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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jaily, we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. He writes for

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Speaker 1: Project Syndicate. He has done so much for economics and

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Speaker 1: for all of American graduate education. Laureate Michael Spence joins

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Speaker 1: us now, of course Senior Advice of the General Atlantic

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Speaker 1: as well as his academics Professor Spence, thank you so

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Speaker 1: much for joining. I want to talk about two things

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Speaker 1: right now, and I want to go back to your

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Speaker 1: iconic work on signaling. UM. I was talking with our

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Speaker 1: Simon Kennedy about pandemic signaling. How is our behavior change

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Speaker 1: from the pandemic? Is are a permanence to how the

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Speaker 1: American economy, our labor market, our investment, how it will change? Yes?

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Speaker 1: There is? I mean I think it's it's unambiguous. You know,

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Speaker 1: the the accelerated adoption and digital change patterns of works work,

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Speaker 1: the impact of the pandemic on what kinds of jobs

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Speaker 1: people want to have, when they want to retire, and

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Speaker 1: so on. I think betting that these changes will all

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Speaker 1: sort of fade away would be one of the worst

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Speaker 1: bets possible. So I have no doubt. I mean, Tom,

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Speaker 1: you know, actually seeing in detail, you know how this

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Speaker 1: will play out over the next three to five years.

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Speaker 1: It's it's very difficult, but but I don't have any question.

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Speaker 1: It's permanent. Michael. Some of it in your latest essay

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Speaker 1: for Project Syndicate, there are two paragraphs that are classic

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Speaker 1: Michael Spence. I can see you with a piece of

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Speaker 1: chalk in your hand at Stanford, and while you ready

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Speaker 1: to throw it at someone who doesn't understand correlation, you

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Speaker 1: talk about the magnitude, the size, or the growing size

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Speaker 1: of our uncorrelated risks. All of our listeners and viewers

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Speaker 1: know right now uncorrelated risks are off the chart. What

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Speaker 1: does that mean for our society? What does that mean

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Speaker 1: for our capitalism? It means a major shift in priorities.

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Speaker 1: But for countries and for companies in the direction of diversification. Uh.

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Speaker 1: And it will be, you know, portrayed as a costly move.

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Speaker 1: It will probably increase inflationary pressures. But anybody who is

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Speaker 1: you know, operates in the financial markets or has taken

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Speaker 1: of course in finance knows that when you have rising

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Speaker 1: risks and they're relatively uncorrelated, the proper response is diversification.

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Speaker 1: And you know, when you add together pandemics, supply chain

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Speaker 1: congestion and blockages and longer term effects m a war, uh,

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Speaker 1: you know, and all the climate shocks that are getting

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Speaker 1: more frequent and so on. I don't have any doubt

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Speaker 1: that's the direction of movement um that we're going to see. Well,

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Speaker 1: and speaking of the supply side, you talk about the

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Speaker 1: shift to supply constrained growth, What does that indicate about

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Speaker 1: the permanence of some of the inflationary pressures that we

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Speaker 1: are seeing. So I may be a bit out on

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Speaker 1: the tail of the distribution here, but but I think

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Speaker 1: this is a fundamental shift. You know, the deflationary pressures

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Speaker 1: that we had in the global economy came very substantially

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Speaker 1: um from the fact that we had huge amounts of

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Speaker 1: essentially unutilized productive capacity in the emerging markets, and we've

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Speaker 1: used up a fair amount of that. And at the

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Speaker 1: same time, we've created hundreds and hundreds of millions of

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Speaker 1: new middle class consumers on the demand side. So I

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Speaker 1: think this is a it's a secular trend. It didn't

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Speaker 1: happen overnight. But I think that plus all the other

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Speaker 1: things that we just talked about, you know, means that

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Speaker 1: the inflationary pressures are likely to less for an extended period.

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Speaker 1: Michael Spence, you have made a study of the Pacific

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Speaker 1: and with your wonderful book The Great Convergence of China

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Speaker 1: as well. Angela's stent at Georgetown talks about a potential

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Speaker 1: move back to a state of yalta where we have

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Speaker 1: a triangle between the United States, Russia, and China. Do

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Speaker 1: you agree we could launch back to something early Cold War.

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Speaker 1: I think it's not the most likely outcome, but it's

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Speaker 1: a possibility. So my take on what China is trying

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Speaker 1: to do, and they're in a very awkward spot, so,

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Speaker 1: you know, not dissimilar to the awkward spot in central

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Speaker 1: banks are in um. But China understands something that President

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Speaker 1: Putin doesn't seem to understand, and that is that any economy,

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Speaker 1: even a big one like China or even the United States,

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Speaker 1: can't perform at anything like its full potential in isolation.

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Speaker 1: And so I expect China to sort of move carefully

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Speaker 1: and and try to thread the needle, but to avoid

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Speaker 1: a scenario in which we start dividing the world up

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Speaker 1: into blocks, because it's incompletely inconsistent with their rather determined,

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Speaker 1: you know, domestic growth and development agenda. Michael, can we

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Speaker 1: talk about the important stuff for where you are? Can

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Speaker 1: you describe for a global audience the mood of Milan

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Speaker 1: the morning after it fails to qualify for World Cup?

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Speaker 1: Can you convey that to everyone for us? I don't.

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Speaker 1: I don't think I can convey the depth of despair

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Speaker 1: that we're all feelings as a result of bowing out

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Speaker 1: of the the you know, World Cup. It's a shame.

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Speaker 1: We have a lot of talent here. I don't. I

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Speaker 1: don't know why this is happening. We had some success before.

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Speaker 1: But okay, let me pick it up here, John Farrell,

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Speaker 1: Why did this happen? How did this disaster? This depth

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Speaker 1: of despare happen? These kind of games happen where you

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Speaker 1: play against the team that puts everyone behind the ball

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Speaker 1: defense for the whole game. You can't break through. They

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Speaker 1: build confidence, they at that one chance and they score

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Speaker 1: right at the end. Tom. It was just one of

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Speaker 1: those games and they couldn't finish it. Ka was injured,

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Speaker 1: one of our better players that had something to do

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Speaker 1: with it. But that's not a reason to go out

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Speaker 1: to North Macedonia. But there we are, Michael, Thank you

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Speaker 1: didn't I didn't know you were telling you half a Tali.

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Speaker 1: There we go, which which side? Which side of Milan

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Speaker 1: is yours? Inter or Milan? I think? Okay? Well on

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Speaker 1: on the other side of I bet Michael side wrong side.

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Speaker 1: We might actually win our first title, Tom, for the

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Speaker 1: first time in more than ten years, when we take

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Speaker 1: the show to Milan. We'll have to schedule. We can

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Speaker 1: do that. I believe that would be the first league

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Speaker 1: title outside of the Berlisconi era as well, Tom, I

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Speaker 1: was there the last time was Brua Sconi? Do you

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Speaker 1: not remember Berlisconi? You missed that? I was in the

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Speaker 1: sense you went to a party with Balasconi. Would you

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Speaker 1: like to would you like to tell us more? Are

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Speaker 1: you sure you can share it with us? Now we

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Speaker 1: have some time some give it a miss. Sure he

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Speaker 1: had a lot of tank at that party. Right now,

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Speaker 1: we're gonna go to the best best choice, which is

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Speaker 1: Ian Shepherdson is fortunate to be in the studio and

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Speaker 1: we have to rip up the script here and the

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Speaker 1: parlor game you and I don't play it that much.

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Speaker 1: But nevertheless you have to frame as or zag would say,

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Speaker 1: glide pass or reaction functions. Do you see glide pass

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Speaker 1: that get us to that stunning kind of move that

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Speaker 1: Mr Holland Horst speaks of, not in the timeframe that

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Speaker 1: they're looking at exactly. The X access is the point

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Speaker 1: of discussion. Indeed, So I am very much of the

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Speaker 1: view that the terminal rate is going to be way

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Speaker 1: higher than markets think. But I'm also the view that

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Speaker 1: it's going to take longer to get there than city

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Speaker 1: on suggesting. So I don't really have a problem with

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Speaker 1: the idea that we're going to end up well into

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Speaker 1: the threes, and we may even hit four by the

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Speaker 1: end of the cycle, but I don't think we're gonna

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Speaker 1: get that that sort of speed. And this is about

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Speaker 1: elasticities or the response outiveness of a greater economy. If

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Speaker 1: you take the GDP function, if you if you get

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Speaker 1: their short termism out two years, boom, you go boom

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Speaker 1: to economic growth, don't you. But it imputes to a

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Speaker 1: weaker economic growth. Well, if they're going to hike at

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Speaker 1: the speed that city you're suggesting, even if you think

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Speaker 1: that ultimately the economy can live with rates that high,

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Speaker 1: getting there that quickly is going to really put a

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Speaker 1: lot of stress, very rapidly onto the the private sector

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Speaker 1: and will require a great deal of recalibration about how

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Speaker 1: things work. So I am I'm really skeptical that they

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Speaker 1: may well get you know, the first couple of fifties,

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Speaker 1: but to carry on at that sort of pace. This

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Speaker 1: is kind all over again in terms of the speed

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Speaker 1: and the scale of the hikes, and that ended up

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Speaker 1: being very messy for the bond market. The economy didn't

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Speaker 1: go into recession, but it was certainly under a lot

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Speaker 1: of stress. And so I'm nervous that this is asking

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Speaker 1: really a lot for an economy where there's probably some

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Speaker 1: fragilities that wouldn't even know about yet coming out of

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Speaker 1: the pandemic. And so I'd be quite surprised if the

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Speaker 1: VED is able to push on at that sort of

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Speaker 1: speed without taking even a pause of breath. Well, and

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Speaker 1: we have to talk about the data too, and in

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Speaker 1: there in the line from city is the path remains

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Speaker 1: data dependent. They just believe that the risk of inflation

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Speaker 1: is still to the upside for the second half of

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Speaker 1: the year. Would you agree with that assessment? Yeah, this

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Speaker 1: is where I differ with them, actually, that that I

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Speaker 1: think that the glide path for inflation, maybe in as

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Speaker 1: soon as the second quarter, is going to be quite

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Speaker 1: steeply to the downside. I'm feeling really quite optimistic about

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Speaker 1: in particular vehicle prices tempers under the core CPI. We'll

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Speaker 1: hit the anniversary of some really huge increases of this spring.

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Speaker 1: But I also think the sequential numbers are going to

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Speaker 1: be falling because we're seeing auction prices decline and supplies improving,

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Speaker 1: and that makes a big difference to where you think

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Speaker 1: in focition will get to by the end of the

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Speaker 1: year and the speed with which it comes down over

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Speaker 1: the summer. And if it's surprising markets, media and the

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Speaker 1: fed to the downside in the summer, then the pressure

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Speaker 1: to keep going by fifty fifty is much diminished. So

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Speaker 1: that may be where I haven't seen cities in flation forecast,

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Speaker 1: but that might be where I differ with them. You know,

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Speaker 1: if you think it's going to remain very elevated for

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Speaker 1: a much longer period and we're really going to struggle

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Speaker 1: to bring it down, then yeah, they'll have to go

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Speaker 1: more ressively. But of course nobody knows. We're in very

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Speaker 1: much unprecedented circumstances. And what do you think the strategy is?

