WEBVTT - In Conversation with a Nobel Prize Winner and a Discussion on Equities 0:00:02.440 --> 0:00:07.520 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.960 --> 0:00:16.360 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.400 --> 0:00:19.880 at seven am Eastern on applecar Player, Android Auto with 0:00:19.920 --> 0:00:23.360 the Bloomberg Business App. Listen on demand wherever you get 0:00:23.360 --> 0:00:26.239 your podcasts, or watch us live on YouTube. 0:00:26.360 --> 0:00:29.480 I really can't say enough about this folks. His book 0:00:29.880 --> 0:00:33.320 on the crisis of two thousand and seven thirteen bankers. 0:00:33.320 --> 0:00:35.400 It was my book of the year. It is the 0:00:35.560 --> 0:00:39.360 definitive short read on the crater that we all live through. 0:00:39.400 --> 0:00:40.959 In seven eight, he. 0:00:40.920 --> 0:00:45.800 Of course has gone on to extraordinary extraordinary academics at 0:00:45.880 --> 0:00:49.800 MIT on technology and growth. The new book is Power 0:00:50.159 --> 0:00:54.480 and Progress. Newly minted Nobel Prize winner Simon Johnson. 0:00:54.840 --> 0:00:56.040 Simon, when Rudy. 0:00:55.880 --> 0:01:01.320 Dornbush was beating you to death at MRT years ago, 0:01:01.480 --> 0:01:04.600 do you think dorn Bush ever would have thought young Johnson, 0:01:04.959 --> 0:01:07.720 the mouth you one from the United Kingdom would win 0:01:07.760 --> 0:01:09.040 a Nobel Prize. 0:01:10.520 --> 0:01:13.040 No, I'm pretty sure he would be just as surprised 0:01:13.040 --> 0:01:13.800 as I am today. 0:01:13.840 --> 0:01:17.760 Tom, just wonderful, Simon Johnson. Let's talk about the why 0:01:17.840 --> 0:01:20.880 of this Nobel Prize of James Robinson of Chicago and 0:01:20.920 --> 0:01:22.760 of course Darren and you over at m I T. 0:01:22.920 --> 0:01:26.960 There's a pressor at ten am, folks, Simon Johnson, why 0:01:27.000 --> 0:01:32.480 should we study, fear or enjoy our modern technology? 0:01:34.440 --> 0:01:37.640 I think technology drives everything, Tom, You're well aware of that. 0:01:38.000 --> 0:01:41.640 And the question is who's technology? Who has what priority? 0:01:42.520 --> 0:01:45.280 What's that vision? Is it an inclusive vision or is 0:01:45.319 --> 0:01:46.880 it a vision which only a few people have good 0:01:46.959 --> 0:01:50.040 jobs and everybody else is really scrambling. That's been super 0:01:50.080 --> 0:01:51.720 important over the last two and fifty years. We've had 0:01:51.760 --> 0:01:54.520 some good episodes and some really bad ones. And I 0:01:54.520 --> 0:01:57.920 think it's all in play again with artificial intelligence. 0:01:57.440 --> 0:02:01.520 In play with this, Simon Johnson, is this election? I 0:02:01.600 --> 0:02:05.840 mentioned this the other day A parallels eighteen forty eighteen fifty. 0:02:06.200 --> 0:02:10.240 There's almost a ludite part of America that is afraid 0:02:10.280 --> 0:02:14.920 of the consequences of technology. What is the Asimogulu Johnson 0:02:15.400 --> 0:02:17.160 Robinson prescription. 0:02:18.639 --> 0:02:21.480 Well drawn and Jim to speak for themselves. But my view, 0:02:21.560 --> 0:02:25.480 Tom is that technology has for people. We've had excessive 0:02:25.520 --> 0:02:28.239 automation in the past forty years. We've not generated enough 0:02:28.400 --> 0:02:31.079 new good jobs, so jobs where you actually get paid 0:02:31.120 --> 0:02:33.880 good money and you can live well. And we've got 0:02:33.880 --> 0:02:35.680 to do better on that. I think that that's really 0:02:35.720 --> 0:02:40.239 a fundamental driving importance, irrespective of the election outcome. Where 0:02:40.240 --> 0:02:42.480 the good job's going to come from? And can we 0:02:42.600 --> 0:02:44.840 keep pace we will get ahead of automation because you 0:02:44.880 --> 0:02:46.840 know automation is going to happen, like it or not. 0:02:47.280 --> 0:02:49.000 So you've really got to work a lot harder to 0:02:49.040 --> 0:02:52.880 generate more science, more technology, deploy that, commercialize that, scale 0:02:52.880 --> 0:02:55.320 it up and generate more good jobs all across the country. 0:02:55.480 --> 0:02:57.840 Can be done, but it's a top priority, and I 0:02:57.880 --> 0:02:59.919 think it needs to be elevated as a priority right now. 0:03:00.280 --> 0:03:03.320 All right, so simon with your two colleagues and your 0:03:03.360 --> 0:03:05.399 work here. I mean, it just raises a question which 0:03:05.400 --> 0:03:09.120 is so relevant even today, discerning why some countries are 0:03:09.240 --> 0:03:12.800 rich and some much poorer. How should we think about 0:03:12.840 --> 0:03:15.840 that big, big picture question these days? 0:03:17.639 --> 0:03:19.359 I suggest we think about it in two ways. One 0:03:19.400 --> 0:03:21.720 is the sort of deep history and recognize that we've 0:03:21.760 --> 0:03:23.680 all got these legacies that we're living with, and some 0:03:23.680 --> 0:03:25.640 of these legacies, particularly if you were colonized in a 0:03:25.680 --> 0:03:28.840 harsh way by the Europeans, that's a very tough legacy 0:03:28.880 --> 0:03:32.440 to overcome. But the second thing is there's no predestination. 0:03:32.840 --> 0:03:35.800 It's all about the choices that you make, including technology 0:03:35.800 --> 0:03:37.600 that we just talked about. If you're in the United States, 0:03:37.680 --> 0:03:39.800 but around the world, I would point to corruption. I 0:03:39.800 --> 0:03:42.320 mean corruption has been, as you guys know, talked about 0:03:42.320 --> 0:03:44.600 a lot over the past thirty forty years. But what 0:03:44.680 --> 0:03:46.960 do we have. We still have immense amounts of corruption 0:03:47.120 --> 0:03:48.680 and there's two side set there, the people who pay 0:03:48.720 --> 0:03:50.400 the bribes and the people who take the bribes. And 0:03:50.440 --> 0:03:52.480 that's a big part of what holds a lot of 0:03:52.480 --> 0:03:54.760 countries deeply in the poverty that you see today. 0:03:54.840 --> 0:03:56.160 So what can institutions do? 0:03:56.280 --> 0:03:58.000 I mean, this is you know, I'm going to go 0:03:58.080 --> 0:04:01.800 back to Douglas Norris and the seminal work at Washington 0:04:01.880 --> 0:04:06.520 University in Saint Louis, Professor Johnson. What do our institutions 0:04:06.680 --> 0:04:10.760 need to improve on to help they have notts of technology? 0:04:11.000 --> 0:04:14.240 What is your IMF where you served, what does it 0:04:14.320 --> 0:04:14.839 need to do? 0:04:16.800 --> 0:04:17.000 Oh? 0:04:17.040 --> 0:04:19.360 Well, I was in the IMF a long time, agoes, 0:04:19.360 --> 0:04:20.560 you know, so I'm not going to speak to their 0:04:20.600 --> 0:04:23.719 current policies and stance. But I think the key thing, 0:04:24.520 --> 0:04:26.800 and it made you sound like a rhetorical device, Tom, 0:04:26.800 --> 0:04:30.000 but it's real is focus on inclusive prosperity. How are 0:04:30.000 --> 0:04:33.920 you getting more good jobs created for more people and 0:04:34.200 --> 0:04:35.960 make sure they can access those jobs, make sure they 0:04:35.960 --> 0:04:38.919 have the skills, make sure they are empowered themselves, and 0:04:38.960 --> 0:04:41.480 they recognize that. So the bumper sticker for me out 0:04:41.480 --> 0:04:43.080 of all of this is more good jobs. 0:04:43.160 --> 0:04:46.040 Sloan one oh one, Come on, Simon, let's do it. 0:04:46.440 --> 0:04:49.240 Simon Johnson on tariffs. 0:04:51.080 --> 0:04:52.520 Oh, I don't, okay. If you want to blow up 0:04:52.560 --> 0:04:54.719 the world, in the world treading system and really damage 0:04:55.160 --> 0:04:58.480 poorer Americans, slap a massive tariff on all the importance because, 0:04:58.520 --> 0:05:01.680 as you know, poor America spent a lot on things 0:05:01.680 --> 0:05:06.080 that have imported content. So massive tariff war terrible ideas. 0:05:05.839 --> 0:05:07.159 Right, Simon, One more question. 0:05:07.240 --> 0:05:09.359 We want to get you on your day huge press 0:05:09.360 --> 0:05:13.200 commitments now in this important press conference with Darren ASIMOVLOK 0:05:13.240 --> 0:05:18.240 scheduled at ten am. Circling in all this academics is 0:05:18.360 --> 0:05:23.560 Olivier Blanchard. Tell us what Olivia did for MIT. 0:05:25.279 --> 0:05:25.440 Oh. 0:05:25.720 --> 0:05:28.400 I think Olivia Blanchard is one of the greatest economists 0:05:28.400 --> 0:05:32.600 of this or any generation. And his presence and his 0:05:32.720 --> 0:05:36.159 toughness and his rigor has been present throughout my career. 0:05:36.200 --> 0:05:38.240 And I started at MIT as a grad student in 0:05:38.720 --> 0:05:41.000 September nineteen eighty five. So I've been thirty nine years 0:05:41.160 --> 0:05:44.120 on and off with the Institute. So Olivia Blanchard is 0:05:44.160 --> 0:05:45.479 one of the modern grades. 0:05:45.520 --> 0:05:46.880 Absolutely, Simon Johnson. 0:05:46.920 --> 0:05:54.480 Congratulations Simon Johnson, the Massachusetts Institute of Technology. 0:05:56.760 --> 0:06:01.800 You're listening to the Bloomberg Surveillance Podcast live weekday afternoons 0:06:01.800 --> 0:06:04.520 from seven to ten am Eastern. Listen on Apple car 0:06:04.640 --> 0:06:07.440 Play and Android Auto with a Bloomberg Business app, or 0:06:07.520 --> 0:06:09.920 want us live on YouTube right now. 0:06:09.960 --> 0:06:13.239 This is an important conversation Lori Kelvicina with US RBC 0:06:13.400 --> 0:06:16.479 Capital Markets. Laurie, I'm really not a big one of 0:06:16.560 --> 0:06:21.839 linking elections into equity market performance. The adults at RBC 0:06:22.000 --> 0:06:27.080 Capital Markets go there link the election to the twenty. 0:06:26.600 --> 0:06:28.520 Twenty five equity performance. 0:06:30.680 --> 0:06:33.240 So in terms of looking ahead, I hate to break 0:06:33.240 --> 0:06:35.080 it to you, Tom, but I think stocks tend to 0:06:35.120 --> 0:06:39.000 do well in any balance of power environment. We've actually 0:06:39.080 --> 0:06:41.680 back tested that over time. I think that any election 0:06:41.760 --> 0:06:44.000 issues that we have in the equity market are the 0:06:44.080 --> 0:06:47.239 nature of short term repricings that we have to work through, 0:06:47.520 --> 0:06:49.160 and there are clearly, you know, a lot of people 0:06:49.200 --> 0:06:51.680 out there who do care about those short term repricings. 0:06:51.960 --> 0:06:55.359 If you look historically, though, whether it's Democrats control everything, 0:06:55.440 --> 0:06:59.800 Republicans control everything, different variations of split government docs dent 0:07:00.120 --> 0:07:02.240 do tend to go up. And what's interesting to me 0:07:02.440 --> 0:07:06.760 is that the two best historical scenarios Republicans control everything 0:07:07.279 --> 0:07:10.200 or democratic presidency with a split Congress, those are the 0:07:10.240 --> 0:07:13.120 two that have been most in focus for investors recently. 0:07:13.200 --> 0:07:14.880 So I think the election is something we've got to 0:07:14.880 --> 0:07:17.440 get through. We'll deal with it, we'll reprice what we 0:07:17.480 --> 0:07:18.960 need to reprice, and then we'll move on. 0:07:19.520 --> 0:07:21.760 Just can I rip on the scripture, folks? And we 0:07:21.840 --> 0:07:23.640 have the best radio studio. 0:07:23.240 --> 0:07:25.600 In the world. It's incredibly wired in. 0:07:26.160 --> 0:07:30.920 Right now on television, there's not Bloomberg TV on all 0:07:30.960 --> 0:07:35.000 of American television. For those of you internationally, there's young 0:07:35.160 --> 0:07:39.280 studs standing in front of Pole results Paul in their hands. 0:07:39.600 --> 0:07:42.720 Their hands are all going like this. On radio, they're 0:07:42.760 --> 0:07:45.680 like certain, they're pointing in this. Do we have a 0:07:45.720 --> 0:07:47.560 clue Paul Swening about the polls? 0:07:47.760 --> 0:07:49.960 I do not. I just I assume my polls, Oh, 0:07:50.320 --> 0:07:52.960 almost worthless. It's like entertainment, and it's not just here 0:07:53.000 --> 0:07:54.720 in the US. And you think about what happened in 0:07:55.280 --> 0:07:57.120 Brexit and O the other places where the polls just 0:07:57.240 --> 0:07:57.760 I think. 0:07:57.760 --> 0:08:00.400 Well said, really well, said Laurie. 0:08:00.800 --> 0:08:02.920 We're getting into the earning season here. This is something 0:08:02.920 --> 0:08:04.960 we can really sink our teeth into. Earning share What 0:08:05.000 --> 0:08:06.680 do you need to see this earning season? What does 0:08:06.720 --> 0:08:08.760 a market need to see this earning season? 0:08:09.800 --> 0:08:11.640 So it's a great question, Paul. You know, we put 0:08:11.640 --> 0:08:13.800 out our weekly this morning and I basically I made 0:08:13.840 --> 0:08:16.480 some housekeeping adjustments to my earning's number, and I said, 0:08:16.480 --> 0:08:18.880 you know what, we did this. It's not that important 0:08:19.120 --> 0:08:20.920 at this point in time. The numbers for the year 0:08:20.960 --> 0:08:23.480 are pretty much set. Companies have a way of achieving 0:08:23.520 --> 0:08:26.160 those bars. So I really don't care about beat stats, 0:08:26.560 --> 0:08:28.080 you know, any of that kind of stuff. And frankly, 0:08:28.120 --> 0:08:29.440 companies are not going to be giving us a lot 0:08:29.440 --> 0:08:31.920 of guidance this time of year in terms of official numbers. 0:08:32.120 --> 0:08:34.000 I'm looking for two things. Number one, what are the 0:08:34.080 --> 0:08:38.000 qualitative comments around things like the US election, the FED 0:08:38.040 --> 0:08:41.120 and interest rates, the health of the consumer. I think 0:08:41.200 --> 0:08:43.320 those are all big things that we've got a monitor. 0:08:43.360 --> 0:08:46.440 They've been in focus. But really, frankly, Paul, these have 0:08:46.520 --> 0:08:49.079 been you know the comments. I'm hearing for companies have 0:08:49.160 --> 0:08:51.040 been one of the big things keeping me in the 0:08:51.040 --> 0:08:53.839 soft landing camp, even at times when that soft landing 0:08:53.880 --> 0:08:56.040 thesis has been doubted. I'm going to be watching that. 0:08:56.120 --> 0:08:57.880 The second thing I think we need to watch, and 0:08:58.000 --> 0:09:02.559 this is more quantitative, but can megacap growth continue its 0:09:02.600 --> 0:09:05.400 earnings dominance going forward? Or can the rest of the 0:09:05.440 --> 0:09:07.920 market And I'm thinking more S and P X mag 0:09:08.040 --> 0:09:10.840 seven here, but can they step up and really become 0:09:10.880 --> 0:09:14.280 the dominant force on earnings? So far hasn't really happened yet, 0:09:14.320 --> 0:09:16.480 and I think that's why the rotation trade keeps happening, 0:09:16.480 --> 0:09:17.320 then fits and starts. 0:09:17.520 --> 0:09:21.480 Lori Calvacina. My chart of the weekend was a simple 0:09:21.520 --> 0:09:23.679 two line chart, and one line. 0:09:23.520 --> 0:09:25.560 Was the S and P going up, up, up, up, 0:09:25.679 --> 0:09:29.920 up over eight nine, ten years in international markets. 0:09:30.240 --> 0:09:34.720 Just going nowhere. Bring that over to your. 0:09:34.600 --> 0:09:38.600 Expertise in mid caps and small caps? Is there finally 0:09:38.640 --> 0:09:42.080 a lift looking out three years to mid caps and 0:09:42.120 --> 0:09:42.880 small caps? 0:09:44.080 --> 0:09:44.240 Oh? 0:09:44.280 --> 0:09:46.360 You know, Tom, would I would like to say so? 0:09:47.640 --> 0:09:49.880 I can't quite get there. I've been feeling a little 0:09:49.920 --> 0:09:52.200 bit better about the small caps recently, just from the 0:09:52.240 --> 0:09:56.720 perspective of the economic tailwinds are returning. US economic surprises 0:09:56.720 --> 0:09:59.640 are turning positive. GDP forecasts are a nudging up. But 0:09:59.679 --> 0:10:01.680 we have to two problems in small cap right now. 0:10:01.760 --> 0:10:04.440 Number One, they're not cheap anymore. We're trading at about 0:10:04.440 --> 0:10:07.360 a sixteen and a half times weighted medium PE multiple. 0:10:07.640 --> 0:10:11.000 The average is around fifteen, so it really the bar 0:10:11.120 --> 0:10:13.120 for them to do well is pretty high at this 0:10:13.160 --> 0:10:15.800 point in time. Secondly, you know, we have seen a 0:10:15.880 --> 0:10:18.000 number of rallies in small cap over the last year 0:10:18.080 --> 0:10:20.319 year and a half. They started when the stocks are cheap, 0:10:20.559 --> 0:10:22.840 people get excited about the FED. I think that FED 0:10:22.880 --> 0:10:25.160 aspect has played out at this point. But the other 0:10:25.200 --> 0:10:27.199 thing we've seen when those rallies have gotten started is 0:10:27.240 --> 0:10:29.840 that small caps look over sold on the CFTC data. 0:10:30.200 --> 0:10:32.920 And guess what, a couple of weeks ago they actually 0:10:33.080 --> 0:10:36.760 saw positioning surge and we're back up to levels that 0:10:36.760 --> 0:10:39.360 are pretty darn close to the twenty sixteen, twenty seventeen 0:10:39.400 --> 0:10:42.680 and twenty eighteen high. So oddly enough, even though the 0:10:42.720 --> 0:10:44.840 performance has been you know, kind of choppy and we 0:10:44.920 --> 0:10:47.840 haven't had that big sustainable lift, it does look to 0:10:47.840 --> 0:10:50.160 me like the positioning's kind of starting to get full again. 0:10:51.000 --> 0:10:54.760 Look at that she's going, Yes, it's she knows what 0:10:54.760 --> 0:10:58.120 she's doing, Lorie, which screens well for you guys. These days, 0:10:58.120 --> 0:10:59.959 it feels like this market's a little long and into 0:11:00.880 --> 0:11:04.440 any new ideas for folks to think about. 0:11:05.400 --> 0:11:07.320 Yeah, so you know, we actually, you know, did our 0:11:07.320 --> 0:11:09.400 big analyst survey that we do once a quarter. We 0:11:09.440 --> 0:11:11.680 did that last week, and we made some changes on 0:11:11.720 --> 0:11:15.839 our sector recommendations. We kept our overweights on for financials 0:11:15.880 --> 0:11:20.240 and materials. Our analysts levels of enthusiasm are pretty bullish there, 0:11:20.240 --> 0:11:23.080 and the valuations look pretty reasonable to me. But those 0:11:23.080 --> 0:11:25.400 are continued calls. The thing that we did that was 0:11:25.480 --> 0:11:29.160 new was that we downgraded utilities from overweight to market weight, 0:11:29.200 --> 0:11:32.000 and we upgraded healthcare from market weight to overweight in 0:11:32.040 --> 0:11:34.199 its place. And I would tell you a couple of 0:11:34.240 --> 0:11:39.000 things on healthcare. One very very robust outlooks from my analysts, 0:11:39.360 --> 0:11:42.000 So we like that vote of confidence. My utility analysts 0:11:42.040 --> 0:11:44.920 are constructive, but not quite as much. Secondly, we think 0:11:44.920 --> 0:11:47.880 we've got a better valuation story and health care than utilities. 0:11:48.320 --> 0:11:50.720 We upgraded utilities to start the year when it was cheap. 0:11:50.760 --> 0:11:52.839 We kind of unlocked our way into the AI trade. 0:11:53.120 --> 0:11:56.400 But we think that valuation moment is passed, and you know, look, 0:11:56.440 --> 0:11:59.559 healthcare flows have been improving. They're not wildly positive yet, 0:11:59.600 --> 0:12:02.080 but we think we're turning the corner. And also I 0:12:02.080 --> 0:12:04.400 think the election risk is behind it, and neither Canada 0:12:04.480 --> 0:12:06.280 is talking much about how what's great. 0:12:06.080 --> 0:12:10.120 About this CFA level four. There's an entire section on 0:12:10.200 --> 0:12:10.680 dumb law. 0:12:10.800 --> 0:12:11.120 Yeah. 0:12:11.160 --> 0:12:13.679 I love it when somebody smart like Laurie, he says 0:12:13.720 --> 0:12:15.200 he every once in a while you get like, oh. 0:12:15.120 --> 0:12:18.440 You have no idea, Laurie Kelvicita, thank you so much 0:12:18.480 --> 0:12:19.079 for dumblock. 0:12:19.120 --> 0:12:21.840 Greatly appreciate it. RBC Capital Markets. 0:12:25.960 --> 0:12:30.240 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:12:30.320 --> 0:12:33.520 starting at seven am Eastern on applecar Play and Android 0:12:33.559 --> 0:12:36.400 Auto with the Bloomberg Business app. You can also listen 0:12:36.520 --> 0:12:39.640 live on Amazon Alexa from our flagship New York station 0:12:40.000 --> 0:12:42.720 Just say Alexa playing Bloomberg eleven thirty. 0:12:43.040 --> 0:12:45.079 You want to show out you're an expert on China 0:12:45.080 --> 0:12:47.200 out of Hong Kong with City Group? 0:12:47.800 --> 0:12:48.600 Is Citygroup? 0:12:48.679 --> 0:12:54.319 Is China falling behind technologically? If SMO, Bluo, Johnson or 0:12:54.440 --> 0:12:58.400 Robinson looked at China, are they technology losers? 0:12:58.800 --> 0:13:01.760 I think there's no one size blanket, you know, kind 0:13:01.760 --> 0:13:04.040 of statement, because it depends on which part of technology. 0:13:04.080 --> 0:13:06.240 I mean, clearly in some parts of technology in China 0:13:06.320 --> 0:13:08.800 is winning, right when it comes to clean tech, when 0:13:08.840 --> 0:13:11.040 it comes to dominating supply chain, you know, and metals 0:13:11.040 --> 0:13:13.160 and minerals, they pretty much you know, have it down 0:13:13.160 --> 0:13:15.480 to path to the point that Western nations are now 0:13:15.520 --> 0:13:18.560 all running after each other putting tariffs. But obviously, I mean, 0:13:18.559 --> 0:13:20.679 they're still catching up on semiconductors, which is one of 0:13:20.720 --> 0:13:23.200 the weak points, and that's what Biden administration has been 0:13:23.240 --> 0:13:26.160 trying to do. So obviously that's inducing them to double 0:13:26.240 --> 0:13:28.559 down an industrial policy, and that's why people are very 0:13:28.559 --> 0:13:31.680 worried because this type of strategy of industrial policy, which 0:13:31.720 --> 0:13:34.280 is very supply friendly and lack of demand support, is 0:13:34.360 --> 0:13:37.760 basically a recipe for deflationary pressures, and people are worried 0:13:37.760 --> 0:13:40.360 that that's not being sufficiently addressed, which is why people 0:13:40.400 --> 0:13:43.120 have all been waiting for this mof press conference over 0:13:43.120 --> 0:13:43.640 the weekend. 0:13:43.920 --> 0:13:45.040 And what did you take from this? 0:13:45.600 --> 0:13:47.280 Yeah, So it's interesting, right, you look at the price 0:13:47.280 --> 0:13:48.880 action in the market, it's very mixed, right, So you 0:13:48.920 --> 0:13:51.839 see onshore kind of rally offshore obviously disappointed. So people 0:13:51.840 --> 0:13:53.920 are still kind of grappling with how to interpret it. 0:13:54.280 --> 0:13:55.920 And the way I look at it is it's kind 0:13:55.960 --> 0:13:58.600 of a mixed bag. So basically, people were looking for 0:13:58.640 --> 0:14:00.560 three things in the stimulus. They were looking for a 0:14:00.640 --> 0:14:03.880 numerical target of what type of stimulus amount. They were 0:14:03.880 --> 0:14:07.000 looking for composition of the stimulus, and people were really 0:14:07.040 --> 0:14:10.760 hoping for some new demand side support, especially for consumption. 0:14:11.200 --> 0:14:13.040 And then the third thing is people were looking for 0:14:13.040 --> 0:14:15.600 forward guidance, any clarity of what else. You know, it's 0:14:15.600 --> 0:14:17.640 already October, so you really need to look for forward 0:14:17.640 --> 0:14:20.560 guidance next year onwards. And what we got was kind 0:14:20.560 --> 0:14:23.120 of underwhelming. On the first two basically we didn't get 0:14:23.200 --> 0:14:25.800 numerical target and you know, and actually it was very disappointing. 0:14:25.800 --> 0:14:28.040 There was very little. A lot of the focus on 0:14:28.080 --> 0:14:31.040 the Ford incremental policy was more about local government. These 0:14:31.040 --> 0:14:34.480 are important problems local government, finances, property, but they only 0:14:34.520 --> 0:14:37.120 unveiled a little bit on student subsidies. Really nothing, there's 0:14:37.160 --> 0:14:39.800 no signs of a major kind of pivot towards new 0:14:39.800 --> 0:14:42.960 additional demand stimulus or consumption support. And then they announced 0:14:42.960 --> 0:14:46.360 they talked about bank recapitalization. But then on the third 0:14:46.400 --> 0:14:48.760 thing on the forward guidance. This is where I think 0:14:49.000 --> 0:14:51.600 things actually surprised a little bit more on the upside 0:14:51.800 --> 0:14:54.120 because I think the Finance Minister land and this was 0:14:54.200 --> 0:14:57.320 more reassuring than the NDRC press conference. He did say that, 0:14:57.360 --> 0:14:59.480 you know, central government has a lot of room for 0:14:59.640 --> 0:15:02.400 debt to increase the debt and the deficit. So in 0:15:02.480 --> 0:15:04.760 a big source of contention in China's they've been stuck 0:15:04.760 --> 0:15:07.120 with this three percent deficit ceiling. So the fact that 0:15:07.160 --> 0:15:09.960 they're signaling more room is kind of a very reassuring sign. 0:15:10.240 --> 0:15:12.040 And then the other thing that was also kind of 0:15:12.080 --> 0:15:14.320 forward guidance was a little bit more encouraging is the 0:15:14.360 --> 0:15:17.240 fact that they were talking about potentially a largest ever 0:15:17.360 --> 0:15:19.840 kind of local government debt swap and they're talking about 0:15:19.960 --> 0:15:23.520 using special bond quota to buy housing and land supply. 0:15:23.640 --> 0:15:25.720 But it hasn't changed Hong Kong where you are, and 0:15:25.760 --> 0:15:31.000 everybody on our team there says it's changed dramatically. Do 0:15:31.080 --> 0:15:35.280 you see Beijing changing from a certitude of whatever the 0:15:35.320 --> 0:15:40.040 modern Marxist Londonist state is. Do you see them amending 0:15:40.120 --> 0:15:44.720 their politics to jump start their nominal GDP and frankly 0:15:44.760 --> 0:15:45.960 to protect that you want. 0:15:46.600 --> 0:15:48.880 Look I think there is some sign I mean, obviously 0:15:48.920 --> 0:15:52.040 we've had a lot of state intervention obviously during the 0:15:52.080 --> 0:15:54.080 pandemic and the regulatory shocks and the you know, a 0:15:54.080 --> 0:15:57.120 lot of the sectors which really impacted animal spirits. I 0:15:57.160 --> 0:15:59.360 think there are obviously the signaling from she now is 0:15:59.400 --> 0:16:02.400 trying to become much more friendly to private sector. But 0:16:02.440 --> 0:16:04.880 you know how it is, right, once trust is lost, 0:16:04.880 --> 0:16:06.800 it takes a long time to regain. So although there's 0:16:06.840 --> 0:16:09.600 a lot of verbal rhetoric to kind of support private 0:16:09.600 --> 0:16:11.920 sector level the playing field he is trying to open up. 0:16:12.200 --> 0:16:14.120 I mean, people have been so scarred, it's like post 0:16:14.120 --> 0:16:16.480 traumatic stress syndrome. It takes a while, so people are 0:16:16.520 --> 0:16:19.160 still very skeptical. So I think there is a verbal shift, 0:16:19.200 --> 0:16:22.400 but it's not yet sufficient really to turn around animal spirits. 0:16:22.440 --> 0:16:24.920 And then the problem is really that we haven't had 0:16:24.960 --> 0:16:28.440 any kind of significant kind of consumer household support, and 0:16:28.480 --> 0:16:31.000 so the deflationary pressures continue to linger. You know, real 0:16:31.120 --> 0:16:33.240 estate continues to be on the down cycle. So the 0:16:33.320 --> 0:16:37.640 countercyclical policy support, not to mention the lack of animal spirits, 0:16:37.640 --> 0:16:40.400 the trust deficit, which takes time, there's also a lack 0:16:40.440 --> 0:16:43.240 of countercyclical fiscal support to get people to feel confident 0:16:43.240 --> 0:16:45.560 about their job and income prospects. So you kind of 0:16:45.600 --> 0:16:47.840 have this kind of negative feedback loop which they're trying 0:16:47.840 --> 0:16:50.680 to arrest. So I think since September twenty four, when 0:16:50.680 --> 0:16:52.800 we have the joint press conference with the BBOC and 0:16:52.840 --> 0:16:56.000 all the there's clearly a sign that government realized they 0:16:56.040 --> 0:16:58.040 have to pivot. There's clearly a sign. It's just a 0:16:58.080 --> 0:17:00.320 question of trying to figure out is it enough. And 0:17:00.360 --> 0:17:02.000 like I said, it's kind of a mixed bag what 0:17:02.040 --> 0:17:03.800 we got over the weekend because seems like we're going 0:17:03.840 --> 0:17:06.160 to do something, but we don't have details. And even 0:17:06.160 --> 0:17:08.600 though the policy in the short term seems kind of incremental, 0:17:08.720 --> 0:17:10.640 hopefully we'll get some more clarity end of the month. 0:17:11.480 --> 0:17:14.280 I want to see. I'm speaking for all the luxury 0:17:14.320 --> 0:17:18.000 retailers on Fifth Avenue and Madison Avenue. They've seen the 0:17:18.280 --> 0:17:22.560 European tourists come back, they have not seen the Chinese. 0:17:23.600 --> 0:17:27.120 Why are the Chinese not traveling and spending Because there's 0:17:27.119 --> 0:17:28.680 a lot of people out there would like to see 0:17:28.680 --> 0:17:32.040 the Chinese, but folks be out there and spending and traveling. 0:17:32.040 --> 0:17:34.080 Well, first of all, I think she Shepingk's priority is 0:17:34.119 --> 0:17:38.159 not the luxury, that's not the target. Look, I think 0:17:38.200 --> 0:17:39.399 there's been a lot of things that's happened. 0:17:39.440 --> 0:17:39.600 Right. 0:17:39.680 --> 0:17:43.440 We clearly have significant precautionary savings behavior happening in China 0:17:43.520 --> 0:17:45.720 right now. I mean, household deposits are still so well 0:17:45.720 --> 0:17:48.119 above trend even though they reopen, you know, for a 0:17:48.119 --> 0:17:50.000 while now. So part of it is a lot of 0:17:50.040 --> 0:17:53.000 uncertainty about their income and job prospects. Housing we're still 0:17:53.000 --> 0:17:55.520 you know, third year into housing down market. That's still 0:17:55.680 --> 0:17:58.120 the two thirds of their household. Well, so that obviously, 0:17:58.560 --> 0:18:00.840 and there's also a little bit of policy pushed towards 0:18:00.880 --> 0:18:03.479 you know, there's a little bit more nationalism, more domestic travel, 0:18:04.000 --> 0:18:05.360 and that's the other factor. 0:18:05.200 --> 0:18:05.480 On a S. 0:18:05.680 --> 0:18:07.600 Peter basis, Let's bring it back to Harvard and we 0:18:07.640 --> 0:18:11.159 got to go the bottom line is they have to 0:18:11.240 --> 0:18:16.119 inflict creative destruction upon a Chinese economy and from a 0:18:16.200 --> 0:18:19.399 high extandpoint clear the market. Do you see any indication 0:18:19.880 --> 0:18:22.199 they can clear this market and move on. 0:18:22.600 --> 0:18:24.400 Well, to be fair, what's happened in the real estate 0:18:24.480 --> 0:18:26.960 is quite dramatic, right, the fact that they preemptively prick 0:18:27.000 --> 0:18:28.959 the bubble in twenty twenty one to try to deflate 0:18:28.960 --> 0:18:31.119 the real estate is a signed they realize this is 0:18:31.160 --> 0:18:32.800 not where it's to go, and we are seeing I mean, 0:18:32.840 --> 0:18:35.120 we saw massive defaults, so that is part of the destruction. 0:18:35.560 --> 0:18:38.119 And obviously they're creating new avenues of technology. But then 0:18:38.119 --> 0:18:41.040 the question is we need something beyond kind of state 0:18:41.119 --> 0:18:42.080 led industrial policy. 0:18:42.320 --> 0:18:45.359 A private sector city group suggest we're going to get. 0:18:45.240 --> 0:18:48.800 It so right now, no, I mean, look, the strategy 0:18:48.880 --> 0:18:51.080 is we still have the ramification of the real estate 0:18:51.160 --> 0:18:54.040 hurting local government. So obviously the priority now is to 0:18:54.040 --> 0:18:56.960 stabilize local government finances so they don't cut back a 0:18:57.000 --> 0:18:59.720 lot of public services and create a negative feedback loop. 0:19:00.040 --> 0:19:02.560 And they need to address the excess supply in housing 0:19:02.600 --> 0:19:04.880 because people are not going to be confident you can't 0:19:04.920 --> 0:19:07.639