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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along

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Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jay Lee. We

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

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Speaker 1: and international relations. Find Bloomberg Surveillance, an Apple podcast, Suncloud,

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

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Speaker 1: Joining us. Now we get really Lucky Nan, chief economist

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Speaker 1: at Government Sex. Yeah, let's talk about it. China GDP

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Speaker 1: forecast over at Goldman now three for the year, you're

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Speaker 1: at base case for pretty much everybody. They enter recession. Yeah.

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Speaker 1: Where on Earth does that leave the US economy? I

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Speaker 1: think the US doesn't have quite the same degree of

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Speaker 1: headwinds as as both China and Europe. And China obviously

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Speaker 1: you have zero COVID policy and the property market downtown

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Speaker 1: which is a multi year development. In Europe, you've got

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Speaker 1: the gas issue. There's nothing quite to the same degree

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Speaker 1: that we have in the US. But it's going to

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Speaker 1: be a slow growth environment below trend. The FED wants

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Speaker 1: the lord trend. That's why financial conditions are where they are,

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Speaker 1: because it it's tightening for the aggressively. And you've got

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Speaker 1: the fiscal drags or plenty of headwinds for sure, but

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Speaker 1: I don't think it's quite as bad as in as

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Speaker 1: in China or the your area. How do you expect

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Speaker 1: cham and Pound to navigate that on this Friday. I

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Speaker 1: think he'll be balancing between two things. One, I think

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Speaker 1: he will lay out a case, as he did at

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Speaker 1: the last press conference, as they did in the minutes,

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Speaker 1: for slowing the pace of increases. We have to seventy

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Speaker 1: five basis point moves. Our expectation would be, barring significant

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Speaker 1: data surprises, that the September move is fifty. I think

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Speaker 1: he'll you know, I don't think he'll be specific about

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Speaker 1: the number, but I do think he'll be saying, you know,

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Speaker 1: there is a risk of overtightening, and therefore it makes

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Speaker 1: sense to go a little bit more slowly than these

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Speaker 1: really outsized increases. But at the same time, he'll he'll

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Speaker 1: make make clear that the job is not yet done.

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Speaker 1: Inflation is way too high. They're very committed to bringing

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Speaker 1: inflation back down to two percent or or thereabouts. So

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Speaker 1: I think it will be a balancing act. Yeah, and

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Speaker 1: there's a mix here of themes and one of those

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Speaker 1: what we just saw from Macy's where Bloomingdale's in the

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Speaker 1: haves do well and Macy's in the have not really

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Speaker 1: a struggling Or it could be John Taylor Stanford visiting

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Speaker 1: with Bloomberg in the last twenty four hours saying sustain, sustain,

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Speaker 1: sustain a higher yield environment. Are we getting our time,

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Speaker 1: our extra excess wrong right now? Do we need to

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Speaker 1: look out two years, three years, or five years of

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Speaker 1: elevated inflation? I think a year from now, two years

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Speaker 1: from now, inflation will be much lower because there are

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Speaker 1: some you know, some some drivers. I mean, commodity prices

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Speaker 1: are clear the good sector in general, I do think

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Speaker 1: that's going to come off a lot. The risk is

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Speaker 1: more on the services side, where we've seen less of

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Speaker 1: an indication that things are slowing, especially rents are still

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Speaker 1: growing very quickly. So I think that's still going to

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Speaker 1: be well above normal, you know, into two thousand and

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Speaker 1: twenty three, and maybe even maybe even beyond. So I

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Speaker 1: do think that there there are going to be improvements,

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Speaker 1: but not everywhere. Should we have a more nominal GDP

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Speaker 1: nominal inflation analysis? Witness the haves and they have not,

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Speaker 1: they have not are getting crushed minute by minute should

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Speaker 1: we switch to a more nominal study. Well, I think

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Speaker 1: what you're suggesting is that we look at the distribution

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Speaker 1: of incomes and spending, and you clearly see some big,

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Speaker 1: big differences there, and I think you know Macy's versus

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Speaker 1: nord Strom's is a good example. You can look at

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Speaker 1: in real income at the top end. At the bottom

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Speaker 1: of the income distribution, there's been a much bigger pullback

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Speaker 1: at the bottom end, in part because the fiscal support

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Speaker 1: was so much more important there and that's come off,

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Speaker 1: and in part because at the bottom end you see

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Speaker 1: more of an impact from gas prices and inflation generally

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Speaker 1: at the margin. The dropping gas prices obviously is helping

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Speaker 1: somewhat more at the bottom end, but that's only a

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Speaker 1: small part of the previous deterioration. There is, however, yah

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Speaker 1: at least with physical goods, a bit of a disinflationary pressure,

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Speaker 1: whether it comes to inventories or some of the commodity

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Speaker 1: prices that have come off. Is it enough to achieve

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Speaker 1: a soft landing if you actually improved some of your

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Speaker 1: forecasts about what the FED has to do and the

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Speaker 1: outcome in the US economy, I think it's certainly helpful

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Speaker 1: and we've you know, continued to be in the softish

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Speaker 1: landing camp um in part because of the expectation that

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Speaker 1: some of the goods pressure pressures would abate. The most

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Speaker 1: important factor, though, is adjustment in the labor market. That's

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Speaker 1: something that they need to pull off, and I think

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Speaker 1: we've seen some encouraging indicators, in particular the one point

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Speaker 1: one million decline in job openings that we've seen in

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Speaker 1: the Jolts data, which is probably still underway. We'll probably

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Speaker 1: see some further significant declines there. That is starting to

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Speaker 1: bring the labor market into better balance. Still early days,

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Speaker 1: we still have a large gap between between jobs and workers,

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Speaker 1: but at least we're moving in the right direction there

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Speaker 1: and I think that's going to be key to sustain it.

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Speaker 1: Do you think that the market right now is not

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Speaker 1: reflecting what still has to be done though from the

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Speaker 1: federal reserve in order to achieve that. And this is

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Speaker 1: something that we've heard about throughout the morning. The theme

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Speaker 1: of the day has been at stocks need to wake

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Speaker 1: up to it. That is the bearish tilt. Do you

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Speaker 1: agree with that that right now they are not accounting

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Speaker 1: for the pain? I think the terminal rate pricing doesn't

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Speaker 1: look too low. I mean it's sort of three, you know,

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Speaker 1: three and a half or a little bit more. I

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Speaker 1: think that that is sufficient relative to our forecast. Uh

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Speaker 1: maybe even a little bit more than sufficient. Where I

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Speaker 1: would disagree more with market pricing is the pricing for

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Speaker 1: significant rate cuts. I think that you know, certainly could happen.

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Speaker 1: It would happen if you went into a recession. But

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Speaker 1: I think in a slow growth environment where the FED

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Speaker 1: is trying to squeeze inflation lower, I think they'll be

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Speaker 1: very resistant to to rate cuts. So I do think

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Speaker 1: that those cuts are probably somewhat excessive from a market

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Speaker 1: pricing perspective. It's a raisin hold strategy. In the words

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Speaker 1: of San Francisco FED president Mary daily Young. If you've

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Speaker 1: got any idea of how you think they will hold

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Speaker 1: rates at that kind of level for how long? Is

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Speaker 1: it too early? Too premature to add that conversation. Oh,

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Speaker 1: I think it could be a couple of years. I mean,

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Speaker 1: really get to the You get to them, you know,

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Speaker 1: mid trees or or maybe even a little bit higher,

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Speaker 1: and then then you stay there. Because I think while

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Speaker 1: inflation will look a lot better a year from now,

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Speaker 1: I think it will still be significantly above the target,

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Speaker 1: and ultimately they do want to get back down to

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Speaker 1: pretty close to two person. Yeah, and that is totally

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Speaker 1: at a consensus. How much pushback do you get from

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Speaker 1: clients when you bring that up. I think it's away

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Speaker 1: from market pricing. I don't know if it's as out

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Speaker 1: of consensus. In terms of what forecasters are saying. I

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Speaker 1: think there are quite a lot of forecasters and FED officials.

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Speaker 1: I mean you you just mentioned President Daily, FED officials

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Speaker 1: who are saying that this is a reasonable baseline. John Screeze,

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Speaker 1: one more question in here, because the bottom line here

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Speaker 1: is simple. This is the theme of Jackson Hall. This

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Speaker 1: is the difficulty. This is the theme. Yeah. Three, If

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Speaker 1: you're gonna held rate to that kind of level, and

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Speaker 1: it could be a stress you said could be a

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Speaker 1: couple of years, what is the soft lending fit into

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Speaker 1: that kind of profile, that kind of race profile. Well,

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Speaker 1: I think that is a soft landing kind of kind

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Speaker 1: of assumption. If it wasn't a soft landing, if you

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Speaker 1: went into a recession, then I think you would get cuts.

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Speaker 1: But if growths days at one percent one and a

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Speaker 1: half percent, labor market continues to adjust, inflation gradually comes

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Speaker 1: down and the FED in that environment keeps the funds

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Speaker 1: rate relatively high. You know, I think that is a

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Speaker 1: soft landing, Absolutely fascinating. It will continue this conversation, GOM, Yeah,

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Speaker 1: great to catch up set exceptionally strong set of conversations today,

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Speaker 1: Young Hots of Goldman Sex joining us and we continue

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Speaker 1: strong now with Stephen Rashido to say he's chief US

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Speaker 1: economist at Missouri Securities barely describes their desk with dominic constant.

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Speaker 1: Stephen Rashida folds in a massive macro view, including a

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Speaker 1: calculus of g d P in America. Stephen Shuto, when

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Speaker 1: you talk to Dominique and the two of you get together,

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Speaker 1: are we in recession? Uh? The NBA will not classified

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Speaker 1: a recession to me. You know, two quarters of consecutive

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Speaker 1: negative GDP reports, you know, implies your inner recession. The

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Speaker 1: problem for people is going to be that this is

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Speaker 1: gonna be a very shallow, very long recession. It's not

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Speaker 1: going to be the typical recessionary environment that we've seen

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Speaker 1: UM in since nineteen nine, which were credit cycles. Nor

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Speaker 1: is it going to be the typical inflation cycle that

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Speaker 1: we've experienced in the post war period up to the

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Speaker 1: nineteen nineties. It's a very very different cycle. It's a long,

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Speaker 1: shallow cyde well within that, and this has been the

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Speaker 1: theme for the day. Stephen Shudo, if if you have

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Speaker 1: a long show of cycle, does that mean the real

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Speaker 1: message from Paula Jackson Hole will be a more sustained

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Speaker 1: view of interest rate strategy and not the foolishness of

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Speaker 1: the when the rates come down. That's exactly been our

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Speaker 1: call all along in here, that we're basically looking at

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Speaker 1: a dynamic of a pause, not a pivot. Uh. The

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Speaker 1: question that we're still debating is it four percent er?

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Speaker 1: Is it's something north of four percent? I think we

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Speaker 1: have to get to at least four percent. And last

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Speaker 1: time I was on we were talking about it, we

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Speaker 1: were pricing three and a half. Now we're pricing something

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Speaker 1: in between the three and a half and the four.

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Speaker 1: I think we'll get to the four and you know,

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Speaker 1: hopefully that will be the end, but it may not

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Speaker 1: be the end of this scenario. This is the rice

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Speaker 1: and hope to base state if we caught up with

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Speaker 1: the unhanceus of Goldman, take a listen to what you

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Speaker 1: have to say. Where I would disagree more with market

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Speaker 1: pricing is the pricing for significant rate cuts. I think

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Speaker 1: it could be a couple of years. I mean, really

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Speaker 1: get to the you get to them, you know, mid

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Speaker 1: trees or or maybe even a little bit higher, and

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Speaker 1: then then you stay there because I think while inflation

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Speaker 1: will look a lot better a year from now, I

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Speaker 1: think it will still be significantly above the target. Right

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Speaker 1: to what and hold for how long? Right to three

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Speaker 1: or three and a half percent? And hold for a

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Speaker 1: company is stafe? What do you think of that? Well,

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Speaker 1: I think we're gonna keep on moving higher than that.

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Speaker 1: I don't think three and a half is the top

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Speaker 1: in order. I think necessarily we're gonna hold it for

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Speaker 1: several years. I think there's clearly an argument to be

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Speaker 1: made that we're gonna hold it through three. But where

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Speaker 1: we go in is a very very different um animal altogether,

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Speaker 1: because you have to look at what's happening in the currency,

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Speaker 1: and you have to look at what's happening with supply

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Speaker 1: chain related issues, and then you have to look at

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Speaker 1: the demographics in the labor market environment. And it's this

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Speaker 1: tug of war that we're going to see from a

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Speaker 1: stronger currency, supply chains easing up versus the wage related

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Speaker 1: pressures that are being dominated by the demographic issues, in

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Speaker 1: particular the reduction in the number of workers from the

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Speaker 1: millennials to the Generation Z which is now entering the

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Speaker 1: labor force. So we might wind up in an environment

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Speaker 1: where the Federal Reserve has to sustain higher rates on

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Speaker 1: a longer basis than we've seen in here for quite

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Speaker 1: some time. But again, what the starting point is is

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Speaker 1: still an open book. What's the advantage of steven for

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Speaker 1: the Fed raising rates beyond three and a half percent?

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Speaker 1: What's the end target and why, especially if they planned

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Speaker 1: then take them down to something lower over a longer term. Well, again,

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Speaker 1: do they plan to take it down to something lower

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Speaker 1: over the longer term? The real question is how does

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Speaker 1: this labor market dynamic play out. You can make a

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Speaker 1: very very strong demographic argument that the labor market stays

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Speaker 1: tight throughout the entire period in here, and therefore you

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Speaker 1: are as going a sustained higher level of interest rates

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Speaker 1: going forward. The question always is going to be what

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Speaker 1: level of rates will that be sustained at? But a

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Speaker 1: quick return back to the near zero interest rate environment

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Speaker 1: that we've been anticipating is going where that people have

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Speaker 1: been someone anticipating is going to require some kind of

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Speaker 1: credit event to unfold in the economy. And when you

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Speaker 1: look at the underlying credit quality of the economy in general,

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Speaker 1: there are some pockets where we are concerned, but an aggregate,

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Speaker 1: the balance sheets are still very, very healthy. So what

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Speaker 1: is your top federate that you're kind of penciling in here?

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Speaker 1: How is that evolved over the past few months. Well,

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Speaker 1: it's evolved a lot, I mean over the entire period

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Speaker 1: of two but but I do think four percent is

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Speaker 1: the near term target um and I think once we

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Speaker 1: get to four percent, we will pause for a time,

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Speaker 1: whether or not that's a pause to go higher or

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Speaker 1: a pause to continue to hold that level on an

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Speaker 1: ongoing basis. That's where my thought process is. Stevens side baseball.

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Speaker 1: If we've got China with subpart China growth, the dynamic

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Speaker 1: of exports minus imports, how does it change and what

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Speaker 1: does that mean for Chairman Paul? Well, again, that comes

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Speaker 1: right back to the currency story, because it's the supply

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Speaker 1: chain dynamic. You have a slower global GDP environment. Clearly

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Speaker 1: what's happening in Europe is creating a wider GDP output

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Speaker 1: gap globally. You have a strong currency, which will allow

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Speaker 1: us to import those products on a more on a

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Speaker 1: more competitive basis, which will wind up dampening domestic inflationary pressures.

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Speaker 1: And then you wind up with when as the services

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Speaker 1: dominate over the goods portion of the equation. And I

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Speaker 1: think this is the reason why inflation is going to

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Speaker 1: come down. Whether it will get as quickly as the

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Speaker 1: Fed would like to see back to their target or not,

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Speaker 1: I think it will get there. I think it'll get there. Probably,

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Speaker 1: I don't think it'll get there. In my first exercise

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Speaker 1: this morning was to look at the Bloomberg Financial Conditions

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Speaker 1: Index for the United States and for Europe, and the

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Speaker 1: note back over thirty years that this is the first

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Speaker 1: time they've diverged so sharply. Now, obviously there's a war

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Speaker 1: in Ukraine, which is uh dealt to this. What does

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Speaker 1: Bailey say to Powell or Powell say to Bailey on

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Speaker 1: this immense transatlantic divide. Well, I mean, I think, you know,

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Speaker 1: the situation is the reverse of what we experienced in

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Speaker 1: the nineties seventies, where the you know, the Federal Reserve

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Speaker 1: chairman at the time, Paul Ulcer, came back from an

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Speaker 1: I M. F meeting UH and was forced to change

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Speaker 1: monetary policy abruptly and cause, you know, one of the

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Speaker 1: worst macro recessions, inflation recessions we've seen in our history.

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Speaker 1: And I think all of the problems on the currency

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Speaker 1: side of the equation are really European problems um and

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Speaker 1: Europe has to address its issues. We can't fix its

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Speaker 1: problem for them. And that's pretty much the same message

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Speaker 1: that you know, Paul Volker got in reverse when he

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Speaker 1: came back from the I m F meeting in ninety nine,

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Speaker 1: which was basically, you have a problem with your currency.

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Speaker 1: That's why your currency is going down. You have to

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Speaker 1: fix your problem. And I think Powell has to push

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Speaker 1: it right back on them. You've got a problem, you

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Speaker 1: have to fix it. We can't fix it for you.

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Speaker 1: And this is the different kind of FX wall, Lisa,

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Speaker 1: we've been talking about through much of this year. This

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Speaker 1: is a big problem for Europe. And it's kind of

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Speaker 1: strange because ten years ago this is exactly what they

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Speaker 1: were trying to engineer. A week of euro. They couldn't

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Speaker 1: get one, they couldn't buy one, and now they've got one,

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Speaker 1: a dramatically weaker euro at a time that they aren't.

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Speaker 1: We don't want one absolutely important inflation how much though,

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Speaker 1: is also a problem for the US, and we haven't

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Speaker 1: really talked about that, John, but this was something that

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Speaker 1: you had discussed earlier in terms of the Edyard Denny note,

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Speaker 1: which is how much of oppression will this be on

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Speaker 1: the balance sheets of companies that sell into Europe that

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Speaker 1: have to deal with the headwinds from a stronger dollar.

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Speaker 1: I don't think people have gained that out sufficiently. Well.

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Speaker 1: The multinationals are going to have a problem, aren't they.

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Speaker 1: But that's a cool a profit story. What it means

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Speaker 1: for the broader economy. The other rest of that we've

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Speaker 1: got here as well. Steve Thomas, an important question, what

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Speaker 1: does Governor Bailey say to Chairman Powell. Governor Bailey is

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Speaker 1: seeing economic weakness right now in a more pronounced way

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Speaker 1: than Chairman Powell is. And Governor Bailey hasn't seen the

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Speaker 1: year of a year peak in inflation. You've got him

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Speaker 1: forecasting something close to percent. You've got City saying it

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Speaker 1: might be eighteen percent. Steve, isn't that the bigger difference

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Speaker 1: right now? The Transatlantic divide is that the US may

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Speaker 1: be able to take some very very small amount of

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Speaker 1: comfort from this idea. We might have seen peak year

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Speaker 1: other year inflation for Europe and the UK. Is it

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Speaker 1: still in their future? Well, again, this comes down to

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Speaker 1: the fact that you remember the way we broke the

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Speaker 1: back of inflation here was not just a monetary policy scenario.

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Speaker 1: You know, the supply side revolution failed in terms of

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Speaker 1: many things, but by breaking the back of labor through

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Speaker 1: firing air traffic controllers, we did a lot in terms

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Speaker 1: of changing the labor market dynamic, which was our problem

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Speaker 1: back then. So again you have to push the blame

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Speaker 1: back just not on central bankers. Central bankers have to

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Speaker 1: push blame back on politicians and say you have to

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Speaker 1: correct what you've done from a policy standpoint that has

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Speaker 1: put us into this position, and it is your responsibility

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Speaker 1: now to take the steps that are necessary. You can't

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Speaker 1: expect central banks to solve all of the world's problems.

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Speaker 1: Of missoua, Steve, thank you, sir. The character of surveillance

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Speaker 1: is simply we want to talk to the best people

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Speaker 1: we can find, and we're honored when they come on

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Speaker 1: on short notice. He interrupts this morning with Standard Charter Bank,

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Speaker 1: their global head of G ten FX research, Stephen Englander

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Speaker 1: joins us on your foreign exchange space. Steve, let me

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Speaker 1: cut to the chase. What is the character the nature

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Speaker 1: of this historic bout of euro weakness. Well, I agree

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Speaker 1: that it's largely the natural gas story. I mean, you've

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Speaker 1: seemed in recent days and recent weeks move pretty much

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Speaker 1: together with the euro. Uh, there's a broader global story

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Speaker 1: that the market is panicking about. What that your power

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Speaker 1: will say at Jackson Bull and so you know euro

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Speaker 1: has two strikes against it and which is why it

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Speaker 1: went through parody so quickly. Stave is d e CP

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Speaker 1: got a roll supply head Um, you know, like in

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Speaker 1: a Greek tragedy, there's just not that much that they

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Speaker 1: can do. There's destin me that's approaching. Um. You know,

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Speaker 1: the economy is weak. You know when we talk about

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Speaker 1: supply chain disruptions, we're not getting our exercise bikes. When

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Speaker 1: they talk about it, they're not able to heat their homes. Um,

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Speaker 1: that's really weighing on sentiments in your own The ECB

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Speaker 1: doesn't have a tool to address it. The UK inflation

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Speaker 1: numbers last week kind of you know, I think lead

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Speaker 1: people in the market to say, why is Europe different

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Speaker 1: and what can ECB do about it and and the market.

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Speaker 1: Then what you see the way Sterling is trading and

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Speaker 1: Euro is trading, markets really punishing currencies that belong to

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Speaker 1: central banks that have an inflation problem but are really

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Speaker 1: ambivalent about how they're going to approach it. Steve, how

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Speaker 1: do you think they should approach it? What's the optimal

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Speaker 1: way to approach the situation the UK is in at

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Speaker 1: the moment, the situation the CP is in, it's a

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Speaker 1: it's a very tough situation. I think that when so

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Speaker 1: much as supply shocks, you you know, if you're a

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Speaker 1: central bank, you want to try and smoothe your response.

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Speaker 1: Um the you know, when you don't know what the

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Speaker 1: duration of the supply shock is going to be, you're

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Speaker 1: really working in the dark. So I think they'll probably

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Speaker 1: hype less than they should. Next year, if you know,

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Speaker 1: they come out of the winter and the energy situation

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Speaker 1: is more clear, they'll probably hype faster and that could

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Speaker 1: actually give the Euros some some legs in three. But

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Speaker 1: this year I think it's moving very cautiously. Step. When

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Speaker 1: you were talking about how supply chain disruptions have caused

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Speaker 1: the people in the U S to worry about when

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Speaker 1: they get their exercise equipment, but in your up but

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Speaker 1: worried about how to heat your homes. At what point

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Speaker 1: does the US start to experience something more similar to

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Speaker 1: the European angst? And this goes to this idea of divergence.

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Speaker 1: How far the US economy can diverge from the European fate. Well,

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Speaker 1: in so far as it's related to a particular commodity

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Speaker 1: as cnatural gas, that divergence can extend for a long time. Um,

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Speaker 1: we might have to pay more for our energy, but

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Speaker 1: we're going to have it. Um. I think the European situation.

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Speaker 1: If it's a very cold winter and if the accommodation

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Speaker 1: to increase supply uh doesn't occur, it could happen. You know,

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Speaker 1: it could be an extended divergence. It's not our baseline

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Speaker 1: that it certainly is a risk. If there is an

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Speaker 1: extet of divergence, what does that mean for how disruptive

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Speaker 1: dollar strength could become if it could escalate beyond where

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Speaker 1: people are currently expecting. Well, you know you're seeing different

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Speaker 1: currencies react differently, like you know, ausy week last week.

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Speaker 1: You know they've done worthy like everybody else, not so terribly. Um,

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Speaker 1: they don't have that kind of exposure. You have the

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Speaker 1: end that's done reasonably well. Again, you know, they're they're

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Speaker 1: benefiting from oil prices going down, you know the natural

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Speaker 1: gas situation. Isn't this dire for them? I think it's

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Speaker 1: horses for courses. And then you have a set of

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Speaker 1: currencies like you know, Mexico, Brazil, some of the em

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Speaker 1: currencies where interest rates are high. So there's a buffer

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Speaker 1: against Fed hawkishness. So I don't think, you know, I

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Speaker 1: think if the Fed is hawkish, it's going to be

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Speaker 1: a broad dollar move. We think it's gonna be limited. Um.

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Speaker 1: But you know, I think they are different, Um. You know,

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Speaker 1: circles of currencies that will respond differently depending on their

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Speaker 1: vulnerabilities and in some cases their strengths. Steve, if you

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Speaker 1: had to take about on the next three percent on

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Speaker 1: your dollar higher or lower, week is stronger, what would

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Speaker 1: you place it? I think the risk is to the downside. Um.

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Speaker 1: But if you're asking me that question in January and

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Speaker 1: probably say to the upside state. Also to catch up,

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Speaker 1: Stephen standed shot at on the fracture of international relations

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Speaker 1: in Europe and the unspoken Tina Fordham joins us right

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Speaker 1: now found in Geopolitical Strategist at Fordham Global uh Foresight.

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Speaker 1: I looked tein at where we are in the bombing

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Speaker 1: in Moscow and all that, and there seems to be

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Speaker 1: an unraveling in our world. It is the parabola of

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Speaker 1: energy prices. In your world, it's something like Ms. Maloney

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Speaker 1: in Italy with not fascist but certainly very austere tendencies

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Speaker 1: like what we see in Hungary. How unsettled is Europe

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Speaker 1: given the energy price overlay. Well, Tom, you've highlighted some

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Speaker 1: of the themes that are to woven really in the

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Speaker 1: in the global political risk outlook, where those high energy

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Speaker 1: prices you mentioned, of course are being driven by the

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Speaker 1: continuation of the Russian invasion of Ukraine, which shows no

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Speaker 1: sign of abating, plus the longstanding Kremlin policy of intervening

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Speaker 1: in in European politics. It's not illegal first of all

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Speaker 1: for European political parties to actually take funding from from

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Speaker 1: other countries and um. Furthermore, this is long documented. Orban's

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Speaker 1: victor Orban's connection to the Kremlin. Matteo Salvini, who's on

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Speaker 1: the record today from the Lega Nord party in Italy

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Speaker 1: saying that perhaps sanctions against Russia aren't working. So while

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Speaker 1: policymakers and markets are you know, rightly focused on the

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Speaker 1: kind of harrowing inflation outlook UM, which is taking up

430
00:23:52,040 --> 00:23:56,120
Speaker 1: the reaction function and the attention. These these cracks, UM

431
00:23:56,480 --> 00:24:00,520
Speaker 1: are are really concerning. And the September elections in Italy

432
00:24:00,880 --> 00:24:04,560
Speaker 1: are going to put a prime minister in office who

433
00:24:04,880 --> 00:24:10,639
Speaker 1: um is uncomfortably close to fascist tendencies and with you know,

434
00:24:10,680 --> 00:24:13,960
Speaker 1: connections to Russia. I mean, the shock of the pricing

435
00:24:14,920 --> 00:24:18,000
Speaker 1: is so tangible. There's got to be my reading of

436
00:24:18,080 --> 00:24:21,680
Speaker 1: history here and maybe onto whatever, you can pick your

437
00:24:21,680 --> 00:24:26,240
Speaker 1: point of gloom. But the fact is this pricing leads

438
00:24:26,320 --> 00:24:31,880
Speaker 1: to international relation and political adjustment. What would you suggest

439
00:24:31,960 --> 00:24:36,680
Speaker 1: that adjustment will be. Well, at the first level, it's

440
00:24:36,680 --> 00:24:41,440
Speaker 1: going to lead to enormous household distress. And I see

441
00:24:41,440 --> 00:24:43,240
Speaker 1: that through the lens of what's happening here in the

442
00:24:43,359 --> 00:24:46,000
Speaker 1: UK with the leadership contest for the for the Tory

443
00:24:46,040 --> 00:24:49,040
Speaker 1: Party and the talk about the energy price cap. You

444
00:24:49,200 --> 00:24:53,679
Speaker 1: we're talking about households seeing a quintuckling in their energy bills.

445
00:24:53,800 --> 00:24:57,600
Speaker 1: A normal household ping you know, over a thousand pounds

446
00:24:57,840 --> 00:25:02,280
Speaker 1: a month for electricity. UM, it's it's a shock that

447
00:25:02,440 --> 00:25:05,280
Speaker 1: is not going to be able to be absorbed. So

448
00:25:05,440 --> 00:25:07,240
Speaker 1: first of all, it's going to I think there's gonna

449
00:25:07,280 --> 00:25:11,359
Speaker 1: be mass non payment um. And if you look at

450
00:25:11,400 --> 00:25:13,880
Speaker 1: the dynamics of the tour leadership contest, it's all about

451
00:25:13,920 --> 00:25:18,280
Speaker 1: getting those hundred and sixty thousand Conservative Party voters. It's

452
00:25:18,280 --> 00:25:22,280
Speaker 1: a different platform. Um. So this government is going to

453
00:25:22,320 --> 00:25:27,280
Speaker 1: be reactive. By contrast, Macron and France has been more proactive,

454
00:25:27,320 --> 00:25:31,840
Speaker 1: saying it's basically the patriotic duty to kind of deal

455
00:25:31,960 --> 00:25:34,720
Speaker 1: with it, um. And we have to stay strong in

456
00:25:34,760 --> 00:25:37,760
Speaker 1: the in the face of Russia. I think that Europe's

457
00:25:37,880 --> 00:25:43,240
Speaker 1: resolve when it comes to supporting Ukraine will continue. Um.

458
00:25:43,240 --> 00:25:45,440
Speaker 1: But there's going to be a lot of pain. This

459
00:25:45,520 --> 00:25:47,919
Speaker 1: is going to hurt. And what you asked with the

460
00:25:48,040 --> 00:25:51,520
Speaker 1: kind of policy response is going to be people look

461
00:25:51,560 --> 00:25:54,720
Speaker 1: at the pandemic and they're going to expect government support.

462
00:25:55,160 --> 00:25:57,919
Speaker 1: How we get there is very hard to say, um.

463
00:25:57,960 --> 00:26:01,040
Speaker 1: But the public won't be able to absorb price increases

464
00:26:01,280 --> 00:26:05,199
Speaker 1: of these proportions. Tina, you went where I wanted to go,

465
00:26:05,400 --> 00:26:07,800
Speaker 1: which is you said that the resolve will remain strong

466
00:26:07,840 --> 00:26:11,840
Speaker 1: to support Ukraine to battle Russia and that the European

467
00:26:11,840 --> 00:26:14,960
Speaker 1: people will continue with that message. When does that fray,

468
00:26:15,280 --> 00:26:18,360
Speaker 1: especially as power costs rise and there is an increasing

469
00:26:18,440 --> 00:26:21,639
Speaker 1: chorus of people saying perhaps some of the sanctions and

470
00:26:21,680 --> 00:26:25,160
Speaker 1: some of the measures taken against Russia or as penalizing

471
00:26:25,400 --> 00:26:29,760
Speaker 1: to the Western nations as anyone else. Well, I mean

472
00:26:30,280 --> 00:26:33,359
Speaker 1: it's always a question right of what's the alternative. And

473
00:26:33,840 --> 00:26:38,120
Speaker 1: there's no going back to Russia as an energy supplier. Um,

474
00:26:38,240 --> 00:26:43,240
Speaker 1: those days are over and the substitution of supply is

475
00:26:43,280 --> 00:26:47,480
Speaker 1: already happening. Um. We are, however, looking at a very

476
00:26:47,520 --> 00:26:51,359
Speaker 1: difficult winter here, one that people aren't used to. You know,

477
00:26:51,440 --> 00:26:53,800
Speaker 1: in the old days, at least you had a fireplace

478
00:26:53,840 --> 00:26:57,439
Speaker 1: and you can shop firewood. Um. Now it's central heating,

479
00:26:58,320 --> 00:27:00,680
Speaker 1: which means people are going to have to turn it off.

480
00:27:00,720 --> 00:27:04,280
Speaker 1: So um, it's going to be incredibly difficult. But what

481
00:27:04,359 --> 00:27:08,280
Speaker 1: you do see in Europe is an increasing sense that

482
00:27:08,480 --> 00:27:13,360
Speaker 1: Ukraine has to win this conflict. Um. And uh, there

483
00:27:13,440 --> 00:27:15,840
Speaker 1: isn't going to be a turning back from that. But

484
00:27:16,040 --> 00:27:18,119
Speaker 1: I guess what I'm trying to say is that maintaining

485
00:27:18,160 --> 00:27:22,560
Speaker 1: that position of support and the sacrifice that it's going

486
00:27:22,640 --> 00:27:26,879
Speaker 1: to entail for households means you have to accelerate the

487
00:27:26,920 --> 00:27:30,280
Speaker 1: green transition. You've got to keep those nuclear power plants going,

488
00:27:30,960 --> 00:27:34,080
Speaker 1: which is a huge turnaround for German policy. And that's

489
00:27:34,119 --> 00:27:39,160
Speaker 1: happening rather quickly. Um. Not quickly enough to alleviate paying

490
00:27:39,200 --> 00:27:43,720
Speaker 1: this this winter, um, but I think quickly enough. And

491
00:27:43,720 --> 00:27:46,240
Speaker 1: and again we can't go back to Russia as a

492
00:27:46,320 --> 00:27:49,400
Speaker 1: as a dependence upon Russia as an energy supplier. It's

493
00:27:49,440 --> 00:27:53,080
Speaker 1: not a dependable source. These are huge, huge changes we

494
00:27:53,119 --> 00:27:56,000
Speaker 1: need to try and adapt to. Tinaford Affordham Global Force

495
00:27:56,040 --> 00:28:03,919
Speaker 1: sign Lisa Browwinson, Tom Keane with Mr Rubinstein now and

496
00:28:04,000 --> 00:28:08,000
Speaker 1: a guy David John Doer. Intel was three thousand employees

497
00:28:08,040 --> 00:28:10,280
Speaker 1: when he joined. It's now well over a hundred thousand,

498
00:28:10,280 --> 00:28:13,840
Speaker 1: even with the challenges that they have. And what I

499
00:28:13,960 --> 00:28:18,120
Speaker 1: find so interesting David Rubenstein is this is a guy

500
00:28:18,280 --> 00:28:21,720
Speaker 1: that's lived the boom of the young Turks of Silicon

501
00:28:21,920 --> 00:28:25,479
Speaker 1: Valley and now they have to make a generational shift.

502
00:28:25,920 --> 00:28:29,600
Speaker 1: What did he say about the challenges of a generational

503
00:28:29,760 --> 00:28:34,760
Speaker 1: shift in our tech wonders? Well, he did uh incredible

504
00:28:34,800 --> 00:28:37,399
Speaker 1: things in the Internet era, and he was an early

505
00:28:37,440 --> 00:28:40,680
Speaker 1: backer of Google and an early backer of Amazon, and

506
00:28:40,720 --> 00:28:42,720
Speaker 1: a result of that he has been able to make

507
00:28:42,760 --> 00:28:46,120
Speaker 1: recently the largest gift in Stanford's history, one point one

508
00:28:46,440 --> 00:28:50,400
Speaker 1: billion dollars to create a sustainability school. And that is

509
00:28:50,440 --> 00:28:53,280
Speaker 1: the result of his really smart investment decisions during the

510
00:28:53,320 --> 00:28:57,240
Speaker 1: Internet era. Now he's focused on climate change, and that's

511
00:28:57,280 --> 00:29:00,840
Speaker 1: just in soul investment focus as well. He's giving a

512
00:29:00,840 --> 00:29:03,880
Speaker 1: lot of money for philanthropically there, but also he's now

513
00:29:03,960 --> 00:29:06,760
Speaker 1: making investments in all kinds of UH companies that are

514
00:29:06,840 --> 00:29:09,440
Speaker 1: likely to have some impact on climate change. What is

515
00:29:09,480 --> 00:29:13,480
Speaker 1: he's saying about the people that literally he birthed. I'm

516
00:29:13,520 --> 00:29:18,360
Speaker 1: absolutely fascinated the shifted Amazon, the shifts at Google, and

517
00:29:18,480 --> 00:29:22,800
Speaker 1: on and on. How did he address this generational challenge

518
00:29:22,840 --> 00:29:26,720
Speaker 1: of people who think they're different than Colgate palmal or

519
00:29:26,800 --> 00:29:31,360
Speaker 1: John dear Well. Clearly, people in Silicon Valley who get

520
00:29:31,440 --> 00:29:35,000
Speaker 1: money u from firms like Kleiner Perkins John Doer's firm

521
00:29:35,320 --> 00:29:37,480
Speaker 1: obviously have large egos and think that they're going to

522
00:29:37,640 --> 00:29:39,520
Speaker 1: change the world. In some cases they do, in some

523
00:29:39,560 --> 00:29:42,560
Speaker 1: cases they don't. Um he is unusual in that he

524
00:29:42,640 --> 00:29:45,680
Speaker 1: really really spends enormous amount of time trying to figure

525
00:29:45,680 --> 00:29:47,520
Speaker 1: out how he can help these companies. He doesn't just

526
00:29:47,560 --> 00:29:49,840
Speaker 1: give them money, but he's willing to work around the

527
00:29:49,840 --> 00:29:51,880
Speaker 1: clock to make sure these companies succeed. And that's what

528
00:29:51,920 --> 00:29:54,360
Speaker 1: he did with Amazon and Google and had a big

529
00:29:54,400 --> 00:29:56,480
Speaker 1: impact on them. Now he's doing the same in the

530
00:29:56,520 --> 00:29:59,160
Speaker 1: climate change era. And I would say that he was

531
00:29:59,240 --> 00:30:01,560
Speaker 1: motivated to do us in part because when his daughter,

532
00:30:01,840 --> 00:30:04,840
Speaker 1: one of his two daughters, watched Inconvenient Truth about the

533
00:30:04,880 --> 00:30:08,280
Speaker 1: climate change problem. His daughter said to him, you, your

534
00:30:08,320 --> 00:30:10,920
Speaker 1: generation screwed up this country and screwed up the world.

535
00:30:11,120 --> 00:30:12,880
Speaker 1: What are you gonna do about fixing it? And so

536
00:30:12,960 --> 00:30:15,320
Speaker 1: it motivated him to actually do something about it. And

537
00:30:15,320 --> 00:30:17,120
Speaker 1: now that's what he's really dedicating the rest of his

538
00:30:17,200 --> 00:30:19,400
Speaker 1: life to do. Over the past year, we've seen a

539
00:30:19,440 --> 00:30:21,720
Speaker 1: little bit of a reversal in some of the efforts

540
00:30:21,840 --> 00:30:25,360
Speaker 1: towards the greenification of the energy supply. We've seen a

541
00:30:25,400 --> 00:30:28,680
Speaker 1: reversion back to coal fossil fuels in the wake of

542
00:30:28,720 --> 00:30:31,160
Speaker 1: some of the shortages and the and the Russian invasion

543
00:30:31,560 --> 00:30:34,400
Speaker 1: of Ukraine. Did he talk at all about the willingness

544
00:30:34,480 --> 00:30:37,640
Speaker 1: to invest even more at a time when there is

545
00:30:37,760 --> 00:30:41,400
Speaker 1: more of a question about the importance of fossil fuels

546
00:30:41,480 --> 00:30:44,640
Speaker 1: and not discounting them. Well, his view is we don't

547
00:30:44,640 --> 00:30:47,239
Speaker 1: really have a choice right now on the planet is

548
00:30:47,280 --> 00:30:49,800
Speaker 1: not going to be able to be survivable if we

549
00:30:49,840 --> 00:30:53,200
Speaker 1: don't make changes in the way we generate energy for

550
00:30:53,320 --> 00:30:55,440
Speaker 1: people on the face of the earth. So he doesn't

551
00:30:55,480 --> 00:30:58,280
Speaker 1: really think there's a choice. He does recognize that because

552
00:30:58,280 --> 00:31:02,040
Speaker 1: of the war in Ukraine, many will have uh probably said, well,

553
00:31:02,320 --> 00:31:04,479
Speaker 1: climate change is something we can worry about in the future,

554
00:31:04,680 --> 00:31:06,840
Speaker 1: and we don't have to worry about conversion to renewable

555
00:31:06,920 --> 00:31:09,240
Speaker 1: right now. But that's not his view. He thinks it's

556
00:31:09,280 --> 00:31:11,640
Speaker 1: more urgent than ever, and he has a very elaborate

557
00:31:11,680 --> 00:31:15,560
Speaker 1: plan how we can convert our efforts now and using

558
00:31:15,640 --> 00:31:19,720
Speaker 1: energy from carbon to renewable sources. And he's quite passionate

559
00:31:19,720 --> 00:31:21,920
Speaker 1: about it. And that comes to in the interview the

560
00:31:21,960 --> 00:31:24,680
Speaker 1: passion versus the profits, and that has been something that

561
00:31:24,720 --> 00:31:27,160
Speaker 1: a lot of people have been trying to discern, especially

562
00:31:27,200 --> 00:31:29,760
Speaker 1: with the E s G focus that hasn't always delivered

563
00:31:30,040 --> 00:31:32,760
Speaker 1: in terms of the returns. How does he sort of

564
00:31:32,760 --> 00:31:36,720
Speaker 1: parse this out? I understand the ideological drive that he

565
00:31:36,800 --> 00:31:39,640
Speaker 1: has towards some of these causes, but where does he

566
00:31:39,760 --> 00:31:44,200
Speaker 1: look for the returns to come? Well, remember, he's looking

567
00:31:44,280 --> 00:31:46,520
Speaker 1: the back small companies that are going to grow into

568
00:31:46,560 --> 00:31:49,120
Speaker 1: the Amazons and Googles in the climate change area. So

569
00:31:49,400 --> 00:31:51,160
Speaker 1: when he backs the company, it's going to take four

570
00:31:51,240 --> 00:31:53,000
Speaker 1: or five six years or so before it might be

571
00:31:53,040 --> 00:31:55,000
Speaker 1: a parent whether it's going to work or not. But

572
00:31:55,040 --> 00:31:57,280
Speaker 1: he thinks we really don't have a choice because if

573
00:31:57,320 --> 00:31:59,600
Speaker 1: we keep doing what we're doing, ultimately the planet won't

574
00:31:59,600 --> 00:32:02,120
Speaker 1: be survived b bibble. And so he's very passionate about it,

575
00:32:02,200 --> 00:32:05,400
Speaker 1: more passionate than he probably was about the Internet. David

576
00:32:05,480 --> 00:32:08,480
Speaker 1: Rubinstein in the day to day grind of David Rubenstein

577
00:32:08,680 --> 00:32:12,560
Speaker 1: over the years, why doesn't Europe have a John Door?

578
00:32:12,640 --> 00:32:15,320
Speaker 1: Why doesn't Asia have a John Door? Of course the

579
00:32:15,320 --> 00:32:19,040
Speaker 1: backdrop here is a tobacco soft bank. But why is

580
00:32:19,080 --> 00:32:23,280
Speaker 1: it just about America that we have a John Door? Well,

581
00:32:23,320 --> 00:32:27,040
Speaker 1: clearly America is more entrepreneurial, I think, than Asia, and

582
00:32:27,080 --> 00:32:30,080
Speaker 1: more entrepreneur than Europe. We have a much more bigger

583
00:32:30,240 --> 00:32:33,560
Speaker 1: venture capital world than either Europe or Asia, and I

584
00:32:33,560 --> 00:32:36,320
Speaker 1: think John Dor is the personification of of what our

585
00:32:36,400 --> 00:32:38,959
Speaker 1: venture capital world can do. It has a very talented

586
00:32:38,960 --> 00:32:41,320
Speaker 1: people who have been trained as engineers as as John

587
00:32:41,320 --> 00:32:44,160
Speaker 1: Dor was, but now are committed to doing other things.

588
00:32:44,160 --> 00:32:46,720
Speaker 1: And you know, John dor is probably the best known

589
00:32:46,720 --> 00:32:49,080
Speaker 1: of the venture capitalist in the United States right now

590
00:32:49,160 --> 00:32:51,440
Speaker 1: because of his success over the years. But there are

591
00:32:51,440 --> 00:32:53,520
Speaker 1: many other people like him, and you're correct in pointing

592
00:32:53,520 --> 00:32:55,960
Speaker 1: out there aren't similar people. Are not very many of

593
00:32:56,000 --> 00:32:58,720
Speaker 1: them in Europe or in China. David think is so

594
00:32:58,800 --> 00:33:02,200
Speaker 1: much congratulations, So this important interview tonight com PM David

595
00:33:02,240 --> 00:33:05,640
Speaker 1: Rubinstein with Mr Dori Planner Perk. It's really looking forward

596
00:33:05,680 --> 00:33:09,680
Speaker 1: to that. This is the Bloomberg Surveillance Podcast. Thanks for listening.

597
00:33:10,040 --> 00:33:13,400
Speaker 1: Join us live weekdays from seven to ten am Eastern

598
00:33:13,640 --> 00:33:17,680
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

599
00:33:17,720 --> 00:33:23,000
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

600
00:33:23,120 --> 00:33:28,160
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

601
00:33:28,240 --> 00:33:32,040
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

602
00:33:32,160 --> 00:33:36,320
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg