WEBVTT - Surveillance: Megathreats with Roubini 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Farrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.759 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.560 and of course, on the Bloomberg terminal. Right now, let 0:00:30.640 --> 0:00:33.559 us look at possibly your book of the year, my 0:00:33.600 --> 0:00:35.360 book of the year for the first time ever. I 0:00:35.400 --> 0:00:37.280 did it so early in the year on the shock 0:00:37.320 --> 0:00:40.760 of the war and Vladimir Putin and what we saw. 0:00:41.560 --> 0:00:44.080 Putin's World is my book of the year. But look 0:00:44.120 --> 0:00:49.960 at this short readable, mega threads, mega threats. Noira Rabini, 0:00:50.440 --> 0:00:53.120 crisis economics, coming out of the crisis, and now this 0:00:53.800 --> 0:00:58.240 shockingly readable Noira Rabini joins us for the entire half hour. 0:00:58.360 --> 0:01:00.240 I'm gonna go back. I want to give people little 0:01:00.280 --> 0:01:04.120 vineyard of years in my relationship. We're sitting at a 0:01:04.160 --> 0:01:08.160 wood panel doubles like bar and it's a very famous 0:01:08.160 --> 0:01:11.400 Secretary of Treasury sitting somewhat near us. And you and 0:01:11.440 --> 0:01:15.600 I walked through the excesses of oh five, oh six, 0:01:16.000 --> 0:01:22.480 and you nailed two thousand eight. Are we there? Again. Yes, 0:01:22.520 --> 0:01:26.880 we're here again. But in addition to the economic, monetary 0:01:26.880 --> 0:01:29.360 and financial risks, and there are new ones. Now we're 0:01:29.360 --> 0:01:33.280 going towards stagflation like we've never seen since the seventies. 0:01:33.640 --> 0:01:35.440 In the book, I point out that there are also 0:01:36.080 --> 0:01:40.560 geopolitical risk like we're on the confrontation with some revisionist 0:01:40.560 --> 0:01:44.160 powers like China, Russia, Run or Korea that are challenging 0:01:44.200 --> 0:01:46.480 the geobolical order of the US and the West, and 0:01:46.520 --> 0:01:50.640 that's going to lead potentially to conflict. There are environmental 0:01:50.720 --> 0:01:53.880 risks that are very severe. There are health tries coming 0:01:53.920 --> 0:01:56.480 from pandemics, and there is a relation between global climate 0:01:56.560 --> 0:02:01.920 change and pandemics. There are technological coming from AI, machine learning, 0:02:02.040 --> 0:02:05.760 robotic automation, the section of jobs. There's a backlass against 0:02:05.760 --> 0:02:07.640 globalization and we're going to go to a world that 0:02:07.760 --> 0:02:11.480 is globalized. The political risk with polarization, and we have 0:02:11.600 --> 0:02:14.720 radical extremist party of the extreme right and extreme lefts 0:02:14.760 --> 0:02:18.200 coming to power both in advanced economies and in emerging markets. 0:02:18.360 --> 0:02:20.280 And on top of it, we have amount of the 0:02:20.360 --> 0:02:22.959 debt like we've never seen before. Explicit that well, that 0:02:25.240 --> 0:02:27.360 is a confluence of all these mega threats and of 0:02:27.360 --> 0:02:30.040 them together the Lipsky and I am F was heated 0:02:30.240 --> 0:02:32.480 about the debt build up. On the back of your book, 0:02:32.480 --> 0:02:35.680 you've got a guy named Rogof from Harvard, Bremer of Eurasia. 0:02:35.880 --> 0:02:39.440 Dr Larian from Cambridge, Martin Wolf always wonderful at the 0:02:39.520 --> 0:02:42.280 ft and at the very top the quote of the 0:02:42.320 --> 0:02:46.280 season from TALEB the gravity is returned to the physics. 0:02:46.520 --> 0:02:49.280 We've got a higher real yield. Now we've got a 0:02:49.400 --> 0:02:52.639 risk free rate. Now what are the ramifications in our 0:02:52.720 --> 0:02:57.040 economic system that the gravity is returned to our physics. Well, 0:02:57.040 --> 0:03:00.359 there were many insolvent agents in the economy because private 0:03:00.360 --> 0:03:02.720 and public debt as a sturgy DP has gone from 0:03:04.320 --> 0:03:07.400 to three fifty globally between two thousand and today in 0:03:07.440 --> 0:03:10.840 advanced economies more like four h twenty and rising in 0:03:10.880 --> 0:03:13.720 the US is now higher than after the Great Depression 0:03:14.000 --> 0:03:16.160 and after World two. And we're not out of a 0:03:16.200 --> 0:03:20.000 great depression or a major war. And until now, even 0:03:20.040 --> 0:03:25.400 if you had zombie households, corporates, banks, shadow banks, governments, countries, 0:03:25.639 --> 0:03:27.359 they were built out. There were built out during the 0:03:27.360 --> 0:03:31.960 global financial crisis, zero policy rates, negative quantities, creditizing, and 0:03:32.040 --> 0:03:35.520 even during the COVID crisis, many of them were fragile, 0:03:35.680 --> 0:03:37.520 they were built out again we went back to to 0:03:37.560 --> 0:03:39.880 do even more of the same this time around instead 0:03:40.000 --> 0:03:43.280 is different because we have so much debt and central 0:03:43.280 --> 0:03:46.640 banks like the father to increase interest rates to fight inflation. 0:03:46.960 --> 0:03:49.880 So the zombie institutions are going to go bankrupt. That's 0:03:49.920 --> 0:03:52.960 why not only we're gonna have inflation and stack flation, 0:03:53.000 --> 0:03:56.720 but whatever stack flationary debt crisis. In the seventies, we 0:03:56.840 --> 0:03:59.760 had negative supply shocks seventy three seventy nine, but we're 0:03:59.840 --> 0:04:01.560 very a lot of dead racials, so we didn't have 0:04:01.600 --> 0:04:05.960 a dead crisis in advanced economies with one in Latin America, Argentina, Mexico, 0:04:06.080 --> 0:04:08.800 Bazil borrowed to match in the seventies were all jacked 0:04:08.840 --> 0:04:13.040 up interested went bankrupt after the DUFC. We had the 0:04:13.160 --> 0:04:17.160 debt problem, mortgages that at housing, that bank that, and 0:04:17.160 --> 0:04:19.599 we had the dead crisis, but was a negative aggregate 0:04:19.640 --> 0:04:22.320 demn shock, and therefore we had low flation and deflation 0:04:22.680 --> 0:04:25.520 today with the worst of the seventies with a massive 0:04:25.560 --> 0:04:28.960 amount of stag flassery negative supply shock. In the book, 0:04:29.040 --> 0:04:32.480 identify eleven new ones over the medium term. And at 0:04:32.520 --> 0:04:34.280 the same time we have that racial like we've never 0:04:34.279 --> 0:04:37.120 seen before, so we get stack flashery, dead crisis. Don't 0:04:37.160 --> 0:04:39.359 give us to eleven. The general will be here. I 0:04:39.400 --> 0:04:42.200 was waiting for the elevents jumped in used this phrase 0:04:42.279 --> 0:04:44.400 in there. I could tell your in the sun bite. 0:04:45.120 --> 0:04:48.080 I'm not going to give it. You said, zombie institutions. 0:04:49.040 --> 0:04:51.680 Where aren't they? And you're talking about countries now and 0:04:51.760 --> 0:04:54.800 not companies, not households, not private banage sheet, So you're 0:04:54.839 --> 0:04:58.400 talking about countries sovereigns. Well, there are plenty of solveigns 0:04:58.440 --> 0:05:00.760 that are in trouble in emergen market. We know what 0:05:00.800 --> 0:05:03.919 has happened in Lebanon, what has happened in Zambia, what 0:05:04.000 --> 0:05:07.159 has happened in Sri Lanka, And there's about forty of 0:05:07.200 --> 0:05:09.119 them that the m F in the World Bank said 0:05:09.160 --> 0:05:11.480 that they are on the version of having a dead crisis, 0:05:11.480 --> 0:05:14.320 severe dead crisis because of what's happening. And look what 0:05:14.360 --> 0:05:16.640 happened to the United Kingdom. But now it started to 0:05:16.640 --> 0:05:19.120 be priced in like an emerging market with the fiscal 0:05:19.120 --> 0:05:22.680 stimulus reckless, forcing the Bank of England essentially to monetize it, 0:05:23.080 --> 0:05:25.640 and then the currency falling and it's going much higher 0:05:25.720 --> 0:05:28.520 until they reverse themselves so it has happened in Greece, 0:05:28.640 --> 0:05:31.679 it's happening in the UK, it could happen in Italy. 0:05:31.880 --> 0:05:34.200 Of course, we have a large number of not only 0:05:34.279 --> 0:05:37.080 emerging markets that are at risks, but also of advanced 0:05:37.080 --> 0:05:39.080 economies that there is a risk. So over the last 0:05:39.120 --> 0:05:42.160 ten years we've had a series of kind of cyclical circuit. Right, yes, 0:05:42.520 --> 0:05:45.200 fiscal had the capacity to do that, central banks had 0:05:45.240 --> 0:05:47.880 the capacity to do that. Seemingly we're questioning the capacity 0:05:47.920 --> 0:05:51.360 of those institutions, central banks, soft foreigns to be able 0:05:51.400 --> 0:05:53.440 to do so this time around. You offer solutions in 0:05:53.440 --> 0:05:56.520 this book too, What aren't they Well, for every one 0:05:56.560 --> 0:05:59.760 of these mega threats, there is a solution. But then 0:05:59.800 --> 0:06:03.240 the two final chapter one about a dystopian future where 0:06:03.279 --> 0:06:06.440 all these threads materialized. They feed on each other, and 0:06:06.480 --> 0:06:08.400 it's not just the end of the world economy, could 0:06:08.400 --> 0:06:10.920 be even global war. And there is a less dystopian 0:06:10.960 --> 0:06:14.480 future in chapter twelve, where we have the policies nationally 0:06:14.680 --> 0:06:17.839 and international delids to a better outcome. The problem is 0:06:17.880 --> 0:06:22.320 that are both domestic political constraints and geopolitical political constraints 0:06:22.520 --> 0:06:24.720 to achieving the best solution. And I'll give you an 0:06:24.720 --> 0:06:28.000 example of global climate change. Domestically in this country, half 0:06:28.000 --> 0:06:30.240 of the county doesn't believe into it too. There is 0:06:30.279 --> 0:06:33.800 a conflict between generation. The young people care about the 0:06:33.800 --> 0:06:36.240 future of the elder care less. At the international level, 0:06:36.279 --> 0:06:38.479 there is a free rider problem. If a country catch 0:06:38.520 --> 0:06:41.160 a mission to zero, nobody else does it, then they 0:06:41.160 --> 0:06:43.560 don't get benefit and only the cost. And now because 0:06:43.600 --> 0:06:46.960 of geopolitics, we are telling Indian China, you should cut 0:06:47.000 --> 0:06:49.200 your emission out to zero the next twenty years. But 0:06:49.279 --> 0:06:52.360 we created a problem in the last years. The stock 0:06:52.680 --> 0:06:54.880 of a mission came from advanced economies, and now we're 0:06:54.880 --> 0:06:58.080 telling them, don't grow, don't become rich because there is 0:06:58.080 --> 0:07:00.640 a problem. It's through the flow of new issues coming 0:07:00.640 --> 0:07:03.200 mostly from China and India. So there are four elements 0:07:03.200 --> 0:07:07.760 of conflict to domestic and to international that essentially implied 0:07:07.760 --> 0:07:09.479 that we're not going to find their solutions. So there's 0:07:09.560 --> 0:07:12.560 lots of greenwashing, duren wishing during thick Leaves. A lot 0:07:12.600 --> 0:07:15.440 of the SG is just talk and action. Glasgow cop 0:07:15.520 --> 0:07:18.720 was just a total failure and order, slow motion train wreck, 0:07:18.920 --> 0:07:21.400 which goes to your point on about electric vehicles and 0:07:22.480 --> 0:07:25.320 nine pounds evs in the United States, because they are Green. 0:07:25.560 --> 0:07:28.400 There is an issue they're going forward with the central banks, 0:07:28.440 --> 0:07:30.840 and whether a lot of your thesis and real is 0:07:31.000 --> 0:07:33.880 predicated on their inability to go through with what they 0:07:33.920 --> 0:07:37.080 need to do to get inflation down. Is that your 0:07:37.080 --> 0:07:40.760 base case is that the most likely outcome? Yeah, right now, 0:07:40.800 --> 0:07:43.280 all central banks are playing tough and talking tough and 0:07:43.360 --> 0:07:46.560 acting tough hawkish because they have a problem of credibility. 0:07:46.600 --> 0:07:49.400 But in my view, there are two problems. One problem 0:07:49.440 --> 0:07:51.160 is that they if they try to get to two 0:07:51.200 --> 0:07:54.520 percent inflation, they cause a recession. And this recession is 0:07:54.520 --> 0:07:56.520 not going to be short and shallow, is not gonna 0:07:56.520 --> 0:07:58.520 be guarded. Valiety is not going to be playing the neal. 0:07:58.560 --> 0:08:00.920 It's not gonna be two quarters of negative growth and 0:08:00.960 --> 0:08:03.960 the inflation collapses and they can ease again. In the book, 0:08:04.000 --> 0:08:05.760 I explain all the reasons why it's going to be 0:08:05.800 --> 0:08:08.680 a severe session because of the that ratio, because we're 0:08:08.680 --> 0:08:11.840 going into physical and monetary tightening, and at the same 0:08:11.880 --> 0:08:14.080 time you not only have an economic crush, You're gonna 0:08:14.120 --> 0:08:16.600 have also a physical crush. We're not only in physical 0:08:16.640 --> 0:08:19.720 dominance in this game of chicken between treasury and central bank, 0:08:19.840 --> 0:08:22.480 wherein what the folks at the Bank of International Settlement 0:08:22.520 --> 0:08:25.120 called a debt trap. There is so much private and 0:08:25.200 --> 0:08:28.680 public debt that if central banks try to fight inflation, 0:08:28.960 --> 0:08:31.640 because a crash of financial markets and not just the 0:08:31.640 --> 0:08:35.400 stock market that's the least important credit market, bond markets, 0:08:35.600 --> 0:08:38.240 and that crush and financial crash feeds on the economic 0:08:38.280 --> 0:08:41.160 crush and vice versa, and therefore they're gonna winp out, 0:08:41.320 --> 0:08:42.959 and they're gonna break. And the first one was the 0:08:42.960 --> 0:08:45.079 Bank of England. The FED is gonna do the same. 0:08:45.120 --> 0:08:46.600 This is going to do the same. Have you been 0:08:46.640 --> 0:08:49.200 surprised that we haven't seen some sort of catalysts, some 0:08:49.240 --> 0:08:52.760 sort of financial stress so far, given how quickly quickly 0:08:52.800 --> 0:08:55.560 the FEDS already hied rates, Well, we have not yet seen. 0:08:55.600 --> 0:08:59.160 It's some people worried some major financial institution not in 0:08:59.160 --> 0:09:02.320 the US may go bust. I think that the financial 0:09:02.320 --> 0:09:04.679 strains are going to become more severe because right now 0:09:04.720 --> 0:09:06.680 the FED is on the way to go from three 0:09:06.720 --> 0:09:10.000 towards five percent. You already have a stock market down 0:09:10.040 --> 0:09:13.720 twenty five percent NASA given more public reads thirty three percent. 0:09:14.080 --> 0:09:17.280 You have the crash of Mimi of spark, bubble, of 0:09:17.320 --> 0:09:21.480 the crypto bubble, private equity venture capital growth. Everything is down, 0:09:22.080 --> 0:09:25.280 credit is down, leverage market is shutting down, Celo market 0:09:25.320 --> 0:09:27.200 shutting down. And the only thing they used to be 0:09:27.240 --> 0:09:30.439 saved there were government bonds. Now the price is correlated 0:09:30.480 --> 0:09:34.160 positive equities because when inflation is rising, you lose money 0:09:34.200 --> 0:09:36.520 on your equity side, use money on your bond side. 0:09:36.760 --> 0:09:39.000 You'll have gone from one to four. And the price 0:09:39.040 --> 0:09:41.480 action downward on bond has been worse than an equities 0:09:41.559 --> 0:09:45.040 thirty percent losses. So any sixty forty seventy thirty or 0:09:45.160 --> 0:09:47.760 is party portfolio lost money on both hands. There was 0:09:47.800 --> 0:09:50.480 no worthwide even cash give you a negative real return 0:09:50.520 --> 0:09:53.800 because of inflation. There are other alternatives that can protect 0:09:53.800 --> 0:09:56.240 you against the stale risk, but they're not the traditional ones. 0:09:56.320 --> 0:09:58.280 You're a man of high conviction. We know it was 0:09:58.559 --> 0:10:01.960 some very smart friends. Any pushback to this book that's 0:10:01.960 --> 0:10:05.600 convinced you absolutely anything makes you rethink how bad things 0:10:05.720 --> 0:10:08.120 might be, impossibly made you think that possibly they could 0:10:08.160 --> 0:10:11.679 turn out better than you think. Honestly, everyone was ready 0:10:11.840 --> 0:10:15.120 at any level. As said, the threats you're talking about 0:10:15.160 --> 0:10:18.480 their all too reel. Of course, there may bee solution 0:10:18.559 --> 0:10:21.080 to them, and I discussed them chapter by chapter. In 0:10:21.120 --> 0:10:24.719 the final chapter, about the last dystopian future. But think 0:10:24.760 --> 0:10:26.760 of it this way. I have gray hair. I grew 0:10:26.840 --> 0:10:30.240 up in the sixties seventies in in in Italy. At 0:10:30.240 --> 0:10:33.000 that time, did I ever hear about climate change? The 0:10:33.160 --> 0:10:35.520 never concept? Did I worry about the nuclear war? After that? 0:10:35.600 --> 0:10:38.400 The town between Soviet US, there was nothing they worry 0:10:38.400 --> 0:10:41.040 about AI destroying. Most jobs were in the eye winter. 0:10:41.240 --> 0:10:44.200 With the stable democracy, we didn't have pandemics. Last time 0:10:44.240 --> 0:10:47.439 around was nineteen eighteen. We had low that ratios, We 0:10:47.520 --> 0:10:49.920 had law implicit that because there was no aging of 0:10:50.000 --> 0:10:52.360 population and all that fund the liabilities, there were no 0:10:52.440 --> 0:10:56.280 major financial economic crisis. This is the quantum shift. There 0:10:56.320 --> 0:10:59.400 was a period in nine and the mid eighties that 0:10:59.520 --> 0:11:03.439 was something of a stable period of global prosperity, welfare, 0:11:03.840 --> 0:11:06.920 peace and so on. Today these are threats that did 0:11:07.040 --> 0:11:09.960 not exist, and those threats are more similar to the 0:11:10.000 --> 0:11:12.760 period in nineteen eighteen and teen forty five when word 0:11:12.800 --> 0:11:15.959 World War one, World two, the Great Depression, trade war, 0:11:16.240 --> 0:11:22.280 financial crisis, inflation, hyper inflation, deflation, Nazis, fascists in German, Italy, 0:11:23.400 --> 0:11:26.480 Spain and Japan, and word World War two, and then 0:11:26.520 --> 0:11:29.560 with the Holocaust, and then where the Korean war, as 0:11:29.679 --> 0:11:32.520 as Neil Ferguson on Bloomberg is saying right now this 0:11:32.720 --> 0:11:35.240 column this week, he says, we'll be lucky if you 0:11:35.360 --> 0:11:38.200 repeat the nineteen seventies, because it's more possible we end 0:11:38.280 --> 0:11:40.720 up like in the mteen fourties, meaning it's talking about 0:11:41.000 --> 0:11:43.240 World War three. I love Can we be clear that 0:11:43.280 --> 0:11:46.960 wasn't a column, that was a book. If you read that, 0:11:47.000 --> 0:11:50.360 it's can you tell Neil the columns are short. I 0:11:50.400 --> 0:11:52.520 love his column because you know he's speaking about it. 0:11:52.600 --> 0:11:55.200 He's speaking about the fact that's a meaningful chance that 0:11:55.240 --> 0:11:58.000 we have to inflict between I write it about in 0:11:58.040 --> 0:12:00.640 my own book. There's chapter about the new cold within 0:12:00.760 --> 0:12:03.440 us and these revisionist power and I say it could 0:12:03.520 --> 0:12:06.480 end up into a haltwer it's a significant risk. I 0:12:06.520 --> 0:12:08.480 want to go to the past. And I was so 0:12:08.559 --> 0:12:12.320 pleased that you mentioned on page thirty seven your colleague 0:12:12.360 --> 0:12:16.120 Alberto Alssina. I still can't believe we lost them at 0:12:16.160 --> 0:12:19.720 such a young age. You two looked at the politics 0:12:19.920 --> 0:12:24.560 of our economic system Rubini and Albert Alberto Alsina. I 0:12:24.600 --> 0:12:26.800 want to bring it forward to where we are now, 0:12:27.320 --> 0:12:30.640 which is a massive dollar shortage and central banks that 0:12:30.800 --> 0:12:33.920 got a plan but they're gonna be overrun by a 0:12:34.000 --> 0:12:38.439 global dollar shortage any m and frankly in developing economies 0:12:38.720 --> 0:12:41.680 as well. Is there a dollar shortage now? And is 0:12:41.720 --> 0:12:45.760 that the catalyst for central banks to blink is going 0:12:45.800 --> 0:12:48.400 to be one of the catalysts. There is a dollar shortage, 0:12:48.559 --> 0:12:50.600 and there is an interests in the United States is 0:12:50.640 --> 0:12:53.840 particularly dramatic for em They have in terms of trade, chalk, 0:12:53.960 --> 0:12:58.000 those that are important commodities, They have rising interest rates 0:12:58.040 --> 0:12:59.640 because of what the fat does, and they have they're 0:12:59.679 --> 0:13:02.080 on the take inflation, and that the weakening of the 0:13:02.120 --> 0:13:05.199 currency that increases the real value in local currency of 0:13:05.320 --> 0:13:08.440 drown debt. So for them is this is a perfect storm. 0:13:08.559 --> 0:13:10.600 Some of them have a lot of reserves, some of 0:13:10.640 --> 0:13:12.960 them don't have reserves, Some of them are received I 0:13:13.080 --> 0:13:15.600 left money. But there is right now a strengthening of 0:13:15.640 --> 0:13:18.960 the dollar that is implying even further tightening of financial 0:13:18.960 --> 0:13:22.080 conditions in the rest of the world. Now, I think 0:13:22.120 --> 0:13:24.600 that eventually the dollar is gonna have to fall very 0:13:24.600 --> 0:13:28.120 sharply because we have a twin physical and current account eficits. 0:13:28.240 --> 0:13:30.840 In other advanced ecology of a physical deficit, but the 0:13:30.840 --> 0:13:34.440 current account surplus and now we're essentially using the dollar 0:13:34.559 --> 0:13:37.720 is a tool of national security and foreign policy. We're 0:13:37.720 --> 0:13:43.200 weaponizing it rightly, so sanctions against Russia, against Iran, nor Korea, China, 0:13:43.280 --> 0:13:46.800 we're starting, by the way, tact war with China. Economic 0:13:46.840 --> 0:13:51.640 world is weakness. How do we get there? Forget about this? Plus, 0:13:52.040 --> 0:13:55.560 the company of Left is going to be essentially the 0:13:55.600 --> 0:13:59.080 FED whimping out. Once you see a severe resertion, that 0:13:59.120 --> 0:14:02.559 means blinking, blinking, They're gonna blink and wimp out because 0:14:02.600 --> 0:14:10.120 you'll have a severe session financial out. Well, either you're 0:14:10.400 --> 0:14:13.079 how care you'r a whimp or a dog in this case, 0:14:13.720 --> 0:14:15.679 But that's going to happen. And once the fact is 0:14:15.720 --> 0:14:19.240 going to essentially prevent an economic and financial KASO, try 0:14:19.280 --> 0:14:23.080 to prevent it by essentially stop raising rates. Even inflation 0:14:23.360 --> 0:14:25.240 is too high, then the dollar is going to start 0:14:25.320 --> 0:14:27.880 sharply weakened. That's gonna be the trigger for it. What's 0:14:27.960 --> 0:14:30.600 raising the dollar is of course the type monetary policy 0:14:30.840 --> 0:14:32.920 viewer wrote in and wants to know what you're doing 0:14:32.920 --> 0:14:36.080 with your money, considering that it seems pretty bleak out there. 0:14:36.280 --> 0:14:38.480 You know, if you just stuff into a mattress, No, 0:14:38.680 --> 0:14:41.520 you don't stuff in the matters because then even cash 0:14:41.640 --> 0:14:44.800 loses money because of inflation. There are three solutions to 0:14:44.880 --> 0:14:49.560 the problems of inflation the basement of yet currency, political 0:14:49.640 --> 0:14:53.200 and geopolitical risk, and environmental risk. Solution Number one is 0:14:53.240 --> 0:14:55.640 to have very very short term treasuries that are just 0:14:55.920 --> 0:14:59.480 in rates and don't have the price action of long 0:14:59.520 --> 0:15:02.920 bonds that ever fall enterprise. Secondly, you want to be 0:15:03.000 --> 0:15:05.680 into tips, even if tips right now have not yet 0:15:05.720 --> 0:15:08.960 done well because in pression expectations are not yet the anchored. 0:15:09.240 --> 0:15:12.040 I think you want to go into gold and precious metal. Again, 0:15:12.040 --> 0:15:14.400 gold is not done very well because you have tight 0:15:14.520 --> 0:15:17.600 multi REPULSI strong dollar. But if central banks are gonna 0:15:17.600 --> 0:15:20.160 blink and win pout, gold is gonna rise in value. 0:15:20.280 --> 0:15:23.160 Gold are gonna rising values because the enemies of the 0:15:23.240 --> 0:15:26.280 US are subject to sanctions China Andize worried. There are 0:15:26.320 --> 0:15:28.800 three dollars of reserves in dollar have to move to 0:15:28.840 --> 0:15:31.080 other things. It's you're in the end. They can be seized. 0:15:31.240 --> 0:15:33.400 The only thing that cannot be seis is gold. Of course, 0:15:33.400 --> 0:15:35.440 not in the volved in New York or London, but 0:15:35.560 --> 0:15:39.040 in Beijing or in mosculines on and finally, appropriate types 0:15:39.040 --> 0:15:42.200 of real estate that are environmentally resilient because real estate 0:15:42.240 --> 0:15:45.040 compared to equities in a recessions as well because you 0:15:45.080 --> 0:15:47.200 have more pricing power for rents and so on. So 0:15:47.240 --> 0:15:50.640 a combination of these assets provide you, in an optimized way, 0:15:50.760 --> 0:15:53.080 a hedge against some of these theris. On the flip side, 0:15:53.240 --> 0:15:55.880 you've always been brilliant, un leveraged in the system. I'm 0:15:55.960 --> 0:15:59.320 credit and we've heard from one fund manager after another 0:15:59.400 --> 0:16:01.880 that there is reason alliance in this corporate credit sector, 0:16:02.240 --> 0:16:04.400 even with the death that they have, even with the 0:16:04.440 --> 0:16:07.160 low coupons that are currently paying that what we set higher. 0:16:07.560 --> 0:16:09.760 Do you disagree? Do you think that people are overly 0:16:09.880 --> 0:16:13.680 sanguine about the upcoming credit cycle? They are. Right before 0:16:13.680 --> 0:16:17.800 the COVID crisis, the FED was writing reports on financial stability, 0:16:18.000 --> 0:16:21.080 pointing out the leverage of the corporate sector of course 0:16:21.160 --> 0:16:24.480 high yield and fallen angels. But then during COVID these 0:16:24.480 --> 0:16:26.480 folks should have gone past, but they were built out. 0:16:26.680 --> 0:16:30.080 We both even high yield that you remember, commercial paper 0:16:30.120 --> 0:16:33.480 and everybody under the sun. So the zombies were built out, 0:16:33.760 --> 0:16:37.320 and the excesses of having leverage loans CEE los Co 0:16:37.440 --> 0:16:40.320 of Light got even worse, and people got even more indebted. 0:16:40.640 --> 0:16:42.840 This time around, the party is over because the FED 0:16:43.040 --> 0:16:45.720 for now left to raise rates because that service rations 0:16:45.760 --> 0:16:48.160 got become impossible. And you get the double one me 0:16:48.440 --> 0:16:50.880 for those corporates, you get a p n L because 0:16:51.000 --> 0:16:53.280 income is gonna fall because of the recession, and you 0:16:53.360 --> 0:16:56.360 get that problem with that service in racial rising, and 0:16:56.400 --> 0:16:58.520 therefore there will be a corporate that crisis one we 0:16:58.600 --> 0:17:01.880 avoided during the GFS and during the COVID crimes. It's scarring. 0:17:01.960 --> 0:17:04.800 Now they see a low and leverageable market are shutting 0:17:04.840 --> 0:17:07.080 down right now. I want to get to chapter twelve. 0:17:07.200 --> 0:17:10.679 You talk about a more optimistic future, utopian future. You 0:17:10.760 --> 0:17:13.560 started by quoting the economist Yogi Barra. I thought that 0:17:13.640 --> 0:17:16.240 was very good. You go right in there about predictions 0:17:16.240 --> 0:17:18.679 and Yogi in the future and all that. How do 0:17:18.720 --> 0:17:22.280 you get from Yogi Berra to a more optimistic future. Well, 0:17:22.320 --> 0:17:24.800 the more the place in the future starts with essentially 0:17:25.119 --> 0:17:28.160 technologically innovations, like for example, I don't think it's gonna 0:17:28.160 --> 0:17:31.760 be renewable, maybe fusion. If fusion happens, then you can 0:17:31.800 --> 0:17:35.760 have unlimited amount of essentially energy and cheap costs with 0:17:35.880 --> 0:17:38.760 no green out gas emissions. We look like we are however, 0:17:38.880 --> 0:17:42.480 only fifteen to twenty years away from fusion becoming a reality. 0:17:42.640 --> 0:17:45.800 If it comes faster than we can increase the economic pie. 0:17:46.119 --> 0:17:48.240 We're gonna reduce the cost of energy, We're gonna stop 0:17:48.240 --> 0:17:52.359 greenout emissions. We can grow more. What about fractured What 0:17:52.440 --> 0:17:55.680 about our fractured political system, whether you're Italy in the 0:17:55.800 --> 0:17:57.600 turn there to the right or what we see in 0:17:57.640 --> 0:18:00.159 the election He're coming up in two weeks. How we 0:18:00.240 --> 0:18:04.359 get beyond this fractured political system? For now we're going 0:18:04.400 --> 0:18:07.280 to god the world that is even more divided domestic 0:18:07.320 --> 0:18:10.520 and there's more polarization, there's lack of partnership, and it's happening. 0:18:10.640 --> 0:18:13.919 I mean, you have outwoor Tanni regimes in power. You 0:18:13.920 --> 0:18:16.760 have put In in Russia, you have Erdogan in Turkey, 0:18:16.880 --> 0:18:20.159 you have Kausinsky in Poland, you have Urban in Hungary, 0:18:20.200 --> 0:18:23.280 you have Melane in Italy. You have these Nazi Swedish Democrats. 0:18:23.440 --> 0:18:26.040 Now in Sweden you have the Brexit phenomenal, you have 0:18:26.160 --> 0:18:28.520 the Trump phenomenal. And in Latin America used to be 0:18:28.520 --> 0:18:31.560 only Venezuela Argentina populist of the left, but in the 0:18:31.640 --> 0:18:38.360 last two years, Chile, Ecuador, Peru, Colombia or the left. 0:18:40.040 --> 0:18:42.320 That's the world we're going, unfortunately, is a world that 0:18:42.440 --> 0:18:45.760 is not liberal Democratsy if you saw the movie right here, No, 0:18:45.840 --> 0:18:49.680 not the Capri who love playing Rubini nor Roubini. Where 0:18:49.680 --> 0:19:05.480 this's the book is mega threats. We get lucky this morning, 0:19:05.520 --> 0:19:07.200 jump Ovan around the table with us. They had of 0:19:07.240 --> 0:19:10.719 the Black Rock Investment Institute and formerly so much more 0:19:10.760 --> 0:19:13.080 than that, joan fantasticy catch up with the s. I 0:19:13.119 --> 0:19:15.800 read the weekly note from the Black Rock Investment Institute 0:19:15.800 --> 0:19:18.840 that came out just yesterday, and you talked about the 0:19:18.960 --> 0:19:21.800 significance of the mid terms, and you guys don't think 0:19:21.840 --> 0:19:25.000 they're that significant. The future returns over the next several months. Why, 0:19:25.760 --> 0:19:28.399 First of all, it's so great to be here. Um. No, 0:19:28.520 --> 0:19:31.200 we think the usual playbook for the mid term is that, 0:19:31.280 --> 0:19:34.280 you know, if you have divided government, divided government or houses, um, 0:19:34.320 --> 0:19:37.400 it tends to be a booze for markets. But as 0:19:37.480 --> 0:19:40.320 anything else this time around them and usual playbooks don't apply. 0:19:40.400 --> 0:19:42.920 We think, um, the main stories about their fore told 0:19:42.960 --> 0:19:46.240 recession that we're gonna have, we believe in in the 0:19:46.320 --> 0:19:49.640 quarantin the next year. And as a result, we think 0:19:49.680 --> 0:19:53.200 that this is the second side show um, the the 0:19:53.240 --> 0:19:55.399 important for the future of the country and everything, but 0:19:55.440 --> 0:19:57.440 in terms of markets, we don't think that's an important driver. 0:19:57.680 --> 0:20:01.080 Swap lines front and center. Major question at the meetings 0:20:01.080 --> 0:20:04.439 in Washington here a week or so ago. Give us 0:20:04.480 --> 0:20:08.119 black Rocks estimate of how countries will have to go 0:20:08.200 --> 0:20:11.920 to the FED given a global dollar shortage the liquidities 0:20:11.960 --> 0:20:13.840 that are out there. Is seeing in f R A 0:20:14.000 --> 0:20:17.840 oh yes, yeah, um, you know the important thing is 0:20:18.119 --> 0:20:20.440 here we were seeing like the most rapid tightening of 0:20:20.480 --> 0:20:23.600 financial condition in a in a generation, in a very 0:20:23.600 --> 0:20:27.479 long time. We haven't seen ready the cracks yet here 0:20:27.480 --> 0:20:29.800 in the system. It's remarkable to see all the all 0:20:29.800 --> 0:20:32.800 the strengthening of the US dollar we you've seen without 0:20:33.000 --> 0:20:35.159 like the knock on effect or cracks, we would have 0:20:35.200 --> 0:20:38.000 seen another circumstances. I think that creates a level of 0:20:38.040 --> 0:20:40.119 anxiety that was really clear at the I m F 0:20:40.160 --> 0:20:41.919 A lot of conversations about how we show up the 0:20:41.960 --> 0:20:45.040 system in that context. Swap line will be uh will 0:20:45.080 --> 0:20:48.040 be a key, key tool potentially in that environment. But 0:20:48.080 --> 0:20:50.000 I think so far what is very surprising is that 0:20:50.640 --> 0:20:54.200 you know it's been very stable despite despite what your 0:20:54.240 --> 0:20:58.720 academics at Princeton and your work with the Bank of Canada. 0:20:59.000 --> 0:21:03.080 If we believe it's nonlinear as we disinflate, do you 0:21:03.160 --> 0:21:06.840 think we can succeed that with stability or are there 0:21:06.840 --> 0:21:10.359 going to be instabilities witnessed with Damian says are yesterday 0:21:10.400 --> 0:21:13.120