WEBVTT - Bloomberg Surveillance TV: April 17, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.640 Terminal and the Bloomberg Business appar with our top story fedshare, 0:00:37.720 --> 0:00:41.160 Jpowell signals another delay in cards. B and wi's Alia Levine, 0:00:41.200 --> 0:00:43.160 saying this, the market is more aligned with the FED 0:00:43.159 --> 0:00:45.720 than three months ago. That move from six to three 0:00:45.800 --> 0:00:48.240 hikes happened with barely a hiccup in the equity market. 0:00:48.320 --> 0:00:51.360 We think the FED will cut less and later. It 0:00:51.400 --> 0:00:53.760 could be two. As long as the economy is strong 0:00:53.960 --> 0:00:56.360 and the labor market is resilient, the equity market can 0:00:56.440 --> 0:00:58.000 handle less and later. 0:00:58.160 --> 0:01:00.279 Alisa joins us now for more. Alisa, good to see 0:01:00.320 --> 0:01:00.960 you in the morning. 0:01:01.080 --> 0:01:03.000 Been too long. Let's talk about how you framed the EE. 0:01:03.120 --> 0:01:05.160 We're talking about a year or two halfs. I think 0:01:05.200 --> 0:01:06.760 the second half was going to be a little bit 0:01:06.800 --> 0:01:09.680 better maybe than the first half. How's that shapen up now? 0:01:09.920 --> 0:01:12.400 So it looks like the first half was very very strong, 0:01:12.440 --> 0:01:15.240 obviously coming into the first quarter up ten percent on 0:01:15.280 --> 0:01:19.040 the S and p up eleven percent including dividends. Look, 0:01:19.240 --> 0:01:22.760 we're clearly walking into a counter story here in the 0:01:22.800 --> 0:01:25.880 last few weeks. So it's not just that the rate 0:01:25.959 --> 0:01:29.399 cuts are lesson later, but it's also is inflation higher? 0:01:29.440 --> 0:01:33.119 And then the Powell yesterday age is sort of said 0:01:33.520 --> 0:01:35.760 the part that we were all thinking, which is are 0:01:35.840 --> 0:01:38.280 there no cuts at all this year? But to your 0:01:38.280 --> 0:01:42.040 conversation earlier, I think the issue is the pivot already happened. 0:01:42.360 --> 0:01:48.520 The pivot happened in December. To pivot from the pivot 0:01:48.840 --> 0:01:52.720 is going to be a very difficult thing for the institution. 0:01:53.360 --> 0:01:57.120 So we're in a place where you know, the Fed 0:01:57.240 --> 0:02:00.920 can hold this high for longer, but I don't think 0:02:01.000 --> 0:02:04.720 we go higher, right, So we're not pivoting from the pivot. 0:02:05.080 --> 0:02:07.760 And ultimately, the data really are hanging in there. I mean, 0:02:07.800 --> 0:02:10.840 the job market data has actually been extraordinary, and if 0:02:10.880 --> 0:02:13.280 you just look at a rolling three month average you know, 0:02:13.600 --> 0:02:16.119 six months ago that rolling three month average of job 0:02:16.160 --> 0:02:18.760 creation was two hundred and twenty thousand jobs per month. 0:02:18.919 --> 0:02:21.400 We're now at two hundred and seventy five thousand jobs 0:02:21.440 --> 0:02:21.799 per month. 0:02:21.840 --> 0:02:23.200 So we've ticked right back. 0:02:23.040 --> 0:02:26.360 Up in what is supposed to be a slowdown this year, 0:02:26.880 --> 0:02:30.600 and we've done it with wages quietly ticking lower. So 0:02:30.639 --> 0:02:33.320 there's a supply story going on in the labor market 0:02:33.480 --> 0:02:35.240 that I think the FED is hanging their hat on 0:02:35.320 --> 0:02:38.320 here to kind of quietly bring inflation down on the 0:02:38.400 --> 0:02:41.119 labor side, on the wage side, even as we see 0:02:41.120 --> 0:02:42.480 some higher numbers in the services. 0:02:42.560 --> 0:02:45.320 I remember you called twenty twenty one the COVID xcess years, 0:02:45.440 --> 0:02:48.120 twenty two to twenty three with the transition years, and 0:02:48.160 --> 0:02:50.600 you were setting up twenty twenty four to be the. 0:02:50.480 --> 0:02:52.320 New normal, the new normal, the new normal. Do you 0:02:52.360 --> 0:02:54.040 think we're still in the transition years or is this 0:02:54.160 --> 0:02:55.040 really the new normal? 