1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along

2
00:00:09,240 --> 00:00:13,080
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring

3
00:00:13,119 --> 00:00:17,159
Speaker 1: you insight from the best and economics, finance, investment, and

4
00:00:17,280 --> 00:00:23,280
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg

5
00:00:23,360 --> 00:00:30,240
Speaker 1: dot com, and of course on the Bloomberg Terminal. Chris

6
00:00:30,280 --> 00:00:33,160
Speaker 1: Halfey of Well Found mistake for two thousand joints now

7
00:00:33,400 --> 00:00:36,680
Speaker 1: the head of Ectday Strategy. You're line Chris, the high

8
00:00:36,720 --> 00:00:43,520
Speaker 1: volume cathartic puke. We were waiting for Chris. What's that? Well?

9
00:00:43,680 --> 00:00:46,600
Speaker 1: First off, that's my scientific term, and typically what we

10
00:00:46,720 --> 00:00:48,920
Speaker 1: see at the end of the sell off is we

11
00:00:49,040 --> 00:00:51,840
Speaker 1: see volume increase, we see money moved from the weaker

12
00:00:51,880 --> 00:00:54,360
Speaker 1: hands to the stronger hands. And that's exactly what we

13
00:00:54,400 --> 00:00:57,280
Speaker 1: saw yesterday. Yesterday there were probably three things that we

14
00:00:57,360 --> 00:00:59,440
Speaker 1: wanted to see and three things that we got. The

15
00:00:59,560 --> 00:01:02,160
Speaker 1: vics at thirty nine are close to thirty nine. We

16
00:01:02,200 --> 00:01:05,560
Speaker 1: don't think that's sustainable based on the fundamentals. U two,

17
00:01:05,600 --> 00:01:08,560
Speaker 1: you had small caps, I'll perform large. That's typically what

18
00:01:08,640 --> 00:01:11,440
Speaker 1: you see when you you have a very aggressive hedge

19
00:01:11,480 --> 00:01:13,520
Speaker 1: fund de grossing or the end of a very hedge

20
00:01:13,959 --> 00:01:16,920
Speaker 1: aggressive hedge fund de grossing. And the last thing is, again,

21
00:01:16,959 --> 00:01:20,040
Speaker 1: as you you point out so eloquently, that cathartic pute

22
00:01:20,040 --> 00:01:23,840
Speaker 1: that we need that, that capitulation of those weaker hands,

23
00:01:23,880 --> 00:01:26,160
Speaker 1: and now we can move forward. And that's exactly what.

24
00:01:26,160 --> 00:01:28,880
Speaker 1: What about the Catharsis across the x X as we

25
00:01:28,920 --> 00:01:31,520
Speaker 1: seem to be doing Catharsis in a three hour span,

26
00:01:32,080 --> 00:01:34,000
Speaker 1: I don't buy that. If you go back to John

27
00:01:34,040 --> 00:01:38,360
Speaker 1: Maggie in a slower maybe forty four and a slower time,

28
00:01:38,800 --> 00:01:41,640
Speaker 1: Catharsis took a couple of days, even a week is

29
00:01:41,680 --> 00:01:46,200
Speaker 1: the new Catharsis minutes? Tom, You know, everything happens fast

30
00:01:46,360 --> 00:01:49,160
Speaker 1: enough nowadays. So can we have more of a sellout?

31
00:01:49,280 --> 00:01:52,560
Speaker 1: Sure we can, But yesterday was one heck of a

32
00:01:52,600 --> 00:01:55,640
Speaker 1: sell off. I think every time I looked down, we

33
00:01:55,640 --> 00:01:58,080
Speaker 1: were gapping lower. Um, if you looked at some of

34
00:01:58,120 --> 00:02:01,000
Speaker 1: the stories, we did hear about some edge fun liquidation,

35
00:02:01,360 --> 00:02:03,640
Speaker 1: we did hear about margin calls, we did hear about

36
00:02:03,680 --> 00:02:07,279
Speaker 1: some capitulation on the retail side. And I guess, as

37
00:02:07,280 --> 00:02:11,680
Speaker 1: we were saying before, everything just happened a bit quicker nowadays. Okay,

38
00:02:11,720 --> 00:02:13,920
Speaker 1: well it's quicker nowadays, I'll go with that. So do

39
00:02:13,960 --> 00:02:16,080
Speaker 1: you do? You step in and by this morning, what

40
00:02:16,160 --> 00:02:20,480
Speaker 1: does ubs suggest someone do with not ample cash, but

41
00:02:20,600 --> 00:02:27,480
Speaker 1: someone managing retail or institutional portfolio does have cash. It's

42
00:02:27,520 --> 00:02:31,600
Speaker 1: one one this morning an so Lasa did the rest

43
00:02:31,600 --> 00:02:33,680
Speaker 1: of the show with Alice, which let's fight say. It's

44
00:02:33,720 --> 00:02:35,880
Speaker 1: what people have been waiting full for the last few years.

45
00:02:36,120 --> 00:02:39,639
Speaker 1: Just what do you buying? Don't don't know what? Well?

46
00:02:40,000 --> 00:02:44,360
Speaker 1: I mean, I don't know what you do? Wow, this

47
00:02:44,400 --> 00:02:48,600
Speaker 1: has got off the rails. Roll past. Anyway back to

48
00:02:48,639 --> 00:02:51,960
Speaker 1: our show. We think you should be buying here. Yesterday

49
00:02:52,080 --> 00:02:54,000
Speaker 1: midday we wanted to get a note out. I couldn't

50
00:02:54,000 --> 00:02:56,320
Speaker 1: do it quick enough and we were looking for a

51
00:02:56,320 --> 00:02:59,080
Speaker 1: ten percent pullback. We were looking for this and not

52
00:02:59,160 --> 00:03:02,639
Speaker 1: break mentality to crack it. Did we checked those boxes

53
00:03:02,880 --> 00:03:05,560
Speaker 1: as we talked about we we got good information on

54
00:03:05,600 --> 00:03:09,040
Speaker 1: the BIX on small caps as well as our our

55
00:03:09,120 --> 00:03:12,080
Speaker 1: buying or cathartic puke. And now what we want people

56
00:03:12,120 --> 00:03:14,200
Speaker 1: to do is we want them to buy or higher

57
00:03:14,240 --> 00:03:16,880
Speaker 1: COVID beta portfolio. We want them to buy the reopening trade.

58
00:03:17,040 --> 00:03:21,200
Speaker 1: Fundamentals are improving, the COVID wave is coming down, and

59
00:03:21,240 --> 00:03:24,600
Speaker 1: what we're seeing is a pretty good opportunity, we think,

60
00:03:24,880 --> 00:03:27,880
Speaker 1: to get more aggressive and play the economy. For now.

61
00:03:28,120 --> 00:03:30,160
Speaker 1: We think the economy is fine, We think the FED

62
00:03:30,280 --> 00:03:32,560
Speaker 1: is doing a good job, and we think the probability

63
00:03:32,600 --> 00:03:35,480
Speaker 1: of stack flation has diminished greatly as a fit as

64
00:03:35,480 --> 00:03:37,840
Speaker 1: a curve is flattened, as competence in the FED has

65
00:03:37,920 --> 00:03:40,360
Speaker 1: has come back. Chris, is there a high frequency data

66
00:03:40,400 --> 00:03:43,160
Speaker 1: that you're looking at that really edifies this view that

67
00:03:43,200 --> 00:03:46,040
Speaker 1: we're moving past the omicron wave and back to this

68
00:03:46,160 --> 00:03:49,120
Speaker 1: solid growth picture that people believed in so strongly maybe

69
00:03:49,200 --> 00:03:52,880
Speaker 1: three weeks ago. UM, high frequency data. We we look

70
00:03:52,960 --> 00:03:54,840
Speaker 1: at the COVID cases every day. We look at them

71
00:03:54,840 --> 00:03:56,440
Speaker 1: on a state by safe basis, We look at the

72
00:03:56,560 --> 00:03:59,680
Speaker 1: country basis, and what you expected to see was a

73
00:03:59,720 --> 00:04:02,400
Speaker 1: sharp run off, excuse me, a sharp run up and

74
00:04:02,480 --> 00:04:05,960
Speaker 1: a pretty quick or pretty quick decay. Right. We're seeing that.

75
00:04:06,520 --> 00:04:09,640
Speaker 1: As far as the high frequency economic data, one of

76
00:04:09,640 --> 00:04:11,840
Speaker 1: the things that we said coming into the years, we

77
00:04:11,960 --> 00:04:15,760
Speaker 1: thought the consumer needed to normalize. We're beginning to see that. Um.

78
00:04:15,800 --> 00:04:18,400
Speaker 1: You've seen a lot of disruption on the retail side

79
00:04:18,400 --> 00:04:20,200
Speaker 1: with people not being able to come into work. I

80
00:04:20,200 --> 00:04:22,200
Speaker 1: mean this weekend I tried to go to library with

81
00:04:22,240 --> 00:04:24,960
Speaker 1: my son and the library was closed. Right, We'll get

82
00:04:24,960 --> 00:04:28,680
Speaker 1: through that. And now more importantly, what we're looking at

83
00:04:28,839 --> 00:04:31,880
Speaker 1: is consumer balance sheets. Consumer balance sheets are quite strong,

84
00:04:32,360 --> 00:04:34,920
Speaker 1: and that's a very good sign. So we'll have a hiccup,

85
00:04:34,960 --> 00:04:38,160
Speaker 1: we'll have some you know, back and forth, but at

86
00:04:38,200 --> 00:04:40,520
Speaker 1: the end of the day, with consumer spending being strong,

87
00:04:40,800 --> 00:04:43,400
Speaker 1: with still a lot of pent up demand on the

88
00:04:43,480 --> 00:04:46,680
Speaker 1: leisure and the travel side and on the service to

89
00:04:46,720 --> 00:04:48,880
Speaker 1: spend side, that's where we think people are going to

90
00:04:48,960 --> 00:04:51,400
Speaker 1: spend their money. I think that's where the real opportunity is.

91
00:04:51,520 --> 00:04:53,960
Speaker 1: Do you think we should leave this conversation off the podcast.

92
00:04:54,440 --> 00:04:55,840
Speaker 1: I don't think this is going to work somewhere on

93
00:04:55,880 --> 00:05:00,160
Speaker 1: the podcast. A little bit like a christhing christ at

94
00:05:00,160 --> 00:05:03,520
Speaker 1: you buddy, pleasure, Thank you mate, thank you, thank you

95
00:05:03,640 --> 00:05:10,480
Speaker 1: very much. Glenn Hobbard, you go back to our best

96
00:05:10,520 --> 00:05:14,440
Speaker 1: intentions on page one twenty two. You've got JFK before

97
00:05:14,480 --> 00:05:20,719
Speaker 1: assassination with great intentions. But lb J could not implement

98
00:05:21,120 --> 00:05:25,160
Speaker 1: the trade assistance. He couldn't build the bridge that JFK

99
00:05:25,400 --> 00:05:28,560
Speaker 1: tried to build. That's just one example. Are we going

100
00:05:28,600 --> 00:05:32,880
Speaker 1: to repeat a fractured American history? Oh? I don't think

101
00:05:32,920 --> 00:05:35,919
Speaker 1: we have to. You know, the growth we celebrate always

102
00:05:36,000 --> 00:05:39,159
Speaker 1: is the heads of a coin whose tails is disruption,

103
00:05:39,839 --> 00:05:43,560
Speaker 1: and disruption is a demand for adaptation, and the supply

104
00:05:43,680 --> 00:05:46,560
Speaker 1: could either be walls of protection or bridges like Kennedy

105
00:05:46,600 --> 00:05:49,400
Speaker 1: tried to do with trade adjustment assistance. Problem is it's

106
00:05:49,440 --> 00:05:52,320
Speaker 1: too small in US history that we've done it right.

107
00:05:52,440 --> 00:05:55,719
Speaker 1: Lincoln did it, the land Grant colleges, FDR did it

108
00:05:55,880 --> 00:05:58,400
Speaker 1: with g I Bill. It's time to think bigger again.

109
00:05:58,480 --> 00:06:00,720
Speaker 1: That's really the theme of the book. It's really about

110
00:06:00,760 --> 00:06:04,200
Speaker 1: Adam Smith, a delicate call maybe about Donald Trump as well.

111
00:06:04,240 --> 00:06:08,080
Speaker 1: A delicate question Dean Hubbard. Can the Republican Party get

112
00:06:08,160 --> 00:06:12,960
Speaker 1: beyond trump economics and Trump certitude is defined by the

113
00:06:13,000 --> 00:06:16,640
Speaker 1: wall and the bridge you'd like to build. I think

114
00:06:16,680 --> 00:06:19,480
Speaker 1: both parties can get behind bridge ideas because they're about

115
00:06:19,520 --> 00:06:23,080
Speaker 1: two simple points. One is preparing people for the world

116
00:06:23,200 --> 00:06:26,559
Speaker 1: that is and will be, and the others reconnecting people

117
00:06:26,680 --> 00:06:30,640
Speaker 1: who get disconnected from an economy influx. That's something that

118
00:06:30,680 --> 00:06:33,440
Speaker 1: doesn't have a Republican or a Democrat flavor to it,

119
00:06:33,680 --> 00:06:37,160
Speaker 1: and in the past, people as disparate as former House

120
00:06:37,200 --> 00:06:40,279
Speaker 1: Speaker Paul Ryan and President Obama have had many of

121
00:06:40,279 --> 00:06:42,680
Speaker 1: the ideas I talked about in the book. When one

122
00:06:42,720 --> 00:06:45,920
Speaker 1: thing that sort of tying the hands of certainly both

123
00:06:45,920 --> 00:06:48,839
Speaker 1: Republicans and Democrats right now and spending more money is

124
00:06:48,880 --> 00:06:52,000
Speaker 1: the inflationary backdrop. How do you incur more debt at

125
00:06:52,040 --> 00:06:54,840
Speaker 1: a time when there does seem to be a concern.

126
00:06:55,200 --> 00:06:57,560
Speaker 1: How do you think the Federal Reserve should handle it

127
00:06:57,680 --> 00:07:01,279
Speaker 1: at the meeting that begins today. Well, I think most

128
00:07:01,320 --> 00:07:04,560
Speaker 1: of the programs that I advocate are actually fairly small

129
00:07:04,680 --> 00:07:07,720
Speaker 1: and spending that's the shocking political thing, and I describe

130
00:07:07,720 --> 00:07:10,240
Speaker 1: ways in which we could pay for it. From the

131
00:07:10,240 --> 00:07:13,000
Speaker 1: Fed's perspective, I think the Fed is behind the curve.

132
00:07:13,160 --> 00:07:16,400
Speaker 1: It has acknowledged that, in a sense, it is behind

133
00:07:16,440 --> 00:07:18,920
Speaker 1: the curve and is trying to catch up. The key

134
00:07:19,000 --> 00:07:23,040
Speaker 1: question is not to add to demand while supply constraints find.

135
00:07:23,200 --> 00:07:25,800
Speaker 1: I think the Fed now gets that the key will

136
00:07:25,840 --> 00:07:30,040
Speaker 1: be communication and what Wall Street thinks then about stocks

137
00:07:30,080 --> 00:07:33,200
Speaker 1: and what the economy thinks about near term growth prospects.

138
00:07:33,240 --> 00:07:35,760
Speaker 1: How high can rates go before it becomes a real problem,

139
00:07:35,760 --> 00:07:37,920
Speaker 1: given how much debt has been incurred, not only by

140
00:07:37,920 --> 00:07:42,920
Speaker 1: corporations but by the United States, Well, actually, not that high.

141
00:07:42,960 --> 00:07:44,960
Speaker 1: You know think about it. Even if you shifted the

142
00:07:45,160 --> 00:07:48,360
Speaker 1: entire term structure of interest rates up by two hundred

143
00:07:48,440 --> 00:07:51,760
Speaker 1: basis points, which is hardly super high, you would have

144
00:07:51,840 --> 00:07:55,120
Speaker 1: real problems in the federal budget. I think the Fed

145
00:07:55,280 --> 00:07:57,920
Speaker 1: is independent. It will do what it takes to to

146
00:07:58,080 --> 00:08:01,600
Speaker 1: bring inflation under control. Think is a warning to official

147
00:08:01,640 --> 00:08:04,320
Speaker 1: them in Washington that we have to take the federal

148
00:08:04,360 --> 00:08:08,800
Speaker 1: budget more seriously than we have Glenn. The moment that

149
00:08:08,840 --> 00:08:13,160
Speaker 1: we're in is defined by Ira Jersey at Bloomberg. Intelligence

150
00:08:13,760 --> 00:08:16,720
Speaker 1: is a balancing of a rate policy and a balance

151
00:08:16,800 --> 00:08:20,000
Speaker 1: sheet unwind. Let's call it QT, which is not an

152
00:08:20,040 --> 00:08:25,720
Speaker 1: original thought. Are you optimistic that we can do original economics?

153
00:08:27,440 --> 00:08:31,280
Speaker 1: I think it's harder than people thinking. It's certainly academically

154
00:08:31,320 --> 00:08:34,400
Speaker 1: quite possible. You can do the math and try to

155
00:08:34,480 --> 00:08:39,400
Speaker 1: count in equivalent rate hikes what QT would be. The

156
00:08:39,480 --> 00:08:43,120
Speaker 1: problem is QT is not just the opposite of q E.

157
00:08:43,280 --> 00:08:45,440
Speaker 1: There are a lot of asymmetries built in that we

158
00:08:45,520 --> 00:08:48,080
Speaker 1: don't have experience with. I think the Fed is taking

159
00:08:48,080 --> 00:08:51,160
Speaker 1: this very very careful. Does that extend the X access?

160
00:08:51,160 --> 00:08:53,160
Speaker 1: I mean we had this conversation earlier with a great

161
00:08:53,160 --> 00:08:57,199
Speaker 1: Claudius some of Michigan talking about Michael Woodford and what

162
00:08:57,240 --> 00:09:00,400
Speaker 1: we all learned an interest in prices. Okay, great, But

163
00:09:00,840 --> 00:09:03,600
Speaker 1: is a solution here for any central bank that the

164
00:09:03,840 --> 00:09:06,840
Speaker 1: x axis here is much longer than any of us presume,

165
00:09:07,240 --> 00:09:12,000
Speaker 1: and that they will take their time and wait for data. Well,

166
00:09:12,040 --> 00:09:14,440
Speaker 1: I think the FED will certainly wait for data. How

167
00:09:14,520 --> 00:09:17,920
Speaker 1: much time the FED has, of worse, depends on inflation

168
00:09:18,040 --> 00:09:20,800
Speaker 1: readings and the reason for those media readings. You don't

169
00:09:20,800 --> 00:09:25,000
Speaker 1: want to let inflation get ingrained into wage bargaining processes.

170
00:09:25,040 --> 00:09:28,000
Speaker 1: So I think the FED could wind up moving, perhaps

171
00:09:28,040 --> 00:09:32,640
Speaker 1: even more rapidly than people think. Glenn Glenn Hubbard of Columbia.

172
00:09:32,800 --> 00:09:35,960
Speaker 1: I am curious for the economics profession with the takeaway

173
00:09:36,120 --> 00:09:39,600
Speaker 1: is after the FED got inflation so wrong, and it

174
00:09:39,679 --> 00:09:42,600
Speaker 1: wasn't just a FED, it was pretty much everyone, how

175
00:09:42,600 --> 00:09:45,480
Speaker 1: did it happen? I don't know that I would call

176
00:09:45,520 --> 00:09:48,959
Speaker 1: it pretty much everyone. I think a number of economists

177
00:09:48,960 --> 00:09:52,280
Speaker 1: and myself in that boat said that we're adding to

178
00:09:52,520 --> 00:09:55,559
Speaker 1: demand both the FED and frankly the government to at

179
00:09:55,559 --> 00:09:58,560
Speaker 1: aprement supply constraints or binding. So I think this was

180
00:09:58,600 --> 00:10:03,040
Speaker 1: a policy error that need not have happened. Okay, So

181
00:10:03,080 --> 00:10:05,120
Speaker 1: if you think this is a policy error that need

182
00:10:05,160 --> 00:10:08,400
Speaker 1: not have happened. Is it something that can be curtailed

183
00:10:08,400 --> 00:10:10,880
Speaker 1: by aggressive FED actions such as what's being priced into

184
00:10:10,880 --> 00:10:12,800
Speaker 1: the market, or do you think this has longer lasting

185
00:10:13,200 --> 00:10:16,840
Speaker 1: sort of influences based on wages, based on rent prices

186
00:10:16,840 --> 00:10:19,920
Speaker 1: and some of the other pressures. I do think the

187
00:10:19,960 --> 00:10:22,760
Speaker 1: FED can get this under control. It has all the tools,

188
00:10:22,880 --> 00:10:26,160
Speaker 1: and it has all the institutional incentives and independence to

189
00:10:26,200 --> 00:10:30,440
Speaker 1: do that. Having said that, it's hard, meaning that history

190
00:10:30,559 --> 00:10:32,760
Speaker 1: isn't kind of the view that you could have this

191
00:10:32,840 --> 00:10:35,920
Speaker 1: kind of FED tightening without any kind of economic or

192
00:10:35,960 --> 00:10:39,319
Speaker 1: financial hiccup. So the FED is walking it tightly. Can

193
00:10:39,320 --> 00:10:42,320
Speaker 1: I did this fat chances of a second time? I

194
00:10:42,400 --> 00:10:45,880
Speaker 1: think so? I mean I think Chair Powell acted very

195
00:10:46,000 --> 00:10:50,280
Speaker 1: vigorously in the coronavirus pandemic. I think that the bias

196
00:10:50,320 --> 00:10:53,120
Speaker 1: would be towards keeping a FED chair. You think is

197
00:10:53,120 --> 00:10:56,360
Speaker 1: is doing a good job absence some obvious alternatives. So

198
00:10:56,440 --> 00:10:58,520
Speaker 1: I I think so. But the only person whose opinion

199
00:10:58,559 --> 00:11:00,880
Speaker 1: counts there's and I was May the president made the

200
00:11:00,920 --> 00:11:02,640
Speaker 1: decision to give him a second term. The reason I

201
00:11:02,640 --> 00:11:04,360
Speaker 1: asked the question is because for some people who lost

202
00:11:04,400 --> 00:11:07,720
Speaker 1: a lot of credibility with this inflation code. Are you saying,

203
00:11:07,800 --> 00:11:10,880
Speaker 1: Glen in your comments to Lisa, that ultimately you can

204
00:11:10,880 --> 00:11:14,800
Speaker 1: win that back and win that back quite quickly. You can,

205
00:11:14,920 --> 00:11:17,320
Speaker 1: but it's not without cost. It would have been better

206
00:11:17,400 --> 00:11:20,199
Speaker 1: how to policy or not been made. But yes, the

207
00:11:20,200 --> 00:11:23,800
Speaker 1: FED can win this battle, but I'm afraid we all

208
00:11:23,840 --> 00:11:25,560
Speaker 1: in the economy are going to pay a cost. Well,

209
00:11:25,600 --> 00:11:27,520
Speaker 1: let's talk about those costs. Gland. How big do you

210
00:11:27,520 --> 00:11:29,680
Speaker 1: think those costs will be? We have the discussion on

211
00:11:29,679 --> 00:11:32,640
Speaker 1: this program daily. Some people say soft landing, others say

212
00:11:32,640 --> 00:11:35,960
Speaker 1: it's too late, recession inevitable. How large do you think

213
00:11:36,000 --> 00:11:39,640
Speaker 1: the cost will be? I would say that the chances

214
00:11:39,800 --> 00:11:43,040
Speaker 1: are better for a relatively soft landing if the FED

215
00:11:43,160 --> 00:11:47,920
Speaker 1: is clear in its communication and everybody understands what is happening.

216
00:11:48,280 --> 00:11:52,079
Speaker 1: The risks would be if inflationary pressures move faster than

217
00:11:52,120 --> 00:11:55,240
Speaker 1: the FED things and it has to move faster and

218
00:11:55,400 --> 00:11:59,400
Speaker 1: were they're bad reactions either in financial markets are frankly

219
00:11:59,720 --> 00:12:01,920
Speaker 1: on the government budget. That's the tight rope I was

220
00:12:01,960 --> 00:12:05,000
Speaker 1: referring to. But yes, the FED can pull this off,

221
00:12:05,240 --> 00:12:07,199
Speaker 1: so they should look through what was happening on the

222
00:12:07,200 --> 00:12:09,480
Speaker 1: screens this morning yesterday threw much of the start this

223
00:12:09,520 --> 00:12:14,160
Speaker 1: year glean with equities down and down hot again. Well, that,

224
00:12:14,160 --> 00:12:15,719
Speaker 1: of course it's for the FED to decide. I don't

225
00:12:15,760 --> 00:12:17,480
Speaker 1: think the FED should be in the business of putting

226
00:12:17,480 --> 00:12:20,240
Speaker 1: a put from the stock market. The question is more

227
00:12:20,240 --> 00:12:25,200
Speaker 1: are Fed actions affecting financial stability or economic performance? Those

228
00:12:25,200 --> 00:12:27,560
Speaker 1: are legitimate questions and I think they're very much on

229
00:12:27,600 --> 00:12:30,079
Speaker 1: the Fed's mind in put and comments. Glen as always

230
00:12:30,080 --> 00:12:32,000
Speaker 1: and really enjoy catching up with you circle. And how

231
00:12:32,040 --> 00:12:41,600
Speaker 1: about that of Columbia University. It was stunning ninety days

232
00:12:41,600 --> 00:12:45,320
Speaker 1: ago to CEG announced a three company breakup. It is

233
00:12:45,360 --> 00:12:48,720
Speaker 1: far more stunning this morning to see General Electric really

234
00:12:48,760 --> 00:12:52,240
Speaker 1: put some meat on the discussion. And the discussion is simple.

235
00:12:52,559 --> 00:12:55,960
Speaker 1: They've got two divisions, two new companies getting it done,

236
00:12:56,000 --> 00:12:59,520
Speaker 1: including g Aviation, and they've got another one which they

237
00:12:59,520 --> 00:13:04,120
Speaker 1: title Renewable Energy Power in Digital. We're just simply it

238
00:13:04,200 --> 00:13:08,680
Speaker 1: ain't happening. Claudia sam is this industrial analyst, senior fellow

239
00:13:08,679 --> 00:13:12,400
Speaker 1: at Jane Family Institute and joins us this morning. Claudia

240
00:13:12,559 --> 00:13:17,520
Speaker 1: ge is a metaphor for how everyone, including your own Powell,

241
00:13:17,720 --> 00:13:22,080
Speaker 1: is dealing with the structural changes of America. How does

242
00:13:22,120 --> 00:13:29,240
Speaker 1: a central bank deal with industrial failure, industrial breakup, global competition,

243
00:13:29,800 --> 00:13:33,439
Speaker 1: and at the same time deal with a technological boom

244
00:13:33,559 --> 00:13:36,760
Speaker 1: has seen in the excellence of ge aviation. What is

245
00:13:36,760 --> 00:13:41,160
Speaker 1: an economist to do? Right? Well, good morning. I mean,

246
00:13:41,200 --> 00:13:44,320
Speaker 1: these are just one of the many questions that the

247
00:13:44,320 --> 00:13:47,560
Speaker 1: Federal Reserve is puzzling over right now. I mean, frankly,

248
00:13:47,559 --> 00:13:50,000
Speaker 1: I would put a lot more of it on consumer demand.

249
00:13:50,440 --> 00:13:53,600
Speaker 1: But we do know that demand has been strong, and

250
00:13:53,800 --> 00:13:57,280
Speaker 1: we have heard multiple times about the production, particularly of goods,

251
00:13:57,320 --> 00:14:01,439
Speaker 1: not making up for the demand. We have basically anything

252
00:14:01,480 --> 00:14:04,839
Speaker 1: that's bad news on that front, whether it's COVID or

253
00:14:05,040 --> 00:14:07,400
Speaker 1: problems in the production sector. I mean, this is not

254
00:14:07,679 --> 00:14:10,320
Speaker 1: good news. But if you step back and look at

255
00:14:10,400 --> 00:14:13,440
Speaker 1: big picture industrial production and a lot of the consumer

256
00:14:13,480 --> 00:14:16,719
Speaker 1: good spaces, it looks a lot better now and it

257
00:14:16,800 --> 00:14:18,880
Speaker 1: did even months ago. This is not saying much, but

258
00:14:18,960 --> 00:14:21,600
Speaker 1: you know, we need anything moving in the right direction here.

259
00:14:21,760 --> 00:14:26,000
Speaker 1: If corporations are clearing markets, including getting rid of the debris,

260
00:14:26,040 --> 00:14:30,600
Speaker 1: as General Electric is doing, do we assume consumer demand

261
00:14:30,720 --> 00:14:36,600
Speaker 1: and the buoyant consumer demand is legitimate and sustainable. Yeah. So,

262
00:14:37,000 --> 00:14:40,400
Speaker 1: having worked on consumer demand for over a decade at

263
00:14:40,400 --> 00:14:43,920
Speaker 1: the Federal Reserve, I know that the biggest thing driving

264
00:14:43,960 --> 00:14:47,800
Speaker 1: demand is in common people's pockets, and we have seen,

265
00:14:48,000 --> 00:14:52,000
Speaker 1: particularly from the federal government letting child tax credit expire,

266
00:14:52,360 --> 00:14:55,840
Speaker 1: seeing millions of workers be out of work even five

267
00:14:55,960 --> 00:14:59,400
Speaker 1: days like that. A lot of families cannot make that work,

268
00:14:59,760 --> 00:15:01,760
Speaker 1: and certainly are going to make it work and go

269
00:15:01,760 --> 00:15:05,040
Speaker 1: out and buy a big, durable purchases that you know

270
00:15:05,120 --> 00:15:06,880
Speaker 1: they can put off a little while. So I think

271
00:15:06,920 --> 00:15:09,440
Speaker 1: we've seen a lot and will see when we have

272
00:15:09,520 --> 00:15:13,320
Speaker 1: the January numbers that's done more than a FED increase

273
00:15:13,400 --> 00:15:16,880
Speaker 1: is going to do in terms of pulling the demand out. Claudia,

274
00:15:17,200 --> 00:15:20,400
Speaker 1: there is a conflation in between fiscal and monetary policy often,

275
00:15:20,520 --> 00:15:23,040
Speaker 1: and people look to monetary policy to do a lot

276
00:15:23,080 --> 00:15:27,000
Speaker 1: of things that fiscal policy have done years and years ago.

277
00:15:27,280 --> 00:15:30,240
Speaker 1: I am wondering at this point, given the sense that

278
00:15:30,280 --> 00:15:32,240
Speaker 1: you've long called for the FED to be patient, you

279
00:15:32,240 --> 00:15:34,440
Speaker 1: think that they're on track, they're not behind the curve,

280
00:15:34,840 --> 00:15:38,320
Speaker 1: At what point do you see the inflation mandate becoming

281
00:15:38,400 --> 00:15:41,440
Speaker 1: pressing and important for them to address at a time

282
00:15:41,600 --> 00:15:44,400
Speaker 1: when it seems unclear what more they can do on

283
00:15:44,480 --> 00:15:48,120
Speaker 1: the employment front. Right, So, I know the narrative is

284
00:15:48,160 --> 00:15:50,880
Speaker 1: really gloom and doom right now, but we gotta step back.

285
00:15:51,040 --> 00:15:55,520
Speaker 1: We had unemployment moved below four percent at the end

286
00:15:55,560 --> 00:15:58,480
Speaker 1: of last year. Yes, we have had inflation, but we

287
00:15:58,560 --> 00:16:02,640
Speaker 1: have inflation adjusted because sumer spending, business investment, you name it.

288
00:16:03,040 --> 00:16:07,760
Speaker 1: This is not stagflation. And fiscal and monetary policy really

289
00:16:07,920 --> 00:16:11,960
Speaker 1: push that. And that's that is so important. It is

290
00:16:12,040 --> 00:16:15,080
Speaker 1: absolutely appropriate. And we've seen this in messaging from j

291
00:16:15,240 --> 00:16:19,320
Speaker 1: Powell and lay Layo Brainerd. We are so much closer

292
00:16:19,800 --> 00:16:23,600
Speaker 1: on the maximum employment and yeah, the thing that's you know,

293
00:16:23,800 --> 00:16:26,040
Speaker 1: not where we wanted to be as inflation. So I

294
00:16:26,080 --> 00:16:30,320
Speaker 1: don't think they've changed how they are valuing or kind

295
00:16:30,320 --> 00:16:33,120
Speaker 1: of waiting the two. It's just we're a lot close

296
00:16:33,160 --> 00:16:35,960
Speaker 1: to the finish unemployment and that's a big deal for

297
00:16:36,000 --> 00:16:39,120
Speaker 1: American family. Although participation rate has not gotten back up,

298
00:16:39,120 --> 00:16:41,720
Speaker 1: and this is something that people are concerned about. And

299
00:16:41,760 --> 00:16:44,200
Speaker 1: given that, and given that it may not recover two

300
00:16:44,240 --> 00:16:47,240
Speaker 1: pre pandemic levels, people are starting to worry about a

301
00:16:47,240 --> 00:16:50,760
Speaker 1: wage spiral. How are you thinking about that? Yeah, so

302
00:16:51,080 --> 00:16:53,560
Speaker 1: we have to remember the two things that push up

303
00:16:53,560 --> 00:16:57,600
Speaker 1: on prices or supply and demand, right, and consumers aren't

304
00:16:57,640 --> 00:17:00,680
Speaker 1: out demanding and omicrons taken the ends out of some

305
00:17:00,760 --> 00:17:03,600
Speaker 1: of the service sector. Well, if the demands not there

306
00:17:04,240 --> 00:17:07,800
Speaker 1: from the consumers in there from the employers either. So

307
00:17:07,920 --> 00:17:09,800
Speaker 1: I do think when we get the numbers for the

308
00:17:09,840 --> 00:17:14,040
Speaker 1: fourth quarter, they good employment compensation index numbers, We're gonna

309
00:17:14,080 --> 00:17:18,520
Speaker 1: see some pretty big numbers in December, unfortunately for the FED.

310
00:17:18,600 --> 00:17:21,480
Speaker 1: And this is for markets to the information that we

311
00:17:21,680 --> 00:17:25,440
Speaker 1: really need to understand where demand is going is January

312
00:17:25,480 --> 00:17:27,400
Speaker 1: and we're not going to We do not have your

313
00:17:27,560 --> 00:17:29,760
Speaker 1: right now, you know, we're data dependent, waiting out for

314
00:17:29,800 --> 00:17:32,240
Speaker 1: the data. Claudia. A lot of good analysis into this

315
00:17:32,320 --> 00:17:34,840
Speaker 1: FED meeting, and one of them is Kit Jukes. There

316
00:17:34,880 --> 00:17:38,640
Speaker 1: is a society general with decades of experience of linking

317
00:17:38,640 --> 00:17:42,439
Speaker 1: in the dollar into other markets as well. Mr Jukes

318
00:17:42,440 --> 00:17:46,400
Speaker 1: this morning suggests that the FED can slow demand, Can

319
00:17:46,440 --> 00:17:52,520
Speaker 1: any central bank slow demand? Absolutely? Again, I think the

320
00:17:52,560 --> 00:17:57,040
Speaker 1: fiscal support income out of people's pockets COVID is wreaking

321
00:17:57,280 --> 00:18:01,880
Speaker 1: havoc right like that is the big straightforward effect on demand.

322
00:18:02,320 --> 00:18:05,120
Speaker 1: But the FED does have an effect on the borrowing

323
00:18:05,200 --> 00:18:09,119
Speaker 1: costs of consumers. Now the tenure Treasury is not moving

324
00:18:09,160 --> 00:18:12,240
Speaker 1: in a way that's really helping them push on those costs.

325
00:18:12,280 --> 00:18:15,000
Speaker 1: But in a world without the FED moving right like,

326
00:18:15,200 --> 00:18:17,880
Speaker 1: the FED can make it more expensive and can take

327
00:18:17,960 --> 00:18:21,560
Speaker 1: particularly the durable goods which consumers often need to borrow

328
00:18:21,960 --> 00:18:26,320
Speaker 1: to make it happen. Yes, the FED can bring demand

329
00:18:26,680 --> 00:18:31,360
Speaker 1: cool it off some Uh, that's that is what's happening.

330
00:18:31,400 --> 00:18:34,879
Speaker 1: It's sad because the real way to fix inflation. And J.

331
00:18:35,000 --> 00:18:37,320
Speaker 1: Pau said this is to get us out of the pandemic.

332
00:18:37,760 --> 00:18:40,640
Speaker 1: But I think, frankly, listening to President Biden last week,

333
00:18:41,040 --> 00:18:42,800
Speaker 1: this is not going to happen. So the FED is

334
00:18:42,800 --> 00:18:45,880
Speaker 1: going to have to cool off demand. Claudian, an unfair question.

335
00:18:46,119 --> 00:18:49,040
Speaker 1: And this goes to fancy mathematics which gives us beautiful

336
00:18:49,119 --> 00:18:52,000
Speaker 1: curves that we never read in Michael Woodford's book on

337
00:18:52,119 --> 00:18:54,719
Speaker 1: Interesting Prices, and there are oil functions. I don't want

338
00:18:54,720 --> 00:18:56,760
Speaker 1: to go into it. What I do want to say, Claudia,

339
00:18:56,920 --> 00:18:59,199
Speaker 1: is there's all sorts of lovely curves. Is get us

340
00:18:59,240 --> 00:19:02,760
Speaker 1: back to an inflation rate? Where is your image of

341
00:19:02,800 --> 00:19:06,400
Speaker 1: where that new inflation rate is? Is it two percent?

342
00:19:07,000 --> 00:19:10,879
Speaker 1: Is it adam posens three new inflation rate? Or is

343
00:19:10,920 --> 00:19:14,040
Speaker 1: it a number that's higher but not frightening? Where? Where?

344
00:19:14,359 --> 00:19:19,080
Speaker 1: Where does inflation settle out? Ad on the glide path? Yeah,

345
00:19:19,119 --> 00:19:21,560
Speaker 1: so first of all, I just say every single one

346
00:19:21,600 --> 00:19:24,080
Speaker 1: of my forecasts about where inflation is headed, and this

347
00:19:24,119 --> 00:19:27,800
Speaker 1: has been true now the entire pandemic. Is when the

348
00:19:27,840 --> 00:19:31,280
Speaker 1: pandemic moves into an endemic and we really have this

349
00:19:31,480 --> 00:19:35,880
Speaker 1: under control, then when that happens, we're talking another six

350
00:19:35,920 --> 00:19:38,440
Speaker 1: months of getting us back to something that's really close

351
00:19:38,480 --> 00:19:41,200
Speaker 1: to two percent. The longer this goes on, the harder

352
00:19:41,400 --> 00:19:44,360
Speaker 1: the more backup we have, the more things have gone haywire.

353
00:19:44,840 --> 00:19:50,199
Speaker 1: But the fundamentals in the US economy are not notably worse.

354
00:19:50,280 --> 00:19:52,920
Speaker 1: And that's a lot of the response last year is

355
00:19:53,000 --> 00:19:56,439
Speaker 1: just we have this other factor that is, until the

356
00:19:56,480 --> 00:19:58,680
Speaker 1: pandemic is under control, we are going to see well

357
00:19:58,720 --> 00:20:02,760
Speaker 1: above two percent something, not seven. If the Change Family Institute,

358
00:20:02,760 --> 00:20:04,600
Speaker 1: I think we all hope it's not going to be seven. Clodia,

359
00:20:04,680 --> 00:20:12,800
Speaker 1: thank you for joining us right now, and this is

360
00:20:12,840 --> 00:20:15,120
Speaker 1: up Lisa ramots As weel so I'm gonna ask one

361
00:20:15,200 --> 00:20:17,840
Speaker 1: question and get out of the way. Winnie Caesar joins

362
00:20:17,880 --> 00:20:21,120
Speaker 1: us from Credit Sites. She was with Wells Fargo for years,

363
00:20:21,160 --> 00:20:24,640
Speaker 1: global head of credit Strategy at Credit Sites. And what's

364
00:20:24,680 --> 00:20:28,119
Speaker 1: absolutely fascinating here is the dynamics and the things we

365
00:20:28,200 --> 00:20:32,280
Speaker 1: can learn from the credit market, and particularly high yield.

366
00:20:32,640 --> 00:20:36,600
Speaker 1: There is this phrase Winnie yield to worst. We have

367
00:20:36,720 --> 00:20:40,120
Speaker 1: yield to worsened out, worser now And as you say

368
00:20:40,160 --> 00:20:42,879
Speaker 1: in your lovely research note, there's a point where you

369
00:20:43,040 --> 00:20:46,400
Speaker 1: step in and buy the price for yields to come

370
00:20:46,440 --> 00:20:49,200
Speaker 1: down or yield to worse to come down? Are the

371
00:20:49,359 --> 00:20:54,000
Speaker 1: Are we there at this moment? We are just about there.

372
00:20:54,119 --> 00:20:57,359
Speaker 1: We had been telling investors that five percent yields worst

373
00:20:57,640 --> 00:21:00,959
Speaker 1: for high yield was the level that we up was

374
00:21:01,240 --> 00:21:05,000
Speaker 1: much more attractive, and we got there yesterday with the

375
00:21:05,040 --> 00:21:08,440
Speaker 1: market volatility that we saw. Now, how yields off to

376
00:21:08,480 --> 00:21:11,320
Speaker 1: a pretty rocky start to start the year. This is

377
00:21:11,320 --> 00:21:14,600
Speaker 1: actually the worst January performance on record at this point,

378
00:21:14,680 --> 00:21:18,400
Speaker 1: worth than two thousand sixteen. Commodity sell off worse than

379
00:21:18,960 --> 00:21:22,679
Speaker 1: two eight as well. But we think at this point,

380
00:21:22,720 --> 00:21:25,159
Speaker 1: given the amount of cash that still fits on the

381
00:21:25,200 --> 00:21:27,919
Speaker 1: sidelines and the need to generate some income in this

382
00:21:28,040 --> 00:21:31,919
Speaker 1: inflationary environment, five percent on HW yield doesn't look too shabby.

383
00:21:32,040 --> 00:21:34,080
Speaker 1: Let's take a step back and talk about the credit

384
00:21:34,160 --> 00:21:37,480
Speaker 1: markets is an important functioning tool that the Federal Reserve

385
00:21:37,560 --> 00:21:39,960
Speaker 1: looks at. They're not going to get that concerned about

386
00:21:39,960 --> 00:21:42,879
Speaker 1: the stock market sell off. If you see the fixed

387
00:21:42,880 --> 00:21:46,399
Speaker 1: income market, in particular credit behaving. You talk about that

388
00:21:46,480 --> 00:21:48,560
Speaker 1: five percent level for yield to worse, But if you

389
00:21:48,560 --> 00:21:51,720
Speaker 1: look at credit spreads, the extra premium that investors charge

390
00:21:51,720 --> 00:21:54,879
Speaker 1: of our benchmark rates, it stayed incredibly tame for the

391
00:21:54,960 --> 00:21:58,280
Speaker 1: riskiest securities. What's the message that you get from that?

392
00:21:59,680 --> 00:22:01,679
Speaker 1: The that so that we get from that is that

393
00:22:01,800 --> 00:22:05,920
Speaker 1: investors should consider continue to expect a very low default

394
00:22:06,040 --> 00:22:10,920
Speaker 1: environment this year. Nobody has expected economic growth to really

395
00:22:11,040 --> 00:22:14,159
Speaker 1: roll over quite yet. And with that, borrowing conditions in

396
00:22:14,200 --> 00:22:17,920
Speaker 1: the credit markets have remained pretty favorable to issuers, which

397
00:22:17,960 --> 00:22:21,160
Speaker 1: means that companies are going to continue to enjoy access

398
00:22:21,160 --> 00:22:25,400
Speaker 1: to liquidity at levels that are still very attractive relative

399
00:22:25,480 --> 00:22:29,240
Speaker 1: to historic norms, despite the fact that we've seen yields

400
00:22:29,320 --> 00:22:33,560
Speaker 1: move higher overall. So the strice action that we've seen

401
00:22:33,800 --> 00:22:37,200
Speaker 1: in the credit markets has been much more collateral damage

402
00:22:37,280 --> 00:22:41,160
Speaker 1: from equity and rates volatility rather than the credit markets

403
00:22:41,200 --> 00:22:45,160
Speaker 1: sending a signal that liquidity is really drying up across

404
00:22:45,240 --> 00:22:49,240
Speaker 1: the financial markets, and we view that as generally constructive.

405
00:22:49,400 --> 00:22:51,879
Speaker 1: So we need fast forward and talk about what this

406
00:22:52,000 --> 00:22:54,560
Speaker 1: means two years from now, three years from now, as

407
00:22:54,640 --> 00:22:58,200
Speaker 1: rates are expected to continue to rise and become more normal,

408
00:22:58,359 --> 00:23:02,280
Speaker 1: whatever that means. At point does that become a serious

409
00:23:02,359 --> 00:23:05,520
Speaker 1: problem given the trillion dollars of corporate death that have

410
00:23:05,560 --> 00:23:09,240
Speaker 1: been issued over the past couple of years. So there

411
00:23:09,359 --> 00:23:12,360
Speaker 1: is a point where we'll reach this kind of tipping

412
00:23:12,440 --> 00:23:18,120
Speaker 1: point where borrowing costs very much exceed what issuers can

413
00:23:18,200 --> 00:23:21,920
Speaker 1: ultimately pay. Especially as you point out debt loads have

414
00:23:22,200 --> 00:23:26,680
Speaker 1: increased pretty significantly, we're still a far cry away from that.

415
00:23:27,080 --> 00:23:30,720
Speaker 1: With investment grade yielding about two point seven percent, we're

416
00:23:30,760 --> 00:23:34,760
Speaker 1: still a hundred basis points below the average coupon on

417
00:23:34,800 --> 00:23:38,040
Speaker 1: the index, and that average coupon is an all time load,

418
00:23:38,520 --> 00:23:40,919
Speaker 1: So you still have at least a hundred basis points

419
00:23:40,960 --> 00:23:44,200
Speaker 1: just to get back to that average level. And so

420
00:23:44,240 --> 00:23:47,400
Speaker 1: long as we keep growth good enough for credit, as

421
00:23:47,440 --> 00:23:51,159
Speaker 1: we like to say, then issuers should be able to

422
00:23:51,200 --> 00:23:55,119
Speaker 1: continue to operate pretty nicely. When I saw a blurb

423
00:23:55,160 --> 00:23:57,399
Speaker 1: the other day, I didn't even read the whole thing, folks,

424
00:23:57,400 --> 00:23:59,440
Speaker 1: It was just in the blur of the moment where

425
00:23:59,440 --> 00:24:01,800
Speaker 1: it was trying to calculate how much of a debt

426
00:24:01,840 --> 00:24:06,159
Speaker 1: deal Microsoft could do. Now, Microsoft is the antithesis of

427
00:24:06,240 --> 00:24:08,320
Speaker 1: your world, I believe they're triple A. There as far

428
00:24:08,400 --> 00:24:11,560
Speaker 1: from high yield as you can get. When you hear

429
00:24:11,800 --> 00:24:14,720
Speaker 1: the ability of any company in your world or in

430
00:24:14,760 --> 00:24:19,800
Speaker 1: the technology world to raise ten twenty thirty billion dollars,

431
00:24:19,840 --> 00:24:23,960
Speaker 1: how do you respond to that size of number. Well,

432
00:24:24,000 --> 00:24:27,760
Speaker 1: those sizes of numbers have actually become much more normal

433
00:24:27,800 --> 00:24:30,800
Speaker 1: to investors over the past few years, where we've seen

434
00:24:31,280 --> 00:24:34,000
Speaker 1: more and more jumbload deals, both in the investment grade

435
00:24:34,000 --> 00:24:37,439
Speaker 1: markets and also in leverage finance. As high yield and

436
00:24:37,520 --> 00:24:41,159
Speaker 1: leverage loans have grown, issuers have a lot of avenues

437
00:24:41,240 --> 00:24:45,320
Speaker 1: to raise very large trenches. I'd also like to point

438
00:24:45,320 --> 00:24:47,760
Speaker 1: out there there is still an awful lot of cash

439
00:24:47,800 --> 00:24:51,720
Speaker 1: on corporate balance sheets that needs to be used for something,

440
00:24:52,119 --> 00:24:55,679
Speaker 1: and companies like Microsoft and other very highly rated technic

441
00:24:55,680 --> 00:24:58,800
Speaker 1: bology companies are some of the issuers that have the

442
00:24:58,840 --> 00:25:01,680
Speaker 1: most cash balances. So I'd be a little bit less

443
00:25:01,680 --> 00:25:04,879
Speaker 1: focused on the size of kind of jumbo transactions that

444
00:25:04,920 --> 00:25:08,320
Speaker 1: can get pushed through in the investment grade market, whereas

445
00:25:08,560 --> 00:25:11,440
Speaker 1: the high yield and leverage loan market are really primed

446
00:25:11,480 --> 00:25:15,320
Speaker 1: for these massive LBO type issuances over the course of

447
00:25:15,359 --> 00:25:18,200
Speaker 1: this year. Interesting when he thank you an impotent pound

448
00:25:18,200 --> 00:25:20,520
Speaker 1: of the cross, as that story with Whinnie says of

449
00:25:20,640 --> 00:25:29,600
Speaker 1: credit size, what do you do against a reported one

450
00:25:30,080 --> 00:25:33,480
Speaker 1: thousand troops of Russia. We go to Alex Brudeaux, who

451
00:25:33,480 --> 00:25:35,840
Speaker 1: gave us a lot of smarts early in the year

452
00:25:35,880 --> 00:25:39,080
Speaker 1: with the Eurasia Group risks for the year. We're thrilled

453
00:25:39,080 --> 00:25:41,199
Speaker 1: he could visit with us again on his expertise of

454
00:25:41,240 --> 00:25:46,880
Speaker 1: Russia and Ukraine. Alex, I am thunderstruck at the granularity

455
00:25:46,920 --> 00:25:52,639
Speaker 1: of Eastern troops. Thank Vladivostock taking the Trans Siberian Railway

456
00:25:53,080 --> 00:25:56,000
Speaker 1: all the way over to Belarus. You don't do that

457
00:25:56,160 --> 00:25:59,399
Speaker 1: unless it's for a reason. Why does Mr Putin have

458
00:25:59,680 --> 00:26:05,560
Speaker 1: East Stern troops in Belarus threatening Kiev. But we have

459
00:26:05,760 --> 00:26:08,840
Speaker 1: seen other signs of that happening as well over the

460
00:26:08,920 --> 00:26:13,680
Speaker 1: last few months. Troops coming from Siberia as another example

461
00:26:13,760 --> 00:26:16,360
Speaker 1: of this, and it does point to a build up

462
00:26:16,560 --> 00:26:19,000
Speaker 1: on the Russia Ukraine border. We now have some of

463
00:26:19,080 --> 00:26:21,920
Speaker 1: these troops heading to Yellow ris for these military exercises,

464
00:26:21,960 --> 00:26:25,000
Speaker 1: and I think that is another part of the pressure

465
00:26:25,040 --> 00:26:28,199
Speaker 1: that's being put not just on the Ukrainians, but also

466
00:26:28,280 --> 00:26:32,720
Speaker 1: on NATO and the US to come to some terms

467
00:26:33,280 --> 00:26:36,119
Speaker 1: on demands of the Russians made back in December UH

468
00:26:36,320 --> 00:26:39,600
Speaker 1: to UH that they want a ban on Ukraine's membership

469
00:26:39,640 --> 00:26:43,639
Speaker 1: and NATO, they want other concessions coming from NATO in

470
00:26:43,720 --> 00:26:47,520
Speaker 1: terms of troops deployments in Eastern Europe. This is, you know,

471
00:26:47,560 --> 00:26:50,760
Speaker 1: not just about Ukrainie. It's also about the threat that

472
00:26:50,800 --> 00:26:55,320
Speaker 1: Putin perceives coming from the US and NATO on Russia's

473
00:26:55,359 --> 00:26:59,639
Speaker 1: western border. Is the threat cultural? Is that the westernization

474
00:27:00,000 --> 00:27:05,680
Speaker 1: of the Ukraine. I think that Ukraine's turned to the West,

475
00:27:05,720 --> 00:27:09,679
Speaker 1: particularly it's turned to Europe economically and then to Europe

476
00:27:09,680 --> 00:27:12,280
Speaker 1: in the US on the security front is of concern

477
00:27:12,320 --> 00:27:15,960
Speaker 1: to the Kremlin. Historically, Ukraine had been very close obviously,

478
00:27:16,000 --> 00:27:18,640
Speaker 1: not just I mean when we're talking post independence, there

479
00:27:18,680 --> 00:27:22,840
Speaker 1: had been very close relationships between Ukraine and Russia, and

480
00:27:22,960 --> 00:27:27,760
Speaker 1: after in particular, we saw that really decline. It is

481
00:27:27,880 --> 00:27:31,280
Speaker 1: in many ways a very different relationship now because of

482
00:27:31,320 --> 00:27:34,320
Speaker 1: the conflict of the last eight years, because of economic

483
00:27:34,440 --> 00:27:38,160
Speaker 1: changes in terms of Ukraine's orientation. Uh Putin has been

484
00:27:38,160 --> 00:27:41,240
Speaker 1: pushing against that over the last several months and sees

485
00:27:41,280 --> 00:27:44,240
Speaker 1: that as a problem. But I think the security issues

486
00:27:44,680 --> 00:27:46,840
Speaker 1: really have come up in the last couple of months

487
00:27:46,840 --> 00:27:49,720
Speaker 1: as being the priority for the Kremlin and the thing

488
00:27:49,800 --> 00:27:52,560
Speaker 1: that they want the US and NATO to make confessions. Alex,

489
00:27:52,600 --> 00:27:54,040
Speaker 1: I know you don't have a crystal ball, but if

490
00:27:54,080 --> 00:27:56,359
Speaker 1: you could game out what you think is likely to

491
00:27:56,400 --> 00:28:00,840
Speaker 1: happen over the next few weeks, what would you say. Well,

492
00:28:01,080 --> 00:28:04,320
Speaker 1: I do think that diplomacy has a real chance here.

493
00:28:04,359 --> 00:28:06,399
Speaker 1: In fact, we think that it probably will in the

494
00:28:06,560 --> 00:28:10,399
Speaker 1: end lead to some level of the escalation in the

495
00:28:10,400 --> 00:28:12,440
Speaker 1: coming months. But this is gonna be a real challenge

496
00:28:12,440 --> 00:28:15,359
Speaker 1: seeing all of the escalation and and and posturing that

497
00:28:15,400 --> 00:28:17,920
Speaker 1: we've seen just in the last ten days or so

498
00:28:17,960 --> 00:28:20,479
Speaker 1: after the first round of talks really did not go

499
00:28:20,600 --> 00:28:25,439
Speaker 1: well between Russia and the West. But there are still

500
00:28:25,480 --> 00:28:29,800
Speaker 1: areas where Russia and the US in particular can have discussions,

501
00:28:29,840 --> 00:28:33,679
Speaker 1: including on these issues of NATO's presence in Eastern Europe,

502
00:28:33,920 --> 00:28:38,440
Speaker 1: including issues like missile deployments, UH, nuclear weapons. UH. There's

503
00:28:38,480 --> 00:28:41,120
Speaker 1: a whole host of things that Putin wants to talk about,

504
00:28:41,200 --> 00:28:44,360
Speaker 1: particularly he wants to talk about them with President Biden,

505
00:28:44,440 --> 00:28:46,800
Speaker 1: and things that that a deal could be struck. So

506
00:28:46,960 --> 00:28:50,080
Speaker 1: there is this room for progress over the next several weeks,

507
00:28:50,080 --> 00:28:51,719
Speaker 1: but it is going to be slow going. And is

508
00:28:51,760 --> 00:28:54,000
Speaker 1: going to be hurt to a certain degree by the

509
00:28:54,160 --> 00:28:57,040
Speaker 1: escalations that we've seen over the last few days. Alex,

510
00:28:57,160 --> 00:29:00,040
Speaker 1: How concerning is it from your perspective that China in

511
00:29:00,120 --> 00:29:02,800
Speaker 1: Russia are increasingly teaming up at a time when the

512
00:29:02,880 --> 00:29:06,160
Speaker 1: US is trying to regain its status with the European

513
00:29:06,280 --> 00:29:10,600
Speaker 1: Union as the alliance. Well, I think that it is

514
00:29:10,640 --> 00:29:13,920
Speaker 1: a concern certainly for Washington to see sort of this

515
00:29:14,000 --> 00:29:16,560
Speaker 1: this close relationship. You know. I would say that the

516
00:29:16,640 --> 00:29:20,560
Speaker 1: Russia China relationship, it's gotten better over the last several

517
00:29:20,680 --> 00:29:23,280
Speaker 1: years on a number of fronts, particularly economic, but now

518
00:29:23,360 --> 00:29:26,520
Speaker 1: increasingly on the security side. I think it's unlikely that

519
00:29:26,560 --> 00:29:29,440
Speaker 1: we're going to see, you know, a formal strategic alliance

520
00:29:29,480 --> 00:29:31,360
Speaker 1: where one of them comes to the defense of the

521
00:29:31,480 --> 00:29:34,760
Speaker 1: other in the case of a major conflict, but they

522
00:29:34,800 --> 00:29:38,920
Speaker 1: will give each other a certain level of support. Uh

523
00:29:38,960 --> 00:29:41,040
Speaker 1: And in this particular case, I think, you know, the

524
00:29:41,400 --> 00:29:44,560
Speaker 1: Russians in particular, I have been sort of that they've

525
00:29:44,640 --> 00:29:48,400
Speaker 1: appreciated the fact that the Chinese government has sort of

526
00:29:48,400 --> 00:29:51,520
Speaker 1: given a nod towards some of the Russia's security concerns

527
00:29:51,520 --> 00:29:54,160
Speaker 1: when it comes to the U S and NATO. I'm

528
00:29:54,160 --> 00:29:56,440
Speaker 1: gonna leave it. The ratis Thank you, sir, As always

529
00:29:56,440 --> 00:29:59,080
Speaker 1: sound expert there if you write you. This is the

530
00:29:59,080 --> 00:30:03,760
Speaker 1: Bloomberg Surveying Podcast. Thanks for listening. Join us live weekdays

531
00:30:03,800 --> 00:30:07,280
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and

532
00:30:07,360 --> 00:30:11,640
Speaker 1: on Bloomberg Television each day from six to nine am

533
00:30:11,680 --> 00:30:15,440
Speaker 1: for insight from the best in economics, finance, investment, and

534
00:30:15,560 --> 00:30:22,080
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

535
00:30:22,240 --> 00:30:25,840
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

536
00:30:25,880 --> 00:30:28,600
Speaker 1: Tom keene In. This is Bloomberg