Surveillance: Eurasia Top Risks 2022

at Bloomberg Surveillance. We catch up with Im Bremer and the team at Eurasia Group to go through the top ten risks Eurasia Groups Top ten Risks and at number

four is China at Home. We're lucky to have both Iam Brema and Elizabeth Economy with us of the Hoover Institute, and Lisa wanted to start with this quote in the report, foreign firms will face an increasingly difficult environment inside China, the two way political risk of operating in both the US and China, the task of keeping both Washington and Beijing happy, and perhaps Le's we can extend it further, the task of keeping a progressive consumer in America happy

and an increasingly nationalistic one in China happy. To list how tough is that going to be. Yeah, I think

it is a pretty significant and growing challenge. UM. I think many companies are trying to navigate a sort of a growing sense that, um, not only do the US companies, not only do they need to be concerned about national security issues, which have long been present sort of in U s foreign policy and for an economic policy right to ensure that companies aren't exporting technology that can be used by other countries that might pose a national security threat.

But now increasingly we're dealing with human rights issues as well, human rights abuses. And this is particularly important, of course in the context of China, where we've seen, you know, any very repressive regime under Sident King beginning in twenty to the point now that we have you know, over a million of Chinese own citizens, the weaker Muslim in sin Jong, you know, in labor and and re education camps, detained there against their their will. And so, you know,

how does American business respond to this? And I think increasingly Congress and the Biden administration are taking a very tough line on this. So I think you are finding American companies trying to figure out how to navigate in a very new environment. UM. And and in fact, as

you suggest, the Chinese consumer. Then when companies do stand up and say, yes, we're not sourcing from Sindown, right, We're not sourcing from this region, We're we're not taking any products that are the results of forced labor from these weavor Muslims, then you have the Chinese consumers on

the other and threatening to boycott. And we've seen companies like HM and Nike and others facing threats or actual boycotts of some sort as a result of these companies trying to do the right thing in terms of human rights. So it is a very tricky situation. And for a long long time, these companies have been able to sit on the fence, play the progress of card at home in America, then go abroad and do whatever the Chinese

Communist Party needs them to do. The Disney Company, the Walt Disney Company a fantastic example of that, doing all it can to embrace the Chinese Communist Party to remain to have access to make sure their movies are shown.

At the same time, and we have a government in America accusing the Chinese Communist Party of genocide, and what on earth do you advise a multinational operating of both America and China right now to do Yeah, how do you How do you be a woke CEO for domestic audience and participate in an expanding market that you want to be in When the American political leadership is saying that that country is committing genocide, Well, obviously you have to speak out of two sides of your mouth, and

you get caught when you're doing that, and it's difficult, it's very uncomfortable. Look, most American CEOs, despite all of the problems that Liz and I have been talking about this morning, want to do more business in China. They believe that China is going to continue to expand. It's an enormous consumption market. They don't want to leave it on the table. And yet they know that anything that they say about that, or said about that to them

is going to be problematic for you. Saw Ray Dalio on c NBC a while ago just get absolutely hammered in the United States for saying, Hey, like I am talking about human rights, where am I going to invest? I'm just trying to make money. I mean, CNBC Bloomberg. We're talking to capitalists here, people that are trying to make money, and yet the domestic audience is saying that's not enough. You've got to do less. With at the Beijing Olympics coming up, and the Biden administration trying to

square the circle by saying we're gonna diplomatically boycott. But the companies, the American companies that are going over there and sponsoring, they can still sponsor. Yet we know that so many senators and members of the House are going to be scrutinizing and criticizing those companies for doing precisely that. One more I'll mention Elon Musk, you know, wealthiest man in the world, has been enormously you know, sort of the critical of the US government, the SEC for going

after him, making life challenging for him. And yet in China he is incredibly supportive of the Chinese Communist Party, and it's becoming incredibly difficult for him to continue to do that. His SpaceX UH company in the United States, which gets a lot of money mostly from NASA and the Pentagon, now the Chinese government saying, hey, what's going on. You almost hit one of our you know, one of

our satellites. Um that that all of that is a very serious problem for American corporates that are trying to avoid politics, politics won't avoid them. Yeah, and Elon Musk, I think is a is a very special case in so many ways. But I see it here in with the leaders of especially German export oriented companies. Right, they are not alone though it's not just the corporates. The government's here also seem to want to build and and

hold on to strong ties to the Chinese economy. And way is that the Americans in Washington, d C. Wouldn't necessarily support. You know, the funny thing is you talk to the American leaders privately, and they recognize that the private sector wants to do more business, and they recognize that the interdependence of the United States in China is actually really important to our own national interests, our own

national security. But they can't say that publicly. You know why, because Biden lost votes in swing states in because he

was perceived as Beijing Biden as soft on China. The Republicans hit him on that, and they will not make that mistake again, so publicly they must come across as much tougher on the corporates, and tougher on the bankers, and tougher on anyone that's saying that, you know, China is a great place to be and that's why you see even the Biden administration talking about the Chinese committing genocide on the ground. That makes it much more uncomfortable

and difficult for the American corporates to operate. There's no question that it's extremely uncomfortable. Lucky to have the Embrema with us this morning at the Raged Group, and thank you, says Elizabeth Economy of the Hoova Institute and the author of the Third Revolution List. Great to catch up. Thank you joining us now once again on the top risk for and also joining us Jane Harmon, President Emerita of the Wilson Center and former member of Congress ian the

U S midterms make the list of these risks. When we talk about the political environment in the United States, especially on a week that brings the one year anniversary of January six, are we more divided now than we were a year ago? Yeah, I mean we've learned literally zero lessons from the election of two thousand twenty and

and that's a that's a serious problem. This was the most dysfunctional and delegitimized election of our lifetimes in the United States, and we've done literally nothing to fix the underlying problems. Indeed, the Republican Party is more controlled by President Trump today, and more Republicans believe that the election

was stolen today than did on January sixth. And the likelihood is, of course overwhelmingly that the Republicans are going to take the House, they may take the Senate um in midterm elections, and they'll take it with an underlying message that the election of was stolen. This is deeply problematic and a pivotal midterm election, probably the most important

mid term of our lives. Well, and Jane, what's the picture that Ian is painting here is one of a very politically divided United States, one that doesn't necessarily project a picture of strength to the rest of the world. As the US in a position right now to be a leader on the global stage. Not so much. Um Ian has just produced a wonderful report on political risk going around the world. And I've been in Europe three times in the past few months, and people there are

very worried. They don't see the Biden administration delivering on what had promised, but they also understand the under and underlying reason. Maybe some of it has to do with the Biden administration. But a big underlying reason is that Congress is totally dysfunctional. And something that's in an Even's report that got my attention is is UH the comment that the only thing possibly worse than President Trump being

re elected is President Trump being not being re elected. UM, the point of which is underlying lack of confidence in our voting structure. And you know, I'm listening to all this talk about inflation big problem and about whether we

could pass any form of build back better. I think it is crucial for Congress to pass UH some form of voting rights reform, or else we may be abdicating our our democratic voting process and letting elected legislators are appointed electors election officials UH decide what the vote is after people's valid votes are discountant. So, Jan Jane, what exactly do you mean by that? In which direction would

this reform go? Are you saying that the Congress should pass UH laws that require you to prove your identity, prove your citizenship, and limit the amount of absentee voting that can happen so that people on the right have more faith in the system. Well, I want people on

across the spectrum to have more faith in the system. Uh. It is true than in our constitution that the states set the terms of elections, but the federal government does have UH, and our constitution does creempt certain aspects of this. And it is appropriate, for example, for the federal government, which has done this, to declare voting machines critical infrastructure. It's also appropriate for the federal government to decide, uh,

you know what our basic conditions of counting votes. And Joe Manchin, his name comes up every five minutes, has set out some terms that he would accept on voting rights, and they seem broadly acceptable. And so I think it is crucial for Congress to act soon before all of these laws take effect there in nineteen or twenty states, and we end up with a hot mess after November. Hotter Mass right, because it's already pretty messy. Ian. Let me get back to you and ask you about the

international reputation of the US in terms of dependability. Was the withdrawal from Afghanistan really damaging to the US reputation? Um? The way that the withdrawal was executed was damaging, perhaps most so with America's Gulf allies, who are going to be affected by the Taliban running Afghanistan, the refugees, the radicalism, more than anybody else, the Emiratis, for example, the Saudist

for examp apple um. But but I think much more broadly, the issue is that of the underlying American political system. That's what's damaging America's ability uh to be seen as credible going forward. Jane hit on this. We have just had successful elections in some of the world's biggest and richest democracies, in Germany, in Japan, in Canada in the last few months. No problem, no dysfunction, uh, no questions of legitimacy. The United States, on the other hand, increasingly

has a fundamental structural issue. But whether or not the average American believes in its political system, what it stands for, whether the elections are legitimate, whether the two parties are equally uh legitimate in a representative democracy. These are fundamental and profound issues that are not only not about to be resolved in the mid terms, but are very likely to get aproximately worse. And I agree completely with Jane that voting rights is becoming much more important than build

back better. But voting rights is not about mansion. Voting rights is about cinema. She is the vote that you have to actually get to make voting rights happen, and so far she looks un gettable. People I talked to in the Senate tell me that is probably not going to happen this year. And so again, your baseline when you think about the top risks for two for the United States is probably one of the more negative calls

that you have. You wish when I first started this, the firm in the United States was never on this list because, frankly, the question of American democracy represented democracy, legitimacy of our institutions was something you could count on, something the markets could count on, something our allies could count on, something even our adversaries had to count on,

even if they didn't like it. That is no longer true, and obviously that's a dominant issue for anyone considering what the state of the world is going to be going forward. How do you think, Jane, the rest of the world is going to view this? Then we're trying two stories together. Hit the number one risk Last year you write a group was number forty six. It was this presidency. Now it's the mid terms at number three, Jane, that's got to be music to the ears of the likes of Russia.

The Chinese Communist Party who were thinking looking ahead to say places like Taiwan looking at Ukraine right now, Jane, what does it mean for their view that decisions that they make the likes of Russia the likes of China. Well, I don't think they're unhappy to see dysfunction in the United States, and in various ways they're exploiting. Surely Russia is. And Ian's report points out that we should expect more disinformation um through social media for um that will. I

think that's dead right on China. China has a lot of its own problems, again pointed out in the report. But again, but I think since we have made China a focus of our foreign policy and the rhetoric has been pretty harsh, Shijin Ping is again probably quietly smiling at our dysfunction. What worries me and Afghanistan is emblematic thing is we may be targeting the right issues, but

our execution is poor. Leaving Afghanistan was a mess, uh, and there was pre planning by the Widen administration, but there's all this finger pointing about we had a hard deadline with that wasn't based on UH situationally based, and we didn't let the military apt sooner and blah blah blah are intel, which was pretty bad. I've heard this from a very important member of the Senate, projecting a pretty bad mess was ignored, etcetera because the President decided

we had to leave. I'm not against ending the military mission, but I think that as the world looked at this, and as Europe felt discounted, NATO did not feel fully consulted. UH. There was a huge tale on this that was very negative and it has hurt us ever since. And I don't think we should be abdicating our role as the international global leader. I just wrote a U COmON this. Since the Cold War, America has not had a foreign policy strategy for the world, and I think it's long overdue.

Biden had the beginnings of this, and I salute him for it. It was human rights, it was working with allies, it was surging diplomacy, it was making foreign policy relevant to Americans average Americans. All of these are good things, but now we have to execute Jane. When you hear the President say America's back, do you believe him? I want to believe him. Europe doesn't believe him. Uh. He came to a G seven meeting a year ago and

said America is back. And then the Afghanistan departure happened last summer, and then the messaging around the Australian nuclear sub deal happened, which even he confessed was very clumsy. Uh, we can do better. His team is good. I'm not ragging on the administration's team, but I'm ragging on a process that, somehow, uh doesn't convey the kind of competence UH and planning that he should be known for. I mean, he was the chairman of the Senate Foreign Relations Committee

for a long time. He has long experience, UH, and he knows everybody, and a lot of them work for him. And so just let's hope that two is a better beginning, although it is fraught with this other controversy around build back better inflation, COVID never ending made a surge, possibly peak uh and UH, as far as I'm concerned, this this looming voting rights catastrophe, and we've got about ninety

seconds left. I was going out of the top ten risks from last year, and I noticed one miss, I think one miss from you writer group was the belief that energy prices would remain low. One win was Turkey. Turkey in your top ten last year, it's in your top ten again this year. It's sixty seconds. And why the concern about Turkey again this year? Look, I mean inflation and spiraling, unemployment really high, and Urdawan and his Ak Party are at record lows right now. And he

is not someone oriented towards representative democracy. He is willing to cause lots of repression at home and also be much more experimental in his foreign policy, with plenty of places he can cause trouble in the region. Think about Greek Greece and Cyprus, Think about Syria, think about Libya, think about Nagono, Karabak and Armenia, Azerbaijan. This is a country that is headed for trouble right now, a hell of a lot faster than any other major emerging markets

out there. It's a country that a lot of us care about and should be doing a lot better, but the politics have gotten in the way. And wonderful congratulations to you and the team. I don't know, a fantastic piece of work to kick off a new year. Im Brema of Eurasia and to Jane Harmon of the Wilson Center, Jane, thank you to you as well, joining us now a big equity market bull, Ben Laidler Global Market Strategistic Eats or Ben, let's just start right here and not bury

the lead. We've had three years of double digit gains. You think we can make a year for bend later? Why? I think we're still significantly underestimating the earning story. Consensus earnings growth globally for this year is is well under ten percent in a year when GDP growth is going to be nearly twice long term average levels. And companies have shown us throughout last year, but they are more than capable off setting all these cost pressures that they're seeing.

And I think valuations can stay very high. The FED, I think, is going to move, you know, very slowly off a very low interest right no on, but bond hills are going to stay reasonably low. And this is a market that's changed over the last sort a couple of decades. It's just full of um you know, bigger,

more profitable, more sustainably profitable companies. And I think you put those two things together, earnings numbers which should probably be twice as high as they are right now, and valuations, which I think I to come down a bit, but but not much. And I think those of your ingredients, so I think, I think the biggest risk remains not being in equities rather than being out of equities. Well, let's focus on one of those points that this thesis

is predicated on, and that is persistently lower yields. How low do they have to stay? What is the threshold for equities to still be supported? And not just in terms of the nominal yield, but really yields as well. Yeah, I mean that's obviously been a huge um you know, tell went frequities. But I don't think it changes you know that soon, right, I mean we're coming off you know, your typical FED cycle is three or four basis points. This will probably may be something like half that, and

it will be much slower and much longer. I think that gives you know, that gives economies, that gives markets, that gives stocks just a very long time, if you like to sort of grow into this and and and and the the impact I think that here and now impact is going to be on valuations and evaluations opticularly look high. I do think that I do think the world has changed. Not only a bond yield is going

to stay low and move up slowly. And to specifically answer your point, I think the tipping point is quite a long way off. You know, yields are heavily, heavily negative, and even even in nominal terms, um, they're still extraordinarily low. And again, I think the market has changed. I think there's sort of intellectual sort of laziness, so one times earnings versus a long term marriage of sixteen for you know, the SMP five p you know, the long term average

is not relevant anymore. The tech sector is twice as large. It's pretty much the most profitable sector in the market, and it's still got a lot of growth. That's a huge change to the composition of this market, which we haven't had didn't have twenty thirty years ago. Do you think tech will be able to retain its leadership of this market? Though, Banner? Is that going to shift shift elsewhere?

I think the so called everything Raley continues. I mean, you look at your your equal weighted SMP five hundred. You know outperformed the weighted SMP five hundred last year, not about a lot, but it does tell you that everything did pretty well last year. I mean the thought that this is a sort of tech led market, that it's come plea depend on tech tax is important, but it's not the only driver here. I mean last year was about a lot more than tech, and I think

that continues this year. I think tech are sort of the new defensives, and you definitely want to own them, but I don't think they're going to be the leadership this year. I think you want the cheaper segments. I think you want the higher growth segments. I think that's what's going to lead this year. Are you Are you worried then about profit margins getting hit hard by inflation? Not really, I mean to legitimate question. The market is clearly worried about it, which is why you've got these

very low earnings growth expectations for this year. But I think we've if you, I think we've probably had the peak of inflation pressure on margins, and companies are still, at least in the US are reporting that profit margins for the second quarter in a row, which is the highest ever. I think companies in this environment where growth remained strong, which I think is going to continue into this year, companies are showing you they can they can

offset it, they can mitigate it. And I think you know a that continues be there are big segments of the market when margins are still super depressed. I mean all these reopening segments, which I think incrementally through this year we'll get those margins back. I think that's the story we should also be talking more about and will be an offset to UM. You know any of these and you know if I'm wrong, and you know the more mainstream companies do see pressure on their margins. The

year progressive. What a way to start two, Ben Laydler of Etara Ben I say it often every time you join us. You've been bullish. You've been right, Ben, Thank you sir. When we're looking at such massive numbers and Keyley, we've been covering this for a few days of more than a million, now more than two million cases a day globally, and that's got to be a drastic underestimate, right, because most people who test positive for COVID or have it and don't even test positive never tell any public

health officials. UM, you're gonna send a lot more people to the hospital, and that's the big concerns. So do you does does Eric Adams make the right move for parents and for kids, or does he make the right move for healthcare workers. That's what I think the interesting debate is. Yeah, it's a very very good question. Matt, let's pose it now. Tjadoshua starf seen visting of the

Johns Hopkins Bloomberg School of Public Health. When you think about schools in particular and children, where we've seen pediatric hospitalizations actually on the rise amid the spread of this variant, do you think keeping schools open is the right move? I do. I think so with the appropriate precautions. I do think that the doctor from Northwestern had it right that if done well, school is you know, relatively safe

environment for kids UM masking tests. Especially during this surge of cases, I think it is very important for kids to be in school, and I think the chance of school becomes an explosive source of new infections is low with precautions, but explosive new infections is really what we've seen, not in schools specifically, but generally. Ten million cases in just a week. Are we reaching a peak of this wave?

Considering how quickly it is spreading through the population. I think at a certain point it really has to slow down. And that's probably within a couple of weeks or a few weeks away UM, and that's I think going to be good news. The question is can we keep hospitalizations down enough during this period so we're not swamping hospitals, because even though there's a less risk of getting hospitalized

with a macron um, it's still a risk. And with so many people infected, you see numbers increasing in the hospital. I heard from some doctors saying it's a lot of patients, but the good news is they're not as sick overall as they were back in the delta wave. Dr Sharkstein,

how reliable are tests? You know? I keep talking to people who UM went to a party with someone who tested negative right before the party, but then on the day after or the day after that UM they tested positive of and then all of a sudden, every one of the party's got it. I mean, how much can we rely on these lateral flow tests. That's a really great question because in the United States we have a

great faith in testing. We just assume that the test is going to give us the answer, and it's very hard to process the fact that there are cases that the tests will miss and testing only helps in aggregate. If everybody's testing, then we're gonna have fewer overall cases. But that doesn't mean you couldn't get into trouble in

a situation just like that in a party. And I think that people have to check their risk tolerance and realize that they're lowering the risk where everybody's getting tested, but they're not eliminating it. And you just have to be judicious about you know what, what you want to do, what's valuable to you and um and keeping in mind

the limits of the testing. What's your take, by the way, on flights, on the safety of being inside a giant aluminum to with a few hundred other people for a few hours, you know, two years on Because before this um COVID pandemic, I thought everybody gets sick on planes. That's just part of traveling. You get sick. That's why

somebody invented airborne and made a billion dollars off of it. However, throughout this pandemic, talking to airline executives and engineers, I've come to believe that maybe it is uh cleaned out air safer place to be as long as everyone's masked. How do you view it? Yeah, I mean I think everything's relative. I mean compared to just sitting at home and doing nothing, it's going to be riskier. But there

is a pretty frequent air exchange. You have the chance to wear a mask, and of course you have the chance to be vaccinated and boosted. So someone who's vaccinated and boosted and mass and an airplane that is not a very high risk for sitting there. I think it's pretty low. Um. And again it boils down to risk tolerance. People who want to avoid the virus at all costs, no matter what, they're going to be stuck at home.

But you can now and I think it's get to two and we say we look, we're going to go back to living our lives. We're going to figure out a way through this. You have to take calculated risks, and air travel I think is reasonable under the circumstances. Now, in the middle of a huge wave of a macron um, I think there's some things that we're going to do differently in our lives. But once that's behind us, I think we're gonna see two play out a little differently.

All right, Thank you so much to Joshua Sharfstein at the Johns Hopkins Bloomberg School of Public Health. Appreciate your time, and happy New Year to you. We had a heck of a one in the sp if I've oundered up. Month of December is the best best December in terms of performance since two thousand and What do we do now? Let's bring in Doug cast because he's got some thoughts on this stuff. Doug Cast, Sea Breeze Partners President, Doug, what's on your radar for two is related to these markets?

What are you telling your clients? Well, I would start by saying that that last year began with this a marriage of monetary and physical policies, something that we've never seen or I've never seen in my investment career, and it's ending with a potentially failed bill better bill, and a central bank that's quickly getting out of the bond bonding business. So I would say that the setup for

two is far different than UM. I expect economic growth will slow relative to consensus expectations, and that inflationary pressures will continue in the face of supply dislocations influenced in large measure because of country and business restrictions UM and that will serve to result in disappointing corporate profits dog Happy New Year. I'm what, I'm very happy here happy, I'm very curious why, and a lot of folks kind

of two outlooks. I'm not seeing it of geopolitics and there yet every day we seem to be talking about Russia, China, Turkey. How do you or perhaps why do you not price that into a market right now? Well, I do a surprise list very similar to UM my friend Byron ween UM, and I do it every year. I've been doing it for twenty years. Besides running the new hedge funds Cebris Partners, I've been blogging for twenty four years on the street

dot COM's Real Money pro site. And I write this list of surprises and I have a bunch of them this year which incorporate that concern. One of my concerns is that what little is left of global harmony is up ended in a year characterized by um expanding geopolitical tensions on three continents. I Ran and Israel obviously, China and Taiwan and Russian Ukraine. And it's a big negative.

So how does that play out? I mean, you know, I think one of the things that the market seem to be discounting Doug is that it's all gonna work out here? Are you suggesting that these risks are perhaps a little bit more than this market's discounting. I think we have a lot of surprises in store and a lot of risks in store for this year. UM, be happy to go over a couple of surprises really quickly, to give us a couple of your favorites. Sure, my my number one favorite, and I can expand upon it.

Is that it's going to be clear by the end of two that we are faded for another Trump Clinton presidential race in four But it's not the Trump you you think. Um, I'm with it that well, Um I the surprises that President Biden becomes sufficient sufficiently incapacitated such that President Harris becomes the first female president of the United States, and she immediately becomes in effect a lame duck president. Uh and unfortunately has no significant so successful

legislative accomplishments over the next year. And um so both um J J and Ping and Vadimia putin immediately put Harris to the test with a series of foreign policy crises, and she proves not to be up to the task. And the November midterm elections results in the landslide for the Republicans who take the Senate and win a sizeable majority in the House. That's not this coount in the market. Done now. And so meanwhile, I think, at the same time Biden gets sick, Donald Trump also becomes ill and

announces that he won't run for president. So this is the surprise. It creates his wide open field the nomination in both parties, and probably sometime in the second half of next year. This year, excuse me, Nicki Haley announces she'll run for president and assumes the de facto mantle of the party's leadership and takes a strong lead towards that Republican presidential nomination. And then at the same time, leading Democrats speak out and encourage surprisingly Hillary Clinton to

run again. Though she remains um publicly uncommitted, she's clearly interested in, according to numerous sources, is seriously considering a run. Now. The most interesting twist of this whole thing is that privately the former president who's ill, uh lobbies, postures and grooms his daughter Vanka to run for president, and almost overnight, when her or his and her political ambitions are revealed, Ivanka takes a significant lead over Hailey, as her father's

supporters quickly returning for it. So given which, by the way, they concluded Clinton in response and a hasty response to Trump's declaration, Clinton announces their plan. So again the stage is set for Trump Clinton, but different, different Trump. Yeah that sounds I mean, this is a Netflix, uh movie. I think you just novella sketched out for that can't be good for risk assets here, are you? I mean I gotta think that. I know you went negative on

the market several months ago. Are you more so now? Are you doubling down now? Because that's the scenario that you just spelled out A it's a great Netflix novello, but it's also not good for stock markets. Yeah, practically speaking, besides the likely rate hikes, and I believe the FET is going to be far more aggressive than people expect. Remember, Paul, the FETE is ending a one point five trillion dollar

quantitative easing program in the next three months. That's more than q E one and q E two combined, and it's almost above the size of the q E three. So the liquidity FORCET is being turned off. At the same time, banks outside the US are tightening and UM. So my scenario is basically that we have been stoking a very dangerous asset bubble fueled by that liquidity of policy.

We have deepened income and wealth inequality, and we're embarking on a policy of money printing that has generated inflation from which it is hard to escape. So my scenario is the following. I think we're gonna have a general valuation reset lower And if you look over history, on average, a hundred basis point rise in the FED fund rates, which I think will get this year, is typically associated

with at least a fifteen percent valuation adjustment lower. And if you consider where today's elevated valuations are, that reset has the potential of being more than the historic average. I believe as a result of the rate increase, we're gonna see a hard rotation from growth to value. If you combine the reset lower and this rotation and disappointing earnings growth UM, it could translate into negative negative overall

returns for the smp UM. I think that, as I said, the Fed is going to be far more aggressive than as reflected in general expectations, and less liquidity could result in a mark reduction and flows into equity funds, which have been the store that stirs the drink. UM. We've had unprecedented fuel in the markets. As I said, the set up for two is far different than one, and

I don't think people are realizing that. UM. The set up is far different than any other time in the last thirteen years, and we've had positive returns basically in all but one of those years. In fact, seventeen out of the last nineteen years we have shown positive SMP returns. So UM fiscal and monetary policy is no longer unbounded and we're likely well passed the points of peak economic activity and peak liquidity. Hey Doug, thanks so much for

joining us. Always love getting your perspective on these markets unique, if nothing else. Doug cast Seabree's partners president giving us his thoughts on these markets, including his fifteen surprises for This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten AMI Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for site 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 Bloomberg.