Ukraine, Markets, And The Supply Chain

think about these geopolitical military issues around the world. James Travitas, Admiral the United States Navies retired adam all the US Navies in the U S Navy thirty seven years, served as a fifteen commander in US European Command and NATO's sixteen Supreme Allied Commander. In your, Admiral, thank you so much for joining us Right now, we just heard from President Zelenski's chief of staff taking a very very hard line about how far the people of Ukraine will take

this fight to Russia. What is your view of what you're seeing on the ground. Well, first of all, what we are learning is that the center of gravity in this fight is not the Russian army and it's not really the Ukrainian military arms. The center of gravity is the spirit, the will of these Ukrainians. It's become remarkable and it's personified by President Zelinski. And I agree with you.

I caught the tail end of the interview. The chief of staff does a great job channeling his boss, who is marching around the world doing these inspirational speeches at every major parliament and congress in the world. Um so there's a great deal to admire on the Ukrainian side of this. In terms of his comments about negotiation, Hey, it's Bloomberg right. We're a business network. We know how you negotiate, and you negotiate in two ways. One is you been as much positive of momentum for your side

as you possibly can. At number two, you start with a hardline position, recognizing you're going to have to negotiated in from that. And I think both those are true in this case. In terms of the Russian response, Admiral, we've seen UM more and more destructive weapons used. There was a lot of criticism when the hypersonic missiles UM were put into action, but isn't that to be expected,

as uh war rages on this long. Of course, they expected to march in and you know, be greeted much the way Hitler's troops were greeted when they um completed on Schlis of Austria. That didn't happen, So they're going to use bigger force. Indeed, they were expecting bouquets of flowers and bottles of vodka, and what they got were bottles of gas lead with rags, stuff to the top

Molotov cocktails. UM. It has been extraordinary to watch the fit alire of Russian intelligence and the isolation of Vladimir Putin personally, who clearly had no clue what this was going to look like, and his people, uh failed miserably at least thus far. So Plan A, you're exactly right, was unchlus. It was sweep across the country, blitz creeb, a little bit of fighting, find Zalinsky sued him and put a public government in Kiev that was planned in UM.

That is over. Plan B, you're also correct, is kind of looking like fifteenth century siege warfare. Bring all your cannons around the city and just pounded to dirt, terrorized the population, and UM at the end of the day, then you can gain strength for negotiations. That's what Putin's doing on his side of the coin. None of this is unexpected in the way that worth typically unfold but has got But Admiral concern is that Plan C is

a biological weapon and possibly tactical nukes. It certainly is a deep concern, and you saw it addressed yesterday by President Biden and the heads of NATO. UM. And so what are we doing about it? We are send Putent signals that if he crosses that kind of weapon of mass destruction line, there will be serious consequences. What I suspect would happen. That's what would finally lead NATO to put a doe flies on up. That's very risky, very

potential confrontation between ducle ron pounds. But we've got to tell Putin that if he does that, if he uses a tactical nuke of biologic a chemical weapon, UM, he will face the full might of the alliance. UM boy, I hope we don't go there, because it is a potential for real miscalculation at a higher level conflict. Admiral I got to ask about not a day goes by in this conflict when I'm not reminded of your novel.

And I was telling Paul earlier, I think you know, in terms of a fictional entertaining work, it's up there with anything that Jack Carr or or Lee Child has ever written. But um, the problem with your book is that it's so realistic, and it's ringing true truer and truer as days go by. Here, how much of a problem is China? And what what do you think President

She is thinking and doing here? Yeah, novel in the Next World War, of course, has about a potential war between the US and China, And I agree with you, what's happening in front of us ought to act as a real cautionary tale because if you think this is destructive picture of war between US and China, what President She is trying to do is kind of keep the

ball on the middle of the fairway. He doesn't want to completely align his nation with Russia, partly because he thinks Russia is looking weaker by the minute and it's looking like a losing bet to do so. On the other hand, doesn't want to align with the West and fall in completely on these sanctions because he objects to a great deal of how Russia and China, in his view, are treated by the way, so he'll try and play the ball down the middle of the field. He will violate.

