WEBVTT - It's Tightening, Jim, But Not As We Know It 0:00:03.760 --> 0:00:07.080 Welcome to Bloomberg Opinion. I'm Varney Quinn this week. You've 0:00:07.120 --> 0:00:10.640 got this passive. You've got this active on the same 0:00:10.680 --> 0:00:13.840 time as interest rate hikes for a lot of central 0:00:13.840 --> 0:00:16.920 banks around the world. Marcus Ashworth on some central banks 0:00:16.960 --> 0:00:20.800 amping up quantitative tightening and the perils associated with Also, 0:00:21.040 --> 0:00:23.520 we don't have a lot of history at looking at 0:00:23.560 --> 0:00:27.440 what a recession in China might actually make. Dan Moss 0:00:27.440 --> 0:00:29.920 on what china surprise rate cut says about the world's 0:00:29.920 --> 0:00:33.720 second largest economy. First though, to US markets digesting all 0:00:33.760 --> 0:00:36.600 of the above and prepping for Jackson Hole. But first, 0:00:36.640 --> 0:00:39.040 here's a clip of Stephen Major Hong Kong and Shanghai 0:00:39.120 --> 0:00:41.560 Bank recently. The market at the time was convinced a 0:00:41.600 --> 0:00:44.400 FED pivot needed to be priced in at some point. 0:00:44.720 --> 0:00:48.479 Stephen Major had other ideas. The elegant outcome would be, 0:00:48.479 --> 0:00:52.440 presumably to do less, and any central banker who's candid 0:00:52.520 --> 0:00:54.920 enough to admit it would say that, if it's so 0:00:54.960 --> 0:00:57.400 obvious we're going to make a policy in mistake, let's 0:00:57.400 --> 0:00:59.640 not make the mistake. I want to bring in Jared Dillion. 0:00:59.800 --> 0:01:01.920 That was Stephen Major, their Hong Kong and Shang High Bank. 0:01:02.280 --> 0:01:04.320 Is this what's happening now that we've seen the f 0:01:04.360 --> 0:01:07.240 O m C minutes. Do they bear out this analysis 0:01:07.280 --> 0:01:09.560 that the FED will try to be elegant as opposed 0:01:09.600 --> 0:01:12.280 to overdoing it and underdoing it. Well, I think so 0:01:12.360 --> 0:01:15.440 far the rate increases have been in the elegant and 0:01:16.200 --> 0:01:18.920 this is not an elegant central bank. They tend to 0:01:18.959 --> 0:01:22.119 overdo things in both directions. I mean, if you recall, 0:01:22.200 --> 0:01:24.280 we had a period of time that lasted eight or 0:01:24.360 --> 0:01:27.360 nine years where we had rates at zero. That was 0:01:27.480 --> 0:01:30.240 overdoing it in one direction, and now we're overdoing it 0:01:30.240 --> 0:01:33.360 in the other direction. Having said that, I don't think 0:01:33.400 --> 0:01:36.360 there's anyone at the FED who thinks that rates are 0:01:36.360 --> 0:01:39.640 going to go above four percent. If you believe the 0:01:39.680 --> 0:01:42.120 dot plots that come out at the FED meetings, the 0:01:42.160 --> 0:01:44.840 median dot is around three and a half percent for 0:01:44.959 --> 0:01:48.800 FED funds, maybe three and three quarters four percent. But 0:01:48.920 --> 0:01:50.840 I think that's going to be about the terminus for 0:01:50.880 --> 0:01:53.840 the rate hikes. So you do think that we might 0:01:53.920 --> 0:01:58.560 see another fifty basis point increase, Oh absolutely, I absolutely 0:01:58.560 --> 0:02:00.680 believe we're going to see that. I don't know if 0:02:00.680 --> 0:02:02.840 we'll get a fifty or seventy five, I don't know. 0:02:02.880 --> 0:02:06.080 Which it will be in the September meeting, and we'll 0:02:06.120 --> 0:02:09.760 probably get one more rate hike after that, and then 0:02:09.800 --> 0:02:11.600 I think there's going to be a pause for a 0:02:11.600 --> 0:02:16.120 while and they're going to reevaluate. So consumer spending obviously 0:02:16.240 --> 0:02:19.639 held up. Walmart and Target reporting healthy quarters. Is this 0:02:19.760 --> 0:02:23.120 an economy that's booming. It's a strange sort of economy. 0:02:23.280 --> 0:02:26.160 It's booming in some ways and it's very weak in 0:02:26.200 --> 0:02:28.960 other ways. I mean, if you look at the manufacturing surveys, 0:02:29.240 --> 0:02:32.600 the regional manufacturing surveys like Empire State in Richmond FED, 0:02:32.680 --> 0:02:36.440 Dallas FED and stuff like that, you're seeing very poor 0:02:36.560 --> 0:02:40.840 sentiment among manufacturers. But if you look at retail sales 0:02:40.919 --> 0:02:43.679 and some of the other metrics, like the consumer is 0:02:43.720 --> 0:02:47.440 actually doing pretty well. So we have a very distorted 0:02:47.440 --> 0:02:50.480 economy as a result of the message that would pertinent 0:02:50.560 --> 0:02:53.560 place after the pandemic and in fact our Jonathan and 0:02:53.600 --> 0:02:56.400 even pointed this out in a column as well, pointing 0:02:56.440 --> 0:02:58.440 to the fact that the problem isn't uniform and the 0:02:58.440 --> 0:03:02.200 FED to avoid upsetting the whole apple carts. But at 0:03:02.200 --> 0:03:05.520 the same time, the FEDS instruments are pretty blunt, right, 0:03:05.520 --> 0:03:08.360 it either raises rates or it doesn't raise rates or 0:03:08.560 --> 0:03:11.720 raisism by less. Yeah, the Fed only has one tool 0:03:11.800 --> 0:03:14.480 and I was actually thinking about that earlier today. The 0:03:14.480 --> 0:03:17.520 economy that we have now is very confusing to a 0:03:17.520 --> 0:03:21.840 lot of people. This recession or whatever it is, is 0:03:22.000 --> 0:03:25.560 unlike any recession we've ever experienced before. And the only 0:03:25.639 --> 0:03:28.360 tool that the Fed has to deal with this is 0:03:28.520 --> 0:03:31.280 raising or lowering the Fed funds Right, That's pretty much 0:03:31.320 --> 0:03:33.040 all it is. Yes, So what do they do? I mean, 0:03:33.040 --> 0:03:35.360 they do have QT, but that's a slightly separate thing. 0:03:35.400 --> 0:03:37.360 So what do they do about raising or lowering the 0:03:37.360 --> 0:03:39.240 Fed funds rate? To try and have this guide path 0:03:39.320 --> 0:03:41.800 because elegant as possible. Well, the problem is there are 0:03:41.920 --> 0:03:46.400 politics involved here. Inflation is the number one issue in 0:03:46.440 --> 0:03:49.080 the minds of voters going into the mid term. The 0:03:49.120 --> 0:03:54.280 Fed cannot be seen as being complacent or ineffectual on inflation. 0:03:54.720 --> 0:03:57.960 They have to be seen taking action. So it's very 0:03:58.040 --> 0:04:01.680 hard for Jerome Powell to make the case to pause 0:04:01.920 --> 0:04:05.960 here without being viewed as having done enough on inflation. 0:04:06.280 --> 0:04:08.400 So what will you say at Jackson Hole? Because this 0:04:08.480 --> 0:04:11.320 is a market that's continuously looking for more from this 0:04:11.400 --> 0:04:16.760 Federal Reserve of more explanation, more answers more signal. No, 0:04:16.880 --> 0:04:18.360 I mean, forward guidance seems to be a thing of 0:04:18.440 --> 0:04:20.440 the past. But will you have anything to say? I 0:04:20.480 --> 0:04:25.599 think that forward guidance is drawing to a close. If 0:04:25.600 --> 0:04:28.000 the FED is approaching a pivot or a pause or 0:04:28.040 --> 0:04:30.479 whatever you want to call it, and they're going to 0:04:30.560 --> 0:04:33.400 be dated dependent, it's going to be really hard to 0:04:33.440 --> 0:04:37.320 give guidance out six, nine, twelve months as to what 0:04:37.400 --> 0:04:39.640 the FED is going to do. And actually I'm not 0:04:39.680 --> 0:04:42.760 a big fan of the four guidance anyway, because it 0:04:42.839 --> 0:04:45.760 locks the FED into a certain course of action. So 0:04:45.920 --> 0:04:49.120 it's going to be interesting to see what happens China, Jared, 0:04:49.279 --> 0:04:51.839 we had worried some data out of China recently, and 0:04:51.880 --> 0:04:54.520 then an actual interest rate cut this week. I mean 0:04:54.520 --> 0:04:56.160 it was tiny, but it was a sign that the 0:04:56.279 --> 0:04:59.239 Chinese economy is maybe a little bit of troubled waters. 0:04:59.560 --> 0:05:02.240 Does that impact your investment decisions here in the US 0:05:02.279 --> 0:05:05.080 at all? Not really. I mean, the one thing I 0:05:05.080 --> 0:05:08.440 found interesting about the price action after the interest rate cut. 0:05:08.920 --> 0:05:11.160 You know, I've been in the markets for a long 0:05:11.240 --> 0:05:15.479 time twenty one years, and usually the market goes down 0:05:15.960 --> 0:05:18.799 when China raises interest rates, and now it's going down 0:05:18.839 --> 0:05:23.240 when China lowers interest rates, so I find that to 0:05:23.279 --> 0:05:26.479 be very unusual. Well, I suppose the fear is that 0:05:26.560 --> 0:05:29.760 China might actually experience a recession, one of the first 0:05:29.800 --> 0:05:32.840 in the lifetime of the modern Chinese economy, and that 0:05:32.880 --> 0:05:35.479 would have a blowback effect on the US. I mean, 0:05:35.640 --> 0:05:38.159 for sure, absolutely are you a buyer or a seller 0:05:38.200 --> 0:05:42.880 at these levels? Jared, I'm actually a totally neutral. I've 0:05:42.920 --> 0:05:46.800 gone absolutely as neutral as I can possibly get. I 0:05:46.839 --> 0:05:49.880 think technically we're in the middle of a range. There 0:05:49.880 --> 0:05:53.480 are no clear signals. I'm actually not doing anything at all. 0:05:53.880 --> 0:05:55.920 And then the whole meme stock thing has come up again. 0:05:56.000 --> 0:05:57.479 The stock do you or I don't know what you 0:05:57.560 --> 0:06:00.400 can call it? These days? Will this continue on for 0:06:00.480 --> 0:06:03.560 the rest of our lifetime? It's probably going to continue 0:06:03.560 --> 0:06:05.840 on for longer than you think. I mean, what's going 0:06:05.880 --> 0:06:08.680 on here now? This isn't retail investors that are pushing 0:06:08.760 --> 0:06:11.840 up at Bath and beyond. It's absolutely not retail investors. 0:06:11.839 --> 0:06:15.279 So these this is hedge fund activity, and this is 0:06:15.360 --> 0:06:18.960 pro versus pro I mean, basically, after these stocks declined 0:06:19.000 --> 0:06:21.840 a bit, a big short base built up. Somebody in 0:06:21.880 --> 0:06:23.960 the hedge fund world at the idea maybe we can 0:06:24.000 --> 0:06:27.960 squeeze these shorts. Absolutely, what's happening here. The retail investors 0:06:28.400 --> 0:06:31.320 don't have cash, they don't have any m O. They've 0:06:31.360 --> 0:06:33.880 lost a lot of money, and it's not them that's 0:06:33.920 --> 0:06:36.520 doing this. Don't forget listeners, get into to be a 0:06:36.560 --> 0:06:39.560 Twitter at Valley Quinn or email v Quinn at Bloomberg 0:06:39.640 --> 0:06:42.880 dot net. Opinions of comments always welcome. Let's get down 0:06:42.880 --> 0:06:46.000 to the Inflation Reduction Act. One percent tax on stock 0:06:46.040 --> 0:06:50.159 buybacks sounds small, but it might be deceptively mighty. So Jared, 0:06:50.160 --> 0:06:52.839 you did the math as to the government. By your accounts, 0:06:52.880 --> 0:06:55.440 it will raise, according to by backs, about eight and 0:06:55.440 --> 0:06:57.960 a half billion dollars in revenue. It's not nothing. Government 0:06:58.000 --> 0:07:01.680 calculations suggesting seventy four billion over ten years. What's the 0:07:01.720 --> 0:07:05.080 bigger picture here, though, Well, the bigger picture here is 0:07:05.120 --> 0:07:08.400 that what the government is trying to do is nudge 0:07:08.720 --> 0:07:12.480 CFOs into paying dividends instead of doing buy backs. And 0:07:12.560 --> 0:07:14.720 I think this has been a goal for a while. 0:07:14.920 --> 0:07:17.040 If you look at the dividend yield of the SMP 0:07:17.800 --> 0:07:22.120 in it was four percent, and the dividend yield of 0:07:22.120 --> 0:07:24.640 the SMP today is one and a half percent, And 0:07:24.680 --> 0:07:28.280 basically what happened was CFOs got smart and they figured 0:07:28.320 --> 0:07:32.440 out that we had double taxation of that income, and 0:07:32.480 --> 0:07:35.440 they started doing returning cash to shareholders in a more 0:07:35.440 --> 0:07:39.640 efficient way. So how do we think of buy backs? 0:07:39.680 --> 0:07:41.480 Because on the one hand, if you think of it 0:07:41.480 --> 0:07:43.320 from a corporate point of view or an investor point 0:07:43.320 --> 0:07:45.840 of view, you have one opinion. On the other hand, 0:07:45.840 --> 0:07:49.040 if you're thinking in terms of redistribution of wealth, then 0:07:49.160 --> 0:07:51.960 you've got pension funds and retirement funds that like the 0:07:52.000 --> 0:07:55.400 buy backs. But people like Senator Warren and Senator Sanders 0:07:55.440 --> 0:07:57.800 that loads buy backs because they don't do anything actually 0:07:57.800 --> 0:08:00.680 for a company's employees or consumers. So how are we 0:08:00.720 --> 0:08:03.640 meant to think of them? Well, you know, the way 0:08:03.680 --> 0:08:05.400 I think of it is, you know, buy backs kind 0:08:05.400 --> 0:08:07.760 of have a bad reputation. And just to be clear, 0:08:07.840 --> 0:08:10.400 I don't like buy backs either, kind of for different reasons. 0:08:11.120 --> 0:08:14.640 But if you pay dividends instead of buy backs, the 0:08:14.720 --> 0:08:19.080 managers and directors and officers are still going to get dividends, 0:08:19.600 --> 0:08:22.160 you know, because they own a lot of stock. So 0:08:22.600 --> 0:08:27.080 if you're returning cash to shareholders, you're necessarily returning cash 0:08:27.120 --> 0:08:31.280 to all shareholders, including the largest shareholders, the pension funds 0:08:31.280 --> 0:08:33.920 and people like that. Yes, but also management. If a 0:08:33.960 --> 0:08:37.280 company is already spending plenty on investments, so the cash 0:08:37.320 --> 0:08:39.320 can't go there. So so so say a company decides 0:08:39.360 --> 0:08:41.000 not to do a buy back because of this tax, 0:08:41.200 --> 0:08:44.960 they're already spending plenty on investment. Boosting worker pay isn't 0:08:45.000 --> 0:08:47.959 an option. What's better than sit on more cash or 0:08:48.000 --> 0:08:51.040 do a buy back anyway, even with the one tax? Well, 0:08:51.080 --> 0:08:53.320 what's what's better is to pay a dividend even though 0:08:53.360 --> 0:08:55.319 they're double taxed. And the reason you want to do 0:08:55.360 --> 0:08:59.160 that is because you know, if a if a corporation 0:08:59.240 --> 0:09:03.679 doesn't have any projects that are worthy of investment, then 0:09:03.720 --> 0:09:07.839 they should return that cash to shareholders somehow. So if 0:09:07.840 --> 0:09:11.120 by backs are being taxed, even at a small rate, um, 0:09:11.200 --> 0:09:14.880 you should return it in the form of dividends. Why, well, 0:09:14.920 --> 0:09:17.640 I mean it's better than it's better than keeping the 0:09:17.679 --> 0:09:22.760 cash at the corporate level. Like, basically, shareholders are better 0:09:22.880 --> 0:09:26.839 stewards of that capital than the corporation is. So if 0:09:26.920 --> 0:09:29.800 you if if you're a shareholder and you get a dividend, 0:09:30.480 --> 0:09:33.520 you can you can reinvest it in the stock or 0:09:33.640 --> 0:09:36.040 you can reinvest it in other stocks, or you can 0:09:36.080 --> 0:09:39.080 simply spend it. All of that is better than the 0:09:39.120 --> 0:09:43.280 corporation pursuing an investment project which isn't going to yield 0:09:43.280 --> 0:09:46.679 the high rate of return. So, Jerry, between this one 0:09:46.720 --> 0:09:50.360 percent tax on buy bax on the minimum tax on corporations, 0:09:50.400 --> 0:09:53.360 do CEOs have reason to breathe a sigh of relief 0:09:53.679 --> 0:09:56.440 or be a little annoyed by this inflation reduction Act? 0:09:56.880 --> 0:09:59.280 I mean it could have been worse. Each each of 0:09:59.280 --> 0:10:01.800 these could have been worst, right, Yeah, I think I 0:10:01.800 --> 0:10:06.319 think a little annoyed is probably a pretty good characterization. Um. 0:10:06.360 --> 0:10:08.680 You know, in the short term, the buy back tax 0:10:08.960 --> 0:10:12.959 is pretty small, almost insignificant. The problem is is that 0:10:13.040 --> 0:10:15.400 now that it's in place, it will for sure go 0:10:15.559 --> 0:10:19.319 up over time. So lower net effective tax rate areas 0:10:19.320 --> 0:10:22.160 such as healthcare I T they might see a hit too. 0:10:22.160 --> 0:10:27.480 EPs three. Would it calls you to change any investment decisions? Yard? Uh? Me. 0:10:27.920 --> 0:10:31.000 You know, people have different philosophies on this. Um. You know, 0:10:31.120 --> 0:10:34.080 somebody like Warren Buffett pays a great deal of attention 0:10:34.120 --> 0:10:38.840 to tax I. Actually, don't I make investment decisions sort 0:10:38.880 --> 0:10:42.680 of exclusive of tax considerations. Uh? You know, I look, 0:10:42.720 --> 0:10:48.040 what's going to provide the best return, maybe to my detriment. Okay, 0:10:48.360 --> 0:10:51.200 take that advice, and he did at your will. There 0:10:51.200 --> 0:10:54.560 are you know, buy back companies. Obviously, companies that you 0:10:54.559 --> 0:10:57.040 know like to do buy bax. There's an SMP buy 0:10:57.080 --> 0:11:00.480 back Index. There's obviously going to be a raft. Well obviously, 0:11:00.520 --> 0:11:01.920 but I mean I presume there will be a raft 0:11:01.920 --> 0:11:03.160 of buy backs between now and the end of the 0:11:03.240 --> 0:11:06.800 year before this takes effect. Does that e t F 0:11:06.960 --> 0:11:10.080 or do those companies outperform or underperform as a result. 0:11:11.280 --> 0:11:14.400 I think the outperformance of the buy back stocks is 0:11:14.440 --> 0:11:18.199 going to diminish over time. Um, I think the effect 0:11:18.360 --> 0:11:21.840 is going to be pretty minuscule at first. I think 0:11:21.880 --> 0:11:25.760 what you'll see happen is as the tax goes up, uh, 0:11:25.800 --> 0:11:28.880 the outperformance of buy back stocks versus the overall market 0:11:29.440 --> 0:11:33.480 is going to decrease. Darre dillion. There. China cut rates 0:11:33.520 --> 0:11:36.400 this week, a surprise cut. So in the last several 0:11:36.440 --> 0:11:38.680 days out of China we've heard both a warning on 0:11:38.760 --> 0:11:42.640 inflation and a call from economists for stimulus. How then 0:11:42.800 --> 0:11:45.079 do we read the signals emanating from the world's second 0:11:45.120 --> 0:11:48.400 largest economy, I asked Dan Moss in Singapore. So Dan 0:11:48.520 --> 0:11:51.680 back In April, the PBOC implemented targeted policy tools as 0:11:51.720 --> 0:11:54.200 opposed to rate cuts. There are twenty three measures and 0:11:54.200 --> 0:11:57.760 a targeted farmers and mortgage holders and all sorts of industries. 0:11:58.040 --> 0:12:01.120 Then this month it implemented an act tull interest rate card. 0:12:01.160 --> 0:12:03.120 It was a small one, but it was one. What 0:12:03.240 --> 0:12:06.200 do these moves indicate about the economy and its growth 0:12:06.200 --> 0:12:10.640 this year? It tells you, Vonnie, there is growing alarm 0:12:10.679 --> 0:12:15.240 among policy maker is Invaijing about the trajectory of the 0:12:15.360 --> 0:12:19.040 Chinese economy, not just that growth is slow, but it 0:12:19.080 --> 0:12:22.840 could be slow and continually slow. Wing We don't have 0:12:22.920 --> 0:12:25.920 a lot of history at looking at what a recession 0:12:25.960 --> 0:12:30.040 in China might actually mean, how even to define it, 0:12:30.120 --> 0:12:32.920 and might be worth asking ourselves what does this look 0:12:32.920 --> 0:12:35.360 and feel like in China, because if you go back 0:12:35.600 --> 0:12:39.440 for decades, we never had to encounter this question. Now 0:12:39.679 --> 0:12:43.880 I'm not predicting one, but you know, China's economy has 0:12:43.920 --> 0:12:48.320 gone from a world beating initial COVID recovery in the 0:12:48.400 --> 0:12:54.439 second half of to something that is looking pretty sickly 0:12:54.800 --> 0:12:57.280 right now right and this growth target of five and 0:12:57.280 --> 0:13:00.200 a half percent is probably fantasy at this point. It's 0:13:00.240 --> 0:13:03.120 probably been fantasy for quite some time. But if there 0:13:03.120 --> 0:13:05.560 were to be negative growth, if there were to be contraction, 0:13:05.679 --> 0:13:08.679 would we ever hear about it? Yeah, we probably would. 0:13:09.280 --> 0:13:14.760 One of the most interesting things about China's slump induced 0:13:14.760 --> 0:13:19.160 by COVID at the start of was that there was 0:13:19.240 --> 0:13:22.920 no effort to guild the lily on the numbers. There 0:13:23.000 --> 0:13:25.600 was no effort to ober sc for a long time. 0:13:26.000 --> 0:13:28.600 You've heard it. We've talked about on your TV shows. 0:13:28.640 --> 0:13:31.920 Sometimes a narrative guest has o, these numbers are man made, 0:13:32.160 --> 0:13:36.800 their massage, but give them cred. When GDP contracted in 0:13:36.880 --> 0:13:39.800 the first quarter of there was no answer to hide that. 0:13:40.160 --> 0:13:43.520 GDP is now back to a point in China whereafter 0:13:43.640 --> 0:13:47.000 taking off, when the rabents have basically order everyone back 0:13:47.040 --> 0:13:51.480 into factories and stores, it's now petering out again. So 0:13:51.960 --> 0:13:55.720 after three decades of almost uninterrupted growth, we now find 0:13:55.720 --> 0:14:00.200 ourselves looking at a very very subpire econom performance the 0:14:00.240 --> 0:14:02.920 second time in two years. Well, yeah, and what you 0:14:02.960 --> 0:14:05.520 said a moment ago, let's zoom in a little bit further, because, 0:14:05.559 --> 0:14:08.000 as you said, we don't have a traditional definition of 0:14:08.000 --> 0:14:10.200 what a recession in China looks like. We're so used 0:14:10.200 --> 0:14:12.920 to the idea of two quarters of negative growth plus 0:14:12.920 --> 0:14:15.120 a pronouncement by the n b R for us to 0:14:15.120 --> 0:14:17.240 know that we're in or have been in recession in 0:14:17.280 --> 0:14:20.080 the United States. Is there any policy on the part 0:14:20.080 --> 0:14:23.640 of the POC to define recession in China? H? No, 0:14:24.720 --> 0:14:28.680 it's highly unlikely that the POC would be the first 0:14:28.760 --> 0:14:31.720 people you hear that. Well, that's true too, Yes, you know, 0:14:31.760 --> 0:14:35.120 I mean a distinction has to be made. China Central 0:14:35.160 --> 0:14:38.000 Bank has done a lot of work and past five 0:14:38.080 --> 0:14:41.080 to ten years on how they communicate with the public 0:14:41.160 --> 0:14:45.680 domestically and globally. They are not an independent institution in 0:14:45.720 --> 0:14:47.560 a way we think of the Federal Reserve or the 0:14:47.600 --> 0:14:50.840 ECB or the b O e H. They answer to 0:14:51.960 --> 0:14:54.840 the State Council, which is the equivalent of the cabinet, 0:14:54.880 --> 0:14:57.560 which means they answer to the party. Now they have 0:14:57.680 --> 0:15:01.480 a degree of operational AUTONO, but being called that have 0:15:01.600 --> 0:15:05.680 political implications. I doubt you're gonna hear it. Just hasn't 0:15:05.680 --> 0:15:09.120 been that kind of discussion because if you look at 0:15:09.160 --> 0:15:12.600 the growth record since dung Shaoping began opening it up 0:15:12.680 --> 0:15:16.760 in the nineties, where we can't really encountered sadly. Yeah, Well, 0:15:16.800 --> 0:15:19.520 the other thing that was so fascinating was President she 0:15:19.800 --> 0:15:23.080 paying warning about the dangers of inflation, because you know, 0:15:23.160 --> 0:15:25.560 consumer prices came in this month of two point seven percent, 0:15:25.640 --> 0:15:28.960 which granted, you know, is not nothing, but to us 0:15:28.960 --> 0:15:31.200 in the United States, two point seven percent doesn't sound 0:15:31.280 --> 0:15:33.840 that bad. So it brings up several questions. How has 0:15:34.040 --> 0:15:37.440 killed it? Wouldn't we well almost, I'm sure somebody would. 0:15:38.000 --> 0:15:41.040 How has China been avoiding discourage? The rest of the 0:15:41.040 --> 0:15:44.840 world is racing. Many prices in China are controlled. But 0:15:45.000 --> 0:15:47.440 just get back to your broader point, and it's not 0:15:47.520 --> 0:15:52.400 just President She a pdoc report days before this Great 0:15:52.480 --> 0:15:56.600 Cup was breathing heavily about inflation. You know, we can't 0:15:56.640 --> 0:15:59.400 let our guard down. You know, we can't over reach use, 0:16:00.040 --> 0:16:03.080 we can't print one blah blah blah blah blah. So 0:16:03.240 --> 0:16:06.760 that really discouraged people from thinking that, you know, there's 0:16:06.760 --> 0:16:09.480 going to be a lot of monetary stimulus in the pipeline, 0:16:09.480 --> 0:16:12.880 and maybe even as far as interest rates are concerned. 0:16:13.120 --> 0:16:17.280 And then you've got it. And then forty five minutes afterwards, 0:16:17.480 --> 0:16:20.720 you had a string of data releases which could only 0:16:20.760 --> 0:16:24.680 be described as sub past. Preceding that you had very 0:16:24.800 --> 0:16:28.920 very poor data on credit growth. Yes, so yes, when 0:16:28.960 --> 0:16:32.240 you look at the data, sure, the data justified cut. 0:16:32.920 --> 0:16:36.360 It's not the BUBE that was seeming. Yeah, I mean, 0:16:36.360 --> 0:16:39.560 obviously COVID zero and its approach people have talked about, 0:16:39.680 --> 0:16:41.680 you know, how difficult it is to operate an economy 0:16:41.920 --> 0:16:45.120 under those kinds of restrictions. But it's not just COVID 0:16:45.240 --> 0:16:49.720 zero either. There's obviously the Twiff's question. There's obviously the consumer, 0:16:49.800 --> 0:16:51.760 the health of the consumer. You just mentioned credit growth 0:16:51.840 --> 0:16:54.040 and so on. So what are your thoughts on whether 0:16:54.240 --> 0:16:57.000 China inflation at two point seven present is a danger 0:16:57.120 --> 0:16:59.560 to the Chinese economy and the global economy. Well, if 0:16:59.560 --> 0:17:03.119 it got to five percent, they would be extremely concerned 0:17:03.280 --> 0:17:06.439 and there would be all sorts of direct policy responses 0:17:06.480 --> 0:17:10.280 regarding prices. But look, we're not at that point yet. 0:17:10.560 --> 0:17:13.400 A cause for concern a little bit, but they're clearly 0:17:13.440 --> 0:17:18.000 decided that growth is the first order concern. So inflations 0:17:18.040 --> 0:17:20.600 now on the back burner. We've seen a big shift 0:17:20.640 --> 0:17:22.760 in the last few days. You know, it's interesting, body. 0:17:23.000 --> 0:17:26.800 There was a prominent story in a p DOC aligned 0:17:26.920 --> 0:17:32.479 publication that sided a numberly kind of talking about an 0:17:32.520 --> 0:17:37.160 anticipation of further monitary stimulus for a p doc aligned 0:17:37.400 --> 0:17:40.000 newspaper to put it on the front page. That's not 0:17:40.080 --> 0:17:44.399 an accident. We have quipped here, it's all about supporting growth. 0:17:44.600 --> 0:17:47.359 There's this dual narrative, as there is in the United States. 0:17:47.359 --> 0:17:49.840 You need to fight inflation, we also need to support growth. 0:17:49.920 --> 0:17:52.600 So I guess the conundrum is there in China too. 0:17:53.480 --> 0:17:55.960 Just a word on politics, because there's always the potential 0:17:56.080 --> 0:17:59.840 for a disruption. I don't want to characterize it beyond 0:18:00.119 --> 0:18:01.440 but it did seem like we were headed for a 0:18:01.480 --> 0:18:04.080 bit of a cross moment between President Biden and Chinese 0:18:04.119 --> 0:18:08.399 President j and Ping. Suddenly the temperature cooled and in fact, 0:18:08.760 --> 0:18:10.720 let's just have a listen to what Singapore's next Prime 0:18:10.760 --> 0:18:15.560 minister told us recently. We are starting to see a 0:18:15.640 --> 0:18:19.040 series of decisions being taken by both countries that will 0:18:19.200 --> 0:18:22.639 lead us into more and more dangerous territory. If an 0:18:22.640 --> 0:18:26.800 accident would happened today, the consequences may be more difficult 0:18:26.840 --> 0:18:30.000 to manage. So then the Singapore Prime Minister in waiting 0:18:30.240 --> 0:18:33.000 is worried about it. Most of the world thinks about 0:18:33.000 --> 0:18:36.159 it from time to time. What are the options for 0:18:36.200 --> 0:18:39.560 the Biden administration. Well, I think we need to see 0:18:39.600 --> 0:18:43.720 what happens overcoming lots. Right now, there still seems to 0:18:43.800 --> 0:18:48.000 be some petulance in terms of the sort of response 0:18:48.080 --> 0:18:52.200 to announcy policies. There's there's a couple of opportunity President 0:18:52.560 --> 0:18:55.679 President Biden to meet in the one is it that 0:18:55.760 --> 0:18:58.840 you twenty meeting in Jakarta, and the other is the 0:18:58.960 --> 0:19:02.240 APEX meeting in Bangkok. So you know, we'll see what happened. 0:19:02.320 --> 0:19:04.680 I mean, I don't know is that a II one 0:19:04.880 --> 0:19:09.040 straight conflict as opposed to say, I don't know how 0:19:09.080 --> 0:19:12.600 that helps China's economic growth trajectory in all the United States, 0:19:13.000 --> 0:19:16.680 Dan Moss, don't forget to reach out with thoughts, suggestions, opinions. 0:19:16.720 --> 0:19:19.080 I'm at Vanney Quinn on Twitter or email v Quinn 0:19:19.119 --> 0:19:23.680 at Bloomberg dot net. Now to QT quantitative tightening or 0:19:24.119 --> 0:19:27.639 contraction of the Fed's balance sheet, withdrawing stimulus, decreasing the 0:19:27.680 --> 0:19:30.480 amount of liquidity in the economy, however you describe it. 0:19:30.760 --> 0:19:33.040 The FED and also the Bank of England are about 0:19:33.080 --> 0:19:35.720 to do more of it, even as both central banks 0:19:35.720 --> 0:19:39.520 continue with their rate hike cycle. Marcus Ashworth says beware, 0:19:39.800 --> 0:19:42.760 he joins us. Now there is general tightening. Marcus, the 0:19:42.800 --> 0:19:46.040 Fed engineering tightening financial conditions. And then there's this specific 0:19:46.080 --> 0:19:49.639 tool we call quantitative tightening. So to begin with brass tacks, 0:19:49.920 --> 0:19:54.520 what is it. It's the reverse of quantity of easing, 0:19:54.520 --> 0:19:57.919 in the sense instead of bond buying, they are not 0:19:58.200 --> 0:20:01.400 just on selling but also I think their holdings, which 0:20:01.440 --> 0:20:04.440 make sure as they come up to expiring it repaid, 0:20:04.520 --> 0:20:07.000 they're not piling them back in. Up from now, they've 0:20:07.000 --> 0:20:10.760 been maintaining the stock of their total holding close to 0:20:10.840 --> 0:20:13.720 nine trillion for the FED and nearly one trillion dollars 0:20:13.760 --> 0:20:16.119 for the Bank of England. But there's also the flow 0:20:16.200 --> 0:20:18.879 elements that they reverse the flow now, so the stock 0:20:19.080 --> 0:20:20.760 is going to stay quite high for some while, but 0:20:20.800 --> 0:20:23.080 it's going to come down by nearly a hundred billion 0:20:23.119 --> 0:20:24.919 in a month in the US, and you know, a 0:20:24.920 --> 0:20:27.320 bit less obviously in the UK's are a much smaller economy, 0:20:27.320 --> 0:20:30.399 but still quite announced effect as it comes at the 0:20:30.440 --> 0:20:33.040 same time that the central banks, as you mentioned early, 0:20:33.160 --> 0:20:36.760 are hiking industry, so there's a double impact and they 0:20:36.800 --> 0:20:39.320 are now actively going to sell back into the market 0:20:39.320 --> 0:20:41.840 as well as just living maturities run off. So you've 0:20:41.840 --> 0:20:45.000 got this passive you've got this active contentate tiling going 0:20:45.040 --> 0:20:47.119 on the same time as indust rate hikes. Quite a 0:20:47.119 --> 0:20:50.760 lot of contracting to financial conditions. We just don't know 0:20:51.000 --> 0:20:54.000 whether or not the market, the banking system, the quidity, 0:20:54.560 --> 0:20:56.159 all these things could get a bit of a crunch. 0:20:56.480 --> 0:20:59.440 Let's home not as you say, it's uncharted territory. Now 0:20:59.560 --> 0:21:01.920 this is a different tool to raising rates. How does 0:21:01.960 --> 0:21:06.439 the transmission mechanism work in this case? Well, we're not 0:21:06.480 --> 0:21:10.200 really I'm so sure. I mean, we put some academic 0:21:10.200 --> 0:21:12.840 work gone into this, and and really you've not got 0:21:12.920 --> 0:21:15.000 a lot of clarity from the central banks. Obviously some 0:21:15.080 --> 0:21:17.160 of the investment banks have done their own re such 0:21:17.200 --> 0:21:20.280 into it. But you know at the moment that the 0:21:20.320 --> 0:21:24.080 clearest idea we got from J. Powell's that they expect 0:21:24.160 --> 0:21:26.440 to run up about a trillion in the first year. 0:21:26.480 --> 0:21:29.320 So we're around nine trillion now you'll go down to 0:21:29.400 --> 0:21:32.639 eight and below. He only equates that are around a 0:21:32.760 --> 0:21:36.400 twenty five basis point the hiking industrates, which is almost 0:21:36.440 --> 0:21:40.320 nothing when they're hiking seventy side basis points every meeting. 0:21:40.400 --> 0:21:43.400 So the point is is is he right? And the 0:21:43.400 --> 0:21:46.360