WE HAD AN EXTENSIVE CONVERSATION ABOUT THE INTEREST RATE OUTLOOK AND HOW THAT FACTORS BUT WHY IS THE CHINA SITUATION SO FAR REMOVED ACROSS THE PACIFIC BUT ALBEIT IN THE WORLD'S SECOND BIGGEST ECONOMY, HOW COULD IT HAVE THAT MANY RIPPLE EFFECTS THAT IT WOULD REALLY BE SOMETHING TO WORRY ABOUT HERE >> THANKS, DOM YOU ALWAYS WANT TO LOOK AT WHAT THE MARKET IS FOCUSED ON, AND SEE IS THE MARKET NOT FOCUSED ON SOMETHING IMPORTANT. RIGHT NOW, THE MARKET IS VERY FOCUSED ON INTEREST RATES AND THE TIMING WE WOULD ARGUE THAT FIVE YEARS FROM NOW, IT'S NOT GOING TO MAKE MUCH DIFFERENCE WHETHER WE GET A CUT IN RATES IN MARCH OR JULY OR EVEN AUGUST. WE THINK WE ARE GOING TO GET CUTS, SO THE MARKET IS TOO FOCUSED ON THAT TOPIC. THE TOPIC IT'S NOT FOCUSED ENOUGH ON IS CHINA AND CHINA, THE GROWTH OF CHINA OVER THE LAST 20 YEARS WAS FUELED BY CONSTRUCTION, MUCH OF IT RESIDENTIAL CONSTRUCTION. AND THE MARKET DOES UNDERSTAND THAT THERE IS A PROBLEM, BUT IT DOESN'T UNDERSTAND THE SIZE OF THIS PROBLEM THIS IS THE SECOND LARGEST ECONOMY IN THE WORLD, WHOSE GROWTH WAS FUELED BY CONSTRUCTING APARTMENT BUILDINGS. MANY OF THOSE APARTMENT BUILDINGS WERE USED AS INVESTMENT VEHICLES. THEY ARE NOT OCCUPIED. AND THEY WERE TRADING AT MULTIPLES OF RENT WAY OUT OF LINE WITH THE REST OF THE WORLD. SO WE HAVE THIS BUBBLE THAT IS NOT SIMPLE TO FIX. IN THE U.S., YOU HAD -- IN 2007 AND 2008, THE GOVERNMENT CAME IN, BAILED OUT COUNTRYWIDE VIA MERGERS, MANY OF THE LARGEST PROVIDERS OF MORTGAGE DEBT WERE BAILED OUT BY THE U.S. GOVERNMENT. THAT CANNOT HAPPEN IN CHINA, BECAUSE SO MUCH OF THIS IS OWNED BY THE POPULATION, WHICH IS USED APARTMENT BUILDINGS. SO WE NOW HAVE PEOPLE WITH MASSIVE LOSSES THAT THEY HAVE NOT TAKEN ON THEIR NET WORTH, AND THAT IS GOING TO HAVE A BIG IMPACT ON CHINA. FRANKLY, WE THINK FOR THE NEXT FIVE TO EIGHT YEARS. THIS IS NOT A PROBLEM THAT WILL BE FIXED IN ONE YEAR. LAST POINT IS, THIS IS GOING TO AFFECT US BECAUSE CHINA PURCHASES A LOT OF RAW MATERIALS FOR THAT CONSTRUCTION BOOM. COPPER THE OBVIOUS EXAMPLE. STEEL, HOWEVER, IS GOING TO BE AFFECTED BY THIS. I HAPPEN TO PERSONALLY THINK IT'S NOT GOING TO HAVE AS MUCH IMPACT ON OIL, BECAUSE OIL IS NOT USED IN THE CONSTRUCTION PROCESS. BUT MANY COMMODITIES ARE GOING TO BE HIT, AND THAT IS NOT GETTING THE ATTENTION WE THINK IT DESERVES. >> THEY BUY A WHOLE HECK OF A LOT OF TREASURY DEBT, TOO. YOU MENTIONED SOME OF THE COMMODITIES, RAW MATERIALS, INDUSTRIES THAT COULD BE ON THE FRONTLINES OF ANY KIND OF DECLINE HERE. HOW BAD COULD IT BE? IN YOUR MIND, I'M NOT ASKING -- I KNOW THERE'S NOT A CRYSTAL BALL PER SE, BUT WHEN YOU HAVE A PROBLEM LIKE COUNTRY GARDEN IN CHINA, WHAT DOES THAT DO, DOES THAT LEAD TO A 5% TO 10% IN THE U.S. MARKETS, OR ARE WE GOING TO SEE SOMETHING LIKE WE SAW TWO TO THREE YEARS AGO WHEN THINGS GO BAD FOR THE TECH SECTOR ESPECIALLY? >> YEAH, IT IS HARD TO PUT A NUMBER HERE. I WOULD SAY THE GOOD NEWS IS THAT MUCH OF THE COMMODITY INFLATION THAT WE GOT TWO OR THREE YEARS AGO AT THE BEGINNING OF THE INFLATION NUMBERS HAS ALREADY COME OUT OF MANY OF THESE INDUSTRIAL MATERIALS. SO IT IS HARD TO PUT A NUMBER ON, BUT I DO THINK YOU CAN BE THINKING ABOUT DECLINES OF 10% TO 25% IN SOME OF THE MORE SENSITIVE NAMES THAT ARE SENSITIVE TO CONSTRUCTION. AND THEN, AGAIN, DECLINE IN GROWTH IN THE OVERALL ECONOMY IN CHINA, WHICH HAS BEEN SO IMPORTANT TO GLOBAL GROWTH. PARTICULARLY, FRANKLY TO THE ASIAN ECONOMY. IT'S JUST GOING TO BE LESS THAN IT HAS BEEN FOR THE LAST TEN YEARS. THE LAST POINT TO MAKE ON THIS IS THE DEMOGRAPHIC TRENDS ARE ABSOLUTELY TERRIBLE. THOSE ARE STARTING TO BE UNDERSTOOD THAT WE ARE NOT GOING TO HAVE GROWTH IN CHINA'
