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Speaker 2: Yley joins us this morning for an extended conversation. Waly,
Speaker 2: I want to go back to first principles. My great
Speaker 2: mentor in the United Kingdom, he has recently died. Meg
Speaker 2: didn't decigh. Lord de Siah of India and of the
Speaker 2: United Kingdom would say, it's just about profit. What is
Speaker 2: the quality the physics of technology profit that makes you
Speaker 2: committed to mag seven.
Speaker 3: Well, it is about quality of profit. It is about
Speaker 3: it is also about the reality of Ernie's coming through
Speaker 3: really strong.
Speaker 4: Right.
Speaker 3: We're not putting hypothesis out there. We're just looking at
Speaker 3: the ability of these companies to generate earnings, to generate profits,
Speaker 3: and so far, if you look at equity attribution of
Speaker 3: various markets globally, US really stood out in being able
Speaker 3: to deliver earnings to justify the performance and tag Magnificant
Speaker 3: seven in particularly really stood out in terms of their
Speaker 3: earnings basically explaining almost all of their performance so far
Speaker 3: this year.
Speaker 5: When will you.
Speaker 2: Know the profit of all this CAPEX investment? Are you
Speaker 2: going to know that somewhere next year or do we
Speaker 2: have to wait.
Speaker 3: Ten years to know maybe somewhere in between. Actually that's
Speaker 3: a very good point. So far, Phase one of this
Speaker 3: buildout has been really companies spending their free cash flow
Speaker 3: and they are awash with cash to invest in this
Speaker 3: mega deal. But we're now entering phase two where perhaps
Speaker 3: the buildout is more capital intensive. We're talking about some
Speaker 3: new entrants tapping into bond market, into private credit, into
Speaker 3: joint ventures to fund some of this investment, and vendor
Speaker 3: financing is seeing as well. Right so phase two is
Speaker 3: more capital intensive and timing is everything. You know, we
Speaker 3: can be right about the revolutionary nature of the technology,
Speaker 3: but we can still have a very rocky market on
Speaker 3: our hand. So what we're seeing right now is the
Speaker 3: trillions of copecks being kind of talked about and estimated
Speaker 3: in the coming years. But time will tell if we
Speaker 3: have the right regional investment to justify those investments, those
Speaker 3: copex commitment. But in the meanwhile, we cannot afford to
Speaker 3: stay out of this market. So sign posting is everything,
Speaker 3: looking at earnings, looking at free cash flow in particular
Speaker 3: of those companies that are going to be consumers of
Speaker 3: this copex invest is how we are navigating this moment.
Speaker 6: Well, we are, in fact in the middle of earning season.
Speaker 5: That's a good thing.
Speaker 6: We saw some pretty strong numbers out of the big
Speaker 6: money center banks and now we're getting some industrial companies reporting.
Speaker 6: But it seems like geopolitics is not far off the
Speaker 6: radar for this market. China in particular trade discussions with
Speaker 6: the US. How do you think about that? Is that
Speaker 6: something you just try to ignore? Do you try to
Speaker 6: play it? Because it seems like the trade talks with
Speaker 6: China and what that means for global GDP over the
Speaker 6: coming years are still front and center.
Speaker 3: It's really hard to follow the headlines blow by blow,
Speaker 3: like from one moment we heard it maybe we're going
Speaker 3: to get a good deal between US China and to
Speaker 3: the next moment where maybe.
Speaker 4: The meeting won't happen.
Speaker 3: So it's very noisy in terms of headlines right now.
Speaker 3: And if you look at the Bloomberg US Trade Policy
Speaker 3: Uncertainty Index, it picked in aprol but it recently started
Speaker 3: going higher again. So Marcus are reacting quite a lot
Speaker 3: to it, but I think it's very hard to generate
Speaker 3: alpha by just following headlines. So focusing on the things
Speaker 3: that cannot change very quickly in the near term is
Speaker 3: how we're to navigate the environment. So inflation considerations for
Speaker 3: the US, but also thinking about the balance of payment
Speaker 3: for China and how important there is, and if Marcus
Speaker 3: get carried away, we would lean against that extreme pricing
Speaker 3: because these things cannot change very quickly, which is why
Speaker 3: right now Westiell pro risk despite the very busy trade headlights.
Speaker 2: Wally with Blackrock Wethers for an extended conversation to start
Speaker 2: strong Elizabeth, economy and China in the nine o'clock hour.
Speaker 2: I just put out on LinkedIn my LinkedIn of the day.
Speaker 2: It's way Lee. I had to be polite, you know,
Speaker 2: did that. But it's a great Bloomberg screen of the
Speaker 2: margin difference between S and P and small cap excuse me,
Speaker 2: large cap versus small cap Way, Lee, it's back thirty years.
Speaker 5: Can I say it's ever been like this?
Speaker 3: I think we're seeing some extraordinary ca shaped developments. The
Speaker 3: charge that I put out, the Bloomberg screenshot that I
Speaker 3: put out on LinkedIn is the profit margin of s
Speaker 3: and P five hundred large cap and SMP six hundred
Speaker 3: small cap, and they're really starting to diverge. But that's
Speaker 3: just one manifestation of this case shaped development. Right, we
Speaker 3: see K shaped recovery of the consumers. We see K
Speaker 3: shaped kind of default type of pattern in credit and
Speaker 3: also including in private credit.
Speaker 4: I think in an environment where we don't have rising.
Speaker 3: Tide of very easy policy lifting or boat of very
Speaker 3: easy fiscal streamulus kind of supporting everything, being very selective
Speaker 3: in terms of how we deploy risk is going to
Speaker 3: be the name of the game. We see credit market.
Speaker 3: You look at the cycle, there is almost amazing credit cycle,
Speaker 3: but digging under the hoods fundamentals support the very strong
Speaker 3: large cups a wash with cash, whereas the very small
Speaker 3: players are currently under pressure. So case shaped development is
Speaker 3: a characterization of the environment that we're.
Speaker 4: In, and I think that's here to stay for a while.
Speaker 6: Well, Llie, can you talk to us about geography? Where
Speaker 6: do you see I guess best opportunities maybe US versus
Speaker 6: rest of the world. Are you focusing on Europe? How
Speaker 6: do you think about from a geographic perspective where some
Speaker 6: of the opportunities are out there.
Speaker 4: We currently actually still like US equities.
Speaker 3: And we also prefer Japanese aquities and we favor them
Speaker 3: over for example, European opportunities where we would want to
Speaker 3: be a bit more selective, you know, financials and industrials
Speaker 3: and how we want to play that together with defense theme.
Speaker 4: And the reason that we still favor USP is.
Speaker 3: You look at how markets have developed so far this year,
Speaker 3: US aquaitis became a little bit more expensive, but not
Speaker 3: as much as.
Speaker 4: How much more expensive I E.
Speaker 3: Rerating has taken place in the rest of the world
Speaker 3: because of the stronger earnings delivery in the US market.
Speaker 3: You look at the earnings revision the last two months
Speaker 3: or so, US earnings have been revised higher versus European
Speaker 3: earnings having been revised lower.
Speaker 4: So the direction of travel very.
Speaker 3: Much speaks to kind of the underlying economy and the
Speaker 3: concentration of the AI theme. So far, as long as
Speaker 3: I think we're still in this AI AI conviction AI core,
Speaker 3: it will be hard to fade the US acute market
Speaker 3: at this juncture.
Speaker 6: In the fixed income space here, I mean you can
Speaker 6: sit there to your treasury get three almost three and
Speaker 6: a half percent here that seems to be not a
Speaker 6: bad place to be here. Do you sit there in
Speaker 6: the US treasuries or do you maybe take some credit
Speaker 6: risk out there?
Speaker 3: Really, for our Q four outlook that was released now
Speaker 3: when mid October that was released almost one month ago,
Speaker 3: we upgraded the long duration US treasury is because we
Speaker 3: felt that the FED is getting lucky a little bit
Speaker 3: because it is embarking on restarting the fat cutting cycle,
Speaker 3: and the macro environment actually supports that, i e.
Speaker 4: Labor market is just weak enough for fat.
Speaker 3: Independence not to be under scrutiny as it restarts cutting cycle. Right,
Speaker 3: So as we kind of still are in this environment,
Speaker 3: the FED is still getting lucky in that, you know,
Speaker 3: like we heading into next week, I think twenty four
Speaker 3: bits of recud is a foregone conclusion. We do want
Speaker 3: to lean into this momentum and lock in some of
Speaker 3: those really attractive real news in particular, so we like
Speaker 3: treasuries at at this juncture.
Speaker 2: When I got you read my mind, Paul, I'm glad
Speaker 2: you brought it up, because I've been really like pretty
Speaker 2: century focused.
Speaker 5: I got a three ninety five ten year yield.
Speaker 2: Is this finally where we get the inertial force to
Speaker 2: lower yields. Do we finally break down to a lower
Speaker 2: real yield lower nomenal yields.
Speaker 3: Well, we do think that in the very near term
Speaker 3: markets can go with this narrative.
Speaker 4: That's because of weak labor markets.
Speaker 3: Actually the defense needs to cut and because there is
Speaker 3: micro justification for that. Maybe the long end of the
Speaker 3: curve is not going to be penalized in that tom
Speaker 3: premium may not go higher as markets challenge the independence topic.
Speaker 3: So there is a bit of a sweet spot for
Speaker 3: treasuries now. Having said it, heading into next year, if
Speaker 3: you look at the market pricing for policy path, we're
Speaker 3: talking about below two point nine percent by the end
Speaker 3: of twenty twenty six.
Speaker 4: I think given the.
Speaker 3: Still broadly inflationary environment, we're still waiting to see the
Speaker 3: impact of Taroff's feed through to CPI poet for example,
Speaker 3: I think market pricing for below two point five percent
Speaker 3: pol see two point nine percent policy rates by the
Speaker 3: end of next year is too optimistic. But we may
Speaker 3: not get to the awakening moment just yet, which is
Speaker 3: why we're taxically overweight.
Speaker 2: I've got to ask you, really, with your heritage in
Speaker 2: your academic excellence in China.
Speaker 5: We have Elizabeth Economy coming up of Stanford later. Wayle
Speaker 5: your thoughts on this important set of meetings to a
Speaker 5: new five year plan in China.
Speaker 3: Well, this is an economy that needs to go through reforms.
Speaker 4: Right like this has been talked about for many years now.
Speaker 3: It needs to go from an investment a driven type
Speaker 3: of growth model to consumption having a driven type of
Speaker 3: growth model. And right now consumer sentiment still is somewhat
Speaker 3: to tap it. So I think how to energize that
Speaker 3: is going to be very key, especially against the backdrop
Speaker 3: of aging population and structural headwainds to economy. So that's
Speaker 3: a very delicate balance. But the key here is mega
Speaker 3: forces and specifically navigating and capitalizing on the AI revolution.
Speaker 2: Wellie, thank you so much for blackgrect Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 5: This is a conversation of the week.
Speaker 2: But dare I say, folks here in October our most
Speaker 2: important hydrocarbon conversation.
Speaker 5: To the end of the year. Edward Morris is absolutely iconic.
Speaker 2: Made more so it's City Group recently screaming at the
Speaker 2: oil perpetually over one hundred dollars a barrow, people going.
Speaker 5: Maybe not. He is right, He was right, I should say,
Speaker 5: and still is right.
Speaker 2: At Hard Tree Partners, Ed Morse joins us with all
Speaker 2: of his service to the nation, Senior fellow, Consulate Foreign Relations.
Speaker 2: You open up classic Ed Moyer, Ed Morse, Supply and
Speaker 2: demand in the increase of oil on the water. What
Speaker 2: is oil on the water is that boats.
Speaker 7: It's actually tankers, and they're either moving from where the
Speaker 7: supply is coming from, going to where the demand is,
Speaker 7: or they're just not going anywhere because there's nobody who
Speaker 7: wants the oil. So we've had an incredible surge in
Speaker 7: oil on the water. That surge has come after the
Speaker 7: summer demand season is over. It's come as OPEC plus
Speaker 7: is added oil to the market. So Bessemus were two
Speaker 7: hundred and fifty million barrels of oil in transit as
Speaker 7: a week ago, and that's the most since twenty twenty,
Speaker 7: which we all remember when oil prices were negative.
Speaker 2: Well, oil prices went negative, and again you said, look
Speaker 2: for or prices the acclaim Bloomberg Business Week cover of
Speaker 2: years ago of tankers off Singapore.
Speaker 5: Just sitting in the water. Is that what twenty twenty
Speaker 5: six looks like.
Speaker 7: Well, twenty twenty five certainly looks like it's going to
Speaker 7: end that way. What happens in twenty twenty six is
Speaker 7: partly a function of what the OPEC countries decide to do.
Speaker 7: Are they going to continue to put more oil in
Speaker 7: the market. And the other big question is China. China
Speaker 7: has absorbed most of the excess amount of oil in
Speaker 7: the market. That's why inventories are so low around the world.
Speaker 7: Other than China, they were importing an average of over
Speaker 7: a million barrels a day to put in storage. That's geopolitical.
Speaker 7: Of course, they've kind of slowed down a little bit
Speaker 7: related I'm sure to US China talks, but those seem
Speaker 7: to be going nowhere. So China is part of the
Speaker 7: issue of how much they're going to suck in to
Speaker 7: build their own inventory for some future date.
Speaker 6: Oil at fifty eight dollars, with wtcude oil at fifty
Speaker 6: eight dollars a barrel, is there a global glut of
Speaker 6: oil in the marketplace.
Speaker 7: Well, it looks like that. That's what the oil on
Speaker 7: the water is telling us. There's a glut. It's showing up.
Speaker 7: It's beginning finally to show up in inventories. But the
Speaker 7: inventories are so low they have a long way to go.
Speaker 7: But yes, there is definitely a glut. Supply is significantly
Speaker 7: more than what demand is at the moment.
Speaker 5: So what is this.
Speaker 6: If I'm sitting down there. I watched Landman from one season,
Speaker 6: so I know all about the oil and gas.
Speaker 2: I'm an expert in Austin at the f one at
Speaker 2: the Sweeney Corner.
Speaker 5: Yes, was the big advertisement for Landman, so I.
Speaker 6: Know all about the global energy business.
Speaker 5: What's the fix that?
Speaker 1: I mean?
Speaker 6: If I'm in Houston, I want seventy five dollars a barrel,
Speaker 6: don't I?
Speaker 5: Well, if you're in use and.
Speaker 7: You want the highest price you can get, so yes,
Speaker 7: certainly is higher than WTI.
Speaker 5: And we'll see how they're doing.
Speaker 7: You know, the US hit record levels of production the
Speaker 7: month of August, where you don't have the full data yet,
Speaker 7: but there's no sign of there being a downturn in
Speaker 7: the US production. I think among the things to look
Speaker 7: at at the moment in the month of November is
Speaker 7: whether the Crown Princess Saudi Arabia is going to come
Speaker 7: to the United States in November.
Speaker 2: Eighteenth, seems to be the schedule. How will that response be.
Speaker 2: What will be the oil discussion in the Oval Office?
Speaker 7: Well, I suspect he's not going to come if earlier
Speaker 7: in November they decide to not put more oil in
Speaker 7: the market in December, so I think that'll be a signal. Okay,
Speaker 7: I think they're looking at three or four things. They've
Speaker 7: noticed that Katar has gotten a NATO like defense agreement
Speaker 7: with the US government. They would certainly like something similar
Speaker 7: to that. They are more important in many respects to
Speaker 7: the US and to Trump's desire to have lower gasoline
Speaker 7: prices at the pump. They're looking for a military deal
Speaker 7: similar to the one that was struck when Trump was
Speaker 7: visiting Riod last spring, and that was just about one
Speaker 7: hundred and fifty billion dollars worth of military equipment. They're
Speaker 7: particularly looking for F thirty five fighter jets. Are they
Speaker 7: going to get any at all? Are they going to
Speaker 7: get what they want? Is they going to be a
Speaker 7: nuclear agreement? Are they going to be seeing US technology
Speaker 7: and US material come in as they build a nuclear
Speaker 7: energy for power generation and pre up more oil for export.
Speaker 2: Ed Morse for as we continue right now with heart
Speaker 2: Tree and of course Iconic It's City Group and his
Speaker 2: assistance of the country and studying oil particularly within the
Speaker 2: Middle East.
Speaker 5: Twenty twelve. I remember this article Matt.
Speaker 2: Bessler came out of Michigan, Great great academics and economics
Speaker 2: at Michigan writing for Business Insider. It's just the classic
Speaker 2: headline cities ed Morse as a huge note blasting everyone
Speaker 2: who believes in peak oil. This is the feisty Morse
Speaker 2: from years ago peak oil biases continued a blind analyst
Speaker 2: to an emerging oil cycle turning point. You nailed it,
Speaker 2: Matt Belser, I should say, is now with Bloomberg, and
Speaker 2: that's to our advantage.
Speaker 5: You nailed it. What's the myth right now in oil
Speaker 5: that's wrong?
Speaker 7: The myth that's wrong is that oil demand is peaking,
Speaker 7: whether it's peaking in twenty twenty eight or twenty thirty two.
Speaker 7: The consensus in the market seems to be that oil
Speaker 7: demand is peaking. Yet if you try to study oil demand,
Speaker 7: you can notice that whatever the cycles have been GDP
Speaker 7: is the driver of oil demand and GDP relationship with oil.
Speaker 7: The oil intensity of GDP is certainly falling. It's been
Speaker 7: falling at a steady pace. It's a very linear line
Speaker 7: from where we were in the early seventies when for
Speaker 7: every one percent increase in GDP around the world, and
Speaker 7: we do this in constant dollars, by the way, there
Speaker 7: was over one percent demand for oil that has come
Speaker 7: down linearly. And we just looked deeply at twenty twenty
Speaker 7: through the first half of twenty twenty five, and we're
Speaker 7: on a slope that tells us that oil demand is
Speaker 7: going to peak in twenty sixty four.
Speaker 2: Oh kay, well that's out there, Lisa, make note of
Speaker 2: that twenty sixty four.
Speaker 5: Ed and I won't be around Ed Morris. What's your
Speaker 5: target on oil here? Now?
Speaker 2: You were so good at one hundred saying think eighty.
Speaker 2: At eighty, thinks sixty? Can Ed Morse think forty dollars
Speaker 2: a barrel.
Speaker 7: I think it gets to forty by over exuberants once
Speaker 7: it crashes through that fifty dollars number. So I think
Speaker 7: there'll be a lot of reactions at under fifty.
Speaker 2: What does fifty dollars barrel oil mean for the Middle
Speaker 2: East and particularly for riodd.
Speaker 7: It means a little bit of difficulty on the credit side.
Speaker 7: So yes, they have a fiscal break even that is
Speaker 7: substantially higher than sixty dollars rent. But they get in
Speaker 7: trouble with their A plus rating on credit and they
Speaker 7: need the credit. They need the lending in order to
Speaker 7: make their own energy transition, which is to diversify their
Speaker 7: economy and get off in dependence on crude oil.
Speaker 2: John from the Jersey Shore emails and he says, with
Speaker 2: my homer, h two what's a gal and a guess
Speaker 2: cost at ed Morris is forty?
Speaker 5: I mean, where are we under two bucks? Wow? Two
Speaker 5: dollars a gallon?
Speaker 7: Well, detends on we're in the country, if you're in California.
Speaker 5: More censor it is.
Speaker 6: Yeah, there's always absolutely brilliant.
Speaker 5: Are evs having an impact on the price of oil?
Speaker 7: Of course they are. They're part of the system of
Speaker 7: replacing oil with something else. And if we look at
Speaker 7: the declining intensity that oil has in GDP around the world,
Speaker 7: we're having an increase intensity of GDP in electricity and
Speaker 7: that's where the geopolitics are turning. As we look into
Speaker 7: the next decade.
Speaker 5: Yep, please come back next week. Ed Morris with this
Speaker 5: with hard Tree, folks. What a briefing there for Global
Speaker 5: Wall Street.
Speaker 2: Edward Morris with all of his service to the country,
Speaker 2: the discussion of.
Speaker 5: Oil, the geopolitics of oil. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 5: I have been asking for days. Please.
Speaker 2: Elizabeth Economy of Stanford, Doctor Economy joins us right now.
Speaker 2: Definitive on the trans Pacific debate.
Speaker 5: Eli's Economy. Just the prism of seven.
Speaker 2: Eight, nine military commanders out the door in China, how
Speaker 2: do you interpret that?
Speaker 8: I mean, you know, honestly, this has been thirteen years
Speaker 8: worth of a continuing anti corruption purge.
Speaker 9: It sounds like a lot, and it's not.
Speaker 8: Insignificantly given that three of them are members of the
Speaker 8: Central Military Commission, which is the top body that oversees
Speaker 8: the party body that oversees the Chinese military.
Speaker 9: So that's three out of seven that were just purged.
Speaker 8: So it's not you know, inconsequential, but you know, Shejenping,
Speaker 8: this is just a continuation of, you know, a purge
Speaker 8: that just never ends for him. You know, what does
Speaker 8: that say about the nature of how he goes around
Speaker 8: dealing with corruption? I think it suggests that he hasn't
Speaker 8: found the proper method to deal with this because you know,
Speaker 8: it's it's ongoing and these are people that he himself
Speaker 8: put in place, So it's not about finding people who
Speaker 8: are more loyal to him necessarily. These were supposed to be,
Speaker 8: you know, loyal compatriots.
Speaker 9: So it's not a good look. But frankly, it's not
Speaker 9: that new.
Speaker 2: So one of the problems here, Paul, and this is
Speaker 2: like the small life that I live with Elizabeth Economy.
Speaker 2: They have a book thing in the back of Foreign
Speaker 2: Affairs magazine and Elizabeth Nay will be there and go
Speaker 2: let me ruin your October November December. I have literally
Speaker 2: listen the top of my pile the book. You said,
Speaker 2: here's the primer on the military power of China. Bloomberg
Speaker 2: Surveillance just spoke with Admiral Mullen and we talked about
Speaker 2: the self China Sea. Give us the Liz Economy update
Speaker 2: on the military capability of China and the self China Sea.
Speaker 9: Yeah.
Speaker 8: I mean, I think you know from everything and you
Speaker 8: you have the book in front of you so you
Speaker 8: can you can read it yourself, Tom, But I think
Speaker 8: the you know, the takeaway is really that China has
Speaker 8: made enormous gains in terms of its military capabilities, particularly
Speaker 8: in terms of sort of the near abroad, you know,
Speaker 8: in its own backyard. It wants to be the dominant
Speaker 8: military power in the Asia Pacific, so that's been its priority.
Speaker 8: I think the weaknesses remain in terms of the command
Speaker 8: and control, the fact that China doesn't necessarily, you know,
Speaker 8: hasn't had a lot of actual war fighting experience, so
Speaker 8: nobody really knows how good they'll be when put to
Speaker 8: the test, and whether the top down nature of control
Speaker 8: will enable sort of the mid level military commanders to
Speaker 8: make the type of split you know, moment decisions, split
Speaker 8: second decisions that you.
Speaker 9: Want them to be able to make. So there are
Speaker 9: some you know, weaknesses.
Speaker 8: And again I think they haven't made you know, progress
Speaker 8: as much progress as they would have liked in establishing
Speaker 8: bases overseas, you know, they want to have a larger
Speaker 8: footprint globally.
Speaker 9: They're doing that in terms of their arm sales.
Speaker 8: They're doing more military training of other countries, you know,
Speaker 8: with the People's Liberation Army. So they have in place
Speaker 8: many of the elements of a global military presence, but
Speaker 8: they're not quite there yet, and I think that's you know,
Speaker 8: those are sort of the two major messages if we're
Speaker 8: trying to understand where the Chinese military still fall short.
Speaker 9: Those are probably the two.
Speaker 6: Main areas, Elizabeth, for those of us on Global Wall Street,
Speaker 6: we're trying to keep a pace of the changing economic
Speaker 6: discussions between the US and China.
Speaker 5: Here.
Speaker 6: Will there be a meeting with President she and President
Speaker 6: Trump later this month? What's your current read of the
Speaker 6: relationship of the potential negotiations and how this all might
Speaker 6: shake shakeout.
Speaker 8: Yeah, I mean, I think, you know, odds of there
Speaker 8: being a meeting are quite high right now. You know,
Speaker 8: it looked less good, you know, a week or two
Speaker 8: ago when we had the most recent sort of tit
Speaker 8: for tat with the US export controls and the Chinese
Speaker 8: controls and new licensing restrictions on rare earth elements. So
Speaker 8: that was, you know, I think, a huge dust up.
Speaker 8: But President Trump is pretty clearly signaled that he expects
Speaker 8: to meet with President t on the sidelines of Apek
Speaker 8: in South Korea next week. So I take that as
Speaker 8: a positive in terms of what's likely to come out
Speaker 8: of the meeting.
Speaker 9: Look, the President has made clear what.
Speaker 8: He wants he wants, you know, and it's nothing we
Speaker 8: haven't heard before. You know, he wants China to do
Speaker 8: more in terms of controlling the export of the prebursors
Speaker 8: for fetanyl. He wants China to you know, buy more
Speaker 8: soy beans, you know, because basically they're not buying any
Speaker 8: soy beans from the United States. They've completely gone to
Speaker 8: other you know markets like Brazil and Argentina. And he
Speaker 8: wants China to lift these new restrictions on the export
Speaker 8: of rare earth elements because that really hits hard at
Speaker 8: our technology and defense industries. For China, you know, they've
Speaker 8: liked to see you know, the United States not discriminate
Speaker 8: against Chinese companies, you know, globally, they want the US
Speaker 8: to lift its own export controls, particularly the last set,
Speaker 8: which basically places about twelve thousand Chinese companies on the
Speaker 8: entity list, which is pretty you know, significant. They've liked
Speaker 8: the president to do something on Taiwan, at the very
Speaker 8: least an affirmation of you know, the One China what
Speaker 8: we call the One China policy, what they call the
Speaker 8: One China principle.
Speaker 9: They're slightly different.
Speaker 2: I have to interrupt you. This is too important. What
Speaker 2: is the Elizabeth economy Gaussian distribution of outcomes with Trump
Speaker 2: Ji and China. What's the most likely thing in Taiwan?
Speaker 2: What's the most likely thing?
Speaker 8: Liz on the Taiwan question, I think the president is
Speaker 8: President Trump. I don't think he has much personal interest
Speaker 8: in Taiwan, much of a sort of personal sensibility of
Speaker 8: its importance.
Speaker 9: To save the fact.
Speaker 8: That we know import more than ninety percent of our
Speaker 8: advanced semiconductors from from Taiwan, and that will continue to
Speaker 8: be the case despite all of the investment in the
Speaker 8: United States by TSMC, their major semiconductor manufacturing firm. So
Speaker 8: he's not going to get away from the silicon shield.
Speaker 8: But I think, you know, the range of possibilities I
Speaker 8: think basically is, you know, number one that we sort
Speaker 8: of say we commit to and I think this is
Speaker 8: on the outside, we commit, you know, to you know,
Speaker 8: diminish our arm sales to Taiwan.
Speaker 9: I think that would be you know, high priority of China.
Speaker 9: I think that's less likely, but it's a possibility.
Speaker 2: Well, there's a number of years ago. Your book The
Speaker 2: Third Revolution was my book of the summer folks. It's dated,
Speaker 2: not to short read. Let's bring that up to date.
Speaker 2: What's the Fourth Revolution look like? A doctor economy for
Speaker 2: Beijing and for President jy No.
Speaker 8: I mean, I think the Fourth Revolution, my hope would be,
Speaker 8: would be a new Chinese leadership with a sort of
Speaker 8: return to a more open political.
Speaker 9: And economic system.
Speaker 4: You know.
Speaker 8: The sort of the trend is basically every thirty years
Speaker 8: you get a revolution, and so we're not we're not
Speaker 8: quite ready for the revolution to do things. Been in
Speaker 8: power for twelve years, so there's a long space to
Speaker 8: go yet to have that next revolution. I think what
Speaker 8: we're going to continue to see, frankly, in the foreseeable
Speaker 8: future is just an amping up of what we already have,
Speaker 8: which is just this incredible you know, investment in terms
Speaker 8: of innovation and technology. This ramping up of China's presence
Speaker 8: and its belief in its own leadership on the global stage,
Speaker 8: which you know, can only be curtailed, possibly by you know,
Speaker 8: a US let alliance pushing back against some of its
Speaker 8: worst practices, and potentially by some internal factors, you know,
Speaker 8: some of China's economic challenges that it's facing that it
Speaker 8: still hasn't dealt with. But I think in terms of
Speaker 8: the you know, next ten years or so, I think
Speaker 8: it's all system goes for Sijinping in China.
Speaker 6: Well, Elizabeth, if Jijimpal does sit down with President Trump
Speaker 6: in South Korea later this month, who has the leverage
Speaker 6: if anyone.
Speaker 4: You know.
Speaker 8: I think when this all began, I was pretty skeptical
Speaker 8: about the US leverage with regard to China, which I
Speaker 8: think was built on the faulty premise that simply because
Speaker 8: we import so much more from China than China does
Speaker 8: from US, that that gave us leverage because it excluded
Speaker 8: the fact that we, you know, have so much more
Speaker 8: single source dependency on China for things like rare earth
Speaker 8: elements and for the precursors for you know, hundreds of
Speaker 8: our most important drugs, right precursor chemicals, the active pharmaceutical ingredients.
Speaker 9: So I think that this, you know.
Speaker 8: Was the fundamental mistake that this administration made when it
Speaker 8: first launched this trade war with China, that it thought
Speaker 8: China was simply like every other country. And now we're
Speaker 8: paying the price for that. So in my estimation, China
Speaker 8: has the stronger hand, and at some level it's always
Speaker 8: had the stronger hand. It's better able to tolerate the pain,
Speaker 8: you know, from its population. It had done more to
Speaker 8: diversify into other markets over the past you know, four
Speaker 8: to you know, nine years, and so I think it's
Speaker 8: in a better position.
Speaker 2: Unfortunately, I got one final question now that you're sconce
Speaker 2: out at Stanford, she doesn't give any I mean, it's
Speaker 2: all solid disease for Elizabeth Economy. She's at the Hoover Institution,
Speaker 2: and of course, with all of her work over the
Speaker 2: years for America on Jenner Public Service, I should say
Speaker 2: with Secretary of Commerce Ra mendo here recently.
Speaker 5: Liz, when you teach it's Stanford.
Speaker 2: Or the young people come up and say, OMG, Elizabeth Economy,
Speaker 2: do you still tell them to read Jonathan Spence's The
Speaker 2: Search for Modern China?
Speaker 5: Is it still valid as thick as it is?
Speaker 9: You know, listen I think Spence.
Speaker 8: I think there are many Chinese, you know, historians of China.
Speaker 8: I think all of it's valuable because understanding the history
Speaker 8: of China helps you understand the mindset that China brings
Speaker 8: to the table today. So absolutely, I would continue to
Speaker 8: recommend you know books by Jonathan Spence if in fact,
Speaker 8: any students came up to me and said, oh my
Speaker 8: godless Economy.
Speaker 9: Although some students do come up.
Speaker 5: To me, did some of them probably say it Mandarin?
Speaker 2: We got to leave it there, Elizabeth Economy, thank you
Speaker 2: so much at Stanford. She's been a huge supporter of
Speaker 2: our effort. Here stay with us. More from Bloomberg Surveillance
Speaker 2: coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 5: Thirty Lisa Mateo with the newspapers, What do you have?
Speaker 10: Tighter visa restrictions could be the reason behind a dropping
Speaker 10: applications for MBA programs in the US. They're saying a
Speaker 10: lot more of those international.
Speaker 5: Students saw that. Yes, they're choosing to.
Speaker 10: Go closer to home. That's the choice they're starting to make.
Speaker 10: I want to point out the data really quickly. It
Speaker 10: says interest in MBA programs in the US drop one
Speaker 10: percent in twenty twenty five. Applications to business school programs
Speaker 10: worldwide they increased seven percent. And it's a big turnaround
Speaker 10: from last year when more people were going.
Speaker 2: You mentioned to dinner last night, and there was a
Speaker 2: blurb yesterday and the zeitgeist of PhD which is not
Speaker 2: nbas I'm going to use this word loosely, folks, PhD
Speaker 2: applicants that major schools have cratered because there were so
Speaker 2: many internationals as well.
Speaker 4: Yeah.
Speaker 6: Yeah, and it too, and it's they tend to be
Speaker 6: full pay. The international students tend to be full paid.
Speaker 6: They're sponsored by their companies and things like that. So
Speaker 6: it's an issue.
Speaker 5: John Silber, Boston University. Nice one, that really efforted it. Yep, brilliant.
Speaker 5: Anything else on that, Lisa.
Speaker 8: Yeah.
Speaker 10: Also one more thing from that is that in East Asia,
Speaker 10: including China, international applications were up forty two percent, So
Speaker 10: that's kind of a big Insuria that we're talking about
Speaker 10: where they're deciding to stay home. Okay, so this next
Speaker 10: one we mentioned earlier, so I wanted to kind of
Speaker 10: dig into it and get into those Burkeen and Kelly bags. Okay,
Speaker 10: So it was another quarterly sales JONT but investors one
Speaker 10: and more and that was kind of the issue Shoe
Speaker 10: their key leather unit. They fell short of expectations, even
Speaker 10: though it was higher than lvm H. But despite all that,
Speaker 10: it's still like top luxury brands, it's keeping their business models,
Speaker 10: keeping people hooked, keeping those items scarce, you know, limiting demands.
Speaker 10: So you kind of get it.
Speaker 4: You have to have that bag.
Speaker 5: It works.
Speaker 10: I don't don't take my word for it. I haven't
Speaker 10: jumped off from yet, but it does because in the
Speaker 10: US they're saying wealthy shoppers, especially in the US, are continued.
Speaker 5: Really talk about tech and the stock market US really popped.
Speaker 10: Yes, even China, and that was a big thing.
Speaker 4: And what they say too, they didn't increase.
Speaker 10: They increase the price back in May, but they haven't
Speaker 10: increased it since then, so I guess people were happier
Speaker 10: about that.
Speaker 6: So you can get to buy LVMH.
Speaker 10: So you know, a lot of broken bags at the
Speaker 10: Commonwealth conference.
Speaker 5: Did you okay?
Speaker 1: There was another?
Speaker 10: Okay, very nice.
Speaker 6: There you go Commonwealth for you first. The keynote speaker
Speaker 6: Commonwealth today is coach k I'm surprised, exactly.
Speaker 8: I do.
Speaker 10: Okay, So six Flags right, the theme park has been struggling.
Speaker 10: I remember as a kid, we always used to go.
Speaker 10: Bad weather, Yes, bad weather, declining visits. So now an
Speaker 10: Actis investor is pushing for big changes. He's teamed up
Speaker 10: with Travis Kelsey. Yes, NFLS Travis Kelcey. It's New York
Speaker 10: based head front, Janet Partners, Kelsey other investors combined stake
Speaker 10: of about nine percent of theme park operator shares or
Speaker 10: two hundred million dollars. And he actually said Kelsey said
Speaker 10: he is a superfan. He loves roller coasters. He's been
Speaker 10: going to these things since he was a kid. So
Speaker 10: the chance to kind of work with him, he was
Speaker 10: all up for it. So he's starting to get into it.
Speaker 10: And so they have a couple plans what they want
Speaker 10: to do, like you know, marketing and customer experience, modernizing technology,
Speaker 10: refreshed leadership, which was interesting that they said that and
Speaker 10: even evaluate a potential sale so we'll see what happens.
Speaker 10: But you know they've worked with celebrities before, active as.
Speaker 6: Celesters, Cec Sabathia, Shaquille O'Neill.
Speaker 5: There you go, exactly, And those are the.
Speaker 2: Chiefs, the fundamental things. The chiefs are doing better. Lisa
Speaker 2: gonna tell her the newspapers. Thank you so much, greatly,
Speaker 2: greatly appreciate that.
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