Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
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Speaker 1: search Bloomberg Clovel News. Well, don't forget. We get another
Speaker 1: FED decision on Wednesday, and with investors nervous about the
Speaker 1: feds eventual tapering ahead of that policy meeting, we're gonna
Speaker 1: tell you about the taper that will really bite into
Speaker 1: us growth. This is a must read today, I think Ed.
Speaker 1: Let's get to Bloomberg News Economics reporter Rich Miller. He
Speaker 1: writes about this. Rich joins us on the phone from Washington. Hey, Rich,
Speaker 1: good to have you here with Ed and myself. So
Speaker 1: we are all focusing on what we're going to get
Speaker 1: from the Fed. On Wednesday. We're wondering if they're going
Speaker 1: to be more specific about when they will pull back
Speaker 1: on some of their asset purchases they're so called tapering,
Speaker 1: whether or not we'll see that. You say, there's something
Speaker 1: else we have to be watching when it comes to tapering.
Speaker 1: What is that? Basically the disappearance of all this support
Speaker 1: we've been getting from UM Washington in the form of
Speaker 1: you know, stimulus, checks, grants, the small business money for
Speaker 1: satan local governments, the whole panopally of of things. That's
Speaker 1: all basically going away, um you know, started going away
Speaker 1: from the second quarter, and that that arguably is going
Speaker 1: to have a bigger bite, take a bigger bite out
Speaker 1: of growth over the next year, especially towards the end
Speaker 1: of next year. Then then then the taper by the Fed.
Speaker 1: Remember the taper by the Fed is they're gonna they're
Speaker 1: gonna be cutting back on the amount of simulus they're
Speaker 1: injecting into the economy, but they're still going to be
Speaker 1: injecting stimulus. What are you gonna see on the fiscal
Speaker 1: policy side is that they're actually going to be similar simulus.
Speaker 1: It's going to disappear year rich. What's difficult to kind
Speaker 1: of make sense of is these measures were supposed to
Speaker 1: be temporary anyway, right, you know, in terms of payment,
Speaker 1: support for employers, in terms of benefit and subsidy for
Speaker 1: those hardest hit by the pandemic. Why did economists and
Speaker 1: indeed the US government not see this coming sooner? Well,
Speaker 1: I guess, I mean the government has seen it coming sooner.
Speaker 1: But um, um, the sheer magnitude of it is what
Speaker 1: what's uh? What's you know, in a normal recession, you
Speaker 1: might have you know, some of this and then disappear.
Speaker 1: But this is the sheer magnitude. This is going to
Speaker 1: be the biggest swing in the deficit. I the biggest
Speaker 1: of fall and the budget deficit from one year or
Speaker 1: next since basically after the you know, the war, so
Speaker 1: um on its own, you know, it's going to be
Speaker 1: a huge contraction. Now, I think the point you're making
Speaker 1: is you know that there's gonna be offsetting factors. Right.
Speaker 1: People have built up savings during during the pandemic because
Speaker 1: they couldn't go on expensive vacations, etcetera. Um. State and
Speaker 1: local government's got a lot of money from the federal government.
Speaker 1: Um uh, they haven't spent all of it. Uh, companies
Speaker 1: that need to build their inventories. But even with all that,
Speaker 1: you know, some economistsy you know this really having this
Speaker 1: fiscal what they call fiscal dreg really have an impact
Speaker 1: on growth. And one economists I quote in the story,
Speaker 1: Wendy Edelberg at Brookings say we might even see a
Speaker 1: quarter or two towards the end of next year into
Speaker 1: where we don't grow at all. Wow. I mean that
Speaker 1: would certainly shock the markets. What's interesting, too, Rich in
Speaker 1: a story like this is always perspective. So all of
Speaker 1: this fiscal stimulus or stimulus that came from the government,
Speaker 1: I mean, it was a lot more than what we
Speaker 1: got from the Fed. Correct. Yeah, I think even the Fed,
Speaker 1: you know when you hear uh Fed chair your own power,
Speaker 1: you know talk. He gives Gray credit to Congress for
Speaker 1: acting quickly, especially with the Cares Act, the first Act.
Speaker 1: But yeah, but he he know, he acknowledges that you know,
Speaker 1: you know, the FED lowered interest rates, but you know
Speaker 1: it didn't hand out money to people, right um um,
Speaker 1: and the and the FED did you know, buy bonds.
Speaker 1: But you know, he even he acknowledges that the fiscal
Speaker 1: the fiscal thrust, the fiscal emergency stimulus was what really
Speaker 1: really helped during the pandemic. Richie flick at this in
Speaker 1: the story. But it's gonna be painful for some people
Speaker 1: and potentially politically tricky for Biden, right, yeah, I mean, well,
Speaker 1: I mean, if these economists are right, you know, this
Speaker 1: slowdown is going to be happening just as the we're
Speaker 1: heading into November mid term elections, you know, and unless
Speaker 1: he gets unless he gets his big plan through, right,
Speaker 1: I mean that's the other the other factor in all
Speaker 1: of this. I mean that is a factor. But but
Speaker 1: what you know, what's what's kind of lost in and
Speaker 1: talk about the big Plan and there's a lot of
Speaker 1: big numbers thrown about, but you know that's spread out
Speaker 1: over ten years, uh soo exactly, so you know it
Speaker 1: is going to help, like you know, over over a
Speaker 1: longer period of time, but it's not really going to
Speaker 1: help next year. And and some some some folks on
Speaker 1: Wall Street are saying, yeah, well, we might get the
Speaker 1: tax increases before we see the benefits of the infrastructure spending,
Speaker 1: and that would hurt the stock market too. It does
Speaker 1: sound like just quick, quick, rich just got about thirty
Speaker 1: seconds here. We'll also get a truer picture of the
Speaker 1: economy right as we start to back off of all
Speaker 1: these stimulus efforts. Yeah, definitely, definitely. You know, uh, once
Speaker 1: we come off the emergency support, we're gonna have to
Speaker 1: see how much underlying strength is there. And you know, hope, hope, hope,
Speaker 1: hope it's there and we can sort of stand on
Speaker 1: our own two feet, so to speak. Right, would you
Speaker 1: wonder if, certainly ahead of the FOMC meeting, is you know,
Speaker 1: the real economy is what J. Powell and company are
Speaker 1: looking to see? Rich Miller, it's must read. Thank you
Speaker 1: so much, Rich Mill, our economics reporter at Bloomberg News
Speaker 1: on the phone from d C on his story the
Speaker 1: taper that we're really bite into us growth isn't the
Speaker 1: fits I mean, And this is a really timely story.
Speaker 1: And something we need to be thinking about is those
Speaker 1: policy meeker makers get ready to uh to meet and
Speaker 1: maybe update policy. Yeah. And for the real economy, for
Speaker 1: the people that have lived on the subsidy, lived on
Speaker 1: the benefit, lived on the ppe checks. You wake up
Speaker 1: one day and it's gone, and you wonder how that
Speaker 1: really impacts spending going forward? All Right, something we're going
Speaker 1: to continue to track. You are listening to Bloomberg Business
Speaker 1: Week and this is Bloomberg Radio. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Bloomberg Quick Takes Tim Stenovic
Speaker 1: on Bloomberg Radio. One other story that we want to
Speaker 1: get to, and as we mentioned, it will be in
Speaker 1: the upcoming sooner than you think, Bloomberg Business Week issue
Speaker 1: Joel is with us and also joining us from Switzerland
Speaker 1: is Bloomberg Business Week writer James Tarmy. And we're talking
Speaker 1: about Joel Um tall buildings. Actually they're super tall building,
Speaker 1: the super tall one, and here in New York City,
Speaker 1: there's been a couple that have gone up. And what
Speaker 1: what James story is really interesting about is like, really,
Speaker 1: when these buildings started to go this big, nobody had
Speaker 1: done that really before, right, and so they were kind
Speaker 1: of having to learn almost on the fly, and and
Speaker 1: and that has led to some some lessons and we'll
Speaker 1: talk about those lessons. And then the other big takeaway
Speaker 1: that I thought was just amazing is that we were
Speaker 1: going to start seeing buildings go even higher, which is
Speaker 1: really crazy to me because I just get, you know,
Speaker 1: my stomach kind of does a little, you know, dance.
Speaker 1: So James what have been some of the problems that
Speaker 1: have happened with these super tall buildings. Well, I think
Speaker 1: one of the biggest problems is that people don't know
Speaker 1: really what they don't know, and so every time that
Speaker 1: they pushed the limits, they find out something new, which
Speaker 1: is fascinating if you look at it from an engineering
Speaker 1: standpoint less exciting if you have spent a tremendous amount
Speaker 1: of money to live in one of these buildings and
Speaker 1: then discover that, well, actually you're living in a two
Speaker 1: point o building and three point or four point o
Speaker 1: buildings are going to be the ones that fixed it. Um.
Speaker 1: So you know, we can go all the way back
Speaker 1: to something like the Sears Tower, which was incredibly high
Speaker 1: and which was just a feat of engineering, and which
Speaker 1: was built with really not much wind tunnel modeling, and
Speaker 1: so they only discovered when it was constructed that there
Speaker 1: were basically wind board di sees that were rattling the
Speaker 1: building and causing things to break, and um, it only
Speaker 1: kind of got worse from there as people discovered the
Speaker 1: whole extent of what wind does to a building and
Speaker 1: extremely high height. So I recently went on vacation to
Speaker 1: Chicago and I took the official Chicago Architecture Tour. And
Speaker 1: of course one of the features is the Willis Tower
Speaker 1: and it can sway three feet you know, on any
Speaker 1: day with the wind coming off late Michigan. And anyway,
Speaker 1: now that I'm done bragging about my vacation, James, my story,
Speaker 1: my question rather is, you know, how important is it
Speaker 1: to have the bragging rights of the tallest super tower
Speaker 1: in a city. How linked is the skyline to the
Speaker 1: status of a city like New York, like Chicago. Well,
Speaker 1: I think it's actually two different questions. Really. One is
Speaker 1: from the developers standpoint right, if they are able to
Speaker 1: say that the buyer of the building's apartments has views
Speaker 1: that are unlike any other they can command at least
Speaker 1: in theory of premium um. And then there's another component
Speaker 1: of it where you hit on it exactly that it
Speaker 1: is not simply about economics when it comes to buildings
Speaker 1: that are not simply residential um. There is a tremendous
Speaker 1: component of bragging rights to it. And it's it's been
Speaker 1: that way since the Empire State Building became this symbol
Speaker 1: for American prosperity. Now you see it as kind of
Speaker 1: American dominance of a lot of different things sort of
Speaker 1: wayne Um. In the nineties, you see Asia becoming the
Speaker 1: place where super tall towers are built. And a few
Speaker 1: people with whom I spoke actually made the excellent point,
Speaker 1: whoever heard in America of the Patronis company until the
Speaker 1: Patronis towers were built? And you can you can you
Speaker 1: can go from there, it became there's there's It's not
Speaker 1: necessarily a price efficient way of building when you're building
Speaker 1: all the way to the tallest building in the world,
Speaker 1: but you can in a certain respect consider it a
Speaker 1: marketing expense. Okay, so let's get out a little bit
Speaker 1: about the the engineering that it takes to go super tall,
Speaker 1: because some of because they've been able to do the
Speaker 1: ones that have been super tall, we now know what
Speaker 1: it takes to go even taller. Let's start with with concrete,
Speaker 1: which you can now get three thousand feet into the air. Yeah.
Speaker 1: So there are a couple of issues with concrete which
Speaker 1: people have consistently been solving as they go higher and higher.
Speaker 1: The big one is that it needs to be a
Speaker 1: lot stronger for it to go that much higher. And
Speaker 1: the good news is that when it gets stronger, it
Speaker 1: also gets stiffer, which keeps a building from swaying. So
Speaker 1: the advances are pretty staggering. You're looking at in the
Speaker 1: nine eight um in p s I is a is
Speaker 1: a measurement of of pressure that the concrete can withstand.
Speaker 1: You're looking at six thousand p s I for like
Speaker 1: the top of the line buildings. Now you're looking at
Speaker 1: three four times that amount um easily um And so
Speaker 1: you you're that is one component of concrete that it's
Speaker 1: critical to the super tall, super skinny towers. That's the
Speaker 1: other thing. You can build as tall as you want
Speaker 1: if you're building it, you know, incredibly wide. Um. If
Speaker 1: you're trying to build a super skinny tower, that's where
Speaker 1: the strength of concrete comes in. Then the other component
Speaker 1: of it is that you have to be able to
Speaker 1: pump it and it has to stay liquid because people
Speaker 1: have discovered that it's sort of firmed up as you're
Speaker 1: pumping it. Because hey, Joe, we got a problem. The
Speaker 1: concrete is hard on we've only made it to the
Speaker 1: you know. Um. It's a great read, and as Joe mentioned,
Speaker 1: it's a fun story to nerd out on it about
Speaker 1: the technology and what they have to do to make
Speaker 1: this happen. Check it out in the upcoming issue of
Speaker 1: Business Week magazine. James Tarmy of Business Week, along with
Speaker 1: the editor of the magazine, Jill Webber, you're listening to Bloomberg.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio Top of
Speaker 1: Investors Minds. You know what we've talked about it, How
Speaker 1: far will present g Jin Pingo with his crackdown on
Speaker 1: China's real estate sector and more broadly in the economy,
Speaker 1: Well to dissect it back with us as Bloomberg New
Speaker 1: Economy editorial director Andy Brown, who continues to explore and
Speaker 1: write about the growing Beijing crackdowns, writing this weekend about
Speaker 1: how it now includes the casino industry in Macau. Andy,
Speaker 1: by the way, former China editor at the Wall Street Journal,
Speaker 1: and he's here in our interactive broker studio. So and
Speaker 1: you do write this weekend about what's going on in
Speaker 1: Macau once again at President ge kind of it feels
Speaker 1: like going after some of the evils of the Chinese society,
Speaker 1: or so it feels exactly, Carol, I mean, she jumpaying
Speaker 1: President she jumping sees himself as a historical figure on
Speaker 1: a power with Mao, and he is now in the
Speaker 1: process of trying to re engineer Chinese society, to fundamentally
Speaker 1: change the way that China's society works, to make it
Speaker 1: less unequal. This is his slogan, common prosperity, and beyond that,
Speaker 1: to correct a lot of what he would see as
Speaker 1: being unhealthy tendencies in Chinese society, in other words, social vices,
Speaker 1: and gambling very much fits into that category. There was
Speaker 1: a fantastic line in your story that gambling revenues from
Speaker 1: Macau as six times what they are from the Las
Speaker 1: Vegas strip, which gives you a sense, right how a
Speaker 1: crucial that section of the economy is. But b how
Speaker 1: far he's going, I mean, is this just a question
Speaker 1: of profits take a backseat to ideology when it comes
Speaker 1: to President Gees's mindset. That's that's that's definitely part of it.
Speaker 1: You know, the Communists have never liked gambling, all right. Uh,
Speaker 1: they banned it, They banned the horse racing as soon
Speaker 1: as they took over. Um. They saw this as a
Speaker 1: remnant of the old society, and they inherited gambling in
Speaker 1: Macau from the Portuguese When they took over Portugal Macau,
Speaker 1: which is the Portuguese colony, and they've sort of tolerated it,
Speaker 1: although their tolerance is wearing very thin. And in fact,
Speaker 1: when she J Pink took over in late two thousand
Speaker 1: and twelve, one of the first things he did was
Speaker 1: launched this anti corruption campaign, and casinos in Macau were
Speaker 1: were early targets. Well, you know, I do wonder, Andy,
Speaker 1: if the inequality it is that we if we they
Speaker 1: weren't existing in the Chinese society, will we be going
Speaker 1: through this right now with President G. Well, he's a
Speaker 1: he's a populist figure and uh he considers himself to
Speaker 1: be a mau like figure, and social equity is a
Speaker 1: very important part of his campaign. But if there weren't
Speaker 1: the inequities in Chinese society, would we be going through
Speaker 1: this with President G right now? Well, it's not just
Speaker 1: the inequities. I mean, he's he's addressing in a very
Speaker 1: decisive way a lot of problems that exist all over
Speaker 1: the world in different societies. As an example, he's going
Speaker 1: after the video gaming industry because he's perceived that Chinese
Speaker 1: kids spend too much time addicted to online video games.
Speaker 1: Um he's doing out so different from what we're seeing
Speaker 1: in some of the developed world, even if you think
Speaker 1: about big tech, right, what we're seeing in Europe, what
Speaker 1: we're seeing in the United States, right, exactly, except he's
Speaker 1: going after it in a far more peremptory, dracone in way,
Speaker 1: with very little, with very very little public consultation and
Speaker 1: certainly no media debate. This is top down re engineering,
Speaker 1: definitely not democracy from the bottom up. Joined the dots
Speaker 1: for us here, what is the link between what's going
Speaker 1: on with China's gambling crackdown an ever grand in the
Speaker 1: property market. So um, here's here's here's the link I think,
Speaker 1: which is this that in in re engineering Chinese society,
Speaker 1: he's got to also re engineer the economy. And the
Speaker 1: reason for that is that the big drivers of economic
Speaker 1: growth in China, most particularly the housing market, tend towards
Speaker 1: unequal outcomes. So if you were lucky enough to have
Speaker 1: bought property in one of the big Chinese cities twenty
Speaker 1: years ago, or actually anytime over the last twenty years,
Speaker 1: you would have doubled, traveled, quadruple, quintuple, uh your money.
Speaker 1: I know this for a fact. I bought a place
Speaker 1: in Beijing in two thousand and four and sold it
Speaker 1: two years ago and did very very well. Um, However,
Speaker 1: if you are now a young family in one of
Speaker 1: those large Chinese cities, um, you're probably uh not able
Speaker 1: to afford a place to live. Uh. And if you are,
Speaker 1: you don't want to have kids because you can't afford it.
Speaker 1: Then that's another big motivating factor for Gjim Ping. There's
Speaker 1: a demographic issue here as well. Well, it's so interesting
Speaker 1: in China, right, how it went from you know, one
Speaker 1: child policy to now encouraging right families to have more kids. Right,
Speaker 1: But who wants to have three kids? And you can't
Speaker 1: afford it, if you can't afford it, you can't afford
Speaker 1: the education, because like we're talking about San Francisco or
Speaker 1: New York or pick your city here in the United
Speaker 1: States to some extent, or indeed any big city now
Speaker 1: anywhere in the world. Well that's another part of it.
Speaker 1: And and and well, talk a bit more about China, but
Speaker 1: I do there's another story on the Bloomberg they just
Speaker 1: talked about how housing now is really a global problem
Speaker 1: where there are so many around the world who cannot
Speaker 1: afford to live in many cities in their country, and
Speaker 1: then you're seeing as a result, either hopefully policies change
Speaker 1: or upheavals or uprisings. Indeed, governments are falling as a result.
Speaker 1: We saw the Swedish government collapse earlier this year, and
Speaker 1: one of the reasons was that it tried to get
Speaker 1: rid of a cap on on rents. The Canadian election
Speaker 1: coming up later this year is being fought in part
Speaker 1: on the issue of housing. Justin Trudeau his promise that
Speaker 1: if he comes back into office, he'll play some moratorium
Speaker 1: of two years on foreign purchases of Canadian property, foreign
Speaker 1: purchases being a big driver of property brice increases in Canada.
Speaker 1: Um Andy, in terms of the news flow from China,
Speaker 1: is this just going to kind of continue where we're
Speaker 1: going to see more oversight as you said, as he's
Speaker 1: you know, remaking the economy, We're going to continue to
Speaker 1: see this spread even into other sectors. Are are we
Speaker 1: getting to the end of it? We're at the beginning
Speaker 1: of it, I said earlier, But jimping. The president is
Speaker 1: trying to re engineer Chinese society, and to do so,
Speaker 1: he's going to have to re engineer the economy. And
Speaker 1: is everybody on board with this in China. Uh, put
Speaker 1: it this way, Um, you're not going to find anybody
Speaker 1: who's standing up. It's going to say against Hi Jimping's
Speaker 1: plan to promote common prosperity. No, everybody in government regulatory
Speaker 1: authorities is on board. And the sin, of course is
Speaker 1: to under is to under interpret his instructions, not to
Speaker 1: overinterpret them. Hence you're seeing this really fierce, vicious regulate
Speaker 1: reaction against multiple industries. They've worked their way through digital
Speaker 1: platforms to fintech, a tech and now gambling. You paint
Speaker 1: this beautiful image in your newsletter of private company CEOs
Speaker 1: and the blackjack baccarat halls, the v I P rooms,
Speaker 1: rubbing shoulders with officials. That's where business gets done. So
Speaker 1: you know what is the conversation between the private sector
Speaker 1: and Jijing Peng. Is it open or is it simply
Speaker 1: one way traffic? Well, the conversation is hardly a dialogue
Speaker 1: of equals. This is these are solutions that are being
Speaker 1: imposed on whole swaths of the privately run economy. Um,
Speaker 1: and essentially you're there to learn your fate. And thinking
Speaker 1: about the gambling industry, you know what might happen to
Speaker 1: the casinos in Macau. Well, you know, if they're lucky,
Speaker 1: maybe they meet the same fate as the video gaming operators.
Speaker 1: Those guys are now being throttled by regulation, including only
Speaker 1: allowing kids to play online games for three hours a week.
Speaker 1: If they're unlucky, they end up like the home tutoring companies,
Speaker 1: which are closed down all together. There is no public
Speaker 1: consultation process in China overall, the public commentary right exactly. Well,
Speaker 1: what's interesting too is and I wonder, Andy, because as
Speaker 1: you say, if we look at a lot of the
Speaker 1: developed world, Europe is looking at the growth and dominance
Speaker 1: and control of big technology. We are too in the
Speaker 1: United States. Um, and we're looking at the inequalities in
Speaker 1: our society. So we're looking at the same thing. Obviously,
Speaker 1: China does it differently. But I do wonder if ultimately,
Speaker 1: I mean, China is so important in terms of the
Speaker 1: global economy, does it ultimately longer term create again and
Speaker 1: even more dynamic Chinese economy. Um, well, that would certainly
Speaker 1: be goal here right to get there. If indeed they
Speaker 1: can get there, there is going to be a huge
Speaker 1: amount of turbulence. Look at what's happening now in the
Speaker 1: real estate sector, where Chinese authorities seem ready now to
Speaker 1: countenance the collapse of their second largest real estate company
Speaker 1: ever Grand, all in the name of trying to make
Speaker 1: housing more affordable for the masses, not a speculative asset
Speaker 1: for the rich. Well, if that's if, if if he's
Speaker 1: serious about that, um he's going after a sector of
Speaker 1: the economy that counts for between and a third of
Speaker 1: g d P. It's a lot a sector in which
Speaker 1: Chinese people have invested of their assets. Nine homeownership ratio
Speaker 1: in China one of the highest ratios in the world.
Speaker 1: If you've had money, if you make money in China, uh,
Speaker 1: you don't put it in the stock market, which is
Speaker 1: pretty much a a casino in itself. You put it
Speaker 1: in you put it in real estate. And I think
Speaker 1: what people are underestimating here is the potential impact on
Speaker 1: consumer behavior if ever Grand, this real estate giant goes down,
Speaker 1: and if people perceive that the government really is ready
Speaker 1: to let real estate prices sink, what that does to
Speaker 1: consumer behavior and the wealth impact? The wealth impact, And
Speaker 1: don't forget that consumption in China is a very low
Speaker 1: percentage of GDP. Low in China even compared to Chinese
Speaker 1: economic peers, do you squeeze one real quick yeah, very quickly.
Speaker 1: And in two words, if they're going to clamp down
Speaker 1: on such an engine for growth, where does the growth
Speaker 1: come from in China in the future? Just got about seconds, Andy, Okay,
Speaker 1: So I think the answer is very simple. They have
Speaker 1: to um calculate that there's going to be a much
Speaker 1: lower Chinese growth rate, and it's going to be a
Speaker 1: realistic growth because so much of the growth now China
Speaker 1: is on steroids, and and that growth has been fake growth,
Speaker 1: and a lot of it is being is pumped up
Speaker 1: real estate prices. And we're seeing the result of that
Speaker 1: now in the evergrand de bole. So a real new
Speaker 1: growth equation going forward for China. Thank you so much.
Speaker 1: Thank you for sticking around really giving us a deep
Speaker 1: dive into what's going on in China, which is, as
Speaker 1: we know, so much impacting the market today. Andy Brown,
Speaker 1: thank you so much. He's a Bloomberg New Economy editorial director,
Speaker 1: as we mentioned, check out his newsletter that comes out
Speaker 1: at Bloomberg dot com slash New Economy. You're listening to
Speaker 1: Bloomberg Radio. I'm roc a journal now, but you let
Speaker 1: me drive. Oh no, no, no, honey, please, I'll do
Speaker 1: the right vel me. I want to drive the question
Speaker 1: to the globe. Thanks well, Bloomberg Radio, because indeed everyone
Speaker 1: we are driving to the clothes. Just got about nine
Speaker 1: minutes left in today's trading session, bouncing off for lows
Speaker 1: as you just heard from Charlie Pellet, but nonetheless still
Speaker 1: down almost two percent on the SMP and down NASDAC,
Speaker 1: still a decline of about two and a half percent.
Speaker 1: Let's get to it with Michael Sheldon, executive director and
Speaker 1: chief investment Officer at High Tower r DM Financial Group,
Speaker 1: joining us once again on the phone from Westport, Connecticut,
Speaker 1: here with Ed Ludlow and myself, Michael, good to have
Speaker 1: you here. September historically high. We know it's not a
Speaker 1: great month for stocks. Um, how do you see the
Speaker 1: trade today? Is it China? Is it worried about what
Speaker 1: the Fed might do next? Is it worry worries about
Speaker 1: you know, earnings growth, economic slowdown, is it worry about
Speaker 1: higher taxes? Or is it kind of all of it? Well,
Speaker 1: today was certainly a challenging day from the mark gets,
Speaker 1: but I think you also need to keep things in context, um.
Speaker 1: Heading into September, For example, we're the S and P
Speaker 1: five hundred had advanced seven months in a row, and
Speaker 1: we had also gone almost a year without five percent
Speaker 1: pullback in the S and P five hundred, which historically
Speaker 1: is one of the longer periods in history. So then
Speaker 1: you also have a number of these concerns which you
Speaker 1: just pointed to, which sort of indicates the market has
Speaker 1: been climbing a wall of worry. You have COVID years
Speaker 1: about inflation and taxes and tapering, and add that over
Speaker 1: the past day or two to the events in China
Speaker 1: and also the dead ceiling. So there's any number of
Speaker 1: the factors that really contributed and weight on the markets,
Speaker 1: and sometimes you it's hard to pinpoint the exact reason
Speaker 1: the markets start to decline, but I think we've started
Speaker 1: to see a pullback. September October also, as you pointed out,
Speaker 1: historically as one of the weaker times of the month,
Speaker 1: so I wouldn't be surprised to see a little additional weakness.
Speaker 1: Um to us, it seems that, I mean, we're constructive
Speaker 1: in terms of our intermediate term outlook, but obviously there
Speaker 1: are some issues supplied demand and balances in the economy.
Speaker 1: For example, for things like semiconductors and autos and the
Speaker 1: demand for labor. There's there's a need for more than
Speaker 1: ten million jobs right now to be filled by companies.
Speaker 1: That's going to take a while to get to get
Speaker 1: worked out, and so so we're keeping an eye on things.
Speaker 1: So we could be a little choppy for a while,
Speaker 1: but ultimately we see growth picking up again somewhat as
Speaker 1: we get into the next several months. Well, two words
Speaker 1: we haven't really talked about today, Carol is delta variant.
Speaker 1: You know, we've had so much discussion about China and
Speaker 1: inflation the FED, but you see Michael pretty positive I
Speaker 1: guess on economic growth, but with delta variants still being
Speaker 1: a big question mark, Well, I think it's important to
Speaker 1: sort of think about things. If you look at past cycles.
Speaker 1: For example, economic cycles typically last a number of years
Speaker 1: as opposed to a number of months. So you know,
Speaker 1: it is true that this year will likely represent peak
Speaker 1: year of a year growth in terms of GDP and
Speaker 1: corporate profits, but it's probably not the peak in terms
Speaker 1: of the overall economy. And also if you look back
Speaker 1: at past cycles, in the second year of bull markets,
Speaker 1: for example, historically returns have been positive, but they've been
Speaker 1: more muted, more moderate, and I think as a part
Speaker 1: of the rewards of of investing in equities over time. Uh.
Speaker 1: You know, we look back in since night, for example,
Speaker 1: there's been an intra year draw down in the in
Speaker 1: the market the SMP five hundred of about four percent,
Speaker 1: but equity markets is still finished positive about seventy of
Speaker 1: the time. But you still think we should be standing
Speaker 1: by for a poolback or indeed a correction. Yeah. I mean,
Speaker 1: we've been thinking about this and talking about this internally
Speaker 1: for quite a while. As each pointed out earlier, there
Speaker 1: are any number of concerns right now, from tapering, to
Speaker 1: taxes to COVID, and all of this is starting to
Speaker 1: sort of weigh on investors. But ultimately we think COVID
Speaker 1: is probably one of the biggest concerns. And it looks
Speaker 1: to us like COVID is probably peaking in terms of
Speaker 1: the year of year rate, the second derivative in the
Speaker 1: United States, and and if that's true, that will help
Speaker 1: to increase confidence with WHI has also started to come
Speaker 1: down recently. Uh, and that should provide a boost to
Speaker 1: the economy as we get into next year and lead
Speaker 1: to two more optimistic outlook. What's been fascinating to Michael
Speaker 1: to watch and I've been watching this so closely today
Speaker 1: as we've gotten on air since about two pm Wall
Speaker 1: Street time, that as we continue to see stocks take
Speaker 1: another leg down all of a sudden, you see what
Speaker 1: kind of a kick off that low and then maybe
Speaker 1: it goes a little bit lower, but then again buyers
Speaker 1: come in. This is something we have seen continuously in
Speaker 1: one is investors coming in to buy the bottom, especially
Speaker 1: as we've seen those major equity averages hit that fifty
Speaker 1: day moving average to the downside. Well, that's exactly right. Um.
Speaker 1: I think there have been nine times over the past
Speaker 1: year when the SMP has been flirting with the fifty
Speaker 1: day moving average, and each time it's tested that level,
Speaker 1: buyers have come in. So we'll see what happens. Uh,
Speaker 1: obviously we're closing on we're off bouncing off the bottom here,
Speaker 1: So we'll see how things closed today and as of
Speaker 1: right now, is that a key thing in terms of
Speaker 1: how we close today? That tells you really what's going
Speaker 1: on investors? Heads? Yeah, I think so. I mean if
Speaker 1: if the markets closed close to the fifty day moving
Speaker 1: average and off the bottom, then I think that also
Speaker 1: reinforces the psychology and that investors may start to come in,
Speaker 1: But we still do have a number of sort of
Speaker 1: headwinds or cross currents that could lead to choppy trading
Speaker 1: over the near term. Where's the opportunity, Well, I think
Speaker 1: from the market, the important thing is that we don't
Speaker 1: think this is the end this volatility. We're starting to
Speaker 1: see the end of the economic expansion, and over the
Speaker 1: past several months we've seen a more rotational market where
Speaker 1: growth one week, we've had growth leading one week we've
Speaker 1: had value. So I think going forward, if you think
Speaker 1: of it in the context that we're probably going to
Speaker 1: be in the mid cycle for for quite some time,
Speaker 1: we've probably gone from early cycle to mid cycle, I
Speaker 1: think you're in terms of your portfolio, the way we
Speaker 1: think about is you want to be sort of more
Speaker 1: broad based between growth and value. I think value may
Speaker 1: certainly do better as people think about growth in two
Speaker 1: thousand twenty two, but I think the days of growth
Speaker 1: dramatically outperforming are probably behind us. So I think you
Speaker 1: want to have exposure to both growth and value, and
Speaker 1: you want to also have some small as well in
Speaker 1: your portfolio. Yeah, really interesting to say that um and
Speaker 1: the mid cycle just got about thirty seconds left here, Michael,
Speaker 1: I mean they could last for a while, right, the
Speaker 1: mid cycle part of this market cycle. Well, that's exactly true.
Speaker 1: Economic cycles again tend to last a number of years
Speaker 1: as opposed to just a number of months or quarters.
Speaker 1: So we're likely to see hire GDP growth and profit
Speaker 1: growth next year. I think the estimates for next year
Speaker 1: or about nine EPs growth and four percent GDP growth. Obviously,
Speaker 1: that could change depending on what happens in Washington. All right,
Speaker 1: gotta run, good analysis as always. Michael Sheldon, he is
Speaker 1: executive director and chief investment Officer at High Tower r
Speaker 1: DM Financial Group, on the phone from Westport, Connecticut. Thanks
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