WEBVTT - Surveillance: Russia Invades Ukraine 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.960 and of course on the Bloomberg Termainment. We're thrilled to 0:00:30.000 --> 0:00:32.839 bringing out the perspective of someone out of Florida and 0:00:32.880 --> 0:00:37.159 West Point who has a commanding understanding of Europe, working 0:00:37.159 --> 0:00:40.560 with Admiral Stevitas at NATO, and of course his leadership 0:00:40.640 --> 0:00:44.519 as former US Commanding General in Europe for American troops. 0:00:44.960 --> 0:00:47.560 Ben Hodges joins US today. General, thank you so much 0:00:48.159 --> 0:00:50.199 for joining us. I want you to convey to our 0:00:50.240 --> 0:00:54.280 listeners and viewers across this nation right now, what is 0:00:54.320 --> 0:00:58.320 the number one thing our military can do to assist 0:00:58.440 --> 0:01:02.480 NATO and to assist you, Krane. But the present time 0:01:02.680 --> 0:01:07.800 of American soldiers is always such a powerful message of 0:01:07.959 --> 0:01:11.039 assurance to allies and also of warning to the Kremlin. 0:01:11.440 --> 0:01:13.880 The Kremlin does not want to take on the U. S. 0:01:14.040 --> 0:01:18.679 Army or Air Force or Navy, especially either alone or 0:01:18.720 --> 0:01:22.840 as part of NATO. So the deployment of American troops 0:01:22.880 --> 0:01:25.039 to the eastern flank of NATO, I think was a 0:01:25.080 --> 0:01:29.199 good move uh and a strong signal if we further 0:01:29.280 --> 0:01:33.960 deploy army to Lithuania, which you know encyclopedic, or we 0:01:34.080 --> 0:01:37.920 deploy navy through the Bosphorus into the Black Sea, as 0:01:38.040 --> 0:01:44.360 Ukraine begs Turkey to shut down the Bosphorus to Russian military. 0:01:44.480 --> 0:01:48.360 Uh ships, If we do that, how will that change 0:01:48.360 --> 0:01:53.360 it for Ukraine? What is its signal now for Ukraine? Well, 0:01:53.360 --> 0:01:57.160 of course, Ukraine is not an island. It's strategically important 0:01:57.160 --> 0:01:59.640 for all of us, including Russia, because of where it 0:01:59.720 --> 0:02:02.600 said on the Black Seat. It's why Catherine the Great 0:02:02.920 --> 0:02:06.520 um stole Crimea back at the end of the eighteenth century. 0:02:06.640 --> 0:02:11.000 Uh So Turkey, our ally, could really change the calculus 0:02:11.000 --> 0:02:14.000 for the Kremlin. If Turkey were to close the Straits, 0:02:14.040 --> 0:02:17.079 which it's entitled to do because of its sovereignty to 0:02:17.400 --> 0:02:20.760 Russian navy, that would that would make a significant impact 0:02:20.840 --> 0:02:24.400 on Russian thinking. What the United States and our allies 0:02:24.440 --> 0:02:28.519 are doing by reinforcing NATO's eastern flank, of course, tells 0:02:28.560 --> 0:02:31.320 the Russians do not let this get out of control, 0:02:31.400 --> 0:02:34.440 did not let it spill over into a NATO country, 0:02:34.480 --> 0:02:37.680 because then that will also completely change the situation. What 0:02:37.760 --> 0:02:41.360 will you listen for from General Austin now holding court 0:02:41.400 --> 0:02:44.960 a Secretary of Defense at the Pentagon. I would like 0:02:45.040 --> 0:02:49.160 to hear him say that we are accelerating the delivery 0:02:49.200 --> 0:02:52.600 of weapons systems that Ukraine needs. I mean we need 0:02:52.680 --> 0:02:57.120 something like a Berlin airlift in terms of UH quantity 0:02:57.600 --> 0:03:02.119 and speed to get more air defense systems specifically. Well, 0:03:02.120 --> 0:03:04.359 this is in general, this is critical. Do we need 0:03:04.440 --> 0:03:06.800 to put US troops into Love right now, to go 0:03:06.880 --> 0:03:10.560 across from Poland a NATO country X number of miles 0:03:10.560 --> 0:03:13.679 in the Love and set up camp in western Ukraine 0:03:13.960 --> 0:03:18.000 to say enough? No? I agree with the President here 0:03:18.040 --> 0:03:21.520 that um that we don't need to have NATO soldiers 0:03:21.560 --> 0:03:27.000 American soldiers inside Ukraine. UM. Well, what we can do 0:03:27.200 --> 0:03:30.839 is working with our Polish allies, establish a line of communication. 0:03:31.000 --> 0:03:34.120 That's that can send what we call white convoys, non 0:03:34.200 --> 0:03:37.800 military convoys, carrying all the stuff that Ukraine needs towards 0:03:37.920 --> 0:03:41.720 Lviv and then the Ukrainians would distribute it. Howard I think, 0:03:42.120 --> 0:03:44.880 But we don't want to get to a situation where 0:03:44.880 --> 0:03:47.520 by our actions we end up with Russians and Americans 0:03:47.520 --> 0:03:50.840 fighting each other. Ben, just to give you a sense 0:03:50.920 --> 0:03:54.080 of the US actually just put out this headline coming across. 0:03:54.120 --> 0:03:57.720 No new troop deployment is currently planned, but possible. Why 0:03:57.800 --> 0:04:01.320 is it so important to not have troops necessarily in 0:04:01.520 --> 0:04:03.600 Ukraine from the United States? Why do you think that 0:04:03.600 --> 0:04:09.000 that is a tactical misstep. So let's let me capyat that. 0:04:09.360 --> 0:04:12.320 I was disappointed when the one d and fifty National 0:04:12.360 --> 0:04:16.240 Guardsmen from Florida actually were pulled out of their training 0:04:16.279 --> 0:04:19.000 mission that has been going on for six years there 0:04:19.000 --> 0:04:21.880 in Yavaief. I wish that they were all still there. 0:04:22.320 --> 0:04:25.880 But when you bring in additional troops, uh this, this 0:04:26.160 --> 0:04:29.719 then looks like escalation and keeping all of our allies 0:04:29.760 --> 0:04:33.760 together is an essential part of our resistance, and so 0:04:34.279 --> 0:04:37.120 I think that in this case, we want to avoid 0:04:37.160 --> 0:04:41.640 a situation that ends up with NATO forces going against 0:04:41.680 --> 0:04:47.200 Russian forces when it's not in a situation of Article five. Ben. 0:04:47.800 --> 0:04:50.960 There has been discussion from European nations about contributing more 0:04:51.000 --> 0:04:54.600 troops to NATO in the surrounding nations not necessarily directly 0:04:54.880 --> 0:04:58.200 coming into conflict with Russia. What's your view on their 0:04:58.240 --> 0:05:02.640 capacity to increase troops, specially given the non military action 0:05:02.680 --> 0:05:04.960 that you've seen from the likes of Germany post World 0:05:04.960 --> 0:05:09.400 War Two. Well, it's a fair point. I think what 0:05:09.440 --> 0:05:15.000 we're gonna see is NATO reconsider our compliance with the 0:05:15.000 --> 0:05:17.760 so called NATO Russia Founding Act and that we will 0:05:17.839 --> 0:05:22.200 go to permanent basing in Estonia, Latvia, Lithuania, Poland and 0:05:22.320 --> 0:05:27.279 Romania of US and or other NATO troops. We have 0:05:27.360 --> 0:05:30.200 not done this, uh in a good faith effort that 0:05:30.279 --> 0:05:33.280 even though Russia had abrogated the NATO Russia Founding Act, 0:05:33.720 --> 0:05:37.000 we were complying with the provisions that say no permanent basing. 0:05:37.080 --> 0:05:38.960 I think this is going to change. I think we 0:05:39.000 --> 0:05:42.920 will see more NATO troops, particularly in the Baltic region. 0:05:43.080 --> 0:05:45.440 We really need to improve our air and missile defense 0:05:45.760 --> 0:05:48.760 in that region. In Germany and the Netherlands have to 0:05:49.279 --> 0:05:51.080 have a lot of capability where they could help here 0:05:51.200 --> 0:05:53.359 in general. Can I work through that line from the 0:05:53.440 --> 0:05:56.560 Ukrainian Leadia with you in real time? When you hear 0:05:56.600 --> 0:05:59.400 a line like this, Russian occupation forces are trying to 0:05:59.440 --> 0:06:03.080 seize the Chernobyl power plant, defenders of giving that life 0:06:03.080 --> 0:06:06.279 so that the tragedy of will not be repeated. We've 0:06:06.320 --> 0:06:09.280 reported this to the Swedish leader. This is a declaration 0:06:09.320 --> 0:06:11.960 of war against the whole of Europe. Can you help 0:06:12.000 --> 0:06:14.880 me interpret that? General? What does that mean? That last 0:06:14.960 --> 0:06:17.640 line when they go to somewhere like Chernobyl and you 0:06:17.640 --> 0:06:22.640 know the history that what does that mean? So? Um two, 0:06:22.839 --> 0:06:26.400 two or three aspects of this. First of all, Ukrainian 0:06:26.440 --> 0:06:30.479 forces are achieving a lot of technical successes against Russian forces. 0:06:30.520 --> 0:06:33.120 You he won't get much coverage on this from Moscow, 0:06:33.240 --> 0:06:37.440 but for sure lots of the Russian aircraft, helicopters are 0:06:37.480 --> 0:06:40.520 being shot down, tanks are being destroyed. We're gonna start 0:06:40.600 --> 0:06:43.760 seeing more and more video and reports of Russian losses. 0:06:43.800 --> 0:06:48.719 I think as the situation becomes more clear. So that's important. 0:06:48.960 --> 0:06:51.479 And when President Zelinski, who I met three weeks ago 0:06:51.520 --> 0:06:56.760 and Keith a tenacious guy, when he talks about declaration 0:06:56.800 --> 0:06:58.800 of war, of course I don't take it in the 0:06:58.839 --> 0:07:03.200 in the means of a US legal definition of declaration 0:07:03.240 --> 0:07:06.240 of war. But without a doubt, Um, this is it 0:07:06.400 --> 0:07:10.160 is time for European leaders to be open eyed and 0:07:10.240 --> 0:07:14.720 talk clearly about who we're dealing with. For sure, sees 0:07:14.760 --> 0:07:19.360 this as war, whether it's with ships, tanks, nuclear weapons, disinformation. 0:07:19.440 --> 0:07:23.600 Cyber Russia is always in a war state of mind, 0:07:24.320 --> 0:07:27.720 it may not always involve weapons. In this case, I 0:07:27.760 --> 0:07:31.040 think President Jelinski is exactly right. General Hodges, I want 0:07:31.040 --> 0:07:33.400 you to speak to the American people right now. And 0:07:33.480 --> 0:07:37.040 this is so urgent out of Vietnam of the certitude 0:07:37.040 --> 0:07:41.120 of technology in military and General Powell of course was 0:07:41.200 --> 0:07:44.240 steeped in that that it didn't work and that military 0:07:44.480 --> 0:07:48.360 was a tough thing with maximum force applied when needed. 0:07:48.840 --> 0:07:52.600 You're an infantry guy. When there's a silly phrase boots 0:07:52.640 --> 0:07:55.960 on the ground you lived at, tell me, as an 0:07:56.000 --> 0:08:01.800 infantry guy, how we apply a power like force against 0:08:01.960 --> 0:08:06.400 Mr Putin? Uh, thank you Tom Well. Of course, future 0:08:06.480 --> 0:08:11.080 future war, which we're in already, will involve everything from drones, 0:08:11.240 --> 0:08:15.800 artificial intelligence, UH, the advantages of quantum quantum computing, but 0:08:15.880 --> 0:08:19.360 the disadvantages if our adversaries are using that, because that 0:08:19.400 --> 0:08:22.760 will break down the security of all of our I 0:08:22.960 --> 0:08:26.200 T systems are communications networks, so this is this is 0:08:26.240 --> 0:08:28.880 going to change things. And of course their ability to 0:08:29.040 --> 0:08:34.880 disrupt our GPS targeting and navigating UH systems. So that's there. 0:08:35.400 --> 0:08:37.640 But what did we watch for the last three months 0:08:38.160 --> 0:08:42.160 endless video of rail cars carrying tanks and artillery and 0:08:42.280 --> 0:08:47.920 armored fighting vehicles, big steel Russian ships, submarines. So it's 0:08:48.559 --> 0:08:52.880 you get more uh new technology, but you still are 0:08:52.920 --> 0:08:56.040 going to have people in trenches, people still fighting with 0:08:56.160 --> 0:08:59.640 rockets and artillery. That's part of it. In Russia, clearly 0:09:00.200 --> 0:09:04.079 uh IN tends to use blunt force. They're already employed this, 0:09:04.600 --> 0:09:08.520 but with more electronic warfare, they really have keepbility to 0:09:08.640 --> 0:09:13.439 jam that we have fallen behind. General Hodges. We appreciate 0:09:13.480 --> 0:09:14.959 your time, sir, and thank you for being with the 0:09:15.000 --> 0:09:21.640 spend Hodges there, the former US commanding General in Europe. 0:09:22.240 --> 0:09:24.680 We're looking for some kindance now. Peter Roppenheimer of Goldman 0:09:24.840 --> 0:09:27.120 first on equities. I want to get to you first, Peter, 0:09:27.240 --> 0:09:29.520 and thanks for being with us, just a simple one 0:09:29.559 --> 0:09:32.280 of us so many people. You've done the research, you've 0:09:32.280 --> 0:09:36.040 got an outlook, all your suggestions. What changed this morning? 0:09:36.440 --> 0:09:38.560 What did you have to rip up after what we've 0:09:38.559 --> 0:09:44.720 seen play out across Ukraine? Hi? John, Look, I think 0:09:44.800 --> 0:09:48.959 that the markets respond in real time, and the most 0:09:49.040 --> 0:09:51.800 obvious impact of what we've seen in this escalation is 0:09:51.840 --> 0:09:54.559 just a rise and uncertainty, and that means a rise 0:09:54.600 --> 0:09:59.120 in risk premier. We estimate that each twenty basis point 0:09:59.200 --> 0:10:02.160 rise in risk prem and knocks around five pc off 0:10:02.160 --> 0:10:07.160 the ecty market, and we've seen something about twice that, 0:10:07.360 --> 0:10:10.760 which is quite large relative to historically what we've seen 0:10:10.800 --> 0:10:15.120 with political events. And it should be said that generally speaking, 0:10:15.360 --> 0:10:19.120 political events, as long as they don't have big macro spillovers, 0:10:19.679 --> 0:10:22.240 tend to fade and you tend to get some kind 0:10:22.280 --> 0:10:26.800 of rally. Now, obviously this is a very uncertain situation 0:10:27.160 --> 0:10:31.520 and there are some major political and economical implications, not 0:10:31.720 --> 0:10:35.959 least of which of course is via energy prices. We 0:10:35.960 --> 0:10:39.199 were already seeing a fairly decent correction in most equity 0:10:39.240 --> 0:10:42.600 markets because of the fears of higher inflation and interest rates. 0:10:42.600 --> 0:10:46.280 Those that were more defensive and perhaps more value orientated, 0:10:46.400 --> 0:10:50.720 particularly those in Europe and now Fermian Correction territory as well. 0:10:51.200 --> 0:10:53.520 But I would say that if we look at our 0:10:53.559 --> 0:10:57.720 tactical indicators, our risk appetite indicators, for example, the markets 0:10:57.760 --> 0:11:00.400 are now really pricing quite a big slow down and 0:11:00.480 --> 0:11:04.400 position has become quite negative, and typically from these sorts 0:11:04.400 --> 0:11:06.960 of levels in that indicator we do get a rally. 0:11:07.040 --> 0:11:09.560 So just a couple of days ago, I was speaking 0:11:09.559 --> 0:11:13.800 with a portfolio manager who represented a sea change, basically saying, 0:11:13.880 --> 0:11:16.960 go toward Europe, go toward European equities and away from 0:11:17.000 --> 0:11:20.080 the US because of the hiking cycle. Has that narrative 0:11:20.080 --> 0:11:22.640 completely got shifted though on its head, even with the 0:11:22.720 --> 0:11:26.200 valuation story, just simply because the risk is that much 0:11:26.280 --> 0:11:33.120 higher in that region. Well, certainly Europe is much more exposed, 0:11:33.200 --> 0:11:37.040 both economically and of course in terms of proximity, but 0:11:37.160 --> 0:11:40.800 I don't think it really changes the fundamental underlying issues. 0:11:41.200 --> 0:11:44.559 First of all, the European economy is actually pretty robust 0:11:44.600 --> 0:11:47.280 at the moment, much different to the situation say after 0:11:47.320 --> 0:11:52.080 the financial crisis. To your point, the policy cycle is 0:11:52.280 --> 0:11:55.480 less aggressive in Europe. In fact, fiscal policy is still easing, 0:11:55.920 --> 0:11:58.160 interest rates are likely at least in the Eurozone, to 0:11:58.240 --> 0:12:00.800 be rise at a much slower pace, and we've got 0:12:00.840 --> 0:12:03.680 strong private set to balance sheets in Europe. We have 0:12:03.840 --> 0:12:07.920 more exposure to value too, energy stocks and to other 0:12:07.960 --> 0:12:11.240 areas of the market that investors been tilting towards. And 0:12:11.280 --> 0:12:15.240 we should also recognize that valuations are reasonably good. I mean, 0:12:15.280 --> 0:12:18.480 if you take the stock six for example, it's trading 0:12:18.480 --> 0:12:21.840 on a peeve about fourteen times now having pezzed around 0:12:21.880 --> 0:12:24.760 eighteen much cheaper than the US and pretty much in 0:12:24.760 --> 0:12:27.240 line with its long run average. So in the short term, 0:12:27.280 --> 0:12:29.960 of course, uncertainty is going to be a big drag 0:12:30.000 --> 0:12:33.679 to this market, but fundamentally it looks reasonably sound and 0:12:33.720 --> 0:12:36.360 we do remain actually overweight on a on a one 0:12:36.400 --> 0:12:40.400 year you, Peter, in your geography at the London School 0:12:40.440 --> 0:12:43.920 of Economics, which folks, is world class, even long agoing 0:12:44.040 --> 0:12:47.880 far away, when Mr Appenheimer darkened the door, there's an 0:12:47.960 --> 0:12:52.720 idea of the European experiment. It is under threat today, Peter, 0:12:53.440 --> 0:12:55.360 is you and I have never seen, even with a 0:12:55.440 --> 0:13:00.200 collapse in n one frame for us this moment and 0:13:00.240 --> 0:13:05.320 how Europe must adapt. Which institution do you look for, 0:13:05.880 --> 0:13:09.720 Ernest Goldman Sax looks for to provide a new stability 0:13:09.840 --> 0:13:15.680 for Europe. Well, it's a great question, but we should 0:13:15.720 --> 0:13:21.120 emphasize that the institutional framework across Europe has strengthened dramatically 0:13:21.240 --> 0:13:24.320 since the days of the financial crisis and the sovereign 0:13:24.400 --> 0:13:27.760 debt crisis. Obviously, we've had a ramp up in the 0:13:27.800 --> 0:13:31.320 available instruments that can be used on the europe wide 0:13:31.559 --> 0:13:35.680 basis to deal with any systemic shocks, and that's that's 0:13:35.840 --> 0:13:38.760 a significant positive. And we should note that, for example, 0:13:39.480 --> 0:13:43.040 while sovereign spreads have widened a little bit in places 0:13:43.040 --> 0:13:45.720 like Italy, it's been very modest relative to what we've 0:13:45.720 --> 0:13:50.320 seen in previous periods where they've been heightened uncertainty. Uh 0:13:50.400 --> 0:13:53.720 and uh, And I would say that from that perspective, 0:13:54.000 --> 0:13:56.800 things are looking a lot more robust. That being said, 0:13:56.960 --> 0:13:59.480 one of the critical issues for Europe, of course, his 0:13:59.600 --> 0:14:03.560 energy security. Europe has been ahead globally in terms of 0:14:03.600 --> 0:14:08.200 its focus on decarbonization and ramping up investment in things 0:14:08.240 --> 0:14:11.520 like renewables, and I think this adds a new degree 0:14:11.559 --> 0:14:16.160 of urgency to that program, because that's what Europe is 0:14:16.200 --> 0:14:20.560 going to have to really agree on in order to 0:14:20.600 --> 0:14:23.720 become more independent in terms of its sources of energy 0:14:23.800 --> 0:14:25.800 and paid a greater catch up with you, sir, as 0:14:25.840 --> 0:14:28.480 always a difficult moment for the continent and for the 0:14:28.520 --> 0:14:38.960 people of Ukraine. Thank you. Peter Rappenhammer Goldman. When I 0:14:39.000 --> 0:14:42.200 first read Timothy Ash many years ago, I'm gonna guess 0:14:42.240 --> 0:14:44.880 at bear Stearns, but I really can't remember tim And 0:14:44.920 --> 0:14:48.160 the answer is it jumped off the page. Tomash is 0:14:48.200 --> 0:14:51.480 one of the most acute writers and thinkers on Europe 0:14:51.480 --> 0:14:54.520 and strategy. He has senior e M Sovereign strategy is 0:14:54.560 --> 0:14:57.280 a blue bay. On this historic day, Timash, thank you 0:14:57.320 --> 0:15:00.280 so much for taking time with us today. I want 0:15:00.280 --> 0:15:04.240 to focus on the e M of Eastern Europe. Take 0:15:04.320 --> 0:15:07.480 us from Estonia down to Poland. What is your biggest 0:15:07.520 --> 0:15:13.560 worry as Putin attacks? Well, the biggest worry for the 0:15:13.680 --> 0:15:17.600 market is Russia itself, right, I mean I think we're 0:15:17.960 --> 0:15:20.440 as has been mentioned, I mean this is the biggest 0:15:21.080 --> 0:15:24.240 It's a systemic geopolitical events in Europe, the biggest one 0:15:24.320 --> 0:15:26.720 in Second World War. Remember we had the fall of 0:15:26.720 --> 0:15:28.560 the Building Wall, which was a positive. This is a 0:15:28.560 --> 0:15:32.680 big negative. And I think you know those countries surrounding 0:15:32.880 --> 0:15:36.520 Ukraine and Russia, you know the Baltics, Poland, Romania will 0:15:36.560 --> 0:15:38.960 be very worried. Now. I don't think Putin is going 0:15:39.000 --> 0:15:42.520 beyond Ukraine, but I think this is a game change 0:15:42.600 --> 0:15:45.560 in terms of European security. I mean, NATO has got 0:15:45.560 --> 0:15:47.520 a really set up its act. We're going to see 0:15:47.520 --> 0:15:50.680 a big increases in defense spending because of this. But 0:15:50.920 --> 0:15:53.680 at the moment, it's they focus really is on Russian 0:15:53.720 --> 0:15:56.480 markets and they've been collapsing today. I mean, you know, 0:15:56.880 --> 0:16:00.800 lots of talk about Fortress Russia interest in. The Russians 0:16:00.840 --> 0:16:02.920 themselves didn't see this coming, and I think they've been 0:16:02.920 --> 0:16:06.640 panic selling across the board of Russian assets. Russians didn't 0:16:06.640 --> 0:16:09.800 believe their own leaders on this one, which is why 0:16:09.920 --> 0:16:13.440 Russian assets have been been falling so so aggressively today. 0:16:13.760 --> 0:16:15.800 It's him. We worked through this together eight years ago 0:16:16.080 --> 0:16:18.560 over Crimea when I was in London, and to him, 0:16:18.600 --> 0:16:21.160 this is different, and you know it's different. And as 0:16:21.200 --> 0:16:22.960 you say, Fortress Russia, a lot of people have talked 0:16:23.000 --> 0:16:26.240 about that recently. The President Putin prepared for this moment. 0:16:26.320 --> 0:16:29.240 There was trying to insulate the economy, run a budget surplus, 0:16:29.640 --> 0:16:34.480 raise capital. It's him, just how insulated are they? Well? 0:16:34.520 --> 0:16:36.840 I was the first person to coin the phrase stans 0:16:36.880 --> 0:16:41.080 Russia back in and Putin has been planning this. This 0:16:41.160 --> 0:16:43.400 has been all about building those balance sheets. He has 0:16:43.400 --> 0:16:45.440 been determined to go into Ukraine for a long time. 0:16:45.800 --> 0:16:48.880 I've written it, I argued it back into fifteen fifteen. 0:16:48.880 --> 0:16:50.320 There was likely to be a defining want to be 0:16:50.400 --> 0:16:54.560 rushing the grain, and this is it. Unfortunately, now Russia. 0:16:54.800 --> 0:16:57.320 You know, it has the balance sheet, but the level 0:16:57.360 --> 0:17:00.480 of sanctions were likely to see because of this, It's 0:17:00.520 --> 0:17:04.000 going to be pariah Russia, pariah putin uh and it's 0:17:04.000 --> 0:17:06.199 gonna be very difficult to do any business with Russia. 0:17:06.280 --> 0:17:10.800 That means higher borrowing costs, less investment, less growth, lower 0:17:10.800 --> 0:17:14.119 living standards, and Russians already and not really happy with 0:17:14.119 --> 0:17:16.280 their lot in life and memory. Kazakhstan we had some 0:17:16.280 --> 0:17:19.639 social arrests recently because of precisely that point. So this, 0:17:19.640 --> 0:17:23.800 this makes Russia weaker. This and likely if it's regime 0:17:23.880 --> 0:17:27.800 change in Ukraine, what's likely to happen is that any 0:17:27.840 --> 0:17:30.080 new government that emerges in Ukraine will be sanctioned by 0:17:30.080 --> 0:17:31.920 the West as well. So Russia, Russia will have to 0:17:31.960 --> 0:17:35.800 pay the costs of rebuilding Ukraine and Belarus, and its 0:17:35.800 --> 0:17:38.240 economy is going to be in a pretty die state 0:17:38.320 --> 0:17:41.520 because of sanctions. Tim what's the fallout for the broader 0:17:41.520 --> 0:17:44.440 emerging market complex, given the fact that food prices are 0:17:44.480 --> 0:17:47.720 likely to surge, given the fact that weak production could 0:17:47.760 --> 0:17:51.800 be disrupted, all of the potential commodity complex eruptions that 0:17:51.840 --> 0:17:55.280 we're seeing today feeding out into the importers in the 0:17:55.280 --> 0:17:59.879 emerging market world. Look, I mean the market was so 0:18:00.040 --> 0:18:02.520 sanguine about this, right, I mean it assumed it wasn't 0:18:02.520 --> 0:18:05.239 going to be a globally stemic event. It is right. 0:18:05.280 --> 0:18:09.600 I mean, this is about hardcore European security, It's about energy, 0:18:10.160 --> 0:18:13.520 It's about you know, heating European homes. And I think 0:18:13.520 --> 0:18:16.400 the fallout as we've seen today is very very significant 0:18:17.160 --> 0:18:20.639 energy prices, higher supply disruptions. Are there going to be 0:18:20.640 --> 0:18:24.440 disruptions in manufacturing production in Europe because of this? In 0:18:24.480 --> 0:18:27.200 emerging markets, you know, it's it's about energy importers versus 0:18:27.280 --> 0:18:31.760 energy exporters. Place slight Turkey, he sent eu Rope, Asia. 0:18:32.560 --> 0:18:34.240 You know they import a lot of energy. They're going 0:18:34.280 --> 0:18:36.800 to be hit by you know, higher inflation and globally 0:18:36.800 --> 0:18:40.640 it's stagflation. I guess is the fear here, Timothy ask 0:18:40.800 --> 0:18:43.800 what is the power of I'm going to say, dominant, 0:18:43.840 --> 0:18:47.960 more visible, more stable emerging market nations. What is the 0:18:48.040 --> 0:18:52.320 power in place here of say India or Indonesia or 0:18:52.359 --> 0:18:55.639 to bring it over to Europe, m Latvia? What are 0:18:55.640 --> 0:19:01.200 their power right now? Well? I said not much. Unfortunately, 0:19:01.280 --> 0:19:03.240 a lot of the energy markets have have lots of 0:19:03.280 --> 0:19:07.400 structural issues. Reform issues. I mentioned winners and losers into 0:19:07.560 --> 0:19:09.919 the energy bounce. India is a huge energy importer as 0:19:09.960 --> 0:19:12.199 it's Turkey, So I think, you know, people are just 0:19:12.240 --> 0:19:14.680 waiting to see how this pans out, what it means 0:19:14.720 --> 0:19:19.280 for global commodity prices. You know you mentioned already global 0:19:19.280 --> 0:19:21.720 central banks. How are they're going to respond to this? Uh, 0:19:21.960 --> 0:19:25.720 you know, pretty uncertain, but you know, duo politics matters 0:19:26.200 --> 0:19:29.240 and it's here to stay. And as I said, this 0:19:29.280 --> 0:19:31.920 is a game changer. It's him. You used the stagflation 0:19:31.960 --> 0:19:35.320 word moments ago. Who's that for the whole region or 0:19:35.359 --> 0:19:40.000 one particular country, Well, globally right. That means you think 0:19:40.000 --> 0:19:42.720 a global story and that's your stagflation. That's the ultimate 0:19:42.720 --> 0:19:44.800 story now, not just the toros. Is that your base 0:19:44.880 --> 0:19:52.160 case stafflation is lower growth, high inflation. The risk here 0:19:52.280 --> 0:19:56.320 is that we see further supply disruptions around energy and 0:19:56.400 --> 0:20:00.000 that hits global growth. And it's I mean, inflation is here. 0:20:00.080 --> 0:20:02.840 That's the reality. As consumers. We know that central banks 0:20:02.920 --> 0:20:05.080 might be trying to sell us a different story, but 0:20:05.400 --> 0:20:08.200 we're all we all see inflation and it's if it's 0:20:08.240 --> 0:20:11.560 hard to see it falling quickly, and certainly this episode 0:20:11.560 --> 0:20:14.600 will not hold up Tim wonderful to catch up with 0:20:14.600 --> 0:20:21.200 your Tim Ash there of Blue Bay Connor he joins 0:20:21.280 --> 0:20:23.680 US now head of Research and E D and F 0:20:23.880 --> 0:20:27.080 Man Cornor we know Chicago Board of Trade. We do 0:20:27.200 --> 0:20:32.040 not know Novo East Spot. How critical is the wheat 0:20:32.200 --> 0:20:39.120 dynamic for Russia right now? It's huge. Russia, together with Ukraine, 0:20:39.680 --> 0:20:44.040 they can't for global wheat exports. So at a time 0:20:44.040 --> 0:20:48.280 when global wheat market is already pretty tight, fundamentally, we 0:20:48.320 --> 0:20:51.680 can't really afford to see a big player come out 0:20:51.680 --> 0:20:55.959 of action. So supplies are tight, demand is inelastic, and 0:20:56.000 --> 0:20:59.520 the world does heavily rely on this region. Black sea 0:20:59.560 --> 0:21:03.560 export are absolutely critical for world supplies right now. Do 0:21:03.600 --> 0:21:07.320 you believe that soft commodities led by Russian wheat will 0:21:07.359 --> 0:21:11.040 be part of sanctioned announcements today and indeed in the 0:21:11.119 --> 0:21:15.400 coming days. This is where I have my doubts, because 0:21:15.680 --> 0:21:19.040 unfortunately food inflation is a growing story around the world. 0:21:19.640 --> 0:21:22.560 Um the Middle East, North Africa in particular rely heavily 0:21:22.680 --> 0:21:26.040 on Russian Ukraine for their wheat imports. If there were 0:21:26.080 --> 0:21:28.320 to be a spike, and we're already seeing wheat is 0:21:28.359 --> 0:21:31.400 one of the best performing commodities, so far um. If 0:21:31.440 --> 0:21:34.840 that were to lead to further hikes in prices, then 0:21:34.840 --> 0:21:38.520 I think food inflation could be a political politically, you know, 0:21:38.800 --> 0:21:42.440 really really challenging situations. So I feel that that is 0:21:42.520 --> 0:21:46.640 one area where I think sanctus might be not might 0:21:46.720 --> 0:21:48.320 not not take place. If you look back into a 0:21:48.320 --> 0:21:53.720 thousand fourteen, when Russia annex Crimea, the exports of week 0:21:53.800 --> 0:21:56.600 continue to take place. So I'm hoping this will be 0:21:56.640 --> 0:21:59.439 the same this time around. A lot of nations have 0:21:59.520 --> 0:22:02.119 imprepared paring for this. We've even heard from Germany talking 0:22:02.160 --> 0:22:05.159 about how they will be able to be independent of 0:22:05.280 --> 0:22:08.600 Russian oil and gas, should that be necessary. Have you 0:22:08.680 --> 0:22:11.959 seen anything on the ground, any types of diversions in 0:22:12.119 --> 0:22:15.880 terms of some of the important export pathways in response 0:22:15.960 --> 0:22:21.639 and in preparation for this invasion. No, so um. I 0:22:21.680 --> 0:22:25.120 mean certainly on energy. I know that, for example, Germany 0:22:25.440 --> 0:22:29.639 um has diversified quite a bit away from Russian oil. 0:22:29.880 --> 0:22:32.199 You know, they've got quite a bit of windpower themselves. 0:22:32.240 --> 0:22:36.159 They are using moral and g um. Luckily, Europe is 0:22:36.200 --> 0:22:40.520 a big agricultural producing themselves, so they don't actually import um, 0:22:40.600 --> 0:22:42.919 so they won't be relying on Russia for any of 0:22:42.960 --> 0:22:46.080 their imports, although they do rely a little bit on 0:22:46.640 --> 0:22:50.840 um Ukraine for their sunflower oils. So vegetable oils right now, 0:22:50.880 --> 0:22:54.480 cooking oils if you like, are extremely tight globally. Um, 0:22:54.560 --> 0:22:57.400 so there's no room for slack there. But I think 0:22:57.680 --> 0:23:00.960 energy wise, yes, natural guests of a sale the European 0:23:01.920 --> 0:23:06.760 zone is basically dependent on the region. Um, it's going 0:23:06.800 --> 0:23:09.840 to be extremely costly to divert that away into llergy 0:23:09.840 --> 0:23:13.639 and other resources. How much have you revisited your expectations 0:23:13.720 --> 0:23:16.560 for oil and gas prices? What your base cases? Now 0:23:17.280 --> 0:23:20.000 that what as John said, the tail risk has become 0:23:20.119 --> 0:23:24.119 the base case in Europe. Yeah, So I think hundred 0:23:24.200 --> 0:23:27.119 dollar was a hundred dollar about for Crudel was given 0:23:27.520 --> 0:23:31.080 just based on fundamentals. Now there was there was this 0:23:31.280 --> 0:23:34.080 potential geopolitical risk periment which now, as you mentioned, is 0:23:34.119 --> 0:23:36.520 now becoming no longer premium but has to be actually 0:23:36.560 --> 0:23:40.000 priced in now. So the worst case for scenario has 0:23:40.040 --> 0:23:43.840 actually come to fruit. Um, maybe we started hundred dollars. 0:23:43.920 --> 0:23:46.440 I think hundred twenty is probably a given now from 0:23:46.440 --> 0:23:51.040 here on. Again, similar to what I'm seeing in the 0:23:51.080 --> 0:23:55.000 food exports and retex what I'm not entirely convinced that 0:23:55.240 --> 0:23:58.840 there will be embargo on US energy and sorry, you're 0:23:59.640 --> 0:24:03.639 Russian energy because Biden in the USA, I was just 0:24:03.640 --> 0:24:07.479 trying to control prices at home. Europe needs lower fuel bills. 0:24:07.520 --> 0:24:09.760 I think it would be political suicide if they were 0:24:09.800 --> 0:24:13.840 to put sanctions on UM Russian oil. It would be 0:24:13.880 --> 0:24:18.520 it would just cause them massive spiral and therefore more invitation. Corna, 0:24:18.600 --> 0:24:21.200 you are a grizzled pro at this. And of course 0:24:21.200 --> 0:24:23.760