"Goldilocks" Era Will End For The U.S. Next Year: Bill Rhodes

twenty summit taking place in Buenos rs. Joining us now to tell us more about that meeting and other world events is Bill Rhodes is commonly known as the Banker to the World. He is the author of the book Banker to the World, Leadership Lessons from the front Lines of a Global Finance and the book I Understand is currently in a second English edition. It has been published in Mandarin, Korean, Japanese, Portuguese, Do This for a Reason,

and most recently two editions in Spanish. Tell us what you believe will happen at the G twenty meeting in Buenos Aires. Well, I think, Pim, there are great expectations that President Hi Jim Ping of China and our President Trump will be able to cut a deal on trade.

As you know, at this point in time, we have tariffs on ten percent on two hundred going to come into effect in January UH billion dollars worth of Chinese exports to the United States, and UH President Trump is threatening to increase that amount to from ten percent on that two billion, but also saying that if he doesn't get some indication of positive movement on the part of China next year, he could put a similar tariff on the remaining two sixty seven billion UH vis a vis

the trade balance between the two countries. UH. There's great hype over this, not clear what will come out. I think the good point is they're gonna be talking face to face. The real work will be done by the people under them. But there's something else going on at that G twenty the people have sort of forgotten. You will have the three largest producers of oil in the

world sitting down. They're together. In other words, the United States was with President Trump putin of Russia and also UH the head of Saudi Arabia, UH, either the king or someone the king will send. And as you know, one of the chief disturbers or let's say, in the marketplace today the chief sources of volatility is oil, and so one side light could be that there could be

some discussion on oil. Also because there's a meeting on the fifth of December OPEC, and the feeling is Saudi always is a mover there and will Saudi go along with President Trump who wants to keep prices low or for their own income, will they move on it? So this is sort of a side light which could come out of there, as well as the discussion between Trump

and she jumping. Yeah, because a lot of people expect a supply cut at that OPEQUE meeting, It'll be interesting to see whether Saudi Arabia's view is tipped in their

connections with President Trump. I do want a home And though on trade and the discussion between Ji jimping and Trump, just because this really has been a huge main driver of recent market volatility, I'm wondering do you view the threat as additional tariffs that President Trump just came out with as a negotiating tactic, or does this indicate that President Trump is serious about trying to completely rejigg or

supply chains. Most people think it's a threat On the other hand, I never underestimate what he might do having known him since I think the real issue here is I've said on your show before and on Bloomberg Television, is I think not so much trade but intellectual property because if you go take the long view, which is so called Chinese view, but we have to take the long view. Two, we've always been dominant in this area

Silicon Valley, et cetera. And Uh, I think one of the issues that really has to be threshed out here, apart from the trade situation, is what's going to happen on intellectual property. To me, that's the most difficult thing to work on. Bill Rhodes, do you see a possibility that at the last moment, Ping of China will not go to the G twenty meeting and send someone else? No,

he he actually glories in these meetings. You will note that he never misses any regional meeting, whether it be in Asia or any uh, you know, any brick meeting or whatever it is. Uh. So there's no doubt that he will go, barring some illness or something. The real question is, uh, is anything going to come out of it? Uh? And he has said very little recently except to talk about the need to have balanced and free trade in

the world and all of this. But President Trump has been very vocal almost daily on Twitter and and and he views himself as as a great deal maker. So we'll have to see whether there's just an airing of views or something comes out of it. I think it's about fifty fifty whether something specific will come out of it,

or we'll just go on to another phase. Bill Rhodes, I'm hoping he can understand and translate for us how andres Manuel Lopez Orador or am Low, the new president of Mexico who is taking the home in the next few days, how he is going to treat markets because so far the sig knowlls have been very bad, and we've seen stocks plunge in Mexico, the pesos testing uh the year lows, and you're seeing bond yields searched to

the highest in at least seven years. Well, I think one of the reasons for that, Liza is that, uh, he was insistent that the that the government go through with some sort of a referendum on the new airport, which was already thirty five complete billion dollar airport. Yeah. Actually more than that. I think the final run was supposed to be between thirty five and thirty eight billion dollars.

And of course very a very few number of people showed up for this referendum or plebicite and was turned down, and he says that based on that, he's not going to go ahead with it, and that shook up the Mexican markets because a lot of that paper, the bonds that we used to finance it, are held by Mexicans. Of course, a lot of held by Americans do, but a lot by by the Mexican business community. UH So there was a lot of con tarned there as to

what will happen. I was with one of the lead Mexican business people the other day will go unnamed, and he's more optimistic because he's got as his chief advisor of Puncho Romo, who is one of the leading business people of northern Mexico, as his advisor, will be his chief of staff. And the last time I was with UH with Almo, which a little over a year ago,

I co hosted a small dinner for him here. Council in America's UH He and UH Puncha Romo were very positive on some of the things they wanted to do. One of the concerns is what he's also going to do in the oil business. UH. Is he going to cut out the contracts going forward? Is he going to

seek to modify them? There's concerned there also. And of course, the immediate crisis he faces on his border, of course, is the migrant uh immigration problem with the caravans coming up from Central America, and it's a very difficult situation for him because his predecessors haven't done a very good job with it, and our President Trump is talking about

closing the border completely. I think what Trump is looking for is something like Merkel negotiated with Turkey, which is you keep them over there on your side of the border. Uh and UH we will from time to time let some of them go through the normal procedures to come in and UH. There's been a lot of talk that Almo uh and his government will put forth a program to resettle some of these migrants, but it's not clear and he doesn't take office until December one, but that's

the first order of importance. And then the other thing that's being watched is before the end of the month in December, he he must go to Congress and present a budget and people are not sure what that budget is gonna say. So because of all these things have been very uh, you know, very many doubts in the market. You've seen the stress on the Mexican peso. You've seen the stress in the stock market in Mexico. So everything is sort of on hold until uh, the week after

December one. On how he handles all these programs. Bill Rhodes, just to continue on this oil theme and PEMMICS, which is the nationalized the national oil company in Mexico, price of oil, and you started the segment earlier talking about oil prices from the beginning of October to the current let's say fifty barrel on Thenmax oil has declined in value in dollars more than thirty three per cent. What

does that do to the economics of Mexico. Well, certainly, uh a low Mexico doesn't produce as much as it used to. It is not particularly positive obviously, And it's interesting to note that the President of Mexico will be this meeting in low He will be attle office on December one, and also the president of Nigeria, which is

a major producer. They're all members of the Group of thirty excuse me of the group of twenty and so I think that what you're going to have here is some discussions on the sidelines of this conference about it. I think what has happened is the US has every day has been reaching higher production levels with the shale oil boom that we see. But if the price of oil drops substantially below fifty dollars, a lot of those operations are not viable. Uh. But the Saudis are peak

production at this point. Uh. Many think trying to a suage and gain the favor of President Trump, but they can't continue to do that because they don't have the income.

And the Russians are at peak production too. So if you're advising a company right now in the United States, with respect to their relationship in Mexico, which you advised that they would go and make an acquisition because things are so cheap right now, or would you recommend that they stay away you're talking about a new oil business in the oil business were beyond just in general, just taking a look at the background backdrop here politically as

well as economically well as you know, because I've said it on the show several times. I think here in the United States we're in a goldilocks period. I think for a year from now we will not be I think next year is problematic because the FED I think will definitely raise in December, and I think we're going to see a couple more increases next year, and then we'll have to see what the economy does. But China is slowing down big time, there's no doubt about it.

I think they're going to really have a fight to keep six percent growth. It could dip next year below that. And Europe is slowing down also with the doubts on Brexit, the problems in Italy, even Germany, automobile production slowing. So what you is the United States is a star in the sense of economic growth for the moment, but we're

in an intertwined world. And this is why this whole situation about trade, the trade wars, particularly with China, but also what's going on between the United States and Europe on automobiles. I think all of this is very very important, and so I think we're in for even more volatility uh in both the markets, in the sense of the stock markets, the bond markets, but also in the commodities markets.

Over the next twelve months, Bill, just quickly, because you've written in the past and proved impression when it comes to stock prices. You're not a stock picker. I understand that, But that same period beginning of October to the current level of stock prices down more than nine per cent, you kind of telegraph that in a lot of your writing. What do you see next? Well, I think what the people on the floor of the Stock Exchange of hoping the trade is. We're gonna get to fame Santa Claus rally.

But that's going to be very much tied in with what we've been discussing on the G twenty Because if we don't see some progress between China and the United States, and you want to take the radical view the President Trump will go ahead and increase the tariffs on China and uh, we don't have any resolution on oil, then I think we could be in a difficult situation. Thank

you very much, Bill Rhodes. As always bankers to the world, Bill Rhodes, President and chief executive of William Rhodes Global Advisors. US Ambassador to the United Nations Nikki Haley said in the Security Council meeting earlier that Russia's shooting and seizing of Ukrainian vessels is quote outrageous violation of sovereign Ukrainian

territory and marks yet another reckless Russian escalation. Here to tell us more about what is going on in geopolitics, including Russia and the United States, is retired Admiral James Stavridis. He is a calmist for Bloomberg Opinion. He is, of course a retired US Navy admiral, former military commander of NATO, and dean emeritus of the Fletcher School of Law and

Diplomacy at Tufts University. Admiral Stavridas, thank you for being with us, give us your thoughts, your reaction to the Russian shooting and seizure of those Ukrainian vessels that were transitting to the Sea of Azof from the Black Sea. Well, first of all, having spent my life at sea, even I had to take a moment to recall where the Sea of Azov is. It's tucked away in a little corner of the Black Sea. It's very shallow, it's smaller than the US Great Lakes. But it has now become

a flashpoint. And you know, m I would say whoever heard the Gulf Tonkin before Vietnam. So a, there is a potential for this to grow into something much bigger. Be Nikki Haley as usual is completely right. This is an outrageous seizure of sovereign warships on the high seas. That's a big deal in international law. And see, the question is how far is Putin willing to go. He's

a risk taker. He's clearly probing here, and I am very concerned that this could escalate into something very dangerous, not only for Russian Ukraine, but for NATO in the west. So can you just extrapolate, extrapolate out what would happen in an escalation like that? I can, Lisa, what I would see happening if there is not an immediate strong

pushback in response to this event. Uh Putin will continue to probe, and his real objective here is not simply to control the Strait of Kersh which is what connects the Black Sea and the Sea of Azov, but he also wants a land bridge from Russia through to Crimea, and that requires him to consolidate real control over southeast Ukraine, notably the city of Mario Pool. So I could see a kind of Christmas surprise where we're all very distracted.

There hasn't been a lot of pushback, and Putin decides now is the time to really consolidate a strip of land between Crimea, which he's already seized, and the mainland of Russia. And you say that there hasn't been a lot of pushback, you're talking about President Trump and his response. Correct, I am, and uh. Otherwise, we have seen a great deal of pushback from European nations, from NATO as an alliance. We saw the Secretary General. We saw fortunately our u

S Ambassador to the United Nations, NICKI Haley. I think we're gonna miss her in a few months, Uh, pushing back hard. We haven't seen the White House step up and go at this. And the big thing, as you've been talking about, is the G twenty down in Argentina. President Trump will be their face to face with President Putin. I hope he raises this both privately and publicly. Admiral ste Frida's Russia has already built a bridge connecting Crimea

to the Russian mainland. It's a twelve mile bridge, I believe, and it is so low that it prevents Panamax vessels from actually docking in the Ukraine city of Mario Pole. So is this just another extension of what we see more things like that? Unfortunately, I think we will, given the state in general of Russian infrastructure and their construction abilities. I think no less than six bridges have collapsed in Russia in the last twelve months. Perhaps the Ukrainian shouldn't

overly worry about that. But in all seriousness, yes, Tim, this is part of what is sometimes called hybrid warfare. This is what Russia uses without actively going to war with the nation. But it's this combination of using the social networks, using propaganda, troops that are not marked in their uniforms, special forces, seizing points, supporting the rebels in southeastern Ukraine, building bridges that block ships. All of that is part of what I would call hybrid warfare. Putin

plays that very well, and it's a dangerous game. Admiral. I want to shift gears a little bit to the southern border. Here in the northern hemisphere. The US has had an increasingly tense relationship with Mexico over immigration. President Trump threatening to close all ports of entry from Mexico. Incidented states as a result of illegal immigration. Can I just get your sense of how feasible that would be

and what's been going on down there in the southern border. Well, first of all, we could, certainly, we the United States could certainly build a quote big beautiful wall, and Lisa, it could stretch for eighteen hundred miles, it could be thirty five ft high. Um. It would cost billions and billions of dollars. But here's a news flash, and I know this is true because I'm an admiral. Right to the left of the wall is an ocean. People are going to find ways to get here. So do we

need to control our border? Absolutely? What we need is a smart wall, if you will, That is a big physical structure in some places, is unmanned vehicles patrolling in other places. We need to plus up the border patrol and give them the resources to do their job on the border. We ought to get our troops off the border. That's not their job. That could lead to dangerous confrontation.

And so we need to control the southern border, certainly, but we need to do it in a more constructive fashion, and above all, to conclude, we need to do it in cooperation with Mexico not in an antagonistic relationship. Threats of simply closing the border are untenable and would hurt both nations. Adams Stevita's in your most recent books see Power, The History and Geopolitics of the World's Oceans. You underscore

what you just described. But is Mexico and the migrants, or the asylum seekers or the people on the border, is that really a security threat to the United States. It is not, in the sense that they are not invading the United States. There is a diminimous, a tiny percentage of truly bad actors. Most of these people are economic refugees. They have a legitimate case, both economically and because of violence in Central America, to plead their case for asylum. We can either grant it or not, but

we are to respect that process. I do like the idea of working with Mexico to do this on Mexican soil, culturally, linguistically, geographically, that makes sense. I hope we can cut that deal. But as I said before, Pim, what we need is a coopera relationship with Mexico to deal jointly with this challenge. Admiral just ten seconds. I'm curious do you think that we have a greater degree of geopolitical risk today than

a year ago or a lower one. It is higher because of the things we've discussed, but principally because of ongoing confrontation between the United States and China economically and the South China Sea. We are steaming into dangerous waters. As we would say in the Navy, it's going to require international cooperation to solve these problems. Admiral, we so appreciate your time. Thank you so much for being with US. Admiral James Stavridi's columnist for Bloomberg Opinion, retired US Navy

admiral and former military commando of NATO. Always wonderful to get his thoughts. This is Bloomberg Markets with Pim Fox and Lisa Abramowitz on Bloomberg Radio. We are broadcasting live from the Bloomberg Interactive Broker's studios. A lot of people are sitting around and thinking what we hold well. If you listen to Emily Rowland, perhaps you might be getting a little concerned. Perhaps Emily Rowland, head of Capital markets research for John Hancock Investments based in Boston, bejoining us

here in our eleven three studios. I was reading the outlook for that you put together. You said you see a market peak after the yield curve inverts, and advised against taking on too much risk and perhaps even advised shedding some Please explain, well, I can see you read all the way to the end of the outlook there. The first part of it actually states that we are still positive on risk assets. We do still think that there's room left to go in this cycle. The yield

curve hasn't inverted yet. The leading economic indicators are still coming in in positive territory. But to us, the time to repair the roof is when the sun is shining right looking ahead into You know, we're going into a very very different macro regime here right. The Fed is continuing down this path of rate normalization, quantitative tightening is going to increase meaningfully. We shed four hundred billion dollars from the balance sheet this year. That goes to six

hundred billion next year. That's a very different environment for investors who are used to plentiful liquidity, used to low rates. The Fed buying up fixed income, and we think that that should lead us to a point where potentially we do see a yield curban version and then potentially a market peak down the road. Not there yet, but again preparing to become more defensive. Is the world over leveraged?

That's a great question, and I think that's certainly a concern as we head into into and it's a it's a risk that we're watching, um, you know, and I think as credit conditions tighten, as liquidity as withdrawn from the system, you know, you could see that put real pressure on markets globally. Do you think that emerging markets to haven right now? That's an interesting question too. And we've seen you know, a bid for emerging markets over

the last few weeks here. We were down more than twenty at one point this year through October, and we're starting to sort of carve out a bit of a bottom here, you know, I think investors are pricing in a somewhat you know, better resolution to trade and terroriffs. We'll have to see what happens after the G twenty meeting this weekend, you know, But for us, we're not ready to go to really go in uh to emerging markets yet until we see some of the fundamentals start

to turn around. So we look at things like earnings estimates where you're really continuing to move sideways and emerging market equities, we're gonna need to see that really come back in order to go more positive there. So we're neutral on them right now. What are you finding when you look at investment behavior, because they've certainly voted with their money when it comes to technology stocks, is it

likely that investors will put their money into cash? Well, you know, we've really seen that happen, and looking back on it's been the year of cash and the year of ultrashore bonds. Who would have thought that would have happened in right, And as we look at investors really piling into cash and ultra sharp short bond funds, we think that that actually might reverse a bit as we

head into twenty nineteen. If you look at the way that investment grade corporates have performed this year, if you look at the way the bar cap AGG has performed this year, it's actually been almost like investment grade corporates have really been beaten down. The eggs down one and a half two percent when you look back at thirteen. When you look back at two thousand eight, when fixed income was really under pressure broadly, the following years were

actually quite good for fixed income. So it sounds like rotation into investment grade is something that you foresee in the future because it's gotten pretty beaten up. What are you looking for? What sort of the trigger that will make you reassess and start shutting risk more meaningfully. Yeah, so I think what we'll be looking for first, of course, is a yield curb and version. We're right around twenty

two tons. You're looking at two tens. Looking at two tens. Um, we'll be looking for, you know, economic indicators to really start to roll over meaningfully. They're still coming in positive things like consumer confidence, things like jobless claims, you know, very low levels here. That data is all still very good. But of course markets are you know, forward looking, right, so you know we're looking for for a you know, a catalyst. Um, we need those things to play out. Um.

We also need to see what happens with earnings. Right looking on the equity side, you know earnings of course, peak earnings are behind us, but that doesn't mean that earnings growth broadly is behind us. If we start to see earnings estimates and earnings revisions start to roll over, that's going to be another indication for us that it's time to get more defensive. Again, we're not there yet.

Just give you about thirty seconds. Do you foresee a time when credit rating agencies are going to have to issue revisions to their analysis of investment grade companies? Yeah, I mean there's certainly a lot of talk about investment aid corporates and the risks and the triple be market. Um,

you know, we will keep an eye on that. But at this point, again, investment grade corporates have been treated like it's a or even two thousand eight type environment, and we think that there could be an opportunity for them to you know, come back catch a bit a bit. You know, our managers are continuing to allocate uh portions of their portfolio there, and we're comfortable owning some investment grade corporates heading into the next year. Thanks very much

for being with us, very enlightening. Emily Rowland is the head of Capital markets research for John Hancock Investments, based in Boston, but joining us here in our Bloomberg Interactive broker's studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer I'm pim Fox. I'm on Twitter at pim Fox. I'm on

Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on bloom A Radio m