1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:30,280 Speaker 1: and of course on the Bloomberg Terminal. Vice and Reinhard 6 00:00:30,360 --> 00:00:33,760 Speaker 1: owns the research of the American economy. With twenty four 7 00:00:33,880 --> 00:00:36,279 Speaker 1: years at the Federal Reserve System. He is the one 8 00:00:36,320 --> 00:00:41,320 Speaker 1: who literally codified and invented modern research at the ECCOS building. 9 00:00:41,600 --> 00:00:45,000 Speaker 1: He is with Melan their chief economists, Vince Reinhard, I 10 00:00:45,040 --> 00:00:49,159 Speaker 1: want you to explain to radio and TV what Jackson 11 00:00:49,360 --> 00:00:54,040 Speaker 1: Hole really is. A bunch of PhDs listening to dead 12 00:00:54,160 --> 00:00:58,640 Speaker 1: serious papers, describe what really goes on at Jackson Hall. 13 00:00:59,560 --> 00:01:04,200 Speaker 1: It's the biggest concentration of central bankers, and central bankers 14 00:01:04,240 --> 00:01:08,080 Speaker 1: love to talk amongst themselves, and so that's the opportunity 15 00:01:08,240 --> 00:01:13,440 Speaker 1: for them to address what they're all concerned about. And 16 00:01:13,480 --> 00:01:16,240 Speaker 1: what they're all concerned about now is just how the 17 00:01:16,280 --> 00:01:19,160 Speaker 1: global economy is going to pull itself out of the pandemic, 18 00:01:19,760 --> 00:01:22,760 Speaker 1: and moreover, how they are going to pull themselves out 19 00:01:22,760 --> 00:01:26,000 Speaker 1: of the unconventional policies they've got themselves into. I had 20 00:01:26,000 --> 00:01:28,559 Speaker 1: the honor of sitting on the lawn years ago vince 21 00:01:28,560 --> 00:01:32,160 Speaker 1: Reinhardt were the wonderful Alan Meltzer with Carl Brunner getting 22 00:01:32,160 --> 00:01:36,440 Speaker 1: this summer's suare started with the Carnegie Rochester series of 23 00:01:36,480 --> 00:01:39,880 Speaker 1: decades and decades ago, and it goes to the emotion 24 00:01:40,040 --> 00:01:43,560 Speaker 1: of the serious events Villin Bouder blowing up years ago. 25 00:01:43,640 --> 00:01:47,440 Speaker 1: It's some controversial paper, the controversy of the late Marvin 26 00:01:47,480 --> 00:01:50,920 Speaker 1: good Friends paper of two thousand and sixteen. What will 27 00:01:50,960 --> 00:01:56,040 Speaker 1: be the controversy this year? I UH, I think the 28 00:01:56,080 --> 00:02:00,200 Speaker 1: big issue who is to find out UH where J 29 00:02:00,400 --> 00:02:04,200 Speaker 1: pal is relative to his committee? What do we learn 30 00:02:04,280 --> 00:02:09,200 Speaker 1: this week? We learned that the ethel m C by 31 00:02:09,280 --> 00:02:13,720 Speaker 1: and large wants to head to the taper asks asked 32 00:02:13,800 --> 00:02:18,440 Speaker 1: Rob Kaplan that later today UH wants to start slowing 33 00:02:18,480 --> 00:02:22,000 Speaker 1: asset purchases. We heard it pretty firmly in the minutes, 34 00:02:22,400 --> 00:02:26,120 Speaker 1: but when J. Pale at his press conference was asked 35 00:02:26,160 --> 00:02:30,240 Speaker 1: about it, he didn't seem anywhere nearly as convinced, nor 36 00:02:30,360 --> 00:02:34,399 Speaker 1: did he really convey that view of his committee. So 37 00:02:34,639 --> 00:02:38,520 Speaker 1: which is it is? J? Pale really want to head 38 00:02:38,560 --> 00:02:41,320 Speaker 1: to the exeter he doesn't. This is his opportunity if 39 00:02:41,320 --> 00:02:44,760 Speaker 1: he wants to to confirm where his committee wants to 40 00:02:44,800 --> 00:02:47,600 Speaker 1: go or to slow a mom How closely, evince, do 41 00:02:47,639 --> 00:02:49,760 Speaker 1: you think that J Powell and the other FAN members 42 00:02:49,760 --> 00:02:52,520 Speaker 1: are watching the Delta variant and the various shutdowns that 43 00:02:52,520 --> 00:02:55,520 Speaker 1: we're seeing, whether it's port closures or whether it's delays 44 00:02:55,720 --> 00:02:58,400 Speaker 1: the return to office of a number of different companies. 45 00:02:59,520 --> 00:03:03,480 Speaker 1: Delta is the ace card that J Pal can pull 46 00:03:03,520 --> 00:03:05,880 Speaker 1: out of his sleeve if he wants to slow up 47 00:03:05,919 --> 00:03:08,800 Speaker 1: this committee. I think, Lease, you know you, Lisa and 48 00:03:08,880 --> 00:03:11,880 Speaker 1: Kaylee had it exactly right. What have we learned over 49 00:03:11,880 --> 00:03:15,760 Speaker 1: the last eighteen months. Bad things can happen to good people, 50 00:03:15,919 --> 00:03:19,320 Speaker 1: and they're very bad. Uh. In that environment, you want 51 00:03:19,320 --> 00:03:24,760 Speaker 1: to buy insurance that insurance includes treasury securities rates are low. 52 00:03:25,440 --> 00:03:30,440 Speaker 1: That includes staying away from market activity. Uh. That's serious 53 00:03:30,800 --> 00:03:35,880 Speaker 1: And from a monetary policy standpoint, it brings into the 54 00:03:35,960 --> 00:03:39,440 Speaker 1: question of risk management. Do you want to head for 55 00:03:39,480 --> 00:03:43,520 Speaker 1: the exits if in fact something bad could happen in 56 00:03:43,560 --> 00:03:48,720 Speaker 1: between and you're wrong footed? And so if sorry? Well, 57 00:03:48,760 --> 00:03:51,200 Speaker 1: thinking about how the Delta variant informs FED policy, we 58 00:03:51,280 --> 00:03:53,800 Speaker 1: know this FED is prioritizing the labor market and the 59 00:03:53,800 --> 00:03:57,000 Speaker 1: recovery there that seems to be taking precedents over inflation. 60 00:03:57,080 --> 00:03:59,640 Speaker 1: And we heard from the US Labor Secretary, Marty Walls. 61 00:03:59,680 --> 00:04:01,400 Speaker 1: She asked, are they saying that some states who have 62 00:04:01,440 --> 00:04:04,440 Speaker 1: already rolled back those enhanced unemployment benefits may need to 63 00:04:04,440 --> 00:04:07,240 Speaker 1: actually put them back in place because of the delta variant? 64 00:04:07,240 --> 00:04:09,280 Speaker 1: I mean, how do you think about that factor into 65 00:04:09,320 --> 00:04:12,880 Speaker 1: the job's recovery. Yeah, that that that's a really important 66 00:04:12,880 --> 00:04:16,039 Speaker 1: point and it tells you the problem of leaning forward 67 00:04:16,360 --> 00:04:19,760 Speaker 1: in an uncertain time, You just may be leaning leaning 68 00:04:19,839 --> 00:04:22,880 Speaker 1: in as events turned against you. And the really interesting 69 00:04:22,960 --> 00:04:27,000 Speaker 1: thing about the minutes, cably was, in fact they were 70 00:04:27,120 --> 00:04:31,839 Speaker 1: less hierarchical about their dual objective for the last year. 71 00:04:32,240 --> 00:04:39,080 Speaker 1: It's always been employment, employment, employment, in price stability and inflation. 72 00:04:39,120 --> 00:04:41,080 Speaker 1: The second half of the dual man it was in 73 00:04:41,080 --> 00:04:45,000 Speaker 1: the background in the minutes, they said they were worried 74 00:04:45,040 --> 00:04:48,440 Speaker 1: about they had made substantial further problem or rather they 75 00:04:48,520 --> 00:04:52,480 Speaker 1: made further progress toward employment and probably were at their 76 00:04:52,520 --> 00:04:57,000 Speaker 1: price stability goal, so they were bringing back that mandate. Now, 77 00:04:57,080 --> 00:05:00,600 Speaker 1: the question is if they're really worried about the outlook Uh, 78 00:05:00,640 --> 00:05:03,880 Speaker 1: do they push concerns about inflation further into the background, 79 00:05:03,960 --> 00:05:06,520 Speaker 1: And just real quick, in terms of their concerns about inflation, 80 00:05:06,560 --> 00:05:08,440 Speaker 1: how much do you expect them to highlight how this 81 00:05:08,520 --> 00:05:11,480 Speaker 1: has been a K shaped recovery and how the inflationary 82 00:05:11,480 --> 00:05:13,920 Speaker 1: pressures that we're seeing are actually hampering with people on 83 00:05:13,960 --> 00:05:18,359 Speaker 1: the lower brackets more than others. That's what everybody forgets 84 00:05:18,400 --> 00:05:22,159 Speaker 1: about the nineteen seventies, and that is that that inflation 85 00:05:22,360 --> 00:05:26,320 Speaker 1: is a regressive tax, and part of it is what's 86 00:05:26,360 --> 00:05:29,039 Speaker 1: that's doing the real wages at the lower end of 87 00:05:29,080 --> 00:05:32,480 Speaker 1: the end of the spectrum. Look, Jpal has been extremely 88 00:05:32,560 --> 00:05:38,920 Speaker 1: good in framing policy more inclusively than any of his predecessors, 89 00:05:39,080 --> 00:05:44,680 Speaker 1: and you've identified an opportunity for him to complain about inflation, 90 00:05:45,040 --> 00:05:49,799 Speaker 1: not just because it worries the bond market. Stars Vince, 91 00:05:49,920 --> 00:05:53,479 Speaker 1: I got thirty seconds. I'm so sorry. You and Carmen 92 00:05:53,520 --> 00:05:57,279 Speaker 1: Reinhardt wrote the paper of the summer last year Foreign 93 00:05:57,279 --> 00:06:02,880 Speaker 1: Affairs on the Pandemic Depression. Have we exited the pandemic depression? 94 00:06:03,640 --> 00:06:09,560 Speaker 1: Absolutely not. Uh. A message was rebound, wasn't recovery. We 95 00:06:09,800 --> 00:06:11,839 Speaker 1: still have a lot of lost output in the US. 96 00:06:12,440 --> 00:06:17,479 Speaker 1: And importantly, what we have done is forbearance, not forgiveness. 97 00:06:18,200 --> 00:06:23,160 Speaker 1: That is, at some time, at some point, all those uh, 98 00:06:23,600 --> 00:06:28,159 Speaker 1: all those payments, right is gonna come do what's gonna happen. 99 00:06:28,160 --> 00:06:29,920 Speaker 1: Then we are out of time. Let's do it again, 100 00:06:30,040 --> 00:06:32,400 Speaker 1: Vincent Reynard, thank you. With mel in their chief it 101 00:06:32,520 --> 00:06:40,640 Speaker 1: kind of let's get right to it and we are 102 00:06:40,839 --> 00:06:44,120 Speaker 1: thrilled to start strong on Friday with Dennis Garbon. He's 103 00:06:44,160 --> 00:06:47,360 Speaker 1: the retired editor of the Gartment Newsletters, still writing the 104 00:06:47,440 --> 00:06:50,520 Speaker 1: Gartment news Letter, and it is a jewel today in 105 00:06:50,640 --> 00:06:55,760 Speaker 1: his retirement, which harkens back to Saigon. That cartoon Dennis 106 00:06:55,800 --> 00:07:01,320 Speaker 1: Garden Gartment in your morning letter is painful. It is 107 00:07:01,400 --> 00:07:04,839 Speaker 1: very painful. The the relationship of the similarities between what 108 00:07:04,880 --> 00:07:08,000 Speaker 1: happened in nineteen seventy five and in Saigon and what 109 00:07:08,120 --> 00:07:10,920 Speaker 1: is happening now in Afghanistan are frightening for those of 110 00:07:11,000 --> 00:07:13,000 Speaker 1: us who were all around back in the nineteen seventies 111 00:07:13,040 --> 00:07:17,080 Speaker 1: and remember how that looked. It is a is dismaying 112 00:07:17,080 --> 00:07:20,080 Speaker 1: to see the United States a position in the world 113 00:07:20,200 --> 00:07:22,440 Speaker 1: having been diminished as badly as it has been. This 114 00:07:22,480 --> 00:07:26,200 Speaker 1: is a very disturbing circumstances prevailed, and this is a long, 115 00:07:26,320 --> 00:07:28,280 Speaker 1: long week, and we have a long time ahead of 116 00:07:28,320 --> 00:07:31,080 Speaker 1: us to worry about the loss of perspective here in 117 00:07:31,080 --> 00:07:33,320 Speaker 1: the United States. Jonics Lisa wants to jump in, but 118 00:07:33,360 --> 00:07:37,040 Speaker 1: I've got your your newsletters of jewel on how prices 119 00:07:37,080 --> 00:07:41,200 Speaker 1: are priced at the margin? Almost there's a marginal pricing 120 00:07:41,240 --> 00:07:45,360 Speaker 1: of the margin at the margin. Explain that well, first 121 00:07:45,400 --> 00:07:47,800 Speaker 1: of all, and in all markets, I've always maintained that 122 00:07:47,840 --> 00:07:49,960 Speaker 1: prices made at the margin. When the last two percent 123 00:07:50,000 --> 00:07:52,960 Speaker 1: of buyers become sellers, prices go down and the last 124 00:07:52,960 --> 00:07:56,160 Speaker 1: two percent of sellers become buyers, prices tend to go up, 125 00:07:56,200 --> 00:07:58,440 Speaker 1: and prices made at the margin. And what bothered me 126 00:07:58,520 --> 00:08:01,800 Speaker 1: this time was looking at the level of margin being 127 00:08:02,000 --> 00:08:04,840 Speaker 1: used in the in the stock markets that these days 128 00:08:05,120 --> 00:08:08,400 Speaker 1: had been going up for fifteen consecutive months, coextensive with 129 00:08:08,440 --> 00:08:11,440 Speaker 1: a bowl market in stock prices. But there's always been 130 00:08:11,440 --> 00:08:13,960 Speaker 1: a very leading indicator that the use of margin has 131 00:08:14,000 --> 00:08:16,240 Speaker 1: led the market to the downside, has led the market 132 00:08:16,240 --> 00:08:18,640 Speaker 1: to the upside, and now for the first time in 133 00:08:18,680 --> 00:08:22,000 Speaker 1: fifteen months in July, the use of margin, and I've 134 00:08:22,160 --> 00:08:26,720 Speaker 1: maintained that that's where that's where wise and sophisticated smart 135 00:08:26,800 --> 00:08:29,720 Speaker 1: money has been leaving the market since July. It's very 136 00:08:29,720 --> 00:08:32,880 Speaker 1: disconcerting that tends to lead the stock market higher or 137 00:08:32,920 --> 00:08:36,000 Speaker 1: lower by by several months, two or three or four months, 138 00:08:36,080 --> 00:08:38,240 Speaker 1: sometimes a bit longer. But when you start to see 139 00:08:38,640 --> 00:08:41,800 Speaker 1: margin usage declining, you have to be careful about the 140 00:08:41,800 --> 00:08:43,920 Speaker 1: stock market itself. It is one of the better leading, 141 00:08:45,080 --> 00:08:47,439 Speaker 1: leading stock market indicators that I have learned to watch 142 00:08:47,800 --> 00:08:49,679 Speaker 1: over the course of my nearly fifty years of being 143 00:08:49,679 --> 00:08:51,680 Speaker 1: in the markets. Dennis, what does this mean in terms 144 00:08:51,760 --> 00:08:53,960 Speaker 1: of some sort of draw down, considering that a draw 145 00:08:54,000 --> 00:08:56,800 Speaker 1: down these days is perhaps maybe a half a percentage 146 00:08:56,840 --> 00:09:00,560 Speaker 1: point decline, Well, I think there's more going on here 147 00:09:00,600 --> 00:09:02,360 Speaker 1: than half a point. To client, take a look at 148 00:09:02,360 --> 00:09:04,360 Speaker 1: the broader market. We tend to pay too much attention 149 00:09:04,400 --> 00:09:07,400 Speaker 1: to the Dow, too much attention to the SNP, way 150 00:09:07,400 --> 00:09:10,520 Speaker 1: too much attention to the NASADAC, and nobody's paying attention 151 00:09:10,520 --> 00:09:12,920 Speaker 1: to the broad Russell Index, which has not made a 152 00:09:12,960 --> 00:09:15,720 Speaker 1: new high now and several months has broken its upward 153 00:09:16,000 --> 00:09:19,040 Speaker 1: sloping trend lines several weeks ago. That goes back into 154 00:09:19,160 --> 00:09:21,880 Speaker 1: March of last year. Something is happening in the broad 155 00:09:21,920 --> 00:09:25,119 Speaker 1: market that doesn't seem to be in taking place publicly. 156 00:09:25,160 --> 00:09:27,920 Speaker 1: The public is still involved in the markets. It still 157 00:09:28,000 --> 00:09:30,080 Speaker 1: sees the down making new highs. It still sees the 158 00:09:30,160 --> 00:09:32,800 Speaker 1: SMP and the NASDAC making new highs. And you brought 159 00:09:32,880 --> 00:09:34,400 Speaker 1: up the fact that you have to pay attention to 160 00:09:34,440 --> 00:09:38,040 Speaker 1: what happened in Amazon. Amazon, for the technicians, gaped lower 161 00:09:38,400 --> 00:09:41,600 Speaker 1: dramatically almost ten days ago and has not come close 162 00:09:41,640 --> 00:09:44,720 Speaker 1: to bouncing since then at all. And and Amazon had 163 00:09:44,720 --> 00:09:46,680 Speaker 1: been one of the leaders to the upside. When the leaders, 164 00:09:46,679 --> 00:09:48,880 Speaker 1: when the generals get taken out and get shot, you 165 00:09:48,920 --> 00:09:50,840 Speaker 1: have to be worried about what the sergeants and corporals 166 00:09:50,840 --> 00:09:53,080 Speaker 1: and privates are going to be doing. Yeah, And I 167 00:09:53,120 --> 00:09:55,920 Speaker 1: look at things like the AII sentiment survey that we 168 00:09:56,000 --> 00:09:58,960 Speaker 1: got this week, the Bears out exceeding the Bowls for 169 00:09:59,000 --> 00:10:01,240 Speaker 1: the first time this year. Have we started to see 170 00:10:01,280 --> 00:10:04,800 Speaker 1: a real shift in sentiment this week? I think you have. 171 00:10:04,880 --> 00:10:06,640 Speaker 1: I think that that's starting to take place. I think 172 00:10:06,679 --> 00:10:10,040 Speaker 1: there's no question about it. People talking about the inevitable 173 00:10:10,080 --> 00:10:13,400 Speaker 1: tapering of the FEDS expansionary policies. That's going to happen. 174 00:10:13,679 --> 00:10:17,480 Speaker 1: Whether it happens in October and November, December, January, certainly 175 00:10:17,520 --> 00:10:20,520 Speaker 1: that's going to happen. And I've maintained all along that 176 00:10:20,600 --> 00:10:23,000 Speaker 1: the great bull market that we've gone through has been 177 00:10:23,040 --> 00:10:26,559 Speaker 1: almost solely predicated upon the expansionary policies, not just by 178 00:10:26,559 --> 00:10:28,280 Speaker 1: the FED, but by the Bank of Canada, the Bank 179 00:10:28,320 --> 00:10:30,320 Speaker 1: of England, the e c B, the Bank of Japan, 180 00:10:30,800 --> 00:10:33,240 Speaker 1: and the FED is is clearly at sometime in the 181 00:10:33,280 --> 00:10:35,599 Speaker 1: next month, two months, three months, four months, going to 182 00:10:35,679 --> 00:10:38,640 Speaker 1: start the process of tapering. Whenever that happens, that's less 183 00:10:38,640 --> 00:10:41,120 Speaker 1: money coming into the market, and money will leave the 184 00:10:41,160 --> 00:10:44,640 Speaker 1: stock market and go into the expanding economic circumstances. Clearly, 185 00:10:44,640 --> 00:10:47,280 Speaker 1: the economy is doing well, and that's what happens at 186 00:10:47,280 --> 00:10:50,560 Speaker 1: turning points. Stocks go up before the economy turns higher, 187 00:10:50,840 --> 00:10:53,800 Speaker 1: stocks go down before the economy turns lower. Stocks are 188 00:10:53,800 --> 00:10:56,080 Speaker 1: going to start moving lower, and the economy will continue 189 00:10:56,080 --> 00:10:59,880 Speaker 1: to not boom, but be really quite quite expansive, quite strong. 190 00:11:00,040 --> 00:11:02,160 Speaker 1: Dennis Gartman, thank you so much. Too short to visit 191 00:11:02,200 --> 00:11:04,840 Speaker 1: this morning, to get us started on this Friday, Chairman, 192 00:11:05,160 --> 00:11:13,320 Speaker 1: the University of Akron's Endelman uh fun on a Friday 193 00:11:13,360 --> 00:11:16,360 Speaker 1: in August. It's always important and on Blueboard Radio this 194 00:11:16,440 --> 00:11:19,440 Speaker 1: place so well. I went into the closet this morning, 195 00:11:19,480 --> 00:11:22,720 Speaker 1: my closet with my suits is about in the west 196 00:11:22,760 --> 00:11:26,520 Speaker 1: Wingley says, it's a good thirty ft long. And you know, 197 00:11:26,559 --> 00:11:28,640 Speaker 1: I said, I said, blue is the only way to go. 198 00:11:28,800 --> 00:11:31,280 Speaker 1: And I come in and you know, Teal's got the 199 00:11:31,320 --> 00:11:33,880 Speaker 1: blue thing going and Lisa's got the blue thing going, 200 00:11:33,920 --> 00:11:37,320 Speaker 1: and I said, canceled the guest at seven thirty and 201 00:11:37,360 --> 00:11:41,800 Speaker 1: find someone in blue. Gabriella Santos joins us now in 202 00:11:42,080 --> 00:11:45,880 Speaker 1: JP Morgan Blue and that is always good to see. Gabriel. 203 00:11:46,120 --> 00:11:49,360 Speaker 1: Thank you so much for joining us on a blue 204 00:11:49,360 --> 00:11:52,240 Speaker 1: Friday here. And one of the things you talk about 205 00:11:52,360 --> 00:11:54,640 Speaker 1: is something John Farrow and his Gloom on the Way 206 00:11:54,640 --> 00:11:58,120 Speaker 1: to Crete talks about, which is a draw down. And 207 00:11:58,200 --> 00:12:02,680 Speaker 1: you say, and particularly with a draw downs are normal. 208 00:12:02,720 --> 00:12:07,520 Speaker 1: We should not be afraid of the Pharaoh draw down. Well, 209 00:12:07,559 --> 00:12:10,719 Speaker 1: this drawdown we're seeing in China's is absolutely business as 210 00:12:10,760 --> 00:12:14,199 Speaker 1: usual for investing in Chinese equities. Every year you should 211 00:12:14,200 --> 00:12:19,360 Speaker 1: expectent annual correction, and every three years or so you 212 00:12:19,440 --> 00:12:22,959 Speaker 1: tend to have an over thirty percent correction. We had 213 00:12:23,000 --> 00:12:26,800 Speaker 1: this in ten, we had it in and eleven. And 214 00:12:26,840 --> 00:12:30,840 Speaker 1: it's unrelated to the economic cycle. It's related to China's 215 00:12:30,840 --> 00:12:34,800 Speaker 1: regulatory and reform campaigns, which tend to happen every once 216 00:12:34,840 --> 00:12:37,800 Speaker 1: in a while. It takes time to rebuild confidence. But 217 00:12:37,960 --> 00:12:41,360 Speaker 1: three months out Chinese equities tend to be up ten percent. 218 00:12:41,880 --> 00:12:44,080 Speaker 1: Uh in six months out they tend to be up 219 00:12:44,080 --> 00:12:47,080 Speaker 1: twenty percent. During these moments, we hold on a second, Gabriella, 220 00:12:47,160 --> 00:12:48,960 Speaker 1: are you saying that it's a good time to go 221 00:12:49,040 --> 00:12:54,920 Speaker 1: buy Chinese equities? We fundamentally disagree with the thesis that 222 00:12:55,080 --> 00:12:58,920 Speaker 1: China is now uninvestible, and that is not what we're 223 00:12:58,960 --> 00:13:01,880 Speaker 1: speaking to our client. It's about, or hearing from our 224 00:13:01,920 --> 00:13:06,080 Speaker 1: institutional clients. It's really still a story about building a 225 00:13:06,200 --> 00:13:11,640 Speaker 1: strategic allocation to Chinese onshore equities and onshore bonds. To me, 226 00:13:11,800 --> 00:13:14,240 Speaker 1: that is one of the most important themes of the 227 00:13:14,320 --> 00:13:18,520 Speaker 1: next decade is the rise of China and portfolios, and 228 00:13:18,559 --> 00:13:21,800 Speaker 1: it's really just about navigating these moments of volatility and 229 00:13:21,840 --> 00:13:25,760 Speaker 1: thinking carefully about how to invest in China rather than 230 00:13:25,840 --> 00:13:29,520 Speaker 1: going through an existential crisis every time we get these 231 00:13:29,600 --> 00:13:32,040 Speaker 1: draw downs, and in fact it's it's what one of 232 00:13:32,080 --> 00:13:35,120 Speaker 1: your guests that the CEO of the Norwegian Sovereign Wealth 233 00:13:35,120 --> 00:13:39,599 Speaker 1: Fund on Wednesday not rethinking that long term allocation to 234 00:13:39,760 --> 00:13:43,120 Speaker 1: Chinese on shore equities. Well, let's talk about how to 235 00:13:43,280 --> 00:13:45,679 Speaker 1: invest in China. Let's go there, especially at a time 236 00:13:45,720 --> 00:13:47,559 Speaker 1: when you've got so many cross currents. You've got the 237 00:13:47,600 --> 00:13:53,280 Speaker 1: regulatory uncertainty around the shifting priorities of the executive leadership 238 00:13:53,440 --> 00:13:57,600 Speaker 1: in China. You also have the slowdown the your experience experiencing, 239 00:13:57,640 --> 00:14:00,000 Speaker 1: as well as the COVID policies which are much strict 240 00:14:00,080 --> 00:14:02,280 Speaker 1: er than in places like the United States. How do 241 00:14:02,320 --> 00:14:05,360 Speaker 1: you pass through all of this noise and figure out 242 00:14:05,440 --> 00:14:09,280 Speaker 1: how to allocate at a time of such incredible uncertainty. 243 00:14:09,640 --> 00:14:12,160 Speaker 1: The noise is so high right now, the volume is 244 00:14:12,200 --> 00:14:15,280 Speaker 1: extremely high. And I think the trick is not to 245 00:14:15,400 --> 00:14:19,440 Speaker 1: see each thing China says or does as an independent 246 00:14:20,360 --> 00:14:23,520 Speaker 1: development right, It's all a piece of a bigger puzzle. 247 00:14:24,040 --> 00:14:27,080 Speaker 1: And what is that puzzled all about this new phase 248 00:14:27,120 --> 00:14:30,760 Speaker 1: of Chinese development. It's moving from a middle income into 249 00:14:30,760 --> 00:14:33,680 Speaker 1: a high income country over the next five ten years, 250 00:14:34,040 --> 00:14:36,880 Speaker 1: and it really wants to shift from the quantity to 251 00:14:37,000 --> 00:14:40,760 Speaker 1: the quality of growth. And everything that's been doing over 252 00:14:40,800 --> 00:14:43,760 Speaker 1: the past few months is aligned with that long term plan. 253 00:14:44,200 --> 00:14:48,480 Speaker 1: And what's quality. It's growth focused on innovation. What's innovation 254 00:14:48,560 --> 00:14:52,120 Speaker 1: it's not Internet and social media. It's deep technology and 255 00:14:52,160 --> 00:14:55,840 Speaker 1: renewable energy, and it's quality also in the sense of 256 00:14:55,880 --> 00:15:00,360 Speaker 1: the quality of life for workers, for customers, and for mergence. Well, 257 00:15:00,360 --> 00:15:03,000 Speaker 1: you talked about renewable energy there, Gabrielle. China, of course 258 00:15:03,160 --> 00:15:07,320 Speaker 1: is trying to reach net carbon neutrality by and it 259 00:15:07,360 --> 00:15:09,960 Speaker 1: wants to have peat carbon emissions by And I'm wondering 260 00:15:10,000 --> 00:15:12,320 Speaker 1: how you just kind of think about that green transition 261 00:15:12,560 --> 00:15:16,600 Speaker 1: when talking about an economy and a growth trajectory that 262 00:15:16,640 --> 00:15:20,960 Speaker 1: has been powered by the industrial economy. So an example 263 00:15:21,000 --> 00:15:23,120 Speaker 1: of how China, you know, we tend to think about 264 00:15:23,200 --> 00:15:26,080 Speaker 1: China is being really difficult from an E s G perspective, 265 00:15:26,120 --> 00:15:28,560 Speaker 1: and it is starting from a uh, you know, further 266 00:15:28,640 --> 00:15:31,080 Speaker 1: behind in other countries. But this is an example of 267 00:15:31,160 --> 00:15:33,800 Speaker 1: China moving in the right direction here thinking about the 268 00:15:33,880 --> 00:15:38,280 Speaker 1: EVE and China's extremely serious about this energy transition because 269 00:15:38,320 --> 00:15:41,480 Speaker 1: it's focused on reducing pollution and improving the quality of 270 00:15:41,520 --> 00:15:44,520 Speaker 1: life for its people. And this is going to involve 271 00:15:44,560 --> 00:15:47,640 Speaker 1: a lot of carrots insteads right, carrots in terms of 272 00:15:48,000 --> 00:15:53,120 Speaker 1: developing its domestic renewable energy market solar wind, uh carrots 273 00:15:53,120 --> 00:15:56,000 Speaker 1: in terms of busting the penetration of e V auto 274 00:15:56,080 --> 00:15:59,440 Speaker 1: sales China's already the largest ev market in the world, 275 00:15:59,480 --> 00:16:02,200 Speaker 1: and this is just the beginning, and it involves sticks. 276 00:16:02,320 --> 00:16:06,160 Speaker 1: China launched an emissions trading scheme this year to to 277 00:16:06,200 --> 00:16:09,240 Speaker 1: put a price on carbon and increase the cost for 278 00:16:09,320 --> 00:16:12,760 Speaker 1: heavy industry. So it's all about that transition to higher 279 00:16:12,840 --> 00:16:16,720 Speaker 1: quality growth and really navigating the winners and losers in 280 00:16:16,760 --> 00:16:19,640 Speaker 1: that phase. Well, we've seen this borne out in commodity. 281 00:16:19,720 --> 00:16:21,640 Speaker 1: Is this specifically when you look at iron ore features 282 00:16:21,640 --> 00:16:23,240 Speaker 1: in Singapore. I mean they're trying to pull back on 283 00:16:23,280 --> 00:16:24,800 Speaker 1: steel production. A lot of that has to do with 284 00:16:24,880 --> 00:16:27,360 Speaker 1: environmental concern and that has shown up, but it also 285 00:16:27,560 --> 00:16:29,960 Speaker 1: the other side of that is the growth concerns that 286 00:16:29,960 --> 00:16:32,000 Speaker 1: that Lisa was alluding to. And I'm wondering how you 287 00:16:32,280 --> 00:16:37,520 Speaker 1: think about PBOC policy here in a decelerating China. One 288 00:16:37,600 --> 00:16:40,760 Speaker 1: quick comment on the commodities. Yeah, they're losers kind of 289 00:16:40,800 --> 00:16:44,400 Speaker 1: some of those heavy metals like iron ore and steel, 290 00:16:44,520 --> 00:16:47,800 Speaker 1: but they're also winners something like copper for example, which 291 00:16:47,880 --> 00:16:51,720 Speaker 1: is a huge input into renewable energy and electric vehicle. 292 00:16:51,840 --> 00:16:55,160 Speaker 1: So a perfect example there. And in terms of policy, 293 00:16:55,280 --> 00:16:57,440 Speaker 1: I think the way to see this is China, every 294 00:16:57,480 --> 00:16:59,880 Speaker 1: time it has a growth slow down. It's going to 295 00:17:00,040 --> 00:17:03,680 Speaker 1: step on the accelerator less and less um so unlike 296 00:17:04,080 --> 00:17:06,960 Speaker 1: you know China five years ago. So it's very targeted 297 00:17:07,040 --> 00:17:12,200 Speaker 1: easing here maybe a reserve requirement cutter two. Very targeted 298 00:17:12,400 --> 00:17:16,439 Speaker 1: towards credit in high end manufacturing and private industry. It 299 00:17:16,600 --> 00:17:20,080 Speaker 1: is not that old China that lifts all books. Gabriel A. Santos, 300 00:17:20,080 --> 00:17:21,879 Speaker 1: thank you so much there on China, some of the 301 00:17:21,920 --> 00:17:31,199 Speaker 1: optimism within a faraoh like draw down. It's been an 302 00:17:31,200 --> 00:17:33,439 Speaker 1: extraordinary week. I really want to say thank you to 303 00:17:33,520 --> 00:17:36,960 Speaker 1: all of the Bloomberg Surveillance team for starting strong with 304 00:17:37,040 --> 00:17:40,920 Speaker 1: Thomas Barfield of Boston University, and I end my Friday 305 00:17:41,000 --> 00:17:45,320 Speaker 1: here with George Friedman, Geopolitical Futures founder and chairman, with 306 00:17:45,400 --> 00:17:48,240 Speaker 1: me Kaylee Lines as well. Lisa Brammon is preparing for 307 00:17:48,240 --> 00:17:51,320 Speaker 1: the nine o'clock our George, thank you, thank you so 308 00:17:51,400 --> 00:17:54,840 Speaker 1: much for being with us. There is that sentence in 309 00:17:54,960 --> 00:17:59,040 Speaker 1: your essay which in the last century we were at 310 00:17:59,119 --> 00:18:05,679 Speaker 1: war eleventeen percent of the time. What went wrong? Well, 311 00:18:06,200 --> 00:18:09,400 Speaker 1: we started to go to war at a time we 312 00:18:09,400 --> 00:18:13,840 Speaker 1: were hit remembered by al Qaeda. We went into Afghanistan 313 00:18:13,960 --> 00:18:17,520 Speaker 1: on a raid uh to capture al Qaeda. We failed 314 00:18:17,520 --> 00:18:20,800 Speaker 1: in that. They escaped at tor Bora, and then we 315 00:18:20,880 --> 00:18:23,320 Speaker 1: were in Agana. We didn't know what to do, so 316 00:18:23,480 --> 00:18:26,000 Speaker 1: we did what we do know how to do. We 317 00:18:26,040 --> 00:18:29,280 Speaker 1: sent troops in and tried to create a different country. 318 00:18:29,480 --> 00:18:32,280 Speaker 1: Afghanistan is Afghanistan. It has been that way for a 319 00:18:32,400 --> 00:18:35,359 Speaker 1: very long time. Many have tried to change it, and 320 00:18:35,440 --> 00:18:38,520 Speaker 1: in the end we spent a generation there, twenty years. 321 00:18:39,280 --> 00:18:42,399 Speaker 1: We've gotten nowhere in terms of pacifying the country, and 322 00:18:42,440 --> 00:18:45,280 Speaker 1: it was time to leave. And when you leave a war, 323 00:18:45,440 --> 00:18:49,440 Speaker 1: as in Vietnam, it looks ugly and more ugly the most. 324 00:18:49,640 --> 00:18:52,800 Speaker 1: But it looked ugly. George Freeman, I thought of you 325 00:18:52,880 --> 00:18:56,080 Speaker 1: about four or five days ago of my nineteen fifty 326 00:18:56,160 --> 00:18:59,919 Speaker 1: six when I was barely remember and the Hungarian rebel, 327 00:19:00,000 --> 00:19:04,240 Speaker 1: who should you've literally lived, get out of dodge, get 328 00:19:04,240 --> 00:19:07,160 Speaker 1: out of a country as well. How do you see 329 00:19:07,200 --> 00:19:12,960 Speaker 1: the United States assisting Afghans? Who Admirals Tevita say, the 330 00:19:13,119 --> 00:19:17,439 Speaker 1: Taliban one out of one out of Afghanistan. How do 331 00:19:17,480 --> 00:19:21,000 Speaker 1: we get them out smoother and faster? I don't know. 332 00:19:21,400 --> 00:19:23,680 Speaker 1: There are probably hundreds of thousands who'd like to leave. 333 00:19:24,119 --> 00:19:27,120 Speaker 1: We don't have the aircraft to move them. Out, and 334 00:19:27,200 --> 00:19:31,520 Speaker 1: remember Taliban is the most powerful force in the country. 335 00:19:31,800 --> 00:19:35,000 Speaker 1: They won the war. They will impose the kind of 336 00:19:35,119 --> 00:19:37,960 Speaker 1: rules that want to have. We may negotiate with them, 337 00:19:38,640 --> 00:19:42,560 Speaker 1: but at this point we've reached the situation where we 338 00:19:42,600 --> 00:19:45,560 Speaker 1: are not in control of Afghanistan. We don't get the 339 00:19:45,560 --> 00:19:50,680 Speaker 1: option to make decisions. You mentioned complexity. Are we having 340 00:19:50,760 --> 00:19:57,000 Speaker 1: complexity policy complexity, tactical complexity because we don't have a theory, 341 00:19:57,160 --> 00:19:59,960 Speaker 1: we don't have a view, we don't have a strategy. 342 00:20:01,600 --> 00:20:03,639 Speaker 1: The fundamental interests in the United States just to make 343 00:20:03,680 --> 00:20:07,200 Speaker 1: sure that North America secure. Our number one interest is easy, 344 00:20:07,520 --> 00:20:10,440 Speaker 1: keep Canada and Mexico happy, don't alie with anyone else. 345 00:20:10,880 --> 00:20:14,800 Speaker 1: Number two is control the oceans. We control the Atlantic 346 00:20:14,840 --> 00:20:18,720 Speaker 1: and control the Pacific. We're secure. We can get involved 347 00:20:18,720 --> 00:20:22,159 Speaker 1: in Eurasia once in a while, very very carefully. But 348 00:20:22,240 --> 00:20:27,280 Speaker 1: these all in wars like Vietnam, like Afghanistan, places us 349 00:20:27,320 --> 00:20:31,520 Speaker 1: always edit is his advantage. The native population doesn't like us. 350 00:20:31,920 --> 00:20:34,760 Speaker 1: They want us out, and they're going to beat us 351 00:20:35,240 --> 00:20:39,400 Speaker 1: because they're not going anywhere. We're coming in and we're 352 00:20:39,440 --> 00:20:41,280 Speaker 1: never going to have enough force to take it out 353 00:20:41,280 --> 00:20:45,399 Speaker 1: of country like Afghanistan. So we're frivolously involving ourselves and 354 00:20:45,440 --> 00:20:48,879 Speaker 1: things that look good. We delude ourselves that are enormous. 355 00:20:48,960 --> 00:20:53,400 Speaker 1: Power and it is enormous, is infinite, and then it's 356 00:20:53,480 --> 00:20:57,800 Speaker 1: always easier to stay another year than to leave. Longer 357 00:20:57,880 --> 00:21:01,200 Speaker 1: you stay, the uglier it gets. Well. Obviously, the United 358 00:21:01,240 --> 00:21:04,120 Speaker 1: States has power. It's a matter of how it is used. 359 00:21:04,119 --> 00:21:07,600 Speaker 1: Are we no longer going to see the US as 360 00:21:07,640 --> 00:21:11,360 Speaker 1: a global hegemon and as as the police police country 361 00:21:11,400 --> 00:21:16,440 Speaker 1: of the world. A global hegemon is very careful and 362 00:21:16,560 --> 00:21:20,159 Speaker 1: how it uses power, it doesn't fritter it away. On 363 00:21:20,320 --> 00:21:24,320 Speaker 1: secondary issues, Afghanistan was never a strategic issue for the 364 00:21:24,359 --> 00:21:27,480 Speaker 1: United States once a sound in London left. It was 365 00:21:27,520 --> 00:21:29,919 Speaker 1: a country that the Russians were defeated in, the British 366 00:21:29,960 --> 00:21:32,800 Speaker 1: were defeated in. It was a very difficult country. So 367 00:21:32,840 --> 00:21:35,600 Speaker 1: we have to make sure that our cost benefit analysis 368 00:21:36,119 --> 00:21:38,560 Speaker 1: is correct. There is a price in going to war. 369 00:21:38,760 --> 00:21:41,320 Speaker 1: We don't just wave a wand and we saw that 370 00:21:41,359 --> 00:21:44,359 Speaker 1: in Vietnam, and we didn't learn. We did it again. 371 00:21:45,280 --> 00:21:47,800 Speaker 1: And now after twenty years there are people are staying 372 00:21:48,000 --> 00:21:50,520 Speaker 1: we should have stayed longer. We we're not gonna win. 373 00:21:50,960 --> 00:21:54,399 Speaker 1: How long would we stay? George you are experts in 374 00:21:54,440 --> 00:21:58,280 Speaker 1: our machinery as well. Have we finally figured out the 375 00:21:58,320 --> 00:22:04,920 Speaker 1: technology does win? In Vietnam and Cambodia, the technology doesn't win, 376 00:22:05,400 --> 00:22:08,800 Speaker 1: and Cobble are up north on the border with Uzbekistan. 377 00:22:10,640 --> 00:22:14,800 Speaker 1: It could win if you're prepared to afflict horrible casualties 378 00:22:15,400 --> 00:22:20,600 Speaker 1: on the enemy. Extraordinary casualties. Technology is a wonderful weapon 379 00:22:20,640 --> 00:22:24,879 Speaker 1: for killing, but it's indiscriminate. The United States was not 380 00:22:25,000 --> 00:22:29,200 Speaker 1: prepared properly to engage in indiscriminated war against the Taliban, 381 00:22:30,400 --> 00:22:33,520 Speaker 1: and the problem wasn't tech lack of technology. It was 382 00:22:34,080 --> 00:22:36,200 Speaker 1: we fought a war that we didn't have to win, 383 00:22:36,920 --> 00:22:41,159 Speaker 1: and therefore we pulled our punches. Unlike Germany or Japan, 384 00:22:41,200 --> 00:22:44,080 Speaker 1: where we did everything we needed to win, we probably 385 00:22:44,119 --> 00:22:46,800 Speaker 1: didn't do that in Afghanistan. But then we shouldn't be there. 386 00:22:47,680 --> 00:22:49,840 Speaker 1: George Freeman, thank you so much. Sorry, look forward to 387 00:22:49,840 --> 00:22:55,000 Speaker 1: speaking to you again. George Freeman, Geopolitical Futures founder and chairman. 388 00:22:55,680 --> 00:22:59,440 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 389 00:22:59,520 --> 00:23:02,879 Speaker 1: us live weekdays from seven to ten am Eastern on 390 00:23:02,960 --> 00:23:07,240 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 391 00:23:07,320 --> 00:23:12,200 Speaker 1: to nine am for insight from the best in economics, finance, investment, 392 00:23:12,320 --> 00:23:17,359 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 393 00:23:17,440 --> 00:23:21,240 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 394 00:23:21,359 --> 00:23:25,560 Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg.