Summary: My second hit of the day was at a more reasonable hour–my first was Worldwide Exchange at 2AM–gave me a chance to discuss the impact of the Beijing trade talks on global markets with CNBC Power Lunch anchors Tyler, Melissa, and Kelly. I tried to make two main points. 1) Open Mouth Operations (senior officials making combative public statements) are a bad idea. 2) It is a bad idea to frame our discussion around who gets hurt the most by a trade war. Everybody loses. You can see a video clip of the discussion by clicking here or by clicking on the image below.
In addition, here are a few points a few points I made in the discussion.
- Our discussions of the impact of the trade war on the economy are far too narrow. Most people use the term to mean our $20 trillion GDP, which is a measure of current economic activity. Far more important are our $300 trillion asset markets and our net worth; both are strongly impacted by trade wars and policy statements.
- Asset markets today are extremely vulnerable to a wide range of event risks–unexpected, sudden, discontinuous changes in the information investors use to price assets. The US government shutdown, Brexit, and Chinese debt are examples.
- Today’s heightened levels of event risk make it practically impossible for a prudent investor, manager, or board member, to make major capital commitments. Until the fog clears, capital spending will be weak everywhere and growth will suffer.
- Finally, it is important in a trade negotiation that both parties are able to go home and declare victory. The fact that most people in the US and China don’t speak each other’s language or read each other’s press releases makes that easier to do. Compare the two official press releases below (the Chinese statement has been translated by our State Dept.) to see what I mean.
JR
