1 00:00:05,900 --> 00:00:09,140 Speaker 1: Welcome to Copy Time, a podcast series on Markets and 2 00:00:09,148 --> 00:00:12,619 Speaker 1: Economies from D BS Group Research. I'm Tau Wei, chief economist. 3 00:00:12,630 --> 00:00:17,719 Speaker 1: Welcoming you to our 121st episode. We are recording this 4 00:00:17,729 --> 00:00:20,759 Speaker 1: episode from PW CS Washington DC office. 5 00:00:21,059 --> 00:00:23,799 Speaker 1: Today's guests and I are both here for the spring 6 00:00:23,809 --> 00:00:26,399 Speaker 1: meetings of the IMF and the World Bank. She is 7 00:00:26,409 --> 00:00:29,829 Speaker 1: in fact a return guest. Doctor Alexis Crow is partner 8 00:00:29,840 --> 00:00:33,598 Speaker 1: at PWC where she leads the global geopolitical investing practice, 9 00:00:33,610 --> 00:00:36,009 Speaker 1: which kind of tells you what we're going to discuss today, 10 00:00:36,069 --> 00:00:38,299 Speaker 1: our takeaways from the IMF meetings and what it means 11 00:00:38,310 --> 00:00:41,939 Speaker 1: for the global economy going forward. Alexis Crow. Welcome to 12 00:00:41,950 --> 00:00:43,138 Speaker 1: Copy time. Thanks so much 13 00:00:43,150 --> 00:00:43,849 Speaker 2: for having me back t 14 00:00:44,000 --> 00:00:46,479 Speaker 1: morning. Great to have you back lots going on. 15 00:00:46,799 --> 00:00:51,839 Speaker 1: Um Let's talk about the three or four key takeaways 16 00:00:51,848 --> 00:00:53,339 Speaker 1: that you have from the meeting so far. 17 00:00:53,650 --> 00:00:56,750 Speaker 2: Sure. Well, I think firstly, just starting on growth, um 18 00:00:56,970 --> 00:01:00,110 Speaker 2: The IMF world economic outlook has quite a rosy and 19 00:01:00,119 --> 00:01:03,029 Speaker 2: robust outlook for global growth going forward. 20 00:01:03,259 --> 00:01:06,470 Speaker 2: Um This is predicated upon the assumption that we continue 21 00:01:06,480 --> 00:01:09,760 Speaker 2: in this jobs rich recovery where we've had tight labor 22 00:01:09,769 --> 00:01:13,660 Speaker 2: markets across the globe. Although worrisomely part of that is 23 00:01:13,669 --> 00:01:18,239 Speaker 2: supported by perhaps overly sanguine view on immigration uh supporting 24 00:01:18,250 --> 00:01:19,139 Speaker 2: some of these job numbers 25 00:01:20,364 --> 00:01:23,714 Speaker 2: also perhaps an overly sanguine view on headline inflation, especially 26 00:01:23,724 --> 00:01:27,194 Speaker 2: amidst the current crisis unfolding across the Middle East. The 27 00:01:27,205 --> 00:01:30,745 Speaker 2: prolonged conflict between Russia and Ukraine and this rewriting of 28 00:01:30,754 --> 00:01:33,775 Speaker 2: global energy maps. Just watching the way that headline passes 29 00:01:33,785 --> 00:01:35,035 Speaker 2: through into core inflation. 30 00:01:35,639 --> 00:01:38,470 Speaker 2: The second key takeaway I would say is in the 31 00:01:38,480 --> 00:01:42,870 Speaker 2: global financial stability report, there is actually a refreshing coverage 32 00:01:42,879 --> 00:01:46,470 Speaker 2: of private credit risks and how this can generate financial 33 00:01:46,480 --> 00:01:50,750 Speaker 2: vulnerabilities within markets. And so I think that's important because 34 00:01:50,760 --> 00:01:55,190 Speaker 2: some regulators are really underplaying this and perhaps underestimating the 35 00:01:55,199 --> 00:01:58,290 Speaker 2: extent to which some kind of private credit event could 36 00:01:58,300 --> 00:02:01,830 Speaker 2: really upend this economic recovery that we've been experiencing. 37 00:02:02,559 --> 00:02:04,860 Speaker 2: The third one that I would call out would be 38 00:02:05,809 --> 00:02:09,929 Speaker 2: the green silence. Uh We actually had uh one central 39 00:02:09,940 --> 00:02:13,520 Speaker 2: banker comment, the extent to which it's perhaps unfashionable to 40 00:02:13,529 --> 00:02:16,600 Speaker 2: discuss climate change today, which really if we think about 41 00:02:16,610 --> 00:02:19,288 Speaker 2: our experience in these meetings over over the years, like 42 00:02:19,300 --> 00:02:24,070 Speaker 2: that's unheard of these meetings have always been uh the, the, 43 00:02:24,080 --> 00:02:28,168 Speaker 2: the incredible garnering point for talking about sustainable finance. And 44 00:02:28,179 --> 00:02:29,990 Speaker 2: so that's really a market departure. 45 00:02:30,339 --> 00:02:33,160 Speaker 1: It's interesting, Alex is on that last point, I had 46 00:02:33,169 --> 00:02:36,279 Speaker 1: the privilege of talking to the team that does the 47 00:02:36,710 --> 00:02:39,899 Speaker 1: climate finance related modeling of the IMF and you know, 48 00:02:39,910 --> 00:02:42,139 Speaker 1: there's some discussion about whether the IMF should be looting 49 00:02:42,149 --> 00:02:44,690 Speaker 1: this work or the World Bank should be. But it 50 00:02:44,699 --> 00:02:47,109 Speaker 1: turns out that there is a critical mass, at least 51 00:02:47,119 --> 00:02:49,869 Speaker 1: at the staff level. You know what we hear in 52 00:02:49,880 --> 00:02:52,160 Speaker 1: these annual meetings and spring meetings, a lot of time 53 00:02:52,169 --> 00:02:54,709 Speaker 1: is what the officials are dictating. The theme 54 00:02:55,008 --> 00:02:56,889 Speaker 1: sort of hardened to see at these at the staff level. 55 00:02:56,899 --> 00:02:57,889 Speaker 1: There's still good work going 56 00:02:57,899 --> 00:03:00,360 Speaker 2: on. And it's so interesting because I think in terms 57 00:03:00,369 --> 00:03:03,979 Speaker 2: of age group, what historically, even the World Economic Forum's 58 00:03:03,990 --> 00:03:09,240 Speaker 2: Global Risk report shows that for ages 18 to 24 59 00:03:09,250 --> 00:03:12,279 Speaker 2: sea level rise, anything associated with climate change is number 60 00:03:12,288 --> 00:03:16,979 Speaker 2: one risk. But for perhaps executives with more experience, it 61 00:03:16,990 --> 00:03:18,859 Speaker 2: doesn't necessarily always rank top. 62 00:03:19,429 --> 00:03:23,198 Speaker 1: Um for us sitting in Singapore and then coming all 63 00:03:23,210 --> 00:03:26,119 Speaker 1: the way to Washington and not hear a lot of 64 00:03:26,130 --> 00:03:29,948 Speaker 1: urgency is a bit jarring, especially since despite all the 65 00:03:29,960 --> 00:03:33,109 Speaker 1: China us friction, the amount of money that is being 66 00:03:33,119 --> 00:03:36,610 Speaker 1: spent by the Chinese on green transition is truly transformational 67 00:03:36,619 --> 00:03:39,520 Speaker 1: and it's definitely having a hill effect on the region. 68 00:03:40,070 --> 00:03:41,850 Speaker 1: And so when you come all the way here, you 69 00:03:41,860 --> 00:03:44,419 Speaker 1: think that between the Europeans and the Americans and the Chinese, 70 00:03:44,429 --> 00:03:46,210 Speaker 1: there will be a lot of noise being made. But 71 00:03:46,220 --> 00:03:48,529 Speaker 1: I like you felt that it was a bit underwhelming, 72 00:03:48,539 --> 00:03:51,440 Speaker 2: perhaps Timor. This also indicates the extent to which there 73 00:03:51,449 --> 00:03:57,220 Speaker 2: is a very strong European focus in these meetings because 74 00:03:57,229 --> 00:03:59,479 Speaker 2: I actually heard the head of the sustainability of one 75 00:03:59,490 --> 00:04:03,839 Speaker 2: of the European banks state. When justifying a potential 76 00:04:03,929 --> 00:04:09,089 Speaker 2: financing of hydrocarbons or hydrocarbon associated investment said we can't 77 00:04:09,100 --> 00:04:12,949 Speaker 2: look at the world as if it's 2021 anymore because 78 00:04:12,960 --> 00:04:16,518 Speaker 2: of the urgency that was dictated by Russia's invasion of 79 00:04:16,529 --> 00:04:20,849 Speaker 2: Ukraine and the sustained energy prices in Europe. Therefore, banks 80 00:04:20,859 --> 00:04:23,969 Speaker 2: and asset managers and institutional investors are saying we need 81 00:04:23,980 --> 00:04:26,488 Speaker 2: to look at carbon a different way than we were 82 00:04:26,500 --> 00:04:27,979 Speaker 2: perhaps doing in 2020. 83 00:04:28,428 --> 00:04:30,920 Speaker 1: Lots of different ways of looking at it these days, Alexis, 84 00:04:30,928 --> 00:04:34,579 Speaker 1: even the whole China us issue is now getting en 85 00:04:34,589 --> 00:04:38,600 Speaker 1: wrapped into the climate change issue. In my view, if 86 00:04:38,609 --> 00:04:41,238 Speaker 1: the Chinese are subsidizing green transition in their own economy 87 00:04:41,250 --> 00:04:43,890 Speaker 1: and creating excess capacity, it's great for the world. We 88 00:04:43,899 --> 00:04:46,809 Speaker 1: can all buy Chinese subsidized solar cells and hasten our 89 00:04:46,820 --> 00:04:49,929 Speaker 1: move toward green transition. That is not the message that 90 00:04:49,940 --> 00:04:51,950 Speaker 1: is coming across. So both from the American and the 91 00:04:51,959 --> 00:04:52,929 Speaker 1: European perspective, 92 00:04:53,540 --> 00:04:57,140 Speaker 1: the cost of green transition has to be combined with 93 00:04:57,149 --> 00:05:00,910 Speaker 1: the cost of resiliency and national security. And therefore they 94 00:05:00,920 --> 00:05:03,260 Speaker 1: probably would not want to have the Chinese supply all 95 00:05:03,269 --> 00:05:05,320 Speaker 1: the equipment and machinery for green transition. 96 00:05:05,609 --> 00:05:08,519 Speaker 2: So that in another way, climate change is becoming this 97 00:05:08,529 --> 00:05:11,649 Speaker 2: matter of national security and for some countries. And I 98 00:05:11,660 --> 00:05:15,140 Speaker 2: think it's interesting the way in which Europe has really 99 00:05:15,149 --> 00:05:19,029 Speaker 2: awakened to the influx of BS 100 00:05:19,809 --> 00:05:21,299 Speaker 2: as this is like where you start to see the 101 00:05:21,309 --> 00:05:24,829 Speaker 2: green protectionism really emerging. But I mean, calling out the 102 00:05:24,839 --> 00:05:28,589 Speaker 2: cost piece is very important because the second us slaps solar, 103 00:05:28,799 --> 00:05:32,419 Speaker 2: you know, tariffs on solar panels from China, prices of 104 00:05:32,428 --> 00:05:34,790 Speaker 2: solar production go up and skyrocket in the United States. 105 00:05:34,799 --> 00:05:37,769 Speaker 2: So it is important especially when we're trying to combat inflation. 106 00:05:37,779 --> 00:05:41,910 Speaker 1: Absolutely. Absolutely. So I'll share with you my three takeaways. Actually, 107 00:05:41,920 --> 00:05:45,089 Speaker 1: some of them are kind of similar to yours. So 108 00:05:45,100 --> 00:05:46,000 Speaker 1: one is of course, you know, 109 00:05:46,079 --> 00:05:50,690 Speaker 1: surprising growth resilience in recent years. Notwithstanding, we should remember 110 00:05:50,700 --> 00:05:55,350 Speaker 1: that the pandemic did leave substantial scars in the global economy. 111 00:05:55,359 --> 00:05:59,019 Speaker 1: And I think the current estimate is it will be 112 00:05:59,238 --> 00:06:03,540 Speaker 1: 2027 2028 before trend growth is sort of making up 113 00:06:03,549 --> 00:06:08,779 Speaker 1: for the loss of output. And then the damage inflicted 114 00:06:08,790 --> 00:06:11,089 Speaker 1: by both the pandemic and the ongoing sort of geo 115 00:06:11,109 --> 00:06:12,260 Speaker 1: economic fragmentation 116 00:06:12,660 --> 00:06:15,660 Speaker 1: is manifesting in lower TFP. I think that was an 117 00:06:15,670 --> 00:06:19,719 Speaker 1: important lesson that sometimes we think about geopolitical tension in 118 00:06:19,730 --> 00:06:23,119 Speaker 1: isolation of the economic narrative, but they're actually intertwined. My 119 00:06:23,130 --> 00:06:27,010 Speaker 1: second one was the term of our capacity. It wasn't 120 00:06:27,019 --> 00:06:30,750 Speaker 1: around when you and I met in the animal meetings 121 00:06:30,760 --> 00:06:33,969 Speaker 1: in Marrakesh. But now it's all the rage being pushed 122 00:06:33,980 --> 00:06:36,440 Speaker 1: by the US Treasury. It seems like and did take 123 00:06:36,450 --> 00:06:40,579 Speaker 1: on added urgency during Secretary Yellen's visit to China. 124 00:06:40,950 --> 00:06:45,540 Speaker 1: Uh And uh the other issue that I saw probably 125 00:06:45,549 --> 00:06:47,609 Speaker 1: didn't get as much attention, but I think it has 126 00:06:47,619 --> 00:06:53,070 Speaker 1: shelf life going forward beyond overcapacity. Is this trilateral dialogue 127 00:06:53,079 --> 00:06:55,809 Speaker 1: between the Americans and the Japanese and the Koreans where 128 00:06:55,820 --> 00:06:58,850 Speaker 1: they talked about exchange rate misalignment. And this is an 129 00:06:58,859 --> 00:07:03,839 Speaker 1: interesting one because unlike say 56 years ago when RMB 130 00:07:03,850 --> 00:07:07,730 Speaker 1: undervaluation was considered a major source of global misalignment, 131 00:07:07,988 --> 00:07:09,989 Speaker 1: I haven't really heard anybody talk about that a lot, 132 00:07:10,140 --> 00:07:12,140 Speaker 1: but the fact that the yen has depreciated a lot, 133 00:07:12,149 --> 00:07:16,200 Speaker 1: the one has depreciated a lot, I think makes despite 134 00:07:16,220 --> 00:07:18,709 Speaker 2: recent moves by the BOJ thing 135 00:07:18,869 --> 00:07:21,179 Speaker 1: about this. And, and, and I think it is being 136 00:07:21,190 --> 00:07:26,320 Speaker 1: seen as a misalignment argument which I think some people 137 00:07:26,329 --> 00:07:29,000 Speaker 1: in Washington DC don't quite agree with. And on that, 138 00:07:29,010 --> 00:07:31,970 Speaker 1: that is my third takeaway is that there were certain 139 00:07:32,309 --> 00:07:36,730 Speaker 1: uh aspects of what the US agenda for the spring 140 00:07:36,739 --> 00:07:39,010 Speaker 1: meetings are, which are not aligned with maybe what the 141 00:07:39,019 --> 00:07:42,179 Speaker 1: IMF S staff level agenda happens to be. So one 142 00:07:42,190 --> 00:07:43,679 Speaker 1: would be, of course, you know, the whole issue of 143 00:07:43,690 --> 00:07:46,649 Speaker 1: the dollar related to the misalignment that the Americans seem 144 00:07:46,660 --> 00:07:48,890 Speaker 1: to think that, you know, the dollar probably needs to 145 00:07:48,899 --> 00:07:52,859 Speaker 1: adjust and vis a vis therefore yen and one and 146 00:07:52,869 --> 00:07:56,670 Speaker 1: other currencies need to appreciate. Whereas I think when I 147 00:07:56,679 --> 00:07:59,540 Speaker 1: see what the US team for the IMF is talking 148 00:07:59,549 --> 00:08:01,609 Speaker 1: about is that it's not really what currency misalignment 149 00:08:01,920 --> 00:08:06,299 Speaker 1: externally, whether one looks at us external account balances or 150 00:08:06,309 --> 00:08:09,760 Speaker 1: the dollar, they don't seem to reflect anything anomalous. The 151 00:08:09,769 --> 00:08:12,100 Speaker 1: real anomaly in the room is the US fiscal policy. 152 00:08:12,540 --> 00:08:12,959 Speaker 1: There 153 00:08:12,980 --> 00:08:17,839 Speaker 2: is demand. Therefore, pushing out the timeline for rate cuts 154 00:08:17,850 --> 00:08:18,890 Speaker 2: which would of course, then cool 155 00:08:18,899 --> 00:08:22,059 Speaker 1: the dollar. So what's your sense of inflation and rates? 156 00:08:22,119 --> 00:08:24,529 Speaker 2: Well, I just want to come back to some of 157 00:08:24,540 --> 00:08:25,049 Speaker 2: the key take. 158 00:08:25,209 --> 00:08:27,989 Speaker 2: So firstly, on the scarring piece, what's interesting is I 159 00:08:28,000 --> 00:08:31,119 Speaker 2: think the wo this, this April was actually a little 160 00:08:31,130 --> 00:08:33,570 Speaker 2: bit more sanguine on the scarring piece from the pandemic. 161 00:08:34,090 --> 00:08:36,010 Speaker 2: But we also have to ask when we look at 162 00:08:36,020 --> 00:08:38,880 Speaker 2: the downside, what's also the upside? And what's interesting to 163 00:08:38,890 --> 00:08:42,890 Speaker 2: note is in thinking about improvements to productivity and particularly 164 00:08:42,900 --> 00:08:45,309 Speaker 2: in advanced economies where like if you look at work 165 00:08:45,320 --> 00:08:48,309 Speaker 2: by Robert Gordon, right, we've just been on this downward trajectory. 166 00:08:48,599 --> 00:08:51,419 Speaker 2: What was it with the exception of the uh kind 167 00:08:51,429 --> 00:08:53,640 Speaker 2: of nine exceptional years of the early days of the 168 00:08:53,650 --> 00:08:54,739 Speaker 2: IC T revolution? 169 00:08:55,530 --> 00:08:58,760 Speaker 2: What's interesting to note is that data from the US 170 00:08:58,770 --> 00:09:02,459 Speaker 2: and other advanced economies including Italy, the UK, France, Canada 171 00:09:02,590 --> 00:09:07,510 Speaker 2: show that services, white, so white collar services activity that 172 00:09:07,520 --> 00:09:10,630 Speaker 2: was relegated to home in the early days of the pandemic. 173 00:09:10,840 --> 00:09:15,699 Speaker 2: Actually, the productivity gains in that sector actually stemmed the 174 00:09:15,710 --> 00:09:19,330 Speaker 2: plunge in GDP drop. So during the pandemic, so said 175 00:09:19,340 --> 00:09:21,760 Speaker 2: another way when we were all locked at home, we 176 00:09:21,770 --> 00:09:24,979 Speaker 2: were actually much more efficient. I could still record podcasts, 177 00:09:24,989 --> 00:09:26,510 Speaker 2: you could and we did one together. 178 00:09:27,090 --> 00:09:30,599 Speaker 2: Um But as evidence from the Virginia Fed shows like 179 00:09:30,609 --> 00:09:35,559 Speaker 2: this actually, these productivity gains wane over time in part 180 00:09:35,570 --> 00:09:37,719 Speaker 2: because it's not necessarily so productive to be in your 181 00:09:37,729 --> 00:09:40,919 Speaker 2: pajamas and not be um convening with others and learning 182 00:09:40,929 --> 00:09:43,770 Speaker 2: from this, particularly for the younger generation. So that's interesting 183 00:09:43,780 --> 00:09:45,799 Speaker 2: to note and that, that's something that Austin Goolsbee and 184 00:09:45,809 --> 00:09:48,400 Speaker 2: others at the, at the US FED have picked up, um, 185 00:09:48,440 --> 00:09:51,849 Speaker 2: which is that we have noticed some of these improvements 186 00:09:51,859 --> 00:09:54,419 Speaker 2: in productivity. So that's in one way positive that it 187 00:09:54,429 --> 00:09:55,950 Speaker 2: offsets some of the other scarring. 188 00:09:56,309 --> 00:09:59,770 Speaker 2: I think where, what we've heard throughout the meetings is 189 00:09:59,780 --> 00:10:02,289 Speaker 2: that it's the lower income countries where the scarring has 190 00:10:02,299 --> 00:10:05,640 Speaker 2: been mo most deeply felt, right? Um So particularly looking 191 00:10:05,650 --> 00:10:08,449 Speaker 2: to the bottom of the income stock. Um 192 00:10:09,250 --> 00:10:12,929 Speaker 2: Also you mentioned this trilateral meeting on currency. 11 interesting 193 00:10:12,940 --> 00:10:16,919 Speaker 2: thing that I've been picking up is is another trilateral dialogue, 194 00:10:16,929 --> 00:10:19,659 Speaker 2: very important that happened here in Washington just before the 195 00:10:19,669 --> 00:10:24,590 Speaker 2: spring meetings between the Philippines, Marcos from the Philippines and, 196 00:10:24,599 --> 00:10:27,390 Speaker 2: and Kishida San from Japan and Biden. 197 00:10:28,010 --> 00:10:33,699 Speaker 2: And that's crucial because if you look at the changing 198 00:10:33,750 --> 00:10:38,409 Speaker 2: winds of geo economic fragmentation, the relationship of us and 199 00:10:38,419 --> 00:10:43,630 Speaker 2: China their alignment within the Asia Pacific region, what's interesting 200 00:10:43,640 --> 00:10:46,150 Speaker 2: to know, I mean, there's been a serious, I would 201 00:10:46,159 --> 00:10:46,718 Speaker 2: say 202 00:10:47,489 --> 00:10:50,969 Speaker 2: stiffening of the Philippines position, right? And so it's also 203 00:10:50,979 --> 00:10:55,510 Speaker 2: interesting if you, if you track Chinese outbound investment into 204 00:10:55,520 --> 00:10:58,429 Speaker 2: Asia Pacific last year, guess how much was spent in Philippines, 205 00:10:58,440 --> 00:11:02,669 Speaker 2: not zero, right? So that's I think another interesting theme 206 00:11:02,679 --> 00:11:05,200 Speaker 2: to pick up is that, you know, Asia is a 207 00:11:05,210 --> 00:11:08,679 Speaker 2: diverse region. And we are seeing, I think different shifting 208 00:11:08,690 --> 00:11:14,710 Speaker 2: alignments coming here um on currency inflation, fiscal side of things, 209 00:11:15,450 --> 00:11:19,109 Speaker 2: I think it's, it's fascinating, I mean, one key dominant 210 00:11:19,119 --> 00:11:20,950 Speaker 2: theme of the meetings and in the weeks that have 211 00:11:20,960 --> 00:11:23,710 Speaker 2: preceded the meetings has been I call this the pundits 212 00:11:23,719 --> 00:11:25,218 Speaker 2: referendum on fiscal 213 00:11:25,530 --> 00:11:29,848 Speaker 2: said another way, even though the Republicans and Democrats seem 214 00:11:29,859 --> 00:11:32,809 Speaker 2: to be completely aligned on one thing which is ignoring 215 00:11:32,820 --> 00:11:35,679 Speaker 2: the deficit that has not escaped the eyes of all 216 00:11:35,690 --> 00:11:38,940 Speaker 2: of us gathered here and the US has been called 217 00:11:38,950 --> 00:11:41,659 Speaker 2: out front and center. Now, Olivier Blanchard used to call 218 00:11:41,669 --> 00:11:44,429 Speaker 2: this out too. And unfortunately, the US didn't really ever 219 00:11:44,440 --> 00:11:47,969 Speaker 2: do anything about it. But now you've heard very strong 220 00:11:47,979 --> 00:11:50,770 Speaker 2: cries from former Treasury secretaries here in the US that 221 00:11:50,780 --> 00:11:53,669 Speaker 2: it's a key risk in the dashboard of the global economy. 222 00:11:54,070 --> 00:11:56,630 Speaker 2: Um And of course, we're hearing calls from the Europeans 223 00:11:56,640 --> 00:11:59,869 Speaker 2: like tamper down the fiscal because you're continuing to stoke 224 00:11:59,880 --> 00:12:02,239 Speaker 2: demand and it's making our work harder, right? 225 00:12:02,710 --> 00:12:06,130 Speaker 1: It seems to me that the argument coming from the 226 00:12:06,140 --> 00:12:10,289 Speaker 1: staff level at the treasury and elsewhere is that, of course, 227 00:12:10,299 --> 00:12:12,968 Speaker 1: we need to consolidate fiscally, but we do have the 228 00:12:12,979 --> 00:12:16,359 Speaker 1: exorbitant privilege of printing our deficit in US dollars. And 229 00:12:16,369 --> 00:12:19,209 Speaker 1: we're so, are you going to spend your investment dollars 230 00:12:19,219 --> 00:12:22,089 Speaker 1: in other than buying AAA rated us treasuries? 231 00:12:22,479 --> 00:12:26,119 Speaker 1: I think that you can probably take that complacency a 232 00:12:26,130 --> 00:12:28,809 Speaker 1: bit too far and we have seen in the past 233 00:12:28,820 --> 00:12:31,830 Speaker 1: when we do see particularly in the long duration asset side, 234 00:12:32,010 --> 00:12:34,530 Speaker 1: sometimes there could be very few bids and that could 235 00:12:34,539 --> 00:12:36,979 Speaker 1: create anomalies and distortion of the market. And that is 236 00:12:36,989 --> 00:12:38,679 Speaker 1: not just a problem for the US, it can create 237 00:12:38,690 --> 00:12:42,349 Speaker 1: financial stability issues all over the world. So one would 238 00:12:42,359 --> 00:12:43,330 Speaker 1: hope that there is a little more 239 00:12:43,405 --> 00:12:45,815 Speaker 1: seriousness about this thing. But seriously, I mean, I don't 240 00:12:45,825 --> 00:12:47,505 Speaker 1: see and I'm sure you'll agree with me in the 241 00:12:47,515 --> 00:12:51,125 Speaker 1: House of the Senate any urgency toward correcting the fiscal path. 242 00:12:51,395 --> 00:12:54,984 Speaker 2: No, this is again, this is one thing on which Democrats, 243 00:12:55,244 --> 00:12:59,174 Speaker 2: I would say it's ignoring the fiscal deficit. And China 244 00:12:59,184 --> 00:13:02,284 Speaker 2: bashing are the two things that are uniting Republicans and Dems. 245 00:13:02,294 --> 00:13:06,664 Speaker 1: Absolutely. And on the inflation side, 246 00:13:07,400 --> 00:13:09,859 Speaker 1: one here is that some of the stuff that has 247 00:13:09,869 --> 00:13:11,520 Speaker 1: spooked the market in the last three months 248 00:13:11,940 --> 00:13:16,840 Speaker 1: are transitory that whether it is auto insurance rate or 249 00:13:16,849 --> 00:13:19,510 Speaker 1: home rentals, they will be coming down later in the year. 250 00:13:19,520 --> 00:13:22,429 Speaker 1: And therefore the Fed might still have a decent window 251 00:13:22,440 --> 00:13:23,960 Speaker 1: to cut rates. What's your take? 252 00:13:24,049 --> 00:13:27,229 Speaker 2: Look, I mean, this, the fact that shelter costs represent 253 00:13:27,239 --> 00:13:31,000 Speaker 2: 1/1 3rd of CPIS, the Fed's preferred measure I think 254 00:13:31,010 --> 00:13:35,079 Speaker 2: is very concerning. And that's something that we keep bringing 255 00:13:35,090 --> 00:13:39,039 Speaker 2: into these discussions because a lot of high fing bankers 256 00:13:39,049 --> 00:13:41,340 Speaker 2: with all due respect don't always 257 00:13:41,840 --> 00:13:44,340 Speaker 2: see the plight of, of what is at the heart 258 00:13:44,349 --> 00:13:46,320 Speaker 2: of the cost of living crisis, not just energy cost, 259 00:13:46,330 --> 00:13:49,960 Speaker 2: it's shelter costs. And we have a chronic shortage of 260 00:13:49,969 --> 00:13:53,079 Speaker 2: supply in affordable housing here in the United States. Uh 261 00:13:53,090 --> 00:13:56,010 Speaker 2: Latest data shows that over 50% of renters in the 262 00:13:56,020 --> 00:14:01,099 Speaker 2: United States are, are face unaffordability, um which is extraordinary. 263 00:14:01,309 --> 00:14:03,419 Speaker 2: And again, you have to think about it. It's not just, 264 00:14:03,429 --> 00:14:06,190 Speaker 2: it's not housing for the homeless or low income, it's 265 00:14:06,200 --> 00:14:09,630 Speaker 2: also middle income. Um guess what COVID didn't kill the city. 266 00:14:09,929 --> 00:14:12,169 Speaker 2: Um And so we have record rents in the United 267 00:14:12,179 --> 00:14:15,030 Speaker 2: States in New York right now. Um So I think 268 00:14:15,039 --> 00:14:17,969 Speaker 2: that's important. I do think that many are complacent about it. 269 00:14:17,979 --> 00:14:20,380 Speaker 2: And when I quiz central bankers about it sometimes, well, 270 00:14:20,390 --> 00:14:23,419 Speaker 2: we shouldn't be looking at house prices. Well, of course, 271 00:14:23,429 --> 00:14:25,710 Speaker 2: you can see the, the extent to which governments have 272 00:14:25,719 --> 00:14:28,150 Speaker 2: called such, for example, like the Reserve Bank of New 273 00:14:28,159 --> 00:14:31,950 Speaker 2: Zealand to task for. How did your monetary policy since 274 00:14:31,960 --> 00:14:35,340 Speaker 2: the GFC can contribute to just stoking prices? 275 00:14:35,710 --> 00:14:39,900 Speaker 2: Um So I think that's concerning and, and my forecast is, 276 00:14:40,179 --> 00:14:42,429 Speaker 2: I think the number of factors that have contributed to 277 00:14:42,440 --> 00:14:44,809 Speaker 2: this crisis of affordability are not going to go away 278 00:14:44,820 --> 00:14:45,599 Speaker 2: anytime soon. 279 00:14:45,609 --> 00:14:48,679 Speaker 1: That's right. So I did see some analytical work being 280 00:14:48,690 --> 00:14:51,950 Speaker 1: done about global housing inflation because although it's become a 281 00:14:51,960 --> 00:14:54,119 Speaker 1: big issue in the US, but it exists in a 282 00:14:54,130 --> 00:14:57,010 Speaker 1: bunch of other jurisdictions as well. So I think some 283 00:14:57,020 --> 00:14:59,080 Speaker 1: of the work that I saw done by the IMF 284 00:14:59,090 --> 00:15:00,710 Speaker 1: they picked up four or five 285 00:15:01,330 --> 00:15:06,409 Speaker 1: risk factors that you know, household leverage, exposure to only 286 00:15:06,419 --> 00:15:08,750 Speaker 1: short duration borrowing as also to long duration borrowing. So 287 00:15:08,760 --> 00:15:11,260 Speaker 1: the rates do get just upward and creates even more 288 00:15:11,270 --> 00:15:14,580 Speaker 1: pressure and then banking systems over exposure to the housing 289 00:15:14,590 --> 00:15:17,619 Speaker 1: market and so on. I think there are many development, 290 00:15:17,630 --> 00:15:21,219 Speaker 1: developed markets where many of these factors are flashing red 291 00:15:21,250 --> 00:15:24,169 Speaker 1: light in the US. I guess one saving grace is 292 00:15:24,179 --> 00:15:27,270 Speaker 1: that thanks to the extremely low interest rates in 2020 293 00:15:27,450 --> 00:15:27,869 Speaker 1: 2020 294 00:15:27,960 --> 00:15:30,250 Speaker 1: one fixed here. A lot of people went for the 295 00:15:30,260 --> 00:15:33,380 Speaker 1: fixed rates and therefore the pain that is right now 296 00:15:33,390 --> 00:15:36,409 Speaker 1: on the borrower side could have been much worse. 297 00:15:37,200 --> 00:15:40,260 Speaker 2: Uh which calls out another important point. Um that that 298 00:15:40,270 --> 00:15:44,809 Speaker 2: was an interesting piece in the wheel was that um 299 00:15:45,429 --> 00:15:49,330 Speaker 2: household service costs, household servicing of debt in the United 300 00:15:49,340 --> 00:15:55,169 Speaker 2: States remain relatively modest by historic. So everybody is talking about, ok, 301 00:15:55,320 --> 00:15:58,650 Speaker 2: you know, record tightening, but actually if you look at it, 302 00:15:58,659 --> 00:16:02,159 Speaker 2: it's about 9.8% of disposable income, which is not what 303 00:16:02,169 --> 00:16:04,539 Speaker 2: it was decades ago. So that's I think, and that's 304 00:16:04,549 --> 00:16:08,729 Speaker 2: another reason why demand has been more immune to the 305 00:16:08,739 --> 00:16:12,789 Speaker 2: rate hiking cycle because consumers just have more leverage at 306 00:16:12,799 --> 00:16:13,539 Speaker 2: their capacity. 307 00:16:14,030 --> 00:16:17,570 Speaker 1: So there's a whole level versus difference issue, right? That 308 00:16:17,580 --> 00:16:19,659 Speaker 1: rate of inflation may have come down. It's a little 309 00:16:19,690 --> 00:16:22,830 Speaker 1: longer 8 9%. But people do recoil when they do 310 00:16:22,840 --> 00:16:26,429 Speaker 1: grocery shopping and see their grocery bills being 30% 40% 311 00:16:26,440 --> 00:16:27,979 Speaker 1: higher than it was four years ago, which 312 00:16:27,989 --> 00:16:30,869 Speaker 2: is leading to an unanchored inflation 313 00:16:30,880 --> 00:16:34,119 Speaker 1: expectation. Correct. And on the issue of 314 00:16:35,289 --> 00:16:40,409 Speaker 1: prices beyond housing, I think on energy prices, although $3 315 00:16:40,419 --> 00:16:43,669 Speaker 1: gallon gas captures headlines, the fact of the matter is 316 00:16:43,679 --> 00:16:46,900 Speaker 1: in real terms, energy prices are lower than they were 317 00:16:47,150 --> 00:16:50,059 Speaker 1: in the peak of 2008 or earlier. So affordability is 318 00:16:50,070 --> 00:16:51,099 Speaker 1: actually substantially more. 319 00:16:51,780 --> 00:16:54,859 Speaker 2: And I think Europe, that's where you see a country 320 00:16:54,869 --> 00:16:58,400 Speaker 2: like Germany being at the heart of the crisis, which 321 00:16:58,409 --> 00:17:01,820 Speaker 2: comparatively speaking, the US has just had such limited exposure 322 00:17:01,830 --> 00:17:04,280 Speaker 2: to the crisis and conflict in Russia. Correct, 323 00:17:04,290 --> 00:17:04,800 Speaker 1: correct. 324 00:17:05,010 --> 00:17:09,469 Speaker 1: Um No switch from there to something that might seem 325 00:17:09,479 --> 00:17:11,459 Speaker 1: unrelated to the discussion we've had in Macro so far. 326 00:17:11,469 --> 00:17:13,770 Speaker 1: But I think there is a Macro rle there artificial 327 00:17:13,780 --> 00:17:17,150 Speaker 1: intelligence because, you know, 2023 was a year of A 328 00:17:17,160 --> 00:17:20,030 Speaker 1: I with NVIDIA hitting record after record and billions of 329 00:17:20,040 --> 00:17:23,280 Speaker 1: dollars of investments going into this area. Uh We are 330 00:17:23,290 --> 00:17:25,900 Speaker 1: now in the middle of 2024. So we had a 331 00:17:25,910 --> 00:17:28,310 Speaker 1: year and a half since Chad GP D came into 332 00:17:28,319 --> 00:17:29,310 Speaker 1: everybody's consciousness. 333 00:17:29,599 --> 00:17:33,569 Speaker 1: So what's your sense about its world changing potential? 334 00:17:33,989 --> 00:17:36,319 Speaker 2: Um Well, first of all, I would say, I think 335 00:17:36,329 --> 00:17:40,040 Speaker 2: there is a huge over reliance on A I to 336 00:17:40,050 --> 00:17:44,239 Speaker 2: be this panacea for improving total factor productivity. 337 00:17:44,760 --> 00:17:47,640 Speaker 2: And that's a true theme coming out of these meetings. 338 00:17:47,650 --> 00:17:51,958 Speaker 2: And it's so funny because going back to the recovery 339 00:17:51,969 --> 00:17:55,739 Speaker 2: packages that were announced cascading across the globe from COVID, 340 00:17:55,880 --> 00:17:59,780 Speaker 2: everything was green and digital, right? Everything was, and everyone 341 00:17:59,790 --> 00:18:02,929 Speaker 2: promised all these, you know, Halcyon world views about green 342 00:18:02,939 --> 00:18:05,339 Speaker 2: and digital and, and I mean, it's in every single 343 00:18:05,349 --> 00:18:06,300 Speaker 2: government document 344 00:18:07,310 --> 00:18:09,550 Speaker 2: with the exception of I would say South Korea, which 345 00:18:09,560 --> 00:18:11,189 Speaker 2: was kind of much more meaningful on the on the 346 00:18:11,199 --> 00:18:14,729 Speaker 2: Green New Deal. Um But on the digital front is 347 00:18:14,739 --> 00:18:18,369 Speaker 2: everyone is focused on gen A I either the dark 348 00:18:18,380 --> 00:18:21,609 Speaker 2: side of what happens if robots take over our lives. 349 00:18:21,619 --> 00:18:23,949 Speaker 2: And so the dark side of the labor market that, 350 00:18:24,260 --> 00:18:25,750 Speaker 2: you know, all of a sudden we're not going to 351 00:18:25,760 --> 00:18:28,930 Speaker 2: have any um you know, there won't be jobs for 352 00:18:28,939 --> 00:18:31,969 Speaker 2: our Children, etcetera, as well as the dark side in 353 00:18:31,979 --> 00:18:35,410 Speaker 2: terms of governance. What happens if A I becomes too dangerous? 354 00:18:36,699 --> 00:18:38,800 Speaker 2: But I, again, on the hopeful side, I think there's 355 00:18:38,810 --> 00:18:43,670 Speaker 2: just far too much um invested in the power for 356 00:18:43,680 --> 00:18:48,000 Speaker 2: gen A I to unlock productivity. Now, I give an 357 00:18:48,010 --> 00:18:51,079 Speaker 2: example of the ways in which you can have productivity 358 00:18:51,089 --> 00:18:54,349 Speaker 2: gains from technology, of the 359 00:18:55,189 --> 00:18:59,750 Speaker 2: very clear inefficiency of taking research and gathering research when 360 00:18:59,760 --> 00:19:03,079 Speaker 2: I was an undergrad. So uh I won't name the 361 00:19:03,089 --> 00:19:05,459 Speaker 2: university because I don't want to name names, but you 362 00:19:05,469 --> 00:19:07,379 Speaker 2: would go to the stacks in the library and you 363 00:19:07,390 --> 00:19:09,349 Speaker 2: would go and you would take the journals and you 364 00:19:09,359 --> 00:19:13,329 Speaker 2: would photocopy them you would put coins, maybe a card, 365 00:19:13,339 --> 00:19:16,000 Speaker 2: maybe a plastic card into the photocopy machine 366 00:19:16,439 --> 00:19:19,040 Speaker 2: and then maybe the journals weren't there on the shelves. 367 00:19:19,050 --> 00:19:21,219 Speaker 2: Somebody else. I mean, there was like one notorious guy 368 00:19:21,229 --> 00:19:23,260 Speaker 2: who would hoard the journals because he didn't want anybody 369 00:19:23,270 --> 00:19:26,099 Speaker 2: else to get their research and you would photocopy these 370 00:19:26,109 --> 00:19:28,479 Speaker 2: and then you'd take your photocopies and you'd sit at 371 00:19:28,489 --> 00:19:28,979 Speaker 2: your desk. 372 00:19:29,839 --> 00:19:32,260 Speaker 2: Now when I was doing a piece on the future 373 00:19:32,270 --> 00:19:35,920 Speaker 2: of work, I was sitting in Toronto hotel room and I, unfortunately, 374 00:19:35,930 --> 00:19:37,930 Speaker 2: I mean, I'm not so green. I like having paper 375 00:19:38,150 --> 00:19:42,640 Speaker 2: and I needed about 10 journal articles uh for this 376 00:19:42,650 --> 00:19:45,300 Speaker 2: piece uh before taking a flight. 377 00:19:45,910 --> 00:19:47,849 Speaker 2: So I just sent all of the attachments to the 378 00:19:47,859 --> 00:19:50,949 Speaker 2: front desk, they printed them for me. So what used 379 00:19:50,959 --> 00:19:54,349 Speaker 2: to take probably two days took less than one hour. 380 00:19:54,579 --> 00:19:56,659 Speaker 2: Um And so that's what I talk about. Those are 381 00:19:56,670 --> 00:20:00,629 Speaker 2: the kind of efficiency gains that have happened. Um But 382 00:20:00,640 --> 00:20:04,889 Speaker 2: a robot did an A I didn't write my piece 383 00:20:04,900 --> 00:20:07,560 Speaker 2: for me. And so I think that's where people are 384 00:20:07,569 --> 00:20:08,449 Speaker 2: sort of stumbling. 385 00:20:08,959 --> 00:20:12,910 Speaker 2: Um And we had a fantastic panel yesterday on, on 386 00:20:12,920 --> 00:20:14,430 Speaker 2: A I and the global economy and I think it's 387 00:20:14,439 --> 00:20:18,750 Speaker 2: very clear um that other researchers are, are perhaps more 388 00:20:18,760 --> 00:20:22,369 Speaker 2: balanced in what kinds of productivity gains we can actually have. 389 00:20:22,599 --> 00:20:22,839 Speaker 2: So 390 00:20:22,849 --> 00:20:27,390 Speaker 1: the balance I think is not reflected in Wall Street where, 391 00:20:27,400 --> 00:20:29,579 Speaker 1: you know, anything with the dot A I is getting 392 00:20:30,030 --> 00:20:33,020 Speaker 1: for Silicon Valley, Silicon Valley for that matter, right. So 393 00:20:33,030 --> 00:20:37,689 Speaker 1: it remains to be seen how disruptive uh the sort 394 00:20:37,699 --> 00:20:41,180 Speaker 1: of the gen a large language model wave is, I mean, 395 00:20:41,189 --> 00:20:44,409 Speaker 1: you do see certain reports arguing that in certain aspects 396 00:20:44,420 --> 00:20:47,420 Speaker 1: of the service sector, there can be substantial productivity enhancement 397 00:20:47,430 --> 00:20:48,859 Speaker 1: but not across the board yet. 398 00:20:48,869 --> 00:20:51,609 Speaker 2: And what I see in my, in my cursory research 399 00:20:51,619 --> 00:20:52,810 Speaker 2: and again, I promise I'm going to do a piece 400 00:20:52,819 --> 00:20:54,219 Speaker 2: on this in the summer, which so we'll get to 401 00:20:54,229 --> 00:20:55,180 Speaker 2: talk about it. But um 402 00:20:55,849 --> 00:20:58,329 Speaker 2: in my cursory research, what I see is that the 403 00:20:58,339 --> 00:21:01,709 Speaker 2: efficiency gains are happening for the least skilled people. 404 00:21:02,560 --> 00:21:06,150 Speaker 2: So set another way like a clerical desk job, a 405 00:21:06,199 --> 00:21:09,159 Speaker 2: passive investor, you know, like those are the types of 406 00:21:09,170 --> 00:21:12,660 Speaker 2: things that you know, are, are likely to be disintermediated 407 00:21:12,780 --> 00:21:15,409 Speaker 1: more. But you know, what worries me is that if 408 00:21:15,420 --> 00:21:19,819 Speaker 1: I can do very good research and not need research assistance, 409 00:21:20,420 --> 00:21:22,359 Speaker 1: what would happen to the future of research systems? How 410 00:21:22,369 --> 00:21:24,680 Speaker 1: would they ever learn? Because as an R A you 411 00:21:24,689 --> 00:21:26,919 Speaker 1: learn through osmosis, you work with a senior researcher and 412 00:21:26,930 --> 00:21:28,770 Speaker 1: you pick up stuff, but during that time, you do 413 00:21:28,780 --> 00:21:30,880 Speaker 1: a lot of grunt work. If all the grunt work 414 00:21:30,890 --> 00:21:33,020 Speaker 1: will be done by the ja I, how will you 415 00:21:33,030 --> 00:21:34,958 Speaker 1: ever grow or how will you ever get the exposure? 416 00:21:35,630 --> 00:21:38,260 Speaker 2: Yeah. No, II I still think it's probably gonna be 417 00:21:38,270 --> 00:21:42,109 Speaker 2: a foundation for judgment and analytical capabilities. That you, you 418 00:21:42,119 --> 00:21:42,448 Speaker 2: can't 419 00:21:42,459 --> 00:21:47,438 Speaker 1: replace summer trends, don't lose hope. Um Let's um 420 00:21:48,449 --> 00:21:50,169 Speaker 1: I want to talk a little bit about this whole 421 00:21:50,180 --> 00:21:53,500 Speaker 1: higher for longer narrative. You know, whether we are right 422 00:21:53,510 --> 00:21:56,030 Speaker 1: in our concern for inflation going forward or not, the 423 00:21:56,040 --> 00:21:58,989 Speaker 1: fact of the matter is we've had now nearly two 424 00:21:59,000 --> 00:22:02,089 Speaker 1: years of fairly high nominal and real interest rates and 425 00:22:02,099 --> 00:22:04,900 Speaker 1: it looks like it's not coming down any time soon now. 426 00:22:04,910 --> 00:22:06,938 Speaker 1: I don't worry too much about it in the context 427 00:22:06,949 --> 00:22:09,188 Speaker 1: of the US. The country has done well in the 428 00:22:09,199 --> 00:22:11,319 Speaker 1: last few years, there's been a lot of gains on 429 00:22:11,329 --> 00:22:12,420 Speaker 1: the portfolio side. 430 00:22:12,709 --> 00:22:16,609 Speaker 1: So perhaps, you know, there is substantial absorbed capacity with 431 00:22:16,619 --> 00:22:18,579 Speaker 1: respect to higher interest rates if it were to get, 432 00:22:19,030 --> 00:22:21,969 Speaker 1: you know, stuck in the horizon for another 6, 12 months. 433 00:22:22,300 --> 00:22:25,188 Speaker 1: But what about the rest of the world? Where do 434 00:22:25,199 --> 00:22:29,219 Speaker 1: we see risks manifesting uh if rates do remain high 435 00:22:29,229 --> 00:22:30,770 Speaker 1: for the foreseeable future? 436 00:22:30,939 --> 00:22:33,589 Speaker 2: That's so interesting. Actually, um research from the B I 437 00:22:33,729 --> 00:22:37,479 Speaker 2: shows that the tightening that we experienced from exiting from 438 00:22:37,489 --> 00:22:38,260 Speaker 2: the pandemic 439 00:22:38,619 --> 00:22:45,420 Speaker 2: um through to 2022 was unprecedented, unprecedented, 95% of central 440 00:22:45,430 --> 00:22:47,560 Speaker 2: banks tightened around the world. So we've never even seen 441 00:22:47,569 --> 00:22:50,030 Speaker 2: that in the energy price. So I would say one 442 00:22:50,040 --> 00:22:53,339 Speaker 2: good thing about it is that it was actually distinctly 443 00:22:53,349 --> 00:22:55,550 Speaker 2: well correlated with a lot of the E MD E 444 00:22:55,560 --> 00:22:58,239 Speaker 2: central bankers having front loaded those rate hikes, 445 00:22:58,599 --> 00:23:02,419 Speaker 2: which was I think pacifying when we think about the, 446 00:23:02,430 --> 00:23:05,719 Speaker 2: you know, the history of near history of the taper tantrum, right? 447 00:23:05,729 --> 00:23:08,879 Speaker 2: Um So I think that has been a positive dynamic. 448 00:23:08,890 --> 00:23:11,780 Speaker 2: So when we look particularly even to Latin American Central banks, 449 00:23:12,699 --> 00:23:15,718 Speaker 2: additionally, thinking about financial stability in the wake of this 450 00:23:15,729 --> 00:23:19,919 Speaker 2: unprecedented tightening, you saw a lot of Asian central banks 451 00:23:19,930 --> 00:23:24,239 Speaker 2: pioneering some techniques that were used by advanced economies in 452 00:23:24,250 --> 00:23:27,479 Speaker 2: the wake of the GFC and pioneered those to instill 453 00:23:27,489 --> 00:23:31,020 Speaker 2: greater fiscal buffers to ensure price stability going forward. So 454 00:23:31,030 --> 00:23:33,390 Speaker 2: I think all of those have been positive dynamics that 455 00:23:33,400 --> 00:23:36,199 Speaker 2: have led to a less fragile outlook. 456 00:23:37,310 --> 00:23:40,099 Speaker 2: But of course, now, as we say, there is clear 457 00:23:40,109 --> 00:23:43,010 Speaker 2: castigation of the US, you need to cool this down 458 00:23:43,260 --> 00:23:46,430 Speaker 2: so that you can actually enter into some kind of 459 00:23:46,439 --> 00:23:47,410 Speaker 2: cut territory, 460 00:23:47,420 --> 00:23:50,569 Speaker 1: correct. And I think although we haven't talked a lot 461 00:23:50,579 --> 00:23:52,739 Speaker 1: about the risk coming from a strong dollar in the 462 00:23:52,750 --> 00:23:55,160 Speaker 1: last couple of years. I have a feeling 2024 will 463 00:23:55,170 --> 00:23:56,089 Speaker 1: be the year when 464 00:23:56,709 --> 00:23:59,199 Speaker 1: if the dollar strength sustains, it's going to become a 465 00:23:59,209 --> 00:24:02,680 Speaker 1: big issue, the kind of depreciation pressure we've seen already 466 00:24:02,689 --> 00:24:03,739 Speaker 1: in Korea, Japan. 467 00:24:03,930 --> 00:24:07,229 Speaker 2: Exactly. Um I was actually just looking at a chart 468 00:24:07,239 --> 00:24:10,139 Speaker 2: of DXY this morning and we have not seen so 469 00:24:10,150 --> 00:24:14,390 Speaker 2: hovering around 104, we've not seen these numbers since 2002, 470 00:24:14,800 --> 00:24:16,709 Speaker 2: which is, that's striking. I mean, you look at a 471 00:24:16,719 --> 00:24:19,890 Speaker 2: chart that is absolutely. And again, coming back to the boj, 472 00:24:21,109 --> 00:24:27,250 Speaker 2: the much awaited, long awaited exit from NZ maybe 473 00:24:27,890 --> 00:24:28,310 Speaker 1: and 474 00:24:29,089 --> 00:24:30,400 Speaker 2: nothing. Nothing. 475 00:24:31,339 --> 00:24:34,989 Speaker 1: So I think this makes again the quite nervous. So 476 00:24:35,270 --> 00:24:38,290 Speaker 1: I think before attempting to get into the normalization mode, 477 00:24:38,300 --> 00:24:40,079 Speaker 1: they were worried that it might lead to an overshoot 478 00:24:40,089 --> 00:24:42,929 Speaker 1: of the exchange rate. On the precision side. Nothing whatsoever 479 00:24:42,939 --> 00:24:45,989 Speaker 1: has happened, which hopefully give them a little more confidence 480 00:24:46,000 --> 00:24:48,060 Speaker 1: that they can continue with normalization in the second half 481 00:24:48,069 --> 00:24:48,979 Speaker 1: of 2024. 482 00:24:49,349 --> 00:24:52,880 Speaker 1: But at the same time, if that normalization leads to 483 00:24:52,890 --> 00:24:56,359 Speaker 1: additional stresses in the economy, because it is the largest 484 00:24:56,369 --> 00:24:59,129 Speaker 1: indebted economy in the world, they do have risk on 485 00:24:59,140 --> 00:25:01,979 Speaker 1: the interest rate side. So you have to weigh 486 00:25:01,989 --> 00:25:04,430 Speaker 2: on the upside to come back to that. Like we 487 00:25:04,439 --> 00:25:06,760 Speaker 2: talk about scarring, but where is the upside on the upside? 488 00:25:07,170 --> 00:25:11,109 Speaker 2: Look at the performance of topics, companies, right? And certain 489 00:25:11,119 --> 00:25:16,389 Speaker 2: automotive manufacturers just it's been an extraordinary boon even looking 490 00:25:16,400 --> 00:25:18,199 Speaker 2: to demand in China and the US. 491 00:25:18,640 --> 00:25:21,829 Speaker 1: But Alessis for me, Japan is somewhat of a revelation 492 00:25:21,839 --> 00:25:24,750 Speaker 1: that we have talked about Japan in the context of 493 00:25:24,760 --> 00:25:27,589 Speaker 1: last decades and the futility of 494 00:25:27,680 --> 00:25:31,399 Speaker 1: of negative interest rate policy. But through it all, Japan's 495 00:25:31,410 --> 00:25:34,150 Speaker 1: sort of investment in R and D. Search for excellence 496 00:25:34,160 --> 00:25:37,530 Speaker 1: in frontier technology has continued unabated and the Japanese companies 497 00:25:37,540 --> 00:25:38,839 Speaker 1: are reaping the rewards for that 498 00:25:39,060 --> 00:25:42,459 Speaker 2: particularly there's outbound inc, right? Um in the trading houses. 499 00:25:42,469 --> 00:25:45,339 Speaker 2: But what's another thing that's tied to this and something 500 00:25:45,349 --> 00:25:47,760 Speaker 2: that we've also focused on throughout the meetings. This week 501 00:25:47,770 --> 00:25:53,089 Speaker 2: is the exemplary role of Japan as an infrastructure investor 502 00:25:53,099 --> 00:25:55,489 Speaker 2: in this world. So in 503 00:25:56,050 --> 00:25:59,290 Speaker 2: uh you know, in an age of decoupling of certain 504 00:25:59,300 --> 00:26:02,010 Speaker 2: elements of the commercial relationship between the US and China, 505 00:26:02,400 --> 00:26:05,709 Speaker 2: so many people are focused on this Beijing and Washington. 506 00:26:05,719 --> 00:26:09,030 Speaker 2: Very few are focused on the third nations and Japan is, 507 00:26:09,040 --> 00:26:10,989 Speaker 2: is a standout example here, I 508 00:26:11,000 --> 00:26:14,589 Speaker 1: I fully agree. We don't think of Japan as a 509 00:26:14,599 --> 00:26:16,949 Speaker 1: deliverer of public goods in the world, 510 00:26:17,339 --> 00:26:19,219 Speaker 1: but especially when you come to DC. And when you 511 00:26:19,229 --> 00:26:22,619 Speaker 1: realize that the technical assistance that many countries around the 512 00:26:22,630 --> 00:26:25,438 Speaker 1: world get a large part of this underwritten by Japanese 513 00:26:25,449 --> 00:26:28,920 Speaker 1: development authorities. You come to appreciate Japan's role in this 514 00:26:28,930 --> 00:26:30,449 Speaker 1: multilateral setting as well. 515 00:26:30,459 --> 00:26:33,640 Speaker 2: Absolutely, one of the top shareholders in the A and 516 00:26:33,650 --> 00:26:38,719 Speaker 2: actually recently launched a new fund leap two to be 517 00:26:38,729 --> 00:26:41,959 Speaker 2: able to invest in pockets of Asia Pacific and looking 518 00:26:41,969 --> 00:26:42,510 Speaker 2: to 519 00:26:42,869 --> 00:26:48,339 Speaker 2: improve growth, outlooks support the energy transition. So I think 520 00:26:48,349 --> 00:26:49,239 Speaker 2: it's fantastic 521 00:26:50,489 --> 00:26:54,290 Speaker 1: Europeans were not particularly vocal in this meeting, it seems like. 522 00:26:54,300 --> 00:26:56,359 Speaker 1: But did you pick up anything interesting from the Europeans 523 00:26:56,770 --> 00:26:58,760 Speaker 1: or Eu or individual government? There is a 524 00:26:58,770 --> 00:27:01,300 Speaker 2: little bit of shaming on the US on the deficit, right. 525 00:27:01,310 --> 00:27:01,639 Speaker 2: So 526 00:27:02,010 --> 00:27:04,969 Speaker 2: um I, you know, a lot of people have called 527 00:27:04,979 --> 00:27:08,880 Speaker 2: out the extent to which across the eurozone, you're looking 528 00:27:08,890 --> 00:27:11,750 Speaker 2: at a median deficit that's much more restrained comparatively to 529 00:27:11,760 --> 00:27:13,879 Speaker 2: the US. So there's some shaming there. 530 00:27:14,260 --> 00:27:17,089 Speaker 2: I've also seen quite a lot of talk about just 531 00:27:17,099 --> 00:27:19,489 Speaker 2: the extent to which the US economy is that much 532 00:27:19,500 --> 00:27:22,420 Speaker 2: larger than Europe. And so then there's this trading back 533 00:27:22,430 --> 00:27:25,109 Speaker 2: and forth, is that off the back of, you know, 534 00:27:25,300 --> 00:27:29,060 Speaker 2: an ever expanding fiscal deficit. One interesting point that was 535 00:27:29,069 --> 00:27:34,729 Speaker 2: brought up by President Lagarde is how, how Europe structural 536 00:27:34,739 --> 00:27:37,510 Speaker 2: reforms and how Europe needs to support innovation. 537 00:27:37,989 --> 00:27:41,810 Speaker 2: And she made the astute observation very clearly that you 538 00:27:41,819 --> 00:27:43,688 Speaker 2: have a brain drain within Europe. She said we we 539 00:27:43,699 --> 00:27:47,420 Speaker 2: innovate but then the innovators go elsewhere. So uh I 540 00:27:47,430 --> 00:27:49,909 Speaker 2: would have asked a follow up question is OK. So 541 00:27:49,920 --> 00:27:51,709 Speaker 2: what needs to be in place? Do you need to 542 00:27:51,719 --> 00:27:54,500 Speaker 2: have strong venture capital funding? If you look at an 543 00:27:54,510 --> 00:27:59,250 Speaker 2: economy like Canada, where you have Kitchener Waterloo, extraordinary innovation 544 00:27:59,260 --> 00:28:02,420 Speaker 2: being driven there, there's has historically been a dirt, 545 00:28:02,510 --> 00:28:05,760 Speaker 2: the venture capital. So you see actually people, you know, 546 00:28:05,770 --> 00:28:10,189 Speaker 2: in Seattle, just poaching talent from neighboring Vancouver. So you've 547 00:28:10,199 --> 00:28:12,180 Speaker 2: also seen a brain drain of some of that rich 548 00:28:12,189 --> 00:28:16,829 Speaker 2: talent in France going straight to Quebec. And so how 549 00:28:16,839 --> 00:28:20,890 Speaker 2: Europe adjusts to this is one question and others have 550 00:28:20,900 --> 00:28:24,260 Speaker 2: also rightly observed that Europe can generally be better at 551 00:28:24,270 --> 00:28:26,349 Speaker 2: regulating tech versus growing 552 00:28:26,359 --> 00:28:29,250 Speaker 1: tech. They're being pretty strident in that, aren't they? 553 00:28:30,180 --> 00:28:33,329 Speaker 1: Now look, the World Bank meetings are largely about economics 554 00:28:33,339 --> 00:28:36,989 Speaker 1: and finance. But defense related spending, the imperative for that. 555 00:28:37,000 --> 00:28:39,729 Speaker 1: I think for Europe has never been bigger So when 556 00:28:39,739 --> 00:28:41,819 Speaker 1: we think about drivers of growth for the rest of 557 00:28:41,829 --> 00:28:43,640 Speaker 1: the decade, we like to think 558 00:28:43,650 --> 00:28:44,630 Speaker 2: or supporting higher 559 00:28:44,739 --> 00:28:47,400 Speaker 1: star, correct that we like to think that, you know, 560 00:28:47,650 --> 00:28:51,449 Speaker 1: growth could be driven by spending on climate change on 561 00:28:51,459 --> 00:28:54,530 Speaker 1: technology innovation. But it seems like a big chunk of 562 00:28:54,540 --> 00:28:57,060 Speaker 1: growth for Europe will come from defense related spending. 563 00:28:57,510 --> 00:28:59,569 Speaker 2: You know, Tim, I have to ask, I wonder how 564 00:28:59,579 --> 00:29:02,680 Speaker 2: sticky this is gonna be. You know, we actually, we 565 00:29:02,689 --> 00:29:05,650 Speaker 2: were looking at charts of defense spending as a percentage 566 00:29:05,660 --> 00:29:09,010 Speaker 2: of GDP across the globe uh recently and thinking about 567 00:29:09,020 --> 00:29:10,800 Speaker 2: con concerning levels of debt. 568 00:29:11,369 --> 00:29:14,170 Speaker 2: And I was just looking at historical charts for certain 569 00:29:14,180 --> 00:29:18,229 Speaker 2: countries and even countries where you've seen a larger percentage 570 00:29:18,410 --> 00:29:22,290 Speaker 2: that's not always been so sticky. Greece would be a 571 00:29:22,300 --> 00:29:25,790 Speaker 2: great example here. And so I, I question the extent 572 00:29:25,800 --> 00:29:29,069 Speaker 2: to how sticky that's going to be, maybe a lot 573 00:29:29,079 --> 00:29:31,239 Speaker 2: will ride on who comes into the White House. I 574 00:29:31,260 --> 00:29:31,369 Speaker 2: was 575 00:29:31,400 --> 00:29:34,119 Speaker 1: about to go right there. Yes, exactly. I think that, 576 00:29:34,430 --> 00:29:35,510 Speaker 1: but I suppose 577 00:29:36,000 --> 00:29:39,670 Speaker 1: the experience of the war in Ukraine for Europe has 578 00:29:39,680 --> 00:29:43,270 Speaker 1: been a chastening one and the imperative to sort of 579 00:29:43,280 --> 00:29:47,550 Speaker 1: have homegrown technologies and capabilities and even more arms and 580 00:29:47,560 --> 00:29:50,349 Speaker 1: ammo and soldiers, I think has gone up in my 581 00:29:50,359 --> 00:29:55,579 Speaker 1: view somewhat structurally higher. And I mean, you can be 582 00:29:55,589 --> 00:29:58,069 Speaker 1: uncharitable and say that that is because of the previous 583 00:29:58,079 --> 00:29:59,260 Speaker 1: administration sort of 584 00:30:01,050 --> 00:30:03,560 Speaker 1: harassment of European governments, but you could also say that 585 00:30:03,569 --> 00:30:07,300 Speaker 1: even without that the act of Russia's invasion of Ukraine alone, 586 00:30:07,310 --> 00:30:09,040 Speaker 1: even if the Democrats were in power at that time, 587 00:30:09,310 --> 00:30:13,310 Speaker 1: or the previous four years would have probably led Europe 588 00:30:13,319 --> 00:30:16,890 Speaker 1: to sort of look inward a little more. You earlier 589 00:30:16,900 --> 00:30:19,300 Speaker 1: mentioned a little bit about Europe, sort of waking up 590 00:30:19,310 --> 00:30:23,300 Speaker 1: to the Chinese overcapacity on the E side. 591 00:30:23,599 --> 00:30:25,989 Speaker 1: Uh We're hearing rumblings that there might be, you know, 592 00:30:26,000 --> 00:30:29,670 Speaker 1: unilateral tariffs levied on Chinese exports. What's your sense? Do 593 00:30:29,680 --> 00:30:30,479 Speaker 1: you think they'll put this 594 00:30:30,489 --> 00:30:34,430 Speaker 2: through from Europe? Yeah. Yeah, I mean it, what's interesting 595 00:30:34,469 --> 00:30:36,859 Speaker 2: to know is if you look at the summit last October, 596 00:30:37,829 --> 00:30:41,859 Speaker 2: there was a lot of chatter within the eu that OK, 597 00:30:41,869 --> 00:30:45,589 Speaker 2: we've we've just hit these run up in the trade 598 00:30:45,599 --> 00:30:49,060 Speaker 2: deficit with China. But part of the reason for that 599 00:30:49,069 --> 00:30:53,119 Speaker 2: is that Europe has sustained this severe energy price shock. 600 00:30:53,349 --> 00:30:55,790 Speaker 2: So if you think about it, like that's more of 601 00:30:55,800 --> 00:31:00,979 Speaker 2: a weakening and an etiolation of Eurozone export capacity, right? 602 00:31:00,989 --> 00:31:04,170 Speaker 2: It's not China stop buying. So it's interesting, I think 603 00:31:04,180 --> 00:31:05,930 Speaker 2: there needs to be a little bit of a reality 604 00:31:05,939 --> 00:31:06,599 Speaker 2: check there. 605 00:31:06,920 --> 00:31:11,920 Speaker 2: Um I would say that the extent to which Europe 606 00:31:11,930 --> 00:31:14,959 Speaker 2: will be protectionist on China against the energy transition. I 607 00:31:14,969 --> 00:31:17,810 Speaker 2: think it is probably um I think that's a reality 608 00:31:17,819 --> 00:31:21,319 Speaker 2: that doesn't seem to be reversed anytime soon. 609 00:31:21,770 --> 00:31:24,709 Speaker 1: So would you argue then that Europe and China have 610 00:31:24,719 --> 00:31:27,020 Speaker 1: a deeper symbiosis than the US and China 611 00:31:27,310 --> 00:31:32,329 Speaker 2: historically, that's been the case, but I I'm seeing 612 00:31:33,339 --> 00:31:38,890 Speaker 2: the winds shift here a bit now that is temporarily, 613 00:31:38,900 --> 00:31:42,760 Speaker 2: I think related to the energy transition and minerals and, and, and, 614 00:31:42,770 --> 00:31:45,670 Speaker 2: and materials to support the energy transition. It's I don't 615 00:31:45,680 --> 00:31:48,650 Speaker 2: see that seeping over into finance or asset management yet 616 00:31:49,329 --> 00:31:52,079 Speaker 2: in the way that we have witnessed that seeping over 617 00:31:52,089 --> 00:31:53,339 Speaker 2: in the US, right? You 618 00:31:53,349 --> 00:31:56,040 Speaker 1: mentioning the word finance and asset management gives you the 619 00:31:56,050 --> 00:31:57,589 Speaker 1: best segue imaginable. 620 00:31:57,790 --> 00:32:01,869 Speaker 1: Um Going back to our key takeaways from the meetings 621 00:32:01,880 --> 00:32:05,599 Speaker 1: and concerns about the global economic landscape, going forward. One 622 00:32:05,609 --> 00:32:07,550 Speaker 1: area where we just don't have very good visibility is 623 00:32:07,560 --> 00:32:10,160 Speaker 1: the private side of the market, private debt, private equity. 624 00:32:10,319 --> 00:32:14,709 Speaker 1: And I think it's a normal sense or normally it's 625 00:32:14,719 --> 00:32:16,020 Speaker 1: OK to sort of, you know, worry that, you know, 626 00:32:16,030 --> 00:32:18,060 Speaker 1: if we don't have a lot of data in that area, 627 00:32:18,479 --> 00:32:22,869 Speaker 1: that area's vulnerability, fragility may be underestimated. 628 00:32:23,099 --> 00:32:24,880 Speaker 1: So are you seeing work being done to get a 629 00:32:24,890 --> 00:32:26,170 Speaker 1: sense of that risk? 630 00:32:26,290 --> 00:32:29,630 Speaker 2: It's interesting the FSB, the Bank of England, the ECB 631 00:32:29,640 --> 00:32:32,479 Speaker 2: are really the front runners here. Um And B I 632 00:32:32,650 --> 00:32:35,780 Speaker 2: has obviously historically called this out since, I mean, really 633 00:32:35,790 --> 00:32:39,300 Speaker 2: strong coverage since 2017. Um I have not seen the 634 00:32:39,310 --> 00:32:43,459 Speaker 2: Fed really be as concerned. Um And 635 00:32:44,040 --> 00:32:46,540 Speaker 2: as we were just sharing in the green room before, 636 00:32:46,550 --> 00:32:49,250 Speaker 2: I do think that it takes a private credit or 637 00:32:49,260 --> 00:32:52,339 Speaker 2: a credit event to usher in regulation. 638 00:32:54,670 --> 00:32:57,729 Speaker 2: How and why did this emerge? I would say that 639 00:32:57,739 --> 00:32:59,630 Speaker 2: financial risk and I'm gonna take a little bit of 640 00:32:59,640 --> 00:33:02,609 Speaker 2: a Keynesian approach here. I would say financial or Minsky's 641 00:33:03,859 --> 00:33:08,650 Speaker 2: adaptation of Keynes financial risk moves like liquid mercury. It 642 00:33:08,660 --> 00:33:12,130 Speaker 2: doesn't ever evaporate, it just moves from one place to another. 643 00:33:12,140 --> 00:33:15,089 Speaker 2: So we regulated all of that risky lending out of 644 00:33:15,099 --> 00:33:17,479 Speaker 2: the globally systemic important banks in the wake of the 645 00:33:17,489 --> 00:33:20,449 Speaker 2: crisis and it went somewhere and where did it go 646 00:33:20,459 --> 00:33:23,849 Speaker 2: when you look at assets under management on a global scale? 647 00:33:24,239 --> 00:33:28,060 Speaker 2: And those under the non bank financial intermediaries has has 648 00:33:28,069 --> 00:33:32,109 Speaker 2: absolutely eclipsed that of the traditional banks. And so within 649 00:33:32,119 --> 00:33:36,390 Speaker 2: that subset is this private credit market. And I would 650 00:33:36,400 --> 00:33:40,349 Speaker 2: say there is zero visibility or transparency into the balance 651 00:33:40,359 --> 00:33:45,199 Speaker 2: sheets of some of these entities into the potential for liquidity, mismatches. 652 00:33:45,459 --> 00:33:49,000 Speaker 2: But the yields are fantastic. And so pension funds 653 00:33:49,224 --> 00:33:52,905 Speaker 2: worrisomely have been crowding into this asset class in their 654 00:33:52,915 --> 00:33:56,244 Speaker 2: fiduciary duty. Perhaps not even thinking about the longer term 655 00:33:56,255 --> 00:33:58,625 Speaker 2: systemic risks of what happens if you have some kind 656 00:33:58,635 --> 00:34:01,334 Speaker 2: of a tumble. Now, regulators call out the IMF and 657 00:34:01,344 --> 00:34:03,175 Speaker 2: others have called out whether the guilt crisis in the 658 00:34:03,185 --> 00:34:04,974 Speaker 2: UK would be a great example of that where you 659 00:34:04,984 --> 00:34:08,975 Speaker 2: could have significant liquidity, mismatches. You even saw that in 660 00:34:08,985 --> 00:34:11,844 Speaker 2: the wake of Brexit um with some asset managers needing 661 00:34:11,854 --> 00:34:15,135 Speaker 2: to impose gating mechanisms, right? Because just to to to 662 00:34:15,145 --> 00:34:17,004 Speaker 2: fund redemptions and mass redemptions. 663 00:34:17,479 --> 00:34:20,729 Speaker 2: Um and we saw with the banking wobbles last March 664 00:34:20,739 --> 00:34:22,669 Speaker 2: in the United States, just how quickly you can have 665 00:34:22,679 --> 00:34:24,649 Speaker 2: a run on the bank scenario and some kind of 666 00:34:24,659 --> 00:34:28,840 Speaker 2: a contagion which was um contained very well, I would 667 00:34:28,850 --> 00:34:32,060 Speaker 2: say by the regulators. So in private credit, you've seen 668 00:34:32,070 --> 00:34:34,989 Speaker 2: pension funds channeling $100 billion into the space. 669 00:34:35,449 --> 00:34:38,439 Speaker 2: Um Now again, my forecast is that you see some 670 00:34:38,449 --> 00:34:42,520 Speaker 2: kind of an event shaking out at 2025 we've seen 671 00:34:42,530 --> 00:34:45,969 Speaker 2: uh a modest engagement on capital markets by a lot 672 00:34:45,979 --> 00:34:49,300 Speaker 2: of the US issuers because you, you saw debt issuing 673 00:34:49,310 --> 00:34:50,270 Speaker 2: is actually down. 674 00:34:50,560 --> 00:34:52,560 Speaker 2: Um So I think if you go back out to 675 00:34:52,570 --> 00:34:55,709 Speaker 2: capital markets with higher rates, there is a concern. Um 676 00:34:55,719 --> 00:35:01,030 Speaker 2: Also there's a potential contagion and and correlation between private 677 00:35:01,040 --> 00:35:05,830 Speaker 2: credit supporting some wobbly parts of the real estate sector. 678 00:35:05,840 --> 00:35:07,689 Speaker 2: So looking specifically to office, 679 00:35:07,709 --> 00:35:08,069 Speaker 1: right? 680 00:35:08,879 --> 00:35:12,959 Speaker 1: Look, I'm I'm happy that our forecasts were too cautious 681 00:35:12,969 --> 00:35:14,479 Speaker 1: and I'm happy that we got it wrong on the 682 00:35:14,489 --> 00:35:17,659 Speaker 1: positive side. So growth has turned out to be more resilient. Great. 683 00:35:17,669 --> 00:35:20,259 Speaker 1: I'm happy to be wrong in that direction, but I 684 00:35:20,270 --> 00:35:24,000 Speaker 1: do worry that that upward surprise that the US growth 685 00:35:24,010 --> 00:35:25,939 Speaker 1: turned out to be much stronger and em did not 686 00:35:25,949 --> 00:35:28,449 Speaker 1: fall into an abyss because of high interest rates has 687 00:35:28,459 --> 00:35:31,469 Speaker 1: led to very stretched valuations. So whether we look at 688 00:35:31,479 --> 00:35:33,580 Speaker 1: the pe of the equity market or we look at 689 00:35:33,590 --> 00:35:36,280 Speaker 1: the spreads of public and private debt, 690 00:35:37,719 --> 00:35:41,020 Speaker 1: it's all priced for perfection and given the headlines, these 691 00:35:41,030 --> 00:35:42,959 Speaker 1: days we're not living in a perfect world by any 692 00:35:42,969 --> 00:35:45,500 Speaker 1: stretch of imagination. So how it all pans out in 693 00:35:45,510 --> 00:35:47,800 Speaker 1: the next 12 months makes me worried. It's a bit like, 694 00:35:47,810 --> 00:35:49,629 Speaker 1: you know, the cover of the economist, you know, it's 695 00:35:49,639 --> 00:35:51,638 Speaker 1: always a lagging indicator of what's not going to work 696 00:35:51,649 --> 00:35:54,659 Speaker 1: going forward. So I sort of wonder that this sort 697 00:35:54,669 --> 00:35:56,820 Speaker 1: of feel good sentiment that you and I have picked 698 00:35:56,830 --> 00:35:59,489 Speaker 1: out in these meetings that yeah, you know, the world 699 00:35:59,500 --> 00:36:00,939 Speaker 1: markets turn out to be OK, 700 00:36:01,340 --> 00:36:03,360 Speaker 1: maybe like the last of the good stuff, no 701 00:36:03,370 --> 00:36:06,020 Speaker 2: super lofty valuations. And one of those that we've seen 702 00:36:06,030 --> 00:36:08,739 Speaker 2: that there's zero room for price discovery between buyers and 703 00:36:08,750 --> 00:36:11,790 Speaker 2: sellers on office real estate in the US. Specifically, you've 704 00:36:11,800 --> 00:36:14,060 Speaker 2: seen some people take mark to market losses in the 705 00:36:14,070 --> 00:36:18,760 Speaker 2: European market, uh commercial real estate as overall was the 706 00:36:18,770 --> 00:36:21,459 Speaker 2: most distressed sector in Europe in 2023. 707 00:36:21,840 --> 00:36:24,020 Speaker 2: Um But we've not seen that shake out in the 708 00:36:24,030 --> 00:36:24,719 Speaker 2: US yet, 709 00:36:24,729 --> 00:36:27,409 Speaker 1: right? And even you and I are sitting in Washington 710 00:36:27,419 --> 00:36:29,649 Speaker 1: DC but any large city in the US, you go 711 00:36:29,659 --> 00:36:31,790 Speaker 1: to a New York, Washington L A. Everywhere we see 712 00:36:31,800 --> 00:36:33,810 Speaker 1: the cr is placed under a lot of stress. Yes, 713 00:36:33,820 --> 00:36:35,949 Speaker 2: I mean, it's interesting. I mean, there's been this whole 714 00:36:35,959 --> 00:36:39,549 Speaker 2: rich debate on bringing federal workers back into the office. 715 00:36:39,760 --> 00:36:42,870 Speaker 2: Um You're seeing that happen in states and cities and 716 00:36:42,879 --> 00:36:45,310 Speaker 2: in state like California and 717 00:36:45,770 --> 00:36:49,149 Speaker 2: that's also connected to this issue of public safety, which 718 00:36:49,159 --> 00:36:51,489 Speaker 2: is one acutely felt in the US. 719 00:36:52,199 --> 00:36:52,530 Speaker 1: And 720 00:36:53,219 --> 00:36:58,020 Speaker 1: again, nothing happens in isolation. The war from home certainly 721 00:36:58,030 --> 00:37:01,719 Speaker 1: had an impact on both residential and commercial real estate spaces. 722 00:37:01,959 --> 00:37:05,080 Speaker 1: But the cost of living crisis that how much more 723 00:37:05,090 --> 00:37:07,600 Speaker 1: expensive it is to rent or live in a city 724 00:37:07,790 --> 00:37:10,979 Speaker 1: from services to rental that also combines to add to 725 00:37:10,989 --> 00:37:12,360 Speaker 1: the stress on this asset class. 726 00:37:12,489 --> 00:37:14,948 Speaker 2: Yeah, it's interesting. And like the Fed has called out this, 727 00:37:14,959 --> 00:37:17,669 Speaker 2: I think the verdict is still out as to, to 728 00:37:17,909 --> 00:37:19,879 Speaker 2: how sticky the 729 00:37:20,219 --> 00:37:23,350 Speaker 2: the fleeing to the suburbs is. So the fed, this 730 00:37:23,360 --> 00:37:26,549 Speaker 2: is the doughnut effect where the outside of the urban 731 00:37:26,560 --> 00:37:32,840 Speaker 2: center has become ever more core. Um We've been tracking 732 00:37:32,909 --> 00:37:33,199 Speaker 2: um 733 00:37:34,719 --> 00:37:38,290 Speaker 2: patent creation and small business growth in some of these 734 00:37:38,300 --> 00:37:42,290 Speaker 2: sunbelt states. So you've actually seen new business filings in 735 00:37:42,300 --> 00:37:46,530 Speaker 2: the sunbelt states completely skyrocket because if you didn't need 736 00:37:46,540 --> 00:37:48,279 Speaker 2: to be tied to your desk in New York, and 737 00:37:48,290 --> 00:37:49,779 Speaker 2: I say that as a New Yorker, if you didn't 738 00:37:49,790 --> 00:37:51,330 Speaker 2: need to be tied to your desk in New York, 739 00:37:51,340 --> 00:37:54,149 Speaker 2: you could flee to Arizona or you could flee to Florida. 740 00:37:54,260 --> 00:37:56,319 Speaker 2: Um And so, and you could also start your own 741 00:37:56,330 --> 00:37:57,949 Speaker 2: side business again. I would say that not as a 742 00:37:57,959 --> 00:38:01,959 Speaker 2: PWC person. And so we've seen that happen and, and 743 00:38:02,139 --> 00:38:03,689 Speaker 2: that's showing up in the data. 744 00:38:04,649 --> 00:38:07,110 Speaker 2: I don't think I'm going to side with Glaser on 745 00:38:07,120 --> 00:38:09,389 Speaker 2: this one. I don't think that that means the death 746 00:38:09,399 --> 00:38:12,550 Speaker 2: of the gateway city, I think with immigration numbers and 747 00:38:12,560 --> 00:38:14,780 Speaker 2: et cetera, you will see new entrants into the labor 748 00:38:14,790 --> 00:38:17,889 Speaker 2: market coming into these cities again, contributing to the crisis 749 00:38:17,899 --> 00:38:18,770 Speaker 2: of affordability, 750 00:38:19,120 --> 00:38:22,760 Speaker 1: right? So finally, Alexis, we haven't really talked a lot 751 00:38:22,770 --> 00:38:25,250 Speaker 1: about us, China friction, we sort of tangentially touched on that, 752 00:38:25,260 --> 00:38:26,830 Speaker 1: but maybe we end on that one. That, 753 00:38:27,260 --> 00:38:30,659 Speaker 1: what's your sense? I mean, going into the election in November, 754 00:38:31,209 --> 00:38:35,360 Speaker 1: is there incentive to diffuse the tension or is there 755 00:38:35,370 --> 00:38:36,520 Speaker 1: incentive to actually? 756 00:38:38,209 --> 00:38:40,989 Speaker 2: Yeah, I'm seeing stoking uh 757 00:38:42,340 --> 00:38:46,719 Speaker 2: going back to Bismarck. Um you know, if you think 758 00:38:46,729 --> 00:38:47,359 Speaker 2: about 759 00:38:48,159 --> 00:38:52,899 Speaker 2: the ability to look to an external enemy to garner 760 00:38:52,909 --> 00:38:57,179 Speaker 2: a political base is, is so Germany wasn't unified and 761 00:38:57,189 --> 00:39:00,678 Speaker 2: Von Bismarck used the Franco Prussian War as a way 762 00:39:00,689 --> 00:39:02,250 Speaker 2: of unifying us. And so 763 00:39:03,870 --> 00:39:06,780 Speaker 2: I'm, I'm, I'm seeing our forecast was that when Biden 764 00:39:06,790 --> 00:39:09,120 Speaker 2: would come in, you would see a change in tone 765 00:39:09,409 --> 00:39:12,389 Speaker 2: with regard to Beijing but not a change in stance. 766 00:39:12,689 --> 00:39:15,379 Speaker 2: And we continue to witness that and, and you hear 767 00:39:15,409 --> 00:39:19,360 Speaker 2: some other allied partners say, well, hey, this administration has 768 00:39:19,370 --> 00:39:22,300 Speaker 2: actually been quite protectionist to us as well. Um A 769 00:39:22,310 --> 00:39:25,319 Speaker 2: lot of, a lot of concern around the Ira and 770 00:39:25,489 --> 00:39:29,639 Speaker 2: national champions and supporting things through subsidies. So um 771 00:39:30,429 --> 00:39:33,419 Speaker 2: on, on us, China, what I think is important to 772 00:39:33,429 --> 00:39:38,739 Speaker 2: point out is and, and Secretary Yellen's continued dialogue with 773 00:39:38,750 --> 00:39:41,189 Speaker 2: counterparts in Beijing is evidence of this. 774 00:39:42,110 --> 00:39:45,928 Speaker 2: There are elements of the commercial relationship between the us 775 00:39:45,939 --> 00:39:48,509 Speaker 2: and China, which seem to be 776 00:39:49,709 --> 00:39:55,169 Speaker 2: still relegated in a valueless sphere. Ie our import of furniture, 777 00:39:55,179 --> 00:40:02,050 Speaker 2: light electronics, textiles, plastics, uh medical equipment, uh baby, baby chairs, etcetera. 778 00:40:02,060 --> 00:40:06,250 Speaker 2: These seem to be um still kosher, right? Uh Now 779 00:40:06,260 --> 00:40:09,080 Speaker 2: I I am not sure in a change of administration 780 00:40:09,090 --> 00:40:10,489 Speaker 2: how that would play out. Yeah. 781 00:40:10,989 --> 00:40:13,500 Speaker 1: No, it says a slippery slope because I think it 782 00:40:13,510 --> 00:40:14,429 Speaker 1: all began with 783 00:40:15,080 --> 00:40:19,669 Speaker 1: national security direct. Then it's like national security, tangential and 784 00:40:19,679 --> 00:40:21,629 Speaker 1: peripheral and now we can probably even end up getting 785 00:40:21,639 --> 00:40:24,109 Speaker 1: into the furniture side. Let's hope not because I think 786 00:40:24,120 --> 00:40:26,120 Speaker 1: that there are certain things as you go up the 787 00:40:26,129 --> 00:40:28,120 Speaker 1: income ladder, it just makes no sense to produce and 788 00:40:28,129 --> 00:40:29,929 Speaker 1: you want somebody else to produce it. Just like we 789 00:40:29,939 --> 00:40:32,560 Speaker 1: are seeing Chinese capital move out of China to produce 790 00:40:32,570 --> 00:40:34,959 Speaker 1: something that is not cost effective to produce in China anymore. 791 00:40:35,310 --> 00:40:37,509 Speaker 2: Well, and it's interesting, I mean, I would also just 792 00:40:37,520 --> 00:40:41,040 Speaker 2: call out again with this hyper focus on us China. 793 00:40:41,050 --> 00:40:42,260 Speaker 2: There are winners 794 00:40:42,379 --> 00:40:46,040 Speaker 2: geo economic presentation. Vietnam being one of those India being 795 00:40:46,050 --> 00:40:50,189 Speaker 2: another one, Bangladesh. I mean, obviously, as you know, 796 00:40:50,439 --> 00:40:53,969 Speaker 1: and if you look in North America, both Mexico and Canada, 797 00:40:53,979 --> 00:40:59,199 Speaker 1: huge inflow of investment and jobs and production. 1100 Chinese 798 00:40:59,209 --> 00:41:02,840 Speaker 1: companies working out of Mexico. Fascinating. Yes, indeed, Alexis. This 799 00:41:02,850 --> 00:41:05,000 Speaker 1: is a great tour de force. Thank you so much 800 00:41:05,010 --> 00:41:06,969 Speaker 1: for your time and insights. Thank you for having me. 801 00:41:07,770 --> 00:41:10,560 Speaker 1: Thanks to our listeners. Too. Copy time was produced by 802 00:41:10,570 --> 00:41:14,459 Speaker 1: Ken Delbridge Violet, Lee and Daisy Sherma provided additional assistance. 803 00:41:14,820 --> 00:41:17,409 Speaker 1: It is for information only and does not offer any 804 00:41:17,419 --> 00:41:21,939 Speaker 1: trade recommendations. 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