Surveillance: Paradigm Shift with Eisman

a joy. So lean forward Global Wall Street and for those of you are removed from Global All Street, this will be a clinic. His name is Steven Eisman. He's senior portfolio manager at New Burger Berman and the Icemand Group and has a nodded acquaintance with a movie of a few years ago. Big short. Thank you so much for joining us in studio. It's been like, you know, I think it's been three years and and and such,

and it's good to have you here. And we're gonna have Mr Eisman with us for the entire at half hour, I to go to what you and I studied. And he's always been associated with your Harvard but the fact is he wrote his scientific Revolution at Berkeley and that as Thomas Coon and the paradigmatic shift. It's a word that I think is just hugely misused in investment and financing. You're talking about a new paradigm. What is the new paradigm? Well,

let me just add potential new paradigm. I'm not smart enough to know necessarily if it's going to happen, but I think it's something people need to think about. You know, what's a paradigm. It's something it's basically the assumptions about how you think. They're so embedded in your brain that it's similar to how you breathe. You don't even think about how you breathe. And your paradigm you don't just

live it, you inhabit it. And paradigms and investing seem to last about oh eight to ten years or so. So if you go back to the nineties, you know, people invested in law conglomerates like ge until that story began to fall apart during the recession. You know, then they turned to large financial institutions. From two thousand and

one through early two thousand and eight. They assumed that the people who ran those companies were geniuses until they realized that they weren't, and then with the FED lowering rates to zero and keeping them there, you were essentially paid to take risk, and so people invested in growth stocks, largely to net technology stocks, and within technology stocks, the stock that the stocks that did even the best were

those with large revenue growth but negative earnings. And that's a parent and we've been living in for the last ten years. So what could change it? I mean, obviously the Feds at some point, and I don't have no idea when that point is, will stop raising rates. The real operative question is will they cut or will they leave them up there? Now Powell keeps saying I'm leaving it up there, and the market keeps saying, we don't believe you. So let's just assume, for the sake of

argument that he does cut. Then we'll go back to the old paradigm people invest in growth stocks again. But assuming you take him at his word, then I think the days of just investing in in growth stocks and in hyper growth stocks is over. Now, It's not over yet,

assuming I'm right. I mean, if you go back to two thousand and nine, the financials had their last hurrah after the world fell apart and the government bailed everybody out, two thousand and nine was a very very strong year for pretty much every large financial company, and then in two thousand and ten it was over, and it was over for ten years. So I mean, where do I think?

I mean, people don't change their paradigms easily. Um, And sometimes they have to be head on the head with a two by four multiple times before they realize that the way they've been thinking for a long period of time is no longer right. Um, So you know what's going to happen this year? I have no idea. Is this? You know, the FED keeps rates high, will this be another great year for tech stocks? And then we'll go

into a new paradigm. I don't know yet by price section, Steve, you know that I get a sense from what you're saying that you might think that the running we've seen you today is somewhat of a last raph. It might be, like I said, if the FED keeps rates high for a long period of time, then people are gonna you know, I'm not sure what the new paradigm is. I'm not Einstein literally who created a new paradigm. I'm not that smart. I'm not even close to that smart. Like, let me

emphasize I'm not even close to that smart. But where do I think it could go. I mean, maybe it just goes to a much more diversified portfolio. Um. Maybe it goes a lot more to infrastructure related companies and with the United States doesn't start spent me we're beginning to. But if we don't improve our infrastructure, all our bridges are going to fold down literally. UM. So I'm guessing at this point we go to more diversified portfolios. I don't think tech will be dead, but it will be

more focused on companies with actual earnings. Um. People will focus on infrastructure companies, They'll be stock picking. That's where I think it will go. Call me in a year and I'll have a better idea of a different story. You can come back in a year. Well, I look forward to that start. And it's not just about what the FED wants to do, it's what they should have

shouldn't do based on the incoming information. So, as you pointed out, in the last regime, the last paradigm wasn't just low rates with low inflation, low growth, and their reasons to believe based on what you've seen that the inflation regime of the next couple of years will be higher stickier than what we've seen in the previous ten and the reasons to believe that, oh, I definitely think

there is um. I mean, one of the major reason why inflation has been low and it wasn't the less ten years is more like the less twenty five is that the supply chain of the United States and all developed countries moved out of those countries to Asia China, where the labor and the costs were much cheaper. What COVID proved to everyone was that while that supply chain was cheap, it was also incredibly brittle. And that's been

This is a two by four multiple times. So companies realize they can't have a brutal supply chain because it means that if something happens, they'll have no products. So you're getting supply chain moving back to the United States and other developed countries. That means that you know the underlying so you have a more resilient price chain, but prices will be higher. You are famous for the big short back during the whole mortgage crisis. I was, is

there another big short type of trade in this paradigm shift. Well, it's not. In the financial sector. If you're talking about negative the I mean I would give applause to the vice Chairman of Supervision, the first one, Daniel Trullo, who completely changed the banks, lowering d killing leverage. So whatever happens,

it's not going to happen in the banks. I mean, maybe it happens in private equity, but I don't think given that this will probably be just if there is a recession, it'll just be a run of the mill recession, not a calamity. I don't see a crisis in the banks now. Maybe it happens like in the UK and the pension funds. I don't know yet. I mean, maybe nothing happens and we just have a plane run of

the mill recession. That's my bet at this point, if we have a recession, I want to go to a chapter in the Michael Lewis book, The Big Short, which is a long quiet. Some would say the long Quiet was the artificiality of low, low real rates that we've seen for well in excess of ten years. We return

to a real rate environment. On the paradigm story, we can go from Thomas Coon to say someone look not seeing teleb who says the gravity has come back into our financial physics, and then we go on to you that say we have to deal with a new paradigm, which to me is potentially but okay, I will, like I said, not Einstein, not Einstein, but let's what's potentially

here as a resurgence of real rates. Do you think we're going to see a sustainable real rates that gets us back to an environment like two thousand six when you started the big short. I mean, look, I first of all, I think there's a possibility that inflation goes back up. You know you were mentioning before use cars. I just sold my use car and at eight five thousand miles on it, and I got a price that

I was shocked by. So I mean, I'll tell you one thing that I've been doing lately, which I haven't done in fifteen years of I've been You know, our groups are actually buying bonds, at least some bonds, and when we have cash, we either park it in a money market fund that yields over four percent shocking, or we even by you know, three months treasuries with the yield of four point six percent. I'll say it again, four point six percent. So you know, there as long

as rights stay hi. The old paradigm of what was it called Tina. There is nothing, There is no alternatives. It's not true that there is norm alternative. I mean we tell our clients you can have something in very short term duration with a yield of four point five percent with zero risk. You know they're happy to park some cash. Dan Scaly and Morgan Stanley said the same thing this morning. Get paid to white now quite literally. So we've had these big moves in the equity market.

Can we talk about the mix of what you like and equities At the moment, the likes of Rio more than thirty percent from the lows at the end of October. We're starting to see the miners outperformed. We've bought a couple of We've bought some minors very recently. I mean, it's partially an infrastructure story. And if you look at the chart of those stocks, I don't think they've done

anything in twenty years. So, you know, assuming that the resurgence of infrastructure continues to occur, the miners will do pretty well here. Do you think that there is a bet to really go much more into bonds in cash even as you play and some of the old economy that's coming to the four again. In other words, can you give us a distribution that you're looking for. I mean, look, I think you can still invest in tech, but you have to be much more selective. We have a much

more diversified portfolio right now. There's some infrastructure, there are a few financials, there's healthcare, there's some utilities, which is a story also of infrastructure. So I mean, I just like I said before, the days where somebody has of their portfolio in tech, I think is might be in the past. I want to talk about the short termism that's out there. You guys made a battles mentioned in the Quiet, the chapter that was a long quiet in

the Big Short there's a short termism out there. We see the last time since we've seen you in here, there's the whole meme stop things back thing blah blah blah.

The answers, how does our audience get back to responsible long term investment given how they're buffeted every day, every week, every month by the back and forth two by For like I said before, people have I mean people have to be hit on the head with the two by for multiple times before they start to realize that I do think the age of speculation of that intensity is probably over. I mean, if you look at charts, SPACs died the Like I said before, the high revenue growth

companies with negative earnings got destroyed last year. They were down and people are pointing out that they've gone up a lot, but they've got up a lot. When you go down and then you go up a hundred percent, the chart doesn't look that different. You've mentioned that a couple of times being hit by a two by four.

What does that look like in a market that was decimated last year that is facing what is looking like one of the biggest pain trades in the wrong direction towards the old paradigm that we've become familiar with in the past decade. I mean, like we're having a resurgence right now. You know, if if inflation starts to come back and the FED either raises rates more than people expect or keeps it there, people's taste for such speculation is going to erode. But like I said before, people

don't give up paradigms easily. It takes time. So you know, maybe this is a year of the last Hurrah, assuming rates stay high. I don't know. Yet, But something's going to happen. I think some people are guilty of becoming married to positions. Do you have a favorite position? How do you think about that within the portfolio? Do you have one? No? I don't um. I'm not married. I'm not married to my stock. Get that tramp. How have you avoided that? How do you go about doing that?

I don't think that I should be married to any stock. I mean you can invest long term. You know, people have invested in tech stocks for a very long time. They love them, they're married to them. But I don't see being married to the stocks. Steve Iceman of new Berger Burma of the Iceman Group joining us right now is John Stolfer's chief investment strategy the Oppenheimer Asset Management. John,

what if I can't shop with you? I know you're more constructive than most, especially coming into three and so far, so good. Mike Wilson, a margin standing this morning, says price is about its disconnected from reality as it's been during this band market. What would you say, bank, John, I'd say I'd say dark Vader. I disagree with you. Uh, you know a length of force be with us? Uh? Effectively?

I think what we're seeing is that things are actually improving around the world, and they at least have just just mentioned in terms of Europe the way things are looking over there. The better than expected earning so far last night looked. I think earnings were of from fourth quarter for the SSB five hundred around two and a half percent versus expectations I think going into it at

three and a half were cent or worse. I think companies are doing their job to navigate a rough environment overall, and we have the Federal Reserve doing the doing the job to end the period of free money and put us back on a more holistic course that should be good or fundamentals overcome momentum and high leverage. John, you're very articulate about extending a bullish call out tour. We finally got a stulfas market. We certainly have a stulfas

market around. This is the trading and schuring on the market. I thought of you when I saw this observation from Ben Laidler of Toro. In the old days, we used to hold stocks for years. Now we hold them for months. We've gone from a five year old to an average ten month hold. How do you do stulfus optimism. If people on a ten month basis are pretty close to day trading, well, gosh, I think that's that's a great question, Tom.

I think more than ever before, there really is a recognition that there are at the starting from point one, you have two different types of investors. You've got the short term crowd and you've got the intermediate, long term, ground term evidence of fear and greed and longer term its need and the realization that investing in innovation in corporations that that know how to manage their products and

their services. Uh, this is the way to go for a portion of one's portfolio in terms of meeting the needs of whether it's a kid's education, whether it's a retirement, uh, what have you. The serious goals and the fun stuff is the day trading, you know, I mean not for me. I'm an intermediate to longer term investor. I'm a buffet guy. Well. I am curious, though, John, at what point you start to get worried about the Central banks going much further than they previously said they would if you do get

this re acceleration. It seems like that's the pre eminent concern among a growing number of investors right now. I would say that is a pre eminent at least among the training crowded for sure. And remember the traders are closer to equity traders, the dare closer to bodity traders. UH from the path in terms of the way they position themselves on a day to day, minute demented basis.

But we have to see the central banks are doing their job and are showing remarkable ability to UH to essentially if not pivot or pause, and I don't think that's needed right now, but to maintain a view that they're going to be vigilant against inflation, they're going to take action against this. I don't think any central bank or around the world wants to be remembered as Arthur Burns is remembered. So what's your target for your end and what's the parameters, what's sort of the band that

you see at this point? And given that it is a highly uncertain time, and yet there does seem to be this growing sentiment of no landing well well, at least I've never known a period in forty years almost forty years in the market when there has really been UH any certainty in the market Uncertainty is part of life, and it certainly moves through the market. There's never an

all clear signal UH sounded. But we'd have to say, you know, our target is forty four hundred for the SNP this year with based on what we've seen coming out of the box or out of the gates or to speak at the beginning of the year, a chance that we may see that exceeded. Right now, we'll stick with thet D. Our main concerns are on the day to day basis, you know, are the ability of the market to over sell as well as to over buy UH.

In the near term. You have to curb enthusiasm somewhat UH and keep keep a good business mind in terms of what you're investing in and UH and your courage of your convictions. Ye, John, great to catch you in the make Sandy cant you a white at it FS six weeks to this year at John Stelfas staff of Oppenheimer. Let's get to one of our most successful guests. She nailed bonds in two thousand twenty two Priumr associated with a ten year yield of TD securities. Pre I want

to go inside to the two year yield. How do you how do you look at the two year yield? How do you establish a color around how the two year yield may act? Sure, so thanks for having me on. I think the two years all about that endpoint of the hiking cycle. How long is the Fed going to keep it there? And then when are they going to cut? I think we should talk about when they're going to cut, because inflation is likely to come down at some point and we're looking for cuts next year. But I think

what is the market pricing off that endpoint? That pause, and then when do they cut. It's all going to come down to inflation. I think inflation and and and later on this year. I think it's going to come down to the labor market. The labor market is still very strong, so I think that inflation print we get one CPI tomorrow. You know, if course services X shelter remains strong, which is our view, the Fed is not

stopping yet. I think they're going in our view two or I would say there's a decent chance of another twenty five and then they pause again. I think it's going to depend on how quickly does that service inflation come down, which will allow them to start to cut it. So I think it's only and we get into that to handle two and a half three percent inflation sustained basis, can the Fed start to you know, make policy a

little less restrictive. So we're looking for the two year. Actually, I would say the market is actually pretty well well priced for that endpoint of the hiking cycle. I do think the pause can be a little longer, so a little bit higher to U two arrates is what we're looking for. Spray were dancing around it a little bit. Let's put you on the spark. Do you think we are sufficiently restrictive any evidence of that whatsoever? I think we are um and I get a lot of pushback

on that because the data is strong. So number one, there are lags, long and variable lags, you know. I think we're in that process of lags. The fact that the consumer has so much still accumulated savings. Now these savings are coming down, but I think that's actually widened that lag. Beer I don't think the lags are shorter. I know markets priced in, but for the consumer to actually start to cut back on spending, and I think they are starting to cut back. But the labor market

is strong, and I still have accumulated savings. When those savings on out, in our view, that happens in the second half of the year. That's when the consumer starts to cut back. So, you know, I think the policy is restrictive. Real rates well not of one percent is going to have an impact on the consumer um you know. I think it just is going to take some time

where we haven't had a shock to the system. I think the last two recessions have been shocked lead, which is why the market is just waiting for the data to fall apart. I think it's going to be a slow grind. You know. It's like that last mile when you're running that marathon. It just you slow down. It feels really long. I think we're in that moment of the market's impatient. So that's why we're moving from you know,

hard landing, soft landing, no landing. You know, I still think that interest rates real interest rates well north of that fifty basis point that we think is normal. That is restrictive. It just is taking a while for that to slow the US economy down. What does restrictive mean in terms of the likelihood of a hard landing of a recession that a lot of people have written off sure, so I think you know what's going to be tricky is as the kind of starts to slow down, can

the FED respond? You know, I don't think we're gonna get any fiscal response. In fact, into the dead ceiling, we might actually get some spending cuts. What makes us more nervous about about a hard landing is policies restrictive. The economy starts to slow down, and then we wait for the FED to respond. We wait for the fight to stop QT to start to cut trade, and we think the inflation environment is going to prevent them from

doing that. And so if policy remains restrictive for longer, that soft landing very quickly starts to look like a hard landing. You know, every hard landing sort of starts looking like a soft landing in the beginning. That's what I do worry about. Now. If we're lucky and inflation actually does start to come down, I think the FED can respond and then we can perhaps get that soft landing that it's going to depend on that inflation outlook just quickly. Preyer, what does that mean in terms of

ten uere yields? If there is this feeling of the first option where you end up with a hard landing. Does that mean that three point seven percent on ten year is positive, is attractive right now and that yield curveent version could go much much deeper? I do think it can. It can go, uh, you know, more deeper. I think we're getting to that attractive level. You know, is three seventy five the highest we're going to get.

We could perhaps get closer to four percent. I think legging into duration now does start to make sense that I would say terminal rate pricing is pretty fair. The rate cuts look a little bit early in our view, but I think they are going to have to cut rates next day. I think starting to leg in three seventy add more as as we get closer to four percent global rates, watch global rates. I think that can maybe push you know, the US tenure closer to four.

I think you're getting two levels where duration risk is going to look more attractive than equity risk, more attractive than credit risks even how much uh you know, credit spreads have have compressed. That was a green life from t D to start bounder ten year premise. R let's t D prayer. Thank you. We're to some all this to speak of the greater economics and particularly the trans

Atlantic economics. Megan Green joins US Global Chief Economist Cruel Institute with their academics here and there her work with The Financial Times. Megan, thank you so much for joining us. You wrote in the f T I think early December about the recession. Wait, give us an update right now on the recession we're all waiting for. Yeah, that's right. I mean, this will be the most anticipated recession will

have ever had if it materializes. And I have to say now it looks less likely to materialize, and it did two months ago, for example, but I still think it would be incredibly weird if we didn't get a downturn UM. Given the aggressive rate pace of rate hikes UM, the labor market has held up really well UM, and I wonder if that's to some degree a result of labor hoarding. And we don't really have a great way of measuring labor hoarding. It's mostly ANNEC data rather than

actual data. But I do think that labor hoarding could change on a dime. If companies feel like they're earnings are starting to turn rates continue to go higher, UM, then I think they might figure, well, maybe we should lay these people off rather than trying to get through this rough period by keeping them on our balance sheet. And when the labor market declines, that that's what we

spark our recession. One part of your academics, Megan, is the idea of aggregate versus the modern theory of looking at this, looking at that, looking at the itty bitty things and not the sum. What I find interesting is the parts of America booming Towarsen, Slack and Apollo has a chart out this morning on booming air travel over the last five six years, and yet other surveys, John Farrell mentioning one survey where half of America's flat on

their backs. Are you aggregating EU, British and American data or do you have to break it apart? So I think looking at it more granularly is really important in the US, in particular, given how weird the economic indicators are. Um it is. We're looking at things by sector, and I do think that there is a chance that we don't get an overall recession in the US, but instead we get a series of rolling recessions where you have

manufacturing and contraction while services are expanding significantly. Then the services come off so you get you know, contractions, recessions, and individual sectors just not at all at the same time, so it doesn't add up into an overall recession for

the economy. And that's just for the US. I think you also need to look at different sectors in Europe and the UK, particularly when it comes to energy versus non energy, given the relatively big energy shock that Europe has experienced over the past year, the idea of rolling recessions, what does that mean for inflation, Given there won't be one big shock that brings down the acceleration in prices that you could still get you know, growth in other

areas that keep propping up pricing power. So I think that means that will inflation, that inflation will be difficult to bring down. I always thought that to get from ten to six percent inflation was going to be a whole lot harder than getting from six to two percent inflation.

I think that continues to be the case, particularly if we have parts of the economy that are remaining buoyant and so we're providing demand as the feed is trying to lean against demand to bring it back into line with supply so that we stopped getting an acceleration in prices, So I think it will just mean that inflation is

more persistent than we had previously thought. I also think it's worth thinking about what inflation looks like when the dust is finally settled on the pandemic, on the war on supply chain disruptions, and I think there's been relatively

little thinking done on that. But I do think that you know, if you believe that we lived in secular stagnation and that was driving low inflation, low rate, slow growth, and it was based on an excess of global savings, we're all going to be spending a lot of money on defense, on the green transition um. You know, that could fundamentally be moderately inflationary. At the end of the day, we could be deglobalizing. I think that's overblown, but on balance,

that will probably be a bit more inflationary. So when the dust is settled, inflation may also be persistently higher than what we had before the pandemic. There are a lot of different ideas here, and people are trying to pass through them. Probably the reason why people aren't talking about them more is books it's so difficult to quantify.

Bill Dudley, formerly of the New York Fed just how with an opinion piece talking about perhaps if FED could go higher in terms of a terminal rate and keep it there for longer, what are you modeling out in terms of what you expect versus market expectations. How will you know what the sense is given whatever lag effects might might already be in the system. Yeah, I wish we had some metric for figuring out exactly what the lag is for monetary policy feeding through into the real economy.

We just don't have a great handle on it. But I will say that I think the markets have been miss pricing the FED for a while now, so I think that FED rates could get a bit higher than the markets are pricing. They could go a bit higher than even the FED is pricing, and the markets are still pricing and cuts this year. I think that's unrealistic. I think the federal rates high through this year and

maybe start to cut next year. It depends entirely, of course, on on what the economy is looking like, whether we're in recession going into recession. I don't think we'll be going into a recession in the first half of this year, so I think it will take a while. Thanks partly to the huge cash buffer that companies and consumers have off the back of stimulus measures when the pandemic hits, So you know, I think that could be pushed out even further. That could be pushed out into the beginning

of next year. So I think the FED will hike more and keep rates higher than the markets are pricing. And Megan, do your focus on the United Kingdom. How many degrees of freedom is Governor Bailey lost? He's declaring victory was almost Churchilli and I thought, there is you know, on the last meeting as well, how constrained as Governor Bailey and working with the oddities of Rexit and the

United Kingdom. Well, Brexit is clearly causing a lot of uncertainty in the UK economy, and I think that's probably been a drag on business investment, which really leveled off after the twixteen referend um and and hasn't bounced back since. And that's a drag on productivity growth. Um that you can have wage growth and it doesn't have to be

inflationary as long as you have productivity growth. But what we have in the UK is really high wage growth, much higher than in the US, with much lower productivity growth, so there is a risk of that being persistently inflationary and that's the challenge at the Bank of England really has to grapple with. Now, Megan, thanks for the brief. Look for your next writings in the Financial Times. Megan

Green is with Kroll Institute. What a highlight for us to begin the year looking at the risks that Eurasia Group sees. It's really a wonderful informative way for us to kick off the year. And we do that with Ian Bremer, who I believe did not have a risk like this in his power of crisis. Dr Bremer joins us this morning. Of course, the force at Eurasia Group, Ian, this is incredibly difficult. You and I have talked about

this of the years. There's early Air to Wan, there's Middle Air to One, and now there's Air to Wan crushed. I saw on an internal feed on here on Friday Mr Air to Wan and various leaders dressed in black, and the only image I've seen equivalent to it was Rudy Giuliani and Mayor Bloomberg after two thousand one, How does Mr Air to Juan and the people of Turkey, Regroup of thirty thousand dead and southern central Turkey. You can't.

It's it's staggering hardship. Um. And with thousands and thousands of bodies still trapped UM and the survivor stories of course, everyone at this point feels like a miracle. UM. But the devastation being felt by Or to Wan and of course across the border with much worse infrastructure as well in Syria, it's really it's hard to fathom. It's hard to talk about. Of course, with on your show, we're also talking about elections that are coming up in Turkey in May. Uh. And the fact is that Turkey has

limited democratic institutions. UH. This allows Or to want to have a lot more control over what his people see over the media, as well as how well the opposition can compete against him. And the reality of this devastation also means that the opposition has had to wait in coming up with their own uh you know, the consolidated candidate opposition candidates, so they're not able to run their campaign because everyone, of course is now having to focus

on this horrible, horrible tragedy. So I mean, as much as it pains me to say this, the reality is that Urtawan comes out of this crisis a little bit more likely to be reelected. Does he re embrace ian a view to the west in NATO? Does he look earth with the very complex Black Sea politics with Mr Putin? Or does he look south? Does he always wanted to

be an international voice in the levant? Well, let's first of all recognize that even before this earthquake, Urdawan was perhaps one of the most effective international interlocutors between Putin and Zelenski. He helped facilitate the Black Sea food deal, the only piece of good news really that's come out of this war over the last year, So that engagement

has been helpful in the Americans appreciate it. On top of that, of course, with this crisis, you have countries all over the world providing humanitarian support, the Fins and the Swedes, which will make it easier for Urdawan to get off of his high horse and allow uh that

their NATO enlargement applications to proceed after elections. The Armenians, despite their historic grievances of a genocide committed against them by Turkey, are providing humanitarian support and they're doing that even as the blockade continues against the autonomous Region of Toabak that will make Turkey more likely to facilitate a

peace agreement there um. So I do think that Urawa comes out of this uh more of a statesman, more willing to be engaged with the Americans, with the Europeans, and I suspect, by the way, that those American F sixteens will get cleared by Biden um in the months after the elections as well. Meanwhile, shifting a bit more to the east end, when we talk about the potential risks, we have to talk about the UFOs and the the plane, the balloons that have been shot down above the United

States airspace. What are the contours of a new Cold war between the US and China that a lot of people are trying to game out at this point, well when we're not in a new Cold war, and the Biden and She have both said consistently that is the reality of today's politics and they want to avoid it. That continues to be true with what's happened over the

last week. Let's be clear, the American administration believes that the purpose of this balloon surveillance program is a backup, a backup by the Chinese in case in a conflict with the United States, they lose their satellite capabilities, which are far more capable in engaging in surveillance than any balloons.

In other words, if there were a military crisis over Taiwan, how would the Chinese be able to continue to assess um, you know, sort of intelligence around the world, including principally for the United States. So the the U. S Government at no point believed that these balloons were reflected a significant additional intelligence threat to the United States at all.

And that's one of the reasons why before this was made known publicly, before this became a headline, Lincoln was still going to try apple to China and meet with Chiji and Ping, and the Americans had literally zero intention of shooting anything down. But of course, once it got in the headlines, and once you saw you know, everyone standing up and saying we've got to be tougher against the Chinese, then Biden had to pull off the trip.

Then Biden had to shoot down um the balloon, And of course that leads to more pressure on both sides of this relationship. And that's exactly I wanted to go. Do you feel like the heads of both states, right, both President Biden and Jijan Ping would like to ease relations, and yet the populations, a sort of nationalistic tone that a lot of politicians have drummed up in both economies

are making it difficult for them to do so. I'm not sure how much it's the populations at large, either in China, not a democracy, or in the United States, where we're talking mostly about Congress, but it is both sides of Congress democratic and Republican um. And there's no question that you remember when Nancy Pelosi was making her trip to Taiwan, Biden didn't want her to go and privately was sending members of his cabinet to tell Pelosi,

we'd rather you not go on this trip. But once that got linked to the Financial Times and to other media, then Biden had to get on board. So we're seeing this over and over again. McCarthy's probably gonna make his trip to Taiwan. I was gonna make it a lot harder for the Americans to maintain this policy. So I do think both Biden and she wanted as they put a floor under the relationship. But that's very different from the governments. Dr Bremer, to use your Eurasia context, that

you have. It is a spectacular note from the US Embassy and Consulates in Russia. It is dated twelve February two thousand and twenty three, and they're basically saying US citizens get out of Russia. But what I find fascinating in it is the basic idea of quote, the unprovoked full scale invasion of Ukraine. Do you, when you're you Great Eurasia Group analysts expect a full scale invasion of

Ukraine by Russia? Do you mean beyond what they've already done, beyond what they've already done, something new, as the U. S Embassy alludes to in Moscow. You know, Look, I think that what we have seen is that the Russians, We've had three hundred plus thousand troops go into Ukraine. They tried to remove Zelenski, they tried to take Kiv. I think that still is the ultimate intention of Putin, but he does not have the troops to affect that

outcome in the near term. In the near term, um, they certainly want to have increased defensives to be able to take the territories that they have announced that they've annexed. First time in my life I've ever seen an annexation announced where the country doing the illegal annexation doesn't actually have control the territories on the ground. That that is where we are focused right now. The question really is beyond that, are we going to see broader Russian in

you know, asymmetric attacks against NATO. We've seen some of that increased attact the UK and Italy in the past couple of weeks. We're out of time. Thank you so much for the brief Ian Bremmer there on a number of topics. 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 I Heart Radio app, tune In, and the Bloomberg

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