WEBVTT - Surveillance: Kuleba Rules Out Cease-Fire (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa A. Brawmowitz. Daily we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.400 dot Com, and of course, on the Bloomberg terminal. Right now, 0:00:30.480 --> 0:00:32.400 we are going to go to Brussels. He is not 0:00:32.520 --> 0:00:36.559 only a foreign minister for Ukraine, but from a family 0:00:36.600 --> 0:00:40.280 of public service to Ukraine's father was ambassador, including a 0:00:40.479 --> 0:00:44.519 long tour of duty to Kazakhstan. Maria. Today, oh with 0:00:44.640 --> 0:00:49.600 Mr Khleba in Brussels, Maria. Good morning, Yes, Tom, good morning. 0:00:49.640 --> 0:00:51.880 And we're now joined by them Culebra, who of course 0:00:52.400 --> 0:00:55.040 is Ukraine's foreign minister. And when this war started, you, 0:00:55.240 --> 0:00:57.960 alongside the rest of the Ukrainian government, you meet the 0:00:58.040 --> 0:01:00.800 decision if we're not going to leave, we're gonna fight 0:01:00.880 --> 0:01:04.080 for our country and we're gonna win this war. I wonder, 0:01:04.200 --> 0:01:07.000 now you've been on almost a global tour, You've met 0:01:07.000 --> 0:01:10.039 pretty much with everyone that can support your cause. What 0:01:10.160 --> 0:01:12.800 is the message that you're sending diplomats when you go 0:01:12.840 --> 0:01:17.320 on this tour Uh, you're not believe in Ukraine. But 0:01:17.640 --> 0:01:20.119 now you can see that Ukraine will win this war. 0:01:20.880 --> 0:01:23.440 Stand by us and share the victory with us for 0:01:23.480 --> 0:01:25.839 the sake of the world. Because this is not only 0:01:26.040 --> 0:01:29.360 the Russia's war against Ukraine. This is the threat that 0:01:29.480 --> 0:01:33.280 Russia and the challenge that Russia poses to the entire world. 0:01:33.360 --> 0:01:36.279 We have to stop them here in order for others 0:01:36.319 --> 0:01:38.440 not to suffer as much as we do. And one 0:01:38.480 --> 0:01:41.280 of the things that you say, and President Lensky repeats 0:01:41.319 --> 0:01:43.920 to is that when you look at the strategic options 0:01:44.000 --> 0:01:47.120 right now, the only strategic option that works for Ukraine 0:01:47.520 --> 0:01:50.600 is winning is a victory. Nothing else will suffice. When 0:01:50.600 --> 0:01:52.240 you say we've got to win, what does it mean 0:01:52.240 --> 0:01:55.880 in real terms, Well, you have to understand that this 0:01:55.960 --> 0:01:58.880 is the world for our existence. Because President Putting does 0:01:58.880 --> 0:02:02.160 not recognize how identity, He does not recognize the right 0:02:02.200 --> 0:02:06.040 of Ukrainian state to exist. This is why we understand 0:02:06.080 --> 0:02:08.239 that we have no other choice but to win this war, 0:02:08.400 --> 0:02:11.360 because it's a war for our existence, and winning it 0:02:11.400 --> 0:02:16.280 means first deal occupying our territories, restoring territorial integrity of 0:02:16.440 --> 0:02:20.600 Ukraine within its internationally recognized borders. We have no intention 0:02:20.639 --> 0:02:23.640 to capture anyone's piece of land, even inach of it. 0:02:24.240 --> 0:02:27.800 We but we want everything that belongs to us to 0:02:27.919 --> 0:02:31.240 be ours. And of course you often hear I know 0:02:31.320 --> 0:02:34.480 this really makes you angry and infuriates Ukrainians when you 0:02:34.520 --> 0:02:37.280 hear things like, oh, but they should just accept the 0:02:37.320 --> 0:02:40.120 ceasefire or perhaps just give away the dam Bass and 0:02:40.120 --> 0:02:41.920 this will put an end to it. What is the 0:02:41.960 --> 0:02:45.400 flaw in that theory? According to you, one of the 0:02:45.400 --> 0:02:49.840 reasons why this war is happening is because since twenty 0:02:49.880 --> 0:02:54.320 and fourteen, some Western countries were countries, you say, some 0:02:54.400 --> 0:02:59.280 Western countries, which human Germany, Germany, France, to some extent, 0:02:59.320 --> 0:03:02.440 the United States and other other other European countries. They 0:03:02.440 --> 0:03:07.040 were always pursuing the policy of half measures towards towards Russia. 0:03:07.120 --> 0:03:09.760 I guess you're scared, you're putting. Well, you know, every 0:03:09.760 --> 0:03:12.400 country is special. Every country has its own reasons to 0:03:12.480 --> 0:03:16.520 pursue one policy or or another. But one of the 0:03:16.520 --> 0:03:20.840 reasons why this war is happening, it's because everyone was 0:03:20.880 --> 0:03:24.800 always telling us Ukraine, you have to consider this to 0:03:24.919 --> 0:03:29.040 pacify Putting, you have to consider that to prevent the 0:03:29.080 --> 0:03:33.240 war from happening. Now, this war happened. It means only 0:03:33.280 --> 0:03:36.720 one thing that this entire policy Ukraine has to consider 0:03:36.840 --> 0:03:41.520 something failed. Doesn't work this way. So instead of asking 0:03:41.560 --> 0:03:45.080 what Ukraine should do for a ceasefire for the end 0:03:45.120 --> 0:03:48.440 of the war, the question should be addressed to Russia. 0:03:48.560 --> 0:03:51.720 What Russia should do? And I would like to command 0:03:51.840 --> 0:03:56.360 now both Germany, France the United States for really changing 0:03:56.440 --> 0:04:00.360 their perspective on this. We still have some discuss but 0:04:00.400 --> 0:04:03.360 in principle they clearly understand that this is a black 0:04:03.400 --> 0:04:07.040 and white situation and it's Russia who bears food responsibility 0:04:07.080 --> 0:04:09.600 for what is happening. And Mr Kula, you mentioned the French, 0:04:09.680 --> 0:04:11.480 and I have to ask you about this because over 0:04:11.520 --> 0:04:14.040 the past for eight hours there's been a huge debate 0:04:14.080 --> 0:04:15.800 as to whether or not and then when my com 0:04:15.840 --> 0:04:18.960 perhaps suggested to Mr Zelenski that he should give away 0:04:19.040 --> 0:04:21.120 some land in order to get a piece deal that, 0:04:21.240 --> 0:04:24.080 of course the French denied this. What's going on here? 0:04:24.080 --> 0:04:26.159 Has anyone ever told you? And when I say anyone, 0:04:26.200 --> 0:04:28.680 of course, I mean global leaders just give away from 0:04:28.760 --> 0:04:30.359 me and give away something in the east. Have you 0:04:30.360 --> 0:04:33.400 been pressured to do that? I was not present in 0:04:33.480 --> 0:04:37.280 the conversation that my President referred to in the conversation 0:04:37.320 --> 0:04:42.719 with President Macron. So I cannot comment on this, but 0:04:43.240 --> 0:04:47.360 before two thousand and fourteen, before the sorry, before twenty 0:04:47.400 --> 0:04:51.760 fourth of February this year, when the war started, yes 0:04:51.839 --> 0:04:54.000 there was some they were not pushing, but they were 0:04:54.080 --> 0:04:57.480 kind of exploring the option of what could be the solution, 0:04:58.240 --> 0:05:03.599 what could Ukraine abandoned in order to make a deal 0:05:03.720 --> 0:05:07.360 with Russia. But I want to make it clear, and 0:05:07.360 --> 0:05:10.080 I think it's everyone who is watching news from Ukraine 0:05:10.120 --> 0:05:15.440 and sees Russian soldiers committing atrocities, Russian army destroying I'll 0:05:15.440 --> 0:05:18.040 see this. It's not Ukraine to blame. This is an 0:05:18.120 --> 0:05:23.480 unprovoked war. Not neither Ukraine, nor Europe, nor NATO, nor 0:05:23.560 --> 0:05:26.039 the nor the United States provoked Putting to do what 0:05:26.200 --> 0:05:30.280 he's doing, and therefore he must bear full responsibility for that. 0:05:30.839 --> 0:05:36.560 And you know, looking for face saving options for Putting 0:05:37.160 --> 0:05:40.360 is a simply false approach. Let's Putting himself find a 0:05:40.440 --> 0:05:42.640 face saving option for for him, And Sir, I have 0:05:42.680 --> 0:05:44.640 to ask you, of course about NATO. Over the weekend 0:05:44.680 --> 0:05:47.240 we had Finland Sweden applying for this. We've heard a 0:05:47.279 --> 0:05:49.440 lot of people saying, yeah, we welcome them. I'm guessing 0:05:49.440 --> 0:05:51.760 for you as a better moment because you tried that 0:05:51.880 --> 0:05:54.960 path two and you didn't get the welcome you're expecting. 0:05:55.240 --> 0:05:57.839 I hope or I wonder are you disappointed or you 0:05:57.920 --> 0:05:59.960 said by that? And when it comes to the europe 0:06:00.000 --> 0:06:02.240 and Union, which we have here in the background, I mean, 0:06:02.440 --> 0:06:04.640 is this your best hope now? Is that the you 0:06:04.640 --> 0:06:08.720 you've given up a NATO. I I believe Ukraine is 0:06:08.760 --> 0:06:12.120 the best hope of the European Union because look how 0:06:12.400 --> 0:06:15.120 the European Union changed in the last two and a 0:06:15.160 --> 0:06:18.280 half months. In the beginning of the war, the perception 0:06:18.440 --> 0:06:21.719 was then NATO is strong, and NATO can act and 0:06:21.839 --> 0:06:25.080 NATO can deliver, and the only thing you can do 0:06:25.320 --> 0:06:28.480 is to express different levels of concern in public statements. 0:06:29.120 --> 0:06:32.800 And the war proved that everything is completely different. It's 0:06:32.880 --> 0:06:37.760 NATO that as alliance as an institution can do very 0:06:37.800 --> 0:06:42.080 literally for anything. Allies, yes, they're very helpful, the Coalition 0:06:42.120 --> 0:06:44.760 of the Willing, the Coalition of the Willing, who represent 0:06:44.880 --> 0:06:47.039 part of the alliance, they are very helpful. We will 0:06:47.080 --> 0:06:50.040 never forget how much how they support us. But NATO 0:06:50.120 --> 0:06:56.960 as an alliance did nothing. EU sanctions, strong political statements, 0:06:57.080 --> 0:07:02.599 economic support, military. If financing military support to Ukraine, European 0:07:02.720 --> 0:07:06.520 Union is back on track as a driving force, as 0:07:06.600 --> 0:07:09.200 someone who shapes the future, who can shape the future 0:07:09.200 --> 0:07:12.920 of youuro and it's Ukraine who gave them the chance 0:07:12.960 --> 0:07:16.280 to demonstrate that they can. And you make that very clear, Metricula. 0:07:16.480 --> 0:07:17.840 Thank you very much. I know you're heading to the 0:07:17.840 --> 0:07:20.160 Hague tomorrow, so too. I know you told me you 0:07:20.160 --> 0:07:22.960 want to pursue this case of criminal charges against Russia 0:07:23.000 --> 0:07:24.640 and the Russian Army. Thank you so much for your time, 0:07:24.640 --> 0:07:26.440 and we appreciate it at such an important hour for 0:07:26.480 --> 0:07:29.520 your country. The pleasure is mine. Thank you, Jonathan Maria, 0:07:29.600 --> 0:07:32.280 Thank you a wonderful interviewed with the Ukrainian Foreign Minister. 0:07:36.600 --> 0:07:41.160 Now to get out front of a sacred oath. Mark Esper, 0:07:41.200 --> 0:07:44.480 you know him as a Secretary of Defense of modest 0:07:44.520 --> 0:07:49.680 controversy for President Trump, but far more, the most coveted 0:07:49.800 --> 0:07:53.640 award at West Point. There is a statue at West 0:07:53.680 --> 0:07:56.480 Point and far more the heritage is seen in the 0:07:56.480 --> 0:08:00.760 theater hotel of one Douglas MacArthur. And when you win 0:08:00.840 --> 0:08:04.320 the leadership Award at West Point and an honor of 0:08:04.400 --> 0:08:08.360 General MacArthur, it's a big deal. One of those winners. 0:08:08.480 --> 0:08:12.080 Mark Esper joined us winner maybe doesn't do it justice. Mark, 0:08:12.280 --> 0:08:16.480 tell me about what General MacArthur would do today with 0:08:16.640 --> 0:08:20.280 all of his controversy within the Republican Party the middle 0:08:20.320 --> 0:08:25.000 twentieth century isolationism, and that what would General MacArthur do 0:08:25.160 --> 0:08:30.560 with this modern defense department that we have. That's a 0:08:30.560 --> 0:08:32.800 great question. And I guess thank you up front for 0:08:32.840 --> 0:08:36.840 the introduction. Tom. You know, I MacArthur what we would 0:08:36.840 --> 0:08:39.120 consider him today to be a combatant commander right because 0:08:39.160 --> 0:08:40.959 of his command in the Pacific and later during the 0:08:41.000 --> 0:08:44.800 Korean War, but you know for West Point, west Pointers 0:08:44.960 --> 0:08:48.559 and and others in the military were we're most recall 0:08:48.760 --> 0:08:52.320 his famous saying about duty, honor, and country, and that 0:08:52.480 --> 0:08:54.720 is the West Point model. He says, those three hallow 0:08:54.720 --> 0:08:56.960 words reverently dictate what you ought to be, what you 0:08:57.040 --> 0:08:59.160 can be, and what you will be. And it was 0:08:59.200 --> 0:09:01.680 that phrase, and that's saying, as it goes, is what 0:09:02.200 --> 0:09:04.319 in some ways guided me during my tenure boat the 0:09:04.400 --> 0:09:06.880 Secretary of the Army and Secretary of Defense. I am 0:09:07.000 --> 0:09:10.200 fascinated by your thoughts of the and this is a 0:09:10.320 --> 0:09:12.640 very sophisticated word, sir. I don't know if you saw 0:09:12.679 --> 0:09:17.240 this at West Point. The ginormous NATO exercises going on 0:09:17.400 --> 0:09:21.760 right now from Estonian Lithuania on down. This is a 0:09:21.800 --> 0:09:25.800 new world we are in. Is our Defense Department ready 0:09:25.920 --> 0:09:31.000 with Secretary Austin for this new world? We are getting ready. 0:09:31.400 --> 0:09:34.080 I think a hallmark of the Trump administration was we 0:09:34.200 --> 0:09:37.360 advanced the National Defense Strategy that I made number one 0:09:37.720 --> 0:09:40.920 my top priority to implement. But this defense strategy also 0:09:40.960 --> 0:09:43.920 described a new era of great power competition to find 0:09:43.920 --> 0:09:48.000 as China as our top strategic adversary and secondly as Russia, 0:09:48.400 --> 0:09:51.240 and to confront these two countries, particularly China. We really 0:09:51.240 --> 0:09:54.600 need to modernize the military from the equipment to our training, 0:09:54.880 --> 0:09:57.760 to our doctrine, and all those things are underway. So 0:09:57.800 --> 0:10:00.079 it's important that the Pentagon continue on with what we 0:10:00.200 --> 0:10:03.920 developed during my tenure, and that we also provide the funding. 0:10:03.920 --> 0:10:06.800 That's really you can't do it without having funding. And 0:10:06.840 --> 0:10:10.320 I've been disappointed by the White Houses the Biden Administration's 0:10:10.559 --> 0:10:13.240 funding request these first two times. They've been flat. And 0:10:13.240 --> 0:10:15.880 thankfully the Congress increased the spending and that's gonna be 0:10:15.960 --> 0:10:19.520 critical to driving change and modernizing the armed forces. Secretary 0:10:19.559 --> 0:10:22.280 as Per based on what we've seen with Russia's invasion 0:10:22.440 --> 0:10:26.040 of Ukraine. How should the US military view what to 0:10:26.120 --> 0:10:29.760 expect with Jijinping and Taiwan, especially as he does seek 0:10:30.000 --> 0:10:33.360 get another term. Yeah, look, it's it's the great question. 0:10:33.679 --> 0:10:37.000 Russia we always defined as a superpower, but a declining power, 0:10:37.320 --> 0:10:40.120 and it's been evident from their actions last ninety days 0:10:40.320 --> 0:10:42.640 and uh in Ukraine that they're not quite the power 0:10:42.679 --> 0:10:44.840 that we thought they were in terms of military capability. 0:10:45.080 --> 0:10:47.319 So this has been a strategic failure across the board 0:10:47.600 --> 0:10:50.160 for Russia. But China is very different, right, It's a 0:10:50.240 --> 0:10:53.120 It's an economy of sixteen trillion dollars, second largest in 0:10:53.120 --> 0:10:57.840 the world, ten times bigger than Russia. Economic interdependencies that 0:10:57.920 --> 0:11:01.120 run around the world. We're seeing just because the shutdowns 0:11:01.480 --> 0:11:03.840 due to COVID in Shanghai and other places, how the 0:11:03.880 --> 0:11:06.760 supply lines reach. So we need to be very careful 0:11:06.800 --> 0:11:09.160 about how we plan and prepared to deal with China. 0:11:09.400 --> 0:11:11.640 We need to send the same and the proper signals 0:11:11.679 --> 0:11:15.520 of resolve and determination to defend young democracies or democracies 0:11:15.559 --> 0:11:17.800 like Taiwan, and make sure they understand that we're going 0:11:17.880 --> 0:11:20.920 to defend this world order. These sets of morms and 0:11:21.000 --> 0:11:25.120 values that have really helped promote prosperity and freedom around 0:11:25.120 --> 0:11:27.640 the world. For the last seventy five years, Secretary Asper, 0:11:27.880 --> 0:11:31.280 the Trumpet administration was known for looking inward to being 0:11:31.400 --> 0:11:35.280 a very nationalistic in the approach to geopolitical concerns. And 0:11:35.280 --> 0:11:38.480 we're at a moment where NATO seems to be coalescing 0:11:38.760 --> 0:11:42.240 in order to deal with Russia and the invasion in Ukraine. 0:11:42.320 --> 0:11:46.120 How much should the US military and beyond sort of 0:11:46.160 --> 0:11:50.520 build on this coalescing of NATO and work with allies 0:11:50.520 --> 0:11:53.800 in order to get some sort of bigger presence, whether 0:11:53.840 --> 0:11:55.880 it's in Asia or at least to figure out how 0:11:55.920 --> 0:11:59.839 to respond if there is an invasion of Taiwan. Yeah, look, 0:11:59.840 --> 0:12:02.599 we absolutely have to. I consider myself a Reagan Republican. 0:12:03.120 --> 0:12:06.920 Ronald Reagan promoted American strength piece through strength. He believed 0:12:06.920 --> 0:12:09.400 in the defense of democracies and the world order as 0:12:09.400 --> 0:12:11.640 we understand it, and believe that we should stand up 0:12:11.640 --> 0:12:13.840 for our friends and allies. And I made an important 0:12:14.600 --> 0:12:16.959 plank of my tenure to really go go out there 0:12:16.960 --> 0:12:20.080 and try and strengthen our allies and grow new partners. Uh. 0:12:20.080 --> 0:12:22.400 And I'm a big believer NATO, and having served in 0:12:22.480 --> 0:12:25.560 NATO's Young Army infantry officer, I believe that we need 0:12:25.559 --> 0:12:27.360 to continue to do this. And it's I'm glad to 0:12:27.360 --> 0:12:30.760 see finally that NATO is coming together, more countries are 0:12:30.760 --> 0:12:33.880 willing to commit more for defense and uh, and that 0:12:34.000 --> 0:12:37.160 we have possibly hopefully new to new countries joining. And 0:12:37.440 --> 0:12:40.280 you know, ironically it's Vladimir Putin who brought the alliance together. 0:12:40.440 --> 0:12:43.240 So uh, the the key thing will be sustaining this 0:12:43.360 --> 0:12:46.839 momentum as we at some point look eastward towards China. 0:12:47.280 --> 0:12:52.800 Marcus Berg, the nation was fractured off of Vietnam. Republicans fractured, 0:12:52.840 --> 0:12:57.400 Democrats fractured. It was equal opportunity. But we're still adjusting. 0:12:57.480 --> 0:13:00.959 And now, as Robert Gates would say, from our our 0:13:01.120 --> 0:13:05.280 our holiday from history, we're still adjusting to the debris 0:13:05.320 --> 0:13:09.280 of Vietnam. Are we adjusting in real time? And how 0:13:09.280 --> 0:13:14.240 do Republicans and Democrats come together to help those with 0:13:14.320 --> 0:13:17.719 the sacred oaths? You know, you're you're right. I mean, 0:13:17.760 --> 0:13:20.720 after the Vietnam War took the army twelve fifteen years 0:13:20.880 --> 0:13:24.960 when I interacted due to really rebuild under again President Reagan, 0:13:25.360 --> 0:13:27.360 and I think now we're coming off the war's last 0:13:27.360 --> 0:13:30.560 twenty years in Iraq and Afghanistan, and again during our 0:13:30.600 --> 0:13:34.079 time and beyond, we began rebuilding the army and all 0:13:34.120 --> 0:13:36.600 the services. So it will take time and money. Look, 0:13:36.600 --> 0:13:38.839 I said on many occasions here the last couple of 0:13:38.880 --> 0:13:41.800 months or so that the greatest threat I see facing 0:13:41.800 --> 0:13:45.079 our country is the extreme partisanship on both sides of 0:13:45.120 --> 0:13:47.880 the aisle that is creating dysfunction in Washington, d c. 0:13:48.040 --> 0:13:50.120 And until we solve that problem, it's gonna be hard 0:13:50.120 --> 0:13:52.319 to challenge to take on the big issues such as 0:13:52.720 --> 0:13:55.760 you know, are growing budget debt, it's what thirty trillion dollars? 0:13:56.280 --> 0:13:59.079 How do we come up with a consensus that with 0:13:59.080 --> 0:14:01.600 regard to a strategy towards China, how do we address 0:14:01.679 --> 0:14:04.320 all these big issues facing our country? And that's gonna 0:14:04.360 --> 0:14:06.960 be key going forward. Going forward is what we wanted 0:14:07.000 --> 0:14:09.760 to accomplish her Mark Asper was an important book for 0:14:09.760 --> 0:14:11.960 those of you on radio. You just need to know. 0:14:12.040 --> 0:14:15.680 There's a certain weight to it, like six plus pages. 0:14:15.760 --> 0:14:18.800 Mark Esper a sacred Oh, it's really can't say enough. 0:14:18.840 --> 0:14:21.400 And of course he leads front and center with a 0:14:21.440 --> 0:14:31.000 gentleman that he worked for at the white House Law, 0:14:31.040 --> 0:14:34.320 you're going far away. Before the advent of financial media, 0:14:34.400 --> 0:14:37.600 there was actually an understanding that bonds were not just 0:14:37.800 --> 0:14:40.720 full faith and credit or f F and C. The 0:14:40.720 --> 0:14:43.720 financial media only quotes full faith and credit. Thank you 0:14:43.800 --> 0:14:46.400 Lisa Bramos, who has made a career of looking at 0:14:46.440 --> 0:14:49.680 credit and high yield, so too, Amanda Line them joining 0:14:49.680 --> 0:14:53.120 his global credit strategistic Golden Sex Right now. In the 0:14:53.160 --> 0:14:55.000 old days, you had a blue book, a Standard and 0:14:55.080 --> 0:14:57.440 Poors blue book, and you thumb through it and you 0:14:57.520 --> 0:15:00.400 looked at corporate bonds and it's say, damn Fuss. The 0:15:00.480 --> 0:15:03.720 giant at Loomas Sales has said, you can enjoy losing 0:15:03.840 --> 0:15:07.800 money at corporate bonds. How much are we losing right now? 0:15:08.160 --> 0:15:11.840 With the aggregate index down ten percent plus? Good morning, Tom, 0:15:11.880 --> 0:15:13.920 thanks for having me so. A couple of weeks ago 0:15:14.040 --> 0:15:16.880 we talked about how both I G and high yield 0:15:16.880 --> 0:15:19.760 total returns were off to their worst start on record. 0:15:20.120 --> 0:15:22.240 So it's been a very, very painful year. I think 0:15:22.440 --> 0:15:25.320 the key risk for bond investors in our view, is 0:15:25.360 --> 0:15:29.000 that that's been entirely driven almost by the rates component, 0:15:29.320 --> 0:15:31.600 and spreads have held in very well. So in the 0:15:31.600 --> 0:15:33.760 event that we do get a recession, which is not 0:15:33.800 --> 0:15:36.240 our economist space case, but if we did get one, 0:15:36.640 --> 0:15:39.080 there's a lot more room for spreads to widen and 0:15:39.200 --> 0:15:42.760 kind of even exacerbate those losses that we've already recorded 0:15:42.840 --> 0:15:45.120 here today. And so that is that is one of 0:15:45.160 --> 0:15:47.640 the key risks to the market. What a what an 0:15:47.720 --> 0:15:51.320 i G investment grade old style bonds? I want to 0:15:51.320 --> 0:15:53.840 buy a general motors behind it's a part of the 0:15:53.840 --> 0:15:58.240 aggregate index. What do you do where equity people say 0:15:58.320 --> 0:16:00.800 I'm going to go to cash or you know, I 0:16:00.800 --> 0:16:03.640 think there's a there's a dialogue about what equity people do. 0:16:03.840 --> 0:16:06.200 What do bond people do when they quote unquote want 0:16:06.240 --> 0:16:08.640 to go to cash? Yeah, they often move up in 0:16:08.760 --> 0:16:11.720 quality or shortened duration. But one of the risks that 0:16:11.760 --> 0:16:14.800 we've highlighted in our recent research is that actually moving 0:16:14.920 --> 0:16:17.640 too far up the quality spectrum. And i G also 0:16:17.720 --> 0:16:20.560 has its risks because those are the companies that are 0:16:20.600 --> 0:16:23.040 likely to move ahead with say debt funded m and 0:16:23.120 --> 0:16:27.320 A or aggressive shareholder returns irrespective of the slowing economy. 0:16:27.640 --> 0:16:30.240 And so we actually like within i G that sweet 0:16:30.240 --> 0:16:33.080 spot of triple B rated firms. Those are companies that 0:16:33.120 --> 0:16:36.800 we believe are committed to staying investment grade, but are 0:16:36.920 --> 0:16:40.120 likely going to behave in a more conservative fashion relative 0:16:40.200 --> 0:16:43.920 to say they're highly rated peers cash rich pharma and 0:16:43.960 --> 0:16:46.200 tech companies for example, that will do M and A 0:16:46.320 --> 0:16:50.560 regardless of the backdrop, Amanda, where are we in terms 0:16:50.560 --> 0:16:52.880 of what we're pricing into the credit market right now? 0:16:53.160 --> 0:16:55.280 Initially you talk about the worst start of the year, 0:16:55.360 --> 0:16:57.800 ever that was largely due to rates. That was not 0:16:57.960 --> 0:17:00.680 due to the extra cushion of yield that accounts for 0:17:00.800 --> 0:17:04.399 potential defaults. Now we're shifting into something else. We're starting 0:17:04.400 --> 0:17:07.320 to see that widen out. How far in that process 0:17:07.400 --> 0:17:10.679 are we? That's right, So we have not priced in 0:17:10.800 --> 0:17:14.280 a lot of default risk and specifically kind of zooming 0:17:14.280 --> 0:17:16.720 in on the high old market, and we do think 0:17:16.800 --> 0:17:20.080 that that's probably appropriate at this stage. So, just to 0:17:20.119 --> 0:17:23.000 set the backdrop, our economists are not expecting a recession 0:17:23.000 --> 0:17:25.800 as their base case this year, and what we've said 0:17:25.920 --> 0:17:28.439 is that even if we do have a downturn and 0:17:28.480 --> 0:17:32.399 growth slow substantially, the high old market is unlikely to 0:17:32.560 --> 0:17:35.320 experience the uptick in defaults that we're kind of used 0:17:35.359 --> 0:17:38.440 to seeing in previous cycles. There are a few reasons 0:17:38.440 --> 0:17:41.479 for that. One is just we didn't have a default 0:17:41.480 --> 0:17:43.879 cycle that long ago, right, so in twenty we had 0:17:43.920 --> 0:17:45.760 a lot of the weaker firms cleaned out of the 0:17:45.800 --> 0:17:49.159 high old market. Energy and metals and mining and kind 0:17:49.200 --> 0:17:52.080 of natural resources are also in a much better position 0:17:52.160 --> 0:17:55.600 now relative to previous cycles, and those are historically the 0:17:55.680 --> 0:17:58.600 vulnerable sectors. And then also we have a lot of 0:17:58.640 --> 0:18:00.960 cash on hand and balance sheets are very strong. So 0:18:01.200 --> 0:18:04.280 um to answer your question specifically, we're not baking in 0:18:04.320 --> 0:18:07.119 a lot of default risk in the high old market 0:18:07.200 --> 0:18:10.760 right now based on current spreads of four fifty. But 0:18:10.880 --> 0:18:14.360 that's that's probably not inappropriate given that, I would say 0:18:14.359 --> 0:18:16.560 the higher quality and the increased strength of the high 0:18:16.560 --> 0:18:18.600 old market movement, Amanda, A lot of people would agree 0:18:18.680 --> 0:18:21.360 with you, and we see this note after note. Basically, 0:18:21.400 --> 0:18:23.600 even if we get a recession, things don't have to 0:18:23.640 --> 0:18:25.760 get that bad in credit because the people have pushed 0:18:25.800 --> 0:18:28.639 out their maturity so far because there was this washout. 0:18:29.000 --> 0:18:31.280 What does that mean in terms of how high the 0:18:31.359 --> 0:18:34.199 Fed can go with the Fed funds rate before we 0:18:34.240 --> 0:18:36.320 have a real problem in credit, which is really the 0:18:36.359 --> 0:18:39.800 market that the Fed watches, and potentially it would respond to. 0:18:40.000 --> 0:18:42.840 Not equity is having a bad day right exactly. So 0:18:42.880 --> 0:18:45.440 our economists expect a terminal value of three to three 0:18:45.440 --> 0:18:47.720 and a quarter percent. A large amount of that is 0:18:47.760 --> 0:18:50.960 already reflected in FED funds futures, for example, and baked 0:18:51.000 --> 0:18:53.240 into the market. UM. I think there's a lot of 0:18:53.320 --> 0:18:57.280 room to go for financial conditions to to tighten and 0:18:57.560 --> 0:18:59.720 really for the FED to deliver on the hikes that 0:18:59.720 --> 0:19:01.880 are already priced in to the market, and I think 0:19:01.920 --> 0:19:05.520 credit investors are expecting that. Really the key risk for 0:19:05.680 --> 0:19:08.679 credit is if we had a freezing up of the 0:19:08.720 --> 0:19:12.679 primary market activities such that corporates, if they wanted to 0:19:12.720 --> 0:19:16.600 access the debt markets could not. Right now, we're actually 0:19:16.640 --> 0:19:19.280 saying that a lot of the muted supply volumes are 0:19:19.400 --> 0:19:22.439 due to an unwillingness to access the market on the 0:19:22.560 --> 0:19:25.920 on the side of corporates, as opposed to an inability. 0:19:26.000 --> 0:19:28.600 And it goes back to exactly what you mentioned. Corporates 0:19:28.600 --> 0:19:30.920 have the luxury of being patient. They spent most of 0:19:32.600 --> 0:19:36.280 one raising cash pre funding years in advance, and so 0:19:36.400 --> 0:19:39.000 they're not really at the whim of the market in 0:19:39.080 --> 0:19:42.960 terms of having to execute in a choppy conditions. I 0:19:43.000 --> 0:19:45.240 know Jonathan talked about this on on Friday Afternoon on 0:19:45.280 --> 0:19:48.680 his program, but really on those windows of stability, you're 0:19:48.680 --> 0:19:51.120 seeing a lot of activity, and we think that's indicative 0:19:51.160 --> 0:19:54.640 of a market that's still remaining open, but yet much 0:19:54.680 --> 0:19:57.479 more challenging in terms of timing that appropriately. You have 0:19:57.520 --> 0:20:00.000 no idea how jettis t K will be, Tom's gonna 0:20:00.040 --> 0:20:02.600 be South, janis that Roy had got the plug there? Amanda, 0:20:02.640 --> 0:20:08.800 thank you. Right now, let's move on with this economic 0:20:08.840 --> 0:20:12.000 analysis of the United States to work global sense off 0:20:12.000 --> 0:20:14.639 of the Milk and Institute meetings. William Lee joins us 0:20:14.960 --> 0:20:20.680 their chief economists. Billy, can the markets constrain or restrict 0:20:21.400 --> 0:20:25.440 the Fed? If we look at the Bloomberg Financial Conditions Index, 0:20:26.080 --> 0:20:30.159 it's sort of doing its job right now making financial 0:20:30.200 --> 0:20:35.120 conditions more restrictive. How will the FED react to that? Well, 0:20:35.200 --> 0:20:38.240 right now, the markets are doing of the Fed's job 0:20:38.480 --> 0:20:41.920 because the market increases our way above whereas as John 0:20:42.000 --> 0:20:45.159 just said, actually increases. But also, uh, the expectations of 0:20:45.200 --> 0:20:47.639 that aggressive policy stands is something that the markets that 0:20:47.720 --> 0:20:50.080 cluly priced in, and I think it's based on some 0:20:50.480 --> 0:20:55.280 misguided information. My my colleague, former colleague Andrew is an 0:20:55.320 --> 0:20:58.200 example of that, where he's focused on the aggregate wage 0:20:58.240 --> 0:21:01.680 price numbers, and I've been looking yet the micro wage 0:21:01.680 --> 0:21:04.639 price numbers, and I really don't see massive size of 0:21:04.640 --> 0:21:07.679 a wage price spirals style. In fact, most of the 0:21:07.680 --> 0:21:10.520 wage increases have been going to where the labor shortages 0:21:10.560 --> 0:21:14.320 are appearing, the low wage workers that be the younger 0:21:14.359 --> 0:21:17.600 tenured workers. Billy your world famous for this. And this 0:21:17.760 --> 0:21:22.320 goes into a death sile analysis. I would guess economists 0:21:22.480 --> 0:21:26.920 like City Group love to aggregate numbers together. What part 0:21:26.960 --> 0:21:31.159 of that death stile analysis matters for Chairman Powell and 0:21:31.200 --> 0:21:34.680 the view forward? Well, Chairman Poule absolutely cares about the 0:21:34.680 --> 0:21:39.120 aggregate number, but do you see aggregate wage price spiral? Uh? Now, 0:21:39.160 --> 0:21:42.080 granted there that has lost credibility since his meetings. The 0:21:42.160 --> 0:21:45.439 average inflation rate break evens that are priced into five 0:21:45.600 --> 0:21:48.240 securities way above three three and a half percent. But 0:21:48.920 --> 0:21:51.440 given that, I think we shouldn't get too carried away 0:21:51.480 --> 0:21:54.199 with how much the Fed has to Titan. Don't forget 0:21:54.200 --> 0:21:56.199 the fit. For the first time in FED history, we 0:21:56.280 --> 0:21:59.760 have two policy tools, the balance sheet and rates, and 0:21:59.800 --> 0:22:01.960 I one of the strategies that they haven't talked about 0:22:02.040 --> 0:22:04.919 enough is using that balance sheet to cool off and 0:22:04.960 --> 0:22:07.840