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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot

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Speaker 1: Com and of course on the Bloomberg terminal right now,

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Speaker 1: one of our great contributors to Bloomberg Surveillance and gentleman

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Speaker 1: at the University of Cambridge and Queen's College, and of

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Speaker 1: course with all his work on the game theory of

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Speaker 1: our global system, Mohammed Hilarion This morning, Dr Larry, I

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Speaker 1: loved your note because Jeff you of b n Y

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Speaker 1: Melon agrees with you. It is front and center right now.

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Speaker 1: Is folkerts Landau of Deutsche Bank said on February to

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Speaker 1: us the dollar matters, and a dollar too strong gets

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Speaker 1: in the way of a recovery. We at a point

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Speaker 1: where a resilient dollar is a problem. First, welcome to

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Speaker 1: you and Lisa to the UK, and thank you for

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Speaker 1: bringing us good weather. Um, it's wonderful to have you here.

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Speaker 1: We are a problem. We are near the point where

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Speaker 1: the dollar is too strong for the rest of the world,

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Speaker 1: not for the US, but for the rest of the world. Um.

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Speaker 1: You know, it's this phenomenon I call little fires everywhere.

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Speaker 1: And whether it is food prices or oil prices or

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Speaker 1: strong dollar that contributes to the little fires everywhere. The answer,

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Speaker 1: by the way, is in the hands of the other countries,

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Speaker 1: not the US. There isn't much the US can do

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Speaker 1: about it strong currency, but there's a loss that other

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Speaker 1: countries can do. The panel that I had yesterday and Davos,

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Speaker 1: doctor l Aaron included Sir Lawrence Freedman in the most

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Speaker 1: quiet moment in that too short an hour was here

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Speaker 1: where he linked dollar dynamics in there our food crisis

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Speaker 1: and into the memory of Tunisia, the Arab Spring are

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Speaker 1: Eric Martin as well is focused on your Egypt. When

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Speaker 1: you look at the fragility of Egypt in the memory

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Speaker 1: of the Arab Spring, what is the model to help

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Speaker 1: begin to solve the crisis. It's a big issue, um, Christilina.

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Speaker 1: George Abob the i m F months ago said, a

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Speaker 1: cost of living crisis in the West is the risk

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Speaker 1: of famine in commodity important developing countries. That's particularly true

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Speaker 1: for fragile economies for economies like Egypt, like Turkey. UM,

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Speaker 1: the decision is how much do you subsidize and how

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Speaker 1: much do you pass on to the consumer, and food

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Speaker 1: is a particularly delicate issue. Most countries will end up subsidizing,

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Speaker 1: so you will unlikely to get a repeat of eleven. However,

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Speaker 1: and this is important. You have to worry about the finances.

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Speaker 1: This is a very difficult environment for commodity importing developing countries,

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Speaker 1: Tom Mohammed. Before we move on to what's going on

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Speaker 1: in rates and how we move ahead and miss uh

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Speaker 1: this economy, what do you think in terms of offsetting

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Speaker 1: those costs of something like the windfall tax as just

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Speaker 1: was announced here in the United Kingdom. You know, I've

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Speaker 1: been arguing for a while that the right thing to

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Speaker 1: do is to impose a windfall tax and to use

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Speaker 1: the proceeds to protect the most vulnerable segments of the population,

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Speaker 1: and that's what the UK did yesterday. UM. Is the

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Speaker 1: windfall tax perfect, of course not. It's not the first

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Speaker 1: best solution, but there are no first best solutions in

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Speaker 1: this world anymore. It is by far superior to every

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Speaker 1: other second best solution, and I think we're gonna have

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Speaker 1: more countries look at this as a temporary measure to

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Speaker 1: protect the most vulnerable segments of the population. Is it

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Speaker 1: just going to be the oil and gas companies, Mohammed?

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Speaker 1: Are we also go to be looking at potentially for

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Speaker 1: coal companies, and and and copper and all the other

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Speaker 1: commodities in addition to food producers. I suspect that we

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Speaker 1: focused on oil and gas. UM. Going further than that

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Speaker 1: gets really tricky very quickly, So I suspect it will

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Speaker 1: be focused on oil and gas moving forward. Mohammad, we

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Speaker 1: were talking in Davos about how the banner headline was

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Speaker 1: about the Ukrainian War Russia's war in Ukraine, but really

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Speaker 1: under the surface, when you peeled back the onion, it

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Speaker 1: was all about China and the fact that any kind

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Speaker 1: of prolonged shutdown could torpedo global momentum. How closely are

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Speaker 1: you watching that? If we do get the lockdowns continuing

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Speaker 1: to year end, does that mean that we are going

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Speaker 1: to be close to a global recession? Yeah? I'm watching

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Speaker 1: it very closely because what happens in China impacts both

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Speaker 1: global aggregate demand and global aggregate supply. UM. We forget

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Speaker 1: that line is a major consumer of products also made elsewhere,

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Speaker 1: we saw what the retail numbers look like that were

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Speaker 1: pretty horrible. We also forget are reminded how important China

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Speaker 1: still is in the supply chain. So I look at

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Speaker 1: this very carefully, Lisa. The concern we have, and I

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Speaker 1: know that you are very tuned to this, is that

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Speaker 1: the three major areas of the global economy are slowing

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Speaker 1: at the same time, and there is no compensating locomotive

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Speaker 1: anywhere in the global economy right now. So we've got

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Speaker 1: to be careful that we don't get the self feeding process.

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Speaker 1: And this is important because the marketplace has embraced the

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Speaker 1: possibility of a pause in September. Be careful because the

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Speaker 1: only reason the federal pause is because the man. The

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Speaker 1: man has come down really fast, and that's not gonna

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Speaker 1: be good. Focus assets, mom, But I want to go

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Speaker 1: back to the only game in town. In folks, this

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Speaker 1: is you know, you sit there and you go, well,

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Speaker 1: why is this guy so visible? What is it so

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Speaker 1: special about Hillarion? And what he has done is articulate

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Speaker 1: game theory across our economics, finance, and investment. In one

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Speaker 1: of the nuances Muhammed of the only game in town

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Speaker 1: is separating and in this case Chairman Powell's desirable from

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Speaker 1: Chairman Powell's feasible What is the feasible set right now

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Speaker 1: for the American Central Bank? I think, at best the

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Speaker 1: feasible set is what Chap called a soft tissue landing.

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Speaker 1: And the issue is really important. I think the time

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Speaker 1: has passed for a soft landing. We could have done it,

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Speaker 1: but that would have implied the FED moving nine months ago.

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Speaker 1: It should have, it didn't, so instead of tightening into

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Speaker 1: a growing and dynamic economy, it is tightening into a

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Speaker 1: snowing economy. So it is very difficult to get a

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Speaker 1: soft landing. So the best you can hope for right

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Speaker 1: now is a soft dish landing. What's the probability of

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Speaker 1: that happening? Not as high as I would like it

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Speaker 1: to be. Um, I think the Fed is going to

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Speaker 1: have to decide between two policy mistakes. Hit the brakes

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Speaker 1: too hard and whisker recession, or tap the brakes in

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Speaker 1: a stopg pattern including Poles and September to be an

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Speaker 1: example of that, and risk having inflation well into chi

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Speaker 1: Larry Olivia Blanchard was talking about Stan Fisher and said

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Speaker 1: he was our great north star, which is an extraordinary

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Speaker 1: statement about the gentleman. We have a conceit now that

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Speaker 1: our currencies are more floating. Can the release valve for

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Speaker 1: Chairman Powell is he approaches the feasible the dollar dynamics

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Speaker 1: because we have a more open, more floating currency system. Um,

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Speaker 1: it's not open enough in the U s economy for that. Look,

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Speaker 1: the solution to all all our issue is a surge

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Speaker 1: of productivity. If we get significant productivity growth, we can

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Speaker 1: reconcile all sorts of difficult trade offs. So the key

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Speaker 1: issue is whether we get a certain productivity and you

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Speaker 1: can get that with all sorts of things happening underneath.

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Speaker 1: It will be wonderful, for example, to also have labor

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Speaker 1: force participation go up, especially among women. That that would help.

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Speaker 1: It will be wonderful to have supply chains improving that

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Speaker 1: would help. Um is all that going to happen in

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Speaker 1: the short term? Very unlikely, unfortunately, Mohammed. You're talking about

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Speaker 1: how a Softish landing is looking like the most best

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Speaker 1: outcome and it looks not that likely. Do you think

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Speaker 1: that the recent data that we've seen in frankly, the

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Speaker 1: assumption in markets that momentum is waning and that the

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Speaker 1: FED is already getting what it's wants. Do you think

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Speaker 1: that that's got ahead of itself or do you think

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Speaker 1: that they're onto something that there has been already a

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Speaker 1: slowing that will make it easier for the FED. So

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Speaker 1: I think the marketplace is going through to process one

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Speaker 1: is a dip was overdue. We had eight weeks of

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Speaker 1: successive declines, and clearly there are people who are finding bargains,

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Speaker 1: and there are single name bargains, and the fact that

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Speaker 1: we've had the largest inflow into the equity markets globally

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Speaker 1: for the last ten weeks, it's significant we are seeing

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Speaker 1: the bias. So you have a very technical reaction after

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Speaker 1: eight straight weeks that I totally understand. What I don't

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Speaker 1: understand is the notion that suddenly the FED will be

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Speaker 1: able to hype twice and then and then take it

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Speaker 1: easy and pause. That the only reason, as I said earlier,

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Speaker 1: that happens is if the MOND collapses, and if the

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Speaker 1: Mond collapses, equities are not going to do well. You

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Speaker 1: saw what happened when Target announced that they were being

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Speaker 1: impacted not just on the cost side, but also on

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Speaker 1: the revenue side because of high inflation. And the last

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Speaker 1: thing this equity market needs right now in terms about earnings.

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Speaker 1: Muhamadalarian there with the idea of technological progress and productivity

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Speaker 1: moving us forward. He is of course for the University

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Speaker 1: of Cambridge. Christian may look as global energy strategist at

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Speaker 1: JP Morgan. Their London shop has dropped a hundred pages

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Speaker 1: on where we are we are going and the vector

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Speaker 1: is a hundred and fifty dollars a barrel somewhere out there. Christians.

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Speaker 1: Thrilled to have you joined this morning. Christian, I want

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Speaker 1: to talk about the complex microeconomics here and we have

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Speaker 1: lots of people looking at Ed Morrisett City grew up

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Speaker 1: the great Jeff Curry micro economist at Golden Sachs. What's

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Speaker 1: the distinction of JP Morgan research is everyone looks for

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Speaker 1: a new energy regime. Yeah, it's it's you sort of

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Speaker 1: said it in the question which is commodities. This is

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Speaker 1: not about commodities. This is about oil and this is

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Speaker 1: about molecules, energy, molecules. How do we find jewels? Um

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Speaker 1: you know, whatever form it is, whether it's clean fossil fuel,

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Speaker 1: and the issue with approaching it through much more holistic

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Speaker 1: ways that when you start looking for jewels effectively or

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Speaker 1: energy we're quickly running short into a major deficit of energy. Okay,

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Speaker 1: I got to interrupt you, because there's a massive jargon, folks.

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Speaker 1: Jewels is not boodles around the corner where you buy

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Speaker 1: two carrots out of guilt on your way back to

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Speaker 1: New York. Jewels is j O U. L E. S.

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Speaker 1: And this is thermodynamics and the energy exactly exactly, not

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Speaker 1: the Cawn jewels exactly. And I think on that point,

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Speaker 1: when we then look for energy um and look across

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Speaker 1: all the fuels that we have, be at oil, gas, renewables,

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Speaker 1: there lies the issue that when you think about how

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Speaker 1: to solve for that deficit, you've got to find energy

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Speaker 1: that can also be used to produce chemicals to produce

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Speaker 1: tires for those teslas. Equally, you're also trying to find

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Speaker 1: energy for the e M world that doesn't have the infrastructure.

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Speaker 1: And what the effectively means is that being sure that

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Speaker 1: energy we seem to come back to fossil fuels. Did

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Speaker 1: you see how he got the jabbin an teslas the

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Speaker 1: tires are made of oil. Did you know that I

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Speaker 1: even heard that from Bridgewater that even the renewables, you

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Speaker 1: have to get the stuff out of the ground first, Christian,

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Speaker 1: why aren't oil prices higher given your thesis? Well, interestingly,

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Speaker 1: when you sort of run through the deficits and all

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Speaker 1: the different fuels, we're effectively we're effectively fully loaded out

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Speaker 1: apart from oil and oil there is still speccapacity, but

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Speaker 1: that speccapacity is quickly running dry. It's mainly in Sauradi,

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Speaker 1: mainly in Opeque. Now it's a good question, and all

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Speaker 1: prices should be higher. If you think about the marginal

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Speaker 1: costs produced the oil um it's getting close to a hundred. Now,

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Speaker 1: that's that's different to the forty that you hear when

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Speaker 1: you talk about it on the ground, and it's the

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Speaker 1: difference is the price the cash flow needed to feed

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Speaker 1: the equity, the shareholders. Now, the social tax with windfall,

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Speaker 1: all of these things are inflationary because you've got to

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Speaker 1: pay all these things, feed all these mouths before you

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Speaker 1: actually put an extra dollar into oil capex, and that's

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Speaker 1: around a hundred. You then add on twenty third In

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Speaker 1: terms of what is this lack of spec capacity worth.

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Speaker 1: Historically it's been between thirty. So in other words, there

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Speaker 1: is a lot of upside too energy prices from him,

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Speaker 1: So translate one barrel into gasoline prices based on the refineries. Yeah,

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Speaker 1: I mean our commodities team have done this work and

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Speaker 1: we're sort of heading towards six dollars potentially by by

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Speaker 1: by the second absolutely, so you're going to see this

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Speaker 1: pass through in terms of retail prices, and therefore there's

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Speaker 1: a question then when does demand respond? How does demand respond?

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Speaker 1: But the key here is that we have never been

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Speaker 1: below five p spec capacity globally in the world, um

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Speaker 1: and that equates to a much bigger premium for oil

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Speaker 1: than what you'd expected to be given it doesn't cost

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Speaker 1: that much to produce it. One of the huge supporters

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Speaker 1: of what I've done is Daniel, You're going to cover

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Speaker 1: to cover the prize years ago. This is folks. You

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Speaker 1: you bought the prize just to walk around campus and

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Speaker 1: look cool. It didn't matter if you read it. But

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Speaker 1: the answer is urging would say they hold the power

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Speaker 1: of the prize. What is the power of the saudiast

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Speaker 1: hold given the JPMorgan to view. Interestingly, you know, I

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Speaker 1: remember very well when we when we launched doubles View

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Speaker 1: in spring of and I remember speaking to OPEC in

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Speaker 1: the Saudias and and they were still investing, still investing

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Speaker 1: in the wells so that when needed they could switch

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Speaker 1: them on. Now I remember in the summer of why

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Speaker 1: would we need those wells? Why do we have too

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Speaker 1: much oil demands of seventy million barrels? But they did

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Speaker 1: the right thing. They were counter cyclical. They continue to

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Speaker 1: invest in their total capacity. Here we are two years

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Speaker 1: later and now we need those barrels. And the only

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Speaker 1: one that's available to add those barrels because they invested

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Speaker 1: when everyone wasn't are the Saudias. Yeah. So if we

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Speaker 1: get six dollars a barrel, a sist dollar gap a

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Speaker 1: gallon gasoline, I'm just trying to wrap my head around this.

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Speaker 1: Are we going to get demand destruction? Have we reached

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Speaker 1: that point of demand destruction? Or will it keep climbing?

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Speaker 1: Short answer note, I think we can cope with those prices.

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Speaker 1: In fact, I think we can cope with oil prices

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Speaker 1: significantly higher over a period of time. And coming back

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Speaker 1: to the Energy Outlook report that we did, one thing

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Speaker 1: we discovered is the resilience of emerging markets to higher prices.

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Speaker 1: Why because their bar is much lower. This is not

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Speaker 1: about do I cycle to work, do I drive to work?

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Speaker 1: This is about living. And when you think about the

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Speaker 1: cross in terms of of the conflict that they have,

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Speaker 1: do we buy oil for honor fetal oil or do

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Speaker 1: we suffer the consequences hunger, riots, revolutions or whatever. So

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Speaker 1: that is a much different, much more difficult cross road,

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Speaker 1: and that's why we think the resilience will be much higher.

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Speaker 1: Jamie from New York emails in he says, Christian, do

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Speaker 1: you support the windfall profit debt? Do I support it?

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Speaker 1: I think ultimately if it helps consumers, yes, But the

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Speaker 1: problem is all it's doing is creating an inflationary backdrop

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Speaker 1: for oil because now the majors have to pay more

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Speaker 1: tax when they could have otherwise invested. And that all

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Speaker 1: that does is raised the brake eavens. Remember all those fouls,

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Speaker 1: all those sort of all those mouths they have to feed. So,

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Speaker 1: whether it's the equity, the debt, the project, you now

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Speaker 1: know you got another mouth to feed, which additional taxes

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Speaker 1: into into you can gov. So again, what's the your

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Speaker 1: perce need to raise that CAPIX and oil it's just

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Speaker 1: gone up significantly. That's inflationary foil. Mr Maylick, thank you

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Speaker 1: so much for joining us here in London, day. He's

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Speaker 1: a JP Morgan. We got an update from Ben Laidler,

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Speaker 1: Global market Strategist to thank you for greeting us here

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Speaker 1: in London. This is your first time back to QBS. Right,

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Speaker 1: absolutely fantastic under the pandemic. Do we just part of

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Speaker 1: the gloom that's out there now? COVID gloom? Still? I

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Speaker 1: think we've sort of forgotten about COVID, to be honest

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Speaker 1: with you, if if you know, one of the things

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Speaker 1: that worries me is that we maybe have completely forgotten

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Speaker 1: about it. Um. But on you on the positive side,

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Speaker 1: there are there are some real silver linings. All right.

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Speaker 1: We've got a we we we've got a big reopening

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Speaker 1: rebound in some markets in some sectors which we've sort

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Speaker 1: of forgotten about. Amongst all the sort of doom and

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Speaker 1: gloom that we've seen recently. I've got to say, COVID

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Speaker 1: does not exist here. COVID did not exist in Switzerland.

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Speaker 1: Nobody here wears a mask. It's kind of amazing. But

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Speaker 1: I aggress our growth concerns overdone here, I think so,

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Speaker 1: But I say that humbly. I mean, we are sort

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Speaker 1: of in our chartered territory. We've sort of never been here. Before.

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Speaker 1: But yes, I think so. I mean you look at

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Speaker 1: the p M I s slowing but pretty solid. You

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Speaker 1: look at the Q two now cast for the US,

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Speaker 1: it's actually better than it was in first quarter. Look

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Speaker 1: at the yel curve that tells you deres noting to

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Speaker 1: worry about. So, you know, I take all that with

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Speaker 1: a pinch of salt, But I I do think we

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Speaker 1: are beginning to build a base out of this vice

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Speaker 1: that the FED has had us in of pushing down

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Speaker 1: valuations and pushing up sort of recession concerns. I think

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Speaker 1: the fact of valuation has come down so much, and

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Speaker 1: the fact that recession concerns has gone up so much,

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Speaker 1: I think puts us in a place where we can

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Speaker 1: start building a base here and you know, look forward

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Speaker 1: to better times. But this goes back to this question,

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Speaker 1: is catch twenty two for the Federal Reserve. We're basically

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Speaker 1: the more that people take a sigh of relief and

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Speaker 1: go back into risk assets, the more the FED is

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Speaker 1: going to say, oh no, we're actually seeing an easy

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Speaker 1: and financial conditions. We can't have that because inflation, oh yeah,

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Speaker 1: hasn't actually come down all that much. At what point

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Speaker 1: does this sort of free eight this ceiling for risk

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Speaker 1: acids for the foreseeable future. I totally agree with that.

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Speaker 1: The FED is not going to let markets turn on

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Speaker 1: a dimeond. This is FED is not going to run

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Speaker 1: to the right. You know, come to the rescue markets.

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Speaker 1: There's there's no v shaped recovery here. But I do

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Speaker 1: think we can sort of build a base, and later

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Speaker 1: in the year when those when those inflation concerns of

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Speaker 1: have ease, when when growth has eased a little bit

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Speaker 1: and the FEDS a little bit less worried about inflation,

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Speaker 1: I think then we can begin to see that Raley.

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Speaker 1: But I think to your point, right now, we just

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Speaker 1: want to build that base. The Raley will come later

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Speaker 1: in the year. Don't don't. Don't built in a recovery

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Speaker 1: right now. The FED one. Let it happen. Take the

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Speaker 1: Ladler optimism. Bring it to the revenue line of different

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Speaker 1: sectors of the entire market against a nominal GDP, which

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Speaker 1: is a huge mystery, the combination of GDP and inflation.

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Speaker 1: We really don't know that glide path down. Fold that

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Speaker 1: into the revenue guess one year, two years forward, and

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Speaker 1: that's you know, I call it question, right, I mean,

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Speaker 1: does he s go into recession or not, and what

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Speaker 1: happens to corporates. You were talking about consumers earlier. That's

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Speaker 1: been one huge anchor here, but the other one has

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Speaker 1: been corporates. Right. This has been a valuation driven correction.

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Speaker 1: It's all been about evaluations. Earnings have been absolutely rock solid.

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Speaker 1: If companies can keep delivering here, then we will build

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Speaker 1: that bottom when we will start to have a rally.

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Speaker 1: If we go into a recession, companies crack and they

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Speaker 1: stop investing. We stopped seeing the M and A. You know,

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Speaker 1: those margins begin to come down, all the things that

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Speaker 1: have held really solid so far, then we're in trouble.

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Speaker 1: But I think we're still looking at this scenario of this,

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Speaker 1: you know, this modest slowdown companies. Certainly big companies can

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Speaker 1: look after themselves, and you've seen that so far. They

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Speaker 1: really haven't got the crisis memo. Um, you're seeing the

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Speaker 1: M and A, you're you're you're seeing double digit capex growth.

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Speaker 1: I mean I can go on and on. I mean

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Speaker 1: they are telling you a very different message to what

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Speaker 1: you're getting from capital markets. Stranch. This weekend, you run

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Speaker 1: into a mere mortal who's scared stiff. They got cash,

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Speaker 1: their fift cash, the have losses. What do you tell

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Speaker 1: them to do with their cash? Just dollar cost average?

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Speaker 1: It in that you want to be in this what

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Speaker 1: into into value? I think the value rally has a

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Speaker 1: very long way to go. You know, we're allowed to

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Speaker 1: name names. There's only five people watching banks, defensive toothpaste companies,

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Speaker 1: what all of the above right? And I think I

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Speaker 1: think banks will do very well once these recession fears

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Speaker 1: come down. They're very cheap, big dividends, I think, you

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Speaker 1: know value those those those classic defensives. You know, you

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Speaker 1: want to be in this market, but you want to

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Speaker 1: be managing your risks. That that's the key here. What

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Speaker 1: about airlines considering the fact that you expect is to

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Speaker 1: be the biggest, biggest summer of travel and I'm about

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Speaker 1: to head to the airport, is that also a good bet?

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Speaker 1: I think the re openers, of which the airlines are one,

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Speaker 1: are these sort of stealth defensives in some ways. Right, markets,

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Speaker 1: economies are reopening. We're all starting to go on on,

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Speaker 1: you know, to travel again. Expectations are very low, Valuations

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Speaker 1: are very low. They've been holding up, They've been holding

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Speaker 1: up really well, and I think that continues so what

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Speaker 1: do you say to the people who say to you,

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Speaker 1: you know, you've beendrinking the kool aid. You're believing in

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Speaker 1: a soft landing and it doesn't exist. It's not going

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Speaker 1: to happen right now. We're towing a line that just

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Speaker 1: has never had a historical precedent before. What do you

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Speaker 1: say to push back against them? I say, look at

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Speaker 1: the buffers that are out there. We're coming from a

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Speaker 1: very strong growth environments. We're coming from a good place.

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Speaker 1: The consumer is in a very good shape. Corporates are

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Speaker 1: in very good shape, and you are already beginning to

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Speaker 1: see inflation expectations rolling over, bun yields rolling over. You know,

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Speaker 1: the FED has been very successful at front loading this uh,

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Speaker 1: this tightening of financial expectations tightening, and you're beginning to

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Speaker 1: see it work. It's early days. The Fed's not going

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Speaker 1: to take its foot off the accelerator anytime soon, but

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Speaker 1: we are beginning to build I think that base for

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Speaker 1: a rally lation in the year. Let's go hind Sick

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Speaker 1: and what you've been. You've been the number one person

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Speaker 1: I know of sustained theorized ballmarket tone since November and

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Speaker 1: December of two thousand eighteen. How did you go along

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Speaker 1: Christmas of two thousand eighteen. I mean, that was a

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Speaker 1: different world, right, We had the we had a FED

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Speaker 1: put there, which we don't have now. So you know,

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Speaker 1: I am bullish with quite a lot of humility in

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Speaker 1: this environment because we've never seen this sort of double

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Speaker 1: barreled FED tightening. We've never seen these sort of triple

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Speaker 1: whammy from around the world. I mean, it's not just

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Speaker 1: inflation in the US, it's energy crisis in Europe, it's lockdowns,

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Speaker 1: it's lockdowns in China. I mean, my narrative here is

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Speaker 1: that things get a little bit less worse. We've priced

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Speaker 1: a lot in we take a little bit of the

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Speaker 1: pressure off, the markets will begin to move higher. It's

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Speaker 1: not that we wake up tomorrow and it's all sweetness

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Speaker 1: and light again. Okay, thank you so much for coming

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Speaker 1: into the Ben Ladler has really given us a spirit

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Speaker 1: here over the last number of years. Joining us right

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Speaker 1: now one of our most important guests because he is

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Speaker 1: always theoretical and foundationally based in the study of fixed income.

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Speaker 1: Stephen Major joins US global head of Fixed Income Research

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Speaker 1: in HSBC. I gotta cut to the chase you moved

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Speaker 1: to Hong Kong. Hou's Hong Kong doing so far, so good.

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Speaker 1: I can't speak for what they think of me, but

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Speaker 1: I'm quite happy that restricted in Hong Kong. I mean

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Speaker 1: we get all the news and and occur in giving

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Speaker 1: us wonderful briefs as well. Stephen Angle reporting, But do

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Speaker 1: you feel restricted day to day within the new Hong Kong. No,

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Speaker 1: it's it's actually it's possible to move around quite freely,

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Speaker 1: and people are wearing masks. But it's it seems seems

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Speaker 1: to me that we can do what we need to do,

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Speaker 1: and so I think some of the view from outside

429
00:23:28,240 --> 00:23:31,280
Speaker 1: may not be consistent with what we see inside Hong Kong.

430
00:23:31,320 --> 00:23:33,520
Speaker 1: In the weekend, let's do something for those that are

431
00:23:33,600 --> 00:23:37,280
Speaker 1: learning fixed income. Many of our guests say, devolved down

432
00:23:37,280 --> 00:23:40,160
Speaker 1: and look at the inflation and just to yield. Should

433
00:23:40,200 --> 00:23:42,600
Speaker 1: I be looking at the real yield or should I

434
00:23:42,680 --> 00:23:46,880
Speaker 1: study the normenal yield? Both? But the one piece that's

435
00:23:46,920 --> 00:23:49,760
Speaker 1: missing there is the forward real yield. I heard you

436
00:23:49,840 --> 00:23:53,400
Speaker 1: both talking about it just now, the five year forward

437
00:23:53,480 --> 00:23:55,920
Speaker 1: real yield. So let's take the five year forward one

438
00:23:56,000 --> 00:23:59,199
Speaker 1: year rate. It's moved from about minus one hundred and

439
00:23:59,240 --> 00:24:04,160
Speaker 1: fifty to plus one hundred in the last six months,

440
00:24:04,200 --> 00:24:06,400
Speaker 1: So that's a two hundred and fifty basis point move.

441
00:24:06,520 --> 00:24:08,520
Speaker 1: Now you can take that from tips. It's a it's

442
00:24:08,560 --> 00:24:11,160
Speaker 1: a forward estimating where we're going to be in five

443
00:24:11,320 --> 00:24:14,320
Speaker 1: in five years time. Now, that says to me, there's

444
00:24:14,320 --> 00:24:17,439
Speaker 1: been a big tightening that you can't see in the spot.

445
00:24:17,760 --> 00:24:21,640
Speaker 1: So that's the spot moves by less than that. So

446
00:24:22,080 --> 00:24:24,160
Speaker 1: from the Fed's point of view, and they look at

447
00:24:24,200 --> 00:24:27,040
Speaker 1: things like this, they'll look at the forward break evens,

448
00:24:27,080 --> 00:24:31,240
Speaker 1: the forward reel um it's a bit of a worry because,

449
00:24:31,400 --> 00:24:36,400
Speaker 1: strangely enough, the market has tightened a lot for them already,

450
00:24:36,480 --> 00:24:39,320
Speaker 1: and they've only done one small twenty five basis point

451
00:24:39,359 --> 00:24:42,200
Speaker 1: rate hike and a fifty that's all they've done, and

452
00:24:42,960 --> 00:24:46,600
Speaker 1: there's nowhere near neutral on that basis. But the forwards

453
00:24:46,760 --> 00:24:50,119
Speaker 1: already saying that they've tightened. Are you saying, Stephen, this

454
00:24:50,200 --> 00:24:52,840
Speaker 1: is really important that the Fed will not be concerned

455
00:24:53,280 --> 00:24:56,240
Speaker 1: by a loosening in financial conditions this week, that it

456
00:24:56,280 --> 00:24:58,800
Speaker 1: won't necessarily alarm, that it will just be a pause

457
00:24:59,160 --> 00:25:01,359
Speaker 1: in the incredible time tightening that they were getting concerned about.

458
00:25:01,680 --> 00:25:05,040
Speaker 1: From my perspective, I'm a bit concerned because we're forecasting

459
00:25:05,080 --> 00:25:07,800
Speaker 1: lower yields by year end. We have a two point

460
00:25:07,840 --> 00:25:10,160
Speaker 1: five and your Treasury forecast and I'm a bit worried

461
00:25:10,160 --> 00:25:13,520
Speaker 1: and it's happening too soon. And to answer your question, Lisa,

462
00:25:14,200 --> 00:25:17,840
Speaker 1: that that's also consistent with the financial conditions not tightening

463
00:25:19,119 --> 00:25:21,800
Speaker 1: further now they have already tightened quite a lot, to

464
00:25:22,520 --> 00:25:26,320
Speaker 1: be fair, but that the Fed's not well served by

465
00:25:26,400 --> 00:25:31,560
Speaker 1: the market um softening up the financial conditions. And then

466
00:25:31,560 --> 00:25:33,239
Speaker 1: you know that they want you all to think that

467
00:25:33,280 --> 00:25:35,880
Speaker 1: they're hawkish and they're going to hike like crazy. Then

468
00:25:35,960 --> 00:25:38,639
Speaker 1: your behave and the consumer will calm down and the

469
00:25:38,680 --> 00:25:42,080
Speaker 1: inflation will gradually fall back to target over a few years. Right,

470
00:25:42,240 --> 00:25:44,640
Speaker 1: that's what they want. The trouble is we want everything now,

471
00:25:45,480 --> 00:25:47,760
Speaker 1: which is the reason why. And if you go now,

472
00:25:47,800 --> 00:25:49,960
Speaker 1: it changes the behavior later in the year if we

473
00:25:50,040 --> 00:25:54,200
Speaker 1: see an ongoing return to sort of frothier conditions or

474
00:25:54,240 --> 00:25:57,320
Speaker 1: perhaps buying the dip kind of mentality. Where would you

475
00:25:57,359 --> 00:25:59,480
Speaker 1: take the tenure projection for the end of the year

476
00:25:59,520 --> 00:26:02,160
Speaker 1: if it is currently now two point five percent? Yeah,

477
00:26:02,200 --> 00:26:05,400
Speaker 1: I don't think it's going to be so quite so binary.

478
00:26:05,480 --> 00:26:07,600
Speaker 1: I'm sorry if I'm complicating this but I think it's

479
00:26:07,600 --> 00:26:11,600
Speaker 1: important to understand. If they hike with their eyes closed

480
00:26:12,240 --> 00:26:14,800
Speaker 1: and they carry on doing it into next year, then

481
00:26:14,840 --> 00:26:18,240
Speaker 1: the tenure treasury should be four percent. Right if if

482
00:26:18,280 --> 00:26:20,840
Speaker 1: they take into account that we could have a recession

483
00:26:20,920 --> 00:26:23,239
Speaker 1: by two thousand twenty four, they're gonna be back at

484
00:26:23,320 --> 00:26:26,560
Speaker 1: zero within the next year or so. Therefore the yield

485
00:26:26,600 --> 00:26:29,119
Speaker 1: should be below one percent. So the trouble is is

486
00:26:29,160 --> 00:26:31,359
Speaker 1: that the two and a half, it sits right in

487
00:26:31,400 --> 00:26:36,080
Speaker 1: between those two yields. Now, Um, the human brain isn't

488
00:26:36,119 --> 00:26:39,280
Speaker 1: clever enough to cope with that, unfortunately, because we want

489
00:26:39,320 --> 00:26:41,399
Speaker 1: we want to or in simple terms, we want a

490
00:26:41,440 --> 00:26:44,400
Speaker 1: simple base case. We want we want a path everything.

491
00:26:44,480 --> 00:26:46,000
Speaker 1: What do you do with that? As someone who has

492
00:26:46,040 --> 00:26:49,560
Speaker 1: to give projections in forecast your cast? That's how markets work,

493
00:26:49,640 --> 00:26:53,480
Speaker 1: though markets market markets are trying to incorporate all available information.

494
00:26:53,640 --> 00:26:55,920
Speaker 1: It's not like they're going to jump suddenly from being

495
00:26:55,960 --> 00:27:00,200
Speaker 1: hawkish to dabblish. There there's a transition that's gradual over time,

496
00:27:00,200 --> 00:27:02,840
Speaker 1: and so of course the growth risks are growing, the

497
00:27:02,920 --> 00:27:07,040
Speaker 1: inflation risks are maybe peaking. So it's happening happening gradually.

498
00:27:07,680 --> 00:27:09,600
Speaker 1: We do our research here at Surveillance and one thing

499
00:27:09,640 --> 00:27:11,879
Speaker 1: that's really important is to understand the last time we

500
00:27:11,920 --> 00:27:14,760
Speaker 1: had a bond bear market this bad West Ham was

501
00:27:14,800 --> 00:27:17,880
Speaker 1: looking at relegation. They had a goalkeeper, Phil Parks. They

502
00:27:17,880 --> 00:27:20,800
Speaker 1: are for more money than God. There was seventy eight,

503
00:27:20,920 --> 00:27:24,119
Speaker 1: seventy nine, and now there's now. Have you've seen a

504
00:27:24,240 --> 00:27:28,200
Speaker 1: bond bear market price down like we see right now? Well,

505
00:27:28,320 --> 00:27:33,200
Speaker 1: this um this this year's decline in in bond prices,

506
00:27:33,320 --> 00:27:36,760
Speaker 1: so so the total return that the losses this year

507
00:27:36,800 --> 00:27:40,640
Speaker 1: have been the biggest on record for forty yard years.

508
00:27:40,760 --> 00:27:43,639
Speaker 1: We had two consecutive years like this. It's also I

509
00:27:43,640 --> 00:27:47,080
Speaker 1: think the first time since nine when both bonds and

510
00:27:47,240 --> 00:27:50,200
Speaker 1: stocks have gone down. Now this is this is important

511
00:27:50,320 --> 00:27:53,720
Speaker 1: because it's not just a bond bear market you're talking about,

512
00:27:53,720 --> 00:27:55,639
Speaker 1: cause we were talking about a stock bear market and

513
00:27:55,760 --> 00:28:00,280
Speaker 1: questioning the whole role of sixty. My view on this

514
00:28:00,480 --> 00:28:03,679
Speaker 1: is that bonds have really priced sufficiently, and when we

515
00:28:03,800 --> 00:28:07,960
Speaker 1: study things like these drawdowns and the move in the forwards, etcetera,

516
00:28:08,240 --> 00:28:10,800
Speaker 1: I think I think bonds are offering much more value

517
00:28:11,200 --> 00:28:14,560
Speaker 1: to diversify in a in an equity bond portfolio now

518
00:28:14,640 --> 00:28:16,639
Speaker 1: than before. I want you to speak to people that

519
00:28:16,720 --> 00:28:20,040
Speaker 1: could carell us about the forward market. Yeah, page fourteen

520
00:28:20,160 --> 00:28:24,439
Speaker 1: of your ty eight page image, your outlook. They're in

521
00:28:24,560 --> 00:28:28,360
Speaker 1: some form of fixed income. They're down three years coupon

522
00:28:28,720 --> 00:28:31,480
Speaker 1: and they're saying, how do I regroup? What is the

523
00:28:31,480 --> 00:28:34,399
Speaker 1: thought process? And a bond bear market to try to

524
00:28:34,440 --> 00:28:37,000
Speaker 1: catch up? You won't get it back this year and

525
00:28:37,359 --> 00:28:39,160
Speaker 1: you you have that. That's how you have to think

526
00:28:39,200 --> 00:28:42,600
Speaker 1: in bonds. It's a snow grind. Bonds aren't about all

527
00:28:42,680 --> 00:28:45,800
Speaker 1: of the rock and roll that you get in equities

528
00:28:45,840 --> 00:28:48,640
Speaker 1: and in text tech stocks and bitcoin, etcetera. They're not

529
00:28:48,680 --> 00:28:50,960
Speaker 1: They're not the same, right, So bot bonds are there

530
00:28:50,960 --> 00:28:53,480
Speaker 1: to be balanced in the portfolio. So it's a top

531
00:28:53,560 --> 00:28:56,560
Speaker 1: you you have to accept it's a down, down year,

532
00:28:57,160 --> 00:29:00,920
Speaker 1: but you enter now with fresh cash and you're getting

533
00:29:01,080 --> 00:29:03,400
Speaker 1: you have three percent in the longer end. That's what

534
00:29:03,440 --> 00:29:06,080
Speaker 1: people have been doing. And if you look in i

535
00:29:06,240 --> 00:29:09,880
Speaker 1: G credit, you're now you're talking about five six percent.

536
00:29:10,840 --> 00:29:13,080
Speaker 1: How many of those buyers who are coming in were

537
00:29:13,080 --> 00:29:15,640
Speaker 1: from Japan? How many were from China? And I say

538
00:29:15,640 --> 00:29:19,240
Speaker 1: this because actually on a currency hedged basis, you can

539
00:29:19,280 --> 00:29:21,320
Speaker 1: get more are you actually can get less in the

540
00:29:21,400 --> 00:29:24,000
Speaker 1: United States right now? Then in Japan they won't be

541
00:29:24,040 --> 00:29:27,120
Speaker 1: coming from Japan because the Japanese curve is steep in

542
00:29:27,160 --> 00:29:29,680
Speaker 1: the tenure. Does that matter? What it means that their

543
00:29:29,720 --> 00:29:32,560
Speaker 1: own market works better alright, So so that there means

544
00:29:32,560 --> 00:29:35,000
Speaker 1: that the hedge doesn't work. They're better off being at home,

545
00:29:35,680 --> 00:29:39,600
Speaker 1: So that that's true. Money might be coming from other

546
00:29:39,640 --> 00:29:42,400
Speaker 1: parts of the world. I mean you mentioned China. China

547
00:29:42,480 --> 00:29:45,720
Speaker 1: seems to be slowing down. The question is is there

548
00:29:45,760 --> 00:29:48,440
Speaker 1: a capital flow from that part of the world into

549
00:29:48,480 --> 00:29:50,680
Speaker 1: the US where it's difficult because the capital accounty is

550
00:29:50,720 --> 00:29:54,120
Speaker 1: knocked down. But but something seems to be happening. So

551
00:29:54,880 --> 00:29:58,080
Speaker 1: if China is slowing down, then that's that's important to

552
00:29:58,120 --> 00:30:01,080
Speaker 1: the FED as well. We don't care what you think

553
00:30:01,080 --> 00:30:03,440
Speaker 1: about fixed income. The reason we had Steam Major in

554
00:30:05,040 --> 00:30:09,920
Speaker 1: excuse me, one of the pre eminent minds in fixed

555
00:30:09,960 --> 00:30:13,400
Speaker 1: incomes also in English breakfast Steam Major. Would you explain

556
00:30:13,440 --> 00:30:16,120
Speaker 1: to something grew up with this? Do people really eat

557
00:30:16,200 --> 00:30:18,760
Speaker 1: this in England? Not if you want to live a

558
00:30:18,760 --> 00:30:24,360
Speaker 1: long time? So that in the Major childhood, what was

559
00:30:24,400 --> 00:30:27,320
Speaker 1: the tradition? We didn't need that stuff? My father may

560
00:30:27,360 --> 00:30:29,720
Speaker 1: have done, but the thing is it's it's it's not

561
00:30:29,840 --> 00:30:32,560
Speaker 1: good for you. You need you need to stick to

562
00:30:32,680 --> 00:30:36,480
Speaker 1: the church. I mean it's just like out of a movie,

563
00:30:36,560 --> 00:30:39,480
Speaker 1: you know, out of ninety six with Winston with a

564
00:30:39,480 --> 00:30:42,000
Speaker 1: cigar in his mouth and the third glass of Scotch

565
00:30:42,040 --> 00:30:46,160
Speaker 1: of seven am. Yeah. I like your comments about the eggs,

566
00:30:46,240 --> 00:30:48,920
Speaker 1: the fact that they're they're yellow, that's because they are

567
00:30:49,000 --> 00:30:52,480
Speaker 1: proper eggs. So whatever you're eating in the States that

568
00:30:52,840 --> 00:30:56,120
Speaker 1: they they're they're white, colorful, but they're organic because you know,

569
00:30:56,120 --> 00:31:00,640
Speaker 1: he says, proper eggs. And I miss Johnson, actually he

570
00:31:00,680 --> 00:31:06,720
Speaker 1: abandoned us, but it must have been the vitality of

571
00:31:06,760 --> 00:31:09,040
Speaker 1: the food here in Europe. In general, I think the

572
00:31:09,040 --> 00:31:11,680
Speaker 1: best foods in Instable in my travels, I guess you're

573
00:31:11,680 --> 00:31:13,960
Speaker 1: gonna have to take us. We're gonna we're road trip

574
00:31:13,960 --> 00:31:16,280
Speaker 1: in Istable. When they close the boss first, it will

575
00:31:16,320 --> 00:31:18,560
Speaker 1: be a reason to go. Stephen Major, thank you so

576
00:31:18,640 --> 00:31:22,240
Speaker 1: much for the energy to come in Victoria Street a briefinger.

577
00:31:22,400 --> 00:31:29,760
Speaker 1: I'm not having a full englist tomorrow. Jordan's Ranchester joins

578
00:31:29,800 --> 00:31:33,080
Speaker 1: us down effect Strategists from Number You are great to

579
00:31:33,120 --> 00:31:36,200
Speaker 1: catch up with you this warning. Is it a time

580
00:31:36,240 --> 00:31:39,280
Speaker 1: here or in the parlance, you can make big figure

581
00:31:39,280 --> 00:31:43,000
Speaker 1: bets absolutely like you're excited to wake up in the

582
00:31:43,040 --> 00:31:45,680
Speaker 1: morning after your full English You're like, let's go. We

583
00:31:45,800 --> 00:31:47,960
Speaker 1: just had full percent in the dollar setting off over

584
00:31:47,960 --> 00:31:50,360
Speaker 1: the past few week weeks, so it's really big moves

585
00:31:50,400 --> 00:31:52,120
Speaker 1: on the back of very little So it's a very

586
00:31:52,200 --> 00:31:55,000
Speaker 1: volatile environment. So it's a volatile environment, but it's an

587
00:31:55,040 --> 00:31:57,200
Speaker 1: easy one to get right if you look at, for example,

588
00:31:57,240 --> 00:32:00,600
Speaker 1: all the calls for parody that have gone the way

589
00:32:00,760 --> 00:32:04,160
Speaker 1: of the English breakfast for someone like Stephen Major, it's

590
00:32:04,160 --> 00:32:06,160
Speaker 1: now at one oh seven and seems to have gotten

591
00:32:06,200 --> 00:32:08,760
Speaker 1: some foothold there. Indeed, one of the biggest flaws in

592
00:32:08,800 --> 00:32:10,760
Speaker 1: my sort of way of approaching things is getting to

593
00:32:11,240 --> 00:32:13,080
Speaker 1: kind of set on these on these big parity of

594
00:32:13,080 --> 00:32:15,040
Speaker 1: the figures. But I do think if you look at

595
00:32:15,080 --> 00:32:17,000
Speaker 1: euro where we are here today, we've had a big

596
00:32:17,000 --> 00:32:20,280
Speaker 1: four percent rally higher. What's really strange is this Chinese

597
00:32:20,280 --> 00:32:23,600
Speaker 1: Remimbia is weaker, but Euro stronger. The main trading partner

598
00:32:23,640 --> 00:32:26,120
Speaker 1: of Europe is under pressure here with their lockdowns and

599
00:32:26,160 --> 00:32:28,840
Speaker 1: not enough stimulus, yet the Euro stronger, and it's all

600
00:32:28,880 --> 00:32:31,800
Speaker 1: boiling down to what I've been surprised by is the

601
00:32:31,920 --> 00:32:35,320
Speaker 1: US terminal rape pricing really softening, and that's kind of

602
00:32:35,360 --> 00:32:37,520
Speaker 1: allowed this week of dollar, but I think we've probably

603
00:32:37,520 --> 00:32:39,480
Speaker 1: had a little bit too much of that dollar weakness

604
00:32:39,640 --> 00:32:41,960
Speaker 1: and we could see euro go back down lower next week.

605
00:32:42,120 --> 00:32:44,840
Speaker 1: And that's been basically your call, right You've been talking

606
00:32:44,840 --> 00:32:47,000
Speaker 1: about how the euro does not look cheap here, even

607
00:32:47,000 --> 00:32:50,200
Speaker 1: though it has been cheaper than it has been in years.

608
00:32:50,440 --> 00:32:53,200
Speaker 1: What's the level you're targeting given the resilience that we've

609
00:32:53,240 --> 00:32:56,040
Speaker 1: seen over the past few trading sessions. So if use

610
00:32:56,120 --> 00:32:59,160
Speaker 1: valuation models, you have two ways of doing it. Really

611
00:32:59,320 --> 00:33:01,920
Speaker 1: one is deflay, eating it by consumer prices or won

612
00:33:01,960 --> 00:33:05,200
Speaker 1: by producer prices. Most of the time, producer prices are

613
00:33:05,200 --> 00:33:08,160
Speaker 1: the things that you actually trade for foreign exchange and produce.

614
00:33:08,240 --> 00:33:12,120
Speaker 1: The price inflation in Europe is nearly forty. It's higher,

615
00:33:12,200 --> 00:33:14,920
Speaker 1: it's worse than the nineties seventies for Europe, it's not

616
00:33:14,960 --> 00:33:17,680
Speaker 1: the same for the US. So that's really devalued the

617
00:33:17,760 --> 00:33:20,600
Speaker 1: value of the Euro for its medium term sort of level.

618
00:33:20,840 --> 00:33:22,560
Speaker 1: So one O nine is where I'm getting my sort

619
00:33:22,560 --> 00:33:25,720
Speaker 1: of fair value for the Euro. But I think given

620
00:33:25,720 --> 00:33:28,720
Speaker 1: the trade deficits collapsing, given their main trading partner, China

621
00:33:29,000 --> 00:33:31,840
Speaker 1: is under pressure given the food crisis, the energy crisis,

622
00:33:32,040 --> 00:33:34,360
Speaker 1: euro to parity is still possible in the months ahead.

623
00:33:34,360 --> 00:33:36,800
Speaker 1: There's a lonely crew out there focused landa Deutsche Bank

624
00:33:36,920 --> 00:33:39,760
Speaker 1: hilarion at the University of Cambridge, Jeffrey You with a

625
00:33:39,800 --> 00:33:43,000
Speaker 1: brilliant note from B and Y Melon saying we need

626
00:33:43,000 --> 00:33:46,200
Speaker 1: to start learning lessons from the Plaza accord. They're not

627
00:33:46,320 --> 00:33:50,160
Speaker 1: saying we will see a PLAZA record, but consensus says no,

628
00:33:50,840 --> 00:33:54,720
Speaker 1: this time is different. Should we worry about a dollar

629
00:33:54,880 --> 00:33:58,120
Speaker 1: so strong for e M that we have to adjust

630
00:33:58,360 --> 00:34:01,200
Speaker 1: a dollar? Well, the main question is, Tom, do you

631
00:34:01,240 --> 00:34:04,280
Speaker 1: think policymakers can actually work together to achieve that because

632
00:34:04,320 --> 00:34:07,080
Speaker 1: everybody is facing an inflation problem right now. If you

633
00:34:07,120 --> 00:34:09,799
Speaker 1: have that PLAZA record at the sort of eu U

634
00:34:09,920 --> 00:34:12,239
Speaker 1: S level, I can imagine it could work. But then

635
00:34:12,280 --> 00:34:14,840
Speaker 1: all the other partners would be also wondering, well what

636
00:34:14,880 --> 00:34:17,399
Speaker 1: about em as well? So for China and the US

637
00:34:17,480 --> 00:34:21,120
Speaker 1: to coordinate on currency manipulation after years of the US

638
00:34:21,160 --> 00:34:24,080
Speaker 1: saying China has been manipulating its currency seems quite a

639
00:34:24,120 --> 00:34:26,440
Speaker 1: big stretch of the imagination. But I could see it

640
00:34:26,440 --> 00:34:28,440
Speaker 1: on the eu U S level. But my base cases

641
00:34:28,520 --> 00:34:30,560
Speaker 1: we don't get some sort of agreement like that. What's

642
00:34:30,600 --> 00:34:33,480
Speaker 1: the main driver right now of currency volatility. Has it

643
00:34:33,560 --> 00:34:36,239
Speaker 1: been central banks and differentials there or has it been

644
00:34:36,360 --> 00:34:39,680
Speaker 1: economic outlook? Well both, So the economic outlook drives the

645
00:34:39,719 --> 00:34:42,440
Speaker 1: central banks. I think in terms of what's been driving

646
00:34:42,480 --> 00:34:44,920
Speaker 1: the markets. Hello, Mark, In terms of what's been driving

647
00:34:44,920 --> 00:34:47,520
Speaker 1: the markets and central banks, we've been essentially seeing a

648
00:34:47,560 --> 00:34:50,960
Speaker 1: food crisis, an energy crisis, and that's translating to central

649
00:34:50,960 --> 00:34:53,279
Speaker 1: banks over reacting thinking this is a growth shock. But

650
00:34:53,320 --> 00:34:56,239
Speaker 1: I think that's probably wrong this inflation. Jordan, Hello, I

651
00:34:56,320 --> 00:35:01,720
Speaker 1: was trying to basically talk down the clocks. Yeah, y, Tom, Lisa,

652
00:35:01,760 --> 00:35:03,399
Speaker 1: great to see you here. Sorry for interrupting your show.

653
00:35:03,520 --> 00:35:08,280
Speaker 1: Sorry I did hear Jordan discussed the dollar. Um, Jordan's

654
00:35:08,320 --> 00:35:10,160
Speaker 1: I believe you're gonna be buying the points today. Do

655
00:35:10,160 --> 00:35:11,880
Speaker 1: you want to explain to the viewers why you're going

656
00:35:11,920 --> 00:35:13,879
Speaker 1: to be buying points today? For me? Yeah, two weeks

657
00:35:13,920 --> 00:35:16,840
Speaker 1: ago markt a little cheeky conversation about the dollar and

658
00:35:16,840 --> 00:35:19,000
Speaker 1: he was right and I was wrong. Don't say so, Shot,

659
00:35:20,239 --> 00:35:22,879
Speaker 1: is it come on elaborate so to walk? I mean,

660
00:35:22,920 --> 00:35:25,120
Speaker 1: in terms of my thesis, the trade balance of euro

661
00:35:25,239 --> 00:35:27,200
Speaker 1: has collapsed, We've got this situation with growth. But Mark

662
00:35:27,280 --> 00:35:28,960
Speaker 1: was looking at the U S terminal rate pricing. I

663
00:35:29,040 --> 00:35:30,520
Speaker 1: think when he made his call on the short in

664
00:35:30,560 --> 00:35:32,520
Speaker 1: the dollar, and I just didn't see that happening and

665
00:35:32,520 --> 00:35:35,440
Speaker 1: I got that wrong. So I think the growth expectations

666
00:35:35,440 --> 00:35:37,680
Speaker 1: have come down much quicker. We've traded the stagflation theme

667
00:35:37,760 --> 00:35:39,680
Speaker 1: much quicker. So how much longer can we do for that?

668
00:35:39,680 --> 00:35:40,759
Speaker 1: Do you think we have another week or two of

669
00:35:40,760 --> 00:35:42,319
Speaker 1: that theme? Where do you think it turns around very quickly?

670
00:35:42,320 --> 00:35:43,960
Speaker 1: I don't know about you. Mark most people on holiday

671
00:35:43,960 --> 00:35:45,879
Speaker 1: next week in the UK? What the Queen's jubilee. It's

672
00:35:45,920 --> 00:35:47,920
Speaker 1: kind of tough, but there's one thing to watch out for.

673
00:35:48,440 --> 00:35:51,000
Speaker 1: We've got European inflation next week. I'm going to be

674
00:35:51,080 --> 00:35:55,200
Speaker 1: having a point. He's going to get some vindaloo to

675
00:35:55,480 --> 00:36:03,799
Speaker 1: go with Pharaoh's idea for the game. Pharaoh's idea to

676
00:36:03,800 --> 00:36:07,120
Speaker 1: pull the old fart off stage right. I'm doing a

677
00:36:07,120 --> 00:36:12,120
Speaker 1: good job. It's doing a great job. What I hate

678
00:36:12,120 --> 00:36:13,960
Speaker 1: to say. I got to get something out of this conversation.

679
00:36:14,040 --> 00:36:17,680
Speaker 1: Do you want to join for points? But which beer

680
00:36:17,719 --> 00:36:20,440
Speaker 1: will you qu off? I'll be having an ale while

681
00:36:20,440 --> 00:36:22,560
Speaker 1: I'm in London. Hell, you have a brand that we like,

682
00:36:22,680 --> 00:36:26,560
Speaker 1: we like I like experimenting with the local ales on

683
00:36:26,640 --> 00:36:30,200
Speaker 1: Jordan's guidance stuff. The Candon guy. So Candon, howse Candon?

684
00:36:30,239 --> 00:36:33,640
Speaker 1: I PA, So we'll be trying some of that as well. Well,

685
00:36:33,640 --> 00:36:36,160
Speaker 1: thank you. I appreciate the bet that you guys had. Honestly,

686
00:36:36,160 --> 00:36:37,960
Speaker 1: I think that the key question and the bigger and

687
00:36:38,360 --> 00:36:40,400
Speaker 1: the sort of broader question I know you're going to

688
00:36:40,480 --> 00:36:44,200
Speaker 1: go into. And for those of you that are going,

689
00:36:44,320 --> 00:36:47,040
Speaker 1: what in God's name is this about? This is the

690
00:36:47,239 --> 00:36:50,800
Speaker 1: fun in spirit of Wall Street, which I think is

691
00:36:50,880 --> 00:36:53,320
Speaker 1: perceived in the media wrong. And then it was like,

692
00:36:53,360 --> 00:36:55,720
Speaker 1: oh my god, he was rong. Jordan Rochester was wrong.

693
00:36:56,000 --> 00:36:59,359
Speaker 1: Shoot him? No, this is people get it wrong all

694
00:36:59,360 --> 00:37:01,960
Speaker 1: the time. I get it wrong. Were you like, what's

695
00:37:02,000 --> 00:37:04,000
Speaker 1: the level of wrong your cut? More? Was he like?

696
00:37:04,239 --> 00:37:06,960
Speaker 1: Way wrong? We could run this time the timing we're

697
00:37:07,239 --> 00:37:10,239
Speaker 1: quite convenient, which but if you're not getting it wrong,

698
00:37:10,360 --> 00:37:12,560
Speaker 1: you're not saying interesting enough things. You need to be

699
00:37:12,600 --> 00:37:15,520
Speaker 1: getting it wrong almost half the time, hopefully not more

700
00:37:15,520 --> 00:37:16,839
Speaker 1: than half of the time. I think I look good

701
00:37:16,840 --> 00:37:19,360
Speaker 1: at a podium. What do you think am I allowed

702
00:37:19,400 --> 00:37:21,799
Speaker 1: to say no comment? Does that appropriate? At this point?

703
00:37:22,040 --> 00:37:24,080
Speaker 1: I don't want to get a more trouble by answering honestly,

704
00:37:24,120 --> 00:37:29,040
Speaker 1: and I don't want to lie live for the radio.

705
00:37:29,200 --> 00:37:31,840
Speaker 1: Time is moving the podium back and forth. Mark Hudmore

706
00:37:31,960 --> 00:37:34,560
Speaker 1: just crashed our said of m live here at Bloomberg

707
00:37:34,840 --> 00:37:37,680
Speaker 1: And honestly, though, Jordan, there is a question of whether,

708
00:37:37,760 --> 00:37:40,480
Speaker 1: basically this goes to a timing issue. What is the

709
00:37:40,520 --> 00:37:43,680
Speaker 1: correct timing right now for currency bets? Is it a

710
00:37:43,680 --> 00:37:46,640
Speaker 1: one week timing as you can see that seemed to

711
00:37:46,640 --> 00:37:48,839
Speaker 1: have backfired for you this time, well like four It's

712
00:37:48,840 --> 00:37:50,560
Speaker 1: been four cent in two weeks. That's a big move.

713
00:37:50,640 --> 00:37:52,719
Speaker 1: So I think next week we've got low liquidity with

714
00:37:52,760 --> 00:37:55,480
Speaker 1: half the UK on holiday, flash inflation for Europe will

715
00:37:55,520 --> 00:37:57,680
Speaker 1: come in really strong. So I am worried that your

716
00:37:57,719 --> 00:37:59,600
Speaker 1: goes a little bit high next week than after that.

717
00:37:59,680 --> 00:38:02,440
Speaker 1: It really is. One of my best conversations in Davos

718
00:38:02,600 --> 00:38:05,960
Speaker 1: was with the giant Kaushure Marble Bonnie of Singapore, Mark,

719
00:38:05,960 --> 00:38:10,440
Speaker 1: where you are truly expert. When China opens up the

720
00:38:10,480 --> 00:38:14,920
Speaker 1: lockdowns over how do those currencies react to perhaps a

721
00:38:15,120 --> 00:38:17,760
Speaker 1: China booma. I think it'll be massive for the region,

722
00:38:17,800 --> 00:38:19,799
Speaker 1: but it's it's when is the real issue, Because many

723
00:38:19,840 --> 00:38:21,640
Speaker 1: people in Asia think it's probably gonna come sooner than

724
00:38:21,640 --> 00:38:23,960
Speaker 1: people in the US. We're running the Endogay server this

725
00:38:24,000 --> 00:38:26,120
Speaker 1: week and we can see there's a massive regional divide

726
00:38:26,120 --> 00:38:28,719
Speaker 1: in expectations around the China path From here is he

727
00:38:28,800 --> 00:38:31,360
Speaker 1: with this next break? Do we keep doing us? I

728
00:38:31,440 --> 00:38:33,600
Speaker 1: just crashed temporarity. I don't. I think this is gonna

729
00:38:33,600 --> 00:38:40,279
Speaker 1: go pizza Actually, oh good English? Can you image? Would you?

730
00:38:40,400 --> 00:38:43,359
Speaker 1: Would you imagine when a full English pizza looks shut?

731
00:38:43,440 --> 00:38:48,359
Speaker 1: My goodness, lots of too. I think Jordan Rochester, thank you.

732
00:38:49,440 --> 00:38:54,600
Speaker 1: I think Mark Cudmore, thank you. M live is what

733
00:38:54,719 --> 00:38:56,759
Speaker 1: the pros look at in the terminal. It is the

734
00:38:56,840 --> 00:38:59,600
Speaker 1: really pro dialogue of what's going on in the market.

735
00:39:06,239 --> 00:39:08,920
Speaker 1: We now sent a side to the global economy and

736
00:39:09,000 --> 00:39:12,480
Speaker 1: do this with Neil sharing with always a complex readable

737
00:39:12,520 --> 00:39:16,239
Speaker 1: note from Capital Economics joining us in our London studios.

738
00:39:16,360 --> 00:39:19,280
Speaker 1: Neil of the of the trite, the triangle, the tripod

739
00:39:19,719 --> 00:39:22,880
Speaker 1: that you're looking at of global economics. What interests me

740
00:39:23,440 --> 00:39:26,520
Speaker 1: is your study of real wages. And what I find

741
00:39:26,560 --> 00:39:30,040
Speaker 1: fascinating in the United States is on an x axis,

742
00:39:30,160 --> 00:39:34,120
Speaker 1: the area under this collapse in the real wage. Boy,

743
00:39:34,160 --> 00:39:38,440
Speaker 1: it's getting along. The integrand of negative real wages is

744
00:39:38,600 --> 00:39:44,640
Speaker 1: really getting substantial. How does that affect behavior into next year. Well,

745
00:39:44,800 --> 00:39:46,640
Speaker 1: we've got a flavor of that in the data that's

746
00:39:46,719 --> 00:39:50,480
Speaker 1: just come out. Right. We've had personal consumption growing point nine,

747
00:39:50,640 --> 00:39:54,239
Speaker 1: but incomes growing much less than personal consumption. Consumers are

748
00:39:54,239 --> 00:39:56,799
Speaker 1: dipping into their savings and that's what sustaining that the

749
00:39:56,840 --> 00:39:59,840
Speaker 1: health of consumption in the US. Now, you're right that

750
00:40:00,000 --> 00:40:02,520
Speaker 1: there's been an erosion of real wages in the US,

751
00:40:02,680 --> 00:40:05,760
Speaker 1: and I think that's going to start away on demand

752
00:40:05,840 --> 00:40:08,839
Speaker 1: as we head into next year. You combine that with

753
00:40:08,840 --> 00:40:11,600
Speaker 1: what the FEDS doing great sensitive sex is housing, I

754
00:40:11,600 --> 00:40:13,480
Speaker 1: think it's going to slow. I think there's going to

755
00:40:13,520 --> 00:40:15,760
Speaker 1: necessarily be a recession. Though the strength of the consumer

756
00:40:15,800 --> 00:40:17,480
Speaker 1: data that we have this morning, I think it's testament

757
00:40:17,520 --> 00:40:19,719
Speaker 1: to that if you're looking for a recession and you're

758
00:40:19,760 --> 00:40:23,320
Speaker 1: concerned about squeezes in real incomes, then here in Europe

759
00:40:23,360 --> 00:40:25,640
Speaker 1: is the place to look. The terms of trade shock

760
00:40:25,760 --> 00:40:29,759
Speaker 1: that Europe's experiences is an order of magnitude greater than

761
00:40:29,800 --> 00:40:33,000
Speaker 1: that that the US has experienced as energy prices of search,

762
00:40:33,200 --> 00:40:35,440
Speaker 1: and that is hissing consumers here in Europe. Before we

763
00:40:35,480 --> 00:40:38,239
Speaker 1: get to Europe, but I do want to follow on

764
00:40:38,400 --> 00:40:40,799
Speaker 1: with that I'd love to get your sense of what

765
00:40:40,840 --> 00:40:44,319
Speaker 1: it does when people see real negative wages, right, because

766
00:40:44,360 --> 00:40:46,600
Speaker 1: we talk about how the consumer continues to spend in

767
00:40:46,600 --> 00:40:48,360
Speaker 1: the United States and we see that with this data

768
00:40:49,000 --> 00:40:51,640
Speaker 1: coming in higher faster than expected than the prior month.

769
00:40:52,040 --> 00:40:54,680
Speaker 1: Does it matter that they're earning even less on an

770
00:40:54,680 --> 00:40:57,520
Speaker 1: inflation adjusted basis or do they just have so much

771
00:40:57,520 --> 00:41:00,680
Speaker 1: cash on their savings and frankly the all ability of

772
00:41:00,800 --> 00:41:03,000
Speaker 1: credit to go out and buy whatever they want that

773
00:41:03,000 --> 00:41:05,319
Speaker 1: it doesn't matter. But again the interest in things. The

774
00:41:05,360 --> 00:41:08,000
Speaker 1: different story in the US compared with the Eurozone. In

775
00:41:08,040 --> 00:41:11,040
Speaker 1: the US is a much larger fiscal stimulus, stimulus checks

776
00:41:11,160 --> 00:41:13,720
Speaker 1: landing three times in the US. If you look where

777
00:41:13,719 --> 00:41:15,880
Speaker 1: real incomes are going to be at the end of

778
00:41:15,920 --> 00:41:18,959
Speaker 1: this year compared to the pre pandemic level in the US,

779
00:41:19,000 --> 00:41:21,400
Speaker 1: they're going to be a bit higher, I think, despite

780
00:41:21,440 --> 00:41:23,640
Speaker 1: the surgeons inflations that we've had, but just because the

781
00:41:23,680 --> 00:41:27,000
Speaker 1: nomal income growth through the pandemic was so strong in Europe,

782
00:41:27,000 --> 00:41:29,799
Speaker 1: they're going to be down. So it's very controversial, Neil.

783
00:41:29,880 --> 00:41:31,920
Speaker 1: You talk about the stimulus and the stimulus checks, A

784
00:41:31,920 --> 00:41:33,600
Speaker 1: lot of people look at them and they blame them

785
00:41:33,600 --> 00:41:36,359
Speaker 1: for the inflation of the United States today. What's your

786
00:41:36,440 --> 00:41:40,640
Speaker 1: view on the ramifications of the stimulus. Was it basically

787
00:41:41,040 --> 00:41:44,120
Speaker 1: more inflationary than anything else and hampering of the consumer

788
00:41:44,520 --> 00:41:46,440
Speaker 1: in terms of what they can spend in real terms,

789
00:41:46,800 --> 00:41:49,320
Speaker 1: or was it actually beneficial in terms of the savings

790
00:41:49,520 --> 00:41:52,600
Speaker 1: that people have currently. Well, I think I separate the

791
00:41:52,600 --> 00:41:55,080
Speaker 1: fiscal stimulus from the monetary stimulus to start off where

792
00:41:55,120 --> 00:41:57,800
Speaker 1: they're on the fiscal side, I think in the initial

793
00:41:58,960 --> 00:42:01,239
Speaker 1: period of the pandemic, it was absolutely the right thing

794
00:42:01,280 --> 00:42:04,000
Speaker 1: to do. I think that the issue, to my mind

795
00:42:04,080 --> 00:42:06,000
Speaker 1: was that it probably went too far. The third ryme

796
00:42:06,120 --> 00:42:10,399
Speaker 1: was excessive. That's where the problems started. Um I said.

797
00:42:10,400 --> 00:42:11,920
Speaker 1: It wasn't so much that was the wrong thing to

798
00:42:12,040 --> 00:42:14,360
Speaker 1: do in and of itself. It was the scale. I

799
00:42:14,400 --> 00:42:16,919
Speaker 1: think that was the issue. Now. I want to look

800
00:42:16,920 --> 00:42:19,080
Speaker 1: at the data here right now that Michael McKee was

801
00:42:19,120 --> 00:42:21,920
Speaker 1: helping us within the United States, and I think this

802
00:42:22,000 --> 00:42:24,480
Speaker 1: is something very germane to a more longer term view

803
00:42:24,560 --> 00:42:27,400
Speaker 1: as well. For those of you on radio, we had

804
00:42:27,440 --> 00:42:30,480
Speaker 1: a spike higher in the full faith and credit yields

805
00:42:30,480 --> 00:42:34,160
Speaker 1: in America, and then as we heard from Michael McKee,

806
00:42:34,640 --> 00:42:39,080
Speaker 1: who was speaking while everyone was acting uh, maybe not

807
00:42:39,360 --> 00:42:42,239
Speaker 1: in those yields have turned around and come in, And

808
00:42:42,239 --> 00:42:44,799
Speaker 1: I think it will be fascinating to see. Tell me

809
00:42:44,960 --> 00:42:49,919
Speaker 1: how in long term economics you use the short term,

810
00:42:50,120 --> 00:42:53,359
Speaker 1: the short term ism of the bond market to try

811
00:42:53,360 --> 00:42:56,920
Speaker 1: to guess where the long term economics is going. How

812
00:42:56,960 --> 00:42:59,720
Speaker 1: do you use the day to day, moment to moment

813
00:42:59,760 --> 00:43:04,160
Speaker 1: f sctuations to observe the confidence of where we're going.

814
00:43:04,719 --> 00:43:07,319
Speaker 1: I think it's really difficult, And I think is what

815
00:43:07,400 --> 00:43:11,280
Speaker 1: you've just described shows the danger of a scribing too

816
00:43:11,320 --> 00:43:13,719
Speaker 1: too much certainty, if you're like too much importance to

817
00:43:13,840 --> 00:43:15,759
Speaker 1: short term moves in the markets because they're up one

818
00:43:15,800 --> 00:43:18,080
Speaker 1: minute and then down the other. Um. I think the

819
00:43:18,120 --> 00:43:23,800
Speaker 1: shape of the curve is arguably more important than flatness

820
00:43:24,160 --> 00:43:27,200
Speaker 1: exactly the flatness where whether it's flattening, whether it's steepening,

821
00:43:27,239 --> 00:43:28,600
Speaker 1: with whether it's going at the long end of the

822
00:43:28,640 --> 00:43:31,120
Speaker 1: short end. I mean that what the market has told

823
00:43:31,160 --> 00:43:33,839
Speaker 1: us over the last three months really is they think

824
00:43:33,840 --> 00:43:37,480
Speaker 1: the feller's got this. Short ends come down, the long

825
00:43:37,600 --> 00:43:39,719
Speaker 1: ends come down to the curve starts to be steep

826
00:43:39,800 --> 00:43:42,160
Speaker 1: and where you know, the recession risks kind of being

827
00:43:42,160 --> 00:43:45,440
Speaker 1: priced out a bit of the bond market inflation concerns

828
00:43:45,440 --> 00:43:49,320
Speaker 1: are dissipating. I think that the really interesting point is

829
00:43:49,320 --> 00:43:52,279
Speaker 1: going to be does inflation come down from eight to

830
00:43:52,520 --> 00:43:55,520
Speaker 1: five and four almost certainly doesn't then get stuck and

831
00:43:55,560 --> 00:43:57,920
Speaker 1: does the faith have to go again? So, just to

832
00:43:58,120 --> 00:44:00,160
Speaker 1: sort of wrap it all up with your folks, US

833
00:44:00,160 --> 00:44:03,040
Speaker 1: had Europe saying it's such a different story here. Speak

834
00:44:03,080 --> 00:44:06,680
Speaker 1: to George Sarabell's claim that we're actually seeing more momentum

835
00:44:06,800 --> 00:44:09,080
Speaker 1: in the euroregion that a lot of people expect, and

836
00:44:09,160 --> 00:44:12,080
Speaker 1: that frankly he thinks that the fiscal spending will provide

837
00:44:12,080 --> 00:44:16,359
Speaker 1: a tailwind that a lot of people discount. What's your view, Well,

838
00:44:16,360 --> 00:44:18,400
Speaker 1: I think there's there's some truth to the fact that

839
00:44:18,440 --> 00:44:21,200
Speaker 1: the incoming data in the Eurozone have not been as

840
00:44:21,200 --> 00:44:22,880
Speaker 1: bad as you might expect. We saw that we had

841
00:44:22,920 --> 00:44:24,520
Speaker 1: the p m I s earlier this week. They were

842
00:44:24,600 --> 00:44:27,560
Speaker 1: they helped a bit better than we had had anticipated

843
00:44:27,640 --> 00:44:31,359
Speaker 1: and that many others had anticipated. But I come back

844
00:44:31,360 --> 00:44:34,680
Speaker 1: to the fundamentals here, which is the Europe, unlike the US,

845
00:44:34,840 --> 00:44:37,920
Speaker 1: is a huge net energy importer, and it's the prices

846
00:44:37,920 --> 00:44:40,880
Speaker 1: of that energy that as skyrocketed over the past twelve months.

847
00:44:41,120 --> 00:44:44,200
Speaker 1: The terms of trade, terms of trade of collapsed that

848
00:44:44,400 --> 00:44:47,520
Speaker 1: is manifesting itself in a huge squeeze squeeze on consumers,

849
00:44:47,560 --> 00:44:49,440
Speaker 1: and there's not much that fiscal policy can do to

850
00:44:49,480 --> 00:44:53,040
Speaker 1: offset that big package here in the UK yesterday, it

851
00:44:53,160 --> 00:44:57,000
Speaker 1: only offsets about half of the squeezing disposable incomes. Quick,

852
00:44:57,080 --> 00:44:59,279
Speaker 1: quickly get us to the Christian mailor or any view

853
00:44:59,320 --> 00:45:01,040
Speaker 1: of the day and hard Carbon's here in a moment

854
00:45:01,080 --> 00:45:03,200
Speaker 1: with j Pete Morgan, what is your call on Brent

855
00:45:03,320 --> 00:45:05,879
Speaker 1: crude one year out and why? I think it's gonna

856
00:45:05,880 --> 00:45:08,600
Speaker 1: stay elevated for the next six and nine months. I

857
00:45:08,640 --> 00:45:10,480
Speaker 1: think it might then start to diminish, but it's not

858
00:45:10,520 --> 00:45:12,160
Speaker 1: gonna collapse. I think it's gonna come off a bit.

859
00:45:12,320 --> 00:45:14,279
Speaker 1: There's gonna be some demond destruction. I think we'll get

860
00:45:14,320 --> 00:45:16,840
Speaker 1: a bit more a hundred dollars than New sixty. I

861
00:45:16,880 --> 00:45:18,759
Speaker 1: think we're gonna be I with the match in twelve

862
00:45:18,800 --> 00:45:22,960
Speaker 1: months ade somewhere between. Well, we're going to be interesting. Okay,

863
00:45:23,120 --> 00:45:25,520
Speaker 1: now Sharing, thank you so much, great to see you here,

864
00:45:25,640 --> 00:45:29,080
Speaker 1: Neil sharing of Capitol Economics. He's helpless Lisa many times before,

865
00:45:29,120 --> 00:45:37,840
Speaker 1: including New Year's Eve shows right now on Ukraine. Someone

866
00:45:37,880 --> 00:45:40,759
Speaker 1: that's given us wonderful perspective. Elena Polo Covid joins us

867
00:45:40,840 --> 00:45:44,959
Speaker 1: right now, president of the Center for European Policy Analysis,

868
00:45:45,320 --> 00:45:48,320
Speaker 1: And Elena, you and I have the honor of speaking

869
00:45:48,440 --> 00:45:53,120
Speaker 1: after good treatment by Sir Lawrence Freedman of King's College

870
00:45:53,640 --> 00:45:58,279
Speaker 1: on war and on the uniqueness of Ukraine. Freedman is

871
00:45:58,400 --> 00:46:03,120
Speaker 1: focused on the Black Sea, are you absolutely? You know?

872
00:46:03,280 --> 00:46:06,279
Speaker 1: For years, I and SEEPA, the organization and LEAD have

873
00:46:06,840 --> 00:46:09,960
Speaker 1: really raised the alarm brels about how critical the Black

874
00:46:10,040 --> 00:46:12,400
Speaker 1: Sea is for regional security. Of course, we're seeing that

875
00:46:12,480 --> 00:46:17,080
Speaker 1: today Russia's blockade of the Black Sea is raising food

876
00:46:17,120 --> 00:46:20,000
Speaker 1: prices across the world and is already contributing to huge

877
00:46:20,040 --> 00:46:23,080
Speaker 1: food and securities and crisis. And this is really the

878
00:46:23,120 --> 00:46:24,919
Speaker 1: reason why the Black Sea should have been an area

879
00:46:24,960 --> 00:46:29,000
Speaker 1: focused for a long time. Does the Russian Navy have

880
00:46:29,239 --> 00:46:34,240
Speaker 1: enough control to control the Black Sea to control food?

881
00:46:35,000 --> 00:46:38,439
Speaker 1: And if they do, how does NATO and for that matter,

882
00:46:38,600 --> 00:46:44,040
Speaker 1: Turkey respond, Well, they certainly have enough control to block

883
00:46:44,360 --> 00:46:48,320
Speaker 1: Ukraine from sending any sort of grain corn exports of

884
00:46:48,400 --> 00:46:51,920
Speaker 1: any kind outside of Ukraine. And they're holding Ukraine hostage,

885
00:46:51,960 --> 00:46:54,480
Speaker 1: and they're holding the world's food supply hostage right now.

886
00:46:54,960 --> 00:46:57,160
Speaker 1: And so the Russians have said, look, uh, you know,

887
00:46:57,239 --> 00:46:59,120
Speaker 1: if you remove stactions, we might let some of these

888
00:46:59,120 --> 00:47:01,880
Speaker 1: ships go through wich Is of course, you know, terrorist

889
00:47:01,920 --> 00:47:05,279
Speaker 1: style tactics UM in the Black Sea. Turkey is really

890
00:47:05,320 --> 00:47:07,479
Speaker 1: the other main actor, and Turkeys, of course the NATO

891
00:47:07,560 --> 00:47:12,360
Speaker 1: member states. Unfortunately at this point without a direct confrontation

892
00:47:12,440 --> 00:47:15,319
Speaker 1: with the Russian navy, Uh, it's hard to see how

893
00:47:15,480 --> 00:47:17,560
Speaker 1: we get that black aide off. So Russia right now

894
00:47:17,719 --> 00:47:22,400
Speaker 1: does have essentially dominance over the Black Sea, to control

895
00:47:22,520 --> 00:47:28,479
Speaker 1: the passage of ships, to control basically global trade. What's

896
00:47:28,480 --> 00:47:30,839
Speaker 1: the red line here, Elena? How does this look by

897
00:47:30,960 --> 00:47:33,360
Speaker 1: year end? If there really is a problem with a

898
00:47:33,480 --> 00:47:37,200
Speaker 1: lack of food in certain places. You know, I think

899
00:47:37,280 --> 00:47:39,919
Speaker 1: at some point NATO is going to have to act.

900
00:47:40,120 --> 00:47:43,640
Speaker 1: Ukraine has a very low capacity in the navy, and

901
00:47:43,680 --> 00:47:45,560
Speaker 1: they have very low capacity in the air as well.

902
00:47:45,760 --> 00:47:47,520
Speaker 1: We've known that for a long time. Those of their

903
00:47:47,560 --> 00:47:50,239
Speaker 1: main weaknesses. So at the end of the day, we

904
00:47:50,400 --> 00:47:53,680
Speaker 1: have the right to enforce freedom navigation them and Row Convention,

905
00:47:54,320 --> 00:47:58,520
Speaker 1: which governs international uh navy movements in the Black Sea,

906
00:47:59,239 --> 00:48:02,080
Speaker 1: does specific fly that there should be free to navigation

907
00:48:02,160 --> 00:48:06,000
Speaker 1: to national waters. Russia is obviously greatly violating all of

908
00:48:06,040 --> 00:48:09,959
Speaker 1: those rules right now. But threats aren't going to work.

909
00:48:10,120 --> 00:48:12,000
Speaker 1: I think we need to see some real action and

910
00:48:12,080 --> 00:48:16,120
Speaker 1: we need to see some ships, NATO ships, UK ships,

911
00:48:16,200 --> 00:48:19,640
Speaker 1: other ships going through those waters to say, look, uh,

912
00:48:19,920 --> 00:48:22,759
Speaker 1: we're going to enforce cream navigation because that's the law.

913
00:48:23,160 --> 00:48:25,160
Speaker 1: And if you want to have a confrontation over that,

914
00:48:26,080 --> 00:48:28,560
Speaker 1: we're gonna have to talk about it. But right this

915
00:48:28,719 --> 00:48:32,080
Speaker 1: is what it doesn't see doesn't end in sight, Elena,

916
00:48:32,160 --> 00:48:35,160
Speaker 1: This is tiptoeing into a hot war between Western nations

917
00:48:35,360 --> 00:48:37,880
Speaker 1: and Russia. At what point do we cross that line?

918
00:48:38,280 --> 00:48:40,840
Speaker 1: If there are ships from NATO that are sent to

919
00:48:40,920 --> 00:48:45,120
Speaker 1: the Black Sea, you know, I mean this is the

920
00:48:45,320 --> 00:48:48,440
Speaker 1: fog of war that we're currently in. UM. There is

921
00:48:48,600 --> 00:48:52,719
Speaker 1: an increasing respidrate confrontation, certainly in the Black Sea. UM.

922
00:48:52,960 --> 00:48:56,399
Speaker 1: The battle over this very small and inhabited island called

923
00:48:56,440 --> 00:49:00,239
Speaker 1: Snake Island is becoming this critical uh issue for the

924
00:49:00,280 --> 00:49:03,960
Speaker 1: broader battle in Ukraine. You know, Russia has the huge

925
00:49:03,960 --> 00:49:06,680
Speaker 1: advantage because of course has controlled Crimea now for eight

926
00:49:07,120 --> 00:49:11,160
Speaker 1: years and clmia strategic position has allowed it to project

927
00:49:11,239 --> 00:49:14,600
Speaker 1: power across the entire waterways. You know, I think we

928
00:49:14,680 --> 00:49:17,520
Speaker 1: have to think about what this means because, as you say,

929
00:49:18,000 --> 00:49:19,880
Speaker 1: we're not just talking about Ukraine, and we're not just

930
00:49:19,960 --> 00:49:22,480
Speaker 1: talking about the Black Sea. We're really talking about global,

931
00:49:22,520 --> 00:49:25,520
Speaker 1: global food supplies and food chains that are going to

932
00:49:25,640 --> 00:49:28,200
Speaker 1: be affecting not just the most vulnerable countries, but also

933
00:49:28,239 --> 00:49:31,040
Speaker 1: affecting you know, Europe, of the United States, all of US,

934
00:49:31,520 --> 00:49:33,520
Speaker 1: and so I think we have to start thinking about

935
00:49:33,560 --> 00:49:35,880
Speaker 1: what is the balance to be struck there. My preference,

936
00:49:35,960 --> 00:49:38,000
Speaker 1: of course, did the Russia has come to the table

937
00:49:38,440 --> 00:49:42,120
Speaker 1: and we can engage in some diplomacy um over this issue,

938
00:49:42,160 --> 00:49:44,120
Speaker 1: but so far they've shown very little interest in that.

939
00:49:45,680 --> 00:49:48,800
Speaker 1: Elena asked for Lawrence Freeman a question from the giant

940
00:49:49,000 --> 00:49:52,120
Speaker 1: Thomas Shelling. Of course, you did so much thinking about

941
00:49:52,239 --> 00:49:55,359
Speaker 1: this across the arc of the post World War two

942
00:49:55,800 --> 00:49:58,600
Speaker 1: at Europe, and I asked for Thomas Shelling one simply,

943
00:49:59,120 --> 00:50:02,840
Speaker 1: how do war end? With all of your knowledge of

944
00:50:02,960 --> 00:50:06,120
Speaker 1: how wars end, what do you guess to be the

945
00:50:06,280 --> 00:50:11,200
Speaker 1: outcome of this war in Ukraine. Well, wars in Europe

946
00:50:11,320 --> 00:50:15,520
Speaker 1: of the twentieth century have ended in a negotiated settlement

947
00:50:15,680 --> 00:50:20,080
Speaker 1: after a defeat, a big military defeat. Look at World

948
00:50:20,120 --> 00:50:23,120
Speaker 1: War One, look at World War Two. So it's wrong

949
00:50:23,239 --> 00:50:25,759
Speaker 1: to say that all worlds, all all wars end in

950
00:50:25,880 --> 00:50:30,760
Speaker 1: some sort of negotiated agreement that only happens after capitulation,

951
00:50:31,560 --> 00:50:34,240
Speaker 1: and so at the end of the day, one side

952
00:50:34,360 --> 00:50:37,759
Speaker 1: will have to lose. Uh. The Ukrainians of course, that

953
00:50:37,840 --> 00:50:40,880
Speaker 1: they'll fight to the last man standing. The Russians are

954
00:50:41,000 --> 00:50:43,560
Speaker 1: making some progress but increasing and USA is going to

955
00:50:43,600 --> 00:50:46,400
Speaker 1: be a very long ride that could last many years

956
00:50:46,480 --> 00:50:50,879
Speaker 1: in fact, without either side really admitting or really seeing

957
00:50:50,920 --> 00:50:53,400
Speaker 1: themselves as a victor or the loser. You know, I

958
00:50:53,480 --> 00:50:56,240
Speaker 1: think it's still in our interest to ensure that Russia

959
00:50:56,320 --> 00:50:59,239
Speaker 1: loses this because at the end of the day, that's

960
00:50:59,280 --> 00:51:01,960
Speaker 1: the only way look come to the negotiating negotiating table.

961
00:51:02,040 --> 00:51:04,759
Speaker 1: That is what European history has shown us over and

962
00:51:04,840 --> 00:51:08,000
Speaker 1: over again. Elena, before we let you go, just quickly

963
00:51:08,120 --> 00:51:11,680
Speaker 1: here what role does oil play? And frankly, the idea

964
00:51:11,800 --> 00:51:16,160
Speaker 1: of Europe limiting their imports of gas from Russia going

965
00:51:16,239 --> 00:51:20,080
Speaker 1: to have on the duration of this conflict. All of

966
00:51:20,160 --> 00:51:23,440
Speaker 1: these kinds of sanctions um particularly on oil, because we're

967
00:51:23,440 --> 00:51:26,000
Speaker 1: not talking about gas here. Gas is the acreless heel

968
00:51:26,200 --> 00:51:28,920
Speaker 1: of the Russian war machine. You know, right now, the

969
00:51:29,000 --> 00:51:32,400
Speaker 1: Russian governs maintaining it's war effort. Newquaims commarily through energy

970
00:51:32,480 --> 00:51:36,000
Speaker 1: payments that it's receiving unslily about to default in the

971
00:51:36,080 --> 00:51:38,840
Speaker 1: next several months on some of his dead payments because

972
00:51:38,840 --> 00:51:43,080
Speaker 1: of the United States actions and sanctions. But on oil.

973
00:51:43,600 --> 00:51:45,960
Speaker 1: You know, this is going to be a hit if

974
00:51:46,040 --> 00:51:48,160
Speaker 1: you're up and moves forward with this. But it's certainly

975
00:51:48,239 --> 00:51:51,120
Speaker 1: not going to you know, uh, kind of buckle the

976
00:51:51,200 --> 00:51:53,520
Speaker 1: Russian economy because at the end of the day, we'll

977
00:51:53,719 --> 00:51:55,480
Speaker 1: likely will happen as a lot of prices will go

978
00:51:55,640 --> 00:51:58,000
Speaker 1: up and then will in the in the grand scheme

979
00:51:58,040 --> 00:52:00,600
Speaker 1: of things, of course, benefit Russia as one of the

980
00:52:00,719 --> 00:52:03,840
Speaker 1: largest oil energy exporters in the world. So it's a

981
00:52:03,880 --> 00:52:07,040
Speaker 1: really mixed bag as to where whether the European oil

982
00:52:07,080 --> 00:52:10,600
Speaker 1: embargo ever happens, will affect Prussia in the short term.

983
00:52:10,840 --> 00:52:14,000
Speaker 1: It may, in fact, in the long term benefited slightly

984
00:52:14,560 --> 00:52:19,080
Speaker 1: from rising prices and oil Polla Cova, thank you so much,

985
00:52:19,160 --> 00:52:21,680
Speaker 1: just wonderful briefing here on a Friday. He had us

986
00:52:21,680 --> 00:52:24,720
Speaker 1: into the weekend on Lena Pola Cova with a Center

987
00:52:24,880 --> 00:52:28,839
Speaker 1: for European Policy. This is the Bloomberg Surveillance Podcast. Thanks

988
00:52:28,880 --> 00:52:32,200
Speaker 1: for listening. Join us live weekdays from seven to ten

989
00:52:32,280 --> 00:52:36,719
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

990
00:52:36,840 --> 00:52:40,560
Speaker 1: day from six to nine am for insight from the

991
00:52:40,600 --> 00:52:45,799
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

992
00:52:45,840 --> 00:52:50,719
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

993
00:52:50,880 --> 00:52:54,120
Speaker 1: and of course on the terminal. I'm Tom Keene and

994
00:52:54,239 --> 00:53:00,960
Speaker 1: this is Bloomberg two.