Surveillance: U.S. Relations With Maduro

speaking with Mr Shatsker in Caracas. The focus is on normalizing relations with the US, but this does fit into the broader theme that we've been talking about all week of the Great American reset of international relations as President Biden took a tour of Europe. The idea here is that Maduro would like to see relationships UH normalize with the United States, some of the harsh sanctions lifted, and

take a listen to what Maduro had to say. We always have to remember, Eric, that we faced four years of the Trump administration, which were four years of direct aggression of cruel sanctions, very cruel and have damage to the Venezuelan economy and society. The politics that Donald Trump installed and left his legacy against Venezuela are extremist politics, irrational right that caused a complete rupture between the United States and Venezuela is the joy Biden. President Joe Biden

has arrived making a proposal to the world. His first speech on January he said that we don't have to demonize anybody in politics. I would say to President Joe Biden to stop from the White House, from the Department of State, the demonization of Venezuela, the demonization of the Bolvarian Revolution, the demonization of President Nicolas Badu Row, and that hopefully we can find paths of reconciliation, of respect, paths of mutual benefit and pass that allow us to

normalize relations between the United States and Venezuela. Have you seen any signals, wanna that suggests Joe Biden has a different posture, especially especially as it concerns the Venezuela question, do you want me to be sincere very? Sincere there hasn't been a single positive sign none. It's five months

where Okay, they're settling into power. The only different thing, the only different thing that might be heard from some spokespeople of the White House and of the Department of State, is that they agree with a political dialogue between Venezuelans without intervention, to look for democratic political changes in the country.

That's the only thing. They must abandoned the demonization that they make of Venezuela, of our revolution, democratic, constitutional, pacific, and of President Nicolas Maduro, to create real foundations, objective, credible, verifiable, of a process of negotiation, to regularize the relations between the two countries in terms of win win, which is what we aspire to since a long time ago. A win win is possible. In your opinion, absolutely, we've already

shown that. Of course it's possible to win win. They know it. In the financial sector, the bondholders with whom we had an impeccable relationship, and they know it's possible to invest in Venezuela and win win as long as this whole persecution and the sanctions aren't there. The oil sector knows it. Who has invested in Venezuela uh and who still maintains investments in Venezuela that we can advance much more. The cultural sector knows it, the social sector,

the political sectors know it. Bloombergs Eric Shatzker just returning from Caracas. He is here with us. I did not know that you could speak Spanish. Eric Uh, congratulations on the interview. I am curious before we get into the substance of what it was like in Caracas, given the COVID pandemic and how hard that region has been hit, and given the exodus of residents as a result of some of the financial crisis issues that this nation has

been facing. Lisa, it shouldn't surprise anybody that Caracas and Venezuela as a country are a shadow of their former selves. Don't forget Venezuela with South America's richest country. At one point in the nine nineties, it used to produce three and a half million barrels a day of oil. Last year that was down to four d and ten thousand, the lowest in about a century. And of course that's visible on the streets of karakas. The country doesn't have

any money. First of all, you could argue persuasively that it was mismanaged by the socialist nationalist government of Hugo Chavs and subsequently Nicolas Maduro. But there's also these U S sanctions in force. They don't allow Venezuela to sell any oil. They don't allow Venezuela access to debt capital markets. The country has no money, it's in default, it's bankrupt, the infrastructure is crumbling. All of this is visible to the naked eye, but I will point out that there

is call them green shoots. Venezuela has relaxed some of its economic restrictions and it is fascinating, candidly fascinating. I don't want to downplay the poverty, which is extreme, but to see these flickers of entrepreneurialism in a country that has been forced to loosen these strictures, uh to try and find some way out of its desperate economic situation.

What eric is the path forward, what is the realistic in your conversations with him, a path forward to a loosening of sanctions, getting that oil back for the country. Let's not forget that the Trump administration was pursuing a policy of regime change. It was trying to drive Madudo out of office, and as far as the US government

was concerned, there were good reasons to do that. Um drug trafficking, rigged elections, corruption, all kinds of accusations and allegations for which there's much evidence against the Madudo regime. The Biden administration has taken a different approach. Tony blankin the Secretary of State has talked about free and fair elections. That's the path forward. That's what the negotiations are moving toward. The United States. What remains to be seen clearly Madudo

is extending something of an olive branch. He wants a deal, he wants talks. He wants the United States to sponsor, along with the Norwegians, UH, some kind of a dialogue with the opposition that moves the country forward such that these free and fair elections take place. People can, I guess, confidence can return to Venezuela, and ultimately the government feels as though the situation is stable enough and fair enough that it is willing to relieve at least some of

these sanctions. And if that happens, I'm not in the business of making predictions that if Venezuela is allowed to start selling oil again on international markets, and if investors are allowed to bring money to the country and pump it into sectors like petrochemicals, it might be quite amazing the kind of growth we would see in the Venezuela economy, because it has over the past eight years shrunk by

it's hard to believe. It's been shocking. Eric Schatska, thank you so much for going down there and doing this and joining us today. Are on the heels of your trip. The great reflation turns into the great unwind. Jay Bryson, Wells Fargo chief economist has been tracking the data. Unclear what the data actually says. Jay Bryson, based on the data, do we have any indication that, yes, this economic recovery is starting to stall out or give hints of having

already reached its peak and poised for only disappointment going forward. Well, I don't know, Lisa, if I would say disappointment going forward, I mean, are we at peak growth right now? Yes? Probably. You know, in the second quarter you're looking at a growth raith that's probably going to be annually that's clearly not sustainable. And if you slow down in the second half of the year to what we think will be six seven maybe eight percent less is a very very

strong growth rate. So again, peak growth right now? You can't all right, Well, there's a question here about whether we can infer anything from the labor market data that we've been getting. The idea that we got a disappointment in the initial jobless claims. We've got disappointments on the monthly jobs reports that we've gotten out of the federal government. Are we gleaning anything from that or is it still

too early to do anything with that information? You know, at least I think it still isn't very a little bit too early to really make hard decisions about what's coming out of the labor market right now. I mean, it's still being affected by concerns about COVID if you look at surveys when people say why aren't you working right now? Concerns about going back to the workplace or up there. You know, there's still these extended unemployment benefits at least in some states, um that may be keeping

some people along the sidelines. So I think we really need to give it, unfortunately, you know, another few months to see when to smoke clears, to see how we're doing in the flaw if people are actually coming back to the labor market at that point. So at this point, there's still I think a lot of noise, a lot of things going on in the labor market that are that are keeping a little bit made depressed. Are you

at all concerned about a price wage spiral? J I know it's something that economists fear normally, but as Lisa said, we've gone through a real paradigm shift. So Matt used the word spiral. Now I'm not really concerned about spiral, but it's like, so, you know what I think wages price spirals. I think what we saw back in the nineteenth seven and back then what you had was a fair amount of people had wages that were in dept

to inflation. So you had the OPEC shocks that pushed up prices, then that fed into wages automatically fed back into prices again in spiraled up. You don't have that slight sort of thing today in terms of that, I mean, I think what's it would be interesting or what we're keeping a close eyele on is inflation expectations. If they really start to become a moored here, people really do start to expect firing and hired inflation going forward, then that does become a little bit of concern. And I

think the data is mixed there. When you look at more good indicators of inflation expectations since the FED media, they've come down significantly. Um, you know, now the you know, the personal expectations like what you capture in the University of Michigan. We'll see how that all plays out. But for me, that's the big key is what happens to you know, j from UH in your career, from Johns Hopkins to Georgetown to the University of Alabama, You've been

the entire time inside this kind of Reaganomics bubble. Right. We've had this supply side economics narrative for the last forty years, and that seems to have changed with this pandemic and with this um well, I guess the last administration was was a big spender as well, but all of a sudden, modern monetary theory seems to have won

the day. How difficult does that make your job? Well, you know, you guys have been using the word paradigm chef, you know, and so it's it's clearly is that where are we right now in terms of what's what's the closest um of analog that you could look at, you know, I think it would be the ninth the guns and butter Um, And we did get some inflation out of that. Now, it was really the the opec shots um of the seventies that really got inflations and starting to higher so

that's kind of where we are right now. And what I would say though, is it's a political decision going forward. You know, are we going to get all this infrastructure spending. Are we going to get this American Family's plan tasked or not? That still remains to be seen. We still have a very very split congress um, and even with among the fifty senators Democratic senators, there's not unity there either.

So it does make our job the politics right now, I think it is complicates what we're trying to figure out going forward. How are you thinking within this big paradigm shift that we talk about, the models that we traditionally look at a Phillips curve, let's say it, the way that we're measuring inflation, the basket of which we're measuring, are those tools still intact well in terms of the you know, the Phillips curve, I think that has been was put to rest pretty much during the last expansion.

You know, we got down to an unemployment rate that was at three and a half percent. Productional Phillips curves would have told you you would have had a lot more wage inflation than we did it. So that's kind of about the out the window right now. So, yes, we are in kind of uncharted territory right now, not only with what's going on with the pandemic, but as well as as way the the economy is responding to them.

So when we think about the future, when we're looking at our forecast, when there's always a confidence interval around that, Unfortunately that confidence interval right now is wider than what voice historically has been. What about the level of divergence and thinking on a global basis, A lot of the guests yesterday we're hinting that the FED has now diverged from other global central banks and thinking about where we are, how further ahead we are are you see the divergence

of the US versus other central banks. It's clearly up until say Wednesday, there wasn't a doubled. It seemed like other major central banks were leaning a little bit more towards starting to remove some policy accommodation, you know, defend wasn't there yet. Now. I think what they hinted with the dot plot on Wednesday was maybe we're getting a little bit closer to that than than what we thought. So I would say the FED at this point is

still lagging a little bit behind some of its international counterparts. Um. But clearly there's been a reaction function ship that seems like they have, uh, what they've elevated is a maximum employment at the expense of inflation. But now that it may be starting to change a little bit as well, So the FED is starting to catch up to some of those major central banks. We're speaking with Jay Bryson and Wells Fargo chief economists and Jay every day on Thursday at four thirty pm, I take a look at

the FED balance sheet. It's when they release the latest outstandings. And yesterday the balance sheet increased by the most going back three months, and it rose to the highest level ever of more than eight trillion dollars, crossing that line for the first time. They are talking about tapering perhaps, and people are talking about tapering, but they're doing anything.

But I mean, honestly, how much support is this giving to the economy at this point and how much support is this given to bond yields where people getting increasingly sanguine that they will stay as low as they are so right, I mean, the FED is taking down roughly half of the treasury supply UM right now. I don't have a point estimate for how much that's worth on the ten year yield. But you know it's clearly bringing

that that yield down. If the Fed tomorrow says we're going to start the paper, what do you think happens to the tenure yield? Is home a snap fire, and I think they are very concerned about that. They look back at the paper tantrum back in two thousand thirteen when the yield on the tenure stepped up fifty basis points over you know a number of leads, and I

don't think they want to go back to that. Yeah, and so we do expect that, you know, later this summer, maybe early fall, the Fed will start to hit about the tapering. And when they start to really do that, we will see yield start to move up. I wouldn't expect them to start to really dial back their case of purchases and late this year and probably more likely early next year. Jay Brayson, it Wells Fargo chief Economist,

Thank you so much. A lot of folks really have to assess what happened on Wednesday and what could happen going forward. Of Course, all the big head honchos over at black Rock when they want to get a sense of what's happening in the market. Of course, they turned to Way Lee, chief Global Chief Investment Strategists over at the black Rock Investment Institute, and I'm pleased to say Way joins us right now to talk a little bit

more here. Way about this shift in tone that we got out of the fit and I'm wondering if this requires a meaningful shift in tone out of the markets. Well, we actolutely see what the FED announced this week in line with its new policy framework service bring forward the lead too, as well as adjusting inflation expectations higher, especially

for this year. We also see this adding to the credibility of of its framework because everything that's happened so far, what they have put out is still in line with what we call the new nominal theme, which is that the rate path will be a lot slower in this

cycle in comparison with previous cycles. So if you think about back in twenty fifteen, or we're looking at FED right high co PC was just above one and now we're talking about a lot higher levels and at the same time leadoff not in not until twenty twenty three by Feds on estimate. So we still see their new policy framework very much intact, and that under cleans our

pro risk view. So just to underscore what you may be saying here, is it just that you have not changed anything about your investment thesis post the FED meeting

that a lot of people thought was a pivotal shift. Well, I would say that there are specific kind of views around, for example, where the dollar could go from here on, at least in the near term, and that has beat across the immersion market sentiment, which we are reviewing very very closely and more broadly that the view around curve steepening after this this week's annasmal have seen reversal of that.

So so so there are under the surface and nuances that we're working through, but the overall stay invested in market pro risk that is intact because we still see even though it came as a bit of a hawkish surprise, the the the changes and the announcement in line with the new policy framework of that effect in battle. How are you thinking though about the rotation sort of back

into growth out of value. How much of that was maybe just some recent under performance that we have seen, how much of that is more fundamental that long term growth expectations might be lower than some of our early lofty projections. I would say yes, very interesting indeed, that we're seeing a bit of our rotation back into the growth fee names that came a bit more under pressure earlier on in the year in our review, for example,

the typical growth fee names tech. There is always a place for technology in portfolio, especially when you look at it from a longer term perspective. If you think about some of the structural challenges that we've got to tackle, aging demographics, the global grain transition, technology will play a

big growth there. Earnings a goose and they have continued to deliver, and we actually have been talking about kind of earlier year on the performance as interesting entry point to view that position to the longer term case for growth. The title names and especially Technology Review stays intact. But in the Newton we still see there being more to

go in this restart narrative. If you think about kind of the restarted that started earlier this year in the US, now broadening out to Europe and then also broadening out of Japan, I do see that there being more to go for the sickly control to go a bit longer. Well, let's talk a little bit more about some of the growth prospects in Europe. Right now, we are getting headlines from the Italian Prime Minister Mario dragging Uh saying the

economic forecast there will be revised up significantly. He's also talking up the need and his desire here for additional economic stimulus here kind of on the same note that we've heard from drag for quite some time. But we've seen better data starting to come out of Italy and some of the other European nations here that I think would be encouraging. Way indeed, for we have seen so far is that the momentum of restarts, the botton is getting passed on from the US to the laggers, previous

laggas including Europe and in our review Japan. And that's very much under king our preference to potentially broaden out our previously very kind of strong conviction in US apputies and consider some of the laggers, including Japan and including Europe that that you just you just spoke to. One thing I would say, though, is that the restart is very different from a typical recovery. So as we see these very strong incoming growth numbers, we have to take

it with a pinch of salt as well. In this we cannot extrapolate this momentum indefinitely, so we're cautioned against extrapolating the very strong momentum that we're seen right now. But we do see that we start brosening out, benefiting

secico assets such as Europe and Japan. For the matter, wait before we let you go just twenty seconds here, do you think that the dollar will continue to strengthen after five straight days the greatest strengthening streak going back to well, we actually see dollar kind of range found. The recent kind of strengthening trend came off the back of a period of weakening, right, so this is earlier at the beginning of the year because of the US exceptionalism.

We see dollar strengthening, and then we see that coming back, and now it's rebounding that a little bit. We see it range found, not breaking out of the current range and not particularly hurting really sentiment, but in a near top giving post strong. It's rebounded, but we definitely keep a close eye on res market because of that. Really of black rock, thank you so much for that. Right now, we are so lucky to have Congressman Shawn cast In, a Democrat from Illinois joining us on the drum beat

to infrastructure, the drum bread to cleaner energy. Congressman, I'd love to start with this idea that there seems to be more of a consensus forming and some sort of bipartisan infrastructure bill. What's your sense of the shift that's allowed a greater consensus and perhaps more optimism around something getting done. Um, you know, I hope you're right. We desperately need to upgrade our infrastructure. The I don't think it's surprising every member of Congress would like to see

infrastructure projects to their district. I think the challenge that we have in this moment is to make sure that we do not forget about the critical importance of climate infrastructure in this piece, because as long as the red state, blue state, red district blue district divide tracks so closely to where people live and where land is, that means that this huge win win of clean energy, that is a wealth transfer from energy producers energy consumers, has a

partisan tinge, and we just have to make sure not to let that quest for by partisanship get in the way of doing what we have to do both for the environment and for our wallets. Yeah. Well, the partisan tinge, of course, has been a huge roadblock of for a lot of efforts out there to address some of these issues. Congressman, you have three proposals out there, at least three, uh that I'm aware of here to address some of those

climate change issues. I'm weathering whether you can talk a little bit specifically about the one that's supposed to address some of the financial risk that you see out there.

Sure well as the light had we just passed on the floor this week my my Climate Change Financial Risk Disclosure Act, which essentially just says that the sec UM is obligated to require all companies, on a mandatory and consistent basis to report both their contributions to global warming in their exposure US as I'm sure you know in the SEC developed voluntary disclosure and last year that the

Trump led CFTC said that those disclosures were insufficient. We're not providing investors what they need, and so the idea is to get this out here to level of playing field again. That one we just passed on the floor this week and we will send off to the Senate. The the other proposals that we have are essentially follow from that, saying we need to understand the systemic risk

that climate change poses to our financial system. Swiss Rey has said that on the course we're on, we're looking at an eighteen percent reduction in global GDP from climate change. That's the business as usual case. Even if we meet the Paris goals, it's a four percent reduction in global GDP.

CFTC has more or less matched those predictions for the United States, and some of that is negative loss, you know, what happens to low lying coastal areas and properties that are associate that are there from hurricanes, from wildfires, etcetera. But a big part of it is transitional because everything every clean energy technology we build lowers the cost of energy, solar panels, electric vehicles, geothermal efficiency. It leaves more money

in people's pockets. But that's really disruptive to certain regions of the country. And you know, as I tell my colleagues, rising tides sometimes lift all boats. Tsunami is that away of swamping some out. And so we're creating a tremendous amount of wealth, but where is it going to be

isolated in our economy from it? So these other bills are designed to say, let's have the let's have our pudential regulators understand where those systemic risks sit and then put appropriate guard rails to protect investors when those movements inevitably start to come is indeed they already are. Congressman Shawn Casting of Illinois, thank you so much for being with us, too short. We'll get you on more next time. There is no better person to discuss travel than Brian Kelly.

Of course we know him as the points guy. I'm a huge fan on Instagram following you, and of course some of the big headlines this morning that the EU sort of fully trying to reopen to US visitors. But I guess the big questions can I still afford a flight or my flights now priced out of my price range to Europe? You know what, Taylor, The best deals this summer are to Europe. We're seeing thousand dollar one way business class fairs to Europe. And it's also a

great time to use those frequent Flyer miles. So many of us have them. We're hoarding them because we haven't traveled that so they use them now, especially because you can cancel your freaking flyer midel tickets and get them all back and all your taxes and fees back, which is much better than getting a voucher if you pay for a ticket. Interesting, I mean you mentioned business class. There where are we in terms of the return of

the business customer. We have heard that those are the big ticket items, but that is nowhere coming back from the corporate side. Is this all leisure still? At this moment, it's mostly leisure travel, although every major CEO of an airline that I've talked to you says that business travels

coming back much quicker than they anticipated. As we know, the big banks are going to be calling people back to the office usually after labor day um, and business travel is going to come back in a different form. I know at my company, we're not going to be doing senseless meetings that we could do a resume, but we're gonna have longer, more impactful team building meetings at resorts. So I think it's gonna be it's gonna come back a lot quicker than we thought, but it's gonna look

different that Monday to Thursday grind might change a little bit. Yeah, you know, it's interesting you bring that up. I was actually, you know, with the CEO of Marriott International yesterday as well, as the CEO of trip dot Com, and they talked about this idea of sort of I guess hybrid type travel where you're gonna see much more of a blend between that leisure and business customer here. How does that

sort of change at all? I guess the way that some of the airlines and the hotels sort to price their offerings and I guess, uh sort of adjust their offerings to deal with those types of customers. Yeah, you know, their first claims are full these days, there's still you know, upgrading people in the first class. You know, the business

class total fares are down. I think we're gonna see a return to profitability are not stemming the losses this quarter for most of the airlines, but they're not those big ticket bears, the ten thousand dollar business class fairs to Shanghai, right, So definitely the airlines are looking for more ways to raise revenue. A key way they did that during the pandemic was selling billions of dollars worth

of frequent fire miles to the credit card companies. And what we're seeing is huge offers for consumers in the credit card market. You know, we're looking hundred thousand mile offers to get a single credit card. I think there's seven different cards offering that. So I think we're seeing a shift in the way they're accounting for the revenue, but making it up through Cobram partnerships is a key

way to do that. Do you think we'll get back to a stage anytime soon where we will see some of those offers dangled a little bit more out there? I mean, I hear a lot about past issues with a lot of these companies. They're obviously having to pay a little bit more for workers here. Uh, and there's this idea here that in order to protect their margins, that means they can't offer the same type of discounts that they did in the past. Absolutely, we're going to

see more ancillary fees. Even though the airlines did you know, get rid of change fees over the pandemic, We've already seen them start to roll that back, right And nay, most airlines now won't give you that free change if you book basic economy, which is what most leisure travelers are booking that cheapest fair. We've also seen some bogus fees from hotels for service fees, cleaning fees. Uh. Certainly in the car rental space. We're seeing exorbitant rates and fees,

so travel prices are for eping up. You know, this summer is not the summer of forty dollar affairs across the country like we saw a year ago. So uh yeah, I think the airlines are very smart at coming up with ways to to bring in that ancillary revenue quickly. Here, Brian, where's the hot spot to go this summer? I mean we're still looking domestic. Key West Miami y is through the roof. You know, so many people just want to travel, and even though Europe is opening, I'm excited to go

next month. It's been really confusing to figure out what the rules are EU rules versus individual country rules. Certain countries will release information on Facebook and it's you know, luckily at the Points Guy, we break this all down for our readers, but the average consumer it's still way too confusing to go abroad. So uh and we're seeing huge amounts of capacity added to the Caribbean for Q three, actually more than Q three, so people are headed to

the beach. We'll need a break. You and me vote the Points Guy, Brian Kelly, thank you so much for joining us. 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