Bloomberg Surveillance: Ukraine War with EU's Dombrovskis

and of course on the Bloomberg Terminal. A bit of a surprise early in the morning as I scroll through, and it's real simple discussion of consulates in the Baltic States that sets up an important conversation with the European Commissioner for Trade. He's a former Prime Minister of his

lat Via. Waldis Dombrowskis joins us right now and we've had many conversations over the years, Mr Dombroskas, I have to rip up the script and speak to you of the sea changes from Lithuania to Latvia, up to Estonia and across the Finland. Your area is in a tumuth we've really never seen since World War Two? What do you need from America, from NATO and from your Brussels frankly to provide courage to your lat Via and for

that matter, couraged Sweden in Finland. Good morning, Indeed, Russia's aggression against Ukraine is having implications across the entire region,

and it actually undermines the entire European security architecture. And clearly what country since the region, like Baltic states like Poland are looking for is a NATO's presence on the ground, strengthening of defense capabilities and clearly also support for Ukraine, because it's clear that if we do not stop putting in Ukraine, he will venture further in his aggressive war.

So that's why it's so important also to make sure that we provide all necessary support to Ukraine to stop the war there, but at the same time also step up the preparedness in the region. Your Latvia does not touch upon this exclave of kleining Grid, it touches Lithuania and Poland, but it seems to be front and center. Explain to Bloomberg's global audience, how we defend ourselves against the reality that Mr. Putin wants some form of bridge to his exclaim he can only get there by water.

Compare that to what we see now on the shores of the Black Sea and the path from Russia to Crimea. Well, first of all, uh, it's uh more than excuse than any real concern, because reality is that Russia has a corridor past ability to transport people and goods between mainland Russia and Kaliningrad, anclave doing so boss with railway and with road transport, and already also now when EU is putting lots of sanctions against Russia, this corridor is not

being subjected to sanctions. So that's indeed more as an excuse which Russia is trying to to use potentially to close down what is called Chowaki Corridor, which is connecting Poland and Leuthania. But it's worth noting that it's all a territory of NATO. So that's why it's very important that their proper NATO deference plans in a place also

against this kind of scenario. And you also raised questions concerning Finland and Sweden as we know, but those countries are currently considering a possible application to actually join NATO. Right now, we're talking also about the potential consequences additional consequences for Russia. A number of European nations have called for a full embargo of oil from Russia. What would

that do to member states in terms of economics? Uh? Well, Indeed, since the beginning of Russia's aggression, EU has implemented already five rounds of sanctions against Russia, and now we're discussing possible next sanctions, which among others include a possibility of some kind of oil embargo in one form or another.

We held done this assessment of what implications it's going to help for the European economy if there is a sudden cutting off of Russia's hydrocarbons, not only oil, but also gas, and as a conclusion is that not without problems, European Union can cope with this scenario. Well, as regards oils, there is a global oil market, so there is a

possibility to find another suppliers. As regards gas, we are now working very intensively to diversify guards supplies, including from allergy, including from the United States, but also to accelerate the green transition rolling out of renewable energy, so basically working at full speed to reduce a dependency on Russian hydrocarbons. And well, these you talked about potential oil embargo in

one form or another. There have been some questions about how severe these embargoes could actually be given the reluctance by Germany, namely to really go forward with this because of their dependence on Russia, yes, for gas, but also for oil. How quickly could something be implemented and how strict could this embargo be? Well, in terms of speed, we are actually ready to move up very fast, as

as regards that take Nicol work. So it's mainly the question of reaching political agreement because sanctions are agreed in the EU at the principle of unanimity of all member states, so all twenty seven member states need to agree. That's why those political consultations are now ongoing very intensively. But technically we are ready to move very fast. As our first sanctions packages had shown, we are ready to put

them placed in a one or two days. So cut to the chase, Mr Dombraska's with your twenty four seven work and the work of everyone in Europe. Are you essentially waiting for the outcome of the French election? Are people like you essentially and hold until Monday? Well, uh, it must be said, absolutely not. And as you noted before, France has actually voiced its support for oil embargo, so it's not something which is holding us back, and that was not something which was holding us back for example,

to presenting the fifth sanctions package. Also in this very same pre election context, it must be said that there is quite a degree of determination and unity in the EU to stop Russia's aggression, to put pressure on Russia through sanctions, through other means, and to provide a maximum

possible support for Ukraine. Varius, do you get the impression that the Europeans have finally learned a lesson of dealing with Russia, given what happened at the end of the first decade of this millennium, warning one Georgia, another one in Crimea, and yet the Germans it was just businesses usual, business as usual with the German government. Have we finally

learned that lesson? Well, clearly, I think there is now quite a broad acknowledgment that there were mistakes made also not reacting in a firm and determined way against Russia, aggression against Georgia, annexation of Crimea and other events. So from that point point of view, one can say, yes,

this lesson is finally learned. And actually, as you knows that Central East and European countries had been ringing alarm bells already for many years, so finally it's hurt and there is a firm, undetermined action, and it's important that fast stays. Of course, that we stay consistent and make sure that this war is really stop and Russia's aggression fails. Commissioner even a good friend to this program every years, Thank you very much for him with us again this morning,

Farriston Brodsky, the European Commission. Come on, Claudia, you're killing me out of the University of Michigan Inflation combine with Matt Superior, Claudia Ship, Claudia Shapiro, Claudius sum joins us this morning with Jane Institute. Claudia, I want to cut to the chase you are legit pro out of the Michigan Combine and the effect of inflation across the different

death styles of America, Mary Daily and others. They can look from sixty feet the working class, the middle class, the subclass, the rich, all those partitions, how are they affected by this historic inflation? Right? Well, you're absolutely correct. Inflation does not affect us all in the same way. I mean, frankly, just the thin inflation prices are not this big blob of an aggregate number. It's everybody like

what we put in our shopping basket. It differs right in a lot of ways, and what you have to pay for it. Say, there's people who working class, even up into the middle class, they spend a lot more on necessities, on gas, on food right now. I mean for a while, housing that have been just not affordable. And they're the they're the things we talk about that are the prices are rising and and rich people they're

they're doing okay, Like I'm not worried about them. But inflation is complicated because it has you know, it can benefit people that have a lot of credit card debt. Ain't so good for bond holders, right, So, like there's a lot going on, but the big thing is high prices, high inflation. They're disruptive, like they make life challenging. And this is important. Come on, Michigan has owns a high

ground on this. You studied there. Allan Meltzer's rolling over in his grave at Carnegie Mellon because Allen Meltzer wants to go aggregate. Mary Daily is going aggregate. Chairman Powell's going aggregate. Can we beat seven percent inflation going aggregate? Or do we need a FED that actually has to understand the death style and impact. So I firmly believe in the FED on this one. Like, if anybody knows how to get this under control, it's j Powell and

his team. Now, I will say, what is very disconcerting, and you talked about the war in Ukraine just earlier in the show. Food gas prices are totally out of control of the FED, right those they don't they would have to cut demand in a way that would be absolutely frightening, to get people not to drive to work as much and bring gas down, or you know, tighten the belt and not feed the kids as much. So that but there's a lot they can do on all the rest of the stuff we buy, right So there

and and they're making progress. The last Consumer Price Index report month over month was kind of encouraging. Okay, a long way to go. But but but Claudia, let's say, I mean the idea here is that perhaps you don't believe that the FED has to go quite as quickly as some of the more aggressive hawks out there. I do wonder, though, how much you have to reassess when you do see things like housing prices continue to climb, our housing starts continuing to climb beyond expectations despite the

tightening that we're seeing in content in financial conditions right. Well, to be clear, I mean I my baseline is fifty base this points in May and June. Right, I think it's pretty clear they're signaling two moves, not just one. I think that's appropriate. The housing mortgage rates, I mean they have gone up the februaries basis point mortgage rates are up two percentage points, right, it is clear that there is some of this. I'm gonna buy now before

prices go even higher. So I think it's going to take a little while for us to see the cooling. And but like j Powe cannot print houses, right, Like, we have a big problem, and we have had a big problem for decades of affordable housing and underbuild. So maybe this is a wake up call, like build the houses, Claudia. What do you think would be a restrictive policy rate? I so I wouldn't the FED, and I don't think they'll do this if they really um start running out

of the gate. I know Jim Bullard was putting out a hypothetical, but I think like to seventy five basis point moves would over do it. I mean, particular, we're going to keep getting saved by the June meeting a lot more information about the economy. I mean it is if they go too hard and the world serves us up, you know, a particular set of conditions. But we could have an undershoot next year. I mean I think that'd be okay. But I mean you don't, like, you can't

overdo it. You gotta see the data, you know, adjust to the data. It's absolutely clear they need to go harder, um, but not too much. Like that's that's a big cold. That is, if they went too hard, we can have an undershoot of their inflation target next year. What would too hard to be to get inflation back below two? Recession? I mean they need recession? You think would achieve that? I mean the reason ask that is because some people

think that you could actually get a contraction and growth. Well, prices are still anovcting above Yeah, good luck with that. Um, I mean anything can happen at this point. You know, nuclear winter is inflationary right like, so I'm not things could be bad, but right now and we lose sight of this, we have an economy that is back on track. We are on trend for inflation adjusted consumers spending inflation

adjusted business investment. We never got that after the Great Recession, the labor market jobs there there, so inflation, Claude, we're running out of time in the clock here. Pharall's got to close out the hour. But we're among friends here. What's Larry Summers get wrong on this? I mean you just basically said the stag inflation hypothesis is nuts. What's he get wrong? Well? I think I haven't heard Larry talk about COVID for a very long time. I don't

think there's a serious discussion about the Ukraine. I don't know how you miss that, you know whatever. It's useful to have somebody going around saying the world is you know, stag inflation, inflation, recession. You know it's worth talking about. But his story just does not stand up. It's not the nineteen seventies Thursday Morning wrestling. I can I can

see a panel development here. Some you think we get the former Trustury secretary on alongside, we can get Simon Summers on stage of Davos n step back to you can let them do their think and not get involved for about six hour's calldy some that of the Jain Family Institute done joins US. Now, so down, let's start with the broader picture. We were trying to work out whether we had a Netflix problem or a market problem.

Which one is it. I think it's a Netflix problem, and I think you have a Facebook problem as well. I think we you see more and more it's a bifurcated tech teape and I think the work from home beneficiaries are going to continue to trade off. I think that's catch a falling knife. But what we see, but Tessa, we'll see what Apple next week, Microsoft, cyber Semmys, that's gonna lead tech hire. I just view it as a have and I have not, and Netflix is clearly I

have not. It's not a market problem, it's companies for if I believe it's a strong techer earnings next month. You mentioned Facebook that was down yesterday by seven point eight percent. That was brutal. You mentioned Apple as well, So let's talk about the relationship between say Apple and a tesla. Right now, it's China down. I think the China story is so important. Namura overnight cut GDP for China this year, their forecast to a three handle down.

How important to the issues in Shanghai? And do you think they get them worked out well. I mean that was the key from last night because for tests. So that's the hearts and lungs of the bull story. In terms of Gigga Shanghai, you know obviously the three weeks shutdown, but must talk about I mean it's ramping quickly coming out of the gate, you know now that it's reopening. I think that's gonna be similar what we see with Apple next week. And I think the street they're viewing

this is sort of a contained issue. Of course, you can still have zero COVID issues in China, but overall supply chain I think slightly improving. And that's actually gonna be something that the were of Mapple next week, which is I think, you know the boost for Group Retina Dan, how confident are you that they can compete well against

the new upstart electric carmaker Ford. Look, I think fundamentally, you know, when you look what's happened right now in the e V landscape, it's Howso's world and everyone else's paying rent. And I think what you're seeing here is they're further flexing their muscles to a manufacturing perspective, and even despite Category five hurricane headwinds in China. I mean those numbers last night, that's a billion dollar beat, and

I think it just shows the raising for you. You talk about raising prices, they're raising prices and demands increasing.

It just showed that's an important dynamic right now, demand out strip and supply aby about Then, how do you determine what a reopening story is and what's fundamental at a time when so many people went into cars, bought cars, bought new ones because gas prices were climbing, or because they didn't want to take public transportation, or they weren't traveling on airplanes internationally, how much is that also a

reopening story versus some kind of set killer shift. Yeah, it's a great We take basically what we believe it was like a pull forward dynamic, and we saw that with obviously some tech names, even like a Microsoft. And then what's the sustainable demand trend? And what we're actually seeing is the sustainable demand trend for names like tass On EVS and I think in tach in terms of the cloud, digital transmission a quarter of fourth Industrial Revolution,

it's unpowered to anything we've seen the last twenty two years. Damn, Netflix ran into some competition, whether it's puny paramount ors, others that are more sustainable, any number of ev articles, and I'm gonna go to Mazda here and their idea of sustainable zoom zoom. Everybody wants to compete with Tesla. Are you telling me they're going to maintain revenue integrity given all that competition, I think it's gonna be a

rising tie. Is gonna lift a lot of boots, not just a zero some game that they're gonna sustain their unit dynamics. I think it's gonna Apple five because I think we're gonna tempercent automotive that the e v s and they're gonna have a bigger and bigger piece of that. And the difference just when you compare to Hastings and Netflix Hubris, the continue to raipe prices, others all eventually kind of caught up, and the difference of testsa from

the battery technology and continuing to build out factors. That's the difference between someone like a Musk and the Hastings seeing far ast to the trees. They're one step ahead. That's why we saw last night's numbers and I wanted no one on the cool Laska at switch up. Look, I think right now that was one where you know, no one wanted to spoil the party, you know, in

terms of obviously a test of focused earnings. Obviously on Twitter, it's the cleer elephant in the room, you know, the collateralized stock in terms of what he's alteringly gonna need to do with the musk with Tessa as well as SpaceX. But I do believe there will be other times to ask that, because there's soap proper just starting in terms going to and sometimes spoil the party. You know, that's just how these things work, done of wet push. Then I screwed to catch up. So Jonathan Gray, thank you

for joining us here. I want to start here with you on that real estate business, because no business did better for you than opportunistic and core plus real estate. And so when you're looking at this market, this soaring real estate pricing market, how long does that dynamic last for socitionale? It's great to be here. I think in real estate it is a bit of a tale of two cities. Um A number of areas of real estate

actually are still facing big pressure. If you think about older office buildings and cities, if you think about regional malls where the fundamentals are challenged, where rising rates will put pressure on these assets, it's not as good a story. We fortunately have some good neighborhoods to deploy capital and real estate. We've really focused on global logistics, which has

been by far our biggest theme. Rental housing, life science, office buildings increasingly making a bed on a recovery in hotels and in those areas where you have shorter duration leases, strong demand um income can continue to grow to offset these inflationary pressures. So there are headwinds from rising rates, but owning hard assets in the right sectors in this

kind of environment can be a good thing. John, you're being a little meek in terms of how much exactly you've invested in the last year in housing thirteen billion dollars. Two days ago, you announced in all cash for campus housing six billion dollars. Last year for single family rental that was seven thousand houses at the time, and this year another six billion dollars on an apartment community business. So if anyone knows what's happening in a tight housing market,

it's you. How big of a problem are these rising prices for the American HomeBuyer? So the challenge on housing has been many years in the making. If you step back and look at the supply picture, we have been building housing at half the rate we did prior to the financial crisis as a percentage of population. So for a decade we've built up probably a five million home shortage, and that imbalance, particularly after all the stimulus that came

out from COVID. People's focus on where they live, has led to this sharp increase in pricing, and so I think that's going to take a while to work through. Mortgage rates going up, it's gonna make it harder, costs going up for builders, who is gonna make it harder? And it's really about new supply coming online. We think capital moving into the space helps, you know, encourage new building,

which is really fundamental Hair. But you're right at some point there are some limitations in terms of how much folks can charge for a new home or rental prices because of earnings. But the long term picture for housing in America from a value standpoint is pretty good because of this long term shortfall that's built up, John, I want to shift gears a little bit here because a lot of the troubles we saw that we heard from the biggest banks, the idea of deal slowing down, We're

not seeing it right away in your performance. In fact, you're part of one of the largest, the largest deal announced and talked about this year for Atlantea. So what does this mean about your propensity to deploy capital and how big can you see yourself going when it turns when it comes to buying assets, where are you looking

for opportunities? So I would say it really speaks to the breath of our platform, and we did announce uh this year four large chan in actions that share some characteristics, but they speak to our global reach. We committed to buy the largest casino company in Australia, the biggest last mile logistics business in Europe, um also in Europe, you mentioned the large transportation infrastructure company, and then the student

housing deal that we've talked about as well. These are all big businesses, they're not all One of them involved our private equity business. A couple of them involved our real estate business, also our infrastructure business. And we do this globally and that allows us to deploy capital. We also, because of the scale of our funds, can do things that are bigger and where we have high conviction, we

lean in and in these areas. These are hard assets, they've got good underlying fundamentals, not as much exposure to input costs, and as a result, we feel good about investing in these areas. So I think one of the things for individual investors to think about is in a volatile market like as you know, do I want to sit on the sidelines and just hold cash with inflation? I think that's actually risky. So owning hard assets and things you have high conviction and makes sense. And what

you're seeing is an expression of that high conviction. John, there's assets you're willing to buy, but then there are deals you may pass up on. The Financial Times reported this week that Blackstone is probably gonna pass when it comes to Elon Musk in the bid to buy Twitter. What does this mean in terms of what opportunities you might pass up on, whether it's in private equity or

in direct lending. Well, we don't really comment on individual deals, but you know, every transaction we look at the merits of a potential transaction based on the risk return for our investors, and that's been our story for a long time as investors. You know, it's it's like a batter sitting there in the batter's box. You don't swing at every pitch. There are things that make sense and you look at through the lens of what are the risks

out there? What is the environment look like today? Of course, the inflationary prism, the rising rate prism very important as you deploy capital, But I wouldn't look into any individual transaction is assigned to what we're doing. So before I let you go here, i'd love for you to comment

on the geop political tensions. I know you don't have any investments in Russia, but you have worked very closely with China over the years, and there's a lot of questions both about the slowdown you're seeing there in terms of growth and the relationship between China and Russia. What does this mean for you in the way you're thinking about investing in China. Well, in China, I would start

by saying, this is the second largest economy in the world. Um, we subscribe to what the Commerce Secretary said, which is engagement through business helps mitigate tensions. UM. That being said, you've got to be mindful that there are tensions today on both sides and be selective and where you deploy capital in China. We primarily have invested in the domestic economy, mostly in real estate, mostly in logistics, which has been our big sector around the globe, and we've been pleased

with that. But they are facing headwinds near term. You have to acknowledge what's happening in COVID, what's happening in their housing market, their capital markets. All of that means it's a more difficult environment. But long term, I think China will grow quite a bit. John, thank you so much for your time. We're looking forward to catching up with you again soon. That's Jonathan Great, President and CEO of Black Zone, very close to becoming a one trillion

dollar asset manager. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best and economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg m