Submitted by Taps Coogan on the 5th of October 2018 to The Sounding Line.
Louis-Vincent Gave, co-founder of Gavekal Research, recently spoke with Erik Townsend’s Macro Voices in a wide ranging interview about the sell-off of emerging markets, the US Dollar, China, and much more.
Mr. Gave on the US-China trade dispute:
“I think if you spend anytime in Washington, if you talk to journalists, or policy makers, or bureaucrats, there is a uniformity of views that really I haven’t seen since October of 2016 when everyone was dead-convinced that Hillary Clinton was going to win. Today, everybody is dead-convinced that China is on the verge of imploding, that basically all the US needs to do is push a little bit and China, economically, will implode. It’s a house of cards built on debt, not creating enough value, etc… You know the whole story, and I think part of the problem is everything that has happened in the past five months will have reinforced that view, in that the US starts talking tough against China, the Chinese stock market starts going down 20%, the US stock market goes up 12%, and this will have reinforced the view of everybody in Washington that China is… really in deep economic trouble. Now of course, a 20% drop in the Chinese stock market is neither here-nor-there. It’s especially neither here-nor-there for Chinese policy markers. That kind of thing happens all the time. But most importantly, it doesn’t really matter because very few Chinese corporates actually fund themselves or their growth on equities. They mostly fund themselves through bank credit. So the view in the US is that China is about to implode. Meanwhile if you go to Beijing, the view is that the US is more politically divided than its ever been and that, as such, the US is really incapable of taking any kind of economic pain. That if and when the next recession comes, the political bickering that will unfold in the US will just basically tear society apart. I am not saying that this is true. I am saying that this is… the prevalent view in China… This is the worst possible of setup for any kind of negotiations… If you and I need to strike a deal on whatever and if we’re both convinced that each one of us has all the cards and that the other guy has none of the cards, then we are very unlikely to compromise on anything. So I think the view in China is ‘we don’t need to compromise because we can wear economic pain. If and when the next global recession comes, we will wear it…’ Meanwhile the view in the US is that if and when the next recession comes, China is going to completely implode. Now of these two things, perhaps because I spend more time there, I am more inclined to the Chinese view.”
There is much more to the interview, so enjoy it above.
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