Surveillance: Ukraine War with Bolton

and of course on the Bloomberg terminal. It is a joint up right now to speak to one of the lightning rods of an international relations and our study of our relationships worldwide, and that is John Bolton, of course, Ambassador Bolton, with so many tours of duty and always someone looking at the force and power of Russia, give us a measurement on this Monday morning, John, of the force and power of Mr Putin, Well, he suffered some severe setback so far in almost six weeks of war

in Ukraine. There's no doubt about it. The Russians obviously miscalculated the extent of Ukraine's resistance, which has been heroic, and they miscalculated the capability of their own military, which has had one failure after another from the strategic level on down the simple logistics like food and gasoline. Now, all that said, they still control a considerable amount of Ukrainian territory, and it looks like they're trying to get

their act together, regroup, pursue more sensible objectives. I'll have a piece up dot com a little bit later this morning. It says, I think what the men Many are also saying, they're going to go after the russiphile areas of southern and eastern Ukraine. And let's remember when we come when we come to negotiations, which we're not in seriously yet, but when we come to it, the more land Russia holds, the harder it's going to be to get them to

give it up. John Boldon, I want your perspective, as we talked to admnstra Vetas as well, about what has been underreported in my opinion, which is the land grab along the Black Sea. What should be the American response to the territory taken down to Odessa? Right? I think this is a central part of what Putin's objectives have been in which, frankly, if he had focused on the south and the east at the beginning of the war in February, he might already have putin once the entire

north coast of the Black Sea. I don't think there's any question about that. Even so, Deatha wants all that territory because he thinks it's strategically critical to Russia and because it will landlock Ukraine. So either things that have been coming through Odessa into Ukraine now will have to pass through Russian tolls and pay for it. Are they gonna have to completely switch their trading routes through Poland and Hungary and other Eastern European countries. It will give

putin enormous strategic leverage over Ukraine. And as I say, why he didn't go after it first, I don't understand. I want to turn Inbassador Bolton to the reality. You came out of Yale. You worked with David Keane, you worked the no no relation to me, I should point out you you worked with with a Rush, a Republican

party that wasn't afraid to project. Then you work for Donald Trump, who had his unique isolation As Tendencies described the new American isolationism described the new GOP isolationism, well, I think there's always been a strand of isolationism in the Republican Party. I think it's actually broader in the Democratic Party. It takes a somewhat different form. They think the world is going to be saved by multilateral organizations

like the United Nations. That's kind of delusional. But the Republican delusion is that none of this overseas, none of this in Ukraine has anything to do with us. I think it has everything to do with us. Our way of life depends on interest scattered all over the world, and the isolationists and the Republican Party don't see that, don't see anything worth defending. They'd find out when they

began to disappear. But I am actually hopeful. I think the isolationist strand in the Republican Party has shrunk almost back to historic low levels. I think Biden's catastrophic withdrawal from Afghanistan last summer was a major factor there. And I think if you look at Republican views on assistance to Ukraine and the current conflict, you can almost see those two events pushing the party back to its real

Reaganite foundations for the contemporary world. So, what would be an appropriate response from the United States, or for Europe for that matter, for alleged war crimes in Busha and other cities in Ukraine. Look, this is there's there's little doubt based on the evidence we had of real barbarity on the part of the Russians. But look, it's nothing new for them that this. They've done the Sinceria, they did it in Czechnia. Uh and so we shouldn't have

been surprised by it. But I'll tell you something, none of this intimidates Vladimir Putin or the Siloviki, the men of power around him. These are the hard men of history. You can threaten them with crimes prosecutions all you want, it's not going to slow him down in the slightest I think I've written on this extensively for over twenty years. These International Criminal Court the type operations do not deter these things from happening, and they're very rarely able to

administer punishment. That this this will have to come when Russians get control of their government again and take actions if they desire to, against the people who committed the crimes in their name. Okay, So if Latimer Putin has proven time and again that he is not capable of being deterred, that deterrence tactics to this point have not worked, what will he respond to? Does use the force need

to be on the table. And when the U S and other countries like the UK today for example, saying that they don't want to escalate, they don't want to be escalatory, what would escalation actually look like? How far can they take it? Well? I think Putin would have responded to adequate deterrence, but he hasn't seen any of it.

You know, there's a lot of nattering by leaders of NATO countries about United the Alliances and so on, and yet we can't get the leader of the Free world to agree to transfer of Polish MiGs to Doukrainian Air Force. He said again yesterday it would be World War three, which it certainly would not. The West clearly failed. This is a shame that we will have to bear in not being able to determin who starting this evasion. John, that was very rude and undiplomatic of you, as you've

been called before. Let's drive a conversation for to what to do now? Are you advocating at the Secretary of State needs to take the Bolton rute and undiplomatic and be more assertive, more aggressive or can we have a grace to our diplomacy? Is we force what America wants? Look I think we have. We have been plenty graceful with our allies, and we're still not getting them to

do enough. And we're not doing enough either. I think if you listen to some Europeans, the British in particular, uh that they say we're constantly being dragged long by Europeans like themselves urging us to do more, or pressure from both the House and the Senate Democrat and Republican like. The fact is, if Putin retains territory after this is over, he has won and and and his effort to re establish Russian hegemony and maybe even sovereignty in the space

of the four Soviet Union has been very paid. I don't mean to cut you off, but this is too important John right now. And that is a new domino theory moving from Russia west. Are you suggesting there could be a domino theory here if he takes part a bit some of Ukraine. Yeah, he already has some after the fourteen invasion, to which we did not respond effectively, and he's obviously going to try and get more. He's got plenty of other targets beside NATO countries within the

space of the former Soviet Union. But if you ask the polls, if you ask Estonia, lad Via, Lithuania, they are deeply afraid that that they're very high on the Russian card a list and an ineffective, indeed feckless Western response will simply encourage Prutin. Okay, so that's looking west. What about to its other border with China, Mr Bolton, what role do you think China is playing actively or inactively here? Well? I wrote in the Wall Street Journal

a couple of weeks ago. I think Russian China haven't on top here. It's not a full up alliance, but it's an understanding. I think China has Russia is back in this conflict, and they'll expect Russia is back when they launched their aggressive actions, whether it's against Taiwan or more in the South China See or elsewhere along their

periphery in the Indo Pacific. Right now. I think what the Chinese are doing is making their financial institutions available to sanction Russian banks and others to ineffect launder that moment back into the financial system. And I think although China already purchases significant amounts of Russian oil and gas, they'll be happy to purchase or uh if if we had an effective embargo, which we don't. So these are the kinds of relationships. It doesn't require military assistance from China.

Economic assistance is very important, and you've got other major countries like India, which, according to press reports, quadruple its purchases of Russian oil in February. John, I gotta get this into too important. In this conversation, you mentioned we should not worry of World War three, and perhaps we should not worry of Mr Putin and his nuclear abilities.

How do we manage that? How do we develop a confidence that we will not find some form of World War Well, I'm not saying we shouldn't worry about it, of course we should. But right now we failed to deter Putin, and he's deterring us uh. And I think if he can get what he wants for free without effective Allied response, he's going to be encouraged to do more. I think providing the Polish mixes is actually a pretty small piece here. We're now in a race of time

with the Russians. We've got to get more military assistance to the Ukrainians. We should be doing a lot more. I think a lot abo pctions we had are off the table. Biden gave them away in early December when he took American force away as an option. By the way, I got absolutely nothing for that. So we're constrained by what's going before us. But I think we should be absolutely clear here. If we allowed Russia to get a major part of its objectives in Ukraine, we have suffered

a significant defeat. John Bolton, thank you so much, John, Thank you for having always thoughtful and controversial to say. At least Lori Calvacina has had the courage to be in the markets. She's done it small cap, large cap at RBC Capital Markets. But far more, John, Lori Calvacina has done sector analysis of what to do and just as much what not to do. Joins us now, Tom, thank you Lori. Let's start with that energy code that's

not at twenty one. Get along overweight. You like the sector he left the sector That one has popped big time through twenty one, three two. Then in the last week you've made a move. Can you walk us through it, just piece by piece? What led you to this point? Sure? So. Look, our job as a strategist is to really connect the macro and the micro and so let's start with the macro. We had this sense that we really wanted to reduce some exposure to the value trade, and that's really for

two reasons. Number One, the FED we have passed an important mile marker. When the FED lifts off. We typically see value outperform ahead of that, but growth take back leadership afterwards. Secondly, economic forecasts are coming down. Tom Porcelli just took his number to two and a half percent, which is trend, and consensus is looking for two point

three percent next year. And we typically see value outperform and a hot or above at trend economy, but growth outperforms when the economy is running cool, so we think markets are really ready to start shifting back to growth. And in fact, in mid March we started to see growth outperformed value. So that's the macro, and when we thought about how we wanted to reduce that value exposure, we turned to our analyst survey, which is something that we do once a quarter and just completed last week.

Back in December. When we did this survey, my Energy team, which had been bullish and highly bullish throughout all, was number one in terms of their performance assessments over the next six to twelve months, and the survey we just completed, they fell the number four. Now I'm not saying they're bearished, but their enthusiasm clearly fell it much and we had a sense that between that and financial's energy was really the better place to reduce that value exposure, just given

those bottom up and puts from our analysts. So learning help us understand. Also then the next logical question, and this sequence of questions that will have with you this morning, why maintain the overweight un financials given the growth slowed down that you seem to be talking about. So I think we're, you know, when we're thinking about that economic forecast, we're making the assumption that we're heading for a below

trend type economic backdrop, but not a recession. And I do leave that call to Tom for Shelley, and he will tell you that the risks have grown, but he hasn't really pulled into been pulled into that yet as his base case. I do think financials have been suffering from that growing sense of recession fears. And I think as the market really sort of transitions and sort of settles into this idea that we're just going to hit growth significantly, but not really enter a recession. You could

actually see some relief on the financial side. Also. Frankly, John, I think that heading into this reporting season, the sentiment on financials has been pretty dour. That's the complete opposite of what we saw ahead of the last reporting season when they had really been flying and got you know, kind of pulled back down. I think we have a better set up going into this reporting season just from a sentiment perspective, Laura, the zeitgeist is that earnings grow

and then they don't. That the market goes up and then it doesn't, That nominal GDP is pretty good, and then it's not. How do you determine that tip point when earnings turn low single digit or dare I say negative? So it's a great question, Tom, and I will tell you that as a forecaster and someone who builds a lot of back tests and regressions, earnings have simply gotten

much harder to forecast. And there are models that we've build, inputs that we've looked at over time, things liking that labor costs, for example, which have been brilliant at forecasting earnings in the past um but haven't worked as well when we look over the past few years, and I'm thinking specifically about margets and I think the reason for that,

and you know, I'm a transcript junkie. We really go through and just you know, read everything we can in SMP five hundred recording season each quarter, and what we've really seen or two things is Number one, companies have just gotten much much better at combating margin pressures and so new efficiencies, software, new tools, new recruiting strategies, those are all kind of throwing a monkey wrench in the

models for people like me. Secondly, when you think about the market from kind of a top down perspective, technology has been just a structural margin winner over time, and it now accounts for a disproportionate share of earnings, much much bigger impact now than it has in the past, and so that's also throwing some of those backward models off. And I'll tell you, I think the by side has really ratcheted down their expectations for earnings coming into this

recording season. So we're not expecting things to be fantastic, but we do think there's already a lot of fear baked it awesome. As always, you know, we love catching up with you lot of count of scena of obviously capital markets, just on some of the changing kids around the sect of preferences for obviously and how to line up with you can always tain as well without further ado. Andrew Hallandhorst the most studied economist in America in the

last number of days. He's chief US Economists City Group. Andrew, John Ferreroll Torrio to Shreds a day you put out your note looking for a set of higher notes. I'm glad to see you survived, Andrew. I want to talk about the underlying theory at you see l A that you learned on all this. If we get the persistency of a non measured rate rise, what are the responsiveness is within the system you're most focused on. Those elasticities are going to be absolutely original. Given the Hollendhorst move,

which ones matter? Yeah, thanks very much Tom for having me. It's a great question how the economy responds as you start to see interest rates moving higher um and you to your point. I think when people first saw our call for fifty basis point hikes at the next four meetings, it looked aggressive to some people. But if you think about the kind of underlying theory, like you were mentioning, this is a FED that has a neutral rate. They think around two and a half percent. In a world

of two percent inflation. We're living in a world of six seven, eight, almost nine percent inflation, depending on how you calculate it. So the idea that FED officials would want to pretty expeditiously to use their term, get to a number like two percent, a little bit over two percent, that that's not that aggressive of a call. Okay, well this is important. Let's chop it down from I S l M and all the other theories blah blah blah

down to the core economic function. If we get a whole norse move, which partial differential moves the most consumption or business investment or is it going to be expressed in the trade balance, which one matters? Tom. I would watch the howasing market here. I think that's really the important sector to watch in general. That's where interest rates have a very direct effect on what's going on in

the economy. And if you look at that thirty year fixed rate nominal mortgage rate that's moved up from around three percent above four and a half percent now, so we've had a significant move in mortgage rates. The question you ask as an economist, is is four and a half percent mortgage rate really that high in a world where you're seeing inflation that's much higher. Does the FED

need to go even further than that? But I think that is kind of the first sign that we're getting, you know, some traction from what the FED is doing feeding through to broader financial conditions, WHI should feed through in some way to the housing market. It's just it's not really that that's gonna be enough to pull off the housing market. And that really that really rings true here is Kaylee looks at seven thousand square feet downtown.

I mean, the mortgage rate adjustment has been huge. Honestly, house prices Tom in this country, in the UK, for that match, are obscene, absolutely incredible. Nuts, are right, I'm gonna use that word. They are nuts. And Drew I wasn't tough on you at till a couple of weeks ago, and you know that. Let's talk about the economic data. Andrew.

You've got faith in this economy. You've got faith in this economy, and for that reason, to restrain this economy, you think rates have to go a whole lot higher. There was one little crack in that on Friday, and even the team picked up on it. The I M. Can you walk us through what's been happening and why that maybe just a little bit of a blinking, flashing

light on your dashboard. Yeah, I think you really have to be watching all the signals here because to your point, John, I mean, we have very strong demand, demand that is exceeding supply. The issue when demand exceeds supply is that even as demand begins to cool, you might not see activities slow that much. You would really see prices slow down because well, you're constrained by supply at the beginning

of the day in any case. UM, So we're watching all these indicators on something like in I s M slowing down UM that that would be raising our level of concerns somewhat. You know a lot of people looking at the yield curve. That's another signal that I think means we should be cognizant of the fact that the economy may slow down UM and and the FIT may need to slow down the economy down significantly to get inflation down. So there's a lot of reasons to be

thinking about scenarios where the economy slows down. But what I would go back to is the other number on Friday, which was the jobs report, and we're running on average above five thousand new jobs a month. You have wage inflation above five percent annualized. UM. You put those numbers together, you have nominal incomes that are running above ten percent year on year, and I think that kind of nominal income growth, we're probably going to see a lot of

spending power behind that. But in the face of higher oil prices, really higher prices across the board, Andrew, how long can the American consumer go before demand destruction really starts to kick in. Yeah, it's a great question, and I think we are seeing that to some extent. Um. We were talking about housing before. Um, you would demand for housing be even stronger if house prices were not

as high as they are. That's definitely the case. So you know, a combination of higher price prices and higher mortgage traits in the housing market. And then we're broadly for consumption, like you're talking about, we have higher oil prices, higher gasoline prices at the pump that that really does hurt consumers on a day to day basis. Um. Again, though, you're just coming at that from so much nominal income power you know, hitting that increase in prices that I

don't think that will be enough so far. Now we're watching the you know, if you watch the consumer sentiment numbers for instance, there you do see some of those numbers tipping because people are concerned about prices that are moving higher as they should be. Um but so far it still looks like an economy that was running well above two percent potential growth, probably still running above two

percent potential growth. But you know, kind of like you were discussing earlier, slowing down closer to that two percent numbers. You go through the year, Andrew, to bring it back to monetary policy, how does the balance sheet factor into your assumptions of potentially two basis points of move over four meetings? If the balance sheet is introduced as a factor in May, does what influence? Does that have? Great question?

So economists like myself spending a lot of time right now guessing at what these interest rate increases will look like beneficials spending a lot of time talking about the potential path of interest rate increases. But really we should probably all be a bit more focused on the balance sheet. That's an incredibly important tool that the FED has when we talk about a flat yield curve, two ye yields

being pretty high and tenure yields staying relatively low. Well, the FED is a very large owner of long term treasuries and mortgage backed securities. That's gonna put downward pressure on long term yield So I think the FED is going to start this on somewhat of an autopilot where there are caps on the amount of securities that are reinvested each month. That's going to bring the balance sheet

down slowly. Um. But it's something to watch because if the FED needs another lever to pull on to fight inflation that's running too high, well, the balance sheet is there as a lever could defend at some point, think about sales to they think about being more aggressive with the balance sheet. I think all those things are on a table. We're just not really focused on them right now. Andrew,

fascinating kill. We appreciate your time as a white buddy to can't hump and break it down for Sandraw Holland, host there of sits. This is when Jay Kramer out on Twitter this morning, Elon Moss, could you please create an algorithm for Twitter to get rid of the death threats and the like. Also, how about a two track, one with real names that is paid for and one that is at supported where people can hide behind anonymous names and dump on du Chasso. We did that, we

Jim's Jim's um. Yeah, a wise comment because there's so much vitriol. It's like it's a cesspool. It's you know, I go on and off because people are so filled with hate and get it too, but not like especially especially you know a lot of these people are you know, reside in the cheap seats and they're shrouded by and then emmity, and they've never been on the playing field, and they say that they wouldn't say to your face, you've been cautious here? What do you do with Twitter?

Now that Mr Musco is nine point x percent stock up? Doubly trade? I probably traded Twitter, uh those people on real money pro on the street No, Over twenty times over the last seven years, starting at I actually was not long going into this, but I showed a stock at sixty as I tweeted out, and then covered about five percent lower this morning, so I'm flat the stock

um Musk is a genius. The irony is that the SEC doesn't allow him to tweet, but unless his counsel at at at Tesla allows him, you know, goes over what he's going to tweet. So it's filled with irony. Um, he filed thirteen G, not at thirteen D, so he's passive. So I think it's an over reaction in my view. All right, Doug, So you know, I'm I'm just looking around here. I just came back from a nice few days off in California. Things are great out there, sunshine

six and a half dollars a gallon for gas. But I've got an economy that's slowing. I got interest rates that are going higher. I've got inflation. My Huevos Franciero's a Katie's placing Carmel this yesterday cost me twenty one

dollars um. What do I do in this market? Well, I mentioned to Tom and and Apropos to answering your question, Paul, that I wanted to rip up the script and basically link something that I learned in my first statistics class at Wharton with Jamie Diamond's comment, because I think it will serve to answer your question. The term I learned was gausy and distribution or normal distribution before everyone's eyes glaze over. Most no gauzy in by a different name,

and it's a familiar name. It's a bell shaped curve, which is a probability distribution function used in statistical analysis. Now most view market outcomes these days as a bell shaped curve. The average strategist comes in and says, well, Tom and Paul, the market smps can earn three twenty five dollars plus a minus apply one multiple, where maybe two or three uh pe numbers higher than normal, but interest rates are low, so the stocks are not expensive

expensive relative to interest rates. I think that's linear thinking. Um uh, you know, in a normal distribution a normal world, of the outcomes are within three standard deviations of the mean, and two thirds are within one standard deviation. That's how the majority of investors are thinking today. I strongly disagree what I believe to be the normal distribution consensus. I see it much differently. I don't see a Gaussian or normal curve. I see what I call a Cassian distribution

and abnormal distribution aftorial. Some call me abnormal on Twitter. Um. But and a normal distribution considers that there's a wide range of tail outcomes that have a higher probability than at any time in the last few decades. In other words, to me, the markets pull are underprising risk in the rally over the last half of market looks like a bear market rally. And let's consider what Jamie Diamond says.

I've I have said online on the show and offline to John you Um and Tom that um My concern is chiefly that there's abundance of uncertainties and the very probabilities of outcomes that exist today, d Jamie Diamond said this morning. He warned that the war in Ukraine would collide with rising inflation UH to slow the pandemic recovery and alter global alliances for that case to come, but

what he wrote next is far more important. He wrote, they referencing Ukraine inflation present completely different circumstances than what we've experienced in the past, and their confluence may dramatically increase the risk of the head. Well, it is possible and hopeful that all these events will have peaceful resolutions, we should prepare for the potential negative outcomes. And this is why I view the world, the stock market, the

SMP as overvalued. Never before have we had the possibility of these outlier unexpected outcomes which are happening with greater frequency. So twenty one times the ratio one times is really quite expensive. Doug, what's important yours? We don't know where the Baltimore Orioles are in the Bell curve, but it's not a good sight to see. I know where the Yankees are and I don't even want to discuss it anymore. It's part of your terms for coming out. We talk

to your people and said you wouldn't talk about it. Doug. What's so important within this analysis is corporations adapt with your analysis? Do you go to you know, forget about trading like casts? Do you go to cash? Or are there places to hide given your caution? Well, I have a very long list of shorts. Uh, some companies you haven't heard of, or whether fraud exists or the company's outlook. Uh. I'm not going to get into the details, but I'll

briefly give you some names. Carbon Crispy Cream, you know, Robin Hood the Crispy Cream, awful business model. It's going to go the way the first Crispy Cream did could put Berkeley lights light speed. One of my favorites is Digital World acquisition, which is down nine dollars this morning. And that's of course Donald Trump's Truth Social, which is having serious problems having people download. There's a waiting list

of over a million names. I've tried to get on it, not because I'm interested in in the propaganda, but I'm trying to figure out how the site is working, how effectively it is working. In fact, over the weekend, the two people that lead the technology and development resigned from the company, and um, they're gonna have problems. You know. The other thing is in theory. UM truth Social provides

um a platform versus Twitter. But I think people from the right and the left like Twitter because they could kill each other with so much vitriol and hate. I don't think it is as compelling if you have a site with only right leaning um uh tweeters or contributor. IM out of time. I got five seconds. Would you explain the price of Florida real estate? Oh my god, I've been talking about this whole weekend. Have you been

spying on my conversation? If I told you what I paid for my house on Seabreeze Avenue in Palm Beach and it was offered Friday night by someone who walks not a realtor, so when he wants to pay me cash, just walked up and knocked on my door. Happened him at home. My dog, my two docksins um Ali and Daisy at barking um and I was, I was, I was stunned. Okay, well I'm not telling you because it's in a residence stress with my kids. Doug cast thank you so much, knocking on his door down in Florida

with Seabreees partners as well. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern. I'm 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