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- [00:00]
Ed Elson
Support for the show comes from ghelt. Don't ignore taxes until it's tax season. Avoid the stress and get year round tax strategy with Gilt. GHELT is your partner in taxes proactive premium and built for business owners, investors and high net worth individuals with features that include filing and review directly from the platform, a roadmap to track progress and ongoing expert guidance. Their elite CPAs provide personalized tax strategy for both your personal and business taxes. Get a personalized consultation and 10% off your first year of service when you mention propg markets. Visit joingelt.com profg to learn more. That's joing E-L-T.com profg for more information. Support for the show comes from Workday New people to develop new products to launch new goals to crush Workday Go is designed for small or mid sized businesses because there's never a dull moment and it can be a lot to keep up with. With HR and finance on one AI platform, you'll have everything you need to think big, go big and grow big and go live in as little as 30 to 60 business. Simplify your SMB with Workday Go find out what Workday Go can do for you. Visit workday.com go to learn more.
- [01:12]
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- [01:43]
Ed Elson
Today's number 82. That's how many years late a book was returned to the San Antonio Public Library last week. When asked what took so long, the returner said she was, quote, checked out.
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Money markets matters.
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If money is evil, then that building is hell.
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The show goes on.
- [02:08]
An awful joke to start the show. Welcome to ProfG Markets. I'm Ed Elson. It is September 10th. Let's check in on yesterday's market vitals. All three major indices closed at record highs. That's the first time since December 2024 that they have all achieved that milestone. On the same day, treasury yields also climbed from their lows ahead of key inflation data. The Producer Price Index will be out today and the Consumer Price Index will come out. On Thursday, Apple stock fell 1.5% after a lackluster debut event for the iPhone 17. And finally, Oracle stock popped more than 20% to a record high on stronger than expected cloud growth projections. Okay, what else is happening? It's been a huge week for China and a new world order is coming into view. We've seen the country look beyond the US for growth. In August, China's exports to the US declined 33% while those to grew 26%. This shift extends to cause two BYD's European sales increased more than 200% in July and it's aiming to have 1,000 stores on the continent by year end. But it's not just business. China is also flexing its military muscle. Last week, of course, it staged a massive military parade with Vladimir Putin and Kim Jong Un in attendance. And on the diplomatic front, the Shanghai Cooperation Organization Summit drew more than 20 non Western leaders, including India's Prime Minister Narendra Model Modi on his first visit in seven years. We have been covering these developments a lot lately on the program, but there is so much to unpack here, so much to get into. So we wanted to check in with someone who has actually been on the ground in China recently. So let's bring in our favorite China economist, Alice Han to take us through what's happening. Alice, great to have you on the show again.
- [04:03]
Alice Han
Thanks Ed. Happy to be back. A little bit jet lagged but happy to be back and tell you what I saw in China the last few weeks.
- [04:10]
Ed Elson
We're very excited. And by the way, I just want to say welcome to the Prof. G Media family. For those of you who don't know, Alice recently launched a China focused podcast with Prof. G. And you can check out that pilot episode on the Prof. G pod. We can discuss that later. But first, Alice Scott and I discussed this military parade on Monday's episode with Vladimir Putin in attendance. Kim Jong Un, they all walked down the red carpet together. You were in China leading up to that. Can you just tell us a little bit about what you saw and what you think this military parade really means for China?
- [04:50]
Alice Han
Thanks very much Ed. I was actually in Beijing during the week of the parade and left just as the parade was happening. What struck me was the optics of it. It was very clear that China was trying to strike two notes. One, to deter the US on any issue related to military affairs, including Taiwan. They were pulling out the big guns metaphorically and literally. We had hypersonic missiles grade equipment drones. China was clearly showing the US and the rest of the world that it was ready for business and that it shouldn't be meddled with. Number two, I think it was very important, not just that Putin and as you mentioned, Kim Jong Un of Russia and North Korea were there. You had a good showing of Southeast Asian leaders and I think this was an important follow up from what was happening at SEO, as you mentioned, Ed in Tianjin, in the sense that China wanted to show that it had many friends, that it could rely on trade and national security related, related issues. I think it was important that you had a big showing of some of these Southeast Asian leaders, including leaders from Indonesia, to again show the rest of the world, including Washington, that China wasn't alone and that it was actually increasing its diplomatic clout within the region and globally. I think those were the two important notes that they were striking. And last but not least, I would say on the domestic front, we shouldn't discount that this was again showing muscle domestically and stirring nationalistic feeling. I think it was important to note, and I don't think this was covered in the Western media, that it was strongly encouraged by all Chinese companies, not just the SOEs, but government organs. It was strongly encouraged within even private organizations that employees would take time off from work to watch the parade. Again, a sign of nationalistic pride that the party and Beijing is trying to stoke.
- [06:40]
Ed Elson
To what extent was this new behavior? I mean, we know that they've done these military parades before. We know that there's a lot of nationalistic pride in China. They try to celebrate their heritage as much as possible. But from my understanding, this combined with the summit and all of the leaders that we saw, there was a little bit more of a message, at least in terms of their connections and their alliances with other nations. I mean, what part of this was new compared to previous celebrations?
- [07:14]
Alice Han
I think on two levels this was quite novel. Number one is just the sheer scale of it. The fact that you had this military parade where you had an sheer enormity of high grade military equipment on display, the performances by the male and female military officials as well as army. I think that that representation on a symbolic and visual level was quite new. And number two to your point, Ed, is the fact that they were able to bring these world leaders strong showing from Southeast Asia. But the fact that you had the first multilateral meeting of Russia, Korea and China in one domain and at a Chinese military parade, I think was pretty novel. It's worth also mentioning that this is the first time we've seen a North Korean leader come to China for a military Parade, I think since the late 40s. So in many, many respects, just from the sheer scale as well as the bringing together of these high level officials, I think China was doing something quite new and it was clearly doing this to I think again, project strength in advance of potentially future meetings between Trump.
- [08:27]
Ed Elson
Just shifting to markets. Did any of this have any impact that we saw in terms of markets in China did this? I know the Hang Seng is doing very well right now, but I'm only looking at it on a year to date basis. What kind of impact did this have on the markets?
- [08:45]
Alice Han
I would say it's a story of correlation, not causation. What struck me when I was in Beijing was the fact that virtually nobody was talking about tariffs. I was there in April, just after Liberation Day and all the subject was revolving around tariffs. Everyone was talking about tariffs. This time around they were talking about China's quote unquote quiet bull market or even slow bull market. There was a feeling that the government since the beginning of the year has been allowing households to basically get more involved in the stock market and is trying to signal the right pro private sector, pro market messages to domestic investors and foreign investors. So we've seen a degree of Chinese household bank deposits being shifted into the stock market. We're also seeing more increased willingness on the part of foreign and domestic investors to get involved in the Hong Kong Stock Exchange as well as the mainland stock exchange. So in the end of August, we saw the stock rally on both the Hang Seng and the Shanghai Stock Exchange going up 30% year on year to date rather. And I think that that has been a sign that people are trying to do two things. Number one, they're seeing China as being quite resilient to tariffs, in fact shrugging off some of the tariff risk. And we've seen that in the export data. And number two, China as being a hedge against some of the risks they see in the us. And even on top of that, I would say as another bet on AI, I think what has become apparent is that it's a two player field. Chinese valuations are extremely low compared to the max 7. And so for anyone looking to bet on AI, future China seems to be still a lucrative, interesting space. And that's why we've seen a lot of the growth being driven by companies like Alibaba that at the forefront of the AI revolution in China.
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Ed Elson
Yeah, we talk a lot about country risk. Specifically with China. There is just this risk of it's a communist nation and you know, there's no guarantees that the CEO of a company isn't going to be disappeared from one moment to the next. And that is generally translated into lower multiples for all Chinese stocks. But as you say, up 30% on the Hong Kong Stock Exchange, which is by the way best performing index of the year so far, up 30%. And you compare that to the S and P which is up 11% year to date. I'm wondering, has the China risk conversation changed? Is there a reason why we're seeing higher multiples? Is that what is happening in terms of valuations right now?
- [11:24]
Alice Han
I completely agree, Ed. I would also caveat though that Chinese valuations were at all time low last year. So we're recovering from I think a considerable degree of weakness in Chinese stocks. And number two, to your point that you're referencing, what struck me is that the US is becoming what China was, I would say in the 2000s when you had investors concerned about the centralization of power. A great degree of policy uncertainty coming from the center government. And that's mainly driven by, I would say top down dynamics where a leader is cracking down or injecting a great degree of policy uncertainty. And that has basically taken investors aback. I think we're seeing a lot of the pathologies and patterns that we saw in China in 2020 in the US and that's I think pushing on the margin investors to look at China more fondly. And it's helped by the fact that Xi Jinping and Beijing have made a concerted effort, I would say since last September to again try to rev up private sector, to rev up the markets. Because structurally, and this is worth mention mentioning, Ed, even though I think cyclically we're entering a better cycle, we're entering improvement structurally, a lot of these problems still remain, whether it's local government debt overhang, whether it's under consumption, over exposure to exports. I think a lot of these structural issues remain in play. But we've just seen an increased improvement in sentiment from the consumers and on the margin, the private sector. And that's largely been driven by, I think a top down loosening.
- [13:02]
Ed Elson
Chinese Yuan also just hit a 10 month high against the dollar. I'm wondering what is driving the strength of China's currency right now.
- [13:11]
Alice Han
Fundamentally this is a dollar weakness story, but it's also a story in which the PBOC is, I think, not intervening to devalue the currency. I think that has been driven by two things. Number one is the US China relationship. I think they are attentive to the fact that Trump wants a weak dollar and that if Chinese currency weakens too much, this is going to derail ongoing US China negotiations and trade talks. And number two, I think China is mindful of beggar thy neighbor policies. It is mindful of the fact that as the dollar weakens, if China weakens its currency against some of the other trade weighted currencies, say the euro for instance, or even the yen, this could create another wave of trade tensions and backlashes from countries. In a period in which China can't afford to have more trade tensions, it remains ever yet more exposed to exports. And if the deficit between China and the US the US rather deficit with China has to decrease, which is what Trump wants. China needs to find alternative markets in the medium to long term. So I think that fundamentally we're in a stronger CNY period. And it wouldn't surprise me that, that if China decided to come to Trump at the end of the year with some kind of new Plaza Accord light in which there is an agreement that CNY remains elevated against the USD, that could be something on the table.
- [14:40]
Ed Elson
Yeah. One of the things you mentioned there in terms of just this massive run up that we've seen in Chinese stocks is AI. On that point, China just released their AI plus plan and some of the statistics from this plan. The plan is for 70% of the country to have adopted AI powered devices and agents by 2027 and by 2030 they want that to be 90%. So my takeaway is they really are leaning heavily into AI. I just wanted to get your read on the AI plan for China. Are those numbers realistic and what is their plan to achieve this?
- [15:25]
Alice Han
Well, what struck me, Ed, on this trip was that everything was about AI. There was a great deal of optimism after deep seq domestically about China's AI capabilities. When I look at the previous, I think two to three years, there was a degree of skepticism about whether or not China could catch up with the us. US was at the forefront of these frontier of lack labs on the quest to AGI. That rhetoric has shifted because China feels more confident about its hardware capabilities on the semiconductor front and because China feels as though there has been a real wind in the sails after deep sea in terms of investment in AI, in terms of government attention to AI and in terms of even foreign interest in China's AI ecosystem. So I think right now they're betting on AI powering everything. I heard from multiple contacts in the business and even policy communities in China that AI was going to be what electricity was in the previous industrial revolution. And this is going to power basically every sector of the economy. It's even going to power governance. So governments are using ever increasingly AI systems and applications. For instance, Deepseek is working, I was hearing, working closely with local governments, even central governments, and using the AI algorithms and LLMs to power public governance. This is going to be the most important issue in the next five year plan that will be announced in October. And I fully believe that AI is going to be at the forefront of China's economic system moving forward. It's a top down, bottom up, I think, approach to the economy. It's going to have benefits, but it's going to have massive drawbacks. What was apparent to me was the fact that, that policymakers are extremely, extremely optimistic and positive about AI. I would say especially at the very, very top and to some of my sources in the policy advisory community in China, there's a lot of apprehension about the impact of automation on jobs. The labor market is still looking pretty weak. Youth unemployment is increasing. There's a risk at which we have to note that automation and AI systems will actually structurally more unemployment moving forward. But that's something that I don't think policymakers are caring about that much because everything is about how great AI is and how it will transform everything.
- [17:59]
Ed Elson
Yeah. If I could sort of summarize my takeaway from this conversation and from what we've been discussing. I mean, from the display of strength and unity with all of those eastern nations and those Southeast Asian nations that we saw at the parade and also at the summit, the alliance with the Prime Minister of India, the trade partnerships that are forming. I mean, for a long time it felt like the Belt and Road initiative was a big problem that everyone was worried about and that it wasn't really working anymore. But it appears to be picking up some steam again. The massive run up that we've seen in the markets, all tech stocks in China massively running up right now, the huge emphasis on AI, the strengthening of the currency against the dollar. In sum, China is back is my read on it. It's been a few years where people said the Chinese system wasn't really working. You had all of these structural issues, you had these real estate problems, you had the issues with the labor market. But my sense is 2025, China is kind of coming back. I'm wondering if you think that is the right characterization.
- [19:15]
Alice Han
I think it is, Ed. I would caveat though that a lot of those structural issues that you mentioned, the real estate debt, demographics, which we haven't talked about, they are still very much entrenched in the system and have not changed. I think the real change is the fact that people can't afford not to invest in China. China is a big is going to be a big incubator and applicator for AI. It continues to be be ever more efficient when it comes to exports. We haven't mentioned this, but what struck me was the fact that in China a lot of the rhetoric is about involution or anti involution, basically another form of Chinese overcapacity that is pushing down cost and effectively meaning that Chinese goods get ever cheaper both in the domestic and foreign markets. So China is becoming even more efficient as an export machine and that has implications obviously globally. But it means that China at a private sector level still remains extremely, extremely I would say important. And I think that investors feel as though that the real top down sentiment has shifted. Xi Jinping and the leadership is understanding of the importance of the private sector and financial markets. And I think that that really police and in the political risk has been really important for since last September for foreign investors especially to come back in, albeit I would say slowly and I think last but not least again, I think that the government is attentive to the fact that households need a place to build wealth. They're not going to do it in the real estate sector because they're unwilling to amp that up again. Where else can they look? And I think that in the short term they're looking rather at end the than boosting wages. For instance, they're looking at the stock market as an answer to this. So I foresee upside. I don't say a huge bull run, but I would say again as mentioned previously, a quiet or a slow bull is well and truly baked in the cake.
- [21:23]
Ed Elson
Alice Han is a China economist and director at Greenmantle. Alice, your first official episode of the new podcast, I believe it airs next Tuesday, is that right?
- [21:33]
Alice Han
Right, Correct. With James King. Very much excited to join the discourse. A lot of exciting things, as we mentioned on this call, that are happening in China.
- [21:42]
Ed Elson
Very, very exciting. You can check that out on the Prof. Gpod Alice, always very insightful. We really appreciate your time.
- [21:50]
Alice Han
Thanks so much Ed. Take care.
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Ed Elson
After the break, a look at the latest revision from the bls. If you're enjoying the show so so far, give Prof. G Markets a follow.
- [22:06]
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- [25:31]
We'Re back with Proftre Markets. The job market may be even weaker than we thought. New data from the Bureau of Labor Statistics showed that between March 2024 and March 2025, the US economy added 911,000 fewer jobs than previously reported. The original number was 1.8 million. Put another way, that means the economy created only half as many jobs as we once thought. Now to be clear, these backward looking revisions are standard practice at the bls. After the initial data is reported, more data comes out, specifically unemployment tax records which they then sift through and then they go back and they revise the initial number. So that is standard here. The part that isn't standard is how big the revision was. In fact, this was the largest revision to the jobs numbers of all time. Now, as expected, we have seen fierce political responses on both sides. Remember, this revision is covering mostly Biden's presidency, but also a couple of months of Trump's presidency. But overall it makes Biden's numbers look not so great. So on the left you have people saying that these revision numbers are made up. They're lying. The BLS is lying to make Biden's final months look bad. And then on the right you have people saying that the original numbers are lying. The BLS was lying about the economy before and now they have to go back and revise those numbers to the real number. Now I want to be clear. These revisions and the size of these revisions are a problem and they are part of a growing trend. We are increasingly seeing larger and larger revisions to the jobs numbers. In fact, this time last year year we saw what was the largest revision to the jobs numbers in over a decade. That is a problem if you can't trust the data when it comes out, if the data is swinging wildly up and down six months later, that basically means your data isn't very good. That's an issue. But to look at that data, to look at that revision, and to immediately default to the BLS is lying, as the President has done countless times. Not only is is that a lazy reaction, it's also a stupid reaction. It actually doesn't make any sense. First off, just think it through logically. If the BLS wanted to lie about the jobs numbers, it would make no sense to lie on the original number and then go back and tell the truth on the revised number. If you wanted to lie about the job numbers, you would just lie on both numbers. You'd lie on the original number and you would lie on the revised number. You'd lie about all of it. So this notion that they are lying and then going back and telling the truth, it's completely ridiculous. It doesn't even make rational sense. And that is also why firing the BLS chief on accusations of lying is so stupid. Now, having said that, but how do we explain why these revisions are getting so big? How do we account for the fact that the reporting from the Bureau of Labor Statistics has clearly gotten worse? Well, there is a boring answer. Two statistics explain all of this. The first statistic since COVID the response rate to the BLS's Current Employment Statistics survey. That is the survey with which they calculate all of this data. The response rate to that survey has fallen nearly 20%. In other words, right now the BLS is working with a fifth less information than they used to. That's the first statistic statistic number two, and arguably the most important one. Over the past two decades, the BLS's budget has fallen more than 20%. In other words, while the economy has gotten larger, more dynamic, and more complex. The agency tasked with measuring that economy has seen its resources dry up. In fact, since the mid-2000s, the BLS's workforce has shrunk by nearly a fifth. So that means you've got fewer people making calls, fewer people upgrading the methodology and upgrading the technology, fewer people following up with the businesses that don't respond to those surveys. Put another way, the reason the BLS's data is getting worse worse isn't because they're lying. It's because they don't have the resources. They don't have the money and the staffing and the technology to do their job properly. It's the same reason why any other organization would underperform now, here's the kicker. The President has made his opinion very clear. He thinks the Bureau of Labor Statistics is lying. And so what is his solution solution to that problem? Well, number one, fire the commissioner. We saw that. But more importantly, number two, cut funding even more. Yes, the 2026 budget is going to cut BLS funding by an additional $56 million and it's going to reduce the workforce by an additional 8%. That is his fix for the agency that is already resource constrained and already struggling to do its job. It's not lying. It's struggling. And this is a playbook we have seen over and over again, and we are seeing it once more. You accuse an American institution of corruption or some form of mismanagement. You then cut their funds, funding and you take their resources. You watch them struggle and you wait for them to inevitably make some sort of mistake. And once they do, you pounce on them for political reasons. You accuse them of corruption again, and you cut their funding again. Rinse and repeat, rinse and repeat. And keep doing that enough times, and eventually you're left with an institution that is so deprived of resources, so bereft of any power, any authority, that you can simply take it over and assume the power yourself. Coincidentally. What is next on the president's BLS agenda? Well, he is installing a guy named E.J. antony as its chief. Who is E.J. antony? Well, this is someone who has said publicly that the election was stolen from Trump. This is someone who has made violent threats against people who stood in Trump's work way. This is someone who called the BLS a random number generator, as our friend Professor Justin wolfers put it. E.J. antoni, as BLS commissioner would be, quote, disastrously terrible. Why? Because he has, quote, demonstrated no commitment to truth. That is the guy who is going to turn the BLS around. So this is how the playbook goes. And we are watching it play out in real time with the nation's top statistical agency. And the worst part about all of this, it's all going according to plan. Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kipp, Kristen o' Donoghue and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Profig Markets from Profg Media. If you liked what you heard, give us a follow. I'm Ed Elson. I'll see you tomorrow.
- [33:44]
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Ed Elson
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