WEBVTT - U.S. Facing Diplomacy Problem, Shiller Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.960 Bloomberg dot Com, and of course on the Bloomberg Already 0:00:33.960 --> 0:00:36.880 pleased to say to give us her insight, Kathy Fisht 0:00:37.000 --> 0:00:39.120 joins us here in the New York studio Burnsting, head 0:00:39.120 --> 0:00:41.960 of Wealth and Investment Strategies. Cathy, great to catch up 0:00:42.000 --> 0:00:43.960 with you. I'm just wondering what your tanning clients at 0:00:43.960 --> 0:00:46.120 the moment. As you see the big numbers, the big 0:00:46.159 --> 0:00:48.080 price action of the last twenty four hours, how do 0:00:48.159 --> 0:00:50.000 you keep them calm? Well? Think about it. When the 0:00:50.040 --> 0:00:53.159 trade talks first surfaced in March, we all thought that 0:00:53.240 --> 0:00:55.880 this would be a little bit of posturing and this 0:00:55.920 --> 0:00:57.960 would blow over, and the numbers were not too large. 0:00:58.280 --> 0:01:01.120 But now things have escalated and we have to recognize 0:01:01.160 --> 0:01:04.160 that people are trying to connect the dots and figure 0:01:04.160 --> 0:01:07.200 out will this create a headwind two earnings, Will this 0:01:07.440 --> 0:01:11.319 create some damage to capital spending? As companies try to 0:01:11.360 --> 0:01:14.039 think through what it means. And it's early, we don't 0:01:14.040 --> 0:01:16.240 know yet, but you can see why that is indeed 0:01:16.280 --> 0:01:20.040 causing markets to step back a bit, and we expect 0:01:20.040 --> 0:01:23.119 this volatility to continue. But that doesn't mean you get 0:01:23.120 --> 0:01:25.320 out of stocks. It means you are careful. It means 0:01:25.319 --> 0:01:28.000 that with active management, we can try to position our 0:01:28.040 --> 0:01:32.120 portfolios appropriately to focus on companies that could be less affective. 0:01:32.120 --> 0:01:34.400 But I do caution that we know that the broad 0:01:34.440 --> 0:01:38.120 based impact if psychology is affected in a negative way, 0:01:38.440 --> 0:01:41.120 you know, could could, could be real. But again, the 0:01:41.120 --> 0:01:44.319 companies are in very good shape today. The economy is strong, 0:01:44.400 --> 0:01:47.640 so we're not in any way suggesting clients change their allocations. 0:01:47.680 --> 0:01:49.520 Had to digest news flow when you don't know what 0:01:49.520 --> 0:01:52.680 the news is, and there were several reports about restrictions 0:01:52.680 --> 0:01:55.480 the Chinese investments, and the Treasury Secretary went out onto 0:01:55.560 --> 0:01:59.040 Twitter um yesterday morning and said the statement that will 0:01:59.080 --> 0:02:01.480 come out will not be specific to China, but to 0:02:01.560 --> 0:02:04.800 all countries that are trying to steal our technology. Then 0:02:04.840 --> 0:02:07.880 the Trade Adviser Petter Navarro over at the White House, 0:02:07.880 --> 0:02:09.839 he gave an interview to see NBC and he said 0:02:09.880 --> 0:02:13.079 the followings. The whole idea that we're putting investment restrictions 0:02:13.080 --> 0:02:15.320 on the world, please discount that there's no plans to 0:02:15.400 --> 0:02:18.440 impose investment restrictions on any countries that are interfering in 0:02:18.480 --> 0:02:21.519 any way with our country. That is not the plan. Um, Kathy, 0:02:21.560 --> 0:02:23.560 how do you know what's going on? If I can 0:02:23.600 --> 0:02:25.880 interrupt you? And what was amazing about what you just 0:02:25.960 --> 0:02:29.480 said is moments later the White House came back and 0:02:29.639 --> 0:02:34.000 back pedaled from what Mr Navarro said, I mean moments 0:02:34.080 --> 0:02:36.880 after he made those comments. So it's very difficult Tom, 0:02:36.919 --> 0:02:38.679 just to have a clue what is going on? Was 0:02:38.800 --> 0:02:42.080 going to learn this study. Yeah, I do think that 0:02:42.720 --> 0:02:46.440 the market has accepted that there is, let's gently say, 0:02:46.520 --> 0:02:50.280 conflicting comments coming out of Washington, and that's been going 0:02:50.280 --> 0:02:53.120 on for some time. This is not new, and therefore 0:02:53.160 --> 0:02:56.400 there may have been a little more complacency because there 0:02:56.440 --> 0:02:59.200 have been all these conflicting statements. But as I said before, 0:02:59.280 --> 0:03:01.280 what we do see now is that there is some 0:03:01.919 --> 0:03:06.000 actual damage starting to come from these tariffs. And that's 0:03:06.040 --> 0:03:09.720 that's the realities. What is the actual financial impact of 0:03:09.760 --> 0:03:12.040 some of these decisions that are being made. Well, let's 0:03:12.080 --> 0:03:14.240 be clear here, the real financial impact not so much 0:03:14.280 --> 0:03:16.880 here in the anounted States, but abroad, Chinese equities, the 0:03:16.880 --> 0:03:20.240 Shankai composite into a bear market. We know how sensitive 0:03:20.280 --> 0:03:23.720 the administration in China is to financial markets, and I 0:03:23.800 --> 0:03:26.720 just wonder whether the Chinese actually had the stomach to 0:03:26.800 --> 0:03:29.040 really take on a trade to um Kathy, do you 0:03:29.080 --> 0:03:31.239 see the Chinese having the stomach to do that. Yeah, 0:03:31.320 --> 0:03:33.480 And and as you know, the Chinese have talked about 0:03:33.560 --> 0:03:37.240 other things that they can do besides trade wars. In particular, 0:03:37.360 --> 0:03:41.040 they can halt licenses, they can slow down imports, they 0:03:41.040 --> 0:03:43.720 can do all sorts of things at the docks, and 0:03:43.720 --> 0:03:47.320 and there's and of course the Chinese have currency issues, 0:03:47.400 --> 0:03:49.240 and they have the fact that they owned many US 0:03:49.280 --> 0:03:53.800 treasuries as well, So they do have UM multiple levers 0:03:53.840 --> 0:03:57.240 to pull. But but some of them could be quite consequential. 0:03:57.360 --> 0:04:00.280 And we aren't expecting there to be dramatic change because 0:04:00.280 --> 0:04:02.640 of that, but certainly UM it is. It is tough 0:04:02.680 --> 0:04:06.080 for all parties involved. Remember, the global economy has grown 0:04:06.080 --> 0:04:10.160 in recent decades because of an improvement in free global trade, 0:04:10.280 --> 0:04:13.720 So to hinder that becomes a very big global issue, 0:04:13.760 --> 0:04:16.240 not just for the two countries we're talking about here, 0:04:16.480 --> 0:04:18.760 very much so, but maybe more of a problem for 0:04:18.800 --> 0:04:21.960 the Chinese. UM I failed to see why the Chinese 0:04:21.960 --> 0:04:24.760 would interfere with the docks. I failed to see why 0:04:24.800 --> 0:04:27.400 the Chinese would get involved in in factories on the 0:04:27.400 --> 0:04:30.760 mainland because they are so vulnerable to the direction of 0:04:30.800 --> 0:04:32.600 capital flows and the last thing that they want to 0:04:32.640 --> 0:04:37.080 do is start spooking potential investment in the country. I mean, 0:04:37.160 --> 0:04:39.080 what's the incentive for them to do that? Kathy, Well, 0:04:39.080 --> 0:04:40.680 I don't think it's much of incentive, but it's I 0:04:40.680 --> 0:04:43.040 do think there's a there has to be some way 0:04:43.080 --> 0:04:44.960 to get back and say we are not going to 0:04:45.040 --> 0:04:47.680 just take whatever comes our way. So I do think 0:04:47.720 --> 0:04:51.279 you're seeing a lot more discussions between other countries about 0:04:51.320 --> 0:04:53.360 how they can work together. And as you know, China 0:04:53.400 --> 0:04:56.640 has many other trading partners, so there's lots of discussions 0:04:56.680 --> 0:04:58.760 going on behind the scenes. We have to recognize that. 0:04:59.000 --> 0:05:01.239 So you say, stays, I was to risk our sense 0:05:01.240 --> 0:05:04.919 hearing out of states, we do say stay exposed and um, 0:05:04.960 --> 0:05:08.640 as you know, because earnings have been good on valuations 0:05:08.680 --> 0:05:11.479 that have actually come down, right, the SMPS trading around 0:05:11.480 --> 0:05:15.159 sixteen times earnings now, which is certainly not far from average. 0:05:15.640 --> 0:05:19.920 So even though these these clouds are here, we would 0:05:19.960 --> 0:05:23.320 certainly not want our clients to get out of stock. 0:05:23.360 --> 0:05:27.480 Remember when we used to rotate, we'd rotate. We're rotating 0:05:27.520 --> 0:05:30.320 into this? Are we going to get back to rotating? 0:05:30.480 --> 0:05:34.120 So rotating is something that people have talked about for years, 0:05:34.120 --> 0:05:36.840 as you said, and actually yesterday you saw we did 0:05:36.880 --> 0:05:40.039 actually see the fank stocks lose some lump stem steam. 0:05:40.080 --> 0:05:42.560 And the question is did they rotate into something else? 0:05:42.600 --> 0:05:44.320 And doesn't look that way. It looks like there was 0:05:44.360 --> 0:05:46.600 just a little sell off yesterday. That's one day. I 0:05:46.600 --> 0:05:48.680 mean like over three months or over eight months, do 0:05:48.760 --> 0:05:53.280 we still rotate? Yeah? I can't remember. It isn't it is, remember, 0:05:53.400 --> 0:05:55.320 and part of its part of the reason why not 0:05:55.640 --> 0:05:58.440 is because everything is so interconnected. It's very rare now 0:05:58.480 --> 0:06:01.240 that you have one industry, your sector that people think 0:06:01.360 --> 0:06:04.799 is immune to whatever buffeting factors. But think the split 0:06:04.839 --> 0:06:06.800 and technology kind of made a whole lot of sense 0:06:06.920 --> 0:06:09.560 up until yesterday, Kathy on the chip stocks come under 0:06:09.560 --> 0:06:11.560 pressure because of what may or may not happen with 0:06:11.640 --> 0:06:14.839 China and the internet companies outperform um many of those 0:06:14.839 --> 0:06:17.680 companies with really strong secular growth stories. Did we just 0:06:17.720 --> 0:06:21.120 throw everything count yesterday and just a broad based risk 0:06:21.160 --> 0:06:23.880 averse day? I think yesterday everybody throw everything out. But 0:06:23.920 --> 0:06:26.880 also it's always normal to sell your winners when things 0:06:26.920 --> 0:06:29.120 get jittery, so you would expect some of the stocks 0:06:29.160 --> 0:06:30.960 that have done the best to sell off the most 0:06:31.000 --> 0:06:33.520 when there's a brash sell off. Does it raise any 0:06:33.560 --> 0:06:36.320 questions about evaluations in certain pockets of the equity market? 0:06:36.600 --> 0:06:38.960 It does, although you know, you know, the nice thing 0:06:38.960 --> 0:06:40.960 about some of the stocks that have done well is 0:06:40.960 --> 0:06:43.719 that the valuations are not that out of line. Whether 0:06:43.760 --> 0:06:45.920 it's an Apple or a Facebook, they're you know, given 0:06:45.920 --> 0:06:48.480 how strong the earnings are. That's a it's a different 0:06:48.520 --> 0:06:51.320 story perhaps for a Netflix. Yeah. And the corporate bid 0:06:51.360 --> 0:06:53.880 as well, just as a final question, the corporate bid 0:06:53.880 --> 0:06:55.599 for many of these companies now out of the market 0:06:55.640 --> 0:06:58.160 because we're so close to learning season. How critical do 0:06:58.200 --> 0:07:01.320 you think that was yesterday going going into the next 0:07:01.320 --> 0:07:03.720 couple of weeks. There's always technical factors, So I'm not 0:07:03.760 --> 0:07:06.360 going to try to guess on which one way we'd 0:07:06.360 --> 0:07:09.000 like you to. I do think the bigger issue now though, 0:07:09.240 --> 0:07:12.160 the trade issue is the bigger one by far, because 0:07:13.160 --> 0:07:16.200 this is this is significant, This is really throwing a 0:07:16.240 --> 0:07:19.400 wrench and what everything has driven been driven by in 0:07:19.440 --> 0:07:22.840 reaching decades. You predict there will be more Harley Davidson's 0:07:24.080 --> 0:07:27.120 I I'm not going to predict that, but I do 0:07:27.160 --> 0:07:29.280 think that's what people are going to be looking for 0:07:29.760 --> 0:07:33.080 and looking very carefully. Um. And if you if, if 0:07:33.120 --> 0:07:35.080 you're a company, and you have any of these things 0:07:35.080 --> 0:07:37.080 on the march, and I would indeed expect to see 0:07:37.120 --> 0:07:39.520 some more of them. Yes, Kathy Fisher, thank you so 0:07:39.600 --> 0:07:43.120 much for greatly appreciate it, really really well timed. You're 0:07:57.640 --> 0:08:00.360 we bring in our next guest, and Nobel Laurea, Yeah, 0:08:00.400 --> 0:08:03.720 and Yale Professor of Economics, Robert Shillip professor always quite 0:08:03.800 --> 0:08:06.440 can't shot with you a student of economic history, not 0:08:06.560 --> 0:08:08.320 just me, but you still and I guess we always 0:08:08.320 --> 0:08:11.679 will be. Um, what would you compare the current era 0:08:12.400 --> 0:08:16.960 in history too? Any parallels? You can't parallel everything, you know, 0:08:17.080 --> 0:08:19.720 there's so many things going on in one time. But 0:08:19.800 --> 0:08:23.800 one thing that comes to my mind is that's the 0:08:23.880 --> 0:08:28.720 year of the smooth Holly tariff. President Hoover signed it 0:08:28.720 --> 0:08:31.120 into It was a big increase in tariffs, and at 0:08:31.200 --> 0:08:36.160 launched a trade war. By nine thirty two, uh said 0:08:36.240 --> 0:08:41.320 hit There. Hoover was was arguing that there wouldn't be 0:08:41.360 --> 0:08:44.080 a trade war but he gave it up, and you 0:08:44.120 --> 0:08:48.640 know what, those tariffs came down. I think that we 0:08:48.800 --> 0:08:53.040 learned a lesson from Smooth Holly. We have to remember 0:08:53.040 --> 0:08:55.760 it again. We have to read history. So Smooth Holly, 0:08:56.000 --> 0:09:00.240 I remember the average tariff being something around across all US. 0:09:00.440 --> 0:09:04.080 I mean, professor, We're nowhere near to that, are we. 0:09:04.080 --> 0:09:06.679 Well we've come down and see. The thing that happened 0:09:07.280 --> 0:09:10.800 is uh that that tariff began to be viewed as 0:09:11.240 --> 0:09:16.400 a sign of grotesque lack of enlightenment. That you punish 0:09:16.440 --> 0:09:20.160 your name. Beggar thy neighbor was the term. They'll fight back, 0:09:20.679 --> 0:09:22.640 and you know it was part of the process that 0:09:22.720 --> 0:09:26.679 brought us World War two. It generated such a conflictual 0:09:26.760 --> 0:09:32.040 and hostile atmosphere, uh that it wasn't a good idea. 0:09:32.400 --> 0:09:35.679 Admittedly it was a higher tariff. Uh. Well, you know, 0:09:37.280 --> 0:09:39.200 we don't know where Trump would like to go, but 0:09:39.280 --> 0:09:42.760 I think he's probably scaling it down in terms of 0:09:42.800 --> 0:09:45.840 the public reaction and will continue to. The starting point 0:09:45.960 --> 0:09:48.400 is different, as is the goal. Um. The ultimate goal 0:09:48.480 --> 0:09:51.079 is to get the Chinese remove the barriers to entry. 0:09:51.559 --> 0:09:56.360 How successful are we likely to be and that ambition, Well, 0:09:56.400 --> 0:09:59.880 we have an existing structure called the World Trade Organization, 0:10:00.600 --> 0:10:06.120 and the US under President Obama filed complaints with the 0:10:06.440 --> 0:10:09.560 w t O and that was in process, but it 0:10:09.600 --> 0:10:12.800 didn't fix the problem. So we have a big problem. 0:10:13.120 --> 0:10:17.319 Admittedly that the Trump is right about of international diplomacy, 0:10:17.360 --> 0:10:20.480 that the World Trade Organization doesn't have enough teeth to 0:10:20.840 --> 0:10:25.600 uh to fix the problem. But I don't know, you know, 0:10:26.280 --> 0:10:29.880 the experiment that we're going through now, which what strikes 0:10:29.920 --> 0:10:33.400 me about it is the tone is so angry that 0:10:33.800 --> 0:10:37.079 I'm I don't think that Americans in the long run 0:10:37.200 --> 0:10:41.440 want this kind of angry international arena. We we could 0:10:41.440 --> 0:10:43.960 go for hours here, John, I thought those questions were great. 0:10:44.000 --> 0:10:46.360 But John fare and I interviewed David blanch Flower of 0:10:46.440 --> 0:10:48.920 Dartmouth the other day, and I want you to follow 0:10:49.040 --> 0:10:53.520 up with that. Professor blanche Flowers said, we're not fully employed. 0:10:54.360 --> 0:10:58.920 Every politician, not every most politicians, most market people tell 0:10:59.000 --> 0:11:01.920 us we are fully employed. You've got a piece of 0:11:02.000 --> 0:11:05.600 chalk in your hand at Yale and your lecturing. Are 0:11:05.720 --> 0:11:09.520 we fully employed? Well, we have a lot of people 0:11:09.559 --> 0:11:12.480 who have left the labor for us, I suppose. But see, 0:11:13.000 --> 0:11:16.720 unemployment is rather hard to define because it's a matter 0:11:16.760 --> 0:11:19.040 of intention. If you've left the labor for us, and 0:11:19.040 --> 0:11:23.080 I consider yourself retired. That's not unemployed. But what is 0:11:23.480 --> 0:11:25.959 What is your real feeling about it? Maybe you left 0:11:26.000 --> 0:11:30.000 and retired early because it didn't look good. I think 0:11:30.000 --> 0:11:32.880 there's a certain fuzzy He may be right that it's 0:11:32.920 --> 0:11:35.840 not as strong and as good as it appears through 0:11:35.880 --> 0:11:39.640 the national statistics. When we look at this, and to 0:11:39.720 --> 0:11:42.800 bring it back to John's observation of history, where is 0:11:42.840 --> 0:11:46.480 this nation after the election? If we assume Mr Trump 0:11:46.559 --> 0:11:49.199 is one term, maybees to term. Who am I to say? 0:11:49.320 --> 0:11:53.640 But is President Trump in his movement of populism? Is 0:11:53.640 --> 0:11:57.760 it a one off or does it endure? Well? That 0:11:58.000 --> 0:12:01.040 is an important question. I'm gonna focus that in too. 0:12:01.880 --> 0:12:06.200 Look at his tax cuts, notably the corporate profit tax cut. 0:12:06.920 --> 0:12:13.120 UH brought the top statutory rate down from That's a 0:12:13.240 --> 0:12:15.040 huge tax cuts. So I want to know is that 0:12:15.160 --> 0:12:18.360 going to last? Is it going to be reversed by 0:12:18.440 --> 0:12:22.320 subsequent governments? That is the big question when you're looking 0:12:22.360 --> 0:12:25.440 at valuations in the market. The market has bought into 0:12:25.520 --> 0:12:29.240 these are permanent cuts. My nothing is permitive, of course, 0:12:29.280 --> 0:12:31.640 but my guess is that this is a cut that 0:12:31.720 --> 0:12:35.520 will last even if Trump and the Republicans lose their 0:12:35.559 --> 0:12:39.800 control that they now have. Uh I will bet that 0:12:40.720 --> 0:12:43.240 we won't see it. Going back on Bob Shoulder, thank 0:12:43.280 --> 0:12:47.000 you so much. Professor of Economics University and of course 0:12:47.080 --> 0:12:50.000 a price taker at Stockholm where also wherever they do 0:12:50.120 --> 0:13:06.760 the mill mile pro Robert Schulder of Yel. It is 0:13:06.800 --> 0:13:10.040 a good time to speak to David Goldman. That can 0:13:10.040 --> 0:13:14.520 be about derivative mathematics and debt Defeatman, or it can 0:13:14.559 --> 0:13:17.959 be about China. He is a student of China. He 0:13:18.000 --> 0:13:21.360 takes a long view. He is of course writing in 0:13:21.440 --> 0:13:25.800 Asia Times and with Macro Strategy LLC. David Goldman, wonderful 0:13:25.840 --> 0:13:27.679 to catch up with you again. And one of your 0:13:27.760 --> 0:13:32.559 latest essays you talk about how you need to speak 0:13:33.360 --> 0:13:37.240 to those opposite you. You use the example of scientists 0:13:37.679 --> 0:13:40.280 in World War Two, where we took the German scientists, 0:13:40.280 --> 0:13:43.520 including Werner von bron Over to make things go in 0:13:43.640 --> 0:13:48.199 science in America. We're not speaking to China, are are we? 0:13:48.320 --> 0:13:53.960 What will the price President Trump pays China at this 0:13:54.040 --> 0:13:57.079 point believes that the United States, in the person of 0:13:57.160 --> 0:14:00.720 Peter the Borrow, for example, wants to stop China from 0:14:01.160 --> 0:14:07.200 realizing it's economic conditions, and this it considers a repeat 0:14:07.280 --> 0:14:11.319 of the opium war demands of they will hunker down. 0:14:12.080 --> 0:14:15.600 The problem that Trump addresses, which is real, is that 0:14:15.640 --> 0:14:19.360 we're losing our technological edge. The solution to it is 0:14:19.400 --> 0:14:22.480 not to try to stop China from developing its technolog 0:14:22.520 --> 0:14:25.400 school edge, because we can't. The solution is to do 0:14:25.560 --> 0:14:29.160 much better than they can. And my first proposal to 0:14:29.200 --> 0:14:34.600 the administration is organized a systematic brain drain. Pick off 0:14:34.680 --> 0:14:38.280 China's best talents, get them to the United States working 0:14:38.320 --> 0:14:42.520 for us, because that's where the preponderance of highly educated 0:14:42.760 --> 0:14:45.400 tech professionals is going to come from. That's what we 0:14:45.440 --> 0:14:48.000 did with Brexit. We saw Brexit, we said brain John 0:14:48.040 --> 0:14:57.000 Farrell over to America. It was a brain who did 0:14:57.000 --> 0:15:01.120 whom the favor there is, David, I hope you've got 0:15:01.160 --> 0:15:03.880 my back here. I do hope you have um. The 0:15:03.920 --> 0:15:07.600 technology transfer is dues the issues around intellectual property. The 0:15:07.640 --> 0:15:11.400 President has a point here, doesn't he David m oh 0:15:11.640 --> 0:15:15.440 Absolutely he does. China now pays more for I P 0:15:16.160 --> 0:15:18.800 than any other country in the world billion dollars a 0:15:18.880 --> 0:15:22.520 year that paid virtually nothing ten years ago, probably should 0:15:22.560 --> 0:15:24.720 be three or four times that. But even if trying 0:15:24.760 --> 0:15:28.200 to paid top dollar for everything they took from this 0:15:28.320 --> 0:15:31.680 instead of stealing from and paying for others. We still 0:15:31.760 --> 0:15:35.080 have the problem that China will eventually leap frog us 0:15:35.360 --> 0:15:38.640 if we remain staging. And the problem is our rate 0:15:38.680 --> 0:15:42.560 of innovation, particularly in anything to do with manufacturing, has 0:15:43.280 --> 0:15:45.760 come to a whole. Were very good at acts, but 0:15:45.800 --> 0:15:49.240 we're not very good at manufacturing. That's all gone overseas. 0:15:49.320 --> 0:15:52.680 And unless we reverse snap, as the President says, we're 0:15:52.680 --> 0:15:55.080 in big trouble. But we're not going to do that 0:15:55.640 --> 0:15:59.600 by preventing, for example, wet from buying plow conscious, don't 0:15:59.680 --> 0:16:03.200 us have trash program to produce their own skips, which 0:16:03.200 --> 0:16:06.160 is what they're doing right now. Blah the way Huahwe 0:16:06.240 --> 0:16:10.000 now has an unlimited budget from the Chinese government to 0:16:10.080 --> 0:16:13.560 produce substitutes. It will be more expensive, you'll be you'll 0:16:13.640 --> 0:16:18.200 be creating in ifficial dual supply chains. Yeah, that's bad 0:16:18.240 --> 0:16:21.640 for profitability, it's bad for world economy. But China will 0:16:22.400 --> 0:16:25.360 do it. The trick is for us to leap fraud 0:16:26.000 --> 0:16:28.840 China turn some of their industries into the equivalent of 0:16:28.840 --> 0:16:31.680 eight track tape players by creating new much so David, 0:16:31.880 --> 0:16:36.400 the Chinese brazenly unveiling the made in China goals. And 0:16:36.400 --> 0:16:38.640 I just wonder whether the United States can get Europe 0:16:38.640 --> 0:16:41.720 and the rest of the world on site to really 0:16:41.760 --> 0:16:44.240 sort of break down what the Chinese are doing, how 0:16:44.240 --> 0:16:47.080 they're subsidizing it, the barriers to entry that they'll put 0:16:47.080 --> 0:16:50.200 around that effort as well, and whether the world acting 0:16:50.240 --> 0:16:54.080 together can really stop that from happening. Well, you can't 0:16:54.080 --> 0:16:58.160 stop the Chinese from using the Chinese economic models to 0:16:58.280 --> 0:17:01.160 trying to advance their industry, but the weakness of the 0:17:01.240 --> 0:17:04.800 Chinese model as you put vast amounts of social resources 0:17:04.840 --> 0:17:12.119 into existing technologies. Our trick, our advantage is innovation. We 0:17:12.160 --> 0:17:16.080 want to create new technologies. For example, uh, twenty years 0:17:16.080 --> 0:17:18.280 from now, we're not going to be paying ten billion 0:17:18.320 --> 0:17:21.439 dollars to build the fabrication plan for semi conductors. There 0:17:21.480 --> 0:17:24.840 will be different physical processies which we reduce the cost 0:17:24.920 --> 0:17:29.520 by eight. We should have a Manhattan Project program to 0:17:29.680 --> 0:17:33.359 replace the existing chip pad technologies. Let the tiny is 0:17:33.440 --> 0:17:37.480 build massive chip plants, then go in and do something 0:17:37.600 --> 0:17:40.480 entirely new and bankrupt. And that's what Basebil we did 0:17:40.480 --> 0:17:44.080 to rush it during the Cold War. Can we incentivize 0:17:45.160 --> 0:17:50.359 manufacturing investment in America. Can we use your Global Wall Street, 0:17:50.440 --> 0:17:54.560 David Goldman and tax credits and investments and to keep 0:17:54.640 --> 0:17:59.439 the investment here to create American jobs. Well, sure we can. 0:17:59.520 --> 0:18:01.960 I mean, we'd it and they're During the regular administration, 0:18:02.000 --> 0:18:04.360 we were spending about one point through one point four 0:18:04.400 --> 0:18:09.120 percent of GDP on fundamental research sponsored by the federal government. 0:18:09.560 --> 0:18:13.240 There was a public private partnership where DARPA or other 0:18:13.240 --> 0:18:16.960 government agencies NASA would fund the basic research and then 0:18:16.960 --> 0:18:20.840 companies would commercialized that. That's what we've got lasers, uh 0:18:21.280 --> 0:18:26.520 inexpensive and fast, microchips, lap panel displays virtually everything that 0:18:26.640 --> 0:18:30.040 goes into the different economy. Then now we're spending roughly 0:18:30.160 --> 0:18:33.280 half that amount lower the to GDP and the president 0:18:33.320 --> 0:18:37.520 doesn't even have a scient advisor in the Whitehouse. Well, yes, 0:18:37.640 --> 0:18:43.760 we've done it before I was there in the regular administration. Then, David, 0:18:44.000 --> 0:18:46.199 not enough time, tod, Let's do it again. David Gouldvin 0:18:46.440 --> 0:18:50.680 with Asia Weekly writing there, greatly appreciated on some interesting 0:18:50.720 --> 0:19:09.480 ways to engage with China. Jane Fowley with US at 0:19:09.600 --> 0:19:13.280 Rubble Bank in London, thrilled that she could be with 0:19:13.320 --> 0:19:15.160 us this morning as we look at the market turn 0:19:15.440 --> 0:19:18.919 green on the screen. Is current mentioned? But within that, 0:19:19.119 --> 0:19:24.159 Jane Fowley is foreign exchange is litmus paper. What is 0:19:24.200 --> 0:19:27.440 the dollar dynamics right now? What is the dollar bet 0:19:27.800 --> 0:19:32.080 that is out there? Well, you know, I'm still adolable, 0:19:32.200 --> 0:19:34.359 and I think if we look at the performance of 0:19:34.359 --> 0:19:36.840 the dollar, so it's not about February, I think we 0:19:36.880 --> 0:19:39.200 can see it's it's that performed almost every market. It's 0:19:39.200 --> 0:19:42.200 that performed that G ten. It's that performed all of Asia, 0:19:42.280 --> 0:19:45.880 all of Latin and almost all in Eastern Europe too. 0:19:46.040 --> 0:19:49.520 It's just the Ukrainian currency hitut has that performed it. 0:19:49.600 --> 0:19:51.760 So we're looking at a very very strong dollar, and 0:19:51.800 --> 0:19:54.280 I think there's two real reasons for that. First of all, 0:19:54.600 --> 0:19:57.400 we have the Federal Reserve of because it's been tightened 0:19:57.440 --> 0:19:59.159 and interest rated at a time when much of the 0:19:59.200 --> 0:20:01.280 rest of the the G ten central banks have been 0:20:01.280 --> 0:20:04.439 coming out and asserting that they're done credential, so you 0:20:04.480 --> 0:20:06.679 have interest rate differentials. And then, of course you have 0:20:07.320 --> 0:20:10.720 that spark in this capital outflow from emerging markets back 0:20:10.800 --> 0:20:13.760 into de turn back into to the US. The US 0:20:13.840 --> 0:20:15.920 dollar and the environment that we have right now with 0:20:16.359 --> 0:20:19.320 pay attention is only enforcing that risk of version. We 0:20:19.400 --> 0:20:24.680 are hearing from different shops some bold calls and currency 0:20:24.800 --> 0:20:29.359 movements which are almost all strong dollar and weaker other 0:20:29.480 --> 0:20:32.680 thing including yen. Some calls out from one ten out 0:20:32.720 --> 0:20:35.400 in one twenty. Do you have the same baldness at 0:20:35.400 --> 0:20:38.960 Rebble Bank? Not? On On the end, I think the 0:20:39.040 --> 0:20:41.360 dollar en, if you like, is is perhaps a little 0:20:41.359 --> 0:20:43.320 bit tougher in this environment where we have the dollar 0:20:43.359 --> 0:20:46.400 at performing. But generally speaking, you know, I would say 0:20:46.440 --> 0:20:49.240 that it is the the Japanese end that is the 0:20:49.280 --> 0:20:53.240 more tried and tested safe haven. So in the sort 0:20:53.280 --> 0:20:56.320 of environment that you might see with with tradables, then 0:20:56.359 --> 0:20:59.160 you'd accept the end to strengthen as well. But I think, 0:20:59.560 --> 0:21:01.320 you know, there's a couple of things which have perhaps 0:21:01.480 --> 0:21:03.520 undermine them when it comes to the US dollar in 0:21:03.520 --> 0:21:05.880 the last few months. The first, of course, with interstruct 0:21:05.920 --> 0:21:08.280 differentials the start of year, many people thought that the 0:21:08.280 --> 0:21:10.680 Bank of Japan could be pushing away from this ultra 0:21:11.000 --> 0:21:14.679 easy policy. This year that's been really pushed back against 0:21:14.720 --> 0:21:17.040 by the Bank of Japan now. But the other thing 0:21:17.119 --> 0:21:19.480 is is the Korean situation. Of course, a year ago 0:21:19.760 --> 0:21:21.680 we were very much in the midst of of a 0:21:22.000 --> 0:21:24.040 of a crisis there that people were worried about the 0:21:24.480 --> 0:21:29.400 missile flying overhead above Japan. That particular threat has has 0:21:29.440 --> 0:21:32.000 been lessened, and I think that has reduced some of 0:21:32.000 --> 0:21:34.679 that safe haven demand for the year. But you know, 0:21:34.720 --> 0:21:38.480 if we look ahead trade tensions, they are something whereby 0:21:38.720 --> 0:21:41.840 people do fly to safe havens, and I think the yen, 0:21:42.240 --> 0:21:45.120 you know, will stand relatively firm in this environment despite 0:21:45.160 --> 0:21:49.440 the interesstruct differentials favoring the US dollar. Jane Fawley, the 0:21:49.480 --> 0:21:52.840 dollar versus the Euro, what are your what are your perspective? 0:21:52.880 --> 0:21:54.960 What are the chances of the of the dollar going 0:21:54.960 --> 0:21:57.400 to let's say one oh four, one oh five against 0:21:57.400 --> 0:22:00.840 the Euro in the next let's say a year. Well, 0:22:00.920 --> 0:22:02.720 I would say that one four, one five is still 0:22:02.720 --> 0:22:06.920 a long way away. My forecast is a much more 0:22:06.920 --> 0:22:10.400 moderate one twelve. Will it get down that far, Well, 0:22:10.440 --> 0:22:12.840 you know, never say never, but I think, you know, 0:22:12.840 --> 0:22:14.199 we've got to try and think of the factors that 0:22:14.240 --> 0:22:16.639 would really undermine the euro, because I think what we 0:22:16.680 --> 0:22:18.080 have at the moment, we have at the story of 0:22:18.080 --> 0:22:22.320 dollar strength, um flow coming out of emerging markets back 0:22:22.320 --> 0:22:24.720 into the dollar. But you know, I think, you know, 0:22:24.920 --> 0:22:27.159 some of this could have gone back into the euro. 0:22:27.440 --> 0:22:30.600 If we were in the fundamentals that really characterized the 0:22:30.600 --> 0:22:33.400 euro in twenty seventeen, when things look good for the Euro. 0:22:33.440 --> 0:22:35.760 Growth was better than expect to, the politics were better 0:22:35.800 --> 0:22:39.280 than expected. But since then we've got this much murkier Euroe. Well, 0:22:39.280 --> 0:22:40.640 that's where I was going to go, is I mean, 0:22:40.760 --> 0:22:44.000 you know we've just had the election in Italy and 0:22:44.840 --> 0:22:48.800 you have a political crisis or at least a political 0:22:48.880 --> 0:22:53.399 confrontation that is building in Germany. Um what? And and 0:22:53.440 --> 0:22:57.080 then of course you know Britain is supposed to have 0:22:57.160 --> 0:23:01.600 exited the European Union. Uh what? What kind of could 0:23:01.640 --> 0:23:04.159 you create a scenario on which you could see a 0:23:04.200 --> 0:23:07.080