Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Bronwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. Right now we
Speaker 1: change gears. We've been speaking with Ambassador Bolton and Congressman
Speaker 1: Davidson from Ohio and now and Lisa Bramwits has been
Speaker 1: so good about this. We speak of an allied response.
Speaker 1: We've heard many defenses of the permanence in need for NATO.
Speaker 1: We are now joined by the Secretary General, of course,
Speaker 1: his affiliation with his Norway against Stoltenberg, joins us this morning.
Speaker 1: Yen's what should be NATO policy after America exits from Afghanistan.
Speaker 1: First of all, to stay committed to uh to ensure
Speaker 1: that Afghanistan doesn't once again the concepts safe avan for
Speaker 1: national terrorists, because we have to remember that the reason
Speaker 1: why NATO allaizes joined the United States going into Afghanistan
Speaker 1: in two thousand and one was a direct response to
Speaker 1: terrorist attack attack on the United States and the hundreds
Speaker 1: of thousands of Canadian European NATUS soldiers and partners have
Speaker 1: served alongside US soldiers there for twenty years, and and
Speaker 1: for those twenties we have prevented Afghanistan from being a
Speaker 1: safe havan for international terrorists. We need to ensure that
Speaker 1: that also the case in the future, so so we
Speaker 1: will we will follow monitor the new rulers and Cobbled
Speaker 1: very closely, and we will also make it clear that
Speaker 1: NATO allies have the capabilities to strike from long distance
Speaker 1: terrorist groups if they try to re establish themselves in Afghanistan.
Speaker 1: Because at the time constrained this morning, Secretary General, I
Speaker 1: really want to focus on the important Resolute support mission,
Speaker 1: the idea of the Italians in the west of Afghanistan,
Speaker 1: the Germans up north where the Northern alliances, and then
Speaker 1: there's a Turkish flag in the middle providing support NATO's
Speaker 1: support to Afghanistan. Now Turkey is in a unique position.
Speaker 1: Explain NATO's relationship with Mr Rajuan and the New Afghanistan.
Speaker 1: The NATO has ended its military presence in Afghanistan, as
Speaker 1: NATI states as huh and I would like to thank
Speaker 1: and praise and and and command all those men and
Speaker 1: women who have served there for so many years, and
Speaker 1: their efforts and their service was not in vain. Turkey
Speaker 1: Is has spread the key role in in operating the
Speaker 1: airport and and Turke has offered to continue to support
Speaker 1: the airport. And the airport is in cobble Is vitallys
Speaker 1: a vital link to the world to get a humanitarian
Speaker 1: aid in but also to enable safe passage for those
Speaker 1: who want to leave. And NATO allies have strongly stated
Speaker 1: that we will not forget all those who are still
Speaker 1: in Afghanistan who supported those who are at risk, and
Speaker 1: we will continue to work to ensure that they can
Speaker 1: leave Afghanistan. Will that be in NATO support directly and
Speaker 1: the many adjacent borders of Afghanistan to continue to get
Speaker 1: people out. So NATAL allies are first of all working
Speaker 1: on how to make sure that airport can continue to operate.
Speaker 1: A second, we expect the Taliban to live up to
Speaker 1: their commitments both on safe passage but also on open
Speaker 1: land borders UH and of course also what they are
Speaker 1: promised when it comes to preventing Harris organizations being able
Speaker 1: to reconstitute themselves in Afghanistan. If you're just joining us
Speaker 1: on radio and television in Stoltenberg, where there's a former
Speaker 1: Prime Minister of Norway, Secretary General of NATO or honored
Speaker 1: that he could join us on this historic morning, Mr.
Speaker 1: Secretary General NATO. It's not so much in search of
Speaker 1: a mission, but it is a morph It is a
Speaker 1: changeable Europe, a changeable NATO North Atlantic Treaty organization. As
Speaker 1: we move into two thousand twenty two, all of that
Speaker 1: butcher stuff against a question of migration, a question of
Speaker 1: refugees across Europe, I would suggest this is the third rail.
Speaker 1: How can NATO support its nations and continental Europe confronting
Speaker 1: a new round of mass refugees and migration. Our main
Speaker 1: talk is to help to stabilize our neighborhood and that's
Speaker 1: the reason why we are working with partners in North
Speaker 1: Africa Enemy least to help to stabilize countries in our neighborhoo.
Speaker 1: Because we're our neighbors on most table, we are more secure.
Speaker 1: We also have some presents, for instance in the Agen
Speaker 1: where we help to implement agreement within Turkey and the
Speaker 1: European Union on illegal migration over the Agine see from
Speaker 1: from Turkey into the rest of Europe. But the NATO's
Speaker 1: main purpose is to make sure that we stand together
Speaker 1: thirty allies, one for all, and all for one. This
Speaker 1: is important for Europe, but it's also important for the
Speaker 1: United States. In a world with a shifting global balance
Speaker 1: of power with the rights of China, it is a
Speaker 1: huge advantage for the United States to have twenty nine
Speaker 1: friends and allies in NATO. No other major power has
Speaker 1: anything like that, and therefore a strong NATO, Europe and
Speaker 1: North American standing together is important both for North America
Speaker 1: and for Europe. How can NATO assist your members in
Speaker 1: what we're hearing interview the interview general commit of the
Speaker 1: United States Ambassadorable Alton, Congressman Davidson, and others. They all
Speaker 1: circle back to a relationship of a new Afghanistan with
Speaker 1: China and with Russia. How can NATO respond to that
Speaker 1: perceived new alliance? So for US, it's obvious that all
Speaker 1: the countries in the region, and that of course also
Speaker 1: includes China and neighbor Afghanistan and the Russia not so
Speaker 1: far away, it is in their interests to have a
Speaker 1: stable Afghanistan and Afghanistan where terrorist groups like isis K
Speaker 1: cannot work. Established themselves operate plan Taririst attacks against any
Speaker 1: other country. So there are many differences between Russia, China,
Speaker 1: NATO allies and all the countries in the region, but
Speaker 1: we all have a common interest in preventing Afghanistan from
Speaker 1: once again as it was before we went in in
Speaker 1: two thousand and one, becoming a place where TIS organizations
Speaker 1: can plan, organize, conductors attacks against other countries. Mr. Secretary
Speaker 1: General Angelo Merkell of Germany speaks of an existential need
Speaker 1: to have a Kabbal airport open. You mentioned it earlier,
Speaker 1: like in our final moments here to speak about the
Speaker 1: new Kabal airport. How do you perceive and you mentioned
Speaker 1: Turkey and their affiliation of protecting and sustaining it over
Speaker 1: the years of this war, how do you perceive a
Speaker 1: new Kabbal airport with NATO support. NATO Allies are strongly
Speaker 1: supporting the efforts to make sure that we have a
Speaker 1: functional operational airport in a cobbal U. Turkey is playing
Speaker 1: a key role. I discussed this uh just yesterday with
Speaker 1: the with the Turkish Foreign Minister, and I would like
Speaker 1: to praise Turkey for the key role both in supporting,
Speaker 1: helping facilitating the evacuation, getting people out from Cobble, out
Speaker 1: from Afghanistan into the airport over the last days, but
Speaker 1: also now the offer they have made to help to
Speaker 1: operate the airport, because the airport is are so essential
Speaker 1: both for aid coming in but also for people to
Speaker 1: be able to leave. But how will we affect that,
Speaker 1: I mean America's it's done over what occurred yesterday. We
Speaker 1: all knew it was coming, and yet particularly those of
Speaker 1: us with an understanding of nineteen five, are stunned. How
Speaker 1: do we actually affect a reopening with the Tailiban? As
Speaker 1: we work, NATO is not planning to deploy any forces
Speaker 1: or personnel at the Cobble Airport. We have ended our
Speaker 1: military presence there as as as as an alliance and
Speaker 1: as for instance allies like the ninety States have done.
Speaker 1: But we are working with other countries, including a need
Speaker 1: to ally cad UH and they have what I will
Speaker 1: call operational contact with Taliban to see if we can
Speaker 1: help ensuring that the continue, that the airport continues to function.
Speaker 1: Mr Secretary General, thank you so much for joining Bloomberg
Speaker 1: this morning. Yen Stoltenberg, NATO Secretary General, and this historic morning,
Speaker 1: we now finished whatever year Politics is with John Bolton.
Speaker 1: He is a former national security advisor. The book A
Speaker 1: Sensation a year ago, the room where it happened, and
Speaker 1: we're thrilled that Ambassador Bolton could join us this morning.
Speaker 1: I'm not going to mince words, Ambassador Bolton. You are
Speaker 1: scathing about the urgency and the magnitude of the Pakistan problem.
Speaker 1: How should the Secretary of State advise a president on
Speaker 1: our new relationship with Pakistan? Well, I think for many
Speaker 1: years we've been constrained by our concern for Pakistani logistical
Speaker 1: support to our forces in Afghanistan, and our concern about
Speaker 1: Pakistan's nuclear weapons, which if they fell into the hands
Speaker 1: of terrorists one by one, or worst case, the terrorist
Speaker 1: regime took over Pakistan, would be a global threat immediately.
Speaker 1: But the fact is we've been played by the government
Speaker 1: of Pakistan for a long time. Terrorist elements within that
Speaker 1: government already, particularly Inner Services intelligence, have played a double game,
Speaker 1: and we've put up with it. I just think with
Speaker 1: the end of American involvement in Afghanistan, with a terrorist
Speaker 1: government in place there now, which gives potential support for
Speaker 1: terrorist activity and take over Pakistan, we've just got to
Speaker 1: get tough on the government either to crack down on
Speaker 1: terrorism or to face the consequences. To me, the critical
Speaker 1: sentence and you're wonderful essay and the Washington Post, John Bolton,
Speaker 1: was you say, now we tilt to India. Let's take
Speaker 1: it back to John Galbraith's ambassador to India, long ago
Speaker 1: and far away. We've always been struggling with this tilt
Speaker 1: to India. How do we tilt to India now to
Speaker 1: assist the memory of our soldiers in Afghanistan. Well, the
Speaker 1: principal threat that we face globally in the twenty one
Speaker 1: century is China, and India has moved away a long
Speaker 1: way from the so called neutrality of the Cold War,
Speaker 1: where it actually tilted towards the Soviet Union, which was
Speaker 1: one reason we tilted towards Pakistan. I mean, it kind
Speaker 1: of goes back and forth, but but India now sees
Speaker 1: China as the threat, and it sees the same thing
Speaker 1: we see in Pakistan, a large and growing Chinese presence
Speaker 1: of Chinese assistance to Pakistan over the years for its
Speaker 1: nuclear and ballistic missile programs. Uh and I think the
Speaker 1: time is is here for the US to tighten up
Speaker 1: with with India. With Australia, with Japan, which we already
Speaker 1: formed what we call the Quad with UH and and
Speaker 1: really to put to Pakistan as clearly as we can
Speaker 1: give up this flotation with terrorism and UH. If you do,
Speaker 1: there's a there's a real prospect for cooperation. But we're
Speaker 1: not going to go on any longer pretending you're not
Speaker 1: doing it. There's always been a struggle. You're institutionally within
Speaker 1: our international relations with India. What form of relationship would
Speaker 1: you advocate after your travels to Central Asia? Does Biden
Speaker 1: need to go to Delhi now? Well, I think he
Speaker 1: needs to go soon. And I think we've got some
Speaker 1: real issues with India too. This is not this is
Speaker 1: not going to be easy. They've got to break their
Speaker 1: dependence on Russian weapons systems, which they've relied on and
Speaker 1: purchased for decades, going back to the Cold War. Uh And.
Speaker 1: I think a lot of the the political class in
Speaker 1: India is going to have to wake up to the
Speaker 1: fact that the neutrality, which was never really neutral during
Speaker 1: the Cold War, is no longer an option. I think
Speaker 1: they're beginning to move in that direction. I think, uh
Speaker 1: there's a lot of opportunity there, but I don't underestimate
Speaker 1: the amount of work that's going to be involved, impassatable
Speaker 1: and how can so? And are you about some sort
Speaker 1: of alliance between the Taliban and Islamic State or other
Speaker 1: groups that could become something reminiscent of the al Kada
Speaker 1: of your Well, I think I think it's an important question.
Speaker 1: I think we should first remember the al Qaida of
Speaker 1: your is the al Qaida of today as well, and
Speaker 1: they have remained in close touch with Taliban during twenty
Speaker 1: years of exile in Pakistan. They're back in force now.
Speaker 1: We see that even in U N reports before the
Speaker 1: fall of the Afghan government, isis K has been at
Speaker 1: odds with Taliban because they don't think they're tough enough,
Speaker 1: they think they're insufficiently strict in the implementation of Islamic law.
Speaker 1: So so there's there's tension there now. But but let's
Speaker 1: be clear, this could turn into cooperation in the blink
Speaker 1: of an eye. And isis K does have worldwide thread capabilities,
Speaker 1: as does al Qaeda, and I'm worried we have slipped
Speaker 1: back into a pre nine eleven situation. Meanwhile, we do
Speaker 1: have a poor that there are a number of American
Speaker 1: citizens still in Afghanistan UH, and the US has completely
Speaker 1: pulled out. What do you see as the best pathway
Speaker 1: to get some of these people who are remaining out
Speaker 1: of the nation safely? I mean, especially whose alliance are
Speaker 1: we going to rely upon. Well, I'm I'm very worried
Speaker 1: that that they're not coming out. Let's let's remember a
Speaker 1: lot of these US citizens may well be dual citizen
Speaker 1: US and Afghan or they may have been Afghan and
Speaker 1: and become US citizens. So from Taliban's perspective, there's still
Speaker 1: Afghans and UH. I would not UH rest any comfort
Speaker 1: in cooperating with Taliban that we may get a few
Speaker 1: more people out who are American citizens. I think the
Speaker 1: number of Afghans who worked with US and other coalition
Speaker 1: forces for the last twenty years are going to be
Speaker 1: few and far between getting out. I think I think
Speaker 1: we're real risk here of a long brutal hostage situation.
Speaker 1: Did we do the right thing? We left, and we
Speaker 1: left those people behind, and we knowingly did it. We
Speaker 1: never should have left. I think that's the fundamental mistake.
Speaker 1: I think the exit itself was badly bungled, no question
Speaker 1: about that. But the mistake here goes back to the
Speaker 1: Trump administration negotiating with the Taliban, not negotiating with a
Speaker 1: terrorist group, not negotiating with the government of Afghanistan that
Speaker 1: we helped create twenty years ago, and that whatever its deficiencies,
Speaker 1: and it had plenty, it had at least some democratic legitimacy,
Speaker 1: of which the Taliban has zero. Yeah, certainly complicated. Can
Speaker 1: you come back and just do big picture with us?
Speaker 1: A lot of the concerns about the way in which
Speaker 1: we withdrew has been China now stepping in the Belden
Speaker 1: Road initiative, as you know, through Pakistan. You wonder if
Speaker 1: it continues through Afghanistan. Is that a real threat? Yes?
Speaker 1: I think it is. In fact, I have up in
Speaker 1: the Well Street Journal today on the reaction both by
Speaker 1: China and Russia to what we've done in Afghanistan. And
Speaker 1: I think while we're all understandably concentrating on what's gone
Speaker 1: wrong in Afghanistan, what's the global terrorst threat? As a consequence,
Speaker 1: if you look at the big picture, our main adversaries
Speaker 1: read this as a sign of American retwreet, retreat and weakness.
Speaker 1: John Bolton, you came out of Baltimore. Your father was
Speaker 1: a fireman, you did the military academy thing and wandered
Speaker 1: up to the liberal swamp known as New Have in Connecticut,
Speaker 1: and and it must have been a real shock your
Speaker 1: first day at Yale University. You did pretty good up
Speaker 1: there as well. You've got a great perspective on the
Speaker 1: international relations establishment of Washington. Are we in search of
Speaker 1: an operative theory? We went from the civilizations, the Washington consensus,
Speaker 1: maybe Zakaria's post American world. What does John Bolton's new
Speaker 1: foreign policy theory look like? Well, you know, I'm a
Speaker 1: Burkean conservative, so I'm not so interested in the broad
Speaker 1: scale theorizing. But I think American foreign policy has to
Speaker 1: be based on American national interest, which is why we
Speaker 1: were in Afghanistan, not not We weren't there to do
Speaker 1: charity work for the Afghans. We were there as a
Speaker 1: strategic defense against the recurrence of terrorism like we saw
Speaker 1: on nine eleven. And I think when we give up
Speaker 1: that very hard headed approach, we leave American danger, which
Speaker 1: is exactly where I think we are today. Meanwhile, we
Speaker 1: are hearing the administration is turning its focus much more
Speaker 1: to the Far East, into cyber security, to cyber warfare,
Speaker 1: to the protection uh, that could come from space and
Speaker 1: other types of fronts for the new war. What do
Speaker 1: you foresee in terms of the U s IS priorities
Speaker 1: and how it should chart a path in that direction. Well,
Speaker 1: I think cyberspace has been a kind of a garden
Speaker 1: of Eden for many people for twenty years or so.
Speaker 1: We now realize it's filled with dangers. As I said before,
Speaker 1: I do think China is the main threats, the existential
Speaker 1: threat of the twenty one century. But but I think
Speaker 1: what's most important to understand is with the with the
Speaker 1: end of the Cold War, the collapse of the Soviet Union.
Speaker 1: Although people had this dream of the peace dividend and whatnot,
Speaker 1: actually in the past thirty years the world is more
Speaker 1: dangerous from more diverse threats that we've got to be
Speaker 1: ready for. It's not with Afghanistan gone we're more secure.
Speaker 1: The clear point today is we are less secure and
Speaker 1: we need to be ready across a multiplicity of threats.
Speaker 1: Inbassador Bolton, thank you so much writing in the Wall
Speaker 1: Street Journalist morning, and we thank him for his conversation.
Speaker 1: He watches the euro on an hour by hour Basis.
Speaker 1: Ibrahim Urbari City Group Global had a foreign exchange analysis,
Speaker 1: but much more than foreign exchange folding in the sum
Speaker 1: of all its part. How correlated are the markets right now, Abraham, Well,
Speaker 1: they remained pretty correlated, and in fact, when we look
Speaker 1: at the FX market, one of the major ques we
Speaker 1: of course always take is what happens in in in
Speaker 1: interest rates and what happens in terms of global risk
Speaker 1: appetite and ex has been moving more or less in tandem.
Speaker 1: That being said, for the dollars specifically, it means that
Speaker 1: it's been called in the cross currents to a degree.
Speaker 1: As you said, it's been a little range fund over
Speaker 1: the last few weeks because interest rates in the US
Speaker 1: have been low even as equity markets have been pushing
Speaker 1: up so raises. You were him the economic question, what
Speaker 1: could potentially push the Fed to act more quickly and
Speaker 1: thus to create some strength in the dollar that could
Speaker 1: disrupt the rest of the ffex world. What are you
Speaker 1: looking for in this Friday's jobs report on that front? Well,
Speaker 1: I think when it comes to the FED, they're actually
Speaker 1: drivers that matter a lot and drivers that matter much less.
Speaker 1: And I think the tapering question is much more in
Speaker 1: the latter category. And that was the main takeaway coming
Speaker 1: out of Jackson Hole. And therefore we don't think there's
Speaker 1: all that much that this paywall report can do for
Speaker 1: the actionality of the dollar beyond the day itself. What
Speaker 1: is much more important is what is the outbook for
Speaker 1: the fence price hiking intentions? And there I don't think
Speaker 1: this payroll report will do a great deal. So I
Speaker 1: think it will be a time until the FIT becomes
Speaker 1: the major market driver again in FX. If that's fascinating, Abrahim,
Speaker 1: especially when we take a look at what's happening over
Speaker 1: in Europe with the inflation print that we saw this morning,
Speaker 1: coming in at the hottest in two thousand and eleven,
Speaker 1: hotter than people previously expected. How much does this actually
Speaker 1: bleed into the potential for dollar strength? You're a weakness
Speaker 1: as you start to look at inflation really pick up,
Speaker 1: and perhaps people recognize that in the FX world. Yes,
Speaker 1: there I guess too too interesting observations here. One is,
Speaker 1: as you said, inflation in Europe has has crept high,
Speaker 1: much higher in a way that few of us have expected.
Speaker 1: And I think that puts the spotlight on to what
Speaker 1: the e CV may do at their next meeting just
Speaker 1: over a week from now, because they themselves have to
Speaker 1: consider whether to taper asset purchases, and our our expectation
Speaker 1: has been that they will be very slow in indicating that.
Speaker 1: But I think this inflation print could in fact increase
Speaker 1: the urgency for them to prepare to wind down there
Speaker 1: as a purchase program, and that in turn, it's not
Speaker 1: so much your negative factor, but it could actually suggest
Speaker 1: that there's a bit more upside linked to central like
Speaker 1: expectations from the s S outthom in the coming weeks,
Speaker 1: we also start China pm is weakening just a little
Speaker 1: bit overnight, and I'm curious how that impacts our inflation.
Speaker 1: If they are exporting it and we are importing it,
Speaker 1: is it indeed transitory? So I think China is in fact,
Speaker 1: or global growth more generally is in fact right now.
Speaker 1: The key question for for effects, it's to some degree
Speaker 1: the debate between reflation versus stackflation, and what we got
Speaker 1: out of the China PMS was that maybe the manufacturing
Speaker 1: part held up, and that tends to be the more
Speaker 1: important between the two, But what was striking was that
Speaker 1: non manufacturing was extremely weak relative to expectations and relative
Speaker 1: to the previous trend. So it does raise some warning signs,
Speaker 1: but they're actually not necessarily inflationary. To the degree that
Speaker 1: demand in China is folding back in line with some
Speaker 1: of the supply restrictions, we don't think that it fuels
Speaker 1: necessarily makingary impulses that we're seeing elsewhere. But it does
Speaker 1: leave that major question open, which is where does global
Speaker 1: growth go from here? And the one thing we know
Speaker 1: is that the dollar tends to strengthen when global growth weakens,
Speaker 1: So that I think is the key scenario under which
Speaker 1: the dollar strengthens in the coming ups. Everyhom and our
Speaker 1: collective memories, there are emerging market crises Ecuador, Mexico, on
Speaker 1: and on. Do you feel like we're near great instability
Speaker 1: within selected emerging markets or is its studies she goes
Speaker 1: given the information flow. So so for now we think
Speaker 1: that the risks and emerging markets are more ideosynchronic than systemic.
Speaker 1: And that's in the context of expecting that the global
Speaker 1: recovery will persist, that Chinese growth will bottom out and
Speaker 1: do okay. But this is one area where eventually fed
Speaker 1: policy and interest rates could matter a great deal. Via
Speaker 1: n S Chief Economists just highlighted that the other day
Speaker 1: that emerging markets are not in a position where they
Speaker 1: can weather a major increase in US interest rates. Well,
Speaker 1: for now, it's reassuring to see that US interest rates
Speaker 1: are really subdued, and under that scenario, we think that
Speaker 1: emerging markets will in fact be an interesting investing opportunity,
Speaker 1: including in effects. But again it is with with a
Speaker 1: bit of stomach ache, because we're all a little confounded
Speaker 1: by how low interest rates in the US are and
Speaker 1: if that changes, I think it could make the likelihood
Speaker 1: of more commonly emerging market crisis a lot more a
Speaker 1: lot more likely. REMBERI thank you so much for joining
Speaker 1: us today with City Group. Cathy Jones joins us right
Speaker 1: now Trumps Center for Financial Research here and the oardities
Speaker 1: of the bond market, Cathy, the wall of money out
Speaker 1: there is tang Will. What do you advise to savers
Speaker 1: exhausted from low nominal yields in non existent real yields? Yeah, Tom,
Speaker 1: you know, I think the key is that you need
Speaker 1: a pretty diversified portfolio. So you know clearly you're not
Speaker 1: going to get much return in traditional treasuries, and so
Speaker 1: you need a fairly diversified portfolio. But yields are low,
Speaker 1: and that that reflects as you mentioned with tremendous liquidity
Speaker 1: in the markets, sort of secular forces that continue to
Speaker 1: pour money into high quality bonds and um, that's probably
Speaker 1: not going to change, so you need to really have
Speaker 1: a lot of diversification to deal with it. Kathy, can
Speaker 1: you put into perspective the discussions of tapering bond stimulus
Speaker 1: that we're hearing both from the Federal Reserve and now
Speaker 1: also from the e c B. I mean, will there
Speaker 1: be a material effect that just hasn't come through yet
Speaker 1: on bond yields moving higher as the taper plans get effectuated. Well,
Speaker 1: you know, my feeling on tapering is the slower I go,
Speaker 1: the higher the yield. So the reason is, of course,
Speaker 1: because tapering is kind of the first step towards tightening
Speaker 1: policy and reducing liquidity and slow in growth and aggregate
Speaker 1: demand and inflation. So if the Fed takes a very
Speaker 1: slow approach, that allows longer term expectations about inflation and
Speaker 1: growth to stay higher. So if we move slowly, I
Speaker 1: think yields move up. If the Fed moves very quickly,
Speaker 1: and certainly if Germany starts are the ECB UM starts
Speaker 1: to taper quickly and clamp down on this Uh, on
Speaker 1: the stimulus, then we're probably going to see yield stay
Speaker 1: lower longer term. This is really confusing, and frankly, the
Speaker 1: whole backdrop of the what could be and what maybe's
Speaker 1: have been basically a soup out there, which is possibly
Speaker 1: why the market hasn't done all that much. And I'm
Speaker 1: wondering why. If what you're saying is the case that
Speaker 1: there is this faith that the Federal Reserve is going
Speaker 1: to remain on hold for longer, why aren't we seeing
Speaker 1: a steepening in the yield curve. Why aren't we seeing
Speaker 1: longer high, longer term high inflation. It reads, We're just
Speaker 1: not seeing it in the markets. Does this makes sense
Speaker 1: to you? Um? Well, I think yields should be higher.
Speaker 1: I mean, I think reflecting the growth we have, particularly
Speaker 1: for fiscal stimulus, less about the FED, but more about
Speaker 1: fiscal stimulus, which has been really pretty powerful so far
Speaker 1: and has the potential I think to continue to keep
Speaker 1: the economy pretty strong, and we have enough income growth,
Speaker 1: particularly in the lower income cohorts, that we should start
Speaker 1: to see aggregate demand pick up relative to supply and
Speaker 1: and for a longer term prospects keep inflation a bit
Speaker 1: higher and real yields a bit higher. I don't think
Speaker 1: the market is quite convinced that that's going to happen.
Speaker 1: You know, we have a twenty year history of the
Speaker 1: FED missing their inflation targets, of of the economy not
Speaker 1: you know, coming into its full potential growth, and I
Speaker 1: think the market is skeptical about that. At the same time,
Speaker 1: just have tremendous demand. You know, there's us a lot
Speaker 1: of demand for yield out there, and the lesson a
Speaker 1: lot of institutional investors have learned is that you just
Speaker 1: take every opportunity when yield flip up to to put
Speaker 1: money to work exactly. That's increasingly what we've heard from
Speaker 1: Matt Real even of Investo saying that the goliath sitting
Speaker 1: on yield it might not be the FED, it's some
Speaker 1: of the fore and overseas buyers where you wake up
Speaker 1: every morning and Japan wants to be buying your bonds.
Speaker 1: Do you see that changing anytime soon? I doubt that
Speaker 1: it changes a lot um. It can ebbs and flows
Speaker 1: over time. You know, if seasonal factors and you have
Speaker 1: kind of sudden moves maybe make foreign investors pull back,
Speaker 1: but you still look at those yield spreads whether a
Speaker 1: nominal even then real terms. But in real terms ours
Speaker 1: are low. But in nominal terms, which is what people
Speaker 1: trade in the short run, Um, you still have a
Speaker 1: big gap between where we are and where Japan is
Speaker 1: or where Europe is. And if you're an institutional investor,
Speaker 1: if you're a pensionbund insurance company, you have money that
Speaker 1: has to go to work, has to be in a
Speaker 1: high quality asset. Where do you go? Is that what
Speaker 1: you also see? You migrate away from full faith and
Speaker 1: credit to investment grade spreads. I'm looking at the Bloomberg
Speaker 1: eight basis points of her treasuries high yield to eighty eight.
Speaker 1: The minute you got above three hundred, the buyers came in. Yeah,
Speaker 1: I think there is a fundamel story here. Um. I
Speaker 1: think the yields darts ordinarily law obviously, but the fundamental
Speaker 1: story is that we have strong enough gro good cash
Speaker 1: flow incrporations. You know you have um manageable levels of
Speaker 1: that for most companies, and so you know, again that's
Speaker 1: the meld is really strong. Kathy Lisian Saunders yesterday age
Speaker 1: the stock market was going up so fast. She's never
Speaker 1: seen that in her career. How do you handle the
Speaker 1: wall of money. I mean, can we revisit there's super
Speaker 1: low yields like breakdown under one sixteen, breakdown under twelve,
Speaker 1: price up, yield down. Can that happen with this wall
Speaker 1: of money? Well, I think it's possible, but I think
Speaker 1: we need some bad economic news to make it happen.
Speaker 1: So we we visited those laws when you know there
Speaker 1: was a big scare. Um, I think we need another
Speaker 1: pretty big scare. And it just doesn't seem, at least
Speaker 1: for the next six months or so, to be on
Speaker 1: the horizon. And we're looking at pretty strong job growth.
Speaker 1: We're looking despite the delta variant, the economy continues to
Speaker 1: run at a pretty healthy rate UM, and I don't
Speaker 1: think revisiting one twelve, one fifteen is very likely. There's
Speaker 1: also a question about long term, whether the FED is
Speaker 1: going to be too slow and we do get faster
Speaker 1: than expected inflation. And this is almost sacrilegious to say,
Speaker 1: especially to someone who's been in the bond market year
Speaker 1: after year and watched the yield just go lower and
Speaker 1: inflation go nowhere. But ragam Rajan of the North to
Speaker 1: Chicago and formally the Bank of India really illuminated this
Speaker 1: yesterday on Bloomberg Television saying, look, the FED is going
Speaker 1: to remain on hold, but we are seeing movement. It
Speaker 1: is a different world based on fiscal support. What do
Speaker 1: you say the arguments like that, Um, you know, I
Speaker 1: tend to agree that the fiscal support is the most important.
Speaker 1: Whether the FED finds itself so far behind the curve
Speaker 1: that they have to ratchet upgrates really fast, it's kind
Speaker 1: of a question market in my mind, because they can
Speaker 1: they have the ability to you know, taper more quickly,
Speaker 1: taper more slowly, raise rates more quickly. Um. I think
Speaker 1: it's premature to say that they're going to get behind
Speaker 1: the curve. It's a risk, clearly. Uh. And I think
Speaker 1: fiscal stimulus is the big game changer in this market
Speaker 1: versus really the past thirty forty years. We haven't had
Speaker 1: this kind of fiscal support for the economy in a
Speaker 1: very long time, and monetary policy isn't set for that.
Speaker 1: But I do think it's on the radar of the
Speaker 1: Fed on that tone of the fiscal policy. You guys
Speaker 1: sort of this idea within the equity markets of this
Speaker 1: reflationary trade, and Kathy we joked that every equity analyst
Speaker 1: is well now also a bond analyst and a bond strategist.
Speaker 1: What are the equity guys next to you asking you?
Speaker 1: What information do they want about your world of bonds? Yeah?
Speaker 1: They just want to know what the BET's gonna do.
Speaker 1: Um that that's really always the question. You know how
Speaker 1: I got some shade there. I mean, it's it's obviously
Speaker 1: it's important. The discount rate for equities is set by
Speaker 1: the risk free rate, which is set for the fat.
Speaker 1: So it's a logical question. I think there is some
Speaker 1: concern amongst equity strategists that we're not saying yield move
Speaker 1: off as quickly as inflation, and they're sort of like
Speaker 1: everyone else, kind of scratching their heads and saying, is
Speaker 1: this gonna, you know, come out and bite us in
Speaker 1: the short run? Um? And so they're on the they're
Speaker 1: on watch for that, but we're not hearing much more
Speaker 1: than you know, focus on the fat, Kathy, completely unfair question.
Speaker 1: But for the retirees America crushed is savers? When do
Speaker 1: we see a positive real yield? Do you need to
Speaker 1: go into two thousand, twenty three or four? Probably? Yeah,
Speaker 1: I think it's gonna take some time. Um. Now, on
Speaker 1: the other hand, if a if a retiree and a
Speaker 1: saver has a balanced portfolio, there of appreciation on the
Speaker 1: equity side. So let's not forget if you're hoping for
Speaker 1: higher yield, it may have some sort of effect on
Speaker 1: a second But Kathy, the implication there then being if
Speaker 1: somebody has a balanced portfolio, and it's a good balanced portfolio,
Speaker 1: does this mean that bonds can still serve as sort
Speaker 1: of the buffer? I mean, this has been a perennial
Speaker 1: question before we let you go. Do they serve as
Speaker 1: that buffer or no? I think they do. I have
Speaker 1: I reject the argument. I've rejected that argument for a
Speaker 1: long time. They're still there when the stock market really
Speaker 1: goes south. I just looked here. I'm looking up right now,
Speaker 1: Lisa carefully balanced portfolio to see what that return has been.
Speaker 1: Cathy Jones, thank you so much. This is the Bloomberg
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from
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Speaker 1: Tom Keene, and this is Bloomberg