Surveillance: March CPI Sets Stage for Fed

much for joining today. One set of data does not make a trend. If we put together three months like this, what does it signal to Jerome Powell? Well, so, I mean, if you look at the last three months, right, if that core rate was up zero point four percent, and so if you look at the last three months, you're

still running at an annualized rate of close to five percent. There. Now, the good news is that the MP component or the owner's equivalent rant component is starting to come in, and so that should continue to put some downward pressure on inflation as we go forward. But we're still a long way from two percent at this point. And so you know, if you're Jerome Pal. You look at this, you say, I think Mike just said it. We're on the right track, But I don't think this makes the case for a

pause in May. You know this and what we saw earlier in terms of the jobs report, I still think, knowing what I know right now, that they go twenty five in May, a lot of people agree with you, and yet they seem to be increasingly pricing out the potential for further rate hikes and possibly a great rate cutting cycle to start in the second half of this year. Jay, what would we have to see on Friday to discount the strength, the underlying strength and core that we see

in this report, albeit perhaps not more than expected. So when you say Friday, at least are you talking about the retail sales numbers we're going to get out on on Friday? Jp, Morgan's earnings earnings? How much that learning stress? Yeah?

So right, if we're starting to see signs and you know the upcoming bank earnings, you know, if there's a lot of stress out there in the financial system with banks in terms of their earnings, in terms of the credit standards tightening, things of that nature, that potentially could start to swing things in the direction of a pause

in May. I mean, we'll see, you know what they say with the banks say in the coming weeks here, But you know, I think at this point that would be the thing that would for me would say, okay, May, maybe they actually go and pause. Is what sort of

stress we're seeing in the banking system? Jay, There seems to be a complacency in markets about the fact that the FED will be able to get inflation under control, that the rates will go back down to three or perhaps even two percent in the next couple of years. And I'm talking about ten year yields. Are you less confident about that based on the increasing pressure for them to pause or just take step back as they wait

to understand what the dynamic is. So in terms of the longer end of the curve, least I could see that going back to three percent. I mean, I just think that given the structural challenges in the US economy today in terms of its long run growth potential, for me, a long run three percent ten year yields makes perfect sense. I guess where I have a little bit more question

is in terms of the two year yield. I don't agree with the view that the FED is going to be cutting rates by the end of the year potentially, right, if we're in a recession at the end of the year, I could definitely see that. But if we have a soft landing in the economy, I could see the inflation rate here getting stuck at three to three and a half percent. What does the FED do at that point?

Does it throw in the towel and does it say, Okay, we can live with three and three and a half percent or do they really mean it, we need to get back down to two percent. And if they need to get back down to two percent, then you're not going to see I think rate cuts at the end of this year. I think you're going to see rates remain at a minimum elevated at that point. And so I have it just a little bit of a disagreement where the two year is right now. Hey, j you're

not the only one. Jake Bryson of last FAGO, Thank you, sir, on the latest inflation data in America. Jeffrey Rosenberg joins portfolio manager of Systematic Multi Strategy fund at black Rock. He's been medicated over the last four months the beginning of two twenty three. It's been chaos I'm fascinated Jeff Rosenberg with your wide mandate at black Rock, how you've survived two twenty three. What have you done to your

portfolio given the cacophony handed to you. Well, it's a it's a good framing for the question in front of today's data, Tom, because it is it is particularly a period of heightened uncertainty around the outlook. We talked about it in the earlier segments in terms of the uncertainty around in inflation. You know, we're moving through this period into a new period of you know, I think a pause and a reflection from the Fed, you know, whether

they hike in May or not. For our portfolios, you know, that's made directional exposures whether markets are going up, our markets are going down. You know, pretty challenging environment to

try to pick that direction. We have the benefit of being able to do a lot more flexible things around our portfolio to take away the direction and really look underneath the hood and play the dispersion that we see in markets and particularly you know, one of the big stories is you know, exceptionally high, historically high interest rate volatility relative to low equity volatility. But that low equity

volatility is really a story of the surface. Underneath the surface, there's tremendous amounts of dispersion, and we're trying to take more advantage of that and lean our portfolio more into dispersion than in direction as you avoid trying to take a call unnecessarily what's going to happen at a time

where that seems to be pretty much impossible. Jeff, I'd love your read on what we just experienced, which is an almost inline inflation report for CPI, the core CPI coming in inline with expectations and this market cheering and actually now expecting even greater rate cuts in the next twelve months. Does that make sense to you, Well, you know, I think Jonathan Farrow has said this in a couple

of contexts, maybe more around around payroll. Be careful about, you know, the initial market reaction as to whether or not that's the longer run message. But the initial market reaction is really talking about, you know, the beat on headline and the impact on food and energy prices. You know, it helps, and it helps a lot in terms of the optics around inflation going down. I think that's the

near term market reaction. The stuff I'm focused on and we're focused on is really about the labor markets, it's about wage inflation. It's really about what we see in this report in terms of core services core services X shelter. I think Mike mentioned that in the earlier segment, you know, there's a little bit of a trend coming down there. I wouldn't read a huge amount into this report in terms of giving the all clear for that much more

important and durable services inflation. I think it's a it's a positive. It's in the sense that it wasn't a big negative surprise upward, and I think the market is trading a little bit off of that, but mostly off of the headline here this morning, as we careened toward that May third meeting of the Federal Reserve, what are you watching to get a sense of what is going on in real time beneath the hood with credit lending,

with the expansion or contraction they're in. Yeah, I mean, obviously the big uncertainty, and Powell characterized it very well in that the direction of the banking crisis in March is to contribute towards tighter financial conditions, to contribute to the transmission of tighter monetary policy. The direction is clear, the magnitude is not, and so everyone's focused on the weekly H eight report and what's going on with bank lending.

The issue, though, is that bank lending and bank lending expected standards tightening had been in place well before the banking crisis. So the issue isn't whether or not banks are tightening credit. The issue is how much did the banking crisis in March accelerate those trends. That is very

hard to measure. It certainly is accelerated something we can measure, and that is deposits moving out of banks and into money market funds, waking up to it's no longer zero interest rates, and that's perhaps accelerated the funding costs of banks. But whether or not that transmits, whether that's a bank margin issue or whether it's a real economy issue, remains to be seen. Frozenberg. In the equity space, we can talk about bull market, bear market, We can talk about

movements op ratios and such. In the bond market, we do less. Are we in the beginning a bond bull market, which is generally price up and yield down? And if I use a ten year as a proxy for that, do you frame out a surprisingly lower ten year yield out one year or two years. I think the jury is out on that kind of one year two year framing of the of the question Tom. Clearly, what's been happening over the last couple of weeks, really since and

kicked off by the banking crisis. Remember, pre banking crisis, we were debating, you know, a fifty basis point hike and whether the FED needed or you know, we kind of forgot all about that because it's it's it's really much more a pivot towards did this banking crisis accelerate tightening? I think the jury is out, but clear the momentum in the bond market is towards more of a focus on recession risk. And as Lisa's talking about, you know, the pricing in of you know, a very rapid turn

towards FED rights. We think that's probably overstated, but that's where the market's at right now. Well, you know, I want to be junior portfolio manager today. If people are saying long duration does better, big tech inequities does better, is this the time for Jeff Rosenberg to do a Jeff Nnick George VanDerHeyden reducts from thirty years ago and do you need to go out and buy a twenty year zero coupon bond to play a long duration play

over a year or two years or three years. You know, the long duration call is really about recession versus inflation. And right now, as you can see after today's report, it appears that inflation fears are waning and that's going to give some more credence towards the notion that duration can once again play the diversifier in a recession environment. You want to be, you know, out as far in

duration as you can stomach. We're a little bit more cautious on that view, however, Tom and again it was to my comments that you know, today the market is kind of playing off the headline. It's the services piece and the inflation from the wage picture and these still very tight labor markets. I think we still need to see that loosen up before you can say it's all clear and we're back to duration is on equivocally, you know,

a clear hedge to a recession risk. It certainly is if you get the recession, but it becomes much more vulnerable if inflation is more sticky than we're currently anticipating, and market circles Jeff Rosenberg. Oh, Jeff, thank you so much. Jeff Rosenberg always with black Rock ad imposing with is always an annual visit at these meetings of the IMF from the World Bank. He's president of the peters An

Institute of International Economics. He is, without question, with Richard Clarato, one of the leaders in thinking about Germany in the United States of America. Doctor Posen joins us this morning, John's going to talk to you about your wonderful essay on the simplistic static analysis of manufacturing in America. I want to go to the Matthew News. She learn you at Brooklyn High School million years ago and they said, don't look out five years. And then you went off

to undergraduate, don't look out five years. Then you did your PhD work and they said, don't look out five years. And here's the International Monetary Fund with a five year model of three percent growth? Can people like you look out five years? We can look, but we may not see.

I think Tom, the IMF is making a judgment call, which is within their rights, and I think it's a reasonable judgment call, but unfortunately, I think it buries the lead, which is that we're going to get a goosing of short term growth in the large economies in the US and China in Europe because it's going to be public spending on defense and on green and there's going to be a continued falling off of growth and the poor economies who are going to be forced to choose between

US and China, and for reasons is very good report put up by the IMF recently. I know you've covered very good report by the World Bank recently you've recovered you've covered my stuff, the spillovers on growth for the developing world from the US China conflict and the subsidies race between Europe and US. It's very bad. What means critical here, And David folkarts Landau Deutsche Bank, with some serious publishing with Duly years ago, echoed what you said

the day after Putin invaded Ukraine. So, if we have the fiscal stimulus that doctor folkarts Land I was talking about, you're talking about right now, and we dove tell that into your colleague Olivier Blanchard's phrase, fiscal space. Does the United States or Bolivia that we mentioned the other day, do they have fiscal space to act given the present promise?

So you may have seen. I hosted a debate or a conversation between Olivier and Larry Summers on Pie dot comic a few weeks ago on this very topic, and where Olivier, Larry, and I, more importantly Olivia and Larry came down was that this kind of sustained fiscal expansion and possibly some inflation premium that continues going forward, will decrease the amount of fiscal space. Olivier's fiscal space rightly is about the gap between real interest rates and real growth,

and that's been very large for a long time. This is probably going to cut that by a third to a half. That doesn't mean the US doesn't have fiscal space, but it means that there were more at risk than we've been for a very long time, and a bad shock to productivity to revenue where the interest rates could put us quickly into bad space. But additionally, if our star, the shorthand for this basically goes up, meaning that the

gap between interest rates and growth shrinks. The Bolivia's, the Sri Lankas, the Pakistans, lots of Central America, lots of South Asia, lots of Africa. They lose fiscal space. When you have these discussions. Is there a tipping point for ten year yield, say for borrowing costs in the United States, after which the current fiscal model becomes untenable. Yes and no, sorry to do it that way, Lisa. The yes is

you can do some very fancy mathy stuff. Jeremy Zedelmayer now the head of Broigel, used to be at the IMF, and Olivier and others have worked on this, and you have to do simulations. But cold bottom line, the odds of your tipping go up, and probably go up nonlinearly the closer you get to our midus G being zero. Because this is the math, I mean, the basic math. Once you're above, Once that our minus G turns positive, meaning interest rates are outpacing growth, that's when the bad

debt dynamics kick in. That's when if you have debt to GDP it's over one hundred percent of kicks in. Now, it's not a tipping point that that happens. Going back to where Tom started this this week, this month, maybe for Bolivia, not for the US. But if that turns out to be the case, that being rates above growth rates for six months a year, then you start getting serious. The bad politics hand stots it. You mentioned that the subsidies right between Europe and the United States. I still

don't think this is getting enough coverage. You said it's very bad. Can you paint a pictures to why this is so bad? So as it happens Olivia and I and some of our trade experts from Peterson, Chad Bound and Jeff Shot, we're meeting with a European finance minister last night about this very issue. Basically, the problem with subsidies in trade is that it ends up being not just waste soul. That's bad. But as I've tried to argue my article and this history shows us, it escalates

very quickly. And this is what we're seeing. The US puts out this IRA, which includes huge subsidies for particular companies, not just subsidies for green tech, not just subsidies for R and D that would be nice, but subsidies for particular companies on a criteria they have to be producing the US and mostly they have to be US headquartered. And so then Europe said, okay, well we'll do subsidies

and retaliation. And then the UK says already has one of the opposition politicians, Miliband came out and said, you know, we got to keep up with this. We're not going to be left behind. We had the Indian Finance Minister at PIA on Monday and she said, we're going to do subsidies. And so what you end up with is

like an arms race. Everybody builds up, nobody gains economy of scale, the competitive basis for having the winning company, say based on better technology, more efficient processes, doesn't win because you're subsidizing here and you're subsidizing here, and France says we're not going to buy American, and America says we're not going to buy French, and so you end up with this huge on balance sheet obligation to the

fiscal to go back to where Lisa was. And one of the worst things about this is this is open ended. So the way the US pass the latest round of subsidies, it's driven by the consumer. It's how much you produce. It's not oh, we're going to get to this level. You produce more, you get more subsidies. So this becomes a fiscal issue as well as you run in place

to just get to the same spot. And then finally it's totally discriminatory against the rest of the world because basically, China, the EU, in the US can afford to do this, India can pretend to afford to do this, UK can pretend, and the rest of the world you're out of luck. It's done under the guise of supply chain resiliency, and these phrases get thrown around and they take on a life in their own. It's almost just the truth. You have to get more resiliency into the supply chain, and

that means you have to bring it home. You've dismissed that straight up. I think you've said it proven to be a fallacy through economic history, and I can think of several failed socialist communist states that attracted the same thing, and it's difficult to do it. Is the United States, Europe, China, even if they have access to the funds, they can afford to do it. Who says it's going to be

a success? I well, thank you. I agree. You know, there is a legitimate question to be raised as private supply chains have risen organically, individual purchasing managers saying I got an order from the CFO to cut cost ten percent, so I'll outsourced this. Oh, I've now outsourced this so I know somebody else. You know, there's a reasonable public policy interest in saying let's not overdo that. But that's

very different from saying bringing it home is safer. You know, it's the same logic as your investor watchers say diversification matters. I think you mentioned all the communist countries. This is part of what I've been arguing. I mean, you look at Russia. Russia has spent twenty years trying to make itself self sufficient just so it could go do things like conveyed Ukraine and not worry about it. And like the US, like China, it's huge, but it still doesn't work.

It ends up backfir and you end up with a corrupt industrial complex that doesn't give you what you need. John, I'm British headline twenty twelve, eleven years ago, Business Group economist to replace Arch Dove posead Bank of England. Do you have any advice former MPC member for Megan Green if she is anointed to There'll be a coronation if she moves to the Bank of England. Oh, I hadn't

heard the news. Congratulations to Megan, that's great. You know, the external members including Catherine Mann my former colleague who's now one at the Bank of England. Have a good record of genuinely giving independent thought. And you mentioned me as being characterized as the arch dove a decade or eleven years ago. Of course, now I'm considered a hawk because I'm telling the Bank of England, you guys are whistling fantasies. Inflation stopped coming down, so be data driven

and everything will be okay. But I hadn't heard about Megan. That's great, Adam. The external model at the Bank of engand on the MPC. It's different to say the Federal Reserve. Why is that so important? And what lessons can we take from that? Mohammedan Adam was talking to Tom and I about this on Friday. He said that the MPC model of having external members is helpful. Do you think

it is? I think it is. I fear it's not as helpful as it should be because sort of you look back at what the Bank of England has done or others with an external model versus what the Fed has done, and the differences aren't as great as I

would like to think. But I do feel it's been important for the bank, both in terms of legitimacy, just that they're you end up having more split votes and more open discussion and debate, which is better for the public sense that this is hard, but they're taking it seriously and occasionally you get things right a little faster because the external member squeaky you used to have and

still probably do. My former colleague Danny Blancheflower, who was quite squeaky, but so or the worse thins Henry the Eighth, I think, but he was, but he in this particular instance, he was right. And I think history has shown I was probably right on some of the stuff I squeaked about while I was there. So it's it's useful. Adam a clinic as O Wise, thank you said, it's going to from you, Adam Housing that of the Patison Institute for International Economics of right now, we're going to wait

and see on a banking crisis. We do this with Timothy Adams, President and chief executive Officer of the very important IF the Institute of International Finance. This is a gathering of I'm going to say, the large bankers, and he's going to get upset with me, I mean, and you know that's that's what he's going to say, the stereotype is a four bankers and you is it? You mointing him diamond and arrest sitting around one table, who is the I f four hundred institutions, sixty five countries.

I thank you. This is a unique occurrence, folks, and we're going to audible here on this banking crisis and your fury over it. I'm going to go back to eighteen thirty three and a guy from Tennessee. You grew up in the aura of Andrew Jackson, and he said, our biggest fear is bank consolidation. If we went from four thousand smaller banks, they're not part of if to three thousand smaller banks, would anything change in your Kentucky No,

not at all. And if you look where we were in nineteen thirty we had thirty thousand banks across the United States and now we have four thousand, two hundred FDI in short institutions, the trajectory is pretty clear, not only in the United States, but globally. We're going towards greater consolidation. Technology. It's a scale business, and the cost of technology, whether it's for aml or for providing a

customer experience on the front end, is it credibly. My concern with this it's so important, is we had a marketing scheme in Silicon Valley wrapped around the glause of a bank. We all had enjoyment watching the SVB blow up. The concern that we have to have is the new banking environment we have. What does I say other than read Jamie Diamond's annual letter. Well, Jamie Diamond's Anger letters

pretty dark and good, so I'd urge everyone to read it. Look, we have consolidation, a different it's going to be a different system going forward. Technology has dramatically changed the way in which financial intermediation happens, and artificial intelligence, the chat GBT revolution is going to only accelerate that process over the coming months and years, and it's happening at a breakneck pace. You don't think this is a banking crisis.

I don't. I think it's a market turbulence. As we have transitioned from a period of low negative real interest rates, huge fiscal support. Look at the deficits we've run and you read our annual debt report to a period that's more normal. But going from one transition to another, we were going to see things pop. I didn't think it was gonna be Silicon Valley Bank. But I do think we'll see other stresses in the system that's not a crisis.

What kind of stresses are you expected to see. Well, you know, there's a lot of concern about commercial real estate or something we've been watching. I don't think it's a crisis, but I think it deserves our attention overcoming twenty four to thirty six months. Is there something about what's happened with some of the smaller regional banks that's going to lead to issues in CIRA. Well, certainly there's a feedback loop. So that's why I think it's worth watching.

And there are concerns, but if you look at credit card data is still pretty strong. C and I is still pretty strong. Obviously, commercials down, but the system is pretty normal. Think about it. On ninety nine percent of our banks in the United States are globally over the past four weeks open their doors and had normal business. This is a small slice of very unique, idiosyncratic institutions.

No one enjoyed watching it, and it's demias. No one enjoyed the fallout of companies that are struggling to wonder where they're going to get the money to make paycheck. There also was a larger question around what does systemic mean in a new era when there are specific banks that have a dominant position specific businesses. How has the

idea of systemic been redefined? Yeah, I think it's concentration risk that would spbe was the dominant player not only Silicon Valley, about in the research triangle in North Carolina, for example, six thousand institutions it's supported. So it's concentration risks. So we need to think about other institutions that are dominant players in a particular industry or region and ask ourselves what kind of risk does that pose if they

become stressed? How much of that equation is shifting to a geopolitical question of which banks have more dominant positions in specific countries where there are increasing tensions between say the US and China, or the US and certain Middle Eastern nations. It's a great question, as I just said as we were coming on air, is the geopolitical issues I still worry about. It was in Japan last week the dominant conversation was US China relations, US Russian relations

or China Russia relations. President Macron had just visited just landing in Beijing. Those are the issues that keep me up at night. How concerned of the executives you meet with, how much do they feel like there is a storm bearing down as Jamie Diamond was talking about, or reflect

the gloom that you hear from the IMF projections. You know, coming into the last few weeks, we've really trying to look through the cycle and prepared be prepared for twenty twenty four, which is how do we have the technology, do we have the talent for recovering growth? But it's the geopolitical concerns, the fragmentation which the IMF talked about in their annual report, the issue of US relations which seems to get worse by the day. Those are things

that are most worried about. There anything that your palmer's financial institutions are actually doing that suggest as anything to worry about with regards to China. They all just want to be there. Well, John has been in a lure for you know, one hundred and fifty years. It's that changed. So I think there is questions about de risking as we are seeing with respect to all supply chains, not just the financial sector, but the real economy as well. I think we have to worry about what are the

risks operating in a variety of different markets. And if you look at many of our firms were in Russia for decades, that became untenable, right, so we have to look at other geographies that could become under stress. Is there any evidence whatsoever that financial institutions are ever proactive about any of this? I mean, we've been talking about Russia for years and years and years and years and years.

It is not a surprise to anyone. I don't know why we've talked about the last eighteen months as if it's surprising. It's not surprising. It's not a shock. It's a failure of leadership in Europe to see this one coming. Chancellor Merka was warned about this repeatedly. Didn't change the energy relationship in any way, shape or form, and financial institutions have been caught with the pants down in Russia. It's hardly a shock to anyone that this has happened.

So why were they still there? And is there any reason to believe they're going to be proactive about issues like China? I'm not convinced to you, well, most of the I am convinced that we are sensitive to the risks of US China attentions. It is the product of every conversation we have at our board meetings, and now the questions what do you do about it? And that's the same question of real acconemies. I mean lots of real economy CEOs are saying we should do risk. Are

they moving out? Not clear that that's happening. When is the risk of stranded assets going to supersede the risk of losing out in profits in terms of China? Well, I don't I'm not sure we're going to have stranded assets. We taught US stranded assets a lot with respect of climate change, but the timeline of that is very different from the way which we do capital planning. This was

an education, a clinic. It always is. Tim outans that the Institute of International Finance joining US now in his Washington as General Mark Kimmitt, Yes, the former Assistant Secretary of State for Political and Military Affairs, but he has been a terrific advisor to Bloomberg Surveillance on the complexities of military in this modern era. General Kimmitt, thank you so much for joining Bloomberg Surveillances today. I want to

go right now to something dovetailed. It's a bit off the script here of the themes out there, and I think it's been ignored in the American press. We are reaffirming our position in the Pacific Rim by a one hundred million dollars twelve month capital commitment to the Philippines

in four Navy army bases. I think most of America's ignorant of the army commitment in World War Two, what happened north of Manila, the bravery that was done there, And what I'd like to know from you is the importance of this projection by the Pentagon to a new Pacific Rim strategy army and Navy. Look. I don't want to sound trite, but you and I Tom grew up

when the Iron Curtain was up. I think this generation is going to be growing up with the Bamboo Curtain, and we are setting a curtain for that ranges from Korea to the Philippines, to Japan down to Australia to try to contain the hegemonic behavior of China militarily, cooperation and competition going on economically, but there is a significant concern about the hegemonic aspirations of China and that's what the military is setting up. Our guests talk about a

substantial increase of Pentagon spending to GDP. You're the best general we have linking in financial matters. It's widely understood that kimodons the high ground there. Do we have the will to expand Pentagon spending to GDP? Well, I may know a lot about the military, but that's more of

a political question. The issue is can the president, can the Pentagon make the argument to Congress and to the American people that that raising of GDP is necessary at a time when quite candidly, the federal budget is under significant arrests from other expenditure programs and entitlement programs. I hope they do. I think it's necessary, but that's a

tough sell to make these days. General I keep going back to what Peter Cheer, a commentator said on this show a couple of days ago, when he said that this is probably the most perilous and fraught moment geopolitically that he's experienced and that his generals who were with him as former generals, have experienced in a very long time. Do you agree and is it really focused in China or is it broader. Well, first of all, he must be quite young, because the threats that we faced when

I was young officers were far more significant. Whether it was the Soviet Union, the impacts of the post Vietnam period, the Russian Soviet interference in both Africa, Latin America, Central America. There are a significant number of challenges there, Not to mention, we had a population that was absolutely unsupportive of the military writ large. Yes, we have challenges today, but I'm convinced that the US military is up to those challenges,

whether it's the Army, Navy, Air Force, Marines. We need to modernize, we need to expand, but our soldiers are ready. How does that dovetail into the leaks, the national security leaks that we've seen. Perhaps the military is ready, but is the intelligence infrastructure, is the cyber sort of secure

already in place to really support them? I certainly hope. So. I was never concerned about the intelligence products that we were getting from DA the human intelligence, the signals intelligence, the military intelligence, cyber you know, I think we're at a situation at least where we don't know what we don't know. But the fact that Russia has not been able to execute a successful cybersecurity operation against Ukraine I think tells everyone that we're probably ahead of where we

should be. I'm just not competent to answer that question. But the bigger takeaway for a lot of people is that the US is spying on its allies. That we always have a right, So this is sort of not a surprise, and perhaps it shouldn't be. But that also that the US could be a sive right, that there could be breaches here if other countries share intelligence. How concerning is that to you? How much is that what you're focused on. That's that's probably the most important issue there,

the issue of allies spying on allies. I mean, that's something that's understood. This is not a surprise. It's just an embarrassment when it gets into the general public. With regards to your other questions, particularly what we call the Five Eyes countries that we share with, that is a significant threat to the relationships because very simply it reduces

the intelligence flows. The other country is much better than we are in certain areas, but if they don't want to share it because they can't trust us, that's going to have a ground effect. I want to talk about the United States allies. Europe has been a weak link when it came to Russia over the last decade, particularly Germany. Germany was want time and time again about the energy dependence it had on Russia and didn't do enough to back away, and we've had to deal with that in

the last twelve months. Now we're dealing with China, and some people might make the same accusation that you're once again as a weak link. And I would bring up the comments from the French President, the French leader of the last week as an example of that. You've talked about the hegemonic aspirations of China and the risk around that for the United States has been effective hedgehum on the global stage. Both wouldn't get ample. It needs to

bring its allies with it. The Europeans, you say, much evidence of that when it comes to China. Well, with regards of China, I'm more concerned that the relationships we have are the strong links with Australia, Korea, Japan, the Philippines. That's the front line. The supporting line comes out of Europe. So while Europe is important, particularly with regards to the

economic cooperation or economic enforcement, when China violates wto. I'm more concerned that we've got it right with the Allies on the front lines, and then those in the second tier, the Europeans. That's important, but less important give us a window into China. Stillwell was over there a long time ago and it was basically total chaos. Marshall retiring, had to fly over there on an emergency basis and try to figure out the new Has anything changed in seventy years.

Do we have an intelligence basis there where we can be more confident of our actions or is there that cacophony that's still Well and Marshall faced Well. First of all, I'm not an intelligence expert, but I sure know there are a lot of people in this town that know China well in terms of the intelligence assets we have on the ground. If I knew what they were, I couldn't tell you that. But I think we've got a

fairly good picture of what's happening in China. China, this isn't a mystery like Gorbachev in Russia, where we had really difficult intelligence. The problem that we have with intelligence is we're very very good about assessing capabilities, what they've got, how many tanks they've got, how many planes they've got, how many soldiers they have. The hard part for the intelligence experts is determining intentions. What are they going to

do with all of those capabilities. I think that's conundrum that's been going on for years and years. One can only hope that when it comes to China, we can find some manner in which we can come to some sort of I hate to keep using these words coming out of the Cold War, but some sort of parastroike or some sort of detante, because it's clear that China has asked I work in the Middle East. You can't swing a dead cat without hitting a Chinese businessman on

a daily basis. Maybe we quote you that you may they're out there. They're pushing hard. They're pushing hard economically, as we saw with the agreement between the Saudis and the Iranians. They want to play heavily in a diplomatic field. We just got to make sure in the military that we can contain their military aspirations. You've made a series of personal assessments about their intentions. What about timeline specifically,

what about taiwine specifically? A tough policy issue. I think the Chinese, regardless of what we're seeing with all the noise in the air and on the sea. They're taking the long view. They believe that eventually Taiwan will return to the People's Republic of China. They're not in a hurry, I think militarily, they know that trying to invade and occupied Taiwan would be an absolute disaster. But they've got time. General.

We appreciate your time this morning. Thank you, suck you fantastic. General. Mark Kim at Dad the former Assistant Secretary of State for Political Military at Fast Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live. I'm Bloomberg

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