Market Watch Ep.18: Biden - The $6trl man!

Welcome to the Market Watch podcast by Amplify Live, where you can access the latest market insights with me, Anthony Cheung, the Head of Market Analysis, and joined by our Head of Trading, Piers Curran, getting you up to speed on what mattered in markets this week. Okay, a very good morning to you. It's Friday, 28th of May, and as ever, I'm joined by Head of Trading Piers Curran, and we're going to talk over a couple of the major themes in markets this week. Week, namely the latest initial jobless claims falling to a new pandemic low. Going to talk about the White House's new proposal for a $6 trillion budget for the next fiscal year. And then from that, going to talk about some of the geopolitics that have been going on— Belarus, Russia— I'm going to talk about China as well. So that's what's on the agenda. But Piers, how's it going?

Good, good morning. Um, looking forward to the chat. But you've just sprung, well, a surprise on me because you've just told me that we're not going to be actually videoing this, as in the visual side. Obviously the audio is getting recorded, but we're not going to be actually videoing it. I've made a special effort this morning.

Yeah, you've got, you've got your baby blue ironed shirt on. Normally these days you're in your hoodie.

Yeah, well, I've got a meeting. Posh meeting. This is actually weird, actually. This is the first time I've worn what you might describe as a work shirt since— yeah, it must be February 2020, I guess. Yeah, feels a bit weird. But yeah, I'm going to see a guy, big cheese at Morgan Stanley, actually. Um, so need to, need to—

you've got to tie yourself up then. You're going— it's like date night.

Yeah, I got a sharp— you know, gotta be sharp.

Well, I actually, I actually ventured into town yesterday. I had to deliver at a business school that has an entire floor in the Shard.

I think they've got two floors, don't they?

Got two floors.

Wow.

I believe they didn't show me the VIP room, they just showed me the standard lecture theatre. But so what was surprising was these students that I met, they were MSc students, they had studied an entire year, just about to do their final exams, and this was the first lecture they had received.

What, face to face?

Face to face.

Yeah.

Incredible. But I talked to the, you know, I spoke to the students and also I spoke to the faculty And the technology now is incredible. They had these— so they had cameras. Everyone sat there. It's like the UN conference and they've all sat there in these glass shields. I've got my glass, my facial visor on, and there's a camera above my head as a deliverer at the front. And every time everyone's got like a, like one of those stencils, old school kind of microphones on their desk.

Yeah.

And when they click the button, the light goes off on their desk so I can see. The camera automatically, facial recognition picks them up and pivots to them, to their spot. So virtually people around the world can interact both online and in person.

Did you have people tuning in online as well as those face-to-face?

That's what happens when we go global.

Okay, we need to up our game here for these podcasts.

I won't tell you how much it costs to kit out the one lecture theatre. You might have second thoughts then. But yeah, no, it was really great to interact with some of these students. They, you know, and I definitely sympathize with students all over the country, all over the world who've had like a very unique 12 months for sure.

Yeah.

Um, but I just wanted to kind of convey to them, look, you know, it never feels like obviously a good time to be coming into the workforce. I remember one of the guys I was talking to, he graduated 2008. I think when I graduated, that was just when 9/11, the recession happened then as well. So yeah, I mean, you've got to think that in a pandemic time, right, that there's new opportunity, new innovation. You know, the greatest thing that humanity has is our ability to adapt, right?

Absolutely. It's definitely about mindset. I mean, because the problem is, you know, students trying to get jobs at top, you know, global institutions, you know, you're aiming for the top and you're going to get masses of knockbacks and refusals and rejections. And it's just having the right mindset to get through that and just pick yourself up onto the next and stay positive, stay confident. It's very difficult. And yeah, sure, you can't control the time that you graduate and hit the workforce.

That's your parents' fault for giving birth to you Oh yeah, not adhering to the economic cycle. I'm like, how could you do that to me?

Um, so you can't control that. So there's no point worrying about stuff you can't control. I know it's easy to say that, but, um, sure. I mean, I graduated into a, into a recession as well, the post-dot-com bubble bursting. Um, and I found it tough. I think I probably said in a podcast, I'm not sure, I can't remember now, but I, I applied to all the banks and I got rejected from all of them.

Apart from one.

And you only need one, you know, you only need, you know, that half door open and you just got to smash it down and take what you can get and go from there.

Good, that's it. Who needs Wayne Gretzky when I've got Piers Curran? All right, well, let's crack on with things. And kicking things off then, we had filing new claims for unemployment benefits in the US dropped by 38,000 to 406,000 last week. That's the lowest level now since the pandemic first hit the labor market, obviously since March 2020, below expectations. So combination, I guess, of the vaccination campaign continues, albeit the pace of vaccinations is slowed, but we were kind of anticipating that on the supply of vaccines and that should pick up. But restrictions on businesses are being lifted. The other interesting thing, because this goes back to a previous podcast and you were talking about McDonald's and how McDonald's were literally paying people to come. Was it $50 to come and have an interview?

Just for an interview?

Yeah, just for an interview. And one of the kind of things that wasn't top-level apparent but was interesting, I thought, was that many states recently have decided to withdraw from federal unemployment benefit programs. Following these reports that it's been more difficult to hire because benefits that have been going out from the government pay more than most minimum wage jobs. But this is important for this whole idea about the slack in the economy and transitory, all these types of things. So any thoughts on that?

Yeah, I mean, that's right. The stimulus checks plus the unemployment benefit bump up Yeah, it's just meant people don't want to stack shelves for minimum wage. Who enjoys that? So if I've got the opportunity to earn more money— well, earn— to receive more money and do nothing, well, then people are naturally taking that. And so it's caused a massive issue. So companies can't hire. Even though the unemployment rate is higher than it was before the crisis, companies can't find anyone who want to come and work for them. And is causing real issues with the recovery. That's contributing to the temporary inflation spike. What some states are doing, and I absolutely— I think it's the perfect policy there, they're now rejecting that federal unemployment benefit and saying, "Right, that's not available to people in our states now," to just kick people off the sofa and say, "Look, come on, there's jobs out there. Get on with it." get out there, get working, let's get back to normal and off this temporary life support machine, which is the fiscal paychecks.

Yeah. From a context point of view, we're still 7.5 million jobs away from returning to pre-pandemic levels. There's a huge gap there. Obviously, this is something the Fed are looking at because beyond temporary or not inflationary conditions. We're a long way off on that side of things, which is obviously a key focus.

And on the jobless claims front, so that was the figure yesterday. And it was like, wow, that's a really good figure. That's dropped much further than was expected. So obviously here, this is an unusual data set whereby the lower the number, the better it is, of course. So the fewer people claiming jobless benefit, obviously, the better. So it dropped to 406,000. I was checking back because I just wanted to remind myself because pre-pandemic, I was looking back, the last time we were at 406,000, you've actually got to go all the way back to 2011. And hang on, let me explain. Between 2011 and 2020, the jobless claims number was below 400,000. So even though this is a really good number, it's actually— if you take out the pandemic, it's still the worst number. Since 2011. Actually, we went down to— yeah, we were trading down at 200 on this figure through 2019. That was the lowest point. Even though these states are blocking this federal support, the jobless claims figure is still high in pre-pandemic terms. There's still this output gap, there's still slack. And there's still work to do here.

Yeah, man. And Joe's aware of that. So what does he do? Puts his hand deep in his pocket. He said deep pocket. And finds $6 trillion and says, you know what, guys? It's okay. I'm going to propose $6 trillion 2022 budget to Congress. which would be the biggest federal spending push since the Second World War. Obviously, we are getting into a period now where midterms start to come to the forefront in terms of political positioning, let's call it. And if you think about actually what is in this domestic agenda for Biden, and we'll talk about domestic and then foreign affairs because these are important things in markets this week because you've got China, Iran sanctions, you've got Belarus and Russia. There's a lot going on. But with Biden combating climate crisis, investments in social services, reduce poverty, expand housing, this sounds like a ticket for success in order for performing at the midterms. And to give people a bit of context with that, because As I was saying to you earlier, I don't think people even remember in 2010 when Obama first became president and he had his first midterms. It was the worst Democratic midterm election defeat in 70 years. Biden's name was on that ticket as well, the team as well. Biden's what, 105 years old? He's lived through a couple of these. He knows the deal. He needs to strike big, hard, and fast. That's only accentuated in my mind by a pandemic, because there's a lot of people suffering. Like you said, there's a massive gap here. There's a lot of people still facing incredible difficulties. So now's the time to overpromise. We know what they promise and what gets fulfilled is completely different. I mean, I can imagine it were Democratic officials yesterday when they heard that figure, going, oh, what? In his own party, never mind opposition. Um, so, you know, I just, I just thought that the market— what surprised me yesterday, I don't know about you, but the market rallied on this news, and I was a bit taken aback by that.

Well, I mean, yeah, it's, it's— on the one hand, it's the classic game of Obviously, politically, his motivations are partially selfish with regards to his ability to get reelected. But let's just put that to one side for a second. You know what it's like with a negotiation. You set out your stool, and you set it out, Miles, $6 trillion. And of course, then The game is, well, hang on, the opposition are going to go, pfft, shut up, $6 trillion, no thanks. But then, OK, then we kind of march towards some kind of middle ground, and a deal can be done. So I guess the point, and maybe the market's reaction yesterday, was more about just increasing their expectations of how much stimulus there's going to be. By no means pricing in $6 trillion, but pricing in slightly more than they were perhaps thinking beforehand, because Biden has set out his stall further away than where they were expecting him to start from. I think that's probably the market's reaction. I mean, obviously, the Democrats have only got a slender majority. And so it's going to be an interesting battle in Congress. And it's going to take some time. But then, actually, I thought I'd step back a little bit and just think about this in a longer-term context as well. Because the academic world has been quite divided on this. There's a guy called Paul Krugman, who you'll have heard of, of course, economics Nobel laureate, no less. But he's a massive supporter of Biden, big Democrat. He puts forward some interesting arguments, and that is actually that governments have really been failing for decades to actually stimulate the— well, actually, to reduce output gaps entirely and get economies growing at their full potential. What happened in the 1970s is a hangover from there. In the 1970s, we had massive inflation spikes in the early '80s, and inflation was up at 10-plus percent, 15%, and it was an absolute killer. For the economy. Ever since then, governments have been very conscious of that period and wanting to not see a return to it. One big argument about too much stimulus, of course, is that it will generate— in the end, it will generate an inflation spike, and we'll be back to the 1970s crisis. Naturally, governments have been fearful of stimulating too much. That's partially it, is the fear of inflation. But the other thing is measuring the output gap is notoriously incredibly difficult. The output gap is just simply the difference between the economy, how fast is it growing now compared to how fast is its full potential growth? It's incredibly difficult to calculate. But as time's gone on, it's become increasingly obvious that actually, we've been underestimating the output gap. For 20, 30 years. So governments have been— their fiscal stimulus strategy has been dogged by a fear to the return to hyperinflate— well, not quite hyper— high inflation, and a thought that the output gap's actually not that big anyway. So here comes Biden. And maybe this is the moment to pivot and snap out of that 30, 40-year lethargy, misguided conservativeness, and actually now step up and get— can he get this economy growing at its full potential? This is Krugman's argument. It's interesting. This is probably— depends how much he gets through, but it will probably be the biggest experiment of— maybe the biggest economic experiment of our generation. It's just interesting to see how it'll play out. But I do agree on the inflation front. I do think we are over-obsessed and over-fearful of inflation. I think that has influenced policy in a negative way for actually too long now.

It'll be interesting because when I think about it and the nature of Western politics and it being shortism in its focus, like 4 or 5-year stints, why not experiment? I mean, you might say, well, what about the future and generations to come? But I think that things like debt and accumulation of debt, I remember when the financial crisis happened and the period thereafter and everyone was freaking out when The USA lost its AAA rating. And it's like, hang on, things have got materially worse if you're looking at it with that angle. And yet no one mentions this stuff anymore because we are desensitized and this is the new norm. And balance sheets being what they're at doesn't make people panic anymore. And why can't that continue to grow and be okay? I mean—

Yeah. Well, and interest rates are zero, right? So if you're going to have a lot of debt, now's the time to have a lot of debt. But yeah, I mean, look, it's the ultimate risk. I mean, I like— I'm a trader. So my job is calculated risk. And this is calculated risk, but on us. It's probably the biggest calculated risk, I mean, for— well, I don't know for how long, right? And sure, it could fail. And all right, then we've got a problem. Because there'll be a generation or two after us that are going to have to pick up this tab. And pay for it. Or it actually might succeed, and we could kick onto a growth trajectory that actually meets an economy's potential.

With all this then, there's obviously a strong emphasis for the administration to focus on domestic issues for the things we discussed. But this week, there's a lot of other things going on that involve the administration. We'll get onto China and we'll discuss a few things to do with that. But I guess in my mind, the one that's lower down is Iran. There's been lots of discussions with Iran about trying to rekindle that relationship that they had with an agreement back in 2015, which basically Trump just tore up at the time in regard to their nuclear development of enrichment of uranium and so on. Surprisingly, I found myself— oil was selling off last week. I mean, that's completely been taken aback. In fact, oil's trading right back up there again towards $67 a barrel. The idea that successfully establishing a new relationship with Iran was going to be easy was a little bit wishful thinking, I think. I was surprised to see oil come down last week. I think it's back in its right place, to be quite honest. I think the combination of that not materializing quickly, but also with the whole reopening demand side of the equation, I think oil is well supported at these levels. So that was the Iran thing. But then Russia was obviously a big one because of the incident that happened with the Ryanair flight and a lot of geopolitical tension that's been between the EU, Russia, Biden's been involved. And so just wanted to briefly talk about that because I guess from a trading perspective, you see all these headlines and that's very mainstream media because it's like, what? There's Russian secret agents on a plane and they grab this guy and they down a plane. The Ryanair guy starts coming out saying all sorts. It's tantamount to terrorist activity and all these sorts of things. But is it important for markets? I mean, that's, I guess, the question. In terms of trade, I guess there's a difference between trading or geopolitically important that could have repercussions more long-term.

Right. Exactly. It's short-term or long-term. I think that on the one hand, those that are coming to markets now for the first time, this isn't unusual. Where we've got a Russian sort of slash Western political incident here. But in fact, rather than it being abnormal, it's very normal. I was just looking back at some of the incidents. Don't forget, in 2014, Russia invaded Ukraine. They also shot down a Malaysian airline passenger plane and 200-odd people died. There's airstrikes in Syria. There's poisoning of former spies here on UK soil. They've been poisoning the opposition leader last year, Alexei Navalny. My point is that this is just another episode. It's not a brand new thing. That's one point to say. The other point, though, from a trader's point of view, I can't help it. When something happens, I'm like, all right. Is there an angle here? Is there an edge? Is there something? Is there a trade here? My thought process, I thought it might be interesting to share. I'm like, okay, Belarus. Okay. So there's potential sanctions going to happen here between Europe and Belarus. We'll talk about the pipeline, the oil pipeline in a minute, but just to talk about Belarus specifically. So what people may not know is Belarus is a massive producer of something called potash, which is a key component of fertilizers, which is used by the farming industry globally. And so they're actually the second biggest producer behind Canada, believe it or not. And so if there's sanctions against Belarus, well, then obviously the potash industry would probably be the the most effective target for the West. That's because the Belarusian government is incredibly reliant on revenues coming from their state-owned potash producer. And it's a huge industry there. So hitting their potash industry would be quite an effective tool. So if that were to happen, and they restrict the supply of Belarusian potash, well, then you got a potash supply drop, which therefore perhaps the prices of potash goes up. So how can you trade that? Well, who else produces potash? Well, actually, Canada is the number one. So I'm straight away, right, who are the Canadian publicly listed potash miners? That's my thought process. And the biggest of all of them actually, the biggest in the world is a company called Nutrien. So I'm like, right, OK, that's interesting. Do you buy Nutrien shares off the basis that sanctions against Belarus will restrict supply, sending potash prices higher? That's a great thesis. There's only one problem. Nutrien share price is already trading right at its all-time high. It's testing a monster technical resistance level, the 2018 high. $74.50. It's right there. So actually, it could be an interesting breakout trade.

So how long has it been going bit, though? Is it— it's been going—

so it, like, like a lot of commodity producers, collapse in price when COVID hit. And then it kind of bottomed out summer of last year, down just, just south of $45, you know, all-time low. Uh, well, since they publicly listed, by the way, which was only back in 2018. So low, and then they've rallied all the way back from $45 up to $75 to test right now the 2018 high. Sorry for the noise. So my trade is, right, monitoring that. Are there going to be sanctions against Belarus? Is it going to involve potash? How's that potash price going to react? Is this the time to buy Nutrien shares on a breakout trade? As it breaks that 2018 high.

Okay. Well, the one thing I would say on that thesis is Russia is the largest supplier of crude oil to Europe.

Indeed.

In fact, the largest shipments go through a pipeline called the Drusba pipeline, which crosses Belarus. If you sanction Belarus on potash, if I was If I was Mr. Belarus, I'd say, excuse me, you do realize that I can just push this big red button here, and all crude oil stops going through that pipeline that serves Europe from Russia that you are dependent on. So don't do that. Don't make me do that. Absolutely.

They've got the ultimate retaliatory weapon.

Right.

which is why I'm not buying Nutrien shares yet. It's certainly on my radar. But yeah.

Well, look, on this discussion point, one of the main things we wanted to emphasize here— we're going to get to China— was that these things have dominated a lot of the news sphere this week. But when you think about then the involvement of the US, it's kind of, well, where is their energy being deployed? And that's what was kind of insinuating is that this Iran or relationships with Russia, because Biden is going to meet Putin in the coming weeks, and with China, as we'll discuss, is these things are going to simmer, I would think, in the coming year or so while these other geopolitical risks get managed and the domestic focus is taken care of, in my mind. But an interesting report out of BlackRock that came out this week, and they have a proprietary geopolitical risk indicator. And it's one of these models that they run and it's far too long of variables for me to comment on what makes the model. But the point being, it fell to a 4-year low as of the latest reading they put out this week. And what they were saying was, is that investors are not attributing a great deal of attention to geopolitical risks because everyone is so focused on inflation and this economic recovery narrative. They said that actually their analysts noted geopolitical shocks is the one major thing that could catch investors more off guard than usual because of the market positioning, if you like, at the minute. The top 3 risks that they looked at were separation of US and Chinese technology industries. That's pretty cool to the whole entire trade battle that's been going on in recent years. A major cyberattack, which we've seen, we discussed in a previous podcast, the Colonial Pipeline. And then a political crisis in emerging markets as a result of countries' inability to control the pandemic, the coronavirus, which you could quite easily see happening when you look at countries. I mean, even like India, and thankfully the situation India is improving from the worst it was at just a few weeks ago. But you can see that these lesser affluent countries, it's incredibly difficult to control, particularly mass populations like that. So yeah, just quite an interesting thing there, an observation that I saw. But that does lead us on to China. And this is the final thing to talk about because they had a phone call. It was the first top-level official phone call that they've had under the new administration to try and resolve these differences on trade. And they were referring to it as being candid conversations, which I guess is the PR polish to say that they had a discussion, nothing really happened. They're not particularly happy with one another, and that was it. But I guess China, at this point, their position in this new dialogue is, look, you got to roll back these tariffs if you want to have a relationship. Obviously, Biden's now— I don't know if— was anyone thinking Biden was going to be softer on China than Trump? I don't think that they were, were they?

No. I think— well, firstly, can I just comment on BlackRock's black box?

Oh, yeah. Yeah.

Because a 4-year low for global geopolitical risk. I don't know what they've got in their black box, but I could have told you that. Do you want to know why? What happened 4 years ago? Trump got elected. Then you had 4 years of Donald Trump. And now Trump's gone away.

Full stop.

There you go.

Why do they hire all these— pay all these analysts so much money?

Anyway, I think Biden, in some ways, Biden has got— he needs to thank Trump for one thing. Trump certainly resets in quite an aggressive way. He reset the trajectory of the relationship between the US and China, entirely repivoted it. And now that Trump has reset it, Biden can come in and maintain that much more, well, let's just call it anti-China approach, or fear of China, and how large they're becoming, and how influential they're becoming, and taking them much more seriously as a threat, rather than Obama that was much more about being pals and matey. Trump obviously reset that, and Obama has seemed to has to thank him for that. Now, Biden's going to maintain this harder approach. I think these talks, fine, they're underway. Candid talks, what does that mean? It means absolutely nothing. It just means what, they didn't lie to each other? I don't know. But look, they're talking, fine, but nothing's going to happen. With regards to tariffs. Not this year, I wouldn't say. Right now, from a trading point of view, whilst, yes, it's a risk still, these tariffs— remember, the whole world was freaking out about these tariffs a few years ago. These tariffs are still there. It's just everyone's forgotten about them. They've forgotten about them because there's way more powerful things on world economies now. Than those tariffs. And so it's not the biggest thing to worry about. And so it's kind of all gone under the carpet, but it's still there. And obviously China want them rolled back, but it's not going to happen.

It was shaping that Biden agenda heading into the midterms. What was quite interesting is when you actually looked at that $6 trillion he proposed, or he's going to propose today, interestingly, $715 billion Department of Defense budget is going to be shifted in order to take old systems to modernize the nuclear arsenal that the US has specifically to deter China and also develop, they said, their future warfare capability. Hang about, are we talking Biden or Trump at the moment?

Yeah, right.

Yeah, I mean Well, yeah, throw in as well earlier this week, the other headline in the news, of course, was the administration requesting the origin of COVID report. Yeah, I mean, come on, just call it what it is. This is the let's out China report.

Yeah. And it's all domestic politics, in a way, as you're saying, with the midterms coming. Yeah. That harsh, hard hardline against China is a great domestic political line to take for a US president.

Yeah. Look, let's look at China because this week has been quite meaningful because the Chinese yuan extended its gains against the dollar. It's going to head for its best weekly performance since November at the moment. When the Chinese currency starts to strengthen, as it has done, and starts hitting multi-year highs, traders get very aware of commentary coming out of the state of China and the PBOC about what are they going to do about this. Why is the strength of the currency such a thing for the Chinese government?

Yeah, well, that's just all about the fact that China's economy is geared up for manufacturing and exporting. It's like a classic— it's not an emerging economy anymore, but it's a developing economy. But of course, it's all about exporting to the developed economies of the world. Now, if you're selling goods, if you're an exporter, then the cheaper your currency is compared to the countries where you're sending these goods, the cheaper your currency is, the better, because the price of goods for those customers in other markets are cheaper. If your currency appreciates, and it appreciates, and it appreciates, then the goods become more expensive for your international customers. Also for companies, let's say global companies that use China as their manufacturing base, the cost of manufacturing for that global enterprise increases if the yuan appreciates in value. So again, that means these big companies perhaps might start looking elsewhere other than China. To have their manufacturing base. An expensive currency for China is bad. A cheap currency for China is good. But then you flip the argument entirely on the other side. Trump was calling China a currency manipulator for the entire time he was in office. That was all about— if you're on the opposite side of that equation, China manipulating their currency and making it cheaper, gives China an economic advantage. And there's an economic disadvantage on the opposite side of that equation, which is the US. So the classic story of US jobs being lost to China. Go to Detroit. It's been in a depression for like 30 years. And it's China's fault, because all the manufacturing jobs have gone over there. So it's all part of this bigger argument. So that's the history behind it. So yeah, the yuan, has been strengthening for the last, well, 12 months, actually. But it's accelerated a little bit this week. And there's a big, I'd say, level, which is around about 6.27, which was the low at the start of March 2018 that people are eyeing up. But what I would say is this yuan strength, it's not yuan strength. It's dollar weakness. The dollar's been weakening against all currencies. And so actually, in my mind, it's actually more a dollar story, this move in the dollar-yuan, than it is a yuan story.

But it might become a thing if the Chinese government starts stepping up and going, "Oi, this currency's getting too expensive here." And if the Chinese authorities can just hold firm and there isn't a breakout of further acceleration in yuan, Surely this is just a timing disconnect of the reopening process because China are ahead of that. I mean, they were the first to get back up. We don't know exactly to what detail. But the point being is that the Fed are going to have to start talking tapering. They are going to have to taper. And they are going to have to lift rates at some point. It's just the fact that we're not quite there at that point as of yet. And so right now, I don't know if China can just maintain it. And as they do, I guess they— it's not like they intervene and bang, it moves. Strongly. It's just about management, isn't it, more of the currency than—

Yeah, the last thing you want is violent moves in your currency's value. That's the last thing anyone wants. That's the last thing China want. So stable currencies— this is why Bitcoin's not a currency, by the way. But anyway, that's really different.

Okay, on that, on that point then, let's talk, let's talk the e-yuan. Ah yes, the, um, yeah, in my best Jamaican accent there. So, um, the electronic Euan, a digital currency powered by blockchain technology. Feels like I'm doing an advert for it. But a bit of background then. The Euan works through a two-tier system. And through that system, the People's Bank of China will be in charge of distributing it to authorized commercial banks. And from there, banks will be tasked with spreading the currency to their own customers. The overall execution of the release of yuan is to set closely or resemble the existing digital payment methods that are actually already in use. I think that's where China is quite different from here in the UK for sure, and in the US, where we are almost victim to legacy systems. It's very hard to steer the Titanic away from an iceberg. When you've just gone through this very established banking system of hundreds of years, whereas China don't have that. And China have really embraced financial services in new technology. And that's predominantly been things like WeChat and WeChat Pay, Alipay. And what I found fascinating reading about this week and just doing some research for this podcast was about— I was kind of thinking, what What's happened to Jack Ma and Ant Financial and all these things? Jack who? Jack who? He's disappeared. Certainly he was on a meteoric rise, wasn't he? Up until probably the last 12 months. It just seems to me, reading between the lines, that the Chinese government are very aware about individuals like him. In actuality, if you can understand and track people's payments via a digital mechanism. That's a lot of power in that information. I don't think the Chinese government want it in the hands of a third-party entity like Jack Ma. Hence the EUN.

He's a victim of his own success, Jack Ma. His own unbelievable success, which has put him in a position of power And it's all about power. And the Chinese government wants to be all-powerful. And hang on, here you've got this guy who's threatening that in a non-political way, or at least initially in a non-political way. So it's an interesting threat for them. And yeah, they've slapped him down. No question.

What do you think about these central bank digital currencies, though, compared to, say, Bitcoin?

OK. Now, well, first thing to say is that China aren't the first government to issue a digital version of their own currency. Do you know who was the first?

Bahamas.

Yes. That's the first time you've got one of my questions right, I think, in 18 podcasts.

No, I did know that your man crush was It's called Gascoin as well.

OK, yeah, the Bahamas, right? But look, this is the first big economy to go down this path. And so on the one hand, you're thinking, well, hang on. Most of China pay for stuff electronically anyway. So what's the difference here? And OK, this is a digital currency. But the reason why it's not like a crypto is because, of course, the whole point of cryptocurrencies is that they're not controlled by a central government. Right?

Hang about. They are. They're controlled by Elon Musk.

So this is a central government-controlled digital currency. So it's like, OK, what's the difference then? And I don't think there is much. So I Here's the thing. I think actually the government— I think this is a currency that's going to have a place in their system. But it's not going to have a big place in their day-to-day economic system anytime soon. I think it's a play that just further gives Jack Ma a slap on the wrist. But the problem governments will have with digital currencies is the last thing they want is savers to switch out of bank deposits en masse, switch out of my bank deposits into this digital, new digital currency. The problem with that is your banking system would collapse. The banks need these bank deposits to be able to operate. And without a banking system operate— an operational banking system— go and have a look at what happened in 2008. When the banking system stopped working. We had a global crisis. It's all about legacy. At the moment, the banking system requires deposits, bank deposits to operate. These digital currencies would replace those bank deposits, which is why they can't be replaced in any big way. Some of the predictions are saying that it might go up maybe 5% of the monetary the money in the system might end up being this new electronic yuan. No more than that. Anyway, they've done some studies, and they've been giving people— some experiments, I should say, and they've been giving people free e-yuans to see what they do with them. Great. They're going, okay, this is all novel. All right, I'll buy something with this. Great. Then the feedback afterwards was, okay, well, yeah, that was interesting, but I'll just go back to Alipay, please, because it's just way more convenient for me. And it's tied into commercial and social messaging networks. And it's just way more convenient for people to operate their day-to-day consumption via an Alipay than it is to have to go via this— hang on, what is this government digital thing? Not sure.

So you're not a buyer of Alibaba and Tencent shares anytime soon then?

No. I think they've become— that story's played out. And I think the government now firmly, firmly— it's not only on their radar, they're now acting to curb their influence.

Yeah. Yeah. They've been handing out some sizable fines for anti-competitive practices, for sure. But look, let's wrap it up there. Um, wish you luck on your, um, your date in the city.

Yeah, thanks very much.

And, uh, if you've made it to the end of the podcast, thank you very much as ever for listening. Um, would hugely appreciate it if you're listening on a platform like Apple Podcasts if you could rate and review, leave a comment, uh, get in touch with us if you want us to cover something specifically. Just email info@amplifytraining.com and we'll be happy to, uh, take on board your feedback. But Enjoy the long weekend.

Yes, absolutely. And you.

All right, take care.

See ya.