Surveillance: We Need To Fix The Trade Issue, OECD's Boone Says

How you doing, Brian, I'm good, good morning. Is this a scenario I've heard so many people debating that in the market over the last couple of days. I think it does have some similarities to seen if we remember the beginning of the idea was that the US was

decoupling from the rest of the world. The Federal Reserve was going to proceed with a number of interest rate hikes that strengthen the dollar, that sucked money out of the emerging economies, and ultimately what how up in Jonathan was the Federal Reserve essentially said, okay, just kidding, right, they backed off the dollars, stabilized, commodity prices stabilized. Now what's different than then then? Now? Was you also had Chinese stimulus about to come on board in a significant way.

I don't think we're gonna see the Buzuka Chinese stimulus, but you'll see a drip strategy and and that should stabilize growth globally as the U S slows. And this for me is the big point. So we had a growth scamp in early seen it was very much made in China. Then the European Central Bank through the Kitchen sick sink at it, the Federal Reserve backed away, and the Chinese pumped a load of credit into the system. Right, does the e C be in the Federal Reserve have

the same game plan? Do they have the capacity to do the same thing? Again, most people are gonna say no, Well, the Feds certainly, the European Central Bank definitely does. The Federal Reserve does um. You know, even though it's a tight labor market and you look at the Phillips curve, it's still basically as flat as the table that we're sitting at, So you don't see the wage inflation. Sure, wages are up some, but in a healthy way. Core

personal consumption expenditure just got to two percent. It's there's nothing worrisome about the inflation backdrop. So so long as the dollar remains persistently strong and the yield curve relatively flattish, the Federal Reserve can certainly back off, and I suspect they will. Let's talk about what's happening right now that will spark the interest of the Federal Reserve to the degree that they back away. What is happening in the market right now, that's going to be of the most

concerned to them. I think what the biggest concern to them is what's going on in the housing sector. And so, you know, what we're finding out in case people were wondering, is the US still an interest rate sensitive economy? We are still an interest rate sensitive economy. So when rates go up to you know, three twenty, the economy slows. That was always the risk of late cycle stimulus, this idea that the United States is decoupling from the rest

of the world. There was the belief. I never believed that, but the US was going to go to a new, higher sustained level of growth. It's not true. What it's done is it brought rates higher. That's slowing the economy, and the US is moving back towards trend And and the FED can back off in that Brian Levit, John Fair and I really try, and we fail. I fail more than John John's perfect, but we fail in avoiding

the hysteria of the moment. I'm not seeing the hysteria that's with Catharsis or true correction or true bear market. But I'm thunderstruck by some of the headlines saying two thousand and eighteen was a horrific equity year. If you have double digit returns x years in a row, you gotta go single digit at some point, right right, and and right now. What you're seeing is what NASDAC up a percent, SMP five hundred up three percent. So it's not a disastrous year. It's a tough October and a

tough November. Through all the hysteria, investors really need to think about what their goals are and what their time horizons are. We can look back over very long periods of times and show that over any ten year period, stocks are positive of the time over any one year period at the time. So you know, investors are always trying to get the next trade, get the next data point, right. Yeah, we need to pay attention to the cycle. Yeah, we

need to pay attention to policy. But for long term investors, they need to see through this and look at these moves as buying opportunities because to me and John and I think this is really important. Corrections are normal, at least that's what the textbooks say. And I would say, Brian, we've moved on from that. Well, we've had directions or a media event. I mean, we've had a greater than five percent correction in every year but two in the

last four years. Someone guys that, but it's very very rare, and for what the SMP five I believe is now down on the year. It is very very rare to have a market cross asset which has delivered negative returns across pretty much every single asset class within the equity market, to have a couple of corrections within a single year, and on top of that, have a g d P print with a three handle, with a full handle without a real deceleration in US growth. We have had all

those things. Credits disappointed softeigns have had equities have had negative returns. There's something going on here. Thank So he's like he's like filming like four properties today. Are you gonna do equities on the real yield. No. We we recorded really yesterday for the did you for the show to play out through the weekend and through the holiday. I think what you're describing, Jonathan, is an environment where policy uncertainty is creating a lot of market volatility, and

that's that's what tends to happen. I mean, it's been a prolonged period for companies that's been about this increase in profit margins. And when we start to talk about tariffs and we start to get tighter on trade policy, you have to be concerned about where growth goes and what that means for profit margins. Now you hear from those who are inside the Trump at Minute station or of contacts within the Trump administration who say Trump wants a deal, Cudlow wants a deal. We shall see UM.

I suspect that that Trump doesn't want a a very weak UM equity market in the year leading up to the elections. How does Oppenheimer Funds express Asia investment? I mean, short of you know, buying shang send what how do you pronounce? I think is what you wanted to say, but you're about to say something a whole Oh look, an email from mail from New Jersey. Uh No, But seriously, Brian, how do you express Asia investment in a rational and intelligent way? Right now? I think Al's my neighbor actually

in New Jersey. Really, I think he is interesting. You know, we're excited about UM over the long term. The Chinese consumer it is UM. You know, we talked about seventy eighty millennials in the United States. There's four hundred and fifteen millennials, four fifteen million millennials in China. The labor forces over seven hundred and fifty million people, and the consumption patterns are likely to continue to be strong. So you know, I think that investors need to be selective

within UM. Investing in Asia needs to be a bottom up process. But that consumer growth story, that growing middle class, does not change the The expectation is a hundred and sixty million new people will be added to the middle class in Asia over the next fifteen years. Let me bring in uh someone And I was so happy to

see her appointment. After Catherine man at O E c D with Marylynch years ago, it was must read John on the synthesis of politics and economics and France, and you only did that with Laurence Boon and it was just I told I know Guria when I saw him that this was just an inspired selection to take over this really important report. What's great about it is there's not a lot of chit chat. O E c D gets right to the point when they talk about the slowdown.

They see there's a headline, so let's talk about the slowdown. They see Lawrence Boon joining us now O e c D Chief Economists. Good morning, You've been great to have you with us on the program. Good morning to you too, and thanks for the fantastic intradiction. Tom is like that. He's very kind, especially ahead of Thanksgiving, which only because of Thanksgiving, Lawrence, Thanksgiving as an American holiday, which is the beginning of our separation from the mother country. That's

where the French just you letting me know that, isn't it. Yes, So the French build us out like fifteen times along the way. So let's talk about it, Lawrence. What is happening not with that, but with the global economy. Are we seeing a growth scare because some people in the market think we are. What do you see right now? Well, we are seeing both effectively slowing down, and it's slowing down primarily because tradees are being hurted by all the tentions that are going on. If you if you look

at it, just let me give you one number. Last year, you know, container port traffic, which is about eighty percent of the global trade, was growing at six percent. Now it's down to two percent. And to give you an image, if we were still growing as fast as last year, we would have twenty five million more container navigating on the seas. That's a big, big number, Lawrence. So what does it tell us that we've seen a deceleration from last year and lost momentum or entering a cyclical downturn.

We are seeing a significant deterioration for last year. The message we have is, you know, things are slowing down. Growth has peaked, and it's always difficult to challenge to navigate to two engineers areas soft lending. When when you have such two attention, it's even more difficult. So what we're saying is, you know, we need to fix this trade issue, and then looking ahead, we need to be really to address a shoppers throw down if if it

was to happen. Laurent is one of the differences in your economics is your econometrics out of writing your dynamics. Your mathematical dynamics have always been world class. Within that is, how does currency fit into this? Because the release veil for this can be that we're in a hugely floating fixed floating currency environment and that can help us with these pressures. Can the dollar in the euro in the end,

can their dynamics come to the rescue of a global slowdown? Well, I'm not sure actually they can, because as you know, monetary policy in the US is normalizing ahead of other advanced economies. You up well like behind and appropriately so. And we are seeing outflows from emerging economies going back toward the US as the US is raising rights. So I think it will not be every balancing engine. So I get into work a little bit later than Tom King,

and Tom doesn't like that. But when I came down the escalator this morning, I saw Lawrence on with you, Tom, and there was a headline and it said the O E. C D says something along the lines to get ready for some fiscal stimulus to respond to a growth slow down. And Alas, I thought that was really interesting because right now the Italians are in a battle with the European

Commission to introduce some fiscal stimulus. What is the O c D stand on that battle as it currently plays out, Well, the O E c D doesn't do one size fifth of all policies and them And there are two things in what you're saying. The first one is the physical stimulus that we're calling for is if it thinks we're to worsen more than what we have in our central scenario.

You know, in two thousand nine, central banks gathered together and cutch rate together by point five percentage point at the same time, and this I think was the shock that actually started afterwards a lot of policies and the recovery. Now they don't have the luxury of doing as big things as what they've done. They've rescued that once, but

next time it has to be governments. And what we're saying here is it would be incredibly powerful if, in the case officer down governments with sitting together, I don't know seeing that they're going to boost their fiscals, they're going to boost fiscal spending by upon five percent of GDP, because that would benefit all even more than if they had done it individually, and it would relieve central banks

from the burden of always rescuing us. Within this slowdown, there's this big part of each economic consumption within always c D work is China becoming a more consumer nation. China is indeed becoming a consumer nation. As you know, the excess current to conserve plus as quas I vanished, but China still is a needs export to continue to grow. And what we've seen so far is that trade tension

have shaken confidence in China. You've seen the stock market collapsing and the government trying to once again stimulate the economy and response not so much with the currency that we were discussing earlier, but with the usual traditional, the traditional tool of supporting infrastructure investment. Now that's not really good because they're filing up debt on existing that unless

you know that is really high in China. Lawrence Wood, thank you so much, greatly appreciated with the o E c D in pairs with their important report and report and not gloom and doom, decidedly not, but just looking at um a weight to the global economy as well. Now, let's find out where the U s economy is headed with Michael Faroli. Mike Faroli is JP Morgan's chief economist.

He's been putting together his twenty nineteen outlook release, but just to give you a more current information, orders to US factories for big ticket manufactured goods fell by the largest amount in fifteen months. Michael Faroli, great to have you with us. What do you attribute this decline to. Well, we did have a big decline um in in aircraft wars in particular, which can be really volatile month to month. Uh So we often look at the ex transportation numbers

which were up a tenth. That was obviously a lot better than the headline, but still somewhat disappointing. So when we kind of cut through the details of report and there are a lot of you know, subcategories that we tend to look at, it was it was not disastrous, but it was definitely on the softer side of expectations. Well, this does raise the issue, Michael, about corporate spending and

just spending by a lot of businesses in general. We were really sort of expecting a bumping capex and I'm wondering that as we go into t whether we'll see a little bit more capex or whether we're going to see a pullback. Well, we did get a bump. We got a bump in the first first half of the year when capex UM grew around ten percent, then third quarter softened pretty considerably, UM almost flat in the third quarter. We do expect it will do better as we go

into not looking for blowout numbers on capex UM. So we think capital spending may real. Capital spending maybe up around four percent next year, which is uh, it's okay, but it definitely is not enough. I don't think to change the picture when it comes to things like productivity. I think there had been hopes that do you get this big investment boom more you know, more investment, more

capital means more productivity. Uh. I don't have high hopes for that actually, um, And I think today's number is consistent with uh, you know, just kind of okay. Capital spending grows, but nothing that's really changes the narrative of what we've seen over the past few years. Michael Faroli, does this mean that you're putting lumps of coal in your Christmas stockings for as you prepare? What is the

outlook for So? I think we have to keep in mind that eighteen was um, you know, somewhat exceptional in the degree of policy support we had. Right, so you had not only a big tax cut which everyone knows about, which was signing a law late last year, we also had a big increase in federal spending, signing a lot earlier this year, and so you were really kind of firing on all gears. Obviously, the FED was tightening, but

not getting tight in an absolute sense. So you know, this year you were kind of in the sweet spot where the economy was, you know, comming along. There wasn't too much of a headwind from the global economy like you had seen in years past. Uh, So we really had all all the stars were kind of aligned this year. And so next year we do think things slow, not because we um you know, are putting ups of coal.

