Surveillance: Exclusive With U.K.'s Johnson

with a British leader's take a listen. China is a gigantic part of our economic life and will be for a for a long time, for for our lifetimes and that. But that does not mean that we should be a naive in the way that we look at our our critical natural infrastructure, the way we look at You mentioned nuclear power, you mentioned five G technology. Those are all legitimate concerns at any government, many many other governments around the world have. But I am I want to be

I've said this many times, it's worth repeating. I am no sinophobe, very far from it. I think you think you're the last sinophile in the cabinet. No, I expect there are lots of looks China's China is great about wind power? Would you let them buy offshore wind power? That's think I think you'd have to with You'd have to look at as you'd have to look at what

was your defining as strategic or critical. But I certainly think that having a know our trading relationship with China, if you look at it, what's what it's it's in spite of all the difficulties, in spite of you know, all the angry conversations about or the difficult conversations about the Dalai lam Or or Hong Kong or or the Wakers, and where where we will continue to stick to our points, right, we will continue to stick to our to our views.

But actually trade with China has continued to expand for a very long time and I think probably will continue to expand, as I say, for for the rest of our lives. That doesn't mean that we should be um, you know, we should be also we should be cautious about how we had at our cn I and about how we handle FDI from China into some of our That's why we brought in some of the legislation that

we have. The Prime Minister of the United Kingdom getting to greet those at copy in Glasgow, joining us now the other in chief of Bloomberg News, John michaels Wade, I put on a new shirt and sat up straight today for this discussion. John. There will be Johnson, Thank you. There will be Johnson, there will be Scotland, and there will also be the hope for a future perfect. You're wonderful book of too many years ago two thousand three.

We need to redo, John, and I want to talk at the back end of that book about the back ash. You mentioned the backlash of globalization. What's going to be the backlash of climate change at the Prime Minister in others face at Glasgow. I think that's actually quite a

good comparison. In fact, I think if you look at the issue in Britain of heat heat pumps, which is from a green point of view, people are trying to put in much more kind of low energy heat pumps into their houses and everyone thinks that's wonderful and green. But what's happening is consumers, who are generally quite keen on green things, they're saying, no, God, these are going to cost. It could cost five thou dollars they could

cost huge amounts of money. And I think that what is happening with greenery is a little bit similar to globalization. It's something that everyone generally thinks is a good idea. And remember there was an era where people thought that generally opening up economies were great, and everyone approved of globalization until it happened to them. Everyone approves of fighting climate change until suddenly it means the price of petrol or gas as you mistaken they call it rises. That

that's where that's where it hurts. It's when you're heating for your house hurts. It's where things that really affect people particularly, and Johnson is kind of caught in the middle of that as Indeed, you know, you can look at what's happening with the Democrats in Congress. Do the elites know there's a cup twenty six they have to

sell to a public that's hugely skeptical. I think, well that one example of the elites is her Majesty Queen Elizabeth and she she was caught on caught on the recorder the other day talking about that that nobody was coming and that it all looked very difficult. Um. So I think some people are aware of that, but I think in general, no, I think that it's one of those zip areas where there is a divide that opens

up and you look around the world. Every time it's come up, it's always sort of hit the elites harder. You might remember that example a bit ago where Macron suddenly ray you know, changed the speed limits on various roads in part for kind of green reasons, and you suddenly end up with the La Jean. There's few things that make people more annoyed than something directly hitting part

of their pocketbook. You look around parts of America as well in the debates now about what happens with infrastructure bills and so on. So I do think it's I think it's a worrying area from the point of view of a kind of global elite view. Meanwhile, they are hosting a Copper twenty six at a time when there's a lot of questions around how much to open your borders. It's been an issue of serious disagreement and frankly a

lot of consternation. However, at this moment in time, UK's hospitalization and death rate for from COVID has actually been going up. After being celebrated as one of the big winners from the whole pandemic. How do you respond to that, Well, it's interesting you look at the numbers for COVID. You know, sufferers, people who caughts over COVID, those have been rising very

rapidly in Britain. You're right, the hospitalization and death rates have gone up, but so far, at least, at least as far as you can see, the sort of vaccine protection thing is sort of holding the current levels. I thinks around forty a day people are catching it. You would expect to see many more people dying and in the rather gruesome way in which this works, and it doesn't seem to be happening because it's it's really ripping

through especially young people. Everyone who's got schools, people were working with here, you know, they they've got people are stuck at home because their children are suddenly got it. And so there is there's a degree of that, but there is also the sort of general sense that back to what you said earlier, these things to do with opening up economies, people being there, they are taking in

this in COVID. You know that Johnson is going a little bit back to his more liberal routes in that interview, I talk about the fact that we're in Margaret Thatcher's study. There's a picture of her glowering down on us and a copy of High X Road to serve to a key part of the Tom Keen booklist, staring down at us. That that was the culture from which Boris Johnson came and he still has some quite strong libertarian stinks at the same time as that he is, by any measure,

increasing the size of government fairly formidably. He blames that on cop COVID, and he's also trying to sort of, I suppose do a version of industrial policy to push the British economy, especially towards the North, towards manufacturing, towards things like that. The football stadiums are full again, John. The important questions, sir, Were you at lester Manchester United last weekend? No, very, very sadly I missed that. My life is happy because I saw Brendan Rodgers in a restaurant,

didn't you. None of this will mean anything to people like sometimes you know Tom Night. John, Thank you, sir, great work as always. John Mchothwaite. There Bloomberg News editor in chief sitting down with the Prime Minister in the UK Tom, I'm delighted to be here in the Science Museum where we also just run from the Prime Minister of doing a big speech on innovation and he wants

to attract the big box around the world. One person who was in the room and who I believe also had dinner with the Prime Minister yesterday, is David Solomon. He's the chief executive of Goldman SAX. Thank you so much for joining us. It's been a while since we saw you in London. It's it's been a while since I've been in London. I'm thrilled to be back in London. Um. It's really been since March um and to be back, it's good. It's good to be back, and it's good

to be spending time with people. And and the pitch from the UK government is come here, invest to be green and you know invest the more. Have they been persuasive, What has the government been able to tell executives? Well, I you know, I think they have a good pitch. But as you know, we've been very, very committed to

the UK for a long time. We have people here in the UK and in fact even you know Preak Panbamic going back to team We've built a new building here plump Tree Court, which is a billion dollar commitment. We've been growing up, you know, up also in Birmingham, where we now have expanded our presence in the UK. So we've seen the UK as a tremendous opportunity for us to have a significant outpost, serve our clients you know, both here and also provide resources across the continent. Has

that changed at all because of Brexit? We have the energy crisis, there's a lack of drivers. Is there anything that you need to ask authorities to do better or that you clients want the UK to do better? Well? I think we're at a moment in time where we're coming out of the pandemic and there are a handful of things going on. I think all over the world. There are labor issues that are really a reflection of the transition out of the pandemic. There are supply chain issues.

Some of this stuff is transitory. There are some secular trends that we have to watch closely. Um. But I think we're adjusting and dealing with it as anybody else's and I you know, I think leaders here are thinking about it the same way leaders are around the world. When you look at the UK and of course some of these green investments that the UK and the City of London particularly has been really trying to pitch. You've been extremely involved in carbon off setting. Can London really

spearhead that movement? Well, I think it's important that governments around the world partner with the private sector to try to get capital directed toward innovation in a way that we can accelerate the climate transition. And you know, I want to emphasize it's early transition. Um. We need thoughtful policy. In my opinion, we need to put a price on carbon um and I think this is something that is very important. There's an enormous premium for certain green technologies.

We can invest in technology that can collapse that premium and allow us to deliver a much more sustainable future. But this is something that's going to take some time, and I think it requires both good public policy from from our governments and then active involvement from the private sector. We're trying to do our part. I think, you know, we've made a big pledge towards seven fifty billion dollars

of sustainable financing, investment advisory services. We're working toward that and we try to spend a lot of time with our clients thinking about how we can support them in their individual transitions. And so this is getting a lot of attention, as you would expect it should mean. There's also quite a lot of regulation going aheads and we've heard yesterday, for example about E S G derivatives exactly

you know, where does that end? And can can London as a capital be the green finance capital of Europe and the world? Well, I think there's a real you know, we heard very very clearly from the Prime Minister, a real sense of trying to spur on in this economy. Here an opportunity to create less regulatory structure and therefore more incentives to spur more of that investment. And there's a great center of excellent and investment here, certainly around

the vaccines. There was a bunch that happened here in the UK and so you know, I'm optimistic the UK will play apart. But when you think broadly about these issues, this is a global issue, and particularly in the developing world. You know, we in the developed parts of the world are going to have to help to bring the world along and get capital focused on technologies that can move this transition over time, and it's really it's not just here or there, it's everywhere, and talk to me about China.

So we had exciting news from Golden Sex. I think in the last couple of days. How committed are you to China or how where we are you of things changing quite quickly given some of the economic posts he's put in place by the President. Sure, we take a very long term view, um and we take this view, you know, rooted largely in the fact that we have many, many clients that have been doing business in China for a long time. They want our support in our involvement.

We're extremely pleased that after a long period of time, seventeen years since we started our joint venture, that we actually now have ownership and control of our joint venture in China. So we're thankful for that. We have a long term plan to continue to grow in China. We've recently announced a wealth management joint venture there. There's no question that the bilateral relationship between the US and China is complex and it's going to continue to evolve. We're

watching it closely, but with a long term lens. China is an important part of the global economy. Goldman Sex operates as a global player with businesses around the world that are participating in global growth, and so we think in the long term that presence there will be very important for us. Is it risk you're being alone or is it safe for being a joint venture? Like, what does it mean in terms of regulatory risks? Well, I I think there are always regulatory risks um and all markets.

And I think that you know, we've shown that ability to adapt to regulatory change and adapt our business appropriately to the degree that our regulatory challenges will deal with them. The big reason that we like controlling our joint venture is when we didn't own our joint venture, we own thirty three of our business in China. Every dollar of investment we made, we only own thirty three cents of it.

So this allows us to continue to invest for the long term and growing our franchise in our business and serving our clients in China, and we're excited about that. And again, you know, my job in stewarding this a hundred and fifty three year old institution is to take a very you know, a very very long term view, and that's how we think about it. When we're when we're investing in building there. Did how much do you want to grow in China the next five years? I

think there's I think there's a big opportunity. We've put forward a five year China plan. We haven't put the details of that five year China plan how publicly, but we run a relatively big business in China, although it's a very small part of overall Goldmen Sex. Our growth is correlated to where there's growth in the world, and

there's certainly good growth in China. UM access to UM, the wealth of individuals and wealth management platform, given our broad wealth management platform, is something that's very attractive to us. Corporate activity has been quite high there. UM. There's no question that that that's something that that corporates there turned to our expertise and capital markets and advisory services. So I think there's a good opportunity set for us to

prosecute over time. How painful have these high energy prices been in customers in China but elsewhere in the world. Well, I think there's there's no question that we're going to go through a period where there's more inflationary pressure on commodities prices. And this goes back to why when we were talking about sustainability broadly, I said, we have to balance good public policy, you know, with the short term implications.

And that's why it's a transition. If we're too aggressive in the context of how we direct capital or the private sector, that can be more inflationary, and obviously that makes its way down to the end users individuals um and the cost of their energy or their gasoline, etcetera.

And there's a balance in that. If that goes too quickly, um, you know, that's that's something that that's something that people are not going to be happy about, and for politicians that will be certainly something that they'll have to wrestle with. But what do you say to a climate change activists

that says, actually, we have the energy prices. But it's also a good excuse for big banks, big companies, big finance to delay the transition, so to go through a transition, but actually not as be as aggressive in stopping, for example, funding some of the fossil fuel companies. I think this is all balance. And you know, I've said clearly that Goldman Sachs is going to be in a position where we're going to be doing business with fossil fuel companies

and financing certain fossil fuel companies. But it's it's a direction of transition. We want to be in business with people that are investing in their transition. We want good public policy. I said to you earlier, we have to put a price on carbon and my opinion because that will allow us to therefore accelerate the transition. But all of this is a balance the most aggressive point of view on the transition and the least aggressive art right.

It's a constructive partnership between governments and the private sector to make sure, you know, we protect our society and get capital into technologies that can evolve and help us make the world greener. And I firmly believe that something we can do. But it's something that's going to require a lot of focus and a little bit of patients, but with appropriate intention and energy and commitment um and

we certainly have that. What happens if a failure, I I don't see it as as as I don't see it as black and white as being a you know, a failure. I know, you know, the Prime Minister was asked this morning, you know, what do you expect and what's a win? I think part of this and I think this is one of the constructive things about being a part of the session here today, this Global Investment Summit, and I know what will be the same with copy.

You need to create dialogue. People need to have debates. We have to be willing to debate, discuss, learn and therefore make good policy decisions as we move forward. And this is all constructive part of the process. So I I see the fact that these dialogues are occurring is pushing us forward. I think that's a very very important part of the transition journey that we're on. But it's not a it's not a yes or no to me

that there's a win or a failure. This is going to be a process that we're all invested heavily in. Thank you so much, David Solomon. I want to talk about your music, but we'll have to do another time. I don't know if there's anything really really happy to be with you and just happy to be back in London today. Yeah, it's nice to have you back. With that. We're going to send it back to you in New York right now to the parlor games. Subrato or Jampa joins us head of the US rates Strategy at SoC

Gen's world. We could get an update heres. So Brad, how important is the adjustment in the FED message? Do they have to catch up where the market is on maybe a slower growth and maybe a more controlled inflation

um Not really. I think I think that for the most part, you're going to consistently here the same message from all the feed speakers that they're probably going to be very careful and cautious on heights because of the fact that they just don't have enough information on the inflation front for them to sort of guide the markets towards rate heights. And that's why I think you're seeing a little bit of an adjustment in the in the

two year part of the curve. This morning, we did see the market fully priced in three hikes by the end of three and now you're going to see a little bit of adjustment based on what the fense say. Equities are on a tear. What does that signal to you in an overarching strategy, and particularly in fixed income, well, I think that low yields are here to stay. As long as yields are low, real yields remain low, then you have to go out the respectrum and invest in

higher yielding assets. So if you look at the bond market complex, whether it be high yield or or treasuries on the other end of the spectrum, your real returns are very very low. I mean, in treasuries are getting negative ninety basis points. So it just doesn't make any sense to be in bonds, and you're better investing out

the respectrum. And that's why you're seeing more and more demand if you will, for risky assets as well as corporate bonds and high yielding bonds, an environment where tragedy als are going to potentially remain low for the receiver of future. So about I want to sit on the federal reserve for a minute. The idea here that very inevitably will push back as of the right rate hiking expectations that are being built into markets. Would they embrace this?

I mean, markets are still chugging along even as traders price in two rate hikes. Don't they want to propagate that because it gives them, frankly, more ammunition down the line to either ease without even moving the rate just by verbal intervention, or down the line it does leave them the ability to cut because rates will not be at zero um. So I think the way I would look at it is I think montreal policy, especially rate hikes,

is a very blunt tool in this environment. Right You're looking at a very unusual inflationary environment that's driven by supply chain instructions and labor shortages, you know, higher rents, and you know, the the FED can't really meaningfully do anything by raising rates to sort of fix the inflation problem that we're going through right now. So I think the best course of action for the FED is to remain patient until it really really needs to raise rates.

So that's why I think they're gonna err on the side of the caution, because they know they can pivot easily to guiding the markets towards rate hexs if they

need to. If they do it now, then what you're gonna see is is this sort of price action you're seeing in the bar market, where the bar market things, and the FED is going to be able to raise rates soon, sooner faster, kind of prompload the rate HEGs, if you will, which would imply a much slower trajectory for growth over the longer run, and that's causing this

extreme flattening of the curve. They don't really want that either, steeping of the curve is is healthy for a variety of the sectors of the economy, So they just aren't They shouldn't really be in a Russia, if you will, to sort of guide the markets towards rate heights. There's also the idea of political risk, but this is the perhaps view of the Federal Reserve as it is composed today. Yeah, we really have heard from President Biden in terms of

replacing FED Chair J Powell. An increasing question if you look at predicted the odds have actually been going down. What's your view of the of the potential market risk of turmoil at the top of the FED. Um. Yes, there's there's more uncertainty now than there was probably even a few weeks back about who's going to be sharing the FED and what the composition of the committee is

going to be next year. But broadly speaking, I think that regardless of the choices that I mean, I think you know, any and most presidents want a very devilish FED. They want policy to be accommodative so that you know, invested in certain seed robust growth trajectory, and the labor market is strong and inflation is not a concern. So I think broadly speaking, you know, the composition is going to remain somewhat doublish even if there are new choices made for the chair as well as some of the

committee members. So I'm I'm I think that policy, especially with the FED, tends to be somewhat stay able. Uh So I think that they that I'm just I'm not nearly as concerned about the change in leadership, if you will. What how does this devolve into the equity market. I know it's off your remit, but the gloom crew sabad has been absolutely crushed in the last ten days. How do you adapt to that? How does it change your perspective? Um?

You know, by by gloom creamy, the people that are that that expect the equity marketing narratives here that fear, whatever the fears are in bonds or stocks, they've been they've been obliterated. You know. It's interesting because it has happened within the context of the bond market being concerned about very higher trajectory to inflation. The bondmark could be

concerned about the FED raising grades. So the equity market, for the most part, is dismissing all the signals that that the bond market sending on the fact that the front and yields have gone up with a faster case of rate heights, there's probably uh, you know, a potential store down in growth. So I think the equity market

is going to wait. I mean, I'm not an equity strategist, but I think that really the signal that I'm getting from the equity market is that they want to see and here from the Fed before they start pricing in sort of this this doomsday scenario, and the bond market always tends to lead, if you will, in some respects, so the signal from the bond market is going to be very key for all the other risky assets. It's

a battery. You are perfectly entitled to talk about the equity market since equity strategist to spend the whole of this year pretending to be bond market strategists, pretty much all of this year. Spatter thank you as always a bat out for there of skin. On radio out of New York and of course Boston, Washington, San franciscoing all across the nation and truly around the world, we say good morning and on radio and TV it's about okay,

now what French shooting is Chief investment officer. Okay, now, what if the Northwestern Mutual Company Brett, What is the mood of your institutional and retail clientele that's worried, cautious, or flat out scared. Yeah, we think there's been worries in the market's about mid May. So if you think back then, everything was going well in this country. Everything that we had tried to do over the prior year

was kind of coming to fruition. So we had rising vaccination, declining COVID cases, and economic growth was strong, and I think people sat around and wondered what could go wrong? And so you had to worry about too much. I think the inflation commentary that we still have today, and what would the FED do you had the two little crowd China? Evergrand would the economy roll over? And then valuations?

Are stocks too strong? Have they rallied too much? And we think that's really driven trading over the past few months. And we think that as you move towards the end of the year, investors will refocus on economic and earnings fundamentals, which will push stocks higher. And I think that's what you're seeing right now. Earnings are coming in strong, the

economy is still strong. Certainly there has been a weak patch because of COVID, but I think that alleviates and I think you're left with an economy that's moving higher, earnings that are strong, in a tenure treasury still setting around one sixty. Where are you going to put your money? How important is that one six in all of this? It's important? I mean, if you think right now, I find the narrative kind of odd when people come on worried about inflation, saying that is going to do nothing, uh,

and then they tell you to invest in bonds. To me, I still think there's plenty of rooman equities. I think especially in the more cyclical areas, which I think we've all given up on after a brief six months rally. In those versus things like the apple nineteen dollar cloth that you were talking about, I think that you're in now and oil in places like that is where you want to invest, more so than the secular growers like

you just mentioned. I've been asking guests over the last week, Brent, what are the pillars of support that will persist we can lean on through next year as well, not just into year round. Black Rock gave me too, they said pence up demand that will persist and pricing Papa, Do you share that view, Brent? I do if you look right now. For example, on the consumer side of the equation, the consumer has spent the prior thirteen years deleveraging their

balance sheet. Their debt to net worth has gone from twenty four to twelve, the cost of that debt has gone from eighteen to twelve. And so the consumer is healthy, they have pent up demand, and I think you're gonna continue to see spending. The question is going to be on the supply chains. Can those snarls kind of alleviate a bit? And I think they will as you move into the new year, And so I think you have

a setup where equities continue to push higher. There certainly are risk and I don't expect to the same push that you had post COVID, But I think on a relative basis, stocks are still attractive relative to bonds just given the economic Outlooking where the fet is brom when you were saying that there is a lot of pessimism in markets, where are you seeing that pessimism? Yeah? For example, just the uh full client visits I The questions that I get are not what could go right, it's what

could go wrong? And that's kind of a continual question that I get all the time because things have gone fairly well. Um, but if you look at the A A AII Bullish Sentiment Survey, it peaked around May. We kind of had all the meme stocks moving higher, we had people trading on a daily basis. We had optimism actually go above fifty, which is kind of rare air during the past thirteen years. And it's spent the next

three or four months falling too. I believe twenty two in September, it's starting to rise a bit again, and I think people are gonna get warmed up to the fact that the economy is still pushing along and that typically pulls markets with it, and I don't expect this time to be any different. When you talk to clients and they hear from asset manager after asset manager, it's a stock pickers market. What do you tell them. Do

you say, look, the index is doing pretty well. It's supported by a number of different pillars, or do you say, yeah, you should be very selective, or you should just pay very big fees to somebody to invest your money. On a stock level, we attempt to pull both lovers, and so we attempt to add value through security selection and

asset allocations. So we are overweighted small caps, for example, and we certainly do try to tilt our portfolio towards those cyclical names that I mentioned kind of in my opening comments. And always fantastic to catch up with you said, very calm and constructive on the outlook French shooting, that of northweston Mutchell. This is the Bloomberg Surveillance Podcast. Thanks

for listening. Join us live weekday from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg