Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, let's check in on this federal reserve. You know, I mean I hate to talk to Arad Jersey because then he just want to talk soccer, soccer, soccer. You want to talk to Manchester United. You know, they just won the Premiership, but we're going to try to focus them back a little bit on rates here. So I we're getting a lot of ego data this week. I
don't know how you're feeling about the debt ceiling. Let's assume it kind of gets done with that backdrop, How do you think your your feederal reserve is feeling these days?
Well, first, let's before you get a lot of angry tweets and emails. If it's Manchester City.
The Manchester City, okay, thank you.
Manchester United is fighting for a Champions League place right now?
Okay, But you're not a fan of either Manchester.
Team, right, So my son is actually a very big United supporter, but yeah, I'm not a fan of city at all.
And what's your team?
By the way, aston Villa?
Why would it be aston Villa? Where'd you pick that one up?
I I when I did a postgraduate degree at the University of Birmingham, which is very close to aston Villa. So a bunch of Villa matches.
All right, there you go. Everybody's got to see.
Yeah, so let's assume that the dead ceiling gets raised, because they probably will raise it, and if they don't, there's so many disaster scenarios that could potentially come around that that, you know, we'd rather not kind of think about it at the moment. It's we've spent way too much gray matter on thinking about it. I think that you know that the Federal Reserve is contending with kind of two competing forces at the moment. So one is
inflation coming down as quickly as they want. You know, some of the data that we've seen, the the jobs data continues to deteriorate a little bit, but we're still creating a lot of jobs and there's still very tight labor markets. But then on the other side, you know that I think the FED will be a little bit reluctant to hike because they're worried about what might happen
to some of the banking sectors. Right, so we obviously all know what happened back in March, and I don't think that the FED Reserve wants to be the impetus for additional bank failures and bank runs, especially since they've already raised interest rates five hundred basis points. So our base case remains that the Fed is going to be on hold that they might job try to talk the market out of pricing for interest rate cuts later this year.
But I think that that the bulk of the Committee is not going to agree with James Bullard saying that we're going to hike interest rates another twenty five or fifty basis points. I think that most people on the Committee want to take a little bit of a wait and see attitude from now.
Hey, Ira, I'm looking at the four week Treasury bills and how they're hovering around five point four percent, So that would basically bring their rise since the beginning of May to more than sixty basis points. I'm wondering what kind of movement are you expecting to see Indy bond market on which hopefully be a potential deal soon here.
Yeah, so I think that some of those bills that are trading super cheap right now will we'll come back into line with kind of the market expectation. So the thing to look at for, you know, the real market expectations for what the Fed is going to do in June, would be looking at the overnight interest rate swap market. So these are short term derivative instruments that are based
on the Federal Funds effective rate. So so that that will be a much better gauge than looking at treasury bills, because treasury bills right now, even the one month treasury bills, are being very skewed by the debt ceiling ancs that are that are going on. So we are pricing some probability of an interest rate hike by the Fed at
the June meeting. And when we look at these overnight index swaps for the next Fed meeting, what we wind up seeing is that we are pricing for you know, more or less a thirty thirty five percent chance that the Federal Reserve does another twenty five basis point interest increase. Now, I think as we get closer to that and as we get more data. Uh So, we get the pc data this week for the month of April, and that's that's the measure that that the Federal Reserve really likes
and is their preferred gauge of inflation. You know, if that comes out as expected, then I think that you wind up probably with the with uh that price that pike being priced out of the market at least at least in the near term until we get the CPI report, which we get very soon before the June meeting.
So again you mentioned on a Friday, get the PCE data, and as you mentioned, the core deflator, which is kind of the preferred metric for the Fed month on month of consensus is zero point three percent. That's even with last month. On an annualized basis, that's four point six percent, even with with last month. Those numbers just that I just quoted, they feel sticky to me, number one, and but number two, I guess that four point six is that the number they want to see Closer to two percent?
Yeah, it is, and it's not getting there very quickly, which is the reason why I think that the the you know, J. Powell mentioned this even in his little round table discussion last week when he was on with former chair Ben Bernanki that the Federal Reserve is not going to be cutting interest rates anytime soon, and especially when you continue to get kind of zero point three
percent core core deflator or headline deflator measures. So think about what zero point three is, Paul, because if you annualize that, then you're talking about three point nine percent inflation.
Right.
It's a pretty simple calculation, right, or three point six Excuse me, I can't do math today. Three point six percent inflation, and three point six percent is still well above the Fed's two percent measure. You know, I think the Feds kind of box themselves into a corner a little bit because focusing in on two percent, we want
to get inflation back to two percent. Paul. You and I grew up in this industry back and then in the eighties and nineties when we had inflation that was above three percent, but wages were growing above three percent, and no one was you know, consumer confidence was reasonably good. People weren't unhappy about their employment situation because jobs were reasonably plentiful and people were getting four percent pay raises every year when inflation was three percent, so that wasn't
the worst thing in the world. And I think if we fall back into an environment like that, it's going to be difficult at this point for the FED to pivot back to saying, well, maybe three percents not so bad for inflation, right. And I think that that's the challenge with having these inflation targets, like a lot of central banks have, is that moving away from them ends up being disrupted to the markets and confusing from a communications perspective.
And Ira, you're bringing up the CPI report, I was looking at the schedule. It's actually coming out on June thirteenth, so that would be day one of the fed's next meeting, and the decision is on June fourteenth. I was curious what we do hear from Obviously, as you know, tons of Feds speak this week. We just heard from James Bullard yesterday talking about trying to get in potentially two more rate hikes because of the labor market being strong.
How much whenever we do have FED speak like that, do you see those types of potential changes there in the bond market or even just pricing in those expectations for potentially another rate cut or rate rise rather at the next meeting.
Yeah.
Well, I think that's one reason why you saw two year yields move, and you certainly saw the overnight index swop market and some of the derivatives market move a little bit after after President Bullard spoke yesterday. You'll still
see volatility around that. And one people have focused very much on James Bullard's cycle in particular because he was pretty early in being one of the more hawkish members that that basically, you know, was kind of the southsayer for for the FED hiking and inflation remaining high and sticky. You know, I'm not sure that his colleagues on the
FED agree with him. So, you know, as we hear from other speakers, you know, maybe we you know, hear from a couple of governors for example, this week, and if they're they found a little bit more dubbish than Billard, then maybe we'll, you know, that will be the impetus for us to take some of those hikes out of the market.
All right, Ira, thanks so much for joining us. As always, Ira Jersey, chief US interest rate strategists for Bloomberg Intelligence. He's also the resident Aston Villa uber fan, so we appreciate getting some of his thoughts again fed front and center as usual.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Jess, we are so fortunate. I think here at Bloomberg we've got, you know, seventeen hundred reporters and bi analysts around the world that are experts at what they do, and for the most part, they're very friendly. And if you call them up and say, hey, can you help us out on Bloomberg Radio, more times than not they say yes. And that is just a treat for us and for our audience. And boy, this round table takes the cake because we want to talk about this debt ceiling.
I'm going to call a dilemma. I don't know what's going on at there. I assume it's going to get them, but what do I know. But a couple of our guests are really smart and they can help us shine some light on it. Liz McCormick, Chief correspondent for Global Macro markets with Bloomberg News. She joins us as well as Cameron Christ macro strategists with Bloomberg News as well. So we get a couple smart minds here. They've got some experience, they've got some perspective. Liz, let's start with
you. You know, I'm just an equity guy, and I don't see I got my equity indexes up this year. It doesn't seem like the equity market's too worried about it. If I were to look deeply in the bond market when I see some tension, some growing tension in the bond market about a potential debt issue.
Yeah, exactly. There's like two worlds going on. So it seems right between stocks and the fixed income market. But yeah, and that's kind of the fixed income market's job front and center early on to do a read on this debt ceiling issue, and you're seeing it. You're seeing treasury
bills that mature around now. Janet Yelling was out I believe it was yesterday, just yesterday, with a new letter to Congress saying she thinks there's a lot of risk they could run out of capacity to pay all the bills as early as June one, she's you know, that's highly likely. So the treasury market, there's you know, kind of a buffer range maybe through early June. Treasury investors are kind of weary of buying treasury bills that mature
around that time. So you're seeing those bills with very high rates, well over five percent, and those rates are higher than those with longer maturities, which usually have a higher rate. So people are avoiding that. You're seeing credit to caul swamps, their costs go up as people buy some insurance, and just a level of angst in the marketplace.
But yeah, I mean the stock market. There's a lot of people say until the stock market really kind of takes it hard, maybe politicians won't, you know, step off the face of getting a deal. But that's another topic.
I guess, you know, Cameron, I wanted to bring you to this conversation. Who we call Macroman at Bloomberg so is so exciting. I know, you just put out a column that the head line is where the yield curve thinks the neutral rate may be. What do you find here?
Yeah, I mean, unsurprisingly it's lower than where we are. I mean, listen, taking a step back, the whole idea of neutrality is like an economist dream because they get to make very complicated models with lots of Greek letters. But what we also find is that they tend to be revised a lot, and they're not necessarily terribly accurate.
So my approach was just, well, let's just look at what the old curve says, because we know that when the yield curve is very steep, it's basically saying that rates are easy, and when the yeld curve is very inverted, it's saying that rates are restrictive, and obviously the curve
is very restrictive. The curve is very inverted at the moment, saying that rates are restrictive, and the best I can tease out, it's saying that in the US at least, the neutral level of rates is about three point six percent at the moment.
So Cameron, for your perspective, I don't know, are you gaming out at all yet? Have you pre written a column about we just defaulted on our debt? I mean, how are you thinking about it?
No?
I haven't because I hope it doesn't come to that. I mean, I mean honest with you, I feel like I'm at the circus just watching a bunch of clowns. I wish I had a bag of peanuts I could throw, you know, I could throw at them. I think the assumption is pretty prevalent in the market that when push comes to shove, nobody wants their name on a default, and that they at the very least they will come to some agreement to kick the can down the road
a few months to allow for more robust negotiations. I suspect that the Republicans would like the issue to become front and center again early next year with the presidential campaign, and I'm equally sure that the White House would prefer that not to be the case. So there's still you know,
there's still some political considerations there. But you know, nobody comes out with their reputation enhanced by a government default, and I think we have to operate on the on the notion, at the end of the day, the sole goal, or the primary goal of every politician is to be re elected.
Liz, I know you've been looking at how the US Treasury thirty year yield hit four percent for the first time since March. Whenever you're speaking with your sources, what are they thinking as far as what we could see happen in the bond market once there hopefully would be a deal coming soon.
Well, I think if there's a deal, and I think Cameron is right, there's a lot of us who are like, can we turn this movie off? We've seen it before, can we just get it, get the deal. We're tired
of it. Don't tell my boss that now. I'm just kidding, but I think, yeah, I think if we get a deal, the bond market reverts its focus, which hasn't forgotten, but it's all about the economy and the and like you guys were talking earlier with IRA, we did have some hawker speakers yesterday that doesn't seem to jive with what Chairman Palell said, who kind of seemed to lay the
case for a pause in June. So I think, you know, whereas maybe the stocks, even though they haven't gotten beaten up too much, there's folks that say they see immediate relief rally if there's a dead ceiling deal, I think bond yields can creep higher because there has been no kind of indications. In fact, some of the easing that was priced in the second half of the year from the swats traders has kind of paired back a little.
So I think the market needs to see some you know, strong information signaling a recession is really coming soon, or that the Fed is not only ready to for sure pause, but pivot, which they clearly have not indicated. There's a lot of people who think there could be some move higher in rates. So, like you said, Jess, we saw the thirty year ago about four percent. The whole curve is have greats higher today, with the short end even higher than the long end. So I think, yeah, that's
kind of filtering back into the system. What happens next?
Right?
So, Lis you mentioned earlier credit default swaps, and I think all of us, you know, learned a lot about credit the fault swaps back in a great financial crisis when we're looking at all these banks and all that. So you're telling us there are credit default swaps on the US government, and if so, what are they telling us today?
Yeah, it's it's kind of crazy, right, And let's just say which I know Cameron would I would think agree with me. It's a very thinly traded market. There's always kind of a lot of people who are suspect. Let's not read too much into this because you know, it's not a huge market, but the cost to buy them has gone up the very short maturities like a year, which at least shows you some broad signal that there, you know, people are a little bit worried or doing
some hedging that there could be a default. But by all means that it's a more actively traded market and emerging markets where unfortunately defaults have in some countries been commonplace. But yeah, I mean it's definitely something we look at. If you look at Alex Harrison nineteen, who does this great little debt ceiling tracker, you know she has that in there. It's just important to kind of keep on your radar screen of what's going on.
Yeah, Cameron, I know you've been keeping a close eye on real yields. What are they telling us right now, Well.
They're telling us that that if you are long gold, or if you are long stocks, maybe you want to be a little worried because they've been they've been taking higher two. Your real yields are basically at their highs of the entire cycles. So this sort of rebound in interest rates that we've seen over the last couple of weeks has not been the market pricing and more inflation moving forward, essentially the market pricing and tighter policy settings
or tighter effective policy settings moving forward. And that is not a particularly positive one for assets that are dependent on kind of free money or the ample liquidity and there we were thinking of gold, or we're thinking of the sort of infinite maturity or infinite durationtech dot complex. It has done so well this year.
Hey, Keim, just about thirty seconds here. Are you surprised that the nasdak's up twenty one percent, the NASDAK one hunters up twenty six percent, the SMP's up nine percent? You're surprised that these moves in the equity.
Markets over the course of the year. Yeah, I mean, yes, very much.
So.
I mean, to some extent, you can sort of post hawk explain it via the move in interest rates, but it looks to me a lot like equity investors trying to convince themselves that they get all the benefit of low rates without any of the pain that causes the said to.
Cut All right, guys, really appreciate getting some time from both of you. Cameron christ Macro Strategists, Bloomberg News End. Liz McCormick, chief correspondent covering the global macro markets. Two seasoned reporters and observers of these markets, and they are both graduates. So two of my favorite institutes of higher learning. Liz McCormick of the Rutgers University, the State University of New Jersey, and Camera Christ, a little school down in Durmoruth, Carolina known as Duke.
You're listening to the tape Kent's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
All right, let's talk delivering stuff boxes. Now when you get home tonight, just how many boxes are gonna be in front of your door? Probably?
I mean, my birthday was last week, so I have a lot.
Of people been sending me some things, so I hope that there are more boxes waiting for me.
You get, It's just it's unbelievable how the world's changed here. So let's break it all down with Mike Para. He's the CEO for the Americas at DHL Express joining us live here in our Bloomberg Interactive Broker studio. So, Mike, thanks so much for joining us here. Appreciate you coming. And you got a whole bunch of notes with you, but this is a note free studio. See, I got nothing. I just kind of for four of it talk to
us about your business here. I'm gonna ask you to go back and tell us, you know, a minute or so what the pandemic was like for you guys, and then we'll go to kind of where you are today.
Yeah, So, first of all, thank you for having me and thank you for having us. You know, the pandemic for us was a blessing and obviously it was a curse. First of all, on the curse side, we lost forty two employees here in the Americas, and that was the curse side. That was the difficult side for us. The blessing side of it was that workers absolutely.
Yeah.
The blessing side was that our business just blossomed and blossomed in many different ways. Number one is we were able to successfully deliver over two point one billion vaccines across the world. Many of the countries that got their vaccines were delivered via DHL, so that was a blessing. And then we had a growth and explosion over a two year period of time that we had never seen in the you know the history of our organization. So that's what I would say. The ability to help to
connect people and improve lives was the blessing. To lose colleagues across the world was painful.
And when you're looking at the market at this point, what is it telling you is through your business because I would imagine this is a big key as far as what things are looking, not just nationally, but globally as well.
Yeah, oh look the market right now is interesting. Just coming off an interview and discussing this, you know, what I would say from a macro level is, you know, we went through this whole fear of running out what I call four to roho and now to you know, to access inventory and where you have supply is greater than the demand that is out there at the moment. But we are starting to see some signs of life.
We're starting to see some tailwinds out of China and out of Hong Kong, so we're starting to see those numbers grow.
Now.
Remember the baseline of this also is coming off the fact that last year they were in a lockdown from that perspective. So we're starting to see some momentum. We're starting to add some additional capacit out of China and out of Hong Kong into the United States predominantly. So what we do know is that we're a bit more optimistic than what everybody is saying in regards to the US consumer, and we think we're going to you know, we're getting ready for what will be a good fourth quarter.
So some people are saying the bounce back will come back in the third quarter. You know, my thoughts, it's going to be much more in the fourth quarter. I think we're going to see more experiences happen, people taking more vacation. The airlines are ramping up for that for June, July, and August, and as a result of that, that's why I'm saying it's going to be much more fourth quarter related.
Talk to us about you know, one of the key components of your cost structure your business is your people. Yea, labor Do you have enough people, do you have them employed? Is it hard to get them? Do you have to pay them more? Talk to us about your labor force.
Thank you, Thank you for asking that question. In regards do we have enough people, yes, do we need to pay them more? We just put out the law. Our just pay increase in the history of the company was this year in twenty twenty three, and rightfully so, based on inflation and cost of living in general that's going on. And by the way, this was not just here in the United States but also globally from that perspective, so less concerned about that. In regards to recruitment and recruitment efforts.
We are replacing folks as we have either attrition or promotions. We are replacing roles. But we are constantly looking at our efficiencies and how we can optimize our network, not only in the air but also on the ground.
What are your thoughts on geopolitics right now? And is the debt sealing a concern for you?
You know, somebody asked me as well that question on the debt ceiling. We're not spending a lot of time because that's going to work its way out as it has historically. Now some might say, well, Mike, everybody says that, but in all reality, I think it's just much more of a timetable of when it's going to get negotiated and worked out. I think there's more fear associated with the whole debt ceiling and are we going to out of time? And are you know what's going to happen
to the US economy. But so we're not spending a lot of time on it, and from a global perspective, people, we're watching it, but from a perspective of it, you know, I'm not going to bed at night, not sleeping.
I'm less concerned any of those fears affecting the business at all through your models.
At the moment, I would say, no, you know, some of the bigger challenges that we face, and we face challenges every day, right. I mean we've got you know, what's going on in Russia and Ukraine, that's always been a concern. You've got the potential concern of China and Taiwan. That's a concern. So we watch all those spaces closely. What we are what we are seeing is as we get through this inventory. And you were talking about luxury
goods before I came on board. By my way, my wife is a huge LVBAH so you know, and I purchase our bags as well. But what I would say is we have seen as slow down in luxury goods, and that slowed down in luxury goods. What we're hearing from our customers is they're spending much more on experiences. Having come out of two years in COVID and not being able to travel, not being able to get out. They're using the money that they do have and they're
using it on experiences. And that's why I think we'll see that through the summer as well.
What do you think that tells us about the economy? Then if you're seeing sort of a shift, there is this more of an optimistic sign for the economy rather than when everyone's focused on the health of the consumer.
Yeah, and that's why I said it was a bit more optimistic about the US consumer going into Q four. And I do think we're going to have a real peak season this year, whereas last year we had the eternal Black Friday, the eternal Cyber Monday, and the sales that went on for a healthy period of time. I think we're going to see a bounce back in retail from that perspective as well, and we're starting to see that in the number of activations that are happening with our customers.
Talk to us about the competitive environment. I mean FedEx ups the United States Postal Service. I guess I don't know, but FedEx, I mean they had the integrated T and T. So talk just about the competitive land landscape.
Yeah, I mean, look, both our competitors, good companies, very large domestic presence. Their focus is big time focus on domestic. Our focus is predominantly one hundred percent internationally, more specifically here in the United States. You know, you've got two
different things going on. You've got a transformation going on on one side, which is an optimization of you know, of an organization, uh as well as the future of combining two different entities, which will be a first for them on one side, and that that could potentially be
a distraction, is what I would say. The other or the other side is an organization that is focusing on yield and margin, which we focus on consistently from a pricing perspective, an efficiency perspective, but also you know, a labor potential challenge that they may be facing. So again that's another distraction. Our focus right now is on making sure that we're protecting the jobs that we do have, protecting the customers that we do have, and growing our business the right.
Way, Hey, Jess, I got to call out here, Mike's worrying and a Miami Heat Cup links. Oh about the Heat and Miami. How big a story is that in Miami.
Well, look, there's two big stories going on in Miami right now. One is the Florida Panthers that are three and oh right and in twenty seven years have never reached the the NHL finals. And then we've got my Miami Heat, God bless them, three and oh against Boston eight seed, seven undrafted free agents that everybody keeps reminding us about. And you've got an organization that really has been there before but said they weren't going to beat
Milwaukee and they did. If you're a Knicks fan, I apologize for everyone here said hey, you're going to have a hard time against the Knicks, and we were able to win there. And now we're up three to zero against Boston and hoping to close it out tonight at home.
So excited. Excited for Jimmy Butler, excited for the Miami Heat organization, but excited in general for sports sports because you have an underdog team in both the We're the Panthers eight seed in the NHL that are potentially going to close it out and the eight seed Miami Heat that can do it.
So good the story from them, that good story from im. Now you get the baseball. The guess we all set. Mike Paris, CEO of America, is for DHL Express, joining us here in our studio. Appreciate geting the update on the business and our friends at DHL.
As well as the thirtieth anniversary is coming up.
I know you've been at the companies and like out very college.
Boom, it's my marriage, my wife.
Yeah, this is Bloomberg.
You're listening to the team. Ken's are live program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Currently, right now in Katara, there is the Qatar Economic Form and that's where Caroline Hyde, a host of Bloomberg Technology, track down the CEO of Tiktoks. We want to check in with Caroline. We also got Man Deep singing here, senior technologyannels for Bloomberg Intelligence. He's in our studio here, Meek and Pepper Caroline some questions too, Caroline thanks so much for joining us. You know your interview with show Cho the CEO, hope I got that somewhat correct. For TikTok,
What were the key items? What were the key takeaways you had from your discussion with the CEO of TikTok.
I mean, ah, boy, wasn't it newsie, Because of course, just less than twenty four hours before sitting down with him, it became public that indeed TikTok was suing the State of Montana.
After of course, the state.
Of Antana has said that they're going to be going further than any state has ever gone before and banning the app from the beginning of January twenty twenty four. So here was the statement coming from the CEO that they feel that this is unconstitutional. The key takeaway was that the key takeaway was feeling also that it looks pretty confident. Ultimately, he feels that they will prevail, they'll
be able to stay in the United States. And why is that Because they have one hundred and fifty million users, they have people consuming next content and actually more business is depending on it. But he didn't offer anything new really in terms of what they're doing the state and
protect the privacy of US users. That's why Montana's of course taking the step wanting to bang the lord about the Chinese government having access to US data and still there standing by this Oracle plan that is Project Texas, that would be able to secure your data in the US, they say, and ultimately prevent back door. He said, no company can do and prevent them a backdoor any risks one hundred percent that will be underrepresent the risks without level.
And Carolin, to your point, especially with lawmakers in the US in these sort of ongoing security fears when it comes to TikTok. You mentioned Oracle on how their TikTok is working with them to sort of allay these types of fears. He laid out any sort of options as far as what there could be to potentially end up mitigating some of these fears that are out there.
Ultimately, no, I mean they feel that they've gone further than any other company to make clear that they can protect data. Now remember, I mean Mandy will be able to discuss this in depth. But this is but a day after we understand that the EU is also finding
a record fine more than a billion to Meta. So the fact that look, it's doing exactly what they currently the Montana is warting that Chinese will do europe is claiming that the US in meta is access and could potentially access Europeans user data of Facebook or Instagram users or WhatsApp or the other products that meta users, and so they're doing meta. They're finding meta in fact by saying that you haven't done enough to protect the privacy of the EU user from the US. So, ultimately, this
is actually a deeply global conversation. We're getting very divided, and I have to say that's actually something so Chu spoke very eloquently on saying we are sort of heading towards vulcanism here, ultimately putting barriers between a global internet with creating frictions. And this is the worry he says ultimately, like, how are you going to do this without the quote unquote breaking the internet?
With his great fear Here, Caroline, you had a great point around you know, the user of chat GPT and how TikTok could actually use that for you know, generating video content. What was your sense in terms of how TikTok plans to use that or are they going to develop their own model?
Ah, that would have been a great answer to get to get from him. And then you're always analysis is so thoughtful and discussion points about all these things about ultimately how AI is going to make it a lot easier, a lot more perhaps exciting for users and for content creators. He didn't go as far to say that they're developing their own lunch language model. I did put that to him, and he said, they're just analyzing how a in generator
AI could be interesting and utiful to his business. They're still assessing the risks, is the way that he said it. But ultimately, I think AI this is why TikTok is so successful and to many fears so addictive. It's because of official intelligence and machine learning has meant that we are posted things that we all find deeply interesting. It
happens to spark our imagination. The worry I put to him as well is what if AI am particularly from the AI filter, What if they make it even more addictive to the young, or give even more unrealistic assessments of what reality is like. Just think of the AI filter that currently makes people more beautiful. I think it's
called the golden AI effects. Well, we've already empherticizing that that it gives an unfair idea of really what beauty is for the younger teenage, particularly female user of TikTok.
Right now, Hey, Caroline, is there a scenario, reasonable scenario at all, where maybe white Edance would divest its ownership of TikTok? Is that something that's even on the table. Do you think.
They won't go there? They've said time and time again that that will not solve the national security issue that play here. They won't really go into it as to why. Ultimately, I think because bike Dance receives the overall valuation of this company the most valuable set up out there, and doesn't want to have to forcibly go there at a price point that isn't at the top level IPO. Would
an IPO solve this? I mean, it's certainly something there eventually will be on the agenda for the company, But I think for now they're really taking any selling to another US party off the agenda, off the table. They don't feel that's going to secure the national security argument.
What will they say is the Project Texas, Project Clover's ability to keep the US data safely in the US and ensure there's no backdoors, But certainly any sort of spinough doesn't seem to be something that they want to negotiate on.
Something that struck me, Caroline, is that despite what's going on with these political tensions, TikTok hasn't really eased its push when it comes to monetization. Can you talk to us more about some of these other ventures like live streaming, commerce and in other places of the world that they're still going into at this.
Point, Yeah, and actually really rolling it out much more fast and furiously. In the United States, for example, it's one much more it in say Singapore and in Asia is ecommerce basically making it that much easier to be able to purchase, to do your shopping, to bring more than mediums to identerprises onto TikTok. Of course, the general revenue model in the US thus far and in Europe as you're a user, has been advertising, as is the way with all social media products at the moment, and
that the highs and the lows. That that ends up meaning in a way that we are sent various pushes to make purchases, but they want intertwined commerce far more into the business. So TikTok shop is something that's really being rolled out at the moment and focused in particular in the US and U. The XP had to piece out how they're moving some of their talents tickly from Brazil and other countries to the US and UK to focus in on how I can ultimately, yeah, monetize our rivals.
The room of the health hard at.
The moment, Man Manty. From a technical perspective, this is on showing of data this project Texas. As you know, as Caroline was talking to the CEO, it kind of made sense to me from a technical perspective, shouldn't that be a good fix?
I mean, look at this week, you know Meta having to pay fines because of data sovereignty issues. So clearly this is something and Caroline touched on that during her interview that you know, this is something that every company has to do it. There is no choice, and the sooner they do it, I think the better off. David, it'll be from a regulatory standpoint, I do think, you know, with the proliferation of machine generated data, it's going to
get harder and harder. You can control user generated data in terms of where it's stored, but when it comes to you know, a large language model, curating new types of content, how do you control that? And so that will be the hard problem to solve.
Mand But what do you think is coming next as far as what you're watching as an analyst when it comes to all of the sort of political in security questions when it comes to TikTok.
Well, so I think again, it was a wide ranging interview and he touched on a few things, but for me, the key question was what happens to TikTok's independence if you know they are forced to divest and and that you know, Oracle seems to be the front runner when it comes to you know, how they have engaged with
the company. Clearly, there are only a handful of social media assets which have you know, over a billion monthly active users, and TikTok is that kind of platform where it can be very powerful, but it comes when it comes to security. Clearly there are threats and I think there are a lot of unanswered questions even uh, I think Aroline covered a lot of ground in our interview, but definitely something that I'm sure regulators will Pressdick dot com all right.
And everybody you can check out. That is a great interview. Caroline Hyde with the CEO of TikTok from the Cutter Economic Form. You can catch that on Bloomberg dot Com. It's Caroline Hyde, anchor for Bloomberg Technology, man Deep Seeing senior techanomals for Bloomberg Intelligence. And again Caroline's interview this morning from Qatar was really interesting. I'm not sure what the solution there is because of this Chinese ownership, Jess. You know, I just don't know where we go. Is
it an ipo? Is it a spin off this oracle buy it?
Right?
But it's not going away. I mean it's too popular.
Right, and Bloomberg Intelligence recently had this evaluation on it that was, I mean north of fifty billion dollars.
Wow.
Yeah, So again it's big, as many people saying, and it's got size, it's got scale, So you just got to figure out what the best ownership structure is.
You're listening to the tape. Catch our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen. I have on Amazon Alexa from our flagship New York station, just say Alexa playing Bloomberg eleven thirty.
That all right, Jess, commodities and stuff commodities here, the Bloomber commodity index over the trailing twelve months is off twenty six percent. I mean, what does that tell us. I'm going to sign some blame here, folks. I'm going to sign the blame to Mike mac bloane. He's a senior macro strategist. He's our commodities. Go to the person for Bloomberg Intelligence. Mike. When you see that kind of move in the Bloomer commodity Nicks, what's that telling you?
Well? And thank you to take the blame. Happy to take the blame. It is showing pretty severe deflation. The last time it was down more than that on a twelve oneth basis was that the depth of the financial crisis. And the key difference is the FED was aggressively easing, in fact, started easing in September two thousand and seven, and commodities didn't really bottom until beginning to two thousand and nine. And that's the difference. Now they're showing severe
deflationary forces. That's the fact. As you mentioned, yet the FED is still tightening. And if you look at our warp function, and the futures they're showing that we actually might tighten at the June meeting.
So, Mike, what does that tell us about the trajectory of the economy. Then, when we're looking at how quantity prices are performing at this.
Point, lowis lose. I'm glad you mentioned it, Jessa. There was a lot of optimism that we'd see decent demand pull out at China and the reopening, and that's clearly not happening. We're seeing very disappointing data. Now we somewhat predicted that, and it's also showing up in copper copper doctor copper, the metal known as the APH and D in economics, it jumped up twelve percent of the year and now it's back down in the year, and that
is very deflation neary implications also for risk acids. So I like to let's just tilt it over to copper copper. If you look at the dollar price of copper, it's about two dollars and seventy five cents a pound. If you overlay it with a stock market and just take the s P five hundred divide by thousand, they've been almost the same price since twenty fifteen. So it shows we're not getting that demand pull. The FED is still
tightened based on kind of lagging measures of inflation. Yet the forward looking markets are severe deflation just starting to kick in. So I look at it as a train wreck for deflation.
So, Mike, in your research, you've written that you believe we are in the midst of the biggest economic reset of our lifetimes. Now, I want you to explain that to me as if I'm a fifty nine year old person.
Well, okay, how about a six year old person. That might help for me. I think I peaked when IL six. It's the Let's go back to Ben Bernaki's warning about the when he wrote the Essays and the Great Depression. He said, the number one reason we all kind of knew what happened was because central banks, most know the find of reserve, was pulling back on liquidity and money markets and money supply at the time the economy started
a tilt lower. That's exactly what we're doing now. And also, if you study the lessons of history, all booms and busts come on the back of the booms start with massive liquidity, and then they bust when that liquidity goes away. We've had the biggest boom in liquidity ever and the sharpest bust in liquidity ever. It's all happened now, and I look at it as simple lessons of history, simple
lessons of markets that you should be very careful. And I just look at the fact that the FED is still tightening despite the producer price index dropping at the fastest pace in history. Now, yes, we only go back seventy five years. It peaked at eighteen percent last year. Year of year, now it's two percent. It's very likely
to go negative in the next few months. Is just classic cases of the FED venue a little bit too far behind and actually, you know, responding to all that massive pump and liquidity, and now they're fighting an inflation game that's starting to tilt towards deflation and it's just getting started. The long and variable lags are quite disconcerting.
Mike.
You brought up copper, obviously very critical when it comes to a base metal, and what that means for the global economy. What's sort of the make or break levels that you're watching for copper to mean if it breaks below a particular point, what that could mean for other asset classes, especially say when we look at the US stock market.
Well, I'm glad you mentioned that, Jess. It's actually right now with three dollars and sixty six three hours of sixty six of pump on, which implies the S and P five hundred should be about three thousand, six hundred. Right now it's four two hundred. That's just course, maybe that has broken down. But when copper broke down below four four dollars, that was to me the signal that, Okay, everything's sot in a tilt lower now, because one thing
that led it was natural gas. Natural gas has dropped eighty percent from last year's peak and it dropped to the same level as nineteen ninety. First traded in nineteen ninety, So it's severe deflation for a significant commodity. And to me, all that is tilting lower, and it keeps the question I like to ask myself, Jess, is what stops this downward trajectory? Now natural gas is bottom of two, but
had to drop eighty percent to get there. Typically takes prices to go very low, squash that to supply and increase that demand, and we're just in that current trajectory. And I asked myself, so what stops this downward trajectory. Typically it takes lower prices or most notably a long and variable lackt is significant federal reserve easing and we're still priced are tightening next month.
So if we are in the midst of the biggest economic reset of our lifetime, do I just go long gold and short everything else?
Well, there's nothing wrong with good old government to your notes that are given you right now four point three nine percent. Remember they piked at five percent, that was right before the crisis. I think that's what most rational boomers in the planet are doing, saying thank you very much, meaning in two years I'm going to get almost nine percent back guaranteed. Of course, of defenderal the government, Well, they might delay the payment in wood, but there won't
be the fault, so that sweeps what's happening. There was some prominent analysts today coming out and recommending gold, and I will point about gold. Gold is the best performing major commodity on the year of a year basis. Despite the Bloomer Commodity Index down twenty six six percent, Gold
is in that index, but it's up six percent. I think gold's on the customs a pretty significant breakout, just like it did in two thousand and seven and eight, it was bumping up against eight hundred dollars and they finally popped to around nineteen hundred. We got by the time we got to twenty eleven, Paul I pulled up.
The copper to gold ratio here on the terminal. There is such a thing.
Why do you know it?
I mean, what is that cover this on the for US stocks? As Oh, okay, follow these things, all things macro, not just equities. But I want to get your thoughts on this because when you're looking at the copper to gold ratio, and we saw it this year hit a high in February, but now you're seeing that even below
where it had been last summer. I'm wondering, again, what does this tell us when you're seeing that ratio, because typically when the ratio is higher, that usually mean better days ahead for the stock market.
Yes, I'm justin glad you bring that up. I watch it a lot, and also some prominent infix and interest rate people watch it. It's showing a tilt towards recession. And one thing I'll point about copper goals. Oftentimes I like to walk it with gold divided by copper because
that shows an the neurine upward trend. And it's keating to remember about gold, it basically outperforms almost all commondies over time, partly because it's money you can store cheaply, and it's really no cost to store, and there's a limited supply. Copper you can bring on rather not quickly, but there's it's just much easier to produce and create more of it than gold. But the key thing that you mentioned is comparent declining versus gold is a clear recession.
You're introjectory. And I asked myself, okay, so what might stop this? Typically I would say, okay, well we've been a year or two and two FED easing and the economy is starting to expand and recover. We're still here and started at easing, we're still tightening. That's why I really concerned that this is going to be one of the biggest resets of our lifetime.
Now.
In the defense of the FED, they are tightening, they have to, but the inflation measures they're looking at, like personal consumption expenditures as on a wong Or Chief Economists told us those are going to be very sticky, and she pointed out the FED will not be easing like they have in the past, although their models have pointed to ease, but they can't because inflation is sticky. That shows all the negativity that I see. And I don't
like to be mcloum, which has been my nickname. I like to be more Mick facts.
These are the.
Facts, all right, Mike. Somehow you scam to move down to South Florida and getting a little warm down there, you still committed.
Oh yes it is. I'm getting older and it's it's much better on the bones and muscles of that humidity.
All right, Mike, great stuff, Really appreciate it. Mike mcglohan, Senior macro strategist for Bloomberg Intelligence.
You're listening to the tape Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, just say Alexa playing Bloomberg eleven thirty.
All right, let's go to this Low's So we had home deepot before. They were kind of cautious, and we saw that reflected in the lower stock price, their guidance was a little bit soft Low's. I'm looking at the stock, it's up three percent even though they cut their view here. So let's bring in somebody who does this stuff for a living, Drew Redding. He's a research channels to Bloomberg Intelligence. He covers all the housing and housing related industries.
Drew.
What's your takeaway from Low's particularly and maybe differentiate it from what we saw from Home Depot.
Yeah, So, to be honest, we didn't hear anything that was all that different compared to what we heard last week from Home Depot, and that sales were impacted by a late start spring. You had commodity deflation, particularly for lumber, and a slowdown in discretionary spending. So we're finally starting to see that moderation big ticket spending, which has been a key driver for the industry in terms of the stock reaction. There's probably a couple of factors of play
here for starters. We did see last week Home Deep be lower the guide, and so I think it was kind of increasingly understood that Lows would be under a bit of pressure here from a fundamental perspective, and at the same time, a lot of the weakness in the quarter was attributable to weather commodity deflation, which aren't necessarily representative of the underlying business, and I think that led
to a little bit of optimism around the guide. But that's actually where we think that there could still be some risk, particularly since they didn't cut it as much as some depot. You know, from where we're sitting, it seems like we're just getting started with this slowdown indiscretionary spending, particularly for big ticket spending. So I think that's where a lot of the debate will be going forward into the next.
Couple of So, Drew, it sounds like you're saying their outlook seems to be a bit too optimistic, even though they already cut it.
Yeah, so they lowered their their same source sales view to a decline of two to four percent from flat to down two percent last time, and that assumes that the broader home improvement industry is down about mid single digits. You know, we think that there is risk that the broader industry declines more in the high single digit range. It's something we heard from Home Depot. We actually heard it from a number of the building product manufacturers who
were tied into the repairing ram modeling market. So, like I said, I think the debate will be did they bring down guidance enough or are we just starting to kind of see this downward revision because there's still some strain on the consumer as we get through the end of the year.
Drew Occasionally I do get lost and I find myself in the middle of a home depot or lows and what I noticed is there's a ton of stuff out on the floor, like of tons of inventory. How are these those companies and the home improvement bus is how are their inventories? I know that was an issue for a lot of retail. Was that also an issue for these homer furnishing folks.
Yeah, not at this point. I mean, they did get ahead of the game earlier in the pandemic, so they were well stocked. They did have a couple of quarters where they started to work down some of that inventory, but now their inventory is in a good position, so it's really not a concern in terms of having to discount.
You know, they implement a lot of technology into the stuff they're doing, particularly you know, when the work on their marchandise categories, they know what's moving they have a pretty good read on demand, so from an inventory perspective, they're looking pretty good.
So what do you think this tells us about the state of the US consumer at this point?
So we do think that there's still some challenges out there for the consumer, and it looks like, you know, in the home improvement category, which has been one of the retail bright spots recently, we think they're just starting to show. You know, you've got inflation which is hurting people's wallets, Real incomes are down, We've seen credit card balances starting to balloon. So all of these things point
to more stress among the consumer. You know, at the same time, interest rates have sneakily crept back up to seven percent, so you know, to the extent that you see more pressure on the existing home market, obviously that'll trickle down into what we're seeing at the home improvement retailers as well.
All Right, Drew, you also cover the broader housing market. Talk to us about kind of where we are in the housing market. What are you seeing, What are you hearing from the Toll Brothers of the world, the d H Wardens, What are they saying about their business? Given that you know, as you mentioned, we have mortgage rates around seven Pasl.
Brothers also reports after the bell today.
Oh very good, thank you.
Yep. It's a great question, because I think there's right now we're seeing a bifurcation in the US housing market between the existing home market and the new home market. And it really has to do with a couple of factors. One, there's not a whole heck of a lot of inventory in the resale market. One of the reasons is because a lot of current homeowners have rates below four below three and a half percent, so there's a disincentive for them to list their home and take on a rate
that's now, as you said, approaching seven percent. So that's keeping inventory low. At the same time, nobody wants to lower the prices. They made all this equity over the last couple of years, and they want to sell their house at last year's prices, and buyers are playing ball. On the other hand, the business model the home builders requires that they turn their inventory over. So what they've done is they at the end of last year, they
got aggressive and cutting prices. They cut base prices, they're offering more incentives. But most importantly, and what's worth the best is that builders are able to offer the buyers rate by downs. So whereas somebody looking in the existing home market is looking at the interest rate of six and a half to seven percent, builders are getting people through the door at five to five and a half percent.
So the combination of lower prices and offering a lower rates helped the math work better in the new home market, and that's why we're seeing share gains there and we think that continues in the coming quarters.
Also, and it comes to just the low amount of inventory. Clearly that was a problem before the pandemic, but then even exacerbated more So, how are home builders still benefiting from that? Because when I'm talking to portfolio managers, a lot of them are still adding exposure to homebuilder stocks because they feel like there's just this mixed smash there and that they'll ply continue to benefit from that low inventory.
Yeah, you're absolutely right. I mean, the lack of resale supply continues to funnel buyers into the new home market. And the interesting thing is that builders were putting all this new supply into market and it's just kind of this steady drip that you know, a couple months ago, everybody was worried about there's going to be an oversupply
of new housing. But as builders have kind of made the math work, we're seeing that home shoppers are increasingly preferring this quick move in inventory that where a buyer can go, they can lock in their rate and they have some confidence that they know what their monthly payment's
going to be. So I think that builders who have a spec focused model where the inventory is there a buyer can move right in, are position in this environment because buyers are looking for certainty given all the rate volatility.
How about the inexisting market, how how's that trending?
Yeah, so it's I mean from a transaction perspective, like we said, sales are down sharply compared to the new home market, and that's because there's not enough people willing to sell their home. From a pricing perspective, prices have held up relatively well, you know, from the peak. We're only down low single digits.
One.
That's because people don't have to sell. There's no forced sellers. People have a lot of equity right now. The job market is still strong, so people aren't forced to put their home on the market. They're comfortable with their low rate, they're comfortable with their wage increases. Conversely, in the new home market, prices are down much more because builders have been aggressive and kind of cutting them. So in the resale markets, transactions down prices supported by that low inventory.
That's interesting because if you don't want to move and you've locked in this low rate, wouldn't that still help home builders, especially if there's already that low inventory that we were talking about.
Yeah, certainly, so I think that that dynamic favors homebuilders, and it also favors renovating over moving, and I think we saw a lot of that with the home depot and lows and building product manufacturers, where you probably saw a lot of demand pulled forward over the last couple of years. Now, those same people that aren't moving have massive amounts of home equity, so even if home prices were to fall mid single digits, there's still a lot
of equity built in those properties. So with decreased mobility, we would expect that remodeling, once we kind of get through this air pocket of demand, starts to pick back up, and that industry is looking really good over the longer term.
All right, Drew, thanks so much for joining us. Always appreciate getting your perspective on the broader housing market and also on some of these housing related retailers like Low's and Home Depot reading. He's a research analyst covers all the housing stuff for Bloomberg Intelligencies based down in our Princeton, New Jersey campus.
You're listening to the date. That's our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa, playing Bloomberg eleven thirty.
When reading kind of the background the resume of our next guest, I noted the fact that he's a twenty nine year Navy veteran. There's like I who does not like change, but he served all over the globe. That kind of got my attention, and we thank him for his service. Of course, Jess looks at it and she sees, oh, he went to Texas a and m.
As I did too, so too, Aggie.
Is how exciting to have it in one segment?
All right? Kevin Brand defense policy anols for Bloomberg Intelligence. Kevin, thanks so much for joining us here. I need you know, I follow the military military history pretty closely over for a long time. Here's a new one for me when this war broke out in Ukraine. Hypersonic weapons. What is a hypersonic hypersonic weapon? I've never heard of that before.
Yeah, great, thanks for having me.
So.
A hypersonic weapon is really the next generation of air or ballistic missile threat that's facing friendly troops. If you think about it from a speed perspective, hypersonic speeds are really anything over the over about mock five, which is five times a speed of sound. Think that highway speeds. Your car moves about a mile, about a mile in one minute. At mock five, you're talking about moving a mile in one second. That's what a hypersonic weapon essentially is.
And I know that you wrote in a note that's on the terminal about how it basically falls into two broad categories. Can you kind of break down what two categories are?
Sure? So, hypersonic weapons fall into one of two categories as you as you mentioned, it's either a ballistic missile essentially, think about a launcher with a big solid fuel rocket on it that launches something into the atmosphere, whether it be a space shuttle or something else, but it moves into the atmosphere into outer space and essentially arcs in a very ballistic sort of trajectory and then re enters
the atmosphere at incredible speeds. The space Shuttle or the Apollo missions came back at almost mock twenty five if you think about that. The second category of weapon is really an air breathing jet powered engine, a type of cruise missile. It uses what they call a scramjet, which means you have to get this missile up to incredible speeds like four mock five, and then it opens a thrust an intake and then becomes hypersonic and accelerate up
to mock ten mock twenty five. If you watch the Top Gun Maverick movie that Stump Works project, Maverick was flying a hypersonic jet capable of movie at mock ten or faster. So it hypersonic weapon falls into one of those two categories, either something ballistic that leaves the atmosphere and then comes back down or something that stays inside the atmosphere and uses a scramjet power motor to really move back.
All right, So if Russia is firing these things that Ukraine can Ukraine shoot these things down?
Well, Ukraine apparently has shot down up to seven of these early what I would call first generation hypersonic missiles. And as we mentioned earlier, almost anything that can leave the atmosphere travels at a hypersonic speed at a MOCK five. And the Kinsol missile, which is what Russia has supposedly launched, is capable of speed something between mock five and Mak ten. And what we know is that those should be very
very hard to defend against with today's technology. But Ukraine was successful in shooting that, we think up to about seven of these in recent weeks.
So what does this Russian mag thirty one? So they're basically carrying some of these missiles.
That's right. So Russia has a capability on it. Some of its spider aircraft and some of its bombers to carry air are essentially air to surface missiles, in this case a cruise missile, and in this particular case, that Kinzal, which we know is capable of achieving at least speeds
of mock five. And what we surmise at this point in time is that Russia was targeting one of Ukraine's Patriot air defense batteries, and so the missile was inbound directly at that weapon system, and so it was a nose to nose sort of a point defense weapon shot, and the Patriot was successful in shooting this weapon down.
All right, Kevin, let's let's pull the focus out a little bit and talk about you know, kind of arming Ukraine. That's been you know, a long time for this war, and there seems to be kind of a no end to sit here. We seem to be the armory for Ukraine. Can we still do that? Can we do that on a long term basis? Can we continue to do that and still meet our own defense needs?
I think so.
So.
We certainly still have a lot of inventory that's capable of being moved from different theaters, whether it be the European theater or the Asia Pacific theater to help Ukraine. We can draw those down from US weapons style, or we have the ability to potentially ramp up production of
the defense industrial base from the big defense companies. The latter has been a concern as you know in recent months, especially with Congress looking at the defense industrial base and how do we maximize production Certainly, if we keep this up for extended period of time, I think years will draw down before we can replenish our inventories, and that is a concern. But I think in the short term to maybe eighteen months, that really won't be a very acute problem for the Western militaries.
So, Kevin, the probably one of the big decisions that the President made about Ukraine is sending over F Sixteen's explain to us how that may play out in terms of timing, how many aircraft they're pilots and what impact you think that might have.
Yeah, great question. So I think there's two aspects of this. One is whether the United States sends any of its own F sixteens or from the Defense Industrial Base are able to provide those to Ukraine. But the second thing I think more importantly that the Biden administration recently did is they sort of cleared the decks for action and authorized our allies to provide S sixteens if they are
so inclined to Ukraine's defense. But before any of those aircraft can really get there, the big thing that Ukraine and the West has to do is start training Ukrainian pilots on how to use those aircraft, and that could take anywhere from several months for very proficient pilots just kind of type model series training to convert them to use Western equipment, to up to a year to eighteen months to really get them proficient on how to use those aircraft.
We only have about a minute left, but I was curious about the supply chain threats that exist right now when it comes to China and did coupling that's happening there.
Yeah, great question if you look at what's sort of happening, whether you take the COVID pandemic and what we saw in supply chains there, or how difficult it was from Europe to kind of get off. Russian oil and natural gas disruptions really have got the attention of the defense industrial base, and what they're really looking to do is how do you sort of do you risk your supply chains.
It's not a really good idea if you have a potential foreign adversary or a foreign thread or somebody who's geopolitically opposed your objectives to be over reliant upon them for any source of supply, whether those be critical raw materials,
oil and natural gas. And so I think you're seeing a very natural tendency right now for people to take a look at where are they over concentrated and how do I de risk that, How do I spread sort of the wealth around so that I'm not beholding to any one supplier in the future.
Kevin, thanks so much for joining us. I really appreciate getting the benefit of your expertise. Kevin Brand defense policy analysts for Bloomberg Intelligence and a twenty nine year Navy veteran. So we thank Kevin for his many years of service and he really helps us kind of understand what's happening on the ground and in the air in the war in Ukraine.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.