WEBVTT - Central Banks, Ukraine, And The Economy 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.000 at Bloomberg dot com slash podcast. All right, we heard 0:00:22.120 --> 0:00:24.840 from Michael McKee was speaking with the New York Fed 0:00:24.840 --> 0:00:28.280 President today. Rates are going higher. I think the concern 0:00:28.360 --> 0:00:31.520 are one of the several concerns in the marketplace is 0:00:31.800 --> 0:00:35.200 what's the risk of this Fed reserve going too far, 0:00:35.560 --> 0:00:39.960 too fast, maybe pushing this economy into recession. Danielle di Martino, 0:00:40.040 --> 0:00:45.160 Booth CEO and chief strategists at Quill Intelligence, joins us. Danielle, 0:00:45.320 --> 0:00:47.960 how is your federal reserve performing rate here? How and 0:00:48.200 --> 0:00:50.560 how do you expect them to perform for the remainder 0:00:50.560 --> 0:00:54.280 of the year. Well, you know, I think that that 0:00:54.360 --> 0:00:58.680 we can expect Federal Reserve officials to attempt to stay 0:00:58.720 --> 0:01:03.080 the course oh over the next few months. People forget 0:01:03.120 --> 0:01:06.200 that this is a mid term election year, and if 0:01:06.200 --> 0:01:09.080 there's one unwritten rule at the Fed, it's that you 0:01:09.160 --> 0:01:14.560 don't appear overtly political during an election year. So I 0:01:14.600 --> 0:01:17.039 think the reason that so many FED officials, including the 0:01:17.040 --> 0:01:18.640 two most doublished the vice share of the F one, 0:01:19.160 --> 0:01:21.920 John Williams, who was just on Bloomberg and Leo Brainerd. 0:01:22.160 --> 0:01:25.240 I think the reason that they've been corralled by J. 0:01:25.440 --> 0:01:29.560 Powell is that they want to be consistent in their broadcasting, 0:01:29.680 --> 0:01:34.560 that they're going to to be methodical and that they're 0:01:34.560 --> 0:01:36.520 going to raise rate, and that they're they've got a 0:01:36.520 --> 0:01:38.760 goal of getting to neutral, and that they're going to 0:01:38.880 --> 0:01:42.440 try and stay the course into the election, even though 0:01:42.480 --> 0:01:45.200 those last few words they're not saying, but I think 0:01:45.200 --> 0:01:47.920 that that's really the message right now. How do you 0:01:48.440 --> 0:01:50.920 set yourself a goal of getting to neutral when you 0:01:51.000 --> 0:01:55.720 have no idea where neutral is? I just you know, 0:01:55.840 --> 0:01:58.640 nobody can I ask all people all the time, what's neutral? 0:01:58.800 --> 0:02:02.080 What's your our star? And nobody he has an exact answer. 0:02:02.120 --> 0:02:06.520 It's always kind of a wishy, washy spongy guess well, 0:02:06.680 --> 0:02:08.680 and it's going to be right. Because J. Powell was 0:02:08.760 --> 0:02:11.400 determined in two thousand eighteen that he was going to 0:02:11.520 --> 0:02:13.880 get to three, it was as if he had this 0:02:14.000 --> 0:02:17.639 neutral goal in mind. Now. You know, you listen to 0:02:17.680 --> 0:02:21.160 Christopher Waller yesterday, governor who used to be the director 0:02:21.160 --> 0:02:24.359 of research at the St. Louis Fete under Bullard. He said, 0:02:24.400 --> 0:02:27.960 two point and that is the number that it seems 0:02:28.040 --> 0:02:32.200 like things started to break last time in the markets. 0:02:32.240 --> 0:02:35.639 So I think that they can. They can, they can 0:02:35.720 --> 0:02:38.200 have as many models as they want. I think that 0:02:38.240 --> 0:02:41.399 they're simply looking back in time and saying, well, look, 0:02:41.639 --> 0:02:43.639 credit credit broke when we were approaching two and a 0:02:43.680 --> 0:02:46.040 half percent, So let's let's just shoot a little bit 0:02:46.080 --> 0:02:48.440 under that and call it two point four. By the way, 0:02:48.880 --> 0:02:51.600 I have Danielle has a big fan who listens to 0:02:51.600 --> 0:02:53.640 the show every day. We got a lot of fans. No, 0:02:53.720 --> 0:02:57.200 I mean listen to our show every day. Okay, he 0:02:57.280 --> 0:02:59.560 and I talk, but he also has heard Danielle speak 0:02:59.560 --> 0:03:01.640 a few times. He's a big fan. He wants he's 0:03:02.000 --> 0:03:04.200 writing in right now. He wants to do you agree 0:03:04.200 --> 0:03:06.400 with the change in work. That's the you know, the 0:03:06.400 --> 0:03:10.800 Bloomberg function about inflation peaking and the market pricing in 0:03:10.880 --> 0:03:15.440 fewer hikes. You know, I think I don't think that 0:03:15.480 --> 0:03:18.679 the market has priced anything definitively in look at where 0:03:18.680 --> 0:03:21.240 the tenure you'ld is right now and this is just 0:03:21.320 --> 0:03:25.200 off of a stormer than expect University of Michigan expectations 0:03:25.280 --> 0:03:27.320 number that that just crossed the wires a two minutes ago. 0:03:28.160 --> 0:03:31.640 Right now, markets are extremely volatile and I and and 0:03:31.800 --> 0:03:38.080 pricing of future inflation is is really it's undetermined right well, 0:03:38.080 --> 0:03:40.880 but everybody has been saying this is the peak, you know, 0:03:41.480 --> 0:03:44.000 or this is likely the peak. I don't. I don't 0:03:44.000 --> 0:03:47.200 know if I personally buy that. Also, the biggest asset 0:03:47.240 --> 0:03:49.960 managers in the world are betting that the terminal rate 0:03:50.040 --> 0:03:52.160 is going to be about three percent, which I know 0:03:52.200 --> 0:03:54.360 because black Rock came out today and said, Nope, it's 0:03:54.360 --> 0:03:56.480 going to be closer to two. What do you think, 0:03:58.680 --> 0:04:02.440 you know? I think uh, I think that what we're 0:04:02.440 --> 0:04:05.240 seeing and what few two two people are talking about 0:04:05.560 --> 0:04:09.040 is we're seeing that that freight that trucking in America 0:04:09.160 --> 0:04:13.000 hit a wall on in early March. That is a 0:04:13.080 --> 0:04:14.360 sign to you and I think that this is what 0:04:14.400 --> 0:04:18.279 everybody's kind of kind of globbing onto. That's a sign 0:04:18.520 --> 0:04:22.560 that demand in the United States has really come under pressure, 0:04:23.560 --> 0:04:26.480 and that's why we're not seeing all these crazy supply 0:04:26.600 --> 0:04:32.280 Chaine disruption inflationary impulses, despite what's going on in Ukraine 0:04:32.320 --> 0:04:35.000 and despite what's going on in China. I think the 0:04:35.080 --> 0:04:37.799 demanding the United States is really what's hit a wall, 0:04:38.200 --> 0:04:41.320 and that that is what is going to anchor core 0:04:41.440 --> 0:04:46.400 inflation moving forward. But we don't know what food prices 0:04:46.440 --> 0:04:49.760 are going to do, and we're hoping that gas prices 0:04:49.760 --> 0:04:52.000 are coming down. And by the way, University of Michigan 0:04:52.040 --> 0:04:55.280 is a pure play the upside surprise, a pure play 0:04:55.320 --> 0:04:57.160 on the fact that we gave back all of the 0:04:57.200 --> 0:05:00.600 games at the gas pump and came and and pump 0:05:01.120 --> 0:05:04.080 gas prices came down, and that's all you're looking at, 0:05:04.120 --> 0:05:06.920 because it's still at recessionary readings. And I think that 0:05:06.920 --> 0:05:10.400 that is something that shouldn't be shouldn't be lost, and 0:05:10.440 --> 0:05:13.960 we should know that there is no uh Ohio State 0:05:14.279 --> 0:05:18.320 sentiment index because we are focused on the game of football. 0:05:18.600 --> 0:05:21.239 I admit that the University of Michigan is a great school. 0:05:21.760 --> 0:05:26.520 It's an incredible academy. It's an institution for higher learning, 0:05:26.560 --> 0:05:29.000 and I love ann Arbor. It's a great place to go, 0:05:29.200 --> 0:05:32.240 except for when they're playing Ohio State, because then they 0:05:32.279 --> 0:05:34.200 lose and it's so depressed. I know, I know, I 0:05:34.240 --> 0:05:35.880 just wanted to get get that in there. All right, 0:05:35.960 --> 0:05:38.920 So Danielle, just real quickly, here is my federal Reserve 0:05:39.000 --> 0:05:40.919 going to deliver a soft landing for me? Or are 0:05:40.960 --> 0:05:44.640 we gonna risk recession? Maybe next year? Oh heck no. 0:05:44.839 --> 0:05:47.200 And I don't think recession is the next year proposition. 0:05:47.600 --> 0:05:52.240 Oh look, look, what have we had a tenure expansion, 0:05:52.240 --> 0:05:55.320 a twelve year expansion right now we're talking about a 0:05:55.520 --> 0:05:58.560 two and a half year expansion, give or take. Why 0:05:58.680 --> 0:06:02.960 is the why? Why is the general operating assumption that 0:06:03.040 --> 0:06:05.919 we're going to go into recession as slowly as we have. 0:06:06.520 --> 0:06:10.680 We've really protracted elongated expansion. When this expansion in the 0:06:10.839 --> 0:06:14.719 entire cycle has been compressed into a time machine. I 0:06:14.760 --> 0:06:16.880 think that I think that I think it's species to 0:06:16.880 --> 0:06:18.960 say you're gonna have your eighteen months runway. I think 0:06:19.240 --> 0:06:22.039 people are worried that you know, this monitor, uh what 0:06:22.080 --> 0:06:24.240 do you call it? Modern monetary theory has brought in 0:06:24.200 --> 0:06:27.919 an incredible inflation. And now look, Ira Jersey says, not 0:06:27.960 --> 0:06:30.560 a question of um, you know, if we're gonna have 0:06:30.600 --> 0:06:33.919 a recession, but what kind it's gonna be? I couldn't 0:06:33.920 --> 0:06:38.000 agree more. We've only tacked on two trillion dollars more 0:06:38.440 --> 0:06:42.360 in corporate debt since Operate the nineteen so more things 0:06:42.360 --> 0:06:45.200 can break. Yep. Absolutely. Daniel D. Martino, Booth CEO and 0:06:45.240 --> 0:06:53.120 Chief Strategies a quick intelligence giving us her thoughts. We 0:06:53.240 --> 0:06:55.960 have a great pleasure ed prices in the studio with 0:06:56.000 --> 0:07:00.000 a senior fellow and former British trade official senior foul 0:07:00.279 --> 0:07:03.960 at at n y u and former British trade official. 0:07:04.480 --> 0:07:08.520 Uh he's a political economist. He represented Her Majesty's government 0:07:09.000 --> 0:07:14.400 to Wall Street and uh US official sector from seventy 0:07:14.480 --> 0:07:18.200 one and um he's Uh. I guess you specialize in 0:07:18.320 --> 0:07:22.280 German economic history, but you look at obviously the entire world. 0:07:22.360 --> 0:07:24.520 Is that fair? Yes? I think, like you know, German 0:07:24.560 --> 0:07:26.360 history is always in my mind. I think it's a 0:07:26.400 --> 0:07:28.480 good a good benchmark for a lot of things, particularly 0:07:28.480 --> 0:07:31.480 if we're gonna talk about inflation. Of course, yeah, the 0:07:31.520 --> 0:07:35.240 Weimar Republican the hyper inflation is um the big scare 0:07:35.240 --> 0:07:37.000 and that's why Germans hate it so much. But I 0:07:37.000 --> 0:07:39.400 think we all hate inflation. I mean, Ronald Reagan hated 0:07:39.440 --> 0:07:42.960 inflation as much as any German. Um. Uh. Somebody asked 0:07:42.960 --> 0:07:45.480 me today, who's your least favorite German politician. And I 0:07:45.520 --> 0:07:49.960 was thinking, Um, first of all, I didn't any I like, 0:07:50.280 --> 0:07:51.800 I like a lot of them on both sides of 0:07:51.840 --> 0:07:55.200 the aisle. There's very there's not as much differentiation there 0:07:55.200 --> 0:07:58.000 as there is here, at least of the two parties. 0:07:58.240 --> 0:08:00.120 But I thought, you know what, when I was the 0:08:00.160 --> 0:08:04.600 G twenty in Hamburg, um, angl a miracle got like 0:08:04.640 --> 0:08:07.040 a standing ovation from all the other leaders. She was 0:08:07.160 --> 0:08:11.200 clearly leading the free world right um and and it 0:08:11.240 --> 0:08:16.240 was amazing, like she was the hero. And now in hindsight, 0:08:16.640 --> 0:08:20.760 we realized she's been appeasing Vladimir Putin for years and 0:08:20.840 --> 0:08:25.360 making Germany dependent on Russian oil and gas. They're basically 0:08:25.560 --> 0:08:31.280 fun funding his war in Ukraine, these atrocities, um that 0:08:31.320 --> 0:08:34.400 we're that we're watching. How does how does Anglo miracle 0:08:34.440 --> 0:08:37.800 go down in history? I mean it's that's a profound question, 0:08:37.920 --> 0:08:41.760 right And to use the word appeasement um of Germans 0:08:42.200 --> 0:08:44.440 is sort of metso ironic and you have, you know, 0:08:44.480 --> 0:08:47.000 you have to sit down and think about that. That's 0:08:47.000 --> 0:08:50.200 why you chose it was. I appreciate it. Um, Yeah, 0:08:50.200 --> 0:08:52.240 how does she go down in history? Right now? Not 0:08:52.360 --> 0:08:55.760 that well? And I suppose if you want to think 0:08:55.800 --> 0:08:59.080 about why the Germans were taking in all that gas 0:08:59.120 --> 0:09:02.360 and why they were appeasing Russia, maybe there was some 0:09:02.400 --> 0:09:04.840 sort of back in their mind war guilt. You know, 0:09:05.200 --> 0:09:07.920 we invaded the Russians twice, we caused a lot of damage, 0:09:08.240 --> 0:09:11.480 and maybe we have some sort of historical responsibility to 0:09:11.480 --> 0:09:15.880 bring the Russians back into the European fold. And again, ironically, 0:09:16.160 --> 0:09:18.080 they are not in the European fold, and they seem 0:09:18.120 --> 0:09:20.600 to have used this relationship with Germany to to break 0:09:20.640 --> 0:09:22.840 away from what you might call norms. It's crazy. I 0:09:22.920 --> 0:09:25.080 was over there for the last six years in Berlin, 0:09:25.120 --> 0:09:27.600 and I kept running into like Dan Yet, the U 0:09:27.679 --> 0:09:30.240 S Energy Minister. At every time, I'll tell you, Dan, 0:09:30.240 --> 0:09:31.600 what are you doing here? He's like, I'm trying to 0:09:31.640 --> 0:09:34.120 get these guys to buy our l en g I'm 0:09:34.120 --> 0:09:35.960 trying to get them to build more terminals so they 0:09:35.960 --> 0:09:38.480 can accept our gas and not buy all the stuff 0:09:38.480 --> 0:09:41.160 from Vladimir Putin and a shut down Nords dream too. 0:09:41.200 --> 0:09:44.560 Obviously he was unsuccessful. I mean, I guess they wish 0:09:44.640 --> 0:09:48.320 they would have now, But is it even possible for 0:09:48.679 --> 0:09:51.480 Western Europe to cut off Russian oil and gas or 0:09:51.520 --> 0:09:54.280 would they be kind of shooting themselves in the foot. Well, 0:09:54.280 --> 0:09:56.559 it's certainly possible for Putin to shoot them in the 0:09:56.559 --> 0:09:59.319 foot and cut off at least some of that gas. Right, 0:09:59.360 --> 0:10:01.920 So I think it's definitely it's now become clear that 0:10:01.920 --> 0:10:05.280 that's a major security risk. Uh. And so whether it's 0:10:05.320 --> 0:10:08.199 possible to the upside, whether they can actually pivot back 0:10:08.240 --> 0:10:12.000 to US oil production, one would hope. Um, Now, of course, 0:10:12.120 --> 0:10:13.720 I mean, you guys, tell me what you think about this, 0:10:13.760 --> 0:10:15.680 but you're immediately going to drive into the wall of 0:10:15.800 --> 0:10:19.640 the climate lobby. Um. Possibly correctly, right, But it's on 0:10:19.679 --> 0:10:22.000 the one hand, on the other hand, situation, Um, so 0:10:22.200 --> 0:10:25.120 we need to pump. Do you want to finance war crimes? 0:10:25.520 --> 0:10:27.319 Do you want to mind more dirty call? Do you 0:10:27.360 --> 0:10:30.840 want to roast to death? Which way like atomic weapons? 0:10:31.000 --> 0:10:34.719 Or slowly? So we we heard from Christine Leguard I 0:10:34.920 --> 0:10:37.920 m F this morning. It gives us your sense of 0:10:37.960 --> 0:10:41.000 how the world's banks to fair. The e c B, 0:10:41.240 --> 0:10:44.320 the Bank of England. How coordinated are they in terms 0:10:44.320 --> 0:10:47.599 of trying to bring down inflation? We've got a reopening economy. 0:10:48.120 --> 0:10:52.280 How are they in Canada? Don't forget forget fends, they're 0:10:52.280 --> 0:10:54.560 all fighting the same inflation. Right, Hopefully they're on the 0:10:54.559 --> 0:10:56.959 phone with each other, one would hope. Yeah, I think 0:10:57.000 --> 0:10:58.640 I think the central bank has talk to each other 0:10:58.679 --> 0:11:01.800 all the time. How coordinates coordinated there are in actual 0:11:01.840 --> 0:11:04.120 policy terms remains to be seen, and I think the 0:11:04.240 --> 0:11:06.960 CBS behind But if you're asking me my sense of it, 0:11:07.040 --> 0:11:09.840 I think all central banks around the world are realizing 0:11:10.080 --> 0:11:13.000 two two things right. Number one, fat currency is a 0:11:13.000 --> 0:11:16.079 massive experiment, and number two, we've been running an experiment 0:11:16.120 --> 0:11:21.560 within an experiment with endless que So an M T right, MMC, 0:11:21.640 --> 0:11:24.559 Please don't get me started on M T R. So, 0:11:24.679 --> 0:11:26.680 I mean how much money did we spend, not just 0:11:26.760 --> 0:11:28.920 monetary policy, right, how much money do we spend in 0:11:28.960 --> 0:11:33.120 fiscal um since the pandemic started, and we at least 0:11:33.160 --> 0:11:35.880 brought ourselves out of a recession quickly. But the questions 0:11:35.880 --> 0:11:38.920 are we headed right back down there with massive inflation 0:11:39.440 --> 0:11:41.560 um to join it. I think the answer is yes, 0:11:41.559 --> 0:11:44.679 So a nine trillion dollar balance sheets and absurdity. And 0:11:44.800 --> 0:11:47.920 if you remember, we were talking about inflation being transitory passing, 0:11:48.280 --> 0:11:51.280 we kind of moved from passing to persistent, and now 0:11:51.320 --> 0:11:53.640 I think we need to move from persistent to pernicius 0:11:53.679 --> 0:11:55.600 and the Fed really does need to get a handle 0:11:55.640 --> 0:11:58.000 on this. I understand that there's a war in Ukraine. 0:11:58.040 --> 0:12:00.560 I understand that there are all sorts of other financial 0:12:00.600 --> 0:12:03.760 markets reasons for like, you know, keeping the juice going, 0:12:04.120 --> 0:12:06.960 But this is going to become a disaster. Eight could 0:12:06.960 --> 0:12:08.800 be ten, and if it's ten, you could imagine twins. 0:12:08.840 --> 0:12:11.760 So you think they should be quicker with much QT, 0:12:12.400 --> 0:12:14.439 much quicker with QT, much quicker with hikes. So you're 0:12:14.480 --> 0:12:17.599 not in the camp that the CPI inflation reading we 0:12:17.720 --> 0:12:20.480 just got is the peak. I don't think it matches 0:12:20.520 --> 0:12:22.000 if it's the peak. I mean, what if it goes back, 0:12:22.080 --> 0:12:23.800 goes back down to seven? I mean, who cares? This 0:12:23.840 --> 0:12:25.560 is a major problem. This is eating into people, and 0:12:25.600 --> 0:12:27.520 this is something like I guess one of my questions 0:12:27.559 --> 0:12:29.760 has always been, dude, those costs don't go back down, right, 0:12:29.840 --> 0:12:33.920 I've been watching My from in January is fifty grand. 0:12:34.200 --> 0:12:36.720 In February, mid February they raised it to fifty three. 0:12:37.000 --> 0:12:40.240 You know, now the beginning of March it was did 0:12:39.840 --> 0:12:44.599 get no, I'm talking we're talking about the forward f 0:12:44.720 --> 0:12:47.120 one fifty for Matt Miller. It's a big issue that 0:12:47.280 --> 0:12:49.480 just that's a general term I really am trying to 0:12:49.480 --> 0:12:55.840 decide between a GMC Sierra four X and the Chevy Stilverado. 0:12:55.920 --> 0:12:59.120 But in any case, the point is the prices stay elevated, right, 0:12:59.120 --> 0:13:01.320 they still sift of gas and food. Hopefully they'll come 0:13:01.320 --> 0:13:03.680 back down. Prices upwardly sticky. Let's be weird like that. 0:13:03.880 --> 0:13:06.400 And I've been looking at the Toyoto Super myself like 0:13:06.520 --> 0:13:09.000 that thing looks like a beast. So you know what 0:13:09.080 --> 0:13:12.720 I mean. Share development with BMW is a kind word. Yes, yes, 0:13:15.160 --> 0:13:18.240 I'm trying to be right now. Yeah, you cause I'm 0:13:18.440 --> 0:13:20.960 a fan. Okay, cool, I'm driving a Subaru, so if 0:13:20.960 --> 0:13:22.560 you want me to leave right nice? No, No, that's 0:13:22.600 --> 0:13:26.920 a boxer motor. I love it and very reliable that 0:13:27.000 --> 0:13:30.520 Consumer Reports ranks Subaru as one of the greatest brands 0:13:30.559 --> 0:13:32.520 of all car brands in the world. So I'm feeling 0:13:32.520 --> 0:13:35.520 good about my choice. Yeah, thank you. What's our fed dude? 0:13:35.520 --> 0:13:37.800 Next there? And I mean fifty basis points? Do I 0:13:37.800 --> 0:13:40.400 have multiple fifty basis point moves from my federal reserve? 0:13:40.679 --> 0:13:43.520 I'd like to see that. Um No, probably. I mean 0:13:43.520 --> 0:13:46.080 they're they're very hesitant, aren't they about even suggesting they'll 0:13:46.080 --> 0:13:48.800 do one? I mean they've said they might, um, but 0:13:49.720 --> 0:13:52.839 my guess on it says they're gonna be four coming off. 0:13:52.880 --> 0:13:54.959 I'd like to see that too. Um. But I think 0:13:54.960 --> 0:13:57.040 that if they do that, there's a moment in markets 0:13:57.080 --> 0:13:58.760 right where the markets are like, oh what is this? 0:13:59.559 --> 0:14:01.200 H If you do it once, you've kind of broken 0:14:01.200 --> 0:14:04.360 the seal. And so they're facing two panics, right They're 0:14:04.360 --> 0:14:07.640 facing either the real economy panicking because we can't buy 0:14:07.679 --> 0:14:09.160 the things that we want to buy, and on the 0:14:09.160 --> 0:14:12.320 other hand, they're facing the financial market panic potentially in 0:14:12.360 --> 0:14:14.880 which markets stone around in side. You imagine four fifty 0:14:14.880 --> 0:14:18.400 basis point hikes. That sounds crazy, but it brings us 0:14:18.440 --> 0:14:21.720 only to two and a quarter percent. Still nothing. So 0:14:21.760 --> 0:14:24.880 what does normalization mean? Yeah, okay, normalization doesn't mean anything 0:14:24.920 --> 0:14:26.680 right now, We're still going to be in a very 0:14:26.720 --> 0:14:29.160 loose environment even with that kind of even with that 0:14:29.240 --> 0:14:31.280 kind of piking, Good time to buy a house, all right, 0:14:31.400 --> 0:14:33.880 Ed Brice, thank you so much, and senior fellow n 0:14:34.040 --> 0:14:37.400 y U, former British trade official. Remember the Economic Club 0:14:37.480 --> 0:14:39.200 of New York? Do they actually have it like a clubhouse? 0:14:39.280 --> 0:14:41.800 That's a big deal, that's that's a big old club. Actually, 0:14:42.080 --> 0:14:43.560 did they have a clubhouse to I mean, where do 0:14:43.640 --> 0:14:45.680 they think they meet? They probably meet it like the 0:14:45.720 --> 0:14:49.600 Metropolitan Club or something. And I mean I took economic time. 0:14:49.720 --> 0:14:51.160 Can I get in there? I don't know what you 0:14:51.160 --> 0:14:54.160 have to do to join it? Alright, thank you so much. 0:14:54.200 --> 0:15:01.040 We appreciate it. Looking at the wall, worry a new 0:15:01.080 --> 0:15:04.280 brick has recently been added over the past couple of months, 0:15:04.320 --> 0:15:07.640 and that is geopolitical risk, as you have a hot 0:15:07.680 --> 0:15:10.480 war now in Ukraine, and that there is another issue 0:15:10.480 --> 0:15:13.880 for investors to digest. Sedec Wabba joins us. He is founder, 0:15:13.960 --> 0:15:19.040 chairman and managing partner of I Squared Capital. Sedec. You know, 0:15:19.320 --> 0:15:23.400 we have this hot war in Ukraine. It feels so 0:15:23.520 --> 0:15:26.200 twentieth century that people, I think, I have a hard 0:15:26.240 --> 0:15:29.000 time kind of really appreciating the impacts. How do you 0:15:29.080 --> 0:15:34.840 think about that in terms of your investment outlook great 0:15:34.880 --> 0:15:37.720 to be with you, Matt, and I appreciate the invite. 0:15:38.600 --> 0:15:43.040 My biggest concern is the impact the war who is 0:15:43.080 --> 0:15:47.680 having on global inflation and US inflation in particular. So 0:15:47.720 --> 0:15:50.760 the numbers came out two days ago, eight point five 0:15:50.800 --> 0:15:56.400 percent increase in March compared to seven point nine you 0:15:56.440 --> 0:15:59.640 had one point to percent increase in one month. That 0:15:59.680 --> 0:16:04.800 increase will continue, and I suspect inflation will be around 0:16:04.880 --> 0:16:08.960 ten plus by the summer. So that puts enormous pressure 0:16:09.280 --> 0:16:13.600 on the Federal Reserve to increase interest rates, and that 0:16:13.720 --> 0:16:17.760 of course is not going to help the economy. My senses, 0:16:18.000 --> 0:16:24.120 we are sleepwalking towards global economic crisis unless this Ukraine 0:16:24.200 --> 0:16:27.800 situation get resolved. I want to jump in and say, 0:16:28.000 --> 0:16:32.200 first of all, that was Paul. Uh, that that was Paul. 0:16:32.320 --> 0:16:36.520 This is Matt. I'm just saying, OK, we we we 0:16:36.600 --> 0:16:40.280 look a lot like on the radio. UM. First of all, 0:16:40.320 --> 0:16:42.520 hello and thanks so much for joining us. Great talking 0:16:42.520 --> 0:16:46.320 to you. UM, I want to know what you think about, UM, 0:16:46.440 --> 0:16:48.840 you know the U s economy in this context? Are 0:16:48.880 --> 0:16:52.920 we are we headed towards a recession with ten percent inflation? 0:16:52.960 --> 0:16:59.080 That sounds like a horrible situation. I think if the 0:16:59.120 --> 0:17:03.080 war in Ukraine is not resolved relatively quickly, you will 0:17:03.120 --> 0:17:07.440 have the trifecta of a pandemic of a global logistics 0:17:07.600 --> 0:17:12.080 Chaine supply crisis and war that has pushed energy prices, 0:17:12.160 --> 0:17:17.120 commodity prices, food prices way way up, and that yes, 0:17:17.400 --> 0:17:21.439 will probably lead to a recession. UM. I give you. 0:17:21.440 --> 0:17:25.880 One simple example, we passed one point two trillion infrastructure bill. 0:17:26.320 --> 0:17:28.920 The cost of construction has gone up by more than 0:17:30.280 --> 0:17:34.040 that means that that infrastructure bill, at one point to trillion, 0:17:34.400 --> 0:17:39.600 has already lost so it's lost two billion dollars of 0:17:39.680 --> 0:17:43.760 its purchasing power. So that's a problem. So are we 0:17:43.800 --> 0:17:46.919 going to get any more fiscal help? You think, um, 0:17:47.160 --> 0:17:50.560 because we've fallen off this fiscal cliff. It's kind of 0:17:50.600 --> 0:17:55.359 a cliche now, but it's true. And you know, on 0:17:55.200 --> 0:17:58.720 one hand, a lot of that fiscal spending is to 0:17:59.160 --> 0:18:04.160 um is getting the blame for inflation. On the other hand, Um, 0:18:04.200 --> 0:18:09.600 can we really go cold Turkey without any more? No, 0:18:09.760 --> 0:18:12.440 you can't. So so you have to continue to invest, 0:18:12.760 --> 0:18:18.200 but invest productively in areas where that has a positive 0:18:18.240 --> 0:18:21.919 effect on American productivity. That has to continue to happen, 0:18:22.840 --> 0:18:25.400 and that is in fact what the Biden administration is doing. 0:18:25.760 --> 0:18:30.720 They're trying to ensure that the infrastructure bill, which is 0:18:30.720 --> 0:18:34.680 the biggest bill we've ever had, is allocated properly across 0:18:34.760 --> 0:18:39.160 productive projects across the US. So that is certainly going 0:18:39.200 --> 0:18:42.440 to be a huge plus, and that has to continue. 0:18:42.720 --> 0:18:44.840 I think the other element is to be able to 0:18:44.880 --> 0:18:48.960 have a synchronized effort globally to try and stop the 0:18:49.000 --> 0:18:51.800 war in Ukraine, because that is going to be the 0:18:51.840 --> 0:18:55.600 biggest positive impact it can have on the global economy. 0:18:55.840 --> 0:18:59.280 In terms of US infrastructure, select, where do you think 0:18:59.320 --> 0:19:02.320 the priorities be. I'll take your minds minus the Gateway project, 0:19:02.359 --> 0:19:05.560 getting some new tunnels connecting New Jersey and New York 0:19:05.600 --> 0:19:09.000 and Amtrak. I've been lobbying that forever. Where do you 0:19:09.040 --> 0:19:13.440 think the money should be spent? So the most efficient 0:19:13.520 --> 0:19:16.320 way today is to spend the money on things that 0:19:16.359 --> 0:19:20.320 needs immediate repair. Why because you don't have to wait 0:19:20.359 --> 0:19:22.600 another three or four years of planning to be able 0:19:22.640 --> 0:19:26.159 to do that. So things that have broken bridges that 0:19:26.200 --> 0:19:29.879 are almost falling are the easiest target. Whether is the 0:19:29.920 --> 0:19:33.000 most impact, the biggest bank for your buck, And that 0:19:33.200 --> 0:19:36.840 is what is in fact the administration currently doing. The 0:19:37.000 --> 0:19:42.040 next will be to really focus on energy supply and 0:19:42.720 --> 0:19:45.560 adopt on all of the above strategy. Right, so, we 0:19:45.640 --> 0:19:50.240 realize that we need to ensure independence but also the 0:19:50.280 --> 0:19:55.520 independence of allies in Europe, and so that means accelerating 0:19:55.840 --> 0:20:00.480 energy projects and ensuring that that will allow gas to 0:20:00.600 --> 0:20:05.200 flow into Western Europe, which I think indirectly should help 0:20:05.640 --> 0:20:09.480 accelerate the end of the war. As an investor, sodic, 0:20:09.640 --> 0:20:14.800 are there infrastructure projects that you think have decent returns 0:20:14.920 --> 0:20:19.480 right now? What's the what's the what's the environment look like? Look, 0:20:19.800 --> 0:20:23.359 the environment is generally positive. Of course, everything is expensive, 0:20:23.440 --> 0:20:27.120 even though there's been a market adjustment, but real assets 0:20:27.119 --> 0:20:31.720 haven't yet adjusted the way that probably should. But you 0:20:31.800 --> 0:20:35.520 have investments in digital infrastructure, which continues to be very important. 0:20:36.240 --> 0:20:40.080 You have investments in renewables in solar and wind, which 0:20:40.119 --> 0:20:43.080 is going to be critical. And I think investment in 0:20:43.800 --> 0:20:49.359 basic infrastructure associated with the transport of gas across the 0:20:49.480 --> 0:20:53.000 US to ensure that you can unblock the supply of 0:20:53.040 --> 0:20:56.720 gas for export purposes, that's going to be an important element. 0:20:57.720 --> 0:20:59.760 So so that at the beginning of this pandemic, you know, 0:20:59.760 --> 0:21:03.600 when supply chain issues became so apparent to so many people, 0:21:04.119 --> 0:21:08.120 there's certainly talk about on shoring more of our supply chain. 0:21:08.359 --> 0:21:10.760 Is that something you think this U s economy has 0:21:10.760 --> 0:21:16.480 an appetite force, that's something that should occur. It. Look, 0:21:16.640 --> 0:21:19.000 the strategy is from a just in time to just 0:21:19.160 --> 0:21:22.560 in case. Uh, that just in case, of course comes 0:21:22.560 --> 0:21:27.000 at an expense. Right The fact is Europe was buying 0:21:27.040 --> 0:21:30.840 gas from Russia and not from other Reasians. It's because 0:21:30.840 --> 0:21:34.720 it's cheaper. So the moment we start on shoring as 0:21:34.720 --> 0:21:38.520 opposed to offshoring, we will by definition increase the cost 0:21:38.680 --> 0:21:42.800 to the consumers and that will also fuel inflation. And 0:21:42.840 --> 0:21:45.720 so from that perspective, it's a choice that consumers have 0:21:45.800 --> 0:21:49.120 to make. I think in times of crisis that's what happens. 0:21:49.160 --> 0:21:52.720 But I think once that stabilizes, I would not be 0:21:52.800 --> 0:21:58.280 surprised that we returned to a more balanced offshore on 0:21:58.480 --> 0:22:01.879 shore type of strategy. Alright, sedek Wabba, thank you so 0:22:01.960 --> 0:22:05.560 much for joining us. Todek Wabba, Founder, chairman and managing 0:22:05.600 --> 0:22:08.560 partner of I Squared Capital. Matt, you ever think we're 0:22:08.560 --> 0:22:14.159 gonna build a silicon chip factory here in the US, Yeah, 0:22:14.200 --> 0:22:17.000 for sure, I'm They're they're building chip factories here in 0:22:17.040 --> 0:22:18.760 the US right now. I believe one in the great 0:22:18.760 --> 0:22:22.440 state of Ohio, at least one. UM And I think 0:22:22.440 --> 0:22:24.280 Sodic makes a great point. You know it's going to 0:22:24.400 --> 0:22:28.440 be more expensive obviously, UM, you can't treat workers here 0:22:28.520 --> 0:22:34.880 the way you do in low costs labor nations. And UM. 0:22:35.320 --> 0:22:38.920 On the other hand, though, maybe we're willing to spend 0:22:39.200 --> 0:22:42.000