WEBVTT - The Art of (Trade) War 0:00:13.600 --> 0:00:16.280 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.320 --> 0:00:19.720 Markets podcast. I'm Sarah pon Sec, a market reporter on 0:00:19.800 --> 0:00:22.760 the Cross Asset team, and I'm Mike Reagan, a senior 0:00:22.880 --> 0:00:25.480 editor on the Markets team. It was just last week 0:00:25.560 --> 0:00:29.160 that higher tariffs caught investors by surprise, sending the SMP 0:00:29.320 --> 0:00:32.600 to its worst week of the year. Well, now markets 0:00:32.600 --> 0:00:35.080 are bouncing back. Is this as bad as it will get? 0:00:35.400 --> 0:00:38.960 Will analyze the latest on US China trade. Plus the 0:00:39.040 --> 0:00:42.199 bond market hasn't been any more sure this year that 0:00:42.240 --> 0:00:45.440 the Fed will actually cut rates. And don't worry. We'll 0:00:45.440 --> 0:00:48.279 close out the episode with our tradition, the craziest thing 0:00:48.320 --> 0:00:50.960 I saw in markets this week. Don't worry, Sarah, I've 0:00:50.960 --> 0:00:52.400 got a good one. You've got a good one. I 0:00:52.400 --> 0:00:54.560 I do have a good one. I'm ready, I'm ready. 0:00:54.640 --> 0:00:56.760 Hopefully our guests have a good one. I think our 0:00:56.800 --> 0:00:59.120 first guest is a little worried that his his craziest 0:00:59.120 --> 0:01:02.160 thing isn't that crazy. Joining us this week are pen 0:01:02.240 --> 0:01:04.600 Pal Here at Bloomberg. We talked to this guy a lot. 0:01:04.920 --> 0:01:09.920 Ben Emmons, Managing director for Global macro Strategy at Medley Advisors. 0:01:10.520 --> 0:01:14.240 UM Now, Ben, you were born in the Netherlands, but 0:01:14.280 --> 0:01:17.319 then you spent a long time at Pimco in the 0:01:17.319 --> 0:01:19.240 Bill Gross era. So I kind of think of you 0:01:19.319 --> 0:01:22.839 as a California dude. Is that fair? Is fair? That's fair. 0:01:22.880 --> 0:01:25.120 I think of you as the California I got. I 0:01:25.160 --> 0:01:27.840 got the blond hair, I got the tan, I even 0:01:27.880 --> 0:01:30.640 got the muscles. So so whatever I see you in 0:01:30.680 --> 0:01:32.360 New York, I assume the surf is not up in 0:01:32.400 --> 0:01:36.119 California right now. I got. I got a message from 0:01:36.120 --> 0:01:38.080 my son's school like his rainy day today, you gotta 0:01:38.080 --> 0:01:41.360 come early to pick him up. So I was like, hey, okay, Sunshine, 0:01:42.040 --> 0:01:45.440 I'm a good place. And our other guests this week 0:01:45.720 --> 0:01:48.800 is my pal e She. Now she and I have 0:01:48.920 --> 0:01:51.160 worked together. What's the twelve years? We were actually in 0:01:51.160 --> 0:01:54.400 the same Bloomberg boot camp training class years ago. Yeah, 0:01:54.480 --> 0:01:57.480 definitely a while, Sarah. The reason I love she. I 0:01:57.480 --> 0:01:59.600 don't think listeners realize this, but one of the big 0:01:59.680 --> 0:02:02.520 perks here at Bloomberg is they put out free soup 0:02:02.960 --> 0:02:04.960 at lunch and it's usually pretty good. I'd say they're 0:02:04.960 --> 0:02:08.040 batting at least five on the soups. And she, whenever 0:02:08.080 --> 0:02:09.920 he goes again, when he always picks up a second 0:02:10.040 --> 0:02:13.720 one team player, which I it's very nice because Michael 0:02:13.800 --> 0:02:17.240 used to be my boss and and to paint a 0:02:17.240 --> 0:02:19.440 picture for those of you out there, when you go 0:02:19.520 --> 0:02:22.120 to get a soup at Bloomberg, it is like battle time. 0:02:24.960 --> 0:02:27.320 As nice as that is. That is on She's part. 0:02:27.360 --> 0:02:29.080 That's not why we brought him on as a guest. 0:02:29.120 --> 0:02:33.720 It's actually he's probably the most knowledgeable about Chinese politics 0:02:33.880 --> 0:02:37.200 and markets and economy here. So no pressure, she, but 0:02:37.560 --> 0:02:39.560 we're hoping you can explain everything to us. I need 0:02:39.600 --> 0:02:43.679 to practice with my Mandarin at least I want to 0:02:43.720 --> 0:02:46.200 get right to it. Because you look at the markets 0:02:46.240 --> 0:02:50.000 reaction this week. Put aside Monday, Monday was rough, but 0:02:50.080 --> 0:02:53.959 we really saw a rebound in stocks this week, as 0:02:54.080 --> 0:02:57.600 if they don't really care so much about the goings 0:02:57.639 --> 0:03:01.239 on between US China trade. Ben, I want to come 0:03:01.240 --> 0:03:04.880 to you first, how much does this all actually matter 0:03:05.400 --> 0:03:08.720 to the stock market. So it's interesting, Sarah, because you 0:03:08.720 --> 0:03:11.440 would think that we're going exactly through the same episode 0:03:11.480 --> 0:03:13.800 as last year, right when we had the first time 0:03:13.840 --> 0:03:15.640 the threat of this two and a billion of terrors, 0:03:16.160 --> 0:03:19.320 and at the first followed with this episode in October 0:03:19.480 --> 0:03:22.200 and all this volatility, and we kind of have the 0:03:22.240 --> 0:03:25.600 same thing, right, we had him coming out suddenly hiking 0:03:25.720 --> 0:03:28.799 terrors and then more threats coming and you would think 0:03:28.800 --> 0:03:31.440 the same voltating. Yes, that was just on Monday, but 0:03:31.680 --> 0:03:33.760 I have to say that also at that time in 0:03:33.960 --> 0:03:37.480 septem October, we had bouncers like this, really because the 0:03:37.520 --> 0:03:40.040 market is trying to, I think, to do two things. One, 0:03:40.120 --> 0:03:42.880 it's of course trying to understand what's the world of 0:03:43.000 --> 0:03:45.640 terrors really mean, and so there's a lot of opposing 0:03:45.720 --> 0:03:48.200 views about this, right who pays for the tears? And 0:03:48.200 --> 0:03:51.520 then the second thing is it's like, wow, it's just terrors, right, 0:03:51.560 --> 0:03:53.640 We're not actually dealing with any kind of great hikes. 0:03:53.720 --> 0:03:55.720 You know, I've kind of made it that sound like 0:03:55.760 --> 0:03:58.680 the same. It's not really great hikes, and it's not 0:03:58.800 --> 0:04:01.880 really right now killing our economy, right, it will be 0:04:01.960 --> 0:04:04.360 maybe something in the future. So I think that's part 0:04:04.360 --> 0:04:06.680 of the reason why I see this relief bounds. And 0:04:06.960 --> 0:04:09.839 yet in the treasury market it seems very much risk off. 0:04:09.920 --> 0:04:13.880 You know, treasuries are bid this week, fields are coming down. Um, 0:04:14.120 --> 0:04:16.200 stock market it was risk off, but now it's back 0:04:16.240 --> 0:04:20.520 to that rally mode. UM it always begs the question 0:04:20.600 --> 0:04:22.159 is one of them right, one of them wrong, or 0:04:22.200 --> 0:04:25.599 does one market just understand President trump sprinkmanship better? Do 0:04:25.640 --> 0:04:27.560 you think, I mean, what what's your take on all that? 0:04:27.800 --> 0:04:29.799 So I would actually think, Mike that that the bondmark 0:04:29.839 --> 0:04:33.320 has been pretty rational about this trade deal. And for 0:04:33.360 --> 0:04:36.360 a while I wasn't in that game myself, but after 0:04:36.400 --> 0:04:38.640 sort of the analysis of the latest bet that we 0:04:38.760 --> 0:04:42.080 went through. Now, if you take take us back to January, 0:04:42.160 --> 0:04:44.960 when we came in a new year, that Marcus started rebound, 0:04:44.960 --> 0:04:46.359 but there was a lot of chatter out there like 0:04:46.440 --> 0:04:48.799 the trade talks are going well. I mean, things are progressing, 0:04:48.839 --> 0:04:52.120 and you know, rally continues, but the bond market wasn't 0:04:52.120 --> 0:04:54.240 really moving along. But it was a little bit moving rates, 0:04:54.240 --> 0:04:56.720 but not much. Of course data is weak and and 0:04:56.720 --> 0:04:59.920 and so forth. But since that time, we haven't read 0:05:00.120 --> 0:05:03.200 moved substantially higher rates at all. If anything, we're now 0:05:03.200 --> 0:05:05.159 a lot lower. And I think that the markets in 0:05:05.520 --> 0:05:08.200 fixed income has continue to look at this saying this 0:05:08.240 --> 0:05:11.600 deal isn't that really going there? Well, these negotiations are 0:05:11.720 --> 0:05:15.159 maybe that's constructive, and you know there's a risk that 0:05:15.240 --> 0:05:18.719 things do fall apart, and that uncertainty is reflected in 0:05:18.720 --> 0:05:21.400 the U Grove particularly that stayed flat all the way 0:05:21.520 --> 0:05:24.880 through this whole episode of the stock market rebounds generating. 0:05:24.920 --> 0:05:27.280 I think that was a kind of signal the bond 0:05:27.279 --> 0:05:30.000 market had a better sense of where we were in 0:05:30.040 --> 0:05:32.800 these straight negotiations than the stock market. So you mentioned 0:05:32.839 --> 0:05:34.920 that something people are trying to figure out is who 0:05:34.920 --> 0:05:38.080 actually pays for these tariffs? And Walmart came out this 0:05:38.120 --> 0:05:40.840 past week they reported earnings and they said that when 0:05:40.880 --> 0:05:43.800 these higher tariffs do go into play, because a lot 0:05:43.920 --> 0:05:46.039 of the new list of that three billion, if it 0:05:46.080 --> 0:05:48.760 does go into play, it's really a lot on some 0:05:48.880 --> 0:05:51.760 of the goods that Walmart cells clothing as well, and 0:05:51.760 --> 0:05:54.320 they've said they're going to pass it on to the consumer. 0:05:55.240 --> 0:05:58.640 What do these tariffs actually mean for the economy? Then 0:05:59.600 --> 0:06:01.520 the first inclusion would take is that this this would 0:06:01.680 --> 0:06:04.320 change the demands and one people would maybe look at 0:06:04.320 --> 0:06:07.599 those products and by other things when or people would 0:06:07.600 --> 0:06:09.600 just not buy him at all. Right, I mean that 0:06:09.640 --> 0:06:12.800 would be the initial idea. Then I think people would 0:06:12.800 --> 0:06:15.920 start to anticipate like this is gonna stop here or 0:06:16.080 --> 0:06:18.680 going to see more. Now, here's an important difference between 0:06:18.720 --> 0:06:21.640 the episode from last year and this year. This time, 0:06:22.240 --> 0:06:28.359 the next round of terroffs on three billions so is 0:06:28.360 --> 0:06:30.440 now officially in the in the federal registered by the 0:06:30.520 --> 0:06:33.160 U S Trade Representative. That didn't happen the last time, right, 0:06:33.240 --> 0:06:36.159 we had ten percent on two and a billion and 0:06:36.160 --> 0:06:39.120 in the thread of but but there was never anything 0:06:39.120 --> 0:06:42.160 else really formally announced and that that thread was taken back. 0:06:42.480 --> 0:06:44.600 This time we're dealing with actually something that he threatened 0:06:44.640 --> 0:06:47.159 with and actually put it out there for comments. So 0:06:47.200 --> 0:06:50.719 if anything goes wrong, then people know like, okay, this 0:06:50.800 --> 0:06:53.400 has got there's more coming. And I think that will 0:06:53.480 --> 0:06:56.600 really change people's behavior by this kind like Okay, we're 0:06:56.640 --> 0:06:59.960 gonna deal with substantially more terrors and companies will will 0:07:00.000 --> 0:07:01.960 are bare for that. So yeah, it's a big, big 0:07:02.040 --> 0:07:06.880 change now. She obviously China can't match the US tariffs 0:07:06.880 --> 0:07:10.720 dollar for dollar. They simply don't import is uh much 0:07:10.960 --> 0:07:13.440 US goods as they export to the US. So the 0:07:13.520 --> 0:07:17.840 question on everyone's mind is how will they retaliate? But 0:07:18.000 --> 0:07:21.240 will they retaliate? And you know people obviously talking about 0:07:21.560 --> 0:07:25.040 um they own more than a trillion dollars in treasuries. 0:07:25.080 --> 0:07:28.560 They could start selling them off and spike in interest rates. 0:07:29.000 --> 0:07:32.200 Others wonder if they'll let the currency just go into 0:07:32.240 --> 0:07:36.800 free all free fall to make their exports uh more competitive. Um. Now, 0:07:36.800 --> 0:07:39.440 there's problems with both those scenarios, but I'm just curious, 0:07:39.520 --> 0:07:41.360 what do you think where would you expect to see 0:07:41.360 --> 0:07:45.120 any sort of retaliation? Um? Yeah, definitely, Chinese has some 0:07:45.200 --> 0:07:47.880 Trump casts in the hands. You mentioned the treasury, you 0:07:47.920 --> 0:07:51.960 mentioned the You've been waiting to use that one. They 0:07:52.000 --> 0:07:54.560 have a lot of cause that can plain. They own 0:07:54.640 --> 0:07:57.080 one trillion dollars of US treasury, they can sell to 0:07:57.120 --> 0:08:00.000 the market. They have the manage the Chinese you want 0:08:00.000 --> 0:08:03.320 on to offset some of the costs from the tariffs. 0:08:03.320 --> 0:08:05.880 But I think these are like last options. So the 0:08:06.120 --> 0:08:08.720 signals they have been sending is that they're still willing 0:08:08.720 --> 0:08:11.840 to engage. They're still willing to talk. Remember last week 0:08:11.920 --> 0:08:15.120 before the Chinese send the meeting to send the team 0:08:15.160 --> 0:08:18.520 to DC to continue the latest round of negotiation, Trump 0:08:18.520 --> 0:08:21.760 who was threatening to raise the tariff, But the Chinese 0:08:21.800 --> 0:08:24.240 still send that team to the d C, but they 0:08:24.240 --> 0:08:27.320 cut the trip shot. Basically, He's said, they are sending 0:08:27.320 --> 0:08:29.800 the signal that they are willing to engage, but they 0:08:29.840 --> 0:08:34.400 are they're diggetting. They have to make that demand and 0:08:34.720 --> 0:08:37.559 their bottom line clear to the people in the US 0:08:37.679 --> 0:08:39.440 and to the market that they are not going to 0:08:39.520 --> 0:08:42.559 giving to the maximum pressure that Trump is putting on 0:08:42.600 --> 0:08:45.360 the China. Right. I'm glad you mentioned the talks in 0:08:45.480 --> 0:08:48.640 in DC start. Do you realize whenever the Chinese delegation 0:08:48.720 --> 0:08:51.520 comes to talk in d C, we send she down 0:08:51.559 --> 0:08:54.080 there to follow them around hoping for a quote. I 0:08:54.200 --> 0:08:56.400 have to I have to say I I didn't know that, 0:08:56.440 --> 0:08:58.760 and I saw she's name on a byeline last week 0:08:58.800 --> 0:09:00.560 and I realized. I said, oh my gosh, they sent 0:09:00.679 --> 0:09:03.000 him down to d C to try to get I 0:09:03.000 --> 0:09:06.040 think it's not a bad gig because they never talked, right, Yeah, exactly, 0:09:07.400 --> 0:09:11.640 well expectation, except this time. It's very interesting to me 0:09:11.679 --> 0:09:13.760 because I usually mentioned that the Chinese used to be 0:09:13.880 --> 0:09:16.440 very silent, especially when it comes to the trade, because 0:09:16.440 --> 0:09:19.280 they don't want to play the nationalism sentiment at home. 0:09:19.760 --> 0:09:22.960 But this time, Um lil Her, the Vice Premier who's 0:09:23.040 --> 0:09:27.520 leading the Chinese side of the negotiation, he's actually gave 0:09:27.640 --> 0:09:31.360 like two interviews to state media. In that interview, he 0:09:31.520 --> 0:09:34.880 made a clear the three major disagreement between the U 0:09:35.000 --> 0:09:37.160 S side and China side, which is for the first 0:09:37.200 --> 0:09:41.280 time they relieved the disagreement from the China side, one 0:09:41.480 --> 0:09:44.120 is that the all the tariffs have to be gone, 0:09:44.200 --> 0:09:47.640 have to be removed for any deal to happen. Secondly, 0:09:47.760 --> 0:09:51.719 the Chinese purchase of the American goods has to be realistic, 0:09:52.240 --> 0:09:54.520 so you as can't demand a lot of the purchase 0:09:54.559 --> 0:09:56.560 from the China side. And so part of is the 0:09:56.679 --> 0:10:00.280 language in the final agreement has to be respectful, has 0:10:00.280 --> 0:10:03.520 show the dignity um and equality, reflect that dignity and 0:10:03.640 --> 0:10:07.000 reflect the equality from the Chinese side. I thought this 0:10:07.080 --> 0:10:11.200 is a very strong signal chineses sending because by making 0:10:11.240 --> 0:10:14.720 this very public, it's very easy to check. So it's 0:10:14.800 --> 0:10:17.440 very unlikely China is going to back down from these 0:10:17.480 --> 0:10:21.080 three uh criteria sent up. So if we demand they 0:10:21.120 --> 0:10:27.160 buy Trump steaks and Trump vodka, yeah, yeah, exactly. Yeah. 0:10:27.360 --> 0:10:29.640 I mean those are some pretty strong demands and now 0:10:29.640 --> 0:10:32.440 they are made public now. Ben, something I've been thinking 0:10:32.480 --> 0:10:34.960 a lot about and speaking with investors this week is 0:10:34.960 --> 0:10:37.400 the idea that the logic behind the deal getting done 0:10:37.520 --> 0:10:39.120 is just the fact that it has to get done. 0:10:39.160 --> 0:10:41.520 It would be bad for both sides if it didn't. 0:10:41.559 --> 0:10:44.400 So everyone is holding on to this idea that a 0:10:44.520 --> 0:10:47.280 deal will get done. I mean, if everyone is thinking 0:10:47.320 --> 0:10:50.080 that way, does it just potentially make it worse if 0:10:50.120 --> 0:10:52.280 we keep seeing the can kick down the road, if 0:10:52.280 --> 0:10:57.520 this goes on until the election potentially beyond. That's exactly right, Sarah, 0:10:57.520 --> 0:11:00.880 because normally to kick the can down road a supposed 0:11:00.920 --> 0:11:03.120 to be very positive for markets because of the mental 0:11:03.200 --> 0:11:05.880 was that a difficult decision was put off, say that 0:11:06.040 --> 0:11:10.000 ceiling or shutdown or anything related to that or whatever 0:11:10.040 --> 0:11:12.560 kind of regulation. So markets have to deal with the 0:11:12.600 --> 0:11:15.679 negative outcome from that and therefore you rally. But this 0:11:15.720 --> 0:11:17.679 time this is different. Right, If you kick the cannon 0:11:17.720 --> 0:11:19.880 a road on the straight deal, we now sort of 0:11:19.880 --> 0:11:22.319 have a timeline what could happen. We could see by 0:11:22.400 --> 0:11:26.600 July more tears on a larger number of goods. In addition, 0:11:26.720 --> 0:11:29.240 in the following four months from there we could see 0:11:29.240 --> 0:11:31.520 there's on European cars. Right, there's actually a time and 0:11:31.679 --> 0:11:35.960 laid down there. So yes, this deal is essential to have. Also, 0:11:36.040 --> 0:11:38.360 I think to the European side that then therefore that 0:11:38.400 --> 0:11:41.160 will happen too. So you can't really kick the can 0:11:41.200 --> 0:11:45.160 down the roads without potentially causing major market volatility if 0:11:45.160 --> 0:11:48.080 you disappoint on the outcome. So the G twenty summit, 0:11:48.200 --> 0:11:50.480 it's just like Buenos Aires, like last year, they'll get 0:11:50.480 --> 0:11:53.520 together and it will be really you know, vell televised 0:11:53.559 --> 0:11:56.640 summit and we will watch the language and you may 0:11:56.880 --> 0:12:01.400 may go there. I guess some you know, some sense 0:12:01.400 --> 0:12:04.280 of what they're doing. But then we know, like you know, 0:12:04.640 --> 0:12:07.400 from there, we'll we'll think we'll get pretty contentious if 0:12:07.400 --> 0:12:10.400 nothing happened. So this is indeed a difficult situation. Kick 0:12:10.480 --> 0:12:13.760 the can here is negative for markets. Ben, So say 0:12:13.760 --> 0:12:15.960 we put you back in your old seat as a 0:12:16.000 --> 0:12:20.080 portfolio manager, and we say, Ben, here's ten billion. You 0:12:20.120 --> 0:12:25.240 have discretion to buy anything you want, bitcoin, swybean stocks, bonds, anything. 0:12:25.520 --> 0:12:26.960 What what are you? What are you trading right now? 0:12:27.040 --> 0:12:29.520 Are you just staying in cash? I mean it seems 0:12:29.559 --> 0:12:32.320 almost like a paralyzing decision right now to try to 0:12:32.320 --> 0:12:34.480 figure out how to play this. Yeah, that's there's one 0:12:34.480 --> 0:12:36.599 way you could approach you right as an investor, I 0:12:36.640 --> 0:12:38.240 would not do it that way. You know you're not 0:12:38.320 --> 0:12:40.920 want to sit all in cash? Uh, you know some 0:12:41.000 --> 0:12:43.600 of it that's just to be optimistic. Um, you know, 0:12:43.679 --> 0:12:46.880 I think there's opportunities developing with one good thing about 0:12:46.920 --> 0:12:49.400 this is for investing at least. Is that. Yes, any 0:12:49.440 --> 0:12:52.679 kind of tension creates relative value, creates opportunity. Any tightening 0:12:52.679 --> 0:12:55.960 of financial conditions creates value. It was better in the 0:12:56.000 --> 0:12:58.320 seminar it is now. But look at how the market 0:12:58.320 --> 0:13:01.120 has started to rebound in a would happen on Monday 0:13:01.120 --> 0:13:03.199 because people looked at that, Hey there's a little bit 0:13:03.320 --> 0:13:05.840 too much till in frencial cognitions there's value a step in. 0:13:06.440 --> 0:13:08.600 That's what I would do. Now, now to your question 0:13:08.920 --> 0:13:12.400 what looks interesting, I still think there's really value local 0:13:12.440 --> 0:13:15.160 emerging markets. I think that if the China situation gets 0:13:15.200 --> 0:13:17.760 real pressure, that's where valuable will appear. I would be 0:13:17.760 --> 0:13:22.160 willing to put money there Asian extrono Asian extent. Yeah, 0:13:22.240 --> 0:13:24.480 I think so. I think that that that would be 0:13:24.640 --> 0:13:29.400 potentially an opportunity, the risk reward there, and I think 0:13:30.320 --> 0:13:32.240 you know on the commodity side, you know, yeah, the 0:13:32.240 --> 0:13:35.760 soybean market, well, actually that looks really under values, right 0:13:35.800 --> 0:13:38.520 you think about historically, Um, but where I would not 0:13:38.559 --> 0:13:40.680 put my money And even though I've been in that situation, 0:13:40.800 --> 0:13:44.440 I would not my money in bounds because I do 0:13:44.559 --> 0:13:48.600 think that yields are thinking in US are they're kind 0:13:48.600 --> 0:13:51.280 of overvalue, they're kind of the fair value maybe maybe 0:13:51.280 --> 0:13:54.440 too low. The economy is stronger, right if we're not 0:13:54.520 --> 0:13:56.719 the starting death fast yet, so I would not put 0:13:56.760 --> 0:13:58.880 my money. So going off of that, we heard the 0:13:58.880 --> 0:14:02.360 likes of Goldman Sacks Mount this week tell Bloomberg Television 0:14:02.640 --> 0:14:05.040 that yields should not be where they are in the tenure. 0:14:05.080 --> 0:14:07.920 It's gone way too far away, too fast. Maybe two 0:14:07.960 --> 0:14:12.240 point seven percent is more fair value. Does it seem 0:14:12.240 --> 0:14:14.360 like this has just gotten ahead of itself a bit? 0:14:14.559 --> 0:14:18.480 I think the there's there's value in the bonds in 0:14:18.520 --> 0:14:21.560 the sense that if you are like a invest the 0:14:21.600 --> 0:14:24.400 boat holding boats of stocks and bonds bounds as a 0:14:24.480 --> 0:14:27.480 natural hatch for your stock portfolio. If you're bullish on 0:14:27.560 --> 0:14:30.280 the stock market, why not buying some bonds in case 0:14:30.320 --> 0:14:34.200 past things happen. So there's natural demand on that. And secondly, 0:14:34.320 --> 0:14:38.360 in terms of the fast expectations, the risk for the 0:14:38.360 --> 0:14:41.560 fair that is asymmetric. The bar for the fair to 0:14:41.720 --> 0:14:44.840 raise rates is very high. For them to courage if 0:14:44.880 --> 0:14:47.440 a recession do come, they have to cut all the 0:14:47.480 --> 0:14:50.960 way down to zero. So we're talking about fifty basis 0:14:51.000 --> 0:14:55.520 points in terms of distributes. The distribution of the polability. 0:14:56.120 --> 0:14:58.760 Then you come down to like twenty five basis points 0:14:58.800 --> 0:15:01.600 pricing into the future fair pone futures market is not 0:15:01.720 --> 0:15:22.280 that ridiculous. Um uh strange. Now, everybody loves to talk 0:15:22.280 --> 0:15:24.760 about Donald Trump in the Art of the Deal, Right, 0:15:25.080 --> 0:15:27.880 we're lucky enough to get Ben's notes, and uh, he 0:15:27.960 --> 0:15:29.720 tried to look at it from the other side. The 0:15:29.840 --> 0:15:37.040 art of war by sun Zoo. It's the art of 0:15:37.080 --> 0:15:39.680 the deal versus the art of war. And I want 0:15:39.680 --> 0:15:43.120 to quote a couple uh sun Zoo quotes from from 0:15:43.120 --> 0:15:46.080 one of your notes. Quote, if your opponent is temperamental, 0:15:46.200 --> 0:15:50.840 seek to irritate him. Check, pretend to be weak, that 0:15:50.920 --> 0:15:54.800 they may grow arrogant Jack. And then you're right. That 0:15:54.800 --> 0:15:58.240 sun Zoos principle is that all warfare is based on deception. 0:15:58.800 --> 0:16:01.840 So engage people with what they expect because it settles 0:16:01.880 --> 0:16:06.040 them into predictable patterns of response, occupying their minds while 0:16:06.080 --> 0:16:09.680 you wait for the extraordinary moment in the midst of chaos. 0:16:09.680 --> 0:16:12.800 There's also opportunity has been just pointed out. Now, Yuh, 0:16:12.960 --> 0:16:14.640 I want to ask you, you know, I feel like 0:16:14.720 --> 0:16:17.040 everyone in the US tries to get into the head 0:16:17.120 --> 0:16:19.880 of the Chinese side of these negotiations, and whether you're 0:16:19.920 --> 0:16:23.920 quoting Sun Zoo or Confucius or Yeoman, I don't know who. 0:16:24.000 --> 0:16:26.760 How much validity is is there to this? I I 0:16:26.960 --> 0:16:29.720 you yourself on the blog of quoted some ancient Chinese proverbs. 0:16:29.800 --> 0:16:32.400 So it walk us through the mindset on on the 0:16:32.400 --> 0:16:35.160 other side, Should we be reading Confucius and sun Zoo 0:16:35.240 --> 0:16:38.400 or is it is that silly? There's another person you 0:16:38.440 --> 0:16:44.360 should read. Kea Mao. He wrote a famous speech during 0:16:44.440 --> 0:16:48.000 the World War Two when Chinese finding against the Japanese invaders. 0:16:48.400 --> 0:16:53.480 It's called paronged prolonged wall, basically saying that the Chinese 0:16:53.640 --> 0:16:56.880 need to digging and to fight the fight. The whole 0:16:57.000 --> 0:17:02.680 anti Chinese, anti Japanese a wall last eight years. UM. 0:17:02.760 --> 0:17:05.280 So I think the Chinese. The timing is on the 0:17:05.359 --> 0:17:07.600 China side, because if you're comparing the U s E 0:17:07.680 --> 0:17:10.440 commy and the Chinese E comedy, Chinese had a bad 0:17:10.560 --> 0:17:12.640 year last year. Now they seem to hit the bottom 0:17:12.840 --> 0:17:15.880 in the process of stabilizing and probably in your recovery. 0:17:16.119 --> 0:17:19.800 The US, the fiscal stimulus is fading. Um. A lot 0:17:19.800 --> 0:17:22.280 of people are expecting of slowing down this year or 0:17:22.760 --> 0:17:26.040 next year, particularly and also the Chinese don't have the 0:17:26.080 --> 0:17:30.280 election cycles the US does. Yeah, so the chump needs 0:17:30.320 --> 0:17:33.800 something to show to his voters or to his base too, 0:17:34.000 --> 0:17:36.600 that he getting a China deal is a lot of 0:17:36.600 --> 0:17:38.959 people wanted, and this is the one thing he can 0:17:39.000 --> 0:17:42.359 show to his voters, Right. I wonder what sold more, Sara, 0:17:42.440 --> 0:17:46.600 the art of the deal or the art of war 0:17:45.160 --> 0:17:55.960 that I'd probably in the piece. So what do you 0:17:55.960 --> 0:17:58.840 think is is President Trump gonna have to blink eventually 0:17:58.960 --> 0:18:02.280 because of the upcoming election. I mean, it's very difficult 0:18:02.280 --> 0:18:04.480 to sort of predict what he's gonna do. But where 0:18:04.480 --> 0:18:07.800 do you see it's sort of happened, what's going to happen. Yeah, 0:18:07.920 --> 0:18:10.440 So this is interesting might because if you watch Steve 0:18:10.440 --> 0:18:12.639 Bennon on a competing network, Sorry but it was on 0:18:12.680 --> 0:18:19.080 a competing network. But that was a really important interview. 0:18:19.080 --> 0:18:22.240 I actually recommended to listen to it because he says 0:18:22.280 --> 0:18:25.200 two things. One, he makes it really clear that Donald Trump, 0:18:25.280 --> 0:18:27.840 no matter what, he's just not gonna absolutely not going 0:18:27.880 --> 0:18:30.359 to back down, right, He's actually gonna keep the terrorists on. 0:18:31.440 --> 0:18:33.600 And I thought that was very convincing because he sat 0:18:33.640 --> 0:18:35.840 with Trump in the same colnicolled War room, and you 0:18:35.920 --> 0:18:37.800 called it that way the White House, the war room there. 0:18:38.440 --> 0:18:41.240 And then the other part is about the long term 0:18:41.440 --> 0:18:45.840 picture behind this. In the view of Trump, China's waging 0:18:46.119 --> 0:18:49.600 an economic war against us and the rest of the world. 0:18:50.200 --> 0:18:52.440 And it's been going on for not just now, but 0:18:52.600 --> 0:18:56.320 like twenty twenty years or so longer. So they have 0:18:56.400 --> 0:19:00.560 built up during the twenty years a significant competitive vantage 0:19:00.760 --> 0:19:03.399 in technology, believe or not. And so this is a 0:19:03.440 --> 0:19:06.880 real concern on the part not just here, actually in Europe. 0:19:07.280 --> 0:19:11.040 So there's this hardlining in within the Trump administration that's 0:19:11.080 --> 0:19:14.840 not just driven by just campaign rhetoric. It's driven by 0:19:14.880 --> 0:19:17.600 a long term view. I think, as much as you 0:19:17.680 --> 0:19:21.520 may I agree with Bannon's auto ideas from an investing 0:19:21.520 --> 0:19:23.239 point of view, I took a Siers note of his 0:19:23.280 --> 0:19:27.080 what he was saying the subject. So he's going to 0:19:27.280 --> 0:19:30.800 keep it on to to to the elections, and if 0:19:30.800 --> 0:19:33.600 it does damage the economy, he's not necessarily going to 0:19:33.640 --> 0:19:35.800 back down. That's I think what we can read from it. 0:19:36.160 --> 0:19:38.840 I want to ask, I know, people moaning grown sometimes 0:19:38.880 --> 0:19:42.720 when people in the finance world starts saying that good 0:19:42.760 --> 0:19:44.920 news is bad news and bad news is good news, 0:19:45.000 --> 0:19:47.920 but bear with me for a second, because on Wednesday 0:19:48.080 --> 0:19:50.880 we got some pretty rough data out of China. Then 0:19:51.080 --> 0:19:53.840 US well right before US markets open, we got weak 0:19:53.880 --> 0:19:58.399 retail sales, we got weak industrial production data. And what 0:19:58.480 --> 0:20:00.639 I've been hearing is that people are looking at this 0:20:00.680 --> 0:20:04.560 week data from both sides saying, one, it will force 0:20:04.600 --> 0:20:06.399 an urgency out of the U S And China to 0:20:06.440 --> 0:20:09.200 potentially come to a deal if we are actually seeing softer, 0:20:09.400 --> 0:20:13.440 weak a Reeker economic data, and then also that that 0:20:13.520 --> 0:20:16.959 could also potentially encourage a FED rate cut, and we 0:20:17.000 --> 0:20:20.119 did see the Fed funds futures market start to price 0:20:20.280 --> 0:20:24.520 in further rate cuts. I mean, is this a real possibility? 0:20:24.640 --> 0:20:27.720 Is it true that bad news right now is good news? 0:20:28.960 --> 0:20:30.800 I think if if you look at it that way, 0:20:30.880 --> 0:20:33.080 then I would analyze it first from what happened in 0:20:33.080 --> 0:20:36.600 the fourth quarter is lingering through that data, and then 0:20:36.840 --> 0:20:39.040 what we now went through the last the first day, 0:20:39.160 --> 0:20:41.880 last ten days since that infamous street from trumpon May five, 0:20:42.560 --> 0:20:46.040 and a condition financial markets if tightened, that's impacting data 0:20:46.200 --> 0:20:48.679 right now and we'll see this coming out in June. 0:20:49.000 --> 0:20:52.000 So the market is definitely again bone market is definitely 0:20:52.080 --> 0:20:56.040 rational about that. The underlying data trends is weak and 0:20:56.119 --> 0:20:58.439 has a risk to become a lot weaker, and that 0:20:58.520 --> 0:21:01.880 would justify ray cut. Here's a difference over the fet 0:21:01.920 --> 0:21:04.160 thinking I think is that and this what has to Georgia. 0:21:04.240 --> 0:21:08.119 Actually they coverage now they may face finance and stability 0:21:08.280 --> 0:21:10.720 and it could cause a bubble, and the other hands, 0:21:10.920 --> 0:21:14.160 they faced the potential rishk of the economy sliding down. 0:21:14.160 --> 0:21:16.000 So it's a real difficult trade off. I think the 0:21:16.040 --> 0:21:18.239 Federals stay on the track of saying that leaves us 0:21:18.320 --> 0:21:22.520