1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,160 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,800 --> 00:00:23,560 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot 5 00:00:23,560 --> 00:00:29,560 Speaker 1: Com and of course on the Bloomberg terminal. The dynamic 6 00:00:29,640 --> 00:00:31,960 Speaker 1: of the morning will be the Oval Office with the 7 00:00:32,040 --> 00:00:36,320 Speaker 1: Chairman of the Federal Reserve System and his President, joined 8 00:00:36,320 --> 00:00:39,040 Speaker 1: by the Secretary of Treasury, of course, the former chair 9 00:00:39,080 --> 00:00:43,320 Speaker 1: of the FED, Janet Yellen Powell Yelling and Biden. Brian 10 00:00:43,400 --> 00:00:46,599 Speaker 1: dis joins, Director of the National Economic Council, who will 11 00:00:46,600 --> 00:00:51,040 Speaker 1: be in charge of niceties and pouring tea at the meeting. Brian, 12 00:00:51,159 --> 00:00:55,120 Speaker 1: the singular distinction here is Yelling codified the words slack 13 00:00:55,560 --> 00:00:59,200 Speaker 1: of an America unemployed. That is not the case now, 14 00:00:59,680 --> 00:01:04,040 Speaker 1: power is Fed is roughly fully employed America. How will 15 00:01:04,080 --> 00:01:08,440 Speaker 1: the President listen to these two about jobs in America 16 00:01:08,640 --> 00:01:13,000 Speaker 1: and this horrific inflation. Well, he'll listen to them, and 17 00:01:13,040 --> 00:01:16,319 Speaker 1: he'll underscore his core point, which is that he intends 18 00:01:16,360 --> 00:01:19,160 Speaker 1: to provide the FED with the space and the independence 19 00:01:19,160 --> 00:01:22,320 Speaker 1: that it needs to operate. As you all know, he 20 00:01:22,360 --> 00:01:25,360 Speaker 1: has nominated a quality slate of people, including at the 21 00:01:25,360 --> 00:01:28,880 Speaker 1: top of that slate Chair Powell, to lead the Federal 22 00:01:28,959 --> 00:01:31,720 Speaker 1: Reserve through this challenging time, and he intends to give 23 00:01:31,760 --> 00:01:34,440 Speaker 1: them the space to operate. But we are in an environment, 24 00:01:34,440 --> 00:01:38,280 Speaker 1: a unique environment, and we have unique economic strengths right now, 25 00:01:38,480 --> 00:01:40,960 Speaker 1: the job market in the labor market being chief among them, 26 00:01:41,200 --> 00:01:44,600 Speaker 1: but not the only one. Household balance sheets are in 27 00:01:44,640 --> 00:01:47,559 Speaker 1: a very strong position because over the course of this recovery, 28 00:01:47,800 --> 00:01:52,000 Speaker 1: Americans have been able to save more and pay down debt. 29 00:01:52,400 --> 00:01:56,280 Speaker 1: We've seen we're seeing business creation, small business creation up 30 00:01:56,320 --> 00:02:00,000 Speaker 1: at record levels. So we have unique economic strengths which 31 00:02:00,080 --> 00:02:03,559 Speaker 1: position us well now to focus on this challenge, which 32 00:02:03,600 --> 00:02:06,480 Speaker 1: is bringing prices down. Obviously the Federal Reserve place a 33 00:02:06,520 --> 00:02:09,760 Speaker 1: primary role in that, but fiscal policy and the economic 34 00:02:09,800 --> 00:02:12,600 Speaker 1: choices that we make with Congress play an important role 35 00:02:12,639 --> 00:02:14,360 Speaker 1: as well. Will be all of that will be on 36 00:02:14,360 --> 00:02:16,680 Speaker 1: the table today. Brian. Let's talk about that meeting today 37 00:02:16,800 --> 00:02:18,800 Speaker 1: and whether it's anything more than a photo. What given 38 00:02:18,800 --> 00:02:21,400 Speaker 1: that you've said you don't want to comment on Fed policy, 39 00:02:21,440 --> 00:02:23,520 Speaker 1: the Fed doesn't want to comment on fiscal policy, What 40 00:02:23,639 --> 00:02:25,799 Speaker 1: is the purpose of today. If it's not just a photo, 41 00:02:25,840 --> 00:02:27,720 Speaker 1: what what do you discuss? What comes out of it? 42 00:02:27,760 --> 00:02:29,880 Speaker 1: How does it aup Americans? And you've seen the policy yourself. 43 00:02:30,160 --> 00:02:33,200 Speaker 1: Six of adults say their families income is falling behind 44 00:02:33,560 --> 00:02:35,760 Speaker 1: the cost of living. So a lot of people looking 45 00:02:35,800 --> 00:02:38,679 Speaker 1: at this it feels just like a photo. What for 46 00:02:38,720 --> 00:02:41,359 Speaker 1: Americans struggling right now? They want more than just that? 47 00:02:41,520 --> 00:02:45,040 Speaker 1: Is it more than that? Absolutely? A couple of things. 48 00:02:45,040 --> 00:02:47,960 Speaker 1: The first is its standard practice for presidents and chairs 49 00:02:47,960 --> 00:02:49,840 Speaker 1: of the Federal Reserve to meet from time to time 50 00:02:49,880 --> 00:02:53,440 Speaker 1: to share views on the economy. In this case, secondly, 51 00:02:53,720 --> 00:02:57,640 Speaker 1: the president is underscoring something important. The respect for the 52 00:02:57,680 --> 00:03:00,320 Speaker 1: independence of the Fed as an institution is not something 53 00:03:00,360 --> 00:03:02,239 Speaker 1: that we can take for granted. It's not something that 54 00:03:02,320 --> 00:03:07,640 Speaker 1: prior presidents have done to re underwrite that independence, and 55 00:03:07,720 --> 00:03:10,200 Speaker 1: so doing so, having the president do so in a 56 00:03:10,240 --> 00:03:13,800 Speaker 1: public way and underscore that he has committed to making 57 00:03:13,800 --> 00:03:17,040 Speaker 1: sure that the Federal Reserve as an independent institution can operate, 58 00:03:17,360 --> 00:03:20,680 Speaker 1: is incredibly important at this moment. And it's not just 59 00:03:20,720 --> 00:03:24,000 Speaker 1: about a photo op. It's about sending that signal clearly 60 00:03:24,040 --> 00:03:26,960 Speaker 1: to the public. And number three, they have a president. 61 00:03:27,000 --> 00:03:29,800 Speaker 1: The American people those who are feeling anxious, and absolutely 62 00:03:29,880 --> 00:03:31,880 Speaker 1: understand that when people go to the gas pump or 63 00:03:31,960 --> 00:03:35,120 Speaker 1: to the grocery store, they are feeling anxious. They have 64 00:03:35,160 --> 00:03:36,880 Speaker 1: a president who is waking up in the morning and 65 00:03:36,920 --> 00:03:39,840 Speaker 1: focused on how to address that challenge. And one of 66 00:03:39,880 --> 00:03:43,040 Speaker 1: the things he can do is, in his position, underscore 67 00:03:43,080 --> 00:03:45,320 Speaker 1: the independence of the Federal Reserve. So I think for 68 00:03:45,360 --> 00:03:48,080 Speaker 1: all of those reasons, this is an important step in 69 00:03:48,120 --> 00:03:50,320 Speaker 1: the process, not the only step, and we are going 70 00:03:50,360 --> 00:03:52,600 Speaker 1: to remain focused and over the course of the next 71 00:03:52,680 --> 00:03:54,760 Speaker 1: week and the week after that will focus on the 72 00:03:54,800 --> 00:03:57,920 Speaker 1: steps that we can take to help try to address 73 00:03:57,960 --> 00:04:00,080 Speaker 1: price increases as well. One thing on to discuss, and 74 00:04:00,280 --> 00:04:02,520 Speaker 1: we know this from several reports, and we've talked about 75 00:04:02,520 --> 00:04:05,840 Speaker 1: this previously, bran is student debt relief. The White House 76 00:04:05,880 --> 00:04:08,680 Speaker 1: considering something up to ten tho dollars. There are people 77 00:04:08,720 --> 00:04:11,640 Speaker 1: without a college degree wondering why those with a college 78 00:04:11,640 --> 00:04:13,840 Speaker 1: degree are getting this. Help. I'll go through the numbers 79 00:04:13,880 --> 00:04:16,279 Speaker 1: and then I'll ask for your response. So the latest 80 00:04:16,320 --> 00:04:18,880 Speaker 1: research from Pew points out that for intent Americans age 81 00:04:18,920 --> 00:04:21,920 Speaker 1: twenty five year older have a bachelor's degree or higher. 82 00:04:22,240 --> 00:04:25,719 Speaker 1: Among that, as you know, for black American adults. For 83 00:04:25,760 --> 00:04:28,640 Speaker 1: Hispanic adults, that number is much much lower than four 84 00:04:28,680 --> 00:04:31,160 Speaker 1: in ten. You also know there's a growing garning scap 85 00:04:31,240 --> 00:04:33,400 Speaker 1: between those who have a college degree and those who 86 00:04:33,440 --> 00:04:35,960 Speaker 1: do not. The unemployment rate is a lower for those 87 00:04:36,000 --> 00:04:38,159 Speaker 1: that have a college degree compared to those that who 88 00:04:38,200 --> 00:04:40,560 Speaker 1: do not. So the question Brian, that people are asking 89 00:04:40,640 --> 00:04:42,560 Speaker 1: if they don't have a college degree right now is 90 00:04:42,760 --> 00:04:45,000 Speaker 1: who is that to help? Who are you doing that for. 91 00:04:45,480 --> 00:04:47,400 Speaker 1: Why are you considering doing that? Who is it for 92 00:04:47,880 --> 00:04:50,400 Speaker 1: other than just energizing the base going into the midterms 93 00:04:50,720 --> 00:04:53,960 Speaker 1: later this year. Well, first, we should be trying to 94 00:04:54,000 --> 00:04:56,880 Speaker 1: help everybody who wants to work get into a job 95 00:04:56,920 --> 00:05:00,159 Speaker 1: that will give them pay and an upward mobil an 96 00:05:00,200 --> 00:05:02,760 Speaker 1: opportunity to succeed. And one of the things we're seeing 97 00:05:02,800 --> 00:05:05,960 Speaker 1: about having such a strong labor market recovery right now 98 00:05:06,320 --> 00:05:09,080 Speaker 1: is we're seeing historic gains not just overall the largest 99 00:05:09,120 --> 00:05:12,279 Speaker 1: declined the unemployment rate in any recovery in recent history, 100 00:05:12,320 --> 00:05:16,600 Speaker 1: but also record gains for Blacks, record reduction in the 101 00:05:16,640 --> 00:05:19,640 Speaker 1: unemployment rate Hispanics, the largest reduction in the unemployment rate 102 00:05:19,640 --> 00:05:22,760 Speaker 1: for Hispanics ever on record. So we're seeing that in 103 00:05:22,839 --> 00:05:24,960 Speaker 1: the job market. We want to do more. A lot 104 00:05:24,960 --> 00:05:28,240 Speaker 1: of that is about workplace training. You should jump in. 105 00:05:28,240 --> 00:05:30,160 Speaker 1: I just want to now down the point because you 106 00:05:30,200 --> 00:05:33,760 Speaker 1: know this is important. As you know, and I'll repeat it, 107 00:05:34,120 --> 00:05:36,160 Speaker 1: those with the college degree seemed to be doing much 108 00:05:36,240 --> 00:05:39,719 Speaker 1: much better than those without. As you work at relief 109 00:05:39,960 --> 00:05:41,880 Speaker 1: for the American people at the moment, why is their 110 00:05:41,920 --> 00:05:45,080 Speaker 1: focus on ten tho dollars of student debt relief at 111 00:05:45,120 --> 00:05:47,159 Speaker 1: a time when those people in America who do not 112 00:05:47,240 --> 00:05:50,680 Speaker 1: have a college degree again squeezed by gas prices crewed 113 00:05:50,720 --> 00:05:53,680 Speaker 1: again this morning at one eighteen, JP Morgan saying, gasket 114 00:05:53,720 --> 00:05:56,080 Speaker 1: hits six dollars later this year. You know the people 115 00:05:56,160 --> 00:05:58,640 Speaker 1: that's hitting the most, many of those do not have 116 00:05:58,720 --> 00:06:02,120 Speaker 1: a college degree. Why is this administration focused on doing 117 00:06:02,200 --> 00:06:05,760 Speaker 1: something which, let's face it might play well in the midterms, 118 00:06:05,760 --> 00:06:08,320 Speaker 1: but ultimately isn't going to help those people that need 119 00:06:08,320 --> 00:06:11,640 Speaker 1: the help the most. Right now, my point is we're 120 00:06:11,680 --> 00:06:13,479 Speaker 1: we're focused on trying to help everybody. But to the 121 00:06:13,560 --> 00:06:15,760 Speaker 1: question of those uh and and a lot of the 122 00:06:15,760 --> 00:06:17,520 Speaker 1: steps that we are taking are going to help people 123 00:06:17,520 --> 00:06:20,440 Speaker 1: who have less than a college degree. But when you 124 00:06:20,480 --> 00:06:23,039 Speaker 1: look at the issue of student debt, there are tens 125 00:06:23,040 --> 00:06:26,560 Speaker 1: of millions of Americans out there who um are in 126 00:06:26,680 --> 00:06:30,280 Speaker 1: the labor market and now may have gotten some college 127 00:06:30,360 --> 00:06:34,440 Speaker 1: education or college education, but are held back by the 128 00:06:34,480 --> 00:06:38,480 Speaker 1: burden of having to pay in some cases extreme extraordinarily 129 00:06:38,760 --> 00:06:41,960 Speaker 1: high debt. So the question there is is are there 130 00:06:42,000 --> 00:06:43,920 Speaker 1: steps that we can take, prudent steps that we can 131 00:06:43,960 --> 00:06:48,320 Speaker 1: take to try to help unlock economic opportunities for those families, 132 00:06:48,520 --> 00:06:51,599 Speaker 1: while at the same time doing everything we can to 133 00:06:51,720 --> 00:06:55,880 Speaker 1: help create a labor market that is creating dynamics like 134 00:06:55,920 --> 00:06:58,200 Speaker 1: the one we're seeing now where for the first time 135 00:06:58,200 --> 00:07:01,000 Speaker 1: in a very long time, people with out of college degree, 136 00:07:01,200 --> 00:07:05,279 Speaker 1: people with some college degree are seeing economic opportunities, opportunities 137 00:07:05,320 --> 00:07:07,640 Speaker 1: to move into jobs with higher wages that they haven't 138 00:07:07,680 --> 00:07:10,280 Speaker 1: in some time. We're also focused on trying to sustain 139 00:07:10,280 --> 00:07:12,040 Speaker 1: that and continue that going forward. Right, and good to 140 00:07:12,080 --> 00:07:14,480 Speaker 1: catch up, as always, always fantastic to get your perspective 141 00:07:14,480 --> 00:07:21,800 Speaker 1: on things. Brands there of the National Economic Council joining 142 00:07:21,840 --> 00:07:24,880 Speaker 1: us now as Peter Roppenheimer, Chief Global Equity Strategistic Garment 143 00:07:24,920 --> 00:07:26,640 Speaker 1: Sacks and Peter, you put out the note yesterday, So 144 00:07:26,720 --> 00:07:29,720 Speaker 1: let's start with your research. What happens after you've seen 145 00:07:30,080 --> 00:07:32,400 Speaker 1: peak inflation. So work through it with us. Have we 146 00:07:32,480 --> 00:07:37,400 Speaker 1: seen that what happens next? Well, I think that if 147 00:07:37,440 --> 00:07:40,280 Speaker 1: you look at the history for markets, at least when 148 00:07:40,280 --> 00:07:42,560 Speaker 1: you get peak inflation, you do tend to get a 149 00:07:42,640 --> 00:07:46,440 Speaker 1: recovery and risk assets, and that's generally because it starts 150 00:07:46,440 --> 00:07:50,840 Speaker 1: to alleviate pressures on on interest rates. By that stage, 151 00:07:51,280 --> 00:07:55,200 Speaker 1: you've usually had markets already pricing and an economic downturn. 152 00:07:55,720 --> 00:07:58,560 Speaker 1: So at the point where people think that things are 153 00:07:58,840 --> 00:08:01,600 Speaker 1: bad but getting less, you tend to get a recovery. 154 00:08:01,760 --> 00:08:04,480 Speaker 1: But it's important to say that there are variations around 155 00:08:04,520 --> 00:08:08,400 Speaker 1: this theme. After all, you know, an inflation peaked in 156 00:08:08,480 --> 00:08:11,440 Speaker 1: two thousand one, markets were still falling because of the 157 00:08:11,480 --> 00:08:15,080 Speaker 1: fallout from the tech bubble, and similarly that was true 158 00:08:15,080 --> 00:08:17,160 Speaker 1: around the financial crisis. So I think we've got a 159 00:08:17,200 --> 00:08:21,360 Speaker 1: little bit be a little bit circumstanspect about this. Generally, 160 00:08:21,480 --> 00:08:25,080 Speaker 1: I think if inflation peaks, it will provide some relief, 161 00:08:25,480 --> 00:08:28,920 Speaker 1: but there's still the ongoing uncertainty about the scale of 162 00:08:28,960 --> 00:08:31,960 Speaker 1: the slowdown and growth, and until we get more evidence 163 00:08:32,040 --> 00:08:35,440 Speaker 1: that the rate of deterioration there is slowing, I think 164 00:08:35,440 --> 00:08:37,480 Speaker 1: markets will be a bit volatile in the short run. 165 00:08:37,720 --> 00:08:42,640 Speaker 1: Peter paint a picture of how corporations adapt, not sector 166 00:08:42,679 --> 00:08:46,640 Speaker 1: to sector, but as a general statement, giving new almost 167 00:08:46,720 --> 00:08:51,080 Speaker 1: jump condition move in inflation, how do corporations adapt and 168 00:08:51,120 --> 00:08:54,960 Speaker 1: adjust well. I think there are two things that are 169 00:08:55,000 --> 00:08:58,400 Speaker 1: important to say. One of them is that, uh, you know, 170 00:08:58,480 --> 00:09:03,680 Speaker 1: inflation is generally rating higher nominal GDP. In a sense, 171 00:09:03,800 --> 00:09:06,920 Speaker 1: growth is not the problem to your point earlier, Tom, 172 00:09:07,040 --> 00:09:10,400 Speaker 1: The problem is is margins and bottom line. You know, 173 00:09:11,440 --> 00:09:14,880 Speaker 1: equities companies are making a claim on nominal GDP growth. 174 00:09:15,120 --> 00:09:18,360 Speaker 1: Nominal GDP is actually quite high relative to the last decade. 175 00:09:18,640 --> 00:09:21,560 Speaker 1: The question is how they can cope with higher costs, 176 00:09:22,040 --> 00:09:24,840 Speaker 1: what that does to margins, what that does to earnings 177 00:09:24,840 --> 00:09:28,400 Speaker 1: in the bottom line, and their valuation. I think the 178 00:09:28,520 --> 00:09:31,520 Speaker 1: second point to mention is that we're in an environment 179 00:09:31,559 --> 00:09:33,520 Speaker 1: now which is very different to the one we've seen 180 00:09:33,520 --> 00:09:36,920 Speaker 1: in the last couple of decades, when both commodities and 181 00:09:37,040 --> 00:09:41,400 Speaker 1: labor were easily available relatively cheap. And now we're in 182 00:09:41,400 --> 00:09:46,280 Speaker 1: an environment, probably structurally, where both commodities becoming more scarce, 183 00:09:46,640 --> 00:09:50,960 Speaker 1: more heavily contested and competed for, more expensive, and labor 184 00:09:51,000 --> 00:09:53,760 Speaker 1: as well. I think what that will do is encourage 185 00:09:53,840 --> 00:09:58,720 Speaker 1: more companies to invest in greater efficiency like we saw 186 00:09:58,720 --> 00:10:02,720 Speaker 1: in the seventies, you know, more or spending on innovations 187 00:10:02,800 --> 00:10:06,400 Speaker 1: to become more energy efficient, and stuff instituting to some 188 00:10:06,480 --> 00:10:09,440 Speaker 1: extent technology for labor as well. Peter, how does this 189 00:10:09,559 --> 00:10:13,920 Speaker 1: all play into being overweight both equities and cash, which 190 00:10:13,960 --> 00:10:16,280 Speaker 1: doesn't seem to make sense given the fact that you 191 00:10:16,320 --> 00:10:20,560 Speaker 1: see bonds as actually being the biggest out of performers here. Yeah, 192 00:10:20,640 --> 00:10:24,640 Speaker 1: I mean in a short term horizon, we're actually neutral 193 00:10:24,640 --> 00:10:27,760 Speaker 1: of ecutors, overweight cash and commodities. On a twelve monthly 194 00:10:27,880 --> 00:10:30,439 Speaker 1: we are actually overweight equities, And I think it's important 195 00:10:30,440 --> 00:10:36,359 Speaker 1: to emphasize that relative to bonds, there's still some reasonable 196 00:10:36,440 --> 00:10:40,199 Speaker 1: return I think to be gotten equities over over a 197 00:10:40,280 --> 00:10:43,520 Speaker 1: twelve months horizon. First of all, valuations have come down 198 00:10:43,520 --> 00:10:47,040 Speaker 1: a lot. Actually profits have held up so far, very 199 00:10:47,160 --> 00:10:50,880 Speaker 1: very well. If you look at most equity markets are 200 00:10:50,920 --> 00:10:55,240 Speaker 1: training now below long run average valuations. That's true across 201 00:10:55,280 --> 00:10:59,000 Speaker 1: Europe and across Asia, and e m not true in 202 00:10:59,040 --> 00:11:01,480 Speaker 1: the US. The US is still trading above its long 203 00:11:01,559 --> 00:11:06,040 Speaker 1: run average valuations. But I think there are some attractive 204 00:11:06,080 --> 00:11:09,080 Speaker 1: valuations that are coming through earning. If you think will 205 00:11:09,120 --> 00:11:12,920 Speaker 1: grow with stronger nominal GDP, will be able to slower rate. 206 00:11:13,400 --> 00:11:17,360 Speaker 1: The problem is valuation because obviously with higher inflation, higher 207 00:11:17,400 --> 00:11:21,880 Speaker 1: interest rates, not seeing the valuation expansion that investors got 208 00:11:22,000 --> 00:11:24,040 Speaker 1: used to in the last cycle. So I think taking 209 00:11:24,040 --> 00:11:26,719 Speaker 1: those things together on a twelve month view, we think 210 00:11:26,720 --> 00:11:29,360 Speaker 1: there's some good opportunities. Next is now pay the wonderful 211 00:11:29,360 --> 00:11:31,920 Speaker 1: to catch out and congrats to your Tottenham for top 212 00:11:31,960 --> 00:11:33,880 Speaker 1: four finish. And now you wanted me to squeeze that 213 00:11:33,920 --> 00:11:37,280 Speaker 1: in there somewhere. Thank you, buddy Peter of Goldman Sax. 214 00:11:37,320 --> 00:11:44,680 Speaker 1: Thank you. It is a joy and it was my 215 00:11:44,720 --> 00:11:47,400 Speaker 1: book of the summer a few years ago. Stevinus and 216 00:11:47,480 --> 00:11:50,880 Speaker 1: Ackerman way out front and attentions with China looking out 217 00:11:50,920 --> 00:11:54,280 Speaker 1: to two thousand thirty four. Now it is vintage tore 218 00:11:54,360 --> 00:11:56,320 Speaker 1: vin Us and he joins us this morning the album 219 00:11:56,679 --> 00:12:00,400 Speaker 1: to risk it All, and this is what he does best. 220 00:12:00,559 --> 00:12:05,559 Speaker 1: This is eight nine ten chapters, nine conflicts, nine chapters 221 00:12:05,559 --> 00:12:08,520 Speaker 1: on people in the Navy and lessons learned of their 222 00:12:08,559 --> 00:12:12,520 Speaker 1: successes and their failures. I want to fold this admiral 223 00:12:12,559 --> 00:12:14,880 Speaker 1: into where we are right now. And this is off 224 00:12:15,000 --> 00:12:19,640 Speaker 1: my conversation in Davos with Sir Lawrence Freedman as well 225 00:12:19,880 --> 00:12:23,160 Speaker 1: on the Black Sea. You were first I heard on 226 00:12:23,240 --> 00:12:26,840 Speaker 1: the Black Sea. William Halsey was out of Pearl Harbor. 227 00:12:28,400 --> 00:12:31,880 Speaker 1: He came back, he supported uh nem As, he supported 228 00:12:32,320 --> 00:12:34,600 Speaker 1: the Navy under a lot of heat, and then he 229 00:12:34,679 --> 00:12:39,079 Speaker 1: went out to see aggressively. How do we be aggressive 230 00:12:39,240 --> 00:12:44,080 Speaker 1: in a Black Sea contained by the Bosphors Strait. The 231 00:12:44,160 --> 00:12:47,839 Speaker 1: Black Sea is a Russian lake right now, their Black 232 00:12:47,840 --> 00:12:51,160 Speaker 1: Sea Fleet controls it. But here's the good news, Tom, 233 00:12:51,160 --> 00:12:56,120 Speaker 1: there are NATO allies around that Black Sea, including Turkey, Romania, Bulgaria. 234 00:12:56,200 --> 00:12:59,760 Speaker 1: We have NATO warships in the area. The United States 235 00:12:59,800 --> 00:13:03,840 Speaker 1: can flow warships that are currently stationed in the Mediterranean Sea. 236 00:13:04,320 --> 00:13:06,920 Speaker 1: I think we need to look to the sea because 237 00:13:06,960 --> 00:13:12,040 Speaker 1: of grain, because of a grarian products bottled up in Ukraine. 238 00:13:12,320 --> 00:13:15,200 Speaker 1: At some point, the international community, I believe, is going 239 00:13:15,240 --> 00:13:19,480 Speaker 1: to have to consider escorting grain tankers in and out 240 00:13:19,520 --> 00:13:22,439 Speaker 1: of Odessa. Right now they're choked off. That's going to 241 00:13:22,559 --> 00:13:27,280 Speaker 1: lead to maximal impact in North Africa. We need to 242 00:13:27,800 --> 00:13:30,560 Speaker 1: we need to open the seas to Ukraine. I think 243 00:13:30,600 --> 00:13:33,120 Speaker 1: that's the next big muscle movement in this war. Are 244 00:13:33,160 --> 00:13:36,520 Speaker 1: we measuring risk correctly? Let's look at Admiral Halsey in 245 00:13:36,559 --> 00:13:38,960 Speaker 1: your book and the idea that he got a lot 246 00:13:39,040 --> 00:13:43,560 Speaker 1: of things right and he had a most difficult in 247 00:13:43,640 --> 00:13:49,640 Speaker 1: the Philippines were worried about failure. Like Admiral Halsey faced failure. 248 00:13:49,679 --> 00:13:54,960 Speaker 1: Are we over emphasizing failure? I think we are not. 249 00:13:55,240 --> 00:13:57,800 Speaker 1: And let's take it to Ukraine where you see two 250 00:13:57,880 --> 00:14:01,400 Speaker 1: risk takers, right. You see Vladimir Putin who has really 251 00:14:01,520 --> 00:14:03,800 Speaker 1: rolled the dice in a very big way, and I 252 00:14:03,800 --> 00:14:06,040 Speaker 1: don't think it's going to come out well for him 253 00:14:06,120 --> 00:14:10,040 Speaker 1: because he has no moral grounding. On the other side 254 00:14:10,040 --> 00:14:12,360 Speaker 1: of the coin. To your question, Tom, you see someone 255 00:14:12,440 --> 00:14:16,880 Speaker 1: like Zelensky who literally is risking at all his family, 256 00:14:17,040 --> 00:14:22,200 Speaker 1: his parents, his civilization, his cities. That's pretty motivating. And 257 00:14:22,240 --> 00:14:24,400 Speaker 1: I think at the end of the day, with the 258 00:14:24,400 --> 00:14:28,240 Speaker 1: tools the Western providing him, his risk calculus is going 259 00:14:28,240 --> 00:14:31,000 Speaker 1: to be the correct one. Okay, So, Admiral if Vladiman 260 00:14:31,040 --> 00:14:33,840 Speaker 1: Putin is an example of failed leadership, why aren't they 261 00:14:33,880 --> 00:14:39,600 Speaker 1: losing more quickly? Well, they are losing very quickly, as followers, 262 00:14:39,680 --> 00:14:43,160 Speaker 1: Lee say. You'll recall three months ago, every prediction was 263 00:14:43,240 --> 00:14:46,040 Speaker 1: that they were going to sweep across the country, conquered Kiev, 264 00:14:46,520 --> 00:14:50,840 Speaker 1: decapitate the Zelensky regime. None of that happened. Plan A 265 00:14:51,160 --> 00:14:54,240 Speaker 1: total failure. So now they're back to Plan B, which 266 00:14:54,280 --> 00:14:58,200 Speaker 1: is a much more modest approach in the southeast of 267 00:14:58,200 --> 00:15:02,680 Speaker 1: the country, and they're doing better by comparison with their 268 00:15:02,680 --> 00:15:05,520 Speaker 1: failures at the beginning. But I wouldn't categorize what I'm 269 00:15:05,520 --> 00:15:07,480 Speaker 1: seeing right now is a lot of success on the 270 00:15:07,560 --> 00:15:10,000 Speaker 1: Russian side. So then it brings us back to the 271 00:15:10,000 --> 00:15:13,280 Speaker 1: Black Sea and your idea of possibly escorting grain ships 272 00:15:13,280 --> 00:15:17,200 Speaker 1: from Odessa. How aggressive should the Western allies get in 273 00:15:17,200 --> 00:15:21,640 Speaker 1: the face of dramatically weakened leadership by Vladimir Putin? Is 274 00:15:21,680 --> 00:15:24,240 Speaker 1: it time to be more aggressive or is it just 275 00:15:24,320 --> 00:15:26,320 Speaker 1: to continue this sort of grinding it out kind of 276 00:15:26,320 --> 00:15:30,200 Speaker 1: approach that we've been seeing for the past couple of months. 277 00:15:29,960 --> 00:15:32,640 Speaker 1: The mistake here is to think that it's some kind 278 00:15:32,680 --> 00:15:35,200 Speaker 1: of on and off switch that either we go to 279 00:15:35,320 --> 00:15:38,000 Speaker 1: war with Russia or we just sit back and let 280 00:15:38,080 --> 00:15:41,920 Speaker 1: him conquer Ukraine. I think the West has correctly treated 281 00:15:41,960 --> 00:15:44,320 Speaker 1: it like a re estate, like the dimmer in your 282 00:15:44,800 --> 00:15:48,880 Speaker 1: dining room, and is cranking it up, taking more risk. 283 00:15:49,120 --> 00:15:52,440 Speaker 1: Back to the tough conversation I just had Tom taking 284 00:15:52,440 --> 00:15:57,000 Speaker 1: more risk, Uh, imprudent ways. And I think in that case, 285 00:15:57,600 --> 00:15:59,680 Speaker 1: when I look at the grain ship and it's time 286 00:15:59,720 --> 00:16:02,560 Speaker 1: to take can look at that as de venus. What 287 00:16:02,760 --> 00:16:06,680 Speaker 1: can anyone from England learn from the power of no? 288 00:16:07,960 --> 00:16:12,160 Speaker 1: And John Paul Jones this is a few years ago 289 00:16:12,760 --> 00:16:16,680 Speaker 1: and Mr Jones went over to England and took on Britain. 290 00:16:16,920 --> 00:16:20,720 Speaker 1: What do we learn about the power of no in 291 00:16:20,800 --> 00:16:25,480 Speaker 1: one word? Determination? And here you have a relatively rag 292 00:16:25,560 --> 00:16:29,640 Speaker 1: tag American navy in the seventeen seventies, and John Paul 293 00:16:29,720 --> 00:16:32,800 Speaker 1: Jones inspires it by fighting from the deck of the 294 00:16:32,880 --> 00:16:35,840 Speaker 1: bon Am Richard and defeating a British ship, the Therapists 295 00:16:36,560 --> 00:16:40,840 Speaker 1: seventy nine. It's an extraordinary story in which he utters 296 00:16:40,920 --> 00:16:43,920 Speaker 1: the immortal words immortal to the navy. And I would 297 00:16:44,000 --> 00:16:47,920 Speaker 1: argue to anybody, I have not yet begun to fight, 298 00:16:48,040 --> 00:16:51,240 Speaker 1: even when looking defeat from the eye. Oh Pharaos says 299 00:16:51,280 --> 00:16:54,400 Speaker 1: that once a week, taking this tongue, as you said, 300 00:16:54,400 --> 00:16:57,560 Speaker 1: have that conversation, and well, thank you, James. De free 301 00:16:57,600 --> 00:16:59,880 Speaker 1: to stay at the car Group, thank you very much. 302 00:17:04,280 --> 00:17:08,439 Speaker 1: Right now and hugely anticipated. Leland Miller is co founder 303 00:17:08,480 --> 00:17:11,119 Speaker 1: of the Chief Executive Officer of China Beijing book but 304 00:17:11,280 --> 00:17:14,239 Speaker 1: far more he is someone with his pulse on the 305 00:17:14,359 --> 00:17:17,679 Speaker 1: Chinese data of the dynamics is taken from the micro 306 00:17:17,840 --> 00:17:22,119 Speaker 1: data of of China. He joins us. This morning, I 307 00:17:22,160 --> 00:17:25,440 Speaker 1: want to talk Leland about the Shanghai calculus about the 308 00:17:25,560 --> 00:17:28,679 Speaker 1: rate of change, the second derivative, the rate of change 309 00:17:28,680 --> 00:17:31,800 Speaker 1: of the rate of change that the government in Beijing 310 00:17:31,960 --> 00:17:37,359 Speaker 1: needs from Shanghai. How desperate is Beijing for Shanghai to 311 00:17:37,440 --> 00:17:41,399 Speaker 1: get it going? Well, they're they're very desperate, first of 312 00:17:41,400 --> 00:17:43,840 Speaker 1: all because Shanghai is a growth engine, but second because 313 00:17:43,840 --> 00:17:46,720 Speaker 1: it's a confidence engine for the economy. And what's what's 314 00:17:46,760 --> 00:17:49,200 Speaker 1: so curious about you know, the p m I data 315 00:17:49,240 --> 00:17:51,840 Speaker 1: that came out last night, a few days after an 316 00:17:51,840 --> 00:17:56,520 Speaker 1: extraordinarily panicky meeting. You know something we haven't seen in decades. Uh, 317 00:17:56,720 --> 00:17:58,560 Speaker 1: all of a sudden that the data come out last 318 00:17:58,680 --> 00:18:02,160 Speaker 1: night and they're they're they're they're improving from May. Uh. 319 00:18:02,200 --> 00:18:04,560 Speaker 1: You know April was bad, beys getting better. That's the 320 00:18:04,600 --> 00:18:06,480 Speaker 1: opposite of what we saw in China Beige book data. 321 00:18:06,520 --> 00:18:09,119 Speaker 1: We actually saw much more problems in May as the 322 00:18:09,320 --> 00:18:13,240 Speaker 1: as the secondary consequences of the lockdown spread away from Shanghai. 323 00:18:13,640 --> 00:18:15,760 Speaker 1: So you know, they want to tell a pretty story 324 00:18:15,840 --> 00:18:18,159 Speaker 1: right now. It's important for markets. But you know, we 325 00:18:18,240 --> 00:18:20,000 Speaker 1: did not see an improvement from April to May. We 326 00:18:20,000 --> 00:18:21,919 Speaker 1: saw the opposite. So Leland give us a sense of 327 00:18:21,920 --> 00:18:24,239 Speaker 1: what the China Beige Book is charting out the end 328 00:18:24,240 --> 00:18:26,920 Speaker 1: of the year in terms of GDP, the real GDP 329 00:18:27,160 --> 00:18:30,000 Speaker 1: of China, not necessarily the four and a half five 330 00:18:30,080 --> 00:18:33,680 Speaker 1: percent that the Communist Party would like to say. Well, look, 331 00:18:33,800 --> 00:18:36,520 Speaker 1: if you assume the second quarter is in contraction no 332 00:18:36,520 --> 00:18:38,280 Speaker 1: matter what they do or give, give or give or 333 00:18:38,320 --> 00:18:40,600 Speaker 1: take a little bit um, then you know, the question 334 00:18:40,720 --> 00:18:42,480 Speaker 1: is what are they going to do the second half 335 00:18:42,520 --> 00:18:47,280 Speaker 1: of the year without rolling back COVID lockdowns or COVID 336 00:18:47,400 --> 00:18:50,240 Speaker 1: zero lockdowns if if they need them, you know, to 337 00:18:50,359 --> 00:18:53,159 Speaker 1: to to get the g DP somewhere in a range 338 00:18:53,240 --> 00:18:55,280 Speaker 1: that that they can claim. I think that the new 339 00:18:55,320 --> 00:18:57,560 Speaker 1: calculus is we're gonna get to the fourth quarter, We're 340 00:18:57,560 --> 00:18:59,520 Speaker 1: gonna hope there's no COVID, and we're gonna announce you know, 341 00:18:59,560 --> 00:19:02,320 Speaker 1: five or s GDP for the fourth quarter and try 342 00:19:02,359 --> 00:19:04,880 Speaker 1: to get it somewhere between you know, three and four 343 00:19:04,960 --> 00:19:07,800 Speaker 1: percent claiming claiming three and four percent for the year. 344 00:19:08,240 --> 00:19:10,640 Speaker 1: Then then I think markets will say Okay, that's that's 345 00:19:10,680 --> 00:19:12,640 Speaker 1: not too bad. You know, we are not on track 346 00:19:12,720 --> 00:19:15,119 Speaker 1: for anywhere near that. You have to have a lot 347 00:19:15,200 --> 00:19:18,080 Speaker 1: of more support for the economy and a lot less 348 00:19:18,320 --> 00:19:20,200 Speaker 1: COVID lockdowns of the economy in order for us to 349 00:19:20,200 --> 00:19:22,760 Speaker 1: get anywhere near that ballpark amount. But I think that's 350 00:19:22,760 --> 00:19:24,280 Speaker 1: the story they want to tell. What are we on 351 00:19:24,320 --> 00:19:26,280 Speaker 1: the bulk park for? What are we on track four 352 00:19:26,320 --> 00:19:29,040 Speaker 1: based in the China beage book data? Well, I mean, 353 00:19:29,280 --> 00:19:31,720 Speaker 1: you know, with with the second quarters week as it is, 354 00:19:31,800 --> 00:19:33,840 Speaker 1: and and you know, if you try to do any 355 00:19:33,840 --> 00:19:37,159 Speaker 1: type of linear projection, you're you're under two. Um, you know, 356 00:19:37,200 --> 00:19:40,000 Speaker 1: you're you're you have to see a lot more support 357 00:19:40,040 --> 00:19:42,399 Speaker 1: for the economy, which I do think we'll do. You know, 358 00:19:42,480 --> 00:19:44,639 Speaker 1: as we get close to the Party Congress, we do 359 00:19:44,760 --> 00:19:47,600 Speaker 1: expect there to be more credit support. We do expect 360 00:19:47,640 --> 00:19:50,240 Speaker 1: there to be a little more infrastructure. That's not surprising. 361 00:19:50,280 --> 00:19:51,760 Speaker 1: But you know you're gonna have to see a lot 362 00:19:51,800 --> 00:19:54,480 Speaker 1: more of that, and it can't be interrupted by lockdowns 363 00:19:54,560 --> 00:19:59,760 Speaker 1: across the economy. Leland Miller Deng years ago to get 364 00:20:00,000 --> 00:20:03,880 Speaker 1: which is glorious. How far are we removed from that 365 00:20:04,240 --> 00:20:08,160 Speaker 1: in this Chinese crisis? I don't think we're that far 366 00:20:08,200 --> 00:20:11,520 Speaker 1: away from it. If anything, some of what we've been 367 00:20:11,520 --> 00:20:13,560 Speaker 1: taught over the past, you know, six months, is that 368 00:20:13,960 --> 00:20:16,160 Speaker 1: is that the Chinese model is not actually any more 369 00:20:16,160 --> 00:20:18,560 Speaker 1: superior than any other model. They just had COVID at 370 00:20:18,560 --> 00:20:20,400 Speaker 1: a different time, and now they're getting hit pretty hard 371 00:20:20,440 --> 00:20:23,360 Speaker 1: with it. So everything has to get through the party Congress. 372 00:20:23,400 --> 00:20:26,160 Speaker 1: She has to have his political moment, and then then 373 00:20:26,240 --> 00:20:29,000 Speaker 1: they can start recalibrating the economy and the stock market 374 00:20:29,040 --> 00:20:32,200 Speaker 1: and the and the regulatory system. Do we underestimate the 375 00:20:32,280 --> 00:20:35,600 Speaker 1: unchanged China that Deng said to get rich is glorious 376 00:20:35,640 --> 00:20:37,679 Speaker 1: and that's what they want to do. And do we 377 00:20:37,800 --> 00:20:43,800 Speaker 1: overestimate right now the totalitarian shift? I think we did 378 00:20:43,880 --> 00:20:45,920 Speaker 1: until a few weeks ago. But I think, what what's 379 00:20:45,920 --> 00:20:50,520 Speaker 1: seeing all this uh, you know, headline conflict between Shi 380 00:20:50,600 --> 00:20:53,760 Speaker 1: Jinping and the ostensible number two Lee Kutch Young? You know, 381 00:20:53,880 --> 00:20:56,639 Speaker 1: I think people are understanding how much opposition there is 382 00:20:56,680 --> 00:21:00,639 Speaker 1: within China in the leadership, amongst people who are lockdown 383 00:21:01,000 --> 00:21:05,280 Speaker 1: to this COVID zero lockdown policy and to this slowing economy. 384 00:21:05,320 --> 00:21:09,080 Speaker 1: And so we are now seeing, we are seeing the 385 00:21:09,600 --> 00:21:12,080 Speaker 1: dirty side of of of China's governance. Right now, and 386 00:21:12,119 --> 00:21:14,439 Speaker 1: I think people are more aware of it Leland, A 387 00:21:14,480 --> 00:21:17,119 Speaker 1: lot of people have been looking out and wondering what 388 00:21:17,200 --> 00:21:20,359 Speaker 1: we're going to see with respect to US businesses, multinational 389 00:21:20,400 --> 00:21:24,080 Speaker 1: businesses and supply chains. Why we haven't seen more of 390 00:21:24,160 --> 00:21:28,399 Speaker 1: some sort of removal from certain facilities in China elsewhere? 391 00:21:28,440 --> 00:21:31,800 Speaker 1: Are we now starting to see that after years of speculation? 392 00:21:32,880 --> 00:21:35,199 Speaker 1: I think so? And for one reason. You know, the 393 00:21:35,200 --> 00:21:37,679 Speaker 1: trade war didn't do it, COVID didn't do it, but 394 00:21:37,760 --> 00:21:40,040 Speaker 1: the lockdowns or something else, and I think you're gonna 395 00:21:40,040 --> 00:21:44,000 Speaker 1: have a very hard time not just getting Western businesses 396 00:21:44,280 --> 00:21:48,359 Speaker 1: run across China, but getting ex pats or anyone to 397 00:21:48,480 --> 00:21:50,840 Speaker 1: work at these businesses. Nobody wants to be in China 398 00:21:50,920 --> 00:21:52,919 Speaker 1: right now. No one wants to be locked down and 399 00:21:52,920 --> 00:21:56,080 Speaker 1: they can't see their families who maybe elsewhere, for for 400 00:21:56,080 --> 00:21:58,240 Speaker 1: for a year, for for six months, for for longer 401 00:21:58,280 --> 00:22:00,800 Speaker 1: than that. So I think this is shift to the calculus. 402 00:22:00,800 --> 00:22:03,119 Speaker 1: For people who want to live in China. It's been 403 00:22:03,160 --> 00:22:04,879 Speaker 1: a much more difficult and they're gonna have a much 404 00:22:04,920 --> 00:22:08,200 Speaker 1: harder time running businesses in China because of it. US 405 00:22:08,240 --> 00:22:10,159 Speaker 1: executives are not going to come out and say that 406 00:22:10,160 --> 00:22:12,119 Speaker 1: they're getting out of China right, because they're not going 407 00:22:12,160 --> 00:22:14,160 Speaker 1: to say that until they already have. They don't want 408 00:22:14,160 --> 00:22:16,520 Speaker 1: to hamper their employees who work there. They also don't 409 00:22:16,560 --> 00:22:19,600 Speaker 1: want to get some blowback from the Chinese government. How 410 00:22:19,720 --> 00:22:22,119 Speaker 1: much have you seen this withdrawal? I mean, this is 411 00:22:22,160 --> 00:22:25,119 Speaker 1: basically the big question for a lot of companies that 412 00:22:25,160 --> 00:22:28,560 Speaker 1: have been pretty quiet on this. Well, I think it's 413 00:22:28,600 --> 00:22:32,000 Speaker 1: it's tell tale that you know, just about just about 414 00:22:32,119 --> 00:22:34,640 Speaker 1: everybody I know is is either out on their way 415 00:22:34,640 --> 00:22:37,680 Speaker 1: out or or or has already left. And uh and 416 00:22:37,680 --> 00:22:39,800 Speaker 1: and there's very few people with plans to go into 417 00:22:39,880 --> 00:22:42,399 Speaker 1: China anytime soon. I mean, it's just very difficult to 418 00:22:42,400 --> 00:22:46,440 Speaker 1: travel and it's very difficult to live live. So people 419 00:22:46,480 --> 00:22:49,280 Speaker 1: don't want to accept that link that change to the 420 00:22:49,359 --> 00:22:53,520 Speaker 1: Party Congress. Then later this autumn. Well, I think what 421 00:22:53,600 --> 00:22:56,399 Speaker 1: the Party Congress does is she has his moment, and 422 00:22:56,440 --> 00:22:59,560 Speaker 1: then after that they can recalibrate certain things. If they 423 00:22:59,560 --> 00:23:02,360 Speaker 1: needed aange COVID zero, they can change COVID zero if 424 00:23:02,359 --> 00:23:04,960 Speaker 1: they need to. I don't mean to interrupt, but can 425 00:23:05,000 --> 00:23:08,639 Speaker 1: they even spare the time to get to December January 426 00:23:08,640 --> 00:23:11,600 Speaker 1: of next year? You know, I don't see how they 427 00:23:11,640 --> 00:23:14,000 Speaker 1: do it. Um, you know, they have to be extraordinarily lucky, 428 00:23:14,000 --> 00:23:17,080 Speaker 1: and they have to introduce vaccines and even even by 429 00:23:17,119 --> 00:23:18,960 Speaker 1: the Chinese reckoning that they say they're not going to 430 00:23:19,000 --> 00:23:22,160 Speaker 1: be introducing them to October. So they're having some very 431 00:23:22,240 --> 00:23:24,760 Speaker 1: very difficult conversations. Now this is this is far and 432 00:23:24,800 --> 00:23:28,920 Speaker 1: away the worst conditions that we've seen in years, and 433 00:23:29,200 --> 00:23:33,320 Speaker 1: there's no way out if COVID returns. So, uh, you 434 00:23:33,359 --> 00:23:35,200 Speaker 1: have to be crossing your fingers if you're if you're 435 00:23:35,200 --> 00:23:37,080 Speaker 1: thinking China is going to really improve in the second half, 436 00:23:37,119 --> 00:23:40,000 Speaker 1: you are crossing your fingers both the policy support will 437 00:23:40,000 --> 00:23:42,120 Speaker 1: be there and also that COVID won't just come and 438 00:23:42,119 --> 00:23:44,640 Speaker 1: and knock them off their feet again. Unless the story 439 00:23:44,640 --> 00:23:45,920 Speaker 1: with this sign can on the economy. I wanted to 440 00:23:45,960 --> 00:23:48,240 Speaker 1: finish on something really important. I think, as we've both 441 00:23:48,280 --> 00:23:50,680 Speaker 1: observed for the last ten years, it was clear and 442 00:23:50,720 --> 00:23:52,520 Speaker 1: obvious to a lot of people the trajectory of some 443 00:23:52,560 --> 00:23:54,639 Speaker 1: of the policy out of restroom where this might end up. 444 00:23:54,960 --> 00:23:56,760 Speaker 1: There's some people who have turned around in the last 445 00:23:56,800 --> 00:23:59,080 Speaker 1: few months and have acted surprise surprise that this has 446 00:23:59,119 --> 00:24:02,280 Speaker 1: actually happened. Any others aren't surprised at all. Do you 447 00:24:02,320 --> 00:24:05,439 Speaker 1: foresee the same thing happening further down the road with China, 448 00:24:05,880 --> 00:24:09,640 Speaker 1: there are allegations of human rights abuses, genocide. Those allegations 449 00:24:09,640 --> 00:24:12,040 Speaker 1: have come from a range of countries. The U s UK, Canada, 450 00:24:12,520 --> 00:24:15,600 Speaker 1: and the Netherlands have all accused this country of committing genocide. 451 00:24:15,920 --> 00:24:19,480 Speaker 1: There was the latest bunch of files last week obtained 452 00:24:19,520 --> 00:24:23,760 Speaker 1: by a series of media groups, reporters, journalists, Leland speaking 453 00:24:23,760 --> 00:24:25,960 Speaker 1: to some of the detail around those human rights abuses, 454 00:24:25,960 --> 00:24:29,040 Speaker 1: and yet Leland, it's largely absent from the conversation of 455 00:24:29,080 --> 00:24:33,000 Speaker 1: corporations engaging with the Chinese Communist Party in the economy there. 456 00:24:33,400 --> 00:24:35,119 Speaker 1: It kind of sets us up for me. And in 457 00:24:35,200 --> 00:24:38,240 Speaker 1: a similar story to Russia, they ignore it, they ignore it, 458 00:24:38,280 --> 00:24:40,159 Speaker 1: they ignore it, and then we get further down the 459 00:24:40,160 --> 00:24:42,399 Speaker 1: line and they can't ignore it anymore. Where do you 460 00:24:42,440 --> 00:24:46,159 Speaker 1: see this going, Well, they're ignoring in public conversations, but 461 00:24:46,160 --> 00:24:48,400 Speaker 1: they're talking about it in private. And I think what 462 00:24:48,440 --> 00:24:50,679 Speaker 1: most of these companies are up to right now is 463 00:24:50,680 --> 00:24:53,400 Speaker 1: trying to understand whether they're going to have to completely 464 00:24:53,480 --> 00:24:56,840 Speaker 1: separate their China business, their domestic China business, from their 465 00:24:56,840 --> 00:24:58,840 Speaker 1: business from the rest of the world. And I think 466 00:24:58,840 --> 00:25:01,720 Speaker 1: that the more that there is if political imperative to 467 00:25:01,800 --> 00:25:04,159 Speaker 1: have one set of views on the Western side and 468 00:25:04,400 --> 00:25:07,879 Speaker 1: find certain things unacceptable, and another view that that's that 469 00:25:08,040 --> 00:25:11,480 Speaker 1: reflects the Chinese Communist parties views in the mainland. A 470 00:25:11,520 --> 00:25:13,680 Speaker 1: lot of these corporations they may not pull out of China, 471 00:25:13,680 --> 00:25:16,119 Speaker 1: but what they may do is separate their China business 472 00:25:16,160 --> 00:25:18,800 Speaker 1: from the rest of the world business. And and and 473 00:25:18,840 --> 00:25:22,439 Speaker 1: we're talking about separated supply chains, separated corporate entities. This 474 00:25:22,640 --> 00:25:24,879 Speaker 1: is a big, big change. Folks don't want to be 475 00:25:24,920 --> 00:25:27,399 Speaker 1: talking about it, but they're absolutely planning for Really, why 476 00:25:27,400 --> 00:25:30,119 Speaker 1: would that leave the company, like Sayample, where would it 477 00:25:30,160 --> 00:25:33,159 Speaker 1: leave them? Well, Apple, I, you know, I would have 478 00:25:33,240 --> 00:25:36,879 Speaker 1: to produce what it produces for Chinese consumers inside the country, 479 00:25:36,880 --> 00:25:38,439 Speaker 1: and then it's gonna have to find a lot of 480 00:25:38,440 --> 00:25:42,120 Speaker 1: extra production capacity in Southeast Asia and Mexico and other 481 00:25:42,160 --> 00:25:47,000 Speaker 1: places to produce all these you know, iPhones and imax 482 00:25:47,000 --> 00:25:48,760 Speaker 1: and other things for the rest of the world. Said, 483 00:25:48,800 --> 00:25:50,119 Speaker 1: what they're not going to be able to do is 484 00:25:50,160 --> 00:25:54,080 Speaker 1: rely on Chinese production capacity for most of their production 485 00:25:54,160 --> 00:25:57,840 Speaker 1: going forward. And they're absolutely trying to work out continuency plans. 486 00:25:57,840 --> 00:25:59,520 Speaker 1: But it's harder for Apple and just about any other 487 00:25:59,800 --> 00:26:02,880 Speaker 1: kind in the world, so they've got enormous headwinds, specifically 488 00:26:03,320 --> 00:26:05,359 Speaker 1: in the next couple of years. Lead. I'm really interesting 489 00:26:05,400 --> 00:26:07,120 Speaker 1: to get your thoughts in nice questions. Thank you, sir 490 00:26:07,240 --> 00:26:08,840 Speaker 1: lit a middle of the at the China bash Book. 491 00:26:09,160 --> 00:26:16,840 Speaker 1: It's a national a good time to speak to Ellen 492 00:26:16,880 --> 00:26:20,600 Speaker 1: Wald or her book. Saudi and is just absolutely extraordinary 493 00:26:20,640 --> 00:26:24,760 Speaker 1: senior fellow at the Atlantic Council. Ellen, whether it's Christian 494 00:26:24,800 --> 00:26:28,399 Speaker 1: Melek and his team at JP Morgan or Peter Siro, 495 00:26:28,520 --> 00:26:33,760 Speaker 1: we just talked to. Everyone is screaming about investment in oil, 496 00:26:34,200 --> 00:26:37,520 Speaker 1: and it can be at any part of the oil process. 497 00:26:38,000 --> 00:26:41,439 Speaker 1: To the Saudis want to lead OPEC plus to a 498 00:26:41,520 --> 00:26:46,159 Speaker 1: greater investment in oil, I I would say absolutely, And 499 00:26:46,200 --> 00:26:48,560 Speaker 1: this is something that um, I mean Nasa, who's the 500 00:26:48,640 --> 00:26:52,119 Speaker 1: CEO of a Ramco, has actually been talking about for 501 00:26:52,119 --> 00:26:55,680 Speaker 1: for years now, although much more loudly, Uh, particularly since 502 00:26:55,720 --> 00:26:59,439 Speaker 1: the RAMCO I p O is that investment in oil 503 00:27:00,119 --> 00:27:02,800 Speaker 1: and in all parts of the oil chain has been 504 00:27:02,880 --> 00:27:08,040 Speaker 1: so low for so long that even without this Russian crisis, 505 00:27:08,400 --> 00:27:11,800 Speaker 1: you could say oil prices would be higher simply because 506 00:27:11,800 --> 00:27:15,240 Speaker 1: of this lack of investment. And we'll not necessarily seeing 507 00:27:15,640 --> 00:27:19,040 Speaker 1: a big enough response in terms of investment, except from 508 00:27:19,280 --> 00:27:22,240 Speaker 1: the countries that have continued to invest in oil, like 509 00:27:22,320 --> 00:27:25,719 Speaker 1: the UAE and Saudi Arabia. How do we jump start 510 00:27:25,840 --> 00:27:30,359 Speaker 1: the investment in hydrocarbons. It's you know, I think it 511 00:27:30,720 --> 00:27:35,520 Speaker 1: starts with uh an acknowledgement that we still need oil. 512 00:27:35,600 --> 00:27:38,119 Speaker 1: We may not want to need oil, we may wish 513 00:27:38,160 --> 00:27:40,800 Speaker 1: we didn't need oil, but if we want to continue 514 00:27:41,160 --> 00:27:44,000 Speaker 1: with the way that we live, with our modern lifestyle, 515 00:27:44,119 --> 00:27:49,200 Speaker 1: with driving cars and using airplanes and shipping things across 516 00:27:49,600 --> 00:27:53,320 Speaker 1: the world, we need hydrocarbons. And yes, there are cleaner 517 00:27:53,359 --> 00:27:56,680 Speaker 1: ways to produce hydrocarbons, and they are not so clean 518 00:27:56,720 --> 00:27:59,199 Speaker 1: ways to produce them, but we still need them. And 519 00:27:59,240 --> 00:28:04,240 Speaker 1: that needs to be acknowledge at every level, especially by governments, 520 00:28:04,320 --> 00:28:10,600 Speaker 1: because when government support isn't, their investors and investment bodies 521 00:28:10,680 --> 00:28:12,840 Speaker 1: take their cues from there, and they don't want to 522 00:28:12,880 --> 00:28:16,000 Speaker 1: invest in something that they think the government is going 523 00:28:16,080 --> 00:28:19,879 Speaker 1: to uh put extra taxes on or make impossible to 524 00:28:20,040 --> 00:28:22,399 Speaker 1: use in just a few years. Well and Ellen. And 525 00:28:22,400 --> 00:28:25,520 Speaker 1: there's also a reluctance by investors to put their money 526 00:28:25,640 --> 00:28:29,080 Speaker 1: into companies that are viewed as bad are viewed as 527 00:28:29,119 --> 00:28:32,280 Speaker 1: contributing to global warming have we seen capitulation on that 528 00:28:32,359 --> 00:28:36,119 Speaker 1: front as we see strategists after strategists say commodities are 529 00:28:36,160 --> 00:28:39,720 Speaker 1: their favorite place to be exactly. And I think that 530 00:28:39,800 --> 00:28:45,240 Speaker 1: we're definitely seeing some people and some uh, some investors say, 531 00:28:45,360 --> 00:28:48,160 Speaker 1: you know, so what, it doesn't matter. I don't care 532 00:28:48,280 --> 00:28:51,440 Speaker 1: about the backlash, I don't care about public opinion. I'm 533 00:28:51,440 --> 00:28:53,360 Speaker 1: going to put my money in this area that I 534 00:28:53,400 --> 00:28:56,400 Speaker 1: think is going to make make money because at the 535 00:28:56,520 --> 00:28:58,440 Speaker 1: at the end of the day, that's really what they're 536 00:28:58,480 --> 00:29:01,320 Speaker 1: looking for, is a return on investment. Yes, they want 537 00:29:01,360 --> 00:29:04,120 Speaker 1: to do good for the world, but that's really secondary 538 00:29:04,200 --> 00:29:07,719 Speaker 1: to making money. And but you're still going to have 539 00:29:07,800 --> 00:29:12,320 Speaker 1: some people and some investment places that are more concerned 540 00:29:12,360 --> 00:29:16,320 Speaker 1: about public opinion or they believe that public opinion is 541 00:29:16,360 --> 00:29:19,520 Speaker 1: so strong that governments will continue to make these investments 542 00:29:19,800 --> 00:29:22,720 Speaker 1: too difficult and that will cut into the return on investment. 543 00:29:23,160 --> 00:29:27,800 Speaker 1: And until we see a real um, and in particular 544 00:29:27,880 --> 00:29:31,000 Speaker 1: especially in the United States, we need consistency and regulation. 545 00:29:31,080 --> 00:29:34,280 Speaker 1: We need to know what's going to happen five, ten, fifty, 546 00:29:34,440 --> 00:29:37,760 Speaker 1: twenty years down the line, not just oh well, everything 547 00:29:37,800 --> 00:29:40,560 Speaker 1: could be changed with a new administration in four years. 548 00:29:40,640 --> 00:29:41,920 Speaker 1: Hell and I'm going to ask you the same thing 549 00:29:41,920 --> 00:29:44,040 Speaker 1: that we talked about with Christian may Leg last week, 550 00:29:44,080 --> 00:29:47,120 Speaker 1: which is why aren't oil prices even higher given some 551 00:29:47,200 --> 00:29:52,080 Speaker 1: of the shortfalls in production? Yeah, exactly. I mean it's 552 00:29:52,240 --> 00:29:55,280 Speaker 1: we're seeing we're seeing higher oil prices. I think that 553 00:29:55,560 --> 00:29:58,960 Speaker 1: the market is still pretty um, pretty volatile, and we're 554 00:29:58,960 --> 00:30:02,640 Speaker 1: also concerned bit about demand destruction. At this point, we're 555 00:30:02,680 --> 00:30:07,120 Speaker 1: seeing some pullback in consumption in the United States. There's 556 00:30:07,160 --> 00:30:10,680 Speaker 1: definitely concerned about China. Yes, we're hearing news that some 557 00:30:10,720 --> 00:30:13,240 Speaker 1: of these lockdowns are being eased, and that's definitely going 558 00:30:13,320 --> 00:30:17,440 Speaker 1: to um impact demand, uh cause demand to go up. 559 00:30:17,480 --> 00:30:20,760 Speaker 1: But as inflation gets higher and higher, uh, you know, 560 00:30:20,800 --> 00:30:24,440 Speaker 1: it's really going to cut into people's use of hydrocarbons 561 00:30:24,480 --> 00:30:28,440 Speaker 1: of fuel, especially because these are are things that are 562 00:30:28,480 --> 00:30:33,640 Speaker 1: so high priced. Now within this conversation sort of the 563 00:30:33,640 --> 00:30:36,760 Speaker 1: out of body experience for me, is it whether it's 564 00:30:37,040 --> 00:30:40,040 Speaker 1: x On or Ramco, or you know, an independent driller 565 00:30:40,080 --> 00:30:44,520 Speaker 1: in Oklahoma or Texas, they're not waiting for the government 566 00:30:44,560 --> 00:30:49,280 Speaker 1: to help them with investment. Why aren't they investing at 567 00:30:49,280 --> 00:30:53,640 Speaker 1: a hundred and thirty dollars a barrel. That's a really, 568 00:30:53,680 --> 00:30:56,960 Speaker 1: really great question. And they're actually a bunch of reasons UM, 569 00:30:57,000 --> 00:30:59,440 Speaker 1: and some of them are actually really well poculated by 570 00:30:59,760 --> 00:31:03,080 Speaker 1: the survey that the Dallas said, does of UM you 571 00:31:03,120 --> 00:31:05,440 Speaker 1: know of of oil producers in the US. A lot 572 00:31:05,480 --> 00:31:09,160 Speaker 1: of it has to do with costs UM. The costs 573 00:31:09,360 --> 00:31:12,400 Speaker 1: of of UM drilling now have gone up in a 574 00:31:12,520 --> 00:31:15,440 Speaker 1: huge way. There are they're not able to get a 575 00:31:15,520 --> 00:31:18,560 Speaker 1: lot of the materials that they need, so their delays 576 00:31:18,600 --> 00:31:22,120 Speaker 1: in terms of supply chain issues. And also they are 577 00:31:22,280 --> 00:31:25,560 Speaker 1: been pressured so much to give this return on investment 578 00:31:25,600 --> 00:31:29,840 Speaker 1: to their investors that they're really hesitant to take those 579 00:31:29,880 --> 00:31:33,800 Speaker 1: profits and put them back into drilling, especially when costs 580 00:31:33,840 --> 00:31:36,760 Speaker 1: are so high. They also can't get labor their their 581 00:31:36,880 --> 00:31:40,040 Speaker 1: labor shortages. Even if they pay more money, they still 582 00:31:40,080 --> 00:31:43,480 Speaker 1: can't get people uh to come and work. So there 583 00:31:43,480 --> 00:31:45,440 Speaker 1: are a lot of issues here. I think that some 584 00:31:45,520 --> 00:31:48,480 Speaker 1: of these will work themselves out, but it's going to 585 00:31:48,600 --> 00:31:52,200 Speaker 1: take months. And thank you as always be brilliant and 586 00:31:52,400 --> 00:31:55,080 Speaker 1: well of the Atlantic Council. Ramping up production is not 587 00:31:55,160 --> 00:31:59,280 Speaker 1: that simple. This is the Bloomberg Surveillance Podcast. Thanks for listening. 588 00:31:59,640 --> 00:32:03,000 Speaker 1: Join us live weekdays from seven to ten am Eastern 589 00:32:03,240 --> 00:32:07,320 Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from 590 00:32:07,320 --> 00:32:12,600 Speaker 1: six to nine am for insight from the best in economics, finance, investment, 591 00:32:12,720 --> 00:32:17,760 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 592 00:32:17,840 --> 00:32:21,640 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 593 00:32:21,760 --> 00:32:25,959 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg