1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast Home, Tom Keene, along 2 00:00:09,240 --> 00:00:12,719 Speaker 1: with the Jonathan Pheron and Lisa Brownwitz Jay Leie, we 3 00:00:12,880 --> 00:00:16,800 Speaker 1: bring you insight from the best and economics, finance, investment 4 00:00:17,079 --> 00:00:22,440 Speaker 1: and international relations. Find Bloomberg Surveillance and Ample podcast, Suncloud, 5 00:00:22,840 --> 00:00:26,280 Speaker 1: Bloomberg dot Com and of course on the Bloomberg termainment 6 00:00:29,000 --> 00:00:31,920 Speaker 1: for our audience worldwide on TV and radio. We begin 7 00:00:32,000 --> 00:00:34,680 Speaker 1: with a big issue, the gamification of stock markets, taking 8 00:00:34,720 --> 00:00:39,120 Speaker 1: center stage. Lawmakers growing increasingly concerned about distortions in the marketplace, 9 00:00:39,479 --> 00:00:42,440 Speaker 1: especially within crypto and the new phenomenon known as the 10 00:00:42,600 --> 00:00:45,560 Speaker 1: meme stocks. That's where our next guest comes in. Gary Ginstler, 11 00:00:45,840 --> 00:00:49,000 Speaker 1: the thirty third chair of the Securities and Exchange Commission 12 00:00:49,000 --> 00:00:51,760 Speaker 1: against the served as the Chairman of the CFTC under 13 00:00:51,760 --> 00:00:54,920 Speaker 1: President Obama and working for nearly two decades at Goldman. 14 00:00:54,920 --> 00:00:57,560 Speaker 1: He joins us now exclusively for his first interview on 15 00:00:57,640 --> 00:01:00,720 Speaker 1: this network in his new role alongside Bloomberg's Tom Kane. 16 00:01:00,760 --> 00:01:03,000 Speaker 1: Joining us to Gary. Great to catch up and thank 17 00:01:03,000 --> 00:01:04,679 Speaker 1: you for joining us for the next ten minutes. I 18 00:01:04,680 --> 00:01:07,319 Speaker 1: just want to start with your statement, your mission statement 19 00:01:07,400 --> 00:01:11,559 Speaker 1: to meet our mission of protecting investors that's the first line. Gary, 20 00:01:11,640 --> 00:01:13,640 Speaker 1: what do you do for a group of investors that 21 00:01:13,720 --> 00:01:17,760 Speaker 1: don't want your protection? Well, I'm gonna be animated every 22 00:01:17,800 --> 00:01:21,040 Speaker 1: day in this job by working families. UH, and working 23 00:01:21,080 --> 00:01:24,440 Speaker 1: families need the protection. And Franklin Roosevelt knew this in 24 00:01:24,480 --> 00:01:27,240 Speaker 1: the nineteen thirties. We know this now President Biden knows 25 00:01:27,280 --> 00:01:29,760 Speaker 1: that it's it's about working families ensuring they get the 26 00:01:29,800 --> 00:01:32,560 Speaker 1: disclosures so they can make their choices in the markets. 27 00:01:32,880 --> 00:01:35,880 Speaker 1: And there's a cop wing to be protecting against fraud 28 00:01:35,959 --> 00:01:39,440 Speaker 1: manipulation that helps companies raise money too. By the way, 29 00:01:39,440 --> 00:01:44,479 Speaker 1: by lowering the fraud manipulation ensuring that there's consistent disclosure 30 00:01:44,520 --> 00:01:47,920 Speaker 1: to those investors, I think companies benefit as well. Disclosure 31 00:01:48,000 --> 00:01:49,840 Speaker 1: is a broad concept, so let's narrow in on that 32 00:01:50,240 --> 00:01:53,640 Speaker 1: were specifically. Do you think we need more disclosure? Well, 33 00:01:53,680 --> 00:01:56,920 Speaker 1: I think there's trillions of dollars of assets under management 34 00:01:56,960 --> 00:02:02,200 Speaker 1: now calling for greater and consistant disclosure around climate risk, 35 00:02:02,600 --> 00:02:05,440 Speaker 1: and when I've also asked staff to take up UH 36 00:02:05,640 --> 00:02:09,920 Speaker 1: disclosures around human capital, the most important, really fundamental asset 37 00:02:09,960 --> 00:02:14,000 Speaker 1: of a company, the people that work there. Gary, thank 38 00:02:14,000 --> 00:02:16,720 Speaker 1: you so much for joining John and I this morning. 39 00:02:16,880 --> 00:02:20,519 Speaker 1: I'm gonna go broader here, Gary, I have never seen 40 00:02:21,000 --> 00:02:26,079 Speaker 1: a primal cry for an SEC commissioner to just do something. 41 00:02:26,400 --> 00:02:30,400 Speaker 1: You mentioned something I mentioned an hour ago, which is FDR. 42 00:02:30,480 --> 00:02:33,320 Speaker 1: I'll go to the Commonwealth speech early in the depression. 43 00:02:33,760 --> 00:02:37,960 Speaker 1: There is a primal screen chairman to do something. What 44 00:02:38,040 --> 00:02:40,920 Speaker 1: does the do something you want to do to help 45 00:02:41,000 --> 00:02:44,240 Speaker 1: us with meme stocks, with SPACs and other things. I 46 00:02:44,280 --> 00:02:48,200 Speaker 1: don't understand. Well, Tom, you're you're you're being a little 47 00:02:48,200 --> 00:02:50,160 Speaker 1: and honest. I'm sure that you understand them a little 48 00:02:50,240 --> 00:02:52,720 Speaker 1: better than that, and your listeners have listened to you 49 00:02:52,800 --> 00:02:55,520 Speaker 1: for years. But look what I think the important thing 50 00:02:55,639 --> 00:02:58,440 Speaker 1: is is investors want another there's somebody looking after that, 51 00:02:58,840 --> 00:03:02,120 Speaker 1: working families, engineers, people that have four oh one case. 52 00:03:02,600 --> 00:03:07,480 Speaker 1: So you mentioned special purpose acquisition companies or so called spects. 53 00:03:08,360 --> 00:03:12,040 Speaker 1: It's really making sure that the sponsor who's behind that 54 00:03:13,080 --> 00:03:17,840 Speaker 1: is fully disclosing their take on it. These are very 55 00:03:17,880 --> 00:03:21,519 Speaker 1: expensive dilutive products. I mean the sponsors take out a 56 00:03:21,639 --> 00:03:24,880 Speaker 1: chunk at the beginning, then there's more being taken out 57 00:03:24,960 --> 00:03:28,040 Speaker 1: later when they merge with the private company in what's 58 00:03:28,040 --> 00:03:31,480 Speaker 1: called a DESPAC. I just call that a target I 59 00:03:31,639 --> 00:03:35,760 Speaker 1: p O and it's those disclosures, ensuring that the retail 60 00:03:35,840 --> 00:03:39,960 Speaker 1: investors get the right disclosures and are protected and somebody's 61 00:03:40,000 --> 00:03:44,120 Speaker 1: not misleading them. And secondarily that they're participating just like 62 00:03:44,160 --> 00:03:47,200 Speaker 1: the the institutional investors and a lot of the big 63 00:03:47,200 --> 00:03:51,800 Speaker 1: institutions buy into these spacts later during that target I 64 00:03:51,920 --> 00:03:54,600 Speaker 1: p O and they do so at a preferred price 65 00:03:54,760 --> 00:03:57,840 Speaker 1: rather than the price the retail public's getting. Sherman guests 66 00:03:57,840 --> 00:03:59,840 Speaker 1: are long agoing far away. We had a red hair. 67 00:04:00,160 --> 00:04:02,880 Speaker 1: We all read them, you know, differently ourselves. I start 68 00:04:02,920 --> 00:04:05,680 Speaker 1: at the back and see the character and the integrity 69 00:04:05,680 --> 00:04:08,920 Speaker 1: of the people involved, and as you just mentioned, you 70 00:04:09,000 --> 00:04:12,200 Speaker 1: go up to that single page on delution to see 71 00:04:12,200 --> 00:04:15,800 Speaker 1: how bad the new shareholders are being taken. Do we 72 00:04:15,920 --> 00:04:19,560 Speaker 1: know the delustion? Do we have transparency on specs or 73 00:04:19,600 --> 00:04:23,760 Speaker 1: frankly on other challenges you have. Do we have visibility 74 00:04:23,800 --> 00:04:26,960 Speaker 1: on these key issues right now? Now? I've asked staff 75 00:04:27,040 --> 00:04:30,400 Speaker 1: to think across our whole markets. You know, technology rapidly 76 00:04:30,480 --> 00:04:34,200 Speaker 1: changes be names and so their their rules sometimes put 77 00:04:34,240 --> 00:04:37,520 Speaker 1: in place fifty years ago. For instance, on beneficial ownership, 78 00:04:37,560 --> 00:04:39,919 Speaker 1: Congress set if you went past five per cent and 79 00:04:40,000 --> 00:04:43,680 Speaker 1: you had an intent to to control a company you 80 00:04:43,720 --> 00:04:46,560 Speaker 1: have to disclose, but they gave you ten days and 81 00:04:46,600 --> 00:04:49,920 Speaker 1: we've been given authority to shorten that. Well, technology says 82 00:04:50,000 --> 00:04:52,840 Speaker 1: we can shorten that. Shouldn't shouldn't the whole market know 83 00:04:53,040 --> 00:04:56,480 Speaker 1: if somebody has tripped that five percent wire? So I've 84 00:04:56,520 --> 00:04:59,800 Speaker 1: asked staff to think about these types disclosure and stock 85 00:05:00,000 --> 00:05:04,840 Speaker 1: I backs in something called derivatives called security space swaps, 86 00:05:04,920 --> 00:05:08,560 Speaker 1: and yes, in these special purposes acquisition companies as well, 87 00:05:09,440 --> 00:05:12,799 Speaker 1: the delusion, the cost and the like. Well, Gary, this situation, 88 00:05:12,839 --> 00:05:16,080 Speaker 1: this conversation brings up the episode around doc Keane Gholst. 89 00:05:16,120 --> 00:05:17,560 Speaker 1: What have you learned from that event and what does 90 00:05:17,560 --> 00:05:21,200 Speaker 1: it mean for disclosures from family offices. Well, I think 91 00:05:21,240 --> 00:05:23,960 Speaker 1: that the events of March around the family office do 92 00:05:24,160 --> 00:05:28,520 Speaker 1: raise questions about the exclusion of family offices. But to 93 00:05:28,680 --> 00:05:32,200 Speaker 1: us at the U S Securities and Exchange Commission, we're gonna, 94 00:05:32,320 --> 00:05:35,440 Speaker 1: I guess staff to lean in how we can have 95 00:05:35,560 --> 00:05:39,279 Speaker 1: more disclosure about these derivatives security space swaps. We have 96 00:05:39,360 --> 00:05:43,200 Speaker 1: a reform regime that my predecessors put in place that 97 00:05:43,240 --> 00:05:46,760 Speaker 1: goes live in November of this year for more disclosure. 98 00:05:47,040 --> 00:05:49,400 Speaker 1: But I think we need to also aggregate some of 99 00:05:49,400 --> 00:05:53,280 Speaker 1: those holdings. So people, again, have you tripped that five 100 00:05:53,360 --> 00:05:57,400 Speaker 1: percent line? Uh? And we didn't have that disclosure. But 101 00:05:57,680 --> 00:06:00,480 Speaker 1: in the r key ghost Garry one of the choice 102 00:06:00,520 --> 00:06:03,240 Speaker 1: of you, and I think everybody that is politically with you, 103 00:06:03,360 --> 00:06:06,240 Speaker 1: and frankly you're people a little bit a little bit 104 00:06:06,279 --> 00:06:10,039 Speaker 1: off the Gunstler belief. They all have an immense respect 105 00:06:10,560 --> 00:06:14,120 Speaker 1: of how you have lived Wall Streets through your story career. 106 00:06:14,520 --> 00:06:16,800 Speaker 1: Great and John and I have talked about this before. 107 00:06:17,440 --> 00:06:22,039 Speaker 1: That's all great about derivative transparency, but the street is 108 00:06:22,080 --> 00:06:25,880 Speaker 1: set up based on mystery and based on the unknown. 109 00:06:26,240 --> 00:06:28,159 Speaker 1: How are you going to force and I'll pick on 110 00:06:28,240 --> 00:06:34,280 Speaker 1: two familiar names, Morgan Stanley and Goldman Sachs to display 111 00:06:34,440 --> 00:06:39,799 Speaker 1: and make visible their derivative holdings. Well, look, because uh, 112 00:06:39,880 --> 00:06:43,320 Speaker 1: the public is ultimately represented by those of us in 113 00:06:43,360 --> 00:06:46,760 Speaker 1: the official sector, and whether it was President Roosevelt in 114 00:06:46,880 --> 00:06:50,640 Speaker 1: n thirties, President Obama, with the passes of Dodd, Frank 115 00:06:51,279 --> 00:06:55,200 Speaker 1: uh and and multiple precedents in between, with Congress, we 116 00:06:55,320 --> 00:06:58,840 Speaker 1: have laws that help our capital markets and help those 117 00:06:58,880 --> 00:07:03,800 Speaker 1: working families and our client, you know, my client are 118 00:07:03,839 --> 00:07:07,880 Speaker 1: those working families, those those retirees that want a cop 119 00:07:07,960 --> 00:07:10,400 Speaker 1: on the beat and rules so yes, whether it's a 120 00:07:10,480 --> 00:07:13,480 Speaker 1: large firms that you've mentioned, there are other large firms, 121 00:07:13,520 --> 00:07:17,320 Speaker 1: we have the authority to bring such transparency and we'll 122 00:07:17,320 --> 00:07:19,760 Speaker 1: put things out to notice and comment. Folks will be 123 00:07:19,800 --> 00:07:22,000 Speaker 1: able to say they think it's good idea or not. 124 00:07:22,200 --> 00:07:26,520 Speaker 1: We'll look at the economic analysis, but overall we'll be 125 00:07:26,560 --> 00:07:29,800 Speaker 1: looking out for our ultimately, our the American public, who 126 00:07:29,800 --> 00:07:34,240 Speaker 1: are really our clients and President Biden's clients. Ultimately, if 127 00:07:34,280 --> 00:07:36,600 Speaker 1: you're cheating in on the bloom Black radio when Blomberg TV, 128 00:07:36,640 --> 00:07:38,600 Speaker 1: we're catching up with the thirty third year of the SEC. 129 00:07:39,000 --> 00:07:42,160 Speaker 1: Gary Gainstler check against the Let's continue this conversation around 130 00:07:42,160 --> 00:07:44,520 Speaker 1: our kegos. Tom and I had a difficulty for about 131 00:07:44,560 --> 00:07:46,360 Speaker 1: a month knowing what to cool our kegos. Was it 132 00:07:46,440 --> 00:07:48,480 Speaker 1: a family office, was it a fund? Was it an 133 00:07:48,480 --> 00:07:52,240 Speaker 1: asset manager? How would you describe it? Well, I don't 134 00:07:52,280 --> 00:07:54,320 Speaker 1: want to get into any one company because you could 135 00:07:54,400 --> 00:07:59,880 Speaker 1: imagine the reasons why not. But um large funds investing 136 00:08:00,040 --> 00:08:03,720 Speaker 1: our market are required to still play by the rules 137 00:08:04,080 --> 00:08:08,320 Speaker 1: are anti fraud and other rules and various disclosure rules. 138 00:08:08,320 --> 00:08:11,040 Speaker 1: But I do think that we at the SEC can 139 00:08:11,200 --> 00:08:13,840 Speaker 1: do more work here and said that's why the S 140 00:08:13,840 --> 00:08:19,600 Speaker 1: staff to have more disclosure rules related to these contracts 141 00:08:19,600 --> 00:08:23,920 Speaker 1: that that entity was using, using something called security spased swaps. 142 00:08:23,960 --> 00:08:27,680 Speaker 1: In Congress in two thousand and ten in the reform 143 00:08:27,720 --> 00:08:32,760 Speaker 1: movement after that crisis of OH eight past rules that said, yes, 144 00:08:33,160 --> 00:08:36,880 Speaker 1: the SEC can bring greater disclosure. In fact, it's not 145 00:08:36,920 --> 00:08:39,520 Speaker 1: even once in what's called Dodd Frank, but twice in 146 00:08:39,559 --> 00:08:43,840 Speaker 1: two different provisions. So I had meetings even yesterday with 147 00:08:43,920 --> 00:08:46,960 Speaker 1: staff about well, how do we stitch this together and 148 00:08:47,000 --> 00:08:49,080 Speaker 1: try to put something in front of our five member 149 00:08:49,120 --> 00:08:52,600 Speaker 1: commission and get it out for public notice. A gay 150 00:08:52,640 --> 00:08:55,520 Speaker 1: one stead of disclosures that we haven't discussed today, things 151 00:08:55,520 --> 00:08:59,400 Speaker 1: around the climate, around gender diversity as well, and in 152 00:08:59,440 --> 00:09:01,040 Speaker 1: the limited and we have left with you. I think 153 00:09:01,080 --> 00:09:03,200 Speaker 1: we need to talk about that as well. Republicans have 154 00:09:03,280 --> 00:09:05,439 Speaker 1: really pushed back against your role in all of this. 155 00:09:05,440 --> 00:09:08,200 Speaker 1: This is what twelve GOP senators wrote to you the 156 00:09:08,320 --> 00:09:11,120 Speaker 1: SEC on June fourteenth. They push for more disclosure related 157 00:09:11,160 --> 00:09:13,199 Speaker 1: to global warm because a little to do with providing 158 00:09:13,240 --> 00:09:17,240 Speaker 1: material information for investment purposes. Rather, activists with no fiducry 159 00:09:17,320 --> 00:09:19,720 Speaker 1: duty to the company or its shareholders are trying to 160 00:09:19,760 --> 00:09:24,839 Speaker 1: impose their progressive political views on publicly traded companies. Why 161 00:09:24,920 --> 00:09:27,280 Speaker 1: is that statement wrong in your view? So I have 162 00:09:27,360 --> 00:09:30,080 Speaker 1: deep respect for the members of Congress, the senators who 163 00:09:30,120 --> 00:09:33,680 Speaker 1: wrote that letter, and we've had some very good, uh 164 00:09:33,720 --> 00:09:38,520 Speaker 1: individual conversations about this. I think it's it's foremost about investors, 165 00:09:38,840 --> 00:09:42,320 Speaker 1: and this is at our regime. Investors want to know 166 00:09:42,480 --> 00:09:46,840 Speaker 1: more about this very important risk, climate risk, and how 167 00:09:46,880 --> 00:09:52,160 Speaker 1: do companies deal with whatever transitions might be in the future, 168 00:09:52,440 --> 00:09:55,640 Speaker 1: whatever physical risk that they have, How are they managing it, 169 00:09:55,720 --> 00:09:57,560 Speaker 1: how are they governing it, and what are some of 170 00:09:57,559 --> 00:10:01,920 Speaker 1: the basic metrics. So invest just want to see information, 171 00:10:02,280 --> 00:10:04,320 Speaker 1: and then the role of the SEC has to try 172 00:10:04,360 --> 00:10:09,000 Speaker 1: to bring some consistency, some comparability, and yes, reliability to 173 00:10:09,080 --> 00:10:13,960 Speaker 1: that information. And then investors benefit, and frankly also the 174 00:10:14,000 --> 00:10:18,360 Speaker 1: company's benefit because they get some they get some rules 175 00:10:18,640 --> 00:10:21,600 Speaker 1: as to how to present it, and they also then 176 00:10:21,840 --> 00:10:25,840 Speaker 1: can compete for capital in the capital markets based upon 177 00:10:25,920 --> 00:10:29,080 Speaker 1: that nexus. Chairman, guess, so I want to get a 178 00:10:29,160 --> 00:10:31,560 Speaker 1: question in here. I know Johnny has an important final 179 00:10:32,160 --> 00:10:35,720 Speaker 1: question is, well, what I know for certain garreas everything 180 00:10:35,840 --> 00:10:37,640 Speaker 1: is free. There was one day where the Wall Street 181 00:10:37,679 --> 00:10:41,520 Speaker 1: Journal had three consecutive ads one page next page next 182 00:10:41,520 --> 00:10:44,920 Speaker 1: page of free trading on Wall Street and all that's 183 00:10:44,960 --> 00:10:47,920 Speaker 1: devolved down to the meme stocks and the order flow debate. 184 00:10:48,200 --> 00:10:50,840 Speaker 1: What I know is the people that own order flow 185 00:10:51,240 --> 00:10:54,080 Speaker 1: are in billionaires row in New York City on fifty 186 00:10:54,160 --> 00:10:58,680 Speaker 1: seven Street. Does the sec of a need to somehow 187 00:10:58,960 --> 00:11:05,120 Speaker 1: remanage order flow and remanage the fiction of free trading? Tom, 188 00:11:05,160 --> 00:11:09,680 Speaker 1: I'm glad you're closed. It's not free. It's just simply so. 189 00:11:10,000 --> 00:11:15,120 Speaker 1: It might be zero commission, but underneath that, some of 190 00:11:15,160 --> 00:11:17,920 Speaker 1: these brokers, not all, but some of these brokers are 191 00:11:17,960 --> 00:11:23,000 Speaker 1: then selling your orders to another firm I'll call it 192 00:11:23,000 --> 00:11:26,640 Speaker 1: a wholesaler. And when they sell that, why why is 193 00:11:26,679 --> 00:11:30,440 Speaker 1: somebody paying for it? Is because there's an inherent conflict 194 00:11:30,559 --> 00:11:33,120 Speaker 1: that even if it's a penny or two pennies or 195 00:11:33,240 --> 00:11:38,880 Speaker 1: some small fraction that's trading off against you, the retail public. 196 00:11:38,920 --> 00:11:40,640 Speaker 1: So it's not free. You know what can we do 197 00:11:40,720 --> 00:11:42,520 Speaker 1: about it? We're gonna take a look at the whole 198 00:11:42,600 --> 00:11:46,920 Speaker 1: equity market structure, the stock market. Some other countries, the 199 00:11:47,000 --> 00:11:51,640 Speaker 1: United Kingdom, Canada, Australia, they've banned such payment ford or flow, 200 00:11:52,000 --> 00:11:54,480 Speaker 1: and so we're gonna take a look closely at that 201 00:11:55,320 --> 00:11:58,640 Speaker 1: also to look at when you're the retail public, when 202 00:11:58,679 --> 00:12:00,840 Speaker 1: you put in order in a mark could order, it 203 00:12:01,280 --> 00:12:04,520 Speaker 1: rarely goes to the New York Stock Exchange or not NaSTA, 204 00:12:04,760 --> 00:12:08,120 Speaker 1: it goes to these whost salers. That segmentation matters to 205 00:12:08,280 --> 00:12:10,599 Speaker 1: us the public. Check ENSLO. I know you've got to 206 00:12:10,640 --> 00:12:12,520 Speaker 1: run and your team is firing away emails kind of 207 00:12:12,520 --> 00:12:13,960 Speaker 1: gets to let you go. So I just one final 208 00:12:14,040 --> 00:12:16,959 Speaker 1: question on this very important issue. You really pushed back 209 00:12:17,000 --> 00:12:20,559 Speaker 1: against the language there. It's not free. Is that something 210 00:12:20,600 --> 00:12:23,599 Speaker 1: you want to do something about the language specifically, or 211 00:12:23,720 --> 00:12:28,079 Speaker 1: is the priority the activity? The priority is the investing public, 212 00:12:28,280 --> 00:12:30,040 Speaker 1: and so we're going to take a look at this 213 00:12:30,080 --> 00:12:33,040 Speaker 1: and say what works best for them. Congress has given 214 00:12:33,040 --> 00:12:36,280 Speaker 1: authority to think about the efficiency of markets, and it's 215 00:12:36,280 --> 00:12:39,600 Speaker 1: the efficiency for the big pension funds. It's efficiency for 216 00:12:39,679 --> 00:12:43,000 Speaker 1: that person that's going on a platform and app and 217 00:12:43,000 --> 00:12:46,560 Speaker 1: and trying to say for their future. And so that's 218 00:12:46,600 --> 00:12:50,679 Speaker 1: our priority. The language matters, but I don't think it's 219 00:12:50,720 --> 00:12:54,320 Speaker 1: just about disclosure. I also think that there's inherent conflicts 220 00:12:54,320 --> 00:12:56,439 Speaker 1: and we need to take a close look at at 221 00:12:56,480 --> 00:12:59,720 Speaker 1: how we reform these markets. Check Inslo, thanks for you 222 00:12:59,720 --> 00:13:01,200 Speaker 1: wanting am and on. We hope this is the beginning 223 00:13:01,240 --> 00:13:03,800 Speaker 1: of an ongoing dialog with you. The thirty third chat 224 00:13:04,080 --> 00:13:11,480 Speaker 1: of the sect against the Thank you sir, just getting 225 00:13:11,559 --> 00:13:12,880 Speaker 1: right to it. Our interview of the day on the 226 00:13:12,920 --> 00:13:16,959 Speaker 1: equity market, Mike Wilson has been just absolutely brilliant trying 227 00:13:16,960 --> 00:13:19,200 Speaker 1: to go back and forth the nuances of the equity 228 00:13:19,240 --> 00:13:23,520 Speaker 1: market in this great bull market Mike Wilson with Morgan Stanley, 229 00:13:23,640 --> 00:13:27,839 Speaker 1: is the great bull market over now? I don't think 230 00:13:27,880 --> 00:13:30,960 Speaker 1: it's over. I think this is you know, the typical 231 00:13:31,080 --> 00:13:33,680 Speaker 1: pause that we get as we go from early to 232 00:13:33,720 --> 00:13:36,720 Speaker 1: mids angle. Uh, you know, PEK created changes. John was saying, 233 00:13:36,880 --> 00:13:39,960 Speaker 1: is what we've been focused on not just for you know, 234 00:13:40,040 --> 00:13:43,319 Speaker 1: growth measures, whether it be economic data or say earnings 235 00:13:43,360 --> 00:13:46,480 Speaker 1: growth data, but also policy. You know, the Fed you 236 00:13:46,520 --> 00:13:49,600 Speaker 1: know has you know, kind of pivoted a bit to 237 00:13:49,640 --> 00:13:54,120 Speaker 1: start the long process of removing monetary accommodation. 're not 238 00:13:54,160 --> 00:13:56,600 Speaker 1: doing it yet, but the market, you know, keys off 239 00:13:56,640 --> 00:13:59,520 Speaker 1: of that, and we've been focused on really money supplied 240 00:13:59,600 --> 00:14:02,400 Speaker 1: growth because in the world where you're on the zero 241 00:14:02,480 --> 00:14:06,360 Speaker 1: bound globally, right and every in every sort of major market, 242 00:14:07,120 --> 00:14:11,160 Speaker 1: that the key determinant whether monetary policy accommodation is accelerating 243 00:14:11,240 --> 00:14:14,080 Speaker 1: or decelerating. Is MP two growth and EMP two growth 244 00:14:14,120 --> 00:14:17,000 Speaker 1: peaked at the end of February early March and has 245 00:14:17,000 --> 00:14:19,800 Speaker 1: been slowly coming down, and that we think that has 246 00:14:19,800 --> 00:14:23,760 Speaker 1: had a very large impact on the speculative parts of 247 00:14:24,240 --> 00:14:27,120 Speaker 1: asset markets. Obviously cryptos part of that, you know, very 248 00:14:27,120 --> 00:14:30,760 Speaker 1: expensive kind of unprofitable companies, backs and things like that. 249 00:14:30,800 --> 00:14:35,480 Speaker 1: They've corrected significantly because at the margin, right, the accommodation 250 00:14:35,600 --> 00:14:39,080 Speaker 1: has already been deteriorating. So my campus out when it 251 00:14:39,120 --> 00:14:41,600 Speaker 1: comes to the debate away from the index level, within 252 00:14:41,640 --> 00:14:45,760 Speaker 1: the index, the churn, the rotation growth versus cyclicals, what 253 00:14:45,760 --> 00:14:48,360 Speaker 1: does that look like for you and the team? Now? Yeah, so, 254 00:14:48,480 --> 00:14:50,760 Speaker 1: I mean, you know, the beginning of the year, obviously 255 00:14:50,840 --> 00:14:52,760 Speaker 1: the you know, the call was rates were going to 256 00:14:52,840 --> 00:14:55,640 Speaker 1: go higher, and that you took out the very expensive 257 00:14:55,680 --> 00:14:58,720 Speaker 1: long duration assets. That was the beginning of the correction. 258 00:14:59,160 --> 00:15:02,720 Speaker 1: Then it kind of shift too. Low quality names started 259 00:15:02,720 --> 00:15:05,600 Speaker 1: to come off the boil, and now look the market's 260 00:15:05,640 --> 00:15:08,560 Speaker 1: going after kind of the reflation theory, typical assets had 261 00:15:08,600 --> 00:15:10,960 Speaker 1: probably ran up a little too far. But you know, 262 00:15:10,960 --> 00:15:12,960 Speaker 1: I think, as Leasa said, there's just the inflows of 263 00:15:13,000 --> 00:15:16,040 Speaker 1: money you know, are still so good. The money doesn't 264 00:15:16,120 --> 00:15:18,160 Speaker 1: leave the market, it just looks for another place to go. 265 00:15:18,280 --> 00:15:21,120 Speaker 1: So recently, obviously longer duration growth stocks have done better 266 00:15:21,520 --> 00:15:23,920 Speaker 1: as rates have come down, and people say, well, if 267 00:15:23,920 --> 00:15:25,640 Speaker 1: the rate of changes peaking, and then I want to 268 00:15:25,680 --> 00:15:27,200 Speaker 1: go where the growth is. So the market is being 269 00:15:27,280 --> 00:15:30,400 Speaker 1: very efficient internally. The problem is it's very difficult to 270 00:15:30,400 --> 00:15:33,800 Speaker 1: trade for people because it's flip flopping back and forth. 271 00:15:33,840 --> 00:15:36,640 Speaker 1: And by the way, this is all normal during the 272 00:15:36,680 --> 00:15:41,880 Speaker 1: mid cycle transition is what always happens. You know, this 273 00:15:42,000 --> 00:15:43,480 Speaker 1: is it. This is what you get. It's a chop 274 00:15:43,520 --> 00:15:45,880 Speaker 1: at to churn. It's not as easy as it wasn't 275 00:15:46,000 --> 00:15:47,600 Speaker 1: last year, and we you know, it's probably got another 276 00:15:47,640 --> 00:15:49,840 Speaker 1: three to six months of this sort of patterned Mike, 277 00:15:49,840 --> 00:15:52,200 Speaker 1: could you draw a distinction between the rate of change 278 00:15:52,280 --> 00:15:55,320 Speaker 1: in the money supply the amount of cash slashing around 279 00:15:55,360 --> 00:15:58,760 Speaker 1: the system versus the actual amount. Basically that we still 280 00:15:58,800 --> 00:16:01,880 Speaker 1: are climbing to new hot eyes. We saw this catastrophic increase. 281 00:16:01,880 --> 00:16:03,800 Speaker 1: I'm looking at the M two chart right now on 282 00:16:03,800 --> 00:16:07,120 Speaker 1: the Bloomberg terminal, just fascinating to see how massive the 283 00:16:07,160 --> 00:16:10,360 Speaker 1: growth has been. Why is that not enough to keep 284 00:16:10,400 --> 00:16:12,880 Speaker 1: the rally going, given the fact that we're also getting 285 00:16:13,240 --> 00:16:16,600 Speaker 1: the economic recovery, well, I think it is keeping the 286 00:16:16,920 --> 00:16:19,160 Speaker 1: rally going. I mean, you know, the index level, we 287 00:16:19,200 --> 00:16:22,200 Speaker 1: haven't really seen any correction. What you know, the the 288 00:16:22,320 --> 00:16:25,520 Speaker 1: change at the sort of rate of change movement in 289 00:16:25,520 --> 00:16:28,160 Speaker 1: in M two or whatever money supply growth you're looking at, 290 00:16:28,680 --> 00:16:32,120 Speaker 1: you know, is causing the internals to move around a lot. Okay, 291 00:16:32,160 --> 00:16:35,480 Speaker 1: So once again, you know, the deterioration and that money 292 00:16:35,520 --> 00:16:38,880 Speaker 1: supply growth is causing the more speculative parts of the 293 00:16:38,880 --> 00:16:42,040 Speaker 1: market to really underperform, whereas you know, it's becoming a 294 00:16:42,120 --> 00:16:44,840 Speaker 1: higher quality bid. You know, maybe the markets moving towards 295 00:16:44,840 --> 00:16:48,200 Speaker 1: where evaluation is more amenable, and so it's doing it 296 00:16:48,240 --> 00:16:51,760 Speaker 1: that way. Until you know, we see outflows from the 297 00:16:51,800 --> 00:16:54,600 Speaker 1: equity market, the index level is probably gonna be okay. 298 00:16:54,600 --> 00:16:57,360 Speaker 1: It's just it's it's a sideways chop, and so the 299 00:16:57,360 --> 00:16:59,280 Speaker 1: the action is in the internals of the market, not 300 00:16:59,440 --> 00:17:02,400 Speaker 1: the index. Mike, when you touched your analysts, and you know, 301 00:17:02,440 --> 00:17:04,320 Speaker 1: I don't know if you're doing this or they're doing it, 302 00:17:04,359 --> 00:17:07,680 Speaker 1: but when you sum up SMP earnings, can you get 303 00:17:07,680 --> 00:17:10,679 Speaker 1: out to a two d and fifty dollars statistic like 304 00:17:10,800 --> 00:17:15,200 Speaker 1: some of the optimists, Uh, well maybe in like five years, 305 00:17:15,240 --> 00:17:20,679 Speaker 1: I mean, okay shot. But we we think that's another 306 00:17:20,800 --> 00:17:23,000 Speaker 1: risk here is that the peak rate of change on 307 00:17:23,080 --> 00:17:27,080 Speaker 1: growth has also been reached. And um, something we've been 308 00:17:27,080 --> 00:17:28,680 Speaker 1: focused on a lot here time is at the first 309 00:17:28,760 --> 00:17:33,199 Speaker 1: quarter benefited um from you know, two fiscal stimuluses that 310 00:17:33,200 --> 00:17:36,040 Speaker 1: were enormous. It also benefited from, you know, the run 311 00:17:36,080 --> 00:17:40,040 Speaker 1: up in cryptocurrencies, which increased wealth by over a trillion dollars, 312 00:17:40,520 --> 00:17:42,520 Speaker 1: and some of that leaked into the real economy. So 313 00:17:42,520 --> 00:17:45,399 Speaker 1: what we're focused on, what we think is a potentially 314 00:17:45,440 --> 00:17:48,760 Speaker 1: is that people are now annuallyzing this Q one from 315 00:17:48,760 --> 00:17:51,719 Speaker 1: a margin and sort of earnings growth standpoint, and so 316 00:17:51,760 --> 00:17:53,800 Speaker 1: we're having a hard time, quite frankly getting to to 317 00:17:54,040 --> 00:17:57,560 Speaker 1: ten for next year, which is where the bottomtop consensus is. 318 00:17:57,880 --> 00:18:00,520 Speaker 1: Part of that is because we're baking in some tax increases, 319 00:18:00,560 --> 00:18:03,560 Speaker 1: but also we think the margin assumptions now have got 320 00:18:03,600 --> 00:18:05,600 Speaker 1: a little too aggressive. So now we think the earning 321 00:18:05,640 --> 00:18:08,159 Speaker 1: story is also something needs to be tempered back, and 322 00:18:08,200 --> 00:18:09,800 Speaker 1: we saw the beginning of that last week with the 323 00:18:09,800 --> 00:18:12,840 Speaker 1: financial stacks, some of the financials companies talking talking down 324 00:18:12,880 --> 00:18:15,480 Speaker 1: guidance a bit, which is why those stacks underperformed. It 325 00:18:15,520 --> 00:18:18,840 Speaker 1: wasn't just about the rate curve the landing. This is 326 00:18:18,880 --> 00:18:20,200 Speaker 1: the heart of the matter, John, I don't mean to 327 00:18:20,240 --> 00:18:21,960 Speaker 1: step on you, but this is the heart of the matter. 328 00:18:22,440 --> 00:18:25,919 Speaker 1: I mean, you've got our earnings analysis in every interview 329 00:18:25,960 --> 00:18:28,280 Speaker 1: we do is different in nuance and it really is 330 00:18:28,320 --> 00:18:29,919 Speaker 1: the heart of the matter to get through the summer. 331 00:18:29,960 --> 00:18:31,479 Speaker 1: I remember the note that Mike and the team put 332 00:18:31,520 --> 00:18:34,360 Speaker 1: out a couple of months ago around earning season. Mike, 333 00:18:34,440 --> 00:18:37,400 Speaker 1: he was execution risk. That's what you were discussing, execution risk. 334 00:18:37,440 --> 00:18:39,600 Speaker 1: When it comes to Machin's What is the cost pressure 335 00:18:39,640 --> 00:18:42,600 Speaker 1: you focused on, Mike that you worried about. Well, I 336 00:18:42,600 --> 00:18:44,480 Speaker 1: think the one that we have to pay attention to 337 00:18:44,520 --> 00:18:46,720 Speaker 1: the most because this is the one that will probably 338 00:18:46,800 --> 00:18:49,959 Speaker 1: cause the FED to move more quickly or not is wages. Right, 339 00:18:50,000 --> 00:18:53,879 Speaker 1: So labor is an enormous, you know, input to most 340 00:18:53,880 --> 00:18:57,400 Speaker 1: companies cost structures. And you know, I think the transient 341 00:18:57,520 --> 00:18:59,520 Speaker 1: like the materials and some of the commodity stuff is 342 00:18:59,560 --> 00:19:04,280 Speaker 1: somewhat is in because obviously it's self prectic. There's demand instruction, 343 00:19:04,560 --> 00:19:06,960 Speaker 1: but labor, you know, seems to be a bit more structural. 344 00:19:07,280 --> 00:19:09,240 Speaker 1: You know, we did destroy some of the labor supply 345 00:19:09,560 --> 00:19:11,880 Speaker 1: in the pandemic and the lockdown. There's some people now 346 00:19:11,920 --> 00:19:16,320 Speaker 1: retiring earlier given the windfalls asset prices, and you know, 347 00:19:16,480 --> 00:19:19,159 Speaker 1: and also the movement of labor around the country, you know, 348 00:19:19,280 --> 00:19:21,159 Speaker 1: where people don't live, where they need to live to 349 00:19:21,680 --> 00:19:24,159 Speaker 1: meet the job openings, and so that part of it 350 00:19:24,240 --> 00:19:26,879 Speaker 1: I think is really important to watch here over the 351 00:19:26,880 --> 00:19:29,160 Speaker 1: next couple of months. What's the direction of the turn 352 00:19:29,280 --> 00:19:31,960 Speaker 1: right now, Mike, what's set to outperform over the next 353 00:19:32,000 --> 00:19:36,200 Speaker 1: three to six months. What's the best asset? Yeah, what's 354 00:19:36,240 --> 00:19:38,560 Speaker 1: the direction of the turn of the turn underneath the 355 00:19:38,960 --> 00:19:42,600 Speaker 1: headline number of the index. Well, I think well, first 356 00:19:42,640 --> 00:19:45,440 Speaker 1: of all, we're pretty barished at the index level because 357 00:19:45,480 --> 00:19:48,280 Speaker 1: we're having a hard time getting much about four thousand 358 00:19:48,320 --> 00:19:51,240 Speaker 1: by year ends. That's pretty punky returns at the index level. 359 00:19:51,720 --> 00:19:54,000 Speaker 1: So you know, once again we're trying to make money 360 00:19:54,119 --> 00:19:56,520 Speaker 1: at the top level of the tech level, trying to 361 00:19:56,640 --> 00:19:58,840 Speaker 1: trying to be a bit more nimble and tactical UM. 362 00:19:58,920 --> 00:20:01,480 Speaker 1: But we still believe in the flation inflationary story. So 363 00:20:01,640 --> 00:20:04,280 Speaker 1: I mean, banks and material stocks have corrected here recently, 364 00:20:04,640 --> 00:20:07,439 Speaker 1: are you can start looking back to going to UM 365 00:20:07,600 --> 00:20:09,600 Speaker 1: growth areas. I think you gotta be released selective in 366 00:20:09,720 --> 00:20:12,280 Speaker 1: terms of what you pay. We've been favoring the higher 367 00:20:12,320 --> 00:20:14,440 Speaker 1: quality growth theories that are more reasonably priced. That would 368 00:20:14,480 --> 00:20:17,720 Speaker 1: include some of the fang stocks. And then healthcare we 369 00:20:17,760 --> 00:20:20,160 Speaker 1: think is a very interesting area where there's probably pent 370 00:20:20,240 --> 00:20:23,360 Speaker 1: up demand as opposed to payback in demand from last 371 00:20:23,400 --> 00:20:27,119 Speaker 1: year because we'll put off healthcare services and whatnot. So 372 00:20:27,200 --> 00:20:29,639 Speaker 1: that those are areas we're focused on right now. We're 373 00:20:29,640 --> 00:20:31,119 Speaker 1: going to continue to have an open mind and be 374 00:20:31,160 --> 00:20:34,479 Speaker 1: flexible as a market changes. Mike Wilson, Morgan Stanley might 375 00:20:34,480 --> 00:20:36,040 Speaker 1: looking forward to get you in the studio soon. It's 376 00:20:36,080 --> 00:20:44,040 Speaker 1: going to catch up the chief US equity strategists. It's 377 00:20:44,040 --> 00:20:46,600 Speaker 1: a cheap guy funny guests that appears on Bloomberg Surveillance 378 00:20:46,640 --> 00:20:50,000 Speaker 1: on radio and TV. When some starts to interrupt, keep sulking. 379 00:20:50,160 --> 00:20:52,520 Speaker 1: James Sweeney's back with us on police to say sweets. 380 00:20:52,560 --> 00:20:55,440 Speaker 1: Chief economist James gonna have you with us on the show. 381 00:20:55,520 --> 00:20:58,199 Speaker 1: We're just continuing this conversation about the amount of uncertainty 382 00:20:58,240 --> 00:21:00,560 Speaker 1: we have, the lack of clarity as we work our 383 00:21:00,600 --> 00:21:02,920 Speaker 1: way through this reopening. When do you think we will 384 00:21:02,960 --> 00:21:05,000 Speaker 1: get that is at the end of summer, the beginning 385 00:21:05,000 --> 00:21:08,640 Speaker 1: of September. James, what's the date in your diary. Yeah, 386 00:21:08,720 --> 00:21:12,040 Speaker 1: I think late summer we start to get uh we 387 00:21:12,200 --> 00:21:15,080 Speaker 1: we get better information on the wage picture, and we 388 00:21:15,080 --> 00:21:21,600 Speaker 1: could talk more uh informed about about services inflation given 389 00:21:21,640 --> 00:21:25,080 Speaker 1: that wage picture. The problem right now is that with 390 00:21:25,280 --> 00:21:28,879 Speaker 1: this reopening, with the checks just sent, with the base effects, 391 00:21:28,960 --> 00:21:31,439 Speaker 1: with the seasonal effects, with the composition effects in the 392 00:21:31,440 --> 00:21:34,520 Speaker 1: wage data, you can't really tell. But but I'll tell 393 00:21:34,560 --> 00:21:37,480 Speaker 1: you what was happening. What was helpful in this FED 394 00:21:37,560 --> 00:21:41,639 Speaker 1: meaning is exactly that dropping that kind of debate about 395 00:21:41,680 --> 00:21:44,560 Speaker 1: temporary which was which was lame all along, because that 396 00:21:44,640 --> 00:21:47,920 Speaker 1: was that word was aimed at a strong man argument 397 00:21:48,359 --> 00:21:52,840 Speaker 1: of very high inflation down the road, where professionals care 398 00:21:52,880 --> 00:21:57,480 Speaker 1: about the path of inflation within this and whether inflation 399 00:21:57,480 --> 00:21:59,479 Speaker 1: could be a little bit higher and a little bit 400 00:21:59,480 --> 00:22:02,919 Speaker 1: more vol tile once we're through this whole pandemic event. 401 00:22:03,359 --> 00:22:06,639 Speaker 1: And I think the the incoming information suggests that that 402 00:22:06,840 --> 00:22:09,879 Speaker 1: is very possible. The path is very interesting, um and 403 00:22:09,880 --> 00:22:13,520 Speaker 1: a little bit higher inflation, higher wages, more volatility is 404 00:22:13,560 --> 00:22:15,960 Speaker 1: possible too. And I feel like the FET is having 405 00:22:15,960 --> 00:22:19,480 Speaker 1: that debate and they're acknowledging those risks now, and so 406 00:22:19,560 --> 00:22:22,600 Speaker 1: let's please stop talking about temporary because of course the 407 00:22:22,640 --> 00:22:26,240 Speaker 1: pandemic was temporary and we had special factors throwing inflation around. 408 00:22:26,440 --> 00:22:29,280 Speaker 1: James Sweeney, where's the emotional number? I mean for the 409 00:22:29,320 --> 00:22:33,440 Speaker 1: people listening and watching, it's real simple pros are framing 410 00:22:33,520 --> 00:22:38,040 Speaker 1: three percent inflation fo dotted out. Uh, where's the emotional 411 00:22:38,200 --> 00:22:43,359 Speaker 1: number where the nation goes into a collective sweat Well, 412 00:22:43,400 --> 00:22:47,639 Speaker 1: I I think for broad household inflation expectations, you know, 413 00:22:47,760 --> 00:22:50,800 Speaker 1: that's actually not an inflation number. It's a spending number. 414 00:22:51,080 --> 00:22:54,920 Speaker 1: It's it's when you see house prices and and car prices, 415 00:22:55,000 --> 00:22:57,680 Speaker 1: you know, start to rip when people are buying things 416 00:22:57,760 --> 00:23:00,399 Speaker 1: because they think prices are higher in the future. But 417 00:23:00,440 --> 00:23:03,880 Speaker 1: actually the surveys suggest that people are saying that they 418 00:23:04,000 --> 00:23:05,959 Speaker 1: it's a bad time to buy a house or a 419 00:23:05,960 --> 00:23:09,480 Speaker 1: car because because prices are higher right now. So I 420 00:23:09,800 --> 00:23:11,840 Speaker 1: don't think we're going to get there. I think we're 421 00:23:11,840 --> 00:23:13,800 Speaker 1: just gonna have a little bit higher inflation, a little 422 00:23:13,800 --> 00:23:15,960 Speaker 1: bit more aboli high inflation. I think we're gonna come 423 00:23:16,000 --> 00:23:19,840 Speaker 1: down from this kind of temporary base effect peak. And 424 00:23:19,880 --> 00:23:23,359 Speaker 1: the question is how much wage growth, how much services inflation, 425 00:23:23,800 --> 00:23:25,480 Speaker 1: and are we gonna be running at you know, two 426 00:23:25,480 --> 00:23:28,920 Speaker 1: point to two point three sustainably for for a few years. 427 00:23:28,960 --> 00:23:31,840 Speaker 1: Because if we're there, that's fifty basis point higher and 428 00:23:31,960 --> 00:23:35,359 Speaker 1: core terms than the average of the last twenty five years. 429 00:23:35,400 --> 00:23:37,640 Speaker 1: And it's a pretty big deal. But to a lot 430 00:23:37,680 --> 00:23:40,960 Speaker 1: of the strawman arguments about money supply causing runaway inflation 431 00:23:41,280 --> 00:23:43,639 Speaker 1: seems pretty boring. But the people in the bond market, 432 00:23:43,720 --> 00:23:46,800 Speaker 1: that matters, and that's what we're focused on. James. You 433 00:23:46,840 --> 00:23:50,359 Speaker 1: talk about higher used car prices, you talk about home prices. 434 00:23:50,640 --> 00:23:54,320 Speaker 1: Has there ever been a precedent for the diversion experiences 435 00:23:54,359 --> 00:23:58,280 Speaker 1: of individuals on the ground buying stuff and official measures 436 00:23:58,320 --> 00:24:02,159 Speaker 1: of inflation? You know, I don't think so, and I 437 00:24:02,200 --> 00:24:05,520 Speaker 1: think the reason is, you know, those inflation and the 438 00:24:05,560 --> 00:24:08,080 Speaker 1: these are two third services and one third goods, and 439 00:24:08,160 --> 00:24:12,720 Speaker 1: services spending is typically remarkably steady, even in recessions. I 440 00:24:12,760 --> 00:24:16,760 Speaker 1: mean we we've had two contractions in services consumption I 441 00:24:16,800 --> 00:24:21,159 Speaker 1: think in sixty or seventy years before before this event, 442 00:24:21,280 --> 00:24:24,600 Speaker 1: So you've had significant volatility in that side. So you 443 00:24:24,640 --> 00:24:27,040 Speaker 1: have a lot of relative prices that have to adjust. 444 00:24:27,040 --> 00:24:30,119 Speaker 1: As always, people in everyday life were more focused on 445 00:24:30,200 --> 00:24:33,760 Speaker 1: goods prices and services prices, but the whole price complex 446 00:24:34,160 --> 00:24:36,960 Speaker 1: is jumbled up by the specifics of this pandemic, and 447 00:24:37,000 --> 00:24:40,399 Speaker 1: people should not lose sight of that. Also, James, the 448 00:24:40,440 --> 00:24:43,320 Speaker 1: FED has had a pretty aggressive role in the bond 449 00:24:43,359 --> 00:24:46,120 Speaker 1: market with their bond purchases, which has raised some questions 450 00:24:46,160 --> 00:24:49,840 Speaker 1: about the accuracy the effectiveness of looking at break even 451 00:24:49,960 --> 00:24:53,359 Speaker 1: rates for market predictions of longer term inflation. Do you 452 00:24:53,400 --> 00:24:56,040 Speaker 1: think that there has been so much noise and FED 453 00:24:56,119 --> 00:24:59,840 Speaker 1: buying around those particular instruments as to render them much 454 00:25:00,080 --> 00:25:02,840 Speaker 1: less useful as a gauge of a market expectation for 455 00:25:02,920 --> 00:25:06,919 Speaker 1: longer term inflation. I I wouldn't blame FED purchases. I 456 00:25:06,920 --> 00:25:09,359 Speaker 1: think they were never a good gauge for for longer 457 00:25:09,480 --> 00:25:12,680 Speaker 1: term inflation expectation. There's the risk premium in break even, 458 00:25:13,040 --> 00:25:16,680 Speaker 1: and I never call break even inflation expectations. I call 459 00:25:16,760 --> 00:25:21,840 Speaker 1: them break evens. There there there's something different, James Sweeney, 460 00:25:21,880 --> 00:25:24,199 Speaker 1: He's gonna say it's gonna catch off pass always an urn. 461 00:25:24,240 --> 00:25:27,080 Speaker 1: Apologies for the instruction to the Kimas sanction. Jimes Sweeney 462 00:25:27,080 --> 00:25:36,199 Speaker 1: that Swiss chief economy it is definitive because it is 463 00:25:36,480 --> 00:25:40,600 Speaker 1: wildly eclectic and controversial. That is a new addition of 464 00:25:40,680 --> 00:25:44,600 Speaker 1: Foreign Affairs magazine. It is can China keep rising? Dan 465 00:25:44,680 --> 00:25:48,760 Speaker 1: Kers failing with his expertise on China, and George Marshall 466 00:25:48,800 --> 00:25:51,760 Speaker 1: of another time in places with us this morning with 467 00:25:51,880 --> 00:25:54,800 Speaker 1: an absolute tour to force. I picked up the magazine 468 00:25:55,040 --> 00:25:57,720 Speaker 1: and I'm like everybody else, you know, I read the commercials, 469 00:25:57,960 --> 00:26:00,480 Speaker 1: the advertisements, Dan, and then I go of the table 470 00:26:00,560 --> 00:26:03,879 Speaker 1: of contents and this is wildly eclectic. I want you 471 00:26:03,920 --> 00:26:09,800 Speaker 1: to inform our audience about the adversarial environment of Lung Jesu. 472 00:26:09,960 --> 00:26:14,400 Speaker 1: Who is he? Tom Good to see you launches this 473 00:26:14,400 --> 00:26:17,760 Speaker 1: this really fascinating figure. He's one of the people in China, 474 00:26:17,800 --> 00:26:20,800 Speaker 1: one of the most respected analysts of the world of 475 00:26:20,840 --> 00:26:23,760 Speaker 1: international politics in China, and he has for a long 476 00:26:23,760 --> 00:26:26,399 Speaker 1: time been one of the most prominent Chinese advocates of 477 00:26:26,480 --> 00:26:29,280 Speaker 1: a cooperative US China relationship. And so what we asked 478 00:26:29,320 --> 00:26:31,680 Speaker 1: him to do, as someone who has been really supportive 479 00:26:31,680 --> 00:26:35,280 Speaker 1: of cooperation between the United States and China historically, was 480 00:26:35,320 --> 00:26:38,560 Speaker 1: to release to tell us from China's perspective, how does 481 00:26:38,600 --> 00:26:42,440 Speaker 1: this deterioration in the relationship between the two countries, between 482 00:26:42,440 --> 00:26:45,840 Speaker 1: the two superpowers look from Paging's perspective, we in the 483 00:26:45,880 --> 00:26:50,359 Speaker 1: United States and in Europe no exactly what we see 484 00:26:51,200 --> 00:26:53,760 Speaker 1: leaders in Beijing, especially Inder changent Ping doing that looks 485 00:26:53,800 --> 00:26:57,600 Speaker 1: menacing to us. We asked this launches, this advocate of 486 00:26:57,600 --> 00:26:59,720 Speaker 1: of a cooperative relationship to tell us what that looks 487 00:26:59,720 --> 00:27:02,359 Speaker 1: like from Beijing's perspective and what he sees and what 488 00:27:02,400 --> 00:27:05,320 Speaker 1: he what he tries to convey to American readers especially, 489 00:27:05,840 --> 00:27:09,400 Speaker 1: is a situation in which the United States is, as 490 00:27:09,440 --> 00:27:11,880 Speaker 1: he tells it is really going out of its way 491 00:27:11,920 --> 00:27:14,359 Speaker 1: to threaten some of the core interests of China and Taiwan, 492 00:27:14,600 --> 00:27:16,800 Speaker 1: on on Hong Kong. Some of the things that if 493 00:27:16,800 --> 00:27:19,400 Speaker 1: you're Chi Jim paying you see is as really integral 494 00:27:19,480 --> 00:27:23,080 Speaker 1: to your power and your success. Our sources of growing 495 00:27:23,119 --> 00:27:25,600 Speaker 1: tension with the United States. The tourtive force of your 496 00:27:25,640 --> 00:27:29,119 Speaker 1: academics is George Marshall. Not only were the chaos of China, 497 00:27:29,560 --> 00:27:33,639 Speaker 1: but the chaos of US policy and roughly nineteen and 498 00:27:33,760 --> 00:27:38,000 Speaker 1: ninety seven, what is the chaos of President Gee's policy 499 00:27:38,119 --> 00:27:42,280 Speaker 1: right now? Domestically? What are the challenges he has now? 500 00:27:42,680 --> 00:27:45,760 Speaker 1: Is China attempts to keep rising. So it's a great 501 00:27:45,840 --> 00:27:48,040 Speaker 1: question and it's part of what really animated this set 502 00:27:48,040 --> 00:27:50,720 Speaker 1: of pieces that we put under the heading can China 503 00:27:50,800 --> 00:27:52,760 Speaker 1: Keep Rising? If you go back to the beginning of 504 00:27:52,760 --> 00:27:55,359 Speaker 1: this year, think about how good a position chi Japing 505 00:27:55,440 --> 00:27:57,480 Speaker 1: seemed to be in. You know, the United States look 506 00:27:57,560 --> 00:27:59,959 Speaker 1: to be in political chaos. We just had jin your 507 00:28:00,240 --> 00:28:05,760 Speaker 1: six the insurrection uh. The US is struggling to control COVID. 508 00:28:06,480 --> 00:28:08,720 Speaker 1: China was shipping vaccines around the world. You know, just 509 00:28:08,760 --> 00:28:11,840 Speaker 1: six months later that picture has shifted almost entirely. You 510 00:28:11,840 --> 00:28:15,920 Speaker 1: have she jimping um uh really on the rocks over 511 00:28:16,000 --> 00:28:18,560 Speaker 1: you know, the origins of origins of the virus, and 512 00:28:18,680 --> 00:28:20,199 Speaker 1: you know that even if you leave aside the kind 513 00:28:20,200 --> 00:28:23,639 Speaker 1: of lab league questions, the questions of what China failed 514 00:28:23,640 --> 00:28:25,320 Speaker 1: to do and the ways it failed to communicate and 515 00:28:25,359 --> 00:28:28,560 Speaker 1: suppressed information in the early days of the outbreak in Wuhan, 516 00:28:29,320 --> 00:28:32,040 Speaker 1: you have um you know, the US and growth else 517 00:28:32,080 --> 00:28:33,639 Speaker 1: were on the West starting to really pick up. In 518 00:28:33,720 --> 00:28:35,920 Speaker 1: China out looking quite so good. You have a really 519 00:28:36,000 --> 00:28:40,720 Speaker 1: terrible demographic picture in China. You have population slowing pretty 520 00:28:40,800 --> 00:28:43,120 Speaker 1: rapidly in a situation which you know population is going 521 00:28:43,160 --> 00:28:45,840 Speaker 1: to be shrinking quite soon and the work engage population 522 00:28:45,880 --> 00:28:48,000 Speaker 1: is going to create a real demographic crisis at China. 523 00:28:48,320 --> 00:28:51,000 Speaker 1: Obviously there's one in in western countries as well, but 524 00:28:51,040 --> 00:28:54,120 Speaker 1: it's much graver from the Chinese perspective, given the One 525 00:28:54,200 --> 00:28:56,080 Speaker 1: China policy that was in place for a long time. 526 00:28:56,200 --> 00:28:58,840 Speaker 1: So if you're She Jimping, you know what emerges from 527 00:28:58,840 --> 00:29:01,680 Speaker 1: the set of pieces this really kind of desperate, frantic 528 00:29:01,720 --> 00:29:04,640 Speaker 1: effort to use a short window of time, a short 529 00:29:04,680 --> 00:29:08,440 Speaker 1: period of time to try to overcome some of these challenges. 530 00:29:08,440 --> 00:29:10,880 Speaker 1: But what emerges through these pieces, whether you're looking at 531 00:29:11,640 --> 00:29:14,200 Speaker 1: the fight against corruption, whether you're looking at economic reform 532 00:29:14,200 --> 00:29:17,400 Speaker 1: in China failures of economic reform rather, whether you look 533 00:29:17,400 --> 00:29:20,560 Speaker 1: at Hi Jimping's attempts to really hold onto power for 534 00:29:20,880 --> 00:29:24,160 Speaker 1: you know, the the indefinite future. You see him creating 535 00:29:24,560 --> 00:29:26,920 Speaker 1: these real weaknesses in the system. And the question is 536 00:29:27,080 --> 00:29:30,440 Speaker 1: are those weaknesses going to emerge and and drag him 537 00:29:30,440 --> 00:29:33,440 Speaker 1: down and drag China down before they're able to overcome 538 00:29:33,480 --> 00:29:35,360 Speaker 1: some of these problems. Dan, are you saying that China 539 00:29:35,440 --> 00:29:38,480 Speaker 1: is in a much weaker position today than say, pre 540 00:29:38,600 --> 00:29:42,840 Speaker 1: President Trump's reign and certainly pre pandemic. Well, if you, 541 00:29:42,920 --> 00:29:44,280 Speaker 1: if you if you go back to beginning of Hi 542 00:29:44,360 --> 00:29:46,240 Speaker 1: Jim pings rank and you know, go back almost a 543 00:29:46,240 --> 00:29:48,960 Speaker 1: decade when you saw China that was starting to engage 544 00:29:48,960 --> 00:29:52,120 Speaker 1: with the World War, that was trying to reform its economy. Um. 545 00:29:52,320 --> 00:29:54,400 Speaker 1: The narrative that we've seen in the West over this 546 00:29:54,480 --> 00:29:57,360 Speaker 1: ten year period from you know, the first meeting between 547 00:29:57,480 --> 00:30:00,000 Speaker 1: President Obama and Chi jumping through Trump and now through 548 00:30:00,080 --> 00:30:03,520 Speaker 1: Biden is a jijimping that has really changed the fundamental 549 00:30:03,520 --> 00:30:05,560 Speaker 1: direction of China in ways that I think people were 550 00:30:05,560 --> 00:30:07,640 Speaker 1: a little slow to detect at the time. And for 551 00:30:07,680 --> 00:30:10,240 Speaker 1: a long time, the narrative in the West has been UM, 552 00:30:10,320 --> 00:30:12,280 Speaker 1: one of this you know, kind of march forward in 553 00:30:12,360 --> 00:30:16,280 Speaker 1: this success uh and this almost triumphalist narrative. And if 554 00:30:16,280 --> 00:30:19,240 Speaker 1: you scratch flow the surface again across all of these areas, 555 00:30:19,840 --> 00:30:22,800 Speaker 1: you see a pretty perilous situation and a lot of 556 00:30:22,920 --> 00:30:26,280 Speaker 1: risk for them, UM that you know they're they're trying 557 00:30:26,280 --> 00:30:29,600 Speaker 1: to overcome and you have a um, a pretty significant 558 00:30:29,600 --> 00:30:32,640 Speaker 1: effort in Beijing to address these problems. But the environment 559 00:30:32,720 --> 00:30:35,720 Speaker 1: is only getting worse. And the question is whether, uh, 560 00:30:35,760 --> 00:30:38,320 Speaker 1: you know, in an environment of US China tension, that's 561 00:30:38,320 --> 00:30:40,560 Speaker 1: going to add that's gonna add new challenges. Dan, how 562 00:30:40,560 --> 00:30:44,520 Speaker 1: does public sentiment how does public sentiment within China way 563 00:30:44,600 --> 00:30:47,880 Speaker 1: into this Because during a President Trump's reign there was 564 00:30:47,920 --> 00:30:51,760 Speaker 1: discussion about how sentiment actually improved for Ji Jimping internally 565 00:30:51,880 --> 00:30:55,160 Speaker 1: in China. Has that changed, especially given some of the 566 00:30:55,160 --> 00:30:59,200 Speaker 1: propaganda efforts that Ji Jimping has put out there. So 567 00:30:59,240 --> 00:31:01,120 Speaker 1: this is a really hard thing for any of us, 568 00:31:01,200 --> 00:31:03,680 Speaker 1: not you know, sitting in China to have a clear 569 00:31:03,720 --> 00:31:06,320 Speaker 1: idea on there. You know, you've had predictions of the 570 00:31:06,360 --> 00:31:09,600 Speaker 1: fall of the Chinese Communist Party for for decades and decades, 571 00:31:10,000 --> 00:31:14,160 Speaker 1: and it's success. It's success economically, uh, it's you know, 572 00:31:14,200 --> 00:31:16,560 Speaker 1: the tools that uses to suppress the scent has given 573 00:31:16,560 --> 00:31:18,640 Speaker 1: it a grip on power that is probably pretty secure. 574 00:31:18,840 --> 00:31:21,640 Speaker 1: What is most notable about public sentiment, since you bring 575 00:31:21,680 --> 00:31:24,200 Speaker 1: it up, is not what we know or have a 576 00:31:24,200 --> 00:31:27,160 Speaker 1: hard time knowing within China, but just seeing how dramatically 577 00:31:27,640 --> 00:31:30,120 Speaker 1: the world that shifted against China. So you know, again, 578 00:31:30,160 --> 00:31:32,560 Speaker 1: if you look back four or five years when views 579 00:31:32,600 --> 00:31:34,760 Speaker 1: of China in the rest of Asia and the United 580 00:31:34,800 --> 00:31:38,640 Speaker 1: States in Europe were you no, reasonably good, in many 581 00:31:38,680 --> 00:31:42,040 Speaker 1: cases those have just soured so so quickly. And so 582 00:31:42,360 --> 00:31:46,240 Speaker 1: you know, this period when um, the you know, international 583 00:31:46,320 --> 00:31:50,280 Speaker 1: menship President Trump, the COVID that you global economic situation 584 00:31:50,320 --> 00:31:52,360 Speaker 1: should have given Sheet and Paying a chance to really 585 00:31:52,960 --> 00:31:56,600 Speaker 1: solidify global global leadership. In some ways, what you've seen 586 00:31:56,640 --> 00:31:58,720 Speaker 1: instead is the world really turning against him. And so 587 00:31:58,760 --> 00:32:01,080 Speaker 1: it's this kind of stagger and a missed opportunity in 588 00:32:01,120 --> 00:32:05,440 Speaker 1: many ways. Dn Orville Shell Grace is your pages this month. 589 00:32:05,480 --> 00:32:07,880 Speaker 1: He is a giant on the China watch. He has 590 00:32:07,920 --> 00:32:10,920 Speaker 1: seen the five or six China since World War Two. 591 00:32:10,960 --> 00:32:13,920 Speaker 1: I think only of Jonathan Spence who could keep up 592 00:32:13,920 --> 00:32:17,920 Speaker 1: with Mr Shell his perspective on the future of President's China. 593 00:32:19,040 --> 00:32:20,880 Speaker 1: So we have we as Orvil Shell, who is one 594 00:32:20,880 --> 00:32:23,560 Speaker 1: of the great observers of China and chronicles of China 595 00:32:23,720 --> 00:32:26,000 Speaker 1: in the United States and anywhere in the world at 596 00:32:26,000 --> 00:32:28,200 Speaker 1: this point, to look back at the hundred year history 597 00:32:28,200 --> 00:32:30,280 Speaker 1: of the Chinese Communist Party. China is going to have 598 00:32:30,400 --> 00:32:32,880 Speaker 1: this big celebration marking this history and is going to 599 00:32:32,960 --> 00:32:35,360 Speaker 1: try to very try to tell a very particular story 600 00:32:35,680 --> 00:32:37,720 Speaker 1: of what the Chinese Communist Party is and what this 601 00:32:37,840 --> 00:32:39,959 Speaker 1: history looks like. And when Oorraville looks back at this 602 00:32:40,000 --> 00:32:42,960 Speaker 1: as someone who has has lived at you know, very 603 00:32:43,040 --> 00:32:45,800 Speaker 1: very directly in chronicle chronicle, but very powerfully over the 604 00:32:45,840 --> 00:32:48,520 Speaker 1: last several decades. He sees a much more complicated story 605 00:32:48,520 --> 00:32:50,520 Speaker 1: than the one Chi Jimping is going to try to 606 00:32:50,560 --> 00:32:53,520 Speaker 1: tell us this summer. And you know Orville. Orville is 607 00:32:53,600 --> 00:32:55,920 Speaker 1: very sad about the course of China. He's sad about 608 00:32:55,920 --> 00:32:58,600 Speaker 1: the lack of access that people like him have to, 609 00:32:59,080 --> 00:33:01,320 Speaker 1: you know, country that they have traveled in and we've 610 00:33:01,400 --> 00:33:04,320 Speaker 1: been a mud for for many decades. Um. But but 611 00:33:04,400 --> 00:33:07,840 Speaker 1: he sees again a more uncertain future than that triumphalist 612 00:33:07,920 --> 00:33:11,000 Speaker 1: clear certain image that Chimping is trying to bervet. So 613 00:33:11,200 --> 00:33:14,080 Speaker 1: there's this tone of sadness to Horrible's wonderful piece, but 614 00:33:14,160 --> 00:33:16,640 Speaker 1: also a degree of hope that there will be changes 615 00:33:16,680 --> 00:33:19,640 Speaker 1: in China that we're likely not anticipating right now. Doncas 616 00:33:19,920 --> 00:33:22,440 Speaker 1: Lan got to catch up old wise Farna Fest at 617 00:33:22,440 --> 00:33:26,680 Speaker 1: its own. This is the Bloomberg Surveillance Podcast. Thanks for listening. 618 00:33:27,040 --> 00:33:30,360 Speaker 1: Join us live weekdays from seven to ten am Eastern 619 00:33:30,600 --> 00:33:34,680 Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from 620 00:33:34,720 --> 00:33:39,960 Speaker 1: six to nine am for insight from the best in economics, finance, investment, 621 00:33:40,120 --> 00:33:45,120 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 622 00:33:45,240 --> 00:33:49,040 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 623 00:33:49,160 --> 00:33:53,320 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg