WEBVTT - Surveillance: Recession Likely Within Year, Misra Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.920 Bloomberg dot Com, and of course on the Bloomberg. In 0:00:34.000 --> 0:00:36.480 bond markets, very much front and center here is yields 0:00:36.520 --> 0:00:40.120 plunge to record lows, particularly in the longer term debt world. 0:00:40.159 --> 0:00:43.919 You see both the US and Germany reaching those all 0:00:44.000 --> 0:00:46.479 time lows. So there is one person for us to 0:00:46.479 --> 0:00:49.519 speak with when it comes to bond yields. Priumistress, she 0:00:49.600 --> 0:00:52.320 has ice in her veins. She's just you know, she's 0:00:52.360 --> 0:00:56.000 just cool, common collected. Priamizra absolutely is cool, common collected. 0:00:56.040 --> 0:00:57.960 So I want to get a cool, common collected view 0:00:57.960 --> 0:01:00.320 of what's going on. Priamira TV Secure is head of 0:01:00.320 --> 0:01:03.240 Global rate Strategy. Prey love having you on today on 0:01:03.440 --> 0:01:07.720 this bond focused morning. How would you frame what we're 0:01:07.760 --> 0:01:12.160 seeing today in bond markets? Chearn, Thanks for having me on. 0:01:12.520 --> 0:01:14.880 A little hard to be cool and connected when all 0:01:15.000 --> 0:01:18.399 of my EE curve signals are suggesting a recession is 0:01:18.480 --> 0:01:21.360 very likely a greater than fifty percent chance in the 0:01:21.400 --> 0:01:23.440 next fwelve months. But you know, really it's been a 0:01:23.440 --> 0:01:27.040 perfect storm for the treasury market. You've had global growth 0:01:27.160 --> 0:01:30.760 being weak and that's brought global bond deals lower, so 0:01:30.800 --> 0:01:33.920 there is this duration gap grab. But I think we 0:01:34.000 --> 0:01:36.320 have to look at you know, the underlying data, and 0:01:36.360 --> 0:01:39.520 manufacturing in the US looks very weak. We've been off 0:01:39.520 --> 0:01:43.080 the camp that if manufacturing is this week, US business 0:01:43.120 --> 0:01:46.120 investment is weak, it is going to filter through into 0:01:46.520 --> 0:01:49.440 the non manufactor or the services sector. And so we've 0:01:49.440 --> 0:01:52.120 been actually pretty nervous about growth. So you had this 0:01:52.240 --> 0:01:54.480 I think filtering through as the U S data is 0:01:54.520 --> 0:01:57.960 looking a little not great um and you know, services 0:01:58.040 --> 0:02:00.400 looking okay, but it is a lagging indicator. And then 0:02:00.400 --> 0:02:02.400 I have to add the Fed. I think the Fed 0:02:02.480 --> 0:02:05.840 continuing to call this a mid cycle adjustment, that's a 0:02:05.880 --> 0:02:07.840 problem for the market. I mean, when were the last 0:02:07.840 --> 0:02:10.560 time the Fed East race, which they did two weeks ago, 0:02:11.080 --> 0:02:13.440 and the yield curve continue to flatten. So the bond 0:02:13.480 --> 0:02:15.600 market is telling you that the Feds behind the curve 0:02:15.919 --> 0:02:18.240 and really needs to do more than a mid cycle adjustment. 0:02:18.480 --> 0:02:20.400 So this is the word of the day, and that 0:02:20.480 --> 0:02:22.560 is recession. Everyone is looking at what's going on in 0:02:22.600 --> 0:02:26.120 bond markets. They're saying recession. When when are we going 0:02:26.160 --> 0:02:29.800 to see recession? Right? That's it's really in all the question. 0:02:29.880 --> 0:02:32.040 So you know, we've got many models for recessions. If 0:02:32.080 --> 0:02:35.480 you look at any econometric model looking at US data, 0:02:35.880 --> 0:02:38.880 it actually does not signal a recession any time in 0:02:38.880 --> 0:02:41.840 the new future. The problem is it is backward looking 0:02:41.919 --> 0:02:44.280 data and we are in unprecedented times. I mean, for 0:02:44.320 --> 0:02:46.840 the global economy to be this week and for the 0:02:46.880 --> 0:02:49.720 trade headwinds to be this week, I'm putting lower weight 0:02:49.960 --> 0:02:53.040 in the econometric models. Then I look at the yield curve. 0:02:53.080 --> 0:02:55.919 The yelk curve tends to it's a wide range. But 0:02:56.040 --> 0:02:58.320 when the two stents curve in birds or after the 0:02:58.360 --> 0:03:01.000 three Montenian birds, which has been go to since March, 0:03:01.520 --> 0:03:04.280 it could be anywhere from six months to eighteen months. 0:03:04.280 --> 0:03:07.600 So it's a wide range. We're thinking somewhere in the 0:03:07.680 --> 0:03:11.160 nine to twelve months. Were how closer way to an 0:03:11.200 --> 0:03:13.800 emergency meeting? I mean there's any number of ways looking 0:03:13.840 --> 0:03:15.480 this pre I know you're not going to talk about 0:03:15.480 --> 0:03:18.320 another bank. Deutsche Bank is broken down from a six 0:03:18.440 --> 0:03:22.960 fourteen to a six point one zero euro equity share 0:03:23.080 --> 0:03:26.400 a five ninety nine on uh Deutsche Bank pre I 0:03:26.440 --> 0:03:30.600 would guess, is really not good. Commerce bank record low, etcetera, etcetera. 0:03:30.919 --> 0:03:34.040 What's it taken your study of history in the bond 0:03:34.080 --> 0:03:39.800 market to make a central bank move intra meeting. Normally 0:03:39.840 --> 0:03:43.360 you need significant tightening and financial conditions, so we've seen 0:03:43.400 --> 0:03:47.480 this for example, UM, after a t c M was impacted. 0:03:47.800 --> 0:03:50.640 I would also say, you need a US shock, so 0:03:50.800 --> 0:03:54.080 Lehman goes down and they do come in right away. 0:03:54.320 --> 0:03:56.840 I mean, if you look at broader financial conditions, and 0:03:56.880 --> 0:03:58.920 again I'm on the road, but I don't think we're 0:03:58.960 --> 0:04:00.960 down more than four percent on the S and P 0:04:01.120 --> 0:04:04.440 from the high. So financial conditions have not tightened enough. 0:04:04.840 --> 0:04:06.920 And so I think the FED is going to say, look, 0:04:06.960 --> 0:04:11.040 we'll do what we can, and as the leader UM 0:04:11.120 --> 0:04:14.040 you know, comes in, we will respond. But any emergency 0:04:14.120 --> 0:04:18.040 move I think needs the SMP down from here. Okay, 0:04:18.040 --> 0:04:21.200 well there's a statistic, folks from I'm just suggesting, Lisa, 0:04:21.520 --> 0:04:24.360 the immediacy that you and I see on our Bloomberg 0:04:24.400 --> 0:04:27.840 screen is extraordinary for any given August. And then there's 0:04:27.880 --> 0:04:30.640 a question pre Amster saying that the US manner session 0:04:30.720 --> 0:04:34.400 the next nine to twelve months, based on your analysis 0:04:34.440 --> 0:04:37.080 of it, Can the FED stop that? If the FED 0:04:37.160 --> 0:04:39.640 came out and said we're holding an emergency meeting and 0:04:39.640 --> 0:04:43.919 we're cutting rates by seventy five basis points, that's a 0:04:43.960 --> 0:04:46.200 great question. It's one of the reasons we've been looking 0:04:46.240 --> 0:04:48.520 for cuts next year as well. I mean, we have 0:04:48.560 --> 0:04:51.520 seventy five basis points pencils in for this year in 0:04:51.640 --> 0:04:53.919 terms of FED cuts, and then another seventy five. And 0:04:53.920 --> 0:04:55.880 this is where I've been getting pushed back. And my 0:04:55.960 --> 0:04:59.440 point has been, look, what can frederate cuts do? I mean, 0:04:59.480 --> 0:05:02.200 can can they boost up housing? At this point? Is 0:05:02.200 --> 0:05:06.400 the problem with global growth and UM business investment being 0:05:06.400 --> 0:05:09.760 weak due to trade uncertainty. I don't think some race 0:05:09.800 --> 0:05:11.920 cuts actually work, which is why the FED, I think, 0:05:11.920 --> 0:05:14.520 will be forced to cut a lot more. Right now, 0:05:14.600 --> 0:05:17.200 the thirty year yields at two point oh one seven 0:05:17.320 --> 0:05:20.840 three percent, the lowest on record. How long that wait? 0:05:20.880 --> 0:05:24.440 We're now on a watch I mean with the gamma 0:05:24.520 --> 0:05:27.320 that we've got to to Lisa, I mean continue, but 0:05:27.400 --> 0:05:31.320 we're on at the third year, Bun. It is a watch. 0:05:31.440 --> 0:05:34.800 Morning here in the surveillance studio is how long can 0:05:34.839 --> 0:05:38.000 we go here. It's very hard to put a number 0:05:38.000 --> 0:05:40.160 on it. I would say right now, the longing is 0:05:40.200 --> 0:05:43.359 the only place that hedges you against risk asses. So 0:05:43.480 --> 0:05:45.719 given by risk asses are right now, we're not that 0:05:45.839 --> 0:05:48.240 low from We're not even you know, ten percent down 0:05:48.279 --> 0:05:50.520 from the high, I think that the long end has 0:05:50.560 --> 0:05:53.080 a lot more room to decline. Now if stocks are 0:05:53.080 --> 0:05:56.560 significantly lower, then you expect an emergency move you know, 0:05:56.640 --> 0:05:58.960 that can provide some sort of a floor on on 0:05:59.080 --> 0:06:01.000 thirty a years. The other thing I would point to 0:06:01.080 --> 0:06:03.400 is look at global rate. You look at by German 0:06:03.560 --> 0:06:05.440 thirty year is so I think a lot of what 0:06:05.560 --> 0:06:09.040 people thought that it can't go much lower. All those 0:06:09.240 --> 0:06:12.279 um you know, theories have been thrown out the window 0:06:12.480 --> 0:06:14.839 with the boon mom. So I think it's got a 0:06:14.839 --> 0:06:17.039 lot more room because it is the only safe haven. 0:06:17.120 --> 0:06:19.000 I think people have who have been hiding out in 0:06:19.080 --> 0:06:22.000 bills because they're giving you a higher yield. We'll need 0:06:22.080 --> 0:06:24.320 to move out. The COLT learned your speed data check 0:06:24.400 --> 0:06:27.640 right now futures to tier eight negative futures negative three 0:06:27.680 --> 0:06:31.760 eight four the fixed two point eight zero points twenty 0:06:32.120 --> 0:06:34.479 point three to the yield from the thirty year to 0:06:34.680 --> 0:06:39.120 zero two ten year one fifty seven in a huge 0:06:39.240 --> 0:06:44.320 thirteen basis points within version the two stones one. What's 0:06:44.320 --> 0:06:46.200 the playbook here? Is it just a by duration to 0:06:46.279 --> 0:06:48.960 buy thirty year bonds across the board as much as 0:06:48.960 --> 0:06:53.800 you possibly can and yield flattners. Yes, I think the 0:06:53.839 --> 0:06:56.760 yelk of steepening trade is behind us. We really need 0:06:56.760 --> 0:06:58.640 the FRET to come out and say that they're willing 0:06:58.680 --> 0:07:00.680 to go all the way to zero and that this 0:07:00.760 --> 0:07:04.840 could be the start of a lengthy easing cycle for 0:07:05.000 --> 0:07:06.919 that front end to move. So it is about the 0:07:06.960 --> 0:07:10.400 long This is really improtaned, don't mean to interrupt it. 0:07:10.440 --> 0:07:13.800 This is really, really, really really important the FEDS to 0:07:13.800 --> 0:07:16.680 go to zero. Do they need to wait for single 0:07:16.760 --> 0:07:21.080 digit one percent or subone percent g d P or 0:07:21.120 --> 0:07:25.400 can they affect that policy given a better trailing g 0:07:25.520 --> 0:07:29.520 d P? Right, and now the FED has been creative. 0:07:29.560 --> 0:07:31.800 I have to say earlier this year, the FED came 0:07:31.800 --> 0:07:33.440 out and said, you know, when we're close to the 0:07:33.520 --> 0:07:36.480 video abound, we should be preemptive. And that's when they 0:07:36.480 --> 0:07:38.520 that's one of the reasons why they east two weeks ago. 0:07:38.880 --> 0:07:40.800 Now they need to come out and say, you know, 0:07:40.880 --> 0:07:43.440 we've been pitching this and selling this as insurance stuffs 0:07:43.440 --> 0:07:46.280 in mid cycle adjustments, we should be willing to go 0:07:46.440 --> 0:07:49.520 more a lot of focus on Jackson Hole. I don't 0:07:49.560 --> 0:07:51.760 think this is the place where they give that signals. 0:07:51.920 --> 0:07:54.280 But you know, if SMB is down ten percent fifteen 0:07:54.280 --> 0:07:56.920 percent between now and Jackson Hole in a week, I 0:07:56.960 --> 0:07:59.240 wonder if we get that message from the FED, are 0:07:59.240 --> 0:08:02.320 they willing to do That's? Where are you, Lisa? Are 0:08:02.320 --> 0:08:05.280 you going to Jackson Hole? Are you sending me you 0:08:05.320 --> 0:08:09.840 should go? I mean it's really cool. Pria, thank you, 0:08:10.120 --> 0:08:25.400 this has been wonderful. Pria miser TV securities. Lisa, why 0:08:25.400 --> 0:08:28.480 don't you bring in miss Calvacina, whom I think was 0:08:28.560 --> 0:08:32.840 medicated to get through this this morning with futures negative. Calvasina, 0:08:32.880 --> 0:08:34.960 I'm so glad you're able to join us, because really 0:08:35.200 --> 0:08:38.559 the key question this morning is our US equities to 0:08:38.760 --> 0:08:42.240 sanguine about the backdrop here. Laurie Calvacina is head of 0:08:42.320 --> 0:08:45.520 US equity strategy at RBC Capital Market. So, Laurie, are 0:08:45.559 --> 0:08:51.160 you expecting equities to turn a little bit lower here? Hi? Lisa, 0:08:51.240 --> 0:08:53.280 Hi Tom, thanks for having me on UM. At least 0:08:53.360 --> 0:08:55.720 I think the answer to your question is yes, Um, 0:08:55.800 --> 0:08:57.760 we we really do feel like we're we're kind of 0:08:57.760 --> 0:08:59.440 where we deserve to be at your end, but in 0:08:59.520 --> 0:09:01.600 the inter and we think there's more pain to come 0:09:01.960 --> 0:09:03.679 in the market. And I think, you know, even if 0:09:03.720 --> 0:09:06.280 you just look back at how markets have traded off 0:09:06.280 --> 0:09:10.840 big recovery lows, you know, twenty uh you know, sort 0:09:10.880 --> 0:09:13.080 of background the nine eleven lows, we do tend to 0:09:13.120 --> 0:09:15.760 have these periods of consolidation, so just at a minimum, 0:09:15.880 --> 0:09:18.960 we've been due for one of those. Um. But but 0:09:19.080 --> 0:09:22.320 I do think that yesterday's trading action was really puzzling. 0:09:22.400 --> 0:09:26.120 I don't think the announcement from the Trump administration on 0:09:26.240 --> 0:09:29.400 Delane sum and I stress some of these parists to December. 0:09:29.840 --> 0:09:32.720 I think it was maybe not quite much ado about nothing, 0:09:32.760 --> 0:09:34.880 but much to do about a little Well, Laurie that 0:09:34.960 --> 0:09:38.079 the rais is a really important question. Who's trading? Who's 0:09:38.120 --> 0:09:41.280 trading on these headlines? It's not our clients. I mean 0:09:41.280 --> 0:09:44.040 we we we heard actually that people in particular on 0:09:44.080 --> 0:09:45.839 the retail stocks are a little bit better to sell 0:09:45.920 --> 0:09:48.800 into the end of yesterday. UM. I do know that 0:09:48.840 --> 0:09:51.240 I talked to a lot of clients who are really 0:09:51.280 --> 0:09:53.640 just kind of pulling things in, going neutral on their 0:09:53.679 --> 0:09:56.520 sector beds still trying to look for individual names that 0:09:56.559 --> 0:09:58.720 they like. But I do think there is just a 0:09:58.760 --> 0:10:02.040 tremendous amount of straation on how to deal with these tweets. Laura, 0:10:02.120 --> 0:10:04.920 let me cut to the chase and Brahma's demands that 0:10:04.960 --> 0:10:09.400 I do Fibonacci's today from the President's announcement yesterday. Let's 0:10:09.440 --> 0:10:13.480 call it the capitulation of the partial caven whatever we 0:10:13.520 --> 0:10:17.600 went on futures. This is SPX up a lot, and 0:10:17.640 --> 0:10:20.719 we've now brought in well over eighty percent of that. 0:10:20.800 --> 0:10:25.840 We've retraced eighty percent of that good news green on 0:10:25.880 --> 0:10:29.719 the screen yesterday. Laurie, what is the significance if we 0:10:29.840 --> 0:10:36.160 break through the low seeing yesterday at five am. I 0:10:36.200 --> 0:10:37.840 think it, I think it is. I think it is 0:10:37.960 --> 0:10:40.079 very significant. I think the reason why we sort of 0:10:40.080 --> 0:10:42.480 had a nice pop and then didn't really do much 0:10:42.559 --> 0:10:44.840 yesterday is that there's there's not really that much to 0:10:44.880 --> 0:10:46.840 do on this news. I think what we've done is 0:10:46.920 --> 0:10:50.120 shore up earnings expectations a little bit for the second 0:10:50.120 --> 0:10:52.960 half of the year. Um. But really the core issue 0:10:52.960 --> 0:10:55.840 with this trade war is how it is affecting business confidence, 0:10:55.880 --> 0:10:59.680 how that is affecting CAFEX how that is affecting hiring. Ultimately, 0:10:59.800 --> 0:11:02.440 if hiring is effect that that will affect the consumer 0:11:02.480 --> 0:11:04.920 regardless of what they're doing with these terraffs and and 0:11:04.960 --> 0:11:09.200 business constance. Nothing was done yesterday. Okay, we'll give us 0:11:09.200 --> 0:11:10.920 an update. I mean, I know you're not in speaking 0:11:11.040 --> 0:11:13.960 terms of Tom Percelly, but what is your run rate 0:11:14.080 --> 0:11:17.239 g DP that you're working with as an equity strategist. 0:11:18.000 --> 0:11:21.040 So what we did is we actually for our twenty 0:11:21.080 --> 0:11:24.720 earnings growth expectation, we decided to be very conservative and 0:11:25.080 --> 0:11:28.679 we plugged in one point eight per cent in real terms. 0:11:28.679 --> 0:11:30.320 And that's basically if you if you pull it up 0:11:30.320 --> 0:11:32.800 on the Bloomberg terminal, that's basically where the cell side 0:11:32.800 --> 0:11:36.280 consensus is for next year's GDP. So we're factoring in 0:11:36.320 --> 0:11:40.160 a sluggish earnings are sluggish growth environment. It's a sluggish 0:11:40.200 --> 0:11:43.960 revenue backdrops for earnings. Now, the significance of that is 0:11:44.200 --> 0:11:48.320 number one, it brings in our earnings growth assumption to 0:11:48.320 --> 0:11:50.679 about five percent. That's about half of what the cell 0:11:50.800 --> 0:11:53.840 side bottom up consensus is anticipating. Street numbers are running 0:11:53.880 --> 0:11:56.120 at ten percent on earnings growth. We think they need 0:11:56.160 --> 0:11:58.520 to be cut in half. If that GDP number is right. 0:11:58.880 --> 0:12:00.640 The other thing you have to con sitter is that 0:12:00.760 --> 0:12:04.920 sluggish GDP and something like one slightly below two percent. 0:12:05.320 --> 0:12:09.240 It is historically a very consistent trouble spot for equity markets. 0:12:09.240 --> 0:12:11.560 About two thirds of the time markets have been flat 0:12:11.679 --> 0:12:14.320 or down if you've had GDP in that one to 0:12:14.360 --> 0:12:20.760 two type range. Laurie, thank you so much, so really good, 0:12:20.800 --> 0:12:34.720 I mean really good update. This is the interview of 0:12:34.720 --> 0:12:37.280 the day for all of you of Global Wall Street 0:12:38.080 --> 0:12:41.200 on China. And I don't mean Hong Kong, but I 0:12:41.240 --> 0:12:43.880 mean the border. I'm as guilty as anyone. I've been 0:12:43.920 --> 0:12:46.959 honored to speak to Dr Roach of Yale University about this. 0:12:47.559 --> 0:12:50.040 If I say I went to China, I land at 0:12:50.040 --> 0:12:53.000 the airport, I always get in some big fancy Mercedes 0:12:53.040 --> 0:12:55.760 that can't afford. They take me to the Mandarin Hotel. 0:12:56.200 --> 0:12:58.800 I wanted the office to see von Man. Then I 0:12:58.840 --> 0:13:00.360 go back to the hotel. Then I get back in 0:13:00.400 --> 0:13:02.800 the Mercedes and go back to the hotel and go 0:13:02.880 --> 0:13:05.200 back to the airport and say I've been to China. 0:13:05.559 --> 0:13:08.840 George Friedman has been to China. He's the geopolitical futures 0:13:08.840 --> 0:13:11.680 and we're honored to have him on today, George, you 0:13:11.760 --> 0:13:15.480 are riveted on the dynamics of President G and the 0:13:15.559 --> 0:13:19.480 modern experiment that is the Communist Party. Where does he 0:13:19.600 --> 0:13:23.320 want to lead them? Well, the first thing he wants 0:13:23.320 --> 0:13:26.560 to do is hold country together. Two thousand eight was 0:13:26.720 --> 0:13:30.959 a rattling experience. China is an export addict, and as 0:13:31.000 --> 0:13:34.000 customers stopped buying, or at least not buying as much 0:13:34.040 --> 0:13:37.240 as they did. The country is divided between the part 0:13:37.320 --> 0:13:41.720 you visit, the coastal region, which going through there you 0:13:41.760 --> 0:13:46.000 can think you're anywhere Western country, and the interior, which 0:13:46.080 --> 0:13:50.360 is enormously poor. That's where maud Say Tongue went to 0:13:50.480 --> 0:13:53.120 raise his army to come back to the coast and 0:13:53.240 --> 0:13:56.640 clear them out. So the real question here is can 0:13:56.760 --> 0:14:00.440 g hold a country together? He's a dictator and they 0:14:00.480 --> 0:14:03.360 didn't elect a dictator to put a dictator in charge? Again, 0:14:03.440 --> 0:14:07.120 will its power because we're feeling comfortable. They did it 0:14:07.200 --> 0:14:11.640 because they were worried. They're worried, and within it is 0:14:11.840 --> 0:14:15.439 the Hong Kong Henry Olsen in the Washington Post talking 0:14:15.440 --> 0:14:18.520 of the protesters wanting to develop a third Chinese at 0:14:18.600 --> 0:14:22.680 Hong Kong, Chinese off the Han and Mandarin experience. How 0:14:22.680 --> 0:14:25.640 does President She see that? How does he see the 0:14:25.800 --> 0:14:30.200 culture of China that folds into the military power in 0:14:30.240 --> 0:14:36.560 the sense of dictatorship. The People's Liberation Army has always 0:14:36.600 --> 0:14:40.120 been a domestic group. A flaught in Korea didn't do well, 0:14:40.760 --> 0:14:44.840 but the People's Liberation Army is a domestic security organization. 0:14:45.280 --> 0:14:48.040 It is to guarantee that the Communist Party will stay 0:14:48.040 --> 0:14:51.640 in power. He doesn't want to use it, obviously, he 0:14:51.720 --> 0:14:55.440 wants everybody to be happy. What frightens him by Hong 0:14:55.520 --> 0:14:59.920 Kong is not only the vigor, but two other things. First, 0:15:00.120 --> 0:15:03.960 failure of Chinese intelligence, domestic intelligence to detect that this 0:15:04.040 --> 0:15:06.720 was going to happen as a result of his actions 0:15:06.800 --> 0:15:12.120 on criminal law, and the fear that is going to 0:15:12.320 --> 0:15:16.120 spread into China. We tend to look at China as 0:15:16.360 --> 0:15:21.120 enormous success. Well, like all countries, they go up and down, 0:15:21.280 --> 0:15:23.960 and they come in trouble. And when they get into trouble, 0:15:24.440 --> 0:15:26.840 the more important thing than the economic is the political. 0:15:27.200 --> 0:15:30.760 How will people respond? And this is what the Chinese 0:15:30.760 --> 0:15:33.840 are extremely worried about from Hong Kong, that will spread. 0:15:34.120 --> 0:15:36.400 How do you respond, folks, if you're just joining us? 0:15:36.640 --> 0:15:40.080 George Friedman of Geopolitical futures here. I just can't say 0:15:40.200 --> 0:15:44.360 enough about his work on the linkage of defense to society. 0:15:44.880 --> 0:15:48.840 They have a type fifteen tank, a z t Q tank. 0:15:49.440 --> 0:15:51.480 I don't know if that's lined up as a light 0:15:51.520 --> 0:15:54.200 tank on the border, et cetera. But how do you 0:15:54.280 --> 0:15:57.560 respond to what I'm going to editorialize is the fearmongering 0:15:58.040 --> 0:16:02.280 of green trucks in military at the border fifty miles 0:16:02.360 --> 0:16:08.560 from the central district. Well, they're desperately trying to intimidate demonstrators. 0:16:08.720 --> 0:16:11.200 They wanted to go home. They wanted to go away, 0:16:11.240 --> 0:16:14.120 and they don't want this crisis. Uh, they can come 0:16:14.160 --> 0:16:17.320 in and crush the demonstrators whenever they want. They don't 0:16:17.360 --> 0:16:20.440 need the fancy material that you can just do it. 0:16:21.280 --> 0:16:23.520 But the fear is one what will do to its 0:16:23.560 --> 0:16:28.880 international image? It has tried to portray itself as a 0:16:29.240 --> 0:16:34.040 symbol of modernization to be emulated. They do this and 0:16:34.120 --> 0:16:38.400 it loses that capability. And secondly, as bettinam and square, 0:16:38.400 --> 0:16:42.120 how the rest of China responds the real problem that 0:16:42.560 --> 0:16:45.720 he has. He was wanted to solve these problems. He 0:16:45.800 --> 0:16:48.160 can't solve any of them. He has to solve the 0:16:48.160 --> 0:16:52.960 economic problem. He didn't manage Trump. He hasn't made any 0:16:53.000 --> 0:16:56.600 progress in the South China. See the one Belt, one 0:16:56.720 --> 0:17:00.400 Road initiative has kind of fallen apart. How fragile George 0:17:00.480 --> 0:17:02.840 is he in the time we've got left Elizabeth economy 0:17:02.840 --> 0:17:04.840 and see if far is very big on this. We 0:17:04.960 --> 0:17:06.760 look at the media in the Western world as a 0:17:06.800 --> 0:17:10.800 communist party is monolithic. It's not I get that, But 0:17:11.000 --> 0:17:15.080 how fragile is his tenure is the supreme leader of 0:17:15.119 --> 0:17:19.920 this communist party? Well, if he winds up losing Hong 0:17:19.960 --> 0:17:24.399 Kong on top of very bad news out of the 0:17:24.880 --> 0:17:27.920 Chinese economy, which is probably worse than the news that 0:17:28.000 --> 0:17:31.440 they releases, uh, they're going to be some very serious 0:17:31.480 --> 0:17:33.919 questions about whether or not this is the direction they 0:17:33.960 --> 0:17:37.160 want to take. And if he cracks down too hard, 0:17:37.320 --> 0:17:40.720 they're going to ask that question. And his most important 0:17:40.800 --> 0:17:46.159 job is handling his biggest customer, the United States, and 0:17:46.200 --> 0:17:49.719 he failed. So I would have to think that inside 0:17:50.280 --> 0:17:55.280 the Central Committee, very quietly, there is discussion of what's 0:17:55.320 --> 0:17:57.320 going to happen, and I think he's nervous, and I 0:17:57.359 --> 0:18:01.240 think that'll wind up resulting in him going into Hong Kong. George, 0:18:01.280 --> 0:18:03.600 thank you so much for being with us, particularly early 0:18:03.680 --> 0:18:07.000 early in your Austin, Texas morning, uh, three or four 0:18:07.040 --> 0:18:09.159 hours ago. We really hope to speak to you through 0:18:09.200 --> 0:18:13.120 the week and into this uh into the August as well. 0:18:13.119 --> 0:18:16.679 George Freeman, of course, founder and chairman Geopolitical Futures and 0:18:16.720 --> 0:18:19.959 just a riveting piece. Again, we protect the copyright of 0:18:20.000 --> 0:18:22.720 all of our guests. We have the Freeman literature. You 0:18:22.720 --> 0:18:36.840 can get it from Geopolitical Futures and a bit here 0:18:36.880 --> 0:18:41.040 we're actually gonna talk about Kathay Pacific and what all 0:18:41.080 --> 0:18:44.160 of this means to global travel, the protests in Hong Kong, 0:18:44.200 --> 0:18:47.480 and what we observed. We have the number one guy 0:18:47.480 --> 0:18:50.360 in the world on how we're all addicted to those 0:18:50.480 --> 0:18:54.080 charge cards. Right now we get frequent Frickson came miles 0:18:54.480 --> 0:18:58.480 with Ira Jersey of Bloomberg Intelligence. Ira, what's the correlation 0:18:58.640 --> 0:19:02.520 right now of your on market with the equity market? Yeah, 0:19:02.560 --> 0:19:05.800 so the correlations negative right now. So you know, equities 0:19:05.840 --> 0:19:09.320 go down and fix income prices go up. Um. You know, 0:19:09.359 --> 0:19:11.719 this is a lot different from June. So in June 0:19:12.440 --> 0:19:15.159 it was basically the the lower yields and and the 0:19:15.200 --> 0:19:17.080 yields going lower because the FED was going to be 0:19:17.119 --> 0:19:20.520 more commendative and you know, data was wasn't great, but 0:19:20.560 --> 0:19:23.640 it also wasn't terrible. That helped equity markets go up. 0:19:23.640 --> 0:19:26.320 But now what's happened over the last five weeks or 0:19:26.320 --> 0:19:29.120 so as you've seen that turn the other way where um, 0:19:29.160 --> 0:19:31.800 you know, bad news is bad and you wind up 0:19:31.960 --> 0:19:35.399 having a flight to quality into rates from other ethic 0:19:35.440 --> 0:19:37.399 class is you know, a math guy and this is 0:19:37.400 --> 0:19:39.600 out of reason Fabosis talking to one of our young 0:19:39.640 --> 0:19:42.880 troops here yesterday, and I didn't notice that the classic 0:19:42.880 --> 0:19:46.280 fabosies a thousand, forty eight pages. I quoted that in 0:19:46.320 --> 0:19:50.720 the discussion I was having in the Fabosi the dynamics 0:19:50.840 --> 0:19:53.879 of yield are different than the dynamics of price. This 0:19:53.960 --> 0:19:57.120 is a great mystery to people right now. I would 0:19:57.160 --> 0:20:00.840 suggest it's price up. What's the buying frenzy that you 0:20:00.920 --> 0:20:04.960 observe at Bloomberg Intelligence. Yeah, it's it's all about sentiment. 0:20:05.080 --> 0:20:08.800 So the sentiment because of of the seeming higher risks 0:20:08.880 --> 0:20:11.760 out there, and that's causing this flight the quality into 0:20:11.960 --> 0:20:16.480 UH into treasuries and other government bonds. And interestingly, you know, 0:20:16.520 --> 0:20:19.440 and this is not something new, but the fact is 0:20:19.440 --> 0:20:22.159 is that the US government yields are still higher than 0:20:22.200 --> 0:20:25.560 the yields and most other developed government bond markets. So um, 0:20:25.640 --> 0:20:28.800 you know, even even the UK which also has positive yields, 0:20:28.880 --> 0:20:30.960 right that one of the few European countries that does 0:20:31.400 --> 0:20:34.960 UM thirty year yields. There are are one percent thirty 0:20:35.000 --> 0:20:37.280 year yields here are two percent, So we still have 0:20:37.800 --> 0:20:40.639 UM significantly higher yields. And if the dollar is going 0:20:40.720 --> 0:20:43.640 to keep on appreciating because our economy is doing better 0:20:43.680 --> 0:20:45.600 than everyone else, then this is the place to be. 0:20:45.760 --> 0:20:48.480 You want to be here, maybe on an unhedged basis. 0:20:48.960 --> 0:20:51.959 Deutsche Bank, this is important headline. This is aside from 0:20:51.960 --> 0:20:54.080 IRA Jersey. But I gotta go to this iro. It's 0:20:54.119 --> 0:20:57.760 so important for global Wall Street audience. I'm getting the 0:20:57.800 --> 0:21:02.960 headline up right now. Deutsche chairman Art Lightner searching for 0:21:03.040 --> 0:21:06.600 his successor is the headline. I'm looking at a six 0:21:06.640 --> 0:21:10.840 point one for euros per share. And if I can 0:21:10.920 --> 0:21:15.399 get over to the A d R uh No, it'd 0:21:15.400 --> 0:21:17.760 be help if I knew the symbol. David Wilson, where 0:21:17.760 --> 0:21:20.400 are you with? I need you? Deutsche Bank. Oh, I'm 0:21:20.480 --> 0:21:23.320 killing folks, I'm just killing this today. D E U 0:21:23.480 --> 0:21:26.879 T S c H E Bank. There's four thousand people 0:21:27.000 --> 0:21:29.040 just in New York. IRA. I don't know where the 0:21:29.080 --> 0:21:31.440 a d R is on Deutsche Bank itself, that's all 0:21:31.440 --> 0:21:33.800 you need to know. Negative three D six on the 0:21:33.920 --> 0:21:37.240 doll IRA. What's credit doing? Link full faith and credit 0:21:37.640 --> 0:21:40.560 with the credit risk of the investment grade market in 0:21:40.600 --> 0:21:45.080 the high yield market, how do they link in this crisis? Yeah, So, 0:21:45.080 --> 0:21:47.640 so you've seen spreads wide and somewhat, but there's still 0:21:47.880 --> 0:21:50.080 you know, a lot of people are not particularly worried 0:21:50.200 --> 0:21:54.679 about UM, you know, corporate credit UM the default at 0:21:54.680 --> 0:21:58.360 the moment because balance sheets, particularly for large US corporations 0:21:58.359 --> 0:22:01.879 that make up the investment grade market have UM you know, 0:22:02.240 --> 0:22:06.720 still are still look okay. So it's not a fundamental story, 0:22:06.760 --> 0:22:08.800 it's more it is more and more sentiment. So you 0:22:08.840 --> 0:22:12.000 have seen spreads wide and significantly since late July, but 0:22:12.000 --> 0:22:14.440 they've actually stabilized here over the last week. Now. I 0:22:14.720 --> 0:22:18.440 suspect that if you keep on getting the draw down 0:22:18.480 --> 0:22:21.760 in inequity prices, that spread probably widen a little further. 0:22:22.119 --> 0:22:24.879 But it is one of the places that we have 0:22:24.960 --> 0:22:27.960