Luxury Supertowers Are Going Even Higher

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Clovel News. Well, don't forget. We get another FED decision on Wednesday, and with investors nervous about the feds eventual tapering ahead of that policy meeting, we're gonna tell you about the taper that will really bite into us growth. This is a must read today, I think Ed.

Let's get to Bloomberg News Economics reporter Rich Miller. He writes about this. Rich joins us on the phone from Washington. Hey, Rich, good to have you here with Ed and myself. So we are all focusing on what we're going to get from the Fed. On Wednesday. We're wondering if they're going to be more specific about when they will pull back on some of their asset purchases they're so called tapering,

whether or not we'll see that. You say, there's something else we have to be watching when it comes to tapering. What is that? Basically the disappearance of all this support we've been getting from UM Washington in the form of you know, stimulus, checks, grants, the small business money for

satan local governments, the whole panopally of of things. That's all basically going away, um you know, started going away from the second quarter, and that that arguably is going to have a bigger bite, take a bigger bite out of growth over the next year, especially towards the end of next year. Then then then the taper by the Fed.

Remember the taper by the Fed is they're gonna they're gonna be cutting back on the amount of simulus they're injecting into the economy, but they're still going to be injecting stimulus. What are you gonna see on the fiscal policy side is that they're actually going to be similar simulus.

It's going to disappear year rich. What's difficult to kind of make sense of is these measures were supposed to be temporary anyway, right, you know, in terms of payment, support for employers, in terms of benefit and subsidy for those hardest hit by the pandemic. Why did economists and indeed the US government not see this coming sooner? Well, I guess, I mean the government has seen it coming sooner. But um, um, the sheer magnitude of it is what

what's uh? What's you know, in a normal recession, you might have you know, some of this and then disappear. But this is the sheer magnitude. This is going to be the biggest swing in the deficit. I the biggest of fall and the budget deficit from one year or next since basically after the you know, the war, so um on its own, you know, it's going to be a huge contraction. Now, I think the point you're making is you know that there's gonna be offsetting factors. Right.

People have built up savings during during the pandemic because they couldn't go on expensive vacations, etcetera. Um. State and local government's got a lot of money from the federal government. Um uh, they haven't spent all of it. Uh, companies that need to build their inventories. But even with all that, you know, some economistsy you know this really having this fiscal what they call fiscal dreg really have an impact

on growth. And one economists I quote in the story, Wendy Edelberg at Brookings say we might even see a quarter or two towards the end of next year into where we don't grow at all. Wow. I mean that would certainly shock the markets. What's interesting, too, Rich in a story like this is always perspective. So all of this fiscal stimulus or stimulus that came from the government, I mean, it was a lot more than what we

got from the Fed. Correct. Yeah, I think even the Fed, you know when you hear uh Fed chair your own power, you know talk. He gives Gray credit to Congress for acting quickly, especially with the Cares Act, the first Act. But yeah, but he he know, he acknowledges that you know, you know, the FED lowered interest rates, but you know it didn't hand out money to people, right um um, and the and the FED did you know, buy bonds.

But you know, he even he acknowledges that the fiscal the fiscal thrust, the fiscal emergency stimulus was what really really helped during the pandemic. Richie flick at this in

the story. But it's gonna be painful for some people and potentially politically tricky for Biden, right, yeah, I mean, well, I mean, if these economists are right, you know, this slowdown is going to be happening just as the we're heading into November mid term elections, you know, and unless he gets unless he gets his big plan through, right, I mean that's the other the other factor in all

of this. I mean that is a factor. But but what you know, what's what's kind of lost in and talk about the big Plan and there's a lot of big numbers thrown about, but you know that's spread out over ten years, uh soo exactly, so you know it is going to help, like you know, over over a longer period of time, but it's not really going to

help next year. And and some some some folks on Wall Street are saying, yeah, well, we might get the tax increases before we see the benefits of the infrastructure spending, and that would hurt the stock market too. It does sound like just quick, quick, rich just got about thirty seconds here. We'll also get a truer picture of the economy right as we start to back off of all

these stimulus efforts. Yeah, definitely, definitely. You know, uh, once we come off the emergency support, we're gonna have to see how much underlying strength is there. And you know, hope, hope, hope, hope it's there and we can sort of stand on our own two feet, so to speak. Right, would you wonder if, certainly ahead of the FOMC meeting, is you know, the real economy is what J. Powell and company are

looking to see? Rich Miller, it's must read. Thank you so much, Rich Mill, our economics reporter at Bloomberg News on the phone from d C on his story the taper that we're really bite into us growth isn't the fits I mean, And this is a really timely story. And something we need to be thinking about is those policy meeker makers get ready to uh to meet and maybe update policy. Yeah. And for the real economy, for the people that have lived on the subsidy, lived on

the benefit, lived on the ppe checks. You wake up one day and it's gone, and you wonder how that really impacts spending going forward? All Right, something we're going to continue to track. You are listening to Bloomberg Business Week and this is Bloomberg Radio. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stenovic

on Bloomberg Radio. One other story that we want to get to, and as we mentioned, it will be in the upcoming sooner than you think, Bloomberg Business Week issue Joel is with us and also joining us from Switzerland is Bloomberg Business Week writer James Tarmy. And we're talking about Joel Um tall buildings. Actually they're super tall building, the super tall one, and here in New York City,

there's been a couple that have gone up. And what what James story is really interesting about is like, really, when these buildings started to go this big, nobody had done that really before, right, and so they were kind of having to learn almost on the fly, and and and that has led to some some lessons and we'll

talk about those lessons. And then the other big takeaway that I thought was just amazing is that we were going to start seeing buildings go even higher, which is really crazy to me because I just get, you know, my stomach kind of does a little, you know, dance. So James what have been some of the problems that

have happened with these super tall buildings. Well, I think one of the biggest problems is that people don't know really what they don't know, and so every time that they pushed the limits, they find out something new, which is fascinating if you look at it from an engineering standpoint less exciting if you have spent a tremendous amount of money to live in one of these buildings and then discover that, well, actually you're living in a two point o building and three point or four point o

buildings are going to be the ones that fixed it. Um. So you know, we can go all the way back to something like the Sears Tower, which was incredibly high and which was just a feat of engineering, and which was built with really not much wind tunnel modeling, and so they only discovered when it was constructed that there were basically wind board di sees that were rattling the building and causing things to break, and um, it only kind of got worse from there as people discovered the

whole extent of what wind does to a building and extremely high height. So I recently went on vacation to Chicago and I took the official Chicago Architecture Tour. And of course one of the features is the Willis Tower and it can sway three feet you know, on any day with the wind coming off late Michigan. And anyway, now that I'm done bragging about my vacation, James, my story, my question rather is, you know, how important is it to have the bragging rights of the tallest super tower

in a city. How linked is the skyline to the status of a city like New York, like Chicago. Well, I think it's actually two different questions. Really. One is from the developers standpoint right, if they are able to say that the buyer of the building's apartments has views that are unlike any other they can command at least in theory of premium um. And then there's another component of it where you hit on it exactly that it is not simply about economics when it comes to buildings

that are not simply residential um. There is a tremendous component of bragging rights to it. And it's it's been that way since the Empire State Building became this symbol for American prosperity. Now you see it as kind of American dominance of a lot of different things sort of wayne Um. In the nineties, you see Asia becoming the

place where super tall towers are built. And a few people with whom I spoke actually made the excellent point, whoever heard in America of the Patronis company until the Patronis towers were built? And you can you can you can go from there, it became there's there's It's not necessarily a price efficient way of building when you're building all the way to the tallest building in the world, but you can in a certain respect consider it a

marketing expense. Okay, so let's get out a little bit about the the engineering that it takes to go super tall, because some of because they've been able to do the ones that have been super tall, we now know what it takes to go even taller. Let's start with with concrete, which you can now get three thousand feet into the air. Yeah. So there are a couple of issues with concrete which people have consistently been solving as they go higher and higher. The big one is that it needs to be a

lot stronger for it to go that much higher. And the good news is that when it gets stronger, it also gets stiffer, which keeps a building from swaying. So the advances are pretty staggering. You're looking at in the nine eight um in p s I is a is a measurement of of pressure that the concrete can withstand. You're looking at six thousand p s I for like

the top of the line buildings. Now you're looking at three four times that amount um easily um And so you you're that is one component of concrete that it's critical to the super tall, super skinny towers. That's the other thing. You can build as tall as you want if you're building it, you know, incredibly wide. Um. If you're trying to build a super skinny tower, that's where

the strength of concrete comes in. Then the other component of it is that you have to be able to pump it and it has to stay liquid because people have discovered that it's sort of firmed up as you're pumping it. Because hey, Joe, we got a problem. The concrete is hard on we've only made it to the you know. Um. It's a great read, and as Joe mentioned, it's a fun story to nerd out on it about the technology and what they have to do to make this happen. Check it out in the upcoming issue of

Business Week magazine. James Tarmy of Business Week, along with the editor of the magazine, Jill Webber, you're listening to Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio Top of

Investors Minds. You know what we've talked about it, How far will present g Jin Pingo with his crackdown on China's real estate sector and more broadly in the economy, Well to dissect it back with us as Bloomberg New Economy editorial director Andy Brown, who continues to explore and write about the growing Beijing crackdowns, writing this weekend about how it now includes the casino industry in Macau. Andy, by the way, former China editor at the Wall Street Journal,

and he's here in our interactive broker studio. So and you do write this weekend about what's going on in Macau once again at President ge kind of it feels like going after some of the evils of the Chinese society, or so it feels exactly, Carol, I mean, she jumpaying President she jumping sees himself as a historical figure on a power with Mao, and he is now in the process of trying to re engineer Chinese society, to fundamentally change the way that China's society works, to make it

less unequal. This is his slogan, common prosperity, and beyond that, to correct a lot of what he would see as being unhealthy tendencies in Chinese society, in other words, social vices, and gambling very much fits into that category. There was a fantastic line in your story that gambling revenues from Macau as six times what they are from the Las Vegas strip, which gives you a sense, right how a

crucial that section of the economy is. But b how far he's going, I mean, is this just a question of profits take a backseat to ideology when it comes to President Gees's mindset. That's that's that's definitely part of it. You know, the Communists have never liked gambling, all right. Uh, they banned it, They banned the horse racing as soon

as they took over. Um. They saw this as a remnant of the old society, and they inherited gambling in Macau from the Portuguese When they took over Portugal Macau, which is the Portuguese colony, and they've sort of tolerated it, although their tolerance is wearing very thin. And in fact, when she J Pink took over in late two thousand and twelve, one of the first things he did was launched this anti corruption campaign, and casinos in Macau were

were early targets. Well, you know, I do wonder, Andy, if the inequality it is that we if we they weren't existing in the Chinese society, will we be going through this right now with President G. Well, he's a he's a populist figure and uh he considers himself to be a mau like figure, and social equity is a very important part of his campaign. But if there weren't the inequities in Chinese society, would we be going through this with President G right now? Well, it's not just

the inequities. I mean, he's he's addressing in a very decisive way a lot of problems that exist all over the world in different societies. As an example, he's going after the video gaming industry because he's perceived that Chinese kids spend too much time addicted to online video games.

Um he's doing out so different from what we're seeing in some of the developed world, even if you think about big tech, right, what we're seeing in Europe, what we're seeing in the United States, right, exactly, except he's going after it in a far more peremptory, dracone in way, with very little, with very very little public consultation and certainly no media debate. This is top down re engineering,

definitely not democracy from the bottom up. Joined the dots for us here, what is the link between what's going on with China's gambling crackdown an ever grand in the property market. So um, here's here's here's the link I think, which is this that in in re engineering Chinese society, he's got to also re engineer the economy. And the reason for that is that the big drivers of economic growth in China, most particularly the housing market, tend towards

unequal outcomes. So if you were lucky enough to have bought property in one of the big Chinese cities twenty years ago, or actually anytime over the last twenty years, you would have doubled, traveled, quadruple, quintuple, uh your money. I know this for a fact. I bought a place in Beijing in two thousand and four and sold it two years ago and did very very well. Um, However, if you are now a young family in one of those large Chinese cities, um, you're probably uh not able

to afford a place to live. Uh. And if you are, you don't want to have kids because you can't afford it. Then that's another big motivating factor for Gjim Ping. There's a demographic issue here as well. Well, it's so interesting in China, right, how it went from you know, one child policy to now encouraging right families to have more kids. Right,

But who wants to have three kids? And you can't afford it, if you can't afford it, you can't afford the education, because like we're talking about San Francisco or New York or pick your city here in the United States to some extent, or indeed any big city now anywhere in the world. Well that's another part of it.

And and and well, talk a bit more about China, but I do there's another story on the Bloomberg they just talked about how housing now is really a global problem where there are so many around the world who cannot afford to live in many cities in their country, and then you're seeing as a result, either hopefully policies change or upheavals or uprisings. Indeed, governments are falling as a result.

We saw the Swedish government collapse earlier this year, and one of the reasons was that it tried to get rid of a cap on on rents. The Canadian election coming up later this year is being fought in part on the issue of housing. Justin Trudeau his promise that if he comes back into office, he'll play some moratorium of two years on foreign purchases of Canadian property, foreign purchases being a big driver of property brice increases in Canada.

Um Andy, in terms of the news flow from China, is this just going to kind of continue where we're going to see more oversight as you said, as he's you know, remaking the economy, We're going to continue to see this spread even into other sectors. Are are we getting to the end of it? We're at the beginning of it, I said earlier, But jimping. The president is trying to re engineer Chinese society, and to do so, he's going to have to re engineer the economy. And

is everybody on board with this in China. Uh, put it this way, Um, you're not going to find anybody who's standing up. It's going to say against Hi Jimping's plan to promote common prosperity. No, everybody in government regulatory authorities is on board. And the sin, of course is to under is to under interpret his instructions, not to overinterpret them. Hence you're seeing this really fierce, vicious regulate reaction against multiple industries. They've worked their way through digital

platforms to fintech, a tech and now gambling. You paint this beautiful image in your newsletter of private company CEOs and the blackjack baccarat halls, the v I P rooms, rubbing shoulders with officials. That's where business gets done. So you know what is the conversation between the private sector and Jijing Peng. Is it open or is it simply one way traffic? Well, the conversation is hardly a dialogue of equals. This is these are solutions that are being

imposed on whole swaths of the privately run economy. Um, and essentially you're there to learn your fate. And thinking about the gambling industry, you know what might happen to the casinos in Macau. Well, you know, if they're lucky, maybe they meet the same fate as the video gaming operators. Those guys are now being throttled by regulation, including only allowing kids to play online games for three hours a week. If they're unlucky, they end up like the home tutoring companies,

which are closed down all together. There is no public consultation process in China overall, the public commentary right exactly. Well, what's interesting too is and I wonder, Andy, because as you say, if we look at a lot of the developed world, Europe is looking at the growth and dominance and control of big technology. We are too in the United States. Um, and we're looking at the inequalities in our society. So we're looking at the same thing. Obviously,

China does it differently. But I do wonder if ultimately, I mean, China is so important in terms of the global economy, does it ultimately longer term create again and even more dynamic Chinese economy. Um, well, that would certainly be goal here right to get there. If indeed they can get there, there is going to be a huge

amount of turbulence. Look at what's happening now in the real estate sector, where Chinese authorities seem ready now to countenance the collapse of their second largest real estate company ever Grand, all in the name of trying to make housing more affordable for the masses, not a speculative asset for the rich. Well, if that's if, if if he's serious about that, um he's going after a sector of the economy that counts for between and a third of g d P. It's a lot a sector in which

Chinese people have invested of their assets. Nine homeownership ratio in China one of the highest ratios in the world. If you've had money, if you make money in China, uh, you don't put it in the stock market, which is pretty much a a casino in itself. You put it

in you put it in real estate. And I think what people are underestimating here is the potential impact on consumer behavior if ever Grand, this real estate giant goes down, and if people perceive that the government really is ready to let real estate prices sink, what that does to consumer behavior and the wealth impact? The wealth impact, And don't forget that consumption in China is a very low

percentage of GDP. Low in China even compared to Chinese economic peers, do you squeeze one real quick yeah, very quickly. And in two words, if they're going to clamp down on such an engine for growth, where does the growth come from in China in the future? Just got about seconds, Andy, Okay,

So I think the answer is very simple. They have to um calculate that there's going to be a much lower Chinese growth rate, and it's going to be a realistic growth because so much of the growth now China is on steroids, and and that growth has been fake growth, and a lot of it is being is pumped up real estate prices. And we're seeing the result of that now in the evergrand de bole. So a real new growth equation going forward for China. Thank you so much.

Thank you for sticking around really giving us a deep dive into what's going on in China, which is, as we know, so much impacting the market today. Andy Brown, thank you so much. He's a Bloomberg New Economy editorial director, as we mentioned, check out his newsletter that comes out at Bloomberg dot com slash New Economy. You're listening to Bloomberg Radio. I'm roc a journal now, but you let me drive. Oh no, no, no, honey, please, I'll do the right vel me. I want to drive the question

to the globe. Thanks well, Bloomberg Radio, because indeed everyone we are driving to the clothes. Just got about nine minutes left in today's trading session, bouncing off for lows as you just heard from Charlie Pellet, but nonetheless still down almost two percent on the SMP and down NASDAC, still a decline of about two and a half percent.

Let's get to it with Michael Sheldon, executive director and chief investment Officer at High Tower r DM Financial Group, joining us once again on the phone from Westport, Connecticut, here with Ed Ludlow and myself, Michael, good to have you here. September historically high. We know it's not a great month for stocks. Um, how do you see the trade today? Is it China? Is it worried about what

the Fed might do next? Is it worry worries about you know, earnings growth, economic slowdown, is it worry about higher taxes? Or is it kind of all of it? Well, today was certainly a challenging day from the mark gets, but I think you also need to keep things in context, um. Heading into September, For example, we're the S and P five hundred had advanced seven months in a row, and we had also gone almost a year without five percent pullback in the S and P five hundred, which historically

is one of the longer periods in history. So then you also have a number of these concerns which you just pointed to, which sort of indicates the market has been climbing a wall of worry. You have COVID years about inflation and taxes and tapering, and add that over the past day or two to the events in China

and also the dead ceiling. So there's any number of the factors that really contributed and weight on the markets, and sometimes you it's hard to pinpoint the exact reason the markets start to decline, but I think we've started to see a pullback. September October also, as you pointed out, historically as one of the weaker times of the month, so I wouldn't be surprised to see a little additional weakness.

Um to us, it seems that, I mean, we're constructive in terms of our intermediate term outlook, but obviously there are some issues supplied demand and balances in the economy. For example, for things like semiconductors and autos and the demand for labor. There's there's a need for more than ten million jobs right now to be filled by companies. That's going to take a while to get to get worked out, and so so we're keeping an eye on things.

So we could be a little choppy for a while, but ultimately we see growth picking up again somewhat as we get into the next several months. Well, two words we haven't really talked about today, Carol is delta variant. You know, we've had so much discussion about China and inflation the FED, but you see Michael pretty positive I guess on economic growth, but with delta variants still being a big question mark, Well, I think it's important to sort of think about things. If you look at past cycles.

For example, economic cycles typically last a number of years as opposed to a number of months. So you know, it is true that this year will likely represent peak year of a year growth in terms of GDP and corporate profits, but it's probably not the peak in terms of the overall economy. And also if you look back at past cycles, in the second year of bull markets, for example, historically returns have been positive, but they've been more muted, more moderate, and I think as a part

of the rewards of of investing in equities over time. Uh. You know, we look back in since night, for example, there's been an intra year draw down in the in the market the SMP five hundred of about four percent, but equity markets is still finished positive about seventy of the time. But you still think we should be standing by for a poolback or indeed a correction. Yeah. I mean, we've been thinking about this and talking about this internally

for quite a while. As each pointed out earlier, there are any number of concerns right now, from tapering, to taxes to COVID, and all of this is starting to sort of weigh on investors. But ultimately we think COVID is probably one of the biggest concerns. And it looks to us like COVID is probably peaking in terms of the year of year rate, the second derivative in the United States, and and if that's true, that will help to increase confidence with WHI has also started to come

down recently. Uh, and that should provide a boost to the economy as we get into next year and lead to two more optimistic outlook. What's been fascinating to Michael to watch and I've been watching this so closely today as we've gotten on air since about two pm Wall Street time, that as we continue to see stocks take another leg down all of a sudden, you see what kind of a kick off that low and then maybe it goes a little bit lower, but then again buyers

come in. This is something we have seen continuously in one is investors coming in to buy the bottom, especially as we've seen those major equity averages hit that fifty day moving average to the downside. Well, that's exactly right. Um. I think there have been nine times over the past year when the SMP has been flirting with the fifty day moving average, and each time it's tested that level,

buyers have come in. So we'll see what happens. Uh, obviously we're closing on we're off bouncing off the bottom here, So we'll see how things closed today and as of right now, is that a key thing in terms of how we close today? That tells you really what's going

on investors? Heads? Yeah, I think so. I mean if if the markets closed close to the fifty day moving average and off the bottom, then I think that also reinforces the psychology and that investors may start to come in, But we still do have a number of sort of headwinds or cross currents that could lead to choppy trading over the near term. Where's the opportunity, Well, I think from the market, the important thing is that we don't

think this is the end this volatility. We're starting to see the end of the economic expansion, and over the past several months we've seen a more rotational market where growth one week, we've had growth leading one week we've

had value. So I think going forward, if you think of it in the context that we're probably going to be in the mid cycle for for quite some time, we've probably gone from early cycle to mid cycle, I think you're in terms of your portfolio, the way we think about is you want to be sort of more broad based between growth and value. I think value may certainly do better as people think about growth in two thousand twenty two, but I think the days of growth

dramatically outperforming are probably behind us. So I think you want to have exposure to both growth and value, and you want to also have some small as well in your portfolio. Yeah, really interesting to say that um and the mid cycle just got about thirty seconds left here, Michael, I mean they could last for a while, right, the mid cycle part of this market cycle. Well, that's exactly true. Economic cycles again tend to last a number of years as opposed to just a number of months or quarters.

So we're likely to see hire GDP growth and profit growth next year. I think the estimates for next year or about nine EPs growth and four percent GDP growth. Obviously, that could change depending on what happens in Washington. All right, gotta run, good analysis as always. Michael Sheldon, he is executive director and chief investment Officer at High Tower r DM Financial Group, on the phone from Westport, Connecticut. Thanks

for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News f