1 00:00:09,840 --> 00:00:13,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm term Keene jay Leie. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,400 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. On 5 00:00:27,480 --> 00:00:29,960 Speaker 1: October eleventh, the United States signal did it had a 6 00:00:30,000 --> 00:00:32,600 Speaker 1: Phase one trade deal with China. This was the President 7 00:00:32,600 --> 00:00:34,920 Speaker 1: of the United States in the Oval Office with the 8 00:00:35,000 --> 00:00:37,680 Speaker 1: Chinese delegation. He said, we have come to a deal 9 00:00:37,800 --> 00:00:40,479 Speaker 1: pretty much subject to getting it written. It will take 10 00:00:40,520 --> 00:00:43,640 Speaker 1: probably three weeks, four weeks or five weeks. That was 11 00:00:43,680 --> 00:00:46,680 Speaker 1: five weeks ago. Five weeks later, and the Financial Times 12 00:00:46,760 --> 00:00:49,040 Speaker 1: is reporting that both sides are still struggling to close 13 00:00:49,080 --> 00:00:51,159 Speaker 1: the gap. They write that, according to people close to 14 00:00:51,200 --> 00:00:55,000 Speaker 1: the talks, Trump administration officials are frustrated that China has 15 00:00:55,000 --> 00:00:58,279 Speaker 1: not offered enough concessions to justify reduction in US tariffs 16 00:00:58,280 --> 00:01:01,560 Speaker 1: on Chinese goods, along ending demand from Beijing that has 17 00:01:01,600 --> 00:01:05,560 Speaker 1: become further entrenched in recent weeks. And yet, just as 18 00:01:05,640 --> 00:01:09,399 Speaker 1: Larry Cudlow insist, we are coming down to the short strokes, 19 00:01:09,480 --> 00:01:12,480 Speaker 1: we are in communication with them every single day, right 20 00:01:12,520 --> 00:01:15,200 Speaker 1: now apparently that is enough to keep us at all 21 00:01:15,240 --> 00:01:17,520 Speaker 1: time high school. But there was a news of the 22 00:01:17,720 --> 00:01:19,280 Speaker 1: in the last dare too that they still haven't even 23 00:01:19,319 --> 00:01:22,640 Speaker 1: agreed upon soybeans. I thought soybeans was the easy part 24 00:01:22,640 --> 00:01:25,080 Speaker 1: of the deal. I thought intellectual property and other big 25 00:01:25,080 --> 00:01:27,080 Speaker 1: issues were there going to be the really tough parts. 26 00:01:27,080 --> 00:01:30,559 Speaker 1: But soybeans. The optimistic view of this market is unbelissable, 27 00:01:30,600 --> 00:01:33,080 Speaker 1: isn't it? Here in New York City? I'm police to say, 28 00:01:33,120 --> 00:01:36,360 Speaker 1: Howard Ward, give Belly Funds, Sea Hio of Growth Equities, 29 00:01:36,360 --> 00:01:38,560 Speaker 1: a man that you were struggle to find on Wall 30 00:01:38,600 --> 00:01:40,360 Speaker 1: Street at the moment, a man that doesn't believe in 31 00:01:40,480 --> 00:01:43,280 Speaker 1: much of this and isn't getting behind the recent risk 32 00:01:43,360 --> 00:01:47,720 Speaker 1: on rally. Howard, what's going on? Well, I think you've 33 00:01:47,760 --> 00:01:50,680 Speaker 1: described the recent market action very accurately, But I do 34 00:01:50,800 --> 00:01:52,960 Speaker 1: I think it's time for Larry Cover when the White House, 35 00:01:53,000 --> 00:01:56,200 Speaker 1: to put up or shut up and stop manipulating the 36 00:01:56,240 --> 00:01:59,600 Speaker 1: market by tweet and comment about how how good the 37 00:01:59,640 --> 00:02:02,200 Speaker 1: talks are going. When the talks are done, tell us 38 00:02:02,280 --> 00:02:05,960 Speaker 1: what you have. In the meantime, please keep quiet. This 39 00:02:06,080 --> 00:02:09,320 Speaker 1: is really not, I think a professional way to be 40 00:02:09,400 --> 00:02:12,480 Speaker 1: handling this situation. So is it sits here the market. 41 00:02:12,520 --> 00:02:14,799 Speaker 1: It seems to be pricing in a phase one type 42 00:02:14,840 --> 00:02:16,360 Speaker 1: of deal. We're not even sure what a phase one 43 00:02:16,360 --> 00:02:19,359 Speaker 1: type of deal really will look like. So in the interim, 44 00:02:19,720 --> 00:02:24,960 Speaker 1: how are you positioning yourself in the market? So um 45 00:02:25,040 --> 00:02:27,880 Speaker 1: on the growth side, really, we've been pretty defensively positioned 46 00:02:27,919 --> 00:02:29,919 Speaker 1: for the last year, and actually for all but the 47 00:02:30,000 --> 00:02:31,799 Speaker 1: last five weeks or so. That's been a very good 48 00:02:31,800 --> 00:02:34,480 Speaker 1: place to be on the last five weeks. So really 49 00:02:34,520 --> 00:02:38,360 Speaker 1: going back to the announcement of the phase one deal 50 00:02:38,440 --> 00:02:43,079 Speaker 1: that so seems so imminent five weeks ago. Uh. Since then, 51 00:02:43,120 --> 00:02:46,240 Speaker 1: the defensives have underperformed. In the more cyclical stocks have 52 00:02:46,320 --> 00:02:48,280 Speaker 1: done well. But I think we're at a point now 53 00:02:48,480 --> 00:02:52,160 Speaker 1: where the pro cyclical rally over the last five six 54 00:02:52,200 --> 00:02:56,120 Speaker 1: weeks is probably premature. I don't think the economics slow 55 00:02:56,160 --> 00:02:59,080 Speaker 1: down has bottomed. I think we're we're looking at slower 56 00:02:59,080 --> 00:03:02,520 Speaker 1: growth in the United States, in Japan, and Europe for 57 00:03:02,600 --> 00:03:06,160 Speaker 1: next year. That's actually the consensus forecast, and earnings have 58 00:03:06,200 --> 00:03:08,959 Speaker 1: stalled out. Earnings have contracted for the last couple of quarters. 59 00:03:08,960 --> 00:03:11,600 Speaker 1: They're probably going to be flat to down this quarter. 60 00:03:11,639 --> 00:03:14,680 Speaker 1: We're in an earnings recession. Meanwhile, the stocks are priced 61 00:03:14,720 --> 00:03:18,440 Speaker 1: at seventeen eighteen times earnings, which is pretty full and 62 00:03:18,520 --> 00:03:20,639 Speaker 1: market capp as a percentage of GDP is that an 63 00:03:20,639 --> 00:03:22,520 Speaker 1: all time high, higher than it was at the peak 64 00:03:22,520 --> 00:03:25,600 Speaker 1: in two thousand, which was the strongest bull market in history. 65 00:03:25,720 --> 00:03:26,959 Speaker 1: With all that in mind, how and how do you 66 00:03:27,000 --> 00:03:29,600 Speaker 1: position your staff gun into them. We've had so many 67 00:03:29,600 --> 00:03:31,720 Speaker 1: people talking about buying the rest of the world load 68 00:03:31,800 --> 00:03:34,960 Speaker 1: up on beta, by Europe, by Asia, by e M. 69 00:03:35,320 --> 00:03:36,680 Speaker 1: What do you say back to them? What do you so? 70 00:03:36,920 --> 00:03:38,920 Speaker 1: I think that you know, as a general rule, when 71 00:03:38,920 --> 00:03:40,680 Speaker 1: the p M s and I want to say p 72 00:03:40,840 --> 00:03:43,160 Speaker 1: M I s, I'm talking about the manufacturing p M 73 00:03:43,200 --> 00:03:45,240 Speaker 1: I s because that they're the ones that give you 74 00:03:45,280 --> 00:03:47,880 Speaker 1: the value added as an indicator, as a leading indicator. 75 00:03:47,920 --> 00:03:52,080 Speaker 1: They create the beta in the economy and earnings and 76 00:03:52,520 --> 00:03:55,360 Speaker 1: have been very helpful leading indicators when they're below fifty 77 00:03:55,680 --> 00:03:58,640 Speaker 1: as they are and in downtrends. Okay, so maybe you 78 00:03:58,640 --> 00:04:01,200 Speaker 1: had a minor uptick in the last month or two, 79 00:04:01,240 --> 00:04:05,240 Speaker 1: there's still below fifty in down trends, and when earnings installed, 80 00:04:05,360 --> 00:04:08,520 Speaker 1: this tends to be a dangerous time for stocks. So 81 00:04:08,640 --> 00:04:12,240 Speaker 1: I would recommend that people not go after beta because 82 00:04:12,320 --> 00:04:15,000 Speaker 1: when the p m izer declining, for example, the JP 83 00:04:15,200 --> 00:04:17,599 Speaker 1: Morgan or Market m A r k I T Global 84 00:04:17,640 --> 00:04:20,200 Speaker 1: Manufacturing p m I, when it's in a downtrend and 85 00:04:20,240 --> 00:04:23,960 Speaker 1: below fifty, you tend to get pe compression. You tend 86 00:04:24,000 --> 00:04:27,080 Speaker 1: to have stocks go down, and you want lower beta. 87 00:04:27,120 --> 00:04:29,680 Speaker 1: You don't want higher beta when that when that indicator 88 00:04:29,720 --> 00:04:32,880 Speaker 1: and is a downtrend, UH low beta tends to outperform. 89 00:04:33,320 --> 00:04:35,680 Speaker 1: So I would stick with the low beta. And you know, 90 00:04:35,760 --> 00:04:38,560 Speaker 1: all year long the emerging markets have underperformed, I wouldn't 91 00:04:38,560 --> 00:04:41,160 Speaker 1: go after that. I wouldn't chase that. Particularly with what's 92 00:04:41,160 --> 00:04:43,520 Speaker 1: going on in Hong Kong and China right now, we 93 00:04:43,600 --> 00:04:45,479 Speaker 1: don't know how that's going to play out. China start 94 00:04:45,560 --> 00:04:47,560 Speaker 1: up between a rock and a hard place. If they 95 00:04:47,640 --> 00:04:50,040 Speaker 1: really clamped down in a military way with Hong Kong, 96 00:04:50,080 --> 00:04:52,240 Speaker 1: that's gonna send a really chilling message to the world 97 00:04:52,240 --> 00:04:55,200 Speaker 1: about doing business in Hong Kong. And if they back 98 00:04:55,279 --> 00:04:58,520 Speaker 1: off and a seed to the demands of the demonstrators, 99 00:04:58,640 --> 00:05:00,680 Speaker 1: well that sends perhaps a sets them up for some 100 00:05:00,720 --> 00:05:02,960 Speaker 1: trouble in mainland China, which they don't want to invite. 101 00:05:03,240 --> 00:05:05,480 Speaker 1: So they're in a really difficult situation. They're a little 102 00:05:05,480 --> 00:05:07,320 Speaker 1: bit of a tight rope walk. We'll see how that 103 00:05:07,320 --> 00:05:09,240 Speaker 1: plays out. So hard. I'm glad you brought up the 104 00:05:09,279 --> 00:05:11,280 Speaker 1: p M s and the weakening p M e s. 105 00:05:11,520 --> 00:05:13,640 Speaker 1: It kind of goes right back to the consumer puts 106 00:05:13,640 --> 00:05:16,440 Speaker 1: more and more pressure on the consumer in this economy 107 00:05:16,440 --> 00:05:18,719 Speaker 1: to keep things going. What's your view of the consumer 108 00:05:18,800 --> 00:05:21,040 Speaker 1: right now? Well, the consumer has been a source of strength, 109 00:05:21,080 --> 00:05:23,680 Speaker 1: and as you know, the labor market has been strong. 110 00:05:23,760 --> 00:05:27,320 Speaker 1: It's been we've we've seen the unemployment rate it's sixty 111 00:05:27,400 --> 00:05:30,600 Speaker 1: year lows, and the weekly unemployment claims have been bouncing 112 00:05:30,600 --> 00:05:33,400 Speaker 1: along the bottom for several months. I do think it's 113 00:05:33,760 --> 00:05:37,200 Speaker 1: it's it's exactly the time in this cycle, based on 114 00:05:37,240 --> 00:05:40,200 Speaker 1: an analysis of the Fed funds rate with a two 115 00:05:40,240 --> 00:05:43,440 Speaker 1: and a half year advance. That's because as the interest 116 00:05:43,520 --> 00:05:46,120 Speaker 1: rate lags as considerable here in the market, we are 117 00:05:46,200 --> 00:05:48,640 Speaker 1: exactly at the point in time when we should see 118 00:05:48,640 --> 00:05:51,680 Speaker 1: an increase in weekly unemployment claims and right on q 119 00:05:52,360 --> 00:05:55,200 Speaker 1: in the last two weeks we've seen increase five thousand 120 00:05:55,400 --> 00:05:58,480 Speaker 1: two weeks ago, ten thousand or more this week, and 121 00:05:58,520 --> 00:06:01,320 Speaker 1: the reading this week was the high reading since late June. 122 00:06:01,680 --> 00:06:03,720 Speaker 1: It's a bit of a breakout in four week moving 123 00:06:03,760 --> 00:06:06,960 Speaker 1: average technically bottomed in April but hasn't had much of 124 00:06:07,000 --> 00:06:09,960 Speaker 1: an increase incident, but it is beginning to move higher now. 125 00:06:10,240 --> 00:06:13,040 Speaker 1: If that number continues to advance, that is a real 126 00:06:13,080 --> 00:06:16,440 Speaker 1: red flag for stocks because there's a strong negative correlation 127 00:06:16,560 --> 00:06:19,599 Speaker 1: between weekly unemployment claims and the stock market. How would 128 00:06:19,640 --> 00:06:21,760 Speaker 1: you think, and this would be a very contrarian cool 129 00:06:21,800 --> 00:06:23,520 Speaker 1: at this point, that we might have seen a cyclical 130 00:06:23,560 --> 00:06:26,800 Speaker 1: peak in the labor market in the United States of America. 131 00:06:27,600 --> 00:06:31,000 Speaker 1: Oh absolutely, I think we're forming that as we speak, 132 00:06:31,120 --> 00:06:34,200 Speaker 1: and look at the JOLTS data. Job opening data again 133 00:06:34,560 --> 00:06:37,360 Speaker 1: is consistent with what would be arise and claims because 134 00:06:37,400 --> 00:06:40,080 Speaker 1: the numbers for job openings have rolled over in recent weeks, 135 00:06:40,080 --> 00:06:42,320 Speaker 1: consistent with full employment or a cyclical peak in the 136 00:06:42,400 --> 00:06:46,800 Speaker 1: labor market, because those two things can be quite different. Well, 137 00:06:47,160 --> 00:06:50,320 Speaker 1: full employment, of course is tricky because that gets you know, 138 00:06:50,440 --> 00:06:52,400 Speaker 1: what is real full employment? When? When do you want 139 00:06:52,440 --> 00:06:54,400 Speaker 1: to look at the labor participation rate which has been 140 00:06:54,480 --> 00:06:59,960 Speaker 1: very sticky around seemingly forever. Uh, it has not increase 141 00:07:00,080 --> 00:07:01,719 Speaker 1: the way you would have expected it to, you know, 142 00:07:01,880 --> 00:07:05,640 Speaker 1: this far into an economic expansion, So cyclical peak, I 143 00:07:05,680 --> 00:07:07,840 Speaker 1: think in employment is probably what we're a fun A 144 00:07:07,880 --> 00:07:11,040 Speaker 1: word from you, then, Howard conviction call going into what 145 00:07:11,080 --> 00:07:13,120 Speaker 1: do you do if you want to stay defensive the 146 00:07:13,200 --> 00:07:15,120 Speaker 1: risk reward looking at the price of that story at 147 00:07:15,160 --> 00:07:17,280 Speaker 1: the moment over the last six months or so, that 148 00:07:17,320 --> 00:07:20,480 Speaker 1: story got quite expensive. What do you do? It's healthy. 149 00:07:20,600 --> 00:07:23,880 Speaker 1: I think the healthcare sector, particularly the parts of health 150 00:07:23,880 --> 00:07:28,400 Speaker 1: care that lagged this year, uh for political reasons HMS 151 00:07:28,480 --> 00:07:31,600 Speaker 1: for example, and pharma fear of medicare for all. I 152 00:07:31,640 --> 00:07:34,440 Speaker 1: don't think that's going to happen. And therefore I think 153 00:07:34,440 --> 00:07:36,680 Speaker 1: there is some very good value in the United health 154 00:07:36,680 --> 00:07:39,200 Speaker 1: cares and the humans and the Bristol Myers of the world. 155 00:07:39,360 --> 00:07:41,960 Speaker 1: Howard would always great set thoughts, really thoughtful stuff as 156 00:07:41,960 --> 00:07:44,720 Speaker 1: always get Ballly fund seat io of growth equities a 157 00:07:44,800 --> 00:07:47,120 Speaker 1: test on equity market. But one man there, Paul Sweeney, 158 00:07:47,360 --> 00:07:50,320 Speaker 1: the things you should still remain defensive because it's a 159 00:07:50,360 --> 00:07:53,920 Speaker 1: little too premature to call the end of this global slump. 160 00:07:54,560 --> 00:07:58,440 Speaker 1: Very very reasonable points Howard made, and uh, you know, clearly, 161 00:07:58,680 --> 00:08:00,560 Speaker 1: I think it kind of comes down to the summer here. 162 00:08:00,560 --> 00:08:02,480 Speaker 1: We know where the FED is, we know where earnings 163 00:08:02,520 --> 00:08:06,480 Speaker 1: are um and you know, barring some major move on 164 00:08:06,520 --> 00:08:08,760 Speaker 1: the trade front. Um, you know, it comes down to 165 00:08:08,840 --> 00:08:12,000 Speaker 1: what can the you know this really this trade talks 166 00:08:12,200 --> 00:08:29,440 Speaker 1: really deliver for the market. Do you remember the auto 167 00:08:29,520 --> 00:08:31,880 Speaker 1: tariffs on Europe? What happened to them? We were meant 168 00:08:31,920 --> 00:08:34,640 Speaker 1: to get an announcement on that this week. I haven't 169 00:08:34,679 --> 00:08:37,800 Speaker 1: seen an announcement whatsoever. In fact, I've seen several reports 170 00:08:37,800 --> 00:08:40,280 Speaker 1: that suggests the United States may well delay any decision 171 00:08:40,320 --> 00:08:42,840 Speaker 1: on it. But I've seen nothing official from the administration. 172 00:08:42,880 --> 00:08:44,319 Speaker 1: Not in the market for a new car, so I'm 173 00:08:44,600 --> 00:08:47,000 Speaker 1: on that. Letby Cantroll, not on the market for a 174 00:08:47,040 --> 00:08:50,080 Speaker 1: new car, Pimco's head of public policy. Let's be very 175 00:08:50,120 --> 00:08:53,760 Speaker 1: little clarity on anything over the last five weeks except 176 00:08:54,080 --> 00:08:57,240 Speaker 1: we're getting closer. We're getting closer, and we have heard that. 177 00:08:57,400 --> 00:08:59,400 Speaker 1: We've heard that before. I mean, if you remember back 178 00:08:59,440 --> 00:09:02,640 Speaker 1: in the spring, we were there to a to a 179 00:09:02,720 --> 00:09:05,880 Speaker 1: much bigger and more comprehensive deal. Now we're just talking 180 00:09:05,880 --> 00:09:09,080 Speaker 1: about a much skinnier deal. But even then, and this 181 00:09:09,160 --> 00:09:12,679 Speaker 1: is what I've told our our clients that the things 182 00:09:12,720 --> 00:09:15,320 Speaker 1: that we're asking China to do, even in sort of 183 00:09:15,360 --> 00:09:18,640 Speaker 1: this scale down deal, are things that they've been very 184 00:09:18,640 --> 00:09:22,040 Speaker 1: resistant to do. And um, I think it's a bit 185 00:09:22,160 --> 00:09:24,760 Speaker 1: naive to think that they're going to change that posture, 186 00:09:24,840 --> 00:09:27,560 Speaker 1: especially given that at least their perception is of the 187 00:09:27,559 --> 00:09:31,160 Speaker 1: president that he's he's weaker domestically. They want to sort 188 00:09:31,160 --> 00:09:33,680 Speaker 1: of wait this out, so they don't really have any 189 00:09:33,800 --> 00:09:36,839 Speaker 1: incentive to give on these bigger structural issues. And it's 190 00:09:36,920 --> 00:09:39,320 Speaker 1: those issues. I mean, there's a lot of press about 191 00:09:39,320 --> 00:09:42,120 Speaker 1: the soybeans, but it's about i P enforcement, It's about 192 00:09:42,120 --> 00:09:44,640 Speaker 1: forced technology transfer. It's these big things that have been 193 00:09:44,640 --> 00:09:47,679 Speaker 1: the hang ups to to previous deals, um, that are 194 00:09:47,720 --> 00:09:49,600 Speaker 1: still continue to be outstanding. Let me just take at 195 00:09:49,600 --> 00:09:51,600 Speaker 1: each how those client conversations are going at the moment. 196 00:09:51,640 --> 00:09:54,520 Speaker 1: For me, either investors thinking agreement with still materializes, or 197 00:09:54,559 --> 00:09:57,319 Speaker 1: they just think that global growth bottoming. Isn't that dependent 198 00:09:57,360 --> 00:09:58,960 Speaker 1: on a trade truce. What do they sink back to 199 00:09:58,960 --> 00:10:01,040 Speaker 1: you in those conversation. Yeah, and you know, I think 200 00:10:01,080 --> 00:10:03,080 Speaker 1: we would probably take issue with this idea that global 201 00:10:03,080 --> 00:10:05,199 Speaker 1: growth is bottoming. Um. I mean, we think we still 202 00:10:05,200 --> 00:10:08,960 Speaker 1: continue to see a deceleration. I think our view, at 203 00:10:09,040 --> 00:10:11,040 Speaker 1: least in the US is that growth will probably bottom 204 00:10:11,440 --> 00:10:13,760 Speaker 1: uh more in the first half of next year than 205 00:10:13,840 --> 00:10:15,960 Speaker 1: it is now. But um, you know, with that with 206 00:10:16,000 --> 00:10:18,480 Speaker 1: that aside. You know, I think I think the expectation 207 00:10:18,600 --> 00:10:20,360 Speaker 1: right now, and I think where the market is priced 208 00:10:20,520 --> 00:10:23,480 Speaker 1: is that we will get some sort of Phase one deal. Now, 209 00:10:23,559 --> 00:10:25,800 Speaker 1: the way that I'm characterizing this with our clients is 210 00:10:25,840 --> 00:10:28,760 Speaker 1: this is much more a reprieve from escalation than a 211 00:10:28,840 --> 00:10:31,200 Speaker 1: de escalation. I mean, remember, we still have tariffs on 212 00:10:31,200 --> 00:10:33,920 Speaker 1: three hundred sixty billion dollars of goods that is still 213 00:10:34,200 --> 00:10:38,760 Speaker 1: impacting the real economic growth um and probably will continue 214 00:10:38,800 --> 00:10:40,959 Speaker 1: to be a source of uncertainty for the markets as well. 215 00:10:41,000 --> 00:10:43,200 Speaker 1: So even if we get a Phase one deal, I 216 00:10:43,200 --> 00:10:47,080 Speaker 1: don't think uncertainty and tensions with China going away anytime soon, 217 00:10:47,400 --> 00:10:49,959 Speaker 1: certainly not with this president, but even with a democratic president. 218 00:10:50,120 --> 00:10:52,400 Speaker 1: So I think what we're saying is, yeah, this is 219 00:10:52,440 --> 00:10:54,319 Speaker 1: you know, might be welcomed in terms of again a 220 00:10:54,440 --> 00:10:57,640 Speaker 1: reprieve of escalation, but it still doesn't do anything, most 221 00:10:57,679 --> 00:11:00,320 Speaker 1: likely about those you know, existing tariffs on that huge 222 00:11:00,320 --> 00:11:04,040 Speaker 1: bulk of Chinese imports oliby. We still see these jarring 223 00:11:04,080 --> 00:11:06,720 Speaker 1: in images coming out of Hong Kong, the unrested there. 224 00:11:06,760 --> 00:11:09,080 Speaker 1: It seems to be not only not going away, but 225 00:11:09,120 --> 00:11:12,120 Speaker 1: maybe even escalating. What does that do for China and 226 00:11:12,280 --> 00:11:15,200 Speaker 1: their view of a trade deals. I gotta think it 227 00:11:15,240 --> 00:11:16,880 Speaker 1: makes it maybe a little bit more pressure on them 228 00:11:16,880 --> 00:11:18,760 Speaker 1: and maybe get something done. Yeah, And I think it's 229 00:11:18,760 --> 00:11:21,079 Speaker 1: a it's a great point. And honestly, you know, I 230 00:11:21,120 --> 00:11:23,800 Speaker 1: don't know how much the market has been focused on it. 231 00:11:23,800 --> 00:11:25,560 Speaker 1: I think the market should be more focused on it, 232 00:11:26,200 --> 00:11:30,600 Speaker 1: because this feels like, you know, a possible source of 233 00:11:30,640 --> 00:11:33,520 Speaker 1: disruption honestly in terms of getting to the phase one deal, 234 00:11:34,200 --> 00:11:37,559 Speaker 1: only because there's a bill that's making its way through Congress. 235 00:11:37,559 --> 00:11:40,400 Speaker 1: It's already past the House. It's now something called you know, 236 00:11:40,440 --> 00:11:43,480 Speaker 1: it's hotlined in the senate's expedited in the Senate for consideration. 237 00:11:43,960 --> 00:11:46,080 Speaker 1: And and the reason why this is important is because 238 00:11:46,120 --> 00:11:48,640 Speaker 1: the Chinese have said that they will retaliate if the 239 00:11:48,880 --> 00:11:51,679 Speaker 1: you know, if Congress does pass this um. But to 240 00:11:51,720 --> 00:11:54,880 Speaker 1: your point, does this make you know, President she you know, 241 00:11:54,960 --> 00:11:57,720 Speaker 1: even more inclined for a deal. Maybe. But I also 242 00:11:57,760 --> 00:12:00,320 Speaker 1: think it makes him probably more inclined not to look 243 00:12:00,360 --> 00:12:02,720 Speaker 1: weak on the world stage. And I think that's actually 244 00:12:02,760 --> 00:12:05,000 Speaker 1: attention for President Trump as well. I think they're both 245 00:12:05,280 --> 00:12:07,760 Speaker 1: having some ways the same kind of domestic, you know, 246 00:12:07,800 --> 00:12:10,760 Speaker 1: political pressures that they want sort of a deal for 247 00:12:10,800 --> 00:12:13,720 Speaker 1: their both kind of economic purposes and their political purposes, 248 00:12:14,040 --> 00:12:16,040 Speaker 1: but that neither of them can a forelooking weak either. 249 00:12:16,240 --> 00:12:18,080 Speaker 1: Is there recognition on the China side though, that if 250 00:12:18,120 --> 00:12:20,439 Speaker 1: they do go in, they send the troops into Hong Kong, 251 00:12:20,880 --> 00:12:22,720 Speaker 1: that it blows up the prospect of getting a face 252 00:12:22,760 --> 00:12:26,640 Speaker 1: one to temperate China's approach, that this trade truce is 253 00:12:26,679 --> 00:12:28,439 Speaker 1: still lingering, that we don't have it yet, does it 254 00:12:28,520 --> 00:12:30,719 Speaker 1: temper their approach? And you know from our folks who 255 00:12:30,760 --> 00:12:32,760 Speaker 1: are on the ground and in Hong Kong, I mean 256 00:12:32,760 --> 00:12:35,319 Speaker 1: they they've said that. I think you know they said that. Also, 257 00:12:35,559 --> 00:12:38,040 Speaker 1: she has you know, a different set of um, you know, 258 00:12:38,080 --> 00:12:40,760 Speaker 1: pressures not to go into from a fam military perspective 259 00:12:40,760 --> 00:12:43,400 Speaker 1: as well. So it's not just because of the US 260 00:12:43,480 --> 00:12:46,199 Speaker 1: China trade discussions, but I'm sure that is absolutely a factor. 261 00:12:46,360 --> 00:12:48,199 Speaker 1: Let me super smart as always and always great to 262 00:12:48,200 --> 00:12:50,080 Speaker 1: catch out with you. Let me cancel their pimpco head 263 00:12:50,320 --> 00:13:07,880 Speaker 1: of public policy on the latest in Hong Kong, wrapping 264 00:13:07,960 --> 00:13:09,480 Speaker 1: up all the numbers for us on places to say 265 00:13:09,520 --> 00:13:10,720 Speaker 1: do you want to go stay in New York City? 266 00:13:10,720 --> 00:13:13,000 Speaker 1: Blinberg corporate finance reporter and Molly Smith, what a wait 267 00:13:13,080 --> 00:13:15,720 Speaker 1: we've had? We have, and it's not just investment grade, 268 00:13:15,720 --> 00:13:18,480 Speaker 1: it's high yield too. It's the busiest weekend two months 269 00:13:18,520 --> 00:13:20,480 Speaker 1: in the high yield market. And I think a lot 270 00:13:20,520 --> 00:13:23,840 Speaker 1: of this goes to show that, uh, you know, it's 271 00:13:23,880 --> 00:13:25,880 Speaker 1: just comes into all in borrowing costs at the end 272 00:13:25,880 --> 00:13:28,320 Speaker 1: of the day, of course, and that you can say 273 00:13:28,360 --> 00:13:30,680 Speaker 1: all that you want to, like companies have too much debt, 274 00:13:30,760 --> 00:13:32,920 Speaker 1: leverage is so high, but when it's so cheap, like 275 00:13:33,000 --> 00:13:35,000 Speaker 1: you kind of have to look at a corporate treasure 276 00:13:35,000 --> 00:13:37,000 Speaker 1: of the CFO and say, why not can we talk 277 00:13:37,000 --> 00:13:40,280 Speaker 1: about Emvy thirty billion dollars worth? Just how wow did 278 00:13:40,280 --> 00:13:42,360 Speaker 1: that price? How big was that order? But what were 279 00:13:42,360 --> 00:13:45,000 Speaker 1: your thoughts on that particular issue. So when we see 280 00:13:45,040 --> 00:13:47,160 Speaker 1: these M and A deals come now, they're so well 281 00:13:47,200 --> 00:13:49,760 Speaker 1: telegraphed that everyone and their moms knows this is coming. 282 00:13:50,000 --> 00:13:53,120 Speaker 1: So we've been ready for Abby since last week and 283 00:13:53,400 --> 00:13:57,320 Speaker 1: the orders definitely definitely reflected that and the price talk 284 00:13:57,360 --> 00:13:59,319 Speaker 1: as well. So I think a lot of us were 285 00:13:59,320 --> 00:14:03,080 Speaker 1: thinking that price talk at the onset was pretty tight actually, 286 00:14:03,120 --> 00:14:05,679 Speaker 1: and I would say the order book fairly reflected that. 287 00:14:05,720 --> 00:14:07,800 Speaker 1: We saw that it was about two and a half 288 00:14:07,880 --> 00:14:11,920 Speaker 1: times oversubscribed, which seems pretty good, right, seventy seven billion 289 00:14:11,960 --> 00:14:14,880 Speaker 1: dollars of orders on a thirty billion dollar offering, But 290 00:14:15,240 --> 00:14:18,160 Speaker 1: we've seen some of these go way way higher, usually 291 00:14:18,160 --> 00:14:20,400 Speaker 1: when the price talk comes with a lot bit more 292 00:14:20,400 --> 00:14:22,400 Speaker 1: of a premium to investors. So I think this one 293 00:14:22,520 --> 00:14:24,960 Speaker 1: was well telegraphed from the beginning, and that's why you 294 00:14:25,000 --> 00:14:27,040 Speaker 1: didn't see the book blow up the way you see 295 00:14:27,080 --> 00:14:29,760 Speaker 1: some of the other ones do. Who's buying this stuff? 296 00:14:30,200 --> 00:14:35,080 Speaker 1: So this is, uh, I mean, pretty widely bought. When 297 00:14:35,120 --> 00:14:37,320 Speaker 1: you see a huge issuance like this, there's so much 298 00:14:37,320 --> 00:14:40,520 Speaker 1: pressure for the investment community to own it, especially if 299 00:14:40,520 --> 00:14:42,600 Speaker 1: you're an index buyer, that this is going to make 300 00:14:42,680 --> 00:14:45,440 Speaker 1: up however much percent of your benchmark now, and if 301 00:14:45,480 --> 00:14:48,000 Speaker 1: you're not in it, I mean you're really missing out. 302 00:14:48,040 --> 00:14:50,040 Speaker 1: So you have to be in on these orders. Somewhat 303 00:14:50,080 --> 00:14:52,320 Speaker 1: counterintuitive for people outside of the market, isn't it that 304 00:14:52,320 --> 00:14:54,000 Speaker 1: when a big issue with like this comes through the 305 00:14:54,040 --> 00:14:57,760 Speaker 1: Molday issue, typically the more demand they will get. Molly, Yes, definitely, 306 00:14:57,960 --> 00:15:00,360 Speaker 1: and it especially helps as well that this is a 307 00:15:00,440 --> 00:15:03,680 Speaker 1: very high quality issue and also a mergery that makes 308 00:15:03,720 --> 00:15:05,640 Speaker 1: sense to a lot of people. When we see a 309 00:15:05,720 --> 00:15:08,200 Speaker 1: lot of these acquisition financing. A lot of people will 310 00:15:08,280 --> 00:15:10,080 Speaker 1: roll their eyes and be like, you know, does this 311 00:15:10,160 --> 00:15:13,200 Speaker 1: combination really makes sense? Should this one company be buying another? 312 00:15:13,480 --> 00:15:16,840 Speaker 1: Are these expected synergies and cost cuts really going to 313 00:15:16,840 --> 00:15:18,680 Speaker 1: be realized? And there's kind there can be a lot 314 00:15:18,680 --> 00:15:21,000 Speaker 1: of doubt, but I think on this one, you know, 315 00:15:21,040 --> 00:15:23,200 Speaker 1: I saw a lot of people in the investor community 316 00:15:23,200 --> 00:15:25,000 Speaker 1: and the rating side as well, there's a lot of 317 00:15:25,000 --> 00:15:27,320 Speaker 1: confidence that this is a really good tie up for 318 00:15:27,360 --> 00:15:29,720 Speaker 1: Abby and Allergan, that it makes sense for both of them. 319 00:15:29,800 --> 00:15:31,920 Speaker 1: If you've ever heard me on Bloomberg TV or Bloomberg 320 00:15:31,960 --> 00:15:33,760 Speaker 1: Radio talk about the triple bs and break down a 321 00:15:33,760 --> 00:15:37,440 Speaker 1: load of numbers, I stole those numbers from Molly Smith. Molly, 322 00:15:37,520 --> 00:15:39,480 Speaker 1: you did some fantastic work in the last couple of 323 00:15:39,520 --> 00:15:42,040 Speaker 1: years talking about how big that particular area the market 324 00:15:42,320 --> 00:15:45,320 Speaker 1: has become. Was an interesting year for much of the 325 00:15:45,400 --> 00:15:47,760 Speaker 1: year because many people turned around and said, at least 326 00:15:47,760 --> 00:15:49,800 Speaker 1: the Waltons in the market turned around and said, you 327 00:15:49,800 --> 00:15:52,080 Speaker 1: know what, there's no worry here. They'll get this sorted, 328 00:15:52,080 --> 00:15:54,120 Speaker 1: they'll address it. And we started to talk about what 329 00:15:54,160 --> 00:15:56,960 Speaker 1: people cheer of academy security is called a debt diet. 330 00:15:57,480 --> 00:15:59,400 Speaker 1: What happened to the debt diet in the back half 331 00:15:59,440 --> 00:16:01,760 Speaker 1: of this year, so it's a little mixed. And the 332 00:16:01,800 --> 00:16:05,000 Speaker 1: main companies that needed to go on this diet have 333 00:16:05,280 --> 00:16:07,920 Speaker 1: the biggest issuers in the index, the ones that have 334 00:16:07,960 --> 00:16:09,560 Speaker 1: taken on the most amount of debt in the last 335 00:16:09,560 --> 00:16:15,000 Speaker 1: several years, exactly A T and T InBev, Verizon, uh CVS, 336 00:16:15,080 --> 00:16:17,479 Speaker 1: all of these ones. They're doing it. They are absolutely 337 00:16:17,480 --> 00:16:21,160 Speaker 1: cutting their debt levels, getting leverage down. Being incredibly communicative 338 00:16:21,200 --> 00:16:23,720 Speaker 1: of that, and a lot of that also coming because 339 00:16:23,920 --> 00:16:26,960 Speaker 1: shareholders of all people are asking these companies to cut 340 00:16:26,960 --> 00:16:29,800 Speaker 1: their debt levels. So a nice rare time when shareholder 341 00:16:29,800 --> 00:16:32,480 Speaker 1: and bond interests are aligned. Do you never see this happen? 342 00:16:32,520 --> 00:16:35,240 Speaker 1: The bond holders love it. But and but the thing 343 00:16:35,320 --> 00:16:37,880 Speaker 1: is is that while these guys are kind of like 344 00:16:38,000 --> 00:16:41,320 Speaker 1: Bellweathers for the whole index because they are just so huge, 345 00:16:41,600 --> 00:16:45,120 Speaker 1: the index at a larger level, leverage is still broadly 346 00:16:45,280 --> 00:16:48,520 Speaker 1: unchanged from a year ago. And that's when we look at, well, yes, 347 00:16:48,560 --> 00:16:51,160 Speaker 1: we are still seeing all this issuance because rates are 348 00:16:51,160 --> 00:16:54,120 Speaker 1: still so low, and why not keep issuing debt? Why 349 00:16:54,120 --> 00:16:57,120 Speaker 1: not keep refinancing? So you mentioned the hield market in 350 00:16:57,200 --> 00:17:01,360 Speaker 1: another big strong week here, So investors in that market, 351 00:17:01,640 --> 00:17:04,600 Speaker 1: I guess they're pretty constructive on the economy because if 352 00:17:04,800 --> 00:17:07,360 Speaker 1: if we do see an economy rollover next year, those 353 00:17:07,359 --> 00:17:09,199 Speaker 1: are the kinds of companies that are going to be 354 00:17:09,320 --> 00:17:12,800 Speaker 1: impacted first, higher leverage, less room. Right. Well, that's why 355 00:17:12,800 --> 00:17:15,160 Speaker 1: we've definitely seen an up and quality trade and high 356 00:17:15,200 --> 00:17:17,879 Speaker 1: yield for sure, and that double Bees that's the highest 357 00:17:17,960 --> 00:17:21,199 Speaker 1: ratings tier in high yield, has been so rich and 358 00:17:21,240 --> 00:17:23,800 Speaker 1: a lot of people would say it's just very overpriced 359 00:17:23,880 --> 00:17:27,359 Speaker 1: right now, a really crowded trade. So that's getting a 360 00:17:27,400 --> 00:17:29,640 Speaker 1: little bit tight right now. And I think you see 361 00:17:29,680 --> 00:17:32,480 Speaker 1: more people looking for value in single Bees, which is 362 00:17:32,520 --> 00:17:35,560 Speaker 1: that next ratings tier down. You see fewer people though, 363 00:17:35,640 --> 00:17:38,840 Speaker 1: going for triple c's, that's the lowest ratings bucket in 364 00:17:39,080 --> 00:17:41,400 Speaker 1: high yield. But as we were just talking about, we 365 00:17:41,400 --> 00:17:44,800 Speaker 1: were speaking with Colin Robertson of Northern Trusts this week 366 00:17:44,880 --> 00:17:47,280 Speaker 1: and he's saying, look, if you think the economy still 367 00:17:47,280 --> 00:17:49,199 Speaker 1: got room to run, which he does, this is a 368 00:17:49,240 --> 00:17:51,800 Speaker 1: great time to buy triple c's, that the weakest credits 369 00:17:51,960 --> 00:17:54,600 Speaker 1: should be boosted by an economy that's still running. He's 370 00:17:54,600 --> 00:17:56,440 Speaker 1: had some pretty contribuing cols over in the last couple 371 00:17:56,440 --> 00:17:58,120 Speaker 1: of years. Remember, we came on one of the problegrams 372 00:17:58,160 --> 00:18:00,840 Speaker 1: with me maybe about eighteen months ago, said one fifty 373 00:18:01,080 --> 00:18:02,880 Speaker 1: US ten year, and we were in and around three 374 00:18:02,880 --> 00:18:05,480 Speaker 1: percent at the time, and we came down to one fifty. 375 00:18:05,640 --> 00:18:07,920 Speaker 1: So I want to how his credit call turns out. Molly, 376 00:18:07,960 --> 00:18:10,040 Speaker 1: great to catch up. Whether your great workouts are always 377 00:18:10,119 --> 00:18:13,080 Speaker 1: always making us all smarter here at Bloomberg, Bloomberg Corporate 378 00:18:13,080 --> 00:18:29,560 Speaker 1: Finance reporter Molly Smith there line for the Bloomberg Interactive 379 00:18:29,560 --> 00:18:31,719 Speaker 1: BROCA studios here in New York City. And let's get 380 00:18:31,760 --> 00:18:34,800 Speaker 1: you some Bloomberg opinion, shall we? The only word you 381 00:18:34,840 --> 00:18:38,399 Speaker 1: need to explain emerging markets China. It's fear of a 382 00:18:38,480 --> 00:18:41,720 Speaker 1: Minsky moment is driving a tectonic shift in the availability 383 00:18:41,720 --> 00:18:44,119 Speaker 1: of money. And how about this for a lead, Let's 384 00:18:44,440 --> 00:18:49,120 Speaker 1: get liquid. Isn't that fantastic? John Author's Bloomberg Opinion columnists 385 00:18:49,160 --> 00:18:51,080 Speaker 1: joining us on the phone. I'm pleased to say, John, 386 00:18:51,119 --> 00:18:53,720 Speaker 1: talk to me about it, explore it a little bit 387 00:18:53,720 --> 00:18:57,359 Speaker 1: further for us. Right, What is very interesting, given how 388 00:18:57,440 --> 00:19:00,240 Speaker 1: much time we spent talking about geo politics, treat wars 389 00:19:00,280 --> 00:19:03,480 Speaker 1: and stuff, is that, in fact, if you just look 390 00:19:04,280 --> 00:19:09,359 Speaker 1: at straightforward provision of liquidity across the world. It's that's 391 00:19:10,080 --> 00:19:13,919 Speaker 1: very obviously complained, explains the great majority of everything that 392 00:19:13,960 --> 00:19:16,879 Speaker 1: we've been seeing in markets this year. In a NUTSHELLUS 393 00:19:17,000 --> 00:19:20,919 Speaker 1: we generally know developed markets, you've seen a big turnaround, 394 00:19:20,920 --> 00:19:24,240 Speaker 1: a huge extra turning on of the tap of liquidity 395 00:19:24,240 --> 00:19:28,239 Speaker 1: in the last few months. What is less appreciated is 396 00:19:28,320 --> 00:19:32,240 Speaker 1: that you're seeing the exact reverse in emerging markets. And 397 00:19:32,240 --> 00:19:35,439 Speaker 1: the critical thing here is China. At the beginning of 398 00:19:35,480 --> 00:19:40,920 Speaker 1: the year, there was this strong belief over strong bet 399 00:19:41,040 --> 00:19:43,119 Speaker 1: that the p VOC, the People's Bank of China, was 400 00:19:43,160 --> 00:19:45,000 Speaker 1: going to turn on the taps again, as it's done 401 00:19:45,280 --> 00:19:49,959 Speaker 1: several times since the crisis. Instead, it's actually, it's not 402 00:19:50,040 --> 00:19:54,640 Speaker 1: really interested at this point in macro economic stimulus. It's 403 00:19:54,720 --> 00:20:00,080 Speaker 1: interest in macrew prudential avoidance of a Lehman disaster. The 404 00:20:00,080 --> 00:20:03,960 Speaker 1: they are working very hard to get to help local 405 00:20:04,000 --> 00:20:07,520 Speaker 1: governments get the various off balance sheet that they had 406 00:20:07,760 --> 00:20:11,000 Speaker 1: taken on back onto the books. They're trying to clean 407 00:20:11,119 --> 00:20:14,760 Speaker 1: things up to avert the risk of a disaster, I 408 00:20:14,800 --> 00:20:18,159 Speaker 1: think quite knowingly taking the risk at the in the 409 00:20:18,240 --> 00:20:22,160 Speaker 1: process that we're going to get slower Chinese growth as 410 00:20:22,160 --> 00:20:27,720 Speaker 1: a result, and Chinese growth, the basically effects flows to 411 00:20:27,800 --> 00:20:31,040 Speaker 1: the entire of the rest of the emerging market complex, 412 00:20:31,640 --> 00:20:34,000 Speaker 1: and that ends up with this situation where you have 413 00:20:34,040 --> 00:20:38,520 Speaker 1: a very strong dollar and still a very risky situation 414 00:20:38,680 --> 00:20:42,439 Speaker 1: across across the emerging world. So Chinas, you talk to 415 00:20:42,560 --> 00:20:44,919 Speaker 1: and think about emerging markets, you talk to people in 416 00:20:45,000 --> 00:20:48,280 Speaker 1: the emerging market space. Is there just an overall sense 417 00:20:48,359 --> 00:20:51,919 Speaker 1: that if China doesn't work, emerging markets as an asset 418 00:20:51,960 --> 00:20:53,720 Speaker 1: class not work, and I make can I make it 419 00:20:53,760 --> 00:20:57,520 Speaker 1: that simple? I think you probably can at this point, 420 00:20:57,800 --> 00:21:00,400 Speaker 1: I mean you could. The other thing you could very 421 00:21:00,440 --> 00:21:04,119 Speaker 1: reasonably suggest is that emerging markets as an asset class 422 00:21:04,200 --> 00:21:07,439 Speaker 1: is something we should we should begin to give up on. 423 00:21:07,520 --> 00:21:11,400 Speaker 1: But that's a that's another, very very much bigger story. Ultimately, 424 00:21:11,800 --> 00:21:18,400 Speaker 1: either the number of emerging market countries that either provides 425 00:21:18,440 --> 00:21:22,359 Speaker 1: stuff to China, which is basically the business model for 426 00:21:23,560 --> 00:21:27,720 Speaker 1: more as the whole of South America, or have intimate 427 00:21:27,800 --> 00:21:30,320 Speaker 1: links with it in terms of supply changes the rest 428 00:21:30,359 --> 00:21:35,359 Speaker 1: of Asia, and also the to a great extent, Eastern Europe, 429 00:21:35,359 --> 00:21:40,280 Speaker 1: which is involved with creating creasing cars and so on. 430 00:21:40,600 --> 00:21:44,160 Speaker 1: For the German industry, which exports a lots of China. Ultimately, 431 00:21:44,640 --> 00:21:48,320 Speaker 1: so much of the rest of um the emerging world 432 00:21:48,520 --> 00:21:51,840 Speaker 1: is economically tied to China, and then thanks to the 433 00:21:51,920 --> 00:21:55,800 Speaker 1: growth of passive investing and the treatment of them as 434 00:21:55,800 --> 00:21:59,880 Speaker 1: an asset class, it's financially tighter the China. Yes, yes, China, 435 00:22:00,000 --> 00:22:04,359 Speaker 1: this point really dominates the entire e ms at cars. So, John, 436 00:22:04,359 --> 00:22:06,359 Speaker 1: I have to compliment you on this column here about 437 00:22:06,359 --> 00:22:09,639 Speaker 1: the emerging markets. You're charting game and graphics. Game is 438 00:22:09,880 --> 00:22:11,760 Speaker 1: very very good right here. There's a lot of great 439 00:22:11,800 --> 00:22:14,120 Speaker 1: stuff in here. And one of the things that really 440 00:22:14,160 --> 00:22:18,040 Speaker 1: jumped out of me is that China is really slowing down. 441 00:22:19,320 --> 00:22:22,000 Speaker 1: You cite the Bloomberg's China Real Activity Index, gives your 442 00:22:22,000 --> 00:22:23,760 Speaker 1: sense of what's going on there, because the China is 443 00:22:23,800 --> 00:22:26,080 Speaker 1: still the government is still saying six six and a 444 00:22:26,080 --> 00:22:29,520 Speaker 1: half percent debt. Yes, growth GDP growth, Yes, that's slower, 445 00:22:29,560 --> 00:22:32,200 Speaker 1: but it's still pretty good growth. What do you think, well, 446 00:22:33,080 --> 00:22:37,600 Speaker 1: that that much is true, that China lives by different 447 00:22:37,640 --> 00:22:40,080 Speaker 1: standards from the from the rest of us. From memory, 448 00:22:40,119 --> 00:22:41,359 Speaker 1: I don't have the number in front of me. With 449 00:22:41,400 --> 00:22:44,840 Speaker 1: the our own Bloomberg's own Chinese activity gauge is still 450 00:22:44,920 --> 00:22:49,600 Speaker 1: something like five percent which most of us would kill for, 451 00:22:49,840 --> 00:22:51,679 Speaker 1: but is still if you look at the context of 452 00:22:51,760 --> 00:22:56,280 Speaker 1: Chinese growth up over the last thy years, is dramatically lower. 453 00:22:57,040 --> 00:22:59,840 Speaker 1: We've known for years that China needs to manage a 454 00:23:00,000 --> 00:23:04,960 Speaker 1: transition that Hi Jimping has obviously been quite keen to 455 00:23:05,960 --> 00:23:09,080 Speaker 1: grasp the nettle of managing the transition trying to move 456 00:23:09,119 --> 00:23:16,160 Speaker 1: away from an export lead economy. They are very painfully 457 00:23:16,160 --> 00:23:22,000 Speaker 1: trying to do that. Whether they succeed, I suspect remains 458 00:23:22,000 --> 00:23:25,960 Speaker 1: a much bigger question than you know than the trade war, 459 00:23:26,119 --> 00:23:29,680 Speaker 1: the trade board. The trade boards plainly will feed feed 460 00:23:29,720 --> 00:23:34,320 Speaker 1: into that. But the question is, can China really manage 461 00:23:34,359 --> 00:23:39,320 Speaker 1: its transition move on from a middle income country without 462 00:23:39,840 --> 00:23:45,639 Speaker 1: having one major crisis, one major stop or reverse along 463 00:23:45,680 --> 00:23:49,159 Speaker 1: the way. It's there are truly no other examples of 464 00:23:49,200 --> 00:23:52,159 Speaker 1: countries that have managed that. Even the Nine the U, 465 00:23:52,400 --> 00:23:55,760 Speaker 1: the U S and the late century is in many 466 00:23:55,760 --> 00:23:59,480 Speaker 1: ways very similar to the China now and had depressions 467 00:23:59,480 --> 00:24:04,520 Speaker 1: and panics every few years. Um Korea and Japan both 468 00:24:04,520 --> 00:24:09,760 Speaker 1: had their their moments of sharp economic and market problems. 469 00:24:10,880 --> 00:24:15,040 Speaker 1: Can China somehow or other avoid that, given that so 470 00:24:15,160 --> 00:24:18,160 Speaker 1: much of the rest of the world relies on them, 471 00:24:18,240 --> 00:24:21,400 Speaker 1: very uncomfortably to keep growing for us. Hey, John, let's 472 00:24:21,400 --> 00:24:24,320 Speaker 1: switch gears quickly. You had earnings, we had. You had 473 00:24:24,400 --> 00:24:28,240 Speaker 1: another column out yesterday talking about earnings. And you know, 474 00:24:28,440 --> 00:24:31,240 Speaker 1: it's interesting, it doesn't the earnings period I woul characterize 475 00:24:31,240 --> 00:24:35,040 Speaker 1: in the third quarter was okay, lackluster. So so yet 476 00:24:35,080 --> 00:24:37,879 Speaker 1: the market grinds higher every day. Does the market not 477 00:24:37,920 --> 00:24:42,040 Speaker 1: really care about earnings right now? I'm inclined to say 478 00:24:42,040 --> 00:24:46,199 Speaker 1: that it doesn't. Yes. I mean the research I was 479 00:24:46,560 --> 00:24:49,920 Speaker 1: highlighting was from b c A which BC Research, which 480 00:24:50,560 --> 00:24:53,560 Speaker 1: showed that if you actually look at whether you look 481 00:24:53,560 --> 00:24:57,280 Speaker 1: at how much a quarter and aggregate surprised compared to 482 00:24:57,359 --> 00:25:00,719 Speaker 1: prior expectation, or if you looked at how good it 483 00:25:00,800 --> 00:25:03,720 Speaker 1: was in absolute terms, you really couldn't make that to 484 00:25:03,760 --> 00:25:08,200 Speaker 1: have the stock market was performing at all. Um I mean, obviously, 485 00:25:08,240 --> 00:25:10,320 Speaker 1: if you take a nice long chant over fifty or 486 00:25:10,320 --> 00:25:13,480 Speaker 1: sixty years, there's a very close relationship between earnings in 487 00:25:13,520 --> 00:25:17,880 Speaker 1: the stock market. But in the short term it's just 488 00:25:18,440 --> 00:25:21,520 Speaker 1: not there. And I think that is in large part 489 00:25:22,240 --> 00:25:27,040 Speaker 1: because rates at this point are so central to UM, 490 00:25:27,600 --> 00:25:32,040 Speaker 1: to what we would expect from EPs, because of because 491 00:25:32,080 --> 00:25:35,520 Speaker 1: of the matter of of share buy backs, because of 492 00:25:35,560 --> 00:25:41,080 Speaker 1: the impact of credit costs, because the economy is seen 493 00:25:41,080 --> 00:25:46,760 Speaker 1: as so driven by by credit that the the interest 494 00:25:46,960 --> 00:25:50,520 Speaker 1: the interest rates effect swamps the earnings effect, or an 495 00:25:50,560 --> 00:25:53,520 Speaker 1: even greater extent than it normally does. John Author's thanks 496 00:25:53,560 --> 00:25:56,560 Speaker 1: so much for joining us, too, really interesting accounts done. 497 00:25:56,640 --> 00:25:59,399 Speaker 1: Author's Bloomberg Opinion calms joining us on the phone. You 498 00:25:59,400 --> 00:26:02,360 Speaker 1: can read John's work and all the great work from 499 00:26:02,520 --> 00:26:05,800 Speaker 1: Bloomberg Opinion on our website Bloomberg dot com dot com, 500 00:26:05,880 --> 00:26:08,520 Speaker 1: slash opinion, and on the terminal typing in O P 501 00:26:08,760 --> 00:26:11,920 Speaker 1: I n go some really really great work that dig 502 00:26:11,960 --> 00:26:28,359 Speaker 1: deep into some really key issues. Countries across the globe 503 00:26:28,359 --> 00:26:31,560 Speaker 1: face a mounting challenge. That's how to offer adequate financial 504 00:26:31,560 --> 00:26:35,720 Speaker 1: security for retirees today and sustainably into the future. To 505 00:26:35,760 --> 00:26:38,359 Speaker 1: help us dig into this topic, we welcome Lord Adair 506 00:26:38,480 --> 00:26:42,320 Speaker 1: Turner UH Lord Turners, the Institute for New Economic Thinking, 507 00:26:42,359 --> 00:26:44,800 Speaker 1: Senior Fellow. He's a House of Lords member, Group of 508 00:26:44,840 --> 00:26:48,600 Speaker 1: Thirty member and former UK Financial Services Authority Chair. Lord Adair, 509 00:26:48,680 --> 00:26:50,280 Speaker 1: thank you so much for joining us. This is a 510 00:26:50,320 --> 00:26:53,679 Speaker 1: crucial topic, not just in develop markets, but increasingly in 511 00:26:53,880 --> 00:26:57,359 Speaker 1: developing markets. You can just scope out for us the 512 00:26:57,440 --> 00:27:00,920 Speaker 1: issue well at one level of the issue rises because 513 00:27:00,920 --> 00:27:05,080 Speaker 1: of a result of two thoroughly good things. People are 514 00:27:05,320 --> 00:27:10,240 Speaker 1: living longer. Life expectancy is going up across most of 515 00:27:10,320 --> 00:27:14,120 Speaker 1: the world, and they also have fewer children. We end 516 00:27:14,200 --> 00:27:18,640 Speaker 1: up with population stabilization, and that's a pretty good thing 517 00:27:19,200 --> 00:27:21,320 Speaker 1: as well, because it makes it easier to deal with 518 00:27:21,600 --> 00:27:26,040 Speaker 1: environmental challenges, etcetera. But those two good things, living longer 519 00:27:26,080 --> 00:27:30,400 Speaker 1: and having population stabilization, they create a challenge because if 520 00:27:30,440 --> 00:27:34,960 Speaker 1: you don't do something to your pension or your lifetime 521 00:27:35,000 --> 00:27:38,760 Speaker 1: security system in the face of those changes, you are 522 00:27:38,800 --> 00:27:42,160 Speaker 1: just going to have, you know, more retirees per worker, 523 00:27:42,840 --> 00:27:44,960 Speaker 1: which either means that workers are going to have to 524 00:27:45,200 --> 00:27:51,359 Speaker 1: put in significantly more savings or taxation to support longer 525 00:27:51,440 --> 00:27:55,640 Speaker 1: years in retirement, or retirees are going to be poorer. 526 00:27:55,680 --> 00:27:59,840 Speaker 1: And I'm afraid there is a sort of relentless mathematical 527 00:28:00,040 --> 00:28:05,840 Speaker 1: triangular logic here which is faced with these developments, either 528 00:28:05,960 --> 00:28:09,280 Speaker 1: retirement ages have to go up, or people have to 529 00:28:09,400 --> 00:28:14,119 Speaker 1: put in more money in some way or another depension systems, 530 00:28:14,240 --> 00:28:18,400 Speaker 1: or on average they will be worse off. And the 531 00:28:18,480 --> 00:28:21,119 Speaker 1: crucial thing that we're saying in this group of thirty 532 00:28:21,200 --> 00:28:25,199 Speaker 1: report that we've just published is to set out that logic, 533 00:28:25,320 --> 00:28:28,760 Speaker 1: to illustrate it in multiple countries, and to say there 534 00:28:28,800 --> 00:28:33,240 Speaker 1: has to be a more robust engagement with this by 535 00:28:33,280 --> 00:28:37,600 Speaker 1: policymakers throughout the world. What you can't propose is what 536 00:28:37,920 --> 00:28:42,680 Speaker 1: is the single perfect solution to be you know, pursued 537 00:28:42,840 --> 00:28:45,680 Speaker 1: in each country, because the solution in each country has 538 00:28:45,720 --> 00:28:50,240 Speaker 1: to reflect its own political dynamics it's starting point. But 539 00:28:50,320 --> 00:28:54,680 Speaker 1: the fundamental nature of the challenge and the three possible 540 00:28:54,720 --> 00:28:58,520 Speaker 1: solutions at the most generic level, they are common across 541 00:28:58,560 --> 00:29:02,120 Speaker 1: the world. So the issue seems to be common across 542 00:29:02,160 --> 00:29:04,680 Speaker 1: the world. As you mentioned, do we have any examples 543 00:29:04,720 --> 00:29:08,640 Speaker 1: of any countries that are actually tackling this issue with 544 00:29:08,760 --> 00:29:13,480 Speaker 1: some success. Well, um, I would say that Sweden has 545 00:29:13,520 --> 00:29:17,600 Speaker 1: made some sensible policies. What it has done is it 546 00:29:17,680 --> 00:29:22,680 Speaker 1: has a tier of its state system which it caused 547 00:29:22,680 --> 00:29:25,800 Speaker 1: a notional defined contribution system, so it's still a payers 548 00:29:25,800 --> 00:29:29,520 Speaker 1: who you go is paid for by compulsory contribution system. 549 00:29:29,840 --> 00:29:32,960 Speaker 1: But within that it said, look, we're not going to 550 00:29:33,040 --> 00:29:36,680 Speaker 1: tell you in advance what your retirement age is going 551 00:29:36,720 --> 00:29:40,400 Speaker 1: to be. Your future retirement age is going to reflect 552 00:29:40,600 --> 00:29:44,280 Speaker 1: the increases in life expectancy which occur between now and 553 00:29:44,320 --> 00:29:46,480 Speaker 1: when you get to retirement, and by the way, we'll 554 00:29:46,520 --> 00:29:48,600 Speaker 1: give you some trade offs. You can take retirement a 555 00:29:48,600 --> 00:29:51,440 Speaker 1: bit earlier, but you know you'll have to face a 556 00:29:51,480 --> 00:29:54,440 Speaker 1: lower cost there, or delay it a few years and 557 00:29:54,440 --> 00:29:57,120 Speaker 1: you'll get a higher pension. So that's quite a sensible idea. 558 00:29:57,400 --> 00:29:59,640 Speaker 1: My own country, the UK, as a result of a 559 00:29:59,680 --> 00:30:02,760 Speaker 1: pench And commission which I cheered ten years ago, is 560 00:30:02,800 --> 00:30:07,760 Speaker 1: now committed to increasing the state pension age within our 561 00:30:08,640 --> 00:30:11,240 Speaker 1: state pension system. We are going to take that up 562 00:30:11,560 --> 00:30:16,000 Speaker 1: from sixty ten. It will be sixty six by next 563 00:30:16,080 --> 00:30:19,600 Speaker 1: year and it will reach by the midties. And that 564 00:30:19,720 --> 00:30:24,240 Speaker 1: has actually enabled us to provide a slightly more generous pension, 565 00:30:24,720 --> 00:30:27,120 Speaker 1: but at a later date. And then there are other 566 00:30:27,160 --> 00:30:29,720 Speaker 1: countries around the world. I would say Singapore, with its 567 00:30:29,840 --> 00:30:35,440 Speaker 1: large form of compulsory savings, has provided a significant amount 568 00:30:35,880 --> 00:30:39,640 Speaker 1: of a security for many of its citizens. And I 569 00:30:39,680 --> 00:30:44,640 Speaker 1: think what intelligent policymakers do is not believed that they 570 00:30:44,640 --> 00:30:46,720 Speaker 1: can go to any one country and say let me 571 00:30:46,800 --> 00:30:51,320 Speaker 1: copy that, but look around the world at different examples 572 00:30:51,400 --> 00:30:55,400 Speaker 1: of how different countries have addressed particular parts of the issue, 573 00:30:55,680 --> 00:30:58,080 Speaker 1: and then try to work out what is the best 574 00:30:58,120 --> 00:31:02,840 Speaker 1: combination of solutions given one's particular national starting point. So, 575 00:31:02,960 --> 00:31:05,400 Speaker 1: Lord Turner, the in the United States, this country is 576 00:31:05,440 --> 00:31:07,640 Speaker 1: you are I'm sure well well aware has moved away 577 00:31:07,640 --> 00:31:10,200 Speaker 1: from a defined benefit pensions that were kind of my 578 00:31:10,280 --> 00:31:12,760 Speaker 1: parents generation, if you will, and more towards you know, 579 00:31:12,840 --> 00:31:15,760 Speaker 1: kind of user savings, whether it's four one case or 580 00:31:16,000 --> 00:31:19,600 Speaker 1: or something along those lines, individual savings. Where is a 581 00:31:19,640 --> 00:31:22,040 Speaker 1: country like the United States in terms of this global 582 00:31:22,120 --> 00:31:28,040 Speaker 1: issue of we're living longer, we might not have enough money. Well, you, 583 00:31:28,160 --> 00:31:31,760 Speaker 1: of course do have a social security system. And unlike, 584 00:31:31,800 --> 00:31:36,480 Speaker 1: for instance, in healthcare, where you have an extremely limited 585 00:31:36,560 --> 00:31:42,160 Speaker 1: state private market solution, social security is actually, you know, 586 00:31:42,240 --> 00:31:47,160 Speaker 1: a very robust um state driven, government driven, federal government 587 00:31:47,200 --> 00:31:50,320 Speaker 1: driven system. And I think actually you know the absolutely 588 00:31:50,360 --> 00:31:53,760 Speaker 1: inch pin of your system because it provides a baseload 589 00:31:54,360 --> 00:31:57,560 Speaker 1: for many people of low and modest income to at 590 00:31:57,640 --> 00:32:00,160 Speaker 1: least get up to adequacy. And I certainly wouldn't move 591 00:32:00,200 --> 00:32:04,000 Speaker 1: away from that. And you have taken some moves to 592 00:32:04,480 --> 00:32:10,960 Speaker 1: overtime in future, increase the effective retirement age within that 593 00:32:11,480 --> 00:32:14,280 Speaker 1: if you go to the private space of how people 594 00:32:14,400 --> 00:32:21,040 Speaker 1: then provide additional pension provision on top of the basic 595 00:32:21,120 --> 00:32:24,040 Speaker 1: social security. Of course, you're quite right. You have seen, 596 00:32:24,160 --> 00:32:26,960 Speaker 1: like many other countries, have seen a very significant move 597 00:32:27,000 --> 00:32:32,920 Speaker 1: away from defined benefits schemes provided by employers. And I 598 00:32:32,960 --> 00:32:36,560 Speaker 1: think that was bound to occur in the way that 599 00:32:36,640 --> 00:32:40,080 Speaker 1: defined benefits schemes were designed in the past, because they 600 00:32:40,160 --> 00:32:44,040 Speaker 1: just placed too much risk on the employee. The employer 601 00:32:44,120 --> 00:32:47,280 Speaker 1: took all of the risk of what was the market 602 00:32:47,360 --> 00:32:50,600 Speaker 1: rate of return on the investments, because the pension that 603 00:32:50,680 --> 00:32:53,920 Speaker 1: got paid out was independent of that return, and the 604 00:32:53,960 --> 00:32:56,960 Speaker 1: employer took all of the risks of where the life 605 00:32:57,000 --> 00:33:02,040 Speaker 1: expectancy went up a faster than was anticipated when somebody 606 00:33:02,040 --> 00:33:04,840 Speaker 1: originally joined the scheme, and so and it's a bit 607 00:33:04,880 --> 00:33:07,280 Speaker 1: tragic what has happened across the world is that as 608 00:33:07,320 --> 00:33:13,120 Speaker 1: it were, over gold plated employer private defined benefit schemes 609 00:33:13,120 --> 00:33:16,040 Speaker 1: had tended to close. And in a sense, we've moved 610 00:33:16,040 --> 00:33:20,320 Speaker 1: to the other extreme, where individuals take all of the risk. 611 00:33:20,480 --> 00:33:23,560 Speaker 1: You know, if their life expectancy rises, they're going to 612 00:33:23,640 --> 00:33:26,000 Speaker 1: have to deal with all of that. If the investment 613 00:33:26,040 --> 00:33:29,520 Speaker 1: returns are less than they anticipated, they will have to 614 00:33:29,560 --> 00:33:32,080 Speaker 1: deal with that. What one of the points we make 615 00:33:32,120 --> 00:33:35,840 Speaker 1: in the report is that one could think of hybrid solutions. 616 00:33:35,880 --> 00:33:40,760 Speaker 1: One could think of forms of employer provided pensions which 617 00:33:40,800 --> 00:33:45,560 Speaker 1: provide an element, a sort of guaranteed bit of design benefit, 618 00:33:45,680 --> 00:33:48,360 Speaker 1: but where the amount that you get on top of 619 00:33:48,400 --> 00:33:53,120 Speaker 1: that depends upon the investment return on the funded assets, 620 00:33:53,240 --> 00:33:55,400 Speaker 1: or cut it short there. We could talk about this 621 00:33:55,440 --> 00:33:58,720 Speaker 1: for a long time, a looming issue pensions across the world. 622 00:33:58,800 --> 00:34:02,000 Speaker 1: Lord Adair Turner, UH Institute for New Economic Thinking, Senior 623 00:34:02,000 --> 00:34:05,440 Speaker 1: Fellow Group of thirty member, former UK Financial Services Authority Chair, 624 00:34:05,800 --> 00:34:09,080 Speaker 1: talking to us about long term pensions. Thanks for listening 625 00:34:09,160 --> 00:34:13,719 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 626 00:34:13,719 --> 00:34:18,960 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 627 00:34:19,520 --> 00:34:22,800 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 628 00:34:22,880 --> 00:34:26,280 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio