WEBVTT - Surveillance: Nuclear Sub Deal With Yergin & Stavridis 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.720 and of course, on the Bloomberg Terminal. Margat Patel has 0:00:30.720 --> 0:00:33.200 seen it all. She's at Wells Fargo and you need 0:00:33.200 --> 0:00:36.400 to lean forward and listen carefully as she discusses this 0:00:36.520 --> 0:00:42.320 odd quiet. Margie, the quiet to me signals something. We 0:00:42.400 --> 0:00:46.200 have the artificiality of negative yields, we have some new 0:00:46.280 --> 0:00:49.680 definition of the zero bound. We've got Japan and true 0:00:49.760 --> 0:00:55.800 gridlock and fixed income linked together. This odd economics to 0:00:55.920 --> 0:01:00.640 the quiet within the bond market. Well, on the one hand, 0:01:00.680 --> 0:01:04.720 you have really all the central banks for many decades 0:01:04.760 --> 0:01:07.720 now pushing down towards the zero interest rates and very 0:01:07.760 --> 0:01:10.280 much wanting to keep them there. And on the other hand, 0:01:10.400 --> 0:01:13.360 you have inflation suddenly appearing for the first time in 0:01:13.920 --> 0:01:17.160 you know, really over a decade, and it seems undeniable, 0:01:17.160 --> 0:01:19.600 and it seems as if it's becoming more widespread. So 0:01:19.680 --> 0:01:22.640 it's a lull before the storm before the FED in 0:01:22.680 --> 0:01:26.160 particular needs to act and do something. Well, the Fed's 0:01:26.160 --> 0:01:28.760 gonna need to act into something. Are you predicting they are. 0:01:29.120 --> 0:01:31.000 There's a lot of people out there, let's go with 0:01:31.080 --> 0:01:34.480 the ancient term inflation east just saying we will see 0:01:34.920 --> 0:01:38.280 price down yield up. Are you managing for that outcome 0:01:40.600 --> 0:01:43.320 only in the sense that in my fixed income holdings 0:01:43.560 --> 0:01:46.240 I've gravitated over the last couple of years actually to 0:01:46.400 --> 0:01:49.440 better quality, because they won't be as badly impacted if 0:01:49.480 --> 0:01:52.800 we have a move up in treasury rates, Margie, is 0:01:52.840 --> 0:01:55.800 the quiet because there really is nothing going on? Or 0:01:55.840 --> 0:01:59.760 is it simply because right now the bond purchases are overwhelming, Uh, 0:02:00.000 --> 0:02:04.920 market reactions, market pricing that would normally take place. Well, yes, 0:02:04.960 --> 0:02:07.440 we have the FED meeting. We also have the quiet 0:02:07.520 --> 0:02:11.480 before the the the budget resolution to raise a DETLOPT. 0:02:11.919 --> 0:02:14.880 That's a real hurdle. Nothing is going to happen before then. 0:02:15.400 --> 0:02:18.160 And most people, I think are now expecting the Fed 0:02:18.200 --> 0:02:21.600 to do something in the way of tapering. And it's interesting. 0:02:21.639 --> 0:02:23.560 We all know they're going to do it, so it 0:02:23.600 --> 0:02:26.440 should all be priced in the marketplace. But when they 0:02:26.480 --> 0:02:29.080 begin to do something, it'll be interesting to see if 0:02:29.080 --> 0:02:31.720 the market has a surprise after all, I guess, Margaret, 0:02:31.760 --> 0:02:34.120 what I'm trying to ask is, what is the direct 0:02:34.240 --> 0:02:37.280 effect on markets of the one and twenty billion dollar 0:02:37.360 --> 0:02:39.960 monthly bond purchases by the Federal Reserve? Is there a 0:02:40.080 --> 0:02:43.960 direct price reaction in the market as a response fromness 0:02:43.960 --> 0:02:47.480 that will change directly, not from signaling, but directly when 0:02:47.480 --> 0:02:51.480 they start to reduce that amount. Well, I think if 0:02:51.520 --> 0:02:54.080 they reduce the amount of mortgage purchases, that would be 0:02:54.160 --> 0:02:57.640 the most important factor, because I think the FEDS actions 0:02:57.680 --> 0:03:00.480 are basically just toovering up all the mortgage to purities 0:03:00.680 --> 0:03:03.960 has kept mortgage rates, maybe even artificially low. So if 0:03:04.000 --> 0:03:06.920 they stopped buying as many mortgages, would that cause the 0:03:07.000 --> 0:03:10.680 rate the mortgage rate financing for homeowners to actually go 0:03:10.840 --> 0:03:12.920 up again. That would not be what the Fed would 0:03:12.919 --> 0:03:15.480 want to see, but they may not have a choice. 0:03:15.520 --> 0:03:17.280 So that's what I'm thinking would be something that I'm 0:03:17.320 --> 0:03:20.639 going to watch and how the banks react to if 0:03:20.680 --> 0:03:23.560 they reduce the mortgage purchases, Markie. One thing that we've 0:03:23.600 --> 0:03:25.919 been talking about this week, and it's incredibly exciting week 0:03:25.960 --> 0:03:29.440 for price action, has been the incredible divergence in the 0:03:29.480 --> 0:03:33.280 potential views for the economic outlook going forward, and how 0:03:33.320 --> 0:03:35.880 that's one aspect. John Keiser, piagnist, tell you tell him 0:03:35.920 --> 0:03:38.760 where that is and then tell him where the prices are. 0:03:39.120 --> 0:03:41.600 It's sort of unclear. How do you sort of game 0:03:41.600 --> 0:03:45.960 out this dramatic uncertainty in economic outlooks going forward when 0:03:45.960 --> 0:03:49.720 it comes to a market call, Well, it looks as 0:03:49.760 --> 0:03:54.040 if the market itself, the economy is very very solid grounds. Uh, 0:03:54.080 --> 0:03:56.520 it looks as if all sectors are really moving. The 0:03:56.560 --> 0:04:00.920 only problem is um higher prices, fore inputs and shortage 0:04:00.920 --> 0:04:03.400 of labor, and those aren't really bad problems to have. 0:04:04.040 --> 0:04:07.600 And uh, corporations aren't over levered, consumers aren't over levered. 0:04:07.840 --> 0:04:10.560 So it looks like the economists in great shape and 0:04:10.560 --> 0:04:12.920 should be able to take the market higher. It's just 0:04:13.000 --> 0:04:15.480 a question of how does it react to when the 0:04:15.480 --> 0:04:18.440 Fed begins to tippy too and do something for tapering. 0:04:19.279 --> 0:04:22.680 Margie we had on Anahan and Wills Fargo the other day. 0:04:22.720 --> 0:04:24.479 I don't know if you read her literature. She's just 0:04:24.560 --> 0:04:28.040 brilliant yell physics and just really gets it done. I 0:04:28.160 --> 0:04:31.400 was the thunderstruck by the concision of the Wells Fargo 0:04:31.520 --> 0:04:36.520 equity team on modeling together an earnings call with multiple 0:04:36.560 --> 0:04:41.560 compression to optimism now in relative optimism out year if 0:04:41.600 --> 0:04:44.840 anybody can look out that far, do you share that 0:04:45.040 --> 0:04:51.360 confidence of concision that we see off your equity desk Um, 0:04:51.480 --> 0:04:53.160 I don't know if I have the confidence, but I 0:04:53.240 --> 0:04:56.719 also believe that I think that we should see price 0:04:56.760 --> 0:05:00.480 earnings ratios stay the same or get compressed even though 0:05:00.520 --> 0:05:03.400 earnings are rising up. So that would leave the market 0:05:03.480 --> 0:05:06.719 still able to move ahead for those companies that have 0:05:06.839 --> 0:05:09.679 sustainable earnings. So I think that says the market should 0:05:09.680 --> 0:05:11.600 move up even if it's more modest, and we've had 0:05:11.640 --> 0:05:14.159 over the last year and more widespread, not just a 0:05:14.200 --> 0:05:16.599 handful of stocks lately. They've driven the market over the 0:05:16.680 --> 0:05:19.440 last six months. Is Microsoft and went off or do 0:05:19.480 --> 0:05:22.040 you see continued use of cash or share buy back 0:05:22.160 --> 0:05:27.400 over and above options? Uh? Companies I think have way 0:05:27.440 --> 0:05:30.280 more cash and they can deploy. And it depends a 0:05:30.279 --> 0:05:32.600 little bit on what kind of attacks bill will that 0:05:32.680 --> 0:05:35.520 change their behavior whether they pay dividends, buy back stock, 0:05:35.600 --> 0:05:38.000 or make acquisitions. So again we have to see how 0:05:38.040 --> 0:05:39.840 they react, but they have lots of cash to do 0:05:39.880 --> 0:05:42.799 whatever they want. Margie, when you came on the show earlier, 0:05:42.839 --> 0:05:44.479 you said that we have seen the death of the 0:05:44.480 --> 0:05:46.919 credit cycle as we know it based on the response 0:05:46.920 --> 0:05:49.760 that we have seen from policymakers. And I do wonder 0:05:49.800 --> 0:05:52.240 if that's the case, why not just invest in the 0:05:52.320 --> 0:05:55.840 absolute riskiest debt securities and then make a call. And 0:05:55.920 --> 0:05:59.440 some of these interest rate sensitive stocks like Microsoft, thinking 0:05:59.440 --> 0:06:02.160 that they will be supported by these low yield policies 0:06:02.200 --> 0:06:06.120 for the foreseeable future. Well, I think the risk is 0:06:06.160 --> 0:06:08.880 parts of the market are priced with a very good 0:06:08.920 --> 0:06:12.080 little premium for anything to go wrong. Um, if there's 0:06:12.080 --> 0:06:14.800 a hiccup in the economy or too much inflation or 0:06:14.800 --> 0:06:18.400 the fit over reacts, that's a sector that will be impacted. 0:06:18.800 --> 0:06:22.159 We've had a tremendous amount of financing from the bottom tier, 0:06:22.240 --> 0:06:25.600 particularly say in the loan market, private equity market. Those 0:06:25.640 --> 0:06:28.680 are the weak parts. Plus emerging markets always my candidate 0:06:28.720 --> 0:06:31.760 for when markets start to crumble, can you play e 0:06:31.960 --> 0:06:34.520 M now? I mean, which way do you play em? 0:06:34.560 --> 0:06:37.120 You mentioned the crumble word. We don't talk crumble on 0:06:37.200 --> 0:06:41.800 Friday market, but go ahead. Well, I think there's a 0:06:41.839 --> 0:06:46.240 more reason to be cautious. We've seen China's grows and decelerate. 0:06:46.600 --> 0:06:50.479 We've seen some cracks in the financial system with a 0:06:50.600 --> 0:06:53.640 large real estate developing firm, look as if it's going 0:06:53.680 --> 0:06:56.880 to mean some kind of restructuring, and that's really negative 0:06:56.880 --> 0:07:00.520 for all emerging markets, I think. And so I think 0:07:00.520 --> 0:07:02.960 that that's an area that I'm still a little cautious out. 0:07:03.000 --> 0:07:05.280 There hasn't been much risk premium. I think the US 0:07:05.320 --> 0:07:08.240 still looks like the best place we should have the growth. Also, 0:07:08.360 --> 0:07:10.680 Continental Europe doesn't look bad. They should have two or 0:07:10.720 --> 0:07:13.360 three percent in rol growth. So that's not bad. Markie, 0:07:13.360 --> 0:07:15.559 great to catch up with you. It always is Markey Pittow. 0:07:15.640 --> 0:07:24.520 The West Franco West Management senior portfolio manager Andrew Slim 0:07:24.600 --> 0:07:26.680 and joined us now more can stand the investment management 0:07:26.720 --> 0:07:30.760 senior portfolio manager Andrew number one question the equity market 0:07:30.760 --> 0:07:32.680 that I hear. Can we get a second run of 0:07:32.760 --> 0:07:38.000 those cyclicals going into New year? Andrew? Can we? I think? So. 0:07:38.360 --> 0:07:41.760 I think we're seeing the mirror image of the spring, 0:07:41.920 --> 0:07:44.720 which was, you know, everyone thought rates were going to 0:07:44.760 --> 0:07:47.280 two percent, the economy was strong, and the bond market 0:07:47.400 --> 0:07:51.200 rolled over, cyclicals rolled over, energy prices rolled over, and 0:07:51.280 --> 0:07:54.320 now all the and then the economic data this summer 0:07:54.520 --> 0:07:57.880 validated that. And now We're seeing weak economic data, but 0:07:58.640 --> 0:08:01.080 rates are starting to go up a curve and started 0:08:01.160 --> 0:08:04.720 re steeping. The semis are breaking out to the upside. 0:08:04.760 --> 0:08:07.320 So I think the financial markets are telling the reverse 0:08:07.400 --> 0:08:10.200 of this spring, which is re acceleration in the fourth quarter. 0:08:10.280 --> 0:08:12.720 So the answer that your question is yes, help me out. 0:08:12.720 --> 0:08:15.600 You know, I've seen more collective gloom andrew in the 0:08:15.680 --> 0:08:18.679 last six, seven, eight days, and I've seen in ages. 0:08:19.000 --> 0:08:21.040 Give me the measure on the slim and wall of 0:08:21.080 --> 0:08:25.960 worry right now, where's the where's the needle this morning? Well, 0:08:26.160 --> 0:08:29.880 I I am watching the bond market, and I still 0:08:29.960 --> 0:08:32.079 say last time I was on your show, I'll be 0:08:32.160 --> 0:08:35.360 wrong if rates go back to one percent. But I'm 0:08:35.480 --> 0:08:41.000 noticing despite this economic data, yields are slowly creeping creeping 0:08:41.080 --> 0:08:44.480 higher there north of one thirty, and energy prices slowly 0:08:44.520 --> 0:08:48.640 creeping higher. So that's that's That's tells me that my 0:08:49.120 --> 0:08:51.840 fourth quarter of thesis is not wrong. But I will 0:08:51.920 --> 0:08:54.280 be wrong if this all rolls over. So that's what 0:08:54.400 --> 0:08:56.760 I'm That's what I'm worried about. And can we actually 0:08:56.760 --> 0:09:00.160 get any economic signal from bond markets that are so 0:09:00.320 --> 0:09:04.480 distorted or distorted is perhaps the fair word influenced by 0:09:04.559 --> 0:09:07.200 central bank buying not only in the United States but 0:09:07.280 --> 0:09:12.600 also overseas, no question, no question. Look, I think the 0:09:12.640 --> 0:09:16.480 bond you know, look right where rates are. Stocks actually 0:09:16.480 --> 0:09:19.600 should be higher in my opinion on a valuation basis. 0:09:19.600 --> 0:09:22.559 But I think the stock market gets the gig that 0:09:22.600 --> 0:09:25.520 the Fed's been buying bonds and rates are artificially low. 0:09:25.559 --> 0:09:28.520 So I think actually the market is pricing in higher 0:09:28.600 --> 0:09:32.000 rates uh than this. And just to be clear, if 0:09:32.080 --> 0:09:34.200 rates go off, I'm not so sure it's great for 0:09:34.280 --> 0:09:38.920 the capweighted SMP, which benefits from this low rate environment, 0:09:38.960 --> 0:09:41.480 given the fact that's full of you know, these long 0:09:41.600 --> 0:09:44.440 dated growth stocks. So Andrew, hey, you think we can 0:09:44.440 --> 0:09:46.760 get another run of these cyclicals? You think, Treasury you're 0:09:46.760 --> 0:09:48.800 just starting to inflect time we might have seen the bottom. 0:09:49.040 --> 0:09:52.240 That's what you suggest in this morning. Many people think, though, Andrew, 0:09:52.240 --> 0:09:53.920 that we need a catalyst similar to the one we 0:09:54.040 --> 0:09:55.880 got in early November last year when we got that 0:09:55.920 --> 0:09:58.880 efficacy data for the vaccines. Do you think we need 0:09:58.920 --> 0:10:01.560 that kind of of kindily going into year end to 0:10:01.640 --> 0:10:06.360 get that second run? Well, I think that you're going 0:10:06.440 --> 0:10:09.760 to see the economic data re accelerate off the third 0:10:09.800 --> 0:10:13.480 quarter of that kind of the view of of analysts. 0:10:13.480 --> 0:10:15.840 I think that you're going to get a very good 0:10:15.880 --> 0:10:18.280 earning season. I don't see any companies pre and uced 0:10:18.280 --> 0:10:21.960 and you know, you were talking about supply constraints. But 0:10:22.240 --> 0:10:24.360 you know, I just was at an industrial conference and 0:10:24.400 --> 0:10:27.480 heard a lot of industrial companies say their backlogs are 0:10:27.679 --> 0:10:32.160 very strong into next year, and they're very confident about 0:10:32.360 --> 0:10:36.240 their earnings outlook. So I think, you know, stronger economic data, 0:10:36.600 --> 0:10:39.800 stronger retail sales, maybe the COVID variant comes down a 0:10:39.840 --> 0:10:44.320 bit um and you've got your You've got the makings 0:10:44.360 --> 0:10:46.920 of a of a good fourth quarter. Thank Q four 0:10:47.000 --> 0:10:49.400 step up Andrew is such a good point. T K. 0:10:49.840 --> 0:10:52.720 Michael Farolio over at JP Morgan came out yesterday morning, 0:10:53.080 --> 0:10:56.800 Dan great to Q three upgrade to Q four. They're 0:10:56.800 --> 0:10:59.240 looking for this step up Q three Q four into 0:10:59.320 --> 0:11:02.680 next year. So glad you mentioned this. I'm sorry. There's 0:11:02.760 --> 0:11:06.600 forty seven flavors of opinions out there. I'm watching what 0:11:06.720 --> 0:11:11.319 corporations are doing. Canadian National off Canadian Pacific just out. 0:11:11.840 --> 0:11:15.560 They say they've got ambitious value creation. That's the pixie dust. 0:11:15.600 --> 0:11:18.120 I'm seeing company or company Andrew wrap it up for 0:11:18.280 --> 0:11:21.720 us speak to them. This re acceleration, this re acceleration 0:11:21.760 --> 0:11:24.800 into next year is that we're looking for. Yes, And 0:11:24.840 --> 0:11:27.640 I think the opportunity set is not in the S 0:11:27.720 --> 0:11:30.480 and P. It's in all those stocks that are below 0:11:30.640 --> 0:11:36.040 the largest companies that really are off off their highs 0:11:36.080 --> 0:11:39.199 because they're more cyclically exposed. I think emerging markets off 0:11:39.200 --> 0:11:42.840 of high I would play those areas versus the market 0:11:42.920 --> 0:11:47.240 the SMP capway interesting. Andrew, thank you, Andrew Slimmon Morgan 0:11:47.280 --> 0:11:55.920 Stanley Investment Management, Senior portfolio Manager, Daniel Jrgen Congratulations with 0:11:56.040 --> 0:11:58.680 I s And of course I can't say enough about 0:11:58.720 --> 0:12:00.920 the new map. You know, I want to rip up 0:12:00.920 --> 0:12:03.080 the script and I want you to comment, as you 0:12:03.120 --> 0:12:07.120 did in the new map on the entrepreneurial global reach 0:12:07.720 --> 0:12:12.920 of Elon Musk. I am blown away by SpaceX and 0:12:12.960 --> 0:12:16.400 the idea of putting four civilians up there. How does 0:12:16.440 --> 0:12:19.760 a guy like you from the prize to the new 0:12:19.520 --> 0:12:25.280 new map frame Elon Musk? I think, thank you, Tom, 0:12:25.400 --> 0:12:28.240 I think he uh. Obviously, Ranks is one of the 0:12:28.280 --> 0:12:33.640 greatest kind of technocratic technocratic entrepreneurs because so much of 0:12:33.640 --> 0:12:36.760 this is about pushing the technology and doing two things 0:12:36.920 --> 0:12:42.200 SpaceX and the Tesla, and both of them are you know. 0:12:42.480 --> 0:12:45.760 Tesla of course, is really transformed the automobile industry. The 0:12:45.800 --> 0:12:49.960 whole shift towards electric vehicles and putting space opening the 0:12:49.960 --> 0:12:54.360 ear of space tourism is amazing. It's a you know, market, 0:12:54.520 --> 0:12:59.160 more market driven than uh th classics. So uh, he's 0:12:59.440 --> 0:13:03.520 he's a a unique figure. Does the gloom crew that's 0:13:03.520 --> 0:13:06.960 out there, Daniel, that you fought against for decades, does 0:13:07.000 --> 0:13:13.880 the gloom crew misjudge the commanding heights of modern technology? Well, 0:13:13.920 --> 0:13:17.720 I think they tend to underestimate how things how rapidly 0:13:17.760 --> 0:13:21.600 things can change. I mean they percolate along out of 0:13:21.640 --> 0:13:24.160 sight for ten or fifteen years while people work on things, 0:13:24.200 --> 0:13:28.360 and then suddenly it becomes apparent. I mean, whether I mean, 0:13:28.400 --> 0:13:32.000 just to take energy, shale was twenty years in the making. Uh, 0:13:32.040 --> 0:13:34.800 it took about forty years for solar to really come 0:13:34.800 --> 0:13:38.040 down and cost and but when it happens, it really 0:13:38.080 --> 0:13:40.959 brings big changes. And that's uh, some of what we're 0:13:40.960 --> 0:13:44.040 seeing today. Well, Daniel, talking about shale, there's a question 0:13:44.120 --> 0:13:47.319 of whether the death of shale or peak shale has 0:13:47.360 --> 0:13:50.240 been overstated. In the aftermath of the pandemic a lot 0:13:50.240 --> 0:13:51.959 of people saying that that was what we have been 0:13:52.000 --> 0:13:54.920 seeing in terms of the lack of getting oil production 0:13:54.960 --> 0:13:58.760 back online. Do you think that perhaps people have under 0:13:59.120 --> 0:14:02.679 underestimated quickly it could get brought back. Well, this is 0:14:02.720 --> 0:14:05.240 an example of where you see how markets and companies 0:14:05.280 --> 0:14:09.080 adapt because we really have seen a stabilization of shale. 0:14:09.120 --> 0:14:11.880 It's growing again. Remember the US is still the largest 0:14:12.080 --> 0:14:16.360 producer of oil and gas in the world. Uh, the 0:14:16.440 --> 0:14:18.720 nature of the industry has changed, and there's what I 0:14:18.760 --> 0:14:21.880 call a second shale revolution, which is about returning cash 0:14:21.960 --> 0:14:24.720 to investors. And so you're not seeing this. You know, 0:14:24.920 --> 0:14:27.280 prices where they are today. This was a few years 0:14:27.280 --> 0:14:29.400 ago you would have seen the brillion rigs really going 0:14:29.480 --> 0:14:34.280 up in number. But now there's kind of modulation and 0:14:34.840 --> 0:14:38.360 in general around the world, a kind of caution about 0:14:38.640 --> 0:14:42.360 rushing into new investment. But at a time when you're 0:14:42.400 --> 0:14:46.120 seeing strong demand. Uh, either at the end of this 0:14:46.200 --> 0:14:48.760 year or early next year, we'll see world oil demand 0:14:48.800 --> 0:14:51.800 higher than it was in So how does this undermine 0:14:51.840 --> 0:14:55.320 this whole pledge to get to net zero. Well, I 0:14:55.360 --> 0:14:57.320 think that I mean the pledges to net zero. That's 0:14:57.360 --> 0:15:00.280 one of the themes in the in the epilogue new 0:15:00.440 --> 0:15:03.840 part of the New Map, the ambracive net zero carbon 0:15:04.160 --> 0:15:07.520 by Some are trying to push it to Some say 0:15:07.520 --> 0:15:09.280 if you try too hard, you're gonna have a macro 0:15:09.360 --> 0:15:12.840 economic shock, a serious macro economic shop. I think the 0:15:12.880 --> 0:15:16.040 direction is clear. How you get there? Uh in a 0:15:16.120 --> 0:15:20.880 world that's still fossil fuels. Uh, the roadmap isn't clear 0:15:21.120 --> 0:15:24.280 and the answers will really be not rhetoric, not power points, 0:15:24.280 --> 0:15:28.120 but they'll come from technology. All not mince words about it, folks. 0:15:28.160 --> 0:15:30.360 The appendix to the New Map is the read of 0:15:30.360 --> 0:15:32.400 the Weekend by the book. You can read the book 0:15:32.440 --> 0:15:35.600 in the next week, but this weekend read the appendix 0:15:35.680 --> 0:15:38.560 is Daniel Jurgen gets out front on the South China. 0:15:38.640 --> 0:15:42.160 See as you do, Professor Jurgen, you go back in 0:15:42.240 --> 0:15:46.120 our history. You lectured at the War College. You cited Mayhan. 0:15:46.680 --> 0:15:50.800 The idea of sea power is a projection. How does 0:15:50.840 --> 0:15:55.400 submarines project in the South China? See this is right 0:15:55.440 --> 0:15:58.760 in the heart of the whole issue, the nuclear submarines 0:15:58.840 --> 0:16:01.920 for Australia. This is about the contest for the South 0:16:02.000 --> 0:16:04.200 China sea is in an open waterway or is a 0:16:04.360 --> 0:16:08.240 Chinese territory? And the Chinese used that phrase yesterday they 0:16:08.240 --> 0:16:12.240 talked about a Cold war mentality. Uh, this is you know, 0:16:12.320 --> 0:16:16.000 you're kind of seen there's a in many ways Biden 0:16:16.040 --> 0:16:19.080 has broken with Trump, but not on China policy. And 0:16:19.080 --> 0:16:23.080 indeed he's trying to mobilize, you know, a consortium of countries. 0:16:23.480 --> 0:16:27.640 And then these nuclear submarines are exactly about the question 0:16:27.680 --> 0:16:30.520 of free passes through the South China Sea and the 0:16:30.600 --> 0:16:34.720 fact of this kind of growing polarization between China, which 0:16:34.720 --> 0:16:36.960 you've seen in technology, you see it in trade, and 0:16:37.040 --> 0:16:41.200 you certainly see it militarily US complicated down the negotiations 0:16:41.240 --> 0:16:44.360 on trying to get to a greener place globally, a 0:16:44.400 --> 0:16:47.880 conversation China needs to be part of. Absolutely, after all, 0:16:48.000 --> 0:16:52.640 China's thirty percent of admissions. And Uh, at the end 0:16:52.680 --> 0:16:56.760 of the Biden administration, of the Obama administration, he and 0:16:56.840 --> 0:16:59.240 g came to a meeting of minds and the Chinese 0:16:59.240 --> 0:17:03.160 have adopted this from Nezerio Carbon and I'll tell you 0:17:03.200 --> 0:17:06.720 that's reverberating throughout China in terms of what's on the 0:17:06.760 --> 0:17:09.600 topic for people. But the Chinese have said, you cannot 0:17:09.640 --> 0:17:13.159 compartmentalize this. The US is saying we can compartmentalize it 0:17:13.200 --> 0:17:16.119 from all the other issues. And we've seen recently the 0:17:16.200 --> 0:17:17.800 Chinese said no, no, We've had a deal with the 0:17:17.840 --> 0:17:20.560 other questions as well, So I don't think it can 0:17:20.600 --> 0:17:25.240 be separated from everything else that's happening right now. Listen, 0:17:25.359 --> 0:17:28.080 this is like the Miss America pageant, except for doing 0:17:28.080 --> 0:17:30.720 it with Daniel Jorgan. I'm going to announce my Book 0:17:30.720 --> 0:17:33.239 of the Year next week. I've already hit adata, so 0:17:33.320 --> 0:17:36.920 let's have Miss America come out one last time on 0:17:37.160 --> 0:17:39.800 last year's book of your Dan Jurgen, the New Map, 0:17:39.880 --> 0:17:42.960 my book of the Year last year. It is absolutely 0:17:43.040 --> 0:17:45.720 a tour to force. From the prize to commanding I 0:17:46.000 --> 0:17:49.880 request and onto the must read the summation of where 0:17:49.920 --> 0:17:52.000 we are right now and again the appendix on the 0:17:52.040 --> 0:17:55.440 South China see as Dan Jurgan goes all. Robert D. Kaplan, 0:17:55.480 --> 0:18:04.399 Professor Jrgan, thank you so much, seeing Davos. This is 0:18:04.480 --> 0:18:07.360 without question our interview of the month on what we're 0:18:07.359 --> 0:18:10.320 seeing in the South China Sea. Because of time, we're 0:18:10.320 --> 0:18:12.960 gonna cut right to the chase with James Tevitis, his 0:18:13.119 --> 0:18:16.760 Book of My Summer two thousand thirty four, when you 0:18:16.880 --> 0:18:21.040 and Ackerman wrote your fantastic book on the Fears and 0:18:21.119 --> 0:18:25.680 Instabilities of two thousand thirty four. Admiral Stevidis, did you 0:18:25.840 --> 0:18:29.880 understand submarines would be part of two thousand thirty four 0:18:30.000 --> 0:18:34.160 or two thousand twenty one? They are part of both 0:18:34.240 --> 0:18:37.520 tom as you fully know and appreciate, and in particular 0:18:37.800 --> 0:18:42.200 nuclear submarines important to understand the difference here. A diesel 0:18:42.320 --> 0:18:46.560 submarine is like a hybrid car. It's kind of uh. 0:18:46.960 --> 0:18:49.800 It runs on a battery some of the time, but 0:18:50.200 --> 0:18:51.760 a lot of the time that has to run. And 0:18:52.520 --> 0:18:55.000 it's like the duck boats that go across the Charles River. 0:18:55.080 --> 0:18:57.800 Continue you got it, you got it. And so the 0:18:57.880 --> 0:19:01.200 nuclear submarines are just the coin of the realm. There 0:19:01.920 --> 0:19:05.399 we would say about infantry the queen of the battlefield, 0:19:05.440 --> 0:19:08.320 not as feminine, but rather queen is in a chess 0:19:08.359 --> 0:19:12.439 piece that can go anywhere, do anything, stander water forever 0:19:12.600 --> 0:19:16.440 in its utterly lethal explained to me the alliance here 0:19:16.680 --> 0:19:19.399 developing in the South China Sea out ten years and 0:19:19.440 --> 0:19:22.879 out to two thousand thirty four. If I'm a Chinese, 0:19:23.600 --> 0:19:27.640 it is to me it is multiple players with multiple 0:19:27.760 --> 0:19:31.840 silent things going at thirty one hour through the water. 0:19:33.200 --> 0:19:37.600 It is and it is because China claims the South 0:19:37.720 --> 0:19:40.359 China see a vast body of water tom It's half 0:19:40.400 --> 0:19:43.080 the size of the continental United States. They claim it 0:19:43.240 --> 0:19:47.720 essentially as territorial waters. It's a preposterous claim. It's been 0:19:47.840 --> 0:19:51.080 debunked on your international law and in the courts, but 0:19:51.200 --> 0:19:54.080 they continue to claim it. They build artificial islands. They 0:19:54.080 --> 0:19:59.000 want control of those waters. They're full of hydrocarbons. Therefore, US, 0:19:59.160 --> 0:20:04.080 Great Britain, France, Germany, Australia, many other nations are challenging 0:20:04.119 --> 0:20:07.720 these claims as they should, and operating extensively in what 0:20:08.080 --> 0:20:11.560 they all consider to be international waters. Admiral, give us 0:20:11.600 --> 0:20:13.880 a sense of you know, you know, I think most 0:20:13.920 --> 0:20:16.600 I probably speak from most folks where you know, you know, 0:20:16.920 --> 0:20:19.720 obviously just awed by the nuclear submarine fleet, but I 0:20:19.800 --> 0:20:21.960 don't really know much about it, in part because you 0:20:22.119 --> 0:20:25.520 just don't see them. But we know how important they are. 0:20:25.560 --> 0:20:30.120 What is China's capability in terms of submarine warfare. It's 0:20:30.240 --> 0:20:33.320 much smaller than that of the United States, particularly on 0:20:33.359 --> 0:20:39.119 the nuclear side. So US has sixty eight nuclear submarines called. 0:20:39.160 --> 0:20:43.120 Fourteen of them are ballistic missiles that shoot our intercontinental 0:20:43.119 --> 0:20:47.520 ballistic missiles that triedent and fifty four are attack submarines. 0:20:47.560 --> 0:20:52.160 What we're talking about Australia starting to operate. China only 0:20:52.200 --> 0:20:57.200 has twelve nuclear submarines, six ballistic and six attack boats. 0:20:57.240 --> 0:21:01.000 They have lots and lots of diesels for co skill protection, 0:21:01.080 --> 0:21:03.879 but in terms of nuclear they're a fraction of the 0:21:03.960 --> 0:21:07.480 United States. So this deal with Australia. Why do you 0:21:07.480 --> 0:21:11.280 think we pursued this deal with Australia. Is this suggesting 0:21:11.280 --> 0:21:14.240 that we're trying to, um, you know, kind of diversify 0:21:14.400 --> 0:21:16.879 some of the responsibility for that part of the world 0:21:16.920 --> 0:21:20.879 to some other nations. It does, um, let's face it, 0:21:21.320 --> 0:21:25.960 we are always stronger together. We're always better working with allies, 0:21:26.040 --> 0:21:30.560 partners and friends, and the more capability, particularly our treaty 0:21:30.640 --> 0:21:34.720 allies have. In other words, Australian United States are sworn 0:21:35.320 --> 0:21:38.280 to go to each other's defense in combat. Australia, by 0:21:38.280 --> 0:21:40.919 the way, has been with us in every war we 0:21:41.000 --> 0:21:44.200 have fought since they became a nation. So it's always 0:21:44.200 --> 0:21:46.840 to our advantage to see them with the top end 0:21:46.880 --> 0:21:50.240 and kit. And that's what's happening here. James Trevillus, I 0:21:50.280 --> 0:21:52.880 want to take you out of Hollywood with Sean Connery 0:21:53.000 --> 0:21:56.520 staring gruffly out of the periscope or all we know 0:21:56.640 --> 0:21:59.639 World War two, A guy named rick Over with a 0:21:59.760 --> 0:22:02.840 child eldhood is out of the movies, goes out to 0:22:02.960 --> 0:22:08.120 Pearl Harbor to salvage the US California. After Pearl Harbor 0:22:08.600 --> 0:22:11.879 goes through World War two and he lands in Oakridge, Tennessee. 0:22:12.080 --> 0:22:13.840 I should point out with my father it was like 0:22:13.880 --> 0:22:17.520 twenty years old at the time, and um, you know 0:22:17.560 --> 0:22:20.600 I I look, James te Vitas at what rick Over 0:22:20.720 --> 0:22:25.000 did You've got rick Over Boat one? You've got the 0:22:25.000 --> 0:22:29.080 new Virginia Class. Rick Over explained to our audience worldwide. 0:22:29.440 --> 0:22:35.760 The biggest misperception we have of Virginia Class submarines. Um, 0:22:35.800 --> 0:22:41.240 I think we misperceived the amount of ordinance, of the 0:22:41.280 --> 0:22:46.840 amount of torpedoes and vertical launch Tomahawk missiles they can carry. 0:22:47.119 --> 0:22:51.120 I think most folks think these are small ships somehow 0:22:51.240 --> 0:22:54.320 just kind of sneaking around under the water. These are 0:22:54.400 --> 0:22:57.520 the same size as a big Hardley Burke destroyer. That 0:22:57.600 --> 0:23:00.600 these are ten thousand ton vessels that us happened to 0:23:00.640 --> 0:23:03.520 be under the water. So I think in this perception 0:23:03.760 --> 0:23:07.920 is that these boats, uh don't carry a lot of firepower. 0:23:08.000 --> 0:23:10.920 They can attack the land, they can attack other submarines, 0:23:10.960 --> 0:23:14.679 they can attack shipping. They are highly capable offensive. I 0:23:14.720 --> 0:23:17.200 got like ay questions. Paul sweeneen has got twelve questions, 0:23:17.200 --> 0:23:19.080