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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Yley joins us this morning for an extended conversation. Waly,

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Speaker 2: I want to go back to first principles. My great

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Speaker 2: mentor in the United Kingdom, he has recently died. Meg

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Speaker 2: didn't decigh. Lord de Siah of India and of the

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Speaker 2: United Kingdom would say, it's just about profit. What is

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Speaker 2: the quality the physics of technology profit that makes you

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Speaker 2: committed to mag seven.

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Speaker 3: Well, it is about quality of profit. It is about

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Speaker 3: it is also about the reality of Ernie's coming through

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Speaker 3: really strong.

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Speaker 4: Right.

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Speaker 3: We're not putting hypothesis out there. We're just looking at

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Speaker 3: the ability of these companies to generate earnings, to generate profits,

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Speaker 3: and so far, if you look at equity attribution of

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Speaker 3: various markets globally, US really stood out in being able

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Speaker 3: to deliver earnings to justify the performance and tag Magnificant

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Speaker 3: seven in particularly really stood out in terms of their

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Speaker 3: earnings basically explaining almost all of their performance so far

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Speaker 3: this year.

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Speaker 5: When will you.

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Speaker 2: Know the profit of all this CAPEX investment? Are you

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Speaker 2: going to know that somewhere next year or do we

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Speaker 2: have to wait.

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Speaker 3: Ten years to know maybe somewhere in between. Actually that's

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Speaker 3: a very good point. So far, Phase one of this

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Speaker 3: buildout has been really companies spending their free cash flow

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Speaker 3: and they are awash with cash to invest in this

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Speaker 3: mega deal. But we're now entering phase two where perhaps

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Speaker 3: the buildout is more capital intensive. We're talking about some

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Speaker 3: new entrants tapping into bond market, into private credit, into

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Speaker 3: joint ventures to fund some of this investment, and vendor

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Speaker 3: financing is seeing as well. Right so phase two is

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Speaker 3: more capital intensive and timing is everything. You know, we

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Speaker 3: can be right about the revolutionary nature of the technology,

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Speaker 3: but we can still have a very rocky market on

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Speaker 3: our hand. So what we're seeing right now is the

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Speaker 3: trillions of copecks being kind of talked about and estimated

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Speaker 3: in the coming years. But time will tell if we

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Speaker 3: have the right regional investment to justify those investments, those

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Speaker 3: copex commitment. But in the meanwhile, we cannot afford to

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Speaker 3: stay out of this market. So sign posting is everything,

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Speaker 3: looking at earnings, looking at free cash flow in particular

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Speaker 3: of those companies that are going to be consumers of

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Speaker 3: this copex invest is how we are navigating this moment.

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Speaker 6: Well, we are, in fact in the middle of earning season.

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Speaker 5: That's a good thing.

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Speaker 6: We saw some pretty strong numbers out of the big

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Speaker 6: money center banks and now we're getting some industrial companies reporting.

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Speaker 6: But it seems like geopolitics is not far off the

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Speaker 6: radar for this market. China in particular trade discussions with

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Speaker 6: the US. How do you think about that? Is that

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Speaker 6: something you just try to ignore? Do you try to

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Speaker 6: play it? Because it seems like the trade talks with

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Speaker 6: China and what that means for global GDP over the

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Speaker 6: coming years are still front and center.

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Speaker 3: It's really hard to follow the headlines blow by blow,

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Speaker 3: like from one moment we heard it maybe we're going

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Speaker 3: to get a good deal between US China and to

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Speaker 3: the next moment where maybe.

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Speaker 4: The meeting won't happen.

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Speaker 3: So it's very noisy in terms of headlines right now.

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Speaker 3: And if you look at the Bloomberg US Trade Policy

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Speaker 3: Uncertainty Index, it picked in aprol but it recently started

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Speaker 3: going higher again. So Marcus are reacting quite a lot

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Speaker 3: to it, but I think it's very hard to generate

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Speaker 3: alpha by just following headlines. So focusing on the things

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Speaker 3: that cannot change very quickly in the near term is

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Speaker 3: how we're to navigate the environment. So inflation considerations for

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Speaker 3: the US, but also thinking about the balance of payment

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Speaker 3: for China and how important there is, and if Marcus

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Speaker 3: get carried away, we would lean against that extreme pricing

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Speaker 3: because these things cannot change very quickly, which is why

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Speaker 3: right now Westiell pro risk despite the very busy trade headlights.

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Speaker 2: Wally with Blackrock Wethers for an extended conversation to start

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Speaker 2: strong Elizabeth, economy and China in the nine o'clock hour.

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Speaker 2: I just put out on LinkedIn my LinkedIn of the day.

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Speaker 2: It's way Lee. I had to be polite, you know,

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Speaker 2: did that. But it's a great Bloomberg screen of the

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Speaker 2: margin difference between S and P and small cap excuse me,

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Speaker 2: large cap versus small cap Way, Lee, it's back thirty years.

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Speaker 5: Can I say it's ever been like this?

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Speaker 3: I think we're seeing some extraordinary ca shaped developments. The

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Speaker 3: charge that I put out, the Bloomberg screenshot that I

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Speaker 3: put out on LinkedIn is the profit margin of s

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Speaker 3: and P five hundred large cap and SMP six hundred

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Speaker 3: small cap, and they're really starting to diverge. But that's

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Speaker 3: just one manifestation of this case shaped development. Right, we

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Speaker 3: see K shaped recovery of the consumers. We see K

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Speaker 3: shaped kind of default type of pattern in credit and

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Speaker 3: also including in private credit.

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Speaker 4: I think in an environment where we don't have rising.

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Speaker 3: Tide of very easy policy lifting or boat of very

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Speaker 3: easy fiscal streamulus kind of supporting everything, being very selective

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Speaker 3: in terms of how we deploy risk is going to

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Speaker 3: be the name of the game. We see credit market.

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Speaker 3: You look at the cycle, there is almost amazing credit cycle,

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Speaker 3: but digging under the hoods fundamentals support the very strong

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Speaker 3: large cups a wash with cash, whereas the very small

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Speaker 3: players are currently under pressure. So case shaped development is

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Speaker 3: a characterization of the environment that we're.

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Speaker 4: In, and I think that's here to stay for a while.

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Speaker 6: Well, Llie, can you talk to us about geography? Where

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Speaker 6: do you see I guess best opportunities maybe US versus

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Speaker 6: rest of the world. Are you focusing on Europe? How

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Speaker 6: do you think about from a geographic perspective where some

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Speaker 6: of the opportunities are out there.

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Speaker 4: We currently actually still like US equities.

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Speaker 3: And we also prefer Japanese aquities and we favor them

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Speaker 3: over for example, European opportunities where we would want to

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Speaker 3: be a bit more selective, you know, financials and industrials

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Speaker 3: and how we want to play that together with defense theme.

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Speaker 4: And the reason that we still favor USP is.

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Speaker 3: You look at how markets have developed so far this year,

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Speaker 3: US aquaitis became a little bit more expensive, but not

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Speaker 3: as much as.

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Speaker 4: How much more expensive I E.

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Speaker 3: Rerating has taken place in the rest of the world

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Speaker 3: because of the stronger earnings delivery in the US market.

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Speaker 3: You look at the earnings revision the last two months

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Speaker 3: or so, US earnings have been revised higher versus European

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Speaker 3: earnings having been revised lower.

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Speaker 4: So the direction of travel very.

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Speaker 3: Much speaks to kind of the underlying economy and the

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Speaker 3: concentration of the AI theme. So far, as long as

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Speaker 3: I think we're still in this AI AI conviction AI core,

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Speaker 3: it will be hard to fade the US acute market

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Speaker 3: at this juncture.

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Speaker 6: In the fixed income space here, I mean you can

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Speaker 6: sit there to your treasury get three almost three and

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Speaker 6: a half percent here that seems to be not a

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Speaker 6: bad place to be here. Do you sit there in

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Speaker 6: the US treasuries or do you maybe take some credit

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Speaker 6: risk out there?

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Speaker 3: Really, for our Q four outlook that was released now

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Speaker 3: when mid October that was released almost one month ago,

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Speaker 3: we upgraded the long duration US treasury is because we

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Speaker 3: felt that the FED is getting lucky a little bit

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Speaker 3: because it is embarking on restarting the fat cutting cycle,

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Speaker 3: and the macro environment actually supports that, i e.

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Speaker 4: Labor market is just weak enough for fat.

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Speaker 3: Independence not to be under scrutiny as it restarts cutting cycle. Right,

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Speaker 3: So as we kind of still are in this environment,

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Speaker 3: the FED is still getting lucky in that, you know,

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Speaker 3: like we heading into next week, I think twenty four

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Speaker 3: bits of recud is a foregone conclusion. We do want

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Speaker 3: to lean into this momentum and lock in some of

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Speaker 3: those really attractive real news in particular, so we like

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Speaker 3: treasuries at at this juncture.

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Speaker 2: When I got you read my mind, Paul, I'm glad

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Speaker 2: you brought it up, because I've been really like pretty

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Speaker 2: century focused.

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Speaker 5: I got a three ninety five ten year yield.

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Speaker 2: Is this finally where we get the inertial force to

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Speaker 2: lower yields. Do we finally break down to a lower

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Speaker 2: real yield lower nomenal yields.

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Speaker 3: Well, we do think that in the very near term

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Speaker 3: markets can go with this narrative.

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Speaker 4: That's because of weak labor markets.

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Speaker 3: Actually the defense needs to cut and because there is

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Speaker 3: micro justification for that. Maybe the long end of the

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Speaker 3: curve is not going to be penalized in that tom

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Speaker 3: premium may not go higher as markets challenge the independence topic.

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Speaker 3: So there is a bit of a sweet spot for

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Speaker 3: treasuries now. Having said it, heading into next year, if

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Speaker 3: you look at the market pricing for policy path, we're

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Speaker 3: talking about below two point nine percent by the end

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Speaker 3: of twenty twenty six.

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Speaker 4: I think given the.

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Speaker 3: Still broadly inflationary environment, we're still waiting to see the

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Speaker 3: impact of Taroff's feed through to CPI poet for example,

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Speaker 3: I think market pricing for below two point five percent

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Speaker 3: pol see two point nine percent policy rates by the

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Speaker 3: end of next year is too optimistic. But we may

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Speaker 3: not get to the awakening moment just yet, which is

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Speaker 3: why we're taxically overweight.

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Speaker 2: I've got to ask you, really, with your heritage in

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Speaker 2: your academic excellence in China.

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Speaker 5: We have Elizabeth Economy coming up of Stanford later. Wayle

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Speaker 5: your thoughts on this important set of meetings to a

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Speaker 5: new five year plan in China.

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Speaker 3: Well, this is an economy that needs to go through reforms.

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Speaker 4: Right like this has been talked about for many years now.

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Speaker 3: It needs to go from an investment a driven type

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Speaker 3: of growth model to consumption having a driven type of

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Speaker 3: growth model. And right now consumer sentiment still is somewhat

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Speaker 3: to tap it. So I think how to energize that

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Speaker 3: is going to be very key, especially against the backdrop

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Speaker 3: of aging population and structural headwainds to economy. So that's

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Speaker 3: a very delicate balance. But the key here is mega

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Speaker 3: forces and specifically navigating and capitalizing on the AI revolution.

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Speaker 2: Wellie, thank you so much for blackgrect Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or

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Speaker 1: watch us live on YouTube.

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Speaker 5: This is a conversation of the week.

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Speaker 2: But dare I say, folks here in October our most

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Speaker 2: important hydrocarbon conversation.

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Speaker 5: To the end of the year. Edward Morris is absolutely iconic.

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Speaker 2: Made more so it's City Group recently screaming at the

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Speaker 2: oil perpetually over one hundred dollars a barrow, people going.

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Speaker 5: Maybe not. He is right, He was right, I should say,

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Speaker 5: and still is right.

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Speaker 2: At Hard Tree Partners, Ed Morse joins us with all

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Speaker 2: of his service to the nation, Senior fellow, Consulate Foreign Relations.

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Speaker 2: You open up classic Ed Moyer, Ed Morse, Supply and

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Speaker 2: demand in the increase of oil on the water. What

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Speaker 2: is oil on the water is that boats.

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Speaker 7: It's actually tankers, and they're either moving from where the

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Speaker 7: supply is coming from, going to where the demand is,

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Speaker 7: or they're just not going anywhere because there's nobody who

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Speaker 7: wants the oil. So we've had an incredible surge in

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Speaker 7: oil on the water. That surge has come after the

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Speaker 7: summer demand season is over. It's come as OPEC plus

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Speaker 7: is added oil to the market. So Bessemus were two

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Speaker 7: hundred and fifty million barrels of oil in transit as

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Speaker 7: a week ago, and that's the most since twenty twenty,

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Speaker 7: which we all remember when oil prices were negative.

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Speaker 2: Well, oil prices went negative, and again you said, look

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Speaker 2: for or prices the acclaim Bloomberg Business Week cover of

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Speaker 2: years ago of tankers off Singapore.

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Speaker 5: Just sitting in the water. Is that what twenty twenty

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Speaker 5: six looks like.

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Speaker 7: Well, twenty twenty five certainly looks like it's going to

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Speaker 7: end that way. What happens in twenty twenty six is

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Speaker 7: partly a function of what the OPEC countries decide to do.

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Speaker 7: Are they going to continue to put more oil in

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Speaker 7: the market. And the other big question is China. China

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Speaker 7: has absorbed most of the excess amount of oil in

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Speaker 7: the market. That's why inventories are so low around the world.

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Speaker 7: Other than China, they were importing an average of over

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Speaker 7: a million barrels a day to put in storage. That's geopolitical.

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Speaker 7: Of course, they've kind of slowed down a little bit

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Speaker 7: related I'm sure to US China talks, but those seem

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Speaker 7: to be going nowhere. So China is part of the

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Speaker 7: issue of how much they're going to suck in to

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Speaker 7: build their own inventory for some future date.

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Speaker 6: Oil at fifty eight dollars, with wtcude oil at fifty

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Speaker 6: eight dollars a barrel, is there a global glut of

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Speaker 6: oil in the marketplace.

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Speaker 7: Well, it looks like that. That's what the oil on

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Speaker 7: the water is telling us. There's a glut. It's showing up.

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Speaker 7: It's beginning finally to show up in inventories. But the

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Speaker 7: inventories are so low they have a long way to go.

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Speaker 7: But yes, there is definitely a glut. Supply is significantly

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Speaker 7: more than what demand is at the moment.

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Speaker 5: So what is this.

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Speaker 6: If I'm sitting down there. I watched Landman from one season,

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Speaker 6: so I know all about the oil and gas.

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Speaker 2: I'm an expert in Austin at the f one at

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Speaker 2: the Sweeney Corner.

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Speaker 5: Yes, was the big advertisement for Landman, so I.

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Speaker 6: Know all about the global energy business.

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Speaker 5: What's the fix that?

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Speaker 1: I mean?

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Speaker 6: If I'm in Houston, I want seventy five dollars a barrel,

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Speaker 6: don't I?

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Speaker 5: Well, if you're in use and.

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Speaker 7: You want the highest price you can get, so yes,

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Speaker 7: certainly is higher than WTI.

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Speaker 5: And we'll see how they're doing.

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Speaker 7: You know, the US hit record levels of production the

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Speaker 7: month of August, where you don't have the full data yet,

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Speaker 7: but there's no sign of there being a downturn in

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Speaker 7: the US production. I think among the things to look

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Speaker 7: at at the moment in the month of November is

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Speaker 7: whether the Crown Princess Saudi Arabia is going to come

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Speaker 7: to the United States in November.

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Speaker 2: Eighteenth, seems to be the schedule. How will that response be.

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Speaker 2: What will be the oil discussion in the Oval Office?

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Speaker 7: Well, I suspect he's not going to come if earlier

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Speaker 7: in November they decide to not put more oil in

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Speaker 7: the market in December, so I think that'll be a signal. Okay,

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Speaker 7: I think they're looking at three or four things. They've

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Speaker 7: noticed that Katar has gotten a NATO like defense agreement

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Speaker 7: with the US government. They would certainly like something similar

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Speaker 7: to that. They are more important in many respects to

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Speaker 7: the US and to Trump's desire to have lower gasoline

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Speaker 7: prices at the pump. They're looking for a military deal

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Speaker 7: similar to the one that was struck when Trump was

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Speaker 7: visiting Riod last spring, and that was just about one

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Speaker 7: hundred and fifty billion dollars worth of military equipment. They're

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Speaker 7: particularly looking for F thirty five fighter jets. Are they

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Speaker 7: going to get any at all? Are they going to

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Speaker 7: get what they want? Is they going to be a

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Speaker 7: nuclear agreement? Are they going to be seeing US technology

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Speaker 7: and US material come in as they build a nuclear

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Speaker 7: energy for power generation and pre up more oil for export.

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Speaker 2: Ed Morse for as we continue right now with heart

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Speaker 2: Tree and of course Iconic It's City Group and his

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Speaker 2: assistance of the country and studying oil particularly within the

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Speaker 2: Middle East.

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Speaker 5: Twenty twelve. I remember this article Matt.

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Speaker 2: Bessler came out of Michigan, Great great academics and economics

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Speaker 2: at Michigan writing for Business Insider. It's just the classic

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Speaker 2: headline cities ed Morse as a huge note blasting everyone

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Speaker 2: who believes in peak oil. This is the feisty Morse

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Speaker 2: from years ago peak oil biases continued a blind analyst

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Speaker 2: to an emerging oil cycle turning point. You nailed it,

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Speaker 2: Matt Belser, I should say, is now with Bloomberg, and

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Speaker 2: that's to our advantage.

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Speaker 5: You nailed it. What's the myth right now in oil

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Speaker 5: that's wrong?

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Speaker 7: The myth that's wrong is that oil demand is peaking,

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Speaker 7: whether it's peaking in twenty twenty eight or twenty thirty two.

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Speaker 7: The consensus in the market seems to be that oil

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Speaker 7: demand is peaking. Yet if you try to study oil demand,

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Speaker 7: you can notice that whatever the cycles have been GDP

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Speaker 7: is the driver of oil demand and GDP relationship with oil.

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Speaker 7: The oil intensity of GDP is certainly falling. It's been

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Speaker 7: falling at a steady pace. It's a very linear line

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Speaker 7: from where we were in the early seventies when for

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Speaker 7: every one percent increase in GDP around the world, and

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Speaker 7: we do this in constant dollars, by the way, there

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Speaker 7: was over one percent demand for oil that has come

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Speaker 7: down linearly. And we just looked deeply at twenty twenty

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Speaker 7: through the first half of twenty twenty five, and we're

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Speaker 7: on a slope that tells us that oil demand is

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Speaker 7: going to peak in twenty sixty four.

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Speaker 2: Oh kay, well that's out there, Lisa, make note of

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Speaker 2: that twenty sixty four.

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Speaker 5: Ed and I won't be around Ed Morris. What's your

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Speaker 5: target on oil here? Now?

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Speaker 2: You were so good at one hundred saying think eighty.

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Speaker 2: At eighty, thinks sixty? Can Ed Morse think forty dollars

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Speaker 2: a barrel.

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Speaker 7: I think it gets to forty by over exuberants once

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Speaker 7: it crashes through that fifty dollars number. So I think

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Speaker 7: there'll be a lot of reactions at under fifty.

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Speaker 2: What does fifty dollars barrel oil mean for the Middle

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Speaker 2: East and particularly for riodd.

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Speaker 7: It means a little bit of difficulty on the credit side.

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Speaker 7: So yes, they have a fiscal break even that is

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Speaker 7: substantially higher than sixty dollars rent. But they get in

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Speaker 7: trouble with their A plus rating on credit and they

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Speaker 7: need the credit. They need the lending in order to

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Speaker 7: make their own energy transition, which is to diversify their

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Speaker 7: economy and get off in dependence on crude oil.

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Speaker 2: John from the Jersey Shore emails and he says, with

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Speaker 2: my homer, h two what's a gal and a guess

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Speaker 2: cost at ed Morris is forty?

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Speaker 5: I mean, where are we under two bucks? Wow? Two

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Speaker 5: dollars a gallon?

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Speaker 7: Well, detends on we're in the country, if you're in California.

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Speaker 5: More censor it is.

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Speaker 6: Yeah, there's always absolutely brilliant.

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Speaker 5: Are evs having an impact on the price of oil?

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Speaker 7: Of course they are. They're part of the system of

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Speaker 7: replacing oil with something else. And if we look at

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Speaker 7: the declining intensity that oil has in GDP around the world,

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Speaker 7: we're having an increase intensity of GDP in electricity and

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Speaker 7: that's where the geopolitics are turning. As we look into

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Speaker 7: the next decade.

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Speaker 5: Yep, please come back next week. Ed Morris with this

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Speaker 5: with hard Tree, folks. What a briefing there for Global

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Speaker 5: Wall Street.

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Speaker 2: Edward Morris with all of his service to the country,

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Speaker 2: the discussion of.

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Speaker 5: Oil, the geopolitics of oil. Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. You can also listen live

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Speaker 1: on Amazon Alexa from our flagship New York station. Just

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00:20:28,240 --> 00:20:30,760
Speaker 1: say Alexa Play Bloomberg eleven thirty.

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Speaker 5: I have been asking for days. Please.

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Speaker 2: Elizabeth Economy of Stanford, Doctor Economy joins us right now.

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Speaker 2: Definitive on the trans Pacific debate.

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Speaker 5: Eli's Economy. Just the prism of seven.

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Speaker 2: Eight, nine military commanders out the door in China, how

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Speaker 2: do you interpret that?

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Speaker 8: I mean, you know, honestly, this has been thirteen years

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Speaker 8: worth of a continuing anti corruption purge.

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Speaker 9: It sounds like a lot, and it's not.

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Speaker 8: Insignificantly given that three of them are members of the

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Speaker 8: Central Military Commission, which is the top body that oversees

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Speaker 8: the party body that oversees the Chinese military.

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Speaker 9: So that's three out of seven that were just purged.

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Speaker 8: So it's not you know, inconsequential, but you know, Shejenping,

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Speaker 8: this is just a continuation of, you know, a purge

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Speaker 8: that just never ends for him. You know, what does

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Speaker 8: that say about the nature of how he goes around

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Speaker 8: dealing with corruption? I think it suggests that he hasn't

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Speaker 8: found the proper method to deal with this because you know,

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Speaker 8: it's it's ongoing and these are people that he himself

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Speaker 8: put in place, So it's not about finding people who

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Speaker 8: are more loyal to him necessarily. These were supposed to be,

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Speaker 8: you know, loyal compatriots.

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Speaker 9: So it's not a good look. But frankly, it's not

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Speaker 9: that new.

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Speaker 2: So one of the problems here, Paul, and this is

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Speaker 2: like the small life that I live with Elizabeth Economy.

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Speaker 2: They have a book thing in the back of Foreign

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Speaker 2: Affairs magazine and Elizabeth Nay will be there and go

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Speaker 2: let me ruin your October November December. I have literally

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Speaker 2: listen the top of my pile the book. You said,

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Speaker 2: here's the primer on the military power of China. Bloomberg

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Speaker 2: Surveillance just spoke with Admiral Mullen and we talked about

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Speaker 2: the self China Sea. Give us the Liz Economy update

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Speaker 2: on the military capability of China and the self China Sea.

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Speaker 9: Yeah.

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Speaker 8: I mean, I think you know from everything and you

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Speaker 8: you have the book in front of you so you

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Speaker 8: can you can read it yourself, Tom, But I think

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Speaker 8: the you know, the takeaway is really that China has

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Speaker 8: made enormous gains in terms of its military capabilities, particularly

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Speaker 8: in terms of sort of the near abroad, you know,

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Speaker 8: in its own backyard. It wants to be the dominant

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Speaker 8: military power in the Asia Pacific, so that's been its priority.

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Speaker 8: I think the weaknesses remain in terms of the command

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Speaker 8: and control, the fact that China doesn't necessarily, you know,

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Speaker 8: hasn't had a lot of actual war fighting experience, so

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Speaker 8: nobody really knows how good they'll be when put to

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Speaker 8: the test, and whether the top down nature of control

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Speaker 8: will enable sort of the mid level military commanders to

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Speaker 8: make the type of split you know, moment decisions, split

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Speaker 8: second decisions that you.

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Speaker 9: Want them to be able to make. So there are

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Speaker 9: some you know, weaknesses.

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Speaker 8: And again I think they haven't made you know, progress

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Speaker 8: as much progress as they would have liked in establishing

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Speaker 8: bases overseas, you know, they want to have a larger

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Speaker 8: footprint globally.

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Speaker 9: They're doing that in terms of their arm sales.

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Speaker 8: They're doing more military training of other countries, you know,

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Speaker 8: with the People's Liberation Army. So they have in place

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Speaker 8: many of the elements of a global military presence, but

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Speaker 8: they're not quite there yet, and I think that's you know,

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Speaker 8: those are sort of the two major messages if we're

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Speaker 8: trying to understand where the Chinese military still fall short.

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Speaker 9: Those are probably the two.

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Speaker 6: Main areas, Elizabeth, for those of us on Global Wall Street,

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Speaker 6: we're trying to keep a pace of the changing economic

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Speaker 6: discussions between the US and China.

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Speaker 5: Here.

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Speaker 6: Will there be a meeting with President she and President

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Speaker 6: Trump later this month? What's your current read of the

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Speaker 6: relationship of the potential negotiations and how this all might

445
00:24:16,680 --> 00:24:17,440
Speaker 6: shake shakeout.

446
00:24:18,920 --> 00:24:21,760
Speaker 8: Yeah, I mean, I think, you know, odds of there

447
00:24:21,800 --> 00:24:24,760
Speaker 8: being a meeting are quite high right now. You know,

448
00:24:25,040 --> 00:24:27,879
Speaker 8: it looked less good, you know, a week or two

449
00:24:27,960 --> 00:24:31,120
Speaker 8: ago when we had the most recent sort of tit

450
00:24:31,200 --> 00:24:34,400
Speaker 8: for tat with the US export controls and the Chinese

451
00:24:34,480 --> 00:24:40,520
Speaker 8: controls and new licensing restrictions on rare earth elements. So

452
00:24:40,640 --> 00:24:44,000
Speaker 8: that was, you know, I think, a huge dust up.

453
00:24:44,000 --> 00:24:47,040
Speaker 8: But President Trump is pretty clearly signaled that he expects

454
00:24:47,080 --> 00:24:50,840
Speaker 8: to meet with President t on the sidelines of Apek

455
00:24:51,160 --> 00:24:54,080
Speaker 8: in South Korea next week. So I take that as

456
00:24:54,119 --> 00:24:56,680
Speaker 8: a positive in terms of what's likely to come out

457
00:24:56,760 --> 00:24:57,280
Speaker 8: of the meeting.

458
00:24:57,920 --> 00:24:59,400
Speaker 9: Look, the President has made clear what.

459
00:24:59,400 --> 00:25:01,960
Speaker 8: He wants he wants, you know, and it's nothing we

460
00:25:02,040 --> 00:25:04,600
Speaker 8: haven't heard before. You know, he wants China to do

461
00:25:04,680 --> 00:25:07,240
Speaker 8: more in terms of controlling the export of the prebursors

462
00:25:07,240 --> 00:25:10,160
Speaker 8: for fetanyl. He wants China to you know, buy more

463
00:25:10,240 --> 00:25:12,600
Speaker 8: soy beans, you know, because basically they're not buying any

464
00:25:12,640 --> 00:25:15,639
Speaker 8: soy beans from the United States. They've completely gone to

465
00:25:15,720 --> 00:25:20,600
Speaker 8: other you know markets like Brazil and Argentina. And he

466
00:25:20,640 --> 00:25:23,640
Speaker 8: wants China to lift these new restrictions on the export

467
00:25:23,640 --> 00:25:27,000
Speaker 8: of rare earth elements because that really hits hard at

468
00:25:27,000 --> 00:25:30,879
Speaker 8: our technology and defense industries. For China, you know, they've

469
00:25:31,000 --> 00:25:33,720
Speaker 8: liked to see you know, the United States not discriminate

470
00:25:33,800 --> 00:25:37,760
Speaker 8: against Chinese companies, you know, globally, they want the US

471
00:25:37,880 --> 00:25:40,879
Speaker 8: to lift its own export controls, particularly the last set,

472
00:25:41,040 --> 00:25:44,720
Speaker 8: which basically places about twelve thousand Chinese companies on the

473
00:25:44,840 --> 00:25:49,159
Speaker 8: entity list, which is pretty you know, significant. They've liked

474
00:25:49,160 --> 00:25:51,760
Speaker 8: the president to do something on Taiwan, at the very

475
00:25:51,880 --> 00:25:55,600
Speaker 8: least an affirmation of you know, the One China what

476
00:25:55,640 --> 00:25:57,600
Speaker 8: we call the One China policy, what they call the

477
00:25:57,640 --> 00:25:58,520
Speaker 8: One China principle.

478
00:25:58,520 --> 00:25:59,480
Speaker 9: They're slightly different.

479
00:26:00,359 --> 00:26:03,000
Speaker 2: I have to interrupt you. This is too important. What

480
00:26:03,200 --> 00:26:08,840
Speaker 2: is the Elizabeth economy Gaussian distribution of outcomes with Trump

481
00:26:09,320 --> 00:26:13,000
Speaker 2: Ji and China. What's the most likely thing in Taiwan?

482
00:26:13,720 --> 00:26:15,000
Speaker 2: What's the most likely thing?

483
00:26:15,080 --> 00:26:20,119
Speaker 8: Liz on the Taiwan question, I think the president is

484
00:26:20,359 --> 00:26:26,040
Speaker 8: President Trump. I don't think he has much personal interest

485
00:26:26,480 --> 00:26:29,480
Speaker 8: in Taiwan, much of a sort of personal sensibility of

486
00:26:29,760 --> 00:26:30,520
Speaker 8: its importance.

487
00:26:30,560 --> 00:26:32,480
Speaker 9: To save the fact.

488
00:26:32,160 --> 00:26:35,080
Speaker 8: That we know import more than ninety percent of our

489
00:26:35,119 --> 00:26:38,920
Speaker 8: advanced semiconductors from from Taiwan, and that will continue to

490
00:26:38,960 --> 00:26:41,480
Speaker 8: be the case despite all of the investment in the

491
00:26:41,560 --> 00:26:47,560
Speaker 8: United States by TSMC, their major semiconductor manufacturing firm. So

492
00:26:47,600 --> 00:26:49,959
Speaker 8: he's not going to get away from the silicon shield.

493
00:26:50,600 --> 00:26:53,800
Speaker 8: But I think, you know, the range of possibilities I

494
00:26:53,840 --> 00:26:58,280
Speaker 8: think basically is, you know, number one that we sort

495
00:26:58,280 --> 00:27:00,240
Speaker 8: of say we commit to and I think this is

496
00:27:00,240 --> 00:27:03,199
Speaker 8: on the outside, we commit, you know, to you know,

497
00:27:03,560 --> 00:27:05,280
Speaker 8: diminish our arm sales to Taiwan.

498
00:27:05,800 --> 00:27:08,399
Speaker 9: I think that would be you know, high priority of China.

499
00:27:08,840 --> 00:27:11,120
Speaker 9: I think that's less likely, but it's a possibility.

500
00:27:11,280 --> 00:27:12,919
Speaker 2: Well, there's a number of years ago. Your book The

501
00:27:12,960 --> 00:27:16,919
Speaker 2: Third Revolution was my book of the summer folks. It's dated,

502
00:27:16,960 --> 00:27:19,520
Speaker 2: not to short read. Let's bring that up to date.

503
00:27:19,600 --> 00:27:23,880
Speaker 2: What's the Fourth Revolution look like? A doctor economy for

504
00:27:23,960 --> 00:27:26,600
Speaker 2: Beijing and for President jy No.

505
00:27:26,880 --> 00:27:30,040
Speaker 8: I mean, I think the Fourth Revolution, my hope would be,

506
00:27:30,119 --> 00:27:34,199
Speaker 8: would be a new Chinese leadership with a sort of

507
00:27:34,640 --> 00:27:37,640
Speaker 8: return to a more open political.

508
00:27:37,160 --> 00:27:38,320
Speaker 9: And economic system.

509
00:27:39,160 --> 00:27:39,359
Speaker 4: You know.

510
00:27:39,520 --> 00:27:42,560
Speaker 8: The sort of the trend is basically every thirty years

511
00:27:42,600 --> 00:27:45,639
Speaker 8: you get a revolution, and so we're not we're not

512
00:27:45,720 --> 00:27:47,800
Speaker 8: quite ready for the revolution to do things. Been in

513
00:27:47,800 --> 00:27:50,840
Speaker 8: power for twelve years, so there's a long space to

514
00:27:50,920 --> 00:27:54,000
Speaker 8: go yet to have that next revolution. I think what

515
00:27:54,000 --> 00:27:56,639
Speaker 8: we're going to continue to see, frankly, in the foreseeable

516
00:27:56,680 --> 00:27:59,320
Speaker 8: future is just an amping up of what we already have,

517
00:27:59,720 --> 00:28:03,120
Speaker 8: which is just this incredible you know, investment in terms

518
00:28:03,160 --> 00:28:06,560
Speaker 8: of innovation and technology. This ramping up of China's presence

519
00:28:06,920 --> 00:28:11,040
Speaker 8: and its belief in its own leadership on the global stage,

520
00:28:11,480 --> 00:28:14,920
Speaker 8: which you know, can only be curtailed, possibly by you know,

521
00:28:15,160 --> 00:28:18,040
Speaker 8: a US let alliance pushing back against some of its

522
00:28:18,040 --> 00:28:23,280
Speaker 8: worst practices, and potentially by some internal factors, you know,

523
00:28:23,359 --> 00:28:26,960
Speaker 8: some of China's economic challenges that it's facing that it

524
00:28:27,160 --> 00:28:29,840
Speaker 8: still hasn't dealt with. But I think in terms of

525
00:28:29,920 --> 00:28:32,520
Speaker 8: the you know, next ten years or so, I think

526
00:28:32,520 --> 00:28:34,840
Speaker 8: it's all system goes for Sijinping in China.

527
00:28:35,160 --> 00:28:39,280
Speaker 6: Well, Elizabeth, if Jijimpal does sit down with President Trump

528
00:28:39,640 --> 00:28:43,200
Speaker 6: in South Korea later this month, who has the leverage

529
00:28:43,440 --> 00:28:47,080
Speaker 6: if anyone.

530
00:28:46,120 --> 00:28:46,280
Speaker 4: You know.

531
00:28:46,600 --> 00:28:50,320
Speaker 8: I think when this all began, I was pretty skeptical

532
00:28:50,440 --> 00:28:54,600
Speaker 8: about the US leverage with regard to China, which I

533
00:28:54,600 --> 00:28:58,400
Speaker 8: think was built on the faulty premise that simply because

534
00:28:59,120 --> 00:29:02,520
Speaker 8: we import so much more from China than China does

535
00:29:02,560 --> 00:29:05,400
Speaker 8: from US, that that gave us leverage because it excluded

536
00:29:05,480 --> 00:29:07,840
Speaker 8: the fact that we, you know, have so much more

537
00:29:07,880 --> 00:29:10,960
Speaker 8: single source dependency on China for things like rare earth

538
00:29:11,000 --> 00:29:16,000
Speaker 8: elements and for the precursors for you know, hundreds of

539
00:29:16,040 --> 00:29:22,640
Speaker 8: our most important drugs, right precursor chemicals, the active pharmaceutical ingredients.

540
00:29:22,680 --> 00:29:24,360
Speaker 9: So I think that this, you know.

541
00:29:24,440 --> 00:29:27,520
Speaker 8: Was the fundamental mistake that this administration made when it

542
00:29:27,600 --> 00:29:30,160
Speaker 8: first launched this trade war with China, that it thought

543
00:29:30,240 --> 00:29:33,240
Speaker 8: China was simply like every other country. And now we're

544
00:29:33,240 --> 00:29:37,280
Speaker 8: paying the price for that. So in my estimation, China

545
00:29:37,320 --> 00:29:40,480
Speaker 8: has the stronger hand, and at some level it's always

546
00:29:40,680 --> 00:29:44,040
Speaker 8: had the stronger hand. It's better able to tolerate the pain,

547
00:29:44,200 --> 00:29:46,440
Speaker 8: you know, from its population. It had done more to

548
00:29:46,480 --> 00:29:50,080
Speaker 8: diversify into other markets over the past you know, four

549
00:29:50,120 --> 00:29:53,240
Speaker 8: to you know, nine years, and so I think it's

550
00:29:53,240 --> 00:29:54,040
Speaker 8: in a better position.

551
00:29:54,160 --> 00:29:57,800
Speaker 2: Unfortunately, I got one final question now that you're sconce

552
00:29:57,800 --> 00:30:00,880
Speaker 2: out at Stanford, she doesn't give any I mean, it's

553
00:30:00,920 --> 00:30:05,000
Speaker 2: all solid disease for Elizabeth Economy. She's at the Hoover Institution,

554
00:30:05,200 --> 00:30:07,880
Speaker 2: and of course, with all of her work over the

555
00:30:07,960 --> 00:30:10,920
Speaker 2: years for America on Jenner Public Service, I should say

556
00:30:10,960 --> 00:30:15,240
Speaker 2: with Secretary of Commerce Ra mendo here recently.

557
00:30:15,440 --> 00:30:18,080
Speaker 5: Liz, when you teach it's Stanford.

558
00:30:17,560 --> 00:30:20,920
Speaker 2: Or the young people come up and say, OMG, Elizabeth Economy,

559
00:30:21,280 --> 00:30:24,520
Speaker 2: do you still tell them to read Jonathan Spence's The

560
00:30:24,600 --> 00:30:26,320
Speaker 2: Search for Modern China?

561
00:30:26,480 --> 00:30:28,960
Speaker 5: Is it still valid as thick as it is?

562
00:30:30,920 --> 00:30:33,520
Speaker 9: You know, listen I think Spence.

563
00:30:33,640 --> 00:30:38,520
Speaker 8: I think there are many Chinese, you know, historians of China.

564
00:30:39,440 --> 00:30:43,400
Speaker 8: I think all of it's valuable because understanding the history

565
00:30:43,440 --> 00:30:46,600
Speaker 8: of China helps you understand the mindset that China brings

566
00:30:46,640 --> 00:30:51,120
Speaker 8: to the table today. So absolutely, I would continue to

567
00:30:51,160 --> 00:30:55,240
Speaker 8: recommend you know books by Jonathan Spence if in fact,

568
00:30:55,360 --> 00:30:57,000
Speaker 8: any students came up to me and said, oh my

569
00:30:57,080 --> 00:30:58,080
Speaker 8: godless Economy.

570
00:30:58,120 --> 00:30:59,520
Speaker 9: Although some students do come up.

571
00:30:59,480 --> 00:31:03,520
Speaker 5: To me, did some of them probably say it Mandarin?

572
00:31:03,520 --> 00:31:06,040
Speaker 2: We got to leave it there, Elizabeth Economy, thank you

573
00:31:06,120 --> 00:31:08,400
Speaker 2: so much at Stanford. She's been a huge supporter of

574
00:31:08,440 --> 00:31:12,880
Speaker 2: our effort. Here stay with us. More from Bloomberg Surveillance

575
00:31:12,960 --> 00:31:21,360
Speaker 2: coming up after this.

576
00:31:21,360 --> 00:31:25,240
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

577
00:31:25,280 --> 00:31:28,680
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

578
00:31:28,720 --> 00:31:31,680
Speaker 1: with the Bloomberg Business app. You can also listen live

579
00:31:31,760 --> 00:31:35,320
Speaker 1: on Amazon Alexa from our flagship New York station, Just

580
00:31:35,400 --> 00:31:37,800
Speaker 1: say Alexa, Play Bloomberg eleven.

581
00:31:37,600 --> 00:31:40,160
Speaker 5: Thirty Lisa Mateo with the newspapers, What do you have?

582
00:31:40,400 --> 00:31:43,200
Speaker 10: Tighter visa restrictions could be the reason behind a dropping

583
00:31:43,240 --> 00:31:46,320
Speaker 10: applications for MBA programs in the US. They're saying a

584
00:31:46,320 --> 00:31:48,120
Speaker 10: lot more of those international.

585
00:31:47,520 --> 00:31:49,080
Speaker 5: Students saw that. Yes, they're choosing to.

586
00:31:49,080 --> 00:31:51,400
Speaker 10: Go closer to home. That's the choice they're starting to make.

587
00:31:51,680 --> 00:31:53,520
Speaker 10: I want to point out the data really quickly. It

588
00:31:53,560 --> 00:31:56,440
Speaker 10: says interest in MBA programs in the US drop one

589
00:31:56,520 --> 00:32:00,000
Speaker 10: percent in twenty twenty five. Applications to business school programs

590
00:32:00,160 --> 00:32:04,040
Speaker 10: worldwide they increased seven percent. And it's a big turnaround

591
00:32:04,040 --> 00:32:06,160
Speaker 10: from last year when more people were going.

592
00:32:06,200 --> 00:32:08,040
Speaker 2: You mentioned to dinner last night, and there was a

593
00:32:08,040 --> 00:32:11,160
Speaker 2: blurb yesterday and the zeitgeist of PhD which is not

594
00:32:11,400 --> 00:32:15,520
Speaker 2: nbas I'm going to use this word loosely, folks, PhD

595
00:32:15,600 --> 00:32:19,360
Speaker 2: applicants that major schools have cratered because there were so

596
00:32:19,400 --> 00:32:20,840
Speaker 2: many internationals as well.

597
00:32:20,920 --> 00:32:21,080
Speaker 4: Yeah.

598
00:32:21,280 --> 00:32:22,960
Speaker 6: Yeah, and it too, and it's they tend to be

599
00:32:23,000 --> 00:32:25,040
Speaker 6: full pay. The international students tend to be full paid.

600
00:32:25,040 --> 00:32:28,280
Speaker 6: They're sponsored by their companies and things like that. So

601
00:32:27,880 --> 00:32:29,920
Speaker 6: it's an issue.

602
00:32:30,080 --> 00:32:35,200
Speaker 5: John Silber, Boston University. Nice one, that really efforted it. Yep, brilliant.

603
00:32:35,200 --> 00:32:36,400
Speaker 5: Anything else on that, Lisa.

604
00:32:37,000 --> 00:32:37,200
Speaker 8: Yeah.

605
00:32:37,240 --> 00:32:39,280
Speaker 10: Also one more thing from that is that in East Asia,

606
00:32:39,280 --> 00:32:42,800
Speaker 10: including China, international applications were up forty two percent, So

607
00:32:42,840 --> 00:32:45,240
Speaker 10: that's kind of a big Insuria that we're talking about

608
00:32:45,880 --> 00:32:49,360
Speaker 10: where they're deciding to stay home. Okay, so this next

609
00:32:49,400 --> 00:32:52,040
Speaker 10: one we mentioned earlier, so I wanted to kind of

610
00:32:52,040 --> 00:32:55,040
Speaker 10: dig into it and get into those Burkeen and Kelly bags. Okay,

611
00:32:55,720 --> 00:32:58,760
Speaker 10: So it was another quarterly sales JONT but investors one

612
00:32:58,840 --> 00:33:00,240
Speaker 10: and more and that was kind of the issue Shoe

613
00:33:00,800 --> 00:33:03,920
Speaker 10: their key leather unit. They fell short of expectations, even

614
00:33:03,920 --> 00:33:07,520
Speaker 10: though it was higher than lvm H. But despite all that,

615
00:33:07,640 --> 00:33:12,400
Speaker 10: it's still like top luxury brands, it's keeping their business models,

616
00:33:12,480 --> 00:33:16,720
Speaker 10: keeping people hooked, keeping those items scarce, you know, limiting demands.

617
00:33:16,720 --> 00:33:17,480
Speaker 10: So you kind of get it.

618
00:33:17,520 --> 00:33:18,800
Speaker 4: You have to have that bag.

619
00:33:19,400 --> 00:33:20,000
Speaker 5: It works.

620
00:33:20,840 --> 00:33:22,440
Speaker 10: I don't don't take my word for it. I haven't

621
00:33:22,480 --> 00:33:24,320
Speaker 10: jumped off from yet, but it does because in the

622
00:33:24,440 --> 00:33:28,800
Speaker 10: US they're saying wealthy shoppers, especially in the US, are continued.

623
00:33:29,360 --> 00:33:35,320
Speaker 5: Really talk about tech and the stock market US really popped.

624
00:33:37,040 --> 00:33:38,880
Speaker 10: Yes, even China, and that was a big thing.

625
00:33:39,000 --> 00:33:40,720
Speaker 4: And what they say too, they didn't increase.

626
00:33:40,720 --> 00:33:42,800
Speaker 10: They increase the price back in May, but they haven't

627
00:33:42,840 --> 00:33:45,920
Speaker 10: increased it since then, so I guess people were happier

628
00:33:45,920 --> 00:33:46,240
Speaker 10: about that.

629
00:33:46,280 --> 00:33:49,120
Speaker 6: So you can get to buy LVMH.

630
00:33:49,200 --> 00:33:51,120
Speaker 10: So you know, a lot of broken bags at the

631
00:33:51,120 --> 00:33:52,160
Speaker 10: Commonwealth conference.

632
00:33:52,200 --> 00:33:53,120
Speaker 5: Did you okay?

633
00:33:55,720 --> 00:33:56,280
Speaker 1: There was another?

634
00:33:56,400 --> 00:33:57,560
Speaker 10: Okay, very nice.

635
00:33:57,600 --> 00:34:02,640
Speaker 6: There you go Commonwealth for you first. The keynote speaker

636
00:34:02,680 --> 00:34:09,319
Speaker 6: Commonwealth today is coach k I'm surprised, exactly.

637
00:34:10,160 --> 00:34:10,400
Speaker 8: I do.

638
00:34:10,680 --> 00:34:13,480
Speaker 10: Okay, So six Flags right, the theme park has been struggling.

639
00:34:13,520 --> 00:34:15,360
Speaker 10: I remember as a kid, we always used to go.

640
00:34:16,080 --> 00:34:20,560
Speaker 10: Bad weather, Yes, bad weather, declining visits. So now an

641
00:34:20,560 --> 00:34:22,960
Speaker 10: Actis investor is pushing for big changes. He's teamed up

642
00:34:23,000 --> 00:34:27,680
Speaker 10: with Travis Kelsey. Yes, NFLS Travis Kelcey. It's New York

643
00:34:28,000 --> 00:34:31,640
Speaker 10: based head front, Janet Partners, Kelsey other investors combined stake

644
00:34:31,680 --> 00:34:34,120
Speaker 10: of about nine percent of theme park operator shares or

645
00:34:34,160 --> 00:34:37,960
Speaker 10: two hundred million dollars. And he actually said Kelsey said

646
00:34:37,960 --> 00:34:40,440
Speaker 10: he is a superfan. He loves roller coasters. He's been

647
00:34:40,480 --> 00:34:42,960
Speaker 10: going to these things since he was a kid. So

648
00:34:43,080 --> 00:34:44,920
Speaker 10: the chance to kind of work with him, he was

649
00:34:44,960 --> 00:34:47,160
Speaker 10: all up for it. So he's starting to get into it.

650
00:34:47,239 --> 00:34:49,319
Speaker 10: And so they have a couple plans what they want

651
00:34:49,360 --> 00:34:53,600
Speaker 10: to do, like you know, marketing and customer experience, modernizing technology,

652
00:34:54,320 --> 00:34:57,480
Speaker 10: refreshed leadership, which was interesting that they said that and

653
00:34:57,560 --> 00:35:00,600
Speaker 10: even evaluate a potential sale so we'll see what happens.

654
00:35:00,640 --> 00:35:03,560
Speaker 10: But you know they've worked with celebrities before, active as.

655
00:35:03,480 --> 00:35:06,040
Speaker 6: Celesters, Cec Sabathia, Shaquille O'Neill.

656
00:35:06,200 --> 00:35:08,360
Speaker 5: There you go, exactly, And those are the.

657
00:35:08,239 --> 00:35:10,799
Speaker 2: Chiefs, the fundamental things. The chiefs are doing better. Lisa

658
00:35:10,880 --> 00:35:13,080
Speaker 2: gonna tell her the newspapers. Thank you so much, greatly,

659
00:35:13,120 --> 00:35:14,160
Speaker 2: greatly appreciate that.

660
00:35:14,560 --> 00:35:19,400
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,

661
00:35:19,520 --> 00:35:23,800
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

662
00:35:23,960 --> 00:35:27,400
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the

663
00:35:27,480 --> 00:35:31,520
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You

664
00:35:31,560 --> 00:35:34,920
Speaker 1: can also watch us live every weekday on YouTube and

665
00:35:35,120 --> 00:35:36,840
Speaker 1: always on the Bloomberg terminal