Surveillance: Davos, Day 3 (Podcast)

Daniel Jurgen. He is vice chairman at SMP Global and yes the prize and oil and yes Brent Crudz a hundred and fift. But in this more somber Dabos, we must speak to Daniel Jurgen about the Commanding Heights that he codified a good thirty years ago. Daniel Jurgen, in Commanding Heights, you spoke of the journey of Communism, What

is the journey of Putin? I think what we are really at an end of an era, and it's bracketed by Davos, because it was in Davos where you saw the opening up the reconnection of what had been the Soviet Union and the Soviet satellites with the world economy in one global economy that's now fragmenting. Of course, no Russians here, no Chinese here, and it's back to a

more fragmented, less globalized world. How much finger pointing has there been, both in conversations on and off the record, that you've had a Germany and the reluctance to move away from Russia in terms of their dependence on oil, Well, I haven't heard. The German economics ministers said it was a strategic mistake to what they've done for the last year and a half, a decade and a half rather and that he said in a matter of weeks we've got to change that. So it really is a big change.

And meanwhile, going forward, do you get the sense that there is a cohesive plan to really move away and substitute that those supplies or do you think that that plan is still lacking? I would say it's an uncohesive plan. I mean Europe wants to the EU wants to bargo Russian crude oil. They can't get Hungry on board, so they keep postponing it. But I think individual countries are

going to cut cut back. And what Putin has done is he's basically over the law next two years has undercut his what is his baseload market, and that's why Russia is not going to be an energy superpower anymore. Dr you're in. George Will September twelfth, two thousand one,

wrote of our holiday from history is over. Robert Gates, esteemed by all in politics in Washington, has spoken of our holiday from history is over, and acclaimed Infantry Officer General Mark Kimmitt says, our holiday from history is over. You more than anyone in the modern you're have written about this. If our holiday from history is over, what are we going to? Well? I think we've moved from what I have called the w t O consensus, which

is globalization to great power competition. Which do you agree in deglobalization. I think fragmented globalization is what we have and it's the problem for companies, of course, multinationals. They're played by the playbook of globalization, but that playbook doesn't work anymore in the world's fragmenting. In Commanding Heights, you do a beautiful job of bouncing between the elites and the people. I remember in the chapter on Brazil was

just brilliant in this regard. A great theme here is the elites are disassociated from the broader middle class, higher inflation, which crushes the middle class. You know the story and the drill. What's your prescription for institutions and elites to reconnect with their middle class. I don't think it's a it's a simple thing. Obviously, the inflation is so undercutting of society and build so much anger. So I think

they're dealing with inflation. But you're dealing at a time when world energy is going to is disrupted food and of course of the cost of food is actually energy processing and everything. So I think these are still going to be very much. I think it's a troubled period I had, and you're gonna see a social instability as a result of this in countries. Is it appropriate that China isn't here, given the fact that that economy has

such a massive influence and whether we get a global recession. Yeah, absolutely, But they're not here because of COVID and because you'd have to go back and uh and and uh quarantine. But you know, Russia, you understand. But but the lack of China here is actually more significant and probably more of the reason why there is so much uncertainty. I was looking at a number of reports that came out. If we keep getting these waves of COVID, China remains

in lockdown for longer. All of a sudden, you have a very different parameter of risks in terms of the downside to growth. What's your view on this in terms of how much of a swing factor that will be? Well, I think you see it, because once again means you get the supply chain problems. Again that adds to the disruption, that adds to the inflation. So waves of COVID, if and that is what continues to unfold, is in itself

deglobalizing factor in the world. Learning Aaron Dubos of the I'm going to call its certification by the Philippine Congress of Mr Marcos Jr. You may of the name from many years ago. Dan Jurgen certainly does huge debate within Philippine society of his resounding win over Ms Robetto and other candidates as well. And some would say not me, but some would say this has an autocratic tendency or return to autocracy, as maybe we see in Hungry. I'll

let you suggest other nations. How does a liberal society fight against a trend of autocracy? Well, I think it is you can see it in a in a lot of countries. I mean, the most important thing is actually elections that people. Once people are in power for eight or ten years, you're in a different game. And we've seen that. Look what happened with Russia. Well look what up with Russia. But we're all hinged on the Chinese Party Congress, where it's I believe you for life. I mean,

is that an important meeting coming up? That's a late autumn central meeting, because it will set the course for China for some time to come, and obviously they're struggling with party control at the same time maintaining a vibrant economy. Do you get the sense that the conversation around moving away from fossil fuels and oil in particular is taking on a new geopolitical significance at this Davos rather than just good wishes of people who want to do the

right thing. Yeah, I think it's it's cutting both ways because it also means that there's much more concerned about access to fossil fuels investment and the kind of pre emptive under investment that there's been. So a lot of the discussions I've heard is actually you need you're gonna need more investment resources and you can't just count on a smooth path ahead. But I think it's the bigger problem now. It's it's a more discordant discussion now than

it's been in the past. Here Global Wall Street doesn't give a damn about international relations. None of them were at the commanding heights. JP Morgan's London desk models out a hundred hundred and fifty dollar brand. Is that feasible?

I think you could have that happened. Where see this market tightening right now, and if Chinese comes out of COVID and demand goes up, the pressure will be there, and the responses to that are gonna be there's gonna be a political response, and there's going to be obviously big economic crisip. Where does even gasoline prices go? Then with the refined goods listen to your gloom, Well, no, I like Brent, we're having. We're having not only a

problem with crude oil is the problem. We're refining. That's where the real problem is. And that's where diesel gasoline all those prices. And you know we had a global refining system and that's been disrupted too by as a result of putent. We're out of time with a new map. Danielgan with us of course of SMP Global. Right now, this is a joy within the sphere of international relations. There can be vogues, It could be moments, and one of those moments was I'm going to guess twenty years

ago for read Zacaria with the post American world. He says, there is a revolutionary moment now and a required read is Ian Bremer's The Power of Crisis. Dr Bremer joins us this morning, of course, you raise your group, of which we do an annual beginning of the year visit. I thought free Zakaria was dead on about the moment we're in in the power of crisis, except it's not crisis. I don't know what the plural is a crisis. You're the fav sees the crisis descend upondas. Don't think. Why

are you shaking your head? That is the plural of christ. I know. It's just that really has to deal with me on a daily things. The many crisis we have now, which matters, uh well, Russia Ukraine is the one that matters to everyone here. It's also the one that's least well understood because for the last three months, the focus has been Ukraine, but of course the confrontation is also between Russia and NATO. The potential for negotiations to bear

fruit virtually zero. It's the first time in history that we have forcibly decoupled a G twenty economy from the world's advanced industrial economies. That is a very big deal, especially for a forum that traffics in globalization. It is purely because of the acts that Russia has taken, and and this is the fact of the matter. Is not just a cold war between Russia and NATO, but there are elements of a hot war. So of course people are rather disconcerted by that. People are focused on that,

but are they focused on the right thing. We were just speaking with Daniel Jurgen just moments ago, and he said, frankly, the bigger news is that China is not here because of COVID, and that that has a much more substantive impact on the global economy. Should we be more focused on a decoupling there, Uh no, because we are not

doing a significant decoupling there. I mean, look, yesterday everyone was asking about the Biden Taiwan statement, which was much ado about the exact same thing that he said a couple of times already, and that the White House backtrack. China, of course, is the most important rising power in the world,

second large economy. We're not taking anyway from that, but the fact is that U S. China relations are very interdependent and they are more stable where Russia has just completely subverted a thirty year piece dividend that Europe has enjoyed. And I mean, I understand that I'm a New Yorker, but also we are in Europe, and so this is this is truly a generation will change. That is what

we should be focused on. So how much is this an issue of supply chains of food and issues with just what we're seeing in terms of a widening divide if nothing else, in the quality of life between wealthy and the number of times that I have heard from people in the last three months that well, you're focused on Ukraine because it's white people, because it's Europeans. You

don't care about Syria, you don't care about Afghanistan. There is a point to that argument, But the fact is that the poorest people in the world are going to be vastly more impacted by the Ukraine crisis than any of those other crisis that have for precisely the reason you just mentioned. How much is this also an existential threat of the geopolitical order of Europe? And that's why you made the point. We're in Europe and people are focused on that. How much are people concerned about this

trickling out into some sort of bigger challenge that is unanticipated? Well, I mean, how much are they concerned that gas from Russia through Ukraine to Europe could be cut off at any moment by the Russians, by the Europeans, or by the Ukrainians, or by a non state terrorist actor for

that matter. I mean, seriously, They're the vulnerability that comes from the mistake, the strategic mistake made by Europeans to allow themselves to become as dependent as they had on energy as Dan was discussing, from Russia, is an enormous vulnerability right now. And and furthermore, the fact that a country in Ukraine is a big delegation here right now is fighting fighting for their survival, fighting to avoid being

wiped off the map by the President of Russia. And they're doing that fighting in part so that the polls don't have to so the balls don't have to. The Europeans do feel that, not all of them. Okay, maybe you talk to Belgians here, maybe they don't feel as strong about that. The Germans do. The polls do they matter? The Fins and the Swedes who are about to join NATO do so. I mean, don't underestimate how much of a change this reflects for a europe that for thirty

years felt like national security didn't matter for them. How do we support them? We had always understood here and if it's every nation for itself a phrase Ian that you codified from eight miles of the finished border down to air Twan with Turkish learror through sixteen and the incredible calculus he has with the Boss, the Darknells, the Bosphorus and up to the Black See in that huge span of the new Eastern Front. How does America respond? Well,

forty billion dollars is the one way. Look, when I'll bring back the Biden Taiwan thing. When Biden says the United States will defend Taiwan, my view is what he's saying is not changing the policy. Biden feels like we're defending Ukraine, not because there aren't boots on the ground, They're not doing a no fly zone. But are the

Americans defending Ukraine? And when you talk about the level of sanctions when you literally freeze half of Russia's global assets the central Bank, when you literally cut them off from the G seven, when you support with the Ukrainians with the intelligence, put the money with the arms. The reason the Ukrainian still exists is first and foremost because of the courageousness of the Ukrainian fighters, but secondarily because of what the Americans and the American allies are actually doing.

And if Putin had any clue that that was going to happen, he wouldn't have invaded. Is an advantage for Mr Putin? The new character of American isolationism? Is it a different isolation He thought it was. He thought it was. I thought it, well, what is the character of our new isolationism if we're going to choose to engage in China or choose to engage in Ukraine. I think that if Trump gets the nomination for the Republican presidency and he says, why are you sending forty billion dollars to

the Ukraine's wise is our fight? Why would we antagonize the Russians, which, by the way his son has been tweeting over the course of the past few days, I think the view will be different there it is today. Meanwhile, we just saw the Treasury Department agree to end some of the exemptions that's basically going to force Russia into the fall and its people surprise, they didn't do that a month ago. Correct, But how much of a liability

does this become? That the US is using and weaponizing the financial prowess of the nation in a way that it really hasn't before. Um. I think that the United States is showing that some red lines actually matter. Maybe not Obama's red line on Syrian chemical weapons use. Um, but this maybe maybe not you know, Bush's line. But is that how it's being perceived by the rest of the world. It depends on who you're talking to. I think the Chinese are taking lessons from the fact that

the Americans and the Europeans actually really do care. Certainly that affects the way they think about Taiwan. Um. But you're right, I mean, the dollar is being weaponized, American financial systems and weaponized. But you know, what where else are you going? I mean, if there were credible alternatives, then I think that there would be a significant challenge to America's global reserve status. But if my grandmother had wheels,

should be a bicycle. I mean, those are not useful comparison. Well, do you see any kind of move away from the US. Is this basically increase the fragmentation that we're seeing in frankly the strength of the alliance between say, China and Russia and even Saudi Arabia. No, you don't think so, No, I don't. I think that the Chinese are angry, and I understand why they're angry because they have a similar worldview with Putin that's very aligned. But the Chinese economy

is ten x the Russian economy. So are we seeing them break American sanctions? No? Why because they don't want to lose their business with the Americans, the Europeans, the Japanese, and we seen them provide military support to the Russians. Know what we saw is that a China that feels antagonized and annoyed did some military exercises with the Chinese. Wild Biden was in Asia symbolically important, economically useless. The single biggest thing I've gotten wrong in international relations was

the end of yelts. What does the end of Putin look like no time soon? I mean, the likelihood that Putin is gonna removed is extremely low until after it happens, right, I mean, clearly, if you're thinking about trying it, you're not letting anybody know, or it's it for you and your friends and your family. Um. But the fact is the Putin is quite popular in Russia right now, and

it's not just because they control information. It's also because they believe that they've been humiliated by the West four decades and Putin is the guy that is saying I won't have it. Um, that's populism. You've seen in the United States, you seen Brazilians in a lot of countries. If Putin leaves that feeling of resentment and antagonism towards the West West kind of well, no, it'll be someone else from the National Security Council. I got ten seconds.

How many times did you rewrite the power of crisis since it had to go to press on the six of May. Uh those last two days were very significant, Dr brother, thank you. So is with Eurasia Grove, we will attempt to migrate to what matters. And with Scott Miner, who has been of such support to us in our coverage of the Federal Reserve. As Chief Investment Officer of Guggenheim, we are going to digress because we are three days in here and we have yet to mention the collapse

of bitcoin and the rest of critical it. So this is a side topic for Mr Minor is certainly not his wheelhouse. But you've been focused on it. When you talk about crypto, what does everyone else at Guggenheim think? Are they? Do they leave forward and hang on every word? Uh? Well, yes, because I'm probably the only person who spends enough time looking at it. Um, I mean it's it's uh, you know, Tom, I was an early believer in crypto. I remember getting

looking into bitcoin first when it was at a hundred dollars. Uh. I did a presentation up at the Nantucket Project on crypto, Uh, you know, how to deal with it, how to invest in it? And I really thought that, um, you know, this is a viable investment vehicle. But one of my big concerns is that no one has cracked the paradigm

in crypto. And when I say they cracked the paradigm, uh, it's use as a currency, right, as you know, the definition of a currency is that it's a medium of exchange, it's a store of value, it's a unit of account that the last ninety days not at all. And so we we've learned that none of this stuff stable coins, the whole bit everything is suspect. You're a really, really

bright guy. I want you to explain the divide between Alan Hour at the Bank of International Settlements, who owns a high ground, with Ken Rogoff at Harvard on the study of bitcoin and in the entire scarcity that derives scarcity of it, with the community of bitcoin that just

seems miles apart, and they won't read Alan Hour right now. Well, I think, look, because bitcoin and any any cryptocurrency at this point has not really established itself as a credible institutional investment, right Uh, It's really become the market of a bunch of Yahoo's and backwaters. And I know I'm already going to be plastered on Twitter now for what I just said. You get back to your desk exactly.

Use the cell phone just melted down over there. But you know, when you consider we have nineteen thousand digital currencies or cryptos or whatever we want to call them today, most of them are junk. They don't make any sense whatsoever. Do you have any crypto asset investments? We did. We had bitcoin. We bought it around twenty thousand. We soldered at forty thousand UM, and I really thought we were going to correct, you know, after we got to sixty,

I thought we would correct to thirty. We got there. Uh, and then I began to look at it and say, why are we stopping here? And so my latest work, which is entirely technical because there's nothing else to look at here, is that we were probably going to hit eight thousand dollars before what was the number eight thousand until we totally flush. I mean, if I were, i'd

be short. That'll get me shot to You've been predictably barished for a while talking about how you do think that the US is heading towards recession, but you've remained a sanguine on certain risk assets amid this because of the short term. Has that changed as people bring forward the slow slowing growth narrative, It definitely. It isn't the

slowing growth narrative that caused me to change. It was my time at Stanford a few weeks ago at the Hoover Central Bank Conference, and I saw current FED officials, ex Fed officials and the uniformly were extremely hawkish. Um I engaged in opportunities to talk about the market and the functioning of the market, and so on and so forth. The bottom line is is that short of uh a sudden collapse in in equity prices, I don't believe the

Federal Reserve is going to respond. The words I kept saying is as long as the decline remains orderly, we would like to see financial conditions tighten. And that that I think is the game plan in the land of Michael us In, particularly in the land of John Taylor, in the Taylor rule. Obviously this is a whole original architecture for everybody involved in economics. But if a central bank blinks, how is that expressed? Is it going to

be expressed through dollar dynamics? Absolutely? I think give the Fed blinks, we're gonna make some news here, give me a dollar call. Well, I think as long as we stay the course on tightening, which I think we will through the summer, the dollar is going to do fun. But if the Fed blinks because of of financial panic, which I think there's a high probability of towards the second half of the year, and then I think that

the dollar will come under pressure. What happens though, if it doesn't, if the FED doesn't blink because of that, but because growth is actually slowing, which is basically what people are pricing in right now, right. But I think that for the FED, the dynamic is not the slowing growth, it's the inflation number, right, and the the growth can slow and we can still have high inflation, which you

know Tom is very familiar with. We called it stag inflation. Um, and uh, I don't buy into that whole dynamic, but I'm just saying that that they're they're tightening. I think financial conditions faster than they can you use a tailor rule. Given the fiscal impulse we had off a natural medical disaster. Well, I don't think so. And I think, um, Tom, what we're looking at here is more akin to the post Second World War period. So you're gonna give me a

forty seven analogy here exactly. And the the analogy is that we had inflation in the FED stopped expanding, the balance sheet, stopped monetizing debt, phisical spending was reduced. At the end of the war, we had supply shocks as as consumers looked to buy consumer goods. At the end of the war, factories were geared for wartime, and by forty nine we had a mild recession. Stocks had pulled back and it went fine. It's the problem I'm seeing is that we're raising rates and we're gonna shrink the

balance sheet at the same time. And I can remember sitting I think with you on Bloomberg back in December of two thousand eighteen when the chair made his famous statement that the the shrinking of the balance sheet was on autopilot. And the next day we were mopping up from the Fed and the stock market was down. I can't remember what I had for dinner last night. It Scott minored of GUK and I'm thank you so much, and hopefully you will remember many more things from this meeting.

I know that it has been very productive for you and for many people joining us now. Neila Richardson, chief economist at a DP and proud mother. The trends here are international, but there's a domestic overlay. Mr Gentalini, speaking of recession, I'm worn out by it. Brian Moyne had a Bank of America making clear yeah to happen, But no, what is the call of your steam group? You know? I think that the fundamentals in the US they're still

pretty strong. Whenever the FED starts raising interest rates, the specter of inflation goes from the back burner to the front burner and people are talking about it. I also think that ten years of economic expansion has dulled our senses that recessions are routine. They happen periodically, um, and it doesn't imply that even a recession will be deep or long. But that being said, I think globally there are going to be countries that have some really serious challenges.

And the purpose of Davos is to go beyond the domestic and recognize that what happens abroad doesn't stay abroad, it comes back home. So what's the most notable thing that you've discussed while at Davos about that interconnectiveness. I think this tension around deglobalization is being dismantled. And so this is my hope, um, with all the concerns and crisis there are in the world when it comes to everything,

even my perspective something very domestic labor markets. You can't stay local, not even with labor If you look at the trends that are moving the jobs markets a real economy over the next ten years, it's democratic, democrat, demographics and digitization. Those are not local phenomena. So we're talking about a lot of secular changes amid some of these crises that we're talking about. Whether it's the Ukrainian War that's very much focusing the conversation, or the shutdowns over

in China. People are honing in on data that is starting to slow soft data. Do you think that will be reflected in the hard data enough to really move away from some of the hard landing scenarios? You know, the risks are accelerating, and I think every country has experienced the pandemic slightly differently, and so there is uh no gear and tee that there won't be turbulence for everybody. Um, we're hoping that there won't be crashes, but hard landings

I think are inevitable. Excuse me, sorry, no, I know it's my bad. But as a group, bad folks group bad. But where do you expect the hard landings to come? The places where the food crisis is most acute? So, um, I know that we spend a lot of time talking about monetary policy. I'm coming from the really economy, and nothing's more real than what you play. Let's get on

the curve. This is aport. I had a panel of this morning with get to Go Open f Masicado Uh and Uh Jim Jim Uh shadow of marisk and of Semens and I quoted from the New York Times in the paper this morning of renters in New York now pay over fifty of their income for their monthly rent. The middle class and you any peep guy, they know this better than anybody. The middle class is flat on their back. Is there a policy prescription you see in Washington to not protect them but assist them as we

come off this high nominal GDP? The operative word in that question is now. I would argue that that's been a decade long or more challenged, that the housing market has been chronically undersupplied, and in fact, at least New York City has, you know, subsidized rents in a way that most of America doesn't have. But it is a

key challenge. Is a challenge that there used to be a housing platform around um but that platform was dismantled during the Great Recession, and it hasn't been completely restored, and so we do have a policy challenge when it comes to affordable housing, and it's everywhere. How lone is Brian moyneheady pops to twenty two dollars per hour with a set of other initiatives for people under a hundred thousand? Is he alone or is that a new trend for rich,

fancy America. I would argue, yes, he's not alone. There are There is a trend, and I think we'll see that contenue. But there's only so much raising wages will do to address the chronically low housing supply. It just makes the rent absolutely and in the short term that's that's really really valuable. In the longer term, you have to build and that requires investments at a local level, which is a challenge in this country. When do you think that we're going to see an appropriate level of

wage gains? And I say this because talking to Tom's point, people are now saying the wage gains are too problematic because they're going to just fuel inflation. What's the appropriate rate that we should be looking for? It depends on who you ask, because if you look at the people who have experienced the greatest wage gains. That's the lowest quartile of people who are getting paid right now in

terms of the hourly wages. They are actually making your over your wages according to ADP data, UH of eight point three percent. You're on ye. What's the middle doing? They're keeping up with the inflation. It's closer to three percent. Tom on the middle, so the lower But you have to look at not just the rate of change, but the levels. What's that eight percent represents. It's basically less than two dollars an hour. It doesn't even fill your

gas tank. That's that's really important in terms of the most important domestic comment we've heard since we've been here. What's the instagram the length on the X axis of this negative wage growth? Are you looking at three quarters? Are you looking at three years? I think three years? Remember that even with even with called years of expansion, it took a very long time to see any thing other than wage sag nation. It took a long time to see an acceleration of wages at the low end

ten years. UM. If you fast forward that the three years, I hope you see stronger wage gains than inflation, but it's not guaranteed. UM and it's not happening now. That's we will continue with Neilor Richardson on our job. Say when's the neck? Were like, I've lost the calendar early June. We have a job to day right, yeah, what month? We had a couple of weeks Tailor Richardson there with

a DP. This is a joy right now. And there's a joy because you know the visibility of someone like Ray Dalio and of course we gazed yesterday on the dal Yo goat farm with Bob Prince. There's Rebecca Patterson. Now there's a Bridgewater. They've got a full force compliment this year. But beneath the names, you know, are really first order people. One is Richard Falkrath, who was with us years ago expert on Russia and security and folded

into that is sustainable Investing. Karen Karney Oak Timber is Chief Investment Officer, I should say co c i O of Sustainable Investing at Bridgewater Associate. So you and Falcon Roth on speaking terms, love Richard, who's such a great guy. How do you fold in your analysis the geopolitics of

what everyone wants is some better outcome in climate? With his dead serious analysis of geo security, I think that what is happening now is that there's sort of a tough realization that to make progress on climate, a lot of the levers that we've put out there, for the most effective levers are actually pretty inflationary, and that's more difficult to do at a time when inflation is already rising. And at the same time, we can't really think about

energy without also thinking about energy security. So now we've gone from sort of a one dimensional equation bring carbon down to a three dimensional equation to it acceptably given inflation and handle energy security at the same time. This is a critical question, and particularly I mentioned Newcastle Cole only because if I don't mention Australia every fifteen minutes, I can't be on air. But Cole is you can't even do a standard deviation analysis on Australian call. It's

such a it's such a moonshot. Right now, are you amending the Bridgewater E s G view or are you pausing it waiting for a place to restart the present E s G view? You know, for us there's two types of quote s G views. One is just you can't really analyze any markets anymore without thinking about environmental social and governance issues. It's almost silly and outdated to think that you could really imagine what's going on in in the world without talking about what are people gonna do

about climate change? Is governance gonna work for us, what's gonna happen within equality? To just critical issues. And then there's a different call, which is people increasingly coming to us and saying, you know, I don't just care about risk and return, I do want to think about the impact of my money is having. And coal is a great example because you might do great financial analysis and say maybe I can make a lot of money actually investing in coal and get the answer back of actually,

I want my money to be supporting the transition. I don't want my money benefiting off of that. So that's really a paradigm shift in our view we're seeing in global investors. There's also been a lot of discussion about greenwashing this year, and Elon Musk's comments for very much of the Forefront where he basically really challenged some of

the legitimacy of the E s G criteria. What's your response to that, especially given the fact that Brian Moynehannet Bank of America seemed to support what Elon Musk was saying. I think that you need to think about splitting what's the point in time picture and what's the forward looking picture.

For point time, we should just have good answers right the same way that we know if a company today is profitable, we should have good answers about whether or not companies are emitting and what they're doing today and all these standards and sec and everything. It's gonna move us there. We're gonna get to the point where we know the answer. But then forward looking, you know, there's

always been disagreement. Why do we have equity analysts. One analyst is gonna tell you this product is gonna work. One equity analyst can tell it's probably going to fail. That's how it should be. They should be analyzing what's happening in the future. This is no different. Investors are paid to predict the future. And if you're looking at a company and saying, how are they going to do over the next ten years? Are they going to succeed

in transitioning what they're doing. If a company is promising you I'm gonna get out of the you know, regular vehicle business, I'm not. I'm gonna make all e v s. You gotta decide if you trust that, and that's no different than assessing other things about the future. They are on certain times. So you were talking about the inflationary aspect of having a secure and frankly a greener energy system.

It's not just energy, right, it's broadly across the entire ecosystem that supply chain, and people are talking about how do you make things more sustainable If you have to look and see if it's sustainable in China, all of a sudden, you might have to pay people a lot more and do it somewhere else to do it. How much have we actually factored in the inflationary aspects of some of this shift in E s G types of investing. Well, I think these are some of the forces, the secular

forces underpinning the shift from deflation to inflation. Every investment we made abroad for forty years was extremely you know, efficiency producing, You've got cheaper things out of it. And now if we want to invest because we need to turn over our energy system, by definition, we're rebuilding what we have and we need to do that in order

to get have client change. If we want to rebuild because we want security, So we don't want certain providers, we want others, or we just want to have resilience in the supply chain. If this one goes down, I can have these three others. That's proactive new spending that doesn't create savings the way that old ones did. So these are secular reasons why you're going to get inflationary spending. Karen, we have a Bloomberg hut Rathi. It was leading our

coverage on green. He write some newsletter called net zero which is read worldwide. And his religion off of his chemistry work, is it's science based. Are the corporations that Bridgewaters talking to are they science based or are they almost pr and policy based? Is there science underneath the E S G of business? Mean, Look, there's a wide

range because this is all changing so fast. So I'd say two years ago, the average investor we talked to it sort of say it's great you guys doing sustainability, but that's not part of what I do. That's totally different today, and so companies are getting really increasing pressures from their investors. They're asking tougher questions, they have better data, So what was sufficient you know, even six months or a year ago might be something glossy that doesn't mean much.

It's increasingly being consed big oil right now. Is Delio up to his eyeballs in big oil? I would say that in a strategy where you care about the impact of your money alongside risk and return, no big oil company as yet reached that bar, but it can because honestly, they have a lot of expertise that could really meaningfully contribute, and so we could easily see in the next you know, year less an big oil company saying this is how

we're gonna use your expertise. But how much does this moment challenge the move to green Considering the fact that everyone's rushing head over heels into commodities to protect against inflation, including big oil, I think that commodities are a very important inflation hedge, and that the idea that you wouldn't own commodities if you care about the transition is totally wrong.

Do you know how much we need to get out of the ground of things that are not oil, whether it's copp or lithium, iron, you name it, in order to have a transition. There's no transition without commodities. And so this idea that to be green. You know, they're definitely bad practices at some of the miners, but responsible investors should try to shift those practices because there's no future without getting more of those things out. And the

reality is these are long supplied man dynamics. It takes you years to get a copper mine up and running and actually supply on. So for an investor that's seeing supply demand pressures and saying an inflationary protection, these are grain inflation protection assets. Karen think Karen Colonel Timber with us with Bridgewater Associates. I got a lovely email yesterday as with the former Prime Minister of Finland. I tried to mention something most Americans don't know about, and that

is the Winter War. I believe it was thirty nine were five thousand of Finland and so many others of Scandinavia gave their lives. This is front and center for the discussion of Finland and Sweden as they consider a new Russia. Mcael Donberg as a Swedish finance minister and joins us this morning. This morning at is front and center your Prime Minister, Prime Minister Anderson, with these very difficult decisions for a neutral suite and I believe to

fifteen twenty three. How are abrupt is this change for Sweden, knowing the history of World War two and knowing where we're going now with Russia. It's a huge decision for us because we've been non aligned for two hundred years. So actually we're one of the countries in the world that has been in peace for the longest time. So for us taking the decision after the Russian invasion of Ukraine to change and to see that our security is stronger within NATO than outside, it is a historic decision.

From am I've never understood the politics and social humor or seriousness from the distance from Oslo to Helsinki, across in Denmark as well across all of Scandinavia. I'm not informed on it. How colst How united is Scandinavia, Denmark, Norway, Sweden, Finland at this time of crisis, enormous unity because we we we share borders, we share history. As you mentioned, Finland, Finland and Sweden us the same country for hundreds of years.

Before Finland became their own country, they were part of Sweden, and my grandfather actually died in in the Winter War nineteen nine. My mother was four years old when she was sent from Helsinki to Sweden as a ward child. What was Mr Putin thinking knowing that history, I don't understand. Given everything I've read about the resiliency of the Baltic Sea and the people that surrounded frankly, including northern Germany at the time, what did he misjudge about Sweden? I

think he misjudged the situation in Ukraine. He thought that he could just go in take Ukraine and the brother people of Ukraine and Russia would unite in Greater Russia. I think that was a very mistake because now they invaded a democratic country. They sent a signal not least to Finland with one thirty miles mile in English. I don't know the English world, but very very long boarder.

Extremely historic moment with your bid for NATO. It's also historic moment with some of the economic backdrop that you're facing as finance minister and the inflationary inputs. I know that a lot of European countries are turning to subsidies to offset the burden, particularly for lower income What are you working toward? What is your next plan? First of all, Sweden is in a different position. We don't have a

dependence on Russian oil or gas. We have a hundred percent fossile free energy system in Sweden, but we get affected anyway because of the joint pricing system in Europe, so the prices are very high. So with this winter we actually went in and gave support to household with very high electricity bills. And now we also have a scheme that we we lowered the kind of burden on people that drives car. Sweden it's a very long country that you have to have a car to actually live

your life and go to work. How is you how do you counter the fragmentation of a system that is unified only about how high the prices are for everyone nobody. I think Europe has shown tremendous unity and together with US on sanctions on Russia. So just six months or a year ago, people are talking to Europe, can Europe unite? Will Europe split up? Now we see a more united Europe than ever. So I think this crisis has actually

brought Europe together in a tremendous way. Swedish economics is acclaimed. The contribution of the central bank to monetary theory and thinking has been there forever tell us about the Swedish currency with Europe. I mean, we look at euro swissy, we look at euro Hungarian foreign is a mortgage proxy as well. Tell us how you treat the Swedish currency.

It's the central bank that handles the currency. But I could go to the Constitutional Committee to have opinion about the central bank in Sweden because it's under the parliament, not under the government. But they have made decision to hire interest rate and they have a plan for it going a bit faster than the European Central Bank, but a bit after the American Fed. So I think this. We usually are in between US and Europe and don't mean to interrupt, but this is too important. Do you

have Swedish Central Bank minutes like we do. We report our minutes six weeks after the meeting. Yeah. Do you read them? Yes? And and the central bank always calls me and tells me about their decision, So I understand it. Okay, really you're asking for justification for you but we all know this. I know he's looking for justification from the Finance Minister of Sweden for not reading the minutes. He didn't. I think it's fascinating. Thank you so much. I will

read them for you. Thank you so much, Thank you too much. Was time right now and this is an important conversation for markets. Is something that is in Davos, but I think in a really clumsy way. In Davos, painted on every hotel, on every wall, on every storefront is a nation or a company bragging about infrastructure. We're gonna build this, We're gonna build that. Infrastructure is misunderstood.

Infrastructure is something it's easy to talk about and it's much harder to do at Carlyle doing it as a gentleman from Quebec Hydro of years ago in Montreal, Macital joins US now Global Infrastructure Chairman of Carlyle. Thank you so much for joining us UH this morning. What is the biggest thing we get wrong about the ginormous infrastructure projects you're looking at well, I think as as you the reason why you see that everywhere in Davas is for a good reason. The world is in dire need

of infrastructure. For decades, there has been under investment across the sector and infrastructure need. If you look at civil infrastructure, are roads or bridges or water systems. If you look at the energy infrastructure, if you look at other sectors digital infrastructure. In the more recent past, the economy has

been fast digitalizing across sectors. That has been accelerated by the pandemic that creates huge investment requirement in data in data center, in UH, fiber into homes and the like. What is the constraint? What is the holding up of this? If? If Carlisle and others are up to their eyeballs in capital, why is infrastructure delayed? Um, it is delayed by the

needs of all the infrastructure but also new sectors. UH. The energy transition is requiring humongous, huge quantities of in ESSE months to be able to meet that climate challenge to Earth Faces. I was mentioning digital infrastructure, So I think the challenge is the sheer nature of the investment needs.

I think governments are doing what they can, but the private sector and private groups like carl and private equity groups have a role to play because we have the capital, expertsise and and capability to also contribute to filling that gap. But it is the size of it. How difficult is it to game out profitability of a company in transition?

That's sort of it is sort of bedrock of a transition, particularly with energy well, we take as a principle to carefully select our investment, to make sure that every every investment we make is profitable. We manage money for our own peace who represent you know, private people. So we believe that that's present everywhere. In particular, and energy transition, Lissa, I mean the investment opportunity created by the energy transition, we think is significant. It's possibly one of the most

significant in the investment space. So can you give us a sense of tangible types of investments and the possible r o I that you're looking at. Yes, of course, Well, in particular, let's take renewable energy, which is an area that we have been active into insectors like wind, solar, in emerging sectors like batteries, energy storage in the form of battery. You have emerging sectors which I will get

into in a second. In that case, clearly, if you have the skill set and capacity to develop these projects, to properly locate a solar project in the right location, close to a lot center, close to the right interconnection, where there is a good solar resource, you're able to generate with that capacity robust double digit returns as a result of that development and being able to deliver that project to customers that have an appetite for that clean power.

If you invest in existing, already developed renewable projects, then you do not have that development premium, and so you're investing into more operating renewable projects. In that case, you may be looking at a single digit load doable digitire, but more in the single digit I would say, given the lower risk returned profile, if rates go up, does

your r R go up? Where are we in the continue do you see a longer rate, higher rate regime before Highers Just well, I mean, Tim, you're referring to the fact that we are in an environment where rates are increasing, where there is inflation, and what I would say it's an important point for investors is to face

that challenging environment. There is a need for a diversified portfolio, and we believe that infrastructure contributes in a robust way to a portfolio that's going to be more resilient in that environment. The reason that they are that these infrastructure investments by their nature, where you have high visibility on the revenue. Often if you take renewable project, the revenues are contracted long term with indexation mechanism. In the contracts.

So I don't think you make more money out of higher interest rates, but you get the degree of protection because your revenues are indexed to that. I please visit us in New York. I mean, there's so much to talk about here. McTell got one question. We see the miracle of a Guardia, world's worst airport. Finally with a constortion of investors. Is fine. There's optimism. They're optimisms that

we can refurbish and that we can rebuild quickly. Here can Carlile taken on the Montreal Canadians and refurbish and rebuild them. Is Canada's infrastructure project that would be I'm sure a project that you know the challenge might be difficult. I would remind you that the Mantrel can agent finished close to last or last in the league, so that might be more difficult. Thank you that investment. I'm sorry, Zone Belloo, there's no internal ready to return this year

on the Montreal Canadians. He of Montreal mackital Carlisle with us today now without question, my most important interview of his Davos on Asia, the focal point of the South China. See because sure marble Bonni joins us to say that he's Distinguished Fellow of the Asia Research Institute at the National University of Singapore barely describes his contribution to the

highest compliment I could give him. Even the people that disagree with him read his books to go to try to understand the true the Swirl of Asia Marble Bonnie, thank you so much for joining Bloomberg to my leisure. Has China One? What a provocative book a number of years ago. Give us the update we need. Has China One? Well? I think clearly twenty twenty two is a bad year for China, and because partly because they're struggling to get out of COVID nineteen domestics, a domestic storm they have

to deal with, and then Joe politically. Of course, China has also suffered from the Russian invasion of Ukraine on several counts, just a few examples. Number one, as I said, China wanted stability into any two because they're having a major political conference lator this year. Instead they get instability. The number one strategic partner, Russia has been weakened. They wanted to deal with the United States and Europe separately. Now there's been a consolidation of the West, which is

obviously a negative for China. And fourthfully, of course they didn't expect the Russians and of bank reserves could be taken away so easily by the West and China. As you know, Russians only have seven billions, but the Chinese have three point two trillion dollars of assets, and the assets cannot become liability, so too, therefore is a bad year. But I think the Chinese have also shown a capacity

to manage crisis very well. So I would say same time next year when you come back, things will probably be better for China and the long term trajectory will continue after lockdown. And I'm thinking of Robert T. Caplan's wonderful Asia's Cauldron of the tour around yourself China see including your Singapore. After the lockdown, China feels they own a huge part of that body of water. How does Asia's Cauldron respond to China and particularly after the election

of Marcos Jr. In Philippines. Well, the good news I can give you is that even though the Chinese have drawn a nine dash line which seems to imply that they're claiming ownership of the South China see, I can categorically say that they do not claim ownership of the South China Sea, and they actually allow total freedom of navigation through those waters, and China doesn't regard those waters

as internal waters. How badly to Singapore and the other nations of the Pacific RIM need the United States to show the flag with the dynamic navy and also with the reinvigorated based structure across the Pacific RIM. Well, as you know, the reason why East Asia is the most successful and most dynamic economic region in the world is because the United States has had this is I'm talking about fifty sixty years a consistent commitment to keeping that

region stable and secure and allowing growth and prosperity. And Asian you know, the Southeast Asia tends out. These Asian nations have done very well primarily also because of the American presence. And just give you one statistic. In the year two thousand, Japan's economy was eight times the size of US Ian. Now it's only one point five times larger by any bigger than Japan and down just like radio,

you're getting an endorsement right there. Now, there is a really very real question underpinning of what you've just discussed, which is the rise of China, maybe paused by the pandemic. It's been a very bad year. How far have they pushed out their overtaking the US in terms of size of their economy? Well, I mean the Chinese economy has literally exploded. Let me give you another statistic. In twenty twelve, ten years ago, China's g NP was eight and a

half trillion dollars. Two, it's eighteen trillion dollars. No country in human history has added ten trillion dollars to its economy in one decade. So the long term growth trajectory of China, this in t T two will slow down, no doubt whatsoever, but he will bounce back up because the Chinese have made massive investments, you know, in the economy.

Do you think that people here at Davos, the representatives fully understand this at a time when China is not represented and the main focus has really been on Ukraine and Russia. Well, as you know, Davos is like an onion. What you see in the open sessions and public sessions is what they're talking about publicly, but equally important at the all of the onion of Davos, that hundreds of

private conversations, private dinners, private encounters. And as someone who wrote a book called has China One, I can assure you that there's a lot of interest in China and what it means. I mean, people know intuitively that within ten to fifteen years China will have the largest economy in the world and the world will be very different. So how are people positioning for that in those private

conversations inside the onion? Well, I think what's happening is that there seems to be a bifurcation between the Western approaches and the rest of the world. And by the way, out of the world's population, twelve percent live in the West, eight percent live outside the West, and most of the eight percent in Latin America. And just give it quickly one statistic. Ten years ago, it took Brazil like one year to export one billion dollars to China. Now it's

exempted two hours. Okay, So you see that, You see the dramatic changes. So the rest of the world understands that they have to adapt and adjust to a new China. And the more we can engage China multilaterally, and this is what we hope the United States will do in a sense and mash China in various multilateral arrangements, which

will then frankly, a strange China. I think as of now, while they are still number two, I think they're very the Chinese, you know, Chinese, in the Chinese psyche, after four thousand years of Chinese civilization, what they fear most is chaos. That's a Chinese word for it. Loe. And if rules, if rules give stability, they'll accept the rules were running out of time. And this is so important because I can't say enough about it. Do we need

a dose in America of kissingerion real politic? I mean, what do you need from America to change the dialogue? Where the fact is the legislature of the United States does not want to engage with China. So what's the real politics that we need to begin to look post World War two, post Vietnam in a new Pacific rim.

You're absolutely right. In fact, the central insight of my book Has China One is based on a lunch conversation I had one on one with Henry Kissinger where he said that what the United States really needs is a comprehensive, long term strategy for managing the rise of China to match the comprehensive long term strategy that China has to manage its relationship with the United States. So it is Henry Kissinger who gave me the central insight for my book.

Thank you so much for taking the time of the National University of Singapore. This is the Bloomberg Surveillance of 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 and this is Bloomberg