1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 5 00:00:23,360 --> 00:00:30,400 Speaker 1: dot Com, and of course on the Bloomberg terminal. Lisa, 6 00:00:30,520 --> 00:00:33,720 Speaker 1: as we go to a bond guy and I think 7 00:00:33,760 --> 00:00:35,600 Speaker 1: you know this is true story, folks. I'm on the 8 00:00:35,600 --> 00:00:38,600 Speaker 1: floor of bear Stearns a million years ago and John 9 00:00:38,600 --> 00:00:41,560 Speaker 1: writing Lisa is ready to go on, and just before 10 00:00:41,600 --> 00:00:45,280 Speaker 1: we cut to live, somebody screamed out at John John 11 00:00:45,720 --> 00:00:49,400 Speaker 1: price up, yield down, and of course the whole place 12 00:00:49,560 --> 00:00:53,320 Speaker 1: erupted in laughters. We went live. I mean, nobody's laughing, 13 00:00:53,360 --> 00:00:55,880 Speaker 1: no are they know? Greg Peters that somebody who's gotten 14 00:00:55,880 --> 00:00:58,120 Speaker 1: the bond market right again and again, as well as 15 00:00:58,160 --> 00:00:59,960 Speaker 1: all of p Jim fixed Income. He's head of multi 16 00:01:00,000 --> 00:01:03,440 Speaker 1: sector and strategy there. And you've been calling Greg for 17 00:01:03,640 --> 00:01:06,280 Speaker 1: this decline in yields or at least a stasis where 18 00:01:06,319 --> 00:01:10,560 Speaker 1: we are despite some of the UH inflated expectations earlier 19 00:01:10,560 --> 00:01:13,520 Speaker 1: in the year for inflation, here we are at a 20 00:01:13,600 --> 00:01:16,759 Speaker 1: precipice where bulls on Wall Street cannot get bullish enough 21 00:01:16,760 --> 00:01:19,959 Speaker 1: about equities, where bond bond veterans are looking at the 22 00:01:19,959 --> 00:01:22,240 Speaker 1: bond yields here and saying they're not going to move 23 00:01:22,319 --> 00:01:25,480 Speaker 1: that much. Do you think that people could be surprised 24 00:01:25,640 --> 00:01:31,039 Speaker 1: by bond yields going lower being a bear case for equities. Yeah, 25 00:01:31,080 --> 00:01:33,600 Speaker 1: I think that's a distinct possibility. It's not my base 26 00:01:33,640 --> 00:01:36,000 Speaker 1: case by any stretch. UM actually think we're in the 27 00:01:36,040 --> 00:01:41,759 Speaker 1: symbiotic relationship where low yields really allow equities to outperform. Right, 28 00:01:41,800 --> 00:01:45,080 Speaker 1: it's not only the discounting mechanism that's much lower, so 29 00:01:45,400 --> 00:01:48,320 Speaker 1: you know, pushing up valuations, But it's just type a low, 30 00:01:48,400 --> 00:01:52,360 Speaker 1: stable yield environment is just broadly supportive of growth, broad 31 00:01:52,760 --> 00:01:56,240 Speaker 1: broadly supportive of earnings h and should be broadly supportive 32 00:01:56,280 --> 00:01:59,960 Speaker 1: of risk asset. So I actually see the two actually 33 00:02:00,040 --> 00:02:03,480 Speaker 1: pretty much aligned here. But I think your question ultimately 34 00:02:03,560 --> 00:02:06,160 Speaker 1: is if the bond market really starts to sense and 35 00:02:06,360 --> 00:02:11,200 Speaker 1: suss out a rolling over of economic activity, and then 36 00:02:11,240 --> 00:02:14,920 Speaker 1: that's clearly not a great outlook for stocks. If J 37 00:02:15,040 --> 00:02:18,359 Speaker 1: Powell this Friday, at his speech at the Virtual that 38 00:02:18,520 --> 00:02:22,360 Speaker 1: Jackson Holl Symposium comes out and forecasts or four tells 39 00:02:22,600 --> 00:02:25,800 Speaker 1: an earlier taper than the market is expecting, says November 40 00:02:25,880 --> 00:02:29,760 Speaker 1: rather than December as most people seem to expect. What's 41 00:02:29,800 --> 00:02:34,639 Speaker 1: the reaction markets, I don't know. I mean personally, I 42 00:02:34,680 --> 00:02:37,840 Speaker 1: don't think a month matters. I mean, if the markets 43 00:02:37,840 --> 00:02:42,560 Speaker 1: are that sensitive around November versus December, then I just 44 00:02:42,639 --> 00:02:45,240 Speaker 1: think it's kind of looking for an excuse to uh 45 00:02:45,520 --> 00:02:48,080 Speaker 1: take some chips off the table. So I'm not overly 46 00:02:48,120 --> 00:02:51,760 Speaker 1: worried about it. That's my personal expectation that the Fed 47 00:02:51,840 --> 00:02:56,680 Speaker 1: starts to taper in November, maybe December, but either way 48 00:02:56,720 --> 00:03:01,440 Speaker 1: they're tapering, UH. And then equally, I'm not as jammed 49 00:03:01,520 --> 00:03:04,240 Speaker 1: up over a taper as some other folks, just given 50 00:03:04,280 --> 00:03:07,400 Speaker 1: the fact that you're seeing this massive shrinking UH in 51 00:03:07,480 --> 00:03:11,000 Speaker 1: treasury supply at the same time, Gregor, part of the 52 00:03:11,040 --> 00:03:14,880 Speaker 1: stresses that are out there now is historic liquidity. Every 53 00:03:15,040 --> 00:03:18,160 Speaker 1: morning I look at overnight repo. We've now gone out 54 00:03:18,200 --> 00:03:21,240 Speaker 1: over a trillion. We're grinding higher. I've got experts telling 55 00:03:21,240 --> 00:03:24,240 Speaker 1: me it's no big deal. But how does the wall 56 00:03:24,320 --> 00:03:28,520 Speaker 1: of money that's out there fold into the pijam yield? 57 00:03:29,000 --> 00:03:32,400 Speaker 1: How does it fold into the simple idea that we 58 00:03:32,440 --> 00:03:37,800 Speaker 1: want to observe and guess where yield is going. Yeah, 59 00:03:37,880 --> 00:03:41,800 Speaker 1: I think the technical dynamics are important here. Typically I 60 00:03:41,840 --> 00:03:45,360 Speaker 1: don't think it um changes the direction, but I think 61 00:03:45,360 --> 00:03:48,440 Speaker 1: it exacerbates the move. Uh. And so that's why I'm 62 00:03:48,440 --> 00:03:53,080 Speaker 1: focused on treasury supply going forward, as I think the 63 00:03:53,120 --> 00:03:57,160 Speaker 1: fact that you're going to see a decline in treasury 64 00:03:57,200 --> 00:04:00,400 Speaker 1: supply next year and several years after, I think is 65 00:04:00,480 --> 00:04:03,840 Speaker 1: highly supportive. At the same time, you know, the US 66 00:04:03,960 --> 00:04:06,440 Speaker 1: is winning by not losing, right, So the fact that 67 00:04:06,480 --> 00:04:09,920 Speaker 1: you're seeing so much foreign investment into the US into 68 00:04:09,960 --> 00:04:12,520 Speaker 1: the bond market is also support So I think these 69 00:04:12,560 --> 00:04:17,239 Speaker 1: are really supportive factors. But ultimately it does does point 70 00:04:17,320 --> 00:04:20,040 Speaker 1: to the fundamental piece. And so I think fundamentals are 71 00:04:20,080 --> 00:04:23,960 Speaker 1: the driver. I think the technical is just uh, just exacerbated. 72 00:04:24,000 --> 00:04:26,000 Speaker 1: I don't want you to make a sales side bracketed 73 00:04:26,080 --> 00:04:28,360 Speaker 1: tenure call, but I do you know, as a guy 74 00:04:28,680 --> 00:04:33,240 Speaker 1: running institutional money with that belief on liquidity and on 75 00:04:33,920 --> 00:04:37,840 Speaker 1: treasury supply bracket the ten year yield as you see 76 00:04:37,839 --> 00:04:42,240 Speaker 1: it now a year out or two years out, Yes, 77 00:04:42,360 --> 00:04:45,479 Speaker 1: so I think our level, uh you know, two years 78 00:04:45,520 --> 00:04:47,920 Speaker 1: forward is about eight basis points on the ten year. 79 00:04:48,640 --> 00:04:50,880 Speaker 1: Our call for the end of this year was a 80 00:04:50,920 --> 00:04:54,680 Speaker 1: hundred and twenty basis points. Um so we're in striking distance. 81 00:04:55,000 --> 00:04:57,839 Speaker 1: That felt like a terrible call in the first quarter, Tom, 82 00:04:57,880 --> 00:05:01,599 Speaker 1: I have to be honest with you, quite painful. Uh, yeah, 83 00:05:01,680 --> 00:05:06,000 Speaker 1: I did, um so. But I think longer term, Uh, 84 00:05:06,080 --> 00:05:10,520 Speaker 1: you know, we see an environment where yield will remain low. Uh. 85 00:05:10,520 --> 00:05:13,760 Speaker 1: And honestly, I struggle with the narrative that yields are 86 00:05:13,800 --> 00:05:21,159 Speaker 1: going to jump post Fed taper, post economic activity that's 87 00:05:21,200 --> 00:05:25,160 Speaker 1: off the charts, peak inflation, all those sorts of things 88 00:05:25,160 --> 00:05:27,760 Speaker 1: are in the rear view, and to me, I just 89 00:05:27,760 --> 00:05:31,080 Speaker 1: don't really see in an environment where yields after all 90 00:05:31,080 --> 00:05:34,159 Speaker 1: that's been thrown at the market, that yields will will 91 00:05:34,320 --> 00:05:37,480 Speaker 1: move higher after the fact. If it doesn't happen during 92 00:05:37,720 --> 00:05:40,279 Speaker 1: then then I'd be shocked to see it happened after 93 00:05:40,360 --> 00:05:42,960 Speaker 1: the fact. I know that in about four and a 94 00:05:42,960 --> 00:05:45,400 Speaker 1: half hours time or so, Tom Keen is going to 95 00:05:45,400 --> 00:05:47,440 Speaker 1: be awakening from his nap, eager really watching the to 96 00:05:47,520 --> 00:05:50,160 Speaker 1: your Treasury auction we're getting at one pm Eastern time. 97 00:05:50,520 --> 00:05:53,039 Speaker 1: He cannot wait, neither can Lisa. When it comes to 98 00:05:53,080 --> 00:05:55,680 Speaker 1: these auctions in the supply and who is buying. How 99 00:05:55,720 --> 00:06:00,400 Speaker 1: do you think about foreign buyers in the treasury market. Yeah, 100 00:06:00,440 --> 00:06:02,560 Speaker 1: I think it's important. I mean, I mean we've been 101 00:06:02,560 --> 00:06:05,839 Speaker 1: seeing it, uh, particularly as we get closer to taper. 102 00:06:05,880 --> 00:06:08,920 Speaker 1: Whether it's November or December or January. Who knows, the 103 00:06:09,320 --> 00:06:13,600 Speaker 1: fact that you're seeing um uh foreign buyers increase their 104 00:06:13,640 --> 00:06:17,600 Speaker 1: purchase power within the U S treasury market is important, right, 105 00:06:17,640 --> 00:06:19,919 Speaker 1: So I do think that's a strong technical factor. So 106 00:06:19,960 --> 00:06:22,440 Speaker 1: I expect that to continue. But I try not to 107 00:06:22,480 --> 00:06:27,280 Speaker 1: get overly taxed by a single auction event. But I 108 00:06:27,320 --> 00:06:31,159 Speaker 1: think you know, over time, though, you'll continue to see 109 00:06:31,760 --> 00:06:36,120 Speaker 1: the auctions do quite well. Foreign to foreign UH participation 110 00:06:36,160 --> 00:06:39,360 Speaker 1: to be quite high, uh, but and auctions that go 111 00:06:39,560 --> 00:06:42,240 Speaker 1: quite well. And of course the US in many ways 112 00:06:42,279 --> 00:06:44,880 Speaker 1: is attractive because it's still the highest yield you can 113 00:06:44,920 --> 00:06:48,000 Speaker 1: get in basically sovereign bond markets globally. And if even 114 00:06:48,000 --> 00:06:49,880 Speaker 1: if you expect yields to be staying lower when it 115 00:06:49,880 --> 00:06:55,320 Speaker 1: comes to treasury yields, is that still going to remain true? Yeah? 116 00:06:55,400 --> 00:06:57,200 Speaker 1: I think so it's a relative game. We play a 117 00:06:57,200 --> 00:07:00,320 Speaker 1: relative game, So we're looking at where yields are. UH. 118 00:07:00,360 --> 00:07:03,159 Speaker 1: In Europe, we look at where yields are in Japan, 119 00:07:03,800 --> 00:07:08,520 Speaker 1: and the US by far has the most attractive field environment, 120 00:07:08,600 --> 00:07:11,400 Speaker 1: so I don't see that changing anytime soon. I don't 121 00:07:11,440 --> 00:07:16,160 Speaker 1: think anyone is forecasting European yields to move above zero 122 00:07:16,840 --> 00:07:21,440 Speaker 1: uh anywhere over the near term or ever. So UM, 123 00:07:21,480 --> 00:07:25,280 Speaker 1: I really think the support for U S treasuries US 124 00:07:25,320 --> 00:07:28,760 Speaker 1: assets period will continue to be quite strong, which is 125 00:07:28,760 --> 00:07:30,920 Speaker 1: why I think the dollar will continue to do quite 126 00:07:30,920 --> 00:07:35,920 Speaker 1: well here, which is somewhat against consensus, or was against 127 00:07:36,000 --> 00:07:38,800 Speaker 1: consensus right before we let you go. I want to 128 00:07:38,800 --> 00:07:41,720 Speaker 1: ask a philosophical question as we talk about the FED, 129 00:07:41,920 --> 00:07:44,360 Speaker 1: and they're ongoing a hundred and twenty billion dollars of 130 00:07:44,400 --> 00:07:48,760 Speaker 1: asset purchases every month at a time of rising in equality, 131 00:07:48,840 --> 00:07:51,760 Speaker 1: at a time of inflated asset prices, at a time 132 00:07:52,280 --> 00:07:54,800 Speaker 1: when a lot of people are saying that corporate profits 133 00:07:54,800 --> 00:07:56,560 Speaker 1: are as good as they're ever going to get, and 134 00:07:56,600 --> 00:07:59,600 Speaker 1: we'll contin will continue to accelerate from here because of 135 00:07:59,640 --> 00:08:04,880 Speaker 1: their eminence over specific sectors. Is this bond purchasing program 136 00:08:04,920 --> 00:08:09,080 Speaker 1: more helpful than it is harmful at this point? That's 137 00:08:09,080 --> 00:08:14,880 Speaker 1: a great question. Um. Clearly inequality is something that has worsened. 138 00:08:15,600 --> 00:08:19,320 Speaker 1: Is worsened um during the pandemic post pandemic, right, you're 139 00:08:19,360 --> 00:08:23,040 Speaker 1: creating the wealth effect. Central bank policy is a blunt instrument. 140 00:08:23,400 --> 00:08:28,160 Speaker 1: This whole portfolio channel effect, whereby raising asset prices to 141 00:08:28,320 --> 00:08:31,920 Speaker 1: increase kind of spending at all to trickle down hasn't 142 00:08:31,960 --> 00:08:35,240 Speaker 1: really worked that well. So I think the FEDS focused 143 00:08:35,320 --> 00:08:38,920 Speaker 1: will continue to be around getting real wages higher. So 144 00:08:39,040 --> 00:08:43,040 Speaker 1: for me, the focus is less on asset prices, but 145 00:08:43,120 --> 00:08:45,680 Speaker 1: getting real wages higher. And I think that's the most 146 00:08:45,720 --> 00:08:49,000 Speaker 1: important piece of the puzzle here to solve, not only 147 00:08:49,000 --> 00:08:53,080 Speaker 1: in the US but globally, as inequality has really worsen 148 00:08:53,200 --> 00:08:56,600 Speaker 1: quite dramatically here over the past twelve eight months. Peters, 149 00:08:56,600 --> 00:08:58,400 Speaker 1: thank you so much. With p Jim ahead of a 150 00:08:58,520 --> 00:09:09,720 Speaker 1: multisector ategy, they're really interesting conversation. I guess this is 151 00:09:09,760 --> 00:09:15,040 Speaker 1: the point where we begin a look back. It's September eleventh. 152 00:09:15,160 --> 00:09:18,240 Speaker 1: There are those that have younger children explaining to their 153 00:09:18,280 --> 00:09:22,440 Speaker 1: younger children exactly what was September eleven, And too many 154 00:09:22,520 --> 00:09:27,680 Speaker 1: of us it is a collective memory. Everyone will pontificate 155 00:09:28,280 --> 00:09:34,000 Speaker 1: only foreign affairs gives us wonderful expert opinion across a 156 00:09:34,040 --> 00:09:37,320 Speaker 1: wonderful cross section. Who won the war on Tera. I 157 00:09:37,360 --> 00:09:40,600 Speaker 1: really can't say enough about this. Daniel Kurtsfahlan joining us, 158 00:09:40,960 --> 00:09:45,319 Speaker 1: driving on the legacy of all that have done foreign affairs. It's, folks, 159 00:09:45,360 --> 00:09:48,040 Speaker 1: an annual subscription, I believe, is a price of an 160 00:09:48,040 --> 00:09:52,160 Speaker 1: over priced martini at an overpriced restaurant. Throw it at 161 00:09:52,160 --> 00:09:56,120 Speaker 1: your offspring and say shut up and read this, Daniel. Congratulations. 162 00:09:56,480 --> 00:10:00,280 Speaker 1: Ben Rhodes is in there, maybe from conventional Washington's other 163 00:10:00,360 --> 00:10:03,240 Speaker 1: people as well. And I'm thrilled to see the marine 164 00:10:03,360 --> 00:10:06,360 Speaker 1: Elliott Ackerman in there was Travitas writing my book of 165 00:10:06,400 --> 00:10:10,400 Speaker 1: the Summer, and Elliott Ackerman makes no bones about it. 166 00:10:10,480 --> 00:10:14,520 Speaker 1: We are a nation preoccupied, We are a nation and fatigued. 167 00:10:14,960 --> 00:10:19,880 Speaker 1: How tired is America? Well, it's it's appropriate in some 168 00:10:19,920 --> 00:10:23,520 Speaker 1: ways that we're seeing this messy, chaotic, in many ways 169 00:10:23,559 --> 00:10:28,240 Speaker 1: tragic withdrawal from Afghanistan, right as the twentieth anniversary of 170 00:10:28,400 --> 00:10:31,200 Speaker 1: nine eleven is approaching. As all of us who remember 171 00:10:31,240 --> 00:10:34,600 Speaker 1: it now, it was such a cataclysmic event for American politics, 172 00:10:34,600 --> 00:10:38,439 Speaker 1: for American foreign policy, and it really shaped the way 173 00:10:38,520 --> 00:10:40,440 Speaker 1: we used our power in the world, the way we 174 00:10:40,480 --> 00:10:42,720 Speaker 1: thought about the rest of the world for so long, 175 00:10:42,760 --> 00:10:44,520 Speaker 1: and in some ways that it seemed to really drop 176 00:10:44,559 --> 00:10:48,079 Speaker 1: out of the foreign policy conversation in the last few 177 00:10:48,160 --> 00:10:51,280 Speaker 1: years in Afghanistan, and what we're seeing now, the scenes 178 00:10:51,280 --> 00:10:54,920 Speaker 1: from probably are really reminder of just how much it 179 00:10:54,960 --> 00:10:57,400 Speaker 1: has changed the world, just how much has changed sense 180 00:10:57,400 --> 00:10:59,800 Speaker 1: of American power in ourselves. There's so many ways to 181 00:11:00,000 --> 00:11:03,040 Speaker 1: go here. Stravits's essay of a few days ago in 182 00:11:03,120 --> 00:11:07,480 Speaker 1: Time magazine what Zacaria rode in the Washington Post into 183 00:11:07,520 --> 00:11:12,040 Speaker 1: me the exhaustion is an exhaustion of theory or belief. 184 00:11:12,240 --> 00:11:16,000 Speaker 1: In putting this addition together of foreign affairs, could you 185 00:11:16,120 --> 00:11:23,360 Speaker 1: discover a modern American foreign policy theory? Does it exist? Well, 186 00:11:23,640 --> 00:11:26,400 Speaker 1: if there's a theory or a tendency, it maybe one 187 00:11:27,000 --> 00:11:30,440 Speaker 1: of overreach and and hubris and these kind of maximalist 188 00:11:30,480 --> 00:11:33,280 Speaker 1: goals that are eventually walked back in time. If you 189 00:11:33,320 --> 00:11:36,360 Speaker 1: remember back to the days after nine eleven and the 190 00:11:36,440 --> 00:11:39,480 Speaker 1: declarations coming from President Bush at the time, but from 191 00:11:39,520 --> 00:11:42,400 Speaker 1: lots of others about the agenda we had in the 192 00:11:42,440 --> 00:11:44,640 Speaker 1: world and the way we were going to achieve this 193 00:11:44,760 --> 00:11:47,600 Speaker 1: ultimate victory in the war in Terror and transform them 194 00:11:47,600 --> 00:11:51,520 Speaker 1: into least and transform our own society. Um, all of 195 00:11:51,559 --> 00:11:56,000 Speaker 1: those goals look so fanciful in retrospect and what we've 196 00:11:56,040 --> 00:11:58,760 Speaker 1: come out of If we look back at this period, 197 00:11:58,800 --> 00:12:00,600 Speaker 1: as you see in these essays, it's something that in 198 00:12:00,600 --> 00:12:02,719 Speaker 1: some ways is would be surprising if you go back 199 00:12:02,720 --> 00:12:05,480 Speaker 1: to days after nine eleven. We haven't seen the kind 200 00:12:05,520 --> 00:12:07,760 Speaker 1: of you know, mass casualty terrorist attacks in the United 201 00:12:07,800 --> 00:12:12,640 Speaker 1: States that most people thought would come repeatedly after nine eleven, 202 00:12:13,160 --> 00:12:15,559 Speaker 1: and that in some ways is an achievement, but look 203 00:12:15,600 --> 00:12:17,880 Speaker 1: at all the costs that have come with it. You 204 00:12:17,920 --> 00:12:21,199 Speaker 1: see in Elliott Ackerman's essay the one you mentioned, just 205 00:12:21,280 --> 00:12:23,800 Speaker 1: how much it has affected American service members in the 206 00:12:23,800 --> 00:12:26,839 Speaker 1: American military and American power. You see in Ben Rhodes 207 00:12:26,960 --> 00:12:30,079 Speaker 1: essay just how much it has changed American foreign policy. 208 00:12:30,200 --> 00:12:32,960 Speaker 1: So we can in some ways look at certain kinds 209 00:12:32,960 --> 00:12:35,800 Speaker 1: of achievements and certain kinds of victories of American policy 210 00:12:35,800 --> 00:12:39,080 Speaker 1: in that period, but if you look at the declarations 211 00:12:39,080 --> 00:12:41,360 Speaker 1: and ambitions that we had in those days right after 212 00:12:41,480 --> 00:12:44,760 Speaker 1: nine eleven, what we've had to pay for those those 213 00:12:44,800 --> 00:12:47,800 Speaker 1: achievements is really staggering. And there's also the question of 214 00:12:47,800 --> 00:12:50,679 Speaker 1: how the concept of the war on terror has changed 215 00:12:50,800 --> 00:12:54,840 Speaker 1: amid a changing world. What do some of the expert 216 00:12:54,880 --> 00:12:58,680 Speaker 1: writers way in on that front. Well, one of the 217 00:12:58,679 --> 00:13:02,040 Speaker 1: one of the most striking things about the Afghanistan withdrawal, 218 00:13:02,160 --> 00:13:04,679 Speaker 1: which I think is a theme that runs through a 219 00:13:04,720 --> 00:13:06,680 Speaker 1: lot of these essays. We closed the issue, of course 220 00:13:06,720 --> 00:13:08,800 Speaker 1: before we saw what was going to happen this week, 221 00:13:08,840 --> 00:13:11,560 Speaker 1: but most of the writers really anticipated what this outcome 222 00:13:11,600 --> 00:13:13,959 Speaker 1: was gonna look like. Is at this moment when the 223 00:13:14,000 --> 00:13:16,839 Speaker 1: United States is trying to balance goals in the war 224 00:13:16,920 --> 00:13:20,280 Speaker 1: on Terror and the kinds of considerations that drove us 225 00:13:20,320 --> 00:13:22,120 Speaker 1: into Afghanistan in the first place, and that kept us 226 00:13:22,160 --> 00:13:25,200 Speaker 1: there for for twenty years, against what are seeing is 227 00:13:25,240 --> 00:13:29,240 Speaker 1: the kind of challenges of our day, China, technology, you know, 228 00:13:29,320 --> 00:13:32,040 Speaker 1: great power competition. That's what people in the national security 229 00:13:32,040 --> 00:13:34,720 Speaker 1: and foreign policy worlds were talking about now. But as 230 00:13:34,760 --> 00:13:36,679 Speaker 1: you see in these essays, the response to the war 231 00:13:36,760 --> 00:13:39,320 Speaker 1: in terror has shaped even the way we think about 232 00:13:39,360 --> 00:13:41,719 Speaker 1: some of these great challenges today. So, even as it's 233 00:13:41,960 --> 00:13:45,200 Speaker 1: it's passed out of the kind of core of American 234 00:13:45,240 --> 00:13:48,280 Speaker 1: foreign policy concerns in many ways, at least before Afghanistan 235 00:13:49,120 --> 00:13:53,000 Speaker 1: became the headline story of the day, uh, it really 236 00:13:53,080 --> 00:13:55,559 Speaker 1: has shaped the way we think about the world and 237 00:13:55,640 --> 00:13:58,920 Speaker 1: about our own power as we discussed this morning the 238 00:13:59,000 --> 00:14:01,880 Speaker 1: idea of top level officials in the United States meeting 239 00:14:01,920 --> 00:14:06,720 Speaker 1: with Taliban officials. The idea here of the legitimacy of 240 00:14:06,760 --> 00:14:11,079 Speaker 1: groups previously designated as terrorist organizations. How much are we 241 00:14:11,200 --> 00:14:14,480 Speaker 1: at risk in the Western world generally at risk from 242 00:14:14,600 --> 00:14:17,400 Speaker 1: terror threats in Afghanistan where we have that much less 243 00:14:17,480 --> 00:14:21,440 Speaker 1: visibility on the ground. That that is the big question 244 00:14:21,480 --> 00:14:23,640 Speaker 1: of the day, and it's one we just don't know. 245 00:14:24,200 --> 00:14:27,440 Speaker 1: Bill Burns, the CIA director who is you you alluded to, 246 00:14:27,560 --> 00:14:31,160 Speaker 1: was meeting with the Taliban leadership in Cobble yesterday. Really 247 00:14:31,160 --> 00:14:35,600 Speaker 1: extraordinary meeting given the history of these past years. Uh. 248 00:14:36,040 --> 00:14:39,360 Speaker 1: He has said very very explicitly that we're gonna face 249 00:14:39,440 --> 00:14:42,080 Speaker 1: some more uncertainty and some more risk, something that that 250 00:14:42,160 --> 00:14:44,000 Speaker 1: I really liked one of the essays that we published 251 00:14:44,000 --> 00:14:46,120 Speaker 1: by Dan Biman. You know, we talked for a long 252 00:14:46,160 --> 00:14:49,800 Speaker 1: time about stamping out evil and standing out terrorism everywhere, 253 00:14:49,800 --> 00:14:52,400 Speaker 1: and what what Dan Bieman points out in his essay 254 00:14:52,440 --> 00:14:54,320 Speaker 1: is that we've come up with what he calls a 255 00:14:54,400 --> 00:14:57,040 Speaker 1: good enough doctrine where we accept a degree of risk. 256 00:14:57,120 --> 00:14:59,240 Speaker 1: We accept that the United States is not going to 257 00:14:59,320 --> 00:15:01,640 Speaker 1: go out and destroy or every terrorist or every terrorist 258 00:15:01,640 --> 00:15:05,960 Speaker 1: group everywhere, but that we can create enough protections that 259 00:15:06,000 --> 00:15:08,040 Speaker 1: there should be defenses at least against the kind of 260 00:15:08,160 --> 00:15:10,720 Speaker 1: large attacks that we worried about in the aftermath of 261 00:15:10,800 --> 00:15:14,360 Speaker 1: nine eleven. So in the wake of years in which 262 00:15:14,400 --> 00:15:17,760 Speaker 1: we talked about these grand victories and stamping out evil 263 00:15:17,800 --> 00:15:21,520 Speaker 1: and all of that really grand, ambitious rhetoric, we're settling 264 00:15:21,520 --> 00:15:23,640 Speaker 1: for something much murkier, and there will be a degree 265 00:15:23,640 --> 00:15:25,720 Speaker 1: of risk and uncertainty as part of that. And Dan 266 00:15:25,800 --> 00:15:28,800 Speaker 1: I saw Emma Ashford's essay on strategies of restraint. It 267 00:15:28,880 --> 00:15:30,880 Speaker 1: is kind of an extension of that. I mean, twenty 268 00:15:30,960 --> 00:15:34,000 Speaker 1: years post nine eleven, once we're out of both Afghanistan 269 00:15:34,040 --> 00:15:35,960 Speaker 1: and of course been out of a rock, are we 270 00:15:36,040 --> 00:15:40,960 Speaker 1: looking at a United States that is more restrained going forward? Absolutely. 271 00:15:41,000 --> 00:15:43,560 Speaker 1: I think it's undeniable that all parts of the political 272 00:15:43,560 --> 00:15:47,280 Speaker 1: spectrum have become much more attentive to limits on our 273 00:15:47,320 --> 00:15:50,880 Speaker 1: power after a period in which there was broad agreement. 274 00:15:50,880 --> 00:15:53,720 Speaker 1: If you remember those years after nine eleven about using 275 00:15:53,720 --> 00:15:57,600 Speaker 1: American power, using the American military, and these fairly expansive 276 00:15:57,600 --> 00:16:00,440 Speaker 1: ways all over the world, people all of a political 277 00:16:00,480 --> 00:16:03,520 Speaker 1: spectrum are much more hesitant about using that kind of 278 00:16:03,520 --> 00:16:06,160 Speaker 1: power now, and we may be at You know, there's 279 00:16:06,160 --> 00:16:08,960 Speaker 1: always a sort of pendulum in American foreign policy between 280 00:16:08,960 --> 00:16:12,320 Speaker 1: these relatively ambitious uses of power and these this sense 281 00:16:12,360 --> 00:16:16,040 Speaker 1: of restraint, and maybe that we're at one far extreme 282 00:16:16,040 --> 00:16:18,000 Speaker 1: of the pendulum and we're about to see it swing back, 283 00:16:18,080 --> 00:16:20,480 Speaker 1: because this is what we've seen in Afghanistan. There's a 284 00:16:20,560 --> 00:16:23,000 Speaker 1: reminder that their costs to restraint as well, just as 285 00:16:23,040 --> 00:16:26,320 Speaker 1: there are are costs to ambition and overreach. And I 286 00:16:26,320 --> 00:16:28,520 Speaker 1: wonder too if the United States is going to look 287 00:16:28,680 --> 00:16:31,160 Speaker 1: internally next. There was also a great piece on from 288 00:16:31,240 --> 00:16:34,560 Speaker 1: nine eleven to one six January six talking about the 289 00:16:34,640 --> 00:16:38,360 Speaker 1: domestic terror threat and far right extremist white supremacists. Is 290 00:16:38,400 --> 00:16:41,000 Speaker 1: that going to be the next error or area of 291 00:16:41,200 --> 00:16:45,560 Speaker 1: terrorism focus. This is just an extraordinary sea by Cynthia 292 00:16:45,560 --> 00:16:48,720 Speaker 1: Miller address who has been studying extremism of all kinds 293 00:16:49,440 --> 00:16:52,600 Speaker 1: for for for years, and she traces the history of 294 00:16:53,080 --> 00:16:56,400 Speaker 1: some of the domestic terrorist groups that we have seen 295 00:16:57,320 --> 00:17:00,440 Speaker 1: a threat more recently, even even as the rep from 296 00:17:00,480 --> 00:17:04,040 Speaker 1: Islamic terrorism started to receive a bit. She she traces 297 00:17:04,080 --> 00:17:07,399 Speaker 1: their rise through these years and as we all know, 298 00:17:07,560 --> 00:17:10,440 Speaker 1: after seeing some of the news events of the past, 299 00:17:10,520 --> 00:17:13,800 Speaker 1: the past couple of years. This is sort of the 300 00:17:13,880 --> 00:17:17,680 Speaker 1: unappreciated threat that crept up on us as we were 301 00:17:18,520 --> 00:17:22,080 Speaker 1: focused on terrorism coming from far away. And what what 302 00:17:22,160 --> 00:17:24,359 Speaker 1: something Milliar just points out in this piece is that 303 00:17:24,440 --> 00:17:27,040 Speaker 1: we tend to apply some of the same frameworks. You know, 304 00:17:27,080 --> 00:17:28,680 Speaker 1: this goes back to this question of how the War 305 00:17:28,720 --> 00:17:31,080 Speaker 1: on Terror will continue to affect the way we approach things. 306 00:17:31,320 --> 00:17:33,760 Speaker 1: We apply some of the same frameworks and tools to 307 00:17:33,800 --> 00:17:35,920 Speaker 1: these groups, even though it's a very very different kind 308 00:17:35,920 --> 00:17:41,879 Speaker 1: of threat. Tell me about our new isolationism. I find 309 00:17:42,320 --> 00:17:47,240 Speaker 1: Dan absolutely fascinating and your wonderful book on George Marshall, 310 00:17:47,280 --> 00:17:50,960 Speaker 1: it was a battle of n as well. What is 311 00:17:50,960 --> 00:17:57,520 Speaker 1: the color of our our two thousand twenty five isolationism, Well, 312 00:17:57,760 --> 00:18:00,000 Speaker 1: it's it's a it may be a little bit more 313 00:18:00,040 --> 00:18:03,560 Speaker 1: subtle than that. It's not purely isolationist. It is a 314 00:18:03,600 --> 00:18:07,879 Speaker 1: reaction to the perceived failures and the overreach of the 315 00:18:07,960 --> 00:18:10,320 Speaker 1: years after nine eleven, when we thought we could use 316 00:18:10,320 --> 00:18:14,000 Speaker 1: the American military to go it in and address threats completely, 317 00:18:14,040 --> 00:18:17,639 Speaker 1: to stamp out threats completely, and to transform foreign societies. 318 00:18:18,000 --> 00:18:21,159 Speaker 1: A lot of those uses, whether in Afghanistan or in 319 00:18:21,200 --> 00:18:25,719 Speaker 1: Iraq or Libia, have proved to be much more difficult 320 00:18:25,840 --> 00:18:28,800 Speaker 1: than people expected at the time and much bloodier and 321 00:18:28,880 --> 00:18:31,439 Speaker 1: much more possible perspective time. At the same time, we 322 00:18:31,520 --> 00:18:35,080 Speaker 1: are as as you know well, very very focused on 323 00:18:35,200 --> 00:18:38,080 Speaker 1: this threat from China, and in some ways there are 324 00:18:38,119 --> 00:18:41,440 Speaker 1: people in Washington and the nash security world who see 325 00:18:41,800 --> 00:18:43,359 Speaker 1: the China threat as a thing that is going to 326 00:18:43,520 --> 00:18:47,159 Speaker 1: keep us from receding into isolationism, precisely because it is 327 00:18:47,600 --> 00:18:50,240 Speaker 1: a kind of what that is defining our our American 328 00:18:50,240 --> 00:18:52,800 Speaker 1: form policy. That Pottngers piece in the issue is a 329 00:18:52,840 --> 00:18:55,359 Speaker 1: great demonstration of that. Daniel Kurs, Phil and thank you 330 00:18:55,440 --> 00:18:58,920 Speaker 1: so much. Just wonderful to begin our remembrance of September 331 00:18:58,920 --> 00:19:02,520 Speaker 1: elevens with you on a Tuesday in August. Foreign Affairs 332 00:19:02,600 --> 00:19:05,560 Speaker 1: who won the War on Terror can't say enough about 333 00:19:05,760 --> 00:19:09,639 Speaker 1: some very controversial essays there to give up respective In 334 00:19:09,720 --> 00:19:13,160 Speaker 1: his uh Dr kurtz Phalan said, particularly with all that's 335 00:19:13,200 --> 00:19:24,320 Speaker 1: going on in Afghanistan, this is a joy because if 336 00:19:24,320 --> 00:19:26,920 Speaker 1: you're at sixty feet, you've got to keep your eyes 337 00:19:26,920 --> 00:19:29,320 Speaker 1: on the ground. Ellen Ruskin has made a career of that, 338 00:19:29,720 --> 00:19:32,920 Speaker 1: and working with David focus Landau at Deutsche Bank, publishes 339 00:19:33,000 --> 00:19:37,479 Speaker 1: the most interesting and twisted literature in this time of 340 00:19:37,520 --> 00:19:41,680 Speaker 1: our paranoias, are worries, are angst about inflation and such? 341 00:19:42,240 --> 00:19:45,439 Speaker 1: Good to catch up with the chief international strategist of 342 00:19:45,480 --> 00:19:49,560 Speaker 1: Deutsche Bank, Alan focus Land on the team worry about 343 00:19:49,600 --> 00:19:54,000 Speaker 1: German inflation. They talk about the tail risks. What is 344 00:19:54,280 --> 00:20:00,000 Speaker 1: your tail risk in the Q four. I think inflation 345 00:20:00,359 --> 00:20:03,720 Speaker 1: globally is very much the tail risk. I think the 346 00:20:03,760 --> 00:20:07,200 Speaker 1: markets have taken a very sanguine view that, particularly in 347 00:20:07,240 --> 00:20:09,520 Speaker 1: the US, the Federal Reserve is going to be correct, 348 00:20:09,640 --> 00:20:13,399 Speaker 1: that a lot of the inflation forces on in fact transitory, 349 00:20:13,480 --> 00:20:19,400 Speaker 1: that the possibility that they're wrong and the consequences if 350 00:20:19,440 --> 00:20:23,399 Speaker 1: they're wrong are enormous. So I would say that, you know, 351 00:20:23,480 --> 00:20:26,280 Speaker 1: in terms of macro risk, this is one of the 352 00:20:26,320 --> 00:20:31,840 Speaker 1: most elevated risks out there, and and and is much 353 00:20:32,359 --> 00:20:36,800 Speaker 1: more important as a concern than macro risks we've had 354 00:20:36,840 --> 00:20:39,480 Speaker 1: for quite some time, Sertay. Since COVID's broken, the theme 355 00:20:39,560 --> 00:20:44,399 Speaker 1: from last week's angst to this week's celebration can be 356 00:20:44,560 --> 00:20:49,320 Speaker 1: institutions changing, arguably keens when the facts change, I change. 357 00:20:49,720 --> 00:20:53,440 Speaker 1: China came to the rescue with a dialogue of accommodation 358 00:20:53,520 --> 00:20:57,080 Speaker 1: by their central bank, do you assume other institutions will 359 00:20:57,119 --> 00:20:59,879 Speaker 1: do the same thing. Under angst, they'll just solve the 360 00:21:00,040 --> 00:21:05,159 Speaker 1: problem for US. No, I think I think the problems 361 00:21:05,359 --> 00:21:10,119 Speaker 1: tend to be quite localized and need local solutions. The 362 00:21:10,160 --> 00:21:12,520 Speaker 1: US economy is just too big to be able to 363 00:21:12,560 --> 00:21:17,160 Speaker 1: rely on other central banks solving its problems. I think Tom, 364 00:21:17,200 --> 00:21:19,520 Speaker 1: you're right to point out that there's there's been this 365 00:21:19,880 --> 00:21:26,800 Speaker 1: dichotomy really between risks associated with China and optimism essentially 366 00:21:27,320 --> 00:21:29,520 Speaker 1: related to the US. And I think you see this 367 00:21:29,600 --> 00:21:31,879 Speaker 1: in terms of the schism we've we we've seen in 368 00:21:32,000 --> 00:21:35,439 Speaker 1: terms of the Chinese stock market and the U s 369 00:21:35,440 --> 00:21:39,000 Speaker 1: stock market, which is having you know, broad ramifications, and 370 00:21:39,160 --> 00:21:41,400 Speaker 1: you know markets that I cover most closely, the currency 371 00:21:41,440 --> 00:21:44,520 Speaker 1: market in particular, So you know, I think there's something 372 00:21:44,560 --> 00:21:46,400 Speaker 1: you've got to watch for. But I think China can 373 00:21:46,440 --> 00:21:51,960 Speaker 1: make things easier for global markets. Absolutely, it has enormous influence. 374 00:21:52,320 --> 00:21:56,679 Speaker 1: But if it's US problems like inflation, for example, the 375 00:21:56,680 --> 00:21:59,119 Speaker 1: Federal Reserve is gonna have to solve that one. Allen 376 00:21:59,760 --> 00:22:02,840 Speaker 1: and curious going forward about how consistent it is for 377 00:22:02,880 --> 00:22:06,920 Speaker 1: a higher inflationary regime and then to see bears become bulls, 378 00:22:07,040 --> 00:22:09,840 Speaker 1: bulls become even bigger bulls when it comes to equities, 379 00:22:09,840 --> 00:22:15,160 Speaker 1: particularly in the United States, is there an inconsistency here? Well, 380 00:22:15,200 --> 00:22:19,000 Speaker 1: I think there are a lot of bond bears out there, 381 00:22:19,400 --> 00:22:23,160 Speaker 1: and they've had a very hard time since pretty much 382 00:22:23,160 --> 00:22:25,639 Speaker 1: the end of the first quarter. Most of them have 383 00:22:25,720 --> 00:22:28,119 Speaker 1: capitulated at this point in time, I think there's an 384 00:22:28,160 --> 00:22:30,440 Speaker 1: acceptance that it's a tenure. Heel is going to trade 385 00:22:30,480 --> 00:22:32,880 Speaker 1: at something like one in a quarter pers end. It's 386 00:22:32,920 --> 00:22:35,720 Speaker 1: going to be very hard to tell a story that's 387 00:22:35,800 --> 00:22:40,600 Speaker 1: particularly negative as far as US equities are concerned. Unlike 388 00:22:40,600 --> 00:22:43,359 Speaker 1: in the Trump era, when you're getting hit by trade 389 00:22:43,400 --> 00:22:46,639 Speaker 1: related issues every now and then creating clean uts and 390 00:22:46,720 --> 00:22:50,480 Speaker 1: by and by by the dip opportunities, you don't have 391 00:22:50,520 --> 00:22:53,320 Speaker 1: that this time around. So you've got to have other 392 00:22:53,359 --> 00:22:56,480 Speaker 1: features that create clean uts, and obviously the inflation stories 393 00:22:56,520 --> 00:22:58,879 Speaker 1: being part of it. But even there, the market is 394 00:22:58,920 --> 00:23:02,600 Speaker 1: taking a very benign look at the FED. You look 395 00:23:02,600 --> 00:23:05,920 Speaker 1: at what's priced in through the end of it's less 396 00:23:05,920 --> 00:23:08,879 Speaker 1: than a hundred basis points of tightening. That's nothing in 397 00:23:08,920 --> 00:23:12,199 Speaker 1: the grand scheme of you know, FED tightening cycles. So 398 00:23:12,520 --> 00:23:15,480 Speaker 1: the market has taken a very benign look at things. 399 00:23:15,680 --> 00:23:17,919 Speaker 1: But obviously the back end of the bond market, I 400 00:23:17,960 --> 00:23:21,960 Speaker 1: think is creating the backdrop for very solid equity market 401 00:23:22,000 --> 00:23:24,320 Speaker 1: and very solid US risk. The SMP is up more 402 00:23:24,320 --> 00:23:29,840 Speaker 1: than year to date last year, the year before. How 403 00:23:29,920 --> 00:23:35,080 Speaker 1: much longer can we continue with these kinds of incredible returns? Um, Look, 404 00:23:35,640 --> 00:23:38,240 Speaker 1: you'd expect the returns to slow down, But I think 405 00:23:38,280 --> 00:23:41,199 Speaker 1: what you're you're saying there as well is that there 406 00:23:41,200 --> 00:23:43,679 Speaker 1: are a lot of participants have got into this equity 407 00:23:43,720 --> 00:23:46,200 Speaker 1: market at relatively good levels, and they're not going to 408 00:23:46,280 --> 00:23:49,119 Speaker 1: get shaken out by something that's willy nilly. They're going 409 00:23:49,160 --> 00:23:52,560 Speaker 1: to have to have some big macro story out there. Um, 410 00:23:52,560 --> 00:23:54,560 Speaker 1: you know, the most obvious one is what the one 411 00:23:54,600 --> 00:23:56,960 Speaker 1: we've been speaking about, which is that inflation is not 412 00:23:57,040 --> 00:23:59,639 Speaker 1: as benign as the FED would make us believe. The 413 00:23:59,640 --> 00:24:03,680 Speaker 1: FED has to jump in and generate some more aggressive 414 00:24:03,760 --> 00:24:08,240 Speaker 1: tightening going forward, particularly two. That would be the kind 415 00:24:08,240 --> 00:24:12,000 Speaker 1: of story that would upset the Apple card. But right now, um, 416 00:24:12,040 --> 00:24:14,359 Speaker 1: you know, if you look at if China is going 417 00:24:14,400 --> 00:24:18,119 Speaker 1: to go through a phase where it's not actually generating 418 00:24:18,200 --> 00:24:21,439 Speaker 1: huge amounts of international volatility, then the US is not 419 00:24:21,480 --> 00:24:23,520 Speaker 1: going to be the instigator that, as I said, not 420 00:24:23,640 --> 00:24:26,399 Speaker 1: whilst the bond markets as well behaved and not while 421 00:24:26,520 --> 00:24:29,960 Speaker 1: expectations and the FED are this benign, something else that 422 00:24:30,000 --> 00:24:32,159 Speaker 1: could upset the apple card, at least for some of 423 00:24:32,160 --> 00:24:35,159 Speaker 1: those more richly valued stocks, would be in theory higher 424 00:24:35,240 --> 00:24:38,840 Speaker 1: yields if they do ever materialize. Do you expect them 425 00:24:38,840 --> 00:24:42,159 Speaker 1: to materialize in the near term? And I think nextary 426 00:24:42,200 --> 00:24:44,000 Speaker 1: in the near term. I think there have been some 427 00:24:44,240 --> 00:24:48,280 Speaker 1: fortunate features behind this bond market rally. The most obvious 428 00:24:48,320 --> 00:24:51,720 Speaker 1: one is that the Treasury has been issuing far less 429 00:24:51,720 --> 00:24:54,680 Speaker 1: in the way of paper, primarily because they've run down 430 00:24:54,680 --> 00:24:57,960 Speaker 1: their cash balances at the FED from you know, approaching 431 00:24:58,000 --> 00:25:01,480 Speaker 1: so one point six trillion in February down to close 432 00:25:01,520 --> 00:25:04,520 Speaker 1: to three billion now. So that's one point three trillion 433 00:25:05,359 --> 00:25:08,640 Speaker 1: that they've avoided in terms of issuance because they've run 434 00:25:08,680 --> 00:25:11,560 Speaker 1: down their cash balances. So that lack of supply, in 435 00:25:11,600 --> 00:25:14,800 Speaker 1: combination with what the FED does in terms of quantitative 436 00:25:14,880 --> 00:25:18,800 Speaker 1: easy has created a very favorable demand and supply dynamic. 437 00:25:19,080 --> 00:25:22,920 Speaker 1: That demanded supply dynamic probably deteriorates, but it deteriorates slowly, 438 00:25:23,160 --> 00:25:26,000 Speaker 1: and therefore I think the pressure will be for higher heels, 439 00:25:26,040 --> 00:25:28,080 Speaker 1: but it's going to be much slower than certainly I 440 00:25:28,119 --> 00:25:30,960 Speaker 1: was anticipating back in quarter one, and it wasn't just you. 441 00:25:31,040 --> 00:25:34,480 Speaker 1: That was the consensus call coming into yields would be higher. 442 00:25:34,480 --> 00:25:36,959 Speaker 1: The other consensus call was the dollar would be weaker, 443 00:25:37,000 --> 00:25:40,320 Speaker 1: and yet that too hasn't really materialized. Can you make 444 00:25:40,320 --> 00:25:44,160 Speaker 1: a case for dollar weakness in this moment? I didn't think. 445 00:25:44,320 --> 00:25:46,679 Speaker 1: Right now, I think you'd make a better case for 446 00:25:46,760 --> 00:25:49,520 Speaker 1: buying dollar the dollar dip as it were. Um, I 447 00:25:49,520 --> 00:25:54,439 Speaker 1: think the dollars fortunate in terms of where the small 448 00:25:54,560 --> 00:25:58,479 Speaker 1: dynamic is playing out at the moment. I think you have. 449 00:25:58,720 --> 00:26:02,119 Speaker 1: On the one hand, if risk looks okay, particularly U 450 00:26:02,200 --> 00:26:05,080 Speaker 1: s risk looks okay, then the tapering story is still 451 00:26:05,080 --> 00:26:08,960 Speaker 1: at play. That's helpful for the dollar against G four currencies. If, 452 00:26:09,000 --> 00:26:12,040 Speaker 1: on the other hand, you have international worries like we've 453 00:26:12,080 --> 00:26:16,520 Speaker 1: recently had in China, then you see, you know, risk off, 454 00:26:16,560 --> 00:26:19,600 Speaker 1: commodity prices coming off, and the dollar does well against 455 00:26:19,640 --> 00:26:23,879 Speaker 1: commodity currencies. So on both science of the smile, the 456 00:26:23,960 --> 00:26:26,800 Speaker 1: dollar does pretty well, so I think, and right now 457 00:26:26,840 --> 00:26:29,240 Speaker 1: that smile those tales as it were, on the smile, 458 00:26:30,440 --> 00:26:33,159 Speaker 1: on balance, I think more helpful for the dollar than 459 00:26:33,240 --> 00:26:35,720 Speaker 1: hurting the dollar Allen Roskin, thank you so much. With 460 00:26:35,800 --> 00:26:47,040 Speaker 1: Deutsche Bank their chief international strategist joining us now, someone 461 00:26:47,080 --> 00:26:50,879 Speaker 1: who's fluent, entailed, entire Sarah Malt joins us right now 462 00:26:50,960 --> 00:26:54,879 Speaker 1: from new being their chief investment officer. Sarah, I love, love, 463 00:26:55,119 --> 00:26:59,840 Speaker 1: love your research note. It's clear, it's crisp, it's sharp. 464 00:27:00,080 --> 00:27:05,959 Speaker 1: What's the single distinction in your note? That's an optimistic note. Well, 465 00:27:06,200 --> 00:27:08,720 Speaker 1: we'll start with one slightly pessimistic note, which is that 466 00:27:08,800 --> 00:27:11,960 Speaker 1: disagreement between the bond market and the stock market recently, 467 00:27:12,000 --> 00:27:15,040 Speaker 1: including yesterday. But really what we think is the stock 468 00:27:15,040 --> 00:27:17,840 Speaker 1: markets looking for a silver some silver linings for three 469 00:27:17,880 --> 00:27:20,440 Speaker 1: key reasons. One is we expect to see some good 470 00:27:20,480 --> 00:27:22,520 Speaker 1: economic data this week, not only with p M I 471 00:27:22,680 --> 00:27:26,000 Speaker 1: S but in consumer confidence. Also, look at vaccination rates, 472 00:27:26,000 --> 00:27:29,320 Speaker 1: they're up quite significantly in August versus July. And we 473 00:27:29,400 --> 00:27:32,240 Speaker 1: think in the US the delta variant is peaking. All 474 00:27:32,280 --> 00:27:34,560 Speaker 1: of that together, we think is the positive of the 475 00:27:34,640 --> 00:27:38,760 Speaker 1: stock market is now leaning into. We expect volatility around 476 00:27:38,800 --> 00:27:41,439 Speaker 1: some of the Jackson hole and back to school uncertainty 477 00:27:41,480 --> 00:27:43,720 Speaker 1: around the variant, but soon the page is going to 478 00:27:43,760 --> 00:27:47,399 Speaker 1: turn too high. Single digit earnings growth, that's not a 479 00:27:47,440 --> 00:27:49,960 Speaker 1: bear market. It's not a recession. That's a type of 480 00:27:50,000 --> 00:27:52,520 Speaker 1: market that can cut up put up strong returns. Not 481 00:27:52,640 --> 00:27:54,560 Speaker 1: as strong as this year and last year, it's still 482 00:27:54,600 --> 00:27:57,480 Speaker 1: strong positive returns going forward based on that earnings growth. 483 00:27:57,520 --> 00:28:00,480 Speaker 1: So how big of a bulls there are you? You know, 484 00:28:00,520 --> 00:28:02,639 Speaker 1: we're fairly bullish over the We're pretty bulish over the 485 00:28:02,640 --> 00:28:05,280 Speaker 1: medium term. Shorter term, we think there will be volatility. 486 00:28:05,400 --> 00:28:06,920 Speaker 1: There could be more of a training range, even a 487 00:28:06,960 --> 00:28:11,760 Speaker 1: buying opportunity as the market adjust to tapering. But I'm sorry, Sarah. 488 00:28:11,800 --> 00:28:14,359 Speaker 1: When I hear this, everyone's like, there could be volatility, 489 00:28:14,400 --> 00:28:16,720 Speaker 1: which means buying opportunity. No one says there could be 490 00:28:16,800 --> 00:28:19,960 Speaker 1: volatility which brings gloom and doom and actually will threaten 491 00:28:20,040 --> 00:28:22,040 Speaker 1: or turns in any meaningful way. I mean, is that 492 00:28:22,119 --> 00:28:26,399 Speaker 1: a contrarian indicator that concerns you? I mean, you know, 493 00:28:26,640 --> 00:28:28,680 Speaker 1: when we're thinking doom and gloom, this is a longer 494 00:28:28,800 --> 00:28:32,000 Speaker 1: term structural issue with the economy. Um, you know, something 495 00:28:32,000 --> 00:28:35,000 Speaker 1: that we saw where there was a bubble or inflation 496 00:28:35,080 --> 00:28:36,679 Speaker 1: is so high that we're going to go into a 497 00:28:36,680 --> 00:28:39,960 Speaker 1: proper recession. Volatility we see coming up would be short term. 498 00:28:40,040 --> 00:28:43,040 Speaker 1: This is more like the market adjust to tapering, you 499 00:28:43,120 --> 00:28:45,800 Speaker 1: see downside of maybe five to ten percent, you know 500 00:28:45,800 --> 00:28:47,840 Speaker 1: it's going to be very short term market timing in 501 00:28:47,840 --> 00:28:50,320 Speaker 1: that kind of environment, that's a loser's game. We think 502 00:28:50,360 --> 00:28:52,160 Speaker 1: that's where you need to step in and buy. You 503 00:28:52,200 --> 00:28:54,160 Speaker 1: can even see with China here we were looking at 504 00:28:54,160 --> 00:28:57,200 Speaker 1: something like Las Vegas Sands. Just recently it's training back 505 00:28:57,240 --> 00:29:00,280 Speaker 1: at March Lows. You saw what happened last night. You 506 00:29:00,280 --> 00:29:02,360 Speaker 1: know these when we see that kind of downside, it's 507 00:29:02,440 --> 00:29:05,239 Speaker 1: very quick to rebound when it's not based on um 508 00:29:05,320 --> 00:29:07,720 Speaker 1: lawn term structural issues. And we don't think the downside 509 00:29:07,720 --> 00:29:10,200 Speaker 1: that you see in a around the tapering will be 510 00:29:10,400 --> 00:29:12,880 Speaker 1: laun term structural for the economy. So I'm wondering what 511 00:29:12,960 --> 00:29:16,080 Speaker 1: specifically would be on your shopping list in that. When 512 00:29:16,080 --> 00:29:18,000 Speaker 1: you look at some of the reopening trades, for example, 513 00:29:18,000 --> 00:29:20,080 Speaker 1: they are already well off of the highs we saw 514 00:29:20,080 --> 00:29:21,920 Speaker 1: earlier this year. And we saw a money manager over 515 00:29:21,920 --> 00:29:24,440 Speaker 1: at Morgan Stanley in an interview with Bloomberg yesterday saying 516 00:29:24,480 --> 00:29:27,640 Speaker 1: you need to buy those reopening trades before it's too late. 517 00:29:27,680 --> 00:29:30,680 Speaker 1: Do you agree with that? Now, we're more interested in 518 00:29:30,760 --> 00:29:32,920 Speaker 1: stocks that have a couple of things going for them. 519 00:29:32,920 --> 00:29:35,240 Speaker 1: One is pricing power, because we think there is some 520 00:29:35,680 --> 00:29:38,600 Speaker 1: permanence to inflation going forward. And second is you need 521 00:29:38,640 --> 00:29:41,520 Speaker 1: to look at companies. We're looking at decade high margins 522 00:29:41,560 --> 00:29:44,040 Speaker 1: for many companies. Who also has that pricing power to 523 00:29:44,240 --> 00:29:47,440 Speaker 1: overcome the margins so they can continue to expand them 524 00:29:47,520 --> 00:29:50,120 Speaker 1: or at least preserve them from here. We like small caps. Actually, 525 00:29:50,160 --> 00:29:52,280 Speaker 1: I heard that one of the prior speakers was saying 526 00:29:52,280 --> 00:29:54,560 Speaker 1: they don't like small caps for us. They're trading back 527 00:29:54,600 --> 00:29:57,440 Speaker 1: at a discount of large caps that we saw in September. 528 00:29:58,600 --> 00:30:01,320 Speaker 1: Looking at January this year, they're some of the lows um. 529 00:30:01,360 --> 00:30:03,920 Speaker 1: They're tied to higher inflation and higher interest rates. We 530 00:30:03,960 --> 00:30:07,120 Speaker 1: like industrials. We think infrastructure spending will be positive for them, 531 00:30:07,240 --> 00:30:10,560 Speaker 1: and as that economic growth continues, positive for industrials. Sarah, 532 00:30:10,640 --> 00:30:13,320 Speaker 1: the heritage of New Vine of Chicago is that of 533 00:30:13,360 --> 00:30:16,200 Speaker 1: clipping coupons. I mean, what they did in municipal as 534 00:30:16,240 --> 00:30:18,920 Speaker 1: I was explaining, is to someone last night with the 535 00:30:18,960 --> 00:30:22,320 Speaker 1: beverage of my choice in my hand that Neuvin invented 536 00:30:22,520 --> 00:30:27,800 Speaker 1: codified the clipping of coupons. Can I clip dividend growth? 537 00:30:28,000 --> 00:30:31,840 Speaker 1: I mean, is dividend growth so entrenched that neuvine has 538 00:30:31,880 --> 00:30:34,520 Speaker 1: occuraged to say it's a ten or twenty year trend. 539 00:30:35,840 --> 00:30:38,320 Speaker 1: If you look at dividend growers um you know, that's 540 00:30:38,320 --> 00:30:40,440 Speaker 1: the important thing that their companies that are so financially 541 00:30:40,480 --> 00:30:42,840 Speaker 1: strong that they can continue to grow their dividends. They 542 00:30:42,880 --> 00:30:45,640 Speaker 1: actually tend to perform well not only in defensive markets, 543 00:30:45,680 --> 00:30:48,600 Speaker 1: but in periods of higher rates, higher inflation, and in 544 00:30:48,640 --> 00:30:51,160 Speaker 1: periods of volatility. These this has been a great segment 545 00:30:51,160 --> 00:30:53,760 Speaker 1: of the equity market for investors who are focused on 546 00:30:53,840 --> 00:30:56,120 Speaker 1: income because they have that sweet spot, the combination of 547 00:30:56,120 --> 00:30:58,840 Speaker 1: not only nice yields to go along with the funnel 548 00:30:58,880 --> 00:31:02,520 Speaker 1: mentally strong of these that can continue to increase their dividends. 549 00:31:02,800 --> 00:31:05,920 Speaker 1: Sarah Hi, you bond still a leading indicator for equities 550 00:31:07,240 --> 00:31:09,080 Speaker 1: now right now. I think what we're seeing is they're 551 00:31:09,080 --> 00:31:11,560 Speaker 1: going in two different directions. We've seen that with widening 552 00:31:11,760 --> 00:31:14,320 Speaker 1: credit spreads. We're also seeing that with the ten year 553 00:31:14,360 --> 00:31:16,880 Speaker 1: that is not matching this the optimism of the stock market. 554 00:31:16,920 --> 00:31:19,040 Speaker 1: And the question is, you know, who will win over time. 555 00:31:19,200 --> 00:31:21,360 Speaker 1: Our view is that economic data is going to be 556 00:31:21,680 --> 00:31:24,360 Speaker 1: what really is the key winner to this battle, and 557 00:31:24,480 --> 00:31:26,840 Speaker 1: we agree with the stock market. You know, we think 558 00:31:26,840 --> 00:31:30,120 Speaker 1: earnings growth, not valuations, will drive markets higher next year, 559 00:31:30,440 --> 00:31:32,640 Speaker 1: and that high single digit earning spread that we expect 560 00:31:32,840 --> 00:31:35,000 Speaker 1: can give us what is typically the third year of 561 00:31:35,080 --> 00:31:38,520 Speaker 1: positive return to poster recession. It's usually not as strong 562 00:31:38,680 --> 00:31:40,200 Speaker 1: as what you see in the first couple of years, 563 00:31:40,280 --> 00:31:43,000 Speaker 1: but it's still as positive even through a tape er tantrum. 564 00:31:43,000 --> 00:31:45,800 Speaker 1: If the yield curve doesn't flatten or invert, we think 565 00:31:45,840 --> 00:31:49,000 Speaker 1: that will be what remains positive for the markets it 566 00:31:49,080 --> 00:31:52,640 Speaker 1: takes its higher after this period of volatility. Sarah Manic, 567 00:31:52,680 --> 00:31:54,680 Speaker 1: thank you so much. They'll be in their chief investment 568 00:31:54,760 --> 00:31:59,280 Speaker 1: officer of the Little Acquiti. This is the Bloomberg Surveillance Podcast. 569 00:31:59,520 --> 00:32:02,920 Speaker 1: Thanks for listening. Join us live weekdays from seven to 570 00:32:03,000 --> 00:32:07,040 Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television 571 00:32:07,400 --> 00:32:11,400 Speaker 1: each day from six to nine am for insight from 572 00:32:11,440 --> 00:32:15,960 Speaker 1: the best in economics, finance, investment, and international relations. And 573 00:32:16,080 --> 00:32:21,200 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 574 00:32:21,280 --> 00:32:24,600 Speaker 1: dot com, and of course on the terminal. I'm Tom 575 00:32:24,680 --> 00:32:27,080 Speaker 1: Keene and this is Bloomberg