WEBVTT - China Trade Ceasefire Expected Soon, Punting To 2020 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penl Podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.400 at Bloomberg dot com. Well back in May, our next 0:00:24.480 --> 0:00:27.360 guest said the odds for a China trade deal are 0:00:27.520 --> 0:00:30.800 optimistically at ten percent. Let's see if those odds have 0:00:31.040 --> 0:00:34.680 changed in this succeeding months. Mike McDonough, chief economists for 0:00:34.720 --> 0:00:37.159 financial Products that Bloomberg joins us here in a Bloomberg 0:00:37.280 --> 0:00:39.599 eleven three oh studio in New York. So, Mike, we've 0:00:39.600 --> 0:00:42.440 had a lot of rhetoric back and forth in the interim. 0:00:42.479 --> 0:00:45.560 As your outlook changed at all for a trade deal. 0:00:46.040 --> 0:00:47.440 I guess it depends on how you to find a 0:00:47.440 --> 0:00:50.879 trade deal, right. I think that you know a comprehensive 0:00:50.920 --> 0:00:54.400 trade deal. I think optimistically ten percent still seems about right. 0:00:54.800 --> 0:00:58.000 But if we're going to use war terminology, I think 0:00:58.120 --> 0:00:59.840 that we may be about to see a C S 0:01:01.320 --> 0:01:04.520 I think that both sides have realized they have a 0:01:04.520 --> 0:01:07.600 lot to lose in the interim if this continues to escalate. 0:01:08.160 --> 0:01:11.360 They realize they will not quickly be able to solve 0:01:11.400 --> 0:01:14.360 these problems. And I think both sides are are are 0:01:14.400 --> 0:01:19.319 are willing finally to compromise, but not not to let's say, 0:01:19.360 --> 0:01:22.759 have a deal, but to agree to stop the escalation. 0:01:23.040 --> 0:01:26.000 So what does that look like in terms of how 0:01:26.040 --> 0:01:29.760 they both save face and don't just say this is dumb, 0:01:29.800 --> 0:01:31.920 We're just laying down their weapons for now and figuring 0:01:31.920 --> 0:01:34.720 this out after the elections. No. So I think what's 0:01:34.760 --> 0:01:40.559 going to happen is that you will see UM China 0:01:40.680 --> 0:01:44.800 agree to buy more agricultural products, the magnitude of which 0:01:44.800 --> 0:01:47.680 will be determined by how much the US negotiators are 0:01:47.720 --> 0:01:52.200 willing to give up UH. And you'll also see some movement, 0:01:52.560 --> 0:01:56.240 some nascent advancements on the intellectual property side in China. 0:01:56.560 --> 0:01:58.960 There's there, there's been some some things going on behind 0:01:59.000 --> 0:02:00.920 the scenes. I think that that that will come into 0:02:00.920 --> 0:02:03.000 play at some point. And I think on the U 0:02:03.120 --> 0:02:06.920 s side, UH baseline scenario in my mind would be 0:02:07.000 --> 0:02:09.360 they will agree to they I don't think they'll remove 0:02:09.480 --> 0:02:13.760 tariffs I think that that that seems like a hefty ask. 0:02:14.200 --> 0:02:16.799 But I think that the new round of tariffs due 0:02:16.840 --> 0:02:20.240 to come online in October won't be put on, and 0:02:20.280 --> 0:02:21.840 I think that that will be what they give up. 0:02:21.880 --> 0:02:23.919 I think if there is any removal of tariffs, you 0:02:23.919 --> 0:02:28.280 will probably see you could see China agree to purchase 0:02:28.360 --> 0:02:31.760 more agricultural products. But I think that's what a ceasefire 0:02:31.840 --> 0:02:36.400 looks like. And I think that um, it won't be said, 0:02:36.440 --> 0:02:38.600 but I think both sides are kind of saying, maybe 0:02:38.639 --> 0:02:42.360 we should wait until after the election and see what 0:02:42.480 --> 0:02:45.240 happens and then do the heavy lifting at that point. 0:02:45.639 --> 0:02:48.919 Even to get this ceasefire type of deal, Even that 0:02:48.960 --> 0:02:52.720 seems one could argue optimistic, given that we haven't seen 0:02:52.880 --> 0:02:58.400 either side really show any you know, softness on their 0:02:58.680 --> 0:03:01.720 either negotiating side. What gives you a sense of something, 0:03:02.200 --> 0:03:03.840 you know, the tweets and everything, that's all kind of 0:03:03.880 --> 0:03:05.560 a bit of noise. We don't really know what's going 0:03:05.600 --> 0:03:08.760 on behind the scenes or where things stand. Uh, you know, 0:03:08.800 --> 0:03:11.840 the rehed rick is inverse to how markets are performing generally. 0:03:12.639 --> 0:03:15.280 I think what you're seeing is, if you're President Trump 0:03:15.360 --> 0:03:18.600 and you want to get reelected in you're realizing, okay, 0:03:18.760 --> 0:03:22.480 escalating this trade war is having a detrimental impact on markets, 0:03:22.639 --> 0:03:25.880 is having a detrimental impact on the economy. Uh and markets, 0:03:26.880 --> 0:03:28.320 and this isn't good for me, right. You know, if 0:03:28.360 --> 0:03:30.640 you're an incumbent president and the economy is doing poorly, 0:03:30.720 --> 0:03:34.480 that's death knell for your re election chances. Uh. So 0:03:34.520 --> 0:03:38.440 there's some impetus there. And I think in China, the 0:03:38.480 --> 0:03:41.000 economies there is getting hit a bit harder than the 0:03:41.040 --> 0:03:44.640 government may have anticipated. Uh So I think that, you know, 0:03:44.720 --> 0:03:47.240 for them, uh, it would be good to kind of, um, 0:03:48.040 --> 0:03:50.200 at least stop the escalation. I think, you know, if 0:03:50.240 --> 0:03:52.560 you look at what has been put in place so far, 0:03:52.640 --> 0:03:55.160 I think both sides think, okay, well, as long as 0:03:55.200 --> 0:03:58.680 this is an escalating we bring some certainty for the 0:03:58.760 --> 0:04:03.320 foreseeable future back into markets and businesses. Uh, this is 0:04:03.360 --> 0:04:05.760 good for both of us. Is the feeling among the 0:04:05.840 --> 0:04:09.080 officials who you speak with that the US has actually 0:04:09.120 --> 0:04:11.320 weathered this fairly well and that China has had a 0:04:11.360 --> 0:04:17.560 much harder time. Um. You know, you have to figure out, 0:04:17.760 --> 0:04:20.440 in China's case, how much of the weakening economies due 0:04:20.480 --> 0:04:22.159 to the trade war versus how much is due to 0:04:22.200 --> 0:04:24.560 domestic factors. There's a bit of both there. They're they've 0:04:24.560 --> 0:04:28.960 been going through this deleveraging cycle, which is a bit challenging. 0:04:29.120 --> 0:04:32.800 Excuse me, what happened to that? Is that that that's 0:04:32.839 --> 0:04:34.560 kind of it's kind of been put on hold. But 0:04:34.600 --> 0:04:38.120 I think the slowdown was originally caused by that um 0:04:38.160 --> 0:04:42.479 and they are gradually putting reversing some of that, putting 0:04:42.480 --> 0:04:44.960 in some stimulus. They haven't pulled out all the all 0:04:45.000 --> 0:04:47.360 the weapons yet out of their arsenal that they could use, 0:04:47.960 --> 0:04:50.720 but you know, there's definitely some meaningful slow down there. 0:04:50.720 --> 0:04:54.280 And it's also that the sentiment impact doesn't fully get appreciated. 0:04:54.560 --> 0:04:58.279 It's the uncertainty of what happens next. So if you 0:04:58.360 --> 0:05:00.920 remove that, if you kind of know what happens next, 0:05:00.960 --> 0:05:03.000 and it's the status quo at least for a while, 0:05:03.520 --> 0:05:06.640 that should help calm things down and and help bolster 0:05:06.760 --> 0:05:10.599 confidence a bit. So Mike, in terms of you know this, 0:05:11.320 --> 0:05:14.320 you know agreement light if you will, or trade agreement light. 0:05:14.480 --> 0:05:16.160 So what is the timing of that, because it seems 0:05:16.200 --> 0:05:19.159 like October one when these tariffs go into effect, I 0:05:19.160 --> 0:05:22.479 believe UM or sometime in October that's when it's gonna 0:05:22.480 --> 0:05:27.040 become really hit the pocketbook and the wallet of general 0:05:27.120 --> 0:05:29.880 USA consumer. Yeah, I think I think as a courtesy 0:05:29.960 --> 0:05:32.960 to China for the seventieth anniversary that the start date 0:05:33.000 --> 0:05:35.600 was pushed back to the fifteenth. And that also tells 0:05:35.600 --> 0:05:38.080 me by pushing that back, maybe there was something going 0:05:38.120 --> 0:05:40.680 on in the background that we weren't privy to. That 0:05:40.800 --> 0:05:43.640 is a positive sign. Uh So I think it happens 0:05:43.680 --> 0:05:46.200 before then. I think, you know, I think a ceasefire 0:05:46.240 --> 0:05:48.039 is a good word for it, and I think we 0:05:48.080 --> 0:05:50.680 see it soon. I'm trying to understand what that does 0:05:50.720 --> 0:05:53.120 to the other aspects of the trade discussion in terms 0:05:53.200 --> 0:05:57.120 of intellectual property, uh in terms of you just to 0:05:57.200 --> 0:06:00.640 sort of enforcement mechanism of some of the the ideas 0:06:00.680 --> 0:06:04.839 as far as fair trade practices. Well, people just sort 0:06:04.839 --> 0:06:06.839 of say, you know what this is good for now, 0:06:07.240 --> 0:06:09.160 we won't think about those things, or will there be 0:06:09.200 --> 0:06:12.400 a lot of pressure saying Trump what happened to that? 0:06:14.120 --> 0:06:16.360 I'm I'm sure no matter what happens, it will be 0:06:16.400 --> 0:06:19.719 celebrated as a win. And you know the fact that 0:06:20.120 --> 0:06:23.880 you know, China will continue or these China's not paying 0:06:23.880 --> 0:06:27.240 the tariffs, but these tariffs will remain in place as 0:06:27.279 --> 0:06:31.080 a as a kind of punitive measure until the negotiations 0:06:31.080 --> 0:06:33.880 are complete. I think that that it's going to be 0:06:33.920 --> 0:06:36.960 looked at as it might not even be called a ceasefire. 0:06:36.960 --> 0:06:38.760 It's going to be may be referred to as a 0:06:38.800 --> 0:06:42.200 step in the right direction. Negotiations are continuing, China's continuing. 0:06:42.400 --> 0:06:43.880 But how about it? I mean, is this how about 0:06:43.920 --> 0:06:45.880 the old trade you know, the t PP the Trans 0:06:45.960 --> 0:06:48.200 Pacific Pack. I mean, is it gonna be better than that? 0:06:48.200 --> 0:06:51.919 That's kind of the standard, right, Oh, the trans the 0:06:51.960 --> 0:06:53.880 t p P as and I haven't heard that in 0:06:53.880 --> 0:06:55.480 a while. I mean, no, the t p P is 0:06:55.560 --> 0:06:58.640 very different. Actually, because um China was not a member 0:06:58.640 --> 0:07:00.320 of the t p P. I used to say that 0:07:00.360 --> 0:07:03.080 there were two groups of people who really didn't want 0:07:03.120 --> 0:07:05.080 to see the t p P initiated, and it was 0:07:05.240 --> 0:07:08.360 China and Trump supporters, right. I used to kind of 0:07:08.760 --> 0:07:10.680 as for a rationalization of that, the t p P 0:07:10.880 --> 0:07:12.480 was more of a it was a trade deal, but 0:07:12.520 --> 0:07:15.360 it was more of a geopolitical pact that kind of 0:07:15.400 --> 0:07:18.360 said the US still has influence within this region and 0:07:18.400 --> 0:07:22.239 help set policy. So that failure was actually, in my opinion, 0:07:22.720 --> 0:07:25.320 a positive for China because then it opened doors. It 0:07:25.960 --> 0:07:28.680 wasn't the members of people who were part of the 0:07:28.680 --> 0:07:30.400 t p P had to look at China differently and 0:07:30.440 --> 0:07:32.640 starts saying, well, maybe we should be dealing with China 0:07:32.680 --> 0:07:35.840 more directly. Maybe Chinese has greater influence this region than 0:07:35.880 --> 0:07:38.280 they otherwise would have had. Well, Mike, I will say 0:07:38.440 --> 0:07:40.360 thank you very much. We'll have to have you back soon. 0:07:40.760 --> 0:07:43.720 You've nailed it so far in terms of the unlikelihood 0:07:44.000 --> 0:07:46.240 of a deal when things were, when people were very 0:07:46.240 --> 0:07:49.480 helpful before, and now you're saying there might be I 0:07:49.520 --> 0:07:51.160 don't know if it's fair to call it a deal, 0:07:51.600 --> 0:07:55.360 some sort of ceasefire, stopping with the escalation. Mike McDonald, 0:07:55.400 --> 0:07:58.640 chief economist for Financial Products of Bloomberg LP, weighing in 0:07:58.720 --> 0:08:17.600 with great insight. I like avocado toast and I love 0:08:17.720 --> 0:08:19.920 drinking water with a slice of lemon in it. We 0:08:19.960 --> 0:08:22.560 are very lucky to be speaking with the biggest US 0:08:22.680 --> 0:08:27.560 lemon and avocado crower Limonera. Harold Edwards, the chief executive 0:08:27.600 --> 0:08:30.120 officer of the company, joining us here in our Bloomberotta 0:08:30.080 --> 0:08:32.880 Active Broker Studios. Harold, thank you so much for being here. 0:08:33.320 --> 0:08:37.040 I want to start with some of the weather fluctuations 0:08:37.080 --> 0:08:39.960 that we saw this year that affected your company, especially 0:08:39.960 --> 0:08:44.319 on this climate change day, uh, with resulting in very 0:08:44.360 --> 0:08:48.400 big lemons and poultry avocado harvesting. Can you just give 0:08:48.480 --> 0:08:50.640 us a sense of where we are in terms of 0:08:50.760 --> 0:08:53.680 weather disruptions and how that's affected your business. I'm happy 0:08:53.720 --> 0:08:56.400 to thank you for having me today. So, UM, last 0:08:56.520 --> 0:08:59.760 July a year ago, we had a week of temperatures 0:09:00.080 --> 0:09:02.400 over a hundred degrees. In fact, in some areas of 0:09:02.440 --> 0:09:05.520 coastal California it was a hundred and fifteen degrees for 0:09:05.600 --> 0:09:07.760 a long period of time. And that was right during 0:09:07.760 --> 0:09:10.840 the bloom and set period for our avocados, and the 0:09:10.960 --> 0:09:13.800 vast majority of them, approximately of what was hanging on 0:09:13.840 --> 0:09:16.720 the tree fell to the ground and became unmarketable. So 0:09:16.760 --> 0:09:19.200 that was the first weather phenomena to hit us. And 0:09:19.200 --> 0:09:22.480 then if you fast forward, UH and UH, think back 0:09:22.559 --> 0:09:25.520 to the last seven years that California has been enduring 0:09:25.559 --> 0:09:29.640 a sustained drought. And last year was a godsend year 0:09:29.679 --> 0:09:32.080 for us. We had tripled the amount of rainfall that 0:09:32.120 --> 0:09:34.240 we normally have. I think we had thirty five inches 0:09:34.280 --> 0:09:37.000 of rain last year and so it was technically a 0:09:37.040 --> 0:09:40.240 great thing, except it prevented us and everybody in the 0:09:40.320 --> 0:09:43.440 in the coastal industry of citrus production from being able 0:09:43.480 --> 0:09:46.160 to get into harvest our citrus. So by the time 0:09:46.160 --> 0:09:48.960 we were actually able to get our citrus harvested in 0:09:48.960 --> 0:09:51.880 this case, our lemons, everything had grown to be of 0:09:52.080 --> 0:09:54.880 a very large size. And what's normally eight sizes and 0:09:54.920 --> 0:09:57.960 three different grades of what we sell fresh, we had 0:09:58.080 --> 0:10:00.800 three sizes. And the market is a only so big. 0:10:00.840 --> 0:10:03.480 If you think about a gigantic lemon floating in your 0:10:03.640 --> 0:10:07.520 iced tea, it doesn't work. So Harold, it's interesting. One 0:10:07.559 --> 0:10:09.640 of the things I know that your industry and I 0:10:09.640 --> 0:10:13.200 think about it. You're in southern California, the Santa Clara Valley, beautiful, 0:10:13.280 --> 0:10:16.760 just in southern California, so the greatest situs growing regions 0:10:16.800 --> 0:10:20.120 of the world, but you depend upon migrant labor. Talk 0:10:20.160 --> 0:10:23.480 to us about the immigration policies and discussions that are 0:10:23.520 --> 0:10:26.080 happening in the country right now, how it's impacting your 0:10:26.120 --> 0:10:28.720 business and your region of the country. Sure, having having 0:10:28.720 --> 0:10:32.719 a captive workforce is is absolutely essential for us as 0:10:32.760 --> 0:10:35.440 it relates to our harvest labor are pruning labor, just 0:10:35.480 --> 0:10:38.640 are our labor in general. So the company just celebrated 0:10:38.640 --> 0:10:41.160 it's one and twenty six year of operation. We've been 0:10:41.200 --> 0:10:43.080 a lot around a long time. I haven't been there 0:10:43.080 --> 0:10:44.360 the whole time, but I've been there part of it, 0:10:44.880 --> 0:10:48.480 and UH, having access to a captive workforce has been critical. 0:10:49.120 --> 0:10:52.640 We've invested into our workforce. We provide housing, we educate 0:10:52.679 --> 0:10:56.120 our employees, so we we really try to minimize our 0:10:56.160 --> 0:11:00.240 own workforce attrition. That being said, the rhetoric that's going 0:11:00.280 --> 0:11:04.839 on with migrant labor has made it extremely difficult to 0:11:04.920 --> 0:11:07.760 keep some of the outsourced labor as it relates to 0:11:07.800 --> 0:11:13.079 harvesting and pruning around. And so even just the rhetoric 0:11:13.160 --> 0:11:16.360 of the discussion of building the wall and UH, the 0:11:16.440 --> 0:11:19.320 relations between the United States and Mexico, most of our 0:11:19.360 --> 0:11:22.880 most of our workforce comes from Mexico, has been really 0:11:22.960 --> 0:11:26.559 challenging to keep that labor accessible to us. So here's 0:11:26.600 --> 0:11:29.760 here's why I don't totally understand. We've got the tariff 0:11:29.800 --> 0:11:31.600 issues and the trade talks and that built the wall 0:11:31.640 --> 0:11:35.120 issues with migrant labor kind of coming under attack in 0:11:35.120 --> 0:11:39.200 the political sphere. You have weather disruptions causing some problems 0:11:39.200 --> 0:11:42.640 in terms of harvesting, UH, whether it be avocados or 0:11:42.880 --> 0:11:47.280 or big lemons, Um, why are the prices not higher? 0:11:48.120 --> 0:11:52.000 So we're very fortunate globally to have other sources of 0:11:52.120 --> 0:11:56.120 fresh produce and in this case fresh citrus and avocados. Today, 0:11:56.440 --> 0:12:00.520 the United States consumes about three billion pounds of avocados 0:12:00.640 --> 0:12:05.280 every year. Of that comes from Mexico, and Mexico produces 0:12:05.280 --> 0:12:08.840 about three billion pounds of avocados, and Peru now produces 0:12:08.880 --> 0:12:12.440 almost a billion pounds of avocados. So between Peru, Mexico, 0:12:12.559 --> 0:12:15.679 and Chile, you've got more than enough to satisfy this 0:12:15.800 --> 0:12:19.320 insatiable demand almost that we experience here in the United States. 0:12:19.600 --> 0:12:23.120 The same holds true with fresh citrus and lemons. Today 0:12:23.120 --> 0:12:25.560 our business we source lemons in Mexico, and we actually 0:12:25.600 --> 0:12:28.720 produce and pack and ship out of Chile, Argentina, and 0:12:28.760 --> 0:12:33.600 South Africa, but more to have counter seasonality, uh, combined 0:12:33.600 --> 0:12:36.920 and complemented by our California and Arizona production. Interesting, now 0:12:36.920 --> 0:12:39.480 I know you. The business is a global business. Real quickly, 0:12:39.760 --> 0:12:42.079 how are you doing with China? I'm guessing Chinese like 0:12:42.120 --> 0:12:44.760 the lemons, I like their avocados. I'm guessing, Um, how 0:12:44.800 --> 0:12:48.040 do you get product into China? So the Chinese market 0:12:48.120 --> 0:12:50.560 is is just has massive potential. And if you go 0:12:50.720 --> 0:12:54.719 break it down by cities and and and areas of consumption, 0:12:55.160 --> 0:12:58.520 burgeoning middle classes and prosperity is more people are eating 0:12:58.520 --> 0:13:01.040 out every day, and more people are opping in supermarkets 0:13:01.080 --> 0:13:04.600 every day, and so the opportunity for consumption and that 0:13:04.679 --> 0:13:08.079 demand growth as it relates to citrus and avocadas is huge. 0:13:08.640 --> 0:13:13.520 The the dynamic trade policy and changes makes it really 0:13:13.559 --> 0:13:16.440 difficult to shift or a ship directly into many of 0:13:16.480 --> 0:13:19.720 those markets. One thing that we've noticed historically is that 0:13:19.880 --> 0:13:23.120 China they're inconsistent trade policy with the United States. Whether 0:13:23.120 --> 0:13:26.480 the markets are open or closed. The total amount of 0:13:26.640 --> 0:13:30.520 consumption is growing at north of twelve percent annually. But 0:13:30.600 --> 0:13:32.920 when that market gets a big terraff for a duty 0:13:32.920 --> 0:13:35.439 you put on it, usually that fruit diverts through Hong 0:13:35.520 --> 0:13:38.800 Kong and then somehow miraculously finds its way into the 0:13:38.840 --> 0:13:43.160 markets that um ultimately creates higher pricing for the Chinese consumers. Okay, 0:13:43.160 --> 0:13:44.839 but you're still gonna need your product there. Howld Edwards, 0:13:44.840 --> 0:13:46.920 thank you so much for joining us. As always, Harold's 0:13:46.920 --> 0:13:50.800 the CEO of limon Era based in Ventura County, uh In, 0:13:51.200 --> 0:13:55.200 I'm sorry, California. So very interesting story on the lemon business, 0:13:55.200 --> 0:13:59.400 the avocado business, and just the global agricultural business. Um. 0:13:59.760 --> 0:14:02.280 You know, it's just amazing the consumption going up for avocados. 0:14:02.280 --> 0:14:05.480 I think we know why. Lisa Bramwins is contributing to that. 0:14:05.840 --> 0:14:08.480 I was in Chile when I developed the habit. So 0:14:26.640 --> 0:14:30.520 Federal Reserve has taken crisis era actions this week to 0:14:30.600 --> 0:14:33.320 try to regain some sort of calm in the repo 0:14:33.480 --> 0:14:37.320 market of the fourth day. Uh, they've added liquidity to 0:14:37.680 --> 0:14:42.480 the overnight repo markets. The question is will this happen 0:14:42.560 --> 0:14:44.760 again and what will the Federal Reserve do on an 0:14:44.760 --> 0:14:47.680 ongoing basis to make sure that there is a little 0:14:47.720 --> 0:14:53.240 more stability in these basic fundamental markets for financial worlds. 0:14:53.720 --> 0:14:56.280 Joining us now as Dr Bob Eisenbeis Vice chair in 0:14:56.320 --> 0:14:59.880 chief Monetary Economistic Cumberland Advisors. He was formerly the ex 0:15:00.000 --> 0:15:02.520 I COULD Advice President and director of Research at the 0:15:02.560 --> 0:15:05.840 Atlanta Fed. Bob, thank you so much for joining us. 0:15:05.920 --> 0:15:08.560 First of all, do you think that we are going 0:15:08.640 --> 0:15:12.680 to see additional rounds of disruption in the repo markets 0:15:12.720 --> 0:15:16.320 going forward like the ones that we saw this week, Well, 0:15:16.480 --> 0:15:20.720 that's going to be hard to determine, because even as 0:15:20.760 --> 0:15:23.600 of now there's not a lot of consensus as to 0:15:23.680 --> 0:15:27.800 what the cause of the pressures were, and to really 0:15:27.840 --> 0:15:30.200 get to the numb of it, you have to understand 0:15:30.320 --> 0:15:33.200 a little bit in terms of how this market was 0:15:33.280 --> 0:15:37.120 set up and it was designed to provide a source 0:15:37.160 --> 0:15:41.360 of liquidity. Two banks, G s c s, money market funds, 0:15:41.360 --> 0:15:45.120 and primary dealers. Banks and G s c s really 0:15:45.160 --> 0:15:48.040 haven't been players in this market at all, and it's 0:15:48.080 --> 0:15:51.200 mainly the primary dealers, and my understanding was that the 0:15:51.240 --> 0:15:57.880 primary dealers were experiencing a a squeeze. The primary dealers 0:15:57.920 --> 0:16:02.240 are the security are securities arms broker dealers, some of 0:16:02.240 --> 0:16:05.600 which are affiliated with commercial banks, but they cannot tap 0:16:05.880 --> 0:16:10.640 commercial bank funds, so they have large portfolios of securities 0:16:10.680 --> 0:16:13.880 that they have to finance, and typically they were financing 0:16:13.920 --> 0:16:19.320 them through overnight repose with money market funds. But a 0:16:19.400 --> 0:16:22.440 couple of things happened this past week. One was this 0:16:23.000 --> 0:16:28.280 about a seventy billion dollar tax h draw that required 0:16:29.720 --> 0:16:33.320 money market funds to liquidate the securities. At the same time, 0:16:33.400 --> 0:16:36.920 the Treasury issued about fifty billion dollars worth of securities 0:16:37.240 --> 0:16:39.080 that had to be financed. All this had to be 0:16:39.160 --> 0:16:43.880 financed through the repo market. Basically by the primary dealers 0:16:43.960 --> 0:16:47.040 and they were squeezed. And so this is how what 0:16:47.080 --> 0:16:49.560 the FED did there. The FED is really the only 0:16:49.600 --> 0:16:54.480 option in this particular case. The security affiliates, even though 0:16:54.520 --> 0:16:58.320 they may have been associated with a commercial bank, can't 0:16:58.360 --> 0:17:01.640 really borrow from the commercial of banks, and the banks 0:17:01.680 --> 0:17:04.959 are unwilling to lend to the primary dealers of other banks. 0:17:04.960 --> 0:17:09.040 So the FED is really the only UH source here. 0:17:09.640 --> 0:17:12.240 And what really needs to be done is that FED 0:17:12.320 --> 0:17:15.080 has to decide what this facility is going to be 0:17:15.480 --> 0:17:20.680 and who should have access to essentially FED resources. And 0:17:22.440 --> 0:17:25.760 the real mystery is what the cause of the problem was, 0:17:26.400 --> 0:17:29.920 and people are just guessing at this point. I'm pretty 0:17:29.920 --> 0:17:33.320 sure that people in New York FED no. But that's 0:17:33.359 --> 0:17:36.520 another problem that they just haven't been forthcoming and telling 0:17:36.600 --> 0:17:38.720 us what they do know. Right, So that's kind of 0:17:38.720 --> 0:17:40.360 where I wanted to go, Bob. I mean, there's some 0:17:40.880 --> 0:17:44.000 market participants that are saying, you know, the FED kind 0:17:44.000 --> 0:17:47.160 of got caught off guard here and kind of didn't 0:17:47.160 --> 0:17:48.760 really have it the finger on the pulse of this 0:17:49.000 --> 0:17:53.120 part of the market. Is that something you ascribed to No, 0:17:53.200 --> 0:17:57.160 I don't think. So. They have daily interactions with all 0:17:57.200 --> 0:18:00.840 these firms, and uh, they should of benement. It was 0:18:00.920 --> 0:18:04.280 well known about this text day for example, and the 0:18:04.400 --> 0:18:09.720 said does announce or the ex the Treasury does announce 0:18:09.760 --> 0:18:13.840 what it's security stealings are going to be. So I'm 0:18:13.880 --> 0:18:17.639 surprised at this, to be honest with you. Alright, so 0:18:17.800 --> 0:18:19.399 you're surprised at this. And there is a lot of 0:18:19.400 --> 0:18:22.240 talk that the Federal Reserve is going to probably increase 0:18:22.240 --> 0:18:25.879 its balance sheet, not in a quantitative easing type of manner, 0:18:25.920 --> 0:18:27.960 but in some kind of way to make sure that 0:18:28.000 --> 0:18:31.679 there is just enough liquid assets there to prevent this 0:18:31.760 --> 0:18:34.880 from happening going forward. I want to sort of put 0:18:34.920 --> 0:18:38.320 that aside for a minute, because this whole REPO action 0:18:38.760 --> 0:18:41.040 totally overshadowed the actual FED meeting that we got in 0:18:41.080 --> 0:18:42.800 the rate cut that we got this week, And I'm 0:18:42.840 --> 0:18:46.640 just wondering, uh, to take stock of what happened with 0:18:47.000 --> 0:18:50.240 Fed share Powell and what you're expecting going forward. How 0:18:50.240 --> 0:18:52.080 many times do you think the Fed's gonna cut rates 0:18:52.440 --> 0:18:55.959 in additional rounds this year? Well, if you look at 0:18:56.000 --> 0:19:01.520 the dot chart in particular, um, there's at most a 0:19:01.600 --> 0:19:03.920 group of seven people who think there should be one 0:19:03.960 --> 0:19:07.399 more cut. There's ten people who don't think there should 0:19:07.400 --> 0:19:10.480 be either a move or perhaps even an increase. So 0:19:11.840 --> 0:19:14.119 at most I think at this juncture you're gonna if, 0:19:14.280 --> 0:19:18.600 if the present voting structure continues, we might get one 0:19:18.640 --> 0:19:23.880 more rate cut, but I would be quite surprised at that. 0:19:23.960 --> 0:19:27.919 And I think it's going to be really dependent on, 0:19:29.040 --> 0:19:33.320 among other things, what the third quarter GDP number looks like. 0:19:33.400 --> 0:19:36.600 And as some of the discussions you've already had today 0:19:37.040 --> 0:19:39.639 suggests that certain parts of the economy are doing pretty 0:19:39.680 --> 0:19:44.560 well except for the investment side of things, and of 0:19:44.600 --> 0:19:48.000 course that's I think really related slow down. There is 0:19:48.000 --> 0:19:51.479 more related to uncertainty about trade. And we saw another 0:19:51.520 --> 0:19:53.679 switch in what policy on trader is going to be 0:19:53.720 --> 0:19:56.720 today in terms of exemption of certain goods and so 0:19:56.920 --> 0:20:00.080 on by both the Chinese and the United States. So 0:20:00.160 --> 0:20:04.879 there's this constant. I don't know, And if you're a businessman, uh, 0:20:04.960 --> 0:20:07.040 at this point, the prudent thing is probably just to 0:20:07.040 --> 0:20:09.200 sit on your hands for a bit. But I want 0:20:09.200 --> 0:20:11.399 to go back to the point you made that you 0:20:11.440 --> 0:20:14.040 wanted to set aside the fact that the FED might 0:20:14.119 --> 0:20:17.399 increase the size of its balance sheet if in fact 0:20:18.200 --> 0:20:21.560 the primary dealers are the ones who are having problems. 0:20:22.119 --> 0:20:25.240 Increasing the size of the balance sheet and injecting in 0:20:25.280 --> 0:20:28.600 the reserves into the system is not going to necessarily 0:20:28.680 --> 0:20:32.640 provide the funds to those particular institutions at all. So 0:20:33.200 --> 0:20:36.200 to me, the real issue has to do with how 0:20:36.240 --> 0:20:37.919 do they change and what do you do with the 0:20:37.920 --> 0:20:41.760 structure of that repo market. And it's unrelated to the 0:20:41.760 --> 0:20:43.639 size of the FED. So what do you think they 0:20:43.640 --> 0:20:47.399 should do well? I think one of the arguments is 0:20:47.440 --> 0:20:50.760 that they should essentially allow the primary dealers to have 0:20:51.560 --> 0:20:53.800 accounts at the FED, which would give them access to 0:20:53.800 --> 0:20:57.800 the discount window, which would solve the problem um And 0:20:57.840 --> 0:20:59.879 of course the FED could also do some other things. 0:21:00.640 --> 0:21:03.280 I firmly argued for a long time they should be 0:21:03.280 --> 0:21:08.119 buying and selling FED funds at the desired rate on 0:21:08.160 --> 0:21:11.600 a continuing basis, not just one time a day. That 0:21:11.640 --> 0:21:16.120 would solve a lot of problems. Dr Robert Eisenbis, thank 0:21:16.160 --> 0:21:19.160 you so much. Dr Eisambiss, vice Chairman and chief Monetary 0:21:19.160 --> 0:21:35.919 Economist at Cumberland Advisers, joining us on the phone from Sarasota, Florida. 0:21:36.880 --> 0:21:38.720 All right, Paul, I'm gonna tell you a little story 0:21:38.840 --> 0:21:41.679 from last night. All right, So last night, my ten 0:21:41.760 --> 0:21:43.880 year old son comes to me and he says, Mommy, tomorrow, 0:21:44.080 --> 0:21:46.040 I'm going to walk out of school. And I said, okay, 0:21:46.960 --> 0:21:48.680 where do you Where do you plan to go? He's like, 0:21:48.720 --> 0:21:50.160 I'm going to this park. I'm going to this park. 0:21:50.160 --> 0:21:53.200 I've made signs. We're going in a group. But people 0:21:53.240 --> 0:21:55.919 in charge don't understand that they're wrecking our earth. Did 0:21:55.960 --> 0:21:58.520 we need to go fix it? Um? So he's being 0:21:58.800 --> 0:22:03.320 taking part in all of the climate change UH protests, etcetera. 0:22:03.760 --> 0:22:08.440 And then this is a global thing and I actually 0:22:08.560 --> 0:22:11.639 am pretty negligent and that I was not as aware 0:22:11.680 --> 0:22:13.960 of it as I probably should be. So to get 0:22:13.960 --> 0:22:16.800 a little bit more on exactly what this is, because 0:22:16.880 --> 0:22:19.720 I'm curious, I'm sort of allowing my son to throw 0:22:19.760 --> 0:22:23.160 himself out into uh. Eric Roston joining us here. He's 0:22:23.160 --> 0:22:28.120 sustainability editor for Bloomberg News. Eric, what are these protests 0:22:28.160 --> 0:22:30.760 that are going on all over the world today. It's 0:22:30.880 --> 0:22:35.880 quite a remarkable story. Actually, there are many, many thousands 0:22:35.920 --> 0:22:40.639 of people protesting the lack of global action on climate 0:22:40.720 --> 0:22:44.160 change in major cities around the world. And they were 0:22:44.200 --> 0:22:49.560