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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 Ferroll and Lisa A. Brawnowitz. Daily we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot Com, and of course on the Bloomberg terminal right now.

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Speaker 1: And this was to be a normal conversation on Russian affairs,

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Speaker 1: and you do that with Steven Sistanovitch. He is Kennon

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Speaker 1: Fellow at CFR. There's nothing else to say but his

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Speaker 1: wonderful work at Columbia and of course his Cornell and

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Speaker 1: Harvard over the years. But we have been derailed, and

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Speaker 1: we have been drailed by Marina and a video that

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Speaker 1: went viral across all of this world and our modern

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Speaker 1: social media. A woman with courage on a Russian TV set.

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Speaker 1: We've all seen us on radio, perhaps many of you

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Speaker 1: have seen as as well. And Marina has disappeared in

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Speaker 1: protest in Moscow. Dr Sistanovitch, thank you so much for

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Speaker 1: joining us today. What will happen to Marina? Um, Marina

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Speaker 1: is not in a good place. I think we can

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Speaker 1: say that for sure. I wouldn't put money on her

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Speaker 1: job tenure, but she has gained a certain protection by

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Speaker 1: being coming so notorious and famous. So suddenly she speaks

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Speaker 1: for a lot of people. You know, Russian experts, the

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Speaker 1: intelligencia are all saying openly to Westerners, were depressed. We

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Speaker 1: can't understand what's happening. People want to leave the country.

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Speaker 1: So she uh, she expressed that individually, but for a

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Speaker 1: very very large number of Russians. What is the potential

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Speaker 1: of Mr Putin finding other employment or being derailed in

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Speaker 1: his efforts? In your Ukrane over the weekend, I thought

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Speaker 1: Stephen Cott kind of Princeton was just wonderful in the

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Speaker 1: New Yorker and other articles as well. How do you

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Speaker 1: gauge Mr Putin's fragility given his special operation? Well if

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Speaker 1: if if Putin wins, he's better off if he fails.

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Speaker 1: You know, Russian leaders are not rewarded for failure. And

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Speaker 1: his problem now is that he's got a military offensive

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Speaker 1: that is stalling. He has uh, the un economic elite

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Speaker 1: that is panicked about what is going to happen to

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Speaker 1: their position. He has the intelligencia depressed and speaking out uh,

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Speaker 1: and he's got every indication that Western governments are going

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Speaker 1: to be united to do two things indefinitely, maintain sanctions

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Speaker 1: and keep arming the Ukrainians, and that is a formula

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Speaker 1: that makes it hard for him to win. If he

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Speaker 1: doesn't win this, the institutions that have supported him will

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Speaker 1: also be at risk. The Russians political future is really

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Speaker 1: more unpredictable today than it has been in years. Well,

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Speaker 1: and I wonder you know, especially given your experience, professor,

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Speaker 1: as an ambassador at large to the Soviet Union, when

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Speaker 1: Vladimir Putin took his home as president of the country

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Speaker 1: over in two thousand, I'm wondering who you think could

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Speaker 1: fill a power void should he be taken down in

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Speaker 1: some capacity. You know, this is going to be very

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Speaker 1: hard because the institutions that would like to fill that

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Speaker 1: void are going to be weakened and discredited. The military,

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Speaker 1: the intelligence agencies, um the They've been the spine of

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Speaker 1: the Russian system, and yet they are going to look

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Speaker 1: as foolish and as harmful to the country's interests as

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Speaker 1: the Communist Party did in Remember in the the final

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Speaker 1: collapse of the Soviet Union was triggered by the military

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Speaker 1: intelligence people trying to do something immensely stupid, which is

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Speaker 1: to have a coup against gerbatchoff that the people rose

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Speaker 1: up against what has happened in Ukraine is possibly if

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Speaker 1: it turns out this way. Uh, the same kind of

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Speaker 1: institution discrediting, a step that puts everything up for grabs

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Speaker 1: in Russian politics. I've gotta leave it that, Stephen. Fantastic

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Speaker 1: to have you on this program, as always play stay

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Speaker 1: close so we can catch up again in the next

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Speaker 1: few weeks. Stephen Sistanovitch that of the Columbia University and

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Speaker 1: c f H right now, and this is a really

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Speaker 1: really important conversation off of what Mike said. I think

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Speaker 1: less John Sick has been doing this a long time

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Speaker 1: with David Rosenberg at Mary Lynch and now at Oxford Economics,

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Speaker 1: their chief US financial economist, Kathy. Your notes stunned me.

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Speaker 1: You look for a higher sustained inflation. What does Chairman

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Speaker 1: Powell do with eight point seven percent inflation? Good morning

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Speaker 1: tom Uh. Well, I think he's got to stay pretty

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Speaker 1: hawkish in his policy stance. Um, you know they're only

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Speaker 1: going to go twenty basis points tomorrow. I think that

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Speaker 1: wasn't for the outbreak of war in Ukraine, we'd be

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Speaker 1: looking at fifty basis points. But of course he wants

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Speaker 1: to go gradually and cautiously in this environment of high uncertainty.

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Speaker 1: But they've got to, you know, make inflation that they have,

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Speaker 1: they've made inflation their top priority, and it continues to

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Speaker 1: be so um, and he's going to have to lead

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Speaker 1: the f HOMC to be pretty consistent and relatively aggressive

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Speaker 1: compared to what we see over previous tightening cycles. So UM,

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Speaker 1: maybe twenty five basis points tomorrow, but he may hold

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Speaker 1: out the possibility of fifty basis plates at any given

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Speaker 1: many meeting going forward, especially for a correct in an

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Speaker 1: inflation at the headline CPI pops up to eight point

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Speaker 1: seven percent by the spring, Cathy, What does J. Powell

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Speaker 1: do if there's evidence of a slowing economy but inflation

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Speaker 1: stays high. Yeah, it's this is the worst world, right

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Speaker 1: for for central banks. This idea of a stagflationary shock

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Speaker 1: or possibility of stagflation. We don't think overall we're in

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Speaker 1: stack flesh, it's a stacletionary shock. But we think there's

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Speaker 1: strong enough momentum that you're gonna see growth around three percent.

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Speaker 1: So even though the economy slows and it should, Um

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Speaker 1: that's not going to deter them from you know, keeping

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Speaker 1: inflation onto wraps. We'd have to really see something that

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Speaker 1: looks like we're headed to a precipice of of a recession,

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Speaker 1: and that just doesn't look to be in the cards

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Speaker 1: for now. Right now, I'm looking at the economic data

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Speaker 1: that came out. The good news is there does seem

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Speaker 1: to be a slowing when you strip out food and

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Speaker 1: energy costs, right so that actually might feed into this

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Speaker 1: feeling that perhaps we're starting to stabilize. The bad news

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Speaker 1: was that Empire manufacturing which plunged, and I wonder if

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Speaker 1: there are signs that things are really grinding to a

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Speaker 1: halt in the face of some of the inflation and

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Speaker 1: the face of worker shortages that really have been crimping

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Speaker 1: UH some of the capacity at different companies. It's it's

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Speaker 1: definitely something you know, we've been watching UM, but I

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Speaker 1: think overall some of these regional surveys have been a

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Speaker 1: bit volatile. And what we've seen overall is that demand

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Speaker 1: you know, for back orders to replenish inventories are still

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Speaker 1: very strong, and that producers products are still finding ways

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Speaker 1: to UM get their goods out the door. Yes, they

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Speaker 1: face UM some job constraints, Uh, but overall industrial productions

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Speaker 1: still looks very healthy to us in manufacturing activity. Kathy.

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Speaker 1: The last time we had some forecasts from the feed,

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Speaker 1: I think was the middle of December. That's a long

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Speaker 1: long time ago. And I'm looking at the Dolt plot

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Speaker 1: for twenty three one sixty for twenty four two much

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Speaker 1: if they had the choice, they wouldn't do forecast tomorrow.

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Speaker 1: They're going to do forecast tomorrow, Kathy. What happens with

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Speaker 1: that dot plot in that summary of economic projections when

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Speaker 1: we all open up that file, what does it look like? Yeah,

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Speaker 1: we we think that the dark plot estimates have to

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Speaker 1: go massively higher for for this year and and a

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Speaker 1: bit higher for two thousand twenty three. UM we would

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Speaker 1: not be surprised to see go from three rate hikes

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Speaker 1: so seventy five basis points for this year two d

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Speaker 1: fifty basis points. They may not go the full one

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Speaker 1: we expect in the markets, but certainly a big shift.

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Speaker 1: And we think that by next year they actually have

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Speaker 1: to start to signor gating towards restrictive policy. Stand So

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Speaker 1: closer to two and a half percent on the dot

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Speaker 1: plot is not the peak in the right hiking cycle

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Speaker 1: for you, Kathy, Well, we have it. We have it.

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Speaker 1: Our our neutral rate is a little lower at two percent,

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Speaker 1: so we think they go slightly above that UM and

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Speaker 1: that would be the peak in two thousand twenty three.

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Speaker 1: And then you know, it's growth that we worry about.

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Speaker 1: In the middle part of two thousand twenty three, that's

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Speaker 1: when we get a little soft and fall below potential growth.

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Speaker 1: What does nominal GDP due to the mood of America.

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Speaker 1: If I take a bus John sick three and I

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Speaker 1: add eight to it, that's China like, isn't it. Well, yeah,

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Speaker 1: there's no doubt that when you add the inflation component. Um,

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Speaker 1: it's very strong nominal GDP. And these inflation numbers really

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Speaker 1: look like something from another part of the world, right, um,

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Speaker 1: and not here in the U s Um, you have

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Speaker 1: to go back to nineteen eight. So now nominal GDP matters. UM.

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Speaker 1: I would say from a corporate standpoint, corporations, they need

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Speaker 1: to maintain pricing power. It's how to take advantage of that.

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Speaker 1: For consumers, wages have to continue to rise for them

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Speaker 1: to keep spending. But of course then there's the problem

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Speaker 1: for the FED. If wage you start to rise, then

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Speaker 1: you have this risk of a wage price spiral which

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Speaker 1: is more self sustaining UM, and just adds to the

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Speaker 1: problems that we see in you know, the supply change,

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Speaker 1: which are being aggravated, of course by by the war. Kathy,

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Speaker 1: before we let you go, I'm curious about the situation

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Speaker 1: in China that we're seeing the lockdowns and some of

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Speaker 1: the supply chain response. We've seen Walmart and Amazon come

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Speaker 1: out and say that you can expect to see some

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Speaker 1: sort of delays in shipping. How significant is this in

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Speaker 1: terms of a contributor contributor to inflation going forward. Yeah,

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Speaker 1: it's it's just another headwind and and a ripple through.

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Speaker 1: You know, supply chains are already very stressed. Um. We

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Speaker 1: had seen some nascent signs of improvement in the supply change,

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Speaker 1: so maybe the pp I it was, you know, picking

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Speaker 1: up some of that, but you had seen that at

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Speaker 1: year end and going into earlier this year. But I

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Speaker 1: think all of this really gets reversed because of the

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Speaker 1: war and now because of what's happening in China. So

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Speaker 1: I think this is a significant um setback here on

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Speaker 1: a supply chains. It's only going to add to inflationary pressures. Kathy,

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Speaker 1: thank you as always, looking ahead to the Federal Reserve tomorrow.

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Speaker 1: Kathy bus changes there of Oxford Economics. Right now we

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Speaker 1: start strong with ellen Wald on this moving oil Senior

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Speaker 1: fellow at Atlanta Council. Forget about that author of Saudi.

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Speaker 1: How does the world change for Saudi? Ellen Wald? When

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Speaker 1: oil plunges from one thirty down under a hundred, this

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Speaker 1: is this is a very big plunge. But I think

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Speaker 1: that it does show it's some It shows a bunch

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Speaker 1: of things. But I think in one respect it shows

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Speaker 1: that OPEC wasn't wrong when they were saying that the

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Speaker 1: high prices were not exactly due to the supply demand

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Speaker 1: situation and fundamental, but that there was a lot of

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Speaker 1: financial speculation acting on prices and had they, you know,

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Speaker 1: just increased production, then it might not have actually even

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Speaker 1: had the effect that that um a lot of countries

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Speaker 1: like the US we're looking for. Uh So, I do

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Speaker 1: think that in some respects this does indicate their position.

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Speaker 1: And then what do you think is behind the turnaround?

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Speaker 1: Can we stop that? Why such a messive move the

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Speaker 1: last couple of days? Yeah, so, I think there are

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Speaker 1: there are a bunch of factors. Um, you know most

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Speaker 1: of them are more financially. Do you think that the

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Speaker 1: oil market was probably over uh compensating or or had

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Speaker 1: been had been higher than it should have been given

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Speaker 1: the supply demand situation. I think that UM news that

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Speaker 1: UM Russian crewd is selling for thirty dollars under uh

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Speaker 1: you know, under under the compared to the benchmark prices,

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Speaker 1: was a helpful thing that kind of brought things down.

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Speaker 1: And I do think that this was to be expected. UM.

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Speaker 1: I did kind of uh indicate that this was something

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Speaker 1: that we could expect to happen, though I didn't see

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Speaker 1: it happen quite so soon. I think news that India

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Speaker 1: purchased this gurals cargo for thirty dollars under under the

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Speaker 1: benchmark was definitely helpful in in showing the market that

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Speaker 1: guests Russian crew can still be moved, and it's going

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Speaker 1: to be moving at a discount. UH. Then, combined with

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Speaker 1: the fact that we're seeing a lot of lockdowns enclosures

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Speaker 1: in Beijing and start in China and in other areas

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Speaker 1: of China due to rising COVID cases, is definitely an

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Speaker 1: indication that demand in China could get hit. And China

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Speaker 1: is the world's largest oil importer. But Ellen, I gotta wonder,

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Speaker 1: these are all reasons that we can give a narrative

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Speaker 1: that we can give to this move. But it feels different.

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Speaker 1: It feels like a violent short squeeze. It feels like

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Speaker 1: a puke, as John said. And I wonder if there's

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Speaker 1: something significant or a historic precedence to the volatility that

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Speaker 1: we've seen that's been unbelievable, like thirty forty dollar swings

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Speaker 1: in this benchmark price that affects almost everything that we buy. Yeah,

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Speaker 1: I'm not sure we can find a historical process for

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Speaker 1: such huge volatility. I think we're in a period a

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Speaker 1: huge volatility. But part of the reasons that the volatility

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Speaker 1: is super great is because we've got inflation acting on

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Speaker 1: oil prices, so everything is magnified because of this, and

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Speaker 1: the oil market is just there's so much more financial

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Speaker 1: speculation and and it's so much more determined by trading

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Speaker 1: then say it was in you know, the late seventies,

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Speaker 1: the SEGUI here, we had a wonderful discussion on Germany,

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Speaker 1: on continental Europe and on the timeline for them to

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Speaker 1: become somewhat energy independent. Can Saudi come to the rescue?

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Speaker 1: Is there is there something I'm missing when I look

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Speaker 1: for a US centric solution. What can the Middle East do? Well,

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Speaker 1: here's what the Middle East can do, and what I

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Speaker 1: think UH is. I think that it will be part

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Speaker 1: of maybe, you know, if this situation goes on in

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Speaker 1: Europe and the US continue to shun or ban in

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Speaker 1: some respects or even if it's just company shunning Russian oil. Um.

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Speaker 1: You know, we have India, say buying a lot more

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Speaker 1: Russia oil, so India is gonna then buy less safe

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Speaker 1: from the Middle East, and the Middle East is going

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Speaker 1: to shift to providing to Europe. We do have UM

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Speaker 1: Forest Johnson talking about going to Saudi Arabia. UM. You know,

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Speaker 1: the the speculation is that he's going to ask the

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Speaker 1: Saudis to produce more. But what's much more likely is

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Speaker 1: that he's going to say, try to maybe negotiate some

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Speaker 1: kind of of deal where the Saudia is just celebritten

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Speaker 1: more oil, which is more of a shifting pattern as

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Speaker 1: opposed to a UM you know, producing more. And I

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Speaker 1: think that that we will over time, you know, if

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Speaker 1: if these bands or shunning continues, we will see the

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Speaker 1: oil market reorganize, and as that happens, prices should come down,

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Speaker 1: particularly because um, the countries that continue to buy Russian

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Speaker 1: oil unless they get sanctioned, will be able to buy

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Speaker 1: it at a discount, and that will affect the price

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Speaker 1: of the benchmarks. Uh. It could also affect the prices

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Speaker 1: benchmarks as they are buying it in currencies other than

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Speaker 1: the dollar UM, which I think will also cause prices

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Speaker 1: to fall. UM. The thing is, though, that I don't

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Speaker 1: think we see the last of high prices. We're in

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Speaker 1: a period of high volatility, not just plunging prices. That's

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Speaker 1: the point. Well Might and I'm well at the Atlanta Council,

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Speaker 1: the brilliant and and Walt right now. And this is

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Speaker 1: very important, our definitive source on what's actually going on

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Speaker 1: on the ground in China. China. Beje book International is

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Speaker 1: a must read on the micro data of China. Leland

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Speaker 1: Miller joins us this morning. Leland, I'm gonna go to

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Speaker 1: Lis Economy's new book, The World according to China, And

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Speaker 1: she closes out that book with the China Reset. What

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Speaker 1: is the state of domestic affairs in China right now

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Speaker 1: that allows President g to get to a China reset?

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Speaker 1: Is his economy falling apart? The economy is not falling apart,

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Speaker 1: but they're on the precipices some bad things that they

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Speaker 1: don't take care of business. Uh. You know, from the

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Speaker 1: beginning of last year when we saw this enormous de

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Speaker 1: risking of the economy, the risking the property sector to

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Speaker 1: risking the financial sector, what we've been explaining is that

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Speaker 1: this is she's restructuring towards a different growth model. There

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Speaker 1: is gonna be much slower growth going forward, and in return,

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Speaker 1: she's promising common prosperity. But the path to get there

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Speaker 1: is not gonna be easy, and it's made even more

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Speaker 1: difficult by the fact that this is a party Congress year.

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Speaker 1: So at this point she has to be very careful. There.

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Speaker 1: There are not threats to his power, but he is

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Speaker 1: making some seismic changes in a very politically sensitive year.

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Speaker 1: I don't know the details in front of me, folks,

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Speaker 1: but my memory suggests two mayors who were shown the

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Speaker 1: door in recent days. The mayors are powerful. What is

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Speaker 1: the symbolism, Leland Miller if mayors of cities are shown

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Speaker 1: the door, Well, you know, sometimes it's economic performance and

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Speaker 1: sometimes it's because they don't get their business taken care of.

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Speaker 1: On the COVID front, which is what's been happening recently.

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Speaker 1: But look what she is saying is there is no

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Speaker 1: room for error this year. You look at what's happening

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Speaker 1: in Chinese stocks, uh and and obviously the world is

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Speaker 1: very skittish on the path that China is taking. Now

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Speaker 1: what the restructuring that's actually happening is something that that

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Speaker 1: she has to do. The party would not be doing

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Speaker 1: it unless they thought they needed to. But this means

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Speaker 1: there's no room for error. And if there's people who

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Speaker 1: are not doing their job, they're gonna be tossed aside,

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Speaker 1: new room for error at a tenuous time globally, how

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Speaker 1: does this all fit in to China as a parent,

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Speaker 1: if not support for Russia at least tacit acknowledgement of

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Speaker 1: what they're doing, and non interference with this conflict. Yeah,

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Speaker 1: I think people are way too over their skis. You know,

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Speaker 1: it was strategic for the US to leak the conversations

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Speaker 1: that the Russians and the Chinese had about potentially China

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Speaker 1: arming Russia. These were early on. It's strategic for China

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Speaker 1: to to try to gain leverage against the US, try

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Speaker 1: to push US policy to be weaker in return for

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Speaker 1: adherence to Russia's sanctions. But this idea that Rush is

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Speaker 1: about to ship tanks or missiles. No one knows what's

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Speaker 1: in chess head. But this, this is very unrealistic. Just

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Speaker 1: because China has busted sanctions in the past and may

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Speaker 1: do so on the margins that this in this round

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Speaker 1: with Russia doesn't mean they're prepared to take catastrophic losses

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Speaker 1: to their big companies into their economy, the tech sector, etcetera,

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Speaker 1: by by violating sanctions like foreign direct product rule or

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Speaker 1: anything on the central bank side. So I think people

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Speaker 1: are too worried right now over this. We need more

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Speaker 1: information before we see that China is actually moving in

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Speaker 1: this direction. Although we are hearing also about China possibly

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Speaker 1: investing in oil companies in Russia trying to be partners,

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Speaker 1: and part of this is opportunistic and part of this

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Speaker 1: is to secure their own energy independence because of their

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Speaker 1: lack of oil supplies. Right now, how much credence do

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Speaker 1: you give some of those rumors, Oh, I think that's

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Speaker 1: absolutely gonna happen. I mean, look, the advantage for China

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Speaker 1: and having a Russia alliance is we you know, is

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Speaker 1: not so you get grouped with of a putting on

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Speaker 1: the global stage and so you can buy commodities cheaper.

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Speaker 1: So if China can get hold of cheaper oil, cheaper gas,

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Speaker 1: cheaper wheat, this is a dream come true for she

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Speaker 1: in an area that that that China is really nervous about.

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Speaker 1: So I absolutely think they're gonna be positioning themselves to

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Speaker 1: to to provide credit to the Russians in certain ways. Uh,

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Speaker 1: they're bilateral swap lines. They can they can they can

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Speaker 1: make available. So you will absolutely see the Chinese trab

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Speaker 1: as much Russian energy as possible. But this doesn't mean

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Speaker 1: they're going to be arming them in Ukraine. That would

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Speaker 1: be a massive step and it would end very very

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Speaker 1: poorly for Hijimping Leland. In the meantime, you are seeing

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Speaker 1: these COVID lockdowns, You are seeing the expectation with a

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Speaker 1: lot of Wall Street houses downgrading their view of the

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Speaker 1: Chinese economy. What is the population the popular support of

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Speaker 1: Jijimping like right now? Is he suffering on that front

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Speaker 1: with the domestic population? Yeah, there is there is no

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Speaker 1: evidence that that she's struggling that. Look, if you have

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Speaker 1: problems in your economy and there are things you need

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Speaker 1: to take care of, but I think that you know

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Speaker 1: a lot of these Wall Street jops now predicting zero

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Speaker 1: percent growth. It's like they haven't played this game before.

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Speaker 1: The the odds of China announcing zero percent growth or

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Speaker 1: something close to it in the next quarter. Con I saw,

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Speaker 1: we laughed, we were forwarding it around. It's ludicrous. Look,

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Speaker 1: it doesn't really matter what's going to happen. They're not

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Speaker 1: going to report that. So there's gonna be a lot

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Speaker 1: of people with egg on their face at the end

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Speaker 1: of this quarter. Plus, we're looking at our own data

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Speaker 1: and we're not seeing zero percent growth. Would look for

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Speaker 1: what would you look for? You look, well, look you

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Speaker 1: look at the credit data. So when you look at

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Speaker 1: the credit data, are things going great? Are we seeing

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Speaker 1: the big easy? No, we're not. But we saw something

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Speaker 1: different in February than we did in January. We saw

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Speaker 1: saw more support and property than we did in January.

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Speaker 1: So they're taking things up. There's not a dramatic deceleration

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Speaker 1: going down. And a one week COVID lockdown is not

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Speaker 1: going to knock the economy off its off its cylinders. McGregor.

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Speaker 1: What is it about these Wall Street chips? I look them,

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Speaker 1: motivations are differently. At all these Fall street shops are

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Speaker 1: trying to get into China, which means they have to

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Speaker 1: make nice with with Beijing. Uh So this is one

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Speaker 1: of the rare occasions. We're actually seeing a sort of

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Speaker 1: more negative take on this, which is surprising. But look,

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Speaker 1: you either have real data and you're seeing what's going on,

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Speaker 1: or you're believing Chinese lagging data that's three months old

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Speaker 1: and often manipulated. So you know, pick your poison. Land.

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Speaker 1: Thank you, it's a national This is the Bloomberg Surveillance Podcast.

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Speaker 1: Thanks for listening. Join us live weekdays from seven to

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Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television

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Speaker 1: each day from six to nine am for insight from

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Speaker 1: the best in economics, finance, investment, and international relations. And

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Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot com, and of course on the terminal. I'm Tom

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Speaker 1: Keene and this is Bloomberg