:14:56,640 --> 00:14:59,120 Speaker 1: a little bit of regime change for a long long time. 252 00:14:59,600 --> 00:15:02,880 Speaker 1: In pair of risk aversion, it meant go and hide 253 00:15:02,960 --> 00:15:06,720 Speaker 1: under a rock and by the dollar. Now that's not 254 00:15:06,760 --> 00:15:09,480 Speaker 1: the story. In periods of risk aversion, we see a 255 00:15:09,520 --> 00:15:14,680 Speaker 1: weaker dollar. Why do we see that shifting dynamics? Stave Well, 256 00:15:14,720 --> 00:15:17,560 Speaker 1: because I think right now it's because the the the 257 00:15:17,600 --> 00:15:19,800 Speaker 1: you know, the center of the controversy, the center of 258 00:15:19,800 --> 00:15:22,160 Speaker 1: the issues that the market is focused on our US 259 00:15:22,240 --> 00:15:26,080 Speaker 1: related and and kind of dollar related. Right if you 260 00:15:26,080 --> 00:15:28,560 Speaker 1: think of that, the you know, you know they now 261 00:15:28,600 --> 00:15:33,560 Speaker 1: we are relying on foreigners to finance the US fiscal deficit, 262 00:15:33,600 --> 00:15:35,600 Speaker 1: which is going up the fence, backing away from that 263 00:15:35,680 --> 00:15:37,960 Speaker 1: even selling, and I think it means we have to 264 00:15:38,280 --> 00:15:40,520 Speaker 1: you know, we we have to induce them to come in. 265 00:15:40,640 --> 00:15:43,720 Speaker 1: But that means by lowering the price of the assets 266 00:15:43,720 --> 00:15:45,920 Speaker 1: that we're trying to sell them in a weaker dollars 267 00:15:45,960 --> 00:15:48,000 Speaker 1: part of that mechanism. But this is well, this is 268 00:15:48,040 --> 00:15:50,120 Speaker 1: a huge change. Just to jump in for a long 269 00:15:50,120 --> 00:15:52,560 Speaker 1: long time. It meant go to dollar denominated assets, not 270 00:15:52,600 --> 00:15:55,160 Speaker 1: just the dollar, but treasuries too. Are we witnessing a 271 00:15:55,200 --> 00:16:00,720 Speaker 1: wholesale shift away from dollar assets in periods of risk aversion? Uh? 272 00:16:00,760 --> 00:16:02,360 Speaker 1: I mean, I don't think it's picked to last forever. 273 00:16:02,640 --> 00:16:06,000 Speaker 1: And if there was truly an economic catastrophe or financial 274 00:16:06,000 --> 00:16:08,800 Speaker 1: market capastrophe, we say we had a shock that took 275 00:16:08,840 --> 00:16:12,560 Speaker 1: the equity market back to I think that we would 276 00:16:12,600 --> 00:16:14,960 Speaker 1: need a dollar once again, be a safe haven, certainly 277 00:16:14,960 --> 00:16:17,960 Speaker 1: against the merchant markets, maybe not against the end, possibly 278 00:16:17,960 --> 00:16:19,960 Speaker 1: not against the Euro, but against the m for sure. 279 00:16:20,280 --> 00:16:25,360 Speaker 1: Steve Angler, you are intertwined with the Gill University in Canada. 280 00:16:25,520 --> 00:16:28,480 Speaker 1: When you hear Christian Friedland speak with a heat that 281 00:16:28,600 --> 00:16:32,880 Speaker 1: no doubt Mr Trudeau feels as well. Ultimately, this is 282 00:16:32,920 --> 00:16:37,800 Speaker 1: about Canada. How does Canada finally respond to the President 283 00:16:37,880 --> 00:16:41,800 Speaker 1: of the United States. You know, I think that they're 284 00:16:42,920 --> 00:16:45,720 Speaker 1: hoping that there's some deal possible, but I think it's 285 00:16:45,800 --> 00:16:49,320 Speaker 1: it's probably the case that they've given up hope on 286 00:16:49,440 --> 00:16:53,440 Speaker 1: getting enough to deal, and I think that the expectation 287 00:16:53,600 --> 00:16:56,440 Speaker 1: is probably that they expect the US to announce withdrawal, 288 00:16:56,520 --> 00:16:58,920 Speaker 1: but not to take any measures to withdraw So we're 289 00:16:58,920 --> 00:17:01,920 Speaker 1: going to be in this Twilight eight world. Um, there'll 290 00:17:01,960 --> 00:17:04,040 Speaker 1: be a lot of uncertainty and that's painful for the 291 00:17:04,080 --> 00:17:07,320 Speaker 1: Canadian dollar. But I think that they're they're you know, 292 00:17:07,359 --> 00:17:10,520 Speaker 1: looking to plan B and s and kind of asking themselves, 293 00:17:10,560 --> 00:17:14,760 Speaker 1: what what do we fall back on if they if 294 00:17:14,760 --> 00:17:17,880 Speaker 1: they announced the pullback from NAFTA but actually don't implement 295 00:17:17,920 --> 00:17:21,000 Speaker 1: that pullback. Steve Anglanders, thank you so much, and we 296 00:17:21,040 --> 00:17:23,760 Speaker 1: say good morning to John W. Gelbrai's up at McGill 297 00:17:23,920 --> 00:17:28,120 Speaker 1: Economics as well holding court that they're wonderful and interesting 298 00:17:28,200 --> 00:17:32,800 Speaker 1: economics department. Mr Englander. Dr Englander out of McGill and Yale. 299 00:17:33,040 --> 00:17:36,159 Speaker 1: He's with Raffici Capital Management and his research on his 300 00:17:36,200 --> 00:17:39,320 Speaker 1: research note. Every day there's like one note that comes 301 00:17:39,359 --> 00:17:43,720 Speaker 1: over the transom. You just stop and go gotta hate englander. 302 00:17:43,840 --> 00:17:47,080 Speaker 1: I have to actually read this thing. Yes, he usually 303 00:17:47,080 --> 00:17:49,760 Speaker 1: can get away with a first paragraph. Sometimes someone start 304 00:17:50,000 --> 00:17:53,840 Speaker 1: that the surveillance something. Yeah, I'm also vulnerable to this. 305 00:18:07,760 --> 00:18:11,240 Speaker 1: It is good to have a few miles under the 306 00:18:11,320 --> 00:18:14,040 Speaker 1: research pavement, and that would be Scott Muchigan out of 307 00:18:14,080 --> 00:18:17,960 Speaker 1: Boston College, out of the University of Chicago, who has 308 00:18:18,080 --> 00:18:23,160 Speaker 1: made a career in a really good career of consumer retail, 309 00:18:23,400 --> 00:18:27,119 Speaker 1: and that means all the usual names and Amazon. He 310 00:18:27,240 --> 00:18:30,159 Speaker 1: is with Wolf Research and Scott. Just to get it 311 00:18:30,200 --> 00:18:34,240 Speaker 1: out of the way, you are beyond enthusiastic about a 312 00:18:34,280 --> 00:18:38,320 Speaker 1: small cardboard box company named Amazon. How do you get 313 00:18:38,359 --> 00:18:41,199 Speaker 1: out to two thousand dollars of share? And I know 314 00:18:41,280 --> 00:18:45,360 Speaker 1: you're gonna extrapolate that forward from there. Why the overt 315 00:18:45,520 --> 00:18:49,679 Speaker 1: optimism on Amazon so well, First of all, thanks to 316 00:18:49,720 --> 00:18:52,480 Speaker 1: the kind introduction and for having me on. But I 317 00:18:52,520 --> 00:18:56,879 Speaker 1: think the the optimism on Amazon, especially as the stuff 318 00:18:56,960 --> 00:18:59,080 Speaker 1: that you're already climbed, has to do with what they're 319 00:18:59,119 --> 00:19:03,240 Speaker 1: doing in consumable um, particularly fresh and so we're seeing 320 00:19:03,240 --> 00:19:07,160 Speaker 1: the company move aggressively into the one point five trillion 321 00:19:07,200 --> 00:19:10,480 Speaker 1: dollar market for consumables um and we think the hearts 322 00:19:10,480 --> 00:19:12,720 Speaker 1: and minds of the consumer will be one in the 323 00:19:12,760 --> 00:19:16,080 Speaker 1: fresh area. Of course, they bought whole Foods um and 324 00:19:16,119 --> 00:19:20,720 Speaker 1: they are quickly consolidating that under their their umbrella. And 325 00:19:20,760 --> 00:19:22,320 Speaker 1: it has a lot to do with trust and then 326 00:19:22,400 --> 00:19:26,159 Speaker 1: the consumer trust you for fresh Um. It has to 327 00:19:26,160 --> 00:19:28,800 Speaker 1: do with frequency, and so we think the frequency increases 328 00:19:28,800 --> 00:19:31,199 Speaker 1: a lot with Amazon if they give the consumer to 329 00:19:31,280 --> 00:19:35,240 Speaker 1: engage them with their fresh purchases. Scott, let me just 330 00:19:35,280 --> 00:19:40,080 Speaker 1: put it to you, Sprouts farmers Market as well as Kroger, 331 00:19:40,560 --> 00:19:43,720 Speaker 1: are they gonna go quietly into the night along with Walmart? 332 00:19:43,760 --> 00:19:48,920 Speaker 1: They just gonna seed this business to Amazon and Sprouts. 333 00:19:48,960 --> 00:19:50,960 Speaker 1: I don't think, I know. I think the answer is no. 334 00:19:51,080 --> 00:19:53,840 Speaker 1: It says, you know, small farmers market style company with 335 00:19:54,080 --> 00:19:56,800 Speaker 1: which leads with fresh. So it's not that you know, 336 00:19:56,920 --> 00:19:59,840 Speaker 1: Amazon wins everybody. Um. But when you talk about the 337 00:20:00,040 --> 00:20:04,080 Speaker 1: traditional supermarkets, we we worry a lot about them. Um. 338 00:20:04,119 --> 00:20:06,639 Speaker 1: We think Amazon is gonna have twenty share of the 339 00:20:06,680 --> 00:20:11,400 Speaker 1: consumables market. We called it Amazon um, and that they're 340 00:20:11,400 --> 00:20:14,000 Speaker 1: gonna suck a lot of share at the traditional supermarkets. 341 00:20:14,400 --> 00:20:17,600 Speaker 1: And we were concerned. Obviously, Walmart is gearing up for 342 00:20:17,680 --> 00:20:21,359 Speaker 1: kind of war and trying to offset Amazon. But as 343 00:20:21,400 --> 00:20:24,000 Speaker 1: the market leader and consumables that over you know, well 344 00:20:24,040 --> 00:20:27,160 Speaker 1: overtle over twenty share, I guess, uh, you know, there 345 00:20:27,200 --> 00:20:31,040 Speaker 1: is concerns even on Walmart, especially as Amazon is now 346 00:20:31,119 --> 00:20:34,760 Speaker 1: moving towards The thing about consumables is they, you know, 347 00:20:34,800 --> 00:20:39,480 Speaker 1: they're much more egalitarian. In other words, everybody, everybody eats 348 00:20:40,040 --> 00:20:43,080 Speaker 1: um and so as Amazon attacks the consumables market, there 349 00:20:43,080 --> 00:20:47,679 Speaker 1: are attacking, uh, the Walmart customer more and more. So 350 00:20:47,760 --> 00:20:50,760 Speaker 1: you think that Walmart is going to struggle competing against Amazon. 351 00:20:51,760 --> 00:20:53,760 Speaker 1: I think everybody's going to struggle. I mean, what we 352 00:20:53,800 --> 00:20:56,920 Speaker 1: did an analysis and so it's and it's an example 353 00:20:56,960 --> 00:20:59,000 Speaker 1: of one. But we were fortunate enough to be in 354 00:20:59,000 --> 00:21:01,960 Speaker 1: an area where we had Prime and then we had 355 00:21:02,000 --> 00:21:05,720 Speaker 1: Prime Fresh Um and then and then they withdrew the 356 00:21:05,800 --> 00:21:09,480 Speaker 1: Fresh offering. So we analyzed, actually analyzed my own prime account, 357 00:21:10,119 --> 00:21:13,320 Speaker 1: and analyzing that Prime account was stunning when you saw 358 00:21:13,359 --> 00:21:17,119 Speaker 1: the frequency. As we engaged with Fresh, the frequency went up, 359 00:21:17,240 --> 00:21:19,760 Speaker 1: it went through the roof um. And then as they 360 00:21:19,800 --> 00:21:23,880 Speaker 1: withdrew it, actually our frequency dropped quite a bit. And 361 00:21:23,880 --> 00:21:27,240 Speaker 1: and and the number of purchases. So as Amazon moves 362 00:21:27,400 --> 00:21:30,479 Speaker 1: into Fresh and can get the consumers engage, it's the 363 00:21:30,560 --> 00:21:33,439 Speaker 1: same magic by the way that Sam Walton understood with 364 00:21:33,520 --> 00:21:37,480 Speaker 1: the supercenter. Scott, I gotta inform this. I know you've 365 00:21:37,520 --> 00:21:41,560 Speaker 1: got too many children. All analysis of the muchikan Prime 366 00:21:41,760 --> 00:21:47,520 Speaker 1: household is affected by slime slime is bought through Amazon. 367 00:21:48,200 --> 00:21:51,879 Speaker 1: Children has spent hours on their parents slime account, getting 368 00:21:51,960 --> 00:21:56,000 Speaker 1: up the border of like fifteen things to buy, including 369 00:21:56,080 --> 00:22:00,520 Speaker 1: gallons of Elmer's glue. That's completely moved the needle on slim. 370 00:22:00,840 --> 00:22:07,240 Speaker 1: The slime slime alone PIM has changed Amazon's dynamics. Well, Scott, 371 00:22:07,320 --> 00:22:09,680 Speaker 1: go ahead. Eventually those kids do grow up, right, what 372 00:22:09,760 --> 00:22:14,040 Speaker 1: are they? What else they gonna buy from Amazon? It 373 00:22:14,080 --> 00:22:17,800 Speaker 1: looks the Amazon is the the ultimate thing and quote 374 00:22:17,800 --> 00:22:20,879 Speaker 1: the book is the everything store. Uh, the everything store 375 00:22:20,960 --> 00:22:24,560 Speaker 1: that the ultimate combination of the culmination of the everything 376 00:22:24,600 --> 00:22:28,760 Speaker 1: store runs right through right through consumables. And we even 377 00:22:28,760 --> 00:22:33,359 Speaker 1: think they get into pharmacy. Um. So once they, once 378 00:22:33,359 --> 00:22:35,480 Speaker 1: the consumer engages, they kind of own you. They're gonna 379 00:22:35,480 --> 00:22:39,639 Speaker 1: own about probably about purchases. What about the use of 380 00:22:39,680 --> 00:22:43,480 Speaker 1: Alexa and the artificial intelligence in the home in order 381 00:22:43,520 --> 00:22:48,400 Speaker 1: to propel Amazon forward? Yeah, I mean I think that's uh, 382 00:22:48,560 --> 00:22:52,879 Speaker 1: you know, alexis I think home seventy artificial intelligence of 383 00:22:52,960 --> 00:22:56,640 Speaker 1: the Home Assistance or Alexis UM. They're making it very 384 00:22:56,680 --> 00:23:00,479 Speaker 1: easy to order aspect. A lot of CpG companies are 385 00:23:00,480 --> 00:23:02,600 Speaker 1: struggling with this a little bit. How do you advertise 386 00:23:02,680 --> 00:23:07,320 Speaker 1: that Alexis is controlling the search UM, and so Alexa 387 00:23:07,359 --> 00:23:08,840 Speaker 1: is definitely gonna be part of it makes it very 388 00:23:08,880 --> 00:23:11,080 Speaker 1: easy to order stuff. I don't know if you guys 389 00:23:11,080 --> 00:23:14,160 Speaker 1: have an Alexa, but it's extremely Alexa. You know, order 390 00:23:14,200 --> 00:23:16,000 Speaker 1: me some tide and you know she'll go, She'll go 391 00:23:16,040 --> 00:23:18,280 Speaker 1: and do it. I'm afraid to put it the house. Yeah. 392 00:23:18,320 --> 00:23:20,639 Speaker 1: Well that's not not good for Tom because you know, 393 00:23:20,680 --> 00:23:22,280 Speaker 1: you never know what. He'll show up on the door 394 00:23:22,560 --> 00:23:26,600 Speaker 1: just quickly and I know we're coming back. Scott is, 395 00:23:26,640 --> 00:23:29,399 Speaker 1: can you ask Alexa how long investors are gonna let 396 00:23:29,400 --> 00:23:31,680 Speaker 1: a company that does a hundred and seventy seven billion 397 00:23:31,840 --> 00:23:35,639 Speaker 1: in sales and revenue? How long investors are gonna wait 398 00:23:36,000 --> 00:23:39,440 Speaker 1: to move the profit needle on the company? I mean 399 00:23:39,520 --> 00:23:43,560 Speaker 1: profits are actutely Uh. A great discussion. We actually think 400 00:23:43,560 --> 00:23:47,000 Speaker 1: profitability of Amazon is gonna it's gonna move a lot 401 00:23:47,080 --> 00:23:50,800 Speaker 1: higher over time. Again, in our analysis, Amazon, they have 402 00:23:50,960 --> 00:23:55,080 Speaker 1: enormous enormous advantages. UM. You know one advantage we were 403 00:23:55,080 --> 00:23:57,400 Speaker 1: talking about. It's just the payments they get from from 404 00:23:57,440 --> 00:24:00,200 Speaker 1: the vendors, from the likes of Craft Times. You you 405 00:24:00,240 --> 00:24:02,200 Speaker 1: know what's great about this, PIM And we're gonna do 406 00:24:02,320 --> 00:24:04,159 Speaker 1: this with Scott Muchigan. I mean, it really works. We're 407 00:24:04,160 --> 00:24:07,359 Speaker 1: gonna come back with Mr Muchigan of Wolf Research and 408 00:24:07,400 --> 00:24:11,359 Speaker 1: talk about this. When Scott was at Boston College, he 409 00:24:11,520 --> 00:24:14,640 Speaker 1: had one of the original Alexis and it'd be like, 410 00:24:14,840 --> 00:24:18,399 Speaker 1: you know, Alexa, should I go to Mary Anne's tonight? 411 00:24:19,040 --> 00:24:22,040 Speaker 1: You know, stuff like that. I mean that's what college 412 00:24:22,080 --> 00:24:25,760 Speaker 1: could use the thing every day. Did your dog? Can 413 00:24:25,760 --> 00:24:32,280 Speaker 1: your dog order running? Yeah? Got Muschkin of Wolf Researcher, 414 00:24:46,359 --> 00:24:49,520 Speaker 1: without question. This is our interview of the day with 415 00:24:49,640 --> 00:24:53,399 Speaker 1: a gentleman who, with Kurt Campbell twelve years ago, coined 416 00:24:53,400 --> 00:24:56,439 Speaker 1: the phrase. I'm going to suggest it became popular with 417 00:24:56,480 --> 00:25:00,399 Speaker 1: Michael Hanlon, which is hard power. We talked about her power. 418 00:25:00,520 --> 00:25:04,439 Speaker 1: We talk about soft power, and unlike others, Michael Handlon 419 00:25:04,480 --> 00:25:09,840 Speaker 1: has consistently written about the linkage of military into our 420 00:25:09,880 --> 00:25:13,720 Speaker 1: international relations. He's, of course with Brookings. Michael, honored to 421 00:25:13,760 --> 00:25:16,399 Speaker 1: have you with us today. What was your response to 422 00:25:16,400 --> 00:25:20,760 Speaker 1: see two Koreans shaking hands the other day, Well, good morning, 423 00:25:20,800 --> 00:25:22,600 Speaker 1: nice to be with you, and thanks for your good 424 00:25:22,600 --> 00:25:25,479 Speaker 1: memory on the book with Kurt Campbell. Uh, you know, 425 00:25:25,840 --> 00:25:28,240 Speaker 1: I think we all have to be wary. The most 426 00:25:28,640 --> 00:25:32,760 Speaker 1: likely explanation of what's happening is that North Korea has 427 00:25:32,800 --> 00:25:37,280 Speaker 1: figured out that the world was, you know, coming together 428 00:25:37,440 --> 00:25:40,959 Speaker 1: against it, and after it's three long range missile tests 429 00:25:41,000 --> 00:25:45,960 Speaker 1: and nuclear test in the sanctions were really starting to 430 00:25:46,040 --> 00:25:50,280 Speaker 1: kick in, and I think still are kicking in. President 431 00:25:50,280 --> 00:25:53,800 Speaker 1: Trump deserves some credit for that. And North Korea saw 432 00:25:53,840 --> 00:25:55,720 Speaker 1: the writing on the wall that its economy was going 433 00:25:55,800 --> 00:25:59,000 Speaker 1: to suffer. And not that North Korea or Kim Jong 434 00:25:59,040 --> 00:26:00,680 Speaker 1: hoon care that much about up the well being of 435 00:26:00,720 --> 00:26:03,200 Speaker 1: their own people, but certainly Kim Jong un cares about 436 00:26:03,200 --> 00:26:05,240 Speaker 1: his own lifestyle, that of his elite, and that of 437 00:26:05,320 --> 00:26:08,359 Speaker 1: his weapons scientists. So um, they are now trying a 438 00:26:08,440 --> 00:26:13,160 Speaker 1: charm offensive to weaken the international coalition that is applying 439 00:26:13,160 --> 00:26:16,639 Speaker 1: this economic pressure and specifically aiming at China and South Korea, 440 00:26:17,320 --> 00:26:20,480 Speaker 1: as they're most likely target audiences that would like to 441 00:26:20,600 --> 00:26:24,520 Speaker 1: believe that a happier, better relationship is easily within reach, 442 00:26:24,760 --> 00:26:28,240 Speaker 1: and so to the extent they convey that uh, possibilities, 443 00:26:28,320 --> 00:26:31,359 Speaker 1: and then they potentially divide the US from South Korean China. 444 00:26:31,400 --> 00:26:33,160 Speaker 1: That's the most likely explanation. I don't want to sound 445 00:26:33,160 --> 00:26:35,560 Speaker 1: completely cynical, and we should explore this and hope that 446 00:26:35,600 --> 00:26:37,960 Speaker 1: at least Kim Jong un is not moving towards war. 447 00:26:38,080 --> 00:26:40,359 Speaker 1: I mean, it couldn't worse, so um, you know, and 448 00:26:40,359 --> 00:26:43,240 Speaker 1: it's worth thinking of what kind of negotiating strategy and 449 00:26:43,240 --> 00:26:45,199 Speaker 1: what kind of goals would be appropriate for us and 450 00:26:45,320 --> 00:26:46,760 Speaker 1: try to take advantage of the moment. But I just 451 00:26:46,800 --> 00:26:49,320 Speaker 1: think we have to be very, very cautious. We've spoken 452 00:26:49,320 --> 00:26:52,040 Speaker 1: to James Travinis about this. Admirals trevinus up a tough 453 00:26:52,080 --> 00:26:54,480 Speaker 1: Fletcher school, and I think of your new book The 454 00:26:54,520 --> 00:26:59,040 Speaker 1: Future of Land Warfare. Are we deploying our military assets 455 00:26:59,080 --> 00:27:02,760 Speaker 1: to the Pentagon? Are military budget rather to the Pentagon 456 00:27:03,280 --> 00:27:09,639 Speaker 1: in an even remotely efficient manner? Well? No, but you know, 457 00:27:09,800 --> 00:27:12,680 Speaker 1: by the standards of large organizations and by the standards 458 00:27:12,680 --> 00:27:15,400 Speaker 1: of other militaries around the world, I think the Department 459 00:27:15,400 --> 00:27:20,000 Speaker 1: of Defense does moderately. Well. I hesitate to just dump 460 00:27:20,040 --> 00:27:22,639 Speaker 1: on the Pentagon and make it sound as if they 461 00:27:22,680 --> 00:27:25,159 Speaker 1: completely waste the tax payers money, because I don't think 462 00:27:25,200 --> 00:27:27,440 Speaker 1: that's the case, I think the quality of our deployed 463 00:27:27,480 --> 00:27:29,760 Speaker 1: forces is still quite high. And I also don't think 464 00:27:29,760 --> 00:27:32,640 Speaker 1: we want to breed a cynicism that the government has 465 00:27:32,640 --> 00:27:34,879 Speaker 1: no idea what it's doing with the taxpayers money. This 466 00:27:34,960 --> 00:27:38,280 Speaker 1: Department of Defense is outstanding. On the other hand, you know, 467 00:27:38,880 --> 00:27:41,280 Speaker 1: I did my best effort last year at writing a book, 468 00:27:41,320 --> 00:27:43,200 Speaker 1: and in terms of how I thought they could save, 469 00:27:43,600 --> 00:27:45,919 Speaker 1: let's stay between five and ten percent of their budget 470 00:27:45,960 --> 00:27:48,520 Speaker 1: based on programs I thought were less than crucial or 471 00:27:48,560 --> 00:27:51,280 Speaker 1: less than efficient. So it's in that range of that 472 00:27:51,320 --> 00:27:55,000 Speaker 1: ballpark of magnitude that I would say the inefficiency resides. 473 00:27:55,080 --> 00:27:57,520 Speaker 1: It's not It's not as if the Pentagon wastes half 474 00:27:57,520 --> 00:27:59,399 Speaker 1: the money we give them, but they probably waste to 475 00:27:59,400 --> 00:28:01,840 Speaker 1: fight the ten sense him. That's what's great about Michael Hanlon. 476 00:28:01,880 --> 00:28:05,480 Speaker 1: You get a single point estimate and Pentagon wast well. 477 00:28:05,480 --> 00:28:07,600 Speaker 1: It may or may not be that everybody else would 478 00:28:07,600 --> 00:28:10,879 Speaker 1: agree with, but that's that's my ballpark figure. Do you 479 00:28:10,880 --> 00:28:12,720 Speaker 1: think the United States would have been better off and 480 00:28:12,760 --> 00:28:16,440 Speaker 1: it had not invaded Iraq? You know, it's pretty hard 481 00:28:16,480 --> 00:28:18,399 Speaker 1: even for those of us who ultimately we're not opposed 482 00:28:18,440 --> 00:28:21,240 Speaker 1: to that war. And I was sort of a conditional supporter. Um, 483 00:28:21,280 --> 00:28:23,840 Speaker 1: and I I said all through the debate, it's gonna 484 00:28:23,880 --> 00:28:25,480 Speaker 1: be hard, it's going to be difficult. We should only 485 00:28:25,560 --> 00:28:26,879 Speaker 1: do it as a last resort. But in the end, 486 00:28:26,880 --> 00:28:29,040 Speaker 1: I don't claim that I opposed it, so I have 487 00:28:29,080 --> 00:28:31,159 Speaker 1: to acknowledge that, you know, I've had to ask myself 488 00:28:31,200 --> 00:28:33,400 Speaker 1: that question. I don't think there's a way to look 489 00:28:33,520 --> 00:28:37,159 Speaker 1: at Iraq in eighteen and say decinatively that it was 490 00:28:37,200 --> 00:28:40,280 Speaker 1: worth it. What I'm hoping is that, let's say, in 491 00:28:40,320 --> 00:28:43,440 Speaker 1: ten years, as Iraq has stabilized further, I hope by 492 00:28:43,480 --> 00:28:47,000 Speaker 1: then one can at least have an intelligent and you know, 493 00:28:47,120 --> 00:28:50,040 Speaker 1: interesting debate about the question you just posed. If you 494 00:28:50,120 --> 00:28:53,280 Speaker 1: had to just you know, end the debate today, you 495 00:28:53,280 --> 00:28:55,360 Speaker 1: would have to say that, no, the costs were greater 496 00:28:55,400 --> 00:28:58,000 Speaker 1: than the benefits. That's my judgment. I don't I don't 497 00:28:58,000 --> 00:29:00,920 Speaker 1: see how you could justify the war based on where 498 00:29:00,920 --> 00:29:04,160 Speaker 1: we are today. I'm still hopeful that Iraq can evolve 499 00:29:04,200 --> 00:29:07,240 Speaker 1: to a place where it becomes part of the solution 500 00:29:07,400 --> 00:29:10,120 Speaker 1: to the Middle East and not part of the problem. 501 00:29:10,200 --> 00:29:12,360 Speaker 1: And at that future date, I will hope to be 502 00:29:12,440 --> 00:29:15,080 Speaker 1: able to give a more nuanced answer to your question. 503 00:29:15,160 --> 00:29:17,320 Speaker 1: So I'm not going to give up yet on hoping 504 00:29:17,360 --> 00:29:20,680 Speaker 1: that someday this thing looks like it it may have 505 00:29:20,760 --> 00:29:23,080 Speaker 1: had some net benefit, but right now I'd have to 506 00:29:23,120 --> 00:29:25,360 Speaker 1: say it's had much higher costs than benefits. The reason 507 00:29:25,400 --> 00:29:27,600 Speaker 1: I bring up the topic is because earlier today we 508 00:29:27,600 --> 00:29:30,200 Speaker 1: were listening to David Rubinstein of the Carlisle Group. He 509 00:29:30,280 --> 00:29:34,280 Speaker 1: was speaking with an interviewing Israeli Prime Minister Benjamin Netanyahu, 510 00:29:34,720 --> 00:29:37,320 Speaker 1: and the Prime Minister focused on the threat of Iran. 511 00:29:37,520 --> 00:29:42,240 Speaker 1: Is Iran the dominant force in Iraq today. Iran is 512 00:29:42,280 --> 00:29:47,080 Speaker 1: the most influential external force, But the number one dynamic 513 00:29:47,120 --> 00:29:50,960 Speaker 1: in Iraq that's problematic is internal Iraqi lack of cohesion 514 00:29:51,080 --> 00:29:55,440 Speaker 1: and sectarian conflict, and that remains the number one problem now. 515 00:29:55,480 --> 00:29:59,000 Speaker 1: Iran plays on that and exacerbates it. But Iran was 516 00:29:59,040 --> 00:30:01,480 Speaker 1: not the original cause of it, and Iran is not, 517 00:30:01,520 --> 00:30:03,440 Speaker 1: by any means the only catalyst for that. And the 518 00:30:03,560 --> 00:30:06,440 Speaker 1: Rockies themselves have to take ownership of the governance of 519 00:30:06,480 --> 00:30:09,200 Speaker 1: their own country. They are, I think proud and nationalistic 520 00:30:09,320 --> 00:30:12,680 Speaker 1: enough that right now they are not handmaidens to Iran 521 00:30:13,040 --> 00:30:16,240 Speaker 1: or it's foreign policy goals, and therefore, to the extent 522 00:30:16,320 --> 00:30:19,680 Speaker 1: of Rocks sinks or swims. It's fundamentally and primarily determined 523 00:30:19,680 --> 00:30:22,400 Speaker 1: by Rockies themselves. Okay, to try then connect us to 524 00:30:22,480 --> 00:30:27,200 Speaker 1: North Korea, is there a template for denuclearization or nuclear 525 00:30:27,280 --> 00:30:31,680 Speaker 1: containment that can be applied to North Korea? And can 526 00:30:31,720 --> 00:30:34,880 Speaker 1: it be applied also to Iran? I think they're you know, 527 00:30:35,040 --> 00:30:38,200 Speaker 1: two different cases, of course, because Northrea now probably has 528 00:30:38,240 --> 00:30:42,120 Speaker 1: several dozen nuclear weapons or perhaps as many as sixty, 529 00:30:42,520 --> 00:30:45,120 Speaker 1: and as far as we know, Iran does not have any. 530 00:30:45,280 --> 00:30:47,520 Speaker 1: So in that sense you have to take different approaches. 531 00:30:47,560 --> 00:30:51,120 Speaker 1: I think that North Korea at this point, realistically, no 532 00:30:51,120 --> 00:30:53,120 Speaker 1: matter what it's been saying this week, is not likely 533 00:30:53,160 --> 00:30:57,080 Speaker 1: to give up its nuclear weapons. They've spent decades developing 534 00:30:57,080 --> 00:30:59,680 Speaker 1: that capability, and I think what they're trying to do 535 00:30:59,760 --> 00:31:03,400 Speaker 1: is is to again be very cunning in their negotiating strategy. 536 00:31:03,440 --> 00:31:06,720 Speaker 1: We should explore their willingness to give up their nukes, 537 00:31:06,760 --> 00:31:09,360 Speaker 1: But I think the more realistic near term goal is 538 00:31:09,360 --> 00:31:11,320 Speaker 1: going to be in the cap that Arsenal and too 539 00:31:11,400 --> 00:31:14,680 Speaker 1: I have a verifiable freeze on production and testing of 540 00:31:14,760 --> 00:31:17,160 Speaker 1: nuclear and long range missile capabilities. That's what I think 541 00:31:17,160 --> 00:31:19,200 Speaker 1: we have to aim for. We can't give them too 542 00:31:19,280 --> 00:31:22,000 Speaker 1: much for that deal, we have to, you know, recognize 543 00:31:22,000 --> 00:31:24,840 Speaker 1: that that would not be our ultimate objectives and could 544 00:31:24,880 --> 00:31:27,440 Speaker 1: not be rewarded that generously. I think that's the right 545 00:31:27,480 --> 00:31:30,080 Speaker 1: interim goal. Headline just out from Miss Sanders of the 546 00:31:30,080 --> 00:31:33,160 Speaker 1: White House Tariff soundtrack to be signed by end of week. 547 00:31:33,240 --> 00:31:36,720 Speaker 1: We've just seen that across the Bloomberg. Michael had just 548 00:31:36,720 --> 00:31:38,960 Speaker 1: two more questions if we could one for me, one 549 00:31:39,000 --> 00:31:43,760 Speaker 1: from Pim on Syria. What a mess. Everything I've read 550 00:31:44,200 --> 00:31:49,239 Speaker 1: is it's a mess. What is the change behavior we 551 00:31:49,360 --> 00:31:53,480 Speaker 1: can do to assist in the many series? Are we 552 00:31:53,600 --> 00:31:59,160 Speaker 1: just kidding ourselves? Uh? It's such a horrible situation, as 553 00:31:59,160 --> 00:32:01,680 Speaker 1: we all know. Uh, you know, I think that in 554 00:32:01,720 --> 00:32:04,560 Speaker 1: the short term, realistically, this kind of battle right now 555 00:32:04,640 --> 00:32:08,320 Speaker 1: for the suburb of Damascus called East Guda, it's unlikely 556 00:32:08,360 --> 00:32:11,360 Speaker 1: that we have the leverage or the tools to do 557 00:32:11,440 --> 00:32:14,800 Speaker 1: much about that except his shame I hope a little 558 00:32:14,800 --> 00:32:19,560 Speaker 1: bit the Russians into trying to restrain Assad President Assad 559 00:32:19,720 --> 00:32:22,120 Speaker 1: and at least trying to take some minimal steps to 560 00:32:22,160 --> 00:32:25,800 Speaker 1: help people who are caught there in the crossfire. Realistically, 561 00:32:25,880 --> 00:32:28,200 Speaker 1: over time, I think what you have to aim for 562 00:32:28,480 --> 00:32:31,360 Speaker 1: is helping certain of the more remote areas of the 563 00:32:31,360 --> 00:32:35,320 Speaker 1: country get on their own feet through improvised self governance. 564 00:32:35,600 --> 00:32:38,320 Speaker 1: We can help them directly in that process. What that 565 00:32:38,360 --> 00:32:41,960 Speaker 1: means is sort of a de facto temporary um soft 566 00:32:42,000 --> 00:32:45,160 Speaker 1: partition of Syria, because Assad is not going to step 567 00:32:45,200 --> 00:32:48,560 Speaker 1: down from power and any realistic time frame, and so 568 00:32:48,680 --> 00:32:52,480 Speaker 1: I don't think that we should delude ourselves otherwise we're 569 00:32:52,480 --> 00:32:54,840 Speaker 1: gonna have to just tolerate him in power for a 570 00:32:54,840 --> 00:32:57,320 Speaker 1: while and work with those more remote areas like the 571 00:32:57,400 --> 00:32:59,959 Speaker 1: Kurdish regions in the north and some of the Sunni 572 00:33:00,040 --> 00:33:03,160 Speaker 1: dominant areas in the in the south and east, to 573 00:33:03,200 --> 00:33:05,880 Speaker 1: try to help them get on their feet, and over time, 574 00:33:06,000 --> 00:33:09,640 Speaker 1: I think we try to coax Assad to hand over 575 00:33:09,640 --> 00:33:12,240 Speaker 1: power to a different government, which he's probably gonna choose himself. 576 00:33:12,440 --> 00:33:14,960 Speaker 1: We just don't have the leverage to do this through 577 00:33:15,000 --> 00:33:18,160 Speaker 1: a UN negotiation process. Michael A. Handon, Thank you so 578 00:33:18,240 --> 00:33:21,200 Speaker 1: much at Brooking's latest work on NATO among others. I 579 00:33:21,280 --> 00:33:24,600 Speaker 1: really can't say enough about diving into his martial papers, 580 00:33:24,640 --> 00:33:28,200 Speaker 1: his research papers, and also his many books, including Truly 581 00:33:28,240 --> 00:33:38,000 Speaker 1: The Classic Power. Thanks for listening to the Bloomberg Surveillance podcast. 582 00:33:38,360 --> 00:33:43,320 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 583 00:33:43,440 --> 00:33:47,760 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 584 00:33:47,880 --> 00:33:51,760 Speaker 1: Keane Before the podcast. You can always catch us worldwide. 585 00:33:52,200 --> 00:33:53,280 Speaker 1: I'm Bloomberg Radio