1 00:00:02,520 --> 00:00:17,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:20,560 --> 00:00:21,759 Speaker 2: This is Wall Street Week. 3 00:00:21,920 --> 00:00:25,680 Speaker 3: I'm David Weston bringing you stories of capitalism. Gold keeps 4 00:00:25,680 --> 00:00:28,920 Speaker 3: setting new records as the US dollar weekends, and China 5 00:00:28,960 --> 00:00:32,159 Speaker 3: Sea's opportunity. What does it mean for investors and for 6 00:00:32,240 --> 00:00:35,159 Speaker 3: those getting the gold out of the ground. Plus the 7 00:00:35,240 --> 00:00:38,760 Speaker 3: US had its China shock twenty years ago? Is Europe 8 00:00:38,760 --> 00:00:41,280 Speaker 3: in store for its own version this time? As China 9 00:00:41,320 --> 00:00:45,000 Speaker 3: looks to find new markets for its exports and investing 10 00:00:45,000 --> 00:00:47,839 Speaker 3: in art can be fun, it can be satisfying, but 11 00:00:48,040 --> 00:00:50,960 Speaker 3: like any investment, it can go down as well as up. 12 00:00:51,360 --> 00:00:54,640 Speaker 3: We update our story on where those investments are today. 13 00:00:56,840 --> 00:00:59,880 Speaker 3: But we start with the Federal Reserve, facing new leadership 14 00:00:59,880 --> 00:01:03,560 Speaker 3: and and under continued scrutiny from the Trump administration. Our 15 00:01:03,600 --> 00:01:07,040 Speaker 3: colleague Michael McKee sat down this week without going Atlanta 16 00:01:07,080 --> 00:01:09,039 Speaker 3: Fed President Rafael Bostik. 17 00:01:10,880 --> 00:01:14,160 Speaker 4: We're speaking with the Atlanta Fed President, Rafael Bostik, who 18 00:01:14,200 --> 00:01:15,959 Speaker 4: is retiring at the. 19 00:01:16,000 --> 00:01:18,520 Speaker 5: End of this month. So this is sort of your 20 00:01:18,680 --> 00:01:21,480 Speaker 5: HR exit exit interview. 21 00:01:21,680 --> 00:01:22,920 Speaker 2: Mike, It's always good to see you. 22 00:01:23,720 --> 00:01:25,360 Speaker 4: I want to ask you, as you travel around your 23 00:01:25,400 --> 00:01:30,319 Speaker 4: district for the past year, what's the mood like among 24 00:01:30,400 --> 00:01:35,720 Speaker 4: companies and consumers. We've seen the surveys show that people 25 00:01:35,720 --> 00:01:37,160 Speaker 4: are getting very, very pessimistic. 26 00:01:37,800 --> 00:01:40,160 Speaker 6: Well, I'd say it runs in two ways. So, first 27 00:01:40,200 --> 00:01:43,280 Speaker 6: of all, what has been true throughout the last year 28 00:01:43,400 --> 00:01:45,640 Speaker 6: is a tremendous amount of resilience on the part of 29 00:01:45,640 --> 00:01:50,440 Speaker 6: both businesses and consumers. You know, April second, when the 30 00:01:50,560 --> 00:01:53,400 Speaker 6: terrists were announced at very high levels, that put everyone 31 00:01:53,640 --> 00:01:55,800 Speaker 6: back on their heels and there was a lot of uncertainty. 32 00:01:56,000 --> 00:01:58,400 Speaker 6: And what's happened through the year is people have figured 33 00:01:58,440 --> 00:02:02,200 Speaker 6: out ways to deal with that aranty. So as for today, 34 00:02:02,840 --> 00:02:06,600 Speaker 6: I think most businesses and most households are not thinking 35 00:02:06,640 --> 00:02:09,480 Speaker 6: that the worst of the possible outcomes are going to happen. 36 00:02:09,720 --> 00:02:11,400 Speaker 6: They're not sure they can get to the best ones. 37 00:02:11,600 --> 00:02:13,520 Speaker 6: But everyone's trying to find a steady state where they 38 00:02:13,520 --> 00:02:17,240 Speaker 6: can get through. So I think the sentiment is one 39 00:02:17,400 --> 00:02:21,680 Speaker 6: of cautious optimism. But I put emphasis on the cautious 40 00:02:21,680 --> 00:02:23,560 Speaker 6: as opposed to the optimism. I thin people are really trying 41 00:02:23,560 --> 00:02:24,440 Speaker 6: to wait and see what happens. 42 00:02:24,480 --> 00:02:26,120 Speaker 5: Well, what do you think that means for the economy? 43 00:02:26,520 --> 00:02:28,200 Speaker 6: Well, I think it means that the things that we've 44 00:02:28,200 --> 00:02:30,240 Speaker 6: seen for the second half of twenty twenty five. We 45 00:02:30,280 --> 00:02:32,919 Speaker 6: will continue to see through twenty twenty six. And I've 46 00:02:32,960 --> 00:02:34,880 Speaker 6: talked to a lot of folks in the last six 47 00:02:34,919 --> 00:02:38,200 Speaker 6: weeks or so, and they said, we think our experiences 48 00:02:38,240 --> 00:02:41,120 Speaker 6: in October and November December are likely to move on. 49 00:02:41,520 --> 00:02:43,440 Speaker 6: And then there are some reasons why they think it 50 00:02:43,520 --> 00:02:44,600 Speaker 6: might actually get stronger. 51 00:02:44,639 --> 00:02:45,519 Speaker 2: You know, the tariffs. 52 00:02:46,040 --> 00:02:49,360 Speaker 6: People have gotten used to those, and so those effects 53 00:02:49,720 --> 00:02:51,880 Speaker 6: will have run through by the middle of the year. 54 00:02:52,240 --> 00:02:56,280 Speaker 6: We've seen some of the stimulative aspects of the tax 55 00:02:56,280 --> 00:02:57,120 Speaker 6: bill last summer. 56 00:02:57,360 --> 00:02:58,639 Speaker 2: Those will be coming on board. 57 00:02:58,919 --> 00:03:02,640 Speaker 6: And if can zoomers start to feel like there's more certainty, 58 00:03:03,000 --> 00:03:05,959 Speaker 6: then I think businesses, I think there's some upside potential 59 00:03:06,000 --> 00:03:06,760 Speaker 6: in the economy. 60 00:03:07,040 --> 00:03:08,959 Speaker 5: Well, this last week we've gotten a lot of bad 61 00:03:09,040 --> 00:03:09,799 Speaker 5: news on the. 62 00:03:09,720 --> 00:03:13,480 Speaker 4: Employment front with ADP and Challenger and the other numbers 63 00:03:13,480 --> 00:03:15,359 Speaker 4: that have come out. Does any of that you don't 64 00:03:15,400 --> 00:03:17,040 Speaker 4: have another meeting to vote at, But does any of 65 00:03:17,080 --> 00:03:21,680 Speaker 4: that give you pause about the FED pausing at this point? 66 00:03:22,200 --> 00:03:25,280 Speaker 6: For me, no, I think we've been in a situation 67 00:03:25,639 --> 00:03:30,399 Speaker 6: where inflation has been too high for too long, and 68 00:03:30,440 --> 00:03:33,600 Speaker 6: by many readings, it's been kind of marking time. 69 00:03:33,600 --> 00:03:36,600 Speaker 2: It's been at a plateau well above our target for 70 00:03:36,640 --> 00:03:37,760 Speaker 2: the better part of two years. 71 00:03:38,160 --> 00:03:41,120 Speaker 6: That's not acceptable, and for me, I think we can't 72 00:03:41,160 --> 00:03:46,120 Speaker 6: lose sight of the inflationary concerns. The labor market is 73 00:03:46,280 --> 00:03:49,120 Speaker 6: very turbulent right now, and some of it is because 74 00:03:49,240 --> 00:03:51,120 Speaker 6: there are some big structural things that are happening in 75 00:03:51,160 --> 00:03:53,880 Speaker 6: the economy. You talk when I talk to businesses, they're 76 00:03:53,920 --> 00:03:57,680 Speaker 6: reluctant to hire entry level people at the same ways 77 00:03:57,680 --> 00:03:59,960 Speaker 6: that they did before because they think things like AI 78 00:04:00,160 --> 00:04:03,560 Speaker 6: can replace that and they can deploy resources for other things. 79 00:04:03,760 --> 00:04:05,440 Speaker 2: And I'm hearing that kind of reticence. 80 00:04:05,600 --> 00:04:08,680 Speaker 6: There's also the reality that during the pandemic a lot 81 00:04:08,680 --> 00:04:12,040 Speaker 6: of companies ramped up because the demand ramped up, and 82 00:04:12,120 --> 00:04:14,840 Speaker 6: they've been slower to right size. 83 00:04:14,920 --> 00:04:17,520 Speaker 2: We see a bunch of that right sizing happening as well. 84 00:04:17,960 --> 00:04:21,279 Speaker 6: And then we have issues around the labor supply and 85 00:04:21,360 --> 00:04:24,920 Speaker 6: whether the immigration shifts are going to be temporary or permanent, 86 00:04:25,560 --> 00:04:27,560 Speaker 6: and if they're permanent, then we're going to have. 87 00:04:27,520 --> 00:04:29,360 Speaker 2: A lower steady state job creation. 88 00:04:29,720 --> 00:04:32,160 Speaker 6: So for all those reasons, I think it's very hard 89 00:04:33,080 --> 00:04:35,719 Speaker 6: to make a clear statement. And then of course we 90 00:04:35,720 --> 00:04:38,599 Speaker 6: don't have a job's number today, so we're not getting 91 00:04:38,720 --> 00:04:42,000 Speaker 6: the data in a timely basis. My team tells me 92 00:04:42,320 --> 00:04:44,760 Speaker 6: it will be April or May before we start to be 93 00:04:44,839 --> 00:04:49,680 Speaker 6: able to draw clear signals from the data to really 94 00:04:49,760 --> 00:04:50,640 Speaker 6: understand what's going on. 95 00:04:50,760 --> 00:04:52,480 Speaker 4: Yeah, we wanted to wish you a happy non jobs 96 00:04:52,560 --> 00:04:56,800 Speaker 4: data today. You started a long and varied career at 97 00:04:56,800 --> 00:04:59,800 Speaker 4: the FED in nineteen ninety five. Since then, what have 98 00:04:59,880 --> 00:05:03,520 Speaker 4: you learned about the economy and about inflation? 99 00:05:04,400 --> 00:05:07,320 Speaker 6: Well, I think for the economy, one thing that is 100 00:05:07,360 --> 00:05:09,640 Speaker 6: true is that it is a very complex. Economy is 101 00:05:09,760 --> 00:05:12,800 Speaker 6: very large, and to understand it you really have to 102 00:05:12,800 --> 00:05:14,880 Speaker 6: get out and see all parts of it. And one 103 00:05:14,920 --> 00:05:16,760 Speaker 6: of the things that's been great in my role here 104 00:05:16,800 --> 00:05:18,400 Speaker 6: is I've had a chance to do that. I think 105 00:05:18,400 --> 00:05:22,480 Speaker 6: it's given me a deeper understanding of just how people 106 00:05:23,160 --> 00:05:25,440 Speaker 6: engage and experience the economy and how they make decisions 107 00:05:25,480 --> 00:05:28,640 Speaker 6: to move it forward. In terms of inflation, you know, 108 00:05:28,839 --> 00:05:30,560 Speaker 6: what I've learned is that we really don't want to 109 00:05:30,560 --> 00:05:33,960 Speaker 6: have inflation. Once inflation gets in transient people's minds, it 110 00:05:34,080 --> 00:05:36,520 Speaker 6: changes how the economy evolves. And it's one of the 111 00:05:36,520 --> 00:05:38,560 Speaker 6: reasons why I think that we need to keep our 112 00:05:38,600 --> 00:05:41,479 Speaker 6: policy in a restrictive posture so that we get inflation 113 00:05:41,640 --> 00:05:45,279 Speaker 6: back to two percent, that's paramount high prices and the 114 00:05:45,360 --> 00:05:49,640 Speaker 6: prospect of rising prices really do have a lot of families. 115 00:05:49,200 --> 00:05:49,719 Speaker 2: On the edge. 116 00:05:49,760 --> 00:05:52,040 Speaker 6: And I mean you all have reported a lot about 117 00:05:52,040 --> 00:05:54,440 Speaker 6: the K shaped economy. There are lots of families that 118 00:05:54,480 --> 00:05:57,039 Speaker 6: are feeling very precarious right now, and that's a source 119 00:05:57,080 --> 00:05:57,560 Speaker 6: of concern. 120 00:05:57,880 --> 00:06:00,840 Speaker 5: Do you think the economy is becoming more K shaped? 121 00:06:01,760 --> 00:06:03,560 Speaker 2: You know, I don't know more. I mean, it's been 122 00:06:03,600 --> 00:06:04,400 Speaker 2: that way for a while. 123 00:06:04,680 --> 00:06:06,680 Speaker 6: Just before the pandemic, I had been talking about this 124 00:06:06,800 --> 00:06:10,080 Speaker 6: and we were trying to find some metrics to really 125 00:06:10,200 --> 00:06:12,520 Speaker 6: detail how there's a split. I used to call it 126 00:06:12,760 --> 00:06:15,080 Speaker 6: the Barbell economy, or either you were at the high 127 00:06:15,120 --> 00:06:17,240 Speaker 6: end or at the low end. The K shape is 128 00:06:17,600 --> 00:06:19,480 Speaker 6: the same thing. What I know is that there are 129 00:06:19,480 --> 00:06:22,279 Speaker 6: a lot of families that are precarious and are feeling 130 00:06:22,720 --> 00:06:25,480 Speaker 6: very uncertain about their prospects for the future and the 131 00:06:25,480 --> 00:06:29,200 Speaker 6: prospects for their children for that matter. And that concern 132 00:06:29,240 --> 00:06:33,159 Speaker 6: I think does underlie a bit of the lower on 133 00:06:33,240 --> 00:06:36,840 Speaker 6: the low consumer confidence that we continue to see being reported. 134 00:06:37,160 --> 00:06:40,479 Speaker 6: And what we'll need to do is really give people 135 00:06:40,560 --> 00:06:43,360 Speaker 6: reasons to be optimistic, show them where the new jobs 136 00:06:43,400 --> 00:06:45,160 Speaker 6: are coming from and show them how they get the 137 00:06:45,160 --> 00:06:46,160 Speaker 6: skills to compete for it. 138 00:06:46,600 --> 00:06:49,400 Speaker 4: Well, this week, Treasury Secretary Besson said the FED has 139 00:06:49,440 --> 00:06:53,000 Speaker 4: lost the confidence of the American people. Do you think 140 00:06:53,800 --> 00:06:55,880 Speaker 4: you have lost the confidence of the American people in 141 00:06:55,920 --> 00:07:00,080 Speaker 4: your district? Do you hear people raising questions about that? 142 00:07:00,240 --> 00:07:02,640 Speaker 6: In my experience, as I go around the sixth district, 143 00:07:02,960 --> 00:07:06,279 Speaker 6: people tell me we're grateful for what you're doing. You 144 00:07:06,360 --> 00:07:08,720 Speaker 6: have a very hard job, and we want you to 145 00:07:08,760 --> 00:07:12,280 Speaker 6: be as data dependent and as open to information so. 146 00:07:12,200 --> 00:07:14,760 Speaker 2: You can make the best judgment that you can. Look, 147 00:07:14,840 --> 00:07:15,960 Speaker 2: the world is very complicated. 148 00:07:16,000 --> 00:07:18,600 Speaker 6: It's actually more complicated today than it has been my 149 00:07:18,680 --> 00:07:23,400 Speaker 6: whole time here. So I think most people understand that, 150 00:07:23,640 --> 00:07:25,080 Speaker 6: and they know that we're doing the best job that 151 00:07:25,080 --> 00:07:26,920 Speaker 6: we can under very difficult circumstances. 152 00:07:27,000 --> 00:07:29,320 Speaker 4: Well, the new chair designate, Kevin Warsh says that FED 153 00:07:29,400 --> 00:07:30,800 Speaker 4: needs regime change. 154 00:07:31,160 --> 00:07:32,080 Speaker 5: What does that mean to you? 155 00:07:32,720 --> 00:07:34,880 Speaker 2: I have no idea. You're going to have to ask 156 00:07:34,960 --> 00:07:35,760 Speaker 2: him what that means. 157 00:07:36,680 --> 00:07:40,200 Speaker 6: Look, I think we definitely need to be data dependent. 158 00:07:40,760 --> 00:07:42,960 Speaker 6: Our bank has really taken on board the notion that 159 00:07:43,000 --> 00:07:44,720 Speaker 6: we need to go out and engage and talk to 160 00:07:44,760 --> 00:07:48,960 Speaker 6: business leaders find out how they're engaging with the business, 161 00:07:48,960 --> 00:07:52,400 Speaker 6: how they're making decisions, and that combination we have found 162 00:07:52,720 --> 00:07:55,200 Speaker 6: to give us the best perspective on how the economy 163 00:07:55,240 --> 00:07:58,760 Speaker 6: is performing. I don't think that we should change from that. 164 00:07:59,160 --> 00:08:01,800 Speaker 6: I think we might need to even lean in more 165 00:08:01,880 --> 00:08:05,200 Speaker 6: to those non official data sources as the economy is 166 00:08:05,240 --> 00:08:08,200 Speaker 6: changing so rapidly, because those are all looking backwards and 167 00:08:08,320 --> 00:08:09,520 Speaker 6: we need to be looking forward. 168 00:08:10,040 --> 00:08:12,680 Speaker 4: Well, he's been very critical of what he calls the 169 00:08:12,720 --> 00:08:13,960 Speaker 4: fedce mission creep. 170 00:08:14,280 --> 00:08:15,080 Speaker 5: Does he have a point? 171 00:08:16,200 --> 00:08:18,680 Speaker 2: I actually don't even see the mission creep argument. Like 172 00:08:18,720 --> 00:08:19,040 Speaker 2: for me. 173 00:08:20,560 --> 00:08:22,800 Speaker 6: On the banking side, for example, our job is to 174 00:08:22,800 --> 00:08:25,960 Speaker 6: make sure that every bank that's alive today is alive tomorrow, 175 00:08:26,240 --> 00:08:27,800 Speaker 6: and so we need to make sure that banks are 176 00:08:27,800 --> 00:08:30,560 Speaker 6: thinking about the risks that could cause them to need 177 00:08:30,600 --> 00:08:33,880 Speaker 6: to deploy capital in ways other than in loans, and 178 00:08:33,960 --> 00:08:37,319 Speaker 6: so having conversations about those things I think is fully 179 00:08:37,360 --> 00:08:40,079 Speaker 6: appropriate and we should be doing that. We don't tell 180 00:08:40,120 --> 00:08:42,160 Speaker 6: banks where to lend. I've never told the bank don't 181 00:08:42,160 --> 00:08:43,640 Speaker 6: do a loan, or don't do that sort of thing, 182 00:08:43,679 --> 00:08:46,880 Speaker 6: and my examiners don't as well. I think we're asking 183 00:08:46,920 --> 00:08:51,280 Speaker 6: prudent questions to make sure that financial sector business leaders 184 00:08:51,320 --> 00:08:55,200 Speaker 6: are aware of trends that could be introducing risk. 185 00:08:55,920 --> 00:08:57,800 Speaker 4: What would you tell Donald Trump if you had the 186 00:08:57,800 --> 00:09:01,280 Speaker 4: opportunity about j Powell and about the FED. 187 00:09:02,160 --> 00:09:04,000 Speaker 2: I'd say Jay's trying to do the best that he can. 188 00:09:04,520 --> 00:09:08,920 Speaker 6: He's a smart man, he understands markets, and if you 189 00:09:09,240 --> 00:09:12,400 Speaker 6: want him to succeed, you should let him succeed. 190 00:09:13,480 --> 00:09:15,720 Speaker 4: The FED itself, do you think it is under threat 191 00:09:15,760 --> 00:09:18,040 Speaker 4: from this administration threat? 192 00:09:18,120 --> 00:09:21,120 Speaker 2: I don't know. What I would say is my whole 193 00:09:21,160 --> 00:09:22,480 Speaker 2: time here, and I. 194 00:09:22,440 --> 00:09:24,600 Speaker 6: Think that most of the history of the FED, there 195 00:09:24,640 --> 00:09:26,680 Speaker 6: have been people who thought the FED should do other 196 00:09:26,720 --> 00:09:30,560 Speaker 6: things and talked about that, and he called them out. 197 00:09:31,520 --> 00:09:35,280 Speaker 6: This is another one of those times. And we need 198 00:09:35,320 --> 00:09:37,200 Speaker 6: to be mindful and we need to be solid and 199 00:09:37,320 --> 00:09:42,440 Speaker 6: resolute to understand that that's part of that comes with 200 00:09:42,520 --> 00:09:47,679 Speaker 6: the territory, and with that territory then requires our strength 201 00:09:48,040 --> 00:09:52,480 Speaker 6: and our resoluteness to stay focused on what we've been 202 00:09:52,520 --> 00:09:53,000 Speaker 6: asked to do. 203 00:09:54,880 --> 00:09:58,160 Speaker 3: Coming up, gold remains the hot commodity. We look at 204 00:09:58,160 --> 00:10:10,640 Speaker 3: what's driving it and who stands to benefit. This is 205 00:10:10,679 --> 00:10:13,240 Speaker 3: a story about money burning a hole in your pocket, 206 00:10:13,360 --> 00:10:16,160 Speaker 3: and the more money there is, the hotter it can get. 207 00:10:16,679 --> 00:10:19,679 Speaker 3: Last September we showed you how Australia's gold miners were 208 00:10:19,679 --> 00:10:22,320 Speaker 3: cashing in, and that was when gold was at three 209 00:10:22,880 --> 00:10:26,240 Speaker 3: six hundred dollars an ounce. It's jumped much higher since then. 210 00:10:26,840 --> 00:10:30,040 Speaker 3: Our colleague Paul Allen saw firsthand how miners are now 211 00:10:30,080 --> 00:10:32,000 Speaker 3: putting that cash to work. 212 00:10:34,640 --> 00:10:38,360 Speaker 7: In the Australian outback scrub and red dust stretch as 213 00:10:38,400 --> 00:10:41,360 Speaker 7: far as the eye can see. It's desolate out here 214 00:10:41,520 --> 00:10:44,800 Speaker 7: and it's dry, but beneath the dust is a bounty 215 00:10:44,840 --> 00:10:47,160 Speaker 7: that miners are willing to dig a long way for. 216 00:10:47,960 --> 00:10:50,560 Speaker 8: How many ouncels of gold would be in a typical truck, 217 00:10:51,280 --> 00:10:54,120 Speaker 8: so the bear and five hundred grams of gold in 218 00:10:54,160 --> 00:10:57,120 Speaker 8: a truck. So we've got a line of trucks slowly 219 00:10:57,160 --> 00:10:58,400 Speaker 8: making their way out of the pit here. 220 00:10:58,559 --> 00:10:59,920 Speaker 7: How long does it take to get from the. 221 00:11:00,240 --> 00:11:02,200 Speaker 8: To the top, Yeah, it's well over an hour. 222 00:11:03,360 --> 00:11:06,840 Speaker 7: The Calgooley Superpit in Western Australia is a site to 223 00:11:06,880 --> 00:11:10,400 Speaker 7: behold more than six hundred meters deep. It would cover 224 00:11:10,480 --> 00:11:15,239 Speaker 7: even Manhattan's tallest skyscrapers. It's so vast that it swallows 225 00:11:15,240 --> 00:11:16,040 Speaker 7: Central Park. 226 00:11:16,520 --> 00:11:18,080 Speaker 9: This project is going to be an important one for 227 00:11:18,120 --> 00:11:19,360 Speaker 9: our business and our shareholders. 228 00:11:19,360 --> 00:11:23,000 Speaker 7: A Zabaham Stuart Tonkin as CEO of Northern Star, Australia's 229 00:11:23,080 --> 00:11:24,280 Speaker 7: biggest gold miner. 230 00:11:24,640 --> 00:11:26,400 Speaker 9: Probably around three to f one of million dollars per 231 00:11:26,400 --> 00:11:28,800 Speaker 9: anum being spent moving material from the southern part of 232 00:11:28,800 --> 00:11:32,120 Speaker 9: this pit, gaining access to over six million ounces of 233 00:11:32,400 --> 00:11:34,480 Speaker 9: gold in the bottom of this southern part of this pit. 234 00:11:35,800 --> 00:11:38,800 Speaker 7: The price of gold has been on a tear. Tonkin's 235 00:11:38,880 --> 00:11:42,360 Speaker 7: company and many others around Calgooley are cashing in. But 236 00:11:42,400 --> 00:11:44,560 Speaker 7: the gold industry has been here before. 237 00:11:45,280 --> 00:11:49,040 Speaker 9: There's probably more failure stories than success stories where people 238 00:11:49,080 --> 00:11:52,320 Speaker 9: can point to in the gold sector, and so repairing 239 00:11:52,400 --> 00:11:55,560 Speaker 9: a lot of that trust with investors as we go 240 00:11:55,640 --> 00:11:59,280 Speaker 9: into another cycle has been really important for our company 241 00:11:59,520 --> 00:12:02,640 Speaker 9: and I think many Australian companies to get that invested trust. 242 00:12:03,880 --> 00:12:06,920 Speaker 7: Two of the dominant players in Australian gold mining, Northern 243 00:12:06,960 --> 00:12:10,400 Speaker 7: Star and Evolution, are reaping the rewards seeing the return 244 00:12:10,440 --> 00:12:15,400 Speaker 7: on investment from projects planned years ago now surging. Lorie 245 00:12:15,440 --> 00:12:17,720 Speaker 7: Conway is CEO of Evolution Mining. 246 00:12:18,320 --> 00:12:20,720 Speaker 10: So back in June twenty three we made the decision 247 00:12:20,800 --> 00:12:23,280 Speaker 10: to invest two hundred and fifty million dollars building this 248 00:12:23,440 --> 00:12:26,480 Speaker 10: planned expansion and seventy five million dollars to open up 249 00:12:26,480 --> 00:12:29,080 Speaker 10: a new mining center into the north here to feed 250 00:12:29,120 --> 00:12:32,160 Speaker 10: the plant, taking it from two million tons to four 251 00:12:32,160 --> 00:12:35,480 Speaker 10: point two million tons. And in twenty three it was 252 00:12:35,480 --> 00:12:38,200 Speaker 10: pretty difficult. The market was hot, it was hard to 253 00:12:38,200 --> 00:12:40,320 Speaker 10: get people, hard to get equipment. I think we were 254 00:12:40,440 --> 00:12:43,520 Speaker 10: very fortunate when we did that. But gold price was 255 00:12:43,520 --> 00:12:46,200 Speaker 10: only two thy four hundred two five hundred dollars an 256 00:12:46,200 --> 00:12:49,160 Speaker 10: ounce when the board approved this, and it had very 257 00:12:49,160 --> 00:12:51,760 Speaker 10: good economics. I mean, bringing it in right now at 258 00:12:51,840 --> 00:12:55,040 Speaker 10: five two hundred dollars an ounce is a perfect time 259 00:12:55,120 --> 00:12:55,880 Speaker 10: be commissioning it. 260 00:12:56,600 --> 00:13:00,240 Speaker 7: In twenty nineteen, Evolution reported ToJ justed gross profit of 261 00:13:00,280 --> 00:13:03,560 Speaker 7: about two hundred and seventy million US dollars or about 262 00:13:03,600 --> 00:13:07,520 Speaker 7: four hundred and ten million Australian dollars. That's now jump 263 00:13:07,559 --> 00:13:10,960 Speaker 7: to about one billion. It's expected to grow even further 264 00:13:11,000 --> 00:13:12,200 Speaker 7: to almost two billion. 265 00:13:12,320 --> 00:13:14,440 Speaker 8: And how I hurry about on the costs front, what's 266 00:13:14,440 --> 00:13:16,280 Speaker 8: that like at the moment, because you know, I imagine 267 00:13:16,320 --> 00:13:18,360 Speaker 8: you're the diesel bill must be pretty high. 268 00:13:18,920 --> 00:13:21,720 Speaker 11: Yeah, diesel is only about four percent of our cost. 269 00:13:21,800 --> 00:13:24,679 Speaker 11: Power will go up because we're obviously doubling the processing 270 00:13:24,720 --> 00:13:28,040 Speaker 11: and the processing uses power fifty percent of our costs 271 00:13:28,080 --> 00:13:28,920 Speaker 11: are labor. 272 00:13:28,840 --> 00:13:31,720 Speaker 7: And investors are keeping a keen eye on costs this 273 00:13:31,880 --> 00:13:36,880 Speaker 7: time around. When gold prices last jumped, Australia's gold miners underperformed, 274 00:13:37,240 --> 00:13:40,480 Speaker 7: falling sixteen percent of the three years from twenty ten, 275 00:13:40,920 --> 00:13:44,240 Speaker 7: while the price of the metal itself rose fifty two percent. 276 00:13:45,400 --> 00:13:48,280 Speaker 7: Kate McCutcheon covers Australia's gold miners for City. 277 00:13:49,240 --> 00:13:52,640 Speaker 12: So last cycle, we definitely saw a lot of transformative 278 00:13:52,760 --> 00:13:55,520 Speaker 12: m and A which was very value destructive. So that 279 00:13:55,600 --> 00:13:58,440 Speaker 12: last cycle from two thousand to twenty twelve, the ten 280 00:13:58,480 --> 00:14:02,120 Speaker 12: biggest gold stocks in our coverage universe cumulatively burnt ten 281 00:14:02,160 --> 00:14:04,240 Speaker 12: billion dollars in free cash. 282 00:14:04,520 --> 00:14:07,040 Speaker 11: As an industry, we made those missteps because when the 283 00:14:07,040 --> 00:14:10,320 Speaker 11: price did come off and that cycle changed, shareholders went, well, 284 00:14:10,320 --> 00:14:13,520 Speaker 11: where's the cash, And all the industry said is, well, 285 00:14:13,520 --> 00:14:16,000 Speaker 11: we reinvested it in the projects or we went in 286 00:14:16,040 --> 00:14:19,800 Speaker 11: board assets, and therefore we've reinvested that money for you 287 00:14:19,880 --> 00:14:22,120 Speaker 11: and the shareholders, Well, we would have liked some of that, 288 00:14:22,200 --> 00:14:23,240 Speaker 11: and we didn't see that. 289 00:14:24,160 --> 00:14:26,000 Speaker 10: It hasn't changed too much, I mean, other. 290 00:14:25,880 --> 00:14:27,640 Speaker 11: Than that we're putting more cash in the bank, which 291 00:14:27,640 --> 00:14:29,160 Speaker 11: is what our shareholders want to see it. 292 00:14:29,880 --> 00:14:31,880 Speaker 7: So it's interesting you say you've got more cash in 293 00:14:31,920 --> 00:14:32,320 Speaker 7: the bank. 294 00:14:32,480 --> 00:14:34,280 Speaker 3: Has this changed. 295 00:14:33,840 --> 00:14:37,760 Speaker 8: Your approach to reserve management and long term planning as well? 296 00:14:37,920 --> 00:14:39,960 Speaker 11: You know, you've got to see it as a sustained 297 00:14:40,000 --> 00:14:42,240 Speaker 11: price at these levels before, because you can't just change 298 00:14:42,240 --> 00:14:45,160 Speaker 11: your mind plans overnight. So what it does mean we 299 00:14:45,160 --> 00:14:47,200 Speaker 11: look at our reserve pricing, We look at what the 300 00:14:47,240 --> 00:14:51,040 Speaker 11: costs have changed, because you do see costs generally followed 301 00:14:51,080 --> 00:14:53,440 Speaker 11: the goal price. And then we look at all what 302 00:14:53,560 --> 00:14:57,840 Speaker 11: projects become more economic in a higher price environment, and 303 00:14:57,880 --> 00:14:59,960 Speaker 11: then we apply the normal discipline of when do you 304 00:15:00,040 --> 00:15:00,680 Speaker 11: bring those on. 305 00:15:02,080 --> 00:15:03,440 Speaker 9: I think it's important that you look at a lot 306 00:15:03,480 --> 00:15:06,360 Speaker 9: of these things in hindsight, some things like hedging, you know, 307 00:15:06,440 --> 00:15:10,120 Speaker 9: hedge book legacy, at prices that people had never thought 308 00:15:10,120 --> 00:15:13,120 Speaker 9: that they would see exposure to. You know, when people 309 00:15:13,160 --> 00:15:16,080 Speaker 9: had a high equity price, they probably tried to use 310 00:15:16,120 --> 00:15:18,840 Speaker 9: that currency by raising lots of money on the back 311 00:15:18,880 --> 00:15:22,600 Speaker 9: of an elevated equity price and then potentially dropping money 312 00:15:22,600 --> 00:15:26,160 Speaker 9: out of their balance sheet, return capital to shareholders that 313 00:15:26,200 --> 00:15:29,200 Speaker 9: then wasn't retained for its own sustainability inside the business. 314 00:15:29,240 --> 00:15:32,160 Speaker 9: So there are very many different disciplines of what people 315 00:15:32,160 --> 00:15:33,400 Speaker 9: do at different times. 316 00:15:33,480 --> 00:15:35,280 Speaker 7: And do you feel lessons have been learned? Do you 317 00:15:35,280 --> 00:15:37,040 Speaker 7: feel like the approach is different this time. 318 00:15:37,480 --> 00:15:38,200 Speaker 5: I feel that the. 319 00:15:38,600 --> 00:15:40,480 Speaker 9: Heat has come out of some of that. But I've 320 00:15:40,560 --> 00:15:44,440 Speaker 9: found a foundation discipline of true capital management across a 321 00:15:44,480 --> 00:15:48,160 Speaker 9: variety of things. So, you know, dividend paying goal companies 322 00:15:48,360 --> 00:15:50,840 Speaker 9: was never really heard of. There's a lot of good 323 00:15:50,840 --> 00:15:54,160 Speaker 9: track record of goal companies paying dividends, doing share buybacks, 324 00:15:54,200 --> 00:15:57,440 Speaker 9: compressing registers that they had raised equity on the back of. 325 00:15:58,240 --> 00:16:00,840 Speaker 9: Those are the type of capital management measures the typical 326 00:16:00,880 --> 00:16:01,800 Speaker 9: to a go company. 327 00:16:03,680 --> 00:16:06,560 Speaker 3: Even after its recent selloff, Gold is up more than 328 00:16:06,640 --> 00:16:09,680 Speaker 3: sixty percent over the past year, a rise that has 329 00:16:09,720 --> 00:16:12,400 Speaker 3: come in part because the US dollar has gone in 330 00:16:12,480 --> 00:16:15,760 Speaker 3: the opposite direction. Robin Brooks is a senior fellow at 331 00:16:15,800 --> 00:16:19,840 Speaker 3: the Brookings Institution and former chief currency strategist at Gold 332 00:16:19,960 --> 00:16:23,680 Speaker 3: and Sachs. We talked with him before the most recent volatility. 333 00:16:24,560 --> 00:16:29,960 Speaker 13: So this move in gold started after Jackson Hall on 334 00:16:30,040 --> 00:16:34,720 Speaker 13: August twenty second last year. Basically, what's going on is 335 00:16:35,560 --> 00:16:41,280 Speaker 13: there is this fear that fiscal policy, not just in 336 00:16:41,320 --> 00:16:44,680 Speaker 13: the United States, but heavily in the United States. Fiscal 337 00:16:44,720 --> 00:16:47,400 Speaker 13: policy has been out of control for so long we 338 00:16:47,440 --> 00:16:53,040 Speaker 13: are running deficits in non crisis peaceful times of five 339 00:16:53,040 --> 00:16:56,080 Speaker 13: to six percent of GDP. We've never really done that before, 340 00:16:56,720 --> 00:17:00,000 Speaker 13: and so there's a fear in markets that fiscal policy 341 00:17:00,160 --> 00:17:04,199 Speaker 13: is just out of control and the only way to 342 00:17:04,720 --> 00:17:09,199 Speaker 13: get debt to sustainable levels is to print money and 343 00:17:09,240 --> 00:17:12,480 Speaker 13: to inflate our way out of over indebtedness. And so 344 00:17:13,400 --> 00:17:20,200 Speaker 13: my view is that this gold rally is one particular 345 00:17:20,359 --> 00:17:26,840 Speaker 13: manifestation of really a debt sustainability fear and a fiscal crisis. 346 00:17:28,000 --> 00:17:32,560 Speaker 13: That is why you're seeing long term yield all over 347 00:17:32,600 --> 00:17:36,760 Speaker 13: the world rise. So debt is a global problem, and 348 00:17:36,800 --> 00:17:41,240 Speaker 13: I think what the gold rally tells you is markets 349 00:17:41,280 --> 00:17:44,199 Speaker 13: have kind of run out of patients. They're looking for 350 00:17:44,359 --> 00:17:45,120 Speaker 13: safe havens. 351 00:17:45,560 --> 00:17:48,199 Speaker 3: So who's buying the gold? I mean, the price wouldn't 352 00:17:48,200 --> 00:17:49,719 Speaker 3: go up this high unless you didn't have a lot 353 00:17:49,760 --> 00:17:52,480 Speaker 3: of people eager to buy either more buyers, new buyers 354 00:17:52,720 --> 00:17:54,520 Speaker 3: or current buyers you're willing to pay more. 355 00:17:55,359 --> 00:17:59,560 Speaker 13: So the most common thing I hear is that this 356 00:17:59,600 --> 00:18:03,679 Speaker 13: is about central banks buying gold. And the story basically 357 00:18:03,720 --> 00:18:07,280 Speaker 13: goes that the United States and a bunch of other 358 00:18:07,320 --> 00:18:09,840 Speaker 13: countries put a lot of sanctions on Russia, after the 359 00:18:09,920 --> 00:18:13,640 Speaker 13: Ukraine invasion, and so countries don't want to hold US 360 00:18:13,760 --> 00:18:18,160 Speaker 13: dollars in their foreign exchange reserves. They're shifting into gold. 361 00:18:18,240 --> 00:18:21,560 Speaker 13: And it's true that they are buying, but they're buying 362 00:18:21,560 --> 00:18:25,280 Speaker 13: at a steady pace. The pace hasn't accelerated, so it 363 00:18:25,359 --> 00:18:29,720 Speaker 13: definitely doesn't explain this crazy run up in precious metals 364 00:18:29,720 --> 00:18:33,280 Speaker 13: that we've seen since August. So central banks, I think, 365 00:18:33,400 --> 00:18:38,280 Speaker 13: are not the explanation. I think, like in every historical bubble, 366 00:18:38,520 --> 00:18:42,919 Speaker 13: going back to the tulip Mania, this is basically about 367 00:18:43,040 --> 00:18:47,520 Speaker 13: animal spirits and the retail investor and people who are 368 00:18:47,560 --> 00:18:53,640 Speaker 13: worried about their retirement savings getting eroded by inflation and 369 00:18:53,680 --> 00:18:57,760 Speaker 13: so seeking safety in things that they think will preserve value. 370 00:18:58,200 --> 00:19:01,560 Speaker 3: If it dates back to Jackson Hole last summer, what 371 00:19:01,720 --> 00:19:03,960 Speaker 3: happened to Jackson Hole that triggered debt. I mean we've 372 00:19:03,960 --> 00:19:06,639 Speaker 3: had a debt problem in the United States for some time. 373 00:19:07,800 --> 00:19:14,480 Speaker 13: Jackson Hole was pivotal because the event, the FED meeting 374 00:19:14,760 --> 00:19:19,240 Speaker 13: or the FED event where J. Powell, the Chair of 375 00:19:19,280 --> 00:19:23,960 Speaker 13: the Federal Reserve, gave a speech saying, Okay, inflation is 376 00:19:24,040 --> 00:19:28,480 Speaker 13: kind of high, but the labor market is weak. Yes, 377 00:19:28,600 --> 00:19:33,359 Speaker 13: those two things are in conflict, but we think the 378 00:19:33,520 --> 00:19:37,600 Speaker 13: evidence steers us in favor of cutting interest rates. And 379 00:19:37,680 --> 00:19:41,880 Speaker 13: so that was actually kind of a bold statement because 380 00:19:41,920 --> 00:19:46,120 Speaker 13: it said we're going to cut, and in September, one 381 00:19:46,160 --> 00:19:49,160 Speaker 13: month later, the FED did indeed cut, and it made 382 00:19:49,200 --> 00:19:52,720 Speaker 13: three twenty five basis point cuts last year. And so 383 00:19:53,960 --> 00:19:59,800 Speaker 13: it makes sense that that event would raise questions in 384 00:20:00,080 --> 00:20:05,680 Speaker 13: uster's minds about, hey, how safe is my money in 385 00:20:05,840 --> 00:20:10,159 Speaker 13: fiat currency? Should I be looking for alternative ways to 386 00:20:10,200 --> 00:20:13,680 Speaker 13: protect my retirement savings? And so that is why I 387 00:20:13,720 --> 00:20:18,359 Speaker 13: think Jackson Hall was such a pivotal moment. The other 388 00:20:18,600 --> 00:20:23,200 Speaker 13: big FED event that got goal prices and other precious 389 00:20:23,200 --> 00:20:26,280 Speaker 13: metals to rally was the last cut that the FED 390 00:20:26,359 --> 00:20:29,800 Speaker 13: made on December tenth. So Jackson Hall is just one 391 00:20:29,960 --> 00:20:34,560 Speaker 13: of many FED events that have caused people to say, hey, 392 00:20:34,560 --> 00:20:37,919 Speaker 13: wait a minute, why are we easing when inflation is 393 00:20:37,960 --> 00:20:41,480 Speaker 13: so high? This is steering us in a bad place. 394 00:20:42,600 --> 00:20:45,200 Speaker 3: You say inflation is so high, it still has a 395 00:20:45,240 --> 00:20:49,040 Speaker 3: two in front of it. It isn't two point zero, 396 00:20:49,080 --> 00:20:52,280 Speaker 3: but it's come down in a long way. And the 397 00:20:52,359 --> 00:20:55,600 Speaker 3: tenure yield, while it's a little highest right now as 398 00:20:55,600 --> 00:20:57,840 Speaker 3: we talk, is around four point two. Something like that 399 00:20:58,600 --> 00:21:00,720 Speaker 3: if there really is a concern about are we paying 400 00:21:00,760 --> 00:21:04,240 Speaker 3: our debts in the United States, why aren't the yields higher? 401 00:21:04,359 --> 00:21:06,879 Speaker 3: Why is an inflationhre. 402 00:21:06,760 --> 00:21:10,120 Speaker 13: So this is a great question, and you know, let 403 00:21:10,119 --> 00:21:13,160 Speaker 13: me say, first of all, the debasement trade is totally new, right, 404 00:21:13,320 --> 00:21:16,560 Speaker 13: we're learning about this in real time. But there are 405 00:21:16,560 --> 00:21:20,440 Speaker 13: two big pushbacks to the debasement trade. The first is that, hey, 406 00:21:20,440 --> 00:21:23,879 Speaker 13: wait a minute, US treasury yields aren't particularly high. If anything, 407 00:21:23,920 --> 00:21:27,280 Speaker 13: they've kind of traded and arrange or even fallen somewhat, 408 00:21:27,359 --> 00:21:30,080 Speaker 13: So what are you doing talking about a fiscal crisis? 409 00:21:30,119 --> 00:21:36,199 Speaker 13: And second, if people are worried about inflation as an 410 00:21:36,280 --> 00:21:40,320 Speaker 13: erosion of retirement savings, then why is break even inflation 411 00:21:40,480 --> 00:21:43,520 Speaker 13: still so low? You know, that's pretty low too, as 412 00:21:43,560 --> 00:21:46,560 Speaker 13: you know, And so I think there's good explanations for 413 00:21:46,640 --> 00:21:50,359 Speaker 13: both things. First of all, as I mentioned at the outset, 414 00:21:50,920 --> 00:21:53,280 Speaker 13: there are a lot of places that are in much 415 00:21:53,320 --> 00:21:57,040 Speaker 13: worse fiscal shape than the United States. So in a 416 00:21:57,119 --> 00:22:01,679 Speaker 13: relative sense, the US looks relatively over and that makes 417 00:22:01,920 --> 00:22:04,119 Speaker 13: treasury yields relatively attractive. 418 00:22:04,920 --> 00:22:09,960 Speaker 3: So as we look at the political situation today, doesn't 419 00:22:09,960 --> 00:22:11,920 Speaker 3: seem to be a lot of prospect of really getting 420 00:22:11,960 --> 00:22:15,000 Speaker 3: our fiscal house in order and getting the debt down 421 00:22:15,160 --> 00:22:17,480 Speaker 3: anytime soon. And as far as I can tell, that's 422 00:22:17,480 --> 00:22:20,680 Speaker 3: true with both parties Democrat or Republican. So does that 423 00:22:20,720 --> 00:22:23,480 Speaker 3: indicate as far as you can see, and we can't predict, 424 00:22:23,520 --> 00:22:25,879 Speaker 3: but as far as you can see, gold will continue 425 00:22:25,880 --> 00:22:27,600 Speaker 3: to be elevated and may even go higher. 426 00:22:28,440 --> 00:22:32,080 Speaker 13: Yeah, I really worry that we are at the very 427 00:22:32,200 --> 00:22:37,119 Speaker 13: beginning of this debasement phenomenon. I mean, at the end 428 00:22:37,160 --> 00:22:39,640 Speaker 13: of the day, this thing has been going on in 429 00:22:39,720 --> 00:22:44,720 Speaker 13: earnest less than a year. Market phenomena can play out 430 00:22:44,800 --> 00:22:48,639 Speaker 13: over decades, and I mean the point that you just 431 00:22:48,760 --> 00:22:52,200 Speaker 13: made Treasury yields are still low. Well, there's a lot 432 00:22:52,240 --> 00:22:54,720 Speaker 13: of reason to think that they can go higher. And 433 00:22:54,800 --> 00:22:58,800 Speaker 13: of course, we are in an environment where we have 434 00:22:58,880 --> 00:23:04,280 Speaker 13: midterm electionslater on this year. The current administration may do 435 00:23:04,440 --> 00:23:07,879 Speaker 13: lots of things to stimulate activity, so we may actually 436 00:23:07,880 --> 00:23:11,640 Speaker 13: get strong growth, and we may get a pickup and inflation. 437 00:23:11,920 --> 00:23:17,000 Speaker 13: All of these things I think would steer towards gold 438 00:23:17,080 --> 00:23:21,200 Speaker 13: and other precious metals going higher. Gold prices also jumped 439 00:23:21,960 --> 00:23:25,159 Speaker 13: on Liberation Day April second last year, when there was 440 00:23:25,200 --> 00:23:29,199 Speaker 13: all this tariff uncertainty. So we need two things. We 441 00:23:29,280 --> 00:23:33,960 Speaker 13: need governments to focus on getting their fiscal house in order, 442 00:23:34,760 --> 00:23:38,520 Speaker 13: and we need governments to get along across countries. We 443 00:23:38,560 --> 00:23:42,800 Speaker 13: need geopolitical stability. Do I think either of those things 444 00:23:42,800 --> 00:23:46,000 Speaker 13: are likely? No, So I think things have to get 445 00:23:46,040 --> 00:23:49,120 Speaker 13: worse before they get better, meaning gold goes higher. 446 00:23:51,680 --> 00:23:54,439 Speaker 3: Up. Next. The US had its China Shock at the 447 00:23:54,440 --> 00:24:09,200 Speaker 3: turn of the century. Is it Europe's turn next? This 448 00:24:09,320 --> 00:24:13,119 Speaker 3: is a story about the second coming of China. The 449 00:24:13,200 --> 00:24:15,679 Speaker 3: first China Shock hit the United States after it had 450 00:24:15,720 --> 00:24:19,760 Speaker 3: joined the Wto this time, there's concern about Europe and 451 00:24:19,800 --> 00:24:24,000 Speaker 3: whether US efforts to curtail Chinese imports might hit European producers, 452 00:24:24,440 --> 00:24:30,879 Speaker 3: but it might not be that simple. About two hours 453 00:24:30,880 --> 00:24:34,919 Speaker 3: outside Frankfurt lies the town of Schweinbert. Dating back to 454 00:24:34,960 --> 00:24:40,719 Speaker 3: seven ninety one, it's one of the oldest towns in Bavaria. Today, 455 00:24:40,840 --> 00:24:43,359 Speaker 3: Schweinbert is part of an auto industry that's at the 456 00:24:43,400 --> 00:24:45,800 Speaker 3: center of Germany's modern industrial might. 457 00:24:46,119 --> 00:24:49,000 Speaker 14: The order industry is really the back pound of Germany. 458 00:24:50,480 --> 00:24:55,960 Speaker 3: German carmakers are among the most famous in the world Mercedes, BMW, Volkswagen, 459 00:24:56,359 --> 00:24:59,119 Speaker 3: but supporting the iconic brands is a vast network of 460 00:24:59,200 --> 00:25:02,960 Speaker 3: parts manufacturing. One of them is the YOP Group based 461 00:25:03,000 --> 00:25:04,400 Speaker 3: near Schweinferst, So we are. 462 00:25:04,359 --> 00:25:06,800 Speaker 14: A main machining plant here of our headquarters. 463 00:25:06,800 --> 00:25:08,679 Speaker 3: Its CEO is Martin Books. 464 00:25:08,840 --> 00:25:12,280 Speaker 14: We are an automotive supplier mainly for maybe eighty percent 465 00:25:12,320 --> 00:25:16,120 Speaker 14: of our business. We're supplying directly to the OEMs, the 466 00:25:16,160 --> 00:25:21,360 Speaker 14: Weikel manufacturers, and supplying to the Tijuan suppliers that applied 467 00:25:21,400 --> 00:25:28,080 Speaker 14: to the Weikel manufacturers like Audi, Mercedes, Volkswagen Poschy. So 468 00:25:28,640 --> 00:25:31,000 Speaker 14: you can find our parts in all of these vehicles. 469 00:25:31,760 --> 00:25:35,760 Speaker 3: But the German auto industry is facing stiff headwinds. Germany 470 00:25:35,800 --> 00:25:39,280 Speaker 3: employed over eight hundred thousand autoworkers in twenty eighteen, a 471 00:25:39,400 --> 00:25:42,040 Speaker 3: number that fell to just over seven hundred twenty thousand 472 00:25:42,119 --> 00:25:45,680 Speaker 3: last year. And it isn't just auto manufacturing that's down. 473 00:25:46,359 --> 00:25:49,960 Speaker 3: The German manufacturing sector overall employed around five and a 474 00:25:50,000 --> 00:25:52,600 Speaker 3: half million people at the end of September twenty twenty five. 475 00:25:53,119 --> 00:25:55,600 Speaker 3: That's two percent less than a year earlier. 476 00:25:55,800 --> 00:25:59,600 Speaker 14: China is really a challenge for the German automotive landscape 477 00:25:59,600 --> 00:26:01,600 Speaker 14: at the moment, and with the rise of the battery 478 00:26:01,680 --> 00:26:05,560 Speaker 14: electric vehicle, which has gained now seventeen percent market share 479 00:26:05,600 --> 00:26:09,520 Speaker 14: Here in Europe as well, access to bettery technology is 480 00:26:09,600 --> 00:26:13,400 Speaker 14: much more difficult. For German OEMs, access to raw material 481 00:26:13,520 --> 00:26:18,640 Speaker 14: is much more difficult, and the Chinese OEMs. There's has 482 00:26:18,680 --> 00:26:21,600 Speaker 14: been a lot of new OEMs actually coming up. I 483 00:26:21,600 --> 00:26:24,800 Speaker 14: think it's about one hundred in China. So competition in 484 00:26:24,880 --> 00:26:28,520 Speaker 14: China is very tough actually, and the export of components 485 00:26:28,520 --> 00:26:32,720 Speaker 14: and vehicles from Germany to China has decreased significantly. We're 486 00:26:32,840 --> 00:26:36,440 Speaker 14: family business, we have long term relationship with our employees. 487 00:26:36,680 --> 00:26:41,520 Speaker 14: But programs from our customers were postponed. We had volume drops, 488 00:26:41,800 --> 00:26:44,359 Speaker 14: so we had to react, not only last year, but 489 00:26:44,400 --> 00:26:47,760 Speaker 14: for the last couple of years. We had to adjust. 490 00:26:47,840 --> 00:26:50,399 Speaker 14: We had to close two plants, we had to do 491 00:26:50,440 --> 00:26:53,880 Speaker 14: some restructurings, and we had to lay off around about 492 00:26:53,880 --> 00:26:57,080 Speaker 14: five hundred people, so coming from two thousand now to 493 00:26:57,160 --> 00:27:01,840 Speaker 14: one thousand, five hundred, but actually we had to do it. 494 00:27:02,200 --> 00:27:05,359 Speaker 3: If this sounds familiar, consider the United States at the 495 00:27:05,400 --> 00:27:08,880 Speaker 3: turn of the century, specifically the year two thousand and one. 496 00:27:09,000 --> 00:27:10,680 Speaker 15: China joins the World Trade Organization. 497 00:27:10,760 --> 00:27:14,480 Speaker 16: This is a very productive, fast, rapidly advancing country, and 498 00:27:14,520 --> 00:27:16,040 Speaker 16: then bearers removed. 499 00:27:16,080 --> 00:27:17,680 Speaker 15: They became more competitive. 500 00:27:17,280 --> 00:27:20,159 Speaker 3: David Otter is a professor of economics at MIT and 501 00:27:20,240 --> 00:27:23,160 Speaker 3: co director of the Labor Studies Program at the National 502 00:27:23,200 --> 00:27:27,000 Speaker 3: Bureau of Economic Research. He and his co authors popularized 503 00:27:27,040 --> 00:27:30,119 Speaker 3: the term China shock in a twenty sixteen paper on 504 00:27:30,240 --> 00:27:33,480 Speaker 3: the Impacts of the Country's economic rise, and it. 505 00:27:33,480 --> 00:27:36,119 Speaker 16: Really especially the United States. It displaced a lot of 506 00:27:36,280 --> 00:27:40,560 Speaker 16: US production. And this really did great rapid damage to 507 00:27:40,600 --> 00:27:45,399 Speaker 16: manufacturing intensive locations that were making commodity furniture. They're making 508 00:27:45,440 --> 00:27:50,440 Speaker 16: textiles and fabrics, clothing, toys, games, assembly, and so on 509 00:27:50,520 --> 00:27:53,320 Speaker 16: and so on. The scale of US employment, it wasn't 510 00:27:53,320 --> 00:27:55,639 Speaker 16: that large on the scale of the places that were 511 00:27:55,640 --> 00:27:56,320 Speaker 16: most affected. 512 00:27:56,440 --> 00:27:57,800 Speaker 15: It was quite devastating. 513 00:27:59,000 --> 00:28:02,159 Speaker 3: China shock hit parts of the US hard Otter and 514 00:28:02,240 --> 00:28:05,440 Speaker 3: his co authors estimate that it accounted for nearly sixty 515 00:28:05,480 --> 00:28:09,359 Speaker 3: percent of all US manufacturing job losses between two thousand 516 00:28:09,400 --> 00:28:11,040 Speaker 3: and one and twenty nineteen. 517 00:28:11,320 --> 00:28:13,760 Speaker 16: I think that the US did two things wrong. First, 518 00:28:13,880 --> 00:28:16,600 Speaker 16: we just let it rip. There was no gradualism about it. 519 00:28:16,720 --> 00:28:18,800 Speaker 16: And with labor markets, you really don't want to just 520 00:28:18,920 --> 00:28:21,240 Speaker 16: rip the band aid off because labor markets have a 521 00:28:21,320 --> 00:28:23,320 Speaker 16: natural rate of adjustment of a couple percent per year. 522 00:28:23,320 --> 00:28:25,160 Speaker 16: Because that's the rate at which people retire and new 523 00:28:25,160 --> 00:28:28,400 Speaker 16: people enter, and people make those transitions by choosing new 524 00:28:29,160 --> 00:28:31,359 Speaker 16: occupations at entry or retiring from old ones. 525 00:28:31,440 --> 00:28:33,000 Speaker 15: They don't generally, you don't go. 526 00:28:33,000 --> 00:28:35,080 Speaker 16: Mid career from being a lawyer to being a manufacturing 527 00:28:35,119 --> 00:28:38,480 Speaker 16: worker or vice versa. And so you don't want things 528 00:28:38,520 --> 00:28:40,680 Speaker 16: to change that fast. You can handle change, but at 529 00:28:41,040 --> 00:28:44,320 Speaker 16: a gradual rate. We didn't do anything to buffer that shock. 530 00:28:44,640 --> 00:28:47,200 Speaker 16: The other is we had no real social policies in 531 00:28:47,240 --> 00:28:50,240 Speaker 16: place to help people, to help communities, and to help people. 532 00:28:50,000 --> 00:28:54,720 Speaker 3: Adjust the China shock delta blow to labor intensive manufacturing 533 00:28:54,760 --> 00:28:58,600 Speaker 3: like automobiles and textiles. Something similar may be playing out 534 00:28:58,600 --> 00:29:02,800 Speaker 3: across Europe now Chinese exports to Europe surge and prices 535 00:29:02,840 --> 00:29:07,000 Speaker 3: of some goods collapse. French President Emmanuel Macron calls the 536 00:29:07,040 --> 00:29:11,600 Speaker 3: trade imbalance quote unbearable, and Ursula Vonderline of the European 537 00:29:11,640 --> 00:29:14,680 Speaker 3: Commission said that the block's relationship with China has reached 538 00:29:14,760 --> 00:29:16,360 Speaker 3: quote an inflection point. 539 00:29:16,520 --> 00:29:19,960 Speaker 16: Europe has been one of those markets and Chinese exports 540 00:29:19,960 --> 00:29:22,440 Speaker 16: to Europe are growing very rapidly, and they threatened to 541 00:29:22,440 --> 00:29:26,920 Speaker 16: displaced a lot of European manufacturing that remains most visibly 542 00:29:27,040 --> 00:29:30,520 Speaker 16: in the automotive sector and in Germany most of all, 543 00:29:30,560 --> 00:29:34,120 Speaker 16: and this is going to I think, you know, have 544 00:29:35,040 --> 00:29:38,720 Speaker 16: similar risks for them in terms of hollowing out sectors 545 00:29:38,720 --> 00:29:40,720 Speaker 16: really rapidly. 546 00:29:40,840 --> 00:29:43,760 Speaker 3: Europe's so called China Shock seems to have been triggered 547 00:29:43,800 --> 00:29:47,160 Speaker 3: in part by US tariffs on Chinese goods, leading China 548 00:29:47,280 --> 00:29:50,880 Speaker 3: to look for new markets. But as Mark Twain said, 549 00:29:51,360 --> 00:29:55,240 Speaker 3: history doesn't repeat itself. It often rhymes, and this time 550 00:29:55,280 --> 00:29:57,800 Speaker 3: it may be different for Europe than it was for 551 00:29:57,880 --> 00:29:58,360 Speaker 3: the US. 552 00:29:58,760 --> 00:30:01,120 Speaker 17: That was this sense of all of the exports that 553 00:30:01,160 --> 00:30:02,880 Speaker 17: were going to the US, because there has been a 554 00:30:02,880 --> 00:30:06,520 Speaker 17: big reduction in Chinese imports coming into the US, there's 555 00:30:06,520 --> 00:30:09,120 Speaker 17: a feeling that those goods are just being diverted to 556 00:30:09,920 --> 00:30:12,680 Speaker 17: Europe and elsewhere, and that we're not quite seeing that 557 00:30:12,680 --> 00:30:13,120 Speaker 17: in the numbers. 558 00:30:13,400 --> 00:30:16,960 Speaker 3: Stephanie Flanders runs Economics and Government for Bloomberg News and 559 00:30:17,080 --> 00:30:21,040 Speaker 3: thinks the story is more complicated than China flooding Europe's markets. 560 00:30:21,400 --> 00:30:25,160 Speaker 17: We are seeing that China has successfully offset the impact 561 00:30:25,200 --> 00:30:28,840 Speaker 17: of US tariffs by trading more with other countries. But actually, 562 00:30:28,840 --> 00:30:31,440 Speaker 17: if anything, seems to be different goods and it seems 563 00:30:31,480 --> 00:30:33,480 Speaker 17: to have been done through you know, cutting the price 564 00:30:33,520 --> 00:30:35,280 Speaker 17: of some of those different goods that they're used to 565 00:30:35,320 --> 00:30:37,880 Speaker 17: sell into Europe. So you know, as ever, with trade numbers, 566 00:30:37,920 --> 00:30:40,640 Speaker 17: it's just a bit complicated, but it is certainly true 567 00:30:40,920 --> 00:30:43,280 Speaker 17: that China, on the face of it, has not been 568 00:30:43,320 --> 00:30:45,760 Speaker 17: affected as much as you would have thought from the 569 00:30:45,800 --> 00:30:48,880 Speaker 17: big reduction in exports going to the US. 570 00:30:49,160 --> 00:30:52,560 Speaker 3: The US trade deficit has been falling since Liberation Day 571 00:30:52,720 --> 00:30:56,600 Speaker 3: when President Trump announced sweeping tariffs on imports from many countries, 572 00:30:57,200 --> 00:31:00,120 Speaker 3: but fewer Chinese exports to the US did not. In 573 00:31:00,240 --> 00:31:04,320 Speaker 3: China's exports overall went down. To the contrary, it now 574 00:31:04,360 --> 00:31:07,600 Speaker 3: has a one point two trillion dollar trade surplus as 575 00:31:07,640 --> 00:31:10,320 Speaker 3: its exports have actually increased. 576 00:31:10,000 --> 00:31:12,120 Speaker 17: So the increase has been quite widely spread day because 577 00:31:12,120 --> 00:31:14,120 Speaker 17: obviously the rest of the world as a market is 578 00:31:14,200 --> 00:31:16,479 Speaker 17: bigger than the US. But I mean, the headline numbers 579 00:31:16,480 --> 00:31:19,880 Speaker 17: are you've seen about a four just over a four 580 00:31:19,920 --> 00:31:26,000 Speaker 17: percentage point reduction in Chinese exports to the US, but 581 00:31:26,080 --> 00:31:30,120 Speaker 17: actually overall that exports last year increased by three percent, 582 00:31:30,160 --> 00:31:33,640 Speaker 17: so they'd actually more than offset that swing in their 583 00:31:33,840 --> 00:31:36,400 Speaker 17: exports to the US, and that's been spread over. I 584 00:31:36,400 --> 00:31:39,520 Speaker 17: think the place that had the biggest increases Africa, albeit 585 00:31:39,600 --> 00:31:43,040 Speaker 17: from a small base, they've seen a lot more Chinese exports, 586 00:31:43,360 --> 00:31:46,080 Speaker 17: and Europe other places have also seen more, but it's 587 00:31:46,080 --> 00:31:47,880 Speaker 17: more on the order of sort of one one and 588 00:31:47,920 --> 00:31:49,040 Speaker 17: a half percent growth. 589 00:31:49,600 --> 00:31:52,560 Speaker 3: Another difference in this China shack is the kind of 590 00:31:52,600 --> 00:31:55,160 Speaker 3: goods China is exporting all over the world. 591 00:31:55,320 --> 00:31:58,080 Speaker 16: If you're mostly just importing without exporting, you're just accumulating 592 00:31:58,120 --> 00:32:01,560 Speaker 16: trade deficits. That means that it's not obvious where all. 593 00:32:01,400 --> 00:32:02,680 Speaker 15: Those people are supposed to go. 594 00:32:02,840 --> 00:32:06,400 Speaker 16: There's not a new set of activities opening up simultaneously, 595 00:32:06,760 --> 00:32:08,719 Speaker 16: so I think it's quite a challenge. 596 00:32:08,720 --> 00:32:10,120 Speaker 15: It was quite a challenge for the United States. 597 00:32:10,120 --> 00:32:12,800 Speaker 16: We didn't manage it particularly well, and I think it's actually, 598 00:32:12,800 --> 00:32:15,960 Speaker 16: in many ways more challenging now than it was twenty 599 00:32:16,040 --> 00:32:18,600 Speaker 16: years ago because China has moved so far up the 600 00:32:18,680 --> 00:32:21,400 Speaker 16: value chain. When the China Shawk hit the United States 601 00:32:21,400 --> 00:32:24,560 Speaker 16: in two thousand, China was not exporting automobiles. But now 602 00:32:24,560 --> 00:32:28,000 Speaker 16: they're a world class auto supplier and they're the best 603 00:32:28,000 --> 00:32:30,920 Speaker 16: producer of electric vehicles in the world. There's a huge 604 00:32:31,040 --> 00:32:33,960 Speaker 16: car industry in Europe, particularly in Germany, and they feel 605 00:32:34,040 --> 00:32:35,600 Speaker 16: very threatened, and understandably so. 606 00:32:35,760 --> 00:32:38,920 Speaker 15: But it will not just be in automotive. 607 00:32:38,280 --> 00:32:42,360 Speaker 16: But will also be in heavy industry like railcars, chipping, 608 00:32:42,760 --> 00:32:45,080 Speaker 16: but also be in lots of consumer goods, and so 609 00:32:45,200 --> 00:32:48,440 Speaker 16: China is a formidable competitor, and not just in low 610 00:32:48,520 --> 00:32:49,640 Speaker 16: value added, labor. 611 00:32:49,440 --> 00:32:51,520 Speaker 15: Intensive manufacturing the way it was twenty years. 612 00:32:51,320 --> 00:32:54,000 Speaker 16: Ago, but really all the high tech sectors and all 613 00:32:54,000 --> 00:32:59,040 Speaker 16: the consumer products that are kind of central to both 614 00:32:59,080 --> 00:33:02,280 Speaker 16: what can consumers purchased, but also what a lot of 615 00:33:02,720 --> 00:33:05,000 Speaker 16: advanced economy manufacturers produce. 616 00:33:06,400 --> 00:33:10,080 Speaker 3: Martin Books sees that happening already to adapt. His company 617 00:33:10,160 --> 00:33:12,600 Speaker 3: is turning to an area that isn't affected by China's 618 00:33:12,600 --> 00:33:15,240 Speaker 3: reach and manufacturing dominance. Defense. 619 00:33:15,760 --> 00:33:19,000 Speaker 14: We do round about eighty percent of our revenue and automotive, 620 00:33:19,600 --> 00:33:22,840 Speaker 14: but our part of our strategy is to diversify into 621 00:33:22,880 --> 00:33:28,320 Speaker 14: other areas. We are already doing some supplying to semiconductors, 622 00:33:28,320 --> 00:33:32,440 Speaker 14: some to medical, to the channel industry, but we would 623 00:33:32,520 --> 00:33:35,680 Speaker 14: like to do more in defense and space. Actually that's 624 00:33:35,800 --> 00:33:39,600 Speaker 14: part of our roadmap for ten year roadmap. And we 625 00:33:39,640 --> 00:33:42,880 Speaker 14: are already supplying to the drone industry, which has become 626 00:33:42,920 --> 00:33:46,720 Speaker 14: much more important now because of the Ukraine Russian war, 627 00:33:47,520 --> 00:33:50,680 Speaker 14: and we have some more plans for twenty six. That's 628 00:33:50,720 --> 00:33:53,000 Speaker 14: going to be announced in the second half of this year. 629 00:33:53,680 --> 00:33:56,120 Speaker 14: We have some plans to come forward with our core 630 00:33:56,160 --> 00:33:59,680 Speaker 14: competence actually, which is mechanic and macatronic products. 631 00:34:00,120 --> 00:34:01,880 Speaker 16: Spending is government spending, which means it has to be 632 00:34:01,920 --> 00:34:04,840 Speaker 16: paid for through taxation or borrowing. So it's not you 633 00:34:04,880 --> 00:34:07,920 Speaker 16: can't you can't run your economy just by making defense 634 00:34:08,000 --> 00:34:11,719 Speaker 16: goods for yourself, but that will use some of the 635 00:34:11,760 --> 00:34:14,759 Speaker 16: European industrial capacity and perhaps give focus to some what 636 00:34:14,880 --> 00:34:17,720 Speaker 16: they're doing and also technological advance. They also will face 637 00:34:17,760 --> 00:34:19,880 Speaker 16: the same supply chain constraints in the United States, so 638 00:34:19,960 --> 00:34:22,920 Speaker 16: a lot of our military inputs come from China, including 639 00:34:22,960 --> 00:34:24,160 Speaker 16: for example, rare earth metals. 640 00:34:24,280 --> 00:34:28,800 Speaker 17: The German case has been quite dramatic in these sectors 641 00:34:28,840 --> 00:34:32,919 Speaker 17: that had previously been absolute the heart of Germany's kind 642 00:34:32,920 --> 00:34:37,840 Speaker 17: of self identity as a manufacturing power, machine tools, and cars. 643 00:34:38,160 --> 00:34:40,200 Speaker 17: I think the only thing that's kind of offsetting that 644 00:34:40,280 --> 00:34:42,600 Speaker 17: in terms which is quite a big thing in terms 645 00:34:42,680 --> 00:34:45,520 Speaker 17: of growth overall in Germany is of course they're the 646 00:34:45,600 --> 00:34:49,480 Speaker 17: ones who've had they're increasing dramatically their defense spending, and 647 00:34:49,520 --> 00:34:52,920 Speaker 17: they're getting a fiscal impulse from that which is not 648 00:34:53,080 --> 00:34:55,799 Speaker 17: really present in the same way in other countries. 649 00:34:55,480 --> 00:34:56,080 Speaker 5: So the country. 650 00:34:56,200 --> 00:35:00,120 Speaker 17: We are seeing a lot of structural change hitting in 651 00:35:00,200 --> 00:35:04,320 Speaker 17: Germany at the same time, partly as a result of 652 00:35:04,640 --> 00:35:08,280 Speaker 17: Donald Trump's trade policies with respect to China and other places, 653 00:35:08,600 --> 00:35:11,000 Speaker 17: but also as a result of being in a more 654 00:35:11,040 --> 00:35:12,160 Speaker 17: scary world. 655 00:35:12,400 --> 00:35:15,800 Speaker 3: But where China makes life harder for some European manufacturers, 656 00:35:16,160 --> 00:35:18,720 Speaker 3: it is lending a helping hand to central banks. 657 00:35:18,960 --> 00:35:22,400 Speaker 17: Annoyingly for those sitting in central banks. The numbers and 658 00:35:22,719 --> 00:35:25,200 Speaker 17: it's hard to tease out the data because it's always 659 00:35:25,239 --> 00:35:27,560 Speaker 17: tends to be a bit behind the curve. But we 660 00:35:27,680 --> 00:35:30,000 Speaker 17: are seeing and not so much the volume changing, I 661 00:35:30,000 --> 00:35:33,120 Speaker 17: mean the overall value of trade changing, but within that 662 00:35:33,239 --> 00:35:35,840 Speaker 17: maybe more goods at a lower price. And actually the 663 00:35:36,320 --> 00:35:39,560 Speaker 17: reduction in price may actually be helping to pull down 664 00:35:39,600 --> 00:35:41,080 Speaker 17: inflation in some of these countries. 665 00:35:41,200 --> 00:35:43,799 Speaker 3: And does that relieve some pressure on the European Central Bank? 666 00:35:44,000 --> 00:35:45,720 Speaker 17: Well, I think it's one of those things we've heard 667 00:35:45,800 --> 00:35:49,839 Speaker 17: some Bank of England policy makers and European Central Bank 668 00:35:49,880 --> 00:35:52,440 Speaker 17: policy makers talk about it, you know. There obviously it 669 00:35:52,480 --> 00:35:54,680 Speaker 17: appeared the European Central Bank has been on hold for 670 00:35:54,719 --> 00:35:58,719 Speaker 17: a long time. They've been adjusting their inflation forecasts. A 671 00:35:58,719 --> 00:36:02,720 Speaker 17: lot of people including Bloomberg. Bloomberg's economists think the inflation 672 00:36:02,800 --> 00:36:07,160 Speaker 17: is going to undershoot the Arizon's target this year, and 673 00:36:07,160 --> 00:36:10,080 Speaker 17: that they should potentially be looking to cut rates further. 674 00:36:11,200 --> 00:36:14,560 Speaker 3: If we are witnessing a sort of second coming for China, 675 00:36:14,680 --> 00:36:17,800 Speaker 3: it's coming in some very different ways in the products 676 00:36:17,880 --> 00:36:20,680 Speaker 3: it is making and in the regions it is exporting to, 677 00:36:21,280 --> 00:36:26,560 Speaker 3: with different economic effects. But as before, some particular sectors 678 00:36:26,640 --> 00:36:30,360 Speaker 3: and geographic areas could be hit harder than others. Just 679 00:36:30,520 --> 00:36:31,720 Speaker 3: ask Martin Books. 680 00:36:31,880 --> 00:36:35,200 Speaker 14: We are a family business. Yeah, I'm living in an area. 681 00:36:35,280 --> 00:36:37,279 Speaker 14: Of course, It's not easy to lay off people in 682 00:36:37,239 --> 00:36:39,520 Speaker 14: an area where you live, where you meet people in 683 00:36:40,120 --> 00:36:42,920 Speaker 14: shops every day. Yeah, But at the end of the day, 684 00:36:42,920 --> 00:36:46,400 Speaker 14: it's about survival in the industry, and I think the 685 00:36:46,440 --> 00:36:49,360 Speaker 14: case was quite clear that it was necessary to reduce 686 00:36:49,719 --> 00:36:50,600 Speaker 14: our labor. 687 00:36:52,239 --> 00:36:55,399 Speaker 3: Coming up the ups and downs of investing in your art. 688 00:36:55,440 --> 00:36:59,200 Speaker 10: Passion one hundred subty million for the wall is selling here. 689 00:37:00,200 --> 00:37:10,520 Speaker 3: What's driving the market this time? This is a story 690 00:37:10,560 --> 00:37:13,879 Speaker 3: about paying for our passions. A year ago we brought 691 00:37:13,880 --> 00:37:16,080 Speaker 3: you the story of the business of art. We called 692 00:37:16,120 --> 00:37:19,359 Speaker 3: it investing in your passions. But a year later we're 693 00:37:19,360 --> 00:37:22,919 Speaker 3: seeing some of the challenges and losses that can come 694 00:37:23,000 --> 00:37:24,719 Speaker 3: with those passionate investments. 695 00:37:26,680 --> 00:37:29,920 Speaker 18: Remember these pieces of work, these assets, if you want 696 00:37:29,920 --> 00:37:32,400 Speaker 18: to call them that, they don't produce an income. They 697 00:37:32,400 --> 00:37:36,080 Speaker 18: don't have a coupon associated with them. The only income 698 00:37:36,120 --> 00:37:37,520 Speaker 18: that you get is the appreciation. 699 00:37:38,520 --> 00:37:42,239 Speaker 3: Krauss is chairman and CEO of Aperture Investors and has 700 00:37:42,280 --> 00:37:46,279 Speaker 3: spent a career in finance, including as head of Alliance Bernstein. 701 00:37:46,760 --> 00:37:48,800 Speaker 3: With his wife, he has also become one of the 702 00:37:48,840 --> 00:37:51,160 Speaker 3: most avid art collectors on Wall Street. 703 00:37:51,600 --> 00:37:54,040 Speaker 18: My wife and I've been collecting since we got married, 704 00:37:54,040 --> 00:37:56,880 Speaker 18: which is forty four years. And the first thing we 705 00:37:56,960 --> 00:38:01,319 Speaker 18: bought was really sort of a small print, and I 706 00:38:01,480 --> 00:38:04,960 Speaker 18: said to the galerist, who's not alive any longer. They said, well, 707 00:38:05,000 --> 00:38:07,960 Speaker 18: you know what I like, and if you have any more, give. 708 00:38:07,800 --> 00:38:10,480 Speaker 5: Me a call. And he looked at me and he said, 709 00:38:11,200 --> 00:38:12,120 Speaker 5: here's what we're going to do. 710 00:38:12,560 --> 00:38:14,839 Speaker 18: If you want to collect art, you will come in 711 00:38:14,880 --> 00:38:17,960 Speaker 18: every Saturday and I will show you art. But if 712 00:38:17,960 --> 00:38:19,400 Speaker 18: you think I'm going to call you on the phone 713 00:38:19,520 --> 00:38:21,400 Speaker 18: and tell you there's something for you to come and see, 714 00:38:21,600 --> 00:38:28,319 Speaker 18: that's not happening. And I took his admonition seriously. And 715 00:38:28,800 --> 00:38:31,480 Speaker 18: we went with my wife and I went in every Saturday, 716 00:38:32,360 --> 00:38:35,319 Speaker 18: and every Saturday he showed us work, most of which 717 00:38:35,360 --> 00:38:38,640 Speaker 18: we couldn't afford. And we finally found a painting that 718 00:38:38,680 --> 00:38:42,360 Speaker 18: we liked and we bought and it was six thousand 719 00:38:42,440 --> 00:38:45,640 Speaker 18: dollars and we paid for it five hundred dollars a 720 00:38:45,719 --> 00:38:47,799 Speaker 18: month until it was paid off. 721 00:38:48,880 --> 00:38:51,880 Speaker 3: Over the decades, Kraus and his wife Jill have added 722 00:38:51,920 --> 00:38:55,320 Speaker 3: to that single work, paid for an installments, and assembled 723 00:38:55,360 --> 00:38:59,000 Speaker 3: a very large collection. It's people like the kraus'es who 724 00:38:59,080 --> 00:39:01,480 Speaker 3: are at this center of a growing web of players, 725 00:39:01,840 --> 00:39:06,000 Speaker 3: including auction houses, banks and advisors. They connect one of 726 00:39:06,000 --> 00:39:09,360 Speaker 3: the kind assets to collectors of all levels, from the 727 00:39:09,480 --> 00:39:12,160 Speaker 3: very experienced to those just starting out. 728 00:39:13,160 --> 00:39:17,200 Speaker 19: Traditionally, when folks wanted to go to sale, they would 729 00:39:17,280 --> 00:39:19,840 Speaker 19: kind of call a gallery or a dealer dealer, or 730 00:39:19,880 --> 00:39:21,000 Speaker 19: call an auction house. 731 00:39:21,360 --> 00:39:24,640 Speaker 3: Anita Harrio is Fine Art Group America's president. 732 00:39:24,920 --> 00:39:28,400 Speaker 19: As the market's grown subsubstantially, if became necessary to have 733 00:39:28,440 --> 00:39:31,680 Speaker 19: an independent firm that kind of serves as a fiduciary 734 00:39:31,760 --> 00:39:32,440 Speaker 19: for the client. 735 00:39:33,080 --> 00:39:36,520 Speaker 3: According to a recent Deloitte report, ultra high net worth 736 00:39:36,560 --> 00:39:39,920 Speaker 3: individuals grew their art and collectible wealth from two trillion 737 00:39:39,960 --> 00:39:42,600 Speaker 3: dollars in twenty twenty two to more than two point 738 00:39:42,719 --> 00:39:47,600 Speaker 3: five trillion dollars in twenty twenty four. The trend shows 739 00:39:47,719 --> 00:39:50,720 Speaker 3: no sign of stopping as the so called Great Wealth 740 00:39:50,760 --> 00:39:52,239 Speaker 3: Transfer gets underway. 741 00:39:52,719 --> 00:39:58,040 Speaker 19: Just imagine this. Baby boomers bought more stuff than anyone 742 00:39:58,080 --> 00:40:02,080 Speaker 19: in world history. Think about that, and what are they 743 00:40:02,120 --> 00:40:05,560 Speaker 19: all doing right now? They're trying to figure out what 744 00:40:05,800 --> 00:40:09,279 Speaker 19: to do with it. There's more material that will be 745 00:40:09,360 --> 00:40:13,400 Speaker 19: hitting the market than ever before, and it's required to 746 00:40:13,440 --> 00:40:17,680 Speaker 19: find appropriate places and strategies for sale for these objects. 747 00:40:17,719 --> 00:40:21,080 Speaker 19: So that's number one, Supply is going to increase with 748 00:40:21,200 --> 00:40:27,280 Speaker 19: baby boomers. Number two, what did they buy? Right? Most 749 00:40:27,480 --> 00:40:33,399 Speaker 19: young folks are not interested in nineteenth century paintings, old 750 00:40:33,440 --> 00:40:39,080 Speaker 19: Master paintings, regionalist artwork from the nineteenth century and the 751 00:40:39,120 --> 00:40:42,880 Speaker 19: twentieth century, like the Ashcan American School as an example. 752 00:40:43,239 --> 00:40:46,440 Speaker 19: So there are lots of areas where taste will really 753 00:40:46,480 --> 00:40:50,719 Speaker 19: be impacted by the younger generation acquiring these objects. There's 754 00:40:50,760 --> 00:40:53,400 Speaker 19: no doubt about it. And because these are kind of 755 00:40:53,440 --> 00:40:56,920 Speaker 19: passion assets that tend to sit in homes, think about 756 00:40:56,920 --> 00:41:00,000 Speaker 19: how homes are now designed. 757 00:41:00,960 --> 00:41:04,360 Speaker 3: More art and more stuff also means a growing clientele 758 00:41:04,400 --> 00:41:06,880 Speaker 3: for those in the art business. There were one hundred 759 00:41:06,920 --> 00:41:09,799 Speaker 3: and twenty one thousand ultra high net worth individuals in 760 00:41:09,800 --> 00:41:12,880 Speaker 3: twenty twenty four, rising to over one hundred and sixty 761 00:41:12,920 --> 00:41:16,680 Speaker 3: three thousand by twenty thirty. But that doesn't necessarily mean 762 00:41:16,760 --> 00:41:19,279 Speaker 3: any time is a good time to be in art. 763 00:41:19,920 --> 00:41:22,880 Speaker 19: It really depends on what's happening in the economy. So, 764 00:41:23,120 --> 00:41:28,480 Speaker 19: for instance, you know in twenty fifteen, twenty sixteen, twenty seventeen, 765 00:41:28,960 --> 00:41:32,120 Speaker 19: when people were buying art like crazy, right, there was 766 00:41:32,200 --> 00:41:36,160 Speaker 19: just this huge appetite to acquire these assets. It was 767 00:41:36,239 --> 00:41:39,520 Speaker 19: really great to have an opportunity to utilize your art 768 00:41:39,520 --> 00:41:43,000 Speaker 19: for liquidity, which allowed you to get a loan against 769 00:41:43,040 --> 00:41:44,760 Speaker 19: your artwork to buy more artwork. 770 00:41:44,880 --> 00:41:45,080 Speaker 2: Right. 771 00:41:45,880 --> 00:41:49,319 Speaker 19: Many auction houses would have advances, right, so you could 772 00:41:49,360 --> 00:41:53,520 Speaker 19: acquire an artwork and it would automatically you'd get an 773 00:41:53,560 --> 00:41:57,400 Speaker 19: advance on it. So there was a desire to acquire 774 00:41:57,719 --> 00:42:01,960 Speaker 19: more work. As the economy started to slow and there 775 00:42:02,000 --> 00:42:04,760 Speaker 19: was inflation, there's interests, there were issues in the commercial 776 00:42:04,760 --> 00:42:08,480 Speaker 19: real estate market. We started seeing more and more clients 777 00:42:08,520 --> 00:42:10,239 Speaker 19: not thinking so much about hey, I want to buy 778 00:42:10,239 --> 00:42:12,600 Speaker 19: more art, but they were thinking like, hey, I need 779 00:42:12,640 --> 00:42:16,160 Speaker 19: liquidity right. Maybe I'm over leveraged in other areas of 780 00:42:16,200 --> 00:42:19,239 Speaker 19: my portfolio, but I've got this big art collection. I 781 00:42:19,280 --> 00:42:22,239 Speaker 19: can use this for liquidity to buy another business, to 782 00:42:22,760 --> 00:42:26,239 Speaker 19: pay for my commercial real estate. So the reasons for 783 00:42:26,520 --> 00:42:30,000 Speaker 19: collateral really depend very much on what's happening to the 784 00:42:30,040 --> 00:42:34,880 Speaker 19: economy and the necessity for quick money. 785 00:42:35,239 --> 00:42:37,759 Speaker 3: While each work of art is unique, there's a big 786 00:42:37,800 --> 00:42:40,920 Speaker 3: business in bringing some clarity to the market and in 787 00:42:41,000 --> 00:42:43,080 Speaker 3: bringing together the buyers and sellers. 788 00:42:43,800 --> 00:42:47,440 Speaker 20: Enter Edward Dolman, Well, basically it's a sort of perfect 789 00:42:47,480 --> 00:42:50,440 Speaker 20: form of the market. It's the ultimates of demand and 790 00:42:50,520 --> 00:42:54,240 Speaker 20: supply where the two meet with an auctioneer in front 791 00:42:54,320 --> 00:42:57,759 Speaker 20: of all our clients who've come along to bid for 792 00:42:57,800 --> 00:42:59,839 Speaker 20: the works of art that we've offered for sale. 793 00:43:00,840 --> 00:43:03,560 Speaker 3: We spoke to Dolman when he was CEO of Phillips, 794 00:43:03,719 --> 00:43:08,560 Speaker 3: which specializes in contemporary art. Auction Houses like Phillips, Sotheby's 795 00:43:08,640 --> 00:43:12,080 Speaker 3: and Christie's provide a public forum for price discovery at 796 00:43:12,080 --> 00:43:15,560 Speaker 3: events throughout the year, including big ones in the spring 797 00:43:15,760 --> 00:43:16,319 Speaker 3: and the fall. 798 00:43:17,120 --> 00:43:20,920 Speaker 20: So the art business is essentially driven by this auction machine, 799 00:43:20,960 --> 00:43:24,640 Speaker 20: but round it is a huge sort of ecosystem of 800 00:43:25,239 --> 00:43:31,640 Speaker 20: galleries and collectors and museums and art institutions. We're a 801 00:43:31,640 --> 00:43:34,640 Speaker 20: big community, but I do think the auctions are probably 802 00:43:34,640 --> 00:43:35,399 Speaker 20: at the heart of it. 803 00:43:36,320 --> 00:43:40,680 Speaker 3: Over your time involved in the art auction business, how 804 00:43:40,680 --> 00:43:41,440 Speaker 3: has it evolved? 805 00:43:42,440 --> 00:43:45,319 Speaker 20: Well, it's been transformed actually in the time that I've 806 00:43:45,360 --> 00:43:48,520 Speaker 20: been in it, which is a long time, that's thirty 807 00:43:48,560 --> 00:43:53,200 Speaker 20: five years. When I first started, the market was opaque, 808 00:43:53,400 --> 00:43:55,760 Speaker 20: to say the least. The only people had any pricing 809 00:43:55,760 --> 00:43:58,480 Speaker 20: information where the auctioneers and the dealers who attended the 810 00:43:58,480 --> 00:44:01,120 Speaker 20: auctions and wrote down all the prime is in their catalogs. 811 00:44:01,320 --> 00:44:05,960 Speaker 20: And I think the biggest transformative event in our world 812 00:44:06,040 --> 00:44:09,840 Speaker 20: has been information and access to data. So really the 813 00:44:09,880 --> 00:44:12,360 Speaker 20: market we see now, what's so different about it is 814 00:44:13,400 --> 00:44:16,640 Speaker 20: the access to information that everybody has who's in that 815 00:44:16,800 --> 00:44:21,160 Speaker 20: room competing, whether they're in Asia or South America, or 816 00:44:21,239 --> 00:44:24,360 Speaker 20: Europe or America, they have access to the same information. 817 00:44:24,440 --> 00:44:25,560 Speaker 5: Who like to open the bidding. 818 00:44:25,600 --> 00:44:28,920 Speaker 3: Here the price may be public and the seller may 819 00:44:28,960 --> 00:44:33,200 Speaker 3: be protected by guarantees and aroical bids, but for the buyer, 820 00:44:33,680 --> 00:44:36,440 Speaker 3: the question remains whether a work of art is worth 821 00:44:36,520 --> 00:44:39,719 Speaker 3: the prices being bid, and also how those prices might 822 00:44:39,760 --> 00:44:42,759 Speaker 3: be financed, which is where for Teeny's Itis and her 823 00:44:42,760 --> 00:44:44,839 Speaker 3: colleagues at City come in the. 824 00:44:44,840 --> 00:44:49,920 Speaker 21: Art market can be still opaque. It has gained transparency 825 00:44:50,000 --> 00:44:53,240 Speaker 21: in some ways, but in many ways it still remains 826 00:44:54,280 --> 00:44:58,799 Speaker 21: not a transparent market, and one a novice collector might 827 00:44:58,840 --> 00:44:59,640 Speaker 21: need some guidance. 828 00:45:00,239 --> 00:45:03,560 Speaker 3: Forteenizitis is head of Art Finance at City, one of 829 00:45:03,600 --> 00:45:06,680 Speaker 3: the major banks that have added art advisory and financing 830 00:45:06,920 --> 00:45:10,960 Speaker 3: to their investment offerings. When needed, they lend against the investors' 831 00:45:10,960 --> 00:45:13,879 Speaker 3: collections to provide the liquidity needed to acquire new art. 832 00:45:14,280 --> 00:45:16,600 Speaker 21: Some of the things we look at when evaluating art, 833 00:45:16,719 --> 00:45:21,759 Speaker 21: be that for an acquisition, as sale, as collateral for 834 00:45:21,840 --> 00:45:24,840 Speaker 21: an art loan, for insurance purposes. We look at a 835 00:45:24,920 --> 00:45:28,280 Speaker 21: range of factors. We look at an artist's market history. 836 00:45:29,080 --> 00:45:32,440 Speaker 21: If it's a more established artist, we look at the 837 00:45:32,640 --> 00:45:37,080 Speaker 21: longevity of that market and what's happening. We look at 838 00:45:37,120 --> 00:45:41,800 Speaker 21: the individual artwork itself, so the sale history of that work. 839 00:45:42,080 --> 00:45:46,520 Speaker 21: Sometimes artworks might show up for sale several times at auction. 840 00:45:46,760 --> 00:45:49,040 Speaker 19: So we have to be able to put a value 841 00:45:49,080 --> 00:45:51,840 Speaker 19: on an object and understand what is the long term 842 00:45:52,000 --> 00:45:55,200 Speaker 19: value for it? Is it financial preservation, is an investment. 843 00:45:55,480 --> 00:45:58,680 Speaker 19: So when I say quality, I can't help but think 844 00:45:59,000 --> 00:46:01,680 Speaker 19: value kind of the synonym for quality. 845 00:46:01,880 --> 00:46:03,520 Speaker 20: Fourteen million, nine hundred thousands. 846 00:46:04,040 --> 00:46:07,440 Speaker 3: Today the art market is larger and more transparent than 847 00:46:07,440 --> 00:46:10,400 Speaker 3: in the past, and it's interwoven with interest rates and 848 00:46:10,480 --> 00:46:14,160 Speaker 3: financing and expert advisors. But in the end, whether you're 849 00:46:14,160 --> 00:46:17,399 Speaker 3: an art investor, a collector, or something of a mix 850 00:46:17,440 --> 00:46:20,440 Speaker 3: of the two, the value of your purchase depends in 851 00:46:20,480 --> 00:46:23,120 Speaker 3: part on whether it will resonate through time. 852 00:46:23,920 --> 00:46:25,360 Speaker 5: I literally think it's impossible. 853 00:46:25,920 --> 00:46:30,200 Speaker 18: I think that if you were to ask yourself the 854 00:46:30,280 --> 00:46:33,799 Speaker 18: question if you went back to Renaissance times and were 855 00:46:33,840 --> 00:46:36,680 Speaker 18: in Leonardo da Vinci's studio and he was painting the 856 00:46:36,719 --> 00:46:38,759 Speaker 18: Mona Lisa, would you have known? 857 00:46:39,520 --> 00:46:40,600 Speaker 5: Probably hard to tell. 858 00:46:40,920 --> 00:46:44,680 Speaker 3: But fortunately for a true collector like Peter Krass, it's 859 00:46:44,719 --> 00:46:46,839 Speaker 3: not about predicting where the market will go. 860 00:46:47,560 --> 00:46:51,440 Speaker 18: As a collector, the key issue is trying to unlock 861 00:46:51,800 --> 00:46:56,160 Speaker 18: the language that the artist is using to communicate their 862 00:46:56,200 --> 00:46:59,680 Speaker 18: feelings or whatever they're putting into the art. And it's 863 00:46:59,719 --> 00:47:02,920 Speaker 18: trying to figure out that language. That's the mystery of me. 864 00:47:03,800 --> 00:47:06,920 Speaker 18: And where you figure out that language, then all of 865 00:47:06,920 --> 00:47:08,600 Speaker 18: a sudden you see what the artist is doing. 866 00:47:08,640 --> 00:47:11,320 Speaker 21: You may not like it, it. 867 00:47:10,160 --> 00:47:11,080 Speaker 5: May not speak to you. 868 00:47:11,480 --> 00:47:13,400 Speaker 18: But if it does speak to you, if that language 869 00:47:13,440 --> 00:47:15,480 Speaker 18: is something you read and it does excite you and 870 00:47:15,520 --> 00:47:19,839 Speaker 18: it moves you, that's interesting and that's important. And then 871 00:47:19,880 --> 00:47:21,879 Speaker 18: the question is are you the only person moved by 872 00:47:21,880 --> 00:47:24,480 Speaker 18: it or are many people moved by it? 873 00:47:25,120 --> 00:47:30,680 Speaker 3: As a collector, do you sell? Never for the true 874 00:47:30,800 --> 00:47:34,120 Speaker 3: art collector, as for the true artist, Maybe it doesn't 875 00:47:34,120 --> 00:47:37,720 Speaker 3: matter how many people are moved. One can be enough, 876 00:47:38,320 --> 00:47:40,719 Speaker 3: But it's how many people are moved that will take 877 00:47:40,800 --> 00:47:46,640 Speaker 3: a passion asset and make it an investment that does 878 00:47:46,680 --> 00:47:49,040 Speaker 3: it for us. Here at Wall Street Week, I'm David Weston. 879 00:47:49,120 --> 00:48:02,040 Speaker 3: See you next week for more stories of capitalism.