U.S. Should Align with the U.K., Stavridis Says

bond Market. The story as follows. Treasuries that look a little something like this yields dead flatter two at four in the US tenure, and we are up just a basis point on a US two year note to two point to six percent for the White House Palace intrigue.

Terry Haynes of ever Corp wrote the following, Mike Pompeio bringing to the table a harder line national security background and bent the signals a fundamental shift in the state's roll away from conventional negotiator and smoother of diplomatic difficulties to one that may be more confrontational on all sorts

of relationships, including trade. So let's talk about that and bring in Bloomberg's chief Asia economics correspondent and the current and Ron temple Let's out Asset Management cohead of multi asset and head of US equity strategy. He joins us. Right now, let's begin with you, Ron. Are we moving towards a confrontational approach on all sorts of relationships, including traite. I do think trade is actually is going to be basically a challenge over the next six to twelve months

or longer. And I think we're going to see an ongoing flow of negative trade news out of the administration. So what I'm hearing from d C is that there's quite a bit more lined up. I think there's a focus on the technology sector in particular, once you get beyond some of the old industrial areas like stealing aluminum. So I do worry that this protectionist policy is being embraced by the administration. And let's be honest, Donald Trump did campaign on a platform of protectionism, and so, um,

what's disturbing to me. By the way, as if you look at it, it's somewhat of a bipartisan appeal. Um. If I look back to the twenties sixteen presidential campaign, there were twenty candidates on the two different stages on the democratic and Republican stage. I don't believe one of

them defended free trade. And so I think this is a transition towards a more confrontational trade policy for the US on across the server to ENDERCARA, and the several reports in the United States today about the next move from this administration on China. There's a political report. There's also a RUTERUS report saying that the president is areing tariffs of up to sixty billion dollars on Chinese goods, mainly focused in the tech and telecommunication sector. And how

is this going down in China. I think Jonathan, that China right now is doing two things. A They're trying to figure out just what is going on with the US trade policy. But we know, for example, a lou Hos visit to Washington, he's shooting being topic you can ordervise. A few weeks ago. One of his request was give

me the list in terms of what you need. And secondly to the sense that while they are bracing for things to get toughered, it's also feeling China is willing to make some concessions shine headed off of the past that don't want a trade war. It's not in their interest. They know that China's economy would suffer even if they

want to strikes back. So there's the feeling that when it comes to the three or one, and the I p probe that perhaps China makes some key concessions that would give Mr Trump the kind of victory looking for and would go somewhere towards singing the trade that of China's own economy on economy can absorb, you know, if those ap neither are blowered and exhausted. China's also made clear that they can respond if needed. Well, let's be clear here ender as well. News for everyone. China doesn't

want the steel jobs. They want the manufacturing value add jobs in Germany and the United States of America. I imagine China are quite willing to give some some concessions around things like steel and aluminum, But the real issues that are ones coming down the road, aren't they That it's entirely right, you've nailed You've nailed it on the head. The issue for Chinese that they're the steel and aluminium tariffs, for example, we really have a negative impact on China's economy.

The washing machine and solar channel tariffs a few weeks ago, a similar story. If the US they are heading down the Trump heading down the road of targeting much more to Fitt scated good that China is trying to get up the value chain on in the area technology and electronics and the like. That's where it becomes much more sensitive and much more difficult for Shanna not to really where they do not want to give up on the ground, and that's where we could start hitting down the road

of pisser the caliation. And China has made clear to get a target for example, US agricultural goods story being strogne Bick a target Chinese orders for US and good and the target wider US investment in China. So there are plenty of values they could go down definits of Trump does go after their high value add stuff and the current thank you so much greatly appreciated in China's Morning Round Temple. You to hear Mr Kerran from China there and it's the immediacy of real things have to

get real done. Do you change investment perspective? And visible steel and aluminum producers such as Boeing the news today with some of their demand for aluminum from China that we are definitely taking into account. What might happen to the cost structure of different companies in which we might invest in terms of going through and saying Okay, if there's a tariff on aluminium, temper cent tariff on steal, I mean, what does it mean to the company's cost

of goods? What's your first look at that? Well, you know it varies by company, and so then you pick somebody big leg Boeing come out. Well, what we're doing is a company by company analysis and effectively looking and saying okay, if company X is basically affected by it, then the next step of the analysis, Okay, what about their competitors. Are there competitors importing steel? Are they're using domestic steel? So does it have the same cost implication

across companies to regardless of the sector. And John, what's so interesting about this is that David Lynch article in the Washington Post a few days ago from Joplin, Missouri, which is the guy just said, look, this is not about price, it's about quality. And the guy had to bring in foreign steel because it was better made than the product you could get here. I just think we've got to get off the topic of steel and aluminum.

At the end of the day, China has a ten year plan and it's not to dominate steel and illuminum. It is a made in China ten year plan to take over key industries in technology and manufacturing. That is why the deal for Qualcom has been bought by the President of the United States. They need to compete with China on all fronts, and it's not steel and aluminum.

So I just wonder why we're sitting here talking about it so much, because the Germans are incredibly paranoid right now about a state that JELI has taken in Dimeler, their own technology at home being taken abroad by the Chinese from Germany. This isn't just about the United States of America and this administration defending steel and an aluminum.

This is about the United States and Europe becoming increasingly paranoid about a ten year plan of the Chinese to take over some really key industries, and I imagined ron the tension is going to heighten from here and we won't be talking about metals over the coming years. What we're talking about real high end value added jobs in the United States for America that are growing in Europe and the West and ultimately will be challenged by China.

I think there are two different facets this discussion. Number One, I completely agree steel in aluminum in some ways, it's a tiny part of total trade in the world. It's a tiny part of our imports in the US. What I would say on that point, by the way, is I think what the US really should be focusing on is not tariffs, but basically figuring out what we did wrong from a policy perspective related to these heavy industries

and textiles. And you might say the old economy, we effectively agreed to free trade agreements, but then we failed to invest in the infrastructure, the education, and human capital to compete effectively. We didn't make the right choices. Let's fix that and make the right choices in terms of investing in our own country. More importantly, though, if you

look to the future, I absolutely agree with you. China has been very explicit about their strategy in terms of semiconductors and other high tech industries where they want to be basically a category killer. And I think what you're seeing from Washington right now is a fear that they will either buy in or steel intellectual property. Do we have a strategy that was done, But the whole issue

is the whole make America right again. You know, people might laugh and joke about it, but that actually needs to be a strategy to take on what the Chinese are doing, because the Chinese tom has been chating. The Chinese are able to go into a country like the United States and like Europe and take big stakes in the companies. Try doing it the other way, and that's what's about to be clamped down on. And that's what we're seeing in the last twenty four hours. But but

I think the Chinese are winning because we forfeited. We don't have a strategy. And I'm not suggesting, by the way, the United States should have jopt the Chinese style central planned economy. I think what we should do is look back and say, what made this country the richest country in the world sixty seventy years ago. It was our investment.

It was basically having consistent, predictable rule of law, which, by the way, when you get back to Washington intrigue, having some consistency and stability is actually important, you know. So I think we actually have to step back and reassess how we're approaching government right now and think about how do you have a five year budget not six month continuing resolutions? Right our Congress and president have failed for years to deliver a budget that you could actually

make investment decisions based on as a company. And so I think we actually have to start actually trying to be strategic and having a long term view. And the only one with a long term geo strategic view right now seems to be China. And ultimately that's the problem. Ron Sampole las our Asset Management, cohead of multi Asset and head of US Equity, jointing US him in New

York City. Do he, like all of the national media visiting Southwest Pennsylvania, has done a tour to force and no question, when all this is over, Kevin's really deserves a yng ling beer of his choice and he joins US now from Southwest Pennsylvania. Kevin, what are you focused on right now? Is we try to get to twelve noon? Is it a recount? Is it something else? But now what I'm focused on is just watching these absentee ballots

return come in. Look, it's it's increasingly unlikely that the public and Rick to coone will be able to flip the lead to Democrat Connor Lambs, but it's still too close to call. And until these results are certified, uh,

you know, we're not gonna know look. I spoke with a former a former official in the Governor Wolf administration, governor of Pennsylvania Republican, who told me that the recount laws are so complex in Pennsylvania, and this is you gotta remember, this district is not going to exist after November. So there's just a lot that I think a lot

of folks were paying right now. Um, but you know, Connor Lambs, even if he does, even if the leak goes away, I was able to turn out a massive flip, explained to our global audience, including John Farow of the United Kingdom, explained to them how the Republicans will adapt if Mr Lamb wins. Well, they're going to have to.

There are a couple of things. I mean, President Trump, who knows how, But I think that people can retire the progressive bait so active right now and in the blue wave of what you're hearing from Democratic strategist that could come in November. And a lot of Republicans now in particular, are looking and saying, wow, this President Trump won this district by and he couldn't even you know, and and a Republican couldn't win there. They're gonna look at their own future Kevin. Can we talk about the

uniqueness of this and not just it's about weather. A young Democrat with a military background, not exactly running on a traditional Democrat platform. Was he Can this really be replicated across the country. That's a really great question because Republicans the strategist to speaker Ryan made that point to me last night. And I think the point of Connor Lamb being a centrist is fascinating because he ran away

from House Minardi leader in it Pelosi. He was in the middle of the road on the Second Amendment on gun control, the middle of the road on abortion um and and did not run on a progressive populist message. He ran in lock step of labor unions, which is interesting, especially for our audience. But he but he uh, but he was. He was a centrist and not a not a massive liberal or a socialist. I mean within that is a throwback. So I guess an old Democratic party

can Connor Lamb? Can Connor Lamb Congressman Lamb? If he wins, can he get along with Senator Warren of Massachusetts? I mean, how is that gonna work? Forget about where you are right now in Cannonsville. How's it gonna work in Washington. Well, he's goingly gonna be there for a couple of months start campaigning again, which everyone supporters of Lamb and the

Cone were frustrated with. I was, you know, last night, I've heard a lot of political speeches, but watching Connor Lamp speak last night, there was a close that stood out, and it was when he thanked Labor. I thought that was interesting. But also when he said I'm a Pennsylvania Democrat. That is something that you hear a lot when you when you cover former Vice President Joe Biden, who plays up his Scranton, Pennsylvania roots. Siden, of course, was here

campaigning for Connor Lamp. That's a very stark contrast from when I cover Senator Elizabeth Warren or senator standards. They're not saying, they're not making that pitch, and they've argued that in the Midwest, in particularly, how to run even more progressive Connor Lamb, Senator Tidy hight Camp, Joe mansions

of the world. They disagree. Uh, Kevin Surlier, gonna let you go because we know you had so much to do today, plus the exhaustion a sudden I would go with a black and tan jangling by the way Mr surliers available, it's what they're can always be an argument about when the financial crisis, the Great Recession began. I always have put it as a third week of August two thousand seven, Library O I s went out, excuse me, T bill went out for standard deviations and we were

off to the races. A lot of Europeans were thrown around the French banks, etcetera. Well we can all agree, is we all know where we were. It's seven oh six pm Wall Street time, March sixteen of two thousand eight, and then it was on into a dash into March seventeen. UH. The next day the single headline headline came across JP Morgan Chase to acquire bear Strings for two dollars per share,

John Farrell. It was stunning at the time. It was absolutely just jaw dropping here at Bloomberg, de City and most remarkable as ten years has past, Tommy, you just wonder how many investors are still conditioned off the body events of ten years ago. I think so joining us now, we are honored to bring you Robert sin for years definitive with Alan Schwartz at bear Stearns in UH thick research and of course at the time at Bank of America running their foreign exchange and fixed and commandate with

David Goldman, among others. Bob says, you were at Bank of America overlooking Central Park South. What was it like when you saw that two dollars statistic from Mr Diamond? Good morning guys. Well, obviously incredibly stunning and for for a lot of people that that I had worked with very early in my career at Bear Stearns. One of the things about about the organization and about the sentiment there is that is that people didn't didn't sell the stock um you know, they held onto it. They viewed

it as their retirement package. And a lot of people, you know, not really senior people, but mid level people have just been accumulating stock, accumulating stock for decades, suddenly saw that, you know, collapse, I mean what the stock had gotten up to a hundred sixty or something and went to do I mean, this was this was devastating for a lot of people who didn't even think about selling the stock during their whole career. And John jump in here, but it was absolutely part of the fabric

that you got stock dividends from Bear Stearns. They were different and you got more stock when you owned because it was a currency that was worth something UM than it Wilson Bob to what extent, and we rice this very briefly at the top of this segment. Our investors today still conditioned by the events of ten years ago. You know, I think it's it's beginning to fade. UH. We're certainly seeing retail investors become and millennials become more

involved in inequity markets. UM. You know, but I think that it's it's it's not a much different UM, you know, much different characteristic of the investment. You know, investors are much more oriented towards UM you know, towards passive products,

towards et f products UM. Uh. The world has changed a lot in terms of the sentiment, and I think that that investors are much more skeptical about the ability for uh, for themselves or for for brokers frankly, to be able to UM, to be able to pick individual stocks. And I think that that's something that's that's you know, Van Guards been at the forefront of but really has

has set into the mindset over the years. It certainly changed the investor approach to investing in inequities to that extent, But I still see investors climbing the so called wall of worry, haunted by the paranoia of what might be around the corner, Bob, and for that matter, haunted by the prospect of a recession. We've forgotten what the average recession is like, and we just have this memory of this deep down term post two thousand and eight. It

doesn't have to be that way, does it, Bob. It doesn't. And I think this the environment we're in, you know, augurs reasonably well. Deep recessions come from from building up excesses in the economy or in the financial markets. Um, there's not a lot of that in the private sector, I would argue right now maybe some companies that might

be overpaying for some other companies. I think the real accesses that are built up in this cycle have really been on the government death side, and I think that's where a lot of the uncertainty is going forward with, you know, financing of of US deficits. Yet the bond markets are incredibly complacent about these financing needs. As we go forward over the next not just the next year, but I think the next five to ten years, there's a real struggle in in the US budget outlook and

how that's going to be financed globally. Yet you know ten year yields are sitting here still below three percent. Very quickly, Bob, with that fiscal impulse, do you just assume week dollar? You know, the dollar is an interesting character right now cyclically, as we know, with interest rates differentials movie sharply in favor of the US, the dollar probably ought to be five to ten higher than it is.

This is really one of those structural environments where the markets, i think, are focusing on the twin deficits and the lack of confidence in US policy, and you're just not seeing the capital inflows into the US that normally should be taking place given the level of US rates relative to the rest of the world. And let's pay upon global strategists, uh our interview of the day, without question, James Travinus, the Fletcher School. Admiral Stevinus, of course, more

than familiar to all of our listeners worldwide. I can't say enough again about the work he has done into his book. Last night, Admiral, regardless of anyone's politics, this nation was transfixed on just simply the movable events of

a twenty for our span. How was this taken by members of the Pentagon, members of the military, And I want to bring it right down to Quarters A at the Washington Navy Yard, and what Admiral Richardson in chief of naval operation you see a Secretary of State fired, I would suggest, differently than General Haig of another time in place, what does Admiral Richardson the do the next

day to provide stability to the sailors? Well? As always, Tom, you've got to look back to history to kind of get a sense of this, And I'm going to take you way back to the seventeenth century British Admiral John Byng, and he lost a major battle and he was executed for failing to do his utmost And Voltaire said, occasionally the British shooting admiral in order to encourage the others. And I feel there's a bit of that going on

in this White House. And I think what all of our naval leadership need to do, in all our military leadership is just kind of put their arms around their troops and say, look, that's distant thunder out there. Of politics, Um, we've got an operational job to do. And I think that's what General Madis is doing over in the Pentagon today.

Do you link General Maddis to the uproar in the White House all of the speculation in the rumor of General McMaster's future, of Mr Shulkin's future at the Veteran's Administration? Is Mr Maddis bundled into this or is the General separate? I think he's completely separate for three reasons. One is his enormous personal reputation integrity. Number two, he operates an enormous department that is running extremely well. You simply can't

fault him on a performance basis. And number three because Donald Trump has a kind of a built in proclivity for military In fact, look at the replacement for Secretary Killer Center will be Mike Pompeo West Point graduate number one in his class. By the way, I did not

know that. Yes, Admirals Tevitas, good morning to you and thanks for being with us as a former NATO Supreme Allied Commander for Europe two thousand nine to two thousand and thirteen, and wondering if you can comment about the Russian Russian violations of NATO airspace over the Baltic and also probably the acquisition of anti missile defense systems by Turkey and NATO ally, and those acquisitions are being made

from Russia. Yeah, both of these are very very concerning and and really part of Putin's ongoing efforts to undermine the West and above all to kind of break apart the NATO alliance. Any succeeding extremely well. He's got us in an uproar after intruding into our elections. He is pushed into Ukraine, not an NATO member, but an important country,

invaded and annexed. Any any operationally pushes not only in the air to in but also on ships at sea, coming very very close and very offensive ways in the Black and Baltic Sea. The sale of the S four hundred anti air missiles to Turkey will pull Turkey further out of the alliance and it will make it hard operationally to integrate their air defense with NATO air defense. So I'd say overall, Putin is succeeding in putting great pressure on the trans Atlantic Alliance in general and NATO

in particular. And what would you recommend if you got a call from the White House? Is there anything that the US administration can do with its European allies to thwart these advances. When I was interviewed by Mr Trump, then candidate elect Trump to become Secretary of State in twenty sixteen in the fall of seen, he asked me the same question, and I would give him the same

advice now, which is, we need to confront Russia. We should confront them on the cyber intrusions, on their behavior in Ukraine and their support for a war criminal assad and Syria. We should confront them where we must, but we should cooperate where we can, and there are zones of potential cooperation with the Russian Federation, counter narcotics, counter cyber, counter operations in an Arctic, in the High North. We've

got zones where we can cooperate. So we don't want to stumble back into a full blown Cold war, but boy, I can see one from here. Let's let's do the ballet. And I don't think I need to be an adible in the Navy to know Russia or respond to the Prime Minister made speech of an hour ago with stunning headlines, and yet they're by all reports, there's a relative silence from the President of the United States. You've spoken to

President Trump about these delicate issues with Russia. What what should he be advised by General Kelly and General Madison others to say, Secretary designant Pompeo to say, immediately in support of our key ally, uh, he should first of all align himself with with the British completely. We should consider expelling Russian diplomats in solidarity with the Brits. We should strengthen our own Cyberg defenses because that's how he'll

continue to try and retaliate against US. Um. We should. Uh. Thirdly, we should be standing operationally alongside the Brits out at sea and in the air, because, believe me, Putin will continue to press on them and his responses will include expelling British diplomats but also up temple operational challenges to British armed forces at sea and in the air. We need to be with them. Tell us about smart power and are we being smart with the smart power that

the United States has hard and soft? Yeah, we're not. Um. I think we're doing quite well in the hard power realm. We have the most capable military in the world, full stop. Um. We are a blooded army, we are a seagoing navy, or we own the air in many ways. UM, so we're very good at the hard power. We can launch missiles all day long. We need to get better at launching ideas, and that means combining that hard power with development aid, our deployment of hospital ships, are engagement in

everything from education and to literacy training. If we combine that hard and soft power, that's what we call smart power. I think. Unfortunately this administration is very top heavy with military leadership, and frankly Secretary Pompeo, as I mentioned West Point graduate plenty of combat time, terrific person, terrific officer. But when you add it to all the other generals, you have to start asking yourself, Um, if your only tool is a hammer, maybe everything looks like a nail.

We ought to be combining soft power alongside the hard power. Let's come back with James te Vedas, dean of the Fletcher School, Toughs University Animals to Vedas, of course, giving us a good perspective. All we Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene. Before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.