WEBVTT - Surveillance: Market Correction with Emanuel 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.880 the Bloomberg Terminal and the Bloomberg Business App. 0:00:30.040 --> 0:00:32.280 Great guest in the studio with us, Jenning and Manuel 0:00:32.360 --> 0:00:34.280 I've ever court didn't good to see. Good morning mate, 0:00:34.320 --> 0:00:37.479 good morning. Let's start here this week and video. Then 0:00:37.479 --> 0:00:40.080 we've got Chairman Powell throwing China into the mix as well. 0:00:40.200 --> 0:00:42.480 If you're coming back from the beach based and confused 0:00:42.720 --> 0:00:44.760 and you had to pick one right now, what should 0:00:44.760 --> 0:00:45.519 you be focused on? 0:00:46.000 --> 0:00:49.160 Sorry, there is no pick one here. All of them matter, 0:00:49.880 --> 0:00:52.760 and to us, that is a large part of why 0:00:52.800 --> 0:00:59.080 we've seen the market drift gently lower, people taking risk off. 0:00:59.160 --> 0:01:02.560 This is not an end of bull market run. This 0:01:02.760 --> 0:01:08.440 is just a correction, normal seasonal. Again, I would say 0:01:08.680 --> 0:01:13.120 what's really important is less what we're gonna hear from Nvidia, 0:01:13.280 --> 0:01:16.640 less what we're gonna hear from chair Powell less what 0:01:16.680 --> 0:01:20.919 we hear overnight. We obviously had some moves from China 0:01:21.240 --> 0:01:24.440 and more the price action in response to all of 0:01:24.480 --> 0:01:29.000 these things, and frankly, it's an open question as to 0:01:29.080 --> 0:01:30.720 what we're going to see in terms of the price 0:01:30.720 --> 0:01:31.560 of What everybody. 0:01:31.280 --> 0:01:33.760 Wants to know is a dovetail Julian Emmanuel's equity work 0:01:34.000 --> 0:01:37.240 in with Ed Hyman's economics. Ed has been out front 0:01:37.280 --> 0:01:40.520 believing in the disinflationary trend. Is he still have that 0:01:40.640 --> 0:01:42.680 in place? And how do you dovetail that into an 0:01:42.680 --> 0:01:43.240 equity call? 0:01:43.600 --> 0:01:49.200 Absolutely? Absolutely. Ed continues to think that inflation is going 0:01:49.240 --> 0:01:54.080 to come down much more rapidly than people believe, and 0:01:54.360 --> 0:01:56.720 of course part of that is we're likely to have 0:01:56.760 --> 0:02:00.640 a very mild downturn early next year. But when you 0:02:00.720 --> 0:02:04.360 pull back and you think about the implications for investing, 0:02:04.600 --> 0:02:07.600 there are actually three lessons from the nineties that we 0:02:07.680 --> 0:02:10.840 need to learn here. Number One, we understand the run 0:02:10.960 --> 0:02:14.600 up into technology with AI et cetera, et cetera. We 0:02:14.680 --> 0:02:17.800 think that's real. But the other thing there is that 0:02:18.240 --> 0:02:21.960 there is a time such as we saw in the nineties, 0:02:22.160 --> 0:02:24.920 where markets do pull back. But the more important thing 0:02:25.120 --> 0:02:29.200 is we've been talking about yields already this morning. Is 0:02:29.240 --> 0:02:32.160 that you were able to make money in stocks in 0:02:32.200 --> 0:02:35.920 the nineties when yields we're five and six percent, and 0:02:35.960 --> 0:02:38.600 this same thing is going to happen in the next 0:02:38.639 --> 0:02:39.440 twenty four months. 0:02:39.560 --> 0:02:41.720 Yeah, That's what we were talking about with Ediar Denny 0:02:42.200 --> 0:02:44.960 last week, which is we've seen this movie before and 0:02:45.040 --> 0:02:48.560 it's fine. We talk about China. Is there any silver 0:02:48.720 --> 0:02:51.760 lining in the disinflation that we see over there kind 0:02:51.800 --> 0:02:55.920 of creating more disinflation in the US in Europe? Or 0:02:55.960 --> 0:02:57.880 do not buy that with some people are putting out there. 0:02:58.000 --> 0:03:01.160 Well, Chair Powell would love to be a to think that. 0:03:01.960 --> 0:03:04.720 I don't think he's going to discuss that on Friday. 0:03:05.240 --> 0:03:08.560 It's very marginal. If you look back at the episodes 0:03:08.840 --> 0:03:14.640 where China weakened incrementally, they had a volatility inducing effect 0:03:14.919 --> 0:03:18.040 in the US, very temporary. As we know, the US 0:03:18.160 --> 0:03:20.200 is very much its own engine. 0:03:20.360 --> 0:03:23.480 We've seen some divergence. Do you sense that divergence can 0:03:23.520 --> 0:03:25.760 continue between what's developing here in the United States and 0:03:25.800 --> 0:03:28.120 what's developing in China. 0:03:27.600 --> 0:03:33.400 So that there is a point to which it cannot, Okay, 0:03:33.520 --> 0:03:37.760 which is why again, what's so important is exactly are 0:03:37.760 --> 0:03:41.000 we going to have a whatever it takes moment in China. 0:03:41.160 --> 0:03:44.640 Or conversely, if we have what the market perceives to 0:03:44.680 --> 0:03:47.200 be a whatever it takes moment, is it going to 0:03:47.200 --> 0:03:51.240 be that famed Greenspan phrase pushing on a string. It's 0:03:51.280 --> 0:03:52.120 an open question. 0:03:52.720 --> 0:03:54.240 I look at the equity market. I want to go 0:03:54.280 --> 0:03:56.520 back to what your Denny Lisa brought up the brilliant 0:03:56.520 --> 0:03:59.120 interview they did with your Danny last week, and what 0:03:59.320 --> 0:04:01.520 ed feels and what we all lived in ninety four 0:04:01.680 --> 0:04:05.400 ninety four had almost a Malays and then boom, ninety 0:04:05.440 --> 0:04:08.480 five moonshot. Can you call here a second leg of 0:04:08.520 --> 0:04:11.320 a bull market at some point out there? Given the 0:04:11.440 --> 0:04:13.960 emotion the Malays we're in right now, we. 0:04:13.960 --> 0:04:17.040 Think it lies ahead, We think you have to go through. 0:04:17.120 --> 0:04:20.120 And again this is another lesson of the nineties, right, 0:04:20.560 --> 0:04:24.920 is that the technological revolution that we think we're undergoing 0:04:25.000 --> 0:04:30.719 right now with generative AI, it didn't negate the idea 0:04:30.920 --> 0:04:34.680 of a recession. It postponed it. And I think that's 0:04:34.760 --> 0:04:36.920 part of the narrative. We are going to have a 0:04:36.960 --> 0:04:40.800 recession at some point. Business cycles are not canceled from 0:04:40.839 --> 0:04:41.440 things like this. 0:04:41.720 --> 0:04:45.040 So where are you looking to really see the ramifications 0:04:45.120 --> 0:04:47.359 of a new higher rate world. You were talking about 0:04:47.400 --> 0:04:51.040 how we've seen five percent yields before in stocks keep rallying, 0:04:51.240 --> 0:04:53.840 but some areas fell out of bed. Are you looking 0:04:53.920 --> 0:04:56.640 for there to be similar carnage and small pockets that 0:04:56.760 --> 0:04:59.560 cannot survive at rates that are as high as they 0:04:59.560 --> 0:05:02.560 are after growing up during an era of zero rates. 0:05:02.839 --> 0:05:07.640 Well profitless tech that's going to have to refinance over 0:05:07.640 --> 0:05:11.279 the next several years will certainly be under stress. But 0:05:11.400 --> 0:05:14.159 think about it in an environment where rates are high, 0:05:14.560 --> 0:05:18.039 inflation is still high, and economic growth I mean GDP 0:05:18.200 --> 0:05:22.400 now is pushing six percent this quarter. That's an unfathomable number. 0:05:22.880 --> 0:05:28.040 That's where value largely forgotten energy and healthcare looks interesting 0:05:28.080 --> 0:05:30.560 to us. And if you're a hedger, the fact that 0:05:30.640 --> 0:05:34.560 interest rates are over five percent is very very good 0:05:34.680 --> 0:05:36.640 math for optional strategy. 0:05:36.640 --> 0:05:40.720 And Hymen has no clients who are under seventy years old. 0:05:40.720 --> 0:05:43.080 We all know that. But for the ute of evercore 0:05:43.160 --> 0:05:46.840 ISI like yourself, how do you and Hymen and arrest, 0:05:47.240 --> 0:05:49.760 how do you explain to people who have never enjoyed 0:05:49.880 --> 0:05:54.520 high interest rates a legitimate, a real yield, a legitimate 0:05:54.600 --> 0:05:56.839 risk free rate. How do you explain to them that 0:05:56.880 --> 0:05:59.000 we didn't all die and roll over in the nineties. 0:05:59.120 --> 0:06:04.200 So what's fascinating about it is if you remember, for 0:06:04.360 --> 0:06:07.520 much of the post financial crisis world, there was an 0:06:07.560 --> 0:06:11.240 angst every time the market started rallying and there was 0:06:11.279 --> 0:06:13.960 a feeling like it was going to run away. Why 0:06:14.240 --> 0:06:17.839 because you couldn't make anything on your cash. Okay, this 0:06:18.000 --> 0:06:21.159 time people are like, okay, I'm good, I'm still getting 0:06:21.200 --> 0:06:24.159 five percent on my cash, which, actually, if you think 0:06:24.200 --> 0:06:28.400 about it, is the thing that feeds the longevity, multi 0:06:28.480 --> 0:06:30.240 year longevity of a bull market. 0:06:30.320 --> 0:06:33.360 The demo goes beyond the seventy plus demo, doesn't it. 0:06:33.400 --> 0:06:36.920 For research over evicre, what's he talking about? What's he 0:06:36.960 --> 0:06:37.520 talking about? 0:06:38.200 --> 0:06:41.159 I'll tell you what. Given the work that we've done 0:06:41.160 --> 0:06:44.600 on Generative AI to have the twenties and the thirties 0:06:44.640 --> 0:06:47.880 people and interact, we've got it. We've got it all covered. 0:06:47.960 --> 0:06:49.160 EA ten of Jon. 0:06:52.680 --> 0:06:56.440 Always watching as Amanda Lina, who was brilliant the last 0:06:56.440 --> 0:06:58.799 time she was on. She's had a macro credit research. 0:06:59.160 --> 0:07:01.600 This is withour Q question in our fixed Income Interview 0:07:01.960 --> 0:07:03.880 of the day. Amanda, thank you so much. I want 0:07:03.880 --> 0:07:06.520 to go to the Nittegrita of what you do. You 0:07:06.560 --> 0:07:11.120 have depth that is fixed fixed coupon dynamics floating like 0:07:11.280 --> 0:07:14.320 John's really familiar with in Europe and England, which is 0:07:14.320 --> 0:07:17.160 where the yield floats around given the movement, and then 0:07:17.200 --> 0:07:20.520 you've got CIRI commercial real estate and all the tobacco there. 0:07:20.720 --> 0:07:25.160 How unstable or potentially unstable. Is a fixed income world 0:07:25.240 --> 0:07:25.640 right now? 0:07:25.720 --> 0:07:27.720 Good morning, Thank you all for having me. I think 0:07:28.040 --> 0:07:32.040 they're all impacted by this higher cost of capital environment 0:07:32.120 --> 0:07:34.400 that we're expecting, and Lisa, you alluded at the start 0:07:34.400 --> 0:07:36.840 of the program, is this the new normal? And I 0:07:36.880 --> 0:07:39.680 think the key difference between what you highlighted, Tom is 0:07:39.680 --> 0:07:43.800 that for the fixed income fixed rate part of the market, 0:07:44.000 --> 0:07:47.040 they're getting impacted on a different timeline than the floating 0:07:47.160 --> 0:07:49.720 rate part of the market. And in that floating rate 0:07:49.800 --> 0:07:53.200 part of the market, specifically the broadly syndicated leverage loan market, 0:07:53.440 --> 0:07:56.760 you are seeing an uptick in defaults and this is 0:07:56.800 --> 0:07:59.760 something that's been happening for the past few months, but 0:07:59.800 --> 0:08:04.280 the magnitude of the pace of leverage loan defaults outpacing 0:08:04.640 --> 0:08:07.280 the fixed rate hiled bond space has been notable. It's 0:08:07.320 --> 0:08:10.480 the widest margin since the Moodies data began in nineteen 0:08:10.560 --> 0:08:13.679 ninety six. We see scope for that to continue even 0:08:13.760 --> 0:08:16.960 though it is unusual, and that's because we are expecting 0:08:16.960 --> 0:08:19.720 this higher for longer cost of capital environment. The other 0:08:19.720 --> 0:08:21.880 two things I would point to is that the fixed 0:08:21.960 --> 0:08:26.400 rate investment grade universe is much better positioned to manage 0:08:26.400 --> 0:08:29.160 through that higher cost of capital environment because they just 0:08:29.200 --> 0:08:32.440 have more optionality in terms of refinancing. So we don't 0:08:32.480 --> 0:08:36.280 always rely on ratings as a barometer for performance, but 0:08:36.280 --> 0:08:39.480 I think in this instance, being investment grade, having the 0:08:39.520 --> 0:08:42.800 ability to replace maturities at a later date instead of 0:08:42.840 --> 0:08:45.120 refinance them is going to be helpful. And then on 0:08:45.160 --> 0:08:48.199 the point on cire Tom, I think really nothing in 0:08:48.240 --> 0:08:51.120 the news flow over the past few weeks has changed 0:08:51.160 --> 0:08:53.520 our view that were in the early stages of the 0:08:53.559 --> 0:08:56.720 distress cycle in CRE, and I think, in fact the 0:08:56.760 --> 0:09:01.360 newsflow recently has reinforced that view, and it's it's a 0:09:01.360 --> 0:09:02.719 combination of refinancings. 0:09:04.679 --> 0:09:07.240 Save us John Hiyold spread is still super tight and 0:09:07.679 --> 0:09:09.920 for the year, and this is happening even with a 0:09:10.000 --> 0:09:12.200 high for longer conversation around the Federal Reserve. You know 0:09:12.200 --> 0:09:14.760 where that maturity wall is, so walk us through it. 0:09:14.800 --> 0:09:17.400 Why I spreads, this tie when we face the risk 0:09:17.440 --> 0:09:20.079 of that maturity will kicking in lights next year. 0:09:20.200 --> 0:09:20.320 Right. 0:09:20.679 --> 0:09:23.240 So two things. One, as it relates to the timing 0:09:23.280 --> 0:09:25.880 of the refinancing, the maturity, while we know begins in 0:09:25.920 --> 0:09:28.640 twenty twenty five, high old corporates will want to address 0:09:28.679 --> 0:09:30.880 that twelve months or more beforehand so that the debt 0:09:30.880 --> 0:09:33.960 doesn't become current. That has implications for the audit. So 0:09:34.040 --> 0:09:37.080 we still have some time. And as we've noted, high 0:09:37.080 --> 0:09:39.959 old corporates in particular have the luxury of being patient 0:09:40.320 --> 0:09:43.319 because they've been so proactive about liquidity raising in twenty 0:09:43.360 --> 0:09:46.160 twenty and twenty twenty one, and it was not unusual 0:09:46.400 --> 0:09:49.520 during that kind of period right after COVID the onset 0:09:49.520 --> 0:09:52.560 of it, where corporates were pre funding three four years 0:09:52.600 --> 0:09:56.120 in advance. So we've got some time. The second point 0:09:56.240 --> 0:09:58.320 that I would note on the spreads, and this is 0:09:58.559 --> 0:10:01.400 a conversation we've been having or with clients, there's this 0:10:01.559 --> 0:10:04.640 relative value tug of war happening in the credit market 0:10:04.720 --> 0:10:08.880 where spreads in isolation are quite tight, but for yield 0:10:08.920 --> 0:10:12.840 based buyers, the elevated risk free rate, which has intensified 0:10:13.000 --> 0:10:15.920 most recently as you've all been discussing is giving them 0:10:15.960 --> 0:10:20.920 some cushion to deploy capital at still relatively attractive all 0:10:20.960 --> 0:10:24.840 in yields from a historical perspective, and so ironically even 0:10:24.880 --> 0:10:31.000 those spreads are quite snug. The overall value that's provided 0:10:31.040 --> 0:10:33.800 by corporate credit, because it's boosted by the risk free rate, 0:10:33.840 --> 0:10:35.280 has insulated that to some degree. 0:10:35.400 --> 0:10:39.360 How transformed is high yield as an asset class, because 0:10:39.360 --> 0:10:42.199 in some ways it's the new investment grade and private 0:10:42.240 --> 0:10:44.880 credit is the new high yield. We're looking at an 0:10:45.080 --> 0:10:50.240 entire spectrum of lending below the covers that's taking over 0:10:50.320 --> 0:10:53.600 and buffering some of the financial pain that would otherwise 0:10:53.679 --> 0:10:55.360 might be seeing in some of the high yield names. 0:10:55.440 --> 0:10:59.360 That's right, So the high yield universe in particular has 0:10:59.480 --> 0:11:02.720 had much more overlap in recent years with the investment 0:11:02.760 --> 0:11:05.800 grade landscape because there's been this fallen angel rising star 0:11:05.920 --> 0:11:09.680 dynamic that has really intensified. So you've seen names move 0:11:09.760 --> 0:11:12.160 I think a little more seamlessly than we would have 0:11:12.200 --> 0:11:15.640 guessed in twenty eighteen and twenty nineteen between the two markets, 0:11:15.640 --> 0:11:18.600 and the highield market has shown its ability to absorb 0:11:18.679 --> 0:11:21.680 those capital structures. There have also been some really meaningful 0:11:21.679 --> 0:11:25.120 shifts in sector composition, the high old market serving a 0:11:25.200 --> 0:11:29.120 larger and larger borrower, you know, changes in maturity and 0:11:29.200 --> 0:11:32.440 duration and sector skews. Energy is not as problematic in 0:11:32.480 --> 0:11:34.800 this cycle as it has been in the past. Those 0:11:34.840 --> 0:11:37.560 are all those are all probably contributing to this tight 0:11:37.600 --> 0:11:40.680 spread environment and high yield in private credit. We have 0:11:40.720 --> 0:11:43.120 a very favorable view of it as an asset class, 0:11:43.160 --> 0:11:46.600 specifically in an environment like this where you can introduce 0:11:46.640 --> 0:11:51.040 some granularity and some selectivity to deploying. But to your point, 0:11:51.360 --> 0:11:54.040 the one and a half trillion dollar asset class is 0:11:54.360 --> 0:11:58.880 a relatively post financial crisis phenomenon, and so it makes 0:11:59.000 --> 0:12:01.320 things like we've looked data and prior cycles like the 0:12:01.360 --> 0:12:07.040 Senior Loan Officer Survey perhaps less directionally correlated into the 0:12:07.080 --> 0:12:09.640 broader state of the market, because you now have this 0:12:09.800 --> 0:12:13.520 asset class that's allowing corporates to diversify their funding away 0:12:13.559 --> 0:12:16.920 from the banking channel that wasn't in place to as 0:12:17.000 --> 0:12:20.040 much of a degree pre financial crisis. And so when 0:12:20.080 --> 0:12:23.360 you think about bank lending contraction and that automatically leading 0:12:23.360 --> 0:12:26.079 to a recession, that may not be the case as 0:12:26.200 --> 0:12:28.480 much directly this time around, because you've got this other 0:12:28.559 --> 0:12:31.839 source of funding. But as it relates to private credit, 0:12:31.880 --> 0:12:34.000 I think if you're in an environment where you really 0:12:34.080 --> 0:12:37.280 need to be granular about company's ability to absorb higher 0:12:37.320 --> 0:12:41.080 costs manage through a higher cost of capital environment, you 0:12:41.120 --> 0:12:43.200 want to be more selective and granular. And I think 0:12:43.480 --> 0:12:46.600 parts of private credit, specifically senior direct lending, allow you 0:12:46.640 --> 0:12:49.120 to do that in a higher cost of capital environment. 0:12:49.160 --> 0:13:09.679 The Clinic has always Amanda just wonderfully. 0:13:01.760 --> 0:13:05.760 Joining us right now on China the definitive conversation of 0:13:05.800 --> 0:13:07.800 the day. William Lee joins us with all of his 0:13:07.840 --> 0:13:11.920 work at the International Monetary Fund, chief economist at Milkin Institute. 0:13:11.960 --> 0:13:16.120 Anybody that watches surveillance knows he is beyond pression. I 0:13:16.160 --> 0:13:19.720 want you to peel back the curtain, doctor Lee, right now, 0:13:19.800 --> 0:13:23.000 particularly on the three cities. What's the level of sweat, 0:13:23.320 --> 0:13:25.400 what's the level of panic in Beijing? 0:13:26.559 --> 0:13:29.800 It is huge, John and Tom. When you were asking 0:13:29.920 --> 0:13:33.320 who's the policy maker in China when you talk about 0:13:33.320 --> 0:13:36.720 state capitalism, there's only one policy maker. That's Shijinping. And 0:13:36.800 --> 0:13:39.640 when you have once policymaker who is interested in not 0:13:39.679 --> 0:13:43.040 only preserving the economy, but also preserving his own position 0:13:43.120 --> 0:13:46.560 and consolidating power. There's only one set of solutions, which 0:13:46.600 --> 0:13:50.360 is you gotta get the private sector under control, and that, 0:13:50.679 --> 0:13:54.120 unfortunately is their achilles heel because right now, to restore 0:13:54.240 --> 0:13:57.079 Chinese economy, to get youth unemployment down, to get growth 0:13:57.080 --> 0:13:59.360 going again, you need the private sector. But who in 0:13:59.400 --> 0:14:01.760 the private sector is going to trust the policies of 0:14:01.800 --> 0:14:02.360 the CCP. 0:14:02.720 --> 0:14:06.360 What is the importance of the dry up of investment 0:14:06.559 --> 0:14:10.480 from America, investment from the Western world. Within all the 0:14:10.520 --> 0:14:12.920 great work I've seen, doctor Lee, the number one thing 0:14:12.960 --> 0:14:17.200 I'm focused on is we've lost our trust with investment 0:14:17.240 --> 0:14:20.040 in China. How important is that? Oh? 0:14:20.120 --> 0:14:22.800 That that is absolutely critical. The discussion at most of 0:14:22.840 --> 0:14:25.480 the meetings here at Milkin among our sponsors, who are 0:14:25.640 --> 0:14:28.600 some of the biggest investors in the world, they all 0:14:28.720 --> 0:14:31.280 asking how do we do due diligence in China when 0:14:31.280 --> 0:14:34.760 the information is controlled by the policy maker? The policy 0:14:34.800 --> 0:14:39.240 maker Chijinping private sources of information that they normally relied 0:14:39.280 --> 0:14:42.000 on to do due diligence, even on the company level, 0:14:42.160 --> 0:14:45.200 are now restricted. So when you restrict information flow and 0:14:45.240 --> 0:14:49.200 when we direct common prosperity themes that essentially say to 0:14:49.280 --> 0:14:52.400 people you can be successful, but not too successful, it's 0:14:52.400 --> 0:14:55.880 certainly not too powerful. Those are the kind of vulnerabilities 0:14:55.880 --> 0:14:58.600 and risks that Western investors are now facing, and they're 0:14:58.600 --> 0:15:00.840 asking the question, do we really need to go to China? 0:15:00.920 --> 0:15:01.920 Are there other places that you go? 0:15:02.080 --> 0:15:05.520 Which raised us a question. Is Jijiping and his party 0:15:05.760 --> 0:15:09.000 not stimulating the economy as much as people expected because 0:15:09.000 --> 0:15:12.040 they don't want to or because they can't well. 0:15:11.920 --> 0:15:14.000 Lisa, as you know, I've come on so many times 0:15:14.040 --> 0:15:17.840 talking about the fiscal policy tools they have, the fiscal space, 0:15:17.880 --> 0:15:20.640 they have, The degree to which they can increase fiscal 0:15:20.680 --> 0:15:23.880 spending depends on a lot of the health of the 0:15:23.920 --> 0:15:27.160 local governments, and local governments are now so indebted they 0:15:27.240 --> 0:15:30.400 can't sell more land to finance more infrastructure spending, which 0:15:30.400 --> 0:15:33.960 has been their main fiscal tool, and so right now 0:15:34.160 --> 0:15:37.240 I think they're pretty constrained. And when the rem and 0:15:37.280 --> 0:15:39.960 bee is dropping like a rock, it's very hard for 0:15:40.000 --> 0:15:42.720 the central bank to be dropping interest rates. And so 0:15:42.760 --> 0:15:44.960 we have these five to ten basis point moves that 0:15:45.320 --> 0:15:47.800 I mean, this is truly a situation where mantre policy 0:15:47.840 --> 0:15:50.480 is pushing on the stream. When everyone who has lost 0:15:50.520 --> 0:15:56.360 confidence the private sector can be survivable. We are asking 0:15:56.720 --> 0:15:59.360 them to go borrow money at even five or ten 0:15:59.400 --> 0:16:01.320 basis points, that's not going to make any difference at all. 0:16:01.520 --> 0:16:03.680 When I talk with different investors, some of them say, 0:16:03.880 --> 0:16:06.040 maybe this is actually a positive fit thing for the 0:16:06.040 --> 0:16:10.320 rest of the economy globally because this will import disinflation. 0:16:10.040 --> 0:16:11.440 To the rest of the world. 0:16:11.440 --> 0:16:12.440 Do you buy this argument. 0:16:13.240 --> 0:16:14.880 I think it's positive for the rest of the economy 0:16:14.880 --> 0:16:19.080 because Xi Jinping's plan is to make China into a 0:16:19.120 --> 0:16:21.920 domestic economy and high value out of production. That means 0:16:21.920 --> 0:16:23.920 low value out of production is moving out to the 0:16:23.960 --> 0:16:26.760 rest of Asia and other locations. And that's where I 0:16:26.800 --> 0:16:29.480 think the capital flows are helping the rest of the world. 0:16:30.040 --> 0:16:32.880 But in terms of the Chinese economy, it's going to 0:16:32.880 --> 0:16:35.920 be a real hat trick to be able to revive 0:16:36.040 --> 0:16:39.080 the private sector, redirect an innovation in the direction of 0:16:39.120 --> 0:16:42.640 these high tech and high value added industries, and to 0:16:42.640 --> 0:16:45.640 pull it off successfully right now with such low credibility. 0:16:46.160 --> 0:16:49.000 So what is the to do list for Beijing? Do 0:16:49.080 --> 0:16:53.080 they use the formulas that have been proven beyond MAO. 0:16:53.880 --> 0:16:57.400 Do they as the consensuses, stay with MAO formulas it 0:16:57.400 --> 0:17:00.880 didn't work. What's their almost their here on on a 0:17:01.000 --> 0:17:03.200 day to day basis, what do you expect to see, 0:17:03.240 --> 0:17:03.920 doctor Lee? 0:17:04.400 --> 0:17:07.760 They didn't. They need to make structural policy into countercyclical policy. 0:17:08.119 --> 0:17:10.320 For example, if they put in a social safety net, 0:17:10.520 --> 0:17:13.879 that would immediately cut out the need for privacy built. 0:17:13.960 --> 0:17:16.280 So I'm going to interrupt you there. We've looked for 0:17:16.320 --> 0:17:18.679 a social safety net since you and I were in 0:17:18.720 --> 0:17:21.800 our youth. You were back at the IMF running into 0:17:21.840 --> 0:17:25.480 me in a hallway. There's no social safety net, there's 0:17:25.560 --> 0:17:29.680 no dominant consumer. It's the same old, same old for Beijing. 0:17:30.200 --> 0:17:32.640 Do they stay with that script or can they actually 0:17:32.640 --> 0:17:33.240 do something. 0:17:34.160 --> 0:17:36.040 If they don't change the script, then you're going to 0:17:36.119 --> 0:17:40.760 have these rising inequalities generate social unrest, and that's the 0:17:40.840 --> 0:17:43.840 last thing they are able to tolerate. So, yes, you 0:17:43.920 --> 0:17:45.800 and I have talked about social When I was mission 0:17:45.840 --> 0:17:48.480 chief at Singapore, I suggested social safety net for Singapore 0:17:48.640 --> 0:17:50.480 and then two years later they actually put one in. 0:17:50.720 --> 0:17:52.480 So maybe if we talked about it long enough and 0:17:52.480 --> 0:17:55.440 they'll realize that it's either social safety net and allow 0:17:55.520 --> 0:17:57.520 people to feel safe and they don't need to save 0:17:57.520 --> 0:18:00.399 as much for themselves, which means they consume more, or 0:18:00.560 --> 0:18:02.560 you get social unrests and if those are the trade 0:18:02.600 --> 0:18:05.080 offs I think will go towards safety nets, and this. 0:18:05.080 --> 0:18:07.840 Is one that youth unemployment number is just so important 0:18:07.840 --> 0:18:10.000 at the moment. Bill, Thank you, sir, Bill. Leader of 0:18:10.040 --> 0:18:17.000 the Milk and Institute, Wendy sh of Brown University joined 0:18:17.040 --> 0:18:19.680 us right now. Wendy, wonderful to start a political converage 0:18:19.680 --> 0:18:21.920 this week with you going get into that debate on Wednesday. 0:18:22.240 --> 0:18:25.600 What is the argument for the former president showing up 0:18:25.760 --> 0:18:27.000 with posts like this one? 0:18:28.280 --> 0:18:30.600 Well, I mean, you know, it's a rose garden strategy 0:18:30.640 --> 0:18:33.600 as an incumbent quote unquote in the Republican Party, so 0:18:34.040 --> 0:18:35.920 it's hard to argue he should show up with such 0:18:35.920 --> 0:18:38.679 a big lead. But you don't want to, you know, 0:18:39.160 --> 0:18:43.480 not be there to volley off your criticisms and presuming 0:18:43.560 --> 0:18:45.800 Chris Christy is going to show up ready to fight 0:18:45.960 --> 0:18:48.399 and sort of make the argument that Trump is not 0:18:48.520 --> 0:18:52.479 the guy, then you know, that's just criticisms that can stick. 0:18:53.040 --> 0:18:55.400 The other question is, well, any of the other candidates 0:18:55.440 --> 0:18:58.400 actually criticized Donald Trump on that stage. It's like criticizing 0:18:58.440 --> 0:19:01.200 a ghost. Remember, you know Eastwood sort of stunt in 0:19:01.280 --> 0:19:03.159 twenty twelve for the Republicans at the convention with an 0:19:03.160 --> 0:19:05.800 empty chair that didn't work very well. So I think 0:19:06.119 --> 0:19:09.600 Trump knows that he knows television, he knows how things resonate, 0:19:09.840 --> 0:19:11.760 and he figures much harder to attack him if he's 0:19:11.800 --> 0:19:12.400 not physically there. 0:19:12.600 --> 0:19:15.520 Wendy a pregnant question if I may ender this debate 0:19:15.520 --> 0:19:18.320 in the start of the political season, William Jennings Bryan. 0:19:18.400 --> 0:19:20.399 There's a lot of parallels here, and it was Gold 0:19:20.440 --> 0:19:23.600 and Silver eighteen ninety six and all that. But the 0:19:23.680 --> 0:19:28.200 answer is, after William Jennings Brian, the Republican Party retook 0:19:28.240 --> 0:19:32.600 the high ground the East Coast business oriented agricultural Party, 0:19:32.640 --> 0:19:36.720 if you will, what happens after Trump? I mean, with 0:19:36.840 --> 0:19:42.560 this dominance that he has, what's the next. 0:19:41.880 --> 0:19:43.800 Well, I mean I think that there are people waiting 0:19:43.840 --> 0:19:46.400 in the wings. I think Tim Scott, for example, from 0:19:46.440 --> 0:19:49.399 South Carolina, is trying to correct a message that builds 0:19:49.400 --> 0:19:52.240 on this evangelical base, that builds on the sort of 0:19:52.320 --> 0:19:55.800 conservative voters, particularly in the South, that seem to really 0:19:55.800 --> 0:19:58.480 love Donald Trump. So I think there are people who 0:19:58.520 --> 0:20:01.320 can then take the mantle of all So got Chris 0:20:01.400 --> 0:20:04.320 Nunu of New Hampshire. We've got Brian Camp of Georgia 0:20:04.400 --> 0:20:06.680 that I'm keeping an eye on for twenty twenty eight. 0:20:06.760 --> 0:20:09.040 If Trump doesn't, you know, we can't run again, presumably 0:20:09.040 --> 0:20:12.440 if the constitution holds so if he wins. But twenty 0:20:12.480 --> 0:20:14.840 twenty eight, You've got some Republicans now that are in line, 0:20:14.840 --> 0:20:18.560 that are lining up, and they seem frankly more compelling 0:20:18.600 --> 0:20:20.560 in a lot of ways than the current lineup of 0:20:20.640 --> 0:20:21.639 challenges Donald. 0:20:21.359 --> 0:20:23.800 Trump, which raises a question of who really is the 0:20:23.920 --> 0:20:27.159 number two? If Ron DeSantis is increasingly getting pushed out 0:20:27.440 --> 0:20:30.560 over the weekend, he made this oblique reference to Trump 0:20:30.640 --> 0:20:34.320 followers as listless vessels, and it's sort of getting compared 0:20:34.359 --> 0:20:38.400 to the whole concept of deplorables. Is it looking more 0:20:38.400 --> 0:20:41.600 and more likely that he is not really the number two? 0:20:41.640 --> 0:20:43.480 He is not one of the main contenders when we 0:20:43.520 --> 0:20:46.760 actually had to get closer to the actual presidential election. 0:20:47.480 --> 0:20:49.320 I think Ron Desantas has the most to gain and 0:20:49.359 --> 0:20:51.800 the most to lose from Wednesday's debate. You know, Kenny, 0:20:51.800 --> 0:20:54.560 get out there and you know, project a coherent message 0:20:54.560 --> 0:20:57.399 for the Republican Party saying I'm the future. You know, 0:20:57.440 --> 0:21:00.320 Trump's the past on the future. I can win. I 0:21:00.359 --> 0:21:02.800 know what I'm doing. I'm quite popular in Florida. Can 0:21:02.840 --> 0:21:05.439 he actually make that argument. If he does it well, 0:21:05.880 --> 0:21:08.360 then I think he you know, keeps his post as 0:21:08.400 --> 0:21:10.840