The Escalating Trade War Between the US and China (w/ Mike Green and Marko Papic)

The Escalating Trade War Between the US and China (w/ Mike Green and Marko Papic)


MIKE GREEN: Mike Green, I’m here in Los Angeles
with Marko Papic of Clocktower Group. Marko, you and I have known each other for
many years, first at BCA and before that, you’re actually at Stratfor, although I wasn’t
aware of that. Let’s talk a little bit about your background. Starting on that point. You’re not from the United States or even
Canada for that matter. You’re a Serb, and so on all matters of death,
we can discuss these things. How did you get out of Serbia? Tell me about your childhood. MARKO PAPIC: Well, first of all, it’s great
to be back on Real Vision. I think we did a hit on Brexit couple years
ago, so thank you for having me back on. Yes, my background is different. I was born in Yugoslavia. I’m one of the few people who at six years
old, had to have their father explain to them what it means to be something else. When you’re born in a country that has identity,
that has a sense of self, and then that evaporates, that’s a really interesting moment in your
life, because then you have this moment when you have to be told that you’re something
else. I was born in Yugoslavia, it became Serbia. Lived in Iraq for a very brief period of time. When the country started to fall apart, we
actually moved to Jordan. Of all the places in the world, we moved to
Amman, Jordan and so I think that I’m one of the very few people who escaped war by
going to the Middle East, not from it. It was great three years there, then three
years in Switzerland. Things were starting to get better and better,
if you will. I remember being in Jordan, in Amman, in American
community school there. It was hilarious, because my first day, I
said I don’t care to one of my friends. He said, well, you can’t say that, you get
a detention for saying I don’t care. I was like, are you serious? Where I come from, eighth graders have guns. That was my childhood. And then I went to school in Canada, University
of British Columbia. If I don’t have a lot of time to explain to
people where I’m from, I just say I’m from BC. Then I went to University of Texas. That’s where I was doing my PhD, and got a
job at Stratfor in 2007, and then ended up at BCA Research in 2011. MIKE GREEN: Stratfor is known for their geopolitical
analysis. One of the things that you brought to BCA
was a viewpoint, and this is where I first started reading your stuff– was a viewpoint
on constraints and that the world is governed by this idea of what can’t people do? You talk a little bit about your theories
on how constraints matter and why they matter and why that’s what you follow. MARKO PAPIC: First of all, I believe that
in order to add value, to people who don’t speak your language, you have to show up with
a framework. When I was hired by BCA Research, the premise
was that I was going to be able to help investors with political and geopolitical analysis. How do you do that? Well, you have to give them a framework with
which to think. I don’t think this is anything groundbreaking. I think a lot of investors share this framework,
whether they know it or not, but a constraint based framework is really useful because it
allows you to focus on the material reality that constraints policymakers. You don’t just throw up your hands and say,
like, I can’t predict what policymakers want. Because that’s true, you can’t. You can’t get inside their head, but you can
forecast, what are the material constraints that are going to force them to do stuff that
they don’t want to do, necessarily. What I always say is that constraints are
not optional, and they’re not subject to preferences. But preferences are optional, and they’re
subject to constraints. What do you want to focus on? Something that’s optional, and subject to
something else, or constraints, the material reality, not the ephemeral preferences? The basis of this framework is basically that
Niccolò Machiavelli was wrong, that no matter how much virtue the prince has, he or she
will never be able to survive the vagaries of Fortuna. Focus on Fortuna, focus on the material reality. MIKE GREEN: When you say a constraint, most
people tend to think about that meeting something like, well, you can’t do that. Yet we say that often in finance, we talked
about a debt to EBITDA level, or we talked about evaluation level, we’d say that can’t
possibly happen, that can’t make sense. But a lot of things have happened that people
say can’t, so how do you avoid identifying false constraints, i.e. interest rates can’t
go below zero? MARKO PAPIC: I think in politics, that’s also
the case as well, but I think what you always have to gauge is constraints versus the power
that policymakers have to overcome their constraints. You have to really think about. You have to know a lot empirically about the
world. That’s the part where giving this framework
to someone is one thing, but actually, having them use it properly is difficult. It’s like taking a lesson from a tennis coach. He can show you how to hit the backhand real
well, but you may not be able to do it. What do I mean by this? Well, let’s take the trade war. A lot of people would have used constraint-based
framework to say that President Trump would never pursue a trade war because American
companies don’t want it. Because the CEOs don’t want it. Because farmers don’t want it or because he
doesn’t have the authority to do that. That would all have been wrong, because if
you actually looked at the reality, you would have known that Congress has passed– now
we all know this, several pieces of legislation since 1971 to basically reverse engineer presidential
authority when it comes to tariffs so not only do you have to have a framework and a
systematic approach to political analysis, you also need to know a lot about politics
and geopolitics, you need to focus on the right constraints. MIKE GREEN: One of the things that I find
that people struggle with this framework, and as we’ve discussed, I have a similar view,
is that we’re in a dynamic system that has very little information you can extract from
it, but if you can know where something can’t go, you can actually start to articulate behaviors. One of the things that I find is that people
use constraints to articulate their existing bias– government spending must be constrained,
government debt is bad, and people will have to pay higher interest rates for the penalty
of engaging in bad things. There’s this huge tendency to exert your bias
associated with it. I think one of the things that’s interesting
about you is– and I would argue, in part, it’s because of a childhood spent in many
different places, you’re far less willing to say can’t. It takes a lot for you to articulate that
this can’t happen. What do you think’s out there right now that
can’t happen? MARKO PAPIC: That’s a great question. First of all, I agree with you 100%. I think that you have to meditate on your
biases. I think that’s literally meditate, spend time
washing yourself with your biases, and being aware of them. I think it is easier for me to not do that,
because I just care less about the things that other people care about. You have to adopt a nihilist attitude. When you walk through the door, and you put
yourself in your office and you’re doing your job as an investor, you can’t care about things
too much. That’s the first issue and I think that goes
for both the investing and analyzing politics and geopolitics. In terms of what can’t happen right now, I
think that what cannot happen is you are likely not going to go back to the last 30 years. That’s what can’t happen, and that can’t happen
because the structural underpinnings of the last 30 years, which I would characterize
at three things– one, American unipolar moment in terms of preponderance of American power. That’s being eroded, not for any reason to
blame any administration, not because of any mistakes, just because of rise and fall of
empires, it’s just a natural occurrence. Second, the dominance– ideological dominance,
intellectual dominance, laissez faire as a concept, I think we’re not going to go back
down that path either because of 2008, because of the pain over the last 10 years, because
of income inequality. Finally, I think this globalized world that’s
based on an assumption that absolute returns to trade are more important than relative
gains, which is very dangerous because of course, when countries go away from thinking
in absolute terms and to relative, that’s a cognitive switch that once it’s turned on,
it’s unlikely to be turned back on by any administration. What I can say with certainty, and I know
this is a cop out to your question, but I can say that we’re not going to have another
moment of 30 years where investors don’t have to worry about geopolitics. It’s a very self-serving statement, too. MIKE GREEN: Why do you say that’s self-serving? MARKO PAPIC: Well, I think it’s self-serving
because I’ve made a career out of trying to make sense of geopolitics for investors. MIKE GREEN: Other people have described this
as a bull market in politics, that this is the type of framework that we’re in. I think that what you’ve said is a very astute
observation. We can’t go back in time for two reasons. One is, the arrow of time only goes in one
direction. The second is if you think about it, the difference
between potential and kinetic energy, really 40 years ago, we were near a high point. Prior to the Reagan Thatcherite Revolution,
we’re at a high point in terms of government intervention and action. You’ve now seen that go to it’s somewhat logical
conclusion, and it started to climb back. I think one of the things that’s so interesting
about China is an ascendant China represented an alternative. It functionally took the American model and
said, you don’t have to do this. Other regions have done something similar
like Singapore, Japan, et cetera, but the scale was so much smaller that they didn’t
represent the same type of dynamic. When you think about China, in this period,
you can only go forward, what does it look like to you over the next couple of years
and on the shorter term? MARKO PAPIC: I think China is going to struggle,
because there’s a lot of inconsistencies inside of China. There’s an inconsistency between China that’s
on the coast, and that’s in the interior. There’s an inconsistency in China that is
looking to maintain state champions in China that desperately wants entrepreneurialism
and creative destruction to move up the value chain with the US. There’s a China that wants to open up its
domestic markets to foreign investors, so that it becomes a challenge to the dollar
as a reserve currency, but there’s also a China that wants to control the outflows. I think those consistencies are going to have
to be resolved, and I think that that’s going to create a lot of volatility inside China. I think the China over the next 10 years is
not going to look like China today. In particular, what that means is that if
China truly wants to challenge the US, and I think they do. They want to become a regional hegemon at
the very least, if they’re not there already. What China is going to have to do is going
to have to create a sense domestically that you as a foreign investor wants to be in China,
you want to store maybe some of your wealth there. I mean not all of it, but a proportion of
it. It’s not going to be crazy to diversify your
reserves by having a little bit inside China, they want that. They want to be able to deal with their current
accounts. They want inflows, not just outflows. They are going to have to make a case for
the rest of the world why China is also part of the reserve currency world. To do that, that’s going to check some of
their ambitions, and that’s why I do think we’re on a trajectory towards a secular conflict
between US and China. It’s something I articulated in 2012 and 2013
while at BCA Research. I firmly continue to believe that, but I also
believe the constraints on both countries are such that we’re not just going to linearly
end up in a Cold War, because China itself has a high degree of desire and need to continue
to be part of the global financial and trading system. MIKE GREEN: Can China do that, though? Can China make the choices, or is China too
far down the path in terms of a need to depreciate their currency because of the pressure on
the financial account for example? If they were to lift capital controls and
tried to open the country, which seems like it would be a requirement for somebody to
consider placing a significant fraction of their wealth in their MSCI reallocations notwithstanding? MARKO PAPIC: Absolutely, yeah, they’re getting
into trouble. At some point over the next decade, they’re
going to have to make a decision on how to do this, and it could be a very violent transition,
where there are some massive outflows. Can they do it? I think they can, but the first thing they’re
going to have to do, I think, before they open up, is they’re going to have to recapitalize
their banks. They’re going to have to do what they did
in 2000s, which requires a lot of domestic pain. Why? What they did in ’97-’98 is they went through
their industrial overcapacity, something like 60 to 90 million people lost their jobs in
Northeast China. It was a very painful event, but it was a
necessary event to clean out the rot in the industrial part of China. It was necessary in order to then recapitalize
the banks, only after that was resolved. MPLs basically jumped from nothing to like
15% in a matter of weeks. China will have to go through I think one
of more of those events, and to do that, they’re not going to be able to open themselves up
before they do that. They do have the ability to recapitalize,
the banks basically print more money, purge the SOEs that are not competitive, and then
only open up after that. To do that, they can’t do that in in a constant
state of panic and conflict with the US, which is why I think what’s happened over the last
two years is they understand this the tradeoff. That’s why China’s been deleveraging since
2017, since after the Party congress actually even began before the 2017 Party Congress. It surprised a lot of people, they haven’t
really stimulated as much as they have in the past. They’re aware of the problems with just recycling
the same SOEs that are uncompetitive, but there’ll likely be more volatility ahead. MIKE GREEN: If I look at China circa 1997-’98
and the recapitalization of the banking sector that happened at that point, by and large,
what occurred in that time period was a reorganization of China from servicing internal demand in
a very inefficient way, and opening up and freeing up resources that could be applied
to servicing the West. And so they were able to absorb that relatively
easily largely because FDI is storming into the country. How do they do that without debt? How did they do that with the surplus of labor,
the urbanization process now being gone? How do they do that with both that and demographics
starting to work against them? MARKO PAPIC: I think it’s all about domestic
consumption obviously. They themselves think that that’s the path
and so one of the ironies of that is that they will have to focus on domestic consumption
of domestically produced goods, which is why when I’ve thought about this in the past,
I always thought there was a China that was going to be protectionist first, not the other
way around. Of course, it has been, but it did a lot of
consumer goods from the West to come into the economy and to be sold. You can buy Johnson and Johnson shampoo, you
can buy a Buick. I think that China will have an incentive
over the next 10 years to favor domestically produce goods. I think in a way, what’s happening right now,
is helping them because they have like a patriotic reason to abandon Apple and focus on Huawei
sales domestically. That is the only way to make this shift to
focus on consumption domestically of domestically produced goods and to move some of the production
away from the coast into the interior, which is really just 100 miles away from the coast. Whether that’s going to work out, I don’t
know. I’m skeptical, but it could. They could still capture some of the labor
discount if they were able to move the production themselves internally. That is a much more mercantilist China. It’s a much more self-contained China, and
it’s China that tries to become a little bit more like the US because that will mean that
they’re less open to vagaries of foreign powers. That’s the plan. Can they do it? I think jury’s out. I think there will be obviously challenges,
just like Japan had challenges to reorient their economy, but that’s the only path they
can take at this point. That means that the path is much more domestically
focused economy driven by consumers buying domestically produced Chinese goods. MIKE GREEN: This is where I think I may break
from you on China, because I look at the Chinese market and I look at the components of aggregate
demand, which in simple terms, is just the number of people times their consumption basket. The number of people is shrinking now, and
so you have a constant inward shift in aggregate demand in an economy that is by and large,
has been protectionists already, displacing Apple with Huawei in China is not meaningfully
going to change Huawei’s shipments of smartphones with Xiaomi or others. Where does the growth come from in that model? MARKO PAPIC: Well, the one thing you’re leaving
out is productivity growth. Unless it’s going to collapse, and I think
it will eventually unless they do the reforms. Productivity growth is the other part of potential
GDP growth rate along with labor force growth, and you’re right. Labor force growth is zero or negative. Productivity growth, though, in China remains
quite high. Their potential GDP growth rates still remains
double that of the US. MIKE GREEN: Do you think those numbers are
actually correct, because the reported productivity numbers we received just use the GDP, which
is remarkably invariant, and by most metrics, somewhere to 20 to 25% overstated? MARKO PAPIC: I think they’re definitely in
decline. Absolutely. Why? Well, they’re in decline because China has
moved away from creative destruction. They are they’re aware of this. That’s why they’ve done the domestic restructuring
so much as they have over the past two years. To answer your question, I think that we agree
on the challenges. I’m not saying that they’re going to be successful,
I’m just saying that they’ve identified correctly the problem with China. What they’ve identified correctly is that
they are overly exposed to export oriented economy. They have identified correctly that their
SOEs are dragging the economy in a way that they have to encourage the privately-owned
enterprises. That’s what they’re trying to liberalize their
interest rates, so the privatel- owned enterprises, the POEs get the same interest rates of the
SOEs. They’ve identified that they need to boost
domestic consumption, which is why they’re doing welfare reform. They’re trying to make the population not
have to save for retirement by buying condos in tier three cities that will never do anything. They’ve identified all these things. It’s just going to be a very difficult process
to deal with, but I also think that that’s why the binary narrative of China, like China
overtakes US or China collapses, I think there’s something in between. There might be and I think that something
in between is possibly the last remaining source of alpha on the planet, where active
management can be passive management. What I mean by that, is that yes, this is
very, very scary, and very weird, but I do think that getting China right will probably
create opportunities for investors betting on different parts of China. MIKE GREEN: Do you think that the narrative
exists in the middle– that that’s the consensus, or do you think that one of the two extremes
is basically a bimodal consensus? MARKO PAPIC: Right now, I think the consensus
that a binary consensus has fallen away, but I think for most of my career, over the last
12 years, there’s been a binary consensus. MIKE GREEN: Either it will collapse or it
will take– MARKO PAPIC: Basically, the world split into two. The bulls and the bears, there’s very little
