WEBVTT - The War’s Impact On Global Markets And Oil 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.599 at Bloomberg dot com slash podcast. All right, in the 0:00:22.680 --> 0:00:26.600 wall of worry, we've got Slovan growth, rising interest rates, 0:00:27.000 --> 0:00:30.160 UM and valuation are some concerns, and now you have 0:00:30.160 --> 0:00:34.360 geopolitical risk to add into the um. The whole panoply 0:00:34.520 --> 0:00:37.640 of issues for this market to navigate. Let's check in 0:00:37.720 --> 0:00:40.640 on the economic outlook underpinning all of this. We can 0:00:40.640 --> 0:00:42.920 do that with Pete Earle. He's the economist at the 0:00:42.960 --> 0:00:47.040 American Institute of Economic Research. Pete, has your economic outlook 0:00:47.200 --> 0:00:50.720 changed at all given what we've seen coming out of 0:00:50.880 --> 0:00:54.720 Ukraine over the last week or so. Good morning, Gentlemen's 0:00:54.760 --> 0:00:57.320 good to talk to you. It's great to be back. Um, yeah, 0:00:57.440 --> 0:01:01.640 it certainly has. Um. When we last folk in October November, 0:01:03.200 --> 0:01:06.760 we had oil Brant and West excess between say fifty 0:01:06.800 --> 0:01:11.600 five and seventy dollars a barrel maybe consumer demand was high, 0:01:11.600 --> 0:01:13.360 but it was being blunted a bit we think by 0:01:13.440 --> 0:01:17.880 supply chain pressures, and inflation was running about five And 0:01:18.200 --> 0:01:20.640 I seem to recall that I mentioned that the ugliest 0:01:20.640 --> 0:01:23.800 word in economics, which is siflation, was back, but I 0:01:24.000 --> 0:01:25.959 didn't think it was where. I didn't think it was 0:01:26.040 --> 0:01:28.920 really reasonable concern because there we had inflation, but there 0:01:28.959 --> 0:01:34.240 was no real stagnation happening. And I think at this point, uh, 0:01:34.440 --> 0:01:37.080 we we've pivoted, and the last two weeks and perhaps 0:01:37.120 --> 0:01:39.280 the last few days, things have changed quite a bit. 0:01:40.200 --> 0:01:44.759 We see commodities across the board rising pretty precipitously, even 0:01:44.800 --> 0:01:46.840 with COVID slipping to the back burner. Now we have 0:01:47.319 --> 0:01:52.160 consumer sentiment falling. Consumer it fell in January, consumer competence 0:01:52.440 --> 0:01:54.720 fell a bit in February, and there's a host of 0:01:54.720 --> 0:01:59.080 other signs that we may we may actually see rising inflation, 0:01:59.200 --> 0:02:02.320 rising general price level with slowing growth. There's a few 0:02:02.320 --> 0:02:04.920 other issues embedded in there. But the answer is yes, 0:02:04.960 --> 0:02:07.080 I do think we are turning a corner here. Do 0:02:07.120 --> 0:02:11.440 we need um the Fed though too? Well? Is the 0:02:11.480 --> 0:02:14.720 market going to rethink whether the Fed hikes six seven 0:02:14.880 --> 0:02:18.960 eight times this year? Even if we're looking at rising prices, UM, 0:02:19.919 --> 0:02:22.880 they're not rising for any reason the FED can put 0:02:22.880 --> 0:02:25.359 a stop to other than demand. So the only way 0:02:25.400 --> 0:02:30.280 the FED can really slow UM inflation is by slowing 0:02:30.320 --> 0:02:35.880 economic growth. Yeah, so I think that they are. I 0:02:35.919 --> 0:02:38.920 think all the talk about a hundred seventy basis point 0:02:38.919 --> 0:02:41.840 moves are completely off the table, certainly for March. UM. 0:02:41.880 --> 0:02:43.760 I don't think the FED will move any greater than 0:02:43.840 --> 0:02:46.680 SAPs this year, but I will go out on a 0:02:46.720 --> 0:02:49.399 limb and say that when James Bullard of the St. 0:02:49.400 --> 0:02:51.320 Louis FED said he would like to see rates on 0:02:51.400 --> 0:02:55.040 hundred basis points higher by July, I don't think that 0:02:55.080 --> 0:02:56.760 will happen. But I do think he was sort of 0:02:56.800 --> 0:03:00.760 paving the way for unconventional not unconventional, but unusual monetary 0:03:00.760 --> 0:03:04.639 policy measures. So what I see are maybe not seven 0:03:04.720 --> 0:03:08.560 or eight UH hikes of basis points this year, but 0:03:08.600 --> 0:03:13.920 I see the heightened possibility of intermeding hikes, for example 0:03:13.960 --> 0:03:15.880 between the FO and C meeting, such as we haven't 0:03:15.880 --> 0:03:18.959 seen since UH two thousand eight or so, and before 0:03:19.000 --> 0:03:23.760 that since long term capital collapsed supply chain. That's another 0:03:23.800 --> 0:03:26.680 economic issue that has been with us as a result 0:03:26.720 --> 0:03:29.600 of this pandemic um. You know, initially we thought it 0:03:29.600 --> 0:03:32.360 would be relatively short term, but here we are beginning 0:03:32.480 --> 0:03:35.200 year three. Here, how do you think about the global 0:03:35.240 --> 0:03:39.320 supply chain? And maybe the events in Ukraine may exacerbate 0:03:39.400 --> 0:03:40.800 some of those issues, but how do you think about 0:03:40.800 --> 0:03:44.440 that as you think about your economic outlook. It's it's 0:03:44.480 --> 0:03:47.040 it's complicated, because I see some signs that the supply 0:03:47.120 --> 0:03:51.120 chain morass is actually easy. UM world container rates have 0:03:51.200 --> 0:03:54.680 leveled off. The Baltic Exchange dry index is half of 0:03:54.680 --> 0:03:56.360 what it was in October, although it's up a little 0:03:56.360 --> 0:03:59.920 bit on the Ukraine conflict, and the cast freight index 0:04:00.040 --> 0:04:01.440 is at levels we haven't seen since the start of 0:04:01.440 --> 0:04:04.440 the pandemic um. Even at the port of Los Angeles, 0:04:04.440 --> 0:04:06.560 which has sort of been the focal point um the 0:04:06.640 --> 0:04:08.800 number of containers ship and and by the way, the 0:04:08.840 --> 0:04:10.960 counting convention was changed, we have to bear that in mind. 0:04:11.000 --> 0:04:13.320 But even so, the number of container ships is down 0:04:13.360 --> 0:04:15.320 to the seventies from well over one hundred six or 0:04:15.280 --> 0:04:18.400 eight weeks ago. So the components in the rise of 0:04:18.440 --> 0:04:22.200 prices that I think we impute to um UH supply 0:04:22.279 --> 0:04:25.320 chain issues, I think is starting to to to to 0:04:25.560 --> 0:04:29.720 um to sort of dissipate. However, kicking a number of 0:04:29.800 --> 0:04:36.240 Russian institution institutions off of swift UM introduces entirely new issues. Uh. 0:04:36.320 --> 0:04:39.960 We could very easily see new supply chain issues or 0:04:40.000 --> 0:04:42.799 I should say new price pressure zoning to scarcity arise 0:04:43.520 --> 0:04:45.680 as a result of kicking a bunch of those institutions 0:04:45.680 --> 0:04:48.440 that deal in say oil, natural gas and grains off 0:04:48.480 --> 0:04:51.320 of swift So uh, it could be exit frying pan, 0:04:51.480 --> 0:04:57.599 enter fire. I wonder what I wonder what happens now 0:04:57.920 --> 0:05:00.839 in Europe as a result of mean, do they need 0:05:00.880 --> 0:05:06.360 to stop buying gas, oil, aluminum from Vladimir Putin? Are 0:05:06.400 --> 0:05:08.000 they going to have to do that? And then what 0:05:08.080 --> 0:05:11.760 happens to their economy for for some amount of time 0:05:11.760 --> 0:05:13.800 they may have to, But I think we are at 0:05:13.800 --> 0:05:18.200 a point right now where um, we will see um 0:05:18.720 --> 0:05:24.159 a real gut check of ideology where many nations are 0:05:24.240 --> 0:05:29.760 buying from from certain resources, especially UM carbon based uh 0:05:30.000 --> 0:05:32.960 uh you know, energies and and petroleum and things like 0:05:33.000 --> 0:05:35.360 that from nations because they don't want to do it 0:05:35.400 --> 0:05:38.839 at home because of the green wave we've seen. But 0:05:38.920 --> 0:05:42.799 I think, UM, this this incident, especially if it drives 0:05:42.920 --> 0:05:45.599 prices sizeably higher, but we're still really looking at you know, 0:05:45.720 --> 0:05:49.919 ninety five dollar oil. If we get prices one for barrel, 0:05:50.000 --> 0:05:51.960 that sort of thing in the next few months, um, 0:05:51.960 --> 0:05:55.360 we may see a real reconsideration of the ideologies which 0:05:55.520 --> 0:05:59.000 led many nations to pursue more costly, in some cases, 0:05:59.080 --> 0:06:06.320 less tested green energy at the cost of ignoring. Okay, Hey, Pete, 0:06:06.320 --> 0:06:08.480 thanks so much for joining us, taking the time. We 0:06:08.520 --> 0:06:12.120 appreciate it. Pete Earle economists at the American Institute of 0:06:12.160 --> 0:06:18.600 Economic Research, giving us his outlook. Take a look a 0:06:18.680 --> 0:06:23.040 Bitcoin up ten percent trading today forty two hundred up 0:06:23.040 --> 0:06:25.400 ten point one per cent, So a huge move there 0:06:26.040 --> 0:06:28.320 for bitcoin. I'll call that out for for Tom Keene. 0:06:28.480 --> 0:06:30.600 All right, let's talk commodities, guys. I have my g 0:06:31.000 --> 0:06:33.800 l c O screen up Global Commodity screen on the 0:06:33.800 --> 0:06:38.800 Bloomberg terminal. All of energy higher, metals higher, most of 0:06:38.800 --> 0:06:42.760 the big aggs higher, wheat, soybeans, cotton higher. So commodities 0:06:42.800 --> 0:06:44.479 definitely moving higher. We want to get a sense of 0:06:44.720 --> 0:06:46.560 kind of what's moving this market, so we turned to 0:06:46.880 --> 0:06:50.680 Everett Millman, chief market analyst at Gainesville Coins. Everett, what's 0:06:50.720 --> 0:06:53.800 your call across commodities here at a time when we 0:06:53.880 --> 0:07:00.560 have rising geopolitical tensions in Eastern Europe. Right well, appears 0:07:00.600 --> 0:07:03.040 that gold has certainly held up its bona fides as 0:07:03.080 --> 0:07:06.440 a faith haven asset UM. It has certainly rallied amid 0:07:06.640 --> 0:07:10.040 all this conflict, but also the economic sanctions that the 0:07:10.080 --> 0:07:14.120 West is imposing on Russia UM will almost certainly drive 0:07:14.200 --> 0:07:17.880 up the prices for many of these other major commodities UM. 0:07:17.920 --> 0:07:20.640 Even though the Russian economy makes up less than two 0:07:20.680 --> 0:07:24.000 percent of global GDP, they are one of the largest 0:07:24.040 --> 0:07:28.960 exporters of a lot of these really important commodities like nickel, aluminum, 0:07:29.000 --> 0:07:32.520 cobalts UM. As you mentioned obviously the key energy commodities 0:07:32.520 --> 0:07:35.520 like oil and natural gas. The fact that energy is 0:07:35.600 --> 0:07:37.880 rising is just going to make it more expensive to 0:07:37.880 --> 0:07:40.560 get all of those resources out of the ground, and 0:07:40.640 --> 0:07:44.400 even agricultural commodities. Russia exports more than ten percent of 0:07:44.440 --> 0:07:47.800 the world's fertilizer. They're a major exporter of grains like 0:07:47.800 --> 0:07:51.080 wheat and barley. So everything in the commodity space is 0:07:51.080 --> 0:07:53.400 really connected to this, and we should expect to see 0:07:53.480 --> 0:07:57.200 higher prices going forward. So what's the margin or what 0:07:57.240 --> 0:07:59.480 are we really waiting for for a reversal of this 0:07:59.600 --> 0:08:03.320 is this p puarly on geopolitical tensions. Because these prices, 0:08:03.400 --> 0:08:06.720 these commodities, they were rising before the Russian invasion, before 0:08:06.760 --> 0:08:09.640 the onset of the geopoliticals What are we watching for 0:08:09.640 --> 0:08:11.760 for reversal of some of the action. Do we have 0:08:11.760 --> 0:08:15.360 to wait for demand destruction? I think so. I mean, 0:08:15.360 --> 0:08:18.160 that's an excellent point that prices were already rising, we 0:08:18.160 --> 0:08:21.720 were already dealing with elevated inflation. I think the real 0:08:21.800 --> 0:08:27.240 reversal possibility would be a de escalation of this proposal 0:08:27.280 --> 0:08:29.680 to band Russia from the Swift system. I think that 0:08:29.840 --> 0:08:33.760 is a very potent um sanction. And really the direction 0:08:33.800 --> 0:08:36.560 of how long this goes on, all the disruptions and 0:08:36.600 --> 0:08:39.480 markets I think will be based mainly on that if 0:08:39.480 --> 0:08:42.120 the West is continue to be that aggressive with sanctions. 0:08:42.559 --> 0:08:46.160 All right, let's given this environment, given this backdrop here, ever, 0:08:46.320 --> 0:08:49.319 what are the two or three most common calls you're 0:08:49.360 --> 0:08:51.480 having with your clients? What are you telling them? Where 0:08:51.480 --> 0:08:55.280 are you telling them to be exposed here? Well, obviously 0:08:55.320 --> 0:08:58.480 gold it's always a safe place during on certain times 0:08:58.520 --> 0:09:02.560 like this, especially given at the Russian ruble has been tumbling, 0:09:02.960 --> 0:09:06.079 so that may force the Russian Central Bank to liquidate 0:09:06.160 --> 0:09:08.880 some of its gold. It's large stockpile of gold in 0:09:09.000 --> 0:09:12.480 order to support its foreign exchange value. UM. I'm also 0:09:12.520 --> 0:09:16.199 looking at platinum and palladium UM. Russia is far and 0:09:16.240 --> 0:09:19.880 away the world's number one exporter of palladium and an 0:09:19.920 --> 0:09:24.480 annual basis that's somewhere between and of the global supply. 0:09:24.679 --> 0:09:27.880 So if there is more difficulty in getting palladium out 0:09:27.880 --> 0:09:31.440 of Russia and it being one of the only sources UM, 0:09:31.480 --> 0:09:34.040 that is certainly an area that investors are going to 0:09:34.120 --> 0:09:36.640 want to be exposed to, because really the only the 0:09:36.679 --> 0:09:39.480 path of least resistances for palladium prices to continue to 0:09:39.520 --> 0:09:42.520 climb U due to that supply shortfall. We could see 0:09:43.960 --> 0:09:46.599 you mentioned gold in particular. This is interesting to me. 0:09:46.640 --> 0:09:49.080 I've been saying this all morning, the fact that gold 0:09:49.160 --> 0:09:51.560 and the dollar are up higher together that it's usually 0:09:51.600 --> 0:09:54.960 a sign a very very acute stress. Talk to us 0:09:55.000 --> 0:09:57.840 a little bit about what turns gold around. In particular, 0:09:57.840 --> 0:09:59.439 if you continue to see it, I mean gold, after 0:09:59.440 --> 0:10:01.559 the end of the day, it's priceton dollars. So does 0:10:01.559 --> 0:10:03.720 the currency mean nothing right now for the metal or 0:10:03.760 --> 0:10:08.040 is this purely a matter of haven demand? I think 0:10:08.040 --> 0:10:11.120 it really is haven demand, and only in these extremely 0:10:11.800 --> 0:10:14.720 high stress times do we see that both the dollar 0:10:14.880 --> 0:10:17.920 and gold and the Japanese end would all be rallying 0:10:18.040 --> 0:10:21.520 at the same time. UM. I think that the major 0:10:21.679 --> 0:10:24.439 kind of pivot point here between gold and the dollar 0:10:25.040 --> 0:10:27.800 is whether or not we're going to get any kind 0:10:27.800 --> 0:10:31.280 of quick relief for de escalation or for diplomacy to 0:10:31.320 --> 0:10:34.440 prevail here, because until then there really is no reason 0:10:34.480 --> 0:10:37.800 for investors to to sell their safe havens to get 0:10:37.800 --> 0:10:40.200 out of those assets that they really are the only 0:10:40.240 --> 0:10:44.079 game in town in terms of weathering the uncertainty. UM. 0:10:44.480 --> 0:10:47.440 Gold is always good across borders, so there is even 0:10:47.600 --> 0:10:50.040 as I mentioned before, with Russia possibly selling its gold, 0:10:50.720 --> 0:10:54.280 there is some evidence that gold bars minted in Russia 0:10:54.320 --> 0:10:57.319 have been ending up in vaults in London. So there's 0:10:57.360 --> 0:11:01.240 already some indication that perhaps we will be gold used 0:11:01.320 --> 0:11:05.920 in international trade or um to bolster the Russian central 0:11:05.920 --> 0:11:09.200 banks form reserves. Everett Milman, thank you so much for 0:11:09.280 --> 0:11:12.120 joining us. We always appreciate getting your take on the 0:11:12.160 --> 0:11:16.960 commodities market. Everett Milman, chief market analyst at Gainesville Coins. 0:11:20.000 --> 0:11:22.760 Right now, let's switch over to the markets. The market outlook, 0:11:23.520 --> 0:11:26.200 Lots of bricks in that wall of worry. Now we 0:11:26.280 --> 0:11:29.280 have to include geopolitical risk. Uh, and the markets are 0:11:29.280 --> 0:11:32.280 trying to digest that we have. Markets are mixed today 0:11:32.320 --> 0:11:34.679 off the bottoms, but again investors are trying to get 0:11:34.679 --> 0:11:36.800 a sense of how they price this Outlet's checking with 0:11:36.800 --> 0:11:41.079 Brett Ewing, chief market strategists for First Franklin Financial Services. Brett, 0:11:41.080 --> 0:11:42.920 thanks so much for joining us here. Kind of what 0:11:42.960 --> 0:11:49.040 are you telling your clients here over the last five days. Well, first, 0:11:49.040 --> 0:11:52.040 thanks for having me on today. Um, Yes, there's been 0:11:52.040 --> 0:11:54.960 a lot of turmoil, a lot of concern out there 0:11:54.960 --> 0:11:57.480 in the recent weeks with the volatility in the markets, 0:11:57.480 --> 0:12:00.920 and certainly our clients are talking to us and wanting 0:12:00.960 --> 0:12:03.840 some insight, and what we're trying to convey to them 0:12:03.960 --> 0:12:06.880 is we are still put the FED as one of 0:12:06.880 --> 0:12:11.199 the biggest risk into the markets for two and we're 0:12:11.240 --> 0:12:13.960 also guiding them to look a little out past these 0:12:14.000 --> 0:12:17.280 geopolitical risks. And you can go back over the last 0:12:17.320 --> 0:12:20.880 eighty years and really look at every geo political event 0:12:21.440 --> 0:12:23.760 and it's really a short run phenomenal in the market, 0:12:24.000 --> 0:12:26.960 meaning that the average raw down is around about four 0:12:27.040 --> 0:12:31.240 point five with the recovery rate around forty two days, 0:12:32.679 --> 0:12:34.679 So an event like that, we're trying to look past 0:12:34.720 --> 0:12:37.199 that and look out over the next eighteen months really, 0:12:37.679 --> 0:12:40.839 and so what we're doing here is positioning. We're taking 0:12:40.840 --> 0:12:44.520 advantage of this volatility and specifically looking at the small 0:12:44.559 --> 0:12:48.560 and MidCap sectors. So talk us a little bit about 0:12:48.760 --> 0:12:50.560 I mean, you said that you want to look past 0:12:50.559 --> 0:12:53.720 the geopolitical tensions, but isn't there a commodity read through 0:12:54.240 --> 0:12:59.200 that then kind of hits essentially the American recovery story. 0:12:59.600 --> 0:13:04.240 Is that perhaps worth making a bigger deal of over 0:13:04.280 --> 0:13:09.120 the FED. Well, I think the commodity spikes that we're 0:13:09.160 --> 0:13:13.760 seeing right here are most likely going to be short lived. 0:13:14.000 --> 0:13:17.200 I think that when we look at the oil markets 0:13:17.280 --> 0:13:20.520 right here, of course it's all it's reaching multi year 0:13:20.600 --> 0:13:25.600 highs UM. Again, we think it's closer to the peak 0:13:25.679 --> 0:13:29.560 than it than it um than most people realize UM. 0:13:29.840 --> 0:13:31.960 As a matter of fact, last week we actually sold 0:13:32.000 --> 0:13:36.640 a lot of our oil stocks into the strength and 0:13:37.000 --> 0:13:40.800 we just feel there's on a relative basis, there's a 0:13:40.840 --> 0:13:44.760 lot better asset classes that have just been decimated, whether 0:13:44.800 --> 0:13:49.440 it's growth, tech or other all MidCap stocks out there, 0:13:49.480 --> 0:13:52.679 so we feel there's better places to park that capital 0:13:52.800 --> 0:13:55.440 going forward. All Right, let's talk about tech, because a 0:13:55.440 --> 0:13:58.240 lot of folks have, you know, the last twelve months 0:13:58.280 --> 0:14:00.280 as the as the rotation trade as works so well, 0:14:00.320 --> 0:14:02.199 they've been kind of rotating out of some of those 0:14:02.200 --> 0:14:04.840 big tech names. Now you get some folks saying, hey, 0:14:04.880 --> 0:14:07.520 I like tech, just I need the tech that actually 0:14:07.559 --> 0:14:10.800 makes money um as opposed to some of the more 0:14:10.920 --> 0:14:13.160 high flying revenue growth stories. How do you think about 0:14:13.200 --> 0:14:18.640 tech and allocating capital there? Yeah? Absolutely, I mean, look 0:14:20.200 --> 0:14:22.560 is going to be a stock pickers year. There's a 0:14:22.560 --> 0:14:25.800 lot of great technology companies that have you know, it's 0:14:25.840 --> 0:14:29.440 the baby with the bathwater syndrome here just been thrown 0:14:29.440 --> 0:14:32.440 out and decimated here in the short run. But we're 0:14:32.440 --> 0:14:34.400 taking advantage of that. I think there's a lot of 0:14:34.440 --> 0:14:37.480 great opportunities within tech. There's a lot of tech companies 0:14:37.480 --> 0:14:40.440 out there that have wonderful moats around their business model, 0:14:41.240 --> 0:14:43.320 and those are the areas that I would be um 0:14:43.440 --> 0:14:48.120 advising people to take advantage of. We'll talk to us 0:14:48.120 --> 0:14:51.280 a little bit about perhaps the value rotation. I think 0:14:51.320 --> 0:14:54.360 a lot of people started off two thinking was going 0:14:54.440 --> 0:14:56.800 to be kind of a continuation of what we started 0:14:56.800 --> 0:15:00.240 off in one, and yet it doesn't seem like that 0:15:01.000 --> 0:15:04.720 strong kind of conviction essentially for the value at the 0:15:04.760 --> 0:15:07.400 start of the year has really persisted in the last 0:15:07.440 --> 0:15:09.040 six weeks or so. Do you think it can really 0:15:09.040 --> 0:15:14.680 revive itself. I think there's there's certainly a few areas 0:15:14.760 --> 0:15:19.280 within value that I would we would continue to look at. UM. 0:15:19.320 --> 0:15:23.560 I do think that the areas that I feel have 0:15:23.680 --> 0:15:26.120 a lot of upside is more of an asset class 0:15:26.120 --> 0:15:31.960 story within the small mid cap stocks. The valuation on 0:15:32.040 --> 0:15:36.080 those asset classes is the spread between large cap and 0:15:36.320 --> 0:15:40.880 small MidCap right here is those is the widest dating 0:15:40.920 --> 0:15:43.560 back twenty years. You have to go back to two 0:15:43.600 --> 0:15:48.800 thousand one. UM. Typically the small MidCap areas of the 0:15:48.840 --> 0:15:51.880 market are are you know, their four ps well above 0:15:51.960 --> 0:15:54.920 the large cap and right now it's quite the opposite. 0:15:55.120 --> 0:15:57.040 All right, Brett, thanks so much for joining us. We 0:15:57.040 --> 0:16:00.280 appreciate your time. You in chief. Market strategy is for 0:16:00.440 --> 0:16:08.680 First Franklin Financial Services. Let's get the latest here on 0:16:08.720 --> 0:16:11.360 some of these sanctions. I'll probably focus on what we're 0:16:11.400 --> 0:16:15.040 seeing from the global banking system and the impact that 0:16:15.120 --> 0:16:18.240 may have on Russia. Shinalie Bassik Wall Street Border for 0:16:18.280 --> 0:16:20.960 Bloomberg News drains us here in our Bloomberg Interactive Broker 0:16:21.040 --> 0:16:24.000 studio and she like, can you help me here, Just 0:16:24.040 --> 0:16:28.880 tell me what's SWIFT is and why it's important. Yeah. Well, 0:16:28.920 --> 0:16:32.960 it is a cooperative that serves as a global messaging 0:16:33.000 --> 0:16:36.560 system to the global financial system. So that's more than 0:16:36.600 --> 0:16:40.280 eleven thousand entities across more than two hundred countries, and 0:16:40.320 --> 0:16:43.600 it's governed by the G ten banks and incorporated in Belgium. 0:16:43.920 --> 0:16:46.560 So when the globe comes together and say they want 0:16:46.560 --> 0:16:49.800 to ban Russia from SWIFT, what you really saw at 0:16:49.840 --> 0:16:52.160 the end of the day is the US announced moves 0:16:52.160 --> 0:16:54.840 and other countries announced moves to really cut off a 0:16:54.920 --> 0:16:59.040 number of Russian banks and entities from that payment system. 0:16:59.080 --> 0:17:01.800 Here's the thing, Paul, there's a lot of questions around 0:17:01.800 --> 0:17:04.359 what the ultimate impact of this will be. The reason 0:17:04.400 --> 0:17:07.440 that a lot of countries did we're opposing this. Germany 0:17:07.440 --> 0:17:09.720 in particular, was uncertain of doing this for at the 0:17:09.760 --> 0:17:13.040 beginning is because if you cut off payments, then all 0:17:13.080 --> 0:17:14.680 of a sudden, do you start to make it very 0:17:14.720 --> 0:17:19.360 difficult to make transfers among energy companies and counterparts? For example? 0:17:19.400 --> 0:17:23.080 Will it have an impact that has a backlash on 0:17:23.160 --> 0:17:27.960 the energy trade between Russia and Russia and Germany, and 0:17:28.359 --> 0:17:31.280 really what is an ultimate economic impact on the countries 0:17:31.320 --> 0:17:34.520 that are pushing the band themselves. So let me just 0:17:34.760 --> 0:17:37.920 dumb this down for me, um, because I really needed. 0:17:38.000 --> 0:17:41.879 My understanding of this system is kind of like, I 0:17:41.920 --> 0:17:43.239 guess the only way I can describe it as back 0:17:43.280 --> 0:17:45.119 in high school, when I worked for the high school newspaper, 0:17:45.200 --> 0:17:47.159 we had a rule that when you send an email, 0:17:47.440 --> 0:17:49.560 you have to send a goded email back the idea 0:17:49.680 --> 0:17:52.119 that you have confirmation, right, And that's the way I 0:17:52.160 --> 0:17:54.639 think of about the system, right. It's a payment confirmation 0:17:54.680 --> 0:17:57.800 system that essentially, if you don't get that confirmation, that 0:17:57.840 --> 0:18:01.560 payment isn't necessarily being delivered in a kind of trustworthy way. 0:18:01.600 --> 0:18:03.800 Am I getting that right? Here's the thing. Ultimately, it 0:18:03.840 --> 0:18:07.000 doesn't control the payments, You're right. It only oversees the messaging. 0:18:07.040 --> 0:18:08.639 And by the way, it's not really led to go 0:18:08.720 --> 0:18:12.240 into the messaging. But any bank and any entity that's 0:18:12.320 --> 0:18:16.040 involved in the system being able to store those messages 0:18:16.040 --> 0:18:20.159 and track those messages helps those banks comply with sanctions rules, 0:18:20.280 --> 0:18:22.600 which is why swift is important even in an era 0:18:22.720 --> 0:18:25.600 of sanctions. One of the things that people worry about 0:18:26.040 --> 0:18:29.240 and remember since two thousand fourteen, Russia and China did 0:18:29.359 --> 0:18:32.159 try to create alternatives. It didn't really take off to 0:18:32.240 --> 0:18:35.520 such a massive degree. But can Russia and China create 0:18:35.680 --> 0:18:38.679 bigger alternatives to swift That was one concern. But the 0:18:38.720 --> 0:18:41.119 reality is this is the central This is a central 0:18:41.160 --> 0:18:44.280 way to communicate across banks across the world. So even 0:18:44.320 --> 0:18:47.160 if they left this and an alternate system is being made, 0:18:47.520 --> 0:18:50.320 then how do you transact with the normal global financial 0:18:50.359 --> 0:18:53.600 system as you know? It's it is a little bit 0:18:53.600 --> 0:18:56.520 meta alright, So yeah, I guess the way I'm thinking about, 0:18:56.520 --> 0:18:58.480 it's just gonna make it much more difficult for Russia 0:18:58.560 --> 0:19:01.840 to do business and putting increasing to pressure on them. 0:19:02.160 --> 0:19:04.960 Um another thing, another angle. I wanted to get your 0:19:05.000 --> 0:19:07.200 sense from its like the JP Morgan's of the world, 0:19:07.200 --> 0:19:09.760 the Bank of Americas, these big global the cities, these 0:19:09.800 --> 0:19:13.600 big global institutions, what are they saying about their business 0:19:13.680 --> 0:19:15.480 in Russia with Russia? All that kind of thing. So 0:19:15.560 --> 0:19:20.120 remember again, since when there were more restrictions kind of imposed, 0:19:20.160 --> 0:19:23.040 over time, a lot of banks have really stepped back. 0:19:23.160 --> 0:19:25.760 So most US banks don't have a meaningful explosion Russia, 0:19:25.800 --> 0:19:28.040 which is why those sanctions on those Russian banks themselves 0:19:28.320 --> 0:19:31.720 is so important. Suburb Bank and the v TB are 0:19:31.880 --> 0:19:35.320 fifty of the country's global assets. And then you know, 0:19:35.640 --> 0:19:38.840 all of the five banks combined are like sevent So 0:19:38.880 --> 0:19:40.600 if you take City Group, it's like a couple of 0:19:40.600 --> 0:19:44.360 billion dollars of exposure of assets in Russia, not meaningful 0:19:44.400 --> 0:19:47.480 to the bank itself. But with that said, remember how 0:19:47.640 --> 0:19:51.159 entwined the global financial system is. City Group and JP 0:19:51.200 --> 0:19:55.359 Morgan are big global transaction banks, which means they're effectively 0:19:55.440 --> 0:19:58.600 the banker to other banks that help these payments from 0:19:58.640 --> 0:20:01.760 one country to another happens. So what we're hearing right 0:20:01.760 --> 0:20:03.600 now is a lot of bankers in talks with the 0:20:03.640 --> 0:20:06.480 Treasury Department to figure out what the actual rules are 0:20:06.680 --> 0:20:08.920 because that has not been made clear to the bankers 0:20:08.920 --> 0:20:11.520 themselves yet. And so now all these banks basically have 0:20:11.560 --> 0:20:15.440 to figure out how to entangle entangle themselves from any 0:20:15.480 --> 0:20:19.119 transactions that may involve any of these sanctions entities, and 0:20:19.160 --> 0:20:21.560 remember there are many. Now, well, let's talk about the 0:20:21.640 --> 0:20:24.280 energy piece of this, right because I believe, and correct 0:20:24.280 --> 0:20:26.680 me if I'm wrong, but I believe there was discussion 0:20:26.720 --> 0:20:29.320 among the White House about how you actually kind of 0:20:29.400 --> 0:20:33.560 separate the energy payments from the entire metric, And one 0:20:33.600 --> 0:20:36.159 of them was simply you can have them denoted or 0:20:36.200 --> 0:20:38.600 have some sort of marker um, which is having me 0:20:38.680 --> 0:20:42.640 give me horrible biology DNA flashbacks, um. But the other 0:20:42.680 --> 0:20:45.080 piece was if they're all kind of going through one bank, 0:20:45.119 --> 0:20:48.080 can you just target that one bank? Any update on 0:20:48.119 --> 0:20:50.400 how they're going to target the energy piece of it, Well, 0:20:50.440 --> 0:20:52.720 that's the big question here, right If they wanted to 0:20:52.720 --> 0:20:54.840 target the energy sector, why don't they just target the 0:20:54.920 --> 0:20:58.880 energy sector? Why is this all being done through financial mechanisms? Interestingly, 0:20:59.480 --> 0:21:01.679 and just as important, and I'm sure you guys have 0:21:01.720 --> 0:21:03.640 been talking about it as the band with the central bank, 0:21:03.680 --> 0:21:05.400 the Russian Central Bank. So if you're going to target 0:21:05.480 --> 0:21:08.600 Russians economy right now, the way they are doing it 0:21:08.640 --> 0:21:12.119 is absolutely by targeting Russia's financial infrastructure, and they're doing 0:21:12.160 --> 0:21:15.640 almost every means to do that and do it effectively. 0:21:16.119 --> 0:21:19.240 But if you're going to target the energy system, then 0:21:19.400 --> 0:21:21.960 why don't you just do that by means of the 0:21:22.000 --> 0:21:24.360 companies and the people that own them. I think that's 0:21:24.359 --> 0:21:26.400 the next leg of this story that has a lot 0:21:26.400 --> 0:21:31.320 of big question marks that are rolling rolling into it. Yeah. Interesting, 0:21:31.320 --> 0:21:33.280 it's far and wide. It's been a weekend. We're just 0:21:33.400 --> 0:21:36.560 sanctions and you know, pull business out of Russians. Just 0:21:36.760 --> 0:21:39.040 it's just incredible news flow and continues today. And I'll 0:21:39.080 --> 0:21:41.840 point out there's a Bluebird editorial written by the Editorial 0:21:41.880 --> 0:21:45.840 board on the terminal entitled Wielding Swift against Russian banks 0:21:45.880 --> 0:21:49.120 is a big risk um and it's a great explainer 0:21:49.160 --> 0:21:52.160 for how swift works in the real world and how 0:21:52.200 --> 0:21:55.760 there could be some negative repercussions um by the nying 0:21:55.840 --> 0:21:59.040 Swift to the entire Russian economy. So I recommend that 0:21:59.200 --> 0:22:02.080 Snelle Basset, Wall Street reporter Bloomberg News joining us here 0:22:02.080 --> 0:22:04.320 on our Bloomberg inter active Brooker studio. She does every 0:22:04.359 --> 0:22:07.199 Monday giving us the latest from Wall Street, which is 0:22:07.200 --> 0:22:10.919 her beat. Thanks for listening to the Bloomberg Markets podcast. 0:22:11.320 --> 0:22:14.520