Every Monday to Friday, this is Peter Lewis' Money Talk.
Good morning and happy Tuesday.This is Peter Lewis.A warm welcome to Money Talk.
For the 12th of November, this podcast is sponsored by Surfing Group, which is headquartered in Singapore and offers online financial services to 50 million customers across nine countries.
In today's business and finance headlines, China's total trade surplus with all nations is on track to hit a fresh record of almost US$1 trillion this year.
Exports to nearly 170 economies top what China buys from them, and the goods trade surplus soared to US$785 billion in the first 10 months of this year, according to data released last week, the highest on record for that period and an increase of almost 16% from 2023.
China extended the smallest amount of new loans in 15 years last month in a muted response to the batch of monetary stimulus measures orchestrated by the People's Bank of China.
Chinese banks extended 500 billion renminbi yuan loans in October, dropping from 738 billion in the corresponding period of the prior year.It was the lowest amount of new yuan loans extended in the period since 2009.
Stocks in Hong Kong fell on Monday as China's stimulus package was below investor expectations.
They were disappointed by the lack of measures targeting consumption, and UBS lowered its 2025 growth forecast for China following Trump's re-election, telling investors it expected the economy to expand around 4% in 2025 and at a considerably lower pace in 2026.
And so-called Trump trade assets expected to benefit from Donald Trump's re-election surged again on Monday.Bitcoin soared to a fresh all-time high.It's currently above $88,000, would you believe it?
The world's most popular cryptocurrency jumped 15% overnight as digital asset investors and traders celebrated what is expected to be a new era of crypto-friendly US policies under Trump.
and the value of the global cryptocurrency market has topped three trillion U.S.dollars now for the first time in three years.Bitcoin makes up more than half of that global crypto market.
On today's Money Talk, we're joined by Mark Michelson, chairman of the Asia CEO Forum at IMA Asia, Will Denyer, U.S.economist at Gavacal, and in Washington, D.C., our U.S.economics correspondent, writer and broadcaster, Barry Wood.
Do please take a look at the daily newsletter which is available now free of charge at PeterLewisMoneyTalk.substack.com US stocks climbed to fresh highs on Monday as the Republicans closed in on control of the House of Representatives.
Following Donald Trump's recent election victory, the Dow surged more than 300 points on Monday and closed at a record high, helped by bank stocks JP Morgan and Goldman Sachs.
They've posted sharp gains since Donald Trump's election win last week, as investors hope his return to the White House could lead to easier regulation of the banking sector. The 30-stock Dow gained 304 points, that's 0.7%, to close at 44,293.
Losses in technology stocks, with the exception of Tesla, weighed on the S&P 500.The index added just 0.1% to end the day at 6,001. and the Nasdaq Composite hovered near the flat line, up less than 0.1% to $19,299.
Investors continued to raise their bets on the big winners from Donald Trump's victory in the US presidential election, the so-called Trump trade assets.
Made further gains, Tesla, the electric vehicle maker run by Trump backer Elon Musk, was up 9% after surging 29% last week. The company has soared past a $1.1 trillion market capitalisation since Election Day.
Cryptocurrency exchange Coinbase rose almost 20% following a weekly gain of 48% last week.Broker Robinhood added 7.4%. U.S.
bond markets were shut for Veterans Day, but the dollar strengthened by 0.5% to a four-month high against a basket of six currencies, on expectations that President-elect Donald Trump policies would seek to raise U.S.
growth and keep rates higher for longer. The People's Bank of China on Monday fixed trading in the renminbi at its lowest level in a year at 7.18 RMB a dollar, that's 0.5% lower than Friday's fix.
The offshore yuan stood at 7.228 RMB per dollar, down another 0.4%, having fallen 0.7% on Friday. Spot gold tumbled 2.3% to $2,622 per ounce Monday, slipping to the lowest level since mid-October.
It comes as investors continue to assess what President-elect Donald Trump's victory could mean for US interest rates.
Brent crude oil, which is affected by the outlook for China demand, tumbled 2.5% to $72.02 a barrel after China's stimulus plans disappointed investors and the US dollar continued higher.
In mainland equities, the CSI 300 recovered from losses of as much as 1.4% to close 0.7% higher at 4,131.
In Hong Kong, the Hang Seng Index fell 301 points, or 1.5%, to close at 20,427, and futures markets pointing to a further decline this morning of around 150 points, that's about 0.7%.
You can get more details on the latest market movements in my daily newsletter at PeterLewisMoneyTalk.substack.com. Let's welcome our guests.We have with us Mark Michelson, Chairman of the Asia CEO Forum at IMA Asia.Morning to you, Mark.
Good morning, Peter.And also with us is Will Denyer, who's US economist at Gavacal.Welcome back, Will. Good morning, Peter.And over in Washington, DC, we always find on a Tuesday morning, our U.S.
economics correspondent, writer and broadcaster, Barry Wood.Morning, Barry.Good morning, Peter.I'm going to stick with you because you've got some explaining to do, I think.This time a week ago, we spoke about the outcome for the U.S.election.
I think it's fair to say that it wasn't quite what was predicted.Barry, what happened?
First, my own mea culpa. I predicted that Hillary Clinton would win in 2016, dead wrong.I predicted that Kamala Harris would win in 2024, dead wrong. So I'm getting out of the presidential forecasting business before I'm fired.
And gosh, I had it wrong.
Anyway.And your track record, Barry, has been noted by some listeners, actually, because I had an email during the week saying exactly that, that they seem to remember that back in 2016, you weren't quite on pivot either.
My, my. Consistently wrong forecaster is just as useful as a consistently correct one.Thank you, Will.Thank you.
So what was it that Donald Trump has tapped into here?Because in the end, it wasn't even close, was it?He won all seven swing states.He won the popular vote.He increased his share in, I think, 48 out of 50 states.What was it that was the main issues?
You know, I think, Peter, given the days that have passed since the election, and there's been so much dissection of what happened in this earthquake, because it is that.I mean, Donald Trump has a much stronger mandate than he did in 2016.
I think, clearly, there was general dissatisfaction with the direction in which the country was going.That applies to the whole woke movement, you know, him, her.
her, they, them, you know, all this business of how we should address trans people and people who are taking on new sexual gender identities.People just, they didn't dare say they found it absurd, but clearly they do.
And I think that was a big factor in this switch.Secondly, Kamala Harris failed to connect with people. She really didn't say what she was going to do.Donald Trump had an idea almost on every item.I'll do this.I'll do that.I'll fire these people.
Kamala Harris didn't do any of that.And yes, it's perhaps a bit unfair to her that she had so little time, but she ran a very bad campaign.I think those are the big reasons.The economy, gosh, how do you quarrel with an economy that's growing at
two and a half to three percent in the stock market at record highs.I know people want to say that's the big factor, but I think it's general dissatisfaction.
Well, let me ask you about that, because that came out as being the number one issue, really, wasn't it?The economy, people cited it over and over again.As Barry says, the US economy is doing pretty well, but people just don't seem to be happy.
And this is something we've seen in elections, around the world that the incumbent party has been thrown out and part of the reason being cited is the cost of living that's just soared for many people.So is this, was that the big issue, do you think?
Yes, I was going to say, I think it's not economic growth, but it's inflation that was probably the single biggest issue.I agree with Barry that, you know, the focus of the Democratic Party on social issues, it may just, for a lot of people, I mean,
For a lot of people, that just wasn't probably the number one concern.Their concern was cost of living, as you said.
Now, inflation has slowed significantly over the last couple of years, but a lot of people still think in terms of pre-COVID and post-COVID, and if you're comparing the price of you know, daily items before COVID to today, they're still up a lot.
And, you know, the rate of increase has slowed, but it hasn't declined.
Now, of course, I don't know that anybody really wants to see a big deflationary spiral, but they wanted to kick out whoever they felt was at least partly responsible for that inflation surge in the last four years, and that was Biden.
So, Mark, what are your members telling you that were the reasons here?
Well, we haven't talked about the reasons.We will be in the next week or two because we're having our series of our quarterly forecast, our quarterly forecast meetings.We'll talk about the impact of all of this on Asia.
But I, you know, once we saw the results and it, you know, although it was comprehensive victory, the actual states were quite close, the swing states. within 2% for most of them.So it wasn't much.
But I think the main reason, the economy was one of them.Every interview I heard, and they were selective interviews, said exactly what Will just said. Uh, the people were disappointed.
They didn't, they felt they were, they, they had a lot less money to spend on what they needed, including basic food items and so on.Whether that's realistic or not, I don't know, but that was the impression.
But my, my feeling is that nobody would have beaten Donald Trump, no Democratic candidate.I didn't think that before the election.I thought that after election looking at it, and there was a quote by Charlie Sykes is well-known.
conservative columnist who became, who's not particularly friendly to Trump, but he said, this is perhaps the hardest part, realizing that our fellow Americans saw all of this, watched all of that, listened to all of that, and still said, yes, this is what we want.
This is who we are.And I think that's not far off.
So, Will, I mean, we're seeing a lot of instant gratification at the moment.We're seeing, you know, if you're a cryptocurrency holder, you've done pretty well from the US election.
You know, Elon Musk and some big corporate leaders have done pretty well.But the ordinary person in the street,
who voted for Donald Trump, do you get the impression that they are going to want to see pretty quickly some improvements in the economic aspects of their lives, whether it be job security, higher wages, something done about the cost of living?
And if that doesn't happen pretty soon, are they going to get disillusioned fairly quickly?
Yeah, I think, again, returning to the issue of inflation, I think a big question is, is the total package that Trump and the Republicans going to bring to the table, is that going to be inflationary or disinflationary?
Now, you have certain aspects, you know, the drill baby drill parts where they're hoping that increasing the supply of oil and gas deregulating, not just in the energy sector, but elsewhere can have a disinflationary impact.
However, I think there's a very strong chance that that is outweighed by a lot of inflationary policies, including increased deficit spending and providing another stimulus to growth and inflation.
The fact that this is bidding up asset prices, which is improving the wealth effect for consumers.The fact that Trump is promising in here on your point about they're going to want him to do something quick, he's obviously promised to
imposed tariffs, high tariffs on China and across the board tariffs on other countries, exactly what comes out remains to be seen.But that too could be inflationary on the margin.I don't want to overstate that.
The US is a largely domestic oriented economy.It's not going to have as big an impact as, say, if Hong Kong, where I'm based, imposed import tariffs, then our cost of living would go up very dramatically.But it will have an impact on the margin.
So, you know, I think the risk is that Trump's package of policies proves inflationary and people get, you know, upset about that because that's what they brought him in to fix.Now, we can go into it.I'll go into it later.
But that raises questions about, you know, what will the central bank do in that situation?And I think what was very interesting last week was Powell's comments, where Powell is basically getting on the the punching gloves.
He's ready for a fight with Trump again.He came, they asked him, are you are you going to resign now that Trump's president?He said in one word, no.And they said, do you think Trump has the legal authority to fire you?In one word, he said no.
They asked him later in the interview, like later in the press, or they said, as somebody else asked, has the Fed done legal studies to make sure that he doesn't have the legal authority?Again, not a full sentence. not allowed under the law.
Not allowed under the law.
Not the usual subtle approach of a sped head.There will be tension there, there's no doubt about it.Let me just add one thing to what Will said.Having just been at Sam's Club and Costco, Not in the United States.In Shenzhen.
That's where it's going to hit, right?Because the increase in tariffs now will be on products that people buy at those places, whereas the previous increase wasn't so much.So if this happens, then it might have an effect on what people's attitude is.
How much, I don't know, but it'll hit them really where it hurts much more perhaps than the previous round did during the previous Trump administration.
We'll see.Mark, I think that is a very important consideration.
But it seems to me that if you look back on the first round of tariff increases under Trump one, it didn't really affect the prices in Costco, Walmart, because the Chinese companies absorbed that loss.
because they were pushing exports and they wanted to keep their prices competitive.I think if there's a modest increase in tariffs, the same thing could happen again.And Peter, I want to add two things that I neglected to your first question.
illegal immigration was a big issue.And this is where I think Donald Trump is going to move very quickly with the appointment of this new border czar.
There is going to be a lot of disruption, as some people who have already been declared ineligible to be in the United States are the first to go.But this mass exodus of people, which Trump has trounced to do, will be very, very important.
Secondly, I think people were very concerned about crime.
If you take the states that were wanting to be nice to criminals, this all happened after George Floyd murder in 2020, a black person in Minneapolis, is that you had in California and a couple other states, people could steal up to a hundred dollars and not be apprehended.
Oh my goodness, if you're in a drugstore, a supermarket, any place, and you see this going on, someone pushing a shopping cart out without paying, you know, you're not very happy to observe that.So that was clearly a factor as well.
So does this mass deportation of immigrants, does it have an economic impact?I would have thought that, you know, it does make it harder to hire, doesn't it?And push up wages as well.Is there going to be an economic impact from that?
Because a lot of these people are employed.
I would guess yes, but let's face it.The illegal immigrants coming across the southern border, they can get a social security card, which is what most employers would ask for.
They can get that on the black market, well, two, three hundred dollars, which they can manage because they've already paid perhaps a thousand dollars or more, three times that, to get to the border and then walk across.
This is going to be exceedingly disruptive, but also, I think, very popular.As to your question, will it disrupt things?
I would guess so, because one thing, sure, if we've had four years of rushes across the border, and whether it's 5 million, 10 million, whatever, you don't hear those people just as mass unemployment.They've got jobs.They're working.
Now, I did see a lot of them in Phoenix a year ago when I traveled there.You saw them gathering, you know, wanting to be picked up for day labor.But essentially, I think most of the illegal immigrants have found work.
So, Will, what do you think?Is there going to be an economic impact from that?And I'm wondering, who's going to do these jobs?Because Americans in general don't want to do the jobs that they're sort of doing, do they, when they come over the border?
Yeah, on the margin, yes.I think it's a negative for profitability of companies.I mean, if you ask a company, would you rather more or less cheap labor coming in?They'll say more.You ask, would you like more or less customers coming in?
They say more, right?So what you're doing is you're exporting workers and customers, or deporting is the appropriate word.Again, I don't want to overstate the scale of this.I've seen estimates of The illegal immigrants in the U.S.
are around 11 million.That's about 3 percent of the 335 million population, which is not nothing, but it's not massive.But it does.They do punch above their weight for a couple of reasons.
One is the vast majority of them are in their prime working age, unlike, you know, the general population.And, yeah, they tend to to work hard and work for for lower lower wages.So, yeah, I do think it'll have an impact.
And Mark, what do you think we should make from the appointments that we've seen so far?Barry mentioned Tom Homan, is it, who's going to be this board of czar.
There's also talk about Robert Lighthizer maybe running the trade department, although I don't think that's been confirmed yet.But what should we make of what we've seen so far in terms of how this administration is going to proceed?
Well, what's happened so far with Lighthizer is that he has been Trump, either President-elect Trump or someone in his group said that Lighthizer was going to play a major role in trade.What that means exactly, I don't know.
But I suppose he might be a czar as well.I don't know if he'll be USTR again.But obviously, strong in protecting the U.S.economy, not a big supporter of open trade, a strong supporter of tariffs and so on.
And speaking of immigration, Stephen Miller was also confirmed as deputy policy head in the Trump administration.And we all know that his view on immigration is not exactly favorable either.So he will support the czar.The other
Other appointment that sort of is a leading indicator so far is former Congressman Lee Zeldin as head of EPA, the Environmental Protection Agency.First of all, he doesn't have much of a track record in the environment.
but has got a 14% rating, I think, with one of the environment groups and doesn't believe in the Paris Climate Accord and all that sort of thing.So withdrawal is likely.And that's a big issue for our members.
Climate change is a big issue for almost all companies around the world.It's affecting their business.They're all making plans.And a setback in this area would be, I think, very troubling for many of them.
especially since China, as many provinces it has in that area, is sort of taking the lead.And you can see, I just saw another chart with China's spending on trying to deal with this issue compared to everyone else, and it's way ahead.
Of course, it needs to be, but at the same time, it's a leading indicator, and the U.S.is one of the lowest.
So you mentioned Barry, the first time around, China was able to mitigate the effect of these tariffs.But if we get 60% tariffs, which is what Trump is talking about, they can't mitigate that, can they?
They cannot.And I think Mark's point is well taken on this.If the tariffs go above a certain modest increase, for Chinese goods, there's going to be a tremendous price impact in the United States for the average shopper.
And that will be disruptive, to say the least.But I think that's why Trump will begin modestly, and then we'll see what happens.I think the personal diplomacy is going to be important.
You know, it's not impossible to think of Xi Jinping and President-elect Trump meeting rather early.
And maybe doing a trade deal like they did last time.
Hong Kong's been mentioned as a bargaining chip in this process, et cetera.It's hard to predict.It's hard to predict, but I think China's paying close attention to what's going on, trying to navigate Trump too.
They must be gaming out all the various scenarios, mustn't they?I mean, this has not come out of the blue.They've had plenty, because they were taken by surprise the first time around.
Mark, how does Hong Kong become a bargaining chip?I don't follow.
Well, in the sense that, you know, Hong Kong is Hong Kong is there's been there's been talk about imposing.
There have been some new sanctions on Hong Kong and the sense of of maybe taking that out of the picture because China wants Hong Kong to be a financial center.Right. International Financial Center.
If there were restrictions on their ability to do that, China would not be happy.So that could be part of the process as well.It's not their top, China's, I don't think Beijing's top priority, but it's important.
And let's not forget as well that Elon Musk, who in these last few weeks has emerged as a real ally and confidant of the president-elect, he knows China better than most people in this new administration to be.
So he could be a kind of conduit for how you deal with China.
We talked about that yesterday a lot.Yeah, he and Steve Schwarzman and other people that have supported China's important, China's important to them.And so they could have an influence on that.
And Elon Musk also has become political advisor, I guess, because he, when Elise Stefanik, the Congresswoman from New York was announced as a new UN ambassador, Elon Musk has raised some questions about filling her seat, which I didn't know that was part of his portfolio as well.
So it appears that he's going to play a wide ranging role in the Trump administration.
I mean, well, clearly China's going to be very much in the crosshairs here.But I presume that they will notice that there's several other places out here that run large trade surpluses with the US.
South Korea springs to mind, Taiwan, Vietnam, and even Japan and India.They've got pretty big trade surpluses as well.Are they all going to be under the threat of tariffs?
Yeah, that's not just out here, Europe as well.
So I think, you know, under Harris, you could have argued that I think to China, China was gonna have tensions with the US, whether Trump won or Harris won, because there are both national security concerns, and trade concerns.
With Trump, I feel like the national security side of things is less strong. And he's more focused on economics, especially this time around, you know, having pushed aside the likes of John Bolton and whatnot, the national security hawks.
So he's really focused on trade issues.And so actually, I think places like Europe and Japan, where there is no national security rivalry, but there is an economic trade imbalance in terms of the deficits, those
Those countries, you know, may have fared much better under Harris, who may have had a much lighter touch, whereas under Trump, it's probably going to be much more confrontational.Now, on China, I just wanted to say a few things.
So, last time around, China actually fared, you know, decently well under the pressures of the U.S.tariffs, but they were supported by four factors, I would say.And three of these come from a colleague of mine, and actually all four, but I'm just
phrasing a little differently, Tom Gatley, who's done some great work on this.One was the US consumer received a massive stimulus last time around, thanks to the pandemic and the responses to the pandemic.
So that resulted in everybody buying a lot more goods, less services, and a lot of those goods came from China.So that was a big positive that offset some of the weights from the tariffs that were imposed a year or two before.
Two was you had the absorption of Russian trade demand, import demand, that, you know, China was still willing to sell to Russia while a lot of other countries were not.
Three, you had the significant Renminbi depreciation to offset some of the pressures of the tariffs.And fourth, you had the rerouting of their exports.And that took two forms.One was, you know, rerouting it and it's still ending up in the U.S.
after getting stamped, you know, made in Vietnam or made somewhere else. And then the other thing was they just started selling more to other countries as well.
So this time around, the question is, if they get hit with even more tariffs, will those supports be there to help them?I think in terms of the consumer stimulus, we can't expect anything like we saw during the pandemic.
Yes, we're going to have easy fiscal policy.So there'll be a little bit of a stimulus, but not nearly as much. On the absorption of Russian trade, you know, that's a one-off.That's not happening again.
I'm not saying it's necessarily going away, but it's not, you know, on the margin going to improve.And then, R&B depreciation, I think that will have to happen again.
I think we'll see, you know, China has been reluctant to devalue its R&B, absent tariffs because it doesn't want to reduce confidence in the economy and trigger capital flight.
But if, you know, they get hit with huge tariffs, I don't think they'll have any choice but to let the currency take some of the adjustment.And then in terms of rerouting exports, I think that definitely will happen again.
And probably in both forms that I discussed earlier.
But Trump's got their number on that, hasn't he?Because he's going to slap 20% tariffs on everyone else's exports as well.
Right.But if you've got 60% in China, then 20% is still better.
And I want to add one more thing we've talked about before this came up.
has come up among our members, and also at the meeting I was part of yesterday morning, is the worry about places where companies have moved their investments, have done the China plus one, China plus two, especially Vietnam and Mexico becoming the target of US sanctions because of Chinese activity in those places.
Of course, Trump also mentioned, and toward the end of his campaign, he was angry about Mexico, about immigration as well, so he was going to impose tariffs.
And I think Will has mentioned this before, the USNCA, the trade agreement, the old NAFTA, is up for renewal in 2026.So next year, there'll be a lot of discussion about that.
The one thing that seems to me to be highlighted by this is just how unsustainable now China's industrial policy is.It just cannot surely continue building up trade surpluses with nearly every single country in the world.
So the sort of the amount of we're talking about a trillion dollars now of trade surpluses, it's just not possible to keep going like that, is it?And, you know, flooding the global markets with
with your exports, particularly given that, you know, Europe, the US, they want to export things as well.
Yeah, I think, you know, I don't think that was the intention of China necessarily to flood the market with exports.I think what they were trying to do was import substitution.And this comes from this idea comes from my colleague, Andrew Batson.
And I think he's right about it, that they were told China was told by the US and other allies, we're going to cut you off from what you need. to try and hold you back.And China said, OK, we're going to start producing it ourselves.
We're going to move up the value chain in terms of technology, semiconductors, what have you.And when China sets its mind to something, they tend to do it, and do it big, and maybe did it a little too big.
And now they've got excess capacity to export.But I'm not sure that Xi sees this as a huge failure.And as far as sustainability, I don't know. I've been kind of numbed by all the horror stories for China over the years.
And yes, they do get overcapacity.Yes, it will slow things down.And so in that sense, yes, you can say unsustainable.They've got to make some adjustments.But in terms of a collapse, I don't know.That prognosis has proved wrong many times.
It's not, it's, yeah, and I agree with Will, but it's also a domestic issue.
Because several Chinese companies, some have said this publicly, and of course, partly self-serving, is that there's too much capacity within China, too, in EVs and a lot of other areas as well.
And that's not sustainable for a lot of different reasons.I think the government probably understands that, but it's sort of hard to wind that down after you've encouraged production in so many different areas and batteries and other areas.
Yeah, he just gave me an idea in terms of we were talking about China may use Elon as a conduit.I could see some opportunity for, hey, we'll do some consolidation in the EV space.
But at some point they've got to look at boosting their domestic demand, isn't it?You can't produce and produce and produce more than your own economy can absorb, particularly when domestic demand is so weak and you have such a big domestic economy.
Presumably they're going to have to focus on that.So although it may be a deliberate policy of Xi, the rest of the world is not going to put up with it for much longer.
No, and I just wanted to bring this in.We were going to maybe talk about the Chinese economy and their stimulus measures.But that was a key part of the disappointment was, again, not much focus on domestic demand and consumer spending.
And one in a group of Nomura analysts called it the boulevard of broken dreams. I'm quoting a Green Day song, of course.But at the same time, that's a little bit it.And maybe we'll see more going forward.
But certainly, the consumer area, and for our clients, that's a big one.Because even those that are not consumer companies, they've been affected by that.
Mark and Will, why is the government in Beijing not addressing that?I mean, it's not rocket science to figure out a way to boost consumer demand.
Short answer is I think they are moving in that direction, but they're moving carefully.They're, you know, feeling the stones as they cross the river, as they like to say.
And I think, because I think what they don't want to do, so they made this decision years back, we're going to, you know, deprioritize propping up the property bubble.
We're going to deprioritize consumption and focus on things like import substitution and technological advancement. And I think they've decided that they went a little too far in one direction, to Peter's point, and they needed to balance things out.
So they're trying to balance things out so that they achieve two things.One is they make sure they hit their growth targets.And two is they make sure they don't have public discontent is the best word to put it now.
I mean, I think the ultimate concern down the road is unrest.We're not there yet, but they don't want to get anywhere near that.And I think they started to be concerned they were going to miss growth targets and started to get domestic unrest.
So they have, I think, we think as a firm pivoted toward a
Proclivity toward it, you know propensity toward Stimulus, but they're moving slower than the market would like and they're dribbling it out and they promise more is to come We'll see if those promises Follow through or not, but we do think that's the direction they're heading but carefully
Did you get the impression, Will, that President Xi just doesn't really like an economy that's driven by consumer demand in the way that, say, the US is or Europe is?He just doesn't like the idea of rampant consumerism.
He sort of sees that as sort of being, you know, not the way the economy should work.And that's one of the reasons why we get this reluctance to really stimulate domestic demand.
And also, of course, if you have that type of consumerism, you've got to give consumers choice, which sort of also goes a little bit against the way the economy is run.Do you think that's maybe part of the issue?
Absolutely.And I think, you know, China's been heavily influenced by the recent experience of the U.S.on two occasions.First was the housing and consumer credit bubble that went bust.China in 2008 and 2010 was definitely, you know,
basking in the U.S.'s failure and highlighting how they had gotten overextended and put too much focus on the consumer, not enough on manufacturing, and look what it got them.
And after saying that, you know, they couldn't go out and do the same thing.And then again, after the COVID pandemic, you saw the U.S.stimulate demand very aggressively, and the result was inflation, and the result was
unrest and, you know, the US has a democratic system for dealing with unrest and discontent with high inflation.And China does not, and China, you know, the CCP doesn't want to mess with that kind of inflationary environment.
And so they're not, yeah, I think he's very reluctant to overstimulate the consumer.
It's problematic for common prosperity, frankly, if there's too much consumerism.
But the problem is, it's sort of unfair on the households, isn't it?
Because the way the economy works at the moment, and particularly the support measures that are being discussed, they're basically a transfer of wealth from households to local governments and to corporations, particularly those in favoured sectors that get all the subsidies.
So that's why you end up with such a high savings rate, because people are worried about the future.
Yeah, indeed.And like I said, I do think they are recognizing they need to have a bit more of a balanced approach to things, and they are moving in that direction, albeit carefully.
But I think China sees, and rightfully so, both China as a country and the CCP as a party, I think they see these threats as existential threats, so to speak.
they're willing to take quite a bit of pain in order to do what they need to do to, again, move up the value chain, make sure that they can produce their own semiconductors.
And if that means the housing sector has to be deprioritized for a while, it's the pain they have to take to survive.
Let me pivot back to the Fed for a little bit.Barry, with all these threats and all these pressures, many of which, as we've just been discussing, could be inflationary, what does the Fed do now?
Does it have to rethink about the direction of interest rates?It's cut 75 basis points now, but suddenly the economic environment is on the verge of being upended, isn't it?
Yeah, I agree.And I think you're right.Yes.They have to rethink because if there is a much of spending or tariffs that boost inflation, then they would act accordingly.
Look, Jay Powell has developed really a very strong record over what, six years since he has been fed chairman.And yes, they went through a tightening phase 2022, 23, and now they're in a, easing phase.
But the easing phase, that spigot is easily turned off.And I think there will be the committee, the Federal Open Market Committee would be unanimous if there are signs.And don't forget, Trump is not going to be president until late January.
So that's, yeah, that's both not very far and far away.But I think the Fed will act.And yes, there will be tension. Donald Trump and his acolytes are going to say, we want a say in monetary policy.
We're not going to interfere with the mandate of the Federal Reserve, but, you know, talk to us.Well, I think that Jay Powell would be very happy to meet with Donald Trump for tea or breakfast or whatever once a week or once a month.
And that has happened before.So I don't think this tension will result in any real crisis. Nor do I think that any reversal in Fed policy will be a crisis in the making.
I think the Fed is very content with the way things are going now and will act accordingly if there are signs of inflationary pressure.
But if there's any sort of sign that the Fed's independence is under threat, won't investors in the bond markets in particular take fright at that?
Well, they could.You're a bond investor, Peter, so you tell me.But it seems to me that was it, who was it, was it Arthur Burns?The Fed is independent, but it doesn't dare exercise its independence lest it lose it.
You know, it's, the Fed is not going to lose its independence.It's just, it's got too many accolades going back to Greenspan and certainly Ben Bernanke.The Fed has saved the economy on multiple occasions in the last 20 years.
I haven't heard her Arthur Burns quote in a long time, but that was a good one.That's the worry is, is the White House under Trump too going to take a more aggressive role in going beyond its usual boundaries?The Fed is one worry.
They apparently are setting up some sort of body, advisory body to oversee what the Senate is doing. You know, these are supposed to be separate parts of the government.And what that means, I'm not sure.
And the Senate, of course, is going to be controlled by Republicans.But still, this is the idea that we're going to give them guidance, sort of like a lot of governments in Asia do.
And Mark, look at the way the trend line over the last 50 years, and particularly this post-war period as it applies to the two losers, Germany and Japan.In the case of Japan,
they're still controlling the central bank, I think, or at least more than, but in Germany, the Bundesbank is modeled after the Federal Reserve.
And we tend to forget, Peter, that it was Tony Blair who removed government control over the Bank of England, which has moved towards the Fed.So this idea of central bank independence has been sweeping the world in the last 20 years.
And to think that the United States would upset that, I think is preposterous.
Well, let me ask you the same two questions.First of all, has Donald Trump's victory changed the policy path for the Fed?
And secondly, if there is, from Donald Trump, because we know he's very unpredictable, if there was any suggestion of a threat to the Fed's independence, would there be an economic cost of that?
There would be.And I think Will had it right.The press conference from Jay Powell last week was really quite revealing.No, no, I will not resign.No.I mean, look, his term expires in what?May of 2026.He would be 73.He's ready to retire.
But that first two years will be the critical ones.And I don't think that if Donald Trump wants to fight with the Fed, What's the problem?He's in an easing mode at the moment.Isn't that what Donald Trump wants?
Well, what are your thoughts?
Yeah, in the very near term, it's not going to impact monetary policy because as Peter, I mean, as Barry said, that we're not going to have Trump in the White House until January, and it's going to take them time to make policy changes and then take time to impact the economy.
So the near term, I think we do still have disinflationary pressures out there. which means we'll probably get a few more rate cuts.
Down the road sometime next year, though, I do think we are quite likely moving into an environment of looser fiscal policy requiring a response of tighter monetary policy.
And I think this is actually one of the interesting things going on in gold and Bitcoin, which I'll come back to in a second.But on your second question, Is there going to be an undermining of central bank independence?
This is clearly a risk, and it's an elevated risk under Trump.I still consider it a tail risk for both institutional and political reasons.First, there's a number of them.
First of all, we have seen Powell exercise his central bank independence in 2018 and 2019, early 2019 and 2018. Trump was very clearly objecting to rate hikes and quantitative tightening.
And Powell told him, thanks for your opinion, Mr. President, but this is my jurisdiction.I'm going to do what I want.And he did that meeting after meeting after meeting, which is one of the reasons why the two don't really like each other right now.
So my base case is we'll see the same this time.Now, there was a question, you know, maybe Powell's saying, well, Life's too short.I've done that once.I don't want to do it again.
He made it crystal clear last year he still got the energy to fight Trump with those comments at the presser.The second reason is in terms of institutional pushback is I don't think that Trump has the legal authority to demote Powell.
As Powell said, that's not 100% clear, but it doesn't seem like he does. Third, I'm not sure it's in Trump's interest to do it for two reasons.
One, even if he does want to introduce a more dovish, liable, Arthur Burns-like central bank chief, is it worth all the political capital he's going to have to spend to get Powell out when he's going to be leaving in May 2026 anyways?Maybe not.
Probably not.And secondly, this comes back to what we were talking about at the beginning.Inflation is not popular.You know, Trump is a populist.Inflation is not popular.
If Trump's policies do end up being inflationary on net, and as we said, there's some aspects of it that are disinflationary, some aspects that are inflationary.I think on net it will be inflationary.
You know, quiet, you know, behind closed doors, Trump may actually want a solid hand at the Fed, who's going to make sure whatever, however hard he pushes in terms of fiscal stimulus, in terms of trade policy, he can rely on the central bank to keep inflation under control.
I don't think he wants somebody in there who's going to let inflation rip, because he has seen what that did to Biden's election prospects, which obviously got handed down to Harris.
And also, when it comes time to replace Powell in May 2026, whoever Trump decides to replace Powell with has to be confirmed by the Senate.
I don't think the Senate Republicans, who are going to be looking at the midterms, are going to confirm somebody who they think is going to let inflation rip and cost them the election.Correct. Good point.
And also, now that the Republicans have control of the White House and both chambers of Congress, well, almost both chambers of Congress, if Powell does succumb to pressure from Trump, and that's what it's seen as, or if Powell gets replaced by Trump, Trump and the Republicans are 100% going to own any increase in inflation that comes after this.
If Powell lets inflation rise in the next year, Trump can at least try.I don't know how successful he'll be.He could at least try to put some of the blame off on Powell.I didn't like him.He screwed up, blah, blah, blah.
But if Powell's been replaced by Trump, then it's totally Trump's fault.
Okay.And then finally, you mentioned there Bitcoin, $88,000 now, up 15%.It is one of the Trump trades.I think it's probably the leading Trump trade at the moment, isn't it?
I mean, is this just a feature of the hope that, you know, Trump says he's going to make the US the cryptocurrency hub of the world?
Yeah, I think this is I think what's really interesting is that since the election, gold and Bitcoin have gone in opposite directions.Gold's fallen and Bitcoin's risen.Now, I think there's an explanation for both moves.
I think the fall in gold is due to what I just talked about, which is we're probably moving toward an environment of tighter monetary policy and looser fiscal policy.And that is not a good environment for gold.Gold likes looser monetary policy.
So I think that explains the gold sell off.Now, you might say, well, shouldn't gold be rising because of these independence of the central bank concerns?And if those concerns look to be like a high probability event, yeah, I think gold would rip.
But as I just said, to me, that's still a tail risk.And to me, the institutional and political reasons for expecting the central bank independence to hold is probably why gold is falling.
Now, on Bitcoin, Bitcoin is also weighed down by all of those factors.You know, tighter monetary policy down the line is a bad thing for Bitcoin.However, I think it's outweighed by
The impression, which may or may not prove to be true, I think it probably is true, but we'll see, that you'll have a more friendly regulatory environment in the US for Bitcoin.And that is just the dominant concern.
It outweighs the monetary policy concerns.
Another Elon Musk issue, by the way.
who's Tesla is also one of the Trump trades at the moment as well.Okay, well, look, very interesting discussion.Thank you very much indeed.
You heard there Woldenia, who's US economist at Gavacal, Mark Michelson, Chairman of the Asia CEO Forum at IMA Asia, and over in Washington DC, our US economics correspondence writer and broadcaster, Barry Wood.
You're listening to Peter Lewis' Money Talk.
Thank you very much for listening this morning.Please take a look at my daily Asian newsletter, which has the latest business and finance news from the Asia-Pacific region.You'll find that at PeterLewisMoneyTalk.substack.com.
I'll have more business and finance updates for you tomorrow.Joining me then are Nitin Dialdas, Chief Investment Officer at Mandarin Capital, and Tony Nash, the founder of Complete Intelligence.
And then with a view from Japan is John Byrne, principal economist at the Asian Development Bank.Have a great day.
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