I suspect some of the sanctions, perhaps about oil and gas, will allow Russian banks that come off the Swift system to go on his SIPs system, a kind of binib version of the Swift system. He'll say some generally supportive things, but on the other hand, he's given humanitarian aid to Ukraine, he has spoken against invading other sovereign countries. Um. He is also finally watching Taiwan and thinking how does this

play with my calculus? I think, interestingly, Matt, it makes him less enthusiastic about an attack on Taiwan because he's watching what happened to Russia not going so well. All Right, we're speaking with James Travitas, Admiral United States Navy, and most importantly for this conversation, and I think NATO's sixteen supreme Allied Commander in Europe certainly has the you know,

informed opinion. Admiral, if you were advising President Biden right now today, what would you tell him about what we should do, what NATO should do over the coming days and weeks, and maybe months. First, I'd say it's gone as well as could be expected at this point. The unity of the NATO alliance has been quite extraordinary. Continue to encourage the Germans to increase their defense spending, which they've done. Move NATO troops to the borders. The thing

I would say to do that we're not doing. I would say, Mr President, We've got to look again at giving the Ukrainians tactical aircraft Big twenty nine and others. Let's give them the tools to implement a dough fly's So that's a big advantage for Russia. It's a whole in our strategy. Beyond that single point, I think we're

doing a reasonably good job. I wonder what you think about, UM, the Middle East in this scenario, Uh, you know, because this White House has snubbed Crown Prince Mohammed been Salmon for understandable reasons. His humanitarian record and Yemen is not good, and he allegedly dismembered a journalist. UM. On the other hand, you know, Saudi Arabia is so important strategically for the US as far as I understand it. What's your thought?

I agree with your assessment, and we um if we're going to make up Russian oil and gas in the markets, which we want to do because we don't want to see inflationary pressures jump even more. We have got to get not just the Saudis, but the Gulf States. You a guitar, et cetera. UM, that is where you have for capacity. Um. Last thought on the Middle East, by the way, I think the events of this war in Ukraine have elevated the chances of a deal with Iran.

And we could go back and forth on whether that's a good deal or a bad deal, but it would certainly also add capacity into the hydrocarbon marketplaces. I think that puts upward pressure on concluding the deal. I would say that is probably in the realm of that deal will occur, sanctions will come off of the Iran and Iran will rejoin global energy markets. How do you think,

Admiral we judge how does history judge? Angelomericle and kind of the German appeasement of Putin, because I remember when the US was over there begging them to put in l en G terminals, and they didn't want to hear it because they were so excited about Nordstream too. UM. And believe me, I was part of that whole effort. As Supreme elect's manner, I would talk to Chncellor Merkel constantly about not only that but also defense spending. We

got nowhere. Vladimir Putin in four weeks has managed to close those arguments and now Germany has going to the right place. But Angela Merkel was chancellor for sixteen years, elected four times. She has a very strong record overall. But she'll look back. I hope she would look back and say I made a mistake there. Nord Street two was a mistake. Trust in Russia in any capacity was a mistake. I think Germany gets yeah, and not raising defense spending. I remember when I lived over there for

years as well. There military was practicing with broomsticks because they didn't have enough rifles. They had one working sub and like you know, twenty five working tanks. Um, it's not going to be an easy you know, just like getting l n G over there. It's not gonna happen overnight or this year, next year, the year after building their army back is going to take a decade. I don't think it'll take a decade because there is a reasonable base inside the German military. In my experience having

commanded those troops in combat. But you're absolutely correct that it does not turn on a dime. So where do I score it. I think it's a three to five year project, and they made a great down payment on it by effectively doubling their defense budget. UM. Think of it this way. It's kind of like when Carter was defeated and Ronald Reagan came in. It took us three to five years to get the U. S. Military back where it needed to be. That's what I think we're

going to see in Germany. Admiral, just lastly here thirty seconds. Do you think President Putin ever resorts to nuclear and or chemical weapons? I think not nuclear. He recognizes the immense downside of that in every dimension. I think it's possible he would attempt something with chemical weapons, try and blame it on the Ukrainians and further terrorize the population of Ukraine. He is a dark figure and I would not put it past him. Adamal Sevidiz, thank you so

much for joining us. We've got a couple of extra minutes with you, which we really appreciate. We really love getting your perspective here, given your experiences in Europe and with our military and NATO. They have a federal reserve that's taken a very hawkish pivot, and City Group was out this morning with an economics piece talking about multiple fifty basis point rate increases from this federal reserve over

the next several months, getting even more hawkish. But there's still some people that say, despite all that, the feed is behind the curve? Is that a thing? We'll joining us right now? Is Matt Winkler, Editor in Chief Emeritus Bloomberg News, the founder of Bloomberg News. He joins us here in our Bloomberg Interactive studio. He ain't phoning it in from some of New Jersey. He is here, Matt, Thanks for joining us here. Is the facts still behind

the curve? They seem pretty aggressive to me. And by the way, we've heard people say this now, Matt, almost every day. It's become um, it's become rope to say

the Fed is behind the curve. Well, that's that's really the point, which is that you have this massive group think uh with everyone if you like, led by Larry Summers, probably the most prominent saying the FETE is behind the curb, and uh, there are a handful of people very smart people like Brad DeLong Is, an economist at Berkeley who recently asked the question somewhat rhetorically, Um, okay, if the FETE is behind the curb, then who are who are

the people who are the authorities who are supposed to be directing us? And the evidence is there is nothing out there other than the bond market, which in fact shows that the FETE actually is not behind the curve. The FETE is following in its data driven way what the bond market is telling it. And so to assert that the FETE is, you know, behind the curve, is to assert that the bond market, which as you know, is thirty trillion dollars and millions of people, is meaningless.

And of course it isn't meaningless because that's where people have their reputations and everything that they have at stake is on the line. And you're historically a bondman. Um wrote about bonds for the Journal before you came and created Bloomberg News. And at least as at least once I've heard you mentioned Nick from The Great Gats He was he a bond trader as well? Uh yeah, he was,

and uh very much so. I was gonna I was gonna ask, so, so, what's the data that the bond market provides us with um to help us decide, you know, how how far behind the curve or or with um the picture the FED is what inflation is expected to be? Like, I guess the break evens are the best way to

look at this. So what the bond market does is it's a huge bazaar, a global bazaar, and in that bazaar, you have every kind of point of view, every kind of activity that's possible, and it's all UH cataloged by price and yield. And the bond market shows you every day, going back in time to the present, what expectations are. That's why it's so valuable. And what you just referred

to as what we call break even. If you want to know what is the expectation of inflation, for example, thirty years out, the bond market can show you that what is the expectation of inflation ten years out and five years out? UH, That is the measure that you referred to called break even, and the break even rates show sure enough, UH, people who are buying and selling securities every day into the future expect inflation to surge

robustly over the next two years. But at some point over the next eight years, uh, that will change and there will be a precipitous decline in the expectation of inflation. And that's why the bond market is so useful and valuable because the FED, in its activity, can use the bond market as a way to keep the economy stable. Actually, how reliable are I mean, I'm looking at the break evens I type I l B on the Bloomberg TERMAO, I'm looking at the two year break even, and I

see it's almost five percent. I then here from people like Michael McKee who covers economics for us, that that's hardly likely considering we're going to be moving off of base effects at that point. So this isn't saying it's

going to be five percent two years out right. So what what is valuable about the bond market is people are literally taking their wherewithal their assets, and they're making bets about where things are today, where they're going to be five years from now, where they're going to be thirty years from now, and that's all reflected in price and yield, And of course it could change. The point here is that and it will change the point here

is that the FED is not behind the curve. If what it's doing today is following what the data shows us from the bond market, the FETE is simply doing what's appropriate. And the argument, if you will, against the people who are asserting that the FETE is behind the curve is okay, Well, if it's not the bond market where all this data exists, what is it and nobody can say what it is? And as Brad DeLong has suggested, what is it? The bond market is a bunch of

weirdos now and the bond vigilantes don't count. I mean, no one is asserting that, so, uh, you can't have it both ways. Um. This is why the criticism of the FED seems to be unfounded, because there's no evidence to suggest that there's an alternative for what the FET is doing. As I mentioned earlier, Matt City came out so research report this morning talking about, you know, multiple fifty basis point rate hikes this year going into next year.

Is there a risk that this FED gets too aggressive and does in fact push us into a recession and the interest of trying to cool inflation, Well, there are plenty of people who would suggest that and are suggesting that. Having said that, UM, again, if you look at the market right now, what might be surprising to people is why is the stock market seemingly becalmed UH in the face of it And if you look at something else that is worth paying a lot of attention to. The

Bloomberg Financial Conditions Measure Index. Yeah, very valuable tool. If we were suddenly de anchored, and if we had, you know, the FED had lost its way, you would expect financial markets to be turbulent, and you would expect great volatility.

But in fact, the Financial Conditions Index shows us we're not too far from the average, the thirty year average, just a little bit below it UM, and that kind of suggests that UM investors worldwide, even with the invasion of creating Ukraine and Mr Putin's war against it and the sanctions against him, the market is relatively stable. So in equities, the dumb money, so to speak, has have recovered UM with strength. We were down fourteen percent from UM the beginning of the year, just a couple of

weeks ago. Now we're only down five percent as the SMP comes back. Yeah, I mean, look, there's always a problem when you try to impose what happened before now on what is happening today and what what people are looking at is this period in the seventies when interest rates went up, you know, fifteen percentage points between ninete and you know, that was just a very different time in place. And Matt, thanks so much for joining us

here in our Bloomberg Interactive Broker Studio. Matt Winkler, Editor, Chief Emeritus and Bloomberg News. He did not get the Friday casual memo. He's in a sharp navy blue suit with the bow tie. He and Tom Keaney can't break them of that habit. Jonathan Webb CEO and founder of app Harvest. That's a public traded company a p p u H building some of the largest greenhouses, combining conventional cultural techniques with today's technology to grow non gmo chemical

free produce. Jonathan, thanks so much for joining us here. I would love to get your view here of the supply chain and the challenges that companies across so many industries are dealing with it. How are you seeing it in your business? Yeah? So uh, We're growing fruits and vegetables and the controlled environment year round with far less

land and far less water and using technology. And I think the general theme right now is it's it's it's a it's a great time for us to rethink and reimagine American agriculture and reinvest in farming across the US. It's uh, you we clearly see what's been happening over the last year or two years with COVID and then now obviously you know the the very unfortunate events playing out in Ukraine. But but there's there's no reason why here in the US we're importing two thirds of our

fruits and vegetables. That's just unacceptable. We're, uh, you know, one of the largest land rich, water rich regions in the world, and yet we're importing two thirds of our fruits and vegetables. And uh, you know, we can we can change that dramatically and pretty quickly overnight by using technology and creating a new innovative business models to grow

here here at home in the US. And I have to say, I am married to a one from Spain, from Valencia, so she is constantly unhappy about the produce in this country. Really because where she's from, you just walk down the street and pick up tomatoes and oranges off the ground next to your neighbor's field, you know. So, but how local can we make this um production? Jonathan, Yeah, I mean hyperlocal, very local to two cities, to two

regions all across the US. So we at app Harvest will have about eight million square feet operating by the end of the year. We'll be growing strawberries, leafy greens, a variety of tomatoes. But our focus is bringing that fruit and vegetable production back to the US that's been

uh pushed south of the border. Uh. And yeah, Matt, I mean many of the European countries, especially the Netherlands really being kind of the world leader and in high tech agriculture, Spain has a pretty good robust agriculture system that that's utilizing technology. But uh, you know, again reshaping what farming looks like. We we you know, we we have the opportunity to grow much more nutritious, higher quality stuff. Uh. And do that with with a lot less land and

a lot less water. Uh. And and that's you know, that's bringing technology to farming. Where the last big technological revolution in American farming is when the when the tractor was introduced. My concern is the concern is Jonathan that your hand, Yeah, The concern is that you displace American family farmers, who I mean, frankly have been displaced already but still managed to hang on somehow. How do you how do you work around that? Well, I mean, Matt,

they've already we've already lost that. Two thirds of our fruit and vegetables are imported into the US every year. You know, four billion pounds of tomatoes alone are imported. Why are we not growing that in the US. Why are we not getting small farmers technology where you're using led lights, hydroponic growing less water, thirty thirty plus, uh, getting thirty times yield per acre. Uh, We've we've had

a lot of meetings in DC over the last few weeks. Uh. Food resiliency has become a very high focus at the U s d A. But on the right side and left side of the aisle. And you know, if we in the US want to take this seriously, you know, there needs to be some policy around it. You look at you know, look at what renewable energy was in the US fifteen years ago. It was boutique, it was nascent, non existent, and now you know, every state has large portfolios.