We're trying to be particularly downbeat, but I think what we're seeing as of a reversion to the mean after what had been some unusual but also temporary support. So uh but you know, in round numbers, this year we have growth around three percent. Next year we see it uh heading back down to round two, which would be more in line with the trend that had prevailed for

much of the expansion up until last year. But this year, I'm sorry, yeah, Michael, you talk about temporary support, do you see any prospect of maybe some additional fiscal stimulus, uh, if not even a second type of tax cut, whether it's for the middle class or for corporations. Yes, I think, uh, you know, tax cut two point oh I some people

have called it. Uh, it's gonna be a little, well a fair bit tougher, I think in in the upcoming Congress, given that, you know, we don't see a whole lot of areas of commonality on on tax policy between um uh Democrats and Republicans. That there are as these days, some aspects uh middle class tax cuts which will expire, um are set to expire in a few years. Perhaps

you could get something there. But even if that happens, we don't think it will really matter much for because a lot of these provisions expire and like so, UM, you'd really have to have very forwar looking behavior for that kind of uh change in the task codes to really matter for um uh for the outlook, I do think it's things get a little interesting when it comes to infrastructure. UM. You know some headlines that the president would like to do a deal with Democrats in Congress

to get something done on infrastructure. UM, I just said it's interesting, but we're not so far we haven't sort of ten filed that into our forecast, in part because so what so, Michael, we only have about thirty seconds what have you penciled in for bonds for so we do think the FEDS UH is going to con in you hiking interest rates obviously that um, you know, we're kind of on our back feed on that or given some of the recent UH commentary and some of the

market moves, but we still have them hiking once a quarter uh every quarter next year, which would uh, um, you know, get tenure rates up to around three and a half percent by as you get into like, uh well into the second half of next year. All Right, we gotta leave it there, Thanks very much, Michael Faroli.

He is the chief US economist for JP Morgan Securities and the Triple A. The Federation of Motor Clubs throughout North America estimates that nearly fifty five million Americans will journey fifty miles or more away from home this Thanksgiving. That is nearly a five increase over last year. And when you travel, typically use a credit card or a debit card or a charge card. Of some kind, and here to help us understand what is the best way to make that travel affordable is Brian Kelly. He is

the points guy. Alright, points guy. Have the deal's gotten better or worse for travelers? Well, when it comes to credit cards, the credit card market is hot. You know. For for anyone listening who hasn't changed their credit card in years, you're missing out on some of the biggest bonuses we've ever seen. The Capital one Venture card now has a seventy five thousand point bonus and the fee has waived the first year. Uh. They also announced that you do have to spend five grand in the first

three months. Who listening here doesn't spend five thousand within I'm just you know, so the total the disclaimer. But but Brian, maybe just step back a second. Because the way you compute the value of the card, it is a combination of the miles that are being offered. After a certain spending amount, you get a perks value, then there's the annual fee, and then you get a total value. Right,

So there a couple of different pieces that go into this. Yeah, and not everyone's gonna get maximum value, but at a very minimum. You know, most credit card points uh AMEX, Chase kept one. They're gonna be worth like one cent a piece, give or take when you redeem for travel. But what you know, the points guy we obsess over is how to get more value out of that and with all of these major credit card points, and that

that's by transferring to partners. So, um, you know, you can fly first class leftons of by transferring your MX points to they have a new transfer partner, Avianca Life Miles, you know, the the South American Airline, which even if you don't want to go to South America, all these airlines have alliances and uh Avianca's and star Lines and you can. It's an arbitrage opportunity to transfer to a partner and then redeem it on their partner. So it gets really how many So how many points are miles

or whatever you want to call them? How many do you have to transfer to the Avianca? Yeah, seventy thousand and you can fly liftons of first class one way in New York to Frankfurt. Let's a that's a ten thousand dollar ticket. To think about that, seventy thousand points would normally get your seven hundred bucks, but instead you can get ten thousand in value by transferring and redeeming on a partner for first class. You have to fly anything. Hope you never have to step foot on an al

Bianca plane. That's the beauty of these airline alliances. So no matter what miles you have, even if you have American Airlines miles you got to go to Hong Kong, don't fly American through l a flight cast a NonStop JFK to Hong Kong and get this. Not only is it a better airline with better service and food, it's less miles. But the thing is American won't show cast a award availability online, so you have to pick up the phone and call. So that's why there's all these

little tricks. But once you learn them, and I know people always say stop sharing the secrets when when we talk about this, because you know, most people will go to an airline website and say, oh shucks, there's no availability, These miles are worthless, when in fact there's tons of availability. You just have to, you know, learn how to to

sniff it out. Does it? Does it? Typically pay to the domestic or the local carrier of a particular destination and then see which Frequent Flyer mile program they are part of. In order to do this, yeah, exactly. I mean I would think, you know, where are you going, you know, and and look at the best airline to get there and then look at their partners. Um. So yeah,

you're totally right. And sometimes it makes sense, you know, to just buy tickets on a low cost carrier, you know, especially we're going around Asia or Europe, you know, don't waste your miles, um, you know, because you know, business class in Europe isn't even business class. It's basically coach with the middle seat blocked out. So so yeah, I mean not. My recommendation is to you know, get the most expensive flight or hotel and then figure out how

to how to use points to get there. All right, I gotta ask you about the hotel loyalty programs and the star Wood Hotel loyalty program for a lot of Starward loyalists, are you know Charlie from Long Island right say and says, gee, you give me gold status when I've got ten room nights, and you'll give me Platinum status when you when I have fifty room nights. But what if I only have twenty five room nights? I've spent a month in your hotel properties and I've got nothing.

I've gotten kind of this in between status. Yeah, you know, Marriott has made it harder. Starwood was a lot easier to get status. Um, Marritt has made it more difficult, especially if you book several rooms and night. You know, Starwood used to be able to give you elite status for all the nights that you book under your name, but Marriott's much more strict, and you know maryt won't let you do it on stage. You have to do nights.

So I think, you know, what Marriott's saying is like, you've got to stay, you know, really fifty nights a year for the platinum status. But they're trying to thin the herd out a little bit and and give more perks to those top tier. I think I'm a lifetime Starwood Platinum and I'm still a little skeptical. I think in general the program, you know, there's still some hiccups and tech issues, but but yeah, there. I think that's the same message across all the airlines too. They're making

it much harder. You got to spend more to get that top tier elite status. But if you really are a top tier flyer and spending a lot, then the perks are better and you will get more miles. So um, you know, for those in between our travelers, yeah, you are getting squeezed, and especially at the lower level. So that's why it might make sense to not be so loyal to one airline and instead, you know, use hotels dot Com, which is going to give you back no

matter where you stay, whatever hotel you want. All right, before before we let you go, I have to ask you about the Chase Sapphire preferred. Do you get a free rose every time you travel using that card? Because I see a lovely picture of you on a home team looks to troll me because I took a funny photo. You know, latansa first class. I want to, but they don't give you socks. Actually, I think in the amended to kid they have stocks in in a in a pajama. But yeah, so they took a photo of me once.

And now my team, who you know puts together all of our posts, well we'll love to throw the picture of me in in that rose in whatever random post that they can put it into. But but yeah, and here's a tip with look Tanda, they've got the Evan spray missed in the bathroom. I always like to snag one from the plane before I leave, really, so that's where they end up. Now we know, all right, Well, now we know also about the credit cards and how

to use these programs. Very interesting to focus on the domestic carriers and then maybe even switch your miles to the domestic carrier in order in order to get those flights. Much appreciated for joining us, Brian Kelly. He's the points guy if you didn't know, he's around to help you figure out how to use your credit card and all that spending to get lots of free stuff. Thanks for

listening to the Bloomberg Surveillance podcast. Subscu gribe 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