WEBVTT - Surveillance: Jackson Hole With Reinhart 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.280 and of course on the Bloomberg Terminal. Vice and Reinhard 0:00:30.360 --> 0:00:33.760 owns the research of the American economy. With twenty four 0:00:33.880 --> 0:00:36.279 years at the Federal Reserve System. He is the one 0:00:36.320 --> 0:00:41.320 who literally codified and invented modern research at the ECCOS building. 0:00:41.600 --> 0:00:45.000 He is with Melan their chief economists, Vince Reinhard, I 0:00:45.040 --> 0:00:49.159 want you to explain to radio and TV what Jackson 0:00:49.360 --> 0:00:54.040 Hole really is. A bunch of PhDs listening to dead 0:00:54.160 --> 0:00:58.640 serious papers, describe what really goes on at Jackson Hall. 0:00:59.560 --> 0:01:04.200 It's the biggest concentration of central bankers, and central bankers 0:01:04.240 --> 0:01:08.080 love to talk amongst themselves, and so that's the opportunity 0:01:08.240 --> 0:01:13.440 for them to address what they're all concerned about. And 0:01:13.480 --> 0:01:16.240 what they're all concerned about now is just how the 0:01:16.280 --> 0:01:19.160 global economy is going to pull itself out of the pandemic, 0:01:19.760 --> 0:01:22.760 and moreover, how they are going to pull themselves out 0:01:22.760 --> 0:01:26.000 of the unconventional policies they've got themselves into. I had 0:01:26.000 --> 0:01:28.559 the honor of sitting on the lawn years ago vince 0:01:28.560 --> 0:01:32.160 Reinhardt were the wonderful Alan Meltzer with Carl Brunner getting 0:01:32.160 --> 0:01:36.440 this summer's suare started with the Carnegie Rochester series of 0:01:36.480 --> 0:01:39.880 decades and decades ago, and it goes to the emotion 0:01:40.040 --> 0:01:43.560 of the serious events Villin Bouder blowing up years ago. 0:01:43.640 --> 0:01:47.440 It's some controversial paper, the controversy of the late Marvin 0:01:47.480 --> 0:01:50.920 good Friends paper of two thousand and sixteen. What will 0:01:50.960 --> 0:01:56.040 be the controversy this year? I UH, I think the 0:01:56.080 --> 0:02:00.200 big issue who is to find out UH where J 0:02:00.400 --> 0:02:04.200 pal is relative to his committee? What do we learn 0:02:04.280 --> 0:02:09.200 this week? We learned that the ethel m C by 0:02:09.280 --> 0:02:13.720 and large wants to head to the taper asks asked 0:02:13.800 --> 0:02:18.440 Rob Kaplan that later today UH wants to start slowing 0:02:18.480 --> 0:02:22.000 asset purchases. We heard it pretty firmly in the minutes, 0:02:22.400 --> 0:02:26.120 but when J. Pale at his press conference was asked 0:02:26.160 --> 0:02:30.240 about it, he didn't seem anywhere nearly as convinced, nor 0:02:30.360 --> 0:02:34.399 did he really convey that view of his committee. So 0:02:34.639 --> 0:02:38.520 which is it is? J? Pale really want to head 0:02:38.560 --> 0:02:41.320 to the exeter he doesn't. This is his opportunity if 0:02:41.320 --> 0:02:44.760 he wants to to confirm where his committee wants to 0:02:44.800 --> 0:02:47.600 go or to slow a mom How closely, evince, do 0:02:47.639 --> 0:02:49.760 you think that J Powell and the other FAN members 0:02:49.760 --> 0:02:52.520 are watching the Delta variant and the various shutdowns that 0:02:52.520 --> 0:02:55.520 we're seeing, whether it's port closures or whether it's delays 0:02:55.720 --> 0:02:58.400 the return to office of a number of different companies. 0:02:59.520 --> 0:03:03.480 Delta is the ace card that J Pal can pull 0:03:03.520 --> 0:03:05.880 out of his sleeve if he wants to slow up 0:03:05.919 --> 0:03:08.800 this committee. I think, Lease, you know you, Lisa and 0:03:08.880 --> 0:03:11.880 Kaylee had it exactly right. What have we learned over 0:03:11.880 --> 0:03:15.760 the last eighteen months. Bad things can happen to good people, 0:03:15.919 --> 0:03:19.320 and they're very bad. Uh. In that environment, you want 0:03:19.320 --> 0:03:24.760 to buy insurance that insurance includes treasury securities rates are low. 0:03:25.440 --> 0:03:30.440 That includes staying away from market activity. Uh. That's serious 0:03:30.800 --> 0:03:35.880 And from a monetary policy standpoint, it brings into the 0:03:35.960 --> 0:03:39.440 question of risk management. Do you want to head for 0:03:39.480 --> 0:03:43.520 the exits if in fact something bad could happen in 0:03:43.560 --> 0:03:48.720 between and you're wrong footed? And so if sorry? Well, 0:03:48.760 --> 0:03:51.200 thinking about how the Delta variant informs FED policy, we 0:03:51.280 --> 0:03:53.800 know this FED is prioritizing the labor market and the 0:03:53.800 --> 0:03:57.000 recovery there that seems to be taking precedents over inflation. 0:03:57.080 --> 0:03:59.640 And we heard from the US Labor Secretary, Marty Walls. 0:03:59.680 --> 0:04:01.400 She asked, are they saying that some states who have 0:04:01.440 --> 0:04:04.440 already rolled back those enhanced unemployment benefits may need to 0:04:04.440 --> 0:04:07.240 actually put them back in place because of the delta variant? 0:04:07.240 --> 0:04:09.280 I mean, how do you think about that factor into 0:04:09.320 --> 0:04:12.880 the job's recovery. Yeah, that that that's a really important 0:04:12.880 --> 0:04:16.039 point and it tells you the problem of leaning forward 0:04:16.360 --> 0:04:19.760 in an uncertain time, You just may be leaning leaning 0:04:19.839 --> 0:04:22.880 in as events turned against you. And the really interesting 0:04:22.960 --> 0:04:27.000 thing about the minutes, cably was, in fact they were 0:04:27.120 --> 0:04:31.839 less hierarchical about their dual objective for the last year. 0:04:32.240 --> 0:04:39.080 It's always been employment, employment, employment, in price stability and inflation. 0:04:39.120 --> 0:04:41.080 The second half of the dual man it was in 0:04:41.080 --> 0:04:45.000 the background in the minutes, they said they were worried 0:04:45.040 --> 0:04:48.440 about they had made substantial further problem or rather they 0:04:48.520 --> 0:04:52.480 made further progress toward employment and probably were at their 0:04:52.520 --> 0:04:57.000 price stability goal, so they were bringing back that mandate. Now, 0:04:57.080 --> 0:05:00.600 the question is if they're really worried about the outlook Uh, 0:05:00.640 --> 0:05:03.880 do they push concerns about inflation further into the background, 0:05:03.960 --> 0:05:06.520 And just real quick, in terms of their concerns about inflation, 0:05:06.560 --> 0:05:08.440 how much do you expect them to highlight how this 0:05:08.520 --> 0:05:11.480 has been a K shaped recovery and how the inflationary 0:05:11.480 --> 0:05:13.920 pressures that we're seeing are actually hampering with people on 0:05:13.960 --> 0:05:18.359 the lower brackets more than others. That's what everybody forgets 0:05:18.400 --> 0:05:22.159 about the nineteen seventies, and that is that that inflation 0:05:22.360 --> 0:05:26.320 is a regressive tax, and part of it is what's 0:05:26.360 --> 0:05:29.039 that's doing the real wages at the lower end of 0:05:29.080 --> 0:05:32.480 the end of the spectrum. Look, Jpal has been extremely 0:05:32.560 --> 0:05:38.920 good in framing policy more inclusively than any of his predecessors, 0:05:39.080 --> 0:05:44.680 and you've identified an opportunity for him to complain about inflation, 0:05:45.040 --> 0:05:49.799 not just because it worries the bond market. Stars Vince, 0:05:49.920 --> 0:05:53.479 I got thirty seconds. I'm so sorry. You and Carmen 0:05:53.520 --> 0:05:57.279 Reinhardt wrote the paper of the summer last year Foreign 0:05:57.279 --> 0:06:02.880 Affairs on the Pandemic Depression. Have we exited the pandemic depression? 0:06:03.640 --> 0:06:09.560 Absolutely not. Uh. A message was rebound, wasn't recovery. We 0:06:09.800 --> 0:06:11.839 still have a lot of lost output in the US. 0:06:12.440 --> 0:06:17.479 And importantly, what we have done is forbearance, not forgiveness. 0:06:18.200 --> 0:06:23.160 That is, at some time, at some point, all those uh, 0:06:23.600 --> 0:06:28.159 all those payments, right is gonna come do what's gonna happen. 0:06:28.160 --> 0:06:29.920 Then we are out of time. Let's do it again, 0:06:30.040 --> 0:06:32.400 Vincent Reynard, thank you. With mel in their chief it 0:06:32.520 --> 0:06:40.640 kind of let's get right to it and we are 0:06:40.839 --> 0:06:44.120 thrilled to start strong on Friday with Dennis Garbon. He's 0:06:44.160 --> 0:06:47.360 the retired editor of the Gartment Newsletters, still writing the 0:06:47.440 --> 0:06:50.520 Gartment news Letter, and it is a jewel today in 0:06:50.640 --> 0:06:55.760 his retirement, which harkens back to Saigon. That cartoon Dennis 0:06:55.800 --> 0:07:01.320 Garden Gartment in your morning letter is painful. It is 0:07:01.400 --> 0:07:04.839 very painful. The the relationship of the similarities between what 0:07:04.880 --> 0:07:08.000 happened in nineteen seventy five and in Saigon and what 0:07:08.120 --> 0:07:10.920 is happening now in Afghanistan are frightening for those of 0:07:11.000 --> 0:07:13.000 us who were all around back in the nineteen seventies 0:07:13.040 --> 0:07:17.080 and remember how that looked. It is a is dismaying 0:07:17.080 --> 0:07:20.080 to see the United States a position in the world 0:07:20.200 --> 0:07:22.440 having been diminished as badly as it has been. This 0:07:22.480 --> 0:07:26.200 is a very disturbing circumstances prevailed, and this is a long, 0:07:26.320 --> 0:07:28.280 long week, and we have a long time ahead of 0:07:28.320 --> 0:07:31.080 us to worry about the loss of perspective here in 0:07:31.080 --> 0:07:33.320 the United States. Jonics Lisa wants to jump in, but 0:07:33.360 --> 0:07:37.040 I've got your your newsletters of jewel on how prices 0:07:37.080 --> 0:07:41.200 are priced at the margin? Almost there's a marginal pricing 0:07:41.240 --> 0:07:45.360 of the margin at the margin. Explain that well, first 0:07:45.400 --> 0:07:47.800 of all, and in all markets, I've always maintained that 0:07:47.840 --> 0:07:49.960 prices made at the margin. When the last two percent 0:07:50.000 --> 0:07:52.960 of buyers become sellers, prices go down and the last 0:07:52.960 --> 0:07:56.160 two percent of sellers become buyers, prices tend to go up, 0:07:56.200 --> 0:07:58.440 and prices made at the margin. And what bothered me 0:07:58.520 --> 0:08:01.800 this time was looking at the level of margin being 0:08:02.000 --> 0:08:04.840 used in the in the stock markets that these days 0:08:05.120 --> 0:08:08.400 had been going up for fifteen consecutive months, coextensive with 0:08:08.440 --> 0:08:11.440 a bowl market in stock prices. But there's always been 0:08:11.440 --> 0:08:13.960 a very leading indicator that the use of margin has 0:08:14.000 --> 0:08:16.240 led the market to the downside, has led the market 0:08:16.240 --> 0:08:18.640 to the upside, and now for the first time in 0:08:18.680 --> 0:08:22.000 fifteen months in July, the use of margin, and I've 0:08:22.160 --> 0:08:26.720 maintained that that's where that's where wise and sophisticated smart 0:08:26.800 --> 0:08:29.720 money has been leaving the market since July. It's very 0:08:29.720 --> 0:08:32.880 disconcerting that tends to lead the stock market higher or 0:08:32.920 --> 0:08:36.000 lower by by several months, two or three or four months, 0:08:36.080 --> 0:08:38.240 sometimes a bit longer. But when you start to see 0:08:38.640 --> 0:08:41.800 margin usage declining, you have to be careful about the 0:08:41.800 --> 0:08:43.920 stock market itself. It is one of the better leading, 0:08:45.080 --> 0:08:47.439 leading stock market indicators that I have learned to watch 0:08:47.800 --> 0:08:49.679 over the course of my nearly fifty years of being 0:08:49.679 --> 0:08:51.680 in the markets. Dennis, what does this mean in terms 0:08:51.760 --> 0:08:53.960 of some sort of draw down, considering that a draw 0:08:54.000 --> 0:08:56.800 down these days is perhaps maybe a half a percentage 0:08:56.840 --> 0:09:00.560 point decline, Well, I think there's more going on here 0:09:00.600 --> 0:09:02.360 than half a point. To client, take a look at 0:09:02.360 --> 0:09:04.360 the broader market. We tend to pay too much attention 0:09:04.400 --> 0:09:07.400 to the Dow, too much attention to the SNP, way 0:09:07.400 --> 0:09:10.520 too much attention to the NASADAC, and nobody's paying attention 0:09:10.520 --> 0:09:12.920 to the broad Russell Index, which has not made a 0:09:12.960 --> 0:09:15.720 new high now and several months has broken its upward 0:09:16.000 --> 0:09:19.040 sloping trend lines several weeks ago. That goes back into 0:09:19.160 --> 0:09:21.880 March of last year. Something is happening in the broad 0:09:21.920 --> 0:09:25.119 market that doesn't seem to be in taking place publicly. 0:09:25.160 --> 0:09:27.920 The public is still involved in the markets. It still 0:09:28.000 --> 0:09:30.080 sees the down making new highs. It still sees the 0:09:30.160 --> 0:09:32.800 SMP and the NASDAC making new highs. And you brought 0:09:32.880 --> 0:09:34.400 up the fact that you have to pay attention to 0:09:34.440 --> 0:09:38.040 what happened in Amazon. Amazon, for the technicians, gaped lower 0:09:38.400 --> 0:09:41.600 dramatically almost ten days ago and has not come close 0:09:41.640 --> 0:09:44.720 to bouncing since then at all. And and Amazon had 0:09:44.720 --> 0:09:46.680 been one of the leaders to the upside. When the leaders, 0:09:46.679 --> 0:09:48.880 when the generals get taken out and get shot, you 0:09:48.920 --> 0:09:50.840 have to be worried about what the sergeants and corporals 0:09:50.840 --> 0:09:53.080 and privates are going to be doing. Yeah, And I 0:09:53.120 --> 0:09:55.920 look at things like the AII sentiment survey that we 0:09:56.000 --> 0:09:58.960 got this week, the Bears out exceeding the Bowls for 0:09:59.000 --> 0:10:01.240 the first time this year. Have we started to see 0:10:01.280 --> 0:10:04.800 a real shift in sentiment this week? I think you have. 0:10:04.880 --> 0:10:06.640 I think that that's starting to take place. I think 0:10:06.679 --> 0:10:10.040 there's no question about it. People talking about the inevitable 0:10:10.080 --> 0:10:13.400 tapering of the FEDS expansionary policies. That's going to happen. 0:10:13.679 --> 0:10:17.480 Whether it happens in October and November, December, January, certainly 0:10:17.520 --> 0:10:20.520 that's going to happen. And I've maintained all along that 0:10:20.600 --> 0:10:23.000 the great bull market that we've gone through has been 0:10:23.040 --> 0:10:26.559 almost solely predicated upon the expansionary policies, not just by 0:10:26.559 --> 0:10:28.280 the FED, but by the Bank of Canada, the Bank 0:10:28.320 --> 0:10:30.320 of England, the e c B, the Bank of Japan, 0:10:30.800 --> 0:10:33.240 and the FED is is clearly at sometime in the 0:10:33.280 --> 0:10:35.599 next month, two months, three months, four months, going to 0:10:35.679 --> 0:10:38.640 start the process of tapering. Whenever that happens, that's less 0:10:38.640 --> 0:10:41.120 money coming into the market, and money will leave the 0:10:41.160 --> 0:10:44.640 stock market and go into the expanding economic circumstances. Clearly, 0:10:44.640 --> 0:10:47.280 the economy is doing well, and that's what happens at 0:10:47.280 --> 0:10:50.560 turning points. Stocks go up before the economy turns higher, 0:10:50.840 --> 0:10:53.800 stocks go down before the economy turns lower. Stocks are 0:10:53.800 --> 0:10:56.080 going to start moving lower, and the economy will continue 0:10:56.080 --> 0:10:59.880 to not boom, but be really quite quite expansive, quite strong. 0:11:00.040 --> 0:11:02.160 Dennis Gartman, thank you so much. Too short to visit 0:11:02.200 --> 0:11:04.840 this morning, to get us started on this Friday, Chairman, 0:11:05.160 --> 0:11:13.320 the University of Akron's Endelman uh fun on a Friday 0:11:13.360 --> 0:11:16.360 in August. It's always important and on Blueboard Radio this 0:11:16.440 --> 0:11:19.440 place so well. I went into the closet this morning, 0:11:19.480 --> 0:11:22.720 my closet with my suits is about in the west 0:11:22.760 --> 0:11:26.520 Wingley says, it's a good thirty ft long. And you know, 0:11:26.559 --> 0:11:28.640 I said, I said, blue is the only way to go. 0:11:28.800 --> 0:11:31.280 And I come in and you know, Teal's got the 0:11:31.320 --> 0:11:33.880 blue thing going and Lisa's got the blue thing going, 0:11:33.920 --> 0:11:37.320 and I said, canceled the guest at seven thirty and 0:11:37.360 --> 0:11:41.800 find someone in blue. Gabriella Santos joins us now in 0:11:42.080 --> 0:11:45.880 JP Morgan Blue and that is always good to see. Gabriel. 0:11:46.120 --> 0:11:49.360 Thank you so much for joining us on a blue 0:11:49.360 --> 0:11:52.240 Friday here. And one of the things you talk about 0:11:52.360 --> 0:11:54.640 is something John Farrow and his Gloom on the Way 0:11:54.640 --> 0:11:58.120 to Crete talks about, which is a draw down. And 0:11:58.200 --> 0:12:02.680 you say, and particularly with a draw downs are normal. 0:12:02.720 --> 0:12:07.520 We should not be afraid of the Pharaoh draw down. Well, 0:12:07.559 --> 0:12:10.719 this drawdown we're seeing in China's is absolutely business as 0:12:10.760 --> 0:12:14.199 usual for investing in Chinese equities. Every year you should 0:12:14.200 --> 0:12:19.360 expectent annual correction, and every three years or so you 0:12:19.440 --> 0:12:22.959 tend to have an over thirty percent correction. We had 0:12:23.000 --> 0:12:26.800 this in ten, we had it in and eleven. And 0:12:26.840 --> 0:12:30.840 it's unrelated to the economic cycle. It's related to China's 0:12:30.840 --> 0:12:34.800 regulatory and reform campaigns, which tend to happen every once 0:12:34.840 --> 0:12:37.800 in a while. It takes time to rebuild confidence. But 0:12:37.960 --> 0:12:41.360 three months out Chinese equities tend to be up ten percent. 0:12:41.880 --> 0:12:44.080 Uh in six months out they tend to be up 0:12:44.080 --> 0:12:47.080 twenty percent. During these moments, we hold on a second, Gabriella, 0:12:47.160 --> 0:12:48.960 are you saying that it's a good time to go 0:12:49.040 --> 0:12:54.920 buy Chinese equities? We fundamentally disagree with the thesis that 0:12:55.080 --> 0:12:58.920 China is now uninvestible, and that is not what we're 0:12:58.960 --> 0:13:01.880 speaking to our client. It's about, or hearing from our 0:13:01.920 --> 0:13:06.080 institutional clients. It's really still a story about building a 0:13:06.200 --> 0:13:11.640 strategic allocation to Chinese onshore equities and onshore bonds. To me, 0:13:11.800 --> 0:13:14.240 that is one of the most important themes of the 0:13:14.320 --> 0:13:18.520 next decade is the rise of China and portfolios, and 0:13:18.559 --> 0:13:21.800 it's really just about navigating these moments of volatility and 0:13:21.840 --> 0:13:25.760 thinking carefully about how to invest in China rather than 0:13:25.840 --> 0:13:29.520 going through an existential crisis every time we get these 0:13:29.600 --> 0:13:32.040 draw downs, and in fact it's it's what one of 0:13:32.080 --> 0:13:35.120 your guests that the CEO of the Norwegian Sovereign Wealth 0:13:35.120 --> 0:13:39.599 Fund on Wednesday not rethinking that long term allocation to 0:13:39.760 --> 0:13:43.120 Chinese on shore equities. Well, let's talk about how to 0:13:43.280 --> 0:13:45.679 invest in China. Let's go there, especially at a time 0:13:45.720 --> 0:13:47.559 when you've got so many cross currents. You've got the 0:13:47.600 --> 0:13:53.280 regulatory uncertainty around the shifting priorities of the executive leadership 0:13:53.440 --> 0:13:57.600 in China. You also have the slowdown the your experience experiencing, 0:13:57.640 --> 0:14:00.000 as well as the COVID policies which are much strict 0:14:00.080 --> 0:14:02.280 er than in places like the United States. How do 0:14:02.320 --> 0:14:05.360 you pass through all of this noise and figure out 0:14:05.440 --> 0:14:09.280 how to allocate at a time of such incredible uncertainty. 0:14:09.640 --> 0:14:12.160 The noise is so high right now, the volume is 0:14:12.200 --> 0:14:15.280 extremely high. And I think the trick is not to 0:14:15.400 --> 0:14:19.440 see each thing China says or does as an independent 0:14:20.360 --> 0:14:23.520 development right, It's all a piece of a bigger puzzle. 0:14:24.040 --> 0:14:27.080 And what is that puzzled all about this new phase 0:14:27.120 --> 0:14:30.760 of Chinese development. It's moving from a middle income into 0:14:30.760 --> 0:14:33.680 a high income country over the next five ten years, 0:14:34.040 --> 0:14:36.880 and it really wants to shift from the quantity to 0:14:37.000 --> 0:14:40.760 the quality of growth. And everything that's been doing over 0:14:40.800 --> 0:14:43.760 the past few months is aligned with that long term plan. 0:14:44.200 --> 0:14:48.480 And what's quality. It's growth focused on innovation. What's innovation 0:14:48.560 --> 0:14:52.120 it's not Internet and social media. It's deep technology and 0:14:52.160 --> 0:14:55.840 renewable energy, and it's quality also in the sense of 0:14:55.880 --> 0:15:00.360 the quality of life for workers, for customers, and for mergence. Well, 0:15:00.360 --> 0:15:03.000 you talked about renewable energy there, Gabrielle. China, of course 0:15:03.160 --> 0:15:07.320 is trying to reach net carbon neutrality by and it 0:15:07.360 --> 0:15:09.960 wants to have peat carbon emissions by And I'm wondering 0:15:10.000 --> 0:15:12.320 how you just kind of think about that green transition 0:15:12.560 --> 0:15:16.600 when talking about an economy and a growth trajectory that 0:15:16.640 --> 0:15:20.960 has been powered by the industrial economy. So an example 0:15:21.000 --> 0:15:23.120 of how China, you know, we tend to think about 0:15:23.200 --> 0:15:26.080 China is being really difficult from an E s G perspective, 0:15:26.120 --> 0:15:28.560 and it is starting from a uh, you know, further 0:15:28.640 --> 0:15:31.080 behind in other countries. But this is an example of 0:15:31.160 --> 0:15:33.800 China moving in the right direction here thinking about the 0:15:33.880 --> 0:15:38.280 EVE and China's extremely serious about this energy transition because 0:15:38.320 --> 0:15:41.480 it's focused on reducing pollution and improving the quality of 0:15:41.520 --> 0:15:44.520 life for its people. And this is going to involve 0:15:44.560 --> 0:15:47.640 a lot of carrots insteads right, carrots in terms of 0:15:48.000 --> 0:15:53.120 developing its domestic renewable energy market solar wind, uh carrots 0:15:53.120 --> 0:15:56.000 in terms of busting the penetration of e V auto 0:15:56.080 --> 0:15:59.440 sales China's already the largest ev market in the world, 0:15:59.480 --> 0:16:02.200 and this is just the beginning, and it involves sticks. 0:16:02.320 --> 0:16:06.160 China launched an emissions trading scheme this year to to 0:16:06.200 --> 0:16:09.240 put a price on carbon and increase the cost for 0:16:09.320 --> 0:16:12.760 heavy industry. So it's all about that transition to higher 0:16:12.840 --> 0:16:16.720 quality growth and really navigating the winners and losers in 0:16:16.760 --> 0:16:19.640 that phase. Well, we've seen this borne out in commodity. 0:16:19.720 --> 0:16:21.640 Is this specifically when you look at iron ore features 0:16:21.640 --> 0:16:23.240 in Singapore. I mean they're trying to pull back on 0:16:23.280 --> 0:16:24.800 steel production. A lot of that has to do with 0:16:24.880 --> 0:16:27.360 environmental concern and that has shown up, but it also 0:16:27.560 --> 0:16:29.960 the other side of that is the growth concerns that 0:16:29.960 --> 0:16:32.000 that Lisa was alluding to. And I'm wondering how you 0:16:32.280 --> 0:16:37.520 think about PBOC policy here in a decelerating China. One 0:16:37.600 --> 0:16:40.760 quick comment on the commodities. Yeah, they're losers kind of 0:16:40.800 --> 0:16:44.400 some of those heavy metals like iron ore and steel, 0:16:44.520 --> 0:16:47.800 but they're also winners something like copper for example, which 0:16:47.880 --> 0:16:51.720 is a huge input into renewable energy and electric vehicle. 0:16:51.840 --> 0:16:55.160 So a perfect example there. And in terms of policy, 0:16:55.280 --> 0:16:57.440 I think the way to see this is China, every 0:16:57.480 --> 0:16:59.880 time it has a growth slow down. It's going to 0:17:00.040 --> 0:17:03.680 step on the accelerator less and less um so unlike 0:17:04.080 --> 0:17:06.960 you know China five years ago. So it's very targeted 0:17:07.040 --> 0:17:12.200 easing here maybe a reserve requirement cutter two. Very targeted 0:17:12.400 --> 0:17:16.439 towards credit in high end manufacturing and private industry. It 0:17:16.600 --> 0:17:20.080 is not that old China that lifts all books. Gabriel A. Santos, 0:17:20.080 --> 0:17:21.879 thank you so much there on China, some of the 0:17:21.920 --> 0:17:31.199 optimism within a faraoh like draw down. It's been an 0:17:31.200 --> 0:17:33.439 extraordinary week. I really want to say thank you to 0:17:33.520 --> 0:17:36.960 all of the Bloomberg Surveillance team for starting strong with 0:17:37.040 --> 0:17:40.920 Thomas Barfield of Boston University, and I end my Friday 0:17:41.000 --> 0:17:45.320 here with George Friedman, Geopolitical Futures founder and chairman, with 0:17:45.400 --> 0:17:48.240 me Kaylee Lines as well. Lisa Brammon is preparing for 0:17:48.240 --> 0:17:51.320 the nine o'clock our George, thank you, thank you so 0:17:51.400 --> 0:17:54.840 much for being with us. There is that sentence in 0:17:54.960 --> 0:17:59.040 your essay which in the last century we were at 0:17:59.119 --> 0:18:05.679 war eleventeen percent of the time. What went wrong? Well, 0:18:06.200 --> 0:18:09.400 we started to go to war at a time we 0:18:09.400 --> 0:18:13.840 were hit remembered by al Qaeda. We went into Afghanistan 0:18:13.960 --> 0:18:17.520 on a raid uh to capture al Qaeda. We failed 0:18:17.520 --> 0:18:20.800 in that. They escaped at tor Bora, and then we 0:18:20.880 --> 0:18:23.320 were in Agana. We didn't know what to do, so 0:18:23.480 --> 0:18:26.000 we did what we do know how to do. We 0:18:26.040 --> 0:18:29.280 sent troops in and tried to create a different country. 0:18:29.480 --> 0:18:32.280 Afghanistan is Afghanistan. It has been that way for a 0:18:32.400 --> 0:18:35.359 very long time. Many have tried to change it, and 0:18:35.440 --> 0:18:38.520 in the end we spent a generation there, twenty years. 0:18:39.280 --> 0:18:42.399 We've gotten nowhere in terms of pacifying the country, and 0:18:42.440 --> 0:18:45.280 it was time to leave. And when you leave a war, 0:18:45.440 --> 0:18:49.440 as in Vietnam, it looks ugly and more ugly the most. 0:18:49.640 --> 0:18:52.800 But it looked ugly. George Freeman, I thought of you 0:18:52.880 --> 0:18:56.080 about four or five days ago of my nineteen fifty 0:18:56.160 --> 0:18:59.919 six when I was barely remember and the Hungarian rebel, 0:19:00.000 --> 0:19:04.240 who should you've literally lived, get out of dodge, get 0:19:04.240 --> 0:19:07.160 out of a country as well. How do you see 0:19:07.200 --> 0:19:12.960 the United States assisting Afghans? Who Admirals Tevita say, the 0:19:13.119 --> 0:19:17.439 Taliban one out of one out of Afghanistan. How do 0:19:17.480 --> 0:19:21.000 we get them out smoother and faster? I don't know. 0:19:21.400 --> 0:19:23.680 There are probably hundreds of thousands who'd like to leave. 0:19:24.119 --> 0:19:27.120 We don't have the aircraft to move them. Out, and 0:19:27.200 --> 0:19:31.520 remember Taliban is the most powerful force in the country. 0:19:31.800 --> 0:19:35.000 They won the war. They will impose the kind of 0:19:35.119 --> 0:19:37.960 rules that want to have. We may negotiate with them, 0:19:38.640 --> 0:19:42.560 but at this point we've reached the situation where we 0:19:42.600 --> 0:19:45.560 are not in control of Afghanistan. We don't get the 0:19:45.560 --> 0:19:50.680 option to make decisions. You mentioned complexity. Are we having 0:19:50.760 --> 0:19:57.000 complexity policy complexity, tactical complexity because we don't have a theory, 0:19:57.160 --> 0:19:59.960 we don't have a view, we don't have a strategy. 0:20:01.600 --> 0:20:03.639 The fundamental interests in the United States just to make 0:20:03.680 --> 0:20:07.200 sure that North America secure. Our number one interest is easy, 0:20:07.520 --> 0:20:10.440 keep Canada and Mexico happy, don't alie with anyone else. 0:20:10.880 --> 0:20:14.800 Number two is control the oceans. We control the Atlantic 0:20:14.840 --> 0:20:18.720 and control the Pacific. We're secure. We can get involved 0:20:18.720 --> 0:20:22.159 in Eurasia once in a while, very very carefully. But 0:20:22.240 --> 0:20:27.280 these all in wars like Vietnam, like Afghanistan, places us 0:20:27.320 --> 0:20:31.520 always edit is his advantage. The native population doesn't like us. 0:20:31.920 --> 0:20:34.760 They want us out, and they're going to beat us 0:20:35.240 --> 0:20:39.400 because they're not going anywhere. We're coming in and we're 0:20:39.440 --> 0:20:41.280 never going to have enough force to take it out 0:20:41.280 --> 0:20:45.399 of country like Afghanistan. So we're frivolously involving ourselves and 0:20:45.440 --> 0:20:48.879 things that look good. We delude ourselves that are enormous. 0:20:48.960 --> 0:20:53.400 Power and it is enormous, is infinite, and then it's 0:20:53.480 --> 0:20:57.800 always easier to stay another year than to leave. Longer 0:20:57.880 --> 0:21:01.200 you stay, the uglier it gets. Well. Obviously, the United 0:21:01.240 --> 0:21:04.120 States has power. It's a matter of how it is used. 0:21:04.119 --> 0:21:07.600 Are we no longer going to see the US as 0:21:07.640 --> 0:21:11.360 a global hegemon and as as the police police country 0:21:11.400 --> 0:21:16.440 of the world. A global hegemon is very careful and 0:21:16.560 --> 0:21:20.159 how it uses power, it doesn't fritter it away. On 0:21:20.320 --> 0:21:24.320 secondary issues, Afghanistan was never a strategic issue for the 0:21:24.359 --> 0:21:27.480 United States once a sound in London left. It was 0:21:27.520 --> 0:21:29.919 a country that the Russians were defeated in, the British 0:21:29.960 --> 0:21:32.800 were defeated in. It was a very difficult country. So 0:21:32.840 --> 0:21:35.600 we have to make sure that our cost benefit analysis 0:21:36.119 --> 0:21:38.560 is correct. There is a price in going to war. 0:21:38.760 --> 0:21:41.320 We don't just wave a wand and we saw that 0:21:41.359 --> 0:21:44.359 in Vietnam, and we didn't learn. We did it again. 0:21:45.280 --> 0:21:47.800 And now after twenty years there are people are staying 0:21:48.000 --> 0:21:50.520 we should have stayed longer. We we're not gonna win. 0:21:50.960 --> 0:21:54.399 How long would we stay? George you are experts in 0:21:54.440 --> 0:21:58.280 our machinery as well. Have we finally figured out the 0:21:58.320 --> 0:22:04.920 technology does win? In Vietnam and Cambodia, the technology doesn't win, 0:22:05.400 --> 0:22:08.800 and Cobble are up north on the border with Uzbekistan. 0:22:10.640 --> 0:22:14.800 It could win if you're prepared to afflict horrible casualties 0:22:15.400 --> 0:22:20.600 on the enemy. Extraordinary casualties. Technology is a wonderful weapon 0:22:20.640 --> 0:22:24.879 for killing, but it's indiscriminate. The United States was not 0:22:25.000 --> 0:22:29.200 prepared properly to engage in indiscriminated war against the Taliban, 0:22:30.400 --> 0:22:33.520 and the problem wasn't tech lack of technology. It was 0:22:34.080 --> 0:22:36.200 we fought a war that we didn't have to win, 0:22:36.920 --> 0:22:41.159 and therefore we pulled our punches. Unlike Germany or Japan, 0:22:41.200 --> 0:22:44.080 where we did everything we needed to win, we probably 0:22:44.119 --> 0:22:46.800 didn't do that in Afghanistan. But then we shouldn't be there. 0:22:47.680 --> 0:22:49.840 George Freeman, thank you so much. Sorry, look forward to 0:22:49.840 --> 0:22:55.000 speaking to you again. George Freeman, Geopolitical Futures founder and chairman. 0:22:55.680 --> 0:22:59.440 This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 0:22:59.520 --> 0:23:02.879 us live weekdays from seven to ten am Eastern on 0:23:02.960 --> 0:23:07.240 Bloomberg Radio and on Bloomberg Television each day from six 0:23:07.320 --> 0:23:12.200 to nine am for insight from the best in economics, finance, investment, 0:23:12.320 --> 0:23:17.359 and international relations. And subscribe to the Surveillance podcast on 0:23:17.440 --> 0:23:21.240 Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 0:23:21.359 --> 0:23:25.560 the terminal. I'm Tom keene In. This is Bloomberg.