WEBVTT - Bloomberg Wall Street Week - August 11th, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.760 a rolling recession. Econy of roll looks pretty strongly. It 0:00:06.800 --> 0:00:07.680 is when it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.280 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America. 0:00:22.560 --> 0:00:25.279 Debro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.440 --> 0:00:34.200 Realignment for the Chinese economy, for banks, for the Walt 0:00:34.240 --> 0:00:38.159 Disney Company, and for college football. This is Bloomberg Wall 0:00:38.159 --> 0:00:42.600 Street Week. I'm David Weston this week, Rick Reader of Blackrock. 0:00:42.800 --> 0:00:46.600 I'm investing for no landing at all. Even could you. 0:00:46.600 --> 0:00:49.199 Have a technical recession, I just think like you'd have 0:00:49.200 --> 0:00:51.760 to wake people up and tell them because you're operating 0:00:51.800 --> 0:00:53.479 at such a high level in the economy. 0:00:54.040 --> 0:00:56.720 Deborah Lair from the Paulson Institute on the ups and 0:00:56.880 --> 0:00:58.600 downs of US relations with China. 0:00:59.360 --> 0:01:03.360 They're is a reconsideration in Western economies and looking at 0:01:03.400 --> 0:01:06.200 what their relationship is economically with China. 0:01:06.600 --> 0:01:09.880 And George Pine a ruined capital on making money out 0:01:09.880 --> 0:01:10.880 of college football. 0:01:11.440 --> 0:01:14.560 It's run by a very fragmented industry and so it's 0:01:14.560 --> 0:01:20.960 a bit unwielding. 0:01:28.920 --> 0:01:31.720 For most of global Wall Street, it was a quiet week, 0:01:32.120 --> 0:01:35.520 with trading volumes down as many enjoyed some time away 0:01:35.520 --> 0:01:38.960 from their Bloomberg terminals getting ready for what comes next. 0:01:39.200 --> 0:01:42.480 But over in Beijing, things weren't quite so quiet when 0:01:42.520 --> 0:01:46.360 new numbers came in pointing toward deflation and confirming how 0:01:46.400 --> 0:01:48.720 hard it may be to get growth back to the 0:01:48.800 --> 0:01:53.120 levels prison G wants. What China you seeking deflation? For sure? 0:01:53.480 --> 0:01:54.720 The question is how long? 0:01:55.160 --> 0:01:57.600 And I think he's up to the policy miki. 0:01:58.040 --> 0:02:00.440 While they react with accordingly to the it's called on 0:02:00.440 --> 0:02:03.800 the monitory eting. While the United States didn't make things 0:02:03.840 --> 0:02:09.079 any easier by imposing those long awaited outbound investment restrictions, we. 0:02:09.120 --> 0:02:13.440 Will compete with them, and we should be competing with 0:02:13.480 --> 0:02:17.520 them outside this executive order, and we will cooperate with 0:02:17.639 --> 0:02:20.000 them on things like climates. 0:02:20.440 --> 0:02:22.560 Banks had a bit of a rocky week as well 0:02:22.760 --> 0:02:24.920 as you as mid size banks got hit with the 0:02:25.000 --> 0:02:26.399 Moody's downgrade. 0:02:26.880 --> 0:02:29.360 Now the big super regional banks are going to be. 0:02:29.480 --> 0:02:32.560 A little more tightly regulated, and that actually is a 0:02:32.600 --> 0:02:34.040 tailwind for bond investors. 0:02:34.360 --> 0:02:37.880 And Italian banks faced a windfall profits tax that tanked 0:02:38.000 --> 0:02:41.640 their stocks before the government backed off a bit. The 0:02:41.680 --> 0:02:44.440 Walt Disney Company announced its earnings in the midst of 0:02:44.440 --> 0:02:47.120 a mid course correction, with an awful lot on the 0:02:47.200 --> 0:02:49.960 line for the world's largest entertainment company. 0:02:50.600 --> 0:02:54.680 While Linear remains highly profitable for Disney today, the trends 0:02:54.720 --> 0:02:58.280 being fueled by cord cutting are unmistakable, and as I've 0:02:58.320 --> 0:03:02.160 stated before, we're thinking of expansively in considering a variety 0:03:02.200 --> 0:03:03.280 of strategic options. 0:03:04.280 --> 0:03:09.680 And college football continued its conference shake up, with USC, UCLA, Oregon, 0:03:09.760 --> 0:03:12.680 and Washington all going to the Big ten, leaving the 0:03:12.720 --> 0:03:16.960 Pac twelve out in the coals. US CPI numbers came 0:03:16.960 --> 0:03:20.560 in just as predicted, with headline prices up two tenths 0:03:20.600 --> 0:03:24.200 percent or three point two percent year over year, while 0:03:24.320 --> 0:03:27.800 core came down just a bit to four point seven percent. 0:03:28.560 --> 0:03:30.680 As the bond traders would say, this one was on 0:03:30.720 --> 0:03:32.800 the screws came in right as forecast. 0:03:34.840 --> 0:03:38.360 Both those encouraging CPI numbers on Thursday ran right into 0:03:38.440 --> 0:03:41.240 higher than expected PPI numbers on Friday, even as the 0:03:41.280 --> 0:03:44.640 University of Michigan told us that inflation expectations overall continue 0:03:44.640 --> 0:03:47.400 to come down. The markets reacted all this by going 0:03:47.480 --> 0:03:49.240 up and going down over the course of the week, 0:03:49.320 --> 0:03:51.880 ending up more down than up, with the S and 0:03:51.920 --> 0:03:54.040 P five hundred down three tens p percent for the 0:03:54.080 --> 0:03:56.520 week ending at forty four to sixty four, while the 0:03:56.600 --> 0:03:59.920 Nasdaq had another tough week, down one point nine percent, 0:04:00.120 --> 0:04:02.680 making it the longest string of down weeks so far 0:04:02.800 --> 0:04:06.040 this year. While the yield on the tenure ended up twelve, 0:04:06.440 --> 0:04:08.840 it went up twelve basis points at four point one 0:04:08.840 --> 0:04:10.920 point six. Here to sort it all out for us 0:04:10.920 --> 0:04:16.040 are Lysanne Saunders, Charles Schwab, chief investment strategists, and Kristin Burdly. 0:04:16.160 --> 0:04:19.320 She is a city head of North American investors. So Chris, 0:04:19.400 --> 0:04:21.520 let's start with you here. What did you make out 0:04:21.560 --> 0:04:23.520 of what we saw this week? There was a lot 0:04:23.520 --> 0:04:25.799 of back and forth about where inflation's going and therefore 0:04:25.839 --> 0:04:26.640 what the Fed's going to do. 0:04:27.080 --> 0:04:28.800 Yeah, so I think what we saw this week kind 0:04:28.800 --> 0:04:31.760 of a continuation of last week. Is understanding and trying 0:04:31.800 --> 0:04:34.800 to break down what are the expectations really for rates 0:04:34.800 --> 0:04:37.320 in terms of our rates going to be higher for longer? 0:04:37.839 --> 0:04:39.920 So what about from your point of view, Lise Anne, 0:04:40.560 --> 0:04:43.039 higher for longer? How much higher and how much longer? 0:04:44.400 --> 0:04:46.960 So I think you know that's where the disconnect to 0:04:47.000 --> 0:04:50.039 some degree still exists in terms of market expectations. Yes, 0:04:50.480 --> 0:04:53.640 the market has pushed out rate cuts into twenty twenty four, 0:04:53.720 --> 0:04:56.440 but as of now you're looking at five cuts being 0:04:56.960 --> 0:05:00.520 priced in, and under a scenario even if you continue 0:05:00.520 --> 0:05:03.880 with disinflation where you don't see the kind of cracks 0:05:03.920 --> 0:05:06.080 in the labor market. That not that the FED is 0:05:06.600 --> 0:05:10.200 gunning for, but it's certainly in their forecasts. If the 0:05:10.279 --> 0:05:12.400 labor market stays tight and you don't see a hit 0:05:12.440 --> 0:05:15.200 to growth, it's hard to imagine what the scenario would 0:05:15.200 --> 0:05:17.680 be under which the FED would see a green light 0:05:18.320 --> 0:05:22.120 for cutting rates versus just staying on hold. And you 0:05:22.200 --> 0:05:26.200 had Williams Out, New York Fed President Williams Out talking 0:05:26.240 --> 0:05:31.400 about the relationship between inflation if it continues to come 0:05:31.480 --> 0:05:37.000 down and the fact that growth stays fairly strong and 0:05:37.160 --> 0:05:40.960 real rates start to rise, that could be a situation 0:05:41.080 --> 0:05:43.920 where the Fed says, Okay, we're now getting more restricted 0:05:43.920 --> 0:05:44.960 than we would like to be. 0:05:45.720 --> 0:05:47.360 What do you think about the banks right now. 0:05:48.240 --> 0:05:52.159 Well, it's been a unique rally since the October lows. 0:05:52.680 --> 0:05:55.320 If you use the simple definition of plus twenty percent, 0:05:55.440 --> 0:05:58.960 you're in a bull market without really any participation on 0:05:59.040 --> 0:06:02.080 the part of the the banks, which is unusual, and 0:06:02.160 --> 0:06:05.040 I think for sustainability and a move higher, you're going 0:06:05.040 --> 0:06:09.400 to need some participation. Obviously, there's also been that bifurcation 0:06:09.520 --> 0:06:14.520 between the larger banks that came through the banking used 0:06:14.600 --> 0:06:19.560 Jamie Diamond's word incident in March in much better shape 0:06:19.600 --> 0:06:22.680 than the smaller regional banks. And you have the kind 0:06:22.680 --> 0:06:25.360 of doubler triple whammy in the case of the smaller 0:06:25.360 --> 0:06:28.560 and regional banks with the recent downgrade, the fact that 0:06:28.600 --> 0:06:33.440 you've had the deposit flight, and just concerns about commercial 0:06:33.440 --> 0:06:36.880 real estate, which the exposure within the regional and smaller 0:06:36.920 --> 0:06:39.920 banks is much higher to commercial real estate and the 0:06:39.960 --> 0:06:42.960 woes in the office side than the large banks. So 0:06:44.320 --> 0:06:46.240 we're not out of the woods yet, but I think 0:06:46.480 --> 0:06:51.159 the waves from the March problems have clearly died down. 0:06:51.680 --> 0:06:53.400 Chris, what from your point of view, we did have 0:06:53.440 --> 0:06:56.560 that Moody's downgrade on some smaller and regional banks here, 0:06:56.760 --> 0:06:59.359 and they do have as Lininju said, they've got ansual 0:06:59.400 --> 0:07:01.280 you have to pay more deposits that I used to 0:07:01.279 --> 0:07:04.080 pay before. And there is the commercial real estate issue 0:07:04.120 --> 0:07:06.400 looking out there that we're told is more issue for 0:07:06.480 --> 0:07:08.159 regional banks. How big a problem is it? 0:07:08.400 --> 0:07:09.800 Yeah, So I think there's a couple of things to 0:07:09.800 --> 0:07:11.400 look at when it comes to the regional banks that 0:07:11.480 --> 0:07:14.200 are just and it's a question around the underlying strategy, 0:07:14.240 --> 0:07:15.840 because I don't think you can look at all of 0:07:15.880 --> 0:07:18.360 the banks in the same way, but you certainly can 0:07:18.400 --> 0:07:22.600 delineate between the large JASIB banks versus the regional banks. 0:07:22.920 --> 0:07:25.800 And it's a question around so one, what is really 0:07:25.880 --> 0:07:29.440 pressure on profitability? So we were talking about capital requirements 0:07:29.640 --> 0:07:33.600 in Brian Moyahn's comments, but then looking to even just 0:07:33.680 --> 0:07:37.040 flows away from deposits into T bills with the very 0:07:37.080 --> 0:07:41.000 attractive yield and money market funds, that puts pressure in 0:07:41.080 --> 0:07:43.520 terms of profitability. And then if we break down the 0:07:43.520 --> 0:07:47.120 commercial real estate market, so banks overall, so looking across 0:07:47.160 --> 0:07:51.080 the entire sector, are about fifty four percent of that market, 0:07:51.880 --> 0:07:55.000 and then you have about seventy percent within that are 0:07:55.040 --> 0:07:58.440 the smaller regional banks. And so when we look into 0:07:58.920 --> 0:08:01.320 if we're in a higher inter straight environment for longer, 0:08:01.320 --> 0:08:04.000 if we go into twenty twenty four, this is something 0:08:04.000 --> 0:08:06.880 that could put pressure, especially on those banks that have 0:08:07.080 --> 0:08:10.400 high levels of exposure to that sector. And one last comment, 0:08:10.680 --> 0:08:13.120 it's not just all commercial real estate. It really is 0:08:13.120 --> 0:08:16.280 a function of we have to delineate both regionally as 0:08:16.280 --> 0:08:19.440 well as within that space where you're looking to areas. 0:08:19.560 --> 0:08:21.640 Really it's office space more than anything else. 0:08:22.120 --> 0:08:23.840 Listen, I wonder from your point of view, there is 0:08:23.840 --> 0:08:26.600 the issue for the group of banks and whether you 0:08:26.640 --> 0:08:29.400 invest in their stocks or not. But there's also the 0:08:29.480 --> 0:08:31.640 larger question about the growth for the economy. I mean, 0:08:31.680 --> 0:08:33.600 can we grow the economy the way we need to 0:08:33.600 --> 0:08:35.959 to really support the stock market, for example, if the 0:08:36.000 --> 0:08:37.800 banks don't feel like and lend as much. 0:08:38.960 --> 0:08:39.200 Well. 0:08:39.320 --> 0:08:41.800 That goes back to sort of the classics of what 0:08:41.880 --> 0:08:44.679 happens when you go through an economic cycle. When you 0:08:44.760 --> 0:08:48.480 have tighter monetary policy via a FED hiking cycle, and 0:08:48.480 --> 0:08:51.160 of course this has been the most aggressive one. On 0:08:51.200 --> 0:08:54.199 the upside in about forty years, you get a significantly 0:08:54.200 --> 0:08:57.600 inverted yield curve like we have gotten it doesn't immediately 0:08:57.760 --> 0:09:01.400 start to crimp lending. But even before or Silicon Valley 0:09:01.400 --> 0:09:05.160 Bank failing in March, the FEDS slews, you know, Senior 0:09:05.200 --> 0:09:08.800 Loan Officer opinion survey showed that credit conditions have tightened 0:09:08.800 --> 0:09:12.800 into recession territory. So, given the old line of credit 0:09:12.840 --> 0:09:15.360 is the lifeblood of an economy, as it starts to 0:09:15.400 --> 0:09:19.680 feed through with long and variable legs, it ultimately does 0:09:19.760 --> 0:09:23.360 start to crimp economic growth via that investment cycle. We 0:09:23.440 --> 0:09:26.320 haven't seen it in earnest yet, but to suggest that 0:09:26.400 --> 0:09:28.960 this time is different and we're not going to is 0:09:29.120 --> 0:09:31.080 probably to complace in an assumption. 0:09:31.280 --> 0:09:33.640 There's also, I think, Chris, a question of supply demand. 0:09:33.760 --> 0:09:35.440 Is it a matter if there's not the credit to 0:09:35.480 --> 0:09:37.600 extend or is there the demand for the credit other 0:09:37.679 --> 0:09:40.240 businesses asking to borrow as much as they were before. 0:09:40.400 --> 0:09:42.840 Yeah, So I think that that is a question. And 0:09:42.920 --> 0:09:45.520 also it's both demand side. So when you look at 0:09:45.840 --> 0:09:48.920 just the overall like particularly within commercial real estate, and 0:09:48.960 --> 0:09:51.920 you look at volumes in terms of origination, that's fallen 0:09:51.960 --> 0:09:54.040 down substantially. I mean you're looking at year over year 0:09:54.120 --> 0:09:56.680 numbers close to sixty percent. But I think the more 0:09:56.720 --> 0:09:59.119 interesting question that we're getting a lot from our investors. 0:09:59.520 --> 0:10:02.520 Is actually, when you look at these sectors that have lagged, 0:10:02.800 --> 0:10:05.760 are they a buy at these levels? For financials, I 0:10:05.800 --> 0:10:07.960 would say go in the direction of preferreds, which is 0:10:08.040 --> 0:10:11.360 really a play on the balance sheet as opposed to 0:10:11.440 --> 0:10:13.440 the equity which could be challenged from some of these 0:10:13.480 --> 0:10:14.800 profitability considerations. 