Speaker 1: Welcome to the Bloomberg Surveillance Podcast Home, Tom Keene, along
Speaker 1: with the Jonathan Pheron and Lisa Brownwitz Jay Leie, we
Speaker 1: bring you insight from the best and economics, finance, investment
Speaker 1: and international relations. Find Bloomberg Surveillance and Ample podcast, Suncloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg termainment
Speaker 1: for our audience worldwide on TV and radio. We begin
Speaker 1: with a big issue, the gamification of stock markets, taking
Speaker 1: center stage. Lawmakers growing increasingly concerned about distortions in the marketplace,
Speaker 1: especially within crypto and the new phenomenon known as the
Speaker 1: meme stocks. That's where our next guest comes in. Gary Ginstler,
Speaker 1: the thirty third chair of the Securities and Exchange Commission
Speaker 1: against the served as the Chairman of the CFTC under
Speaker 1: President Obama and working for nearly two decades at Goldman.
Speaker 1: He joins us now exclusively for his first interview on
Speaker 1: this network in his new role alongside Bloomberg's Tom Kane.
Speaker 1: Joining us to Gary. Great to catch up and thank
Speaker 1: you for joining us for the next ten minutes. I
Speaker 1: just want to start with your statement, your mission statement
Speaker 1: to meet our mission of protecting investors that's the first line. Gary,
Speaker 1: what do you do for a group of investors that
Speaker 1: don't want your protection? Well, I'm gonna be animated every
Speaker 1: day in this job by working families. UH, and working
Speaker 1: families need the protection. And Franklin Roosevelt knew this in
Speaker 1: the nineteen thirties. We know this now President Biden knows
Speaker 1: that it's it's about working families ensuring they get the
Speaker 1: disclosures so they can make their choices in the markets.
Speaker 1: And there's a cop wing to be protecting against fraud
Speaker 1: manipulation that helps companies raise money too. By the way,
Speaker 1: by lowering the fraud manipulation ensuring that there's consistent disclosure
Speaker 1: to those investors, I think companies benefit as well. Disclosure
Speaker 1: is a broad concept, so let's narrow in on that
Speaker 1: were specifically. Do you think we need more disclosure? Well,
Speaker 1: I think there's trillions of dollars of assets under management
Speaker 1: now calling for greater and consistant disclosure around climate risk,
Speaker 1: and when I've also asked staff to take up UH
Speaker 1: disclosures around human capital, the most important, really fundamental asset
Speaker 1: of a company, the people that work there. Gary, thank
Speaker 1: you so much for joining John and I this morning.
Speaker 1: I'm gonna go broader here, Gary, I have never seen
Speaker 1: a primal cry for an SEC commissioner to just do something.
Speaker 1: You mentioned something I mentioned an hour ago, which is FDR.
Speaker 1: I'll go to the Commonwealth speech early in the depression.
Speaker 1: There is a primal screen chairman to do something. What
Speaker 1: does the do something you want to do to help
Speaker 1: us with meme stocks, with SPACs and other things. I
Speaker 1: don't understand. Well, Tom, you're you're you're being a little
Speaker 1: and honest. I'm sure that you understand them a little
Speaker 1: better than that, and your listeners have listened to you
Speaker 1: for years. But look what I think the important thing
Speaker 1: is is investors want another there's somebody looking after that,
Speaker 1: working families, engineers, people that have four oh one case.
Speaker 1: So you mentioned special purpose acquisition companies or so called spects.
Speaker 1: It's really making sure that the sponsor who's behind that
Speaker 1: is fully disclosing their take on it. These are very
Speaker 1: expensive dilutive products. I mean the sponsors take out a
Speaker 1: chunk at the beginning, then there's more being taken out
Speaker 1: later when they merge with the private company in what's
Speaker 1: called a DESPAC. I just call that a target I
Speaker 1: p O and it's those disclosures, ensuring that the retail
Speaker 1: investors get the right disclosures and are protected and somebody's
Speaker 1: not misleading them. And secondarily that they're participating just like
Speaker 1: the the institutional investors and a lot of the big
Speaker 1: institutions buy into these spacts later during that target I
Speaker 1: p O and they do so at a preferred price
Speaker 1: rather than the price the retail public's getting. Sherman guests
Speaker 1: are long agoing far away. We had a red hair.
Speaker 1: We all read them, you know, differently ourselves. I start
Speaker 1: at the back and see the character and the integrity
Speaker 1: of the people involved, and as you just mentioned, you
Speaker 1: go up to that single page on delution to see
Speaker 1: how bad the new shareholders are being taken. Do we
Speaker 1: know the delustion? Do we have transparency on specs or
Speaker 1: frankly on other challenges you have. Do we have visibility
Speaker 1: on these key issues right now? Now? I've asked staff
Speaker 1: to think across our whole markets. You know, technology rapidly
Speaker 1: changes be names and so their their rules sometimes put
Speaker 1: in place fifty years ago. For instance, on beneficial ownership,
Speaker 1: Congress set if you went past five per cent and
Speaker 1: you had an intent to to control a company you
Speaker 1: have to disclose, but they gave you ten days and
Speaker 1: we've been given authority to shorten that. Well, technology says
Speaker 1: we can shorten that. Shouldn't shouldn't the whole market know
Speaker 1: if somebody has tripped that five percent wire? So I've
Speaker 1: asked staff to think about these types disclosure and stock
Speaker 1: I backs in something called derivatives called security space swaps,
Speaker 1: and yes, in these special purposes acquisition companies as well,
Speaker 1: the delusion, the cost and the like. Well, Gary, this situation,
Speaker 1: this conversation brings up the episode around doc Keane Gholst.
Speaker 1: What have you learned from that event and what does
Speaker 1: it mean for disclosures from family offices. Well, I think
Speaker 1: that the events of March around the family office do
Speaker 1: raise questions about the exclusion of family offices. But to
Speaker 1: us at the U S Securities and Exchange Commission, we're gonna,
Speaker 1: I guess staff to lean in how we can have
Speaker 1: more disclosure about these derivatives security space swaps. We have
Speaker 1: a reform regime that my predecessors put in place that
Speaker 1: goes live in November of this year for more disclosure.
Speaker 1: But I think we need to also aggregate some of
Speaker 1: those holdings. So people, again, have you tripped that five
Speaker 1: percent line? Uh? And we didn't have that disclosure. But
Speaker 1: in the r key ghost Garry one of the choice
Speaker 1: of you, and I think everybody that is politically with you,
Speaker 1: and frankly you're people a little bit a little bit
Speaker 1: off the Gunstler belief. They all have an immense respect
Speaker 1: of how you have lived Wall Streets through your story career.
Speaker 1: Great and John and I have talked about this before.
Speaker 1: That's all great about derivative transparency, but the street is
Speaker 1: set up based on mystery and based on the unknown.
Speaker 1: How are you going to force and I'll pick on
Speaker 1: two familiar names, Morgan Stanley and Goldman Sachs to display
Speaker 1: and make visible their derivative holdings. Well, look, because uh,
Speaker 1: the public is ultimately represented by those of us in
Speaker 1: the official sector, and whether it was President Roosevelt in
Speaker 1: n thirties, President Obama, with the passes of Dodd, Frank
Speaker 1: uh and and multiple precedents in between, with Congress, we
Speaker 1: have laws that help our capital markets and help those
Speaker 1: working families and our client, you know, my client are
Speaker 1: those working families, those those retirees that want a cop
Speaker 1: on the beat and rules so yes, whether it's a
Speaker 1: large firms that you've mentioned, there are other large firms,
Speaker 1: we have the authority to bring such transparency and we'll
Speaker 1: put things out to notice and comment. Folks will be
Speaker 1: able to say they think it's good idea or not.
Speaker 1: We'll look at the economic analysis, but overall we'll be
Speaker 1: looking out for our ultimately, our the American public, who
Speaker 1: are really our clients and President Biden's clients. Ultimately, if
Speaker 1: you're cheating in on the bloom Black radio when Blomberg TV,
Speaker 1: we're catching up with the thirty third year of the SEC.
Speaker 1: Gary Gainstler check against the Let's continue this conversation around
Speaker 1: our kegos. Tom and I had a difficulty for about
Speaker 1: a month knowing what to cool our kegos. Was it
Speaker 1: a family office, was it a fund? Was it an
Speaker 1: asset manager? How would you describe it? Well, I don't
Speaker 1: want to get into any one company because you could
Speaker 1: imagine the reasons why not. But um large funds investing
Speaker 1: our market are required to still play by the rules
Speaker 1: are anti fraud and other rules and various disclosure rules.
Speaker 1: But I do think that we at the SEC can
Speaker 1: do more work here and said that's why the S
Speaker 1: staff to have more disclosure rules related to these contracts
Speaker 1: that that entity was using, using something called security spased swaps.
Speaker 1: In Congress in two thousand and ten in the reform
Speaker 1: movement after that crisis of OH eight past rules that said, yes,
Speaker 1: the SEC can bring greater disclosure. In fact, it's not
Speaker 1: even once in what's called Dodd Frank, but twice in
Speaker 1: two different provisions. So I had meetings even yesterday with
Speaker 1: staff about well, how do we stitch this together and
Speaker 1: try to put something in front of our five member
Speaker 1: commission and get it out for public notice. A gay
Speaker 1: one stead of disclosures that we haven't discussed today, things
Speaker 1: around the climate, around gender diversity as well, and in
Speaker 1: the limited and we have left with you. I think
Speaker 1: we need to talk about that as well. Republicans have
Speaker 1: really pushed back against your role in all of this.
Speaker 1: This is what twelve GOP senators wrote to you the
Speaker 1: SEC on June fourteenth. They push for more disclosure related
Speaker 1: to global warm because a little to do with providing
Speaker 1: material information for investment purposes. Rather, activists with no fiducry
Speaker 1: duty to the company or its shareholders are trying to
Speaker 1: impose their progressive political views on publicly traded companies. Why
Speaker 1: is that statement wrong in your view? So I have
Speaker 1: deep respect for the members of Congress, the senators who
Speaker 1: wrote that letter, and we've had some very good, uh
Speaker 1: individual conversations about this. I think it's it's foremost about investors,
Speaker 1: and this is at our regime. Investors want to know
Speaker 1: more about this very important risk, climate risk, and how
Speaker 1: do companies deal with whatever transitions might be in the future,
Speaker 1: whatever physical risk that they have, How are they managing it,
Speaker 1: how are they governing it, and what are some of
Speaker 1: the basic metrics. So invest just want to see information,
Speaker 1: and then the role of the SEC has to try
Speaker 1: to bring some consistency, some comparability, and yes, reliability to
Speaker 1: that information. And then investors benefit, and frankly also the
Speaker 1: company's benefit because they get some they get some rules
Speaker 1: as to how to present it, and they also then
Speaker 1: can compete for capital in the capital markets based upon
Speaker 1: that nexus. Chairman, guess, so I want to get a
Speaker 1: question in here. I know Johnny has an important final
Speaker 1: question is, well, what I know for certain garreas everything
Speaker 1: is free. There was one day where the Wall Street
Speaker 1: Journal had three consecutive ads one page next page next
Speaker 1: page of free trading on Wall Street and all that's
Speaker 1: devolved down to the meme stocks and the order flow debate.
Speaker 1: What I know is the people that own order flow
Speaker 1: are in billionaires row in New York City on fifty
Speaker 1: seven Street. Does the sec of a need to somehow
Speaker 1: remanage order flow and remanage the fiction of free trading? Tom,
Speaker 1: I'm glad you're closed. It's not free. It's just simply so.
Speaker 1: It might be zero commission, but underneath that, some of
Speaker 1: these brokers, not all, but some of these brokers are
Speaker 1: then selling your orders to another firm I'll call it
Speaker 1: a wholesaler. And when they sell that, why why is
Speaker 1: somebody paying for it? Is because there's an inherent conflict
Speaker 1: that even if it's a penny or two pennies or
Speaker 1: some small fraction that's trading off against you, the retail public.
Speaker 1: So it's not free. You know what can we do
Speaker 1: about it? We're gonna take a look at the whole
Speaker 1: equity market structure, the stock market. Some other countries, the
Speaker 1: United Kingdom, Canada, Australia, they've banned such payment ford or flow,
Speaker 1: and so we're gonna take a look closely at that
Speaker 1: also to look at when you're the retail public, when
Speaker 1: you put in order in a mark could order, it
Speaker 1: rarely goes to the New York Stock Exchange or not NaSTA,
Speaker 1: it goes to these whost salers. That segmentation matters to
Speaker 1: us the public. Check ENSLO. I know you've got to
Speaker 1: run and your team is firing away emails kind of
Speaker 1: gets to let you go. So I just one final
Speaker 1: question on this very important issue. You really pushed back
Speaker 1: against the language there. It's not free. Is that something
Speaker 1: you want to do something about the language specifically, or
Speaker 1: is the priority the activity? The priority is the investing public,
Speaker 1: and so we're going to take a look at this
Speaker 1: and say what works best for them. Congress has given
Speaker 1: authority to think about the efficiency of markets, and it's
Speaker 1: the efficiency for the big pension funds. It's efficiency for
Speaker 1: that person that's going on a platform and app and
Speaker 1: and trying to say for their future. And so that's
Speaker 1: our priority. The language matters, but I don't think it's
Speaker 1: just about disclosure. I also think that there's inherent conflicts
Speaker 1: and we need to take a close look at at
Speaker 1: how we reform these markets. Check Inslo, thanks for you
Speaker 1: wanting am and on. We hope this is the beginning
Speaker 1: of an ongoing dialog with you. The thirty third chat
Speaker 1: of the sect against the Thank you sir, just getting
Speaker 1: right to it. Our interview of the day on the
Speaker 1: equity market, Mike Wilson has been just absolutely brilliant trying
Speaker 1: to go back and forth the nuances of the equity
Speaker 1: market in this great bull market Mike Wilson with Morgan Stanley,
Speaker 1: is the great bull market over now? I don't think
Speaker 1: it's over. I think this is you know, the typical
Speaker 1: pause that we get as we go from early to
Speaker 1: mids angle. Uh, you know, PEK created changes. John was saying,
Speaker 1: is what we've been focused on not just for you know,
Speaker 1: growth measures, whether it be economic data or say earnings
Speaker 1: growth data, but also policy. You know, the Fed you
Speaker 1: know has you know, kind of pivoted a bit to
Speaker 1: start the long process of removing monetary accommodation. 're not
Speaker 1: doing it yet, but the market, you know, keys off
Speaker 1: of that, and we've been focused on really money supplied
Speaker 1: growth because in the world where you're on the zero
Speaker 1: bound globally, right and every in every sort of major market,
Speaker 1: that the key determinant whether monetary policy accommodation is accelerating
Speaker 1: or decelerating. Is MP two growth and EMP two growth
Speaker 1: peaked at the end of February early March and has
Speaker 1: been slowly coming down, and that we think that has
Speaker 1: had a very large impact on the speculative parts of
Speaker 1: asset markets. Obviously cryptos part of that, you know, very
Speaker 1: expensive kind of unprofitable companies, backs and things like that.
Speaker 1: They've corrected significantly because at the margin, right, the accommodation
Speaker 1: has already been deteriorating. So my campus out when it
Speaker 1: comes to the debate away from the index level, within
Speaker 1: the index, the churn, the rotation growth versus cyclicals, what
Speaker 1: does that look like for you and the team? Now? Yeah, so,
Speaker 1: I mean, you know, the beginning of the year, obviously
Speaker 1: the you know, the call was rates were going to
Speaker 1: go higher, and that you took out the very expensive
Speaker 1: long duration assets. That was the beginning of the correction.
Speaker 1: Then it kind of shift too. Low quality names started
Speaker 1: to come off the boil, and now look the market's
Speaker 1: going after kind of the reflation theory, typical assets had
Speaker 1: probably ran up a little too far. But you know,
Speaker 1: I think, as Leasa said, there's just the inflows of
Speaker 1: money you know, are still so good. The money doesn't
Speaker 1: leave the market, it just looks for another place to go.
Speaker 1: So recently, obviously longer duration growth stocks have done better
Speaker 1: as rates have come down, and people say, well, if
Speaker 1: the rate of changes peaking, and then I want to
Speaker 1: go where the growth is. So the market is being
Speaker 1: very efficient internally. The problem is it's very difficult to
Speaker 1: trade for people because it's flip flopping back and forth.
Speaker 1: And by the way, this is all normal during the
Speaker 1: mid cycle transition is what always happens. You know, this
Speaker 1: is it. This is what you get. It's a chop
Speaker 1: at to churn. It's not as easy as it wasn't
Speaker 1: last year, and we you know, it's probably got another
Speaker 1: three to six months of this sort of patterned Mike,
Speaker 1: could you draw a distinction between the rate of change
Speaker 1: in the money supply the amount of cash slashing around
Speaker 1: the system versus the actual amount. Basically that we still
Speaker 1: are climbing to new hot eyes. We saw this catastrophic increase.
Speaker 1: I'm looking at the M two chart right now on
Speaker 1: the Bloomberg terminal, just fascinating to see how massive the
Speaker 1: growth has been. Why is that not enough to keep
Speaker 1: the rally going, given the fact that we're also getting
Speaker 1: the economic recovery, well, I think it is keeping the
Speaker 1: rally going. I mean, you know, the index level, we
Speaker 1: haven't really seen any correction. What you know, the the
Speaker 1: change at the sort of rate of change movement in
Speaker 1: in M two or whatever money supply growth you're looking at,
Speaker 1: you know, is causing the internals to move around a lot. Okay,
Speaker 1: So once again, you know, the deterioration and that money
Speaker 1: supply growth is causing the more speculative parts of the
Speaker 1: market to really underperform, whereas you know, it's becoming a
Speaker 1: higher quality bid. You know, maybe the markets moving towards
Speaker 1: where evaluation is more amenable, and so it's doing it
Speaker 1: that way. Until you know, we see outflows from the
Speaker 1: equity market, the index level is probably gonna be okay.
Speaker 1: It's just it's it's a sideways chop, and so the
Speaker 1: the action is in the internals of the market, not
Speaker 1: the index. Mike, when you touched your analysts, and you know,
Speaker 1: I don't know if you're doing this or they're doing it,
Speaker 1: but when you sum up SMP earnings, can you get
Speaker 1: out to a two d and fifty dollars statistic like
Speaker 1: some of the optimists, Uh, well maybe in like five years,
Speaker 1: I mean, okay shot. But we we think that's another
Speaker 1: risk here is that the peak rate of change on
Speaker 1: growth has also been reached. And um, something we've been
Speaker 1: focused on a lot here time is at the first
Speaker 1: quarter benefited um from you know, two fiscal stimuluses that
Speaker 1: were enormous. It also benefited from, you know, the run
Speaker 1: up in cryptocurrencies, which increased wealth by over a trillion dollars,
Speaker 1: and some of that leaked into the real economy. So
Speaker 1: what we're focused on, what we think is a potentially
Speaker 1: is that people are now annuallyzing this Q one from
Speaker 1: a margin and sort of earnings growth standpoint, and so
Speaker 1: we're having a hard time, quite frankly getting to to
Speaker 1: ten for next year, which is where the bottomtop consensus is.
Speaker 1: Part of that is because we're baking in some tax increases,
Speaker 1: but also we think the margin assumptions now have got
Speaker 1: a little too aggressive. So now we think the earning
Speaker 1: story is also something needs to be tempered back, and
Speaker 1: we saw the beginning of that last week with the
Speaker 1: financial stacks, some of the financials companies talking talking down
Speaker 1: guidance a bit, which is why those stacks underperformed. It
Speaker 1: wasn't just about the rate curve the landing. This is
Speaker 1: the heart of the matter, John, I don't mean to
Speaker 1: step on you, but this is the heart of the matter.
Speaker 1: I mean, you've got our earnings analysis in every interview
Speaker 1: we do is different in nuance and it really is
Speaker 1: the heart of the matter to get through the summer.
Speaker 1: I remember the note that Mike and the team put
Speaker 1: out a couple of months ago around earning season. Mike,
Speaker 1: he was execution risk. That's what you were discussing, execution risk.
Speaker 1: When it comes to Machin's What is the cost pressure
Speaker 1: you focused on, Mike that you worried about. Well, I
Speaker 1: think the one that we have to pay attention to
Speaker 1: the most because this is the one that will probably
Speaker 1: cause the FED to move more quickly or not is wages. Right,
Speaker 1: So labor is an enormous, you know, input to most
Speaker 1: companies cost structures. And you know, I think the transient
Speaker 1: like the materials and some of the commodity stuff is
Speaker 1: somewhat is in because obviously it's self prectic. There's demand instruction,
Speaker 1: but labor, you know, seems to be a bit more structural.
Speaker 1: You know, we did destroy some of the labor supply
Speaker 1: in the pandemic and the lockdown. There's some people now
Speaker 1: retiring earlier given the windfalls asset prices, and you know,
Speaker 1: and also the movement of labor around the country, you know,
Speaker 1: where people don't live, where they need to live to
Speaker 1: meet the job openings, and so that part of it
Speaker 1: I think is really important to watch here over the
Speaker 1: next couple of months. What's the direction of the turn
Speaker 1: right now, Mike, what's set to outperform over the next
Speaker 1: three to six months. What's the best asset? Yeah, what's
Speaker 1: the direction of the turn of the turn underneath the
Speaker 1: headline number of the index. Well, I think well, first
Speaker 1: of all, we're pretty barished at the index level because
Speaker 1: we're having a hard time getting much about four thousand
Speaker 1: by year ends. That's pretty punky returns at the index level.
Speaker 1: So you know, once again we're trying to make money
Speaker 1: at the top level of the tech level, trying to
Speaker 1: trying to be a bit more nimble and tactical UM.
Speaker 1: But we still believe in the flation inflationary story. So
Speaker 1: I mean, banks and material stocks have corrected here recently,
Speaker 1: are you can start looking back to going to UM
Speaker 1: growth areas. I think you gotta be released selective in
Speaker 1: terms of what you pay. We've been favoring the higher
Speaker 1: quality growth theories that are more reasonably priced. That would
Speaker 1: include some of the fang stocks. And then healthcare we
Speaker 1: think is a very interesting area where there's probably pent
Speaker 1: up demand as opposed to payback in demand from last
Speaker 1: year because we'll put off healthcare services and whatnot. So
Speaker 1: that those are areas we're focused on right now. We're
Speaker 1: going to continue to have an open mind and be
Speaker 1: flexible as a market changes. Mike Wilson, Morgan Stanley might
Speaker 1: looking forward to get you in the studio soon. It's
Speaker 1: going to catch up the chief US equity strategists. It's
Speaker 1: a cheap guy funny guests that appears on Bloomberg Surveillance
Speaker 1: on radio and TV. When some starts to interrupt, keep sulking.
Speaker 1: James Sweeney's back with us on police to say sweets.
Speaker 1: Chief economist James gonna have you with us on the show.
Speaker 1: We're just continuing this conversation about the amount of uncertainty
Speaker 1: we have, the lack of clarity as we work our
Speaker 1: way through this reopening. When do you think we will
Speaker 1: get that is at the end of summer, the beginning
Speaker 1: of September. James, what's the date in your diary. Yeah,
Speaker 1: I think late summer we start to get uh we
Speaker 1: we get better information on the wage picture, and we
Speaker 1: could talk more uh informed about about services inflation given
Speaker 1: that wage picture. The problem right now is that with
Speaker 1: this reopening, with the checks just sent, with the base effects,
Speaker 1: with the seasonal effects, with the composition effects in the
Speaker 1: wage data, you can't really tell. But but I'll tell
Speaker 1: you what was happening. What was helpful in this FED
Speaker 1: meaning is exactly that dropping that kind of debate about
Speaker 1: temporary which was which was lame all along, because that
Speaker 1: was that word was aimed at a strong man argument
Speaker 1: of very high inflation down the road, where professionals care
Speaker 1: about the path of inflation within this and whether inflation
Speaker 1: could be a little bit higher and a little bit
Speaker 1: more vol tile once we're through this whole pandemic event.
Speaker 1: And I think the the incoming information suggests that that
Speaker 1: is very possible. The path is very interesting, um and
Speaker 1: a little bit higher inflation, higher wages, more volatility is
Speaker 1: possible too. And I feel like the FET is having
Speaker 1: that debate and they're acknowledging those risks now, and so
Speaker 1: let's please stop talking about temporary because of course the
Speaker 1: pandemic was temporary and we had special factors throwing inflation around.
Speaker 1: James Sweeney, where's the emotional number? I mean for the
Speaker 1: people listening and watching, it's real simple pros are framing
Speaker 1: three percent inflation fo dotted out. Uh, where's the emotional
Speaker 1: number where the nation goes into a collective sweat Well,
Speaker 1: I I think for broad household inflation expectations, you know,
Speaker 1: that's actually not an inflation number. It's a spending number.
Speaker 1: It's it's when you see house prices and and car prices,
Speaker 1: you know, start to rip when people are buying things
Speaker 1: because they think prices are higher in the future. But
Speaker 1: actually the surveys suggest that people are saying that they
Speaker 1: it's a bad time to buy a house or a
Speaker 1: car because because prices are higher right now. So I
Speaker 1: don't think we're going to get there. I think we're
Speaker 1: just gonna have a little bit higher inflation, a little
Speaker 1: bit more aboli high inflation. I think we're gonna come
Speaker 1: down from this kind of temporary base effect peak. And
Speaker 1: the question is how much wage growth, how much services inflation,
Speaker 1: and are we gonna be running at you know, two
Speaker 1: point to two point three sustainably for for a few years.
Speaker 1: Because if we're there, that's fifty basis point higher and
Speaker 1: core terms than the average of the last twenty five years.
Speaker 1: And it's a pretty big deal. But to a lot
Speaker 1: of the strawman arguments about money supply causing runaway inflation
Speaker 1: seems pretty boring. But the people in the bond market,
Speaker 1: that matters, and that's what we're focused on. James. You
Speaker 1: talk about higher used car prices, you talk about home prices.
Speaker 1: Has there ever been a precedent for the diversion experiences
Speaker 1: of individuals on the ground buying stuff and official measures
Speaker 1: of inflation? You know, I don't think so, and I
Speaker 1: think the reason is, you know, those inflation and the
Speaker 1: these are two third services and one third goods, and
Speaker 1: services spending is typically remarkably steady, even in recessions. I
Speaker 1: mean we we've had two contractions in services consumption I
Speaker 1: think in sixty or seventy years before before this event,
Speaker 1: So you've had significant volatility in that side. So you
Speaker 1: have a lot of relative prices that have to adjust.
Speaker 1: As always, people in everyday life were more focused on
Speaker 1: goods prices and services prices, but the whole price complex
Speaker 1: is jumbled up by the specifics of this pandemic, and
Speaker 1: people should not lose sight of that. Also, James, the
Speaker 1: FED has had a pretty aggressive role in the bond
Speaker 1: market with their bond purchases, which has raised some questions
Speaker 1: about the accuracy the effectiveness of looking at break even
Speaker 1: rates for market predictions of longer term inflation. Do you
Speaker 1: think that there has been so much noise and FED
Speaker 1: buying around those particular instruments as to render them much
Speaker 1: less useful as a gauge of a market expectation for
Speaker 1: longer term inflation. I I wouldn't blame FED purchases. I
Speaker 1: think they were never a good gauge for for longer
Speaker 1: term inflation expectation. There's the risk premium in break even,
Speaker 1: and I never call break even inflation expectations. I call
Speaker 1: them break evens. There there there's something different, James Sweeney,
Speaker 1: He's gonna say it's gonna catch off pass always an urn.
Speaker 1: Apologies for the instruction to the Kimas sanction. Jimes Sweeney
Speaker 1: that Swiss chief economy it is definitive because it is
Speaker 1: wildly eclectic and controversial. That is a new addition of
Speaker 1: Foreign Affairs magazine. It is can China keep rising? Dan
Speaker 1: Kers failing with his expertise on China, and George Marshall
Speaker 1: of another time in places with us this morning with
Speaker 1: an absolute tour to force. I picked up the magazine
Speaker 1: and I'm like everybody else, you know, I read the commercials,
Speaker 1: the advertisements, Dan, and then I go of the table
Speaker 1: of contents and this is wildly eclectic. I want you
Speaker 1: to inform our audience about the adversarial environment of Lung Jesu.
Speaker 1: Who is he? Tom Good to see you launches this
Speaker 1: this really fascinating figure. He's one of the people in China,
Speaker 1: one of the most respected analysts of the world of
Speaker 1: international politics in China, and he has for a long
Speaker 1: time been one of the most prominent Chinese advocates of
Speaker 1: a cooperative US China relationship. And so what we asked
Speaker 1: him to do, as someone who has been really supportive
Speaker 1: of cooperation between the United States and China historically, was
Speaker 1: to release to tell us from China's perspective, how does
Speaker 1: this deterioration in the relationship between the two countries, between
Speaker 1: the two superpowers look from Paging's perspective, we in the
Speaker 1: United States and in Europe no exactly what we see
Speaker 1: leaders in Beijing, especially Inder changent Ping doing that looks
Speaker 1: menacing to us. We asked this launches, this advocate of
Speaker 1: of a cooperative relationship to tell us what that looks
Speaker 1: like from Beijing's perspective and what he sees and what
Speaker 1: he what he tries to convey to American readers especially,
Speaker 1: is a situation in which the United States is, as
Speaker 1: he tells it is really going out of its way
Speaker 1: to threaten some of the core interests of China and Taiwan,
Speaker 1: on on Hong Kong. Some of the things that if
Speaker 1: you're Chi Jim paying you see is as really integral
Speaker 1: to your power and your success. Our sources of growing
Speaker 1: tension with the United States. The tourtive force of your
Speaker 1: academics is George Marshall. Not only were the chaos of China,
Speaker 1: but the chaos of US policy and roughly nineteen and
Speaker 1: ninety seven, what is the chaos of President Gee's policy
Speaker 1: right now? Domestically? What are the challenges he has now?
Speaker 1: Is China attempts to keep rising. So it's a great
Speaker 1: question and it's part of what really animated this set
Speaker 1: of pieces that we put under the heading can China
Speaker 1: Keep Rising? If you go back to the beginning of
Speaker 1: this year, think about how good a position chi Japing
Speaker 1: seemed to be in. You know, the United States look
Speaker 1: to be in political chaos. We just had jin your
Speaker 1: six the insurrection uh. The US is struggling to control COVID.
Speaker 1: China was shipping vaccines around the world. You know, just
Speaker 1: six months later that picture has shifted almost entirely. You
Speaker 1: have she jimping um uh really on the rocks over
Speaker 1: you know, the origins of origins of the virus, and
Speaker 1: you know that even if you leave aside the kind
Speaker 1: of lab league questions, the questions of what China failed
Speaker 1: to do and the ways it failed to communicate and
Speaker 1: suppressed information in the early days of the outbreak in Wuhan,
Speaker 1: you have um you know, the US and growth else
Speaker 1: were on the West starting to really pick up. In
Speaker 1: China out looking quite so good. You have a really
Speaker 1: terrible demographic picture in China. You have population slowing pretty
Speaker 1: rapidly in a situation which you know population is going
Speaker 1: to be shrinking quite soon and the work engage population
Speaker 1: is going to create a real demographic crisis at China.
Speaker 1: Obviously there's one in in western countries as well, but
Speaker 1: it's much graver from the Chinese perspective, given the One
Speaker 1: China policy that was in place for a long time.
Speaker 1: So if you're She Jimping, you know what emerges from
Speaker 1: the set of pieces this really kind of desperate, frantic
Speaker 1: effort to use a short window of time, a short
Speaker 1: period of time to try to overcome some of these challenges.
Speaker 1: But what emerges through these pieces, whether you're looking at
Speaker 1: the fight against corruption, whether you're looking at economic reform
Speaker 1: in China failures of economic reform rather, whether you look
Speaker 1: at Hi Jimping's attempts to really hold onto power for
Speaker 1: you know, the the indefinite future. You see him creating
Speaker 1: these real weaknesses in the system. And the question is
Speaker 1: are those weaknesses going to emerge and and drag him
Speaker 1: down and drag China down before they're able to overcome
Speaker 1: some of these problems. Dan, are you saying that China
Speaker 1: is in a much weaker position today than say, pre
Speaker 1: President Trump's reign and certainly pre pandemic. Well, if you,
Speaker 1: if you if you go back to beginning of Hi
Speaker 1: Jim pings rank and you know, go back almost a
Speaker 1: decade when you saw China that was starting to engage
Speaker 1: with the World War, that was trying to reform its economy. Um.
Speaker 1: The narrative that we've seen in the West over this
Speaker 1: ten year period from you know, the first meeting between
Speaker 1: President Obama and Chi jumping through Trump and now through
Speaker 1: Biden is a jijimping that has really changed the fundamental
Speaker 1: direction of China in ways that I think people were
Speaker 1: a little slow to detect at the time. And for
Speaker 1: a long time, the narrative in the West has been UM,
Speaker 1: one of this you know, kind of march forward in
Speaker 1: this success uh and this almost triumphalist narrative. And if
Speaker 1: you scratch flow the surface again across all of these areas,
Speaker 1: you see a pretty perilous situation and a lot of
Speaker 1: risk for them, UM that you know they're they're trying
Speaker 1: to overcome and you have a um, a pretty significant
Speaker 1: effort in Beijing to address these problems. But the environment
Speaker 1: is only getting worse. And the question is whether, uh,
Speaker 1: you know, in an environment of US China tension, that's
Speaker 1: going to add that's gonna add new challenges. Dan, how
Speaker 1: does public sentiment how does public sentiment within China way
Speaker 1: into this Because during a President Trump's reign there was
Speaker 1: discussion about how sentiment actually improved for Ji Jimping internally
Speaker 1: in China. Has that changed, especially given some of the
Speaker 1: propaganda efforts that Ji Jimping has put out there. So
Speaker 1: this is a really hard thing for any of us,
Speaker 1: not you know, sitting in China to have a clear
Speaker 1: idea on there. You know, you've had predictions of the
Speaker 1: fall of the Chinese Communist Party for for decades and decades,
Speaker 1: and it's success. It's success economically, uh, it's you know,
Speaker 1: the tools that uses to suppress the scent has given
Speaker 1: it a grip on power that is probably pretty secure.
Speaker 1: What is most notable about public sentiment, since you bring
Speaker 1: it up, is not what we know or have a
Speaker 1: hard time knowing within China, but just seeing how dramatically
Speaker 1: the world that shifted against China. So you know, again,
Speaker 1: if you look back four or five years when views
Speaker 1: of China in the rest of Asia and the United
Speaker 1: States in Europe were you no, reasonably good, in many
Speaker 1: cases those have just soured so so quickly. And so
Speaker 1: you know, this period when um, the you know, international
Speaker 1: menship President Trump, the COVID that you global economic situation
Speaker 1: should have given Sheet and Paying a chance to really
Speaker 1: solidify global global leadership. In some ways, what you've seen
Speaker 1: instead is the world really turning against him. And so
Speaker 1: it's this kind of stagger and a missed opportunity in
Speaker 1: many ways. Dn Orville Shell Grace is your pages this month.
Speaker 1: He is a giant on the China watch. He has
Speaker 1: seen the five or six China since World War Two.
Speaker 1: I think only of Jonathan Spence who could keep up
Speaker 1: with Mr Shell his perspective on the future of President's China.
Speaker 1: So we have we as Orvil Shell, who is one
Speaker 1: of the great observers of China and chronicles of China
Speaker 1: in the United States and anywhere in the world at
Speaker 1: this point, to look back at the hundred year history
Speaker 1: of the Chinese Communist Party. China is going to have
Speaker 1: this big celebration marking this history and is going to
Speaker 1: try to very try to tell a very particular story
Speaker 1: of what the Chinese Communist Party is and what this
Speaker 1: history looks like. And when Oorraville looks back at this
Speaker 1: as someone who has has lived at you know, very
Speaker 1: very directly in chronicle chronicle, but very powerfully over the
Speaker 1: last several decades. He sees a much more complicated story
Speaker 1: than the one Chi Jimping is going to try to
Speaker 1: tell us this summer. And you know Orville. Orville is
Speaker 1: very sad about the course of China. He's sad about
Speaker 1: the lack of access that people like him have to,
Speaker 1: you know, country that they have traveled in and we've
Speaker 1: been a mud for for many decades. Um. But but
Speaker 1: he sees again a more uncertain future than that triumphalist
Speaker 1: clear certain image that Chimping is trying to bervet. So
Speaker 1: there's this tone of sadness to Horrible's wonderful piece, but
Speaker 1: also a degree of hope that there will be changes
Speaker 1: in China that we're likely not anticipating right now. Doncas
Speaker 1: Lan got to catch up old wise Farna Fest at
Speaker 1: its own. This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from
Speaker 1: six to nine am for insight from the best in economics, finance, investment,
Speaker 1: and international relations. And subscribe to the Surveillance podcast on
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg