WEBVTT - Bloomberg Wall Street Week: October 21, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.080 to the markets this week. U s CPI never's reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to Mark. It's more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S. Economy really is. Through 0:00:16.239 --> 0:00:19.439 the eyes of the most influential voice of Larry Summers, 0:00:19.480 --> 0:00:22.279 the former Tractor Secretary, Katherine Keening, CEO of the n 0:00:22.400 --> 0:00:26.239 Y Mollins Sam's l Shairman and founder of Equitic Group Investments. 0:00:26.320 --> 0:00:30.320 Bloomberg wool Street Week with David Weston from Bloomberg Rede 0:00:30.480 --> 0:00:33.360 call it the rescue week, with the President trying to 0:00:33.479 --> 0:00:36.680 rescue buyers at the gas bump, earnings trying to rescue 0:00:36.720 --> 0:00:39.880 troubled markets, and the British government just plane needing a 0:00:40.000 --> 0:00:43.960 rescue period. This is Bloomberg Wall Street Week. I'm David Weston. 0:00:45.120 --> 0:00:47.840 This week special contributor Larry Summers on having to make 0:00:47.880 --> 0:00:52.040 hard choices to get inflation down. If your deficit projection 0:00:52.240 --> 0:00:56.600 starts to get out of control and your real interest 0:00:56.680 --> 0:01:00.279 rates start to rise, you can get into who are 0:01:00.400 --> 0:01:03.240 kind of doom? Loup and Debrael Laire of the Paulson 0:01:03.320 --> 0:01:07.680 Institute on whether President Je's ideology can get China's economy 0:01:07.800 --> 0:01:11.120 growing again. She's facing a lot of headwinds when it 0:01:11.120 --> 0:01:26.520 comes to the economy. It was a tough time on 0:01:26.560 --> 0:01:29.320 Global Wall Street, but nowhere was a tougher than at 0:01:29.400 --> 0:01:32.119 Number ten Downing Street, where Liz trust Is on her 0:01:32.120 --> 0:01:35.760 way to becoming the shortest serving Prime Minister in British history, 0:01:36.080 --> 0:01:38.640 forced to resign after concluding she just couldn't get done 0:01:38.880 --> 0:01:42.039 what she'd set out to do. I cannot deliver the 0:01:42.080 --> 0:01:45.959 mandate on which I was elected by the Conservative Party. 0:01:46.360 --> 0:01:49.440 I have therefore spoken to His Majesty, the King to 0:01:49.560 --> 0:01:53.280 notify him that I am resigning as leader of the 0:01:53.360 --> 0:01:57.440 Conservative Party. It wasn't easy for President Biden either, as 0:01:57.440 --> 0:01:59.880 he continued to fight high gas prices, for which he 0:02:00.120 --> 0:02:03.760 largely blamed the oil companies encountered with yet another release 0:02:03.840 --> 0:02:07.640 from the Strategic Petroleum Reserve. The Department advantage, you release 0:02:07.680 --> 0:02:12.320 another fifteen million barrels from the Strategic Patrolling Reserve, extending 0:02:12.360 --> 0:02:15.800 our previously announced release through the month of December. The 0:02:15.880 --> 0:02:18.600 market spent the week looking for some form of rescue 0:02:18.639 --> 0:02:20.720 from earnings, and they did get a bit of it 0:02:20.840 --> 0:02:25.239 from companies like Netflix with read hastings giving thanks well, 0:02:25.280 --> 0:02:29.239 thank god, we're done with shrinking quarters, so the big 0:02:29.280 --> 0:02:33.120 feeling of we're back to the positivity. But Tesla didn't 0:02:33.120 --> 0:02:36.160 help much by disappointing on sales, though Elon Musk predicted 0:02:36.360 --> 0:02:38.680 it would make it up in the fourth quarter. As 0:02:38.720 --> 0:02:41.640 a factors ran, we're looking forward to a record breaking pupil, 0:02:41.880 --> 0:02:45.080 so it's literally no one would it looks it looks 0:02:45.120 --> 0:02:48.160 like we'll have an happy command of here. And although 0:02:48.240 --> 0:02:52.120 Goldman Sachs earnings were a pleasant surprise, Chief DJ Officer 0:02:52.200 --> 0:02:54.320 David Solomon said they have a fair amount of work 0:02:54.360 --> 0:02:59.160 to do. Importantly, talent is moving around tremendously at Goldman 0:02:59.200 --> 0:03:03.200 Sacks to a lie behind David Solomon's new new vision 0:03:03.600 --> 0:03:08.280 remix the Remix, And at the end of what was 0:03:08.320 --> 0:03:11.239 a wild week, the markets did find similarly finally, with 0:03:11.320 --> 0:03:14.959 the SMP five four point seven four percent for the week, 0:03:15.080 --> 0:03:17.720 while the NASTAC was up five point to two percent, 0:03:18.000 --> 0:03:20.560 and it was all pretty much driven by anticipation of 0:03:20.560 --> 0:03:22.600 where the Fed is heading, as the yield and the 0:03:22.639 --> 0:03:24.960 ten year climbed for much of the week, but after 0:03:25.080 --> 0:03:28.520 peaking over four point three midday and Friday it fell 0:03:28.600 --> 0:03:31.040 to four point two percent to end the week, while 0:03:31.080 --> 0:03:33.480 the two years, well, the two year fell thirteen basis 0:03:33.480 --> 0:03:37.080 points on Friday alone, after speculation grew that the center 0:03:37.160 --> 0:03:40.280 right might just slow its rate hikes after November. To 0:03:40.360 --> 0:03:42.360 take us through the week in the markets, we welcome 0:03:42.400 --> 0:03:45.320 now you're in Timor he's director of Global Macro for 0:03:45.320 --> 0:03:48.280 Fidelity Management, and Sonal Decide c I O for the 0:03:48.320 --> 0:03:51.320 Franklin Templeton Fixed Income Group. Welcome both of you back 0:03:51.360 --> 0:03:52.800 to Wall Street week. Good to have you here. So 0:03:52.800 --> 0:03:54.600 now let me start with you because so much after 0:03:54.680 --> 0:03:56.720 this week I think was driven off of fixed income, 0:03:56.720 --> 0:04:00.320 particularly those treasury rates. So what did we see this again? 0:04:00.360 --> 0:04:03.440 Why were there so many apparently violent moves up and down? 0:04:04.240 --> 0:04:07.720 It was a crazy week, but it's been several crazy weeks. 0:04:07.800 --> 0:04:12.000 I think until the market gets a sense of where 0:04:12.040 --> 0:04:15.080 the Fed is going to go and stop, we're going 0:04:15.120 --> 0:04:18.440 to keep getting these wild bouts of volatility. We've been 0:04:18.480 --> 0:04:21.120 expecting it for a while in a sense, you know, 0:04:21.600 --> 0:04:24.480 there was not that much of news in the Fed 0:04:24.600 --> 0:04:27.080 saying that they're close to being done. Well, of course 0:04:27.080 --> 0:04:29.440 they are. We already know that we're going to get 0:04:29.520 --> 0:04:31.839 up to five, maybe five point two five, maybe a 0:04:31.839 --> 0:04:34.720 bit more, but quite early in the new year, it's 0:04:34.760 --> 0:04:37.040 pretty clear that they will be getting close to an end. 0:04:37.040 --> 0:04:39.920 We get a seventy five, maybe we get another fifty, 0:04:39.960 --> 0:04:42.520 after which do we get another fifty, another twenty five? 0:04:42.839 --> 0:04:45.599 I think the more interesting thing is what happens after that, 0:04:46.080 --> 0:04:49.560 once the market feels that they know that the FED 0:04:49.880 --> 0:04:53.000 is not going to pivot on a dime. I think 0:04:53.040 --> 0:04:55.560 we might get to a point where we stop seeing 0:04:55.600 --> 0:04:59.160 these wild back and forths because these are these are 0:04:59.200 --> 0:05:04.159 truly massive moves in the treasury market. And uh I 0:05:04.200 --> 0:05:08.040 would just note that every single data point is going 0:05:08.080 --> 0:05:11.279 to carry with it this level of gravity in terms 0:05:11.279 --> 0:05:14.080 of the moves that we see until we get to 0:05:14.080 --> 0:05:17.560 the stage that the market buys what the FED is selling. 0:05:17.760 --> 0:05:19.640 And you're in, where are we headed? Where is the 0:05:19.640 --> 0:05:21.800 FED head? Because I look at my Bloomberg right now, 0:05:21.920 --> 0:05:24.120 the FED futures rate looks like it's about five point 0:05:24.120 --> 0:05:25.839 oh five. At one point this we goes up close 0:05:25.880 --> 0:05:28.400 to five point two in terms of a terminal rate. Yeah, 0:05:28.400 --> 0:05:31.960 so when you look at the SOFA curve, it peaks 0:05:31.960 --> 0:05:35.479 it around five percent um and you look at the 0:05:35.560 --> 0:05:38.320 you know, the implied terminal rate. You know, it's around 0:05:38.520 --> 0:05:40.520 the it's around the same. You know, the markets have 0:05:40.600 --> 0:05:45.320 been in a relentless mode of price discovery this year, right, 0:05:45.360 --> 0:05:48.200 and the glass has been half empty for the last 0:05:48.360 --> 0:05:51.040 nine months, where you know, every time we think maybe 0:05:51.080 --> 0:05:53.039 the markets are bottoming and the FED is going to 0:05:53.080 --> 0:05:57.080 be close to being done, that moving target starts to 0:05:57.400 --> 0:05:59.800 starts to move again in the wrong direction. But I 0:06:00.120 --> 0:06:03.200 do think we're we're getting to a more glass half 0:06:03.240 --> 0:06:05.800 full mode. And I think that's what the stock market 0:06:05.880 --> 0:06:09.400 is starting to signal here that you know, at this 0:06:09.440 --> 0:06:12.640 point the expectations for the FED are are so bad 0:06:12.720 --> 0:06:16.240 and meaning they're going to go so far that the 0:06:16.920 --> 0:06:20.400 possibility of a surprise may start to you know, go 0:06:20.480 --> 0:06:23.440 more in our favor. So maybe the fat doesn't have 0:06:23.520 --> 0:06:25.240 to go all the way to five. Maybe it only 0:06:25.279 --> 0:06:27.440 needs to go to four and a half. Uh. You know, 0:06:27.480 --> 0:06:32.479 financial conditions have tightened significantly, so maybe the FED is 0:06:32.520 --> 0:06:35.719 closer to being done than we think. But you know, 0:06:36.040 --> 0:06:39.039 I think the FED is pretty committed to getting inflation 0:06:39.160 --> 0:06:42.240 back towards its target of let's say two two and 0:06:42.279 --> 0:06:45.320 a half percent, and you know, we're a long ways 0:06:45.400 --> 0:06:47.479 from that, and so I think the risk is not 0:06:47.600 --> 0:06:50.720 so much that the FED overshoots or undershoots in the 0:06:50.720 --> 0:06:53.359 near term, but that it's going to take longer to 0:06:53.440 --> 0:06:56.080 get back to a neutral policy after it gets to 0:06:56.160 --> 0:06:59.039 that terminal point. So I'll design your intim we're gonna 0:06:59.040 --> 0:07:00.640 be staying with us as we turn to what investors 0:07:00.680 --> 0:07:03.200 should be doing in these uncertain times. That's going to 0:07:03.240 --> 0:07:08.159 go next on Wall Street Week Unhindered. This is Bloomberg 0:07:08.200 --> 0:07:13.640 Wall Street Week with David Weston from Bloomberg Radio. There's 0:07:13.840 --> 0:07:18.200 Governor Reagan now conceived that it would be inflationary if 0:07:18.200 --> 0:07:20.960 we just cut federal taxes and didn't cut federal spending. 0:07:21.280 --> 0:07:23.400 I don't know whether he does or doesn't, but that's 0:07:23.400 --> 0:07:27.200 not his program. His program is in fact too, cut 0:07:27.400 --> 0:07:31.480 taxes significantly ten percent a year over the next three 0:07:31.560 --> 0:07:35.040 years each year, but also to restrain the growth in 0:07:35.120 --> 0:07:37.960 federal spending. That, of course is Lewis Rockaiser talking with 0:07:38.000 --> 0:07:40.720 a pre chairman, Alan Greenspan on Wall Street Week back 0:07:40.720 --> 0:07:44.720 on October eight, back when Alan was simply part of Townsend, 0:07:44.720 --> 0:07:47.920 Greenspan and Company. It was just before Governor Reagan was 0:07:47.960 --> 0:07:50.680 elected president, and the concern back then was about tax 0:07:50.720 --> 0:07:53.520 cuts without spending cuts, something that frankly, we're still talking 0:07:53.600 --> 0:07:56.880 about today. The top movie back then was Goldie Hans, 0:07:56.960 --> 0:07:59.720 Private Benjamin and Woman in Love. Do you remember it? 0:07:59.760 --> 0:08:03.120 By Barbara streisand top the Billboard Hot one chart for 0:08:03.160 --> 0:08:06.320 the week. So where's Arsenal Deci of Franklin Templeton and 0:08:06.320 --> 0:08:08.920 you're in Timber of Fidelity Management. You're gonna start with you. 0:08:09.320 --> 0:08:11.640 What's an investor to do in this environment where we 0:08:11.720 --> 0:08:14.680 do have inflation that seems to be broad maybe entrenched, 0:08:14.840 --> 0:08:16.680 we have a FED that's on the move. What does 0:08:16.680 --> 0:08:19.800 an investor do? What's overpriced? What's underpriced? Well, you know, 0:08:20.000 --> 0:08:23.840 the good news is um in a in a period 0:08:23.960 --> 0:08:27.640 where there isn't very much of it, is that both 0:08:27.720 --> 0:08:31.880 the forty and the sixty side of the sixty paradigm 0:08:31.920 --> 0:08:34.880 I think, are now, you know, really attractively valued. I mean, 0:08:34.920 --> 0:08:36.880 you can get a ten year yield at a ten 0:08:36.960 --> 0:08:39.600 year note at four point to a two year note 0:08:39.640 --> 0:08:42.360 at four and a half. You can buy the SMP 0:08:42.480 --> 0:08:46.400 five hundred at around fifteen sixteen times forward earnings. Now 0:08:46.960 --> 0:08:49.480 that pe is only as good as the forward earnings. 0:08:49.480 --> 0:08:52.360 So we will find out whether the earnings hold so 0:08:52.480 --> 0:08:57.120 far they have, so valuations have had a tremendous reset 0:08:57.760 --> 0:09:02.359 from the overvaluation days, you know, following the COVID lockdown, 0:09:02.760 --> 0:09:06.240 when the FED basically repressed interest rates down to much 0:09:06.320 --> 0:09:10.000 lower levels than they really deserve to be, and that 0:09:10.200 --> 0:09:14.000 raised asset price inflation in the stock market, because again, 0:09:14.080 --> 0:09:18.800 interest rates are an important factor in valuation. And so 0:09:18.920 --> 0:09:22.920 it's been a very painful nine months during which neither 0:09:23.000 --> 0:09:25.880 the forty nor the sixty has worked. That's a very 0:09:26.000 --> 0:09:29.080 unusual environment to be in. But I think, you know, 0:09:29.160 --> 0:09:32.359 the good news is that if the Fed does overshoot, 0:09:32.440 --> 0:09:35.360 I think the forty will really present a lot of 0:09:35.440 --> 0:09:38.880 value at four plus yields, and maybe the forty will 0:09:38.880 --> 0:09:43.360 start becoming negatively correlated again to the sixty. And if 0:09:43.520 --> 0:09:46.680 our recession is averted, then the sixty I think will 0:09:46.720 --> 0:09:49.600 do well because earnings then will likely hold up and 0:09:49.720 --> 0:09:52.840 valuations are now much more reasonable. So for me, the 0:09:52.880 --> 0:09:56.800 glass half full, you know view here is that at 0:09:56.840 --> 0:09:59.520 least one of those two engines is going to start working. 0:09:59.800 --> 0:10:02.600 I can't tell you which one it is, unfortunately, but 0:10:02.720 --> 0:10:05.640 I do think it's not going to be any longer 0:10:05.720 --> 0:10:10.559 this monolithic market where basically nothing works, So now when 0:10:10.559 --> 0:10:13.040 will the bond market be the engine that starts working. 0:10:13.080 --> 0:10:14.840 Our bonds getting cheap enough, now there's time to go 0:10:14.880 --> 0:10:17.880 back in. They're beginning to look interesting. Let's put it 0:10:17.920 --> 0:10:20.160 this way, because if I look at investment grade bonds, 0:10:20.640 --> 0:10:24.400 I look at short short paper. You know, uh, we 0:10:24.440 --> 0:10:27.439 already we just discussed her, and just discussed that. We 0:10:27.440 --> 0:10:31.080 were talking about four point four, four point five. I 0:10:31.080 --> 0:10:34.520 think we're getting getting to interesting levels. We're seeing something 0:10:34.679 --> 0:10:38.040 finally that we haven't seen four again, close to seventeen years. 0:10:38.240 --> 0:10:42.560 Fixed income delivering income what a concept. I think income 0:10:42.600 --> 0:10:45.720 becomes more and more important as we look forward. I 0:10:45.760 --> 0:10:49.360 do think that tenure yields are likely to still go up, 0:10:49.559 --> 0:10:54.240 but having said that, it does start becoming attractive. So 0:10:54.320 --> 0:10:57.480 over the coming weeks and sorry, coming weeks and months, 0:10:57.640 --> 0:11:02.000 I think the first step would be areas like investment grade, 0:11:02.040 --> 0:11:07.800 because you're getting paid healthily to hold good credit, and 0:11:08.280 --> 0:11:11.160 our baseline is not to have a steep recession. We'll 0:11:11.160 --> 0:11:12.960 have a recession, but I think we might be able 0:11:13.000 --> 0:11:15.760 to avoid a steep one, which means that fundamentals can 0:11:15.800 --> 0:11:20.000 still look good. And furthermore, if I look in areas 0:11:20.040 --> 0:11:24.199 like high yield and emerging markets. You we are now 0:11:24.240 --> 0:11:27.640 getting paid between eight and ten percent in these areas, 0:11:27.840 --> 0:11:32.360 which means that finally liquid fixed income starts becoming a 0:11:32.480 --> 0:11:37.920 very decent alternative to alternatives, which up till now have 0:11:38.120 --> 0:11:41.440 really been the only area in the last multiple years 0:11:41.840 --> 0:11:44.400 that could deliver those style of style of return. So 0:11:44.440 --> 0:11:46.880 I actually am also gloss half full at this point 0:11:46.880 --> 0:11:49.040 for the first time in quite a while. Ur in 0:11:49.200 --> 0:11:50.600 just coming back to you and just kind of cash 0:11:50.640 --> 0:11:53.360 for a way of looking at stock valuations as understanding 0:11:53.400 --> 0:11:55.719 in fact you've taught me in fact the FED has 0:11:55.760 --> 0:11:58.280 been buying bonds, but they've also in buying tips. Is 0:11:58.320 --> 0:12:01.920 that skewing that as a measurements? It's it's interesting you 0:12:01.920 --> 0:12:05.560 you you mentioned that because I'm trying to I'm trying 0:12:05.600 --> 0:12:09.080 to figure that out actually in my latest my latest research, 0:12:09.320 --> 0:12:13.360 because the FAT owns thirty three of the Bloomberg Tips index, 0:12:13.400 --> 0:12:15.400 so that may not be all of all tips, so 0:12:15.720 --> 0:12:18.920 the overall number will be less than that um and 0:12:19.000 --> 0:12:22.679 so it makes you wonder whether there's any price signal left. 0:12:23.760 --> 0:12:26.400 But you know, when I compare, for instance, the tips 0:12:26.520 --> 0:12:29.840 break even to the inflation swap market, which is you know, 0:12:29.920 --> 0:12:33.400 a direct swap. I don't really see a tremendous amount 0:12:33.440 --> 0:12:36.960 of price distortion from the FED owning so many tips, 0:12:36.960 --> 0:12:39.480 and of course the FAT owns a bunch of nominals 0:12:39.480 --> 0:12:42.840 as well, so maybe one cancels out the other. So 0:12:43.280 --> 0:12:46.400 I think that the jury is still out. But clearly 0:12:46.440 --> 0:12:50.080 the tips market is saying a different message than the 0:12:50.160 --> 0:12:53.520 headline inflation numbers are, because the tips break evens are 0:12:53.559 --> 0:12:56.800 around two and a half across the curve, and that 0:12:56.960 --> 0:13:00.200 that's that's totally different from an eight CPI's And now 0:13:00.280 --> 0:13:03.080 one more here. Maybe the Bank of Japan has tamed 0:13:03.080 --> 0:13:05.720 the bond market, it sure hasn't tamed the FX market. 0:13:05.920 --> 0:13:07.640 And then on Friday we got that news out of 0:13:07.679 --> 0:13:09.880 Nique at least that they are now intervened to support 0:13:09.880 --> 0:13:11.680 that yen, which a weekend so much we've got the 0:13:11.720 --> 0:13:13.880 b o J next week tell us about that. What 0:13:13.920 --> 0:13:16.240 does that mean? Is the yend broken? So you know, 0:13:16.400 --> 0:13:18.120 what we're seeing is something we haven't seen in a 0:13:18.200 --> 0:13:21.560 very long period of time. We have the EU, Japan, 0:13:21.960 --> 0:13:26.880 and the US all with dramatically different monetary policies, you know, 0:13:26.920 --> 0:13:30.280 So I think about this and when times were good 0:13:30.480 --> 0:13:36.280 to uh misculled Tolstoy. All good markets, functioning markets look 0:13:36.360 --> 0:13:39.640 the same, and all of these markets, as they're breaking, 0:13:39.679 --> 0:13:42.400 they're breaking in different ways. And I think that is 0:13:42.600 --> 0:13:46.040 that could just could. It's never been more apparent than 0:13:46.120 --> 0:13:48.880 what you see in Japan. The reality is the yen 0:13:49.040 --> 0:13:52.240 is moving in line with infrast rate differentials with the US. 0:13:52.320 --> 0:13:54.240 You look at US tenure yields and you look at 0:13:54.280 --> 0:13:57.120 where Japan's YenS and it continues to move. Can the 0:13:57.120 --> 0:14:02.640 Bank of Japan actually be actually can they control the end? 0:14:03.920 --> 0:14:06.040 I have my doubts. You know, they might take some 0:14:06.120 --> 0:14:08.079 of the air out of it, but ultimately this is 0:14:08.120 --> 0:14:11.240 a global system which is very interlinked, and the interest 0:14:11.360 --> 0:14:14.320 rate differential is simply too extreme right now to simply 0:14:14.640 --> 0:14:17.600 intervene to fix it. The other issue, of course, as 0:14:17.679 --> 0:14:21.760 Japan does not have the US, is inflation issue. And 0:14:22.640 --> 0:14:25.360 speaking to the size of the bond market that is 0:14:25.400 --> 0:14:28.080 held the U in the US, you're, depending on what 0:14:28.120 --> 0:14:30.680 the bonds you're looking at the FED ones between twenty 0:14:30.680 --> 0:14:33.640 five and thirty of the bond market, right So it's huge, 0:14:33.760 --> 0:14:36.560 it's a huge impact. It's a great discussion. I really 0:14:36.560 --> 0:14:38.080 owe it to both of you. Thank you so much 0:14:38.200 --> 0:14:41.000 as Sonal Desiah Franklin Templeton, and you're in timor of 0:14:41.040 --> 0:14:43.320 Fidelity Management. Coming up, le we take a look at 0:14:43.440 --> 0:14:55.000 next week on Wall Street Week on Bloomberg seen through 0:14:55.040 --> 0:14:57.400 the eyes of experts gives you a better view. So 0:14:57.480 --> 0:14:59.840 let's talk about the paint's right and that Bloomberg or 0:15:00.040 --> 0:15:02.920 market vision is twenty twenty. I am shocked by the 0:15:02.960 --> 0:15:05.360 moves that we're seeing in the rates market. Bloomberg Radio. 0:15:05.480 --> 0:15:10.640 The Bloomberg business happened, Bloomberg Radio dot com. This is 0:15:10.680 --> 0:15:15.040 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:15:17.080 --> 0:15:20.800 Ten years of remarkable growth. That's what President Jijin Ping 0:15:20.920 --> 0:15:23.480 of China focused on in his speech to the Party 0:15:23.520 --> 0:15:30.840 Congress last Saturday about the historical lives in China's economic constraint. 0:15:31.760 --> 0:15:35.760 In past decade, China's GDP has grown from fifty five 0:15:36.160 --> 0:15:41.560 trilling them to fourteen mmen and come to account for 0:15:42.400 --> 0:15:46.760 eighteen of the world economy. Not a bad track record 0:15:46.840 --> 0:15:50.000 during she's time in office. But if president she had 0:15:50.000 --> 0:15:52.160 been willing to go back to before he was president, 0:15:52.320 --> 0:15:55.400 the story is even more dramatic. Since Dung shaal Ping 0:15:55.480 --> 0:16:00.000 initiated the open door policy in China's economy has gone 0:16:00.000 --> 0:16:04.120 from under one fifty billion dollars to nearly eighteen trillion 0:16:04.160 --> 0:16:07.680 dollars last year. Now that growth is slowing down with 0:16:07.760 --> 0:16:10.680 possible repercussions for the rest of the world. According to 0:16:10.720 --> 0:16:13.280 the head of the w t O, if China's economy 0:16:13.320 --> 0:16:16.240 continues to slow the way we have seen, that will 0:16:16.240 --> 0:16:18.240 have a big impact on what happens to the world 0:16:18.280 --> 0:16:21.720 economy and u S officials like Deputy Treasury Secretary Wally 0:16:21.800 --> 0:16:25.160 Adamo say that the open door isn't as open as 0:16:25.160 --> 0:16:27.840 it used to be. In addition to add resilient supply chains, 0:16:28.000 --> 0:16:30.120 we want to make sure that American companies are competing 0:16:30.120 --> 0:16:32.760 on a level playing field with companies in China and 0:16:32.760 --> 0:16:35.200 around the world, and that's why we've taken actions like 0:16:35.680 --> 0:16:39.960 restraining the ability to shift some key components. But Bridgewater's 0:16:40.080 --> 0:16:42.240 Ray Dalio, who has been back and forth to China 0:16:42.280 --> 0:16:46.000 over the last thirty years, insists that despite all the problems, 0:16:46.280 --> 0:16:49.560 he wouldn't bet against Beijing over the long term. I 0:16:49.600 --> 0:16:52.880 think the longer term victory in China is still bright 0:16:53.120 --> 0:16:55.880 because I know the people and I know the culture, 0:16:56.040 --> 0:16:59.400 and I think it's good. But they have major issues 0:16:59.560 --> 0:17:03.560 now and when it comes to China. The person we 0:17:03.640 --> 0:17:06.560 turned to here at Wall Street Week is Deborah Lair. 0:17:06.760 --> 0:17:10.480 She is the CEO Edelman Global Advisory and executive director 0:17:10.520 --> 0:17:12.960 of the Pulse and Institute. Debor, welcome back, Good to 0:17:13.000 --> 0:17:15.760 have you. We are all focused on President g and 0:17:15.760 --> 0:17:18.639 what's going on over in Beijing this week. Give us 0:17:18.640 --> 0:17:20.479 your sense about what we're learning. It strikes me one 0:17:20.480 --> 0:17:23.639 of the biggest challenges he has is the economy and 0:17:23.680 --> 0:17:26.080 growing the economy. And yet I'm not sure we're hearing 0:17:26.160 --> 0:17:28.600 much about his economic policy. I hear a lot of politics, 0:17:28.640 --> 0:17:31.520 a lot about security. That's right, I mean she didn't. 0:17:31.520 --> 0:17:34.520 He gave his all important work report at the beginning 0:17:34.520 --> 0:17:37.719 of the plantum and it gave up a few previews 0:17:37.960 --> 0:17:40.200 of how he's going to start to look at the economy. 0:17:40.400 --> 0:17:44.280 One of the things that he's emphasizing is common prosperity, 0:17:44.400 --> 0:17:48.600 his slogan about how he brings greater equality. One of 0:17:48.640 --> 0:17:52.480 the things that he's looking at is also how the 0:17:52.560 --> 0:17:55.359 Party can continue to play an important role in the economy. 0:17:55.440 --> 0:17:58.960 And also he did give reassurance to foreign companies that 0:17:59.040 --> 0:18:01.480 they will continue to wish for market opening in Key 0:18:01.520 --> 0:18:04.399 areas well we get a sense from the personnel that 0:18:04.520 --> 0:18:06.639 surround him of where it might be headed, because as 0:18:06.640 --> 0:18:09.520 I understand it, eventually we will see him come out 0:18:09.600 --> 0:18:12.920 from behind the curtain, and we assume everybody assumes that 0:18:12.960 --> 0:18:15.080 he will get his third term, but there's gonna be 0:18:15.119 --> 0:18:17.440 a critical question of who's with him and he comes 0:18:17.440 --> 0:18:20.760 out absolutely the important thing, and we're all watching for 0:18:20.800 --> 0:18:23.280 this weekend when the new party lineup is going to 0:18:23.320 --> 0:18:26.959 be announced. There's a lot of rumors starting to fly around, 0:18:26.960 --> 0:18:30.520 although not as many as there usually are, but it's 0:18:30.560 --> 0:18:33.160 a big guessing game because that will give us really 0:18:33.160 --> 0:18:35.960 our first clue into what the third term is going 0:18:36.040 --> 0:18:38.520 to look like. And I think there's three important things 0:18:38.560 --> 0:18:42.119 to watch. One is going to be what happens to 0:18:42.200 --> 0:18:46.040 Lee Ka Chung, the current premiere. Does he continue to 0:18:46.080 --> 0:18:49.240 stay on the standing committee? He's termed out of staying 0:18:49.240 --> 0:18:51.480 on at the premiere, but could they make him the 0:18:51.560 --> 0:18:54.480 number two and head of the National People's Congress to 0:18:55.280 --> 0:18:57.480 who will be in the lineup too then take the 0:18:57.520 --> 0:19:02.840 premiere position. And the two leading candidates appeared to be 0:19:02.920 --> 0:19:07.040 Wang Yang whose viewed as being more open on the 0:19:07.080 --> 0:19:11.040 economic issues, and Wang Hu Ning, who really isn't ideologue. 0:19:11.320 --> 0:19:14.080 And the third to watch is what happens to Leoja 0:19:14.160 --> 0:19:17.160 who is currently the Vice premier, who's in charge of 0:19:17.200 --> 0:19:21.080 the economy and finance. Does he stay he has good 0:19:21.119 --> 0:19:25.879 relations with many foreign firms, or who really comes in 0:19:25.920 --> 0:19:28.400 to take his portfolio? They were one of the things 0:19:28.400 --> 0:19:30.080 that we watch in the West, and we may be 0:19:30.200 --> 0:19:32.000 right or wrong, and watching it is the extent to 0:19:32.080 --> 0:19:34.800 which the markets in some way play a substantial role 0:19:34.800 --> 0:19:38.440 in economic policy over there. It strikes me that it's 0:19:38.440 --> 0:19:41.760 possible to interpret presidenc Thus far is moving somewhat away 0:19:41.760 --> 0:19:43.320 from the markets. A lot of what do you emphasis 0:19:43.400 --> 0:19:46.359 right now is ideology and I think it's what he 0:19:46.440 --> 0:19:50.320 came out of more than perhaps we've seen in the past. Absolutely, 0:19:50.359 --> 0:19:54.840 we're seeing much more emphasis on ideology um under Shi Jimping, 0:19:55.119 --> 0:19:58.439 and if we look back under Jacksonman, jackson Men was 0:19:58.480 --> 0:20:02.439 saying the party is big enough to include business. She 0:20:02.920 --> 0:20:06.320 takes it in a different way. He says the party 0:20:06.440 --> 0:20:10.720 is all encompassing and it should be forced into business, 0:20:10.800 --> 0:20:13.960 and so ideology is playing a much bigger role. Also, 0:20:14.320 --> 0:20:17.200 we need to keep an eye on how She's favorite 0:20:17.200 --> 0:20:22.080 slogan common prosperity is going to be implemented. China surprisingly 0:20:22.200 --> 0:20:26.680 is actually much more unequal than the United States, and 0:20:26.800 --> 0:20:28.600 one of the things that he's trying to do through 0:20:28.600 --> 0:20:32.639 this common Prosperity uh slogan is say there should be 0:20:32.680 --> 0:20:35.800 a cap on executive salaries. We should be looking at 0:20:36.040 --> 0:20:40.200 big companies, particularly the private sector, giving back to the community. 0:20:40.480 --> 0:20:43.760 And how that's going to be implemented. At the same 0:20:43.800 --> 0:20:45.960 time when he's trying to grow the economy, when he's 0:20:45.960 --> 0:20:49.320 trying to encourage entrepreneurship and create jobs, is going to 0:20:49.400 --> 0:20:52.480 be a very tough thing for him to balance. Okay, Deborah, 0:20:52.480 --> 0:20:54.040 it's always such a pleasure to have you here. You 0:20:54.080 --> 0:20:57.280 are really are are China expert. That's Deborah Lair and 0:20:57.320 --> 0:21:02.760 she CEO of Edelman Global Advisor. Coming up, we'll wrap 0:21:02.800 --> 0:21:05.439 up the week with our special contributor Larry Summers of Harvard. 0:21:07.200 --> 0:21:12.000 This is Wall Street Week on Bloomberg. This is Bloomberg 0:21:12.040 --> 0:21:16.119 Wall Street Week with David Weston from Bloomberg Radio. This 0:21:16.160 --> 0:21:18.440 is Wall Street Week. I'm David Weston. We're welcome once again. 0:21:18.440 --> 0:21:21.040 Our very special contributor in Wall Street Week is Professor 0:21:21.119 --> 0:21:24.280 Larry Summers, of course, former Treasury Secretary, So thank you 0:21:24.359 --> 0:21:27.280 so much for being with us, Larry. Once again. Much 0:21:27.320 --> 0:21:29.840 of the week was consumed with the drama over the 0:21:29.920 --> 0:21:32.840 United Kingdom, which is good and serious business for people 0:21:32.840 --> 0:21:35.560 who are living in Great Britain, but what lessons might 0:21:35.600 --> 0:21:38.920 it have for the rest of us. Look at one 0:21:39.040 --> 0:21:46.000 level Bretain. Britain is unique. They went through Brexit, They've 0:21:46.000 --> 0:21:49.639 had some unique political challenges that have taken place within 0:21:50.760 --> 0:21:56.040 their Tory Party. We've rarely seen the kind of extreme 0:21:56.320 --> 0:22:03.359 incompetence that was represented by the original trust proposals. But 0:22:03.480 --> 0:22:07.959 I think there are two lessons that policy makers around 0:22:07.960 --> 0:22:12.760 the world UH need to heed. The first is that 0:22:13.280 --> 0:22:20.080 things can change extraordinarily fast if you lose uh credibility. 0:22:20.720 --> 0:22:23.640 Just as it takes a long time to grow a forest, 0:22:24.240 --> 0:22:27.960 but you can burn it down very quickly. Something similar 0:22:28.119 --> 0:22:33.560 is true with respect to uh credibility and confidence. And 0:22:33.600 --> 0:22:38.840 I think at a time of rising government debts and 0:22:39.440 --> 0:22:45.400