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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with

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Speaker 1: David Gura. Daily we bring you insight from the best

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Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance

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Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

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Speaker 1: on the Bloomberg Michael McKie, why don't you bring inner

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Speaker 1: esteemed guest who really has focused on trade in China?

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Speaker 1: What did and what did not happen on the president's trip?

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Speaker 1: I think you just you put it very well, I mean,

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Speaker 1: with apologies to former Attorney General Eric Holder. The news

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Speaker 1: has been fast and furious this morning. Um, lots of

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Speaker 1: things going on in the wake of the president's tripped

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Speaker 1: through the Middle East and around the world. Coup underway

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Speaker 1: in Zimbabwe. I guess we'll talk about that in a moment.

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Speaker 1: But there's some breaking news here out of China that

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Speaker 1: they're sending an envoy to North Korea after um, the

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Speaker 1: President's stopped in China. Now in the announcement from the

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Speaker 1: Chinese they say that they're sending somebody to breathe them

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Speaker 1: on the five year Party Congress, which is a normal thing,

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Speaker 1: but the timing of it suggests that there may be

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Speaker 1: a connection. Richard Hasse, of course, is the UM President

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Speaker 1: of the Council on Foreign Relations, and you've held every

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Speaker 1: diplomatic post of you probably flew on Air Force two

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Speaker 1: because you will rank me a few times. Uh. Look,

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Speaker 1: I think it's unlikely. Shall we say that the Chinese

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Speaker 1: envoy is going to uh Pyongyang to talk about the

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Speaker 1: Nine Party Congress. It's almost certain that they're there to

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Speaker 1: talk about the basic issues of North Korea, and it

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Speaker 1: comes against the backdrop of an extraordinarily strange relationship. Though

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Speaker 1: in the last few weeks there's been a couple of

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Speaker 1: positive signals diplomatically and things said. So my hunches that, Uh,

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Speaker 1: you know, I don't know the substance of what the

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Speaker 1: Chinese are going to raise, but but I expect they're

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Speaker 1: going to urge the North Koreans to show certain kinds

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Speaker 1: of restraint, possibly to agree to some kind of a

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Speaker 1: temporary freeze on on testing. I think that's the uh,

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Speaker 1: that's clearly in the air, and the North Koreans will

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Speaker 1: say what, well again, you know the North Yeah, sorry

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Speaker 1: to sit here and say I don't know. North Korea

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Speaker 1: is the hardest single intelligence target out there. It's one man,

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Speaker 1: and it's it's opaque. Uh you know, you know, everything

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Speaker 1: in life is in exchange for what, So my hunches.

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Speaker 1: They might be open to certain types of limits on testing.

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Speaker 1: The real question is what they're going to demand. Up

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Speaker 1: to now, the Chinese has said they demanded an end

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Speaker 1: to US South Korean military exercises. That's not in the cards.

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Speaker 1: The question is, could you have a freeze for something

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Speaker 1: else that's that's that's a worthwhile thing, and President Trump

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Speaker 1: suggested at least the possibility of some diplomacy. So I

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Speaker 1: take all this is a little bit of a positive sign.

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Speaker 1: I'm not predicting success, but at least there's something finally

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Speaker 1: being talked about other than either living with a North

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Speaker 1: Korea that could blow us to Smith range or going

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Speaker 1: to war. That's not the first part is not my preference.

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Speaker 1: Just to be on the record that we've clarified your

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Speaker 1: your listeners wanted or reassurance. As a diplomat, do you

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Speaker 1: pay much attention to the public statements of either the

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Speaker 1: president or the North Koreans. We note on the trip,

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Speaker 1: Donald Trump basically suggested Kim junguan is short and fat,

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Speaker 1: and today the North Koreans announced that Donald Trump has

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Speaker 1: been sitting. John Tuckers said that to me yesterday, Right,

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Speaker 1: that's true. I didn't say sort set. But the North

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Speaker 1: Koreans today said that Donald Trump has been sentenced to

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Speaker 1: death for insulting this are I take these things somewhat

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Speaker 1: seriously because it creates a context in which it makes

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Speaker 1: it much harder. Among other things, just say tomorrow there

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Speaker 1: was an incident involving American B one bombers, or you've

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Speaker 1: got three carrier task forces in the Pacific, and just

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Speaker 1: say there was some kind of an incident between US

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Speaker 1: and North Korean forces. The idea that these two governments,

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Speaker 1: against this backdrop could manage an incident so it didn't

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Speaker 1: escalate into a crisis that you'd have to be an

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Speaker 1: optimist to think that. So I do. Yeah, I do

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Speaker 1: take these things seriously. Within that is where was Secretary Tillerson?

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Speaker 1: You and I talked about this an hour ago. But

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Speaker 1: let's reducts it again. It's so important. Is this president

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Speaker 1: so dominant that captainet officers just shrink? Let's start on

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Speaker 1: these trips. Look, one of several Secretaries of State in

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Speaker 1: the past, I know I didn't like traveling with the president,

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Speaker 1: because the Secretary of State, who is normally a senior official,

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Speaker 1: when you travel with the president, you're reduced to being staff. Second,

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Speaker 1: the president is the voice of the United States. So

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Speaker 1: Secretary Tillerson has played a secondary role here and in

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Speaker 1: my own view, has made the mistake of this fixation

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Speaker 1: with restructuring and downsizing the State Department at a moment

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Speaker 1: that I would think the diplomatic demands on the United

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Speaker 1: States argued just the opposite. Does your colleague Shannon O'Neil

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Speaker 1: say the State Department is someone on the Venezuela watch

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Speaker 1: or we blind? Well, the senior career person at the

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Speaker 1: State Department now was a gentleman named Tom Shannon. He's

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Speaker 1: the under secretary and his background is in Latin America.

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Speaker 1: So what I don't know is how much Mr Tillerson

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Speaker 1: or anyone else is listening to Ambassador Shannon, but he

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Speaker 1: actually knows about the issue now that we have go

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Speaker 1: on to Venezuela again in a second. But I just

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Speaker 1: want to um, do the other countries on the trip

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Speaker 1: all in one question? Uh? Naturally? For Donald Trump, the

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Speaker 1: trip was the greatest presidential trip ever made. According to

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Speaker 1: his tweets, but from a distance, Um, when you look

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Speaker 1: at what he did in each country, what did the

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Speaker 1: US get out of it? Very little? Uh, And I

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Speaker 1: think the biggest the when historians write about this trip,

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Speaker 1: the lead paragraph is going to be that the United

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Speaker 1: States once again marginalized itself on what is the most

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Speaker 1: important dynamic in the region, which is the growth of

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Speaker 1: a multilateral trade And so once you had the president

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Speaker 1: well going after trade agreements talking about America first, that

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Speaker 1: to me is the big stake, but also the lead

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Speaker 1: story of the trip. Mike McKie Michael from Denver emailed

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Speaker 1: me this morning. I said, Trudeau got it right and

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Speaker 1: we didn't would do Yeah, simple that. Tom asked you

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Speaker 1: the question on on Blueberg Surveillance TV about how do

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Speaker 1: you go to a country and tell the leader of

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Speaker 1: the country while you're there that his human rights record

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Speaker 1: is dismal? And President Trump did not do that. But um,

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Speaker 1: justin Trudeau did. Well. Again, you have two options. It

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Speaker 1: seems to me, if you had to go to the

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Speaker 1: country for a multilateral meeting, there was not There's nothing

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Speaker 1: that forced you to have a bilateral meeting. But if

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Speaker 1: you decide to have a bilateral meeting. You've got to

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Speaker 1: use it pro publicly and privately. You've got to make

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Speaker 1: the case about values, because you're not just dealing with

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Speaker 1: this individual, You're dealing with the public in the society.

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Speaker 1: I predict the day will come when the Philippine people

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Speaker 1: will turn on Mr. Deutarata. And it's really important to

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Speaker 1: the United States not be seen as having been complicit

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Speaker 1: with him during the era of his rule. Let's uh,

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Speaker 1: let's quickly talk about Venezuelas, and Tom brought it up.

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Speaker 1: Russia is going to restructure its deal with the Venezuelans because,

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Speaker 1: of course, the Venezuelans this week default in default. According

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Speaker 1: to those who follow the bondod market. Um, does it

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Speaker 1: mean anything that Venezuela is in default? I can't pay

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Speaker 1: their bills anyway. Uh. And a larger question I was

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Speaker 1: I've been in South America a couple of times this year,

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Speaker 1: and in every country, the leaders that I meet with

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Speaker 1: tell me they don't really care. Venezuela is so isolated

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Speaker 1: now that what happens there is not an issue for them.

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Speaker 1: I disagree. What's happening that affects all the other countries

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Speaker 1: more than anything else. Now, our massive refugee flows. One

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Speaker 1: of the unreported, underreported stories of the region is that

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Speaker 1: Venezuela is hemorrhaging people. Hundreds of thousands of people now

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Speaker 1: have already left, and these numbers are growing by the

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Speaker 1: day in Colombia and other countries nearby. This will affect

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Speaker 1: Brazil other countries, so right, so Venezuela, this will be

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Speaker 1: a way in which it will affect everybody else. It's

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Speaker 1: obviously a drag on the regional economy. What I think

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Speaker 1: you're gonna have as continued Russian and above all Chinese

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Speaker 1: restructuring whatever else they call it, of debt, and probably

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Speaker 1: the extension of of of new deck because Venezuela can't

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Speaker 1: go into international markets because of the economic sanctions. So

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Speaker 1: I think they're increasingly gonna become a subsidiary, if you will,

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Speaker 1: of both China and Russia. We cover Harvard football. We're

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Speaker 1: thrilled to bring you Harvard football and one or six

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Speaker 1: one FM in Boston and our affiliates, which means you

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Speaker 1: miss Boston College losing to North Carolina State. North Carolina

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Speaker 1: State having such a good year that if they take

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Speaker 1: out u n C November, they may get an invitation

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Speaker 1: to the Gartment Bowl. We will come out Dennis Gartment

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Speaker 1: from do they go to do the does your alma monitor?

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Speaker 1: They do they actually get a Bowl invitation this year? Oh? Yeah,

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Speaker 1: absolutely they at seven and three already there they're all eligible. Heck,

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Speaker 1: everybody once you win six games becomes Bowl eligible. So

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Speaker 1: will we're seven and three. Will probably be a very

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Speaker 1: good game. This we can eat for us, but hopefully

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Speaker 1: we shall be the US years in two weeks. That's

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Speaker 1: the big game. The charm of Gartman Folks is unlike

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Speaker 1: so many, he publishes in bold with yellow highlighter his trades.

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Speaker 1: I want you to explain, when you're correct on a trade,

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Speaker 1: you add to it as you go down. This is

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Speaker 1: called anti Martin gil theory. Most people don't do that.

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Speaker 1: So what do you do with an equity market? The

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Speaker 1: Gartment has gotten right for at least a few days,

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Speaker 1: well as of right. First of all, the most important

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Speaker 1: thing to remember in the in the realm of trade

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Speaker 1: is the great traders don't add to losing trades. Ever,

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Speaker 1: they add to winning trades. You bought something at ten

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Speaker 1: dollars a share and it goes to fifteen, ear buy

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Speaker 1: more if it goes to twenty near buy more. If

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Speaker 1: it goes to five, you buy more because the market

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Speaker 1: telling you you're right. If you buy something in ten

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Speaker 1: dollars a share and it goes to five, the markets

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Speaker 1: telling you you're wrong, why should you buy more? I

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Speaker 1: have to interrupt. This is absolutely paramount folks. Good morning

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Speaker 1: at Thorpe up at m I t This is called

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Speaker 1: anti Martin Gale theory, and it is the number one

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Speaker 1: mistake people make. Training continue, doctor Gartman. Yes, well, and

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Speaker 1: as of this morning, Uh, I've wanted to be I've

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Speaker 1: not been bullish of stocks for some while. Let's be

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Speaker 1: bluntly honest about it. I've I've looked towards the stock

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Speaker 1: market with a great deal of antipathy, and I think

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Speaker 1: that something has happened in the course of the past

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Speaker 1: several days. It matters not which market you look at,

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Speaker 1: whether you look at Germany's market, the UK's market, Canada's markets,

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Speaker 1: the Shanghai Index, Hong Kong stocks, Japanese stocks, or our stocks,

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Speaker 1: all of them are now breaking well defined upward sloping

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Speaker 1: trend lines and doing it definitively and beginning to do

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Speaker 1: it on volume. I think something has happened here. I

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Speaker 1: think we're at least shifting into a material correction to

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Speaker 1: the downside. We might even be moving towards the hallmark

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Speaker 1: or the starting point of a bear market. But let's

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Speaker 1: just say that the ballmarket I think has come to

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Speaker 1: an abrupt halt. And Anna Bob Singch moments ago talking

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Speaker 1: about oil cracking. Um, yeah, but has have equity markets?

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Speaker 1: Would you say equity markets have cracked? He said, we

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Speaker 1: could see a bear market. Um, are we going to

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Speaker 1: see an abrupt fall off? Or are we just going

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Speaker 1: to see a grind lower? And let me throw into

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Speaker 1: this mix the question of if the US does tax reform,

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Speaker 1: does that break the fever? Well, first of all, the

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Speaker 1: tax reform certainly has been well anticipated. Markets jobs are

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Speaker 1: to discount the future, and anything less than an overt

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Speaker 1: uh cut in taxes for every taxpayer across the board

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Speaker 1: plus a cut in business taxes would be a disappointment.

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Speaker 1: The market has anticipated great news on the tax fount

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Speaker 1: and whether we shall get that or not is another story.

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Speaker 1: If you don't get it, it's manifestly bearish. If you

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Speaker 1: only get a partial tax cut, it's probably modestly bearished.

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Speaker 1: So we see what kind of move lower violent? Or

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Speaker 1: are just slowly grinding down as people work out the froth.

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Speaker 1: If Mike, if you if you get the direction right,

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Speaker 1: regardless of how the direction occurs, you've done a great job.

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Speaker 1: Whether it happens quickly and violently or whether it happens

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Speaker 1: in a grinding fashion is another story for another time.

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Speaker 1: I shall simply go on record as saying I think

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Speaker 1: the highest have been seen for the interim. Certainly we'll

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Speaker 1: see five or seven percent lower. We'll see what happens

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Speaker 1: after that. In all likelihood it will be a slow

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Speaker 1: grind downward. That's what I hope it s, Shelby, because

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Speaker 1: nothing is worse than violent, violent breaks to the downside.

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Speaker 1: One way to summarize that, folks, is the media spends

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Speaker 1: a huge amount of time on the Y axis looking

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Speaker 1: at changes in the pros like Mr Gartman and others

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Speaker 1: look at the X axis about the witness of it.

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Speaker 1: It's so hard to predict. Where does David Rosenberger pluskin Chef.

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Speaker 1: We've of course been parsing inflation, But David, you're right

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Speaker 1: of the G four debt bubble, Rynart and Rogoff combined

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Speaker 1: public in private debt. How does David Rosenberg link visible

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Speaker 1: public debt with a challenge of trying to figure out

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Speaker 1: private debt as well. Well. I mean the way that

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Speaker 1: I put this all together, really from a market's perspective,

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Speaker 1: is how the when I think of the G four,

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Speaker 1: I'm actually thinking of the G four central banks and

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Speaker 1: the fact that even today, you know, with the FED

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Speaker 1: starting its taper and uh are actually unwind and the

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Speaker 1: ECB starting its taper, we still have a situation our

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Speaker 1: hands where fifteen trillion dollars of this debt that you're

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Speaker 1: talking about. And remember, the other side of the balance

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Speaker 1: sheet is that these are also assets that these central

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Speaker 1: banks still have on their balance It's over fifteen trillion

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Speaker 1: dollars of financial assets on their balance sheet. That's why

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Speaker 1: when you're looking at why we've had this unbelievably surreal

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Speaker 1: period of ultra low volatility uh no sellers in the market,

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Speaker 1: um uh you know, the calm over the past twelve

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Speaker 1: months that we've never seen before across most asset classes.

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Speaker 1: A lot of it comes down to the fact that, uh,

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Speaker 1: that we've had this unreal liquidity situation courtesy of the

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Speaker 1: central banks allars us of their balance sheets. And I

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Speaker 1: think at the margin, this is what might be coming

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Speaker 1: to an end right now. You know, people are wondering

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Speaker 1: about what's happening this morning, you know, taking a look

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Speaker 1: at the stock markets, and I mean this is starting

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Speaker 1: in the high yield market several weeks ago when they

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Speaker 1: started to the spread start to widen out, that you're

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Speaker 1: starting to see at the margin, uh, this liquidity story

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Speaker 1: starting to move in the other direction. And so I

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Speaker 1: think that, you know, and of course, at the same time,

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Speaker 1: look what's happening in China right now in terms of

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Speaker 1: what's happening in their bond yields have started to move

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Speaker 1: up throughout a hundred basis points so far this year.

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Speaker 1: So the big story here really is that at the

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Speaker 1: margin um liquidity growth, not liquidity levels, but liquidity growth

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Speaker 1: is starting to slow down, and that's starting to reflect

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Speaker 1: itself on some uh subtraction of risk appetite. Right now,

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Speaker 1: how much do we lose in liquidity? Though it's been

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Speaker 1: said the FED is um the ultimate free rider now

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Speaker 1: because they can tighten rates while the European Center Bank

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Speaker 1: and the Japanese are still pumping money into the global economy,

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Speaker 1: so doesn't really show up in financial conditions. Well, you know,

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Speaker 1: I would say that Uh. You know, the question is

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Speaker 1: are you're looking at levels, You're looking at growth Mike. So, Uh,

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Speaker 1: the levels of liquidity are still going up in terms

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Speaker 1: of balance sheet action, but the growth rate is certainly changing.

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Speaker 1: And financial markets don't respond to levels, they respond to change.

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Speaker 1: So I would say that the liquidity landscape is undergoing

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Speaker 1: a shift globally. Uh. And I said before, look, you

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Speaker 1: know we could talk about all the queis, what the

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Speaker 1: b o J is doing, what the ECB is doing.

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Speaker 1: Go back to the last time that we actually really

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Speaker 1: had a major spasm in the markets. Time it was

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Speaker 1: back in early two thousand sixteen, late two thousand and fifty.

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Speaker 1: Remember the SMP went down twelve of that period of

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Speaker 1: felt love. Worse than that, spreads widened out, We had

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Speaker 1: a huge pullback and resk appetite. Where did that come from? Well,

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Speaker 1: partially came from the fact that the FED tightened in December.

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Speaker 1: We had the aftershocks of that into January. But remember

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Speaker 1: that was the same time period that we had the

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Speaker 1: Japanese from the Chinese from EMBE being devalued, and that

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Speaker 1: created a big knock on effect. You know. One of

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Speaker 1: the things you have to pay attention to is the

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Speaker 1: importance of China here on global financial markets. And I

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Speaker 1: haven't heard anybody talking about the fact that's at the

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Speaker 1: start of the year we've had ten year yields in

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Speaker 1: China go up a hundred basis points if you're looking

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Speaker 1: at inflation. By the way, there is inflation in China.

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Speaker 1: And we know the last time we had a major

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Speaker 1: correction in the global marketplace came out of China. And

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Speaker 1: so as we're focused on tax reform in the United

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Speaker 1: States and people are lamenting what's happened with inflation United States,

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Speaker 1: they're missing a big story here, which is that not

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Speaker 1: only are we seeing liquidity shifts growthwise on G four

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Speaker 1: central bank balance sheets um, but market interst rates in

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Speaker 1: China are showing a rise inexorably right now. Well, much

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Speaker 1: of your forecast for what may happen in the coming

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Speaker 1: year it seems to center on what's going on in China.

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Speaker 1: What do you see from them? Well, most of what

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Speaker 1: I'm seeing in the next year isn't really coming from China.

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Speaker 1: It's a I think the economy they are slowing. Uh,

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Speaker 1: there's a shift again towards services away from goods production.

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Speaker 1: But we do know that they have an enormous debtload

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Speaker 1: and it's very unstable and uh and of course, what

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Speaker 1: is the implications of having market rates go up? It's

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Speaker 1: not just you know, government bond yields, but market wit

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Speaker 1: took on up to a three year high. So all

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Speaker 1: of a sudden, the big risk in China is going

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Speaker 1: to be a default story as debt service costs go up.

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Speaker 1: What is the reverberating impact that's going to have globally?

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Speaker 1: All I'm saying is that you know, usually the whole

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Speaker 1: consensus and everybody's conversation is usually not looking at at

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Speaker 1: what's really happening. We're all looking at in a certain direction.

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Speaker 1: When the big story could be in China right now,

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Speaker 1: just as it was in early two thousand and sixteen,

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Speaker 1: people wondering what's going on here? Well, that came out

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Speaker 1: of China and that was their currency. Now it's happening

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Speaker 1: as a bomb market in China starting to rob a

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Speaker 1: little bit, and that could be also having some impact

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Speaker 1: on risk risk capitite global And again the tape rolling

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Speaker 1: over negative one sixty two now in the DAB that's

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Speaker 1: I believe in new Love for the day. David Rosenbergers

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Speaker 1: can chef with us David to link us into the

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Speaker 1: equity markets. And one of my themes for next year

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Speaker 1: is a Jack Welch theme, which is pricing power. Are

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Speaker 1: we at a point linking in Rosenberg's inflation dynamics where

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Speaker 1: all of a sudden it's redux. We're at the top line.

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Speaker 1: Even if I have unit growth, I've got disinflation or

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Speaker 1: actual declines in pricing power for corporations. Is that a

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Speaker 1: theme for next year? Well, I think that's it's one

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Speaker 1: of the themes. I think another theme is going to

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Speaker 1: be one of change. I think we're gonna have changed

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Speaker 1: in central banks. By definition, we're gonna have new leadership

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Speaker 1: and and at the FED we're replacing. When you count

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Speaker 1: in depending what Johnny Yellen does, Yell and Dudley Fisher,

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Speaker 1: we're we're we're cashing in thirty five years of combined

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Speaker 1: monetary policy experience and we're getting five years with your

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Speaker 1: own Powell. We have a new FED and that will

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Speaker 1: be a new untested FED. UH. We're gonna have new

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Speaker 1: leadership at the ecb UH and so I think at

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Speaker 1: the margin, from a central bank policy perspective, things are

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Speaker 1: going to change. I think that could have an impact

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Speaker 1: on the multiple. Uh, not necessarily, just on earning. So

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Speaker 1: we're gonna have a situation where, um, we're gonna be

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Speaker 1: talking about the metrom elections in the the United States most

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Speaker 1: of the next year. Will will Will the House go Democrat? Uh?

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Speaker 1: And that's gonna unleash a whole other round of uncertainty.

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Speaker 1: Uh So uh, you know, my sense is that it's

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Speaker 1: going to be a year where we're gonna have a

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Speaker 1: much more two way traded flow, a year of heightened volatility,

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Speaker 1: and uh you know, when you're talking about afford multiple

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Speaker 1: of eighteen trailing of twenty two, this market is more

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Speaker 1: than fully value. I want to circle back then to

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Speaker 1: Michael McKee all knowing Kevin surreally a million hours ago

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Speaker 1: talked about December eight is David Rosenberg Michael McKee gonna

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Speaker 1: be writing about a government shutdown? Really? Certainly, how does

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Speaker 1: that have about shut out? Let me, the funding for

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Speaker 1: the government, the continuing Resolution that funds the government expires

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Speaker 1: December eighth, so they have to pass something new and

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Speaker 1: right now. Republicans and Democrats are a long way away

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Speaker 1: on issues, and Democrats this is not one they can

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Speaker 1: do with the majority vote. They need sixty votes, so

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Speaker 1: they've got to get some Democratic votes in the Senate,

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Speaker 1: and right now it looks like um, there's some reconcilable

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Speaker 1: differences between the two. For those of you worldwide that

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Speaker 1: have been following us, it's been an interesting discussion with

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Speaker 1: David Rosenberg. J J tweets in David Rosenberg was some

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Speaker 1: hockey guy named La Fleur, where Gila Flour says the

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Speaker 1: Montreal Canadians have no first line, second line, third line.

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Speaker 1: I think they have four fourth lines. Guil floor is brutal,

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Speaker 1: isn't he? Uh? Well, you know you you talked about

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Speaker 1: Larry Robinson and um and and search Sivard before. I

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Speaker 1: think I I would. I wish those guys would, even

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Speaker 1: at their rage, lays up the skates and head on

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Speaker 1: the ice forest, out the blades and hit the ice.

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Speaker 1: David Rosenberge, thank you so much for this is an

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Speaker 1: anniversary today. In four Marin Mariner eccles was appointed. This

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Speaker 1: just in from the Minneapolis Fed, which sends out these

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Speaker 1: interesting um beginning a remarkable career, important career, first draft

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Speaker 1: choice of the Federal Reserve. Who did a Jimmy Stewart

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Speaker 1: stood on the bank, Uh stood up in his bank

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Speaker 1: and yelled more money is on the way on the

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Speaker 1: counter to ease the customers. But but seriously that we

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Speaker 1: all know it started, but echoes along the way to

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Speaker 1: mc chesney Martin is one that really made it happened.

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Speaker 1: We thank David Rosenberg for too short of visit, particularly

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Speaker 1: on parsing of inflation. Thanks for listening to the Bloomberg

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Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

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Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

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Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,

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Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio