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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: comes back for more this morning. Thank you so much
Speaker 2: for joining Bloomberg this morning.
Speaker 3: As always, thanks for having me.
Speaker 2: What changed yesterday? The fact that I understand there's some
Speaker 2: geopolitical yield going on there is well, but we had
Speaker 2: fixed income up yield down equities to the moon. What
Speaker 2: was the FED signaling that gave markets confidence?
Speaker 4: I think a couple things.
Speaker 3: First of all, one could argue that, if anything, the
Speaker 3: FMC statement itself maybe was a little bit less dubbish
Speaker 3: than folks might have thought. But yet again, the press conference,
Speaker 3: I think a fair reading of the press conference was
Speaker 3: that it skewed a bit dubbish. Now, again, the moving
Speaker 3: prices was quite small. The September cut was fully priced
Speaker 3: in before the meeting, it's fully priced in after the meeting.
Speaker 3: But this is a committee that cares about both sides.
Speaker 4: Of the dual mandate.
Speaker 3: They've made that clear now in the statement, and they
Speaker 3: also made clear they're getting increasing confidence that inflation's on
Speaker 3: a path to two. And finally that they actually discussed
Speaker 3: at the meeting yesterday cutting rates at the meeting yesterday.
Speaker 3: So all in, I think that's what the markets were
Speaker 3: reacting to.
Speaker 5: Tom Richard, there are folks in academia and in practice
Speaker 5: in the marketplace that feel like the FED is already
Speaker 5: behind the curve, that the real time data suggests that
Speaker 5: the economy really is slowing, and by the time they
Speaker 5: get cutting rates it may be too late. How do
Speaker 5: you respond to that?
Speaker 3: Well, good question, because I think that is a risk
Speaker 3: they have been willing to take for a couple of years. Indeed,
Speaker 3: Chirpal made that very clear of Jackson Hole in twenty
Speaker 3: twenty two. As inflation has moved towards target from above,
Speaker 3: they've increasingly and yesterday in the statement indicated that they
Speaker 3: now are looking at both sides of the dual mandate.
Speaker 4: That said, I agree with them.
Speaker 3: I think the data coming in are certainly consistent with
Speaker 3: an economy operating at or perhaps a bit above trend.
Speaker 3: So I don't think they're in a danger zone here
Speaker 3: of falling behind the curve. Moreover, they've made very clear
Speaker 3: that if they do see any softening in the labor market,
Speaker 3: looks like they won't hesitate to start cutting. So there's
Speaker 3: risk management here. Agree, But I think I think think
Speaker 3: they're in a good place.
Speaker 2: You under sell this, you know, you got to get
Speaker 2: some pr Richard. Basically, Richard Clarita made modern Columbia economics.
Speaker 2: He took the heritage of a guy named Stiglitz, a
Speaker 2: heritage of a guy named Phelps. There was some guy
Speaker 2: doing fancy math at Princeton. He said, come on up
Speaker 2: to Columbia, and what's amazing about this? Did you even
Speaker 2: teach microeconomics at Colombia? Is still like Pierre Andre Chapori,
Speaker 2: I mean, you got Mike, Well, how does microeconomics fit
Speaker 2: in it Columbia? Unlike the madness at Chicago.
Speaker 3: Well, I work in some micro in my classes. I
Speaker 3: think it's best for all concern that I stick to
Speaker 3: the stick to the macri. He also mentioned Bob Mundell,
Speaker 3: who passed away not too long ago, a dear friend
Speaker 3: and colleague. So at one point I think we had
Speaker 3: four Nobel Laureates on the faculties.
Speaker 2: So yeah, let's bring in our Nobel lawyate. Animong with
Speaker 2: a question for the former vice chairman, Anamog of Chicago
Speaker 2: in Bloomberg Economics.
Speaker 1: Yeah, Richie mentioned that this committee is one that's very
Speaker 1: focused on both sides of the mandate. And do you
Speaker 1: think that going forward, you know, suppose that we do
Speaker 1: have the Trump number two administration with what's happening with
Speaker 1: the potentially higher tariffs, would that factor in into the
Speaker 1: committee's September meeting deliberations or even November deliberations. Should they
Speaker 1: turn preemptive?
Speaker 2: Should we just leave the studio right exactly? That was
Speaker 2: a totally unfair question. Rich Well.
Speaker 3: First of all, An, as you know, I'm a big,
Speaker 3: big fan of your work, So keep up the good work.
Speaker 3: I think Jay Powell made it very clear yesterday he
Speaker 3: got a couple of questions and he said, look, we're
Speaker 3: going to base policy on achieving our mandate. I think
Speaker 3: he mentioned he'd been at the FED for now four
Speaker 3: presidential election cycles, so I don't think it will be
Speaker 3: a factor. And I'm actually glad they clarify that because
Speaker 3: there had been some meme in the markets that the
Speaker 3: pal Fed might hold off doing anything to see how
Speaker 3: the election turned out and that, and I think clearly
Speaker 3: he set that aside.
Speaker 2: And this was really something his voice changed. I'm sorry
Speaker 2: this happens like man Q when he was at the
Speaker 2: White House. Up you get upset, and all of a
Speaker 2: sudden he go into Harvard lecture form when he got upset.
Speaker 2: Bernanke used to do the same thing, And I asked
Speaker 2: another question to make us look puny.
Speaker 1: Yes, I want to push on that a little bit.
Speaker 2: Rich.
Speaker 1: You were there during the Trump first Trade War as
Speaker 1: it was. I you understand you were brieved about the
Speaker 1: inflationary impact of the first Trade War, and you probably
Speaker 1: remember that the briefing was tilting toward saying that the
Speaker 1: terrorists were inflationary, which didn't turn out to be. And
Speaker 1: right now, the mainstream economy is Wall Street economis are
Speaker 1: uniformally saying that it will be very inflationary. Again, what's
Speaker 1: your thought on that, Well, there are.
Speaker 4: A couple of things.
Speaker 3: First, if anything, during my time at the FED before
Speaker 3: the pandemic, inflation is running a little bit low. The
Speaker 3: main thing that emerged at that point in twenty nineteen
Speaker 3: was that the trade war. Concerns about the trade war
Speaker 3: were very negative on economic activity and sentiment. I do
Speaker 3: think the details will be important. I think that in particular,
Speaker 3: there'd be an inclination depending on how there were structured,
Speaker 3: if there were tariffs, to try to distinguish between if
Speaker 3: it's moving up the price level like a value added tax,
Speaker 3: whereas its inflationary. But I think the key thing for
Speaker 3: your listeners to bear in mind is that's a decision
Speaker 3: the Paler FED does not have to make now. They
Speaker 3: made it very clear twenty twenty four rate decisions are
Speaker 3: based on twenty twenty four data and outlook, they'll have
Speaker 3: plenty of time to reassess and think about this as
Speaker 3: they go into twenty twenty five. So good question, but
Speaker 3: I don't think it will be a factor now.
Speaker 6: You defended William McChesney. Martin Paul. One more question in
Speaker 6: this section with rich clarity.
Speaker 5: All right, let's assume the FED starts cutting in September.
Speaker 5: Then what how do they prosecute this policy to get
Speaker 5: rates down? Is that every other meeting?
Speaker 2: Does that work well?
Speaker 3: The TRIAD answers, it's data dependent, but I think they've
Speaker 3: acknowledged that if they cut once, they will be thinking
Speaker 3: there's more than one cut. We'll get good information on
Speaker 3: that in the projections. We'll get another set of projections
Speaker 3: in December. Here's what I think. I think they're basically
Speaker 3: a couple scenarios. One is a very very soft landing,
Speaker 3: you know, in the spirit of the Olympics, sticking the
Speaker 3: soft landing. In that case, the econmomyist chugs along trend,
Speaker 3: unemployment doesn't go up, inflation moves gradually down to two,
Speaker 3: and then they can gradually cut rates as inflation falls.
Speaker 7: You know.
Speaker 3: Another scenarios the economy slows more sharply, and then I
Speaker 3: think they can cut more rapidly. I do think the
Speaker 3: bar right now is pretty high to hike rates, and
Speaker 3: so I think if the economy gets stuck at inflation
Speaker 3: at current levels, they they may not cut very many
Speaker 3: times and keep rates at an elevated level. But importantly,
Speaker 3: it could depend on the outcome of the election. But again,
Speaker 3: that won't We won't know how that plays out until
Speaker 3: twenty twenty five.
Speaker 2: So Richard Clarin stay with us. You got so much
Speaker 2: to talk about it. I'm going to look it up
Speaker 2: right now. You can do this on the Bloomberg Professional Service,
Speaker 2: the FOMC meetings. Paul there, it is January twenty ninth,
Speaker 2: after the inauguration.
Speaker 6: That'll be the meeting.
Speaker 2: Put it on your calendar, Doctor Clarida, we're going to
Speaker 2: have you back there January at twenty nine. Annawong, thank
Speaker 2: you so much for joining us with Bloomberg Economics. Important questions,
Speaker 2: tough questions on politics. She can answer them. You know,
Speaker 2: we can't answer Wed questions. That's what I want. Yeah,
Speaker 2: it's different. It's there's a different oxygen out there. What
Speaker 2: a joint of Ana Wong with us from Chicago and
Speaker 2: Bloomberg Economics. And we continue with the former vice Chairman
Speaker 2: of the Federal Reserve System Richard Clarida. This morning, Richard,
Speaker 2: you and I could turn this into a three hour
Speaker 2: love fest. We don't have the time to do that,
Speaker 2: so I'm just going to cut to the chase. I
Speaker 2: was busting Annawan's chops about Frank Knight nineteen twenty one,
Speaker 2: one hundred and thirty four pages. It's right of passage,
Speaker 2: and it's where we really began to think in the
Speaker 2: modern era of the unknown unknowns, the idea of what's
Speaker 2: the mystery that's out there. We have a pandemic overlay
Speaker 2: we're coming out of.
Speaker 7: We have an.
Speaker 2: Immigration dynamic we don't understand on the edge of Angus Deeton.
Speaker 2: There's too many mysteries out of productivity. Yeah, there is
Speaker 2: a mystery we have. What is Richard Claared isnwn unknown
Speaker 2: If you were to sit down with the chairman this.
Speaker 3: Morning, well that those three would certainly be on Those
Speaker 3: three would certainly be on the list. I think that
Speaker 3: an additional known unknown is the global fiscal outlook is terrible.
Speaker 3: You know, twenty years ago, debt to GDP ratio was
Speaker 3: forty percent.
Speaker 4: It's north of one hundred now.
Speaker 3: Debt service cost to exceed the defense budget in the US,
Speaker 3: and so everyone acknowledges that global fiscal paths are unsustainable,
Speaker 3: but there's no political will. So I think I think
Speaker 3: that the known unknown is when and what brings about
Speaker 3: the ultimate adjustment in fiscal policy, because it will happen eventually.
Speaker 3: I don't know if it's next year, in ten years,
Speaker 3: but I think, to me, that's the known unknown.
Speaker 5: And you know, I'm of a certain vintage. I've heard
Speaker 5: that my entire life. Yeah, we've had this little sharp
Speaker 5: down in Lower Manhattan that ticks up the debt. I
Speaker 5: remember that as a kid driving the piece, you know,
Speaker 5: the east side, And when where will we see that?
Speaker 5: The concerns about global debt.
Speaker 3: So excellent point because why has it fallen? Why have
Speaker 3: the bond market vigilant has been in hibernation. Some would
Speaker 3: say they're extinct. And the simplest answer is because global
Speaker 3: interest rates have fallen by more than debt has gone up.
Speaker 3: So until recently it seemed like a free lunch to
Speaker 3: politicians borrow. But your debt service costs go down because interest.
Speaker 4: Rates are falling.
Speaker 3: And so the point is, going forward, interest rates are
Speaker 3: not going to be as low as they were in
Speaker 3: the prior twenty years, and so the cast of that
Speaker 3: debt service will be more evident, and so at some
Speaker 3: point that will drive a political outcome.
Speaker 4: But I do agree with you.
Speaker 3: The can has been kicked down the road for a
Speaker 3: long time and it may be a while.
Speaker 4: But to me that's a non unknown.
Speaker 6: And what is the fix?
Speaker 5: Ultimately from an economic.
Speaker 3: Physics, it depends on the country. But the usual if
Speaker 3: your deficits are too large and your debt service costs
Speaker 3: are too high, there's going to be some combination of
Speaker 3: adjustments on revenues and adjustments on alays.
Speaker 4: But neither party is running on.
Speaker 3: A platform to address that, and so I think it
Speaker 3: will not be It will not really be an issue
Speaker 3: in the campaign way.
Speaker 2: Lee was with this last hour stunning us with a
Speaker 2: potential three handle on China GDP growth. I want to
Speaker 2: go to a guy named Stiglitz who way back at
Speaker 2: Stanford started to think about the little G of the
Speaker 2: growth rate. Olivia, Blanchard and Stiglets have really focused on
Speaker 2: the fact the global little G growth rate is better
Speaker 2: than good to sustain our fiscal policy. Do you suggest
Speaker 2: that we could see a diminished global growth rate that
Speaker 2: finally upsets the apple cart?
Speaker 3: It could be growth, or it could happen through the
Speaker 3: interest rate channel. Remember Olivier's famous equation is it's about
Speaker 3: R minus G, and so if G.
Speaker 4: Falls or R goes up.
Speaker 2: Can you figure Can you call Stockholm after the show
Speaker 2: and say, can we get a shingle out for Blenchard
Speaker 2: on our minus G.
Speaker 6: Give it to Williams as well.
Speaker 3: Okay, exactly, So what do we do when we have
Speaker 3: two small G on our minus well exactly. And so
Speaker 3: if you have too small a G, then it brings
Speaker 3: forward the day of reckoning on fiscal adjustment.
Speaker 4: I'll just leave it at that.
Speaker 2: Okay, being careful, but this is real because Italy there
Speaker 2: was a you know, with their demographics, it was like overdone.
Speaker 2: Small g's done, and with the revolution of their politics,
Speaker 2: they've got actually very good G. Because you're spending money
Speaker 2: in that little quarter in Venice, buying.
Speaker 6: Lots of stuff.
Speaker 2: Little G matters in Italy.
Speaker 5: How about in China though, I yeah, how big of
Speaker 5: a concern is that for the global economy? Because I'll
Speaker 5: look at too, something like their population. I mean, it's
Speaker 5: just aging, and it's aging at a much higher rate
Speaker 5: than a lot of other Yeah, populations. I don't see
Speaker 5: that changing. So what does that mean for global growth?
Speaker 3: Well, obviously China's global growth has been slowing.
Speaker 4: We all remember when the number.
Speaker 3: Was seven or eight, then it was five or six,
Speaker 3: and now it's four or five. So now it's very
Speaker 3: big economy. So four and a half percent growth in
Speaker 3: China is still a big part of the global outlook.
Speaker 3: I think the real difference, though, compared to the past
Speaker 3: twenty years, is the way in which the Chinese economy
Speaker 3: interacts with the rest of the global economy. Commodity prizes activity,
Speaker 3: you know. I think everyone agrees the big era of
Speaker 3: global hyper globalization is over, and so the way in
Speaker 3: which Chinese growth drives the rest of the economy I
Speaker 3: think is changing. And it's actually something we're looking at
Speaker 3: closely at PIMCO.
Speaker 6: We mentioned this yesterday. I busted your chops as Lawrence
Speaker 6: Meyer PAULI wrote.
Speaker 2: A little small book about the green Span fed where
Speaker 2: it was Alan green Span and everybody follow I'm sorry,
Speaker 2: q Pill, Jonathan.
Speaker 6: Began Green And there's that troublemaker.
Speaker 2: Catherine Mann descent.
Speaker 3: To you, Pill is the chief economists.
Speaker 6: He's went against a governor. Why can't you fed?
Speaker 2: He as normal in Cuman as Catherine Mann's Bank of England.
Speaker 3: Well, I will say that the Bank of England is
Speaker 3: certainly beginning with my good friend and mentor Mervyn King
Speaker 3: thirty plus years ago.
Speaker 4: It was a point of.
Speaker 3: Pride that their culture did not discourage dissense. And indeed,
Speaker 3: I think it was one or two meetings when Mervyn
Speaker 3: was outvoted.
Speaker 4: In this case it was five to four.
Speaker 3: But when the chief economist votes, it definitely gets the
Speaker 3: it gets the headline. Sure, there are descents at the
Speaker 3: FED during my time, we had several meetings where there
Speaker 3: were three descents. But it is the case that in
Speaker 3: the post green spanning and era that you refer to,
Speaker 3: or green span and then post green Span, descents among
Speaker 3: governors have been pretty rare on monetary policy. And that
Speaker 3: that's an entire another show we could.
Speaker 4: I won't spend time.
Speaker 3: Talking about why that is. You may come back tomorrow, Okay, Well, okay, Rich.
Speaker 2: Clarida, thank you so much for John Fair, Lisa brown Winson,
Speaker 2: myself yesterday that decides, for Paul Sweeney and all. This
Speaker 2: has just been very generous of you at this key
Speaker 2: time for our monetary policy.
Speaker 6: What are they going to do at the next meeting.
Speaker 3: They're gonna they're gonna cut raids.
Speaker 6: There you go, that's all we know. We'll leave it there. Eric,
Speaker 6: be sure that gets a single best idea.
Speaker 2: Rich Clarida of Pimcal of Columbia an extended conversation with WAYE.
Speaker 6: Lee of Black Right.
Speaker 2: Well, let's just start with the why why do we
Speaker 2: see price up, yield down.
Speaker 8: Well?
Speaker 7: From the FED meeting yesterday. I think September is pretty
Speaker 7: much a down deal. The bar for not cutting is
Speaker 7: very high, so I think that's what markets got excited.
Speaker 7: But importantly, the way that JPAW framed the reasons for
Speaker 7: September cut is also why markets are happy with yesterday's meeting.
Speaker 7: He characterized what's happening in labor market as normalization rather
Speaker 7: than labor market weakening. And what is going to lead
Speaker 7: to a September cut that is looking very likely. It's
Speaker 7: more around better behaving inflation rather than weaker labor markets.
Speaker 7: So I think that's a good combination for risk asses and.
Speaker 2: A y access. It's lord rhythmic. You end up looking
Speaker 2: in a curve is convexity? Is there literally a short
Speaker 2: cover in bonds now? Is there literally an equity like
Speaker 2: short cover where everybody goes OMG, yields are going lower?
Speaker 7: Well, if you look at the hedge fund positioning, absolutely
Speaker 7: a lot of the speculative positions went from short bonds
Speaker 7: to long bounds. But I would observe that front end
Speaker 7: of the curve has done better than the back end
Speaker 7: of the curve, so mainly in response to kind of
Speaker 7: markets pricing in more cuts. But our concern for the
Speaker 7: back end of the curve, especially over a longer tem horizon,
Speaker 7: still stays, which is a higher fiscal trajectory, higher m
Speaker 7: premier which currently is still in the negative territory.
Speaker 5: You know, you've got a great note out here, your
Speaker 5: weekly note, Wayley, and I'm looking at your assets and review.
Speaker 2: You know, one of the best.
Speaker 5: Performers is gold here.
Speaker 6: What do you make of that?
Speaker 7: Well, I think if you look at what's been working
Speaker 7: so far this year as a diversifier, is not your
Speaker 7: go to good old duration in a portfolio, but rather
Speaker 7: some of the other assets such as such as gold.
Speaker 7: And on top of that, the negative correlation between gold
Speaker 7: and real rate has helped there as well. Now having
Speaker 7: said that, it's really hard to kind of think about
Speaker 7: gold in the context of a longer term portfolio construction
Speaker 7: simply because there's no cash flow to discount futer cash flow.
Speaker 7: With now having said that, there is a case to
Speaker 7: be made to allocate to gold in portfolio because of
Speaker 7: the characteristics that it has exhibited as you observed as well.
Speaker 5: So you know the central banks are certainly in focus
Speaker 5: yesterday with the Fed today with the Bank of England
Speaker 5: cutting interest rates. Traders believe that there'll be another rate
Speaker 5: cut in November. What do you make of the Bank
Speaker 5: of England?
Speaker 7: Well, Bank of England is very interesting, right, so hasline
Speaker 7: inflation is already at targets, but col inflation service inflation
Speaker 7: is still somewhat sticky. You can talk about some of
Speaker 7: the tailor swift effect and labor market a wage as well,
Speaker 7: but broadly we see better behaving inflation and I think
Speaker 7: that's what gave the Bank of England comfort to cut rates.
Speaker 7: We think that there is more room for them to
Speaker 7: cut than the fat because of a structurally weaker growth outlook,
Speaker 7: which is why we prefer guilts over treasuries.
Speaker 2: Right, welly, we want you to come back for the
Speaker 2: next segment. I really want to focus on Asia and
Speaker 2: China with your immense skill and heritage there.
Speaker 6: But I got to asked the question.
Speaker 2: You stumbled into it, and I hope that your badge
Speaker 2: works at black Rock.
Speaker 6: This morning you mentioned gold without cash flows. That reminds
Speaker 6: me of bitcoin.
Speaker 2: Is bitcoin developing as a gold equivalent.
Speaker 7: Well, what we have seen is that it has the
Speaker 7: ability to demonstrate a huge price appreciation but also depreciation, right,
Speaker 7: so basically a lot of volatility. So I think a
Speaker 7: case can be made, A tactical case can be made
Speaker 7: for bitcoin from a speculative kind of perspective, not unlike
Speaker 7: venture cap capital type of investment. But again, it's really
Speaker 7: hard to think about kind of the longer term allocation
Speaker 7: because there's no future cash flowing.
Speaker 6: There's no future care.
Speaker 2: I don't know how she gets launched Blackrock with because
Speaker 2: they're likely first in the easiest I bust in your chaps, Wally,
Speaker 2: I'm sorry, welly, what's the character of this ballmarket we have?
Speaker 2: The rebound in video is gone from a one oh
Speaker 2: four to a one twenty three.
Speaker 6: Is this an AI celebration.
Speaker 7: Well, let's not forget the AI nervousness that characterized the
Speaker 7: fuel trading days before Yesterday. Is meaningful rebound. So I
Speaker 7: think what we're experiencing right now is the code feet
Speaker 7: that we're now used to before PEG companies reporting earnings.
Speaker 7: This is the sixth quarter of chat GPT error and
Speaker 7: every quarter they come in, they beat, and markets kind
Speaker 7: of get reassured. Similar to April, market's got nervous, and
Speaker 7: then the earnings were okay, and then we continue to
Speaker 7: go from strength to strength. I think this is what
Speaker 7: we're seeing right now. In Vidia is not reporting until
Speaker 7: end of August, so I think there is still a
Speaker 7: lot of anxiety, but excitement as well.
Speaker 2: Can the tenure yield go under four percent? And how
Speaker 2: does our world change with a three ninety eight ten
Speaker 2: year yield?
Speaker 7: Well, I think four percent three ninety eight these are
Speaker 7: psychologically important levels. But we're talking about not far from
Speaker 7: where we are right So given how volatile rates have been,
Speaker 7: I think it's possible that you can break four percent,
Speaker 7: especially given the pricing momentum. But I think the big
Speaker 7: picture here is important, which is number one, rates have
Speaker 7: been very volatile. Markets have been swinging from one narrative
Speaker 7: to the other narrative in very quick succession. So I
Speaker 7: think expect volosildia number two. Once we look through that
Speaker 7: VOLATILIZI still're talking about higher than three pandemic rate levels
Speaker 7: because of structurally inflationary forces. Let's not forget that.
Speaker 2: With this Waley of black Rock, and of course with
Speaker 2: all of her heritage from China, her ability to win
Speaker 2: their most prestigious mathematics event two years in a row. Extraordinary,
Speaker 2: thrilled she could join us.
Speaker 6: Today, Wally.
Speaker 2: In twenty fifteen, I walked down the stairs at the
Speaker 2: Metropolitan Museum of Art and they're in a phenomenal a show.
Speaker 2: China through the looking Glass was one of the few
Speaker 2: extent nineteen sixties Chinese military uniforms. I guess they're extremely rare,
Speaker 2: and it was from a China from another time and place.
Speaker 2: There's talk that President g wants to take elements of
Speaker 2: the malpast and drag it forward. Do you see that
Speaker 2: in any way that after the Planum, China wants to
Speaker 2: revert to a sixties or dare I say a fifties model?
Speaker 8: Tom.
Speaker 7: It doesn't take a math olympiads to see that growth
Speaker 7: in China is slowing down, right, You look at the
Speaker 7: latest Taichien PMI print that decreased versus the previous print
Speaker 7: following disappointing Q two growth number. To your point, Plannont
Speaker 7: came and went, State Council came and went, and Politburo
Speaker 7: came and went, and they all paint a similar picture,
Speaker 7: which is that they would support growth in a kind
Speaker 7: of bite size fashion, including surprise Raycots, but we're not
Speaker 7: talking about big Badjuka. So yes, we're looking at maybe
Speaker 7: around five percent growth for this year, which is their targets.
Speaker 7: But there is a huge amount of focus around median
Speaker 7: term reform and that is a tradeoff median term progress
Speaker 7: versus the near term, near term growth, which is why
Speaker 7: we have a neutral allocation despite the appealing valuation opportunities
Speaker 7: in China.
Speaker 2: From where you said and the experts of Blackrock, I
Speaker 2: just don't want to put this on you, but do
Speaker 2: you see them going back to the standard formula of
Speaker 2: state enterprises, is being the solution manufacturing industrial production or
Speaker 2: can they actually jump start and make permanent a consumer revolution.
Speaker 7: Well, consumer savings rate is one of the reasons why
Speaker 7: they need to support Nearton growth because coming out of
Speaker 7: the pandemic, consumers have not really boosted growth the way
Speaker 7: that US consumers have and European consumers have. And this
Speaker 7: is really in the context of high youth employment rate,
Speaker 7: in the context of aging population, in the context of
Speaker 7: still lingering deflationary fears, So consumers are not really kind
Speaker 7: of picking up the battle, so to speak. And we
Speaker 7: have seen manufacturing inside of things having to do more
Speaker 7: heavy lifting. So indeed, I think we need to really
Speaker 7: kind of think about how far consumers can support the economy.
Speaker 7: And this is also why over the longer term, we're
Speaker 7: looking at Chinese growth with a three handle by the
Speaker 7: end of the decade because of the structural Stile is
Speaker 7: talking about.
Speaker 5: So, you know, it seems like their policy here of
Speaker 5: isolating themselves, whether it's from a technology perspective or just
Speaker 5: an overall economic perspective, whether it be in the context
Speaker 5: of US tariffs, European tariffs, I just don't see how
Speaker 5: the Chinese government feels like that is a viable long
Speaker 5: term strategy. It would seem like they would want to
Speaker 5: integrate with the global economy, not isolate themselves. Is that
Speaker 5: part of your neutral call?
Speaker 7: This is actually one of our mega forces that black
Speaker 7: Rock has identified. Geopolitical fragmentation. Isolationist policies are possible, not
Speaker 7: just in China, but you look at what's happening globally,
Speaker 7: you look at what could happen in the US as well,
Speaker 7: And this is why we're looking at an environment where
Speaker 7: spheres of influences are moving further apart. The fragmentation of
Speaker 7: supply chains creating inflationary pressure. This is also why, even
Speaker 7: though we have had the last quarter of inflation better
Speaker 7: behaving downside surprises, we think inflation is likely going to
Speaker 7: actually settle at a higher level compared to before because
Speaker 7: of frictions coming from isolationism, coming from the fragmentation of
Speaker 7: supply chain, duplication of supply chain. So really, inflation protecting
Speaker 7: portfolios is what we're thinking about for strategic as allocation.
Speaker 2: Again, really, and not depend just on you, but the
Speaker 2: greatest thinkers at Blackrock globally, and I know you've got
Speaker 2: a huge Asian presence. You just set a three handle
Speaker 2: on a run rate of China growth. I believe what
Speaker 2: does that do to Vietnam? Frankly, what does that do
Speaker 2: to Japan? That's an entirely new Asian regime, isn't it.
Speaker 7: Well, what we have seen is whilst the experts from
Speaker 7: exports from China to the US has decreased, the export
Speaker 7: from Mexico, for example, to the US have overtaken that
Speaker 7: from China. So I think there is a restructuring of
Speaker 7: supply chain and trade relationships. Day is happening. It takes time,
Speaker 7: but it is happening. So likes of Vnam you talked about,
Speaker 7: but India and also Middle East and Mexico for them
Speaker 7: matter are likely going to benefits as we think about
Speaker 7: this fragmentation of the geopolitical relationships and a fragmentation of
Speaker 7: supply chains, but elevating on a higher level, So that's
Speaker 7: one of the mega forces. Other mega forces like aging
Speaker 7: population also benefits these countries that I just talked about.
Speaker 7: So really think about international diversification as we think about
Speaker 7: portfolio construction in the context of everything that we distached.
Speaker 5: Willie, I seen you in the Blackrock research. You guys
Speaker 5: are overweight Japan, and that's something I have heard in
Speaker 5: a long time.
Speaker 7: Yes, we have been overweighted Japan for quite a long
Speaker 7: time now. We prefer Japanese equities over JGB Japanese government bondes.
Speaker 7: What we have seen this week is Bank of Japan
Speaker 7: indicating that they are likely going to move faster on
Speaker 7: the path of normalzation. And this is important because the
Speaker 7: destination hasn't changed. Is the speed off normalization that seems
Speaker 7: to be faster. But my most important takeaway from the
Speaker 7: BOJ this week is that the backstop is still in place.
Speaker 7: If data does not give them comfort to move fast,
Speaker 7: they would slow down. So as important as we think
Speaker 7: about the Japan call, but certainly risks have increased because
Speaker 7: of the faster pace of normalization. I would know though
Speaker 7: US dollar Japanese applees is just one percent lower compared
Speaker 7: to the peak, So we like Japan on a currency
Speaker 7: hatched basis for that reason.
Speaker 2: This has been wonderful Wayley, thank you so much, particularly
Speaker 2: in the comments on China. Jumana Bratacci. We are thrilled
Speaker 2: that she's in Dubai driving all of our Middle Eastern
Speaker 2: coverage with the leadership of Horizon in her program there,
Speaker 2: but far more the spirit of speaking to people across
Speaker 2: the Middle East, and we speak now with Juma about
Speaker 2: her Lebanon and about what we see in Israel and such. Jumana,
Speaker 2: first of all, to your many many contexts in Lebanon,
Speaker 2: the tension north of Israel right now, the tension in Lebanon,
Speaker 2: give us a description of that.
Speaker 9: It's difficult to describe. I guess my size speaks for itself,
Speaker 9: but overall, tension is possibly the highest it has been
Speaker 9: in the last couple of decades. This is an extremely
Speaker 9: fraud moment for the Middle East, given the events over
Speaker 9: the last couple of days and the various fronts that
Speaker 9: are opening up, not just within Gaza, but of course
Speaker 9: now you have a new potential active front in Lebanon
Speaker 9: after the Beirut strike that took out the right hand
Speaker 9: man of the Hesbalaalider a couple of days ago. You
Speaker 9: have a potentially new front opening up in Iran after
Speaker 9: the air strike in Tehran the same night as the
Speaker 9: Beirut air strike. And then of course you have the
Speaker 9: ongoing Houthy attacks on the vessels. It's not for about
Speaker 9: those as well. So you've got multi dimensional hotspots opening
Speaker 9: up around the region, and there is serious concern that
Speaker 9: there is a potential slippage. One miscalculation could have this
Speaker 9: thing really blow up and end up in a scenario
Speaker 9: where all sides ends up regretting.
Speaker 2: And you're reporting on horizon as you speak to Emarati
Speaker 2: leadership and for that matter, Arab leadership of the Levant,
Speaker 2: who are they supporting, who are they focused on here
Speaker 2: among the various parties.
Speaker 9: Interesting you raise that, tom because it's very nuanced depending
Speaker 9: on which country you speak to in the region. Now,
Speaker 9: don't forget that many of the Gulf countries actually did
Speaker 9: sign and Abraham accords in a normalization agreement with Israel
Speaker 9: back in twenty twenty that includes the UE, that includes Bahana,
Speaker 9: also includes Morocco as well, So they've been treading very
Speaker 9: carefully on the subject of the war in Gaza. Of course,
Speaker 9: Saudi Arabia as well, I've been playing a very fine
Speaker 9: line diplomatically because, as we've been reporting over the last
Speaker 9: few months, they have been working very closely on a
Speaker 9: normalization deal that would coincide with the defense deal with
Speaker 9: the US as well, So they don't want to give
Speaker 9: up on that. But what the Saudi has told us
Speaker 9: is that essentially they can't push forward with the normalization
Speaker 9: deal while there are still boots on the ground in Gaza.
Speaker 9: Other countries, you look at the likes of Egypt and Kuttar,
Speaker 9: while their role throughout all of this has been to
Speaker 9: play the role of the mediator to push forward the
Speaker 9: cs FAR discussions, and I thought it was really telling
Speaker 9: yesterday that the Prime Minister of Kutar, who also serves
Speaker 9: as their foreign minister, put out a tweet right after
Speaker 9: the killing of Ismayhanie saying that it is very difficult
Speaker 9: to push forward with these negotiations if one of the
Speaker 9: sides of the negotiators has been assassinated. So I think
Speaker 9: there's a lot of pessimism now about the future of
Speaker 9: these cs FAR.
Speaker 5: Talks and Dremono. You mentioned, you know, some of the
Speaker 5: countries Asa Kutar that are trying to act as mediators,
Speaker 5: but it appears at this point the Israel has had
Speaker 5: no interest in pursuing peace or at this moment even
Speaker 5: you know, thinking about their relations with the US. Is
Speaker 5: that a concern in your part of the.
Speaker 9: World, It's definitely a concern. I think there are many
Speaker 9: analysts out there who are questioning the full faith of
Speaker 9: the Israeli government to actually engage in these cease fire discussions.
Speaker 9: We know that there have been several many diplomatic attempts
Speaker 9: to push forward to the discussions. Even Sector of State
Speaker 9: Anthony Blincoln has been in Asia this past week, and
Speaker 9: he gave some comments in Malaysia overnight saying the path
Speaker 9: that the region is on is towards more conflict. It
Speaker 9: has to make the right choices in the day ahead,
Speaker 9: because those choices are the difference between staying on this
Speaker 9: path of violence, of insecurity of suffering, or moving on
Speaker 9: to something very different and much better. So the US
Speaker 9: are still trying very hard to push forward to these discussions. France,
Speaker 9: Germany or other countries looking to get involved as well.
Speaker 9: And the feedback from the qataris even though they're pessimistic,
Speaker 9: they still want to push on. But the question, the
Speaker 9: other question is who is going to be representing Hamas
Speaker 9: because two of the most senior figures have been eliminated
Speaker 9: in the last two days.
Speaker 2: Jermin I got one minute left and I just want
Speaker 2: to take advantage of your encyclopedic knowledge of Lebanon. I
Speaker 2: get out a map like an ugly American, and I'm
Speaker 2: shocked that Haifa is sixty seventy miles from Bayrout. The distance, folks,
Speaker 2: are so short. How far do you perceive that Israel
Speaker 2: would move north across the Lebanese border? Is it one
Speaker 2: or two miles like Syria and Turkey or do they
Speaker 2: move into the suburbs.
Speaker 6: Of Bay Route.
Speaker 9: So the short answer is there was a war in
Speaker 9: two thousand and six eleven. In two thousand and six,
Speaker 9: a July war, and on the back of that it
Speaker 9: was very costly war for both sides. A resolution was
Speaker 9: put in place called Resolution seventeen on one, which dictated
Speaker 9: that Hesbola has to move about thirty kilometers away from
Speaker 9: the southern border north of the Litani River and give
Speaker 9: up its arms. Obviously, the resolution hasn't been iplemented, but
Speaker 9: the analyst within the community will say, Israel, I'm not
Speaker 9: going to stop until seventeen oh one is implemented. And
Speaker 9: even the prime minister, the Lebanese Prime Minister, is saying
Speaker 9: it's time for seventeen oh one to be implemented. So
Speaker 9: they just want to push back.
Speaker 2: Hazballah, do you say that Jumana does that she stays
Speaker 2: in kilometers.
Speaker 6: We're nationwide in America.
Speaker 2: I think my math is the American ac is eighteen
Speaker 2: miles is what we were translating.
Speaker 6: They are lost in translations.
Speaker 2: Jumana Bitteci, thank you as so much, particularly for those
Speaker 2: comments on your levin and she, of course delivers Horizon
Speaker 2: each and every day in Dubai. Joining us now Wendy
Speaker 2: Schiller with the history of this of course at Brown
Speaker 2: University in the tub and Center. Wendy, I think I
Speaker 2: said to you an hour or two ago. I can't
Speaker 2: remember you know what Tom Hanks. Tom Hanks moved in
Speaker 2: a prisoner's swap. But as I see the names leaking out,
Speaker 2: speculation of who these names are, what is the difference
Speaker 2: between the prisoners America and the Allies are getting versus
Speaker 2: the prisoners that Russia is getting.
Speaker 10: Well, the only thing we can interpret right now with
Speaker 10: the knowledge we have, is that Putent values the release
Speaker 10: of these prisoners.
Speaker 8: Either for domestic reasons.
Speaker 10: It could be internal politics within his own government. He
Speaker 10: wants to show a that he can still be a
Speaker 10: partner with other nations in reasonable negotiations in his mind,
Speaker 10: and you can say that people were unduly detained in Russia,
Speaker 10: the American hostages in particular. But nonetheless he is portraying
Speaker 10: the image of somebody that people can work with. And
Speaker 10: I don't think the timing is accidental. I think it's
Speaker 10: an adjustment to what's going on in the American political
Speaker 10: scene right now at the presidential level. And also, you know,
Speaker 10: I think it reflects a little bit of the stalemate
Speaker 10: in Ukraine.
Speaker 2: Okay, I'm going to go there, because you went there,
Speaker 2: Professor Schiller. Are you suggesting that this was sped up
Speaker 2: because of the advent of Vice President Harris into our
Speaker 2: presidential race.
Speaker 10: I think that Putin recognizes he wants to be in
Speaker 10: the mix with whoever wins the selection, and he doesn't
Speaker 10: really gain from being demonized by the Democrats.
Speaker 8: Biden, certainly, being what we call old school in terms of.
Speaker 10: Sort of a Cold War and a product of the
Speaker 10: Cold War, was doing quite a bit of that. I
Speaker 10: don't think Harris will focus as much on that, and
Speaker 10: certainly Trump doesn't do it at all.
Speaker 8: So Poten wants to end up somewhere in.
Speaker 10: The middle of that of that intellectual framing on what
Speaker 10: kind of partner he can be and what really plays
Speaker 10: in the world.
Speaker 5: Tommy, have a read headline across the Bloomberg terminal correct
Speaker 5: Wall Street Journal reporter to be really by Russia in
Speaker 5: prisoner swap. So again, as you highlighted, tom this is
Speaker 5: a fluid situation.
Speaker 6: It's a fluid situation. I really want to emphasize this.
Speaker 2: We believe in Bloomberg we don't do rumor, we don't
Speaker 2: do speculation, but we're going to aggregate in legitimate news sources,
Speaker 2: and we're doing that right now with the leadership of
Speaker 2: our Jennifer Jacobs at Bloomberg News.
Speaker 6: Incredibly fluid situation.
Speaker 5: All right, let's move on Wendy, we're right smack in
Speaker 5: the middle of this very contentious presidential election race. The
Speaker 5: next issue I guess for VP Harris is to pick
Speaker 5: a vice presidential candidate. What's the latest on that.
Speaker 10: Well, we've heard that the governor of Pennsylvania, Joshapiro, I believe,
Speaker 10: is meeting or talking.
Speaker 8: You reported that onto her team.
Speaker 10: If I had to guess, it's it's down to Mark
Speaker 10: Kelly and Josh Shapiro.
Speaker 8: It's easier to take a senator out of a state.
Speaker 8: Arizona has a law that says the governor has to replace.
Speaker 10: A senator with the same party person, so the Democrats
Speaker 10: don't lose a seat and a special election or general
Speaker 10: election and won't be helpful two more years for that seat.
Speaker 10: So the Democrats actually are okay if Kelly leaves Arizona.
Speaker 10: But Pennsylvania is I think a little trickier to estimate.
Speaker 8: Is Josh Bureau stronger for Kamala.
Speaker 10: Harris in Pennsylvania as governor with the machine that he's
Speaker 10: built to win the governorship two years ago, or is
Speaker 10: he better on a ticket to bring Pennsylvania but also
Speaker 10: other states like Pennsylvania, And I think he's also an
Speaker 10: observant Jewish person.
Speaker 8: He has made that part of his persona.
Speaker 10: It is resonated not only with Jewish munny, but also
Speaker 10: with religious people have different religious backgrounds.
Speaker 8: He talks about his faith a lot. So whether that's
Speaker 8: good for Harris or not, We're not sure.
Speaker 2: I have never written a song about this, but I'm
Speaker 2: going to go there, Professor Schuler. In nineteen sixty, my
Speaker 2: mother took me out to see Richard Nixon with a
Speaker 2: three day beard will Republicans cigars, and there were a
Speaker 2: beautiful spring morning with jfk in a lovely blue silk
Speaker 2: suit and Missus Kennedy next to him. And guess what.
Speaker 2: The entire uproar where I lived was.
Speaker 6: Omg, he's Catholic.
Speaker 2: And to speak to you in Providence and Brown University, folks,
Speaker 2: I hate to say that was a huge deal. Then,
Speaker 2: with great respect, Wendy Schiller, are we going to have
Speaker 2: a huge deal if it's a Harris Shapiro ticket?
Speaker 8: Yeah, I mean I think that's a factor.
Speaker 10: I mean, nobody should put their head in the sand
Speaker 10: and say, you know someone who's a woman of color
Speaker 10: and a Jewish candidate.
Speaker 8: Now Lieberman was Jewish ram.
Speaker 2: With Gore Goodtories, thank you.
Speaker 10: Right, you know, so we've had that before, and you
Speaker 10: are not only time, you're right about nineteen sixty, but
Speaker 10: certainly the primaries, the very few primaries that they had
Speaker 10: the Democrats before that, Hubert Humphrey made an issue of
Speaker 10: JFK's Catholicism, So you know, it wasn't just an issue
Speaker 10: in America, was an issue in the Democratic Party at
Speaker 10: that time.
Speaker 8: So yes, I think.
Speaker 10: And also let's not forget Israel, Gaza and the disaffected
Speaker 10: younger voters and also people in Michigan of Palstinian and arascent.
Speaker 10: You know, how will that play. Josh Burou is a
Speaker 10: strong about sport of Israel. You know, if you have
Speaker 10: to weigh who's going to bring you votes, who's going
Speaker 10: to lose your votes? You know, if you have to
Speaker 10: think about neutrality, I think Mark Kelly is a more
Speaker 10: neutral choice than Joshapiro.
Speaker 8: And Joshapiro himself may be thinking of running in twenty
Speaker 8: eight Can he win through election in twenty six? So
Speaker 8: very complicated calculating.
Speaker 2: Yeah, okay, I gotta be quick here. Paul Strenia, how
Speaker 2: many times have you seen top gun? Oh?
Speaker 5: Too many accounts?
Speaker 6: Come on? How many a dozen forty.
Speaker 2: Professor Shuler, how many times have you seen Top Gun?
Speaker 10: I've seen the Top Gun on and also Top Gun Maverick.
Speaker 10: I think actually might be better than Top Gun.
Speaker 2: Okay, you're telling me the Vice President's going to turn
Speaker 2: down Top Gun from Arizona.
Speaker 10: I'm saying that I think it's the same as you know.
Speaker 10: It's a more neutral and I think a slightly safer
Speaker 10: choice for lots of different reasons to pick Mark Kelly
Speaker 10: over Joshear.
Speaker 2: This has been wonderful. Professor Schuler is such a trooper
Speaker 2: usually valuators. Civics textbook is defending, and we're thrilled to
Speaker 2: have her on to give you a historical perspective.
Speaker 6: Of these moments as well.
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