YouSaid · the spoken record

Aidan Garrib

lines on the record: 90
first: 2023-10-23
most recent: 2023-10-23
sittings or episodes: 1
sources: podcast

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“Sure, yeah, I can for you, yeah. So it's A Garib at PGM Global.com, or you can follow me on Twitter at AidenCarib. I don't tweet prolifically, but I definitely do try to engage when I get questions either via DMs or just posts.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Sure, yeah. So I run the global macro strategy and research team here at PGM. We put out actionable, concise daily work for institutional investors so they can either reach out to me on Twitter. I think you have my handle up there at Aiden Garib on the cover of the presentation deck that I'd sent you, my email address is there. It's a Garib.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“It's just not now, not while you have growth still resilient, and perhaps more importantly, not while you have these kind of like global crosswinds that are pushing inflation higher.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, okay, what is the, if let's say that just stays the same $100, $1,000 a month? Well, the rate of change is zero, but After three months, well, honey, actually, maybe we have to cancel the vacation. After six months, you know, we got to delay the, you know, the car repair. After nine months, you know, maybe things start to get a little bit hairier. So I would argue that the Fed needs a harder landing, which isn't to say a financial crisis. They just need a traditional economic slowdown. And expectations of a no landing or soft landing were somehow inflation cools, but the labor market stays resilient. Just I can't really square how that would play out.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Goes, it goes, right? So I just kind of look at this and I say part of the problem with kind of economics and forecasters is as someone who studied economics, what's drilled into your head every day is derivatives, right? The rate of change. What I would actually argue is in this context, it's not the derivative. It's the opposite. It's the integral. It's the pressure on the curve that really matters, which is to say, if you have rates at 550 for three months or six months, that pressure on the economy is different than if you have rates at 550 for a year or two years, right? And so just to put this in the Canadian perspective, which I hope is understandable, the Bank of Canada has said, look, as a response of the variable rate mortgages and interest rate increases that we've seen in Canada, the average mortgage payment has increased by $1,000 a month, and that's just the interest component.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Because the job's hard to get minus plentiful, it tends not to be noisy, and when it moves, it continues to move in that direction and it leads unemployment. The unemployment rate tends to be nonlinear, right? So it'll go and then it's going parabolic. It goes, it goes.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“When you think about the way tightening cycles typically work, it's the Fed increases rates. Equities sell off, like multiples contract, earning slow. That earning slowdown tends to lead to unemployment going up, leads to cool inflation. The Fed's like, oh, okay, check. I can cut. But now what you've seen is Fed hiked rates, multiples contracted for a brief second, elevated again, earnings actually were stronger than the market was expecting, and unemployment really hasn't budged. So I don't think the Fed can actually cut here. And I think when it comes to soft landing, no landing, hard landing scenario, if you were to look at one of the charts that I really like is the unemployment rate versus jobs hard to get versus jobs.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“What Powell needs, what the Fed needs is the Fed does need a recession to play out. They need the labor market slack to pick up. They need unemployment to rise. They need wage growth to slow. And so Powell and the Fed can't come out and tell you this because if there was a press conference and the Fed governors were telling you we need to get unemployment up to 6%, they'd be a lynched. They couldn't walk down the street, right? But I think that's fundamentally what they need is they need to get growth and inflation down so that they can be convinced that inflation will remain tepid and that their cuts won't kind of lead to a scenario that we saw in the 1970s. And I think that's kind of the conundrum for the Fed, right? Because, and I will answer your question, just kind of forgive me here.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“See a shift in treasure issuance away from T-bill, so away from kind of the front end of the curve, which has been able to be financed by the money market funds towards duration, which is going to crowd out riskier assets. And this is something we saw in 2019 with the initial repo market blow-ups that we saw. And so to bring that back to equities is as treasuries and the kind of the issuance of duration starts to crowd out start to compete essentially for scarce dollars that's going to be problematic for risk assets including equities”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“To use their balance sheet in order to facilitate some of these riskier asset trades, right? So for example, when the Fed is doing quantitative easing and the Fed's balance sheets increasing, it typically means bank reserves are increasing commensurately and bank reserves, it's not money that can be lent into the real economy, but bank reserves are things that flatter banks, capital, and liquidity ratios, allowing them to take more risk. All to say that when central banks are doing QE, the cost of banks' balance sheet is cheap. So if you're a hedge fund and you want to go lever up a junk bond trade 10 to 1, when there's QE, sure, you'll find a bank to take the other side of that and give you that leverage. We're actually seeing now and likely to kind of intensify going forward is not only are we going to see continued quantitative tightening, but you're actually going to”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So U.S. equities, I think you're probably okay in pockets of the mega caps. The issue I have with US equities is the fact that so if you look at what typically drives US equities, it's going to be passive flows, which you know Mike Green has talked a lot about. So the target date funds, as long as people have jobs, you know, every two weeks they get a paycheck, that paycheck just blindly buys QQQ, SPY, it takes the market cap weighted stocks higher. However, the other factor here is the ability of banks to”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“As you start to get some incremental supply of duration, and perhaps more importantly, as inflation expectations and energy prices are starting to drift higher and there's some concerns about stagflation, all of a sudden you've seen this lead to a backup in the term premium, which is look, like growth in inflation are pretty uncertain if you want me to hold duration, you need to compensate me for that. And I think that's what the uptick in the term premium has mostly been about.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“And yeah, so kind of those are the rough numbers there. And so that's what's helping to fuel this increase in the term premium because the term premium is really, do I want to hold a 10-year bond or do I want to buy a one-year bond and then roll that over like nine times, right? So the risk to holding a 10-year treasury rather than rolling over a one-year bond nine times is the fact that, hey, inflation and growth are difficult to predict over 10 years. And so I need a higher return as a bond investor for taking that risk of duration because growth and inflation are difficult to forecast. And so because of the Fed had taken a lot of duration out of the market via the asset purchases, the term premium was actually quite negative.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Which are not the break even inflation. So as of right now, the break even inflation that you spoke about, which is nominal minus tips yield, is pricing in 2.4% inflation over 10 years. That's what the 10-year break even is. And if you look at the five-year, five-year inflation swap, so just a different measure of inflation over 10 years, a more market focused measure. Because actually, I would argue that the Fed's balance sheet is distorting tips market. But anyway, that's a different conversation. So if you look at the five-year, five-year inflation swap, that's actually pricing an inflation of like 2.7%. And that measure, that inflation swap tends to follow energy prices.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so two things. I think we're mistaking two terms. So there's break-even inflation, which is the difference between nominal treasury yields and tips yields. And that essentially is that spread is the inflation rate that would make an investor agnostic, i.e. break even between holding nominal and tips. What I'm actually talking about is five-year, five-year inflation swaps. Okay.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Hey, there's more inflation coming. And actually, when you look at what's helping to, or at least what's contributing to the Bah and Saloff here today, it's this pretty big uptick that you're seeing in energy prices, right, coming out of the what looks like an escalation of the Mide's tensions here. So you have higher commodity prices, which are fueling inflation.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so you're having pockets of this weakness here, but I think what's maybe more concerning for investors in duration is the fact that, and this is kind of the big problem for Powell, I think, and I think he recognizes this, is Powell needs to get commodity prices down in dollar terms because very rarely have you seen periods where the broad dollar, so the trade-weighted dollar is strengthening, but commodity prices are also strengthening, right? And so I think the problem is that if you get this kind of strong dollar, which has limits as to how strong it can appreciate from here, but commodity prices keep ticking up, then what you end up doing is you lift inflation expectations. And actually, if you look at the spread between like break-evens and the five-year, five-year inflation swap, which the latter tends to track oil prices, inflation swaps are telling you that.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“One of the reasons to be a little bit more cautious as it pertains to duration at least is the fact that it's not clear that the Fed has that the economy is slowing sufficiently for the Fed to start cutting or back off here. We got the retail sales numbers that came out, the inflation data that came out here is supporting the growth side of the economy. And look, we put out a note today that showed a lot of delinquencies in terms of credit cards and autos and some of these other pockets. So it's not to say that there isn't weakness out there. There is”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“That was a huge deal a couple of years ago, I think even last year maybe, as the tensions had ramped up. It's a concern. It's an unknown, I think, from the economies are so intertwined that China owns a lot of U.S. treasury. So it can just go into this tick for tick kind of escalation there. I think for the Chinese, that's definitely a problem because if you don't want to be reliant on exports as your sole growth model, well, you still need capital flowing into your economy. You still need to finance investment. And so stocks and bonds are an efficient way of that being done. And so I would argue it's in the best interest of both the US and China to get a deal on this. But I just, it's one of these things where the The severity of that risk is very high, but I can't place a probability on it.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“No, I don't think it's well. Look, the Stock Connect shows you that it's not illegal. No, and there's these two programs that have been, there were actually quotas and then they relaxed the quotas like the QFI and the RFQII, which was basically like if you can use a registered entity. So if you were like a hedge fund, let's say you would have go to a broker in Hong Kong, put money with that broker, instruct that broker, which at the time needed to be approved. But anyway, I'm not going to go through all the steps. Essentially, use that broker to then transact buy shares by a shares listed in the mainland. And then you would kind of have a claim on those A share assets. So no, it's not illegal for foreigners to hold domestic Chinese assets. I would argue. That's actually what the Stock Connect program is designed to do.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, those would be the ADRs that are listed in the US, but the variable interest entities that nominally are going to kind of track what's on the Chinese market. A-shares are then the ones that are denominated an R&B and trade on the mainland there. And then you have like the eight shares which trade in Hong Kong, which tends to be one of the ways that foreign institutional investors will kind of invest in China.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Chinese growth winter has actually been longer than the crypto winter But maybe spring is coming. Let's quickly final thing on China is the different types of shares A shares, B shares, H shares, and then ADRs, American depository receipts, which are the shares that are sort of variable interest entities outside of, sourced from the Cayman Islands, where when you read their thousand page annual report, it says we don't actually own the company, we just operate it kind of like a puppet. And people talk about that as a risk. It's how severe that is a risk of, oh, I invested in company XYZ. And from 2023 to 2033, their earnings grew 20 times. But I see none of it because I'm a shareholder in Tennessee.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Can start to be harvested. And then also Jackie picked up on a good point, which is the bottom left hand chart on page 15. So this is the shares outside.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, all I really try to do here is on the bottom right hand slide, I'm just showing some of the Chinese electrical computer and equipment stocks, their trailing earnings, just the direction of those things to show, look. This is where the Chinese government and the PBOC and the authorities are directing the money to. And then on the top left, I just highlight the stock prices for those firms, which may or may not have done well. And I think this is kind of the disconnect and it speaks to, you know, I think some of the disappointment among bottom-up Chinese investors, at least the ones I talk to, which are saying we do a lot of the bottom-up work, the earnings are actually doing well. We're not being rewarded in terms of prices, right? And so I think as increasingly investors kind of come to understand what China is doing, then that”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so that's the great question. And so I think there are opportunities for bottom up, stock-specific analysts in China. The problem, as always, with when you're trying to analyze China is what's the data quality like, right? What are the accounting standards like? Can you trust those things? So, you know, I'm more of, you know, I run a macro team here. So luckily, that is not something that I have to spend a lot of my time doing. But all I really try to say here is, look, if there's kind of like one lesson from China, if the authorities are throwing money at something, then there's going to be opportunities for return there for global investors, right? And what investors need to do is just realize where the money is not going, i.e. real estate anymore and where it is going, which are some of these high growth, high value added sectors.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Now let's move on. Our final topic on China is just this transformation of opportunities. If it's moving, the credit growth is moving away from real estate to industry. Let's talk about that industry. So you've put up here some electrical stocks in China, as well as the K-Web ETF, which is the internet ETF. So clearly we're seeing on the bottom right here. There are Chinese companies that have grown their earnings tremendously, even over the past four years. Do you think that, you know, is China a stock picker's market where companies you can predict their earnings will grow a lot and the stocks will go up? Because I would say about the KWEB ETF, a lot of those companies have revenue and net income charts over the past 10 years that look exactly like Apple or Google. But K-Web also has been pretty flat over the past 10 years.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“For exports and imports, the question is what are these countries doing once they've taken the RMB? Typically what you do is you just dump the RMB buy US dollars, buy US treasuries and then do whatever else you need to do, right? But what China is trying to do is build out its bond market and just give these foreigners a reason to hold Reninbi so that it's essentially creating some incentives to keep to kind of keep that system going where they can print red paper for the commodities that they need.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“No, so it's a quarter, 25% as per the top right. So sorry, I maybe was going a bit too quick for the chart scrolling. So yeah, you can say on this chart, essentially what I was just been saying is that China is the largest trading partner for 120 countries in the world. you know, over 25% of China's trade is denominated in RMB. So what that means is, sure, China is getting more countries to take Renin B.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“With that about 25-26% of total Chinese trade is denominated in RMB. So they're halfway there. They are getting countries to take RMB. It's one of those countries do with the RMB after they say that exactly.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“After the dollar and the euro, the share of payments via SWIFT's sterling is about 7% of that, and then directly below that is Japan and the RMB, which are both right around 3.5%. So that might be something that most investors or most listeners don't know is that, look, RMB is as traded on via SWIFT as is the yen. And then essentially when you look at the top right-hand chart on this page, 16, I'm showing the trade in RMB as a percentage of total Chinese trade, which is about over a quarter. So, you know, China, I'm showing on the, I'm kind of jumping around here. So forgive me, but China is the largest trading partner for 120 countries in the world. And in”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Like, hey, why are US Treasuries the global reserve asset? Like, what is it about them that makes them the global reserve asset? Well, they're deep in liquid. What is deep in liquid means? It just means there's a lot of them and you can buy and sell them really with very small bit ass clips, right? So, okay, well, that looks like what China is trying to do. And so what I show here on this page that you'd alluded to, page 18 or page 16, is”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Export partners. So let's just say like Saudi or Iran or Russia, whoever you're buying commodities from, you need to give them a reason or a way to essentially hold RMB, right? And so this is, I think, is another factor that plays into what China is doing with its bond market is, hey, if we can absorb this debt onto the government balance sheet, issue these issue these bonds in a transparent way with a sufficient yield, then actually maybe these bonds look attractive to foreigners so that if we print RMB and we pay Brazil RMB for soybeans, then Brazil has an incentive to hold those proceeds in RMB, in our government bonds, because they are providing some sufficient yield. And it's a pretty big, like, you know, a deep liquid market. Because everyone talks.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Right, because then what you risk is currency depreciation and then dollars rising and commodity prices rising. And so then your inflation rises, which then creates problems, right? Whereas like if you're printing it into your own currency, you kind of diminish those risks. And so as part of that, what you need to do is you need to give your”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Is not replace the dollar or the US as the global reserve currency. Really what China wants to do is it wants to denominate its commodity trade.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, I think China wants to be a global reserve currency. I don't think they want to be the global reserve currency. The reason being is if you are the global reserve currency by definition the must mean you import stuff and export your local currency. So for example, if you're the US and you're the global reserve currency, you can't export cars and dollars. You need to import cars from Japan, let's say, and then export dollars, right? That's the way the system's going to work. And insofar as there's global growth, the world needs a proportionate increase in dollars. So for example, if you're India and the Indian economy is growing by 5%, the Indian economy needs 5% more oil. Well, guess what? It needs 5% more dollars to buy that oil. I'll else be an equal. So what China wants to do.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Earlier, you referenced a chart, which we'll put up shortly of the percentage of currencies that are used for global trade. And I think the dollar doesn't even appear on the chart, the euro because they're so high. So it shows just the Renminb usage, which has taked up from 2011 from zero to a little bit. But it's been somewhat flat. What are the Chinese ambitions for the internationalization of the Renminbi? This is obviously nowhere close to a dollar. But is that even part of the ambition at all, or no?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Some unease around geopolitical issues and the US maybe sanctioning treasury securities. It's possible. But I think the two economies are so linked that I don't think that's necessarily what they're doing.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So wide, if you're willing to lend dollars into Japan, you can hedge the currency and then pick up like Treasury plus returns with very essentially no FX risk or very little credit risk since you're just lending to the big pension plants essentially. So I don't think they would be actively selling down the treasuries. Just globally what you've been seeing is slow global growth. And so if there's slow global growth, it means there's slow global trade. If there's slow global trade, it means there's just less effects reserve accumulation. And guess what? Since US treasuries are the world's predominant FX reserve asset, it just means that there's going to be less FX reserve buying of treasuries if you have slow global growth and slow global trade. And I think that's largely what you're seeing. Now, could they be”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“It would show up here because China does have these entities in Europe. So Belgium is one place, but Ireland is another place where it would accumulate FX reserves. Also, China's, and this is something I've talked to some of your other guests, like Mike Green and Michael Cowan a lot too, is the fact that Chinese Chinese FX reserves, particularly like the short dated treasuries, they're able to essentially use those to lend into Japan and pick up substantial yield pickup over what you'd get just holding those nominal treasuries. So we're getting into the weeds of like FX swaps, but basically because of the cross currency basis swap spread between the dollar and yen is”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it could be, for example, that foreigners are less bearish on China, and so they're starting to come in and are buying proportionally more Chinese stocks and bonds that they had in the past. It could also be that Chinese firms are repatriating kind of portfolio flows back into China. So maybe they want to sell US stocks or global bonds and pull those proceeds back into China, given like the capital account restrictions that you see, I would, my inclination is that it's actually foreigners that are starting to come in again and look at opportunities in the stock and bond market in China. On your question on kind of FX reserves and treasuries, largely I don't think”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so what this chart shows you is Chinese portfolio net flows, stocks and bonds, and this chart is agnostic to who's actually doing the selling and buying. And that's just the granularity that you're able to get out of this series from the Chinese authorities. It could be foreigners that are less negative on Chinese assets. So at the margin, they're not selling as much. Or it could be domestic entities that are pulling their foreign capital back into China.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Growth long term, for example, but you are seeing that there are these bits of uneven green shoots of growth that are taking place. It's just the government hasn't been as willing or able to kind of shore that up as much as they should have been, or one would have thought.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I would argue that on this it looks like services are picking up and retail sales look to be bottoming here when you look at like I think I have some charts there looking at you know domestic and international passenger flight volumes so the Chinese are increasingly going out and spending on services and you know it's actually interesting because a couple of months ago if you looked at the luxury brand so if you looked at for example like the big coffee global coffee shop chains were telling you and the big luxury brands were telling you and you kind of sum that up the view of what the Chinese consumers were doing was they were buying American brand coffee luxury handbags for Europe and then going to like Shanghai Disneyland right so it was more of like this domestic tourism story now that isn't going to be what drives”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I think it's very difficult to argue that China has not been in a recession. So I would say, yes, China has been in a recession. I think, for example, if you look at Chinese export volumes earlier this year, they were contracting by close to 20% on a year-over-year basis. So it's hard to argue that if your exports are contracting, your households are delevering and you're forcing deleveraging on basically the engine of growth over the last 20 years, the real estate sector, that you're not going to be in recession. So regardless of what the nominal GDP, like the nominal GDP numbers in China anyway, you basically throw them out because they target real, they tell you what they want real GDP growth to be and it tends to hit that number. So I would just argue if you look.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“And then, how would you describe the economy of China over the past year? Has it entered a recession? Because even though, again, this is the question of the nominal question, if growth slows from 8% to 5%, that's not a recession, but it is a pretty significant contraction in growth. And because China does not have an inflation problem, a real growth is not negative. But I know unemployment, you're having a lot of sectors. So has China been in a slowdown? Would the slowdown be so significant you would have called it a recession? And is China leaving? Is it exiting recession, which is a good place to be, if it is?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“See that going substantially weaker. And so I think they understand that you're going to have a weaker currency and they're going to have weaker growth. Like if nothing else, I think it's just if you just start with the default position that the Chinese policymakers are dumb, right? Like they understand, hey, we've used credit for 20 years to drive a massive real estate investment growth model and now we're not doing that. And I think they're going to, it's fair to say that they understand that they are going to have slowing growth, right? That, you know, some of these problems aren't necessarily going to be a surprise to them. And so I think they're just more or less happy to let the animal spirits kind of like naturally take over as this long process kind of draws out and then support that where possible given the institutional constraints that I talked about with respect to like know-how.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“In terms of the deflation that you're seeing in China, most of that is actually food prices. So I would argue that if you're the PBOC or the central government, that's not a terrible outlook for you to have like deflation being driven by food prices because that's typically been like what they've struggled with and what they've been kind of concerned about is you have pork and chicken prices rise quite dramatically fueling inflation and that leads to social unrest. So I'd argue that that's not a huge kind of negative for them yeah when you look at the interest rates in China they're substantially lower call it in like you know the the 2% to 2.3 percent range if you're looking at you know seven day repo rates or three month intrabank rates could they go lower i don't think so i think what the government wants to do is have a less reckless approach to credit growth so i don't force”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“And then Chinese interest rates are quite low. I think around 2%, is that stimulative? And then also we should say that unlike a lot of the world, China does not have an inflation problem. And in some cases, in some months, it actually has deflation. Could rates go even lower? And what's the impact on the financial system there?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“That refined product where the refineries are running at basically 80% of capacity and they're exporting quite a bit of it, that's helped kind of shield the economy from the weakness that you think given where the RMB is.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Entities coming in and buying Chinese equities and buying Chinese bonds. And there's a lot of fixed asset portfolio flows and other kind of longer term flows going into China. So in reality, it's not as shut as you would necessarily or not as closed as you'd necessarily think. And so there has been some depreciation in the RMB, which is problematic, I think, if you're the Chinese. I think what maybe mitigates some of the risk of the weakness that you've seen in the RMB has been substantial delevering of FX denominated debt over the last couple of years, but then also China has been doing a pretty good job of denominating commodity trades in its own currency, which I have some slides on there. And then also by buying discounted Russian crude and X.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT