The tariffs between Trump and China. Kyle Bass & Stephanie Pomboy about what’s going on and what does it all mean for the stock market.
Did Trump Win Against China? – Stephanie Pomboy & Kyle Bass On Tariffs
Q1 hedge fund letters, conference, scoops etc
Transcript
Way back when we started this show one of the first topics we covered was Trump and the Chinese trade deal. Well here we are months later and it's still the one thing considering the new tariff announcements and the trade deal being seemingly on hold. We figured now was a good time to update you. So that's exactly what we're gonna do on this week's episode of Real visions. The one thing. What's going on investors okay here. Back in October in an episode we analyzed if trade wars were easy and how there could only be one winner like the highway. Well here we are in May. And for most of 2019 the market was pricing everything as if the trade deal went through until on Cinco de Mayo when Trump tweeted for 10 months. China has been paying tariffs to the U.S. of 25 percent on 50 billion dollars of high tech and 10 percent on 200 billion dollars of other goods. These payments are partially responsible for our great economic results. The 10 percent will go up to 25 percent on Friday. Three hundred and twenty five billion dollars after the China was the first major markets react. The Shanghai Composite Index fell over 5.5 percent while the S&P did you move to put that into perspective the S&P has only had a one day drop that bad once since 2008 a nearly 6 percent move off a tweet.
I mean that really shows you how important this trade deal is to investors perceptions of China recently how best stopped by real vision to give his thoughts on the sticky currency situation the Chinese find themselves in the way that we look at China the way that I think the world must look at China as again you know we have the presentation here where we have two worlds you have China's world and then you have the rest of the world and that's how China looks at it too. They have a domestic world that they control they control everything they control the price level and the narrative in the printing press and the police and they can do whatever they want to do and they can do that ad infinitum especially if they don't interact with the rest of the world. But unfortunately for China they actually have to interact with the rest of the world because what they're desperately short resources desperately short energy is desperately short food desperately short based materials. All of these things that they must go acquire and no one except to Arm B as payment because it's just funny money.
OK so how bass thinks that China is in between a rock and a hard place but for now they have the tools to walk that thin line. So what changes that. And how does this actually matter. Does it have anything to do with the trade deal.
And if you and I were the Chinese what we would do exactly what the Chinese did in their first overture to our negotiating team all they said was We will eliminate our trade imbalance with you over a six year period. It was brilliant a number of ways. It looks like it gives Trump a win. Now they only have potentially two more years of Trump anyway so they're just trying to wait him out. We've been in these trade negotiations for a long time. If you think about when we first started engaging in trade negotiations when China when she was at Mar a Lago. What's happened since that day. Not a damn thing that they're just playing the waiting game.
So Kyle Bass says that the situation in China is a dire one. But there are plenty of others that disagree. Recently Stephanie Pombo stopped by real vision. Give her thoughts on the Chinese situation.
And do you still think that China. You know with reference to my views on Asia continues to be underestimated. And it's amazing to me that there was all this consternation about their reliance on exports and how they really need to develop a self-sustaining internal economy. And they're doing that which by definition will entails taking some hits you know in the transition. And yet the moment their economy starts to slow a little bit as they're engineering this transit should people get hysterical that it's Oh my God get our China they're going to cease to exist right now they're due to disappear from the face of the planet. Meanwhile you know this they're focused on this very long term path. And you know their zeal doesn't have to worry about being re-elected in two years. That's true. She's so he can take that long term perspective and take some pain in the near term to get where he wants to be. So I still think China is underestimated. I still like it. Obviously there's plenty of volatility there if you want to get your blood pressure going.
So even though homeboy had a lot more confidence in the Chinese being able to overcome their economic challenges he still admits that they're there in Palm boy's words Kyle Bass definitely wants to get his blood pressure going which is why he painted a gloomy picture for China. So let's round up what we know the global markets priced everything as if the trade deal was a sure thing. But Trump Cinco de Mayo tweets shatter those expectations and the Chinese market reacted appropriately while the U.S. market didn't you and move yet. I can't tell you what the next thing to move the markets will be. But what I can tell you is that its a fluid situation.
