WEBVTT - Surveillance: Vital Monetary Response With Dudley 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.000 Bloomberg dot Com, and of course on the Bloomberg Right Now. 0:00:28.120 --> 0:00:31.160 Something special with us William Dudley. He is a former 0:00:31.200 --> 0:00:34.200 president of the New York Fellow Reserve. There are eight, nine, 0:00:34.280 --> 0:00:37.720 ten topics that we could speak to William Dudley about, 0:00:37.840 --> 0:00:40.520 but there is only one topic for those of economics, 0:00:40.560 --> 0:00:42.720 and you've seen it percolate. We've done it on this 0:00:42.760 --> 0:00:45.919 show as well, and that is a new governor at 0:00:45.960 --> 0:00:49.040 the Felleral Reserve System. Her name is Judy Shelton. She 0:00:49.200 --> 0:00:52.360 has an education degree from Portland State University, which is 0:00:52.400 --> 0:00:58.160 six four miles from Bill Dudley's PhD at Berkeley. This 0:00:58.240 --> 0:01:01.240 is a delicate conversation, Bill Dudley, but let me begin 0:01:01.360 --> 0:01:06.039 with a blunt question. How does this system deal with 0:01:06.120 --> 0:01:12.200 a potential governor this uniquely qualified. I don't think it 0:01:12.280 --> 0:01:15.040 creates huge amounts of problems. That there have been governors 0:01:15.040 --> 0:01:17.440 in the past that have been outside the mainstream. And 0:01:17.520 --> 0:01:21.200 Wayne Angel, as someone who comes to mind, uh and 0:01:21.360 --> 0:01:24.000 fed you know there's more than there's there's seven governors. 0:01:24.360 --> 0:01:26.800 There will be seven governors if the Waller and Shelton 0:01:26.840 --> 0:01:29.360 are confirmed, and I think you know they will. They 0:01:29.360 --> 0:01:32.080 will have a voice, but they will not actually set 0:01:32.080 --> 0:01:36.039 the path for Monterrey policy or regulatory policy. I'll be 0:01:36.080 --> 0:01:39.800 set by J. Paul and Randy Quarrels. The heart of 0:01:39.840 --> 0:01:43.200 her theory is the yearning to go back to another 0:01:43.319 --> 0:01:49.360 time of a more closed American system, a more static economy. 0:01:49.400 --> 0:01:53.360 To the many people that support Judy Shelton and that 0:01:53.840 --> 0:01:57.320 desire that feeling of another time and place, how do 0:01:57.400 --> 0:02:01.000 you respond in this time of an open America, an 0:02:01.000 --> 0:02:05.680 open economy. Well, she has advocated returning to the gold standard, 0:02:05.720 --> 0:02:09.640 and returning to the gold standard resulting tremendous increase in 0:02:09.680 --> 0:02:12.959 the volatility of interest rates because basically, my gold prices 0:02:13.000 --> 0:02:14.720 were going up, the Federal Reserve would have to rage 0:02:14.800 --> 0:02:18.639 rates when gold prices would have to lower interest rates, 0:02:18.720 --> 0:02:21.680 regardless of what was happening in the real economy, regardless 0:02:21.720 --> 0:02:24.440 of was having to inflation, regardless of what was having 0:02:24.440 --> 0:02:27.520 to The gold standard is not a good anchor for 0:02:27.680 --> 0:02:30.160 US monetary So let's talk about the real economy. How 0:02:30.200 --> 0:02:32.680 would you be reacting now to the data that started 0:02:32.720 --> 0:02:34.160 to come through in America? We saw in the high 0:02:34.200 --> 0:02:36.320 frequency day, so we've got a flavor that things were 0:02:36.320 --> 0:02:38.440 starting to store to roll over, and now we see 0:02:38.440 --> 0:02:40.919 it in jobless claims as well. They're starting to pick 0:02:41.000 --> 0:02:42.680 up again. I said a couple of months ago that 0:02:42.720 --> 0:02:45.280 it looks like the right wing of that v's starting 0:02:45.280 --> 0:02:47.079 to break. What would that mean for you? It's a 0:02:47.080 --> 0:02:50.040 policy make for the Fed again. Well, I think what's 0:02:50.040 --> 0:02:54.280 happening is the recovering economic activity is flattening out is 0:02:55.080 --> 0:02:59.960 as shut sounds are recurring, and social distancing is increasing again. 0:03:00.520 --> 0:03:02.800 And I don't think we're gonna see a fall back 0:03:02.800 --> 0:03:05.400 to where we were, uh, you know, in March, April 0:03:05.440 --> 0:03:08.600 and May. But the recovery is going to be quite subdued. 0:03:08.960 --> 0:03:12.200 The unemployment rate's gonna stay high for quite some time. 0:03:12.639 --> 0:03:14.800 And as a consequence of that, Monterrey policy is going 0:03:14.840 --> 0:03:16.720 to be on hold, and the Fed Federal Reserves be 0:03:16.800 --> 0:03:20.040 looking around for what things can they do to provide 0:03:20.040 --> 0:03:22.680 additional Monterrey pals. What things do you think they can 0:03:22.760 --> 0:03:25.400 and should do in the months to come. Well, I 0:03:25.400 --> 0:03:28.040 think Unfortunately, they don't have a lot of great weapons. 0:03:28.480 --> 0:03:30.360 I think they're going to continue their large scale as 0:03:30.440 --> 0:03:33.799 it purchases, buying treasuries and it is mortgage backed securities. 0:03:34.320 --> 0:03:37.840 They may come forward with more definitive forward guidance in 0:03:37.960 --> 0:03:41.240 terms of keeping interest rates until low, for long, until 0:03:41.440 --> 0:03:44.240 the unemployment rate falls below a particular level or inflation 0:03:44.280 --> 0:03:47.360 clowns above particular level. But the real, the real focus 0:03:47.440 --> 0:03:49.400 right now should be on fiscal policy. That's what the 0:03:49.480 --> 0:03:52.120 U S economy needs. We're basically right at the edge 0:03:52.160 --> 0:03:55.640 of a huge fiscal cliff with the expiration of the 0:03:55.640 --> 0:03:59.040 six hundred dollars a week unemployment conversation benefits at the 0:03:59.120 --> 0:04:02.240 end of this month. And if that's not, you know, 0:04:02.720 --> 0:04:06.880 replaced by something significant soon, the commun is actually gonna 0:04:07.600 --> 0:04:12.120 be weaker than participate. Bill Fedger Fedger J. Powell also 0:04:12.160 --> 0:04:15.160 agreeing with you coming out and saying fiscal policy is necessary. 0:04:15.240 --> 0:04:17.800 But the FED has control over monetary policy, and right 0:04:17.800 --> 0:04:21.400 now monetary policy is pushing investors into equities. We're looking 0:04:21.440 --> 0:04:24.160 at futures right now unchanged or a little bit higher 0:04:24.400 --> 0:04:27.440 on the day ahead of the open, even after these 0:04:27.720 --> 0:04:31.960 worsening labor statistics. How much should the equity market be 0:04:32.040 --> 0:04:35.200 a gauge of financial conditions for the Federal Reserve something 0:04:35.240 --> 0:04:38.039 to shoot for, with higher equity values being a good thing. 0:04:39.160 --> 0:04:41.320 I don't think the Fed wants the equity market to 0:04:41.360 --> 0:04:44.160 go to any particular level. They do want financial conditions 0:04:44.160 --> 0:04:46.240 to be accommodati if they want markets to work. They 0:04:46.240 --> 0:04:48.320 want markets the open and will functioning, and I think 0:04:48.360 --> 0:04:50.920 that's what they've achieved. I think there are some people 0:04:50.920 --> 0:04:53.240 on the Reserve that are a little bit concerned about 0:04:53.240 --> 0:04:55.960 how high the equity market in the last sea minutes, 0:04:56.360 --> 0:04:59.719 because saw a couple of people talking about financial stability 0:04:59.800 --> 0:05:02.400 is jees. I personally think the stock market is high 0:05:02.440 --> 0:05:05.320 mainly because bonnyals are low and bonniles are low because 0:05:05.360 --> 0:05:07.720 Montreal policy is going to be very accommodative for a 0:05:07.800 --> 0:05:10.320 number of years. Well. But to the extent that the 0:05:10.320 --> 0:05:13.480 Fed is worried about the widening gap between wealthy and 0:05:13.560 --> 0:05:16.760 poorer individuals, how concerning is it that their policies have 0:05:16.800 --> 0:05:20.479 pushed up asset prices, have created easier financial conditions, but 0:05:20.600 --> 0:05:23.320 clearly are not leading to a better labor market. Given 0:05:23.320 --> 0:05:27.240 the fact that we're seeing a reversal in the claims numbers. Well, 0:05:27.279 --> 0:05:29.960 I think they are frustrated by the fact that they 0:05:30.000 --> 0:05:33.360 don't have good tools to address the issue of income 0:05:33.360 --> 0:05:36.440 and equality. I think they wish they did have better tools. 0:05:36.440 --> 0:05:39.320 But Montrey policy is not well suited for the fiscal policies. 0:05:39.640 --> 0:05:41.719 So it's really for Congress and the administration to do 0:05:41.800 --> 0:05:45.080 things on fiscal policy that help address the fact that 0:05:45.160 --> 0:05:48.240 the burden of the of the pandemic is falling disproportionately 0:05:48.279 --> 0:05:51.520 on low and moderating communciles. Bill Dudley Wethers, and we 0:05:51.520 --> 0:05:54.119 will continue with the former president of New York FED. 0:05:54.320 --> 0:05:57.280 We welcome all of you on Bloomberg Radio and Bloomberg Television. 0:05:57.320 --> 0:05:59.800 Is John Farrell notes a flip in the market here, 0:06:00.000 --> 0:06:03.040 you just come back dollars stronger. And John, we've got 0:06:03.040 --> 0:06:05.719 to look as we as we continue with Bill Dudley, John, 0:06:05.760 --> 0:06:09.000 we've got to look at the substantial curve flattening. It's 0:06:09.040 --> 0:06:11.560 really broken down long end and buy two basis points 0:06:11.600 --> 0:06:14.560 to about on a thirty year Bill, talk to me 0:06:14.600 --> 0:06:17.599 about the QUE program and the scope for adjusting that 0:06:17.680 --> 0:06:19.800 to sit at the long end just a little bit more. 0:06:19.880 --> 0:06:22.720 The front end is already so well anchored. What can 0:06:22.760 --> 0:06:24.039 you do with the long end and what did you 0:06:24.160 --> 0:06:28.360 learn coming down to the last crisis. Well, the historically 0:06:28.360 --> 0:06:31.080 as used their large scale asset purchased to buy treasuries 0:06:31.160 --> 0:06:34.039 across the yield curve. They could decide to buy more 0:06:34.200 --> 0:06:37.120 longer matority treasury since, as you point out, the short 0:06:37.240 --> 0:06:40.320 end of the treasure market is well anchored by expectations 0:06:40.880 --> 0:06:44.160 move for next for for several years, that has indicated 0:06:44.200 --> 0:06:46.920 that they're going to shift their large scale asset purchase 0:06:47.000 --> 0:06:50.200 programs from focusing on market function, which is now good 0:06:50.480 --> 0:06:53.200 for focusing on how do you actually stimulate econmy I 0:06:53.200 --> 0:06:55.720 think that it does imply that they're gonna buy a 0:06:55.839 --> 0:06:58.599 greater proportion of longer dated treasury. But before we let 0:06:58.640 --> 0:07:01.159 you go, I need a message for fiscal policymakers down 0:07:01.160 --> 0:07:04.400 in Washington. There's a real discussion about perhaps allowing the 0:07:04.480 --> 0:07:08.480 enhanced unemployment benefits to expire, maybe to taper them aggressively. 0:07:08.520 --> 0:07:10.320 Maybe that's the best case that we can hope for 0:07:10.640 --> 0:07:14.440 at the administration and Republicans. If that happens, what you 0:07:14.480 --> 0:07:19.720 expect August and September data to look like, Bill, Well, again, 0:07:19.760 --> 0:07:21.800 I think it's going to depend more on the course 0:07:21.840 --> 0:07:25.080 of the pandemic and what social distancing that then requires. 0:07:25.160 --> 0:07:28.600 But if there is no extension of unemployment, conversation benefits, 0:07:28.640 --> 0:07:31.360 and I think you will see consequences for consumer spending. 0:07:31.520 --> 0:07:34.040 The consumer spending is held up reasonably well in part 0:07:34.080 --> 0:07:37.600 because household incomes have been well supported by fiscal policy 0:07:38.000 --> 0:07:41.000 that supports ends the consequences. What we're seeing in the 0:07:41.000 --> 0:07:43.000 liver market, You're gonna start to become more important in 0:07:43.080 --> 0:07:46.880 terms of outlets. Bill, appreciate your time this morning. Appreciate 0:07:46.880 --> 0:07:48.800 your patients to great to catch up you William don't 0:07:48.800 --> 0:08:02.440 be their former New York Fed president right now joining us, 0:08:02.480 --> 0:08:05.440 And I'm really looking forward to a good conversation with 0:08:05.560 --> 0:08:09.000 a guy who has put together a firm of continued success. 0:08:09.160 --> 0:08:11.280 It is ever cord as ever Core I s I 0:08:11.360 --> 0:08:13.600 of course with the great at Himan and he is 0:08:13.720 --> 0:08:17.560 Ralph Schlastein. He is co chairman and co CEO, looking 0:08:17.600 --> 0:08:20.080 like he just played a folk act at the Dennison 0:08:20.160 --> 0:08:24.200 College Michael Eisner Performing Center, and we are thrilled he 0:08:24.240 --> 0:08:27.840 could join us this morning. Ralph, I want to talk 0:08:28.000 --> 0:08:32.160 first about your senior chairman, Roger Altman. I think it 0:08:32.280 --> 0:08:36.719 is under appreciated how lonely you guys were when you 0:08:36.800 --> 0:08:40.240 set up ever cor. What did Altman and schlo Stein 0:08:40.360 --> 0:08:44.920 do at that time that was so different? Well, I 0:08:44.960 --> 0:08:48.680 wasn't there. Roger was there for the first fourteen years 0:08:48.840 --> 0:08:52.200 without me. I joined eleven years ago. But he literally, 0:08:52.840 --> 0:08:58.000 uh came back from his stint at the Treasury and 0:08:58.200 --> 0:09:02.840 thought that the world needed a more old time investment bank, 0:09:03.200 --> 0:09:07.560 one that focused purely on advice. Uh. And the very 0:09:07.679 --> 0:09:12.679 first presentation he made twenty five years ago, the first 0:09:12.720 --> 0:09:17.360 page had the words quality and integrity on that first page. 0:09:17.920 --> 0:09:20.320 And I've been here eleven years. The one thing I 0:09:20.400 --> 0:09:23.400 was allowed to do by Roger is I change quality 0:09:23.440 --> 0:09:26.840 to excellence. And so now it's excellence in integrity. But 0:09:27.600 --> 0:09:31.760 it's it's a great business model. We have very senior people. 0:09:32.320 --> 0:09:37.400 They actually do the work rather than just show and 0:09:37.480 --> 0:09:40.920 the board meeting. So well, that's a huge distinction, and 0:09:41.040 --> 0:09:43.240 certainly we've seen that with Ed Hyman and with the 0:09:43.240 --> 0:09:46.760 others of your your principles. Okay, let's cut to the chase. 0:09:47.120 --> 0:09:50.800 How do you readjust and recalibrate out of this pandemic 0:09:51.440 --> 0:09:57.080 given the competition of the major banks. Well, uh, what 0:09:57.160 --> 0:10:00.080 we have done over the last several years is to 0:10:00.280 --> 0:10:05.200 dramatically broaden the things that we can advise our clients on. 0:10:05.559 --> 0:10:10.320 So we have the number one activist fence practice. We're 0:10:10.360 --> 0:10:14.440 the only independent firm with an equity underwriting capability, and 0:10:14.480 --> 0:10:18.800 in the quarter we just finished, we did more underwriting 0:10:18.800 --> 0:10:22.120 revenues UH than we did all of last year, which 0:10:22.160 --> 0:10:25.960 was a record for US. We have debt advisory, we 0:10:26.040 --> 0:10:30.640 have restructuring UH advice on hedging. So what we've done 0:10:30.720 --> 0:10:36.160 is we've built deep capabilities in everything that a company 0:10:36.200 --> 0:10:40.400 would want to do. Big firm as a counterpart Ralph. 0:10:40.480 --> 0:10:42.880 One important question, and this has come up with Lisa 0:10:42.920 --> 0:10:47.080 Bramwis and John Farrell day after day. You guys have 0:10:47.200 --> 0:10:52.280 been massively benefited by the stimulus of Jerome Powell and 0:10:52.320 --> 0:10:56.080 by the leadership of Congress. How do you how do 0:10:56.120 --> 0:10:59.560 you move forward with the American public Where we see 0:11:00.160 --> 0:11:03.760 New York Wall Street and indeed global Wall Street benefiting 0:11:03.960 --> 0:11:10.000 so much from the stimulus, That's a I think a 0:11:10.200 --> 0:11:15.559 really really important issue. UH. There's clearly been a uh 0:11:16.080 --> 0:11:20.400 massive effect on the capital markets, both the equity market 0:11:20.520 --> 0:11:24.199 and the debt market. UH, and that has certainly benefited 0:11:24.240 --> 0:11:29.800 the trading activities and the shares of the large firms 0:11:29.920 --> 0:11:33.800 and of all all firms also, So we have this 0:11:35.040 --> 0:11:40.160 massive inequality. It was necessary to stabilize the economy, but 0:11:40.240 --> 0:11:43.520 it's had a much greater effect on the wealth of 0:11:43.559 --> 0:11:46.480 the wealthy than it has on the well being of 0:11:46.520 --> 0:11:49.839 those in me. Does that compromise your ambitions in any way, 0:11:49.840 --> 0:11:53.280 shape or film, Ralph, No, I think we have to 0:11:53.320 --> 0:11:57.599 continue to do what we do, but it does, UH, 0:11:57.760 --> 0:12:01.040 in my private life make me some bard of of 0:12:01.880 --> 0:12:07.640 UH people and of policies that are focused more on 0:12:07.720 --> 0:12:11.640 a more equal distribution of wealth in this country. Give 0:12:11.679 --> 0:12:13.360 us more detail on that, Ralph, Is that a shift 0:12:13.400 --> 0:12:16.559 to the left for you politically speaking ahead of this election? No, 0:12:16.800 --> 0:12:21.920 I actually, uh worked for Hubert Humphrey in the Senate 0:12:22.520 --> 0:12:25.680 and then worked for President Carter in the White House, 0:12:25.720 --> 0:12:28.720 so I've always had a I wouldn't call it a left. 0:12:28.760 --> 0:12:32.760 I'm a conservative on fiscal policy, but I do believe 0:12:33.679 --> 0:12:35.920 that we need to do more for those who are 0:12:36.520 --> 0:12:43.120 underserved in terms of income, health care, housing in this country. So, Ralph, 0:12:43.120 --> 0:12:45.480 given the fact that you're a fiscal conservative, what would 0:12:45.480 --> 0:12:47.720 you say to companies right now raising record amounts of 0:12:47.760 --> 0:12:50.760 debt in order to survive this period of time becoming 0:12:50.800 --> 0:12:54.800 more indebted ahead of a period of slowing growth. Well, 0:12:54.840 --> 0:12:59.080 I think the the most important thing for every company 0:12:59.200 --> 0:13:01.920 to look at in the period that we've just been 0:13:01.960 --> 0:13:07.160 through has been liquidity. Uh, do we have the cash 0:13:07.240 --> 0:13:11.920 to survive? Because? Uh? In O eight O nine, we 0:13:12.080 --> 0:13:16.680 learned that financial institutions fail not because of capital, but 0:13:16.760 --> 0:13:22.920 because of liquidity. And in this UH recession, deep recession, 0:13:23.960 --> 0:13:29.760 we have learned also that that phenomena is more widespread. 0:13:29.880 --> 0:13:32.120 So we spent a lot of time in the last 0:13:32.160 --> 0:13:35.719 four months encouraging companies to put more cash on their 0:13:35.720 --> 0:13:38.959 brown sheets. But here's here's the conundrum, Rouph. Because we're 0:13:38.960 --> 0:13:41.480 heading into a period of slowing growth, we have a 0:13:41.520 --> 0:13:45.320 more fragile economy, and we have more indebted companies. Why 0:13:45.400 --> 0:13:49.080 not just file for bankruptcy? Why not renegotiate the debtloads 0:13:49.080 --> 0:13:52.800 now with creditors to reduce the obligations rather than putting 0:13:52.800 --> 0:13:57.559 their entire capital models in a more precarious situation. Well, 0:13:57.600 --> 0:14:01.800 there's some of that going on as well. Uh. I 0:14:01.840 --> 0:14:05.280 think the real issue, UH, in terms of how to 0:14:05.440 --> 0:14:10.240 solve one's balance sheet issues, depends upon the outlook for 0:14:10.240 --> 0:14:14.720 the business. If if it truly is a the uh 0:14:15.000 --> 0:14:21.000 type uh downturn and then recovery. Uh. Then it's just 0:14:21.080 --> 0:14:24.600 a matter of having the cash to survive to the 0:14:24.600 --> 0:14:29.000 other side of the chasm. Other businesses obviously are going 0:14:29.080 --> 0:14:33.520 to be more seriously uh and permanently impaired, and for them, 0:14:33.960 --> 0:14:38.520 you know, bankruptcy and recapitalization is the right model. Well, 0:14:38.560 --> 0:14:41.680 if the heritage of ever Core Forward is on John 0:14:41.720 --> 0:14:44.560 Weinberg and you and of course Mr Weinberg, that name 0:14:44.600 --> 0:14:48.840 is magical and always associated with Golden Sex, I'd be 0:14:48.880 --> 0:14:52.920 honored if you'd comment Ralph on the retail experiment at 0:14:52.920 --> 0:15:00.000 Golden Sex. Can institutions be all things to all people? Uh? 0:15:00.000 --> 0:15:03.160 If do you really want me to comment on that, 0:15:03.360 --> 0:15:09.400 he'd love you take if I were in their shoes, 0:15:09.480 --> 0:15:13.960 It's not the path that I would choose. Uh. I 0:15:14.000 --> 0:15:16.840 think that. Well, there are two parts of their retail experiment. 0:15:17.440 --> 0:15:24.560 One is collecting deposits. That makes sense because deposits are 0:15:24.720 --> 0:15:28.840 much more stable funding source uh than going to the 0:15:28.920 --> 0:15:33.000 institutional market. And I think that is a very sound 0:15:33.040 --> 0:15:34.920 thing to do. And they're you know, they're paying up 0:15:34.960 --> 0:15:38.480 a little bit, but they're paying for much more stable 0:15:39.200 --> 0:15:44.360 liabilities or borrowings. Uh, the lending side of it. I'm 0:15:44.440 --> 0:15:47.800 not a big fan of It's a very crowded business. 0:15:48.480 --> 0:15:52.320 Uh and uh coming late to the party. In my view, 0:15:52.800 --> 0:15:55.880 as you know, Ralph, Bloomberg, surveillance is all about the 0:15:55.960 --> 0:15:59.960 conversation with experts. Of course, we all know your acquisition 0:16:00.040 --> 0:16:03.120 of that Hyman Services a number of years ago. Tell 0:16:03.200 --> 0:16:07.400 us the value, the intellectual component value of the future 0:16:07.480 --> 0:16:10.560 Wall Street, the future global Wall Street. How much does 0:16:10.600 --> 0:16:14.920 it matter that experts will be needed? I you know, 0:16:15.120 --> 0:16:19.600 it's it's interesting. I often say, uh that we're We're 0:16:19.600 --> 0:16:22.280 in every business that Goldman Sacks is in that meets 0:16:22.320 --> 0:16:26.200 the following criteria. You compete solely on the basis of 0:16:26.280 --> 0:16:31.000 your ideas, your intellectual capital, and your relationships. And the 0:16:31.000 --> 0:16:34.760 only source of revenue is f income. So we are 0:16:35.560 --> 0:16:40.360 we are the walking example of an intellectual capital firm. 0:16:40.520 --> 0:16:43.800 We have two major businesses, the research business which you 0:16:43.920 --> 0:16:48.480 just asked about, and the investment banking advisory business, and 0:16:48.560 --> 0:16:54.000 both of those are fundamentally driven by intellectual capital. Ralph. 0:16:54.040 --> 0:16:56.720 One final question, this is a critical importance. We have 0:16:56.800 --> 0:17:00.040 a viewer that emails in right now, John from of 0:17:00.160 --> 0:17:03.520 indremed and he suggests. I asked you, do you think 0:17:03.560 --> 0:17:06.000 I could pull off the beard? Relf? I mean this 0:17:06.119 --> 0:17:09.400 was a point of debate pre pandemic. Did you think 0:17:09.520 --> 0:17:14.359 you know? Does my face say beard? Tom? You're asking 0:17:14.400 --> 0:17:17.240 about you? Yeah, do you think I should grow a beard? 0:17:17.280 --> 0:17:20.400 What do you think? I don't know. You should probably 0:17:20.600 --> 0:17:22.960 ask those near and dear to you. Yeah, I did. 0:17:23.040 --> 0:17:28.960 Hell from New Jersey said no, Ralph, last I go away. Congratulations, Congratulations, Ralph, 0:17:29.080 --> 0:17:34.040 last time with ever talking to you. Thank you, Ralph, 0:17:34.080 --> 0:17:46.679 appreciate it. Right now our conversation of the day on China, 0:17:46.760 --> 0:17:49.879 Meredith Sumters eraise your group had a research strategy and 0:17:49.960 --> 0:17:52.760 operations in a move from Bill Ackman over to the 0:17:52.800 --> 0:17:56.520 authority of Meredith Sumters important out of LSE and a 0:17:56.640 --> 0:18:00.719 course with a profound knowledge of China. Meredith, what can 0:18:00.760 --> 0:18:03.800 you add to the conversation? You see the punditry, it's 0:18:03.800 --> 0:18:06.360 in the zeitgeist right now. But what can you add 0:18:06.400 --> 0:18:09.879 on this Thursday morning about this consulate tip for Tad. 0:18:11.560 --> 0:18:14.400 Great to be here with you, Tom. I would say, like, look, 0:18:14.480 --> 0:18:18.520 this is a remarkably unusual escalation. A closure of a 0:18:18.640 --> 0:18:22.080 conflant outside of wartime is rare and It's really just 0:18:22.160 --> 0:18:24.520 one of a myriad of US actions, as you've noted, 0:18:24.560 --> 0:18:26.800 to pressure China and to try to put the ballateral 0:18:26.880 --> 0:18:31.240 relationship on a fundamentally different course. And we heard comments 0:18:31.240 --> 0:18:34.040 that this is strong, but the question is is it effective? 0:18:34.600 --> 0:18:38.760 And what's key here? As you see this unswerving US 0:18:38.840 --> 0:18:43.240 pressure in speeches of Trump administration officials over the past 0:18:43.280 --> 0:18:47.920 several weeks, National Security Advisor O'Brien hitting out the ideology 0:18:47.960 --> 0:18:52.919 of the CCP, the Communist Party, train General bar calling 0:18:53.000 --> 0:18:55.400 China's ambitionism to trade with the US but to raid 0:18:55.440 --> 0:18:58.879 the US, and of course Secretary of State Pompeo who's 0:18:58.920 --> 0:19:03.440 called the relationship fundentally detrimental to the United States. All 0:19:03.520 --> 0:19:05.880 this tells you is that you should expect the US 0:19:05.920 --> 0:19:10.320 to continue this escalation with China up through November, even 0:19:10.359 --> 0:19:13.760 as most US officials recognize that President Trump, accordin to 0:19:13.840 --> 0:19:16.880 Whole Night numbers, is currently on track to potentially lose 0:19:16.880 --> 0:19:20.840 in November. Their actions. Bottom line, what we're watching here 0:19:20.920 --> 0:19:23.840 is their actions could fundamentally alter the course of the 0:19:23.960 --> 0:19:28.360 Biloud relationship on the eve of a potential administration change. Well, Mary, 0:19:28.440 --> 0:19:30.280 to let me ask you this from your perspective of 0:19:30.400 --> 0:19:36.000 these decisions surgical or they reactive and unpredictable. You mean 0:19:36.000 --> 0:19:38.120 that the decisions from the U S and Jonathan, Yeah, 0:19:38.119 --> 0:19:40.440 I'm just wondering if there is an ultimate objective here 0:19:40.480 --> 0:19:42.320 and there are some surgical decisions which are going to 0:19:42.400 --> 0:19:44.680 come together in a bigger picture, there's a bigger strategy, 0:19:45.040 --> 0:19:48.679 or whether this is just ad hoc. I wouldn't call 0:19:48.720 --> 0:19:51.280 it necessarily ad hoc, but I wouldn't call it part 0:19:51.320 --> 0:19:55.760 of a grand strategy at all. Talking to Trumba administration officials, 0:19:55.800 --> 0:19:58.480 what's clear is the President has given a green light 0:19:58.520 --> 0:20:01.600 for his officials to get how on China, thinking it 0:20:01.880 --> 0:20:04.399 might help him in the polls, although so far his 0:20:04.520 --> 0:20:07.320 campaign has been disappointed by that, with voters focus more 0:20:07.359 --> 0:20:11.080 so on pandemic than on China. But President Trump has 0:20:11.119 --> 0:20:13.879 been very clear that his Phase one trade deal is 0:20:13.960 --> 0:20:16.560 off limits. So you see this tip for tat escalation 0:20:16.680 --> 0:20:19.240 being pushed by the U S side that gets right 0:20:19.359 --> 0:20:22.320 up to that breaking point, but it's not meant to 0:20:22.359 --> 0:20:24.719 go over the line, and the risk is that they 0:20:24.760 --> 0:20:26.920 could go over the line without knowing that they're doing. 0:20:26.960 --> 0:20:29.440 So what happens then, what happens if the Phase one 0:20:29.480 --> 0:20:32.720 trade deal gets rejected, is basically dead in the water, 0:20:32.760 --> 0:20:35.120 as Leland Miller China Beige Book thinks it probably will 0:20:35.160 --> 0:20:38.720 be soon, you know, at least. What's really key here 0:20:38.960 --> 0:20:41.080 is that, well, obviously you know in the immediate term 0:20:41.119 --> 0:20:43.959 there's going to be negative market reaction and fallout. This 0:20:44.080 --> 0:20:46.240 is not what President Trump wants in his side, neither 0:20:46.359 --> 0:20:48.679 is it what for his president she wants on on 0:20:48.800 --> 0:20:51.040 Beijing side, which is why we still have a sixty 0:20:51.040 --> 0:20:55.520 five percent probability that that deal last through the November election. 0:20:55.600 --> 0:20:58.119 But what's really key here is that Phase one deal 0:20:58.320 --> 0:21:03.400 is increasingly a relevant barometer of the U. S. China relationship. 0:21:03.720 --> 0:21:07.159 Even if that deal provides, the broader relationship has pretty 0:21:07.240 --> 0:21:11.600 much fallen apart, and that that is going to be 0:21:11.720 --> 0:21:13.720 the case with regardless of whether you have a second 0:21:13.800 --> 0:21:16.400 term compan administration or if you have a Joe Biden 0:21:16.400 --> 0:21:20.000 administration who will come into office and inherit uh quite 0:21:20.000 --> 0:21:22.320 a challenging by that of relationships. I mean, we can 0:21:22.359 --> 0:21:24.640 go all day on this and the different theories of 0:21:24.840 --> 0:21:27.280 game theory, Meredith Sumter, but it comes down to a 0:21:27.280 --> 0:21:29.840 game of chicken. Maybe you go back to Cuba and 0:21:29.880 --> 0:21:33.840 the Cuban missile crisis, mutual assured destruction. It comes down 0:21:33.840 --> 0:21:37.480 to who's gonna blink first. How does that play out? 0:21:37.600 --> 0:21:41.399 What is the process of how you get through a 0:21:41.480 --> 0:21:45.639 game of chicken? Well, I would say I think that 0:21:45.800 --> 0:21:49.159 from from Asians perspective, they're just trying to manage that 0:21:49.240 --> 0:21:52.560 game of chicken through November, looking at poll numbers and 0:21:52.600 --> 0:21:54.960 hoping that they're going to have a change in US 0:21:55.000 --> 0:21:58.480 political leadership that they don't think will necessarily have a 0:21:58.560 --> 0:22:03.320 fundmently different view of of that that um uh sort 0:22:03.320 --> 0:22:05.919 of confrontation with China, but it will be handled in 0:22:05.920 --> 0:22:09.960 a much different way and a much more manageable way 0:22:10.040 --> 0:22:12.479 for Beijing murder. If we've got to wrap up by 0:22:12.520 --> 0:22:16.119 talking about the response from Beijing. Last week, the United 0:22:16.200 --> 0:22:19.360 Kingdom is freezing out announcing plans to freeze out Huawei. 0:22:19.480 --> 0:22:21.359 What we've learned in the last twenty four hours is 0:22:21.400 --> 0:22:24.000 that China is responding by having a blackout for the 0:22:24.040 --> 0:22:26.679 English Premier League this coming weekend, the last game of 0:22:26.720 --> 0:22:29.800 the season. I'm just wondering why they keep going towards sports. 0:22:29.800 --> 0:22:31.160 They did this with the mp A and the last 0:22:31.160 --> 0:22:33.560 twelve months as well, they're doing with English football. Now 0:22:33.600 --> 0:22:35.879 in the last twenty four hours, how effective do you 0:22:35.880 --> 0:22:39.920 think the strategy actually is? Jonathan talked about a game 0:22:39.920 --> 0:22:41.680 of chicken. You think you have problems with the US 0:22:41.760 --> 0:22:44.600 China relationship, and China has problems across the whole host 0:22:45.080 --> 0:22:48.800 of its relationships externally. And the question is does Beijing 0:22:49.000 --> 0:22:53.000 realize the strategic error that they're making. In other words, 0:22:53.000 --> 0:22:55.200 at a time when the US positions vis the China 0:22:55.240 --> 0:22:57.119 and frankly Vius to be, the rest of the world 0:22:57.720 --> 0:23:00.040 has been at odds with with what the worst of 0:23:00.080 --> 0:23:03.359 the world want, this could have been an opportunity for Beijing, 0:23:03.560 --> 0:23:07.480 but really Beijing has fundamentally failed to capitalize on that 0:23:08.080 --> 0:23:11.520 on the part of using politics in its own political 0:23:11.560 --> 0:23:14.800 insentives to try to course other countries. That's going to 0:23:14.880 --> 0:23:18.159 have negative fill over, John, are you telling me that 0:23:18.400 --> 0:23:21.399 China is gonna blackout Crystal Palace and the tots that 0:23:21.520 --> 0:23:24.320 massive game that you're so excited about, they won't be 0:23:24.359 --> 0:23:27.760 able to see. Meredith, were gonna say thank you, Meredith 0:23:27.840 --> 0:23:31.000 somethday you write your group had of research, strategy and operations. 0:23:41.600 --> 0:23:44.480 Joining is right now a gentleman who it is important 0:23:44.520 --> 0:23:50.280 to speak to on the miles rounded up six miles 0:23:51.160 --> 0:23:56.600 from Manila west northwest to a set of islands with 0:23:56.840 --> 0:24:00.080 Chinese jets on them in the South China Sea, and 0:24:00.119 --> 0:24:02.719 that would, of course be James Trevinis. Admiral Stevinus has 0:24:02.800 --> 0:24:05.280 been a wonderful friend of the show, and of course 0:24:06.080 --> 0:24:09.080 has authored too many books to count, including the time 0:24:10.000 --> 0:24:13.880