WEBVTT - What a Nvidia Blowout Means for Markets 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.960 the Bloomberg Terminal, and the Bloomberg Business app r in 0:00:47.120 --> 0:00:50.760 Timor is definitive at Fidelity with our question look on LinkedIn. 0:00:51.320 --> 0:00:55.000 It's the best place to see this. The absolute smartest 0:00:55.680 --> 0:01:01.320 combination of economics and finance in the charts, technical analysis, 0:01:01.720 --> 0:01:03.200 and it's so good. I'm going to put this up 0:01:03.200 --> 0:01:06.600 for YouTube. I took a screen grab of my most 0:01:06.600 --> 0:01:10.160 important chart of the second quarter. It's of course from 0:01:10.200 --> 0:01:13.920 mister timmor of Fidelity. E'ine. It's real simple use of 0:01:13.959 --> 0:01:18.319 cash earnings to twenty five. I got a linear growth 0:01:18.360 --> 0:01:22.399 and dividends seventy five dollars and I got ninety dollars 0:01:22.440 --> 0:01:28.039 in share buyback corporations are generating seventy three percent payout 0:01:29.000 --> 0:01:31.840 on those earnings of two hundred and twenty five dollars. 0:01:31.880 --> 0:01:34.520 Does that continue? Yeah? 0:01:34.600 --> 0:01:36.720 And you know, and this is the reason why the 0:01:36.880 --> 0:01:40.319 US trades at a premium to most of the rest 0:01:40.360 --> 0:01:45.720 of the world, because the share buyback culture is somewhat unique. 0:01:45.720 --> 0:01:48.240 I mean, it happens in other places. But the payout 0:01:48.560 --> 0:01:51.320 of seventy three percent, which is actually below where it 0:01:51.360 --> 0:01:53.680 has been over the past decade or so, was closer 0:01:53.720 --> 0:01:56.200 to ninety percent. But if you think about it from 0:01:56.240 --> 0:02:00.240 a DCF you know, discount of cashlow model perspective. If 0:02:00.240 --> 0:02:03.559 you're a shareholder and you're getting more of the company's 0:02:03.640 --> 0:02:07.200 earnings return to you in one way or the other, 0:02:07.800 --> 0:02:11.440 that commands a higher premium, right, And so that's why 0:02:11.480 --> 0:02:15.440 the US has traded, you know, more more expensive, I guess, 0:02:15.440 --> 0:02:19.080 but it's well earned. And if the big free cash 0:02:19.080 --> 0:02:23.200 flow generators continue to generate that cash flow, then I 0:02:23.280 --> 0:02:24.760 suspect it will continue. 0:02:24.919 --> 0:02:28.280 So there's this dovetail with Michael Mobison's work, which what's 0:02:28.360 --> 0:02:32.959 more important now is the annual payout along the continuum 0:02:33.520 --> 0:02:36.760 rather than the terminal rate. Insanity we were lectured on 0:02:37.320 --> 0:02:41.480 in school. Is the actual yearly payout that you describe 0:02:42.120 --> 0:02:47.240 more important than some phony calculation of terminal value? 0:02:47.560 --> 0:02:49.440 Well, you know, you're getting into the ways of the 0:02:49.520 --> 0:02:54.280 DCF model, which is both so elegant and frustrating at 0:02:54.280 --> 0:02:58.040 the same time, because there are there are so many variables, right, 0:02:58.080 --> 0:03:00.560 you have earnings growth, you have to payout, you have 0:03:00.600 --> 0:03:03.799 the risk free rate, and you have the equity risk premium. 0:03:04.120 --> 0:03:08.119 And it's elegant because you can explain the market through 0:03:08.280 --> 0:03:12.360 every variable, including sentiment, which I think the risk premium 0:03:12.639 --> 0:03:15.880 is a reflection of. But you also can never solve 0:03:15.919 --> 0:03:19.560 for four variables at once. That makes it frustrating. So 0:03:19.639 --> 0:03:24.440 you have to isolate. So the terminal rate versus the 0:03:24.480 --> 0:03:27.680 next five years growth, I just assume that it's going 0:03:27.720 --> 0:03:30.639 to be six percent. The terminal rate is the ten 0:03:30.720 --> 0:03:34.239 year treasury yield, and then I saw for the risk 0:03:34.320 --> 0:03:36.320 premium because you have to isolate something. 0:03:36.360 --> 0:03:39.160 Paul I was in Boston near the state House, a 0:03:39.200 --> 0:03:41.960 lovely or in seventeenth century state house whatever, the red 0:03:42.000 --> 0:03:44.640 brick building there, and some guy next to me is 0:03:44.680 --> 0:03:48.040 going on on DCF. Peter Lynch through a snowball. 0:03:47.560 --> 0:03:51.200 At him, So you're in I mean, I know a 0:03:51.200 --> 0:03:54.080 lot of companies when they come through Boston, they come 0:03:54.120 --> 0:03:57.720 into the Fidelity offices to meet with you guys. When 0:03:57.720 --> 0:04:01.040 you're talking about use of cash, how do you and 0:04:01.080 --> 0:04:03.040 I'm sure a lot of these companies say, hey, what 0:04:03.080 --> 0:04:05.840 would you like to see dividends or buybacks or what 0:04:05.920 --> 0:04:08.240 kind of mix? How do you answer that question for 0:04:08.320 --> 0:04:08.880 these companies? 0:04:10.520 --> 0:04:11.800 Well, that's a good question. 0:04:11.880 --> 0:04:14.880 I guess it depends. I mean, dividends are sort of, 0:04:15.720 --> 0:04:18.160 you know, like a sacred commitment, right, so if you're 0:04:18.200 --> 0:04:21.200 going to pay a dividend, you better not take it away. 0:04:22.200 --> 0:04:25.520 And buybacks are more variable. Right, If you have the 0:04:25.560 --> 0:04:28.279 cash flow buy back the share, then the question is 0:04:28.279 --> 0:04:30.080 do you buy back shares or do you spend it 0:04:30.120 --> 0:04:34.800 on capex? And actually, it's interesting that the capex as 0:04:34.839 --> 0:04:38.920 a percent of revenues has been increasing and maybe that's 0:04:39.000 --> 0:04:42.880 part of the whole AI boom. But that's obviously good 0:04:42.920 --> 0:04:46.120 to see. But it comes down to, you know, the 0:04:46.160 --> 0:04:49.320 productive views of your cash. And if you're generating so 0:04:49.400 --> 0:04:54.000 much cash that even after satisfying capex, it's just sitting 0:04:54.080 --> 0:04:56.200 on your barance sheet, well then you might as well 0:04:56.240 --> 0:04:59.640 return it to shareholders, because that is part of the 0:04:59.800 --> 0:05:00.400 of math. 0:05:00.760 --> 0:05:03.680 How about for our good friends in Cooper Tino, Tim Cook, Apple, 0:05:04.160 --> 0:05:06.200 you know, they pay just a token dividend. We've seen 0:05:06.240 --> 0:05:09.080 Meta initiate a token dividend. What do you say to 0:05:09.160 --> 0:05:12.560 the technology companies when they come through your offices about, okay, 0:05:12.560 --> 0:05:15.360 thank you for the jillion dollar buy back, But would 0:05:15.360 --> 0:05:17.919 a three percent dividend yield kill you? I mean, do 0:05:17.960 --> 0:05:20.040 you have those conversations with the big tech companies. 0:05:21.480 --> 0:05:27.280 I think for the growthier companies, I think generally they 0:05:27.640 --> 0:05:30.479 have paid less individends than for instance, you know a 0:05:30.520 --> 0:05:34.120 bank or you know a consumer stable. And I think 0:05:34.120 --> 0:05:37.919 that's just part of the of the structure of different sectors. 0:05:37.960 --> 0:05:42.120 And so as long as it comes back, you know, again, 0:05:42.440 --> 0:05:46.719 if the cash is used for productive purpose CAPEX, whatever 0:05:46.800 --> 0:05:50.400 your R and D, then that's fine. If it's not used, 0:05:50.440 --> 0:05:54.039 whether it comes back as a dividend or as a buyback, 0:05:54.200 --> 0:05:57.120 you know, I guess ultimately it doesn't matter too much. 0:05:57.240 --> 0:06:00.680 Probably a dividend would command a higher pre because it's 0:06:00.960 --> 0:06:04.440 less likely to go away, But for growth companies it's 0:06:04.480 --> 0:06:06.080 I don't think it's generally expected. 0:06:06.360 --> 0:06:09.200 You're in a technical question, folks, inside baseball. Here, come 0:06:09.240 --> 0:06:12.520 with us. It's a global Wall Street question. You're in timmer. 0:06:12.600 --> 0:06:16.520 The return on invested capital of Nvidia is fifty four percent. 0:06:17.160 --> 0:06:19.240 The EVA spread, we're not going to go on the 0:06:19.279 --> 0:06:23.279 details now, is a mind blowing forty two percent. If 0:06:23.320 --> 0:06:30.800 they migrate to trend, can their stock hold up that? 0:06:30.800 --> 0:06:34.800 That is a good question. You know, you get into 0:06:35.200 --> 0:06:40.599 that super growthy space and you start looking at not 0:06:41.000 --> 0:06:43.640 just the second derivatives, but the third derivatives, you know, 0:06:43.720 --> 0:06:47.240 and so that's always a tough question. It depends on, 0:06:47.360 --> 0:06:50.360 you know, how crowded the space is, what the valuations are. 0:06:51.320 --> 0:06:52.960 One thing I'll tell you is that, you know, I've 0:06:53.000 --> 0:06:55.680 looked at this concept of the nifty to fifty, and 0:06:55.760 --> 0:06:58.680 of course we're down to the MAC seven, but generally 0:06:58.720 --> 0:07:02.159 speaking the nifty fifty I study that very carefully, going 0:07:02.200 --> 0:07:05.599 back to the early seventies, which was the original nifty 0:07:05.640 --> 0:07:08.960 to fifty, and when you see periods of these big 0:07:09.000 --> 0:07:12.880 growth companies really dominating, as we did in the early 0:07:12.960 --> 0:07:16.080 seventies and the late nineties, at the end of the day, 0:07:16.880 --> 0:07:21.559 those companies traded at a x multiple to the rest 0:07:21.640 --> 0:07:25.000 of the market, and today the top fifty are trading 0:07:25.040 --> 0:07:28.680 only at about a thirty percent multiple, So maybe there's 0:07:28.720 --> 0:07:31.880 still some room to go because most of their performance 0:07:32.200 --> 0:07:34.800 has been justified by earnings. 0:07:34.480 --> 0:07:36.720 Just just great, you're in Timmor, Thank you so much 0:07:36.720 --> 0:07:50.440 to Fidelity. We're going to take a measured conversation right 0:07:50.520 --> 0:07:53.400 now with mister Ives. Dan Ives is Opiniata. He's senior 0:07:53.440 --> 0:07:57.800 equity pinata at Wedbush Securities. Everybody loves to hate him. 0:07:57.880 --> 0:07:59.680 And my problem is if I have a look at 0:08:00.200 --> 0:08:01.880 you know, if I don't look at a daily charter 0:08:02.000 --> 0:08:04.680 in every fifteen minutes chart like Scott looks at over 0:08:04.720 --> 0:08:07.560 at the dusk Star, Dan Eyes, I'm looking at a 0:08:07.600 --> 0:08:12.080 monthly chart of Apple and it is beyond elegant, bouncing 0:08:12.120 --> 0:08:15.880 off my long term moving average at one sixty six. 0:08:16.000 --> 0:08:20.120 It's up sixteen percent in the last x number of 0:08:20.240 --> 0:08:22.760 days and weeks. First of all, Dan Eyes, why is 0:08:22.800 --> 0:08:24.440 Apple up sixteen percent? 0:08:26.480 --> 0:08:30.800 Because investors are anticipating not just what's gonna happen in 0:08:30.960 --> 0:08:34.319 WWDC where they're gonna release cook and cup Patina, the 0:08:34.440 --> 0:08:38.120 AI strategy. But if you look at numbers coming out 0:08:38.160 --> 0:08:41.280 of you know, our Asia checks and others, you're seeing 0:08:41.280 --> 0:08:44.720 a stabilization of iPhone demand and I think a renaissance 0:08:44.760 --> 0:08:47.880 of growth right now on the horizon for Apple. 0:08:48.200 --> 0:08:50.040 Okay, I don't want to do a fanboy thing here 0:08:50.040 --> 0:08:54.880 at Dan Eyes, but I'm absolutely blown away by the 0:08:55.040 --> 0:08:59.920 resolution from the M four chip over to the fancy iPad. 0:09:00.559 --> 0:09:04.160 Are they going to cannibalize other Apple products or are 0:09:04.160 --> 0:09:05.600 they going to stand on their own? 0:09:06.760 --> 0:09:09.000 I think it stands on its own. Look, I mean, 0:09:09.040 --> 0:09:12.120 you've come about us a lot, the chips that they 0:09:12.200 --> 0:09:14.280 beat in till it's their own game, and I think 0:09:14.400 --> 0:09:18.840 now you'll have a legit refresh on iPads. But it 0:09:19.000 --> 0:09:23.040 shows the power of those chips. And the important thing 0:09:23.120 --> 0:09:25.760 is that those chips too, they're going to be able 0:09:26.440 --> 0:09:31.520 to ultimately navigate and deploy AI features within the broader 0:09:31.640 --> 0:09:35.360 Coupertino ecosystem, and that's why most are going to access 0:09:35.480 --> 0:09:40.600 AI in the future through an Apple device. Hey, Dan, you. 0:09:40.480 --> 0:09:43.840 Know, as Tom mentioned this, Apple's up sixteen percent over 0:09:43.880 --> 0:09:47.920 the last period of time here several days and weeks. 0:09:48.800 --> 0:09:51.800 What's the call on China these days? How's the market 0:09:52.240 --> 0:09:54.559 viewing the China? I'm going to call it a risk 0:09:55.160 --> 0:09:58.640 for Apple. How's the market digesting and discounting it? 0:10:00.240 --> 0:10:02.640 Yeah, Paul I think it went from a huge risk 0:10:02.880 --> 0:10:06.920 to what we've seen, especially at our checks in Taiwan 0:10:07.080 --> 0:10:11.600 this week, steaveisition to an uptick. So I think we're 0:10:11.640 --> 0:10:15.520 starting that market's starting to sniff out not just a steaveisition, 0:10:15.640 --> 0:10:20.040 but an uptick in China. And at that point, I mean, 0:10:20.120 --> 0:10:24.840 that's that's cook drinking a mimosa, because then you now 0:10:24.960 --> 0:10:29.040 start to see an upgrade cycle take place with the 0:10:29.080 --> 0:10:33.120 biggest event we've seen in a decade with AI Common Apple. 0:10:33.960 --> 0:10:38.000 All right, so June this developer conference. What should the 0:10:38.040 --> 0:10:40.760 market expect here? What do you think is going to 0:10:40.840 --> 0:10:41.320 happen there? 0:10:42.760 --> 0:10:45.360 So I think look summer, fearing it will be a 0:10:45.440 --> 0:10:49.040 hype event, I strongly disagree. I think this is the 0:10:49.080 --> 0:10:53.240 start of essential Whi's going to be AI To developers, 0:10:53.440 --> 0:10:56.840 you're gonna it's really the start of a new AI 0:10:56.920 --> 0:11:00.080 app store from a services perspective. And I think the 0:11:00.120 --> 0:11:04.000 features that they're gonna build in right, not just the 0:11:04.120 --> 0:11:07.480 room but open AI that they're ultimately introduced, I think 0:11:07.520 --> 0:11:11.160 that's a partnership, right, that's gonna be exclusive and important. 0:11:11.440 --> 0:11:13.800 One more Apple question. I really want to go financial, 0:11:13.840 --> 0:11:16.600 but I'm going to stay on the fanboy stuff. Dan 0:11:16.679 --> 0:11:19.680 I what am I actually gonna do with AI with Apple? 0:11:19.960 --> 0:11:22.800 If I've got the iPad and the pencil pro and 0:11:22.840 --> 0:11:25.440 I miss her artsy FARTSI what's AI going to do 0:11:25.559 --> 0:11:28.040 for me? Where I look like I'm not making Popeye 0:11:28.080 --> 0:11:29.079 as a comic strip. 0:11:30.400 --> 0:11:32.880 Well, first off, I think the big thing, especially with 0:11:32.960 --> 0:11:36.720 open AI and some of these LM features, Apple is 0:11:36.800 --> 0:11:40.640 really trying to get you to almost bypass things like 0:11:40.760 --> 0:11:44.360 Google and some of the traditional search. But I think 0:11:44.400 --> 0:11:48.080 the biggest thing is just the features that you're gonna 0:11:48.080 --> 0:11:53.480 see come out on healthcare, on consumer apps, on generative AI. 0:11:54.320 --> 0:11:57.560 It's all gonna be apps. Developers are going to be 0:11:57.679 --> 0:12:04.600 building AI, generative AI driven apps on the iOS foundation, 0:12:04.760 --> 0:12:07.600 and that's and that's the key in the future. It's 0:12:07.720 --> 0:12:11.280 all gonna be mostly through Apple device. But that's what 0:12:11.400 --> 0:12:14.160 Microsoft is fighting this week. They want to be He 0:12:14.280 --> 0:12:16.480 said that from a consumer perspective. 0:12:16.240 --> 0:12:19.040 And now the obligatory in video questions. 0:12:18.640 --> 0:12:21.960 Paul Sweeney, So, Dan, I mean Tom Kean's all about 0:12:22.000 --> 0:12:24.720 AI here? What's he gonna what should he be looking 0:12:24.760 --> 0:12:28.920 for tomorrow afternoon? When when in video reports. 0:12:29.120 --> 0:12:33.440 I think, get get the popcorn ready and get all set. 0:12:33.679 --> 0:12:36.680 You know your favorite you know, beverage when they were 0:12:36.760 --> 0:12:39.880 port Because when the Godfather of Ai Jensen and a 0:12:40.000 --> 0:12:42.400 video report, I think it's gonna be another jaw dropper 0:12:42.480 --> 0:12:44.800 in terms of the demand that we're seeing. It's not 0:12:45.000 --> 0:12:47.959 slowing down, and I think we're just starting to see 0:12:48.000 --> 0:12:51.240 this acceleration. And that's important for the second, third, fourth 0:12:51.240 --> 0:12:55.720 derivatives within tech, which is why we believe this tech 0:12:55.800 --> 0:12:59.439 bull market has significant legs from here. But it all 0:12:59.480 --> 0:13:03.000 starts with odd Father of Ai Jensen. Tomorrow, I'm expecting 0:13:03.000 --> 0:13:05.400 another just drop the micro yeah. 0:13:05.280 --> 0:13:07.280 I mean he's going on existential on it. So the 0:13:07.360 --> 0:13:10.520 third and fourth derivative as well, Where does Apple fit 0:13:10.600 --> 0:13:13.400 into the derivatives? I mean they're not first or second derivative, 0:13:13.480 --> 0:13:16.600 are they? They're a follow on from all these other people, right. 0:13:17.600 --> 0:13:19.439 I think they're second, third driven because when we go 0:13:19.559 --> 0:13:24.280 my nvideo Microsoft Google service, now that's enterprise, but on 0:13:24.360 --> 0:13:29.000 the consumer side, the chips and the actual use cases, 0:13:29.440 --> 0:13:32.840 how are they coming to the consumer? It's meta Google, 0:13:32.920 --> 0:13:37.040 but most importantly it's Apple. And that's why now this 0:13:37.200 --> 0:13:41.479 is ready for prime time starting next month at WWC. 0:13:41.760 --> 0:13:46.040 That's where the unveil starts and eventually the iPhone sixteen, 0:13:46.080 --> 0:13:48.760 I will have their own AI features built in. 0:13:49.960 --> 0:13:51.080 Hey, Dan, who goes to this? 0:13:51.480 --> 0:13:54.200 I mean is can top king get a ticket to this? 0:13:57.720 --> 0:14:01.680 The King could get a t it anywhere. So he's 0:14:01.720 --> 0:14:04.440 like Gilms have to exclude him. I mean, he's he's 0:14:04.480 --> 0:14:08.720 one of those exclusive you know, Monaco. But for the 0:14:08.760 --> 0:14:13.000 average this is really for developers. Yep, it's for industry folks. 0:14:13.280 --> 0:14:16.960 That's really the focus of WWBC what we'll be at. 0:14:17.280 --> 0:14:18.760 What are you doing with your two hundred and fifty 0:14:18.840 --> 0:14:21.880 dollars price target? You're an outlier? But seriously, Dan ives 0:14:22.280 --> 0:14:24.760 some of the parts are earnings momentum as they come 0:14:24.760 --> 0:14:27.520 off the mat of sixteen percent? Are you ready to 0:14:27.520 --> 0:14:29.720 adjust that up so we can make some news this morning. 0:14:30.680 --> 0:14:35.520 Look to fifty's base case. We I believe AI will 0:14:35.560 --> 0:14:39.800 add thirty to forty dollars per share to this Apple 0:14:39.920 --> 0:14:42.640 story over the coming years. And that's why I think 0:14:43.240 --> 0:14:46.680 four trillion will be what we'll be talking about a year. 0:14:46.920 --> 0:14:50.680 Go go first, de rivet And what's it do to Microsoft? Oh? 0:14:50.720 --> 0:14:53.840 I mean, Mike, I think Microsoft that they're in there 0:14:53.880 --> 0:14:56.440 right now in the in the leader seat. From an 0:14:56.560 --> 0:15:00.800 enterprise perspective, I mean, if the mount Rush of Ai. 0:15:01.240 --> 0:15:05.040 It's Gentsen there carving that out. Who's next to It's Nadella. 0:15:06.120 --> 0:15:14.440 Can you see Mount Rushmore? Jensen Dyan Ives. I mean, 0:15:14.480 --> 0:15:16.920 it's just it would be too much, Dan Ives, I 0:15:16.960 --> 0:15:19.480 could just see you on Mount Rushbort, thank you so much. 0:15:19.960 --> 0:15:21.800 With Webb Bush, you can send your hate mail to 0:15:21.840 --> 0:15:24.600 mister Is directly, or I get the hate mail too. 0:15:24.760 --> 0:15:26.360 If you have love notes for Dan and Ives, they 0:15:26.400 --> 0:15:29.840 go through a Lisa and Tao. Mister Is with Wedbush, 0:15:29.960 --> 0:15:40.240 he is enthusiastic on America's technology darkening the door of commerce. 0:15:40.680 --> 0:15:43.480 A number of years ago, an academic from the Upper 0:15:43.480 --> 0:15:46.640 East Side of the Council on Foreign Relations, Elizabeth Economy, 0:15:46.680 --> 0:15:50.160 went down to assist the Governor of Rhode Island with 0:15:50.320 --> 0:15:53.800 Commerce Ford. Elizabeth Economy joins us, right now, she's free 0:15:54.240 --> 0:15:57.160 from the clutches of our public service. What was the 0:15:57.200 --> 0:15:59.720 first day like it it Commerce? Did they put a 0:15:59.720 --> 0:16:02.200 cork in your mouth and just say be nice? What 0:16:02.360 --> 0:16:03.320 was the first day like? 0:16:03.640 --> 0:16:05.200 I don't think they knew what to expect. 0:16:05.440 --> 0:16:06.120 Yeah, exactly. 0:16:06.120 --> 0:16:08.440 Honestly, there were only about fifty people working there at 0:16:08.440 --> 0:16:10.160 the time because it was right in the middle of 0:16:10.160 --> 0:16:12.920 the pandemic, and the only people that were showing up 0:16:12.920 --> 0:16:15.960 for work were the secretary is kind of immediate, twenty 0:16:16.040 --> 0:16:18.320 to thirty people on the fifth floor, So it was 0:16:18.360 --> 0:16:21.080 like a ghost town. But it was a great, great opportunity, 0:16:21.080 --> 0:16:22.240 and she's just fantastic. 0:16:22.360 --> 0:16:25.640 And just to remind people Elizabeth Economy years ago out 0:16:25.640 --> 0:16:27.800 of Michigan where the river runs black. It was just 0:16:27.800 --> 0:16:32.840 in a profoundly changing book on China's pollution right now, 0:16:32.880 --> 0:16:35.600 an all series of books along the way. I want 0:16:35.600 --> 0:16:39.360 to go to your foreign affairs blistering essay and without 0:16:39.400 --> 0:16:41.840 going into the details within the confines of the length 0:16:41.880 --> 0:16:45.200 of this interview, what should the US do? Are you 0:16:45.200 --> 0:16:47.160 allowed to say this now? Are you like in a 0:16:47.280 --> 0:16:49.040 timeout chare for six months. 0:16:48.880 --> 0:16:52.040 After leaving no notice? What should we read the restrictions on? 0:16:52.120 --> 0:16:55.640 How do we respond to your blistering essay of China's plan? 0:16:55.960 --> 0:16:57.720 I think the point that I was really trying to 0:16:57.720 --> 0:17:01.160 make in the piece was that the United States has 0:17:01.200 --> 0:17:03.840 done a really good job of responding in the first 0:17:03.920 --> 0:17:06.600 couple of years of the administration to the immediate challenge 0:17:06.600 --> 0:17:09.360 that China poses, But now we really need to expand 0:17:09.400 --> 0:17:12.200 to the global stage and pay attention to how China, 0:17:12.240 --> 0:17:16.160 through its Belton Road Initiative, through its Global Civilization Initiative, 0:17:16.160 --> 0:17:19.880 It's security initiative, It's development initiative, all of these things 0:17:19.920 --> 0:17:23.000 are designed to transform the international system in ways that 0:17:23.040 --> 0:17:26.320 are anathetical to the US, and so that necessitates a 0:17:26.359 --> 0:17:30.199 new strategy, a kind of second tier strategy from the 0:17:30.320 --> 0:17:34.159 United States, which is much more than simply focusing on 0:17:34.240 --> 0:17:37.920 our European and our Asian allies, but really expanding our 0:17:37.960 --> 0:17:41.640 tent to include emerging economies in Latin America and Africa 0:17:41.720 --> 0:17:45.040 and Southeast Asia and bringing them into an American vision 0:17:45.240 --> 0:17:46.880 of the world for the twenty first century. 0:17:48.160 --> 0:17:50.960 I guess I grew up on Global Wall Street, where 0:17:51.560 --> 0:17:56.840 globalization was the thing that was my career with China, 0:17:56.920 --> 0:17:59.560 should we try to engage with China? Should that be 0:17:59.600 --> 0:18:01.879 our first order business to try to engage with China? 0:18:02.080 --> 0:18:05.280 Or where should we step back and say, this is 0:18:05.320 --> 0:18:08.160 almost like I don't know the Soviet Union from back 0:18:08.160 --> 0:18:10.520 in the day. I mean, how should we engage with Chinese? 0:18:10.520 --> 0:18:13.119 So I think, for you know, thirty thirty five years 0:18:13.160 --> 0:18:17.720 we had ninety percent engagement, ten percent competition. Right now 0:18:17.760 --> 0:18:22.040 we're basically at ninety percent competition. And ten percent engagement. 0:18:22.359 --> 0:18:25.200 I think actually, unfortunately, we've got it about right at 0:18:25.200 --> 0:18:27.760 this point. I think we need to understand that China 0:18:27.800 --> 0:18:31.440 is not interested in the kind of engagement that we've 0:18:31.720 --> 0:18:34.399 you know, pursued for thirty some years. They have their 0:18:34.480 --> 0:18:37.320 own vision, They want their own norms, their own values, 0:18:37.359 --> 0:18:39.720 their own interests reflected on the global stage. 0:18:39.840 --> 0:18:42.000 Your your book The Third Revolution was in my book 0:18:42.000 --> 0:18:44.800 of the Summer. You know, it seems ages ago pandemic 0:18:45.160 --> 0:18:48.720 ago as well. In it, you were really controversial about 0:18:48.720 --> 0:18:53.399 the power that presidency has in China. Has he solidified 0:18:53.560 --> 0:18:55.560 his power? Is he impregnable now? 0:18:56.000 --> 0:18:58.880 I don't know whether anyone is impregnable. Certainly he's done 0:18:58.920 --> 0:19:03.840 an amazing job of bringing institutional power into his own hands. 0:19:03.840 --> 0:19:06.840 What we don't know is, you know, how much his 0:19:06.960 --> 0:19:10.360 personal power actually radiates through society. What is the real 0:19:10.480 --> 0:19:14.000 legitimacy of chi jinping among the Chinese people. We have 0:19:14.080 --> 0:19:17.240 some polls, for example, that show that urban Chinese would 0:19:17.280 --> 0:19:20.119 really like to have greater freedom of speech, they'd really like, 0:19:20.240 --> 0:19:23.199 you know, greater property rights, the right to assemble. I 0:19:23.200 --> 0:19:25.840 think you can look and see a lot of dissatisfaction 0:19:25.960 --> 0:19:28.919 in the country if you look beneath the surface. You know, 0:19:28.960 --> 0:19:31.199 we don't have one hundred and eighty thousand protests on 0:19:31.240 --> 0:19:33.760 the streets the way we used to because Sheijinping is 0:19:33.760 --> 0:19:37.439 put in place is incredible repressive apparatus. But that's not 0:19:37.600 --> 0:19:39.720 to say discontent is not still there the. 0:19:39.640 --> 0:19:41.359 Heart of the matter. And folks, I attended to the 0:19:41.440 --> 0:19:46.159 Consulum for Relations where I'm a member of very important 0:19:46.560 --> 0:19:50.760 conference by Jina Romando. I've got a Paul as you mentioned, 0:19:50.800 --> 0:19:56.840 a business globalization structure debating China, and I've got a 0:19:56.920 --> 0:19:59.800 president of the United States word about four swing states, 0:20:00.040 --> 0:20:03.760 so he's anti China, and the candidate for the Republican Party, 0:20:03.840 --> 0:20:07.200 I believe is anti China as well. Are we able 0:20:07.280 --> 0:20:10.040 to have a kojin discussion on China now? Are we 0:20:10.160 --> 0:20:14.280 literally back to Shang Kai shek in the ballet post 0:20:14.359 --> 0:20:15.120 World War Two? 0:20:16.080 --> 0:20:18.159 I think that we're able to have a cojin discussion, 0:20:18.240 --> 0:20:21.800 But the parameters have shifted so that it's there's a 0:20:21.840 --> 0:20:25.040 new realization about the real challenge that China presents. I 0:20:25.080 --> 0:20:27.840 think we don't want to sort of go down the 0:20:27.920 --> 0:20:30.639 rabbit hole where everything is about competition. We need to 0:20:30.680 --> 0:20:33.240 do what the Biden administration started out to do, which 0:20:33.280 --> 0:20:35.679 is to look for areas of common ground and common purpose, 0:20:35.960 --> 0:20:39.560 to try to find communication channels on the mil to 0:20:39.840 --> 0:20:43.240 military to military cooperation. We don't want this relationship to 0:20:43.280 --> 0:20:47.160 devolve into kinetic conflict. But it's also true that we 0:20:47.200 --> 0:20:52.159 recognize we can't continue that globalization without any protection for 0:20:52.240 --> 0:20:55.240 the American economy. You can argue whether we're too far 0:20:55.440 --> 0:20:57.880 swinging too far in one way. You can argue whether 0:20:58.000 --> 0:21:00.919 or not we actually have been very clear about what 0:21:00.920 --> 0:21:03.399 we're doing in terms of our economic strategy on the 0:21:03.400 --> 0:21:07.800 grounds of national security or economic security or economic competitiveness. 0:21:08.119 --> 0:21:09.560 I think we can do a better job there. 0:21:09.640 --> 0:21:11.480 I'm running on a time. Can you make this a 0:21:11.480 --> 0:21:17.640 weekly appointment? You know, Elizabeth, Economy. We've deployed four military 0:21:17.720 --> 0:21:21.840 bases in a new military effort from the northern Philippines 0:21:21.880 --> 0:21:24.800 down to somewhere in the vicinity of Indonesia. We've got 0:21:24.800 --> 0:21:27.399 to build out in Australia, et cetera, et cetera, et cetera. 0:21:27.880 --> 0:21:30.960 Is the Pentagon going to be our state department to 0:21:31.119 --> 0:21:33.119 China in the next five years. No. 0:21:33.200 --> 0:21:35.640 I think the Commerce Department has been our state department 0:21:38.040 --> 0:21:41.640 and good thing too, because its secretary is really the star. No, 0:21:41.680 --> 0:21:43.600 I mean, I think our economic strategy has. 0:21:43.760 --> 0:21:45.960 Rich she's still working for the government or not. Did 0:21:46.000 --> 0:21:47.840 I look at the memo? No? 0:21:48.000 --> 0:21:51.560 I think again, we've you know, enacted so many different 0:21:51.640 --> 0:21:55.040 kinds of new economic policies that have a pretty significant 0:21:55.040 --> 0:21:57.640 impact on China. I think that has been our first 0:21:57.680 --> 0:22:00.439 foot forward. But it's also true that if looking at 0:22:00.480 --> 0:22:03.000 issues like Taiwan or as you're suggesting, the Philippines in 0:22:03.040 --> 0:22:04.920 the South China, see the military has to. 0:22:04.840 --> 0:22:07.120 Be How long is Ted Burns over there, a good 0:22:07.160 --> 0:22:09.479 friend of the show, Nicholas Burns out of Wellesley and 0:22:09.880 --> 0:22:13.000 all of his public service as well. Is our State 0:22:13.440 --> 0:22:15.400 department alone in Beijing? 0:22:15.840 --> 0:22:18.919 No, No, I think he's done an amazing job of engaging, 0:22:19.040 --> 0:22:22.720 frankly with our other ambassadors from our allies and partners, 0:22:23.280 --> 0:22:25.280 you know. So he's he's got a lot of support, 0:22:25.320 --> 0:22:27.440 a lot of friends. I think in the earlier days 0:22:27.440 --> 0:22:30.240 of the pandemic it was extremely difficult, but he's been 0:22:30.280 --> 0:22:32.040 an amazing ambassador. 0:22:31.560 --> 0:22:33.439 At least it wants to know. I mean, do you 0:22:33.520 --> 0:22:35.760 really think that high school kids now should pick up 0:22:35.800 --> 0:22:37.280 Mandarin is a third language? 0:22:38.040 --> 0:22:38.600 Absolutely? 0:22:38.920 --> 0:22:43.200 Absolutely, absolutely, we need the next generation of China scholars 0:22:43.200 --> 0:22:46.520 and China policymakers. We need people to be informed about 0:22:46.560 --> 0:22:49.600 this country. You know, it's one point three some billion 0:22:49.680 --> 0:22:53.480