Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz jay Leie, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course, on the Bloomberg Terminal. Robert
Speaker 1: Blackwill a senior fellow at the Council on Foreign Relations
Speaker 1: and Bloomberg opinion columnist Robert Let's stout here, how do
Speaker 1: you convince a foreign country of the responsibility that comes
Speaker 1: with great power? Well, I don't think you convince a
Speaker 1: foreign country or most any of uh, buddy else by
Speaker 1: hectoring them or constantly lecturing them. I hope the President
Speaker 1: will begin the conversation with she by essentially saying, UH,
Speaker 1: we have a problem here. Uh. We may see the
Speaker 1: situation Ukraine somewhat differently, but we both both want to
Speaker 1: first have a cease fire and then find uh an
Speaker 1: equitable way to end this war. And I hope you'll
Speaker 1: start like that and not start with your on the
Speaker 1: wrong side of history or uh with threats. It seems like, Robert,
Speaker 1: we have a superpower on the global stage that has
Speaker 1: a very different interpretation of the responsibility that comes with power.
Speaker 1: And Robert, I wonder if this is something you see
Speaker 1: repeating again and again over time, or whether a situation
Speaker 1: evolves within China where they start to change, they start
Speaker 1: to change their approach. Well. Uh, First of all, Uh,
Speaker 1: I wouldn't put it quite as you did. Uh. China
Speaker 1: has a different interpretation of its vital national interests than
Speaker 1: we wish it did. And essentially, I believe the Chinese
Speaker 1: leadership things that the United States is determined to stop
Speaker 1: its rise, to contain it, if you will, and they
Speaker 1: see everything through beginning with she that optic. And so
Speaker 1: what we have to do, I think is, first of all,
Speaker 1: while of course remaining strong and resolute and defending our
Speaker 1: national interests, we have to try to persuade them that
Speaker 1: isn't the case. And that's the context in which this
Speaker 1: conversation will have happened this morning. I would remark that
Speaker 1: yesterday the Chinese government issued a statement saying they hope
Speaker 1: that this conversation, which will happen in a little over
Speaker 1: half an hour between the two leaders, will be an
Speaker 1: opportunity to try to begin the improvement generally of the U. S.
Speaker 1: China relationship. So I hope that's in fact the perspective
Speaker 1: the President has, while of course making the points that
Speaker 1: China UH will if it seeks to support Russia to
Speaker 1: get a on the sanctions, will UH itself have a
Speaker 1: serious cost. Ambassador, do you think that it's realistic for
Speaker 1: China to want to send weapons, to want to send
Speaker 1: military support to Russia. Well, again, we don't know, I
Speaker 1: believe whether that's actually happened. We have a leak from
Speaker 1: or lead perhaps even on the record from the U. S.
Speaker 1: Intelligence community UH that Russia asked for UH such weapons.
Speaker 1: We don't I think, have a leak of what the
Speaker 1: Chinese response was. But certainly if it makes a decision
Speaker 1: to UH supply Russia with weapons in the context of
Speaker 1: this war, it will be a further, very serious blow
Speaker 1: again on US China relations, the most serious one in many,
Speaker 1: many years. Ambassador. I noticed a line in one of
Speaker 1: your recent Bloomberg opinion pieces that released stuck out to me.
Speaker 1: Russia will remain a threat so long as Putin leads it.
Speaker 1: China will remain a challenge irrespective of its leader. That
Speaker 1: is a much longer term view, And how do you
Speaker 1: think the immediate need to focus on Eastern Europe detracts
Speaker 1: from a longer term strategic pivot towards China towards Asia. Well,
Speaker 1: my colleague Richard Fontane and I wrote a recent uh
Speaker 1: op ed for Bloomberg exactly on this subject. Uh. There
Speaker 1: was a bipartisan agreement in Washington one if a few
Speaker 1: one might say, sadly UH that uh United States should
Speaker 1: reorient its foreign policy toward Asia. That of course, has
Speaker 1: been turned on its head by the recent events in
Speaker 1: Ukraine and the brutal Russian invasion of Ukraine. Now I
Speaker 1: think without any doubt, we're going to have to moderate that, uh,
Speaker 1: that pivot to Asia. It will be slower and less
Speaker 1: encompassing because we have to first stabilize Europe along with
Speaker 1: our allies, and that will mean more US troops in
Speaker 1: Europe forward deployed in the Eastern Europe. And we have
Speaker 1: to I think, do more in the Middle East. Uh.
Speaker 1: Since the Obama administration Middle East frenzy, United States have
Speaker 1: been uh convinced we're leaving the Middle East. We have
Speaker 1: to disabuse them of that notion. And it's only if
Speaker 1: we can have stability in the Middle East and in
Speaker 1: Europe to a much greater extent than at present. Will
Speaker 1: we be able to make a full fledged pivot to Asia.
Speaker 1: We'll be just a fund of question from me looking
Speaker 1: ahead to next week and the talks. You've been inside
Speaker 1: government many times, you understand the inner workings of events
Speaker 1: like this. You need to arrive in Europe next week
Speaker 1: with some deliverables for the President of the United States
Speaker 1: to meet with foreign leaders next week, and what do
Speaker 1: you think they would be. Well, first of all, we
Speaker 1: have to what happens between now and then, and Russia
Speaker 1: seems to be escalating. Uh. They attacked the viv for
Speaker 1: the first time overnight. UH. If that continues, and let's
Speaker 1: keep in mind the danger of Russian use of chemical
Speaker 1: weapons against Ukrainian cities, then obviously there will be an
Speaker 1: escalation in our reaction. But I think the primary in
Speaker 1: the absence of that, the primary UH presidential objective will
Speaker 1: be to keep this alliance together UH to UH UH.
Speaker 1: And it's been remarkable. I think most people did not
Speaker 1: believe the alliance would act as resolutely as it has
Speaker 1: to this tragedy. To keep them together and to prepare
Speaker 1: for UH next steps that Russia putin might take in
Speaker 1: order to further the destruction of Ukrainian cities. Incredibly incredibly united, Robert,
Speaker 1: We're lucky to have you with us this morning. Thank you,
Speaker 1: sir Robert Blackpool. There on the talks between China and
Speaker 1: the United States. My Shoemac of the global head of
Speaker 1: Race Strategy at Wells Fargo joins us. Now, Mike, if
Speaker 1: you've been surprised by how much weight we've had it
Speaker 1: to the front end of the yield curve, and he
Speaker 1: surprised to some degree how easily we've shaken off some
Speaker 1: of the comments of this fed this week. I haven't surprised.
Speaker 1: It's been just amazing, frankly, to watch the action at
Speaker 1: the front end of the US and it's it's driven
Speaker 1: by so many factors, have fed other central banks to
Speaker 1: degree in The inflation outlook at the front end has
Speaker 1: been incredibly volatile. I'm sure you'ld up a time and
Speaker 1: we thought they the people on by our expectations, there's
Speaker 1: not much. The curve is starting to get messy, Mike.
Speaker 1: Seven year year olds above tens saw a bit of that,
Speaker 1: with five threes almost coming there threatening to do that
Speaker 1: yesterday morning. The yield curve is starting to invert. It's
Speaker 1: flatter at the long end, twos tens twenty three basis
Speaker 1: points to thirties. Let's call it fifty two down four
Speaker 1: basis points today. Again, how do you think that evolves
Speaker 1: in the coming months, Mike, it's flatter still if you
Speaker 1: look at the forward grades. Johnal Price, let's say twos
Speaker 1: tends to be completely flat and three or four months
Speaker 1: something along those lines, I think you could actually invert
Speaker 1: before then. We've been telling clients you've got to think
Speaker 1: outside the box of bit here. This is an incredibly
Speaker 1: unusual situation. The inflation backdrop as you need in the
Speaker 1: last thirty or forty years. It's possible twos tends inverts
Speaker 1: to the tune of fifty basis points or more by
Speaker 1: the end of the year. But as far as the
Speaker 1: path forward flatter, more painful for a lot of institutions. So, Mike,
Speaker 1: a lot of people are wondering whether an inverted yield
Speaker 1: curve still means a recession. And I'll go a step further.
Speaker 1: Does an inverted yield curve in and of itself cause
Speaker 1: a recession? As we were talking about the potential earlier today,
Speaker 1: what's your view on this, I'd say no to both lisas.
Speaker 1: So there is a very good relationship between curve shape
Speaker 1: and future economic growth. Let's say prior to the financial crisis.
Speaker 1: Since then, central banks have been so active buying on
Speaker 1: so you've really broken that way. So the ability of
Speaker 1: the curve shapeless, say to predict t DP growth out
Speaker 1: twelve months eighteen months sets diminished a lot, So I
Speaker 1: wouldn't worry so much about the predictive power. But I
Speaker 1: think the second question is really interesting in terms of
Speaker 1: does a flatter curve felt cause recession? And it probably
Speaker 1: contributes in particular when you think about the financial sector.
Speaker 1: If your basic businesses barley along and you say, well,
Speaker 1: what can I do? Or you want to I want
Speaker 1: to borrow along, you want to lend short more flipping around,
Speaker 1: you can't really do much of the curve is flat,
Speaker 1: so that intermediation function doesn't work for it well, and
Speaker 1: I think that takes away a lot of profitability opportunities
Speaker 1: for banks and even for the shadow things. So flatter
Speaker 1: curve is tough for financials and therefore it's tough for
Speaker 1: the whole system. And there's also an additional yield curve
Speaker 1: that Tom Saturas of Strateigues, who was on our show
Speaker 1: earlier this morning, was talking about that if you see
Speaker 1: the FED funds rate get higher than that two year rate,
Speaker 1: that that actually hurts the people who need it the most,
Speaker 1: and what you get is a causative effect on main street.
Speaker 1: I'm wondering from your from your perspective, whether you agree
Speaker 1: with that, with you think the FED should back off
Speaker 1: from raising rates as much as perhaps they're talking about
Speaker 1: and lean more heavily on the balance sheet. No, I don't. Actually,
Speaker 1: when you think about the let's say the inflation backdrop
Speaker 1: right now, it's terrible. And I think if you talk
Speaker 1: to most people out there in the US, and we
Speaker 1: all do this in our daily lives, inflation is everywhere
Speaker 1: you can't really avoid. So what the FED needs to
Speaker 1: do very simply to step up and fight inflation. That's
Speaker 1: very abundant from an economic perspective, it's very far from
Speaker 1: the political perspective. That's what the FED needs to get
Speaker 1: done is to fight inflation. Put that genie back in
Speaker 1: the bottle. So he needs to raise the funds rate
Speaker 1: a number of time acts. You can't focus simply on
Speaker 1: the balance sheet. Balance sheets a nice add on, but
Speaker 1: it really has to leave the FED funds in my opinion. Well,
Speaker 1: let's talk further about the balance sheet, with which Jerome
Speaker 1: pal did not really get to do much on Wednesday.
Speaker 1: Maybe he will more next week when we hear from
Speaker 1: him twice, but he basically equated that runoff to the
Speaker 1: equivalent of a hike. How do you view it, Mike, Yeah,
Speaker 1: I think the FED struggles in terms of that equation.
Speaker 1: From my perspective, it's a little bit different. Basa will
Speaker 1: compare apples to bananas, doesn't take that much sense. But
Speaker 1: what the balance sheet does, in our view, is really
Speaker 1: addresses risk appetite very directly. So if you think about
Speaker 1: the basic trade during the year of quantity of easy,
Speaker 1: and it's pretty simple. When in central banks buy more
Speaker 1: bonds and you're supposed to buy more stocks. That's worked
Speaker 1: really well. Now if you flip it, you'd say, well, okay,
Speaker 1: if the FED and other central banks are reading in
Speaker 1: the balance sheet, that's probably a pretty big negative for
Speaker 1: risk assets. So I think that stands out and the
Speaker 1: FED can take some froth out of that market. The
Speaker 1: other thing I suspect the FED and other central banks
Speaker 1: are trying to accomplish is to limit that neel curb
Speaker 1: inversion limited that flattening. So if the FED backs away
Speaker 1: from buying tenuere treasury, it's twenty of your treasuries, etcetera.
Speaker 1: You should all else equals. See those yields go up,
Speaker 1: so that should help limit the downside from the flatter curve. Well,
Speaker 1: if you say QT could be a sizeable negative for
Speaker 1: risk assets, do you think risk assets are appropriately pricing that?
Speaker 1: I suspect probably not. I think that when you look
Speaker 1: at the risk asset landscape right now, it's been driven
Speaker 1: primarily by the overall idea that yes, central banks will
Speaker 1: tight and that's a bat then and secondly it forced
Speaker 1: the big commodity spike. So balance sheet probably is number three,
Speaker 1: and at least from my perspective, I think that the
Speaker 1: risk markets have not fully priced it. So which was
Speaker 1: asked to which risk market? Excuse me? It is a
Speaker 1: Friday is most underpriced for this potential risk. It's hard
Speaker 1: depending on onely. So, but when you think about risk
Speaker 1: appetite across the board, I'd say I would focus on
Speaker 1: the central banks and the most involved QT. So the
Speaker 1: FED probably leads the way, followed by banking with Banker Canada.
Speaker 1: So within those markets, whether it's high yield bonds of equities,
Speaker 1: tough to sort of parce those differences. But I would
Speaker 1: go to the dice or parts of risk. So within
Speaker 1: markets do you want to focus on and you think
Speaker 1: the risk is more susceptible to the high end? I
Speaker 1: think it is the the assets that typically the higher
Speaker 1: data most likely to be most impacted by this cut
Speaker 1: back and balancy. The reason why I ask Michael is
Speaker 1: because there's a lot of disagreement about how much momentum
Speaker 1: there is in the US economy, withstand the potential for
Speaker 1: two point eight percent FED funds rate, withstand some of
Speaker 1: the rate hikes that you and others are saying is
Speaker 1: absolutely necessary in order to curtail what you see as
Speaker 1: dangerous inflationary pressures. So at this point, do you think
Speaker 1: that the FED can actually orchestrate a soft landing at
Speaker 1: a time when they're diverging viewpoints and diverging data points
Speaker 1: underpitting the economy. It'll be very difficult to pull off
Speaker 1: the soft landing, I think least so it was always
Speaker 1: going to be a challenge when you think about the
Speaker 1: massive amount of stimulus in the system, over the last
Speaker 1: couple of years, both monetary and fiscal, the rebound from
Speaker 1: COVID on top of that commodities play. That's an incredibly
Speaker 1: big ask to talk about a soft landing, so it
Speaker 1: was always going to be tough. I think it's gotten
Speaker 1: much cover. The chance of it happening probably is following
Speaker 1: by the day. So it's a fifty fifty. Maybe it's
Speaker 1: probably not much better than that. All right, Mike, We've
Speaker 1: talked to out risk assets, we've talked about the bond market.
Speaker 1: Can I just get your thoughts quickly on the dollar, which,
Speaker 1: in light of everything we heard from the Fed this week,
Speaker 1: is heading forward its biggest weekly declined since early February. Yeah,
Speaker 1: we think that's a mistake. We're actually valuables and it's interesting.
Speaker 1: You can think about this from two perspectives. Really, if
Speaker 1: you look back over the last the last couple of
Speaker 1: years and also just over the last couple of months,
Speaker 1: the dollar has emerged as the top safety, so that
Speaker 1: should be a win if the Ukrainian situation intensifies, which
Speaker 1: seems likely over the next month or two. And secondly,
Speaker 1: if you focus on really only meat and potatoes types
Speaker 1: of things in effects it's interest rate differentials, and I
Speaker 1: would say that the Laiciam Marbue there's more potential for
Speaker 1: the market to increase its expectations for hiking from the
Speaker 1: FED than there is from the ECB, probably from the
Speaker 1: Bank of Angels that also should benefit the dollars were
Speaker 1: actually very positive in a stollar right now. My Shoemaker,
Speaker 1: thank you fantastic coal earn this year on the pond market.
Speaker 1: My Shoemaker there of last f commits, Sky joined us
Speaker 1: now chief research strategist to Alpha Simplex Katy three this year.
Speaker 1: Can we just work through that? What would happen if
Speaker 1: they try to raise the FED funds to three percent
Speaker 1: this year? Oh, that's a hard one because the truth
Speaker 1: is I would love to do that and raise the
Speaker 1: FED funds rate to three percent, but that has repercussions
Speaker 1: and it needs a little bit of balance in terms
Speaker 1: of not affecting growth and causing disruption in the market.
Speaker 1: So I think the Fed is probably choosing to be
Speaker 1: a little bit more conservative and kind of ease into
Speaker 1: this new decision and how to actually move into a
Speaker 1: regime of raising rates. So I think there's a difference
Speaker 1: between what might one might want and what is actually achievable,
Speaker 1: um in sort of short order, achievable without the disruptions
Speaker 1: that you talk about. Is this basically the modern form,
Speaker 1: the new form of a FED put that they will
Speaker 1: move much more slowly than perhaps they would want to,
Speaker 1: simply because they do not want to incur a huge
Speaker 1: losses and the equity markets, yes, because I think the
Speaker 1: challenges Remember, as rates rise, we have sort of industries
Speaker 1: that have more duration exposure. We have potential tightening of credit,
Speaker 1: we have other issues that could cause businesses to be
Speaker 1: a little more squeezed with higher rates, And so I
Speaker 1: think the challenge is balancing between not affecting growth and
Speaker 1: encouraging encouraging good economic practice, but at the same time
Speaker 1: not disrupting the market. I mean traditionally, whenever the market
Speaker 1: has been faced with the rate hike, we usually have
Speaker 1: sort of a sell off in some way. So I
Speaker 1: was pretty impressed that the market was relatively calm this
Speaker 1: week about this decision, but maybe that's because everybody knew
Speaker 1: it was coming well. Impressed though, at the same time, Katie,
Speaker 1: we did see a changed tone from a FED chair J. Powell,
Speaker 1: even indicating balance sheet reduction as soon as May. I'm
Speaker 1: just wondering are we actually reacting to the words? Are
Speaker 1: we actually reacting to the press conference? Are we reacting
Speaker 1: to the FED that we have known over the past
Speaker 1: ten years, which is one that is beholden to a
Speaker 1: certain common markets. Yeah, I mean that's a good question.
Speaker 1: I mean, I think we've been asking the same question
Speaker 1: all last year. Are we ever going to see this
Speaker 1: type of move on our side? What we do see
Speaker 1: is sort of the technical signals that show that rising
Speaker 1: rates are coming, and sort of the trend themselves really
Speaker 1: sort of has been indicative that we're going to see
Speaker 1: these rising rates in the long term. I think the
Speaker 1: real challenges them sort of shifting regimes and sort of
Speaker 1: being more actionable. And I think that's something that we
Speaker 1: really still have to see and I think you indicated
Speaker 1: that in the sense that we've kind of seen them
Speaker 1: being a little bit more complacent in this area. UM.
Speaker 1: But I think when you're dealing with inflation at the
Speaker 1: level we're seeing right now, the pressure is going to
Speaker 1: come from a lot more places, um, and that will
Speaker 1: push them more. Katie. The market's knew coming into this
Speaker 1: year about those inflationary pressures and the likelihood of tighter
Speaker 1: monetary policy resulting from that. What it couldn't have anticipated
Speaker 1: was a war in Eastern in Europe. Do you think
Speaker 1: the market is still under pricing the risks around both
Speaker 1: of those things happening simultaneously as we see the smp
Speaker 1: F I founded coming off it's best three days since November.
Speaker 1: That's a good question because I think most people are
Speaker 1: asking themselves this right now. But the truth is, from
Speaker 1: our cross asset perspective, we really see that some of
Speaker 1: the trends going into the Ukraine crisis really just extended.
Speaker 1: So what that means is we saw an extension of
Speaker 1: current themes, inflation theme actually extending even further, and we
Speaker 1: had massive moves, particularly in the energy markets. So some
Speaker 1: of us are thinking that there may be some consolidation
Speaker 1: at this point, meaning that some of the concern and
Speaker 1: some of the supply chain issues are priced in UM,
Speaker 1: but there is still definitely room because as you know,
Speaker 1: geopolitical uncertainty is very difficult to predict, and things can
Speaker 1: change quickly and in different directions than we would like UM.
Speaker 1: So what I would say is we may not be
Speaker 1: pricing it all in, but that may be just because
Speaker 1: it's hard to know how to do that, Kat just
Speaker 1: quickly just finally on the FED, if we can finish there.
Speaker 1: At least when I were talking about this with Tom
Speaker 1: earlier this week, this felt like the December FED mating
Speaker 1: what cham and Pau said everything he needed to send
Speaker 1: the news conference, and people didn't really listen to it,
Speaker 1: and then they reacted to it when the same thing
Speaker 1: came out in the minutes, as if the minutes was
Speaker 1: some kind of hawky surprise. Do you think was setting
Speaker 1: up for the same kind of thing again? Oh? Yeah,
Speaker 1: I mean to be honest with you, I wish I
Speaker 1: knew the answer to that question. I think most people
Speaker 1: are really sort of in a period where they're not
Speaker 1: reacting much right now. I feel like the market has
Speaker 1: moved already um. And the key question is does the
Speaker 1: market already anticipate that um? And so I'd say that
Speaker 1: we're seeing some consolidation, some of the positioning kind of
Speaker 1: coming off for certain trades. Interesting suggests that people, so
Speaker 1: you saw that flattener kind of turned into a steepener
Speaker 1: a little bit this week, which means that people had
Speaker 1: betted on this move or a bet on this move,
Speaker 1: and now they saw it. So there's a little consolidation.
Speaker 1: What I'd say is short term respite, a little bit
Speaker 1: of back and forth, and then more focused on the
Speaker 1: next time we have an opportunity for hike. Kenny, Thank
Speaker 1: you Kenny Kaminsky of Alpha Simplex. Christian Majo joined us
Speaker 1: now the head of Portfolio Strategy of TV Securities. Kristen,
Speaker 1: can we start there with Saudi Arabia over the murder
Speaker 1: of Kashagi? You remember people stepped back from Saudi Arabia
Speaker 1: and then they were back in React twelve months later.
Speaker 1: This feel is different for a lot of people. Do
Speaker 1: you agree with Blue Bay there that line that Russia
Speaker 1: will be in the isolated wilderness for a long time
Speaker 1: to come. A regime change in Russia is probably a
Speaker 1: prerequisite for reinvestment for many. Yeah, I think I agree
Speaker 1: with that statement that two situations are really different because
Speaker 1: the solely case was against one single person, while here
Speaker 1: we're talking about a whole nation and I'm talking about
Speaker 1: Ukraine being involved. But there will probably be some money
Speaker 1: coming back, probably some money will not leave at all.
Speaker 1: But the problem is, even when you remove sanctions, um,
Speaker 1: what's the reputational risk of being associated to a regime
Speaker 1: that by many as being considered to be a murderous
Speaker 1: and genocidal one. So, Christian, what is the contagion risk
Speaker 1: to other emerging markets, given the fact that this isn't
Speaker 1: going away, certainly not in the financial world for a
Speaker 1: long time. Well, first of all, we see contagion right
Speaker 1: now through conversion and through UH commodity prices. Commodity prices
Speaker 1: were already on the upside, but they are definitely um
Speaker 1: getting pushed much higher because Russia is a great commodity producer, energy,
Speaker 1: agricultural medals. So that's not going to go away immediately
Speaker 1: because we have just too many supply side disruptions involved
Speaker 1: in this conflict. Then you can have default, the Russian
Speaker 1: default that everybody is talking about, and that's another risk. Well,
Speaker 1: but the market views that as a lesser risk today
Speaker 1: than it did yesterday. Christian on the news that Russia
Speaker 1: sent that a hundred seventeen million dollar payment to JP Morgan,
Speaker 1: who then sent it on to City. We don't know
Speaker 1: where it went after City, and yet we've seen Russian
Speaker 1: CDs coming in substantially. Is the market being over confident? No,
Speaker 1: you're right. The point is, UH, what you're talking about
Speaker 1: is to coupon payments that were due a couple of
Speaker 1: days ago, so they were already paid um with some delay,
Speaker 1: which is not a very good sign. But we have
Speaker 1: numerous more coupon payments and redemptions coming to UH in
Speaker 1: the rest of the year and over the next twelve
Speaker 1: eighteen months. So they and the thirtieth of March we'll
Speaker 1: see another couple of interest payments worth about hundred and
Speaker 1: ninety million dollars. So the market will be uh, you know,
Speaker 1: holding eyes for it's breath for quite some time every
Speaker 1: time these payments come. Do Christian. In the meantime, I
Speaker 1: wonder how you think the global pool let's say central
Speaker 1: bank reserves and the denomination of them it's going to
Speaker 1: evolve in the coming months. If you are a central
Speaker 1: bank after a leader of let's say, a state with
Speaker 1: questionable leadership in the eyes of the West, what you
Speaker 1: would do with your dollar reserves right now? We are
Speaker 1: you're quite right. First of all, I wouldn't want to
Speaker 1: be on the bed side of of the US that
Speaker 1: has weaponized the international reserves in a way of um,
Speaker 1: you know, freezing dollar assets. The first the first the
Speaker 1: first point is where do I diversify my reserves into
Speaker 1: into euro, but the Euro is also subject to the
Speaker 1: same risks. Then you can go into Raminbi, but Rominbi
Speaker 1: is not really a currency that you can just yet
Speaker 1: use for international payments. Uh So it's um, it's a
Speaker 1: bit of a conundrum. Maybe goal you can be in
Speaker 1: physical gold, but that's not as liquid as currencies. So
Speaker 1: wherever you go, you know, the dollar is the global
Speaker 1: reserve currency and forty good reason. Christian. Do you think
Speaker 1: that there's still is a very real risk going back
Speaker 1: to the Russian default scenario, that the payment could get
Speaker 1: stuck in the pipes? I mean this has been something
Speaker 1: that we've been talking about. We really haven't seen this before.
Speaker 1: Are there bigger implications for this? Yes, that's uh, that's
Speaker 1: probably the biggest risk because Russia is demonstrated to have
Speaker 1: at least for now, willingness to pay. They definitely have
Speaker 1: the capability to pay until they drain cash available in
Speaker 1: these person accounts. The question is it even a default
Speaker 1: if a payment doesn't reach the bond holders, not because
Speaker 1: the the doctor didn't make the payment, but because there
Speaker 1: are restrictions and international sanctions. I think this is completely
Speaker 1: charity territory and you will be very controversial, but the
Speaker 1: risk is very real. Christian, We've got to leave it there.
Speaker 1: This is a fascinating conversation. We'd love to continue it
Speaker 1: with you. Christian Macha, the of t D Securities. This
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg