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Brexit, Markets, China Tariffs (Podcast) · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you.
0:05
Speaker 1: Along with my co host Lisa Brahma Wicks. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money. Whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Right now, we gotta turn to
0:22
Speaker 1: what's happening in the United Kingdom, given the fact that
0:24
Speaker 1: Boris Johnson is officially playing a game of chicken with
0:27
Speaker 1: his opponents, saying, if you won't back me, let's hold
0:29
Speaker 1: another election and see what happens. Regardless, October thirty one comes,
0:33
Speaker 1: we are leaving the European Union, joining us now. Terese Raphael,
0:36
Speaker 1: Bloomberg opinion editor covering European politics and economics. She joins
0:41
Speaker 1: us from our London bureau. So Terse, why did Boris
0:44
Speaker 1: Johnson take this gamble to basically UH pose an ultimatum
0:48
Speaker 1: to his even in party opponents. I think the answer
0:52
Speaker 1: to that is very simple. Boris Johnson made a categorical
0:56
Speaker 1: promise to conservatives, to brexiters UH and to leave voters
1:01
Speaker 1: to leave the European Union on October thirty one, do
1:04
Speaker 1: or die, deal or no deal. His prime ministership absolutely
1:09
Speaker 1: rests on him being able to deliver on that promise.
1:11
Speaker 1: He therefore cannot oblige those in Parliament who want him
1:16
Speaker 1: to seek an extension. So if the negotiations that he
1:19
Speaker 1: says are uh proceeding, although the European Union doesn't seem
1:23
Speaker 1: to be very aware that their negotiations going on, um,
1:26
Speaker 1: but if those don't produce an outcome, he has to
1:29
Speaker 1: be prepared to deliver on on on his promise. So um,
1:33
Speaker 1: he has now faced with a opposition and Tory rebel
1:39
Speaker 1: movement to try to force him to ask for an extension.
1:43
Speaker 1: And rather than see that play out or get into
1:46
Speaker 1: the messy business of, you know, say, asking the Queen
1:49
Speaker 1: not to approve the legislation, which would uh you know,
1:52
Speaker 1: throw Britain into an even greater constitutional crisis, it's assumed
1:56
Speaker 1: that he's going to try to trigger an early election,
1:59
Speaker 1: but it's not automatic since he needs Parliament's approval for it.
2:02
Speaker 1: All right, So try's give us kind of a sense
2:04
Speaker 1: of next steps. How did how would this unfold? How
2:06
Speaker 1: does you know a British snap election to actually take place. Right,
2:11
Speaker 1: so the next sort of forty eight seventy two hours
2:13
Speaker 1: are pretty critical. There'll be a vote uh tonight on
2:17
Speaker 1: the bill that to try to force the government to
2:20
Speaker 1: ask for an Article fifty extension. UM. If that goes through,
2:25
Speaker 1: we would expect Boris Johnson to try to trigger a
2:28
Speaker 1: October fourteenth election. Now, then the question becomes what is
2:31
Speaker 1: the Labor Party's response. They the Labor leader Jeremy Corbyn
2:36
Speaker 1: is indicated he doesn't want an election on Johnson's timetable,
2:39
Speaker 1: he may seek to uh to put some kind of
2:42
Speaker 1: condition on it. Uh. So there's going to be a
2:45
Speaker 1: lot of machinations using parliamentary procedures, and we won't know
2:50
Speaker 1: yet whether there'll be a snap election. I mean, not
2:53
Speaker 1: everyone agrees with us, but if there is a snap
2:55
Speaker 1: election before October thirty one, it may lower the probability
2:59
Speaker 1: of an o'deal exit because if we assume that there's
3:02
Speaker 1: sort of a fifty fifty chance of Boris coming back
3:04
Speaker 1: with a majority or a say, remain leaning coalition taking over,
3:10
Speaker 1: then you know, you start to see other options, uh,
3:14
Speaker 1: alternatives to no deal. And I think that's sort of
3:16
Speaker 1: you know why Sterling kind of perked up um after
3:19
Speaker 1: the initial decline on the news of an early election.
3:23
Speaker 1: Theres I want to figure out what the popular feeling
3:27
Speaker 1: is in the United Kingdom if there were to be
3:30
Speaker 1: a snap election. Is the prevailing sentiment that Boris Johnson
3:35
Speaker 1: would win. It really depends on the grounds on which
3:39
Speaker 1: that election is fought. So Theresa May was twenty four
3:42
Speaker 1: points ahead in the polls in twenty seventeen which he
3:44
Speaker 1: fought an election. Turned out that election was fought on
3:47
Speaker 1: turf that the Labor Party said on domestic policies, and
3:50
Speaker 1: she squandered her parliamentary majority. Now, Boris Johnson does not
3:53
Speaker 1: want this election to be about Europe. He wants it
3:56
Speaker 1: to be about Jeremy Corbin, and he wants it to
3:58
Speaker 1: be about the fear that many voters have of corbin Omics,
4:02
Speaker 1: of a socialist UH candidate in office. So he will
4:08
Speaker 1: try to UH talk about all the spending that his
4:11
Speaker 1: government will do, not a typical conservative government. They've opened
4:14
Speaker 1: that they want to open. The spendings biggest. He'll make
4:16
Speaker 1: it about a Corbin prime ministership, and he'll of course
4:20
Speaker 1: promise to deliver Brexit if he succeeds on that, and crucially,
4:24
Speaker 1: if the Brexit Party do not field candidates in the
4:27
Speaker 1: same constituencies, that would cannibalize off the Conservative Party vote
4:30
Speaker 1: that he's got, you know, a pretty good chance according
4:34
Speaker 1: to what polls are telling us right now. What we
4:36
Speaker 1: don't know is whether the remain leading parties, the Labor Party,
4:40
Speaker 1: the Liberal Democrats, the Greens, will strike some kind of
4:43
Speaker 1: a tactical arrangement that will allow them to um, you know,
4:48
Speaker 1: to maximize Ah, the sort of remain vote in elections
4:52
Speaker 1: is very unpredictable. We have four parties that are all
4:55
Speaker 1: polling fairly well. It since you us wondering if you know,
4:58
Speaker 1: if it weren't bar, if it weren't Corbin, who else
5:01
Speaker 1: could the other side put up to perhaps be more
5:04
Speaker 1: of a remain candidate. Well, if you're talking about a
5:07
Speaker 1: sort of national unity candidate, which has been the subject
5:10
Speaker 1: of a lot of discussion here around the question of
5:14
Speaker 1: a no confidence vote, because then the those voting no
5:18
Speaker 1: confidence in the government would need to put forward an alternative. Um.
5:21
Speaker 1: You know that that whole that whole discussion was sort
5:24
Speaker 1: of dead on arrival because Corbin is the opposition leader.
5:26
Speaker 1: Absolutely refuses to countenance another candidate. So I think you know,
5:30
Speaker 1: we're looking at Joe Swinton, the Liberal Democratic leader, who's
5:32
Speaker 1: who's quite popular. Her party has been revived off the
5:35
Speaker 1: back of its very strongly pro remain stance, and so
5:40
Speaker 1: she will be expected her party will be expected to
5:42
Speaker 1: do well in an election. But there's you know, the
5:44
Speaker 1: Corbin is the main opposition leader right now, and that's
5:47
Speaker 1: been a big blessing for Boris Johnson. Yes, it has,
5:49
Speaker 1: tore As Raphael, thank you so much. Tres Rphael, Bloomberg
5:52
Speaker 1: Opinion editor covering European politics and economics, joining us from
5:56
Speaker 1: the London Brewer. You can read more on this and
5:58
Speaker 1: other stories from Bloomberg Opini at Bloomberg dot com, slash
6:02
Speaker 1: Opinion and on the terminal by typing O p I
6:06
Speaker 1: n Go. Tom String Fellow President, Chief Investment Officer Frost
6:20
Speaker 1: Investment Advisors, based in San Antonio, Texas, but joining us
6:23
Speaker 1: here today in our Bloomberg Interactive Broker studio. Tom, thanks
6:26
Speaker 1: so much for making a trip to our studio again.
6:29
Speaker 1: So much volatility in the marketplace, driven in large part
6:33
Speaker 1: by the ebbs and flows of trade talks. How do
6:36
Speaker 1: you position your portfolio. How do you think about kind
6:39
Speaker 1: of your investment process given some of the folatility that
6:41
Speaker 1: we have been seeing. It's a great question. It's something
6:44
Speaker 1: that our clients are asking on a continual basis, and
6:46
Speaker 1: we're certainly hearing it in the the media these days.
6:49
Speaker 1: It's so difficult to, you know, trade in an environment
6:52
Speaker 1: like this because the news, as you said, ebbs and flows,
6:55
Speaker 1: in the volatility ebbs and flows. So when we look
6:58
Speaker 1: at how the markets have done year to date, we're
7:01
Speaker 1: still positive across the board, across every major benchmark in
7:05
Speaker 1: throughoutmost sectors. So we're really cautious on making any extreme
7:10
Speaker 1: moves in this market. But we're always constantly looking for,
7:14
Speaker 1: you know, what is where are the growth opportunities and
7:16
Speaker 1: companies where are's more limited volatility. We want to see
7:20
Speaker 1: earning this visibility, although that's harder and harder to find,
7:24
Speaker 1: and to the extent you can find companies that are
7:26
Speaker 1: actually providing some kind of dividend stream, I think that
7:29
Speaker 1: just adds to the underlying strength sustainability of the companies. So, Tom,
7:35
Speaker 1: what you're talking about more defensive companies, companies that pay dividends,
7:40
Speaker 1: uh companies that are more immune to business cycles are
7:43
Speaker 1: ones that have been favored by a lot of other investors,
7:45
Speaker 1: leading some to say they're getting two pretty high valuations
7:49
Speaker 1: at this point. What do you say to people who say,
7:51
Speaker 1: you know, I just worry those those companies are too expensive.
7:53
Speaker 1: And again that's giving another fair point, and because valuations
7:57
Speaker 1: have certainly come off drough levels, but I wouldn't say
8:00
Speaker 1: that across the board, a lot of these good quality
8:02
Speaker 1: companies are trading at excessive premiums. Uh. If I look
8:06
Speaker 1: at you know, over prior periods, you know, we've come
8:08
Speaker 1: into a market environment where I'd say multiples are sustainable,
8:14
Speaker 1: markets are rational, multiples are rational. We don't see anything
8:18
Speaker 1: that is. Those that are trading excessive premiums, those are
8:21
Speaker 1: ones we do want to shy away from. So if
8:24
Speaker 1: you depend upon how you look at the equity markets SMP,
8:27
Speaker 1: you know, you get glass half full, glass half empty.
8:29
Speaker 1: Whether it's a year to date, you know, good solid
8:31
Speaker 1: dot double digits, but on a trilling twelve month basis
8:33
Speaker 1: kind of flatished down a little bit. What sector has
8:36
Speaker 1: given that kind of odd performance? What sectors are you
8:39
Speaker 1: guys still looking at? Its still maybe offer some opportunities. Well,
8:43
Speaker 1: some of the groups in technology are still positive. You know, again,
8:46
Speaker 1: if we look at software manufacturers, you know, there's a
8:49
Speaker 1: number of good sectors that are interesting sectors. Uh. In
8:53
Speaker 1: the retail consumer discretionary. You know, we've seen some interesting
8:57
Speaker 1: data on Amazon here recently. You know that ten to
9:00
Speaker 1: be one of the go toos for a lot of investors.
9:03
Speaker 1: The question is how long, how sustainable is it over
9:06
Speaker 1: the next several years. I just know that the number
9:08
Speaker 1: of Amazon boxes I get at my house increases daily,
9:11
Speaker 1: So that tells me something. Uh, the sectors that I
9:16
Speaker 1: think tend to be a little more over bought and
9:18
Speaker 1: yet to be really cautious of o those that are
9:20
Speaker 1: more brought bond proxies. You know that falls into the
9:23
Speaker 1: you know, the utilities, real estate. There's still good opportunities,
9:26
Speaker 1: but there should be some warning signs there. So I
9:30
Speaker 1: guess we're talking a lot about US equities. Do you
9:34
Speaker 1: think that US equities will continue to be the outperformer
9:37
Speaker 1: globally near term? I do you know, Europe has you know,
9:40
Speaker 1: some great evaluations. These stays for a lot of obvious reasons.
9:44
Speaker 1: And you know, the one thing that you don't want
9:46
Speaker 1: to do is walk away from the European markets or
9:48
Speaker 1: the international markets. Just look at a long term period
9:51
Speaker 1: and there are several years where those sectors of the
9:54
Speaker 1: market are some of the top performers, and they occur
9:57
Speaker 1: in almost a heartbeat, So you need to stay with
10:00
Speaker 1: a foothold in them. But I don't think it's a
10:02
Speaker 1: focus of all your investimble dollars. Here in the US.
10:05
Speaker 1: We have visible growth here, we have uncertainty geopolitical there.
10:10
Speaker 1: So we got some I s M data that disappointing
10:14
Speaker 1: manufacturing data out today, again arguably putting more pressure on
10:18
Speaker 1: the consumer to continue to carry uh this economy. And
10:21
Speaker 1: again we'll have the jobs report out on Friday. Kind
10:23
Speaker 1: of what is your view of the consumer right here
10:25
Speaker 1: and should we be concerned? And great point. You know,
10:28
Speaker 1: if you looked at Friday, the data from the regional
10:31
Speaker 1: of FED offices was was positive today just went counter
10:35
Speaker 1: the I s M turning negative. You know that is
10:37
Speaker 1: probably one of those factors that the Fed's got to
10:40
Speaker 1: look at him as they're looking at rate cuts. And
10:42
Speaker 1: with that in mind, the consumer hasn't really seemed to care.
10:46
Speaker 1: You know, I'm I'm just amazed at how resilient the
10:49
Speaker 1: confidence surveys are if we can only turn that confidence
10:52
Speaker 1: into actual purchasing power, you know, that may take care
10:55
Speaker 1: of a lot of the ills we have right now.
10:57
Speaker 1: But you know, we've we've seen a bifurcation of the
11:01
Speaker 1: you know, University of Michigan and the consumer confidence. You know,
11:04
Speaker 1: they've they've kind of uh just separated diverted from one
11:08
Speaker 1: another here recently. But overall, i'd say the consumer is
11:11
Speaker 1: still looking at a positive six months twelve months ahead.
11:15
Speaker 1: We've not seen it in the the business sector, though,
11:19
Speaker 1: what are your clients ask you right now? Asset allocation
11:24
Speaker 1: is probably one of the key questions these days, because
11:27
Speaker 1: we've tried to, uh, you know, learn with our clients
11:31
Speaker 1: that you know, picking a particular stock isn't going to
11:34
Speaker 1: necessarily be the key to their success. It's staying invested
11:37
Speaker 1: in the question though, is what are the target investments?
11:40
Speaker 1: And that proverbial how much bonds first as cash? And
11:44
Speaker 1: you know, we'll just say cash would always be that
11:47
Speaker 1: that safety net for investors. Well, fixed income has gotten
11:52
Speaker 1: a little more risky these days as yields have continued
11:55
Speaker 1: to uh to plunge, as dollars are moving into it.
11:59
Speaker 1: I find that so unique in this market the the
12:02
Speaker 1: risk trade is becoming a more risk on trade as
12:06
Speaker 1: investors moving into bonds. We are talking about staying into
12:10
Speaker 1: shorter maturities intermediate to lower duration fixed income. Don't take
12:15
Speaker 1: chances on longer term That speculative. But staying invested in
12:19
Speaker 1: the right sectors in the equity markets, that's key, and
12:23
Speaker 1: having good quality is key. Anything we need to just
12:26
Speaker 1: stay away from here for ten plus years into this cycle. Well,
12:30
Speaker 1: as have read many times, markets don't die of old age,
12:34
Speaker 1: but they die because of an overly aggressive FED heightening
12:38
Speaker 1: or a sector bubble, or that unexplained unforeseen risk. We
12:45
Speaker 1: have an accommodating central bank globally, we have no real
12:48
Speaker 1: sectors that I would consider bubble territory. What we don't
12:51
Speaker 1: know is whether or not trade or the UK, or
12:55
Speaker 1: geopolitical with Russia China becomes that unknown. We know about it,
12:59
Speaker 1: so I'm not so convinced that those are the unknowns
13:01
Speaker 1: that worries today. Tom Stringfellow, thank you so much for
13:04
Speaker 1: being with Thank you. Tom Stringfellows, President and Chief Investment
13:07
Speaker 1: Officer at Frost Investment Advisors, usually based in San Antonio,
13:20
Speaker 1: joining us now Jason Shanker, President of Prestige Economics and
13:23
Speaker 1: a Bloomberg Opinion columnist Jason, I want to get started
13:26
Speaker 1: with why, right, I mean, is this a really a
13:29
Speaker 1: function of people looking around and saying it's unlikely the
13:32
Speaker 1: US and China will come to any kind of trade agreement,
13:35
Speaker 1: or is this people looking around saying the global economy
13:38
Speaker 1: is slowing period the end? Yeah, I think it's both.
13:42
Speaker 1: If you look at what's going on with the p
13:44
Speaker 1: m I data, Uh, not only did we have the
13:47
Speaker 1: U S s M Manufacturing Index contract for the first
13:52
Speaker 1: time in a few years, but we've also had uh,
13:55
Speaker 1: the combined Eurozone manufacturing m I out of China and
14:01
Speaker 1: the U S I s M. We combine those and
14:03
Speaker 1: look at all three together, and they're at the lowest
14:05
Speaker 1: levels right now since December of during European sovereign detet
14:10
Speaker 1: crisis and then after and this is the third consecutive
14:14
Speaker 1: months that the some of those three p m I
14:16
Speaker 1: s is below a break even of one fifty. In
14:18
Speaker 1: other words, of global manufacturing has been contracting for three
14:23
Speaker 1: consecutive months. So, Jason, as you just summarized that, you know,
14:27
Speaker 1: the oil markets really being driven in large part by
14:30
Speaker 1: the slowing demand across the globe. Give us a sense
14:33
Speaker 1: of what the supply situation looks right now. Well, you know,
14:37
Speaker 1: supplies fairly robust. We have the situation with shale barrels
14:42
Speaker 1: that can be brought relatively quickly to market. You know,
14:45
Speaker 1: we've seen OPAC and I think I'll know we've done
14:47
Speaker 1: radio hits when I've gone to OPEC meetings. I'll be
14:48
Speaker 1: at the one this December. You know, they've worked with
14:52
Speaker 1: non OPAQUE members to try to curtel production, but the
14:55
Speaker 1: US has been going into this year, the risk was
14:57
Speaker 1: that we see between you know, one and a half
15:00
Speaker 1: from two million barrels of showe oil per day added
15:02
Speaker 1: to the market. And China is the biggest net marginal
15:05
Speaker 1: consumer of oil and they've been contracting and manufacturing terms
15:10
Speaker 1: in five and the last nine months. So you know,
15:13
Speaker 1: there's the supply situation isn't particularly tight and the demand
15:18
Speaker 1: side is not great. And if the U s summer
15:20
Speaker 1: driving season is over, which also you know here we
15:23
Speaker 1: are coming back from Labor Day weekend. The driving season
15:26
Speaker 1: ended on the night mix in the third week of July.
15:29
Speaker 1: But now it's also physically over, and that means that
15:32
Speaker 1: there was more downside risk oil prices after the driving
15:35
Speaker 1: season ends, because there's this seasonal drop off in what's
15:38
Speaker 1: called shoulder demand. Jason, I've read a number of stories
15:42
Speaker 1: overnight talking about how Hurricane Dorian would affect somehow the
15:47
Speaker 1: demand side of the equation, lowering it in certain regions,
15:51
Speaker 1: certainly in Florida, Etcetera's people hunker down to weather the storm.
15:56
Speaker 1: How much credence is there in that kind of I
15:58
Speaker 1: guess explanation of today's route. I don't think that's a
16:03
Speaker 1: big chunk of that. I mean, the summer driving season
16:06
Speaker 1: is over. You know, if this is fourth of July weekend,
16:08
Speaker 1: we might be having a very different conversation. But you know,
16:11
Speaker 1: we're past labor day. I don't think that's a really
16:14
Speaker 1: big part of it, because I you know, the summer
16:16
Speaker 1: driving seasons over. And furthermore, as I mentioned it, and
16:20
Speaker 1: it ended on the NIMAX on the twenty two, they
16:22
Speaker 1: think of July when the contract rolled to September. Right,
16:25
Speaker 1: we're training October crew. If the prompt month, refiners are
16:29
Speaker 1: not as incentivized to hedge at this time. Uh, and
16:32
Speaker 1: so there's just not as big a bid in the
16:34
Speaker 1: market because the downside risk is already greater because demand
16:38
Speaker 1: is off. So Jason, what's the latest, uh, you know
16:42
Speaker 1: policy or posturing coming out of OPEC these days. Well,
16:47
Speaker 1: you know, I think they're trying to hold together the
16:51
Speaker 1: coalition they have with NANOPEC members and convey the fact
16:55
Speaker 1: that you know, they're they're keeping a tight rain on
16:59
Speaker 1: production to prevent it from getting out of control because
17:02
Speaker 1: when prices really collapsed between what happened was and people
17:08
Speaker 1: talk a lot about shale, but the truth is there
17:10
Speaker 1: was a Traineese manufacturing recession going on at that exact
17:13
Speaker 1: same thing period and that's what drove down not just oil,
17:17
Speaker 1: but rubber, nickelton, led, zinc, iron ore, copper, you name it.
17:22
Speaker 1: All the medals and industrial commodities took hits. And if
17:25
Speaker 1: you look right now, oil isn't just at risk to
17:28
Speaker 1: the downside, but you know, we've seen aluminum, copper, and
17:31
Speaker 1: almost all industrial medals except for nickel and iron ore.
17:33
Speaker 1: And there are a couple of exception reasons for that.
17:35
Speaker 1: Ones in Indonesian expert band On nickel and iron ore
17:37
Speaker 1: had some supply disruption issues earlier in the year. Um
17:41
Speaker 1: that that's going to continue to wait forward. But aside
17:43
Speaker 1: from those exceptions, most industrial medals have been absolutely whacked
17:47
Speaker 1: this year. And that isn't the function of the hurricane.
17:51
Speaker 1: And that's the reason that oil prices are under pressure.
17:53
Speaker 1: It's because the global economy is slowing down quite quickly,
17:57
Speaker 1: just quickly. Here. I'm looking right now at crew traded
17:59
Speaker 1: on the IMAX treating at fifty three and sixteen cents.
18:03
Speaker 1: Where do you think we're going by your end? Well,
18:07
Speaker 1: you know, I think there's there's gonna be some more
18:09
Speaker 1: downside risk from where we are now for w T I.
18:11
Speaker 1: You know, if we lose another five bucks, wouldn't you
18:13
Speaker 1: surprise me? Um? It's going to depend on what happens
18:18
Speaker 1: with the messaging from OPEC in the late in the year.
18:20
Speaker 1: But there there's more downside risk. There's easily I wouldn't
18:24
Speaker 1: be surprised to see a price in dollar range in
18:27
Speaker 1: that time window. Is there anything OPEC could do in
18:29
Speaker 1: the short term? Do you think to impact supplies? You know, honestly,
18:36
Speaker 1: there's a saying in the commodities world, commodities are bought
18:39
Speaker 1: and not sold. And if the buying slows up, and
18:43
Speaker 1: if we see things go back, if trying to remains
18:46
Speaker 1: under the furniture. As we expect the global economy remains
18:49
Speaker 1: under pressure, those kinds of things could uh, you know,
18:52
Speaker 1: continue to land prices. That's really outside of OPEC control.
18:55
Speaker 1: All they can do is try to keep inventories from
18:58
Speaker 1: ballooning so that the the downward bearish price pressure doesn't
19:02
Speaker 1: hang over the next few years the way it did
19:05
Speaker 1: after Jason Schanker, thanks so much for joining us. Jason
19:09
Speaker 1: as the president of Prestige Economics, also the chairman the
19:11
Speaker 1: Futurist Institute and a Bloomberg Opinion contributor based in Austin, Texas.
19:26
Speaker 1: Joining us here in our Bloomberg Interactive Broker Studios is
19:28
Speaker 1: Leland Miller, chief executive Officer of the China Beige Book International.
19:33
Speaker 1: So what actually is going on between the US and China.
19:38
Speaker 1: We had one of the busiest months you can ever imagine,
19:42
Speaker 1: and I think the next month is going to be
19:45
Speaker 1: clawing back some of the damage done over the last
19:48
Speaker 1: four weeks. So if you look back to what happened
19:51
Speaker 1: in the beginning of August, we had the President Trump
19:53
Speaker 1: extend tariffs, if not shooting the gun, then loading, locking
19:58
Speaker 1: and loading the gun for all hundred fifty billion worth
20:01
Speaker 1: of tarriffs on on all five billion of Chinese imports
20:05
Speaker 1: by December. And since then there's been a bit of
20:08
Speaker 1: damage control because they realized that, well, one, you're not
20:12
Speaker 1: gonna have as much leverage if you shoot all those tariffs.
20:14
Speaker 1: And the second thing is the markets didn't like that
20:16
Speaker 1: very much. And and and so you've seen a very
20:18
Speaker 1: negative market reaction, and the White House is trying to
20:21
Speaker 1: come to terms with how do you how do you
20:22
Speaker 1: wage the war on China using tariffs at the same
20:26
Speaker 1: time as you manage expectations on a trade war and
20:28
Speaker 1: and and and hope that you are also encouraging businesses
20:33
Speaker 1: to invest and to produce. And of course you're seeing
20:35
Speaker 1: some of that in the I s M surveys. And
20:36
Speaker 1: so right now the White House is trying to some
20:40
Speaker 1: degree walk back some of the some of the some
20:43
Speaker 1: of the damage done, and they're trying to figure out
20:45
Speaker 1: how to how to make September more productive month. Lean
20:47
Speaker 1: and what is your sense of the likelihood that President
20:51
Speaker 1: Trump has just had enough of this trade thing. He's
20:53
Speaker 1: just going to kick the can down the road and
20:55
Speaker 1: wait till after the election. He kind of suggests it's
20:57
Speaker 1: a little bit of that in this tweets this more ing. Yeah,
21:01
Speaker 1: I think that that that's that was likely, but I
21:03
Speaker 1: think it's even more likely that the Chinese are done
21:04
Speaker 1: with this. So the weird dynamic that has been sort
21:08
Speaker 1: of coming together since June, when there was still the
21:11
Speaker 1: possibility of a trade deal before before election, is that
21:16
Speaker 1: you've seen both sides come to this de facto stalemate
21:19
Speaker 1: and there's lots of ups and downs. I mean, we
21:21
Speaker 1: saw with August just how big the ups and downs
21:24
Speaker 1: could be. But neither side really wants to get to
21:28
Speaker 1: the end of this. There's an incentive to state connected
21:31
Speaker 1: through negotiations and to make sure markets aren't falling off
21:34
Speaker 1: a cliff because they think that the trade wars has
21:37
Speaker 1: gone past the point of no return. At the same time,
21:39
Speaker 1: nobody wants to give up ground, nobody wants to make
21:42
Speaker 1: any any real um concessions, and it looks like both
21:46
Speaker 1: sides no longer have any faith whatsoever in each other.
21:50
Speaker 1: One thing that markets seem to be betting on is
21:52
Speaker 1: that there's a Trump put that if markets sell off enough,
21:55
Speaker 1: President Trump will make nice with China. At what point
22:01
Speaker 1: can President Trump no longer make nice with China even
22:05
Speaker 1: if he wants to He's pretty close to that point.
22:07
Speaker 1: That's why the what happened in August I think was
22:09
Speaker 1: an inflection point for this entire trade war. Before that,
22:12
Speaker 1: you had the possibility that the Chinese things going to
22:16
Speaker 1: have the indirection. You could have more tariffs, you could
22:19
Speaker 1: have the same level of tariffs which were a lot
22:21
Speaker 1: but not an overwhelming amount, or you really could have
22:23
Speaker 1: some sort of deal, small, one, big one, whatever it
22:26
Speaker 1: might be, and pull the tariffs off. And I think
22:28
Speaker 1: markets were attuned to that. You're at the point now
22:31
Speaker 1: where you're almost all in, and it's not that you
22:34
Speaker 1: don't have the possibility of a deal, but the Chinese
22:37
Speaker 1: are very much disincentivized from having any type of deal
22:40
Speaker 1: unless they get everything they want at this point, uh,
22:44
Speaker 1: and those would be politically toxic concessions for the president
22:47
Speaker 1: to then make. So you're getting very close to the
22:50
Speaker 1: point where both sides are locking in for the for
22:52
Speaker 1: the duration. So when these full tariffs on the full
22:57
Speaker 1: billion go into effect, well, let's have a big effect
23:01
Speaker 1: on our economy their economy. Who's more going to feel
23:05
Speaker 1: it more? Do you think it will be more? That?
23:07
Speaker 1: First of all, it's not necessarily so that they're going
23:09
Speaker 1: to go into effect. I mean, you're I think that
23:11
Speaker 1: between now. Here's my guests between now and the end
23:14
Speaker 1: of the year to see tariffs that are announced punted
23:17
Speaker 1: at least once, probably twice. So I wouldn't be surprised
23:20
Speaker 1: to see the October tariffs punted soon as part of
23:24
Speaker 1: a China concession to China to get them to come
23:26
Speaker 1: to a trade meeting. And I wouldn't at all be
23:29
Speaker 1: surprised if the December tariffs are ultimately punted in return
23:31
Speaker 1: for something or other. So I think that's not that's
23:34
Speaker 1: not set in stone yet. But overall, China is China.
23:37
Speaker 1: This will hurt China much more. This is an overwhelming
23:39
Speaker 1: amount of tariffs. It will hurt them more, but they
23:41
Speaker 1: also have more staying power over the long run. From
23:43
Speaker 1: a game theory perspective, would China double down and not
23:49
Speaker 1: give any concessions whatsoever in order to basically tank markets
23:54
Speaker 1: and you know, influence the elections. Yeah, so this is
23:58
Speaker 1: this is where the game theory gets really fun, because
24:00
Speaker 1: that was conspiratorial. No, it's not conspiratorial because I think that,
24:04
Speaker 1: I mean, I'm wondering that is how China potentially is thinking. No, No,
24:09
Speaker 1: it's a weapon in their arsenal. I think what they
24:11
Speaker 1: would like to do at this point is try to
24:14
Speaker 1: step in where possible to make sure things don't get worse.
24:18
Speaker 1: But keep one foot in the door no matter how
24:21
Speaker 1: bad things get, so long as a handful of red
24:24
Speaker 1: lines aren't crossed, like you don't have a true death
24:27
Speaker 1: sentence for Huawei, etcetera. Uh, and and keep their foot
24:30
Speaker 1: in the door. Because while they don't want to be
24:32
Speaker 1: barraged with all these tariffs that are hitting now and
24:35
Speaker 1: we'll be hitting in the future, there's a lot of
24:37
Speaker 1: other things that the US administration could do to make
24:40
Speaker 1: life miserable for China. You could see more attention is
24:43
Speaker 1: Shinjong and Hong Kong sanctions. There, you could see South
24:46
Speaker 1: China Sea rise in importance. You could see greater coordination
24:50
Speaker 1: with Taiwan, whether it's diplomatic visits or another arm sail uh.
24:53
Speaker 1: You could of course see all out barraged by Congress
24:56
Speaker 1: on the Chinese tech companies. Both sides are itching to
24:58
Speaker 1: do that. So China's and is weird place where they
25:01
Speaker 1: don't want to do anything, but they also don't want
25:02
Speaker 1: to completely remove themselves from the board because then things
25:05
Speaker 1: will get worse. So this is where you get the stalement.
25:08
Speaker 1: Where does how does Hong Kong fit into this? This
25:10
Speaker 1: does not see anything going away for the Chinese. Well,
25:13
Speaker 1: it's a horrible headache for she, it's a it's obviously
25:15
Speaker 1: a tragedy for for for the people of Hong Kong
25:18
Speaker 1: and the world. I mean, Hong Kong is being changed
25:21
Speaker 1: in front of our eyes for forever. Uh. This is
25:24
Speaker 1: not going to go back the other way. And I
25:25
Speaker 1: think that the timing of this is uncertain, but there's
25:28
Speaker 1: there's really no way for there to be any other
25:31
Speaker 1: resolution than one that involves force. Um. The Chinese side, now,
25:36
Speaker 1: that doesn't mean they're gonna have the images that they
25:38
Speaker 1: had in a Channaman like crackdown that Hong Kong doesn't
25:42
Speaker 1: look that way, and the Chinese are much more experience now.
25:45
Speaker 1: So you'll see riot police step in, maybe they're in
25:48
Speaker 1: Hong Kong policeman's uniform or not. Uh and and and
25:51
Speaker 1: ultimately they will step in and restore order. Um. So
25:54
Speaker 1: it will be a very different type of tragedy than
25:57
Speaker 1: what we saw in the past. But it's it's sad. Nonetheless,
26:00
Speaker 1: I don't see how it can be avoided. Just to
26:01
Speaker 1: sort of tie everything together, I want to just get
26:05
Speaker 1: a gut check on the Chinese economy, since this is
26:08
Speaker 1: what you track so well, where are we in terms
26:10
Speaker 1: of how much the growth is slowing there? Yeah, we
26:12
Speaker 1: just got some some new flashed out a few days ago.
26:15
Speaker 1: Uh and um, you know we're we don't report all
26:19
Speaker 1: of this publicly, but we can't say that it doesn't
26:22
Speaker 1: look good. And you know we have we have not
26:24
Speaker 1: been on the pessimist train for in fact, we were
26:28
Speaker 1: some of the people who were loudest and saying, look
26:30
Speaker 1: this this narrative that the economy has falling apart, it's nonsense.
26:33
Speaker 1: There's a lot more policy support underneath the service, particularly
26:36
Speaker 1: in Q two, that has kept the economy from falling apart. Well.
26:39
Speaker 1: Q three is feeling some serious strains and and and
26:41
Speaker 1: manufacturers in particular are. So this is gonna be something
26:43
Speaker 1: to watch next month. Next month when we announced our
26:46
Speaker 1: full third quarter set of data, and we'll have you
26:49
Speaker 1: back to discuss it. Clearly, there's no one better to
26:51
Speaker 1: talk China and China economics, UH and China trade than
26:54
Speaker 1: Leland Miller, CEO of the China Bag Book International. Joining
26:58
Speaker 1: us live here in our Bloomberg Interactive of Brokers Studio.
27:01
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
27:04
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm
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Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm
27:12
Speaker 1: on Twitter at Lisa Abram Woyds. One Before the podcast,
27:15
Speaker 1: you can always catch us worldwide on'm Bloomberg Radio