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Speaker 1: Frontload it, wait until the summer. What would you do?

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Speaker 1: What is the least bad choice? I think that they

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Speaker 1: need to get a grip on on this expectations, the

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Speaker 1: idea that they that they've got behind the curve and

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Speaker 1: that they they've left it too long. So I think

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Speaker 1: they need to start making signals. And we're hearing that

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Speaker 1: sort of verbally and in the dots and and in

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Speaker 1: pals press conferences very clearly that they want to get

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Speaker 1: a grip on it. They want to be seen to

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Speaker 1: be getting a grip on it. But I think the

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Speaker 1: narrative changes as we get into the spring and the summer,

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Speaker 1: where you know, if those numbers come to the downside,

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Speaker 1: and also maybe if if growth doesn't have the traction

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Speaker 1: that we all hope it has. You know, the first

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Speaker 1: quarter headlines to look and look quite soft because of inventries,

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Speaker 1: and there is a huge question mark over how the

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Speaker 1: household sector responds to the surgeon food and energy prices.

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Speaker 1: You know, I think it will be okay, but I

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Speaker 1: don't know. It will depend on how how willing people

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Speaker 1: are to run down some of their savings and maybe

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Speaker 1: they say, you know, we don't, we don't want to,

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Speaker 1: in which case we're going to see some real sustained weakness.

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Speaker 1: And again that would suggested starting with the fifty maybe,

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Speaker 1: but keeping going meeting after meeting. That's that's a big ask.

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Speaker 1: Well Ian you talk about how things could get better

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Speaker 1: as soon as the second quarter, but there's obviously an

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Speaker 1: ongoing war in Ukraine. Is your interpretation then that that's

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Speaker 1: not just going to show up as much in the U.

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Speaker 1: S economy as it will for Europe. Oh, there's there's

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Speaker 1: no question that the difficulties fear are much greater on

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Speaker 1: the back of the war in Ukraine, that much more

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Speaker 1: exposed to energy prices. Energy prices were already a huge

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Speaker 1: problem fear even before the invasion. Uh and and a

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Speaker 1: much more direct economic connections with Russia. So uh, there's

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Speaker 1: there's there's no doubt it bifurcse. Of course, it's even

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Speaker 1: worse for emerging markets, where people spend much more of

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Speaker 1: their income on food and energy than we do in

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Speaker 1: any Western economies, and where people buy much more raw

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Speaker 1: and processed food, and so there's going to see a

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Speaker 1: much bigger hit. So the U s IS is far

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Speaker 1: removed from all of this, the feedback from weaker growth

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Speaker 1: in Europe and e m into the US. It is

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Speaker 1: actually quite small. This is a big domestic closed economy really,

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Speaker 1: and the cottage industry of physics and the economics is

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Speaker 1: led by America. The the idiot matthewiness of the American programs.

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Speaker 1: But I would suggest the United Kingdom is really studied.

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Speaker 1: The non linearities of when you make moves and what

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Speaker 1: city group is recommending. Here is an inertial force upon

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Speaker 1: the economy. That's essentially I believe. I mean, if Al

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Speaker 1: Meltzer of Cardi Mellen was here, the late grade Ala Meltzer,

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Speaker 1: he'd say, we've never seen this before, this kind of

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Speaker 1: physic move in raising race. Do we have any experience

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Speaker 1: at this? Rights rights very aggressively back in in the

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Speaker 1: early nineties, but of course the level of rights was higher,

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Speaker 1: the gearing and economy with Fisher would say, the gearing,

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Speaker 1: you know, it was different, very very different, absolutely different,

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Speaker 1: and that's one of the reasons why we've had this

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Speaker 1: long term down with trend and nominal rights. But the

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Speaker 1: UK is an interesting example. It's the Western economy that

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Speaker 1: looks most like the US has some big differences. Of

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Speaker 1: course Franks it, but the Bank of England is signaling

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Speaker 1: pretty clearly they won't be raising rates very rapidly. And

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Speaker 1: so what City is talking about is a massive widening

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Speaker 1: of spreads between short rates in Europe and the US.

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Speaker 1: And I buy the idea in principle that the U

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Speaker 1: s economy is fundamentally in better shape and less the

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Speaker 1: Ukraine sensitive. But it's the scale of the gap that's

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Speaker 1: suggesting in such a short space of time that it'll

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Speaker 1: be difficult. Do you see how you make your luck

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Speaker 1: folks on surveillance. When we invented this program, we said,

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Speaker 1: just book smart people, and when news breaks down, it

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Speaker 1: works out killed It can ask you, Iam, whether you

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Speaker 1: think Wall Street, maybe even the City of Land that

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Speaker 1: is missing the mood of the country at the moment.

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Speaker 1: Do you think it is well? I mean, if you

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Speaker 1: look at the consumer conference numbers pretty much everywhere. Now

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Speaker 1: we've seen a round of numbers out of Europe as well.

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Speaker 1: Recently they have fallen off a cliff with with the

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Speaker 1: Ukraine War and there were weak anyway, and some of

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Speaker 1: the U S surveys have been weakening really for some time.

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Speaker 1: But the question is, is spending is GDP the same

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Speaker 1: sentiment because if it isn't, If if people say one

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Speaker 1: thing and do the other, then if you're expecting the

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Speaker 1: sentiment numbers to lead into a very weak economy, you

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Speaker 1: could be getting it really completely wrong. And the reason

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Speaker 1: why there might be such a big difference is that

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Speaker 1: in the US at least, households are sitting on trillions

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Speaker 1: of dollars of savings that they accumulated during the pandemic.

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Speaker 1: So they may well say when the conference board of

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Speaker 1: the University of Michigan comes along and says, how do

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Speaker 1: you feel, I feel terrible, But they still go to

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Speaker 1: the mall because the money is there and we've never

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Speaker 1: seen this before. So that makes forecasting with any confidence

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Speaker 1: really very difficult. And I'm glad City said their forecast

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Speaker 1: was day to dependent, because it sure is. Everything is

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Speaker 1: very dare to dependent and we just don't know. We

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Speaker 1: need to admit I think the limits of our knowledge

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Speaker 1: here because we're facing uncertainty like we've never had before.

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Speaker 1: Just to finish on this and stay on the same

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Speaker 1: point if we can, And has it been helpful to

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Speaker 1: you to be headquartered in Newcastle in the north of

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Speaker 1: the country away from London. Is that contributed to a

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Speaker 1: difference in opinion and outlook or where if you a

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Speaker 1: different way of thinking about the country the economy. Yeah,

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Speaker 1: I mean I don't do the cocktail party circuit in

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Speaker 1: London or in New York, so I can I look

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Speaker 1: at things maybe a little bit differently, um, but ultimately

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Speaker 1: I'm following the data like everybody else, and the data

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Speaker 1: at the moment are extremely confused, extremely confusing, and the range,

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Speaker 1: the cone of uncertainty is bigger than I've known it

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Speaker 1: in thirty years. It's the season ticket back, well, I

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Speaker 1: think on it will be so you want it back now?

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Speaker 1: Just to be clear, back you want it back now? Okay? John?

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Speaker 1: April three, it beckons Tottenham Newcastle in newcast Yeah, you

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Speaker 1: know how hard it will be to get tickets to that? Tom.

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Speaker 1: I think people realize how difficult it is to get

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Speaker 1: tickets for Newcastle game home game. And what are the

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Speaker 1: chances that you actually get your season ticket back for

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Speaker 1: next year? Well, that depends how willing I am to

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Speaker 1: close my eyes and ride a big jay, but so

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Speaker 1: so if I will at this point, if if a

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Speaker 1: Dell shows up to watch her taughts at Newcastle, how

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Speaker 1: is adult treated. I'm sure she'd be in by tom.

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Speaker 1: Have you ever seen a Newcastle fantom? Okay, a box

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Speaker 1: in day the day after Christmas? I think I went

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Speaker 1: to a West Brom game. So that's in the Midlands,

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Speaker 1: super cold, freezing, freezing, and the Newcastle fans they pack

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Speaker 1: out the home stadium, greater away attended to swell at

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Speaker 1: the away end. The Newcastle fans tom tops off, shirts

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Speaker 1: off in the freezing cold in late December. Adult would do.

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Speaker 1: The Newcastle fans are some of the toughest at their

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Speaker 1: tom they're wearing beer. Coach John seriously have taken off

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Speaker 1: the team? Right? Have they been affected quickly? Here? Oh? Well,

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Speaker 1: the city has thrilled with Ukraine. Well the Ukraine that

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Speaker 1: the Ukraine situation is is is grim, but but the

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Speaker 1: Saudi takeover has has been very welcome after after the disaster.

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Speaker 1: Someone rose in some the games in London. It's not

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Speaker 1: a Newcastle doesn't have to travel. I thought you mentioned

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Speaker 1: Spurs versus Newcastle. Yeah, that's April three. Someone's just written

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Speaker 1: in that jodies can come in their swim shots. Right

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Speaker 1: now is my interview of the day, and not that.

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Speaker 1: I'm just back from Paris and it was an extraordinary

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Speaker 1: joy to see Paris preparing for the Olympics. Because he

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Speaker 1: is hugely qualified with his public service to the French

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Speaker 1: nation on this moment of war. Philippetition is French Ambassador

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Speaker 1: to the United States of America, but far more has

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Speaker 1: had tours of duty, particularly in Romania. He understands Eastern

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Speaker 1: Europe perhaps more than anyone uh entering the show. Ambassador,

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Speaker 1: thank you so much for joining Bloomberg. Thank you very

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Speaker 1: much for having me, Ambassador. We have limitations. I cannot

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Speaker 1: speak to you, of course, of the domestic politics of France.

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Speaker 1: I believe that's off limit this morning. But I can't

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Speaker 1: speak to you of when I'm in London and I

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Speaker 1: get on the train and I go under the chat

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Speaker 1: when I come out, there are the fields of wheat

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Speaker 1: of France. You are in the absolute agricultural nexus of

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Speaker 1: the rich helping the poor with limited food. At this moment,

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Speaker 1: how France helped the poor of the world with their

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Speaker 1: wheat and other agricultural products. It is indeed one of

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Speaker 1: our duties and one of the initiatives we have decided

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Speaker 1: yesterday at the summits in in Brussels to take France,

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Speaker 1: like the United States, is an important producer of wheat,

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Speaker 1: but but we have collectively to help the world community

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Speaker 1: to face a food security crisis, which is one of

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Speaker 1: the threats caused by the Russian invasion of Ukraine. The

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Speaker 1: first thing to do is of course to demand a

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Speaker 1: ceasefire in Ukraine for the Ukrainian people first, but also

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Speaker 1: because it would be the only way to allow the

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Speaker 1: Ukrainians to sow their seats and to prepare for the

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Speaker 1: next harvests. But we have all so indeed to take

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Speaker 1: initiatives to increase productions, to increase coordination internationally, to help

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Speaker 1: all the countries which are the most vulnerable in the

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Speaker 1: world hund who depend from in parts of wheat. Ambassador

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Speaker 1: the President speaks of a hundred thousand refugees coming to America.

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Speaker 1: It seems like a tragic statistic given the millions coming

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Speaker 1: over the borders of Romania, of Poland and the rest.

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Speaker 1: Can France providely? Can France provide leadership in Europe? With

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Speaker 1: the amount of number of refugees coming into France, can

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Speaker 1: that statistics be had. We have provided leadership because France

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Speaker 1: is holding the rotating presidency of the Council of the

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Speaker 1: European Union. And as soon as the war has started,

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Speaker 1: and as the refugees have started to come into the EU,

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Speaker 1: we have decided as EU to give the Ukrainian refugees

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Speaker 1: more than three millions already arriving to the European Union,

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Speaker 1: to provide them with a spatial statute, protection statute. They

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Speaker 1: are schooled, they have access to health scare, they have

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Speaker 1: access to jobs. We have been doing this immediately. Of course,

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Speaker 1: the refugees first come to the border countries Poland, Romania,

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Speaker 1: also Slovakia, Hungary, also Moldova outside the EU. But now

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Speaker 1: they are coming to other countries, and you see everywhewhere,

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Speaker 1: including in France, a huge movement of solidarity for the

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Speaker 1: tens of thousands of Ukrainian refugees which are already in France,

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Speaker 1: in Italy, of course, in Germany very many. So they

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Speaker 1: are coming to us too, and as the EU, we

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Speaker 1: have taken very very quick and very bold measures to

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Speaker 1: welcome them. Ambassador, you spoke of Poland, where of course

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Speaker 1: the President of the United States is expected to land

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Speaker 1: in just about half an hour's time. Before he did so, though,

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Speaker 1: he was in Brussels with our sala of underlying announcing

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Speaker 1: that agreement on US elergy. What is the French feeling

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Speaker 1: this morning about its energy security and whether or not

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Speaker 1: it is able to win itself off of Russia. Well,

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Speaker 1: even if France is a bit less dependent on imports

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Speaker 1: from Russia than other new countries, it is for us

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Speaker 1: as again as a presidency of the European Union, it

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Speaker 1: is a common problem. It is a European problem. The

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Speaker 1: European leaders were convened by our president in Versailles two

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Speaker 1: or three weeks ago, and they decided to stop the

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Speaker 1: dependency on Russian imports of energy and also to increase

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Speaker 1: in other fields food, critical materials, the resilience of our economy.

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Speaker 1: It's a huge lesson to learn from this war, and

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Speaker 1: we will transform decisively the European Union. And to to

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Speaker 1: get rid of this dependency from imports from Russia in

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Speaker 1: energy means first to accelerate our transition and also to

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Speaker 1: diversify our supply, including of gas. From this point of view,

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Speaker 1: the agreement which has been announced by the United States

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Speaker 1: and the European Union. About this fifteen billion cubic meters

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Speaker 1: additional of Americans supply to Europe is really important, and

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Speaker 1: we will diversify your supplies so that we get tread

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Speaker 1: of this dependency as quickly as possible. Ambassador in Paris

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Speaker 1: and the rivers, and are those bright gold domes, they

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Speaker 1: stick out like a sore thumb, and it is Russian

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Speaker 1: architecture of the Russian Orthodox Church. Explain to us the

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Speaker 1: new relationship of Russia that you know so well with

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Speaker 1: your representation of the nation in Moscow. Explain the new

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Speaker 1: relationship you will perceive of Russia with Paris and France.

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Speaker 1: Well for the time being, of course, we we need

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Speaker 1: to stop this war. And the relation is mostly that

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Speaker 1: our president is among the leaders who has decided to

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Speaker 1: continue to talk to the Russian president to tell him

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Speaker 1: that ceasefire is absolutely necessary. Humanitarian access is absolutely necessary.

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Speaker 1: We have while we raise the sanctions and the price

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Speaker 1: paid by Russia for this invasion, and these sanctions are

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Speaker 1: really important. Now we have to first as a priority,

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Speaker 1: absolute priority, to get to as cinsfire, and we are

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Speaker 1: doing this in close coordination with the President of Ukraine.

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Speaker 1: Of course, once there is a Citisfire, that could be negotiations,

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Speaker 1: and once there would be negotiations, we could turn to

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Speaker 1: the future. But the absolute priority is a Cinisfire ambassador.

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Speaker 1: Thank you so much for joining us this morning, Philip

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Speaker 1: at the young French ambassador to the United States, Jane

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Speaker 1: Foley joins us out of foreign exchange strategy at Rubble Bank. Jay,

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Speaker 1: we got fourteen things to talk about, but we do

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Speaker 1: have the news of the moment. What does euro signal

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Speaker 1: and what is your prediction of how it will move?

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Speaker 1: You know, I think the urine is signaling perhaps some

431
00:23:50,440 --> 00:23:53,240
Speaker 1: optimism really amongst the market that that you will avoids

432
00:23:53,240 --> 00:23:55,800
Speaker 1: the acculation that it will avoid recession. But they've been

433
00:23:55,800 --> 00:23:58,639
Speaker 1: some nasty indicators this week. So you mentioned the IPO.

434
00:23:58,760 --> 00:24:00,200
Speaker 1: If you go back to day and look the p

435
00:24:00,359 --> 00:24:02,040
Speaker 1: M I what we can look at the detail of

436
00:24:02,080 --> 00:24:06,200
Speaker 1: that and seeing those input prices, much higher prices coming

437
00:24:06,280 --> 00:24:08,399
Speaker 1: through now, that is obviously one of the reasons that

438
00:24:09,240 --> 00:24:12,760
Speaker 1: business confidences is beginning to flounder in the Eurozone. We've

439
00:24:12,800 --> 00:24:15,439
Speaker 1: got higher prices for energy. Clearly that's going to be

440
00:24:15,440 --> 00:24:18,160
Speaker 1: more difficult for firms. And this is in a scenario

441
00:24:18,320 --> 00:24:21,359
Speaker 1: where we can avoid blackouts and and that isn't you know,

442
00:24:21,400 --> 00:24:24,760
Speaker 1: a full gone conclusion. There is still the energy security

443
00:24:24,800 --> 00:24:27,879
Speaker 1: threat for Europe, so there are significant headwindstle but the

444
00:24:27,920 --> 00:24:31,120
Speaker 1: market taking an optimistic stance on that at least for now.

445
00:24:31,200 --> 00:24:34,120
Speaker 1: You know, what's so important here, Jane, is the belief,

446
00:24:34,520 --> 00:24:38,880
Speaker 1: hope or maybe it's not going to happen, that financial

447
00:24:38,920 --> 00:24:42,600
Speaker 1: authorities will follow the confidence data. What is your reading

448
00:24:42,960 --> 00:24:48,040
Speaker 1: of how central banks adapt to a diminished confidence. Well,

449
00:24:48,080 --> 00:24:49,760
Speaker 1: you know, if you look at the Guard's comments, So

450
00:24:49,880 --> 00:24:51,639
Speaker 1: just a few days ago she said, even on the

451
00:24:51,880 --> 00:24:54,000
Speaker 1: worst case scenario, they're still going to have two point

452
00:24:54,040 --> 00:24:56,800
Speaker 1: three percent growth in Europe this year, that stagflation will

453
00:24:56,840 --> 00:24:59,040
Speaker 1: be avoided. Well, I would say that clearly that's not

454
00:24:59,080 --> 00:25:01,440
Speaker 1: the worst case scenario. You where we know that there

455
00:25:01,520 --> 00:25:04,760
Speaker 1: is a question marks over energy supply. No one can

456
00:25:04,800 --> 00:25:07,119
Speaker 1: really interpret what Putin is going to do. Yes, we

457
00:25:07,160 --> 00:25:09,920
Speaker 1: know that he needs that money that he gets from

458
00:25:09,960 --> 00:25:12,920
Speaker 1: selling energy, but at the same time, you know there

459
00:25:13,000 --> 00:25:16,639
Speaker 1: is still I would say, you know, a small prospect

460
00:25:16,680 --> 00:25:20,480
Speaker 1: that there could be energy crisis within German industry that

461
00:25:20,600 --> 00:25:23,959
Speaker 1: certainly could could bring on recession in Germany in Europe

462
00:25:24,119 --> 00:25:27,480
Speaker 1: if not further afield. So there are risks, But for now,

463
00:25:28,040 --> 00:25:31,560
Speaker 1: the central bank, you know, is I suppose applying the

464
00:25:31,640 --> 00:25:34,600
Speaker 1: market with you know, this optimistic tone that in a

465
00:25:34,640 --> 00:25:38,400
Speaker 1: stipulation can be avoided, and market appears to be happy

466
00:25:38,480 --> 00:25:41,760
Speaker 1: to go along with that. Jamie, we're having a conversation

467
00:25:41,760 --> 00:25:44,959
Speaker 1: earlier about the potential bleed through from a recession in

468
00:25:45,040 --> 00:25:47,760
Speaker 1: Europe into the United States and what that would mean

469
00:25:47,760 --> 00:25:49,960
Speaker 1: for the Federal reserve. When you think about that, the

470
00:25:50,000 --> 00:25:52,679
Speaker 1: dollar versus the rest of the world, its status as

471
00:25:52,720 --> 00:25:55,600
Speaker 1: a reserve currency, the outlook for federal reserve policy, where

472
00:25:55,680 --> 00:25:58,960
Speaker 1: does that leave you. I think the dollar is certainly

473
00:25:59,000 --> 00:26:01,080
Speaker 1: going to be a lot stronger this year then it

474
00:26:01,080 --> 00:26:03,720
Speaker 1: would have been otherwise, then it would have been without

475
00:26:03,760 --> 00:26:06,520
Speaker 1: this war, because as you mentioned that the dollar, the

476
00:26:06,640 --> 00:26:11,520
Speaker 1: dollar status, as as the payments system currency really really

477
00:26:12,040 --> 00:26:14,800
Speaker 1: make sure that people just need dollars and also if

478
00:26:14,800 --> 00:26:17,160
Speaker 1: they want to buy commodities back to basics. I think

479
00:26:17,160 --> 00:26:19,240
Speaker 1: this is what this crisis is all about. For many

480
00:26:19,640 --> 00:26:21,520
Speaker 1: they will need dollars in order to do that. So

481
00:26:21,560 --> 00:26:24,199
Speaker 1: the dollar, I think will be stronger. But you know,

482
00:26:24,320 --> 00:26:25,920
Speaker 1: if we look at the shape of that yield curve

483
00:26:25,960 --> 00:26:27,840
Speaker 1: in the US, if we look at the concerns about

484
00:26:28,200 --> 00:26:30,120
Speaker 1: you know, the conversations about whether or not we're gonna

485
00:26:30,119 --> 00:26:32,120
Speaker 1: have inversion in the US, whether or not the FED

486
00:26:32,160 --> 00:26:35,760
Speaker 1: can really be successful and taking out inflation without creating

487
00:26:35,760 --> 00:26:38,720
Speaker 1: a recession. There's got to be longer term, medium term

488
00:26:39,000 --> 00:26:41,679
Speaker 1: at risks for the dollar into next year. But of

489
00:26:41,680 --> 00:26:46,159
Speaker 1: course that assumes that that that Europe can avoid recession,

490
00:26:46,240 --> 00:26:49,960
Speaker 1: and that's something that will by the end of the year,

491
00:26:50,200 --> 00:26:52,000
Speaker 1: I think we should know, you know, whether or not

492
00:26:52,080 --> 00:26:54,120
Speaker 1: we've we've managed to do it, but because by then,

493
00:26:54,200 --> 00:26:57,000
Speaker 1: I think Europe will have helped secure more al turnate

494
00:26:57,400 --> 00:27:00,399
Speaker 1: energy supplies. But for now, when it's still using an

495
00:27:00,400 --> 00:27:03,040
Speaker 1: awful lot of Russian energy, there is I think so

496
00:27:03,119 --> 00:27:06,159
Speaker 1: much doubts and much concern over the direction for Europe.

497
00:27:06,400 --> 00:27:08,720
Speaker 1: And you've just touched on something I think really really

498
00:27:08,720 --> 00:27:10,600
Speaker 1: interesting and quite important. If we're going to build out

499
00:27:10,600 --> 00:27:13,800
Speaker 1: this energy relationship with the United States the Europeans are

500
00:27:14,040 --> 00:27:16,560
Speaker 1: how long before that starts to take an effect on

501
00:27:16,600 --> 00:27:19,360
Speaker 1: the currency pair. Are those kind of trade flows big

502
00:27:19,480 --> 00:27:23,320
Speaker 1: enough to make a difference, Well, you know, certainly they

503
00:27:23,359 --> 00:27:26,040
Speaker 1: are significant. I mean, if we're looking at just the

504
00:27:26,119 --> 00:27:28,520
Speaker 1: the energy relationship, I think that's going to get bigger

505
00:27:28,520 --> 00:27:30,760
Speaker 1: and bigger in terms of the the US and and

506
00:27:30,960 --> 00:27:33,320
Speaker 1: and Europe, and and you know, for the European sake,

507
00:27:33,359 --> 00:27:35,239
Speaker 1: you know, I hope that does come off that there

508
00:27:35,280 --> 00:27:37,200
Speaker 1: aren't a lot of concerns about the you know, the

509
00:27:37,240 --> 00:27:39,400
Speaker 1: supply of energy for instance, if you look at Australia,

510
00:27:39,400 --> 00:27:41,320
Speaker 1: I think that was a country that did promise that

511
00:27:41,440 --> 00:27:45,359
Speaker 1: more lergy for instance for Europe, but there are concerns

512
00:27:45,400 --> 00:27:47,200
Speaker 1: that they may not be able to do too much

513
00:27:47,200 --> 00:27:49,719
Speaker 1: of that without breaking existing contracts, that they may have

514
00:27:49,800 --> 00:27:52,840
Speaker 1: some shortages on one of its own coasts, so they

515
00:27:52,840 --> 00:27:55,720
Speaker 1: may not be able to provide alternative supplies. It's going

516
00:27:55,800 --> 00:27:57,439
Speaker 1: to be a long time, I think before we can

517
00:27:57,480 --> 00:28:01,800
Speaker 1: really be sure about the energy security situation in in

518
00:28:02,280 --> 00:28:04,720
Speaker 1: um in Europe. But certainly I think that that flows

519
00:28:04,720 --> 00:28:07,720
Speaker 1: with the US will be really imperative to that. Jane,

520
00:28:07,760 --> 00:28:10,080
Speaker 1: how important is it to discuss how people feel? And

521
00:28:10,080 --> 00:28:11,520
Speaker 1: you know why I asked this because in the UK,

522
00:28:11,760 --> 00:28:13,960
Speaker 1: when I speak to my friends, my family, they feel

523
00:28:14,000 --> 00:28:17,240
Speaker 1: like it's absolutely dreadful. And when we talk about the outlook,

524
00:28:17,600 --> 00:28:20,399
Speaker 1: we still have an outlook of three plus GDP growth

525
00:28:20,400 --> 00:28:23,280
Speaker 1: in the UK slash from the six number, the six handle.

526
00:28:23,320 --> 00:28:26,040
Speaker 1: They had a number of weeks ago, Jane, Does that

527
00:28:26,080 --> 00:28:29,240
Speaker 1: matter when Kaylee Lines talks about sentiment numbers here in

528
00:28:29,280 --> 00:28:31,879
Speaker 1: the United States decade lows. We could see them again

529
00:28:32,359 --> 00:28:35,439
Speaker 1: later on this morning. Does that matter? You know, it

530
00:28:35,560 --> 00:28:38,480
Speaker 1: will matter eventually, And I think you're right, you know,

531
00:28:38,640 --> 00:28:40,920
Speaker 1: right now, I'm finally find it quite difficult to reconcile

532
00:28:41,120 --> 00:28:43,840
Speaker 1: with what I'm seeing in the mainstream press about you know,

533
00:28:44,000 --> 00:28:46,160
Speaker 1: that the struggles that many people here are having with

534
00:28:46,240 --> 00:28:49,080
Speaker 1: higher energy and food prices, and the data that I see,

535
00:28:49,080 --> 00:28:50,920
Speaker 1: which is you know, tight labor market with the Bank

536
00:28:50,920 --> 00:28:53,520
Speaker 1: of England that has been tightening. But you know, if

537
00:28:53,520 --> 00:28:55,280
Speaker 1: we look at that statement from the Bank of England

538
00:28:55,360 --> 00:28:58,480
Speaker 1: last week, yes they did hike interest rates, but actually

539
00:28:58,720 --> 00:29:01,360
Speaker 1: the outlook was fairly person stick. They talked about, you know,

540
00:29:01,360 --> 00:29:04,160
Speaker 1: slower growth, they talked about rising unemployment by the end

541
00:29:04,200 --> 00:29:08,680
Speaker 1: of the year, and that is becoming reality right now.

542
00:29:08,920 --> 00:29:11,200
Speaker 1: And what we're seeing in the consumer confidence data this

543
00:29:11,240 --> 00:29:15,560
Speaker 1: morning in the UK is really plunging levels of consumer confidence.

544
00:29:15,680 --> 00:29:19,360
Speaker 1: Retail sales far weaker than expected, and this is the

545
00:29:19,360 --> 00:29:22,680
Speaker 1: the impact on the consumer from rising inflation. This is

546
00:29:23,080 --> 00:29:26,680
Speaker 1: finally it's been having that that impact on containing demand,

547
00:29:26,720 --> 00:29:29,600
Speaker 1: which will eventually, of course, pring prices down well, Jane,

548
00:29:29,600 --> 00:29:32,280
Speaker 1: as you mentioned the b OE tightening, the FED tightening,

549
00:29:32,320 --> 00:29:34,640
Speaker 1: the ECB may get there with a rate height by

550
00:29:34,680 --> 00:29:37,520
Speaker 1: the end of this year. Corona is not even close.

551
00:29:37,640 --> 00:29:39,480
Speaker 1: The b O J is not moving. You are seeing

552
00:29:39,480 --> 00:29:42,800
Speaker 1: that widening divergence, a break of one two one dollar

553
00:29:42,880 --> 00:29:46,040
Speaker 1: ya and yesterday, where does it stop. Well, you know

554
00:29:46,080 --> 00:29:48,080
Speaker 1: that there is a lot of momentum behind there, and

555
00:29:48,120 --> 00:29:51,680
Speaker 1: it's cently come faster than I and to participated at

556
00:29:51,680 --> 00:29:54,040
Speaker 1: the end of the year. I had expected one twenty.

557
00:29:54,080 --> 00:29:55,640
Speaker 1: That was my focus at the beginning of the year.

558
00:29:56,560 --> 00:29:59,280
Speaker 1: Two has really taken me by surprise. Now, you know,

559
00:29:59,400 --> 00:30:01,760
Speaker 1: there's a there's a couple of aspects here. You know,

560
00:30:01,800 --> 00:30:05,480
Speaker 1: we have, of course, um the the interstrate differential story

561
00:30:05,480 --> 00:30:09,520
Speaker 1: that begg of Japan remaining extremely davish, but Japan is

562
00:30:09,560 --> 00:30:13,080
Speaker 1: a massive energy importer. And if we look through the

563
00:30:13,080 --> 00:30:16,000
Speaker 1: patterns that we're seeing in deten currencies right now, we're

564
00:30:16,000 --> 00:30:18,920
Speaker 1: seeing the energy exporting currencies as is in New Zealand,

565
00:30:18,960 --> 00:30:22,160
Speaker 1: who don't export energy, but the export food performing really

566
00:30:22,160 --> 00:30:26,800
Speaker 1: really well, and the commodities importing currencies right at the

567
00:30:26,880 --> 00:30:28,440
Speaker 1: end of the pile that the Japanese yen at the

568
00:30:28,440 --> 00:30:30,520
Speaker 1: bottom of the pile. If we look at the performance

569
00:30:30,520 --> 00:30:32,479
Speaker 1: of detense, it's the start of the war and just

570
00:30:32,560 --> 00:30:36,840
Speaker 1: above the end under performing. We have the European currencies,

571
00:30:36,840 --> 00:30:39,160
Speaker 1: and this is a real rethink of you know what

572
00:30:39,200 --> 00:30:41,960
Speaker 1: we would generally think about the safe haven currencies the end.

573
00:30:42,760 --> 00:30:45,040
Speaker 1: What's the safe haven? It's right down there and this

574
00:30:45,280 --> 00:30:48,640
Speaker 1: energy importing nature of Japan is part of that. That

575
00:30:48,680 --> 00:30:51,160
Speaker 1: reason so for now, and it's very difficult to see

576
00:30:51,200 --> 00:30:53,680
Speaker 1: what's going to stop that um and I think they

577
00:30:53,720 --> 00:30:56,120
Speaker 1: could be further to go on on on the upside

578
00:30:56,200 --> 00:30:59,120
Speaker 1: round in Dolly yenan awesome as always, Jane Farley, that

579
00:30:59,400 --> 00:31:03,400
Speaker 1: of Ramma Band. This is the Bloomberg Surveillance Podcast. Thanks

580
00:31:03,400 --> 00:31:06,720
Speaker 1: for listening. Join us live weekdays from seven to ten

581
00:31:06,800 --> 00:31:11,240
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

582
00:31:11,360 --> 00:31:15,080
Speaker 1: day from six to nine am for insight from the

583
00:31:15,120 --> 00:31:20,320
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

584
00:31:20,360 --> 00:31:25,280
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

585
00:31:25,360 --> 00:31:28,600
Speaker 1: and of course on the terminal. I'm Tom Keene and

586
00:31:28,760 --> 00:31:30,640
Speaker 1: this is Bloomberg