Speaker 1: Good morning.
Speaker 2: I'm Richard Soloman and I'm Doug Krisner. Here are the
Speaker 2: stories we're following. Today. Looks like the beginning of a
Speaker 2: very volatile week after central bankers from both the US
Speaker 2: and Europe signal that interest rates will likely stay higher
Speaker 2: for longer. Speaking at the Jackson Hole Symposium, Chair J
Speaker 2: Powell said monetary policy will stay restrictive until inflation is
Speaker 2: moving more firmly toward the fed's two percent target.
Speaker 3: Based on this assessment, we will proceed carefully as we
Speaker 3: decide whether to tighten further or instead to hold the
Speaker 3: policy rate constant and await further.
Speaker 2: Data now, that is Chair J. Powell. He went on
Speaker 2: to note that the American economy may not be cooling
Speaker 2: as fast as some had expected. He went on to
Speaker 2: say that could in turn put further pressure on inflation
Speaker 2: right and perhaps warrant further tightening. We also heard from
Speaker 2: the head of the ECB, Christine Legard. She vowed to
Speaker 2: set borrowing cost as high as necessary and leave them
Speaker 2: there until inflation in the Eurozone is back under the
Speaker 2: ECB's goals. Separately, we heard also from the BOJ Governor Cuwaita.
Speaker 2: He did not comment on foreign exchange rates. Now that
Speaker 2: takes us to some news here in the States and
Speaker 2: a possible legal settlement by THREEM to resolve hundreds of
Speaker 2: thousands of lawsuits over defective combat ear plugs. The story
Speaker 2: from Bloomberg's Denise Pellegrini.
Speaker 4: Sources say three M has agreed to pay more than
Speaker 4: five and a half billion dollars to resolve the more
Speaker 4: than three hundred thousand lawsuits. This could help the company
Speaker 4: avoid a much bigger liability that Threem had tried to
Speaker 4: curb through a controversial bankruptcy case that ultimately collapsed. Carl Tobias,
Speaker 4: law professor at the University of Richmond, says, it looks
Speaker 4: like in this case, Threem negotiated a pretty good deal
Speaker 4: for itself, and THREEM could use the legal quiet on
Speaker 4: this front because it also faces thousands of other lawsuits
Speaker 4: over so called forever chemicals, and that could cost way
Speaker 4: more than the ear plug suits to resolve. Denise Pelligriny
Speaker 4: Bloomberg Day Break Asia.
Speaker 2: US Commerce Secretary Gina Romundo is in Beijing today with
Speaker 2: an aim of boosting business ties with China. It's a
Speaker 2: four day visit, the first by a US commerce secretary
Speaker 2: in seven years. Now, Romundo is seeking to expand business
Speaker 2: ties with China despite very very high tensions. Now we
Speaker 2: know that the Chinese economy has been slowing. That may
Speaker 2: make Beijing a little bit more receptive to Washington's message.
Speaker 2: And we're hearing that Romundo is expected to announce working
Speaker 2: groups on export controls and US Chinese commercial relations in
Speaker 2: spite of a wave of criticism from congressional republicans. Meantime,
Speaker 2: China has lowered the stamp duty on stock trades for
Speaker 2: the first time since two thousand and eight. We have
Speaker 2: more from Bloomberg's Juan Wong in Hong.
Speaker 5: Kong, China's Ministry of Finance at all half the one
Speaker 5: tent of one percent levy as of today. The nation
Speaker 5: is also pledged to slow the pace of initial public offerings.
Speaker 5: That's among lieu of new measures to woo investors back
Speaker 5: to as flagging equities markets. Regulators have also cut handling
Speaker 5: fees on stock transactions. They brought um usual fund managers
Speaker 5: to increase purchases of their own equity funds, and encouraged
Speaker 5: companies to do more share buybacks in Hong Kong and
Speaker 5: join Bloomberg day Breakasia.
Speaker 2: Want to point out that industrial profits in China fell
Speaker 2: in July, but not as bad as in the month prior.
Speaker 2: Profits last month down at a rate of six point
Speaker 2: seven percent compared to last year. That compares with the
Speaker 2: decline in June of eight point three percent, So you
Speaker 2: might say some improvement. Yes, However, we know the recovery
Speaker 2: in China remains challenged and deflation does remain a risk.
Speaker 2: Inflation is obviously the story. In the States. The eel
Speaker 2: on the two year treasury finished the week at five
Speaker 2: point zero seven percent. That was after j Powell stressed
Speaker 2: the Fed's intention to remain restrictive, keeping rates high until
Speaker 2: inflation comes down to the fed's two percent target. Even so,
Speaker 2: he did suggest that the FED could hold rate steady
Speaker 2: at the September meeting. Now, Bloomberg's Liz McCormick was saying
Speaker 2: on Friday, Powell has the bond market exactly where he
Speaker 2: wants it, lacking conviction as to the Fed's next steps. Meantime,
Speaker 2: Bloomberg opinion columnist Mohammad Alarian was saying, Powell has retained
Speaker 2: maximum policy optionality. Let's get a look at Global news next.
Speaker 3: How Speaker Kevin McCarthy says he will promote American natural
Speaker 3: gas exports when he meets with his group of seven
Speaker 3: parliamentary speakers in Japan. While on Fox News Sunday Morning Futures,
Speaker 3: McCarthy said replacing Russian national gas with natural gas with
Speaker 3: US gas for just one year with lower two hundred
Speaker 3: and eighteen billion tons of CO two emissions as US
Speaker 3: gas is cleaner than Russia's. The speaker says energy policies
Speaker 3: would be on the agenda of the meeting as Europe
Speaker 3: continues to look to wean itself off of Russian energy.
Speaker 3: Imprisoned Australian pro democracy blogger doctor Yang heng Jun fears
Speaker 3: he could die in a Chinese prison, and after ten
Speaker 3: centimeters cyst was found on his kidney, Yang supporters are
Speaker 3: demanding that Australia's government do more to try to gain
Speaker 3: Yang's release. Prime Minister Anthony Albanize is scheduled to meet
Speaker 3: with Shijimping on the sidelines of the G twenty summit
Speaker 3: in India in a few weeks, with Albany's expected to
Speaker 3: then visit Beijing later this year. Doctor Yang, along with
Speaker 3: Australian journalist Sheng Lei, were imprisoned after being tried in
Speaker 3: secret on national security charges. Florida is bracing for tropical
Speaker 3: storem Idalia, which is expected to make landfall as a
Speaker 3: hurricane as soon as Wednesday. Currently, Idalia is drifting east
Speaker 3: off the coast of Mexico's Yucatan Peninsula with top wins
Speaker 3: of forty miles an hour. Florida Governor Ron DeSantis has
Speaker 3: already declared the state of emergency in thirty three counties,
Speaker 3: mostly along the Gulf Coast. DeSantis says to expect some disruptions.
Speaker 6: Floridians along our Golf coast should be vigilant even if
Speaker 6: you're currently outside the cone, and indeed you could see
Speaker 6: impacts if you are in a place that's outside the cone.
Speaker 3: Adalia's wins are expected to reach around ninety miles per
Speaker 3: hour when it hits landfall Wednesday, which would make it
Speaker 3: a Category one hurricane on a five step scale. Former
Speaker 3: President Trump has been cashing in on his arrest in Georgia,
Speaker 3: as his campaign says they have raised seven point one
Speaker 3: million dollars in donations just since Thursday. Then includes, by
Speaker 3: the way, four point one eight million just on Friday.
Speaker 3: Trump's campaign has raised almost twenty million in three weeks,
Speaker 3: which covers recent indictments in Georgia as well as Washington. Trump,
Speaker 3: who is the first president to ever have a mugshot taken,
Speaker 3: has been using the image to sell merchandise such as
Speaker 3: T shirts, coffee mugs, as well as posters. Global News
Speaker 3: twenty fours a day, powered by more than twenty seven
Speaker 3: hundred journalists and analysts in more than one hundred and
Speaker 3: twenty countries. I'm Dan Schwartzman. This is Bloomberg.
Speaker 2: Danny. Thank you. Let's get to James Abata. He is
Speaker 2: our guest, James's managing director, also the chief investment officer
Speaker 2: at Center Asset Management. He joins us from here in
Speaker 2: New York. James, it's always a pleasure. We had the
Speaker 2: Powers Beach on Friday, not really much of a surprise,
Speaker 2: but yields nonetheless drifted off a bit. What do you
Speaker 2: think we're dealing with in terms of a bond market
Speaker 2: right now for the next six months? Will we remain
Speaker 2: in the range that we're trapped in now and elevated
Speaker 2: as we are at the moment.
Speaker 1: Yeah, I think you've seen bond volatility come down, but
Speaker 1: I think we're going to see you know, further evidence
Speaker 1: that the two percent target is going to remain somewhat
Speaker 1: elusive for the Federal Reserve. I mean, it's clear. Let's
Speaker 1: give the Fed kudos that you know, they've been able to,
Speaker 1: you know, bring a cyclical downturn and goods inflation. You
Speaker 1: could argue, you know, like Alan Binder has that a
Speaker 1: lot of that was just simply you know, production of
Speaker 1: transportation bottlenecks, you know, rectifying themselves after COVID and so forth.
Speaker 1: But nevertheless, you know, the Fed getting rates real rates
Speaker 1: normalized to the two percent level has kept the stable.
Speaker 1: We need to attract capital, which means both foreign buyers
Speaker 1: of treasury and foreign direct investment. So I think overall,
Speaker 1: you know, the Fed has done a good job. And
Speaker 1: you know, people barking about the Federation rates too quickly,
Speaker 1: too much, too high, whatever. I mean, the people that
Speaker 1: are doing that are people who are running projects that
Speaker 1: didn't make sense at a zero percent cost of capital,
Speaker 1: you know, and sure we don't make sense at a
Speaker 1: eight or teen percent cost of capital. You know, we
Speaker 1: work it was an eventual bankruptcy easy to spot five
Speaker 1: years ago. I think the real issue now as we
Speaker 1: move forward is we've had interest rate crises with the
Speaker 1: regional banks, we have not yet had a credit crisis,
Speaker 1: and that really is something to be seen as coming
Speaker 1: months evolve.
Speaker 7: Here you have commercial real estate in many parts of
Speaker 7: the US and a serious trouble at the moment. Could
Speaker 7: it be from there? But as you know, ever with
Speaker 7: these things, they always come out of left field.
Speaker 1: It seems well, of course, I mean, that's you know,
Speaker 1: the corpse has always come floating up to the surface
Speaker 1: of the lake. You know, when the FED basically is
Speaker 1: you know, undertaking a rapid increase in real rates in particular,
Speaker 1: and again you know, a lot of projects made no sense,
Speaker 1: particularly in the intellectual property and intangible area, which is
Speaker 1: where you know, bulk of investments have gone over the
Speaker 1: last decade or so. Real estate obviously has been another beneficiary.
Speaker 1: But you know, we're back to rates that were normal.
Speaker 1: I mean, if you've got a mortgage twenty years ago
Speaker 1: or thirty years ago, you know this is a very
Speaker 1: normal environment in terms of both the nominal rate and
Speaker 1: the real rate. So we were in an unusual set
Speaker 1: of circumstances post of global financial crisis, and I get
Speaker 1: Powell credit for at least taking us out of that
Speaker 1: valley of kind of ridiculousness to a certain pregon.
Speaker 2: There's still plenty of debate though, in the bond market,
Speaker 2: in particular whether that cumulative tightening is going to spark
Speaker 2: a recession, and then you know, we are dealing with
Speaker 2: inevitable rate cuts let's say the early part of next year,
Speaker 2: or as Bill Dudley was saying, I think last week
Speaker 2: that the bond market, the bull market in bonds is
Speaker 2: essentially over. Inflation is going to prove to be sticky,
Speaker 2: and then you talk about treasury issuance. I mean, you
Speaker 2: just brought up that point. I mean, so maybe it's
Speaker 2: too soon, let's say, just to tease out one of
Speaker 2: those threads to talk about rate cuts being inevitable.
Speaker 1: Yeah. I think it's going to be difficult for the
Speaker 1: Fed because again, I think they've addressed the cyclical inflation
Speaker 1: problems quite well and have been helped by the unbottling
Speaker 1: of the production and transportation issues. However, the structural issues,
Speaker 1: fiscal deficits, you know, there's an argument to inflate them
Speaker 1: away by raising the inflation taria from two to three percent.
Speaker 1: Offshoring or onshoing, excuse me, is inherently inflationary. You know,
Speaker 1: the other thing, which is the elephint in the room,
Speaker 1: which is the productivity problem. Right, if you look at
Speaker 1: any measure of productivity, and the thing that we always
Speaker 1: look at, I think is the most preferred is you know,
Speaker 1: total factor of productivity because that takes some consideration both
Speaker 1: labor as well as the capital that's been employed. And
Speaker 1: when you look at the level of where we are
Speaker 1: right now, it has fallen drastically without recovering since COVID,
Speaker 1: you know, indicating that despite the trend of you know,
Speaker 1: capital investment mostly intangible. Again, as I said, if you
Speaker 1: look at the amount of capitalists employed per worker worker productivity,
Speaker 1: it just remains dismal, which by nature, unless productivity is
Speaker 1: somehow enhanced, the FED is going to have a very
Speaker 1: hard time reaching its two percent target.
Speaker 7: So what we're getting is a situation where probably inflation
Speaker 7: also returns to the mean. If you will, and you
Speaker 7: know you quite rightly, perhaps highlight the structural reasons why
Speaker 7: inflation is likely to be hired. Don't forget the cost
Speaker 7: of decarbonization. Also demographics and an aging population to play
Speaker 7: as well. And I think you alluded to the deglobalization
Speaker 7: issue as well.
Speaker 1: Yeah. Absolutely, I mean, by nature, you know, aging populations
Speaker 1: are disinflationary. But the on shoring and what we've seen
Speaker 1: now with regard to, you know, the geopolitical tensions that
Speaker 1: are going on. I think the you know, the expansion
Speaker 1: of the Bricks membership to six new members this week
Speaker 1: is one of those very significant events, you know that
Speaker 1: may present the kind of geopolitical alpha event. I'm not
Speaker 1: saying it's you know, it's akin to you know, the
Speaker 1: Anglo Russian attunt of nineteen oh seven, which contributed to
Speaker 1: World War One, but you know, we're looking at an
Speaker 1: environment here where you know, you look at the countries
Speaker 1: that we're at at Argentina with its agricultural capabilities, Egypt
Speaker 1: with the Suez Canal, Ethiopia, which has a capability to
Speaker 1: control the Horn of Africa, Saudi Arabian UAE with energy production.
Speaker 1: I think, you know, people have to look at this
Speaker 1: and we have to stop thinking about checkers and start
Speaker 1: thinking about chess. Because when you just step back to
Speaker 1: the earlier part of the summer, when Turkey acquiesceda Sweden's
Speaker 1: acceptance into NATO, what that essentially did is it cut
Speaker 1: off Baltic Sea, access of any warm water port for Russia.
Speaker 1: So the fact that you now have you know, the
Speaker 1: I don't think it's a coincidence that the countries that
Speaker 1: are being added to the bricks here, and they were
Speaker 1: selected by Russia and China, have a very significant impact
Speaker 1: on in essence, you know, capability to you know, have
Speaker 1: access to the Gulf of Aden leading to the Arabian Sea,
Speaker 1: sus Canal capability. This is this is this is one
Speaker 1: of those events that you know, happens in August that
Speaker 1: sometimes we fall asleep about. But you know, the last
Speaker 1: few events that we've had with the NATO expansion and
Speaker 1: now the expansion of bricks, and when you read into
Speaker 1: some of the details behind this, it's almost like the
Speaker 1: nineteenth century alliances chess game of the g seven versus
Speaker 1: the Bridge today and this may have very significant your
Speaker 1: political alpha tapabilities or detriments to many investors' portfolios that
Speaker 1: were coming years.
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