0:10:14.840 --> 0:10:17.640 So interesting. Thank you so much, Chris. That's Christian Ridderly 0:10:17.800 --> 0:10:20.840 of City and liz Anne Saunders of Charles Schwab. Always 0:10:20.880 --> 0:10:22.000 great to have them with us. 0:10:23.720 --> 0:10:24.160 Coming up. 0:10:24.200 --> 0:10:27.480 As China struggles to get going again, the US added 0:10:27.520 --> 0:10:30.760 more restrictions on investment in the Middle Kingdom. We've talked 0:10:30.760 --> 0:10:33.520 with Debora Lair of the Pulse and Institutes on prospects 0:10:33.520 --> 0:10:35.880 for the second largest economy in the world. 0:10:36.600 --> 0:10:39.360 The world has really been very focused, I think, on 0:10:39.400 --> 0:10:41.720 how to deal with a strong China, and now we 0:10:41.800 --> 0:10:44.160 haven't really thought through some of the implications of the 0:10:44.200 --> 0:10:44.840 weak China. 0:10:45.120 --> 0:10:47.280 That's next on Wall Street Week on Bloomberg. 0:10:49.720 --> 0:10:53.960 This is Bloomberg Wall Street Week with David Weston from 0:10:54.080 --> 0:11:00.520 Bloomberg Radio. 0:11:01.720 --> 0:11:04.840 China, its economy has grown faster than any in the 0:11:05.000 --> 0:11:07.600 history of the world and is either at number one 0:11:07.920 --> 0:11:10.559 or number two to the United States, depending on how 0:11:10.600 --> 0:11:12.959 you measure it. According to Graham Allison of. 0:11:12.960 --> 0:11:17.720 Harvard, China is not just a rising power. China has risen. 0:11:18.520 --> 0:11:24.080 China is now seriously rivaling the US in virtually every domain. 0:11:24.600 --> 0:11:27.480 But despite all the progress made, there are questions about 0:11:27.480 --> 0:11:31.079 whether China can continue its economic miracle, at least at 0:11:31.080 --> 0:11:34.560 the same pace. Economic numbers have been coming in weaker 0:11:34.600 --> 0:11:35.400 than expected. 0:11:36.000 --> 0:11:38.360 We're not going to see China go back to where 0:11:38.360 --> 0:11:38.720 it was. 0:11:39.400 --> 0:11:43.840 It's a very big component of the global economy, raising 0:11:43.880 --> 0:11:47.280 some doubts from Michelle Lamb of Society General about whether 0:11:47.400 --> 0:11:50.000 China can grow at the five percent pace it's set 0:11:50.040 --> 0:11:51.240 for itself this year. 0:11:52.040 --> 0:11:55.640 Destansirisk and I think that primarily comes from the property. 0:11:55.320 --> 0:11:58.640 Sector, and hopes of government stimulus to keep things going 0:11:58.679 --> 0:12:01.200 are not as bright as they might have been because 0:12:01.200 --> 0:12:02.040 of all that debt. 0:12:02.679 --> 0:12:05.400 Talking about China's debt situation, I think is a long 0:12:05.440 --> 0:12:08.760 standing structural issue, and it's no surprise that China is 0:12:08.800 --> 0:12:12.480 facing a very big debt problem, and it's precisely one 0:12:12.480 --> 0:12:15.720 of the reasons we don't see very aggressive stimulus coming 0:12:15.720 --> 0:12:16.360 from China. 0:12:16.920 --> 0:12:19.840 On top of all the internal issues, China also confronts 0:12:19.840 --> 0:12:23.160 a United States imposing new restrictions on trade and investment, 0:12:23.520 --> 0:12:26.760 whether it's export controls on shipments of technology to China 0:12:27.400 --> 0:12:30.680 or those limits on outbound investment into China. President Biden 0:12:30.679 --> 0:12:32.400 announced this week the. 0:12:32.480 --> 0:12:34.640 Goal of this executive order is to make sure that 0:12:34.679 --> 0:12:37.200 we're limiting the ability of financial. 0:12:36.720 --> 0:12:38.960 Flows and then know how it often. 0:12:38.640 --> 0:12:42.040 Goes alongside those financial flows, to give countries of concerning 0:12:42.080 --> 0:12:44.640 the ability to get around the things that we're trying 0:12:44.640 --> 0:12:47.040 to prevent them from getting access to, like the most 0:12:47.080 --> 0:12:47.680 advanced of my. 0:12:47.720 --> 0:12:51.600 Productors, leaving investors to grapple with what to do and 0:12:51.760 --> 0:12:55.160 not do with an economy simply too big to ignore. 0:12:56.080 --> 0:12:59.600 You can't rule out China. Since I started to go 0:12:59.640 --> 0:13:05.800 to China nineteen eighty four, per gap at income increased 0:13:05.800 --> 0:13:09.160 by twenty eight times. It's a power, and it's a 0:13:09.200 --> 0:13:13.440 smart power. And to take us through where we are 0:13:13.520 --> 0:13:16.000 with China right now, we turn to our non resident 0:13:16.080 --> 0:13:18.760 expert here at Wall Street Week on China. She's Deborah Lair. 0:13:19.080 --> 0:13:21.640 She is Vice chair of the Paulson Institute as well 0:13:21.679 --> 0:13:25.520 as being CEO of Edelman Global Advisory. Deborah, great to 0:13:25.520 --> 0:13:28.199 have you back on it always is we are hearing 0:13:28.240 --> 0:13:30.079 a lot coming out of China right now. We had 0:13:30.160 --> 0:13:33.120 numbers this week which were not very encouraging. Perhaps some 0:13:33.240 --> 0:13:36.320 deflation going on. Certainly their trade is down. What is 0:13:36.360 --> 0:13:38.440 your sense of what's happening? What are the important things 0:13:38.480 --> 0:13:40.640 we should be looking at in China right now? 0:13:41.960 --> 0:13:44.679 Well, so nice to see you again, David, and definitely 0:13:44.760 --> 0:13:48.840 she Jmping has a lot on his plate. The world 0:13:48.880 --> 0:13:51.400 has really been very focused, i think, on how to 0:13:51.440 --> 0:13:54.160 deal with a strong China, and now we haven't really 0:13:54.160 --> 0:13:56.520 thought through some of the implications of a week China. 0:13:57.280 --> 0:13:59.400 When we look at what is happening in the real 0:13:59.520 --> 0:14:02.920 estate market, there are still major challenges ahead. And this 0:14:03.000 --> 0:14:06.599 is critically important because it's one of the main sources 0:14:06.800 --> 0:14:10.400 of investment for most Chinese and so if the market 0:14:10.440 --> 0:14:13.319 is not doing well there, it has a significant impact 0:14:13.800 --> 0:14:19.520 on growth and investment opportunities. To local debt, this is 0:14:19.560 --> 0:14:22.680 something that policy makers have been tracking for a long time, 0:14:22.760 --> 0:14:27.480 and COVID just made it worse. A lot of this debt, 0:14:27.560 --> 0:14:30.160 and this is what's really concerning, is off the books, 0:14:30.240 --> 0:14:32.760 and so it's very hard to even track and be 0:14:32.880 --> 0:14:36.520 aware of. And it relates to how the Center is 0:14:36.560 --> 0:14:39.720 dealing with and forcing a lot of these local governments 0:14:39.760 --> 0:14:42.720 to take on unfunded mandates. And their main source of 0:14:42.760 --> 0:14:46.000 revenue previously was from the real estate market, and so 0:14:46.080 --> 0:14:49.800 if they haven't had access to revenues coming from the 0:14:49.840 --> 0:14:50.320 sales of. 0:14:50.280 --> 0:14:52.360 Real estate, they have to look for other sources. 0:14:53.040 --> 0:14:55.680 It's a big concern enough for Sigenping to be sending 0:14:55.720 --> 0:14:59.520 down policy enforcement teams, which you would think after all 0:14:59.560 --> 0:15:02.120 this time in office, he wouldn't have to do anymore. 0:15:02.600 --> 0:15:05.720 But it shows the concern that they have with local 0:15:05.720 --> 0:15:10.280 officials and their willingness to actually follow mandates coming from Beijing. 0:15:11.040 --> 0:15:13.720 And then to top that, you have weakness in the 0:15:13.760 --> 0:15:17.440 local banks, which again are lending to the local governments 0:15:17.520 --> 0:15:19.400 and to the local real estate market. 0:15:20.040 --> 0:15:22.560 Top that with youth unemployment. 0:15:23.000 --> 0:15:25.240 For many in China, this is the source of their 0:15:25.320 --> 0:15:28.200 retirement plan, the fact that their children are going to 0:15:28.200 --> 0:15:29.400 be working and supporting the. 0:15:29.360 --> 0:15:30.720 Parents and the grandparents. 0:15:31.280 --> 0:15:35.080 And the numbers are over twenty percent, the unofficial numbers 0:15:35.120 --> 0:15:37.360 are believed to be significantly higher than that. 0:15:38.360 --> 0:15:41.240 Is President gy at this point solving this problem for 0:15:41.360 --> 0:15:43.800 the economics of it, or is he solving it for 0:15:43.800 --> 0:15:46.080 the ideology of it? Because some of his rhetoric has 0:15:46.120 --> 0:15:49.440 indicated he actually may care more about the party and 0:15:49.480 --> 0:15:52.680 the party rigor in the private sector than he cares 0:15:52.680 --> 0:15:53.680 about the economics of it. 0:15:53.840 --> 0:15:55.040 Well, that's an excellent question. 0:15:55.400 --> 0:15:59.400 He certainly has been very focused on using the party 0:15:59.440 --> 0:16:03.080 as the means to govern, whether it's through the government itself, 0:16:03.080 --> 0:16:06.160 whether it's to the military, whether it's to the judiciary. 0:16:06.600 --> 0:16:08.360 It's the party that's supreme. 0:16:08.360 --> 0:16:11.640 And he has tried to create an ideology and a 0:16:11.800 --> 0:16:15.680 unity through that. We see in the new structuring of 0:16:15.840 --> 0:16:18.760 the government that it's all the party committees who are 0:16:18.760 --> 0:16:22.280 actually setting economic policy, and the government more and more 0:16:22.400 --> 0:16:27.440 is just an implementer. So as we see these difficulties 0:16:27.440 --> 0:16:30.360 in the government, these weaknesses in the ability to create 0:16:30.440 --> 0:16:35.200 jobs for the youth, in the challenges in attracting direct 0:16:35.240 --> 0:16:40.120 foreign investment or venture capital or private equity, the big 0:16:40.200 --> 0:16:43.680 question will be whether she jen being pivots and focuses 0:16:43.800 --> 0:16:47.240 more on market opening in creating the confidence and the 0:16:47.280 --> 0:16:51.360 conditions to continue to attract foreign business, which is necessary 0:16:51.400 --> 0:16:53.640 if he's going to continue to grow his economy. He 0:16:53.760 --> 0:16:57.160 can't do it without foreign business being present. 0:16:58.000 --> 0:16:59.520 We've seen him pivot before. 0:16:59.600 --> 0:17:01.920 We saw how quickly he was willing to pivot at 0:17:01.920 --> 0:17:05.520 the end of COVID in opening up to the rest 0:17:05.520 --> 0:17:08.840 of the world, and we're starting to see signs that 0:17:08.920 --> 0:17:14.199 he's beginning to reconsider some of his economic policies to 0:17:14.359 --> 0:17:18.240 be more open and change that emphasis from such a 0:17:18.240 --> 0:17:20.639 focus on the party, not that it's ever going to 0:17:20.640 --> 0:17:24.760 go away, but to really be focused more on providing opportunities. 0:17:25.320 --> 0:17:27.639 Look at what he's been doing in technology and the 0:17:27.680 --> 0:17:32.120 opportunities now and encouraging platform companies and the tech executives 0:17:32.160 --> 0:17:35.440 to be innovative where it wasn't that long ago when 0:17:35.440 --> 0:17:36.920 they were one of the top targets. 0:17:37.200 --> 0:17:39.240 President G may decide that he wants to be more 0:17:39.240 --> 0:17:40.600 open the rest of the world. Is the rest of 0:17:40.640 --> 0:17:42.840 the world open to President G at this point? Certainly 0:17:42.880 --> 0:17:45.440 the United States and the West seems to be taking 0:17:45.440 --> 0:17:48.120 some actions, including this week with the restrictions on outbound 0:17:48.160 --> 0:17:52.000 investment into China. We see various actions being taken. To 0:17:52.000 --> 0:17:54.560 what extent does that hamper what President you can do? 0:17:54.600 --> 0:17:56.879 As you know so well, Deborah, foreign direct investment is 0:17:56.920 --> 0:18:01.000 down rather substantially into China, it is, and I. 0:18:01.000 --> 0:18:03.880 Think one of the biggest questions is around confidence. Confidence 0:18:03.920 --> 0:18:07.640 in China and its leadership. Obviously, the United States has 0:18:07.680 --> 0:18:10.360 to stay very focused on its national security, and these 0:18:10.400 --> 0:18:15.199 outbound investment regulations are limited to areas that it's concerned 0:18:15.359 --> 0:18:19.719 that we might be creating competitors to our own national 0:18:19.720 --> 0:18:23.560 security interests. I think it's going to be important to 0:18:23.600 --> 0:18:27.080 watch if other countries do the same. There definitely is 0:18:27.119 --> 0:18:30.240 a reconsideration in Western economies and looking at what their 0:18:30.280 --> 0:18:32.399 relationship is economically with China. 0:18:32.520 --> 0:18:34.080 It's not to say that companies. 0:18:33.720 --> 0:18:37.199 Aren't investing there and continuing to do business there, but 0:18:37.840 --> 0:18:40.560 more and more we hear they're looking at China for China, 0:18:41.040 --> 0:18:42.879 and then they're looking at the rest of the world. 0:18:43.200 --> 0:18:46.480 Some of China's own policies, including its national Security law, 0:18:46.520 --> 0:18:50.800 are really emphasizing that fact because it's a very murky area, 0:18:50.880 --> 0:18:54.160 particularly when it comes to issues like data, and more 0:18:54.160 --> 0:18:57.560 and more companies are looking at how they can create 0:18:57.680 --> 0:19:01.919 an island in China for data and not have it 0:19:01.960 --> 0:19:05.040 linked into the rest of the world, and those issues, 0:19:05.119 --> 0:19:08.159 even though they may sound small right now, start to 0:19:08.200 --> 0:19:11.560 have a ripple effect in how CEOs and others are 0:19:11.560 --> 0:19:13.080 making their investment decisions. 0:19:13.160 --> 0:19:14.440 And this is one of the reasons. 0:19:14.440 --> 0:19:18.720 It's not just these geopolitical restrictions that we're seeing that 0:19:18.760 --> 0:19:20.760 are limiting direct foreign investment in China. 0:19:20.800 --> 0:19:22.080 It's some of China's own. 0:19:21.960 --> 0:19:26.600 Policies that are causing a concern within I think the 0:19:26.640 --> 0:19:27.720 foreign business community. 0:19:27.960 --> 0:19:28.200 Debor. 0:19:28.280 --> 0:19:30.000 It's always a pleasure, really a treat to have you 0:19:30.040 --> 0:19:32.679 with us. As tebro Laire, she's a CEO of Edelman 0:19:32.840 --> 0:19:37.760 Global Advisory. Coming up. It looks like we may not 0:19:37.840 --> 0:19:40.600 get that recession after all. What does that do for 0:19:40.720 --> 0:19:44.719 all our investing plans based on worst case scenarios, Well, 0:19:44.760 --> 0:19:46.240 its rit reader a black rock. 0:19:46.920 --> 0:19:50.920 My base case is that inflation is moderating. Those real 0:19:51.000 --> 0:19:52.840 rates we talked about, should. 0:19:52.480 --> 0:19:55.160 Come down with a FED that starts that is now 0:19:55.200 --> 0:19:57.720 stable and will start cutting rates. So I think the 0:19:58.040 --> 0:20:00.399 equity market next year will get a nice boosh from 0:20:00.440 --> 0:20:02.200 what I think will lead a reduction of the interest rate. 0:20:02.520 --> 0:20:04.840 That's next on Wall Street Week on Bloomberg. 0:20:06.240 --> 0:20:10.400 This is Bloomberg Wall Street Week with David Weston from 0:20:10.560 --> 0:20:14.320 Bloomberg Radio. 0:20:17.320 --> 0:20:20.760 That is definitely not the fed's intent and has not 0:20:20.840 --> 0:20:23.760 been the FEDS intent throughout this expansion. We raised interest 0:20:23.840 --> 0:20:26.399 rates in ninety four to five without the intent of 0:20:26.480 --> 0:20:29.480 causing recession. For sure, and we didn't, and the FED 0:20:29.560 --> 0:20:32.639 is trying to do a duplicate of that soft landing 0:20:32.680 --> 0:20:34.040 now not to cause a recession. 0:20:36.119 --> 0:20:38.720 That was former FED Vice Chair Alan Blinder on Wall 0:20:38.720 --> 0:20:41.400