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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,

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Speaker 1: we may hear more from President Trump this week about

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Speaker 1: those aluminum and steel tariffs that he was talking about,

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Speaker 1: which could end up being uh the maximum that any

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Speaker 1: of his advisers recommended tariff on steel imports. Here to

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Speaker 1: kind of look at what the possible implications of this

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Speaker 1: are is Mike dudas partner and Medals and Mining analysts

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Speaker 1: for Vertical Research Partners. He joins us here in eleven

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Speaker 1: three oh studios today, so we're very happy to see you. Mike.

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Speaker 1: Just walk us through what a twent tariff on steel

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Speaker 1: and a ten percent tariff on aluminum would do. So

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Speaker 1: I think when you think of the big picture, it

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Speaker 1: will increase steel prices and aluminum prices, but you'll also

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Speaker 1: see dynamics where there may be an oversupply of steel

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Speaker 1: or aluminum saying the Pacific where a lot of the

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Speaker 1: excess production of steel aluminum occur, and a shortage in

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Speaker 1: the you know, this part of the market, the US,

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Speaker 1: you know, North America, South American market, which could lead

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Speaker 1: to higher premiums for users of US and aluminium steel

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Speaker 1: as opposed to um you know, and and maybe a

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Speaker 1: lower premium overseas. But generally it's going to raise prices,

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Speaker 1: could even raise more for customers of US medals. But

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Speaker 1: could you just explain what you're talking about? In other words,

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Speaker 1: it'll be uh more expensive for people in the US

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Speaker 1: to buy steel and aluminum. It certainly could be. So

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Speaker 1: most of the excess steel is produced outside the United States,

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Speaker 1: primarily in Asia. So as tariffs of of steel and

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Speaker 1: limits of steel coming into this country, that's gonna lead

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Speaker 1: probably for less steel to come in here from Asia.

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Speaker 1: It's gonna be more supply less demand in Asia and

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Speaker 1: will be more demand less supply, say here in US

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Speaker 1: North America, which could lead to uh some pricing dynamics

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Speaker 1: as well if timber cent numbers are what's going to

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Speaker 1: be recommended and go through. So so if you are

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Speaker 1: and there was this interesting story about this because of

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Speaker 1: course there are many steel companies that have operations in Ohio,

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Speaker 1: but there are also many companies in Ohio that, as

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Speaker 1: you say, use steel and aluminum as an input. And

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Speaker 1: because the price is set globally rather than locally, is

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Speaker 1: saying that if you're a fabricator for the aerospace, the automotive,

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Speaker 1: or another industry that's similar, you're gonna end up having

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Speaker 1: to pay higher prices for the very products that you

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Speaker 1: then make in the United States. Correct Now, some products

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Speaker 1: are more intense or less intense than a certain steel

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Speaker 1: or aluminum or all the different contents. Even automobiles have

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Speaker 1: been moving away from steel in their bodies towards aluminum.

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Speaker 1: But that's that's gonna be. That's a fair observation, especially

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Speaker 1: with the economy. Even before these tariff and the discussions

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Speaker 1: were announced, and President Trump mentioned that a couple of

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Speaker 1: days ago, you know, prices were starting to improve, expectations, demands,

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Speaker 1: supply was looking pretty good. So this gives a boost

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Speaker 1: for that. But yes, there's a lot more consumers of

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Speaker 1: steel and other products and other products that are going

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Speaker 1: to be impacted by right, because I think that's like

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Speaker 1: one there's estimates, I think one million workers around across

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Speaker 1: the United States work in industries that make products from

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Speaker 1: steel and aluminum, and there are about eighty thousand workers

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Speaker 1: at steel plants. So that has been an argument used

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Speaker 1: for decades about you know, free trade and and you know,

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Speaker 1: relative it's fair or free trade, and certainly from a

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Speaker 1: political aspect, and what President Trump got helped elected in

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Speaker 1: that part of the country, and his Commerce Secretary will Burross,

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Speaker 1: who was intimately well known in the steel and the

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Speaker 1: coal industries. I don't think it's that surprising to get

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Speaker 1: this type of announcement, but maybe the number was a

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Speaker 1: bit shocking. But he is a dealmaker, So maybe you

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Speaker 1: start here and work your way to something a little

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Speaker 1: bit more ameliorative to everyone else. Just real quick, how

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Speaker 1: much good prices increase. So depending on products, you could

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Speaker 1: see you flat roll rebar to this point, you could

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Speaker 1: see pops in certain areas. Now there could be other

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Speaker 1: aspects around the world where kind of ameliorates, but you're

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Speaker 1: gonna you could see some, you know, some pretty decent

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Speaker 1: pricing pops going forward. One other area that I didn't

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Speaker 1: want to hit with you was gold because there's been

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Speaker 1: a big question about whether this is truly acting as

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Speaker 1: an inflation hedge. What what is gold right now and

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Speaker 1: why is it underperformed with some people thought it's not bitcoin. Okay,

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Speaker 1: if you make it smaller and just call it gold

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Speaker 1: did go very good. Yeah, I'm surprised that hasn't even

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Speaker 1: put on exchange yet. So um, yeah, I think it's interesting.

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Speaker 1: Gold has been relatively holding its value over the past

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Speaker 1: several months. It's been in a kind of a narrow

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Speaker 1: trading range. I think it's starting to sniff a little

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Speaker 1: bit of inflation expectations rising. I think we've seen that

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Speaker 1: in the bond market. I think we've seen that from

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Speaker 1: some of the policies that we're seeing, and that is

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Speaker 1: starting to creep into I think support for gold. So

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Speaker 1: I think from the supply demand balance, there's definitely much

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Speaker 1: better demand for gold elsewhere like in China and India,

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Speaker 1: and supplies coming off because we've had such lack of

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Speaker 1: capital spending the last five years. But I do think

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Speaker 1: that gold starting to with a little bit of inflation

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Speaker 1: and starting to support a support prices here, and I

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Speaker 1: think you'll see that going forward as well. If you're

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Speaker 1: an investor and you're thinking about these kinds of metals

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Speaker 1: as an investment, would you be looking to a company

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Speaker 1: that that doesn't do gold exclusively, and I'm thinking, for example,

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Speaker 1: of Freeport Macmuran. In other words, you get copper, but

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Speaker 1: you awsome mind Goal rather than gold Court for example.

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Speaker 1: Excellent question because some of the pure gold names have

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Speaker 1: not performed as well as some of the diverse mind

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Speaker 1: mires like a Glencore or the Freeport for example, which

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Speaker 1: certainly has the impact of what's going on in Indonesia.

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Speaker 1: So in a broad based economic metal commodity recovery, which

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Speaker 1: we are anticipating in metals like Goal, copper, zinc, lead, aluminum,

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Speaker 1: some of the verse fine miners might be a good

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Speaker 1: place to be in and one of our recommended names

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Speaker 1: is Freeport. On that basis, did you happen to have

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Speaker 1: any thoughts about the report last week that Apple is

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Speaker 1: looking to to UH access cobalt directly in order to

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Speaker 1: have that supply for their their iPhones and their their devices,

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Speaker 1: for their batteries and so on. So over cycles, we

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Speaker 1: remember companies want to access some of the rare earth minerals,

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Speaker 1: remember that several years ago and trying to get direct

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Speaker 1: um the auto companies, remember still water mining back in

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Speaker 1: the day palladium in Montana. Let's go correct direct contract,

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Speaker 1: so it's not unprecedented. And if an electric battery electric

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Speaker 1: vehicle world, as I'm sure you're quite aware of, cold

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Speaker 1: book would be very very important. So I can see

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Speaker 1: a company like Apple wanting to do that. Now, how

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Speaker 1: you do that and what countries you deal with and

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Speaker 1: how you access that's for another discussion. Uh. Just before

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Speaker 1: you go, I wish to get your thoughts on the

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Speaker 1: dollar and how much you're really paying attention to it

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Speaker 1: with respect to commodity prices. So you have to pay

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Speaker 1: attention to it if you're trying to, UM, get a

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Speaker 1: sense of where many of these commodities, especially the metals,

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Speaker 1: are going. The dollar has Everybody has been calling for

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Speaker 1: a bullish moving a dollar in two thousand eighteen, they

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Speaker 1: called for a bullish moving seventeen. It really hasn't occurred,

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Speaker 1: and that's been very supportive I think across the board

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Speaker 1: for many of the commodities has been supported for oil

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Speaker 1: as well. Um, you're I think you could see maybe

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Speaker 1: a little bit of us if the bond market starts

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Speaker 1: to you know, sell off and you get a little

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Speaker 1: bit higher rates, that couldn't get a bid to the dollar,

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Speaker 1: but relative to the euro weal to yeah, and Lada

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Speaker 1: has not acted as well. So I do think the

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Speaker 1: path of leafs resistance right now continues to be lower,

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Speaker 1: but we could see some strength if the bomb market

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Speaker 1: starts to get funky on us. All right, well, we're

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Speaker 1: gonna leave it there, but thanks very much for coming

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Speaker 1: in and spending time with us. Mike Dodas is the

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Speaker 1: partner and medals and mining analysts for Vertical Research Partners.

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Speaker 1: Companies are buying back their shares at the fastest pace

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Speaker 1: in the credit cycle. That is according to fourth quarter

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Speaker 1: data compiled by Brian Reynolds, who is an asset class

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Speaker 1: strategist focusing on US cash equities for Kindeord Genuity Corporation

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Speaker 1: in New York. Brian joins us, now, thank you so

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Speaker 1: much for being with us. I just want to start

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Speaker 1: with the actual data. What are you finding, uh and

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Speaker 1: why were you looking at this particular data so closely?

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Speaker 1: Well throughout this boom market, by backs have been the

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Speaker 1: main source of higher stock prices. Investors collectively have done

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Speaker 1: nothing during this bull market. Some people put money into

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Speaker 1: et f s, but big investors like pensions have been

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Speaker 1: selling stocks so that's why I focus on the bio backs.

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Speaker 1: What I look at is on Bloomberg, I add up

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Speaker 1: the share count data of companies in the SMP five

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Speaker 1: hundred and I've tried to use that data to figure

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Speaker 1: out how much stock they've taken out. And it may

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Speaker 1: be that the fourth quarters are a record for this

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Speaker 1: cycle in buy backs, and that partly explains why stock

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Speaker 1: prices were so strong at the end of the year. Alright,

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Speaker 1: so the data that you have out there, you're boosting

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Speaker 1: your forecast for the fourth quarter share buybacks to a

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Speaker 1: hundred and sixty five billion dollars that would exceed the

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Speaker 1: one hundred and sixty one billion dollar high set for

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Speaker 1: this cycle in the first quarter of twenty sixteen. Is

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Speaker 1: this a bad thing? It depends on what's I frame.

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Speaker 1: We're essentially leveraging up our economy to fund share buy

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Speaker 1: backs to push stock prices up. So while this bull

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Speaker 1: market goes on, it's a good thing. It results in

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Speaker 1: higher stock prices. But eventually credit cycles end, and they

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Speaker 1: always end badly. I don't think this one ends for

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Speaker 1: another three to five years, but when they end, you

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Speaker 1: get disasters like you start in two thousand eight and

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Speaker 1: three thousand. Hey, Brian, just a little bit about the

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Speaker 1: sort of nature of of stock buy backs, because you know,

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Speaker 1: you shrink the float. We got that that that typically

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Speaker 1: is one of the things that you know the company

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Speaker 1: is looking to increase its earnings. It's great to shrink

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Speaker 1: the float because that way, uh, it looks like they're

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Speaker 1: making more money. But over time is are there specific

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Speaker 1: rules that investors can follow that they could use that

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Speaker 1: stock buy back perspective in order to make money. Well,

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Speaker 1: I think the important thing to remember is that this

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Speaker 1: list the overall level of stock prices, so like the

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Speaker 1: S and P five hundred, but in terms of individual

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Speaker 1: sectors or companies, it can be random. For example, g

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Speaker 1: and IBM both brought back a lot of stock and

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Speaker 1: they've under perform as investors took that money and reallocated

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Speaker 1: it towards growth. So it's an overall guide, but not

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Speaker 1: a very specific one. Okay, So then should you should

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Speaker 1: you combine it perhaps with something like growing free cash flow?

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Speaker 1: And I tipped my hat to Charlie Biederman of trim

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Speaker 1: Tabs Investment Research, who helped pioneer this idea. If you

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Speaker 1: can find companies where they're increasing free cash flow and

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Speaker 1: buying back their stock. Would that be a good combo. Well, our,

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Speaker 1: that's that's one idea our chief strategist Tony Dwyer, who

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Speaker 1: you all know, he's a favor of more economically sensitive

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Speaker 1: names at this point, more growthier names, especially in the

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Speaker 1: small midcamp area. That's probably where the money is going

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Speaker 1: to be reallocated within the next three or four months,

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Speaker 1: and then after that we'll talk about another reallocation. So, Brian,

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Speaker 1: I think it also matters where companies get the money

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Speaker 1: to finance share buybacks. A lot of it is financed

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Speaker 1: with debt. But could it be that in the fourth

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Speaker 1: quarter there was just more business confidence, much more cash

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Speaker 1: coming in through the door that companies were looking to deploy. Well,

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Speaker 1: profitability was up, so that helps a little bit. But

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Speaker 1: most of the profits go to plant equipment spending, which,

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Speaker 1: as Tony Dwyer also points out, is beginning to accelerate,

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Speaker 1: so the cash flow from business tends to get reinvested

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Speaker 1: in business. Most of the buy backs are funded with debt,

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Speaker 1: although now we've got a kicker in the form of

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Speaker 1: repatriation from the tax code, so there's likely going to

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Speaker 1: be more buy backs ahead. In fact, announced by backs,

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Speaker 1: in other words, upcoming ones maybe setting a record this quarter.

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Speaker 1: But the buy backs that have done with debt, will

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Speaker 1: those be limited because the value of issuing debt is

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Speaker 1: going to go down because the deductibility rules have been changed.

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Speaker 1: The demand for corporate bonds is unchanged by tax reform.

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Speaker 1: That's our nation's public pensions and insurance companies putting money

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Speaker 1: to work, so their appetite for credit is as a

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Speaker 1: ravenous as Ever, what this doesn't cut the supply of credit.

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Speaker 1: Companies want to issue fewer debt, fewer amounts of debt,

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Speaker 1: and that means there's more shadow banking that's going to

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Speaker 1: fill that void. And shadow banking, the more of it

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Speaker 1: you have, the higher the stock prices go until it

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Speaker 1: gets thrown into reverse two years after the Yel curving birds. So, Brian,

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Speaker 1: can you give us take us back in history before

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Speaker 1: the two thousand and eight financial crisis. What was the

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Speaker 1: cycle of shared buy backs then and kind of serve

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Speaker 1: as a guide for what we're seeing now. It looks

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Speaker 1: very similar to this cycle, except that cycle was shorter.

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Speaker 1: It was only four years because the Yel curve inverted

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Speaker 1: quickly in two thousand five, bringing on the crisis in

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Speaker 1: two thousand seven, but it was much the same with

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Speaker 1: companies buying back stock using borrowed money, while investors kind

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Speaker 1: of sat on their hands until the last two years

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Speaker 1: of the bull market. So in other words, I guess

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Speaker 1: what I'm trying to wonder is are we going to

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Speaker 1: look back and say that companies bar owed money to

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Speaker 1: buy their shares at the highest possible valuations, which was

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Speaker 1: basically throwing it away. Well, the highest possible evaluation that

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Speaker 1: we did was in the nineteen nineties, which was throwing

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Speaker 1: it away. The last time was less of a higher

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Speaker 1: valuation than we're at a lower valuation now. But essentially, yes,

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Speaker 1: we are leveraging up our economy to push up stock prices,

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Speaker 1: just none of the high valuations yet. And Brian, just quickly,

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Speaker 1: I mean, could this be changed, Let's say, if there

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Speaker 1: were new rules in the county, because right now, you know,

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Speaker 1: spending money on research and development doesn't necessarily benefit the

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Speaker 1: way you look at the balance sheet. Well, this is

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Speaker 1: driven by our public pensions who really aren't impacted by

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Speaker 1: rules and regulations. They haven't need to make seven and

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Speaker 1: a half percent, and they're gonna lend money to anybody

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Speaker 1: that wants it. So maybe if the margins and rules

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Speaker 1: and regulations could be changed. But unless we find a

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Speaker 1: way to regulate public pensions and they think their sovereigns,

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Speaker 1: so there really isn't. This cycle is probably going to

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Speaker 1: go on again. All Right, We're gonna leave it there.

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Speaker 1: Brian an Old's asset class strategist US Cash Equities for

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Speaker 1: it can accord a genuity. Saturday was the day that

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Speaker 1: we received Warren Buffett's annual letter, but this time around

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Speaker 1: it was shorter than usual. It didn't have a ton

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Speaker 1: of huge ideas, but if you dig beneath the surface,

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Speaker 1: it said quite a bit. Katherine Chilinski joins US now.

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Speaker 1: She's US finance reporter for Bloomberg News who spent her

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Speaker 1: entire weekend eating pizza in the office while covering this letter.

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Speaker 1: Thank you so much for being here. So, uh, what

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Speaker 1: stood out to me? And then I want to ask

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Speaker 1: if if this sort of was your big takeaway was

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Speaker 1: that Berkshire Hathaway his company really can't find a good

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Speaker 1: acquisition target. They called it at a drought. I mean,

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Speaker 1: last year was in a great year for them finding

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Speaker 1: deals that they liked. Buffett clarified that like a lot

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Speaker 1: of it was prices that prices for businesses we're reaching

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Speaker 1: all time highs and um, the availability of cheap debt

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Speaker 1: has made it just even more hard to actually find

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Speaker 1: what they've been looking for. Let's talk about the company

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Speaker 1: Berkshire Hathway. It is an insurance business as much as

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Speaker 1: anything else. Correct now it's actually tilted a lot towards

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Speaker 1: UM kind of non insurance operators manufacturing, but insurance is

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Speaker 1: a good chunk of it. And we saw in this

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Speaker 1: reason earning. Sometimes when insurance goes bad, like with the hurricanes, UM,

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Speaker 1: it can, it can really hurt your earnings of it.

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Speaker 1: So if they're shifting their attention to what industrial companies

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Speaker 1: with the purchase previously of Burlington Northern Santa fe uh,

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Speaker 1: the Precision cast Parts was a huge one he struck recently. UM.

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Speaker 1: He praised that CEO Mark Donegan in the letter, which

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Speaker 1: is I think that's always sort of telling you wanna

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Speaker 1: you know. UM, a couple of managers often get a

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Speaker 1: heaping of praise over in the letter, and Mark Donnegan

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Speaker 1: was a huge one. So he also has a record

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Speaker 1: cash bile of a hundred and sixteen billion dollars right

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Speaker 1: now largely held in T bills. This is burning a

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Speaker 1: hole in their pocket. They want to put it to work.

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Speaker 1: The fact that they did say there was this dearth

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Speaker 1: of opportunities, does that indicate something bigger about the markets

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Speaker 1: and kind of perhaps that Warren Buffett sees things as

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Speaker 1: vastly overvalued. I mean, I think you can sort of

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Speaker 1: deduce that. Yeah, it means things aren't great. I mean,

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Speaker 1: Buffett does tend to play best when things are are faltering,

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Speaker 1: and he can kind of step in with his UM

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Speaker 1: investing knowledge and provide some lifelines. I think he did

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Speaker 1: say you know that he wants to make one or

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Speaker 1: more huge acquisitions. It's also a thing of he really

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Speaker 1: needs large acquisitions to really bolster earnings because Berkshire has

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Speaker 1: gotten so huge, although some of those attempts have gotten

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Speaker 1: stymied in the past. Right last year it was kind

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Speaker 1: of it was it was rough. Kraft Heinz tried to

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Speaker 1: approach you know, Lever and that sort of fell apart.

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Speaker 1: They didn't want to do a hostile takeover Berkshire's UM

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Speaker 1: pretty um, they don't like those in general. And then

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Speaker 1: um they also bid for an energy company and that

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Speaker 1: they were bested in that attempt and it was a

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Speaker 1: rough gear. Talk about healthcare for just a moment, because

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Speaker 1: of course, UH, JP Morgan Chase, as well as Amazon

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Speaker 1: and Berkshire Hathway have all spoken about and as yet

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Speaker 1: unspecified healthcare initiative. Todd Combs, who is uh one of

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Speaker 1: the top people at Berkshire Hathaway, is also on the

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Speaker 1: board of JP Morgan and UM, one if you offer,

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Speaker 1: is there any idea of what it is they're going

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Speaker 1: to be talking about? Buffett talked about it a little

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Speaker 1: this morning, and I think it's interesting. I mean, Todd Combs,

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Speaker 1: he's one of his Buffett's investing deputies, but he's gotten

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Speaker 1: a lot of power with this healthcare adventure. I mean

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Speaker 1: he's been, um, you know, part of the one of

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Speaker 1: the people tasked was sort of helping create it. And um,

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Speaker 1: even Buffett himself said today that, you know, um, Buffett

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Speaker 1: agrees that this is a huge cost problem that they

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Speaker 1: need to tackle, but even Todd was working really hard

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Speaker 1: at kind of figuring out ways they could do it.

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Speaker 1: They still don't have a CEO for that venture, so

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Speaker 1: I think that will be really interesting to sort of

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Speaker 1: see who will actually sort of take charge. Well, it

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Speaker 1: was interesting to actually hear what warm Buffett had to

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Speaker 1: say on this. He said, uh, that there certainly is

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Speaker 1: pricing power when you're this big, but that was just

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Speaker 1: a little bit of it. That this healthcare venture would

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Speaker 1: go much further. What does that mean? I thought it

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Speaker 1: was interesting. I mean, he said, you know, yeah, it

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Speaker 1: might be kind of easy to shave off three or

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Speaker 1: four percent of costs in this in this thing because

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Speaker 1: of their negotiating power, but they want to do more.

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Speaker 1: And I think that speaks to the the desire for

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Speaker 1: Buffett and these two other large companies to really sort

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Speaker 1: of do more of a systemic kind of overram. I mean,

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Speaker 1: they said it will focus on their companies to begin with,

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Speaker 1: but there's kind of an idea that this is going

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Speaker 1: to spread much larger. To the extent of like how

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Speaker 1: it will, we're not totally sure yet. Also, the company

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Speaker 1: has been behind the shares of Apple while it's been

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Speaker 1: selling the shares of IBM. It's kind of a whole

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Speaker 1: new world for a Buffet, right. He stood by IBM

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Speaker 1: for a long time, even when people, I think we're

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Speaker 1: starting to question why. Um, he noted today it was

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Speaker 1: you know it wasn't a great idea, and yeah, Apple

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Speaker 1: has continued to be kind of one of their favorite

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Speaker 1: bets over the past year. Um It'll be interesting to

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Speaker 1: see whether that kind of continues or if um or

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Speaker 1: if they kind of go somewhere else with this new

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Speaker 1: sort of technology. Bent. Thank you so much for joining

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Speaker 1: us and for following this, and I'm sure we'll be

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Speaker 1: talking more about it in the days become Katherine Chilensky,

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Speaker 1: US finance reporter for Bloomberg News who will be heading

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Speaker 1: out to Omahash shortly. Thank you so much for being

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Speaker 1: with us. And of course, Pim, I would be remiss

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Speaker 1: and not mentioning at some point airlines since I know

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Speaker 1: you receive airlines weekly and enjoy He likes airlines. He

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Speaker 1: does like airlines. Who do they make money? But to

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Speaker 1: potentially buy one, potentially own one, uh interesting buff air

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Speaker 1: buff air I think a lot of people would a

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Speaker 1: diet coke and everything would be economy class if if

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Speaker 1: that's that would be a luxury on the person. We

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Speaker 1: will we will continue discussing offline what buffet airlines would

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Speaker 1: look like. Jijing Ping's decision to step aside from China's

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Speaker 1: typical presidential term limits is making it seem as though

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Speaker 1: he might just indefinitely be in charge of China. And

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Speaker 1: here to tell us more about the Chinese political world

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Speaker 1: and what it means for all of us is Mike McDonough.

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Speaker 1: He is of Bloomberg Anonymous, and he joins us here

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Speaker 1: in our eleven three oh studios. Mike, So, what about

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Speaker 1: this idea that the Ping demonstrating a willingness to sidestep

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Speaker 1: tradition when it comes to Chinese? Uh, you know, the

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Speaker 1: idea of who rules China and for how long? Well,

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Speaker 1: this isn't a new idea of so to say, Um,

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Speaker 1: there was the idea existed when they were having their

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Speaker 1: last big meeting that there was going to be some

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Speaker 1: signals that he would try to remain in power beyond

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Speaker 1: five years. I think that actually many people had expected this. Uh.

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Speaker 1: I think the timing of this particular announcement has surprised

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Speaker 1: a lot of people, Like why now? Uh? And I

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Speaker 1: think that has more to do with the economic outlook

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Speaker 1: than any any type any other reason really, And I'll

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Speaker 1: elaborate on that. So you know, right now things are

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Speaker 1: relatively stable in China. The economy looks pretty good. She's

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Speaker 1: I don't know if he really has an approval rating,

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Speaker 1: but if he did, it would be rather high right now,

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Speaker 1: So it seems like good time to put this kind

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Speaker 1: of measure through because when you look ahead, um, you know,

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Speaker 1: especially going into the economic the global economic environment could

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Speaker 1: become a little bit more turbulent, so it might be

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Speaker 1: more it's more difficult to make this sort of announcement

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Speaker 1: when things are um more volatile, maybe markets are selling off,

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Speaker 1: maybe confidence isn't as high, whereas you could just do

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Speaker 1: it right now. Well, but let's talk about the implications

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Speaker 1: of this. Some people are saying that this gives Jejimping

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Speaker 1: more power to deal with the US more harshly with

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Speaker 1: trade negotiations. Others are saying he's taking a page from

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Speaker 1: Vladimir Putin, President of Russia in consolidating his power. Uh,

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Speaker 1: do you've used this as some sort of authoritarian move

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Speaker 1: that could end up creating bigger trade and other skirmishes. Well,

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Speaker 1: I mean anytime somebody is is in office and reduces

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Speaker 1: non produces, eliminates term limits that there's some indication there

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Speaker 1: that there's some consolidation of power. It was also announced

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Speaker 1: that he was going to be formalizing I think an

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Speaker 1: anti gaff department, uh if I if I read the

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Speaker 1: release properly, uh so. But I don't think this increases

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Speaker 1: his power per se, at least not in the near term,

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Speaker 1: because you know, he already had his name put into

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Speaker 1: the party constitution, so all of the things that he needed,

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00:24:17,520 --> 00:24:19,000
Speaker 1: he has all that. He already has all of the

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00:24:19,040 --> 00:24:21,520
Speaker 1: titles he needs. Uh. And he already has his name

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00:24:21,520 --> 00:24:25,480
Speaker 1: in the constitution, which is something that certainly gives him

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00:24:25,480 --> 00:24:28,600
Speaker 1: the power he would need to have these kind of fights. Uh.

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00:24:28,600 --> 00:24:31,440
Speaker 1: And I think that when it comes to dealing with

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00:24:32,000 --> 00:24:33,600
Speaker 1: the US, I think it's going to be a kind

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00:24:33,600 --> 00:24:38,119
Speaker 1: of quid pro quo. Uh if we if we cross

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00:24:38,160 --> 00:24:40,360
Speaker 1: what they perceived to be aligned, then they'll come back

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00:24:40,359 --> 00:24:43,000
Speaker 1: and hit us with with something else. The question really

440
00:24:43,000 --> 00:24:45,399
Speaker 1: that everybody has his where exactly is that line? And

441
00:24:45,440 --> 00:24:47,760
Speaker 1: that's what we don't know. Uh. The Chinese will probably

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00:24:47,760 --> 00:24:52,360
Speaker 1: be willing to accept some marginal protectionism, but not anything

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00:24:52,400 --> 00:24:55,800
Speaker 1: widespread like, uh, you know, thirty percent tariff against Chinese

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00:24:55,800 --> 00:24:59,000
Speaker 1: imports or something of that nature. Mike, when you talk

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00:24:59,040 --> 00:25:02,840
Speaker 1: about the politicals situation in China, does this then indicate

446
00:25:02,960 --> 00:25:07,960
Speaker 1: that while he may have President Jumping may have more power.

447
00:25:08,400 --> 00:25:12,560
Speaker 1: That also means more responsibility and responsibility for many things

448
00:25:12,600 --> 00:25:15,200
Speaker 1: that are not controllable by one person. And I'm thinking

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00:25:15,240 --> 00:25:21,000
Speaker 1: they're about the debt that Chinese companies have burdened. Sure, Sure,

450
00:25:21,000 --> 00:25:22,600
Speaker 1: but I was alluding to when I said the long

451
00:25:22,720 --> 00:25:25,359
Speaker 1: term outlook is less certain and there could be some

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00:25:25,480 --> 00:25:28,280
Speaker 1: volatility on the horizon. It's not just globally. What I

453
00:25:28,320 --> 00:25:29,879
Speaker 1: meant by globally is you're gonna have a bunch of

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00:25:29,880 --> 00:25:33,400
Speaker 1: central banks, including the FED, shrinking their balance sheets, tightening

455
00:25:33,440 --> 00:25:35,960
Speaker 1: e C, B, B o J, eventually the BOE. So

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00:25:36,000 --> 00:25:39,320
Speaker 1: that's going to cause some global turmoil potentially. But within China,

457
00:25:39,400 --> 00:25:42,159
Speaker 1: you do have the debt situation. The government's trying to

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00:25:42,359 --> 00:25:45,520
Speaker 1: de leverage while also rebalance the economy and sustained growth

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00:25:45,560 --> 00:25:47,960
Speaker 1: at a reasonable pace or what they believe to be

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00:25:48,000 --> 00:25:51,920
Speaker 1: a reasonable, reasonable path pace. And it's unlikely to be

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00:25:52,480 --> 00:25:55,840
Speaker 1: a linear, straight um move. You're gonna see a lot

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00:25:55,840 --> 00:25:58,600
Speaker 1: of altility. You're gonna have periods of time where people

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00:25:58,600 --> 00:26:01,520
Speaker 1: are panicked. People are going to say China's headed towards

464
00:26:01,520 --> 00:26:04,240
Speaker 1: another hard landing, And that's not really a great time

465
00:26:04,280 --> 00:26:06,359
Speaker 1: to make this sort of announcement that probably won't be

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00:26:06,400 --> 00:26:10,040
Speaker 1: the case in China. Whenever you know, everybody looks at

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00:26:10,080 --> 00:26:12,720
Speaker 1: China and panic or euphoria, there's never any like kind

468
00:26:12,720 --> 00:26:16,639
Speaker 1: of median view on China. So um, you are you

469
00:26:16,640 --> 00:26:18,840
Speaker 1: are going to have those cases coming sometime over the

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00:26:18,840 --> 00:26:20,879
Speaker 1: next couple of years where people look at China in

471
00:26:20,880 --> 00:26:23,520
Speaker 1: a panicked way. Uh. And you don't want to have

472
00:26:23,560 --> 00:26:26,000
Speaker 1: to be juggling this announcement while that happens. And he

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00:26:26,040 --> 00:26:30,280
Speaker 1: doesn't have he he does have more control than probably

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00:26:30,720 --> 00:26:34,720
Speaker 1: any other leader of any major large country just because

475
00:26:34,800 --> 00:26:37,560
Speaker 1: China does have such a closed economy. But he doesn't

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00:26:37,560 --> 00:26:39,840
Speaker 1: have complete control. And we've seen that over the past

477
00:26:39,880 --> 00:26:42,000
Speaker 1: two or three years when we have had these panics,

478
00:26:42,000 --> 00:26:44,240
Speaker 1: you know, be a capital outflows, be it what happened

479
00:26:44,240 --> 00:26:46,720
Speaker 1: in the equity market. Uh. So you know, it's it's

480
00:26:46,760 --> 00:26:50,720
Speaker 1: going to be a tricky thing to manage for anyone, um,

481
00:26:50,760 --> 00:26:54,000
Speaker 1: including president over the next five to ten years. In China.

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00:26:54,160 --> 00:26:57,359
Speaker 1: You mentioned the anti graphic unit that he's pulling together,

483
00:26:57,600 --> 00:27:01,720
Speaker 1: and I'm struck by the on Bog seizure and the

484
00:27:01,720 --> 00:27:05,040
Speaker 1: potential asset sales and the h and A move that

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00:27:05,320 --> 00:27:10,400
Speaker 1: the Chinese government made. I'm just wondering if his consolidation

486
00:27:10,400 --> 00:27:13,160
Speaker 1: of power and this sort of extension of his potential

487
00:27:13,280 --> 00:27:17,040
Speaker 1: term uh in perpetuity, whether that gives him more power

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00:27:17,880 --> 00:27:21,720
Speaker 1: to go after specific companies that might otherwise have been

489
00:27:21,720 --> 00:27:27,359
Speaker 1: politically connected. I mean, it certainly helps increase his control

490
00:27:27,560 --> 00:27:30,720
Speaker 1: over gain gain some power. But like when you look

491
00:27:30,840 --> 00:27:34,760
Speaker 1: at um what these companies did and how the government reacted,

492
00:27:35,119 --> 00:27:38,680
Speaker 1: you know, they have been identifying issues with these companies

493
00:27:38,720 --> 00:27:41,480
Speaker 1: for quite some time. In fact, they redid the rules

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00:27:41,800 --> 00:27:45,920
Speaker 1: on outward investment by Chinese companies and citizens based on

495
00:27:46,680 --> 00:27:49,639
Speaker 1: some of the mistakes they perceived these companies had made.

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00:27:50,200 --> 00:27:52,360
Speaker 1: Uh you know how long ago did they do that?

497
00:27:52,359 --> 00:27:56,880
Speaker 1: That was around September. I think it was the late

498
00:27:56,880 --> 00:27:59,800
Speaker 1: summer that they announced that. So you you saw this

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00:28:00,040 --> 00:28:03,800
Speaker 1: big surge uh in Chinese companies buying US companies. I

500
00:28:03,840 --> 00:28:06,600
Speaker 1: made this chart ages ago. I should find it. Um,

501
00:28:06,840 --> 00:28:09,560
Speaker 1: you saw this big surge leading and all of a sudden,

502
00:28:09,600 --> 00:28:13,560
Speaker 1: I guess it was late twenties sixteen, early seventeen, it

503
00:28:13,680 --> 00:28:15,760
Speaker 1: just went to practically zero. And that was when the

504
00:28:15,800 --> 00:28:18,840
Speaker 1: government said, everyone stopped what you're doing. We're going to

505
00:28:19,080 --> 00:28:21,000
Speaker 1: put out some new guidelines on what you can and

506
00:28:21,040 --> 00:28:24,280
Speaker 1: cannot invest into like I think now you can't buy

507
00:28:24,280 --> 00:28:27,399
Speaker 1: into casinos, for example, or sports teams. These have been banned.

508
00:28:27,840 --> 00:28:30,359
Speaker 1: Uh and really the the things that you need to

509
00:28:30,359 --> 00:28:33,240
Speaker 1: target or things that could long term benefit China's economy,

510
00:28:33,280 --> 00:28:39,000
Speaker 1: you know, uh, raw material companies, technology companies, etcetera, not

511
00:28:39,200 --> 00:28:41,719
Speaker 1: sports teams. So in other words, the stage has been

512
00:28:41,760 --> 00:28:44,480
Speaker 1: set for a while. This is yet another move at

513
00:28:44,480 --> 00:28:48,040
Speaker 1: a long train of events that have consolidated his power.

514
00:28:48,120 --> 00:28:50,479
Speaker 1: And certainly, I said, most people were expecting signs of

515
00:28:50,520 --> 00:28:54,120
Speaker 1: this to have occurred earlier, late last year, earlier this year,

516
00:28:54,120 --> 00:28:56,080
Speaker 1: and this is just verification of what a lot of

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00:28:56,080 --> 00:28:59,440
Speaker 1: people had anticipated. Mike mcdonog, Bloomberg Economist, Thank you so

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00:28:59,480 --> 00:29:03,200
Speaker 1: much for joy us in our eleven three oh studios.

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00:29:07,240 --> 00:29:09,760
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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00:29:10,120 --> 00:29:14,000
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:29:14,120 --> 00:29:17,600
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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00:29:17,640 --> 00:29:21,640
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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00:29:24,400 --> 00:29:25,960
Speaker 1: worldwide on Bloomberg Radio