1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,280 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,760 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Taking great 7 00:00:30,800 --> 00:00:34,040 Speaker 1: pride with a titanic effort of our booking team to 8 00:00:34,159 --> 00:00:38,120 Speaker 1: bring you experts on Ukraine. I speak of the generals 9 00:00:38,159 --> 00:00:41,879 Speaker 1: of the American military, General Hodges, General Kimmitt, thank you 10 00:00:41,920 --> 00:00:45,360 Speaker 1: so much for joining us. People in diplomacy, such as 11 00:00:45,400 --> 00:00:49,160 Speaker 1: Ambassador has and we move that forward today with Uri Sack. 12 00:00:49,800 --> 00:00:53,720 Speaker 1: He is advisor to Ukraine's defense minister, but far more 13 00:00:54,040 --> 00:00:58,840 Speaker 1: is steeped in the diplomacy linkage to military effort, if 14 00:00:58,880 --> 00:01:03,600 Speaker 1: you will, from diplomacy to attack and defense. Mister Sack, 15 00:01:03,760 --> 00:01:07,000 Speaker 1: thank you so much for joining us today. It will 16 00:01:07,040 --> 00:01:11,520 Speaker 1: be a spring war. It will be underground in mud. 17 00:01:12,040 --> 00:01:16,600 Speaker 1: How do you foresee the tanks will be utilized. Good morning, Tom, 18 00:01:16,640 --> 00:01:20,319 Speaker 1: and thank you for inviting me. Now we have said 19 00:01:20,800 --> 00:01:24,399 Speaker 1: a long time ago that with the courage and determination 20 00:01:24,400 --> 00:01:27,760 Speaker 1: of the Ukrainian armed forces, we were able to and 21 00:01:27,800 --> 00:01:29,880 Speaker 1: of course with the help of the military assistance that 22 00:01:29,920 --> 00:01:32,959 Speaker 1: we received from our allies, we were able to stabilize 23 00:01:32,959 --> 00:01:36,039 Speaker 1: the front. And we are now getting ready for our 24 00:01:36,160 --> 00:01:39,919 Speaker 1: counter offensive, which we hope will begin soon now, because 25 00:01:39,920 --> 00:01:43,440 Speaker 1: our military objective remains the complete the occupation of Ukrainian 26 00:01:43,520 --> 00:01:47,120 Speaker 1: territories and restoring peace in Ukraine as well as in Europe. 27 00:01:47,600 --> 00:01:50,880 Speaker 1: So the tanks, the tanks which will be provided to 28 00:01:51,000 --> 00:01:55,560 Speaker 1: Ukraine by the Tank Coalition International Tank Coalition will be 29 00:01:55,640 --> 00:01:59,760 Speaker 1: instrumental in helping Ukrainian Army break through the defense lines 30 00:01:59,800 --> 00:02:04,480 Speaker 1: of the enemy on the temporary occupied territories. And we 31 00:02:04,520 --> 00:02:07,320 Speaker 1: are seeing that, you know, the tanks, the first tanks 32 00:02:07,680 --> 00:02:10,240 Speaker 1: are already on their way, and we hope that the 33 00:02:10,280 --> 00:02:13,079 Speaker 1: Tank Coalition will continue stepping up their efforts and sending 34 00:02:13,160 --> 00:02:16,680 Speaker 1: us more to move out another year in this terrible war. 35 00:02:17,160 --> 00:02:22,520 Speaker 1: Can those tanks drive to Crimea? Do you perceive a 36 00:02:22,680 --> 00:02:26,480 Speaker 1: linkage of what Kiev wants on Crimea with what the 37 00:02:26,600 --> 00:02:30,679 Speaker 1: Allies want on Crimea? I think the Kieva and Allies 38 00:02:30,760 --> 00:02:34,040 Speaker 1: are aligned when it comes to the situation with Crimea. 39 00:02:34,120 --> 00:02:38,640 Speaker 1: Because everybody recognizes that Crimea is an internationally recognized territory 40 00:02:38,639 --> 00:02:42,280 Speaker 1: of Ukraine which has been illegally annexed in twenty and fourteen. 41 00:02:42,680 --> 00:02:45,320 Speaker 1: But when it comes to the actual format in which 42 00:02:45,360 --> 00:02:49,640 Speaker 1: Crimea will be returned to Ukraine, our military will take 43 00:02:49,680 --> 00:02:53,040 Speaker 1: that decision when it comes, and most probably it will 44 00:02:53,080 --> 00:02:55,799 Speaker 1: be a mixture of diplomatic efforts as well as military. 45 00:02:56,080 --> 00:02:58,800 Speaker 1: I'd appreciate your insights on how close we are to 46 00:02:58,840 --> 00:03:02,360 Speaker 1: the west providing jets to Ukraine. Do you think we're 47 00:03:02,360 --> 00:03:05,560 Speaker 1: approaching that moment. We are pushing for the fighter jets 48 00:03:05,600 --> 00:03:08,280 Speaker 1: on a daily basis, our Minister of Defense, our President, 49 00:03:09,000 --> 00:03:12,399 Speaker 1: everyone from the political and military leadership, and we understand 50 00:03:12,400 --> 00:03:16,760 Speaker 1: that these are sophisticated platforms that require the training of pilots, 51 00:03:16,760 --> 00:03:21,359 Speaker 1: the training of engineer crews, that require logistics. So it's 52 00:03:21,400 --> 00:03:23,880 Speaker 1: not going to happen overnight. But we're doing everything we 53 00:03:23,960 --> 00:03:27,680 Speaker 1: can on our side to facilitate this process because fighter 54 00:03:27,760 --> 00:03:30,920 Speaker 1: jets are the last remaining hurdle and they will be 55 00:03:30,960 --> 00:03:33,960 Speaker 1: instrumental in helping train and chief victory, which we hope 56 00:03:34,040 --> 00:03:36,000 Speaker 1: will be this year. Uri how long do you think 57 00:03:36,040 --> 00:03:38,920 Speaker 1: that would take to train pilots and make that kind 58 00:03:38,920 --> 00:03:41,640 Speaker 1: of thing operational. Well, you know, we are in a 59 00:03:41,640 --> 00:03:46,320 Speaker 1: different situation. Ordinarily, training pilots takes about a year, if 60 00:03:46,360 --> 00:03:48,640 Speaker 1: not more. But we are in a situation where first 61 00:03:48,680 --> 00:03:52,800 Speaker 1: we already have pilots who have combat battlefield experience, and 62 00:03:52,920 --> 00:03:55,839 Speaker 1: our pilots are ready to be trained three to six months, 63 00:03:55,880 --> 00:03:58,440 Speaker 1: they will be ready to fly these platforms. Mister Sirk, 64 00:03:58,880 --> 00:04:02,800 Speaker 1: it's simple unique material. As well, as I asked Maria 65 00:04:02,880 --> 00:04:05,800 Speaker 1: today O and key Eve an hour ago, tell me 66 00:04:05,840 --> 00:04:10,120 Speaker 1: about the manpower of your defense ministry. Do you have 67 00:04:10,240 --> 00:04:14,200 Speaker 1: enough soldiers? It always comes down the infantry, doesn't it 68 00:04:14,280 --> 00:04:19,160 Speaker 1: the state of the Ukrainian infantry. Indeed, we our enforces, 69 00:04:20,160 --> 00:04:23,359 Speaker 1: you know, we have sufficient reserves. And of course, the 70 00:04:23,440 --> 00:04:26,200 Speaker 1: reason why we are in a better position than our enemy, 71 00:04:26,240 --> 00:04:30,039 Speaker 1: whose military capability has been degraded by the Ukrainian enforces 72 00:04:30,080 --> 00:04:33,040 Speaker 1: during the last twelve months significantly, is because we are 73 00:04:33,040 --> 00:04:35,160 Speaker 1: not using our soldiers as cannon. For that, we are 74 00:04:35,160 --> 00:04:37,640 Speaker 1: not using them in the mid grinder tactics. We are 75 00:04:37,680 --> 00:04:39,640 Speaker 1: fighting a smart war and we have a high regard 76 00:04:39,640 --> 00:04:42,280 Speaker 1: for our personnel, so we take smart decisions and this 77 00:04:42,360 --> 00:04:45,360 Speaker 1: allows us to maintain the sufficient number of troops and 78 00:04:45,400 --> 00:04:49,320 Speaker 1: of course, where necessary, if we need, we mobilize more people. 79 00:04:49,720 --> 00:04:52,320 Speaker 1: But for now, we are ready for any development and 80 00:04:52,360 --> 00:04:55,920 Speaker 1: we are ready to continue the occupation of Ukrainian territories. 81 00:04:56,040 --> 00:04:58,960 Speaker 1: Give us an update and the Black Sea, Mario Paul 82 00:04:59,120 --> 00:05:03,000 Speaker 1: was just horrific eight nine months ago as well. Discuss 83 00:05:03,480 --> 00:05:06,240 Speaker 1: the state of the Black Sea as you enter your 84 00:05:06,279 --> 00:05:09,479 Speaker 1: two of this war. Well, as you know the Black Sea. 85 00:05:09,560 --> 00:05:13,000 Speaker 1: Now there is the Russian Black Sea Fleet in the 86 00:05:13,080 --> 00:05:18,080 Speaker 1: Crimean Sevastopol, so Russia and Russia continues to control what 87 00:05:18,200 --> 00:05:20,039 Speaker 1: happens in the Black Sea. But of course we will 88 00:05:20,040 --> 00:05:23,200 Speaker 1: continue building up our military capability, and this is why 89 00:05:23,240 --> 00:05:26,039 Speaker 1: we're asking for longer range missiles, because they will be 90 00:05:26,080 --> 00:05:29,320 Speaker 1: helpful in terms of helping us achieve our objectives deeper 91 00:05:29,360 --> 00:05:31,640 Speaker 1: into the enemy's territory and making sure that Black Sea 92 00:05:31,720 --> 00:05:34,719 Speaker 1: is safe, as well as things like grain deal the 93 00:05:34,800 --> 00:05:38,240 Speaker 1: supply of agricultural products from the Ukrainian territory, which was 94 00:05:38,320 --> 00:05:40,640 Speaker 1: of concern to the international community for a long time. 95 00:05:41,120 --> 00:05:43,640 Speaker 1: Uri the United States has committed tens of billions of 96 00:05:43,640 --> 00:05:47,080 Speaker 1: dollars to support Ukraine and the war effort in your country, 97 00:05:47,120 --> 00:05:50,039 Speaker 1: there are some concerns where you are in Washington, about 98 00:05:50,080 --> 00:05:52,800 Speaker 1: the misappropriation of some of those funds. How are you 99 00:05:52,839 --> 00:05:56,159 Speaker 1: allowing some of those concerns. We are implementing when it 100 00:05:56,160 --> 00:05:59,200 Speaker 1: comes to the Ministry of Defense. Since almost day one 101 00:05:59,200 --> 00:06:02,520 Speaker 1: of this war, we were implementing, for example, the procurement 102 00:06:02,600 --> 00:06:06,040 Speaker 1: systems which are of NATAL standard, so for example lockfast system. 103 00:06:06,400 --> 00:06:09,119 Speaker 1: So these are the same systems as are used by 104 00:06:09,200 --> 00:06:12,480 Speaker 1: all NATO member countries and of course we are improving 105 00:06:12,480 --> 00:06:15,919 Speaker 1: them on a daily basis. Everything and of course the 106 00:06:15,960 --> 00:06:20,600 Speaker 1: Ministry of Defense is open and welcomes always our counterparties 107 00:06:20,640 --> 00:06:23,599 Speaker 1: from different Allied countries to come and visit and see 108 00:06:23,640 --> 00:06:26,040 Speaker 1: it for themselves. Everything we receive go straight to the 109 00:06:26,080 --> 00:06:29,279 Speaker 1: battlefield and is used efficiently there by our army. So 110 00:06:29,640 --> 00:06:33,000 Speaker 1: you know, when it comes to transparency, we are open. 111 00:06:33,480 --> 00:06:36,760 Speaker 1: We are introducing new standards, we're introducing new NATAL standard 112 00:06:37,440 --> 00:06:41,680 Speaker 1: procurement mechanisms, and we can assure and guarantee our allies 113 00:06:42,000 --> 00:06:46,120 Speaker 1: that nothing is misappropriated, Everything is going to be used 114 00:06:46,200 --> 00:06:49,400 Speaker 1: on the battlefield. Urie's an incredibly difficult sign for your country, 115 00:06:49,600 --> 00:06:51,840 Speaker 1: and on a one year mass stone that we all 116 00:06:51,880 --> 00:06:54,760 Speaker 1: hope we wouldn't approach, we've landed on. We appreciate your 117 00:06:54,800 --> 00:06:57,120 Speaker 1: time to join us today. Thank you, Sir Urie Sack, 118 00:06:57,520 --> 00:07:05,000 Speaker 1: the advisor so Ukraine's Defense Minister on Ukraine, and this 119 00:07:05,080 --> 00:07:08,520 Speaker 1: is a really important conversation. In my youth there was 120 00:07:08,560 --> 00:07:12,480 Speaker 1: a gentleman from Arkansas named Senator Fulbright. Senator Fulbright had 121 00:07:12,520 --> 00:07:15,400 Speaker 1: a real understanding of the continent of Europe, having lived 122 00:07:15,440 --> 00:07:19,040 Speaker 1: World War Two like many and within that he and 123 00:07:19,080 --> 00:07:22,800 Speaker 1: Oxford did all sorts of things in academics, including the 124 00:07:22,840 --> 00:07:28,240 Speaker 1: Fulbright Foundation. Elina Polyakova survived the Fulbright Foundation is now 125 00:07:28,240 --> 00:07:32,000 Speaker 1: with the Senator for European Policy Analysis and professor at 126 00:07:32,040 --> 00:07:35,240 Speaker 1: Johns Hopkins Helena. I want to go to William Fulbright 127 00:07:35,280 --> 00:07:38,680 Speaker 1: here and really folded into your wonderful note, which is 128 00:07:38,720 --> 00:07:41,920 Speaker 1: we're not doing a Fulbright war. Fulbright said, if you're 129 00:07:41,920 --> 00:07:43,560 Speaker 1: going to do it, do it, and if you're not, 130 00:07:43,680 --> 00:07:46,840 Speaker 1: don't do it. You say, this is the forever war. 131 00:07:47,400 --> 00:07:51,800 Speaker 1: Are the Allies migrating towards Kiev or are we still 132 00:07:51,840 --> 00:07:55,680 Speaker 1: at a distance? Well, thanks Tom, and you're absolutely right. 133 00:07:55,760 --> 00:07:58,560 Speaker 1: I was just at the Munich Security Conference, which of 134 00:07:58,560 --> 00:08:01,520 Speaker 1: course is the largest gathering on defense and security for 135 00:08:01,560 --> 00:08:04,280 Speaker 1: the trans Atlantic Alliance, and I took away a couple 136 00:08:04,280 --> 00:08:08,720 Speaker 1: of things on your point one, I heard incredible bipartisan 137 00:08:08,840 --> 00:08:11,720 Speaker 1: support from the US Congress. We have the largest US 138 00:08:11,800 --> 00:08:16,720 Speaker 1: congressional delegation to Munich ever, which is significant. And with 139 00:08:16,880 --> 00:08:19,360 Speaker 1: one voice, you know, you don't hear Republicans and Democrats 140 00:08:19,360 --> 00:08:21,520 Speaker 1: speaking one voice and too many things. But unless they 141 00:08:21,520 --> 00:08:26,320 Speaker 1: were clear, we need a win, we want Ukraine to win. Unfortunately, 142 00:08:26,720 --> 00:08:29,640 Speaker 1: that's not what we hear with one voice from all 143 00:08:29,680 --> 00:08:31,920 Speaker 1: of our European allies. And I think that's the real 144 00:08:32,040 --> 00:08:34,839 Speaker 1: problem here. So we're in this situation where we've given 145 00:08:34,920 --> 00:08:39,560 Speaker 1: Ukraine a dri drip drip of weapons and financial assistance, 146 00:08:39,920 --> 00:08:42,640 Speaker 1: but it's not enough for them to truly win and 147 00:08:42,720 --> 00:08:46,679 Speaker 1: take back their sovereign territory. Well, no, this is really important. 148 00:08:46,720 --> 00:08:48,360 Speaker 1: I mean, I'm not going to go back to Vietnam. 149 00:08:48,400 --> 00:08:52,080 Speaker 1: And Fulbright is an early critic of our Vietnam War experience. 150 00:08:52,440 --> 00:08:55,000 Speaker 1: But in the more recent age we have the forever 151 00:08:55,080 --> 00:08:58,600 Speaker 1: Wars of Iraq and certainly the forever War for Russia 152 00:08:58,679 --> 00:09:03,239 Speaker 1: and the US Afghanistan. Are we not used to anymore 153 00:09:03,280 --> 00:09:07,760 Speaker 1: actually fighting and doing war. Well, the truth is this 154 00:09:07,880 --> 00:09:11,199 Speaker 1: doesn't have to be another one of those so called 155 00:09:11,200 --> 00:09:15,320 Speaker 1: forever wars. It shouldn't be the Ukrainians have been fighting 156 00:09:15,640 --> 00:09:21,400 Speaker 1: incredibly courageously. They have really gone farm beyond anyone's expectations. 157 00:09:21,520 --> 00:09:23,240 Speaker 1: You know, we used to think a year ago that 158 00:09:23,360 --> 00:09:25,040 Speaker 1: this was going to be a three day war and 159 00:09:25,120 --> 00:09:28,079 Speaker 1: Kia was going to fall. But Kiva stands, as President 160 00:09:28,120 --> 00:09:31,760 Speaker 1: Biden recently said, so, there's no reason for this to 161 00:09:31,840 --> 00:09:35,640 Speaker 1: be another embroidered multi year of war. The war can 162 00:09:35,840 --> 00:09:39,120 Speaker 1: end this year. It's really just about whether we want 163 00:09:39,360 --> 00:09:42,160 Speaker 1: to help Ukrainians enough to get it done. They can't 164 00:09:42,200 --> 00:09:44,320 Speaker 1: get it done, are we going to be there to 165 00:09:44,360 --> 00:09:48,240 Speaker 1: help them? Elena poliakover there have they sent for European analysis? 166 00:09:58,600 --> 00:10:01,280 Speaker 1: Here's why I should lean forward, folks. Sobrato joppa with 167 00:10:01,400 --> 00:10:05,280 Speaker 1: US now, Yeah, ahead of US rates strategy at suck gen. 168 00:10:05,960 --> 00:10:08,920 Speaker 1: What you need to know is the derivative mathematics of 169 00:10:09,040 --> 00:10:14,080 Speaker 1: society general was invented in invented quantitative finance with a 170 00:10:14,160 --> 00:10:18,160 Speaker 1: nod to Imperial College in London. Sobrato was steepness at 171 00:10:18,200 --> 00:10:21,160 Speaker 1: New York University with a lake Peter Carr, with a 172 00:10:21,280 --> 00:10:23,600 Speaker 1: major hat tip to a guy named Merton from m 173 00:10:23,600 --> 00:10:26,520 Speaker 1: I T. Sobrato, I want to go to Merton right now, 174 00:10:26,920 --> 00:10:30,800 Speaker 1: who won his Nobel Prize for continuous functions. We are 175 00:10:30,840 --> 00:10:34,760 Speaker 1: as disjoint right now? Is I think I've ever seen 176 00:10:34,800 --> 00:10:39,520 Speaker 1: a pandemic? Blah blah blah. How disjoint are we? How 177 00:10:39,600 --> 00:10:43,760 Speaker 1: can suck gen do mathematics now? Given the stew that 178 00:10:43,840 --> 00:10:47,920 Speaker 1: we're in, I think ultimately, in an environment like this, 179 00:10:48,080 --> 00:10:49,880 Speaker 1: you have to look at the long term. I think 180 00:10:50,000 --> 00:10:53,520 Speaker 1: looking at market moves day to day, week to week 181 00:10:53,880 --> 00:10:57,600 Speaker 1: is going to be very very difficult to predict directionality 182 00:10:57,720 --> 00:11:01,560 Speaker 1: because it's just a lot of confluence of so many 183 00:11:01,600 --> 00:11:04,480 Speaker 1: different factors to take into account. Even if we look 184 00:11:04,520 --> 00:11:07,240 Speaker 1: at our own forecasts for last year, you know, we 185 00:11:07,400 --> 00:11:10,400 Speaker 1: kind of moved to tenny yields, you know, the goal 186 00:11:10,440 --> 00:11:12,560 Speaker 1: post for four percent, and we kind of stayed there. 187 00:11:13,000 --> 00:11:15,520 Speaker 1: We ultimately got there, So you kind of have to 188 00:11:15,520 --> 00:11:18,760 Speaker 1: look at the longer run. I think week intra month 189 00:11:18,800 --> 00:11:20,520 Speaker 1: moves are going to be very very hard to predict 190 00:11:20,520 --> 00:11:22,320 Speaker 1: it an environment like this. Okay, I'm gonna go on 191 00:11:22,360 --> 00:11:25,079 Speaker 1: a Friday. It's it's Global Wall Street Friday. Folks, keep 192 00:11:25,160 --> 00:11:27,160 Speaker 1: up here. If you're taking no, it will be a 193 00:11:27,240 --> 00:11:31,240 Speaker 1: quiz later. So broad A. Roman Fritman, your New York 194 00:11:31,400 --> 00:11:37,040 Speaker 1: University invented the measurement of hedging. If we're going nowhere 195 00:11:37,640 --> 00:11:41,120 Speaker 1: and there's a cost to hedging, how long can we 196 00:11:41,240 --> 00:11:45,280 Speaker 1: keep this going nowhere shell game up before we get 197 00:11:45,280 --> 00:11:50,559 Speaker 1: a vector that shows actual movement. So I mean, it's 198 00:11:50,600 --> 00:11:52,880 Speaker 1: not like we're not going anywhere. I think every time 199 00:11:52,920 --> 00:11:55,760 Speaker 1: we get more more data and more information, we're kind 200 00:11:55,800 --> 00:11:59,920 Speaker 1: of adding to what we know and informing our decisions 201 00:12:00,040 --> 00:12:04,280 Speaker 1: based on that. Over you know, the FED here, for instance, 202 00:12:04,360 --> 00:12:06,600 Speaker 1: is almost at the end of its rate height cycle. 203 00:12:07,480 --> 00:12:10,000 Speaker 1: So really what we're looking at is to see when 204 00:12:10,040 --> 00:12:12,280 Speaker 1: that pivot will be calling. The timing of the pivot 205 00:12:12,360 --> 00:12:14,360 Speaker 1: is going to be very, very difficult, but I think 206 00:12:14,400 --> 00:12:17,720 Speaker 1: the destination is clear. Ultimately, the FED wants to orchestrate 207 00:12:17,760 --> 00:12:21,440 Speaker 1: demand destruction. Under those circumstances, what you're going to see 208 00:12:21,880 --> 00:12:25,360 Speaker 1: is a slowdown in the economy eventually and and recession, 209 00:12:25,760 --> 00:12:28,240 Speaker 1: and that to us would mean that yields would have 210 00:12:28,320 --> 00:12:32,000 Speaker 1: to go eventually lower. Timing when that's going to happen 211 00:12:32,080 --> 00:12:35,559 Speaker 1: exactly when that pivot's going to happen is extraordinarily difficult, 212 00:12:35,640 --> 00:12:38,120 Speaker 1: But I think you know, for the most part, we 213 00:12:38,160 --> 00:12:39,840 Speaker 1: know what the destination is. We just don't know what 214 00:12:39,840 --> 00:12:41,760 Speaker 1: the journey is well, we've got to manage a balance 215 00:12:41,760 --> 00:12:44,720 Speaker 1: of risks around every few Reading your research a patterate, 216 00:12:45,080 --> 00:12:46,760 Speaker 1: given what you've just said, do you think the risks 217 00:12:46,760 --> 00:12:51,160 Speaker 1: are asymmetric and not that balanced? Yeah, I think so. 218 00:12:51,240 --> 00:12:53,640 Speaker 1: For the barn market, it feels like the risks are 219 00:12:53,640 --> 00:12:56,520 Speaker 1: a little bit more asymmetric. We're not at the beginning 220 00:12:56,559 --> 00:12:58,480 Speaker 1: of the cycle. We're close to the end of the cycle. 