Latest / Bloomberg Intelligence / Fed Will Struggle to Cut Balance Sheet to $3 Trillion (Podcast)

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Fed Will Struggle to Cut Balance Sheet to $3 Trillion (Podcast) · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
0:08
Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each
0:11
Speaker 1: day we bring you the most important, noteworthy, and useful
0:14
Speaker 1: interviews for you and your money, whether you're at the
0:17
Speaker 1: grocery store or the trading floor. Find the Bloomberg p
0:20
Speaker 1: m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
0:32
Speaker 1: Joining us now is Nathan Sheets, chief economist for pe
0:35
Speaker 1: JIM Fixed Income, helping to manage more than seven hundred
0:39
Speaker 1: billion dollars. They are based in Newark, New Jersey. He
0:42
Speaker 1: joins us here in studio. Nathan Sheets, thank you very
0:45
Speaker 1: much for being here. Maybe you could just give us
0:47
Speaker 1: your reaction to yesterday's Federal Reserve activity and what you
0:51
Speaker 1: think the Fed will do in T nine. So it's uh,
0:56
Speaker 1: it's a pleasure to be with you this morning. Uh,
1:00
Speaker 1: the Fed took a careful look at the US economy
1:04
Speaker 1: and I think on the one hand, they say, well,
1:06
Speaker 1: the consumer looks pretty good, and uh, the unemployment rate
1:10
Speaker 1: in the labor market they're looking pretty good, and there's
1:12
Speaker 1: ongoing fiscal stimulus. So the near term growth look outlook
1:17
Speaker 1: is is pretty solid. Now at the same time, they
1:21
Speaker 1: also see a housing market the softening and a substantial
1:26
Speaker 1: increase in market volatility and concerns in financial markets about
1:32
Speaker 1: the medium to long run outlook. And consistent with that,
1:35
Speaker 1: the Fed notch down its expectations as to what it
1:39
Speaker 1: would need to do for monetary policy and the number
1:43
Speaker 1: of rate hikes next year. And uh, you know, I
1:46
Speaker 1: think most likely they'll do what they're suggesting in the dots.
1:52
Speaker 1: So I'm prepared and expecting a couple of a couple
1:56
Speaker 1: of rate hikes next year. But the Fed will be
1:58
Speaker 1: very data dependent. Oh, look and see where the economy
2:03
Speaker 1: is and whether things are evolving as well as they
2:06
Speaker 1: think they will. You know, the focus really after the
2:09
Speaker 1: press conference was on the balance sheet and the fact
2:11
Speaker 1: that Fed share Powell seemed to dismiss concerns that a
2:15
Speaker 1: rolloff of the four trillion dollar federal reserve balance she
2:19
Speaker 1: was having a disproportionate effect on markets. Now he seemed
2:22
Speaker 1: to say, you know what, this has been put on
2:24
Speaker 1: a preset course. We're fine with it, and we're going
2:27
Speaker 1: to just focus on rate hikes. Is he wrong? Is
2:29
Speaker 1: he too sanguine about the effect here? So? Uh, certainly
2:33
Speaker 1: there have been pressures at the short end of the
2:36
Speaker 1: yield curve this year, and my reading is that bills
2:40
Speaker 1: issue once and some of the after effects of of
2:45
Speaker 1: the tax reform are at work. But I think the
2:49
Speaker 1: fact that bank reserves in the system are steadily falling
2:53
Speaker 1: and likely to continue to fall are also a factor.
2:59
Speaker 1: But I think what we're seeing here is the Federal
3:01
Speaker 1: Reserve has meaningful political incentives to try to get the
3:07
Speaker 1: balance sheet down to the three trillion dollar range that
3:12
Speaker 1: the j. Powell told car Wait hold on a second,
3:15
Speaker 1: three trillion dollars. If we found that out, that would
3:18
Speaker 1: be news. If he confirmed that that was their end target,
3:21
Speaker 1: that would actually be even more hawkish for markets. So
3:24
Speaker 1: I think that they want to get as close to
3:27
Speaker 1: that as they can without creating disruptions in that market
3:32
Speaker 1: now in order to to to continue to lean into it.
3:36
Speaker 1: I think he's got it for now. Say we're going
3:39
Speaker 1: to continue to reduce the balance sheet now. As two
3:42
Speaker 1: thousand nineteen unfolds, I'd expect there will be a conversation.
3:46
Speaker 1: But the make no mistake, a big balance sheet is
3:49
Speaker 1: a political risk for the Federal Reserve. I think they're
3:52
Speaker 1: very worried about an interview with the Senate Banking Committee
3:55
Speaker 1: where let's say there's a trillion and a half dollars
3:58
Speaker 1: uh a bank where reserves out there, and the Fed
4:01
Speaker 1: funds rates at three percent, and the members of the
4:04
Speaker 1: committee are saying, Mr Chairman, why are you paying the
4:07
Speaker 1: US banks forty five billion dollars a year? That's money
4:11
Speaker 1: out of the pocket of the U S tax beer.
4:14
Speaker 1: That's the that's the downside with the big balance sheet?
4:17
Speaker 1: Is there a downside that we enter a period of
4:20
Speaker 1: even greater dollar shortage because of the way that the
4:24
Speaker 1: Federal Reserve is unwinding the balance sheet? Uh? And that
4:28
Speaker 1: is what they're monitoring so far. The Federal Reserve is
4:32
Speaker 1: kind of uh pointing at and say, don't look at us,
4:35
Speaker 1: look at the treasury because of the fiscal situation in
4:39
Speaker 1: the bills issuance. But I think during two thousand nineteen, UH,
4:44
Speaker 1: we're likely to see some further stresses and I think ultimately,
4:48
Speaker 1: just to be clear, I think they'd like to get
4:50
Speaker 1: to three. I don't think they're going to be able
4:52
Speaker 1: to get back all the way And there will be
4:54
Speaker 1: a discussion of this as markets feel some continued pressures
4:59
Speaker 1: at the or in of the curve in the year
5:01
Speaker 1: I had. You know, it's I love that you have
5:04
Speaker 1: the experience that the Federal Reserve. Uh, you also have
5:07
Speaker 1: incredible experience at the Treasury Department. You are the under
5:10
Speaker 1: Secretary of the U. S Treasury for International Affairs, and
5:12
Speaker 1: that is very much in the four especially as we
5:14
Speaker 1: were just hearing about the prosecutors going after hackers in China.
5:19
Speaker 1: I just want to read this quote FedEx Chief executive
5:22
Speaker 1: Officer Fred Smith saying most of the issues that we're
5:24
Speaker 1: dealing with today are induced by bad political choices. Do
5:28
Speaker 1: you think that the economy is slowing to the degree
5:31
Speaker 1: that it is because of bad political choices? When I
5:35
Speaker 1: look at the global economy and I think about headwinds
5:39
Speaker 1: that it faces, I mean trade war has got to
5:42
Speaker 1: be number one on the list, and that is a
5:45
Speaker 1: discrete political choice. I think it's increasing uncertainty. It's likely
5:50
Speaker 1: weighing on investment in the United States and probably abroad
5:55
Speaker 1: as well. UM I think Brexit is weighing on the outlook,
5:59
Speaker 1: and that's a different kind of political choice, but very
6:02
Speaker 1: much a political choice. And you could go around the
6:04
Speaker 1: world and point to other examples. What's going on in France,
6:07
Speaker 1: what's the uncertainties and rests in Italy, UH, the in
6:12
Speaker 1: the emerging markets, the new the new administration in Mexico,
6:17
Speaker 1: and there's a you know, it's it remains uncertain as
6:19
Speaker 1: to what an Omlo government's going to do. But there's
6:22
Speaker 1: more uncertainty there than has been the case in the past.
6:26
Speaker 1: So I very much agree these geopolitical rest these these
6:29
Speaker 1: political decisions, some made by those elected and others quite
6:33
Speaker 1: frankly reflecting the outcomes of elections. And I think that's
6:38
Speaker 1: a very important point, is what we're seeing in some
6:41
Speaker 1: of this is the discontent of the body politic. In
6:45
Speaker 1: many countries, are many people that are saying the global
6:49
Speaker 1: economy isn't working for me the way I expected to.
6:53
Speaker 1: So just give you about twenty seconds. I know it's
6:55
Speaker 1: tough to do this. What would be the investment position
6:59
Speaker 1: you want to assume whom going into so? Uh. On
7:05
Speaker 1: the one hand, I think we have to bear in
7:07
Speaker 1: mind that there is a strong there is a strong
7:10
Speaker 1: case for that kind of baseline view that the fat
7:13
Speaker 1: is articulated that the US economy will be slower next year.
7:17
Speaker 1: But by the same token, you've got a hedge against
7:20
Speaker 1: you've got a hedge against these kinds of extraordinary tale
7:22
Speaker 1: rusks Nathan Sheets. It's always a pleasure having you here.
7:25
Speaker 1: Thank you so much for being here, Nathan. She's chief
7:27
Speaker 1: economist for Peacham Fixed Income, which oversees more than seven
7:31
Speaker 1: billion dollars in Newark, New Jersey, formerly of the FED
7:34
Speaker 1: and the Treasure Department, uniquely positioned to talk about the
7:38
Speaker 1: current environment. We were just hearing from FBI Director Christopher Ray.
7:57
Speaker 1: Before that, we had heard from US Deputy Attorney General
8:00
Speaker 1: Rod Rosenstein. Uh, some pretty pretty dramatic language. They're accusing
8:06
Speaker 1: state sponsored actors in China of hacking into corporate and
8:12
Speaker 1: state Frankly, Uh, you just use the US agencies, including
8:17
Speaker 1: some military agencies, US Navy, UM and you know, basically,
8:21
Speaker 1: one of the most interesting parts of their words was
8:24
Speaker 1: when they really tried to emphasize that they are working
8:27
Speaker 1: shoulder to shoulder with American allies. It's not just the
8:30
Speaker 1: US unilaterally going after Chinese state sponsored bad actors that
8:34
Speaker 1: are hacking into and stealing information from corporations and governments,
8:40
Speaker 1: but that other nations are working with them. Really a
8:44
Speaker 1: strong language and really highlights a broad based, multi year,
8:49
Speaker 1: multifaceted attempt to break in to to to US companies,
8:54
Speaker 1: and yes, these folks specifically about the increased enforcement activity
9:00
Speaker 1: that would be necessary over cipher mergers and acquisitions as
9:03
Speaker 1: well as how to protect our own telecommunications infrastructure. I
9:07
Speaker 1: want to bring in Rob Lefforts, Microsoft's corporate vice president
9:10
Speaker 1: of Security. Rob. We're so glad to have you today,
9:13
Speaker 1: especially given given this news understanding that you don't necessarily
9:16
Speaker 1: know the details of this particular indictment that was just
9:19
Speaker 1: unsealed moments ago. Does it come as a surprise to
9:24
Speaker 1: you that state sponsored activity from China hacking into US
9:28
Speaker 1: entities is as widespread as they were making it out
9:30
Speaker 1: to be. Well, without making a specific comment about China,
9:34
Speaker 1: it unfortunately does not come as a surprise at all.
9:37
Speaker 1: This kind of activity is ongoing, uh. And there are
9:41
Speaker 1: many organizations, some state sponsored, some purely criminal, who spend
9:46
Speaker 1: a great deal of time and investment to break into
9:49
Speaker 1: companies cyber infrastructure. And so that means if you have
9:54
Speaker 1: a company today, you had need to have a really
9:56
Speaker 1: modern security stance thinking about how are you going to
10:00
Speaker 1: protect yourself and how are you going to detect when
10:03
Speaker 1: these kinds of cyber criminals and experts break into your organization.
10:08
Speaker 1: Does that expertise means something different in a world where
10:12
Speaker 1: companies are migrating much of their data and operations to
10:16
Speaker 1: the cloud. It does. And Uh, in some ways this
10:20
Speaker 1: actually creates an opportunity because we're able to bring more
10:24
Speaker 1: cloud technology to bear to actually provide more sophisticated protection.
10:30
Speaker 1: It just opens up new fields like machine learning, where
10:33
Speaker 1: we can really monitor a lot more of what's going
10:35
Speaker 1: on and be faster to detect and respond. I gotta say,
10:40
Speaker 1: especially when you think back at um what was the
10:44
Speaker 1: hotel chain Marriott that the breach about half a billion user, right,
10:50
Speaker 1: but it happens over years, and it makes me think
10:53
Speaker 1: that just sort of the detection is part of the issue.
10:56
Speaker 1: It's hard to detect this, it's critical detect and actually
11:00
Speaker 1: gets back into a conservative, old school security stance would say,
11:05
Speaker 1: I'm going to build castle walls around my organization and
11:07
Speaker 1: make sure that nobody ever gets in. The sad truth
11:10
Speaker 1: is people will get in, and so a modern stance says,
11:13
Speaker 1: I acknowledge that, and I am ready to detect them
11:16
Speaker 1: how and when it happens. In the Marriat case, I heard,
11:18
Speaker 1: I wasn't directly involved that they were there in the
11:21
Speaker 1: network for four years, and so having modern tools like
11:26
Speaker 1: Microsoft Threat Protection is actually the way to think about
11:29
Speaker 1: how am I going to be more alert and watching
11:32
Speaker 1: the whole ocean of behaviors going on in my environment.
11:36
Speaker 1: One of the focus focuses that the Christopher Ray FBI
11:40
Speaker 1: director mentioned has to do with who are the people
11:44
Speaker 1: behind these attacks? He mentioned hackers, uh, perhaps business people
11:50
Speaker 1: in China or around the world that maybe working on
11:53
Speaker 1: behalf of Chinese state sponsored entities, but he also mentioned
11:58
Speaker 1: the co opting of employees at the very companies whose
12:03
Speaker 1: secrets are being targeted. UH. Based on your experience, what
12:09
Speaker 1: kinds of procedures or what kinds of activity can companies
12:12
Speaker 1: do in order to forestall that? There's two things you
12:15
Speaker 1: really need to think about. One is at the hiring
12:17
Speaker 1: time when you need to think about how do I
12:19
Speaker 1: screen and monitor employees in a way that respects privacy
12:23
Speaker 1: and that's honestly hard for all companies to do. It
12:26
Speaker 1: is something that cloud companies like Microsoft can do in
12:29
Speaker 1: a more robust way. The second thing is you also
12:32
Speaker 1: need tools that watch what goes on in your network,
12:35
Speaker 1: what employees are doing. Are they trying to gain access
12:38
Speaker 1: to servers and data that they wouldn't normally use as
12:41
Speaker 1: part of their day job. As far as Microsoft's effort
12:45
Speaker 1: to secure the networks of the various customers, one of
12:51
Speaker 1: the the Rod Rosenstein mentioned that it was managed service providers,
12:58
Speaker 1: and I'm wondering if you could just sort of exp
13:00
Speaker 1: and on what technically that means, because he said that
13:03
Speaker 1: this was something that is not just about the United States,
13:06
Speaker 1: this is throughout the world. Now, well, I'm honestly not
13:09
Speaker 1: sure exactly what he meant by that phrase, because it
13:11
Speaker 1: is a phrase that could be used to apply to
13:14
Speaker 1: a number of different things. But the one comment that
13:17
Speaker 1: I will make is that for a modern organization, there's
13:20
Speaker 1: lots of moments in the life of your digital data
13:23
Speaker 1: as it flows through a network, as it's stored in
13:26
Speaker 1: some service, maybe even if one of your employees puts
13:29
Speaker 1: it out on the public Internet, and having a big
13:32
Speaker 1: picture about all of that, not just what happens to
13:35
Speaker 1: laptops and file servers, is a huge challenge and a
13:38
Speaker 1: lot of complexity. Uh. The other point I'd like to
13:40
Speaker 1: get across is, uh, you talked about the sophistication of
13:44
Speaker 1: the attackers, and they are very sophisticated and moving quickly.
13:48
Speaker 1: And this is a space where you need to make
13:50
Speaker 1: sure that you're taking advantage of good guys and defenders
13:55
Speaker 1: who are just as focused on moving quickly and tracking
13:58
Speaker 1: what they do. That was actually exactly where I was
14:00
Speaker 1: going to head, which is talent and the difficulty finding
14:03
Speaker 1: the people who can move just as quickly. You know
14:07
Speaker 1: how difficult is that for you? Well across the globe.
14:11
Speaker 1: Finding great cybersecurity talent is a crisis h And every
14:15
Speaker 1: time I hear a statistic about it, the numbers seem worse.
14:18
Speaker 1: I think the last one that I heard was by
14:21
Speaker 1: the planet will be short three point five million security professionals.
14:26
Speaker 1: They'll have that many more jobs than people who can
14:29
Speaker 1: capably fill them. And so as we think about that,
14:33
Speaker 1: we think about having a pool of incredibly talented researchers
14:37
Speaker 1: at Microsoft and then using tools like machine learning in
14:40
Speaker 1: the power of the cloud to bring those talents to
14:43
Speaker 1: bear to help companies around the planet and to help
14:46
Speaker 1: governments around the planet. Which countries are producing the most
14:49
Speaker 1: cybersecurity professionals who are the best? Uh, it's pretty distributed.
14:55
Speaker 1: I will say the United States has some great programs
14:58
Speaker 1: and we work with research organize stasions there. England Israel
15:03
Speaker 1: happens to have a lot of cybersecurity talent. Uh. And
15:06
Speaker 1: in places where you find bad guys, you also find
15:10
Speaker 1: the potential for talent that wants to help and do
15:12
Speaker 1: the right thing. Just to put it into perspective. According
15:15
Speaker 1: to your notes, thirty million attempts on average a day
15:22
Speaker 1: to log into Microsoft accounts by adversaries. Thirty million a day. Yeah,
15:30
Speaker 1: you can't handle those one by one. You need you
15:33
Speaker 1: need machines. You need machines and tools that help handle
15:36
Speaker 1: that for you. One thing that I'm wondering passwords, Yes,
15:41
Speaker 1: password security. I mean, part of the problem with password
15:44
Speaker 1: security is that they can become so secure that you
15:46
Speaker 1: don't remember any of your own passwords, and then it
15:48
Speaker 1: just becomes a huge mess. What's what's sort of the
15:51
Speaker 1: what what's the progression here? Yeah? Uh, passwords are bad
15:55
Speaker 1: for the planet. Like, let's be clear, people can't remember them.
15:59
Speaker 1: They can't. Let's fossil fuels and passwords. Yeah, it is
16:04
Speaker 1: true that continuing to use passwords is the easiest way
16:09
Speaker 1: for any organization to get in. I don't know how
16:12
Speaker 1: these attacks were carried on, but over the attacks on
16:15
Speaker 1: any organization are very simple. I'm going to trick you
16:19
Speaker 1: into giving away your password, and then I'm just going
16:21
Speaker 1: to log in and do a whole bunch of bad
16:22
Speaker 1: stuff on your behalf. And so getting people away from
16:26
Speaker 1: passwords where they log in using more than one thing
16:28
Speaker 1: at a time, So use your phone and a password,
16:31
Speaker 1: or even better, get away from passwords all together, where
16:35
Speaker 1: you just log in with your phone and biometrics on
16:37
Speaker 1: your phone and that's registered to you. You didn't have
16:40
Speaker 1: to remember your password, and not only is your experience better,
16:44
Speaker 1: but under the covers it was way more secure. Is
16:47
Speaker 1: it hackable? Everything is hackable. Everything is hackable if you
16:52
Speaker 1: cut off someone's finger and stick it on there. I
16:54
Speaker 1: meant once once the information is stored in in some
16:58
Speaker 1: kind of device. Uh so, the most of the techniques
17:02
Speaker 1: for biometrics keep those biometrics on the device. That's true
17:05
Speaker 1: for Windows Hello, So you'd have to have that laptop
17:09
Speaker 1: and the finger. So anything is doable, but that's pretty hard.
17:16
Speaker 1: One thing that I'm wondering is how well prepared do
17:19
Speaker 1: you think that American corporations are against hacking? They are
17:23
Speaker 1: not very well prepared. I mean, is it is it
17:25
Speaker 1: sort of would we be shocked if we knew how
17:27
Speaker 1: unprepared they were. We, the whole industry, and Microsoft as
17:33
Speaker 1: a responsible part of that industry, need to push a
17:35
Speaker 1: lot harder on making everything much more safe. Do you
17:40
Speaker 1: believe that it's going to take some kind of incident
17:43
Speaker 1: in order to wake people up in their individual industries.
17:49
Speaker 1: Those incidents are happening every day and we read about them.
17:52
Speaker 1: You talked about Marriott. If you just look back Sony
17:55
Speaker 1: and Target people experience, people are way picking up and
18:00
Speaker 1: there is a huge focus on this. I think that's
18:03
Speaker 1: why we talk about things like the huge demand for
18:05
Speaker 1: talented professionals to help. Thanks very much for being with us,
18:09
Speaker 1: Rob Lefforts, appropriate you're here today. Rob Lefforts is corporate
18:13
Speaker 1: vice president of Security for Microsoft, telling us about the
18:17
Speaker 1: efforts on behalf of corporations and the US government to
18:21
Speaker 1: secure our networks. President Trump did decide to pull troops
18:42
Speaker 1: out of Syria against the advice of some of his
18:44
Speaker 1: closest advisors, creating something of a pushback from even some
18:49
Speaker 1: of his staunchest Republican allies, Lindsay Graham writing it is
18:53
Speaker 1: not fake news that Russia, Iran, and Assad are unhappy
18:55
Speaker 1: about our decision to withdraw from Syria. They are ecstatic.
18:59
Speaker 1: This was via Twitter joining us now Toby Harshaw, national
19:02
Speaker 1: security writer and editor for a Bloomberg opinion, joining us
19:05
Speaker 1: here in the Bloomberg Interactive Broker studio. Uh, Toby, what
19:09
Speaker 1: do you make of this move? How do you interpret
19:11
Speaker 1: President Trump's decision to do this? Uh? There are a
19:14
Speaker 1: few explanations. The first is that this was simply a
19:17
Speaker 1: campaign promise, UM, that he's making good on he you know,
19:21
Speaker 1: he went against the advice not just of the Pentagon,
19:24
Speaker 1: but also of John Bolton, his national security advisor, who
19:28
Speaker 1: had really been, you know, the voice in his ear
19:31
Speaker 1: on these issues before this. UM. In addition to that,
19:35
Speaker 1: I think that UM, he he wants to be very
19:39
Speaker 1: careful about Turkey. UM. Turkey had said that they will
19:43
Speaker 1: send troops in UH to remove the Kurds who have
19:47
Speaker 1: been our allies, the Syrian Democratic Forces. UH. And I
19:51
Speaker 1: don't think that, you know, Trump wanted the possibility of
19:54
Speaker 1: Tornado allies getting in shooting fight. You tell us the
19:59
Speaker 1: disposition of US military assets in the Middle East. UM,
20:03
Speaker 1: I can't give you the exact disposition because the Pentagon
20:07
Speaker 1: is not releasing UM. The breakdowns from how many troops
20:12
Speaker 1: are in which theater. That's a new thing that they're doing.
20:16
Speaker 1: Actually that's made a lot of members of Congress unhappy.
20:19
Speaker 1: But we know that we have military assets in the
20:23
Speaker 1: United Arab Emirates, in Turkey, Saudi Arabia, Qatar, as well
20:28
Speaker 1: as in Oman, Kuwait, Jordan's Summon, Israel, Iraq, Egypt, Djibouti.
20:34
Speaker 1: The list goes on. At what point does the effort
20:37
Speaker 1: on the military front just become a zero sum game
20:42
Speaker 1: and the President says, we're not getting anything out of it,
20:45
Speaker 1: let's leave. Yeah, I mean most of those uh, most
20:49
Speaker 1: of those troops are actually stationed there. I mean Cutter
20:52
Speaker 1: is where the giant airbases, Bahrain is where the giant
20:55
Speaker 1: naval bases. Those are permanent presences. Um. But yeah, we've
20:59
Speaker 1: got we've troops well beyond Iraq and Uh and Syria.
21:03
Speaker 1: We've got them in North Africa, We've got them in Jibouti. Um,
21:07
Speaker 1: we've uh, yeah, at some point we have expanded too far. Um.
21:12
Speaker 1: This war is you know, is based on legally on
21:15
Speaker 1: something Congress passed in two thousand and one that they've
21:18
Speaker 1: never updated. Uh. And and what we're doing goes way
21:21
Speaker 1: beyond the authority that the White House was given. One thing,
21:25
Speaker 1: there was a Lumur editorial out today that I thought
21:27
Speaker 1: was really interesting talking about how this particular move is
21:31
Speaker 1: a little bit different because it comes as something of
21:34
Speaker 1: a rude shock and not a pleasant one for our allies. Yeah. Um,
21:40
Speaker 1: I mean the Kurds are you know, a rag tag
21:43
Speaker 1: militia that we've armed and trained. Um, they're you know,
21:47
Speaker 1: not important on the global scale. But if we hang
21:50
Speaker 1: them up to dry, if we let either the Turks
21:52
Speaker 1: or the Syrians, um simply run over them, as the
21:55
Speaker 1: Turks have promised to bury them in the holes they
21:59
Speaker 1: have dug. Um, that sends a signal to our bigger
22:02
Speaker 1: allies that the US you know, doesn't have our back.
22:05
Speaker 1: And that's you know, that plays right into the rhetoric
22:08
Speaker 1: that Trump has been using with our NATO allies and
22:11
Speaker 1: our allies in in the Far East, um using, you know,
22:15
Speaker 1: threatening to to pull away the security blanket unless they
22:19
Speaker 1: change their trade policies. Um. It's a it's a whole
22:23
Speaker 1: new level of Uh, it's an entirely different foreign policy.
22:27
Speaker 1: I think that's very, very scary to the allies. And
22:29
Speaker 1: that's one reason that the French are talking about starting
22:32
Speaker 1: a European army. What has been the reaction, if any,
22:35
Speaker 1: so far from the Saudi Arabian government. Um, there hasn't
22:39
Speaker 1: really been one. UM. The Audies are being very quiet,
22:43
Speaker 1: uh for obvious reasons. UM. The Saudis have have helped
22:47
Speaker 1: in the coalition against ISIS UM, but not dramatically. In fact,
22:51
Speaker 1: the u A either very close ally and neighbor UM
22:55
Speaker 1: has been a far bigger part of it. Could some
22:58
Speaker 1: people say that that the pulse that President Trump just
23:01
Speaker 1: sort of demonstrated is actually absolutely the right one. That
23:05
Speaker 1: we're not going to win. This is a messy kind
23:07
Speaker 1: of situation. It's unclear what our role there is. Why
23:11
Speaker 1: are we there? Um? Well, the mission was to defeat
23:15
Speaker 1: ISIS UM. Defeating ISIS isn't something you can do entirely. UM.
23:19
Speaker 1: But it's not true that that they've been entirely defeated.
23:22
Speaker 1: They no longer hold any territory. They were forced out
23:25
Speaker 1: of Hygiene, the last city that they held. UM. But
23:28
Speaker 1: there's about two thousand fighters probably who slipped away. They're
23:33
Speaker 1: they're fighting in the little villages UM. They're probably gonna
23:36
Speaker 1: slip across the border into a rock where there are
23:38
Speaker 1: a lot of sleeper cells um that have been carrying
23:41
Speaker 1: out you know, attacks and bombing, attacks and kidnappings and
23:46
Speaker 1: things like that. Based on your reading of the situation
23:51
Speaker 1: and the relationship between the United States and Turkey and
23:55
Speaker 1: NATO ally, do you think this will have any effect
23:58
Speaker 1: on Turkeys per just of of Russian made anti aircraft missiles. Yeah, um,
24:05
Speaker 1: the Turks. Right as this was happening, the Turks agreed
24:08
Speaker 1: on a three point five billion dollar package to buy
24:11
Speaker 1: Patriot missiles from US. UM. The big problems with the
24:14
Speaker 1: S four hundred were a that it was giving money
24:17
Speaker 1: to the Russians um, and be that they are not
24:20
Speaker 1: combatible with with NATO's hardware UM and couldn't have been
24:25
Speaker 1: a part of that common defense. The Patriot missiles, which
24:28
Speaker 1: are American obviously are. The difference is is that Patriots
24:31
Speaker 1: are very short range and the S four hundred, the
24:34
Speaker 1: Russian system, has much greater range. Uh So the fear
24:37
Speaker 1: is that the Turks are gonna go ahead and buy both.
24:40
Speaker 1: Thanks very much. Toby Harshaw as always expert when it
24:43
Speaker 1: comes to the world's national security, particularly the United States.
24:46
Speaker 1: Are national security writer for Bloomberg opinion. I encourage you
24:50
Speaker 1: to read his most recent column. Trump's Syria pull out
24:54
Speaker 1: is another grave mistake. Thank you very much for being
24:57
Speaker 1: with us. SpaceX is eighth and final Iridium Next launch
25:15
Speaker 1: has been delayed until January seventh, and here to tell
25:19
Speaker 1: us all about the satellites that are circling the globe
25:23
Speaker 1: is none other than Matt desh. He is the chief
25:25
Speaker 1: executive of Iridium Communications based in Washington, d C. Matt Dench,
25:31
Speaker 1: thanks very much for being with us. Tell people about
25:34
Speaker 1: these Iridium Next satellites. You've already got sixty five of
25:38
Speaker 1: them in orbit, and tell us how this is going
25:41
Speaker 1: to connect the world in a way that maybe people
25:45
Speaker 1: don't expect, for example, Internet of Things. Yeah, thanks Tim
25:50
Speaker 1: to talking to you again. Um. We have spent the
25:53
Speaker 1: last two years getting our three billion dollar network in orbit,
25:57
Speaker 1: and we're within two and a half weeks now pleading that,
26:00
Speaker 1: which is pretty exciting because it really will be a
26:04
Speaker 1: complete new network that's much more powerful than the original
26:08
Speaker 1: network that we launched about twenty years ago. Uh. You know,
26:12
Speaker 1: the probably the most exciting new service that we've that
26:17
Speaker 1: really has driven our growth over the last few years
26:19
Speaker 1: has been the Internet of things. Um. A lot of
26:22
Speaker 1: people remember us as a satellite phone company, and we
26:25
Speaker 1: still sell those. That's a that's a great business for
26:30
Speaker 1: emergencies and first responders and adventures and and that sort
26:35
Speaker 1: of thing. But the primary growth really on the network
26:39
Speaker 1: or the number of subscribers, is in connecting things, connecting
26:43
Speaker 1: trucks and trains and ships and buoy's and oil and
26:47
Speaker 1: gas pipelines and all the things outside of cell phone coverage,
26:51
Speaker 1: which you know only only is about ten to fifteen
26:54
Speaker 1: percent of the world. Given that we cover one of
26:57
Speaker 1: the world, we're really the way to connect any of
27:00
Speaker 1: these things when they're outside cellphone coverage. Yeah, Matt, one
27:03
Speaker 1: thing that I find really compelling about your business is
27:06
Speaker 1: you take this sort of theoretical and sci fi aspect
27:10
Speaker 1: of space exploration to a very concrete and earthly place.
27:15
Speaker 1: I mean, the whole SpaceX SpaceX launches, you've benefited from them, right, Well,
27:21
Speaker 1: you know, we kind of grew up at the same
27:22
Speaker 1: time if you will. They they're about, I don't know,
27:25
Speaker 1: fifteen years old, and when we were looking eleven twelve
27:28
Speaker 1: years ago for a launcher, UM, we couldn't really afford frankly,
27:34
Speaker 1: the the traditional launch vehicles that were out there. They
27:39
Speaker 1: had not changed much in thirty or forty years, and
27:42
Speaker 1: I think the cheapest deal we got was over a
27:45
Speaker 1: billion dollars, which made it very difficult for us to
27:48
Speaker 1: consider replacing our network. And along come space X with
27:53
Speaker 1: a lot of innovation and says we can offer it
27:56
Speaker 1: to you for almost half the cost or less than
27:58
Speaker 1: half the cost of what you're getting before. And we
28:00
Speaker 1: took them up on it. And it took us a
28:02
Speaker 1: few years to get our satellites ready, but took them
28:04
Speaker 1: a few years to get ready as well. And now
28:06
Speaker 1: we've had seven successful launches together and we're gonna have
28:11
Speaker 1: our eight there in a few weeks now. These satellites
28:14
Speaker 1: are in low Earth orbit and they provide data services
28:18
Speaker 1: as well as voice service on the L band. Is
28:23
Speaker 1: there a financial change that has happened? In other words,
28:27
Speaker 1: how do you make money now versus in the past,
28:29
Speaker 1: because you also host payloads for other companies, like you said,
28:33
Speaker 1: flight tracking services and maritime ship tracking businesses. Yeah. Are
28:40
Speaker 1: these new satellites are much more powerful than our old
28:42
Speaker 1: satellites and they can do many more things than than
28:46
Speaker 1: we've been doing over the last twenty years. Uh, we've
28:49
Speaker 1: we've been growing rapidly really more on the data side,
28:53
Speaker 1: as we've connected many things using using the Internet data
28:58
Speaker 1: things technology. But with these new satellites, we're going to
29:01
Speaker 1: move into the broadband realm, being able to provide higher
29:05
Speaker 1: speed services on airplanes and ships and trains and that
29:09
Speaker 1: sort of thing. Um, faster really than anything in our
29:13
Speaker 1: frequency band has ever been able to do it before,
29:15
Speaker 1: and much more global. Uh. The other new thing with
29:18
Speaker 1: these satellites is this what we call a hosted taiload.
29:22
Speaker 1: So we basically created a whole new business that's not
29:25
Speaker 1: communication based but take some space on our satellites. Uh,
29:30
Speaker 1: and in in our case, helps track airplanes everywhere in
29:34
Speaker 1: the world. So we created a new business called Aaron,
29:38
Speaker 1: got some partners in the air traffic control world. Um,
29:43
Speaker 1: that's all been put together and now for the first
29:45
Speaker 1: time with these new satellites, we're going to be able
29:48
Speaker 1: to see where every airplane is in the world in
29:51
Speaker 1: real time and relay that information to an air traffic
29:54
Speaker 1: controller so they can put it on a scope. And
29:56
Speaker 1: that's really really powerful. Matt. How do you make money? Well, Um,
30:01
Speaker 1: in a case of you know, our communication business, every
30:05
Speaker 1: subscriber which we have over one point one billion or
30:08
Speaker 1: one point one million of them. Uh, you know, provides
30:11
Speaker 1: a uh you know, get service and provides money for
30:15
Speaker 1: the service each month, whether it's based upon the packets
30:18
Speaker 1: they use or the voice calls that they make. In
30:21
Speaker 1: the case of that new Arean facility, new are in service, UH,
30:25
Speaker 1: they actually pay us sort of a rental fee to
30:28
Speaker 1: use our satellite network. They pay us to bring back
30:32
Speaker 1: the positions of airplanes in real time to those controllers,
30:37
Speaker 1: and and we own a piece of that business which
30:39
Speaker 1: is going to be quite valuable. So UM, you know,
30:42
Speaker 1: we're we're really kind of an innovation engine, you know,
30:45
Speaker 1: because nobody else has sixty six satellites and lowers or
30:48
Speaker 1: but all connected to each other, and it's really not
30:52
Speaker 1: like any other satellite system. UM. And that's that's one
30:55
Speaker 1: of the reasons a lot of innovation and partners. We
30:58
Speaker 1: now have something like four hundred atty partners today who
31:02
Speaker 1: are technology companies, UM that have built us into their
31:06
Speaker 1: solutions for their customers, and they're the ones out selling us.
31:11
Speaker 1: It's nice because we sort of have a fixed cost basis.
31:14
Speaker 1: Each new customer they bring to our network really falls
31:17
Speaker 1: to the bottom line. And that's why we've been growing
31:19
Speaker 1: and become so profitable over the last couple of years.
31:22
Speaker 1: Matt Desh, thank you so much for being with us.
31:24
Speaker 1: Matt Desh, chief executive officer of a Ridium Communications based
31:27
Speaker 1: in Washington, d c UH. They use the space x rockets,
31:32
Speaker 1: the re usable rockets to get their satellites into space
31:35
Speaker 1: at lower costs, and they track all of our flights
31:39
Speaker 1: in real time and give us access to the Internet
31:41
Speaker 1: all sorts of things. Thanks for listening to the Bloomberg
31:48
Speaker 1: P and L podcast. You can subscribe and listen to
31:51
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
31:56
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
31:59
Speaker 1: on Twitter or at Lisa abramoids one. Before the podcast,
32:03
Speaker 1: you can always catch us worldwide on Bloomberg Radio.