WEBVTT - Surveillance: Fed Pause with Carpenter 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.240 the Bloomberg Terminal and the Bloomberg Business App. Should we 0:00:30.280 --> 0:00:33.640 take this data? It's maybe the province of Ellen Zanner, 0:00:33.680 --> 0:00:35.479 but we'll take it on a more global scale with 0:00:35.600 --> 0:00:39.879 Seth Carpenter, Chief Global Economist, hit Morgan Stanley. Seth, I 0:00:39.920 --> 0:00:41.720 want you to fold and I know you're gonna read 0:00:41.720 --> 0:00:44.640 Ellen Zanner and their team here as they analyze e C. I, 0:00:45.320 --> 0:00:47.520 but I want you to fold it into the great 0:00:47.800 --> 0:00:51.519 China Call, which Morgan Stanley back to Steve Roaches, expert 0:00:51.680 --> 0:00:55.880 on is China a three percent story or is it 0:00:55.960 --> 0:00:59.720 a five percent story that could make things more complex 0:00:59.720 --> 0:01:03.360 for the chairman of the Photo Reserve. Wow, that is 0:01:03.400 --> 0:01:08.399 a fantastic, fantastic question. Clearly, the China reopening story is 0:01:08.480 --> 0:01:11.679 the big narrative going on right now in markets, and 0:01:12.080 --> 0:01:14.360 you know we've been bullish there. I think we're above 0:01:14.360 --> 0:01:16.880 consensus five and three quarters percent, maybe a bit more 0:01:17.280 --> 0:01:19.640 in terms of how much growth will get for for 0:01:19.720 --> 0:01:24.680 China this year. Very bullish for US. The reopening is 0:01:24.080 --> 0:01:28.120 UH is notable. I think though, when you talk about 0:01:28.240 --> 0:01:31.160 Billover's back to the US, when you think about what 0:01:31.240 --> 0:01:34.280 it does for Chair Powell, UH, they're probably a little 0:01:34.280 --> 0:01:38.000 bit less dramatic than you might otherwise think. Clearly a 0:01:38.040 --> 0:01:40.040 big story for people who are investing in China and 0:01:40.120 --> 0:01:43.280 the region, but the spell back to the US, you know, 0:01:43.319 --> 0:01:45.880 in terms of inflation isn't going to be quite so 0:01:45.959 --> 0:01:49.640 big right now. We import a lot of consumer goods 0:01:49.640 --> 0:01:52.240 from China, but we know that consumer goods prices have 0:01:52.280 --> 0:01:55.240 actually been falling for the past a couple of months 0:01:55.560 --> 0:01:58.080 as people have pulled back and redirected their spending. We 0:01:58.200 --> 0:02:00.920 also know that China had done a lot during COVID 0:02:01.000 --> 0:02:04.600 zero to shield some of that production for exports. So 0:02:04.680 --> 0:02:07.400 the first order impact on inflation for the US is 0:02:07.400 --> 0:02:10.240 actually gonna be a little bit muted. The surgeon demand 0:02:10.240 --> 0:02:14.520 there in China domest expending, especially domestic consumer spending on services, 0:02:15.160 --> 0:02:17.919 so the read through this time around the cycle a 0:02:17.919 --> 0:02:20.359 little bit less South. I want you to dovetail a 0:02:20.480 --> 0:02:25.040 Morgan Stanley stunning five point x percent China growth call 0:02:25.760 --> 0:02:30.480 with US disinflation you and I follow Edward S. Hyman 0:02:30.560 --> 0:02:33.400 of c J. Lawrence and Evercore. I s I and 0:02:33.680 --> 0:02:38.160 Ed Hyman's dovetailing a China call like you with substantial 0:02:38.280 --> 0:02:43.520 U S disinflation. Do you agree with that premise? I 0:02:43.639 --> 0:02:46.239 think substantial probably overstates it a little bit. We are 0:02:46.280 --> 0:02:49.000 optimistic about inflation coming down in the US. We have 0:02:49.080 --> 0:02:51.200 a getting to below three percent by the end of 0:02:51.200 --> 0:02:53.760 the year. And just a quick shout out, you mentioned 0:02:53.760 --> 0:02:57.240 Ellen's and are fantastic US economist. Robin Shing is our 0:02:57.520 --> 0:03:01.760 stupendous China economist and luckily they're both on the same 0:03:01.800 --> 0:03:06.120 page here. Um, the disinflationary push from goods inflation is 0:03:06.120 --> 0:03:08.040 clearly there in the data, and China is a part 0:03:08.040 --> 0:03:10.799 of that. But like I said before, the difference is 0:03:10.840 --> 0:03:13.400 going to be smaller than I think you might otherwise. Thank. 0:03:13.440 --> 0:03:16.200 It really is this retrenching, and we saw it for 0:03:16.240 --> 0:03:19.919 example in automobiles. First Tesla announced they were cutting prices 0:03:20.360 --> 0:03:24.600 Ribby and followed Ford announcer following it on electric vehicles, 0:03:25.280 --> 0:03:28.520 Adam Jonas our our autos analysts points out that in 0:03:28.840 --> 0:03:33.280 the current situation, electric vehicle prices tend to drive pricing 0:03:33.320 --> 0:03:35.880 for new cars. So a lot of the disinflation that's 0:03:35.920 --> 0:03:39.320 going on from goods was already they're already starting. China 0:03:39.360 --> 0:03:41.320 helps at the margin, but I don't think it's going 0:03:41.360 --> 0:03:44.080 to be the defining story of the disinflationary tread. What's 0:03:44.120 --> 0:03:46.800 the response set that perhaps people get over zealous by 0:03:46.800 --> 0:03:49.800 the decelerating inflation, the disinflation that we're seeing so far 0:03:49.880 --> 0:03:52.560 this year, take the FED off the table. The FED 0:03:52.800 --> 0:03:56.560 does pause with rate hikes, and then inflation stays sticky 0:03:56.640 --> 0:03:59.320 and they're forced to reignite and raise rates once again. 0:04:00.480 --> 0:04:02.800 I think that is a risk that a month or 0:04:02.840 --> 0:04:07.160 so ago was dramatically underappreciated. We've tried to flag that 0:04:07.280 --> 0:04:10.680 risk a few times uh in our in our pieces 0:04:11.160 --> 0:04:13.560 um and so yeah, the scenario you lay out, I 0:04:13.600 --> 0:04:15.480 think is a plausible one. It's not at all the 0:04:15.560 --> 0:04:18.359 highest probability event, but it's you know, the next couple 0:04:18.400 --> 0:04:22.160 of months are very benign, but then non farm perils 0:04:22.160 --> 0:04:26.119 go back up to two and inflation doesn't break through 0:04:26.839 --> 0:04:29.720 below three and a half percent. I think it's a risk. 0:04:29.960 --> 0:04:32.240 I'd say it's not a very very high risk, but 0:04:32.279 --> 0:04:34.520 it's one that investors have to keep in mind. And 0:04:34.560 --> 0:04:36.480 the only way we're going to oversure is monitoring the 0:04:36.600 --> 0:04:38.640 data in the meantime as we get the drip drip 0:04:38.760 --> 0:04:40.440 drip of the data, as you talk about, what are 0:04:40.480 --> 0:04:43.080 you looking at in terms of the components, the underlyings 0:04:43.080 --> 0:04:45.039 of some of the employment cost index, or what we 0:04:45.080 --> 0:04:48.240 get with payrolls on Friday to get a sense of 0:04:48.279 --> 0:04:52.520 how sticky this disinflation is. Yeah, I think I think 0:04:52.839 --> 0:04:56.200 all of those plus the CPI data our first order important, 0:04:56.320 --> 0:04:59.600 especially for the FED. So we've actually got a house 0:04:59.720 --> 0:05:02.800 view that's a little bit dubish relative to markets, like everybody, 0:05:02.800 --> 0:05:05.719 we expect twenty five basis point at this meeting, but 0:05:05.800 --> 0:05:08.160 after that we think they're going to be done at 0:05:08.160 --> 0:05:10.840 the FED. The only way that happens, but we think 0:05:10.880 --> 0:05:12.680 it is the path that will happen, is if we 0:05:12.720 --> 0:05:16.600 get farm perils coming down well below two hundred and 0:05:16.640 --> 0:05:19.000 looking like they're going to a hundred thousand, and in 0:05:19.040 --> 0:05:21.719 fact below a hundred thousand is I think we we 0:05:21.880 --> 0:05:25.240 described now is not in the textbooks are coming out 0:05:25.240 --> 0:05:28.160 of all the pandemic and supply side dynamics that maybe 0:05:28.200 --> 0:05:32.880 we're getting back to a more traditional monetary analysis and 0:05:32.920 --> 0:05:36.480 around that is not the question is Jerome Powell's central 0:05:36.480 --> 0:05:40.320 banker to the world, But more nuanced is in what 0:05:40.560 --> 0:05:44.320 way is the chairman of the Federal Reserve central banker 0:05:44.400 --> 0:05:48.080 to the world. Yeah, I mean a few things. It's 0:05:48.120 --> 0:05:51.280 clear that what the FED does matters, and it matters 0:05:51.320 --> 0:05:56.760 a lot for the global economy. Um. Interestingly enough, this 0:05:56.839 --> 0:05:59.120 cycle was a little bit different in a number of ways. 0:05:59.160 --> 0:06:01.720 If you think about some of the e M economies, 0:06:01.800 --> 0:06:05.480 especially in America, we saw, for example, this Brazilian central 0:06:05.520 --> 0:06:09.160 bank start to raise rates and anticipation of the fed's 0:06:09.200 --> 0:06:11.160 hiking cycle, they got out a little bit in front 0:06:11.200 --> 0:06:14.680 of it. Some of the other em central banks have 0:06:14.880 --> 0:06:17.520 been similarly defensive, and so there's actually been a little 0:06:17.520 --> 0:06:21.039 bit less of the negatives bill over to other economies 0:06:21.040 --> 0:06:24.039 than you might have expected in some preceding cycles. But 0:06:24.080 --> 0:06:26.400 there are no two ways about it. We saw the 0:06:26.640 --> 0:06:29.800 end for a while depreciate really aggressively. We saw the 0:06:29.800 --> 0:06:33.760 euro depreciate very aggressively. What the FED does has critical 0:06:33.800 --> 0:06:36.440 importance for the rest of the world. So let's talk 0:06:36.440 --> 0:06:38.599 about what you expect the FED to do. You said 0:06:38.640 --> 0:06:41.240 that you could see jobs go down to say sub 0:06:41.279 --> 0:06:43.880 a hundred thousand in the next couple of months, allowing 0:06:43.880 --> 0:06:46.400 the FED to pause with the raid hikes. What are 0:06:46.400 --> 0:06:49.640 you seeing in the fundamentals in the corporate earnings to 0:06:49.680 --> 0:06:51.880 give you a sense that we are going to see 0:06:51.920 --> 0:06:56.159 that massive and sudden drop off in job creation. Uh, 0:06:56.960 --> 0:06:59.719 excellent question. And first I want to preface it that 0:06:59.760 --> 0:07:02.159 even though we think this week's FED meeting is going 0:07:02.200 --> 0:07:04.520 to be the last rate hike, I don't see any 0:07:04.520 --> 0:07:07.600 way at all that share Powell and colleagues are going 0:07:07.640 --> 0:07:09.960 to indicate that it would be the last high. In fact, 0:07:10.040 --> 0:07:12.640 I suspect they believe it will not be the last hike, 0:07:12.960 --> 0:07:14.880 and it's going to take the data coming in as 0:07:14.920 --> 0:07:17.760 soft as we think that they will before the committee 0:07:17.760 --> 0:07:19.960 actually starts to change its mind. So the rhetoric I 0:07:20.000 --> 0:07:22.760 think stays on the hawkish side, which which is I 0:07:22.880 --> 0:07:25.600 think is similar to what Mike had said just before 0:07:25.640 --> 0:07:30.480 the segment um. So then what else is going on? Again? 0:07:30.560 --> 0:07:33.040 I don't think the slowdown that we're calling for in 0:07:33.120 --> 0:07:36.160 non farm perils is all that dramatic. The last print 0:07:36.240 --> 0:07:40.400 was two thirty or so it's been this consistent decline 0:07:40.760 --> 0:07:43.559 in non farm perils that we think continues and gets 0:07:43.600 --> 0:07:47.800 down to a really soft run. Ring Pal keeps talking 0:07:47.800 --> 0:07:50.480 about wanting the economy to grow below potential for a while, 0:07:50.800 --> 0:07:52.880 and that's what if we think it takes. So Thank 0:07:52.920 --> 0:08:06.240 you so much. Seth Carpenter is with Morgan Stanley. This 0:08:06.280 --> 0:08:08.920 is an important interview for Global Wall Street, arguably our 0:08:08.960 --> 0:08:11.320 most important interview of the day, because hey, he nailed 0:08:11.320 --> 0:08:13.800 it last time. He was on about the lift here 0:08:13.840 --> 0:08:16.920 a sense of optimism from Stewart Kaiser was City Group 0:08:17.160 --> 0:08:19.640 head of US equity trading, but far more than that, 0:08:19.960 --> 0:08:22.520 head of a derivative thought, what's a bet right now? 0:08:22.880 --> 0:08:25.520 In all the literature Steward Kaiser? It's okay? Kaiser was 0:08:25.640 --> 0:08:30.120 right six seven percent bounce up we go, But it's 0:08:30.200 --> 0:08:33.040 just short covering where people go, oops, I got it wrong. 0:08:33.440 --> 0:08:36.320 It springs up, but there's no umph to break out. 0:08:36.400 --> 0:08:39.720 What say you about the idea of there is umph 0:08:39.840 --> 0:08:41.920 to break out and move higher? I go more Tom 0:08:42.360 --> 0:08:44.920 and wait too much credit for thank you. Look, I 0:08:44.960 --> 0:08:48.720 think the year two so far, if I had described 0:08:48.760 --> 0:08:51.600 it would just be um, you know, events that didn't 0:08:51.880 --> 0:08:54.000 didn't play out essentially right, Like, you came to the 0:08:54.040 --> 0:08:56.320 year with very low expectations across the board from both 0:08:56.360 --> 0:08:59.120 macro results as well as single stock earnings and and frankly, 0:08:59.160 --> 0:09:02.320 that data just has been negative enough to justify the 0:09:02.320 --> 0:09:05.080 low positioning we had coming into the year. Um, So 0:09:05.120 --> 0:09:07.280 how do you keep moving higher? Um? I think you 0:09:07.320 --> 0:09:09.800 get a continuation on Thursday, in particular of large cap 0:09:09.840 --> 0:09:13.440 tech earnings coming through, and the FETE is hawkish, but 0:09:13.559 --> 0:09:16.080 they're sort of reiterating a message that the market has 0:09:16.080 --> 0:09:18.880 already kind of gotten comfortable with. And on Friday we 0:09:18.880 --> 0:09:21.440 don't get an average average healthily earnings number that scares us. 0:09:21.440 --> 0:09:23.360 And if those things happen, then I think the market 0:09:23.360 --> 0:09:25.480 can continue to move higher. But I still think you 0:09:25.480 --> 0:09:27.560 need to approach this very tactically, kind of like a 0:09:27.559 --> 0:09:29.839 month by month basis basis. This is not a hey, 0:09:29.880 --> 0:09:31.760 I can be long for this next three to six months. 0:09:31.800 --> 0:09:35.720 Silster in city groups securities analysts who talk talk to 0:09:35.720 --> 0:09:38.920 you all the time about their revenue dynamic. If we 0:09:39.000 --> 0:09:42.720 get the disinflation, the City Group and others are talking about, 0:09:42.760 --> 0:09:45.360 what does it due to the revenue line? Yeah, I mean, look, 0:09:45.360 --> 0:09:47.000 that's that's the issue. I think that's that's been a 0:09:47.000 --> 0:09:48.880 big challenge for the bear case that earnings were going 0:09:48.920 --> 0:09:51.440 to get revised aggressively lower. Is that you had positive 0:09:51.440 --> 0:09:53.520 revenue growth that kept earning is a little bit higher 0:09:53.520 --> 0:09:56.400 than expected. Um. Obviously, if revenue start to ease, then 0:09:56.440 --> 0:09:59.400 we're really focused, as least mentioned, on the margin story. 0:10:00.040 --> 0:10:01.839 And you know, so that that that's where the debate 0:10:01.880 --> 0:10:03.520 all kind of center, right. It won't be on top 0:10:03.520 --> 0:10:05.360 one EPs. It will be on the quality of those 0:10:05.600 --> 0:10:07.840 that EPs and whether investors are willing to pay a 0:10:07.840 --> 0:10:11.240 premium for quote unquote lower quality earning. So it is 0:10:11.280 --> 0:10:13.080 an issue, but frankly, I think that's an issue we'd 0:10:13.120 --> 0:10:15.080 like to have, um. You know, you know, relative to 0:10:15.080 --> 0:10:18.040 our expectations have been. We talk about recession as if 0:10:18.200 --> 0:10:21.040 it's an event. It's a process. And in that process 0:10:21.120 --> 0:10:23.360 you start to get companies defending margins and we start 0:10:23.440 --> 0:10:25.720 to see that ready at somebody's big tech firms. Is 0:10:25.760 --> 0:10:28.160 that bullish enough for you for somebody's names to have 0:10:28.160 --> 0:10:29.760 a juitable town went through the rest of the year, 0:10:29.880 --> 0:10:31.920 To see them defending marches, to see them kind of 0:10:31.960 --> 0:10:33.920 close in the way they are, I think it is, 0:10:33.960 --> 0:10:35.880 and I think investors have kind of rewarded that to 0:10:35.920 --> 0:10:38.120 some extent. I think people are willing to look through 0:10:38.120 --> 0:10:40.440 a quarter or two of pressure if you if a 0:10:40.480 --> 0:10:42.600 company can give them guidance that two to four quarters 0:10:42.640 --> 0:10:44.400 out the margins are going to kind of normalize a 0:10:44.440 --> 0:10:46.920 little bit and look all this again, I think is 0:10:46.960 --> 0:10:50.520 expectations driven. You had such low expectations for earnings and 0:10:50.800 --> 0:10:53.240 such a barrisfew on where they can get to. I 0:10:53.320 --> 0:10:54.960 think even you know, by hook or by crook, if 0:10:54.960 --> 0:10:57.040 if a company can produce the earnings, people are gonna 0:10:57.320 --> 0:11:00.160 generally respond positive to, at least tactically. I think, you know, 0:11:00.160 --> 0:11:02.160 now that we're back above four thousand on the SMP, 0:11:02.920 --> 0:11:05.080 the question to get a little bit harder, um, you know, 0:11:05.160 --> 0:11:07.800 related to that. But but yeah, I think if if 0:11:07.840 --> 0:11:10.880 companies can can show that they're making these cost cuts 0:11:10.880 --> 0:11:13.319 and that is going to have you know, a visibility 0:11:13.400 --> 0:11:15.240 into where margins are going to get over the next 0:11:15.240 --> 0:11:17.079 couple of quarters, I think I think companies, excuse me, 0:11:17.120 --> 0:11:19.480 I think investors will respond possible to. You know, the 0:11:19.480 --> 0:11:22.120 earnings haven't been great. People say that the resilience has 0:11:22.120 --> 0:11:26.079 been pretty widespread. Better than expected kinds of results they 0:11:26.080 --> 0:11:28.800 haven't been They've been worse than expected at a higher 0:11:28.840 --> 0:11:31.440 pace than at any time going back to two fourteen, 0:11:31.480 --> 0:11:34.560 with the exception of March of those three months. So 0:11:34.600 --> 0:11:36.480 at what point do we look at the earnings and 0:11:36.520 --> 0:11:38.840 start to see maybe big Tech is reckoning with some 0:11:38.880 --> 0:11:40.920 of the margin pressure, but the rest of the universe 0:11:41.200 --> 0:11:43.480 is facing it in a much more significant way that 0:11:43.640 --> 0:11:46.840 hasn't been fully priced in. Look, I mean, I would 0:11:46.880 --> 0:11:48.560 go back to I guess his price action on that. 0:11:48.640 --> 0:11:50.400 You know, coming into the week, we had about two 0:11:50.440 --> 0:11:54.439 hundred fifty large cap stocks we'd we'd been tracking those 0:11:54.440 --> 0:11:56.800 fell on earnings a hundred fifty rows on earnings. So 0:11:56.880 --> 0:11:59.080 even though the earnings haven't becoming a great you know, 0:11:59.120 --> 0:12:01.520 the price action I think is telling you that expectations 0:12:01.520 --> 0:12:04.400 were washed out enough where it didn't it didn't take 0:12:04.480 --> 0:12:07.240 much um you know. You know sometimes if a company 0:12:07.240 --> 0:12:09.160 cuts numbers down to where the bi side is, that 0:12:09.240 --> 0:12:11.880 stock is then quote unquote clean and people can kind 0:12:11.880 --> 0:12:13.599 of own it. So, yeah, I think expectations again, I 0:12:13.600 --> 0:12:14.800 hate to keep using that word, but I think that 0:12:14.800 --> 0:12:16.160 has a lot to do with it. Do you think 0:12:16.160 --> 0:12:18.760 that there's a clean read on tech because of how 0:12:18.840 --> 0:12:20.960 much bad news there has been priced in. But on 0:12:21.000 --> 0:12:23.920 the rest of the industrial complex it isn't so clean, 0:12:24.120 --> 0:12:26.280 with a lot of disappointments leading to some pretty big 0:12:26.320 --> 0:12:29.120 price action. Yeah. Look, I mean stock by stock, you know, 0:12:29.160 --> 0:12:31.240 we could you know, we could certainly find something in 0:12:31.280 --> 0:12:33.080 some ways it poised to do better because of how 0:12:33.160 --> 0:12:34.839 much pain was priced in and how much of a 0:12:34.960 --> 0:12:37.760 house cleaning there's been. That's our view, you know, Frankly, 0:12:37.840 --> 0:12:39.360 is that earlier last year it was it was a 0:12:39.440 --> 0:12:41.880 valuation story on tech, right, you know, the stocks are 0:12:42.040 --> 0:12:44.520 very expensive, rates and inflation were hired and you got 0:12:44.559 --> 0:12:48.240 that that huge valuation headwind. UM. Third quarter earnings were 0:12:48.240 --> 0:12:50.839 a little bit different, where companies started talking about cost cuts, 0:12:50.840 --> 0:12:53.360 pressure on earnings, things of that nature, and that's when 0:12:53.360 --> 0:12:56.320 I think expectations started to really ratchet lower for the 0:12:56.360 --> 0:12:58.920 tech space UM. And you know, our view coming into 0:12:58.960 --> 0:13:00.960 this quarter was was not to sarty that the results 0:13:01.000 --> 0:13:02.760 were going to be all that great. It's just that 0:13:02.840 --> 0:13:05.680 expectations were so low that it just put risk reward 0:13:05.679 --> 0:13:08.560 to the upside. Expectations were low, positioning were low, so 0:13:08.800 --> 0:13:11.600 in in that sort of combination, it doesn't take a 0:13:11.600 --> 0:13:13.720 whole lot to get the stocks moving higher. So again, 0:13:13.800 --> 0:13:16.360 this could be a quote unquote low quality rally, which 0:13:16.400 --> 0:13:17.959 which we think it's been. If you look at what's 0:13:18.040 --> 0:13:19.920 driven the rally, it hasn't been the best and the 0:13:19.960 --> 0:13:23.319 brightest um. But but we do think relative to expectations, 0:13:23.440 --> 0:13:25.040 you know that That's where we said again, I think 0:13:25.040 --> 0:13:27.480 you have to reevaluate that now that you enter February, 0:13:27.520 --> 0:13:29.800 because you're on a fourth thousand handle after a rally, 0:13:29.880 --> 0:13:32.000 that that's different than being a thirty, thirty and fifty 0:13:32.040 --> 0:13:33.760 coming into the earth. And we talk about this rally 0:13:33.800 --> 0:13:35.200 as if it's only been going on for a month. 0:13:35.440 --> 0:13:37.320 For the lacks of Caterpilly, it's been going on since 0:13:37.320 --> 0:13:39.600 the end of September. That stock is up by more 0:13:39.600 --> 0:13:42.800 than six since then. They've just delivered the first earning 0:13:42.880 --> 0:13:46.560 smiths since the pandemic back in I keep hearing everyone 0:13:46.600 --> 0:13:47.959 talk about how do I want to play the chine 0:13:47.960 --> 0:13:50.199 of reopening story, and I keep going back to this, Well, 0:13:50.200 --> 0:13:52.760 it's been playing game for three months in the minors. 0:13:52.800 --> 0:13:55.400 In Caterpillar abroad. You've seen that. You've seen that story 0:13:55.400 --> 0:13:56.840 in fact, for the banks of in Europe has been 0:13:56.840 --> 0:13:59.520 playing out since the summer. They have absolutely ripped. When 0:13:59.520 --> 0:14:01.480 you Hito, who say things like how do I play 0:14:01.520 --> 0:14:04.439 the China reopening story? What are you telling them? Well, 0:14:04.679 --> 0:14:06.520 I think you're right, it's got in stages. I think 0:14:06.520 --> 0:14:08.480 at the beginning a lot of people were using options 0:14:08.520 --> 0:14:10.679 to just get high pay out owning said let's say 0:14:10.679 --> 0:14:13.440 the Chinese index. Right then it became what you're describing 0:14:13.480 --> 0:14:15.880 as more of that infrastructure play. I think right now 0:14:16.040 --> 0:14:18.600 the question is how much how much of a consumer spending, 0:14:19.040 --> 0:14:21.400 you know, impulse can we get out of China as 0:14:21.400 --> 0:14:23.880 you fully reopened? And I think that started to focus 0:14:23.920 --> 0:14:26.480 people on things like, I don't know luxury brands. You 0:14:26.520 --> 0:14:28.840 know in Europe, I think you know, German equities have 0:14:28.880 --> 0:14:30.760 really benefited from this as well because they have a 0:14:30.760 --> 0:14:33.440 lot of export exposures. So there's still a group of 0:14:33.480 --> 0:14:35.960 the investment community I think that isn't really comfortable owning 0:14:36.000 --> 0:14:38.720 China equity directly at outright, just given some of the 0:14:38.720 --> 0:14:41.400 policy challenges. So what people are looking for is what 0:14:41.560 --> 0:14:43.800 is that that second order trade? And I think it 0:14:43.880 --> 0:14:45.680 was metals and minding and things like that, and then 0:14:45.680 --> 0:14:48.360 it involved just like a consumer spending or tourism story. 0:14:48.560 --> 0:14:51.120 So your mom will be over at Caterpillar, makes the 0:14:51.520 --> 0:14:53.760 mensus no words, and the near one hundred year history 0:14:53.800 --> 0:14:56.840 of Caterpillar. Last year was one of their best years ever. 0:14:57.400 --> 0:15:01.480 We have on radio and tv P both stratified by 0:15:01.520 --> 0:15:05.720 this eco fed debate, all the uncertainties, and they're not 0:15:05.880 --> 0:15:10.960 in the market. How do they participate in Stuart Kaiser's 0:15:11.040 --> 0:15:16.040 optimism so they can possibly enjoy Caterpillars near best year 0:15:16.080 --> 0:15:18.880 in a hundred years. Look, I think from from an 0:15:18.880 --> 0:15:21.120 owning stocks perspective out right, you know, as you know, 0:15:21.160 --> 0:15:23.320 we've been focused on more of these high quality stocks 0:15:23.320 --> 0:15:25.240 that you can kind of own through a recession. UM. 0:15:25.320 --> 0:15:27.200 So that's you know, high quality stocks that are buying 0:15:27.240 --> 0:15:29.360 back a lot of a lot of their shares um 0:15:29.520 --> 0:15:31.760 don't have as much you know, downside earnings risks. So 0:15:31.800 --> 0:15:34.680 we've been sort of pointing people in that direction, UM, 0:15:34.760 --> 0:15:36.720 and I think we're still of that view, Tom. It's 0:15:36.760 --> 0:15:39.440 it's most investors that I've spoken to, even though the 0:15:39.480 --> 0:15:42.400 markets rallied, and they haven't really changed their baseline core 0:15:42.520 --> 0:15:45.880 positioning or portfolio, which still remains pretty defensive. So what 0:15:45.920 --> 0:15:49.040 they've been doing in this rally is using ETFs or 0:15:49.280 --> 0:15:51.760 or options to just kind of add to their exposure 0:15:51.760 --> 0:15:53.600 around the edges. But I think if when you sit 0:15:53.600 --> 0:15:55.440 down with them, they're not saying, oh wow, we rallied 0:15:55.480 --> 0:15:57.720 for a month, my whole view has changed. It's more, Yeah, 0:15:57.720 --> 0:15:59.800 I'm still conservative. I still want to sit in this 0:16:00.120 --> 0:16:02.120 this portfolio. What I need to do is kind of 0:16:02.200 --> 0:16:04.320 risk manage around it. So I still think you're in 0:16:04.320 --> 0:16:08.440 this larger, larger cap, higher quality you know, share buy back, 0:16:08.600 --> 0:16:10.920 you know type story, and then you're just trying to 0:16:10.960 --> 0:16:12.960 adjust risk around the edges. And we haven't touched out. 0:16:13.000 --> 0:16:14.200 You also have a lot of folks that are saying, 0:16:14.200 --> 0:16:15.520 why don't need to be in equities? I can be 0:16:15.560 --> 0:16:18.520 in credit or I can be embossed. The second it 0:16:18.600 --> 0:16:20.840 wasn't a month ago. Definitely just came on the show 0:16:20.920 --> 0:16:22.880 and said, sit out the front half. It's going to 0:16:22.920 --> 0:16:25.960 be ugly. Still get his second half? Yeah, now, and 0:16:26.000 --> 0:16:27.760 in June this this line in the center. Then if 0:16:27.760 --> 0:16:30.040 it just starts running and now it's you missed it, 0:16:30.120 --> 0:16:33.920 sorry it's over, that could be actually nice too. It's 0:16:33.960 --> 0:16:41.680 good to see it. Thank you a City group. Right 0:16:41.680 --> 0:16:43.480 now we're gonna look at China. This is an important 0:16:44.320 --> 0:16:48.160 Leland are you guys done? Thank you? Leland Miller co 0:16:48.320 --> 0:16:50.840 founder and CEO of China base book with us right now. 0:16:50.840 --> 0:16:54.520 I'm truly excellent on the micro data of China. Leland, 0:16:54.600 --> 0:16:58.320 I'm confused. I've got Bloomberg Economics and a fabulous article 0:16:58.360 --> 0:17:00.320 out today, really Mustard. I'll get it out on Twitter 0:17:00.360 --> 0:17:03.840 and occur and shanks you. Joran von Roy who was 0:17:03.880 --> 0:17:05.600 just on the program. I put you to his name 0:17:05.600 --> 0:17:08.840 on the program as well, and tom Orlick and they're saying, 0:17:08.960 --> 0:17:11.879 forget about it. We're looking at three ish up to 0:17:12.000 --> 0:17:15.640 five ish g d P in China, and yet institutions 0:17:15.640 --> 0:17:19.080 have a much more cautious view on this noodling around 0:17:19.160 --> 0:17:23.119 three percent. Who's right, Well, I think this is one 0:17:23.160 --> 0:17:24.800 of the stories that's gonna have to play out during 0:17:24.800 --> 0:17:27.440 the year. The China recovery is set up to be 0:17:27.480 --> 0:17:29.840 a very nice cyclical bounce back. But this could be 0:17:29.840 --> 0:17:32.119 a cyclical bounce back of a quarter or two or 0:17:32.200 --> 0:17:36.200 it could be longer, depending on one whether consumers jump in, 0:17:36.400 --> 0:17:39.560 which is a huge if. And second huge if is 0:17:39.600 --> 0:17:42.080 if there's more policy support than or. I guess the 0:17:42.200 --> 0:17:45.320 policy port that people think. There's this assumption that the 0:17:45.359 --> 0:17:48.119 government is gonna jump in and start stimulating on top 0:17:48.160 --> 0:17:51.000 of what's already an organic recovery. You know, we're 're 0:17:51.080 --> 0:17:53.680 quite skeptical that, but we're watching the indicators and trying 0:17:53.720 --> 0:17:56.159 to see, you know, where where the government's head is 0:17:56.160 --> 0:17:59.720 on this. My experience, Leland is always centers around a 0:17:59.800 --> 0:18:02.680 bed all out of real estate. Let's call it healing 0:18:02.760 --> 0:18:05.679 real estate. Are they going to heal real estate with 0:18:05.800 --> 0:18:11.760 cash infusions from Beijing? They're not gonna heal real estate. 0:18:11.800 --> 0:18:13.600 But what they have been doing is calling the herd, 0:18:13.720 --> 0:18:16.640 and now they are going to ventilate the sector. So basically, 0:18:16.680 --> 0:18:18.399 what they've been trying to do is take out the 0:18:18.440 --> 0:18:22.239 weak firms without killing the healthy firms, diminish property as 0:18:22.240 --> 0:18:24.600 a growth driver for China going forward. They've been doing that, 0:18:24.640 --> 0:18:27.119 but now you've got the potential for contagion because the 0:18:27.200 --> 0:18:30.760 numbers are have been so unbelievably bad. Are December data 0:18:30.800 --> 0:18:33.440 are que for data, some of the worst property results 0:18:33.440 --> 0:18:36.679 we've ever seen. So they're stepping in the providing credit lines. 0:18:36.720 --> 0:18:40.320 They're they're they're you know, lowering mortgage rates. Uh, they 0:18:40.359 --> 0:18:41.720 want to make sure they give a little bit of 0:18:42.080 --> 0:18:44.159 to the sector. But this is very different from the 0:18:44.200 --> 0:18:46.879 game changer it's being made out to be. Across the 0:18:46.920 --> 0:18:50.840 street gonna be very cautious on what this actually means clan. 0:18:51.040 --> 0:18:53.600 Where is the money actually going where a consumers spending? 0:18:53.680 --> 0:18:56.400 Is it all domestic? Are more people getting on planes? 0:18:56.480 --> 0:18:59.959 Are you seeing those flows go into commodities to travel 0:19:00.040 --> 0:19:03.480 around or is it going into staples and just activities 0:19:03.760 --> 0:19:07.239 in the region. Well, it's too early to see the 0:19:07.280 --> 0:19:09.560 trends for the entire year because you had this first 0:19:09.640 --> 0:19:12.720 month skewed by cod COVID and skewed by the Lunar 0:19:12.760 --> 0:19:15.240 New Year holiday. You know, the this month, all the 0:19:15.560 --> 0:19:18.000 pops in the data were around where you'd expect, which 0:19:18.000 --> 0:19:22.640 is travel. You know, restaurants, hospitality, people were traveling again, 0:19:22.680 --> 0:19:24.960