This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global
headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always i Bloomberg Radio, the Bloomberg.
Terminal, and the Bloomberg Business App.
Definitive on our international relations, Ian Bremmer, he is with Erasi Group. His top risks every year are beyond sobering, one because they make you think, and two he's really right a fair amount of the time, Ian Bremer. Should we be stressed that this is a different Republican Party than the report publican party of young John Bolton with Ronald Reagan.
I'm not sure that that by itself is what drives my concern. I think the fact that Trump owns the Republican Party and so is a consequence he can put a thumb on the scale on major.
Foreign policy issues.
That's a pretty big deal, but also just generally the illegitimacy in perception of US institutions, the executive, the judiciary, the Congress, but also the public school system, the church, I mean, the media. When you look at how Americans feel about their institutions over the last twenty thirty years, it's just been getting.
Worse and worse and worse. And that, to me is the structural underpinning here.
The getting worse and worse and worse seems to be the heart of the matter, what anybody's politics is. Governor Haley cited out the statistics showing the pole tilt Ian Bremmer, who is forget about Spiro Agno, who is the American silent majority.
I think they're people that feel like they're leaders have left them. They're people that no longer believe in the American dream. When you and I were kids, the United States had the greatest class mobility of any of the OECD nations.
Today it has the least.
And no matter how optimistic and individualistic you might be as a nation, eventually you get hit in the face enough and and you change your view. And I think that that's a big piece of I mean, the US still has incredible wealth and has all of this entrepreneurship, and you'd rather be the United States than any other country in the world in the aggregate.
But people don't live in the aggregate, and that's what we're experiencing.
So Ian, I'd love to get your views on how perhaps the US is viewed by I don't know, our allies, our foes. I mean, it seems like it's been an up and down, whether you know, with the Trump administration, their policy for NATO and just kind of foreign policy versus Biden trying to maybe get back to normalcy. How do you think the folks outside the US view.
US incredibly inconsistent? I mean, not a country that you can as easily count on, and therefore a lot of hedging behavior going on, even though there aren't necessarily any good options.
Look, I mean, I take the point that we should not.
Be blackmailing our allies to pay or else we won't defend them. But on the other side of that argument, what are we if, for decades they refuse to actually make good on their defense commitments?
Should there be no consequences at all?
Because that appears to be the ex ante position, and that's not okay either.
Right.
That it's true that if Trump tells you we won't defend you, we'd like Russia to attack you. If you don't pay your two percent into GDP of defense, if you're not doing an adequate job defending yourself, that undermines NATO.
And we've heard that from the Secretary General.
But it's also true that if Canada and Germany and France and Italy and Spain, I mean, the biggest economies all consistently refuse to invest in their own defense.
That also emboldens Putin. Right, That emboldens Putin too.
So how is it that neither none of our leaders seem to get it right?
We just bounce back and forth between these populist extremes and don't think long term about what makes for a strong alliance.
So what do you believe is the realistic future of NATO, because boy, that is front and center now with what's going on in Ukraine.
I think that peak NATO was last year. Putin made a huge mistake.
You should never never ever interrupt your adversary when they're screwing up, and NATO was getting more divided and becoming less relevant. For many years, the Europeans just were I wouldn't say they were giving up on it, but they were certainly taking advantage of it. And that led to a backlash that you saw reflected with Trump's America first, and then Putin.
Did the stupidest possible thing.
He made NATO as desirable and relevant as humanly possible by trying to overthrow Zelenski and sends his troops storming toward Kiev. And not only did that make the Germans start spending money on their defense, but it also expanded NATO, made the Finns, made the Swedes wanted to join, made
everybody realize that NATO was an indispensable alliance. Unfortunately, Putin understands that he cares a lot more about this issue than anybody else does, and he's willing to wait everybody out, and that now appears to be working in his favor after two years of it.
Not Ian Bremer.
One of my favorite people is a hockey player from Finland named Alex Stubb. He's young, he's vigorous. I'm not sure that politics in a closely contested Finnish election explain to our American audience the importance of Finland and that heritage with Russia.
Well it does have, of now, of all of our NATO allies, the longest border with Russia. And while they had had a comparatively independent policy and were very unwilling, very controversial join NATO, that flipped the entire population overnight
when the Russians invaded Ukraine in February twenty twenty two. Interestingly, that wasn't the position despite the invasion in southeast Ukraine with the Little Green Men and the illegal annexation of Crimea, but all the Tanks after the denials the ball face lies from Putin to the Germans, the French, the Americans over the months and then willing to try to engage in full regime change of a country of over fifty
million people. That that proved enough. And Steube, who's a good friend, I've known him for a long time.
I mean, he is.
A very very staunch opponent of mister Putin.
And there's no question that.
The election was not determined by how you view NATO or Russia. In fact, both of the both of the opponents of each other, were very consistent in terms of policy. There's very different personalities, but there wasn't a lot of substance in this.
There is substance in Jakarta.
It is on the other side, as Patrick O'Brien said, the far side.
Of the world.
You feature the Indonesian election briefest quickly on that, doctor Bremmer.
It's another large country after India, big democracy, no one questioning the legitimacy of the process. Joco the existing president, has been quite popular, and his preferred successor, mister Praboo, a former military general, is likely to win, though probably not in the first round, and his vice presidential running
mate is Jocobe. The president his son, so I mean definitely will be more state enterprise oriented, will probably be a little more populist in policy, but very consistent in international orientation, including very good relations with the US in Japan.
Rightfully, so, most folks attention is focused on Ukraine, has focused on the Middle East, but of course we can't forget about what's happening with China, with Taiwan, that.
Whole part of the world.
How do you view China's view of the world over the next year or two.
Their geopolitical position has been really undermined by an economy that's not doing well and then overly assertive sort of political footprint, and so you look at them. Of course, India has a much much stronger relationship with the US and much more contentious and combative engagement with the Chinese, including over their contested border. The Quad has been a strong effort of US architecture building that is a counterbalance
to China's Belt and Road. You've got the South Korea Japan break through, probably the most important diplomatic success that Biden has had over his three plus years. Also problematic for the Chinese. We just mentioned Indonesia they're till, but also the Philippines now offering the US eight military bases after what had been a close up policy with China. If you're China going forward right now, part of the reason for this charm offensive, it's not just that the
economy is going badly. It's that they recognize that they've bitten off more than they can chew, and they need countries to not feel like China is a big, bad boogeyman in their backyard. So this has been a better managed policy by the Americans than what we're seeing right now in Ukraine and what we're seeing right now in Gaza.
All right, so I guess let's just start with Ukraine, where do we go from here. I mean, we're getting into year three here, and I think both sides are probably getting a little tired.
The Russians are much are waiting them out. I would say the troops are tired. But Putin feels emboldened. And you saw that with his two hours plus a history lesson with Tucker Carlson a few days.
Should Tucker Carlson have done that interview?
Someone should have done that interview. But I mean, I'd rather be a real journalist, you know. I mean, Tucker is not that, and the fact that he is a fabulous who supports Putin's position has been publicly sympathetic to it.
I don't think does this any.
Favors, but it's useful for the Americans to hear directly from Putin what he has to say.
I didn't mind the fact that the interview happened.
I do think that the ability of the United States, the willingness to continue to provide military support is utterly essential for Ukrainians to hold their defensive lines. That's getting a lot harder to count on going forward, and we could easily see Ukraine start falling apart.
Doctor Bremer in ninety seconds, and this has just been fabulous to go from Governor Haley to doctor Bolton that Ian Bremer is the way to do this, folks Ian Bremer. There seems to be a new Pacific Rim after the TPP blow up and everybody anti China and all that, And that is a projection of the United States across four military bases, not up to Taiwan, but across the arc of the western Philippines. Right now you got Marco and do Terte going at it again. People talk in
Manila about a coup. Are we more in the Pacific Rim than we were two three years ago? Is there a new US projection?
There's no coup coming.
This is a former President du Terte losing influence and lashing out as a consequence. But the United States remains the only country in the world that can project its military power globally. And China's a regional power militarily, and their economy is not doing so well right now. And that makes the US much more relevant for every country who's in Asia or may have China as their lead trade partner but doesn't want to become a supplicant from Besia.
It is a g Bremmer world. It's a new she's zero or Chief Bremmer. We'll get a new book out of him at some point here Ian Bremmer, and just fabulous, And thank you doctor Bremmer for the top risks from your Rasier.
Group that we see.
We continue strong with another former UN ambassador. He is John Bolton, of course, united States National Security advisor with the Trump administration, a critic of President Trump, and Ambassador Bolton joins us this morning. Ambassador Bolton, you wrote an essay in the FT a year or so ago.
What happened to the.
Party of your Ronald Reagan? Is Nicky Hayley the last Ronald Reagan acolyte standing.
Well, she's the last one still running for the presidential nomination. But I think the party at its roots is still Reagan. I think Trump as an aberration. Obviously he's been able to capture a significant part of the party, but I think that you know, one day he will pass, hopefully without doing too much more damage, and we can get back to where we should be. His comments about NATO and allowing Russia to attack countries not spending enough on their defense really ought to be a wake up call.
Yeah. Paul Sweeney emailed me this weekend, and he said, gets Trevitas, And of course they get James Travitas, the Supreme Commander of NATO would be lovely. We don't have them today, folks, but we do have John Bolton. What are the ramifications to Europe to Alex Stubb winning that election in Finland? What's the ramifications to Europe if we get a Trump foreign policy.
Well, it would be disasters. It'd be disastrous for the United States, but it would be worse for Europe. You know, the Europeans can talk about an EU style defense all they want. Really, they're going to be led by Germany and France. You know, good luck with that. The problem is in the United States, for too long, political leaders have failed to make the case that we're in alliances like NATO and bilateral alliances with Japan and South Korea
around the world, not out as an active charity. We're just not being nice to the Europeans by being in NATO. We're protecting vital American interest, we're protecting European interest too, but we're doing it for ourselves primarily. And the Europeans have not done what they should have done in terms of their own defense expenditures. You know, maybe this will a further wake up call to increase, but nobody should be under operate under any illusions here. Trump is not
trying to strengthen NATO. Trump is beginning the case if he's elected, why he's going to withdraw from NATO.
And Ambassador Bolton, I mean, obviously front lines there in today's news is just you know, Ukraine, Russia. What is your latest thinking on how this is developing here and continues to develop in I guess the second year well, I.
Think Putin, taking advantage of his conversation with Tucker Carlson, made it plain he's ready to negotiate, and I've been worried about that for a long time. I think Biden wants to put the wars that are going on now behind him for purposes of the November election. He's in deep, deep trouble, and stopping the war in Ukraine, I think
he will see that his political advantage. Unfortunately, and there are plenty of countries in Europe that would like to turn the page on Russia's invasion in twenty twenty two and before that in twenty fourteen and go back to business as usual. So I think Putin is playing to a weakness in the Western Alliance here transatlantically to get a ceasefire.
John Bolden.
Just because of time here I have to turn to the Eastern Mediterranean. And over the weekend, the entire zeitgeist to me of Democrats, of those uncommitted of Republicans, has been wither net in Yahoo trued on domestic Israeli politics or is that something distant and remote that the Israelis have to solve?
Well, look, I agree with net Yahu's view that he should he should be allowed to pursue the objective of destroying hamas he calls a total victory. And in World War Two, Franklin Roosevelt set the terms for German and Japan to end World War Two? Is unconditional surrender? Get given the October seven attack? Why isn't Israel entitled to do that? I tell you, if Biden breaks with Netan Yahu, he can kiss the twenty twenty four elections goodbye.
So I mean, to what end, Ambassador, do you think that Netnahu and the Israeli objectives which a lot of folks feel like, I'm not even sure how you even measure whether they're achieved? How can you destroy a terrorist organization. From your perspective, what would you recommend to mister net Yahu.
Well, how did we destroy Nazism in Germany? We killed an awful lot of Nazis. You're not going to kill everyone. And it's true, you don't kill the idea. But if enough of its adherents are killed, and the Israelis claim they've destroyed eight of the twelve Hamas fighting battalions, you can go a long way toward that goal.
But I think John Bolton, this is so important.
There's a huge body of Americans, including Democrats, who do not agree that we should support mister Netanyahu. Given that American domestic tension, how do we prosecute a foreign policy in the Eastern Mediterranean.
By having leaders who can articulate the reasons why it's of an American interest that these terrorists be defeated. This is not an Israeli war against Hamas. This is not an Arab Israeli war. This is an Iranian war against Israel. Through its terrorist proxies. They are aiming to destroy the little Satan Israel. They're aiming to gain hegemony in the Middle East as a whole over the city Arab. Their Sony Arab adversaries, and ultimately their sites are in the Great Satan and we're sitting.
In the John.
Thank you, Ambassador Bolton. Priam Misery joins us now with JP Morgan. She's a portfolio manager, which barely describes her arch call, which is lower rates and particularly the inflation adjusted yield.
It's a residual.
You take the nominal yield, you subtract some measurement of inflation. Only Bob Michael.
Knows that measure it's a secret sauce, and.
You end up with a residual, which is the real yield. Priam Misery, you suggest the real yield will plunge lower. What will be the catalyst?
So I think the catalyst is either the economy slowing down much more than what's priced in, or the Fed now some combination of the two, or the Fed that's actually trying to lower rates to you know, keep that softly life. I mean, I think the big debate is what is neutral interest rate, real interest rate, our star what economists call our star. The FED thinks it's fifty basis points. There's some debate, you know. President Kashkari suggested
maybe it's a little higher. Maybe it's one percent and ten year real rates, and I would look at the ten year part of the curve that most of us borrow households, corporates grow. In that five to ten year part of the curve, it's running close to two percent. So I would think as inflation comes down, the FED gets more confidence, as Jail said that they can start to normalize those real rates start to come down, and at least they can get to one percent, which is I think closer to neutral.
The gentleman from Yale, edjar Denny, suggests productivity started in two thousand and five. Paul Sweeney pointed out to me, there's a giant pause during COVID of our more productive, more efficient America, and then we've reinvigorated productivity.
Here.
Priya Misra does a new American productivity that Michael Faroli and Bruce Casmin see. Does that change your call on interest rates?
So?
I think that would be it will go back to what is real equilibrium interest rates, and I think the Fed's been in the zero to fifty basis point range. If there is an increase in productivity, maybe that gets us closer to one percent. But here's the offset to productivity you know, there's a lot of talk about generative AI and technology and how that's improving productivity. It takes a while for that to get adopted within the business sector, within the labor market, it takes a while. So I
would say it's not clear to us that we're there yet. Secondly, we've got demographics that go the other way. We have an aging population, and so I would say it's productivity and demographics or and population growth that would imply you know, that would have implications for real neutral rate, and you know, at least the demographics site is going the other way.
So maybe there's a move a little bit higher. And that's why I'm arguing could as high as one percent real rate, but I struggle to see much higher than that, given how much time it takes and the fact that demographics are going the other way.
All I a free We're going to have. The question, I think for the marketplace right now is what is the FED going to do? Not so much what are they going to do, but when are they going to do it in terms of maybe pulling back on rates? And obviously the FED was pretty consistent with our language that it's not going to be in March now there's some question in the marketplace will they cut in May or perhaps.
Way to June.
What do you think they will do? What do you think that maybe they should do?
So I like that question because we have to constantly think about what they should do, which is driving the economic outlook and asset prices, and then what we think they will do. I think in terms of they want more confidence, which is why they took March off the table. I think they want to see at least three four months off inflation, and we have another inflation report this week that inflation is continuing to come down, and not
just the headline number I think o core. I think they want to see that the service side of the inflation picture is heading lower because the goods side has done its big goods inflation is in negative territory, we're in deflation. I think they want to see that service inflation continue to come down, you know, May or June. I think it's somewhere in that time frame that we think they'll cut what they should be doing. I think
they should be starting to normalize right here. I mean the earlier conversation where we're talking about what is neutral FET funds is at five and a half. So you know, even if our star is higher and neutral rate is closer to three percent, we're really far from three percent. So I would have said start early, then you can go gradual and figure out where that neutral rate is. But realistically, March May June, what's a few months between friends.
I think they're likely to start to cut rate sometime in the first half or early in the second half of this year.
Well, you're right the goods inflation, as that's a thing of the past for most people. But boy, the services side, I mean, we have the consumer pretty strong here. The consumer has a job, consumers wages are going up, the consumer is spending. Maybe they're putting a little bit more on the credit card. But the consumer seems in pretty good stead right now. How do you see that?
So I think the economic data has been very strong, and that explains why we've had this scenario of risk acts doing extremely well. The market's pricing in this soft landing, and I think rightly. So for now, I'm a little more cautious because I think it's a fragile soft landing. It requires inflation to continue to decline, it requires the FAT to start to normalize policy for the soft landing to last. So I'm a little nervous further down for
the consumer. But to your point on inflation, I think rent inflation or housing inflation is a big component of that service inflation that is heading lower. I mean, we've seen new rents starting to not come down, but the rate of increase of new rents is absolutely slowing down, and so I think that housing inflation, the trend is clear, it's going to come down. To your point, the consumer is strong, but some of that is also so you know,
service inflation is not rising at the same rate. So I think what the thread is likely to do is not wait for two percent on service inflation. But if the trend looks like it's heading closer to two percent, especially with goods in deflation, they can start to get that confidence, so at least start an organization.
I can't stand preor the phrase soft landing. I just think it's like V shaped bottom and the rest of it. Let's start with a guy named m Faroli. You've got to put up with his literature every single day as a portfolio manager. Michael Ferroli PRIA codified under two percent potential GDP is our new definitions struggle with soft landing that because of technology, because of productivity, we need to lift the Ferroley one point x percent potential GDP up.
I mean, is that really what we're talking about.
I think if productivity is sustained higher, and this is not just still residual impacts of the reopening or the fact that we lived through COVID, I think it's still early. I would also say a lot of the data we're seeing in the last two months can be distorted by seasonal seasons are always difficult to make sense of the
December numbers and then the January numbers, weather effects. I think we need a little bit more data to have confidence that productivity is higher, that that potential GDP is higher. But then to your point, how does that feed into soft landing. Soft landing implies below potential growth. So if growth is one and a half or two percent and inflation is a little over two percent, that would be a soft landing. I think the reason this is so important is does the FED take cuts off the table.
I think that has to be a reacceleration. We have to be seeing growth three four percent, inflation progress stalling. That's when those cuts start to get taken out, and I think we're far from that. We think monetary policy is still restrictive. We don't see fiscal easing at least still the election, and so it's a question of when do they start to normalize is what's the past, But we're keeping an eye out for kind of your point, what is potential growth and right is that.
That's almost a terminal value of the discussion your premser, Thank you so much. And I can't say enough about a careful read of the JP Morgan combine and research with Joyce Chang and Bruce chasm and have done over there. It's just absolutely extoring you. Today's front page headline super Bowl affected, Lisa, I'm sorry you're not at the front.
To blow hotel and we fail.
My kids might have a snow day tomorrow, all right, So we're starting with, of course super Bowl, right, super Bowl commercials, that's what we're talking about. It's across all the headlines, right, marketers. They didn't want to offend anyone, so they stayed kind of safe. They use a lot of humor, not controversial humor. You had a couple of newcomers in there. You had Etsy PepsiCo's story was in there,
celebrities everywhere. Arnold Schwarzenegger was there. His commercial was hilarious, trying to say neighbor, but he kept saying State Farm, my neighbor, and they kept joking out. Tom Brady was everywhere.
Right.
They leaned on the female audience. They had Dove Elf Cosmetics, but The New York Times ranked a couple of them. I want to play a commercial from Duncan. This is when Ben Affleck visits Jennifer Lopez at the recording studio. Usher was another one. His halftime performance. Everybody was talking about that too. Think about it, thirty years of his career, right, He's forty five years old. He was dancing and moving across.
The st to be quickly here because we got to go on to the others. But I'm going to be able to see all these on YouTube, right, Yeah?
Yes you can. Yeah, we can see most definitely.
Like YouTube highlights. Let's become my whole next you.
Gotta do it, you can.
But Usher, all right, So the Usher halftime show, it got like from people who know this stuff, got thumbs up. Yeah, definitely thumbs up.
But I know you're getting to a void. Get here, No, no, no, I think I thought it was good too, but for people who it didn't kind of tap on their you know.
He kind of said.
Everybody sing along, and some people weren't singing because they didn't know, and it was awkward.
A little bit.
I'm not the usher demo, but I recognized that it was an event and it was people were fired up about it.
Yeah, and it just it ended great. Will I am Lil John. I mean, you can't, Alicia keys Her. I mean it was it was just he had a lot of people on the red piano.
Okay, next story.
I did this because both of you are romantic.
Surely you can see what I got.
Fourteenth pictures and catchers.
This is about Valentine's Day. This study from McAfee, it says that AI is going to be playing hard in these love letters for Valentine's Day. For adults are at least considering and using AI to come up with these love letters for Valentine's Day. But when it comes to men, that number rises to forty five.
Forty five percent of men will turn to AI to write love messages this Valentine's Day. I mean they're doing it just to get the stock up. That's it's like every other company, a piece of news.
The bonus points in there, happy wife, happy life, What's today?
Today's at twelfth I got to get on this.
This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from.
Our global headquarters in New York City.
Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg
Terminal, and the Bloomberg Business app.