Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.
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Speaker 1: The interview of the day, I will cut to the chase.
Speaker 1: There's exactly one book to read to catch up with
Speaker 1: the changes in China. It is The Third Revolution and
Speaker 1: it is by Elizabeth Economy. Of course she changed our
Speaker 1: dialogue with China where the river runs black? Uh, that
Speaker 1: was just a few years ago, Liz Economy with a
Speaker 1: Council on Foreign Relations. Professor Economy, Good morning, wonderful to
Speaker 1: have you with us. What is the Third Revolution right now?
Speaker 1: For President She? He's got some challenges. How's that Third
Speaker 1: Revolution going? So? You know, the Third Revolution for Shijin
Speaker 1: Ping was really upending, uh, the period of reform and
Speaker 1: opening up that Dung Shao Ping had ushered in some
Speaker 1: thirty years earlier, and creating a China that was far
Speaker 1: more repressive and authoritaring at home, but more ambitious and
Speaker 1: expansive abroad. Right. It was his great rejuvenation of the
Speaker 1: Chinese nation. I think what we're seeing today is that,
Speaker 1: you know, over the past six years, this model has
Speaker 1: produced its own set of fairly profound challenges for shijin Ping. Uh.
Speaker 1: You know, there's a great sense of political malaise in
Speaker 1: the country because of his grab for power. Uh, you know,
Speaker 1: his you know, elimination of the two term limit on
Speaker 1: the presidency. Uh. You know, a hundred and fifty shijin
Speaker 1: Ping you know, institutes institutes for shijin Ping. Thought. People
Speaker 1: feel as though there's been to some extent a return
Speaker 1: to that Maoist era cult of personnality, and they don't
Speaker 1: want to go back to that. Right constraining the Internet,
Speaker 1: the intrusion of the Communist Party, you know, into private
Speaker 1: enterprises and in more deeply into people's lives. So I
Speaker 1: think he's he's created his own set of problems through
Speaker 1: this third Revolution. Within his third revolution, there has to
Speaker 1: be a Communist Party on one page. Is he goes
Speaker 1: to this People's Congress, is his four or whatever the
Speaker 1: body count is Paul Borough leaders. Are they all on
Speaker 1: the same page or is there a huge descent? So
Speaker 1: this is the Commonist Party meeting the party Congress happens
Speaker 1: in the fall. This is the National People's Congress, so
Speaker 1: they're actually three thousand people feeding and aging right now
Speaker 1: for two weeks um. And I think there there are
Speaker 1: many dissenting views, uh, you know, and I think part
Speaker 1: of it has to do with the failure to move
Speaker 1: forward on structural economic reforms. So there's a lot of
Speaker 1: discontent over again chi Jin Pink's tightening up and his
Speaker 1: preferencing of state owned enterprises over private enterprise. So a
Speaker 1: lot of descent around that. There's concern around Chijun King's
Speaker 1: anti corruption campaign, right, the lack of transparency in that
Speaker 1: and uh, you know, lack of rule of law. They
Speaker 1: had six over six hundred thousand officials were punished last
Speaker 1: year for corruption. That the hundred thousand more than the
Speaker 1: year before. Uh, there are many areas of unhappiness. But
Speaker 1: does he go into this thing? Does he go into
Speaker 1: this three thousand member congress for everybody collapse at the
Speaker 1: same time. I know you monitor the clapping volume, But
Speaker 1: but beneath that is four D two hundred and six
Speaker 1: members of the Polar Bear and all the other subsets
Speaker 1: that there are, are they in support of their president.
Speaker 1: I think we've we've seen you know, over the last summer. UM,
Speaker 1: there was a lot of discussion about descent within the
Speaker 1: Standing Committee of the Politburo. Right, as you said, this
Speaker 1: sort of the top, very top, uh, you know, seven
Speaker 1: person group, UM, that that Jinping was being sort of
Speaker 1: accused of overreach, that he had created all these problems
Speaker 1: with the United States, you know, facing this trade war,
Speaker 1: that there were problems you know through the Belt and
Speaker 1: Road project a lot of countries. Now are you know
Speaker 1: staying or even canceling projects the big infrastructure projects that
Speaker 1: they had agreed to with China. Um. Obviously the Chinese
Speaker 1: economy was slowing and they didn't seem to have a
Speaker 1: game plan. He wasn't listening to the reform economists. Uh,
Speaker 1: and you know he kept wanting to double down on
Speaker 1: state control. So I think all throughout the system, Uh,
Speaker 1: there is sent and so so so what is the
Speaker 1: experience you've seen in their history of what's next? What's
Speaker 1: the process forward for a totalitarian regime given this descent?
Speaker 1: So I think, um, if the economy continues to slow
Speaker 1: right now, what we're seeing is you know, some small
Speaker 1: move months towards economic reform. I think she Jumping was
Speaker 1: kind of pushed into a corner UH and forced to
Speaker 1: make a statement a few months back about the need
Speaker 1: to enhance the role of the market, which is not
Speaker 1: his inclination. UM. So we have to see whether or
Speaker 1: not they're actually some of these reform initiatives move forward.
Speaker 1: If they do, if the economy begins to kick back in,
Speaker 1: then I think economic growth kicks back, and I think
Speaker 1: She jinping is okay. If it doesn't, UM, I don't
Speaker 1: expect that they would remove she Jumping, but I think
Speaker 1: you could see what happened to Mause Doong after the
Speaker 1: great leap forward in the early nineteen sixties, which is
Speaker 1: he was moved to the second line, right because and
Speaker 1: that says is she no longer first? If you if
Speaker 1: you equal doctor economy, have you identified the next Chowing Lay?
Speaker 1: I mean, it's great to talk about Mao and and she,
Speaker 1: but who comes in to save the day. Well, Unfortunately,
Speaker 1: the sort of the three I think within the stand
Speaker 1: the committee are not particularly strong. There's yeah, Lee Ka
Speaker 1: Chong and Wang Yang and Han Jong. They're sort of
Speaker 1: the three that you know could potentially UH do something,
Speaker 1: but this would be more of a consensus decision. That
Speaker 1: we're going back to the dungest model of collective and
Speaker 1: consensus based decision making. It's not necessarily interesting one leader
Speaker 1: moves into replace she in the way that she has
Speaker 1: grabbed onto the power, but that that they go back
Speaker 1: to the sense that no one person stands above the rest.
Speaker 1: If you're just joining us CV star fellow the Council
Speaker 1: on Foreign Relations, Elizabeth Economy, I can't say enough about
Speaker 1: her effort the Third Revolution. I read it cover to cover.
Speaker 1: You should too. One of the great theories that we
Speaker 1: saw from the River runs black and onward. Uh, Liz
Speaker 1: Economy is a power of the cities. What is the
Speaker 1: relationship of President she and Beijing to the people that
Speaker 1: actually run Shanghai, run Hong Kong, Rung sheng Do and
Speaker 1: the others. So one of the really interesting things that's
Speaker 1: happened and over the past year year and a half
Speaker 1: is that we've seen repeated calls by Shijin Ping, by
Speaker 1: Lei Ka Chung for local officials to implement Beijing's policies. Uh.
Speaker 1: There seems to be an incredible reluctance on the part
Speaker 1: of local officials to do what Beijing says. I think
Speaker 1: it's in part. It's because the mandates come down. There
Speaker 1: are so many different mandates and sometimes they conflict. Right.
Speaker 1: So first you have a mandate, you know, to stop lending. Right.
Speaker 1: Then you have a mandate no, actually start lending again.
Speaker 1: You have a mandate to protect the environment. Now, just
Speaker 1: in the past two months they said, actually, our targets
Speaker 1: are too ambitious. We're going to take a step back
Speaker 1: and protecting the environment. And of course the anti corruption
Speaker 1: campaign which has caused many local officials really not to
Speaker 1: want to take risks. They don't want to be noticed
Speaker 1: by Beijing. Uh. And and then somehow, you know, draw
Speaker 1: attention to them and perhaps come under some kind of
Speaker 1: corruption claim. So I think right now the situation for
Speaker 1: Beijing is very don Uh. They have a lot of
Speaker 1: resistance at the local level to vamp off the not
Speaker 1: so new normal Chapter four of the Third Revolution. Right now,
Speaker 1: what's the not so new normal for President Trump? What's
Speaker 1: the to do list for America? Is they address these
Speaker 1: uncertainties in China. I think this administration um is leaving
Speaker 1: no stone unturned. It's pretty extraordinary. I have to say.
Speaker 1: It's across the full range of issues, whether we're talking
Speaker 1: the security front or the trade front or even the
Speaker 1: political front right Chinese influence operations. What's going on in
Speaker 1: Xinjiang in terms of the repression of the you know,
Speaker 1: weaker Muslim population there. The administration is is firing on
Speaker 1: all pistons. Um. We have to see what the end
Speaker 1: result is, Um, but I would say that they really
Speaker 1: are trying to hold the Chinese feet to the fire,
Speaker 1: so to speak, Um, and and get some movement and
Speaker 1: in a way that I think reflects American interests, Um,
Speaker 1: you know, more directly. It was my book of the
Speaker 1: summer last year, the Third Revolution, Elizabeth Economy. My book
Speaker 1: of the summer this year's Ragarajan's Knew the Third Pillar,
Speaker 1: which I know Lizz will recover to cover as I
Speaker 1: will too. But do yourself a favor redo the Third Revolution.
Speaker 1: One year on, it is still an exceptional impression dissertation
Speaker 1: on the new China. And of course with these new
Speaker 1: announcements you heard, they're the urgency from Dr Economy, Liz Economy,
Speaker 1: thank you so much. With the Council on Foreign Relations,
Speaker 1: we begin then with that soft story China low ring
Speaker 1: its goal for economic growth and announcing a major tax
Speaker 1: cuntess policy maker's seat to pull off a gradual deceleration
Speaker 1: with a grappling of a trade story and I debt
Speaker 1: legacy as well. I want to bring in Bloomberg's David
Speaker 1: inglets for more. He joins US Life from Beijing. So David,
Speaker 1: they replaced the target with a growth range. Walk me
Speaker 1: through it right, six or six and a half percent
Speaker 1: the growth last year overall with six point six percent.
Speaker 1: The first top line is there is an acknowledgement among
Speaker 1: the top leadership that growth will slow this year. Investors
Speaker 1: who are fearing that growth mind slit below six percent.
Speaker 1: This obviously adds a little bit maybe a floor to growth.
Speaker 1: More importantly, though, it's the type of growth that they
Speaker 1: want to pursue. When you look at the tax cuts
Speaker 1: that they mentioned, three hundred billion US all as it's
Speaker 1: worth of UH tax cuts and social security fees. And
Speaker 1: essentially what they're doing is there's there's been some challenges
Speaker 1: really in terms of lending money to the private sector.
Speaker 1: So in a lot of ways, what they're doing is
Speaker 1: they're leaving more money on the table in the pockets
Speaker 1: of the private sector, in people and hopefully turn around
Speaker 1: the consumption story that was quite horrible last year. Just
Speaker 1: the range also just tell you how uncertain things are
Speaker 1: for the future of the Chinese economy. It certainly does,
Speaker 1: I think when you try and quantify what six to
Speaker 1: six and a half percent is in the difference there,
Speaker 1: it's the thirteen trillion dollar economy, so that's anywhere from
Speaker 1: a rough estimate, that's about ninety billion too, maybe three
Speaker 1: dollars worth of thought put that may or may not
Speaker 1: be there. So essentially what they're trying to do, and
Speaker 1: really when it comes to the party, I had to
Speaker 1: look at the reports forty page of spont size twelve.
Speaker 1: It's a work report. It's the first time they mentioned
Speaker 1: explicitly that everything they're growing at the growth problem right
Speaker 1: now is really meant to protect jobs and employment. And
Speaker 1: when it comes to the party, it's really all about
Speaker 1: social stability. Well, there is a Communist Party and then
Speaker 1: there's a National People's Congress. By my count, it's two thousand,
Speaker 1: nine hundred warm bodies in the room clapping on Q great.
Speaker 1: What percentage of those people support president? That's the big question. Um.
Speaker 1: In fact, a lot of the things that we heard
Speaker 1: today from the work report, and a lot of the
Speaker 1: things that essentially you'll hear the next ten days or so. Uh,
Speaker 1: tomorrow Wednesday is in time. You'll have the Economic Planner
Speaker 1: coming up with their own press conference. You're the Commerce
Speaker 1: Ministry that day after that the PBO. See what has
Speaker 1: all these ministries? A lot of the things that you'll hear,
Speaker 1: we're decided back in October during the plenum. It is
Speaker 1: the Communist Party, of course, and what they say essentially
Speaker 1: is likely what will what what? What will likely happen.
Speaker 1: The other piece really to that story as well, is
Speaker 1: really then moving the economy from one that is centrally planned,
Speaker 1: state owned into one of course where you have more
Speaker 1: private enterprise. And the tricky part, and the reason I
Speaker 1: bring that up is when they talk about, oh, we
Speaker 1: need to get capital through to the private enterprises, Well,
Speaker 1: guess what a lot of the people that we talked
Speaker 1: to say, you look at the structure of the Chinese
Speaker 1: banking system, it's not really designed yet the service the
Speaker 1: private sectors. So really that's one area to watch and
Speaker 1: how they actually manage to to to to to gradually
Speaker 1: moderate the economy to where they wanted to be. Blimberg's
Speaker 1: DVID English joining US Life from Beijing as we get
Speaker 1: a new growth range from the Chinese government. Let's talk
Speaker 1: to someone from Britain who only thinks in centigrade. Actually
Speaker 1: she went to the University of Maine, where it's colder
Speaker 1: than cold a good part of the year. Good morning,
Speaker 1: up in or no listening, Mary and Schneider Petsinger joins
Speaker 1: us right now, and this is to get briefed on
Speaker 1: China is economy to join us later on, Marianne, what
Speaker 1: what struck me about the Chinese announcement was the all
Speaker 1: in sense of it. Is it a point of crisis
Speaker 1: for the leadership of the Communist Party or is this
Speaker 1: an evolutionary path that they're on to some new policy.
Speaker 1: I think we're certainly seeing an evolutionary phase for a
Speaker 1: lot will go, will happen, and certainly also with vacations
Speaker 1: for what it means for the US economy. Um. Also,
Speaker 1: you know, on the US China front, there are sources
Speaker 1: that say we're close to a potential trade deal, that
Speaker 1: we're in the final stages. But again, you know, even
Speaker 1: if we're at the finishing line, the finishing line of
Speaker 1: a one beter hurdle rays or is there really much
Speaker 1: more about marathon? And I think it's about those long
Speaker 1: term issues you absolutely nail the immediacy of the trade deal.
Speaker 1: Was this document written for the trade deal discussion or
Speaker 1: do they look at as China, as Beijing look at
Speaker 1: the trade deals separate from the seven eight nine menu
Speaker 1: items that came out with for the National People's Congress. Well,
Speaker 1: I think, um, you know, the discussions they're much much
Speaker 1: longer than just having this as part of the trade
Speaker 1: discussions with Trump. But again, because this is also about
Speaker 1: much more long term strategic decisions, it will feature in
Speaker 1: that as. Oh again, this trait is few than the
Speaker 1: traite where as you're team right now, it's really not
Speaker 1: so much about trade. It is about much larger structural
Speaker 1: issues and perhaps a global big power valory. What does
Speaker 1: the vet Tex dynamic mean They're going to reduce the
Speaker 1: VT tax for manufacturing in China? Well, I think you know,
Speaker 1: it's certainly meant to um improve economic process that China
Speaker 1: is entering this period of showing signs of weakness UM
Speaker 1: and you know, the Trump administration is very well aware
Speaker 1: of that and things are part of um them being
Speaker 1: in a much stronger negotiating position. Yeah, and this is
Speaker 1: really important because you know, you know Heathrow. They've got
Speaker 1: the line there for the vet tax checkout for Americans.
Speaker 1: The whole that tax thing is like wicked foreign In
Speaker 1: our collective memory is in Canada they try to do
Speaker 1: a vat tax and literally brought down the government at
Speaker 1: one point, were very destructive. That tax is a very
Speaker 1: dis active for the poorest in society typically. That's what
Speaker 1: really struck me in the Chinese announcement. Yeah, but it's
Speaker 1: for manufacturing. It's for a sector specific sector. Marianne, just
Speaker 1: in terms of what is happening in China, how much
Speaker 1: of it is engineered by the Chinese, the domestic slowdown,
Speaker 1: and how much of it is engineered by the US administration. Well,
Speaker 1: I think so far it is mostly about the domestic
Speaker 1: issues in China, primarily because the tariffs and the retaliatory
Speaker 1: tears they are significant, but really overall, in the scheme
Speaker 1: of things, it's it's minor UM. And so even though
Speaker 1: obviously for the prospects of economic growth, this delay of
Speaker 1: UM cariffs and UM, you know, also normal long we're
Speaker 1: talking about additional tariffs of two hundred sixties seven UM.
Speaker 1: That is certainly positive, but I wouldn't overestimate the impact
Speaker 1: that has had Marianne has been really interesting over the
Speaker 1: last couple of weeks. This narrative that is built up,
Speaker 1: fueled by events in the Oval Office, that there seems
Speaker 1: to be a spread between the deal the President of
Speaker 1: the United States wants and the deal that some of
Speaker 1: his China hawks would ultimately like. Is that just the narrative,
Speaker 1: Is that just the false perception of what is happening,
Speaker 1: or do you think there's something to that? Well, I
Speaker 1: think there's something to this because there's various m priorities
Speaker 1: that the Trump administration has raised when it comes to
Speaker 1: trade with China. For the President, it seems to be
Speaker 1: mostly about forcing China to be boost the bilateral trade
Speaker 1: surplus with the United States. And here it's important to
Speaker 1: keep in mind that China accounts for about of the
Speaker 1: US's global trade deficit. But various concerns about you know this,
Speaker 1: this focus on the billateral data trade deficit, it is
Speaker 1: isly misguided. Um Whereas others in the administration, particular Robert Leheiser,
Speaker 1: the United States Trade Representative, and his concern is much
Speaker 1: more about the structural issues, so tackling unfair trade practices.
Speaker 1: When it comes to force technology transfer key staffs, and
Speaker 1: I think on that point um the Trump administration has
Speaker 1: much much more legitimate concern but the methods to address
Speaker 1: those are wrong, so pears aren't really going to do
Speaker 1: much about it. Much more importantly would be to build
Speaker 1: a global alliance, to put the United States to work
Speaker 1: together with you and Japan to um jointly for China
Speaker 1: to change their practices, and to some extent, we're seeing
Speaker 1: that DSDU and Japan have had trilateral talks and have
Speaker 1: issued a number of statements over the last years that
Speaker 1: there is potential opportunity for collaboration. Mariana. Often hear this
Speaker 1: that tariffs aren't the right way forward, But what's interesting
Speaker 1: to me is that the status quo what we had before,
Speaker 1: the traditional approach of getting the Chinese to do whatever
Speaker 1: one thought the Chinese should do, wasn't working either. What
Speaker 1: it's pretty interesting is the Chinese are actually at the
Speaker 1: table now, so quite clearly tarriffs to some degree are working. Marianne.
Speaker 1: It's got the Chinese to come to the table and
Speaker 1: consider doing things that they have talked about I haven't
Speaker 1: done for a long time. Again, it's a negotiating tactic,
Speaker 1: and yes, you're absolutely right that that has worked in
Speaker 1: from of bringing the Chinese to the table A. The
Speaker 1: key question is what will come after this? Are we
Speaker 1: just going to see a quick deal that leaves many
Speaker 1: of those issues that are structural UM, you know, just
Speaker 1: in limbo and kind of add to this lingering uncertainty.
Speaker 1: And the other question is of will it be tough
Speaker 1: enough to actually have UM an enforcement mechanism move that
Speaker 1: has keeth and that I think UM is not yet
Speaker 1: quite clear. Marian, Thank you so much, Marian Schneider Petsinger
Speaker 1: UH with Chatham House this morning. We greatly appreciate her.
Speaker 1: Tennis Daniel Katsa with us with being p Parry, but
Speaker 1: this is an important conversation on foreign exchange. Daniel, with
Speaker 1: all the news on China, give us an up date
Speaker 1: on Renminbi dynamics. What do we need to know about
Speaker 1: the president all upset about Chinese manipulation, give us a
Speaker 1: b MP Perry Bob brief on that with BMP berry
Speaker 1: bas legacy in China. Well, I think you know, from
Speaker 1: the US perspective, there's been a longstanding press to get
Speaker 1: UH dollar China moving in a more market driven way.
Speaker 1: UH Lately, though, the message that we're getting from press
Speaker 1: reports at least, is that there may be some room
Speaker 1: for UH an agreement with with China to kind of
Speaker 1: UH allow the currency to be stable around the current
Speaker 1: range as part of the trade talks that are happening.
Speaker 1: So it's a man, it's a managed currency. It's still
Speaker 1: a man. It's not a floating currency. I mean, it's
Speaker 1: increasingly more market determined for sure, um and it moves
Speaker 1: much more than it did UH ten years ago or so,
Speaker 1: but it has still aspects of a managed currency. To
Speaker 1: Daniel with you your great experience, I want to get
Speaker 1: the dollar ambiguity right now. What is a BMP Perry
Speaker 1: BA call on the US dollar structurally seker over the
Speaker 1: next year or two, we think as the FED you know,
Speaker 1: continues to be on hold and the markets start to
Speaker 1: prepare for FED easing at some point, the dollar is
Speaker 1: going to be very vulnerable. For now, though, we're in
Speaker 1: a very pro carry environment across markets. Volatility has fallen
Speaker 1: across markets. Investors are looking for carry type strategies and
Speaker 1: within the G ten the dollar benefits as a higher
Speaker 1: yielding currency. It's called doing a Kansas jargon or carry
Speaker 1: on my wayward son, What does cary, what does carry well?
Speaker 1: Simply the strategies that look for higher yielding asset at
Speaker 1: a time when market volatility is low and volatility is low,
Speaker 1: it's a good strategy to look for for yield and
Speaker 1: and investors like those types of strategies. The danger is
Speaker 1: that at some point volatility picks up very quickly and
Speaker 1: you see a rush to exit from positions like that.
Speaker 1: Any reason we think pick up anytime soon down well,
Speaker 1: you know, we can think of any number of things
Speaker 1: that could be disturbing for markets. Uh seems you know,
Speaker 1: sometimes strange that volatile these are so low, given all
Speaker 1: the uncertainties we see in trade policy, geopolitics, the economic outlook, etcetera.
Speaker 1: So it wouldn't be hard to make a list of
Speaker 1: things that could jar the market out of their current
Speaker 1: level of low volatility. Fascinating to see cross asset vault
Speaker 1: drive lower tom of the way it has done at
Speaker 1: the Federal Reserved Retreat, not just in foreign exchange, but
Speaker 1: in treasuries as well, And it leads me to an
Speaker 1: important question that a lot of people are now are
Speaker 1: asking down we've actually been very range bound in the
Speaker 1: effects market, in the treasury market as well, do you
Speaker 1: think we stay in that range down or are you
Speaker 1: thinking about other things? What't me through you thinking right now?
Speaker 1: So for now, all the G ten central banks have
Speaker 1: signaled patients and and and a desire to be on hold.
Speaker 1: And that's broad volatility down across these asset markets, and
Speaker 1: it's very hard to see UM those ranges in g
Speaker 1: t FX breaking over the more medium term, maybe beyond
Speaker 1: a month or two. We think the dollar is at
Speaker 1: very elevated levels, so there is scope for a big
Speaker 1: move lower, which would mean these ranges break on the
Speaker 1: dollar weak side. I me think that will happen probably
Speaker 1: in the second half of the year and market, but
Speaker 1: it could happen very quickly when it once it starts,
Speaker 1: that could happen very quickly. Could President Rock stand in
Speaker 1: the way of that? Um, Yeah, there's not a lot
Speaker 1: of ammunition on the E C B side. They've already
Speaker 1: effectively gone on hold and they're signaling they could reinforce
Speaker 1: that a bit. But you know, the CB is in
Speaker 1: a situation where policy never really normalized, so it's very accommodative.
Speaker 1: It's hard to signal additional easing at this point, and
Speaker 1: they don't have the ability to say, oh, you know, um,
Speaker 1: we we're gonna tighten less because markets already pricing very
Speaker 1: little tightening, so it doesn't have a lot of immunition. Daniel,
Speaker 1: what is your optimal play right now? There's a jumble
Speaker 1: and I was really taken by the set of Chinese
Speaker 1: announcements today. But do you recalibrate here or do you
Speaker 1: have a trade that you've got a real belief in. Well,
Speaker 1: I think we have to respect the push for carry
Speaker 1: that we're seeing across markets, and so we want to
Speaker 1: participate in that dynamic, but we want to do it
Speaker 1: in a way that we're not taking big valuation risk,
Speaker 1: because there's a kind of this, uh, this contradiction between
Speaker 1: wanting to be long the dollar because it's a high
Speaker 1: yielder and being scared that the dollar is going to
Speaker 1: fall back to more longer term equilibrium. We think dollar
Speaker 1: Swiss is one pair where there is carry and where
Speaker 1: you don't have the valuation risk that you have another
Speaker 1: dollar pairs. So we think being exposed to dollar Swiss
Speaker 1: upside makes sense in the current environment of the that
Speaker 1: we're going to see over the next quarter down, all
Speaker 1: of these trades that you're describing make me believe that
Speaker 1: what you see as an economy that re accelerates in
Speaker 1: the months to come, is that your base case down?
Speaker 1: And why well, it's not really. I don't think re
Speaker 1: acceleration is is what we're looking for. It's more stabilization
Speaker 1: at below trend radio growth in the US. So it's
Speaker 1: uh not um uh fast enough for the Fed to
Speaker 1: resume hikes. At the same time, it's not slow enough
Speaker 1: to get the market's really concerned about crash risk and
Speaker 1: and and pricing policy easing. It sets in the ground
Speaker 1: in the in the Gtah, what is the bet now
Speaker 1: on dollar? You've got some great charge showing belief in
Speaker 1: long dollar, short dollar or dollar stronger, I should say
Speaker 1: dollar weaker? What what? What's the belief of the street
Speaker 1: right now? I think if you look across the consensus
Speaker 1: the most forecasters, it's that the dollar will be weaker
Speaker 1: over time. Uh. And that's I think of reflection of
Speaker 1: the relatively high valuation that we have on most of
Speaker 1: the dollar pairs. And we think that makes sense. You
Speaker 1: just think for now, don't be surprised the dollar continues
Speaker 1: to hold stable and does better than the forwards that imply.
Speaker 1: In other words, you can you can make money being
Speaker 1: long USD because of the yield differential. Just as I mentioned,
Speaker 1: dollar Swiss is a safer way to do that than
Speaker 1: you're a dollar for example, Updated, it is good to
Speaker 1: check in with Stephen Whiting of City Private Bank with
Speaker 1: a real tour of duty in economics and in a
Speaker 1: strategy their chief investment strategist. What does then, is Stephen
Speaker 1: Whiting's strategy, Steve Well, it's too uh prepare for a
Speaker 1: US outlook where the Federal Reserve switches from trying to
Speaker 1: restrain the strength of the expansion to protect the expansion.
Speaker 1: We're in uh and right now, particularly in Asia, what's
Speaker 1: relevant is China is moving fairly strongly regardless of how
Speaker 1: these trade negotiations work out, but fairly strongly to reinvigorate
Speaker 1: its economy. It's stopped tightening policy about a year ago
Speaker 1: and has been at a while reinvigorating the strength of
Speaker 1: the expansion right now, so that combination of lower policy
Speaker 1: rates in the United States are at least planned where
Speaker 1: where they would be and China stylists really changes a
Speaker 1: lot of asset movements potentially around the world over the
Speaker 1: coming year. Buried, didn't you and we were just talking
Speaker 1: about this with John Tucker, who what what are you in?
Speaker 1: Like the eighties seven percent marginal bracket? Is that is
Speaker 1: like Rockefeller in or something like that. You've got Steve
Speaker 1: Whiting an important phrase in your city bank report, the
Speaker 1: absence of tax cuts. Right, did we have tax cuts? Well?
Speaker 1: We did last year, and it depends on you know,
Speaker 1: how you feel about them in this tax filing season,
Speaker 1: because you know, we have a little bit of uncertainty
Speaker 1: as to how large the effective tax cut was for
Speaker 1: different people, especially folks in UH states that have high
Speaker 1: personal income tax rates and property tax rates that have
Speaker 1: a dog named Biscuit. Yeah, well you just take a rip.
Speaker 1: You know, we put a figure in there. You know,
Speaker 1: you're really great with with Charles Tom. But if you
Speaker 1: look that sort of overall personal income last year, you know,
Speaker 1: we were continued at a decent clip, but the personal
Speaker 1: tax liability overall grew very very little, and they usually
Speaker 1: moved together. And that again, and is the tax cut.
Speaker 1: And we know that the corporate tax cut, for example,
Speaker 1: was pretty powerful, and I do believe that there are
Speaker 1: some lasting benefits of the corporate tax cut, but the
Speaker 1: immediate boost to income that that had is just simply
Speaker 1: not repeated this year. So you've got to look back
Speaker 1: at the U. S. Economy's performance with about a three
Speaker 1: percent growth rate last year and say, probably the single
Speaker 1: largest spur to that growth rate was to and we
Speaker 1: don't have another one. You hear that, John, We don't
Speaker 1: have another one, which means you're you're so Stephen. You
Speaker 1: know you mentioned China and boy, they've been pretty aggressive
Speaker 1: with the fiscal stimulus of late. Is it any sense
Speaker 1: of whether it's working or it will work? What your
Speaker 1: thoughts there? It's all new, that's sort of you know,
Speaker 1: financial implications looking forward those things. We can measure a
Speaker 1: few things. For example, in January, we had the largest
Speaker 1: increase uh in c n Y loans in the history
Speaker 1: of China. This that tacks that they just announced near
Speaker 1: three billion US dollar equivalent. That is all perspective. Uh
Speaker 1: there are some things that are still going to slow
Speaker 1: in China's economy. Export growth, for example, uh we we
Speaker 1: was pulled forward by the threat of tariffs, so the
Speaker 1: desire to order from China ahead of paying tariffs was
Speaker 1: very strong and a boosted trade activity in two thousand eighteen.
Speaker 1: And there's still some slowing there. But things that did
Speaker 1: slow internally in China are sometimes meet even more important.
Speaker 1: And credit restraint was very severe in two thousand seventeen
Speaker 1: into early two thousand eighteen, and so things that underperformed
Speaker 1: were very domestic, like infrastructure spending in the early part
Speaker 1: of two thousand eighteen, and that is gradually going to
Speaker 1: be coming back now. So Stephen, it's interesting Tom and
Speaker 1: I just earlier today, we're just talking about the dollar
Speaker 1: and the strength of the dollar, and we're having a
Speaker 1: very hard time coming up with a bear case for
Speaker 1: the dollar, or at least even a less bullish case
Speaker 1: for the dollar. What is your on the dollar right here? Well, look,
Speaker 1: we thought this year would be a little bit like
Speaker 1: last year in terms of it being relatively range bound.
Speaker 1: But the history here is that between two thousand eleven
Speaker 1: and early two seventeen we had the third largest U
Speaker 1: S Dollar and bull market on record. The dollar is
Speaker 1: up at a fairly high level. We have had nine
Speaker 1: rate hikes out of the United States and the rest
Speaker 1: of the world. Anyone who hiked didn't really want to.
Speaker 1: And we're at the point now where the Federal Reserve
Speaker 1: had some real warnings about activity. Last year, we saw
Speaker 1: housing activity, construction and sales fall for a year now,
Speaker 1: not a lot, not a level sort of that says
Speaker 1: it's impossible for us to come back from this. But
Speaker 1: remember we also had a tax cut, and we saw
Speaker 1: banks tightening lemming standards in the Fourth Courter. So it's
Speaker 1: all sorts of signs that we couldn't stay on the
Speaker 1: same tightening trajectory in the United States. And so when
Speaker 1: it turns there's a very good chance here that we
Speaker 1: take out of a dollar. Now. One little complication is
Speaker 1: you know dollar euro or are we talking dollar China
Speaker 1: in a very very different story. See why do you
Speaker 1: think of so much? For the update was City Private
Speaker 1: Bank as well. Thanks for listening to the Bloomberg Surveillance podcast.
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