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The Week Ahead – 27 Jun 2022: The “R” Word

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Powell was out saying “I don’t think a recession is inevitable” but also admitted that rate hikes may be one of many factors that push the economy into recession. All of this while bank credit continues to grow, which we saw flatten in 2020 and decline in 2008. What’s happening? Is a recession inevitable at this point?

We talked about the dollar two weeks ago and the strength is still there. Are we pushing higher so commodities feel a bit cheaper to Americans? Is this temporary – mainly so Americans talk about cheaper gasoline over the July 4th holiday weekend? How far and how long do you expect the dollar to go? Why?

Can crude continue to rally into a recession?

Key themes:

  1. The “R” Word
  2. Geopolitical fallout
  3. Crude 💪 or 👎/ Dollar 🚀
  4. What’s ahead for next week?

This is the 23rd episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon/

Time Stamps

0:00 Start
1:03 Key themes for the week
1:48 Powell’s recession call
3:48 The catalysts that could whip growth
6:58 Geopolitics in EMs and related to the US
8:35 Is the ECB a risk as well?
11:00 Crude and the Dollar
16:00 Where do you expect the dollar to go?
19:00 The week ahead

Listen on Spotify:

Transcript

TN: Hi, everybody, and welcome to The Week Ahead. I’m Tony Nash. We’re joined as always, by Tracy, Sam, and Albert. Thanks, guys, for joining us. Before we get started, please, like, please subscribe, please comment. We read all of them and try to respond to all of them. So please go ahead and do that while you’re here. Also, we are running a summer promo for CI Futures. This is our market forecast subscription product. You get three free months, so please go to completeintel.com/2022Promo and learn all about it.

So this week there’s a lot going on, a lot politically in markets, other stuff. We’re talking about three main themes this week. First is the R word. Second is geopolitical fallout of the R word. And third is crude and dollar activity. So I ran a poll earlier this week asking what is the most widely held consensus view that people are seeing right now? And that’s on screen, of course. So first is recession. People are seeing recession as a consensus view all over the place. Next is equities lower, followed by crude higher, followed by a stronger dollar. So we’re going to talk about all these things today.

Sam, let’s talk about that recession call. That recession consensus call. Powell is out this week saying, I don’t think a recession is inevitable after being really hawkish last week and driving people kind of to the edge of this. So what’s actually happening right now? We’re seeing credit continue to grow. And I know I showed you earlier this week. Bank credit continues to grow. Is that meaningful? And what are you looking at to know if we’re going into recession or not?

SR: Yeah, I mean, bank credit, is meh. But at the same time, are we going into a recession? Meh. I don’t really think so. It’s a booming summer. You have hotels full, you have bars and restaurants full. You have airlines unable to keep up with demand. I mean, that sounds like a small subset of the economy, but at the same time, that is a massive portion of the summer economy. It’s massive. So do I think we’re imminently in a recession? No. I actually think that’s one of the big narratives that kind of misses the bigger point, right? Do we make goods? No, we don’t make anything. What we do is we have services. That’s it. So we’re a service based economy. If services are booming, you’re not going into a recession. You’re unlikely to see some sort of huge move in unemployment because a recession technically is down on growth, down on employment.

If you don’t have the down on employment, you don’t have a recession. So maybe you have a slowing of growth. That’s somewhat probable. But a recession, no, not in the cards, at least until the back half this year. In the back half of this year, you have a number of catalysts which could really whip things the other way in terms of both growth.

TN: Okay, so what are some of those catalysts. And when you say back, you’re talking about October? November?

SR: Yes, October. November.

TN: My thinking is if we’re going to see it, we’re going to start seeing it maybe late September, October or something like that. But what are some of those catalysts you’re talking about? A couple of them?

SR: The catalysts then are actually to the gross side, which I think is where I’ll take the opposite side of a lot of people. Those catalysts are called a devolving of the Ukraine conflict. Number one, while that doesn’t take off sanctions in the near term, it does take off the incremental oops.

Then you have the beginning of the reopening of China, which is a big boost to growth in Europe, and secondarily, LatAm and the United States. So you put those pieces together and all of a sudden you’re looking at a back half of the year that has more upside catalysts, potentially. And it’s not like you can reset down China and it’s going to be a negative callus. It’s already in the numbers. It’s not like you can have another war in Ukraine that’s already in the numbers. If you begin to have those two come together, guess what? That’s positive. So I would say the rest of this year is shaping up to be oddly positive.

TN: Yes, but no, I’m kidding. Everyone’s so negative right now. Everyone wants to just find the downside. Russia is going to invade finland or something like that, right?

SR: Yeah. Here’s the play. I would say 3600 is a lot less likely than 43.

TN: I like that.

SR: On the S&P.

TS: I think what we’re going to see is kind of like a balance, right? Where we see services really big this summer, especially in the travel industry, hospitality industry, which we will see taper off this fall, which is not unusual. That always tapers off this fall. But we also see airline prices increasing, so people have booked their summer vacations in Q1. Those people are going to fall off. So I think we’ll see a push. We’ll see a pullback in that industry, but we could see growth in industries that Sam is mentioning.

TN: Great.

SR: Just to throw in there, we have to remember that at some point we have to refill supply chains on the drivable stuff, and those supply chains are at bone zero right now. It will require a whole bunch of employment, a whole bunch of production, and will actually have a fairly significant thrust to GDP. Our production has been zero.

TN: That’s great. My poll is wrong, which is awesome. I love that.

SR: I would bet against every single thing that your poll said.

TN: Perfect. I love that. Okay, so if you’re in the US, that holds. But let’s switch, Albert, to kind of say geopolitical risk and some other things. Obviously, Sri Lanka two months ago started falling apart and not started, but really fell apart. We’ve seen Ecuador and other places really start falling apart.

Albert, what are you seeing, geopolitically, and what are you seeing in EMs related to what’s happening in the US?

AM: I don’t really like focusing on EMs at this moment just because they’re not big enough to really cause a problem in the markets. In my opinion. I’m looking squarely at the European Union right now.

It’s suspicious that we come out with US bank tests and then we come out with EU bank tests and then literally a day later, the Germans come out and say, we could have a Lehman moment across the economy just because of these gas shortages that are happening.

TN: By the way, your tweet about the German Lehman moment up.

AM: Yeah. And this goes back to just the topic we were just talking about, recession. You really need some kind of catalyst or something to break. And the only thing that I could even contemplate of breaking and causing a “recession” would be the European Union going through another financial crisis. You have a contagion that probably leaks over to the United States financial markets and the Putin price hikes become a thing again, justifies any kind of QE that the Federal want to do, probably in Q four this year. Geopolitically, the EU is my target right now to look at.

TN: Okay. It’s energy supply chains. Is the ECB a risk as well? Is there a risk that they tighten too fast or too much or anything?

AM: How are they going to have to I mean, the inflation over there is climbing just as fast as the United States and it’s causing problems across the board.

SR: I would double down on that and say that Qatar, right after we had the train go down in Corpus Christi, came out and said, yeah, we’ll send gas to the European Union. Just sign a 20 year deal.

TN: Right. And they did. Right?

SR: European Union is not going to do that. I mean, nobody in Europe is going to do that. It was kind of like, we got your back, but give us a long term agreement and we’ll do it.

The irony of it is that you have a crisis going on in Europe. There was a dragon moment of do whatever right, anything.

TN: Sorry, Tracy. What’s that?

TS: Self imposed crisis? Their energy crisis is literally self imposed.

TN: Yeah. Okay.

AM: There’s no question that is self imposed. The European Union’s leadership has been atrocious. I mean, they’ve had the worst energy policy you could possibly think of that hampers their economic engine for the last two, three decades. I mean, you can just throw a dart at the board and pick whatever policy they’ve come up with. It has been an absolute disaster.

TN: Why is that? Why are they making such stupid well.

AM: They’ve made such a big swing to the left, the leftist voters, and they’re just climate Nazis. They won’t even discuss nuclear.

SR: We’re literally talking.

AM: They won’t even discuss nuclear power, which is absurd. They’re like, what if something goes bad like Fukushima? Oh, yeah. What if a dam breaks? Or what if a coal plant blows up? Or, God forbid, what if 10,000 Germans freeze to death because you don’t have gas stored because you didn’t have any proper management? I mean, they’re really bad at managing what’s going on without the United States holding their hand and directing what to do.

TN: Well said. Fantastic. Okay, so since we focus a little bit on energy there, Tracy, let’s swing to talk about crude and the dollar. So, our friend Josh Young posted something about kind of energy could potentially outperform this sort of stuff and really kind of looking back to the 1970s.

So it really looked like we were heading there until this week, and then we saw things really come down this week, in terms of, say, WTI, natural gas, other things. What’s going on there?

TS: I think it depends on what you’re looking at. If you were looking at frontline crude oil price, that’s one thing where a lot of speculators are involved in. If you’re looking at the spreads, it’s you’re looking at the crack spreads that are still exploding. If you’re looking at calendar spreads that are up again this week, that pretty much tells you that we put a floor under front month crude price, regardless of who is involved in what specs are involved in the industry right now. Because the spreads are really what I consider will tell you really where things are going. Right.

So we kind of have a floor night. Yes, oil had a bad week. We saw a lot of selling on downtime in markets and things of that nature. I don’t think that doesn’t change the overall fundamentals of the market. Right? I mean, we’re still fundamentally structurally undersupplied.

TN: So I’m going to ask a really dumb question here. I’m sorry if I may hear it.

SR: But we know.

TN: So are we seeing a short term sell off? Is it politically driven so that when Americans get together on July 4, they can say, gosh, gas is really down this week, and then you have a three day weekend where people are talking about that and then it rocket ships up after the fourth?

TS: Well, I think it’s a combination of most things. I think this week recession scares, we’re really the big driver for that market because everybody’s thinking we’re going to have a recession.

SR: That and the potential of having an export ban.

TS: Right.

TN: Recession, export ban, and July 4th.

TS: An export ban. That said, and I kind of tweeted this out, having an export ban, especially a fuel export ban, would make things obviously worse.

First of all, it’ll raise prices for the EU prices abroad, which after all of this with Ukraine, do we really want to hurt the EU that much? Because we supply them with one to 1.3, 1.5 million barrels per day of diesel, which they are having a huge problem. So really, are we going to abandon the you at this point? Also…

TN: My Texas friends would love to have more diesel to power their ram trucks.

TS: But the thing is that what happens is the fuel flows get so disrupted is that we’re going to have to see refineries cut run significantly in the US. Which is going to ultimately raise prices. We may see deepen prices initially, but you’re going to see higher prices ultimately.

SR: I’ll push back on that because you have a lot of storage, but you didn’t have a lot of storage before. So you don’t have to cut back on runs. You can put into storage at a pretty profitable rate because of forward selling basically all of your inventory right now. I would push back on you have to cut runs at this point.

TS: And I’m going to push back on that. We have to look at the east coast. Right. And so that’s looking at gasoline runs to make a barrel. Diesel requires a lot more oil than it does say to make gasoline. And so if we see a diesel problem, we’re going to have to cut back on this runs. I think it depends on what coast you’re looking at and what area you’re looking at.

TN: All we care about is Texas and Florida. Right.

SR: You have a lot of places to store gasoline. I mean, it’s not like we have an oversupply gasoline at the moment.

TN: It’s true. Our bob’s down this week too, right. So it’s tight.

AM: It’s interesting, Tony, it’s funny. One thing that you said July 4 and one thing that Tracy said, thinly traded is that hilariously every time we need a rally in the market during the thinly traded holiday hours, crude goes down, dollar goes down and the market goes up almost by magic on the thinly traded holiday hours. Something you should watch.

SR: University of Michigan. Come on.

TN: It’s a big driver. University of Michigan. Okay, so let’s move on. You mentioned the dollar, Albert, and so if we look at the dollar, obviously it’s near highs for the decade and that’s great if you’re in the US buying dollar denominated commodities. But elsewhere in the world it’s really hard. Right. So where do you expect the dollar to go? I can’t remember what you’ve said your expected target is. Possibly? 110. Possibly 120. So if it hits 120, Japanese Yen is at what, like 160? 170? something like that?

AM: 163,164? My calculation… This is something Yellen has done in 2012. It’s nothing new. She’s driven the dollar up. She’s out into Europe talking that she’s going to take the dollar up to 110. So this is nothing new. Everyone knows what’s going to happen. Everyone’s watching it. So we’re at 104 something today, just sitting there and hasn’t really done anything. Last day or so. Another 5% up is not a big deal for the dollar.

TN: So you see Yellen driving a stronger dollar. Sam, what do you see?

SR: I would say that I hate taking the other side. I’m going to take the other side.

TN: Great.

SR: I’m going to say that Yellen’s ability to control the dollar is de minimis at this point, mostly because the Fed is tapped out. But you already had a 4% terminal rate for Fed funds priced in two weeks ago. Today you’re sitting at basically 3.65%. So you’ve got the peak, in my opinion, priced in for the FOMC hiking cycle and now you’re on the other side of that. So I would say JPY, you’re probably looking at above 10.

TN: Oh, wow, okay, great.

SR: And you’re probably looking at a Euro at 108. 109. And it doesn’t really matter if they go into a recession because they’re… Right. The US is going to back off in incremental steps the long end of the hiking cycle and…

TN: Perfect.

SR: The dollar prices is long end of the hiking cycle and Yellen can do a lot of things. What she can’t do is increase the internal rate.

TN: That’s great.

AM: The thing is, the treasury sets USD policy, so she can certainly drive it up. I don’t know how much ammo she has left because it’s gone up. But we’ll see.

TN: Okay, perfect. That’s great. So we’ve covered almost everything in that survey and almost everything was wrong.

SR: I told you everything was I would take the other side of every single one of those.

TN: Perfect. Okay, let’s talk about the week ahead. We have month end and quarter end coming next week, right? So what does that mean for the week ahead? Everyone else.

TS: Can I go?

TN: Yes, you go Tracy.

TS: I don’t know. What I’m looking at for the week ahead is the last week of the month. Of the month and the quarter. Right. So we have roughly about $100 billion of US equities that need to be purchased over the next five trading sessions. We have a rebalance in the RTY. So we should see a lot of inflows, roughly 5.98 point billion of inflows into the US equity markets just because of the rebalance factor.

We should probably see outflows in the bond market and then that’s walking into a backdrop of negative dealer gamma. So we have the potential of a shot higher in the market.

TN: Sam? Sam?

SR: Yeah. I would say everything Tracy said in terms of the risk seems to be to the upside. I would also say it looks pretty scary when you walk into the end of the month in terms of the way the dollar chart looks right now.

You walk into the end of the month with a dollar chart looking like it’s ready, looking ready to gap down, and you have oil where it’s at. You could have a very interesting quarter end in terms of risk assets. You have a weaker dollar. You have a big buy on SPY, RTX, et cetera, or SPX, not SPY. You begin to put those pieces together and you begin to have a pretty risk on into the quarter that could be very interesting very quickly.

You get any positive headlines out of China in terms of lockdowns, you get any positive headlines out of Ukraine in terms of ceasefires, whatever BS they want to leak. Then all of a sudden you’re more upside. So I would say skewed to the upside through the beginning of July.

TN: Sam, you’re optimistic today. That’s amazing.

SR: I know. And contrarian.

TN: Optimistic and contrarian. I love it. Okay.

AM: Yeah, I mean, I agree mostly with Sam. I think just because the market is so thinly traded, the dollar should be chopping around probably on the downside a little bit, just for the week up until July 4 weekend, so long as the Europeans don’t come out and start saying any more Lehman things, Lehman crash things and all of a sudden dollar shoots up just because of fear factor out of the European side. But I don’t think that’s going to materialize over the next week, probably next couple of weeks.

After that, I think 30 days, we’re starting to look at possibly something that happened in the European Union. But for the week ahead.

TN: Fantastic. So the past three days carries into the next week. Fantastic.

AM: Yeah.

TN: Okay, guys, thank you very much. Thanks for your time. Thanks for all the stuff you passed along, and have a great week ahead. Thank you.

AM: All right, thanks.

TS, SR: Thank you.

Categories
QuickHit

EM Meltdown: China, Turkey & Russia (Part 2)

In this second part, emerging markets expert Michael Nicoletos discussed Turkey and Russia. What are the major issues that Turkey is facing, specially around its FX reserves? They have an energy problem as well, and will soon need to choose between the US and Russia. And how about Russia’s love-hate relationship with Europe? How does Nicoletos see it will end up?

 

Please watch Part 1 first, if you have not already. Michael talked about China’s household debt and how much is that? Can they ever recover from the Evergrande disaster? And how they got into it in the first place? Is CNY still valuable? How do the Chinese get dollars now with their very limited FX reserve? Should you use the digital Yuan? How much is China spending right now to up its GDP?

 

Michael Nicoletos have spent most of his life around markets, and I used to run a hedge fund for more than 10 years on emerging markets. He shut it down in 2019 to take a sabbatical and Covid 19 hit the world. Now, he is doing a lot of research on emerging markets and trying to see what the next steps will be in terms of the investment world. But in the meantime, he is also advising a few firms on their investment.

 

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This QuickHit episode was recorded on October 20, 2021.

 

The views and opinions expressed in this EM Meltdown: China, Turkey and Russia (Part 1) Quickhit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: Talking about EMs, and we talked about reserves, and you mentioned Turkey. Let’s talk about Turkey for a minute because you’ve made some really interesting statements about Turkey, and I’d like to really understand your perspective.

 

MN: Turkey faces some other issues. Turkey faces high inflation. More than 20% rates are around 19% of negative yields. The Lira has fallen more than 50% in the past few years. So you might see nominal GDP in Turkish Lira going up. But if you put it in dollar terms, it’s actually flat for the last ten years. It’s not flat, it’s flat-ish. So in Turkish Lira, the last ten years, the Turkish GDP has gone up 350%, which is a wow. But if you put it in dollars, it’s not flat, but it’s not something meaningful.

 

Turkey GDP in Lira and USD

Now, if you look at Turkey and the devaluation, the President of Turkey, Tayyip Erdoğan, has tried to stop the Lira from falling. Right now, it’s I think at its all-time lows around 920 versus a dollar. But if you look at the FX reserve, which is very tricky and this is very interesting for Turkey, you’ll see that, okay, the number is ambiguous because depending on what source you see, you’re going to see another number. But let’s say it’s around $18 billion. Now, this is the gross number. If we deduct gold and all the other stuff and we also deduct the swap lines, and I will explain what the swap line is, this number falls around to $20 billion. And this could be negative according to some sources because the dollars are not there.

 

What has Turkey done? Instead of using its dollars to protect the Lira from falling, I’m not an advocate that you should do that, but that’s what they’ve been doing. They went to the banks and did swap lines with the banks. And the banks are using depositors dollars to buy back the Lira. So depositors right now don’t actually have those dollars in their account.

 

Turkey FX Reserves

 

MN: Because the Turkish banks have made agreements with the central bank with swap lines, which okay, when your central bank gives you a swap line, it’s a guarantee if you’re a bank. And instead of, if you go and you see the headline number of the Turkey central bank, you won’t see it falling. But if you understand that they’ve been using depositors’ dollars to cover for it, you need to subtract that. So the number could be close to 20, maybe there are some allegations that it could even be negative. So if it’s negative, imagine. FX reserves in Turkey are pretty horrible.

 

You have, let’s say, $18 billion of gross FX reserve, and you have $130 billion of short term liabilities, within the next twelve months, Turkey has 130 billion of foreign claims. So again, this metric is not really good. Now, Turkey is estimated to grow around 8 or 9% this year. Again in Turkish Lira.

 

MN: If we take the Lira is down 25% this year. So this is an issue. Another issue is in Turkey, 60% of its current account is energy. They don’t have domestic energy, so they need to import energy and we know what’s been going on with the energy crisis and natural gas and oil going higher. So all these are main problems for Turkey right now, which I think will be forced to find a drastic way to… They don’t want to go to the IMF or the World Bank, but I think at some point they’ll have to go. And again here geopolitics come to play why they say geopolitics is because Turkey is in NATO. It’s the second biggest force in NATO. The US wants to keep it in NATO because wherever US doesn’t send military, Turkey does. Not many NATO allies send military forces wherever they go.

 

So Turkey is trying to play both sides right now. Trying to be the good guy with Russia, good guy with NATO. Trying to get the most out of both sides. But I think time is ticking and they will be forced to take some form of decision on what they want to do in the future because they’re running out of time in terms of their FX reserves.

 

TN: Yeah, it sounds like it’s pretty short time. Wow. Okay. So looking at the energy issues, not just what Turkey faces, but that Europe faces, I want to spend a little bit of time talking about the Russia-Europe relationship and what you’re seeing there. Will Russia provide sufficient gas to Europe this winter? And, from a financial perspective, how much will Russia benefit from that? Just generally.

 

MN: Yeah. Okay. But the thing is here the following: Europe trying to transition to a more green related economy. The planning was pretty horrible. I would say they wanted to do it fast and they wanted to say “blackmail” corporations to go to more green energy. What did they do then? They created the CO2 emissions credits. So if you were polluting above a level, you were forced to buy CO2 credits in order to cover for that. And that was like an indirect tax, making it less efficient for corporations to use that form of energy so they would be forced to go to other forms of energy.

 

Now, from going to coal to, let’s say, totally green. It takes some time to create the wind turbines and the sun. And actually Germany shut down all its nuclear reactors because of Fukushima.

 

TN: They have a lot of low-end Taiwanese fabs transition to photovoltaics with all of the incentives they were providing. I mean, for a long time, low-end fabs across Asia were just doing a very quick transition to a PV, and it was just a kind of back up the truck moment where they were just taking all the dollars they earned or Euros or whatever currency they could because Germany and all these other places were incentivizing them to do it. And they were low-end PVs. They weren’t high-end. They were just bog standard photovoltaics.

 

MN: No, no. Okay, but besides that, what did the European Commission do? There are auctions every now and then of CO2 credits. But the auctions are arbitrary. So the Commission, whenever it wanted the prices to go up, they did not do the auctions. So then the supply of credits was less and less. CO2 credit emissions went through the roof. So suddenly, if you use natural gas as an energy, it went even higher. And this created the viscious loop, creating the natural gas prices to go even higher.

 

In the meantime, Europe was negotiating with Russia about Nordstream, too. So Russia, which is a pretty good strategic and geopolitical player, realized that Europe was going back as being back in the corner and said, unless you sign whatever I want, let me put it in layman’s terms. I’m not going to pump anymore natural gas. Europe says, no, we have to sit down. We have to discuss. Okay, I’m not pumping. So one brings to another. And every time that Europe trying to play hardball, Russia says, okay, there’s no such a problem. I’m not going to be pumping and prices go higher and higher.

 

So I guess that at some point Europe will need to sign anything Russia wants at this moment. And will try to negotiate some form of an agreement which will be obviously not, it won’t be good. But it will be much better than the current prices that we’re seeing now. And because of the energy prices going higher, Russia is benefiting on a macro level, benefiting on a geopolitical level, and it’s gaining a lot of strength in the region.

 

TN: Hugely. Yeah. Hugely.

 

MN: So the two are interconnected. It’s not one or the other. So the energy crisis has helped Russia, and Russia has exploited Europe’s inability to act smoothly and fast.

 

TN: It’s very interesting. Okay. Just to close this out because I know we’ve been going on for a while. I’m just curious about Russia’s position with Europe, say, over the medium term. Do you see Russia and Europe growing closer? Do you see that relationship becoming tighter, or do you see that eventually becoming an antagonistic relationship? Are there substitutional energy sources that Europe can utilize and that eventually becomes an antagonistic relationship again? Just in general terms. I don’t necessarily political specifics. But how do you think that plays out?

 

MN: Well, I’ll use Henry Kissinger’s famous quote that was back, like 40 years ago. He said, “When I called Europe, who do I call?” So right now, you have, in Germany you just had elections. They haven’t formed the government. It might take months before they form a government.

 

In France, there are elections in April. It seems that the right could be a threat to Macron. And we don’t know what the “right’ means in France. It could be Le Pen or it could be someone else, but it could be anything right now. So right now, I don’t see a leader. If Macron wins, he could be the next leader of Europe. But right now, there’s a leadership problem within Europe.

 

So as long as there’s a leadership problem within Europe, in my view, there’s a vacuum. And I think Russia will exploit it to gate as much influence as it can. And I cannot foresee the future. But in the next six to eight months, I think Russia will try and get as much influence as it can and try to exploit that vacuum.

 

TN: I think you’re right. They’re very smart. They’re very smart political players.