WEBVTT - Surveillance: Reducing Prices with Deese (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.160 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.560 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:29.560 Com and of course on the Bloomberg terminal. The dynamic 0:00:29.640 --> 0:00:31.960 of the morning will be the Oval Office with the 0:00:32.040 --> 0:00:36.320 Chairman of the Federal Reserve System and his President, joined 0:00:36.320 --> 0:00:39.040 by the Secretary of Treasury, of course, the former chair 0:00:39.080 --> 0:00:43.320 of the FED, Janet Yellen Powell Yelling and Biden. Brian 0:00:43.400 --> 0:00:46.599 dis joins, Director of the National Economic Council, who will 0:00:46.600 --> 0:00:51.040 be in charge of niceties and pouring tea at the meeting. Brian, 0:00:51.159 --> 0:00:55.120 the singular distinction here is Yelling codified the words slack 0:00:55.560 --> 0:00:59.200 of an America unemployed. That is not the case now, 0:00:59.680 --> 0:01:04.040 power is Fed is roughly fully employed America. How will 0:01:04.080 --> 0:01:08.440 the President listen to these two about jobs in America 0:01:08.640 --> 0:01:13.000 and this horrific inflation. Well, he'll listen to them, and 0:01:13.040 --> 0:01:16.319 he'll underscore his core point, which is that he intends 0:01:16.360 --> 0:01:19.160 to provide the FED with the space and the independence 0:01:19.160 --> 0:01:22.320 that it needs to operate. As you all know, he 0:01:22.360 --> 0:01:25.360 has nominated a quality slate of people, including at the 0:01:25.360 --> 0:01:28.880 top of that slate Chair Powell, to lead the Federal 0:01:28.959 --> 0:01:31.720 Reserve through this challenging time, and he intends to give 0:01:31.760 --> 0:01:34.440 them the space to operate. But we are in an environment, 0:01:34.440 --> 0:01:38.280 a unique environment, and we have unique economic strengths right now, 0:01:38.480 --> 0:01:40.960 the job market in the labor market being chief among them, 0:01:41.200 --> 0:01:44.600 but not the only one. Household balance sheets are in 0:01:44.640 --> 0:01:47.559 a very strong position because over the course of this recovery, 0:01:47.800 --> 0:01:52.000 Americans have been able to save more and pay down debt. 0:01:52.400 --> 0:01:56.280 We've seen we're seeing business creation, small business creation up 0:01:56.320 --> 0:02:00.000 at record levels. So we have unique economic strengths which 0:02:00.080 --> 0:02:03.559 position us well now to focus on this challenge, which 0:02:03.600 --> 0:02:06.480 is bringing prices down. Obviously the Federal Reserve place a 0:02:06.520 --> 0:02:09.760 primary role in that, but fiscal policy and the economic 0:02:09.800 --> 0:02:12.600 choices that we make with Congress play an important role 0:02:12.639 --> 0:02:14.360 as well. Will be all of that will be on 0:02:14.360 --> 0:02:16.680 the table today. Brian. Let's talk about that meeting today 0:02:16.800 --> 0:02:18.800 and whether it's anything more than a photo. What given 0:02:18.800 --> 0:02:21.400 that you've said you don't want to comment on Fed policy, 0:02:21.440 --> 0:02:23.520 the Fed doesn't want to comment on fiscal policy, What 0:02:23.639 --> 0:02:25.799 is the purpose of today. If it's not just a photo, 0:02:25.840 --> 0:02:27.720 what what do you discuss? What comes out of it? 0:02:27.760 --> 0:02:29.880 How does it aup Americans? And you've seen the policy yourself. 0:02:30.160 --> 0:02:33.200 Six of adults say their families income is falling behind 0:02:33.560 --> 0:02:35.760 the cost of living. So a lot of people looking 0:02:35.800 --> 0:02:38.679 at this it feels just like a photo. What for 0:02:38.720 --> 0:02:41.359 Americans struggling right now? They want more than just that? 0:02:41.520 --> 0:02:45.040 Is it more than that? Absolutely? A couple of things. 0:02:45.040 --> 0:02:47.960 The first is its standard practice for presidents and chairs 0:02:47.960 --> 0:02:49.840 of the Federal Reserve to meet from time to time 0:02:49.880 --> 0:02:53.440 to share views on the economy. In this case, secondly, 0:02:53.720 --> 0:02:57.640 the president is underscoring something important. The respect for the 0:02:57.680 --> 0:03:00.320 independence of the Fed as an institution is not something 0:03:00.360 --> 0:03:02.239 that we can take for granted. It's not something that 0:03:02.320 --> 0:03:07.640 prior presidents have done to re underwrite that independence, and 0:03:07.720 --> 0:03:10.200 so doing so, having the president do so in a 0:03:10.240 --> 0:03:13.800 public way and underscore that he has committed to making 0:03:13.800 --> 0:03:17.040 sure that the Federal Reserve as an independent institution can operate, 0:03:17.360 --> 0:03:20.680 is incredibly important at this moment. And it's not just 0:03:20.720 --> 0:03:24.000 about a photo op. It's about sending that signal clearly 0:03:24.040 --> 0:03:26.960 to the public. And number three, they have a president. 0:03:27.000 --> 0:03:29.800 The American people those who are feeling anxious, and absolutely 0:03:29.880 --> 0:03:31.880 understand that when people go to the gas pump or 0:03:31.960 --> 0:03:35.120 to the grocery store, they are feeling anxious. They have 0:03:35.160 --> 0:03:36.880 a president who is waking up in the morning and 0:03:36.920 --> 0:03:39.840 focused on how to address that challenge. And one of 0:03:39.880 --> 0:03:43.040 the things he can do is, in his position, underscore 0:03:43.080 --> 0:03:45.320 the independence of the Federal Reserve. So I think for 0:03:45.360 --> 0:03:48.080 all of those reasons, this is an important step in 0:03:48.120 --> 0:03:50.320 the process, not the only step, and we are going 0:03:50.360 --> 0:03:52.600 to remain focused and over the course of the next 0:03:52.680 --> 0:03:54.760 week and the week after that will focus on the 0:03:54.800 --> 0:03:57.920 steps that we can take to help try to address 0:03:57.960 --> 0:04:00.080 price increases as well. One thing on to discuss, and 0:04:00.280 --> 0:04:02.520 we know this from several reports, and we've talked about 0:04:02.520 --> 0:04:05.840 this previously, bran is student debt relief. The White House 0:04:05.880 --> 0:04:08.680 considering something up to ten tho dollars. There are people 0:04:08.720 --> 0:04:11.640 without a college degree wondering why those with a college 0:04:11.640 --> 0:04:13.840 degree are getting this. Help. I'll go through the numbers 0:04:13.880 --> 0:04:16.279 and then I'll ask for your response. So the latest 0:04:16.320 --> 0:04:18.880 research from Pew points out that for intent Americans age 0:04:18.920 --> 0:04:21.920 twenty five year older have a bachelor's degree or higher. 0:04:22.240 --> 0:04:25.719 Among that, as you know, for black American adults. For 0:04:25.760 --> 0:04:28.640 Hispanic adults, that number is much much lower than four 0:04:28.680 --> 0:04:31.160 in ten. You also know there's a growing garning scap 0:04:31.240 --> 0:04:33.400 between those who have a college degree and those who 0:04:33.440 --> 0:04:35.960 do not. The unemployment rate is a lower for those 0:04:36.000 --> 0:04:38.159 that have a college degree compared to those that who 0:04:38.200 --> 0:04:40.560 do not. So the question Brian, that people are asking 0:04:40.640 --> 0:04:42.560 if they don't have a college degree right now is 0:04:42.760 --> 0:04:45.000 who is that to help? Who are you doing that for. 0:04:45.480 --> 0:04:47.400 Why are you considering doing that? Who is it for 0:04:47.880 --> 0:04:50.400 other than just energizing the base going into the midterms 0:04:50.720 --> 0:04:53.960 later this year. Well, first, we should be trying to 0:04:54.000 --> 0:04:56.880 help everybody who wants to work get into a job 0:04:56.920 --> 0:05:00.159 that will give them pay and an upward mobil an 0:05:00.200 --> 0:05:02.760 opportunity to succeed. And one of the things we're seeing 0:05:02.800 --> 0:05:05.960 about having such a strong labor market recovery right now 0:05:06.320 --> 0:05:09.080 is we're seeing historic gains not just overall the largest 0:05:09.120 --> 0:05:12.279 declined the unemployment rate in any recovery in recent history, 0:05:12.320 --> 0:05:16.600 but also record gains for Blacks, record reduction in the 0:05:16.640 --> 0:05:19.640 unemployment rate Hispanics, the largest reduction in the unemployment rate 0:05:19.640 --> 0:05:22.760 for Hispanics ever on record. So we're seeing that in 0:05:22.839 --> 0:05:24.960 the job market. We want to do more. A lot 0:05:24.960 --> 0:05:28.240 of that is about workplace training. You should jump in. 0:05:28.240 --> 0:05:30.160 I just want to now down the point because you 0:05:30.200 --> 0:05:33.760 know this is important. As you know, and I'll repeat it, 0:05:34.120 --> 0:05:36.160 those with the college degree seemed to be doing much 0:05:36.240 --> 0:05:39.719 much better than those without. As you work at relief 0:05:39.960 --> 0:05:41.880 for the American people at the moment, why is their 0:05:41.920 --> 0:05:45.080 focus on ten tho dollars of student debt relief at 0:05:45.120 --> 0:05:47.159 a time when those people in America who do not 0:05:47.240 --> 0:05:50.680 have a college degree again squeezed by gas prices crewed 0:05:50.720 --> 0:05:53.680 again this morning at one eighteen, JP Morgan saying, gasket 0:05:53.720 --> 0:05:56.080 hits six dollars later this year. You know the people 0:05:56.160 --> 0:05:58.640 that's hitting the most, many of those do not have 0:05:58.720 --> 0:06:02.120 a college degree. Why is this administration focused on doing 0:06:02.200 --> 0:06:05.760 something which, let's face it might play well in the midterms, 0:06:05.760 --> 0:06:08.320 but ultimately isn't going to help those people that need 0:06:08.320 --> 0:06:11.640 the help the most. Right now, my point is we're 0:06:11.680 --> 0:06:13.479 we're focused on trying to help everybody. But to the 0:06:13.560 --> 0:06:15.760 question of those uh and and a lot of the 0:06:15.760 --> 0:06:17.520 steps that we are taking are going to help people 0:06:17.520 --> 0:06:20.440 who have less than a college degree. But when you 0:06:20.480 --> 0:06:23.039 look at the issue of student debt, there are tens 0:06:23.040 --> 0:06:26.560 of millions of Americans out there who um are in 0:06:26.680 --> 0:06:30.280 the labor market and now may have gotten some college 0:06:30.360 --> 0:06:34.440 education or college education, but are held back by the 0:06:34.480 --> 0:06:38.480 burden of having to pay in some cases extreme extraordinarily 0:06:38.760 --> 0:06:41.960 high debt. So the question there is is are there 0:06:42.000 --> 0:06:43.920 steps that we can take, prudent steps that we can 0:06:43.960 --> 0:06:48.320 take to try to help unlock economic opportunities for those families, 0:06:48.520 --> 0:06:51.599 while at the same time doing everything we can to 0:06:51.720 --> 0:06:55.880 help create a labor market that is creating dynamics like 0:06:55.920 --> 0:06:58.200 the one we're seeing now where for the first time 0:06:58.200 --> 0:07:01.000 in a very long time, people with out of college degree, 0:07:01.200 --> 0:07:05.279 people with some college degree are seeing economic opportunities, opportunities 0:07:05.320 --> 0:07:07.640 to move into jobs with higher wages that they haven't 0:07:07.680 --> 0:07:10.280 in some time. We're also focused on trying to sustain 0:07:10.280 --> 0:07:12.040 that and continue that going forward. Right, and good to 0:07:12.080 --> 0:07:14.480 catch up, as always, always fantastic to get your perspective 0:07:14.480 --> 0:07:21.800 on things. Brands there of the National Economic Council joining 0:07:21.840 --> 0:07:24.880 us now as Peter Roppenheimer, Chief Global Equity Strategistic Garment 0:07:24.920 --> 0:07:26.640 Sacks and Peter, you put out the note yesterday, So 0:07:26.720 --> 0:07:29.720 let's start with your research. What happens after you've seen 0:07:30.080 --> 0:07:32.400 peak inflation. So work through it with us. Have we 0:07:32.480 --> 0:07:37.400 seen that what happens next? Well, I think that if 0:07:37.440 --> 0:07:40.280 you look at the history for markets, at least when 0:07:40.280 --> 0:07:42.560 you get peak inflation, you do tend to get a 0:07:42.640 --> 0:07:46.440 recovery and risk assets, and that's generally because it starts 0:07:46.440 --> 0:07:50.840 to alleviate pressures on on interest rates. By that stage, 0:07:51.280 --> 0:07:55.200 you've usually had markets already pricing and an economic downturn. 0:07:55.720 --> 0:07:58.560 So at the point where people think that things are 0:07:58.840 --> 0:08:01.600 bad but getting less, you tend to get a recovery. 0:08:01.760 --> 0:08:04.480 But it's important to say that there are variations around 0:08:04.520 --> 0:08:08.400 this theme. After all, you know, an inflation peaked in 0:08:08.480 --> 0:08:11.440 two thousand one, markets were still falling because of the 0:08:11.480 --> 0:08:15.080 fallout from the tech bubble, and similarly that was true 0:08:15.080 --> 0:08:17.160 around the financial crisis. So I think we've got a 0:08:17.200 --> 0:08:21.360 little bit be a little bit circumstanspect about this. Generally, 0:08:21.480 --> 0:08:25.080 I think if inflation peaks, it will provide some relief, 0:08:25.480 --> 0:08:28.920 but there's still the ongoing uncertainty about the scale of 0:08:28.960 --> 0:08:31.960 the slowdown and growth, and until we get more evidence 0:08:32.040 --> 0:08:35.440 that the rate of deterioration there is slowing, I think 0:08:35.440 --> 0:08:37.480 markets will be a bit volatile in the short run. 0:08:37.720 --> 0:08:42.640 Peter paint a picture of how corporations adapt, not sector 0:08:42.679 --> 0:08:46.640 to sector, but as a general statement, giving new almost 0:08:46.720 --> 0:08:51.080 jump condition move in inflation, how do corporations adapt and 0:08:51.120 --> 0:08:54.960 adjust well. I think there are two things that are 0:08:55.000 --> 0:08:58.400 important to say. One of them is that, uh, you know, 0:08:58.480 --> 0:09:03.680 inflation is generally rating higher nominal GDP. In a sense, 0:09:03.800 --> 0:09:06.920 growth is not the problem to your point earlier, Tom, 0:09:07.040 --> 0:09:10.400 The problem is is margins and bottom line. You know, 0:09:11.440 --> 0:09:14.880 equities companies are making a claim on nominal GDP growth. 0:09:15.120 --> 0:09:18.360 Nominal GDP is actually quite high relative to the last decade. 0:09:18.640 --> 0:09:21.560 The question is how they can cope with higher costs, 0:09:22.040 --> 0:09:24.840 what that does to margins, what that does to earnings 0:09:24.840 --> 0:09:28.400 in the bottom line, and their valuation. I think the 0:09:28.520 --> 0:09:31.520 second point to mention is that we're in an environment 0:09:31.559 --> 0:09:33.520 now which is very different to the one we've seen 0:09:33.520 --> 0:09:36.920 in the last couple of decades, when both commodities and 0:09:37.040 --> 0:09:41.400 labor were easily available relatively cheap. And now we're in 0:09:41.400 --> 0:09:46.280 an environment, probably structurally, where both commodities becoming more scarce, 0:09:46.640 --> 0:09:50.960 more heavily contested and competed for, more expensive, and labor 0:09:51.000 --> 0:09:53.760 as well. I think what that will do is encourage 0:09:53.840 --> 0:09:58.720 more companies to invest in greater efficiency like we saw 0:09:58.720 --> 0:10:02.720 in the seventies, you know, more or spending on innovations 0:10:02.800 --> 0:10:06.400 to become more energy efficient, and stuff instituting to some 0:10:06.480 --> 0:10:09.440 extent technology for labor as well. Peter, how does this 0:10:09.559 --> 0:10:13.920 all play into being overweight both equities and cash, which 0:10:13.960 --> 0:10:16.280 doesn't seem to make sense given the fact that you 0:10:16.320 --> 0:10:20.560 see bonds as actually being the biggest out of performers here. Yeah, 0:10:20.640 --> 0:10:24.640 I mean in a short term horizon, we're actually neutral 0:10:24.640 --> 0:10:27.760 of ecutors, overweight cash and commodities. On a twelve monthly 0:10:27.880 --> 0:10:30.439 we are actually overweight equities, And I think it's important 0:10:30.440 --> 0:10:36.359 to emphasize that relative to bonds, there's still some reasonable 0:10:36.440 --> 0:10:40.199 return I think to be gotten equities over over a 0:10:40.280 --> 0:10:43.520 twelve months horizon. First of all, valuations have come down 0:10:43.520 --> 0:10:47.040 a lot. Actually profits have held up so far, very 0:10:47.160 --> 0:10:50.880 very well. If you look at most equity markets are 0:10:50.920 --> 0:10:55.240 training now below long run average valuations. That's true across 0:10:55.280 --> 0:10:59.000 Europe and across Asia, and e m not true in 0:10:59.040 --> 0:11:01.480 the US. The US is still trading above its long 0:11:01.559 --> 0:11:06.040 run average valuations. But I think there are some attractive 0:11:06.080 --> 0:11:09.080 valuations that are coming through earning. If you think will 0:11:09.120 --> 0:11:12.920 grow with stronger nominal GDP, will be able to slower rate. 0:11:13.400 --> 0:11:17.360 The problem is valuation because obviously with higher inflation, higher 0:11:17.400 --> 0:11:21.880 interest rates, not seeing the valuation expansion that investors got 0:11:22.000 --> 0:11:24.040 used to in the last cycle. So I think taking 0:11:24.040 --> 0:11:26.719 those things together on a twelve month view, we think 0:11:26.720 --> 0:11:29.360 there's some good opportunities. Next is now pay the wonderful 0:11:29.360 --> 0:11:31.920 to catch out and congrats to your Tottenham for top 0:11:31.960 --> 0:11:33.880 four finish. And now you wanted me to squeeze that 0:11:33.920 --> 0:11:37.280 in there somewhere. Thank you, buddy Peter of Goldman Sax. 0:11:37.320 --> 0:11:44.680 Thank you. It is a joy and it was my 0:11:44.720 --> 0:11:47.400 book of the summer a few years ago. Stevinus and 0:11:47.480 --> 0:11:50.880 Ackerman way out front and attentions with China looking out 0:11:50.920 --> 0:11:54.280 to two thousand thirty four. Now it is vintage tore 0:11:54.360 --> 0:11:56.320 vin Us and he joins us this morning the album 0:11:56.679 --> 0:12:00.400 to risk it All, and this is what he does best. 0:12:00.559 --> 0:12:05.559 This is eight nine ten chapters, nine conflicts, nine chapters 0:12:05.559 --> 0:12:08.520 on people in the Navy and lessons learned of their 0:12:08.559 --> 0:12:12.520 successes and their failures. I want to fold this admiral 0:12:12.559 --> 0:12:14.880 into where we are right now. And this is off 0:12:15.000 --> 0:12:19.640 my conversation in Davos with Sir Lawrence Freedman as well 0:12:19.880 --> 0:12:23.160 on the Black Sea. You were first I heard on 0:12:23.240 --> 0:12:26.840 the Black Sea. William Halsey was out of Pearl Harbor. 0:12:28.400 --> 0:12:31.880 He came back, he supported uh nem As, he supported 0:12:32.320 --> 0:12:34.600 the Navy under a lot of heat, and then he 0:12:34.679 --> 0:12:39.079 went out to see aggressively. How do we be aggressive 0:12:39.240 --> 0:12:44.080 in a Black Sea contained by the Bosphors Strait. The 0:12:44.160 --> 0:12:47.839 Black Sea is a Russian lake right now, their Black 0:12:47.840 --> 0:12:51.160 Sea Fleet controls it. But here's the good news, Tom, 0:12:51.160 --> 0:12:56.120 there are NATO allies around that Black Sea, including Turkey, Romania, Bulgaria. 0:12:56.200 --> 0:12:59.760 We have NATO warships in the area. The United States 0:12:59.800 --> 0:13:03.840 can flow warships that are currently stationed in the Mediterranean Sea. 0:13:04.320 --> 0:13:06.920 I think we need to look to the sea because 0:13:06.960 --> 0:13:12.040 of grain, because of a grarian products bottled up in Ukraine. 0:13:12.320 --> 0:13:15.200 At some point, the international community, I believe, is going 0:13:15.240 --> 0:13:19.480 to have to consider escorting grain tankers in and out 0:13:19.520 --> 0:13:22.439 of Odessa. Right now they're choked off. That's going to 0:13:22.559 --> 0:13:27.280 lead to maximal impact in North Africa. We need to 0:13:27.800 --> 0:13:30.560 we need to open the seas to Ukraine. I think 0:13:30.600 --> 0:13:33.120 that's the next big muscle movement in this war. Are 0:13:33.160 --> 0:13:36.520 we measuring risk correctly? Let's look at Admiral Halsey in 0:13:36.559 --> 0:13:38.960 your book and the idea that he got a lot 0:13:39.040 --> 0:13:43.560 of things right and he had a most difficult in 0:13:43.640 --> 0:13:49.640 the Philippines were worried about failure. Like Admiral Halsey faced failure. 0:13:49.679 --> 0:13:54.960 Are we over emphasizing failure? I think we are not. 0:13:55.240 --> 0:13:57.800 And let's take it to Ukraine where you see two 0:13:57.880 --> 0:14:01.400 risk takers, right. You see Vladimir Putin who has really 0:14:01.520 --> 0:14:03.800 rolled the dice in a very big way, and I 0:14:03.800 --> 0:14:06.040 don't think it's going to come out well for him 0:14:06.120 --> 0:14:10.040 because he has no moral grounding. On the other side 0:14:10.040 --> 0:14:12.360 of the coin. To your question, Tom, you see someone 0:14:12.440 --> 0:14:16.880 like Zelensky who literally is risking at all his family, 0:14:17.040 --> 0:14:22.200 his parents, his civilization, his cities. That's pretty motivating. And 0:14:22.240 --> 0:14:24.400 I think at the end of the day, with the 0:14:24.400 --> 0:14:28.240 tools the Western providing him, his risk calculus is going 0:14:28.240 --> 0:14:31.000 to be the correct one. Okay, So, Admiral if Vladiman 0:14:31.040 --> 0:14:33.840 Putin is an example of failed leadership, why aren't they 0:14:33.880 --> 0:14:39.600 losing more quickly? Well, they are losing very quickly, as followers, 0:14:39.680 --> 0:14:43.160 Lee say. You'll recall three months ago, every prediction was 0:14:43.240 --> 0:14:46.040 that they were going to sweep across the country, conquered Kiev, 0:14:46.520 --> 0:14:50.840 decapitate the Zelensky regime. None of that happened. Plan A 0:14:51.160 --> 0:14:54.240 total failure. So now they're back to Plan B, which 0:14:54.280 --> 0:14:58.200 is a much more modest approach in the southeast of 0:14:58.200 --> 0:15:02.680 the country, and they're doing better by comparison with their 0:15:02.680 --> 0:15:05.520 failures at the beginning. But I wouldn't categorize what I'm 0:15:05.520 --> 0:15:07.480 seeing right now is a lot of success on the 0:15:07.560 --> 0:15:10.000 Russian side. So then it brings us back to the 0:15:10.000 --> 0:15:13.280 Black Sea and your idea of possibly escorting grain ships 0:15:13.280 --> 0:15:17.200 from Odessa. How aggressive should the Western allies get in 0:15:17.200 --> 0:15:21.640 the face of dramatically weakened leadership by Vladimir Putin? Is 0:15:21.680 --> 0:15:24.240 it time to be more aggressive or is it just 0:15:24.320 --> 0:15:26.320 to continue this sort of grinding it out kind of 0:15:26.320 --> 0:15:30.200 approach that we've been seeing for the past couple of months. 0:15:29.960 --> 0:15:32.640 The mistake here is to think that it's some kind 0:15:32.680 --> 0:15:35.200 of on and off switch that either we go to 0:15:35.320 --> 0:15:38.000 war with Russia or we just sit back and let 0:15:38.080 --> 0:15:41.920 him conquer Ukraine. I think the West has correctly treated 0:15:41.960 --> 0:15:44.320 it like a re estate, like the dimmer in your 0:15:44.800 --> 0:15:48.880 dining room, and is cranking it up, taking more risk. 0:15:49.120 --> 0:15:52.440 Back to the tough conversation I just had Tom taking 0:15:52.440 --> 0:15:57.000 more risk, Uh, imprudent ways. And I think in that case, 0:15:57.600 --> 0:15:59.680 when I look at the grain ship and it's time 0:15:59.720 --> 0:16:02.560 to take can look at that as de venus. What 0:16:02.760 --> 0:16:06.680 can anyone from England learn from the power of no? 0:16:07.960 --> 0:16:12.160 And John Paul Jones this is a few years ago 0:16:12.760 --> 0:16:16.680 and Mr Jones went over to England and took on Britain. 0:16:16.920 --> 0:16:20.720 What do we learn about the power of no in 0:16:20.800 --> 0:16:25.480 one word? Determination? And here you have a relatively rag 0:16:25.560 --> 0:16:29.640 tag American navy in the seventeen seventies, and John Paul 0:16:29.720 --> 0:16:32.800 Jones inspires it by fighting from the deck of the 0:16:32.880 --> 0:16:35.840 bon Am Richard and defeating a British ship, the Therapists 0:16:36.560 --> 0:16:40.840 seventy nine. It's an extraordinary story in which he utters 0:16:40.920 --> 0:16:43.920 the immortal words immortal to the navy. And I would 0:16:44.000 --> 0:16:47.920 argue to anybody, I have not yet begun to fight, 0:16:48.040 --> 0:16:51.240 even when looking defeat from the eye. Oh Pharaos says 0:16:51.280 --> 0:16:54.400 that once a week, taking this tongue, as you said, 0:16:54.400 --> 0:16:57.560 have that conversation, and well, thank you, James. De free 0:16:57.600 --> 0:16:59.880 to stay at the car Group, thank you very much. 0:17:04.280 --> 0:17:08.439 Right now and hugely anticipated. Leland Miller is co founder 0:17:08.480 --> 0:17:11.119 of the Chief Executive Officer of China Beijing book but 0:17:11.280 --> 0:17:14.239 far more he is someone with his pulse on the 0:17:14.359 --> 0:17:17.679 Chinese data of the dynamics is taken from the micro 0:17:17.840 --> 0:17:22.119 data of of China. He joins us. This morning, I 0:17:22.160 --> 0:17:25.440 want to talk Leland about the Shanghai calculus about the 0:17:25.560 --> 0:17:28.679 rate of change, the second derivative, the rate of change 0:17:28.680 --> 0:17:31.800 of the rate of change that the government in Beijing 0:17:31.960 --> 0:17:37.359 needs from Shanghai. How desperate is Beijing for Shanghai to 0:17:37.440 --> 0:17:41.399 get it going? Well, they're they're very desperate, first of 0:17:41.400 --> 0:17:43.840 all because Shanghai is a growth engine, but second because 0:17:43.840 --> 0:17:46.720 it's a confidence engine for the economy. And what's what's 0:17:46.760 --> 0:17:49.200 so curious about you know, the p m I data 0:17:49.240 --> 0:17:51.840 that came out last night, a few days after an 0:17:51.840 --> 0:17:56.520 extraordinarily panicky meeting. You know something we haven't seen in decades. Uh, 0:17:56.720 --> 0:17:58.560 all of a sudden that the data come out last 0:17:58.680 --> 0:18:02.160 night and they're they're they're they're improving from May. Uh. 0:18:02.200 --> 0:18:04.560 You know April was bad, beys getting better. That's the 0:18:04.600 --> 0:18:06.480 opposite of what we saw in China Beige book data. 0:18:06.520 --> 0:18:09.119 We actually saw much more problems in May as the 0:18:09.320 --> 0:18:13.240 as the secondary consequences of the lockdown spread away from Shanghai. 0:18:13.640 --> 0:18:15.760 So you know, they want to tell a pretty story 0:18:15.840 --> 0:18:18.159 right now. It's important for markets. But you know, we 0:18:18.240 --> 0:18:20.000 did not see an improvement from April to May. We 0:18:20.000 --> 0:18:21.919 saw the opposite. So Leland give us a sense of 0:18:21.920 --> 0:18:24.239 what the China Beige Book is charting out the end 0:18:24.240 --> 0:18:26.920 of the year in terms of GDP, the real GDP 0:18:27.160 --> 0:18:30.000 of China, not necessarily the four and a half five 0:18:30.080 --> 0:18:33.680 percent that the Communist Party would like to say. Well, look, 0:18:33.800 --> 0:18:36.520 if you assume the second quarter is in contraction no 0:18:36.520 --> 0:18:38.280 matter what they do or give, give or give or 0:18:38.320 --> 0:18:40.600 take a little bit um, then you know, the question 0:18:40.720 --> 0:18:42.480 is what are they going to do the second half 0:18:42.520 --> 0:18:47.280 of the year without rolling back COVID lockdowns or COVID 0:18:47.400 --> 0:18:50.240 zero lockdowns if if they need them, you know, to 0:18:50.359 --> 0:18:53.159 to to get the g DP somewhere in a range 0:18:53.240 --> 0:18:55.280 that that they can claim. I think that the new 0:18:55.320 --> 0:18:57.560 calculus is we're gonna get to the fourth quarter, We're 0:18:57.560 --> 0:18:59.520 gonna hope there's no COVID, and we're gonna announce you know, 0:18:59.560 --> 0:19:02.320 five or s GDP for the fourth quarter and try 0:19:02.359 --> 0:19:04.880 to get it somewhere between you know, three and four 0:19:04.960 --> 0:19:07.800 percent claiming claiming three and four percent for the year. 0:19:08.240 --> 0:19:10.640 Then then I think markets will say Okay, that's that's 0:19:10.680 --> 0:19:12.640 not too bad. You know, we are not on track 0:19:12.720 --> 0:19:15.119 for anywhere near that. You have to have a lot 0:19:15.200 --> 0:19:18.080 of more support for the economy and a lot less 0:19:18.320 --> 0:19:20.200 COVID lockdowns of the economy in order for us to 0:19:20.200 --> 0:19:22.760 get anywhere near that ballpark amount. But I think that's 0:19:22.760 --> 0:19:24.280 the story they want to tell. What are we on 0:19:24.320 --> 0:19:26.280 the bulk park for? What are we on track four 0:19:26.320 --> 0:19:29.040 based in the China beage book data? Well, I mean, 0:19:29.280 --> 0:19:31.720 you know, with with the second quarters week as it is, 0:19:31.800 --> 0:19:33.840 and and you know, if you try to do any 0:19:33.840 --> 0:19:37.159 type of linear projection, you're you're under two. Um, you know, 0:19:37.200 --> 0:19:40.000 you're you're you have to see a lot more support 0:19:40.040 --> 0:19:42.399 for the economy, which I do think we'll do. You know, 0:19:42.480 --> 0:19:44.639 as we get close to the Party Congress, we do 0:19:44.760 --> 0:19:47.600 expect there to be more credit support. We do expect 0:19:47.640 --> 0:19:50.240 there to be a little more infrastructure. That's not surprising. 0:19:50.280 --> 0:19:51.760 But you know you're gonna have to see a lot 0:19:51.800 --> 0:19:54.480 more of that, and it can't be interrupted by lockdowns 0:19:54.560 --> 0:19:59.760 across the economy. Leland Miller Deng years ago to get 0:20:00.000 --> 0:20:03.880 which is glorious. How far are we removed from that 0:20:04.240 --> 0:20:08.160 in this Chinese crisis? I don't think we're that far 0:20:08.200 --> 0:20:11.520 away from it. If anything, some of what we've been 0:20:11.520 --> 0:20:13.560 taught over the past, you know, six months, is that 0:20:13.960 --> 0:20:16.160 is that the Chinese model is not actually any more 0:20:16.160 --> 0:20:18.560 superior than any other model. They just had COVID at 0:20:18.560 --> 0:20:20.400 a different time, and now they're getting hit pretty hard 0:20:20.440 --> 0:20:23.360 with it. So everything has to get through the party Congress. 0:20:23.400 --> 0:20:26.160 She has to have his political moment, and then then 0:20:26.240 --> 0:20:29.000 they can start recalibrating the economy and the stock market 0:20:29.040 --> 0:20:32.200 and the and the regulatory system. Do we underestimate the 0:20:32.280 --> 0:20:35.600 unchanged China that Deng said to get rich is glorious 0:20:35.640 --> 0:20:37.679 and that's what they want to do. And do we 0:20:37.800 --> 0:20:43.800 overestimate right now the totalitarian shift? I think we did 0:20:43.880 --> 0:20:45.920 until a few weeks ago. But I think, what what's 0:20:45.920 --> 0:20:50.520 seeing all this uh, you know, headline conflict between Shi 0:20:50.600 --> 0:20:53.760 Jinping and the ostensible number two Lee Kutch Young? You know, 0:20:53.880 --> 0:20:56.639 I think people are understanding how much opposition there is 0:20:56.680 --> 0:21:00.639 within China in the leadership, amongst people who are lockdown 0:21:01.000 --> 0:21:05.280 to this COVID zero lockdown policy and to this slowing economy. 0:21:05.320 --> 0:21:09.080 And so we are now seeing, we are seeing the 0:21:09.600 --> 0:21:12.080 dirty side of of of China's governance. Right now, and 0:21:12.119 --> 0:21:14.439 I think people are more aware of it Leland, A 0:21:14.480 --> 0:21:17.119 lot of people have been looking out and wondering what 0:21:17.200 --> 0:21:20.359 we're going to see with respect to US businesses, multinational 0:21:20.400 --> 0:21:24.080 businesses and supply chains. Why we haven't seen more of 0:21:24.160 --> 0:21:28.399 some sort of removal from certain facilities in China elsewhere? 0:21:28.440 --> 0:21:31.800 Are we now starting to see that after years of speculation? 0:21:32.880 --> 0:21:35.199 I think so? And for one reason. You know, the 0:21:35.200 --> 0:21:37.679 trade war didn't do it, COVID didn't do it, but 0:21:37.760 --> 0:21:40.040 the lockdowns or something else, and I think you're gonna 0:21:40.040 --> 0:21:44.000 have a very hard time not just getting Western businesses 0:21:44.280 --> 0:21:48.359 run across China, but getting ex pats or anyone to 0:21:48.480 --> 0:21:50.840 work at these businesses. Nobody wants to be in China 0:21:50.920 --> 0:21:52.919 right now. No one wants to be locked down and 0:21:52.920 --> 0:21:56.080 they can't see their families who maybe elsewhere, for for 0:21:56.080 --> 0:21:58.240 for a year, for for six months, for for longer 0:21:58.280 --> 0:22:00.800