Speaker 1: This is Bloomberg Business Week. I'm Charle Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. So I mentioned the rally
Speaker 1: in Chinese stocks. The a d R s here in
Speaker 1: the US as measured by the Golden Dragon China Index up.
Speaker 1: We saw stocks in China Hong Kong rally overnight this
Speaker 1: as China made a strong vow to short battered financial market.
Speaker 1: So that's going on. Quite a turnaround in Chinese stocks.
Speaker 1: They've been under pressure because of greater regulatory oversight, and
Speaker 1: then there's concerns about China's relationship with Russia, how that
Speaker 1: might impact growth, the possibility of sanctions against and these companies.
Speaker 1: Just a lot going on, let's put pressure on China. Yeah,
Speaker 1: that's why we're so grateful to have Dexter Tiff Roberts
Speaker 1: join us. He's a Senior Fellow for the Mansfield Center
Speaker 1: at the University of Montana, also senior Fellow at the
Speaker 1: Atlantic Council's Asia Society Initiative. Also a former Bloomberg Business
Speaker 1: Week China Bureau chief, and the author of the Myth
Speaker 1: of Chinese Capitalism, The Worker of the Factory and the
Speaker 1: Future of the World. Tiff, how are you. I'm doing well.
Speaker 1: Great to be back on the show with you and Carroll. Yeah,
Speaker 1: really great to have you apologize because I forgot you
Speaker 1: were here. I've been here for a long time. I
Speaker 1: just to think you were overseas a lot so I
Speaker 1: can remember, but I was I was engaging more often
Speaker 1: than New York Carol. Okay, fair enough, But I feel
Speaker 1: like you do know everybody, Carol, so yeah, you know, Hey, uh, Tiff,
Speaker 1: I I do want to start with what Carol said
Speaker 1: about Chinese stocks, Okay, because this is a story that
Speaker 1: we've been following for more than a year now very closely,
Speaker 1: as Chinese stocks have been absolutely getting beat up, and
Speaker 1: I'm wondering if you were surprised at all, UH, at
Speaker 1: the last minute that you saw the Chinese government step
Speaker 1: in and say they were gonna offer support. Well, I'm
Speaker 1: not really surprised because, as you said, it's been so
Speaker 1: it's been almost a blood bath for Chinese stocks in
Speaker 1: Hong Kong and Shanghai, and UH. I think they became concerned.
Speaker 1: So shi Jing King's right hand economic person, Leo Ja
Speaker 1: you know, he met with UH top finance officials and
Speaker 1: basically said, UH, it's time to market stability is what
Speaker 1: we need to focus on now, and promised to UH
Speaker 1: ease up on the regulatory pressure that's been on the
Speaker 1: tech stocks that's brought down UH brought down so many
Speaker 1: of them in terms of their value. UM, So I
Speaker 1: wasn't that surprised. I guess the question is how how
Speaker 1: long or how sustained will this rally D I think
Speaker 1: there are continuing issues, particularly on the regulatory side. I
Speaker 1: don't mean China's backing away from its desire to deal
Speaker 1: with what they perceive as national security concerns related to
Speaker 1: online data, which many of the companies that have been
Speaker 1: hit very hard have been in one way or another
Speaker 1: involved in that business. Tip is churn it all starting
Speaker 1: to back away from its relationship with Russia too, because
Speaker 1: that has also been something we all are watching very
Speaker 1: very closely. I think that China wants to signal to
Speaker 1: us that it's backing away from its relationship with Russia.
Speaker 1: I think they are disturbed by how long this war
Speaker 1: has been going on. They're definitely disturbed by the degree
Speaker 1: to which their international reputation has taken a beating for
Speaker 1: this perceived support and this real support for Russia during
Speaker 1: this during during the invasion, in the war. So I
Speaker 1: think that's the message that they're trying to put out,
Speaker 1: that they are actually stepping back. I'm not so sure
Speaker 1: for a whole variety of reasons that they're they're going
Speaker 1: to actually create real distance between them and Russia. What
Speaker 1: would real distance look like? And and I mean, could
Speaker 1: China actually actually afford to do it, especially if you know,
Speaker 1: Russia is so cut off from the rest of the
Speaker 1: world that China is really the only country that can
Speaker 1: supply it with high with with higher end technology. Yeah,
Speaker 1: I mean I think for China, I mean the trade relationship.
Speaker 1: You look at the Russian trade relationship, I think it's
Speaker 1: about hundred forty seven billion dollars last year. For Russia,
Speaker 1: it matters a whole lot. China is their number one
Speaker 1: trading partner for For China, not so much. I think
Speaker 1: it's about two percent of China's trade. That compares to
Speaker 1: roughly twelve percent each for the US and the EU.
Speaker 1: So the relationship, the economic relationship is far less important
Speaker 1: to China. Uh. I think there are I think what
Speaker 1: we're dealing really with here are political issues, and that's
Speaker 1: where the alignment between the two countries becomes very, very important. Well,
Speaker 1: it's very clear, right, and I know we've talked about
Speaker 1: this with you. We've just got about thirty seconds or
Speaker 1: so and then we'll come back and talk some more.
Speaker 1: But I mean China's increasingly drawing that line in the
Speaker 1: sand about how it feels about democracy and and US dominance,
Speaker 1: whether it's through the dollar or something else, just quickly. Absolutely,
Speaker 1: I know. I think the big issue here is China
Speaker 1: feels like it's the political values are roughly aligned with Russia,
Speaker 1: and much of that is defined by opposing the values
Speaker 1: of the US and Western liberal democracy. They see that
Speaker 1: as as really um to what they're trying to achieve. Hey, Ti,
Speaker 1: so who needs China more more. I mean you talked
Speaker 1: about the importance for Russia, But does Russia or the
Speaker 1: US needs China more? And who needs the US more?
Speaker 1: Russia China? Uh sorry, that's a little complicated. I need
Speaker 1: a whiteboard. The second I'll go for the second part.
Speaker 1: China needs the US more than Russia. I think obviously
Speaker 1: the US is I guess it out just right, just
Speaker 1: barely smaller trade relationship with the US than with the EU,
Speaker 1: but extremely important the source of much of China's high technology.
Speaker 1: So there's no doubt that China needs the US more
Speaker 1: than than Russia. Dies Um, so I think, uh, yeah,
Speaker 1: so I I would just point that out. And then
Speaker 1: the first part of your question is, um, uh does
Speaker 1: the US maybe maybe tell me again, Russia or the USA?
Speaker 1: I think the US clearly. Again, Uh, doesn't you know
Speaker 1: the China, China and the US have a tremendously important
Speaker 1: economic and trade relationship. It's tremendously important to a lot
Speaker 1: of our biggest multinationals in the US. So even as
Speaker 1: the UH, you know, even as tensions grow on the
Speaker 1: political side between the two countries, I think, uh, the
Speaker 1: U s will continue to put rightly so a tremendous
Speaker 1: amount of importance on maintaining a strong economic and trade
Speaker 1: relationship with China without questions. So it sounds like both ways,
Speaker 1: whether it's coming from China or from the US, they
Speaker 1: both really need each other. Um, that's what it says.
Speaker 1: I think so. I think so. Now having said that,
Speaker 1: that doesn't preclude the fact that UH was a political
Speaker 1: relationship just keeps getting worse and worse, and I think
Speaker 1: that will continue unfortunately. So it's a real it's a
Speaker 1: tough position for both countries. UH. You know, increasing anger,
Speaker 1: outright anger and disagreement about how they look at the world,
Speaker 1: but at the same time very tightly economically linked. Dexter Tiff,
Speaker 1: we haven't been able to talk to you since Russia's
Speaker 1: invasion of Ukraine, and you know, it really seems like
Speaker 1: a big part of the conversation early on in this
Speaker 1: this war was where China would go and how this
Speaker 1: could embolden Xiji and Pang to take over Taiwan. And
Speaker 1: I'm wondering where you fall on that if if you
Speaker 1: think that what Vladimir Putin is doing and has done
Speaker 1: in Ukraine, how that leaves UH China and the situation
Speaker 1: in Taiwan. Yeah. Well, first of all, I think it
Speaker 1: explains to a large degree white China is being I
Speaker 1: would call it wishy washy on on which side they
Speaker 1: want to stand stand behind. UM. China knows that. I mean,
Speaker 1: first of all, China I think feels that they feel
Speaker 1: Putin's pain, if I can say that, they actually think
Speaker 1: that Putin is is is an a grieved party here
Speaker 1: and that NATO expansion is a threat to Russia, and
Speaker 1: they sympathize with that in large part because they see
Speaker 1: UH a rough parallel to the to the U S
Speaker 1: and Indo Pacific, and particularly Taiwan. They see also UM
Speaker 1: a threat obviously U there. And I'm just finished by
Speaker 1: saying they would like Russia's support going forward. When when
Speaker 1: and when they eventually do decide to move more forcefully
Speaker 1: against Taiwan, is that just a matter of time? I
Speaker 1: am afraid. So I'm one of those I think that
Speaker 1: I don't think that she Jimping is a status quo
Speaker 1: sort of a guy. He I think he made it
Speaker 1: fairly clear that he would like to see UH Taiwan
Speaker 1: much more under China's thumb during you know, during his watch.
Speaker 1: I mean, the good news is Chijing. Things gonna be
Speaker 1: around for a long time, so they don't have to
Speaker 1: do it tomorrow or anything. But yes, I think I
Speaker 1: think he uh, he doesn't want to see the relationship
Speaker 1: change dramatically. One thing that jumped out and I was
Speaker 1: actually off for a day, but I saw the ster
Speaker 1: and I'm like, I gotta send it to myself because
Speaker 1: I it's just sitting with me. Um the Dad Jones
Speaker 1: report about Saudi Arabia in active talks with Beijing to
Speaker 1: price some of its oil sales to China in the yuan.
Speaker 1: That it's something that they've been talking about for years. Uh.
Speaker 1: And this is a guys, according to people with the
Speaker 1: matter and so on and so forth. What's your read
Speaker 1: on that? That's pretty to mattic to me. I think so.
Speaker 1: I mean, this is obviously all about China's long term
Speaker 1: goals and maybe not so long term to internationalize the
Speaker 1: U N currency, and this would be a significant step.
Speaker 1: I'm having said that. I think we can. I think
Speaker 1: we can get ahead of ourselves. I mean if we
Speaker 1: look at you know, just looking at for example, Swift,
Speaker 1: the global provider of financial transactions, compared to the China's rival,
Speaker 1: the steps the I p s. I mean there's no
Speaker 1: competition whatsoever. We're you know, we're talking about I think
Speaker 1: something like eleven thousand institutions globally processing five or six
Speaker 1: tillion dollars a day by swift, and China's doing, you know,
Speaker 1: less than twelve trillion, I think for the entire last year.
Speaker 1: So I think, you know, I think to your question, Carrol,
Speaker 1: I think it's a step forward, but there's still a
Speaker 1: long way to go. And I don't think, by the way,
Speaker 1: I don't think China has is capable of bailing out
Speaker 1: Russia there um as sanctions tighten on on that country. Tiff.
Speaker 1: We've covered a lot. We've covered, uh this Chinese stocks,
Speaker 1: not just Chinese stocks listed in the US, but those
Speaker 1: in Shanghai and Hong Kong. We've covered the Russian invasion
Speaker 1: of Ukraine. Uh. I want to talk a little bit
Speaker 1: about trade between the U. S And China, because during
Speaker 1: the Trump administration, we'd call this a trade war, and
Speaker 1: that's something that I think has been really lost in
Speaker 1: recent years with the coronavirus pandemic. Here Um, give us
Speaker 1: an update on what you think we need to be
Speaker 1: watching for when it comes to trade between the U S.
Speaker 1: And China and how things actually get better from here. Well,
Speaker 1: I think the tensions are still there. You know, we
Speaker 1: can the trade war may go away. And by the way,
Speaker 1: you know, the Phase one deal signed by the previous
Speaker 1: Trump administration went nowhere, as you know, so China did
Speaker 1: not satisfy or meet its uh it's commitments on that
Speaker 1: on that trade on that Phase one trade deal. So
Speaker 1: we still have a lopsided trade relationship. We had news
Speaker 1: just about a week ago that the Biden administration was
Speaker 1: considering leving uh some kind of sanctions, perhaps car ups
Speaker 1: related to China's continuing mercantilist practices, it's industrial policy. Um.
Speaker 1: So I think the tensions are still there, um and uh,
Speaker 1: you know, they may sort of be pushed to the
Speaker 1: side momentarily when we're dealing with you know, a global
Speaker 1: international crisis as we are with the Russian war against Ukraine.
Speaker 1: But but but I think it's still there. I don't
Speaker 1: see that really getting much better. All right, we gotta run, Tiff,
Speaker 1: Thank you so much. I really appreciated Tiff. Robert Senior
Speaker 1: Fellow at the Atlanta Council's Asia Security Initiative, Man's faild
Speaker 1: fellow at University of Montana. Former Bloomber Business Week China
Speaker 1: be our chief, and of course check out his book.
Speaker 1: It's very relevant to all of these discussions the myths
Speaker 1: of Chinese capitalism. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes Tim Stinovy on Bloomberg Radio.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, he's a
Speaker 1: former UK Deputy Prime Minister. He has now met as
Speaker 1: president of Global Affairs, new to that job, although he's
Speaker 1: been at the company for a few years. He is
Speaker 1: also the one dealing with the latest crisis at the company,
Speaker 1: and that is to solve Meta's Russia problem. The story
Speaker 1: the upcoming issue of Business Week, and we're talking about
Speaker 1: none other than Nick Clegg, not Mark Zuckerberg, not Cheryl Sandberg,
Speaker 1: but the man charged with navigating the global political crises.
Speaker 1: Kurt Wagner's technology reporter at Bloomberg News. He joins us
Speaker 1: on the phone from San Francisco. Kurt story is featured
Speaker 1: in the upcoming issue of Business Week magazine. Check it out,
Speaker 1: though now on the Bloomberg Terminal, also at Bloomberg dot
Speaker 1: com slash business Week. Okay, Kurt, for people who don't
Speaker 1: follow Facebook is closely meta platform z Inc. Excuse me,
Speaker 1: I keep doing that as closely as you have for
Speaker 1: so many years. Who is Nick Clegg? Yeah? Nick Clegg
Speaker 1: is basically the head of all policies at Facebook. So
Speaker 1: anytime you think about misinformation, you think about relationships with governments,
Speaker 1: uh speech, right, Like what's allowed on Facebook and Instagram
Speaker 1: what's not? These are policy decisions and now all of
Speaker 1: those roll up to Nick Klegg, and he is kind
Speaker 1: of the final word, um on what Facebook and and
Speaker 1: Meta do in those instances. And obviously that's a lot
Speaker 1: of different things, especially as we get ramping up here
Speaker 1: on another U S election, you can imagine that all
Speaker 1: of these decisions are pretty consequential, and um, he's now
Speaker 1: the guy in charge of all that. All right, what's
Speaker 1: up with Cheryl and Zack? Yeah? Well they're still there
Speaker 1: for those wondering, And and this has always been a
Speaker 1: kind of two headed monster at Facebook, right. It was
Speaker 1: it was Mark Zuckerberg handling the product and Cheryl Sandberg
Speaker 1: handling the business. But then after the election, all of
Speaker 1: these policy issues I was just talking about really um
Speaker 1: real their head for for kind of the first time,
Speaker 1: and so they took off, Like Cheryl kind of started
Speaker 1: addressing a lot of this. Mark obviously got much more involved.
Speaker 1: We started hearing from him on all these different issues
Speaker 1: around politics and policy. And over the last you know,
Speaker 1: a couple of years, what they've realized is one neither
Speaker 1: of them are necessarily uh something that they want to do.
Speaker 1: This is not a job that's very fun. And number two,
Speaker 1: they've become so unpopular in a lot of ways that
Speaker 1: their message Facebook's message is often getting lost simply because
Speaker 1: of who's delivering it. Right, So, anytime Mark Zuckerberg says something,
Speaker 1: people have a strong opinion about him, regardless of what
Speaker 1: he's saying. And I think part of that is is,
Speaker 1: you know why Nick Clegg is now the face of
Speaker 1: all this stuff? So how did this come into sharp relief?
Speaker 1: And look not just during the Trump administration, because I
Speaker 1: think that was the name that Nick Clegg was a
Speaker 1: name that people became familiar with that and even if
Speaker 1: they weren't following British politics before, but with Russia's invasion
Speaker 1: of Ukraine in late February how has it all come
Speaker 1: to a head. Yeah, so the timing is pretty incredible, really,
Speaker 1: Um Meta promoted Nick Clegg on I believe was February
Speaker 1: sixte um, so just a month ago to the day,
Speaker 1: and uh at that point Mark Zuckerberg said, Hey, he's
Speaker 1: the last word on all of these big things. You know,
Speaker 1: if you have an issue, to take it to Nick.
Speaker 1: About a week later, Russia invades Ukraine and suddenly, um,
Speaker 1: you know, here's Nick one week into his his new
Speaker 1: fancy job, and um you know, he's back channeling with
Speaker 1: the Ukrainian UH President Zelenski and his staff. He's talking
Speaker 1: with Russian regulators trying to kind of navigate this whole thing.
Speaker 1: Um in in the first big challenge that happens immediately
Speaker 1: after he gets this promotion, And so the story really
Speaker 1: kind of looks at how these first couple of weeks
Speaker 1: has gone for him. We actually got a chance to
Speaker 1: sit down and interview him for this. It was his
Speaker 1: first interview since getting that promotion, and UM, you know,
Speaker 1: I just think it's kind of a timely look at
Speaker 1: who this guy is and why he suddenly um has
Speaker 1: you know, one of the most important jobs and so help,
Speaker 1: so help me out here, Kurt, because in your story,
Speaker 1: you're right met His critics called the announcement when he
Speaker 1: was named little more than a public relations move. Yet
Speaker 1: at the same time you say that he's the one
Speaker 1: who's been Cleggett Nick clegg has been talking to Russian officials,
Speaker 1: He's the one who has talked with President Zelinsky. So
Speaker 1: I don't know, how do you see it? Well, I
Speaker 1: I don't think that it's just a pr thing. I
Speaker 1: think he truly is making a lot of these decisions.
Speaker 1: And it was actually a question that I got to
Speaker 1: ask him, Um, I brought up that criticism. I said,
Speaker 1: what would you say to people who you know? Are
Speaker 1: you you just got promoted to be um someone to
Speaker 1: take all the heat off of your bosses, you know?
Speaker 1: And he said, look, if I wasn't actually wielding any
Speaker 1: power internally, if I didn't actually have any control over
Speaker 1: the things that I had to go out and then defend,
Speaker 1: then yeah, this wouldn't be a very good job. And
Speaker 1: it's not one that I would have accepted. But he says,
Speaker 1: you know, he's willing to take that heat because he's
Speaker 1: the one making these decisions, and as a former politician,
Speaker 1: he's not you know, unfamiliar with people being angry at
Speaker 1: him no matter what he does. Yeah, it's it's I mean, look,
Speaker 1: it's not it's not a job for everyone obviously, you know,
Speaker 1: making but but it is if you think about it.
Speaker 1: And that's why you see so many people who have
Speaker 1: worked in politics take on these policy type positions help
Speaker 1: us think forward beyond Ukraine, beyond um, Russia's invasion of
Speaker 1: Ukraine and the challenges that that Clegg has in front
Speaker 1: of him when it comes to regulators in the United
Speaker 1: States and in Europe. Yeah, of course, well, I mean
Speaker 1: we there's some data transfer regulations happening in Europe right now,
Speaker 1: or discussions i should say, around data transfer. That's very
Speaker 1: important and that Facebook has been vocal about. I think
Speaker 1: the election here in the US, of course, mid terms
Speaker 1: are coming up, and they're going to be dealing with
Speaker 1: all of the same issues that they dealt with in right.
Speaker 1: How how do they want to handle back checking the
Speaker 1: political post, how do they want to handle advertisements from candidates? Right? Um,
Speaker 1: these are all the issues that haven't gone away um
Speaker 1: in the last couple of years, and so he'll be
Speaker 1: looking at those and then I think one of the
Speaker 1: biggest ones is that in January of next year, um,
Speaker 1: former President Donald Trump's to year ban will be listed, right,
Speaker 1: and suddenly you have um President Trump back on the platform.
Speaker 1: And that's gonna, I imagine, create you know, a lot
Speaker 1: more issues for Facebook. It certainly has in the past. Well,
Speaker 1: and as you said, he played cleg played a critical
Speaker 1: role in removing Donald Trump from that platform. All right,
Speaker 1: Kurt Wagner, great stuff, technology reporter at Bloomberg News. This
Speaker 1: story in the new issue of Bloomberg Business Week magazine
Speaker 1: online and on the Bloomberg terminal. Catch it all now
Speaker 1: online and catch the magazine. It'll be out tomorrow. This
Speaker 1: is Bloomberg mo. Yeah, but you let me drive. Oh no,
Speaker 1: no, no no, no, honey, please, I'll do the BLS. I
Speaker 1: want to drive. It's a good question, A pretty clue,
Speaker 1: our birds. You've just heard our simulcast on TV and radio.
Speaker 1: Tom Kim said, Ramoitz and Jonathan Pharaoh that FED meting
Speaker 1: second FED meeting of the year. We'd I've been looking
Speaker 1: forward to it, uh, and we got that marched rate
Speaker 1: increase has expected. I think what's interesting is what they
Speaker 1: have talked about in terms of growth here. J Powell
Speaker 1: talk about what he thought was a strong growth forecast,
Speaker 1: but also moving up their inflationary expectations. But longer term,
Speaker 1: the expectation is inflation comes down again. I've been tracking
Speaker 1: the markets here, Tim and you know turnally broke down
Speaker 1: the numbers. But it looks like the equity market, based
Speaker 1: on my you know, calculations, and just as the news
Speaker 1: of the Fed announcement was coming out at two fifteen
Speaker 1: Wall Street time, we are higher in terms of where
Speaker 1: stocks were prior to that announcement. So we've definitely seen
Speaker 1: a bounce back after initial sell up, and it looks
Speaker 1: like that tenure has settled down to where it was
Speaker 1: prior to the FED news. The two year the shorter
Speaker 1: end of the yield curve UH close to where it
Speaker 1: was a little bit higher. Well, let's go back to
Speaker 1: the equity market, because I think that this was a
Speaker 1: really important point for at least equity investors. When Powell said,
Speaker 1: quote the economy is very strong and well positioned to
Speaker 1: handle tighter monetary policy. It was at that point that
Speaker 1: equity started moving higher. Recording to our Bloomberg Live blog team,
Speaker 1: when it comes to the UH, well, what the f
Speaker 1: O m C chair was saying and what markets were doing,
Speaker 1: because it was pretty remarkable. As soon as his statement
Speaker 1: came out, we saw a real sell off and equities,
Speaker 1: yeah we did initially, but we've seen a bounce back.
Speaker 1: And if you look at the yield curve, UM, we
Speaker 1: saw the yield curve between five and ten years invert
Speaker 1: after the f o MC decision, right after it, UH,
Speaker 1: and the five to thirty year yield curve just a
Speaker 1: little bit about thirty minutes ago, the curve extends, it's
Speaker 1: flattening to under twenty five basis points. So this is
Speaker 1: what's key. We're watching that that inversion, especially when it
Speaker 1: comes to to intend UH and what it tells us
Speaker 1: about the potential for a recession. And so you know,
Speaker 1: we've talked about that in particular right now though, um,
Speaker 1: you know, yields, like we said, kind of staying where
Speaker 1: they were the bit up to it, but down from
Speaker 1: some of the spikes we saw right after that FED decision. Okay,
Speaker 1: so the Fed raising interest rates by a quarter percentage points,
Speaker 1: signaling hikes at all six remaining meetings this year, launching
Speaker 1: a campaign to tackle the fastest inflation in four decades.
Speaker 1: We got the dot plot the median projection was for
Speaker 1: the target rate to end at about one point nine percent,
Speaker 1: kind of in line with bets, but then rise carroll
Speaker 1: to two point eight percent. Yeah, this is what's kind
Speaker 1: of interesting. In our live blog on the FED really
Speaker 1: pointed this out there, like, wow, look at that inflation
Speaker 1: forecast four point three percent from the end of this year.
Speaker 1: A major overshoots. Um, well, that's the question they still
Speaker 1: have it coming down to two point three twenty four.
Speaker 1: It's a few years from now, but that's the expectation
Speaker 1: that it rights itself. Uh. And then when it comes
Speaker 1: to growth, I mean back in the December forecast they
Speaker 1: were looking at more like four percent for this year.
Speaker 1: Now it's down to two point eight percent. So what
Speaker 1: does it mean in real terms? Um, you know, we've
Speaker 1: just heard from our TV colleagues that, you know, do
Speaker 1: these numbers really add up? Does it make sense? So, Uh,
Speaker 1: this is what we're all going to have to be
Speaker 1: guessing and maybe waiting for the next uh FED meeting,
Speaker 1: but also the jobs report, because higher rates are probably
Speaker 1: going to meet a higher unemployment rate. So what is
Speaker 1: the appetite for j PAL and the FED when it
Speaker 1: comes to that. Well, that next FED meeting is happening
Speaker 1: on May four, so that's what we have to look
Speaker 1: forward to. Then, hey, let's not bring in Lizzi Ane Saunders,
Speaker 1: chief investment strategist at Charles Schwap. She joins us on
Speaker 1: the phone from Naples, Florida. Liz Anne, Um, what is
Speaker 1: your big takeaways after watching fed share Powell just now
Speaker 1: for the last hour and a half. Yeah, so obviously
Speaker 1: the move they made with raising rates is not at
Speaker 1: all a surprise. I think it was the relatively optimistic
Speaker 1: assessment he gave up the economy and light of what
Speaker 1: have been, you know, growing concerns about recession. Now we
Speaker 1: have to keep in mind that the FED broadly fed
Speaker 1: shares specifically haven't necessarily been the best. Um. Forecasters of
Speaker 1: of recessions are often sort of whistling past the proverbial graveyards.
Speaker 1: So but I think that is probably the key takeaway,
Speaker 1: as he doesn't see recession risk is particularly high at
Speaker 1: this point. I mean, Liz, do you find first of
Speaker 1: all great to have you here? Uh? And we you know,
Speaker 1: you and I have talked about lots of market cycles
Speaker 1: over the you know, past many years, and I do
Speaker 1: wonder how you see this one, right, you've seen strains
Speaker 1: and stresses in this system. I think going back to
Speaker 1: the you know, we talked about the financial crisis, how
Speaker 1: do you see this market cycle? How would you describe it?
Speaker 1: I think it's different in so many ways, not least
Speaker 1: being what interestingly is no longer front page news, which
Speaker 1: is the virus, and and that's just really turned topsy turvy.
Speaker 1: Any traditional analysis of with the business cycle looks like
Speaker 1: the fact that most of what we're seeing in the economy,
Speaker 1: not least being inflation, is much more typical of a
Speaker 1: late cycle phenomenon. Yet, if you were to just look
Speaker 1: at the calendar relative to when we went into the
Speaker 1: COVID recession, you would think we would be earlier in
Speaker 1: the cycle. We also know that the FET is now
Speaker 1: launched off the zero bound at a point where inflation
Speaker 1: is raging and growth expectations for the first quarter are
Speaker 1: quite low and the yield curve is quite flat. So
Speaker 1: the background conditions for the said to start raising interest rates, Um,
Speaker 1: this is not what you typically I see. Now. Whether
Speaker 1: or not that means there's a greater chance of the
Speaker 1: so called policy mistake, I think it's easier to argue
Speaker 1: that if we're going to say that that has made
Speaker 1: a mistake. They may have already made it by not
Speaker 1: having gotten off the zero bound or starting to shrink
Speaker 1: the balance sheet sooner than they did, but that's sort
Speaker 1: of the ultimate counterfactual because we can't go back in
Speaker 1: time to change things. Well do you agree, you know, Liz,
Speaker 1: I'm just thinking of some of the highlights from J.
Speaker 1: Powell in a statement, but more importantly in that press
Speaker 1: conference that followed. You know, he said, all signs are
Speaker 1: that this is a strong economy, the economy likely to
Speaker 1: flourish with less accommodative policy. Um. Do you agree with him? Um?
Speaker 1: Not right now. I think if you look at the
Speaker 1: fact that we have two and a two and a
Speaker 1: half months out of three already kind of built into
Speaker 1: the numbers for first quote of growth, and you look
Speaker 1: at the pretty anemic forecast at a metric like Atlanta
Speaker 1: fat GDP, now as um, no, we're not in a
Speaker 1: strong economy right now. In fact, there are some measures
Speaker 1: of the economy that are actually already in recession territory.
Speaker 1: If you look not so much at consumer competence at
Speaker 1: the headline level, but if you look at the spread
Speaker 1: between expectations and the present situation. We've never been UM
Speaker 1: as well as this other than in recession. So uh,
Speaker 1: I don't think the economy is particularly strong now, but
Speaker 1: I don't think it's a stretch to believe that we're
Speaker 1: sort of in some payback in the first quarter from
Speaker 1: what we saw in the fourth quarter. I don't think
Speaker 1: a recession is is the easy call at this point,
Speaker 1: but his first quarter growth is going to be on
Speaker 1: the weaker end of the spectrum. Yeah, So, so what
Speaker 1: does concern you about where we are in this economy
Speaker 1: that we're not so much facing stagflation? I think, or
Speaker 1: maybe it's semantics that that that term, if you're going
Speaker 1: to use the true definition born out of the vent,
Speaker 1: was inclusive of a high end rising unemployment rate, which
Speaker 1: clearly we don't have right now. What I think we're experiencing,
Speaker 1: which could persist is counter cyclical inflation UM. And that's
Speaker 1: that comes after last year's pro cyclical inflation, where it
Speaker 1: was strong demand that was part of the trigger for
Speaker 1: higher prices starting to put downward pressure on demand and
Speaker 1: turned downward pressure on growth. And given that whether it's
Speaker 1: wage growth or income growth, if you look in nominal terms,
Speaker 1: it still looks very strong if you look in real terms,
Speaker 1: much less so. And the fact that I think we
Speaker 1: were already going to have tent down demand at least
Speaker 1: on the good side of the economy, just because I
Speaker 1: think we've sort of exhausted our demand across goods. I
Speaker 1: think we were set to see an economy slow anyway,
Speaker 1: and now we have the added big wrinkle of of
Speaker 1: the invasion and the impact on on food and energy prices. Hey, Liz,
Speaker 1: Jess got about twenty five seconds. So where do you
Speaker 1: commit new money in this environment? Real quickly? I think
Speaker 1: you want to stay close to benchmarks, use volatility to
Speaker 1: maybe rebalance a bit more frequently, and absolutely focus on
Speaker 1: on quality and lowercase V value. I don't mean just
Speaker 1: by the value indexes, but screened for a reasonable value.
Speaker 1: And you can even do that in segments of the
Speaker 1: market that live in the growth indexes. All right, Gonna
Speaker 1: leave it there. Great to hear your voice, Liz Ansander.
Speaker 1: She's chief investment strategist at Charles Schwab joining us. Thanks
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