China: Trade War and Treasuries

Published on
August 23rd, 2019
Duration
12 minutes

China: Trade War and Treasuries

Trade Ideas ·
Featuring Kevin Caron

Published on: August 23rd, 2019 • Duration: 12 minutes

Kevin Caron, CFA, senior portfolio manager at Washington Crossing Advisors, makes his Real Vision debut by breaking down the imbalances in China’s economy. He examines the relationship between trade and debt, discusses the origins of the trade war, and reviews his outlook for 10-year Treasury notes, in this interview with Jake Merl. Filmed on August 22, 2019.

Comments

Transcript

  • TM
    Tom M.
    30 August 2019 @ 23:27
    Curing inflation through offshoring was clever until it destroyed the ability of Western consumers to consume, at which point it become a really stupid thing to do. While the US was being deindustrialized, and the population was aging the Fed lowered rates(early 2000s). They told banks to lend and consumers to spend in order to stimulate the economy. Therefore we had the financial crysis, however few people noticed and nothing changed. The Chinese consumer will never spend like Westerners, especially US consumers, most Chinese grew up in poverty and have a saving mindset. Moreover there are no significant social safety nets in China which drives a saving mindset. Also the Chinese population is aging, again saving mindset. The Chinese consumer is like a unicorn, mythical.
  • TS
    Tyler S.
    28 August 2019 @ 15:53
    emerging... yes, the most technologically developed country in the world is emerging....
  • SA
    Stephen A.
    27 August 2019 @ 19:11
    The dollar for sure has been frustrating for the longs given the unfolding economic collapse abroad but the Trump administration is spending a lot of time halting its ascent. The dollar is probably 10-15% undervalued. When was the last time you had a US President babbling about the Dollar every day on TV?
  • WM
    William M.
    26 August 2019 @ 18:56
    If China makes a deal with Trump, that can help him win the next election, and then what stops Trump from going after China again for another 4 years? Doesn't it make more sense for China to take the pain for another year and hope he doesn't get re-elected? Yes China may be exceptionally vulnerable economically right now (Trump's instincts on that are good), but I wouldn't underestimate China's ability to take the short term pain for longer term gain...
  • MF
    M F.
    25 August 2019 @ 06:42
    Nothing wrong with the nice and well-informed speaker. My issue is with Real Vision Editors or Interviewers that continue to place investment conversations in the "Trade Ideas" category. I continually have to write this feedback comment which is annoying. RV, please keep "Trade Ideas" how it originally started..namely a specific, actionable trade idea, with an Entry Price, Target Price, Stop Loss Price, Timeframe, Catalyst, and Risk to the Trade. The aforementioned is what makes a trade idea, rather than investment view or investment conversation. Nothing wrong with having investment views or investment conversation, but then RV Editor, just label them as such and put in another category, or if you want to have the interview as an actual "Trade Ideas" and put them in the "Trade Ideas" section, then remind the interviewer to ask the guest the six specific criteria questions above on Entry Price, Exit, etc. Again, nothing wrong with the interview, just label it properly so for those of us looking for actual, actionable, and specific trading idea setups--rather than an investment conversation--we don't waste our time. Thank you.
    • MJ
      Matthew J.
      26 August 2019 @ 08:54
      Agree Either trade idea and specific or label it as a medium term “macro thematic”
  • GR
    Garey R.
    23 August 2019 @ 19:20
    Quick question. How do you get a "growth in China savers" while noted private sector debt explodes to 200% of GDP? Not sure I understand the mechanism or classification. Thanks in advance for the presentation and the response. GR
    • DR
      David R.
      24 August 2019 @ 09:21
      Well, individuals in China and most of East Asia net savers on balance, the world's largest in total, in sharp contrast to debt-burdened western consumers. Instead, that "private sector debt" in China is in the corporate sector, such as overleveraged property developers, most of which was borrowed in USD (due to low US interest rates compared to Asia ex-Japan) and much of that USD debt is owed to foreign banks & pensions (a rather scary thought, really).
  • T
    Thomas .
    23 August 2019 @ 18:20
    I would like to hear more from Mr. Caron.
  • EA
    Emma A.
    23 August 2019 @ 17:54
    What evidence is there that the trade war will end in a compromise? It sure doesn't look like it is heading in that direction.
    • SB
      Stephen B.
      23 August 2019 @ 23:51
      I agree. it looks as if it is only going to get worse. Possibly much worse. If so, this may lead to internal political strife within China. The Chinese people have tolerated zero representation and CCP corruption, solely because living standards were rising and the newly created wealth was being spread around. If the trade war leads to job losses or falling property prices, that couid easily spill over to political unrest. Hong Kong may just be the start...
  • pa
    pascal a.
    23 August 2019 @ 17:33
    The US just needs to save much more. If every houshold in the US increased their savings then we'd see some changes in the trade imbalance. As for wealth in China: 10K per person. People take it for granted that PPP GDP per capita comparison works: it's not so. This grossly underestimates the average wealth because the PPP comparison of GDP per capita doesn't compare a relevant enough basket of goods. Just look at their real estate wealth. China's average condo size and quality is roughly equivalent to the US and yet they need to spend less than half as much on it in terms of percentage of income. Furthermore, the percentage of people in China who hold multiple real estates is much higher than the US. First world wealth is often overestimated due to inadequacies of the PPP. Consider this. the chinese are able to save much more of their paychecks than the average american. What does that say about our relative wealth?
    • DR
      David R.
      23 August 2019 @ 19:16
      Asians generally do NOT invest in stocks and bonds. They strongly prefer land, gold & silver and property. Actually, I understand that real estate in China like in most of eastern Asia is more expensive than US, except for expensive US ciities like NY. Even so, places like HK and Shanghai have much more costly real estate than NY even. Due to the oligarchs and their powerful influence in the HK congress, manipulating prices higher by creating artificial shortages so builders can sell their projects for huge profits (Trump would love it haha). HK real estate prices are by far the most expensive in the world. The huge unaffordability, greatly exacerbated by the oligarchs, is the top irritant in HK and protests, as many people have no hope of owning a home as home prices and rents are astronomical so ppl spend their entire income on shelter, and rather crappy small shelter at that, while some oligarchs become insanely rich - and HK congress aids and abets it (in part because the gov't also profits by it). Language is another pent-up irritant as HK is cantonese but China has been pushing mandarin in HK for years while resentment at that has built up. Sorry for the sidetrack but HK is the top international story this summer.