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 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,720 Speaker 1: and of course on the Bloomberg Terminent Right now, a 6 00:00:29,840 --> 00:00:32,960 Speaker 1: treat Richard hass as a President of the Council on 7 00:00:33,080 --> 00:00:35,800 Speaker 1: Foreign Relations and far more than that with his public 8 00:00:35,800 --> 00:00:40,080 Speaker 1: service to the nation in Northern Ireland negotiations Inbassador hass 9 00:00:40,200 --> 00:00:42,600 Speaker 1: joins us with my book of the Summer a number 10 00:00:42,600 --> 00:00:46,680 Speaker 1: of summers ago the world a brief introduction. Clearly it 11 00:00:46,720 --> 00:00:48,959 Speaker 1: needs to rewrite hass rumor to have a book out 12 00:00:49,000 --> 00:00:52,360 Speaker 1: in January. We're thrilled the Ambassador could join us this morning. 13 00:00:52,640 --> 00:00:55,360 Speaker 1: Richard Austin your newest essay see it folks at my 14 00:00:55,400 --> 00:01:01,640 Speaker 1: favorite project syndicate. You talked beautifully about American overreach. There's 15 00:01:01,680 --> 00:01:04,840 Speaker 1: all these phrases in the Richard House world, the classes 16 00:01:04,920 --> 00:01:10,119 Speaker 1: of civilizations, the post American world, and now American overreach. 17 00:01:10,280 --> 00:01:14,480 Speaker 1: What will our new overreach look like? Well, this has 18 00:01:14,560 --> 00:01:18,400 Speaker 1: become an assumption. Tom in the wake of Afghanistan and 19 00:01:18,520 --> 00:01:21,399 Speaker 1: the two thousand three I Roq war, But the biggest 20 00:01:21,640 --> 00:01:25,000 Speaker 1: problem facing American foreign policies we were trying to do 21 00:01:25,080 --> 00:01:29,720 Speaker 1: too much. Now you have the Russian invasion of Ukraine, 22 00:01:29,800 --> 00:01:33,840 Speaker 1: and it's a reminder that classic geopolitics have not gone away, 23 00:01:34,360 --> 00:01:37,280 Speaker 1: and that the new danger and might not be overreach, 24 00:01:37,480 --> 00:01:40,120 Speaker 1: but might be underreach, which is simply another word for 25 00:01:40,400 --> 00:01:44,320 Speaker 1: retrenchment or isolationism. And we've seen voices calling for that 26 00:01:44,400 --> 00:01:47,360 Speaker 1: in both parties. And I actually think one of the 27 00:01:47,400 --> 00:01:49,360 Speaker 1: things coming out of this crisis is going to be 28 00:01:49,400 --> 00:01:52,200 Speaker 1: a new eak equilibrium. We've already seen some new signs 29 00:01:52,200 --> 00:01:55,440 Speaker 1: of that, some initial signs of that in the administration's budget. 30 00:01:55,880 --> 00:01:59,280 Speaker 1: National security spending is going to go up. But the 31 00:01:59,360 --> 00:02:02,000 Speaker 1: United States now faces the world of a Russian threat 32 00:02:02,040 --> 00:02:06,680 Speaker 1: to Europe, Chinese assertiveness at least in the Asia Pacific. 33 00:02:07,080 --> 00:02:10,639 Speaker 1: Iran has not given up its nuclear ambitions. North Korea 34 00:02:10,680 --> 00:02:14,160 Speaker 1: is expanding its nuclear and missile capabilities. You've got a 35 00:02:14,240 --> 00:02:17,320 Speaker 1: raft of other global challenges, so Linda world looks to 36 00:02:17,360 --> 00:02:19,720 Speaker 1: be a very dangerous place. The United States has got 37 00:02:19,720 --> 00:02:23,720 Speaker 1: to address them. The new isolationism. It can't be the 38 00:02:23,800 --> 00:02:28,400 Speaker 1: Chicago Tribune isolationism of our parents, Richard Haas. With the 39 00:02:28,480 --> 00:02:33,160 Speaker 1: modern technology, the speed of information, the reporting of intelligence 40 00:02:33,200 --> 00:02:36,200 Speaker 1: by the United States in the uk of putin, the 41 00:02:36,320 --> 00:02:40,200 Speaker 1: speed of news here means it's a new isolationism. How 42 00:02:40,240 --> 00:02:43,440 Speaker 1: do you see that playing out? Well, it makes no sense. 43 00:02:43,480 --> 00:02:46,200 Speaker 1: Think about it, Tom, We're just two years out of 44 00:02:46,440 --> 00:02:49,960 Speaker 1: a virus that began in Wuhan, China and killed nearly 45 00:02:50,000 --> 00:02:53,560 Speaker 1: a million Americans. Climate change effects us every day. We 46 00:02:53,720 --> 00:02:56,800 Speaker 1: just marked the twentieth anniversary of nine eleven. To be 47 00:02:56,919 --> 00:03:01,160 Speaker 1: isolationist in a global world, globalization into reality, it's not 48 00:03:01,200 --> 00:03:03,920 Speaker 1: a choice. The choice is how we how we deal 49 00:03:03,960 --> 00:03:08,160 Speaker 1: with it. So American isolationism now is truly truly a 50 00:03:08,240 --> 00:03:11,560 Speaker 1: self defeating and dangerous fallacy. Richard. Let's talk about the 51 00:03:11,560 --> 00:03:14,440 Speaker 1: here and now, right now, about these conflict, this war 52 00:03:14,680 --> 00:03:17,359 Speaker 1: in Ukraine and what this does to the world order 53 00:03:17,400 --> 00:03:19,760 Speaker 1: as you see it. If we're talking in big geopolitical 54 00:03:19,800 --> 00:03:22,760 Speaker 1: strategy terms, how much is there a winner and how 55 00:03:22,840 --> 00:03:27,280 Speaker 1: much is there a loser? Well, there's more losers than winners, 56 00:03:27,320 --> 00:03:31,280 Speaker 1: which is almost almost always the case. And more that said, 57 00:03:31,639 --> 00:03:33,600 Speaker 1: NATO has come out of it in much better shape 58 00:03:33,639 --> 00:03:36,400 Speaker 1: than than I was. I think the Biden administration has 59 00:03:36,400 --> 00:03:40,080 Speaker 1: handled this fairly well. For the most part. The EU 60 00:03:40,200 --> 00:03:43,040 Speaker 1: looks pretty good. Germany what what a what a turnaround? 61 00:03:43,720 --> 00:03:46,880 Speaker 1: Ukraine is both tremendous resilience, but look at the destruction 62 00:03:46,960 --> 00:03:49,880 Speaker 1: to the to the physical plant of the country. A 63 00:03:50,000 --> 00:03:52,480 Speaker 1: quarter of the people are now on now homeless, either 64 00:03:52,720 --> 00:03:56,080 Speaker 1: displaced or refugees. I think they're the big loser more 65 00:03:56,120 --> 00:03:58,720 Speaker 1: than anything else, will be Russia. Look what Russia has 66 00:03:58,760 --> 00:04:00,800 Speaker 1: done to its position in the world, to it to 67 00:04:00,920 --> 00:04:03,760 Speaker 1: its economy. It's beginning to lose some of its best 68 00:04:03,800 --> 00:04:07,200 Speaker 1: and brightest, and its army looks like a potempic in military. 69 00:04:07,360 --> 00:04:09,440 Speaker 1: So out of all of this, I'd say Russia is 70 00:04:09,440 --> 00:04:12,640 Speaker 1: the biggest loser, but also increasingly all a dangerous loser. 71 00:04:13,000 --> 00:04:15,200 Speaker 1: We don't know how Mr Putin might react to this, 72 00:04:15,320 --> 00:04:17,880 Speaker 1: how he might lash out, how he might even escalate. 73 00:04:18,560 --> 00:04:21,080 Speaker 1: When you talk about how NATO is a winner in 74 00:04:21,120 --> 00:04:23,880 Speaker 1: Germany in particular as they try to strengthen their place, 75 00:04:24,400 --> 00:04:27,320 Speaker 1: what's your view on how lasting this move away from 76 00:04:27,400 --> 00:04:30,800 Speaker 1: Russian oil will be? How much can the Western nations 77 00:04:30,880 --> 00:04:35,320 Speaker 1: actually effectuate some replacement for that nation's reserves. It's a 78 00:04:35,320 --> 00:04:37,680 Speaker 1: great question. It's two parts of One is the physical 79 00:04:37,720 --> 00:04:41,159 Speaker 1: part of transitioning out of dependence on Russian gas. In particular, 80 00:04:41,320 --> 00:04:43,960 Speaker 1: we're talking about years in this country. We're going to 81 00:04:44,080 --> 00:04:47,520 Speaker 1: have to build the ability, the ability to export liquid 82 00:04:47,560 --> 00:04:50,360 Speaker 1: net liquefied natural gas. Europe is going to have to 83 00:04:50,400 --> 00:04:53,880 Speaker 1: build the capacity to import it at scale. That's something 84 00:04:53,920 --> 00:04:58,320 Speaker 1: that happens that over over years, not not months or weeks. 85 00:04:58,560 --> 00:05:00,640 Speaker 1: And then the question is whether the pole tis a there. 86 00:05:00,960 --> 00:05:03,839 Speaker 1: That depends, I think, on what Russia looks like over time. 87 00:05:04,120 --> 00:05:06,360 Speaker 1: Do you do we get to a post Putin period. 88 00:05:06,400 --> 00:05:09,680 Speaker 1: If we do, I expect they'll be voices in Germany 89 00:05:09,720 --> 00:05:12,680 Speaker 1: that will say we can now relax some of the sanctions. 90 00:05:12,720 --> 00:05:15,840 Speaker 1: Some of the old fishers within the Western Alliance will 91 00:05:15,920 --> 00:05:19,239 Speaker 1: begin to re emerge if you see a changed Russia. 92 00:05:19,400 --> 00:05:21,120 Speaker 1: But at the moment, you know, we can't. We can't 93 00:05:21,160 --> 00:05:23,520 Speaker 1: count on that. That's not a strategy, that's simply a hope. 94 00:05:24,160 --> 00:05:28,280 Speaker 1: Richard hass was the were the realist correct? Was John 95 00:05:28,360 --> 00:05:32,360 Speaker 1: Muir Steimer and others? Publishing in your magazine, you provided 96 00:05:32,480 --> 00:05:38,680 Speaker 1: leadership on this debate where the real politic crew correct? Tom. 97 00:05:38,720 --> 00:05:40,719 Speaker 1: I think this is one of these debates about whether 98 00:05:40,760 --> 00:05:43,280 Speaker 1: we mishandled the end of the Cold War. It's going 99 00:05:43,320 --> 00:05:44,880 Speaker 1: to go on for some time. This is one of 100 00:05:44,960 --> 00:05:48,839 Speaker 1: those rare cases that even hindsight is my own view, 101 00:05:48,880 --> 00:05:52,279 Speaker 1: as we did mishandle in some ways dealing with the 102 00:05:52,360 --> 00:05:55,640 Speaker 1: Russia in the years after the collapse of the Soviet 103 00:05:55,720 --> 00:05:57,600 Speaker 1: Union the end of the Cold War. But I also 104 00:05:57,600 --> 00:05:59,880 Speaker 1: would point out that doesn't in any way just the 105 00:06:00,040 --> 00:06:03,360 Speaker 1: fire explained what Vladimir Putin has done. You can you 106 00:06:03,360 --> 00:06:05,840 Speaker 1: can say both things. We mishandled some of the post 107 00:06:05,880 --> 00:06:09,520 Speaker 1: Cold War diplomacy, but in no way does that by 108 00:06:09,560 --> 00:06:12,040 Speaker 1: a warrant what Putin did, Ambassador. Let's get down to 109 00:06:12,040 --> 00:06:14,120 Speaker 1: the nitty griddy in two thousand and eight, I believe 110 00:06:14,160 --> 00:06:16,120 Speaker 1: it was at Pratoslava. Could be wrong on that. I 111 00:06:16,160 --> 00:06:19,719 Speaker 1: can't remember where the meeting was. Yeah, thank you, Boko 112 00:06:19,880 --> 00:06:22,080 Speaker 1: started with a B. What do I know? The answer 113 00:06:22,160 --> 00:06:26,880 Speaker 1: is Condi Rice and Richard Gates got hammered. They didn't 114 00:06:27,040 --> 00:06:30,279 Speaker 1: listen to the prose about what to do on the 115 00:06:30,320 --> 00:06:34,000 Speaker 1: Eastern Front. Are they gonna listen this time to the 116 00:06:34,040 --> 00:06:37,679 Speaker 1: pros that are nurtured by institutions like what you've built? 117 00:06:37,680 --> 00:06:41,080 Speaker 1: A cfire? Full disclosure, folks, I'm a member of CFR, 118 00:06:41,120 --> 00:06:43,400 Speaker 1: so I'm talking to my book. But they didn't listen 119 00:06:43,480 --> 00:06:45,960 Speaker 1: in two thousand and eight, did they? But Tom the 120 00:06:45,960 --> 00:06:48,960 Speaker 1: Foreign policy espous, it was divided you and Democrats and 121 00:06:49,000 --> 00:06:51,520 Speaker 1: the Clinton administration medal at all right, I made her 122 00:06:51,520 --> 00:06:53,680 Speaker 1: memory be for a blessing. Was one of the advocates 123 00:06:53,680 --> 00:06:57,039 Speaker 1: of NATO and large. But so is brig Brisinski, Condi Rice, 124 00:06:57,080 --> 00:07:00,279 Speaker 1: as you say at two Ashdated and Bucharest with Steve Badly, 125 00:07:00,640 --> 00:07:02,720 Speaker 1: that was that was the view even now you what 126 00:07:02,839 --> 00:07:05,159 Speaker 1: people will say, we should have done more NATO expansion. 127 00:07:05,640 --> 00:07:08,760 Speaker 1: That's the problem that that NATO has never expanded to 128 00:07:08,760 --> 00:07:11,080 Speaker 1: to Ukraine. And then you have just the opposite point 129 00:07:11,080 --> 00:07:14,680 Speaker 1: of view. We don't know what Russian political culture would 130 00:07:14,680 --> 00:07:17,200 Speaker 1: have would have emerged as so we don't know whether 131 00:07:17,280 --> 00:07:20,800 Speaker 1: NATO enlargement and the mishandling of relations with Russia brought 132 00:07:20,840 --> 00:07:23,480 Speaker 1: this about or would have come anyway. That's really one 133 00:07:23,480 --> 00:07:26,120 Speaker 1: of those debates that won't end. You said, like now Ferguson, 134 00:07:26,240 --> 00:07:28,960 Speaker 1: let's not do the counter factual thing. Richard has bring 135 00:07:28,960 --> 00:07:33,400 Speaker 1: it forward for the next Secretary of State. Which way 136 00:07:33,440 --> 00:07:37,840 Speaker 1: do they till Rice or all Bright? I would say 137 00:07:37,880 --> 00:07:40,080 Speaker 1: what we want to do is limit our involvement if 138 00:07:40,120 --> 00:07:42,960 Speaker 1: we can in Europe. That's not the critical arena for 139 00:07:42,960 --> 00:07:45,480 Speaker 1: the twenty one century. Tom I would say say, we 140 00:07:45,480 --> 00:07:47,560 Speaker 1: want to free ourselves up as best we can to 141 00:07:47,640 --> 00:07:51,200 Speaker 1: deal with China, the Indo Pacific and with global issues. 142 00:07:52,120 --> 00:07:54,480 Speaker 1: Century is ultimately not going to be decided in Europe. 143 00:07:54,520 --> 00:07:56,800 Speaker 1: So what we need to do is manage things in Europe, 144 00:07:56,880 --> 00:07:59,240 Speaker 1: put a ceiling on them so we can focus on 145 00:07:59,320 --> 00:08:03,480 Speaker 1: global issue is out on other geographies. Clinic as always 146 00:08:03,560 --> 00:08:06,560 Speaker 1: of the Council on Foreign Relations, Richie, thank you, thank 147 00:08:06,600 --> 00:08:14,920 Speaker 1: you very much. One of those sites of the four 148 00:08:15,120 --> 00:08:17,600 Speaker 1: Salt minds, if you will, the salt caverns, John Is, 149 00:08:17,760 --> 00:08:21,840 Speaker 1: Scenic West Hackberry is where we'll get those millions of 150 00:08:21,880 --> 00:08:24,760 Speaker 1: barrels or whatever we're doing. And that is about the 151 00:08:24,760 --> 00:08:28,679 Speaker 1: strategic petroleum reserve and it is something that will affect 152 00:08:28,720 --> 00:08:32,120 Speaker 1: the global price of oil. We are advantaged with all 153 00:08:32,160 --> 00:08:35,880 Speaker 1: of our coverage founded by Stuart Wallace, Javier Blass and 154 00:08:35,920 --> 00:08:39,280 Speaker 1: the rest on hydrocarbons, and we get expert view today 155 00:08:39,280 --> 00:08:43,160 Speaker 1: from KPMG, their global head of Energy, Regina Mayor Regina. 156 00:08:43,200 --> 00:08:45,040 Speaker 1: I've got to rip up the script here and take 157 00:08:45,080 --> 00:08:48,640 Speaker 1: it from the strategic petroleum reserved to your visit in 158 00:08:48,720 --> 00:08:52,560 Speaker 1: recent days to the United Arab Emirates. We spoke to 159 00:08:52,600 --> 00:08:55,680 Speaker 1: the head of their energy policy who stayed on script. 160 00:08:55,720 --> 00:08:58,160 Speaker 1: I need you to get off script. What is the 161 00:08:58,360 --> 00:09:03,440 Speaker 1: power of the peers Engulf to affect global price and 162 00:09:03,520 --> 00:09:10,280 Speaker 1: diminish Mr Biden's efforts to lower price? The Okay plus 163 00:09:10,320 --> 00:09:13,640 Speaker 1: producing nations definitely have the power to lower prices right 164 00:09:13,679 --> 00:09:16,560 Speaker 1: now that I was struck by that, the confirmation that 165 00:09:16,600 --> 00:09:20,400 Speaker 1: there is spare capacity in both Saudi and the U 166 00:09:20,480 --> 00:09:23,720 Speaker 1: a e UM, But there is a sticking to the 167 00:09:23,800 --> 00:09:28,600 Speaker 1: script that all of them are are focused on. They 168 00:09:28,640 --> 00:09:32,760 Speaker 1: have an agreement, that agreement has been in place, and 169 00:09:32,960 --> 00:09:36,760 Speaker 1: they're sticking to the agreement UM. And then they'll I 170 00:09:36,760 --> 00:09:38,680 Speaker 1: think that gives a little bit of a buffer from 171 00:09:38,720 --> 00:09:42,320 Speaker 1: some of the the external um pressures that might be 172 00:09:42,400 --> 00:09:44,520 Speaker 1: facing them. And then when you ask each of them 173 00:09:44,520 --> 00:09:47,120 Speaker 1: independently write of you a you will say, well, we're 174 00:09:47,160 --> 00:09:51,079 Speaker 1: just ten and there is an agreement. So I was 175 00:09:51,120 --> 00:09:53,760 Speaker 1: not surprised by what came out of a twelve minute 176 00:09:53,760 --> 00:09:57,360 Speaker 1: meeting take us from Doha to a Bloomberg surveillance conversation 177 00:09:57,440 --> 00:10:00,320 Speaker 1: with a Secretary of energy a number of months ago, 178 00:10:00,480 --> 00:10:04,199 Speaker 1: and the point of the argument was the one price 179 00:10:04,400 --> 00:10:08,040 Speaker 1: of oil. Is that true that Mr Biden and the 180 00:10:08,080 --> 00:10:11,600 Speaker 1: for salt caverns have to deal with a global oil 181 00:10:11,679 --> 00:10:16,360 Speaker 1: price or they can they manage a US price? Well, 182 00:10:16,400 --> 00:10:19,240 Speaker 1: I think that the challenge for the US administration is 183 00:10:19,280 --> 00:10:23,559 Speaker 1: that gasoline prices more closely correlate to the global oil price, 184 00:10:23,600 --> 00:10:27,040 Speaker 1: which is tydemore to Brent versus w t I. So 185 00:10:27,280 --> 00:10:31,080 Speaker 1: we do have abundant US supply, which we still have 186 00:10:31,120 --> 00:10:34,199 Speaker 1: a challenge of getting out of the ground, labor shortages, costs, 187 00:10:34,760 --> 00:10:39,360 Speaker 1: et cetera. But the price of gasoline pivots more closely 188 00:10:39,480 --> 00:10:41,880 Speaker 1: with the price of Brent, and that's where OPEC plus 189 00:10:41,880 --> 00:10:44,680 Speaker 1: and some of the other suppliers come into play. Regina, 190 00:10:44,800 --> 00:10:47,520 Speaker 1: we're looking at this oil reserve release potentially as reported 191 00:10:47,520 --> 00:10:49,679 Speaker 1: by Bloomberg, that could amount to a hundred and eighty 192 00:10:49,840 --> 00:10:52,960 Speaker 1: million barrels in some after all of the months are 193 00:10:53,000 --> 00:10:56,600 Speaker 1: added up. How much does this actually reduce the strength 194 00:10:56,679 --> 00:11:00,480 Speaker 1: of the US basically diminishing the reserves and actually propping 195 00:11:00,520 --> 00:11:04,720 Speaker 1: up prices even further later when they try to rebuild them. 196 00:11:05,040 --> 00:11:07,560 Speaker 1: Great question, but you know, if you if you believe 197 00:11:07,640 --> 00:11:11,360 Speaker 1: some of the other analysts like Secretary Munees that was 198 00:11:11,400 --> 00:11:13,960 Speaker 1: referenced earlier. There is a belief that towards the end 199 00:11:13,960 --> 00:11:17,360 Speaker 1: of the year, supply markets will balance. So if there's 200 00:11:17,360 --> 00:11:20,840 Speaker 1: an opportunity to diminish some of ooplex influence in the 201 00:11:20,880 --> 00:11:24,600 Speaker 1: short term and ease prices at the pump for consumers, 202 00:11:24,720 --> 00:11:27,160 Speaker 1: then that's the wise decision to take right now. I 203 00:11:27,360 --> 00:11:31,160 Speaker 1: worry less about what it does to our our defense 204 00:11:31,280 --> 00:11:34,480 Speaker 1: ability in the future and the cost exposure, because I 205 00:11:34,520 --> 00:11:37,079 Speaker 1: do think well markets are poised to settle down in 206 00:11:38,320 --> 00:11:40,520 Speaker 1: twenty three Regina to double down on that point that 207 00:11:40,640 --> 00:11:42,439 Speaker 1: Ernest means and you you echo that we're going to 208 00:11:42,559 --> 00:11:44,439 Speaker 1: have more of a balancing and the rest of the year, 209 00:11:44,480 --> 00:11:47,360 Speaker 1: what does that assume, the end of what's going on 210 00:11:47,520 --> 00:11:50,520 Speaker 1: in Eastern Europe, the bringing back on some of the 211 00:11:50,600 --> 00:11:56,280 Speaker 1: Russian barrels or other sources as production increases in the US. 212 00:11:56,320 --> 00:11:58,600 Speaker 1: All of the above, plus I think the one thing 213 00:11:58,679 --> 00:12:00,760 Speaker 1: we said that maybe you left out is that the 214 00:12:00,800 --> 00:12:04,520 Speaker 1: current price is an incentive to non OPEC producers. So 215 00:12:04,880 --> 00:12:07,400 Speaker 1: a lot of plays are in the money, and I 216 00:12:07,440 --> 00:12:10,440 Speaker 1: think people will do what they absolutely possibly can to 217 00:12:10,480 --> 00:12:12,440 Speaker 1: bring more of those supplies to the market so they 218 00:12:12,440 --> 00:12:16,640 Speaker 1: can monetize. Think Canadian oil stands, you know, think investments 219 00:12:16,640 --> 00:12:21,080 Speaker 1: in Mexico. So there are other sources of supply. Guyana 220 00:12:21,160 --> 00:12:23,640 Speaker 1: and the fine that we have there that I do 221 00:12:23,760 --> 00:12:26,559 Speaker 1: believe will come into into the market, and that's what 222 00:12:26,640 --> 00:12:29,920 Speaker 1: folks are counting on to help ease the supply crimes. Regina, 223 00:12:29,960 --> 00:12:32,400 Speaker 1: can you just clarify something for me quickly? What is 224 00:12:32,440 --> 00:12:35,280 Speaker 1: the SPN for and it's just the right way to 225 00:12:35,400 --> 00:12:40,800 Speaker 1: use it? Well, I've actually don't feel qualified to comment 226 00:12:41,000 --> 00:12:43,600 Speaker 1: on that, John things. I think it's it's a lot 227 00:12:43,640 --> 00:12:47,800 Speaker 1: about our defense of our our country at you know, 228 00:12:48,000 --> 00:12:51,400 Speaker 1: fuel is a really important commodity. I grew up in 229 00:12:51,440 --> 00:12:54,160 Speaker 1: Hawaii and I remember the seventies sitting in the back 230 00:12:54,240 --> 00:12:56,720 Speaker 1: seat of my parents car for hours on end on 231 00:12:56,760 --> 00:12:59,320 Speaker 1: an auto even license day, waiting to be able to 232 00:12:59,320 --> 00:13:02,120 Speaker 1: fuel up our tank of gap you know, are so 233 00:13:02,160 --> 00:13:05,080 Speaker 1: that we could drive around a small island. So I 234 00:13:05,120 --> 00:13:07,880 Speaker 1: think that's what it's intended to try to buffer, and 235 00:13:07,880 --> 00:13:10,560 Speaker 1: that we could get gosh forbid, that there would be 236 00:13:10,600 --> 00:13:13,040 Speaker 1: a large conflict. We have those supplies, and I think 237 00:13:13,040 --> 00:13:21,240 Speaker 1: it's pretty important, Regina Man, Thank you, kypmje Nila Richardson 238 00:13:21,360 --> 00:13:23,600 Speaker 1: joins us right now chief economist at a DP. That 239 00:13:23,679 --> 00:13:26,319 Speaker 1: was important, of course, we're their Wednesday effort on a 240 00:13:26,480 --> 00:13:29,599 Speaker 1: DP statistics on the American labor economy, Nila, let me 241 00:13:29,640 --> 00:13:33,200 Speaker 1: start with Richardson one oh one. Are we a fully 242 00:13:33,200 --> 00:13:38,560 Speaker 1: employed America? Now? We can't be as long as a 243 00:13:38,679 --> 00:13:42,000 Speaker 1: million workers are still on the sidelines. And you know 244 00:13:42,320 --> 00:13:46,439 Speaker 1: the labor force participation rate is below pre pandemic levels. 245 00:13:46,480 --> 00:13:51,200 Speaker 1: But that goal is moving. What is full employment with 246 00:13:51,280 --> 00:13:54,839 Speaker 1: a smaller workforce? It is defined as the level of 247 00:13:54,920 --> 00:13:58,640 Speaker 1: employment the large the largest number of employed people the 248 00:13:58,679 --> 00:14:04,040 Speaker 1: economy can support without a spurring additional inflation. And so 249 00:14:04,080 --> 00:14:09,040 Speaker 1: that's going to be a moving goal as inflation hopefully 250 00:14:09,040 --> 00:14:11,440 Speaker 1: comes down over the course of the year. Neil I 251 00:14:11,480 --> 00:14:13,720 Speaker 1: was passing through the data and frankly, the most interesting 252 00:14:14,000 --> 00:14:17,320 Speaker 1: aspect of this was real personal spending, which was down 253 00:14:17,600 --> 00:14:21,560 Speaker 1: by zero point four percent negative. We're looking at negative numbers. 254 00:14:21,680 --> 00:14:25,400 Speaker 1: People are not spending as much as inflation is going up. 255 00:14:25,840 --> 00:14:31,160 Speaker 1: Is this a signal or simply a blip? Well, you 256 00:14:31,240 --> 00:14:35,120 Speaker 1: can't answer that in one yes or no, because consumers 257 00:14:35,120 --> 00:14:39,520 Speaker 1: are very bifurcated. Low income consumers spend what they have 258 00:14:39,840 --> 00:14:43,120 Speaker 1: so that little increase in personal income, if it was 259 00:14:43,480 --> 00:14:46,840 Speaker 1: too low income households, that's actually a good sign for 260 00:14:46,920 --> 00:14:50,640 Speaker 1: spending going forward. High income households spend when they feel 261 00:14:50,680 --> 00:14:55,240 Speaker 1: confident about the economy, and there is indication that consumers 262 00:14:55,280 --> 00:14:58,840 Speaker 1: are not confident with inflation this high. So it's a 263 00:14:58,880 --> 00:15:02,160 Speaker 1: mixed picture right now in terms of where that increase 264 00:15:02,200 --> 00:15:04,880 Speaker 1: and income landed. If it landed with the low income, 265 00:15:04,960 --> 00:15:08,320 Speaker 1: they need that money to keep up with rising fuel 266 00:15:08,360 --> 00:15:11,080 Speaker 1: and food prices, and you might see that translated into 267 00:15:11,080 --> 00:15:14,440 Speaker 1: consuming we're spending. If the Fed we're looking at this data, 268 00:15:14,640 --> 00:15:17,240 Speaker 1: do they get comfort from seeing a decline in real 269 00:15:17,320 --> 00:15:19,920 Speaker 1: spending in some ways? Do they want to see a 270 00:15:19,960 --> 00:15:27,160 Speaker 1: deceleration in demand? They want to see a deceleration and inflation, 271 00:15:28,080 --> 00:15:31,800 Speaker 1: not so much a deceleration in demand. Unfortunately, you can't 272 00:15:31,840 --> 00:15:33,960 Speaker 1: have one without the other. They want to see an 273 00:15:34,000 --> 00:15:39,000 Speaker 1: economy that continues to grow. Uh So, I think that 274 00:15:39,400 --> 00:15:44,560 Speaker 1: they're very careful of where they're the demand is being contracted, right, 275 00:15:45,120 --> 00:15:47,520 Speaker 1: they'd like to see it in house prices and rents. 276 00:15:47,880 --> 00:15:52,280 Speaker 1: Uh not necessarily though, in incomes and wages um But 277 00:15:52,520 --> 00:15:55,760 Speaker 1: that that is going to be the challenge that they 278 00:15:55,760 --> 00:15:59,280 Speaker 1: have this very blunt instrument. They can't control where the 279 00:15:59,320 --> 00:16:02,120 Speaker 1: demand can be tacks in the economy neily, you have 280 00:16:02,160 --> 00:16:04,240 Speaker 1: a huge advantage no one talks about. You're going to 281 00:16:04,320 --> 00:16:07,280 Speaker 1: the secret combine of a DP and you calculate all 282 00:16:07,320 --> 00:16:10,800 Speaker 1: the pay rolls and all the corporations using a DP 283 00:16:10,960 --> 00:16:16,360 Speaker 1: for that core automatic data processing services. What are corporations 284 00:16:16,520 --> 00:16:21,240 Speaker 1: doing right now? Consumer seventy of the economy. I'll let 285 00:16:21,320 --> 00:16:24,040 Speaker 1: you tell me what corporations are eleven? Maybe it's fift 286 00:16:24,920 --> 00:16:28,200 Speaker 1: of the economy. What does a DP? And you see 287 00:16:28,720 --> 00:16:33,520 Speaker 1: is the doing the action of corporations right now? They're 288 00:16:33,640 --> 00:16:36,240 Speaker 1: trying to figure out how to hold onto their people. 289 00:16:36,680 --> 00:16:39,720 Speaker 1: We have a very low jobless claims number. It's not 290 00:16:39,800 --> 00:16:41,840 Speaker 1: as low as it was last late week, but it's 291 00:16:41,960 --> 00:16:45,360 Speaker 1: awfully low. And you pointed to what the cultural notion 292 00:16:45,440 --> 00:16:48,000 Speaker 1: of this is. The cultural notion in terms of the 293 00:16:48,400 --> 00:16:52,280 Speaker 1: business climate is they are very reluctant to let go 294 00:16:52,400 --> 00:16:54,960 Speaker 1: of people because they don't know if those people are 295 00:16:54,960 --> 00:16:57,640 Speaker 1: going to come back. We have a very high quiz breath, 296 00:16:57,760 --> 00:17:02,080 Speaker 1: that is elevated job openings hovering near record highs, and 297 00:17:02,240 --> 00:17:06,160 Speaker 1: hirings are not keeping up with openings. So right now 298 00:17:06,400 --> 00:17:11,600 Speaker 1: everyone is very focused big clients, small clients UM on 299 00:17:11,680 --> 00:17:15,440 Speaker 1: retaining the people and hiring in a highly competitive environment 300 00:17:15,480 --> 00:17:18,359 Speaker 1: for talent. When we're talking about the corporate outlook, Miila, 301 00:17:18,640 --> 00:17:21,120 Speaker 1: let's end where we began the show, which is really 302 00:17:21,880 --> 00:17:24,600 Speaker 1: restoration hardware and this call that they had where they 303 00:17:24,600 --> 00:17:27,560 Speaker 1: basically through the kitchen sink at their expectation that growth 304 00:17:27,560 --> 00:17:31,200 Speaker 1: would decelerate and that their business outlook would deteriorate. How 305 00:17:31,280 --> 00:17:34,919 Speaker 1: much is that representative of the larger corporate universe and 306 00:17:34,960 --> 00:17:37,280 Speaker 1: face of the inflation and the consumer where they are 307 00:17:37,880 --> 00:17:43,480 Speaker 1: versus perhaps a more specific or ambiguous story look as 308 00:17:43,520 --> 00:17:47,919 Speaker 1: the economy as this recovery matures, what we expect um 309 00:17:48,040 --> 00:17:52,520 Speaker 1: is a shift in consumer spending from durable like furniture 310 00:17:52,920 --> 00:17:57,199 Speaker 1: over to services. Um that's what we're waiting for. The 311 00:17:57,280 --> 00:18:01,840 Speaker 1: problem is uh that that served this increase is capped 312 00:18:01,880 --> 00:18:05,800 Speaker 1: by employees. If services can't find the head count, especially 313 00:18:05,800 --> 00:18:08,240 Speaker 1: in leisure in the hospitality but took a large hit 314 00:18:08,280 --> 00:18:10,560 Speaker 1: from the pandemic, then we are not going to see 315 00:18:10,560 --> 00:18:14,200 Speaker 1: the growth. So it is a macro story in terms 316 00:18:14,200 --> 00:18:18,480 Speaker 1: of durable goods like furniture, like big more big ticket items, 317 00:18:18,520 --> 00:18:23,359 Speaker 1: but it also is about this transformation of the economy 318 00:18:22,800 --> 00:18:27,560 Speaker 1: up through the recovery back into services. Nina always an education. 319 00:18:27,640 --> 00:18:29,639 Speaker 1: Thanks for being with us, Nata Richards in that of 320 00:18:29,800 --> 00:18:39,439 Speaker 1: a d P, let us save ourselves with Anders Crossed 321 00:18:39,800 --> 00:18:42,639 Speaker 1: Assets strategist at Morgan Stanley and Andrew Wey. What you 322 00:18:42,760 --> 00:18:45,560 Speaker 1: do is you combine in so nicely all the fractious 323 00:18:45,840 --> 00:18:49,000 Speaker 1: and folks. I say this with immense respect, the fractious 324 00:18:49,160 --> 00:18:53,680 Speaker 1: debate of Morgan Stanley and your single phrase is solid growth. 325 00:18:54,160 --> 00:18:59,920 Speaker 1: What does solid growth mean for my two thousand twenty two? Yeah, thanks, 326 00:19:00,160 --> 00:19:02,240 Speaker 1: good morning, Tom, great to be here with you and 327 00:19:02,480 --> 00:19:05,680 Speaker 1: everybody else. So solid growth to us means that growth 328 00:19:05,800 --> 00:19:09,840 Speaker 1: is lower than where it was in one but one 329 00:19:09,880 --> 00:19:12,680 Speaker 1: was was a very high bar that was extremely strong 330 00:19:12,720 --> 00:19:16,119 Speaker 1: global growth. And two we think will still look pretty 331 00:19:16,240 --> 00:19:19,080 Speaker 1: reasonable by the standards of the last twelve years that 332 00:19:19,119 --> 00:19:22,119 Speaker 1: we're still looking at. You know, US GDP growing around 333 00:19:22,240 --> 00:19:24,720 Speaker 1: four percent this year, and even though we think we 334 00:19:24,760 --> 00:19:27,879 Speaker 1: have a very disappointing first quarter in China, ultimately the 335 00:19:27,960 --> 00:19:30,639 Speaker 1: four year growth we think will still be a pretty 336 00:19:30,760 --> 00:19:33,800 Speaker 1: pretty reasonable and that Chinese growth will re accelerate as 337 00:19:33,800 --> 00:19:37,000 Speaker 1: the year goes on. So when we're thinking about stay inflation, 338 00:19:37,280 --> 00:19:39,200 Speaker 1: I think we're thinking about a year much more like 339 00:19:39,320 --> 00:19:43,240 Speaker 1: two thousand five. We're p m I S or decelerating 340 00:19:43,280 --> 00:19:46,880 Speaker 1: inflation is higher, policy is tightening than than something where 341 00:19:46,920 --> 00:19:50,119 Speaker 1: growth is really falling off right now in terms of 342 00:19:50,160 --> 00:19:52,600 Speaker 1: what the market needs to deal with, Andrew, the research 343 00:19:52,640 --> 00:19:54,600 Speaker 1: you've put out recently is that we've priced in higher 344 00:19:54,640 --> 00:19:57,119 Speaker 1: interest rates but not the growth risks associated with it. 345 00:19:57,440 --> 00:19:59,440 Speaker 1: Can you pull through the equity market force and help 346 00:19:59,480 --> 00:20:01,560 Speaker 1: usunderstand and where you think that needs to be priced 347 00:20:01,840 --> 00:20:04,879 Speaker 1: a little bit more? Yeah, So I think this is 348 00:20:04,920 --> 00:20:07,360 Speaker 1: where some of the debate around the yield curve, which 349 00:20:07,400 --> 00:20:08,920 Speaker 1: I'm sure is something we are now going to be 350 00:20:09,000 --> 00:20:13,000 Speaker 1: talking about for the next six months UM, is really 351 00:20:13,040 --> 00:20:16,080 Speaker 1: interesting because I think what the yield curve is discounting 352 00:20:16,320 --> 00:20:19,720 Speaker 1: is higher odds of a growth slow down next year, 353 00:20:19,880 --> 00:20:23,399 Speaker 1: which which we think is correct UM, and that certain 354 00:20:23,440 --> 00:20:25,840 Speaker 1: asset classes are going to be more vulnerable to that 355 00:20:25,960 --> 00:20:28,119 Speaker 1: than others. So, you know, when we think about the 356 00:20:28,240 --> 00:20:31,639 Speaker 1: overall equity market, when the yield curve inverts, it doesn't 357 00:20:31,760 --> 00:20:34,840 Speaker 1: necessarily go down. In fact, it tends to keep rising 358 00:20:34,920 --> 00:20:38,320 Speaker 1: after that inversion happens. The the equity markets balancing. Yes, 359 00:20:38,400 --> 00:20:40,760 Speaker 1: there's some greater risk of recession, but there's also a 360 00:20:40,880 --> 00:20:46,040 Speaker 1: possibility that things continue on for another twenty four months. 361 00:20:46,520 --> 00:20:48,720 Speaker 1: But assets that tend to be more growth sensitive, something 362 00:20:48,800 --> 00:20:51,359 Speaker 1: like US high yield that tends to see a pretty 363 00:20:51,400 --> 00:20:55,120 Speaker 1: bad risk reward when the curve inverts. When this when 364 00:20:55,160 --> 00:20:58,040 Speaker 1: the odds of a recession are rising, and that starts 365 00:20:58,080 --> 00:21:00,680 Speaker 1: to really underperform after the yeld, after you'll curve in version. 366 00:21:00,760 --> 00:21:03,240 Speaker 1: So we think that favors somewhat more defensive positioning within 367 00:21:03,280 --> 00:21:07,040 Speaker 1: the US equities, things like healthcare utilities. We think that 368 00:21:07,119 --> 00:21:10,080 Speaker 1: favors investment grade over high yield within within the US 369 00:21:10,160 --> 00:21:13,600 Speaker 1: credit and then some of the non US developed markets 370 00:21:13,680 --> 00:21:16,359 Speaker 1: we think could be in a better place, a largely 371 00:21:16,440 --> 00:21:21,040 Speaker 1: better place because the financial conditions there are easier. Policy 372 00:21:21,480 --> 00:21:24,119 Speaker 1: is under less pressure to tighten in Europe and Japan, 373 00:21:24,320 --> 00:21:27,040 Speaker 1: and so I find the banks called fascinating at the moment. 374 00:21:27,119 --> 00:21:29,720 Speaker 1: Betsy Gresik made a move earlier this week. Can you 375 00:21:29,760 --> 00:21:31,760 Speaker 1: walk me through how um in a team thinking about 376 00:21:31,760 --> 00:21:37,160 Speaker 1: the financials? Yeah. So, so we downgraded financials from from overweight, 377 00:21:37,440 --> 00:21:40,000 Speaker 1: which had been a favorite sector for a while, down 378 00:21:40,080 --> 00:21:42,679 Speaker 1: down to equal weight. And you know that the reason 379 00:21:42,800 --> 00:21:44,840 Speaker 1: for that is is a function of both. We've we've 380 00:21:44,840 --> 00:21:47,359 Speaker 1: had a very large, large inister straight move that that 381 00:21:47,720 --> 00:21:50,399 Speaker 1: helped the sector. But also, you know, financials as you 382 00:21:50,480 --> 00:21:52,960 Speaker 1: start to get later in the cycle, have to balance 383 00:21:53,160 --> 00:21:56,840 Speaker 1: both loan growth that is often still strong. Banks continue 384 00:21:56,880 --> 00:21:59,480 Speaker 1: to lend even after the old curve flattens with the 385 00:21:59,520 --> 00:22:02,040 Speaker 1: market and thinking well, if the odds of a recession 386 00:22:02,080 --> 00:22:03,920 Speaker 1: are rising, we need to price in a higher risk 387 00:22:04,000 --> 00:22:08,200 Speaker 1: premium around higher loan losses eight twenty four months out, 388 00:22:08,320 --> 00:22:10,240 Speaker 1: So you know, we think the sector's risk word is 389 00:22:10,280 --> 00:22:12,800 Speaker 1: now a lot more balanced here again as those two 390 00:22:12,880 --> 00:22:16,120 Speaker 1: factors are competing against each other, you know, and after 391 00:22:16,280 --> 00:22:19,520 Speaker 1: we've had a pretty large rate move, and so that 392 00:22:19,640 --> 00:22:23,280 Speaker 1: leaves us more more balanced and looking to reassess, Andrew, 393 00:22:23,400 --> 00:22:26,159 Speaker 1: where do long bond stit in your portfolio given the 394 00:22:26,200 --> 00:22:28,200 Speaker 1: sell off that we've seen to date, and given the 395 00:22:28,280 --> 00:22:30,840 Speaker 1: call that you have that we're in the same kind 396 00:22:30,920 --> 00:22:36,000 Speaker 1: of environment longer term even given this blip. So I 397 00:22:36,160 --> 00:22:40,399 Speaker 1: think that the backdrop favors a flatter and more inverted curve. 398 00:22:40,480 --> 00:22:42,440 Speaker 1: That's that's very much the way that our our interest 399 00:22:42,560 --> 00:22:44,840 Speaker 1: rate strategist at Morgan Stanley are thinking about that, and 400 00:22:45,359 --> 00:22:47,480 Speaker 1: and that we could even have a dynamic where the 401 00:22:47,560 --> 00:22:50,439 Speaker 1: two year rate continues to go up towards towards three percent, 402 00:22:50,560 --> 00:22:53,680 Speaker 1: but the the thirty year bond does not rise in 403 00:22:53,840 --> 00:22:56,000 Speaker 1: yield from here, maybe it even declines a couple of 404 00:22:56,040 --> 00:23:00,360 Speaker 1: basis points. Again, as the market is looking at very 405 00:23:00,560 --> 00:23:05,040 Speaker 1: strong we think structural demand for longer term duration and 406 00:23:05,160 --> 00:23:09,199 Speaker 1: also as overall yields rise, the funding position of pension 407 00:23:09,280 --> 00:23:13,080 Speaker 1: funds gets better. That increases the desire to to buy 408 00:23:13,240 --> 00:23:16,680 Speaker 1: long duration assets to defease those pension liabilities. So we 409 00:23:16,760 --> 00:23:20,640 Speaker 1: think longer term investment grade bonds offer better value here 410 00:23:20,680 --> 00:23:22,879 Speaker 1: than say HI yield. We think some parts of the 411 00:23:22,920 --> 00:23:26,280 Speaker 1: Emerging market credit index will offer better value than say 412 00:23:26,320 --> 00:23:29,920 Speaker 1: emerging market equities here, again in part thanks to the 413 00:23:30,240 --> 00:23:33,399 Speaker 1: longer duration of that index. And we certainly would put 414 00:23:33,440 --> 00:23:36,840 Speaker 1: ourselves in the curve flattening long end out performing camp. 415 00:23:37,440 --> 00:23:39,359 Speaker 1: And I know you've been building cash and that Morgan 416 00:23:39,400 --> 00:23:42,480 Speaker 1: Stanley's approached generally has been to hold a bigger portfolio 417 00:23:42,560 --> 00:23:45,639 Speaker 1: of liquid assets. At what point what signals are you 418 00:23:45,720 --> 00:23:48,520 Speaker 1: looking for to shift that to deploy more and to 419 00:23:48,600 --> 00:23:52,639 Speaker 1: go more into risk. Yeah, it's a great question. So 420 00:23:52,840 --> 00:23:55,480 Speaker 1: so one, I mean, the equity market is clearly rallied 421 00:23:55,480 --> 00:23:58,080 Speaker 1: back very very quickly, and more quickly than than we 422 00:23:58,240 --> 00:24:02,440 Speaker 1: expect it. So, you know, certainly, certainly lower prices, but 423 00:24:02,520 --> 00:24:06,120 Speaker 1: more specifically a higher equity risk premium would be helpful. 424 00:24:06,520 --> 00:24:08,960 Speaker 1: What we've seen is, you know, on our measures, a 425 00:24:09,040 --> 00:24:11,800 Speaker 1: real compression of the equity risk premium. Uh, you know, 426 00:24:11,840 --> 00:24:14,480 Speaker 1: a large richening of equities relative to bonds in a 427 00:24:14,600 --> 00:24:18,200 Speaker 1: in a short period of time. I think more more 428 00:24:18,280 --> 00:24:21,560 Speaker 1: space opening up there would be helpful. I do think, 429 00:24:21,640 --> 00:24:24,240 Speaker 1: you know, the investment case in in in Europe could 430 00:24:24,280 --> 00:24:27,600 Speaker 1: be a lot cleaner if we saw somewhat more certainty 431 00:24:28,280 --> 00:24:31,399 Speaker 1: around the direction of of the conflict in Ukraine, and 432 00:24:31,720 --> 00:24:36,119 Speaker 1: that could I think certainly improve the risk reward as 433 00:24:36,160 --> 00:24:38,720 Speaker 1: we think about that market. Um. But I do think 434 00:24:38,840 --> 00:24:42,680 Speaker 1: for at some level the die is cast. Um. You know, 435 00:24:42,760 --> 00:24:45,119 Speaker 1: we do think we're in a later cycle environment. A 436 00:24:45,160 --> 00:24:48,720 Speaker 1: flattening yield curve, low unemployment tightening policy is a part 437 00:24:48,760 --> 00:24:51,119 Speaker 1: of that, and I think that that at a broad 438 00:24:51,280 --> 00:24:55,800 Speaker 1: level is naturally going to constrain how much risk we 439 00:24:55,840 --> 00:24:58,400 Speaker 1: think investors should take. Um, you know, kind of regardless 440 00:24:58,480 --> 00:25:00,800 Speaker 1: of these other factors. So we think this later cycle 441 00:25:00,920 --> 00:25:03,399 Speaker 1: environment is often one where wants, one wants to be 442 00:25:03,480 --> 00:25:06,240 Speaker 1: closer to home in their portfolio allocation. But you know, 443 00:25:06,320 --> 00:25:09,560 Speaker 1: we would be looking for greater risk premiums to emerge 444 00:25:09,640 --> 00:25:12,480 Speaker 1: in inequities credit that we think would compensate for those 445 00:25:12,600 --> 00:25:16,439 Speaker 1: risks before redeploying cash. And just quickly, how's London? How 446 00:25:16,480 --> 00:25:18,359 Speaker 1: are things right now? Because when I call family, they 447 00:25:18,440 --> 00:25:21,320 Speaker 1: talked to me about how much everything costs at the moment. 448 00:25:21,359 --> 00:25:23,680 Speaker 1: They tell me house price to through the roof. What 449 00:25:23,760 --> 00:25:25,639 Speaker 1: are you experiencing in the general economy there? What does 450 00:25:25,680 --> 00:25:27,920 Speaker 1: your actually look like from your experience in the UK 451 00:25:28,280 --> 00:25:31,440 Speaker 1: at the moment, So you know what we talk a 452 00:25:31,520 --> 00:25:34,280 Speaker 1: lot about stag inflation. I think the stag inflation story 453 00:25:34,400 --> 00:25:36,080 Speaker 1: varies a lot where you talk about it. Right, you 454 00:25:36,359 --> 00:25:39,080 Speaker 1: have very low inflation in Japan, you actually have quite 455 00:25:39,119 --> 00:25:41,040 Speaker 1: good growth still in the US, I think the UK 456 00:25:41,880 --> 00:25:45,200 Speaker 1: is closest to that stagflationary outcome. Growth here is weak 457 00:25:45,280 --> 00:25:48,920 Speaker 1: and make it weaker as you see very large cost 458 00:25:49,000 --> 00:25:53,160 Speaker 1: of living increases bite even starting next month as utility 459 00:25:53,240 --> 00:25:56,040 Speaker 1: bills rise. At the same time that inflation is still 460 00:25:56,160 --> 00:26:00,280 Speaker 1: very high and where the current account deficit is still large. 461 00:26:00,359 --> 00:26:01,840 Speaker 1: And so I think the Bank of England has a real, 462 00:26:02,440 --> 00:26:05,159 Speaker 1: a real challenge to it. I think on a structural basis, 463 00:26:05,240 --> 00:26:08,040 Speaker 1: we are thinking that the pound will weakend against the 464 00:26:09,440 --> 00:26:12,200 Speaker 1: US dollar or the Canadian dollar um and you know, 465 00:26:12,280 --> 00:26:15,800 Speaker 1: I think the UK does face a tougher macrec backdrop 466 00:26:15,880 --> 00:26:18,960 Speaker 1: than the European Union or the U s Andrew Shaye 467 00:26:18,960 --> 00:26:21,679 Speaker 1: Silson as a wife of Marcus STANDI thank you, sir. 468 00:26:27,920 --> 00:26:32,240 Speaker 1: It is claims day in Job Day tomorrow. It's very early, Paul. 469 00:26:32,240 --> 00:26:34,120 Speaker 1: We didn't need to explain this. It's usually the first 470 00:26:34,200 --> 00:26:37,080 Speaker 1: Friday of every month, but it's never the first. They 471 00:26:37,080 --> 00:26:39,480 Speaker 1: always then go seven or eight or whatever the number is. 472 00:26:40,000 --> 00:26:42,480 Speaker 1: And John John Fields like Monday Jobs Day. This is 473 00:26:42,680 --> 00:26:46,320 Speaker 1: I'm like, no, it isn't on air exactly, and it 474 00:26:46,400 --> 00:26:49,720 Speaker 1: was like, Tom Glad you're read in, always read in 475 00:26:49,800 --> 00:26:52,639 Speaker 1: as James Glassman, who really begins our jobs coverage. He 476 00:26:52,840 --> 00:26:56,520 Speaker 1: is acclaimed at JP Morgan in commercial banking and really 477 00:26:56,560 --> 00:26:58,879 Speaker 1: with the pulse of the nation. Jim, I'm gonna go 478 00:26:59,000 --> 00:27:01,760 Speaker 1: local on you in Los Angeles. And this comes off 479 00:27:01,840 --> 00:27:05,920 Speaker 1: an article today I saw that's some mayor Adams in 480 00:27:06,000 --> 00:27:09,840 Speaker 1: New York City and many other big city mayors dealing 481 00:27:09,920 --> 00:27:12,600 Speaker 1: with crime and the l A Times today, Connor Sheets 482 00:27:12,640 --> 00:27:16,520 Speaker 1: has Maxine Waters overwhelmed. You know, one of the most 483 00:27:16,920 --> 00:27:23,120 Speaker 1: esteemed politicians we have dealing with poverty, Maxine Waters overwhelmed 484 00:27:23,160 --> 00:27:27,320 Speaker 1: by crowds, on the homeless issue, on the crime issue. 485 00:27:27,359 --> 00:27:31,200 Speaker 1: In cities like Los Angeles. Are we really seeing a 486 00:27:31,320 --> 00:27:38,240 Speaker 1: migration from troubled cities to new less troubled cities, you know, Tom, 487 00:27:38,320 --> 00:27:40,119 Speaker 1: it does seem so. When you look at the flows 488 00:27:40,160 --> 00:27:43,280 Speaker 1: of data. Part of the problem isn't so much that 489 00:27:43,480 --> 00:27:45,520 Speaker 1: it's a sort of things got really expensive on the 490 00:27:45,560 --> 00:27:49,600 Speaker 1: West Coast up in New York area, and you're you're 491 00:27:49,600 --> 00:27:52,800 Speaker 1: seeing a population that's flowing inward a lot of I 492 00:27:52,880 --> 00:27:54,480 Speaker 1: think for a lot of people, they're figuring, well, if 493 00:27:54,520 --> 00:27:56,720 Speaker 1: I can work remotely for a few days a week, 494 00:27:57,040 --> 00:27:58,840 Speaker 1: I can afford that place for the rot I don't 495 00:27:58,840 --> 00:28:01,639 Speaker 1: have to commute as much. So there there definitely is 496 00:28:01,720 --> 00:28:04,159 Speaker 1: a flow. And when I look at the flows from California, 497 00:28:04,200 --> 00:28:07,800 Speaker 1: for example, uh, and out of the northeast, you can 498 00:28:07,880 --> 00:28:11,200 Speaker 1: see that, Uh, what's going on is there's a heavy 499 00:28:11,240 --> 00:28:14,200 Speaker 1: flow moving into the southeast, into Texas, into the Mountain states. 500 00:28:14,680 --> 00:28:18,840 Speaker 1: Did the pandemic accelerate this, like so many other conditions, 501 00:28:18,880 --> 00:28:22,160 Speaker 1: are we are we basically a Jim and Paul Jim 502 00:28:22,280 --> 00:28:25,240 Speaker 1: is so good at the ten year timeline. Did we 503 00:28:25,400 --> 00:28:29,080 Speaker 1: squeeze seven years into two years with the pandemic? Doesn't 504 00:28:29,080 --> 00:28:31,879 Speaker 1: feel like that, doesn't it? Uh? And there's a reason. 505 00:28:32,400 --> 00:28:33,960 Speaker 1: I think part of it is if you, if you 506 00:28:34,040 --> 00:28:37,440 Speaker 1: work in the technology sector, you're used to working remotely, 507 00:28:37,480 --> 00:28:39,719 Speaker 1: and I see you know why is that the places 508 00:28:39,760 --> 00:28:42,000 Speaker 1: like court A Lane and the Utah are booming? Yeah, 509 00:28:42,080 --> 00:28:45,280 Speaker 1: but Paul, my stuff, Jamie Diamonds listening to us five 510 00:28:45,360 --> 00:28:47,920 Speaker 1: days a week. Jim, if you call in and say 511 00:28:47,960 --> 00:28:51,960 Speaker 1: I'm work from home, What's Mr Diamond gonna say? Well? 512 00:28:52,040 --> 00:28:54,320 Speaker 1: I think we want, we badly want people to be 513 00:28:54,520 --> 00:28:57,000 Speaker 1: back on the team, back home, back in the office, 514 00:28:57,040 --> 00:28:59,320 Speaker 1: because that's where you learn stuff and that's how you 515 00:28:59,360 --> 00:29:01,760 Speaker 1: build culture. So we all want that. And depending on 516 00:29:01,840 --> 00:29:04,680 Speaker 1: the business you're in, some some businesses don't need that. 517 00:29:05,240 --> 00:29:07,320 Speaker 1: But I think over time we're going to find that 518 00:29:07,440 --> 00:29:10,200 Speaker 1: we migrate back to the way we used to do it, because, yeah, 519 00:29:10,280 --> 00:29:13,480 Speaker 1: we don't like commuting, but the truth is we're much 520 00:29:13,560 --> 00:29:16,240 Speaker 1: We build a better team. When you're together, we're opinion free. 521 00:29:16,280 --> 00:29:19,480 Speaker 1: But did you Yeah, I'm with you, I'm with you. Hey, Jim, 522 00:29:19,560 --> 00:29:22,320 Speaker 1: what's a gallon of gas out in Los Angeles today? Oh? 523 00:29:22,480 --> 00:29:25,760 Speaker 1: My god, I see I paid six and a quarter. 524 00:29:26,120 --> 00:29:35,080 Speaker 1: I've seen prices of seven. Yeah, I mean the quarter too. Yeah, 525 00:29:35,320 --> 00:29:37,520 Speaker 1: you're paying six and a quarter to go into the 526 00:29:37,560 --> 00:29:43,760 Speaker 1: glass hummer a three. Yeah, Well I've I've cut the trips. 527 00:29:44,160 --> 00:29:45,400 Speaker 1: You can cut down the trips a little bit and 528 00:29:45,480 --> 00:29:48,640 Speaker 1: save yourself if you work really hard, cut the trip 529 00:29:48,720 --> 00:29:52,080 Speaker 1: to the mall, or you really work remotely for one day, 530 00:29:52,120 --> 00:29:54,280 Speaker 1: you can sort of off set this. But now people 531 00:29:54,320 --> 00:29:56,680 Speaker 1: are I don't see anybody when you look at the highways, 532 00:29:56,760 --> 00:29:58,600 Speaker 1: drive on the highways. It doesn't look like people are 533 00:29:58,920 --> 00:30:02,440 Speaker 1: cutting back. So inflations here, Jim. Just you know again, 534 00:30:02,520 --> 00:30:04,000 Speaker 1: six and a quarter for a gallon of gas in 535 00:30:04,040 --> 00:30:07,160 Speaker 1: the Los Angeles. What is your inflation call? Is that? 536 00:30:07,480 --> 00:30:09,800 Speaker 1: How effective do you believe the FED can be in 537 00:30:10,000 --> 00:30:12,640 Speaker 1: terms of dealing with the inflation pressures? We see, Well, 538 00:30:12,920 --> 00:30:14,720 Speaker 1: what the FED is? The FED can't do anything about 539 00:30:14,720 --> 00:30:17,120 Speaker 1: what's going on right now. They can't get the microprocessor 540 00:30:17,200 --> 00:30:19,760 Speaker 1: chips to the auto industry, they can't get the oil 541 00:30:19,840 --> 00:30:22,760 Speaker 1: prices down. This is all about the dislocations going on. 542 00:30:23,160 --> 00:30:25,000 Speaker 1: But it's important for the FED to get back to 543 00:30:25,080 --> 00:30:27,560 Speaker 1: the sidelines. And that's really to me, what's going on. 544 00:30:27,680 --> 00:30:29,960 Speaker 1: If if you think that the FED moving the rate 545 00:30:30,080 --> 00:30:31,640 Speaker 1: up from where they are now to two and a 546 00:30:31,640 --> 00:30:33,400 Speaker 1: half percent, it's going to fix this, I don't think so. 547 00:30:34,000 --> 00:30:36,520 Speaker 1: The whole, the whole, the game at the FED is 548 00:30:36,560 --> 00:30:39,520 Speaker 1: to just get back to a neutral position, hoping that 549 00:30:39,640 --> 00:30:42,040 Speaker 1: by the time you get there next year a lot 550 00:30:42,080 --> 00:30:45,160 Speaker 1: of this inflation stuff will fall fall away. I personally 551 00:30:45,240 --> 00:30:48,080 Speaker 1: think it will slow down this year, and I'm I 552 00:30:48,160 --> 00:30:50,720 Speaker 1: think it's interesting when you look at the bond investors views, 553 00:30:50,880 --> 00:30:53,960 Speaker 1: you look at the implied inflation expectations that bond investors, 554 00:30:54,320 --> 00:30:56,480 Speaker 1: most people think this is going to settle back to 555 00:30:56,600 --> 00:30:59,000 Speaker 1: where we were now. That may be wishful thinking, but 556 00:30:59,560 --> 00:31:02,480 Speaker 1: that's the view, that's the professional forecasters view, that's the 557 00:31:02,600 --> 00:31:05,680 Speaker 1: bond investors views. I think we all know there's something 558 00:31:05,800 --> 00:31:08,360 Speaker 1: weird going on right now with all these dislocations, and 559 00:31:08,440 --> 00:31:10,920 Speaker 1: it just takes time to work them out. So, Jim, 560 00:31:10,960 --> 00:31:13,320 Speaker 1: one of the issues that are that will be focusing 561 00:31:13,360 --> 00:31:15,880 Speaker 1: on tomorrow here at Bloomberg Radio and Television obviously, is 562 00:31:16,120 --> 00:31:19,680 Speaker 1: the Job's report, and again the consensus is four ninety 563 00:31:19,760 --> 00:31:22,120 Speaker 1: thousand change in non farm payils. But what I'll be 564 00:31:22,240 --> 00:31:26,600 Speaker 1: focusing on equally will be the wages. Is wage inflation 565 00:31:26,840 --> 00:31:29,880 Speaker 1: something that is in this economy, should be in this 566 00:31:29,960 --> 00:31:35,480 Speaker 1: economy or not? Uh? You know what's interesting. Wages, Yes, 567 00:31:35,520 --> 00:31:37,760 Speaker 1: wages are growing faster than they were, but they're not 568 00:31:37,880 --> 00:31:41,160 Speaker 1: keeping pace with inflation. And by the way, even though 569 00:31:41,240 --> 00:31:44,720 Speaker 1: you've seen labor pay growing up, margins have been going 570 00:31:44,840 --> 00:31:48,200 Speaker 1: up too. So it seems to me that wages are 571 00:31:48,240 --> 00:31:51,360 Speaker 1: just kind of following along with the general the drift 572 00:31:51,400 --> 00:31:54,280 Speaker 1: of things. Uh, inflations running in the higher companies are 573 00:31:54,280 --> 00:31:56,560 Speaker 1: trying to avoid locking in a higher cost structure. So 574 00:31:56,680 --> 00:31:58,680 Speaker 1: what they do is a lot of them are offering 575 00:31:58,760 --> 00:32:02,520 Speaker 1: one time cash aims to compensate you for inflation, sort 576 00:32:02,560 --> 00:32:05,800 Speaker 1: of hoping that everything settles down. That's kind of what 577 00:32:05,920 --> 00:32:07,840 Speaker 1: the cost of living adjustments used to do in the 578 00:32:07,880 --> 00:32:11,000 Speaker 1: old days. This is a little better because this gives 579 00:32:11,040 --> 00:32:13,960 Speaker 1: you the flexibility if things settle down, that you don't 580 00:32:13,960 --> 00:32:16,840 Speaker 1: don't get locked into a higher, higher pay structure. So 581 00:32:17,320 --> 00:32:19,640 Speaker 1: I don't think the wages are causing the problem here. 582 00:32:20,080 --> 00:32:22,880 Speaker 1: Wages are just really mirroring when going on in the 583 00:32:22,920 --> 00:32:25,080 Speaker 1: broader economy. You know, I don't want you to front 584 00:32:25,120 --> 00:32:28,640 Speaker 1: run Kasman and Faroly here. But with your anecdote on 585 00:32:28,800 --> 00:32:33,320 Speaker 1: the ground work, Jim Glassman, are we fully employed because 586 00:32:34,040 --> 00:32:37,880 Speaker 1: there there are no employers I know who aren't desperate 587 00:32:38,480 --> 00:32:41,920 Speaker 1: every am I right, Paulture, I mean just just desperate 588 00:32:41,960 --> 00:32:44,280 Speaker 1: for a three point shooter? And you know I mean, 589 00:32:44,360 --> 00:32:48,240 Speaker 1: Jim Glassman, are we fully employed? Based on the Glassman 590 00:32:48,360 --> 00:32:52,920 Speaker 1: or what Northwestern theory? You know? Um, for the very moment, 591 00:32:53,200 --> 00:32:55,560 Speaker 1: looking at the people who want a job, you could 592 00:32:55,640 --> 00:32:59,520 Speaker 1: argue we're fully employed because basically unemployment is back at 593 00:32:59,520 --> 00:33:02,480 Speaker 1: where we were before. The problem is we had about 594 00:33:02,520 --> 00:33:04,560 Speaker 1: we have about four million people who gave up and 595 00:33:04,640 --> 00:33:07,880 Speaker 1: dropped out. We think they want to come back. They 596 00:33:08,000 --> 00:33:10,920 Speaker 1: dropped out because we gave them the financial support to 597 00:33:11,040 --> 00:33:14,040 Speaker 1: be able to do that, so that that support to disappearing. 598 00:33:14,080 --> 00:33:18,760 Speaker 1: And I suspect that if we were fully employed, we 599 00:33:18,800 --> 00:33:20,760 Speaker 1: would find there's nobody else out there to hire. But 600 00:33:20,800 --> 00:33:22,520 Speaker 1: I think over the course of the year we'll find 601 00:33:22,880 --> 00:33:25,160 Speaker 1: in my book there are four million people who are 602 00:33:25,240 --> 00:33:28,160 Speaker 1: still out relative to where we were in the pandemic. 603 00:33:28,400 --> 00:33:31,080 Speaker 1: You can't look at where we are relative to February. 604 00:33:32,160 --> 00:33:34,120 Speaker 1: The economy is always growing you've got to look at 605 00:33:34,200 --> 00:33:37,040 Speaker 1: where would things be as we're growing year by year. 606 00:33:37,360 --> 00:33:39,880 Speaker 1: So I think we still I don't really think it's 607 00:33:40,360 --> 00:33:43,800 Speaker 1: fair to say we're fully employed. Our problem is we 608 00:33:43,960 --> 00:33:47,120 Speaker 1: have a structural demographic thing. You know what's so interesting 609 00:33:47,800 --> 00:33:50,840 Speaker 1: Our work force, the population of people who are working 610 00:33:50,880 --> 00:33:53,760 Speaker 1: age has been slowing down really dramatically. You know who 611 00:33:53,840 --> 00:33:58,880 Speaker 1: it is. It's the vicenarians are twenty years the bisnarians 612 00:33:58,920 --> 00:34:01,760 Speaker 1: are twenty year olds. They are growing. That population was 613 00:34:01,880 --> 00:34:06,560 Speaker 1: growing fifty per month a decade ago. It's now declining 614 00:34:06,640 --> 00:34:14,880 Speaker 1: fifty a month. Finally, just contributed three new adult workers 615 00:34:14,960 --> 00:34:21,080 Speaker 1: to the workforce. Drinking that Jim Glass. And by the way, 616 00:34:21,120 --> 00:34:24,279 Speaker 1: why everyone's complaining to help one signs everywhere it's the 617 00:34:24,800 --> 00:34:27,439 Speaker 1: starting jobs that are really people are struggling with. They're 618 00:34:27,440 --> 00:34:29,600 Speaker 1: having a hard time getting new people. Well, if you 619 00:34:29,640 --> 00:34:32,200 Speaker 1: don't have a flow of twenty year olds coming into 620 00:34:32,200 --> 00:34:34,960 Speaker 1: the job market, this is why this is what they're 621 00:34:34,960 --> 00:34:38,760 Speaker 1: talking about. Okay, what was that term you used? Bisnarians, 622 00:34:40,200 --> 00:34:42,160 Speaker 1: the twenty year olds that the guys who were twenty 623 00:34:42,400 --> 00:34:44,640 Speaker 1: This is like gen z gen yen that and now 624 00:34:46,239 --> 00:34:48,960 Speaker 1: I guess that's a Democrats. This happens when l A. 625 00:34:49,400 --> 00:34:51,919 Speaker 1: You know, it's like an all the other language out there. 626 00:34:52,480 --> 00:34:55,640 Speaker 1: He was charming when he was in Chicago. Jim Glass, 627 00:34:55,880 --> 00:34:59,120 Speaker 1: thank you so much, greatly appreciate with JP Morgan just 628 00:34:59,239 --> 00:35:01,280 Speaker 1: truly a one for way to get our job covered. 629 00:35:01,320 --> 00:35:04,759 Speaker 1: Started his pulse on small business is just sick what 630 00:35:04,880 --> 00:35:07,960 Speaker 1: he does for JPN market every day. This is the 631 00:35:07,960 --> 00:35:12,600 Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays 632 00:35:12,680 --> 00:35:16,080 Speaker 1: from seven to ten AMI Eastern on Bloomberg Radio and 633 00:35:16,280 --> 00:35:20,040 Speaker 1: on Bloomberg Television each day from six to nine am 634 00:35:20,600 --> 00:35:24,320 Speaker 1: for insight from the best in economics, finance, investment, and 635 00:35:24,440 --> 00:35:30,920 Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 636 00:35:31,160 --> 00:35:34,680 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 637 00:35:34,760 --> 00:35:37,400 Speaker 1: Tom Keene and this is Bloomberg