0:02:55.080 --> 0:02:57.040 So this feels like the new normal, which is we 0:02:57.080 --> 0:03:01.000 seem to have better labor supply, We have an economy 0:03:01.000 --> 0:03:03.240 that can grow at two and a half percent, and 0:03:03.320 --> 0:03:05.280 we have inflation that's probably not going down to two 0:03:05.320 --> 0:03:10.320 percent anytime soon because we have some deglobalization, we have restoring, 0:03:10.680 --> 0:03:13.240 and of course we've got hot conflicts in two parts 0:03:13.280 --> 0:03:16.080 of the world where commodities matter, food and energy. 0:03:16.320 --> 0:03:17.639 So we're in a place of. 0:03:17.639 --> 0:03:19.360 Let's call it two and a half to three percent 0:03:19.680 --> 0:03:23.440 inflation as a steady state. That feels about right. We're 0:03:23.480 --> 0:03:25.800 also in a place where growth is likely to be 0:03:25.919 --> 0:03:29.000 higher than that two percent which we had in the 0:03:29.000 --> 0:03:31.640 post global financial crisis world. So I think this is 0:03:31.680 --> 0:03:33.720 the new normal. This seemed like it would be the 0:03:33.760 --> 0:03:35.960 new normal. We've had hiccups along the way, but this 0:03:36.040 --> 0:03:38.160 doesn't feel problematic. 0:03:38.360 --> 0:03:38.480 Right. 0:03:38.560 --> 0:03:41.119 We've lived in this world of two and a half 0:03:41.160 --> 0:03:43.240 percent growth and two and a half to three percent 0:03:43.320 --> 0:03:45.720 inflation quite well with five percent yields. 0:03:45.800 --> 0:03:49.160 It's not problematic for Google, it's not problematic for Microsoft. 0:03:49.440 --> 0:03:51.800 It's really problematic for a lot of smaller companies that 0:03:51.800 --> 0:03:54.360 they're struggling with highly leveraged balance sheets. At what point 0:03:54.400 --> 0:03:57.240 does that become a problem for the broader market, given 0:03:57.520 --> 0:03:59.960 that that's sort of the steady drum that hasn't go. 0:04:00.120 --> 0:04:02.880 Away in the backdrop, right, So that's true, there has 0:04:02.920 --> 0:04:05.920 been a bifurcation here, and this like the slow ringing 0:04:06.000 --> 0:04:10.520 out of excesses and leverage in all these challenged balance sheets. 0:04:10.520 --> 0:04:12.040 So you see it in the Russell for instance, they 0:04:12.160 --> 0:04:14.640 Russell's down three percent this year. There was a lot 0:04:14.640 --> 0:04:19.400 of hope last year with the pivot that this asset 0:04:19.440 --> 0:04:22.240 class would finally rally sell twenty five percent below the 0:04:22.320 --> 0:04:23.200 highs of. 0:04:23.120 --> 0:04:23.920 Twenty twenty one. 0:04:24.760 --> 0:04:27.520 It is happening across the economy to smaller businesses, but 0:04:28.000 --> 0:04:31.039 the larger cap companies and the larger companies in the 0:04:31.200 --> 0:04:35.839 US termed out their debt, meaning just like households which 0:04:35.960 --> 0:04:38.679 termed out their debt at three percent, mortgages fixed rates. 0:04:39.000 --> 0:04:42.120 Large companies you know, sole bonds in twenty twenty and 0:04:42.160 --> 0:04:44.640 twenty twenty one at three and four percent interest rates, 0:04:44.640 --> 0:04:45.599 and those are not due. 0:04:45.640 --> 0:04:47.800 The bulk of the S ANDP that debt is not. 0:04:47.800 --> 0:04:52.000 Due until twenty thirty or later. So you have stronger companies, 0:04:52.120 --> 0:04:55.320 larger companies actually paying out debt at three and four 0:04:55.360 --> 0:04:57.600 percent and getting five and a half percent on their cash, 0:04:58.000 --> 0:05:01.760 similar to what households are doing as well. Just keeping 0:05:01.920 --> 0:05:04.640 that part of the market really solid. So the structure 0:05:04.640 --> 0:05:07.240 of the US markets are going to protect the S 0:05:07.279 --> 0:05:10.000 and P from what we're seeing in some of those 0:05:10.000 --> 0:05:13.239 smaller companies, and yes, if the re FED keeps high 0:05:13.279 --> 0:05:16.040 for longer, then we will see that slowly wind its 0:05:16.080 --> 0:05:19.080 way through the economy. It's just really slow, and it's 0:05:19.360 --> 0:05:22.320 very unequal in how the higher rates and the contraction 0:05:22.400 --> 0:05:24.400 of credit is hitting the economy. 0:05:24.480 --> 0:05:27.200 So what I'm hearing from you is own US big 0:05:27.240 --> 0:05:30.719 tech companies and chill, is there some room for say, 0:05:30.800 --> 0:05:34.279 Tebells or you know, international or gold or do. 0:05:34.279 --> 0:05:35.400 You just basically. 0:05:34.960 --> 0:05:38.080 Say you can have your general allocation overweight US stocks 0:05:38.160 --> 0:05:40.120 just keep their particular the tech name. 0:05:40.240 --> 0:05:42.640 So we allocate to all asset classes on the On 0:05:42.680 --> 0:05:45.560 the equity side, we have favored US and large for 0:05:45.640 --> 0:05:48.440 several years now because it seems very clear that potential 0:05:48.440 --> 0:05:51.039 growth in the US is just higher than elsewhere, and 0:05:51.120 --> 0:05:54.120 even though we get better than expected numbers from Europe 0:05:54.200 --> 0:05:57.040 or even China, it's just not enough to really go 0:05:57.080 --> 0:05:59.560 where the US can go in terms of sustaining growth, 0:06:00.040 --> 0:06:03.160 looking at policies that have to, you know, boost growth there. 0:06:03.320 --> 0:06:07.320 So we've been US large cap overweight for a while now. 0:06:07.320 --> 0:06:10.200 We're very comfortable with that, but we do allocate everywhere. 0:06:10.279 --> 0:06:12.400 In terms of the bonds, we've always said you've got 0:06:12.440 --> 0:06:14.000 to you know, actively manage your bonds. 0:06:14.000 --> 0:06:15.720 We never said go long duration. 0:06:15.839 --> 0:06:18.040 We said please get out of cash because we think 0:06:18.040 --> 0:06:20.800 it's a year where cash can under perform. We think 0:06:20.839 --> 0:06:23.159 as rates move higher, it is a great time. As 0:06:23.200 --> 0:06:25.360 you said, why does everybody want to go into bonds 0:06:25.360 --> 0:06:28.680 when you know when rates come down fifty basis points like, 0:06:28.720 --> 0:06:31.480 maybe this is the time to start, you know, walking 0:06:31.480 --> 0:06:33.320 out a little bit, but you have to actively manage it. 0:06:34.200 --> 0:06:34.920 And we still like. 0:06:34.880 --> 0:06:37.680 Alternatives here for that world where there is just our 0:06:37.839 --> 0:06:42.360 distressed assets to invest in, and private equity valuations are 0:06:42.400 --> 0:06:44.920 seadily coming down, and this is the time you want 0:06:44.960 --> 0:06:46.560 to start getting into those vintages. 0:06:46.920 --> 0:06:48.080 And what about gold? 0:06:48.160 --> 0:06:50.840 So I heard your gold conversation earlier. Look, gold can 0:06:50.839 --> 0:06:53.440 be a risk off asset or a risk on asset. 0:06:53.720 --> 0:06:55.120 It is not in our allocations. 0:06:55.160 --> 0:06:57.800 It has no yield, it has no dividend, just very 0:06:57.800 --> 0:07:00.920 hard to track here. But I think he your gold 0:07:01.000 --> 0:07:08.400 is as acting as a inflation an expression of discomfort 0:07:09.040 --> 0:07:10.640 with possible inflation. 0:07:10.760 --> 0:07:11.200 Bumps. 