Sharp Fall In The Yuan Is Big Risk To Global Growth (Podcast)

He is managing director and chief strategist as Silver Crest Asset Management. Just back from a tour of Denmark and uh Norway. Thank you so much for joining me here in our eleven three oh studios. So, Patrick, let's focus on China here because we are getting more talks that are continuing to fail but maybe making progress. Today. The big move is in the Chinese un which is actually strengthening by the most verses of dollars. Since what's going

on here? Are we getting some sort of progress or is this just sort of muddling to a new phase? So on the trade talks um, there wasn't a lot of optimism that the talks over the past couple of days would lead to anything, and in fact they took place amid um the the likelihood and now the reality of a new round of terrorists being imposed on by

both sides. So, uh, you know, I think I think the Chinese are trying to figure out, um, what exactly might satisfy the Trump administration if there is a deal to be cut here, and I think there's some disagreement within the Trump administration about what what would be satisfactory. You know, some such Learric Cudlow h insists that the that that the trade sanctions are bargaining trip to open

up trade China. Others don't think so, Others such as Navarro, you know, Uh, the impression that I have is that he thinks, uh, tariffs are the solution that that China won't move. It's kind of you know. And then and the actually tariffs are the way that the are the

way forward, you know. And honestly, we're just speaking with Garrett Vank of Bloomberg Technology, and he was talking about the US Postal Service and President trying to push the agency to renegotiate it's treaty and how it charges small packages to China versus the other way around, and that doesn't feel like it do feel like things are easy. It doesn't feel like cart because it's very specific and

it's highlighting an issue that's been simmering for a long time. Yeah. So, so I think there's this division within the administration and I don't know, you know, where Trump falls on this about whether the goal is free your trade or whether the goal is protectionism. And obviously, you know, if you're in the markets, you'd like to know the answer to that question. Um, But we'll only know in time. Um. But it doesn't seem like this is heading towards a

resolution anytime soon. You know. I want to sort of throughout there a theory that a number of big bank strategists have talked about, which is that President Trump, as he faces more challenges at home, legally and otherwise, that he will aamp up the rhetoric against China and Mexico and other places to seem hard in his convictions and to appeal to his base. Does that hold water with you?

So you know, how much can more can you ramp up the rhetoric without actually taking action that then subsequently has economic impact. And so, you know, I realized that the rhetoric and even the actions. You know, protectionism is popular with a certain part of his base, but it's also deeply unpopular with the business community and with markets. And the one thing he's really got going for him right now is a strong economy. And if I were him, I wouldn't want to do anything to mess that up.

And if you look in the I s M surveys um both manufacturing and non manufacturing, what a lot of companies are saying, Hey, we have a strong economy, we see a lot of positive new and but boy, these uncertainty over tariffs, the impact on our our input costs, We're losing export sales. This is the one big negative that we see that's making us hesitate to invest more.

And so if that's if that's a reality now going further down that path, um, you know, I don't want to sound apocalyptic, like, Okay, it's going to end the cycle tomorrow, but but it's it's one more thing in a in a cycle that's fairly mature. It's one more thing that brings you closer to the end of the cycle. Potentially. I have to wonder, you know, putting aside the trade tensions, how much China itself could be the end of the cycle if it mismanages soft landing, And I think that

people have stopped talking about that to some degree. But here we had ten Cent report earnings that were highly disappointing. Ali Baba reported earnings that were better than expected, but people still weren't that enthusiastic by the start, you know, based on the stock performance because of concerns going forward

about growth. Are are you learning anything? Are you reading anything into this that makes you feel like there is a more substantial slowdown than people are really giving credit to. So I've always been quite concerned about China's economy and where it was headed um and the debt issues that

they have in the past. I always took the view that because China was never really a driver of global growth because of its because of its surpluses, that a slowdown in China's economy would would not derail the global economy the US anymore than the slow down in the Japanese economy derailed growth in the ninety nineties. Right um, because it really isn't a driver of global demands. Um. That said, how China responds to a slowdown could have

a significant impact. So we've seen um, the yuan depreciate. There's the prospect that they could have a devaluation, either in response to trade friction or a deteriorating economy, that would have a global impact. That would be trying to trying to exports, domestic internal problems globally, and that would create significant headwinds to US growth. That's a far way off, though, I mean, clearly you don't think so. Well, we've seen you know, we've seen the depreciation in the REM and

B and and I'm not saying so. I've never had the view that China will be forced to devalue, okay, because I don't think that it would either be good for them or necessary for them to devalue. But back you know, two years ago, there were a lot of people trying to persuade them that that was in fact

the case. And whether it is the case or not, they could be persuaded that this is the path that they should go down, particularly if it's a response to trade tensions, if it's seen as a way of of defanging US tarraffs by evaluating the currency, you're allowing it to depreciate. Um, I don't think it's a good path for China to go down, but it's one that they could choose to go down that would have global implications.

Just real quick. I mean, perhaps the China slowdown doesn't necessarily have as big of an impact on global growth rates to say the US, but certainly for Asia. Yes, it has a huge impact and it can trickle out from there. Now. So if you're if you are, if you have over the past you know, ten years, been feeding into China's investment boom, if you're Australia selling iron ore, or Chili selling copper, or any number of Germany selling machinery to China, yes, it could have the end of

China's investment boom. Could have a very serious impact. Now. It could also have a positive impact in the sense that if it helped resolve some of the overcapacity that China has been creating over the years. So you know, one thing that China's investment boom is done is it bit up the price of inputs and it pushed down the price of outputs. A reversal of that, I think in the long rum positive for the global economy, but

how you get there could be very disruptive. Patrick Shavannick, thank you so much for drinking being with me today. It's a pleasure getting your insights, and China is in the absolute forefront of a lot of investor's minds these days. Patrick Shavannick, Managing Director and chief strategist, It's silver Crust

Asset Management. This has been a fascinating season for retail earnings that has definitely split the halves from the have nots, with the Walmarts and the targets of the world doing phenomenally while Gap and L brands fall further, with people questioning why are they doing badly at a time when

retail sales are going so strong. Here to talk about that, as well as a slew of other issues facing the retail industry is Rick Healthenbine, President, chief executive Officer of the American Apparel and Footwear Association based in Washington, d See. Although you know you've got a foot in Washington and a foot in New York. Uh Rick, thank you so much for being here. Um, so what do you make so far off the retail earning season? The earnings have

been fascinating. I mean, we're we're finally uh seeing some relief from many years of agony. You know, we we we look at two thousand and eight and we compare that to two thousand and seventeen. We actually have more bankruptcyas in seventeen than we did in no AID. So to see a really good earning season like we're having now is beyond encouraging. But it's really really interesting to dig into the earnings almost companied by company, and they

I think the cardinal example of who's doing well. I look at Target, and I look at Nordstrom and nordstron is fascinating because a couple of years ago they were trying to figure out who he is Nordstrom, and they developed a very strong presence in Nordstrom rac, which has a tremendous millennial appeal. And then they picked up on their Internet sales, which remarkably good. And to give them further credit, their in store experience has been good. So

they've been positive over four percent on store traffic. I think, so everything is going right for them. Before you move on to somebody else, is there a particular person who is behind this strategy that has panned out in every facet. Well, in every company there's usually a leader, but in these bigger companies, it's usually leadership by committees. So you have to give a bunch of people credit to understand. You know that the dynamics of retail have changed. The lennial

customer today. You're really trying to tract would prefer to shop on their phone. How do you convert that? And they also love stores like TJ Max. TJ Max is a huge favorite among millennials. Treasure Hunt. Yeah. So it's a combination of what works and what doesn't. And and probably the biggest measure in brick and mortar retail is foot traffic. The foot traffic is up if you have a strong Internet component, and if you have a mid price line like as I said, norstern Rack, that's a win.

But then again, you look at somebody like Walmart and you know there you have to be a little careful, you have to factor out the groceries, but look at their online sales phenomenal. Look at targets online sales like up. So when you take it all, you can see the picture of having those retailers um who have got it, really got it and it's starting to show, and it's great for somebody like me. This is this is like

manna from heaven. I just am hopeful it's not all going to implode, and when we get we'll get to why it might implode in a second. I am so concerned when I look at places like L Brand's, Victoria's Secrets parent company, or GAP or j C. Penny and Sears, which have been having a hard time for a long time and are showing no signs of recovery. You have to wonder, if these companies are not doing well now,

what will it take for them to revive well. Sears is sort of in a world of its own, and it's really hard to comment on how to figure out how to get them out of their funking, their conundrum. Uh. J C. Penny, on the other hand, there's hope for j C. Penny. The question is can they figure out what works and what doesn't work. You know, we had Toys r US Kids ar US go out of business where people are going to buy their kids clothes. That used to be a strong point of J C. Penny.

So maybe you know they can advance on that. They have to figure it out. But you know, then you look at someone like app who reported today um Old Navy was very strong. Don't look at CAP look at Old Navy and see what works and then figure out how to change the dynamic. All these companies are fighting for market share, but people are buying. You know, It's funny. In retail, you look at three things. You look at the unemployment level, you look at the consumer confidence level,

and they're all good, all right. So one thing that's not perhaps good for your industry are some of the terps that have been proposed, and you've been lobbying against some of them. Um, a lot of them will hit your industry directly. Where are we with that? Well? I was at the hearings on Monday, our team testified, and uh, frankly, I was sitting in there what I would call the peanut gallery, and it sounded a little bit like Clara

belhunking at Buffalo Bob. It was so sad, all these really strong businesses and trade associations explaining to a panel of government representatives how raising tariffs would severely impact their business. I'm curious, were there any representatives from companies arguing for the tariffs? Yes, there were a few, and I um put few in capital letters, um and and a lot of that place to self interest for them. You know,

some protectionism would help. Uh, Well, there's one gentleman tests testifying actually about right now as we speak, from a leather company, and uh, he's interest is to protect his business. Um NICTO the trade organization also testified and they, you know, they represent textile interests in America. So you know, I have to give these people credit to the extent they're fighting for what they believe in. But I have to say they're in the minority, but they believe what they believe.

Most people who testified hit tears in their eyes. You're really gonna hurt me. This is gonna hurt my business. And in this third ranch, we call it of two hundred billion, they've got hand bags, they've got hats, they've got baseball gloves, they've got backpacks. You know, I tell everybody who listen that, you know, it's back to school season, you better buy two backpacks because you're twenty dollar backpacks

gonna be thirty next time. Do you think that there will be bankruptcies as a result of some of the proposed tariffs or do you think it will just be uh a slower profit margins? Now, you know, the tariffs aren't gonna push people into bankruptcy. You know, be other economic factors that do it, that are already in play the bank. The tarifs will just exacerbate the situation because you know, remember this isn't percent tariff they're talking about.

It's twenty on top of what you're already paying. So if you're paying and you had twenty five, now we got a forty five percent tariff, what's gonna happen. People are gonna stop buying, They stop buying, sales go down. Um, it's a bad cycle. Is there any positive consequence from some of the post tariffs on retail? Wow? What a what a great question? Um, two word answer. Absolutely, no positive consequence except maybe at the end of the day, perhaps tariffs will just go away and then people could

spend what they really should be spending for product. You know, you look at the economy and there was an article this this week about the millennials responding to the next crash, and you know, how will they respond? It's been ten years. We'll keep in mind that low quost product in last recession really helped us out, helped us come back quickly, and you're not going to have that anymore. So if

you're short on cash, it's going to be harder. Rick Calforn Byn, thank you so much for joining me today. Rick Calvin Byn is President and chief executive officer of the American Apparel and Footwear Association in Washington, d C. The business of car racing is massive and growing. Joining us now is Mark Miles, President, chief executive officer of Indy Car, also the President CEO of Holman and Company, which owns the Indianapolis Motor Speedway. Mark, thank you so

much for being with us. I just want to start with an overview. Can you give us a sense of sort of the state of play of the car racing business, given the fact that we've seen declines in some list ownership, viewership at tendership of other other sports. Yeah, there's definitely headwinds in sport to some extent, in the motor sport

to great extent. But frankly, we're delighted that over the last few years since probably Indie Car has been growing in with respect, almost all the sort of fan metrics are. Television ratings are up in four years, um our attendance is growing, our social following is up by a million followers in the last year, and so we feel like we're kind of bucking the headwinds and and very bullish about our future. Can you give a sense of why.

I mean you noted also that IndyCar is the highest percentage of millennials of any of the major sports leagues. What is it about the sport that is attractive to younger people? Part of our growth is because I think we kind of squandered the recent years in our past, and so we're getting our act together and getting things together and forward. But inherently we think IndyCar Racing has a lot to offer. It is the fastest series out there. It's very technical, and by that I mean on the track,

but also in the way we go to market. For example, in a two hour race, we collect fifty million data records and when we talked to UH companies, you're well aware of that, think about how they can help us UH convert that data into really interesting content for fans. We think there's a there's a lot to offer there and to continue to grow our younger audience in particular,

So UM the sport is compelling. You can start at the back of the grid and and win a race with lots of different winners, and yet we've got some you know, some stalwart competitors like Team Penskey and and Ganassi and Andretti, and drivers that are veteran champions. So we've got challengers, and we got UH, and we've got established champions, and I just think there's lots and lots

of narrative for fans to follow. So Mark, when I think about what I think about car racing in the United States, I think about UH, the zooming noise that I think about, how fast they go, and the sort

of sponsorship labels all over the cars. I also think of the highly publicized crash that crashes that occasionally happen from time to time, and there was a terrible crash just on Sunday, Indy car driver Robert Wickens being hospitalized for some serious injuries after a crash at the Pocono Raceway. What does a crash like this do for the sport? Is it something that sets you back? How do you

address it? I think the sport, first of all, everybody recognizes that it's it is extreme sport and it's dangerous. So our our obligation is to do everything we can to to manage the technology and to continually improve safety and to be a better able to minimize the effects of accidents. Um. You know, psychologically, we're all human beings and when a guy like Robbie Wickens has a serious injury, you know, it sort of takes your breath away. But

he's getting great medical care. He gets great medical care at the track we have. We're the one sport that for some years has had the same safety crews on the tracks, the same doctors, the same nurses that travel um and so there's great continuity, a very high level of care. We work with our car manufacturer, that d Lara in italyite to improve the physical aspects of the car that make it safer all the time. So it's

a never ending process. We hope next year we'll be introducing a cockpit for the first time in years and will help protect the drivers from debris and around the track. We just got to keep doing the best we can. Racers sign up for it and there they insist that we do all that we can. But they're very resilient group and it's kind of what they what they love

to do. Yeah, indeed, I'm wondering. You know. One of the big headlines in the sports industry this year has been the lead ization of sports gambling and I'm wondering does that affect you at all? Well, it will, for sure, but to be frank at this point, it's a little hard to know, you know, sort of how high is up. I think that, first of all, like all sports, will do everything possible to amp up kind of the integrity

aspects of the governance of the sport. But I do think there's a commercial side to it, and whether that's making our data available, uh basically licensing it for for scoring and timing um and other things that that we think we can be engaged in yet to be determined. It's obviously complicated because you're gonna have this patchwork of legislation by state and we race seventeen times a year

in a number of different states. But it certainly, you know, drives fan attention to the sport, and at one level that that can only be a good thing. Yeah, thank you so much. Really interesting, especially really interesting what you say about UH fans data and how that sort of allowed you to be more targeted in your approach with both advertisers as well as attracting new fans. Mark Miles, President,

chief executive Officer of IndyCar. We really appreciate you joining us He's also the president CEO of Home and Company, which owns the Indianapolis Motor Speedway, i MS Productions and the Indiana based baking goods brand Clapper Girl. We really appreciate you being with us. Really interesting. Also, the Indie car is the highest percentage of millennials of any of

the major sports leagues. So even though you are seeing, for example, UH, the viewership of baseball, for example, decline, there does seem to be some growth among the younger generations in the United States. One interesting thing about the tip for TAT or if war tariff tension that is brewing between the US and China is just how much of the infrastructure of trade is actually getting unleashed uh

and sort of exposed and highlighted every day. The latest is fascinating looking at the universal Postal service and postal rates and how they're set. Garrett Devenk joining us now currently technology of Bloomberg News here in our eleven three oh studios. Garrett, just walk us through what this is that President Trump is proposing to do in order to

give a competitive edge to US companies. So I think from his perspective, it's not so much necessarily about giving it a new competitive edge to US companies, but to sort of getting rid of what he sees as an uncompetitive edge for the U. S. Postal Service and US companies. So there's um international treaties judge, you know, sort of saying that, you know, one country's postal service has an agreement with another one, they agree to help each other out.

These things go back, you know, for as long as we've had postal services, decades and hundreds of years. And so we are sort of in the situation right now where it's actually cheaper to send small packages, big things, not but small things, letters and things up to about four pounds from China to a US city that has to send it domestically. And that's because of the international agreements between the Chinese Postal Service and the U. S.

Postal Service. And so what Trump has said is next month at the meeting of the International Postal Union, he wants the US representatives to go and sort of changes or pull themselves out of that agreement somehow. How big of a deal is this for the Amazons of the world and the Ali baba Is of the world. So the companies that could be hurt by this any change are anyone who's shipping a lot of small things from

China to the US. So Ali Baba, although you know, obviously the bulk of its business is in China, is trying to grow that service in the US, so this could put it definitely put a damper on their US growth. Another company to look at is Shopify, which a lot of people see us as sort of shopifies this kind of back end provider. If you want to sell something online, anyone can set up It's like YouTube for selling online.

And there's this perception that a lot of Shopify sellers are just sort of packaging small cheap goods from China and selling them and sending them internationally. Shopify kind of says, well, you know, we're diversifies business, but that's a stock that you should be watching as well. On this, how big of a deal is this? I mean, are we talking about a couple of cents here and there that add up to uh some money but not a tremendous amount,

or are we talking make it a break? Well, the USPS has lost billions of dollars of the last years, I mean the last several years they run and operating, you know, shortfall every year to do their difficult job of you know, sending packages to every single address in the United States. You know, they are sort of operating at loss when it comes to this kind of international shipping.

But they also agree to step deeper into these agreements with the Chinese Postal Service because they want a piece of that e commerce international trade pie, much of it flowing from Chinese manufacturers to countries in the West, such as the United States and Canada, and so they actually, you know, there's a few different things going on here, but you know, from Trump's perspective, it's about you know,

trying to kind of control those costs. And um, you know, we'll see, we'll see how those discussions go in September. So is the logic here from the US societe as to why they agreed to this arrangement where it's cheaper to send small packages from China to the US and vice versa. Is a logic here that China said to the US Postal Service or you know, we just won't do business with you otherwise if you don't accept these fees were out, well someone is going to be shipping

those things, you know, either way. And the USPS, I think that they wanted to sort of they didn't want someone else. They don't want a private ship or to be you know, getting the bulk of that e commerce revenue. So they said, well, let's step into these agreements. You know, we'll take a loss in the actual um shipping them, you know, from once they arrived to the US to their end destination. But then what we can do is

we can layer on other costs. We can layer on tracking costs, we can layer on premium services, we can lay on rush shipping. And so they said, if we can grab some of this market share, all of these packages coming from China, you know, we'll we'll we'll deliver them at a loss to us. But then if we can sort of try to add some premium services, that's where we're going to make the money. And that's kind of has not been working out for them yet. What do people in the markets say, I mean, do people

think that that President Trump is right on this? I mean, it's definitely one of those things that seems to be sort of a holdover or a quirk from international treaties. I mean, you know, very few of us spend a lot of time thinking about international postal service treaties and the agreements between countries when it comes to the mail, and so it does seem to be one of those issues that has sort of, you know, continue to go on and sort of been kind of subtly controversial to

a very few group of people. But now that President Trump obviously is very focused on trades, focused especially on China and his perception that China is beating United States at the international game, this has suddenly become you know, at the forefront. Is this encouraging to technology companies that this is the tack that President Trump is taking, which is nuanced. It's actually very nuanced, and it's a perhaps

highlighting issues that have been long simmering. It's not necessarily hit you over the head at least when it comes to tech in the same way that it has been with say other areas. Perhaps, I mean, it's it's it's definitely you know, someone definitely sort of proposed this idea to him and something that he's gotten interested in and has sort of, you know, decided that it's something he

wants to talk about. Companies like Amazon they are happy about this because you know, they would imagine anyone whose business is not primarily sending things from China to other countries. Is well, okay, this level as the playing field, you know, and even Shopify, which is perceived as a company that handles a lot of volume from China to the US, said well, you know, this will lay level the playing field for our users who are in the United States

and sending to other Americans. Really really interesting. I did not know about these treaties, the international treaties that governed the price at which you sent packages internationally. Garrett de Bank, thank you so much for being here. Garrett de Bank is technology reporter for Bloomberg News, joining me here in the eleven three oh studios in New York. Just really interesting that there is going to be this potential renegotiation of rates. A lot of renegotiations going on right now.

Thanks for listening to the Bloomberg p m 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 wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.