WEBVTT - China's COVID Pivot and Speakership Stagnation 0:00:03.840 --> 0:00:07.280 Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. My 0:00:07.960 --> 0:00:11.400 single greatest concern is that we still don't have the 0:00:11.520 --> 0:00:16.439 rates story correct and that people are still betting that 0:00:16.560 --> 0:00:20.040 the FED doesn't really mean it. John Authors takes a 0:00:20.200 --> 0:00:22.479 random walk with me through some concerns for the market 0:00:22.480 --> 0:00:26.360 in three and later Reach had Twitter's future with Bloomberg Opinions. 0:00:26.400 --> 0:00:28.960 Tim Coulten in Tai Pain. A lot of people keep 0:00:29.040 --> 0:00:32.240 saying that they have left Twitter or will be leaving Twitter, 0:00:32.280 --> 0:00:35.520 and they're going into places like Post and master Don 0:00:35.800 --> 0:00:38.640 and even Coup and a few other places. But yet 0:00:38.880 --> 0:00:41.400 those same people have stayed they're leaving Twitter, are still 0:00:41.479 --> 0:00:45.200 staying on Twitter. First though, She's back Bloomberg Opinions. Julie 0:00:45.280 --> 0:00:48.640 Ran finally got to visit home that's Shanghai after three 0:00:48.720 --> 0:00:52.200 years of COVID zero lockdown. She describes her experience, which 0:00:52.280 --> 0:00:56.200 coincided with China's pivot away from COVID zero, also how 0:00:56.240 --> 0:01:00.800 investors should be considering China's new determination to support economic growth. 0:01:01.600 --> 0:01:03.840 So surely you went back to mainland China for the 0:01:03.840 --> 0:01:06.480 first time in more than three years, and you're just 0:01:06.520 --> 0:01:09.440 now back in Hong Kong. It was a huge pivot 0:01:09.680 --> 0:01:12.520 that China did from zero COVID to what looks like, 0:01:12.800 --> 0:01:15.600 you know, let it ripped through the economy. Is that 0:01:15.640 --> 0:01:18.880 what happened? Absolutely I So I went back to my 0:01:18.959 --> 0:01:22.679 hometown Shamhai label Dembora when I came out of quarantine, 0:01:22.720 --> 0:01:26.520 trying to judge retrough this COVID policy. So everything changed 0:01:26.560 --> 0:01:30.240 that before people had to do like daily PCR test 0:01:30.319 --> 0:01:33.000 to be able to access public values. All of that 0:01:33.080 --> 0:01:36.200 gold group that helped app so and so forth. So 0:01:36.280 --> 0:01:38.840 the first week was very nice, it was liberating, right 0:01:38.920 --> 0:01:41.360 like China had their three years of COVID zero policy, 0:01:41.600 --> 0:01:44.840 and the restaurants were full, trendy bars were full. But 0:01:45.040 --> 0:01:48.480 after that, the second week after the reopening, the street 0:01:48.480 --> 0:01:50.960 started to sing out all of a sudden, and my 0:01:51.080 --> 0:01:54.280 own parents, but that was the tested politives with their 0:01:54.360 --> 0:01:58.520 RACTID test eight days after the reopening policy change. So 0:01:58.920 --> 0:02:03.840 basically with two weeks, pretty much seventy percent of Shanghai 0:02:04.080 --> 0:02:08.799 probably got affected by uh COVID based on online surveys 0:02:08.800 --> 0:02:13.080 and my personal observations of the family and friends. So 0:02:13.120 --> 0:02:16.320 we are hearing now some horrific stories, perhaps not like 0:02:16.360 --> 0:02:18.200 it was in New York in the very early days 0:02:18.200 --> 0:02:21.519 of the pandemic. But we are hearing about full crematoriums 0:02:21.520 --> 0:02:24.160 and about people not being able to pay for funerals, 0:02:24.160 --> 0:02:27.080 and we don't quite know what's going on in China. 0:02:27.120 --> 0:02:29.600 Can you give us a better sense? I mean, I 0:02:30.000 --> 0:02:32.919 was fairly lucky. My parents well recovered, but their friends 0:02:33.000 --> 0:02:35.840 both my parents are seventy six year osgod so, so 0:02:35.960 --> 0:02:38.000 they didn't know a lot of old people, right. So 0:02:38.360 --> 0:02:42.040 they were sharing stories friends and friends who passed away 0:02:42.160 --> 0:02:45.000 whose body couldn't be picked up, like one story by 0:02:45.040 --> 0:02:48.120 uncle her. There was that a friend elder system. She 0:02:48.120 --> 0:02:51.519 she was in nineties. Her body was kept at home 0:02:51.560 --> 0:02:54.480 for eight days. They have to keep her in the bathroom. 0:02:54.600 --> 0:02:57.800 So these stories are true like their anisoto, but they 0:02:57.840 --> 0:03:01.000 are true and and truth is just China didn't have 0:03:01.080 --> 0:03:04.200 this kind of a capacity because they lead with true fact. 0:03:04.560 --> 0:03:09.440 Basically within three weeks of shankai were expected. But still 0:03:09.480 --> 0:03:12.959 of course, but you know that there will be casualties 0:03:13.040 --> 0:03:15.840 at the Yeah, it was quite difficult for a lot 0:03:15.880 --> 0:03:18.320 of families. Now, we talked about this on the program 0:03:18.320 --> 0:03:20.240 many times last year, about how there was a lot 0:03:20.280 --> 0:03:22.399 more talk about zero COVID than there was about say, 0:03:22.560 --> 0:03:27.359 vaccine policy, or about, for example, getting more capacity hospital 0:03:27.400 --> 0:03:30.800 wise into the system. It seems like at a certain 0:03:30.880 --> 0:03:33.760 point the leadership decided, well, there are now demonstrations this 0:03:33.800 --> 0:03:36.680 is getting dangerous to us or even more dangerous to 0:03:36.680 --> 0:03:40.800 the economy. We're going to open and we don't really 0:03:40.800 --> 0:03:43.880 have anything else to offer. We didn't up the capacity 0:03:43.960 --> 0:03:46.960 of hospitals. We vaccinated everybody we could, but we didn't 0:03:47.000 --> 0:03:50.520 force vaccinations. Is that a correct interpretation? I think so. 0:03:50.680 --> 0:03:53.520 I think that the leadership is pretty savvy. They understand 0:03:53.600 --> 0:03:56.480 that if they continue our coverage or it will be 0:03:56.560 --> 0:04:00.160 politically dangerous, right like basically a week this or that, 0:04:00.360 --> 0:04:04.240 the opening shift, like there were protests across Trainer, So 0:04:04.480 --> 0:04:07.800 they so they knew that, you know, that was inevitable. 0:04:07.840 --> 0:04:10.240 And I think they're pretty fairly they know that, at 0:04:10.280 --> 0:04:13.040 least on the ground that I can sense that the 0:04:13.080 --> 0:04:16.600 people this time, they feel resigned. They feel like COVID 0:04:16.720 --> 0:04:18.640 going to come to them, you know later, But they 0:04:18.680 --> 0:04:23.159 don't feel this kind of anger that they had during 0:04:23.240 --> 0:04:26.600 the stay, the two months locktow Big Shanhai or or 0:04:26.680 --> 0:04:29.720 all the daily PCR texts. I think people are so 0:04:29.880 --> 0:04:32.720 sick of COVID zero. They're rather be sick at this point. 0:04:32.880 --> 0:04:35.120 So so that's why they do was like, Okay, we're 0:04:35.120 --> 0:04:37.320 just going to let it with because if we keep 0:04:37.400 --> 0:04:39.760 COVID zeros, these people are going to revolt and that 0:04:40.000 --> 0:04:43.160 they're ruling there were become on. Now. There are other 0:04:43.200 --> 0:04:46.160 auncillary problems to the actual disease itself and contracting the 0:04:46.240 --> 0:04:49.720 disease that other countries, including the United States, have had 0:04:49.760 --> 0:04:53.360 to deal with, including things like absence from work, returned 0:04:53.400 --> 0:04:57.000 to work long COVID. Are Chinese people talking about any 0:04:57.000 --> 0:05:00.760 of these things. It's so funny trying to letting it with, 0:05:01.080 --> 0:05:03.880 writing so fast that the government says that, oh, you 0:05:03.920 --> 0:05:07.320 can actually return to work before you even turn negatives 0:05:07.560 --> 0:05:10.279 well right now like a record test that are skilled 0:05:10.320 --> 0:05:13.800 commodities anyhow, So basically they're encouraging people to to come 0:05:13.839 --> 0:05:16.320 back to work even if they're positives as long as 0:05:16.360 --> 0:05:18.880 the fever is got um. I think they're trying to 0:05:19.440 --> 0:05:24.320 the Chinese government priority has shifted completely to economic growth, 0:05:24.560 --> 0:05:27.000 so they actually want people to come back to work 0:05:27.000 --> 0:05:29.960 at a set and truly is there work for them 0:05:30.000 --> 0:05:33.640 to go back to? Now, how did the pandemic affect jobs? 0:05:33.839 --> 0:05:36.840 We know that youth unemployment was that at one point. 0:05:37.839 --> 0:05:39.960 It's too early to say. I think are China is 0:05:39.960 --> 0:05:43.520 still going through this massive waves of infections, but the 0:05:43.760 --> 0:05:47.640 certain jobs are quite there, are quite available. For instance, 0:05:47.680 --> 0:05:50.320 the food delivery right like the Chinese people are doing 0:05:50.360 --> 0:05:53.599 a lot of online delivery and ecomers, and I do 0:05:53.760 --> 0:05:57.640 see that part of the economy coming back. The consumer 0:05:57.800 --> 0:06:02.360 tech parts. Well, that's really fascinating because as much as 0:06:02.360 --> 0:06:04.520 we know that Chinese people like to save, they also 0:06:04.560 --> 0:06:06.920 haven't really been earning perhaps as much as they would 0:06:06.960 --> 0:06:09.080 have because of the pandemic. That do they have cash 0:06:09.160 --> 0:06:12.560 to spend online. It's interesting. I think trainer is going 0:06:12.600 --> 0:06:16.839 to be a very it's becoming very segmented. It's predicting 0:06:17.040 --> 0:06:19.840 whether the Chinese economy can be founded very quickly. It's 0:06:19.839 --> 0:06:23.160 going to be as controversial as predicting whether the US 0:06:23.320 --> 0:06:25.960 is going to a recession this year. On the one hand, 0:06:25.960 --> 0:06:28.200 that a lot of people have their jobs, they're struggling 0:06:28.240 --> 0:06:30.840 because of cold. On the other hand, I saw first 0:06:30.880 --> 0:06:33.760 hand that people perhaps middle or upper middle class, have 0:06:33.800 --> 0:06:36.840 a lot of spending power. For instance, on Christmas Eve, 0:06:37.000 --> 0:06:39.839 I saw two dozen young people lining up in front 0:06:39.839 --> 0:06:41.720 the versionels, So I think they just want to buy 0:06:41.760 --> 0:06:44.400 last DA they get and that was when you know, 0:06:44.800 --> 0:06:47.839 Chaka had a huge outbreak and there was a peeple 0:06:47.839 --> 0:06:50.000 of the outbreak. So I think there is money to 0:06:50.040 --> 0:06:52.400 be said. And I have friends who are buying brand 0:06:52.400 --> 0:06:55.360 new sets because they think, oh, you know, because twenty 0:06:55.440 --> 0:06:57.640 three they can do road trips again. So there are 0:06:57.760 --> 0:07:00.960 pockets of the economy where you can find very strong 0:07:01.000 --> 0:07:05.159 demands and perhaps jobs. It's so fascinating. Will she have 0:07:05.360 --> 0:07:09.080 to enact fiscal stimulus like we talked about last year 0:07:09.120 --> 0:07:12.840 in order to get the economy back on track, particularly 0:07:12.840 --> 0:07:15.840 the property sector. Obviously consumer text seems to be okay, 0:07:15.880 --> 0:07:18.400 but maybe there's need there as well. And does he 0:07:18.480 --> 0:07:21.520 have the capacity to do Socially, there is going to 0:07:21.560 --> 0:07:24.160 be less capacity than the previous years because of the 0:07:24.160 --> 0:07:26.760 covidual or the Chinese government has spent a lot of 0:07:26.760 --> 0:07:29.400 money on covido. But this year's talk is that the 0:07:29.480 --> 0:07:31.840 government will have to put down a little bit more 0:07:31.920 --> 0:07:34.720 set and right now, this cod stimulates makes more set, 0:07:34.880 --> 0:07:37.680 right because the biggest hurdles are kind of past us. 0:07:38.040 --> 0:07:41.120 And if you simulate the economy right now, perhaps try 0:07:41.160 --> 0:07:43.080 and I can go into the early stage of a 0:07:43.200 --> 0:07:45.920 business ce cole quite quickly, so I think there is. 0:07:46.320 --> 0:07:49.440 And also regarding the real estate sector, the government is 0:07:49.520 --> 0:07:53.560 going to announce even more stimulus measures based on my sources, 0:07:53.800 --> 0:07:58.280 very soon, even more for the property sector in particular. Yes, interesting, 0:07:58.800 --> 0:08:01.240 surely we've talked about this on the program before as well. 0:08:01.400 --> 0:08:03.360 But I'm curious as to your thoughts now that you've 0:08:03.400 --> 0:08:06.360 been back to the mainland, how will the people perceive 0:08:06.560 --> 0:08:10.360 that the government fared? So are people happier now with 0:08:10.440 --> 0:08:13.400 the government that the government did pivot away from COVID zero. 0:08:14.400 --> 0:08:17.800 I think people are happier with life in general. They 0:08:17.920 --> 0:08:20.960 just had enough of COVID zero. But in terms of 0:08:21.080 --> 0:08:24.640 the government's credibility, it took a huge hit. I mean, 0:08:24.880 --> 0:08:28.559 autocron has been around for one year, right for eleven months, 0:08:28.600 --> 0:08:31.280 and this is large new talking. It's people online talking. 0:08:31.400 --> 0:08:34.199 For eleven months, people were doing sports to do daily 0:08:34.440 --> 0:08:38.199 PCR test, there was steps, neighborhoods, they lockdom and then 0:08:38.280 --> 0:08:40.959 for the twelfth but December of the year everybody ended 0:08:41.040 --> 0:08:43.960 up with COVID anyhow, and there was no basic madaicine, 0:08:44.040 --> 0:08:46.559 not even pilot nor in shots. So they felt that 0:08:46.760 --> 0:08:49.600 that you know that the government lost a lot of credibility, 0:08:49.720 --> 0:08:52.920 and then the so called medical experts they were talking 0:08:52.960 --> 0:08:56.320 about COVID being a very very deadly disease, to covid 0:08:56.480 --> 0:08:58.920 is best by being nothing more than the flu, and 0:08:59.080 --> 0:09:03.240 the poor just started to mistrust the government more after 0:09:03.440 --> 0:09:06.199 this Hope year, of course, Yeah, it's really fascinating. And Suley, 0:09:06.280 --> 0:09:09.199 how did the vaccines end up faring because she didn't 0:09:09.240 --> 0:09:11.839 want other types of vaccines, wouldn't allow the m R 0:09:11.880 --> 0:09:15.160 and A vaccines. It's interesting when I went in Chanhaire, 0:09:15.200 --> 0:09:18.520 I noticed before even the reopening, I noticed that Vaccine 0:09:18.559 --> 0:09:20.720 Pact is just not a big deal in China. They 0:09:20.840 --> 0:09:24.360 focused more on PCR testing results then whether you have 0:09:24.640 --> 0:09:27.520 vaccinated or not. And then I started to notice a 0:09:27.600 --> 0:09:30.520 lot of elderly they just refused to be vaccinated. It's 0:09:30.600 --> 0:09:33.240 I guess right after the opening there was some progress, 0:09:33.400 --> 0:09:35.560 but it kind of dropped the ball again. And then 0:09:35.760 --> 0:09:38.760 the truth of that is most people have been expected, 0:09:38.960 --> 0:09:42.640 so the relevance of vaccines becomes not so much a 0:09:42.679 --> 0:09:45.200 big deal at this point. Surely is there a danger 0:09:45.320 --> 0:09:49.000 that more rural areas and other parts of China than 0:09:49.200 --> 0:09:52.679 the major cities haven't seen the wave of COVID infections 0:09:52.760 --> 0:09:54.880 yet will see it and then will suddenly slow the 0:09:54.960 --> 0:09:58.040 whole economy down as well. I think, you know it 0:09:58.160 --> 0:10:00.680 has to be very very low. Are year is even 0:10:00.840 --> 0:10:03.400 more less to be second third year cities around the 0:10:03.520 --> 0:10:06.800 East coast based on my so sated cities, they probably 0:10:06.880 --> 0:10:09.920 had heard immunity already. I mean, this spread is very 0:10:10.080 --> 0:10:12.920 very fast. I think China what has gotten over this 0:10:13.120 --> 0:10:16.280 before Tchines Do Year, which is coming up in what 0:10:16.480 --> 0:10:19.719 three weeks? So surely what tends to happen around the 0:10:19.960 --> 0:10:22.439 Chinese New Year with Chinese markets? And will it be 0:10:22.480 --> 0:10:25.679 different this year because of COVID. Uh, It's a very 0:10:25.760 --> 0:10:28.520 good question. I think this year it will all difference 0:10:28.640 --> 0:10:31.520 of how fast China can get past COVID and know 0:10:31.640 --> 0:10:34.319 whether people see economics reepout. So people are going to 0:10:34.440 --> 0:10:38.160 look at travel data without consumption data subway to see 0:10:38.240 --> 0:10:41.560 if there is consumption demand because sumer confident. If that's good, 0:10:41.679 --> 0:10:43.719 then the market that can be found as part of it. 0:10:44.040 --> 0:10:47.480 Bloomberg Opinions Shuli Ran stay tuned. John Author is next 0:10:47.559 --> 0:10:50.160 on some of the market's main concerns for twenty three. 0:10:50.440 --> 0:10:53.679 This is Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm 0:10:53.760 --> 0:10:57.120 Vonnie Quinn. The risk of on anchoring and inflation expectations 0:10:57.600 --> 0:10:59.719 is still there. So I do think you know you 0:11:00.000 --> 0:11:02.080 again today, which we've been seeing really for the past 0:11:02.160 --> 0:11:05.320 maybe month or two, a little more recognition of those lags, 0:11:06.080 --> 0:11:09.760 that there are two sided risks now. But nonetheless, you know, 0:11:09.800 --> 0:11:12.160 I think the message you got here today is more 0:11:12.280 --> 0:11:14.720 hikes are coming, some thoughts they are following the publication 0:11:14.800 --> 0:11:17.520 this week of the latest f O MC minutes. Of course, 0:11:17.559 --> 0:11:19.920 the FED is one of the market's concerns earlier this 0:11:20.040 --> 0:11:22.559 new year Bloomberg Opinions. John Author has joined me to 0:11:22.679 --> 0:11:25.360 talk concerns overall for US investors as we kick off 0:11:26.200 --> 0:11:31.160 three So, John, your main concerns for US markets? The 0:11:31.320 --> 0:11:35.080 US investors, let's put it that way. My single greatest 0:11:35.160 --> 0:11:39.040 concern is that we still don't have the rates story 0:11:39.280 --> 0:11:44.480 correct and that people are still betting that the FED 0:11:44.800 --> 0:11:49.000 doesn't really mean it. They might be right, but on 0:11:49.160 --> 0:11:52.240 balance probabilities, I don't think they are. And the fact 0:11:52.320 --> 0:11:55.640 that they are still prepared to make quite such a 0:11:55.720 --> 0:11:58.439 confident bet that the FED will be cutting by the 0:11:58.559 --> 0:12:01.920 end of this year worries me. It means that there 0:12:01.960 --> 0:12:05.040 are there are more banana skins potentially ahead of us, 0:12:05.200 --> 0:12:06.559 and that's why the third had to come out and 0:12:06.840 --> 0:12:09.400 basically shoved and investor's faces again with the f O 0:12:09.559 --> 0:12:12.040 MC emnutes, which bear in mind, were December is meeting, 0:12:12.120 --> 0:12:15.719 not January's meeting. Yes, which is exactly what they did 0:12:15.800 --> 0:12:20.719 twelve months ago, coming up with rather clearer declaration of 0:12:20.800 --> 0:12:24.000 hawk ish intent in the minutes than had been obvious 0:12:24.240 --> 0:12:28.719 when the meeting itself happened, and it doesn't seem to 0:12:28.760 --> 0:12:30.720 have had an effect. Will the FIRD have to come 0:12:30.760 --> 0:12:35.280 out now again and say it again? My suspicion is 0:12:35.400 --> 0:12:38.120 that they will. That that we're likely to get some 0:12:38.320 --> 0:12:41.880 fairly aggressive hawk ish FED speak for the next couple 0:12:41.920 --> 0:12:46.400 of weeks leading up to the next meeting, because they 0:12:46.559 --> 0:12:51.200 cannot be happy that the market is positioned assets currently 0:12:51.520 --> 0:12:57.240 is they need financial conditions to tighten to help them 0:12:57.400 --> 0:13:00.600 deal with inflation. That's central to how they think they're 0:13:00.640 --> 0:13:05.920 going to overcome inflation, and wild markets are confidently betting 0:13:05.960 --> 0:13:07.880 that the FIT is actually you know, a dove in 0:13:07.920 --> 0:13:12.480 wolves clothing. That's not going to help, that counteracts what 0:13:12.600 --> 0:13:14.520 the FED is trying to do. Now we're talking rates 0:13:14.559 --> 0:13:17.920 markets here, right, because primarily, yeah, equity markets are really 0:13:17.960 --> 0:13:20.200 not doing all that much of anything at these US 0:13:20.200 --> 0:13:22.959 equity markets who can talk about China and moment, Yes, 0:13:23.040 --> 0:13:26.600 I think that's true. Certainly had a massive rerating last year, 0:13:27.240 --> 0:13:32.760 multiples came down very significantly, but earning his expectations still 0:13:32.840 --> 0:13:38.400 managed to advance a little. I'm inclined to be because 0:13:38.480 --> 0:13:41.000 I have a bearish tendency which I really need to 0:13:41.040 --> 0:13:43.840 do something about to think that that that stocks are 0:13:43.920 --> 0:13:48.360 still somewhat on the overvalued side. But even an in 0:13:48.480 --> 0:13:52.000 veterate bear has to say that the obvious overpricing of 0:13:52.360 --> 0:13:56.600 of twelve months ago has been dealt with. Um, we're 0:13:56.720 --> 0:13:59.360 much closer to some sort of sensible long term trend 0:13:59.559 --> 0:14:03.880 for ship crisis. Now. The concern is that normally on 0:14:04.000 --> 0:14:07.679 the eve of a recession, which if rates are going 0:14:07.720 --> 0:14:11.439 to come down, we have to have. Normally on the 0:14:11.480 --> 0:14:14.959 heap of a recession, stock start falling a lot further, 0:14:15.200 --> 0:14:20.040 you start predicting that earnings will fall. So that is 0:14:20.440 --> 0:14:23.400 that is the contradiction that bothers me at there at 0:14:23.440 --> 0:14:25.880 the heart of the stock and bond markets at the moment. 0:14:25.920 --> 0:14:28.000 But it's kind of fascinating the right because before the 0:14:28.080 --> 0:14:32.160 holidays there did seem to be a lot of pessimism. Yes, 0:14:33.320 --> 0:14:36.120 I mean there there is a sense this does get 0:14:36.240 --> 0:14:42.080 very very confusing, that pessimism is good for the bond 0:14:42.160 --> 0:14:45.960 market and not that bad for the stock market. In 0:14:46.080 --> 0:14:50.080 that an economic slowdown, particularly if it isn't too bad 0:14:50.480 --> 0:14:54.240 that causes rates to come down, might well be pretty 0:14:54.280 --> 0:14:58.960 good for financial assets. Um. And I suppose that that 0:14:59.160 --> 0:15:02.280 does make some ns and a lot of the risks 0:15:02.360 --> 0:15:05.080 that are out there are risks that we have really 0:15:05.160 --> 0:15:08.640 become accustomed to in the last Yeah, we know about 0:15:08.840 --> 0:15:11.680 jing ping, we know about putting. We're not terribly happy 0:15:11.720 --> 0:15:14.480 about it. But I think people feel rightly or wrongly, 0:15:14.560 --> 0:15:19.080 that they've got their arms around what those risks are consequences, 0:15:19.240 --> 0:15:22.880 at least for financial markets. We did see downside surprises 0:15:22.920 --> 0:15:26.040 and things like new orders and prices paid this week 0:15:26.080 --> 0:15:30.840 as well. Is that providing any solace? Again, if you 0:15:31.000 --> 0:15:34.560 want inflation to come down, and your bet is that 0:15:34.680 --> 0:15:38.120 we're having a recession quicker than the FED thinks, and 0:15:38.440 --> 0:15:41.560 so the FED is wrong about predicting such an aggressive 0:15:41.600 --> 0:15:45.360 policy for this year, if you have that persuasion, then yes, certainly, 0:15:45.440 --> 0:15:49.000 the I S M price is paid, which dropped below forty, 0:15:49.560 --> 0:15:53.000 where fifty is the dividing line between recession and contraction. 0:15:53.680 --> 0:15:58.000 That's really a really good data point if you're of 0:15:58.080 --> 0:16:02.600 that persuasion. But again in terms of where the stock 0:16:02.680 --> 0:16:08.360 market goes apart from during the very strange conditions of 0:16:08.760 --> 0:16:13.480 the decade after the crisis, whenever price is paid drops 0:16:13.600 --> 0:16:16.880 that low, there is a recession shortly there are there. 0:16:18.040 --> 0:16:21.360 I think the other thing that has really encouraged people 0:16:22.160 --> 0:16:24.240 in the last couple of days, and I certainly can't 0:16:24.320 --> 0:16:27.840 deny that it's a reason for encouragement, is that a 0:16:27.920 --> 0:16:31.880 lot of European inflation numbers have come in far better 0:16:31.960 --> 0:16:35.680 than expected. Very we did see rallies in European, yes, 0:16:36.000 --> 0:16:41.680 but very high inflation numbers obviously, but sharply lower than 0:16:41.800 --> 0:16:45.640 the month before and sharply lower than expectations. And that 0:16:45.720 --> 0:16:48.960 brings up another point. Oil prices have also dropped prety substantially, 0:16:49.880 --> 0:16:54.720 which if that's warning us about declining demand eight great, 0:16:55.120 --> 0:16:59.640 but it's certainly again does give some strength to the 0:16:59.680 --> 0:17:02.640 people were betting against the FED. The only problem here 0:17:02.640 --> 0:17:09.760 that is jolts the The vacancy rate continues to be 0:17:10.400 --> 0:17:15.240 obdurate LYE stunning lee High suggesting there's a very tight 0:17:15.359 --> 0:17:19.240 labor market and that and that is the big thing 0:17:19.359 --> 0:17:22.800 that the FED is very worried about. There is something 0:17:23.080 --> 0:17:26.159 very strange about the way the labor market is clearing 0:17:26.320 --> 0:17:30.159 at the present, and the data on that front have 0:17:30.280 --> 0:17:33.959 been an unpleasant surprise, even though yes, you're there's been 0:17:34.040 --> 0:17:38.639 some significant pleasant surprises. But that's central, you know, that 0:17:39.160 --> 0:17:41.639 central enigma of what on earth is going on in 0:17:41.720 --> 0:17:45.880 the in the labor market remains as intractable as ever, John, 0:17:46.000 --> 0:17:50.919 does the market care about the speakership chaos? Generally speaking? 0:17:51.000 --> 0:17:53.760 I think it's over that that there's a cliche that 0:17:53.880 --> 0:17:58.040 markets actually like gridlock, because it tends to mean that stupid. 0:17:59.119 --> 0:18:00.840 I mean, this is not even people can't even get 0:18:00.880 --> 0:18:05.680 worn in gridlock. Yes, I am somewhat concerns that the 0:18:05.800 --> 0:18:11.000 market isn't reacting somewhat more negatively to this um. The 0:18:11.200 --> 0:18:14.240 single biggest reason for this is I have a I 0:18:14.320 --> 0:18:15.840 have a horrible feeling. I'm gonna have to write a 0:18:15.880 --> 0:18:19.480 lot about the debt seiling over the next twelve months. 0:18:20.520 --> 0:18:24.679 And one of the big arguments so the debt seeling 0:18:25.000 --> 0:18:28.119 imply if you if if Congress refuses to raise the 0:18:28.160 --> 0:18:32.440 debt seeling, then it's conceptually possible to refuse to give 0:18:32.920 --> 0:18:35.720 the government the money it needs to pay off debts 0:18:35.840 --> 0:18:40.520 it's already incurred and already promised to repay. So Congress 0:18:40.640 --> 0:18:45.000 can theoretically force Uncle Sam to default, which would be 0:18:45.960 --> 0:18:48.040 at least as bad as what happened in two thousand 0:18:48.080 --> 0:18:53.200 and eight, probably worse. Um. The reason people have played 0:18:53.240 --> 0:18:55.920 brinkmanship with this in the past, in the Tea Party era, 0:18:57.080 --> 0:19:01.280 but not gone all the way is because you would 0:19:01.359 --> 0:19:06.320 need to be stupid to do this. Just absolutely plenty 0:19:06.359 --> 0:19:10.080 of good arguments in favor of being fiscally more conservative, 0:19:10.080 --> 0:19:14.560 reigning in the deficit. Doing it that way is literally indefensible, 0:19:14.680 --> 0:19:18.000 just madness. Remember the scare when SMP I think it 0:19:18.119 --> 0:19:20.760 was downgraded the United States and that that was a 0:19:20.960 --> 0:19:26.600 very major market turning point, But it was that that 0:19:26.840 --> 0:19:31.320 was terrifying. That was the last really major tremor of 0:19:31.480 --> 0:19:35.439 the of the of the whole Lehman crisis. And UM, 0:19:37.040 --> 0:19:39.880 it looks to me that if there are really twenty 0:19:40.480 --> 0:19:43.800 people on the Republican Party who are mad enough to 0:19:43.880 --> 0:19:47.240 do this, and you don't seem to be actually having 0:19:47.240 --> 0:19:49.680 any kind of a sensible debate. They're just saying no. 0:19:50.960 --> 0:19:56.960 All of these people are people who are philosophically against 0:19:57.320 --> 0:20:03.840 raising the debt ceiling. So yes, the risks are horrible. 0:20:03.920 --> 0:20:05.760 I mean, the Democrats are going to vote to raise it, 0:20:05.920 --> 0:20:09.560 so you don't need too many Republicans at all to 0:20:09.680 --> 0:20:11.600 vote for it to come in the The issue is 0:20:11.640 --> 0:20:13.800 that you'll have a speaker who's so weak that he 0:20:13.880 --> 0:20:18.040 can't even bring it to a vote. I myself think 0:20:18.480 --> 0:20:24.359 that the risk of a US default is still tiny. Um. 0:20:24.680 --> 0:20:27.480 I also think, however, that it's written in the last 0:20:27.560 --> 0:20:32.159 two days, because it really does look like they might 0:20:32.240 --> 0:20:36.320 be stupid enough to do this. Um. It bothers me 0:20:36.480 --> 0:20:39.760 that that's not clearer in the markets, and we do 0:20:39.960 --> 0:20:42.600 have to watch for tail risks, right, I mean base 0:20:42.680 --> 0:20:45.240 case scenarios or just that they're just base case scenarios, 0:20:45.400 --> 0:20:46.960 the tail risks of the market to be worried about. 0:20:47.040 --> 0:20:50.200 Now that this is no I mean, a voluntary US 0:20:50.280 --> 0:20:54.399 default is as classical black swan as you can imagine. 0:20:54.440 --> 0:20:57.480 There's there's no precedent for it because people always know 0:20:58.920 --> 0:21:01.800 if there are money prints authority, they can always pay 0:21:01.880 --> 0:21:04.320 their debts if they want to. It would be a 0:21:04.680 --> 0:21:08.600 totally voluntary thing that they did this. UM. It's an 0:21:08.720 --> 0:21:14.760 extremely unlikely, extremely extreme too many extremes there, but extremely 0:21:14.840 --> 0:21:19.120 extreme events, and that's a classic black swan. That's exactly 0:21:19.200 --> 0:21:23.719 what markets find it very difficult to price UM. Obviously, 0:21:24.040 --> 0:21:27.000 at evens out, I would still bet that it doesn't happen. 0:21:27.200 --> 0:21:34.440 Somehow or other sense will prevail UM, but it might. 0:21:34.920 --> 0:21:38.640 I'm surprised that there isn't a little more work trying 0:21:38.720 --> 0:21:43.359 to UM, trying to just trying to deal with that 0:21:43.480 --> 0:21:48.480 tail risk, and also trying to sort of prompt Republican 0:21:48.520 --> 0:21:53.720 refuse nicks that you know, the good market capitalists in 0:21:53.880 --> 0:21:57.960 Wall Street do not want you to do this. Yeah, 0:21:58.320 --> 0:22:01.080 the people with four oh one case really don't want 0:22:01.160 --> 0:22:03.440 you to do this. It doesn't seem to matter though 0:22:03.520 --> 0:22:07.359 to you know, a faction of Republicans. It's it's difficult 0:22:07.400 --> 0:22:10.119 to be polite about them. You're trying to be politically 0:22:11.520 --> 0:22:14.280 as neutral as you can be, and a lot of 0:22:14.359 --> 0:22:18.240 their philosophical points of things that I can find quite sympathetic. 0:22:18.560 --> 0:22:21.959 Their way of going about their job is just beyond 0:22:23.200 --> 0:22:26.040 beyond any defense. It's not it's not a good faith 0:22:26.080 --> 0:22:29.800 way to to go about being an elected representative. Jonathan 0:22:29.800 --> 0:22:32.320 Branston would make the point that they don't actually want anything, 0:22:32.359 --> 0:22:34.760 They just want chaos. That's the part it's it's it's 0:22:34.800 --> 0:22:39.080 a reality TV type approach. It's not even like the 0:22:39.520 --> 0:22:43.800 Tea Party a decade ago really were fanatical about the 0:22:43.880 --> 0:22:47.240 deficit in a way that was perhaps extreme, but that 0:22:47.520 --> 0:22:49.520 you knew what they wanted and they were trying to 0:22:49.840 --> 0:22:53.000 get that, and they did, indeed succeed in getting Barack 0:22:53.040 --> 0:22:56.040 Obama to be much less fiscally generous than he wanted. 0:22:56.080 --> 0:22:58.959 They had an ideology, Yes, they had an ideology. They 0:22:59.000 --> 0:23:01.720 had some policies they wanted to do, and they had 0:23:01.880 --> 0:23:08.359 some success in executing those policies. Um this obviously has 0:23:08.400 --> 0:23:12.080 similarities to the Tea Party a decade ago in terms 0:23:12.160 --> 0:23:14.920 of in terms of the people who are involved, some 0:23:15.040 --> 0:23:19.760 of their motivations, but it's a it's much more diffuse, 0:23:19.880 --> 0:23:25.520 it's much less coherent, and it's much more destructive. I think, 0:23:25.640 --> 0:23:27.880 John a quick word about China. Maybe we'll lend things 0:23:27.920 --> 0:23:29.720 on a positive note by talking about China, because we 0:23:29.760 --> 0:23:32.960 are seeing a rally, We've seen COVID ripped through the economy, 0:23:33.000 --> 0:23:35.000