Surveillance: Russia & China with Bremmer

sentence from December of this year. If Putin doesn't get concessions from the US lead West, he is likely to act one of the top risks for Dr Bremer. And as you Raise your Group and he joins us here this morning, Ian, I want to frame forward with you. I want to get without the breaking news that you've been on all weekend, the end of the free market. One of your books talks about that adjustment from free

market to some form of new capitalism. What does President Putin or whoever's after Putin, What does their free market, what does their business structure, what does their command economy look like in two or three years? Well, it's not our target. I mean we talk about Putin as if he's a global pariah. UM. That's of course not true, because it's a G zero world. You can't make someone a global paria. But he is a pria in terms of the advanced industrial economies of the world, the G

seven as it were. So what does that mean? Well, when you have the Chinese government saying that the relationship with Russia is like a rock UH, that means that you're going to see a far more integration of Russia UH into the Chinese economic network, both in terms of the technology that supports the military industrial complex for Russia, of the financial transactions that allow them to function as UM an advanced economy UM, and of course also the

energy flows and infrastructure that will need to be built, not just in terms of oil production and next fort also eventually for gas. They'll be moving towards China to Russia will also be working with a lot of other developing countries around the world, the Gulf States, India, Brazil, China is going to be absolutely critical for the Russian How do we adapt? How do we move from two thousand and eight in Bucharest, NATO, where Gates and Rice begged the United States to not sell democracy to the

Far East of of of Europe. How do we adapt to a new regime? Were just maybe possibly we can't sell democracy twenty four seven. Yeah, the fact that the American model of democracy is seen by China as pasted seld and they're going to be the largest economy in the world, means that we're in a hybrid system. It's competitive. The big question I have here is not about the tilt of Russia, because Russia, of course, we've been steadily

losing for decades now. It's rather whether or not new technologies, which are top down the data and surveillance economy, actually facilitates authoritarian consolidation and also undermined civil society in ways that can't be redressed. Back in two thousand and eight, technology was something we thought of as supporting democracy and undermining authoritarian states. Think about how it was the Soviet

Union collapse. Think about the Arab Spring and the Colored revolutions. Well, those are all quaint and in the back view mirror right now. Instead, technology is what allows the Chinese to repress a million leaguers and it doesn't lead to any demonstrations on the ground. Why because they can monitor and police the behavior of every single citizen. If the Russians can do that. If other smaller economies can do that,

that's a big challenge to American democracy. And a lot of people right now are hoping for the bandwidth to worry about selling democracy. Right now, people are worried about selling wheat. They are worried about selling nickel and aluminum and corn and soybean oil. And what we are seeing right now is China coming out over the weekend and saying that domesticizing food production is an issue of national security. We have heard from the US supply chain security is

a national security issue. How much are we seeing a pivot point moving to the mass deglobalization of our economy. Well, I mean, I'm glad you brought up grain in particular, when you have um, the largest grain producer in the world, invading the fifth largest grain producer in the world, one

would think you're going to have big food problems. And certainly coming off the pandemic where extreme poverty after decreasing for decades is going up in the next twelve months, this is going to be absolutely critical and you're gonna

see a spike in starvation around the world. Yes, in Afghanistan, but also across sub Saharan Africa, and when you have pigs in Europe and the United States UH fighting for grain supply UH, that will allow wealthy people in the world to eat the meat that they want, competing with people in poor and the poorest countries in the world

that can't buy that grain for themselves. You can see that the globalization of the world that had been leading to an increased global middle class is now unwinding, especially on the back of this crisis, which, frankly, I mean the the U the Russia Ukraine invasion is going to be worse for global poverty in my view. Um, then when all is said and done, than the pandemic has been and that's a pretty traumatic statement. How will this

conflict rearrange the economic outlook as we know it? Um, it's going to increase inequality because you know, when you have massive supply chain challenges and when you have energy price spikes, it doesn't affect nearly as much the wealthy around the world, who have the ability to move their assets, they have the ability to change their lives. Who gets

really stuffed. The advanced economies can do more even to help support their poor and middle income economies, But the emerging markets have vastly more debt on their books after the last two years of crisis and now don't have any more flexibility to help their populations. But this is a massive shock um to their imports coming down the pike. Okay, not for the major commodity producers who benefit for higher prices. But you're up, You're on the other side that trade.

You're gonna be hurt dramatically coming out of this. And Dr Bremer, let's steal something from Freed Cicaria here, and let's talk about not the post American world, but the post putent world. I read a lot this weekend on Mr Putin's inner circle, his defense minister who never served as a professional army guy, etcetera. What does the post world? What? What does the post putent world look like for Russia? But we'd have no idea if it's gonna be in

twenty years or in twenty days. Uh. It's important to recognize that the likelihood of removing Putin from power is extremely low until the moment that it happens, and so it's not very useful to speculate on when it could happen. But it's important to understand that the pressure is there, um. And of course that leads to more erratic behavior domestically for Putin himself, who in the last week has been taking all sorts of measures to create a North Korea

style police state. That just doesn't work well for a country of relatively educated one fifty million digitally literate Russians. Um. And you know, it's true that the average Russian believes what the Russian state media is putting out um, but a lot of urban, younger Russians do not. And the ten thousand Russians that have already been arrested um for

a non violent protests against the war. As the economy starts to literally implode in the coming days and you don't find goods on shelves and you have to rash and people don't get their wages, some of those are gonna turn violent, and the Russians are gonna repress it. So we have to at least consider that. You know, one of the only ways this potentially gets resolved in the near term is if you have a dramatic discontinuity

in Russia itself. And uh, that's that's a very hard thing to plan for in a country with five thousand nuclear weapons and thank you. Let's look at the equity markets now. A briefing with Lori Calvacina, head of US equity strategy at RBC Capital Markets. Laura, I want to rip up the script here. You have the advantage of one h Croft. She is absolutely exquisite on commodities. How are you folding the analysis of Halima Croft into your

equity work? All right, well, thanks for having me as always in look, I am very fortunate to be working with Helima these days. And you know that, you know the drill tom in December, they start trotting out all the strategies to do panels and I was fortunate to be on a number of these with Halima, and she had been warning us that there was going to be a problem with Russia and Ukraine to start the year. You know, Frankly, I think a lot of market participants

were not listening to her. And it's not that we necessarily grasped how bad this was going to be in the moment that we did have an inkling that this was coming. So as I've been able to operate through this environment, I feel fortunate that you know, I have not necessarily been as reactive to the news as some other market. How you change I mean we got we just short on Tom, Lauria, how many have you change

your allocation given the outfrontedness you've got with Helma Croft. Well, look, we stuck with our energy overweight, even though we were getting a little bit nervous frankly on how bullish everybody had become. So we did stick with that. That's been fortunate. It's been one of the best performing sectors to start

the year. Um. We've also been talking about how we expected the market to sort of pivot back towards growth stocks later this year, and one of the reasons for that is we thought economic growth expectations, we're going to start focusing on a return to trent. We thought that would happen in I think this crisis raises the risk that we bring that economic projection, that raining and of

economic expectations in a little bit earlier than anticipated. Secular growth stocks tend to do well when the economy is cool, so that has helped us sort of stay very steady in some of those sector allocations we had to start the year. Lauria, is this a bible dip? I don't know if you necessarily want to buy it today. And the framework we've used is that we view this as a growth stare, something that doesn't necessarily push us into a recession that makes everyone feel like we're gonna hit one.

And if you look at growth scare pricing, it can take the S and P five hundred down to round thirty. In the short term, growth scarce tend to see markets fall fourteen pie to trump. We simply haven't done that yet, despite how terrible the sentiment has done. Laura, you said that it can make everyone feel like we're going to into a recession even though we're not, and that's been sort of the tipping point of a lot of strategists whether this is or isn't a recessionary event. What are

you looking at it for? The resilience that could potentially tip over should the commodity surge continue. So look, I think, you know, maybe the silver lining of coming out of this hand down and I use that in quotes with a bit of irony, but we've all got this arsenal of high frequency economic barometers that we've been living and breathing for the last couple of years because of COVID, and I'm peeping a very close eye on those. Right now.

We're still seeing improving trends and open table dining, flyne return to work is still in the process of recovering and has a way to go, but none of these are shining any signs of slowing down right now, Lisa. So I think we have to keep an eye on the resiliency of the consumer in here and what or not that holds up. Laurie, this question might sound counterintuitive of first approach. I just wonder how nuance this might be. Is there a point where crude goes so high that

energy equity stopped going high with it. I think it's it's a point at which the market starts to sense out demand destruction. And I don't think there are any easy answers to that question in terms of where that exact level is. Frankly, we would have thought we would have already seen it by now. Um. I think that we have to sort of counterbalance the oil price impact with the psychological impact of reopening, and many consumers very

eager to get back to their lives. We're seeing that resilience, We're seeing that eagerness to get back to normal dominating in the data right now. There will eventually probably be a point at which that won't hold up. But all I can tell you today John is we haven't hit

it yet. Laurie, Thank you, Laurie Canvassin or MBC Capital Markets wonderful as always, John, what's so important here in this anticipated interview is it is eight thousand four miles from Midland, Texas to re Odd and that is a world a part of global oil economics, in the marginal economics of getting the marginal barrel out of the ground to be marginally refined. John, we can speak with Paul Sanky of sank You Research. We'll catch up with Paul

Sanky right now. Paul, let's start right here. Often these conversations and sometimes it's our fault, sometimes it's the fault of the people we speak to. We talk as if there is this special tap down in Texas that you can just turn, go down there and just turn and all of a sudden, crude output is up. Talk to us about how difficult that effort is if we even

tried to well, I mean it's even basic labor. But you know, then if you get into engineers and and you're just the ability to add capacity as being wildly exaggerated here simply because there aren't the people. As Thomas referenced, Midland is kind of in the middle of the desert.

In fact, it is in the middle of the desert, and there's tremendous competition from Austin for both labor and engineers is and so just in people terms alone, for commentators to turn around and say, you know, the USCMP industry should add, should add capacity and volume is completely misguided.

I was in Midland in late December talking to the service companies, talking to diamond Back, a major reamp there, and the fact is that things are drum tight prior to this crisis, and yes they could add on a one year view, but there's nothing they can do this week. But they are damned if they pump. Environmentalists criticize them, and investors punished them, and they're seemingly blamed if they don't. Well, what do you make of the relationship between the administration

and they all patch in America at the moment? I mean absolutely appallingly badly managed, because of course, as you know, they came in with almost no oil expertise on the basis that they would change the energy system. I don't know how you can change the energy system without oil expertise. And now you're in a situation where you're talking to Venezuela, you're talking to Iran, and you're basically pretty much not talking to Texas. So it doesn't make any sense to whatsoever.

How much could they actually though, influence the output in Texas quickly, given the fact that there has been a lack of investment, given the fact that a lot of this has been driven not by Washington but by a lot of the shareholders that have looked for fiscal discipline. Well, the point that John highlighted from my research yesterday was that if they try to aggressively increased capacity now they're

simply going to compete with each other. And Tom also picked up on the point, you're just going to inflate things more because all you're gonna do is take the guys from the next door rig and put them on your own rig. And the list goes on, because it's not just about people. It's about steel, it's about cement, it's as they would say, cement um. It's even about

sand actually at a given level. So there's just all sorts of tightness down there because we know that we were in a commodity squeeze already before all that has happened,

which is why it's so dramatic. The answer is, you know, if you really started to reorganize towards more capacity, you would begin to see an impact towards the end of this You so, Paul, what could this administration do it would you like to see them do in order to support more more domestic production as opposed to coin event as well, as you point out, well, the grand scheme, as you know, is nuclear with a new grid. But of course, you know, can we do that? The utilities

don't really want it. You know, the utilities have a lot of vested interests and don't get the criticism they should. Nor does Amazon get the criticism it should for you know, the amounts of oil that's used to deliver a package to everyone in return half of them. You know, all of this stuff is not really examined in the grand scheme of things. But above all, what the industry wants

is consistency. So one of the latest things that we're seeing is suddenly they're saying we'll reduce the federal federal gasoline tax. Totally idiotic, just in terms of environmental friendliness and not encouraging efficiency. What they're saying is will take off the stupid mandate for ethanol but you know, being used again. Just as the industry is moving towards major investment in renewable diesel, the administration says, actually, we might have to change this because there's a cry. It's a

crisis management. And that's exactly what you know leads to what I call the energy regression. We're in an energy regression. We're going backwards. Paul. Let me go to the third rail, and it's not the expensive summer camp that was a third rail this weekend. Let me go to the third rail of the Keystone pipeline. Is it a valid economic project and it can it actually enhance United States energy independence? Yes?

I mean it could and absolutely more Canadian oil is an obvious outlet here to to as a long term solution because obviously we have such a tremendous ally right there with the available oil who by the way of doing a tremendous job of Scope one and two ementionance reductions. So yes, that shouldn't have been delayed back in ten, which was one of the obomber administration first through a

wrench in the works. Actually, the Biden administration was just bad messaging because by then the project was pretty much dead. In so far as the Biden administration canceled, it is the first, literally the first thing that they did. Um. But yeah, you could really easily resuscitate with stuff if you could get around the environmental opposition. Environmental opposition is local, you know, it's a problem of negotiating very specific issues.

The latest one has been this Mountain Valley pipeline, which would release more US gas from the Marcellist into the general U. S economy and to export. And that's nineties six, complete with six billion dollars sunk, and a federal geodge judge blocked it for crossing the Appalachian Trail. You know, stuff like that just makes no sense environmentally. Pasanki gasoline triple A unloaded from three six D two I believe

four oh seven in seven travel days. If you will in your head, where is the tip point on triple A unladed where it really begins to affect our behavior for fifty four fifty nationwide? But then you add sixty cents to well, that's the retail price. But then you have to add a dollar in New York and a dollar in California, you know, in the higher tax states. So you're going to get to five fifty. And by

the way, that's in the post. That's going to happen because essentially the gasoline price is trailing the crew price, obviously quite quite severely. So what happens when we get to five fifty, Well, people change behavior quite radically because obviously there's a lot of discretion over how much you drive your car, which car you drive, whether you drive like a crazy idiot, or you know, very conservatively, whether

you pump up your tires. We saw all of this in O eight on, and you know, there's actually quite a significant ability to change behavior. What's interesting now is obviously that you have very low unemployment and therefore people do need to drive. And so I think the elasticity here is going to be pretty sticky, to say the least, and I think we'll get to really significant, significantly higher

gasoline prices are absolutely guaranteed. Well, that's the test, and I think this is really interesting for you and I to try and talk through work out. It's an open question in the treasury market when you would go higher aggressively high. We talk about how self limiting a sell off would be, because it's nice to bite the U. S. Economy and yours come back in. Does the same dynamic exists in the commodity market for crude and I'm trying to work out what that might mean for say, the

likes of oxy are more than ninet here today. At what point do energy prices go too high for even energy equities to continue running with it? Yeah, I mean you get into the point of demanded structure. Obviously, oxously was an outlier move because we now know that Warren Buffett was building a significant stake and seems to want

to do it entirely in a week so. But generally speaking, if the market begins to believe the strip, which is now over a hundred all the way down as far as the I can see, then these things move higher. And it's really the back end of the price curve that matters, which is aggressively higher. I think because there's a total question mark of what Russia will look like

in the future. I think there's two things here. Number one is that very good news this morning Russia has softened its stance, and I think we see the markets coming back it given that Russia is softening its stance and maybe at the point of admitting defeat here quite possibly. That's that's the good news. The bad news is we may actually see Russia now permanently out of the market um, you know, for multiple years, long enough to make a difference to the strip, at which point the future strip

will be at a hundred. And these things are hugely undervalued against that um once you get to on a spot basis. Obviously, we worry about demand destruction. And really the big question here, and you guys debate it constantly, is what will the recession look like? You know, it's not a question whether we get a recession, it's like what kind of recession are we going to get? Paul awesome as always going to catch up with this, Paul

sand Kick of Sanky Research. It is our great pleasure now to introduce a former governor of the Bank of Israel, but farm more than that, the Rockefeller Professor at the University of Chicago just a few years ago, Jacob Frankel. It has been far too long since we've seen you working with Mr Diamond at JP Morgan. He comes to us today from his tell of you, Professor Frankel let me cut to the chase. Joe Stigletts talked about globalization

and it's discontents. We have globalization and Mr Putin's discontent or Mr Putin's grievances. What will come after? Well, remember, since the collapse of the Soviet Union in the l nineties, the entiled world was excited to embrace Russia, to embrace China, to bring them into the Group of Nations. The seven G seven has become g A, the G twenty w t O, the World Trade organizations all brought them in and both China and Russia have benefited immensely from being

intotegrated into the world. This has been a great period which unfortunately, during the past few years, with the emotions of the Trade WARLD and now with the invasion of the Ukraine, has inverted it all back. Russia will end up being much poorer. They are suffering on a day in and day out. They are isolated, They are secluded financially, economically, politically, and the question now is how will the world look

like thereafter? I think that, unfortunately, to my mind, the globalization is will be part of the legacy of the past, and we will now move to a new world order in which democracies of the type of the US and Europe will be on one side, and and other countries, autocratic countries like China and Russia will be on the other hand. But take up how how do we get to that place? Considering the intertwining of the supply chains as we've seen that we still haven't moved away from

even with the pandemic. A lot of companies have kept their factory footprints in China. Indeed, they have kept them in China because it was economically wanted, and I believe that they will continue working with China. China sees what happens with Russia. So while it does not take clear sights and does not join the world in condemning what is happening in in Russia, by the same token, it takes the so called in their language, the middle ground.

So Russia China will continue to be a partner, but it will be of a different nature, not of camaraderie, but of self interest. Jack Franco, as a former governor of the Bank of Israel, a bit of a delicate question, but I will ask it of you, what is the place of Israel to negotiate some form of better place in this war in Ukraine. Well, I believe that the place of Israel is to be wherever it is found

to be useful. And in this regard, when both the US and Russia and the Ukraine have approached the Prime Minister of Israel in a request to see if he can bring some common sense, even though the chances are not very high, Like most cases of such negotiations, Mr Bennett decided to jump to the water and to see if he can bring a little bit of a cohession. But I can tell you this is not an issue. It's a big, big issue. So even a progress of

one inch is a progress, Jacob. Right now we're getting a sense that the US is working and striking some sort of Iranian deal in order a nuclear deal, in order to unleash some of the oil supplies there. I know this is a delicate issue for Israel. Are there is there more willingness in the nation to allow that kinde of type of deal and actually support it given where we are in the commodity space, Well, we are

so much now in the midst of everything. And to get into the kitchen when there are important chefs in it is never a wise move to take. But what I can say is that given the situation that the US is planning and effectively so, to ban imports of oil, it will be extremely important to find other sources. And other sources can come from Saudi Arabia, can come from other places that have it, and so this is I

will put it in this context. What is important, however, is not to forget that the A has been the

position of Israel on along that the Iranian deal. The key world is not a deal, but the key world is sick, security and safety to all concerned, and if it compromises it, then it's not a good deal, and if it does not compromise it, then it is a good Jacob Frankel, thank you so much for joining us some tele Aviv today, of course, former international chairman at JP, Morgan Chase, the former governor of the Bank of Israel.

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 w