Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. We are honored
Speaker 1: that the chief executive officer of ax And, Thomas Burble,
Speaker 1: joins US now in support with Ian Bremer and eraisia
Speaker 1: group of actually quantifying risk. Thomas, I've got to say
Speaker 1: congratulations on the acuity of your study. You go out
Speaker 1: and speak to thousands of people, explain why this study
Speaker 1: is different from last year or the others of the
Speaker 1: thousands you talked to. Thanks Tommy. I'll be doing this
Speaker 1: study now for the eight ya. The extra futurisquit pol
Speaker 1: And what's important for us is to understand how risks
Speaker 1: are perceived, but also how we can map them out
Speaker 1: and what you can see that obviously the hierarchy of
Speaker 1: risks is changing over the time. Well, last year, obviously
Speaker 1: pandemic was the number one risk. We are now seeing
Speaker 1: that climate is back at the top. So it's for
Speaker 1: us very important to understand what are the key risks
Speaker 1: and also how can they be solved. Walk me through
Speaker 1: the key risk right now, then tell us frame the
Speaker 1: climate debate for us from a company perspective. People worried
Speaker 1: about climate change change in their business, or they're worried
Speaker 1: about stakeholders turning them back on their business because they're
Speaker 1: not worried enough about climate change. I would say all
Speaker 1: of the above the issues today that we have a
Speaker 1: very very many evidences around us that climate change does
Speaker 1: matter to us, just change our life. I think when
Speaker 1: you look at COVID nineteen, this could also well be
Speaker 1: connected to climate change, and the issue is really what
Speaker 1: can we do about it? How can we change it?
Speaker 1: We see that in the political arena there is a
Speaker 1: strong desire now on the legislative front to really um
Speaker 1: uh push the transition, and so companies, investors and insure
Speaker 1: US will have to align. And we've been very early
Speaker 1: on in this game making sure that on the investment side,
Speaker 1: but also on the underwriting side, we are going in
Speaker 1: the direction of helping society, helping the companies to really
Speaker 1: make this climate change happen, because it is the top risk,
Speaker 1: not only in the general public, but certainly also for
Speaker 1: the young people that for the first time we actually
Speaker 1: put a specific focus on in that eighth edition, keeping
Speaker 1: some numbers on that for the underwriting business specifically, Thomas,
Speaker 1: how if you changed how you do business? So essentially
Speaker 1: we are looking at firstly, how can we make sure
Speaker 1: that we are avoiding uh companies risks that are clearly
Speaker 1: pulled us. If you take the coal industry, it was
Speaker 1: in two thousand fifteen that dacts are decided to exit
Speaker 1: call on the investment side, and we've also followed the
Speaker 1: same lot on the underwriting side, making sure that we
Speaker 1: are redeploying that investment and capacity in green in the
Speaker 1: green area. However, this is not enough if you look
Speaker 1: the meat of the transition and the key area is
Speaker 1: really how to help industrial companies to move from a
Speaker 1: mix that is not sustainable to something that is more sustainable.
Speaker 1: And this transition area, helping to invest in companies that
Speaker 1: have a very clear and credible transition plan and also
Speaker 1: doing the same on the underwriting side is the journey
Speaker 1: by going now, Thomas, is your have to in dealing
Speaker 1: with this issue as a company more on the insurance
Speaker 1: side or more on the underwriting side more on the
Speaker 1: investing side. It is on both sides, but I do
Speaker 1: believe Lisa that on the insurance side it is even
Speaker 1: more powerful. On the investment side, we are one of
Speaker 1: many investors, and if you want to find funds for
Speaker 1: a call factory today, you will. However, on the insurance side,
Speaker 1: if you don't have an insurance, you will not find
Speaker 1: any investment. And we have launched recent lee the net
Speaker 1: Zero Insurance Alliance, which is an alliance of eight insurers
Speaker 1: under the lead of AKSA to make sure that we
Speaker 1: get the largest insurer commercial insurers together to make sure
Speaker 1: that these risks are not underwritten anymore, and that we
Speaker 1: are really helping focusing our insurance on the companies that
Speaker 1: are in transition. So has this been effective? Have you
Speaker 1: seen those companies that will not get insurance from the
Speaker 1: big companies actually struggle or or actually shift their businesses
Speaker 1: in response. So on the on the question around avoiding coal,
Speaker 1: we've clearly seen it, and I've personally been involved in
Speaker 1: quite a few customer conversations as you can mention, this
Speaker 1: is not easy, but if we don't go this way,
Speaker 1: we will not make that transition happening. So on the
Speaker 1: coal side, it has already happened. The transition side is
Speaker 1: currently in the making, and we are now putting the
Speaker 1: coalition together to also act on this level. It's almost
Speaker 1: from the coal side just quickly. If you made the
Speaker 1: decision that you don't think those companies should be insure,
Speaker 1: if you make the decision that you can't put a
Speaker 1: price on the insurance, no, we believe these companies should
Speaker 1: not be insured because somebody who does not contribute to
Speaker 1: the transition of our climate, it's not somebody that we
Speaker 1: would like to invest in, because we obviously see the
Speaker 1: negative effects on this. On the other side, we are
Speaker 1: also a large health insurance so when you look at
Speaker 1: climate related health issues, they have arisen a lot. So
Speaker 1: for us, it makes absolute sense to be true to ourselves.
Speaker 1: How can we avoid these risks on the insurance side
Speaker 1: to also make sure that we have a better experience
Speaker 1: for our patients. Fascinating position to put yourself in, Tho Thomas,
Speaker 1: to decide which companies should or should not fail, which
Speaker 1: companies deserve insurance, and which companies don't. Does it start
Speaker 1: an end with climate change? Lets this's go somewhere else. Look,
Speaker 1: I mean you also have other areas. If you think
Speaker 1: about again health related issues, you have got the question
Speaker 1: around tobacco, and so for example, in areas where we
Speaker 1: clearly see that there is a direct link between an
Speaker 1: industrial activity and negative consequences for health. So, for example,
Speaker 1: on tobacco, as of the first cigarette, you have a
Speaker 1: negative effect. We've also taken the decision in two thousand
Speaker 1: and sixteen to exit this and to redeploy our investment. Means,
Speaker 1: um this needs to continue, but it needs to continue
Speaker 1: in a way that we are accompanying our customers, that
Speaker 1: we are accompanying the companies we invest in to make
Speaker 1: sure that we help this transition and we don't penalize. Interesting,
Speaker 1: some people might think that's controversial. That's a conversation for
Speaker 1: another day. Thomas just quickly someday Man City Liverpool, can
Speaker 1: we get a prediction sir? It is clearly that Liverpool
Speaker 1: will be winning, and because they are so well positioned,
Speaker 1: it would not underwrite the insurance of Man City. Tom,
Speaker 1: I think is the message you're trying to He just
Speaker 1: took undone as an insure. If you can make that
Speaker 1: decision as well, which team succeeds and fails. Thomas Bobo there.
Speaker 1: Thank you, sir, access CEO. Right now we're gonna shift
Speaker 1: to the equity market with someone who does observe the
Speaker 1: yield space as he gauges his bullish view and equities.
Speaker 1: Benjamin Laidler is the Global Markets their strategist and he
Speaker 1: joins us this morning to reaffirm on equities. Ben Laidler,
Speaker 1: you talk about the priors of yield, you talk about
Speaker 1: the other moments where we've seen yield surge, and you
Speaker 1: do say this time is different. I think the speed
Speaker 1: has been different markets. I think I'm reacting to the
Speaker 1: speed of the body yield move you know, not necessarily
Speaker 1: to the level twenty basis points in a week if
Speaker 1: you extract like that. This is the basically the biggest
Speaker 1: move that we've almost ever had, even more than we
Speaker 1: had in in first quarter, which is you know, close
Speaker 1: to record itself. Um. Yeah, Having said that, you know,
Speaker 1: I think we've sort of seen this movie before. Right
Speaker 1: first quarter we had the you know, nearly a hundred
Speaker 1: basis point moving yields. Over the quarter, we saw a
Speaker 1: lot of movements, you know, to your point under the surface,
Speaker 1: there was a lot of sort of sector rotation, but
Speaker 1: you know, the opal market came up six percent, and
Speaker 1: that wasn't as similar to what we saw on the
Speaker 1: table tantram back in which is the best year of
Speaker 1: the decade for for equities. So you know, I think
Speaker 1: the markets sending us some messages here. I think it
Speaker 1: means a lot more per sectors than it was to
Speaker 1: the market. And I think this sort of pain is
Speaker 1: is going to be temporary as um sort of market
Speaker 1: um as the sort of reprice this a little bit.
Speaker 1: But I think that's sort of bulld case of you know,
Speaker 1: fed forbearance and the strong earnings of probably remained in place.
Speaker 1: Have we had enough of a draw down, a pull
Speaker 1: back where it shifts the use of cash game for
Speaker 1: corporations um, And we've had, I mean the story for
Speaker 1: this year, but it has really just been the lack
Speaker 1: of volatility, right, I mean, we've had this huge rally,
Speaker 1: who had one sort of fighter sent pull back this
Speaker 1: year are than the three we've normally had. So you know,
Speaker 1: the VIX remains sort of very low. I mean, you know,
Speaker 1: back in the first quarter of VIX peaked at thirty seven,
Speaker 1: So you know, you can make the case for we
Speaker 1: might get more volatility, especially with everything that's coming out
Speaker 1: of d C and and everything that's coming out of China.
Speaker 1: So you know, I think the outlook is one for
Speaker 1: probably more a bit more volatility in the short term.
Speaker 1: But I think you've been set up for, you know,
Speaker 1: for a sentence Santa rally into the end of the
Speaker 1: year as we sort of clear this sort of DC
Speaker 1: in China noise, as the sort of growth bear subside
Speaker 1: in virus cases in the US down thy percent in
Speaker 1: two weeks, and I think that sets us up for um,
Speaker 1: you know, growth recovery into the quarter. With the quarter
Speaker 1: earnings coming up in two weeks, which I think is
Speaker 1: going to be you know, expectations look very low, so
Speaker 1: I think we've been set up for another earnings beat.
Speaker 1: And I think the policy support remains Marion is very strong.
Speaker 1: Whether yields are one and a half percent on the
Speaker 1: ten year or two that there are a fraction of
Speaker 1: where they were coming out of priory sessions, and I
Speaker 1: think that gives you a lot of supports evaluation. And
Speaker 1: then you've touched on something important. I think a lot
Speaker 1: of people are waking up this morning looking at some
Speaker 1: of those popular holdings, the likes of Microsoft, Apple, Amazon,
Speaker 1: they're downheart since the start of September. That dream what
Speaker 1: to do in the face of rising yields been. I
Speaker 1: know you can't do single names, but for those big
Speaker 1: stories that sector, what do you suggest they should do?
Speaker 1: The story? So first quarter, which is our nearest parallel,
Speaker 1: I think here, you know, na's that kind of terms
Speaker 1: stample back and then it then it fairly quickly recovered.
Speaker 1: And the difference of now versus then is, you know,
Speaker 1: I think the yield move then was was much more significant,
Speaker 1: and it was sort of first time out. I think,
Speaker 1: you know this time around UM and I think you
Speaker 1: know what we saw then was yes, you know, higher
Speaker 1: bond yields, you know, hit stocks with higher valuations and
Speaker 1: these sort of long duration cash flows, which is Tech.
Speaker 1: But then very quickly I think we just get reminded
Speaker 1: UM and I think we'll see this in the third
Speaker 1: quarter of just you know how strong the earnings power
Speaker 1: of these companies are on the fortress balance sheets that
Speaker 1: they have UM. So I wouldn't expect tech to necessarily
Speaker 1: lead from here in a rising yield environment. I think
Speaker 1: that's going to be commodities, financials, and value, but I
Speaker 1: certainly see them going up Lisa, this is a big
Speaker 1: chunk of market cam Microsoft seven percent from the middle
Speaker 1: of sep Tember. Apple down nine plus nine plus since
Speaker 1: the start of September, the first week of September. They
Speaker 1: are big moves. And the interesting thing is that they're
Speaker 1: big moves despite what Bernar is talking about here, the
Speaker 1: idea that revenues are tremendous. But at what point it
Speaker 1: can big tech tech start moving in lark step with
Speaker 1: bond yields. I don't think this is all about bond yields.
Speaker 1: I think that's an important ingredient. It was all about
Speaker 1: bond yields, then you know, if you look at the
Speaker 1: macro level, places like Japan and Europe where bond yields
Speaker 1: are you know, dramatically lower, would have done a lot
Speaker 1: better and be trading a lot more expensive than than
Speaker 1: you know they are right now. UM. You know what
Speaker 1: the value sectors and this recovery and growth potentially sets
Speaker 1: us up for is you know, those sectors which are
Speaker 1: most exposed to that growth and those spectors which are
Speaker 1: least exposed to higher bond yields. I'd have the lowest valuations,
Speaker 1: will do you know, will do better? Um, And and
Speaker 1: that is commodities and financials, and and tech which doesn't
Speaker 1: have those two things, which has less sensitivity to this
Speaker 1: growth rebound, which I think we should be talking more
Speaker 1: about now that virus cases are coming down, um and um,
Speaker 1: you know, more sensitivity to sort of high on yours
Speaker 1: well will naturally lag. But I don't think you can
Speaker 1: say that they're going to do particularly badly. I mean,
Speaker 1: evaluations have actually come down quite a lot for big tech.
Speaker 1: And the surprise of this year is that those very
Speaker 1: strong growth rates which you saw last year having maybe
Speaker 1: come down as quickly as some as many thought they
Speaker 1: would do. Then the story of this week is the
Speaker 1: reflation trade has changed. It is a renew reflation trade.
Speaker 1: If you take a look at which sectors are doing
Speaker 1: the best, you're looking at energy, You're looking at financials
Speaker 1: with the prospect of perhaps maybe uh seeper yield curve.
Speaker 1: It's not industrials, it's not materials. It's not consumer discretionaries
Speaker 1: that have to absorb some of these higher gas prices
Speaker 1: and supply chain constraint issues. Does this mean something to
Speaker 1: you in terms of what the reflation trade will look
Speaker 1: like over the next six months. Yeah, I think it's
Speaker 1: going to be much more specific. I mean there are
Speaker 1: there are. I mean I think one more sort of
Speaker 1: a tune to some of these supply Chaine shooes them
Speaker 1: we worked for. We obviously have a bunch of concerns
Speaker 1: on sort of Chinese growth out there, which obviously feeds
Speaker 1: through tectifly materials which maybe we didn't have we didn't
Speaker 1: have last time. I would also just say, um, I
Speaker 1: think we'll maybe right at the beginning of re engaging
Speaker 1: in this sort of reflation trade. I mean, inflation expectations
Speaker 1: are really barely budge market inflation expectation. I mean five year,
Speaker 1: five year is still you know, two twenty three, ten
Speaker 1: years to thirty eight. I mean they really haven't moved,
Speaker 1: you know very much. Um, you know this perceived fed
Speaker 1: you know, hawkishness. I mean they basically moved the dots
Speaker 1: in line with where the market already was look last week.
Speaker 1: So I think, um, I think we're really the beginning
Speaker 1: of that, rather than having had a big move already. John,
Speaker 1: let's review the statistics of the greatest equity car coming
Speaker 1: out of the urgency of two thousand eighteen. Late two
Speaker 1: thousand eighteen, Laidler up, sp X UP eighteen percent. The
Speaker 1: next year up fifteen percent. John's so far this year
Speaker 1: that's a lonely group. I remember it, Tom, I remember
Speaker 1: it well, Ben Laidler, Can we ever repeat when everybody
Speaker 1: starts freaking out about the removal of accommodation and this
Speaker 1: equity market flies. I remember that year. Most people do
Speaker 1: what they forget sometimes because the treasury move is so
Speaker 1: burnt in the memory, but they forget sometimes just that
Speaker 1: the equity market was up almost thrty percent on S
Speaker 1: and P five hundred. Ben, how different are things this
Speaker 1: time around? I think we've already had a lot of this, right,
Speaker 1: I mean again, we've got stress tested. In the first quarter,
Speaker 1: we had this huge move in treasury yields and equities
Speaker 1: are up six percent. You know, equities up, you know,
Speaker 1: gotting on for no well until a few days ago,
Speaker 1: we were up for the year already. This was you know,
Speaker 1: this is a big, big move for equities. As I say,
Speaker 1: I mean, we've got some balls early to get through,
Speaker 1: whether it's coming out of the bond market, coming out
Speaker 1: of DCD, coming out of China over the next sort
Speaker 1: a month or so. But but again, I think we're
Speaker 1: being set up for you know, this sort of Santa
Speaker 1: rally into year end. As those concerns sort of fall away,
Speaker 1: we refocus on the growth pace, which I think is
Speaker 1: sort of the stealth catch up just about to re accelerate.
Speaker 1: All this week economic data you've been we've been seeing
Speaker 1: over the last you know, few weeks, all backward looking
Speaker 1: like it was all when US virus cases global virus
Speaker 1: cases were higher than than they are right now. And again,
Speaker 1: I think policies, the policy's support remains in place the
Speaker 1: order a fraction of where they were coming out of
Speaker 1: previous recessions, and that just means that evaluations are going
Speaker 1: to stay high. Ben Laidler still constructive of ETA Global
Speaker 1: market strategists. Can we see a transatlantic linkage here? Any
Speaker 1: whisper of that is what I would listen for joining
Speaker 1: us now on this als RBC Global head of Effect Strategy. Also,
Speaker 1: we've got to talk a lot about what's happening with
Speaker 1: this dollar, a real break out in the past twenty
Speaker 1: four hours. Let me start with this one, though his
Speaker 1: chair power dangerous man from your perspective, I think you
Speaker 1: summed it up well when you said Senator Warren was
Speaker 1: looking for people like you to bite the bait, and
Speaker 1: you did look also at the dollar strength. You are
Speaker 1: truly expert. It's summing it all together, particularly with a
Speaker 1: continental europe perspective. What is the character of this dollar strength.
Speaker 1: That's a really interesting question, Tom, because I think what
Speaker 1: was so unusual about yesterday was the bond and equity
Speaker 1: joints seller. So you know, we're used to being in
Speaker 1: an environment where either bonds are rallying and equities are
Speaker 1: selling off, or vice versa. But when bonds and equities
Speaker 1: are selling off together, historically, that actually means a very
Speaker 1: positive environment for the U s dollar, even against what
Speaker 1: you typically think of as a safe haven like the
Speaker 1: Swiss frant. Well, let's get back to Lignos one oh one.
Speaker 1: Is this gonna be about relative interest rates or is
Speaker 1: it gonna be about flows of capital? You know, both
Speaker 1: clearly matter. When when we think about capital flows, We've
Speaker 1: done a lot of work in the past looking at
Speaker 1: how much money European investors have piled into US equities
Speaker 1: and I was actually just updated in this chance last night,
Speaker 1: and you can see that's increased over the past year.
Speaker 1: So if we do go into an environment where US
Speaker 1: equities were on to perform in relative terms, that would
Speaker 1: potentially create some downside risk for the dollar. If this
Speaker 1: is a global risk of environment, though, or if it's
Speaker 1: a global exty bond seller, that's a far better environment
Speaker 1: for the US dollar. So the capital flows, like you say,
Speaker 1: are really key. What's the pain trade right now? Elsa
Speaker 1: the dollar getting a lot stronger or the dollar materially weakening. Honestly,
Speaker 1: I think you know, people are relatively likely positioned in etfects.
Speaker 1: Probably the biggest pain trade would be a massive increase
Speaker 1: in volatility. Nobody is looking for that now. You know,
Speaker 1: We've seen people try to position for that before and
Speaker 1: it's spailed every time. And so in this environment where
Speaker 1: we just don't really expect anything to happen. What about
Speaker 1: the euro weakness that we've seen, the euro a weakening
Speaker 1: to some of the weaker levels that we've seen in
Speaker 1: about a year. Is this the story or is it
Speaker 1: more a dollar story. It's definitely more of a dollar story.
Speaker 1: I'm really excited to see it happened, because that's been
Speaker 1: our core law year and it was a pretty lonely
Speaker 1: place to be in January. But it's certainly a broader
Speaker 1: US dollar move. It's nothing specific to the ear. In fact,
Speaker 1: if you look at the Euro against how yesterday, it
Speaker 1: was actually a relative out performance. Let's get to that
Speaker 1: sterling story. So if we can bring up sterling into
Speaker 1: day we came very really, really really close to break
Speaker 1: in one thirty five. We've had a hawkish tilt from
Speaker 1: the Bank of England. It's failed to anchor sterling. You've
Speaker 1: got a short on here else, sir? What's going on? Yeah,
Speaker 1: like you said, we've got a short sterling card recommendation
Speaker 1: at the moment. We put it on at the start
Speaker 1: of the week. It's really looking at the upcoming event
Speaker 1: risk in the week ahead. I think what's happening at
Speaker 1: the moment. We had a lot of questions on sterling
Speaker 1: yesterday from clients. People were wondering, is this the Bank
Speaker 1: of England making a policy mistake? Are we beginning to
Speaker 1: price credit risk for the UK? You know, it's very
Speaker 1: unusual to see yields going higher and the currency going lower.
Speaker 1: That's typically more what we see an emerging market. I
Speaker 1: wouldn't try and read too much into the price action
Speaker 1: of a single day, but I do think that the
Speaker 1: Bank of England is very optimistically priced in my view,
Speaker 1: and we should think a bit more as a best
Speaker 1: case scenario in terms of how many hikes we could get,
Speaker 1: rather than a central scenario. So that's really important. You
Speaker 1: pushed back against this idea that we'll have this rate
Speaker 1: path kick in at the Bank Amingland anytime soon? Why
Speaker 1: is that ours? But it's not so much that that
Speaker 1: will won't get hikes at all. It's more that I
Speaker 1: think people are factoring in too many hikes, and the
Speaker 1: Back of England have been fairly clear with us and saying,
Speaker 1: you know, we'll hike a couple of times and then
Speaker 1: we'll pause. And alongside of that you have all sorts
Speaker 1: of supply chain disruptions at the moment here in the
Speaker 1: UK which are creating some inflationary prescious but not the
Speaker 1: type that central Bank would typically respond to. Governor Bailey
Speaker 1: was very clear on that on Monday, and I don't
Speaker 1: think people have necessarily listened to that message and factored
Speaker 1: it into the way they're trading. Sterling's really really important
Speaker 1: comments there at the end, ABC Global head of Fax Strategy,
Speaker 1: this is a joy in exceptionally well timed Inmbassador Hormance
Speaker 1: joins US now Rabbit Hormanes with time and advisers. They're
Speaker 1: managing director, but far more. I needed to finish a
Speaker 1: book strong a million years ago and I finished with
Speaker 1: Robert Hormats talking about expectingly unexpected on Asia, and we
Speaker 1: are thrilled Ambassador Hormats could join us this morning on
Speaker 1: the new unexpected of China. Robert Hormats with President g
Speaker 1: what should we expect? Well, I think we can expect
Speaker 1: a strongly nationalistic China. Uh. He wants to have China
Speaker 1: come back from two centuries where he considered that the
Speaker 1: West had taken advantage of China. China was fragmented internally.
Speaker 1: Now he's trying to pull it together under very strong
Speaker 1: party leadership and exercise enormous international influence. And he sees
Speaker 1: that the US is a tentative in some areas and
Speaker 1: has raised a lot of doubts among allies, although it's
Speaker 1: trying to put those doubts to aside at the moan
Speaker 1: and strengthen itself. But he sees as a chance for
Speaker 1: China to strengthen his position and eat Asia and other
Speaker 1: parts of the world, and he is going to take
Speaker 1: advantage of it. And the party is having its anniversary
Speaker 1: coming up. The Family of the Republic of the Republic
Speaker 1: of China in um in about twenty years, and he
Speaker 1: wants China to the world leader with a new leader
Speaker 1: in Japan today, Ambassador harmats the Okinawa's the islands of
Speaker 1: Jima and the rest that we remember from World War Two,
Speaker 1: they stretched down some hundred and thirty four miles from Taiwan.
Speaker 1: Japan has a vested southern interest in Taiwan. How should
Speaker 1: the US adapt to the calculus of Beijing, Taipei in Tokyo. Well,
Speaker 1: certainly China is interested in increasing its influence throughout the
Speaker 1: entire Western Pacific, and the small islands are the starting point.
Speaker 1: I don't think taking on Chaiwan is while a goal
Speaker 1: of China's, is probably not something that Chinese are going
Speaker 1: to do anytime soon. I think it would be a
Speaker 1: very disruptive factor in the region. But it certainly is
Speaker 1: going to exert its influence all around Asia, and certainly
Speaker 1: it's increasing its naval presence not only in East Asia,
Speaker 1: but in Southeast Asia and in the Indian Ocean and
Speaker 1: other parts of the world. So I think China will
Speaker 1: be restrained on Taiwan, but certainly will be exercising its
Speaker 1: naval influence throughout the entire region. Bob, it seems like
Speaker 1: there's been a material shift or at least a tightening
Speaker 1: in the screws over and tied up Isaianping and the
Speaker 1: entire party. And it seems like there's been a shift
Speaker 1: in the regulations in terms of how hard they're willing
Speaker 1: to crack down on certain sectors. And yet when we
Speaker 1: speak with corporate exactatives, they are so delicate about this.
Speaker 1: They say, we're not going to change our strategy where
Speaker 1: we still see a lot of opportunity. As somebody who
Speaker 1: has operated on all sides of this debate, how do
Speaker 1: you think that corporate executives from the United States are
Speaker 1: viewing what's going on in China with relation to their
Speaker 1: presence there. Well, it's very interesting. I've spent a lot
Speaker 1: of time over the years of President she when he
Speaker 1: was head of Joan Province and then when he was
Speaker 1: vice president, and he he does want foreign investment in
Speaker 1: China and has been advocating that for a substantial period
Speaker 1: of time. On the other hand, he has a couple
Speaker 1: of goals, one of which is to have much stronger
Speaker 1: party control over the Chinese economy. Uh and he's exerting
Speaker 1: it now primarily with big Chinese companies, where in virtually
Speaker 1: every company there is a Communist Party committee at very
Speaker 1: high levels in the company, and it is very employing
Speaker 1: chill in the decisions that the companies make. The second
Speaker 1: thing he wants is much tighter regulation because he sees
Speaker 1: what he calls something he calls it the three red lines.
Speaker 1: He sees a lot of leveraging going on, particularly in
Speaker 1: the real estate area, and we'll probably talk about that
Speaker 1: in a moment, and he wants a much tougher regulatory
Speaker 1: environment for borrowed cricketing real estate. And third, he wants
Speaker 1: a greater degree of equity in the system than the
Speaker 1: notion that some companies and some people do very well
Speaker 1: and others don't. Is important to the to the Communist
Speaker 1: Party's control over the economy, demonstrating that it's dealing with
Speaker 1: middle and lower income people and not just with a
Speaker 1: higher end people. Investador Ormance, I really have to go
Speaker 1: back to what you said originally, the jumping still very
Speaker 1: much wants foreign investment, and yet the message that's being
Speaker 1: sent to the bondholders of evergrand the dollar bondholders is
Speaker 1: very different. How do you dovetail the actions that they're
Speaker 1: taking with international investors with this case, with that drive
Speaker 1: for more international investment. Well, in this particular case, most
Speaker 1: of the bonds and are and most of the exposure
Speaker 1: is Chinese plus um of the money is owed to
Speaker 1: either Chinese bond holders in our rem and b UM
Speaker 1: or two suppliers in China, and therefore the the impact
Speaker 1: on the rest of the world is not directly going
Speaker 1: to be that great. Um And I think that a
Speaker 1: lot of warnings have already gone out that this is
Speaker 1: going something is going to happen. I think they want
Speaker 1: to have an orderly restructuring. The bigger problem really is
Speaker 1: not so much the foreigners here, although it's gotten a
Speaker 1: lot of press, but it is the localities. This company
Speaker 1: has UH projects in UH two hundred venues in China
Speaker 1: in every province, and in many cases a lot of
Speaker 1: people have bought apartments or homes on the basis that
Speaker 1: they'll be built next year the year after that, but
Speaker 1: they put their money down. If this company goes under,
Speaker 1: then a lot of those people will find themselves out
Speaker 1: of a lot of money. So I think they're worried
Speaker 1: more about the social instability in China than than they
Speaker 1: are about foreigners. I don't think foreigners, other than perhaps psychologically,
Speaker 1: are going to take a very big hit here. But
Speaker 1: I think he's also going to make the point that
Speaker 1: the longer run here will be a much better regulated
Speaker 1: Chinese financial market, particularly in real estate real estates about
Speaker 1: of the Chinese economy. If for the real estate market tanks,
Speaker 1: it will slow down the overall economy and hurt foreign
Speaker 1: invest there's in China and Chinese companies. So I think
Speaker 1: he's feeling that if he can regulate the economy in
Speaker 1: a in a responsible way, in a curious sense, the
Speaker 1: prospect of a bubble will diminish and the stability of
Speaker 1: the Chinese economy over the medium term will will increase.
Speaker 1: So I think that's the message that he's providing. But
Speaker 1: also don't forget a lot of companies are still doing
Speaker 1: well in China. A lot of American companies still see
Speaker 1: this as the world's fastest growing market, which it is,
Speaker 1: and they don't want to do anything to upset the
Speaker 1: apple class as long as the authorities letting them do well.
Speaker 1: Bubb And I guess that's the issue coming forward from
Speaker 1: his valuable insight. As always Bob holmats there, Robert holmats
Speaker 1: without question. David Rubinstein's most important interview for the nation
Speaker 1: with Stephen Bryan. Were thrilled to Mr Rubinstein could join
Speaker 1: us right now, nine pm tonight. Uh, we'll see that.
Speaker 1: I'm Bloomberg Television. What a wonderful moment, David Rubinstein. What
Speaker 1: was the surprise of your conversation at the ninety second wife. Well,
Speaker 1: he doesn't seem to be that upset when people ask
Speaker 1: him anymore about when he's gonna retire. I mean, he's
Speaker 1: used to the question by now. I would get tired
Speaker 1: of it because he gets asked all the time. But
Speaker 1: he's basically, uh, you know, used to saying I'll make
Speaker 1: a decision when I'm ready to make the decision. And uh,
Speaker 1: he didn't really indicate to me when he's gonna do it.
Speaker 1: I had my own views on what he's likely to
Speaker 1: do it, but he didn't say specifically when he's going
Speaker 1: to retire. But I would suspect it's probably closer to uh,
Speaker 1: this term than the next term. Maybe, My guests, David Rubinstein,
Speaker 1: you've been a student of the court. How liberal is Bryan? Well,
Speaker 1: he's clearly in the liberal wing. And I would think
Speaker 1: people would say he's now the dean of the liberal wing.
Speaker 1: He's been on the court but twenty eight years UM,
Speaker 1: and I would say probably he and UH Justice Soda
Speaker 1: Mayor and Justice Kagan are the liberal wings such as
Speaker 1: it is left UH at this point. So I would
Speaker 1: say he's He wouldn't consider himself liberal, but I would
Speaker 1: say others would probably say that's the appropriate the description
Speaker 1: of him. But a very impressive person. I've known him
Speaker 1: since I worked on Capitol Hill about forty years ago,
Speaker 1: and he's a very very smart person. And he didn't
Speaker 1: necessarily think he was going to be a justice in
Speaker 1: the Supreme Court. In fact, when he went for the
Speaker 1: first interview, he didn't do that well because he had
Speaker 1: a bike accident, was not doing very well in the
Speaker 1: interview with Bill Clinton. He later got the position after
Speaker 1: Ruth Bader Ginsburg got the first appointment by Bill Clinton.
Speaker 1: David the fact that he gets asked all the time
Speaker 1: when he's going to retire, Given that the eighty three
Speaker 1: highlights the deeply politicized nature of all of these appointments
Speaker 1: and some of the machinations behind what happened with Ruth
Speaker 1: Bader Ginsburg, how much do you think this reflects, in
Speaker 1: his view, a more politicized court than ever before. Well,
Speaker 1: he wrote a book and that was the subject of
Speaker 1: the interview. He's been out giving interviews recently because he
Speaker 1: has a book out that talks about the fact that
Speaker 1: justices are not political. They don't talk about politics, and
Speaker 1: it's a not something they ever consider. However, outside the court,
Speaker 1: we've obviously politicized the confirmation process and most people see
Speaker 1: certain decisions like Bush frie Gore as political. Uh, he
Speaker 1: doesn't agree with that, but there's no doubt that today
Speaker 1: I think the court has seen is more political than
Speaker 1: than it was before. And that's something he's not happy about,
Speaker 1: but it's not much he can really do about it.
Speaker 1: And at least so what's so important here, growing up
Speaker 1: with Jerry Brown and Lawrence Tribe and the rest that
Speaker 1: Brier did is the heritage of the country. You're expert
Speaker 1: on this, working you know it's Chicago and studying in
Speaker 1: the milia of Richard Posner and all. Well, the idea
Speaker 1: here of constitutional law being increasingly politicized as you have
Speaker 1: this core of six justices right now deeply in the
Speaker 1: conservative wing and definitely voting as as a pack when
Speaker 1: it comes to certain things like abortion rights at least
Speaker 1: so far, uh and and and all of these more
Speaker 1: politicized issues. There's a deeper issue, though, David, and as
Speaker 1: an investor, you have deep respect for trying to game
Speaker 1: out how Washington acts and your experience on Capitol Hill.
Speaker 1: Has there ever been more of a sense of unpassable
Speaker 1: gridlock at a time when even the parties are divided
Speaker 1: to such a degree. I've not seen anything like this
Speaker 1: in the last hundred years. Anything I've read about ever
Speaker 1: in the last hundred years. Obviously during the Civil War
Speaker 1: was like this, But now we don't have any sense
Speaker 1: that cooperating is a good thing, and bipartisanship is just
Speaker 1: out the window. You can't even get a bipartisan vote
Speaker 1: to pass the debt limit, for example, anymore. So I'm
Speaker 1: saddened by it. I think most people are as well.
Speaker 1: The Supreme Court is trying to avoid being seen as political,
Speaker 1: but I think many people still see it as somewhat political. Unfortunately, that, David,
Speaker 1: is the grace of the Court gone. When you look
Speaker 1: at the clerk system, the cadence of top students becoming clerks,
Speaker 1: with all that competition and then going on to different
Speaker 1: appointments and judges. Is the grace still there in our judiciary. Well,
Speaker 1: it's still a great honor. Each Justice gets four clerks
Speaker 1: and it's a big honor to be one of those clerks.
Speaker 1: I should point out that my law school this year
Speaker 1: has nine clerks, which is the most they've ever had,
Speaker 1: and so we're very pleased with that. But these are
Speaker 1: the leading students in the country and many of them
Speaker 1: do become Justice of the Supreme Court themselves. Justice Brier
Speaker 1: was a clerk for Justice Goldberg, so many of these
Speaker 1: people do come back. And Justice Roberts was a clerk
Speaker 1: as well in the court. So you've seen many of
Speaker 1: these justices coming back having been clerks in the court before.
Speaker 1: These are very very smart people, UM. And I do
Speaker 1: want to point out that the Court, while it's seen
Speaker 1: us some political by by by many people, UM, is
Speaker 1: still probably the most respected of the three branches of government.
Speaker 1: And I think it increasingly people say, well, what the
Speaker 1: court says is that's the law of the land. In
Speaker 1: other countries, uh, it's not necessarily the case. And when
Speaker 1: the when their top court says something, people obey it.
Speaker 1: But here, when people say the Supreme Court says something,
Speaker 1: even it's five to four, we do recognize that's the
Speaker 1: law of the land, and the rule of law is
Speaker 1: very important to this country. So I do think the Court,
Speaker 1: while it's unfortunately seen its political for reasons beyond its control,
Speaker 1: is still more respected honestly than the executive branch or
Speaker 1: the legislative branch. To that point, David, aside from the
Speaker 1: big polemics of the day, how much consensus is there
Speaker 1: on the court? Basically, how many cases do we see
Speaker 1: that are eight to one or even unanimous? Uh? That
Speaker 1: that really go to the heart of of how we
Speaker 1: rule here in the United States. UM. A few years ago,
Speaker 1: the Court used to do twenty cases or so a year.
Speaker 1: Now they're down to about seventy five case of the
Speaker 1: year for lots of technical reasons. I would say probably
Speaker 1: half of them are unanimous. They don't get any attention,
Speaker 1: but they're relatively on exciting bankruptcy cases or other kinds
Speaker 1: of things. Uh. The cases that are five to four
Speaker 1: probably about I would say about the cases or five
Speaker 1: to four or the equivalent of five to four, So
Speaker 1: that that that's when you get most the attention. And
Speaker 1: then Obviously there's only things like abortion, or redistricting or
Speaker 1: or voting rights or things like that, but on most
Speaker 1: cases they're generally fairly straightforward in terms of the law.
Speaker 1: In most cases honestly are or if not unanimous, close
Speaker 1: to being unanimous. David, congratulations on this interview. Did the
Speaker 1: Rubinstein host apear to your conversations with Justice prior? Look
Speaker 1: for that tonight nine pm. Of course with the Carlisle
Speaker 1: Group as well. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each
Speaker 1: day from six to nine am for insight from the
Speaker 1: best in economics, finance, investment, and international relations. And subscribe
Speaker 1: to the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg dot com,
Speaker 1: and of course on the terminal. I'm Tom Keene and
Speaker 1: this is Bloomberg