WEBVTT - Surveillance: New Global Equilibrium with Haass 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.720 and of course on the Bloomberg Terminent Right now, a 0:00:29.840 --> 0:00:32.960 treat Richard hass as a President of the Council on 0:00:33.080 --> 0:00:35.800 Foreign Relations and far more than that with his public 0:00:35.800 --> 0:00:40.080 service to the nation in Northern Ireland negotiations Inbassador hass 0:00:40.200 --> 0:00:42.600 joins us with my book of the Summer a number 0:00:42.600 --> 0:00:46.680 of summers ago the world a brief introduction. Clearly it 0:00:46.720 --> 0:00:48.959 needs to rewrite hass rumor to have a book out 0:00:49.000 --> 0:00:52.360 in January. We're thrilled the Ambassador could join us this morning. 0:00:52.640 --> 0:00:55.360 Richard Austin your newest essay see it folks at my 0:00:55.400 --> 0:01:01.640 favorite project syndicate. You talked beautifully about American overreach. There's 0:01:01.680 --> 0:01:04.840 all these phrases in the Richard House world, the classes 0:01:04.920 --> 0:01:10.119 of civilizations, the post American world, and now American overreach. 0:01:10.280 --> 0:01:14.480 What will our new overreach look like? Well, this has 0:01:14.560 --> 0:01:18.400 become an assumption. Tom in the wake of Afghanistan and 0:01:18.520 --> 0:01:21.399 the two thousand three I Roq war, But the biggest 0:01:21.640 --> 0:01:25.000 problem facing American foreign policies we were trying to do 0:01:25.080 --> 0:01:29.720 too much. Now you have the Russian invasion of Ukraine, 0:01:29.800 --> 0:01:33.840 and it's a reminder that classic geopolitics have not gone away, 0:01:34.360 --> 0:01:37.280 and that the new danger and might not be overreach, 0:01:37.480 --> 0:01:40.120 but might be underreach, which is simply another word for 0:01:40.400 --> 0:01:44.320 retrenchment or isolationism. And we've seen voices calling for that 0:01:44.400 --> 0:01:47.360 in both parties. And I actually think one of the 0:01:47.400 --> 0:01:49.360 things coming out of this crisis is going to be 0:01:49.400 --> 0:01:52.200 a new eak equilibrium. We've already seen some new signs 0:01:52.200 --> 0:01:55.440 of that, some initial signs of that in the administration's budget. 0:01:55.880 --> 0:01:59.280 National security spending is going to go up. But the 0:01:59.360 --> 0:02:02.000 United States now faces the world of a Russian threat 0:02:02.040 --> 0:02:06.680 to Europe, Chinese assertiveness at least in the Asia Pacific. 0:02:07.080 --> 0:02:10.639 Iran has not given up its nuclear ambitions. North Korea 0:02:10.680 --> 0:02:14.160 is expanding its nuclear and missile capabilities. You've got a 0:02:14.240 --> 0:02:17.320 raft of other global challenges, so Linda world looks to 0:02:17.360 --> 0:02:19.720 be a very dangerous place. The United States has got 0:02:19.720 --> 0:02:23.720 to address them. The new isolationism. It can't be the 0:02:23.800 --> 0:02:28.400 Chicago Tribune isolationism of our parents, Richard Haas. With the 0:02:28.480 --> 0:02:33.160 modern technology, the speed of information, the reporting of intelligence 0:02:33.200 --> 0:02:36.200 by the United States in the uk of putin, the 0:02:36.320 --> 0:02:40.200 speed of news here means it's a new isolationism. How 0:02:40.240 --> 0:02:43.440 do you see that playing out? Well, it makes no sense. 0:02:43.480 --> 0:02:46.200 Think about it, Tom, We're just two years out of 0:02:46.440 --> 0:02:49.960 a virus that began in Wuhan, China and killed nearly 0:02:50.000 --> 0:02:53.560 a million Americans. Climate change effects us every day. We 0:02:53.720 --> 0:02:56.800 just marked the twentieth anniversary of nine eleven. To be 0:02:56.919 --> 0:03:01.160 isolationist in a global world, globalization into reality, it's not 0:03:01.200 --> 0:03:03.920 a choice. The choice is how we how we deal 0:03:03.960 --> 0:03:08.160 with it. So American isolationism now is truly truly a 0:03:08.240 --> 0:03:11.560 self defeating and dangerous fallacy. Richard. Let's talk about the 0:03:11.560 --> 0:03:14.440 here and now, right now, about these conflict, this war 0:03:14.680 --> 0:03:17.359 in Ukraine and what this does to the world order 0:03:17.400 --> 0:03:19.760 as you see it. If we're talking in big geopolitical 0:03:19.800 --> 0:03:22.760 strategy terms, how much is there a winner and how 0:03:22.840 --> 0:03:27.280 much is there a loser? Well, there's more losers than winners, 0:03:27.320 --> 0:03:31.280 which is almost almost always the case. And more that said, 0:03:31.639 --> 0:03:33.600 NATO has come out of it in much better shape 0:03:33.639 --> 0:03:36.400 than than I was. I think the Biden administration has 0:03:36.400 --> 0:03:40.080 handled this fairly well. For the most part. The EU 0:03:40.200 --> 0:03:43.040 looks pretty good. Germany what what a what a turnaround? 0:03:43.720 --> 0:03:46.880 Ukraine is both tremendous resilience, but look at the destruction 0:03:46.960 --> 0:03:49.880 to the to the physical plant of the country. A 0:03:50.000 --> 0:03:52.480 quarter of the people are now on now homeless, either 0:03:52.720 --> 0:03:56.080 displaced or refugees. I think they're the big loser more 0:03:56.120 --> 0:03:58.720 than anything else, will be Russia. Look what Russia has 0:03:58.760 --> 0:04:00.800 done to its position in the world, to it to 0:04:00.920 --> 0:04:03.760 its economy. It's beginning to lose some of its best 0:04:03.800 --> 0:04:07.200 and brightest, and its army looks like a potempic in military. 0:04:07.360 --> 0:04:09.440 So out of all of this, I'd say Russia is 0:04:09.440 --> 0:04:12.640 the biggest loser, but also increasingly all a dangerous loser. 0:04:13.000 --> 0:04:15.200 We don't know how Mr Putin might react to this, 0:04:15.320 --> 0:04:17.880 how he might lash out, how he might even escalate. 0:04:18.560 --> 0:04:21.080 When you talk about how NATO is a winner in 0:04:21.120 --> 0:04:23.880 Germany in particular as they try to strengthen their place, 0:04:24.400 --> 0:04:27.320 what's your view on how lasting this move away from 0:04:27.400 --> 0:04:30.800 Russian oil will be? How much can the Western nations 0:04:30.880 --> 0:04:35.320 actually effectuate some replacement for that nation's reserves. It's a 0:04:35.320 --> 0:04:37.680 great question. It's two parts of One is the physical 0:04:37.720 --> 0:04:41.159 part of transitioning out of dependence on Russian gas. In particular, 0:04:41.320 --> 0:04:43.960 we're talking about years in this country. We're going to 0:04:44.080 --> 0:04:47.520 have to build the ability, the ability to export liquid 0:04:47.560 --> 0:04:50.360 net liquefied natural gas. Europe is going to have to 0:04:50.400 --> 0:04:53.880 build the capacity to import it at scale. That's something 0:04:53.920 --> 0:04:58.320 that happens that over over years, not not months or weeks. 0:04:58.560 --> 0:05:00.640 And then the question is whether the pole tis a there. 0:05:00.960 --> 0:05:03.839 That depends, I think, on what Russia looks like over time. 0:05:04.120 --> 0:05:06.360 Do you do we get to a post Putin period. 0:05:06.400 --> 0:05:09.680 If we do, I expect they'll be voices in Germany 0:05:09.720 --> 0:05:12.680 that will say we can now relax some of the sanctions. 0:05:12.720 --> 0:05:15.840 Some of the old fishers within the Western Alliance will 0:05:15.920 --> 0:05:19.239 begin to re emerge if you see a changed Russia. 0:05:19.400 --> 0:05:21.120 But at the moment, you know, we can't. We can't 0:05:21.160 --> 0:05:23.520 count on that. That's not a strategy, that's simply a hope. 0:05:24.160 --> 0:05:28.280 Richard hass was the were the realist correct? Was John 0:05:28.360 --> 0:05:32.360 Muir Steimer and others? Publishing in your magazine, you provided 0:05:32.480 --> 0:05:38.680 leadership on this debate where the real politic crew correct? Tom. 0:05:38.720 --> 0:05:40.719 I think this is one of these debates about whether 0:05:40.760 --> 0:05:43.280 we mishandled the end of the Cold War. It's going 0:05:43.320 --> 0:05:44.880 to go on for some time. This is one of 0:05:44.960 --> 0:05:48.839 those rare cases that even hindsight is my own view, 0:05:48.880 --> 0:05:52.279 as we did mishandle in some ways dealing with the 0:05:52.360 --> 0:05:55.640 Russia in the years after the collapse of the Soviet 0:05:55.720 --> 0:05:57.600 Union the end of the Cold War. But I also 0:05:57.600 --> 0:05:59.880 would point out that doesn't in any way just the 0:06:00.040 --> 0:06:03.360 fire explained what Vladimir Putin has done. You can you 0:06:03.360 --> 0:06:05.840 can say both things. We mishandled some of the post 0:06:05.880 --> 0:06:09.520 Cold War diplomacy, but in no way does that by 0:06:09.560 --> 0:06:12.040 a warrant what Putin did, Ambassador. Let's get down to 0:06:12.040 --> 0:06:14.120 the nitty griddy in two thousand and eight, I believe 0:06:14.160 --> 0:06:16.120 it was at Pratoslava. Could be wrong on that. I 0:06:16.160 --> 0:06:19.719 can't remember where the meeting was. Yeah, thank you, Boko 0:06:19.880 --> 0:06:22.080 started with a B. What do I know? The answer 0:06:22.160 --> 0:06:26.880 is Condi Rice and Richard Gates got hammered. They didn't 0:06:27.040 --> 0:06:30.279 listen to the prose about what to do on the 0:06:30.320 --> 0:06:34.000 Eastern Front. Are they gonna listen this time to the 0:06:34.040 --> 0:06:37.679 pros that are nurtured by institutions like what you've built? 0:06:37.680 --> 0:06:41.080 A cfire? Full disclosure, folks, I'm a member of CFR, 0:06:41.120 --> 0:06:43.400 so I'm talking to my book. But they didn't listen 0:06:43.480 --> 0:06:45.960 in two thousand and eight, did they? But Tom the 0:06:45.960 --> 0:06:48.960 Foreign policy espous, it was divided you and Democrats and 0:06:49.000 --> 0:06:51.520 the Clinton administration medal at all right, I made her 0:06:51.520 --> 0:06:53.680 memory be for a blessing. Was one of the advocates 0:06:53.680 --> 0:06:57.039 of NATO and large. But so is brig Brisinski, Condi Rice, 0:06:57.080 --> 0:07:00.279 as you say at two Ashdated and Bucharest with Steve Badly, 0:07:00.640 --> 0:07:02.720 that was that was the view even now you what 0:07:02.839 --> 0:07:05.159 people will say, we should have done more NATO expansion. 0:07:05.640 --> 0:07:08.760 That's the problem that that NATO has never expanded to 0:07:08.760 --> 0:07:11.080 to Ukraine. And then you have just the opposite point 0:07:11.080 --> 0:07:14.680 of view. We don't know what Russian political culture would 0:07:14.680 --> 0:07:17.200 have would have emerged as so we don't know whether 0:07:17.280 --> 0:07:20.800 NATO enlargement and the mishandling of relations with Russia brought 0:07:20.840 --> 0:07:23.480 this about or would have come anyway. That's really one 0:07:23.480 --> 0:07:26.120 of those debates that won't end. You said, like now Ferguson, 0:07:26.240 --> 0:07:28.960 let's not do the counter factual thing. Richard has bring 0:07:28.960 --> 0:07:33.400 it forward for the next Secretary of State. Which way 0:07:33.440 --> 0:07:37.840 do they till Rice or all Bright? I would say 0:07:37.880 --> 0:07:40.080 what we want to do is limit our involvement if 0:07:40.120 --> 0:07:42.960 we can in Europe. That's not the critical arena for 0:07:42.960 --> 0:07:45.480 the twenty one century. Tom I would say say, we 0:07:45.480 --> 0:07:47.560 want to free ourselves up as best we can to 0:07:47.640 --> 0:07:51.200 deal with China, the Indo Pacific and with global issues. 0:07:52.120 --> 0:07:54.480 Century is ultimately not going to be decided in Europe. 0:07:54.520 --> 0:07:56.800 So what we need to do is manage things in Europe, 0:07:56.880 --> 0:07:59.240 put a ceiling on them so we can focus on 0:07:59.320 --> 0:08:03.480 global issue is out on other geographies. Clinic as always 0:08:03.560 --> 0:08:06.560 of the Council on Foreign Relations, Richie, thank you, thank 0:08:06.600 --> 0:08:14.920 you very much. One of those sites of the four 0:08:15.120 --> 0:08:17.600 Salt minds, if you will, the salt caverns, John Is, 0:08:17.760 --> 0:08:21.840 Scenic West Hackberry is where we'll get those millions of 0:08:21.880 --> 0:08:24.760 barrels or whatever we're doing. And that is about the 0:08:24.760 --> 0:08:28.679 strategic petroleum reserve and it is something that will affect 0:08:28.720 --> 0:08:32.120 the global price of oil. We are advantaged with all 0:08:32.160 --> 0:08:35.880 of our coverage founded by Stuart Wallace, Javier Blass and 0:08:35.920 --> 0:08:39.280 the rest on hydrocarbons, and we get expert view today 0:08:39.280 --> 0:08:43.160 from KPMG, their global head of Energy, Regina Mayor Regina. 0:08:43.200 --> 0:08:45.040 I've got to rip up the script here and take 0:08:45.080 --> 0:08:48.640 it from the strategic petroleum reserved to your visit in 0:08:48.720 --> 0:08:52.560 recent days to the United Arab Emirates. We spoke to 0:08:52.600 --> 0:08:55.680 the head of their energy policy who stayed on script. 0:08:55.720 --> 0:08:58.160 I need you to get off script. What is the 0:08:58.360 --> 0:09:03.440 power of the peers Engulf to affect global price and 0:09:03.520 --> 0:09:10.280 diminish Mr Biden's efforts to lower price? The Okay plus 0:09:10.320 --> 0:09:13.640 producing nations definitely have the power to lower prices right 0:09:13.679 --> 0:09:16.560 now that I was struck by that, the confirmation that 0:09:16.600 --> 0:09:20.400 there is spare capacity in both Saudi and the U 0:09:20.480 --> 0:09:23.720 a e UM, But there is a sticking to the 0:09:23.800 --> 0:09:28.600 script that all of them are are focused on. They 0:09:28.640 --> 0:09:32.760 have an agreement, that agreement has been in place, and 0:09:32.960 --> 0:09:36.760 they're sticking to the agreement UM. And then they'll I 0:09:36.760 --> 0:09:38.680 think that gives a little bit of a buffer from 0:09:38.720 --> 0:09:42.320 some of the the external um pressures that might be 0:09:42.400 --> 0:09:44.520 facing them. And then when you ask each of them 0:09:44.520 --> 0:09:47.120 independently write of you a you will say, well, we're 0:09:47.160 --> 0:09:51.079 just ten and there is an agreement. So I was 0:09:51.120 --> 0:09:53.760 not surprised by what came out of a twelve minute 0:09:53.760 --> 0:09:57.360 meeting take us from Doha to a Bloomberg surveillance conversation 0:09:57.440 --> 0:10:00.320 with a Secretary of energy a number of months ago, 0:10:00.480 --> 0:10:04.199 and the point of the argument was the one price 0:10:04.400 --> 0:10:08.040 of oil. Is that true that Mr Biden and the 0:10:08.080 --> 0:10:11.600 for salt caverns have to deal with a global oil 0:10:11.679 --> 0:10:16.360 price or they can they manage a US price? Well, 0:10:16.400 --> 0:10:19.240 I think that the challenge for the US administration is 0:10:19.280 --> 0:10:23.559 that gasoline prices more closely correlate to the global oil price, 0:10:23.600 --> 0:10:27.040 which is tydemore to Brent versus w t I. So 0:10:27.280 --> 0:10:31.080 we do have abundant US supply, which we still have 0:10:31.120 --> 0:10:34.199 a challenge of getting out of the ground, labor shortages, costs, 0:10:34.760 --> 0:10:39.360 et cetera. But the price of gasoline pivots more closely 0:10:39.480 --> 0:10:41.880 with the price of Brent, and that's where OPEC plus 0:10:41.880 --> 0:10:44.680 and some of the other suppliers come into play. Regina, 0:10:44.800 --> 0:10:47.520 we're looking at this oil reserve release potentially as reported 0:10:47.520 --> 0:10:49.679 by Bloomberg, that could amount to a hundred and eighty 0:10:49.840 --> 0:10:52.960 million barrels in some after all of the months are 0:10:53.000 --> 0:10:56.600 added up. How much does this actually reduce the strength 0:10:56.679 --> 0:11:00.480 of the US basically diminishing the reserves and actually propping 0:11:00.520 --> 0:11:04.720 up prices even further later when they try to rebuild them. 0:11:05.040 --> 0:11:07.560 Great question, but you know, if you if you believe 0:11:07.640 --> 0:11:11.360 some of the other analysts like Secretary Munees that was 0:11:11.400 --> 0:11:13.960 referenced earlier. There is a belief that towards the end 0:11:13.960 --> 0:11:17.360 of the year, supply markets will balance. So if there's 0:11:17.360 --> 0:11:20.840 an opportunity to diminish some of ooplex influence in the 0:11:20.880 --> 0:11:24.600 short term and ease prices at the pump for consumers, 0:11:24.720 --> 0:11:27.160 then that's the wise decision to take right now. I 0:11:27.360 --> 0:11:31.160 worry less about what it does to our our defense 0:11:31.280 --> 0:11:34.480 ability in the future and the cost exposure, because I 0:11:34.520 --> 0:11:37.079 do think well markets are poised to settle down in 0:11:38.320 --> 0:11:40.520 twenty three Regina to double down on that point that 0:11:40.640 --> 0:11:42.439 Ernest means and you you echo that we're going to 0:11:42.559 --> 0:11:44.439 have more of a balancing and the rest of the year, 0:11:44.480 --> 0:11:47.360 what does that assume, the end of what's going on 0:11:47.520 --> 0:11:50.520 in Eastern Europe, the bringing back on some of the 0:11:50.600 --> 0:11:56.280 Russian barrels or other sources as production increases in the US. 0:11:56.320 --> 0:11:58.600 All of the above, plus I think the one thing 0:11:58.679 --> 0:12:00.760 we said that maybe you left out is that the 0:12:00.800 --> 0:12:04.520 current price is an incentive to non OPEC producers. So 0:12:04.880 --> 0:12:07.400 a lot of plays are in the money, and I 0:12:07.440 --> 0:12:10.440 think people will do what they absolutely possibly can to 0:12:10.480 --> 0:12:12.440 bring more of those supplies to the market so they 0:12:12.440 --> 0:12:16.640 can monetize. Think Canadian oil stands, you know, think investments 0:12:16.640 --> 0:12:21.080 in Mexico. So there are other sources of supply. Guyana 0:12:21.160 --> 0:12:23.640 and the fine that we have there that I do 0:12:23.760 --> 0:12:26.559 believe will come into into the market, and that's what 0:12:26.640 --> 0:12:29.920 folks are counting on to help ease the supply crimes. Regina, 0:12:29.960 --> 0:12:32.400 can you just clarify something for me quickly? What is 0:12:32.440 --> 0:12:35.280 the SPN for and it's just the right way to 0:12:35.400 --> 0:12:40.800 use it? Well, I've actually don't feel qualified to comment 0:12:41.000 --> 0:12:43.600 on that, John things. I think it's it's a lot 0:12:43.640 --> 0:12:47.800 about our defense of our our country at you know, 0:12:48.000 --> 0:12:51.400 fuel is a really important commodity. I grew up in 0:12:51.440 --> 0:12:54.160 Hawaii and I remember the seventies sitting in the back 0:12:54.240 --> 0:12:56.720 seat of my parents car for hours on end on 0:12:56.760 --> 0:12:59.320 an auto even license day, waiting to be able to 0:12:59.320 --> 0:13:02.120 fuel up our tank of gap you know, are so 0:13:02.160 --> 0:13:05.080 that we could drive around a small island. So I 0:13:05.120 --> 0:13:07.880 think that's what it's intended to try to buffer, and 0:13:07.880 --> 0:13:10.560 that we could get gosh forbid, that there would be 0:13:10.600 --> 0:13:13.040 a large conflict. We have those supplies, and I think 0:13:13.040 --> 0:13:21.240 it's pretty important, Regina Man, Thank you, kypmje Nila Richardson 0:13:21.360 --> 0:13:23.600 joins us right now chief economist at a DP. That 0:13:23.679 --> 0:13:26.319 was important, of course, we're their Wednesday effort on a 0:13:26.480 --> 0:13:29.599 DP statistics on the American labor economy, Nila, let me 0:13:29.640 --> 0:13:33.200 start with Richardson one oh one. Are we a fully 0:13:33.200 --> 0:13:38.560 employed America? Now? We can't be as long as a 0:13:38.679 --> 0:13:42.000 million workers are still on the sidelines. And you know 0:13:42.320 --> 0:13:46.439 the labor force participation rate is below pre pandemic levels. 0:13:46.480 --> 0:13:51.200 But that goal is moving. What is full employment with 0:13:51.280 --> 0:13:54.839 a smaller workforce? It is defined as the level of 0:13:54.920 --> 0:13:58.640 employment the large the largest number of employed people the 0:13:58.679 --> 0:14:04.040 economy can support without a spurring additional inflation. And so 0:14:04.080 --> 0:14:09.040 that's going to be a moving goal as inflation hopefully 0:14:09.040 --> 0:14:11.440 comes down over the course of the year. Neil I 0:14:11.480 --> 0:14:13.720 was passing through the data and frankly, the most interesting 0:14:14.000 --> 0:14:17.320 aspect of this was real personal spending, which was down 0:14:17.600 --> 0:14:21.560 by zero point four percent negative. We're looking at negative numbers. 0:14:21.680 --> 0:14:25.400 People are not spending as much as inflation is going up. 0:14:25.840 --> 0:14:31.160 Is this a signal or simply a blip? Well, you 0:14:31.240 --> 0:14:35.120 can't answer that in one yes or no, because consumers 0:14:35.120 --> 0:14:39.520 are very bifurcated. Low income consumers spend what they have 0:14:39.840 --> 0:14:43.120 so that little increase in personal income, if it was 0:14:43.480 --> 0:14:46.840 too low income households, that's actually a good sign for 0:14:46.920 --> 0:14:50.640 spending going forward. High income households spend when they feel 0:14:50.680 --> 0:14:55.240 confident about the economy, and there is indication that consumers 0:14:55.280 --> 0:14:58.840 are not confident with inflation this high. So it's a 0:14:58.880 --> 0:15:02.160 mixed picture right now in terms of where that increase 0:15:02.200 --> 0:15:04.880 and income landed. If it landed with the low income, 0:15:04.960 --> 0:15:08.320 they need that money to keep up with rising fuel 0:15:08.360 --> 0:15:11.080 and food prices, and you might see that translated into 0:15:11.080 --> 0:15:14.440 consuming we're spending. If the Fed we're looking at this data, 0:15:14.640 --> 0:15:17.240 do they get comfort from seeing a decline in real 0:15:17.320 --> 0:15:19.920 spending in some ways? Do they want to see a 0:15:19.960 --> 0:15:27.160 deceleration in demand? They want to see a deceleration and inflation, 0:15:28.080 --> 0:15:31.800 not so much a deceleration in demand. Unfortunately, you can't 0:15:31.840 --> 0:15:33.960 have one without the other. They want to see an 0:15:34.000 --> 0:15:39.000 economy that continues to grow. Uh So, I think that 0:15:39.400 --> 0:15:44.560 they're very careful of where they're the demand is being contracted, right, 0:15:45.120 --> 0:15:47.520 they'd like to see it in house prices and rents. 0:15:47.880 --> 0:15:52.280 Uh not necessarily though, in incomes and wages um But 0:15:52.520 --> 0:15:55.760 that that is going to be the challenge that they 0:15:55.760 --> 0:15:59.280 have this very blunt instrument. They can't control where the 0:15:59.320 --> 0:16:02.120 demand can be tacks in the economy neily, you have 0:16:02.160 --> 0:16:04.240 a huge advantage no one talks about. You're going to 0:16:04.320 --> 0:16:07.280 the secret combine of a DP and you calculate all 0:16:07.320 --> 0:16:10.800 the pay rolls and all the corporations using a DP 0:16:10.960 --> 0:16:16.360 for that core automatic data processing services. What are corporations 0:16:16.520 --> 0:16:21.240 doing right now? Consumer seventy of the economy. I'll let 0:16:21.320 --> 0:16:24.040 you tell me what corporations are eleven? Maybe it's fift 0:16:24.920 --> 0:16:28.200 of the economy. What does a DP? And you see 0:16:28.720 --> 0:16:33.520 is the doing the action of corporations right now? They're 0:16:33.640 --> 0:16:36.240 trying to figure out how to hold onto their people. 0:16:36.680 --> 0:16:39.720 We have a very low jobless claims number. It's not 0:16:39.800 --> 0:16:41.840 as low as it was last late week, but it's 0:16:41.960 --> 0:16:45.360 awfully low. And you pointed to what the cultural notion 0:16:45.440 --> 0:16:48.000 of this is. The cultural notion in terms of the 0:16:48.400 --> 0:16:52.280 business climate is they are very reluctant to let go 0:16:52.400 --> 0:16:54.960 of people because they don't know if those people are 0:16:54.960 --> 0:16:57.640 going to come back. We have a very high quiz breath, 0:16:57.760 --> 0:17:02.080 that is elevated job openings hovering near record highs, and 0:17:02.240 --> 0:17:06.160 hirings are not keeping up with openings. So right now 0:17:06.400 --> 0:17:11.600 everyone is very focused big clients, small clients UM on 0:17:11.680 --> 0:17:15.440 retaining the people and hiring in a highly competitive environment 0:17:15.480 --> 0:17:18.359 for talent. When we're talking about the corporate outlook, Miila, 0:17:18.640 --> 0:17:21.120 let's end where we began the show, which is really 0:17:21.880 --> 0:17:24.600 restoration hardware and this call that they had where they 0:17:24.600 --> 0:17:27.560 basically through the kitchen sink at their expectation that growth 0:17:27.560 --> 0:17:31.200 would decelerate and that their business outlook would deteriorate. How 0:17:31.280 --> 0:17:34.919 much is that representative of the larger corporate universe and 0:17:34.960 --> 0:17:37.280 face of the inflation and the consumer where they are 0:17:37.880 --> 0:17:43.480 versus perhaps a more specific or ambiguous story look as 0:17:43.520 --> 0:17:47.919 the economy as this recovery matures, what we expect um 0:17:48.040 --> 0:17:52.520 is a shift in consumer spending from durable like furniture 0:17:52.920 --> 0:17:57.199 over to services. Um that's what we're waiting for. The 0:17:57.280 --> 0:18:01.840 problem is uh that that served this increase is capped 0:18:01.880 --> 0:18:05.800 by employees. If services can't find the head count, especially 0:18:05.800 --> 0:18:08.240 in leisure in the hospitality but took a large hit 0:18:08.280 --> 0:18:10.560 from the pandemic, then we are not going to see 0:18:10.560 --> 0:18:14.200 the growth. So it is a macro story in terms 0:18:14.200 --> 0:18:18.480 of durable goods like furniture, like big more big ticket items, 0:18:18.520 --> 0:18:23.359 but it also is about this transformation of the economy 0:18:22.800 --> 0:18:27.560 up through the recovery back into services. Nina always an education. 0:18:27.640 --> 0:18:29.639 Thanks for being with us, Nata Richards in that of 0:18:29.800 --> 0:18:39.439 a d P, let us save ourselves with Anders Crossed 0:18:39.800 --> 0:18:42.639 Assets strategist at Morgan Stanley and Andrew Wey. What you 0:18:42.760 --> 0:18:45.560 do is you combine in so nicely all the fractious 0:18:45.840 --> 0:18:49.000 and folks. I say this with immense respect, the fractious 0:18:49.160 --> 0:18:53.680 debate of Morgan Stanley and your single phrase is solid growth. 0:18:54.160 --> 0:18:59.920 What does solid growth mean for my two thousand twenty two? Yeah, thanks, 0:19:00.160 --> 0:19:02.240 good morning, Tom, great to be here with you and 0:19:02.480 --> 0:19:05.680 everybody else. So solid growth to us means that growth 0:19:05.800 --> 0:19:09.840 is lower than where it was in one but one 0:19:09.880 --> 0:19:12.680 was was a very high bar that was extremely strong 0:19:12.720 --> 0:19:16.119 global growth. And two we think will still look pretty 0:19:16.240 --> 0:19:19.080 reasonable by the standards of the last twelve years that 0:19:19.119 --> 0:19:22.119 we're still looking at. You know, US GDP growing around 0:19:22.240 --> 0:19:24.720 four percent this year, and even though we think we 0:19:24.760 --> 0:19:27.879 have a very disappointing first quarter in China, ultimately the 0:19:27.960 --> 0:19:30.639 four year growth we think will still be a pretty 0:19:30.760 --> 0:19:33.800 pretty reasonable and that Chinese growth will re accelerate as 0:19:33.800 --> 0:19:37.000 the year goes on. So when we're thinking about stay inflation, 0:19:37.280 --> 0:19:39.200 I think we're thinking about a year much more like 0:19:39.320 --> 0:19:43.240 two thousand five. We're p m I S or decelerating 0:19:43.280 --> 0:19:46.880 inflation is higher, policy is tightening than than something where 0:19:46.920 --> 0:19:50.119 growth is really falling off right now in terms of 0:19:50.160 --> 0:19:52.600 what the market needs to deal with, Andrew, the research 0:19:52.640 --> 0:19:54.600 you've put out recently is that we've priced in higher 0:19:54.640 --> 0:19:57.119 interest rates but not the growth risks associated with it. 0:19:57.440 --> 0:19:59.440 Can you pull through the equity market force and help 0:19:59.480 --> 0:20:01.560 usunderstand and where you think that needs to be priced 0:20:01.840 --> 0:20:04.879 a little bit more? Yeah, So I think this is 0:20:04.920 --> 0:20:07.360 where some of the debate around the yield curve, which 0:20:07.400 --> 0:20:08.920 I'm sure is something we are now going to be 0:20:09.000 --> 0:20:13.000 talking about for the next six months UM, is really 0:20:13.040 --> 0:20:16.080 interesting because I think what the yield curve is discounting 0:20:16.320 --> 0:20:19.720 is higher odds of a growth slow down next year, 0:20:19.880 --> 0:20:23.399 which which we think is correct UM, and that certain 0:20:23.440 --> 0:20:25.840 asset classes are going to be more vulnerable to that 0:20:25.960 --> 0:20:28.119 than others. So, you know, when we think about the 0:20:28.240 --> 0:20:31.639 overall equity market, when the yield curve inverts, it doesn't 0:20:31.760 --> 0:20:34.840 necessarily go down. In fact, it tends to keep rising 0:20:34.920 --> 0:20:38.320 after that inversion happens. The the equity markets balancing. Yes, 0:20:38.400 --> 0:20:40.760 there's some greater risk of recession, but there's also a 0:20:40.880 --> 0:20:46.040 possibility that things continue on for another twenty four months. 0:20:46.520 --> 0:20:48.720 But assets that tend to be more growth sensitive, something 0:20:48.800 --> 0:20:51.359 like US high yield that tends to see a pretty 0:20:51.400 --> 0:20:55.120 bad risk reward when the curve inverts. When this when 0:20:55.160 --> 0:20:58.040 the odds of a recession are rising, and that starts 0:20:58.080 --> 0:21:00.680 to really underperform after the yeld, after you'll curve in version. 0:21:00.760 --> 0:21:03.240 So we think that favors somewhat more defensive positioning within 0:21:03.280 --> 0:21:07.040 the US equities, things like healthcare utilities. We think that 0:21:07.119 --> 0:21:10.080 favors investment grade over high yield within within the US 0:21:10.160 --> 0:21:13.600 credit and then some of the non US developed markets 0:21:13.680 --> 0:21:16.359 we think could be in a better place, a largely 0:21:16.440 --> 0:21:21.040 better place because the financial conditions there are easier. Policy 0:21:21.480 --> 0:21:24.119 is under less pressure to tighten in Europe and Japan, 0:21:24.320 --> 0:21:27.040 and so I find the banks called fascinating at the moment. 0:21:27.119 --> 0:21:29.720 Betsy Gresik made a move earlier this week. Can you 0:21:29.760 --> 0:21:31.760 walk me through how um in a team thinking about 0:21:31.760 --> 0:21:37.160 the financials? Yeah. So, so we downgraded financials from from overweight, 0:21:37.440 --> 0:21:40.000 which had been a favorite sector for a while, down 0:21:40.080 --> 0:21:42.679 down to equal weight. And you know that the reason 0:21:42.800 --> 0:21:44.840 for that is is a function of both. We've we've 0:21:44.840 --> 0:21:47.359 had a very large, large inister straight move that that 0:21:47.720 --> 0:21:50.399 helped the sector. But also, you know, financials as you 0:21:50.480 --> 0:21:52.960 start to get later in the cycle, have to balance 0:21:53.160 --> 0:21:56.840 both loan growth that is often still strong. Banks continue 0:21:56.880 --> 0:21:59.480 to lend even after the old curve flattens with the 0:21:59.520 --> 0:22:02.040 market and thinking well, if the odds of a recession 0:22:02.080 --> 0:22:03.920 are rising, we need to price in a higher risk 0:22:04.000 --> 0:22:08.200 premium around higher loan losses eight twenty four months out, 0:22:08.320 --> 0:22:10.240 So you know, we think the sector's risk word is 0:22:10.280 --> 0:22:12.800 now a lot more balanced here again as those two 0:22:12.880 --> 0:22:16.120 factors are competing against each other, you know, and after 0:22:16.280 --> 0:22:19.520 we've had a pretty large rate move, and so that 0:22:19.640 --> 0:22:23.280 leaves us more more balanced and looking to reassess, Andrew, 0:22:23.400 --> 0:22:26.159 where do long bond stit in your portfolio given the 0:22:26.200 --> 0:22:28.200 sell off that we've seen to date, and given the 0:22:28.280 --> 0:22:30.840 call that you have that we're in the same kind 0:22:30.920 --> 0:22:36.000 of environment longer term even given this blip. So I 0:22:36.160 --> 0:22:40.399 think that the backdrop favors a flatter and more inverted curve. 0:22:40.480 --> 0:22:42.440 That's that's very much the way that our our interest 0:22:42.560 --> 0:22:44.840 rate strategist at Morgan Stanley are thinking about that, and 0:22:45.359 --> 0:22:47.480 and that we could even have a dynamic where the 0:22:47.560 --> 0:22:50.439