Climate Change Is America's Most Pressing Threat: Admiral Stavridis

We've heard about increasing unrust in the Middle East. So it came as kind of a surprise to me anyway, that Admiral James Stavritez, whose tine of the Fletcher School of Law and Diplomacy and also was a retired U. S. Navy admiral informed military commando of NATO, he views the biggest threat right now global warming and climate change. He joins US now, Admiral Serrita's thank you so much for

being with us. Can you explain I was surprised by this. Yeah, I think here we have to differentiate between tactical threats which kind of loom at us in the minute to minute. That would be North Korea, Iran, Russia's activities around the world, especially in cyber those tactical threats are very pressing, but long term, the strategic threat that I am very concerned

about is global warming, and i'll tell you why. You know, first of all, it contributes to the tactical threats drought, fires, fame, and all these things fuel insecurity. Secondly, as sea levels rise, we're gonna lose valuable parts of the coastline, and particularly in the Arctic, we're gonna see rising tension as the polar caps melt and great powers collide up there, competing

for hydrocarbons. And third and finally, extreme weather. You know, we've just been through a cycle, a trifecta, if you will, of terrible hurricanes. All of that drains our readiness. It's going to get worse and worse if we don't address it. Now, well, what role does the defense community have in this, because we've noted in the Defense Appropriations Bill there's a lot of mention of the effects of climate change. In fact, James Maddis, the Secretary of Defense, seems to concur in

your thoughts. And just to give an example, you know, there's an Air Force radar installation that's on the Marshall Islands, and I think it cost about a billion dollars and it's projected to be underwater within twenty years exactly. So I'll tell you the two big things the military can do. The first is is very prosaic, and it is that the Department of Defense is the largest enterprise in the world. It's a seven hundred billion uh four million person enterprise.

So simply addressing our own carbon footprint, our own emissions, our own ability to transfer from hydrocarbons two renewables is a not insignific secant contribution. And then secondly, what the military can do is prepare as we look at the potential for increased conflict, we look at reactions to extreme whether we look at um resources being drained away from the military. I think the military has a strategic planning role. And again this is why I'm advocating paying attention to

this now. This is one of those problems from Hell that you can get by day to day now. But if you don't address it when the problem really hits in half a century, it's too late. Admiral problement problem in Hell, it may become so too would be nuclear war. And I do want to get your thoughts on shorter term tactical threats, in particular North Korea. In an interview that President Trump did with the Wall Street Journal, he said that he has actually developed a positive relationship with

North Korea's leader, despite their mutual public insults. Quote. I probably have a very good relationship with Kim Jong. I have relationships with people. I think you people are surprised. What do you make of that? Um, it's perplexing. I think the most uh, in charitable uh analysis of it would be that President Trump is developing an imaginary friend who visits him at night in the White House. UM. Let's hope not. Uh. Let's let's say for a second

that it was a rational comment that he made. Um. The only thing I could think that he's alluding to is some level of back channel communication. But you know, I talked to a lot of people in Washington. The head of the United Nations delegation is a good friend of mine. I think I'm fairly plugged into this, and I don't see those back channel communications. So I think it's quite perplexing. Now we are to remember that life is kind of compared to what and compared to throwing

out juvenile insults. My button is bigger than your button or little Rocketman, etcetera. This is probably better and keeps us on that narrow sliver of hope we have toward a diplomatic resolution. Well, you know, as you have noted in the past and your books, the Accidental Admiral describing your thirty seven career, thirty seven year career of service for which, of course the nation is grateful you have. Of course, uh, really put together a look at the history, history,

and the geopolitics of oceans, of sea lanes. What is the most critical sea lane right now? And how is the United States dealing with it? The most critical sea passage, I would say is the South China Sea, because here you see the confluence of another major strategic challenge for

the United States, and that's the rise of China. I don't think we're headed for war with China, but we've got a serious strategic competitor, and China's objective is to dominate the South China Sea, which is a vast area about the size of the Gulf of Mexico, and they claim it as territorial sea. It's full of hydrocarbons, natural gas, and oil, and it is bounded by a group of nations that are allies, friends and partners to the United States, So we need to be mindful of the fact that

we are a pacific power, a maritime power. We need to operate in those waters. We're not going to go to war with China. But if we simply drift away pun intended uh that water space will be dominated by China, will will be very, very disadvantaged strategically in another fifty years if that occurs. Based on what you know about the players and the countries in that region, do you believe that American allies are beginning to doubt the resolve of the United States to play a meaningful role in

the area. I think that there is questioning of the seriousness of the President frankly personally, um be because of the tweets, because of this recent brew haha over his foul language in the White House. Individually, each of those things would not be necessarily terrible, but when you add them up, it creates a lot of confusion on the part of our allies. Here's the good news. He's still surrounded by a coterie a very capable national security advisors.

General Maddis over its defense and General McMaster in the White House. National Security Advisor General Kelly in the White House. These are serious security professionals. I think they'll keep us on a fairly even course. But um our allies are concerned and it's becoming a kind of endless game of reassurance on the part of those other officials to go to the region and uh set things to right. I think we'll have to do more of that if we're

going to be regarded seriously in the Pacific. Admiral Real quick ten seconds. Do those qualify people around President Trump understand the threat of climate change? They do? And look at the statements by General Jim Maddis when he was a four star general. He understands it very well. Thank you very much for being with US. Admiral James steverdis retired. He's the dean of the Fletcher School of Law and Diplomacy at a Tough university. He is also a Bloomberg

View columnist. JP Morgan Chase releasing their quarterly report today, the biggest bank by the biggest US bank by assets, reporting net income of about four and a quarter billion dollars. That was down nearly from a year earlier, but it has to do with a nearly two and a half billion dollar charge related to the new tax law. Here to help us understand what's going on in the world of banking is Chris Whalen, the chairman of Whalen Global Advisors. Chris,

A pleasure always to have you on. Happy New Year to you. Can you tell us your thoughts and reaction to the report from JP Morgan Chase. UM wasn't a bad report, as you said. I mean, it was down because of the the attacked adjustment, but even if you factor that in him, the large banks aren't growing very much. Uh. The real winner today was P n C, which had a tremendous quarter. They're taking share on the institutional side.

They're taking share in the mortgage market, believe it or not, whereas Wells and JP and Bank America are all backing away from that consumer loan sector. So it's really a tale of two industries. That's what we have here, PIM, Chris, you see a tale of two industries. It's also, uh, many many different tales baked into the same earnings report. Before I get the idea of P and C and other regionals taking business away from Wall Street, I want to dig into some of the details that we learned

from JP Morgan today. UM a lot of different stories. We had, of course attack story, we had charge offs or not charge offs. But the amount of money that JP Morgan set aside to cover credit card loan losses increase more than people had expected. You saw fixed income trading revenues decline much more than expected, even after stripping out a one time effect from the new tax bill. What are you focused on the most and UH how

how should people really be reading this? I think most of the big consumer lenders, especially the credit card lenders, are a little bit worried about future losses. We've been going through a very very easy period largely due to the set um, so you've had you know, very It's like we shifted the entire matrix for credit a full category, and non investment grade companies could raise money investment grade

spread and so on, So that's part of it. Overall, provisions that JP were actually down slightly from the previous quarter. But you're right, credit card are is what they're thinking about in the future. On the trading side, again, it's the FED. The Fed has put the entire uh fixed income market into uh an induced coma because they have all of these securities on their book and they don't

hedge them. There's the mortgage markets found thirty percent this year, So you don't have interest rate hedging the way you've had in the path. This comes right out of the pocket of the street firms who served these constituencies. And I think you know, given it, the Fed is not going to sell anything in their portfolio. This is very important. Uh, They're simply going to let it run off. We could have uh subdued trading volumes for the major bank for

the next five years. That's where we're looking at. Lisa Chris Whalen talk about p n C. They benefited from some higher interest rates, so they could obviously charge more for their loans, also growth in the commercial lending business, but they also got a boost because of the tax overhaul. Yes, interestingly enough, it was actually a benefit for them. You know,

there's two sides to the tax issue. If on the one hand, you've lost a lot of money in the past, you have to reduce the value of your your your deferred tax asset. On the other hand, if you had taxes you hadn't paid yet deferred taxes, that's now lower and it's a benefit. In the case of p mc so. You know, it's very interesting how you have to read through the notes. You guys of Bloomberg are very good

at it. But each bank has its own story. You know, City is going to write off twenty billion dollars in tax loss assets, but other banks you could have benefit from it. So it really is a very particular analysis in each case. Chris, you said that PNC benefited from an increase in consumer lending, and some of the big

banks have really pulled back from that area. Do you expect JP Morgan and other big banks City Group maybe when they announced Tuesday to say or hint that they're going to expand a little bit more in consumer lending since it has been so profitable. Not in mortgages. You know, P and T has actually been growing their mortgage business.

They've been acquiring servicing assets and they like it um But the larger banks, you know, you remember back in two thousand fifteen when Jamie Diamond very publicly said he was getting out of the fah A market. Today there's only two banks in that fah A Jenny May market really well Sin Flagstar. The rest of them have left because they don't like getting fined by the Department of Justice. UM. The other issue is profitability. Most mortgage lenders, both banks

and non banks, last year were barely making money. So it's a tough business. And Wells Bank America particularly have been outbidding for jumbo collateral because they put the loans on their book. They are the loss when they buy the loan, but after they collect servicing fees for three or four years, it ends up being, you know, a single digit kind of profit trade. That's a tough business. I see a lot of small banks selling mortgage UH

notes for examples. They can work with the Homeland Bank in Chicago, but they keep the servicing because they realize that it's a nice business if you do it right. But being a Jenny May seller servicers top, you know

you're facing the government. And even though the servicing fees are almost twice what you get for a fan your Freddy loan, you make mistakes, you pay, and you're kind of in this UH really difficult situation between the CFPP on the one hand, who doesn't want you to foreclose, and then the SA Chase says if you don't foreclose in eight days at the fault you basically lose your right to make an insurance claim. So it's a very complicated business. It is the lowest return asset for a

Thank Lisa. That's that's the problem with residential mortgage lending to god Frank triple the costs of the industry. Chris Whalen, thank you so much for joining us. Chris Whalen is chairman of Whalen Global Advisors, which right now we want to focus on the bond market. Dr Lacy Hunt joins us now. He's executive vice president and chief economists at Hoisington Investment Management, which overseas four point three billion dollars, and he comes to us from Austin, Texas. Dr Hunt,

thank you so much for being with us. I particularly wanted to touch base with you this week because there's been a lot of discussion about longer term yields going higher. We saw some action to that effect this week and inflationary pressures that would force the Fed to hike faster and allow longer term yields to rise further. As a longtime investor in long dated treasuries, are you changing your strategy and do you expect this sell off in longer

term rates to accelerate? No? I do not there are many factors, far too many to mention that um allow short allow the long term rates to rise over the short run, But the economy is too fundamentally weak and the pattern toward longer term disinflation is strong, and so that while the rates can arise as they have done this week, in my opinion, they will not be able to stay up. Doctor, aren't you say that the economy

is too weak? A lot of people think that the economy is fairly strong and accelerating to what can you point that would sort of edify this belief that the economy is perhaps weaker than people think. Well, the surface indicators of the economy are strong. We've had three quarters of three percent growth. However, the the pylons of the US economy are continuing to weaken, and very very substantially so, most most predominantly as a result of the of the

fell reserves policies. There has been a very substantial slowdown in monetary growth at a time when the velocity of money is the lowest since the late nineteen and the Fed is engaging in a program that will significantly slow monetary growth further at being the balance sheet normalization. I realized that um. A lot of folks don't pay much attention to this. It's not in the news headlines, and the presumption maybe that will Quantitative easing didn't boost the

money supply, quantitative tightening won't, won't depress it. But the the underlying models that have been verified over time indicate that money supply growth is going to slow very, very dramatically, and that while inflation can rise from time to time, the slow down in monetary growth and velocity will mean that prices will move lower over time, not higher. Lacy Hunt a bond market a bull run for the bond market. I've been listening to people talk about the end of

a thirty year bull market in bonds. Do you agree? No? I think the ultimate blows and bonds are still in the future. Path will not be easy. It has not been easy to get to the point where we are today.

Another problem that the economy has is that although the consumer is spending, the consumer has been left very badly behind in this expansion, and the consumer has uh barrod a substantial amount of additional money to continue the spending, which means because of a of the one of the lowest saving rates in US economic history, the consumer sector

is very vulnerable to business cycle risks. Dr Hunter, have you been I know that you're a long term investor and you're not looking for short term moves to capitalize on. But do you add to your longer term treasury holdings when there is a bit of a sell off with the belief that longer term rates are likely to go lower and possibly much lower? When whenever we receive additional funds, we invest them immediately and we put them in the long end of the market, just as we do for

the clients that are already with us. We we don't want to be out of position as the economy unfolds. There were numerous instants last year year before when the interest rates rose, but when night, when seventeen was all over, the long term rates actually declined. Now I might say that we fully expect the FED will push up the

