WEBVTT - Bloomberg Wall Street Week: July 2nd, 2022 0:00:00.520 --> 0:00:03.720 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.120 to the markets this week. U S CPI members reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to mark its more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U s economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices. Larry Summers, the 0:00:19.560 --> 0:00:22.439 former Treatory Secretary, Katherine Keening, CEO of the n Y 0:00:22.600 --> 0:00:26.160 mallin Sam's l Sharmon and founder of Equatic Group Investment. 0:00:26.200 --> 0:00:30.240 In Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.600 --> 0:00:35.360 Cooperation with Europe, competition with China, and conflict with Russia. 0:00:35.720 --> 0:00:39.440 But it always comes back to inflation one way or another. 0:00:39.800 --> 0:00:42.720 This is Bloomberg Wall Street Week. I'm David Weston. This 0:00:42.760 --> 0:00:46.240 week special contributor Larry Summers of Harvard on how close 0:00:46.280 --> 0:00:49.080 we may be to a recession here in the United States. 0:00:49.320 --> 0:00:54.440 I think the risks of a two recession are significantly 0:00:54.600 --> 0:00:59.959 higher than I would have judged uh six or nine 0:01:00.040 --> 0:01:03.960 weeks ago. And Deborah Lair of Edelman Global Advisory on 0:01:04.080 --> 0:01:07.040 just how much China has changed in the twenty five 0:01:07.120 --> 0:01:10.120 years since it took back Hong Kong. We've come a 0:01:10.160 --> 0:01:12.959 long way as they've built a world class legal system 0:01:13.000 --> 0:01:28.200 and trade systems. Much of the week was consumed with 0:01:28.319 --> 0:01:31.920 global events, as President Biden traveled to Germany to try 0:01:31.920 --> 0:01:34.080 to persuade other leaders of the G seven, like French 0:01:34.120 --> 0:01:37.280 President Makron, that they should live at how much the 0:01:37.360 --> 0:01:41.680 world pays for Russian oil in Our ministers will continue 0:01:41.760 --> 0:01:44.280 following the initiative of the United States to work so 0:01:44.360 --> 0:01:47.039 that such a ceiling can exist by applying the broadest 0:01:47.040 --> 0:01:50.880 possible alliance of buyers. And then moved on to Madrid 0:01:51.000 --> 0:01:54.080 to work with Turkey to admit Sweden and Finland into 0:01:54.080 --> 0:01:57.400 the NATO Alliance. It's been historic twenty four hours here 0:01:57.400 --> 0:02:00.800 in Madrid as Natal leaders gathered. Turkish President it Urduan 0:02:00.920 --> 0:02:04.280 has lifted his objections for Finland and Sweden to join 0:02:04.400 --> 0:02:07.240 the NATO Alliance. We looked to Europe even for the 0:02:07.320 --> 0:02:10.480 latest on the FED, where Chair j Powell appeared at 0:02:10.520 --> 0:02:13.959 CenTra with other central bankers and reaffirmed his commitment to 0:02:14.080 --> 0:02:18.080 beat inflation no matter the risk. We're very strongly committed 0:02:18.080 --> 0:02:20.960 to using our tools to get inflation to come down. 0:02:21.120 --> 0:02:23.200 The way to do that is to slow down growth, 0:02:23.360 --> 0:02:25.639 ideally keep it positive. Is there a risk that we 0:02:25.680 --> 0:02:28.919 would go too far? Certainly there's a risk, but I 0:02:28.960 --> 0:02:31.519 wouldn't agree that it's the biggest risk to the economy. 0:02:31.760 --> 0:02:34.519 And just as things wound down in Europe, they moved 0:02:34.560 --> 0:02:38.240 on to Hong Kong, where President g traveled outside mainland 0:02:38.280 --> 0:02:40.560 China for the first time at eight hundred ninety three 0:02:40.639 --> 0:02:45.000 days to celebrate the twenty anniversary of the handover from Britain. 0:02:45.560 --> 0:02:48.639 Fog Don hung Jin. Hong Kong enjoys a unique position, 0:02:48.919 --> 0:02:53.080 favorable conditions and broad space for development. The central authorities 0:02:53.120 --> 0:02:56.560 fully support Hong Kong and seizing the historic opportunities presented 0:02:56.560 --> 0:03:00.120 by our country's development. But Washington wasn't left without its 0:03:00.120 --> 0:03:02.880 own fair share of drama this week, as a former 0:03:02.919 --> 0:03:06.280 aide to President Trump's chief of staff gave dramatic testimony 0:03:06.320 --> 0:03:09.640 about Mr Trump's reported willingness to let the mob gather 0:03:09.760 --> 0:03:13.200 on January six, even if they did have weapons, housing 0:03:13.240 --> 0:03:15.639 the dicinity of a conversation where I overheard the President 0:03:15.760 --> 0:03:18.600 say something to the effective you know, I don't even 0:03:18.680 --> 0:03:21.880 care that they have weapons. They're not here to hurt me. 0:03:24.080 --> 0:03:26.000 But with all that was going on around the world. 0:03:26.000 --> 0:03:28.240 In the end, it came back to inflation and the 0:03:28.320 --> 0:03:31.320 economy and growing fears of recession. For the week, the 0:03:31.320 --> 0:03:34.960 equity markets were down, with the SMP off over two 0:03:34.960 --> 0:03:38.400 percent since Monday and the NASDACK down over four and 0:03:38.480 --> 0:03:41.520 that was after a rally on Friday while bonds were 0:03:41.520 --> 0:03:44.160 being bought, leaving the yield on the ten year under 0:03:44.200 --> 0:03:47.800 two point nine, down five basis points. But the bigger 0:03:47.840 --> 0:03:50.320 story of the week ended on Thursday, the close of 0:03:50.360 --> 0:03:52.680 the first half, which ended up being the worst for 0:03:52.720 --> 0:03:56.000 the equity market since nineteen sixty two and the worst 0:03:56.040 --> 0:03:59.080 for ten year treasuries since Get this, they were first 0:03:59.080 --> 0:04:02.320 sold back in seven teen eight. Here they help us 0:04:02.320 --> 0:04:04.839 sort it all out. Our Jillian Tet, Financial Times editor 0:04:04.880 --> 0:04:08.360 at Large and US Editorial board chair, and Peter Krause, 0:04:08.600 --> 0:04:11.400 chairman and CEO of Aperture Investors. Julian, let me start 0:04:11.440 --> 0:04:13.920 with you, actually and what we saw in the markets. 0:04:13.960 --> 0:04:16.480 What's driving the markets from your perspective right now, Well, 0:04:16.520 --> 0:04:18.360 the best way to make sense of the equity markets 0:04:18.440 --> 0:04:21.720 is to recognize that a month ago investors had a 0:04:21.839 --> 0:04:24.160 nasty shock when they realize that rates were going up. 0:04:24.240 --> 0:04:27.120 You know, the inflation numbers have beencoming much higher than expected, 0:04:27.600 --> 0:04:30.839 and the fat has really accelerated. What we're seeing today, though, 0:04:31.040 --> 0:04:34.120 is an investor realizing the earnings are being hurt by 0:04:34.120 --> 0:04:37.320 the underlying economic slowdown, and that is really when they're 0:04:37.320 --> 0:04:40.200 starting to drag on people as they worry not just 0:04:40.279 --> 0:04:44.560 about inflation but sac inflation. The combination of price growth 0:04:45.000 --> 0:04:48.840 and slowing sorry, price increases and slowing growth. Then, frankly, 0:04:48.839 --> 0:04:51.760 we've not seen in the nineteen seventies. So, Peter, the 0:04:51.839 --> 0:04:53.920 question I really wants to know is how bad is 0:04:53.920 --> 0:04:56.320 it going to get? How far are we into this decline? 0:04:56.320 --> 0:04:58.800 In your judgment, I think there's two answers to that. 0:04:58.839 --> 0:05:03.280 One is how far the markets down into their ultimate 0:05:03.920 --> 0:05:07.760 decline and how far are we, from an economic point 0:05:07.760 --> 0:05:11.400 of view, into slowing growth slash recession. I think on 0:05:11.440 --> 0:05:14.800 the former point, we're probably two thirds are a little 0:05:14.800 --> 0:05:18.200 bit more of the way to a bottom. In financial markets, 0:05:18.880 --> 0:05:22.000 it's likely there's another ten percent and equity markets find 0:05:22.040 --> 0:05:27.040 markets perhaps a little closer to their natier. But we're 0:05:27.040 --> 0:05:30.279 going to continue to have that volatility until there is 0:05:30.320 --> 0:05:33.720 some clarity regarding how much the FED is going to 0:05:33.839 --> 0:05:37.080 raise rates, because that really is what investors as Jillian 0:05:37.120 --> 0:05:40.880 points out, are watching as it relates to the economy itself. 0:05:41.160 --> 0:05:43.320 I think it is a good argument that we're already 0:05:43.560 --> 0:05:48.320 either entering a recession or in a recession. Manufacturing activity 0:05:48.360 --> 0:05:53.720 has dropped significantly. We've seen leading indicators also decline. We've 0:05:53.720 --> 0:05:58.680 seen consumption activity fall, and CEOs are beginning to predict 0:05:59.200 --> 0:06:02.520 that the second half of their economic activity to their 0:06:02.560 --> 0:06:05.680 companies is going to be a lot lower. So, Jillian, 0:06:05.760 --> 0:06:07.479 what about that We pick one of the things that 0:06:07.480 --> 0:06:09.760 Peter talked about it, and that is consumption numbers. We 0:06:09.800 --> 0:06:11.960 had personal consumption numbers are really softened in the United 0:06:12.000 --> 0:06:13.719 States this week, and also of course we have the 0:06:13.720 --> 0:06:16.839 consumer confidence numbers which are softening as well. That is 0:06:16.880 --> 0:06:18.760 a big driver, as we all know of the U 0:06:18.760 --> 0:06:20.839 S economy. How big a risk is that at this 0:06:20.880 --> 0:06:22.720 point for the US economy, Well, there are two or 0:06:22.760 --> 0:06:25.120 three factors right now whichuld make it incredibly hard to 0:06:25.200 --> 0:06:28.480 work out what's going on. One is the fact that yes, 0:06:28.560 --> 0:06:32.200 you're seeing a real loss of consumer competence, really quite 0:06:32.200 --> 0:06:36.159 staggering decline and consumer confidence. And that kind of makes 0:06:36.200 --> 0:06:39.440 sense given the scale of price shock and inflation shock. 0:06:40.120 --> 0:06:42.839 But something that we haven't really seen before in previous 0:06:42.839 --> 0:06:45.800 economic cycles. Is that a lot of consumers are sitting 0:06:45.839 --> 0:06:49.600 on fat cushions of savings compared to the thought past 0:06:50.040 --> 0:06:52.560 because of the fiscal stimulus. Jillian Ted and Peter Kraus 0:06:52.560 --> 0:06:54.520 will be staying with us as we get some investment 0:06:54.520 --> 0:06:56.920 advice in these turbulent times. That's gonna have the next 0:06:57.040 --> 0:07:03.880 watter releasing Hun Bloomberg. This is Bloomberg Wall Street Week 0:07:04.080 --> 0:07:13.440 with David Weston from Bloomberg Radio. Let's take some time 0:07:13.480 --> 0:07:16.440 out to go traveling, not the camel route to Iraq, 0:07:16.640 --> 0:07:19.840 but the financial route to a buck. Not only does 0:07:19.880 --> 0:07:21.840 the dollar to buy less at the supermarket than it 0:07:21.920 --> 0:07:24.240 used to, it also buys less in terms of other 0:07:24.360 --> 0:07:27.000 currencies than it did ten years ago, a period that 0:07:27.040 --> 0:07:31.440 has included two official devaluations of the dollar. That of 0:07:31.480 --> 0:07:33.360 course is Lewis Rohaiser on Wall Street Gate that was 0:07:33.440 --> 0:07:36.800 back in and once again that buck is buying less 0:07:36.800 --> 0:07:39.480 at the supermarket, but it sure isn't buying less in 0:07:39.560 --> 0:07:42.480 terms of foreign exchange. Peter Cress of Aperture Investors and 0:07:42.600 --> 0:07:44.840 Jillian Ted. If the financial times are still with us, 0:07:44.920 --> 0:07:46.800 so Peter, it's hard to know where the markets are 0:07:46.840 --> 0:07:48.320 going but the one thing I think we can say 0:07:48.360 --> 0:07:50.960 is they are turbulent. In these turbulent times, where do 0:07:51.040 --> 0:07:52.560 you put your bucks at this point, where does it 0:07:52.560 --> 0:07:55.640 make sense? Well, look, you're not gonna be able to 0:07:55.640 --> 0:07:59.040 put your money anywhere that is going to be unaffected 0:07:59.040 --> 0:08:02.400 by the volatility. So if the objective is find someplace 0:08:02.440 --> 0:08:05.920 to invest where you don't have volatility, that's the zero 0:08:06.000 --> 0:08:10.280 sum game. On the other hand, equities will go up 0:08:10.320 --> 0:08:13.680 over time and credit has gotten a lot cheaper, and 0:08:13.760 --> 0:08:17.679 so if you're looking for incremental places to invest, even 0:08:17.920 --> 0:08:21.200 large institutional investors, you have to be beginning to look 0:08:21.240 --> 0:08:24.240 at putting some money back into the equity markets they're 0:08:24.320 --> 0:08:28.000 down thirty plus percent, and some money into the fixed 0:08:28.000 --> 0:08:31.600 income markets because spreads have moved out pretty dramatically. But 0:08:31.680 --> 0:08:34.040 you're not gonna be able to do that without volatility, 0:08:34.160 --> 0:08:35.920 and you're not gonna able to do that with probably 0:08:36.120 --> 0:08:39.240 without additional draw downs. So you need to be cautious 0:08:39.280 --> 0:08:41.880 about how much you've commit well, and Julie, I wonder 0:08:41.920 --> 0:08:44.280 if you're you're gonna be able to do without additional risk. 0:08:44.320 --> 0:08:46.400 I mean, Peter says that credit is cheaper now, it's 0:08:46.440 --> 0:08:48.320 a better buy. You can get better returns. There may 0:08:48.320 --> 0:08:50.280 be a reason for that. What is the risk of defaults? 0:08:50.280 --> 0:08:52.320 We haven't had defaults in a while now, Well, we're 0:08:52.400 --> 0:08:55.520 going incredibly retro in all kinds of ways right now. Um. 0:08:55.720 --> 0:08:58.160 You haven't yet got the sideburns unfortunately, David. But I 0:08:58.200 --> 0:09:01.199 hope we hear that soon of your former host. Um. 0:09:01.240 --> 0:09:03.320 But you know, one of the things that investors have 0:09:03.480 --> 0:09:06.079 not had to worry about for a very long time 0:09:06.520 --> 0:09:10.760 our corporate defaults UM and risks in the high yield market. Um, 0:09:10.800 --> 0:09:13.320 we're still not seeing that. The default rate right now 0:09:13.440 --> 0:09:16.760 is incredibly low, UM, in spite of all the falls 0:09:16.760 --> 0:09:20.000 from the equity market and concern about recession. But what 0:09:20.040 --> 0:09:23.720 you're seeing a number of bankers and lawyers and others 0:09:23.720 --> 0:09:28.400 talk about is a likelihood that as rates keep going up, UM, 0:09:28.440 --> 0:09:30.320 we're going to start to see more and more pressure 0:09:30.520 --> 0:09:34.600 on risky companies. Now, it's hard to predict exactly when 0:09:34.640 --> 0:09:37.760 that is going to strike because most risky companies, most 0:09:37.840 --> 0:09:41.160 high yield companies, or leverage loans have been essentially refinancing 0:09:41.200 --> 0:09:44.640 themselves or locked in financing for quite a while. So 0:09:44.679 --> 0:09:49.080 it really only begin to bite when the refinancings come up. Um, 0:09:49.120 --> 0:09:52.040 and that's a sort of staggered timetail because each company 0:09:52.080 --> 0:09:56.120 is different. But when you do see those refinancing occurs, 0:09:56.400 --> 0:09:58.679 you can because see the very nasty shock for investors, 0:09:59.240 --> 0:10:02.080 and you're he seeing the high yield bond market react 0:10:02.120 --> 0:10:04.800 to that. But in some ways that's the clearest part 0:10:04.800 --> 0:10:07.440 of the markets where you've actually seen a reaction to 0:10:07.600 --> 0:10:10.680 the tightening of the quid deconditions. So that is absolutely 0:10:10.720 --> 0:10:12.960 something that in bestor should be looking too in the 0:10:13.000 --> 0:10:15.480 next year or so as one of the big risks 0:10:15.520 --> 0:10:17.800 that are waiting us all. Peter, I wonder if we're 0:10:17.800 --> 0:10:20.200 getting an accurate read full on the full market right 0:10:20.200 --> 0:10:22.760 now in this sense, I'm back, by the way, I 0:10:22.800 --> 0:10:24.880 was just starting law school. I did have sideburns. For 0:10:24.920 --> 0:10:27.400 the record, they were quite as well, but I did 0:10:27.400 --> 0:10:30.719 have them. But one different thing. It's actually I'll try 0:10:30.720 --> 0:10:32.280 to bring it back. I did be a lot whiter 0:10:32.400 --> 0:10:34.959 that now. But but Peter, I wonder one of the 0:10:35.040 --> 0:10:37.320 changes that we've seen since nineteen five is how much 0:10:37.360 --> 0:10:39.760 the markets are private rather than public. We said, a 0:10:39.800 --> 0:10:42.240 big shift, and I wonder whether we really are getting 0:10:42.240 --> 0:10:45.800 an accurate read on all that private capital. No, we 0:10:45.880 --> 0:10:48.160 are not, By the way. I never had good sideburns. 0:10:48.160 --> 0:10:51.320 That's why I went with a beard. But with regards 0:10:51.360 --> 0:10:53.680 to the private markets, I think that that is a 0:10:53.840 --> 0:10:58.360 serious problem, meaning that we know for a fact the 0:10:58.520 --> 0:11:03.240 private markets flag public market valuations. But it's also a 0:11:03.240 --> 0:11:06.520 fact that the assets owned in private hands are also 0:11:06.600 --> 0:11:10.600 being affected by this market change. You cannot have this 0:11:10.760 --> 0:11:14.120 change in the interest rate construct that I spoke about 0:11:14.520 --> 0:11:19.960 briefly before without affecting values. So private equity assets are 0:11:20.080 --> 0:11:22.600 going to decline in value. I've already gone down in 0:11:22.720 --> 0:11:26.760 value but haven't yet been adjusted. And those adjustments, when 0:11:26.760 --> 0:11:29.920 they occur, are going to cause stress for investors. In 0:11:29.960 --> 0:11:33.280 some cases, they could cause liquidity issues. In some cases 0:11:33.679 --> 0:11:37.920 they may actually make raising additional capital much more challenging, 0:11:38.120 --> 0:11:41.640 and in some cases that could cause defaults and ultimate bankruptcies. 0:11:42.160 --> 0:11:46.520 So that that whole private credit and private equity sector 0:11:47.040 --> 0:11:49.840 is a place where we need to be focused on 0:11:50.480 --> 0:11:55.360 risk rising substantially and potential stress coming from a mark 0:11:55.440 --> 0:11:58.400 to market of those assets, Julian, these days we can't 0:11:58.440 --> 0:12:00.839 have a real conversation with investing without talking about China 0:12:00.920 --> 0:12:02.480 in one way or another. Of course, we have the 0:12:02.480 --> 0:12:05.920 anniversary anniversary they hand over is China a place that's 0:12:05.920 --> 0:12:09.080 attractive potentially for investors because they're going the other direction 0:12:09.160 --> 0:12:11.640 from the United States and much of the West. We're tightening, 0:12:11.760 --> 0:12:15.520 they're actually loostening. Well. Absolutely, China is something of an 0:12:15.640 --> 0:12:18.319 enigma in many ways because yes, they are going in 0:12:18.320 --> 0:12:21.080 the opposite direction from most other markets right now in 0:12:21.160 --> 0:12:24.360 terms of loosening. There is great pressure on President G 0:12:24.679 --> 0:12:28.120 to ensure that he tries to hit the GDP growth 0:12:28.160 --> 0:12:31.920 targets because he has the all important Party Congress later 0:12:31.960 --> 0:12:34.880 on this year. Um, and all the signs are that, 0:12:34.920 --> 0:12:37.280 because of the COVID lockdowns, are in danger of missing 0:12:37.280 --> 0:12:40.880 the growth targets. So President G has every incentive to 0:12:40.920 --> 0:12:45.000 try and stimulate the economy going forward in the coming months. Um. 0:12:45.040 --> 0:12:48.079 The problem that really is two or threefold. Firstly, we 0:12:48.160 --> 0:12:50.920 don't know how China will respond if there are more 0:12:51.000 --> 0:12:53.720 COVID outbreaks. Peter, what about it. You've had a career 0:12:53.760 --> 0:12:55.800 now investing your money and other people's money is at a 0:12:55.720 --> 0:12:57.160 a place where we should be putting the money right 0:12:57.200 --> 0:13:00.600 now into China. Can't be sure China right now, just can't. 0:13:01.360 --> 0:13:04.920 Being long China is a challenge for sure, But being short, 0:13:05.040 --> 0:13:07.240 I think is a is a very big risk. Look, 0:13:07.280 --> 0:13:11.440 I also think investors are somewhat circumspect about the motivations 0:13:11.520 --> 0:13:15.280 of the government with regards to the external investor. How 0:13:15.280 --> 0:13:17.800 will they treat the bond investors? How are they going 0:13:17.840 --> 0:13:21.880 to treat equity investors? Visa the regulation and changes to 0:13:22.080 --> 0:13:24.800 companies inside of China that were thought early to be 0:13:25.400 --> 0:13:29.440 leaders and real growers. Those those issues still remain. But 0:13:29.720 --> 0:13:34.319 China is a huge market, very strong economy. When it 0:13:34.640 --> 0:13:39.080 starts to grow, it will come back, COVID will get resolved, 0:13:39.640 --> 0:13:44.000 and it's still it. China is still provides significant exports 0:13:44.080 --> 0:13:49.120 to the world and buys significant imports. What about Europe, Well, 0:13:49.160 --> 0:13:52.160 Europe as ever is a very mix. Um. You've got 0:13:52.160 --> 0:13:55.040 some places like the UK which look really pretty um 0:13:55.080 --> 0:13:58.079 soggy right now, to use a wonderful British phrase, You've 0:13:58.080 --> 0:14:00.840 got other parts of you are doing better. Um. But 0:14:00.920 --> 0:14:02.800 the one thing everyone needs to realize is that Europe 0:14:02.920 --> 0:14:06.760 is very vulnerable to any retaliation or any more retaliation 0:14:06.840 --> 0:14:10.400 on the energy front as a result of Russish invasion 0:14:10.440 --> 0:14:16.000 of Ukraine. So Europe as ever is unlikely to go 0:14:16.080 --> 0:14:18.840 completely up the cliff, but it's unlikely to boom and 0:14:18.920 --> 0:14:22.160 so there's growing concern right now about the price preshous 0:14:22.200 --> 0:14:25.360 building um, and you know that isn't a very safe 0:14:25.360 --> 0:14:28.360 haven either. I guess the real message from all of 0:14:28.360 --> 0:14:30.520 this is that right now we're not dealing with a 0:14:30.640 --> 0:14:33.520 beauty parade in terms of decisions about where to put 0:14:33.560 --> 0:14:36.840 your money. It's really more like an ugly parade, which 0:14:36.920 --> 0:14:40.560 is an ugly place, and probably the only best option 0:14:40.560 --> 0:14:43.600 out of all that is a classic investment advice of diversify, 0:14:44.000 --> 0:14:46.280 hold your breath. Thank you so much to Peter Crass 0:14:46.320 --> 0:14:51.000 of Aperture Investors and Julian Ted of The Financial Times. 0:14:51.040 --> 0:14:54.480 Coming up twenty five years after China took back Hong Kong, 0:14:54.640 --> 0:14:57.760 what has changed? We had a Debora layer of Edelman 0:14:57.800 --> 0:15:11.600 Global Advisors. That's next Wall Street Week on Bloomberg. On 0:15:11.680 --> 0:15:15.960 a stormy night on July one, British rule over Hong 0:15:16.000 --> 0:15:18.840 Kong came to an end, replaced by the regime of 0:15:18.960 --> 0:15:23.160 one country, two systems, something they and the last British governor, 0:15:23.240 --> 0:15:26.600 Lord Patton, had high hopes for at the time. I 0:15:26.720 --> 0:15:31.720 hoped for the best. You couldn't leave thinking anything but that. 0:15:32.320 --> 0:15:34.040 I think it's just in the last ten years or 0:15:34.040 --> 0:15:36.800 so that the things have taken a turn for the worst, 0:15:37.200 --> 0:15:40.000 as I think we have in China overall. Twenty five 0:15:40.080 --> 0:15:42.920 years later, Hong Kong is a very different place. Its 0:15:42.920 --> 0:15:45.960 economy has doubled, and it is ruled by a China 0:15:46.080 --> 0:15:49.320 that is more assertive in Hong Kong and in its 0:15:49.360 --> 0:15:52.000 relations with the rest of the world, with the Chinese 0:15:52.000 --> 0:15:56.440 Defense Minister warning of possible conflict over Taiwan. If anyone 0:15:56.520 --> 0:15:59.880 dares to succeed Taiwan from China, we will not hesitate 0:16:00.000 --> 0:16:02.760 to fight. We will fight at all costs, and we 0:16:02.760 --> 0:16:04.880 will fight to the very end. This is the utterly 0:16:05.000 --> 0:16:07.640 choice for China, and today the United States is using 0:16:07.680 --> 0:16:11.640 economic weapons, such as trade restrictions to influence China's behavior. 0:16:11.960 --> 0:16:16.160 As explained by United States Trade Representative Katherine Tie, the 0:16:16.400 --> 0:16:21.440 China tariffs are, in my view, significant piece of leverage. 0:16:21.560 --> 0:16:24.800 We need to use our tools more effectively. We need 0:16:24.880 --> 0:16:28.560 new tools. Even as President g warns against what he 0:16:28.640 --> 0:16:34.120 calls weaponizing the world economy, politicizing, instrumentalizing, and weaponizing the 0:16:34.120 --> 0:16:38.240 world economy, using a dominant position in the global financial system, 0:16:38.280 --> 0:16:42.280 to wantonly impose sanctions would only hurt others as well 0:16:42.320 --> 0:16:47.960 as one self. And to take us through China as 0:16:47.840 --> 0:16:50.480 it is today twenty five years after that handover in 0:16:50.560 --> 0:16:53.680 Hong Kong. We're welcome Deborah Lair, she's the CEO of 0:16:53.920 --> 0:16:57.240 Edelman Global Advisory. Debor, you really are a China expert. 0:16:57.280 --> 0:16:59.760 Weill always love it when you're on. Give us a 0:16:59.760 --> 0:17:02.680 sense how China has changed in the laste years. And 0:17:02.760 --> 0:17:05.040 one way I can start actually is COVID. COVID has 0:17:05.119 --> 0:17:08.439 changed us all. What about President's Jane's reaction to COVID 0:17:08.480 --> 0:17:13.359 and zero COVID It's called well, really excellent question, and David, 0:17:13.400 --> 0:17:15.240 it's so nice to see you again. Thanks for having 0:17:15.240 --> 0:17:19.200 me on. China has changed unbelievably in the last twenty 0:17:19.240 --> 0:17:21.360 five years. As I look back when I was doing 0:17:21.400 --> 0:17:24.640 trade negotiations at that time, one of the most fundamental 0:17:25.480 --> 0:17:28.639 um concessions that we got from the Chinese, just to 0:17:28.640 --> 0:17:31.159 give you an example and put this in context, is 0:17:31.160 --> 0:17:33.520 the fact that they would actually have to publish their 0:17:33.560 --> 0:17:36.679 trade laws and only once that we're published were enforceable. 0:17:37.240 --> 0:17:39.320 So we've come a long way as they've built a 0:17:39.359 --> 0:17:42.399 world class legal system and trade system now enforcements a 0:17:42.400 --> 0:17:46.560 whole other question, but it shows the significant changes that 0:17:46.600 --> 0:17:49.520 we've seen over time in the development of the economy. 0:17:49.800 --> 0:17:54.080 COVID is a whole other issue. She reiterated his position 0:17:54.200 --> 0:17:59.680 on following a dynamic COVID policy. They have definite concerns 0:18:00.000 --> 0:18:02.239 about the impact that has had on the economy, but 0:18:02.320 --> 0:18:05.760 he had reiterated the fact that people were willing to 0:18:06.119 --> 0:18:10.200 sacrifice on the social and economic cost given the potential 0:18:10.240 --> 0:18:12.919 of deaths. And China had an article recently in Nature 0:18:12.960 --> 0:18:16.560 magazine where they estimated that if a macron were allowed 0:18:16.600 --> 0:18:20.359 to go free, essentially in China, it could result in 0:18:20.440 --> 0:18:23.679 one point six million deaths. China is not going to 0:18:23.760 --> 0:18:26.800 stand for that, particularly in the lead up to the 0:18:26.920 --> 0:18:32.640 Party plenum, this likely this November. So for She, they 0:18:32.680 --> 0:18:34.720 now look at what has the impact on the economy. 0:18:34.840 --> 0:18:37.560 As he looks last year. Last year was a banner 0:18:37.640 --> 0:18:40.679 year for China. They were the largest source of direct 0:18:40.680 --> 0:18:44.720 foreign investments. Most foreign companies who were there reiterated they 0:18:44.720 --> 0:18:47.880 were going to stay. The majority of them were profitable, 0:18:48.119 --> 0:18:52.880 They were positive about the prospects. She went into two 0:18:52.960 --> 0:18:56.040 in a very strong position and with a view that 0:18:56.240 --> 0:18:59.200 his policy around COVID was the best in the world. 0:18:59.480 --> 0:19:08.000 Now hits Ukraine, Brush's invasion world potential recession and then 0:19:08.200 --> 0:19:13.920 the lockdown in Shanghai definitely was over zealous officials who 0:19:13.920 --> 0:19:17.199 were going after that, but that had both a psychological 0:19:17.200 --> 0:19:19.879 impact when it was a city is sophisticated and as 0:19:19.960 --> 0:19:23.120 crucial to China as Shanghai, but also to the rest 0:19:23.160 --> 0:19:26.640 of the world, and it's really causing ripples through the economy. 0:19:26.760 --> 0:19:31.160 We're likely to only see zero percent, well negative growth. 0:19:31.160 --> 0:19:33.800 There's zero percent growth in the second quarter, and they 0:19:33.840 --> 0:19:37.400 definitely will not hit their targets of five point five 0:19:38.320 --> 0:19:40.680 that they had four this year. But I want to 0:19:40.720 --> 0:19:43.639 say one last thing too. When Si Jumping made his 0:19:43.720 --> 0:19:47.680 comments debbling down, and he was in Wuhan obviously where 0:19:47.720 --> 0:19:51.520 COVID first broke out, to make these comments, the most 0:19:51.560 --> 0:19:54.280 important thing that the Chinese did was actually put out 0:19:54.280 --> 0:19:58.520 a policy to try and govern and create guidelines for 0:19:58.600 --> 0:20:01.480 actions at local officials to take if there's a COVID 0:20:01.520 --> 0:20:03.720 breakout in their city. And this is an attempt to 0:20:03.720 --> 0:20:07.359 address this issue of over zealous officials to limit the 0:20:07.359 --> 0:20:11.520 economic impact where possible when there are just a few breakouts. 0:20:11.560 --> 0:20:14.520 So Debora, that's interesting sort of a cabin as it were, 0:20:14.560 --> 0:20:17.280 some of the activities of local officials. At the same time, 0:20:17.320 --> 0:20:19.680 a lot of Western experts that we talked to here 0:20:19.680 --> 0:20:22.520 on Bloomberg say, you know, President's approach on zero Covia 0:20:22.600 --> 0:20:24.520 is just wrong. He's gonna have to change. You have 0:20:24.560 --> 0:20:26.680 to go over to vaccinations. He's gonna have to change 0:20:26.680 --> 0:20:30.360 his economic approach overall. If you just look at that part, 0:20:30.400 --> 0:20:33.600 how well China has done compared to other countries. If 0:20:34.000 --> 0:20:36.920 I can't say whether she honestly believes it's the right 0:20:36.960 --> 0:20:39.200 policy or not, but there's no question they're not going 0:20:39.240 --> 0:20:42.080 to change. It has been so terribly helpful, as it 0:20:42.080 --> 0:20:43.879 always is. I must say thank you so much for 0:20:43.960 --> 0:20:46.160 being back on Wall Street Week. That's Deborah Lare She's 0:20:46.200 --> 0:20:51.359 the CEO of Edelman Global Advisory. Coming up, we wrap 0:20:51.440 --> 0:20:54.600 up our week once again with special contributor Larry Suburbs 0:20:54.640 --> 0:20:57.879 of Harvard. That's next on Wall Street Week on Bloomberg. 0:21:00.520 --> 0:21:04.480 This is Bloomberg Wall Street Week with David Weston from 0:21:04.600 --> 0:21:08.199 Bloomberg Radio. We are joined thankfully once again by our 0:21:08.280 --> 0:21:11.240 very special contributor Larry Summers of Harvard. So Larry, thanks 0:21:11.280 --> 0:21:13.240 for being back with us. Let's start with some of 0:21:13.240 --> 0:21:15.000 the big news in the economy this week, which is 0:21:15.200 --> 0:21:18.960 consumer spending in that states, It is softening clearly. Also 0:21:19.040 --> 0:21:21.920 consumer confidences down there are those who say that means 0:21:21.920 --> 0:21:24.040 maybe the Fed doesn't need to hike as much, maybe 0:21:24.040 --> 0:21:26.240 even they get the cuts sooner than we thought. What 0:21:26.320 --> 0:21:30.240 do you think about consumer spending right now? Look, I 0:21:30.280 --> 0:21:35.119 think we're seeing that inflation which is eroded people's purchasing power, 0:21:36.000 --> 0:21:39.760 the end of the fiscal stimulus that gave people a 0:21:39.800 --> 0:21:44.720 lot of cash UH last year, higher interest rates that 0:21:44.760 --> 0:21:49.560 are discouraging housing and housing allied UH kinds of spending, 0:21:50.520 --> 0:21:55.720 generalized increases in uncertainty, and just a bit more feeling 0:21:55.800 --> 0:22:01.399 of insecurity. UH. All of that is taking a toll 0:22:02.119 --> 0:22:08.160 on spending. My guess is that that's gonna continue for 0:22:08.240 --> 0:22:11.120 some time. And I think you have to say that 0:22:11.320 --> 0:22:15.320 whatever you thought about recession risks a month ago, the 0:22:16.080 --> 0:22:21.720 recession risks through the year two have to have gone 0:22:21.840 --> 0:22:26.479 up in a quate material way. I felt for a 0:22:26.520 --> 0:22:30.119 long time, as you know, David, that we're not gonna 0:22:30.400 --> 0:22:36.159 have inflation returned near target without a significant economic downturn. 0:22:36.800 --> 0:22:42.760 But that downturn could happen either because interest rates UH 0:22:43.119 --> 0:22:48.080 set by the FED rise very very sharply, or it 0:22:48.200 --> 0:22:54.359 could happen because of a kind of self fulfilling process 0:22:54.400 --> 0:22:58.119 coming out of the high inflation and reductions some people's incomes. 0:22:58.160 --> 0:23:02.400