WEBVTT - Surveillance: Russian Oil with Moniz 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com 0:00:23.920 --> 0:00:31.120 and of course on the Bloomberg terminal. Well, we tried 0:00:31.160 --> 0:00:34.400 to do in Bloomberg Surveillance. Through all of this in economics, finance, 0:00:34.440 --> 0:00:38.600 and investment in these unsettling times is peaked speak to 0:00:38.760 --> 0:00:43.080 people who are authoritative on military thinking of the generals, 0:00:43.120 --> 0:00:46.279 the admirals we've spoken to, and now on the nuclear 0:00:46.360 --> 0:00:48.280 debate and of course all of that having to to 0:00:48.360 --> 0:00:52.360 fears of Chernobyl and the other nuclear plants across Ukraine. 0:00:52.880 --> 0:00:56.440 Ernest Monnez is our gentleman. He is the former US 0:00:56.560 --> 0:01:01.480 Energy Secretary, but hugely associated with his decades of work 0:01:01.520 --> 0:01:05.160 at the Massachusetts Institute of Technology. We're thrilled the Dr 0:01:05.240 --> 0:01:08.160 Monis could join us this morning. I want to cut 0:01:08.200 --> 0:01:11.080 to the chase. How far out of line is Mr 0:01:11.120 --> 0:01:15.240 putin with the Geneva comic conventions going back to the 0:01:15.319 --> 0:01:18.640 nineteenth century Prisoner of Wars and all that, but with 0:01:18.720 --> 0:01:22.959 the Geneva and Hague conventions that dealt directly with weaponry. 0:01:23.200 --> 0:01:28.080 How out of line is Mr Putin? Well, Putin's statements 0:01:28.600 --> 0:01:33.360 about threatening the use of nuclear weapons are in fact 0:01:33.680 --> 0:01:37.560 way out of line, as you say, Tom, Uh and uh, 0:01:37.760 --> 0:01:42.880 actually quite quite reckless. Uh. It is interesting that, uh, 0:01:42.920 --> 0:01:47.000 some of the Kremlin spokesman have been trying to dial 0:01:47.080 --> 0:01:51.240 that back to what is the stated Russian policy. But 0:01:51.440 --> 0:01:55.120 clearly there's a lot of ambiguity, a lot of uncertainty 0:01:55.160 --> 0:01:57.440 as to what the Russian military would like to do. 0:01:57.880 --> 0:02:01.080 Uh if they are in fact bogged down in Ukraine, 0:02:01.160 --> 0:02:04.360 as they clearly are in various parts of the country. 0:02:04.760 --> 0:02:08.200 So uh, it's a it's a real setback in terms 0:02:08.240 --> 0:02:12.400 of this uh nuclear saber rattling. Uh. And let's just 0:02:12.480 --> 0:02:15.320 hope that they are not planning to use a a 0:02:15.480 --> 0:02:19.680 tactical nuclear weapon in Ukraine. Take us away from our 0:02:19.760 --> 0:02:24.040 amateur Hollywood stereotypes of the guy with a little black 0:02:24.080 --> 0:02:27.200 bag walking near President Biden and we all look at 0:02:27.200 --> 0:02:30.320 it and know he's in charge of our nuclear capabilities. 0:02:30.720 --> 0:02:33.560 Does Mr Putin have a guy walking around behind him 0:02:33.560 --> 0:02:37.000 with a little black bag with a red button on it. Well, 0:02:37.080 --> 0:02:40.600 that's that's called the football right. Uh. Yeah. The fact 0:02:40.680 --> 0:02:44.120 is that UH putin UH, just like the U. S 0:02:44.160 --> 0:02:51.280 President has the sole authority UH to to launch nuclear weapons. UH. 0:02:51.320 --> 0:02:55.240 In the past, when our presidents in the United States 0:02:55.280 --> 0:03:00.760 have had some um emotional distress, UH, there have been 0:03:00.800 --> 0:03:05.120 attempts by others in the administration to UH dampen that authority. 0:03:05.160 --> 0:03:08.920 But the reality is, UH, we have sol authority, and we, 0:03:09.120 --> 0:03:12.560 by the way, feel very strongly that this soul authority 0:03:13.200 --> 0:03:19.120 should be really curtailed except in the most urgent situation 0:03:19.440 --> 0:03:23.400 where you have no time for for consultation. Ernest. Given 0:03:23.720 --> 0:03:26.000 the situation that we have and the imminent threat that 0:03:26.040 --> 0:03:29.080 a lot of people feel from Russia, how important is 0:03:29.120 --> 0:03:32.800 it for the world's remove Russia really from the oil equation? 0:03:32.880 --> 0:03:34.800 In other words, what do you think the US ought 0:03:34.800 --> 0:03:37.760 to be doing to allow Germany to become independent from 0:03:37.840 --> 0:03:42.960 Russian gas? Well, oil and gas are a little bit different, Lisa. 0:03:43.040 --> 0:03:46.640 In terms of oil, the Russians are clearly having trouble 0:03:46.760 --> 0:03:51.720 now getting buyers um. Uh. Even so, even though we 0:03:51.760 --> 0:03:54.440 are not sanctioning, there is a kind of a customer 0:03:54.520 --> 0:03:58.200 sanction going on, and that is affecting the ability of 0:03:58.280 --> 0:04:01.360 Russia to get oil onto the market. Uh. They are 0:04:01.400 --> 0:04:05.160 taking a big, big discount thirty dollars a barrel, for example, 0:04:05.880 --> 0:04:08.920 on on their oil. But to be honest, I think 0:04:08.960 --> 0:04:11.960 in the longer run, UH. And I don't mean years, 0:04:12.080 --> 0:04:16.040 I mean a month or so. I think the oil 0:04:16.160 --> 0:04:21.360 markets will basically recover in terms of supply side. Again 0:04:21.360 --> 0:04:23.760 in Russia will take a big discount. Now, gas is 0:04:23.880 --> 0:04:27.080 very different. Um. With gas you don't have the same 0:04:27.160 --> 0:04:31.000 kind of global market. UH. With cargoes easy to move 0:04:31.040 --> 0:04:34.280 around to different places. Uh. You have in this case 0:04:34.320 --> 0:04:37.599 of Europe obviously a lot of pipeline gas which goes 0:04:37.680 --> 0:04:40.520 from A to B and that's it. Uh. And now, 0:04:40.640 --> 0:04:45.440 of course, with the the unrest, and even before the unrest, UH, 0:04:45.560 --> 0:04:49.120 the the that is the invasion of Ukraine by by Russia. 0:04:49.600 --> 0:04:53.919 Gas prices in Europe and in Asia we're going awfully high. 0:04:54.240 --> 0:04:57.080 To give you a scale. In the United States, we're 0:04:57.080 --> 0:05:01.280 still talking about say four dollars five dollars, which is 0:05:01.360 --> 0:05:05.679 high for US. But in Europe they hit fifty sixty 0:05:05.680 --> 0:05:10.680 dollars per million B to you extraordinary. I spoke with 0:05:10.720 --> 0:05:14.919 a friend in the UK recently who said his gas 0:05:15.000 --> 0:05:18.320 bill for heating has gone up by a factor of four, 0:05:18.760 --> 0:05:21.359 and it's been a big concern I know for policymakers 0:05:21.400 --> 0:05:23.599 across the continent. I want to go back to what 0:05:23.640 --> 0:05:26.320 you were saying, where you think that the demand and 0:05:26.320 --> 0:05:29.080 the supply frankly will come back online when it comes 0:05:29.080 --> 0:05:31.600 to crude not gas. Do you think supply will recover 0:05:31.800 --> 0:05:34.520 within about a month? What goes into that? Is this 0:05:34.560 --> 0:05:36.640 the idea that sanctions will be lifted. Is it that 0:05:36.680 --> 0:05:39.920 the US can increase production, Is it reliance on OPEC 0:05:39.960 --> 0:05:43.080 plus Well, I think it's a little bit of all 0:05:43.120 --> 0:05:45.840 of that. But but a major part in my calculation 0:05:45.960 --> 0:05:49.839 is that I think with the very very large discounts Frankly, 0:05:50.000 --> 0:05:55.159 Russia will begin to find customers taking that that oil 0:05:55.360 --> 0:05:59.080 kind of will increase. It's it's imports. India is very 0:05:59.120 --> 0:06:03.400 interested in in a big discount, etcetera. In addition, I 0:06:03.440 --> 0:06:06.520 think we are making some headway, uh in terms of 0:06:06.560 --> 0:06:10.560 re establishing our relationship with the Saudis and the m rates. 0:06:11.000 --> 0:06:15.120 They may push OPEC to slightly at least somewhat more 0:06:15.880 --> 0:06:18.479 increase the pace. And of course, in the United States, 0:06:19.040 --> 0:06:23.120 I think that the president meeting with oil and gas 0:06:23.120 --> 0:06:28.080 company heads and with the heads of major financial institutions 0:06:28.520 --> 0:06:31.839 is very important because you know, the financial institutions have 0:06:31.920 --> 0:06:36.279 been pressuring the oil and gas producers to focus more 0:06:36.360 --> 0:06:40.839 on returning cash to their investors rather than expanding supply. Well, 0:06:41.000 --> 0:06:44.880 right now we have a supply emergency of in a 0:06:44.920 --> 0:06:47.800 certain sense, and I think it's time to uh to 0:06:47.920 --> 0:06:50.400 do a little jawboning, if you like, and to uh 0:06:50.480 --> 0:06:54.080 and have the financial and oil and gas executives come 0:06:54.120 --> 0:06:58.280 together uh and recognize we do need some increase in 0:06:58.279 --> 0:07:00.799 in in supply. Ernest. Do you think the Jennifer Granholm 0:07:01.040 --> 0:07:04.120 is doing a good job as your replacement for many 0:07:04.200 --> 0:07:09.760 years ago. Yeah, Well, she's I think emphasized quite correctly 0:07:10.280 --> 0:07:13.559 UH and very strongly that we now need to start 0:07:13.600 --> 0:07:19.760 looking together at the climate UH and the energy security imperatives. 0:07:19.800 --> 0:07:23.760 And I think expanding that conversation out of the silos 0:07:24.560 --> 0:07:27.840 where someone to talk about climate, some about security, some 0:07:27.920 --> 0:07:32.040 about geopolitics, some about infrastructure. We need to have some 0:07:32.160 --> 0:07:36.600 about of course environmental justice, social equity very important when 0:07:36.680 --> 0:07:39.760 energy prices are going up, UH. And what we need 0:07:39.880 --> 0:07:45.040 is a coherent discussion across all of those areas UH. 0:07:45.080 --> 0:07:49.040 And they are in many ways inergistic when you go 0:07:49.160 --> 0:07:53.480 to low carbon UH electricity supply for example. That helps 0:07:53.600 --> 0:07:56.920 energy security. On the other hand, it's a bumpy road, 0:07:57.320 --> 0:07:59.520 and you know, we're gonna have to have some trade 0:07:59.520 --> 0:08:03.280 offs as we optimize all of our objectives. Her money, 0:08:03.360 --> 0:08:05.840 I want to go back to our stereotypes. You mentioned silos, 0:08:05.880 --> 0:08:10.200 and that reminds me of and doctor Strange love. We 0:08:10.360 --> 0:08:17.040 all have frameworks of nuclear power. Maybe it's the tragedy 0:08:17.080 --> 0:08:21.920 of Japan, maybe it's something else. If Mr Putin has 0:08:22.320 --> 0:08:27.800 narrow short term smaller nuclear weapons, what do they actually 0:08:27.960 --> 0:08:33.920 do well? First of all, um, uh, the so called 0:08:34.000 --> 0:08:37.319 tactical nuclear weapons, we should not think of them as 0:08:37.480 --> 0:08:41.600 really small. We might be talking say five kilotons of 0:08:41.679 --> 0:08:47.600 explosive yield as a metric or a standard. Uh. Hiroshima 0:08:47.720 --> 0:08:54.080 was fifteen, but Oklahoma City a chemical explosion was two tons, 0:08:54.160 --> 0:08:57.360 So we're talking five kilotons. If that would dropped in 0:08:57.400 --> 0:09:00.400 a city, UH, it would do enormous damage and kill 0:09:00.520 --> 0:09:04.559 a lot of people. UH. So the question is would 0:09:04.559 --> 0:09:10.200 the Russians follow a doctrine which is debated about whether 0:09:10.880 --> 0:09:16.480 a small ish nuclear weapon dropped in a place that 0:09:16.520 --> 0:09:22.000 did not do too much damage relative to say a city, UH, 0:09:22.080 --> 0:09:26.640 would that lead to de escalation of a conflict or escalation. 0:09:27.760 --> 0:09:32.960 We think that the circumstances are would would determine that 0:09:33.160 --> 0:09:36.920 in ways that are very difficult to calculate. So our 0:09:36.960 --> 0:09:40.880 our concern is that if this were to happen, UM, 0:09:41.120 --> 0:09:44.880 the situation could be got out of control through miscalculation, 0:09:45.000 --> 0:09:50.319 through blunder and misunderstanding bad data, UH, very very quickly, 0:09:50.720 --> 0:09:56.280 leading to a much larger nuclear conflagration obviously, very very 0:09:56.320 --> 0:10:02.360 bad for everybody, very bad for for for and stibilization clearly. 0:10:02.720 --> 0:10:06.280 So it's very important in our view that UH that 0:10:06.400 --> 0:10:10.280 nuclear weapons continue to be unused and to be focused 0:10:10.320 --> 0:10:15.120 fundamentally on on the deterrence value UH in terms of 0:10:15.200 --> 0:10:18.480 not being the victim of a nuclear attack. And it's 0:10:18.480 --> 0:10:21.439 thoughtful stuff, deeply thoughtful stuff this morning, Thank you. And 0:10:21.520 --> 0:10:31.439 it's Monsta, the former US Energy secretary. He's been dead 0:10:31.520 --> 0:10:34.720 on about rising inflation and our need to adapt and 0:10:34.800 --> 0:10:39.480 adjust and be a new short essay which says simply, 0:10:39.960 --> 0:10:43.040 let's go. The only way is to slow things down 0:10:43.559 --> 0:10:47.000 with perspective on this. Nora Abani Robini Macro associates way 0:10:47.000 --> 0:10:50.000 too long, Uh. Nora on the course the boombos dot 0:10:50.040 --> 0:10:55.240 Com co CEO associated for years with giving us wisdom 0:10:55.280 --> 0:10:58.559 norill do you buy the idea that the only action 0:10:58.880 --> 0:11:02.960 that will bring down in inflation is to dampen economic 0:11:03.040 --> 0:11:09.600 growth and increase unemployment. Yeah, I have that same view. 0:11:09.679 --> 0:11:12.400 I mean, inflation right now is at the level we're 0:11:12.440 --> 0:11:16.080 not seen in decades break evens as suggested, the inflation 0:11:16.120 --> 0:11:18.920 expectation are also rising. There at the beginning of a 0:11:19.000 --> 0:11:23.000 race wide sparrel and and the other thing that happens 0:11:23.120 --> 0:11:26.520 is that, on top of everything else, a tighter monetary 0:11:26.520 --> 0:11:29.679 policy would slow down economic growth. But now we're facing 0:11:29.679 --> 0:11:33.839 with a negative supply shock is coming from the Rasian 0:11:33.920 --> 0:11:38.000 invasion of Ukraine that increases commodity prices, also slows down 0:11:38.040 --> 0:11:41.240 road through global supply chain, so that tradeoff becomes even 0:11:41.280 --> 0:11:45.120 worse before you put monetary policy into the picture because 0:11:45.360 --> 0:11:49.000 it staclationary shock. It's a negative supply shop implies lower 0:11:49.040 --> 0:11:52.120 growth and higher inflation, everything else equal. And then then 0:11:52.160 --> 0:11:53.840 if you're doing them, if you don't in terms of 0:11:53.840 --> 0:11:58.040 monetary policy to care about inflation and anchor inflation expectation, 0:11:58.120 --> 0:12:01.640 have to type the sooner and or. But that implies 0:12:01.640 --> 0:12:04.319 that the growth slow down, if maybe even a growth recession, 0:12:04.520 --> 0:12:07.160 it is more severe and things that you care about growth, 0:12:07.559 --> 0:12:10.360 and then you normalize too slowly, you're the risk of 0:12:10.400 --> 0:12:14.680 the anchory inflation expectations, so that policy tradeoff becomes even 0:12:14.679 --> 0:12:18.120 more severe. You wrote an article recently that I thought 0:12:18.240 --> 0:12:22.520 was really insightful. Basically, it's the new stagflation policy proof. 0:12:22.840 --> 0:12:25.920 Where does policy fit in to the next year two 0:12:26.000 --> 0:12:28.120 years when a lot of people say recession is nearly 0:12:28.160 --> 0:12:33.880 inevitable as we try to come out of this period. Well, again, 0:12:34.160 --> 0:12:37.840 you have wide range of sets of policies. Your monetary policy, 0:12:37.960 --> 0:12:42.600 r fiscal policy. You have sanctioned policy, you have regulatory policy. 0:12:42.640 --> 0:12:46.760 You could introduce price wage controls or indexation of wages 0:12:46.760 --> 0:12:50.600 to prices like we did in the seventies. The trouble 0:12:50.720 --> 0:12:52.600 is that you have a bunch of policy tools, but 0:12:52.640 --> 0:12:56.400 you have also a bunch of very contradictory goals. Your 0:12:56.480 --> 0:13:00.440 goals are to have price stability and push down inflation 0:13:00.520 --> 0:13:03.840 is mouth significantly higher. But you also have a mandate 0:13:03.880 --> 0:13:07.200 about maximum employment that goes against right now, given an 0:13:07.400 --> 0:13:10.080 enable to suppy shock against that target, you want to 0:13:10.160 --> 0:13:14.040 keep interest rates low, long term rates. That's actually a 0:13:14.040 --> 0:13:18.040 formal mandate of the Fed, and of course higher rates 0:13:18.120 --> 0:13:21.280 that are tighten financial condition, and then you want sanctions 0:13:21.280 --> 0:13:25.000 to punish Russia and that are other people from doing 0:13:25.240 --> 0:13:29.880 mistaken things. So all these things imply that reaching an 0:13:29.880 --> 0:13:33.480 optimal policy equilitiment is very hard because suppose that you 0:13:33.520 --> 0:13:36.439 want to have more sanctions and you want to have 0:13:37.240 --> 0:13:41.840 you know, more physical stimulus, sanctions to punish Russia and 0:13:41.960 --> 0:13:45.920 stimulus to try to support the economic activity. Both sanctions 0:13:45.960 --> 0:13:50.000 and the physical stimulus increase demand and increasing inflationary pressure 0:13:50.320 --> 0:13:53.840 at the time where monetary policy is trying to instead 0:13:53.880 --> 0:13:57.160 achieve lower inflation. So there's almost a contradiction between the 0:13:57.200 --> 0:13:59.760 various policies. So what do you see neural as a 0:13:59.800 --> 0:14:01.800 like the outcome of this as we do get this 0:14:01.960 --> 0:14:06.079 argument of whether soft landing is possible, Um, I think 0:14:06.160 --> 0:14:08.160 it's gonna be very very hard for the FED to 0:14:08.720 --> 0:14:12.800 achieve a soft landing. Historically you have to tighten more 0:14:12.920 --> 0:14:15.880 than otherwise when inflation is this high. I think that 0:14:15.920 --> 0:14:18.520 the dot plot of the FED is not released. Giving 0:14:18.800 --> 0:14:20.600 the FED funds that they run one point at the 0:14:20.680 --> 0:14:23.200 end of the year where core PC is going to 0:14:23.280 --> 0:14:26.480 be more like three too, means that monetary past is 0:14:26.480 --> 0:14:29.160 not gonna be tight enough. And then you have two choices. 0:14:29.600 --> 0:14:32.640 Either you're really tight and monetary policy because you're still 0:14:32.800 --> 0:14:35.880 behind the curved bullet, right, you need to policy rate 0:14:35.920 --> 0:14:37.880 the three percent by the end of this year, which 0:14:37.880 --> 0:14:40.920 case you cause a recession or you wimp out because 0:14:40.920 --> 0:14:43.240 you're worried about growth and you're worth about the debt 0:14:43.240 --> 0:14:46.960 trap private and public. That is so I then when 0:14:46.960 --> 0:14:50.000 you raise rates, then you destroy the debt markets. And 0:14:50.040 --> 0:14:52.760 whether you wimpot because of worries about growth or about 0:14:52.760 --> 0:14:55.680 debt markets that are connected and therefore you end up 0:14:55.720 --> 0:14:58.840 not doing as much and the answering inflation expectations. So 0:14:58.840 --> 0:15:01.520 you have to choose within session or the on putting 0:15:01.520 --> 0:15:05.120 infreshion expectation. You cannot have a snor real quickly. Here. 0:15:05.160 --> 0:15:07.080 I love to end this with you because it's always 0:15:07.120 --> 0:15:09.840 so constructive. You and I were in a bar once 0:15:09.960 --> 0:15:14.200 at Davos and we were talking about four standard deviation 0:15:14.320 --> 0:15:18.480 moves as being a shock. German inflation is seven plus 0:15:18.520 --> 0:15:23.960 standard deviations. Italy reporting tomorrow looks like it's six plus 0:15:24.480 --> 0:15:30.120 standard deviation move over the long term disinflationary trend of Italy. 0:15:30.640 --> 0:15:34.200 What does the society do with that? Well, as you 0:15:34.240 --> 0:15:38.600 point out, you're already very standard deviation away semi black 0:15:38.640 --> 0:15:41.960 swan events on things like inflation, not just in US 0:15:42.040 --> 0:15:44.760 but also in Europe. Of course, we've had also these 0:15:45.040 --> 0:15:48.240 major geopolitical shop is the war, and it's just the 0:15:48.320 --> 0:15:51.880 symptom of a much broader geopolitical depression. I think the 0:15:51.920 --> 0:15:56.080 next few years, China and its effective allies Russia, Iran, 0:15:56.440 --> 0:15:58.960 North Korea going to challenge the US and the West. 0:15:59.240 --> 0:16:01.560 So I think that they war in Ukraine is only 0:16:01.600 --> 0:16:04.880 the first salvo of this Cold war two point oh. 0:16:04.920 --> 0:16:06.360 I mean, the question is not whether it's going to 0:16:06.400 --> 0:16:09.720 be in Cold War or whether eventually war within the 0:16:09.720 --> 0:16:12.200 West and China and so on. So we had in 0:16:12.200 --> 0:16:15.640 a very difficult situation where extreme things are happening, and 0:16:15.720 --> 0:16:17.760 like you know, on the eve of World War One, 0:16:18.000 --> 0:16:20.560 financial market about market did not pricing at all that 0:16:20.720 --> 0:16:23.040 is covered of a major war, and then stuff happened. 0:16:23.400 --> 0:16:26.480 So not only we have major events that are radically different, 0:16:26.520 --> 0:16:29.880 like a quantum leap, but we don't have the policy 0:16:30.480 --> 0:16:31.800 nor I'll tell you what we're gonna do here. We're 0:16:31.800 --> 0:16:34.440 gonna continue on radio. We're gonna bring this conversation over 0:16:34.480 --> 0:16:37.360 to myself and past suite, and Dr Rubini will do 0:16:37.440 --> 0:16:45.240 that here and a bit. Let's get to at Megan 0:16:45.280 --> 0:16:48.560 Green joint his Global Chief Economist COAL Institute would work 0:16:48.600 --> 0:16:51.520 at Harvard Kennedy School as well. Megan, I want to 0:16:51.520 --> 0:16:54.920 go to your wheelhouse, which is a transatlantic dynamic. You 0:16:55.000 --> 0:16:59.600 and I studied theories and textbooks. Those theories don't work anymore, 0:16:59.640 --> 0:17:03.000 given uncertainty and the algebra Boll this the epsilon on 0:17:03.040 --> 0:17:07.440 the right hand side of the equation. Given all this uncertainty, 0:17:07.560 --> 0:17:12.320 what's a new central bank transatlantic theory? Yeah, I mean 0:17:12.359 --> 0:17:16.560 we're looking at massive policy monetary policy divergence between the 0:17:16.560 --> 0:17:19.560 Fed and the ECB UM, and that's gonna be difficult 0:17:19.600 --> 0:17:23.040 to sustain. I mean, the EU inflation print is is 0:17:23.080 --> 0:17:26.560 pretty shocking, and headline inflation you're and you're just under 0:17:26.600 --> 0:17:29.560 ten percent. Of course, you've got to strip out a 0:17:29.600 --> 0:17:33.440 bunch of commodity and energy costs to see what's underlying. 0:17:33.520 --> 0:17:36.760 But the e c B is committed to winding down. 0:17:36.880 --> 0:17:40.760 It's it's on purchasing program first before it starts higging 0:17:40.880 --> 0:17:43.400 rates um. So it won't manage to get rates up 0:17:43.880 --> 0:17:47.320 until the end of this year at best. In the US. Meanwhile, 0:17:47.760 --> 0:17:50.480 economists are kind of trying to out hawk one another 0:17:50.920 --> 0:17:53.000 with a number of rate hikes they can call for 0:17:53.680 --> 0:17:56.160 for the US, And so the US is going much 0:17:56.160 --> 0:17:59.080 more aggressively than the e c B is. Um. We 0:17:59.160 --> 0:18:02.639 know in general, rold that that monetary policy divergence is 0:18:02.680 --> 0:18:06.320 impossible to maintain over a period of time. So if 0:18:06.359 --> 0:18:09.760 the feed is hiking aggressively, uh, you know, either it's 0:18:09.760 --> 0:18:12.119 going to have to back off or other major central 0:18:12.160 --> 0:18:14.320 banks are going to have to catch up. And insofar 0:18:14.359 --> 0:18:18.080 as inflication way higher than the ECB wants it to be, 0:18:18.200 --> 0:18:19.960 I think the CB is going to become much more 0:18:19.960 --> 0:18:22.600 hawkish now as well. Let's go on Mundel on you 0:18:22.760 --> 0:18:25.399 this morning. You know you studied your Robert Mundel the 0:18:25.800 --> 0:18:32.399 degree of Columbia. I mean, currency is the release valve here? 0:18:33.080 --> 0:18:38.480 Does that hold given these unique onset of uncertainties. I 0:18:38.480 --> 0:18:40.320 think it does hold. I mean, if the FETE is 0:18:40.400 --> 0:18:43.679 hiking much more aggressively than other major central banks, I 0:18:43.720 --> 0:18:47.119 think the dollar will appreciate um and that could cause 0:18:47.160 --> 0:18:51.800 diservances across emerging markets, of course, because all of these 0:18:51.800 --> 0:18:54.959 dollar bonds are going to be more expensive to service trade, 0:18:54.960 --> 0:18:57.960 which has been invoiced in US dollars will become much 0:18:58.000 --> 0:19:01.040 more expensive, so that's bad for imp orders. Um there 0:19:01.160 --> 0:19:04.399 is talk off the back of the conflict between Russian 0:19:04.400 --> 0:19:08.000 and Ukraine of the dollar system shifting. I don't buy 0:19:08.000 --> 0:19:10.080 it for starters, and even if it were to you, 0:19:10.200 --> 0:19:12.640 it's going to take years and years. So I think 0:19:12.680 --> 0:19:15.360 we can expect the dollar to appreciate and that could 0:19:15.359 --> 0:19:19.560 be problematic for other parts of the world, particularly emerging market. So, Megan, 0:19:19.760 --> 0:19:21.800 you have to weigh in on the big question of 0:19:21.840 --> 0:19:24.200 the day, the does the yield curve matter or does 0:19:24.200 --> 0:19:26.119 the yield curve not matter? We have a lot of 0:19:26.160 --> 0:19:28.359 people coming out, including the FED, saying you're looking at 0:19:28.400 --> 0:19:30.639 the wrong thing, and other people saying the time that 0:19:30.680 --> 0:19:32.359 you say this time is different is the time you 0:19:32.480 --> 0:19:34.200 end up with egg on your face. Where do you stand. 0:19:35.520 --> 0:19:38.240 I don't really think it matters that much for starters. 0:19:38.280 --> 0:19:41.480 The two tends, you know, inverted for twenty three seconds, 0:19:41.520 --> 0:19:45.160 which is not long enough to really provide signal. Now, 0:19:45.200 --> 0:19:49.440 the yield curve inversion is way more effective than any economists, 0:19:49.480 --> 0:19:52.680 including me, in terms of calling recessions. So there is that, 0:19:52.840 --> 0:19:55.840 but the sample size isn't huge. I think we need 0:19:55.880 --> 0:19:57.680 to look at the shorter end of the yield curve 0:19:58.080 --> 0:19:59.879 um in order to get more of a signal. And 0:20:00.040 --> 0:20:02.439 don't forget the U. S. Government has been borrowing a 0:20:02.480 --> 0:20:05.560 ton to pay for things like the pandemic response, and 0:20:05.600 --> 0:20:09.400 so that will push the short end up without making 0:20:09.440 --> 0:20:12.880 any commentary on expectations about growth. And the FED is 0:20:13.040 --> 0:20:15.840 has wound up its bond buying program, and so you 0:20:15.880 --> 0:20:18.520 know that that could push the short the long end down. 0:20:18.560 --> 0:20:21.119 And so you know, I think these are bigger factors 0:20:21.200 --> 0:20:24.760 than the idea that investors expect a recession to come. 0:20:24.840 --> 0:20:27.919 That being said, it's going to be really difficult for 0:20:27.960 --> 0:20:30.960 the FED to high rates aggressively, which the FED itself 0:20:31.000 --> 0:20:35.760 expects to then have no perceptible impact on unemployment. And 0:20:35.800 --> 0:20:38.800 we know from the some rule that if unemployment goes 0:20:39.040 --> 0:20:42.760 a weighted average of unemployment goes up, UH, then it's 0:20:42.880 --> 0:20:46.359 it's a much better predictor of recessions and the yield 0:20:46.440 --> 0:20:48.879 curve is and I think we'll see that happen. So 0:20:49.160 --> 0:20:51.159 I'm not so worried about the yield curve, but I 0:20:51.160 --> 0:20:53.679 do think there are other signals um that could be 0:20:53.720 --> 0:20:56.480 coming down the pike. Because the FED hikes aggressively. That 0:20:56.600 --> 0:20:58.560 suggests we will be pitched and making it. Are you 0:20:58.640 --> 0:21:02.280 already seeing signs that the consumer is losing appetite to 0:21:02.320 --> 0:21:05.320 absorb price increases to a place where you start to 0:21:05.359 --> 0:21:09.120 wonder about how much momentum is there in frankly household 0:21:09.160 --> 0:21:13.920 balance sheets. Absolutely, you know, this income squeeze from higher 0:21:14.000 --> 0:21:17.960 energy costs is real, on top of you know, elevated 0:21:18.000 --> 0:21:21.600 inflation already, I think everybody is feeling it in the US, 0:21:22.200 --> 0:21:26.159 um it's perceptible, and so that is weighing on spending. 0:21:26.320 --> 0:21:29.440 On top of that. We know that stimulus payments um 0:21:29.640 --> 0:21:34.000 provided a cushion for many households, but low income households 0:21:34.000 --> 0:21:37.720 in particular have probably just about burned through that entire 0:21:37.840 --> 0:21:40.520 cushion by the end of this month, and so they're 0:21:40.560 --> 0:21:43.400 facing this double whammy of no more cushion and much 0:21:43.440 --> 0:21:46.560 higher prices. And of course they have the highest marginal 0:21:46.560 --> 0:21:50.000 propensity to consume, so they're spending the biggest proportion of 0:21:50.040 --> 0:21:52.359 their income anyhow um and so that will lay on 0:21:52.440 --> 0:21:55.080 consumption too, And of course consumption is the biggest driver 0:21:55.280 --> 0:21:58.720 growth in the US, like every other developed economy. So 0:21:58.800 --> 0:22:02.560 we were always expecting a slowdown this year energy price 0:22:02.560 --> 0:22:05.200 because we're already expected to be elevated even before the 0:22:05.280 --> 0:22:08.880 rush of Ukraine crisis. This is it's just worse than 0:22:08.880 --> 0:22:11.959 we had expected, but a slowdown was inevitable. The question 0:22:12.040 --> 0:22:15.200 is does the Fed hikes so aggressively now that a 0:22:15.280 --> 0:22:18.520 recession hits, rather than just to slow down when we 0:22:18.520 --> 0:22:21.240 were growing we above potential coming into this year, there's 0:22:21.240 --> 0:22:23.880 a lot of room to slow down. What you said 0:22:23.960 --> 0:22:26.680 moments ago, though, I think the answer to that question 0:22:27.280 --> 0:22:29.879 is buried in it. You mentioned the sam rule, So 0:22:29.960 --> 0:22:33.720 let's talk about that. Unemployments already sub for We've got 0:22:33.760 --> 0:22:36.960 people thinking it can go lower on Friday, given the 0:22:37.000 --> 0:22:39.159 starting point of this tight news cycle, and given what 0:22:39.280 --> 0:22:41.880 unemployment is right now. Bill Duntley, the former New York 0:22:41.880 --> 0:22:44.080 Fed president, came out earlier this week. It essentially said 0:22:44.080 --> 0:22:46.560 a hard landing is all but inevitable. Would you go 0:22:46.640 --> 0:22:50.000 with that? Yeah? Like I said, I think the Fed's 0:22:50.040 --> 0:22:52.560 forecast that it will get that many rate hikes off 0:22:52.600 --> 0:22:55.040 and there won't be much, and it will affect infletion, 0:22:55.119 --> 0:22:57.959 but it won't affect unemployment much and it won't affect 0:22:58.000 --> 0:23:00.560 growth much just doesn't add up. I mean, I do 0:23:00.640 --> 0:23:04.399 think that unemployment will probably rise as the FED hikes, 0:23:04.440 --> 0:23:06.560 and so I do think that's a brill indicator in 0:23:06.560 --> 0:23:09.119 a better recession than coming. Mecan Green, thank you of 0:23:09.200 --> 0:23:16.200 the Crawl Institute, Thank you very much. Eleven day winning 0:23:16.240 --> 0:23:19.280 streak on Apple, what a run, the longest winning streak 0:23:19.960 --> 0:23:23.200 since two thousand and three. Sacha joins us now chief 0:23:23.200 --> 0:23:25.679 Strategists of Principal Global Investors SEEMA. Can then we just 0:23:25.720 --> 0:23:27.920 start there, what do you make of this rallying big tech, 0:23:28.280 --> 0:23:30.439 uber tech in the face of what's happening in the 0:23:30.440 --> 0:23:33.639 bond market. Well, I look, I think a little bit 0:23:33.760 --> 0:23:35.679 is frond of that short covering, but I think that 0:23:35.720 --> 0:23:37.760 there is still that fundamental story. So let's say you 0:23:37.760 --> 0:23:40.520 were are worried about the growth outlook, and you think 0:23:40.520 --> 0:23:42.960 that potentially, although there is some uppard movement in bonds, 0:23:42.960 --> 0:23:45.120 probably still a little bit further to go, it's probably 0:23:45.160 --> 0:23:48.480 near its top. Then that structural story of sort of 0:23:48.640 --> 0:23:50.760 a strong balance sheet supposed to cash flow does play 0:23:50.800 --> 0:23:53.760 pretty well for megacat Tech. So from our perspective, you know, 0:23:53.800 --> 0:23:57.240 although we've done down our risk in yours ecuties, our 0:23:57.400 --> 0:24:00.639 preference is still on that megac text space. Because of 0:24:00.640 --> 0:24:05.159 that fundamental story Seema John Maggie the arch textbook of 0:24:05.200 --> 0:24:08.600 the nineteen forties, where we came up with the language 0:24:08.600 --> 0:24:12.760 of trend, intermediate trend, long term trend, whatever trend you 0:24:12.840 --> 0:24:15.879