WEBVTT - Surveillance: Fed Out of Ammo, Tipp Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.680 and of course on the Bloomberg Terminal. He writes, Uh, 0:00:30.800 --> 0:00:34.360 the team at pigam PJIM has had a terrific run 0:00:34.360 --> 0:00:37.760 here in the fixed income market because they have been supple, 0:00:37.800 --> 0:00:40.960 they've been able to move, and it's given them a really, 0:00:41.280 --> 0:00:44.960 really interesting track record. Robert Tipp joins us this morning. 0:00:45.200 --> 0:00:49.279 Robert Tip, the basic idea I'm hearing is yields if 0:00:49.360 --> 0:00:54.560 hit the high yield down price up. How opportunistic is 0:00:54.600 --> 0:00:57.080 the first six months of two thousand and twenty two. 0:00:57.400 --> 0:00:59.680 Is it like the one or two other times we've 0:00:59.680 --> 0:01:02.880 seen so it's a great financial crisis where you can 0:01:02.960 --> 0:01:08.880 make total return in bonds. I think that that it is. 0:01:09.520 --> 0:01:11.920 I think it's a matter of what the relative benchmark is. 0:01:12.280 --> 0:01:15.200 We've we've passed the peak in in long term yields, 0:01:15.360 --> 0:01:17.760 and we're probably passing the peak in in the front 0:01:17.880 --> 0:01:21.800 end for yields now and the return on the bond 0:01:21.840 --> 0:01:24.320 market is likely to exceed cash. We're likely to stay 0:01:24.480 --> 0:01:27.520 range bound, kind of centered around where we are right now, 0:01:27.600 --> 0:01:29.920 and so I think traders are going to have to 0:01:29.959 --> 0:01:33.640 be very skilled at trading that range. Investors are going 0:01:33.680 --> 0:01:36.640 to have a much easier time. That's the lesson from 0:01:36.680 --> 0:01:40.640 the past papers. That's the lesson from the earlier analogs 0:01:40.640 --> 0:01:44.040 and history that are like this environment we're in right now. 0:01:44.080 --> 0:01:45.959 My two calls there the long gun. I've heard that 0:01:46.000 --> 0:01:48.160 call from you before. It was months ago and it's 0:01:48.160 --> 0:01:49.760 turned out to be right gunt in two year end. 0:01:49.760 --> 0:01:51.360 Do you think the highs on a ten year behind 0:01:51.440 --> 0:01:53.600 us right now? We're well south of where we were 0:01:53.600 --> 0:01:55.400 at the highs of the year in Q one, pushing 0:01:55.480 --> 0:01:57.560 one eight at south of one four to you just 0:01:57.600 --> 0:01:59.840 said that maybe the peak at the front end might 0:01:59.880 --> 0:02:03.160 have behind us as well, But why right, yeah, I 0:02:03.200 --> 0:02:05.400 think so for for yields out to like your three 0:02:05.440 --> 0:02:08.400 year point for now, and then once you get twelve 0:02:08.440 --> 0:02:11.080 months down the road, if it turns out, you know, 0:02:11.120 --> 0:02:13.840 we're in that part of the probability spectrum of very 0:02:13.880 --> 0:02:17.919 strong economy, inflation staying high. Uh fat is really hiking 0:02:18.000 --> 0:02:20.480 rates three times. Next year you're gonna have a stare 0:02:20.520 --> 0:02:23.680 step higher in the front end. But for now you're 0:02:23.720 --> 0:02:25.920 at that point where the fat has really shot all 0:02:25.960 --> 0:02:29.880 their bullets. They announced taper in November. Within a month 0:02:30.000 --> 0:02:34.720 basically an inter meeting move right to accelerate the taper, 0:02:34.760 --> 0:02:40.440 which is really raises some questions. And the market has 0:02:40.680 --> 0:02:42.799 has moved on a one year one year basis and 0:02:42.919 --> 0:02:45.359 o I s so on average, where will the funds 0:02:45.560 --> 0:02:49.520 rate be on average over the year, you know, from 0:02:49.639 --> 0:02:52.480 point one years out to the point one year to 0:02:52.560 --> 0:02:56.160 two years out over one percent. That's a lot of 0:02:56.240 --> 0:02:58.799 rate hikes price in there. So now the market has 0:02:58.840 --> 0:03:01.720 to sit and wagh and I think it's unlikely they're 0:03:01.720 --> 0:03:04.480 going to push those bets further on the front end 0:03:04.480 --> 0:03:06.720 of the curve. Robot think this is such a fascinating 0:03:06.760 --> 0:03:08.840 moment because the likes of Deutsche Bank are asking a 0:03:08.960 --> 0:03:12.000 question of the weekend last week into this week, how 0:03:12.080 --> 0:03:13.640 much work they need to do. Maybe they need to 0:03:13.639 --> 0:03:16.639 go even higher to tighten in an economy like this one. 0:03:17.040 --> 0:03:20.160 And you're saying they've shuttle their bullets already and they 0:03:20.200 --> 0:03:23.240 haven't even really done anything yet. Robert, can you square 0:03:23.360 --> 0:03:27.720 reconcile what that debate sounds like from from your perspective, right, 0:03:27.800 --> 0:03:31.040 I mean, could be wrong on this, but you know, 0:03:31.120 --> 0:03:34.720 from from our perspective, the way this goes is by 0:03:34.760 --> 0:03:38.160 the time they have the information set to project the 0:03:38.240 --> 0:03:41.040 rate hikes that the FED is projecting to have the 0:03:41.120 --> 0:03:44.440 nerve to do the taper. Look at where we were 0:03:44.600 --> 0:03:48.080 at the end of December when they announced the taper 0:03:48.160 --> 0:03:53.280 to begin in January, You're at three. By the time 0:03:53.320 --> 0:03:55.360 the Fed got around to hiking interest rates at the 0:03:55.440 --> 0:03:59.360 end of you're at two point on the tenure, you 0:03:59.360 --> 0:04:03.160 had a big By the time just before they were 0:04:03.200 --> 0:04:06.640 ready to really you know, get into the motive heights in, 0:04:08.080 --> 0:04:11.400 you were in the low ones. So you're in a 0:04:11.520 --> 0:04:13.640 very dangerous period where the feed is going to be 0:04:13.680 --> 0:04:18.760 an awake time. Uh. They've accelerated the taper against the 0:04:18.839 --> 0:04:22.680 backdrop of going into flu season, of the vacs, of 0:04:22.800 --> 0:04:28.320 a new variant hitting of oil prices fawling. Uh. And 0:04:28.760 --> 0:04:32.640 uh you know so uh you know that. I mean, 0:04:32.680 --> 0:04:34.919 they did get one higher inflation number. But you also 0:04:35.960 --> 0:04:38.480 speak because I think this is so critical. Do you 0:04:38.520 --> 0:04:42.120 see the risk of a Discember eighteen repeat? We're just 0:04:42.160 --> 0:04:44.039 talking about it. This time around, they didn't have to 0:04:44.040 --> 0:04:46.240 back away from getting anywhere close to what people are 0:04:46.279 --> 0:04:50.320 talking about. I think that that power was on the 0:04:50.440 --> 0:04:53.200 right track of trying to keep the markets away from that. 0:04:53.560 --> 0:04:55.520 He was trying to focus on the here and now. 0:04:56.320 --> 0:04:59.160 Uh And now they've lost that narrative a little bit. 0:04:59.279 --> 0:05:02.960 You've seen two weeks of stocks falling and yields falling. 0:05:03.320 --> 0:05:06.200 So I'm assuming that there's been a learning curve and 0:05:06.240 --> 0:05:08.560 that he's going to see that and he's going to 0:05:08.600 --> 0:05:11.159 corral the committee and say, you know, if we want 0:05:11.160 --> 0:05:14.320 to have the flexibility to raise rates next year, if 0:05:14.320 --> 0:05:17.000 we think that's appropriate, we have to keep the markets 0:05:17.120 --> 0:05:21.880 on track, that we are pro grow with stable inflation, 0:05:22.560 --> 0:05:24.960 and that we're not going to have an imbalanced reaction 0:05:25.120 --> 0:05:27.400 as opposed to last time, which was, you know, we 0:05:27.440 --> 0:05:29.880 have a long way to go to neutral. How to 0:05:29.960 --> 0:05:31.880 freak the market out? How do you think the FETE 0:05:31.920 --> 0:05:34.159 is factoring in the fiscal equation? Obviously we don't know 0:05:34.240 --> 0:05:36.240 what the final form of the buildback Better plan will 0:05:36.240 --> 0:05:38.440 actually look like, if it will even get past early 0:05:38.520 --> 0:05:40.920 next year. But if it does, and there's an inflationary 0:05:40.960 --> 0:05:42.880 aspect to you that does that force the feed's hand 0:05:42.880 --> 0:05:46.880 to some extent. Well, I think actually the fiscal is 0:05:46.920 --> 0:05:50.000 another factor that I would have put on the economically 0:05:50.120 --> 0:05:53.599 negative sides. Right. It's not that we are having a 0:05:53.600 --> 0:05:56.680 little bit of stimulus kick in presumably in the years 0:05:56.680 --> 0:05:59.080 they had based on these programs that are passing. Now, 0:05:59.720 --> 0:06:02.800 the out the government will be spending through these programs 0:06:03.000 --> 0:06:05.320 is so much less than what we had in years 0:06:05.400 --> 0:06:09.039 past that effectively growth has been inflated over the last 0:06:09.080 --> 0:06:11.040 couple of years by a couple of things. One is 0:06:11.080 --> 0:06:14.200 the fiscal and then a related item of that, which 0:06:14.320 --> 0:06:18.719 was a spending down of the high savings rate that 0:06:18.720 --> 0:06:22.520 that generated. So I think it's great. I mean, I 0:06:22.560 --> 0:06:26.719 think in terms of growth, that should cushion the deceleration 0:06:26.760 --> 0:06:29.640 and growth that you'd otherwise get. But it's not a 0:06:29.680 --> 0:06:31.960 big step up on the pistol side. It's a step down. 0:06:32.240 --> 0:06:35.040 Roberts Hip. That was a clinic send on best to 0:06:35.120 --> 0:06:38.039 correct and mind roberts Hippi for a page, Jim, Thank you, sir, 0:06:38.120 --> 0:06:46.880 Thank you very much. Right now, with special ability. Sarah 0:06:46.920 --> 0:06:50.039 House is senior economist at Will's Fargo out of Tulane, 0:06:50.040 --> 0:06:54.080 and far more importantly with active work in the measurement 0:06:54.320 --> 0:06:57.400 of what we do in America. Sarah House in your 0:06:57.400 --> 0:07:00.560 books at Tulane and anything I've ever read, we've never 0:07:00.640 --> 0:07:04.000 had a China like economy. Is a nine percent or 0:07:04.080 --> 0:07:08.800 dare I say ten percent nominal g d P healthy 0:07:09.040 --> 0:07:13.880 for America? Well, I don't think it's as healthy as 0:07:14.080 --> 0:07:16.920 as we would typically see. I mean, I think overall, 0:07:17.040 --> 0:07:19.800 these are good problems of the US is having right now, 0:07:19.800 --> 0:07:23.520 where what's getting us to practically a double digit pace 0:07:23.560 --> 0:07:27.400 of nominal GDP is inflation. But that comes down I 0:07:27.440 --> 0:07:31.120 think a lot to this such strong demand that we've seen, 0:07:31.200 --> 0:07:33.280 and so I think some of the problems we say 0:07:33.520 --> 0:07:35.680 we are seeing right now again, these these are in 0:07:35.720 --> 0:07:39.280 many ways good problems, but I think ultimately unsustainable, and 0:07:39.320 --> 0:07:41.920 that's why we expect growth to moderate over the course 0:07:41.920 --> 0:07:45.880 of the upcoming year. Well, it's going to moderate through 0:07:45.920 --> 0:07:48.720 the upcoming year? Does a FED? I mean, the FED 0:07:49.000 --> 0:07:54.520 has to respond to nine nominal GDP right, Well, I 0:07:54.560 --> 0:07:57.720 think we've certainly seen that that shift where they've in 0:07:57.760 --> 0:08:00.360 many ways. I think the October CPI was awake call 0:08:00.480 --> 0:08:04.080 that this inflation environment is going to be somewhat longer 0:08:04.160 --> 0:08:07.000 lasting than they anticipated. And I think more importantly than 0:08:07.040 --> 0:08:09.880 just the curation, it's the magnitude. So we're looking at 0:08:09.880 --> 0:08:12.880 seven percent c P I come Q one, and so 0:08:12.920 --> 0:08:15.280 I think we we have seen the Fed realize that 0:08:15.400 --> 0:08:19.800 in order for inflation expectations to remain close to two percent, 0:08:19.920 --> 0:08:21.960 that they do have to to make adjustments. And I 0:08:21.960 --> 0:08:24.160 think we'll see that very soon. I mean, John, what 0:08:24.200 --> 0:08:27.200 does Corporate America do with this? If they've got nine percent, 0:08:27.600 --> 0:08:30.000 They've got a company growing at three or four or 0:08:30.000 --> 0:08:32.800 five percent revenue growth is going to show eight or 0:08:32.880 --> 0:08:35.840 nine percent revenue growth. They have to adapt to that. 0:08:36.040 --> 0:08:38.440 They've done that this year. They've done pretty well, haven't they. 0:08:38.440 --> 0:08:41.280 Looking forward, let's put all this together. A seven handle 0:08:41.320 --> 0:08:43.520 on c P I. You're looking for that in Q one, 0:08:43.520 --> 0:08:45.080 and we could come close to it a little bit 0:08:45.160 --> 0:08:47.040 later this week. You're looking for six point nine percent. 0:08:47.400 --> 0:08:49.920 Deutsche Bank said the following, Sarah, I'd love your response 0:08:50.000 --> 0:08:52.200 to it. Surely more than a hundred and fifty basis 0:08:52.240 --> 0:08:55.280 points of tightening and needed to slow down eleven percent 0:08:55.360 --> 0:08:59.400 nominal GDP growth to a more sustainable four Sarah, this 0:08:59.440 --> 0:09:01.600 is the conversation and we're having at the moment liftoff 0:09:01.600 --> 0:09:04.160 to one thing. How much timing do we need to 0:09:04.280 --> 0:09:07.880 actually slow down this economy? That is a good question, 0:09:07.880 --> 0:09:10.079 and I think it depends on when it starts. So 0:09:10.120 --> 0:09:12.520 the earlier the FEDS starts, the less tightening we will 0:09:12.559 --> 0:09:15.120 ultimately have to see. But I think it's important to 0:09:15.160 --> 0:09:18.080 remember some of the momentum that's already in trained. So 0:09:18.120 --> 0:09:20.280 we are getting further away from some of this fiscal 0:09:20.320 --> 0:09:25.400 support that really did super supercharge growth and inflation this 0:09:25.480 --> 0:09:27.440 past year, and so I think the tricky thing for 0:09:27.440 --> 0:09:30.120 the FED is that they're most likely to be hiking 0:09:30.200 --> 0:09:33.360 into a slowing economy, and so I think there's still 0:09:33.360 --> 0:09:36.200 a lot of uncertainty about how high ultimately rates have 0:09:36.320 --> 0:09:38.480 to go. But I think what we've seen is the 0:09:38.559 --> 0:09:41.760 FED shifting towards painting that picture and kind of laying 0:09:41.800 --> 0:09:44.160 the groundwork for a faster taper, so they have the 0:09:44.200 --> 0:09:47.440 options to raise rates earlier, so ultimately they might not 0:09:47.520 --> 0:09:50.360 have to raise them quite as as high. You talk 0:09:50.400 --> 0:09:52.480 about a slowing economy, is there a risk that that 0:09:52.520 --> 0:09:54.920 will be exacerbated by the omicron variant? Have you been 0:09:54.960 --> 0:09:58.440 able to model that out at all? So there's still 0:09:58.480 --> 0:10:01.079 so much unknown about AM and cron on that we 0:10:01.280 --> 0:10:04.280 haven't modeled it out in terms of what that's going 0:10:04.320 --> 0:10:07.040 to do to our Our upcoming GDP numbers are our 0:10:07.120 --> 0:10:10.160 inflation numbers, I think when we think of it in 0:10:10.200 --> 0:10:12.720 the directional sense, so it has the chance to dampen 0:10:12.800 --> 0:10:17.000 GDP but intensify these supply chains. So UM might revive 0:10:17.080 --> 0:10:19.920 some of those stacklationary debates that we had in the 0:10:20.000 --> 0:10:22.800 third quarter that I think ultimately we've seen that with 0:10:22.880 --> 0:10:26.680 each successive wave, the impact of the economy has weekended. 0:10:26.720 --> 0:10:31.000 So businesses have been incredibly successful at adapting to this environment. 0:10:31.280 --> 0:10:34.080 Consumers are growing more comfortable, We have more tools in 0:10:34.200 --> 0:10:39.120 order to still carry on with our lives, whether that's vaccinations, boosters, therapeutics, 0:10:39.200 --> 0:10:41.840 and just a great dose of COVID fatigue. And so 0:10:41.880 --> 0:10:46.240 I think unless we see some some really material um 0:10:46.440 --> 0:10:49.560 and scary headlines coming out of Omicron right now, we 0:10:49.600 --> 0:10:52.199 don't think that it's going to have a massive impact 0:10:52.320 --> 0:10:54.680 or really even a major done in terms of the 0:10:54.679 --> 0:10:57.400 trajectory of the near termois economy. So you don't think 0:10:57.440 --> 0:10:59.840 the Omicron variant or even that mixed paper rolls report 0:10:59.880 --> 0:11:01.840 we on on Friday, would give the FED some cover 0:11:02.040 --> 0:11:05.680 to punt until I think it gives them a little 0:11:05.720 --> 0:11:07.320 bit of cover if they want to take it, but 0:11:07.440 --> 0:11:09.720 I don't necessarily think they will. As I mentioned, we 0:11:09.760 --> 0:11:13.079 saw beneficials really since that November meeting lay in the 0:11:13.120 --> 0:11:16.319 groundwork for potentially an even faster taper as early as 0:11:16.320 --> 0:11:18.640 its meeting next week. And so I think when you 0:11:18.679 --> 0:11:20.920 look at what happened with the household survey, so the 0:11:20.920 --> 0:11:23.640 fact that we've seen the unemployment rate declined a full 0:11:23.679 --> 0:11:26.480 percentage point just over the over the past three months, 0:11:26.520 --> 0:11:29.000 we're staring, you know, pretty close to what the FED 0:11:29.080 --> 0:11:32.040 considers full employment over the long term. And of course, 0:11:32.120 --> 0:11:34.560 we still have this inflation issue that is not going 0:11:34.600 --> 0:11:37.360 away anytime soon and is actually going to get worse 0:11:37.400 --> 0:11:40.400 before it gets better. I think that, um, I think 0:11:40.480 --> 0:11:42.800 that well, the Fed might be able to spin it. 0:11:43.120 --> 0:11:46.800 I think ultimately that that they'll most likely probably go 0:11:46.840 --> 0:11:49.800 ahead and accelerate the taper here soon. And now, folks 0:11:49.800 --> 0:11:52.560 on radio and television, the dumb question of the morning, 0:11:52.600 --> 0:11:55.280 I'll take that one, Sarah, I'm looking at, you know, 0:11:55.600 --> 0:11:59.960 unemployment in Nebraska. You're Louisiana. And then I'm sorry, we're 0:12:00.040 --> 0:12:03.880 almost back to February of two thousand twenty. Is this 0:12:03.920 --> 0:12:09.480 American economy back to February of two thousand twenty. I 0:12:09.559 --> 0:12:12.959 think in the aggregate you could say that it's it's 0:12:12.960 --> 0:12:16.600 getting pretty close. Of course, there's tremendous variation where we've 0:12:16.600 --> 0:12:19.080 seen the growth is so different from where it would 0:12:19.120 --> 0:12:22.160 have been expected. So if you look at goods versus services, 0:12:22.200 --> 0:12:24.680 for for example, I think there's still a lot of 0:12:24.760 --> 0:12:26.920 questions when we look at the unemployment and the labor 0:12:27.000 --> 0:12:29.880 market is to what extent workers come back. We saw 0:12:29.960 --> 0:12:33.040 some fine of that with the November jobs report. There's 0:12:33.080 --> 0:12:36.000 still a lot of questions, particularly over older workers those 0:12:36.160 --> 0:12:40.240 retirement age. Are those retirements actually permanent or do they 0:12:40.240 --> 0:12:42.800 come back? But ultimately I think we are barreling very 0:12:42.880 --> 0:12:46.880 quickly towards full employment, and that's also pushing the FED 0:12:46.920 --> 0:12:50.040 towards this more hawk is toad. It's not just inflationists 0:12:50.080 --> 0:12:52.880 that we are seeing the labor market rapidly tighten, and 0:12:53.000 --> 0:12:56.800 those two mandates are in less tension. John Sarah earlier 0:12:57.200 --> 0:12:59.880 took some Barclays doom and blow them, and Barclays pushed 0:12:59.880 --> 0:13:03.080 against the doom and gloom and said they're optimistic. Why 0:13:03.080 --> 0:13:07.640 are we so angst ridden about a wonderfully buoyant American 0:13:07.800 --> 0:13:12.240 economy or is it normal to have OMG fears? Is 0:13:12.440 --> 0:13:16.800 we actually do pretty well? So I think it's it's 0:13:16.880 --> 0:13:21.600 natural to be perhaps more more conservative, or at least 0:13:21.880 --> 0:13:24.960 um more tune shoot to the downside risks than perhaps 0:13:25.040 --> 0:13:28.040 that upside risk. I think the inflation backdrop right now 0:13:28.320 --> 0:13:31.440 is is in many ways driving this. So even if 0:13:31.480 --> 0:13:34.640 if you look at the fact that UM labor income 0:13:34.760 --> 0:13:37.000 is up ten and a half percent over over the year, 0:13:37.080 --> 0:13:39.360 that gets lost in this conversation of you know, six 0:13:39.440 --> 0:13:44.120 percent plus inflation, so nobody really likes UM that the 0:13:44.160 --> 0:13:46.800 actual numbers change is very hard for households and businesses 0:13:46.800 --> 0:13:49.320 to plan, and so I think that overrides this this 0:13:49.400 --> 0:13:52.000 underlying real growth story that we continue to see very 0:13:52.000 --> 0:13:55.440 strong for you guys on radio, Sarah House has a 0:13:55.520 --> 0:13:58.440 perfect Christmas tree, John, Is your Christmas tree that nice? 0:13:58.720 --> 0:14:00.800 It doesn't have to stole until up. If we're rating 0:14:00.840 --> 0:14:03.200 this Christmas tree, I have to say extra marks for 0:14:03.240 --> 0:14:05.360 the star on top. It's very difficult to balance the 0:14:05.400 --> 0:14:08.480 star on the topic. You've got, John, You've got a 0:14:08.559 --> 0:14:11.160 C Milan something up top. You know. I have a 0:14:11.160 --> 0:14:13.480 little ac Milan mascot on top of the Christmas tree. 0:14:13.840 --> 0:14:18.000 That's right, Sarah, thank you, House of West Farca. That's Christmas. 0:14:18.040 --> 0:14:20.240 It's not allowed. The Christmas tree Tom to distract us 0:14:20.240 --> 0:14:23.200 from a really interesting call from Sarah House six nine 0:14:23.200 --> 0:14:26.080 on CPI this on they're looking for a seven handle 0:14:26.560 --> 0:14:35.680 for the first quarter. We stopped the show and we 0:14:35.760 --> 0:14:38.720 do that with William Lee. He is chief economist at Milking, 0:14:38.840 --> 0:14:43.040 but far more truly expert for the International Monetary Fund 0:14:43.680 --> 0:14:48.440 on the Pacific RIM and China. Bill Lee, what do 0:14:48.600 --> 0:14:53.040 we get wrong in the United States of our stereotypes 0:14:53.760 --> 0:14:57.640 of what we think of is Jonathan Spencer's ancient China, 0:14:58.360 --> 0:15:00.760 the World War Two China, or what do we get 0:15:00.760 --> 0:15:04.880 wrong about present day China. We have this image of 0:15:04.960 --> 0:15:08.360 China as a monolithic behemoth that is moving in unison, 0:15:08.600 --> 0:15:10.960 and I think that's far from the case. Right now. 0:15:11.200 --> 0:15:14.080 There's a huge amount of debate and dissension within China 0:15:14.400 --> 0:15:16.880 as the how to sustain growth, how to manage the 0:15:16.920 --> 0:15:20.880 property crisis they have there at the same time inspire 0:15:20.920 --> 0:15:23.200 the people to go out and spend in the light 0:15:23.240 --> 0:15:25.960 of their COVID shutdown policies. There's a lot of tension 0:15:25.960 --> 0:15:28.600 going on there and the UH and and even as 0:15:28.640 --> 0:15:31.640 we talk about our fiscal finances, there's has come to 0:15:31.760 --> 0:15:35.280 home to roosts and spades. China has to finance their 0:15:35.440 --> 0:15:39.160 their state local governments with property sales. They need construction 0:15:39.440 --> 0:15:41.960 to sustain the GDP targets. At the same time they 0:15:42.040 --> 0:15:43.840 got a rate in debt, they've got a rate in 0:15:44.080 --> 0:15:46.960 a lot of credit growth. I have a really great 0:15:46.960 --> 0:15:49.360 respect for what Foreign Affairs has done on this, and 0:15:49.400 --> 0:15:52.200 particularly Daniel Kurtz fail and of course his expertise on 0:15:52.320 --> 0:15:56.720 George Marshall and China. Only what I hear from experts 0:15:56.920 --> 0:16:00.360 is the monolithic view of President g is just flat 0:16:00.360 --> 0:16:06.720 out wrong. How powerful is the Beijing leader? He's become 0:16:06.840 --> 0:16:09.480 more powerful. I think that's the key message that's gonna 0:16:09.480 --> 0:16:12.160 come out of the next People's Congress. Uh Ji Jinping 0:16:12.280 --> 0:16:14.600 has done what no only to other leaders in China 0:16:14.640 --> 0:16:18.320 done Mausey dong and doping. He has become declared horror leader. 0:16:18.600 --> 0:16:20.720 And in doing that, he's he's essentially gotten rid of 0:16:20.720 --> 0:16:24.200 all of his opposition. His his anti corruption policies have 0:16:24.320 --> 0:16:27.080 really gotten rid of any kind of of of challenge 0:16:27.120 --> 0:16:30.760 those leadership, and his strategy is to consolidate by telling 0:16:30.800 --> 0:16:33.280 the people of China. The Communist Party is going to 0:16:33.360 --> 0:16:37.280 deliver them safety, growth and in a better way of 0:16:37.320 --> 0:16:40.720 life by doing what Mound died, which is to say, 0:16:40.760 --> 0:16:44.920 turn domestic, turned inward to sources of growth as sources 0:16:44.960 --> 0:16:47.080 of of of export growth. And I think that he's 0:16:47.080 --> 0:16:50.120 gonna try to tell the world we will be a 0:16:50.160 --> 0:16:52.680 major power handle as as such. But at w t 0:16:52.800 --> 0:16:54.880 O he's also saying we're also an emerging market. We 0:16:54.880 --> 0:16:57.040 want the advantages of being an emerging market. A lot 0:16:57.040 --> 0:16:58.840 of tensions there, but we just want to jump in. 0:16:58.960 --> 0:17:01.960 With a stock move, slid down by three percentage points 0:17:02.000 --> 0:17:04.000 in a pre market some headlines crossing Katie, what do 0:17:04.080 --> 0:17:07.520 you see, Well, it's apportedly an SEC investigation that has 0:17:07.520 --> 0:17:09.399 been opened. This is according to a report from Rutters. 0:17:09.440 --> 0:17:11.600 You are seeing the subsequent move in Tesla shares and 0:17:11.640 --> 0:17:14.360 we understand from Reuters that this is probe is overclaims 0:17:14.400 --> 0:17:18.600 on solar panel defects, so related to that Solar City acquisition. 0:17:18.840 --> 0:17:21.280 I'm assuming, but we will continue to monitor Tesla. Of course, 0:17:21.520 --> 0:17:23.879 we can't shake that off, can they. That's the Royteous report. 0:17:23.960 --> 0:17:26.359 Stocks down about three percent. We'll revisit that ended a 0:17:26.359 --> 0:17:28.359 bit later. In the morning, I'm blowing back TV and radio, 0:17:28.400 --> 0:17:30.040 But I want to return to the leader of the 0:17:30.119 --> 0:17:33.320 Chinese Communist Party and trying to understand from your perspective 0:17:33.720 --> 0:17:35.879 how much strength he actually has in China right now, 0:17:35.880 --> 0:17:38.840 because on the outside looking again, we see these lifelong 0:17:39.000 --> 0:17:41.560 term limits for the Chinese leader, and then we try 0:17:41.560 --> 0:17:43.440 and figure out how much strength, how much control he 0:17:43.560 --> 0:17:47.320 actually has, Bill, how much control does he have a 0:17:47.440 --> 0:17:50.520 tension between what he does at the federal level, uh 0:17:50.600 --> 0:17:53.560 and and what powered Beijing could exerve and what the 0:17:53.600 --> 0:17:56.280 local authorities are able to implement are are really two 0:17:56.320 --> 0:17:59.760 different things. The local authorities are caught in this place 0:17:59.760 --> 0:18:02.080 where they need revenues, so they've got to sell a 0:18:02.080 --> 0:18:05.400 lot of property. Beijing wants to crack down on property 0:18:05.440 --> 0:18:09.120 companies are expanding credit too much, and and they need 0:18:09.160 --> 0:18:12.240 to cut down on properly being the only source of 0:18:12.280 --> 0:18:16.520 savings for the people of China. So the fiscal authorities 0:18:16.560 --> 0:18:19.800 have to expand the portfolio assets available. The local state 0:18:19.840 --> 0:18:23.280 local authorities want the property market to be the core 0:18:23.400 --> 0:18:26.120 place that that that they will get their financing from. 0:18:26.720 --> 0:18:29.040 Lots of problems there. What I've always found amazing, Bill, 0:18:29.119 --> 0:18:31.320 is how much faith confidence they seem to have in 0:18:31.359 --> 0:18:33.679 the Chinese policymaker when they make a move and do 0:18:33.800 --> 0:18:36.120 things like this, that China has control that they can 0:18:36.160 --> 0:18:37.920 let some of the steam out and then they can 0:18:37.920 --> 0:18:40.960 support things again, tap the brake, support things again, keep 0:18:41.000 --> 0:18:43.000 doing it over and over again without making a mistake. 0:18:43.160 --> 0:18:44.880 But as you look at things, what is the risk 0:18:44.880 --> 0:18:48.000 of a policy mistake as they try and engineer the 0:18:48.040 --> 0:18:50.679 inevitable self landing that is nearly always around the corner 0:18:50.920 --> 0:18:54.200 for China. When has it become something something else, something 0:18:54.240 --> 0:18:56.760 to worry about? But what does that look like? Keep 0:18:56.760 --> 0:18:58.439 an eye on what they've just done. They did a 0:18:58.440 --> 0:19:01.320 triple our cut, right they they they've cut the reserve requirements, 0:19:01.520 --> 0:19:05.480 which in the most mostly compous to say, that's expansionary. 0:19:05.640 --> 0:19:07.840 That's gonna expand the growth of credit. At the same time, 0:19:07.880 --> 0:19:10.640 I just told you they're trying to de leverage like crazy. Now, 0:19:10.680 --> 0:19:12.560 how they're going to pull that off is something that's 0:19:12.600 --> 0:19:14.800 that's sort of important because they also have to accept 0:19:14.800 --> 0:19:16.800 that China's growth harget is going to have to reduce 0:19:17.040 --> 0:19:19.600 down to five percent or even below five percent plus 0:19:19.720 --> 0:19:23.439 this next quarter. We're expecting GDP to come in at 0:19:23.480 --> 0:19:26.760 four nine. One of the things that the graphics and 0:19:26.760 --> 0:19:30.199 and the shift toward higher value added GDP activities is 0:19:30.640 --> 0:19:33.399 lots of manufact activities leaving China. That's the source of 0:19:33.480 --> 0:19:35.560 job growth for a lot of people. What are they 0:19:35.560 --> 0:19:38.720 going to do about that? Caley Lines mentioned two hours 0:19:38.760 --> 0:19:43.240 ago the modest uproar Bridgewater of Connecticut over Mr Dalio's 0:19:43.280 --> 0:19:46.440 comments on China. You're the kind of guy who sits 0:19:46.440 --> 0:19:49.120 in fancy offices in Hong Kong or in New York 0:19:49.680 --> 0:19:54.560 and advises Western commercial banking on the future of China 0:19:54.640 --> 0:19:58.679 and Hong Kong. What is your advice to Western bankers 0:19:59.119 --> 0:20:02.480 who need to set up shop in the shadow of HSBC. 0:20:04.640 --> 0:20:06.840 That's the toughest job in the world, tom Um. I 0:20:06.880 --> 0:20:10.159 think everyone knows the strategy for Asia in general and 0:20:10.280 --> 0:20:13.400 China particularly is diversify. You cannot put all your as 0:20:13.400 --> 0:20:16.440 in that China basket, which everyone thought was such such 0:20:16.480 --> 0:20:19.080 a valuable basket, because my god, look at that population. 0:20:19.200 --> 0:20:21.600 We could just get a small share of that population, 0:20:21.640 --> 0:20:23.440 We're gonna be rich. I think one of the things 0:20:23.480 --> 0:20:26.200 that we're learning is China wants to help its own 0:20:26.240 --> 0:20:30.560 financial institutions. China wants to have national champions in terms 0:20:30.560 --> 0:20:33.320 of its banking and financial system. I think the advice 0:20:33.359 --> 0:20:35.960 to to anyone, including my former colleagues, the city is 0:20:36.280 --> 0:20:39.280 start to diversify into sources of growth in the rest 0:20:39.280 --> 0:20:41.800 of Asia and the rest of Asia that has become 0:20:41.840 --> 0:20:44.800 less dependent upon China being the hub of the global 0:20:44.840 --> 0:20:48.320 supply chain. That's the that message is. I think it 0:20:48.400 --> 0:20:51.440 has to get out. But unfortunately all of the major 0:20:51.480 --> 0:20:53.960 global banks from Jamie Diamond all the way down to 0:20:54.040 --> 0:20:56.879 whoever else wants to go to China is China remain 0:20:57.119 --> 0:20:59.879 their central focus because of the size of that domestic market, 0:21:00.200 --> 0:21:02.159 which I think has become less available to them. You 0:21:02.200 --> 0:21:06.320 can Singapore in the Lee family, can they be opportunists 0:21:06.320 --> 0:21:10.679 to cure Oh. This is an absolutely phenomenal opportunity for 0:21:10.680 --> 0:21:13.760