Standoff

spoke with Bloomberg Opinions John Authors. So, John, we got the CPI prints which showed harder inflation than expected, and the markets sold off, and then suddenly we got a turn around, a five percent swing on Thursday. How much the technical levels and programmed to buying feature. First of all, I'm going to be honest, of course, I don't know quite why that happened. That five percent turnaround makes it

in the top five or six. Different people have come up with different estimates I've seen all time, So that's a seriously big deal on crazy days own news. Um, the best guess is that it's about technical levels if you look at it on a chart, if you do a fiber and actually retracements and we had reached the point of three thousand, five hundred on the SMP, which is obviously around number, and it's also exactly where you reach the fifty retracement. You've lost half of the game

that you made since the COVID bottom, exactly. And it's too simple to blame everything on algorithm. Some human wrote the algorithm, but enough people were programmed to buy that you got a bid. At that point. The inflation numbers were unquestionably bad and worse than it was reasonable to hope. Service inflation was up, shelter inflation was up, all the sensible measures, trimmed mean, median, sticky price inflation, everything across the board was its highest in forty years. So it

was unquestionably bad, but it wasn't game changing. Everybody assumed FED was going to hike BIPs, so after the initial shock there may have been a grasp of well, actually this isn't going to change anything much and stocks are really keep now, which is what we've seen before. You know, bad news is good news, etcetera, etceter etcetera. And also

more visibility. Maybe we know that there's two seventy five basis point where tags coming out, Well, that's what the market certainly seems to think yes, So how much more damage could be done? People are still out there saying the bottom isn't in. There could be another downside. Jamie Diamon, Yes, I still think they're perfectly easily could be. I think the critical number is inflation. The longer it keeps doing this, or if the headline setting you high, then the Fed

really has no choice but to keep on pushing. So the markets pricing at a terminal rate beyond four eight five percent. Right now we have a ten year yield very close to four percent again, which is also worth noting. David ian Horn said this week that value investing might be dead because no one knows the value of anything. That day thought I thought what he said was fascinating.

The critical point, certainly, both low rates and the growth of passive investing could certainly be said to have undermined the whole business, the whole profession of value investing, of stock picking. So there are plenty of well trained people, but these days it's about macro and models and the kind of technical stuff we were just talking about, rather

than crunching your way through balance sheets. So I did think there was a lot of sense in the argument he made that you can spot that something's too cheap and buy, and then wait for other people to notice

what you've noticed, and this time nobody else notices. This has been said both about the growth of growth stocks and about the growth of passive There has logically at some point to come a time when the screamingly best way to make money is going and looking for all the ridiculously cheap stocks that have been created by passive investing.

For years, it's been the idea of going into private markets because that's where the inefficiencies are at this point, I think David Eindhorn probably is right, but but sorry, y yeah, well I was just gonna say. I mean, even in a broader sense, no one really knows what the forward earnings of the SMP five hundred should be. No one really knows what the value of anything is. And that you have to throw in the shock of the pandemic followed by the shock of the Ukraine War.

We don't have any good precedents to rely on here, and so there's uncertain about the YEP exactly. But I still ultimately think that there comes a point when ten years from now there probably are going to be some diligent long only people who bought a bunch of cheap stocks who will look as clever as David Swinson of the Yale Endowment did at one point and will be rewarded. Is liquidity an issue? I mean, obviously it might be in Britain depending on how things pan out with the

pension funds. Are their concerns for the broader markets. Yes, you can tell from the results that they're not as acute as they were in Britain, where I had to talk to a contact referred to quantitative destruction that you had all these structures that had been built up to take advantage of low rates, but we're also necessary because low rates made the investment arena so dull, gave you

a big incentive to take more risk. In the case of the UK, plainly we got to the we got to the point where there wasn't enough liquidity and it's still, we hope, only a liquidity issue. Pension funds have had a solvency issue for a long time, but hopefully this is remains as a liquidity otherwise it could be an extraordinary week next week too. I mean, you start talking about things like tarp bailouts, the parallel is quite close that when it came to actually put in capital into banks,

it wasn't the fit that did that. It was Congress using taxpayers money, and that turned out to be the single most important step in ending the crisis. Similarly, the Bank of England's can't print money and put it in people's pension plans. It's going to have to come from taxpayers if it comes to that, which is not a pleasant thought in the slightest, but it's somewhat less unpleasant than people going without their pensions. Bloomberg Opinions, John Authors.

This Sunday, Chinese President chit and Ping will give the opening address to the twentieth National Congress of the Communist Party of China. The week long event happens twice a decade. This year, it will celebrate the one anniversary of the establishment of the Communist Party of China. President she is expected to win a third term as President and General Secretary of China's Communist Party. I spoke with Bloomberg Opinions Julie Ran on why markets are seeing this particular party

congress as a line in the sand. First, though, here's Australia's former ambassador to China Jeff Raby on President She's in Ping's constituency Sunday and beyond. China does have an institutional mechanism of governance, say and like Russia these days,

and Sheetingping is a servant of the party. So at the point of which the party feels that she is in some way undermining the party's legitimacy, its support in the broader community, then elite members of the party could well start to a question whether she is the right person to lead the party socially. Is there any danger at all that she will not secure a third term at the party congress or is it a foregone conclusion that obviously he will. I think it's a foregone conclusion already.

I mean, like he already went abroad one month ahead of schedule, and this congress is sat to start in October instead of originally scheduled in November. So I think he has already this position locked up. Now. Is that wishful thinking on the part of Wall Street and traders globally that President she will pivot prioritizing the economy after the CPC, shifting away from COVID zero and so on. Is there any actual evidence that the CPC might be a line in the sand, and that he might change

policies after that. I don't think it's necessarily wish for thinking in part because I'm in that camp. I think it's just inevitable because holding onto the COVID zero policy is very, very expensive. The last two years, China was doing quite okay in and one, so they had a little bit of fiscal room to hold down to COVID zero until the Party Congress. But twenty three, where is the fiscal money coming far? And it's going to be very difficult for China to continue. They will have to pivot.

But vaccine take up has been relatively low in China. Why not mandate vaccine take up and open the economy as opposed to allowing people choose on vaccinations but having rolling lockdowns? Has there been much debate on vaccines in China. It's funny because you know, the vaccination drive pretty much stopped even after the Shanghai lockdown. I mean, my parents are in Shanghai. No one asked them to take any jabs um. I think it's kind of foregone conclusion. Now,

like in Hong Kong, we have very similar problems. The elderly. They don't want to get the vaccinated. It again and again, right, so Hong Kong still open. What Hong Kong did was they called the three thousand elderly people and the state do you want to get back? And almost all of them say no. So the Hong Kong governments that we just have to open. And I expect that's what's going to happen to China. Even back then in twenty when China was starting the vaccination chart, they started with the

younger working population instead of with the elderly. But Julie, is there any talk of what might happen if China does open and the vaccination rate is low. Hospitals might get overwhelmed. I mean it might look something like the original pandemic. Here right now we are seeing on the crown China has escaped from Delta, and Delta was the

bad one, so I think it should be okay. Very recently there was a government document urgent the county level local government to prepare themselves for hospitalization, and some people on the marketplace see it as a tentative sign that the China is prepared to reopen um and the vaccination rate is lower for the elderly, but for the broader population, it's not low. People are chapter three times now you

mentioned the local governments, the local economies. To an extent, Presidency has delegated fixing China's economy to the local municipalities. Do they have the resources to jump in if there's some kind of a crisis or some kind of an economic slowdown that they can't bear. No, that's the problem because COVID zero has been ongoing for too long. According to walk In Stanley, the Chinese government at the local level has been two trillion U n um COVID zero controls.

I mean, that's just money wasted. And the local governments also rely on land sales and that's not going very well as well, and that's why, like I think, ultimately China just has to pivot away from COVID zero, perhaps within months, because this clay is just not going to work. So there's obviously the property market crisis that we heard a lot about over the last year. There's regulation around education,

around gaming and so on. But while we've seen a lot of bondholder pain, we haven't seen, for example, the kind of systemic crisis that we might have seen during the Great financial crisis the United States, Is there any reason to think that China is in danger of having one in the banking system or elsewhere. I think there is danger of a Chinese demon collapse if we see trouble with local government financing, develop her debt or the

stuff that we're seeing the news headlines. A lot of it is US Dolard debt that's offshore, right, But if we're talking about income bank liquidity freeze, I'm sure that will have to do with local government debt because they have issued a lot. Yeah, does she have any wish to attract overseas capital and mainland markets? I mean, clearly at the moment, he is a lot on his plate. He has to figure out how to handle Russia. The G twenty is coming up, and obviously the CPC is

what he has to get past first. But at the same time, investor confidence has definitely been damaged during his second term. Any evidence to suggest that he might want to woo investors again somehow? I think he is not Ma or Kim Jong yng, like I do feel that he still wants to reconnect with the world, right like he pretty much has not helped Russia during this Ukraine counphlict. That's knowls that he didn't want to be the prior globally.

And also like the Chinese government has struck deals with the U s SEC to let the auditing Committee or the Chinese companies accounting papers right. And then also she is coming to G twenties, so I think he still wants to connect with the world. What market indicators are most reliable for explaining the shape of China's markets? What do you look at these days is just the major

benchmarks Julie and the offshore ontour bonds. I think for me, I still look as stocks because they are quite volatile, and any think of possibly China reopening, you're going to see a pretty sharp bump, in part because the evaluation is very very low right now. So I will look at that. Will there be a UN policy. We've obviously seen the U on weekend dramatically, as have we seen many currencies we can dratically in the face of the dollar strength. But how do she and the p BOC interact.

Willy have thoughts on how strong or weekly UN should be. I don't think they have a certain but seven point four, seven point five, I mean they're preparing the public thing. You know, whatever the UN is, it is against the stronger US dollar strength, and then compared to the yen or the euro or the British pounds, the UN is doing fairly well, and there is some incentive, to be honest, for the Chinese rand to be weaker because China still realize on a lot of exports. Right, Yeah, for sure,

it's a double slided sword. What else will we hear out of the CPC. I mean, obviously human rights will almost definitely not be addressed, but what else will we be looking for a post CBC. I think that the most interesting thing for the Congress is the lineup. Who are what's the ranking of all the politicians? She is on top, who is going to be the Prime Minister, and who's going to be the head of the political standing Committee Because unfortunately for economic policies, it used to

be just economic policies. People at the minister level they can just handle major decisions and stuff, But unfortunately the economic policies have become political in the last few years. Take housing policy or COVID zero policy for instance. So who is on top understanding committee is going to be very important to watch. Nuomeberg Opinions. Shuli ran the US this week unveiled a new set of restrictions on Chinese

access to US semiconductor technology. I spoke with Bloomberg Opinions Tim Copen in Taipei on the ramifications for China, Taiwan and the United States. So, Tim President, she will likely be appointed to a third term after the Party congress next week. He obviously has a lot of contend with how far up his priority list will China's tech prowess being specifically it's chip prowess. It's gonna be very high

on the list. There's a lot of things on she did mind right now, covid zeros, retaking Taiwan, but getting a chip industry that's up to global standards and competing with the U and with Taiwan and South Korea is something very very much wants that she Before that, independence technology, will independence of China, As you say, China had been aiming for almost self sufficiency in semiconductors. How much of a thorn and she's in pink side? Will this round

of restrictions be? Can he stave off some of the worst dramifications. It is going to be very potent and quite damaging I think to China's chip goals and dreams. The Chinese had been somewhat catching up. That's found a lot of progress in the last twenty years. This is not just the Chi ji Ping move. Previous administrations in Beijing has been wanting to build up a chip sector. She has been pushing the harder and harder, and they

had made progress. But it's important to remember that the West and I include Taiwan and South Korea and that are also moving ahead. Chip industry moved very very quickly ct. In fact, what would seem over last decade is that while China has improved so as the Western, the gap is not actually closed. And that's a little bit of an embarrassment for Baking because there's been a lot of

money trying to close that gap. Now, with the Biden administration's latest rules, it's going to be harder and harder to close of that, and I would predict that made an EXPI to get my widen again as a result of these new district now. Ursula wonderlyand pointed out that the EU doesn't want to be in a situation where they're dependent on, say China for chips, like Europe became dependent on Russia for gas. When it comes to the US and China, tease a part for US, who exactly

is dependent on whom. One of the key issues is that year everyone reliant on the West ships. The US, even though they don't manufacture a lot of chips, is a leader in the chip industry because they create a lot of the technologies, for example, equipment and the software needed to make chips, and then they basically outsourced to Asia, to Taiwan, to South Korea, to Japan and elsewhere. And that's something that doesn't sit comfortably with the United States,

and it doesn't see it comfortably with China. So ironically, China and the US are in a similar position, have a similar level of discomfort that they don't have control over the manufacturing of even the chips that they design themselves, and both sides both aging of Washington is something about it, and find a lot of money to try and rectify that problem, literally passing the Chips Act of fifty two billion dollars to award domestic semiconductor production in the United States.

Now you're in Taipei. Obviously Taiwan is watching all of this with huge interest as well. Talk to us about t s m C. T s MCS model is to allow its own clients design their own chips. But it's a company that produces nine of the world's most advanced semiconductors. Will it be a victim of this chip war? You could say it's victim chip war. It's also, I guess, a major beneficiary of the chip war. They're definitely in

the crosses of Beijing. Is sorts of stark humor about you know, taking Taiwan just for the chips that of course would not work it with sale At the same time, Taiwan and itself front and center of the global stage because now suddenly everyone has woken up and realized how much they need to Taiwan and how much they need to people like myself has been watching this for two decades. They've known about it a long time, but it's happened

kind of under their nerses without people realizing it. Now, suddenly, with the pandemic chip shortages and it's greater need for more electronic products, everybody's woken up and realized how much they need the am and seeing they're doing well, this is great. You want me to sell off a factory in in your territory, showing me the money. And that's what they're doing with Arizona, that's what they're doing with

the kind of what they may be in Europe. They're getting up countries to basically pulling up some of the different setting up a factory. ANC isn't a very nice spot right well, and so this brings me to another point. Chris Miller has written a history of semi conductors. It concludes that basically World War Two was decided by steal an aluminum. The Cold War was behind by atomic weapons, and the rivalry, he says, between the U. S and China,

may well be determined by computing power. Is that an overstatement? I think that's pretty true. Even if you think of kinetic weapons, that is, in the bombs and missiles and planes, they need chips. In fact, you know the first guided missiles which were deployed in Vietnam the Americans, we are dropping a lot of bombs on Vietnam and something was their charcus. And still they use cemic conductors to help

guide them to their destination. And then of course we have a cyber warfare, and that is a huge, huge, you know, you can create a lot of damage by hacking your rival systems. We saw that happened when a US route including the UN hacked into around Nuclear Fund and basically messed up their center view US for making nuclear materials. We've also seen that when Colonial pipeline brought down by hackers last year. So the cemic conductor is very important in this process. At the end of the day,

you still need boots on the ground. Is it going to take the territory as as Vadimir quick't be discovering, But semic conductor is a very important part of being able to do that. Tim Colp as always do get in touch. Comments and opinions always welcome at Volley Quinn on Twitter or email v Quinn at Bloomberg dot net. Many commodity prices are down to stantially from their peaks. That's, however, cold comfort for nearly eight hundred million food insecure around

the world. Let's get to David Fickling for some explanation. So, David, there was huge relief in grain markets when we saw that first ship leave the port of Odessa for Elebanon. Prices have come down for all sorts of grains and oil seeds, and it's a big difference from when we spoke earlier in the year about the difficulties in palm oil, wheat and other markets. But in terms of food security, the situation is much more complicated and multi factored than

simply prices are too high. I think that's right. It's very much feels like we've passed the sort of acute phase of food crisis. But I think there's a chronic problem underlying this. To use the sort of medical metaphor, I mean, you look at a bunch of commodities, spring wheets, the benchmark in the US, it's done more than a third at this point from where it was in March. Palm all you mentioned oil feeds that stounds forty percent in April corn prices than by nearly a course in

sort of my sugar and Arabic at coffee. They're all on year nine months load. But although the price of these commodities are still actually reasonably hired by ten years standards, certainly compared to where we where a few months ago, there's come down a great deal and we're starting to see signs that maybe certainly things were returning to normal. So that great, and we should be very excited for the world's poor and hungry that perhaps they have a

chance to get food again. But that's not quite the case, is it. That's right, because I think there's a tendency for us in rich countries, looking at commodity markets to rather overestimate the importance of the prices of benchmark commodity futures as a sort of index of the affordability of food for the world's poorest. It's certainly a factor, but one of many factors, and not even I would say

the most important factor. You know, if I was to say one factor above all that affects food insecurity, and bear in mind the population of people facing under nourishment, who don't have enough food through the year to give them a balanced diet. It's looking now at being the highest in twenty one since the mid two thousands, about seven hundred and sixty eight million people, possibly higher than that.

One in ten people in the world very nearly do not have enough nourishment to provide them with a balanced diet or of real improvement. That number, far from the sort of eight hundred million we're seeing now, was in the five hundred to six hundred millions, it was quite significantly lower. A couple of factors. I mentioned war and insecurity,

that really is probably the biggest of all factors. And you know, one sort of measure for the sort of human cost of that is probably if you look at the number of displaced people, refugees and internally displaced people. It has been soaring over the past decade. It's now running at double its level of a decade ago one. It rose eight percent in one year. And there's a tendency obviously to see these benchmark pology prices of the

field and end all of food prices. But actually, I mean, you know, I always go back to the great Indian economists that much of fen and his analysis of famines that previously people talked about in as something where there simply wasn't enough food in the world to feed people, or food in that particular region to feed people. And he went back and went back at the Dayton fans and said, well, it's very rarely a general sortage of food.

It's generally actually that the price of food has has written beyond the level of people's ability to afford it. And that can be caused by rising food prices, it can be caused by falling incomes, and it can be caused by other indexes of civil disorder and a lot of folks that we're seeing right now civil disorder, but even things like insurance on ships, crew for ships, and so on. So many varied factors go into the price

of something and the delivery of something. In fact, I was looking at the overall world food price index and it's still at four point two, which is not that far off this year's March I oft seven. So in spite of large jobs, nearly eight hundred million people are going hungry right now, and that could rise. Talk to us a little bit about the effect of the dollar and how that set in motion a whole range of things like the evaluations and so on that also effect

to the price and the deliverability of food. Absolutely, I mean, I think that's crucially important. We tend to look at these quantity prices in dollars and most agricultural commodities a few exceptions, palm oil is one of price in the US dollars. Obviously, we've seen a lot of dollar strength in recent months, and that's particularly bad for a lot of emerging market currencies. These are countries that are some of the world's biggest food importers, and are most dependent

on imports from overseas. So take Egypt for instance. Egypt is the world's largest wheat importer. The Egyptian pand has absolutely been collapsing over the past year. So whereas the rise of the US dollar price of wheat has driven up costs by about twenty three percent, if you add in the evaluation of the Egyptian pand, that's added in another twenty percent on top of that. Pakistan is not actually a huge wheat importer, but it is used dependent

on imports to some extent. The rupee slump has added fifty three percent on top of that three percent increase from the US dollar price. And Turkey, I mean, Turkey's a wealthier country, but of course the Turkish there has been in the terrible States. So the collapsing there is about a hundred and seventy one on top of that twenty three percent in priests from from the US dollar week.

It's horrifying. We talk about nine eight percent inflation, we're looking for to go below that in the United States. But if you're in one of these countries, you're literally talking about what nearly two added to costs. That's that's hyperinflation. That's insane. You can't feed your people of that. Yes, And of course you know, if you think about how a lot of these governments managed this, Egypt in particular, I think he's an interesting example because subsidized bread is

really the central part of the Egyptian welfare spect. In fact, if you look at their physical numbers, their fruit subsidies, they spend as much on pretty much all other aspects of social security put together. So of course, what happens when the Egyptian pan is devalued and wheat prices go up further, Well, Egypt has been out in the market

making big purchases of of wheat. Of course, it was one of the big buyers of Ukrainian and Russian weeks, so it's sort of suffered from that, but it's still needs to buy this because it sort of crucial element of social stability. And what's happening as a result of that that is of course impacting Egypt's physical balances. So this is going to be an impact that will linger their physical balances, and their external balances are deteriorating as

a result of this. Now, I don't have a macro economic crystal ball for Egypt and know where they're going in the next two years. But if you look at the situation of countries like Pakistan and Sri Lanka that have been making their trips to the IMF recently, you can be put in a very difficult situation when you're having to subsidize something like that in the context of weaker fiscal and external balances, right, and then you're subject to a whole range of I m F conditions for

the foreseeable future. And of course you mentioned Sri Lanka. It's interval to Pakistana staring at the fold, and they both no coincidence, have massive social unrest, in part because people have to stand in line for food for days. And if you're somebody with mouths to feed, or you've lost your job because of COVID and suddenly there's no tourism in your country, you must be living under severe stress, never mind being undernourished. The jobs thing I think is

crucial and it's often underestimated. This is another of these long COVID effects. A hundred million people worldwide were laid off. The global labor force of employed people dropped by a hundred million for the first time in living memory, and in terms of the people who are living below the global poverty line one dollar ninety a day, about ninety seven million were pushed below the global policy line by COVID.

And so if you're in the top forty percent of the world's population, your incomes at this point down about two point eight percent below where you've expected to be before the pandemic. But if you're in the bottom forty percent, it's six point seven percent down. And of course those are the people who are most constrained and most dependent on being able to afford food. David, you mentioned some Southeast Asian nations that we have been talking about on

the program. Tell us where else is suffering badly? Obviously many countries in Africa. Yeah, I think Africa is always on the front lines of a lot of these things. If you look at see number of people who are undernourished, the rate in Africa is just different to anywhere else in the world, even now where things have ticked up. It's probably about ten percent of the population of the world of the whole faces under nourishment. In Africa, it's

about is double the level. So although there are a larger aggregate number of people in Asia, for instance, who are affected by hunger just because the population is so much larger. I think around five million in Asia, but two million people in Africa really affised as the population

are affected by that. One interesting thing about Africa that also makes it a little bit different to a lot of these other parts of the world is that because so many countries in Subhan Africa are really at the bottom end of the income distribution, they're particularly disconnected from

global commodity markets. So there are actually particularly unaffected by a lot of what we're talking about in terms of the week price and the palmer or price, simply because the incoming supply chains and the availability of cash to afford imported global commers are simply not there. So people are really very heavily dependent on locally produced produced and the price of locally produced good. So it's really quite

a different picture to what we're talking about. Certainly in a lot of Middle East and Asian countries where there is poverty, these global flows matter a little bit more well. And that's another question about globalization. Because of the fact that we have globalized commodity markets, and we need to

have because countries can't feed themselves. There's no way back from this, right, there's no sort of let's have our own supply chain because some countries just can't produce indeed, and you know, I'd say most countries are actually better off being able to be plugged into those global supply chains, being able to benefit from those commodity flows. Of course, one of the other areas that we've not talked about, it's a big driver of hunger, is local climate and

weather conditions. Of course, there's been a very severe three year drought in East Africa in recent years. You're just seeing in the news recently, these very severe flogged in Pakistan. Pakistan, as a country that's more plugged into those global community flows, we'll probably in many way do a lot better than East Africa because despite their own fiscal problems, they can benefit from food imports. They can afford food imports, but a lot of those countries in West Africa can't afford.

So these chips that are leaving Ukraine. While it's wonderful and everything in the Portovodessa being open again with the humanitarian corridor is fantastic, it's really not going to provide that much relief for that many people. It will, it'll it will help certain parts of the world, the sort of more middle income parts to the world, like the Middle East, like parts of South Asia, the lower income

parts the world. They have much more severe problems than it's going to take more than that to actually solve those problems. David Fickling, We're now choosing to end all conversations, not with you, though, Please do get in touch. I'm at Vannie Quinn on Twitter or send your thoughts to v Quinn at Bloomberg dot Net. Opinions and comments always very welcome. We're produced as always by Eric Mollow and don't forget We're also available as a podcast on Apple,

Spotify or your preferred platform. Till next time on Bomberg Opinion. I'm vanniy Quinn The bea