Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot
Speaker 1: Com and of course on the Bloomberg terminal. The dynamic
Speaker 1: of the morning will be the Oval Office with the
Speaker 1: Chairman of the Federal Reserve System and his President, joined
Speaker 1: by the Secretary of Treasury, of course, the former chair
Speaker 1: of the FED, Janet Yellen Powell Yelling and Biden. Brian
Speaker 1: dis joins, Director of the National Economic Council, who will
Speaker 1: be in charge of niceties and pouring tea at the meeting. Brian,
Speaker 1: the singular distinction here is Yelling codified the words slack
Speaker 1: of an America unemployed. That is not the case now,
Speaker 1: power is Fed is roughly fully employed America. How will
Speaker 1: the President listen to these two about jobs in America
Speaker 1: and this horrific inflation. Well, he'll listen to them, and
Speaker 1: he'll underscore his core point, which is that he intends
Speaker 1: to provide the FED with the space and the independence
Speaker 1: that it needs to operate. As you all know, he
Speaker 1: has nominated a quality slate of people, including at the
Speaker 1: top of that slate Chair Powell, to lead the Federal
Speaker 1: Reserve through this challenging time, and he intends to give
Speaker 1: them the space to operate. But we are in an environment,
Speaker 1: a unique environment, and we have unique economic strengths right now,
Speaker 1: the job market in the labor market being chief among them,
Speaker 1: but not the only one. Household balance sheets are in
Speaker 1: a very strong position because over the course of this recovery,
Speaker 1: Americans have been able to save more and pay down debt.
Speaker 1: We've seen we're seeing business creation, small business creation up
Speaker 1: at record levels. So we have unique economic strengths which
Speaker 1: position us well now to focus on this challenge, which
Speaker 1: is bringing prices down. Obviously the Federal Reserve place a
Speaker 1: primary role in that, but fiscal policy and the economic
Speaker 1: choices that we make with Congress play an important role
Speaker 1: as well. Will be all of that will be on
Speaker 1: the table today. Brian. Let's talk about that meeting today
Speaker 1: and whether it's anything more than a photo. What given
Speaker 1: that you've said you don't want to comment on Fed policy,
Speaker 1: the Fed doesn't want to comment on fiscal policy, What
Speaker 1: is the purpose of today. If it's not just a photo,
Speaker 1: what what do you discuss? What comes out of it?
Speaker 1: How does it aup Americans? And you've seen the policy yourself.
Speaker 1: Six of adults say their families income is falling behind
Speaker 1: the cost of living. So a lot of people looking
Speaker 1: at this it feels just like a photo. What for
Speaker 1: Americans struggling right now? They want more than just that?
Speaker 1: Is it more than that? Absolutely? A couple of things.
Speaker 1: The first is its standard practice for presidents and chairs
Speaker 1: of the Federal Reserve to meet from time to time
Speaker 1: to share views on the economy. In this case, secondly,
Speaker 1: the president is underscoring something important. The respect for the
Speaker 1: independence of the Fed as an institution is not something
Speaker 1: that we can take for granted. It's not something that
Speaker 1: prior presidents have done to re underwrite that independence, and
Speaker 1: so doing so, having the president do so in a
Speaker 1: public way and underscore that he has committed to making
Speaker 1: sure that the Federal Reserve as an independent institution can operate,
Speaker 1: is incredibly important at this moment. And it's not just
Speaker 1: about a photo op. It's about sending that signal clearly
Speaker 1: to the public. And number three, they have a president.
Speaker 1: The American people those who are feeling anxious, and absolutely
Speaker 1: understand that when people go to the gas pump or
Speaker 1: to the grocery store, they are feeling anxious. They have
Speaker 1: a president who is waking up in the morning and
Speaker 1: focused on how to address that challenge. And one of
Speaker 1: the things he can do is, in his position, underscore
Speaker 1: the independence of the Federal Reserve. So I think for
Speaker 1: all of those reasons, this is an important step in
Speaker 1: the process, not the only step, and we are going
Speaker 1: to remain focused and over the course of the next
Speaker 1: week and the week after that will focus on the
Speaker 1: steps that we can take to help try to address
Speaker 1: price increases as well. One thing on to discuss, and
Speaker 1: we know this from several reports, and we've talked about
Speaker 1: this previously, bran is student debt relief. The White House
Speaker 1: considering something up to ten tho dollars. There are people
Speaker 1: without a college degree wondering why those with a college
Speaker 1: degree are getting this. Help. I'll go through the numbers
Speaker 1: and then I'll ask for your response. So the latest
Speaker 1: research from Pew points out that for intent Americans age
Speaker 1: twenty five year older have a bachelor's degree or higher.
Speaker 1: Among that, as you know, for black American adults. For
Speaker 1: Hispanic adults, that number is much much lower than four
Speaker 1: in ten. You also know there's a growing garning scap
Speaker 1: between those who have a college degree and those who
Speaker 1: do not. The unemployment rate is a lower for those
Speaker 1: that have a college degree compared to those that who
Speaker 1: do not. So the question Brian, that people are asking
Speaker 1: if they don't have a college degree right now is
Speaker 1: who is that to help? Who are you doing that for.
Speaker 1: Why are you considering doing that? Who is it for
Speaker 1: other than just energizing the base going into the midterms
Speaker 1: later this year. Well, first, we should be trying to
Speaker 1: help everybody who wants to work get into a job
Speaker 1: that will give them pay and an upward mobil an
Speaker 1: opportunity to succeed. And one of the things we're seeing
Speaker 1: about having such a strong labor market recovery right now
Speaker 1: is we're seeing historic gains not just overall the largest
Speaker 1: declined the unemployment rate in any recovery in recent history,
Speaker 1: but also record gains for Blacks, record reduction in the
Speaker 1: unemployment rate Hispanics, the largest reduction in the unemployment rate
Speaker 1: for Hispanics ever on record. So we're seeing that in
Speaker 1: the job market. We want to do more. A lot
Speaker 1: of that is about workplace training. You should jump in.
Speaker 1: I just want to now down the point because you
Speaker 1: know this is important. As you know, and I'll repeat it,
Speaker 1: those with the college degree seemed to be doing much
Speaker 1: much better than those without. As you work at relief
Speaker 1: for the American people at the moment, why is their
Speaker 1: focus on ten tho dollars of student debt relief at
Speaker 1: a time when those people in America who do not
Speaker 1: have a college degree again squeezed by gas prices crewed
Speaker 1: again this morning at one eighteen, JP Morgan saying, gasket
Speaker 1: hits six dollars later this year. You know the people
Speaker 1: that's hitting the most, many of those do not have
Speaker 1: a college degree. Why is this administration focused on doing
Speaker 1: something which, let's face it might play well in the midterms,
Speaker 1: but ultimately isn't going to help those people that need
Speaker 1: the help the most. Right now, my point is we're
Speaker 1: we're focused on trying to help everybody. But to the
Speaker 1: question of those uh and and a lot of the
Speaker 1: steps that we are taking are going to help people
Speaker 1: who have less than a college degree. But when you
Speaker 1: look at the issue of student debt, there are tens
Speaker 1: of millions of Americans out there who um are in
Speaker 1: the labor market and now may have gotten some college
Speaker 1: education or college education, but are held back by the
Speaker 1: burden of having to pay in some cases extreme extraordinarily
Speaker 1: high debt. So the question there is is are there
Speaker 1: steps that we can take, prudent steps that we can
Speaker 1: take to try to help unlock economic opportunities for those families,
Speaker 1: while at the same time doing everything we can to
Speaker 1: help create a labor market that is creating dynamics like
Speaker 1: the one we're seeing now where for the first time
Speaker 1: in a very long time, people with out of college degree,
Speaker 1: people with some college degree are seeing economic opportunities, opportunities
Speaker 1: to move into jobs with higher wages that they haven't
Speaker 1: in some time. We're also focused on trying to sustain
Speaker 1: that and continue that going forward. Right, and good to
Speaker 1: catch up, as always, always fantastic to get your perspective
Speaker 1: on things. Brands there of the National Economic Council joining
Speaker 1: us now as Peter Roppenheimer, Chief Global Equity Strategistic Garment
Speaker 1: Sacks and Peter, you put out the note yesterday, So
Speaker 1: let's start with your research. What happens after you've seen
Speaker 1: peak inflation. So work through it with us. Have we
Speaker 1: seen that what happens next? Well, I think that if
Speaker 1: you look at the history for markets, at least when
Speaker 1: you get peak inflation, you do tend to get a
Speaker 1: recovery and risk assets, and that's generally because it starts
Speaker 1: to alleviate pressures on on interest rates. By that stage,
Speaker 1: you've usually had markets already pricing and an economic downturn.
Speaker 1: So at the point where people think that things are
Speaker 1: bad but getting less, you tend to get a recovery.
Speaker 1: But it's important to say that there are variations around
Speaker 1: this theme. After all, you know, an inflation peaked in
Speaker 1: two thousand one, markets were still falling because of the
Speaker 1: fallout from the tech bubble, and similarly that was true
Speaker 1: around the financial crisis. So I think we've got a
Speaker 1: little bit be a little bit circumstanspect about this. Generally,
Speaker 1: I think if inflation peaks, it will provide some relief,
Speaker 1: but there's still the ongoing uncertainty about the scale of
Speaker 1: the slowdown and growth, and until we get more evidence
Speaker 1: that the rate of deterioration there is slowing, I think
Speaker 1: markets will be a bit volatile in the short run.
Speaker 1: Peter paint a picture of how corporations adapt, not sector
Speaker 1: to sector, but as a general statement, giving new almost
Speaker 1: jump condition move in inflation, how do corporations adapt and
Speaker 1: adjust well. I think there are two things that are
Speaker 1: important to say. One of them is that, uh, you know,
Speaker 1: inflation is generally rating higher nominal GDP. In a sense,
Speaker 1: growth is not the problem to your point earlier, Tom,
Speaker 1: The problem is is margins and bottom line. You know,
Speaker 1: equities companies are making a claim on nominal GDP growth.
Speaker 1: Nominal GDP is actually quite high relative to the last decade.
Speaker 1: The question is how they can cope with higher costs,
Speaker 1: what that does to margins, what that does to earnings
Speaker 1: in the bottom line, and their valuation. I think the
Speaker 1: second point to mention is that we're in an environment
Speaker 1: now which is very different to the one we've seen
Speaker 1: in the last couple of decades, when both commodities and
Speaker 1: labor were easily available relatively cheap. And now we're in
Speaker 1: an environment, probably structurally, where both commodities becoming more scarce,
Speaker 1: more heavily contested and competed for, more expensive, and labor
Speaker 1: as well. I think what that will do is encourage
Speaker 1: more companies to invest in greater efficiency like we saw
Speaker 1: in the seventies, you know, more or spending on innovations
Speaker 1: to become more energy efficient, and stuff instituting to some
Speaker 1: extent technology for labor as well. Peter, how does this
Speaker 1: all play into being overweight both equities and cash, which
Speaker 1: doesn't seem to make sense given the fact that you
Speaker 1: see bonds as actually being the biggest out of performers here. Yeah,
Speaker 1: I mean in a short term horizon, we're actually neutral
Speaker 1: of ecutors, overweight cash and commodities. On a twelve monthly
Speaker 1: we are actually overweight equities, And I think it's important
Speaker 1: to emphasize that relative to bonds, there's still some reasonable
Speaker 1: return I think to be gotten equities over over a
Speaker 1: twelve months horizon. First of all, valuations have come down
Speaker 1: a lot. Actually profits have held up so far, very
Speaker 1: very well. If you look at most equity markets are
Speaker 1: training now below long run average valuations. That's true across
Speaker 1: Europe and across Asia, and e m not true in
Speaker 1: the US. The US is still trading above its long
Speaker 1: run average valuations. But I think there are some attractive
Speaker 1: valuations that are coming through earning. If you think will
Speaker 1: grow with stronger nominal GDP, will be able to slower rate.
Speaker 1: The problem is valuation because obviously with higher inflation, higher
Speaker 1: interest rates, not seeing the valuation expansion that investors got
Speaker 1: used to in the last cycle. So I think taking
Speaker 1: those things together on a twelve month view, we think
Speaker 1: there's some good opportunities. Next is now pay the wonderful
Speaker 1: to catch out and congrats to your Tottenham for top
Speaker 1: four finish. And now you wanted me to squeeze that
Speaker 1: in there somewhere. Thank you, buddy Peter of Goldman Sax.
Speaker 1: Thank you. It is a joy and it was my
Speaker 1: book of the summer a few years ago. Stevinus and
Speaker 1: Ackerman way out front and attentions with China looking out
Speaker 1: to two thousand thirty four. Now it is vintage tore
Speaker 1: vin Us and he joins us this morning the album
Speaker 1: to risk it All, and this is what he does best.
Speaker 1: This is eight nine ten chapters, nine conflicts, nine chapters
Speaker 1: on people in the Navy and lessons learned of their
Speaker 1: successes and their failures. I want to fold this admiral
Speaker 1: into where we are right now. And this is off
Speaker 1: my conversation in Davos with Sir Lawrence Freedman as well
Speaker 1: on the Black Sea. You were first I heard on
Speaker 1: the Black Sea. William Halsey was out of Pearl Harbor.
Speaker 1: He came back, he supported uh nem As, he supported
Speaker 1: the Navy under a lot of heat, and then he
Speaker 1: went out to see aggressively. How do we be aggressive
Speaker 1: in a Black Sea contained by the Bosphors Strait. The
Speaker 1: Black Sea is a Russian lake right now, their Black
Speaker 1: Sea Fleet controls it. But here's the good news, Tom,
Speaker 1: there are NATO allies around that Black Sea, including Turkey, Romania, Bulgaria.
Speaker 1: We have NATO warships in the area. The United States
Speaker 1: can flow warships that are currently stationed in the Mediterranean Sea.
Speaker 1: I think we need to look to the sea because
Speaker 1: of grain, because of a grarian products bottled up in Ukraine.
Speaker 1: At some point, the international community, I believe, is going
Speaker 1: to have to consider escorting grain tankers in and out
Speaker 1: of Odessa. Right now they're choked off. That's going to
Speaker 1: lead to maximal impact in North Africa. We need to
Speaker 1: we need to open the seas to Ukraine. I think
Speaker 1: that's the next big muscle movement in this war. Are
Speaker 1: we measuring risk correctly? Let's look at Admiral Halsey in
Speaker 1: your book and the idea that he got a lot
Speaker 1: of things right and he had a most difficult in
Speaker 1: the Philippines were worried about failure. Like Admiral Halsey faced failure.
Speaker 1: Are we over emphasizing failure? I think we are not.
Speaker 1: And let's take it to Ukraine where you see two
Speaker 1: risk takers, right. You see Vladimir Putin who has really
Speaker 1: rolled the dice in a very big way, and I
Speaker 1: don't think it's going to come out well for him
Speaker 1: because he has no moral grounding. On the other side
Speaker 1: of the coin. To your question, Tom, you see someone
Speaker 1: like Zelensky who literally is risking at all his family,
Speaker 1: his parents, his civilization, his cities. That's pretty motivating. And
Speaker 1: I think at the end of the day, with the
Speaker 1: tools the Western providing him, his risk calculus is going
Speaker 1: to be the correct one. Okay, So, Admiral if Vladiman
Speaker 1: Putin is an example of failed leadership, why aren't they
Speaker 1: losing more quickly? Well, they are losing very quickly, as followers,
Speaker 1: Lee say. You'll recall three months ago, every prediction was
Speaker 1: that they were going to sweep across the country, conquered Kiev,
Speaker 1: decapitate the Zelensky regime. None of that happened. Plan A
Speaker 1: total failure. So now they're back to Plan B, which
Speaker 1: is a much more modest approach in the southeast of
Speaker 1: the country, and they're doing better by comparison with their
Speaker 1: failures at the beginning. But I wouldn't categorize what I'm
Speaker 1: seeing right now is a lot of success on the
Speaker 1: Russian side. So then it brings us back to the
Speaker 1: Black Sea and your idea of possibly escorting grain ships
Speaker 1: from Odessa. How aggressive should the Western allies get in
Speaker 1: the face of dramatically weakened leadership by Vladimir Putin? Is
Speaker 1: it time to be more aggressive or is it just
Speaker 1: to continue this sort of grinding it out kind of
Speaker 1: approach that we've been seeing for the past couple of months.
Speaker 1: The mistake here is to think that it's some kind
Speaker 1: of on and off switch that either we go to
Speaker 1: war with Russia or we just sit back and let
Speaker 1: him conquer Ukraine. I think the West has correctly treated
Speaker 1: it like a re estate, like the dimmer in your
Speaker 1: dining room, and is cranking it up, taking more risk.
Speaker 1: Back to the tough conversation I just had Tom taking
Speaker 1: more risk, Uh, imprudent ways. And I think in that case,
Speaker 1: when I look at the grain ship and it's time
Speaker 1: to take can look at that as de venus. What
Speaker 1: can anyone from England learn from the power of no?
Speaker 1: And John Paul Jones this is a few years ago
Speaker 1: and Mr Jones went over to England and took on Britain.
Speaker 1: What do we learn about the power of no in
Speaker 1: one word? Determination? And here you have a relatively rag
Speaker 1: tag American navy in the seventeen seventies, and John Paul
Speaker 1: Jones inspires it by fighting from the deck of the
Speaker 1: bon Am Richard and defeating a British ship, the Therapists
Speaker 1: seventy nine. It's an extraordinary story in which he utters
Speaker 1: the immortal words immortal to the navy. And I would
Speaker 1: argue to anybody, I have not yet begun to fight,
Speaker 1: even when looking defeat from the eye. Oh Pharaos says
Speaker 1: that once a week, taking this tongue, as you said,
Speaker 1: have that conversation, and well, thank you, James. De free
Speaker 1: to stay at the car Group, thank you very much.
Speaker 1: Right now and hugely anticipated. Leland Miller is co founder
Speaker 1: of the Chief Executive Officer of China Beijing book but
Speaker 1: far more he is someone with his pulse on the
Speaker 1: Chinese data of the dynamics is taken from the micro
Speaker 1: data of of China. He joins us. This morning, I
Speaker 1: want to talk Leland about the Shanghai calculus about the
Speaker 1: rate of change, the second derivative, the rate of change
Speaker 1: of the rate of change that the government in Beijing
Speaker 1: needs from Shanghai. How desperate is Beijing for Shanghai to
Speaker 1: get it going? Well, they're they're very desperate, first of
Speaker 1: all because Shanghai is a growth engine, but second because
Speaker 1: it's a confidence engine for the economy. And what's what's
Speaker 1: so curious about you know, the p m I data
Speaker 1: that came out last night, a few days after an
Speaker 1: extraordinarily panicky meeting. You know something we haven't seen in decades. Uh,
Speaker 1: all of a sudden that the data come out last
Speaker 1: night and they're they're they're they're improving from May. Uh.
Speaker 1: You know April was bad, beys getting better. That's the
Speaker 1: opposite of what we saw in China Beige book data.
Speaker 1: We actually saw much more problems in May as the
Speaker 1: as the secondary consequences of the lockdown spread away from Shanghai.
Speaker 1: So you know, they want to tell a pretty story
Speaker 1: right now. It's important for markets. But you know, we
Speaker 1: did not see an improvement from April to May. We
Speaker 1: saw the opposite. So Leland give us a sense of
Speaker 1: what the China Beige Book is charting out the end
Speaker 1: of the year in terms of GDP, the real GDP
Speaker 1: of China, not necessarily the four and a half five
Speaker 1: percent that the Communist Party would like to say. Well, look,
Speaker 1: if you assume the second quarter is in contraction no
Speaker 1: matter what they do or give, give or give or
Speaker 1: take a little bit um, then you know, the question
Speaker 1: is what are they going to do the second half
Speaker 1: of the year without rolling back COVID lockdowns or COVID
Speaker 1: zero lockdowns if if they need them, you know, to
Speaker 1: to to get the g DP somewhere in a range
Speaker 1: that that they can claim. I think that the new
Speaker 1: calculus is we're gonna get to the fourth quarter, We're
Speaker 1: gonna hope there's no COVID, and we're gonna announce you know,
Speaker 1: five or s GDP for the fourth quarter and try
Speaker 1: to get it somewhere between you know, three and four
Speaker 1: percent claiming claiming three and four percent for the year.
Speaker 1: Then then I think markets will say Okay, that's that's
Speaker 1: not too bad. You know, we are not on track
Speaker 1: for anywhere near that. You have to have a lot
Speaker 1: of more support for the economy and a lot less
Speaker 1: COVID lockdowns of the economy in order for us to
Speaker 1: get anywhere near that ballpark amount. But I think that's
Speaker 1: the story they want to tell. What are we on
Speaker 1: the bulk park for? What are we on track four
Speaker 1: based in the China beage book data? Well, I mean,
Speaker 1: you know, with with the second quarters week as it is,
Speaker 1: and and you know, if you try to do any
Speaker 1: type of linear projection, you're you're under two. Um, you know,
Speaker 1: you're you're you have to see a lot more support
Speaker 1: for the economy, which I do think we'll do. You know,
Speaker 1: as we get close to the Party Congress, we do
Speaker 1: expect there to be more credit support. We do expect
Speaker 1: there to be a little more infrastructure. That's not surprising.
Speaker 1: But you know you're gonna have to see a lot
Speaker 1: more of that, and it can't be interrupted by lockdowns
Speaker 1: across the economy. Leland Miller Deng years ago to get
Speaker 1: which is glorious. How far are we removed from that
Speaker 1: in this Chinese crisis? I don't think we're that far
Speaker 1: away from it. If anything, some of what we've been
Speaker 1: taught over the past, you know, six months, is that
Speaker 1: is that the Chinese model is not actually any more
Speaker 1: superior than any other model. They just had COVID at
Speaker 1: a different time, and now they're getting hit pretty hard
Speaker 1: with it. So everything has to get through the party Congress.
Speaker 1: She has to have his political moment, and then then
Speaker 1: they can start recalibrating the economy and the stock market
Speaker 1: and the and the regulatory system. Do we underestimate the
Speaker 1: unchanged China that Deng said to get rich is glorious
Speaker 1: and that's what they want to do. And do we
Speaker 1: overestimate right now the totalitarian shift? I think we did
Speaker 1: until a few weeks ago. But I think, what what's
Speaker 1: seeing all this uh, you know, headline conflict between Shi
Speaker 1: Jinping and the ostensible number two Lee Kutch Young? You know,
Speaker 1: I think people are understanding how much opposition there is
Speaker 1: within China in the leadership, amongst people who are lockdown
Speaker 1: to this COVID zero lockdown policy and to this slowing economy.
Speaker 1: And so we are now seeing, we are seeing the
Speaker 1: dirty side of of of China's governance. Right now, and
Speaker 1: I think people are more aware of it Leland, A
Speaker 1: lot of people have been looking out and wondering what
Speaker 1: we're going to see with respect to US businesses, multinational
Speaker 1: businesses and supply chains. Why we haven't seen more of
Speaker 1: some sort of removal from certain facilities in China elsewhere?
Speaker 1: Are we now starting to see that after years of speculation?
Speaker 1: I think so? And for one reason. You know, the
Speaker 1: trade war didn't do it, COVID didn't do it, but
Speaker 1: the lockdowns or something else, and I think you're gonna
Speaker 1: have a very hard time not just getting Western businesses
Speaker 1: run across China, but getting ex pats or anyone to
Speaker 1: work at these businesses. Nobody wants to be in China
Speaker 1: right now. No one wants to be locked down and
Speaker 1: they can't see their families who maybe elsewhere, for for
Speaker 1: for a year, for for six months, for for longer
Speaker 1: than that. So I think this is shift to the calculus.
Speaker 1: For people who want to live in China. It's been
Speaker 1: a much more difficult and they're gonna have a much
Speaker 1: harder time running businesses in China because of it. US
Speaker 1: executives are not going to come out and say that
Speaker 1: they're getting out of China right, because they're not going
Speaker 1: to say that until they already have. They don't want
Speaker 1: to hamper their employees who work there. They also don't
Speaker 1: want to get some blowback from the Chinese government. How
Speaker 1: much have you seen this withdrawal? I mean, this is
Speaker 1: basically the big question for a lot of companies that
Speaker 1: have been pretty quiet on this. Well, I think it's
Speaker 1: it's tell tale that you know, just about just about
Speaker 1: everybody I know is is either out on their way
Speaker 1: out or or or has already left. And uh and
Speaker 1: and there's very few people with plans to go into
Speaker 1: China anytime soon. I mean, it's just very difficult to
Speaker 1: travel and it's very difficult to live live. So people
Speaker 1: don't want to accept that link that change to the
Speaker 1: Party Congress. Then later this autumn. Well, I think what
Speaker 1: the Party Congress does is she has his moment, and
Speaker 1: then after that they can recalibrate certain things. If they
Speaker 1: needed aange COVID zero, they can change COVID zero if
Speaker 1: they need to. I don't mean to interrupt, but can
Speaker 1: they even spare the time to get to December January
Speaker 1: of next year? You know, I don't see how they
Speaker 1: do it. Um, you know, they have to be extraordinarily lucky,
Speaker 1: and they have to introduce vaccines and even even by
Speaker 1: the Chinese reckoning that they say they're not going to
Speaker 1: be introducing them to October. So they're having some very
Speaker 1: very difficult conversations. Now this is this is far and
Speaker 1: away the worst conditions that we've seen in years, and
Speaker 1: there's no way out if COVID returns. So, uh, you
Speaker 1: have to be crossing your fingers if you're if you're
Speaker 1: thinking China is going to really improve in the second half,
Speaker 1: you are crossing your fingers both the policy support will
Speaker 1: be there and also that COVID won't just come and
Speaker 1: and knock them off their feet again. Unless the story
Speaker 1: with this sign can on the economy. I wanted to
Speaker 1: finish on something really important. I think, as we've both
Speaker 1: observed for the last ten years, it was clear and
Speaker 1: obvious to a lot of people the trajectory of some
Speaker 1: of the policy out of restroom where this might end up.
Speaker 1: There's some people who have turned around in the last
Speaker 1: few months and have acted surprise surprise that this has
Speaker 1: actually happened. Any others aren't surprised at all. Do you
Speaker 1: foresee the same thing happening further down the road with China,
Speaker 1: there are allegations of human rights abuses, genocide. Those allegations
Speaker 1: have come from a range of countries. The U s UK, Canada,
Speaker 1: and the Netherlands have all accused this country of committing genocide.
Speaker 1: There was the latest bunch of files last week obtained
Speaker 1: by a series of media groups, reporters, journalists, Leland speaking
Speaker 1: to some of the detail around those human rights abuses,
Speaker 1: and yet Leland, it's largely absent from the conversation of
Speaker 1: corporations engaging with the Chinese Communist Party in the economy there.
Speaker 1: It kind of sets us up for me. And in
Speaker 1: a similar story to Russia, they ignore it, they ignore it,
Speaker 1: they ignore it, and then we get further down the
Speaker 1: line and they can't ignore it anymore. Where do you
Speaker 1: see this going, Well, they're ignoring in public conversations, but
Speaker 1: they're talking about it in private. And I think what
Speaker 1: most of these companies are up to right now is
Speaker 1: trying to understand whether they're going to have to completely
Speaker 1: separate their China business, their domestic China business, from their
Speaker 1: business from the rest of the world. And I think
Speaker 1: that the more that there is if political imperative to
Speaker 1: have one set of views on the Western side and
Speaker 1: find certain things unacceptable, and another view that that's that
Speaker 1: reflects the Chinese Communist parties views in the mainland. A
Speaker 1: lot of these corporations they may not pull out of China,
Speaker 1: but what they may do is separate their China business
Speaker 1: from the rest of the world business. And and and
Speaker 1: we're talking about separated supply chains, separated corporate entities. This
Speaker 1: is a big, big change. Folks don't want to be
Speaker 1: talking about it, but they're absolutely planning for Really, why
Speaker 1: would that leave the company, like Sayample, where would it
Speaker 1: leave them? Well, Apple, I, you know, I would have
Speaker 1: to produce what it produces for Chinese consumers inside the country,
Speaker 1: and then it's gonna have to find a lot of
Speaker 1: extra production capacity in Southeast Asia and Mexico and other
Speaker 1: places to produce all these you know, iPhones and imax
Speaker 1: and other things for the rest of the world. Said,
Speaker 1: what they're not going to be able to do is
Speaker 1: rely on Chinese production capacity for most of their production
Speaker 1: going forward. And they're absolutely trying to work out continuency plans.
Speaker 1: But it's harder for Apple and just about any other
Speaker 1: kind in the world, so they've got enormous headwinds, specifically
Speaker 1: in the next couple of years. Lead. I'm really interesting
Speaker 1: to get your thoughts in nice questions. Thank you, sir
Speaker 1: lit a middle of the at the China bash Book.
Speaker 1: It's a national a good time to speak to Ellen
Speaker 1: Wald or her book. Saudi and is just absolutely extraordinary
Speaker 1: senior fellow at the Atlantic Council. Ellen, whether it's Christian
Speaker 1: Melek and his team at JP Morgan or Peter Siro,
Speaker 1: we just talked to. Everyone is screaming about investment in oil,
Speaker 1: and it can be at any part of the oil process.
Speaker 1: To the Saudis want to lead OPEC plus to a
Speaker 1: greater investment in oil, I I would say absolutely, And
Speaker 1: this is something that um, I mean Nasa, who's the
Speaker 1: CEO of a Ramco, has actually been talking about for
Speaker 1: for years now, although much more loudly, Uh, particularly since
Speaker 1: the RAMCO I p O is that investment in oil
Speaker 1: and in all parts of the oil chain has been
Speaker 1: so low for so long that even without this Russian crisis,
Speaker 1: you could say oil prices would be higher simply because
Speaker 1: of this lack of investment. And we'll not necessarily seeing
Speaker 1: a big enough response in terms of investment, except from
Speaker 1: the countries that have continued to invest in oil, like
Speaker 1: the UAE and Saudi Arabia. How do we jump start
Speaker 1: the investment in hydrocarbons. It's you know, I think it
Speaker 1: starts with uh an acknowledgement that we still need oil.
Speaker 1: We may not want to need oil, we may wish
Speaker 1: we didn't need oil, but if we want to continue
Speaker 1: with the way that we live, with our modern lifestyle,
Speaker 1: with driving cars and using airplanes and shipping things across
Speaker 1: the world, we need hydrocarbons. And yes, there are cleaner
Speaker 1: ways to produce hydrocarbons, and they are not so clean
Speaker 1: ways to produce them, but we still need them. And
Speaker 1: that needs to be acknowledge at every level, especially by governments,
Speaker 1: because when government support isn't, their investors and investment bodies
Speaker 1: take their cues from there, and they don't want to
Speaker 1: invest in something that they think the government is going
Speaker 1: to uh put extra taxes on or make impossible to
Speaker 1: use in just a few years. Well and Ellen. And
Speaker 1: there's also a reluctance by investors to put their money
Speaker 1: into companies that are viewed as bad are viewed as
Speaker 1: contributing to global warming have we seen capitulation on that
Speaker 1: front as we see strategists after strategists say commodities are
Speaker 1: their favorite place to be exactly. And I think that
Speaker 1: we're definitely seeing some people and some uh, some investors say,
Speaker 1: you know, so what, it doesn't matter. I don't care
Speaker 1: about the backlash, I don't care about public opinion. I'm
Speaker 1: going to put my money in this area that I
Speaker 1: think is going to make make money because at the
Speaker 1: at the end of the day, that's really what they're
Speaker 1: looking for, is a return on investment. Yes, they want
Speaker 1: to do good for the world, but that's really secondary
Speaker 1: to making money. And but you're still going to have
Speaker 1: some people and some investment places that are more concerned
Speaker 1: about public opinion or they believe that public opinion is
Speaker 1: so strong that governments will continue to make these investments
Speaker 1: too difficult and that will cut into the return on investment.
Speaker 1: And until we see a real um, and in particular
Speaker 1: especially in the United States, we need consistency and regulation.
Speaker 1: We need to know what's going to happen five, ten, fifty,
Speaker 1: twenty years down the line, not just oh well, everything
Speaker 1: could be changed with a new administration in four years.
Speaker 1: Hell and I'm going to ask you the same thing
Speaker 1: that we talked about with Christian may Leg last week,
Speaker 1: which is why aren't oil prices even higher given some
Speaker 1: of the shortfalls in production? Yeah, exactly. I mean it's
Speaker 1: we're seeing we're seeing higher oil prices. I think that
Speaker 1: the market is still pretty um, pretty volatile, and we're
Speaker 1: also concerned bit about demand destruction. At this point, we're
Speaker 1: seeing some pullback in consumption in the United States. There's
Speaker 1: definitely concerned about China. Yes, we're hearing news that some
Speaker 1: of these lockdowns are being eased, and that's definitely going
Speaker 1: to um impact demand, uh cause demand to go up.
Speaker 1: But as inflation gets higher and higher, uh, you know,
Speaker 1: it's really going to cut into people's use of hydrocarbons
Speaker 1: of fuel, especially because these are are things that are
Speaker 1: so high priced. Now within this conversation sort of the
Speaker 1: out of body experience for me, is it whether it's
Speaker 1: x On or Ramco, or you know, an independent driller
Speaker 1: in Oklahoma or Texas, they're not waiting for the government
Speaker 1: to help them with investment. Why aren't they investing at
Speaker 1: a hundred and thirty dollars a barrel. That's a really,
Speaker 1: really great question. And they're actually a bunch of reasons UM,
Speaker 1: and some of them are actually really well poculated by
Speaker 1: the survey that the Dallas said, does of UM you
Speaker 1: know of of oil producers in the US. A lot
Speaker 1: of it has to do with costs UM. The costs
Speaker 1: of of UM drilling now have gone up in a
Speaker 1: huge way. There are they're not able to get a
Speaker 1: lot of the materials that they need, so their delays
Speaker 1: in terms of supply chain issues. And also they are
Speaker 1: been pressured so much to give this return on investment
Speaker 1: to their investors that they're really hesitant to take those
Speaker 1: profits and put them back into drilling, especially when costs
Speaker 1: are so high. They also can't get labor their their
Speaker 1: labor shortages. Even if they pay more money, they still
Speaker 1: can't get people uh to come and work. So there
Speaker 1: are a lot of issues here. I think that some
Speaker 1: of these will work themselves out, but it's going to
Speaker 1: take months. And thank you as always be brilliant and
Speaker 1: well of the Atlantic Council. Ramping up production is not
Speaker 1: that simple. This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg