1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,840 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. It's 7 00:00:32,840 --> 00:00:37,040 Speaker 1: been an incredibly quiet August for the bond market in 8 00:00:37,080 --> 00:00:40,920 Speaker 1: the US. Certainly US tenure treasuries were fields that have 9 00:00:41,240 --> 00:00:44,000 Speaker 1: remained in the narrowest range in more than a year. 10 00:00:44,520 --> 00:00:47,160 Speaker 1: But the year ahead, the next six months, the next 11 00:00:47,200 --> 00:00:49,520 Speaker 1: four months could be a little bit more interesting. Joining 12 00:00:49,600 --> 00:00:51,919 Speaker 1: us now is Tom Kennedy had a fixed income strategy 13 00:00:51,960 --> 00:00:55,440 Speaker 1: at JP Morgan at private bank, overseeing about five six 14 00:00:55,440 --> 00:00:59,320 Speaker 1: billion dollars of assets, I believe based in New York. Tom, 15 00:00:59,320 --> 00:01:01,680 Speaker 1: thank you so much for being with us so looking 16 00:01:01,800 --> 00:01:04,400 Speaker 1: out you. You said something in the report that I 17 00:01:04,400 --> 00:01:07,199 Speaker 1: thought was interesting, which is we were entering a later 18 00:01:07,360 --> 00:01:10,560 Speaker 1: stage of the credit cycle and you need to dust 19 00:01:10,600 --> 00:01:13,720 Speaker 1: off your playbooks for this time. What does a playbook 20 00:01:13,760 --> 00:01:15,920 Speaker 1: for late cycle investing in the debt markets? Look like? 21 00:01:16,000 --> 00:01:21,479 Speaker 1: At having me so really it's talking talking late cycle 22 00:01:21,520 --> 00:01:23,200 Speaker 1: is something we haven't had to even discuss for the 23 00:01:23,240 --> 00:01:26,679 Speaker 1: last ten years. It's something new, it's something it's something different. Uh, 24 00:01:26,720 --> 00:01:28,720 Speaker 1: and even candidly, when I look around the floor, there's 25 00:01:28,920 --> 00:01:30,560 Speaker 1: lots of young people on the floor that don't even 26 00:01:30,560 --> 00:01:33,280 Speaker 1: know what late cycle looks like. Um. But late cycle 27 00:01:33,640 --> 00:01:36,680 Speaker 1: is a couple of three, three or four pillars. I 28 00:01:36,680 --> 00:01:39,320 Speaker 1: think we need to talk about its duration. We've been 29 00:01:39,800 --> 00:01:44,440 Speaker 1: underweight duration across the wealth management platform for for many years. 30 00:01:44,440 --> 00:01:46,399 Speaker 1: So it's full disclosure, it's a measure. It's sort of 31 00:01:46,440 --> 00:01:50,040 Speaker 1: how closely tied. Uh. You know your investments are to 32 00:01:50,440 --> 00:01:53,400 Speaker 1: hire yields or yields going up, absolutely so, so we 33 00:01:54,320 --> 00:01:56,840 Speaker 1: there's a if you're underweight duration, you're fearing that interest 34 00:01:56,920 --> 00:01:59,720 Speaker 1: rates will go higher. So we're you've talked about the 35 00:02:00,000 --> 00:02:02,360 Speaker 1: interest rate on tenure treasury is being quite low. I'm 36 00:02:02,360 --> 00:02:04,560 Speaker 1: not so sure it's gonna go much higher. And hopefully 37 00:02:04,560 --> 00:02:06,400 Speaker 1: we can talk about that in the time I'm here. 38 00:02:06,640 --> 00:02:08,920 Speaker 1: But you want to start to slowly dial your way 39 00:02:08,919 --> 00:02:11,600 Speaker 1: into duration. Another one we were talking about in the 40 00:02:11,639 --> 00:02:14,560 Speaker 1: break is about credit. You for years, you have been 41 00:02:14,800 --> 00:02:17,880 Speaker 1: incentivized to reach for yields, so Let's say that's a 42 00:02:17,919 --> 00:02:21,320 Speaker 1: traditional investment grade investor that's gonna say yields and an 43 00:02:21,360 --> 00:02:23,200 Speaker 1: investment grade are not high enough. I'm gonna reach to 44 00:02:23,280 --> 00:02:25,880 Speaker 1: high yield, but maybe not so comfortable with those risks. 45 00:02:26,320 --> 00:02:29,560 Speaker 1: As interest rates by the FED start to rise, those 46 00:02:29,560 --> 00:02:33,520 Speaker 1: credits should be challenged and we should see a readjustment there. Um. 47 00:02:33,560 --> 00:02:35,840 Speaker 1: Those are two two key pillars that we're focused on. 48 00:02:35,880 --> 00:02:38,600 Speaker 1: And then, finally, for the first time in a long time, 49 00:02:38,680 --> 00:02:41,880 Speaker 1: cash actually has a position in a portfolio. Um. Again, 50 00:02:41,880 --> 00:02:44,040 Speaker 1: a challenging discussion to have because you haven't had it 51 00:02:44,080 --> 00:02:46,160 Speaker 1: for so long, but cash is actually yielding you T 52 00:02:46,280 --> 00:02:49,639 Speaker 1: bills are over two percent. That's that's an interesting risk 53 00:02:49,680 --> 00:02:53,400 Speaker 1: reward proposition to discussing portfolios. How do you discuss that? 54 00:02:53,440 --> 00:02:55,920 Speaker 1: When people don't want to talk about relative return and 55 00:02:55,919 --> 00:02:58,320 Speaker 1: they say, you know what, we can't really live on 56 00:02:58,520 --> 00:03:03,120 Speaker 1: two percent tax? Do you send them to the municipal market. 57 00:03:03,600 --> 00:03:05,799 Speaker 1: I think the municipal market is is actually looking quite 58 00:03:05,800 --> 00:03:09,079 Speaker 1: attractive at this point. What's actually interesting about the municipal 59 00:03:09,120 --> 00:03:11,600 Speaker 1: market is in the front end we actually see relative 60 00:03:11,680 --> 00:03:14,640 Speaker 1: value as not especially in your favor, but further out 61 00:03:14,720 --> 00:03:17,480 Speaker 1: in the in the municipal curve. There's actually a steepness 62 00:03:17,480 --> 00:03:21,720 Speaker 1: in that curve. The in in the media outlets, Bloomberg 63 00:03:21,800 --> 00:03:23,760 Speaker 1: is constantly talking about the shape of the treasury Oeld 64 00:03:23,760 --> 00:03:26,000 Speaker 1: curve being very flat, but the Muniol curve is actually 65 00:03:26,080 --> 00:03:28,160 Speaker 1: quite steep. So if you move further out to say, 66 00:03:28,200 --> 00:03:30,160 Speaker 1: ten year MUNI bonds, you can actually pick up a 67 00:03:30,240 --> 00:03:32,760 Speaker 1: hundred basis points and spread relative to short data munies. 68 00:03:32,880 --> 00:03:35,520 Speaker 1: I want to go back to the idea that we're 69 00:03:35,640 --> 00:03:38,680 Speaker 1: in a late stage. Does that mean that you expect 70 00:03:39,080 --> 00:03:43,320 Speaker 1: a recession or downturn in the imminent future in the 71 00:03:43,360 --> 00:03:45,760 Speaker 1: next three months, six months? What does that mean to you? 72 00:03:46,560 --> 00:03:48,840 Speaker 1: So late cycle? I think it's importantly to say late 73 00:03:48,880 --> 00:03:51,440 Speaker 1: cycle is not end cycle. Late cycle means we are 74 00:03:51,480 --> 00:03:53,680 Speaker 1: closer to the end than the beginning. But I actually 75 00:03:53,680 --> 00:03:55,600 Speaker 1: believe this economy has a good bit of runway to 76 00:03:55,600 --> 00:03:58,440 Speaker 1: go in it um the key indicator to look at, 77 00:03:58,480 --> 00:03:59,880 Speaker 1: I mean, if you only had one, would be to 78 00:04:00,040 --> 00:04:02,880 Speaker 1: got the spread between treasure yields two years versus ten years. 79 00:04:03,200 --> 00:04:06,400 Speaker 1: It's flattening, but historically an inverted Yel curve is the 80 00:04:06,560 --> 00:04:08,480 Speaker 1: key measure that I'm looking So you still buy this 81 00:04:08,520 --> 00:04:11,000 Speaker 1: whole thing as an indicator so some people try to 82 00:04:11,000 --> 00:04:14,560 Speaker 1: say this time is different. You're not one of those people. Um, 83 00:04:14,600 --> 00:04:19,360 Speaker 1: the this time is different theory suggest I think when 84 00:04:19,400 --> 00:04:21,520 Speaker 1: I've tried to unearth when people say this time is different, 85 00:04:21,560 --> 00:04:25,119 Speaker 1: to me, they're suggesting that monetary policy is keeping rates 86 00:04:25,120 --> 00:04:28,680 Speaker 1: in the long end much lower than they they fundamentally 87 00:04:28,680 --> 00:04:32,039 Speaker 1: should be. I really don't find that argument compelling, really 88 00:04:32,080 --> 00:04:34,200 Speaker 1: for two reasons. When you look back of what's happened 89 00:04:34,240 --> 00:04:37,159 Speaker 1: over the last ten years, fundamentals in this in the 90 00:04:37,240 --> 00:04:41,440 Speaker 1: United States have changed dramatically. Demographics, it's an aging demographic 91 00:04:42,040 --> 00:04:45,040 Speaker 1: by the Census Bureau is telling us roughly of the 92 00:04:45,120 --> 00:04:47,440 Speaker 1: U S population will be sixty five and older. That's 93 00:04:47,480 --> 00:04:51,560 Speaker 1: relative to seven percent pre crisis. So aging, there are 94 00:04:51,640 --> 00:04:55,479 Speaker 1: less people working. Employment to population ratio is coming down. 95 00:04:55,960 --> 00:04:58,600 Speaker 1: And then importantly, and it's not discussed nearly enough, is 96 00:04:58,680 --> 00:05:01,480 Speaker 1: central bank credibility. We the FED is telling us what 97 00:05:01,520 --> 00:05:03,960 Speaker 1: they're gonna do, and we believe them, We trust them. 98 00:05:04,160 --> 00:05:06,200 Speaker 1: So your term premium that the risk you should be 99 00:05:06,480 --> 00:05:09,640 Speaker 1: the compensation you demand for risk is much lower. So 100 00:05:09,839 --> 00:05:11,840 Speaker 1: all in all, that back end I don't think has 101 00:05:11,880 --> 00:05:14,640 Speaker 1: to reprice very much. When I when I modelowed interest 102 00:05:14,680 --> 00:05:16,760 Speaker 1: rates to actually think they're a little bit rich to 103 00:05:16,800 --> 00:05:20,200 Speaker 1: fair value right now, but not substantially, and just trying 104 00:05:20,200 --> 00:05:24,200 Speaker 1: to understand from an investor point of view that has 105 00:05:24,240 --> 00:05:26,680 Speaker 1: followed what the Federal Reserves said to do, which is 106 00:05:26,720 --> 00:05:30,719 Speaker 1: basically go further out on the risk curve and reach 107 00:05:30,880 --> 00:05:36,120 Speaker 1: for yield. As you described earlier, have they bought products 108 00:05:36,160 --> 00:05:39,200 Speaker 1: that they really don't understand from people who are no 109 00:05:39,279 --> 00:05:42,719 Speaker 1: longer in the business of selling those products. That sounds 110 00:05:42,760 --> 00:05:45,159 Speaker 1: an awful lot like what we went through in two 111 00:05:45,200 --> 00:05:48,720 Speaker 1: thousand and eight. So now you're talking about the next 112 00:05:48,720 --> 00:05:51,839 Speaker 1: piece of this argument, which is the FED has displaced 113 00:05:51,960 --> 00:05:54,040 Speaker 1: natural investors, and that's in the treasury market, in the 114 00:05:54,120 --> 00:05:58,839 Speaker 1: NBS market. I think that has happened quite substantially. But 115 00:05:59,000 --> 00:06:02,839 Speaker 1: the balance sheets size of the FED, the new operating 116 00:06:02,839 --> 00:06:05,880 Speaker 1: framework that they've implemented post crisis, demands that their balance 117 00:06:05,880 --> 00:06:08,680 Speaker 1: sheet be much bigger. So when I look at the 118 00:06:08,720 --> 00:06:11,000 Speaker 1: underlying trends in the balance sheet, I don't see the 119 00:06:11,040 --> 00:06:13,480 Speaker 1: balance sheet for the FED contracting very much more. I'm 120 00:06:13,520 --> 00:06:15,920 Speaker 1: talking about when I start to model out where the 121 00:06:15,920 --> 00:06:17,960 Speaker 1: Fed's balance sheet is gonna go, it's about four point 122 00:06:18,000 --> 00:06:20,520 Speaker 1: two trillion today. I think it's going to intersect it's 123 00:06:20,640 --> 00:06:23,960 Speaker 1: natural level around year and twenty nineteen at about three 124 00:06:23,960 --> 00:06:26,479 Speaker 1: and a half trillion. It's a little bit higher than 125 00:06:26,560 --> 00:06:30,680 Speaker 1: what markets are talking about, but it suggests that this 126 00:06:30,760 --> 00:06:34,440 Speaker 1: monetary policy displacement that's happened for so long isn't likely 127 00:06:34,480 --> 00:06:36,839 Speaker 1: to reverse very much. It's important to sort of put 128 00:06:36,880 --> 00:06:39,520 Speaker 1: into context here your background, because you worked at the 129 00:06:39,520 --> 00:06:42,760 Speaker 1: New York FED and you helped draft the program UH 130 00:06:42,920 --> 00:06:45,840 Speaker 1: that will unwind the balance sheet? Am I correct that 131 00:06:45,880 --> 00:06:48,240 Speaker 1: the Fed is following the FEDS playbook has been out 132 00:06:48,240 --> 00:06:49,960 Speaker 1: for quite some time. When I was there, we we 133 00:06:50,000 --> 00:06:53,040 Speaker 1: put that thing together, all right. So UM, it's wonderful 134 00:06:53,080 --> 00:06:55,760 Speaker 1: then to get your insights on later this year because 135 00:06:55,760 --> 00:06:59,520 Speaker 1: there is some concern among fixed income analysts that there 136 00:06:59,560 --> 00:07:03,599 Speaker 1: will be a choppy sort of stoppage of refinancing some 137 00:07:03,680 --> 00:07:06,760 Speaker 1: of the Fed's UH treasury holdings. In other words, as 138 00:07:06,960 --> 00:07:10,720 Speaker 1: say forty billion dollars of longer term treasuries come do 139 00:07:11,600 --> 00:07:14,520 Speaker 1: or three year tenure, whatever it is, they will let 140 00:07:14,520 --> 00:07:17,160 Speaker 1: it roll off instead of repurchasing those treasuries, and it 141 00:07:17,200 --> 00:07:19,400 Speaker 1: could cause some kind of hiccup in the bond market. 142 00:07:19,640 --> 00:07:23,800 Speaker 1: Do you buy these arguments? I really don't you can 143 00:07:23,840 --> 00:07:28,200 Speaker 1: think about a flow versus a stock concept. And really, 144 00:07:28,360 --> 00:07:30,480 Speaker 1: what I'm trying to say is, as an investor, I 145 00:07:30,520 --> 00:07:34,440 Speaker 1: should be responding to known quantity information. The FED has 146 00:07:34,480 --> 00:07:37,400 Speaker 1: put out its its planned we all know it. We 147 00:07:37,440 --> 00:07:39,920 Speaker 1: can all look at what treasury reinvestments look like, and 148 00:07:40,240 --> 00:07:42,640 Speaker 1: we should be able to tell right now, this per 149 00:07:42,840 --> 00:07:45,840 Speaker 1: this piece of the treasury roll off will be reinvested in, 150 00:07:45,840 --> 00:07:48,280 Speaker 1: this piece won't. So in a sense, when we have 151 00:07:48,400 --> 00:07:51,400 Speaker 1: known information, we should be able to price that into markets. 152 00:07:51,400 --> 00:07:54,120 Speaker 1: And I think that's effectively been done. The FED has 153 00:07:54,200 --> 00:07:57,800 Speaker 1: slowly every quarter been stepping up the amount of treasuries 154 00:07:57,800 --> 00:07:59,920 Speaker 1: and mbs that it allows to roll off its balance. 155 00:08:00,480 --> 00:08:03,800 Speaker 1: It hasn't had a substantial impact in my opinion. Um, 156 00:08:03,840 --> 00:08:06,280 Speaker 1: now that's you can see. I'm a big believer in 157 00:08:06,320 --> 00:08:10,560 Speaker 1: this stock argument. Being on the investing side of the business, 158 00:08:10,600 --> 00:08:13,920 Speaker 1: I can I understand the flow dynamic, but I just 159 00:08:13,960 --> 00:08:17,080 Speaker 1: think it's a marginal contributor to two rates relative to 160 00:08:17,120 --> 00:08:19,880 Speaker 1: the stock impact. Thank you so much for being with us. 161 00:08:20,080 --> 00:08:23,080 Speaker 1: Really really illuminating. Tom Kennedy had a fixed income strategy 162 00:08:23,320 --> 00:08:26,560 Speaker 1: at JP Morgan, a private bank overseeing more than five 163 00:08:26,640 --> 00:08:31,640 Speaker 1: hundred billion dollars based in New York really him important inside, 164 00:08:31,680 --> 00:08:35,319 Speaker 1: especially considering Tom's experience at the New York Federal Reserve. 165 00:08:35,360 --> 00:08:37,360 Speaker 1: At a time when a lot of people say we're 166 00:08:37,400 --> 00:08:39,400 Speaker 1: not paying enough attention to the roll off of the 167 00:08:39,400 --> 00:08:42,400 Speaker 1: balance sheat Evidently we have less than a trillion more 168 00:08:42,480 --> 00:08:58,840 Speaker 1: to go for that balance sheet to roll off. The 169 00:08:58,960 --> 00:09:03,280 Speaker 1: value of goal it has dropped consistently over the last 170 00:09:03,400 --> 00:09:07,320 Speaker 1: couple of months. It currently trades below twelve drear an 171 00:09:07,320 --> 00:09:12,960 Speaker 1: ounce atars on the Comax. Here to help us understand 172 00:09:12,960 --> 00:09:15,680 Speaker 1: what is going on with the precious metal is Ben Hunt. 173 00:09:15,720 --> 00:09:18,679 Speaker 1: He is the co founder and chief investment officer for 174 00:09:19,040 --> 00:09:22,240 Speaker 1: Second Foundation Partners. He is also the creator and the 175 00:09:22,320 --> 00:09:28,160 Speaker 1: author for Epsilon Theory. They're based in Reading, Connecticut. Ben Hunt, 176 00:09:28,160 --> 00:09:30,160 Speaker 1: thank you very much for being here. You've got a 177 00:09:30,160 --> 00:09:32,280 Speaker 1: lot of people who are interested in what you've got 178 00:09:32,320 --> 00:09:36,440 Speaker 1: to say about the value of precious metal, specifically gold. 179 00:09:36,800 --> 00:09:39,120 Speaker 1: Do you believe that it is linked to what the 180 00:09:39,160 --> 00:09:42,640 Speaker 1: Federal Reserve is doing with interest rates? Hey, great to 181 00:09:42,679 --> 00:09:44,880 Speaker 1: be on Tim, Thanks thanks for having me in. And 182 00:09:45,160 --> 00:09:49,160 Speaker 1: the short answer is yes, it is absolutely linked to 183 00:09:49,280 --> 00:09:51,760 Speaker 1: what the FAT is doing. And and frankly, that's the 184 00:09:51,840 --> 00:09:55,600 Speaker 1: only thing I think that really drives the price of 185 00:09:55,679 --> 00:09:59,280 Speaker 1: gold as it's being traded. So this is nothing new. 186 00:09:59,600 --> 00:10:03,240 Speaker 1: I mean, we haven't had gold responding to i'll call 187 00:10:03,320 --> 00:10:07,640 Speaker 1: it a geopolitical crisis for a long time, a decade 188 00:10:07,720 --> 00:10:12,160 Speaker 1: or more. It looks if you're a businessman in Istanbul 189 00:10:12,360 --> 00:10:15,840 Speaker 1: or Kara today, you know, you're you're you're delighted to 190 00:10:15,880 --> 00:10:18,720 Speaker 1: have gold. It's very it's worth a lot to you 191 00:10:18,840 --> 00:10:22,160 Speaker 1: because you can't access your your dollar denominated bank account. 192 00:10:22,559 --> 00:10:25,360 Speaker 1: But for all the rest of US, I suspect, you know, 193 00:10:25,480 --> 00:10:30,400 Speaker 1: ninety nine people listening to this radio broadcast. The meaning 194 00:10:30,520 --> 00:10:34,959 Speaker 1: of gold, the the the factor that gold trades on 195 00:10:35,800 --> 00:10:38,800 Speaker 1: is well, what what's the FED doing? What are central 196 00:10:38,800 --> 00:10:43,200 Speaker 1: banks doing? It's an insurance policy against central bank error. 197 00:10:43,800 --> 00:10:45,839 Speaker 1: That's the way I think you should really think about 198 00:10:45,840 --> 00:10:48,880 Speaker 1: gold in its price. Okay, So before we get to 199 00:10:49,280 --> 00:10:51,199 Speaker 1: the central bank era part, which I want to tease 200 00:10:51,200 --> 00:10:54,959 Speaker 1: out and understand exactly why gold would be a hedge 201 00:10:55,000 --> 00:10:57,880 Speaker 1: against that, I want to just talk about the idea 202 00:10:58,160 --> 00:11:01,040 Speaker 1: that gold used to be a store value. It used 203 00:11:01,040 --> 00:11:04,200 Speaker 1: to be a haven investment. Are you saying it is 204 00:11:04,240 --> 00:11:08,839 Speaker 1: no longer a haven investment in anyway? Uh? In any way? 205 00:11:09,000 --> 00:11:11,320 Speaker 1: Is a is a is a tough you know, tough 206 00:11:11,640 --> 00:11:15,559 Speaker 1: kind of additional clause to put on there, but basically, yes, look, 207 00:11:15,640 --> 00:11:19,520 Speaker 1: you know JP Morgan, the original JP Morgan, you know Jupiter, 208 00:11:19,760 --> 00:11:22,960 Speaker 1: Jupiter Morgan. He had a great quote and his quote 209 00:11:23,240 --> 00:11:28,560 Speaker 1: was gold is money, everything else is credit. And look 210 00:11:28,640 --> 00:11:31,840 Speaker 1: that was right, that was right back when you know 211 00:11:32,120 --> 00:11:35,680 Speaker 1: JP Morgan, the man was you know what was walking 212 00:11:35,720 --> 00:11:39,240 Speaker 1: the earth. But it's but it's not true anymore. It's 213 00:11:39,280 --> 00:11:44,320 Speaker 1: not it's not what gold means to investors anymore, and 214 00:11:44,360 --> 00:11:48,120 Speaker 1: that it really it's not just gold. When people talk 215 00:11:48,160 --> 00:11:50,800 Speaker 1: about whether it's bitcoin or they talk about gold is 216 00:11:50,920 --> 00:11:55,120 Speaker 1: being a store of value, I think they're really missing 217 00:11:55,160 --> 00:11:59,520 Speaker 1: what that phrase means. Okay, well, uh, and perhaps it's 218 00:11:59,559 --> 00:12:02,679 Speaker 1: not entirely a coincidence that we're seeing a dramatic so 219 00:12:02,800 --> 00:12:06,600 Speaker 1: often cryptocurrencies in tandem with gold, although that's probably another story. 220 00:12:06,640 --> 00:12:08,360 Speaker 1: But I do want to get to your point of 221 00:12:08,720 --> 00:12:10,760 Speaker 1: why this could be a hedge, my gold could be 222 00:12:10,800 --> 00:12:13,000 Speaker 1: a hedge against such a bank. Eric, Can you just 223 00:12:13,040 --> 00:12:17,080 Speaker 1: sort of explain that? Sure? Sure, what I'm trying to 224 00:12:17,120 --> 00:12:21,360 Speaker 1: describe as is what well, they back up A second 225 00:12:21,360 --> 00:12:24,320 Speaker 1: one I'm always interested in is not what what you know, 226 00:12:24,440 --> 00:12:27,400 Speaker 1: we the words we have for things. But what actually 227 00:12:27,600 --> 00:12:31,240 Speaker 1: is and what you actually see in the price of gold, 228 00:12:31,320 --> 00:12:35,720 Speaker 1: what you actually see in the price of of any 229 00:12:35,760 --> 00:12:40,079 Speaker 1: precious commodity, is that it goes up or down depending 230 00:12:40,120 --> 00:12:46,280 Speaker 1: on confidence in central bankers, right because because that's that 231 00:12:46,400 --> 00:12:49,520 Speaker 1: that's really what gold is there to be. That's that's 232 00:12:49,559 --> 00:12:53,080 Speaker 1: the insurance policy that I'm talking about if things get 233 00:12:53,240 --> 00:12:57,719 Speaker 1: really awful, right, if central makers make some gruesome policy 234 00:12:57,800 --> 00:13:01,400 Speaker 1: mistake that results in infation or deflation. It can work 235 00:13:01,440 --> 00:13:05,200 Speaker 1: either way, right, But it's it's that sort of mistake 236 00:13:05,400 --> 00:13:10,520 Speaker 1: that gold has meaning for today. It It doesn't have 237 00:13:10,640 --> 00:13:14,120 Speaker 1: meaning as an alternative currency, it does any Look, if 238 00:13:14,120 --> 00:13:17,200 Speaker 1: we get to the point where we need gold to 239 00:13:17,880 --> 00:13:21,840 Speaker 1: buy something at the store, yeah, you're better off owning 240 00:13:22,360 --> 00:13:26,520 Speaker 1: ammunition and seeds rather than gold. My point is that 241 00:13:26,679 --> 00:13:31,280 Speaker 1: as a security, as an investment, what gold goes up 242 00:13:31,280 --> 00:13:34,720 Speaker 1: and down on is the degree of confidence we have 243 00:13:35,320 --> 00:13:38,680 Speaker 1: the central bankers are large and in charge, and right 244 00:13:38,679 --> 00:13:41,480 Speaker 1: now there's a lot of confidence in that, and so 245 00:13:41,520 --> 00:13:44,680 Speaker 1: that's why the price of gold is down ben just quickly. 246 00:13:44,760 --> 00:13:48,840 Speaker 1: Because Doug Cass of Seabreeze Partners, he enjoys listening to you, 247 00:13:48,880 --> 00:13:51,640 Speaker 1: and he wants to know your thoughts about the VIX 248 00:13:51,760 --> 00:13:55,280 Speaker 1: because it rose to fifteen from ten yesterday on less 249 00:13:55,280 --> 00:13:59,080 Speaker 1: than a one percent drop in the SMPI index. Your 250 00:13:59,120 --> 00:14:02,920 Speaker 1: thoughts give you about twenty seconds. Sure, well, we'll look 251 00:14:02,720 --> 00:14:09,080 Speaker 1: like the VIX is another one of these um constructed entities. 252 00:14:09,120 --> 00:14:11,840 Speaker 1: I mean it's it's it's essentially the short to medium 253 00:14:11,880 --> 00:14:14,720 Speaker 1: term volatility in the SMP five hundred. But what it 254 00:14:14,880 --> 00:14:18,960 Speaker 1: also is is a trading instrument, so in exactly the 255 00:14:19,040 --> 00:14:22,360 Speaker 1: same way that gold now means something I think very 256 00:14:22,480 --> 00:14:26,040 Speaker 1: different from what it meant for JP Morgan back in 257 00:14:26,040 --> 00:14:29,080 Speaker 1: the early nineteen hundreds. So do I think the VIX 258 00:14:29,200 --> 00:14:32,520 Speaker 1: as a trading instrument means something very different than we 259 00:14:32,560 --> 00:14:35,440 Speaker 1: when it started. And so you can see these outsized 260 00:14:35,520 --> 00:14:40,080 Speaker 1: movements for things other than just the mechanistic impact of 261 00:14:40,120 --> 00:14:42,920 Speaker 1: a change in the SMP five. Ben Hunt, thank you 262 00:14:43,000 --> 00:14:45,240 Speaker 1: so much. As always, it feels like two little time. 263 00:14:45,240 --> 00:14:47,200 Speaker 1: We'll have to have you back. Pen Hunt, co founder 264 00:14:47,200 --> 00:14:50,240 Speaker 1: and chief investment officer of Second Foundation Partners and publisher 265 00:14:50,520 --> 00:15:08,600 Speaker 1: of Epsilon Theory. Earlier today, Home Depot came out with 266 00:15:08,760 --> 00:15:14,520 Speaker 1: their earnings beating expectations. In response, shares up less than 267 00:15:15,520 --> 00:15:19,440 Speaker 1: one percentage point. Not much here to talk about what 268 00:15:19,560 --> 00:15:25,120 Speaker 1: the Staples, the retail Staples world brings or should bring 269 00:15:25,360 --> 00:15:27,960 Speaker 1: in the next few months. Is Scott Mushkin, Managing director 270 00:15:28,200 --> 00:15:31,960 Speaker 1: and senior Staples retail analyst for Wolf Research in New York. Scott, 271 00:15:32,000 --> 00:15:33,960 Speaker 1: thank you so much for being with us so we 272 00:15:34,000 --> 00:15:37,280 Speaker 1: did get those positive results from Home Depot. I want 273 00:15:37,280 --> 00:15:39,560 Speaker 1: to look ahead. We're gonna get Walmart after the bell. 274 00:15:40,240 --> 00:15:43,880 Speaker 1: What's the biggest concern of analysts on the street, the 275 00:15:43,920 --> 00:15:47,760 Speaker 1: wild card, given how positive the backdrop of the American 276 00:15:47,800 --> 00:15:51,160 Speaker 1: economy is right now. Thanks for having me by the way, 277 00:15:51,160 --> 00:15:52,760 Speaker 1: And I think if you're looking at Home Depot and 278 00:15:52,760 --> 00:15:54,480 Speaker 1: you just said it, stocks barely off even though they 279 00:15:54,480 --> 00:15:58,640 Speaker 1: absolutely just crushed expectations. Um, I think you know, when 280 00:15:58,640 --> 00:16:02,160 Speaker 1: people look at housing, uh, there's concern. Uh, there's concern 281 00:16:02,240 --> 00:16:04,120 Speaker 1: that we're going to We've been a you know, a 282 00:16:04,160 --> 00:16:07,720 Speaker 1: bullish housing market for a long time. Interest rates are 283 00:16:07,760 --> 00:16:12,640 Speaker 1: coming up. Certain housing markets have been so so hot, 284 00:16:13,240 --> 00:16:16,280 Speaker 1: unfortunately not in Connecticut where I live, but in places 285 00:16:16,320 --> 00:16:21,280 Speaker 1: like Seattle, Portland's, Denver, or even Boston. Uh, these markets 286 00:16:21,280 --> 00:16:23,520 Speaker 1: have been so hot and they're cooling off very quickly. 287 00:16:24,080 --> 00:16:26,680 Speaker 1: And I think you know, we all have memories of 288 00:16:26,720 --> 00:16:29,880 Speaker 1: the last financial crisis and what happened to housing. So 289 00:16:29,920 --> 00:16:32,760 Speaker 1: I think people are growing a little concerned with with 290 00:16:32,800 --> 00:16:34,760 Speaker 1: the housing market. That's what kind of holding back the 291 00:16:34,800 --> 00:16:37,440 Speaker 1: Home Depot stock right now. But you know, Home Deepot 292 00:16:37,440 --> 00:16:39,200 Speaker 1: is one of the best companies out there, and so 293 00:16:39,320 --> 00:16:40,840 Speaker 1: you know, we take the opportunity to buy it to 294 00:16:40,920 --> 00:16:43,360 Speaker 1: you know, buy it today with such great numbers. Hey, 295 00:16:43,440 --> 00:16:47,040 Speaker 1: as Scott Mushkin, what about the increases in the cost 296 00:16:47,120 --> 00:16:51,320 Speaker 1: of fuel transportation as well as input costs for things 297 00:16:51,360 --> 00:16:54,880 Speaker 1: such as imported lumber. Yeah, I mean so, I mean 298 00:16:54,880 --> 00:16:57,800 Speaker 1: that's definitely an issue. Right we were seeing some inflation 299 00:16:57,880 --> 00:17:01,560 Speaker 1: creep in. Um. Some of that it's unforced because we're 300 00:17:01,560 --> 00:17:04,280 Speaker 1: putting some tarrass on and we're getting some retaliatory terrorists. 301 00:17:04,600 --> 00:17:06,840 Speaker 1: But right now, you know, the home Depot and the 302 00:17:06,880 --> 00:17:10,880 Speaker 1: home improvement sectors managing through that. Okay. Uh. We saw 303 00:17:10,920 --> 00:17:13,719 Speaker 1: appliances actually do okay at Home Depot, even though we've 304 00:17:13,720 --> 00:17:16,399 Speaker 1: seen prices come up quite a bit. So it's something 305 00:17:16,560 --> 00:17:18,760 Speaker 1: you know, we're watching, it's something the company is watching. 306 00:17:18,800 --> 00:17:22,000 Speaker 1: But at this stage, it really isn't enough to uh, 307 00:17:22,040 --> 00:17:24,800 Speaker 1: to kind of derail the very strong sales that the 308 00:17:24,840 --> 00:17:27,400 Speaker 1: company seeing and the strong earnings, because of course that's 309 00:17:27,480 --> 00:17:30,800 Speaker 1: causing some cost pressures. But Home Depot is a master 310 00:17:30,920 --> 00:17:36,520 Speaker 1: of being efficient in increasing their productivity and we definitely 311 00:17:36,560 --> 00:17:38,879 Speaker 1: saw that this quarter. Okay, So you were saying that 312 00:17:38,960 --> 00:17:42,120 Speaker 1: you are viewing this as an opportunity to buy Home Depot. 313 00:17:42,119 --> 00:17:44,679 Speaker 1: I'm looking at shares right now of the company two 314 00:17:44,760 --> 00:17:47,960 Speaker 1: hundred dollars and seventy two cents. Where do you see 315 00:17:47,960 --> 00:17:50,199 Speaker 1: them going by the end of the year. Now we 316 00:17:50,240 --> 00:17:53,560 Speaker 1: have a two fifteen price target. Uh. Is kind of 317 00:17:53,560 --> 00:17:57,000 Speaker 1: where we you know, where our heads are still. And um, 318 00:17:57,000 --> 00:17:58,680 Speaker 1: you know, it's one of the few companies as this 319 00:17:58,760 --> 00:18:00,840 Speaker 1: market is really rat I look at a lot of 320 00:18:00,840 --> 00:18:02,280 Speaker 1: my companies. I know you guys want to talk about 321 00:18:02,320 --> 00:18:05,639 Speaker 1: Walmart and and some of the other names. Um, but 322 00:18:05,720 --> 00:18:08,120 Speaker 1: the house some of these housing stocks lately have been 323 00:18:08,600 --> 00:18:11,439 Speaker 1: left behind Home Deep belows and so it's one of 324 00:18:11,440 --> 00:18:14,240 Speaker 1: the few places where my DCF is actually this kind 325 00:18:14,280 --> 00:18:19,120 Speaker 1: of cash flow analysis is actually nicely above that one. Um. 326 00:18:19,240 --> 00:18:21,800 Speaker 1: And so you know we do like Home DEEPO. Still okay, 327 00:18:21,840 --> 00:18:23,720 Speaker 1: but but I want to go to that point. I mean, 328 00:18:23,720 --> 00:18:27,879 Speaker 1: you're saying that homebuilders and housing stores or housing related 329 00:18:27,920 --> 00:18:31,880 Speaker 1: stores have done poorly recently, and I'm just wondering, I mean, why, 330 00:18:31,920 --> 00:18:34,679 Speaker 1: what makes you confident that people are wrong about the 331 00:18:34,680 --> 00:18:39,600 Speaker 1: cooling housing market waying on these companies. So, you know, 332 00:18:39,640 --> 00:18:42,639 Speaker 1: always you don't always don't want to be overconfident in 333 00:18:42,680 --> 00:18:44,680 Speaker 1: your analysis. But one of the things I think it's 334 00:18:44,800 --> 00:18:48,560 Speaker 1: under uh, I guess underplayed a little bit. It's just 335 00:18:48,640 --> 00:18:52,639 Speaker 1: the strong supply and demand aspects of what's going on 336 00:18:52,760 --> 00:18:56,119 Speaker 1: and in housing, particularly for home DEEPO and lows, where 337 00:18:56,480 --> 00:18:58,800 Speaker 1: the aging of the housing stock, the fact that we 338 00:18:58,880 --> 00:19:01,680 Speaker 1: haven't built in a bid to enough houses, the fact 339 00:19:01,720 --> 00:19:04,320 Speaker 1: if you look at housing spending or spending into the 340 00:19:04,359 --> 00:19:09,800 Speaker 1: home improvement area, it actually peaks between sixty and seventy four, 341 00:19:09,840 --> 00:19:12,760 Speaker 1: So it's baby boomers are still playing a big role 342 00:19:12,800 --> 00:19:16,080 Speaker 1: and spending on their house. Uh. The other thing that's 343 00:19:16,119 --> 00:19:18,760 Speaker 1: interesting is the millennials. The millennials are you know, we've 344 00:19:18,800 --> 00:19:23,119 Speaker 1: seen homeownership rates rise a little bit. The crest of 345 00:19:23,160 --> 00:19:27,399 Speaker 1: the millennials is now, so they're really starting to get 346 00:19:27,440 --> 00:19:31,600 Speaker 1: into that area of they're going to buy their first home. Uh. 347 00:19:31,840 --> 00:19:35,200 Speaker 1: We've seen household formations pick up. So there are definitely 348 00:19:35,320 --> 00:19:40,240 Speaker 1: besides the macrocyclical aspects. There are definitely things going on 349 00:19:40,359 --> 00:19:43,560 Speaker 1: and housing, particularly for home DEEPO and lows that are 350 00:19:43,640 --> 00:19:47,159 Speaker 1: more more bullish than I think is being recognized. Scott 351 00:19:47,240 --> 00:19:50,040 Speaker 1: Mushkin give you about twenty seconds here just to comment 352 00:19:50,320 --> 00:19:52,960 Speaker 1: on the comps that Home Depot is going to have 353 00:19:53,080 --> 00:19:55,440 Speaker 1: to deal with in the second half of the year 354 00:19:55,520 --> 00:19:59,480 Speaker 1: because of that six hundred million in hurricane related sales 355 00:19:59,680 --> 00:20:02,720 Speaker 1: that have to compare against. Yeah, I mean it's about 356 00:20:02,720 --> 00:20:07,359 Speaker 1: a one headwind, so it's definitely there, you know, you know, 357 00:20:07,440 --> 00:20:10,200 Speaker 1: thankfully knocking on wood there. Thankfully we haven't had any 358 00:20:10,280 --> 00:20:13,040 Speaker 1: hurricanes yet, so that's a good thing. Um. But it's 359 00:20:13,080 --> 00:20:14,360 Speaker 1: you know, it's a little bit of a head wind, 360 00:20:14,400 --> 00:20:18,119 Speaker 1: but certainly it's not such a big headwind that there. 361 00:20:18,119 --> 00:20:20,159 Speaker 1: You know, their sales will be you know, we were 362 00:20:20,160 --> 00:20:22,840 Speaker 1: still expecting five five is typed cops into the back 363 00:20:22,880 --> 00:20:25,120 Speaker 1: after the year. All right, Thanks very much for being 364 00:20:25,160 --> 00:20:28,400 Speaker 1: with us, Scott Mushkin. Of course, he's an expert when 365 00:20:28,400 --> 00:20:31,000 Speaker 1: it comes to all things really related to the world 366 00:20:31,119 --> 00:20:34,840 Speaker 1: of retail, in this case Walmart, Target and the Home 367 00:20:35,160 --> 00:20:52,480 Speaker 1: Depot in China. Spending on fixed assets such as factory 368 00:20:52,520 --> 00:20:56,640 Speaker 1: machinery and public works projects it is at its lowest 369 00:20:56,680 --> 00:21:01,280 Speaker 1: point in nearly twenty years. To tell us more about 370 00:21:01,320 --> 00:21:06,480 Speaker 1: the Chinese economy and the potential for continued trade conflagration 371 00:21:06,560 --> 00:21:10,000 Speaker 1: with the United States States is Christopher Balding. He is 372 00:21:10,040 --> 00:21:13,959 Speaker 1: a Bloomberg opinion columnist. He is also the author of 373 00:21:14,119 --> 00:21:17,719 Speaker 1: Sovereign Wealth Funds, The New Intersection of Money and Power. 374 00:21:18,119 --> 00:21:21,360 Speaker 1: He is the former Associate Professor of Business and Economics 375 00:21:21,440 --> 00:21:27,160 Speaker 1: at the HSBC School Business School, and he joins us now. Christopher, 376 00:21:27,160 --> 00:21:28,719 Speaker 1: thank you very much for being with us. Can you 377 00:21:28,760 --> 00:21:31,560 Speaker 1: just describe the state of the Chinese economy for those 378 00:21:31,640 --> 00:21:35,360 Speaker 1: that made me think it's monolithic? I think what we're 379 00:21:35,359 --> 00:21:38,600 Speaker 1: seeing right now is is some real weakening. What we 380 00:21:38,640 --> 00:21:42,160 Speaker 1: saw in late two thousand and seventeen and really through 381 00:21:42,280 --> 00:21:45,639 Speaker 1: let's say up through about May this year, was a 382 00:21:45,680 --> 00:21:49,840 Speaker 1: real credit tightening, and so this is this has been 383 00:21:49,880 --> 00:21:54,000 Speaker 1: passing through into real activity. And in China, we're typically 384 00:21:54,040 --> 00:21:55,959 Speaker 1: looking at about a six to nine month lag from 385 00:21:55,960 --> 00:21:59,160 Speaker 1: the time credit starts tightening until the time it hits activity, 386 00:21:59,480 --> 00:22:01,960 Speaker 1: and so we're really starting to see the effects of 387 00:22:02,000 --> 00:22:05,359 Speaker 1: all that credit tightening that began in say November December 388 00:22:05,480 --> 00:22:08,560 Speaker 1: trickled down right now UM. I do think what you're 389 00:22:08,560 --> 00:22:12,200 Speaker 1: seeing though, is some conflicting signals. And what I mean 390 00:22:12,240 --> 00:22:15,760 Speaker 1: by that is, UM a lot of fixed asset investment 391 00:22:16,280 --> 00:22:20,200 Speaker 1: is is it a decade decade lows? But there are 392 00:22:20,200 --> 00:22:24,640 Speaker 1: other signs that are actually incredibly robust. Uh. Land sales 393 00:22:24,760 --> 00:22:29,000 Speaker 1: and construction starts are up that in the mid teams 394 00:22:29,040 --> 00:22:32,159 Speaker 1: for the most part. UH. So it really depends on 395 00:22:32,320 --> 00:22:34,439 Speaker 1: what you're looking at. And if you look at the 396 00:22:34,440 --> 00:22:37,200 Speaker 1: credit cycle and where we are with the economy, it's 397 00:22:37,200 --> 00:22:40,200 Speaker 1: not unrealistic to believe that all of those new construction 398 00:22:40,280 --> 00:22:43,360 Speaker 1: starts and land sales are going to filter through into 399 00:22:43,560 --> 00:22:46,200 Speaker 1: let's say, not a boom, but let's say a pick 400 00:22:46,280 --> 00:22:49,159 Speaker 1: up in the second half of this year, in the 401 00:22:49,240 --> 00:22:51,440 Speaker 1: latter second half of this year or the early first 402 00:22:51,440 --> 00:22:54,879 Speaker 1: half of next year. Christopher, there's a story in the 403 00:22:54,920 --> 00:22:58,520 Speaker 1: latest edition of The Economist. The headline is China losing 404 00:22:58,560 --> 00:23:01,600 Speaker 1: the trade war against Aren't that? What do you make that? 405 00:23:01,680 --> 00:23:04,560 Speaker 1: Do you think that it is? Um? It's it's it's 406 00:23:04,560 --> 00:23:07,520 Speaker 1: tough to say who's who's losing it because in in 407 00:23:07,600 --> 00:23:10,480 Speaker 1: the grand scheme of things, for let's say a fifteen 408 00:23:10,560 --> 00:23:15,000 Speaker 1: nearly fifteen trillion dollar economy, UM fifty fifty billion dollars 409 00:23:15,000 --> 00:23:20,640 Speaker 1: in tariffs is effectively zero. UM. But what there is 410 00:23:20,760 --> 00:23:23,639 Speaker 1: prompting in a lot of China is a is a 411 00:23:23,720 --> 00:23:27,360 Speaker 1: lot of concern about One of the things you've seen 412 00:23:27,440 --> 00:23:31,040 Speaker 1: in political circles is UM, did China try to get 413 00:23:31,040 --> 00:23:34,600 Speaker 1: too big too fast to stand up to the United States? UM. 414 00:23:34,920 --> 00:23:37,320 Speaker 1: I also think it's very fair to say that there 415 00:23:37,560 --> 00:23:40,840 Speaker 1: is that that this discussion over the trade war that 416 00:23:40,880 --> 00:23:43,639 Speaker 1: you're seeing in China UM is is kind of a 417 00:23:43,680 --> 00:23:48,399 Speaker 1: proxy for two specific discussions that people don't want to 418 00:23:48,440 --> 00:23:51,520 Speaker 1: have in public, and that is, first of all, UH, 419 00:23:51,600 --> 00:23:56,520 Speaker 1: the political crackdown led by Chairman she UM really reversing 420 00:23:56,560 --> 00:23:58,920 Speaker 1: a lot of the liberal reforms over the past say 421 00:23:58,960 --> 00:24:03,680 Speaker 1: twenty years UH. And then furthermore, whether or not China 422 00:24:03,760 --> 00:24:06,440 Speaker 1: should open its market. There's been very little discussion in 423 00:24:06,560 --> 00:24:10,639 Speaker 1: China about that. So this handringing about is China losing 424 00:24:10,640 --> 00:24:14,360 Speaker 1: the trade war? UM? There is some very valid questions 425 00:24:14,359 --> 00:24:17,040 Speaker 1: about that, but I think it's there there's other factors 426 00:24:17,080 --> 00:24:21,080 Speaker 1: going on. UM. And the other thing is is that 427 00:24:21,160 --> 00:24:25,240 Speaker 1: this is this is likely to have a bigger impact 428 00:24:25,320 --> 00:24:28,159 Speaker 1: on China UM. Even though we always think of China 429 00:24:28,240 --> 00:24:31,240 Speaker 1: as this trading nation that is running these large current 430 00:24:31,240 --> 00:24:35,159 Speaker 1: accounts surpluses. Actually so far UM the current account in 431 00:24:35,240 --> 00:24:39,040 Speaker 1: China this year is is effectively zero UM, and so 432 00:24:39,200 --> 00:24:42,320 Speaker 1: any impact on trade is going to have a very 433 00:24:42,320 --> 00:24:45,840 Speaker 1: significant pass through effect to other aspects of the economy, 434 00:24:46,160 --> 00:24:49,120 Speaker 1: much more than it will in the United States. Christopher, 435 00:24:49,200 --> 00:24:51,480 Speaker 1: I'm glad that you broke you brought in this sort 436 00:24:51,480 --> 00:24:56,320 Speaker 1: of crackdown on liberal orders of things in China because 437 00:24:56,320 --> 00:24:59,280 Speaker 1: it kind of leads me to ask you about why 438 00:24:59,320 --> 00:25:02,960 Speaker 1: you decided to leave. I know that you opted to 439 00:25:03,440 --> 00:25:07,440 Speaker 1: leave HSBC Business School, and you uh left China after 440 00:25:07,480 --> 00:25:10,560 Speaker 1: I think after almost a decade, right, what made you 441 00:25:10,880 --> 00:25:15,440 Speaker 1: decide to do that? So I I was informed last 442 00:25:15,520 --> 00:25:19,440 Speaker 1: year that that my contract would not be renewed, and 443 00:25:19,560 --> 00:25:22,439 Speaker 1: I actually debated where, you know, if I wanted to 444 00:25:22,440 --> 00:25:25,760 Speaker 1: stay in China, and actually interviewed with some Western universities 445 00:25:25,800 --> 00:25:29,320 Speaker 1: in China. UM, and I opted to leave because UM 446 00:25:29,359 --> 00:25:33,680 Speaker 1: I started there were stories. You could sense the crackdown. 447 00:25:33,720 --> 00:25:35,679 Speaker 1: But at the same time as I was talking to 448 00:25:35,720 --> 00:25:38,600 Speaker 1: people not even mentioning my situation, you started hearing more 449 00:25:38,600 --> 00:25:43,040 Speaker 1: and more stories about even innocent issues being grounds for 450 00:25:43,280 --> 00:25:48,399 Speaker 1: dismissal UM or worse, UM and quite honestly, you know 451 00:25:48,480 --> 00:25:50,919 Speaker 1: it did it. It felt that just remaining in China 452 00:25:51,000 --> 00:25:54,640 Speaker 1: was simply going to up that risk uh continually where 453 00:25:54,680 --> 00:25:57,800 Speaker 1: I felt it was just better for me to leave China. Christopher, 454 00:25:57,840 --> 00:26:02,560 Speaker 1: based on your experience, do you see Chinese individuals who 455 00:26:02,600 --> 00:26:06,360 Speaker 1: have the wherewithal to move money out of China continuing 456 00:26:06,440 --> 00:26:11,639 Speaker 1: to do so? Um? I think there is absolutely, uh 457 00:26:11,680 --> 00:26:15,760 Speaker 1: every interest in doing so. UM people with means um 458 00:26:15,840 --> 00:26:18,880 Speaker 1: that that you meet in China, Everyone that I ever 459 00:26:18,920 --> 00:26:23,440 Speaker 1: met absolutely has some type of let's say, fallback position. 460 00:26:23,480 --> 00:26:26,680 Speaker 1: They have hedged their their bets in some way. UM. 461 00:26:26,720 --> 00:26:29,000 Speaker 1: At the same time, right now, I think China has 462 00:26:29,040 --> 00:26:34,320 Speaker 1: cracked down very very hard on capital in in capital 463 00:26:34,359 --> 00:26:37,360 Speaker 1: controls and made it much much more difficult to get 464 00:26:37,359 --> 00:26:40,720 Speaker 1: money out. That doesn't mean that it's not still happening, um, 465 00:26:40,760 --> 00:26:43,680 Speaker 1: but the the levels that we're seeing are much much 466 00:26:43,680 --> 00:26:46,200 Speaker 1: smaller because it is so much harder to get money 467 00:26:46,200 --> 00:26:50,600 Speaker 1: out um in different ways. UM. But there is absolutely 468 00:26:50,680 --> 00:26:54,080 Speaker 1: a continued interest among people with that have money to 469 00:26:54,119 --> 00:26:56,439 Speaker 1: get money out of China. Christopher. I want to go 470 00:26:56,480 --> 00:26:58,520 Speaker 1: back to something that you were saying, which is, you know, 471 00:26:58,720 --> 00:27:02,439 Speaker 1: is there a risk that China just expanded too quickly 472 00:27:02,960 --> 00:27:07,119 Speaker 1: and perhaps without the necessary infrastructure to really compete with 473 00:27:07,240 --> 00:27:10,520 Speaker 1: the US. Right now, what do you think, just to 474 00:27:10,560 --> 00:27:12,000 Speaker 1: sort of tie this all together, what do you think 475 00:27:11,960 --> 00:27:15,159 Speaker 1: it's a likely outcome for the Chinese economy going forward? Here? 476 00:27:15,160 --> 00:27:17,040 Speaker 1: Are we going to have a higher risk of a 477 00:27:17,080 --> 00:27:22,280 Speaker 1: hard landing? UM? I've I've always been a believer that 478 00:27:22,440 --> 00:27:25,040 Speaker 1: a hard life, let's say, a crisis of of what 479 00:27:25,119 --> 00:27:27,359 Speaker 1: we would think of as a crisis, maybe something akin 480 00:27:27,480 --> 00:27:30,440 Speaker 1: to what we're seeing in Turkey right now, is decidedly 481 00:27:30,520 --> 00:27:34,400 Speaker 1: unlikely UM. And the primary reason is is that UM. 482 00:27:34,520 --> 00:27:38,320 Speaker 1: Beijing is acutely aware of what happens if there is 483 00:27:38,359 --> 00:27:41,760 Speaker 1: a financial crisis. UM. If there is a financial crisis 484 00:27:41,800 --> 00:27:44,720 Speaker 1: in China, UM, it is that once a century event. 485 00:27:44,720 --> 00:27:47,959 Speaker 1: And so they will not allow a crisis UM except 486 00:27:48,000 --> 00:27:51,360 Speaker 1: as an absolute laughed outcome. That doesn't mean that there 487 00:27:51,359 --> 00:27:53,879 Speaker 1: won't be pain, UM, and that they won't be willing 488 00:27:53,920 --> 00:27:56,760 Speaker 1: to impose pain. And so this leads us to, you know, 489 00:27:56,800 --> 00:27:59,520 Speaker 1: for instance, the trade war. I think there there needs 490 00:27:59,520 --> 00:28:02,040 Speaker 1: to be a very clear understanding that with regards to China, 491 00:28:02,400 --> 00:28:05,080 Speaker 1: they will be very, very willing to accept a lot 492 00:28:05,160 --> 00:28:09,040 Speaker 1: of pain going forward in a trade war or bailing 493 00:28:09,040 --> 00:28:12,520 Speaker 1: out firms as long as it avoids a type of 494 00:28:12,520 --> 00:28:15,880 Speaker 1: financial crisis. Christopher Balding, thank you so much for joining us. 495 00:28:16,000 --> 00:28:19,040 Speaker 1: Welcome back to the States, if only temporarily. Christopher Balding 496 00:28:19,560 --> 00:28:23,000 Speaker 1: was an Associate professor of Business Economists at HSBC Business 497 00:28:23,000 --> 00:28:26,640 Speaker 1: School in China and is continues to be a Bloomberg 498 00:28:26,640 --> 00:28:29,720 Speaker 1: opinion columnist. I recommend you read his columns. They are very, 499 00:28:29,840 --> 00:28:35,680 Speaker 1: very good. Thanks for listening to the Bloomberg P and 500 00:28:35,760 --> 00:28:38,800 Speaker 1: L podcast. You can subscribe and listen to interviews at 501 00:28:38,840 --> 00:28:43,280 Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm 502 00:28:43,320 --> 00:28:46,760 Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on 503 00:28:46,800 --> 00:28:50,080 Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You 504 00:28:50,120 --> 00:28:52,640 Speaker 1: can always catch us worldwide on Bloomberg Radio.