Draft Episode for May 24, 2021

with Carl Built. He's a former Prime Minister Sweden for an extended time uh their Minister of Foreign Affairs, but far more than that, he has applied his public life to the fractured continent, moving from Athens up to Vilnius. His work in Kosovo, his work and all of the Balkan states as well is noted. He has European Council on Foreign Relations coach here. Prime Minister, thank you so much for joining us today. There has to be a response less with the original assertive Belarus and far more

from Moscow. What can Europe and European political leaders ask of Mr Putin this morning? Well, have you are entirely right? There has to be there has to be a very firm on So this is a pirish, is a banditry in air space and if this is tolerated by Lukashenko. It could happen everywhere in the world. So it's a threat to global as to the safety and security of global aspace everywhere, So firm action has to be taken.

What can be done well, I mean your PIE leaders are meeting this uh, this evening in Bruscess for plan for other issues. Needless to say, I think they should declare bellarous a space unsafe. One should not fly through bellarous space because you might be subject to hijacking or god knows what this man is capable of doing, and then of course being it up in the relevanted national bodies. I k probably see what can be done within that context.

That might also be a case for wider economic and financial sncious against belar Rush if he doesn't follow the international rection. Um Russia um, I mean Russia would be supporting of Belarush in this particular action. I don't think that particular think is nice, but they would be supporting Belarus. Yes, Carl Bill, you wrote an essay for foreign affairs. I want to play off of it years ago and that this event will reveal Belarus. This event will review Russia

as they treat the Baltic States. We forget these distances. A hundred and sixteen miles from Minx to Vilnias, it's an hour and thirty minute flight to Stockholm. Describe the closenesses here of the tension, the geography of the tension,

along with what this will reveal about these two states. Now, it's very true, men's convenience are very close and has a bad The fact, if if you look at the statistics, Belarus is the country in all of the world where you have the highest numbers of sharing in Lisa's relationship ship to the population. Because Belarius people are normally opinions. They like to go to shopping in Warsaw or Venus

or whatever. But they got this tug. Uh. Look Asenko, who has been there forever since the fall of the Soviet Union, and he has been able to consolidate and authority and receive The economy is a sort of Soviet memborium more or less. I mean, it's depended upon a couple of huge state owned enterprises. The economy is miserable, all sorts of deficits. The Russians have debated them out now and then and and and and of course he

completely manipulated an election. Uh nowst autumn, and since then he's been trying to preserve his power by very severe repression against a very decent be nation which, as you said, is close to us. I mean means is much closer to Stockholm, them, Brussels or London is um. So it's not it's not a far away country of weakly know nothing. It's nearby, and it concerns us. This is the political dilemma, isn't it. How do you punish howing your sanction the

government without isolating the people? How do you do that? What kind of decisions do you make? Yeah, and the dilemma has also been another one if you look put back on the discussions over the years, if we sanction heavily in the Bellarous economy as a risk of the Russians picking up the entire thing, because Russia Moscow has been keen on integrating Bellarious even more closely than is the case, and it's in taking over this particular Bellarrus enterprise.

So that that's been the considerations over for in this particular case. So there's a downside, two different sanctions. But I think in this particular case what is done is outrageous that the downside of doing nothing is far great than the downside that is there of these particular sanctions. Unfortunately, but that's the case. Do you think that europe Is United on had to respond to this too early to tell?

I mean this happened literally hours ago, um, and I think prime ministers and presidents preparing to go to Brousses are still sort of discussing exactly what to do. But if I see what primarily in Lithuania's most directly effective or demanding. They are demanding the closing bears a space for EU flights. They are demanding the closure of the U S space for the Belar State airline. I think the Polish Prime Minister has said something along those lines.

There's a sort of fairly stormy language coming out of brusss Or, but no action as it yet. UM Tony Lincoln Washington has come out and said that the decision making bodies of the International Civil Aviation Organization must be called in. I think they's still discussing exactly what can

be done. This is raw, the unique situation. There's no blueprint for how you do it, but I think there is m The Greek Prime minister has to be added somewhat greater distance in ureography, but the flight that was hidek was coming from methods. The big Prime Minister bid Zadakis has also been very strong in his language. So

something will come out, Carl. In the meantime, the Kremlin has said that this has not disrupted President Vladimir Putin's plan to meet with President Biden of the United States at the summit next month. What would you hope the US response could be or would be to some of this? How much will the US Do you expect the US to be working in tandem with Europeans, as represented by yourself, Well, I'm quite certain that will be close coordination across the Atlantic.

There have been sort of a statement by Secondave Lincoln. There was a very strong statement by the way coming out of Senator Mandetta Mendelia, who is sort of shairman of the Senate Foreign the first committing together with the Chairman of the Foreign A first committees of the German Parliament and the UK Parliament and a couple of other parliaments, and they were calling for strong measures, and they were

calling for transatlantic coordination. I think that will happen. I think we'll see EU and the US working together in the UK, working together on this Carl who is the center of power when it comes to determining the response of Europe to Belarus as well as frankly to Russia,

which seems to be supporting Belarius's actions. I think it's gonna be Brussels also because of the fact that sort of the mi coincidence, the Hendson state in government are meeting in Brussels tonight, this evening and tomorrow, so you'll have all of the decision making power of the EU at one spot h this evening and tomorrow, so that that I think will be decisive. And then obviously talking

to London, obviously talking to Washington. I need to go back primary st to the linkage here of Moscow in Minx. I mean, obviously we're gonna treat bell Belarus separately. Here they'll be outrage and action as well. How does NATO, how does Brussels link Moscow into their actions? I think NATO will probably sort of stay on the sidelines. This is not a sort of a militage, and I don't think we would like it to become a militage either. Bye bye bye, by the way, but the world of

Moscow is going to be important. I think it's important for process of Washington suthetically a message to Russia that we see this as an infringement and form international routs that are importance to Russia as well, and we would expect them to not necessarily support US. I don't think they will do that, but to stay stay calm. We're actually is taking can't we gotta leave it there. Fantastic to catch up with you and one the morning for it. A story that is as much Bizarres that is serious,

very much. So count bail the European Council and Foreign Relations. Thank you, said Mike Daba joins us. Now, Mike, is that what you anticipate? I do. Um. So we're gonna get a GP revision this week. Um. And we've got nominal aggregate demand running in about ten percent annualized race. Uh in the forecast as we move into Q two is for that to continue. So that is not sustainable. It's okay for now because the economy is coming out

of the deep hole. But the idea here is that the thatt is going to be behind the curve when they do start the type of the process. The intention is to wait until we're essentially fully recovered in inflation is somewhat above target before they even get going and going on monetary tighten and that's quite different from what happened the past. So the risk is that there is some overshoot of potential and that the inflationary pressures proved to be a bit more persistent, maybe than some officials

are out there making them to be. I mean, Michael Darty, you're one of the leading proponents of watching nominal GDP. The behavior of nominal GDP itself, as you say in your note, that is the real economy with the overlay of inflation on top. If and when the Fed titans, what is affected first, inflation or the real economy? Well, tom, asset markets will be impacted first, and so we're watching a few variables in addition to the behavior of nominal GDP.

It's it's a bit back backward looking with the statistics that we get, but we can watch the inflation break even market that's been in a very steady upward ascent. It's recently pulled back just a touch, but you know, if you look at the behavior of those inflation compensation spreads from March of last year, it's been an incredible the rebound, and we're watching the behavior of broad money growing very rapidly, much more rapidly than what we saw

to the oh seven o nine crash. And so you know, those those two variables and how they start to react once the Fed gets closer to either a taper work you know, after that down the road rate heights will be quite important to the nominal GDP outlook in our opinion, Mike, in the notes that I was reading over the weekend, there's increasing skepticism, frankly over the inflationary theme that we keep hearing, and a part of its stems from efforts on the part of Chinese as well as others to

crack down on commodity prices, and frankly in China in particular, to reduce the amount of credit in the system. How does that play into your feeling the idea that inflation is global and they're global inflation pressures to tamp down some of what we've seen that's generated these higher prices. Yeah, absolutely, Well, you know, China is using some blunt tools to you know, to try to address the commodity price inflation. China was also the first into the COVID shock and it's been

the first out. And you know, we like to watch industrial metals just as a broad property for global industrial demand, and they've obviously been in a in a very steep ascent here. As long as the global economy continues to recover, and obviously we have Europe and certainly parts of Asia way behind where the US and China are with the

with the virus and the recovery. But as long as there is a global upswing uh taking shapes and that you know, that should be helpful for the commodity price backdrop, but it has been exaggerated in these markets are subject volatility and corrections, though from an investing standpoint, probably a bit of a dangerous place to be right now, My just quickly, how useful is China's credit impulse? Is just a guide for the broader Malka used to tell you

something about manufacturing about Matzo's. Does it anymore? You know, it's a great question. It's it's you know, we watch it, will watch everything. I'm not sure that it's the a perfect predictor of what's going to happen with commodity prices. Probably more more coincident if anything. Minds out of gonna catch up, joining us from m Campound as chief economist and market strategist on the lightst in this market. Monamah John joins us right now with Alians. She's US investment

strategist Mona. It's it's rude that we've barely talked about the equity markets today. I look at futures up twenty two, futures up one thirty. We make a joke about melt up. Are we prepared in a boom economy for a melt up? You know, Look, we've already had a bit of a melt up in the first half of the year, so it's hard for us to think about SMPS up eleven percent year to date for that to really annualize for another eleven percent, So we don't necessarily see another melt

up happening. You know, keep in mind, on a year to date basis, UH value sectors like energy, financials, you know, parts of the material sector, industrials all up thirty plus. So while exceeding the SMP return, where we've really seen the laggards have been that tech and consumer discretionary and interestingly, as the inflationary pressures started to rise over the last few weeks, we've seen healthcare and staples sectors that have

had pricing power really come to the forefront as well. So, you know, I think every sector has had its day in the sun. Last year, it's been TechEd. This year, it's been the value sectors. Some of the more defensive sectors have risen in inflationary environment. So all sectors have done their part to keep this market steady this year.

But as we look towards the next six and twelve months, or really pricing in an environment where maybe growth isn't as strong although above trend, maybe the FED is in play, and maybe there's a different tax regime. So I do think you have to be a little bit more selective, cautious active as we head towards the second half of the year. Just getting some headlines crossing the Bloomberg guys that I want to be very delicate with, very very careful with. Comes from luftans A light boarding has been

halted in Minsk due to a terror threat. This coming from Minsk Airport comments on a Lufthansa flight. A Lufthansa flight boarding has been halted in Minx due to a terror threat. This comes at a time of course where the Ryan Edge. Yet over the weekend on its way to Lithuania was grounded in Belarus under what is widely considered to be the false pretenses of a terror threat. Tom, I'm not connecting the two issues. Many pointing out the context for this headline this morning given the news flow

OU swhere right now. The headline is that lufthans Is flight boarding has been halted in Minsk due to a terror threat that coming to from the Minsk airport. Commenting on that flight, we're coming on four pm in Minsk right now. Remember it's one time zone over, John, from continental Europe warsaw is I believe, within Europe. And then as you go east off you go to another seven hours from New York and they're going into prime time

in Minx. Now, this is when in the afternoon you fly out to what forty fifty different geographies, So we're coming right into prime time, and this is when it becomes increasingly difficult and complex for airlines to operate within that country and over that airspace, Tom, because the threat of any kind of terror on an airline is something taken incredibly seriously by airlines. Yeah, I agree with that, John, I don't think the airlines are gonna stress very hard

about this. I mean, these are easy calls to make. Maybe not as Guy Johnson mentioned c DG to Delhi, I mean what do you do with that? But um, yeah, I agree, these are easy, easy decisions for the airlines. It's much more the politics of the moment. It will be important. We'll continue to follow this a story with this. Monama John of Alliance is well, Mona, I haven't asked this quaint question in ages and use of cash. The use of cash has never been greater, isn't it. Yeah,

you know absolutely. I think cash for companies now has has been very interesting. Of course, we're seeing certain sectors, uh for example, the A, T and T s of the world, to take their cash and move it away from dividends and into acquisitions. Interestingly, some companies are moving

more and more into capex spending. But we really want to see to kind of take this economy to another through this next like higher and really kind of continue to drive it is more and more spending in capex in R and D, having more labor entered the workforce and support that as well, And so certainly it'll be interesting for those those investors that are looking for dividends

to see if those dividends actually do hold. Share buy backs have been a big part of use of cash as well, um, and we're starting to see that come back as well. So certainly there's been shareholder friendly uses of cash and then corporation friendly uses of cash that really drives the economy. Um. That balance may be shifting more back towards the capex parts of the world, but we will see in the next six and twelve months

if that trend holds as well. Not just to tie the idea of incredible cash piles, the dynamism of the U S economy, and frankly the of recovery with this existential threat, this exogenous threat coming from what happened in Belarus, the idea of how fragile our markets right now to some sort of unpredictable threat from the outside. Do you have any sense of that, I mean, the whole concept of price to perfection and people expecting things to keep

going on a perfect trajectory. Yeah, it's a great point. Um. You know, keep in mind and we talk about corrections in the market, uh, and and any given year, you know, one to three corrections in the five to ten percent range are the norm. This year, we haven't yet gotten even one plus correction in the SMP five hundred UM. And you know, to your point that we could be set up for at least a period of consolidation after a really nice run, especially across some of these value

sectors that we noted UM, and that could come. You know, what could spark that, well, we don't know yet, but perhaps it is something in the political regime or in the geopolitical realm that we're seeing UM coming to the forefront or more. You know, keep in mind, in this economy we've really seen this recovery, and we talked about the K shape recovery. There have been haves and have not There has been a diversion and income inequality, and

that's certainly the case across countries as well. There's some countries that have really re emerged strongly, and there's certain economies and countries that are still struggling quite a bit.

And so in that backdrop, in that environment, when there's this increasing tension between haves and have nots, there's an increasing percentage or probability that we do see more disruption, perhaps coming from a geopolitical event, or we talked about the terror threats, or just you know, people feeling a little bit more disengaged, disgruntled, and so certainly that's one

to keep in mind. Hard to handicap, of course, from a market perspective, but keep in mind we maybe do for a little bit more severe of a pullback than even what we saw over the last few weeks. I've got to leave it there. Thank you as always of Alliance there. This has been a great joy for us to speak the different mayoral candidates of New York City. It is widely presumed to be a one party city.

The Democrat UH mayoral candidates are plenty at Diane Morals joins us right now, and Diane has a certain voice, a certain approach to this is June is here, Diane, what have you changed in your campaign over the last number of days. What is your new message as you go to the middle of June. I guess my new message, which isn't really particularly new at all, UM, is that this campaign is actually intended to make sure that our city comes back in a way that we've never existed before,

in a way that recognizes our collective interdependence. UM, and in a way that makes it possible for every New Yorker to live in dignity. We haven't quite lived up to the idea of being the greatest city in the world, and this is our moment to seize that opportunity. You've heard this from other candidates. Frankly, we've seen polarizing candidates and those looking for us out of the pandemic to come together. How do you link that with the budget

realities of New York City? Well, you know, I think the budget realities are that while we won't look like we did in twenty nineteen, were still the wealthiest city in the country, if not the world. UM. And there is enough to go around. UM. And that we've seen throughout the course of the pandemic from a from a message of unity. We've seen who it was that kept the city operating. We've seen who it was that made it possible for so many of us who work comfortably

from home. UM. And the reality of it is that those are the folks who are also right now the most vulnerable and have been the least protected. UM. And it's a both and situation. We can actually um, you know, make it possible for them to continue in their roles that that make it possible for the rest of us to exist, um, and make it possible for them to live in dignity, which raises a question about paying for proposals that will allow people to live into dignity of

all income spheres. And the idea here is also that New York City is already a pretty high tax region, and there already has been discussions of ultra high net worth individuals moving to Florida, moving to Arizona, lower tax states. What's the tipping point in your mind for how high tax rates can go before you get this exodus that

becomes counterproductive to the overall revenue of the city. UM. So I guess the first pushback I'll give on that question or the framing of that question, is this this the idea of this exodus. UM. I don't think that the numbers actually bear that out to be true. Um. We've seen that in the course of the last twelve fifteen months. Uh. You know, Wall Street has done this great and created more millionaires and more billionaires. UM. And actually the real estate market is is on an uptick

here in New York City. So I don't think those indicators actually support the idea of a mass exodus. UM. I also think that there's a lot that we can do with what we have. UM. When we look at the resources of the city budget, I think there's a lot of reallocation and reinvestment that we could be doing with the dollars that we do have before we even um in Asian the conversation about generating additional resources. UM. But I do think that it's also important for us

to have that conversation. I think it is it is fair, um to ask people to pay their fair share. While well, uh, you know, we might say that our tax rates are higher than other places in the country, we also have the greatest concentration of mass wealth. So those two things are actually should go hand in hand, and the idea of comparing us to other cities kind of doesn't make sense given uh, the inordinate wealth that we have here

to begin with. Another aspect that a number of mayoral candidates have pointed to that is important to keep businesses here is a crime and keeping crime down. A number of people have talked for no more police, having a task force perhaps in the subway. What's your view on the best way to bring down crime that has been

taking up over the past fourteen months. Sure, I mean, I think that the best way to do that is to recognize the link between the increase in crime rate and the increase in insecurity that New Yorkers have experienced about the course of the pandemic. Um. You know, we've we've allowed or housing insecurity to persist, food insecurity has only grown. Um, we haven't provided healthcare in the middle

of a global pandemic. So you know, people's individual lives have gotten increasingly insecure, and I think that correlates directly to the increase in violence as people try to figure out how to survive and how to make it in the city. So I think that we the first thing that we need to do is to actually make sure that we're providing people with the access to the resources and supports that they need so that they can actually live safely at home. Dane Morales, thank you again, New

York City Mayor at candidate. 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 in 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 Bloomer h