China Trade Ceasefire Expected Soon, Punting To 2020

changed in this succeeding months. Mike McDonough, chief economists for financial Products that Bloomberg joins us here in a Bloomberg eleven three oh studio in New York. So, Mike, we've had a lot of rhetoric back and forth in the interim. As your outlook changed at all for a trade deal. I guess it depends on how you to find a trade deal, right. I think that you know a comprehensive trade deal. I think optimistically ten percent still seems about right.

But if we're going to use war terminology, I think that we may be about to see a C S I think that both sides have realized they have a lot to lose in the interim if this continues to escalate. They realize they will not quickly be able to solve these problems. And I think both sides are are are are willing finally to compromise, but not not to let's say, have a deal, but to agree to stop the escalation.

So what does that look like in terms of how they both save face and don't just say this is dumb, We're just laying down their weapons for now and figuring this out after the elections. No. So I think what's going to happen is that you will see UM China agree to buy more agricultural products, the magnitude of which will be determined by how much the US negotiators are willing to give up UH. And you'll also see some movement, some nascent advancements on the intellectual property side in China.

There's there, there's been some some things going on behind the scenes. I think that that that will come into play at some point. And I think on the U s side, UH baseline scenario in my mind would be they will agree to they I don't think they'll remove tariffs I think that that that seems like a hefty ask. But I think that the new round of tariffs due to come online in October won't be put on, and I think that that will be what they give up.

I think if there is any removal of tariffs, you will probably see you could see China agree to purchase more agricultural products. But I think that's what a ceasefire looks like. And I think that um, it won't be said, but I think both sides are kind of saying, maybe we should wait until after the election and see what happens and then do the heavy lifting at that point.

Even to get this ceasefire type of deal, Even that seems one could argue optimistic, given that we haven't seen either side really show any you know, softness on their either negotiating side. What gives you a sense of something, you know, the tweets and everything, that's all kind of a bit of noise. We don't really know what's going on behind the scenes or where things stand. Uh, you know, the rehed rick is inverse to how markets are performing generally.

I think what you're seeing is, if you're President Trump and you want to get reelected in you're realizing, okay, escalating this trade war is having a detrimental impact on markets, is having a detrimental impact on the economy. Uh and markets, and this isn't good for me, right. You know, if you're an incumbent president and the economy is doing poorly, that's death knell for your re election chances. Uh. So

there's some impetus there. And I think in China, the economies there is getting hit a bit harder than the government may have anticipated. Uh So I think that, you know, for them, uh, it would be good to kind of, um, at least stop the escalation. I think, you know, if you look at what has been put in place so far, I think both sides think, okay, well, as long as this is an escalating we bring some certainty for the foreseeable future back into markets and businesses. Uh, this is

good for both of us. Is the feeling among the officials who you speak with that the US has actually weathered this fairly well and that China has had a much harder time. Um. You know, you have to figure out, in China's case, how much of the weakening economies due to the trade war versus how much is due to domestic factors. There's a bit of both there. They're they've been going through this deleveraging cycle, which is a bit challenging. Excuse me, what happened to that? Is that that that's

kind of it's kind of been put on hold. But I think the slowdown was originally caused by that um and they are gradually putting reversing some of that, putting in some stimulus. They haven't pulled out all the all the weapons yet out of their arsenal that they could use, but you know, there's definitely some meaningful slow down there. And it's also that the sentiment impact doesn't fully get appreciated.

It's the uncertainty of what happens next. So if you remove that, if you kind of know what happens next, and it's the status quo at least for a while, that should help calm things down and and help bolster confidence a bit. So Mike, in terms of you know this, you know agreement light if you will, or trade agreement light.

So what is the timing of that, because it seems like October one when these tariffs go into effect, I believe UM or sometime in October that's when it's gonna become really hit the pocketbook and the wallet of general USA consumer. Yeah, I think I think as a courtesy to China for the seventieth anniversary that the start date was pushed back to the fifteenth. And that also tells me by pushing that back, maybe there was something going on in the background that we weren't privy to. That

is a positive sign. Uh So I think it happens before then. I think, you know, I think a ceasefire is a good word for it, and I think we see it soon. I'm trying to understand what that does to the other aspects of the trade discussion in terms of intellectual property, uh in terms of you just to sort of enforcement mechanism of some of the the ideas

as far as fair trade practices. Well, people just sort of say, you know what this is good for now, we won't think about those things, or will there be a lot of pressure saying Trump what happened to that? I'm I'm sure no matter what happens, it will be celebrated as a win. And you know the fact that you know, China will continue or these China's not paying the tariffs, but these tariffs will remain in place as a as a kind of punitive measure until the negotiations

are complete. I think that that it's going to be looked at as it might not even be called a ceasefire. It's going to be may be referred to as a step in the right direction. Negotiations are continuing, China's continuing. But how about it? I mean, is this how about the old trade you know, the t PP the Trans Pacific Pack. I mean, is it gonna be better than that? That's kind of the standard, right, Oh, the trans the t p P as and I haven't heard that in a while. I mean, no, the t p P is

very different. Actually, because um China was not a member of the t p P. I used to say that there were two groups of people who really didn't want to see the t p P initiated, and it was China and Trump supporters, right. I used to kind of as for a rationalization of that, the t p P was more of a it was a trade deal, but it was more of a geopolitical pact that kind of said the US still has influence within this region and help set policy. So that failure was actually, in my opinion,

a positive for China because then it opened doors. It wasn't the members of people who were part of the t p P had to look at China differently and starts saying, well, maybe we should be dealing with China more directly. Maybe Chinese has greater influence this region than they otherwise would have had. Well, Mike, I will say thank you very much. We'll have to have you back soon.

You've nailed it so far in terms of the unlikelihood of a deal when things were, when people were very helpful before, and now you're saying there might be I don't know if it's fair to call it a deal, some sort of ceasefire, stopping with the escalation. Mike McDonald, chief economist for Financial Products of Bloomberg LP, weighing in with great insight. I like avocado toast and I love drinking water with a slice of lemon in it. We are very lucky to be speaking with the biggest US

lemon and avocado crower Limonera. Harold Edwards, the chief executive officer of the company, joining us here in our Bloomberotta Active Broker Studios. Harold, thank you so much for being here. I want to start with some of the weather fluctuations that we saw this year that affected your company, especially on this climate change day, uh, with resulting in very big lemons and poultry avocado harvesting. Can you just give us a sense of where we are in terms of

weather disruptions and how that's affected your business. I'm happy to thank you for having me today. So, UM, last July a year ago, we had a week of temperatures over a hundred degrees. In fact, in some areas of coastal California it was a hundred and fifteen degrees for a long period of time. And that was right during the bloom and set period for our avocados, and the vast majority of them, approximately of what was hanging on the tree fell to the ground and became unmarketable. So

that was the first weather phenomena to hit us. And then if you fast forward, UH and UH, think back to the last seven years that California has been enduring a sustained drought. And last year was a godsend year for us. We had tripled the amount of rainfall that we normally have. I think we had thirty five inches of rain last year and so it was technically a great thing, except it prevented us and everybody in the in the coastal industry of citrus production from being able

to get into harvest our citrus. So by the time we were actually able to get our citrus harvested in this case, our lemons, everything had grown to be of a very large size. And what's normally eight sizes and three different grades of what we sell fresh, we had three sizes. And the market is a only so big. If you think about a gigantic lemon floating in your iced tea, it doesn't work. So Harold, it's interesting. One of the things I know that your industry and I

think about it. You're in southern California, the Santa Clara Valley, beautiful, just in southern California, so the greatest situs growing regions of the world, but you depend upon migrant labor. Talk to us about the immigration policies and discussions that are happening in the country right now, how it's impacting your business and your region of the country. Sure, having having a captive workforce is is absolutely essential for us as it relates to our harvest labor are pruning labor, just

are our labor in general. So the company just celebrated it's one and twenty six year of operation. We've been a lot around a long time. I haven't been there the whole time, but I've been there part of it, and UH, having access to a captive workforce has been critical. We've invested into our workforce. We provide housing, we educate our employees, so we we really try to minimize our

own workforce attrition. That being said, the rhetoric that's going on with migrant labor has made it extremely difficult to keep some of the outsourced labor as it relates to harvesting and pruning around. And so even just the rhetoric of the discussion of building the wall and UH, the relations between the United States and Mexico, most of our most of our workforce comes from Mexico, has been really challenging to keep that labor accessible to us. So here's

here's why I don't totally understand. We've got the tariff issues and the trade talks and that built the wall issues with migrant labor kind of coming under attack in the political sphere. You have weather disruptions causing some problems in terms of harvesting, UH, whether it be avocados or or big lemons, Um, why are the prices not higher? So we're very fortunate globally to have other sources of

fresh produce and in this case fresh citrus and avocados. Today, the United States consumes about three billion pounds of avocados every year. Of that comes from Mexico, and Mexico produces about three billion pounds of avocados, and Peru now produces almost a billion pounds of avocados. So between Peru, Mexico, and Chile, you've got more than enough to satisfy this insatiable demand almost that we experience here in the United States.

The same holds true with fresh citrus and lemons. Today our business we source lemons in Mexico, and we actually produce and pack and ship out of Chile, Argentina, and South Africa, but more to have counter seasonality, uh, combined and complemented by our California and Arizona production. Interesting, now I know you. The business is a global business. Real quickly, how are you doing with China? I'm guessing Chinese like the lemons, I like their avocados. I'm guessing, Um, how

do you get product into China? So the Chinese market is is just has massive potential. And if you go break it down by cities and and and areas of consumption, burgeoning middle classes and prosperity is more people are eating out every day, and more people are opping in supermarkets every day, and so the opportunity for consumption and that demand growth as it relates to citrus and avocadas is huge.

The the dynamic trade policy and changes makes it really difficult to shift or a ship directly into many of those markets. One thing that we've noticed historically is that China they're inconsistent trade policy with the United States. Whether the markets are open or closed. The total amount of

consumption is growing at north of twelve percent annually. But when that market gets a big terraff for a duty you put on it, usually that fruit diverts through Hong Kong and then somehow miraculously finds its way into the markets that um ultimately creates higher pricing for the Chinese consumers. Okay, but you're still gonna need your product there. Howld Edwards, thank you so much for joining us. As always, Harold's the CEO of limon Era based in Ventura County, uh In,

I'm sorry, California. So very interesting story on the lemon business, the avocado business, and just the global agricultural business. Um. You know, it's just amazing the consumption going up for avocados. I think we know why. Lisa Bramwins is contributing to that. I was in Chile when I developed the habit. So Federal Reserve has taken crisis era actions this week to try to regain some sort of calm in the repo market of the fourth day. Uh, they've added liquidity to

the overnight repo markets. The question is will this happen again and what will the Federal Reserve do on an ongoing basis to make sure that there is a little more stability in these basic fundamental markets for financial worlds. Joining us now as Dr Bob Eisenbeis Vice chair in chief Monetary Economistic Cumberland Advisors. He was formerly the ex I COULD Advice President and director of Research at the Atlanta Fed. Bob, thank you so much for joining us.

First of all, do you think that we are going to see additional rounds of disruption in the repo markets going forward like the ones that we saw this week, Well, that's going to be hard to determine, because even as of now there's not a lot of consensus as to what the cause of the pressures were, and to really get to the numb of it, you have to understand a little bit in terms of how this market was set up and it was designed to provide a source

of liquidity. Two banks, G s c s, money market funds, and primary dealers. Banks and G s c s really haven't been players in this market at all, and it's mainly the primary dealers, and my understanding was that the

primary dealers were experiencing a a squeeze. The primary dealers are the security are securities arms broker dealers, some of which are affiliated with commercial banks, but they cannot tap commercial bank funds, so they have large portfolios of securities that they have to finance, and typically they were financing them through overnight repose with money market funds. But a couple of things happened this past week. One was this about a seventy billion dollar tax h draw that required

money market funds to liquidate the securities. At the same time, the Treasury issued about fifty billion dollars worth of securities that had to be financed. All this had to be financed through the repo market. Basically by the primary dealers and they were squeezed. And so this is how what the FED did there. The FED is really the only

option in this particular case. The security affiliates, even though they may have been associated with a commercial bank, can't really borrow from the commercial of banks, and the banks are unwilling to lend to the primary dealers of other banks. So the FED is really the only UH source here. And what really needs to be done is that FED has to decide what this facility is going to be

and who should have access to essentially FED resources. And the real mystery is what the cause of the problem was, and people are just guessing at this point. I'm pretty sure that people in New York FED no. But that's another problem that they just haven't been forthcoming and telling us what they do know. Right, So that's kind of

where I wanted to go, Bob. I mean, there's some market participants that are saying, you know, the FED kind of got caught off guard here and kind of didn't really have it the finger on the pulse of this part of the market. Is that something you ascribed to No, I don't think. So. They have daily interactions with all these firms, and uh, they should of benement. It was well known about this text day for example, and the said does announce or the ex the Treasury does announce

what it's security stealings are going to be. So I'm surprised at this, to be honest with you. Alright, so you're surprised at this. And there is a lot of talk that the Federal Reserve is going to probably increase its balance sheet, not in a quantitative easing type of manner, but in some kind of way to make sure that there is just enough liquid assets there to prevent this

from happening going forward. I want to sort of put that aside for a minute, because this whole REPO action totally overshadowed the actual FED meeting that we got in the rate cut that we got this week, And I'm just wondering, uh, to take stock of what happened with Fed share Powell and what you're expecting going forward. How many times do you think the Fed's gonna cut rates

in additional rounds this year? Well, if you look at the dot chart in particular, um, there's at most a group of seven people who think there should be one more cut. There's ten people who don't think there should be either a move or perhaps even an increase. So at most I think at this juncture you're gonna if, if the present voting structure continues, we might get one more rate cut, but I would be quite surprised at that.

And I think it's going to be really dependent on, among other things, what the third quarter GDP number looks like. And as some of the discussions you've already had today suggests that certain parts of the economy are doing pretty well except for the investment side of things, and of course that's I think really related slow down. There is

more related to uncertainty about trade. And we saw another switch in what policy on trader is going to be today in terms of exemption of certain goods and so on by both the Chinese and the United States. So there's this constant. I don't know, And if you're a businessman, uh, at this point, the prudent thing is probably just to

sit on your hands for a bit. But I want to go back to the point you made that you wanted to set aside the fact that the FED might increase the size of its balance sheet if in fact the primary dealers are the ones who are having problems. Increasing the size of the balance sheet and injecting in the reserves into the system is not going to necessarily provide the funds to those particular institutions at all. So to me, the real issue has to do with how do they change and what do you do with the

structure of that repo market. And it's unrelated to the size of the FED. So what do you think they should do well? I think one of the arguments is that they should essentially allow the primary dealers to have accounts at the FED, which would give them access to the discount window, which would solve the problem um And of course the FED could also do some other things. I firmly argued for a long time they should be buying and selling FED funds at the desired rate on

a continuing basis, not just one time a day. That would solve a lot of problems. Dr Robert Eisenbis, thank you so much. Dr Eisambiss, vice Chairman and chief Monetary Economist at Cumberland Advisers, joining us on the phone from Sarasota, Florida. All right, Paul, I'm gonna tell you a little story from last night. All right, So last night, my ten year old son comes to me and he says, Mommy, tomorrow, I'm going to walk out of school. And I said, okay,

where do you Where do you plan to go? He's like, I'm going to this park. I'm going to this park. I've made signs. We're going in a group. But people in charge don't understand that they're wrecking our earth. Did we need to go fix it? Um? So he's being taking part in all of the climate change UH protests, etcetera. And then this is a global thing and I actually am pretty negligent and that I was not as aware

of it as I probably should be. So to get a little bit more on exactly what this is, because I'm curious, I'm sort of allowing my son to throw himself out into uh. Eric Roston joining us here. He's sustainability editor for Bloomberg News. Eric, what are these protests that are going on all over the world today. It's quite a remarkable story. Actually, there are many, many thousands of people protesting the lack of global action on climate

change in major cities around the world. And they were really sparked into this by one sixteen year old Swedish girl who in the last couple of years has through uh you know, unusual succession of events, become a global spokesperson for the urgency of the climate crisis. Uh. They this coincides with major un events next week on the topic.

So again, the this rally again, I've seen some amazing video from Australia and from Berlin and then just tens of thousands of people maybe more in all these cities. What what's kind of the objective here? Is it just to raise awareness or are there asking for certain concrete things to be done? They're not. I think I think it would be a remarkable feat in the history of

humanity of that many people agreed on anything. Uh, to the extent they do agree on something, it's that this topic needs more attention than it does from people in power. A number of things have crystallized in the last year two that have really brought this into the public h to the public attention in a way it never has before. Probably the most powerful thing are just these very strange, very destructive, massive unusual events, the hurricanes, the droughts, the flooding. Uh,

that's hard to miss. Another thing is the science, which basically hasn't changed for thirty or forty years has been getting increasingly higher pitched, including in October a pretty dramatic report from the main UN authoritative climate body that says, look, this is by we have to have net zero greenhouse gas emissions and by we have to slice in half

what we're putting out into the atmosphere now. And we got that with a pledge to eliminate carbon emissions out of the EU, out of Germany, with Angel America making a pledge this morning. In the meantime, there's a very real implication for a lot of businesses, whether it comes to carbon taxes, whether it comes to different regulations, or whether it comes to just public relations issues and how

people perceive different companies. There was a report out showing that Amazon dot COM's emissions are bigger than some of its retail rivals, although they did trail Walmart. Can you talk a little bit about that Amazon did really changed the conversation yesterday that climate activists certainly have about them.

Amazon has not really participated, really over the last fifteen years, in any of the increasingly common voluntary disclosure mechanisms that companies have been participating in where they reveal their their climate emissions. For investors. Even over the past year it's been getting more and more intense for Amazon. Is that the spring that was an employee walk out, people protesting

the lack of attention to climate issues. UH. And yesterday, after never having published their carbon number before, UH, they issued UH quite detailed and very sort of strategic policy for getting on top of all of their direct and indirect emissions over the next two decades. So, Eric, can these global you know, emission goals for the UN put out?

Are they reasonably achievable if the US does not play a leading role because it appears that this administration is not as big a supporter of sustainability as perhaps other parts of the world. That's fair. UH. One thing that I think is underplayed a lot because it's it's fuzzy and it's difficult to write about, is that leadership really matters, and leadership catalyzes change on this topic in a way.

UH that's different. And you can look to UH the two thousand fourteen bilateral agreement between the US and China over climate goals that really set in motion momentum that became a year later, the Paris Agreement on Climate Change UH, and that international collaboration is really powerful. There's uh, you know, it's very difficult to get everybody to commit, hard to get everybody to jump in the water at the same time if if there's fear that not everybody's going to right. Yeah,

So a long term story here. Eric Rosston, thanks so much for joining us, Eric's sustainability editor for Bloomberg News. Joining us here in our Bloomberg Interactive Broker studio talking about UH, the World Climate Rally that is taking a place around the globe as we speak, in UH in major cities. I've seemed again just some amazing video from major rallies in major cities around the world. So people really getting behind this issue. The question is to what

extent will the U s N Corporate America. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at Lisa abram woits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio