WEBVTT - Xi Has Amassed So Much Power, CFR's Economy Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.120 Bloomberg dot Com, and of course, on the Bloomberg The 0:00:34.120 --> 0:00:37.360 Big Story then worldwide, the President's men heading to Beijing, 0:00:37.600 --> 0:00:40.720 top officials from the administration arriving for trade talks as 0:00:40.800 --> 0:00:43.280 China says it's not willing to back down on key issues, 0:00:43.520 --> 0:00:47.000 and investors are left asking what is the minimum condition 0:00:47.040 --> 0:00:50.479 for success of this visit. We're joined now by Steven Stanley, 0:00:50.520 --> 0:00:54.040 Amherst Pierpont Securities chief Economists. So Stephen, let's put that 0:00:54.160 --> 0:00:57.160 question to you. What is the minimum condition for success 0:00:57.200 --> 0:00:59.920 at this visit? Good morning. I think if they if 0:01:00.040 --> 0:01:03.360 they get back home and they haven't started like a 0:01:03.880 --> 0:01:07.080 an elean an escalation of the trade war, I'd probably 0:01:07.080 --> 0:01:09.320 be pretty happy. I don't really expect much out of this. 0:01:09.360 --> 0:01:11.280 That's how low the bar is. Stephen, Well, I just 0:01:11.440 --> 0:01:14.399 I mean, as you said, the team is, uh, it's 0:01:14.480 --> 0:01:17.440 kind of an unique team of individuals who aren't really 0:01:17.560 --> 0:01:21.160 unnecessarily on the same page. Um and so I think, 0:01:21.319 --> 0:01:23.240 you know, I'm not sure that the idea here was 0:01:23.280 --> 0:01:25.840 to go over there and negotiate some huge agreement. I 0:01:25.920 --> 0:01:28.240 think they're just trying to, uh, kind of set the 0:01:28.280 --> 0:01:31.319 stage for the next, the next steps of this process. 0:01:31.560 --> 0:01:33.920 Respected positions on trade seemed to have hardened, but on 0:01:33.959 --> 0:01:36.560 other issues there things to be agreements. In fact, progress 0:01:36.680 --> 0:01:39.200 on the issue with say, let's talk about North Korea. 0:01:39.600 --> 0:01:41.080 That could be a positive, and it could be a 0:01:41.080 --> 0:01:44.040 positive when when trade starts getting discussed as well. Do 0:01:44.080 --> 0:01:47.040 you see those two issues folded into one another? Oh? Absolutely, 0:01:47.040 --> 0:01:49.520 And and President Trump has been pretty explicit about that, 0:01:49.640 --> 0:01:52.040 and uh, not only with China but with others, where 0:01:52.040 --> 0:01:53.640 he said, We're willing to give you a break on 0:01:53.720 --> 0:01:56.440 trade if you help us out in other areas. What's 0:01:56.440 --> 0:01:58.040 your time horizon for how long it's going to take 0:01:58.080 --> 0:02:00.640 to negotiate this This is a big visit it by 0:02:00.640 --> 0:02:02.800 any mates, it's an a pull and visit. But how 0:02:02.800 --> 0:02:05.480 long would its tight two really sold? Well, it's gonna 0:02:05.520 --> 0:02:08.160 be months, I think before they figure out kind of 0:02:08.200 --> 0:02:10.000 what the deal is with these tariffs. And I think 0:02:10.000 --> 0:02:12.400 these are discussions that are gonna be going on for years. 0:02:13.919 --> 0:02:18.399 Within this is the Steven Stanley view of the strength 0:02:18.560 --> 0:02:21.679 of our economy. So let's start over on the right hand. 0:02:21.720 --> 0:02:25.160 Started the equation net exports, which has to do with China. 0:02:25.400 --> 0:02:29.040 We need more export growth. Isn't that the amorous Pierponts 0:02:29.080 --> 0:02:32.919 solution to all this? Well? Certainly? Yeah. I mean we're 0:02:33.000 --> 0:02:35.480 at a stage in the business cycle where the economy 0:02:35.520 --> 0:02:38.520 is pretty strong. Domestic demand is strong and probably stronger 0:02:38.800 --> 0:02:42.160 than the overall global economy. So that we import German 0:02:42.200 --> 0:02:46.200 BMW's you know, picked the vehicle from Germany volks Vegazin. 0:02:46.480 --> 0:02:50.480 Isn't that a sign of a strong America? Sure? Sure? 0:02:50.639 --> 0:02:53.800 And I think you know, certainly the the administration or 0:02:53.840 --> 0:02:56.600 the President in particular, wants to get the trade deficit 0:02:56.680 --> 0:03:01.120 down and very understandable, um thought. But in this stage 0:03:01.120 --> 0:03:04.720 of the business cycle, typically the trade depsit is widening. Okay, 0:03:04.720 --> 0:03:07.920 so we want to celebrate the imports coming in. I 0:03:07.919 --> 0:03:12.280 guess we all get that. Then the solution is exports. 0:03:12.320 --> 0:03:16.239 How do you boost the gradient of exports? Right? Well, 0:03:16.280 --> 0:03:17.880 I think you know, one thing is you have to 0:03:17.919 --> 0:03:22.040 make the US a a favorable place to do business, 0:03:22.200 --> 0:03:24.240 and certainly I think the tax reform help that in 0:03:24.320 --> 0:03:27.800 some in some aspects um, and you have to have 0:03:27.840 --> 0:03:30.320 companies that can compete around the world. And then I 0:03:30.320 --> 0:03:32.320 think what the administration would say is, then you have 0:03:32.360 --> 0:03:34.160 to make sure that the rules of trade are fair. 0:03:34.440 --> 0:03:37.680 And I think that's that's why they're going after China 0:03:37.720 --> 0:03:39.080 and the way that they are is to try to 0:03:39.160 --> 0:03:41.400 even the playing field in their minds. How important is 0:03:41.400 --> 0:03:45.160 the FX market as a backstrop tool of this, Well, 0:03:45.200 --> 0:03:47.640 you know, it's interesting the dollar has been weakening for 0:03:47.680 --> 0:03:49.520 the most part over the last year or two, at 0:03:49.560 --> 0:03:51.720 a time when you would expect it to be strengthening. 0:03:51.840 --> 0:03:55.040 If you're looking at the traditional things that I, as 0:03:55.040 --> 0:03:57.880 an economist would look at, you're looking at rates, um, 0:03:58.520 --> 0:04:02.119 you're looking at relative growth. Uh. Those with those things 0:04:02.120 --> 0:04:04.320 would suggest that dollars should have been strengthening. It has 0:04:04.360 --> 0:04:06.920 turned recently, and it'll be interesting to see if that 0:04:07.200 --> 0:04:09.280 proved to be a sustained move. And John, I want 0:04:09.280 --> 0:04:12.120 to interrupt here. We have two tweets from the President 0:04:12.200 --> 0:04:14.800 which implied a third tweet. We now have the third 0:04:14.800 --> 0:04:18.200 tweet four minutes ago, which seems to have an ending 0:04:18.240 --> 0:04:21.320 to it. These tweets are so lengthy, John, I'm not 0:04:21.360 --> 0:04:23.400 going to read them all. It just takes too long 0:04:23.440 --> 0:04:27.360 and too much valuable time from Stephen Stanley the President 0:04:27.440 --> 0:04:32.359 and three lengthy John. Here's the key phrase, carefully written tweets. 0:04:33.279 --> 0:04:36.720 Uh goes over this news to Mr Giuliani last night, 0:04:37.040 --> 0:04:41.520 about Mr Cohen and about Ms Daniels Uh as well. 0:04:41.800 --> 0:04:45.960 So we have three tweets out. I'll read the final sentence, John, 0:04:46.279 --> 0:04:50.560 Money from the campaign or campaign contributions played no role 0:04:50.600 --> 0:04:54.240 in this transaction. But it doesn't read. I will state 0:04:54.279 --> 0:04:57.520 this not as an editorial comment, but just observing the 0:04:57.520 --> 0:05:01.560 Bloomberg terminal, it doesn't read as a Trump tweet. There's 0:05:01.600 --> 0:05:05.320 a typical Trump layout tweet. It looks very formable. I 0:05:05.320 --> 0:05:06.880 think that's to take away from a lot of people 0:05:06.880 --> 0:05:08.920 reading these tweets this morning. But I would also say 0:05:08.920 --> 0:05:11.600 this just really isn't on wall streets radar, and it's 0:05:11.680 --> 0:05:14.320 absolutely But I think my point is we finally have 0:05:14.400 --> 0:05:17.280 the third tweet I think of three tweets. I could 0:05:17.279 --> 0:05:20.200 be wrong. Let's get to something that is on wall streets, right, John, 0:05:20.200 --> 0:05:23.360 the effects market today some significant dollar weakness stunt. It's 0:05:23.400 --> 0:05:25.600 come back through after a couple of weeks a dollar 0:05:25.640 --> 0:05:28.120 strength Stephen. A lot of people thought a Federal Reserved 0:05:28.120 --> 0:05:30.719 decision would be a total non event because there was 0:05:30.720 --> 0:05:33.679 no news conference but the Federal Reserve. But being quite 0:05:33.760 --> 0:05:38.320 clear about a symmetrical inflation target for less, can you 0:05:38.360 --> 0:05:41.800 talk us through what a symmetrical inflation target is as 0:05:41.800 --> 0:05:45.320 opposed to just targeting two sure? Well, I think traditionally 0:05:45.360 --> 0:05:48.840 people have viewed a two percent inflation target as being 0:05:48.920 --> 0:05:53.640 kind of lopsided. Anything above to the tolerance was very low. 0:05:53.839 --> 0:05:56.440 So if it's one and a half, that's okay, But 0:05:56.520 --> 0:05:58.240 if it's two and a half, that's a real problem 0:05:58.279 --> 0:06:00.320 for the FED. And what the FED has based sickly 0:06:00.400 --> 0:06:03.920 telling us is that they view themselves as having some 0:06:04.040 --> 0:06:06.240 room on either side of two percent. So we've been 0:06:06.320 --> 0:06:09.480 running below two percent now for the most part throughout 0:06:09.520 --> 0:06:12.440 this expansion, um, and the FED is wanted to get 0:06:12.520 --> 0:06:15.040 up to two percent. And what they're telling us is that, hey, look, 0:06:15.279 --> 0:06:17.320 if we get to two point one, we're not hitting 0:06:17.320 --> 0:06:19.880 the panic button right away. Um. And I think the 0:06:19.960 --> 0:06:23.440 key there is partly is where you think the trend 0:06:23.520 --> 0:06:25.480 is headed. So if we get to to one or 0:06:25.520 --> 0:06:28.120 to two two, or even to two three, and the 0:06:28.120 --> 0:06:30.480 FED thinks that we're going to level off, there that's 0:06:30.560 --> 0:06:33.279 probably fine. If there were at two and at quarter 0:06:33.560 --> 0:06:35.120 and they think we're headed to two and a half 0:06:35.200 --> 0:06:37.560 or maybe even to three, that becomes a problem. So 0:06:37.560 --> 0:06:39.600 here's the important question I think for for many people 0:06:39.600 --> 0:06:41.120 in the market, and the reason we saw that we 0:06:41.120 --> 0:06:42.480 could done it off the back of a lot of this, 0:06:42.760 --> 0:06:45.200 that the Federal Reserve just endorse in inflation over shoot. 0:06:45.960 --> 0:06:48.320 I think they did. I think they said and in 0:06:48.400 --> 0:06:51.159 a number of individuals have have made that very clear 0:06:51.200 --> 0:06:53.920 that hey, look we've run below two percent for years, 0:06:54.279 --> 0:06:56.479 it's fine if we run above two percent for a while. 0:06:56.520 --> 0:06:58.600 Which takes us to Europe where we have the inflation 0:06:58.600 --> 0:07:02.480 print this morning, Tom Case, I mean East is important. 0:07:02.640 --> 0:07:04.680 We have to think about that East. The last year, 0:07:04.960 --> 0:07:08.320 of course, was in a pro easter. This tion more 0:07:08.440 --> 0:07:11.280 inflation in the United Kingdom as well. Right, Yes, so 0:07:11.400 --> 0:07:13.480 it's a thief and we knew where easter was and 0:07:13.480 --> 0:07:15.960 the economists still got it dead wrong. So the inflation 0:07:16.080 --> 0:07:19.600 story in Europe is just not picking up. Stephen. I 0:07:19.680 --> 0:07:20.880 just want to how much of a problem this is 0:07:20.920 --> 0:07:25.320 for President Racky. Well, in many ways Europe has been 0:07:25.520 --> 0:07:27.960 it felt has felt like Europe has been behind the 0:07:28.040 --> 0:07:30.400 US in the cycle by a couple of years. Maybe 0:07:30.520 --> 0:07:32.200 you see it in kind of where they are in 0:07:32.280 --> 0:07:35.600 terms of monetary policy, and you also see that, I 0:07:35.600 --> 0:07:37.480 think in terms of where the economy is in certain 0:07:37.520 --> 0:07:40.120 ways you've seen stronger growth in Europe over the last year, 0:07:40.400 --> 0:07:42.880 but where they're still having trouble getting inflation to move 0:07:42.960 --> 0:07:45.360 up toward US target. And hey, that's exactly where the 0:07:45.360 --> 0:07:48.120 FED was a few years ago. Stevens Stanley Amherst pypon 0:07:48.280 --> 0:07:50.920 Securities Chief Economists. Great to have us with have you 0:07:51.040 --> 0:08:07.120 with us on the program. It is without question the 0:08:07.160 --> 0:08:11.320 publishing event of the season on China. Beyond timely here 0:08:11.360 --> 0:08:14.520 with Secretary re minutions, trip to the daily back and 0:08:14.600 --> 0:08:17.920 forth of what some would say as a mercantile Washington, 0:08:17.960 --> 0:08:22.960 a mercantile Trump dealing with President G, this new, more definitive, 0:08:23.040 --> 0:08:27.600 more entrenched leader of China. There is no one who 0:08:27.600 --> 0:08:30.520 can brief us on this on what she calls the 0:08:30.600 --> 0:08:35.640 Third Revolution. That Elizabeth Economy of the Council on Foreign Relations, 0:08:35.640 --> 0:08:41.440 Elizabeth congratulations on two d and fifty pages of update 0:08:41.559 --> 0:08:45.440 on President G. What was the biggest surprise of President 0:08:45.520 --> 0:08:50.000 G and putting together the Third Revolution? I think that 0:08:50.080 --> 0:08:53.959 the biggest surprise really was just how transformative he's managed 0:08:54.000 --> 0:08:56.959 to be in just five short years. You know, when 0:08:56.960 --> 0:08:59.520 he came in, people this is going to be a 0:08:59.520 --> 0:09:01.800 reform are along the lines of Dungho Ping. We're going 0:09:01.800 --> 0:09:04.120 to see more reform and opening up the low profile 0:09:04.200 --> 0:09:07.280 foreign policy and in fact, piece you know, move the 0:09:07.280 --> 0:09:10.200 country a hundred and eighty degrees in the opposite direction, 0:09:10.520 --> 0:09:14.199 you know, reasserting the Communist Party into the economy, into society, 0:09:14.600 --> 0:09:17.880 much more ambitious foreign policy, much more more repressive and 0:09:17.920 --> 0:09:22.000 authoritarian at home. So he's really the Third Revolution really 0:09:22.080 --> 0:09:25.719 is all about the game changing nature. She didn't tan Uh. 0:09:25.800 --> 0:09:28.360 Secretary Minution no doubt has a copy of your book 0:09:28.400 --> 0:09:31.400 well foot noted and marked on the plane going out 0:09:31.440 --> 0:09:34.520 when he's stopping the fist fights between Lawrence Cudlow and 0:09:34.559 --> 0:09:38.280 Peter Navarro. If that's the case, how would you brief 0:09:38.360 --> 0:09:42.040 the secretary on the relationship of Beijing to the major 0:09:42.160 --> 0:09:45.840 Pacific RIM cities like Shanghai and Hong Kong. What's that 0:09:45.920 --> 0:09:51.080 new dynamic? I think, you know, for Beijing has always 0:09:51.080 --> 0:09:53.760 been the center of political power, and you know Shanghai, 0:09:53.800 --> 0:09:57.040 Hong Kong or the economics centers I think underseaging Ping, 0:09:57.120 --> 0:10:01.559 Beijing has only become stronger U. And we see Beijing, 0:10:01.600 --> 0:10:03.800 you know, making a number of moves, for example, in 0:10:03.800 --> 0:10:07.480 this relationship with Hong Kong to limit the autonomy of 0:10:07.559 --> 0:10:10.320 Hong Kong and an essence saying, you know, we know 0:10:10.400 --> 0:10:12.960 that you're a gateway to China, but we're not going 0:10:13.000 --> 0:10:16.040 to need you, uh in that respect for very much longer. 0:10:16.400 --> 0:10:19.520 And you've got to get yourselves in line politically. I 0:10:19.559 --> 0:10:22.840 think the Shijunking, you know, is not a huge fan 0:10:22.880 --> 0:10:27.160 of the go go economic growth. Uh that done Shoking represented, 0:10:27.200 --> 0:10:30.160 that's embodied in Shanghai. He's got a different view. Well 0:10:30.160 --> 0:10:32.200 what does that different view and what does it mean 0:10:32.760 --> 0:10:38.439 for these Western business locations in the third the Third Revolution? Well, 0:10:38.480 --> 0:10:42.760 I think, you know, again reinserting the party into the state, 0:10:42.760 --> 0:10:46.000 don't enterprises, you know, telling joint ventures. You know, we 0:10:46.000 --> 0:10:49.240 want to have our party representatives on your board reviewing 0:10:49.280 --> 0:10:53.200 your investment decisions. Uh, you know, the entire push for 0:10:53.240 --> 0:10:58.440 the status control of Chinese technology made in China. All 0:10:58.480 --> 0:11:03.240 of these things are still wins for multinationals who had 0:11:03.280 --> 0:11:06.680 hoped for a more open uh you know, market opening. 0:11:06.760 --> 0:11:09.760 You know, less I t theft. They hope to see 0:11:09.760 --> 0:11:13.560 progress on some of these major institutional types of changes 0:11:13.559 --> 0:11:15.839 that are needed, and they're not seeing them if you're 0:11:15.840 --> 0:11:20.160 just joining us, Elizabeth, Economy, the Third Revolution, Jping in 0:11:20.200 --> 0:11:24.720 the New Chinese State mustery fifty pages terrific briefing. Ian 0:11:24.720 --> 0:11:27.880 Bremer raves about it, and far more importantly, I think 0:11:27.960 --> 0:11:31.600 Dr Bremer would agree with me. Orville Shell says simple, 0:11:31.920 --> 0:11:35.439 simply a well researched book, which is shell isk for 0:11:35.600 --> 0:11:38.880 she nailed it, Elizabeth. When you did this, you've got 0:11:38.880 --> 0:11:41.719 to fold in the new military might of China. You've 0:11:41.720 --> 0:11:44.440 got to fold in the fears that Peter Navarro has 0:11:44.480 --> 0:11:49.000 about the economics of China as well. How transparent, how 0:11:49.160 --> 0:11:55.000 knowledgeable is our true intelligence of the Chinese government system? 0:11:55.120 --> 0:11:59.240 Do we actually know what they're doing? I think in 0:11:59.520 --> 0:12:02.480 summers spects we're pretty knowledgeable. We have a pretty good 0:12:02.480 --> 0:12:05.480 sense for you know, how China's developing its military. It's 0:12:05.480 --> 0:12:09.319 new technologies, it's new modes of operation. The really significant 0:12:09.320 --> 0:12:12.720 advances that they've made under Shi Jinping. He's a big 0:12:12.760 --> 0:12:15.559 supporter of the Chinese military, and you know said when 0:12:15.559 --> 0:12:17.439 he first came to power, you know, I'm going to 0:12:17.480 --> 0:12:20.440 develop a people's liberation army that's capable of fighting and 0:12:20.440 --> 0:12:23.240 winning wars. Uh. So, you know they've they've been a 0:12:23.280 --> 0:12:26.120 real beneficiary under sheet. You know, I think where we're 0:12:26.200 --> 0:12:29.800 less good certainly is understanding the internal dynamics at the 0:12:29.920 --> 0:12:32.520 very top level. How do you know the seven members 0:12:33.360 --> 0:12:36.040 and the committity berro get along. You know, what are 0:12:36.040 --> 0:12:39.200 the real differences of opinion around Chi jin Ping? He's 0:12:39.240 --> 0:12:42.520 just amassed so much power that it's really tough to tell, 0:12:42.920 --> 0:12:45.600 you know, where there might be some dissenting views. Does 0:12:45.640 --> 0:12:49.240 that make this economic soire that we're in right now 0:12:49.360 --> 0:12:53.400 nothing more than a show? He won't be there right well, 0:12:53.440 --> 0:12:56.000 I think it doesn't, you know, mean that it's just 0:12:56.080 --> 0:12:57.880 going to be a show. The Chinese has said, you know, 0:12:57.920 --> 0:13:00.840 we're not going to negotiate, you know, under these threats. 0:13:00.920 --> 0:13:05.520 They pitched their position when their top economic guy, Leo 0:13:05.600 --> 0:13:07.760 Hook came to the United States back at the end 0:13:07.800 --> 0:13:10.520 of February UM and they've said, you know, we're gonna 0:13:10.559 --> 0:13:12.800 stand tough. You know, this trade war isn't going to 0:13:12.920 --> 0:13:16.439 impact us that much. We're strong and resilient. So that 0:13:16.520 --> 0:13:19.760 their negotiating stance they've learned from Trump, right there playing 0:13:19.840 --> 0:13:23.120 the brinksmanship at this point. But I think, look, they've 0:13:23.120 --> 0:13:25.760 got their own domestic economic problems. You know, she didn't 0:13:25.760 --> 0:13:28.760 things trying to de leverage. They want to know, address poverty, 0:13:28.840 --> 0:13:31.079 they want to address the environment. They've got a lot 0:13:31.200 --> 0:13:33.760 of things on their dockets. They're not they don't have 0:13:33.800 --> 0:13:36.160 a big appetite for a big trade war. But I 0:13:36.200 --> 0:13:39.200 definitely think there's room. But really quietly, folks, only thirty 0:13:39.640 --> 0:13:43.240 seventy pages into the Third Revolution, Elizabeth, you have that 0:13:43.480 --> 0:13:49.000 single sentence that's timeless. Their number one driving force is 0:13:49.040 --> 0:13:53.560 to keep people employed and to keep rising incomes, and 0:13:53.760 --> 0:13:57.800 that regard it's no different than the first the Second Revolution, 0:13:57.960 --> 0:14:01.680 is it, Well, there's no different than the Second Revolution. 0:14:01.720 --> 0:14:06.040 The first Revolution wasn't all that exact concerned about right. 0:14:07.000 --> 0:14:10.120 He was more concerned about political correctness. But definitely, uh, 0:14:10.320 --> 0:14:14.840 dun Shoping, that was his major objective. I think Hijenping 0:14:14.920 --> 0:14:17.240 just has a different vision of how to get there 0:14:17.679 --> 0:14:20.400 than Dune Shopping. Did you know? Dun Shopping wanted to 0:14:20.480 --> 0:14:23.960 unleash the capitalist and entrepreneurial spirit of the Chinese people. 0:14:24.280 --> 0:14:26.680 I have corruption flourished. It was bad, but it's not 0:14:26.760 --> 0:14:30.360 the end of the world inequality grew. Okay, hi Jinping 0:14:30.440 --> 0:14:34.160 has a different idea. No corruption, you know, address inequality 0:14:34.200 --> 0:14:36.800 and if it cost the Chinese economy a little bit, okay, 0:14:37.000 --> 0:14:41.160 address right now. Are listeners who say, look, the human 0:14:41.240 --> 0:14:44.640 rights is appalling. We don't really know the protests. Uh, 0:14:44.680 --> 0:14:47.320 this is a country that really we don't have anything 0:14:47.880 --> 0:14:51.400 in common with in terms of culture and values, and 0:14:51.440 --> 0:14:53.840 we should take a rigid stance. What do you say 0:14:53.880 --> 0:14:57.720 to those people? I think, um, You know, pushing back 0:14:57.760 --> 0:15:01.520 against China when it comes to human rights is essential 0:15:02.040 --> 0:15:04.520 because it's not just about what China is doing on 0:15:04.560 --> 0:15:07.080 the home front and places like Shinjong into bed and 0:15:07.160 --> 0:15:10.480 even more broadly with their new surveillance systems and the 0:15:10.680 --> 0:15:13.480 penetration of the Communist Party into every detail of the 0:15:13.520 --> 0:15:17.000 people's lives. But it's that they're trying to export an 0:15:17.040 --> 0:15:21.680 element of this autocracy abroad, their training officials in Africa 0:15:21.720 --> 0:15:25.520 and Latin America and Southeast Asia on how to manage populations, 0:15:25.520 --> 0:15:28.400 on how to do propaganda, and they're trying to rewrite 0:15:28.400 --> 0:15:30.600 the rules of the game globally. You know, it's one 0:15:30.600 --> 0:15:32.840 of the things that to look at the book is 0:15:32.880 --> 0:15:36.320 you know, changing the way that the human rights regime 0:15:36.360 --> 0:15:39.760 operated in the United Nations. Okay, but critically this is 0:15:39.800 --> 0:15:42.400 really really important. Then how do we respond to this 0:15:42.840 --> 0:15:46.560 If we have an administration that says essentially we're bilateral 0:15:46.640 --> 0:15:49.680 or maybe even unilateral, that we've got a State Department, 0:15:49.720 --> 0:15:53.280 at least with Mr Tillerson that was removed, how do 0:15:53.360 --> 0:15:57.280 we affect our policy? How do we pivot or show 0:15:57.360 --> 0:16:00.240 our flag if the Chinese are more asserted of with 0:16:00.320 --> 0:16:04.560 their culture. Absolutely, and I think it's a big challenge 0:16:04.560 --> 0:16:06.720 for us right now. We have to rely on people 0:16:06.760 --> 0:16:09.920 like Frankly, you know, Nikki Halley in the United Nations. 0:16:09.920 --> 0:16:13.080 She really does wave the flag, you know, very vigorously 0:16:13.240 --> 0:16:16.120 on issues of human rights when it comes to China. Uh, 0:16:16.160 --> 0:16:18.640 you know, we have to hold uh, you know, work 0:16:18.680 --> 0:16:21.680 with our allies who also care a lot about these issues. 0:16:21.760 --> 0:16:24.720 And the Europeans have stepped up significantly on issues of 0:16:24.800 --> 0:16:27.720 human rights as well. So I think there are others 0:16:27.720 --> 0:16:30.400 out there in the international community who seemed to be 0:16:30.600 --> 0:16:33.360 stepping into the breach. Of course, nobody can speak with 0:16:33.520 --> 0:16:36.280 as loud and as important to voices the United States. 0:16:36.320 --> 0:16:38.640 So um, you know, it would be great if President 0:16:38.640 --> 0:16:42.320 Trump would begin to understand the value of human rights, uh, 0:16:42.320 --> 0:16:45.480 and what that means in terms of promoting America's vision 0:16:45.480 --> 0:16:49.920 and strengths. Congratulations Elizabeth Economy, the Third Revolutions, she's in 0:16:50.040 --> 0:16:54.000 Ping and the New Chinese State without question, the New musty. Uh. 0:16:54.200 --> 0:16:57.400 Very it's very terse, folks. It's a very direct book 0:16:58.080 --> 0:17:02.080 of great benefit about really focused on Mr g and 0:17:02.080 --> 0:17:05.359 and with a lot of perspective that I haven't seen before. 0:17:05.520 --> 0:17:09.200 Elizabeth Economy, After the River Runs Black, after wonderful books 0:17:09.200 --> 0:17:13.000 on energy, the Third Revolution, j Ping and the New 0:17:13.080 --> 0:17:29.800 Chinese State. I'll feature that out on Twitter, uh today. Well, 0:17:29.840 --> 0:17:33.440 the Federal Reserve kept its benchmark interest rate unchanged yesterday, 0:17:33.440 --> 0:17:37.360 but acknowledged that inflation is beginning to creep higher. Well 0:17:37.440 --> 0:17:41.359 with that, in that increase mean increases in interest rates 0:17:41.640 --> 0:17:43.600 and when would they come? Well here to help us 0:17:43.600 --> 0:17:47.000 answer this question is that Kate Warren, the Edward Jones 0:17:47.040 --> 0:17:49.840 Investments Chief market strategist. She joins us here in our 0:17:49.840 --> 0:17:52.800 eleven three oh studios. Kate, thanks very much for being here. 0:17:52.880 --> 0:17:56.360 What did you take away from yesterday's Federal Reserve sort 0:17:56.359 --> 0:17:59.720 of report? I think the main takeaway is that they're 0:17:59.800 --> 0:18:02.680 not very concerned with the uptick in inflation that we've 0:18:02.720 --> 0:18:07.199 seen that they sort of emphasized that they wanted to 0:18:07.240 --> 0:18:10.160 see a balance around their two percent targets, so they 0:18:10.200 --> 0:18:14.720 didn't highlight that increasing inflation might be more interest rate increases. 0:18:15.080 --> 0:18:18.720 They didn't give any kind of signal about how many 0:18:18.920 --> 0:18:21.520 they'll do in the future. And uh, I think it 0:18:21.640 --> 0:18:26.440 was actually a relatively reassuring and if anything, uh, slightly 0:18:26.680 --> 0:18:31.120 less hawkish uh set of a you know, announcement than 0:18:31.160 --> 0:18:33.119 I would have expected. But we're still going to twenty 0:18:33.160 --> 0:18:35.399 five basis points in June. Yes, I think that was 0:18:35.480 --> 0:18:39.200 quite clear. I think they telegraphed that quite clearly before 0:18:39.240 --> 0:18:42.879 this as well as in the statement. You are hardwired 0:18:43.440 --> 0:18:47.960 to a retail audience that has a monthly statement that 0:18:48.040 --> 0:18:52.000 comes in and they see bond prices down and yields up. 0:18:52.440 --> 0:18:55.479 How many months in a row of that grind do 0:18:55.560 --> 0:18:58.359 we need until all of a sudden it's a bond 0:18:58.359 --> 0:19:03.199 bear market for bond America. Well, I think that, uh, 0:19:03.520 --> 0:19:08.320 it doesn't take very many months because most most investors 0:19:08.320 --> 0:19:10.840 are pretty sensitive to down prices on their statement. And 0:19:10.880 --> 0:19:12.760 what's so good with your work at Ellase where you 0:19:12.800 --> 0:19:16.040 know the history is three months in a row of 0:19:16.160 --> 0:19:20.880 bond prices down on statements is different. It's seven percent 0:19:21.000 --> 0:19:25.919 nominal than it is three nominal. Yes, I think the 0:19:26.040 --> 0:19:29.280 other thing is there's a flip side to it, which 0:19:29.400 --> 0:19:33.200 is many investors have been waiting for higher interest rates, 0:19:33.840 --> 0:19:36.840 and they're actually a little bit pleased to see the 0:19:36.880 --> 0:19:40.680 fact that on a two year treasury you're now getting 0:19:40.680 --> 0:19:43.280 two and a half percent, and that actually looks pretty 0:19:43.280 --> 0:19:45.639 good compared to other things out there in the marketplace. 0:19:46.240 --> 0:19:48.760 There's another side to this, Okay, So then when they 0:19:48.760 --> 0:19:52.159 see all the advertisements for certificate is a deposit offering 0:19:52.200 --> 0:19:55.840 two percent for whatever many years? Uh, do they give 0:19:55.880 --> 0:19:59.119 you a call and say, tell us what products you 0:19:59.200 --> 0:20:01.360 have that can get us this kind of interest rate? Well, 0:20:01.400 --> 0:20:03.840 we do offer CD. So we are I mean you're 0:20:03.840 --> 0:20:06.840 getting those calls. Yeah, we're getting those calls. People are saying, hey, 0:20:06.880 --> 0:20:10.000 this looks attractive, especially compared to the fact that many 0:20:10.080 --> 0:20:12.879 rates at the bank are still near zero. What's a 0:20:12.960 --> 0:20:17.639 five year CD not roughly. I don't have any, but 0:20:17.680 --> 0:20:21.600 the answers hired than it was. You could see that 0:20:21.680 --> 0:20:25.680 my hands on radio tenC. Weans that's what we're doing. 0:20:25.720 --> 0:20:27.280 What you are you can pull out the paper and 0:20:27.280 --> 0:20:29.800 look at the yield. I'm going to show you the ads. 0:20:29.880 --> 0:20:32.480 They are full page ads in newspaper, in the in 0:20:32.520 --> 0:20:35.520 the journal, and a lot of talking about how much 0:20:35.560 --> 0:20:37.160 that you can get and it says, you know, two 0:20:37.200 --> 0:20:39.880 point x percent and that's a lot of money. Well, 0:20:39.920 --> 0:20:42.440 when you think about it, with inflation still at two percent, 0:20:42.640 --> 0:20:46.120 at least you're getting a positive yield. And let's meld 0:20:46.160 --> 0:20:48.800 your economics in now with this, this real world yield 0:20:48.840 --> 0:20:52.240 dynamic for the public, and that is, okay, rates higher, 0:20:52.600 --> 0:20:55.719 but every single person listening is going to go, I 0:20:55.760 --> 0:20:58.919 get it. But inflation is going up to So where's 0:20:58.960 --> 0:21:01.119 the real yield go? What is the Edward D. Jones 0:21:01.200 --> 0:21:05.280 bat on a larger inflation adjusted yield? Is it going 0:21:05.320 --> 0:21:09.720 to happen? We think inflation actually stays pretty contained because 0:21:09.840 --> 0:21:14.840 of all the extraordinarily high competition in marketplaces. Companies keep 0:21:14.880 --> 0:21:18.439 saying they're not able to raise prices, uh and in 0:21:18.480 --> 0:21:22.080 many cases their input costs are going up. We're seeing 0:21:22.119 --> 0:21:27.400 disruptive competition in markets. Think Amazon. But high real full 0:21:27.440 --> 0:21:31.960 faith and credit yield, high real corporate yield, quality corporate bond, 0:21:32.119 --> 0:21:34.280 You're gonna see a real yield. Yes, we think that 0:21:34.440 --> 0:21:38.440 it's not high is not exactly the term idea better 0:21:39.960 --> 0:21:43.400 And and so I'm saying, I think there's lots of dynamics, 0:21:43.440 --> 0:21:46.840 including global growth and the fact we're seeing more products 0:21:46.880 --> 0:21:51.880 services from more places that keep prices moving up very slowly. 0:21:52.400 --> 0:21:55.320 And therefore you do get we don't see a dramatic 0:21:55.359 --> 0:21:57.960 increase in long term rates or short term rates even 0:21:57.960 --> 0:22:01.119 as the FED raisers rates. And that's why, yes, you 0:22:01.160 --> 0:22:04.240 get a better real yild. You're saying, say shorter on 0:22:04.280 --> 0:22:08.480 the on the yield curve on the duration in order 0:22:08.520 --> 0:22:10.600 to not get hit by the rising rates. Do your 0:22:10.600 --> 0:22:12.439 customers have a lot of cash to do all the 0:22:12.480 --> 0:22:15.840 things you're describing? They have some cash. They stayed pretty 0:22:15.840 --> 0:22:18.920 fully invested, so they're not where does all the new 0:22:18.920 --> 0:22:20.719 money come from? What do they have to sell in 0:22:20.840 --> 0:22:23.840 order to execute? Um? I think it's that they still 0:22:23.920 --> 0:22:28.679 have cash, uh, you know, sitting in savings accounts or 0:22:28.720 --> 0:22:32.119