0:07:11.280 --> 0:07:13.160 Okay, well there's a lot of discomfort. We're at all 0:07:13.160 --> 0:07:15.160 time high. So Elisha, Levina, bn y Man and Alicia, 0:07:15.200 --> 0:07:15.960 don't leave it so long. 0:07:16.040 --> 0:07:17.080 Next time. It's good to see you. 0:07:17.160 --> 0:07:18.160 I will promise to be back. 0:07:18.200 --> 0:07:19.640 Thank you very much, appreciate it. 0:07:30.200 --> 0:07:33.080 Security Advisor Jake Sullivan saying the President is coordinating with 0:07:33.120 --> 0:07:37.400 allies on quote comprehensive response, adding we anticipate that our 0:07:37.440 --> 0:07:40.920 allies and partners will soon be following with their own sanctions. 0:07:41.080 --> 0:07:44.880 Admiral James Travenis, the former NATO Supreme Allied Commander and 0:07:44.960 --> 0:07:48.360 co author of twenty fifty four, a novel, joins US now. 0:07:48.480 --> 0:07:51.280 Admiral wonderful to get your expertise on this program once more. 0:07:51.320 --> 0:07:53.480 It's fantastically catch up with you, sir. I want to 0:07:53.480 --> 0:07:55.480 start with this question, and it's what did we learn 0:07:55.480 --> 0:07:56.080 over the weekend? 0:07:56.120 --> 0:07:57.600 And by we I mean Iran. 0:07:57.720 --> 0:08:00.840 What do you think Iran learned about the missile defense 0:08:00.880 --> 0:08:02.280 system in Israel? 0:08:03.880 --> 0:08:10.240 They learned that it is formidable, that it is comprehensive geographically, 0:08:10.640 --> 0:08:14.320 and I think above all Tehran would have been surprised 0:08:14.480 --> 0:08:19.640 at the extraordinary coalition operation. You know, I've spent a 0:08:19.680 --> 0:08:22.840 lifetime in the military, a lot of it doing air defense, 0:08:22.920 --> 0:08:26.640 guided missile destroyer command, for example. The hardest thing in 0:08:26.680 --> 0:08:30.600 the world is to knit together the Israeli air defense 0:08:30.680 --> 0:08:37.440 the American Air Defense is alongside Jordan, UK, France and 0:08:37.600 --> 0:08:41.680 put them all together. I think Iran was unpleasantly surprised 0:08:41.720 --> 0:08:46.560 at the coalition level, the comprehensiveness, and most obviously John 0:08:46.600 --> 0:08:49.840 at the result ninety nine percent patting rate knocking down 0:08:49.880 --> 0:08:50.840 incoming missiles. 0:08:50.920 --> 0:08:53.600 Do you think the success of that defense admirable, shape 0:08:53.880 --> 0:08:55.520 or influence Israel's response? 0:08:57.520 --> 0:08:58.280 No, I don't. 0:08:58.800 --> 0:09:02.560 As follows, the Israelis are clearly looking at it, and 0:09:02.640 --> 0:09:07.240 I think they should as a massive attempt to bombard 0:09:07.400 --> 0:09:12.199 their homeland, something they have not done to Iran heretofore, 0:09:12.240 --> 0:09:16.960 it's been between proxies of fighting more or less. Now 0:09:17.040 --> 0:09:23.120 you've got the Iranian military, specifically Revolutionary Guards and elements 0:09:23.120 --> 0:09:27.800 of the conventional Iranian military launching a massive wave of 0:09:27.840 --> 0:09:31.800 missiles at Israel. So they will respond. I think they'll 0:09:31.880 --> 0:09:36.120 respond in a measured way, but clearly they are going 0:09:36.200 --> 0:09:39.319 to take on this challenge from Iran. 0:09:39.800 --> 0:09:42.719 Is there a way Israel could respond to make sure 0:09:42.720 --> 0:09:45.160 that there's deterrence when it comes to rom but not 0:09:45.520 --> 0:09:48.720 make sure that they're sparking off some revenge cycle in 0:09:48.760 --> 0:09:49.240 the Gulf. 0:09:50.040 --> 0:09:52.680 Yeah, this is exactly the right question. It's the one 0:09:52.800 --> 0:09:56.360 clearly under discussion in the war cabinet, and I'd think 0:09:56.400 --> 0:10:01.800 of it as an ascending ladder of violence, meaning option one, 0:10:02.320 --> 0:10:09.640 do nothing militarily but imposed sanctions, more diplomatic aggressiveness, try 0:10:09.679 --> 0:10:14.000 and get all your allies on board, perhaps some cyber response. 0:10:14.240 --> 0:10:19.520 I think option two is you go after kinetically, perhaps 0:10:19.720 --> 0:10:24.720 maritime assets, Iranian warships. You up the cyber game a bit. 0:10:25.280 --> 0:10:28.120 You certainly throughout this are going to go after the proxies. 0:10:28.360 --> 0:10:30.719 Option three is a strike. 0:10:30.400 --> 0:10:35.640 On the Iranian homeland that could be a fairly tightly packaged, 0:10:35.720 --> 0:10:39.679 perhaps going after the industrial facility where the drones are built. 0:10:39.920 --> 0:10:43.600 Option four, and let's hope the Israelis don't pick Option four, 0:10:44.000 --> 0:10:48.680 would be a massive counter attack. Hundreds of missiles, both 0:10:48.720 --> 0:10:53.480 ballistic and crews, aircraft, all of that thrown at major 0:10:53.559 --> 0:10:55.959 military targets across Iran. 0:10:56.160 --> 0:10:58.199 I don't see that latter option. 0:10:58.640 --> 0:11:01.000 I think you'll find a mix of option two and 0:11:01.080 --> 0:11:02.760 three as I just described them. 0:11:03.000 --> 0:11:05.760 One of those options had to do with the Red Sea, 0:11:05.840 --> 0:11:08.560 and this morning we have a new reporting that there's 0:11:08.600 --> 0:11:12.480 a naval mission underway with you, the Iranian Navy escorting 0:11:12.559 --> 0:11:15.120 some of their commercial vessels from the Gulf of Aiden 0:11:15.200 --> 0:11:17.960 to the sus Canal. Do you think Iran is preparing 0:11:18.040 --> 0:11:21.079 potentially for some sort of retaliation in these waters? 0:11:22.200 --> 0:11:23.200 Clearly they are. 0:11:23.520 --> 0:11:28.160 And let's recall, immediately before, perhaps a day before the 0:11:28.280 --> 0:11:32.920 strike against Israel, over the weekend, the Iranian navy, in 0:11:32.960 --> 0:11:33.720 what can only. 0:11:33.679 --> 0:11:34.920 Be described as an act of. 0:11:34.880 --> 0:11:42.400 Piracy, seized a large merchant ship that is ultimately owned 0:11:42.679 --> 0:11:47.960 by Israel by an Israeli business concern. So Iran kicked 0:11:48.000 --> 0:11:51.160 off that cycle as well. I think the Israelis have 0:11:51.240 --> 0:11:55.200 to be contemplating something in retaliation for that, hence the 0:11:55.440 --> 0:11:58.280 escort by the Iranian warship Adamiral. 0:11:58.280 --> 0:12:00.880 I've been trying to understand why are has felt so 0:12:01.080 --> 0:12:04.400 emboldened to take these new steps to directly attack Israel 0:12:04.840 --> 0:12:06.559 on its own land, to move. 0:12:06.360 --> 0:12:08.560 Out of the shadows. How much is. 0:12:08.520 --> 0:12:12.520 Iran being inboldened by its relationships with Russia and with China. 0:12:13.480 --> 0:12:16.240 Oh, you've put your finger on it. That's what's different. 0:12:16.679 --> 0:12:23.520 Over the last three four years, particularly Russia, Iran is 0:12:23.600 --> 0:12:28.280 beginning to feel very comfortable in this partnership they have developed, 0:12:28.520 --> 0:12:33.680 which at its heart is transactions for weapons, with Iran 0:12:33.920 --> 0:12:39.760 providing very significant, fairly sophisticated drones to the Russians. 0:12:39.240 --> 0:12:41.480 In their attack on Ukraine. 0:12:41.880 --> 0:12:45.600 This in turn feeds the Iranian sense of having, if 0:12:45.600 --> 0:12:49.160 you will, a larger coalition partner behind them. And then 0:12:49.200 --> 0:12:54.800 finally with China, Iran is fully engaged in the Belton 0:12:54.880 --> 0:12:59.679 Road initiative, has received billions from the Chinese and investments, 0:13:00.280 --> 0:13:03.439 more of an economic relationship there. But both of those 0:13:03.760 --> 0:13:06.360 have emboldened Iran and well given the. 0:13:06.280 --> 0:13:08.560 Fact that they have their own coalition or the appearance 0:13:08.559 --> 0:13:11.680 of one. How much do sanctions really work to They 0:13:11.720 --> 0:13:13.240 said that they've worked at all to this point. 0:13:14.559 --> 0:13:19.480 I think sanctions are always an imperfect imperfect tool. And 0:13:19.559 --> 0:13:23.280 we can go back to the global sanctions imposed on 0:13:23.360 --> 0:13:25.520 South Africa during the apartheid era. 0:13:25.960 --> 0:13:28.720 It took decades, decades. 0:13:28.320 --> 0:13:33.880 For them to really create a sense of economic disadvantage, 0:13:33.880 --> 0:13:37.720 which caused a part of why South Africa changed course. 0:13:38.040 --> 0:13:41.280 So this is any time you impose sanctions, it's going. 0:13:41.160 --> 0:13:43.080 To be take time. 0:13:43.520 --> 0:13:47.559 And here you're absolutely correct. These are pretty leaky sanctions 0:13:47.600 --> 0:13:51.080 with at least a third of the world's GDP, maybe 0:13:51.160 --> 0:13:54.679 a bit more simply not participating. Not only China and 0:13:54.760 --> 0:13:58.080 Russia here, but for example, India not participating in the 0:13:58.160 --> 0:14:02.760 sanctions against Russia that we're correctly imposed in the Ukraine War. 0:14:02.960 --> 0:14:04.640 So it will take time. 0:14:05.040 --> 0:14:08.960 It's better than nothing, but we should not believe that 0:14:09.040 --> 0:14:12.200 it will be the path to changing the course of 0:14:12.240 --> 0:14:13.679 Iranian bad behavior. 0:14:13.880 --> 0:14:16.600 Admiral, you mentioned China. Can we finish on China? You're 0:14:16.600 --> 0:14:19.680 out with another book, the follow up to twenty thirty four, 0:14:19.840 --> 0:14:22.120 again with a brilliant elliot Akiman, a good friend of 0:14:22.120 --> 0:14:24.760 his program as well, like you, Admiral. The twenty thirty 0:14:24.760 --> 0:14:27.200 four book was a novel of the next World War. 0:14:27.240 --> 0:14:29.160 And I just want to talk about the situation between 0:14:29.200 --> 0:14:31.400 China and the United States. I don't know about you, Admiral, 0:14:31.440 --> 0:14:33.240 but waking up this morning and hearing the President talk 0:14:33.240 --> 0:14:36.480 about the prospect of umping tariffs on Chinese steel and 0:14:36.560 --> 0:14:40.840 referring directly to building ships in America, what do you 0:14:40.840 --> 0:14:42.280 think we're drifting towards here? 0:14:43.680 --> 0:14:49.320 I think, unfortunately, we are drifting toward the possibility of 0:14:49.360 --> 0:14:53.960 more tension in the relationship. But I'll close my reappearance 0:14:54.000 --> 0:14:58.520 on surveillance on a mildly optimistic note. I think a 0:14:58.560 --> 0:15:00.320 good deal of what you're going to hear in that 0:15:00.400 --> 0:15:03.480 regard over the next coming months is in fact tied 0:15:03.480 --> 0:15:06.280 to the election cycle in the United States. Once we 0:15:06.360 --> 0:15:09.960 get through that, I think that there will be a 0:15:10.080 --> 0:15:13.760 possibility of the two sides finding their way to a 0:15:13.800 --> 0:15:16.240 better modus vivendi. They are clearly going to be no 0:15:16.400 --> 0:15:20.240 go zones in the relationship over everything from Taiwan to 0:15:20.440 --> 0:15:24.600 South China Sea to military competition itself. But I think 0:15:24.640 --> 0:15:29.560 the possibility of continuing to have coupled economies and not 0:15:30.080 --> 0:15:33.600 stagger into a decoupling of these two massive economies, I 0:15:33.640 --> 0:15:36.880 think I'm cautiously optimistic we can work through that. 0:15:37.040 --> 0:15:38.560 After the election, I say. 0:15:38.440 --> 0:15:40.440 We can all agree. We hope you're great novels. Remind 0:15:40.520 --> 0:15:44.440 just that novels fictions. Admill, thank you, Sir adamal jangster Fat. 0:15:44.480 --> 0:15:57.960 It's the former NASO Supreme Allied Commander Cities and Costo. 0:15:58.040 --> 0:16:00.720 She writes in this we protect three hours and announced 0:16:00.720 --> 0:16:02.960 over the next six to eighteen months. The recent gold 0:16:03.040 --> 0:16:06.280 rally has been aided by geopolitical heat and is coinciding 0:16:06.280 --> 0:16:09.160 with record equity index levels, So a steeper risk of 0:16:09.360 --> 0:16:13.040 environment should further boost prices. Cash's with us now for 0:16:13.080 --> 0:16:15.640 more acash Camoroni to you want to talk about the 0:16:15.680 --> 0:16:17.920 drivers here we can start with that. Can you help 0:16:18.000 --> 0:16:20.760 me understand because typically we'd associate a gold move with 0:16:20.800 --> 0:16:22.640 a wiki dollar and lower yields. 0:16:22.720 --> 0:16:24.800 This is happening the other way around. Why is that? 0:16:24.800 --> 0:16:25.960 That's absolutely right, John. 0:16:26.000 --> 0:16:27.720 If you look at the gold rally over the last 0:16:27.720 --> 0:16:30.920 couple of months, it's coincided with a stronger greenback as 0:16:30.920 --> 0:16:33.880 well as a real backup in nominal yields as well 0:16:33.920 --> 0:16:34.840 as treasury yields. 0:16:35.120 --> 0:16:37.440 Real interest rate adjust the treasury yields. 0:16:37.840 --> 0:16:40.280 So I think a big part of it is financial 0:16:40.280 --> 0:16:44.120 flows are finally catching up to what's been strong physical demand. Right. 0:16:44.160 --> 0:16:46.240 If you look at what's driving gold over the last 0:16:46.280 --> 0:16:48.160 couple of years, If I was sitting in the studio, 0:16:48.720 --> 0:16:50.640 FED was at the zero lower bound, they were going 0:16:50.680 --> 0:16:53.800 to increase rates to five point two five percent. No 0:16:53.800 --> 0:16:55.560 one would have thought gold would have averaged eighteen to 0:16:55.600 --> 0:16:58.120 nineteen hundred dollars an ounce, and then here at records 0:16:58.120 --> 0:16:58.760 at twenty four. 0:16:58.680 --> 0:16:59.360 Hundred an ounce. 0:16:59.480 --> 0:17:02.280 And I think driver is the official sector demand. It's 0:17:02.280 --> 0:17:06.040 been barren coin demand from retail, very strong Chinese non 0:17:06.119 --> 0:17:09.800 monetary imports, and I think that physical demand for alternative 0:17:09.840 --> 0:17:13.800 fiat for reserve diversification in the official sector case, I 0:17:13.800 --> 0:17:17.399 think that's driving this gold demand on the physical side, 0:17:17.480 --> 0:17:19.280 and financial flows are only catching up. 0:17:19.440 --> 0:17:21.439 That's interesting given the character of demand. Then do you 0:17:21.480 --> 0:17:24.280 think there is no limit to the divergence we're seeing 0:17:24.320 --> 0:17:26.280 between say treasuries. 0:17:25.840 --> 0:17:28.399 And gold at the moment, I mean, the relationship is 0:17:28.400 --> 0:17:30.240 still there, But what we wrote in that note, and 0:17:30.280 --> 0:17:32.760 what I wrote is that the duration has just shortened. 0:17:33.160 --> 0:17:35.560 So we think getting to three thousand dollars announce over 0:17:35.560 --> 0:17:37.320 the next twelve months is plausible. 0:17:37.800 --> 0:17:39.240 If the FED proceeds with. 0:17:39.240 --> 0:17:43.000 For example, insurance cuts and nominal rates can still stay high, 0:17:43.000 --> 0:17:44.359 but then real yields would rally. 0:17:44.840 --> 0:17:47.320 If you have a turn in the dollar cycle, that 0:17:47.359 --> 0:17:48.760 would just be a kicker for. 0:17:48.800 --> 0:17:54.080 Gold getting even higher as financial investment flows come back 0:17:54.119 --> 0:17:57.200 into play. Also, given equities are at all time records 0:17:57.960 --> 0:17:59.320 or war in the. 0:17:59.280 --> 0:18:01.240 Past week or two, you also have. 0:18:01.320 --> 0:18:04.520 Potentially gold serving as a macro overlay hedge. So if 0:18:04.560 --> 0:18:07.359 you do get an equity correction or unwind, if the 0:18:07.400 --> 0:18:10.680 market is mispricing US recession risk, then I definitely think 0:18:10.720 --> 0:18:13.320 gold is a good portfolio diversifier there. 0:18:13.480 --> 0:18:15.679 Recently, in the past couple of weeks, we've seen a 0:18:15.720 --> 0:18:18.679 repricing in the bond market about the idea of higher 0:18:18.680 --> 0:18:21.439 for longer and what we hear from institutional investors and 0:18:21.480 --> 0:18:24.080 even some executives is that it's a pet rock and 0:18:24.119 --> 0:18:26.240 that it doesn't give you anything, and that there's no runoff, 0:18:26.240 --> 0:18:27.960 there's no yields, and if you go into t bails 0:18:28.000 --> 0:18:30.719 you could get five percent and you actually earn something. 0:18:30.960 --> 0:18:33.960 How much are you think institutions pull back as everybody 0:18:33.960 --> 0:18:34.560 else gets in. 0:18:35.520 --> 0:18:38.399 Well, I think the inflows are coming not only just 0:18:38.480 --> 0:18:41.720 from retail, but it is coming from institution. And if 0:18:41.760 --> 0:18:45.240 you think about gold, yes, it is a non intersparing asset, 0:18:45.560 --> 0:18:49.280 so the move in rates is not a positive tail wind. 0:18:49.520 --> 0:18:51.399 But what we're seeing is it's not a negative headwind 0:18:51.480 --> 0:18:53.760 right now either, and I think it's for other reasons. 0:18:53.800 --> 0:18:56.040 For example, the central banks are buying gold not for 0:18:56.080 --> 0:18:59.119 a yielding, but because it's a bearer asset, so you 0:18:59.119 --> 0:19:02.199 don't have credit risks. It's an alternative fiat. So some 0:19:02.280 --> 0:19:03.879 of the moves that you've seen in crypto this year 0:19:04.000 --> 0:19:06.840 part of it on etf launches. Some of that over 0:19:06.880 --> 0:19:10.080 capacity is clearly shifting over to gold and silver markets. 0:19:10.400 --> 0:19:12.320 I think also from the point of view is can 0:19:12.359 --> 0:19:15.240 you monetize gold? You actually can in the options market. 0:19:15.480 --> 0:19:18.480 You can hold gold and sell and overwrite volatility on that. 0:19:18.760 --> 0:19:21.200 And in fact, a lot of private bank, ultra high 0:19:21.240 --> 0:19:24.280 net worth individuals that own physical gold, they sell options 0:19:24.280 --> 0:19:26.600 in the market and they monetize the volatility skew well. 0:19:26.600 --> 0:19:28.360 So this is actually exactly what I was going to ask, 0:19:28.600 --> 0:19:30.720 And forgive me for getting very basic, but I do 0:19:30.800 --> 0:19:32.720 wonder about central bank buying of gold. Do they just 0:19:32.760 --> 0:19:35.120 sort of store it there? Are they looking to monetize 0:19:35.119 --> 0:19:37.679 it through options? Do they have a gold carrier who 0:19:37.760 --> 0:19:41.000 they have they can call one hundred monetize my gold 0:19:41.040 --> 0:19:42.719 and they can go and deal with it. I mean, 0:19:42.960 --> 0:19:46.000 what's the functionality of gold in a central bank portfolio? 0:19:46.680 --> 0:19:49.920 Central banks are buying gold, which is physical, physical gold 0:19:50.200 --> 0:19:54.080 that's typically stored underneath the New York Federal Reserve in 0:19:54.160 --> 0:19:57.920 London volts, some might be stored onshore, and some might 0:19:57.960 --> 0:20:00.760 be stored in France Switzerland as well. 0:20:01.320 --> 0:20:02.359 It is physical demand. 0:20:02.400 --> 0:20:05.359 It's used as a reserve device afire, it's used to 0:20:05.800 --> 0:20:08.000 as part of a broader de dollarization theme, and it's 0:20:08.040 --> 0:20:12.120 dollar recycling, right, So as treasury holdings might go down incrementally, 0:20:12.400 --> 0:20:15.000 gold holdings go up, but gets what's a smaller market, 0:20:16.080 --> 0:20:17.679 fiat market or the gold market. 0:20:17.680 --> 0:20:19.560 The gold market is much smaller. 0:20:19.640 --> 0:20:22.360 So even incremental demand pull from the official sector, which 0:20:22.359 --> 0:20:24.919 is now twenty five to twenty seven percent of annual 0:20:24.920 --> 0:20:28.560 gold mine production, that is a big boost for prices 0:20:28.560 --> 0:20:30.200