Surveillance: China Can Stand Tariffs' Shock, Weinberg Says

We've got to bring in an esteem guest to rap in the politics the international relations with the Marcus Carl Weinberg high frequency economics, with his work over the years O E, C, d I, m F debt workouts internationally, and of course would Lehman a couple of coffees ago as well. Carl, I'm gonna give you an opening salvo. Why should our American listeners care about these EU elections? Well, they really shouldn't care very much about these EU elections

unless they happen to be investing in European bonds. And they're worried a little bit about Italy and the license that the Italian government might feel free to take. Now that the populists got a better reading on this go around, the m five star movement is out of it a little bit. The more sane league is in charge. They have a potential new partner, so maybe we'll see some challenges on the budget side from Italy and that could give the bond market a little bit of a shake.

That's an investment opportunity for some futures negative five down futures negative fourteen. But the yields are the ten uere yield is two point to nine, yeah, and the ten year yield on bunds is minus fifteen basis points. That's an even more exciting story. You know. That's spread. It will be appealing to some uh and people will look into that, I'm sure. But at the other end of the curve, to me, the German story is what's exciting.

We've been talking at high frequency Economics for a long time now about bun yields going negative, about the shortage of bunds in the market, about low and Asian risks in Germany despite a high a very low domestic unemployment rate because of the open borders and the low jobless rate in Europe, and this story is all coming together. It's a very exciting story. But negative Bonnils pods risks for the financial system, and that too is something American

investors should be paying attention to. Well, car, what do you think the latest twist in the Brexit negotiations and the EU elections. What does that mean for Brexit in the European economy? And from your perspective, anything changed in the last several days. From your perspective, absolutely nothing. You know, I don't really care who nothing, I don't really care who's Prime Minister. The parliamentary arithmetic isn't changed by any of this. We still have no majority in Parliament and

therefore nothing can get done. I quoted to my high frequency economics leaders this weekend Abraham Lincoln, House divided against it how's divided against itself? Cannot stand and at the end of the day, it won't fall. But it has to be all one or all the other in order to persist. And that's where we are in Britain. I think the only way this will be resolved is through national elections and new government, and hopefully someone will win those elections and then we'll have a chance of getting

something done on bregsit. How concerned should your readers our listeners be about some of the rising trade tensions over the last several weeks. How do you view that between US and China. Well, there's two aspects to that. The first is that any breaking on world trade through tariffs or trade restrictions or predatory commercial policy, that's all bad for world trade. And anything that's bad for world trade is bad for the world economy. Every time world trade

growth dips, something bad happens to world GDP. The other side of the coin is that so far these this war is not all that large. If China lost all of its exports to the United States, all five hundred billion dollars worth, it would cost its GDP three and a half percent once and then it will go right back to growing again where it was before. And it's growing at six and a half percent. China, despite all the stuff you read about in the press, China is

not in a recession of any kind. It's growing at six and three quarters percent. For goodness sake, It's doing quite strong enough to be able to withstand the shock. And of course China is not going to lose all of its trade with the US over this. It'll lose just the sliver of it. What is the power dynamic right now between Michigan Washington, the President comes back from Japan. We've seen all the back and forth, Carl, You're deeply experienced it. What is between the lies. Who has the

upper hand? Right now, Let's see right now, as I remember from physics, what power is force times distance or something like that, and that implies that something is pushing against something else. And right now, nothing is happening, right nobody's pushing against anyone. But says, okay, wise guy, we're going to go to John Tucker. Can we go to Tony and mechanics this morning? Okay? Look, F equals g F equals g mm. Over our square the two ms

of the moon and the sun. What's the mass right now of us blather versus the mass of Chinese silence? So that's right, it's exactly right. China won't talk. That's a very powerful force in an initiation. Alright. So so China right now says, we have our principles, and if you want to bide with these principles, we'd rather endure the pain of the tariffs to achieve our goals, which are modernization and development on our plan. And the Trump

administration is frustrated. So President Trump is doing what he has done frequently, what he did with Japan this weekend, what he's doing with China, which is he's saying, we're not ready to make a deal with China. All right, he's disengaging, right China. Beijing won't give President Trump a plank for his reelection platform by giving him a deal

on trade. That's just where it is right now. And maybe the next administration, maybe the next Trump administration or whoever, will come in with a more conciliatory view and be willing to work with the Chinese, But this administration isn't in The Chinese aren't buying it. So you don't expect anything over the next year and a half meaningful between US and China. I don't think we'll see any agreement. You know, we may even even just kind of a

headline agreement to kind of get it all off the table. Well, the Chinese have drawn a red line in the sand. They said any agreement must include the immediate elimination of all tariffs, and that just ain't going to happen out of this current administration team because people on that team believe incorrectly that the tarifts are exerting an unbearable force

on the Chinese economy. And that's not the case. This is uh a thirteen fourteen trillion dollar economy, and you're threatening it with a tax that we're paying on five billion dollars worth of goods that they produce that they can easily sell to somebody else. Right, there's no unbearable force at work here? Well, I can't. This physics is killing me. I feel like it's Sisan Zamanski a few years ago. Okay, if there's an unbearable force, something clears,

there's a leakage. There's a leakage within the system, and that is the currency market. Do you have optimism that currency markets could compensate for mistakes made along the way in trade? Well, you know, there are different there can be different views as to where the mistakes are. But I believe that the Chinese should not be How should I say this? We shouldn't deny the risk that China will pursue a devaluation of the yuan against the dollar

while maintaining its value against its baskets. It's referenced basket and currencies as a way of offsetting the impact of these tariffs, and that's what we're seeing right now. The trade weighted basket is flat and the yuan is depreciating against the dollar. And this is a perfect storm for the Chinese because every percent that the yuan falls against the dollar. That's less of a burden that the tariffs impose on the prices of goods that are traded. Physics

with Carl Weinberg. There it is Tuesday morning, to get your expomoral day started. Carl, thank you so much, great, We appreciate it. It has been a weekend of tumul, particularly for Europe. I guess we knew it. It was all news, but nevertheless there are significant reactions as well.

So let's go a little i R here with negative interest rates every more negative in Europe, the Swiss to the year uh now a negative rate again that record lows, but nevertheless there and we can synthesize all this and what it means for Marcus A. Jacob Kirk guard with

the Peterson Institute, a senior fellow. But that very uh just barely, I should say, describes how he thought about Europe and what it means for America in all just all sorts of ways to go here, including his work at our house in Denmark in his book Transforming the European Economy. Jacob, let me ask an open question to begin, what is your unique insight of what we saw in

these EU elections. What I think, first of all, we should be clear that what it's in some way it's actually signaled was the birth of European democracy, because I think it was the first time you've ever had a European election, which is really kind of twenty eight different elections in member states, yeah, really synthesized into more of a single on and it was really an election that was about, uh, do you want the far right uh

to march onwards ever stronger? And I think what we did see was that participation in these elections were about ten percent uh, and therefore we did not see uh, anything like uh you know, we basically had a lot of people turning out against that. And I think that's really the main story. And then there's a lot of implications for different individual countries, but this is the big story, and I bring it over to and I think if your Adam posing at Peterson Institute, the need to provide

fiscal liquidity into a system with imploding interest rates. All of our conversations at Bloomberg Surveillance today, is it's still an austere Europe? Is it still austerity across Europe and particularly Germany? I would say much less so actually, because one thing we did see is the one major breakthrough that the far right had was in Italy, where Salvini one big and he's certainly going to propose tax cuts

and more fiscal spending. And even in Germany when you look at the German fiscal impulse this year, it's going to be positive to the tune of zero point seven to zero point eight percent of GDP. And obviously McCall in France, who actually, when you look closer at the results, did quite well even if he didn't beat Marine Lepin. UH is also, of course UH promoting fiscal UH stimulus. So I would say that this is not two thousand

and twelve. This is Europe in some ways reaping the benefits of perhaps the policy mistakes that were made UH six or seven years ago, by spending some of that fiscal space that the continent has. So, Jacob, what are these elections mean for the Brexit process in the near too, let's say, intermediate term? Well, I think the UK is a classic example of how these elections have really shuffled the national political circumstances in members dates because what we

have already seen. What we saw, of course, was that the Labor Party lost almost as much as the Conservative Party did to the Brexit, to Farage's Brexit Party, and Corbin has already been, if you like, absorbing the consequences of that loss to the Liberal Democrats and is moving ever more explicitly into backing a second referendum on Brexit. UM. And if that happens, UH, then I think you basically

have a totally bifurcated outlook for the UK. Either you have a no deal Brexit or you have no Brexit at all. And it really comes down to what the majority in the current British Parliament UH will do. And then of course who would be the next leader of the Conservative Party. But there has been this is already a massive in fact on the UK. So again give

us your sense of you mentioned a second referendum. There's those that are saying to you, we're at the point now where this might be you know, really the only way to go. Do you think that the second referendum is on the table? Oh? I think it's very much on the table. I think if you look at the outcome of each elections, I think you will see that parties that were explicitly in favor of a second referendum one almost as much as the Conservatives and the Brexit

Party combined and the switch vote if you like. It's basically the Labor Party. And you have seen senior Labor officials, including Jeremy Corbyn himself, actually come out and say, well, actually, if we don't do this, we're going to be killed by the Liberal of Democrats in the next UK general election. Jacob, give us a broader picture here in the next few minutes. I mean, we go from Conrad at an hour just to use Germany as a model, a helmet older Schroeder Americle, etcetera.

What's the next for Jacob Kirkgard across Europe? I mean, what's what's the next wave in the conservative liberal battle nation to nation in Europe? And frankly you can drag America into it as well. Folks. What do you see as the next political continuum? Well, I think that the first big battle within having Europe is going to be all about who takes the big jobs that are becoming vacant at the presidency of the European Commission and the

European Central Bank, etcetera. That's gonna be a big showdown between predominantly France and Germany. Um, and so far, based on these elections, I'd say it's as Mt Cole Uh. I think he gets to choose which are the two jobs he wants, uh basically, and I think he probably will choose the Commission, which means that I am personally uh thinking that proba probably since one of the effects of the increased participation in the European ar is that the uh you know, the the legitimacy of the Switzman

process is much in hunt. So I might bet for those jobs will be probably west Ager for Commission president and Jan Spiderman at the CD. I think that's just ever more likely. Does he have to go out and get other nations to join him in voting or his friends just dictate what they want? Oh no, no, no, he's actively courting other count uh. He you know, he had dinner yesterday with the socialist uh premier of Spain. He has been talking to a lot of different countries.

So no, no no, no, he's like actively campaigning among the other leaders, also attracting more parties to his new Liberal grouping in the europe In Parliament. So he's still very much on the campaign trail. Whereas you know quite Frankly, Angela Marchol, whose party obviously didn't do very well in Germany, is in my opinion, clearly of the defensive UH following almost a clear Green victory in the German elections. I mean, he's probably getting the Eiffel Tower tickets and the restaurant there,

you know, way up. You know, I think it's impossible. I haven't been there. I I we tried to get in, you know, I tried. Francine pulled every string. She couldn't Okay, you know, I couldn't get a Jacob Kirkgard, Thank you so much, just really well time, thrilled to have you with us, with the Peterson and so go to their website. Just really really trenched stuff on EU and and how it redounds back to the United States as well. Lindsay Pigs with us was still she joins us right now, Lindsay,

it's a border of economic data. What are you focused on this week? Well, I think the biggest focus will be GP. I think the Street is going to really hone in on whether or not we see a sizeable revision to the start of the year. I don't expect we will. I I do think we'll see maybe a tenth or two shaved off of that top line number, but it really leaves the thesis in place, meaning that growth exceeded expectations at the start of the year, setting

the bar high. But when we start to look at the data leading into the second quarter, does appear to be a very short lived above trend positions. Okay, link what you just said in the consumer confidence which we're going to get a snapshot of today and into what we actually see with consumers spending. I mean, does it all dovetail nicely together? No, it doesn't. It used to before back in the day when we looked to consumer confidence and it was strong that generally translated into very

robust pssessing duck numbers. We saw retail sales very solid. This time around, we continue to hear that the consumer is confident, that they're feeling good, but their actions aren't matching positive sentiments. And in fact, we've seen retail sales now trend negative for three of the last five months, despite the fact that confident is at multi year highs. So the consumer is saying one thing but doing quite another.

So lyndsay, would you is it your opinion that the FED has done a relatively admiral job and kind of engineering kind of what can be characterized as a soft landing growth, still decent inflation, low consumer generally hanging in there. Is that your your take the moment. I think the Fed has done a very good job. I do think that they got a little over their skis last year. They got a little too aggressive with rate hikes. We could have done without the fourth, certainly the fourth, maybe

even the third last year. As we see now from market fundamentals that the Fed has pushed beyond neutral and I mean the inversion, the partial inversion of the yield curve.

At this point, we do need a rate cut, if not to rate cut, just to right to the slope of the yield curve, let alone, start to give back some of that accommodation to the market to ensure that we do soften the blow from the weakness as we expect going further into so, lindsay, in the first quarter earnings calls, you know, we started to hear more and more, particularly from the retailers, just kind of saying, hey, the

trade tensions that are out there that are mounting. Um, it's not necessarily a big issue now, but it's certainly could very well be in the later part of the year. How concerned are you that trade tensions are the lack of any resolution can weigh on the consumer way on the economy. Oh absolutely. Now, when we talk about the tears already implemented, so we look at late into we estimate the tear of shaved off about two tens of

a percentage point from GDP. It's so not a significant amount, but as we look out beyond and we expect momentum to wane in terms of top line funny missals, those tents of a percentage point will add up. Now we talk about heightened level of tariffs as well as the threat of an additional round of love is possibly placed in a course Chinese retaliatory action. This is going to

compound that negative impact on the economy For businesses. We hear that many at ten percent were able to eat that that cost increase and not pass that on the

consumer at This is going to be increasingly difficult. Now again, businesses may not be able to pass that directly on the consumers without the risk of losing market share, but that means that internally they're going to have to find efficiencies and cost reductions, which is likely to translate into income and wage cuts, which again will filter into the economy and indirectly hit the consumer. Lindsay thank you so much as we can started an economic week and again, uh,

plethora is there? Is that the right Wordlethora of data coming out later in the week, a real snapshot into the market, and the right to June and those critical I S M numbers as well. There's medicine, there's politics, There's all the big issues we talked about every day. But no one, and I mean no one, has had more effect on families in America than our next guest. His name is Brian Kelly. I don't know what he did.

He was on Wall Street doing something to various and he set up a website called The Points Guy to talk about bank cards and frequent flyer miles and change the language and action of every one of us. Mr Kelly joins us. Now, Brian, I want to say thank you again and and just all you've done to make

us travel maybe more reasonable. Let's get out of the way the tension between the airlines and the banks right now, what do the banks want in the next twenty four months from the airlines, and what do the airlines want in the next twenty four months from all these charge cards. Well, it's interesting. Delta and m X actually just re up their relationship for the next five years, so we can probably expect to see some new bonuses and even some new credit cards. You know, the banks and the airlines

have a pretty cozy relationship. The frequent flyer programs are huge profit centers, so for for for the airlines, the airlines sell billions of dollars worth of miles to the credit card companies, and then of course the credit card companies make a whole ton of money, you know, every time people swipe their cards on the transactions, so it's

a pretty profitable ecosystem for everyone. I want to go to your Scott Clark who wrote a brilliant small article on Air New Zealand in Auckland and buried in it. Brian Kelly is the future I see, which is nobody wants to fly economy but they can't afford business class and first class is dead. Tell us about all these new levels to get me out of economy. Well, the big thing is premium economy. Um. The US airlines, you know,

the three major US airlines. They used to have fake premium economy where it was basically just a coach seat with a little bit of extra records. I know that I could say this so because Sweeney's six ft three, Brian Kelly's like six seven, and then there's me. But the airline is now Delta, United and American all have real true premium economy that that's rolled out with over the last year, and they're making a ton of money

off of it. That they're yielding twice as much from premium economy than they are traditional economy because air fares are still really cheap an economy with so many low cost carriers. So I think the sweet spot for the US airlines is on the premium economy and charging a premium for their you know, the business class suites that we've seen Delta roll out with. So Brian is as much as I love spending my summers on the Jersey Shore, I think I want to go to Europe this summer.

Where's the where where do I go? What's the cheapest place to go? Well, Norwegian Era is probably you know, I would look at where Norwegian is flying their their fares are really really low, even for last minute travel. Now, the traditional airlines, you know, no matter where you go, UM, they charge for international flights. You want to be booking at least eight weeks in advance for international. So if you're looking ready for July four, you may be bumping

up against some really expensive fares. UM. But yeah, I mean I would I would either use your frequent flyer miles, see where the cheapest places that you can go. UM. Some of the airlines like American now have routes to UM Bologna and some other you know, abruptn of Croatia, And on those routes that aren't selling very well, you may be able to use your frequent flyer miles for the cheapest amount possible. So I would say be flexible.

Check Norwegian, check your frequent flyer miles. There's there are deals out there, but you need to sniff them out. Visiting on the Bloomberg terminal today, there's a story out there entitled a Rough Summer awaits travelers facing fewer flights and t s A staff. Do you think that's gonna an issue? You know, I think the t s A you know, since the shutdown resumed, I personally, I mean I have pre check and I flight once twice three times a week, and pre check for me has been

pretty good. And even I always checked the normal lanes. I don't see it being that bad. What I will say is this summer there's gonna be record travelers. It's all about choosing the right flight time. So we did an analysis of millions of lights, and flights that leave at seven am have a nine chance of leaving and

arriving on time or early. So, you know, especially in the New York City airports where air traffic control backs up, I highly recommend seven, eight, nine and ten am flights will get you to where you're going on time statistically the most. And does that included new or Newark and Newark as well? Yeah? New Work is actually the best of those three. So you know, we were talking about slicing and dicing of the seats. I mean, I remember day.

You know it's this economy in first class. Are we going to get to the point where they're almost selling rows and individual seats because at point when you go in to kind of pick a seat, it's a lot more complicated than you used to be. Well, it's interesting on upon Airways that they just added their sky couch as well. Air New Zealand has that where you can actually buy a pad that you put over the three seats and economy and you can lay down kind of

like the poor man's business class. But it's they're actually doing really well and they're selling a premium too, so you and if you have kids, you can kind of lay out in economy because yeah, things are really tight in the back of the bus. The economy is not economy anymore. And some of these flights, I mean, how does you know in this case British Air went in

full disclosure folks when the Gulf stream doesn't work. I'm on b A, but but you know, how do they get away with sixteen hundred twelve dollars for an economy seat? And they get away with it because somebody's buying it, right, someone's buying it and people That's why I say check

Norwegian Air. Norwegian on the same flights to London last minute I had to buy and it's you know, their premium products, you know, seven dollars last minute one way British Airways in the major carriers, if you buy a one way ticket or if you're buying a last minute they gouge you because they know, you know, they're hoping to get the business travelers whose corporate departments will pay whatever fee, and they're not going to put them on Norwegian,

but truly Norwegian and Economy with free WiFi. It's a seven eighties seven newer plane. It's actually a better experience. So I know, I'm the points guy. I'm all about, you know, get points. You know, if you're an American frequent flyer, you may want to get your b A you know, credit for the b A flight, but sometimes it's just not worth it, especially when you're paying double or triple the price for Economy. It's not that much different.

What are some of the popular destinations this summer that you're seeing? There're anything unusual that people were just saying, Hey, this is a new place to go. You know, I think Iceland's dying down a little bit, especially since Waware collapsed, although we still see huge demand there. Um and you know, the dollar is still relatively strong, so this this year, Europe is still a top destination for travelers. Um, but we're still seeing places like Croatia, um and uh, you know,

Italy is still a really top destination. So there's nowhere off really off the wall that we're seeing, you know, all the top destinations in Europe. What's the trend you see Pacific? I mean we talk Atlantic here because we're based in New York, But what's the trend you see in Pacific this year for American listeners, Brian Kelly, Well, I mean for trends Pacific travel, we're seeing. Um. Actually, one of the interesting things we're seeing first class going

away altogether. So airlines is getting rid of their first class UM. But interestingly there's a new low cost carrier coming out of Soul. The founder of Botox is starting his own airline, perfect for me. UM. So yeah, I think the similar thing that we've seen in the Transatlantic, with low cost carriers coming in, less of the first class and more. You know these these uh and even Catholic Pusific has gotten rid of first class in some flights,

but you know, air fas are still really cheap. We're seeing Hong Kong Airlines has entered the market really strongly. We're seeing under five dollars you can go from the East Coast to Hong Kong. So even though you know it is a fit in the back of the bus, there are still amazing affairs out there, give us the sick first class fancy fancy Brian Kelly, Where you flew somewhere for twelve dollars? What's the latest, Brian Kelly in my book, So this is a tip I'll give you. Know.

Whenever airlines announced new flights, whenever they put them up for sale, generally they're a really cheap Award miles tickets. So this fall Delta December twenty second, they start flying JFK to Mumbai and it's a you know, nine thousand dollar round trip flight, and I gotta I'm flying one way for a hundred thirty five thousand SNY miles, which if you use Delta miles to go New York to India in their Delta one suite is a screaming deal. So I was pretty proud of that one. But he's

got to get back. Yeah, but you know, so you could. That's the beauty of miles that you can book one way on Delta. I'm actually gonna be going to the Maldives, so I'm gonna fly Emirates home from there because you know, we just we just wish we had his life. And I'll be on the guards. Brian Kelly go away. The points guy I can't say enough about. And of course one of the great charms of Brian Kelly is he is always said responsible use of charge cards, that is

the way to go. He did that right from the beginning. Can't say enough about his impact. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio