WEBVTT - Surveillance: China With Milken's Lee

0:00:05.120 --> 0:00:09.200
<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along

0:00:09.240 --> 0:00:13.080
<v Speaker 1>with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring

0:00:13.119 --> 0:00:17.159
<v Speaker 1>you insight from the best and economics, finance, investment, and

0:00:17.280 --> 0:00:23.280
<v Speaker 1>international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

0:00:23.360 --> 0:00:30.240
<v Speaker 1>dot Com, and of course, on the Bloomberg terminal. One

0:00:30.320 --> 0:00:32.760
<v Speaker 1>day of price action is hot to taw. We had

0:00:32.760 --> 0:00:35.559
<v Speaker 1>three big central bank decisions last week. I wouldn't run

0:00:35.560 --> 0:00:37.360
<v Speaker 1>away with a clean Nate narrative off the back of

0:00:37.400 --> 0:00:39.800
<v Speaker 1>Friday Smith. No, there is no clean Neat narrative, although

0:00:39.840 --> 0:00:42.120
<v Speaker 1>if we're going to give it one. Billy has a

0:00:42.200 --> 0:00:44.479
<v Speaker 1>bird's eye view not only on the United States and Europe,

0:00:44.479 --> 0:00:46.279
<v Speaker 1>but also in China, and I do want to get

0:00:46.280 --> 0:00:49.320
<v Speaker 1>to China, Billy chief economists at the Milkin Institute. But

0:00:49.360 --> 0:00:51.640
<v Speaker 1>before we get there, I want your sense of some

0:00:51.680 --> 0:00:53.320
<v Speaker 1>of the moves that we saw on the bond market,

0:00:53.320 --> 0:00:55.680
<v Speaker 1>the whip sawing action that we saw people pricing in

0:00:55.800 --> 0:00:59.160
<v Speaker 1>rate hikes and then frankly going absolutely in the other way.

0:00:59.400 --> 0:01:01.720
<v Speaker 1>When some play says it made sense, in others not

0:01:01.840 --> 0:01:04.200
<v Speaker 1>so much. Does this mean to you that we're going

0:01:04.240 --> 0:01:07.039
<v Speaker 1>to see slower growth. Is there any fundamental narrative that

0:01:07.080 --> 0:01:09.560
<v Speaker 1>we can pin to this. The one thing that came

0:01:09.560 --> 0:01:12.240
<v Speaker 1>out of the BUILD and Global conferences that economists and

0:01:12.400 --> 0:01:15.360
<v Speaker 1>market practitioners and portfolio managers really have a very different

0:01:15.440 --> 0:01:19.720
<v Speaker 1>view of inflation. Uh. The portfolio managers and bond managers

0:01:19.720 --> 0:01:22.240
<v Speaker 1>were all obsessed with the fact that prices are high

0:01:22.240 --> 0:01:24.560
<v Speaker 1>and can go higher. Uh. And and there's no shout

0:01:24.600 --> 0:01:27.880
<v Speaker 1>of transitory is just completely fair voting um. Economists are

0:01:27.880 --> 0:01:31.080
<v Speaker 1>still towing the fedline, which says that we have some

0:01:31.360 --> 0:01:35.360
<v Speaker 1>transitorent but persistent influences keeping prices high and and and

0:01:35.400 --> 0:01:37.440
<v Speaker 1>one of those influences is the fact that we have

0:01:37.480 --> 0:01:40.400
<v Speaker 1>these bottom nights slowing down growth. That's really the key.

0:01:40.600 --> 0:01:42.800
<v Speaker 1>How much is growth gonna be slowing down? And how

0:01:42.840 --> 0:01:45.319
<v Speaker 1>much of the future is being priced in on the

0:01:45.440 --> 0:01:47.520
<v Speaker 1>on the slow downside, and how much of it is

0:01:47.520 --> 0:01:50.120
<v Speaker 1>the persistent high price And that's where you see the

0:01:50.200 --> 0:01:52.640
<v Speaker 1>tension and bill. A lot of this is actually stemming

0:01:52.680 --> 0:01:55.880
<v Speaker 1>from what's happening in China as the Communist Party meets

0:01:55.880 --> 0:01:58.680
<v Speaker 1>for its annual plan. M I am wondering the price

0:01:58.760 --> 0:02:01.960
<v Speaker 1>increases that we're seeing or how much does this indicate

0:02:02.040 --> 0:02:05.480
<v Speaker 1>frankly a protracted increase in prices around the world that

0:02:05.560 --> 0:02:09.840
<v Speaker 1>people perhaps are not accounting for this sort of deglobalization

0:02:09.960 --> 0:02:13.960
<v Speaker 1>and frankly changed regime in China filtering into prices and

0:02:14.000 --> 0:02:17.800
<v Speaker 1>slower growth Globally, China is really being hit by confluence

0:02:17.840 --> 0:02:21.560
<v Speaker 1>of domestic and global factors. Uh. This the one thing

0:02:21.560 --> 0:02:23.560
<v Speaker 1>that we see in China which is almost a microcause

0:02:23.680 --> 0:02:27.320
<v Speaker 1>what we're seeing globally is the sense that producer prices

0:02:27.360 --> 0:02:30.160
<v Speaker 1>are double digits, arising by ten percent, and yet consumer

0:02:30.200 --> 0:02:33.200
<v Speaker 1>prices are maybees point seven percent and project to go

0:02:33.280 --> 0:02:36.000
<v Speaker 1>up to one point four percent with the new release. Uh.

0:02:36.040 --> 0:02:39.200
<v Speaker 1>And that's where you see the authoritarian control of being

0:02:39.200 --> 0:02:42.520
<v Speaker 1>able to manage retail prices and of course at the

0:02:42.520 --> 0:02:45.480
<v Speaker 1>expense of profit compression. One of the things that they're

0:02:45.520 --> 0:02:48.280
<v Speaker 1>banking on is that she jimpings leadership, and that's what

0:02:48.280 --> 0:02:51.480
<v Speaker 1>they're they're trying to have the historical review to justify

0:02:51.639 --> 0:02:54.560
<v Speaker 1>is that she jimpings leadership will produce enough productivity gains

0:02:54.720 --> 0:02:57.400
<v Speaker 1>to be able to keep margins up and to keep

0:02:57.760 --> 0:03:01.760
<v Speaker 1>Chinese companies profitable. Is that life leadership bill a growing

0:03:01.840 --> 0:03:06.079
<v Speaker 1>risk for this economy. Boy, you know, John, that everyone

0:03:06.200 --> 0:03:09.240
<v Speaker 1>is really looking towards the sense of how is it

0:03:09.280 --> 0:03:11.079
<v Speaker 1>that Hi Jinping is going to be able to pull

0:03:11.120 --> 0:03:15.360
<v Speaker 1>off the return to miles doctrines of common prosperity, creating

0:03:15.360 --> 0:03:17.720
<v Speaker 1>a moderately prosper to comedy for everyone, and at the

0:03:17.760 --> 0:03:22.079
<v Speaker 1>same time focus innovation on domestic sources and domestic sources

0:03:22.080 --> 0:03:24.840
<v Speaker 1>of growth and domestic sources for export, and at the

0:03:24.840 --> 0:03:29.040
<v Speaker 1>same and keep it done in a way that allows

0:03:29.200 --> 0:03:31.480
<v Speaker 1>the rest of the world to be part of China's growth.

0:03:32.040 --> 0:03:34.760
<v Speaker 1>The chijin Ping leadership is something that they're going to

0:03:34.840 --> 0:03:37.480
<v Speaker 1>come out with and say, the one thought we have

0:03:37.520 --> 0:03:40.040
<v Speaker 1>to keep in mind is that Mao Zedong allowed China

0:03:40.120 --> 0:03:43.600
<v Speaker 1>to stand up and unified China. Uh Doping made China rich,

0:03:43.720 --> 0:03:46.360
<v Speaker 1>But Hijin Ping, who is the one who has made

0:03:46.440 --> 0:03:49.440
<v Speaker 1>China strong and allows China to stand up among the

0:03:49.480 --> 0:03:52.360
<v Speaker 1>League of Nations as the first among equals. That's the

0:03:52.440 --> 0:03:55.040
<v Speaker 1>historical review that will come out in this meeting to

0:03:55.160 --> 0:03:58.960
<v Speaker 1>justify we need Chijimping's leadership. That's the rhetoric. And I

0:03:58.960 --> 0:04:02.800
<v Speaker 1>think the sacrifices gonna be towards focusing on domestic growth,

0:04:02.880 --> 0:04:05.520
<v Speaker 1>sacrificing innovation, and and doing it in a way that

0:04:05.600 --> 0:04:09.480
<v Speaker 1>preserves the Communist Party's power as opposed to productivity and growth.

0:04:09.520 --> 0:04:11.560
<v Speaker 1>Will you mentioned the power of the international states, what

0:04:11.600 --> 0:04:15.880
<v Speaker 1>about domestically, How strong is that power right now? You know,

0:04:16.320 --> 0:04:18.880
<v Speaker 1>there are mixed reports from the outside. It looks like

0:04:18.920 --> 0:04:21.160
<v Speaker 1>there's a unified frond. Jijan Ping has you know, got

0:04:21.240 --> 0:04:23.960
<v Speaker 1>abolished term limits and now he's in for life. But

0:04:24.040 --> 0:04:26.279
<v Speaker 1>he's worried that he's not going to get enough support

0:04:26.440 --> 0:04:28.719
<v Speaker 1>to be able to carry out these policies. It's not

0:04:28.800 --> 0:04:31.200
<v Speaker 1>so much at the top levels that he's afraid of,

0:04:31.360 --> 0:04:34.040
<v Speaker 1>but the municipal governments and and state and local governments

0:04:34.080 --> 0:04:37.360
<v Speaker 1>that have to implement these policies. There's a huge tension

0:04:37.440 --> 0:04:40.159
<v Speaker 1>right now, let's say, caused by saying the energy crisis.

0:04:40.760 --> 0:04:43.720
<v Speaker 1>The federal government sucks in all the taxes, but the

0:04:43.760 --> 0:04:47.120
<v Speaker 1>federal the local, state, local governments have to manage their

0:04:47.120 --> 0:04:51.160
<v Speaker 1>expenditures and and manage their budgets. That tension between state

0:04:51.200 --> 0:04:53.520
<v Speaker 1>and local governments and the federal government is something that

0:04:53.600 --> 0:04:56.560
<v Speaker 1>Chimping has to manage. And between now and the time

0:04:56.600 --> 0:05:00.919
<v Speaker 1>of the next UH National Parties Congress UH National People's

0:05:00.920 --> 0:05:03.719
<v Speaker 1>Congress in the next year, that has to be solidified

0:05:03.720 --> 0:05:06.880
<v Speaker 1>because he has to have a unanimous call for him

0:05:06.920 --> 0:05:10.640
<v Speaker 1>to stay in power. Do we see a slowdown in

0:05:10.720 --> 0:05:14.320
<v Speaker 1>growth that's becomes a problem for the global economy bill

0:05:14.560 --> 0:05:18.520
<v Speaker 1>in China? Oh yeah, because right now China is suffering

0:05:18.520 --> 0:05:21.600
<v Speaker 1>from an energy crisis, which is stall production and transhipments.

0:05:22.760 --> 0:05:26.400
<v Speaker 1>The notion of having a common prosperity has has has

0:05:26.440 --> 0:05:31.160
<v Speaker 1>really focused Chinese policy on hitting the most productive companies

0:05:31.279 --> 0:05:35.240
<v Speaker 1>in all of China, the internet companies. They're also hitting

0:05:35.240 --> 0:05:37.880
<v Speaker 1>on education, which is something that they've been trying to

0:05:38.000 --> 0:05:41.240
<v Speaker 1>use to try to bootstrap themselves to increase human capital.

0:05:41.480 --> 0:05:44.080
<v Speaker 1>So managing these policies is something that we in the

0:05:44.080 --> 0:05:46.440
<v Speaker 1>West would have to worry about. His investors because the

0:05:46.560 --> 0:05:49.000
<v Speaker 1>role for investment is going to be clearly not one,

0:05:49.160 --> 0:05:51.400
<v Speaker 1>not a primary role, but only in so far as

0:05:51.440 --> 0:05:55.279
<v Speaker 1>Western investment will help China become help trying to be

0:05:55.320 --> 0:05:58.680
<v Speaker 1>as manufacturing conduits to the rest of the world. If

0:05:58.720 --> 0:06:01.720
<v Speaker 1>you can help China take its innovations out to the

0:06:01.800 --> 0:06:04.080
<v Speaker 1>rest of the world, you've got a successful business. If

0:06:04.120 --> 0:06:07.720
<v Speaker 1>you're in a competing business with Chinese innovation, you're in trouble.

0:06:08.000 --> 0:06:12.680
<v Speaker 1>But longer term, I mean, does this uh have the

0:06:12.720 --> 0:06:17.000
<v Speaker 1>potential to cement sheese legacy as one of the most

0:06:17.080 --> 0:06:22.120
<v Speaker 1>successful leaders. Can he really achieve common prosperity? That's the

0:06:22.160 --> 0:06:25.760
<v Speaker 1>big bet um. We know that Shenjen, for example, is

0:06:25.760 --> 0:06:29.640
<v Speaker 1>a model city off and China's Silicon valley. It's become

0:06:29.720 --> 0:06:32.880
<v Speaker 1>successful because it was copied China's model, Hong Kong's model

0:06:32.880 --> 0:06:36.279
<v Speaker 1>of innovation, which is the experiment. Chi Jinping's latest speech

0:06:36.320 --> 0:06:40.040
<v Speaker 1>on Shinjen says, you should innovate with this eye towards

0:06:40.080 --> 0:06:42.640
<v Speaker 1>the needs of the center. In other words, they're managing

0:06:43.000 --> 0:06:45.960
<v Speaker 1>direction of innovation. They're managing the direction in which these

0:06:45.960 --> 0:06:48.960
<v Speaker 1>companies have to focus their growth. That's a dangerous game

0:06:49.000 --> 0:06:51.240
<v Speaker 1>because that may or may not work. And most of

0:06:51.240 --> 0:06:54.359
<v Speaker 1>the experience we've had with managed growth and industrial policy

0:06:54.560 --> 0:06:57.200
<v Speaker 1>is that most industrial policies fail. Height Bill, thank you,

0:06:57.240 --> 0:06:58.880
<v Speaker 1>sir as owise, it's going to catch you up, Bill,

0:06:58.960 --> 0:07:07.120
<v Speaker 1>leader of the milk An Institute. Let's get to George

0:07:07.120 --> 0:07:10.400
<v Speaker 1>Santa Velos, global head of FFX research at Deutsche Bank Adda, London.

0:07:10.400 --> 0:07:12.120
<v Speaker 1>George always going to catch up with you, sir. I

0:07:12.120 --> 0:07:13.880
<v Speaker 1>want to start right here. Is something least has been

0:07:13.920 --> 0:07:16.280
<v Speaker 1>on top of through this morning. What did you make

0:07:16.320 --> 0:07:18.880
<v Speaker 1>of the bond market move off the back of really

0:07:18.960 --> 0:07:22.320
<v Speaker 1>solid payrolls data in America. George, that makes sense to you.

0:07:24.000 --> 0:07:26.640
<v Speaker 1>Good morning, John. So, I think it's just worth taking

0:07:26.640 --> 0:07:29.640
<v Speaker 1>a step back and looking at this year and if

0:07:29.680 --> 0:07:31.920
<v Speaker 1>you think about what's been thrown at the bond market,

0:07:32.000 --> 0:07:35.360
<v Speaker 1>You've had the highest inflation in thirty years, had the

0:07:35.400 --> 0:07:40.640
<v Speaker 1>fastest growth rates essentially on record, and yet if you

0:07:40.680 --> 0:07:42.600
<v Speaker 1>take a look at the long end of the US

0:07:42.680 --> 0:07:46.480
<v Speaker 1>curve five year, five year real rates, break evens nominals,

0:07:46.800 --> 0:07:49.320
<v Speaker 1>they're basically where they were in February. And I think

0:07:49.360 --> 0:07:53.080
<v Speaker 1>that pattern we saw on Friday as part of this

0:07:53.160 --> 0:07:56.760
<v Speaker 1>theme that there's something bigger going on in the bond

0:07:56.840 --> 0:07:59.840
<v Speaker 1>market than just the inflation story. And to me, it's

0:08:00.000 --> 0:08:03.560
<v Speaker 1>in a story of excess savings, very low our star,

0:08:03.880 --> 0:08:06.600
<v Speaker 1>and I think unless we understand what is going on there,

0:08:06.880 --> 0:08:09.480
<v Speaker 1>it's going to be very, very difficult to understand anything

0:08:09.480 --> 0:08:11.920
<v Speaker 1>else in the market at the moment. Well, Georgia, it's

0:08:11.960 --> 0:08:13.760
<v Speaker 1>your job to try to understand it. So what are

0:08:13.800 --> 0:08:15.920
<v Speaker 1>some of the theories that you're coming out, especially as

0:08:15.920 --> 0:08:18.440
<v Speaker 1>we hear all these discussions that the savings rate is

0:08:18.480 --> 0:08:21.080
<v Speaker 1>coming down, that people are actually spending their savings, and

0:08:21.160 --> 0:08:24.200
<v Speaker 1>yet we are not seeing a material change in the

0:08:24.240 --> 0:08:27.200
<v Speaker 1>outlook for yields, at least as portrayed by the bond market.

0:08:28.640 --> 0:08:30.880
<v Speaker 1>So if you go back to the two thousands, you

0:08:30.960 --> 0:08:33.680
<v Speaker 1>also had the bond conundrum. Back then it was called

0:08:33.679 --> 0:08:37.480
<v Speaker 1>the Greenspan conundrum and ended up being china Um. I

0:08:37.520 --> 0:08:40.080
<v Speaker 1>think that this new source of excess savings now in

0:08:40.120 --> 0:08:45.400
<v Speaker 1>the market is essentially the fiscal stimulus we had last year.

0:08:45.400 --> 0:08:47.520
<v Speaker 1>And if you look at what's happened to that, even

0:08:47.559 --> 0:08:49.960
<v Speaker 1>though saving rates are coming down, saving rates are a

0:08:50.000 --> 0:08:52.880
<v Speaker 1>flow concept. What happened to all the money that was

0:08:52.920 --> 0:08:56.760
<v Speaker 1>given last year in payout, It's been stored in bank accounts.

0:08:56.800 --> 0:08:58.440
<v Speaker 1>And then if you look at what banks are doing,

0:08:58.720 --> 0:09:00.960
<v Speaker 1>banks are using those depart is, it's and going back

0:09:00.960 --> 0:09:03.400
<v Speaker 1>and buying fixed income again. So when I when I

0:09:03.440 --> 0:09:05.200
<v Speaker 1>look at a lot of the flow metrics, they're just

0:09:05.240 --> 0:09:08.560
<v Speaker 1>suggesting a recycling of savings. Obviously that's what's keeping asset

0:09:08.600 --> 0:09:12.439
<v Speaker 1>prices elevated. But then there's there's also this additional question

0:09:12.760 --> 0:09:15.480
<v Speaker 1>of where is trend growth, and this trend growth coming down,

0:09:15.800 --> 0:09:17.960
<v Speaker 1>meaning central banks won't be able to hike as much.

0:09:18.200 --> 0:09:20.599
<v Speaker 1>And if you look at some indicators, for example, the

0:09:20.720 --> 0:09:24.520
<v Speaker 1>spread between forward looking and backward looking UM consumer confidence

0:09:24.559 --> 0:09:27.880
<v Speaker 1>metrics that suggestive of a very very very flat curve,

0:09:28.200 --> 0:09:30.520
<v Speaker 1>and some curves are starting to invert, for example an

0:09:30.520 --> 0:09:34.040
<v Speaker 1>emerging market. So i'd say number one flow flow flow,

0:09:34.440 --> 0:09:36.960
<v Speaker 1>there's huge amount of excess saving in the system, and

0:09:37.080 --> 0:09:40.120
<v Speaker 1>number two terminal rates are also pretty low. So even

0:09:40.160 --> 0:09:42.200
<v Speaker 1>though we're pricing a lot in the front ends, you

0:09:42.400 --> 0:09:44.839
<v Speaker 1>really struggling to price the back end, George, a lot

0:09:44.880 --> 0:09:48.320
<v Speaker 1>of that those excess savings has gone into crypto. Um.

0:09:48.360 --> 0:09:51.280
<v Speaker 1>The total market cap of cryptocurrencies is now more than

0:09:51.360 --> 0:09:56.240
<v Speaker 1>three trillion dollars. What do you make as chief of

0:09:56.360 --> 0:10:02.520
<v Speaker 1>FX Research on bitcoin at sixties six grand? So crypto

0:10:02.600 --> 0:10:05.240
<v Speaker 1>is an error we're starting to look at as well. Obviously,

0:10:05.280 --> 0:10:09.040
<v Speaker 1>as the market size is growing, it becomes a bigger relevance.

0:10:09.520 --> 0:10:12.520
<v Speaker 1>But to me, the ultimate again, it's a symptom of

0:10:12.640 --> 0:10:15.800
<v Speaker 1>these excess savings in the market that are trying to

0:10:15.880 --> 0:10:18.200
<v Speaker 1>find a home. And then of course we need to

0:10:18.200 --> 0:10:21.719
<v Speaker 1>look at the impact of crypto in terms of the

0:10:22.000 --> 0:10:24.800
<v Speaker 1>structure of payment systems, and I think that's probably one

0:10:24.800 --> 0:10:29.160
<v Speaker 1>of the most underestimated areas or underappreciated areas of crypto,

0:10:29.240 --> 0:10:33.000
<v Speaker 1>these new developments and decentralized finance, they have the potential

0:10:33.120 --> 0:10:37.160
<v Speaker 1>to change the way the banking system looks in ten years,

0:10:37.240 --> 0:10:39.000
<v Speaker 1>and we're also trying to spend a bit of time

0:10:39.080 --> 0:10:41.480
<v Speaker 1>understanding that as well, George, before you run, let's talk

0:10:41.480 --> 0:10:43.880
<v Speaker 1>about a currency pave in following closely. It's cable, the

0:10:43.880 --> 0:10:47.360
<v Speaker 1>pound sterling against the US dollar one thirty five twenty six,

0:10:47.400 --> 0:10:50.439
<v Speaker 1>just looking at our forecast in our survey forecast into

0:10:50.480 --> 0:10:52.600
<v Speaker 1>year and one thirty seven, just a little bit north

0:10:52.640 --> 0:10:54.280
<v Speaker 1>of where we are at the moment, George, where are

0:10:54.280 --> 0:10:55.839
<v Speaker 1>you on that currency pay at the moment? Given what

0:10:55.880 --> 0:10:59.839
<v Speaker 1>we heard from Governor Bailey in the past week, so,

0:11:00.200 --> 0:11:02.920
<v Speaker 1>we have been negative on the pound since September. It

0:11:03.000 --> 0:11:05.000
<v Speaker 1>proved quite difficult to hold them to that view as

0:11:05.040 --> 0:11:07.840
<v Speaker 1>you saw that massive repricing in the front tense. But

0:11:07.880 --> 0:11:11.280
<v Speaker 1>the key observation here is the repricing was entirely driven

0:11:11.280 --> 0:11:15.600
<v Speaker 1>by inflation expectations. Real rates in the UK have stayed very,

0:11:15.720 --> 0:11:18.440
<v Speaker 1>very low. We're worried about the growth outlook in terms

0:11:18.480 --> 0:11:21.679
<v Speaker 1>of a big fiscal tightening that's coming in, and then

0:11:21.720 --> 0:11:24.160
<v Speaker 1>of course you have these new Brexit risks. There is

0:11:24.160 --> 0:11:27.520
<v Speaker 1>a genuine risk that the entire deal unraveled. So we

0:11:27.600 --> 0:11:31.000
<v Speaker 1>maintain a bearish view on the pound. And I think

0:11:31.200 --> 0:11:34.040
<v Speaker 1>the risks are you see Cable for example, break to

0:11:34.240 --> 0:11:38.000
<v Speaker 1>new multi week cloths incoming weeks. Interesting, Could we not

0:11:38.040 --> 0:11:41.439
<v Speaker 1>do bre exit again? I thought we were done with that, George, honestly,

0:11:41.520 --> 0:11:44.600
<v Speaker 1>George Saravellos there of Deutsche Bank out of London, in

0:11:44.640 --> 0:11:46.640
<v Speaker 1>our headquarters in the city of London too. That's good

0:11:46.679 --> 0:11:52.959
<v Speaker 1>to see. We start with John stealth As, the chief

0:11:53.040 --> 0:11:56.679
<v Speaker 1>investment strategist at Oppenheimer Asset Management. John Greater, catch up, sir,

0:11:57.000 --> 0:11:59.600
<v Speaker 1>We've got an infrastructure agreement Dan in Washington. Our head

0:11:59.640 --> 0:12:01.120
<v Speaker 1>to d C in a couple of moments to catch

0:12:01.200 --> 0:12:04.320
<v Speaker 1>up with Amrie Horden, Washington correspondent, on that the data

0:12:04.360 --> 0:12:06.640
<v Speaker 1>in America, the i S M last week, the payrolls

0:12:06.679 --> 0:12:09.440
<v Speaker 1>report is decent. The chairman his patient for an echoy

0:12:09.480 --> 0:12:13.320
<v Speaker 1>market ball. Thank you, Johnny. You're feeling good. Yeah, I'm

0:12:13.320 --> 0:12:15.679
<v Speaker 1>feeling very good about it. I think last week was

0:12:15.800 --> 0:12:18.480
<v Speaker 1>was celebration of all of the above of what you

0:12:18.600 --> 0:12:21.520
<v Speaker 1>just mentioned. But beyond that, what you've got is this

0:12:21.559 --> 0:12:23.880
<v Speaker 1>week you will probably get you know, a little bit

0:12:23.880 --> 0:12:27.160
<v Speaker 1>of testing UH, and some people take short term profits

0:12:27.200 --> 0:12:30.200
<v Speaker 1>in here, But the direction looks up from here to

0:12:30.280 --> 0:12:33.040
<v Speaker 1>the end of the year. The fundamentals are good and

0:12:33.160 --> 0:12:36.000
<v Speaker 1>we are about where we should be based on all

0:12:36.080 --> 0:12:40.480
<v Speaker 1>that happened in and since then, both positive and negative

0:12:41.640 --> 0:12:44.400
<v Speaker 1>here until the end of the year. What about after that, John,

0:12:44.400 --> 0:12:46.040
<v Speaker 1>and when people are talking about how it gets a

0:12:46.080 --> 0:12:49.239
<v Speaker 1>little bit trickier with potentially FED rate hikes, with potentially

0:12:49.559 --> 0:12:53.920
<v Speaker 1>harder comps year over year. I think, first off least

0:12:54.040 --> 0:12:56.600
<v Speaker 1>I think the market wanted to see the FED taper.

0:12:57.360 --> 0:13:00.320
<v Speaker 1>I think the market feels and at least it's got

0:13:00.320 --> 0:13:03.840
<v Speaker 1>a six month period uh next year where the Fed

0:13:03.880 --> 0:13:06.680
<v Speaker 1>will be tapering UH, and then after that they'll be

0:13:06.720 --> 0:13:09.160
<v Speaker 1>worry about where do they take the FED funds rate?

0:13:09.480 --> 0:13:12.240
<v Speaker 1>But the reality is what we look at it from

0:13:12.240 --> 0:13:14.440
<v Speaker 1>our perspective. As you know, I've been in this business

0:13:14.440 --> 0:13:17.080
<v Speaker 1>for thirty eight years. The FED is a very different

0:13:17.120 --> 0:13:21.599
<v Speaker 1>FED than it was under Arthur Burns or under a Greenspan.

0:13:22.000 --> 0:13:26.199
<v Speaker 1>This is the Bernankee legacy FED. Highly transparent, UH, it

0:13:26.240 --> 0:13:32.640
<v Speaker 1>is highie communicative. It telegraphs moves and the market denies

0:13:32.720 --> 0:13:35.720
<v Speaker 1>what the FED sees. Our market players do with their

0:13:35.760 --> 0:13:38.800
<v Speaker 1>own expense. Uh, you know, the FED is your friend

0:13:38.880 --> 0:13:41.240
<v Speaker 1>during this period. It's been the friend of Main Street

0:13:41.320 --> 0:13:43.760
<v Speaker 1>and the Wall Street. If you look at it, even

0:13:43.800 --> 0:13:46.800
<v Speaker 1>with friends like the Fed, can we really do better

0:13:46.800 --> 0:13:49.960
<v Speaker 1>than a twenty nine percent gain year to date? John,

0:13:49.960 --> 0:13:51.440
<v Speaker 1>and the S and P. I mean, that's up there

0:13:51.480 --> 0:13:55.320
<v Speaker 1>with the greatest gains of all time. Well, you know

0:13:55.640 --> 0:13:59.000
<v Speaker 1>about the everybody for against the S and P uh

0:13:59.080 --> 0:14:03.360
<v Speaker 1>six hundred small cap higher qualities small caps in the

0:14:03.400 --> 0:14:07.040
<v Speaker 1>RUSTLL two thousand has actually been beating the S and

0:14:07.120 --> 0:14:09.720
<v Speaker 1>P five hundred this year. We'd have to think, you know,

0:14:09.840 --> 0:14:13.160
<v Speaker 1>this is all about the the the better comps that

0:14:13.320 --> 0:14:17.000
<v Speaker 1>we've had for earning season. But the better comps the

0:14:17.080 --> 0:14:19.280
<v Speaker 1>reality of it, even though you know, it's a softer

0:14:19.440 --> 0:14:23.280
<v Speaker 1>hurdle or a lower hurdle than we've ever seen for

0:14:23.280 --> 0:14:26.400
<v Speaker 1>for earnings in that sense, on a comparative basis, Uh,

0:14:26.520 --> 0:14:29.920
<v Speaker 1>the things are getting better and considering the depth of

0:14:29.920 --> 0:14:33.400
<v Speaker 1>the crisis, this is remarkable, really is when we look

0:14:33.440 --> 0:14:35.960
<v Speaker 1>at John, the people talking about a re acceleration in

0:14:36.000 --> 0:14:37.920
<v Speaker 1>the economy. Its a year end into new year. I'm

0:14:37.960 --> 0:14:41.080
<v Speaker 1>hearing people talking about the return of the reopening trade

0:14:41.120 --> 0:14:43.560
<v Speaker 1>back into the small caps etcetera. What if ice he

0:14:43.640 --> 0:14:45.360
<v Speaker 1>given it to clients at a moment on that, John,

0:14:46.240 --> 0:14:49.160
<v Speaker 1>we've been saying for actually for a few years now.

0:14:49.240 --> 0:14:53.560
<v Speaker 1>We're pretty much either near or actually market cap agnostic.

0:14:53.920 --> 0:14:57.600
<v Speaker 1>So we spread the chips across the table. When it

0:14:57.640 --> 0:15:01.920
<v Speaker 1>comes to large caps, small cap mid caps. Mid caps

0:15:01.920 --> 0:15:05.200
<v Speaker 1>are terrific, we believe, and we also right now are

0:15:05.280 --> 0:15:10.400
<v Speaker 1>barbelled growth and value. Garber growth growth at a relatively

0:15:10.480 --> 0:15:15.040
<v Speaker 1>reasonable price. In growth and value, we want growthier value.

0:15:15.400 --> 0:15:19.200
<v Speaker 1>You can still get yield that you know, it's better

0:15:19.240 --> 0:15:23.359
<v Speaker 1>than the tenure with the potential for a capital appreciation.

0:15:23.840 --> 0:15:26.080
<v Speaker 1>John always going to cash out with you, sir, John, stuff,

0:15:26.080 --> 0:15:29.400
<v Speaker 1>it's there a bull from Oppenheimer Asset Management. Thank you, sir,

0:15:29.440 --> 0:15:37.520
<v Speaker 1>thank you very much joining us now, Whendy Schiller, the

0:15:37.600 --> 0:15:39.680
<v Speaker 1>Brown University. When do you want to start with? This

0:15:39.800 --> 0:15:42.200
<v Speaker 1>is something that's come up again and again, time after time,

0:15:42.600 --> 0:15:46.760
<v Speaker 1>year after year. The Republicans are very diverse as a party,

0:15:47.040 --> 0:15:49.240
<v Speaker 1>just like the Democratic Party. Said at a Holly is

0:15:49.240 --> 0:15:51.160
<v Speaker 1>nothing like said at a Romney. Yet when they go

0:15:51.240 --> 0:15:54.400
<v Speaker 1>out and speak, they're all on message. And then when

0:15:54.440 --> 0:15:56.200
<v Speaker 1>they need to pivot, they all do and they get

0:15:56.200 --> 0:15:58.480
<v Speaker 1>back on the very same message. The word echo is

0:15:58.480 --> 0:16:02.040
<v Speaker 1>phenomenal white of the Democrats when they struggle doing that,

0:16:02.040 --> 0:16:04.280
<v Speaker 1>why can't they take the win over the weekend and

0:16:04.440 --> 0:16:07.640
<v Speaker 1>run with it. Well, there's there's two reasons. One is

0:16:07.640 --> 0:16:11.760
<v Speaker 1>the Democratic Party regionally, geographically is more diverse. They represent

0:16:11.960 --> 0:16:15.440
<v Speaker 1>a more diverse set of constituents from you know, suburban

0:16:15.480 --> 0:16:18.840
<v Speaker 1>women for example, who have supported the Democratic Party recently,

0:16:19.400 --> 0:16:23.280
<v Speaker 1>to working class people all over the country, urban, some rural.

0:16:23.800 --> 0:16:26.640
<v Speaker 1>Uh so there. It's just really hard when you're representing

0:16:26.920 --> 0:16:29.920
<v Speaker 1>you know, a lot of different kinds of people with views.

0:16:30.000 --> 0:16:32.880
<v Speaker 1>So that's the one problem. And the second problem is

0:16:32.920 --> 0:16:34.920
<v Speaker 1>they believe in government and they want to do a

0:16:34.920 --> 0:16:37.200
<v Speaker 1>lot of things in government. They want the federal government

0:16:37.240 --> 0:16:38.800
<v Speaker 1>to do a lot of things, and that has a

0:16:38.800 --> 0:16:41.120
<v Speaker 1>lot of costs and benefits to different people, and it

0:16:41.160 --> 0:16:43.880
<v Speaker 1>takes a while to explain. And the you know, the

0:16:43.920 --> 0:16:47.120
<v Speaker 1>advantage of the of the Republicans is they believe in limited, small,

0:16:47.440 --> 0:16:50.840
<v Speaker 1>federal government. They don't want to do many things, so

0:16:50.960 --> 0:16:53.640
<v Speaker 1>they can obstruct and block and it's a much simpler message.

0:16:53.760 --> 0:16:57.040
<v Speaker 1>Who's getting the independent vote right now, Wendy, I think

0:16:57.040 --> 0:16:59.160
<v Speaker 1>there's no question that the independents are feeling much more

0:16:59.160 --> 0:17:02.240
<v Speaker 1>comfortable with the pub lookings now. That's probably because Trump

0:17:02.320 --> 0:17:04.439
<v Speaker 1>is out and about that. They don't see Trump as

0:17:04.480 --> 0:17:07.560
<v Speaker 1>a looming factor and getting back into power, for example,

0:17:07.800 --> 0:17:10.960
<v Speaker 1>So they're assessing Republican candidates on their own merits rather

0:17:11.000 --> 0:17:13.920
<v Speaker 1>than being associated with Trump. That's something the Democrats were

0:17:14.040 --> 0:17:16.480
<v Speaker 1>counting on. I think they have to revamp their strategy.

0:17:16.800 --> 0:17:19.040
<v Speaker 1>So you look at New Jersey, obviously, a pretty deeply

0:17:19.080 --> 0:17:22.159
<v Speaker 1>blue state took that Republican candidate quite seriously. That was

0:17:22.160 --> 0:17:24.280
<v Speaker 1>a narrow victory for the government of New Jersey and

0:17:24.320 --> 0:17:27.040
<v Speaker 1>that really shook up the Democrats. Virginia didn't shake them

0:17:27.080 --> 0:17:30.520
<v Speaker 1>up quite as much. But an incumbent, theoretically popular government

0:17:30.560 --> 0:17:35.720
<v Speaker 1>governor who's a Democrat who barely hangs on. That tells liberals, moderates,

0:17:35.800 --> 0:17:38.080
<v Speaker 1>all the Democrats that they have got to get their

0:17:38.119 --> 0:17:41.040
<v Speaker 1>act together and revamp because they're all in trouble with

0:17:41.080 --> 0:17:45.000
<v Speaker 1>that very group independence and suburban Wendy, what's the analog today,

0:17:45.400 --> 0:17:47.840
<v Speaker 1>Given the fact that we're seeing inflation as a major

0:17:47.960 --> 0:17:51.399
<v Speaker 1>voting issue for the first time in decades, how much

0:17:51.560 --> 0:17:54.360
<v Speaker 1>can we really change the equation heading into mid terms?

0:17:54.440 --> 0:17:57.840
<v Speaker 1>If gas prices stay where they are, well This isn't

0:17:57.840 --> 0:18:00.359
<v Speaker 1>really important that even you know, a local bakery from example,

0:18:00.440 --> 0:18:02.800
<v Speaker 1>I go to, you know, they raise their bread prices

0:18:02.800 --> 0:18:04.800
<v Speaker 1>by seventy five cents. They have a fairly low to

0:18:04.880 --> 0:18:08.040
<v Speaker 1>middle income constituency for that bakery, but they were hit

0:18:08.080 --> 0:18:10.760
<v Speaker 1>they had to raise their prices. So it's getting really

0:18:10.800 --> 0:18:14.280
<v Speaker 1>down to the ground, right, you know, grassroots people are

0:18:14.320 --> 0:18:18.080
<v Speaker 1>feeling inflation. It's gas prices, but it's everywhere at every level.

0:18:18.280 --> 0:18:20.640
<v Speaker 1>And that's what the Democrats haven't quite figured out how

0:18:20.640 --> 0:18:24.439
<v Speaker 1>to fix. It's their constituency that's getting hurt like everybody else.

0:18:24.800 --> 0:18:27.879
<v Speaker 1>So and people are pretty cynical and conspiracy oriented by

0:18:27.920 --> 0:18:30.800
<v Speaker 1>gas prices. You know, they always think they go up automatically.

0:18:30.800 --> 0:18:32.960
<v Speaker 1>They don't really understand why they go up. And the

0:18:33.000 --> 0:18:35.920
<v Speaker 1>easiest person to blame is the income of government. One

0:18:35.920 --> 0:18:40.080
<v Speaker 1>of the other concerns is taxes, right, rising taxes, Wendy.

0:18:40.200 --> 0:18:43.080
<v Speaker 1>And when you look at for example, to build back

0:18:43.160 --> 0:18:47.560
<v Speaker 1>better bill, it's only one point seven five trillion. But

0:18:47.720 --> 0:18:51.040
<v Speaker 1>actually if the Democrats get the majority of them get

0:18:51.080 --> 0:18:53.000
<v Speaker 1>what they want, it's gonna balloon to more of like

0:18:53.040 --> 0:18:55.800
<v Speaker 1>a four trillion dollar number, and that has to be

0:18:55.880 --> 0:19:00.040
<v Speaker 1>paid for. How do they sell these taxing crazes of

0:19:00.040 --> 0:19:03.880
<v Speaker 1>the American public. But this is a great question. First

0:19:03.880 --> 0:19:05.640
<v Speaker 1>of all, it's a ten year bill, five or ten

0:19:05.720 --> 0:19:08.680
<v Speaker 1>year bill of infrastructures five years. This is ten years,

0:19:08.960 --> 0:19:12.240
<v Speaker 1>so it's not portullion tomorrow. That's the first mistake the

0:19:12.240 --> 0:19:14.879
<v Speaker 1>Democrats have made, right, you know, ballooning this number as

0:19:14.920 --> 0:19:17.399
<v Speaker 1>if we're spending it all in one year. But the

0:19:17.680 --> 0:19:20.680
<v Speaker 1>tax situation is interesting. They may raise taxes on people

0:19:20.720 --> 0:19:23.320
<v Speaker 1>who make, you know, join a couple four thousand dollars

0:19:23.400 --> 0:19:28.080
<v Speaker 1>or more. That's sellable sort of if you include a

0:19:28.240 --> 0:19:30.159
<v Speaker 1>rise in the amount of money you can deduct to

0:19:30.320 --> 0:19:32.639
<v Speaker 1>the state and local tax deduction that Trump took away

0:19:32.680 --> 0:19:35.159
<v Speaker 1>from mostly well off blue areas in the country, the

0:19:35.160 --> 0:19:38.160
<v Speaker 1>Democrats are going to put back, and that actually hits

0:19:38.160 --> 0:19:41.720
<v Speaker 1>people as suburban voters right where they need a break.

0:19:42.040 --> 0:19:44.520
<v Speaker 1>So they're gonna offset I think some of these, particularly

0:19:44.640 --> 0:19:48.000
<v Speaker 1>the highest tax rate with some of these greater deductions.

0:19:48.160 --> 0:19:50.080
<v Speaker 1>So I think that's the messaging they're gonna try to

0:19:50.119 --> 0:19:53.080
<v Speaker 1>engage in to not lose those voters that went with

0:19:53.119 --> 0:19:56.040
<v Speaker 1>them in. You just want one more thing to come

0:19:56.080 --> 0:19:57.879
<v Speaker 1>away from this conversation with you on what do you

0:19:57.920 --> 0:19:59.920
<v Speaker 1>think number one helps to kill to getting the next

0:20:00.000 --> 0:20:03.040
<v Speaker 1>ill done is what does it come down to? It

0:20:03.080 --> 0:20:05.320
<v Speaker 1>comes down to whether there's a perceived need for all

0:20:05.359 --> 0:20:07.560
<v Speaker 1>the programs they want to engage and they want to pass.

0:20:07.880 --> 0:20:10.000
<v Speaker 1>You know, do people really want this? We saw this

0:20:10.040 --> 0:20:13.199
<v Speaker 1>with Obamacare, a bombcaster not to be quite successful. But

0:20:13.280 --> 0:20:16.760
<v Speaker 1>when it was passed in two thousand, voters didn't know

0:20:16.800 --> 0:20:18.399
<v Speaker 1>what it was and they didn't know they needed it,

0:20:18.440 --> 0:20:21.320
<v Speaker 1>and they rejected it really in the elections in and

0:20:21.359 --> 0:20:24.439
<v Speaker 1>they gave the Republicans the House back. That's the big

0:20:24.440 --> 0:20:26.960
<v Speaker 1>liability for the Democrats going in with this really big bill.

0:20:27.200 --> 0:20:29.080
<v Speaker 1>Do people know it, understand it, and do they think

0:20:29.080 --> 0:20:31.320
<v Speaker 1>they need it? And if they don't, Republicans are gonna

0:20:31.320 --> 0:20:34.000
<v Speaker 1>have a very good November Monday. Thank you. I so

0:20:34.040 --> 0:20:36.280
<v Speaker 1>always looking forward to catching up soon. Wendy showed that

0:20:36.520 --> 0:20:41.399
<v Speaker 1>a brand university. This is the Bloomberg Surveillance Podcast. Thanks

0:20:41.400 --> 0:20:44.720
<v Speaker 1>for listening. Join us live weekdays from seven to ten

0:20:44.800 --> 0:20:49.240
<v Speaker 1>am Eastern on Bloomberg Radio and on Bloomberg Television each

0:20:49.359 --> 0:20:53.080
<v Speaker 1>day from six to nine am for insight from the

0:20:53.119 --> 0:20:58.320
<v Speaker 1>best in economics, finance, investment, and international relations. And subscribe

0:20:58.359 --> 0:21:03.280
<v Speaker 1>to the Surveillance Podcast on Apple Podcast, SoundCloud, Bloomberg dot com,

0:21:03.359 --> 0:21:06.600
<v Speaker 1>and of course, on the terminal. I'm Tom keene In.

0:21:06.760 --> 0:21:15.920
<v Speaker 1>This is Bloomberg m