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I really can't say enough about this folks. His book on the crisis of two thousand and seven thirteen bankers. It was my book of the year. It is the definitive short read on the crater that we all live through.
In seven eight, he.
Of course has gone on to extraordinary extraordinary academics at MIT on technology and growth. The new book is Power and Progress. Newly minted Nobel Prize winner Simon Johnson.
Simon, when Rudy.
Dornbush was beating you to death at MRT years ago, do you think dorn Bush ever would have thought young Johnson, the mouth you one from the United Kingdom would win a Nobel Prize.
No, I'm pretty sure he would be just as surprised as I am today.
Tom, just wonderful, Simon Johnson. Let's talk about the why of this Nobel Prize of James Robinson of Chicago and of course Darren and you over at m I T. There's a pressor at ten am, folks, Simon Johnson, why should we study, fear or enjoy our modern technology?
I think technology drives everything, Tom, You're well aware of that. And the question is who's technology? Who has what priority? What's that vision? Is it an inclusive vision or is it a vision which only a few people have good jobs and everybody else is really scrambling. That's been super important over the last two and fifty years. We've had some good episodes and some really bad ones. And I think it's all in play again with artificial intelligence.
In play with this, Simon Johnson, is this election? I mentioned this the other day A parallels eighteen forty eighteen fifty. There's almost a ludite part of America that is afraid of the consequences of technology. What is the Asimogulu Johnson Robinson prescription.
Well drawn and Jim to speak for themselves. But my view, Tom is that technology has for people. We've had excessive automation in the past forty years. We've not generated enough new good jobs, so jobs where you actually get paid good money and you can live well. And we've got to do better on that. I think that that's really a fundamental driving importance, irrespective of the election outcome. Where
the good job's going to come from? And can we keep pace we will get ahead of automation because you know automation is going to happen, like it or not. So you've really got to work a lot harder to generate more science, more technology, deploy that, commercialize that, scale it up and generate more good jobs all across the country. Can be done, but it's a top priority, and I think it needs to be elevated as a priority right now.
All right, so simon with your two colleagues and your work here. I mean, it just raises a question which is so relevant even today, discerning why some countries are rich and some much poorer. How should we think about that big, big picture question these days?
I suggest we think about it in two ways. One is the sort of deep history and recognize that we've all got these legacies that we're living with, and some of these legacies, particularly if you were colonized in a harsh way by the Europeans, that's a very tough legacy to overcome. But the second thing is there's no predestination. It's all about the choices that you make, including technology that we just talked about. If you're in the United States,
but around the world, I would point to corruption. I mean corruption has been, as you guys know, talked about a lot over the past thirty forty years. But what do we have. We still have immense amounts of corruption and there's two side set there, the people who pay the bribes and the people who take the bribes. And that's a big part of what holds a lot of countries deeply in the poverty that you see today.
So what can institutions do?
I mean, this is you know, I'm going to go back to Douglas Norris and the seminal work at Washington University in Saint Louis, Professor Johnson. What do our institutions need to improve on to help they have notts of technology? What is your IMF where you served, what does it need to do?
Oh?
Well, I was in the IMF a long time, agoes, you know, so I'm not going to speak to their current policies and stance. But I think the key thing, and it made you sound like a rhetorical device, Tom, but it's real is focus on inclusive prosperity. How are you getting more good jobs created for more people and make sure they can access those jobs, make sure they have the skills, make sure they are empowered themselves, and
they recognize that. So the bumper sticker for me out of all of this is more good jobs.
Sloan one oh one, Come on, Simon, let's do it. Simon Johnson on tariffs.
Oh, I don't, okay. If you want to blow up the world, in the world treading system and really damage poorer Americans, slap a massive tariff on all the importance because, as you know, poor America spent a lot on things that have imported content. So massive tariff war terrible ideas.
Right, Simon, One more question.
We want to get you on your day huge press commitments now in this important press conference with Darren ASIMOVLOK scheduled at ten am. Circling in all this academics is Olivier Blanchard. Tell us what Olivia did for MIT.
Oh.
I think Olivia Blanchard is one of the greatest economists of this or any generation. And his presence and his toughness and his rigor has been present throughout my career. And I started at MIT as a grad student in September nineteen eighty five. So I've been thirty nine years on and off with the Institute. So Olivia Blanchard is one of the modern grades.
Absolutely, Simon Johnson.
Congratulations Simon Johnson, the Massachusetts Institute of Technology.
You're listening to the Bloomberg Surveillance Podcast live weekday afternoons from seven to ten am Eastern. Listen on Apple car Play and Android Auto with a Bloomberg Business app, or want us live on YouTube right now.
This is an important conversation Lori Kelvicina with US RBC Capital Markets. Laurie, I'm really not a big one of linking elections into equity market performance. The adults at RBC Capital Markets go there link the election to the twenty.
Twenty five equity performance.
So in terms of looking ahead, I hate to break it to you, Tom, but I think stocks tend to do well in any balance of power environment. We've actually back tested that over time. I think that any election issues that we have in the equity market are the nature of short term repricings that we have to work through, and there are clearly, you know, a lot of people out there who do care about those short term repricings.
If you look historically, though, whether it's Democrats control everything, Republicans control everything, different variations of split government docs dent do tend to go up. And what's interesting to me is that the two best historical scenarios Republicans control everything or democratic presidency with a split Congress, those are the two that have been most in focus for investors recently. So I think the election is something we've got to
get through. We'll deal with it, we'll reprice what we need to reprice, and then we'll move on.
Just can I rip on the scripture, folks? And we have the best radio studio.
In the world. It's incredibly wired in.
Right now on television, there's not Bloomberg TV on all of American television. For those of you internationally, there's young studs standing in front of Pole results Paul in their hands. Their hands are all going like this. On radio, they're like certain, they're pointing in this. Do we have a clue Paul Swening about the polls?
I do not. I just I assume my polls, Oh, almost worthless. It's like entertainment, and it's not just here in the US. And you think about what happened in Brexit and O the other places where the polls just I think.
Well said, really well, said Laurie.
We're getting into the earning season here. This is something we can really sink our teeth into. Earning share What do you need to see this earning season? What does a market need to see this earning season?
So it's a great question, Paul. You know, we put out our weekly this morning and I basically I made some housekeeping adjustments to my earning's number, and I said, you know what, we did this. It's not that important at this point in time. The numbers for the year are pretty much set. Companies have a way of achieving those bars. So I really don't care about beat stats,
you know, any of that kind of stuff. And frankly, companies are not going to be giving us a lot of guidance this time of year in terms of official numbers. I'm looking for two things. Number one, what are the qualitative comments around things like the US election, the FED and interest rates, the health of the consumer. I think those are all big things that we've got a monitor. They've been in focus. But really, frankly, Paul, these have
been you know the comments. I'm hearing for companies have been one of the big things keeping me in the soft landing camp, even at times when that soft landing thesis has been doubted. I'm going to be watching that. The second thing I think we need to watch, and this is more quantitative, but can megacap growth continue its earnings dominance going forward? Or can the rest of the market And I'm thinking more S and P X mag seven here, but can they step up and really become
the dominant force on earnings? So far hasn't really happened yet, and I think that's why the rotation trade keeps happening, then fits and starts.
Lori Calvacina. My chart of the weekend was a simple two line chart, and one line.
Was the S and P going up, up, up, up, up over eight nine, ten years in international markets.
Just going nowhere. Bring that over to your.
Expertise in mid caps and small caps? Is there finally a lift looking out three years to mid caps and small caps?
Oh?
You know, Tom, would I would like to say so? I can't quite get there. I've been feeling a little bit better about the small caps recently, just from the perspective of the economic tailwinds are returning. US economic surprises are turning positive. GDP forecasts are a nudging up. But we have to two problems in small cap right now. Number One, they're not cheap anymore. We're trading at about a sixteen and a half times weighted medium PE multiple.
The average is around fifteen, so it really the bar for them to do well is pretty high at this point in time. Secondly, you know, we have seen a number of rallies in small cap over the last year year and a half. They started when the stocks are cheap, people get excited about the FED. I think that FED aspect has played out at this point. But the other thing we've seen when those rallies have gotten started is that small caps look over sold on the CFTC data.
And guess what, a couple of weeks ago they actually saw positioning surge and we're back up to levels that are pretty darn close to the twenty sixteen, twenty seventeen and twenty eighteen high. So oddly enough, even though the performance has been you know, kind of choppy and we haven't had that big sustainable lift, it does look to me like the positioning's kind of starting to get full again.
Look at that she's going, Yes, it's she knows what she's doing, Lorie, which screens well for you guys. These days, it feels like this market's a little long and into any new ideas for folks to think about.
Yeah, so you know, we actually, you know, did our big analyst survey that we do once a quarter. We did that last week, and we made some changes on our sector recommendations. We kept our overweights on for financials and materials. Our analysts levels of enthusiasm are pretty bullish there, and the valuations look pretty reasonable to me. But those
are continued calls. The thing that we did that was new was that we downgraded utilities from overweight to market weight, and we upgraded healthcare from market weight to overweight in its place. And I would tell you a couple of things on healthcare. One very very robust outlooks from my analysts, So we like that vote of confidence. My utility analysts are constructive, but not quite as much. Secondly, we think we've got a better valuation story and health care than utilities.
We upgraded utilities to start the year when it was cheap. We kind of unlocked our way into the AI trade. But we think that valuation moment is passed, and you know, look, healthcare flows have been improving. They're not wildly positive yet, but we think we're turning the corner. And also I think the election risk is behind it, and neither Canada is talking much about how what's great.
About this CFA level four. There's an entire section on dumb law.
Yeah.
I love it when somebody smart like Laurie, he says he every once in a while you get like, oh.
You have no idea, Laurie Kelvicita, thank you so much for dumblock.
Greatly appreciate it. RBC Capital Markets.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just say Alexa playing Bloomberg eleven thirty.
You want to show out you're an expert on China out of Hong Kong with City Group?
Is Citygroup?
Is China falling behind technologically? If SMO, Bluo, Johnson or Robinson looked at China, are they technology losers?
I think there's no one size blanket, you know, kind of statement, because it depends on which part of technology. I mean, clearly in some parts of technology in China is winning, right when it comes to clean tech, when it comes to dominating supply chain, you know, and metals and minerals, they pretty much you know, have it down to path to the point that Western nations are now
all running after each other putting tariffs. But obviously, I mean, they're still catching up on semiconductors, which is one of the weak points, and that's what Biden administration has been
trying to do. So obviously that's inducing them to double down an industrial policy, and that's why people are very worried because this type of strategy of industrial policy, which is very supply friendly and lack of demand support, is basically a recipe for deflationary pressures, and people are worried that that's not being sufficiently addressed, which is why people have all been waiting for this mof press conference over the weekend.
And what did you take from this?
Yeah, So it's interesting, right, you look at the price action in the market, it's very mixed, right, So you see onshore kind of rally offshore obviously disappointed. So people are still kind of grappling with how to interpret it. And the way I look at it is it's kind of a mixed bag. So basically, people were looking for three things in the stimulus. They were looking for a
numerical target of what type of stimulus amount. They were looking for composition of the stimulus, and people were really hoping for some new demand side support, especially for consumption. And then the third thing is people were looking for forward guidance, any clarity of what else. You know, it's already October, so you really need to look for forward guidance next year onwards. And what we got was kind
of underwhelming. On the first two basically we didn't get numerical target and you know, and actually it was very disappointing. There was very little. A lot of the focus on the Ford incremental policy was more about local government. These are important problems local government, finances, property, but they only unveiled a little bit on student subsidies. Really nothing, there's no signs of a major kind of pivot towards new
additional demand stimulus or consumption support. And then they announced they talked about bank recapitalization. But then on the third thing on the forward guidance. This is where I think things actually surprised a little bit more on the upside because I think the Finance Minister land and this was more reassuring than the NDRC press conference. He did say that, you know, central government has a lot of room for
debt to increase the debt and the deficit. So in a big source of contention in China's they've been stuck with this three percent deficit ceiling. So the fact that they're signaling more room is kind of a very reassuring sign.
And then the other thing that was also kind of forward guidance was a little bit more encouraging is the fact that they were talking about potentially a largest ever kind of local government debt swap and they're talking about using special bond quota to buy housing and land supply.
But it hasn't changed Hong Kong where you are, and everybody on our team there says it's changed dramatically. Do you see Beijing changing from a certitude of whatever the modern Marxist Londonist state is. Do you see them amending their politics to jump start their nominal GDP and frankly to protect that you want.
Look I think there is some sign I mean, obviously we've had a lot of state intervention obviously during the pandemic and the regulatory shocks and the you know, a lot of the sectors which really impacted animal spirits. I think there are obviously the signaling from she now is trying to become much more friendly to private sector. But you know how it is, right, once trust is lost,
it takes a long time to regain. So although there's a lot of verbal rhetoric to kind of support private sector level the playing field he is trying to open up. I mean, people have been so scarred, it's like post traumatic stress syndrome. It takes a while, so people are still very skeptical. So I think there is a verbal shift, but it's not yet sufficient really to turn around animal spirits.
And then the problem is really that we haven't had any kind of significant kind of consumer household support, and so the deflationary pressures continue to linger. You know, real estate continues to be on the down cycle. So the countercyclical policy support, not to mention the lack of animal spirits, the trust deficit, which takes time, there's also a lack of countercyclical fiscal support to get people to feel confident
about their job and income prospects. So you kind of have this kind of negative feedback loop which they're trying to arrest. So I think since September twenty four, when we have the joint press conference with the BBOC and all the there's clearly a sign that government realized they have to pivot. There's clearly a sign. It's just a question of trying to figure out is it enough. And like I said, it's kind of a mixed bag what we got over the weekend because seems like we're going
to do something, but we don't have details. And even though the policy in the short term seems kind of incremental, hopefully we'll get some more clarity end of the month.
I want to see. I'm speaking for all the luxury retailers on Fifth Avenue and Madison Avenue. They've seen the European tourists come back, they have not seen the Chinese. Why are the Chinese not traveling and spending Because there's a lot of people out there would like to see the Chinese, but folks be out there and spending and traveling.
Well, first of all, I think she Shepingk's priority is not the luxury, that's not the target. Look, I think there's been a lot of things that's happened.
Right.
We clearly have significant precautionary savings behavior happening in China right now. I mean, household deposits are still so well above trend even though they reopen, you know, for a while now. So part of it is a lot of uncertainty about their income and job prospects. Housing we're still you know, third year into housing down market. That's still
the two thirds of their household. Well, so that obviously, and there's also a little bit of policy pushed towards you know, there's a little bit more nationalism, more domestic travel, and that's the other factor.
On a S.
Peter basis, Let's bring it back to Harvard and we got to go the bottom line is they have to inflict creative destruction upon a Chinese economy and from a high extandpoint clear the market. Do you see any indication they can clear this market and move on.
Well, to be fair, what's happened in the real estate is quite dramatic, right, the fact that they preemptively prick the bubble in twenty twenty one to try to deflate the real estate is a signed they realize this is not where it's to go, and we are seeing I mean, we saw massive defaults, so that is part of the destruction. And obviously they're creating new avenues of technology. But then the question is we need something beyond kind of state led industrial policy.
A private sector city group suggest we're going to get.
It so right now, no, I mean, look, the strategy is we still have the ramification of the real estate hurting local government. So obviously the priority now is to stabilize local government finances so they don't cut back a lot of public services and create a negative feedback loop.
And they need to address the excess supply in housing because people are not going to be confident you can't give you know, you give them the housing stabilizes, so you need something on supply as well as demand to kind of reach an equilibrium, hopefully a little faster.
I'm joining it. Sure, Thank you so much.
She is the City Group, Hong Kong, head of Asia and Pacific Economics and An Nows. Thank you for those wonderful comments at Martin Feldstein.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
We've got lady am Rita sent we're giving her promotions that she aspects as well, and Rita just.
We're thrilled here. I got to go to oil in a minute.
But the first hundred days for labor forget about labor tory and all that, but the first hundred days for secure has been a challenge, right.
It has been a challenge. I think from an energy policy standpoint, very few people are happy about certain kind of policies that are being talked about right now. Not a lot of clarity for investments for companies, so that's a challenge. But I think overall though, there's still a bit more stability in terms of Regardless of the challenge, I'm hoping that, you know, take the energy bit out. You know, we just kind of peace and calm.
I have to talk about energy aspects abilities, which is incredible.
Microeconomics around the price of oil.
The zeitgeist over the weekend is MBS in Saudi Arabia are beginning to flex their productive muscles describe what Saudi Arabia wants to do when they see kazakh Stan overproducing.
So I think, Tom, you will be the only one who'll understand when I say this, right, because I've struggled explaining this. What's how the Arabia is saying is we don't want to free ride a problem. We don't want to be the ones produce production and you take advantage of us, and you are increasing production now. However, they are not saying for a second we're going to repeat twenty twenty flood the market by pushing production to twelve
million barrels per day. They're saying, we want to go ahead with the small planned increases as we've already announced to the world, because you are supposed to be cutting and you have compensation cuts. So even if we bring back production net net, there shouldn't be any oil in the market.
Well, this is like a conversation you and I would have had in nineteen eighty six when we were both driving VW diesels exactly.
So I'm what do you estimate the risk premiums for geopolitics today in the market today, Because it seemed like prices were coming down, coming down coming down, and then we had that escalation just over the last month or so.
I mean, you could argue that since that news broke we've been about we're about eight ten dollars higher, But I would also flip it around the other way and say, weren't be a bit too low regardless of all the kind of fundamental bearishness that said they're in the market. What I'm really grappling with this year is inventories for crude oil are incredibly low everywhere. Cushing, yeah, very low.
Cushing in Oklahoma has been near record lows. Globally, we are pretty much at record lows on a day's of forward cover basis. But the market doesn't care about that because they expect huge bills next year. So somehow we've kind of skipped a step and we're talking about next year. And that's why I mean, otherwise Israel around, would we be at seventy five dollars, We would be at one hundred and twenty or higher.
So what's different though, just in the last X number of years, is that the US is now a net exporter. Are they good? Are they good partners in the global energy market? Are they efficient? Are they reasonable? Or you know, how is the US producer these days?
I think the US producer has completely shifted the paradigm right in terms of supply risks how markets look at generally political supply race. Because the US has been a steady source of growth. My concern is US production is starting to kind of plateau, you know, doesn't mean it's going to start declining. This year, US production is flat versus last year. Some issues with gas constraints because they didn't have enough gas pipelines. Now they are starting up,
so we'll get some production growth next year. But Perman producers are telling us they're running out of good quality acreage. Barking producers are saying the same thing. So I don't think fast forward two years, the US is necessarily going to be the kind of savior it has been in this market. And I just sense a huge amount of complacency in this market because there's a lot of recency bias.
So we're you know, let's call it just under eighty dollars a barrel.
Everyone listening and watching now it's good morning on YouTube is like, wait, why isn't oil higher given the Eastern Mediterranean his geopolitical what's your number value of geopolitical risk. If we actually get geopolitical risk, is it ten dollars a barrel?
I think it's going to be higher because everybody in this market is short. But now, what is a geopolitical risk? I think the market is tired of putting in a premium because over the last five years, we haven't lost supplies because of geopolitical risk headlines. What the market will have to see is an actual supply loss. If you do see that, then I think the upside is significantly higher.
How about Russia.
Wasn't that a supply loss or is that oil still gase?
It's just redirected, right, And I think that was a big, big turning point for the market because a lot of traders bet on Russian oil being lost, but the sanctions were pretty toothless in terms of actual supply losses. It just was always about hurting revenues. So we've had all that oil go to the East. Indian and China are buying all that oil and that's not been a problem.
Is it not a problem for Europe? I mean, is Europe weaned itself off of Russian energy by force?
Yes?
I mean Europe still consumes fourteen to fifteen million barrels per day of crude oil as in refines about that much. I mean varies depending on your definition of Europe and so on, so it's not paying up for it. It's more expensive for Europe.
I want to audible here. We can do this with Emri de Sin as we prepare for as we prepare for a conversation with kir Starmer. The compare is with Tony Blair. From where you sit in London, Emri de Sin he wants to capture that pixie dust of Tony Blair, but he just can't do it in this time and place.
Am I right?
I think that's fair. And I'm not one hundred percent sure that he necessarily wants to be the next Tony Blair either, given everything else that's going on in the Middle East. And I think he's been very clear about where UK's position is. But I think he does have a lot of challenges at hand, and again it's not
been easy. The UK economy isn't doing particularly well either, so all of his energy has to focus on getting the economy up and running and you know, reducing unemployment and just kind of creating growth.
But he went to the University of Leeds, he's not you know, Oxbridge and all that. The bottom line is the economy's prospering. What in two miles of London in Edinburgh? Maybe what's he going to do or the Tories going to do to be bipartisan, what are they going to do for Leeds and the challenges of Leeds England.
I think that's that's essentially exactly like you said, the issue London is booming, but that's not the same for the rest of the UK, and therefore the challenges do become. You know, is their tax reform on the cards? Is it going to be more pushed towards green energy to at least stimulate more of the domestic economy. There's a lot to be done.
Are you moving to New York? Is there?
You know what I'm saying in London, but you're not in Houston?
Back and forth.
I do go to Houston, back and forth. And let's not talk about US election.
I'll say in London, Russia and oil can putin move the price of oil at thirty seconds.
No, not anymore. He's not in control, well unless he decides to turn it off, which he can't because he needs the revenues.
Yeah, okay, Amrita sent, thank you so much in studio with Energysmarts and again we protect the copyright of Emerita send and all of our guests look to Energy Aspects London for their brilliant breakout. I can't say enough. It's like Adam Saminsky Paul at Deutsche Bank years ago. With Paul Sink. It's like all supply and demand dynamics, the price theory, the microeconomics. It's not you know, some people go sixty thousand feet and all that, and Rita goes right into the dynamics of it.
Pa.
I can actually understand it. That's why I like her.
Yes, I get this.
I understand what you just said.
There, Amrita said, thank you so much.
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