1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Daily we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:34,479 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Without Question. 5 00:00:34,840 --> 00:00:37,800 Speaker 1: The interview of the day, I will cut to the chase. 6 00:00:38,479 --> 00:00:42,559 Speaker 1: There's exactly one book to read to catch up with 7 00:00:42,640 --> 00:00:46,080 Speaker 1: the changes in China. It is The Third Revolution and 8 00:00:46,159 --> 00:00:48,839 Speaker 1: it is by Elizabeth Economy. Of course she changed our 9 00:00:48,920 --> 00:00:52,400 Speaker 1: dialogue with China where the river runs black? Uh, that 10 00:00:52,520 --> 00:00:54,600 Speaker 1: was just a few years ago, Liz Economy with a 11 00:00:54,640 --> 00:00:59,160 Speaker 1: Council on Foreign Relations. Professor Economy, Good morning, wonderful to 12 00:00:59,240 --> 00:01:02,080 Speaker 1: have you with us. What is the Third Revolution right now? 13 00:01:02,160 --> 00:01:05,880 Speaker 1: For President She? He's got some challenges. How's that Third 14 00:01:05,920 --> 00:01:10,160 Speaker 1: Revolution going? So? You know, the Third Revolution for Shijin 15 00:01:10,240 --> 00:01:13,399 Speaker 1: Ping was really upending, uh, the period of reform and 16 00:01:13,440 --> 00:01:16,080 Speaker 1: opening up that Dung Shao Ping had ushered in some 17 00:01:16,200 --> 00:01:19,760 Speaker 1: thirty years earlier, and creating a China that was far 18 00:01:19,880 --> 00:01:22,840 Speaker 1: more repressive and authoritaring at home, but more ambitious and 19 00:01:22,920 --> 00:01:26,680 Speaker 1: expansive abroad. Right. It was his great rejuvenation of the 20 00:01:26,760 --> 00:01:30,440 Speaker 1: Chinese nation. I think what we're seeing today is that, 21 00:01:30,640 --> 00:01:33,800 Speaker 1: you know, over the past six years, this model has 22 00:01:33,840 --> 00:01:38,920 Speaker 1: produced its own set of fairly profound challenges for shijin Ping. Uh. 23 00:01:38,959 --> 00:01:42,000 Speaker 1: You know, there's a great sense of political malaise in 24 00:01:42,040 --> 00:01:45,480 Speaker 1: the country because of his grab for power. Uh, you know, 25 00:01:45,600 --> 00:01:48,080 Speaker 1: his you know, elimination of the two term limit on 26 00:01:48,120 --> 00:01:51,280 Speaker 1: the presidency. Uh. You know, a hundred and fifty shijin 27 00:01:51,320 --> 00:01:54,640 Speaker 1: Ping you know, institutes institutes for shijin Ping. Thought. People 28 00:01:54,720 --> 00:01:57,240 Speaker 1: feel as though there's been to some extent a return 29 00:01:57,720 --> 00:02:00,880 Speaker 1: to that Maoist era cult of personnality, and they don't 30 00:02:00,920 --> 00:02:03,480 Speaker 1: want to go back to that. Right constraining the Internet, 31 00:02:03,800 --> 00:02:06,560 Speaker 1: the intrusion of the Communist Party, you know, into private 32 00:02:06,680 --> 00:02:10,640 Speaker 1: enterprises and in more deeply into people's lives. So I 33 00:02:10,680 --> 00:02:14,240 Speaker 1: think he's he's created his own set of problems through 34 00:02:14,320 --> 00:02:20,040 Speaker 1: this third Revolution. Within his third revolution, there has to 35 00:02:20,080 --> 00:02:23,760 Speaker 1: be a Communist Party on one page. Is he goes 36 00:02:23,800 --> 00:02:27,640 Speaker 1: to this People's Congress, is his four or whatever the 37 00:02:27,680 --> 00:02:31,320 Speaker 1: body count is Paul Borough leaders. Are they all on 38 00:02:31,360 --> 00:02:34,880 Speaker 1: the same page or is there a huge descent? So 39 00:02:35,200 --> 00:02:39,519 Speaker 1: this is the Commonist Party meeting the party Congress happens 40 00:02:39,520 --> 00:02:41,400 Speaker 1: in the fall. This is the National People's Congress, so 41 00:02:41,400 --> 00:02:44,720 Speaker 1: they're actually three thousand people feeding and aging right now 42 00:02:44,800 --> 00:02:47,480 Speaker 1: for two weeks um. And I think there there are 43 00:02:47,520 --> 00:02:50,640 Speaker 1: many dissenting views, uh, you know, and I think part 44 00:02:50,639 --> 00:02:52,840 Speaker 1: of it has to do with the failure to move 45 00:02:52,919 --> 00:02:55,440 Speaker 1: forward on structural economic reforms. So there's a lot of 46 00:02:55,919 --> 00:02:59,720 Speaker 1: discontent over again chi Jin Pink's tightening up and his 47 00:03:00,120 --> 00:03:03,480 Speaker 1: preferencing of state owned enterprises over private enterprise. So a 48 00:03:03,480 --> 00:03:06,360 Speaker 1: lot of descent around that. There's concern around Chijun King's 49 00:03:06,360 --> 00:03:10,000 Speaker 1: anti corruption campaign, right, the lack of transparency in that 50 00:03:10,080 --> 00:03:12,840 Speaker 1: and uh, you know, lack of rule of law. They 51 00:03:12,840 --> 00:03:17,280 Speaker 1: had six over six hundred thousand officials were punished last 52 00:03:17,360 --> 00:03:20,280 Speaker 1: year for corruption. That the hundred thousand more than the 53 00:03:20,360 --> 00:03:25,320 Speaker 1: year before. Uh, there are many areas of unhappiness. But 54 00:03:25,400 --> 00:03:27,680 Speaker 1: does he go into this thing? Does he go into 55 00:03:27,720 --> 00:03:30,760 Speaker 1: this three thousand member congress for everybody collapse at the 56 00:03:30,800 --> 00:03:37,160 Speaker 1: same time. I know you monitor the clapping volume, But 57 00:03:37,160 --> 00:03:40,600 Speaker 1: but beneath that is four D two hundred and six 58 00:03:40,640 --> 00:03:43,320 Speaker 1: members of the Polar Bear and all the other subsets 59 00:03:43,360 --> 00:03:46,600 Speaker 1: that there are, are they in support of their president. 60 00:03:47,440 --> 00:03:51,000 Speaker 1: I think we've we've seen you know, over the last summer. UM, 61 00:03:51,040 --> 00:03:55,160 Speaker 1: there was a lot of discussion about descent within the 62 00:03:55,200 --> 00:03:57,880 Speaker 1: Standing Committee of the Politburo. Right, as you said, this 63 00:03:57,960 --> 00:04:01,200 Speaker 1: sort of the top, very top, uh, you know, seven 64 00:04:01,200 --> 00:04:05,360 Speaker 1: person group, UM, that that Jinping was being sort of 65 00:04:05,400 --> 00:04:09,480 Speaker 1: accused of overreach, that he had created all these problems 66 00:04:09,680 --> 00:04:12,160 Speaker 1: with the United States, you know, facing this trade war, 67 00:04:12,720 --> 00:04:14,760 Speaker 1: that there were problems you know through the Belt and 68 00:04:14,880 --> 00:04:17,680 Speaker 1: Road project a lot of countries. Now are you know 69 00:04:18,400 --> 00:04:22,200 Speaker 1: staying or even canceling projects the big infrastructure projects that 70 00:04:22,240 --> 00:04:25,560 Speaker 1: they had agreed to with China. Um. Obviously the Chinese 71 00:04:25,560 --> 00:04:28,400 Speaker 1: economy was slowing and they didn't seem to have a 72 00:04:28,480 --> 00:04:32,160 Speaker 1: game plan. He wasn't listening to the reform economists. Uh, 73 00:04:32,200 --> 00:04:34,720 Speaker 1: and you know he kept wanting to double down on 74 00:04:34,760 --> 00:04:38,839 Speaker 1: state control. So I think all throughout the system, Uh, 75 00:04:38,920 --> 00:04:42,680 Speaker 1: there is sent and so so so what is the 76 00:04:42,760 --> 00:04:47,520 Speaker 1: experience you've seen in their history of what's next? What's 77 00:04:47,560 --> 00:04:53,320 Speaker 1: the process forward for a totalitarian regime given this descent? 78 00:04:54,560 --> 00:04:57,560 Speaker 1: So I think, um, if the economy continues to slow 79 00:04:57,680 --> 00:04:59,799 Speaker 1: right now, what we're seeing is you know, some small 80 00:04:59,800 --> 00:05:03,680 Speaker 1: move months towards economic reform. I think she Jumping was 81 00:05:03,760 --> 00:05:06,400 Speaker 1: kind of pushed into a corner UH and forced to 82 00:05:06,440 --> 00:05:08,880 Speaker 1: make a statement a few months back about the need 83 00:05:09,000 --> 00:05:11,200 Speaker 1: to enhance the role of the market, which is not 84 00:05:11,360 --> 00:05:14,360 Speaker 1: his inclination. UM. So we have to see whether or 85 00:05:14,440 --> 00:05:17,599 Speaker 1: not they're actually some of these reform initiatives move forward. 86 00:05:18,040 --> 00:05:21,560 Speaker 1: If they do, if the economy begins to kick back in, 87 00:05:21,960 --> 00:05:24,240 Speaker 1: then I think economic growth kicks back, and I think 88 00:05:24,360 --> 00:05:28,120 Speaker 1: She jinping is okay. If it doesn't, UM, I don't 89 00:05:28,160 --> 00:05:30,320 Speaker 1: expect that they would remove she Jumping, but I think 90 00:05:30,320 --> 00:05:32,919 Speaker 1: you could see what happened to Mause Doong after the 91 00:05:32,960 --> 00:05:35,680 Speaker 1: great leap forward in the early nineteen sixties, which is 92 00:05:35,839 --> 00:05:38,880 Speaker 1: he was moved to the second line, right because and 93 00:05:39,600 --> 00:05:43,360 Speaker 1: that says is she no longer first? If you if 94 00:05:43,400 --> 00:05:48,440 Speaker 1: you equal doctor economy, have you identified the next Chowing Lay? 95 00:05:48,480 --> 00:05:51,080 Speaker 1: I mean, it's great to talk about Mao and and she, 96 00:05:51,360 --> 00:05:55,160 Speaker 1: but who comes in to save the day. Well, Unfortunately, 97 00:05:56,680 --> 00:05:59,960 Speaker 1: the sort of the three I think within the stand 98 00:06:00,000 --> 00:06:03,560 Speaker 1: the committee are not particularly strong. There's yeah, Lee Ka 99 00:06:03,680 --> 00:06:07,479 Speaker 1: Chong and Wang Yang and Han Jong. They're sort of 100 00:06:07,480 --> 00:06:11,000 Speaker 1: the three that you know could potentially UH do something, 101 00:06:11,040 --> 00:06:13,960 Speaker 1: but this would be more of a consensus decision. That 102 00:06:14,120 --> 00:06:17,200 Speaker 1: we're going back to the dungest model of collective and 103 00:06:17,200 --> 00:06:20,760 Speaker 1: consensus based decision making. It's not necessarily interesting one leader 104 00:06:20,800 --> 00:06:23,320 Speaker 1: moves into replace she in the way that she has 105 00:06:23,320 --> 00:06:25,880 Speaker 1: grabbed onto the power, but that that they go back 106 00:06:25,920 --> 00:06:29,400 Speaker 1: to the sense that no one person stands above the rest. 107 00:06:29,600 --> 00:06:32,040 Speaker 1: If you're just joining us CV star fellow the Council 108 00:06:32,080 --> 00:06:35,440 Speaker 1: on Foreign Relations, Elizabeth Economy, I can't say enough about 109 00:06:35,440 --> 00:06:38,239 Speaker 1: her effort the Third Revolution. I read it cover to cover. 110 00:06:38,760 --> 00:06:41,400 Speaker 1: You should too. One of the great theories that we 111 00:06:41,440 --> 00:06:44,800 Speaker 1: saw from the River runs black and onward. Uh, Liz 112 00:06:44,880 --> 00:06:47,640 Speaker 1: Economy is a power of the cities. What is the 113 00:06:47,720 --> 00:06:51,760 Speaker 1: relationship of President she and Beijing to the people that 114 00:06:51,880 --> 00:06:56,440 Speaker 1: actually run Shanghai, run Hong Kong, Rung sheng Do and 115 00:06:56,480 --> 00:06:59,719 Speaker 1: the others. So one of the really interesting things that's 116 00:06:59,720 --> 00:07:02,159 Speaker 1: happened and over the past year year and a half 117 00:07:02,279 --> 00:07:05,400 Speaker 1: is that we've seen repeated calls by Shijin Ping, by 118 00:07:05,440 --> 00:07:10,920 Speaker 1: Lei Ka Chung for local officials to implement Beijing's policies. Uh. 119 00:07:10,920 --> 00:07:14,600 Speaker 1: There seems to be an incredible reluctance on the part 120 00:07:14,640 --> 00:07:17,680 Speaker 1: of local officials to do what Beijing says. I think 121 00:07:17,720 --> 00:07:20,800 Speaker 1: it's in part. It's because the mandates come down. There 122 00:07:20,800 --> 00:07:24,320 Speaker 1: are so many different mandates and sometimes they conflict. Right. 123 00:07:24,360 --> 00:07:28,080 Speaker 1: So first you have a mandate, you know, to stop lending. Right. 124 00:07:28,240 --> 00:07:30,720 Speaker 1: Then you have a mandate no, actually start lending again. 125 00:07:31,000 --> 00:07:34,160 Speaker 1: You have a mandate to protect the environment. Now, just 126 00:07:34,320 --> 00:07:37,000 Speaker 1: in the past two months they said, actually, our targets 127 00:07:37,040 --> 00:07:38,880 Speaker 1: are too ambitious. We're going to take a step back 128 00:07:38,960 --> 00:07:41,840 Speaker 1: and protecting the environment. And of course the anti corruption 129 00:07:41,880 --> 00:07:45,400 Speaker 1: campaign which has caused many local officials really not to 130 00:07:45,480 --> 00:07:48,160 Speaker 1: want to take risks. They don't want to be noticed 131 00:07:48,200 --> 00:07:51,400 Speaker 1: by Beijing. Uh. And and then somehow, you know, draw 132 00:07:51,440 --> 00:07:53,920 Speaker 1: attention to them and perhaps come under some kind of 133 00:07:54,400 --> 00:07:58,480 Speaker 1: corruption claim. So I think right now the situation for 134 00:07:58,560 --> 00:08:01,320 Speaker 1: Beijing is very don Uh. They have a lot of 135 00:08:01,320 --> 00:08:04,080 Speaker 1: resistance at the local level to vamp off the not 136 00:08:04,240 --> 00:08:08,120 Speaker 1: so new normal Chapter four of the Third Revolution. Right now, 137 00:08:08,160 --> 00:08:10,840 Speaker 1: what's the not so new normal for President Trump? What's 138 00:08:10,880 --> 00:08:14,160 Speaker 1: the to do list for America? Is they address these 139 00:08:14,240 --> 00:08:20,000 Speaker 