Shuli Ren discusses returning home amid China's reopening and the devastating effects of zero-COVID. John Authers breaks down market risks, as they relate to inflation, the Fed, and DC gridlock. And Tim Culpan weighs Twitter's future.
Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. My single greatest concern is that we still don't have the rates story correct and that people are still betting that the FED doesn't really mean it. John Authors takes a random walk with me through some concerns for the market in three and later Reach had Twitter's future with Bloomberg Opinions. Tim Coulten in Tai Pain. A lot of people keep saying that they have left Twitter or will be leaving Twitter, and they're going into places like Post and master Don and even Coup and a few other places. But yet those same people have stayed they're leaving Twitter, are still staying on Twitter. First though, She's back Bloomberg Opinions. Julie Ran finally got to visit home that's Shanghai after three years of COVID zero lockdown. She describes her experience, which coincided with China's pivot away from COVID zero, also how investors should be considering China's new determination to support economic growth. So surely you went back to mainland China for the first time in more than three years, and you're just now back in Hong Kong. It was a huge pivot that China did from zero COVID to what looks like, you know, let it ripped through the economy. Is that what happened? Absolutely I So I went back to my hometown Shamhai label Dembora when I came out of quarantine, trying to judge retrough this COVID policy. So everything changed that before people had to do like daily PCR test to be able to access public values. All of that gold group that helped app so and so forth. So the first week was very nice, it was liberating, right like China had their three years of COVID zero policy, and the restaurants were full, trendy bars were full. But after that, the second week after the reopening, the street started to sing out all of a sudden, and my own parents, but that was the tested politives with their RACTID test eight days after the reopening policy change. So basically with two weeks, pretty much seventy percent of Shanghai probably got affected by uh COVID based on online surveys and my personal observations of the family and friends. So we are hearing now some horrific stories, perhaps not like it was in New York in the very early days of the pandemic. But we are hearing about full crematoriums and about people not being able to pay for funerals, and we don't quite know what's going on in China. Can you give us a better sense? I mean, I was fairly lucky. My parents well recovered, but their friends both my parents are seventy six year osgod so, so they didn't know a lot of old people, right. So they were sharing stories friends and friends who passed away whose body couldn't be picked up, like one story by uncle her. There was that a friend elder system. She she was in nineties. Her body was kept at home for eight days. They have to keep her in the bathroom. So these stories are true like their anisoto, but they are true and and truth is just China didn't have this kind of a capacity because they lead with true fact. Basically within three weeks of shankai were expected. But still of course, but you know that there will be casualties at the Yeah, it was quite difficult for a lot of families. Now, we talked about this on the program many times last year, about how there was a lot more talk about zero COVID than there was about say, vaccine policy, or about, for example, getting more capacity hospital wise into the system. It seems like at a certain point the leadership decided, well, there are now demonstrations this is getting dangerous to us or even more dangerous to the economy. We're going to open and we don't really have anything else to offer. We didn't up the capacity of hospitals. We vaccinated everybody we could, but we didn't force vaccinations. Is that a correct interpretation? I think so. I think that the leadership is pretty savvy. They understand that if they continue our coverage or it will be politically dangerous, right like basically a week this or that, the opening shift, like there were protests across Trainer, So they so they knew that, you know, that was inevitable. And I think they're pretty fairly they know that, at least on the ground that I can sense that the people this time, they feel resigned. They feel like COVID going to come to them, you know later, But they don't feel this kind of anger that they had during the stay, the two months locktow Big Shanhai or or all the daily PCR texts. I think people are so sick of COVID zero. They're rather be sick at this point. So so that's why they do was like, Okay, we're just going to let it with because if we keep COVID zeros, these people are going to revolt and that they're ruling there were become on. Now. There are other auncillary problems to the actual disease itself and contracting the disease that other countries, including the United States, have had to deal with, including things like absence from work, returned to work long COVID. Are Chinese people talking about any of these things. It's so funny trying to letting it with, writing so fast that the government says that, oh, you can actually return to work before you even turn negatives well right now like a record test that are skilled commodities anyhow, So basically they're encouraging people to to come back to work even if they're positives as long as the fever is got um. I think they're trying to the Chinese government priority has shifted completely to economic growth, so they actually want people to come back to work at a set and truly is there work for them to go back to? Now, how did the pandemic affect jobs? We know that youth unemployment was that at one point. It's too early to say. I think are China is still going through this massive waves of infections, but the certain jobs are quite there, are quite available. For instance, the food delivery right like the Chinese people are doing a lot of online delivery and ecomers, and I do see that part of the economy coming back. The consumer tech parts. Well, that's really fascinating because as much as we know that Chinese people like to save, they also haven't really been earning perhaps as much as they would have because of the pandemic. That do they have cash to spend online. It's interesting. I think trainer is going to be a very it's becoming very segmented. It's predicting whether the Chinese economy can be founded very quickly. It's going to be as controversial as predicting whether the US is going to a recession this year. On the one hand, that a lot of people have their jobs, they're struggling because of cold. On the other hand, I saw first hand that people perhaps middle or upper middle class, have a lot of spending power. For instance, on Christmas Eve, I saw two dozen young people lining up in front the versionels, So I think they just want to buy last DA they get and that was when you know, Chaka had a huge outbreak and there was a peeple of the outbreak. So I think there is money to be said. And I have friends who are buying brand new sets because they think, oh, you know, because twenty three they can do road trips again. So there are pockets of the economy where you can find very strong demands and perhaps jobs. It's so fascinating. Will she have to enact fiscal stimulus like we talked about last year in order to get the economy back on track, particularly the property sector. Obviously consumer text seems to be okay, but maybe there's need there as well. And does he have the capacity to do Socially, there is going to be less capacity than the previous years because of the covidual or the Chinese government has spent a lot of money on covido. But this year's talk is that the government will have to put down a little bit more set and right now, this cod stimulates makes more set, right because the biggest hurdles are kind of past us. And if you simulate the economy right now, perhaps try and I can go into the early stage of a business ce cole quite quickly, so I think there is. And also regarding the real estate sector, the government is going to announce even more stimulus measures based on my sources, very soon, even more for the property sector in particular. Yes, interesting, surely we've talked about this on the program before as well. But I'm curious as to your thoughts now that you've been back to the mainland, how will the people perceive that the government fared? So are people happier now with the government that the government did pivot away from COVID zero. I think people are happier with life in general. They just had enough of COVID zero. But in terms of the government's credibility, it took a huge hit. I mean, autocron has been around for one year, right for eleven months, and this is large new talking. It's people online talking. For eleven months, people were doing sports to do daily PCR test, there was steps, neighborhoods, they lockdom and then for the twelfth but December of the year everybody ended up with COVID anyhow, and there was no basic madaicine, not even pilot nor in shots. So they felt that that you know that the government lost a lot of credibility, and then the so called medical experts they were talking about COVID being a very very deadly disease, to covid is best by being nothing more than the flu, and the poor just started to mistrust the government more after this Hope year, of course, Yeah, it's really fascinating. And Suley, how did the vaccines end up faring because she didn't want other types of vaccines, wouldn't allow the m R and A vaccines. It's interesting when I went in Chanhaire, I noticed before even the reopening, I noticed that Vaccine Pact is just not a big deal in China. They focused more on PCR testing results then whether you have vaccinated or not. And then I started to notice a lot of elderly they just refused to be vaccinated. It's I guess right after the opening there was some progress, but it kind of dropped the ball again. And then the truth of that is most people have been expected, so the relevance of vaccines becomes not so much a big deal at this point. Surely is there a danger that more rural areas and other parts of China than the major cities haven't seen the wave of COVID infections yet will see it and then will suddenly slow the whole economy down as well. I think, you know it has to be very very low. Are year is even more less to be second third year cities around the East coast based on my so sated cities, they probably had heard immunity already. I mean, this spread is very very fast. I think China what has gotten over this before Tchines Do Year, which is coming up in what three weeks? So surely what tends to happen around the Chinese New Year with Chinese markets? And will it be different this year because of COVID. Uh, It's a very good question. I think this year it will all difference of how fast China can get past COVID and know whether people see economics reepout. So people are going to look at travel data without consumption data subway to see if there is consumption demand because sumer confident. If that's good, then the market that can be found as part of it. Bloomberg Opinions Shuli Ran stay tuned. John Author is next on some of the market's main concerns for twenty three. This is Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm Vonnie Quinn. The risk of on anchoring and inflation expectations is still there. So I do think you know you again today, which we've been seeing really for the past maybe month or two, a little more recognition of those lags, that there are two sided risks now. But nonetheless, you know, I think the message you got here today is more hikes are coming, some thoughts they are following the publication this week of the latest f O MC minutes. Of course, the FED is one of the market's concerns earlier this new year Bloomberg Opinions. John Author has joined me to talk concerns overall for US investors as we kick off three So, John, your main concerns for US markets? The US investors, let's put it that way. My single greatest concern is that we still don't have the rates story correct and that people are still betting that the FED doesn't really mean it. They might be right, but on balance probabilities, I don't think they are. And the fact that they are still prepared to make quite such a confident bet that the FED will be cutting by the end of this year worries me. It means that there are there are more banana skins potentially ahead of us, and that's why the third had to come out and basically shoved and investor's faces again with the f O MC emnutes, which bear in mind, were December is meeting, not January's meeting. Yes, which is exactly what they did twelve months ago, coming up with rather clearer declaration of hawk ish intent in the minutes than had been obvious when the meeting itself happened, and it doesn't seem to have had an effect. Will the FIRD have to come out now again and say it again? My suspicion is that they will. That that we're likely to get some fairly aggressive hawk ish FED speak for the next couple of weeks leading up to the next meeting, because they cannot be happy that the market is positioned assets currently is they need financial conditions to tighten to help them deal with inflation. That's central to how they think they're going to overcome inflation, and wild markets are confidently betting that the FIT is actually you know, a dove in wolves clothing. That's not going to help, that counteracts what the FED is trying to do. Now we're talking rates markets here, right, because primarily, yeah, equity markets are really not doing all that much of anything at these US equity markets who can talk about China and moment, Yes, I think that's true. Certainly had a massive rerating last year, multiples came down very significantly, but earning his expectations still managed to advance a little. I'm inclined to be because I have a bearish tendency which I really need to do something about to think that that that stocks are still somewhat on the overvalued side. But even an in veterate bear has to say that the obvious overpricing of of twelve months ago has been dealt with. Um, we're much closer to some sort of sensible long term trend for ship crisis. Now. The concern is that normally on the eve of a recession, which if rates are going to come down, we have to have. Normally on the heap of a recession, stock start falling a lot further, you start predicting that earnings will fall. So that is that is the contradiction that bothers me at there at the heart of the stock and bond markets at the moment. But it's kind of fascinating the right because before the holidays there did seem to be a lot of pessimism. Yes, I mean there there is a sense this does get very very confusing, that pessimism is good for the bond market and not that bad for the stock market. In that an economic slowdown, particularly if it isn't too bad that causes rates to come down, might well be pretty good for financial assets. Um. And I suppose that that does make some ns and a lot of the risks that are out there are risks that we have really become accustomed to in the last Yeah, we know about jing ping, we know about putting. We're not terribly happy about it. But I think people feel rightly or wrongly, that they've got their arms around what those risks are consequences, at least for financial markets. We did see downside surprises and things like new orders and prices paid this week as well. Is that providing any solace? Again, if you want inflation to come down, and your bet is that we're having a recession quicker than the FED thinks, and so the FED is wrong about predicting such an aggressive policy for this year, if you have that persuasion, then yes, certainly, the I S M price is paid, which dropped below forty, where fifty is the dividing line between recession and contraction. That's really a really good data point if you're of that persuasion. But again in terms of where the stock market goes apart from during the very strange conditions of the decade after the crisis, whenever price is paid drops that low, there is a recession shortly there are there. I think the other thing that has really encouraged people in the last couple of days, and I certainly can't deny that it's a reason for encouragement, is that a lot of European inflation numbers have come in far better than expected. Very we did see rallies in European, yes, but very high inflation numbers obviously, but sharply lower than the month before and sharply lower than expectations. And that brings up another point. Oil prices have also dropped prety substantially, which if that's warning us about declining demand eight great, but it's certainly again does give some strength to the people were betting against the FED. The only problem here that is jolts the The vacancy rate continues to be obdurate LYE stunning lee High suggesting there's a very tight labor market and that and that is the big thing that the FED is very worried about. There is something very strange about the way the labor market is clearing at the present, and the data on that front have been an unpleasant surprise, even though yes, you're there's been some significant pleasant surprises. But that's central, you know, that central enigma of what on earth is going on in the in the labor market remains as intractable as ever, John, does the market care about the speakership chaos? Generally speaking? I think it's over that that there's a cliche that markets actually like gridlock, because it tends to mean that stupid. I mean, this is not even people can't even get worn in gridlock. Yes, I am somewhat concerns that the market isn't reacting somewhat more negatively to this um. The single biggest reason for this is I have a I have a horrible feeling. I'm gonna have to write a lot about the debt seiling over the next twelve months. And one of the big arguments so the debt seeling imply if you if if Congress refuses to raise the debt seeling, then it's conceptually possible to refuse to give the government the money it needs to pay off debts it's already incurred and already promised to repay. So Congress can theoretically force Uncle Sam to default, which would be at least as bad as what happened in two thousand and eight, probably worse. Um. The reason people have played brinkmanship with this in the past, in the Tea Party era, but not gone all the way is because you would need to be stupid to do this. Just absolutely plenty of good arguments in favor of being fiscally more conservative, reigning in the deficit. Doing it that way is literally indefensible, just madness. Remember the scare when SMP I think it was downgraded the United States and that that was a very major market turning point, But it was that that was terrifying. That was the last really major tremor of the of the of the whole Lehman crisis. And UM, it looks to me that if there are really twenty people on the Republican Party who are mad enough to do this, and you don't seem to be actually having any kind of a sensible debate. They're just saying no. All of these people are people who are philosophically against raising the debt ceiling. So yes, the risks are horrible. I mean, the Democrats are going to vote to raise it, so you don't need too many Republicans at all to vote for it to come in the The issue is that you'll have a speaker who's so weak that he can't even bring it to a vote. I myself think that the risk of a US default is still tiny. Um. I also think, however, that it's written in the last two days, because it really does look like they might be stupid enough to do this. Um. It bothers me that that's not clearer in the markets, and we do have to watch for tail risks, right, I mean base case scenarios or just that they're just base case scenarios, the tail risks of the market to be worried about. Now that this is no I mean, a voluntary US default is as classical black swan as you can imagine. There's there's no precedent for it because people always know if there are money prints authority, they can always pay their debts if they want to. It would be a totally voluntary thing that they did this. UM. It's an extremely unlikely, extremely extreme too many extremes there, but extremely extreme events, and that's a classic black swan. That's exactly what markets find it very difficult to price UM. Obviously, at evens out, I would still bet that it doesn't happen. Somehow or other sense will prevail UM, but it might. I'm surprised that there isn't a little more work trying to UM, trying to just trying to deal with that tail risk, and also trying to sort of prompt Republican refuse nicks that you know, the good market capitalists in Wall Street do not want you to do this. Yeah, the people with four oh one case really don't want you to do this. It doesn't seem to matter though to you know, a faction of Republicans. It's it's difficult to be polite about them. You're trying to be politically as neutral as you can be, and a lot of their philosophical points of things that I can find quite sympathetic. Their way of going about their job is just beyond beyond any defense. It's not it's not a good faith way to to go about being an elected representative. Jonathan Branston would make the point that they don't actually want anything, They just want chaos. That's the part it's it's it's a reality TV type approach. It's not even like the Tea Party a decade ago really were fanatical about the deficit in a way that was perhaps extreme, but that you knew what they wanted and they were trying to get that, and they did, indeed succeed in getting Barack Obama to be much less fiscally generous than he wanted. They had an ideology, Yes, they had an ideology. They had some policies they wanted to do, and they had some success in executing those policies. Um this obviously has similarities to the Tea Party a decade ago in terms of in terms of the people who are involved, some of their motivations, but it's a it's much more diffuse, it's much less coherent, and it's much more destructive. I think, John a quick word about China. Maybe we'll lend things on a positive note by talking about China, because we are seeing a rally, We've seen COVID ripped through the economy, and it does seem like I mean, we don't know what's happening over there. We don't know how many people are dying, but it does seem like we will see at least some kind of herd immunity or the end of at least huge outbreaks at some point soon before the Lunar year New Year. I think the issue is the Lunar New Year. Chinese people really like going home for the Lunar New Year. The last thing epidemiologists would like Chinese people to do is embark on large trips in public transport in the next few weeks, which is what they want to do. So I do think the timing of going away from zero COVID and so close to the big New Year holiday is potentially dangerous. I'm talking about you know, I am not an epidemiologist, so many of us have ended up talking about epidemiology. Is that we know what we're talking about. Um, well, we have seen waves of you know how it goes. Is it possible that maybe by Lunar New Year, which is another three weeks away, that the damage will have been done, that everybody will have had us It would be one time I find it from my recollection of previous waves of COVID. That's possible but unlikely. But I think it's one where you where one has to maintain a certain deference. I mean, this is the kind of thing we've all felt since the pandemic came into our lives, right, you have to remain retain a certain degree of humility about your own human physical fragility and about your knowledge that this is something you need to know about and understand, but that you don't know much about exactly. It's a very good reminder. Actually, yes, the risk, the likelihood, it seems to me, is that you could get um a situation where the economy gets worse before it gets better, because you do get a really nasty wave like say the macron wave at the you know, the turn of last year, UM, which didn't kill that many people, but really snarled up the economy because absolutely everybody had COVID exactly. People weren't at work, people can go to work exactly, and so that it doesn't matter with what the government policy is. It slows down the economy if everybody is sick at the same type, even if they're out working, and apparently the government policy surely runs as the government policy has go back to work, even if you continue to do positive as long as your fever is gone, which is kind of terrifying to irrest. Again, not the diamond epidemiologist, but that's from what I think I've learned over the last three years. That doesn't sound like a great idea to me. So there is this risk that you could get whip sawing when the Chinese market economy slows down much more, because it seems reasonable that you would get something on the same scale of the omicron wave of of a year ago, and that would mean in the country the size of China, that means hundreds of millions of people being sick with COVID at once. Um I can imagine a false further fall for the economy followed by a rebound, which gives people. You basically need to understand the dynamics of an epidemic to call it financially correctly. It's possible because some of the numbers don't suggest that COVID isn't really taking off as much as people feared that the market rally is right that they've just said, on balance, probability, the sumarily I've just mentioned probably isn't gonna happen by and that's not a stupid thing to do, but it's really possible that that will turn out to be wrong and lease a lot of money, There'll be a lot of losses. That's another tail risky Bloomberg Opinions, John Authors, Stay tuned. Next, we talked Twitter's future with Tim Coulpan in Taiwan. This is Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm Vanni Quinn. Since Elon Musk took over Twitter on October last year, the company has seen its head count full by plus. It suffered what Musk himself is called a massive drop in revenue from brands pausing ad spending. Band accounts have been reinstated, other accounts have been frozen or suspended. It's just been one thing after another. I spoke with Bloomberg Opinions Tim Coulpan about whether Twitter alternatives really exist and whether we'll ever see an on mass exodus. Tim. Twitter wasn't ever an agnostic platform, even before Mosque's purchased, that's for sure. But it's getting harder and harder to see it as a non partisan platform given the mercurial nature of the CEO. Some people have migrated. Will we see a mass exitus. Though a lot of people keep saying that they have left Twitter or will be leaving Twitter, and they're going to places like Post and master Don and even Coup and a few other places, and people also ramping up their sub stacks. But yet those same people stay they're leaving Twitter, are still staying on Twitter. They're a little bit addicted to the side. So this mass exodus that people have talked about isn't happening yet. But I think the usership and the stickiness of the site is dropping. So people are posting a bit less, and I think people are using it, logging on or opening up a bit less. Now you suggest in a column that Twitter had already become this generation's MySpace even before Mosque took over. I'm curious, though my Space was only around for maybe three years. Twitter has been around since two thousand six. How are you comparing the two. The thing that really happened with my Space is that when it was bought by his corp. Only a few years after founding it already looking like it was speaking, it didn't peak until a couple of years later. Facebook then took over it. But there's a lot of things that were going on at my Space, both on the front end in terms of the user experience as well as the way it was being scaled, and then news Corps tried very hard to monetize it, and we're pushing ads very heavily, which really upset the whole user experience, and so it took a while for my Space to descend from there. We're seeing some early signs of that happening with what Musk is trying to do with Twitter. We shouldn't write him off. It's not like he's committed to any specific approach. There's been changes made, but none of them things to be permanent that seem to be sticking. He's basically experimenting from playing around. But really the similarity with my Space, I think is the fact that the world is moving on Twitter maybe has had its day. Will see and there won't be immediate There won't be a sudden drop off of Twitter. It will probably still client. But at sometime in the next few years, I think we'll find a peak. Right, And there are a lot of sites, as you say, and a lot of strategies that that are trying out, but none of them really seem to be taking off immediately, at least and there's obviously TikTok, Instagram and all of the other social media sites that have many, many, many more users. But Mustowes stand to lose a lot of money here, and the more users he loses, in particular, the more money he stands to lose. Why is he jeopardizing that? I don't think it's deliberate. I think you are not. You know, he's paid for it, not all of it from his own pocket, but there's also a lot of debt burn that he has to services or results of this. He's not to liberally burning it down or bringing it to the ground. He's rebuilding and or refashioning it. He's trying to make a push again advertises back. But the toxicity of the platform, I think is what could really bring it down. What do media companies do? I mean full disclosure. I opened a master on account, but I haven't actually used it. I guess the cord Twitter uses, Yes, journalists like ourselves, also a lot of people in the tech VC area. And then there's people in politics, whether their actual politicians, lobbyists so forth, and and there's also a lot of corporate accounts. They're part of the reason why there's no immediate to a people. I haven't really chosen what the next big thing is. There's problems with master don it's not that easy to use. People are kind of moving the post, but it's it's very it's not actually in bet it's really launched, but it feels like a beta product right now. Who knows, in a few months all of these dates might have a better idea of how to run. But I don't think that we will see Apple kicking off Twitter because both Apple and Google are facing another issue, which is the belief that they may be monopoly powers. And if we see someone like Apple or Google kicking Twitter off their app stores, then that would really hone the point that these are very powerful organization. And of course you're on Lusk wouldn't go down without a fight, and he's got a lot of well heeled and during the easy friends around him, So I don't imagine Twitter would kicked off those platforms, but it's probably the kind of fight that he wouldn't mind trying out anyway. Bloomer Opinions Tim Colburn in taipeid that doesn't for this week's opinion. As always, though, please do send your results and opinions are away. You can email me at the Quinn at Bloomberg dog Net. We're produced by Eric mollow Until next time on Blomberg Opinion h