Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farroh and Lisa Abramowitz.
Speaker 2: Join us each day for insight from the best an economics, geopolitics,
Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,
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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App.
Speaker 3: Mohammed al aerin Oft, Bloomberg Opinion and Queen's College, Cambridge,
Speaker 3: amongst many other things as well.
Speaker 4: Mohammick, good morning, good morning, Thank you for having me.
Speaker 3: Thanks for being with a Central Bank triple header next week.
Speaker 3: What are you focused on at those three decisions?
Speaker 4: So all three are going to hike by twenty five
Speaker 4: basis points, but that's where the communality will end. I
Speaker 4: think the FED will come across as dubvish, the Bank
Speaker 4: of England will still be quite hawkish, and the ECB
Speaker 4: will be in the middle in terms of their forward
Speaker 4: politic guidance.
Speaker 3: And donal motor comt is a question we keep laming
Speaker 3: going where are you on that now?
Speaker 4: So the framing matters. If I go to your framing,
Speaker 4: which is to adopt the excessive data dependency, which is
Speaker 4: where the FED is today, and if I stick to
Speaker 4: a two percent inflation target, then they will keep open
Speaker 4: the possibility of a September hike. If I go to
Speaker 4: a different framing, which is a much longer term framing
Speaker 4: that looks at how the US economy functions, then it
Speaker 4: should be one and done. The trouble is that we
Speaker 4: have all been pushed into this very short term framing
Speaker 4: where it's almost absurd that we talk about data dependency
Speaker 4: with policies that act with a long and variable lag.
Speaker 4: But that's where we are.
Speaker 2: We're long and variable lag. But what we really are
Speaker 2: is trying to measure some form of algebraic plugins that
Speaker 2: lead us to a phrase restrictive or dominant constanmate Missuo says,
Speaker 2: super restrictive?
Speaker 1: Are we super restrictive? Right now?
Speaker 4: We are restrictive. We're not super restrictive, but we are restrictive.
Speaker 4: But tom it brings you back over and over again
Speaker 4: to a question that hardly anybody wants to talk about
Speaker 4: for understandable reasons, which is what is the right inflation
Speaker 4: target for the world we're living in today? For a
Speaker 4: world that I believe is a world of deficient aggregate supply,
Speaker 4: not a world of deficient aggregate demand where we had been.
Speaker 4: So that's where it comes down to, ultimately, do you
Speaker 4: want to talk about that issue or do you want
Speaker 4: to push it back as long as you can? And
Speaker 4: I think Central Bank is for understandable reason, because they've
Speaker 4: been missing that target for so long, don't want to
Speaker 4: talk about this now.
Speaker 2: Does that mean in our analysis we can't aggregate in
Speaker 2: that each society, each nation has to disaggregate into the halves,
Speaker 2: and they have nots.
Speaker 4: So there are two aspects here. First, it doesn't make
Speaker 4: sense for so many countries to follow the same inflation target.
Speaker 4: It's as if I declare to everybody in this building,
Speaker 4: you should have the same weight target. We are different
Speaker 4: looking at me, these countries differ fundamentally.
Speaker 1: Intrust the Egyptian humor there.
Speaker 3: Started now seriously, Mahammed, carry on if you can.
Speaker 1: I thought bage was slimming.
Speaker 4: But the second issue, you and John, that's something about
Speaker 4: your base suit that John wants to pick on. But
Speaker 4: I'm not going to. I'm not going down.
Speaker 3: Mamma said anything about these suits whole morning.
Speaker 4: I know that's royalty. Thank you, And and you said
Speaker 4: earlier we deep into the summer somehow was on deep?
Speaker 2: Did you see he made with the rent increases in London?
Speaker 2: His Royal Highness has had a thirty four million dollar
Speaker 2: pop in his real estate properties.
Speaker 1: Did you see that?
Speaker 4: You expect if you want to see what inflation is,
Speaker 4: We're gonna rip up.
Speaker 2: We're gonna stop the show right now. This is very cool.
Speaker 2: You're doing all your fancy finance stuff. You go over
Speaker 2: and put a shingle out at a university and the Queen,
Speaker 2: her Majesty showed up to greet you at Queen's College.
Speaker 1: What was that like?
Speaker 4: It was incredible. She she we were honored to have
Speaker 4: her as our patroness and she was absolutely wonderful.
Speaker 3: You mentioned if you want to experience inflation out of
Speaker 3: the UK, describe it for people. What's it like right
Speaker 3: now in the UK?
Speaker 4: So, food inflation at seventeen percent, Labor understandably pushing back hard.
Speaker 4: So right now the senior doctors aren't strike. We've had
Speaker 4: a tube strike called off. We've had trained strikes, we've
Speaker 4: had nurses strikes, we've had teacher strikes. You feel the
Speaker 4: real weight resistance and you feel the government in the
Speaker 4: Bank of England torn between on the one hand accommodating
Speaker 4: the price weight spiral, which they don't want to do,
Speaker 4: and on the other hand understanding the distributional impact of
Speaker 4: what has been a huge inflation shock.
Speaker 3: So we can't just have a different inflation target for
Speaker 3: a different country every year. That's going to be chaos.
Speaker 3: But based on the structure of the UK economy right
Speaker 3: now and the way you see the United States, what
Speaker 3: with those inflation targets look like if you could change
Speaker 3: them right now, if Mohammad had all the pound you
Speaker 3: wrote down those targets, now, what would they be.
Speaker 4: So first of all, no one ever talks about changing
Speaker 4: an inflation target every year. That will be absurd. You
Speaker 4: might as well not have one, sure, But the question is,
Speaker 4: if you look forward for the next five to ten years,
Speaker 4: where's the right inflation target? And I suspect that the
Speaker 4: right inflation target is much nearer to three percent than
Speaker 4: it is to two percent. Now that may not sound
Speaker 4: like a big difference, but it actually is a big
Speaker 4: difference over.
Speaker 3: Time in the States, and what about the UK?
Speaker 4: And in the UK as well. Europe is the only
Speaker 4: one where two percent still makes sense. And Japan, which
Speaker 4: is an interesting one that we don't talk about enough
Speaker 4: because they have a major exit coming up which they
Speaker 4: are denying for now, the exit from Yelkurve control there.
Speaker 4: It's probably also two percent.
Speaker 2: So in gentlemen, he talked about this the former Italian
Speaker 2: Prime minister in Europe as well. I'm going to keep
Speaker 2: Europe away from it right now, because I think our
Speaker 2: audience really wants to understand your debate on our start.
Speaker 2: John Williams reframes to a lower our start. Ian Lingoln
Speaker 2: of BEMO Capital Markets.
Speaker 1: Agrees with that.
Speaker 2: Others agree with that we're going to step at us.
Speaker 2: I'm hearing from you. You brilliantly called higher interest rates
Speaker 2: to come. Do you see in our star that sets
Speaker 2: above where President Williams is or can it even be higher?
Speaker 2: Roguof suggesting even out to a higher new set for
Speaker 2: our start.
Speaker 4: Yeah, I mean it's a fascinating debate if you're an economist.
Speaker 4: You mentioned Ken Rogoff, I've mentioned Larry Summers, I'd mentioned
Speaker 4: Olivier Blanchard. I mean, a very active debate among people
Speaker 4: who basically come from the same camp, and they're having
Speaker 4: this debate I'm more on the our star is higher
Speaker 4: than it has been in the past, so more on
Speaker 4: the Ken Rogoff Larry Summers end of the debate.
Speaker 2: I mean, I look at it as you spent too
Speaker 2: much time out in California, and you may actually understand
Speaker 2: other factors. As Professor Blunchard talks about. This is not
Speaker 2: some neat economic surveillance Babbel, folks. There's a lot of
Speaker 2: other factors here, and one of them is a technological impulse.
Speaker 2: Over five ten years, do we completely underestimate technology is
Speaker 2: out relays or on our financial system?
Speaker 4: So here we could have a five hour discussion.
Speaker 1: We're doing that. You're here at eleven am.
Speaker 4: Okay, think of technology that we're going through, the innovations
Speaker 4: doing this the following. If you think of whatever distribution
Speaker 4: you thought of future growth and future productivity, some of
Speaker 4: these technological innovations in science and AI move the distribution
Speaker 4: to the right. That's good, but fatten details enormously, and
Speaker 4: it is how do you manage those father tails that's
Speaker 4: coming in in this discussion.
Speaker 3: I wanted to pick up on something you said earlier
Speaker 3: in the conversation. That's a big difference between two and
Speaker 3: three percent. It's a lot of people listening thinking, what
Speaker 3: are you talking about. There's not much difference between two
Speaker 3: and three percent, so why is the difference so large?
Speaker 4: Compounding makes a huge difference over time, and it's what
Speaker 4: you target to. My big worry, and you know this,
Speaker 4: is that if the FED focuses on two percent in
Speaker 4: a relatively rapid timeframe, we will end up in a recession.
Speaker 4: And I keep on repeating. You've heard me say this
Speaker 4: for the last year. There's no reason for your economy
Speaker 4: to fall into recession. The endigenous elements of this economy
Speaker 4: are strong enough to power through this period. So the
Speaker 4: big risk is that we follow the wrong inflation target
Speaker 4: and end up dipping this economy into recession. And it
Speaker 4: matters because you have the vulnerable segments of the population
Speaker 4: that have already seen that purchasing power eroded. Now you're
Speaker 4: going to add income and security to that. And that's
Speaker 4: why I think.
Speaker 1: You know, it's great here.
Speaker 2: I thought Elarian showed up just to see us.
Speaker 3: You know what's pass Jersey.
Speaker 2: He's here for the sold out jets, you know, pre
Speaker 2: training summer camps that pick up as rogers. Look at
Speaker 2: this summer head, John that he's going to pick up here.
Speaker 2: I mean, you know, the bucket that's more than a bucket.
Speaker 1: That's like a Wimbledon that is more than a bucket.
Speaker 3: It's like fancy.
Speaker 1: I cann't afford that.
Speaker 4: It's fancy, you know, So tell me, Tom, do you
Speaker 4: buy into this is the season the Jets make it
Speaker 4: to the playoffs, deep into the playoffs.
Speaker 2: I say they make it in deep to the playoffs
Speaker 2: because we underestimated name of when he showed up, and
Speaker 2: you know, Aaron Rodgers is going to get a second
Speaker 2: you know, life here and all that. I'm actually pretty constructive.
Speaker 3: On you're a Jets fan this year? Is that on
Speaker 3: the record.
Speaker 1: No, I don't want to go that far. I'm a
Speaker 1: Tots fan. I mean that's enough.
Speaker 3: Pain, different sport.
Speaker 4: Do you have a Jets bow tie? No?
Speaker 1: I do not have a Don't you dare? Don't you
Speaker 1: I got in Atlanta Braves, I got aware.
Speaker 4: Now I know what I'm going to get you.
Speaker 1: Oh you're killing me?
Speaker 3: Is there going to bring us any much?
Speaker 1: I hope?
Speaker 2: So we find that as I'm with Neil Millington at
Speaker 2: the Lanesboro Hotel and he's just Tom, this is a
Speaker 2: once in a lifetime opportunity.
Speaker 3: MAM's going to stick with us in place to say.
Speaker 1: We're going to dive into this right now.
Speaker 2: And for Global Wall Street and a Friday, we're distracted
Speaker 2: by the silliness of Barbie or this, that and the
Speaker 2: other thing.
Speaker 1: Well, guess what.
Speaker 2: There are serious themes ahead and they are by definition complex.
Speaker 2: Joining us now out of Columbia his work for years
Speaker 2: at Brown Brothers harrim and his doctor Wyn thin Head
Speaker 2: a currency strategy on Japan. When I need a clinic
Speaker 2: right now, we'd go to Robbie Feldman at Morgan Stanley
Speaker 2: or you at Brown Brothers Harriman.
Speaker 1: About what they have wrought in Japan.
Speaker 2: Was it a cultural decision in Japan to rip up
Speaker 2: the textbooks you studied at Columbia? Was it a cultural
Speaker 2: decision to impute an inflation into the system.
Speaker 5: Well, Hi, Tom and Jonathan, thanks again for having me.
Speaker 5: I don't know if it's culture as more just of
Speaker 5: pure pragmatism. I remember Japan has been fighting deflation for decades,
Speaker 5: and I think they're really quite gunshy about removing accommodation.
Speaker 5: I think Marcus kind of got ahead of themselves about
Speaker 5: either a tweak and Yielker control or eventual lift off.
Speaker 6: It's clear from the Bank.
Speaker 5: Of Japan comments and from police making Japan that are very,
Speaker 5: very concerned.
Speaker 6: The numbers are starting to turn over right now, not.
Speaker 5: Only domestically, but obviously you know, globally, and so they
Speaker 5: are really really reluctant, and so I think that's the
Speaker 5: signal that's coming. Of course, Look, they can surprise us
Speaker 5: next week. They love to surprise us, but this is
Speaker 5: not a time for surprises to me, I mean, I
Speaker 5: think there's so much going on, Tom, to your point, this
Speaker 5: is a really crucial quarter or maybe half a year
Speaker 5: for global markets right now.
Speaker 2: On an algebraic process, there has to be constraints on
Speaker 2: whatever the variable is, whatever the process is, whatever the
Speaker 2: derivative is within the function. To me, the constraint is
Speaker 2: they want to own the bonds, but they can't become
Speaker 2: the bond market. Is the Japanese government become the bond market.
Speaker 2: The ownership of the bonds is by the government and
Speaker 2: with the government.
Speaker 1: Where the algebra doesn't work anymore.
Speaker 6: Tom, I have to be honest.
Speaker 5: I get anytime, like a young economists are doing analyst,
Speaker 5: ask me about what's going on Japan.
Speaker 6: I really start get a headache because it's hard to explain.
Speaker 5: Yes, the Bank Japan owns about half of jgb's in
Speaker 5: the market, and it's just it's just on something.
Speaker 6: It's hard to explain, right, I mean, you don't see
Speaker 6: that anywhere else. And I think the big.
Speaker 5: Difference is that Japan's the nation of savers, not to
Speaker 5: depend on foreign savings. So it's sort of this almost
Speaker 5: like a little domestic, little bubble of an experiment that
Speaker 5: that's so far is working. But again, I think they're
Speaker 5: very very worried about how to get out of this.
Speaker 6: They've been stuck in.
Speaker 5: This mode buying and easing for so long that I
Speaker 5: think it's very very scared.
Speaker 2: Must precisely the point they want to do an action,
Speaker 2: which is to get out of it.
Speaker 1: And they have this massive constraint that they own the
Speaker 1: bomb mark.
Speaker 3: They dominates it that anyone else does. When the problem, though,
Speaker 3: I think that you could get, is the kind of
Speaker 3: spillover effects from anything they do, say to the European
Speaker 3: bond market, to treasuries. When how would that work? What
Speaker 3: would the dynamic be? Would it be Japanese investors coming
Speaker 3: back home again? How would you think that would work.
Speaker 5: Yeah, John, I think there's quite a few channels, but
Speaker 5: the main thing would be obviously, if they abandoned Yulker control,
Speaker 5: JDB yields would would most likely shoot up, and you
Speaker 5: would have a spill effect of I think, pushing up
Speaker 5: US treasury yields and German Bund yields, et cetera. You know,
Speaker 5: they've been again the outliers Rankapans the sole outler, every
Speaker 5: other brank is h aggressively and it's the third biggest
Speaker 5: economy in the world, So it's to me it's there.
Speaker 5: There's just a very potential negative spillover to bond markets. Now,
Speaker 5: in terms of currency markets, we would see the opposite.
Speaker 5: We would see the dollar in most likely knee jerk
Speaker 5: go down if there's any sort of removal accommodation. Again,
Speaker 5: that would have spillover effects on the regional economies. Again,
Speaker 5: this is such a crucial time for global markets, especially Japan.
Speaker 5: I really think that caution is sort of the watch
Speaker 5: road right now. I don't think they're going to surprise anyone.
Speaker 5: I don't think they can take any kind of drastic action.
Speaker 5: That said, again, they love to surprise us, so we'll
Speaker 5: know more A week from now.
Speaker 3: We're going to find out in a week when I
Speaker 3: want to finish on Europe. In the experience we had there,
Speaker 3: for many people, including myself, I had my dubts about
Speaker 3: the ability of the ac B to high interest rates,
Speaker 3: to back away from QA. Given developments over the last
Speaker 3: ten years in places like Italy, Spain, Portugal, Greece, they've
Speaker 3: been somewhat successful taken away that stimulus and not seeing
Speaker 3: big accidents to develop in the European bond market. Do
Speaker 3: you think Japan can take that as an example where
Speaker 3: you could find some success. You can get that handoff
Speaker 3: away from central banks owning everything and then handing it
Speaker 3: back off.
Speaker 6: Well two things.
Speaker 5: I think Japan is such an extreme example. But yes,
Speaker 5: I think there is some hope that they can manage this.
Speaker 5: But again I think the best time to have done
Speaker 5: this when markets were doing okay. You know, in a sense,
Speaker 5: I think the Bank Japan was a little bit too
Speaker 5: late by wading so long. The other thing I would
Speaker 5: say about the Germans that there are even some cracks there.
Speaker 5: You know, you've probably been covering how noted hawks not
Speaker 5: and another one just have been backing off about a
Speaker 5: September hike, And that's the first time I've heard the
Speaker 5: hawks are really really sort of back off from this
Speaker 5: really intense tightening cycle. And I think that's because countries
Speaker 5: are pripheral country like Italy Portugal starting to complain they
Speaker 5: are seeing cracks form in the Eurozone. I think that's
Speaker 5: something that's helped the euro sort of top out in
Speaker 5: recent days.
Speaker 2: Is a Bundesbank, the Bundesbank we know in I mean,
Speaker 2: is the bundess Bank the court, the inner court that
Speaker 2: Martin Feldstein would talk about for years. Are they still
Speaker 2: interanged in an inflation worry?
Speaker 6: Yes?
Speaker 5: Absolutely, And then I just curtained me that mister Nagel,
Speaker 5: the bundess Bank president, is the other hawk slipped my
Speaker 5: mind there.
Speaker 6: He was also one of the ones that crack.
Speaker 5: So it's interesting, if anything else, that the bundess Bank
Speaker 5: has gotten I think at least changes rule of people
Speaker 5: that they realize it's not just all about Germany. There
Speaker 5: are other countries that have to be sort of within
Speaker 5: the calculus of the ECB. And I think when the
Speaker 5: East to We first started, they were still locked into
Speaker 5: that nineteen eighties nineteen nineties mentality. Uh, And I think
Speaker 5: they were seeing a subtle shift. Well again, we'll know
Speaker 5: we're next week. We have the Fed Wednesday, easty b Thursday,
Speaker 5: Bank Japan Friday. To me, I think what's going to
Speaker 5: come out of this is that the US dollar, the
Speaker 5: Fed remains king ECB Banking Tom start to sort of
Speaker 5: blink perhaps, and I think that we can get a
Speaker 5: little bit higher in the dollar in the coming weeks.
Speaker 3: Interesting within thin of Brown Brothers, Harriman Win, thank you sir.
Speaker 2: Speaking of pain. It has been a difficult week in Ukraine.
Speaker 2: One of the great voices there is with Adam Posing
Speaker 2: and Olivia Blanchard at the Peterson Institute. Elena Riberkova not
Speaker 2: only has encyclopedic understanding of hurt Ukraine, but double barrels
Speaker 2: it with data science from the University of Virginia, and
Speaker 2: she follows on in our tradition here to keep Pharaoh happy,
Speaker 2: we're having University of Warwick July. We have to speak
Speaker 2: to anybody we can who's got parchment from the University
Speaker 2: of Warwick. We dragged Skodolski in here on a day
Speaker 2: by day basis if we could get them. But Elena Riberkova,
Speaker 2: with economics from Warwick, is the kind of person we
Speaker 2: wanted to drop.
Speaker 1: W No, I'm doing that. I've done that.
Speaker 4: I'm just done it.
Speaker 1: Just if you're nice to me, I'll made you do this.
Speaker 3: You can do this. Elena joins us now, Elena Riberkova, Elena,
Speaker 3: wonderful to have you with us. I want to start
Speaker 3: with this in the commodity Thank you so much, thank you.
Speaker 3: It's an honor for us as well. In the commodity market,
Speaker 3: we're trying to figure around just how how much Russian
Speaker 3: crewed is still in this market? Can we start there?
Speaker 3: How much Russian oil is on this market now globally
Speaker 3: compared to where it was before this.
Speaker 6: War about the same.
Speaker 7: You know, I think we had this oil price cap
Speaker 7: which had dual objective which I'm afraid I have to
Speaker 7: compare was having a cake and eating it tool a
Speaker 7: little bit. So we wanted to have the Russian oil
Speaker 7: on the market, but at the same time lower Russian revenues. Well,
Speaker 7: we achieved the first objective. Rusian oil is on the
Speaker 7: market on the lowing over the revenues. That is a
Speaker 7: bit more nuanced and complicated.
Speaker 3: Tell me, why just give me the maths around that?
Speaker 3: Why is that so much more nuance and complicated.
Speaker 6: Well, we're in Bloomberg.
Speaker 7: It's economic incentives on Russian side, about ten dollars per
Speaker 7: barrel for a year means a difference of about twenty
Speaker 7: billion dollars in revenues for the companies and for the
Speaker 7: budget as well. So it's a twenty billion dollars incentives
Speaker 7: to circumvent the oil price cap. They're putting everything that
Speaker 7: got in it to be able to do so. If
Speaker 7: we are not the same on our side, of course,
Speaker 7: there are difficulties. So if we think about the cap,
Speaker 7: we still have provisions of the G seven shipping and
Speaker 7: insurance services to Russia and the limitations, and it's a
Speaker 7: very very small you know, I can put it attestation
Speaker 7: saying I have seen the contract and I promise to
Speaker 7: you it is below the cap. Imagine if we we're
Speaker 7: filing taxes the same way I have seen my income
Speaker 7: and I promise you it's very low.
Speaker 1: And that's what we do.
Speaker 2: Elena, bouncing off your work at City Group on Russia,
Speaker 2: you've really got an encyclopedic knowledge on this. What would
Speaker 2: you be your to do list for the Allies and
Speaker 2: particularly for the White House to make this more strident
Speaker 2: more forceful with mister Putin.
Speaker 7: Well, if we wanted to be really ambitious, I would
Speaker 7: say we go for a run style as pro account,
Speaker 7: where we say everything has to go through one account,
Speaker 7: and then it will still have challenges, but at least
Speaker 7: we'll remove these complications attestations who are shipping where you know, transshipment.
Speaker 7: I think that will definitely busier. Failing that, we have
Speaker 7: to tighten the attestation regime. We have to go most seriously.
Speaker 7: We have to say you have to keep the paperwork.
Speaker 7: We do risk based audits, and if we find that
Speaker 7: the company is still shipping Russian well above the cap,
Speaker 7: we're not saying we stuff your hand and we prevent
Speaker 7: you from ninety days. We're actually put a proper fine.
Speaker 2: I mean, Alina, I don't know the details here, but
Speaker 2: I'm going to assume you summered in Odessa as a child.
Speaker 2: What is your belief of the fragility of the Black
Speaker 2: Sea right now? With wheat, with oil, with the new
Speaker 2: battles there, How fragile is the Black Sea territory this weekend?
Speaker 7: It's absolute devastation. You know from Ukraine, more than ninety
Speaker 7: percent of all shipment including grain that we're talking about
Speaker 7: this weeks went through from.
Speaker 3: Through the seas.
Speaker 7: So the four key ports account for ninety percent of
Speaker 7: Ukrainian exports. Of course, there is no infrastructure to move elsewhere,
Speaker 7: and this is one of the absolutely key ports. Then
Speaker 7: the dam that was recently destroyed, you know, that flashed
Speaker 7: out a lot of you know, a lot of dirt
Speaker 7: from the ground, you know, a lot of sort of sewage,
Speaker 7: and it all were and minds actually it all went
Speaker 7: into the Black Sea. So an absolutely devastated situation, and
Speaker 7: it will take years for us to move forward. You know,
Speaker 7: one year of war. I think it's more than five
Speaker 7: years of demining.
Speaker 2: I look at the de mining and I guess that
Speaker 2: comes to the military. And I understand your mandates a
Speaker 2: bit off the military here, but you do follow the
Speaker 2: funding of the weapons. We're distracted in America by cluster
Speaker 2: bombs in their horror. What are you focused on is
Speaker 2: the next step to provide Ukraine with offense?
Speaker 7: Well, I think the next step is for us to
Speaker 7: prevent Russia from getting our own equipment from Intel Texas instruments.
Speaker 7: Also some of the European companies to assemble that into
Speaker 7: their military production and use it against Ukraine. So we
Speaker 7: recently put out a study where Ukrainian Defense Ministry this
Speaker 7: attemp both more than sixty items and it's kinjals and
Speaker 7: it's all kinds of pediatary equipment that we all hope
Speaker 7: never to become experts in, but we are so. And
Speaker 7: they found that two thirds of the components in this
Speaker 7: equipment comes from the US headquartered companies. And what we
Speaker 7: also find that Russia continues to import. In fact, the
Speaker 7: levels of the imports are at the same as the
Speaker 7: way before the war. How does that happen when we're
Speaker 7: just for Chairman Yellen talk well, the Head of Treasury
Speaker 7: Yell talk about the sort of the French shoring and
Speaker 7: on shoring. But unfortunately China uses US equipment, US parts,
Speaker 7: produces that and ships it to Russia. Or we have
Speaker 7: countries on shipping, you know, saying maybe Turkyo or Yue
Speaker 7: or others buying it from the US and against shipping
Speaker 7: it to Russia. So unfortunately, on one hand, we're supporting
Speaker 7: Ukraine was everything that we've got. Unfortunately, on the other hand,
Speaker 7: Russia is getting our own equipment to use against Ukraine.
Speaker 3: Chare Yellen, Vice chair Yellen take care I confused that
Speaker 3: for years. My Treasury Secretary Janney Yellen.
Speaker 1: Adam Posen's never done that in his life.
Speaker 3: Elena Ribecadam and nails at every time. The pit Uson
Speaker 3: Institute for International Economics, Lyda, thank you, thanks for bam with.
Speaker 2: This on inflation now and this is the conversation of
Speaker 2: the day on price change in America. He invented it,
Speaker 2: the analysis of it, I should say, with Bob Ferrell
Speaker 2: years ago at Marylanch. David Rosenberg joins us in Toronto.
Speaker 2: He is with Rosenberg Research. David, you slice and dices.
Speaker 2: I want you to speak to Jerome Powell right now.
Speaker 2: Is the deflationary vector?
Speaker 1: Is it in force?
Speaker 2: And will we stay with disinflation into twenty twenty four?
Speaker 8: Well, I think that this inflation trend, tom will be
Speaker 8: the primary trend. We're going to have a bit of
Speaker 8: a bump though, in the next month or two because
Speaker 8: the CRB has taken like an eight percent jump since
Speaker 8: the end of May for the reasons that you folks
Speaker 8: were talking about. And the question is you know how
Speaker 8: the Fed's going to treat that and whether it's going
Speaker 8: to be temporary or permanent. This run up we've had
Speaker 8: really across food prices in the commodity markets, and also
Speaker 8: what's happening with oil coming off the bottom. If this
Speaker 8: is happening with a four and a half to five
Speaker 8: percent of employment rate and we got excess apply in
Speaker 8: the economy, not a problem. But at a time of
Speaker 8: full employment, this bounce we've had in commodity markets and
Speaker 8: in the context of the weight settlements we're seeing, I
Speaker 8: think has to be on the Fed's mind. So I
Speaker 8: would say that that the primary trend is going to
Speaker 8: be towards disinflation into the next twelve months, But I
Speaker 8: would say that the next couple of months is going
Speaker 8: to challenge that view.
Speaker 2: Are we beyond the pandemic? Are we doing traditional economics now?
Speaker 2: Whether you believe in ISLM dynamics or you believe in
Speaker 2: factor dynamics, whatever you know, microeconomic foundations, whatever it is,
Speaker 2: Are we beyond pandemic analysis?
Speaker 8: I don't think so, Tom. I think that we're still
Speaker 8: seeing a lot of the after effects. It's one of
Speaker 8: the reasons why look yesterday, nobody seemed to care too
Speaker 8: much that the Conference boards leading economic indicator declined for
Speaker 8: the fifteen month in a row. It's already gone down
Speaker 8: enough and far enough from the peak of December twenty
Speaker 8: twenty one that the recession should have started. The inverted
Speaker 8: eel curve has been more than a year. It's very deep.
Speaker 8: The dispersion across all eel curves would be telling you
Speaker 8: that the recession should be starting. And we have this
Speaker 8: debate as to whether or not there's even going to
Speaker 8: be a recession. And so what's happened is that this
Speaker 8: was the energizer bunny. The gift that kept on giving
Speaker 8: were those stimulus checks from the Biden budgetbuster and March
Speaker 8: of twenty twenty one, and those excess savings which historically
Speaker 8: Americans would spend half in safe half. But we live
Speaker 8: in a much more narcissistic society today, right, I don't
Speaker 8: remember before this cycle, Like you're asking me about, is
Speaker 8: the COVID effect behind us, the worst of the COVID
Speaker 8: health issues behind us, But the COVID effects on the economy.
Speaker 8: I mean, we're developing new acronyms like yolo. You know,
Speaker 8: you only live once. So all the stimulus got spent
Speaker 8: and that's what's basically clogged up the monetary channel. What
Speaker 8: that has done to the real economy, and that might
Speaker 8: be ending right now. But it's one of the reasons
Speaker 8: why people calling for a session like yours truly have
Speaker 8: been frustrated is because of the lagged impact of all
Speaker 8: that fiscal stimulus, you know, which was a product of
Speaker 8: the pandemic.
Speaker 2: What's interesting about this, John, is you know you only
Speaker 2: live once. Rosenberg's going to see Barbie twice this weekend.
Speaker 3: Is support retail.
Speaker 8: I'd bet against that, David.
Speaker 2: I want to dive here into my book of the
Speaker 2: Summer Blanchard and the ur Star debate. Blenchard feels it
Speaker 2: over time we will return to some form of quiesce
Speaker 2: in our start. John Williams has staked out the high
Speaker 2: ground saying we will return to our start.
Speaker 1: Others go the other way.
Speaker 2: Are we going to be in a two percent is
Speaker 2: FED range out five years, ten years, or does David
Speaker 2: Rosenberg have to set to a legitimate societal reflation?
Speaker 8: Well, and I think you're referring to two percent funds
Speaker 8: rate in nominal terms as being that baseline. And Tom,
Speaker 8: what's very interesting is that you know, through all the
Speaker 8: pandemic and all the distortions around the pandemic, that the
Speaker 8: FED never once has changed its long run estimate of
Speaker 8: where the nominal neutral funds rate is. It's been stuck
Speaker 8: at two and a half percent. The work that's been
Speaker 8: done normally, our star refers to the real neutral rate.
Speaker 8: And let's assume that we get to that holy grail
Speaker 8: of of you know, two percent inflation. And then you
Speaker 8: have John Williams, by the way, our work has corroborated
Speaker 8: his work, that there's a risk that are Star in
Speaker 8: real terms goes negative in the years ahead. And that's
Speaker 8: supported by what, well, what has been the what did
Speaker 8: COVID not change or the policies around COVID not change
Speaker 8: is aging demographics. Demographics has been and remains a dead
Speaker 8: weight drag on the.
Speaker 1: Eject jilspe every day, continued mister rosenbreg And.
Speaker 8: The constraints of excess of debt is another consideration. And
Speaker 8: then we look, we had something. Look, this has been
Speaker 8: wonderful for the growth stocks and the tech sector.
Speaker 6: And it seems as though, you know.
Speaker 8: In Nvidia back in May, with that you know, truly
Speaker 8: you know, bombshell earnings report almost felt like Pfizer Monday,
Speaker 8: you know, back in November of twenty twenty. I'm not
Speaker 8: going to say this is bigger than the Internet, but
Speaker 8: it's certainly bigger than three D printing, and it's going
Speaker 8: to have monumental impacts on structural shifts to the labor market,
Speaker 8: labor saving technology. That again is going to be a
Speaker 8: I think from a labor market perspective, a significant disinflationary force,
Speaker 8: just like the Internet was not on the same scale,
Speaker 8: but it doesn't have to be in the same scale
Speaker 8: to be a truly disinflationary force and an impact on
Speaker 8: our star down the road, David, I.
Speaker 3: Just want to squaze in an extra question on that then,
Speaker 3: and this is really sort of like out there thinking
Speaker 3: ten twenty years. But how on earth the politician is
Speaker 3: going to deal with this, David. If we start to
Speaker 3: see that kind of job replacement from this kind of boom.
Speaker 8: Well it's going to be a big problem because with
Speaker 8: the Asian demographics comes with that higher dependency rates, and
Speaker 8: that puts added pressure on fiscal finances at a time
Speaker 8: when governments around the world have been so profligated on
Speaker 8: the spending side. So this is going to be a
Speaker 8: very big fiscal problem. Some people say the only way
Speaker 8: out of this is we have to inflate, we have
Speaker 8: to inflate a way out of this debt problem. But
Speaker 8: the problem with inflation, and the reason why J. Powell
Speaker 8: has been fighting inflation and with cover from the White House,
Speaker 8: is that inflation is a tax on the poor and
Speaker 8: the elderly. So people say, well, we have to solve
Speaker 8: the debt problem, you know, with inflation, No, because it
Speaker 8: creates other social problems. Ultimately, we're going to have to
Speaker 8: have a revamping of the entire fiscal system, means testing
Speaker 8: on entitlements. And the bottom line is that this dirty
Speaker 8: five letter word called tax are going to have to
Speaker 8: go up. And that's why I think that you know,
Speaker 8: when you're taking a look at why have bond yields
Speaker 8: not swored? I mean, even with what's happened with food
Speaker 8: stuffs and energy in the past few days, the Fed
Speaker 8: about to pin the fund rate at five and a
Speaker 8: quarter to five and a half, the stock market booming.
Speaker 8: Why isn't the ten year note have a five handle?
Speaker 8: Why are we at three to eighty on the ten
Speaker 8: year note? With all this, so, the bond market's telling
Speaker 8: you something, As it comes back to Tom's initial question,
Speaker 8: the bond market is telling you something about that disinflationary future.
Speaker 8: So I think that in terms of how governments deal
Speaker 8: with it, I think this era right now that we're
Speaker 8: seeing a fiscal rectitude is going to have to switch
Speaker 8: towards fiscal tiding down the road because this is not sustainable.
Speaker 8: I'm looking at this thinking, if you told everybody was
Speaker 8: happening with a stock market fiscal deficits, you know everything
Speaker 8: that we're talking about right now, we have to ask
Speaker 8: the question the biggest anomally is not what the stock
Speaker 8: market's doing. It's what the bond market is not doing.
Speaker 4: Interesting, what's that message?
Speaker 3: We'll keep asking that question, David, This was fun, deeply thoughtful.
Speaker 3: Thank you, sir David Rosenberg. There of Rosenberg Research and
Speaker 3: enjoyed the movies this weekend. I can't believe we've got
Speaker 3: a Tottenham fan seeing opposite the arsenal CEO I Vncate
Speaker 3: Sham joins us now vinn I great to see. It's
Speaker 3: a big game tomorrow against Manchester United at MetLife Stadium.
Speaker 3: Before we get to all of that, let's just start
Speaker 3: with why here. I see a lot of Spanish clubs
Speaker 3: come to the United States now, A lot of Italian
Speaker 3: teams do their preseason tour here. Why is this so
Speaker 3: important for Arsenal Football Club?
Speaker 4: Sure?
Speaker 9: Well, firstly, thank you for having me on the show today.
Speaker 9: The US has become our number one international market and
Speaker 9: we see that anecdotally every time we come to the US.
Speaker 9: We come every couple of years. We can see the
Speaker 9: games growing and we can see Arsenal's popularities growing, and
Speaker 9: we also see it in the numbers. Last season with
Speaker 9: NBC Sports, we had the record audience for Arsenal Manchester United.
Speaker 9: We see our social media following growing really fast. Twenty
Speaker 9: percent of our retail business is in the US, and
Speaker 9: we played the MLS All Star Game in Washington, jam
Speaker 9: pack full and jam pack full of Arsenal fans, which
Speaker 9: was great to see.
Speaker 3: Great to see lots of money in it. I'm sure
Speaker 3: you're also spending lots of cash as well, and I'm
Speaker 3: sure a lot of Arsenal fans want us to go
Speaker 3: straight there. How much have you spent this summer on
Speaker 3: football talent? Well, so, I guess the story about this
Speaker 3: summer really starts with looking back at last season. So
Speaker 3: last season we had what we considered to be a
Speaker 3: successful season. We took the title race right until the
Speaker 3: last weeks in the end, we finished second rather than
Speaker 3: the first that we were fighting for. But we have
Speaker 3: one of the youngest squads in the Premier league, so
Speaker 3: this season they're going to be another year more experienced.
Speaker 3: And what we've done this summer is supplement that fantastic
Speaker 3: squad with three new signings. The three positions we want
Speaker 3: to strengthen the three players we wanted and we were
Speaker 3: delighted to get them right at the start of the windows.
Speaker 3: So we have them here with us on tour in
Speaker 3: the US and it means they can assimilate in the squad.
Speaker 3: And it was a heavy, significant investment, and that investment
Speaker 3: really shows the ambition of our ownership group. You know,
Speaker 3: they have had an enormous success with their franchises in
Speaker 3: the US over recent years, winning the Super Bowl, winning
Speaker 3: the Stanley Cup and then winning the NBA Championships. So
Speaker 3: they've really invested behind the team and they have really
Speaker 3: supported us this window, so we will be ready for
Speaker 3: the fight this season.
Speaker 4: Thank you for making last season so interesting till the
Speaker 4: very end, and congratulations on your purchases. But let me
Speaker 4: let me put you in a tough Spotify may sure
Speaker 4: there's two views as to what model should major sports run.
Speaker 4: One is the UK model where you don't have forced equalization,
Speaker 4: where you have relegation. One is the US model, where
Speaker 4: you don't have relegation, you have forced equalization. If you
Speaker 4: had to create the Premiership from the from scratch, would
Speaker 4: you keep the current model that allows a few Cup
Speaker 4: teams to dominate all the time or would you go
Speaker 4: to more like a US model that allows for far
Speaker 4: more equalization.
Speaker 9: I keep the model that we have at the moment,
Speaker 9: and I think it's proven. The Premier League is the
Speaker 9: world's biggest league in the world's biggest sport. And I
Speaker 9: think one of the reasons the Premier League is so
Speaker 9: successful is the broadcast distribution in the Premier League is
Speaker 9: actually relatively equal, So the top club in the Premier
Speaker 9: League gets roughly one point eight times the bottom club
Speaker 9: in the Premier League. So we try and keep the
Speaker 9: revenue distribution as equal as we can to make sure
Speaker 9: the league is as competitive as it can be, and
Speaker 9: it goes in cycles. Sometimes you have a period where
Speaker 9: teams dominate and sometimes you have a cycle where it's
Speaker 9: more competitive.
Speaker 2: I'm for Sheffield United, Sheffield Sheffield United, me and Joe Elliot,
Speaker 2: it's destined.
Speaker 4: So being a QPR supporter and just looking up to
Speaker 4: the Premiership, you'll understand how we feel about our inability
Speaker 4: to ever penetrate because of what happens above us. But
Speaker 4: let me ask a question. So you're seeing all this
Speaker 4: US support come to Arsenal and I'm hearing there's a
Speaker 4: lot more interest in in soccer as they call it
Speaker 4: here on there is this a pull fact or a
Speaker 4: push factor? Is this people being pulled by the fact
Speaker 4: that NBC's covering more games or is it the fans
Speaker 4: that are pushing people to talk more about UK soccer,
Speaker 4: including Tom and John.
Speaker 3: I think it's a little bit of both.
Speaker 9: I think NBC have done a fantastic job for the
Speaker 9: Premier League over a long period, both in terms of
Speaker 9: how they promote the game and how they've also educated
Speaker 9: the audience around around all things football, and we see
Speaker 9: it in their viewers numbers. I think NBC's viewership numbers
Speaker 9: last season we're twenty percent higher than the season before.
Speaker 9: We've got our game tomorrow at MetLife. It's going to
Speaker 9: be a sellout. It's going to be our biggest ever
Speaker 9: game from revenue perspective, that we've ever played in the US.
Speaker 9: And I think it's going to be Metlife's biggest ever
Speaker 9: soccer game that they've had in their stadium as well
Speaker 9: from a revenue perspective, So the demand is really, really,
Speaker 9: really there and it's growing really quickly.
Speaker 3: Got to talk to you about sally involvement in the
Speaker 3: game increasing and increasing through this summer, particularly of the
Speaker 3: last couple of years with that purchase of Newcastle. More recently,
Speaker 3: what does it feel like as a CEO of a
Speaker 3: football club to be competing with a country, not a
Speaker 3: single person, but a nation. What does that feel like?
Speaker 3: Do you feel like you're doing that now this summer?
Speaker 9: Well, this is the Premier League. One of the reasons
Speaker 9: the Premier League has been so successful is because it's
Speaker 9: so unbelievably competitive, and you know, Newcastle are another team
Speaker 9: that is stepping forward in that competition. They had a
Speaker 9: very successful season last season. They're they're in the Champions League.
Speaker 9: So it's a it's always a dynamically changing market. Another
Speaker 9: big change that everybody's been talking about this summer has
Speaker 9: been the number of players that actually transferred to Saudi
Speaker 9: So that's another interesting development in the game. It's new,
Speaker 9: it's a little bit too early to know how that's
Speaker 9: going to affect the Premier League, if at all, and
Speaker 9: we'll all be watching with interest.
Speaker 2: Long ago in my youth, I saw the Rochester Lancers
Speaker 2: and a wonderful guy named Charlie Chian.
Speaker 1: I'll try to make this happen.
Speaker 2: And the fact is it was perceived by me and
Speaker 2: everybody else in a Mayer America is minor league football.
Speaker 2: What is the symbolism of Messy going to MLS now?
Speaker 2: Does he take them from minor league football to something
Speaker 2: new and different?
Speaker 9: Well, the MLS has been on, as I understand, a
Speaker 9: good growth trajectory over many years. The league's expanded. There's
Speaker 9: been a number of expansion franchises for us at Arsenal.
Speaker 9: We want football or soccer as we may call it here,
Speaker 9: to grow in popularity. So we want there to be
Speaker 9: a vibrant, healthy, domestic league in the MLS. Messi is
Speaker 9: a generational talent. To have him in MLS playing in Miami,
Speaker 9: I think we'll have a really really positive effect. At
Speaker 9: the same time, the new Apple TV deal is going
Speaker 9: live as well, so we're really hopeful that that will
Speaker 9: help continue to grow MLS. And we've seen in the
Speaker 9: few days we've been here, how much coverage there has
Speaker 9: been around Messi and how many people have been talking
Speaker 9: to us about Messi And that's what we want. We want,
Speaker 9: we want that conversation.
Speaker 1: Do you think Harry King could come to MLS?
Speaker 3: Sure that AR would like Harry Kane to get out
Speaker 3: of the Premier League. To be honest with them, I
Speaker 3: won't ask him directly. The Apple deal, I've got forty
Speaker 3: five seconds, but I want to squeeze this in. The
Speaker 3: Apple deal is huge for a football player to get
Speaker 3: a slice of the TV money directly like that. Do
Speaker 3: you see more of that happening?
Speaker 9: Well, I don't know the details of the Messi deal,
Speaker 9: so I just read what everybody else reads. But I
Speaker 9: think Messi. All I really say is I think Messi
Speaker 9: can have a really, really significant impact on the game.
Speaker 9: And I'm sure here in this country, and I'm sure
Speaker 9: it was a really competitive process to get him to
Speaker 9: play here, because there's lots of people that would love
Speaker 9: Messi playing in their league, and I'm sure and had
Speaker 9: to work really hard and really creatively to get here here.
Speaker 9: And they've been successful because he's here and he's driving
Speaker 9: a whole lot of interest.
Speaker 3: The Saudis were one of those. Weren't they trying to
Speaker 3: drag him over? This was great, Let's do this again.
Speaker 3: Good luck tomorrow.
Speaker 1: September twenty four.
Speaker 3: What's that North London. We're trying to get tickets?
Speaker 4: I was going to do that.
Speaker 3: You comes to the Amirates. Well right now you're talking.
Speaker 3: Now you're talking, and I thank you. This was great,
Speaker 3: Thank you, buddy, and good luck tomorrow.
Speaker 4: Thank you.
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