Look at electric vehicles. You know, you've got to put policy in place that incentivizes the private sector to lead. Uh and and we we do think that's gonna happen with c E A can Gold Environment agriculture is really a third wave of sustainable infrastructure in the US. First it was renewables, then it was evs, you know, and now it's is c A controlled environment agriculture. And you know, we're pretty hopeful that uh, you know, we'll see some

policy in this new farm bill. Well, we'll see uh, some policy come out of both sides of the aisle of the next year or two to really give technology to farmers and and let them innovate and build a more resilient food system here in the US. Jonathan, really fascinating stuff. Thanks for coming on and sharing some thoughts that we'll have you back on to get an update here. Jonathan Web, CEO and founder of app Harvest Boy, We've had, as I said, a great slate of guests here today.

When we finish off our two hours here with another a list in my opinion, Lizzie Saunders, chief investment strategists at Charles Schwab. You know, liz An I kind of grew up in the business with the adage don't fight the FED. So now I see the Fed, you know, raising race. City is out with a report this morning talking about multiple fifty basis point rate hikes throughout the year. What do you do in that kind of environment? By the way, I didn't just grow up in that era.

I for thirteen my first thirteen years I worked for the late Great Marty's wife. Very good phrase. So um I I you know, lived and breathed it. Yes, um. I think when you look at a day like today where you saw a weakness kick in at the point where yield started to pick up, and then you know, added to the concern as you mentioned the City report saying we would get a series of fifty basis points hikes, a lot of adjustments of what the terminal rate is.

I think that's a recipe, especially in the aftermath of a pretty sharp rally that may have uh sent a certain technical levels to overball conditions that might have kicked in some of the quant based strategies and and al goes and the selling starts to pick back up. So it's not surprising to me at all. One of the I think most valuable things, um Lisianne about Schwab is

the knowledge you have from your huge investor base. And I don't know how much assets under management you have, but I know it's trillions of dollars trillion, it's amazing, eight trillions dollars. What can you glean then from your clients, what they're doing, what's what's their mood right now? Well, because it's such a large client base, it spans this

spectrum of not just retail investors, but advisors. You know, are as that are on our platform even among the retail investors, everything from short term day traders to long term advised investors. And I really think it depends on risk tolerance, time arise, and whether you are just trading on your own, whether you are taking a more disciplined approach,

maybe connected to an advisor or consultant. And what we are finding in this more volatile period with it, which is consistent with other periods of volatility, is that the more longer term investors that have a plan, they've got a strategic asset allocation, they're doing regular rebalancing, they tend to ride through periods like this with a bit more sense of calm. It's it's some of the shorter term, more trading oriented folks. In some cases they look at

volatility as advantageous from a trading perspective. But that's where you tend to see a little bit more of the extremes of at times, you know, panic and greeds. It really depends on what type of investor you're talking about. Haylzen Matt and I've been noticing that we've been hearing a lot more about recession in the last couple of weeks.

Is that something you think is on our horizon? I think anytime you move from extremely loose monetary policy to tighter monetary policy when you already have flower growth expected, you have to dust off the recession playbook, recession checklist, you know, including the yield curve. Yes, that tends to is not the end all be all. The tense three month has been considered the more reliable recession indicator, but we've seen this flattening of the yield curve occur slowly

down the spectrum of maturities. And maybe the potential inversion of the tents two doesn't signal a coming in version in the tense three months, But if the set is aggressive, as they're suggesting, they might need to be. I think that that's somewhat inevitable. Um. So, I think it's prettymature to make a recession call right now. The labor market is very strong. But should we start to look at what the typical indicators are that start to signal problems? Um? Yeah, absolutely.

What do you think about alternative assets, Luzianne, I mean, um, I would think of the sixty portfolio as pretty standard for a Schwab investor. As you point out, obviously you have such a huge pool investors that you run the gamut. But are are more and more people holding UM commodities that previously wouldn't have Are people getting into digital assets in a way that you see like substantial growth? Yeah.

I think that there is sort of a broader swap of asset classes that are available to individual investors, even at a relatively low portfolio size, and I think that will continue to be democratized access to all sorts of alternatives, some of which you mentioned even in areas eventually like

private equity and venture. So I think the individual does have an opportunity to take a little bit more of an endowment type approach and not limit themselves to just the typical stocks, bonds, cash and in this environment where on the bond side you've seen, you know, the worst start in history. I think there is a focus on where else can I get diversification, especially in a high inflation environment. Commodities being um, you know, a perfect apple

of that. Hey, Lizianne, thank you so much for joining us. Always appreciate getting your thoughts and perspective. Liz Anne Saunders, chief investment strategist at Charles Schwab. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on Fall Sweeney. I'm on Twitter at pt Sweeney.

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