in between. I think that perhaps because both the bullish
and bearish views of China have proven to be incorrect, I think you’re right that consensus
right now is in this mushy middle. MIKE GREEN: My sense is that it’s bimodal,
that basically 85% of Wall Street substantively assumes that China is still the future in
one form or another. There’s a relatively vocal 15% that is out
there saying, no, it’s not. The 15%, by and large, have had a really,
really difficult run in terms of the ability to put investment and capital to work profitably
for an extended period of time and so if anything, I would think the capital is 95.5 at this
juncture. It doesn’t seem like there’s a lot of betting
that China is actually going to fail. MARKO PAPIC: That said, that hasn’t worked
out, because emerging markets have technically I think, in my view, been in a bear market
since 2011. Now, there have been moments when emerging
markets and commodities in China plays have rallied for 12 to months. We saw it in 2017, where the bearish narratives
didn’t work out, but by and large, if you’re right that 95% of capital has been betting
on China being the future, that capital’s been wrong since 2011. MIKE GREEN: I think that’s probably been the
case, though. I think that’ll certainly be supported. If we go back and we look at the narrative
from 2011, and I might date it a little later, 2015– MARKO PAPIC: Beijing consensus, that’s
when it emerged. MIKE GREEN: Exactly. Yeah. MARKO PAPIC: That’s my view, like, this isn’t
going to happen. China’s not going to be the future in the
way that people think, but also, I think that, at some point, you have to ask yourself, why
hasn’t China collapsed? And I don’t think the answer is, well, you
just waited well. I think the answer might be, well, it hasn’t
collapsed, because they’ve learned the lessons of Japan. They’ve learned the lessons of Soviet Union,
and they’re taking their time. They’re slowly trying to restructure the economy,
and China still has enough capacity to continue to slowly move the economy way. You can see that. Fixed asset investment to percent of GDP has
fallen. They have started doing these financial reforms,
which are causing their growth rates to decline significantly. They are pulling back on some of the credit. They haven’t stimulated this year as much
as they have in the past, and they are using macro prudential controls on the housing market
to ensure that the housing market is not the source of another stimulus. That’s surprising. A lot of people earlier this year did get
very excited about emerging markets, because they thought, here it is, again, China’s being
China. They’re not. They are being more cautious this time, and
I think that people like Liu He have convinced Xi that he needs to be a lot more prudent. That’s a good thing, but it also means that
China overtaking the US, or rather becoming the next global superpower is unlikely to
be the narrative. That is probably also wider, being much more
cautious in the trade war than you would have thought. MIKE GREEN: How do you see that? What does that mean being more cautious in
the trade war? MARKO PAPIC: Well, I mean that China has not
tried to provoke the US. I mean there’s retaliate to the tariffs, which
everybody knew they were going to put them on, its face saving measures. But you have a situation in Hong Kong, they
are being very strategically patient about it. I think that’s interesting. I think it shows a degree of patient thinking,
strategic thinking same with rare earth. They could have used that as a tool much more
bluntly. They just floated the idea, which we always
knew was on the menu as one of the retaliatory moves. They haven’t targeted any American company
more than they have over the last 10 years. There hasn’t been a tick-up in official non-tariff
barriers to trade. In fact, what they’ve done over the last 12
and 18 months is try to accelerate the opening of different sectors. They are trying to placate the US by passing
through some of the offers they’ve given previous administrations, like the Obama administration–
will expand our negative list, will put more industries, will open up more of them. They are doing that behind the scenes. I think that they could have been a lot tougher
into negotiations and I think their strategic patience suggests that maybe they have– they’ve
been hit by President Trump and they’re saying like, oh, well, maybe it wasn’t our moment
right now. Maybe we need another decade before we can
competently fight with the US for hegemony in East Asia. MIKE GREEN: It’s interesting, because I perceive
it very differently. I actually think that what we’ve seen from
China is an exceptionally strong response given the constraints. Because at the end of the day, the customer
is always right. MARKO PAPIC: Yeah, I’ve used the same phrase
myself many times. That’s right. MIKE GREEN: And the US is the customer and
so if we say, we’re really unhappy with the product, you can say, well, I’m not going
to give you a refund, or I don’t want your business anymore. It seems extremely counterproductive when
you still got inventory and production facilities, et cetera. You may try to diversify your customer base
away from that customer. The simple reality is, is China runs roughly
a $500 billion trade surplus with the United States and a roughly $500 billion trade deficit
with the rest of the world. And so their current account is basically
balanced. MARKO PAPIC: Absolutely, and it’s all the
US. MIKE GREEN: And the only source of funds is
the US, so they’re not really in a strong negotiating position to begin with. MARKO PAPIC: I disagree with that, and that’s
where game theory really helps us out. What I mean by that is the real world is not
a game of chicken. The real world is not just two people driving
a car at each other and seeing who’s going to swerve first. You have to think about material power when
gauging the strength of two actors, like China and the US. US absolutely has more material power, because
of what you’re saying. It is the customer. Chinese usual threats of selling their Treasury
hoard and stuff like that, it’s just vacuous. Those threats are vacuous. However, we have to think about tolerance
of pain as one of the measures of power in a diet, like the US and China. When it comes to tolerance for pain, China,
compared to the US actually has deeper tolerance of pain. They don’t have a no-withdrawal cycle, they
couldn’t care less about Chinese equities, really, unless they collapse like they did
in 2015. They really just care about employment and
they can use that up with fiscal spending for a period of time. Now, I’m not saying the China thinks on a
decade long thesis, the usual things– Chinese policymakers are long term thinking, Americans
are short term. That’s not what I’m getting at. I’m simply saying this, China can withstand
pain of a trade war maybe 12, 18 months longer than the Trump administration can. That’s why I think they’ve been holding up. They’re holding up because they believe that
Trump is going to ultimately succumb to the pressures of the stock market, and to the
pressures of the coming election. If recession probabilities go up in the US,
that is a hard constraint as much as there is one on President Trump because he needs
to be reelected, and it’s very difficult to be an incumbent president and run against
a recession. I mean many presidents have failed on that
front, especially the last two lost incumbency. I think that’s what you’re holding out. It’s as simple as that, they’re hoping that
they can withstand this pain, that their half-life of tolerance of pain has a different function
from that of the US and so they’ll hit their pressure point later, even though if that
pressure point is actually, as you correctly say, much closer on a material power basis. MIKE GREEN: I tend to think that it’s a little
bit more of a trope that the US has a very low tolerance for pain when it’s focused in
an external enemy. I use that term loosely. It becomes easier. MARKO PAPIC: But that’s a challenge then,
Mike. Here’s why. I think the last Gallup polling shows that
17%– I might be wrong, some should fact check it, but these, like 17% of Americans think
that China is a number one threat to the US. I think most Americans think that the member
of the other party is a bigger threat to the US. Now, that can change. That can change very quickly, but then a narrative
is something that President Trump would have to start making right now and he’s avoided
doing that. There are some clear– he could be using Hong
Kong, he’s not. He could be using what’s happening Shiyang,
he’s not. He’s actually leaving the trade possibility
open by not building the usual narrative of China’s an enemy. That’s why I think you will struggle to see
the bipartisanship that people think exists for a confrontation with China. I think that’s, again, a secular theme for
sure, but in the short term, I don’t think that the American public would say, you know
what, I’m cool with the recession because China is the greatest threats to the US. I think that is something that’s going to
be very difficult to sell to the American people, especially when the last recession,
what they’re mentally anchoring to, was severe. MIKE GREEN: Again, I actually think that we’re
more in agreement than we’re not, so I share your expectation that some form of a deal
will be arrived at at least in this passthrough. I find it interesting, because I’m not entirely
sure for the reasons that I articulated that China actually can take a deal. MARKO PAPIC: Well, absolutely, that’s the
big question mark. MIKE GREEN: If there’s anything that degrades
that $500 billion that’s coming in from the United States, and they need to figure out
some way of degrading that $500 billion that’s coming into China from the rest of the world–
MARKO PAPIC: But it would, but it would. Think about it, if you’re buying more soybeans
from America, you’re not buying from Brazil. If you buy more Boeings, you’re not buying
Airbus. I think they’re comfortable with this beef
and Boeing deal, but you’re right, though. The big question mark is not, to me, what
President Trump does. I think the constraint’s pretty clear. The question is will China entertain America? Because the way I see it right now is that
Trump really cares about process. He cares about the show, showbiz, we’re in
LA. He cares about what this all looks like. In a way, it’s like professional wrestling. He’s in a ring, and he’s taking that plastic
chair. He’s beating Xi over the head and whispering
burst the ketchup thing, just burst the ketchup in your face and it looks like you’re hurt. That’s important to President Trump for a
lot of reasons. Political capital is very important with the
marginal voter in Michigan, in Wisconsin, Pennsylvania. These people delivered him to presidency. He needs to show that whatever deal was concluded
is a robust deal. Now, how are voters in America going to gauge
the robustness of a trade deal with China? Are they going to read it? Do they understand intellectual property right
theft of China, 300 to 500 billion as President Trump says? Are you going to read the technology transfer
clauses? No. They’re going to gauge the robustness of that
deal by how many ketchup packages Xi burst on his face as President Trump was pummeling
him with that chair. I think that that’s what’s happening right
now. I think that that ultimately gets us to some
deal that President Trump can sell whether you and I, and other globalist elites think
that it was right or not. I’m just joking. MIKE GREEN: We are absolutely globalists on
it. MARKO PAPIC: Yeah, look at this place. Let me just go back to your point, though. Is Xi comfortable being pummeled with a plastic
chair in the ring? That’s something that I have a much lower
conviction view on. I think that China’s not ready to challenge
the US. I think that’s a material constraint. I think it would behoove him to take the deal. I think he will be silly to not take a deal,
and here’s why. President Trump may be the last commercial
mercantilist president of America. I think that everyone who follows Trump is
going to be actually tougher in China than President Trump is. President Trump will take a deal that fundamentally
narrows the trade deficit with China. I think he’ll take that deal. I think he will take that deal even if it
doesn’t curb their technological process, even if it doesn’t set limits in South China
Sea. But every subsequent president, even Joe Biden,
will be much more captured by the national security state of the United States and will
therefore push China on those issues much harsher. I think that’s why if Xi holds out, he will
make a strategic mistake, he will go against his constraints, and then we will have, I
think, a market right at that point, because China will be challenging the US when it’s
not ready. MIKE GREEN: That’s what I actually think is
underway for two reasons. One, I think people tend to use the wrestling
analogy, because it does feel very fake. It does feel fake, certainly versus what we
remember is feeling genuine. But in wrestling, you get paid by the same
person. Everybody works for the same guy, Vince McMahon. That’s not the case in politics. It is really a question of if Trump swings
the plastic chair, which is typically a metal chair, and so actual injury does occur. It’s really questionable whether Xi wants
to take that abuse. The second thing that I struggle with is the
narrative of country versus an individual. It tends to be relatively rare through history
that the individual makes the choice that’s not to their benefit, but instead for the
country. That’s what sets the United States apart from
most of South and Latin America, is leadership that ultimately articulated, I don’t want
to be king. I’ll step to the side, two terms is enough. That’s a president that doesn’t stand well
supported in most other regions around the world. For Xi to wait 10 years, it’s far from clear
that he has that capability. MARKO PAPIC: Yes. Well, again, that’s why the problem with the
view that there will be a deal I don’t think comes from the US side. It comes really from not knowing fully what
the constraints are in China. That said, I do think that there’s something
here that we should point out. We don’t exist in a unipolar world anymore. We don’t exist in a bipolar world. We exist in a multipolar world. This has been in my view, the case since 2011,
since 2010. What that means is that there’s not one or
two great powers, there’s multiple great powers. Political science research shows, so formal
research, theoretical research shows that in a multipolar world, it is very difficult
to focus on relative gains. In a direct conflict, such as China-US. Why? Simple reason without going into the math,
very simple reason, because someone’s going to take your break. That’s why late 19th century, and pre-World
War II era was full of examples where countries knew well that they were going to go to war
and they traded with each other to the maximum. Because if you were United Kingdom and you
didn’t trade with Germany as it was rising from 1871 to 1914– MIKE GREEN: France would. MARKO PAPIC: Boom. Exactly. You lost that piece of the pie. In 1901, 1903, the United Kingdom– many members
of the UK cabinet were writing like, look, these guys want to take our supremacy away,
they are the enemy. Trade basically only burst in 1914 when the
war started. Japan-US, trade was remarkably stable well
until 1941. In 1942, the trade was basically equivalent
to what it was in 1930, despite the fact that nobody was an idiot here, everybody was very
cognizant of what’s happening. That’s what I think a huge constraint for
the US ultimately is, and for China as well. Just because they understand that they’re
each other’s enemy doesn’t mean that they’re going to bifurcate the world. Now, I personally thought that there would
be bifurcation until basically, 6 months ago, until I started rereading some of this literature
in political science that’s basically been forgotten for the last 30 years. What I’ve realized is that, look, we don’t
live in a post-World War II era anymore. We don’t live in a ’50s, ’60s, ’70s, ’80s,
’90s, 2000s. We live in the 1890s. We live in the 1900s. If that’s true, if that’s true, if we’re in
a multipolar world, US and China can both be enemies, and there can still be some commercial
relationship guarded, truncated, eliminating high tech things, but it’s not going to end
overnight. That’s why it makes sense to make these strategic
retreats if you’re Xi with the eye on the ultimate prize, which is that you’re trying
to compete with the US. MIKE GREEN: Yeah, I agree with that although
I think that there’s an additional constraint on China, which is time. The longer time goes forward, the weaker China
becomes largely because of its demographics and so its ability to fill feel the military,
its ability to project for us externally deteriorates for this population. MARKO PAPIC: I would disagree with that. I would disagree with that, just because size
of your military is irrelevant today. In fact, when I tried to gauge geopolitical
power quantitatively, I’ve taken specifically through national capability index from the
correlates of war project. You take specifically size of the military,
because we don’t have trench warfare and I suspect that if China was to fight wars, it
would be very light turn on manpower. It would be over land and sea, because that’s
where the power projection is. It’s geographically massively constrained
in the interior, the Himalayas, the Tibetan Plateau, Siberia. I think they understand that this is going
to be about tech. It’s going to be about quantum computing. It’s going to be about AI. It’s going to be about drones. It’s going to be about cyber. And so in that way, they could still challenge
the US quite a bit in East Asia. The other problem that the US has, is that
the US has over the last 30 years really focused on beating the crap out of very weak countries. Take the aircraft carrier, aircraft carrier
is a beautiful piece of technology if you’re going to bomb Serbia. But if you’re going to fight China, what you’ve
just done is you put all your eggs in one beautiful basket that costs about $20 billion,
and can be shredded into link weenie by hypersonic cruise missiles, which China has and which
is it’s developing. Now, America is developing countermeasures
to this. There’s real guns. There’s other ways to like deal with this,
but the point here is that it’s not really about manpower, it’s about tech, which is
why China can still be a serious competitor to the US on the tech front. MIKE GREEN: Again, I think I would push back
on that. It’s not about manpower, it is about tech,
I agree with you in the initial stages. But ultimately, what manpower brings or labor
force brings, a growing labor force, is actually the ability to supply, to replace the troops
that have been lost, to replace the $20 billion aircraft carrier with the next generation
one that is more impervious. On that base– MARKO PAPIC: I don’t know,
Mike, though. If we’re talking about China having to replace
dead soldiers, we’re talking about a world where we should all be owning guns and gold,
and that’s pretty much it. So you’re right, at the extreme, but I think
that what we’re really dealing with here are two countries that are going to be rivals,
that are going to be maneuvering with each other. And I think that if they have less manpower
to replace a million people, I think they’ll still be okay with like, 200,000 under arms. MIKE GREEN: It’s possible, but again, we’re
talking about to staff that military at all and to put them at risk, you’re talking about
putting the only child of the Chinese family. You’re talking about taking out the pampered
princeling and putting them there, whereas the United States, because it has positive
immigration pressures, one of the clearest paths into the United States is actually through
military. MARKO PAPIC: That’s right. Well, I think in absolute terms, though, China
will still have enough. Like, if you compare it here. It’s possible, but I think it’s a great point. I never thought of the princeling carrying
weapons, that’s a that’s a great point. All the more reason for them to delay confronting
the US in– MIKE GREEN: But again, there’s this tension of can we delay? Does that make us stronger, or does it make
us weaker? I would argue that it very clearly makes them
weaker, which is why it feels to me that this could be the moment. MARKO PAPIC: It could be and one thing I would
say, though, is when you look at all– what does China want? What does China truly want? I think what China truly wants is a regional
hegemony. I don’t think he wants a global hegemony,
so both the bulls and the bears of China are wrong. There’s this narrative that China’s the middle
kingdom, it never wants to oppress anyone. Okay. Well, it’s pretty much a European nation states
today, so he wants what every other country wants, which is security. How do you develop security? You develop security through regional hegemony,
which is why all the realists in political science always say, once you accomplish that,
you whet your appetite, and you start looking for global hegemony. We’re not there yet. They want regional hegemony. Where I would disagree with you is, and maybe
agree with you at the same time, is I think that regional hegemony will be possible within
the next 10 years, because the trade links between China and its neighbors are unlikely
to be reversed. If you chart linearly what’s happening right
now, US trade– total trade, imports and exports with East Asia x China is basically flat. In 2004, US and China basically traded with
East Asia at the same level in terms of absolutes, in terms of total trade. Today, like– MIKE GREEN: China’s multiples. MARKO PAPIC: Right, and I think even if China
somehow just like stays there, over the next 10 years, those commercial links between South
Korea, Taiwan, Singapore, Malaysia, Philippines will stay where they are. I think that that gives China the potential
to strengthen its regional hegemony vis a vis the US. It’s like a fair complete. That’s basically on its way. Now, where I agree with you, though, is that
the global hegemony may be out of reach for China, and I think it will be. And so there might be at this moment over
the next decade where China has managed to get regional hegemony and goes for broke,
goes for global, and that’s where they will potentially fail. But I think we’re one step removed from that,
and I think they’re currently focused on regional hegemony, and that’s why it does make sense
to delay the confrontation with the US. If they don’t, they will make the same mistake
that Japan did in 1941. MIKE GREEN: I think it’s going to be interesting. As I said, I think we’re actually very close
to the moment and I agree with you that for China, it is a question of, do we move now? Do we move later? MARKO PAPIC: We don’t really know well, but
one thing we do know, Mike, is that Chinese policymakers have made massive mistakes over
the last 18 months, massive mistakes. I don’t know who advises them, but whoever
does, has been telling them fairy tales. One thing, for example, was that the midterm
elections would be a rebuke against the trade policies of President Trump. Wow, swinging a miss, Sherrod Brown, a Democrat
senator from Ohio, crushed his Republican opponent. Precisely because Sherrod Brown is a longtime
protectionist. Not a single democrat ran a campaign base
on trade. Second massive swinging a miss by Chinese
policymakers was putting a lot of emphasis on farmers. Every time that I speak to a sovereign client,
or sovereign entity in China, they always say, but listen, won’t the farmers rise up
and say, well, look, they’re putting tariffs on our goods. That’s the same mistake, by the way, not universal
to China. Canada did the same thing where they tried
to target these districts that did a lot of trade with Canada. Absolutely, no. These are rural areas of America. They’re not going to make a decision purely
because of economic reasons. There are also other issues– cultural, social,
they’re not going to vote for Democrats, just because they can’t sell soybeans. It’s going to take them a long time and a
lot of economic pain to abandon the Republican Party. China has made– sorry to interrupt you–
just China’s made these policy mistakes in interpreting America and that is, I think,
the biggest danger to the market right now, that China makes another mistake and says
to itself, you know what, any deal with Trump is a short term deal, let’s not give him a
deal. Somebody easier will come down the pipeline. This is where I really disagree. The reason we’re at the moment of apex of
globalization, the reason that this last 30 years are now in a structural change have
very little to do with Trump. Trump was a man for all of his time, but the
time is such that there is a bipartisan agreement in the US to be tough in China. Congress wanted to destroy ZTE, Congress passed
the FIRRMA Act. President Trump actually alleviated the pain
on ZTE, President Trump actually changed the FIRRMA Act so it’s not as anti-China as it
was. This is their last moment to make a deal,
in my view, for China, and this is the last commercial mercantilist president. If they don’t understand this, then we’ve
got a problem because things will just get worse. MIKE GREEN: Yeah, again, I think you and I
are more aligned on this than in disagreement. I would also add to that narrative the dynamics
that particularly the left is bringing in pollution, climate change, China is the ultimate
source of all these issues. Human rights is where I was going to go next. And so we’re creating the cultural narrative,
the emotional and moral narrative in the United States to prepare ourselves to think of China
as the enemy, and I think that’s only picking up steam over time. MARKO PAPIC: I think it is only picking up
and it’s going to continue, and so China has this limited window, whether they know it
or not, and Trump doesn’t bring that baggage, if you will, to the fight. MIKE GREEN: Well, and I agree with that, as
well, because you have a president who has articulated his skill set as a dealmaker,
and whether those deals are substantive and value added, or whether they simply exist
as pieces of paper that have been indicated that some negotiated agreement has been arrived
up by a master negotiator. It feels to me that that dynamic is very much
in play, particularly as we head into next year, and so things that I’m thinking about
are the currently very depressed US agriculture commodities, soft commodities in particular
may represent opportunities for investors, as we look forward. Now, it would feel like a much more classic
late cycle signal. MARKO PAPIC: Or rest of the world versus US. US continues to outperform in terms of equity
markets, that shouldn’t happen in late stage cycles. If you think of a ’99 blow off rally in the
S&P 500 and NASDAQ, actually Euro Stoxx outperformed the S&P 500. But I think to that point, I think it’s very
important that we segregate our views into time horizons. Look, I don’t want to come off here at the
cameras as sanguine on US-China relations, if there’s been anything that I have in my
career been a bear on, it’s this US-China relationships. You can have a very, very negative view of
US-China’s secular view and cyclically have a different point of view. This is because no Cold War or enmity or rivalry
has been a straight linear line. There’s ebbs and flows. For every Berlin airlift, there is an attempt
to détente and then the Cuban Missile Crisis, and then another attempt to détente. We are now in a moment that I think for very
temporal constraint based reasons could actually lead to some détente. It will serve President Trump, it’ll serve
probably I think, President Xi. Then from President Trump’s perspective, if
he wins the election, he can restart the trade war with China. From China’s perspective, those 18 months
are not to waste. They can arrive at a much closer level of
technological parody on semiconductor production as an example. They can use 18 months of détente, they could
put it to good use. That’s why I think it’s very important. What I feel is happening right now, a lot
of folks in the financial industry who really dismissed the US-China narrative as a problem
have not arrived late to that thesis and have committed to it fully and expect really just
a linear path to a Cold War. And I think that that is something to maybe
push again. MIKE GREEN: You highlight this idea that people
have swung hard to this view that it’s going to happen now and that China is going to fall
apart. How do you think about the evidence for that? What are you seeing in the market that leads
you to believe that? MARKO PAPIC: Well, that– or more that the
trade deal will not happen. MIKE GREEN: The trade deal will not happen. MARKO PAPIC: Yeah, I think that’s consensus
now, it won’t happen before the election. I think just there’s extreme pessimism about
global economy, that global economy will continue to deteriorate. That’s why bonds have rallied as much as they
have. I think that’s a key indicator of that. The converse of that is the strength of the
US dollar and also the performance of emerging market, FX and equity markets. MIKE GREEN: You work with Clocktower Group,
and Clocktower Group associated with hedge funds, venture capital and FinTech in particular
and you run the Macro Strategy Group within here and so you spend a lot of time talking
to hedge funds. Would you agree that this is the narrative
in terms of why bonds are working and why you’re seeing this conservative construction
in terms of portfolios? MARKO PAPIC: Absolutely. We’ve seen a stark shift from earlier in the
year where there were a lot of dollar bears. There’s a lot of EM bulls. We’ve seen a structural shift that suggests
that the macro community in general has become a lot more bearish and that the bets on the
US recession, global recession have picked up quite a bit. MIKE GREEN: Now, when you talk about bets
on bonds, and the idea of the bonds had performed– one of the things I’m seeing in the hedge
fund community is overwhelming popularity, not of bullish bets on bonds, but actually
on steepeners. Feels very consensus that yes, the Fed is
going to cut, but the backend is going to sell off on renewed inflation concerns or
a cycle continuing, et cetera. MARKO PAPIC: For like most of Q2, I think
that has been a popular bet, but actually, over the last 30 days, I would say that there’s
just actually capitulation even steepeners and that there’s an even more pessimistic
bets are being put in. Some hedge funds that have been extremely
concerned about– not extremely concerned– not concerned at all about the recession,
but more about inflation, late cycle easing that would cause some of the steepening are
now shifting away from that and just believe that there will be just a recession. MIKE GREEN: How would that positioning be
represented? What would you see people taking on? MARKO PAPIC: Well, I think that again, generally
speaking, safety in the US and leaving everything else abroad. MIKE GREEN: So flows out of EM into the short
end of the Treasuries, 2-Years– MARKO PAPIC: Absolutely. There is a bullishness about the bond market
that they basically steepens the curve because the front end goes down, but even just flattening
as well as both ends go down because there’s actually recession risk. MIKE GREEN: When we think about that type
of positioning and that type of bearishness, I’m just struggling to reconcile that when
I look at things like open interest on Treasury futures, which are near record levels of short,
which just suggest to me that the steepener is still very much in play. MARKO PAPIC: That could be the institutional
investors, and I think what we’ve seen is that just more and more hedge funds are capitulating
on recession. MIKE GREEN: And you don’t share that view
in total or? MARKO PAPIC: I don’t. I do think the probability of recession has
risen, and I think the fundamentals continued to show that the odds of a recession or at
least a nominal recession, like 2015-’16 have risen. The question for me, though, is, is that priced
in already with the 10-Year where it is? I think that a nominal recession, at least,
the 2015-’16 style is already priced in within the bond market. Now, the question is, will policy come in
and move us away from a further deterioration into a recession or not? I would say that it will. I think the policy will arrive in time to
move us away from a recession. The problem is that equity market may need
to go down further before that policy reaction comes. MIKE GREEN: What do you ascribe the divergence
between what the bond market is showing and what the equity market is showing, in the
US at least? I realized the rest of the world is not quite
as bullishly priced in. MARKO PAPIC: I think TINA, there is no alternative,
especially as yields go down, investors may still be feeling that they need to be in equities. I mean the dividend yield in the US is now
higher than the 10-Year. Maybe that’s part of the narrative that’s
keeping especially institutional investors invested in equities, because they have a
mandate for returns. MIKE GREEN: When they think about those returns,
when they think about that dynamic, they’re effectively saying equities return more than
bonds, because they’re so low. MARKO PAPIC: Even though the dividend yield
level, you’re getting a guaranteed return on your holdings of equities. It’s higher than what you’re going to get
on the 10-Year. If you have a mandate for a particular return
to your investors, you have to maintain some exposure somewhere. But of course, that only works until the moment
when you think a recession is imminent, and so I think that that’s perhaps one of the
remaining things that have to happen that institutional investors and retail investors
have to start getting scared about a recession. If that happens, I think the policy will then
react massively. MIKE GREEN: And by policy, are you referring
to fiscal or are you referring to monetary? MARKO PAPIC: Actually, I’m referring to three
things– the Fed, trade war, and Chinese stimulus. I think those are really the matter. The fiscal have already happened. We already got a two-year budget deal between
the Republicans and Democrats. I think European, there’s a lot of folks in
the macro community are talking about fiscal policy in Europe, fiscal policy always– MIKE
GREEN: Germany already spend $50 million apparently. That’s a joke MARKO PAPIC: I know. 50 billion. It’s great. MIKE GREEN: I think it was a million, actually,
not billion, but it’s– actually, yeah. MARKO PAPIC: Well, I think, look, Europeans
will do fiscal, but after a recession, obviously. I think that the real question to me is, does
a trade war and those China stimulate more than it has right now, and does the Fed become–
does it start an easing cycle, not just this mid-cycle adjustment? Those are the three that I would focus on
to see whether the world goes into a recession or doesn’t. MIKE GREEN: If I were to push you in terms
of what are the signposts that would direct you to further raise your probability of recession,
what would it be? What are you looking for? MARKO PAPIC: Well, first and foremost, I would
want to continue to canvas the manager community in China for information. One of the great things that we’ve built over
the last 10 years at Clocktower is we have an office in Shanghai, and we have a really
good pulse on the manager community in China. The reason this is important is because hedge
fund managers in China just want to make money. They’re not trying to sell you a political
narrative. They are just like everyone else, and they’ve
been pretty bearish over the last, I would say 36 months, correctly so. They correctly forecast the slowdown in 2018. They’ve been bearish all throughout 2018 and
2019. What I would be watching for is whether or
not this community basically turns even more bearish. I think that China will need to do more than
just stabilize domestic economy for the world to avoid a recession so we would need to see
some pickup in fiscal spending. They are very, very clear that they don’t
want to use the housing market. You’re not going to have the stimulus in 2015-’16
or 2012, but it doesn’t mean that they can’t pick it up a little bit. The second thing that I would want to watch
is whether the trade war is enough. I have a pretty high conviction view that
over the next quarter or two, we are going to see some truce between the US and China
and maybe a deal that people call non-substantive but enough for the markets. The problem with that is with it require an
equity collapse in the US, a correction 10%, 15%? The other issue is that if that happens, will
it also require Trump to feel a significant impact on his polling? If that does happen, there’s a whole new problem
for us as investors to worry about, which is that if Trump gets hit in the polls, that
actually increases the likelihood of people like Elizabeth Warren or Bernie Sanders picking
up in the polls, and then on the US front, you may continue to see this delay in business
investment. MIKE GREEN: Yeah. I think that feels right. It is frustrating when we have this type of
conversation, in part, because the entire macro picture so closely hinges on what happens
particularly in China. It becomes really challenging to move outside
of that, because that’s so much of the underlying dynamic. I’m really looking forward to the next 12
months to figure out what happens. As I said, I think this is a bit of an inflection. I think you would agree with that, but maybe
have a more sanguine view on a short term. MARKO PAPIC: Well, here’s the thing. Maybe I think that the trade war is more likely
than you do, but I think we both– MIKE GREEN: The trade war conclusion. MARKO PAPIC: Or a détente, but what if it’s
too late? I think the fundamentals are pretty negative
across the board, you’re really stretching to find some green shoots of growth, like
Swedish, like exports are taking up a little bit, oh, great. You’re really like looking with a magnifying
glass, but domestically in the US, I fear that there’s something wrong with animal spirits
in the US, and you can see that in CapEx intentions, in business investment. Overall, yes, the consumer is holding firmly,
but consumer is not a really good source of predicting where the economy is going. The consumer is always good until they’re
not. Unemployment, consumer sentiment or very coincidental
backward looking, business investment is telling you that CEOs are basically delaying investing
in the US, and that’s weird. Why aren’t you doing that? Because of a trade war somewhere else. Why are they delaying investments into domestic
economy? Because of a trade war? Maybe there’s something deeper, and that something
deeper is maybe that US election actually matters a lot more than we think. Nobody I talked to in the hedge fund community
or anywhere thinks to Joe Biden is going to win. Nobody, and I think he has a fairly good chance
because there’s a Nash equilibrium on the left developing in the Democratic Party, but
that could be wrong. What if Warner or Sanders catches a bit over
the next 12 months? Those CapEx intentions and those business
investment decisions will be delayed further, and so you could have a situation like where
I end up being right on the trade war and it doesn’t matter one bit for the global or
US economy. MIKE GREEN: Yeah, I am a little bit more skeptical
than you are, and I actually share that concern. Rich Bernstein, many, many years ago, pointed
out the dynamic that the cyclicality of business investment really is the business cycle. I agree with you that there’s a hesitation
to put money out. I’m more sympathetic to the business community,
I think, than most are in terms of why that hesitation exists. Part of it is that we exhibit a world in which
excess capacity is already a permanent feature so by definition, investing sends a signal
to your competitors that you’re prepared to compete, may not actually be necessary in
a world of very slow growth that we experience. It could be quite counterproductive. I would love to make this a more regular thing. You’re one of my favorite people in terms
of your analysis and I’m down here in Los Angeles a lot as you know. Can we get you back on in about 6 to 12 months
to talk about your views and see how things shake out in the trade war? MARKO PAPIC: Absolutely. I think it’d be great. MIKE GREEN: Fantastic. Marko, I appreciate it. MARKO PAPIC: Absolutely. MIKE GREEN: Take care. MARKO PAPIC: Thank you.

100 comments

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  2. We will have trench warfare nukes only work on the Homeland but when the military is spread out and coming right at you you can't nuke a spot close to your own home

  3. Malo je ljudi moglo da pobegne iz Jugoslavije a još manje da živi u Švajcarskoj posle rata… Mamini sinovi voze džipove tatine-novac,edukacija,propaganda. Sigurno je sa nekog američkog koledža

  4. He is so far off the mark in assessing Chicom who is desperately short dollars. chicom is very very weak. Trump picked the right fight at the right moment. Shooting war to take down Chicom is inevitable after USA or its allies(e.g., Taiwan) being attacked first.

  5. China is just decoy for the public to blame, while the rich and powerful steal right from Americans pocket. For example, all the debt is printed in the name of All Americans(the 99%), while the money raked in from the debt is handed over to the 1% on a silver plater. meanwhile China is left to blame for everything.

  6. The customer is always right yes, but not the deadbeat customer. The US is like J. Wellington Wimpy "i would gladly pay you on Tuesday for a hamburger today", but Tuesday never comes, it is always just more credit, more debtnotes.

  7. IF CHINA BELIEVES that their collapse is imminent they will close the South China Sea using military force to cut off their trading rivals: Malaysia, Singapore, Vietnam, etc…probably WWIII…

  8. "Laissez-faire of the past 30 years hasn't worked". The past 30 years has probably been the least Laissez-faire all economies in the world have ever been !

  9. It's super cool to watch an interview where the interviewer pushes back with his own opinions. Debates are more informative than monologues.

  10. lol, this remind me of seeing two Chinese with strong accent talking to each other in English. it is really painful to watch. So this two guys peeping China through key holes and confidently saying they know what China is. If this is not ignorance then must be idiotic.

  11. china is dying. The CCP is so evil it is destroying it own country. Hong Kong is being eaten by the CCP. They are out of money. Australia is next. They are corrupted by CCP money.

  12. The problems of the world are, governments and people who run them. Nothing but crooked thieves. The problems will NEVER be solved.

  13. Ending CCP is the ultimate solution. CCP took over China in 1949 by guns, lies and spies. Chairman Mao evil regime transformed the traditional Chinese society into a classless society during 1950s – 1970s. Millions of decent Chinese didn’t come out alive from those concentration camps. History is repeating itself … Save HK and free China 🇺🇸🇺🇸🇺🇸

  14. But Europe is not buying the US narrative. What the US is trying to do is mainly for their local audience. Question is can US proceed on their own which might further erode their global leadership?

  15. The USA is now bankrupt. So who will be funding this war once the US dollar dies its inevitable death? The American debt serf?

  16. (11/23/2019) So, we’ll leave out the fact that American dollars and creativity is what has solely helped China. Then we assume that they can fly for many generations to come under a Communist dictatorship rule? Wow!
    Now can be pretentious.

  17. Since you are a Startfor person, why don't you tell us if the dynastic cycles will be broken? Saying that there will be financial instabilities is not saying much.

  18. The communist party's army aka PLA has achieved glorious victories against fetuses, babies, unarmed students, women and children. Of course they will not win any serious confrontation with any country. Chinese are cowards. They will be decapitated in the first 48 hours of a war with the US and its powerful allies.

    The history of China is a history of defeat against real opponents and full of glory against weak and unarmed opponents. At the end of their road they will always mess everything up, ending in revolution and civil war. China was always like that and will be like that. It's what they are.

    They are not able to innovate, to create anything of beauty, they are not able to advance to a stable, lasting, law abiding, higher level of human society. They are now like they always were during the Ming and Song Dynasty for example. Their mindset is stuck in some of their laughable dynasties and incompatible with the modern world.

    China has no experience in warfare and is chaotic, clumsy and self-destructive in anything it does. China lost the last war with Vietnam ("We will teach Vietnam a lesson" Hahaha!). The battle hardened Vietnamese army crushed them even so the VIetnamese were outnumbered. China is a laughable entity.

    The best is we contain the primitive cancer cell China behind their ridiculous "great wall" and don't let them into the economic blood stream of civilized countries. This worked great for thousands of years. Let them rot another thousands of years, let them live their utmost laughable and ridiculous sensation of being the center of the universe and civilization in their piece of land. We don't need them. China has nothing of value to offer.

    By the way: No war with China is necessary. The Chinese always did and will always do a great job in destroying themselves.

  19. China is struggling, consider over 2/3 of its millionaires want to immigrate to western world, this tells all of its problems.

  20. Sorry Marko Papic but you got the politics side of your analysis wrong. There’s just no way senile handsy grabby uncle Joe has even a remote chance of winning the 2020 election. Trump is gonna win by a landslide!!

  21. In 5-10 years, China will become a dominating power in Asia, then American will face real competitor in the world . Think about over 10x of Chinese engineers/scientists graduated each year than Americans!

  22. The Chinese Communist Party is the most murderous regime we, humanity, know of.
    Beware of dealing with individuals connected to this heinous institution.

  23. Looking at history, China is a peaceful country, unlike the US who is busybody like to go to war many times. Why they need to go to war with China, loosing number status?

  24. Any deal with China that Trump makes may not survive the next president… Why do you people keep pretending that anything on the US China matter can be final?

  25. The States can not win a war against China, so it'll won't happen.
    The States couldn't sort Syria out and Russia had to do it for them, so China and Russia and who ever jumps in with them, is impossible x' 100…

  26. You are seriously concerned about chinese manpower in their army? You do realize that their population compared to the US is 5:1, right?

  27. I prefer quality rather than quantity. Real vision used to be quality, not it's bs quantity to make as much money as possible. The guests used to be great, now it's anyone and everyone. Clueless idiots who think their opinion is fact.

  28. Divorce. Decouple. China go this way, USA go that way. Then shut up. Just work and enjoy life. Stop blaming each other. Stop demonising each other. Then peace. Christmas is coming.

  29. Americans can dislike the “other Party” and China equally. That said, the enemy of my enemy is my friend and China will loose. Politics is Politics.

  30. China has no oil. Not enough food to feed themselves. No military experience. No allies. A small military. Purchases their weapons from others. Poor moral. No joint command. Old hardware. Poor leadership.

  31. China is taking over the world power soonest. The US. government has really done so much damages and now we all await a recession, thanks to Mr Ferris Fitzgerald who helps me invest and make great returns so i guess the government can go ahead and do whatever they please.

  32. So, China needs to be more like the west to keep their economy from total collapse. Isn't this what the Trump Administration has been telling China they must do? Isn't this the whole point of the tariffs? To make China more westernized and open market. Seems like the Trump Administration has been correct all along.

  33. "Tolerance of pain '' ….Mao had huge tolerances for pain. Well done MAO, china really did ''well'' under you.
    wuhahahahahaha

  34. This guy is obsessed about constraints, forgetting the fact that humans are irrational creatures. China tries not to offend the US? Like boycotting the NBA and threatening crushed bodies and shattered bones? I think it's a wrong assumption that China has a higher pain tolerance than the US because China has a different definition of pain, China doesn't want to appear weak. Appealing to the US would be a sign of weakness and a political suicide for Xi Jinping.

  35. Real Vision is really pushing their fear agenda and "buy gold" shills in EVERY video.
    There probably won't even be a recession until 2021 now.

  36. Svaka cast, Marko! Pratim ovaj kanal od pocetka i mogu reci da je ovo bio jedan od najzanimljivijih intervjua. Hvala ti puno sto nas predstavljas na ovakav nacin, puno pozdrava iz Beograda! Jedva cekam sledece gostovanje

  37. BWAHAHAHA…China is a rising superpower and the US is trying to ride China's coattail in order to remain relevant. China is busy doing other things. It's the US always going on about China begging "please pay attention to me." China is busy. making deals around the world. One of the superior things about China to the US is that China can take "no" for an answer. The US will start a war or try to overthrow a countries government if you say no to them. It's over US…your time is up. Accept it and be nice. We all have to get along.

  38. China doesn't have to go to war with USA. America is bringing on its' own demise. Our greed is leading the chinese to buy out all our properties leaving Americans homeless. Then they will have their own in secular political offices who will write policies according to their whim. And they will populate with their kind to work in their factories producing what favors them. The will run America as "Little China". I hate to say it, but America has lost the war before it started

  39. Marko i grow up in Serbia and i never saw or heard anyone brought gun in school. There wasnt even one school shooting in history of Serbia. You dont have to make things up in order to be more interesting.
    Btw fact that your family escaped to Jordan and Switzerland tells me that your father was politician or member of government who stole enough public money during the civil war.

  40. Not only China,nobody likes to be dictated to. And if you have been dictating to others, you wouldn’t want any of them to escape your control. All the talk of Communism and democracy is just pretext.

  41. China can win this war without firing a single bullet.
    The world 2nd largest economy is still growing at 6.7%, that is considered fast for a major economy like China. With 12.5% external debt and growing domestic driven market, China can easily come out of it unscathed. As for USA, if USA does ended up with a RECESSION within the next 2~3 years it is already a miracle or is it manipulation.

    This is NOT the 20th Century, American neocons keep forgetting that.

  42. Both men sound like Traitors to a USA future. They have more concern with helping China grow, than helping America grow. I differ, we must return 30 years back and if America can be run by our Constitution and not greedy left wing Dems, war profiteering, and crony capitalist, we can help the world. Fabion-Deep State is the true evil in this world, not US Policy.

  43. No mention of the billions and billions of dollars the treasury is printing every day for the last few months started around 70 billion and now has reach 190 billion a day to prop up and falsify the the stock market and the banks feeding the rich while fooling the poor and battlers, and why are the rich and powerful stopped investing so much capital and hoarding CASH, and why has the hedge funds main man placed a billion dollar bet that the big crash will come has early as March' 20 And the hedge funds group has slowed by 50% on speculation of the rise and fall of the stock market.
    Great interview but many things that the middle and lower class not made ware of.

  44. Communism produces parasite-kind human-beings 🤢 CCP-led-China has one kind of parasite economies. End CCP, the New Democratic China will return with a much healthier economy that coexist with law, order and real prosperity. Don’t be panic, it’s only short period pain — an overdue correction 🙏

  45. Lots of bias people here, that's why u guys are not globalists as this guy Marco in the interview. Biased people will most likely be used as ♟️

  46. Looking at the common section makes me wonder why did Youtube recommend this video to those people…I feel sad for Mike and Marko…

  47. NOPE THAT WONT HAPPEN, THE U.S WILL BE DESTROYED BEFORE WORLD WAR 3. EITHER RUSSIA OR NORTH KOREA WILL DESTROY AMERICA. CHINA IS PREPARING TO ATTACK ALL U.S MILITARY BASES WORLDWIDE AND ALL U.S ALLIES AFTER THE DESTRUCTION OF AMERICA. NORTH KOREA OR RUSSIA will destroy the U.S mainland. NO ONE CAN LIVE UNDER SANCTIONS FOREVER SO SOMETHING HAS TO GIVE.

  48. No war because China uses U.S CURRENCY in its trade agreements around the world .. but the moment that changes .. well look what happened to IRAQ when Saddam Husseinn switch to Europe currency …

  49. This is a BS program,two white men talking about China, I bet they get there information out of a white book, they do not know China at all!

  50. He gives little credit to the average Americans. Pretty much everyone I know understands Chinas thieving ways and wants that fixed.

  51. The minute he said there was nobody to blame for the predicament we're in and that it's just because empires rise and fall is where I lost respect for his "expertise". Absolutely there are plenty of people to blame, and it's not even conjecture at this point. Maybe youth and wisdom is an oxymoron after all, in which case… this channel is diminishing its reputation by putting someone like this on.

  52. China is the only major industry countries who build industry system basically only based on people,s intelligence and hardworking without any colony interest. while all the other developed countries more or less transfer the pain to the colony people a lot of them even been genocide. Then their own human rights based on the sacrifice of the colony land people …. none western countries has moral advantage than china.

  53. The stock market is still going up and the economy doesn't look like it's going into a recession any time soon. China is most likely going to face 5 more years of this pressure and this is going to have a significant effect on China's future. This is going to put immense pressure on their internal systems as their economic shenanigans start to bite China. I don't think China will give in to the trade demands from the USA in a way that makes them look bad.

  54. The playing field had changed when Trump passed the bill to interfere with Hong Kong. Making some of his argument invalid.

  55. As long as those a Countries are highly or Nuclear Armed,the US won’t risk their lives,the Americans only bully weak and under Armed Countries.Even Turkey and India don’t takes orders from America,lately Egypt too offended the Americans by buying Russians Arms.

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