short term rates. That has that ability, but the long term rates are determined by the Fishery equation, which which says that the long treasury rates are primarily determined by inflationary expectations. And recognizing that the FED will push the short rates up, long rates will not follow. The yield curve will continue to flatten and this will this is a a cause. It is and it is a symptom of the monetary titan hand effect, if you will, But it will also have a cause. Dr Lacy Hunt, chief

economist Hoisington's Investment Management. Facebook shares as my co host pim Fox was mentioning earlier down more than four percent, after the news that it would be making some pretty profound changes to the way people experience the social media giant. Share ovid joins us now she's a Bloomberg gad Fly columnist covering all things tech. Shara just first give us a sense of how significant the change is that Facebook is making and just lay out the details of what

the changes are. Sure, it's hard to know for certain, but it does seem like this is going to be

a very significant change to how Facebook operates. So what Mark Zuckerberg outlined late Thursday was a change in how Facebook prioritizes what people see in the new seat in the main stream of Facebook posts, and what they're going to try to encourage more of is their prioritizing posts that encourages meaningful social interactions by by Facebook's understanding of that term, and that means things like, you know, post from a family member who's grieving on Facebook and invites

kind of long comments back and forth that will get prioritized. So will things, um, you know, news, news articles that generate kind of a lot of interest and back and forth posts and messages from people. So that's the kind of thing they're trying to optimize sports rather than the kind of passive I kind of look at it and then move on kind of posts and videos. Sura. Is this going to involve a technical, algorithmic kind of change?

Is this a technical issue for Facebook? Yeah? I mean this is how Facebook basically age of strategies that they change the algorithm, and the the algorithm, they change the inputs for the algorithm, I should say, and then that changes what kinds of things people are likely to see

more of or less of in the new sheet. Okay, So does this also mean that there are companies and individuals who are just as smart as the people at Facebook that will be able to figure out a way to work around this, because doesn't the current problem indicate that there are a lot of very intelligent people out there who may not agree with the way Mark Zuckerberg thinks you should engage with Facebook? Yes, I think that's

a good point. I think one of the lessons of the last couple of years is that their companies, people and propagandists, including those back by the Kremlin, who figured out how to gain Facebook system um in damaging ways.

And there are no guarantees that when Facebook changes there the kinds of post that prioritize people won't figure out how to gain it to prioritize things that are not the meaningful social interactions what Facebook wants, but more of the kind of damaging but still engaging kind of kind of Facebook messages. So yeah, there's no guarantee that this fix of Facebook in the way that Mark Zuckerberg intends

and share. Mark Zuckerberg even admitted that probably the changes would mean people would end up spending less time on the social media app. And I'm just wondering from a business perspective, how substantially could this cut into their revenues and their potential growth. Look, there is a direct relationship between the amount of time that people spend on Facebook and Facebook's resident right, because more time on Facebook gives Facebook more slots to sell advertising, which is how Facebook

makes money. So if Mark Zuckerberg is saying people collectively are likely to spend less time on Facebook. That likely means a hit to Facebook's revenue growth, at least in the short term. And it's really hard to know by how much Facebook's revenue is the result of many factors and it's a little bit hard to predict what's going to happen. But look, the reason the share prices falling today is because people are worried about the implications of

people spending less time on Facebook. Well, just to give the numbers to offer the perspective, revenue for the latest fiscal year, I believe we're talking about something like thirty six billion, thirty six and a half billion dollars, of which more than fifteen billion is profit net income. Yeah, I mean, look, the last couple of years, Facebook has been the tech industry's best combination of fast revenue growth and very fat profits, and it's it's been an incredible story.

But we've seen some of the damaging effects of facebook incredible business, which is it's become a place that people don't like to spend their time, or at least say they don't like to spend their time. Though the numbers don't necessarily write it up and it's become a place that's invited political and regulatory scrutiny because it's been such an inviting home for people to spread misinformation, fake news, propaganda, and that's what Facebook is trying to kind of counteract.

Just real quick, it seems like this is going to change media strategies as far as how much they engage with Facebook, since their posts will be deep prioritized. Can you give us a sense of how big of a of a change this is going to be. Yeah, this is big news for any company that is relying on finding customers of potential customers on Facebook and then includes news organizations, and you can imagine inside those organizations today there is going to be a lot of hand ringing.

They're already annoyed at how much they rely on Facebook and how often Facebook changes its own rules, and this is just another way for them to, you know, feel pretty annoyed at Facebook. Thanks very much for being with us. Shira Oviday is our technology columnist for Bloomberg gad Fly. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio