Surveillance: International Relations With Haass

from the President. We'll hear from Chaman Pal as well. If you kind of have a preview of one, what would you pick the chairman of the President? No, definitely, I think on the fete side, this is about as well telegraphed the meeting as we can get, so it should be a pretty sleepy wait and see a meeting so big. All eyes instead are on the President and how he's going to try and pitch his really ambitious plans on everything from infrastructure to taxes to climate. Dan,

I love your your backdrop. You look like you're in the Endeavor space caps along your way to the stage this morning, Dan, I want to talk to you about the idea of we're retchinging up GDP expectations. Is GDP catching up with the zeitgeist? Are we behind and we're gonna have to catch up with a boom economy? Now? I think of recent forecasts really are cashing up. You know, we're calling for near double digit and so double digit

two two and then near double digit two three. Uh, it's gonna be a great looking a couple of months. But as we're just saying earlier, the fett is pretty much said they're going to look past that um and I think market should should understand that as well. The real question is beyond the summer, after we get this reopening driven boost, you know, how long is this going to sustain? And so. And there's also a question of

the inflationary aspects that we see. Tom was talking about how we're seeing copper searched the highest level since two thousand eleven. We're seeing crop prices in the United States sword to the highest in two thousand thirteen. How can we call this transitory? If this seems to have legs, if people seem to be saying that they could see prices continue to rise and at least not fall substantially from here. Yeah, I think that's the big question. Um.

And definitely prices are going up. We saw really a strong March inflation print at zero point three percent month a month or four UM. But is this all pricing increases that are big one off driven by not just reopening but all the supply ten issues. You know, we we are hearing about semiconductor shortages of spreading beyond automobiles to all kinds of appliances that you know, is this gonna work itself out? Or is this actually going to change what I think to be the key thing here,

which is expectations. Are people now going to start expecting more higher prices and then perhaps demanding higher wages depoplacy the story on sound of the labor market to the small wanting is in the airline situation, Tom, I just want to bring up some of the airlines right now. Dutch. Your Luftanza over in Germany leading nicely, a i g. The parent company of British Airways doing nicely as well. This conversation to this morning about the EU Commission President

erslavon de Land speaking to the New York Times. Team up US travelers going into Europe. Maybe that travel can happen later this summer. She's just picking it up from John Ferrell. John, you've been out on this and I know we talked about Singapore, Hong Kong and other quarters or bubbles whatever they call it. John, do you think it's feasible? I mean, you're the only one of us three who's actually traveled. Well, I've got three things to say about this. Matt Miller brought up one of them

earlier this morning. Can Verse Slavon de Land actually made this decision for the EU? One too? Can we actually have a system in place, some kind of vaccine passport certificate system in place that every country understands. And three look at the specific words Li Sir, that the EU commission leader actually used. She was talking about vaccines that were accepted in the EU but also accepted in the

United States. Now, first engineer that because as far as I understand, astra zeneca is not approved in the US. So if you've had an astra zeneca vaccine and you live in Europe, can you travel to the US if that's going to be the agreement later this summer? Yeah? Is that the issue? Or is this just an issue to try to prevent the Chinese vaccinations for being applicable to some of these travel guidelines. And then of course there's a question from a health perspective, and we're gonna

be getting that Daniel on. Just to wrap up with you, one question a lot of people have is how much can the US accelerate without the rest of the world joining the feed here given a fact that we're seeing the acceleration in India and Brazil, some of the fastest growing economies in the world, No, I think the acceleration is going to be broader based. Certainly the US is at the vanguard here, both in terms of vaccination kind of driven reopening hopes, uh and in terms of this

whole spending um. But one of our key messages has been that Europe is not far behind in terms of vaccination. They're going to go through They're gonna they are, I believe, working out their supply chain issue this on fascination distribution. So they're gonna see a nice um reopening. Taking back to in our forecasts starting in point when you two, we have your brointh after in the US, So it's

gonna be broader based um. And yeah, I think the again the question is how much, however, is it's going to be sustained as beyond the sharp end of the V shaped recovery. Um is are we gonna go back to the same kind of decades long authentification trends we've seen advanced economies prior to the pandemic? Or is this really the start of something new? Down it's gonna catch up, It's gonna see it down on that bamp pant right now.

Richard has joints President the Council on Foreign Relations. My book of the summer last year and still hugely important, if not more so now, The World A brief introduction by the hardcover Hopefully you'll hit the head of the smart mouth adolescent when you say, shut up and read this. It is extremely important. The first hundred pages is truly classic.

Highly highly recommend hosses The World, Richard hass I love what you people have done as you look back at our history and our concert of power in honor of John Williamson in a more collegial Washington consensus. How do we get from Williamson's Washington Consensus to a more rigid concert of power? Well, we can talk about it internationally.

This is simply my thinking that current international arrangements are coming up short term and what we need to think of some ways of working with countries that are ideologically and politically and economically diverse from us, but we still have to work together, whether it's on climate change, or

regulating cyberspace, or dealing with proliferation, you name it. Basically the defining challenges of this Europe and again right now there's a big gap between where we are and every single one of these domains and where we need to be. I got a monograph from the mail Richard hass the one Years of the Counsul and Foreign Relations. I'm going

to read it cover to cover. It's actually really really interesting in the arch of a hundred years of the Council and Foreign Relations is our politics is every four years. That's not the case in China. How do we do a concert of power when we've got a four year time frame and President she has a many, many decade time frame. Fair enough, each country has it's not just its own system, as you say, but we have our

own strengths and weaknesses. China's weakness is that it's very hard to challenge orthodoxy when their mistakes made such there was with the one child policies such as there's been with environmental policy. It's incredibly hard to correct those mistakes right now. China is committed in certain directions. We'll see how it works out, but there's there's repression at home.

Can they be that repressive at home and still introduce new new ideas They're they're pushing out against the world, And the question is can they continue to benefit from economic inter action at the same time they're alienating much of the world by their more assertive foreign policy. Yes, us, we've got all our known mistakes are political weaknesses, are political division, and I think there's real questions about whether

or how well we can perform over time. But taking a step back, the real question is whether the United States and China can figure out a way to find areas or pockets of cooperation against the backdrop of a competitive relationship that does not actually become conflictual. Although people are saying that the only way that the United States can truly do this is if it gets some sort of group of allies on board with it. In terms

of how it counters China. Given your experience on your tenure at the State Department, your knowledge of the key people who are at play here, how is Biden doing with respect to unifying the allies, Well, it's gonna be tough. One is, we've heard ourselves by not getting involved in regional economic arrangements. That's an own goal, that's a major source of potential leverage. But I think in general that the instinct that the all doction of this president is

to work with allies Japan, South Korea, India. I think we've heard ourselves with India by the slowness of our response on vaccines. India is more fundamentally somewhat reluctant to align itself against China. The Europeans, as you know, have kind of going their own way. Used to be China with their with their own economic and financial arrangements. So the rhetoric has been better in some ways than the

reality of forging a common front against China. Richard, I'm glad that you brought up India because I've been thinking a lot about this. Why hasn't the US gone more aggressively into helping India Given the fact that the pace of vaccinations in the US has slowed, that the supply is pretty significant versus the population. How much has that set back the United States? And what is the push pull here in terms of why the US hasn't been more aggressive. Look, I've been railing on against this now

for for weeks. This administration quite honestly, has been more America first, unchill essentially and its approach to vaccines than it ought to be. It makes no sense in terms of health because of the variance, and makes no health obviously, as you pointed out, strategically, how do we bring into your closer to us if we're not there for them at a crisis. Just yesterday belatedly United States began to

move in that direction. But my guess is the administration but legitimately wants to make sure that Americans are vaccinated, and perhaps more questionably, has been worried about being attacked from the right over not taking care of Americans before it's helping the rest of the world, even though the fundament the point is when we help the rest of the world, we help ourselves. Ambassador has quietly at the end of your wonderful book The World, you have a

trench in phrase war within countries. Boy, does that ring home? Where there's Chad and the death of their presidency supposedly on the front lines of their war with the Islamis extremists, or the war within America as well. How do we get out of our wars within countries? Tom, I don't know the answer to that question, but I think the

answer to it will decide a lot of history. Take the United States, wait, for seventy five years, have been the principal architect and in some ways the general contractor of what organization in order have been in the world. But that's assumed that there was a sufficient degree of consensus in the United States that we could do what

we're doing in the world. If that consensus is no longer there, if we don't have the bandwidth, the resources, the commonality of purpose to play that role in the world, history is going to move in a very different direction.

And then something that the CFR has provide a great leadership on, as of course attentions between Armenia and Turkey and Mr Biden providing decade long and multiple president leadership to state I believe the I don't want to get in trouble here, but state the obvious of nineteen fifteen. What does President Biden in the Secretary of State signal with this historic decision. Two things. One is that this administration has placed human rights type consideration really high on

the agenda, particularly compared to its predecessor. Second of all, it's a real sign just how far relations with Turkey have deteriorated, and over over decades we were reluctant to take this step. I was involved in these conversations myself at the State Department and elsewhere, And what essentially now is people are saying this relationship isn't that valuable with nan As a result, there is not a lot of downside.

Just guess what, we've already got the downside, Richard, Just to sort of some up this around in the world in any days with Richard hases there is a question of which hotspot is the one we should be paying attention to the most right now. Originally it was China, the US and the Biden administration was going to be the key test. That seems to have faded a bit. Is that wrong or is that sort of the focus

moved onward to another spot. Look, if you'd asked me that last week, I probably would have said something with Russian and Ukraine that seems to have come. I still think China in the US, though strategically the biggest hot spot There's any number of other places which could be problematic, but the single biggest fault line in the world is

the United States and China and possibly over Taiwan. And the real question is can these two countries, the U. S And China continue to finesse the disagreement that they have successfully managed for forty years, but China seems to be getting inpatient and can we continue to prevent this from becoming a front page crisis. I don't know the answer to that. One of the issues at the moment of phone policy, maybe the issue Richard House is gonna catch up as always, He's gonna hear from your counsel

on form relations. President. What we try to do here as surveillance is bringing you definitive authorities on whatever the topic is his hand. We can do that with g G. Grandville Johns Hopkins out of biology at Indiana University, out of chemistry at Memorial Sloan Cuttering in New York and holding court on security and immunology at the Johns Hopkins University. Gigi, thank you so much for joining us. You have done tours of duty and Delhi. You've done tours of duty

in India. Take us away from the sanitized media shots to the reality of the horror we're seeing in India. Yes, I um, I mean it's really hard to describe and imagine. Um. But you know, India has a lot more capability than I think a lot of people realize. And the fact that that their hospitals are so overwhelmed speaks to just how many cases they have and how much of a humanitarian crisis is turning out to be. Tell us about the roads out of Delhi, the roads out of Mumbai.

Certainly in my reading, it is an urban and rural disaster outside of the big cities. What does India look like in a horrific pandemic? So it's a lot there's a lot of rural spots in India, um. And it's uh, you know, in the cities are are crowded, more crowded than um. Well, I mean in New York you're used to but but most people in the US are not. And with every kind of traffic conveyance um that you know,

for elephants, donkeys, motorcycles, it's it's a busy spot. Um. So I think there's a lot of in the air quality is probably not helping people at all either. Because that's always been a problem in world and in the in the city area. So um, yeah, it's it's not it's not good, and so it's really fantastic that the US is offering to help. Hopefully they will get other

countries to contribute some humanitarian aid as well. The difference in the conversation that we're having around India and the rest of the world, including US and Europe this morning could not be starker. We're talking about a humanitarian crisis in India and we're talking about what travel might look like for people who want to go on vacation late to this summer between Europe and the United States. Dot

to forgive me for having that conversation with you. Now to follow one from this one, what on Earth does travel look like this summer? I think, Um, if you're vaccinated, I think that you can be very confident that that you are are protected. But it's best to not try to try to not take your vaccine out for a spin. I mean, it would be really great to not have to use it to get infected. And so um, I think you know, if you can, if you can manage to avoid the kind of crowds and exposures to people

who may be infected. That would be the best idea. Um, you know, I think it's going to be different for every family for what they what they do. But um, but you know, get vaccinated first and allow yourself time to build up immunity. Doctor. This interview with The New York Times for the European Commission President vonder Land got my attention for one reason. It was this line here.

Because one thing is clear, all twenty seven member states will accept unconditionally all those who are vaccinated with vaccines that are approved by the e M A. Doctor. There are certain vaccines that have been approved in certain vaccines that have not been approved, And I just wonder a week and to have some kind of hierarchy of vaccines pretty much well established in the next couple of months. Yes, Um,

that's inevitable when you have multiple products. Um. But I think, uh, you know, for for US citizens, I think it's our US people who are getting vaccinated in the US. Um, it's going to be less of an issue internationally because the two the two vaccines that most people are getting, and now with the Johnson Johnson they they will be acceptable. Dr Gronville, forgive me for being a bit dr doom here.

But is this an epidemiological nightmare setting up that we have a certain level of vaccinations that's good but not great, not critical mass around the world, and people are starting to travel internationally at a time when you've got pockets of just burgeoning virus basically asking for mutations, for more variance and possibly even vaccine resistant strains. I mean, how much of an issue does this become as we enter

the traveling season. Well, I mean, given how bad things have been over the last year, I'm not convinced that a lot of people have stopped traveling or stopped doing the things that they were supposed to be doing. So um I I um, I guess I'm I've been not My optimism is rooted in the fact that I think people have uh not been following all the things that people have been telling to do. Anyway, But I mean,

there's nothing magical about any of these variants. You need to, um, we know how to stop your to stop getting it affected, you need to have a mask, you need to have good air quality, try and do social distancing. That is all.

The vaccines are are an additional wonderful tool that will protect you but um, we just you know, we need to to keep with all of the messages and travel um is you know, I think it's it's something people have been doing and hopefully people can do it safely and we can have more engineered controls so that, um, you know, air quality can be better and reduce transmission.

That said, do you think that there should be certain travel bands in place, or that it's advisable for certain countries to say, well, travelers from India and Brazil are our no goes for right now, or or things like that. I think vaccination campaigns should be ramped up, even them more than they are now. But because you're right, um, every every time somebody is infected, it's an opportunity for a variant to emerge, and thankfully all of the variants

are covered right now by the vaccination. So um, we just need to keep boosting that up and borrow some trouble later when we might have to have a booster shot. Doctor. Thank you, it's gonna catch up. Come back soon, Dr Gronfell. That John's hulking sensea for the health security Sadia Scara, you do the diet check and I'll disrupt it. Come on, okay, I'll do the data check. Yields are up, the real yield negative zero point seven. Thank you. No one cares. Okay,

no one cares. There we go, there's your data check on radio. And this morning all we care about is getting Detroitsky. We've bet a lot of talk about, including John and Lisa riveted by Gayski's bitcoin call. He is with sky Bridge in their co chief investment officer, Troy. The hedge funds are addicted to big technology. We've seen that through every cycle. I'm reading that hedge funds are doing better. What is the linkage of alternative investments to

four or five big technology names. Yeah, you know, it's actually interesting you bring that up, Tom, because there has

been rotation, particularly back into Facebook and Amazon, less so Apple. Uh. Many hedge funds went long growth coming out of the pandemic and then focus and switched their focus to cyclical recovery UM and now you see that moving back given that valuations have come down as much as they have, so certainly the dominance and the big five names will be more important the next three months than they were the last four. But if you drill down to a

subsector within technology that we find very fascinating. We look through the holdings of our underlying managers, we find that semi conduct your equipment right now is particularly compelling because valuations are semi connector equipment application um because valuations are very reasonable, and those are both cyclical recovery stories and

secular growth stories. And plus there's a play on the continued nationalization or divergence of the economy between the US and UH in China, because if you look at what happened to Intel, which lost its lead for a manufacturing of very thin films and and and very high high potency processors, you can't allow that to happen in semi connector fabrication equipment. So when we drill down into tech, we think that's a pretty compelling space that hedge funds

are starting to rotate into right now. Troy, I'm doing my best Tom Kane impression today, and usually when I get the first question to a guest, they totally ignores it and stance with something else with no follow up. So I'm going to do that right now. But let's talk about bitcoin. Last time we spoke, you'd allowed that to grow into the holdings of your portfolio. Can you walk me through way you are now and what's driving

things for you? Yea. So at the peak coming into this month, um was actually a little over fourteen percent, so that's dropped back down to thirteen and age given the obviously correction we're going through right now. But you know, as we spoke about last time, really there's three keys to our thesis. The first is, you know, hyper hyper hyper hyper hyper use monetary policy. Hyper loose monetary policy is what we did coming out of the crisis. Now

we have five hypers in front of that. And m TO growth has been growing around eighteen percent in the US so far this year. The Fed will come up with a out with updated date on Tuesday to see how fast it grew in March. But given the continued expansion their balance sheet, we don't see that going below nominal GDP anytime soon. Obviously, the desire for every central bank continue to UH to debase their currency in budget deficits as far as the eye can see. So that's

the macro case. It's hard to imagine a better macro environment for an alternative to fiat currencies. And then if you look at the micro case, and you saw this this morning with JP Morgan's announcement several weeks ago, with Morgan Stanley's announcement and obviously some of the institutional interests

that started really in Q four. You know, we're going through a very similar adoption story to what we did with gold from really oh six to two thirteen, where the world went from you know, basically no gold to one to two to maybe three percent gold over time. And that that's very different this cycle than the last two. Um,

we expect that to continue. And then thirdly, you know, you have the natural dynamics of the having cycle, right, and I think Mike talks about this well, Um, but when you cut new supply in half, if you just keep demand constant, prices are going higher. But when you cut new supply and half and demand increases substantially, obviously

prices are going meaningfully higher. And so you know, we still think we're in the middle end eas of this poll market from bitcoint shock that wasn't meaningfully higher over the next three six nine months. UM, So we continue to maintain the position size where it is. That's what I wanted to tell you about Detroit, the maintaining the position size, just the perspective of the PM right now, how constantrates it? Do you want that bet to be

within the wider portfolio? Your tolerance levels around the volatility? How do you make those decisions? Yeah, so, so look at and you have to look at near term correlation behavior, longer term correlation behavior. It's very important to juxtapose it

against other assets in your portfolio. And so for instance, if you had a nine percent of your portfolio and go go growth, right, you know, high beta, mid cap small cap tech names, it might make less sense to have a thirteen fourteen percent position in bitcoin, who, in the majority of your portfolio, like US, is tied to the real economy, tied to distress, credit structure, credit more market neutral multi strategy or equity exposures convert a bond

arbitrage which by definitions of multi or a market neutral strategy. You know, having a thirteen fourteen position percent position in bitcoin we think is appropriate at this stage of the cycle because that will UH slightly elevate our volatility. We expect volatility in the range of eight to twelve percent this year versus UH four to eight, which is our

long term target. But we think that's one of the unique areas where you're getting paid for that volatility, right if you think of the nastac right now, because the asked that go up in the attendant fifteen percent this year, Yes it could, but you're going to experience more volatility than he certainly had or two A balls though, I should say, than the second quarter of last year. For instance. Queen Troy, you seem to be freezing up a little bit. I do want to get Perhaps we'll get you back

to fantasy. We've lost he with some technical issues that well, we'll get Troy back on another time. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg