tv Maria Bartiromos Wall Street FOX Business August 18, 2019 7:00am-7:30am EDT
"strange inheritance." i'm jamie colby. remember -- you can't take it with you. >> from the fox studios in new york city, this is maria bartiromo's "wall street." maria: welcome to program that analyzes the week that was and helps position you for the week ahead. i'm maria bartiromo. coming up, venture capitalist are peter teal, my special guest this weekend. but first, august can be an unpredictable month for the markets, and this year no different with wild swings in both directions. how should investors prepare for the rest of the month and the rest of the year? as far as the markets and the economy. joining me right now is cornerstone macro's chief investment strategist, and it is great to have you, michael, thanks for joining us. >> good to be with you. maria: you have been really cautious on this market, negative, and you've been right.
i want to get your take on what we might see for the rest of the year. where are we in term of markets and investinged today from your standpoint? >> sure. the global economy has been slowing now for about 18 months, and what i mean is leading indicators of economic activity have been losing momentum, and that's a had a big impact on where leadership is, has been within the market. so, for example, a year and a half ago value stocks were doing really well leading the market, and over the past year it became growth leadership, and recently more defensively-driven equity market with utilities and staples outperforming. this is all the sign of a global slowdown that is continuing and we think has another 6-9 months left before we see an improvement. maria: what should we be looking at in terms of the most important metrics? i know we had the purchasing managers indexes earlier this year that really educated in term of giving us an insight into where the weakness was. it was manufacturing. also housing. is that the indicator to look at? what indicators do you look at? >> well, we look at them all,
and we put different weights on different indicators, we specifically focus on the pmis, consumer confidence is another. what i'm really focused on on the back half is watching the labor market data. we've seen the beginning of the housing slowdown which usually happens first after a tightening cycle begins, and then you start to see weaker earnings growth. that's where we are today. we're beginning to see some signs of weakness in the labor market. workers, that's starting to show signs more broad hi in all employment data. we haven't seen unemployment claims rise yet. that's something i'm watching closely if it does start to happen, it'll certainly get the fed to more aggressively cut rates. it's really earnings growth that is going to make or break the market for the next 6-9 months, and we still see weakness further: maria: so the earnings story is getting hit with a two-punch because you've got tariffs that
are going to be an issue and have been for cap-ex because people are uncertain about where this goes. now we've got businesses sitting on cash, and you got the dollar. stronger dollar, is that going to cut into earnings? >> yeah. the dollar remaining strong, and it has remained strong for the last year each though it went sideways as the fed started to pivot towards easing, it really didn't weaken much because the global economy was weakening faster than the u.s. so there's interest rate differentials, but there's also relative growth rates, and europe has gotten weaker, china has weakened as well and other latin american and other countries like canada and australia are now also getting more in the dovish camp as they see growth in inflation. it's not enough for the fed to cut that's going to get the dollar down, you need really the global economy to pick up to help both earnings and the translation that the dollar
could provide. maria: i'm glad you mentioned that, but because i've been questioning whether or not these interest rates are going to move anything. will it really have, you know, a senate impact on the economy -- significant impact on the economy in terms of stimulation? >> we don't think so. you get diminishing returning, and you see that clearly if you look at the relationship between the interest rates and the savings rate. from 1980-2006 they both fell simultaneously. consumers borrowed more and more and more. when the fed was cutting in 1985, consumer credit was up 20%. in 1995 it was up 15 president -- 15%. today it's 4 or 5% and slowing, and we've seen the savings rate rise despite lower interest rates. so you're doing something that is showing less and less efficacy to get the economy going. maria: michael, how much of this is priced into the market at this point? are you expecting markets to react as things continue to slow
down if your theories play out? >> we think some is prisoned in. you see that when you look at the upside performance of -- underperformance of value stocks, of financials and industrials, energy, materials. there's a reason for that, it's because the global economy is losing momentum. you're seeing staples begin to outperform utilities, tech is doing really well, so the index is still holding up due to that. we think going forward we're going to begin to secret spreads widen out as investors start to price in a slower earnings and economic backdrop, and that is when we think we'll start to see pes in the equity market come press and overall equities decline. maria: how significant of a decline are would you expect for the rest of the year? >> i think what could make it from a soft decline or a 10-15% correction is something much worse is, again, that labor market data. we haven't seen unemployment claims rise in this entire 10,
11-year economic expansion. if you take out the government shutdowns and the hurricanes, claims a straight the line down the last ten years. when the fed raises rates about three years after that, which is where we are today, that is when you start to see economic and earnings weakness start to flow into the labor market. so we're at risk for the first time in this expansion, we think, of seeing the employment backdrop start to get a little less strong or potentially a little weaker. and if that does happen, i think we'll see a more aggressive fed, much sharper increase in credit spreads and likely a much egg bigger -- much bigger decline in equities, maybe something that gets to 20-25%. maria: michael, it's great to have you on the program. thank you so much for your assessment and predictions. we'll be watching. michael from cornerstone macro. don't go away, my interview with peter thiel is coming up next. >> google under fire. peter thiel has some tough questions for the tech giant and the relationship with china.
should the feds be investigating? >> rate hike means a lot of different things, it can be used in a lot of different ways, but it clearly has a lot of military applications. >> maria's one on one with peter thiel is up next. ♪ ♪ our 18-year-old was in an accident. when i called usaa, it was that voice asking me, "is your daughter ok?" that's where i felt relief. we're the rivera family and we plan to be with usaa for life. see how much you can save with usaa insurance.
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google's r&d effort are the a.i., artificial intelligence, technology. and this, you know, a.i. means a lot of different things, can be used in a lot of different ways, but it clearly has a lot of military applications for processing satellite images, helping create processed data, you know, automating drone warfare, cyber warfare. there are all these ways that a.i. is a dual use thing like a nuclear technology has both military and civilian uses. there was a project maven contract that google was a part of where it was supplying this a.i. technology to u.s. military. it pulled out from that as a result of, you know, employee protests inside google. at the same time, google has -- it's been a major research a.i. lab in china each though it's not working directly with the chinese military, in effect, all the technology gets handed on to the chinese military, and this is not a controversial, crazy e
conspiracy theory. this is in black and white in the constitution of the chinese communist party. as of 2017, it got amended to stress there needs to be civil-military fusion in china where all things need to be integrated. anything that has civilian uses must also be handed over to pla. maria: and that in and of itself tells you what the priorities are of china right now. >> yes. maria: we're watching china put military bases across the world. they are bullying other ships in the south china sea. they are wanting to become the largest superpower militarily. more about civil-military fusion. in other words, any technology that comes into china has to be reviewed and used or looked at if it can be helpful to the military. >> sure. it's a communist, one-party state, and so things are sort of fused. it's not like the u.s. where you have different companies and different people, and you have, you know, you have a government sector and a private sector, and
these things don't always coordinate or work together. in china these things are still tightly coordinated across the board. maria: there's a.i., and then there's a.g.i., artificial general with intelligence. give me the difference between the two, and how is a.i. enabling the chinese military? >> well, they're both sort of catch-all phases. artificial general intelligence is sort of like superhuman, what you might have in a science fiction movie. and this is often the way people talk about a.i., is that it's this abstract thing that's going to be very different that may or may not happen decades, centuries from now. what's actually happening is machine learning, artificial intelligence, and that is much more mundane, much more prosaic, and it's things like helping process satellite images, helping with, you know, cyber warfare, things like that. and that's, you know, it's a social credit scoring system in china where you use computers to track people and control the
society more so it's a police state version, there's a military version, there are all sorts of different applications of this. and a.i. is just -- think of it as just the cutting edge of the computer revolution today. it's sort of the most advanced computer r&d that we're doing. maria: but right now computers can't reason the way humans can, they can't necessarily show emotion, but a.g.i. they will be able to. >> they will be, but it's about what's actually happening today which is a.i. where they can't reason, but they could maybe see that, you know, you're maria bartiromo, and we can track your movements or something like that. maria: i understand. and china is tracking all citizens' movements, they are tracking their citizens, they are using a.i. to do it. right now they're rounding up muslims, the uighurs, and they're putting them in concentration camps basically. they're calling them reeducation camps, but they're guarded by men and guns. does google not understand this? i mean, for a long time bag gooe had the saying don't be evil,
and yet here they are working with china which is clearly a bad actor and having terrible human rights abuses. so tell me how this came about where google decided to walk away from the u.s. government and work with china. >> well, we can always speculate on what's actually going on inside google. i think google's self-image would be that it's globalist, it's, you know, post-national somehow, cosmopolitan. i think the reality is more that it's incredibly insular, it's, you know, people are inside this campus and have, you know, shocking lack of curiosity about the outside world. and so the kinds of things you said about wen china are probably not -- western china are probably not conversations people have a great deal inside google. you can think of it as almost like asperger's or autism where people are just oblivious to all this stuff. that's the most innocent version. less innocent versions are where
it's hyper-ideological and left wing. maria: secretary pompeo has been on this program, and he has made the point many times that this is a national security risk, you know? that china represents a national security risk because of this very reason. >> sure. maria: they may be ahead of us in a.i., these are some of the areas that america wants to be number one in. so let me ask you about that in terms of where we are versus china in terms of a.i. >> well, i think we are ahead. i think, you know, i think google is probably still the leading, the leading place for a.i. research in -- not just in the u.s., but worldwide. we're not ahead by that much. and it doesn't matter that much if it gets, if all our discoveries get transferred to china in very short order. maria: and -- >> so, you know, i don't think it's -- yeah, so it's sort of like we were ahead with the nuclear program and then at some point we weren't. maria: don't go anywhere, more
"wall street" when we come back. more of my interview with peter thiel when we return. >> the battle over artificial intelligence. what must the u.s. do to win the tech war with china? >> i think we are at a point where this relationship is going to be rethought quite a bit. >> peter thiel gives maria his take when "wall street" returns. ♪ ♪ (vo) the ant mindlessly marches on. carrying up to 50 times its body weight. it never questions the tasks at hand. but this year, there's a more thrilling path to follow. (father) kids...
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terms of espionage, in terms of what's happening can with chinese nationals working within our companies. there are confucius institutes in silicon valley right by stanford university. what's your take on all of that? >> well, this gets very speculative. it certainly would be odd if there wasn't something like this going on, and again, on the google example where the a.i. deep mind effort was described by its own founder as a manhattan prompt for a.i., even though it was meant as probably marketing hyperbole in a way, i think that, you know, people outside the u.s. might very well take that literally. and so if you go around saying here's the manhattan project for a.i., pay attention, world, i think that would attract the attention of foreign governments, foreign intelligence agencies. and i think in particular the question about chinese interests in this is one that needs to be looked at much more carefully, and that's why i've argued that the fbi or the cia should be
looking at this. maria: the president responded and said, yes, we are going to look into this. you know, it's almost like google walking away from project maven and deciding to work with china, the chinese and in particular the military there. imagine if that happened during world war ii when our greatest companies said we don't want to work with you, u.s. government, we want to get a foothold in imperial japan. >> right. or even during the cold war against the soviet union. it, i think it is unprecedented in the last, you know, hundred years or ever that a major u.s. company refused to work with the u.s. military and has worked with our geopolitical rivals. this is not a liberal/conservative thing, this is not a -- this is absolutely unprecedented. maria: what do you think can be done? i mean, here we have google, a private company -- public company, obviously, but in other words, making its strength,
becoming the leader that it is thanks to the democracy and the freedoms of america. and here you have them going, and you can call them an enemy, you can call them a competitor, whatever, and working against the u.s. when all is said and done. somebody said, look, it's the u.s.' duty to stop china from becoming the global dominant superpower, obviously. because does the world want a communist nation if being the global dominant superpower? militarily e? >> yes. well, look,ing i think the first thing to do is to do what we're doing today and just talk about it. i think -- and, you know, this is like, this is an open secret in silicon silicon valley. a lot of people think this is kind of crazy, what google's doing. outside of silicon valley when you talk about it, people don't believe you at first, and then they tend to get very angry. but i think that this is, i think the first step is to at least talk about it. and i sort of feel like i'm, you know, the little kid saying the emperor has no clothes. it's just something -- it's a
secret hidden in plain sight. maria: yeah, i want to ask you the kind of reception you got in a moment. but in terms of china using corporate espionage to recruit american technologieses, how significant is that? we know they've been stealing intellectual property for decades, and we know they forced the transfer of technology. these are the two big ticket items that the president wants changed in order to move forward with any deal. >> there's a trade war, tech war, all these different issues. i think that it's, i think the ip theft and forced transfers, you have to think of to it as almost linked in a way. and, again, the google examples, you have the a.i. lab in china and maybe what google is thinking is that if they don't give the technology to china through the front door with their a.i. lab in beijing, it will go out the back door through ip theft. and so, so you might as well give it, because otherwise it'll be taken from you. so i've speculated that these things are actually tightly, tightly linked.
but we just have this, yeah, it's all sort of being transferred in a super fast way to china either voluntarily or not. maria: where is this going, peter? >> well, it's -- that's sort of a broad, broad question. i think, i think that -- i think, i think we are at a point where this relationship is going to be rethought quite a bit. you know, there was sort of, there was a strategy under presidents nixon and reagan to build up china as a counterweight to the soviet union, and i think that made sense in the '70s and '80s. it probably stopped making sense in the '90s, and we kept, we kept doing this with china. and so i think the sort of way that we have interacted with communist china not made a lot of sense since about 1989. and i think it is being rethought. president trump is rethinking this. he's changed the conversation
nationally on this, and i think it won't go back to the status quo ever. maria: my special thanks to peter thiel. don't go anywhere, more "wall street" right after this. ♪ ♪ choosing my car insurance was the easiest decision ever. i switched to geico and saved hundreds. that's a win. but it's not the only reason i switched. geico's a company i can trust, with over 75 years of great savings and service. ♪ now that's a win-win.
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maria: welcome back. coming up next weekend on the program, join me, baseball great alex rodriguez, my special guest. we will talk about the his venture with bar stool sports, the yankees and even j ohio are. join me coming up next weekend right here. plus i'll see you sunday morning on the fox news channel for "sunday morning futures," 10 a.m. eastern. and every weekday right here on
fox business, start smart. tune in weekdays from 6-9 a.m. eastern for "mornings with maria" right here on fox business. that'll do it for this weekend. thanks so much for joining me. i'll see you a time. ♪ >> hello, and welcome to "wall street journal" at large, i'm jon hilsenrath filling in for my colleague, gerry basic. in july the current expansion of the american economy became the longest recorded in american history. unemployment has reached record lows rarely seen in the past half century, but warning signs are flashing. stocks have become more volatile, yields on long-term treasury bonds are behaving the way they often do before recessions, and economists are marking up their estimates for the probability a downturn will happen in the