1: uncertainties in China. I think this administration um is leaving 140 00:08:20,000 --> 00:08:23,200 Speaker 1: no stone unturned. It's pretty extraordinary. I have to say. 141 00:08:23,520 --> 00:08:26,800 Speaker 1: It's across the full range of issues, whether we're talking 142 00:08:26,800 --> 00:08:30,160 Speaker 1: the security front or the trade front or even the 143 00:08:30,160 --> 00:08:33,600 Speaker 1: political front right Chinese influence operations. What's going on in 144 00:08:33,640 --> 00:08:36,440 Speaker 1: Xinjiang in terms of the repression of the you know, 145 00:08:36,520 --> 00:08:41,600 Speaker 1: weaker Muslim population there. The administration is is firing on 146 00:08:41,679 --> 00:08:45,640 Speaker 1: all pistons. Um. We have to see what the end 147 00:08:45,640 --> 00:08:48,440 Speaker 1: result is, Um, but I would say that they really 148 00:08:48,480 --> 00:08:51,960 Speaker 1: are trying to hold the Chinese feet to the fire, 149 00:08:52,080 --> 00:08:55,040 Speaker 1: so to speak, Um, and and get some movement and 150 00:08:55,559 --> 00:08:59,480 Speaker 1: in a way that I think reflects American interests, Um, 151 00:08:59,679 --> 00:09:01,760 Speaker 1: you know, more directly. It was my book of the 152 00:09:01,800 --> 00:09:05,360 Speaker 1: summer last year, the Third Revolution, Elizabeth Economy. My book 153 00:09:05,360 --> 00:09:08,200 Speaker 1: of the summer this year's Ragarajan's Knew the Third Pillar, 154 00:09:08,240 --> 00:09:10,720 Speaker 1: which I know Lizz will recover to cover as I 155 00:09:10,760 --> 00:09:14,920 Speaker 1: will too. But do yourself a favor redo the Third Revolution. 156 00:09:15,000 --> 00:09:19,400 Speaker 1: One year on, it is still an exceptional impression dissertation 157 00:09:19,640 --> 00:09:22,319 Speaker 1: on the new China. And of course with these new 158 00:09:22,320 --> 00:09:26,440 Speaker 1: announcements you heard, they're the urgency from Dr Economy, Liz Economy, 159 00:09:26,800 --> 00:09:29,840 Speaker 1: thank you so much. With the Council on Foreign Relations, 160 00:09:44,720 --> 00:09:47,600 Speaker 1: we begin then with that soft story China low ring 161 00:09:47,640 --> 00:09:51,120 Speaker 1: its goal for economic growth and announcing a major tax 162 00:09:51,160 --> 00:09:54,959 Speaker 1: cuntess policy maker's seat to pull off a gradual deceleration 163 00:09:55,080 --> 00:09:58,520 Speaker 1: with a grappling of a trade story and I debt 164 00:09:58,720 --> 00:10:01,280 Speaker 1: legacy as well. I want to bring in Bloomberg's David 165 00:10:01,360 --> 00:10:04,160 Speaker 1: inglets for more. He joins US Life from Beijing. So David, 166 00:10:04,160 --> 00:10:07,680 Speaker 1: they replaced the target with a growth range. Walk me 167 00:10:07,720 --> 00:10:10,520 Speaker 1: through it right, six or six and a half percent 168 00:10:10,840 --> 00:10:13,640 Speaker 1: the growth last year overall with six point six percent. 169 00:10:14,000 --> 00:10:17,400 Speaker 1: The first top line is there is an acknowledgement among 170 00:10:17,440 --> 00:10:20,720 Speaker 1: the top leadership that growth will slow this year. Investors 171 00:10:20,720 --> 00:10:23,360 Speaker 1: who are fearing that growth mind slit below six percent. 172 00:10:23,760 --> 00:10:27,120 Speaker 1: This obviously adds a little bit maybe a floor to growth. 173 00:10:27,200 --> 00:10:29,480 Speaker 1: More importantly, though, it's the type of growth that they 174 00:10:29,480 --> 00:10:31,440 Speaker 1: want to pursue. When you look at the tax cuts 175 00:10:31,440 --> 00:10:35,000 Speaker 1: that they mentioned, three hundred billion US all as it's 176 00:10:35,000 --> 00:10:38,560 Speaker 1: worth of UH tax cuts and social security fees. And 177 00:10:38,679 --> 00:10:42,439 Speaker 1: essentially what they're doing is there's there's been some challenges 178 00:10:42,559 --> 00:10:45,079 Speaker 1: really in terms of lending money to the private sector. 179 00:10:45,200 --> 00:10:46,840 Speaker 1: So in a lot of ways, what they're doing is 180 00:10:47,040 --> 00:10:49,079 Speaker 1: they're leaving more money on the table in the pockets 181 00:10:49,080 --> 00:10:51,640 Speaker 1: of the private sector, in people and hopefully turn around 182 00:10:51,640 --> 00:10:54,480 Speaker 1: the consumption story that was quite horrible last year. Just 183 00:10:54,520 --> 00:10:56,800 Speaker 1: the range also just tell you how uncertain things are 184 00:10:57,080 --> 00:11:00,320 Speaker 1: for the future of the Chinese economy. It certainly does, 185 00:11:00,640 --> 00:11:03,160 Speaker 1: I think when you try and quantify what six to 186 00:11:03,240 --> 00:11:05,440 Speaker 1: six and a half percent is in the difference there, 187 00:11:05,440 --> 00:11:09,480 Speaker 1: it's the thirteen trillion dollar economy, so that's anywhere from 188 00:11:08,880 --> 00:11:12,240 Speaker 1: a rough estimate, that's about ninety billion too, maybe three 189 00:11:12,880 --> 00:11:15,480 Speaker 1: dollars worth of thought put that may or may not 190 00:11:15,679 --> 00:11:17,800 Speaker 1: be there. So essentially what they're trying to do, and 191 00:11:17,840 --> 00:11:19,839 Speaker 1: really when it comes to the party, I had to 192 00:11:19,880 --> 00:11:22,360 Speaker 1: look at the reports forty page of spont size twelve. 193 00:11:22,960 --> 00:11:25,640 Speaker 1: It's a work report. It's the first time they mentioned 194 00:11:25,640 --> 00:11:29,319 Speaker 1: explicitly that everything they're growing at the growth problem right 195 00:11:29,320 --> 00:11:32,560 Speaker 1: now is really meant to protect jobs and employment. And 196 00:11:32,559 --> 00:11:35,120 Speaker 1: when it comes to the party, it's really all about 197 00:11:35,440 --> 00:11:38,320 Speaker 1: social stability. Well, there is a Communist Party and then 198 00:11:38,360 --> 00:11:41,840 Speaker 1: there's a National People's Congress. By my count, it's two thousand, 199 00:11:41,960 --> 00:11:45,920 Speaker 1: nine hundred warm bodies in the room clapping on Q great. 200 00:11:46,400 --> 00:11:52,160 Speaker 1: What percentage of those people support president? That's the big question. Um. 201 00:11:52,320 --> 00:11:54,440 Speaker 1: In fact, a lot of the things that we heard 202 00:11:54,440 --> 00:11:56,640 Speaker 1: today from the work report, and a lot of the 203 00:11:56,640 --> 00:12:00,560 Speaker 1: things that essentially you'll hear the next ten days or so. Uh, 204 00:12:00,600 --> 00:12:04,760 Speaker 1: tomorrow Wednesday is in time. You'll have the Economic Planner 205 00:12:04,800 --> 00:12:06,840 Speaker 1: coming up with their own press conference. You're the Commerce 206 00:12:06,840 --> 00:12:08,920 Speaker 1: Ministry that day after that the PBO. See what has 207 00:12:09,000 --> 00:12:11,840 Speaker 1: all these ministries? A lot of the things that you'll hear, 208 00:12:12,760 --> 00:12:15,760 Speaker 1: we're decided back in October during the plenum. It is 209 00:12:15,800 --> 00:12:18,320 Speaker 1: the Communist Party, of course, and what they say essentially 210 00:12:18,440 --> 00:12:21,400 Speaker 1: is likely what will what what? What will likely happen. 211 00:12:22,000 --> 00:12:24,720 Speaker 1: The other piece really to that story as well, is 212 00:12:24,840 --> 00:12:28,520 Speaker 1: really then moving the economy from one that is centrally planned, 213 00:12:28,559 --> 00:12:31,720 Speaker 1: state owned into one of course where you have more 214 00:12:31,760 --> 00:12:34,000 Speaker 1: private enterprise. And the tricky part, and the reason I 215 00:12:34,040 --> 00:12:36,640 Speaker 1: bring that up is when they talk about, oh, we 216 00:12:36,679 --> 00:12:40,640 Speaker 1: need to get capital through to the private enterprises, Well, 217 00:12:40,640 --> 00:12:42,480 Speaker 1: guess what a lot of the people that we talked 218 00:12:42,480 --> 00:12:44,640 Speaker 1: to say, you look at the structure of the Chinese 219 00:12:44,640 --> 00:12:49,240 Speaker 1: banking system, it's not really designed yet the service the 220 00:12:49,280 --> 00:12:51,960 Speaker 1: private sectors. So really that's one area to watch and 221 00:12:52,040 --> 00:12:55,720 Speaker 1: how they actually manage to to to to to gradually 222 00:12:56,280 --> 00:13:00,000 Speaker 1: moderate the economy to where they wanted to be. Blimberg's 223 00:13:00,040 --> 00:13:02,360 Speaker 1: DVID English joining US Life from Beijing as we get 224 00:13:02,360 --> 00:13:18,520 Speaker 1: a new growth range from the Chinese government. Let's talk 225 00:13:18,559 --> 00:13:22,040 Speaker 1: to someone from Britain who only thinks in centigrade. Actually 226 00:13:22,080 --> 00:13:25,000 Speaker 1: she went to the University of Maine, where it's colder 227 00:13:25,000 --> 00:13:27,160 Speaker 1: than cold a good part of the year. Good morning, 228 00:13:27,240 --> 00:13:31,199 Speaker 1: up in or no listening, Mary and Schneider Petsinger joins 229 00:13:31,280 --> 00:13:32,760 Speaker 1: us right now, and this is to get briefed on 230 00:13:32,920 --> 00:13:36,360 Speaker 1: China is economy to join us later on, Marianne, what 231 00:13:36,480 --> 00:13:40,880 Speaker 1: what struck me about the Chinese announcement was the all 232 00:13:41,000 --> 00:13:43,920 Speaker 1: in sense of it. Is it a point of crisis 233 00:13:44,600 --> 00:13:47,800 Speaker 1: for the leadership of the Communist Party or is this 234 00:13:48,040 --> 00:13:52,640 Speaker 1: an evolutionary path that they're on to some new policy. 235 00:13:54,200 --> 00:13:57,720 Speaker 1: I think we're certainly seeing an evolutionary phase for a 236 00:13:57,800 --> 00:14:00,679 Speaker 1: lot will go, will happen, and certainly also with vacations 237 00:14:01,240 --> 00:14:04,080 Speaker 1: for what it means for the US economy. Um. Also, 238 00:14:04,400 --> 00:14:07,920 Speaker 1: you know, on the US China front, there are sources 239 00:14:08,000 --> 00:14:11,640 Speaker 1: that say we're close to a potential trade deal, that 240 00:14:11,720 --> 00:14:15,600 Speaker 1: we're in the final stages. But again, you know, even 241 00:14:15,640 --> 00:14:18,400 Speaker 1: if we're at the finishing line, the finishing line of 242 00:14:18,480 --> 00:14:20,960 Speaker 1: a one beter hurdle rays or is there really much 243 00:14:21,000 --> 00:14:23,680 Speaker 1: more about marathon? And I think it's about those long 244 00:14:23,800 --> 00:14:28,520 Speaker 1: term issues you absolutely nail the immediacy of the trade deal. 245 00:14:29,480 --> 00:14:34,040 Speaker 1: Was this document written for the trade deal discussion or 246 00:14:34,080 --> 00:14:36,920 Speaker 1: do they look at as China, as Beijing look at 247 00:14:36,960 --> 00:14:40,800 Speaker 1: the trade deals separate from the seven eight nine menu 248 00:14:40,920 --> 00:14:46,200 Speaker 1: items that came out with for the National People's Congress. Well, 249 00:14:46,240 --> 00:14:49,680 Speaker 1: I think, um, you know, the discussions they're much much 250 00:14:49,720 --> 00:14:52,720 Speaker 1: longer than just having this as part of the trade 251 00:14:52,760 --> 00:14:55,880 Speaker 1: discussions with Trump. But again, because this is also about 252 00:14:56,000 --> 00:14:59,480 Speaker 1: much more long term strategic decisions, it will feature in 253 00:14:59,600 --> 00:15:02,280 Speaker 1: that as. Oh again, this trait is few than the 254 00:15:02,320 --> 00:15:04,160 Speaker 1: traite where as you're team right now, it's really not 255 00:15:04,240 --> 00:15:07,720 Speaker 1: so much about trade. It is about much larger structural 256 00:15:07,800 --> 00:15:13,720 Speaker 1: issues and perhaps a global big power valory. What does 257 00:15:13,720 --> 00:15:16,360 Speaker 1: the vet Tex dynamic mean They're going to reduce the 258 00:15:16,440 --> 00:15:22,280 Speaker 1: VT tax for manufacturing in China? Well, I think you know, 259 00:15:22,520 --> 00:15:27,520 Speaker 1: it's certainly meant to um improve economic process that China 260 00:15:27,640 --> 00:15:31,880 Speaker 1: is entering this period of showing signs of weakness UM 261 00:15:31,920 --> 00:15:34,520 Speaker 1: and you know, the Trump administration is very well aware 262 00:15:34,560 --> 00:15:37,240 Speaker 1: of that and things are part of um them being 263 00:15:37,240 --> 00:15:39,880 Speaker 1: in a much stronger negotiating position. Yeah, and this is 264 00:15:39,920 --> 00:15:42,560 Speaker 1: really important because you know, you know Heathrow. They've got 265 00:15:42,560 --> 00:15:45,720 Speaker 1: the line there for the vet tax checkout for Americans. 266 00:15:45,760 --> 00:15:49,000 Speaker 1: The whole that tax thing is like wicked foreign In 267 00:15:49,040 --> 00:15:53,160 Speaker 1: our collective memory is in Canada they try to do 268 00:15:53,200 --> 00:15:56,920 Speaker 1: a vat tax and literally brought down the government at 269 00:15:56,920 --> 00:15:59,720 Speaker 1: one point, were very destructive. That tax is a very 270 00:15:59,720 --> 00:16:03,120 Speaker 1: dis active for the poorest in society typically. That's what 271 00:16:03,240 --> 00:16:05,960 Speaker 1: really struck me in the Chinese announcement. Yeah, but it's 272 00:16:06,000 --> 00:16:10,040 Speaker 1: for manufacturing. It's for a sector specific sector. Marianne, just 273 00:16:10,120 --> 00:16:11,960 Speaker 1: in terms of what is happening in China, how much 274 00:16:11,960 --> 00:16:15,200 Speaker 1: of it is engineered by the Chinese, the domestic slowdown, 275 00:16:15,320 --> 00:16:19,640 Speaker 1: and how much of it is engineered by the US administration. Well, 276 00:16:19,680 --> 00:16:22,560 Speaker 1: I think so far it is mostly about the domestic 277 00:16:22,560 --> 00:16:26,760 Speaker 1: issues in China, primarily because the tariffs and the retaliatory 278 00:16:26,840 --> 00:16:30,360 Speaker 1: tears they are significant, but really overall, in the scheme 279 00:16:30,440 --> 00:16:34,800 Speaker 1: of things, it's it's minor UM. And so even though 280 00:16:35,120 --> 00:16:39,120 Speaker 1: obviously for the prospects of economic growth, this delay of 281 00:16:39,320 --> 00:16:42,920 Speaker 1: UM cariffs and UM, you know, also normal long we're 282 00:16:42,920 --> 00:16:46,880 Speaker 1: talking about additional tariffs of two hundred sixties seven UM. 283 00:16:47,000 --> 00:16:52,160 Speaker 1: That is certainly positive, but I wouldn't overestimate the impact 284 00:16:52,240 --> 00:16:54,640 Speaker 1: that has had Marianne has been really interesting over the 285 00:16:54,720 --> 00:16:57,200 Speaker 1: last couple of weeks. This narrative that is built up, 286 00:16:57,280 --> 00:16:59,960 Speaker 1: fueled by events in the Oval Office, that there seems 287 00:17:00,040 --> 00:17:02,960 Speaker 1: to be a spread between the deal the President of 288 00:17:03,000 --> 00:17:05,760 Speaker 1: the United States wants and the deal that some of 289 00:17:05,800 --> 00:17:10,440 Speaker 1: his China hawks would ultimately like. Is that just the narrative, 290 00:17:10,520 --> 00:17:12,760 Speaker 1: Is that just the false perception of what is happening, 291 00:17:12,840 --> 00:17:15,800 Speaker 1: or do you think there's something to that? Well, I 292 00:17:15,840 --> 00:17:19,080 Speaker 1: think there's something to this because there's various m priorities 293 00:17:19,119 --> 00:17:21,600 Speaker 1: that the Trump administration has raised when it comes to 294 00:17:21,600 --> 00:17:24,560 Speaker 1: trade with China. For the President, it seems to be 295 00:17:25,200 --> 00:17:28,640 Speaker 1: mostly about forcing China to be boost the bilateral trade 296 00:17:28,680 --> 00:17:31,240 Speaker 1: surplus with the United States. And here it's important to 297 00:17:31,280 --> 00:17:35,879 Speaker 1: keep in mind that China accounts for about of the 298 00:17:35,960 --> 00:17:40,679 Speaker 1: US's global trade deficit. But various concerns about you know this, 299 00:17:40,960 --> 00:17:43,879 Speaker 1: this focus on the billateral data trade deficit, it is 300 00:17:44,080 --> 00:17:49,520 Speaker 1: isly misguided. Um Whereas others in the administration, particular Robert Leheiser, 301 00:17:49,640 --> 00:17:53,200 Speaker 1: the United States Trade Representative, and his concern is much 302 00:17:53,240 --> 00:17:57,240 Speaker 1: more about the structural issues, so tackling unfair trade practices. 303 00:17:57,560 --> 00:18:00,679 Speaker 1: When it comes to force technology transfer key staffs, and 304 00:18:00,720 --> 00:18:03,920 Speaker 1: I think on that point um the Trump administration has 305 00:18:04,200 --> 00:18:08,520 Speaker 1: much much more legitimate concern but the methods to address 306 00:18:08,560 --> 00:18:11,040 Speaker 1: those are wrong, so pears aren't really going to do 307 00:18:11,160 --> 00:18:14,760 Speaker 1: much about it. Much more importantly would be to build 308 00:18:14,760 --> 00:18:17,560 Speaker 1: a global alliance, to put the United States to work 309 00:18:17,560 --> 00:18:24,040 Speaker 1: together with you and Japan to um jointly for China 310 00:18:24,119 --> 00:18:27,240 Speaker 1: to change their practices, and to some extent, we're seeing 311 00:18:27,280 --> 00:18:31,840 Speaker 1: that DSDU and Japan have had trilateral talks and have 312 00:18:32,000 --> 00:18:34,119 Speaker 1: issued a number of statements over the last years that 313 00:18:34,160 --> 00:18:38,520 Speaker 1: there is potential opportunity for collaboration. Mariana. Often hear this 314 00:18:38,720 --> 00:18:41,440 Speaker 1: that tariffs aren't the right way forward, But what's interesting 315 00:18:41,480 --> 00:18:44,480 Speaker 1: to me is that the status quo what we had before, 316 00:18:44,920 --> 00:18:47,359 Speaker 1: the traditional approach of getting the Chinese to do whatever 317 00:18:47,400 --> 00:18:50,119 Speaker 1: one thought the Chinese should do, wasn't working either. What 318 00:18:50,160 --> 00:18:52,040 Speaker 1: it's pretty interesting is the Chinese are actually at the 319 00:18:52,040 --> 00:18:55,160 Speaker 1: table now, so quite clearly tarriffs to some degree are working. Marianne. 320 00:18:55,160 --> 00:18:57,399 Speaker 1: It's got the Chinese to come to the table and 321 00:18:57,480 --> 00:19:00,440 Speaker 1: consider doing things that they have talked about I haven't 322 00:19:00,440 --> 00:19:04,640 Speaker 1: done for a long time. Again, it's a negotiating tactic, 323 00:19:04,680 --> 00:19:06,639 Speaker 1: and yes, you're absolutely right that that has worked in 324 00:19:06,680 --> 00:19:09,119 Speaker 1: from of bringing the Chinese to the table A. The 325 00:19:09,240 --> 00:19:12,159 Speaker 1: key question is what will come after this? Are we 326 00:19:12,280 --> 00:19:14,960 Speaker 1: just going to see a quick deal that leaves many 327 00:19:15,040 --> 00:19:18,479 Speaker 1: of those issues that are structural UM, you know, just 328 00:19:18,720 --> 00:19:22,280 Speaker 1: in limbo and kind of add to this lingering uncertainty. 329 00:19:22,720 --> 00:19:25,080 Speaker 1: And the other question is of will it be tough 330 00:19:25,200 --> 00:19:28,639 Speaker 1: enough to actually have UM an enforcement mechanism move that 331 00:19:28,760 --> 00:19:31,760 Speaker 1: has keeth and that I think UM is not yet 332 00:19:31,840 --> 00:19:35,359 Speaker 1: quite clear. Marian, Thank you so much, Marian Schneider Petsinger 333 00:19:35,640 --> 00:19:39,520 Speaker 1: UH with Chatham House this morning. We greatly appreciate her. 334 00:19:40,119 --> 00:19:54,480 Speaker 1: Tennis Daniel Katsa with us with being p Parry, but 335 00:19:54,680 --> 00:19:58,119 Speaker 1: this is an important conversation on foreign exchange. Daniel, with 336 00:19:58,160 --> 00:20:00,320 Speaker 1: all the news on China, give us an up date 337 00:20:00,359 --> 00:20:04,040 Speaker 1: on Renminbi dynamics. What do we need to know about 338 00:20:04,080 --> 00:20:08,080 Speaker 1: the president all upset about Chinese manipulation, give us a 339 00:20:08,160 --> 00:20:10,960 Speaker 1: b MP Perry Bob brief on that with BMP berry 340 00:20:11,000 --> 00:20:14,600 Speaker 1: bas legacy in China. Well, I think you know, from 341 00:20:14,640 --> 00:20:18,600 Speaker 1: the US perspective, there's been a longstanding press to get 342 00:20:18,800 --> 00:20:21,840 Speaker 1: UH dollar China moving in a more market driven way. 343 00:20:22,240 --> 00:20:24,720 Speaker 1: UH Lately, though, the message that we're getting from press 344 00:20:24,760 --> 00:20:27,680 Speaker 1: reports at least, is that there may be some room 345 00:20:27,760 --> 00:20:30,439 Speaker 1: for UH an agreement with with China to kind of 346 00:20:30,560 --> 00:20:33,960 Speaker 1: UH allow the currency to be stable around the current 347 00:20:34,040 --> 00:20:36,200 Speaker 1: range as part of the trade talks that are happening. 348 00:20:36,240 --> 00:20:38,800 Speaker 1: So it's a man, it's a managed currency. It's still 349 00:20:38,840 --> 00:20:41,840 Speaker 1: a man. It's not a floating currency. I mean, it's 350 00:20:41,880 --> 00:20:45,720 Speaker 1: increasingly more market determined for sure, um and it moves 351 00:20:46,080 --> 00:20:48,439 Speaker 1: much more than it did UH ten years ago or so, 352 00:20:48,480 --> 00:20:50,879 Speaker 1: but it has still aspects of a managed currency. To 353 00:20:51,000 --> 00:20:53,040 Speaker 1: Daniel with you your great experience, I want to get 354 00:20:53,080 --> 00:20:56,320 Speaker 1: the dollar ambiguity right now. What is a BMP Perry 355 00:20:56,400 --> 00:21:00,679 Speaker 1: BA call on the US dollar structurally seker over the 356 00:21:00,720 --> 00:21:03,280 Speaker 1: next year or two, we think as the FED you know, 357 00:21:03,320 --> 00:21:05,199 Speaker 1: continues to be on hold and the markets start to 358 00:21:05,200 --> 00:21:07,720 Speaker 1: prepare for FED easing at some point, the dollar is 359 00:21:07,720 --> 00:21:10,399 Speaker 1: going to be very vulnerable. For now, though, we're in 360 00:21:10,440 --> 00:21:15,080 Speaker 1: a very pro carry environment across markets. Volatility has fallen 361 00:21:15,119 --> 00:21:19,000 Speaker 1: across markets. Investors are looking for carry type strategies and 362 00:21:19,359 --> 00:21:21,440 Speaker 1: within the G ten the dollar benefits as a higher 363 00:21:21,480 --> 00:21:24,800 Speaker 1: yielding currency. It's called doing a Kansas jargon or carry 364 00:21:24,840 --> 00:21:28,720 Speaker 1: on my wayward son, What does cary, what does carry well? 365 00:21:28,800 --> 00:21:33,280 Speaker 1: Simply the strategies that look for higher yielding asset at 366 00:21:33,280 --> 00:21:36,440 Speaker 1: a time when market volatility is low and volatility is low, 367 00:21:36,960 --> 00:21:39,960 Speaker 1: it's a good strategy to look for for yield and 368 00:21:39,960 --> 00:21:43,159 Speaker 1: and investors like those types of strategies. The danger is 369 00:21:43,200 --> 00:21:45,960 Speaker 1: that at some point volatility picks up very quickly and 370 00:21:46,000 --> 00:21:48,560 Speaker 1: you see a rush to exit from positions like that. 371 00:21:48,640 --> 00:21:52,680 Speaker 1: Any reason we think pick up anytime soon down well, 372 00:21:52,720 --> 00:21:54,720 Speaker 1: you know, we can think of any number of things 373 00:21:54,720 --> 00:21:57,840 Speaker 1: that could be disturbing for markets. Uh seems you know, 374 00:21:57,920 --> 00:22:01,000 Speaker 1: sometimes strange that volatile these are so low, given all 375 00:22:01,040 --> 00:22:06,120 Speaker 1: the uncertainties we see in trade policy, geopolitics, the economic outlook, etcetera. 376 00:22:06,480 --> 00:22:08,080 Speaker 1: So it wouldn't be hard to make a list of 377 00:22:08,119 --> 00:22:10,320 Speaker 1: things that could jar the market out of their current 378 00:22:10,760 --> 00:22:14,440 Speaker 1: level of low volatility. Fascinating to see cross asset vault 379 00:22:14,520 --> 00:22:16,920 Speaker 1: drive lower tom of the way it has done at 380 00:22:17,200 --> 00:22:19,600 Speaker 1: the Federal Reserved Retreat, not just in foreign exchange, but 381 00:22:20,280 --> 00:22:22,520 Speaker 1: in treasuries as well, And it leads me to an 382 00:22:22,520 --> 00:22:24,239 Speaker 1: important question that a lot of people are now are 383 00:22:24,280 --> 00:22:27,080 Speaker 1: asking down we've actually been very range bound in the 384 00:22:27,160 --> 00:22:30,399 Speaker 1: effects market, in the treasury market as well, do you 385 00:22:30,440 --> 00:22:32,399 Speaker 1: think we stay in that range down or are you 386 00:22:32,440 --> 00:22:34,640 Speaker 1: thinking about other things? What't me through you thinking right now? 387 00:22:35,480 --> 00:22:37,480 Speaker 1: So for now, all the G ten central banks have 388 00:22:37,640 --> 00:22:40,800 Speaker 1: signaled patients and and and a desire to be on hold. 389 00:22:41,040 --> 00:22:44,119 Speaker 1: And that's broad volatility down across these asset markets, and 390 00:22:44,119 --> 00:22:46,920 Speaker 1: it's very hard to see UM those ranges in g 391 00:22:47,080 --> 00:22:50,480 Speaker 1: t FX breaking over the more medium term, maybe beyond 392 00:22:50,520 --> 00:22:52,800 Speaker 1: a month or two. We think the dollar is at 393 00:22:52,920 --> 00:22:55,480 Speaker 1: very elevated levels, so there is scope for a big 394 00:22:55,520 --> 00:22:58,560 Speaker 1: move lower, which would mean these ranges break on the 395 00:22:58,600 --> 00:23:01,119 Speaker 1: dollar weak side. I me think that will happen probably 396 00:23:01,119 --> 00:23:03,320 Speaker 1: in the second half of the year and market, but 397 00:23:03,320 --> 00:23:05,240 Speaker 1: it could happen very quickly when it once it starts, 398 00:23:05,240 --> 00:23:07,840 Speaker 1: that could happen very quickly. Could President Rock stand in 399 00:23:07,880 --> 00:23:11,280 Speaker 1: the way of that? Um, Yeah, there's not a lot 400 00:23:11,280 --> 00:23:13,240 Speaker 1: of ammunition on the E C B side. They've already 401 00:23:13,280 --> 00:23:16,200 Speaker 1: effectively gone on hold and they're signaling they could reinforce 402 00:23:16,280 --> 00:23:18,159 Speaker 1: that a bit. But you know, the CB is in 403 00:23:18,200 --> 00:23:22,600 Speaker 1: a situation where policy never really normalized, so it's very accommodative. 404 00:23:22,800 --> 00:23:25,760 Speaker 1: It's hard to signal additional easing at this point, and 405 00:23:25,800 --> 00:23:28,240 Speaker 1: they don't have the ability to say, oh, you know, um, 406 00:23:28,720 --> 00:23:31,760 Speaker 1: we we're gonna tighten less because markets already pricing very 407 00:23:31,760 --> 00:23:34,359 Speaker 1: little tightening, so it doesn't have a lot of immunition. Daniel, 408 00:23:34,400 --> 00:23:36,919 Speaker 1: what is your optimal play right now? There's a jumble 409 00:23:37,000 --> 00:23:39,479 Speaker 1: and I was really taken by the set of Chinese 410 00:23:39,520 --> 00:23:43,040 Speaker 1: announcements today. But do you recalibrate here or do you 411 00:23:43,080 --> 00:23:46,240 Speaker 1: have a trade that you've got a real belief in. Well, 412 00:23:46,280 --> 00:23:49,000 Speaker 1: I think we have to respect the push for carry 413 00:23:49,040 --> 00:23:51,320 Speaker 1: that we're seeing across markets, and so we want to 414 00:23:51,560 --> 00:23:54,800 Speaker 1: participate in that dynamic, but we want to do it 415 00:23:54,800 --> 00:23:57,400 Speaker 1: in a way that we're not taking big valuation risk, 416 00:23:57,440 --> 00:24:01,280 Speaker 1: because there's a kind of this, uh, this contradiction between 417 00:24:01,480 --> 00:24:03,080 Speaker 1: wanting to be long the dollar because it's a high 418 00:24:03,119 --> 00:24:05,040 Speaker 1: yielder and being scared that the dollar is going to 419 00:24:05,320 --> 00:24:08,760 Speaker 1: fall back to more longer term equilibrium. We think dollar 420 00:24:08,800 --> 00:24:11,520 Speaker 1: Swiss is one pair where there is carry and where 421 00:24:11,520 --> 00:24:13,399 Speaker 1: you don't have the valuation risk that you have another 422 00:24:13,440 --> 00:24:16,040 Speaker 1: dollar pairs. So we think being exposed to dollar Swiss 423 00:24:16,119 --> 00:24:18,560 Speaker 1: upside makes sense in the current environment of the that 424 00:24:18,640 --> 00:24:21,159 Speaker 1: we're going to see over the next quarter down, all 425 00:24:21,160 --> 00:24:24,159 Speaker 1: of these trades that you're describing make me believe that 426 00:24:24,160 --> 00:24:26,720 Speaker 1: what you see as an economy that re accelerates in 427 00:24:26,760 --> 00:24:29,160 Speaker 1: the months to come, is that your base case down? 428 00:24:29,200 --> 00:24:31,679 Speaker 1: And why well, it's not really. I don't think re 429 00:24:31,720 --> 00:24:35,359 Speaker 1: acceleration is is what we're looking for. It's more stabilization 430 00:24:35,440 --> 00:24:38,680 Speaker 1: at below trend radio growth in the US. So it's 431 00:24:38,840 --> 00:24:42,199 Speaker 1: uh not um uh fast enough for the Fed to 432 00:24:42,240 --> 00:24:46,080 Speaker 1: resume hikes. At the same time, it's not slow enough 433 00:24:46,160 --> 00:24:49,600 Speaker 1: to get the market's really concerned about crash risk and 434 00:24:49,680 --> 00:24:52,400 Speaker 1: and and pricing policy easing. It sets in the ground 435 00:24:52,440 --> 00:24:54,919 Speaker 1: in the in the Gtah, what is the bet now 436 00:24:55,040 --> 00:24:58,119 Speaker 1: on dollar? You've got some great charge showing belief in 437 00:24:58,280 --> 00:25:02,080 Speaker 1: long dollar, short dollar or dollar stronger, I should say 438 00:25:02,080 --> 00:25:04,800 Speaker 1: dollar weaker? What what? What's the belief of the street 439 00:25:04,920 --> 00:25:08,000 Speaker 1: right now? I think if you look across the consensus 440 00:25:08,000 --> 00:25:10,560 Speaker 1: the most forecasters, it's that the dollar will be weaker 441 00:25:10,640 --> 00:25:13,280 Speaker 1: over time. Uh. And that's I think of reflection of 442 00:25:13,320 --> 00:25:16,040 Speaker 1: the relatively high valuation that we have on most of 443 00:25:16,040 --> 00:25:18,240 Speaker 1: the dollar pairs. And we think that makes sense. You 444 00:25:18,320 --> 00:25:20,880 Speaker 1: just think for now, don't be surprised the dollar continues 445 00:25:20,920 --> 00:25:23,680 Speaker 1: to hold stable and does better than the forwards that imply. 446 00:25:23,720 --> 00:25:26,400 Speaker 1: In other words, you can you can make money being 447 00:25:26,480 --> 00:25:29,280 Speaker 1: long USD because of the yield differential. Just as I mentioned, 448 00:25:29,320 --> 00:25:30,920 Speaker 1: dollar Swiss is a safer way to do that than 449 00:25:30,960 --> 00:25:50,639 Speaker 1: you're a dollar for example, Updated, it is good to 450 00:25:50,720 --> 00:25:53,879 Speaker 1: check in with Stephen Whiting of City Private Bank with 451 00:25:54,000 --> 00:25:56,919 Speaker 1: a real tour of duty in economics and in a 452 00:25:57,040 --> 00:26:00,560 Speaker 1: strategy their chief investment strategist. What does then, is Stephen 453 00:26:00,560 --> 00:26:07,119 Speaker 1: Whiting's strategy, Steve Well, it's too uh prepare for a 454 00:26:07,400 --> 00:26:11,320 Speaker 1: US outlook where the Federal Reserve switches from trying to 455 00:26:11,359 --> 00:26:15,040 Speaker 1: restrain the strength of the expansion to protect the expansion. 456 00:26:15,119 --> 00:26:20,400 Speaker 1: We're in uh and right now, particularly in Asia, what's 457 00:26:20,440 --> 00:26:26,159 Speaker 1: relevant is China is moving fairly strongly regardless of how 458 00:26:26,800 --> 00:26:31,040 Speaker 1: these trade negotiations work out, but fairly strongly to reinvigorate 459 00:26:31,119 --> 00:26:34,760 Speaker 1: its economy. It's stopped tightening policy about a year ago 460 00:26:35,480 --> 00:26:38,199 Speaker 1: and has been at a while reinvigorating the strength of 461 00:26:38,200 --> 00:26:43,360 Speaker 1: the expansion right now, so that combination of lower policy 462 00:26:43,440 --> 00:26:45,640 Speaker 1: rates in the United States are at least planned where 463 00:26:45,680 --> 00:26:49,080 Speaker 1: where they would be and China stylists really changes a 464 00:26:49,080 --> 00:26:51,639 Speaker 1: lot of asset movements potentially around the world over the 465 00:26:51,640 --> 00:26:53,760 Speaker 1: coming year. Buried, didn't you and we were just talking 466 00:26:53,800 --> 00:26:56,760 Speaker 1: about this with John Tucker, who what what are you in? 467 00:26:56,840 --> 00:27:01,480 Speaker 1: Like the eighties seven percent marginal bracket? Is that is 468 00:27:03,119 --> 00:27:06,800 Speaker 1: like Rockefeller in or something like that. You've got Steve 469 00:27:06,800 --> 00:27:10,919 Speaker 1: Whiting an important phrase in your city bank report, the 470 00:27:11,040 --> 00:27:16,880 Speaker 1: absence of tax cuts. Right, did we have tax cuts? Well? 471 00:27:17,359 --> 00:27:20,080 Speaker 1: We did last year, and it depends on you know, 472 00:27:20,119 --> 00:27:22,719 Speaker 1: how you feel about them in this tax filing season, 473 00:27:23,440 --> 00:27:26,760 Speaker 1: because you know, we have a little bit of uncertainty 474 00:27:26,800 --> 00:27:30,639 Speaker 1: as to how large the effective tax cut was for 475 00:27:30,840 --> 00:27:35,440 Speaker 1: different people, especially folks in UH states that have high 476 00:27:35,440 --> 00:27:37,960 Speaker 1: personal income tax rates and property tax rates that have 477 00:27:38,000 --> 00:27:41,120 Speaker 1: a dog named Biscuit. Yeah, well you just take a rip. 478 00:27:41,200 --> 00:27:42,480 Speaker 1: You know, we put a figure in there. You know, 479 00:27:42,480 --> 00:27:45,399 Speaker 1: you're really great with with Charles Tom. But if you 480 00:27:45,440 --> 00:27:49,439 Speaker 1: look that sort of overall personal income last year, you know, 481 00:27:49,520 --> 00:27:53,400 Speaker 1: we were continued at a decent clip, but the personal 482 00:27:53,400 --> 00:27:58,520 Speaker 1: tax liability overall grew very very little, and they usually 483 00:27:58,560 --> 00:28:01,640 Speaker 1: moved together. And that again, and is the tax cut. 484 00:28:01,800 --> 00:28:04,120 Speaker 1: And we know that the corporate tax cut, for example, 485 00:28:04,920 --> 00:28:07,440 Speaker 1: was pretty powerful, and I do believe that there are 486 00:28:07,520 --> 00:28:10,359 Speaker 1: some lasting benefits of the corporate tax cut, but the 487 00:28:10,440 --> 00:28:14,280 Speaker 1: immediate boost to income that that had is just simply 488 00:28:14,359 --> 00:28:17,280 Speaker 1: not repeated this year. So you've got to look back 489 00:28:17,320 --> 00:28:19,800 Speaker 1: at the U. S. Economy's performance with about a three 490 00:28:19,800 --> 00:28:23,359 Speaker 1: percent growth rate last year and say, probably the single 491 00:28:23,520 --> 00:28:27,399 Speaker 1: largest spur to that growth rate was to and we 492 00:28:27,440 --> 00:28:29,760 Speaker 1: don't have another one. You hear that, John, We don't 493 00:28:29,760 --> 00:28:35,159 Speaker 1: have another one, which means you're you're so Stephen. You 494 00:28:35,200 --> 00:28:38,080 Speaker 1: know you mentioned China and boy, they've been pretty aggressive 495 00:28:38,080 --> 00:28:41,440 Speaker 1: with the fiscal stimulus of late. Is it any sense 496 00:28:41,480 --> 00:28:44,080 Speaker 1: of whether it's working or it will work? What your 497 00:28:44,080 --> 00:28:46,840 Speaker 1: thoughts there? It's all new, that's sort of you know, 498 00:28:47,040 --> 00:28:51,880 Speaker 1: financial implications looking forward those things. We can measure a 499 00:28:51,920 --> 00:28:54,520 Speaker 1: few things. For example, in January, we had the largest 500 00:28:54,560 --> 00:28:57,760 Speaker 1: increase uh in c n Y loans in the history 501 00:28:57,760 --> 00:29:01,880 Speaker 1: of China. This that tacks that they just announced near 502 00:29:01,960 --> 00:29:07,200 Speaker 1: three billion US dollar equivalent. That is all perspective. Uh 503 00:29:07,280 --> 00:29:09,680 Speaker 1: there are some things that are still going to slow 504 00:29:10,320 --> 00:29:14,480 Speaker 1: in China's economy. Export growth, for example, uh we we 505 00:29:14,640 --> 00:29:18,000 Speaker 1: was pulled forward by the threat of tariffs, so the 506 00:29:18,320 --> 00:29:22,560 Speaker 1: desire to order from China ahead of paying tariffs was 507 00:29:22,720 --> 00:29:25,920 Speaker 1: very strong and a boosted trade activity in two thousand eighteen. 508 00:29:26,280 --> 00:29:29,240 Speaker 1: And there's still some slowing there. But things that did 509 00:29:29,400 --> 00:29:34,000 Speaker 1: slow internally in China are sometimes meet even more important. 510 00:29:34,160 --> 00:29:37,920 Speaker 1: And credit restraint was very severe in two thousand seventeen 511 00:29:37,960 --> 00:29:40,960 Speaker 1: into early two thousand eighteen, and so things that underperformed 512 00:29:41,000 --> 00:29:43,840 Speaker 1: were very domestic, like infrastructure spending in the early part 513 00:29:43,920 --> 00:29:46,680 Speaker 1: of two thousand eighteen, and that is gradually going to 514 00:29:46,720 --> 00:29:50,520 Speaker 1: be coming back now. So Stephen, it's interesting Tom and 515 00:29:50,560 --> 00:29:52,440 Speaker 1: I just earlier today, we're just talking about the dollar 516 00:29:52,520 --> 00:29:53,960 Speaker 1: and the strength of the dollar, and we're having a 517 00:29:54,040 --> 00:29:56,160 Speaker 1: very hard time coming up with a bear case for 518 00:29:56,240 --> 00:29:58,680 Speaker 1: the dollar, or at least even a less bullish case 519 00:29:58,720 --> 00:30:01,880 Speaker 1: for the dollar. What is your on the dollar right here? Well, look, 520 00:30:01,920 --> 00:30:04,240 Speaker 1: we thought this year would be a little bit like 521 00:30:04,640 --> 00:30:08,920 Speaker 1: last year in terms of it being relatively range bound. 522 00:30:09,800 --> 00:30:12,280 Speaker 1: But the history here is that between two thousand eleven 523 00:30:12,400 --> 00:30:15,040 Speaker 1: and early two seventeen we had the third largest U 524 00:30:15,120 --> 00:30:17,720 Speaker 1: S Dollar and bull market on record. The dollar is 525 00:30:17,880 --> 00:30:21,400 Speaker 1: up at a fairly high level. We have had nine 526 00:30:21,520 --> 00:30:24,880 Speaker 1: rate hikes out of the United States and the rest 527 00:30:24,960 --> 00:30:27,600 Speaker 1: of the world. Anyone who hiked didn't really want to. 528 00:30:28,960 --> 00:30:32,400 Speaker 1: And we're at the point now where the Federal Reserve 529 00:30:32,520 --> 00:30:36,240 Speaker 1: had some real warnings about activity. Last year, we saw 530 00:30:36,480 --> 00:30:39,920 Speaker 1: housing activity, construction and sales fall for a year now, 531 00:30:40,000 --> 00:30:43,080 Speaker 1: not a lot, not a level sort of that says 532 00:30:43,160 --> 00:30:46,560 Speaker 1: it's impossible for us to come back from this. But 533 00:30:46,600 --> 00:30:48,960 Speaker 1: remember we also had a tax cut, and we saw 534 00:30:49,480 --> 00:30:51,680 Speaker 1: banks tightening lemming standards in the Fourth Courter. So it's 535 00:30:51,760 --> 00:30:55,400 Speaker 1: all sorts of signs that we couldn't stay on the 536 00:30:55,560 --> 00:31:00,440 Speaker 1: same tightening trajectory in the United States. And so when 537 00:31:00,480 --> 00:31:03,160 Speaker 1: it turns there's a very good chance here that we 538 00:31:03,240 --> 00:31:06,000 Speaker 1: take out of a dollar. Now. One little complication is 539 00:31:06,320 --> 00:31:08,920 Speaker 1: you know dollar euro or are we talking dollar China 540 00:31:09,000 --> 00:31:10,920 Speaker 1: in a very very different story. See why do you 541 00:31:11,000 --> 00:31:13,360 Speaker 1: think of so much? For the update was City Private 542 00:31:13,440 --> 00:31:19,880 Speaker 1: Bank as well. Thanks for listening to the Bloomberg Surveillance podcast. 543 00:31:20,280 --> 00:31:25,200 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 544 00:31:25,360 --> 00:31:29,640 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 545 00:31:29,800 --> 00:31:33,600 Speaker 1: Keane before the podcast, you can always catch us worldwide. 546 00:31:34,120 --> 00:31:35,160 Speaker 1: I'm Bloomberg Radio.