1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,960 Speaker 1: and of course on the Bloomberg Termainment. We're thrilled to 6 00:00:30,000 --> 00:00:32,839 Speaker 1: bringing out the perspective of someone out of Florida and 7 00:00:32,880 --> 00:00:37,159 Speaker 1: West Point who has a commanding understanding of Europe, working 8 00:00:37,159 --> 00:00:40,560 Speaker 1: with Admiral Stevitas at NATO, and of course his leadership 9 00:00:40,640 --> 00:00:44,519 Speaker 1: as former US Commanding General in Europe for American troops. 10 00:00:44,960 --> 00:00:47,560 Speaker 1: Ben Hodges joins US today. General, thank you so much 11 00:00:48,159 --> 00:00:50,199 Speaker 1: for joining us. I want you to convey to our 12 00:00:50,240 --> 00:00:54,280 Speaker 1: listeners and viewers across this nation right now, what is 13 00:00:54,320 --> 00:00:58,320 Speaker 1: the number one thing our military can do to assist 14 00:00:58,440 --> 00:01:02,480 Speaker 1: NATO and to assist you, Krane. But the present time 15 00:01:02,680 --> 00:01:07,800 Speaker 1: of American soldiers is always such a powerful message of 16 00:01:07,959 --> 00:01:11,039 Speaker 1: assurance to allies and also of warning to the Kremlin. 17 00:01:11,440 --> 00:01:13,880 Speaker 1: The Kremlin does not want to take on the U. S. 18 00:01:14,040 --> 00:01:18,679 Speaker 1: Army or Air Force or Navy, especially either alone or 19 00:01:18,720 --> 00:01:22,840 Speaker 1: as part of NATO. So the deployment of American troops 20 00:01:22,880 --> 00:01:25,039 Speaker 1: to the eastern flank of NATO, I think was a 21 00:01:25,080 --> 00:01:29,199 Speaker 1: good move uh and a strong signal if we further 22 00:01:29,280 --> 00:01:33,960 Speaker 1: deploy army to Lithuania, which you know encyclopedic, or we 23 00:01:34,080 --> 00:01:37,920 Speaker 1: deploy navy through the Bosphorus into the Black Sea, as 24 00:01:38,040 --> 00:01:44,360 Speaker 1: Ukraine begs Turkey to shut down the Bosphorus to Russian military. 25 00:01:44,480 --> 00:01:48,360 Speaker 1: Uh ships, If we do that, how will that change 26 00:01:48,360 --> 00:01:53,360 Speaker 1: it for Ukraine? What is its signal now for Ukraine? Well, 27 00:01:53,360 --> 00:01:57,160 Speaker 1: of course, Ukraine is not an island. It's strategically important 28 00:01:57,160 --> 00:01:59,640 Speaker 1: for all of us, including Russia, because of where it 29 00:01:59,720 --> 00:02:02,600 Speaker 1: said on the Black Seat. It's why Catherine the Great 30 00:02:02,920 --> 00:02:06,520 Speaker 1: um stole Crimea back at the end of the eighteenth century. 31 00:02:06,640 --> 00:02:11,000 Speaker 1: Uh So Turkey, our ally, could really change the calculus 32 00:02:11,000 --> 00:02:14,000 Speaker 1: for the Kremlin. If Turkey were to close the Straits, 33 00:02:14,040 --> 00:02:17,079 Speaker 1: which it's entitled to do because of its sovereignty to 34 00:02:17,400 --> 00:02:20,760 Speaker 1: Russian navy, that would that would make a significant impact 35 00:02:20,840 --> 00:02:24,400 Speaker 1: on Russian thinking. What the United States and our allies 36 00:02:24,440 --> 00:02:28,519 Speaker 1: are doing by reinforcing NATO's eastern flank, of course, tells 37 00:02:28,560 --> 00:02:31,320 Speaker 1: the Russians do not let this get out of control, 38 00:02:31,400 --> 00:02:34,440 Speaker 1: did not let it spill over into a NATO country, 39 00:02:34,480 --> 00:02:37,680 Speaker 1: because then that will also completely change the situation. What 40 00:02:37,760 --> 00:02:41,360 Speaker 1: will you listen for from General Austin now holding court 41 00:02:41,400 --> 00:02:44,960 Speaker 1: a Secretary of Defense at the Pentagon. I would like 42 00:02:45,040 --> 00:02:49,160 Speaker 1: to hear him say that we are accelerating the delivery 43 00:02:49,200 --> 00:02:52,600 Speaker 1: of weapons systems that Ukraine needs. I mean we need 44 00:02:52,680 --> 00:02:57,120 Speaker 1: something like a Berlin airlift in terms of UH quantity 45 00:02:57,600 --> 00:03:02,119 Speaker 1: and speed to get more air defense systems specifically. Well, 46 00:03:02,120 --> 00:03:04,359 Speaker 1: this is in general, this is critical. Do we need 47 00:03:04,440 --> 00:03:06,800 Speaker 1: to put US troops into Love right now, to go 48 00:03:06,880 --> 00:03:10,560 Speaker 1: across from Poland a NATO country X number of miles 49 00:03:10,560 --> 00:03:13,679 Speaker 1: in the Love and set up camp in western Ukraine 50 00:03:13,960 --> 00:03:18,000 Speaker 1: to say enough? No? I agree with the President here 51 00:03:18,040 --> 00:03:21,520 Speaker 1: that um that we don't need to have NATO soldiers 52 00:03:21,560 --> 00:03:27,000 Speaker 1: American soldiers inside Ukraine. UM. Well, what we can do 53 00:03:27,200 --> 00:03:30,839 Speaker 1: is working with our Polish allies, establish a line of communication. 54 00:03:31,000 --> 00:03:34,120 Speaker 1: That's that can send what we call white convoys, non 55 00:03:34,200 --> 00:03:37,800 Speaker 1: military convoys, carrying all the stuff that Ukraine needs towards 56 00:03:37,920 --> 00:03:41,720 Speaker 1: Lviv and then the Ukrainians would distribute it. Howard I think, 57 00:03:42,120 --> 00:03:44,880 Speaker 1: But we don't want to get to a situation where 58 00:03:44,880 --> 00:03:47,520 Speaker 1: by our actions we end up with Russians and Americans 59 00:03:47,520 --> 00:03:50,840 Speaker 1: fighting each other. Ben, just to give you a sense 60 00:03:50,920 --> 00:03:54,080 Speaker 1: of the US actually just put out this headline coming across. 61 00:03:54,120 --> 00:03:57,720 Speaker 1: No new troop deployment is currently planned, but possible. Why 62 00:03:57,800 --> 00:04:01,320 Speaker 1: is it so important to not have troops necessarily in 63 00:04:01,520 --> 00:04:03,600 Speaker 1: Ukraine from the United States? Why do you think that 64 00:04:03,600 --> 00:04:09,000 Speaker 1: that is a tactical misstep. So let's let me capyat that. 65 00:04:09,360 --> 00:04:12,320 Speaker 1: I was disappointed when the one d and fifty National 66 00:04:12,360 --> 00:04:16,240 Speaker 1: Guardsmen from Florida actually were pulled out of their training 67 00:04:16,279 --> 00:04:19,000 Speaker 1: mission that has been going on for six years there 68 00:04:19,000 --> 00:04:21,880 Speaker 1: in Yavaief. I wish that they were all still there. 69 00:04:22,320 --> 00:04:25,880 Speaker 1: But when you bring in additional troops, uh this, this 70 00:04:26,160 --> 00:04:29,719 Speaker 1: then looks like escalation and keeping all of our allies 71 00:04:29,760 --> 00:04:33,760 Speaker 1: together is an essential part of our resistance, and so 72 00:04:34,279 --> 00:04:37,120 Speaker 1: I think that in this case, we want to avoid 73 00:04:37,160 --> 00:04:41,640 Speaker 1: a situation that ends up with NATO forces going against 74 00:04:41,680 --> 00:04:47,200 Speaker 1: Russian forces when it's not in a situation of Article five. Ben. 75 00:04:47,800 --> 00:04:50,960 Speaker 1: There has been discussion from European nations about contributing more 76 00:04:51,000 --> 00:04:54,600 Speaker 1: troops to NATO in the surrounding nations not necessarily directly 77 00:04:54,880 --> 00:04:58,200 Speaker 1: coming into conflict with Russia. What's your view on their 78 00:04:58,240 --> 00:05:02,640 Speaker 1: capacity to increase troops, specially given the non military action 79 00:05:02,680 --> 00:05:04,960 Speaker 1: that you've seen from the likes of Germany post World 80 00:05:04,960 --> 00:05:09,400 Speaker 1: War Two. Well, it's a fair point. I think what 81 00:05:09,440 --> 00:05:15,000 Speaker 1: we're gonna see is NATO reconsider our compliance with the 82 00:05:15,000 --> 00:05:17,760 Speaker 1: so called NATO Russia Founding Act and that we will 83 00:05:17,839 --> 00:05:22,200 Speaker 1: go to permanent basing in Estonia, Latvia, Lithuania, Poland and 84 00:05:22,320 --> 00:05:27,279 Speaker 1: Romania of US and or other NATO troops. We have 85 00:05:27,360 --> 00:05:30,200 Speaker 1: not done this, uh in a good faith effort that 86 00:05:30,279 --> 00:05:33,280 Speaker 1: even though Russia had abrogated the NATO Russia Founding Act, 87 00:05:33,720 --> 00:05:37,000 Speaker 1: we were complying with the provisions that say no permanent basing. 88 00:05:37,080 --> 00:05:38,960 Speaker 1: I think this is going to change. I think we 89 00:05:39,000 --> 00:05:42,920 Speaker 1: will see more NATO troops, particularly in the Baltic region. 90 00:05:43,080 --> 00:05:45,440 Speaker 1: We really need to improve our air and missile defense 91 00:05:45,760 --> 00:05:48,760 Speaker 1: in that region. In Germany and the Netherlands have to 92 00:05:49,279 --> 00:05:51,080 Speaker 1: have a lot of capability where they could help here 93 00:05:51,200 --> 00:05:53,359 Speaker 1: in general. Can I work through that line from the 94 00:05:53,440 --> 00:05:56,560 Speaker 1: Ukrainian Leadia with you in real time? When you hear 95 00:05:56,600 --> 00:05:59,400 Speaker 1: a line like this, Russian occupation forces are trying to 96 00:05:59,440 --> 00:06:03,080 Speaker 1: seize the Chernobyl power plant, defenders of giving that life 97 00:06:03,080 --> 00:06:06,279 Speaker 1: so that the tragedy of will not be repeated. We've 98 00:06:06,320 --> 00:06:09,280 Speaker 1: reported this to the Swedish leader. This is a declaration 99 00:06:09,320 --> 00:06:11,960 Speaker 1: of war against the whole of Europe. Can you help 100 00:06:12,000 --> 00:06:14,880 Speaker 1: me interpret that? General? What does that mean? That last 101 00:06:14,960 --> 00:06:17,640 Speaker 1: line when they go to somewhere like Chernobyl and you 102 00:06:17,640 --> 00:06:22,640 Speaker 1: know the history that what does that mean? So? Um two, 103 00:06:22,839 --> 00:06:26,400 Speaker 1: two or three aspects of this. First of all, Ukrainian 104 00:06:26,440 --> 00:06:30,479 Speaker 1: forces are achieving a lot of technical successes against Russian forces. 105 00:06:30,520 --> 00:06:33,120 Speaker 1: You he won't get much coverage on this from Moscow, 106 00:06:33,240 --> 00:06:37,440 Speaker 1: but for sure lots of the Russian aircraft, helicopters are 107 00:06:37,480 --> 00:06:40,520 Speaker 1: being shot down, tanks are being destroyed. We're gonna start 108 00:06:40,600 --> 00:06:43,760 Speaker 1: seeing more and more video and reports of Russian losses. 109 00:06:43,800 --> 00:06:48,719 Speaker 1: I think as the situation becomes more clear. So that's important. 110 00:06:48,960 --> 00:06:51,479 Speaker 1: And when President Zelinski, who I met three weeks ago 111 00:06:51,520 --> 00:06:56,760 Speaker 1: and Keith a tenacious guy, when he talks about declaration 112 00:06:56,800 --> 00:06:58,800 Speaker 1: of war, of course I don't take it in the 113 00:06:58,839 --> 00:07:03,200 Speaker 1: in the means of a US legal definition of declaration 114 00:07:03,240 --> 00:07:06,240 Speaker 1: of war. But without a doubt, Um, this is it 115 00:07:06,400 --> 00:07:10,160 Speaker 1: is time for European leaders to be open eyed and 116 00:07:10,240 --> 00:07:14,720 Speaker 1: talk clearly about who we're dealing with. For sure, sees 117 00:07:14,760 --> 00:07:19,360 Speaker 1: this as war, whether it's with ships, tanks, nuclear weapons, disinformation. 118 00:07:19,440 --> 00:07:23,600 Speaker 1: Cyber Russia is always in a war state of mind, 119 00:07:24,320 --> 00:07:27,720 Speaker 1: it may not always involve weapons. In this case, I 120 00:07:27,760 --> 00:07:31,040 Speaker 1: think President Jelinski is exactly right. General Hodges, I want 121 00:07:31,040 --> 00:07:33,400 Speaker 1: you to speak to the American people right now. And 122 00:07:33,480 --> 00:07:37,040 Speaker 1: this is so urgent out of Vietnam of the certitude 123 00:07:37,040 --> 00:07:41,120 Speaker 1: of technology in military and General Powell of course was 124 00:07:41,200 --> 00:07:44,240 Speaker 1: steeped in that that it didn't work and that military 125 00:07:44,480 --> 00:07:48,360 Speaker 1: was a tough thing with maximum force applied when needed. 126 00:07:48,840 --> 00:07:52,600 Speaker 1: You're an infantry guy. When there's a silly phrase boots 127 00:07:52,640 --> 00:07:55,960 Speaker 1: on the ground you lived at, tell me, as an 128 00:07:56,000 --> 00:08:01,800 Speaker 1: infantry guy, how we apply a power like force against 129 00:08:01,960 --> 00:08:06,400 Speaker 1: Mr Putin? Uh, thank you Tom Well. Of course, future 130 00:08:06,480 --> 00:08:11,080 Speaker 1: future war, which we're in already, will involve everything from drones, 131 00:08:11,240 --> 00:08:15,800 Speaker 1: artificial intelligence, UH, the advantages of quantum quantum computing, but 132 00:08:15,880 --> 00:08:19,360 Speaker 1: the disadvantages if our adversaries are using that, because that 133 00:08:19,400 --> 00:08:22,760 Speaker 1: will break down the security of all of our I 134 00:08:22,960 --> 00:08:26,200 Speaker 1: T systems are communications networks, so this is this is 135 00:08:26,240 --> 00:08:28,880 Speaker 1: going to change things. And of course their ability to 136 00:08:29,040 --> 00:08:34,880 Speaker 1: disrupt our GPS targeting and navigating UH systems. So that's there. 137 00:08:35,400 --> 00:08:37,640 Speaker 1: But what did we watch for the last three months 138 00:08:38,160 --> 00:08:42,160 Speaker 1: endless video of rail cars carrying tanks and artillery and 139 00:08:42,280 --> 00:08:47,920 Speaker 1: armored fighting vehicles, big steel Russian ships, submarines. So it's 140 00:08:48,559 --> 00:08:52,880 Speaker 1: you get more uh new technology, but you still are 141 00:08:52,920 --> 00:08:56,040 Speaker 1: going to have people in trenches, people still fighting with 142 00:08:56,160 --> 00:08:59,640 Speaker 1: rockets and artillery. That's part of it. In Russia, clearly 143 00:09:00,200 --> 00:09:04,079 Speaker 1: uh IN tends to use blunt force. They're already employed this, 144 00:09:04,600 --> 00:09:08,520 Speaker 1: but with more electronic warfare, they really have keepbility to 145 00:09:08,640 --> 00:09:13,439 Speaker 1: jam that we have fallen behind. General Hodges. We appreciate 146 00:09:13,480 --> 00:09:14,959 Speaker 1: your time, sir, and thank you for being with the 147 00:09:15,000 --> 00:09:21,640 Speaker 1: spend Hodges there, the former US commanding General in Europe. 148 00:09:22,240 --> 00:09:24,680 Speaker 1: We're looking for some kindance now. Peter Roppenheimer of Goldman 149 00:09:24,840 --> 00:09:27,120 Speaker 1: first on equities. I want to get to you first, Peter, 150 00:09:27,240 --> 00:09:29,520 Speaker 1: and thanks for being with us, just a simple one 151 00:09:29,559 --> 00:09:32,280 Speaker 1: of us so many people. You've done the research, you've 152 00:09:32,280 --> 00:09:36,040 Speaker 1: got an outlook, all your suggestions. What changed this morning? 153 00:09:36,440 --> 00:09:38,560 Speaker 1: What did you have to rip up after what we've 154 00:09:38,559 --> 00:09:44,720 Speaker 1: seen play out across Ukraine? Hi? John, Look, I think 155 00:09:44,800 --> 00:09:48,959 Speaker 1: that the markets respond in real time, and the most 156 00:09:49,040 --> 00:09:51,800 Speaker 1: obvious impact of what we've seen in this escalation is 157 00:09:51,840 --> 00:09:54,559 Speaker 1: just a rise and uncertainty, and that means a rise 158 00:09:54,600 --> 00:09:59,120 Speaker 1: in risk premier. We estimate that each twenty basis point 159 00:09:59,200 --> 00:10:02,160 Speaker 1: rise in risk prem and knocks around five pc off 160 00:10:02,160 --> 00:10:07,160 Speaker 1: the ecty market, and we've seen something about twice that, 161 00:10:07,360 --> 00:10:10,760 Speaker 1: which is quite large relative to historically what we've seen 162 00:10:10,800 --> 00:10:15,120 Speaker 1: with political events. And it should be said that generally speaking, 163 00:10:15,360 --> 00:10:19,120 Speaker 1: political events, as long as they don't have big macro spillovers, 164 00:10:19,679 --> 00:10:22,240 Speaker 1: tend to fade and you tend to get some kind 165 00:10:22,280 --> 00:10:26,800 Speaker 1: of rally. Now, obviously this is a very uncertain situation 166 00:10:27,160 --> 00:10:31,520 Speaker 1: and there are some major political and economical implications, not 167 00:10:31,720 --> 00:10:35,959 Speaker 1: least of which of course is via energy prices. We 168 00:10:35,960 --> 00:10:39,199 Speaker 1: were already seeing a fairly decent correction in most equity 169 00:10:39,240 --> 00:10:42,600 Speaker 1: markets because of the fears of higher inflation and interest rates. 170 00:10:42,600 --> 00:10:46,280 Speaker 1: Those that were more defensive and perhaps more value orientated, 171 00:10:46,400 --> 00:10:50,720 Speaker 1: particularly those in Europe and now Fermian Correction territory as well. 172 00:10:51,200 --> 00:10:53,520 Speaker 1: But I would say that if we look at our 173 00:10:53,559 --> 00:10:57,720 Speaker 1: tactical indicators, our risk appetite indicators, for example, the markets 174 00:10:57,760 --> 00:11:00,400 Speaker 1: are now really pricing quite a big slow down and 175 00:11:00,480 --> 00:11:04,400 Speaker 1: position has become quite negative, and typically from these sorts 176 00:11:04,400 --> 00:11:06,960 Speaker 1: of levels in that indicator we do get a rally. 177 00:11:07,040 --> 00:11:09,560 Speaker 1: So just a couple of days ago, I was speaking 178 00:11:09,559 --> 00:11:13,800 Speaker 1: with a portfolio manager who represented a sea change, basically saying, 179 00:11:13,880 --> 00:11:16,960 Speaker 1: go toward Europe, go toward European equities and away from 180 00:11:17,000 --> 00:11:20,080 Speaker 1: the US because of the hiking cycle. Has that narrative 181 00:11:20,080 --> 00:11:22,640 Speaker 1: completely got shifted though on its head, even with the 182 00:11:22,720 --> 00:11:26,200 Speaker 1: valuation story, just simply because the risk is that much 183 00:11:26,280 --> 00:11:33,120 Speaker 1: higher in that region. Well, certainly Europe is much more exposed, 184 00:11:33,200 --> 00:11:37,040 Speaker 1: both economically and of course in terms of proximity, but 185 00:11:37,160 --> 00:11:40,800 Speaker 1: I don't think it really changes the fundamental underlying issues. 186 00:11:41,200 --> 00:11:44,559 Speaker 1: First of all, the European economy is actually pretty robust 187 00:11:44,600 --> 00:11:47,280 Speaker 1: at the moment, much different to the situation say after 188 00:11:47,320 --> 00:11:52,080 Speaker 1: the financial crisis. To your point, the policy cycle is 189 00:11:52,280 --> 00:11:55,480 Speaker 1: less aggressive in Europe. In fact, fiscal policy is still easing, 190 00:11:55,920 --> 00:11:58,160 Speaker 1: interest rates are likely at least in the Eurozone, to 191 00:11:58,240 --> 00:12:00,800 Speaker 1: be rise at a much slower pace, and we've got 192 00:12:00,840 --> 00:12:03,680 Speaker 1: strong private set to balance sheets in Europe. We have 193 00:12:03,840 --> 00:12:07,920 Speaker 1: more exposure to value too, energy stocks and to other 194 00:12:07,960 --> 00:12:11,240 Speaker 1: areas of the market that investors been tilting towards. And 195 00:12:11,280 --> 00:12:15,240 Speaker 1: we should also recognize that valuations are reasonably good. I mean, 196 00:12:15,280 --> 00:12:18,480 Speaker 1: if you take the stock six for example, it's trading 197 00:12:18,480 --> 00:12:21,840 Speaker 1: on a peeve about fourteen times now having pezzed around 198 00:12:21,880 --> 00:12:24,760 Speaker 1: eighteen much cheaper than the US and pretty much in 199 00:12:24,760 --> 00:12:27,240 Speaker 1: line with its long run average. So in the short term, 200 00:12:27,280 --> 00:12:29,960 Speaker 1: of course, uncertainty is going to be a big drag 201 00:12:30,000 --> 00:12:33,679 Speaker 1: to this market, but fundamentally it looks reasonably sound and 202 00:12:33,720 --> 00:12:36,360 Speaker 1: we do remain actually overweight on a on a one 203 00:12:36,400 --> 00:12:40,400 Speaker 1: year you, Peter, in your geography at the London School 204 00:12:40,440 --> 00:12:43,920 Speaker 1: of Economics, which folks, is world class, even long agoing 205 00:12:44,040 --> 00:12:47,880 Speaker 1: far away, when Mr Appenheimer darkened the door, there's an 206 00:12:47,960 --> 00:12:52,720 Speaker 1: idea of the European experiment. It is under threat today, Peter, 207 00:12:53,440 --> 00:12:55,360 Speaker 1: is you and I have never seen, even with a 208 00:12:55,440 --> 00:13:00,200 Speaker 1: collapse in n one frame for us this moment and 209 00:13:00,240 --> 00:13:05,320 Speaker 1: how Europe must adapt. Which institution do you look for, 210 00:13:05,880 --> 00:13:09,720 Speaker 1: Ernest Goldman Sax looks for to provide a new stability 211 00:13:09,840 --> 00:13:15,680 Speaker 1: for Europe. Well, it's a great question, but we should 212 00:13:15,720 --> 00:13:21,120 Speaker 1: emphasize that the institutional framework across Europe has strengthened dramatically 213 00:13:21,240 --> 00:13:24,320 Speaker 1: since the days of the financial crisis and the sovereign 214 00:13:24,400 --> 00:13:27,760 Speaker 1: debt crisis. Obviously, we've had a ramp up in the 215 00:13:27,800 --> 00:13:31,320 Speaker 1: available instruments that can be used on the europe wide 216 00:13:31,559 --> 00:13:35,680 Speaker 1: basis to deal with any systemic shocks, and that's that's 217 00:13:35,840 --> 00:13:38,760 Speaker 1: a significant positive. And we should note that, for example, 218 00:13:39,480 --> 00:13:43,040 Speaker 1: while sovereign spreads have widened a little bit in places 219 00:13:43,040 --> 00:13:45,720 Speaker 1: like Italy, it's been very modest relative to what we've 220 00:13:45,720 --> 00:13:50,320 Speaker 1: seen in previous periods where they've been heightened uncertainty. Uh 221 00:13:50,400 --> 00:13:53,720 Speaker 1: and uh, And I would say that from that perspective, 222 00:13:54,000 --> 00:13:56,800 Speaker 1: things are looking a lot more robust. That being said, 223 00:13:56,960 --> 00:13:59,480 Speaker 1: one of the critical issues for Europe, of course, his 224 00:13:59,600 --> 00:14:03,560 Speaker 1: energy security. Europe has been ahead globally in terms of 225 00:14:03,600 --> 00:14:08,200 Speaker 1: its focus on decarbonization and ramping up investment in things 226 00:14:08,240 --> 00:14:11,520 Speaker 1: like renewables, and I think this adds a new degree 227 00:14:11,559 --> 00:14:16,160 Speaker 1: of urgency to that program, because that's what Europe is 228 00:14:16,200 --> 00:14:20,560 Speaker 1: going to have to really agree on in order to 229 00:14:20,600 --> 00:14:23,720 Speaker 1: become more independent in terms of its sources of energy 230 00:14:23,800 --> 00:14:25,800 Speaker 1: and paid a greater catch up with you, sir, as 231 00:14:25,840 --> 00:14:28,480 Speaker 1: always a difficult moment for the continent and for the 232 00:14:28,520 --> 00:14:38,960 Speaker 1: people of Ukraine. Thank you. Peter Rappenhammer Goldman. When I 233 00:14:39,000 --> 00:14:42,200 Speaker 1: first read Timothy Ash many years ago, I'm gonna guess 234 00:14:42,240 --> 00:14:44,880 Speaker 1: at bear Stearns, but I really can't remember tim And 235 00:14:44,920 --> 00:14:48,160 Speaker 1: the answer is it jumped off the page. Tomash is 236 00:14:48,200 --> 00:14:51,480 Speaker 1: one of the most acute writers and thinkers on Europe 237 00:14:51,480 --> 00:14:54,520 Speaker 1: and strategy. He has senior e M Sovereign strategy is 238 00:14:54,560 --> 00:14:57,280 Speaker 1: a blue bay. On this historic day, Timash, thank you 239 00:14:57,320 --> 00:15:00,280 Speaker 1: so much for taking time with us today. I want 240 00:15:00,280 --> 00:15:04,240 Speaker 1: to focus on the e M of Eastern Europe. Take 241 00:15:04,320 --> 00:15:07,480 Speaker 1: us from Estonia down to Poland. What is your biggest 242 00:15:07,520 --> 00:15:13,560 Speaker 1: worry as Putin attacks? Well, the biggest worry for the 243 00:15:13,680 --> 00:15:17,600 Speaker 1: market is Russia itself, right, I mean I think we're 244 00:15:17,960 --> 00:15:20,440 Speaker 1: as has been mentioned, I mean this is the biggest 245 00:15:21,080 --> 00:15:24,240 Speaker 1: It's a systemic geopolitical events in Europe, the biggest one 246 00:15:24,320 --> 00:15:26,720 Speaker 1: in Second World War. Remember we had the fall of 247 00:15:26,720 --> 00:15:28,560 Speaker 1: the Building Wall, which was a positive. This is a 248 00:15:28,560 --> 00:15:32,680 Speaker 1: big negative. And I think you know those countries surrounding 249 00:15:32,880 --> 00:15:36,520 Speaker 1: Ukraine and Russia, you know the Baltics, Poland, Romania will 250 00:15:36,560 --> 00:15:38,960 Speaker 1: be very worried. Now. I don't think Putin is going 251 00:15:39,000 --> 00:15:42,520 Speaker 1: beyond Ukraine, but I think this is a game change 252 00:15:42,600 --> 00:15:45,560 Speaker 1: in terms of European security. I mean, NATO has got 253 00:15:45,560 --> 00:15:47,520 Speaker 1: a really set up its act. We're going to see 254 00:15:47,520 --> 00:15:50,680 Speaker 1: a big increases in defense spending because of this. But 255 00:15:50,920 --> 00:15:53,680 Speaker 1: at the moment, it's they focus really is on Russian 256 00:15:53,720 --> 00:15:56,480 Speaker 1: markets and they've been collapsing today. I mean, you know, 257 00:15:56,880 --> 00:16:00,800 Speaker 1: lots of talk about Fortress Russia interest in. The Russians 258 00:16:00,840 --> 00:16:02,920 Speaker 1: themselves didn't see this coming, and I think they've been 259 00:16:02,920 --> 00:16:06,640 Speaker 1: panic selling across the board of Russian assets. Russians didn't 260 00:16:06,640 --> 00:16:09,800 Speaker 1: believe their own leaders on this one, which is why 261 00:16:09,920 --> 00:16:13,440 Speaker 1: Russian assets have been been falling so so aggressively today. 262 00:16:13,760 --> 00:16:15,800 Speaker 1: It's him. We worked through this together eight years ago 263 00:16:16,080 --> 00:16:18,560 Speaker 1: over Crimea when I was in London, and to him, 264 00:16:18,600 --> 00:16:21,160 Speaker 1: this is different, and you know it's different. And as 265 00:16:21,200 --> 00:16:22,960 Speaker 1: you say, Fortress Russia, a lot of people have talked 266 00:16:23,000 --> 00:16:26,240 Speaker 1: about that recently. The President Putin prepared for this moment. 267 00:16:26,320 --> 00:16:29,240 Speaker 1: There was trying to insulate the economy, run a budget surplus, 268 00:16:29,640 --> 00:16:34,480 Speaker 1: raise capital. It's him, just how insulated are they? Well? 269 00:16:34,520 --> 00:16:36,840 Speaker 1: I was the first person to coin the phrase stans 270 00:16:36,880 --> 00:16:41,080 Speaker 1: Russia back in and Putin has been planning this. This 271 00:16:41,160 --> 00:16:43,400 Speaker 1: has been all about building those balance sheets. He has 272 00:16:43,400 --> 00:16:45,440 Speaker 1: been determined to go into Ukraine for a long time. 273 00:16:45,800 --> 00:16:48,880 Speaker 1: I've written it, I argued it back into fifteen fifteen. 274 00:16:48,880 --> 00:16:50,320 Speaker 1: There was likely to be a defining want to be 275 00:16:50,400 --> 00:16:54,560 Speaker 1: rushing the grain, and this is it. Unfortunately, now Russia. 276 00:16:54,800 --> 00:16:57,320 Speaker 1: You know, it has the balance sheet, but the level 277 00:16:57,360 --> 00:17:00,480 Speaker 1: of sanctions were likely to see because of this, It's 278 00:17:00,520 --> 00:17:04,000 Speaker 1: going to be pariah Russia, pariah putin uh and it's 279 00:17:04,000 --> 00:17:06,199 Speaker 1: gonna be very difficult to do any business with Russia. 280 00:17:06,280 --> 00:17:10,800 Speaker 1: That means higher borrowing costs, less investment, less growth, lower 281 00:17:10,800 --> 00:17:14,119 Speaker 1: living standards, and Russians already and not really happy with 282 00:17:14,119 --> 00:17:16,280 Speaker 1: their lot in life and memory. Kazakhstan we had some 283 00:17:16,280 --> 00:17:19,639 Speaker 1: social arrests recently because of precisely that point. So this, 284 00:17:19,640 --> 00:17:23,800 Speaker 1: this makes Russia weaker. This and likely if it's regime 285 00:17:23,880 --> 00:17:27,800 Speaker 1: change in Ukraine, what's likely to happen is that any 286 00:17:27,840 --> 00:17:30,080 Speaker 1: new government that emerges in Ukraine will be sanctioned by 287 00:17:30,080 --> 00:17:31,920 Speaker 1: the West as well. So Russia, Russia will have to 288 00:17:31,960 --> 00:17:35,800 Speaker 1: pay the costs of rebuilding Ukraine and Belarus, and its 289 00:17:35,800 --> 00:17:38,240 Speaker 1: economy is going to be in a pretty die state 290 00:17:38,320 --> 00:17:41,520 Speaker 1: because of sanctions. Tim what's the fallout for the broader 291 00:17:41,520 --> 00:17:44,440 Speaker 1: emerging market complex, given the fact that food prices are 292 00:17:44,480 --> 00:17:47,720 Speaker 1: likely to surge, given the fact that weak production could 293 00:17:47,760 --> 00:17:51,800 Speaker 1: be disrupted, all of the potential commodity complex eruptions that 294 00:17:51,840 --> 00:17:55,280 Speaker 1: we're seeing today feeding out into the importers in the 295 00:17:55,280 --> 00:17:59,879 Speaker 1: emerging market world. Look, I mean the market was so 296 00:18:00,040 --> 00:18:02,520 Speaker 1: sanguine about this, right, I mean it assumed it wasn't 297 00:18:02,520 --> 00:18:05,239 Speaker 1: going to be a globally stemic event. It is right. 298 00:18:05,280 --> 00:18:09,600 Speaker 1: I mean, this is about hardcore European security, It's about energy, 299 00:18:10,160 --> 00:18:13,520 Speaker 1: It's about you know, heating European homes. And I think 300 00:18:13,520 --> 00:18:16,400 Speaker 1: the fallout as we've seen today is very very significant 301 00:18:17,160 --> 00:18:20,639 Speaker 1: energy prices, higher supply disruptions. Are there going to be 302 00:18:20,640 --> 00:18:24,440 Speaker 1: disruptions in manufacturing production in Europe because of this? In 303 00:18:24,480 --> 00:18:27,200 Speaker 1: emerging markets, you know, it's it's about energy importers versus 304 00:18:27,280 --> 00:18:31,760 Speaker 1: energy exporters. Place slight Turkey, he sent eu Rope, Asia. 305 00:18:32,560 --> 00:18:34,240 Speaker 1: You know they import a lot of energy. They're going 306 00:18:34,280 --> 00:18:36,800 Speaker 1: to be hit by you know, higher inflation and globally 307 00:18:36,800 --> 00:18:40,640 Speaker 1: it's stagflation. I guess is the fear here, Timothy ask 308 00:18:40,800 --> 00:18:43,800 Speaker 1: what is the power of I'm going to say, dominant, 309 00:18:43,840 --> 00:18:47,960 Speaker 1: more visible, more stable emerging market nations. What is the 310 00:18:48,040 --> 00:18:52,320 Speaker 1: power in place here of say India or Indonesia or 311 00:18:52,359 --> 00:18:55,639 Speaker 1: to bring it over to Europe, m Latvia? What are 312 00:18:55,640 --> 00:19:01,200 Speaker 1: their power right now? Well? I said not much. Unfortunately, 313 00:19:01,280 --> 00:19:03,240 Speaker 1: a lot of the energy markets have have lots of 314 00:19:03,280 --> 00:19:07,400 Speaker 1: structural issues. Reform issues. I mentioned winners and losers into 315 00:19:07,560 --> 00:19:09,919 Speaker 1: the energy bounce. India is a huge energy importer as 316 00:19:09,960 --> 00:19:12,199 Speaker 1: it's Turkey, So I think, you know, people are just 317 00:19:12,240 --> 00:19:14,680 Speaker 1: waiting to see how this pans out, what it means 318 00:19:14,720 --> 00:19:19,280 Speaker 1: for global commodity prices. You know you mentioned already global 319 00:19:19,280 --> 00:19:21,720 Speaker 1: central banks. How are they're going to respond to this? Uh, 320 00:19:21,960 --> 00:19:25,720 Speaker 1: you know, pretty uncertain, but you know, duo politics matters 321 00:19:26,200 --> 00:19:29,240 Speaker 1: and it's here to stay. And as I said, this 322 00:19:29,280 --> 00:19:31,920 Speaker 1: is a game changer. It's him. You used the stagflation 323 00:19:31,960 --> 00:19:35,320 Speaker 1: word moments ago. Who's that for the whole region or 324 00:19:35,359 --> 00:19:40,000 Speaker 1: one particular country, Well, globally right. That means you think 325 00:19:40,000 --> 00:19:42,720 Speaker 1: a global story and that's your stagflation. That's the ultimate 326 00:19:42,720 --> 00:19:44,800 Speaker 1: story now, not just the toros. Is that your base 327 00:19:44,880 --> 00:19:52,160 Speaker 1: case stafflation is lower growth, high inflation. The risk here 328 00:19:52,280 --> 00:19:56,320 Speaker 1: is that we see further supply disruptions around energy and 329 00:19:56,400 --> 00:20:00,000 Speaker 1: that hits global growth. And it's I mean, inflation is here. 330 00:20:00,080 --> 00:20:02,840 Speaker 1: That's the reality. As consumers. We know that central banks 331 00:20:02,920 --> 00:20:05,080 Speaker 1: might be trying to sell us a different story, but 332 00:20:05,400 --> 00:20:08,200 Speaker 1: we're all we all see inflation and it's if it's 333 00:20:08,240 --> 00:20:11,560 Speaker 1: hard to see it falling quickly, and certainly this episode 334 00:20:11,560 --> 00:20:14,600 Speaker 1: will not hold up Tim wonderful to catch up with 335 00:20:14,600 --> 00:20:21,200 Speaker 1: your Tim Ash there of Blue Bay Connor he joins 336 00:20:21,280 --> 00:20:23,680 Speaker 1: US now head of Research and E D and F 337 00:20:23,880 --> 00:20:27,080 Speaker 1: Man Cornor we know Chicago Board of Trade. We do 338 00:20:27,200 --> 00:20:32,040 Speaker 1: not know Novo East Spot. How critical is the wheat 339 00:20:32,200 --> 00:20:39,120 Speaker 1: dynamic for Russia right now? It's huge. Russia, together with Ukraine, 340 00:20:39,680 --> 00:20:44,040 Speaker 1: they can't for global wheat exports. So at a time 341 00:20:44,040 --> 00:20:48,280 Speaker 1: when global wheat market is already pretty tight, fundamentally, we 342 00:20:48,320 --> 00:20:51,680 Speaker 1: can't really afford to see a big player come out 343 00:20:51,680 --> 00:20:55,959 Speaker 1: of action. So supplies are tight, demand is inelastic, and 344 00:20:56,000 --> 00:20:59,520 Speaker 1: the world does heavily rely on this region. Black sea 345 00:20:59,560 --> 00:21:03,560 Speaker 1: export are absolutely critical for world supplies right now. Do 346 00:21:03,600 --> 00:21:07,320 Speaker 1: you believe that soft commodities led by Russian wheat will 347 00:21:07,359 --> 00:21:11,040 Speaker 1: be part of sanctioned announcements today and indeed in the 348 00:21:11,119 --> 00:21:15,400 Speaker 1: coming days. This is where I have my doubts, because 349 00:21:15,680 --> 00:21:19,040 Speaker 1: unfortunately food inflation is a growing story around the world. 350 00:21:19,640 --> 00:21:22,560 Speaker 1: Um the Middle East, North Africa in particular rely heavily 351 00:21:22,680 --> 00:21:26,040 Speaker 1: on Russian Ukraine for their wheat imports. If there were 352 00:21:26,080 --> 00:21:28,320 Speaker 1: to be a spike, and we're already seeing wheat is 353 00:21:28,359 --> 00:21:31,400 Speaker 1: one of the best performing commodities, so far um. If 354 00:21:31,440 --> 00:21:34,840 Speaker 1: that were to lead to further hikes in prices, then 355 00:21:34,840 --> 00:21:38,520 Speaker 1: I think food inflation could be a political politically, you know, 356 00:21:38,800 --> 00:21:42,440 Speaker 1: really really challenging situations. So I feel that that is 357 00:21:42,520 --> 00:21:46,640 Speaker 1: one area where I think sanctus might be not might 358 00:21:46,720 --> 00:21:48,320 Speaker 1: not not take place. If you look back into a 359 00:21:48,320 --> 00:21:53,720 Speaker 1: thousand fourteen, when Russia annex Crimea, the exports of week 360 00:21:53,800 --> 00:21:56,600 Speaker 1: continue to take place. So I'm hoping this will be 361 00:21:56,640 --> 00:21:59,439 Speaker 1: the same this time around. A lot of nations have 362 00:21:59,520 --> 00:22:02,119 Speaker 1: imprepared paring for this. We've even heard from Germany talking 363 00:22:02,160 --> 00:22:05,159 Speaker 1: about how they will be able to be independent of 364 00:22:05,280 --> 00:22:08,600 Speaker 1: Russian oil and gas, should that be necessary. Have you 365 00:22:08,680 --> 00:22:11,959 Speaker 1: seen anything on the ground, any types of diversions in 366 00:22:12,119 --> 00:22:15,880 Speaker 1: terms of some of the important export pathways in response 367 00:22:15,960 --> 00:22:21,639 Speaker 1: and in preparation for this invasion. No, so um. I 368 00:22:21,680 --> 00:22:25,120 Speaker 1: mean certainly on energy. I know that, for example, Germany 369 00:22:25,440 --> 00:22:29,639 Speaker 1: um has diversified quite a bit away from Russian oil. 370 00:22:29,880 --> 00:22:32,199 Speaker 1: You know, they've got quite a bit of windpower themselves. 371 00:22:32,240 --> 00:22:36,159 Speaker 1: They are using moral and g um. Luckily, Europe is 372 00:22:36,200 --> 00:22:40,520 Speaker 1: a big agricultural producing themselves, so they don't actually import um, 373 00:22:40,600 --> 00:22:42,919 Speaker 1: so they won't be relying on Russia for any of 374 00:22:42,960 --> 00:22:46,080 Speaker 1: their imports, although they do rely a little bit on 375 00:22:46,640 --> 00:22:50,840 Speaker 1: um Ukraine for their sunflower oils. So vegetable oils right now, 376 00:22:50,880 --> 00:22:54,480 Speaker 1: cooking oils if you like, are extremely tight globally. Um, 377 00:22:54,560 --> 00:22:57,400 Speaker 1: so there's no room for slack there. But I think 378 00:22:57,680 --> 00:23:00,960 Speaker 1: energy wise, yes, natural guests of a sale the European 379 00:23:01,920 --> 00:23:06,760 Speaker 1: zone is basically dependent on the region. Um, it's going 380 00:23:06,800 --> 00:23:09,840 Speaker 1: to be extremely costly to divert that away into llergy 381 00:23:09,840 --> 00:23:13,639 Speaker 1: and other resources. How much have you revisited your expectations 382 00:23:13,720 --> 00:23:16,560 Speaker 1: for oil and gas prices? What your base cases? Now 383 00:23:17,280 --> 00:23:20,000 Speaker 1: that what as John said, the tail risk has become 384 00:23:20,119 --> 00:23:24,119 Speaker 1: the base case in Europe. Yeah, So I think hundred 385 00:23:24,200 --> 00:23:27,119 Speaker 1: dollar was a hundred dollar about for Crudel was given 386 00:23:27,520 --> 00:23:31,080 Speaker 1: just based on fundamentals. Now there was there was this 387 00:23:31,280 --> 00:23:34,080 Speaker 1: potential geopolitical risk periment which now, as you mentioned, is 388 00:23:34,119 --> 00:23:36,520 Speaker 1: now becoming no longer premium but has to be actually 389 00:23:36,560 --> 00:23:40,000 Speaker 1: priced in now. So the worst case for scenario has 390 00:23:40,040 --> 00:23:43,840 Speaker 1: actually come to fruit. Um, maybe we started hundred dollars. 391 00:23:43,920 --> 00:23:46,440 Speaker 1: I think hundred twenty is probably a given now from 392 00:23:46,440 --> 00:23:51,040 Speaker 1: here on. Again, similar to what I'm seeing in the 393 00:23:51,080 --> 00:23:55,000 Speaker 1: food exports and retex what I'm not entirely convinced that 394 00:23:55,240 --> 00:23:58,840 Speaker 1: there will be embargo on US energy and sorry, you're 395 00:23:59,640 --> 00:24:03,639 Speaker 1: Russian energy because Biden in the USA, I was just 396 00:24:03,640 --> 00:24:07,479 Speaker 1: trying to control prices at home. Europe needs lower fuel bills. 397 00:24:07,520 --> 00:24:09,760 Speaker 1: I think it would be political suicide if they were 398 00:24:09,800 --> 00:24:13,840 Speaker 1: to put sanctions on UM Russian oil. It would be 399 00:24:13,880 --> 00:24:18,520 Speaker 1: it would just cause them massive spiral and therefore more invitation. Corna, 400 00:24:18,600 --> 00:24:21,200 Speaker 1: you are a grizzled pro at this. And of course 401 00:24:21,200 --> 00:24:23,760 Speaker 1: the joy across the economy is always comes back to 402 00:24:23,800 --> 00:24:27,720 Speaker 1: the discussion of oil. When an amateur like me says 403 00:24:27,800 --> 00:24:30,640 Speaker 1: to you, can the US come to the rescue? Can 404 00:24:30,680 --> 00:24:34,360 Speaker 1: we move ships across the Atlantic to bring hydrocarbons to Europe? 405 00:24:34,640 --> 00:24:39,840 Speaker 1: How do you respond to such foolishness? No, it's just 406 00:24:39,920 --> 00:24:44,640 Speaker 1: on afraid basis. It wouldn't work. The US had been 407 00:24:44,720 --> 00:24:47,600 Speaker 1: enjoying almost self sufficiency in terms of oil. They used 408 00:24:47,600 --> 00:24:49,920 Speaker 1: to be that important. Then Shiloh came and they became 409 00:24:49,920 --> 00:24:52,960 Speaker 1: a net exporter. But the shale oil production is plateau 410 00:24:53,000 --> 00:24:55,480 Speaker 1: in UM and if anything, they now have to tap 411 00:24:55,520 --> 00:24:58,719 Speaker 1: into their own oil reserves, the government strategic reserves, So 412 00:24:58,760 --> 00:25:01,960 Speaker 1: the US can't come to the rescue. UM for guess 413 00:25:02,000 --> 00:25:04,199 Speaker 1: you've got the likes of Qatar and might try and 414 00:25:04,240 --> 00:25:07,639 Speaker 1: help in but for crude opening themselves are sitting on 415 00:25:07,760 --> 00:25:11,720 Speaker 1: not too much bad capacity. Um, so what hundred or 416 00:25:11,840 --> 00:25:14,199 Speaker 1: hundred twenty even dollar oil will tell you is that 417 00:25:14,240 --> 00:25:17,399 Speaker 1: we need to Russian demand. So what will happen eventually 418 00:25:17,480 --> 00:25:20,080 Speaker 1: is you're going to see some kind of economic growth 419 00:25:20,080 --> 00:25:23,560 Speaker 1: stalling and ultimately demand will come off because there isn't 420 00:25:23,600 --> 00:25:27,119 Speaker 1: so much slack unless we're got to deal with Iran. Iran, 421 00:25:27,320 --> 00:25:29,720 Speaker 1: may you know with the nuclear deal that may lead 422 00:25:29,720 --> 00:25:32,119 Speaker 1: to some more bows coming out. Kind of thank you, 423 00:25:32,200 --> 00:25:34,879 Speaker 1: as always, kind of there a d F and man, 424 00:25:41,800 --> 00:25:45,360 Speaker 1: we adjust, as does Morgan Stanley Economics, Robert Rosen joins 425 00:25:45,440 --> 00:25:49,480 Speaker 1: US now senior US Economists Robert Steve Anglinder over standard 426 00:25:49,560 --> 00:25:54,159 Speaker 1: charter has been resilient before this historic moment of the 427 00:25:54,200 --> 00:25:57,000 Speaker 1: five six seven rate high team, maybe a little bit 428 00:25:57,040 --> 00:25:59,960 Speaker 1: off the mark. Do you adjust back down to three 429 00:26:00,080 --> 00:26:03,919 Speaker 1: rate hikes this morning? Well, thanks for having me, Tom. 430 00:26:04,080 --> 00:26:07,080 Speaker 1: We still see the Fed on track to raise interest 431 00:26:07,160 --> 00:26:10,199 Speaker 1: rates in March by twenty five basis points, but of 432 00:26:10,240 --> 00:26:13,919 Speaker 1: course there are now an increased degree of uncertainty in 433 00:26:13,960 --> 00:26:16,520 Speaker 1: the economic outlook, so the Fed has to weigh what 434 00:26:16,640 --> 00:26:20,040 Speaker 1: they're seeing in terms of domestic economic conditions, the strong 435 00:26:20,119 --> 00:26:25,200 Speaker 1: labor market, the resilient consumer uh and in the inflationary backdrop. 436 00:26:25,359 --> 00:26:27,520 Speaker 1: The FED has to weigh that against the potential risks 437 00:26:27,560 --> 00:26:29,680 Speaker 1: to the economic outlook going forward. Let's go back to 438 00:26:29,760 --> 00:26:33,639 Speaker 1: mc chesney, Martin and Truman and Eisenhower of the Korean War. 439 00:26:34,040 --> 00:26:35,800 Speaker 1: Is this a point where the White House says to 440 00:26:35,880 --> 00:26:39,040 Speaker 1: Chairman Powell, Look, we really need your help. This is 441 00:26:39,080 --> 00:26:42,720 Speaker 1: what we'd like you to do. You know, the FED 442 00:26:42,800 --> 00:26:46,119 Speaker 1: we will maintain its independence in Monterrey policy, of course, 443 00:26:46,160 --> 00:26:48,560 Speaker 1: but the FED has to ask important questions. And this 444 00:26:48,600 --> 00:26:50,440 Speaker 1: is not the first time that the FED has had 445 00:26:50,480 --> 00:26:53,879 Speaker 1: to grapple with domestic economic conditions that might call for 446 00:26:54,000 --> 00:26:58,200 Speaker 1: rate hikes, but international conditions that present some potential risks 447 00:26:58,200 --> 00:27:00,840 Speaker 1: to the economic outlook. So that's a lot to weigh there. 448 00:27:01,080 --> 00:27:04,040 Speaker 1: It does make a case for caution, so it helps 449 00:27:04,080 --> 00:27:06,560 Speaker 1: the FED with the debates we were having in recent 450 00:27:06,560 --> 00:27:09,200 Speaker 1: weeks about fifty basis points or twenty five basis points 451 00:27:09,240 --> 00:27:11,879 Speaker 1: in March. It makes that decision a little bit easier, 452 00:27:12,359 --> 00:27:14,800 Speaker 1: But the FED doesn't want to get caught that back footed. 453 00:27:15,280 --> 00:27:18,080 Speaker 1: Uh IF risks to the economic outlook don't prove to 454 00:27:18,119 --> 00:27:20,400 Speaker 1: be as significant, and they still have to deal with inflation. 455 00:27:20,520 --> 00:27:23,120 Speaker 1: Will be you ready to use the s witch yet? Stagflation? 456 00:27:23,400 --> 00:27:24,920 Speaker 1: Are you in the team there? Yeah? Is it part 457 00:27:24,920 --> 00:27:28,880 Speaker 1: of the conversation for you? I don't think we're there yet. 458 00:27:28,960 --> 00:27:31,879 Speaker 1: This is certainly a type of financial condition shock that 459 00:27:31,920 --> 00:27:36,439 Speaker 1: pushes inflation and activity in opposite directions. Oil prices are 460 00:27:36,480 --> 00:27:40,200 Speaker 1: going to put upward pressure on headline inflation. That adds 461 00:27:40,320 --> 00:27:43,000 Speaker 1: to the multitude of inflationary shocks that we've been seeing 462 00:27:43,040 --> 00:27:45,280 Speaker 1: in recent months, and of course it can have a 463 00:27:45,280 --> 00:27:48,320 Speaker 1: negative effect on economic activity. But you look at the 464 00:27:48,359 --> 00:27:50,639 Speaker 1: way the labor market is today. I know that can turn, 465 00:27:50,960 --> 00:27:52,960 Speaker 1: but I think we've been surprised time and time again 466 00:27:53,000 --> 00:27:55,520 Speaker 1: about the resilience of the labor market and the resilience 467 00:27:55,560 --> 00:27:58,720 Speaker 1: of the U. S. Consumer, as as remaining the heartbeat 468 00:27:58,760 --> 00:28:01,440 Speaker 1: really of this economic Expand what's the red line though 469 00:28:01,440 --> 00:28:03,639 Speaker 1: for oil prices? Do you have a sense rob of 470 00:28:03,640 --> 00:28:06,159 Speaker 1: how high oil prices can get before you start talking 471 00:28:06,480 --> 00:28:09,720 Speaker 1: about a material downshift in the pace of economic growth. 472 00:28:11,720 --> 00:28:14,639 Speaker 1: We are certainly seeing the effects of oil prices on 473 00:28:14,720 --> 00:28:17,440 Speaker 1: consumer wallets. We're looking at you know, every ten cent 474 00:28:17,560 --> 00:28:20,960 Speaker 1: increase in retail gas prices is about a ten billion 475 00:28:21,000 --> 00:28:24,560 Speaker 1: annualized hit to consumer budgets, and that has been adding up. 476 00:28:24,760 --> 00:28:26,879 Speaker 1: It's been stacking up, and it's been stacking up with 477 00:28:26,920 --> 00:28:30,560 Speaker 1: other inflationary pressures. We've been seeing real wages in the 478 00:28:30,600 --> 00:28:33,760 Speaker 1: red for most groups save for the lower end of 479 00:28:33,800 --> 00:28:37,080 Speaker 1: the wage spectrum. If energy prices keep creeping up and 480 00:28:37,119 --> 00:28:39,400 Speaker 1: they keep real wage growth in the red, then I 481 00:28:39,440 --> 00:28:41,080 Speaker 1: do think that's where you start to have to get 482 00:28:41,080 --> 00:28:43,480 Speaker 1: a little bit more concerned about the pace of consumer 483 00:28:43,520 --> 00:28:45,640 Speaker 1: activity when we're looking at the second half of the year. 484 00:28:45,840 --> 00:28:48,840 Speaker 1: Is there a precedent for how quickly the economy can 485 00:28:48,880 --> 00:28:51,760 Speaker 1: shift in response to a shock like this given all 486 00:28:51,800 --> 00:28:53,959 Speaker 1: of the dynamism, all of the strength that you've been 487 00:28:53,960 --> 00:28:59,680 Speaker 1: talking about that we're seeing in corporate balance sheets and beyond. Yeah, absolutely, 488 00:28:59,720 --> 00:29:01,920 Speaker 1: I mean things can certainly turn fast. But again it 489 00:29:01,960 --> 00:29:04,320 Speaker 1: comes down to where are the fundamentals and where is 490 00:29:04,360 --> 00:29:07,080 Speaker 1: the heartbeat of the economy, and that's the labor market. 491 00:29:07,240 --> 00:29:11,680 Speaker 1: And we've seen job growth with incredible momentum, aggregate incomes 492 00:29:11,840 --> 00:29:16,480 Speaker 1: growing strongly, ways growth at the individual level still growing strongly. 493 00:29:16,600 --> 00:29:18,880 Speaker 1: So there's still a lot of positive tail winds in 494 00:29:18,920 --> 00:29:24,920 Speaker 1: place to keep the domestic economic expansion going strong this year. Um. 495 00:29:24,920 --> 00:29:26,920 Speaker 1: But of course things can turn fast, and when they 496 00:29:26,960 --> 00:29:29,800 Speaker 1: turn fast, it tends to be transmitted through those financial 497 00:29:29,800 --> 00:29:33,560 Speaker 1: shocks through uncertainty. UM. And we've seen how the FED 498 00:29:33,600 --> 00:29:36,360 Speaker 1: has been responsive to developments like that very quickly in 499 00:29:36,400 --> 00:29:40,360 Speaker 1: the past. So uh, you know, pivoting, that pivoting style 500 00:29:40,400 --> 00:29:43,640 Speaker 1: that we've seen from Chair pow Um likely to remain 501 00:29:43,640 --> 00:29:47,760 Speaker 1: in his tool kit. Do we rationalize, Robert Rosener that 502 00:29:47,880 --> 00:29:51,440 Speaker 1: if inflation is a hundred basis points higher than expected, 503 00:29:52,080 --> 00:29:57,840 Speaker 1: are critically the timeline is extended out of a longer inflation. 504 00:29:58,440 --> 00:30:00,840 Speaker 1: How do the PhDs at the out adapt to that. 505 00:30:02,640 --> 00:30:05,760 Speaker 1: It's really tricky question, Tom, because you know, typically the 506 00:30:05,800 --> 00:30:08,040 Speaker 1: knee jerk reaction as you look at an energy price 507 00:30:08,080 --> 00:30:10,240 Speaker 1: shock and you think that that that that that might 508 00:30:10,320 --> 00:30:13,920 Speaker 1: be the t word transitory, right, But it's occurring against 509 00:30:13,920 --> 00:30:16,960 Speaker 1: this backdrop of a multitude of inflationary shocks, and we 510 00:30:17,040 --> 00:30:18,960 Speaker 1: do have to start to get concerned about what that 511 00:30:19,000 --> 00:30:21,440 Speaker 1: could mean for the path going forward. But again it 512 00:30:21,480 --> 00:30:24,080 Speaker 1: pushes the dual mandate in opposite directions because you have 513 00:30:24,160 --> 00:30:27,480 Speaker 1: energy prices now lifting inflation, but also you have to 514 00:30:27,520 --> 00:30:30,800 Speaker 1: be watchful for the downside, risks for activity that could 515 00:30:30,920 --> 00:30:34,600 Speaker 1: potentially have down the line. Rob Wonderful has a waste 516 00:30:34,600 --> 00:30:36,480 Speaker 1: diffic moment for you to same. And I'm actin'ly gonna 517 00:30:36,480 --> 00:30:38,880 Speaker 1: be talking all morning about well this makes for next month. 518 00:30:39,200 --> 00:30:42,960 Speaker 1: Rob Rosen that of Morgan Stanley. This is the Bloomberg 519 00:30:43,000 --> 00:30:47,360 Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from 520 00:30:47,400 --> 00:30:50,760 Speaker 1: seven to ten am Eastern. I'm Bloomberg Radio, and on 521 00:30:50,840 --> 00:30:55,120 Speaker 1: Bloomberg Television each day from six to nine am for 522 00:30:55,360 --> 00:30:59,600 Speaker 1: insight from the best in economics, finance, investment, and international 523 00:30:59,640 --> 00:31:05,440 Speaker 1: relations n's. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 524 00:31:05,600 --> 00:31:09,200 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 525 00:31:09,240 --> 00:31:11,920 Speaker 1: Tom keene In. This is Bloomberg