Surveillance: U.S.-China Talks With Bremmer

Ian Bremer today with Eurisia Group. His top ten wrists did not include rudeness in Alaska, but nevertheless that's what we need to focus on, and we're hugely advantaged that Dr Bremer could join us this morning, Ian Bremer. At the Geneva Conference of nineteen fifty four, the Secretary of State of the United States refused to shake hands with a gentleman from China. We then moved on and oscillated to the wonder man of Ping Pong diplomacy of nineteen

seventy one. What was the Pingong diplomacy? Across those two tables that we witnessed yesterday, most important bilateral relationship in the world, also the most challenging for the Americans to manage, certainly one of the more dysfunctional. And it shows that Biden and the Biden administration have been talking about China

and operating largely in a vacuum over the first fifty days. Uh. And that's, as a consequence, been very easy to talk up how tough they're gonna be on China, and now they're actually engaged with China, and the Chinese government is

having none of it, right. I mean, their their belief that they don't need to be talked down to by a group of American Exceptional is the Chinese belief that their system is every bit as valid as legitimate, and the Americans don't believe that, right, So that that's that's pretty core, It's pretty fundamental. What is the debris here of Trump Pompeo? Do you link the two or is this separate? In discreet to maybe the transfer from Obama

to Biden. They're very similar in terms of orientation of actual policy issues, whether you're talking about Taiwan or Hong Kong or the South China see or intellectual property theft

or cyber um or or trade. Uh. There's not an awful lot of daylight between what the Biden administration is concerned about and what the Trump administration is concerned about when we can cherry pick a few issues where you see some differences, even the leaguers where Trump never talked about human rights, but the actual policy under Trump Biden

very similar. Where you see an enormous difference is that Number one, the Biden administration is trying to work very deliberately with allies in advance, trying to coordinate US China policy with the Quad, and that means the core allies in Asia, not including South Korea because Japan has a problem with the South Koreans, but Australia, Japan, and India, and also core allies in Europe, the EU three less successfully because the Europeans do not view China the way

the Americans do, and that of course is the UK, France, and Germany. None of that coordination was happening under Trump. The other big difference between Biden and Trump is that the Biden administration is actually having a policy review. What's that with principles across the cabinet that are actually trying to work out a strategic policy that then Biden will discuss with the principles and make a calculated, calibrated decision on how they're gonna roll that out. Uh, you know,

this was a Trump was a game time quarterback. He sees an opportunity, he throws the ball. He's not waiting to see what kind of a review is going to happen from his you know, various members of cabinet who obviously aren't his right shouldn't be listened to the way his judgment carries. So it is quite different in terms of how you operationalize what those those relatively similar core policies. So an approach is going to be different, an emphasis

will be different too. So let's talk about approach just briefly. And I think you mentioned the most important aspect of trying to get a multilateral approach together. That was just Europe West Germany on this. Where is Europe on this? And is there actually any space there to get Europe on board. The Europeans are of course more aligned with

the United States than they are with China. But the Europeans are making very clear that if the United States is heading towards a policy of containment with China, they are not on for that. I want to be clear. In the United States, it is an absolute core national security agree men across the political spectrum that China is the most critical adversary of the United States. The Europeans don't buy that at all. China is not their core adversary.

Uh And and that's our real problem, and that is going to get harder to bridge because of Brexit, because the United Kingdom is the European country that is most aligned with the United States and national security orientation. In diplomatic orientation, they are no longer, of course, a member of the European Union, and their relationship with the EU

is increasingly fraught. And also Angela Merkel, who is sort of the voice of stability and reason and multilateralism in trying to keep the Americans and Europeans on side, is losing power, is leaving power, and the next coalition in Germany is likely to be a bit weaker mccrown. Emmanuel Macron is is going to be the most important strategic voice of foreign policy in the continent, and his orientation is all about strategic autonomy, European sovereignty, a third way.

It is going to be very, very challenging, I'll tell you. Uh. You know, the markets have been talking about how there's a honeymoon between Biden and the Europeans and certainly, the Europeans are much happier to see Biden than Trump. But I would argue that even though the decoupling of the US and Europe has decelerated under Biden, it is continuing, and it's continuing for structural and strategic reasons, irrespective of the fact that Biden and his core team are fundamentally

Transatlanticist at heart. Not just the issue of a China, also the issue of a Russia as well, with Germany looking lonely increasingly so over the last couple of days. And let's finish on this, why do you see a space for success? What can this administration achieve on the

foreign policy upfront with regards specifically to China. Um, the United States and China are massively interdependent in terms of trade, in terms of their purchasing of our treasuries, in terms of the global economy, and responding to things like climate change, and and so the simple fact that that relationship persists in a relatively stable way. I mean, you might not consider that points on the board, but frankly it's important

in terms of progress or very far from progress. But what you want to watch for, and you anticipated this in your last segment what's gonna happen around Earth Day? Um, what's gonna happen around John Kerry, who's in many ways the most important new appointment of the entire Biden cabinet

Former Secretary of State John Kerry. Uh, you know, there there is no question that if you are going to resolve or even make significant progress in global climate, the two largest carbon emitters in the world need to have some willingness to work together. That is going to its taller, but it's also a critical concern of both countries. We will see where it goes and always great to catch up right to see it in Bremen that he writes

a Greazra media president. Someone who has been very visible from the beginning of this terrible natural disaster, Peter Hotez, Baylor College of Medicine, joins us right now in Dan of the National School of Tropical Medicine. Dr Hotez, would you take the astro zenica vaccine right now? Yes? I would.

In fact, I've offered to do that. And the reason is this, Uh, you know, the Europeans have been quite tone deaf to how sensitive vaccines are at the public perception is or is I often like to say it doesn't take much to vote even a good vaccine off the island if the public doesn't feel confident. And the way the individual European countries have handled this has has

been abysmal. So the e M A statement of the European Medicine Agencies, which is the regular very body in Europe statement yesterday is important, but that's not going to be enough for all the for all the damage control that's going to be needed. That statement that the German Institute made the Paul Earlik Institute, which is their regulatory body,

was just so damning. And and the fact that the French suspended its use with oblivious to the impact that would have on Francophone Africa, because the Francophone Africa very much gets its guidance from from France. Um, this is I'm really worried. I'm really worried about what's going to happen in the coming weeks. I have noticed in a James Moore Burns Murdock at the f to a major shout out Brazil and Latin America seems to be unraveling.

To me, India's a statistical mystery as well. Are we winning in this battle with a pandemic or are we deluding ourselves. Well, what you really have to do is go a country to country. I think you know in the US we're slowly getting our arms around this. We're in a race with the B one one seven variant from the UK with faccine. The American people, UM, the next few weeks are absolutely going to be critical. UM. Africa is UH doesn't have vaccine. That's that's going to

be That's a that's a disaster in the making. Latin America doesn't have vaccine. That's a disaster in the making. UH. Indias is doing what it can to step up to prepe to be the vaccine supplier for the world's low and middle income countries. UH that that's a positive. Russia and China have largely bypassed international regulatory authorities like WHR prequalification and making these one off deals with countries. That's a disaster. So it's a very very complicated and mixed

picture right now. So I have to follow up on something you've brought up, and I'm embarrassed to say I haven't even thought about it. How the issues in France around this vaccine would spill over culturally to the issues in Africa as well. When you say we could see

a disaster, can you describe what that disaster would look like? Well, the disaster is it looks like the South African variant to be one three one is accelerating now up into Malawi, Mozambique, and even though Africa overall has done better than many expected during that grace period, could end as this virus starts to accelerate and they're not. And the world has been very focused on very high tech innovations uh m RNA vaccines that will never filter or I don't think

we'll filter to the low and middle income countries. Yes, fiser By in Tech sent sent two hundred and thirty five thousand doses to Rwanda. That was great, but look at the need. There are one point one billion people living in Sub Saharan Africa. If we need two doses of most of those vaccines has two billion doses. So so far it's a drop in the bucket and there's

no real plan for what we do. We're trying to accelerate a low cost recommin and protein vaccine with another Indian producer biologically and that's going really well, so hopefully we can fill that gap, but that that's a potentially humanitarian crisis right there. For receiving sufficient funding to do that delta, uh no, I mean we had to raise a lot of that money privately from from various sources and here in Texas enough to do the technology transfer

to uh India. And now we're in discussions with South Africa and Indonesia, so hopefully that will come through. But you know, everybody was went very heavy on the innovation um and and and innovation is important. We need to innovate in vaccines, but you know, at a certain stage you need some traditional, low caust durable vaccines for low and middle income countries. And and there was not enough attention paid to that. Peter Hotels, thank you so much.

I noticed your bookshelf behind you. No doubt Walter Isaacson's new book on genetics will take a place there as well. The heritage that John and I have is to talk to experts. And if you know the name cow and you know they own aviation with a legendary Von Rumor and the ever so younger Lane Becker, they have been at the top of the heap on airline analysis. And we're thrilled on Lane Becker could join us this morning. Helene.

Within your note is the rollout you are guessing at, which is can Koon at some point, and then we're gonna John off to Paris as they go into lockdown this weekend, and somewhere way out in two thousand twenty two, we're gonna be able to go to Asia. Can the airlines wait that long? Are the airlines in control of their destiny? I think they are and and and it's good to see you again, Tom and John iced to talk to you guys. Um. I think they are in

control of their own destiny at this point. Over the past week, we've regularly seen more than a million people a day passed through t s A, and we thought that that would be the case till about mid May, and then around Memorial Day weekend, we we think there will be a jail break and we'll see regularly between one point one and one point five million people a day, And frankly, we think that's pretty close to pre pandemic

levels in domestic traffic. People don't want to go, people don't want to quarantine, especially, you know, if you only have a week or two a vacation, you really don't want to stay in a hotel room somewhere or come back. And so we need to see those quarantines lifted. And our view has been as more vaccine gets into people's arms, we think that will happen. I think New York is lift in quarantine rules this weekend, and I think I think things will start to get better. And I do

think the airlines will benefit from domestic traffic. Do they have the empty planes to bring on capacity? Is it an easy exercise for sake Delta to bring on new planes or do they just packed the planes as they did pre pandemic. Yes, yes to both. So in Delta's case specifically because you asked about them, they are not

selling middle seats until after April. So when you think about at as demand improves, they'll bring back those middle seats and that's about at increase in capacity without adding a single aircraft. And then for the other airlines that we're seeing, um that that that parked aircraft in the desert last year, those aircraft will start to come back as demand warrants. I think the airlines are trying not

to get too far over their skis. I don't see them bringing back wide body aircraft this summer in in huge measure because Europe is still for most most of Europe is still closed. Um. But we when when Boris Johnson announced his plan for reopening the UK and mid May, easy Jet saw three and thirty seven percent three percent increase in bookings that night. I know, and because people are sick of being home and cooped up and they want to get out and about, and we're we're worried

about Europe. Um, then we are about US air alliance because of that, because Europe has been so locked down. And I think also people people don't want to wear a mask for eight or ten hour flights. As you know, that's totally done with this. So what's amazing. Before we move on and just speed onto the boom in the United States, we've got to look back on where we were. I remember talking to them in the depths of this crisis.

It felt depressing. It was depressing the likes of Warren Buffett, a legendary investor, dumped his airline stocks in April last year, and Berkshire Hathaway said the world has changed, and Helene, so many people got this wrong because so much is coming back so quickly. Why is it so difficult to get a read on this industry. It always has been

for for the whatever. For almost four decades that I've covered this industry, it's been very up and down, two or three good years, maybe one great year and then four or five so so or bad years. It's so cyclical and so dependent on consumer discretionary spending. And then of course business traffic, which you're kind of alluding to here. Um, in the million people a day we're seeing, we're really

not seeing much business traffic. Maybe small and medium sized companies who need to get out on the road to generate revenue, but we're really not seeing corporate business traffic come back yet. They're still worried about getting their people back to work. But we think that's a fourth quarter of twenty one event where people will start to get back on the road. Um, we think maybe of the way back by your end twenty two, and then maybe the other comes back over three to twenty six or seven.

So let's talk about opportunities then, because right now everyone's on board with the domestic story here in America. Everyone's on board with return of travel, everyone's on board with the likes of Alaska nicely leverage to that story. Hellong, when we start to talk about the New York London corridor reopening, the European story reopening, is there an opportunity there now or have we already missed that too? Oh No,

I don't think we've staid at all. I think UM United is the most leverage to international traffic of their capacity as an international bigger than both American and Delta. So I think that that international corridor starts to come back, probably September October. I'm kind of hoping the summer because all of US canceled many trips to Europe last year, and I think we want to go back. And I think that by the end of the summer enough vaccine will be in people's arms worldwide that we'll be able

to see that start to reopen. But just start, hell And you know, I love catching up with you. It's great to get you on the program. The City Research Analyst, thank you for being with us. Brian Leavitt ordered by his general counsel not to talk about bitcoin and joins US market strategist as well well. Avoid it. Brian, there was a theory two or three levels ago about international investment and a recovering Pacific RIM, dove chilling e m. Disappointments of the last couple of days and weeks with

what we observe the tension and anchorage yesterday. How is the Pacific RIM doing? Yes, so I child actually has emerged from this, as most people know, in quite good shape. You're right, the economy is is quite stable, their valuations look attractive, and that place is still a hotbed of innovation,

although you know some concerns about the regulatory environment. I think the the story right now has just all been has been all about the United States, the rates market, expectations of whether the Fed's going to have to raise rates sooner rather than later. So it put a floora in the dollar. Color moves a bit. You get some capital flight out of the emerging markets, concerned that this is all over again and we have the tantrum. I

think those concerns are are overstated. This is a this is a reversion to the mean in the United States. We want to connect the dots cross the He's Alaska Aerolines, John and NonStop. This is some anchors to Minneapolis and John Again, it's just that feeling of the opening up of the economy. One of the top picks over a Goldman because it's so leverage to the domestic play, to the leisure story as well. Brian, I think you've picked

up on the irony at the moment perfectly. In year one, investors question how markets can go up with the economy is so challenged, your line, your words. In year two, the question if the market can go up if the economy is so good, And Brian, I've heard people ask it. I've asked it, boom year it's coming. Can we really have a boom year in the market that doesn't perform well? I think the markets will perform well. I mean it's gonna be a more volatile year. You find year two

of a market cycle tends to be more challenging. We saw that in three, We saw that in it's those second years to to what you know you have just said, we questioned whether it's too good. The reality is, we know there's a lot of pent up to man, we know there's a lot of fiscal support, and we know we're going to have a good economic backdrop. The problem isn't raises concerns about policy. And when you have concerns about policy, that's when you get volatility in the markets.

But let's remember this is what we all hoped for a year ago, and we're seeing earnings improved, the economy improved. I think inflation pressures will will rear their head, but I think they ultimately fade as we move out beyond Well, let's move out beyond twenty one. This cycle moves quickly, Brian. We've been pricing in all of twenty one throughout the last couple of months. In fact, since the beginning of November,

we've been pricing the boom that is twenty one. When you start thinking about deceleration in twenty two, well, I think that investors need to keep their mind on deceleration in in twenty two. Now. I think this recovery reflation trade plays out for a bit. You know, your your value oriented parts of the market get their day in the sun. But ultimately, you know this idea that we can't own anything long duration, that interest rates are going

to keep going up forever. I caution against that. What you see as you move out into two is, look, we all have pent up demand. How long does that persist? We know that this income replacement that you getting a fiscal deal starts to fade as you move out into two, and let's not forget the long term structural forces against inflation, like an aging population globally, automation of the workforce, new technology.

So I'm not ready to sell anything long duration. I think growth stocks will be back in vogue as we move out into two. Brian, I'd really underline, you know, the new technology, which is of course a great mystery. Paul Romer with Bloomberg earlier this week, the laureate Brian Lovett, how much cash is really out there? I get all these trillion numbers, but when Investo sits down and calculates out the investable cash that's out there waiting to find

a warm spot, how much is it a lot? And I'm not only looking for a number answer, I'm looking for something Friday scientific. Is it ginormous or is it a lot? A lot? I mean it's it's ginormous. I mean, you have a trillion dollars go into money market strategies last year. You've got you know, I mean, even if you think about the amount of money that's just sitting in government related bonds, you're looking at a few trillion, and you know, you add it all up, there's a

substantial amount of money sitting on the sidelines. Even if you think since oh wait, you've had far more money, a ginormous amount of money go into fixed income strategies versus equity strategies, and yields have come up a bit, but nonetheless, the Feds still telling you they want to inflate away a good percentage of it. You're getting zero in money markets. The FED wants greater than two percent inflation. That's not a great deal. Ultimately, I think that money

continues to find its way into equities and credit. And let's remember, a lot of this support on the fiscal side is going to end up in markets. It's it's some of it is finding its way into middle income household pockets, and that's gonna find its way into markets too. So I would say asset price inflation um is a good part of this story. And let's stop talking about managing other people's money and talk about managing your money.

I understand its young Carlie's birthday today and the Levitt household. So hap to the young Levitt for you. Carlie needs some money when she comes to New York City in about ten years time. If you had to buy and hold for a decade for your young thirteen year old. Where would that money go today? Brian, And let me first say, I hope it's a decade before before she's going to New York City to hang out with her friends. I say, it's gonna be a little it's gonna be

a little bit sooner than that. But you know, I think that you have a trade here on value stocks. But if you're looking out long term ten years, you want to look for structural growth businesses globally. I would think that a lot of those are going to be in the United States. Some of those are going to be in the emerging markets as well. Brian, is she training game stop off the couch? Not yet? Maybe I

should teach her too, Not yet. I just feel bad that, you know, last year the friends we were haunting the horn on the street to celebrate the birthday. This year a little bit better. We're celebrating in the garage. Maybe two we can go inside, have fun. Brian, happy the celebrations. Thank you, sir, Brian left that of investing the global market strategies. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. Eastern.

I'm Bloomberg Radio and I'm Bomberg 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.