WEBVTT - Surveillance: Energy Shock with Folkerts-Landau 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 Jailey. 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, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.520 and of course, on the Bloomberg terminal. David folks Landa 0:00:31.680 --> 0:00:34.320 joins us just to say he's chief economist of Deutsche Bank. 0:00:34.680 --> 0:00:38.199 Barely describes his contribution to economics, and I think of 0:00:38.240 --> 0:00:41.520 Michael Dooley, David folks Landau and Peter Garber and their 0:00:41.560 --> 0:00:46.400 important research on intervention of two decades ago. Dfl you 0:00:46.560 --> 0:00:50.159 and others at Deutsche Bank are talking very seriously about 0:00:50.159 --> 0:00:54.200 a need to intervene here the weak euro intervention of 0:00:54.240 --> 0:00:57.720 another time and place was eighty five cents ninety cents. 0:00:58.280 --> 0:01:03.560 Now you're talking intervention one ten. Why is that, Well, 0:01:03.600 --> 0:01:07.959 it's a question of how to control inflation without doing 0:01:08.000 --> 0:01:12.080 too much damage, and there the easiest way and the 0:01:12.160 --> 0:01:16.200 most effective way to do that would be for the 0:01:16.240 --> 0:01:19.880 European Central Bank to raise rates, or to find some 0:01:19.920 --> 0:01:24.440 way of talking rates up and indicating that that's what 0:01:24.480 --> 0:01:29.400 they will do. You will recall that when they went 0:01:29.959 --> 0:01:35.280 negative in two thousand and fourteen, the dollar appreciated from 0:01:35.440 --> 0:01:37.760 somewhere around one three six to one ten in a 0:01:37.840 --> 0:01:42.480 matter of nine months. And so any move now to 0:01:42.640 --> 0:01:44.960 increase rates and to the signal that they will be 0:01:45.000 --> 0:01:50.400 going positive would precipitate a very very quick dollars appreciation, 0:01:50.440 --> 0:01:53.280 which would re cost be great for inflation within within Europe, 0:01:53.680 --> 0:01:56.000 which will be one of the main problems they will 0:01:56.040 --> 0:01:58.520 have given what's in the pipeline. Now, let's go to 0:01:58.560 --> 0:02:01.320 Rudiger Dornbush and can Ago if they would suggest and 0:02:01.880 --> 0:02:05.920 less coordinated intervention will not be effective. Do you see 0:02:05.960 --> 0:02:09.960 this as a singular EU effort or would it be coordinated? 0:02:11.280 --> 0:02:12.959 There is not a chance in the world that we 0:02:13.000 --> 0:02:15.680 will get it coordinated intervention, even in times like this 0:02:15.800 --> 0:02:19.359 with the door in Europe's on Europe's doorstep, those days 0:02:19.360 --> 0:02:24.120 are gone, I think not. Even the direct intervention for 0:02:24.160 --> 0:02:27.200 the sake of getting moving the change is something that 0:02:27.240 --> 0:02:29.160 I think the ECP would do. It's more a question 0:02:29.160 --> 0:02:34.959 of indicating concern and changing the tonality around that rather 0:02:35.000 --> 0:02:37.440 than direct intervention. I think that's just not in the 0:02:37.480 --> 0:02:39.400 cars right now. So what would they have to say 0:02:39.400 --> 0:02:41.840 I mean, is this basically them coming out and saying, 0:02:41.840 --> 0:02:43.800 there are no great hikes on the horizon, We're going 0:02:43.840 --> 0:02:46.520 to continue all of our emergency purchases in full for 0:02:46.560 --> 0:02:48.960 a prolonged period of time and we have your back. 0:02:49.160 --> 0:02:51.400 Is that basically the idea, and that would weaken the currency, 0:02:51.400 --> 0:02:55.240 It wouldn't necessarily strengthen it. So what could they even say? No? 0:02:55.480 --> 0:02:56.880 I think they would have to go back to the 0:02:56.960 --> 0:02:59.919 narrative of saying that we will raise rates this year 0:03:00.040 --> 0:03:03.160 because the inflation is our top priority and there our 0:03:03.200 --> 0:03:07.359 main objective, and that that will be reflected hopefully in 0:03:07.400 --> 0:03:10.360 their inflation forecast. And we have inflation in Europe somewhere 0:03:10.400 --> 0:03:12.240 around six and a half per cent for this year, 0:03:12.760 --> 0:03:17.119 and that number just cannot stand without being being confronted 0:03:17.160 --> 0:03:19.800 with the policy tradition to admit that they will undoubtedly 0:03:20.240 --> 0:03:23.359 and say that we will now think start thinking about 0:03:23.919 --> 0:03:26.320 moving this year and rather than pushing it further out, 0:03:27.240 --> 0:03:30.359 and then what would that be enough? Though, David, And 0:03:30.680 --> 0:03:32.400 the reason why I asked this is because we've got 0:03:32.400 --> 0:03:35.120 an increasing number of analysts and economists coming on and 0:03:35.160 --> 0:03:37.880 saying we're getting to the point where central banks lack 0:03:38.000 --> 0:03:42.120 the ability to really influence inflation and even growth, given 0:03:42.160 --> 0:03:44.760 some of the exogenous shocks. Do you think that that 0:03:44.800 --> 0:03:48.280 will actually make a difference, a sort of tighter verbiage 0:03:48.280 --> 0:03:50.800 at least from the ECB at a time when the 0:03:50.800 --> 0:03:54.080 economy is getting hammered by some of the pressures from 0:03:54.080 --> 0:03:57.440 the from the invasion. There's no doubt if it went 0:03:57.560 --> 0:04:01.440 for the exchange rate that the raising rates themselves, it 0:04:01.480 --> 0:04:04.240 would feed slowly through the economy, of course, to impact 0:04:04.320 --> 0:04:07.320 on demand, impact on credit availability, and things like that, 0:04:07.440 --> 0:04:10.480 but the exchange rate impact will be dramatic and it 0:04:10.480 --> 0:04:12.960 will be fast. So that's why I said at the 0:04:13.000 --> 0:04:15.960 outset that the best tool for them available is to 0:04:16.120 --> 0:04:18.040 talk up the exchange it as best as they can. 0:04:18.080 --> 0:04:21.919 They will do that by giving the market greatest certainty 0:04:22.040 --> 0:04:25.359 and greater conviction that they will raise rates and that 0:04:25.440 --> 0:04:27.800 they will think in terms of moving towards a positive 0:04:27.839 --> 0:04:31.560 depot rate this year or certainly very early next year. 0:04:31.960 --> 0:04:35.120 That's certainty is important, and I think that you would 0:04:35.120 --> 0:04:37.960 see an immediately beneficial effect for the exchange rate, and 0:04:38.080 --> 0:04:40.719 immediate feed through through inflation would make it much easier 0:04:40.760 --> 0:04:44.080 for them to macro manage the economy. David ruled a 0:04:44.120 --> 0:04:47.520 one thirteen brent crude to one thirteen as well, that's 0:04:47.560 --> 0:04:50.680 just by convenience. And the answer is these are shocks 0:04:50.680 --> 0:04:53.839 to the system as they filter through to the balance 0:04:53.920 --> 0:04:57.640 sheets into the right downs to come. Is commercial banking 0:04:57.800 --> 0:05:02.000 in Europe at risk? No, not at all. I think 0:05:02.040 --> 0:05:05.320 commercial banking in Europe has improved tremendously in terms of 0:05:05.680 --> 0:05:08.760 quality of balance sheet, quality of earnings, so I don't 0:05:08.760 --> 0:05:11.880 think that's an issue now. Clearly, like any other industry, 0:05:13.200 --> 0:05:16.559 these shocks will affect the banking system, but in terms 0:05:16.600 --> 0:05:19.839 of a serious impairment, I don't think that's an issue. 0:05:20.240 --> 0:05:22.920 But but basically, the two big forces in Europe right now. 0:05:23.000 --> 0:05:27.960 One of them is the inflationary impact of the oil price. 0:05:28.080 --> 0:05:30.200 Energy price increases and what that will do to to 0:05:30.400 --> 0:05:33.760 aggregate demand to production manufacturing, and so that's clearly a 0:05:33.760 --> 0:05:35.960 big shock. But on the other hand, you have to 0:05:36.040 --> 0:05:40.800 remember there's also a massive positive demand shock coming from 0:05:40.800 --> 0:05:43.719 the rearmament in Europe, in particularly in Germany. We're talking 0:05:43.720 --> 0:05:46.719 about a hundred billion, not all in one year obviously, 0:05:47.320 --> 0:05:50.239 but the amounts of money that are now in play, 0:05:50.440 --> 0:05:53.760 particularly the early disbursed of the quick dist perseman coming 0:05:53.760 --> 0:05:57.960 out of the europe European funds as such that this 0:05:58.040 --> 0:06:00.520 is a very serious stimulus. So these are the two forces. 0:06:00.560 --> 0:06:03.240 On the one hand, you have the deflationary force coming 0:06:03.279 --> 0:06:05.479 from an energy price increase. On the other hand, you 0:06:05.520 --> 0:06:10.640 have the estimuative force coming from the fiscal expenditure, which 0:06:10.680 --> 0:06:13.240 is which is close to as much as the Americans did, 0:06:13.320 --> 0:06:16.680 not quite but but it's a very very significant impulse. 0:06:16.960 --> 0:06:20.680 What is the significance of euro one sixteen long ago, 0:06:20.839 --> 0:06:23.040 far away, and you were directly involved with this was 0:06:23.080 --> 0:06:26.120 the pricing of a euro in a much more peaceful, 0:06:26.160 --> 0:06:29.599 maybe an ancient time as well. If we see intervention, 0:06:29.680 --> 0:06:33.240 if we balance off against strong dollar, it's not night, 0:06:33.640 --> 0:06:36.599 it's not the financial crisis as well. Here we are 0:06:37.240 --> 0:06:44.640 at one eleven. Is one sixteen the fair value of euro? No? Uh. Ultimately, 0:06:45.480 --> 0:06:50.800 once the ECB indicates incredibly that it will move positive 0:06:50.800 --> 0:06:54.040 on a depo rate and that increases, we would expect 0:06:54.080 --> 0:06:56.919 the euro to go right through one twenty into the 0:06:56.920 --> 0:06:58.640 one thirties. So it will be it will be a 0:06:58.720 --> 0:07:01.320 dramatic change, just the way it happened in two thousand 0:07:01.440 --> 0:07:04.400 fourteen on the other way around. UH. And that's something 0:07:04.440 --> 0:07:06.919 we're quite confident about. So there's nothing there's nothing special 0:07:06.960 --> 0:07:09.880 about one sixteen and it is in fact, there are 0:07:09.960 --> 0:07:12.400 a lot higher than that, regardless of what the e 0:07:12.560 --> 0:07:15.600 c B does. Your comments on fiscal spending, and frankly 0:07:15.640 --> 0:07:19.600 Germany's pledged to actually meet that two or more target 0:07:19.640 --> 0:07:22.680 for military spending is really notable. Do you think that 0:07:22.720 --> 0:07:25.640 because of some of these fiscal expenditures that talks of 0:07:25.680 --> 0:07:31.440 stagflation in Europe are perhaps overblown? Yes, they're definitely overblown. 0:07:33.200 --> 0:07:35.280 I think that when I look at the press and 0:07:35.400 --> 0:07:40.560 I listened to what everybody's saying, the the impact of 0:07:41.240 --> 0:07:44.600 that additional expenditure will be quite dramatic because it will 0:07:44.600 --> 0:07:48.200 support manufacturing all across Era, and it will be spend 0:07:48.320 --> 0:07:51.600 very widely. And also and also the money is coming 0:07:51.640 --> 0:07:54.760 out of the Recovery and Resilience Fund, the quick distperson 0:07:54.880 --> 0:07:57.400 is there. For instance, Italy is already on the way 0:07:57.400 --> 0:08:01.880 to spending six billions just for income maintence to to 0:08:01.960 --> 0:08:05.840 cope with gas price increases, that is income immediately, and 0:08:05.920 --> 0:08:11.080 so we will see a big, big impulse, fiscal impulse 0:08:11.160 --> 0:08:13.600 coming from that. So yeah, so my senses, I do 0:08:13.680 --> 0:08:18.600 not expect that the Ukraine and and the subsequent price 0:08:18.640 --> 0:08:22.400 increases in oil and gas and commodities agricultural as well, 0:08:22.960 --> 0:08:28.760 will have more than half a percent impact on the 0:08:28.800 --> 0:08:31.840 European on growth within the Eurozone, not much more than that. 0:08:31.920 --> 0:08:34.600 What would have to happen, What would have to happen, David, 0:08:35.120 --> 0:08:37.120 for for you to rethink that, for you to think 0:08:37.160 --> 0:08:40.600 that perhaps the impact of higher commodity costs will have 0:08:40.679 --> 0:08:44.080 a greater effect on the prospects of growth. There is 0:08:44.120 --> 0:08:47.360 a seven d pound gorilla in the room, and that 0:08:47.559 --> 0:08:51.479 is if not stream one the gas pipeline gets disrupted 0:08:51.640 --> 0:08:55.280 in otherwids, if either the Europeans are no longer able 0:08:55.320 --> 0:08:58.080 to want to buy buy the gas or from Russia 0:08:58.440 --> 0:09:01.800 or Russia or Russia custom of either way, that will 0:09:01.880 --> 0:09:04.880 be a very very significant chock now Europe, Europe gets 0:09:05.679 --> 0:09:10.400 it's a gas from Russia, Germany more. If that gets 0:09:10.400 --> 0:09:12.400 cut off, then you will have to see some form 0:09:12.400 --> 0:09:17.240 of prioritization. Households come first, industry comes last, and you 0:09:17.280 --> 0:09:19.320 will have a very serious recession in that case. So 0:09:19.440 --> 0:09:21.240 that I think is something that you can sort of 0:09:21.280 --> 0:09:24.240 see it playing into the market now. Some people and 0:09:24.240 --> 0:09:28.480 and and what my drive this is, surprisingly enough, is 0:09:28.520 --> 0:09:32.280 a social media This is the first war major war 0:09:32.440 --> 0:09:35.360 that we see all around the world and social media. 0:09:35.760 --> 0:09:39.520 The Russians attack Kiev, which they will shortly and other cities. 0:09:39.960 --> 0:09:43.480 Everything that goes on, you will find their per video 0:09:44.640 --> 0:09:48.199 around the world. That will create enormous pressure to stop 0:09:48.240 --> 0:09:51.960 buying oil and gas from Russia. And and if that 0:09:52.040 --> 0:09:54.360 gets cut off, and then I think we will see 0:09:54.559 --> 0:09:57.720 much more significant impact in Europe than we've seen so far. David, 0:09:57.920 --> 0:10:00.679 Thank you, sir. As always, David focused land that of 0:10:00.760 --> 0:10:03.880 Deutsche Banks. I'm really important points on Europe and the risks, 0:10:03.960 --> 0:10:12.920 the tail risk around the story at the moment. Laurence 0:10:12.920 --> 0:10:15.920 Somers joins us. He is at Harvard University and of 0:10:15.920 --> 0:10:20.280 course the former Secretary Treasury of the United States. Professor Somers, 0:10:20.280 --> 0:10:22.679 thank you so much for joining this morning. I want 0:10:22.679 --> 0:10:25.480 to go back to mc chesney, Martin, and Truman. I 0:10:25.520 --> 0:10:28.240 want to go back to mc chesney, Martin and Johnson. 0:10:28.360 --> 0:10:31.240 In war, what should a chairman of the Federal Reserve 0:10:31.320 --> 0:10:35.000 System do in a time of crisis? In war? Stay 0:10:35.040 --> 0:10:41.000 on plan or amend to the politicians. Let me just 0:10:41.160 --> 0:10:45.040 first say that I was very proud of our president 0:10:45.240 --> 0:10:48.600 last night. I thought the way in which he spoke 0:10:48.679 --> 0:10:53.520 to the stakes of what we're involved in in Ukraine, 0:10:54.280 --> 0:10:56.959 what we're involved in, and what the obligation of the 0:10:57.040 --> 0:11:00.960 United States is to uphold world warder at a moment 0:11:01.080 --> 0:11:08.480 like this was profoundly important and profoundly inspiring. It We're 0:11:08.480 --> 0:11:12.600 gonna talk about economic and uh financial stuff in just 0:11:12.679 --> 0:11:15.840 a minute, uh Tom, and I'm happy to do that. 0:11:16.400 --> 0:11:24.000 But the real stakes ari in freedom, in the maintenance 0:11:24.240 --> 0:11:31.480 of civilization, in the resistance uh to naked aggression, and 0:11:31.600 --> 0:11:34.040 history is going to remember that a lot longer than 0:11:34.080 --> 0:11:37.800 it's going to remember anything. With the FED funds rate, Larry, 0:11:37.800 --> 0:11:39.480 I think a lot of people would agree with you. 0:11:39.679 --> 0:11:41.760 I'm sorry, so sorry, but to follow on to really 0:11:41.800 --> 0:11:44.000 get to the FED funds rate, you know, what is 0:11:44.040 --> 0:11:47.360 the cost the US is willing to bear when you 0:11:47.440 --> 0:11:50.200 talk about exactly preserving those freedoms, and then the Fed's 0:11:50.320 --> 0:11:52.640 role in trying to tamp down if they already missed 0:11:52.640 --> 0:11:56.480 the boat on that, I think the FED has been 0:11:56.600 --> 0:11:59.520 very late. I think it's been way behind the curve. 0:12:00.240 --> 0:12:02.640 And I think one of the reasons why it's costly 0:12:02.679 --> 0:12:06.360 when you're behind the curve is that sometimes you can 0:12:06.400 --> 0:12:10.000 get shocks that make it harder for you to act. 0:12:10.760 --> 0:12:13.920 But I don't think the FED has any alternative now 0:12:14.559 --> 0:12:20.560 but to mount a strong response to inflation at a 0:12:20.679 --> 0:12:24.360 time when I think we are at or over the 0:12:24.480 --> 0:12:31.640 brink of a spiral of rising inflation UH breaking out. 0:12:32.240 --> 0:12:38.079 You're seeing that in the numbers for expected inflation over 0:12:38.160 --> 0:12:41.320 the next year or over the next couple of years. 0:12:41.800 --> 0:12:44.800 The place you're seeing it most clearly is in the 0:12:44.840 --> 0:12:49.800 wage data and the data on vacancies, which are pointing 0:12:49.880 --> 0:12:54.920 to wage inflation at close to six percent and pressures 0:12:55.000 --> 0:13:00.320 for that to accelerate. And I think that knee to 0:13:00.360 --> 0:13:05.920 be ringing all the alarm bells at UH the FED. 0:13:06.440 --> 0:13:09.280 So I think there's much more risk of the FED 0:13:09.400 --> 0:13:13.000 doing too little than there is of the FED doing 0:13:13.400 --> 0:13:17.680 UH too much at a moment UH like this. I 0:13:17.720 --> 0:13:24.040 think the Fed's obsession with a high pressure economy was 0:13:25.559 --> 0:13:29.960 way excessive because they didn't think about how pressured an 0:13:30.000 --> 0:13:32.120 economy we were going to be able to have over 0:13:32.160 --> 0:13:37.320 the longer term. And I think the next recession probably 0:13:37.440 --> 0:13:42.440 has mistaken monetary policy written all over it. Larry, there 0:13:42.559 --> 0:13:45.920 is a discussion about this before the invasion of Ukraine 0:13:45.960 --> 0:13:49.280 by Russia, that perhaps the FED was way too late 0:13:49.320 --> 0:13:52.000 and had to move very quickly. Now, the suggestion coming 0:13:52.040 --> 0:13:54.480 from markets is that even if the FED moves quickly, 0:13:54.480 --> 0:13:56.760 it's not going to matter in terms of staving off 0:13:57.080 --> 0:13:59.600 a near term recession. It's not going to matter in 0:13:59.679 --> 0:14:02.560 terms of landing this economy in a more controlled way. 0:14:03.000 --> 0:14:09.600 Do you agree with that sentiment. I think the difficulty 0:14:09.679 --> 0:14:13.600 of getting a soft landing where we both brought inflation 0:14:13.760 --> 0:14:18.960 down and we brought and we avoided recession was always 0:14:19.080 --> 0:14:23.160 very difficult, and I think with ten dollar oil it 0:14:23.320 --> 0:14:28.720 is uh that much more difficult. And so I think 0:14:28.760 --> 0:14:32.800 we're gonna have to if we want to bring down inflation, 0:14:33.520 --> 0:14:37.000 uh and we don't have a financial accident, We're going 0:14:37.080 --> 0:14:41.760 to need to see interest rates higher than the FED 0:14:41.960 --> 0:14:46.640 war markets are now priced, are now pricing in Larry 0:14:46.720 --> 0:14:49.880 David focused Landow, of course, of the academics of Duley 0:14:49.920 --> 0:14:53.840 Focus Landown. Garber in a Deutsche Bank now is suggesting 0:14:53.920 --> 0:14:57.600 that EU will need intervention to see strong dollar become 0:14:57.640 --> 0:15:00.000 a weaker dollars worried about two weeks of a year 0:15:00.240 --> 0:15:03.360 as well. He made very clear that this time around 0:15:03.480 --> 0:15:07.200 it is a less than coordinated intervention. Can a singular 0:15:07.320 --> 0:15:12.840 intervention work at any time in place. I don't think 0:15:12.840 --> 0:15:19.440 the track record on currency interventions is very encouraging. I don't. 0:15:19.480 --> 0:15:23.560 I don't envision that you're likely to see uh currency 0:15:23.640 --> 0:15:28.000 intervention by the United States to weaken uh the dollar, 0:15:28.240 --> 0:15:32.640 Nor is that something that I would uh advocate UH 0:15:32.960 --> 0:15:39.360 very much. UH. The contrary, I suspect that Europe's gonna 0:15:39.680 --> 0:15:43.480 that the more relevant tool is uh the use of 0:15:43.520 --> 0:15:48.040 monetary policy rather than currency intervention. Professor Summers, thank you 0:15:48.080 --> 0:15:51.280 so much, the former Secretary of Treasury of the United States, 0:15:51.400 --> 0:15:59.760 Lawrence Summers always from Harvard, Silbert de Gallo, and John. 0:15:59.760 --> 0:16:02.200 What joy to have ALBERTA gool in the studios with us, 0:16:02.200 --> 0:16:04.320 A real symbol of the end of the pandemic, a 0:16:04.400 --> 0:16:07.400 gentleman of Europe is public service to Italy and the Navy. 0:16:07.480 --> 0:16:10.800 And a guy who knows it's priced up and yield down. 0:16:10.960 --> 0:16:12.920 John a friend, How better back. I didn't even know 0:16:13.000 --> 0:16:14.400 he was here in New York until I saw him 0:16:14.400 --> 0:16:16.080 in a commercial break. How better good to see you. 0:16:16.440 --> 0:16:18.800 Let's just start with a massive distication we've seen in 0:16:18.840 --> 0:16:22.400 this European credit market recently. The extent of destruction you've 0:16:22.400 --> 0:16:25.400 seen in the market Albetta and where you've been taking opportunities, 0:16:25.400 --> 0:16:30.200 where you've been taking some purchases in this is a 0:16:30.240 --> 0:16:32.800 bear market, it's a high ball environment. We want to 0:16:32.880 --> 0:16:35.760 be preserving capital and we want to be in companies 0:16:35.800 --> 0:16:39.160 that have government support or shareholder support. Now, the good 0:16:39.200 --> 0:16:43.120 thing is there are regions of the world which are 0:16:43.160 --> 0:16:47.240 in a defense mode in towards state capitalism. Europe has 0:16:47.280 --> 0:16:49.960 supported companies during COVID and we'll continue to do so 0:16:50.560 --> 0:16:53.480 during the next months. So you know, there are names 0:16:53.560 --> 0:16:56.880 that in the in the travel sector, in the industrial 0:16:56.920 --> 0:16:59.800 sector that go down, but then they have sovereign support 0:17:00.000 --> 0:17:02.040 and those are big opportunities and they yield a lot 0:17:02.040 --> 0:17:04.760 more than inflation. You know, think about also the banks. 0:17:05.320 --> 0:17:09.040 So we are buying in these sectors. We were very 0:17:09.040 --> 0:17:11.840 cautious at the beginning of the year and we're buying slowly. 0:17:12.840 --> 0:17:16.960 The weak spot continues to be emerging markets. And when 0:17:17.040 --> 0:17:19.880 people see the FED, you know, doing less, I think 0:17:19.880 --> 0:17:22.439 that's wrong. The FED will continue to tackle inflation that 0:17:22.480 --> 0:17:26.439 will continue to hurt emerging markets together with political and 0:17:26.480 --> 0:17:28.920 geopolitical risk. Better just to pick up on what you 0:17:29.000 --> 0:17:31.199 were talking about and where you're buying, do you do 0:17:31.280 --> 0:17:33.760 that throughout the whole of Europe. Is the revis towards 0:17:33.800 --> 0:17:36.400 a particular part of Europe? How do you think about that? 0:17:37.720 --> 0:17:41.359 We are doing it across However, there are countries in 0:17:41.400 --> 0:17:44.760 the world there are more vulnerable to high commodity prices 0:17:45.200 --> 0:17:48.520 and high energy. So you know, Southern Europe is more vulnerable. 0:17:48.600 --> 0:17:53.280 But outside of the Western European countries, you know, you've 0:17:53.320 --> 0:17:55.560 got Turkey, You've got Egypt, There's a lot of countries 0:17:55.560 --> 0:17:59.840 that are more vulnerable, and um in emerging markets, you 0:18:00.000 --> 0:18:02.600 would say that there's still a mine field. There's still 0:18:02.640 --> 0:18:05.600 a lot of a lot of countries that are going 0:18:05.640 --> 0:18:08.560 to be affected by the combination of high energy prices 0:18:08.560 --> 0:18:12.240 and higher interest rates in the US and a stronger dollar. 0:18:12.359 --> 0:18:15.560 So we're very very cautious there, and we are using 0:18:15.720 --> 0:18:19.280 limited dry powder at this stage. We expect a little 0:18:19.280 --> 0:18:21.719 bit more volatilely later in the year. Alberta, you were 0:18:21.720 --> 0:18:23.520 saying that the FED is still going to high rates 0:18:23.520 --> 0:18:26.280 as much as perhaps people have previously thought, because inflation 0:18:26.359 --> 0:18:28.440 is still very much an issue. Is it the same 0:18:28.480 --> 0:18:30.800 story for the e c B. E c B is 0:18:30.880 --> 0:18:34.400 likely to step back, perhaps only do one hike this year. 0:18:34.840 --> 0:18:37.600 They clearly have a closer issue. But also inflation in 0:18:37.640 --> 0:18:40.560 Europe is a lot more driven by energy, So half 0:18:40.560 --> 0:18:43.080 of the you know, five percent inflation in Europe comes 0:18:43.119 --> 0:18:46.359 from energy. In the US, you know, it's around one 0:18:46.440 --> 0:18:49.000 third of the seven and a half percent CPI year 0:18:49.040 --> 0:18:51.880 on year that comes from energy at least so far. 0:18:52.000 --> 0:18:57.000 So European inflation can still be you know, deemed more transitory. 0:18:57.040 --> 0:18:59.080 But in the US, you know, there's rents, there is 0:18:59.480 --> 0:19:01.639 a serve dess in wages, so it's a kind of 0:19:01.640 --> 0:19:04.320 a different problem here. Does that make you in general 0:19:04.440 --> 0:19:09.080 more bullish ironically on European corporate debt, on European rates 0:19:09.080 --> 0:19:12.520 simply because you have the e c B benchmark at 0:19:12.520 --> 0:19:15.120 a time when the FED is going in the opposite direction. 0:19:16.000 --> 0:19:18.920 That's exactly right. We're in a in the context of 0:19:18.960 --> 0:19:21.840 a bear market for bonds. The place to hide, the 0:19:22.280 --> 0:19:25.320 least bad place to hide is still Europe. And within that, 0:19:25.640 --> 0:19:28.719 in the credit market, you can still find companies and 0:19:28.800 --> 0:19:31.879 sectors that have sovereign support, so you get a less 0:19:31.880 --> 0:19:34.199 howkish e c B and then you get some sovereign 0:19:34.200 --> 0:19:37.800 support for example, to French companies or two UK companies, 0:19:37.800 --> 0:19:41.040 So there are some places to hide in Europe, where 0:19:41.080 --> 0:19:43.400 you are where you want to be kosherous. The most 0:19:43.480 --> 0:19:46.520 is still in e M in my opinion, because you 0:19:46.640 --> 0:19:49.600 have compounded effect of higher commodity prices, which is bad 0:19:49.640 --> 0:19:51.760 for some EM countries, and then you have a stronger 0:19:51.800 --> 0:19:55.000 dollar and higher fed rates. Bet so you mentioned the 0:19:55.040 --> 0:19:57.520 federal reserve. You think they still hike Most people have 0:19:57.560 --> 0:20:00.080 seen as the case. Whether it's own, it's about how 0:20:00.119 --> 0:20:01.680 far they can actually push it. The e c B 0:20:02.640 --> 0:20:04.760 is it even part of the conversation for twenty two anymore? 0:20:04.800 --> 0:20:08.080 As far as you're concerned, it's possibly the one hike 0:20:08.119 --> 0:20:10.960 in in two dozens and twenty two. It really depends 0:20:11.000 --> 0:20:14.120 on how long this lasts. European countries have around five 0:20:14.160 --> 0:20:17.879 months of gas supply of gas reserves, so you know, 0:20:17.920 --> 0:20:22.159 if it's if the conflict in Russia Ukraine is a 0:20:22.160 --> 0:20:25.560 matter of weeks, then you know we could still see 0:20:25.560 --> 0:20:28.680 you know, positive growth and more physical spending. Think about 0:20:28.720 --> 0:20:31.359 Germany up in the defense spending, so it will become 0:20:31.400 --> 0:20:33.920 a reflationary environment which is positive, and the c B 0:20:34.280 --> 0:20:37.720 will have to hike if the last months instead of week, 0:20:38.080 --> 0:20:40.199 If if the war is not over by the summer, 0:20:40.440 --> 0:20:42.920 then we're really looking at um. You know, much lower 0:20:42.960 --> 0:20:45.359 growth in Europe. Let me got a big problem gas 0:20:45.440 --> 0:20:48.400 right now by more than thirty percent in Europe. I better. 0:20:48.440 --> 0:20:50.159 It's great to see. You've got to catch out, buddy, 0:20:50.280 --> 0:20:53.119 hopefully next time in the different circumstances to have a 0:20:53.160 --> 0:21:01.119 more broader conversation about this market. We have done everything 0:21:01.160 --> 0:21:04.080 we can to bring you informed gas on these many 0:21:04.160 --> 0:21:08.000 topics of war, and an informed GAS on oil, on 0:21:08.160 --> 0:21:12.680 supply demand and indeed on international trade. Is Amrita Sand, 0:21:12.760 --> 0:21:16.600 founder of Energy Aspects, out with a spectacular note on 0:21:16.680 --> 0:21:20.159 the realities of what we're reporting. Em Rita sent, I 0:21:20.240 --> 0:21:23.880 learned a long, long time ago to have immense respect 0:21:23.960 --> 0:21:27.560 for the trust of the system, and that trust is 0:21:27.600 --> 0:21:31.680 the basic idea of letters of credit. Tell me how 0:21:31.840 --> 0:21:35.720 letters of credit are going to work now, next week 0:21:35.920 --> 0:21:39.240 into April or to the point of backgradation that John 0:21:39.240 --> 0:21:43.200 Farrell just talked about. Yeah, it's the best question I've 0:21:43.200 --> 0:21:46.560 been asked. I'll tell you that much. Come because you know, 0:21:46.600 --> 0:21:49.359 the problem is exactly like you said, there is no 0:21:49.560 --> 0:21:53.119 letters of credit right now. No nobody is willing to 0:21:53.400 --> 0:21:57.479 issue refiners any bias with letters of credit because of 0:21:57.520 --> 0:22:00.560 the banking uncertainty now what does it looked like in 0:22:00.600 --> 0:22:03.000 a week's time. It's hard for me to say. However, 0:22:03.160 --> 0:22:06.320 I will say this, the US in particular, but even 0:22:06.359 --> 0:22:10.920 some European countries are fearing oil prices gas prices being 0:22:10.960 --> 0:22:12.800 so high it is going to hurt the economy, so 0:22:12.840 --> 0:22:15.919 they want to carve out exemptions. They need to be 0:22:16.040 --> 0:22:19.560 very specific and clear about these exemptions. Once those exemptions 0:22:19.640 --> 0:22:24.159 are announced, then letters of credit can resume again with 0:22:24.440 --> 0:22:27.840 those certain banks and you can see some trade startup. 0:22:27.920 --> 0:22:31.520 But right now it's complete paralysis and RATA in the 0:22:31.560 --> 0:22:34.320 mad time OPEC plus decreeing to raise all output by 0:22:34.400 --> 0:22:39.360 drum roll, four hundred thousand bowers a day in April 0:22:39.400 --> 0:22:42.160 according to a delicate I mean that's nothing. I'm rata 0:22:42.320 --> 0:22:45.480 have a blast on Bloomberg opinion saying the situation called 0:22:45.480 --> 0:22:50.200 for emergency measures. What are those emergency measures? Yes, the 0:22:50.280 --> 0:22:52.119 four on a thousand, and we all know that in 0:22:52.240 --> 0:22:54.359 reality is going to be half of that, because most 0:22:54.400 --> 0:22:58.400 of these countries don't have the spec capacity well emergency measures. 0:22:58.440 --> 0:23:02.320 We saw the idea releasing sixty million barrels of spr 0:23:02.560 --> 0:23:06.000 yesterday night and prices rallied by six dollars on the 0:23:06.000 --> 0:23:09.000 back of that news just tells you. I've been talking 0:23:09.000 --> 0:23:11.160 to traders and they're like, well, if you really wanted 0:23:11.160 --> 0:23:13.960 to make a difference, you needed two hundred million barrels. 0:23:14.440 --> 0:23:17.200 So that's not happening because we don't have that much oil. 0:23:17.640 --> 0:23:20.080 What's the pricing mechanism here? I'm readA You've got some 0:23:20.119 --> 0:23:22.680 people saying this is a completely type market where people 0:23:22.720 --> 0:23:26.160 can't get physically physical delivery, and other people saying there 0:23:26.160 --> 0:23:28.520 are some oil companies that are taking advantage of this 0:23:28.680 --> 0:23:33.320 and kicking up pricing. Which is it? It's the former. 0:23:33.440 --> 0:23:36.160 I mean, look, yes, it's not that the oil isn't there. 0:23:36.200 --> 0:23:38.680 The Russian oil is there, but if you don't want 0:23:38.680 --> 0:23:41.159 to touch it, then you don't have that oil. I 0:23:41.200 --> 0:23:44.920 think it's very important to understand, particularly for Europe, this 0:23:45.000 --> 0:23:48.000 is very short haul barrels. Now, if Europe needs to 0:23:48.040 --> 0:23:50.880 go and get something to substitute for Russian oil, say 0:23:50.960 --> 0:23:53.160