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Speaker 1: Welcome to the Bloombergs Surveillance Podcast. I'm Tom Keene. Along

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Speaker 1: with the Jonathan Ferrill and Lisa A. Brownowitz jay Leie,

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Speaker 1: we bring you insight from the best and economics, finance,

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Speaker 1: investment and international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud,

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Speaker 1: Bloomberg dot Com and of course on the Bloomberg terminal.

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Speaker 1: John A. Guess now it's George Sara Phaelos Globe ahead

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Speaker 1: of FX research over at Deutsche Bank. George, let's start

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Speaker 1: with that dollar strength. What is the number one dominant

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Speaker 1: driver of what's taking place not just in Europe but

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Speaker 1: across Asia. Two? Hi, John, So it's it's clearly historic

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Speaker 1: times in effects. And I'd say what's going on is

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Speaker 1: that valuate valuation anchors are being lost. So you know,

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Speaker 1: you take Europe for example, producer prices are now at

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Speaker 1: over the last eighteen months. Um, what does that mean

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Speaker 1: for purchasing power parity, for for how much competitiveness has

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Speaker 1: been impacted? The market doesn't really know and is trying

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Speaker 1: to grapple with with that question. Um, you mentioned the yen.

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Speaker 1: The b o J has been doing the FED equivalent

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Speaker 1: of a trillion of quem in recent months, it's now

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Speaker 1: starting to pick up again. It's basically following a policy

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Speaker 1: of neglect for the end. It hasn't spoken about the

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Speaker 1: end m for for the last for the last two months.

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Speaker 1: And I think if you add all these things together,

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Speaker 1: the dollar is ending up as the safe haven of choice,

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Speaker 1: but by default because there's all these issues in the

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Speaker 1: rest of the world. And I think that the critical

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Speaker 1: point is it becomes very difficult to understand and caliber

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Speaker 1: fair value. Given these huge moves. We're seeing an energy

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Speaker 1: prices um it changes in policy, for example out of Japan,

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Speaker 1: and obviously we've got the COVID situation in China. When

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Speaker 1: do we reach a breaking point? George and I speak

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Speaker 1: as we start reaching levels that perhaps were last seen

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Speaker 1: or the pace of which the last scene in two

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Speaker 1: thousand twenty which prompted Federals are of intervention. Yeah, so

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Speaker 1: there's some currencies we were even exceeding those And going

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Speaker 1: back to to the nineteen eighties, the huge four overshoot

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Speaker 1: back then kept going. It actually currencies back then, the

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Speaker 1: couple from rates, even as Volker stopped. The dollar kept going,

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Speaker 1: even as the US ecial accounts turned and it became

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Speaker 1: a bit of a self fulfilling situation where where again

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Speaker 1: valuation anchors were lost, and what it took to turn

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Speaker 1: things was coordinated intervention and you had the fetes started

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Speaker 1: to sound a bit more jittery, and then obviously the

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Speaker 1: plaza called UM. I still think we're far away from that,

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Speaker 1: not least because dollar strength at the moment is helping

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Speaker 1: the US inflation story, and it is very likely the

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Speaker 1: call goods inflation in the US, I think we'll move

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Speaker 1: sharply lower UM. So one thing that will be able

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Speaker 1: to shift things is if we get a FED pivot

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Speaker 1: that's clearly too early, that's on the U S side,

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Speaker 1: just an easing of these taflation fears. But then, of

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Speaker 1: course we've got the issues outside of the US, both

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Speaker 1: in Europe and Asia. It's very difficult over the next

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Speaker 1: few months to see these fundamental issues, this uncertainty go away,

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Speaker 1: and as such, I think it's very difficult to call

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Speaker 1: for a big turn in the dollar as things stand well.

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Speaker 1: Given that, George, what's going to stop the euro from

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Speaker 1: going to ninety zero point nine on the dollar, what's

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Speaker 1: going to stop the yen from going to one fifty?

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Speaker 1: As we were talking about yesterday. What's going to be

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Speaker 1: the pivot point for some of these currencies as there

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Speaker 1: is not necessarily some sort of circuit breaker. So I

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Speaker 1: think there's two things that can prevent extreme moves. Obviously,

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Speaker 1: in Japan you are seeing extreme moves because the Bank

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Speaker 1: of Japan vides policies actually encouraging yen weakness. But speaking

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Speaker 1: of Europe, there's two things. Number one, the ECB becoming

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Speaker 1: more aggressive, becoming more assertive talking about the currency. And

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Speaker 1: I don't agree with this argument that if the ECB

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Speaker 1: likes more it's going to be negative for the currency

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Speaker 1: because it hurts growth. You are actually see the UR

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Speaker 1: hold up much better than what one would have expected,

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Speaker 1: given that we've now started to price seventy bits for example.

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Speaker 1: So I think the e c B is one and

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Speaker 1: the right fiscal policy response as far as the energy

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Speaker 1: situation goes. And that's why the differences between the UK

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Speaker 1: and the UR area become a bit more interesting. For example, Okay,

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Speaker 1: so George is essentially what you're saying. The ECB can

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Speaker 1: support the Euro by hiking, but that is not necessarily

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Speaker 1: the case for the Bank of England. So the CB

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Speaker 1: central banks can slow down the moves, but it's not

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Speaker 1: interest rate differentials and not the dominant drivers. And we're

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Speaker 1: seeing that the ECB is helping slow down the urine depreciation,

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Speaker 1: but I think to see a big shift you need

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Speaker 1: a resolution on the energy situation. Now if you if

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Speaker 1: you go over to the UK, I'm still surprised by

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Speaker 1: the lack of urgency from the Bank of England in

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Speaker 1: terms of this communication of how much more they can do.

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Speaker 1: You've got an inflation picture that's pretty much the worst

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Speaker 1: in the developed world. We are very likely to get

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Speaker 1: very very sizeable fiscal announcements in place that may help

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Speaker 1: inflation in the near term, but they're also going to

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Speaker 1: be highly stimulative. They're not going to allow for any

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Speaker 1: correction on the demand side. So I worry in the

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Speaker 1: UK policy alignment between the fiscal authorities and montre authorities

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Speaker 1: is not there um and this in itself may be

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Speaker 1: quite harmful for the currency. How harmful I mean, what

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Speaker 1: probability would you put around cable at parody? So we

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Speaker 1: wrote a report where we're looking at all these drivers,

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Speaker 1: were looking at the balance of payments dynamics in the UK,

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Speaker 1: and what stands out really is versus ten years ago

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Speaker 1: the position is much more vulnerable. You've got a negative

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Speaker 1: net international investment position, you've got a very large current

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Speaker 1: account deficit, you've got real rates that are still very low.

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Speaker 1: But for me, over the next two or three weeks,

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Speaker 1: it's all about policy credibility and alignment. And if we

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Speaker 1: go down the route of a very large, unfunded, untargeted

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Speaker 1: fiscal stimulus and the Bank of England, for example, disappointing

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Speaker 1: market expectations and not hiking by seventy five basis points,

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Speaker 1: not showing a greater sense of urgency, I do worry

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Speaker 1: the funding of this very large deficit um the UK

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Speaker 1: has with the rest of the world can be challenged

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Speaker 1: and you can see very extreme levels for the pound,

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Speaker 1: as you have in the past when the UK has

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Speaker 1: struggled to trap form financing. In the euroregion in particular,

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Speaker 1: you were talking about how the appropriate fiscal policy could

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Speaker 1: support the euro and I want to go back to that.

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Speaker 1: What does the appropriate policy look like given the fact

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Speaker 1: that a lot of households are really struggling. This is

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Speaker 1: not like five dollars barrel of gasoline or five dollars

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Speaker 1: a gallon gasoline in the United States. This is way

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Speaker 1: more extreme way more punitive for households over in Europe.

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Speaker 1: Can they not offset it at all, and if they do,

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Speaker 1: is there something that's prudent that could still support the

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Speaker 1: euro It's a really important question, and what I would

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Speaker 1: say is it's a fine needle to threat, so to speak,

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Speaker 1: in that Yes, you have to target polity in terms

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Speaker 1: of preventing some of the pass through, especially for the

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Speaker 1: lower income households, but at the same time you have

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Speaker 1: to allow price signals to work and demand to drop.

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Speaker 1: And I have to say I think the European policy

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Speaker 1: response over the last few months has been quite impressive

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Speaker 1: in that front, in that you have seen the situation

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Speaker 1: is very extreme in terms of the price rises, but

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Speaker 1: you are seeing demand management industrial demand in Germany for

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Speaker 1: gases dropped by at the same time the re support

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Speaker 1: for the low income households, but fiscal policy is not

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Speaker 1: blowing out in terms of being completely unfunded. We've obviously

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Speaker 1: got this very significant energy summit happening on Friday, But

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Speaker 1: I would say ultimately the policy response that helps is

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Speaker 1: one that allows the market signals to work but preventing

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Speaker 1: some of the more extreme downside risks, and Europe is

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Speaker 1: heading in that direction. Finally, George, if we could leave

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Speaker 1: Europe and head back to Asia, because you've mentioned the

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Speaker 1: Japanese then a few times, flirting with one forty five

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Speaker 1: at the dollar this morning, the weakest level we have

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Speaker 1: seen going back to August. And you've also alluded to

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Speaker 1: the fact that the Bank of Japan is sticking with

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Speaker 1: its motto We're going to keep it easy, We're going

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Speaker 1: to keep yield curve control. Is there a level on

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Speaker 1: dollary end that you think would represent a breaking point

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Speaker 1: for Corona? I don't really think there is. I think

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Speaker 1: from a policy making in a macro perspective, what matters

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Speaker 1: is the speed um. So if if you get an

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Speaker 1: extreme disorderly move, so to speak, then it becomes either

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Speaker 1: easier to invoke the G seven and G twenty agreements

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Speaker 1: on disorderly market moves. But the reality is, even though

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Speaker 1: the end move has been extremely large this year, it's

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Speaker 1: actually been fairly orderly, and it's been aligned at the

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Speaker 1: end of the day with what the b o J

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Speaker 1: has been doing, which is easy policy. So I find

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Speaker 1: it very difficult to see a situation where any sort

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Speaker 1: of intervention will be credible from a market perspective. At

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Speaker 1: the end of the day, what's needed is for the

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Speaker 1: b o J to pivot. Now that may happen um

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Speaker 1: if Corona, for example, when his term expires, you get

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Speaker 1: a governor that's I'm goin to slightly different approach, obviously

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Speaker 1: backed by the government, but as things stand, I'm not

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Speaker 1: sure intervention will be credible, and the bar for that

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Speaker 1: happens is very high in the sense that the moves

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Speaker 1: will need to be highly disorderly, and at the moment

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Speaker 1: they're big, but they're not especially volatile. They're highly intuitive.

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Speaker 1: It makes perfect sense, and that's why I think we're

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Speaker 1: all struggling with this idea that the PJ has any

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Speaker 1: grants to complain right now. George, George, thank you for

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Speaker 1: your time and what a world you guys are in

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Speaker 1: right now. And foreign exchange Jorge Saravelos there of Deutsche

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Speaker 1: Bank joining us now. Is Maggie Battel sending, a portfolio

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Speaker 1: manager at all Spring Global Investments. Margie, the Nest composites

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Speaker 1: down almost nine pc over the last seven days, the

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Speaker 1: last seven training days. The SMP five over the same

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Speaker 1: period is down about seven percent. Are you ready to

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Speaker 1: buy the secretary mark it yet? Well? No, I think

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Speaker 1: actually what we've had is about reversal about fifty of

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Speaker 1: the rise we've had in those indexes since they're lows

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Speaker 1: in June. But I think we're really in a trading

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Speaker 1: range with a doward bias because of the backdrop the

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Speaker 1: FED is very much committed to raising rates. Globally, you

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Speaker 1: can see economies all around the world are slowing down,

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Speaker 1: and that's really not a market that says we're on

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Speaker 1: the verge of a dynamic rebound inequities. So are you

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Speaker 1: just moving more into cash? How do you manage in

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Speaker 1: terms of some of this barishness at a time when

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Speaker 1: there still is uncertainty and still a potential investment case.

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Speaker 1: I don't think cash is really all that attractive at

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Speaker 1: this level because there is a chance to FED might

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Speaker 1: realize that they're being too aggressive, in my opinion, and

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Speaker 1: that could change things. So really we're just trying to

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Speaker 1: find companies that are reasonably priced that have the possibility

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Speaker 1: of continued earnings growth, which I think will be pretty

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Speaker 1: hard to find. Over the next year. We're thinking earnings

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Speaker 1: are going to decelerate a lot, so p easier down.

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Speaker 1: But with decelerating earnings that still says a lot of

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Speaker 1: stocks could go down. So trying to to see where

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Speaker 1: stocks still have a growth path and aren't too puffed

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Speaker 1: up based on yesteryear's idea of how fast economy is

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Speaker 1: going to grow, And how do you factor in the

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Speaker 1: strength of the dollar into your thinking about these multinational companies. Um,

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Speaker 1: you know, I've never really found that a big help

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Speaker 1: in making money in stocks, because often the market will

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Speaker 1: look through dollar strength. I think what it really tells

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Speaker 1: you is that it reflects the strength of the US

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Speaker 1: economy compared to Europe, compared to emerging markets, compared to China.

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Speaker 1: So it says to me that we're still the best

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Speaker 1: place to invest at the dollars really reflection of that.

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Speaker 1: Even at our rates today, we still see money coming

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Speaker 1: in from foreigners because we're probably still the best economy

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Speaker 1: in the world. Buy. What does that become a headwin though, Markie,

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Speaker 1: And this is something people are increasingly asking as they

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Speaker 1: talk about coordinated intervention to some of the currency differentials.

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Speaker 1: When does the dollar become a liability for US companies

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Speaker 1: that are trying to sell their goods overseas? Uh? Well,

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Speaker 1: I think that's really what you're seeing in a trend

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Speaker 1: for slower growth and acknowledgements from any companies of where

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Speaker 1: they saw rapid growth, say in emerging market, they're now

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Speaker 1: seeing that scale back. So I think it's really part

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Speaker 1: of the backdrop of earnings slowing down around the world,

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Speaker 1: grow slowing down around the world. So therefore it's going

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Speaker 1: to be you're gonna have to be more choosey and

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Speaker 1: finding companies that can get through a period of very

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Speaker 1: low growth. We haven't had that in quite a while,

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Speaker 1: and here we have everything coming together. Uh, and they're

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Speaker 1: really all negative as far as future growth. Monkey, the

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Speaker 1: bulk of your portfolio is in equities. We used to

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Speaker 1: talk to you almost exclusively about fixed income. I wanted

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Speaker 1: to squeeze a little bit more in unfixed income if

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Speaker 1: we can. We're seeing signs that sovereigns in Europe are

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Speaker 1: willing to take on uncapped liability and transfer massive risk

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Speaker 1: away from the consumer to offset some of the pain

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Speaker 1: sparked by energy issues across the continent. What do you

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Speaker 1: think the consequence of that are going to be? Well,

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Speaker 1: when you have that kind of massive innovation, the result

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Speaker 1: is always the saying, which is the policies have a

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Speaker 1: way of backfiring. For example, I think in England they

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Speaker 1: did have some price caps a few years ago under

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Speaker 1: Theresa May. That hasn't worked down very well. Uh So,

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Speaker 1: I think that it's really a negative for consumers and

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Speaker 1: negative for those economies. Again, we're lucky enough that we

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Speaker 1: don't have that here. Again, coming back to the case,

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Speaker 1: our growth looks better than than worldwide. I've all sprint

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Speaker 1: Global investments, thank you. So much of the inflation story

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Speaker 1: has been oil and gas, and a lot of people

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Speaker 1: have been calling for oil prices to surge to new

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Speaker 1: record highs earlier this year. One person pushed against them.

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Speaker 1: He said, you guys are all wrong. You underestimate the

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Speaker 1: power of a lack of demand as the global economy slows.

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Speaker 1: That one person was Ed Morrise, City Group, head of

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Speaker 1: Commodities research for the for the World, and he came

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Speaker 1: out and he said, no prices are going down. Ed Morris,

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Speaker 1: you are correct. We have seen that, and we have

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Speaker 1: seen it steadily going even with a potential supply cut

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Speaker 1: from OPEC. Plus. How closely is this particular energy story

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Speaker 1: tied to the slowdown that we're seeing in China. Well,

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Speaker 1: it's got a lot to do with it, but a

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Speaker 1: lot less to do with it than people really think,

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Speaker 1: because Chinese demand was really peaking and we didn't expect

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Speaker 1: it to go anywhere. This year we had a very

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Speaker 1: low number of modest hundred das in validate UH increased

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Speaker 1: in Chinese demand. They came back to where they had

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Speaker 1: been through the recovery, and there was no place further

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Speaker 1: to go. They had already cut back on diesel demand,

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Speaker 1: on gasoline demand. That one bright spot was petrochemical pea stock,

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Speaker 1: and as we know a lot of that comes from

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Speaker 1: the natural gas liquid pool rather than from the oil

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Speaker 1: pool or the refinery pool. UH. China has, however, really

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Speaker 1: influenced the market. They are so concerned with energy security

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Speaker 1: that they basically stopped exports and that has had reverberations

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Speaker 1: around the planet. The one thing that that we missed

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Speaker 1: UH and the world it's a whole missed was that

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Speaker 1: when we have natural gas prices getting as high as

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Speaker 1: they had gone on a content to be tou content

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Speaker 1: bay is, prices for gas net gas are higher than

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Speaker 1: prices for diesel at a time when the world was

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Speaker 1: moving closer to diesel, we had demand up about a

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Speaker 1: million barrels a day. As a result of that, switched.

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Speaker 1: China cut off their exports of about seven barrels a

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Speaker 1: day of diesel. They did that last September. They haven't

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Speaker 1: lifted it at all. So we were having you know,

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Speaker 1: some of what's happening in the planet is really result

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Speaker 1: of China. But I say it's more China policy, that

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Speaker 1: it is a Chinese command. And the fact that you

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Speaker 1: say that is less to do with China than people

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Speaker 1: think is a pretty dire statement with respect to economic

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Speaker 1: activity in the United Kingdom, in the European Union, as

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Speaker 1: well as the United States at a time when all

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Speaker 1: regions are looking to support households as they continue to

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Speaker 1: maintain their demand. So can you explain a little bit

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Speaker 1: more why demand is falling off so much more than

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Speaker 1: people seem to think from the data at hand. So

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Speaker 1: on the we have we have the best day of

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Speaker 1: the world from the United States. People started seeing, we

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Speaker 1: started seeing at the end of March beginning of April

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Speaker 1: that US demand really had come off and then come

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Speaker 1: off as we got out of winter and as we

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Speaker 1: got into the driving season, and week after week, and

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Speaker 1: even if you do it on a four week moving

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Speaker 1: average basis, from March to today, US demand has gotten

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Speaker 1: lower and lower than it was a year ago. Total

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Speaker 1: demand in the month of August was close to two

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Speaker 1: million barrels a day lower than it was in auguste on.

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Speaker 1: One million barrels a day. Of that was in the

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Speaker 1: transport fuel business, three hundred thousand in diesel, which reflects

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Speaker 1: what's happening volumetrically in the retail market. The rest the

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Speaker 1: remaining seven hundred thousand a day was in the gasoline market,

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Speaker 1: and that's because people simply decided to drive less. And

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Speaker 1: we have survey data that proved that vehicle miles traveled

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Speaker 1: have gone down. So you know, get high prices and

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Speaker 1: people react to that by not buying as much, and

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Speaker 1: that's that's kind of a lesson potentially for Europe. We've

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Speaker 1: seen effectively conservation working as a result of consumer response

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Speaker 1: to high prices across across the United States without a

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Speaker 1: recession other than a technical recession. But you know, we're

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Speaker 1: seeing growth in the labor market that's pretty formidable. And

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Speaker 1: even so with more money in people's pockets people driving less,

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Speaker 1: that is a lesson. If you let the market work

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Speaker 1: to some degree, people are going to conserve. So one

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Speaker 1: of the big experiments that the world. Europe in particular,

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Speaker 1: is could precting is how much will people be allowed

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Speaker 1: to conserve? The other experiment is what's going to happen politically,

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Speaker 1: is people get more concerned about inflation in their pocketbook

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Speaker 1: and jobs than they do about Russia and Ukraine. We

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Speaker 1: have some elections coming up in a couple of weeks,

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Speaker 1: we have an election in Italy and we'll see what

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Speaker 1: the consumer rebellion might be against where these high consumer

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Speaker 1: prices are. Just as you're speaking, we're hearing from the

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Speaker 1: EU Commissioned President Ursula v Underline talking about how the

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Speaker 1: EU is going to propose a mandatory target for reducing

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Speaker 1: peak electricity. Clearly the kind of response from government you're

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Speaker 1: alluding to here. Yet, as Europe faces this winter, there

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Speaker 1: is a sense that this isn't just going to be

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Speaker 1: a this winter problem. We could see years of restricted

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Speaker 1: supply in Europe. So when you're trying to model out

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Speaker 1: natural gas prices and what they could look like, how

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Speaker 1: persistently higher could they be and is that something ultimately

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Speaker 1: that the consumer is just going to have to tolerate. Yes,

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Speaker 1: the question is not whether they're going to say these

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Speaker 1: prices are going to stay higher, but how much higher

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Speaker 1: will they stay. Europe is moving back to therm of

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Speaker 1: to two fossil fuels, both to natural gas and coal um.

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Speaker 1: They've had a double hit this summer because a lot

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Speaker 1: of nuclear reactors, particularly in France, had to be shut

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Speaker 1: because of a lack of water for cooling the nuclear plants.

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Speaker 1: Those will almost certainly be coming back. But as we

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Speaker 1: look at europe move back to natural gas and the

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Speaker 1: world's response, it will be somewhere between twenty twenty five

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Speaker 1: and that will see the prices in Europe coming back

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Speaker 1: to where they were at the beginning. One and one

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Speaker 1: of the major difficulties that Europe is confronting is that

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Speaker 1: it's done only seeing consumers hit in the pocketbook, but

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Speaker 1: as seeing job losses in energy intensive industries. And we're

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Speaker 1: seeing those energy intensive industries migrating. Where are they migrating

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Speaker 1: to places in the world where energy costs so lower?

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Speaker 1: It mainly the United States. You've seen the migration of

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Speaker 1: fertilizes into the U S from Europe, and we're seeing

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Speaker 1: other energy intensive industries like zinc and aluminum smelting slowing

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Speaker 1: down and closing all together. Well. But to that point,

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Speaker 1: at about migrating to the United States. What is the

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Speaker 1: risk that these higher energy prices in Europe, the crisis

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Speaker 1: there is going to bleed through in a material way

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Speaker 1: to prices here in the United States. Well, the risk

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Speaker 1: is not on the net gas slode directly, it's actually

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Speaker 1: through thermal coal and what's happening thermal coal prices. When

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Speaker 1: we got to nine dollar and close at a ten

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Speaker 1: dollar natural gas prices, again, it wasn't because of our production,

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Speaker 1: It wasn't because of our imports from Canada. It was

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Speaker 1: because the price of coal had shot up as Europe

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Speaker 1: bought more coal as trying to brought more coal. And

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Speaker 1: the nine dollar price of natural gas now eight dollars,

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Speaker 1: but that was equivalent to where thermal coal prices were.

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Speaker 1: And now we're seeing the thermal coal prices coming off

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Speaker 1: again for a variety of reasons, and with that, US

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Speaker 1: NAT gas, so US not gas is going to be

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Speaker 1: seeing a significant increase in supply. We're gonna see some

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Speaker 1: boost in our l m G exports, but those are

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Speaker 1: cat You can only produce as much of LG as

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Speaker 1: you have liquid faction capacity, and it doesn't grow overnight.

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Speaker 1: And that's the reason why Europe's gonna have to wait

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Speaker 1: till admit or later in the decade to get to

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Speaker 1: the point where it will be enough NAT gaests, particularly

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Speaker 1: from the US and guitar that's going to be able

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Speaker 1: to replace that Russian natural gas. We also have to

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Speaker 1: remember that the Russian game plan is not completely over.

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Speaker 1: It's not the second guess what Mr Prutin will do

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Speaker 1: he said specifically said what they're doing on oil and gas,

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Speaker 1: but particularly gas at the moment is a reflection of

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Speaker 1: price caps being discussed. Um, Russia is going to be,

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Speaker 1: you know, running out of prices to sell gas pretty soon. Uh.

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Speaker 1: European destination of gas from Russia, other than a bit

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Speaker 1: obliquefied natural gas can't go anywhere else in the world.

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Speaker 1: There's only a certain modest level of switching they can

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Speaker 1: do to sell gas by pipeline to other countries, so

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Speaker 1: so mostly former Soviet Union countries, and their their demand

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Speaker 1: is limited. So the thirty bcm of of knack gas

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Speaker 1: that Europe is pretting provided for by by Russia is

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Speaker 1: not going to be replaced by another market. So at

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Speaker 1: some point Russia might say, hey, we want to maximize

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Speaker 1: the revenue we're getting from natural gas. It would not

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Speaker 1: be surprising if they turned back the flows on natural

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Speaker 1: gas as we got to the end of the injection

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Speaker 1: season in Europe. Uh got to the point when Europe

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Speaker 1: is going to be drawing storage, when prices will be

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Speaker 1: high for the winter, and Russia will make a lot

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Speaker 1: of money on it. So that's one thing to watch.

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Speaker 1: Fascinating stuff and as we all try and work out

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Speaker 1: whether we have to do this again next winter. Ed

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Speaker 1: more a city group ed. Thank you, sir. We get

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Speaker 1: lucky this morning joining us now. It's Richard has, the

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Speaker 1: President of the Council on Foreign Relations and author of

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Speaker 1: the book The Bill of Obligations coming out early next year. Richard,

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Speaker 1: always great to catch up with you, sir. I've seen

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Speaker 1: the latest article in Foreign Affairs magazine the title the

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Speaker 1: Dangerous Decade. I think we need to start there, Richard.

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Speaker 1: Why is this decade going to be so much more

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Speaker 1: dangerous than what we saw in the previous decade? This

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Speaker 1: fair question. The short answer is that's it's an imperfect storm.

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Speaker 1: You've got three things taking place simultaneously. One, you've got

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Speaker 1: the reemergence of large shale, the storage shale, geopolitical tensions

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Speaker 1: between Europe and the United States on one hand, and

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Speaker 1: then with Russia, with China, also with the Ran circle,

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Speaker 1: you've got all sorts of global challenges such as climate change,

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Speaker 1: infectious disease, where there's a large gap between the threat

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Speaker 1: and the willingness of the world to come together. And

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Speaker 1: then thirdly, all of this is taking place against the

433
00:23:14,080 --> 00:23:19,280
Speaker 1: backdrop of a United States that's divided, distracted, both figuratively

434
00:23:19,359 --> 00:23:21,840
Speaker 1: and literally, at war with itself, and there's a real

435
00:23:21,960 --> 00:23:24,280
Speaker 1: question about when the United States will be willing and

436
00:23:24,359 --> 00:23:27,480
Speaker 1: able to play the significant role that it's played for

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Speaker 1: the last three quarters of a century. She had those

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00:23:30,200 --> 00:23:33,200
Speaker 1: string three things up, and I would say anyone watching

439
00:23:33,200 --> 00:23:36,440
Speaker 1: this show has to assume they're going forward, there's going

440
00:23:36,480 --> 00:23:39,439
Speaker 1: to be far more turbulence, far more instability in the

441
00:23:39,480 --> 00:23:43,800
Speaker 1: world than looking backwards. From a business case, what does

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00:23:43,800 --> 00:23:47,200
Speaker 1: this mean in terms of doing business in China of

443
00:23:47,359 --> 00:23:51,520
Speaker 1: the increasingly tight relationship between China and Russia, and what

444
00:23:51,640 --> 00:23:55,639
Speaker 1: kind of international presence is to be expected given some

445
00:23:55,720 --> 00:23:59,160
Speaker 1: of these backdrops. Well, for Russia, so long as Mr

446
00:23:59,200 --> 00:24:02,760
Speaker 1: Putin's in charge, you've got to assume there's draconian sanctions.

447
00:24:03,160 --> 00:24:05,159
Speaker 1: I think with China you've got to assume at a

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00:24:05,160 --> 00:24:08,719
Speaker 1: minimum that there's more restrictive sanctions and anything dealing with

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00:24:08,800 --> 00:24:12,320
Speaker 1: technology in either direction. Plus I also think there's going

450
00:24:12,359 --> 00:24:16,399
Speaker 1: to be a major policy conversation in the West, also

451
00:24:16,760 --> 00:24:19,200
Speaker 1: not just in Europe and in places like Japan, Taiwan,

452
00:24:19,280 --> 00:24:22,760
Speaker 1: South Frere of the United States about whether it's wise

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00:24:23,240 --> 00:24:27,399
Speaker 1: to remain so dependent on the ability to export to

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00:24:27,680 --> 00:24:30,480
Speaker 1: China and import from China. You would have thought that

455
00:24:30,520 --> 00:24:33,160
Speaker 1: one of the lessons of the of the current conflict

456
00:24:33,200 --> 00:24:36,600
Speaker 1: with Russia is that any form of economic dependence, not

457
00:24:36,680 --> 00:24:41,480
Speaker 1: just any energy dependence, confers leverage on the other side. Well,

458
00:24:41,520 --> 00:24:45,240
Speaker 1: you are now providing China with enormous potential leverage, should,

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00:24:45,280 --> 00:24:47,399
Speaker 1: for example, over the next few years, there'd be a

460
00:24:47,400 --> 00:24:50,439
Speaker 1: conflict over Taiwan. So I think you've also got to

461
00:24:50,480 --> 00:24:55,159
Speaker 1: expect a slightly more downsized overall economic relationship with China,

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00:24:55,359 --> 00:24:57,399
Speaker 1: and the sort of thing you're seeing in the United States.

463
00:24:57,400 --> 00:25:02,120
Speaker 1: The Chipsack bringing home certain some productive activity I think

464
00:25:02,240 --> 00:25:06,400
Speaker 1: is a reaction both to the turbulence of supply chains.

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00:25:06,400 --> 00:25:11,080
Speaker 1: Plus again growing uncertainty about relations with countries like like China.

466
00:25:11,720 --> 00:25:14,080
Speaker 1: Is this a government option or is this something that

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00:25:14,119 --> 00:25:16,400
Speaker 1: each business has to decide for themselves. And I asked

468
00:25:16,480 --> 00:25:19,040
Speaker 1: this because a lot of people have been surprised that

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00:25:19,119 --> 00:25:22,800
Speaker 1: there hasn't been more exodus from China from manufacturing there

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00:25:22,840 --> 00:25:26,600
Speaker 1: by US businesses, given some of the fragilities exposed by

471
00:25:26,640 --> 00:25:30,520
Speaker 1: the pandemic and by some of the increasing tensions. It's

472
00:25:30,520 --> 00:25:32,359
Speaker 1: a good question. I think some businesses are living in

473
00:25:32,440 --> 00:25:36,120
Speaker 1: la la la. They're essentially hoping against hope they don't

474
00:25:36,119 --> 00:25:41,280
Speaker 1: face a much more disturbed environment politically with China that

475
00:25:41,440 --> 00:25:44,359
Speaker 1: China doesn't face all sorts of internal issues. But I

476
00:25:44,359 --> 00:25:48,359
Speaker 1: would think that any business now needs to right size,

477
00:25:48,440 --> 00:25:52,359
Speaker 1: which I need downsize, uh, it's relationship with China. It

478
00:25:52,440 --> 00:25:55,800
Speaker 1: can assume that there's going to be business as usual

479
00:25:56,200 --> 00:25:59,600
Speaker 1: there again, anyone in the technology space, for sure, but

480
00:25:59,720 --> 00:26:03,360
Speaker 1: even those beyond sensitive technologies have to assume that if

481
00:26:03,400 --> 00:26:06,280
Speaker 1: there's geopolitical friction with China, you have to bet there's

482
00:26:06,280 --> 00:26:09,159
Speaker 1: a decent chance there it will be sanctions will be

483
00:26:09,200 --> 00:26:12,280
Speaker 1: introduced that will be broader than technology. So I think

484
00:26:12,320 --> 00:26:15,159
Speaker 1: any business that doesn't have a Plan B and hasn't

485
00:26:15,200 --> 00:26:18,639
Speaker 1: begun to move towards it V c V China is

486
00:26:18,680 --> 00:26:22,960
Speaker 1: putting itself into a position of distinct vulnerability obviously, Richard,

487
00:26:23,000 --> 00:26:24,760
Speaker 1: and it's Kaylee in New York. From the perspective of

488
00:26:24,800 --> 00:26:28,040
Speaker 1: the United States, they are looking outward at China and

489
00:26:28,080 --> 00:26:30,760
Speaker 1: the geopolitical tensions that you are highlighting. At the same

490
00:26:30,760 --> 00:26:32,960
Speaker 1: time that there is a sense that there's a very

491
00:26:32,960 --> 00:26:36,679
Speaker 1: real democratic crisis inward internally in the United States. And

492
00:26:36,680 --> 00:26:40,240
Speaker 1: I'm just wondering if kind of threats to democracy domestically

493
00:26:40,960 --> 00:26:45,280
Speaker 1: hamper the United States ability to tackle those geopolitical challenges

494
00:26:45,320 --> 00:26:47,920
Speaker 1: moving forward, especially when midway through the decade you say

495
00:26:47,960 --> 00:26:49,840
Speaker 1: is going to be so dangerous, we could have a

496
00:26:49,880 --> 00:26:54,160
Speaker 1: new president Inaugradd You're absolutely right, Kayley. You know we're

497
00:26:54,160 --> 00:26:56,800
Speaker 1: going to have a new president at some point. What

498
00:26:56,880 --> 00:26:59,040
Speaker 1: we don't know any longer is what that president is

499
00:26:59,040 --> 00:27:00,840
Speaker 1: going to do when it comes to it's the U

500
00:27:00,920 --> 00:27:03,280
Speaker 1: S relationship with the world. I say that because in

501
00:27:03,280 --> 00:27:05,760
Speaker 1: the old days, no matter who was elected president, we

502
00:27:05,880 --> 00:27:08,679
Speaker 1: had a pretty good sense of the parameters of what

503
00:27:08,800 --> 00:27:11,800
Speaker 1: this individual do. That's not true anymore. We now have

504
00:27:11,880 --> 00:27:15,479
Speaker 1: the potential to learn dramatically. That means our allies are

505
00:27:15,560 --> 00:27:19,640
Speaker 1: much more guarded about being so reliant or dependent on us.

506
00:27:19,960 --> 00:27:22,879
Speaker 1: It means our foes may see may see opportunities. What

507
00:27:22,960 --> 00:27:26,359
Speaker 1: we did in Afghanistan, I expect did influence Mr Putin

508
00:27:26,400 --> 00:27:29,200
Speaker 1: to do what he did in in Ukraine. I think

509
00:27:29,240 --> 00:27:31,800
Speaker 1: it's it could be harder to drum up resources for

510
00:27:31,920 --> 00:27:34,639
Speaker 1: sustained American development in the world because so much of

511
00:27:35,160 --> 00:27:38,520
Speaker 1: our attention is going to be turned inward. I expect

512
00:27:38,600 --> 00:27:42,000
Speaker 1: in certain areas of the partisanship will affect foreign policy

513
00:27:42,000 --> 00:27:44,360
Speaker 1: as it has. You're gonna see, for example, a very

514
00:27:44,440 --> 00:27:48,359
Speaker 1: rough debate over Iran potentially if the United States tries

515
00:27:48,440 --> 00:27:50,960
Speaker 1: to re enter the agreement with it. So going forward,

516
00:27:51,000 --> 00:27:55,360
Speaker 1: it's gonna be harder to conduct uh consistent foreign policy

517
00:27:55,680 --> 00:27:58,920
Speaker 1: against this backdrop, much less promote democracy in the world.

518
00:27:59,080 --> 00:28:01,880
Speaker 1: How are we going to be like us given what's

519
00:28:01,880 --> 00:28:05,200
Speaker 1: happening with our politics, Given the fact that life expectancy

520
00:28:05,280 --> 00:28:07,880
Speaker 1: is going down in the United States, We've had all

521
00:28:07,880 --> 00:28:10,800
Speaker 1: the problems with lost academic time because of how we

522
00:28:10,880 --> 00:28:14,200
Speaker 1: managed COVID. So the American model, shall we say, there's

523
00:28:14,240 --> 00:28:16,240
Speaker 1: not quite the shining city on a hill that we

524
00:28:16,280 --> 00:28:18,280
Speaker 1: would like it to be Richard just to finish up,

525
00:28:18,280 --> 00:28:21,040
Speaker 1: then what's the solution. Do you think we need new

526
00:28:21,080 --> 00:28:24,080
Speaker 1: institutions to come to some kind of collective agreement in

527
00:28:24,080 --> 00:28:25,919
Speaker 1: the Western had to deal with these issues. What is

528
00:28:25,960 --> 00:28:29,280
Speaker 1: the solution? First thing, get that I never ever ever

529
00:28:29,359 --> 00:28:32,000
Speaker 1: used the word solution. These are not problems that we're

530
00:28:32,040 --> 00:28:34,160
Speaker 1: going to be solved or fixed. If we're lucky, we'll

531
00:28:34,200 --> 00:28:37,680
Speaker 1: be able to manage them more than unless and yes,

532
00:28:37,720 --> 00:28:40,360
Speaker 1: to some extent, that might mean new solutions, that might

533
00:28:40,360 --> 00:28:45,440
Speaker 1: mean different new institutions, new policies, new behaviors. But there's

534
00:28:45,440 --> 00:28:49,560
Speaker 1: no solutions. History doesn't doesn't offer those, uh, you know, frequently,

535
00:28:49,560 --> 00:28:51,600
Speaker 1: and we're not going to get solutions now. And that's

536
00:28:51,600 --> 00:28:54,160
Speaker 1: the worrying conclusion to this conversation, Richard, but a bit

537
00:28:54,200 --> 00:28:56,680
Speaker 1: of a reality check for everyone to Richard House, thank you,

538
00:28:56,960 --> 00:29:00,000
Speaker 1: and they cancel on Farmer Nations. This is the blue

539
00:29:00,000 --> 00:29:04,400
Speaker 1: Burg Surveillance Podcast. Thanks for listening. Join us live weekdays

540
00:29:04,400 --> 00:29:07,880
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and

541
00:29:08,000 --> 00:29:12,280
Speaker 1: on Bloomberg Television each day from six to nine am

542
00:29:12,320 --> 00:29:16,080
Speaker 1: for insight from the best in economics, finance, investment, and

543
00:29:16,200 --> 00:29:22,720
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

544
00:29:22,880 --> 00:29:26,480
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

545
00:29:26,520 --> 00:29:29,160
Speaker 1: Tom Keene and this is Bloomberg,