WEBVTT - Harvesting Time 0:00:02.840 --> 0:00:05.960 Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. The 0:00:06.000 --> 0:00:10.240 expert controls that are being invoked are quite confrontational, but 0:00:10.320 --> 0:00:14.000 if they're difficult to enforce, that could prove counterproductive on 0:00:14.000 --> 0:00:16.960 all sorts of levels. Stephen Mim on the current spate 0:00:17.040 --> 0:00:19.960 of US issued export controls and the effectiveness of these 0:00:19.960 --> 0:00:23.400 actions through history. Also, there won't be a bumpy road 0:00:23.440 --> 0:00:27.200 to find a new equilibrium between China's rich basically big 0:00:27.200 --> 0:00:30.840 tech billionaiers and powerful basically the government. Julie Ran on 0:00:30.920 --> 0:00:34.280 China's rich and China's powerful not necessarily one of the same. 0:00:34.720 --> 0:00:37.040 We'll also speak with Alexis Leander's as we had towards 0:00:37.080 --> 0:00:39.520 the final month of the calendar year, what you should 0:00:39.520 --> 0:00:42.320 consider before December thirty one in order to reduce your 0:00:42.360 --> 0:00:46.160 capital gains taxes, assuming you have any this year. First, 0:00:46.200 --> 0:00:47.640 to the markets. We got the minutes from the f 0:00:47.680 --> 0:00:49.960 O m c's latest meeting this week and plenty of 0:00:49.960 --> 0:00:52.840 FED speak as we waited out until December four teens. 0:00:53.159 --> 0:00:55.480 I asked Bloomberg Opinions Jonathan Levin if there is something 0:00:55.560 --> 0:00:57.880 the FED wants to communicate to the market in preparation 0:00:57.960 --> 0:01:00.680 for that meeting. Yeah, I think it could really tricky 0:01:00.680 --> 0:01:03.200 for them. I think obviously they're still trying to keep 0:01:03.240 --> 0:01:07.399 financial conditions relatively tight, and I think that their messaging 0:01:07.440 --> 0:01:10.040 efforts to do just that are getting away from them 0:01:10.080 --> 0:01:12.760 a little bit. Certainly, in the last few weeks we 0:01:12.840 --> 0:01:16.319 saw tip Space ten year really yields trading at just 0:01:16.440 --> 0:01:20.000 about one point four percent, so near the lowest since September. 0:01:20.200 --> 0:01:24.240 That's a pretty obvious indicator that maybe conditions are ceasing 0:01:24.240 --> 0:01:26.959 to be as tight as they would prefer. So, you know, 0:01:27.080 --> 0:01:30.560 you may see some of these FED officials, certainly Powell himself, 0:01:30.600 --> 0:01:33.160 do a little bit of classic jaw boning maybe try 0:01:33.200 --> 0:01:35.800 and get those real yields on the ten year up 0:01:35.840 --> 0:01:38.840 a little bit. But quite frankly, it's going to be difficult, 0:01:38.840 --> 0:01:42.600 because everybody knows that their data dependent. Here, they're going 0:01:42.640 --> 0:01:45.920 to take everything he says before the next CPI with 0:01:46.000 --> 0:01:47.920 a grain of salt and really just see what the 0:01:47.960 --> 0:01:51.200 data shows us. And this all comes back to this 0:01:51.360 --> 0:01:54.360 balancing act they're trying to do, where they're trying to 0:01:54.400 --> 0:01:58.200 slow down the pace but without letting financial conditions loosen 0:01:58.280 --> 0:02:01.400 too much. And and they're kind of doing an okay 0:02:01.520 --> 0:02:05.600 job at that end, they're in a difficult position where 0:02:05.640 --> 0:02:08.560 I'm not exactly sure what they could be doing better here, 0:02:08.919 --> 0:02:11.920 but conditions are getting a little bit looser than they 0:02:11.960 --> 0:02:13.919 have to be comfortable with. Would they go so far 0:02:13.960 --> 0:02:16.520 as to hint the possibility that they might change their 0:02:16.520 --> 0:02:19.560 minds back to seventy five basis points, You know it's possible, 0:02:19.600 --> 0:02:21.600 but I don't think that they can really go there. 0:02:21.639 --> 0:02:25.840 I think the risk there becomes potentially losing credibility, and 0:02:25.880 --> 0:02:28.040 I think, you know, the set is just going to 0:02:28.080 --> 0:02:30.720 have to get comfortable with the fact that this is 0:02:30.760 --> 0:02:33.320 going to be a game time decision. We're going to 0:02:33.400 --> 0:02:36.320 get two key pieces of data in the next few weeks. 0:02:36.800 --> 0:02:39.960 In some ways, I think average hourly earnings coming on 0:02:40.120 --> 0:02:43.960 December two might actually be the more important one because 0:02:44.000 --> 0:02:47.600 there are so many cross currents in this inflation data. 0:02:47.919 --> 0:02:50.640 But if you do get average hour early earnings coming 0:02:50.680 --> 0:02:53.840 in again month on month at something like zero point three, 0:02:54.400 --> 0:02:58.000 and you get another beat in cp I, it's really 0:02:58.000 --> 0:03:02.000 hard to see anything preventing them from going fifty. Here. 0:03:02.040 --> 0:03:05.120 At this next meeting, you say that, you know, maybe 0:03:05.120 --> 0:03:07.519 market pricing is getting away from the FED a little bit. 0:03:07.639 --> 0:03:09.480 Can you think of anything that the FED might do 0:03:09.600 --> 0:03:13.440 between now and December fourteens in order to reverse that trend. Yeah, 0:03:13.480 --> 0:03:15.480 I mean, the main thing that they can do is 0:03:15.520 --> 0:03:18.639 really just focus at this point on how long they 0:03:18.680 --> 0:03:22.200 intend to stay higher. I really think that there's very 0:03:22.200 --> 0:03:26.200 little to debate at this point in terms of the pace. 0:03:26.520 --> 0:03:29.919 Everybody knows that they're they're stepping down. We've talked about 0:03:29.960 --> 0:03:33.280 this a lot before on this program. They just have 0:03:33.600 --> 0:03:37.040 to take the velocity down so that they can find 0:03:37.080 --> 0:03:40.200 the right setting as they get to their ultimate destination point. 0:03:40.440 --> 0:03:42.960 And frankly, I don't even think that there's much room 0:03:43.040 --> 0:03:46.119 left for debate in terms of the destination point. When 0:03:46.120 --> 0:03:49.560 you hear the FED speakers out on the circuit, really, 0:03:49.640 --> 0:03:53.480 you know, the range of opinions is pretty firmly between 0:03:53.600 --> 0:04:00.360 four seven five and maybe five point two five, So 0:04:00.480 --> 0:04:04.000 buying some dramatic change, it really doesn't feel like there's 0:04:04.040 --> 0:04:06.320 a lot of wiggle room there. I think it really 0:04:06.400 --> 0:04:10.560 is just all about communicating if this is indeed their intention, 0:04:10.800 --> 0:04:13.560 the idea that they are going to stay higher for longer, 0:04:13.680 --> 0:04:19.160 maybe until the very very end of December. Maybe even 0:04:19.200 --> 0:04:21.920 come out and say something along the lines of even 0:04:22.040 --> 0:04:26.680 if we slip into a recession, provided it's not historically 0:04:26.720 --> 0:04:30.400 bad one, we're going to stay there. Apart from average 0:04:30.400 --> 0:04:32.880 hoarity earnings. What might put a spanner in the works 0:04:32.920 --> 0:04:35.680 in terms of CPI data or the job's reward. I mean, 0:04:35.720 --> 0:04:38.080 are you anticipating that will continue to see CPI coming 0:04:38.080 --> 0:04:41.159 down even though I know the last CPI reward you 0:04:41.240 --> 0:04:44.760 thought might be reflecting better conditions that are actually out 0:04:44.760 --> 0:04:48.360 there because of medical costs. Yeah, so we've had a 0:04:48.400 --> 0:04:51.719 couple of head fakes in the past, say twelve to 0:04:51.839 --> 0:04:55.679 eighteen months, there were two big ones, right, and after 0:04:55.760 --> 0:04:57.880 each of those they proved to be just that a 0:04:57.960 --> 0:05:01.359 head fake, right, and the month of months inflation bounced 0:05:01.480 --> 0:05:04.960 right back. We do know that this quirk in the 0:05:05.080 --> 0:05:09.240 data involving health insurance and the medical care abroad is 0:05:09.279 --> 0:05:13.120 going to be a repetitive feature here. So I do 0:05:13.279 --> 0:05:15.760 think there are a lot of reasons to suspect that 0:05:15.839 --> 0:05:19.320 there may be a bounce back after this extremely extremely 0:05:19.320 --> 0:05:23.640 good print last month, but it may still look reasonably good, 0:05:23.839 --> 0:05:26.159 And it's all going to come down to how good 0:05:26.320 --> 0:05:30.080 is reasonably good? Is everybody pretty much in agreement at 0:05:30.080 --> 0:05:32.000 this point, then, Jonathan, it sounds like you think that 0:05:32.120 --> 0:05:34.040 is the case, except for maybe the tips market, which 0:05:34.120 --> 0:05:36.280 might be just a little bit behind, or you know, 0:05:36.320 --> 0:05:37.760 what's going on with the tips market that there is 0:05:37.760 --> 0:05:41.240 an agreement. I mean, I think tips market is in 0:05:41.320 --> 0:05:45.400 agreement insofar as it's reflecting a loosening of financial conditions. 0:05:45.440 --> 0:05:47.840 You know, I think that that's really what's going on 0:05:48.160 --> 0:05:50.600 across the board. You know, this is where it gets 0:05:50.600 --> 0:05:53.440 sort of tricky, right, so at the short end of 0:05:53.480 --> 0:05:57.719 the curve, things remain reasonably tight, but people don't actually 0:05:57.720 --> 0:06:01.560 borrow at the short end of their or the mortgage 0:06:01.600 --> 0:06:04.720 is priced off of the ten year and j Paler 0:06:04.800 --> 0:06:08.240 himself actually talked about this after the last said meeting, 0:06:08.800 --> 0:06:11.240 And so that's where it gets tricky. And I'm not 0:06:11.320 --> 0:06:15.000 exactly sure what the FIT can do short of drastic 0:06:15.120 --> 0:06:18.360 steps like selling bonds off of the portfolio, which will 0:06:18.440 --> 0:06:22.120 clearly clearly spooks the market in ways that the FED 0:06:22.279 --> 0:06:25.960 is probably not prepared to do. So, you know, it's 0:06:26.040 --> 0:06:28.040 basically it's going to come down to what is the 0:06:28.120 --> 0:06:30.880 data show, and they may have to come up with 0:06:30.920 --> 0:06:34.120 a new playbook if financial conditions feel like they're getting 0:06:34.200 --> 0:06:38.200 much looser from here. Bloomberg Opinions Jonathan live In Stay tuned. 0:06:38.440 --> 0:06:41.400 Alexis Leonder's next with a reminder that your losses this 0:06:41.480 --> 0:06:44.240 year can be put to use, and later Shuli ran 0:06:44.320 --> 0:06:48.120 on China's offering to and from big tech. This is 0:06:48.120 --> 0:06:51.880 Bloomberg Opinion. It's time to start thinking about tax season. Yep, 0:06:52.080 --> 0:06:53.960 we might be four months out, but you want to 0:06:54.000 --> 0:06:57.560 start thinking about taking those elves now before December thirty one. 0:06:57.760 --> 0:06:59.960 Goodness knows, it's been an easy year to rack them 0:07:00.080 --> 0:07:03.159 up well. Bloomberg Opinions. Alexas Leander's has poured over the 0:07:03.240 --> 0:07:07.200 rules on loss harvesting. We asked her for a user's guide, 0:07:07.200 --> 0:07:09.320 and it turns out those losses may not be so 0:07:09.400 --> 0:07:12.880 painful after all. Alexis, it's a fascinating time to be 0:07:12.920 --> 0:07:14.920 in the markets. It's also a fascinating time to take 0:07:15.040 --> 0:07:17.400 losses because you might just end up with more cash 0:07:17.440 --> 0:07:19.720 than you think. Explain to us what you discovered when 0:07:19.760 --> 0:07:21.240 you went looking to see what it means for your 0:07:21.240 --> 0:07:25.760 taxes to quote unquote harvest losses. It's been a painful 0:07:25.960 --> 0:07:29.160 year for most stock investors. There's really no way around it. 0:07:29.240 --> 0:07:31.840 And you know, a twenty plunge in the Standard Ports 0:07:31.840 --> 0:07:36.000 five index is rough, but there is a small consulation prize. 0:07:36.120 --> 0:07:38.640 Given the downturn in the market, you do have one 0:07:38.640 --> 0:07:41.800 of the best opportunities in years to lower your tax bill. 0:07:42.360 --> 0:07:44.880 The US tax code allows you to do something called 0:07:44.920 --> 0:07:48.880 tax loss harvesting, and that's basically where investors sell off 0:07:49.000 --> 0:07:52.280 poor performing stocks and then you use those investment losses 0:07:52.360 --> 0:07:56.160 to offset any capital gains from selling better performing assets 0:07:56.160 --> 0:07:58.800 than those can be stocks or bonds, even a home 0:07:58.920 --> 0:08:01.559 or a business. And to take it a step further, 0:08:01.720 --> 0:08:05.080 if your losses exceed your gains, you can even deduct 0:08:05.160 --> 0:08:08.800 up to three thousand dollars against your taxable income. And 0:08:08.960 --> 0:08:12.000 if you have losses beyond three thousand dollars, any losses 0:08:12.000 --> 0:08:15.000 beyond that can be carried forward every year until death 0:08:15.040 --> 0:08:18.320 to offset gains in future years. Incredible. Now, there's something 0:08:18.480 --> 0:08:21.680 just a little bit counterintuitive about selling something that you 0:08:21.760 --> 0:08:24.680 still think might go up, right, So how do you 0:08:24.680 --> 0:08:27.880 get around the psychology of that, right, No, that's a 0:08:27.920 --> 0:08:31.119 great point. So basically what you do is sell those 0:08:31.160 --> 0:08:33.840 per performers, lock in those losses, don't just sit on 0:08:33.880 --> 0:08:37.360 paper losses, but then make sure you buy either a 0:08:37.480 --> 0:08:40.160 similar stock or a sound right away so you can 0:08:40.240 --> 0:08:43.000 keep your portfolio balance and stay invested if and when 0:08:43.000 --> 0:08:46.160 the market starts to turn around. Now, if you do that, 0:08:46.320 --> 0:08:48.240 you have to be really careful because the I R 0:08:48.400 --> 0:08:51.360 S has something called the wash sale rule. And basically 0:08:51.400 --> 0:08:54.280 what that is. It says, if you sell a security 0:08:54.679 --> 0:08:57.560 and you buy the same security are one that's considered 0:08:57.600 --> 0:09:02.280 quote unquote substantially identical thirty days before or after selling 0:09:02.400 --> 0:09:05.600 the stocking question, then it can't be considered an investment 0:09:05.640 --> 0:09:07.800 loss and you won't be able to use that loss 0:09:07.800 --> 0:09:10.200 against any of your capital gains. So you have to 0:09:10.200 --> 0:09:12.360 be very careful and either have a good accountant or 0:09:12.360 --> 0:09:15.959 read the rules very closely exactly exactly, and and keep 0:09:16.000 --> 0:09:18.079 in mind you won't get fined if you run a 0:09:18.160 --> 0:09:20.000 foul of the rules, but you won't be able to 0:09:20.000 --> 0:09:21.760 get the tax right off. So if the whole point 0:09:21.880 --> 0:09:24.000 of tax offs harvesting is to get that right off, 0:09:24.040 --> 0:09:26.280 then you obviously want to be careful and make sure 0:09:26.280 --> 0:09:29.200 you're following the Washdales rule. Now, I'm sure many professional 0:09:29.200 --> 0:09:31.440 investors know these rules backwards and have been using this 0:09:31.520 --> 0:09:34.680 to their advantage all their investing careers. But for people 0:09:34.720 --> 0:09:36.640 who may not be fully aware of it, is there 0:09:36.640 --> 0:09:38.839 a place they can go to figure out exactly how 0:09:38.920 --> 0:09:42.559 much they can harvest. Definitely, So a brokerage firm will 0:09:42.600 --> 0:09:45.520 typically flag for you anything that's disallowed to make sure 0:09:45.559 --> 0:09:48.360 that you're in apportance with the Washdale rule. They always 0:09:48.360 --> 0:09:51.160 spend a ten ninety nine form, typically in January, that 0:09:51.200 --> 0:09:54.240 will detail all of your gains and losses from transactions 0:09:54.280 --> 0:09:57.360 during the prior year. So it's on that form there'll 0:09:57.400 --> 0:10:00.280 be a special column about wash sale stuff, So anything 0:10:00.320 --> 0:10:03.720 that's disallowed should be listed there. But it's important to 0:10:03.760 --> 0:10:07.840 raise that there's some markiness around what substantially identical means. 0:10:07.920 --> 0:10:10.480 And you know, some of the tax experts and accountants 0:10:10.480 --> 0:10:12.120 I spoke to you said there's not that much in 0:10:12.160 --> 0:10:15.240 the ways case while explaining it, So I raised the 0:10:15.280 --> 0:10:18.800 example like, if you buy one share class of Alphabet Inc. 0:10:19.000 --> 0:10:21.040 And then you sell it and you buy a different 0:10:21.040 --> 0:10:24.400 share class of Alphabet Inc. Is that substantially identically. Or 0:10:24.440 --> 0:10:27.400 if you have mutual fund shares and you sell those 0:10:27.480 --> 0:10:31.160 mutual fund shares and that mutual fund that you previously 0:10:31.200 --> 0:10:34.559 had tracked a specific index but was say a Vanguard 0:10:34.640 --> 0:10:37.880 index on if you sell that, but you buy another 0:10:37.960 --> 0:10:41.120 fund that's operated by Black rock or fidelity, but it's 0:10:41.160 --> 0:10:44.160 tracking the same indexes that qualify, so there is a 0:10:44.200 --> 0:10:47.040 little bit of it could be confusion, and there obviously 0:10:47.040 --> 0:10:49.679 could be people who may interpret these things a little 0:10:49.679 --> 0:10:52.360 bit more aggressively than others. Now, did you find out 0:10:52.400 --> 0:10:54.679 any answers to those questions or does everybody have a 0:10:54.679 --> 0:10:58.280 different answer? Everyone pretty much has a different answer, UM, 0:10:58.360 --> 0:11:00.800 But I would say my rule of them is basically, 0:11:00.880 --> 0:11:03.960 you're better off being more conservative and just wait for 0:11:04.080 --> 0:11:06.559 that in total sixty one day waiting period because it's 0:11:06.600 --> 0:11:09.559 thirty days before and after the sale of the security, 0:11:09.720 --> 0:11:13.000 and then buy what you really want back, especially considering 0:11:13.040 --> 0:11:15.079 you know, treating fees are pretty low. We obviously have 0:11:15.200 --> 0:11:19.240 sites like Roberton and others that make trading these pretty negligible. 0:11:19.480 --> 0:11:21.559 So because of that, I think the best kind of 0:11:21.600 --> 0:11:24.360 advice is to just be pretty conservative and then after 0:11:24.400 --> 0:11:26.480 that waiting period, you know, swap back in if you 0:11:26.559 --> 0:11:29.000 really wanted to have that share class of Google, or 0:11:29.040 --> 0:11:31.640 you really wanted to have that specific mutual fund, stick 0:11:31.679 --> 0:11:34.319 with that. Now, Alexis, we've been talking about single stock 0:11:34.480 --> 0:11:37.080 US names. Do the rules change if we're talking about 0:11:37.080 --> 0:11:41.160 a different geography? UM? In the U S specifically, like 0:11:41.480 --> 0:11:44.000 if you're talking about a single stock or a mutual fund, 0:11:44.080 --> 0:11:48.320 the same rules apply UM and for mutual fund investors specifically, 0:11:48.400 --> 0:11:51.640 if you tax boss harvest this year, UM, you know, 0:11:51.679 --> 0:11:55.000 the benefits of doing so are amplified. That's because it's 0:11:55.000 --> 0:11:58.479 a little complicated, but basically, the way mutual funds are structured, 0:11:58.640 --> 0:12:02.319 it's other investors to sell their shares. The fund often 0:12:02.360 --> 0:12:06.160 has to sell appreciated holdings to meet those redemptions, but 0:12:06.280 --> 0:12:08.640 the investors who remain in the fund are basically on 0:12:08.720 --> 0:12:11.280 the hook for any gains the fund makes from selling 0:12:11.280 --> 0:12:15.280 those shares. So you may be in a fund that's 0:12:15.320 --> 0:12:18.600 gone down, that has negative returns, but you could end 0:12:18.679 --> 0:12:22.280 up getting these capital distributions in December, which is someone 0:12:22.280 --> 0:12:23.960 I was speaking to described it as a real kick 0:12:23.960 --> 0:12:25.800 in the teeth. Not only did you lose money, but 0:12:25.880 --> 0:12:28.840 you're also receiving this capital gains distribution, but you didn't 0:12:28.840 --> 0:12:31.400 actually get any money, And even if you reinvest the 0:12:31.440 --> 0:12:33.720 gains back into the fund, you're still on the hook 0:12:33.760 --> 0:12:37.040 for taxes. So that's why selling your losses and then 0:12:37.160 --> 0:12:40.400 using those to offset these capital gains distributions can be 0:12:40.600 --> 0:12:43.920 can be really helpful. Now you raise a very interesting 0:12:44.000 --> 0:12:47.000 question because many retail investors have been involved in crypto 0:12:47.520 --> 0:12:50.200 in some form or another. Are the rules the exact 0:12:50.200 --> 0:12:53.960 same for crypto? Um, they are not exactly the same. 0:12:54.160 --> 0:12:56.520 You can, in fact use crypto. You can sell crypto 0:12:56.600 --> 0:12:59.840 losses and use any of those losses to offset gains 0:13:00.280 --> 0:13:02.800 in that way, it's similar. But crypto investors have a 0:13:02.840 --> 0:13:05.320 really big advantage. Um. The wash scale roll that I 0:13:05.360 --> 0:13:08.640 was speaking about, it doesn't apply to digital assets. So 0:13:08.800 --> 0:13:11.360 if you're a crypto investor and you sell something, you 0:13:11.400 --> 0:13:13.680 can basically turn right around and buy the same coin, 0:13:14.000 --> 0:13:15.760 especially if people leaeve in that coin. You know you 0:13:15.800 --> 0:13:18.559 want to stay invested. Um, you don't have to have 0:13:18.640 --> 0:13:21.920 that sixte day waiting period. Um. But there's a catch. 0:13:22.080 --> 0:13:24.960 There are some you know, tax experts who say crypto 0:13:25.000 --> 0:13:28.320 investors could get burned by a separate principle called the 0:13:28.320 --> 0:13:32.040 I R S is economic substance doctrine. That role basically 0:13:32.080 --> 0:13:34.679 says you can't do something just for a tax benefit, 0:13:34.800 --> 0:13:38.280 you have to expose yourself to some sort of market risk. Um. 0:13:38.640 --> 0:13:42.040 So then the question is, okay, well how long do 0:13:42.120 --> 0:13:44.920 I have to expose myself to market risk? You know, 0:13:45.000 --> 0:13:47.600 to then justify turn around and buying that same coin, 0:13:48.200 --> 0:13:50.200 and you know, whether it's ten minutes or ten days, 0:13:50.280 --> 0:13:53.160 I think is really anyone's guest. But again my advice 0:13:53.200 --> 0:13:55.400 goes back to, as with stocks, are on the side 0:13:55.400 --> 0:13:58.360 of caution just because it DIRS does in fact audit you. 0:13:58.840 --> 0:14:00.520 And the whole point of what you're doing is to 0:14:00.600 --> 0:14:03.199 try to, you know, take advantage and make the next 0:14:03.280 --> 0:14:05.720 April a little less painful. You know, you don't want 0:14:05.760 --> 0:14:09.600 to then have to backtrack and be you know, having 0:14:09.640 --> 0:14:12.160 to account for the things that you ended up spelling 0:14:12.320 --> 0:14:14.120 and Alexis this all has to be done by December 0:14:14.160 --> 0:14:17.960 thirty first, obviously, yes, year end, So basically any losses 0:14:18.000 --> 0:14:20.480 have to be locked in by year end and that 0:14:20.520 --> 0:14:23.720 will count for your two tax returns, which are due 0:14:23.920 --> 0:14:27.920 next day. Bloomberg Opinions Alexis Lee on us China's president 0:14:27.960 --> 0:14:30.960 Cheese and Ping has been making small but potentially pivotal 0:14:31.080 --> 0:14:33.880 changes recently. They may go some way that is towards 0:14:33.880 --> 0:14:37.360 patching up the COVID battered economy. Certainly investors think so, 0:14:37.720 --> 0:14:40.720 but they are skittish. I ask Bloomberg Opinions Shulely Wren 0:14:40.840 --> 0:14:43.840 to give us a snapshot of China's current pretty precarious 0:14:43.880 --> 0:14:48.000 fiscal and social positions, So surely we're seeing a new 0:14:48.040 --> 0:14:51.640 approach from China's government. We're also seeing some deaths. What 0:14:51.760 --> 0:14:55.560 does it all mean for the reopening story? I think 0:14:55.640 --> 0:15:00.000 investors were painting too much hope on the China reopening store. 0:15:00.480 --> 0:15:02.280 Keep in mind that for the rest of the world, 0:15:02.320 --> 0:15:06.560 that reopening was never an easy, smooth process. Even Singapore, 0:15:06.680 --> 0:15:08.880 which is very very well run, they went through a 0:15:09.000 --> 0:15:12.680 zigzag open, closed, prolonged process, and we're going to see 0:15:12.840 --> 0:15:17.360 very similar situations playing out in China. But directionally, China 0:15:17.600 --> 0:15:21.040 is going to reopen because, as Bloomer Opinion has written 0:15:21.160 --> 0:15:24.480 quite a few times, the Chinese government physical coppers are 0:15:24.520 --> 0:15:27.000 getting empty. They will have no choice but to open. 0:15:27.240 --> 0:15:29.920 And another thing I think investors can watch is that 0:15:30.200 --> 0:15:32.840 for all the Chinese cities, it's going to be one city, 0:15:32.880 --> 0:15:36.440 one policy. You're going to see big cities such as Shanghai, 0:15:36.520 --> 0:15:39.600 guangjoch and do they're going to have very different responses. 0:15:39.880 --> 0:15:42.360 And some of the cities that do very well, their 0:15:42.360 --> 0:15:45.080 city mayors are going to be promoted within the China 0:15:45.240 --> 0:15:48.280 bureaucratics and they're going to be present hiding things. New 0:15:48.320 --> 0:15:51.200 project is going into twenty three and twenty twenty four. 0:15:51.360 --> 0:15:53.800 So you're saying cities could actually be in competition with 0:15:53.840 --> 0:15:57.640 each other to reopen more successfully than the next. Absolutely. 0:15:57.720 --> 0:16:00.320 I mean cities have been competing with each other over 0:16:00.400 --> 0:16:03.960 fiscal dollar, over human talent, over all other things, and 0:16:04.040 --> 0:16:06.200 that they are going to this time compete with each 0:16:06.240 --> 0:16:09.560 other to reopen in the smooth way because the city 0:16:09.560 --> 0:16:12.120 mayors they will be promoted. Well, there's so many strands 0:16:12.120 --> 0:16:15.480 to the story that are happening simultaneously. Another thing that 0:16:15.520 --> 0:16:19.680 the market is watching very closely is the methods that 0:16:19.960 --> 0:16:24.160 the authorities are using to punish tech firms, and markets 0:16:24.160 --> 0:16:27.000 are taking that well in the sense that these punishments 0:16:27.080 --> 0:16:29.760 might mean that these tech firms will finally be out 0:16:29.760 --> 0:16:31.280 of the corner. If you like, we'll be back in 0:16:31.320 --> 0:16:34.040 the good books of the Chinese authorities. Tell us a 0:16:34.040 --> 0:16:37.440 little bit about what's going on here. It's a realization 0:16:37.560 --> 0:16:40.760 from the Chinese government that they're stuck in the arranged 0:16:40.800 --> 0:16:43.880 marriage with the big tech companies. I mean, the last 0:16:43.880 --> 0:16:46.280 one year to half, the Chinese government was like a 0:16:46.360 --> 0:16:49.160 leading down big tech. They didn't want olligogues, they didn't 0:16:49.160 --> 0:16:51.440 want them to be too powerful, right, But at some 0:16:51.520 --> 0:16:54.200 point they start to realize tech companies they are the 0:16:54.280 --> 0:16:57.960 major job creators young people, young Chinese. They don't want 0:16:57.960 --> 0:17:00.200 to go work in the factories, they want to work 0:17:00.280 --> 0:17:03.200 for tax firms. But going forward, I think what's going 0:17:03.280 --> 0:17:07.480 to happen is the Chinese government will still advertise and prosperity, 0:17:07.560 --> 0:17:10.159 and the tech companies also need to think about this 0:17:10.400 --> 0:17:14.080 notion of effective altruism. They have to think about how 0:17:14.119 --> 0:17:17.920 to help the local governments where they do business, generate 0:17:18.040 --> 0:17:21.879 fiscal income, provide social welfare. And what you see with 0:17:22.080 --> 0:17:24.400 j D for instance, is that the j D see 0:17:24.640 --> 0:17:27.640 executives they're going to cut their own pay so that 0:17:27.680 --> 0:17:31.520 they can provide housing for younger twenty three twenty four 0:17:31.560 --> 0:17:34.040 year old so that they can climb the middle class 0:17:34.080 --> 0:17:36.240 social letter and we're going to see a lot of that. 0:17:36.640 --> 0:17:39.960 Instead of direct tax payments big tex they're going to 0:17:40.080 --> 0:17:42.560 try to find a way to help local governments work, 0:17:42.920 --> 0:17:47.160 perhaps in the form of private public partnership, perhaps providing 0:17:47.240 --> 0:17:50.040 housing to the young. Yeah. I mean it's fascinating because 0:17:50.080 --> 0:17:53.160 it's in line with the pursuit of common prosperity, and 0:17:53.240 --> 0:17:55.639 it allows season things in some ways to do a 0:17:55.760 --> 0:17:58.720 U turn and sort of allow the tech companies to 0:17:59.400 --> 0:18:03.800 distribute their own profits in order to lift up the 0:18:03.840 --> 0:18:06.760 lower middle classes. Is it a U turn? If this 0:18:06.840 --> 0:18:08.720 was what season things going to do, why didn't he 0:18:08.800 --> 0:18:12.840 do it originally? Well, keeping mind that when China started 0:18:12.920 --> 0:18:15.480 they tack and develop a crackdown, it was in the 0:18:15.480 --> 0:18:19.320 middle of one and the Chinese government discore coppers worked 0:18:19.320 --> 0:18:22.600 by food. China's economy were doing pretty well back then. 0:18:22.880 --> 0:18:25.800 That's when they started a crackdown. And the things have changed. 0:18:25.880 --> 0:18:28.600 The government has no more money, and then the developers 0:18:28.600 --> 0:18:31.159 are no longer buying land. That right less, there is 0:18:31.160 --> 0:18:34.120 a big string of revenue for Chinese government. So at 0:18:34.119 --> 0:18:36.600 some point they realized that they have to step back 0:18:36.720 --> 0:18:38.760 in their cracked down towards big tech and then let's 0:18:38.800 --> 0:18:42.280 big tech pay more taxes and provide jobs. Yeah, and 0:18:42.280 --> 0:18:44.480 it sort of works to everyone's advantage because of big 0:18:44.520 --> 0:18:47.960 tech is allowed out of the sandbox back into the 0:18:48.000 --> 0:18:51.440 markets for real. Then presumably at some point demand will 0:18:51.440 --> 0:18:53.520 be created and jobs will be created again, and so on. 0:18:53.600 --> 0:18:55.200 I guess that's how she's in paying in the b 0:18:55.240 --> 0:18:58.760 BOC are thinking of it. At least doesn't work like that. Actually, 0:18:59.600 --> 0:19:03.040 I think that's what a lot of market participants are 0:19:03.080 --> 0:19:05.320 hoping for as well. But it will be tricky. It 0:19:05.359 --> 0:19:08.160 will be a bumpy road to find a new equilibrium 0:19:08.280 --> 0:19:12.600 between China's rich basically big tech billionaires and powerful basically 0:19:12.640 --> 0:19:15.920 the government just like trying to reopening. I think we're 0:19:15.920 --> 0:19:19.600 going to see a bunch of zigzags and public outcries. 0:19:19.720 --> 0:19:23.720 But the greater trend is that I think going to three, 0:19:23.760 --> 0:19:26.800 there will be equilibrium, new equiliber and your social contract 0:19:26.920 --> 0:19:29.199 between big tech and big summon. Well, and it's not 0:19:29.280 --> 0:19:31.600 just big tech. I mean, is this the first line 0:19:31.600 --> 0:19:34.679 of industries. Will we suddenly see gaming industries, for example, 0:19:34.760 --> 0:19:37.680 do the same thing. Will we see the education companies, 0:19:37.720 --> 0:19:40.200 the online education companies that are also cracked down upon, 0:19:40.280 --> 0:19:45.200 suddenly become wealth distributors. I think education companies their best 0:19:45.280 --> 0:19:48.600 days are over. Unlike gaming education companies. They will never 0:19:48.680 --> 0:19:52.120 be able to create as many jobs as the likes 0:19:52.160 --> 0:19:54.400 of tens and some of them are already coming back. 0:19:54.520 --> 0:19:58.800 So instead of teaching Chinese lessons, they're hosting debate cut right, um. 0:19:58.840 --> 0:20:02.720 But there will be smaller bloomberg opinions. Shulei Rehn, Stay 0:20:02.760 --> 0:20:06.040 tuned the University of Georgia's Stephen Mim next with thoughts 0:20:06.040 --> 0:20:09.520 on how export controls will impact U S China relations. 0:20:10.080 --> 0:20:12.200 By the way, you do send us your thoughts and opinions. 0:20:12.240 --> 0:20:15.600 I'm at v Quinn at Bloomberg dot net and don't 0:20:15.600 --> 0:20:18.600 forget We're available as a podcast on Apple, Spotify or 0:20:18.640 --> 0:20:23.080 your favorite podcast platform. This is Bloomberg Opinion. The International 0:20:23.080 --> 0:20:26.359 Monetary Fund says the rise of trade barriers against China 0:20:26.400 --> 0:20:28.600 and other countries over the past year could cost the 0:20:28.640 --> 0:20:32.040 global economy one point for trillion dollars one and a 0:20:32.080 --> 0:20:36.000 half percent of GDP Managing director Krystelina Georgieva told Bloomberg 0:20:36.080 --> 0:20:38.520 the potential loss for Asia could be double that. For 0:20:38.760 --> 0:20:42.000 Asia the loss is much more significant because as she 0:20:42.160 --> 0:20:45.600 is so integrated in global value. Chase I spoke with 0:20:45.640 --> 0:20:48.880 Bloomberg Opinion columnist Stephen Mim, history professor at the University 0:20:48.880 --> 0:20:51.800 of Georgia about the history of export controls out of 0:20:51.840 --> 0:20:54.640 the United States and whether the intended outcome is worth 0:20:54.680 --> 0:20:58.800