WEBVTT - Surveillance: El-Erian's Fed Outlook 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farroh and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App. 0:00:30.120 --> 0:00:33.080 Mohammed al aerin Oft, Bloomberg Opinion and Queen's College, Cambridge, 0:00:33.080 --> 0:00:34.199 amongst many other things as well. 0:00:34.280 --> 0:00:36.520 Mohammick, good morning, good morning, Thank you for having me. 0:00:36.400 --> 0:00:38.840 Thanks for being with a Central Bank triple header next week. 0:00:39.040 --> 0:00:41.080 What are you focused on at those three decisions? 0:00:41.640 --> 0:00:44.080 So all three are going to hike by twenty five 0:00:44.120 --> 0:00:48.559 basis points, but that's where the communality will end. I 0:00:48.600 --> 0:00:53.440 think the FED will come across as dubvish, the Bank 0:00:53.479 --> 0:00:56.480 of England will still be quite hawkish, and the ECB 0:00:56.600 --> 0:00:58.560 will be in the middle in terms of their forward 0:00:58.560 --> 0:00:59.720 politic guidance. 0:01:00.080 --> 0:01:02.040 And donal motor comt is a question we keep laming 0:01:02.040 --> 0:01:03.160 going where are you on that now? 0:01:03.560 --> 0:01:06.160 So the framing matters. If I go to your framing, 0:01:06.800 --> 0:01:11.360 which is to adopt the excessive data dependency, which is 0:01:11.360 --> 0:01:14.200 where the FED is today, and if I stick to 0:01:14.240 --> 0:01:18.240 a two percent inflation target, then they will keep open 0:01:19.080 --> 0:01:22.240 the possibility of a September hike. If I go to 0:01:22.280 --> 0:01:24.720 a different framing, which is a much longer term framing 0:01:25.120 --> 0:01:29.120 that looks at how the US economy functions, then it 0:01:29.160 --> 0:01:31.640 should be one and done. The trouble is that we 0:01:31.720 --> 0:01:34.440 have all been pushed into this very short term framing 0:01:34.959 --> 0:01:39.760 where it's almost absurd that we talk about data dependency 0:01:40.520 --> 0:01:43.839 with policies that act with a long and variable lag. 0:01:44.120 --> 0:01:44.959 But that's where we are. 0:01:46.080 --> 0:01:48.680 We're long and variable lag. But what we really are 0:01:48.800 --> 0:01:52.960 is trying to measure some form of algebraic plugins that 0:01:53.080 --> 0:01:57.680 lead us to a phrase restrictive or dominant constanmate Missuo says, 0:01:57.880 --> 0:01:59.000 super restrictive? 0:01:59.320 --> 0:02:01.120 Are we super restrictive? Right now? 0:02:01.400 --> 0:02:04.840 We are restrictive. We're not super restrictive, but we are restrictive. 0:02:05.160 --> 0:02:07.920 But tom it brings you back over and over again 0:02:07.960 --> 0:02:10.840 to a question that hardly anybody wants to talk about 0:02:10.880 --> 0:02:14.320 for understandable reasons, which is what is the right inflation 0:02:14.440 --> 0:02:17.079 target for the world we're living in today? For a 0:02:17.120 --> 0:02:20.960 world that I believe is a world of deficient aggregate supply, 0:02:21.600 --> 0:02:24.919 not a world of deficient aggregate demand where we had been. 0:02:25.280 --> 0:02:27.639 So that's where it comes down to, ultimately, do you 0:02:27.680 --> 0:02:29.760 want to talk about that issue or do you want 0:02:29.800 --> 0:02:32.520 to push it back as long as you can? And 0:02:32.600 --> 0:02:35.079 I think Central Bank is for understandable reason, because they've 0:02:35.080 --> 0:02:37.400 been missing that target for so long, don't want to 0:02:37.440 --> 0:02:38.240 talk about this now. 0:02:38.280 --> 0:02:41.560 Does that mean in our analysis we can't aggregate in 0:02:41.600 --> 0:02:46.280 that each society, each nation has to disaggregate into the halves, 0:02:46.360 --> 0:02:47.320 and they have nots. 0:02:48.080 --> 0:02:51.200 So there are two aspects here. First, it doesn't make 0:02:51.240 --> 0:02:54.359 sense for so many countries to follow the same inflation target. 0:02:54.520 --> 0:02:56.720 It's as if I declare to everybody in this building, 0:02:56.919 --> 0:02:59.560 you should have the same weight target. We are different 0:03:00.760 --> 0:03:04.960 looking at me, these countries differ fundamentally. 0:03:05.040 --> 0:03:07.120 Intrust the Egyptian humor there. 0:03:07.720 --> 0:03:11.160 Started now seriously, Mahammed, carry on if you can. 0:03:11.280 --> 0:03:12.440 I thought bage was slimming. 0:03:13.480 --> 0:03:17.000 But the second issue, you and John, that's something about 0:03:17.040 --> 0:03:18.920 your base suit that John wants to pick on. But 0:03:18.919 --> 0:03:20.079 I'm not going to. I'm not going down. 0:03:20.080 --> 0:03:23.280 Mamma said anything about these suits whole morning. 0:03:23.560 --> 0:03:28.680 I know that's royalty. Thank you, And and you said 0:03:28.760 --> 0:03:31.320 earlier we deep into the summer somehow was on deep? 0:03:31.440 --> 0:03:33.800 Did you see he made with the rent increases in London? 0:03:34.200 --> 0:03:37.280 His Royal Highness has had a thirty four million dollar 0:03:37.400 --> 0:03:39.600 pop in his real estate properties. 0:03:40.360 --> 0:03:40.960 Did you see that? 0:03:41.080 --> 0:03:43.800 You expect if you want to see what inflation is, 0:03:44.320 --> 0:03:45.000 We're gonna rip up. 0:03:45.080 --> 0:03:47.080 We're gonna stop the show right now. This is very cool. 0:03:47.160 --> 0:03:49.560 You're doing all your fancy finance stuff. You go over 0:03:49.600 --> 0:03:52.520 and put a shingle out at a university and the Queen, 0:03:52.920 --> 0:03:56.920 her Majesty showed up to greet you at Queen's College. 0:03:57.120 --> 0:03:58.040 What was that like? 0:03:58.360 --> 0:04:00.760 It was incredible. She she we were honored to have 0:04:00.800 --> 0:04:04.840 her as our patroness and she was absolutely wonderful. 0:04:05.240 --> 0:04:07.920 You mentioned if you want to experience inflation out of 0:04:07.960 --> 0:04:10.760 the UK, describe it for people. What's it like right 0:04:10.840 --> 0:04:11.680 now in the UK? 0:04:11.960 --> 0:04:18.760 So, food inflation at seventeen percent, Labor understandably pushing back hard. 0:04:19.040 --> 0:04:23.760 So right now the senior doctors aren't strike. We've had 0:04:24.360 --> 0:04:27.200 a tube strike called off. We've had trained strikes, we've 0:04:27.200 --> 0:04:30.680 had nurses strikes, we've had teacher strikes. You feel the 0:04:30.720 --> 0:04:33.720 real weight resistance and you feel the government in the 0:04:33.760 --> 0:04:38.400 Bank of England torn between on the one hand accommodating 0:04:38.920 --> 0:04:41.440 the price weight spiral, which they don't want to do, 0:04:41.920 --> 0:04:45.000 and on the other hand understanding the distributional impact of 0:04:45.000 --> 0:04:46.560 what has been a huge inflation shock. 0:04:46.760 --> 0:04:48.920 So we can't just have a different inflation target for 0:04:48.920 --> 0:04:51.000 a different country every year. That's going to be chaos. 0:04:51.360 --> 0:04:53.440 But based on the structure of the UK economy right 0:04:53.480 --> 0:04:56.520 now and the way you see the United States, what 0:04:56.560 --> 0:04:58.880 with those inflation targets look like if you could change 0:04:58.920 --> 0:05:00.520 them right now, if Mohammad had all the pound you 0:05:00.920 --> 0:05:02.480 wrote down those targets, now, what would they be. 0:05:02.640 --> 0:05:04.560 So first of all, no one ever talks about changing 0:05:04.720 --> 0:05:07.680 an inflation target every year. That will be absurd. You 0:05:07.760 --> 0:05:09.839 might as well not have one, sure, But the question is, 0:05:09.839 --> 0:05:12.080 if you look forward for the next five to ten years, 0:05:12.279 --> 0:05:15.120 where's the right inflation target? And I suspect that the 0:05:15.200 --> 0:05:17.760 right inflation target is much nearer to three percent than 0:05:17.760 --> 0:05:20.039 it is to two percent. Now that may not sound 0:05:20.080 --> 0:05:22.080 like a big difference, but it actually is a big 0:05:22.080 --> 0:05:22.960 difference over. 0:05:22.800 --> 0:05:25.120 Time in the States, and what about the UK? 0:05:25.520 --> 0:05:27.279 And in the UK as well. Europe is the only 0:05:27.320 --> 0:05:30.800 one where two percent still makes sense. And Japan, which 0:05:30.839 --> 0:05:33.200 is an interesting one that we don't talk about enough 0:05:33.279 --> 0:05:36.840 because they have a major exit coming up which they 0:05:36.880 --> 0:05:41.239 are denying for now, the exit from Yelkurve control there. 0:05:41.480 --> 0:05:42.880 It's probably also two percent. 0:05:43.480 --> 0:05:46.120 So in gentlemen, he talked about this the former Italian 0:05:46.160 --> 0:05:48.000 Prime minister in Europe as well. I'm going to keep 0:05:48.000 --> 0:05:49.680 Europe away from it right now, because I think our 0:05:49.720 --> 0:05:52.119 audience really wants to understand your debate on our start. 0:05:52.400 --> 0:05:55.560 John Williams reframes to a lower our start. Ian Lingoln 0:05:55.600 --> 0:05:57.360 of BEMO Capital Markets. 0:05:57.200 --> 0:05:57.760 Agrees with that. 0:05:57.839 --> 0:05:59.560 Others agree with that we're going to step at us. 0:05:59.600 --> 0:06:03.640 I'm hearing from you. You brilliantly called higher interest rates 0:06:03.640 --> 0:06:06.120 to come. Do you see in our star that sets 0:06:06.240 --> 0:06:09.880 above where President Williams is or can it even be higher? 0:06:09.960 --> 0:06:13.520 Roguof suggesting even out to a higher new set for 0:06:13.640 --> 0:06:14.159 our start. 0:06:14.240 --> 0:06:17.120 Yeah, I mean it's a fascinating debate if you're an economist. 0:06:17.480 --> 0:06:20.920 You mentioned Ken Rogoff, I've mentioned Larry Summers, I'd mentioned 0:06:21.040 --> 0:06:24.920 Olivier Blanchard. I mean, a very active debate among people 0:06:24.920 --> 0:06:28.280 who basically come from the same camp, and they're having 0:06:28.320 --> 0:06:31.560 this debate I'm more on the our star is higher 0:06:31.560 --> 0:06:34.640 than it has been in the past, so more on 0:06:34.680 --> 0:06:37.880 the Ken Rogoff Larry Summers end of the debate. 0:06:38.600 --> 0:06:40.600 I mean, I look at it as you spent too 0:06:40.680 --> 0:06:43.640 much time out in California, and you may actually understand 0:06:43.720 --> 0:06:47.359 other factors. As Professor Blunchard talks about. This is not 0:06:47.520 --> 0:06:51.479 some neat economic surveillance Babbel, folks. There's a lot of 0:06:51.520 --> 0:06:54.520 other factors here, and one of them is a technological impulse. 0:06:54.839 --> 0:06:59.520 Over five ten years, do we completely underestimate technology is 0:06:59.520 --> 0:07:02.000 out relays or on our financial system? 0:07:02.600 --> 0:07:05.080 So here we could have a five hour discussion. 0:07:05.120 --> 0:07:06.960 We're doing that. You're here at eleven am. 0:07:07.120 --> 0:07:10.600 Okay, think of technology that we're going through, the innovations 0:07:10.640 --> 0:07:13.640 doing this the following. If you think of whatever distribution 0:07:13.760 --> 0:07:17.440 you thought of future growth and future productivity, some of 0:07:17.480 --> 0:07:21.800 these technological innovations in science and AI move the distribution 0:07:21.880 --> 0:07:25.920 to the right. That's good, but fatten details enormously, and 0:07:25.960 --> 0:07:28.600 it is how do you manage those father tails that's 0:07:28.640 --> 0:07:30.360 coming in in this discussion. 0:07:30.400 --> 0:07:31.960 I wanted to pick up on something you said earlier 0:07:32.000 --> 0:07:34.240 in the conversation. That's a big difference between two and 0:07:34.280 --> 0:07:37.040 three percent. It's a lot of people listening thinking, what 0:07:37.080 --> 0:07:39.280 are you talking about. There's not much difference between two 0:07:39.280 --> 0:07:41.200 and three percent, so why is the difference so large? 0:07:41.480 --> 0:07:44.840 Compounding makes a huge difference over time, and it's what 0:07:44.880 --> 0:07:47.640 you target to. My big worry, and you know this, 0:07:48.000 --> 0:07:51.200 is that if the FED focuses on two percent in 0:07:51.240 --> 0:07:56.240 a relatively rapid timeframe, we will end up in a recession. 0:07:56.400 --> 0:07:58.160 And I keep on repeating. You've heard me say this 0:07:58.200 --> 0:08:00.480 for the last year. There's no reason for your economy 0:08:00.480 --> 0:08:04.120 to fall into recession. The endigenous elements of this economy 0:08:04.280 --> 0:08:08.120 are strong enough to power through this period. So the 0:08:08.240 --> 0:08:11.760 big risk is that we follow the wrong inflation target 0:08:12.120 --> 0:08:14.640 and end up dipping this economy into recession. And it 0:08:14.760 --> 0:08:18.080 matters because you have the vulnerable segments of the population 0:08:18.400 --> 0:08:21.240 that have already seen that purchasing power eroded. Now you're 0:08:21.240 --> 0:08:23.520 going to add income and security to that. And that's 0:08:23.520 --> 0:08:24.080 why I think. 0:08:24.360 --> 0:08:25.120 You know, it's great here. 0:08:25.160 --> 0:08:27.960 I thought Elarian showed up just to see us. 0:08:28.000 --> 0:08:30.560 You know what's pass Jersey. 0:08:30.560 --> 0:08:33.720 He's here for the sold out jets, you know, pre 0:08:33.800 --> 0:08:37.840 training summer camps that pick up as rogers. Look at 0:08:37.840 --> 0:08:39.800 this summer head, John that he's going to pick up here. 0:08:39.880 --> 0:08:42.440 I mean, you know, the bucket that's more than a bucket. 0:08:42.720 --> 0:08:44.760 That's like a Wimbledon that is more than a bucket. 0:08:44.840 --> 0:08:46.440 It's like fancy. 0:08:46.440 --> 0:08:47.199 I cann't afford that. 0:08:47.280 --> 0:08:50.600 It's fancy, you know, So tell me, Tom, do you 0:08:50.679 --> 0:08:53.000 buy into this is the season the Jets make it 0:08:53.040 --> 0:08:54.680 to the playoffs, deep into the playoffs. 0:08:54.720 --> 0:08:56.880 I say they make it in deep to the playoffs 0:08:56.880 --> 0:08:59.400 because we underestimated name of when he showed up, and 0:08:59.600 --> 0:09:01.920 you know, Aaron Rodgers is going to get a second 0:09:01.960 --> 0:09:05.520 you know, life here and all that. I'm actually pretty constructive. 0:09:05.080 --> 0:09:06.760 On you're a Jets fan this year? Is that on 0:09:06.800 --> 0:09:07.240 the record. 0:09:07.400 --> 0:09:08.640 No, I don't want to go that far. I'm a 0:09:08.640 --> 0:09:10.120 Tots fan. I mean that's enough. 0:09:10.000 --> 0:09:10.880 Pain, different sport. 0:09:11.600 --> 0:09:13.560 Do you have a Jets bow tie? No? 0:09:13.640 --> 0:09:16.400 I do not have a Don't you dare? Don't you 0:09:17.080 --> 0:09:19.520 I got in Atlanta Braves, I got aware. 0:09:19.800 --> 0:09:21.120 Now I know what I'm going to get you. 0:09:20.920 --> 0:09:21.720 Oh you're killing me? 0:09:22.400 --> 0:09:24.200 Is there going to bring us any much? 0:09:24.360 --> 0:09:25.079 I hope? 0:09:25.120 --> 0:09:27.760 So we find that as I'm with Neil Millington at 0:09:27.760 --> 0:09:30.000 the Lanesboro Hotel and he's just Tom, this is a 0:09:30.040 --> 0:09:31.520 once in a lifetime opportunity. 0:09:31.559 --> 0:09:39.320 MAM's going to stick with us in place to say. 0:09:38.280 --> 0:09:39.680 We're going to dive into this right now. 0:09:39.840 --> 0:09:42.480 And for Global Wall Street and a Friday, we're distracted 0:09:42.480 --> 0:09:44.720 by the silliness of Barbie or this, that and the 0:09:44.760 --> 0:09:45.200 other thing. 0:09:45.240 --> 0:09:45.800 Well, guess what. 0:09:45.960 --> 0:09:50.360 There are serious themes ahead and they are by definition complex. 0:09:50.440 --> 0:09:53.000 Joining us now out of Columbia his work for years 0:09:53.000 --> 0:09:55.679 at Brown Brothers harrim and his doctor Wyn thin Head 0:09:55.720 --> 0:09:59.760 a currency strategy on Japan. When I need a clinic 0:09:59.840 --> 0:10:02.640 right now, we'd go to Robbie Feldman at Morgan Stanley 0:10:02.720 --> 0:10:04.599 or you at Brown Brothers Harriman. 0:10:04.840 --> 0:10:07.640 About what they have wrought in Japan. 0:10:08.360 --> 0:10:11.800 Was it a cultural decision in Japan to rip up 0:10:11.840 --> 0:10:15.359 the textbooks you studied at Columbia? Was it a cultural 0:10:15.440 --> 0:10:19.559 decision to impute an inflation into the system. 0:10:20.720 --> 0:10:23.560 Well, Hi, Tom and Jonathan, thanks again for having me. 0:10:24.320 --> 0:10:26.760 I don't know if it's culture as more just of 0:10:26.840 --> 0:10:31.560 pure pragmatism. I remember Japan has been fighting deflation for decades, 0:10:32.320 --> 0:10:36.040 and I think they're really quite gunshy about removing accommodation. 0:10:36.160 --> 0:10:38.720 I think Marcus kind of got ahead of themselves about 0:10:39.480 --> 0:10:43.080 either a tweak and Yielker control or eventual lift off. 0:10:43.480 --> 0:10:44.520 It's clear from the Bank. 0:10:44.400 --> 0:10:47.240 Of Japan comments and from police making Japan that are very, 0:10:47.320 --> 0:10:47.960 very concerned. 0:10:48.080 --> 0:10:50.800 The numbers are starting to turn over right now, not. 0:10:50.760 --> 0:10:54.320 Only domestically, but obviously you know, globally, and so they 0:10:54.400 --> 0:10:56.280 are really really reluctant, and so I think that's the 0:10:56.320 --> 0:10:58.600 signal that's coming. Of course, Look, they can surprise us 0:10:58.600 --> 0:11:00.400 next week. They love to surprise us, but this is 0:11:00.440 --> 0:11:01.920 not a time for surprises to me, I mean, I 0:11:01.960 --> 0:11:04.120 think there's so much going on, Tom, to your point, this 0:11:04.200 --> 0:11:07.240 is a really crucial quarter or maybe half a year 0:11:07.240 --> 0:11:08.520 for global markets right now. 0:11:08.640 --> 0:11:14.240 On an algebraic process, there has to be constraints on 0:11:14.280 --> 0:11:17.280 whatever the variable is, whatever the process is, whatever the 0:11:17.320 --> 0:11:22.160 derivative is within the function. To me, the constraint is 0:11:22.440 --> 0:11:25.320 they want to own the bonds, but they can't become 0:11:25.360 --> 0:11:30.040 the bond market. Is the Japanese government become the bond market. 0:11:30.480 --> 0:11:33.400 The ownership of the bonds is by the government and 0:11:33.440 --> 0:11:34.319 with the government. 0:11:34.600 --> 0:11:36.520 Where the algebra doesn't work anymore. 0:11:37.800 --> 0:11:38.680 Tom, I have to be honest. 0:11:39.000 --> 0:11:41.440 I get anytime, like a young economists are doing analyst, 0:11:41.480 --> 0:11:42.679 ask me about what's going on Japan. 0:11:42.760 --> 0:11:45.199 I really start get a headache because it's hard to explain. 0:11:45.600 --> 0:11:48.800 Yes, the Bank Japan owns about half of jgb's in 0:11:48.840 --> 0:11:52.160 the market, and it's just it's just on something. 0:11:52.160 --> 0:11:54.079 It's hard to explain, right, I mean, you don't see 0:11:54.120 --> 0:11:57.360 that anywhere else. And I think the big. 0:11:57.240 --> 0:11:59.679 Difference is that Japan's the nation of savers, not to 0:11:59.679 --> 0:12:02.480 depend on foreign savings. So it's sort of this almost 0:12:02.480 --> 0:12:05.240 like a little domestic, little bubble of an experiment that 0:12:05.240 --> 0:12:07.680 that's so far is working. But again, I think they're 0:12:07.800 --> 0:12:09.520 very very worried about how to get out of this. 0:12:09.559 --> 0:12:10.319 They've been stuck in. 0:12:10.280 --> 0:12:14.640 This mode buying and easing for so long that I 0:12:14.640 --> 0:12:16.000 think it's very very scared. 0:12:16.480 --> 0:12:19.360 Must precisely the point they want to do an action, 0:12:19.480 --> 0:12:20.760 which is to get out of it. 0:12:20.800 --> 0:12:24.360 And they have this massive constraint that they own the 0:12:24.360 --> 0:12:25.040 bomb mark. 0:12:24.960 --> 0:12:28.360 They dominates it that anyone else does. When the problem, though, 0:12:28.400 --> 0:12:30.320 I think that you could get, is the kind of 0:12:30.400 --> 0:12:33.800 spillover effects from anything they do, say to the European 0:12:33.800 --> 0:12:36.839 bond market, to treasuries. When how would that work? What 0:12:36.880 --> 0:12:39.360 would the dynamic be? Would it be Japanese investors coming 0:12:39.400 --> 0:12:41.320 back home again? How would you think that would work. 0:12:42.040 --> 0:12:44.000 Yeah, John, I think there's quite a few channels, but 0:12:44.120 --> 0:12:46.880 the main thing would be obviously, if they abandoned Yulker control, 0:12:47.040 --> 0:12:49.319 JDB yields would would most likely shoot up, and you 0:12:49.360 --> 0:12:51.840 would have a spill effect of I think, pushing up 0:12:52.400 --> 0:12:56.280 US treasury yields and German Bund yields, et cetera. You know, 0:12:56.280 --> 0:12:59.680 they've been again the outliers Rankapans the sole outler, every 0:12:59.679 --> 0:13:03.440 other brank is h aggressively and it's the third biggest 0:13:03.480 --> 0:13:07.520 economy in the world, So it's to me it's there. 0:13:07.760 --> 0:13:12.320 There's just a very potential negative spillover to bond markets. Now, 0:13:12.640 --> 0:13:15.000 in terms of currency markets, we would see the opposite. 0:13:15.040 --> 0:13:18.480 We would see the dollar in most likely knee jerk 0:13:18.640 --> 0:13:22.200 go down if there's any sort of removal accommodation. Again, 0:13:22.200 --> 0:13:25.240 that would have spillover effects on the regional economies. Again, 0:13:25.280 --> 0:13:28.960 this is such a crucial time for global markets, especially Japan. 0:13:29.200 --> 0:13:31.200 I really think that caution is sort of the watch 0:13:31.240 --> 0:13:33.240 road right now. I don't think they're going to surprise anyone. 0:13:33.240 --> 0:13:34.960 I don't think they can take any kind of drastic action. 0:13:36.320 --> 0:13:38.600 That said, again, they love to surprise us, so we'll 0:13:38.600 --> 0:13:39.640 know more A week from now. 0:13:39.720 --> 0:13:41.040 We're going to find out in a week when I 0:13:41.040 --> 0:13:43.360 want to finish on Europe. In the experience we had there, 0:13:43.559 --> 0:13:45.800 for many people, including myself, I had my dubts about 0:13:45.880 --> 0:13:48.000 the ability of the ac B to high interest rates, 0:13:48.040 --> 0:13:50.719 to back away from QA. Given developments over the last 0:13:50.760 --> 0:13:54.480 ten years in places like Italy, Spain, Portugal, Greece, they've 0:13:54.520 --> 0:13:59.040 been somewhat successful taken away that stimulus and not seeing 0:13:59.080 --> 0:14:02.120 big accidents to develop in the European bond market. Do 0:14:02.160 --> 0:14:04.400 you think Japan can take that as an example where 0:14:04.559 --> 0:14:06.960 you could find some success. You can get that handoff 0:14:06.960 --> 0:14:10.480 away from central banks owning everything and then handing it 0:14:10.559 --> 0:14:11.000 back off. 0:14:11.880 --> 0:14:12.839 Well two things. 0:14:12.960 --> 0:14:15.200 I think Japan is such an extreme example. But yes, 0:14:15.320 --> 0:14:17.439 I think there is some hope that they can manage this. 0:14:17.559 --> 0:14:20.120 But again I think the best time to have done 0:14:20.160 --> 0:14:22.720 this when markets were doing okay. You know, in a sense, 0:14:22.720 --> 0:14:24.040 I think the Bank Japan was a little bit too 0:14:24.080 --> 0:14:26.320 late by wading so long. The other thing I would 0:14:26.320 --> 0:14:28.520 say about the Germans that there are even some cracks there. 0:14:28.600 --> 0:14:31.920 You know, you've probably been covering how noted hawks not 0:14:34.080 --> 0:14:38.520 and another one just have been backing off about a 0:14:38.560 --> 0:14:40.760 September hike, And that's the first time I've heard the 0:14:40.760 --> 0:14:43.800 hawks are really really sort of back off from this 0:14:43.960 --> 0:14:47.320 really intense tightening cycle. And I think that's because countries 0:14:47.320 --> 0:14:50.200 are pripheral country like Italy Portugal starting to complain they 0:14:50.240 --> 0:14:53.240 are seeing cracks form in the Eurozone. I think that's 0:14:53.240 --> 0:14:55.800 something that's helped the euro sort of top out in 0:14:55.840 --> 0:14:56.920 recent days. 0:14:57.360 --> 0:15:00.240 Is a Bundesbank, the Bundesbank we know in I mean, 0:15:00.360 --> 0:15:02.600 is the bundess Bank the court, the inner court that 0:15:02.640 --> 0:15:05.320 Martin Feldstein would talk about for years. Are they still 0:15:05.680 --> 0:15:07.560 interanged in an inflation worry? 0:15:07.800 --> 0:15:08.040 Yes? 0:15:08.080 --> 0:15:10.040 Absolutely, And then I just curtained me that mister Nagel, 0:15:10.120 --> 0:15:12.160 the bundess Bank president, is the other hawk slipped my 0:15:12.200 --> 0:15:12.560 mind there. 0:15:12.680 --> 0:15:14.200 He was also one of the ones that crack. 0:15:14.280 --> 0:15:17.240 So it's interesting, if anything else, that the bundess Bank 0:15:17.280 --> 0:15:20.120 has gotten I think at least changes rule of people 0:15:20.160 --> 0:15:21.880 that they realize it's not just all about Germany. There 0:15:21.880 --> 0:15:25.280 are other countries that have to be sort of within 0:15:25.320 --> 0:15:27.080 the calculus of the ECB. And I think when the 0:15:27.440 --> 0:15:30.120 East to We first started, they were still locked into 0:15:30.160 --> 0:15:33.280 that nineteen eighties nineteen nineties mentality. Uh, And I think 0:15:33.280 --> 0:15:35.200 they were seeing a subtle shift. Well again, we'll know 0:15:35.280 --> 0:15:38.080 we're next week. We have the Fed Wednesday, easty b Thursday, 0:15:38.360 --> 0:15:40.920 Bank Japan Friday. To me, I think what's going to 0:15:40.920 --> 0:15:42.560 come out of this is that the US dollar, the 0:15:42.880 --> 0:15:47.240 Fed remains king ECB Banking Tom start to sort of 0:15:47.400 --> 0:15:49.320 blink perhaps, and I think that we can get a 0:15:49.360 --> 0:15:51.480 little bit higher in the dollar in the coming weeks. 0:15:51.600 --> 0:15:54.960 Interesting within thin of Brown Brothers, Harriman Win, thank you sir. 0:16:05.040 --> 0:16:08.200 Speaking of pain. It has been a difficult week in Ukraine. 0:16:08.600 --> 0:16:11.080 One of the great voices there is with Adam Posing 0:16:11.120 --> 0:16:15.120 and Olivia Blanchard at the Peterson Institute. Elena Riberkova not 0:16:15.160 --> 0:16:20.360 only has encyclopedic understanding of hurt Ukraine, but double barrels 0:16:20.400 --> 0:16:23.880 it with data science from the University of Virginia, and 0:16:23.920 --> 0:16:26.880 she follows on in our tradition here to keep Pharaoh happy, 0:16:27.240 --> 0:16:30.360 we're having University of Warwick July. We have to speak 0:16:30.400 --> 0:16:33.600 to anybody we can who's got parchment from the University 0:16:33.640 --> 0:16:36.240 of Warwick. We dragged Skodolski in here on a day 0:16:36.240 --> 0:16:39.280 by day basis if we could get them. But Elena Riberkova, 0:16:39.320 --> 0:16:41.400 with economics from Warwick, is the kind of person we 0:16:41.440 --> 0:16:42.320 wanted to drop. 0:16:42.880 --> 0:16:45.680 W No, I'm doing that. I've done that. 0:16:45.720 --> 0:16:46.360 I'm just done it. 0:16:46.480 --> 0:16:48.240 Just if you're nice to me, I'll made you do this. 0:16:48.520 --> 0:16:51.960 You can do this. Elena joins us now, Elena Riberkova, Elena, 0:16:51.960 --> 0:16:53.880 wonderful to have you with us. I want to start 0:16:53.880 --> 0:16:56.320 with this in the commodity Thank you so much, thank you. 0:16:56.320 --> 0:16:58.800 It's an honor for us as well. In the commodity market, 0:16:58.840 --> 0:17:00.640 we're trying to figure around just how how much Russian 0:17:00.680 --> 0:17:03.200 crewed is still in this market? Can we start there? 0:17:03.240 --> 0:17:06.359 How much Russian oil is on this market now globally 0:17:06.680 --> 0:17:08.359 compared to where it was before this. 0:17:08.320 --> 0:17:10.480 War about the same. 0:17:10.960 --> 0:17:14.040 You know, I think we had this oil price cap 0:17:14.080 --> 0:17:17.040 which had dual objective which I'm afraid I have to 0:17:17.080 --> 0:17:19.439 compare was having a cake and eating it tool a 0:17:19.440 --> 0:17:22.280 little bit. So we wanted to have the Russian oil 0:17:22.280 --> 0:17:25.320 on the market, but at the same time lower Russian revenues. Well, 0:17:25.359 --> 0:17:27.600 we achieved the first objective. Rusian oil is on the 0:17:27.640 --> 0:17:30.359 market on the lowing over the revenues. That is a 0:17:30.359 --> 0:17:31.720 bit more nuanced and complicated. 0:17:32.280 --> 0:17:34.600 Tell me, why just give me the maths around that? 0:17:34.720 --> 0:17:36.920 Why is that so much more nuance and complicated. 0:17:38.280 --> 0:17:39.320 Well, we're in Bloomberg. 0:17:39.440 --> 0:17:43.920 It's economic incentives on Russian side, about ten dollars per 0:17:43.920 --> 0:17:47.200 barrel for a year means a difference of about twenty 0:17:47.320 --> 0:17:50.480 billion dollars in revenues for the companies and for the 0:17:50.480 --> 0:17:53.399 budget as well. So it's a twenty billion dollars incentives 0:17:53.400 --> 0:17:57.119 to circumvent the oil price cap. They're putting everything that 0:17:57.240 --> 0:17:59.440 got in it to be able to do so. If 0:17:59.480 --> 0:18:01.720 we are not the same on our side, of course, 0:18:01.720 --> 0:18:04.600 there are difficulties. So if we think about the cap, 0:18:05.080 --> 0:18:08.560 we still have provisions of the G seven shipping and 0:18:08.720 --> 0:18:12.080 insurance services to Russia and the limitations, and it's a 0:18:12.240 --> 0:18:15.240 very very small you know, I can put it attestation 0:18:15.400 --> 0:18:17.879 saying I have seen the contract and I promise to 0:18:17.920 --> 0:18:20.200 you it is below the cap. Imagine if we we're 0:18:20.200 --> 0:18:23.240 filing taxes the same way I have seen my income 0:18:23.240 --> 0:18:24.760 and I promise you it's very low. 0:18:24.920 --> 0:18:25.680 And that's what we do. 0:18:26.080 --> 0:18:29.600 Elena, bouncing off your work at City Group on Russia, 0:18:29.640 --> 0:18:33.000 you've really got an encyclopedic knowledge on this. What would 0:18:33.080 --> 0:18:36.199 you be your to do list for the Allies and 0:18:36.280 --> 0:18:40.240 particularly for the White House to make this more strident 0:18:40.480 --> 0:18:42.639 more forceful with mister Putin. 0:18:43.720 --> 0:18:46.880 Well, if we wanted to be really ambitious, I would 0:18:46.960 --> 0:18:49.560 say we go for a run style as pro account, 0:18:49.760 --> 0:18:52.120 where we say everything has to go through one account, 0:18:52.400 --> 0:18:54.520