Surveillance: War in Ukraine with Kimmitt

do is speak of this war. We do this with a gentleman early in his career at that time when Russia again blew up in the early nineties, Mark Kimmitt was with the eighth Infantry and then answer other tours of duty with the Army and General Kimmitt Division Artillery Commander the first Armored Division in Germany. He has hands on experiences Ben Hodges did the other day for US as well. General Kimmitt, thank you for joining us UH this morning. Mark Kimmitt, What will the tank warfare look

like in Carcave? What will the warfare look like in Kiev? Well, first of all time, it won't be tank warfare. All those advantages that the Russians have with those mechanized vehicles, UH in too great extent, is completely neutralized when you go inside the city. These are small streets, even the large ones can't fit a lot of tanks through them, And it goes down to a completely different kind of

warfare that we're seeing right now on the roads. If we're seeing a different warfare, do you suggest we'll see it in any moment's notice and with that we will see Ukraine do better than the last twenty four hours. Well, we'll see clearly the Ukrainians have done very very well up to this point, but it's the first ending in a nine ending ball game. When you go into the cities,

everything that they've been doing up to this point changes. Uh. They certainly have the advantage as the defender in the city ease and a lot of the advantages that the Russians had are just completely neutralized. But it is still tough, brutal combat in a way that we haven't seen yet. Urban combat is for any military historian certainly understood. It's the toughest, grittiest, bloodiest kind of warfare there is. We've had a many times, General that it has to favor

the attack. The ratio in combat in urban wol fat. Can you run me through the kind of ratio you're thinking about, General, Because we hear things like six to one. What an attack it needs to overwhelm the defender in Uban wol fat, What kind of ratio is needed? Oh, it could be far more than that. You took a look at what happened in Mosle. A hundred thousand troops were necessary to go against ISIS and Mosle about six thousand inside there. Uh. And unfortunately there's a huge toll

on the civilian population inside those cities as well. But for an attack her to win in a city fight is our marines did in Felluja. It takes extraordinary numbers and it also takes extraordinary valor. And that last point is the important point, General, And can we sit on that for a moment. How unique is this when we see these videos of the individuals coming from the Russian army into Ukraine, which seemingly very little appetite to attack,

and the Ukrainian people just pushing those tanks back. General, what have you made of that? You've seen those videos through social media reporting on news networks around the world. Yeah, I have seen the ones that are shown in social media where the Russians aren't coming across the Well, what we're not seeing is those early insertions done by the Russian paratroopers into some of those air fields. Uh. Those are professional paratroopers, they are not conscripts, and they're much

better trained. But when you're talking about the conscripts that we're seeing on the road that are basically giving up or dying, I think that the Ukrainians have acquitted themselves spectacularly up to this point. General, do you think that we are underestimating the morale issue, both the boosted morale on the Ukrainian side and the opposite on the Russian side. No, I think we got it about right. I think that everybody is surprised at how poorly the Russians have done

up to this point. Much can be explained number one by the fact that these are conscripts that never knew they were going to be thrown into the war. Uh. And number two, the intense, intense leadership shown by President Zelensky, which is toughened uh, the backbone of every one of those civilians and the military and the militias that they're

fighting them. General, can you see an endgame at this point, given the fact that it seems like Vladimir Putin is not giving in in any way, and the Western allies are simply trying to remain with the sanctions and clamping down harder on that front. Yeah. So that's a good question because, as I said earlier, this is the first in a nine ending ball game, and the Russians will just continue to hammer and hammer and hammer away at you in places such as cities. They don't worry about casualties.

They weren't, don't worry about collateral damage, they don't worry about infrastructure. So I would expect that his endgame will be to go into those cities and destroy them. It's that simple. Destroy the buildings, destroy the people, destroy the civilians. They don't care. They will continue to flow troops and equipment in there and fire artillery missiles and bomb them until they are destroyed. That's how they see the end game. In many ways, people would say that's the only endgame

that you can accomplish inside this type of warfare. And general, I want you to speak to the public that does not warn the uniform that you have warned there's a massive primal screen. Just do something. And I want to talk about the American initiative or even initiatives plural here to fly into western Ukraine and deposit a massive force that the Ukrainians can use or to come in through the Black Sea, alistra Vitas and the others. What's the

initiative America can do now to assist militarily, President Zelinski? Well, I think the main thing is to do what we've been doing, not only as Americans but as our NATO colleagues and our NATO allies, which is flow as much precision weapons into UH Ukraine as possible, whether it's sting or missiles to bring down their helicopters, javelins, to knock out there UH tanks in their artillery, drones to UH conductoral warfare against selected targets. But we want to contain

this inside Ukraine. We can't be put in Americans into Ukraine, otherwise this will spill over into NATO and it would be a much much bigger war. What would you do as a mandate as a general in combat which you've done, What would you do with a convoy forty miles long? Is that the job of modern technology and drones? Well, the problem with that, of course time is that we don't have air superiority. You remember in the First Gulf War, so we need to fly zone the common of the moment, Generals,

we need to know fly zone. Well, the no fly zone won't help the Ukrainian Air Force get into the air. It's personally non existent at this point. Um and again, the no fly zone would completely change the dimension of this conflict from a war inside of Ukraine to a war that can spill over in Europe. What we need to do more than anything else is see if we can get those Ukrainian helicopters in the air, because, as we say in the military, forty miles of vehicles is

a target rich environment. We've seen them destroyed as we did in the first Gulf War where were destroyed about ten miles and vehicles, and it would be pretty easy. But the Russians have air superiority, and we've got to take that air superior already away from them through anti aircraft devices such as stingers. But I don't think that will happen in time. General, as things stands. To wrap things up, we'd love your assessment of the base case about how this turns out, you write. A group was

on with us earlier this week. They said we continue to see the most likely outcome of the invasion as a combination of regime change and Russian political control of the entirety of the country. What's your conclusion, your base case at the moment, General, Well, I think that's probably where it will end up. At these peace negotiations. Of these peace talks on the Belarusian border don't accomplish anything. Remember,

wars don't end when the last person dies. Wars end at the diplomacy table, at the negotiating table, and candidly, the sooner we can negotiate Russia out of Ukraine, the better, mark, General, I'm wondering a lot of people are talking about the fact that Russia is a nuclear power, and NATO came out this morning and said that there's no need to change the nuclear weapons alert, even though Russia has come out and taken steps on that front. How concerned should

we be? Can we shrug this off? Well, I don't think we can struggle just shrug it off. But I wouldn't tell you that while Vladimir Putin maybe stupid, he's not suicidal. And I think even he recognizes that a nuclear exchange any kind would be not only the end of his regime, but in many ways could could completely sink the Russian Federation. General we have to leave it there. We appreciate your time, and sir, please stay close. We'd

love to catch up with you again soon. Lucky to catch up with General Mark Kimmitt this morning, let us go to an informed guest. She is absolutely brilliant in mathematics. Her graduate studies are just bulletproof. She holds court if b n Y Melon Wealth Management Alicia Levine on this historic Tuesday. Alicia, how is your view of the markets

changed given war? Look, the geopolitical situation over in Europe with a hot war really just adds another layer to an already kind of very difficult environment for equities here, because you have that specter of the nineteen late nineteen seventies, early nineteen eighties, of that stag flash, stagflationary fear of sort of ever ratcheting down growth and ever ratcheting up inflation,

as you've just spoken about. And what this conflict does is it plays into the inflationary piece, because I don't think the oil and gas piece, you know, the markets assuming that flows are going to say the way they are and then Iran will come on and it will be fine. And I think we have to ask ourselves, what if that doesn't happen. You know what if we do see a disruption, and I think you could see energy higher. And let's not forget that Ukraine is the

bread basket of the former Soviet. You Union of the world's week comes from Ukraine, and so therefore commodity price inflation is going to stay higher. So it just really adds to those concerns and difficult and difficult environment for equities as a result. At least s are you surprised by how much we're fighting FED action this year, a CP action potentially later this year, and getting comfortable with the idea that the FED will pull back a bit.

So I'm not surprised that the expectations for the ECB have pulled back, because after all, in a sense, the European economy is going to be most directly hit by this conflict and by the sanctions and by some turmoil in their local banks. So so that's not entirely surprising. I think it is more surprising for the FED simply because the inflation here is broad based and becoming sticky, and that is something the FED is going to have to deal with first and foremost. And I think the

war is about growth. Are going to be secondary. They have to deal with the inflation piece, and ever increasing oil here is not going to help. It's just lasting longer. And what we've seen is that the length of time, the duration that these kind of factors filter into expectations just make it worse. And so even if we think it's transitory for a year, it's already gotten into the

psyche of consumers and business leaders. Alicia, what happens if we continue to get this move where rates actually come down because people think that the FED is not going to move, and yet we see stock markets continue to decline because people are starting to price in stagflation. What happens in a regime where people basically are saying the FED has lost control over inflation. Right, Look, that that's the key question, because it's it's not a great environment

for equities. But we actually think we're here in a range somewhere between hundred range, which is where we've been bouncing around until we settle what the main issue is, whether can inflation start moving lower in the spring, and can can be fed do it in a way that doesn't inhibit growth. I'll say this, the data on the real economy is coming in pretty nicely in February, and so that really does support better than you know, pretty

decent growth. I am happily surprised about that, but that's the range is where we are until it gets settled one way or another. So there's risks in both directions here. I think you're going to start to see a bit in some of those large cap text socks also simply because that is that is really the safety play, earnings, cash flow dependability of a business that's really divorced from

from the economic cycle. We're a little bit more cautious on the consumer cyclicals here, simply because in a rate hiking environment and an increasing inflation environment, that's those are really the areas to get hit first. What are you doing with energy companies right now? So we still like energy here. I think that much of the move is probably behind us. But given the situation here, I think

energy is really still the play. The really interesting question here, and you've been bringing this up all morning of CEO from Devon Energy. You know, why isn't the US changing it's it's energy policy in the way that Germany has.

I mean, think of German policy changed radically. You know what what it was for the last several decades as a response to this, and I think that's really something on a policy basis would not be a bad thing for the administration to address here, simply because it turns out that complicts and places with very small percentages of global GDP really do affect us. Alicia, wonderful to hear from you, and so always Alicia living of BM y Man,

I'm with some really important questions. Let us move on to our interview of the damn for in exchange with Comac Travetti of Golden Sax were thrilled that you could join. Uh this morning, come act you very simple, where is the true valuation of ruble? Good morning? Thank you for having me. I mean, this is the kind of situation where, uh, you know, fundamental valuations are very hard to do. I mean, you can think about things like Russia's oil and gas exports,

its current accounts surplus, it's reserves. None of these things matter at a time when a large quantity of the reserves are sanctioned. Essentially, the sanctions are making Russian assets uninvestable for most you know, Western investors, and they're making you know, valuations and fundamental valuation calculations pretty much impossible as well. Can you use adjacent ratios to come up with some form of guestimate of dollar ruble right now?

Moving out from my eyes are failing me here from a one oh one, one oh two right now, can we dare say one fifteen or one twenty? Look, it all depends on how things evolve. You know. If you look back to the period fifteen when you had the annexation of crimea, hostilities in the don bus and of halving in the oil price, you saw, you know, a huge sell off in the ruble, you know, nearly you know or so, and that came along with a drain

of central bank reserves of something like a hundred billion dollars. Uh. That kind of drain or that kind of decumulation in order to support the ruble is just not possible today. So again I think that you know, one can come up with you know, maximum undervaluation numbers or things like that. Uh, you know, and we are well through those points at at you know, hundred and fifteen or whatever it is. But I just think at this point it's it's not

you need to see some crystallization of the risks. You need to see some sense of the end point here before you can put a firm value that this is kind of as far as it goes, and and no further in the meantime comm act share we're seeing is nodes of liquidity amid the sea of illiquidity that is the Russian market for all assets, where are you seeing the most traumatic ramifications, the most traumatic moves simply because it is the only place that people are using to

offset some of their other bets. That potentially could be an overshoot if things do come to some resolution in the near term. That's the That's a very interesting question. I think that is really one that investors should be asking themselves as well, right, I mean, you know, Russian assets, as I said to the sanctions are making them very hard to to to touch. But there are the whole host of other assets that may be affected by what

is going on in Russia and Ukraine. Uh and there at some point there may be a more interesting opportunity. I think the most significant risk premium is being put in the assets that are closest to the theater of conflict parts of Central Eastern Europe, Poland, Czech Republic, Hungary, The equities, the currencies in those regions, and those are places where if you saw some stabilization, some secession of some cease fire, I think would probably see some of

the biggest recoveries and the fastest moves. Uh. And I think then there are assets that are pretty far away from that. You know, if you think about oil producing countries like Colombia and the Colombian Paso or the Middle East and oil producers the credits preds on those, I think some of those things could be You know, I have already been pretty resilient, but could see more out performance in the world where the hostility sees but oil

prices are still meaningfully higher. You are an economist at the Bank of England. You understand the interplay of oil prices and growth and how the combat for inflation can transpire. Do you think that markets have gotten ahead of themselves in pricing out possible rate highs from either the Bank of England or the ECB, or even the better reserve on the hills of this conflict? I should say I was about economist the Bank of England many many years ago.

Now obviously it's attist at Goldman facts, but um, look, I think the markets are trying to price a very uncertain situation, and I think what is really happening is that markets are, you know, implicitly making the assumption that the tightening in financial conditions that is needed to bring inflation down. Some of that tightening is already being delivered by the move higher and commodity prices and oil prices.

I think that is sort of what the market is pricing, and I think that's why you're seeing the interest rates the yields moved down. I think that, you know, my our view is that you will still need to see considerable tightening, especially in places where as I said, the growth impact from this conflict may be relatively limited, but the negative shock from oil prices to inflation might actually

be quite meaningful. So I it's it's understandable why markets are doing what they're doing, but I think it may be a bit too fast, and I think you're probably still going to see major central banks, at least in the near future, continue to be on a tightening trajectory. Can act right to catch up. We're gonna get your perspectives and really impotent thoughts on what's gonna happen with

his current state. COTTI of Gellman Sacks thank you said right now, what we're gonna do is link a Russia surrounded by what is at fourteen nations to in America surrounded by two with great commonalities with Canada and Mexico. One company that has done that over the decades in North America is Target. Let's get your attention. Target is beat Walmart by over six hundred basis points per year in the last ten years in the name of Global

Wall Street. That is success. Their chief financial officer, Michael Fidelki joins us this morning. Mike, I'm gonna cut to the chase. The President will speak tonight on a hundred and four hundred five dollar Brent crude. You spoke today with twenty four dollars per hour on your wage. How are you going to do this at twenty four dollars an hour blended forty eight thousand dollars a year for

line employees. I'll tell you the investments that we make in our team from my seat for the best investments that we make, and that's been a path of investment over years now. We laid a path to get to a fifteen dollar starting wage back in accomplished that a couple of years ago. We've invested in additional benefits. We've invested in tuition free education, assistant assistance, and we see

those investments paying off. You can see it and the results that team delivered in our quarter with growth of nine percent because of time. I don't mean to cut you off, but I think this is so important, Michael, because you lead on this and you and I'm gonna say, Amazon, Jesse and the rest are in the cross. Here's on this are we have an arms race right now for

line employees. It's definitely a tight labor market, but our story might look different than what you'd hear elsewhere, and that we track our ability to attract and retain those metrics really closely. Those metrics are stronger for us right now than they were pre pandemic. So we see the results of that investment over time really paying off with a team that wants to come to work at Target and that best team in retails delivering. Michael, this is one side of the equation that you have a bird's

eye view on the employment aspect. The other side is consumers willingness to keep spending at the same pace even as they see their price of gasoline rise to the highest level since two thousand and fourteen, even as wheat futures arise to the highest since two thousand and eight. How do you game this out when you talk about pricing, when you talk about passing it on to the consumers and your ability to do so. Is time running out

to keep passing it all on directly? Now, we certainly see the inflationary costs pressure in the environment, but we tackle that really through the lens of our guests. Were fortunate. We have a lot of levers to pull within our business to make sure that we're protecting value for our guests, and price is the lever we pull last, not first, and that investment in value is working. If you look at our fourth quarter results that nine growth, it came

almost entirely from traffic. That means guests picking target more often, whether with their footsteps or clicks to our website, and so those investments in protecting value or paying off. Michael, I'm asking because you sort of are at this cross

section of what we talked about every day. We're talking about what's going on with Russia invading Ukraine, the possible disruption of supply chains, the possible ramifications on growth of oil prices, and I'm wondering how you factor these things and have you been scouring through your supply chains and looking for possible disruptions either from this or other perspective conflicts. I mean, how does this factor in to your day

to day decision making now? As you might expect, it's a situation we monitor really closely, and I'll start by just saying our hearts go out to everyone impacted by the situation in Ukraine. I know it weighs heavily on my mind, our target team, and our guests. We're fortunate we've got the benefit of a really sophisticated supply chain that's navigated a lot of challenges over the last two years incredibly well, feel really it about our inventory position

today upt to last year. That's a testament to us working through some of those supply chain challenges, so we should be well positioned to start the year. Have you found that you've actually gotten a lot of market share from smaller businesses simply because you have that ability to really rejigger supply chains and streamline certain costs so that

you can pass it along. We look at our market share games over the last couple of years, we see them coming from a variety of places, and some of that goes to, you know, the market share story by category. As you know, we've got strength across so many categories, from a really strong apparel business to a strong food and beverage business, and each of those categories grew double digits in the last year. And so the market stare share store is a little different by category, but it's

it's a wide set of sources. Michael, big move in a pre market today by almost eleven months to move in fact from New York. Thank you, Michael. Michael Fowk there of target. The target move quite sizeable in early trading, yet today down about writing much of that and the Eddie pot of today's session. This is the Bloomberg Surveillance Podcast.

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