221 00:12:59,000 --> 00:13:02,520 Speaker 1: For the FED. Yes, the FED might maybe deliver you know, 222 00:13:02,679 --> 00:13:05,719 Speaker 1: maybe two or three more twenty five basis point rate hikes, 223 00:13:05,760 --> 00:13:10,280 Speaker 1: but after that, I think that broadly speaking, the risks 224 00:13:10,320 --> 00:13:12,600 Speaker 1: are that yields will go lower from there on. So 225 00:13:12,679 --> 00:13:15,600 Speaker 1: we feel like the risk to these treasury yields are 226 00:13:15,679 --> 00:13:19,240 Speaker 1: asymmetrically skew towards towards the down set as opposed to 227 00:13:19,880 --> 00:13:22,760 Speaker 1: the upside. And you know this is of course there's 228 00:13:22,800 --> 00:13:25,880 Speaker 1: a very asynchronous environment. You look at the ECB, they're 229 00:13:25,880 --> 00:13:28,240 Speaker 1: still very much earlier on in their in their rad 230 00:13:28,320 --> 00:13:31,120 Speaker 1: Hi cycle, they have a lot more to deliver. But 231 00:13:31,320 --> 00:13:33,679 Speaker 1: broadly for the for the US, I feel like there's 232 00:13:33,720 --> 00:13:37,480 Speaker 1: just going to be a wall of cash that starts 233 00:13:37,600 --> 00:13:40,920 Speaker 1: entering the bond market again when any yields start getting 234 00:13:40,920 --> 00:13:44,280 Speaker 1: about four percent you know, fixed income assets and generally 235 00:13:44,320 --> 00:13:47,840 Speaker 1: look at corporate bonds even ETFs. You're seeing a tremendous 236 00:13:47,840 --> 00:13:50,520 Speaker 1: amount of influence into into the barn market. So I 237 00:13:50,559 --> 00:13:53,120 Speaker 1: think that that sort of you know, wall of cash 238 00:13:53,280 --> 00:13:55,760 Speaker 1: is going to cap the rising years over the near term. 239 00:13:55,920 --> 00:13:58,439 Speaker 1: The title of your note yesterday evening, and I was 240 00:13:58,440 --> 00:14:00,360 Speaker 1: sitting in bed because I got to better seven because 241 00:14:00,360 --> 00:14:02,040 Speaker 1: we're really sad here at Bloomberg Surveyment. So I was 242 00:14:02,080 --> 00:14:04,679 Speaker 1: sitting there reading sock gents like just note I beat 243 00:14:04,720 --> 00:14:08,040 Speaker 1: you by two hours, thank you. It's titled tricky. It's 244 00:14:08,040 --> 00:14:10,240 Speaker 1: titled tricky, Sir Badri, And I think everything about this 245 00:14:10,280 --> 00:14:12,040 Speaker 1: is tricky. At the moment, I was thinking about where 246 00:14:12,040 --> 00:14:14,679 Speaker 1: we were twelve months ago, Tom and I, Lisa two, 247 00:14:14,760 --> 00:14:17,760 Speaker 1: we're all having this conversation. If you'd said five percent 248 00:14:17,840 --> 00:14:20,800 Speaker 1: FED funds push in six and then said three point 249 00:14:20,840 --> 00:14:25,040 Speaker 1: four percent unemployment and retail sales where that is, jobless 250 00:14:25,040 --> 00:14:27,680 Speaker 1: claims where they are, I just wouldn't have believed it. 251 00:14:27,680 --> 00:14:29,840 Speaker 1: And sabatter the same thing with the ECB, this idea, 252 00:14:29,880 --> 00:14:32,720 Speaker 1: we're now going to push four percent from negative fifty 253 00:14:32,920 --> 00:14:35,600 Speaker 1: to go out to four percent, just like that, only 254 00:14:35,640 --> 00:14:37,920 Speaker 1: twelve months ago we were still doing que in the 255 00:14:38,000 --> 00:14:41,000 Speaker 1: United States. So batter, if you've been surprised, what's your 256 00:14:41,000 --> 00:14:44,360 Speaker 1: experience being your takeaway from how this cycle has gone 257 00:14:44,200 --> 00:14:46,600 Speaker 1: and what we haven't seen which has just months to 258 00:14:46,600 --> 00:14:50,680 Speaker 1: fall out so far. Yeah, No, the cycle is definitely 259 00:14:50,760 --> 00:14:54,960 Speaker 1: surprised everyone in every country, if you're well. In the US, 260 00:14:55,080 --> 00:14:58,760 Speaker 1: we were not expecting, you know, the FED funds rate 261 00:14:58,800 --> 00:15:00,480 Speaker 1: to get to five and a quarter or five and 262 00:15:00,520 --> 00:15:03,440 Speaker 1: a half percent, and I think it's definitely more shocking 263 00:15:03,480 --> 00:15:05,720 Speaker 1: for the ECB you're looking at, you know, close to 264 00:15:05,800 --> 00:15:09,520 Speaker 1: four percent, you know, when it's all said and done. Um, 265 00:15:09,640 --> 00:15:13,880 Speaker 1: So definitely, this this whole uh, you know, inflatiary environment 266 00:15:13,920 --> 00:15:16,800 Speaker 1: has been very very hard to gauge, and you know, 267 00:15:16,840 --> 00:15:19,200 Speaker 1: the promontory policy for the for the for the most part, 268 00:15:19,280 --> 00:15:21,720 Speaker 1: is a very blunt tool. So the only thing that 269 00:15:21,760 --> 00:15:24,840 Speaker 1: central banks have in their tool chest is to be 270 00:15:24,880 --> 00:15:28,040 Speaker 1: able to to raise rates. And as they raise rates, 271 00:15:28,080 --> 00:15:29,920 Speaker 1: I think ultimately they're going to lead to to to 272 00:15:29,960 --> 00:15:33,440 Speaker 1: demand destruction. So brido we've heard, i think twice this week, 273 00:15:33,600 --> 00:15:39,400 Speaker 1: the rationalization that's okay if fixed income prices go lower, 274 00:15:39,800 --> 00:15:43,680 Speaker 1: because now I'm earning a coupon, which makes the capital 275 00:15:43,800 --> 00:15:48,840 Speaker 1: loss less painful. All my radar is up on that analysis. 276 00:15:49,360 --> 00:15:54,760 Speaker 1: Does the coupon save me if we get higher yields? Absolutely, 277 00:15:54,840 --> 00:15:56,640 Speaker 1: that's the reason why you want to be in that 278 00:15:56,800 --> 00:16:03,920 Speaker 1: joy that was that was itself keep it going, Sobrada, No, 279 00:16:04,040 --> 00:16:06,960 Speaker 1: I mean, I mean it's it's the coupon that really matters, right, 280 00:16:07,000 --> 00:16:09,480 Speaker 1: I mean in some respects, you know you're some sort 281 00:16:09,520 --> 00:16:12,360 Speaker 1: of a win win situation if you will in the 282 00:16:12,400 --> 00:16:15,960 Speaker 1: in the barn market. Either you laugh in a you know, 283 00:16:16,080 --> 00:16:20,520 Speaker 1: coupon and you're happy with that um, or you know, 284 00:16:20,520 --> 00:16:22,800 Speaker 1: you could see an environment where you see a flight 285 00:16:22,840 --> 00:16:25,680 Speaker 1: to quality or the fet has to pivot and you 286 00:16:25,760 --> 00:16:28,440 Speaker 1: see this rally back into and flows into bonds, it's 287 00:16:28,440 --> 00:16:31,360 Speaker 1: going to bring bond yields lower. So if you in 288 00:16:31,480 --> 00:16:35,360 Speaker 1: the broad spectrum of options you have to invest in 289 00:16:35,080 --> 00:16:37,960 Speaker 1: in the investment world, you probably don't want to put 290 00:16:37,960 --> 00:16:41,680 Speaker 1: your money into risky assets or equities. Bonds are your 291 00:16:41,720 --> 00:16:44,880 Speaker 1: safe have in bed. You're getting very high coupons, high 292 00:16:44,920 --> 00:16:49,280 Speaker 1: yield uh and you have the upside from a potential 293 00:16:49,760 --> 00:16:52,480 Speaker 1: rally in bonds if there is a policy pivot, if 294 00:16:52,480 --> 00:16:54,800 Speaker 1: we near a six percent terminal rate, where does a 295 00:16:54,840 --> 00:16:58,960 Speaker 1: ten year, you'll go, I think the fel curve is 296 00:16:58,960 --> 00:17:03,720 Speaker 1: going to remain relatively inverted. You're looking at see negative 297 00:17:03,960 --> 00:17:08,959 Speaker 1: eighty basis points in two stens. I don't see why 298 00:17:09,080 --> 00:17:12,040 Speaker 1: the long end will sell off a lot and the 299 00:17:12,080 --> 00:17:16,320 Speaker 1: yield curve will steepen unless the FED is thinking about 300 00:17:16,359 --> 00:17:19,280 Speaker 1: pivoting on policy. So this is very much going to 301 00:17:19,280 --> 00:17:22,679 Speaker 1: be a front end led sell off in bonds. The 302 00:17:22,720 --> 00:17:25,800 Speaker 1: yel curve is going to remain inverted for a good 303 00:17:25,840 --> 00:17:28,840 Speaker 1: posttion this year. We'll be looking to see when that 304 00:17:29,000 --> 00:17:33,280 Speaker 1: yiel curve starts to steepen. I both steepen and as 305 00:17:33,280 --> 00:17:35,920 Speaker 1: a sign, if you will, of when the FED might 306 00:17:36,080 --> 00:17:39,720 Speaker 1: potentially pivot. Our view is that the US economy is 307 00:17:39,720 --> 00:17:42,480 Speaker 1: going to go into a recession in early twenty twenty four, 308 00:17:42,840 --> 00:17:45,920 Speaker 1: So in the latter half of this year is when 309 00:17:45,920 --> 00:17:48,840 Speaker 1: we really think the yelker will start to steepen out. 310 00:17:48,880 --> 00:17:51,280 Speaker 1: So that's the signal that that we'll be looking to 311 00:17:51,280 --> 00:17:53,240 Speaker 1: see to see if there's going to be a policy pivot. 312 00:17:53,320 --> 00:17:55,960 Speaker 1: So sepantra I asked this understanding that it's different for 313 00:17:56,040 --> 00:17:59,960 Speaker 1: different people with different risk tolerance and different situations and circumstance. 314 00:18:00,040 --> 00:18:02,320 Speaker 1: SU get that but you're advocating for people to buy 315 00:18:02,320 --> 00:18:04,440 Speaker 1: the ten year at four instead of the six month 316 00:18:04,480 --> 00:18:07,600 Speaker 1: of five given the investment risk, the reinvestment risk that 317 00:18:07,600 --> 00:18:09,360 Speaker 1: you think might be down the road. As Field strop, 318 00:18:11,080 --> 00:18:13,080 Speaker 1: I think you should you should do both right. I mean, 319 00:18:13,320 --> 00:18:15,480 Speaker 1: if you're looking at you you're getting very very high 320 00:18:15,600 --> 00:18:17,399 Speaker 1: yels in the very front end of the YEL curve, 321 00:18:18,160 --> 00:18:20,760 Speaker 1: I would say the lot of investors, even in their 322 00:18:20,800 --> 00:18:24,280 Speaker 1: in their personal accounts, you start looking at five five 323 00:18:24,320 --> 00:18:27,040 Speaker 1: and a half percent returns in the very short end, 324 00:18:27,440 --> 00:18:30,280 Speaker 1: it's very very attractive. If you have cash to put 325 00:18:30,320 --> 00:18:32,520 Speaker 1: to work, you probably want to put it in the 326 00:18:32,600 --> 00:18:34,000 Speaker 1: in the bill market or the front end of the 327 00:18:34,000 --> 00:18:35,879 Speaker 1: bottom market, because your returns are going to be very 328 00:18:35,920 --> 00:18:39,240 Speaker 1: very high and safe. You have a lot of altered 329 00:18:39,359 --> 00:18:41,960 Speaker 1: if you put that market into money into risky assets. 330 00:18:42,640 --> 00:18:44,400 Speaker 1: On the long end, I mean, if you're looking at 331 00:18:44,680 --> 00:18:48,040 Speaker 1: see an ascid liability manager or a pension funder, insurance company, 332 00:18:48,359 --> 00:18:50,480 Speaker 1: you start getting tenny years close to four percent. It 333 00:18:50,480 --> 00:18:53,400 Speaker 1: starts looking very very attractive for some of these longer 334 00:18:53,920 --> 00:18:56,680 Speaker 1: ascid liability managers. So I think you're going to see 335 00:18:56,720 --> 00:18:59,480 Speaker 1: different buyers in different segments of the YEL curve if 336 00:18:59,480 --> 00:19:02,960 Speaker 1: you will, well, said Supantra. Just brilliant there was. Folks, 337 00:19:03,160 --> 00:19:05,440 Speaker 1: for those of you who are not in Global Wall Street, 338 00:19:05,640 --> 00:19:09,480 Speaker 1: what a window that was. She's awesome to how adults 339 00:19:09,760 --> 00:19:12,359 Speaker 1: think in the industry. Yeah, I mean, I mean to 340 00:19:12,440 --> 00:19:15,240 Speaker 1: make this clear, folks, If Hilarion hears that, a Ruga 341 00:19:15,400 --> 00:19:18,760 Speaker 1: hears that, they're listening to her, even though it's away 342 00:19:18,800 --> 00:19:22,960 Speaker 1: from their economics, se muhammadous listening to that is I 343 00:19:23,040 --> 00:19:32,159 Speaker 1: won't see him SAPT. Thank you. Max Kanner joins US 344 00:19:32,160 --> 00:19:35,800 Speaker 1: now chief multi assets strategist over HSBC. Max, good morning 345 00:19:35,840 --> 00:19:38,199 Speaker 1: t of now this market year to day, you came in, 346 00:19:38,280 --> 00:19:41,600 Speaker 1: you dropped your max underweight cool on equities and equities ripped. 347 00:19:41,800 --> 00:19:43,480 Speaker 1: I just wonder if you're change in your mind now 348 00:19:43,640 --> 00:19:45,760 Speaker 1: relative to what we've seen in the last couple of days. No, 349 00:19:45,920 --> 00:19:48,840 Speaker 1: I don't think so. I think it is quite remarkable 350 00:19:48,880 --> 00:19:52,760 Speaker 1: the bearishness and perhaps the intensification of the bearishness that 351 00:19:52,800 --> 00:19:56,160 Speaker 1: we've seen over the last couple of days. Now, of course, 352 00:19:56,200 --> 00:19:59,360 Speaker 1: I think US equities stand perhaps in a little bit 353 00:19:59,359 --> 00:20:02,840 Speaker 1: of a tougher spot right tactically, they've outperformed a little 354 00:20:02,840 --> 00:20:05,879 Speaker 1: bit too much. If we compare it to long dated 355 00:20:06,000 --> 00:20:09,160 Speaker 1: real rates. So if we compare it to interest rate 356 00:20:09,240 --> 00:20:12,600 Speaker 1: volatility for example, so perhaps there's a bit of a 357 00:20:12,680 --> 00:20:15,840 Speaker 1: bit of correction potential in new As equity is still fine. 358 00:20:16,040 --> 00:20:18,560 Speaker 1: But we were pretty vocal, and we've been pretty vocal 359 00:20:18,640 --> 00:20:22,240 Speaker 1: over the last couple of weeks as well, that whenever 360 00:20:22,280 --> 00:20:25,199 Speaker 1: we are going to see such dips, we'd rather be 361 00:20:25,359 --> 00:20:29,399 Speaker 1: taking these opportunities to buy rather than really throw in 362 00:20:29,400 --> 00:20:31,320 Speaker 1: the towel. And if anything, if we look at other 363 00:20:31,320 --> 00:20:34,159 Speaker 1: markets and markets we prefer an equities for example, like 364 00:20:34,280 --> 00:20:37,520 Speaker 1: the Eurozone equity market, that's just a couple of you know, 365 00:20:37,560 --> 00:20:40,520 Speaker 1: a couple of tens of a percent away from the 366 00:20:40,600 --> 00:20:43,320 Speaker 1: all time high. So yes, things might not look as 367 00:20:43,359 --> 00:20:46,400 Speaker 1: good in US equities, but in other equity markets such 368 00:20:46,440 --> 00:20:48,919 Speaker 1: as the Eurozone, things are pretty good. They're pretty okay. 369 00:20:49,240 --> 00:20:51,320 Speaker 1: Max is amazing. In about ten minutes time, we're going 370 00:20:51,359 --> 00:20:53,399 Speaker 1: to have this conversation on Ukraine and talk about how 371 00:20:53,480 --> 00:20:56,919 Speaker 1: dreadful this war is on the eurozones doorstep, and at 372 00:20:56,960 --> 00:20:59,160 Speaker 1: the same time we're looking at an equity screen. Yet 373 00:20:59,200 --> 00:21:02,919 Speaker 1: today France up thirteen percent, in Germany up eleven percent, 374 00:21:02,960 --> 00:21:06,080 Speaker 1: in Italy up fifteen percent. Max, Why can that continue. 375 00:21:06,200 --> 00:21:09,120 Speaker 1: I think it's it boils down really to the overall 376 00:21:09,160 --> 00:21:13,880 Speaker 1: economics and to the earnings outlook, and especially to expectations. Right. 377 00:21:13,960 --> 00:21:17,720 Speaker 1: The reality is that we went into the winter of 378 00:21:17,760 --> 00:21:22,240 Speaker 1: twenty twenty two and twenty twenty three with extremely varisuh expectations. Right. Well, 379 00:21:22,359 --> 00:21:25,679 Speaker 1: remember that perhaps three or four months ago, Consenders was 380 00:21:25,800 --> 00:21:30,320 Speaker 1: basically positioned for an absolute calamity to happen in the Eurozone, right, 381 00:21:30,520 --> 00:21:35,440 Speaker 1: a gas crunge, gas prices shooting higher, so real incomes 382 00:21:35,480 --> 00:21:38,399 Speaker 1: being squeezed even more, and so on and so on. 383 00:21:38,440 --> 00:21:42,440 Speaker 1: So we had we had very very pessimistic expectations that 384 00:21:42,680 --> 00:21:46,840 Speaker 1: is only just started to really perhaps turn a little bit. 385 00:21:46,840 --> 00:21:49,960 Speaker 1: When we look at Consenders GDP expectations, for example, in 386 00:21:50,000 --> 00:21:53,480 Speaker 1: the Eurozone in particular, they've only started to really to 387 00:21:53,680 --> 00:21:56,720 Speaker 1: rise ever so slightly at the start of this year. 388 00:21:57,200 --> 00:22:00,320 Speaker 1: The same thing goes for earnings expectations. Look at earnings expectations. 389 00:22:00,359 --> 00:22:02,480 Speaker 1: I do agree that for the full year they still 390 00:22:02,520 --> 00:22:05,240 Speaker 1: look a little bit too high, But look at the SMP. 391 00:22:05,560 --> 00:22:09,840 Speaker 1: SMP earnings expectations were above fifty seven dollars just three 392 00:22:09,920 --> 00:22:16,000 Speaker 1: months ago. We're now below fifty one dollars. Can we 393 00:22:16,200 --> 00:22:20,280 Speaker 1: come up with a really really bearish near term picture. 394 00:22:20,560 --> 00:22:24,200 Speaker 1: If we see such bearish expectations already for the near term, Max, 395 00:22:24,200 --> 00:22:25,760 Speaker 1: so want you to help me with the calculus of 396 00:22:25,800 --> 00:22:27,800 Speaker 1: the moment. This is a theme I've been talking about 397 00:22:27,800 --> 00:22:30,359 Speaker 1: all week, boring people to death, in which I have 398 00:22:30,680 --> 00:22:33,440 Speaker 1: we're moving so fast, Max, And as John mentioned, you've 399 00:22:33,480 --> 00:22:35,960 Speaker 1: been great at the moving fast of it that I'm 400 00:22:35,960 --> 00:22:41,159 Speaker 1: really leaning on three months annualized data. Are you doing 401 00:22:41,160 --> 00:22:44,080 Speaker 1: that at HSBC? Are you having to shorten in and 402 00:22:44,080 --> 00:22:46,760 Speaker 1: look at ninety days of data and think from there 403 00:22:47,320 --> 00:22:50,000 Speaker 1: in some parts yes, So I was a little bit puzzled, 404 00:22:50,040 --> 00:22:52,120 Speaker 1: to be perfectly honest, at the start of the year, 405 00:22:52,160 --> 00:22:54,600 Speaker 1: we had quite a bit of pushback from clients who 406 00:22:54,600 --> 00:22:56,720 Speaker 1: would say, well, you know, when you look at the 407 00:22:56,720 --> 00:22:59,320 Speaker 1: descend activity data out of the US, look at retail 408 00:22:59,359 --> 00:23:02,840 Speaker 1: sales and production, that is clearly indicative of a recession. Right, 409 00:23:02,880 --> 00:23:04,800 Speaker 1: So clearly, why are you going pollish now? This is 410 00:23:04,800 --> 00:23:07,800 Speaker 1: the wrong time. And conversely, now when we have this 411 00:23:08,000 --> 00:23:10,320 Speaker 1: sort of a bit of a rebound in the January data, 412 00:23:10,400 --> 00:23:13,240 Speaker 1: now people are saying, oh, this is the big reacceleration 413 00:23:13,520 --> 00:23:15,719 Speaker 1: was sort of them in the middle. Let's let's be honest, right, 414 00:23:15,840 --> 00:23:17,760 Speaker 1: you guys will know it better than me. But if 415 00:23:17,760 --> 00:23:20,680 Speaker 1: we remember in December, I think the US had quite 416 00:23:20,680 --> 00:23:22,520 Speaker 1: a bit of a tough time when you know, you 417 00:23:22,600 --> 00:23:25,400 Speaker 1: had minus forty minus fifty degrees celsiust and of course 418 00:23:25,440 --> 00:23:28,199 Speaker 1: some of the activity data was reflecting that, and of 419 00:23:28,240 --> 00:23:30,680 Speaker 1: course then on the month of a month in January, 420 00:23:30,720 --> 00:23:32,800 Speaker 1: we have been a bit of a rebound. I do 421 00:23:32,880 --> 00:23:34,800 Speaker 1: think we're sort of in the middle of growth is 422 00:23:35,000 --> 00:23:38,840 Speaker 1: definitely not as weak as people expected three four months ago. 423 00:23:38,920 --> 00:23:42,040 Speaker 1: So we're definitely, in global growth terms seeing some acceleration. 424 00:23:42,160 --> 00:23:44,480 Speaker 1: But I don't think that it's going to be this 425 00:23:44,680 --> 00:23:49,639 Speaker 1: great reacceleration right that leads to utterly more hawkishioners, perhaps 426 00:23:49,640 --> 00:23:52,160 Speaker 1: like a fifty basis point high again in March by 427 00:23:52,160 --> 00:23:54,159 Speaker 1: the FED, I don't think. I think that is a 428 00:23:54,160 --> 00:23:59,160 Speaker 1: bit overplay. So what is your equity allocation within multi asset? 429 00:23:59,359 --> 00:24:04,480 Speaker 1: Is it in national US, UK, domestic maybe continental Europe skew? 430 00:24:04,600 --> 00:24:08,560 Speaker 1: What is the factor that determines the equity allocation. Yeah, 431 00:24:08,600 --> 00:24:11,320 Speaker 1: we're still really liking, for example, Euros in equities. We're 432 00:24:11,320 --> 00:24:14,000 Speaker 1: not overweight in the US, We're not overweight in Japan. 433 00:24:14,000 --> 00:24:16,320 Speaker 1: In fact, where we're underweight in Japan because we do 434 00:24:16,480 --> 00:24:19,240 Speaker 1: see a little bit more upside for the Japanese inn 435 00:24:19,520 --> 00:24:22,520 Speaker 1: and that should go against Japanese earnings. So it's really 436 00:24:22,520 --> 00:24:25,280 Speaker 1: focused on the Eurozone a little bit in emerging markets 437 00:24:25,280 --> 00:24:27,919 Speaker 1: as well, not so much in the US because the 438 00:24:28,040 --> 00:24:31,959 Speaker 1: US has outperformed that move in rates a little bit 439 00:24:31,960 --> 00:24:34,400 Speaker 1: too much. But that having said that, I think once 440 00:24:34,440 --> 00:24:37,359 Speaker 1: we get those dips in US equities in the growth 441 00:24:37,400 --> 00:24:41,560 Speaker 1: market that I do think with almost eighty basis points 442 00:24:41,560 --> 00:24:45,160 Speaker 1: of rate tis cumulatively priced now for the next couple 443 00:24:45,160 --> 00:24:47,480 Speaker 1: of fit meetings, I do think that there is actually 444 00:24:47,960 --> 00:24:50,680 Speaker 1: at this starting point right now perhaps a little bit 445 00:24:50,680 --> 00:24:54,560 Speaker 1: more potential for dubbish surprises, so both for long duration 446 00:24:54,600 --> 00:24:57,919 Speaker 1: assets in rates but also in equities, and then it 447 00:24:58,000 --> 00:25:01,040 Speaker 1: will be the time to really use those to scale 448 00:25:02,000 --> 00:25:04,560 Speaker 1: to scale up exposure and use equity as well. And 449 00:25:04,680 --> 00:25:06,560 Speaker 1: Max thanks for that as a wise Max Ken of 450 00:25:06,600 --> 00:25:21,560 Speaker 1: that hspas now a very important conversation. We do this 451 00:25:21,880 --> 00:25:24,720 Speaker 1: with the yield lifting up, as Karen just mentioned, to 452 00:25:24,840 --> 00:25:29,280 Speaker 1: four digits ten year yield three point nine five six 453 00:25:29,600 --> 00:25:33,240 Speaker 1: nine and rising. We're going into the ten AM data 454 00:25:33,359 --> 00:25:38,159 Speaker 1: housing in Michigan, and I'm really really watching that statistic 455 00:25:38,280 --> 00:25:42,199 Speaker 1: the Dow down four hundred points. To put things in perspective, 456 00:25:42,840 --> 00:25:48,280 Speaker 1: this is maybe the conversation of the week for those 457 00:25:48,720 --> 00:25:54,040 Speaker 1: of concern of inflation who are not quiescent. And this 458 00:25:54,160 --> 00:25:59,439 Speaker 1: goes back a long way to freshwater economics, to the 459 00:25:59,560 --> 00:26:03,359 Speaker 1: giant of my childhood, Kyle Bruner of the University of 460 00:26:03,480 --> 00:26:07,560 Speaker 1: Rochester and a guy named Meltzer out of Carnegie Mellon 461 00:26:08,320 --> 00:26:11,960 Speaker 1: and all o their thinking pushing against FED theory of 462 00:26:12,040 --> 00:26:16,639 Speaker 1: the shadow Open Market Committee. Providing leadership for there for 463 00:26:16,760 --> 00:26:20,560 Speaker 1: years was Mickey Leavey now with Barenberg Capital Markets, and 464 00:26:20,560 --> 00:26:23,919 Speaker 1: we're thrilled doctor Levy could join us this morning. Mickey, 465 00:26:23,920 --> 00:26:27,080 Speaker 1: I'm going to cut to the chase. M two is 466 00:26:27,119 --> 00:26:31,919 Speaker 1: back in vogue again, even among those that have pushed 467 00:26:31,920 --> 00:26:37,159 Speaker 1: aside Monitor's theory after the Biden stimulus and the M 468 00:26:37,240 --> 00:26:45,840 Speaker 1: two crash. What should be the appropriate theory for Chairman Powell? Well, Tom, 469 00:26:45,920 --> 00:26:51,560 Speaker 1: I think you're right on because the combination of the 470 00:26:51,680 --> 00:26:57,360 Speaker 1: excessive fiscal stimulus and monetary stimulus is what drove excess 471 00:26:57,440 --> 00:27:01,199 Speaker 1: demand in the higher inflation. So when I think back 472 00:27:01,320 --> 00:27:05,800 Speaker 1: to twenty twenty, that's when I started signaling watch out 473 00:27:05,840 --> 00:27:11,000 Speaker 1: inflation is going to come ring back and the Fed's model. 474 00:27:13,119 --> 00:27:17,600 Speaker 1: You plug in an extra two trillion in fiscal stimulus 475 00:27:17,640 --> 00:27:22,000 Speaker 1: in Biden's March twenty twenty one package, and it didn't 476 00:27:22,000 --> 00:27:25,520 Speaker 1: even move the dial on their inflation forecaster. They're gonna 477 00:27:25,640 --> 00:27:34,040 Speaker 1: growth forecast. We had this huge bulge in household disposable income, 478 00:27:34,840 --> 00:27:37,280 Speaker 1: a large portion of which was spent, some was saved, 479 00:27:37,320 --> 00:27:40,200 Speaker 1: and now it's still trickling out and meanless. So you 480 00:27:40,280 --> 00:27:44,320 Speaker 1: had a six and a trillion dollars bulge in m 481 00:27:44,359 --> 00:27:48,280 Speaker 1: two and now people are spending it and so and 482 00:27:48,320 --> 00:27:51,720 Speaker 1: now now you have this situation where inflation is high. 483 00:27:51,840 --> 00:27:53,600 Speaker 1: And I know we're going to get to this, but 484 00:27:53,720 --> 00:27:57,800 Speaker 1: let me just emphasize one critical point here. Everybody's focusing 485 00:27:57,840 --> 00:28:02,000 Speaker 1: on the fund trade. Guess what, It's still below the 486 00:28:02,080 --> 00:28:07,000 Speaker 1: rate of inflation. So, Tom, if if the funds rate 487 00:28:07,160 --> 00:28:13,120 Speaker 1: is negative in real terms, is monetary policy really really restrictive? Now? 488 00:28:13,320 --> 00:28:17,800 Speaker 1: Very good jump in here, Paul, that's a doctor Leva. 489 00:28:17,840 --> 00:28:20,320 Speaker 1: I used to know, so Mickey, I mean, given the 490 00:28:20,800 --> 00:28:24,399 Speaker 1: inflation data we saw today hot pretty much across the board, 491 00:28:24,480 --> 00:28:27,440 Speaker 1: I guess you could characterize it that gives play a 492 00:28:27,520 --> 00:28:30,400 Speaker 1: leeway for this federal reserve to go higher for longer. 493 00:28:31,000 --> 00:28:33,280 Speaker 1: What's your calling? What our federal Reserve is going to 494 00:28:33,320 --> 00:28:36,480 Speaker 1: do over the next several meetings? Paul, Here, I have 495 00:28:36,560 --> 00:28:38,880 Speaker 1: to distinguish between what they ought to do and what 496 00:28:38,960 --> 00:28:41,960 Speaker 1: they're likely to do. Okay, they ought to move fifty 497 00:28:42,000 --> 00:28:46,600 Speaker 1: basis points. That's what I wrote in a report last week. Um, 498 00:28:47,040 --> 00:28:50,560 Speaker 1: And once again they should be focusing on the real 499 00:28:50,680 --> 00:28:54,400 Speaker 1: funds rate, not phenomenal funds rate. And so they really 500 00:28:54,440 --> 00:28:59,360 Speaker 1: should move fifty to reinforce their inflation fighting credibility and 501 00:28:59,400 --> 00:29:02,680 Speaker 1: to slow aggregate demand in the economy. Once again, note, 502 00:29:02,680 --> 00:29:06,360 Speaker 1: with today's number, you know you've got, you've got, uh, 503 00:29:06,880 --> 00:29:10,880 Speaker 1: nominal GDP is growing way too rapidly, even through Q 504 00:29:11,200 --> 00:29:14,400 Speaker 1: what's your nominal GDP statistic right now? This is important? 505 00:29:14,800 --> 00:29:19,560 Speaker 1: What's your nominal GDP number right now, doctor Levy. Okay, 506 00:29:19,920 --> 00:29:22,400 Speaker 1: in the fourth quarter it was six and a half. 507 00:29:22,640 --> 00:29:26,400 Speaker 1: This quarter it's going to be another over six. Will 508 00:29:26,520 --> 00:29:30,760 Speaker 1: great assumption number. It's too rapid that What that means 509 00:29:31,000 --> 00:29:35,040 Speaker 1: is you've got too much aggregate demand, which is providing 510 00:29:35,200 --> 00:29:38,720 Speaker 1: businesses the pricing flexibility to raise prices. You have to 511 00:29:38,720 --> 00:29:41,400 Speaker 1: slow demand. Now, what the fe's likely to do I 512 00:29:41,440 --> 00:29:45,080 Speaker 1: think they're likely to move twenty five rather than fifty. 513 00:29:45,320 --> 00:29:49,120 Speaker 1: Although there's a very interesting tug and pull, you know, 514 00:29:49,160 --> 00:29:53,320 Speaker 1: between the hawks and the dogs on the wealth. And 515 00:29:53,480 --> 00:29:55,920 Speaker 1: I should point out doctor Levy's not in the shortlist 516 00:29:56,000 --> 00:29:59,200 Speaker 1: to be vice chairman, to say the least, Mickey Levy, 517 00:29:59,280 --> 00:30:01,680 Speaker 1: what's important me and I've switched to a three month 518 00:30:01,720 --> 00:30:05,719 Speaker 1: annualized study here things are moving so rapidly. Do you 519 00:30:05,840 --> 00:30:11,880 Speaker 1: ascribe to a rapid descent in disinflation once we get there, 520 00:30:12,480 --> 00:30:15,120 Speaker 1: or do you look a'la way an angel at battling 521 00:30:15,120 --> 00:30:21,600 Speaker 1: a more pernicious inflation from another time. Tom, I do 522 00:30:21,720 --> 00:30:25,560 Speaker 1: expect inflation to come down. I do not expect it 523 00:30:25,600 --> 00:30:30,440 Speaker 1: to come down as rapidly as the Fed is predicting, 524 00:30:30,640 --> 00:30:34,560 Speaker 1: or as rapidly as the market hopes. So yes, we're 525 00:30:34,600 --> 00:30:38,240 Speaker 1: going to see like the biggest component the shelter costs, 526 00:30:38,240 --> 00:30:41,840 Speaker 1: oer and rental cost that's going to peak, you know, 527 00:30:42,360 --> 00:30:44,400 Speaker 1: a late spring, and then it's going to start to 528 00:30:44,480 --> 00:30:47,280 Speaker 1: roll over, and that'll bring inflation down. But keep in 529 00:30:47,360 --> 00:30:51,720 Speaker 1: mind nominal spending growth is still too rapid, and then 530 00:30:51,800 --> 00:30:54,400 Speaker 1: once that comes down, it takes a while for prices 531 00:30:54,440 --> 00:30:56,840 Speaker 1: to adjust. So I think if you look at the 532 00:30:56,880 --> 00:30:59,720 Speaker 1: three month annualize. Yeah, it's going to come down from 533 00:30:59,760 --> 00:31:04,560 Speaker 1: where we are. But the big question is is the FED. 534 00:31:05,360 --> 00:31:08,200 Speaker 1: When the FED talks about the need to get inflation 535 00:31:08,240 --> 00:31:11,040 Speaker 1: back to two, are we are they believable? Do you 536 00:31:11,040 --> 00:31:14,560 Speaker 1: think they really want to raise rates keep raising rates 537 00:31:14,600 --> 00:31:17,080 Speaker 1: until they get inflation down to two. So, Mickey, I 538 00:31:17,120 --> 00:31:20,400 Speaker 1: mean I guess, I guess that raises another question is 539 00:31:20,400 --> 00:31:26,920 Speaker 1: is the recession is that off the table? No, it's not. Now. 540 00:31:27,000 --> 00:31:31,719 Speaker 1: Keep in mind we had a decline in consumption, consumption 541 00:31:32,400 --> 00:31:36,880 Speaker 1: in November December, and now we get this big bulge. 542 00:31:37,200 --> 00:31:39,200 Speaker 1: We got the big bold Look look at all the 543 00:31:39,280 --> 00:31:44,320 Speaker 1: data we've had so far for January, um employment, retail sales, 544 00:31:44,320 --> 00:31:49,160 Speaker 1: that isms were all up strongly. Now consumption February. You know, 545 00:31:49,240 --> 00:31:53,080 Speaker 1: we we should see some some retrenchment. So this piece 546 00:31:53,120 --> 00:31:57,280 Speaker 1: of data today gets consumption and GDP. You know, off 547 00:31:57,320 --> 00:32:00,280 Speaker 1: to the racetrack in Q one. But I think things 548 00:32:00,280 --> 00:32:03,160 Speaker 1: are going to stim down. And so between now and 549 00:32:03,240 --> 00:32:08,920 Speaker 1: the FMC meeting, you know, we get another round sales employment. Yeah, Mickey, 550 00:32:08,960 --> 00:32:10,960 Speaker 1: I got one question left, and it's all the time 551 00:32:10,960 --> 00:32:13,880 Speaker 1: we got from So sorry, the raging debate and folks. 552 00:32:13,960 --> 00:32:17,040 Speaker 1: My book of the summer's Olivier Blanchard really looking at 553 00:32:17,040 --> 00:32:21,440 Speaker 1: the fiscal ramifications of the spirit of our economy. It's 554 00:32:21,440 --> 00:32:24,720 Speaker 1: a Matthew book. It's it's it's like an adult economic book. 555 00:32:25,240 --> 00:32:27,680 Speaker 1: And I'll have much more on that as we get 556 00:32:27,680 --> 00:32:30,240 Speaker 1: closer to the summer. But Mickey, the heart of the 557 00:32:30,280 --> 00:32:33,480 Speaker 1: matter off Lbach and Williams of two thousand and one 558 00:32:34,120 --> 00:32:38,440 Speaker 1: is where do we settle out? I would suggest mister 559 00:32:38,560 --> 00:32:42,520 Speaker 1: McCollum and Meltzer at Carnegie Mellon and the great Carl 560 00:32:42,600 --> 00:32:46,360 Speaker 1: Bruner of the Swiss it it Rochester would have said 561 00:32:46,440 --> 00:32:50,120 Speaker 1: years ago, we're going to settle out at an unanchored, 562 00:32:50,520 --> 00:32:55,200 Speaker 1: hired inflation rate. Is that baked in now? The two 563 00:32:55,240 --> 00:32:57,680 Speaker 1: percent is done and we got to get used to 564 00:32:57,800 --> 00:33:03,640 Speaker 1: some structural two point x percent number. Not necessarily. It 565 00:33:03,680 --> 00:33:06,880 Speaker 1: depends on what the Fed wants and what it's willing 566 00:33:06,920 --> 00:33:11,880 Speaker 1: to pursue. Okay, So once again John Williams, President of 567 00:33:11,960 --> 00:33:15,800 Speaker 1: New York Fed, has has kind of backed off a 568 00:33:15,920 --> 00:33:20,920 Speaker 1: reliable estimate of our star. Once again, the real funds 569 00:33:20,960 --> 00:33:24,320 Speaker 1: rate is negative. How how much more is the Fed 570 00:33:24,400 --> 00:33:29,120 Speaker 1: willing to hike, even if it involves a slower economy 571 00:33:29,360 --> 00:33:33,320 Speaker 1: and higher employment. Keep in mind employment has been roaring ahead. 572 00:33:33,760 --> 00:33:37,480 Speaker 1: It's going to slow and so we should expect the slowdown. 573 00:33:38,720 --> 00:33:41,080 Speaker 1: And then and then the issue is how much more 574 00:33:41,120 --> 00:33:44,400 Speaker 1: does the Fed We should pursue it. So we are 575 00:33:43,400 --> 00:33:48,280 Speaker 1: not we are not destined to have inflation at three 576 00:33:48,320 --> 00:33:50,720 Speaker 1: percent or two percent. It's going to depend on the Fed. 577 00:33:51,080 --> 00:33:53,440 Speaker 1: And then things work with a lag. And keep in 578 00:33:53,480 --> 00:33:58,440 Speaker 1: mind conducting policy in real time as these data bounce 579 00:33:58,520 --> 00:34:03,320 Speaker 1: around and in the marketplace, trying to observe in real time. 580 00:34:03,680 --> 00:34:06,640 Speaker 1: It's just very good. Okay, I'm out of time, Mickey, 581 00:34:06,640 --> 00:34:08,080 Speaker 1: but we got to get you back on you and 582 00:34:08,080 --> 00:34:11,360 Speaker 1: this is really timely with Mickey Leavey, doctor Levi's with 583 00:34:11,400 --> 00:34:15,280 Speaker 1: Barroomberg Capital Markets and of course part of the truly 584 00:34:15,480 --> 00:34:20,759 Speaker 1: earned legend the Shadow Open Market Committee. Subscribe to the 585 00:34:20,760 --> 00:34:25,000 Speaker 1: Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you 586 00:34:25,080 --> 00:34:29,320 Speaker 1: get your podcasts. Listen live every weekday starting at seven 587 00:34:29,360 --> 00:34:34,200 Speaker 1: am Eastern. I'm Bloomberg dot Com, the iHeartRadio app, tune In, 588 00:34:34,480 --> 00:34:37,920 Speaker 1: and the Bloomberg Business app. You can watch us live. 589 00:34:38,120 --> 00:34:42,400 Speaker 1: I'm Bloomberg Television and always I'm the Bloomberg Terminal. Thanks 590 00:34:42,400 --> 00:34:46,280 Speaker 1: for listening. I'm Tom Keane and this is Bloomberg