WEBVTT - Surveillance: G-7 Leaders' Summit 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 Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com 0:00:23.920 --> 0:00:30.560 and of course on the Bloomberg terminal right now. On 0:00:30.600 --> 0:00:34.040 the financial system of our international economics, no one is 0:00:34.080 --> 0:00:37.040 better than William Lee at the Milken Institute, is tour 0:00:37.120 --> 0:00:39.240 of duty at the I m F and of course 0:00:39.360 --> 0:00:42.600 expert on a Pacific rim as well. I want to 0:00:42.600 --> 0:00:44.960 do the calculus today, Bill Lee. And of course we 0:00:45.080 --> 0:00:48.880 don't do differential equations on Friday, we do simple math. 0:00:49.360 --> 0:00:54.440 G twenty takeaway G seven. I believe as a G thirteen. 0:00:54.640 --> 0:00:59.160 Nobody talks about how does a G thirteen Eastern year 0:00:59.240 --> 0:01:02.200 up in the red? How do they observe this G 0:01:02.360 --> 0:01:06.039 seven meeting. They're anxiously looking at what the G seven 0:01:06.080 --> 0:01:08.760 is doing with the corporate tax deal that they've come 0:01:08.840 --> 0:01:11.760 up with to say that the smaller countries have to 0:01:11.800 --> 0:01:14.800 start to raise their tax rates, like Ireland and some 0:01:14.840 --> 0:01:17.560 of the smaller countries that have developed the model, to 0:01:17.600 --> 0:01:20.840 say we're gonna develop our country by attracting foreign multinationals 0:01:20.840 --> 0:01:23.600 to our country by lowering our our corporate tax rate. 0:01:23.880 --> 0:01:25.520 That is going to go by the wayside because they 0:01:25.560 --> 0:01:28.520 have come up. That's going to be a challenge. Uh. 0:01:28.640 --> 0:01:30.880 The other thing they're looking at is how on earth 0:01:30.880 --> 0:01:33.440 are we going to deal with China and the G seven. 0:01:33.560 --> 0:01:36.199 The G seven already are in a mess in trying 0:01:36.200 --> 0:01:39.040 to find a way to cooperatively deal with China. Uh, 0:01:39.360 --> 0:01:43.399 China's a customer, China's a big input into their production lighting, 0:01:43.920 --> 0:01:46.319 but but no human rights. How do we live up 0:01:46.319 --> 0:01:48.480 to our values of human rights and worker rights? You know, 0:01:48.480 --> 0:01:51.520 I AMSUSA believe that Michael Milken, taking advantage of William 0:01:51.600 --> 0:01:55.560 Lee and Employment dialed one Bill Lee and said Bill 0:01:55.640 --> 0:01:58.960 Lee on that tax prep plan isn't dead on arrival. 0:01:59.440 --> 0:02:04.120 Every port we see from Hungary, from Ireland is major pushback. 0:02:04.400 --> 0:02:06.680 They want to exempt the city of London, which is 0:02:06.720 --> 0:02:11.119 absolutely absurd. Is it dead on arrival? Well, it's it's 0:02:11.160 --> 0:02:14.600 dead in the sense that no one really agrees firmly 0:02:14.639 --> 0:02:16.680 that the corporate tax is the best space to use 0:02:16.720 --> 0:02:20.440 the finance government spending. One of the greatest controversial economists 0:02:20.600 --> 0:02:23.720 who bears the cost of paying the corporate text and 0:02:23.720 --> 0:02:27.280 and studies have ranged from as low as workers paying 0:02:27.480 --> 0:02:30.639 to as much as workers paying and and and most 0:02:30.639 --> 0:02:35.240 studies show at least over so raising the corporate taxes 0:02:35.280 --> 0:02:38.480 pushes the burden of paying the tax more on the workers. 0:02:38.520 --> 0:02:41.280 And that's a very big controversy that that has yet 0:02:41.280 --> 0:02:43.560 to be settled. And for the G seven to rely 0:02:43.680 --> 0:02:47.519 on the corporate taxes space to finance government expenditures is 0:02:47.560 --> 0:02:50.600 a real political wild card. Well, just to elaborate a 0:02:50.600 --> 0:02:53.000 little bit, bill some people would push back and say, actually, 0:02:53.080 --> 0:02:56.359 if you look at corporate profits, they've increased dramatically. Why 0:02:56.360 --> 0:02:58.960 couldn't it come out of that rather than from the workers? Mean, 0:02:59.000 --> 0:03:02.400 why is that the as a person who's paying for it? Well, 0:03:02.520 --> 0:03:05.160 the I think the political movement now is to stay 0:03:05.160 --> 0:03:08.720 away from taxing workers, especially lower paid workers, and so 0:03:08.800 --> 0:03:11.600 we want to try to tap tap into the resources 0:03:11.600 --> 0:03:14.480 that the very rich have. The question is the corporate 0:03:14.560 --> 0:03:16.760 tax the best vehicle to do that? Because so much 0:03:16.800 --> 0:03:20.320 of the corporate tax is shifted into consumers, workers, and 0:03:20.639 --> 0:03:23.600 people other than the owners of capital. We already know 0:03:23.680 --> 0:03:26.520 that corporate taxes are unfair in the sense that it's 0:03:26.520 --> 0:03:28.760 a double tax sessue the course the taxing the corporate 0:03:28.800 --> 0:03:31.440 income at the source as well as at the shareholder 0:03:31.680 --> 0:03:35.880 level in taxing dividends. So so those questions of incidents 0:03:35.960 --> 0:03:39.920 have played economists for generations and there's no clear answer, 0:03:40.280 --> 0:03:43.360 and all is polluted by a lot of politics that 0:03:43.360 --> 0:03:46.400 that that governed, right, So let's let's try to strip 0:03:46.440 --> 0:03:49.080 out the politics and use an empirical example. And I'm 0:03:49.080 --> 0:03:52.520 looking at President Trump's tax cuts, and you'd expect the 0:03:52.560 --> 0:03:55.000 reverse to be true if that were the case, that 0:03:55.080 --> 0:03:57.960 a tax cut should juice growth and give more money 0:03:57.960 --> 0:04:01.440 to the workers. Is that what happened, Well, what happened 0:04:01.440 --> 0:04:03.360 with the textbook with the Trump administration is that so 0:04:03.440 --> 0:04:06.280 much of the corporate profits that were released went into 0:04:06.320 --> 0:04:09.000 share shared by box. Uh. Now, the question is that 0:04:09.120 --> 0:04:11.160 the shared bock backs lead to more investment. If you 0:04:11.200 --> 0:04:14.520 look at the data UM and the research that I've done, UH, 0:04:14.560 --> 0:04:16.960 it shows that the share bike backs actually lead to 0:04:17.000 --> 0:04:20.160 more investment, but there's a huge lag, almost as long 0:04:20.200 --> 0:04:22.719 as three to four years before we see that investment 0:04:22.720 --> 0:04:25.279 take place. Right now, we have the highest level investment 0:04:25.680 --> 0:04:29.160 in the US for for many many years. Bill one 0:04:29.160 --> 0:04:32.600 of the biggest problems with UM corporate tax beyond the 0:04:32.640 --> 0:04:37.240 double taxation issue, which I'm not sure everyone UM has 0:04:37.279 --> 0:04:40.840 fully wrapped his or her head around, is what companies 0:04:40.920 --> 0:04:42.919 do to try and avoid it. Often here in the 0:04:43.000 --> 0:04:45.159 U S or here in the U S. I'm in Berlin, 0:04:45.279 --> 0:04:48.200 but my home in the US UM they try and 0:04:48.240 --> 0:04:52.200 avoid it with debt financing. So we're basically pushing these 0:04:52.240 --> 0:04:59.200 companies into UM some more risky financing. UM Solutions Does 0:04:59.240 --> 0:05:01.960 that turner round when you see the tax cut at 0:05:02.040 --> 0:05:04.800 least have pointed out well. One of the things that 0:05:04.839 --> 0:05:08.400 Mike has always emphasized to me is the corporate capital 0:05:08.440 --> 0:05:11.719 structure really matters, and pushing people into more debt finance 0:05:12.360 --> 0:05:16.360 has the impact of changing the shape of investment. Investment 0:05:16.400 --> 0:05:19.120 now goes into more safe projects because the one thing 0:05:19.160 --> 0:05:21.120 that death holders wanted to get their money back, They 0:05:21.120 --> 0:05:23.960 couldn't share less that profits lead to more investments that 0:05:24.040 --> 0:05:25.920 lead to more productivity. They just want to get their 0:05:25.920 --> 0:05:29.479 money back. So if you tell a borrower, UH, take 0:05:29.520 --> 0:05:31.200 my money, but make sure you give it back to me, 0:05:31.400 --> 0:05:33.920 all he's gonna do is to invest in the same 0:05:33.920 --> 0:05:35.880 projects that work in the past. We're not going to 0:05:35.960 --> 0:05:39.240 get the innovative investments that we need to draw productivity 0:05:39.400 --> 0:05:41.719 and raise the standard of living among workers and the 0:05:41.760 --> 0:05:46.080 rest of the world. Well, let's talk about the possibility 0:05:46.160 --> 0:05:50.120 of getting a global minimum tax. We've already heard reports 0:05:50.240 --> 0:05:53.440 that the UK wants to exempt the City of London, 0:05:53.800 --> 0:05:55.720 and the City of London has a bigger GDP than 0:05:55.760 --> 0:05:58.920 the Republic of Ireland. If we all start asking for 0:05:58.960 --> 0:06:01.839 these little loophole holes, is it going to be possible 0:06:01.880 --> 0:06:04.760 to get the kind of blanket global minimum tax that 0:06:04.839 --> 0:06:07.839 they've set out for in the first place. This is 0:06:07.880 --> 0:06:10.800 the slippery slope of getting exemptions and loopholes, And this 0:06:10.839 --> 0:06:12.800 is the one thing that has made the tax system 0:06:12.839 --> 0:06:14.919 in the United States and the rest of the world fail, 0:06:15.279 --> 0:06:17.919 which is that creates so many loopholes that regardless of 0:06:17.960 --> 0:06:20.080 what you do with the rate, the amount of revenue 0:06:20.279 --> 0:06:24.440 you raise is actually much less than anticipated. So, Bill, 0:06:24.520 --> 0:06:27.359 we're talking about the corporate tax rate, and the backdrop 0:06:27.480 --> 0:06:30.480 of this is a huge question mark about the trajectory 0:06:30.520 --> 0:06:33.679 of the global economy, whether we're heading into an inflationary period, 0:06:33.680 --> 0:06:36.719 whether it's going to be disinflationary post the pandemic boost 0:06:36.720 --> 0:06:39.599 boost that we're getting from consumer prices Where do you 0:06:39.640 --> 0:06:42.080 stand on this, especially as we see the bond market 0:06:42.080 --> 0:06:45.720 way in and say inflation is not a concern. Well, Lisa, 0:06:45.920 --> 0:06:48.600 we I think are seeing the face of the new 0:06:48.800 --> 0:06:52.320 shape of inflation in the post pandemic world. Supply side 0:06:52.360 --> 0:06:55.800 induced price jumps. Now, price jumps that clear the market 0:06:55.800 --> 0:06:58.920 because of supply shortages, to me, is not inflation. It's 0:06:58.960 --> 0:07:01.279 not regardless inflation but of fit or any other central 0:07:01.279 --> 0:07:03.480 bank Inflation of the sort that they worry about is 0:07:03.520 --> 0:07:08.320 the corrosive increase in wages, costs, and prices that firms 0:07:08.400 --> 0:07:10.520 fail to be able to keep up with that that 0:07:10.840 --> 0:07:14.080 erode profit margins and and and worker and savings and 0:07:14.200 --> 0:07:18.920 and and worker wages. That's kind of corrosive continuing rise 0:07:19.000 --> 0:07:22.200 in prices that exceed expectations is the sort of thing 0:07:22.200 --> 0:07:24.600 that everyone is watching for. But there's no sign that 0:07:24.680 --> 0:07:28.520 the supply side price jumps, which is not inflation, uh, 0:07:28.640 --> 0:07:31.160 is going to lead to that corrosive continuing inflation that 0:07:31.200 --> 0:07:34.280 we had in the seventies. Billy, I want to end 0:07:34.560 --> 0:07:38.800 on your wheelhouse, which is the Pacific rim Every indication 0:07:38.960 --> 0:07:42.520 I see is of a pricing for boom. Now they 0:07:42.520 --> 0:07:46.200 haven't had the fiscal stimulus the United States of America has. 0:07:46.240 --> 0:07:49.520 But do you frame out over the next twelve twenty four, 0:07:49.720 --> 0:07:54.480 thirty six months a Pacific RIM boom. I would love to, 0:07:54.680 --> 0:07:59.040 but the kind of supply size, shortage, overhang and the 0:07:59.120 --> 0:08:02.280 overhang of Chi in the Pacific RIM is really distorting 0:08:02.320 --> 0:08:04.040 the picture of where growth it's going to come from. 0:08:04.280 --> 0:08:08.000 The Pacific RIM has so much depended upon China as 0:08:08.040 --> 0:08:13.160 an intermediary and also as a final demand market that 0:08:13.240 --> 0:08:16.560 with without China coming online and and and being a 0:08:16.600 --> 0:08:18.960 locomotive for the Pacific, it's going to be very difficult 0:08:19.000 --> 0:08:20.840 for the rest of the country's to grow. Right now, 0:08:20.960 --> 0:08:25.200 China has a dual strap, dual strategy of investing in itself, 0:08:25.600 --> 0:08:29.120 developing inst domestic markets, and almost withdrawing from the world 0:08:29.160 --> 0:08:33.440 except in very strategic ways. Strategic ways is to dominate 0:08:33.440 --> 0:08:36.720 the supply chain in technology. Their phrase is so sensitive 0:08:36.720 --> 0:08:38.679 and so current. I mean, we could talk to almost 0:08:38.679 --> 0:08:41.960 Travidas about it. But Bill Lee to say that China 0:08:42.200 --> 0:08:45.720 is withdrawing from the world, and yet our listeners and 0:08:45.800 --> 0:08:48.800 viewers are are familiar with the expansion of the South 0:08:48.920 --> 0:08:51.720 China see and of the Belt in the Road initiative, 0:08:52.040 --> 0:08:56.120 which is it. They're withdrawing their domestic markets from the 0:08:56.160 --> 0:08:59.319 world because they want to develop their technologies. They're expanding 0:08:59.360 --> 0:09:02.040 the military political influence in the world because they want 0:09:02.080 --> 0:09:05.920 to be recognized as a large country power and and 0:09:06.040 --> 0:09:09.080 yet still have the benefits of w t O emerging 0:09:09.120 --> 0:09:11.199 market status. They want to have their cake and eat 0:09:11.240 --> 0:09:13.360 it too. And that's the tension that said is going 0:09:13.400 --> 0:09:16.480 to have to deal with pairing these two ideas together, 0:09:16.520 --> 0:09:19.800 this idea of where inflation is going and the fate 0:09:19.840 --> 0:09:22.920 of China. I'm wondering how much the change in China's 0:09:22.960 --> 0:09:26.439 economy is going to feature in the world inflation outlook. 0:09:26.440 --> 0:09:28.720 The idea that China was the factory to the world, 0:09:29.000 --> 0:09:31.320 it was the low cost factory, and it was importing 0:09:31.400 --> 0:09:35.600 disinflation overseas. Now we have a very different China, a 0:09:35.640 --> 0:09:39.720 lot wealthier, with drawing liquidity, trying to upgrade itself into 0:09:39.800 --> 0:09:44.120 developed market status. How much does that reverse this disinflationary 0:09:44.120 --> 0:09:46.880 trend that we've seen over the past twenty years. That's 0:09:46.880 --> 0:09:49.440 a great question least because what we see about the 0:09:49.480 --> 0:09:51.840 new face of inflation in China is happening right there. 0:09:52.080 --> 0:09:55.640 The factory prices have gone up by uh and all 0:09:55.679 --> 0:09:58.120 down to the supply chain. In China, we see more 0:09:58.120 --> 0:10:00.600 and more pricing increases, and yet at the simmer level 0:10:00.800 --> 0:10:03.760 we see prices going up at one. So what we 0:10:03.800 --> 0:10:07.360 see is a profit margin squeeze because the Chinese don't 0:10:07.360 --> 0:10:10.040 want to destroy the domestic economy, and they're putting in 0:10:10.120 --> 0:10:13.040 price controls at the factory level to contain a lot 0:10:13.080 --> 0:10:15.559 of these commodity price jumps. And I think that's a 0:10:15.640 --> 0:10:18.480 very successful way that they're implementing to try to limit 0:10:18.760 --> 0:10:22.559 the follow through of price jumps, preventing it from spiraling 0:10:22.559 --> 0:10:25.840 into the corrosive inflation we had in the seventies. Billy, 0:10:25.920 --> 0:10:28.600 thank you so much, greatly, greatly appreciated. With Michael Milkin 0:10:28.640 --> 0:10:38.760 in the Milk and Institute their chief economists right now 0:10:38.800 --> 0:10:41.560 on G seven and on these markets. It is thrilling 0:10:41.640 --> 0:10:44.160 to give you your beach reading for the summer. It's 0:10:44.200 --> 0:10:46.280 not a secret that my book of the summer is 0:10:46.320 --> 0:10:49.760 two thousand thirty four. It is by Elliot Ackerman and 0:10:49.840 --> 0:10:55.400 James Travitis. It is absolutely stunning. This is a scary, 0:10:56.000 --> 0:10:59.839 dangerous book. It reeks of a Netflix movie. And maybe 0:11:00.000 --> 0:11:04.000 will see that not your usual expectation from Admiral Stevinus, 0:11:04.080 --> 0:11:07.280 but there is it is a triumph, the author joins us. 0:11:07.280 --> 0:11:10.400 This morning, the former NATO commander James to vinis, I 0:11:10.440 --> 0:11:12.439 want to go to the work of Richard hass And 0:11:12.600 --> 0:11:15.319 is wonderful the world, and particularly John Muzheimer from the 0:11:15.400 --> 0:11:20.520 University of Chicago, and it's your fault. They suggest with 0:11:20.679 --> 0:11:24.280 respect that the G seven world and that the NATO 0:11:24.400 --> 0:11:29.040 countries overreached and expanded too far east too quickly for 0:11:29.240 --> 0:11:33.280 Mr Putin and Russia. Did NATO in Europe overreach to 0:11:33.400 --> 0:11:38.240 pick up Eastern European countries? I don't think so. It's 0:11:38.280 --> 0:11:41.760 always easy in hindsight to say, hey, we could, we 0:11:41.920 --> 0:11:45.120 would oh we should have done something differently. Um, But 0:11:45.280 --> 0:11:48.320 if I could rewind the clock to the days when 0:11:48.360 --> 0:11:51.760 the when the wall fell, you've got to remember the 0:11:51.840 --> 0:11:55.760 zeitgeist for the moment. They were not NATO tanks rolling 0:11:55.880 --> 0:12:01.040 into Prague. There were not NATO aircraft flying over Warsaw. 0:12:01.280 --> 0:12:05.199 Those countries were begging to join NATO, and they wanted 0:12:05.240 --> 0:12:07.880 to join NATO because they've been under the boot of 0:12:07.920 --> 0:12:11.240 the Soviet Union. I don't see in a real world 0:12:11.360 --> 0:12:14.560 where we could have just said, now you stay over there. 0:12:14.920 --> 0:12:17.520 We would have delivered them back to Russia would have 0:12:17.559 --> 0:12:20.200 been a bad moment in my view long agoing far 0:12:20.240 --> 0:12:25.000 away Admiral King and his gentlemen with their courage folks. 0:12:25.040 --> 0:12:27.600 The Tom Anks movie of this year on the courage 0:12:27.600 --> 0:12:31.079 of the Navy across the North Atlantic in nineteen forty one, 0:12:31.240 --> 0:12:34.199 James Travitas, they got together off I believe Newfoundland and 0:12:34.240 --> 0:12:37.520 did the Atlantic Charter. Now we have the politicians with 0:12:37.600 --> 0:12:41.040 the TV moment doing a new Atlantic charter. Is there 0:12:41.040 --> 0:12:45.400 any substance to this new Atlantic Charter? I don't think 0:12:45.480 --> 0:12:51.120 there's anything new in the new Atlantic Charter, but that's okay. 0:12:51.240 --> 0:12:55.920 What it reaffirms is this Transatlantic bridge that frankly has 0:12:55.960 --> 0:12:58.960 been a little creaky for the last four years. Now 0:12:59.000 --> 0:13:03.200 it's a gay strength gaining air speed. And I think 0:13:03.240 --> 0:13:06.880 in this post bregsit moment, it makes geo political sense 0:13:06.960 --> 0:13:10.200 to kind of draw a line under that relationship between 0:13:10.200 --> 0:13:13.320 the United States and the United Kingdom. I'll close Tom 0:13:13.360 --> 0:13:16.920 by saying, even as we're having this conversation, what ship 0:13:17.160 --> 0:13:22.920 is at sea? The sixty thousand ton aircraft carrier Queen 0:13:22.960 --> 0:13:28.680 Elizabeth with British escorts, British submarines, British auxiliary ships. We 0:13:28.679 --> 0:13:31.679 would call that a carrier strike group, and it's headed 0:13:31.720 --> 0:13:34.960 to the Indian Ocean and into the South China Sea. 0:13:35.280 --> 0:13:38.440 They're a good ally to have James Travinus in your 0:13:38.440 --> 0:13:40.880 book two thousand thirty four, folks, And I'm gonna be honest, 0:13:40.920 --> 0:13:43.560 it's so damn good. I'm gonna be very careful here 0:13:43.640 --> 0:13:46.240 not to give it away, but the heart and soul 0:13:46.400 --> 0:13:50.240 of two thousand thirty four in our modern technology is 0:13:50.240 --> 0:13:53.640 a lack of communication. It starts in that opening scene 0:13:53.760 --> 0:13:56.720 in the South China. See how does this G seven 0:13:56.760 --> 0:14:01.320 set up a communication process too? Of void your two 0:14:01.320 --> 0:14:06.400 thousand thirty four, um, First and foremost it's about cyber 0:14:06.440 --> 0:14:10.680 and cyber security and protecting our networks and by the way, 0:14:10.679 --> 0:14:14.920 protecting undersea cables as well. That comes up in the book. 0:14:15.520 --> 0:14:20.800 It's this, uh, putting together the technologies of cyber of space, 0:14:21.120 --> 0:14:25.160 of undersea control, all of that has to be protected. 0:14:25.520 --> 0:14:28.640 That's a job not just for NATO, because NATO's in 0:14:28.680 --> 0:14:31.760 the end a regional alliance. That's a job for all 0:14:31.800 --> 0:14:34.480 the democracies. I think that's going to be a significant 0:14:34.520 --> 0:14:37.800 part of the conversation today in Cornwall. Admiral Steady is 0:14:37.840 --> 0:14:40.600 there's a question about the alliance and how strong it 0:14:40.760 --> 0:14:45.040 is and coming up with a strategy with respect to China. Uh, 0:14:45.280 --> 0:14:48.480 there is. As we get the arrivals at the G seven, 0:14:48.520 --> 0:14:52.120 we have Angele and Merkel German chancellor arriving in Germany 0:14:52.160 --> 0:14:55.160 has an incredible trade partnership with China, even as it 0:14:55.200 --> 0:14:58.880 does take a harder stance. How much of a consensus 0:14:59.040 --> 0:15:02.240 is there on the right approach for the allies versus 0:15:02.320 --> 0:15:07.000 China in terms of reconfiguring trade. I think that's the 0:15:07.160 --> 0:15:12.720 through line for G seven tornato um and and in 0:15:12.760 --> 0:15:15.560 fact the Atlantic Charter is all part of this. And 0:15:15.800 --> 0:15:18.880 one central element to this, Lisa, that you'll be well 0:15:18.920 --> 0:15:23.200 aware of are the Chinese claims of territorial ownership in 0:15:23.240 --> 0:15:26.360 the South China Sea. We are pushing back on that 0:15:26.480 --> 0:15:30.320 by driving our ships through those international waters. That's a 0:15:30.360 --> 0:15:35.440 set piece that opens four. In the today's world. The 0:15:35.520 --> 0:15:38.760 Brits are headed there, the French are doing it, the 0:15:38.880 --> 0:15:42.400 Germans have pledged to send a ship there to stand 0:15:42.440 --> 0:15:45.400 with us. A lot of it derives from concern about 0:15:45.560 --> 0:15:49.360 human rights, but also your point about trade and access 0:15:49.440 --> 0:15:52.920 to Chinese markets. Um. I think there's gonna be a 0:15:52.960 --> 0:15:58.280 continuous conversation about China and Western China relations that run 0:15:58.320 --> 0:16:03.320 from geopolitics to ge economics, to mercantile to market access. 0:16:03.560 --> 0:16:05.960 How good of a job has the Western world done 0:16:06.000 --> 0:16:10.640 at vaccine diplomacy, at shoring up support from regions near 0:16:10.680 --> 0:16:13.520 the South China Sea in their outrage to try to 0:16:13.560 --> 0:16:16.520 help us all get out of the pandemic versus China, 0:16:16.840 --> 0:16:19.280 which has been more aggressive or at least aggressive on 0:16:19.360 --> 0:16:22.600 a pr stands about their efforts on that front. Yeah, 0:16:22.640 --> 0:16:27.760 this is a reflection of the clever, capable Chinese strategy 0:16:27.880 --> 0:16:30.840 one Belt, One Road or sometimes called the Belt and 0:16:31.040 --> 0:16:35.240 Road Initiative b r I. It's a clever strategy that 0:16:36.000 --> 0:16:41.160 seeks to engage China geoeconomically in a mercantile fashion, and 0:16:41.560 --> 0:16:44.880 vaccines have become part of that. That's why the president's 0:16:44.880 --> 0:16:50.360 announcement of five million doses, no strings attached, fightser gold 0:16:50.400 --> 0:16:53.920 standard coming from the United States. Uh, that's a big 0:16:53.920 --> 0:16:56.680 deal and it kind of wraps together, if you will, 0:16:56.840 --> 0:17:02.560 the three c's of the G seven, COVID, China, and cyber. 0:17:02.760 --> 0:17:06.879 We've now hit all three of those. Must venis Anglo 0:17:06.920 --> 0:17:09.679 Medicare is about ready to descend upon her last G 0:17:09.840 --> 0:17:13.280 seven meeting at sixty six years old. She is esteemed 0:17:13.280 --> 0:17:18.879 and venerated. She is a quantum chemist from Eaton, eastern Germany. 0:17:18.960 --> 0:17:23.280 What has been her chemistry? Her impact on the Western world, 0:17:23.560 --> 0:17:27.520 your tour of duty at NATO and after that. I 0:17:27.640 --> 0:17:31.760 met with the Chancellor many, many times, and honestly, there 0:17:31.840 --> 0:17:34.600 is no leader that I would put above her in 0:17:34.720 --> 0:17:38.880 terms of her integrity, her willingness to make hard decisions. 0:17:38.920 --> 0:17:42.520 Germany and nation of eighty million, took in a million 0:17:42.640 --> 0:17:46.520 refugees from Syria. The United States took in less than 0:17:46.560 --> 0:17:51.119 twenty thousand. She made the hard political choices. She's a 0:17:51.280 --> 0:17:55.360 four term chancellor. She's like f DR elected four times 0:17:55.400 --> 0:18:00.359 to office. I cannot say enough good about Angelo Meracle. 0:18:00.640 --> 0:18:03.800 I hope she does not go gently into that good 0:18:03.920 --> 0:18:06.520 night back to a physics lab somewhere, and I don't 0:18:06.520 --> 0:18:08.959 think she will. She's got my vote to be the 0:18:09.000 --> 0:18:12.359 Secretary General of the United Nations. Well there you go. 0:18:13.240 --> 0:18:16.359 Servin is working on the resume for miracle U. Matt 0:18:16.440 --> 0:18:19.159 Miller is in Berlin, and of course she celebrates a 0:18:19.240 --> 0:18:24.760 political domestic victory Matt in the recent days. In recent days, 0:18:24.800 --> 0:18:27.280 but you know those polls come and those polls go. 0:18:27.720 --> 0:18:30.960 I think, Um, the Admiral's point is an interesting one. 0:18:31.200 --> 0:18:34.160 Miracle would make a great secretary general. When I attended 0:18:34.160 --> 0:18:38.080 the G twenty meeting in Hamburg, she got a standing 0:18:38.200 --> 0:18:42.359 ovation from all of the other leaders when she entered 0:18:42.400 --> 0:18:46.320 the the the the opera hall. There. At the end 0:18:46.320 --> 0:18:50.480 of the meeting, she essentially was leading the G twenty. 0:18:50.560 --> 0:18:52.520 And it'll be interesting to see what she can do 0:18:52.720 --> 0:18:55.760 here at the G seven. To me, Admiral, the interesting um, 0:18:55.800 --> 0:18:58.840 the most interesting thing about Miracle is all of the 0:18:59.600 --> 0:19:02.160 all of the good deeds she's done you just listed, 0:19:02.280 --> 0:19:05.439 and yet she is so insistent on building this Nords 0:19:05.480 --> 0:19:11.240 dream to pipeline to Russia, essentially funding you know, billions, 0:19:11.359 --> 0:19:16.000 hundreds of billions of dollars to Vladimir Putin um to 0:19:16.200 --> 0:19:20.960 finance things like the annexation of Crimea. Why. I think 0:19:21.000 --> 0:19:23.600 it would be hard to find any leader who backs 0:19:24.040 --> 0:19:27.159 a thousand. In other words, uh, I think all of 0:19:27.240 --> 0:19:29.840 us can look at any of our leaders and say, hey, 0:19:29.880 --> 0:19:32.080 you got this one wrong, you got that one wrong. 0:19:32.160 --> 0:19:35.560 To to the pipeline question, Miracle, I would say to 0:19:35.640 --> 0:19:39.879 her Chancellor, you've got that one wrong. And it reflects 0:19:40.280 --> 0:19:44.560 her sometimes our greatest strength can be our greatest weakness. 0:19:44.960 --> 0:19:48.120 Um and in many ways she wants to build consensus. 0:19:48.119 --> 0:19:51.720 She wants to pull Russia to the west. There's a 0:19:51.800 --> 0:19:55.800 strategic sense to that, but it won't work with Vladimir Putin. 0:19:56.080 --> 0:19:59.879 Therefore I would score her less perfect on that. For 0:20:00.000 --> 0:20:05.880 particular point, Venus, if you've framed out Russia after Putin, 0:20:06.480 --> 0:20:09.639 I guess none of us are doing that. Miracle is 0:20:09.680 --> 0:20:13.680 thinking forward always, as you say, the Chancellor and others, 0:20:14.200 --> 0:20:18.200 what does Russia look like pulled to the west after Putin? 0:20:19.520 --> 0:20:22.239 Let's hope it happens. And if you look at the 0:20:22.320 --> 0:20:25.719 history of Russia in terms of leaders, you roll the 0:20:25.760 --> 0:20:29.320 cosmic dice. Sometimes you get Peter the Great, the next 0:20:29.359 --> 0:20:32.760 time you get Ivan the Terrible, you get a Joseph Stalin, 0:20:33.040 --> 0:20:36.280 then you get a Gorba job those dice landed on 0:20:36.359 --> 0:20:38.879 Vladimir Putin. He will be the Tsar of all the 0:20:38.960 --> 0:20:43.320 Russians still the day he dies. He's alive in four 0:20:43.400 --> 0:20:47.240 as an octogenarian. But what comes afterward. Let's hope the 0:20:47.320 --> 0:20:51.080 dice land on a different kind of leader. It's possible 0:20:51.119 --> 0:20:54.720 if you look at Russian history, the strategic opening to 0:20:54.880 --> 0:20:58.840 pull Russia away from China is a powerful moment for 0:20:58.880 --> 0:21:02.879 the West. It won't come into Vladimir Putin passes on 0:21:02.960 --> 0:21:06.040 to the Great Commune in the Sky. James Travides, thank 0:21:06.080 --> 0:21:13.800 you so much for joining us this morning. Folks. We're 0:21:13.800 --> 0:21:16.280 gonna get all the answers to the bond market mysteries 0:21:16.320 --> 0:21:20.120 to Badra. Japa has them all. She's standing by ceciatasion 0:21:20.200 --> 0:21:22.359 or our ahead of us rate strategy. And there is 0:21:22.400 --> 0:21:25.840 this question of what has been behind the incredible rally 0:21:26.119 --> 0:21:28.439 in ten your treasuries. I was saying, a lot of 0:21:28.440 --> 0:21:32.640 people are attributing it to a short squeeze. Is that it? Well, 0:21:32.680 --> 0:21:35.040 I think it's one of many factors. Right, You're definitely 0:21:35.080 --> 0:21:39.520 seeing a little bit of positioning being very skewed towards shorts, 0:21:39.560 --> 0:21:42.240 and typically when you see, uh, you know, when position 0:21:42.280 --> 0:21:45.679 gets a little bit skewed, you tennessee a short covering rally. 0:21:46.280 --> 0:21:49.439 But it's also you're seeing very very strong demand coming 0:21:49.520 --> 0:21:54.200 from you know, real money accounts, overseas accounts. In auctions 0:21:54.240 --> 0:21:56.800 this week, if you look at the auction metrics, both 0:21:56.840 --> 0:21:59.399 indirects as well as directs, you know the participation has 0:21:59.440 --> 0:22:02.399 been very very strong. So the primary dealers are not 0:22:02.480 --> 0:22:05.919 taking down these auctions. It's real money investors and end 0:22:05.960 --> 0:22:08.639 investors that are taking down this auction. So it's a 0:22:08.680 --> 0:22:11.600 combination of positioning as well as strong demand from end 0:22:11.600 --> 0:22:15.160 investors for treasuries, which I think is kind of counterintuitive. 0:22:15.200 --> 0:22:18.480 Like you pointed out, at this stage in the recovery, 0:22:18.800 --> 0:22:22.080 you shouldn't be expecting a gradual rising yields. So in 0:22:22.119 --> 0:22:24.280 some respects, the sort of rally that we've seen in 0:22:24.280 --> 0:22:26.119 the last week, at least to me, is somewhat countered 0:22:26.160 --> 0:22:28.880 you do. So that really raises the question how much 0:22:29.040 --> 0:22:31.320 does this rally have legs or is this a one off, 0:22:31.520 --> 0:22:36.520 a sort of positional shakeout that's poised to reverse. I 0:22:36.560 --> 0:22:39.040 think I'm more in the camp that you know, once 0:22:39.080 --> 0:22:42.199 we get this position shakeout, we should see, uh, you know, 0:22:42.320 --> 0:22:46.080 yields start to head ever so gradually towards you know, 0:22:46.240 --> 0:22:49.720 a higher trajectory. And in some respects where we are 0:22:49.880 --> 0:22:52.720 right now is very similar to what we saw earlier 0:22:52.720 --> 0:22:55.439 on this year, you know, in tenny yields where eighty 0:22:55.560 --> 0:22:58.600 or ninety basis points. When we began the year, we 0:22:58.640 --> 0:23:00.440 thought the world would come to an end when tenny 0:23:00.520 --> 0:23:03.440 yields got to the Fed's definitely gonna, you know, talk 0:23:03.480 --> 0:23:05.439 down the market. They're not gonna let yields rise to one. 0:23:06.400 --> 0:23:08.440 Guess what the FED just stepped aside and said, you 0:23:08.480 --> 0:23:11.920 know what, it's okay for yields to rise. We're exactly 0:23:11.960 --> 0:23:15.119 at that same juncture heading into the June meeting where 0:23:15.119 --> 0:23:19.439 tenny years at one forty five, the FED is gradually 0:23:19.440 --> 0:23:22.439