WEBVTT - Raimondo Visits China, Jackson Hole Recap

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<v Speaker 1>Good morning.

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<v Speaker 2>I'm Richard Soloman and I'm Doug Krisner. Here are the

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<v Speaker 2>stories we're following. Today. Looks like the beginning of a

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<v Speaker 2>very volatile week after central bankers from both the US

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<v Speaker 2>and Europe signal that interest rates will likely stay higher

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<v Speaker 2>for longer. Speaking at the Jackson Hole Symposium, Chair J

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<v Speaker 2>Powell said monetary policy will stay restrictive until inflation is

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<v Speaker 2>moving more firmly toward the fed's two percent target.

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<v Speaker 3>Based on this assessment, we will proceed carefully as we

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<v Speaker 3>decide whether to tighten further or instead to hold the

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<v Speaker 3>policy rate constant and await further.

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<v Speaker 2>Data now, that is Chair J. Powell. He went on

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<v Speaker 2>to note that the American economy may not be cooling

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<v Speaker 2>as fast as some had expected. He went on to

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<v Speaker 2>say that could in turn put further pressure on inflation

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<v Speaker 2>right and perhaps warrant further tightening. We also heard from

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<v Speaker 2>the head of the ECB, Christine Legard. She vowed to

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<v Speaker 2>set borrowing cost as high as necessary and leave them

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<v Speaker 2>there until inflation in the Eurozone is back under the

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<v Speaker 2>ECB's goals. Separately, we heard also from the BOJ Governor Cuwaita.

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<v Speaker 2>He did not comment on foreign exchange rates. Now that

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<v Speaker 2>takes us to some news here in the States and

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<v Speaker 2>a possible legal settlement by THREEM to resolve hundreds of

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<v Speaker 2>thousands of lawsuits over defective combat ear plugs. The story

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<v Speaker 2>from Bloomberg's Denise Pellegrini.

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<v Speaker 4>Sources say three M has agreed to pay more than

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<v Speaker 4>five and a half billion dollars to resolve the more

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<v Speaker 4>than three hundred thousand lawsuits. This could help the company

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<v Speaker 4>avoid a much bigger liability that Threem had tried to

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<v Speaker 4>curb through a controversial bankruptcy case that ultimately collapsed. Carl Tobias,

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<v Speaker 4>law professor at the University of Richmond, says, it looks

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<v Speaker 4>like in this case, Threem negotiated a pretty good deal

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<v Speaker 4>for itself, and THREEM could use the legal quiet on

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<v Speaker 4>this front because it also faces thousands of other lawsuits

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<v Speaker 4>over so called forever chemicals, and that could cost way

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<v Speaker 4>more than the ear plug suits to resolve. Denise Pelligriny

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<v Speaker 4>Bloomberg Day Break Asia.

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<v Speaker 2>US Commerce Secretary Gina Romundo is in Beijing today with

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<v Speaker 2>an aim of boosting business ties with China. It's a

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<v Speaker 2>four day visit, the first by a US commerce secretary

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<v Speaker 2>in seven years. Now, Romundo is seeking to expand business

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<v Speaker 2>ties with China despite very very high tensions. Now we

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<v Speaker 2>know that the Chinese economy has been slowing. That may

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<v Speaker 2>make Beijing a little bit more receptive to Washington's message.

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<v Speaker 2>And we're hearing that Romundo is expected to announce working

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<v Speaker 2>groups on export controls and US Chinese commercial relations in

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<v Speaker 2>spite of a wave of criticism from congressional republicans. Meantime,

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<v Speaker 2>China has lowered the stamp duty on stock trades for

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<v Speaker 2>the first time since two thousand and eight. We have

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<v Speaker 2>more from Bloomberg's Juan Wong in Hong.

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<v Speaker 5>Kong, China's Ministry of Finance at all half the one

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<v Speaker 5>tent of one percent levy as of today. The nation

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<v Speaker 5>is also pledged to slow the pace of initial public offerings.

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<v Speaker 5>That's among lieu of new measures to woo investors back

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<v Speaker 5>to as flagging equities markets. Regulators have also cut handling

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<v Speaker 5>fees on stock transactions. They brought um usual fund managers

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<v Speaker 5>to increase purchases of their own equity funds, and encouraged

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<v Speaker 5>companies to do more share buybacks in Hong Kong and

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<v Speaker 5>join Bloomberg day Breakasia.

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<v Speaker 2>Want to point out that industrial profits in China fell

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<v Speaker 2>in July, but not as bad as in the month prior.

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<v Speaker 2>Profits last month down at a rate of six point

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<v Speaker 2>seven percent compared to last year. That compares with the

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<v Speaker 2>decline in June of eight point three percent, So you

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<v Speaker 2>might say some improvement. Yes, However, we know the recovery

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<v Speaker 2>in China remains challenged and deflation does remain a risk.

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<v Speaker 2>Inflation is obviously the story. In the States. The eel

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<v Speaker 2>on the two year treasury finished the week at five

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<v Speaker 2>point zero seven percent. That was after j Powell stressed

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<v Speaker 2>the Fed's intention to remain restrictive, keeping rates high until

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<v Speaker 2>inflation comes down to the fed's two percent target. Even so,

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<v Speaker 2>he did suggest that the FED could hold rate steady

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<v Speaker 2>at the September meeting. Now, Bloomberg's Liz McCormick was saying

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<v Speaker 2>on Friday, Powell has the bond market exactly where he

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<v Speaker 2>wants it, lacking conviction as to the Fed's next steps. Meantime,

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<v Speaker 2>Bloomberg opinion columnist Mohammad Alarian was saying, Powell has retained

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<v Speaker 2>maximum policy optionality. Let's get a look at Global news next.

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<v Speaker 3>How Speaker Kevin McCarthy says he will promote American natural

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<v Speaker 3>gas exports when he meets with his group of seven

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<v Speaker 3>parliamentary speakers in Japan. While on Fox News Sunday Morning Futures,

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<v Speaker 3>McCarthy said replacing Russian national gas with natural gas with

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<v Speaker 3>US gas for just one year with lower two hundred

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<v Speaker 3>and eighteen billion tons of CO two emissions as US

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<v Speaker 3>gas is cleaner than Russia's. The speaker says energy policies

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<v Speaker 3>would be on the agenda of the meeting as Europe

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<v Speaker 3>continues to look to wean itself off of Russian energy.

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<v Speaker 3>Imprisoned Australian pro democracy blogger doctor Yang heng Jun fears

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<v Speaker 3>he could die in a Chinese prison, and after ten

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<v Speaker 3>centimeters cyst was found on his kidney, Yang supporters are

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<v Speaker 3>demanding that Australia's government do more to try to gain

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<v Speaker 3>Yang's release. Prime Minister Anthony Albanize is scheduled to meet

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<v Speaker 3>with Shijimping on the sidelines of the G twenty summit

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<v Speaker 3>in India in a few weeks, with Albany's expected to

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<v Speaker 3>then visit Beijing later this year. Doctor Yang, along with

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<v Speaker 3>Australian journalist Sheng Lei, were imprisoned after being tried in

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<v Speaker 3>secret on national security charges. Florida is bracing for tropical

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<v Speaker 3>storem Idalia, which is expected to make landfall as a

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<v Speaker 3>hurricane as soon as Wednesday. Currently, Idalia is drifting east

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<v Speaker 3>off the coast of Mexico's Yucatan Peninsula with top wins

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<v Speaker 3>of forty miles an hour. Florida Governor Ron DeSantis has

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<v Speaker 3>already declared the state of emergency in thirty three counties,

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<v Speaker 3>mostly along the Gulf Coast. DeSantis says to expect some disruptions.

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<v Speaker 6>Floridians along our Golf coast should be vigilant even if

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<v Speaker 6>you're currently outside the cone, and indeed you could see

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<v Speaker 6>impacts if you are in a place that's outside the cone.

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<v Speaker 3>Adalia's wins are expected to reach around ninety miles per

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<v Speaker 3>hour when it hits landfall Wednesday, which would make it

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<v Speaker 3>a Category one hurricane on a five step scale. Former

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<v Speaker 3>President Trump has been cashing in on his arrest in Georgia,

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<v Speaker 3>as his campaign says they have raised seven point one

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<v Speaker 3>million dollars in donations just since Thursday. Then includes, by

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<v Speaker 3>the way, four point one eight million just on Friday.

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<v Speaker 3>Trump's campaign has raised almost twenty million in three weeks,

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<v Speaker 3>which covers recent indictments in Georgia as well as Washington. Trump,

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<v Speaker 3>who is the first president to ever have a mugshot taken,

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<v Speaker 3>has been using the image to sell merchandise such as

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<v Speaker 3>T shirts, coffee mugs, as well as posters. Global News

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<v Speaker 3>twenty fours a day, powered by more than twenty seven

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<v Speaker 3>hundred journalists and analysts in more than one hundred and

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<v Speaker 3>twenty countries. I'm Dan Schwartzman. This is Bloomberg.

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<v Speaker 2>Danny. Thank you. Let's get to James Abata. He is

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<v Speaker 2>our guest, James's managing director, also the chief investment officer

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<v Speaker 2>at Center Asset Management. He joins us from here in

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<v Speaker 2>New York. James, it's always a pleasure. We had the

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<v Speaker 2>Powers Beach on Friday, not really much of a surprise,

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<v Speaker 2>but yields nonetheless drifted off a bit. What do you

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<v Speaker 2>think we're dealing with in terms of a bond market

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<v Speaker 2>right now for the next six months? Will we remain

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<v Speaker 2>in the range that we're trapped in now and elevated

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<v Speaker 2>as we are at the moment.

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<v Speaker 1>Yeah, I think you've seen bond volatility come down, but

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<v Speaker 1>I think we're going to see you know, further evidence

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<v Speaker 1>that the two percent target is going to remain somewhat

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<v Speaker 1>elusive for the Federal Reserve. I mean, it's clear. Let's

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<v Speaker 1>give the Fed kudos that you know, they've been able to,

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<v Speaker 1>you know, bring a cyclical downturn and goods inflation. You

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<v Speaker 1>could argue, you know, like Alan Binder has that a

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<v Speaker 1>lot of that was just simply you know, production of

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<v Speaker 1>transportation bottlenecks, you know, rectifying themselves after COVID and so forth.

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<v Speaker 1>But nevertheless, you know, the Fed getting rates real rates

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<v Speaker 1>normalized to the two percent level has kept the stable.

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<v Speaker 1>We need to attract capital, which means both foreign buyers

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<v Speaker 1>of treasury and foreign direct investment. So I think overall,

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<v Speaker 1>you know, the Fed has done a good job. And

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<v Speaker 1>you know, people barking about the Federation rates too quickly,

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<v Speaker 1>too much, too high, whatever. I mean, the people that

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<v Speaker 1>are doing that are people who are running projects that

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<v Speaker 1>didn't make sense at a zero percent cost of capital,

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<v Speaker 1>you know, and sure we don't make sense at a

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<v Speaker 1>eight or teen percent cost of capital. You know, we

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<v Speaker 1>work it was an eventual bankruptcy easy to spot five

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<v Speaker 1>years ago. I think the real issue now as we

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<v Speaker 1>move forward is we've had interest rate crises with the

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<v Speaker 1>regional banks, we have not yet had a credit crisis,

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<v Speaker 1>and that really is something to be seen as coming

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<v Speaker 1>months evolve.

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<v Speaker 7>Here you have commercial real estate in many parts of

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<v Speaker 7>the US and a serious trouble at the moment. Could

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<v Speaker 7>it be from there? But as you know, ever with

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<v Speaker 7>these things, they always come out of left field.

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<v Speaker 1>It seems well, of course, I mean, that's you know,

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<v Speaker 1>the corpse has always come floating up to the surface

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<v Speaker 1>of the lake. You know, when the FED basically is

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<v Speaker 1>you know, undertaking a rapid increase in real rates in particular,

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<v Speaker 1>and again you know, a lot of projects made no sense,

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<v Speaker 1>particularly in the intellectual property and intangible area, which is

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<v Speaker 1>where you know, bulk of investments have gone over the

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<v Speaker 1>last decade or so. Real estate obviously has been another beneficiary.

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<v Speaker 1>But you know, we're back to rates that were normal.

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<v Speaker 1>I mean, if you've got a mortgage twenty years ago

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<v Speaker 1>or thirty years ago, you know this is a very

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<v Speaker 1>normal environment in terms of both the nominal rate and

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<v Speaker 1>the real rate. So we were in an unusual set

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<v Speaker 1>of circumstances post of global financial crisis, and I get

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<v Speaker 1>Powell credit for at least taking us out of that

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<v Speaker 1>valley of kind of ridiculousness to a certain pregon.

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<v Speaker 2>There's still plenty of debate though, in the bond market,

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<v Speaker 2>in particular whether that cumulative tightening is going to spark

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<v Speaker 2>a recession, and then you know, we are dealing with

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<v Speaker 2>inevitable rate cuts let's say the early part of next year,

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<v Speaker 2>or as Bill Dudley was saying, I think last week

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<v Speaker 2>that the bond market, the bull market in bonds is

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<v Speaker 2>essentially over. Inflation is going to prove to be sticky,

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<v Speaker 2>and then you talk about treasury issuance. I mean, you

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<v Speaker 2>just brought up that point. I mean, so maybe it's

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<v Speaker 2>too soon, let's say, just to tease out one of

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<v Speaker 2>those threads to talk about rate cuts being inevitable.

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<v Speaker 1>Yeah. I think it's going to be difficult for the

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<v Speaker 1>Fed because again, I think they've addressed the cyclical inflation

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<v Speaker 1>problems quite well and have been helped by the unbottling

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<v Speaker 1>of the production and transportation issues. However, the structural issues,

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<v Speaker 1>fiscal deficits, you know, there's an argument to inflate them

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<v Speaker 1>away by raising the inflation taria from two to three percent.

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<v Speaker 1>Offshoring or onshoing, excuse me, is inherently inflationary. You know,

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<v Speaker 1>the other thing, which is the elephint in the room,

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<v Speaker 1>which is the productivity problem. Right, if you look at

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<v Speaker 1>any measure of productivity, and the thing that we always

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<v Speaker 1>look at, I think is the most preferred is you know,

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<v Speaker 1>total factor of productivity because that takes some consideration both

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<v Speaker 1>labor as well as the capital that's been employed. And

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<v Speaker 1>when you look at the level of where we are

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<v Speaker 1>right now, it has fallen drastically without recovering since COVID,

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<v Speaker 1>you know, indicating that despite the trend of you know,

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<v Speaker 1>capital investment mostly intangible. Again, as I said, if you

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<v Speaker 1>look at the amount of capitalists employed per worker worker productivity,

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<v Speaker 1>it just remains dismal, which by nature, unless productivity is

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<v Speaker 1>somehow enhanced, the FED is going to have a very

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<v Speaker 1>hard time reaching its two percent target.

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<v Speaker 7>So what we're getting is a situation where probably inflation

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<v Speaker 7>also returns to the mean. If you will, and you

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<v Speaker 7>know you quite rightly, perhaps highlight the structural reasons why

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<v Speaker 7>inflation is likely to be hired. Don't forget the cost

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<v Speaker 7>of decarbonization. Also demographics and an aging population to play

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<v Speaker 7>as well. And I think you alluded to the deglobalization

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<v Speaker 7>issue as well.

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<v Speaker 1>Yeah. Absolutely, I mean, by nature, you know, aging populations

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<v Speaker 1>are disinflationary. But the on shoring and what we've seen

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<v Speaker 1>now with regard to, you know, the geopolitical tensions that

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<v Speaker 1>are going on. I think the you know, the expansion

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<v Speaker 1>of the Bricks membership to six new members this week

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<v Speaker 1>is one of those very significant events, you know that

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<v Speaker 1>may present the kind of geopolitical alpha event. I'm not

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<v Speaker 1>saying it's you know, it's akin to you know, the

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<v Speaker 1>Anglo Russian attunt of nineteen oh seven, which contributed to

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<v Speaker 1>World War One, but you know, we're looking at an

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<v Speaker 1>environment here where you know, you look at the countries

0:12:46.840 --> 0:12:50.640
<v Speaker 1>that we're at at Argentina with its agricultural capabilities, Egypt

0:12:50.640 --> 0:12:54.000
<v Speaker 1>with the Suez Canal, Ethiopia, which has a capability to

0:12:54.040 --> 0:12:58.800
<v Speaker 1>control the Horn of Africa, Saudi Arabian UAE with energy production.

0:12:59.240 --> 0:13:01.040
<v Speaker 1>I think, you know, people have to look at this

0:13:01.280 --> 0:13:03.480
<v Speaker 1>and we have to stop thinking about checkers and start

0:13:03.520 --> 0:13:06.400
<v Speaker 1>thinking about chess. Because when you just step back to

0:13:06.440 --> 0:13:10.480
<v Speaker 1>the earlier part of the summer, when Turkey acquiesceda Sweden's

0:13:10.480 --> 0:13:14.440
<v Speaker 1>acceptance into NATO, what that essentially did is it cut

0:13:14.480 --> 0:13:18.720
<v Speaker 1>off Baltic Sea, access of any warm water port for Russia.

0:13:19.200 --> 0:13:21.480
<v Speaker 1>So the fact that you now have you know, the

0:13:21.760 --> 0:13:24.000
<v Speaker 1>I don't think it's a coincidence that the countries that

0:13:24.040 --> 0:13:26.679
<v Speaker 1>are being added to the bricks here, and they were

0:13:26.679 --> 0:13:30.439
<v Speaker 1>selected by Russia and China, have a very significant impact

0:13:30.600 --> 0:13:35.240
<v Speaker 1>on in essence, you know, capability to you know, have

0:13:35.320 --> 0:13:38.280
<v Speaker 1>access to the Gulf of Aden leading to the Arabian Sea,

0:13:38.400 --> 0:13:42.480
<v Speaker 1>sus Canal capability. This is this is this is one

0:13:42.480 --> 0:13:44.520
<v Speaker 1>of those events that you know, happens in August that

0:13:44.640 --> 0:13:47.440
<v Speaker 1>sometimes we fall asleep about. But you know, the last

0:13:47.440 --> 0:13:49.640
<v Speaker 1>few events that we've had with the NATO expansion and

0:13:49.760 --> 0:13:52.440
<v Speaker 1>now the expansion of bricks, and when you read into

0:13:52.480 --> 0:13:55.880
<v Speaker 1>some of the details behind this, it's almost like the

0:13:55.960 --> 0:14:00.000
<v Speaker 1>nineteenth century alliances chess game of the g seven versus

0:14:00.080 --> 0:14:03.280
<v Speaker 1>the Bridge today and this may have very significant your

0:14:03.280 --> 0:14:07.839
<v Speaker 1>political alpha tapabilities or detriments to many investors' portfolios that

0:14:07.880 --> 0:14:08.720
<v Speaker 1>were coming years.

0:14:10.000 --> 0:14:13.719
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