1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Farrell and Lisa Brownwitz. Daily we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:29,440 Speaker 1: and of course on the Bloomberg Terminal. We are going 6 00:00:29,480 --> 00:00:32,400 Speaker 1: to stop the show right now. John Farrell, Lisa Brammitts, 7 00:00:32,440 --> 00:00:34,519 Speaker 1: and myself, We welcome all of you on radio and 8 00:00:34,560 --> 00:00:38,360 Speaker 1: TV to maybe the first great discussion of the year. 9 00:00:38,479 --> 00:00:41,480 Speaker 1: William Dudley is not the normal economist. Yes, his work 10 00:00:41,479 --> 00:00:44,320 Speaker 1: at Goldman Sachs out of Berkeley, but far more his 11 00:00:44,400 --> 00:00:48,080 Speaker 1: tenure at the New York Federal Reserve, and he has 12 00:00:48,120 --> 00:00:52,120 Speaker 1: been very overt in writing not weekly but pretty much 13 00:00:52,360 --> 00:00:56,760 Speaker 1: twice monthly for Bloomberg Opinion, and today he issues without 14 00:00:56,840 --> 00:01:02,640 Speaker 1: question his most scathing essay on where our Central Bank is? Bill? 15 00:01:02,760 --> 00:01:05,840 Speaker 1: What's it like to write with that language of a 16 00:01:05,920 --> 00:01:11,480 Speaker 1: remarkable and surreal FED economics? Are you getting criticism from 17 00:01:11,560 --> 00:01:16,479 Speaker 1: inside the Fed? I'm sure it doesn't make people they're happy, 18 00:01:16,560 --> 00:01:18,240 Speaker 1: But the reality is I gotta call it like I 19 00:01:18,280 --> 00:01:19,959 Speaker 1: see it, and what I see right now is a 20 00:01:19,959 --> 00:01:23,520 Speaker 1: Federal Reserve that has a very benign forecast relative to 21 00:01:23,520 --> 00:01:26,120 Speaker 1: what's actually happening on inflation. If you look at their 22 00:01:26,160 --> 00:01:29,360 Speaker 1: forecast that they published at the December fone C meeting, 23 00:01:29,680 --> 00:01:32,200 Speaker 1: they have inflation melting away to two point one percent 24 00:01:32,240 --> 00:01:36,120 Speaker 1: in four even though they don't take monetary policy to 25 00:01:36,160 --> 00:01:38,679 Speaker 1: a tight setting. The end of two thousand and twenty four, 26 00:01:38,720 --> 00:01:41,440 Speaker 1: the Federal fundrais two point one percent below what they 27 00:01:41,440 --> 00:01:44,679 Speaker 1: think is neutral. So how does the inflation magically disappear 28 00:01:44,720 --> 00:01:48,720 Speaker 1: of the fedusors not? That's the question I want to 29 00:01:48,800 --> 00:01:53,880 Speaker 1: raise in this piece, Bill Dudley. Alan Greenspan at least 30 00:01:54,040 --> 00:01:57,360 Speaker 1: talking about the measurement and measured and the idea of 31 00:01:57,400 --> 00:02:01,200 Speaker 1: a graduation a step by step approach. Alan Blinder, in 32 00:02:01,240 --> 00:02:04,680 Speaker 1: an essay in two thousand five said, the Greenspan standard 33 00:02:05,120 --> 00:02:08,320 Speaker 1: is suspect. Are we going back to Arthur Burns Burns 34 00:02:08,320 --> 00:02:11,080 Speaker 1: in the pipe smoke, where we're gonna lose quarter point 35 00:02:11,160 --> 00:02:15,160 Speaker 1: measured and start to see some real jumps. I think 36 00:02:15,200 --> 00:02:18,080 Speaker 1: they're gonna go fairly slow at first, but because they 37 00:02:18,080 --> 00:02:20,320 Speaker 1: think that the inflation pressures that we're seeing right now 38 00:02:20,320 --> 00:02:22,240 Speaker 1: are going to subside as we go through the first 39 00:02:22,240 --> 00:02:25,160 Speaker 1: half of the year. But the real new information is 40 00:02:25,160 --> 00:02:27,760 Speaker 1: the tightness of the labor market and the fact that 41 00:02:27,760 --> 00:02:30,680 Speaker 1: that tightness of the labor market is resulting in higher wages, 42 00:02:31,000 --> 00:02:34,480 Speaker 1: wages above what's consistent with two percent inflation. So I 43 00:02:34,480 --> 00:02:37,400 Speaker 1: think even if the initial impulsive inflation turns out to 44 00:02:37,400 --> 00:02:39,919 Speaker 1: be transitory, they now have a problem because the labor 45 00:02:39,960 --> 00:02:44,160 Speaker 1: markets sufficiently tight that wages are going to continue to accelerate. 46 00:02:44,520 --> 00:02:47,359 Speaker 1: Bill In your piece, you reiterate your call for three 47 00:02:47,360 --> 00:02:50,840 Speaker 1: to four percent as the potential and a rate for 48 00:02:50,919 --> 00:02:54,640 Speaker 1: the Fed funds uh figure. I'm struck by the fact 49 00:02:54,760 --> 00:02:56,960 Speaker 1: that you include the idea of an end rate for 50 00:02:57,080 --> 00:02:59,519 Speaker 1: inflation at two and a half to three percent, which 51 00:02:59,560 --> 00:03:04,480 Speaker 1: is actually a commonplace suggestion. What happens to risk markets 52 00:03:04,560 --> 00:03:07,440 Speaker 1: if the Fed funds rate gets to three or four percent? 53 00:03:07,560 --> 00:03:11,679 Speaker 1: Do you think that this economy can sustain that? Well? 54 00:03:11,680 --> 00:03:14,799 Speaker 1: I think that's the fundamental question. Uh. In two thousand 55 00:03:14,800 --> 00:03:17,880 Speaker 1: four two six, the economy is sustained the Fed taking 56 00:03:17,919 --> 00:03:19,880 Speaker 1: the federal funds rate from one percent to five and 57 00:03:19,919 --> 00:03:23,440 Speaker 1: a quarter. Yeah. In two thousands sixteen to nineteen, the 58 00:03:23,440 --> 00:03:26,000 Speaker 1: economy didn't do so well with the Fed taking the 59 00:03:26,040 --> 00:03:27,760 Speaker 1: federal funds rate to you know, he'll go a little 60 00:03:27,800 --> 00:03:30,359 Speaker 1: bit over two percent. So I think that's the fundamental question. 61 00:03:30,400 --> 00:03:33,280 Speaker 1: How does how do markets reactive Fed tightening? I think 62 00:03:33,320 --> 00:03:35,440 Speaker 1: that right now, this idea though that the Fed is 63 00:03:35,880 --> 00:03:37,880 Speaker 1: a small amount of tightening is going to cause markets 64 00:03:37,880 --> 00:03:39,960 Speaker 1: to go down precipitously, and that's going to cause the 65 00:03:40,000 --> 00:03:42,680 Speaker 1: FED to stop. I don't think that's the most likely outcome. 66 00:03:43,080 --> 00:03:45,400 Speaker 1: If you think the inflation subsiding at two and a 67 00:03:45,440 --> 00:03:48,160 Speaker 1: half to three percent would result in what could be 68 00:03:48,240 --> 00:03:50,880 Speaker 1: a crippling FED funds rate, that are you saying that 69 00:03:50,920 --> 00:03:53,560 Speaker 1: we need an inflation rate below two and a half 70 00:03:53,600 --> 00:03:56,840 Speaker 1: percent to have an economy that is sustainable over the 71 00:03:56,840 --> 00:04:00,160 Speaker 1: next decade. I don't think a three or four sent 72 00:04:00,200 --> 00:04:02,400 Speaker 1: fiddle funds rate is crippling in any way. It's only 73 00:04:03,160 --> 00:04:06,560 Speaker 1: unusually high relative to the last ten years. It's actually 74 00:04:06,640 --> 00:04:09,120 Speaker 1: a pretty low relative to the last thirty or forty years. 75 00:04:09,400 --> 00:04:11,560 Speaker 1: So I think the economic can do just fine with 76 00:04:11,640 --> 00:04:14,280 Speaker 1: the federal funds rate in that range. I think when 77 00:04:14,360 --> 00:04:17,680 Speaker 1: markets are really uh mis pricing is the fact that 78 00:04:17,720 --> 00:04:19,599 Speaker 1: the FET is actually gonna have to move to take 79 00:04:19,680 --> 00:04:22,400 Speaker 1: Madre policy setting. At some point the FED has turned 80 00:04:22,440 --> 00:04:24,760 Speaker 1: more hawkish in the very near term, So a lot 81 00:04:24,839 --> 00:04:27,200 Speaker 1: more hikes are being priced in in two thousand and 82 00:04:27,279 --> 00:04:30,719 Speaker 1: twenty two. But the terminal fiddle funds rate the markets 83 00:04:30,720 --> 00:04:33,160 Speaker 1: expecting it's still very low, only around two percent or so. 84 00:04:33,640 --> 00:04:36,279 Speaker 1: But what's important here, and I think to summarize the message, 85 00:04:36,920 --> 00:04:39,080 Speaker 1: you think for inflation to come lower, the feed needs 86 00:04:39,120 --> 00:04:41,920 Speaker 1: to engineer trying to financial conditions. But I'm trying to 87 00:04:41,920 --> 00:04:43,800 Speaker 1: want to stand from from your standpoint, where do you 88 00:04:43,839 --> 00:04:47,160 Speaker 1: think that tightness begins? Where do you think it is 89 00:04:47,320 --> 00:04:49,040 Speaker 1: one and a half, two, two and a half, What 90 00:04:49,160 --> 00:04:50,960 Speaker 1: does it start to become restrictive? And where we can 91 00:04:51,000 --> 00:04:54,720 Speaker 1: sit here and say the fet is now tightening. I 92 00:04:54,720 --> 00:04:56,880 Speaker 1: think it's when the market start to price in more 93 00:04:56,960 --> 00:04:59,400 Speaker 1: tightening than what they've breaks in at this point in time. 94 00:04:59,440 --> 00:05:01,719 Speaker 1: I mean, it's the fact it's the fat just delivers 95 00:05:01,760 --> 00:05:03,960 Speaker 1: what's priced in today. I don't think markets reacting very 96 00:05:04,000 --> 00:05:06,080 Speaker 1: much because it's already priced in. So the feder reserve 97 00:05:06,200 --> 00:05:09,160 Speaker 1: essentially has to go further than what the market anticipates. 98 00:05:09,560 --> 00:05:12,160 Speaker 1: The markets to react. Uh, I think what will happen 99 00:05:12,240 --> 00:05:14,640 Speaker 1: is the first boules will go out further. Uh, you know, 100 00:05:14,640 --> 00:05:16,479 Speaker 1: we'll probably see boules in the two and a half 101 00:05:16,520 --> 00:05:19,679 Speaker 1: three percent range. And as once we have higher tenure 102 00:05:19,720 --> 00:05:21,479 Speaker 1: treasury no yields, that will start to weigh on the 103 00:05:21,480 --> 00:05:23,800 Speaker 1: stock market a little bit more and other you know, 104 00:05:24,160 --> 00:05:27,200 Speaker 1: you know, risk assets like say cryptocurrencies for example. But 105 00:05:27,279 --> 00:05:28,960 Speaker 1: what you just said, though, the original piece of this 106 00:05:29,120 --> 00:05:31,359 Speaker 1: is that you think when that happens, the ft doesn't 107 00:05:31,360 --> 00:05:34,720 Speaker 1: back off. It's not the old playbook. Well, the ft 108 00:05:34,720 --> 00:05:36,080 Speaker 1: has to do his job at the end of the day. 109 00:05:36,080 --> 00:05:38,080 Speaker 1: I mean, if you if you try to defer the 110 00:05:38,120 --> 00:05:40,840 Speaker 1: fight against inflation, all you do is get more inflation. 111 00:05:40,960 --> 00:05:43,000 Speaker 1: So it's not like, you know, trying to be a 112 00:05:43,120 --> 00:05:45,320 Speaker 1: nice guy gets you to a better price. We sort 113 00:05:45,320 --> 00:05:48,240 Speaker 1: of saw that mistake in the early nineties seventies. So 114 00:05:48,279 --> 00:05:49,839 Speaker 1: I think the Federals ave at the end of the day, 115 00:05:49,839 --> 00:05:52,120 Speaker 1: will do his job. I think it's just slow. I 116 00:05:52,160 --> 00:05:55,760 Speaker 1: think to realize right now the consequences of the tight 117 00:05:55,839 --> 00:05:59,640 Speaker 1: labor market, which they've engineered at this point built totally. 118 00:05:59,680 --> 00:06:02,320 Speaker 1: I want to go back to Dudley McKelvey, Goldman Sex. 119 00:06:02,440 --> 00:06:04,640 Speaker 1: There's not a moment to lose. That's what I hear 120 00:06:04,640 --> 00:06:07,440 Speaker 1: in your essay this morning. It's like, Okay, guys, let's 121 00:06:07,480 --> 00:06:11,039 Speaker 1: get it going. The Taylor rule is described on the 122 00:06:11,080 --> 00:06:14,600 Speaker 1: Bloomberg is stunning. It's something you and I never would 123 00:06:14,600 --> 00:06:18,279 Speaker 1: have envisioned. John Taylor Stanford never would have envisioned where 124 00:06:18,320 --> 00:06:22,480 Speaker 1: we are. Which moves quicker the Taylor rule coming down 125 00:06:22,520 --> 00:06:25,280 Speaker 1: with all of us moving parts, or does the FED 126 00:06:25,400 --> 00:06:28,800 Speaker 1: move up at a greater speed. Well, I don't think 127 00:06:28,800 --> 00:06:31,080 Speaker 1: the Taylor rule is really that relevant to what the 128 00:06:31,080 --> 00:06:33,160 Speaker 1: Fed is doing right now. I mean, if you listen 129 00:06:33,240 --> 00:06:36,400 Speaker 1: to Cheer Polo, he talks about the importance of financial conditions, 130 00:06:36,839 --> 00:06:38,760 Speaker 1: and I think that that's the key issue. The financial 131 00:06:38,800 --> 00:06:42,760 Speaker 1: conditions today are extremely accommodative. To slow the economy down, 132 00:06:42,760 --> 00:06:45,880 Speaker 1: the Fed needs to make financial conditions less accommodative. How 133 00:06:45,880 --> 00:06:47,880 Speaker 1: do they do that? They raised short term rates. They 134 00:06:47,960 --> 00:06:51,360 Speaker 1: raised short term rates more and faster than what markets expect. Bill, 135 00:06:51,400 --> 00:06:53,960 Speaker 1: How does balance sheet reduction play into this as well? 136 00:06:54,080 --> 00:06:57,400 Speaker 1: From your standpoint, Well, it's interesting that that there seems 137 00:06:57,400 --> 00:06:59,800 Speaker 1: to be a growing sentiment that the balance sheet reduction 138 00:06:59,880 --> 00:07:02,640 Speaker 1: is gonna happen sooner than last time, not just in time, 139 00:07:02,680 --> 00:07:04,920 Speaker 1: but also in terms of the level of interest rates. 140 00:07:04,960 --> 00:07:06,480 Speaker 1: Where the Fed is going to start the balance sheet 141 00:07:06,480 --> 00:07:10,080 Speaker 1: normalization process very daily last week talked about getting going, 142 00:07:10,120 --> 00:07:12,480 Speaker 1: you know, after a couple of rate hikes. I find 143 00:07:12,520 --> 00:07:15,000 Speaker 1: that a little bit surprising given that the Fed. Fed 144 00:07:15,080 --> 00:07:18,040 Speaker 1: officials have also said that they want the federal fund 145 00:07:18,120 --> 00:07:20,800 Speaker 1: rate to be the primary tool of entary policy. Well, 146 00:07:20,800 --> 00:07:22,120 Speaker 1: if you want the federal fund rate to be the 147 00:07:22,160 --> 00:07:24,400 Speaker 1: primary tool of monetary policy, you need to get the 148 00:07:24,400 --> 00:07:27,160 Speaker 1: federal fund rate up so it can actually react to 149 00:07:27,200 --> 00:07:29,520 Speaker 1: adverse shocks in the economy, so you can push it 150 00:07:29,520 --> 00:07:32,080 Speaker 1: back down. I think the case for being a little 151 00:07:32,080 --> 00:07:34,280 Speaker 1: bit more patient with the balance SHE is still pretty strong. 152 00:07:34,600 --> 00:07:38,000 Speaker 1: But it certainly looks like, judging from Fed officials commentary, 153 00:07:38,000 --> 00:07:39,760 Speaker 1: that they're gonna go a little bit faster this time, 154 00:07:39,800 --> 00:07:42,280 Speaker 1: not just in time, but also in terms of what 155 00:07:42,400 --> 00:07:44,680 Speaker 1: level of interest rates we have to get to before 156 00:07:44,680 --> 00:07:46,840 Speaker 1: they start to normalize the balance SHE. What's your sense 157 00:07:46,920 --> 00:07:51,280 Speaker 1: of how much they should raise rates this year. I 158 00:07:51,320 --> 00:07:53,840 Speaker 1: think they should go faster than what's priced into the market. 159 00:07:53,880 --> 00:07:55,560 Speaker 1: I mean, obviously it's going to depend a bit on 160 00:07:55,680 --> 00:07:59,360 Speaker 1: how the economy evolves, but my my best guess is 161 00:08:00,080 --> 00:08:01,720 Speaker 1: that they need to do at least four or five 162 00:08:01,840 --> 00:08:04,120 Speaker 1: rate hikes this year, and it wouldn't strike me at 163 00:08:04,120 --> 00:08:06,240 Speaker 1: all if we if we get into an every meeting 164 00:08:06,320 --> 00:08:08,680 Speaker 1: kind of cycle at some point. But what went wrong 165 00:08:08,960 --> 00:08:12,760 Speaker 1: for this feder reserve. Let's finish that. What went wrong? Well, 166 00:08:12,800 --> 00:08:15,240 Speaker 1: I think there are essentially four mistakes that were made. 167 00:08:15,320 --> 00:08:18,200 Speaker 1: Number One, the way they operationalized the two percent average 168 00:08:18,240 --> 00:08:20,400 Speaker 1: inflation targeting machine by saying that they're not going to 169 00:08:20,480 --> 00:08:23,040 Speaker 1: even begin to lift off until they satisfied the goals 170 00:08:23,040 --> 00:08:25,600 Speaker 1: of inflation at two percent, expected to be above two 171 00:08:25,640 --> 00:08:28,520 Speaker 1: percent in the future, and at full employment. So that 172 00:08:28,560 --> 00:08:31,640 Speaker 1: means the starting point for monetary policy lift off is 173 00:08:31,840 --> 00:08:34,920 Speaker 1: economy is already overheating. Number Two, I think they were 174 00:08:34,960 --> 00:08:37,360 Speaker 1: wrong about the labor market. I think they were surprised 175 00:08:37,400 --> 00:08:40,600 Speaker 1: by how fast the labor market tightened. Participation rate has 176 00:08:40,640 --> 00:08:43,439 Speaker 1: not come back to the to the degree that they 177 00:08:43,440 --> 00:08:48,000 Speaker 1: were expecting. Third, they were surprised I think about inflation. Inflation, 178 00:08:48,200 --> 00:08:51,800 Speaker 1: the transitory story hasn't played out very well. Uh it's 179 00:08:51,960 --> 00:08:54,120 Speaker 1: I think a lot of the inflation pressures we're seeing 180 00:08:54,160 --> 00:08:58,400 Speaker 1: our transitory, but that it's lasting longer, for a lot longer, 181 00:08:58,440 --> 00:09:01,559 Speaker 1: at a lot higher rate than they anticipated. And then finally, 182 00:09:01,600 --> 00:09:03,360 Speaker 1: I think they were a little bit too concerned about 183 00:09:03,480 --> 00:09:05,680 Speaker 1: worrying about a papered Hendrew. So I think they were 184 00:09:05,720 --> 00:09:08,239 Speaker 1: a little bit too gentle in terms of their communication 185 00:09:08,280 --> 00:09:10,120 Speaker 1: to financial markets because they were worried that was going 186 00:09:10,160 --> 00:09:12,520 Speaker 1: to provoke usself off in the bond market. And I 187 00:09:12,520 --> 00:09:14,960 Speaker 1: think in the fact, the problem right now is that 188 00:09:14,960 --> 00:09:18,360 Speaker 1: the markets aren't taking them seriously enough. Bill, just wonderful. 189 00:09:18,400 --> 00:09:20,839 Speaker 1: You've been wanted about this for more than six months. 190 00:09:21,000 --> 00:09:23,800 Speaker 1: Bill Duntly a Bloomberg opinion and of course the former 191 00:09:24,000 --> 00:09:31,320 Speaker 1: president of the New York Fed. We need to kick 192 00:09:31,360 --> 00:09:33,400 Speaker 1: things off in this equity market with Lori Canvassin of 193 00:09:33,440 --> 00:09:36,679 Speaker 1: the head of US equity strategy at NBC Capital Markets. Laurie, 194 00:09:36,760 --> 00:09:38,480 Speaker 1: you came into twenty two and said it would be 195 00:09:38,480 --> 00:09:40,920 Speaker 1: a story of two halves. The first half of this 196 00:09:41,000 --> 00:09:43,839 Speaker 1: equity market would look different to the second half. Laurie, 197 00:09:44,120 --> 00:09:46,199 Speaker 1: start with what you expected and what you're seeing in 198 00:09:46,280 --> 00:09:49,560 Speaker 1: the only part of twenty two. So look, well, great 199 00:09:49,559 --> 00:09:51,440 Speaker 1: to be here as always, But look, I think last 200 00:09:51,480 --> 00:09:53,319 Speaker 1: week we saw a lot of things we'd expecting to 201 00:09:53,320 --> 00:09:56,079 Speaker 1: see unfold in the first half unfold with a certain 202 00:09:56,080 --> 00:09:58,559 Speaker 1: ferocity that surprised even us. So we thought that the 203 00:09:58,559 --> 00:09:59,959 Speaker 1: first half of the year was going to be the 204 00:10:00,040 --> 00:10:02,720 Speaker 1: find by another big hurrah. We called it the last 205 00:10:02,760 --> 00:10:05,120 Speaker 1: hurra on the value trade, so things like financials and 206 00:10:05,280 --> 00:10:07,880 Speaker 1: energy fline. We certainly didn't expect to see energy of 207 00:10:08,000 --> 00:10:10,320 Speaker 1: ten percent on a week, but we did think that 208 00:10:10,360 --> 00:10:12,680 Speaker 1: we'd see this big move because you typically do see 209 00:10:12,760 --> 00:10:15,880 Speaker 1: strong value leadership before first FED rate hikes and when 210 00:10:15,880 --> 00:10:18,640 Speaker 1: the economy is running hot or above average. And what's 211 00:10:18,679 --> 00:10:20,760 Speaker 1: interesting John to me is that with all these changes 212 00:10:20,760 --> 00:10:23,960 Speaker 1: on rate hike use, we're still seeing an economics community 213 00:10:23,960 --> 00:10:26,480 Speaker 1: that's looking for very, very strong growth this year. So 214 00:10:26,520 --> 00:10:29,600 Speaker 1: that narrative is still intact. We think eventually this market 215 00:10:29,600 --> 00:10:32,360 Speaker 1: will shift back towards growth. Um. But we've still got 216 00:10:32,360 --> 00:10:35,400 Speaker 1: some woodchee chopped there. The valuations haven't corrected. There's still 217 00:10:35,440 --> 00:10:37,320 Speaker 1: some time to that March lift off. If we end 218 00:10:37,400 --> 00:10:39,640 Speaker 1: up getting it then um, and it'll be quite some 219 00:10:39,679 --> 00:10:42,199 Speaker 1: time before markets start digesting a slow down in growth, 220 00:10:42,200 --> 00:10:44,640 Speaker 1: which is what's penciled in as a risk for three. 221 00:10:44,960 --> 00:10:46,840 Speaker 1: So I think we've still got to let this process 222 00:10:46,960 --> 00:10:49,800 Speaker 1: play out. This is a repricing. It's painful. Um, it's 223 00:10:49,800 --> 00:10:51,920 Speaker 1: got a little bit more ways to go. You're killing me. 224 00:10:52,040 --> 00:10:55,840 Speaker 1: Lorio in the Tao is painful, Lorie, good morning. I 225 00:10:55,880 --> 00:10:58,680 Speaker 1: want to talk about the most important research piece of 226 00:10:58,679 --> 00:11:03,440 Speaker 1: the weekend, which was Bloomberg's Mark German's fabulous essay on 227 00:11:03,559 --> 00:11:06,640 Speaker 1: Apple and would Apple go into fintech? And I want 228 00:11:06,640 --> 00:11:09,520 Speaker 1: to use that as an overlay to year world, which 229 00:11:09,559 --> 00:11:14,160 Speaker 1: is will corporations adapt given rising rates? And the answer is, 230 00:11:14,640 --> 00:11:19,720 Speaker 1: you know what, corporations? Will corporations can adapt to this scenario? 231 00:11:20,080 --> 00:11:23,680 Speaker 1: Is that true? I think that we have seen, going 232 00:11:23,760 --> 00:11:26,880 Speaker 1: all the way back to when the China tariffs really 233 00:11:26,920 --> 00:11:30,000 Speaker 1: came into view, there's always this fear in markets that 234 00:11:30,040 --> 00:11:32,760 Speaker 1: whatever big issue comes out, that it's going to cause 235 00:11:33,040 --> 00:11:35,200 Speaker 1: a growth stare that companies are going to be able 236 00:11:35,240 --> 00:11:38,760 Speaker 1: to navigate. But time and time against whether it's the pandemic, 237 00:11:38,800 --> 00:11:41,760 Speaker 1: whether it's supply chains, whether it's the tariffs, companies have 238 00:11:41,880 --> 00:11:44,439 Speaker 1: been able to manage around, and you know, I think 239 00:11:44,480 --> 00:11:48,120 Speaker 1: it's hard to bet against that adaptability of corporate America 240 00:11:48,200 --> 00:11:50,760 Speaker 1: going forward, Lori. At the same time, you did say 241 00:11:50,840 --> 00:11:52,680 Speaker 1: and a lot of people do expect some of the 242 00:11:52,720 --> 00:11:56,160 Speaker 1: pain to continue. I'm wondering where, in particular, always really 243 00:11:56,200 --> 00:11:58,719 Speaker 1: struck by Sundial Capital coming out and saying roughly four 244 00:11:59,040 --> 00:12:01,880 Speaker 1: out of ten nast companies have seen their share price 245 00:12:01,920 --> 00:12:05,160 Speaker 1: cut in half from their cut more than from the 246 00:12:05,160 --> 00:12:07,720 Speaker 1: fifty two week highs. I mean there's been a complete 247 00:12:07,760 --> 00:12:12,480 Speaker 1: recalibration of certain tech valuations. LOOKA, we updated all of 248 00:12:12,480 --> 00:12:15,520 Speaker 1: our valuation models on Friday. I didn't quite catch Friday's closed, 249 00:12:15,559 --> 00:12:17,680 Speaker 1: but I did catch Thursday's close. And whether you're looking 250 00:12:17,760 --> 00:12:21,160 Speaker 1: growth versus value tech relative to the broader market, we 251 00:12:21,200 --> 00:12:23,600 Speaker 1: still have big valuations on that side of the market. 252 00:12:23,760 --> 00:12:26,040 Speaker 1: I do expect we'll be able to buy those those 253 00:12:26,120 --> 00:12:28,440 Speaker 1: areas back before the year is up, but we're simply 254 00:12:28,440 --> 00:12:30,640 Speaker 1: not there yet. And frankly, Lisa, I was surprised that 255 00:12:30,679 --> 00:12:33,280 Speaker 1: we didn't see more improvement on my tech valuation model. 256 00:12:33,480 --> 00:12:35,880 Speaker 1: It's not as expense, it's not the most expensive sector 257 00:12:35,880 --> 00:12:38,520 Speaker 1: in the market industrials is, but it's still ranking second. 258 00:12:38,559 --> 00:12:40,960 Speaker 1: It's still ranking pretty extremes. So that's really telling me 259 00:12:41,040 --> 00:12:44,040 Speaker 1: this free pricing still has a lot of room to go, Laurie, 260 00:12:44,040 --> 00:12:45,880 Speaker 1: when you're thinking about FED right high, So let's finish 261 00:12:45,880 --> 00:12:49,120 Speaker 1: finish here. What's the difference between help us distinguished between 262 00:12:49,120 --> 00:12:52,360 Speaker 1: a rotation and broad based de risking that we could 263 00:12:52,360 --> 00:12:53,839 Speaker 1: see off the back of the FED coals light to 264 00:12:53,840 --> 00:12:56,960 Speaker 1: this year. So what here's the thing is that people 265 00:12:57,240 --> 00:13:00,400 Speaker 1: don't want to sell out of their equities if we're 266 00:13:00,440 --> 00:13:03,199 Speaker 1: not on the precipice of a growth scare or a recession. 267 00:13:03,240 --> 00:13:05,560 Speaker 1: And that's the real difference here. Um. If you go 268 00:13:05,600 --> 00:13:08,880 Speaker 1: back to when quantitative tightening was spooking markets, it was 269 00:13:08,960 --> 00:13:11,240 Speaker 1: also against the backdrop of the trade war which was 270 00:13:11,360 --> 00:13:14,120 Speaker 1: just getting started, and there were real recession fears that 271 00:13:14,160 --> 00:13:16,320 Speaker 1: were starting to build. We are hopefully at the tail 272 00:13:16,360 --> 00:13:18,880 Speaker 1: end of this pandemic, in recovery mode with a hot 273 00:13:18,880 --> 00:13:21,439 Speaker 1: economy that no one's really arguing against for the moment. 274 00:13:21,760 --> 00:13:25,040 Speaker 1: If you see that hot economy start to be questioned, 275 00:13:25,440 --> 00:13:27,360 Speaker 1: that's when markets are really going to have a problem 276 00:13:27,360 --> 00:13:29,560 Speaker 1: and you're going to run the risk of really seeing 277 00:13:29,559 --> 00:13:32,280 Speaker 1: the substantial decline. But we're not there yet. Fantastic work. 278 00:13:32,360 --> 00:13:34,600 Speaker 1: Laurie as always going to hear from the Lori Canvassin 279 00:13:34,640 --> 00:13:43,280 Speaker 1: and that of obviously Capital Markets a Tommy conversation and 280 00:13:43,360 --> 00:13:44,839 Speaker 1: one of those companies that needs to adapt to the 281 00:13:44,840 --> 00:13:47,960 Speaker 1: world around us, it's FISA and output Bola, the chairman 282 00:13:48,000 --> 00:13:51,000 Speaker 1: and CEO of FISER on place to say join us. Now, 283 00:13:51,160 --> 00:13:53,440 Speaker 1: don't de fantastic to catch up with you, sir. A 284 00:13:53,520 --> 00:13:56,439 Speaker 1: series of announcements from your company led by the four 285 00:13:56,520 --> 00:14:00,600 Speaker 1: year research collaboration with Being Therapeutics, expanding m R and 286 00:14:00,640 --> 00:14:02,959 Speaker 1: a effort here it's pretty clear to see. I want 287 00:14:03,000 --> 00:14:05,440 Speaker 1: to understand though. My first thing to think seeing the 288 00:14:05,480 --> 00:14:11,360 Speaker 1: news why the partnerships instead of straight acquisitions. I think 289 00:14:11,520 --> 00:14:17,520 Speaker 1: sometimes being a good partner provides better results than if 290 00:14:17,679 --> 00:14:20,800 Speaker 1: you own a company. And right now we want to 291 00:14:20,800 --> 00:14:25,200 Speaker 1: place multiple bets and collaborations, and we have proven that 292 00:14:25,240 --> 00:14:28,520 Speaker 1: this works very well with buy on day. So I 293 00:14:28,560 --> 00:14:30,560 Speaker 1: don't say that we would then you would not see 294 00:14:30,600 --> 00:14:35,880 Speaker 1: also acquisitions from our side in this front, but right now, 295 00:14:35,920 --> 00:14:39,680 Speaker 1: in these specific areas, we felt that partnerships will give 296 00:14:39,760 --> 00:14:44,760 Speaker 1: us exactly what we want without dedicating amounts of capital 297 00:14:44,800 --> 00:14:47,680 Speaker 1: that would be needed if we wanted to require the companies. Well, 298 00:14:47,680 --> 00:14:49,040 Speaker 1: that's what I wanted to ask, That's what I wanted 299 00:14:49,080 --> 00:14:51,400 Speaker 1: to go to next. What does that mean for capital 300 00:14:51,440 --> 00:14:54,080 Speaker 1: annocation elsewhere? What kind of doors does it open up 301 00:14:54,480 --> 00:14:56,880 Speaker 1: if the strategy elsewhere as a series of bets and 302 00:14:56,920 --> 00:15:01,040 Speaker 1: a series of partnerships. Clear early this is one of 303 00:15:01,080 --> 00:15:04,560 Speaker 1: the top priorities that the visor and myself personally are 304 00:15:04,560 --> 00:15:06,600 Speaker 1: having for for this year. I wouldn't say is the 305 00:15:06,680 --> 00:15:09,200 Speaker 1: number one because the number one it is to stay 306 00:15:09,200 --> 00:15:11,280 Speaker 1: ahead of the virus, to stay ahead of COVID. This 307 00:15:11,360 --> 00:15:13,120 Speaker 1: is what the company needs to do because this is 308 00:15:13,120 --> 00:15:17,240 Speaker 1: what the world needs. But clearly number two priority it 309 00:15:17,400 --> 00:15:20,600 Speaker 1: is to invest a lot of capital that it is 310 00:15:20,640 --> 00:15:24,640 Speaker 1: accumulated either through the normal course of business or through COVID, 311 00:15:25,240 --> 00:15:30,000 Speaker 1: and that needs to be an investment on science. We 312 00:15:30,160 --> 00:15:33,560 Speaker 1: believe that we have the machine right now, the developed 313 00:15:33,560 --> 00:15:38,440 Speaker 1: clinical development machine, the manufacturing machine, the commercial machines, all 314 00:15:38,480 --> 00:15:42,640 Speaker 1: these platforms are waiting for a new science, highly break 315 00:15:42,680 --> 00:15:46,040 Speaker 1: through science to come in and produce allusions for for 316 00:15:46,040 --> 00:15:48,920 Speaker 1: for humankind, and this is where the capital will go. Well, 317 00:15:48,960 --> 00:15:51,360 Speaker 1: let's talk about the platform getting the most attention right now, 318 00:15:51,920 --> 00:15:55,160 Speaker 1: m A and I. It's been met with hope, confusion, 319 00:15:55,600 --> 00:15:58,880 Speaker 1: and to some degree skepticism. Dr. I'm trying to understand 320 00:15:58,880 --> 00:16:02,160 Speaker 1: from from your standpoint, communicate to people the hope around 321 00:16:02,160 --> 00:16:04,720 Speaker 1: this when we keep getting told we need another shot. 322 00:16:04,760 --> 00:16:06,440 Speaker 1: If it's so good, why do you need a second, 323 00:16:06,640 --> 00:16:11,200 Speaker 1: a third, and a fourth. Yes. First of all, let 324 00:16:11,200 --> 00:16:13,000 Speaker 1: me say what I think about MMR and EMER and 325 00:16:13,080 --> 00:16:15,240 Speaker 1: it is not the holy Grail. But it is a 326 00:16:15,320 --> 00:16:18,480 Speaker 1: very very powerful technology. It is a very powerful technology 327 00:16:18,600 --> 00:16:23,560 Speaker 1: that has produced dramatic results, positive impact, and we are 328 00:16:23,600 --> 00:16:28,040 Speaker 1: only scratching the surface. So our strategy and our vision 329 00:16:28,080 --> 00:16:30,840 Speaker 1: it is to harness the power of this technology to 330 00:16:30,960 --> 00:16:34,080 Speaker 1: multiple other areas. The first area that is the self 331 00:16:34,480 --> 00:16:37,840 Speaker 1: evidence and the lowest hanging fruit. It is other vaccines 332 00:16:37,880 --> 00:16:42,400 Speaker 1: for other infectious disease and this is something that we 333 00:16:42,480 --> 00:16:48,600 Speaker 1: are doing mainly in partnership with BioNTech. We just expanded 334 00:16:48,680 --> 00:16:51,040 Speaker 1: with a third target. You said, why if it is 335 00:16:51,080 --> 00:16:55,840 Speaker 1: not good, it's not producing longer lasting results. It's not 336 00:16:56,040 --> 00:16:58,360 Speaker 1: something that's related with MMR and A is something related 337 00:16:58,400 --> 00:17:02,480 Speaker 1: with the virus. As you most probably know or if 338 00:17:02,520 --> 00:17:06,320 Speaker 1: you ask experts, the natural infection with this virus also 339 00:17:06,359 --> 00:17:10,560 Speaker 1: doesn't produce big immunity. In fact, the natural infection in 340 00:17:10,640 --> 00:17:13,600 Speaker 1: many times it produces half the time that you can 341 00:17:13,600 --> 00:17:18,400 Speaker 1: get in terms of how long you're protected then the vaccines. 342 00:17:18,920 --> 00:17:21,280 Speaker 1: So it's not right to say that the mRNA doesn't 343 00:17:21,600 --> 00:17:25,320 Speaker 1: create durable protection. It is this virus that is very 344 00:17:25,320 --> 00:17:29,480 Speaker 1: difficult to tackle and it takes constantly. That's why we're 345 00:17:29,520 --> 00:17:31,680 Speaker 1: happy that we have mRNA. But it's not the only 346 00:17:31,880 --> 00:17:36,359 Speaker 1: area that mRNA can help cancer. It is another area 347 00:17:36,400 --> 00:17:39,679 Speaker 1: and we're having significant efforts right now in the world 348 00:17:39,960 --> 00:17:47,720 Speaker 1: and internally. And another area that we announced today partnership 349 00:17:47,720 --> 00:17:51,399 Speaker 1: would be are there are diseases. These are diseases mainly 350 00:17:51,560 --> 00:17:56,080 Speaker 1: that uh they have as a cause a mistake in 351 00:17:56,240 --> 00:17:59,199 Speaker 1: your DNA and genetic mistakes. Something is wrong with your 352 00:17:59,280 --> 00:18:02,680 Speaker 1: DNA and there's a result you have a disease. What 353 00:18:02,800 --> 00:18:07,159 Speaker 1: we try to do with the base in editing technology, 354 00:18:07,240 --> 00:18:12,560 Speaker 1: which being is a master it is to targets that 355 00:18:12,600 --> 00:18:14,880 Speaker 1: will be delivered through a marina that will be able 356 00:18:14,920 --> 00:18:18,800 Speaker 1: to correct this mistake. There are several the in editing technologies. 357 00:18:18,880 --> 00:18:21,520 Speaker 1: We did a lot of new diligence and we thought 358 00:18:21,560 --> 00:18:26,560 Speaker 1: that the base is how scope technology base is the best. 359 00:18:26,760 --> 00:18:29,040 Speaker 1: And also did a lot of new diligence about companies 360 00:18:29,040 --> 00:18:31,120 Speaker 1: and the best one was BIM and this is why 361 00:18:31,640 --> 00:18:35,119 Speaker 1: we did this partnership. We're having some other deals that 362 00:18:35,160 --> 00:18:37,760 Speaker 1: we're announced today that will help us to improve one 363 00:18:37,760 --> 00:18:42,320 Speaker 1: further the ACUITOUS, which is given us license for ten 364 00:18:42,560 --> 00:18:46,520 Speaker 1: different targets in the l m P target ellen P. 365 00:18:46,640 --> 00:18:49,400 Speaker 1: It is the lipid nonparticles that are used to transfer 366 00:18:49,760 --> 00:18:52,439 Speaker 1: the RNA. And the last, but not least, it is 367 00:18:52,480 --> 00:18:56,120 Speaker 1: the Contex what Condex technology is all about. They are 368 00:18:57,119 --> 00:19:03,240 Speaker 1: uh creating DNA instead of biological manufacturing, which means that 369 00:19:03,320 --> 00:19:05,679 Speaker 1: you have virus to make it. It's just in happy 370 00:19:06,160 --> 00:19:09,240 Speaker 1: bottom line. What does this mean? Instead of having a 371 00:19:09,240 --> 00:19:13,240 Speaker 1: process that takes a very important process for the production 372 00:19:13,320 --> 00:19:16,560 Speaker 1: of our amor and a vaccine, instead of one month, 373 00:19:16,840 --> 00:19:18,920 Speaker 1: you can take it down to a couple of days. 374 00:19:19,520 --> 00:19:22,639 Speaker 1: This is very very important because imagine, for example, you 375 00:19:22,680 --> 00:19:25,400 Speaker 1: can have a new variant right now, if we were 376 00:19:25,440 --> 00:19:29,439 Speaker 1: successful theoretically, instead of creating a new variant vaccine in 377 00:19:30,480 --> 00:19:32,840 Speaker 1: ninety days one d days to do it in two 378 00:19:32,880 --> 00:19:36,159 Speaker 1: months rather than three months. Instead of being able to 379 00:19:36,200 --> 00:19:40,080 Speaker 1: create a flu vaccine that you are six months or 380 00:19:40,119 --> 00:19:42,560 Speaker 1: five months ahead of the target, now you're three or 381 00:19:42,600 --> 00:19:46,520 Speaker 1: four months before the season and you have better months. 382 00:19:46,600 --> 00:19:49,280 Speaker 1: Very important technology that will allow us to solidify our 383 00:19:49,359 --> 00:19:52,119 Speaker 1: leadership in this area and more important, to deliver to 384 00:19:52,160 --> 00:19:55,160 Speaker 1: the world what they're expecting from us, better health care 385 00:19:55,160 --> 00:19:57,639 Speaker 1: solutions based on this technology. To you run it down o'clock. 386 00:19:57,640 --> 00:20:00,639 Speaker 1: So I've got a champion. I apologize this from not Djokovic. 387 00:20:00,840 --> 00:20:02,600 Speaker 1: In the last couple of moments a story. I'm sure 388 00:20:02,600 --> 00:20:04,840 Speaker 1: that you've been following. I'm pleased and grateful that the 389 00:20:04,920 --> 00:20:07,040 Speaker 1: judge I of have a term my visa cancelation. Despite 390 00:20:07,080 --> 00:20:09,120 Speaker 1: all that has happened, I want to stay and try 391 00:20:09,160 --> 00:20:11,520 Speaker 1: to compete in the Australian open As you know, doctor, 392 00:20:11,560 --> 00:20:15,439 Speaker 1: he got that exemption by having a previous infection. You 393 00:20:15,480 --> 00:20:17,359 Speaker 1: said something quite important. I want to want to stand 394 00:20:17,359 --> 00:20:22,359 Speaker 1: from your standpoint whether a previous infection provides similar protection 395 00:20:23,520 --> 00:20:27,560 Speaker 1: equivalent to a vaccine. First of all, I'm a fan 396 00:20:27,640 --> 00:20:31,480 Speaker 1: of Djokovitch, but I can't even go to this dispute 397 00:20:31,480 --> 00:20:33,920 Speaker 1: if he has the documentation or not. This is something 398 00:20:33,960 --> 00:20:36,679 Speaker 1: between him and the authorities and their doctor, so that's it. 399 00:20:37,920 --> 00:20:41,439 Speaker 1: I think previous infections, they are in general, not in 400 00:20:41,480 --> 00:20:45,920 Speaker 1: this case. In general, they are protecting against the infections 401 00:20:45,960 --> 00:20:48,520 Speaker 1: for a period of time, the same like vaccines. The 402 00:20:48,560 --> 00:20:51,119 Speaker 1: comment that I made was that, for example, in a 403 00:20:51,160 --> 00:20:55,240 Speaker 1: lot of European countries, the validity of the certificate of 404 00:20:55,320 --> 00:21:00,359 Speaker 1: vaccination in six months after your last dogs for naturally infection, 405 00:21:00,400 --> 00:21:03,679 Speaker 1: it's go to three months or four because they know 406 00:21:03,800 --> 00:21:06,040 Speaker 1: that the protection of you are getting after an infection 407 00:21:06,119 --> 00:21:08,439 Speaker 1: doesn't last as much as the vaccine. This is what 408 00:21:08,560 --> 00:21:11,080 Speaker 1: they said. Can you talk to me about margins on 409 00:21:11,080 --> 00:21:14,679 Speaker 1: the vaccine as compared to say, the oral pill paxslovid. 410 00:21:14,720 --> 00:21:19,520 Speaker 1: What's the difference that doctor? Right now? Look, the difference 411 00:21:19,640 --> 00:21:21,959 Speaker 1: is big because rest of all, in in the backs gloved, 412 00:21:22,080 --> 00:21:27,520 Speaker 1: we are under person all the process and we don't 413 00:21:27,560 --> 00:21:31,520 Speaker 1: have any royalties of size or size of a royalties 414 00:21:31,600 --> 00:21:33,560 Speaker 1: to provide to any people. So we are having under 415 00:21:33,880 --> 00:21:37,440 Speaker 1: of their chronomals and the production margins are are bigger 416 00:21:37,480 --> 00:21:41,359 Speaker 1: in pills rather than the in this vaccine. Find a 417 00:21:41,440 --> 00:21:44,160 Speaker 1: question from me, and it's a sensitive one. You've set 418 00:21:44,200 --> 00:21:47,399 Speaker 1: up a strong stream of recovering revenue now with this 419 00:21:47,480 --> 00:21:51,800 Speaker 1: vaccine rollout, you're being insulated by government policy the world over. 420 00:21:52,520 --> 00:21:56,240 Speaker 1: Do you worry sometimes dr about the pr fallout from that? 421 00:21:56,880 --> 00:21:59,359 Speaker 1: The backlash that you could get making money off a 422 00:21:59,480 --> 00:22:04,679 Speaker 1: vaccine has now been mandated in many many places, being insulated, 423 00:22:04,720 --> 00:22:08,040 Speaker 1: having that revenue stream largely insulated by governors around the world, 424 00:22:08,040 --> 00:22:11,400 Speaker 1: do you worry about the fallout from that? Although I'm 425 00:22:11,400 --> 00:22:13,600 Speaker 1: not sure to understand the world insulated, but I think 426 00:22:13,600 --> 00:22:16,080 Speaker 1: I understand the meaning of your I mean, what you 427 00:22:16,240 --> 00:22:18,560 Speaker 1: the meaning of the insulated but I understand I think 428 00:22:18,560 --> 00:22:20,960 Speaker 1: the overall concept no, I feel very very very good. 429 00:22:21,119 --> 00:22:24,199 Speaker 1: If you have to believe that it is appropriate for 430 00:22:24,440 --> 00:22:30,280 Speaker 1: private sector to be entrepreneurs and produce, let's say, product 431 00:22:30,400 --> 00:22:33,879 Speaker 1: medicine that they can get some profit out. I couldn't 432 00:22:33,920 --> 00:22:37,760 Speaker 1: think of a company that would deserve more to make 433 00:22:37,800 --> 00:22:39,960 Speaker 1: money other than a company that did so good to 434 00:22:40,080 --> 00:22:45,480 Speaker 1: hu money. I'm very proud and for what we have done, 435 00:22:45,760 --> 00:22:52,880 Speaker 1: and I'm very very enthusiastic that this example will create 436 00:22:53,200 --> 00:22:57,600 Speaker 1: way more risk taking in this industry, the health care 437 00:22:57,600 --> 00:23:02,240 Speaker 1: industry that will result in way more breakthrough the products 438 00:23:02,240 --> 00:23:04,840 Speaker 1: that will save way more like doctor a ton of 439 00:23:04,840 --> 00:23:06,320 Speaker 1: issues that you and I need to cover in the future. 440 00:23:06,359 --> 00:23:08,479 Speaker 1: We appreciate your time this morning, though, thank you very much, 441 00:23:08,520 --> 00:23:17,520 Speaker 1: Sir Ababuild that the Fighter CEO, the move we saw 442 00:23:17,640 --> 00:23:20,679 Speaker 1: in crude last year, it's part of the inflation story, 443 00:23:20,880 --> 00:23:23,399 Speaker 1: not all of it, but part of it, particularly the 444 00:23:23,520 --> 00:23:26,160 Speaker 1: energy story in Europe, and that's complicating matters for central 445 00:23:26,160 --> 00:23:29,199 Speaker 1: banks and policy make is the world over. It's complicating it, 446 00:23:29,240 --> 00:23:32,080 Speaker 1: but it takes complicated analysis, and someone that can do 447 00:23:32,119 --> 00:23:35,320 Speaker 1: that is Francisco Blanche, Global Commodities Head of Bank of 448 00:23:35,359 --> 00:23:37,879 Speaker 1: America We're gonna focus here on what you want to know, 449 00:23:37,960 --> 00:23:40,119 Speaker 1: which is the price of a barrel of oil. But 450 00:23:40,200 --> 00:23:43,159 Speaker 1: Francisco Blanche takes it down to the micro theory of 451 00:23:43,240 --> 00:23:47,720 Speaker 1: companies minds production worldwide. Francisco, let me start there and 452 00:23:47,760 --> 00:23:50,480 Speaker 1: save the glory for Lisa and John. On a hundred 453 00:23:50,480 --> 00:23:55,560 Speaker 1: and twenty dollar Brent crude, what do smelters do it? 454 00:23:55,680 --> 00:24:00,479 Speaker 1: Aluminum plants? Given the Francisco Blanche call, what is an 455 00:24:00,520 --> 00:24:05,760 Speaker 1: aluminum producers supposed to do? He tol thanks for having me. Uh, 456 00:24:05,840 --> 00:24:08,879 Speaker 1: I'm hoping producer is supposed to be pretty in China 457 00:24:09,520 --> 00:24:12,760 Speaker 1: pairing back supplies. And what we are saying now and 458 00:24:12,800 --> 00:24:15,240 Speaker 1: we've seen now for some time, is the fact that 459 00:24:15,280 --> 00:24:19,280 Speaker 1: the Chinese government is very focused on curtailing the energy 460 00:24:19,320 --> 00:24:23,960 Speaker 1: intensity of its exports. Remember that for the longest time 461 00:24:24,119 --> 00:24:27,720 Speaker 1: we've all lived with over twenty five years a show 462 00:24:27,760 --> 00:24:31,480 Speaker 1: we've lived within clearly cheap Chinese exports, which were driven 463 00:24:31,560 --> 00:24:36,960 Speaker 1: by cheap labor, cheap capital. But also many people forget 464 00:24:37,000 --> 00:24:40,000 Speaker 1: about this point cheap energy. And uh, I think I 465 00:24:40,000 --> 00:24:42,840 Speaker 1: think the Chinese government is increasingly uh focused on climate 466 00:24:42,920 --> 00:24:47,119 Speaker 1: change uh and and and also focused on turning around 467 00:24:47,200 --> 00:24:50,560 Speaker 1: its energy economy, which in turn, of course, as you 468 00:24:50,800 --> 00:24:53,920 Speaker 1: just pointed out, it's it's impacting the price of aluminum 469 00:24:54,000 --> 00:24:56,399 Speaker 1: quite severely. And you know, we're bullish aluminium this year. 470 00:24:56,440 --> 00:24:58,480 Speaker 1: We think it's going to continue to go up and 471 00:24:58,600 --> 00:25:01,280 Speaker 1: part of part of it, large largely is driven by 472 00:25:01,320 --> 00:25:05,000 Speaker 1: the energy. Increased energy costs, so as a smelter pretticularly 473 00:25:05,000 --> 00:25:08,280 Speaker 1: here in China, you're supposed to pay back your production, 474 00:25:08,359 --> 00:25:12,280 Speaker 1: but the same thing goes for Europe and ultimately um, 475 00:25:12,320 --> 00:25:17,080 Speaker 1: aluminum and many other energy intensive commodities are heading towards 476 00:25:17,160 --> 00:25:20,399 Speaker 1: North America, which is the world's energy haven from a 477 00:25:20,480 --> 00:25:23,960 Speaker 1: cost standpoint. Francisco, you came out with a pretty stunning 478 00:25:23,960 --> 00:25:27,840 Speaker 1: call earlier last year about dred and twenty barrels for crewe, 479 00:25:27,880 --> 00:25:31,119 Speaker 1: the potential for that increase, and we've seen at that 480 00:25:31,240 --> 00:25:35,119 Speaker 1: time oil prices were climbing very significantly. Since then, people 481 00:25:35,119 --> 00:25:37,679 Speaker 1: have cooled it a little bit. Do you still think 482 00:25:37,920 --> 00:25:40,560 Speaker 1: that that is the pace of travel, that's the end 483 00:25:40,600 --> 00:25:44,200 Speaker 1: point here? Based on the increased production from OPEC plus 484 00:25:44,200 --> 00:25:46,080 Speaker 1: and based on the fact that we do have this 485 00:25:46,160 --> 00:25:50,720 Speaker 1: omicron kink that is reducing demand at least temporarily well so, 486 00:25:50,720 --> 00:25:53,760 Speaker 1: so amicron is is definitely impacting demand in the first quarter, 487 00:25:54,840 --> 00:25:57,959 Speaker 1: but we've seen cases speaking South African and rolled down 488 00:25:58,000 --> 00:26:01,479 Speaker 1: pretty meaningfully. UM. I think a lot of medical experts, 489 00:26:01,520 --> 00:26:05,840 Speaker 1: a lot of UH people on the field are calling 490 00:26:05,880 --> 00:26:08,280 Speaker 1: for a peak in omicron cases in Europe and the 491 00:26:08,400 --> 00:26:12,840 Speaker 1: US within the next within the next month. UM. Big 492 00:26:12,920 --> 00:26:15,080 Speaker 1: question mark in terms of our call is what happens 493 00:26:15,080 --> 00:26:19,439 Speaker 1: in China and whether the Chinese government can maintain the 494 00:26:19,600 --> 00:26:23,760 Speaker 1: zero COVID tolerance policy, which is of course leading to 495 00:26:23,800 --> 00:26:28,320 Speaker 1: lockdowns in different cities with something as contagious as omicron. 496 00:26:28,840 --> 00:26:31,480 Speaker 1: So that's I think the biggest question mark around our call. 497 00:26:32,320 --> 00:26:36,280 Speaker 1: But we still think triple digit oil is within the works. 498 00:26:36,280 --> 00:26:40,240 Speaker 1: Heading into a second quarter, we see demand recovering quite meaningfully. 499 00:26:40,240 --> 00:26:42,440 Speaker 1: And one one thing we've been noting for a while 500 00:26:43,080 --> 00:26:47,760 Speaker 1: is that opex supply OPEC plus supply, it's likely going 501 00:26:47,800 --> 00:26:50,320 Speaker 1: to start leveling off in the next two months. Remember, 502 00:26:50,840 --> 00:26:52,879 Speaker 1: a lot of Russian companies have not been able to 503 00:26:52,920 --> 00:26:56,919 Speaker 1: meet their export quotas, and UH ross Nift has been 504 00:26:57,000 --> 00:27:01,520 Speaker 1: kind of left as as the main supplier of incremental barrels. 505 00:27:02,080 --> 00:27:05,879 Speaker 1: Even then, we think Russia's incremental supply will level off 506 00:27:05,960 --> 00:27:08,720 Speaker 1: naturally within a month or so, and then it's really 507 00:27:08,760 --> 00:27:13,040 Speaker 1: just down to Saudi Arabia and Emirates to produce incremental 508 00:27:13,080 --> 00:27:16,040 Speaker 1: barrels for the world markets. Fits it's going to be 509 00:27:16,080 --> 00:27:19,199 Speaker 1: a tight demand recovers here, Francisco. There's so much in 510 00:27:19,240 --> 00:27:20,720 Speaker 1: there that I want to impact, but I want to 511 00:27:20,760 --> 00:27:23,520 Speaker 1: start with the China and the zero COVID policy. Can 512 00:27:23,520 --> 00:27:26,359 Speaker 1: you give us a sense of the bifurcated outcomes to 513 00:27:26,440 --> 00:27:28,520 Speaker 1: your call, depending on whether they try to stick with 514 00:27:28,560 --> 00:27:30,520 Speaker 1: it or whether they give it up and try to 515 00:27:30,560 --> 00:27:35,879 Speaker 1: adapt to a more open type of policy. Right, Well again, 516 00:27:35,920 --> 00:27:38,560 Speaker 1: I mean, I think I think the big question mark 517 00:27:38,600 --> 00:27:42,280 Speaker 1: here for for everybody is what happens in the Winter Olympics. Um. 518 00:27:42,440 --> 00:27:46,360 Speaker 1: We are a month away, and many people may included 519 00:27:46,600 --> 00:27:49,239 Speaker 1: which are not necessarily experts, really question how you can 520 00:27:49,320 --> 00:27:54,560 Speaker 1: run a zero COVID tolerance UM policy under this influx 521 00:27:54,680 --> 00:27:57,440 Speaker 1: of athletes from all around the world and diplomats and 522 00:27:57,440 --> 00:28:02,200 Speaker 1: and and kind of everything that the Olympics brings with it. Um. So, 523 00:28:02,200 --> 00:28:04,679 Speaker 1: So I think assuming that, you know, assuming that there 524 00:28:04,760 --> 00:28:08,280 Speaker 1: is there is some relaxation of the policy, UM, we'll 525 00:28:08,320 --> 00:28:12,439 Speaker 1: see continued growth in demand. But remember China's fifteen and 526 00:28:12,440 --> 00:28:14,920 Speaker 1: a half million barrels a day in a hundred million 527 00:28:14,960 --> 00:28:17,760 Speaker 1: barrel day market. UH is the second largest consumer in 528 00:28:17,800 --> 00:28:21,600 Speaker 1: the world. It's the number one oil importer in the world. 529 00:28:22,400 --> 00:28:27,840 Speaker 1: So obviously a strict lockdown in China broad based, will 530 00:28:27,960 --> 00:28:31,320 Speaker 1: lead to meaningful demand laws. So so we're keeping a 531 00:28:31,359 --> 00:28:35,600 Speaker 1: close eye UM and UH and and and that's the 532 00:28:35,600 --> 00:28:38,840 Speaker 1: main risk to our view. At this point, we think Iran, 533 00:28:38,880 --> 00:28:42,160 Speaker 1: which is the supply risk, is less of a challenge 534 00:28:42,640 --> 00:28:46,240 Speaker 1: given UH seems like a resolution to we run a 535 00:28:46,320 --> 00:28:50,280 Speaker 1: new e standoff is looking less likely by by the day. 536 00:28:50,320 --> 00:28:53,320 Speaker 1: But those are two main downstair risks to our view. Francisco, 537 00:28:53,520 --> 00:28:56,840 Speaker 1: forget about all the Wall Street chit chat. What does 538 00:28:56,880 --> 00:29:03,160 Speaker 1: triple digit oil, triple digital aluminum, triple digit live cattle, 539 00:29:04,080 --> 00:29:06,000 Speaker 1: What does all that mean to us out in the 540 00:29:06,040 --> 00:29:09,760 Speaker 1: real world. How's our world gonna change with the Francisco 541 00:29:09,840 --> 00:29:15,800 Speaker 1: blanche of barrel oil? Well, what's going to change? And 542 00:29:15,840 --> 00:29:17,680 Speaker 1: you guys have talked about it in the prior segment. 543 00:29:17,880 --> 00:29:21,560 Speaker 1: Is going to force the Fed to tighten policy a 544 00:29:21,560 --> 00:29:24,960 Speaker 1: little faster than the markets anticipating I think four hikes 545 00:29:25,000 --> 00:29:27,960 Speaker 1: this year. It's pretty much baked then. Um, so we're 546 00:29:27,960 --> 00:29:29,880 Speaker 1: gonna see that I'm a little more worried about the 547 00:29:29,880 --> 00:29:32,840 Speaker 1: balance sheet runoff UM, partly because what we saw back 548 00:29:32,840 --> 00:29:37,240 Speaker 1: in In fact, back in the day, we wrote extensively 549 00:29:37,280 --> 00:29:40,720 Speaker 1: about this in our process at publications, and we looked 550 00:29:40,760 --> 00:29:45,320 Speaker 1: at the impact of that on pieces entitled one of 551 00:29:45,360 --> 00:29:48,840 Speaker 1: them entitled Mind the Unwind. And I do, I do 552 00:29:48,920 --> 00:29:51,640 Speaker 1: believe that that the fat bounce sheet has a huge 553 00:29:51,640 --> 00:29:55,080 Speaker 1: impact on on just generally asset values. Maybe let's sew 554 00:29:55,080 --> 00:29:57,360 Speaker 1: in commodity values. But we're still saw a big sell 555 00:29:57,400 --> 00:30:00,640 Speaker 1: off in commodity prices as the FED started compress its 556 00:30:00,640 --> 00:30:05,160 Speaker 1: bouncy in the second half of twenty eighteen. So so 557 00:30:05,520 --> 00:30:07,440 Speaker 1: I think I think that's that's what it means. It 558 00:30:07,480 --> 00:30:10,840 Speaker 1: means the Fed's going to be um having to to 559 00:30:11,040 --> 00:30:14,800 Speaker 1: press all harder on the brakes. And uh, and of 560 00:30:14,800 --> 00:30:18,360 Speaker 1: course we know that the big forces of demographics and 561 00:30:18,360 --> 00:30:21,479 Speaker 1: technology could come into play in a minute. So so 562 00:30:21,520 --> 00:30:23,920 Speaker 1: it's it's a difficult job for the FED to to 563 00:30:24,000 --> 00:30:27,920 Speaker 1: slow the economy to bring inflation back down to two. Um, 564 00:30:28,240 --> 00:30:31,080 Speaker 1: they could overdo it. And and uh, that's I think 565 00:30:31,120 --> 00:30:33,320 Speaker 1: the big risk we're looking at into into the second 566 00:30:33,360 --> 00:30:36,280 Speaker 1: half of twenty two And and and I guess first 567 00:30:36,280 --> 00:30:38,560 Speaker 1: half of twenty three. That's what everyone's got in mind 568 00:30:38,600 --> 00:30:41,600 Speaker 1: here as as we go over the next six months, Francisco, 569 00:30:41,640 --> 00:30:43,640 Speaker 1: can you give us a sense of the pace of 570 00:30:43,760 --> 00:30:46,720 Speaker 1: that increase to triple digit oil and what the trigger 571 00:30:47,000 --> 00:30:50,360 Speaker 1: could be? Right, So, the trigger is going to be 572 00:30:50,480 --> 00:30:55,360 Speaker 1: primarily a competition between gasoline and middle de slids things 573 00:30:55,400 --> 00:30:59,840 Speaker 1: like diesel and jeffuel that refineries need to produce so generally, 574 00:31:00,000 --> 00:31:02,920 Speaker 1: and you have two big forces in the oil market, 575 00:31:03,640 --> 00:31:08,240 Speaker 1: the driving and trucking and flying coming together and clashing 576 00:31:08,360 --> 00:31:12,080 Speaker 1: right with this backdrop of incredibly high global gas prices 577 00:31:12,720 --> 00:31:16,800 Speaker 1: um creating substitution into oil. That could I think be 578 00:31:16,960 --> 00:31:20,080 Speaker 1: the trigger from a demand standpoint. Refiner is really trying 579 00:31:20,080 --> 00:31:23,280 Speaker 1: to catch up and produce both both products. And remember 580 00:31:23,760 --> 00:31:26,520 Speaker 1: the incremental barrels that Saudi Arabia can bring into the 581 00:31:26,560 --> 00:31:28,480 Speaker 1: market are going to be heavy and sour. And I'm 582 00:31:28,480 --> 00:31:31,360 Speaker 1: going to do technical here, but heavier and sour barrels 583 00:31:31,360 --> 00:31:33,360 Speaker 1: are harder to refine, So I fires are gonna have 584 00:31:33,400 --> 00:31:36,480 Speaker 1: to work twice as hard to bring the gasoline and 585 00:31:36,560 --> 00:31:39,440 Speaker 1: the jet diesel the market once. But at the same 586 00:31:39,440 --> 00:31:42,360 Speaker 1: time they're gonna have to do that with incrementally heavier 587 00:31:42,440 --> 00:31:45,080 Speaker 1: barrels that are harder to refine, and and that's a 588 00:31:45,120 --> 00:31:46,840 Speaker 1: little bit what we saw back into plasser and eight. 589 00:31:46,880 --> 00:31:49,160 Speaker 1: And that's one of the reasons we remained quite bullish 590 00:31:49,360 --> 00:31:52,280 Speaker 1: on on oil heading into into the summer months here. 591 00:31:52,760 --> 00:31:55,160 Speaker 1: Plus there is a big pent up demand story. I 592 00:31:55,160 --> 00:31:57,480 Speaker 1: think we all want to travel and move around and 593 00:31:57,480 --> 00:32:00,640 Speaker 1: and see friends and family and visit places. So so 594 00:32:00,680 --> 00:32:03,400 Speaker 1: the pent up recovering services, I think it's going to 595 00:32:03,480 --> 00:32:07,360 Speaker 1: be quite spectacular once once the the omicron wave faiths 596 00:32:07,440 --> 00:32:10,440 Speaker 1: and and and of course, assuming there's no third or 597 00:32:10,520 --> 00:32:14,680 Speaker 1: fourth or fifth transformation of of of the virus here. Francisco, 598 00:32:14,760 --> 00:32:17,520 Speaker 1: just quickly you mentioned the back end of I think 599 00:32:17,560 --> 00:32:19,280 Speaker 1: a lot of people would have sat up when they 600 00:32:19,320 --> 00:32:21,200 Speaker 1: heard that, because we went from seventy three down to 601 00:32:21,240 --> 00:32:24,360 Speaker 1: forty five and q fouren it was a big, big 602 00:32:24,400 --> 00:32:26,920 Speaker 1: down draft. It feels different this time when I look 603 00:32:26,920 --> 00:32:29,720 Speaker 1: at the screens every day. Yields her up and equities 604 00:32:29,720 --> 00:32:32,400 Speaker 1: to suffering crews pretty good. It's resilient. Can you walk 605 00:32:32,440 --> 00:32:35,160 Speaker 1: me through the different dynamic now compared to say, back 606 00:32:35,160 --> 00:32:38,040 Speaker 1: in the back end of right, So, so I think 607 00:32:38,080 --> 00:32:41,719 Speaker 1: I think it's different. Uh, interest rate hikes are different 608 00:32:41,720 --> 00:32:45,560 Speaker 1: than than bannanship compression. UH interest rate hikes do not 609 00:32:45,640 --> 00:32:48,720 Speaker 1: tend to slow commodities down in the early stages, and 610 00:32:48,800 --> 00:32:53,440 Speaker 1: we've seen that repeatedly. Commodities are late cycled performers. Inventories 611 00:32:53,520 --> 00:32:55,560 Speaker 1: right now are very very low for crude oil and 612 00:32:55,640 --> 00:32:59,720 Speaker 1: for many other UH raw materials. So what tends to 613 00:32:59,760 --> 00:33:02,560 Speaker 1: have in UH in in FED tightening cycles is the 614 00:33:02,600 --> 00:33:07,600 Speaker 1: first few sites, the first few hikes are are less impactful, 615 00:33:07,920 --> 00:33:10,280 Speaker 1: and then as you get towards the end of the 616 00:33:10,360 --> 00:33:12,840 Speaker 1: of the hiking cycle, that's when things tend to roll off. 617 00:33:13,040 --> 00:33:15,080 Speaker 1: And that's what we saw the last time as well, Right, 618 00:33:15,120 --> 00:33:17,560 Speaker 1: So the second half of eighteen was going to at 619 00:33:17,560 --> 00:33:19,360 Speaker 1: the end of the FED tightening cycle, if you like, 620 00:33:20,040 --> 00:33:23,320 Speaker 1: UM and UM and and and that's why we expect 621 00:33:23,320 --> 00:33:25,959 Speaker 1: this time around, except for the FED seems to be 622 00:33:26,600 --> 00:33:29,640 Speaker 1: UM trying to accelerate everything a little more than they 623 00:33:29,680 --> 00:33:31,840 Speaker 1: did back then. Back then they were very very very 624 00:33:31,840 --> 00:33:35,800 Speaker 1: gently hiking rates. Now things could could happen a lot quicker. 625 00:33:36,280 --> 00:33:38,760 Speaker 1: So so we do expect a lot of alativity in 626 00:33:38,800 --> 00:33:41,320 Speaker 1: two and I think that's true for all markets, not 627 00:33:41,400 --> 00:33:44,280 Speaker 1: just commodities, and things true for equities. UH it's true. 628 00:33:44,360 --> 00:33:47,320 Speaker 1: For for fixed income assets, We're gonna see a fair 629 00:33:47,320 --> 00:33:49,600 Speaker 1: amount of vall uh. And you know I say that 630 00:33:49,600 --> 00:33:51,920 Speaker 1: as part of my role in in the real business, 631 00:33:51,920 --> 00:33:55,360 Speaker 1: but research business. So we do think alativity is gonna 632 00:33:55,360 --> 00:33:59,480 Speaker 1: be extremely high this year compared to other years. Thank 633 00:33:59,480 --> 00:34:07,840 Speaker 1: you as always, Francisco Blanched the Bank for America. It 634 00:34:07,960 --> 00:34:11,359 Speaker 1: is a time of resolutions. It is January, and you 635 00:34:11,400 --> 00:34:14,160 Speaker 1: need to do something now, so just possibly you'll be 636 00:34:14,200 --> 00:34:18,000 Speaker 1: smarter twelve months from now. What's interesting is the shortest 637 00:34:18,080 --> 00:34:20,640 Speaker 1: answer that I know, and I've trumpeted this for years, 638 00:34:20,920 --> 00:34:25,800 Speaker 1: is a physical subscription to Foreign Affairs Magazine on radio. 639 00:34:25,880 --> 00:34:28,359 Speaker 1: It's simple. You throw it on your table, you read 640 00:34:28,400 --> 00:34:30,800 Speaker 1: one or two articles every month, and you are way 641 00:34:31,080 --> 00:34:34,719 Speaker 1: better off. This month is no different. The Digital Disorder. 642 00:34:35,040 --> 00:34:39,240 Speaker 1: A tour divorce to Force, including Joseph Nye, Valley Nasser, 643 00:34:39,600 --> 00:34:42,560 Speaker 1: and Elizabeth Economy. Dan Kurtz Failan joins us right now, 644 00:34:42,719 --> 00:34:46,120 Speaker 1: editor of Foreign Affairs Magazine. I went right to the 645 00:34:46,120 --> 00:34:49,239 Speaker 1: Elizabeth Economy article. Dan. She did some great work with 646 00:34:49,320 --> 00:34:52,680 Speaker 1: us with Ian Bremer. A few weeks ago. She passes 647 00:34:52,880 --> 00:34:56,040 Speaker 1: China in America and says, maybe China is looking at 648 00:34:56,080 --> 00:34:58,680 Speaker 1: the battle and they may win the battle, but will 649 00:34:58,719 --> 00:35:01,640 Speaker 1: they win the our peace set out first? Now the 650 00:35:01,680 --> 00:35:05,320 Speaker 1: battle in the war in Beijing. So right, So, Thomas, 651 00:35:05,360 --> 00:35:07,800 Speaker 1: you know, Liz was really one of the first people 652 00:35:07,880 --> 00:35:10,680 Speaker 1: to remind all of us and to really point out 653 00:35:10,760 --> 00:35:13,480 Speaker 1: just how ambitious Chi Jimping was when it came to 654 00:35:14,200 --> 00:35:16,360 Speaker 1: is what he wanted to do within China, what he 655 00:35:16,400 --> 00:35:18,360 Speaker 1: wanted to do with what do you want to do globally? 656 00:35:18,400 --> 00:35:22,360 Speaker 1: So Liz was really on the ambition of Chi Jimping, 657 00:35:22,400 --> 00:35:25,160 Speaker 1: the extent to which he really represented a change in 658 00:35:25,280 --> 00:35:28,640 Speaker 1: Chinese leadership, and what she sees now is just the 659 00:35:28,719 --> 00:35:30,799 Speaker 1: truly global extent of what he's trying to do. When 660 00:35:30,800 --> 00:35:33,040 Speaker 1: you see it in in Belton Road, you see it 661 00:35:33,080 --> 00:35:36,920 Speaker 1: in China's ambitions in in its own region, in Taiwan 662 00:35:36,960 --> 00:35:38,640 Speaker 1: and the South China, see some of the crisis we 663 00:35:38,640 --> 00:35:40,439 Speaker 1: can see coming this year, you see it, and it's 664 00:35:40,719 --> 00:35:44,279 Speaker 1: economic role globally, and and what Liz really traces out 665 00:35:44,280 --> 00:35:47,920 Speaker 1: in this piece is the tension between Chi Jimping's leadership 666 00:35:47,960 --> 00:35:50,640 Speaker 1: style and the extent of those ambitions. So you see, 667 00:35:50,960 --> 00:35:52,600 Speaker 1: you know, we also had a lot of time reacting 668 00:35:52,640 --> 00:35:56,120 Speaker 1: to some of the you know, gigantic top line investment 669 00:35:56,200 --> 00:35:59,000 Speaker 1: numbers to some of the ambitions, but Chi jimping as 670 00:35:59,000 --> 00:36:01,200 Speaker 1: we're starting to see also a lot of real challenges, 671 00:36:01,239 --> 00:36:03,040 Speaker 1: and he may be his own worst enemy when it 672 00:36:03,080 --> 00:36:05,080 Speaker 1: comes to some of this. And one of the really 673 00:36:05,160 --> 00:36:08,200 Speaker 1: worrying things I think at this particular moment, especially as 674 00:36:08,239 --> 00:36:10,640 Speaker 1: you have huge imping Ivan not left China in a 675 00:36:10,680 --> 00:36:13,560 Speaker 1: couple of years, it's unclear what kind of information he's getting, 676 00:36:13,560 --> 00:36:16,000 Speaker 1: what kind of feedback epe. So you see this gap 677 00:36:16,040 --> 00:36:20,000 Speaker 1: between ambition and ability to deliver that could manifest in 678 00:36:20,080 --> 00:36:23,160 Speaker 1: slightly worrying ways and the months ahead. You're an expert 679 00:36:23,239 --> 00:36:26,640 Speaker 1: at dancers failing on another time and place of China's 680 00:36:26,640 --> 00:36:30,120 Speaker 1: fractious relationship with America, and that's George Marshall after World 681 00:36:30,120 --> 00:36:33,919 Speaker 1: War Two? Who's Joe Biden's George Marshall. You know, there's 682 00:36:33,960 --> 00:36:37,359 Speaker 1: that scene where Marshall retires and FDR calls him up 683 00:36:37,400 --> 00:36:41,040 Speaker 1: like forty six hours later and says, unretired, Now you're 684 00:36:41,080 --> 00:36:44,239 Speaker 1: going to China. Who is the George Marshall for the 685 00:36:44,280 --> 00:36:47,640 Speaker 1: president to get this done? I think what what you 686 00:36:47,719 --> 00:36:51,799 Speaker 1: see that is similar between that time and now is 687 00:36:51,880 --> 00:36:55,720 Speaker 1: really this fight within the administration to define the basic 688 00:36:55,760 --> 00:36:58,360 Speaker 1: objectives what we're trying to do with our China policy. 689 00:36:58,440 --> 00:37:00,600 Speaker 1: So in the nineteen forties, it was a question of 690 00:37:00,640 --> 00:37:03,040 Speaker 1: what you do to try to stop now from coming 691 00:37:03,040 --> 00:37:06,040 Speaker 1: to power soft into a Chinese victory, which is something 692 00:37:06,160 --> 00:37:08,319 Speaker 1: is uh, we we all know now we failed to do. 693 00:37:08,760 --> 00:37:11,080 Speaker 1: And there's a similar fight today among different parts of 694 00:37:11,080 --> 00:37:14,239 Speaker 1: the administration, different parts of the government to decide just 695 00:37:14,360 --> 00:37:16,920 Speaker 1: how tough we need to be in to what extent 696 00:37:17,040 --> 00:37:19,279 Speaker 1: we can be conciliatory. So you have you know, someone 697 00:37:19,320 --> 00:37:22,719 Speaker 1: like John Carey trying to find ways to work with 698 00:37:22,840 --> 00:37:25,360 Speaker 1: China on climate change, and you have others with the 699 00:37:25,400 --> 00:37:29,040 Speaker 1: administration at the Pentagon, Kirk Campbell at the White House. 700 00:37:29,239 --> 00:37:31,080 Speaker 1: I think you're trying to craft a tougher line and 701 00:37:31,120 --> 00:37:34,759 Speaker 1: it's really this uh process of working out how these 702 00:37:34,800 --> 00:37:37,319 Speaker 1: different forces fit together within the administration. So you can 703 00:37:37,320 --> 00:37:41,479 Speaker 1: see some slightly incoherent elements to this over the course 704 00:37:41,480 --> 00:37:42,960 Speaker 1: of this year. And I think the challenge for the 705 00:37:42,960 --> 00:37:45,640 Speaker 1: administration going through this year is trying to really craft 706 00:37:45,680 --> 00:37:49,600 Speaker 1: that into a strategy that reflects those various considerations and pressures. 707 00:37:49,640 --> 00:37:52,160 Speaker 1: And the President himself is behind There's so many incredibly 708 00:37:52,360 --> 00:37:54,680 Speaker 1: important topics. I do want to stay on China. But 709 00:37:54,719 --> 00:37:56,640 Speaker 1: I do also want to address another essay that I 710 00:37:56,680 --> 00:37:59,960 Speaker 1: thought was fascinating about the rocky transition to green entered 711 00:38:00,040 --> 00:38:02,520 Speaker 1: g especially in light of what we've seen in the 712 00:38:02,560 --> 00:38:05,960 Speaker 1: price of oil, the surprise rise because of a lack 713 00:38:06,000 --> 00:38:09,760 Speaker 1: of supply, a lack of investment in production. How does 714 00:38:09,880 --> 00:38:14,040 Speaker 1: the global revolution and green energy rejigger the global powers. 715 00:38:15,000 --> 00:38:17,120 Speaker 1: So so this is a great piece called Green Up 716 00:38:17,160 --> 00:38:20,400 Speaker 1: People by Megano Solomon and Jason board Off. And what 717 00:38:20,560 --> 00:38:23,000 Speaker 1: we what really comes through, and this is that even 718 00:38:23,040 --> 00:38:25,959 Speaker 1: as we start to think about new energy sources and 719 00:38:26,120 --> 00:38:29,440 Speaker 1: look towards a different energy future, the geopolitics don't go away. 720 00:38:29,760 --> 00:38:31,839 Speaker 1: And that's true both in the in the medium term 721 00:38:31,840 --> 00:38:33,560 Speaker 1: and also in the long term when you do see 722 00:38:33,560 --> 00:38:36,320 Speaker 1: a truly grand transition. So in the short term, uh, 723 00:38:36,360 --> 00:38:38,759 Speaker 1: there's no better example of this than what's happening now 724 00:38:38,760 --> 00:38:41,120 Speaker 1: with Russia and Ukraine and Europe, where in the short 725 00:38:41,200 --> 00:38:44,719 Speaker 1: term Russia has more influence from its energy resources and 726 00:38:44,760 --> 00:38:48,240 Speaker 1: that's a big tool that it brings to the Ukraine crisis. 727 00:38:48,560 --> 00:38:50,200 Speaker 1: And then in the long run, when you look at 728 00:38:50,320 --> 00:38:54,160 Speaker 1: things like rare earth materials and the kinds of inputs 729 00:38:54,160 --> 00:38:56,399 Speaker 1: to all the parts of the green supply chain. All 730 00:38:56,440 --> 00:38:59,680 Speaker 1: of that's going to become geopolitically complicated, just in the 731 00:38:59,719 --> 00:39:01,920 Speaker 1: way that oil has been traditionally. So even as you 732 00:39:02,480 --> 00:39:05,680 Speaker 1: consider a very different energy future, a lot of the 733 00:39:05,760 --> 00:39:08,680 Speaker 1: dynamics and risks that are very familiar to us from 734 00:39:08,719 --> 00:39:11,240 Speaker 1: past decades are not going to go away, and in fact, 735 00:39:11,239 --> 00:39:14,120 Speaker 1: in the short term they may go up. Especially policy 736 00:39:14,160 --> 00:39:17,319 Speaker 1: makers don't really appreciate those risks in the near term. 737 00:39:17,440 --> 00:39:19,840 Speaker 1: I was just thinking also about Kauza, Khistan for example, 738 00:39:19,880 --> 00:39:22,520 Speaker 1: and the uranium output that they're basically the Saudi Arabia 739 00:39:22,520 --> 00:39:25,520 Speaker 1: of uranium, and people are suddenly aware of this because 740 00:39:25,640 --> 00:39:28,560 Speaker 1: of its input to nuclear energy. Who are going to 741 00:39:28,640 --> 00:39:32,000 Speaker 1: be the powers of the green future that you foresee, 742 00:39:32,080 --> 00:39:34,880 Speaker 1: even with some of the rockiness along the way. So 743 00:39:34,960 --> 00:39:37,000 Speaker 1: this to to go back to China. You know, China 744 00:39:37,040 --> 00:39:39,920 Speaker 1: has been very very deliberate, as you all know, in 745 00:39:40,120 --> 00:39:42,919 Speaker 1: building up its power here and I think before most 746 00:39:43,000 --> 00:39:46,319 Speaker 1: other governments were really thinking in these terms. China saw 747 00:39:46,400 --> 00:39:49,840 Speaker 1: that by becoming the green energy superpower, it's obviously still 748 00:39:50,440 --> 00:39:53,520 Speaker 1: using a lot of coal and using plenty of a 749 00:39:53,560 --> 00:39:57,280 Speaker 1: dirty energy, but it really set about trying to dominate 750 00:39:57,320 --> 00:39:59,400 Speaker 1: a supply chain to dominate a lot of these industries, 751 00:39:59,400 --> 00:40:01,680 Speaker 1: a stuff that I these industries really heavily. But you 752 00:40:01,719 --> 00:40:04,600 Speaker 1: also have a lot of much more kind of complicated 753 00:40:04,640 --> 00:40:09,360 Speaker 1: geo political spaces where mining is really is really prevalence. 754 00:40:09,400 --> 00:40:12,080 Speaker 1: So you have the d r C, the Congo where 755 00:40:12,080 --> 00:40:15,640 Speaker 1: they're they're important minds. You have places like Chile and Bolivia. 756 00:40:16,000 --> 00:40:19,080 Speaker 1: All of these bring their own foreign policy questions. So 757 00:40:19,080 --> 00:40:21,320 Speaker 1: there was obviously a time when we would have worried about, 758 00:40:21,840 --> 00:40:25,240 Speaker 1: uh securing oil supplies in the Middle East, But now 759 00:40:25,440 --> 00:40:28,480 Speaker 1: it's gonna be this major foreign policy consideration thinking about 760 00:40:28,560 --> 00:40:32,359 Speaker 1: those uh, those materials that are in again some some 761 00:40:32,400 --> 00:40:35,000 Speaker 1: complicated countries that are going to bring political challenges with 762 00:40:35,040 --> 00:40:38,640 Speaker 1: their own Dan thank you Danks failing that of foreign Affairs, 763 00:40:38,680 --> 00:40:41,359 Speaker 1: tell him what a staff for geopolitics and twenty two. 764 00:40:41,719 --> 00:40:45,480 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 765 00:40:45,600 --> 00:40:49,000 Speaker 1: us live weekdays from seven to ten am Eastern I'm 766 00:40:49,040 --> 00:40:53,280 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 767 00:40:53,360 --> 00:40:58,239 Speaker 1: to nine am for insight from the best in economics, finance, investment, 768 00:40:58,400 --> 00:41:03,400 Speaker 1: and international relations. And subscribe to the Surveillance Podcast on 769 00:41:03,480 --> 00:41:07,279 Speaker 1: Apple podcast, SoundCloud, bloomberg dot com and of course on 770 00:41:07,400 --> 00:41:11,520 Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg