This is a rush transcript from "Your World," August 14, 2019. This copy may not be in its final form and may be updated.
NEIL CAVUTO, ANCHOR: Thank you Shepard very much. Well, read it and weep. If you're along this market you were whipped and chilled by this market. A better than 800 point dropping at the corner of Wall and Broad when it came to the Dow Jones Industrials, and all because a lot of folks suddenly are concerned about a slowdown.
Not only here, but in China, in Germany and much of Europe, where they're dealing with negative interest rates and some stubborn numbers that seem to at least part of the economy that we had been counting on might not be as positive.
Then there was something called an inverted yield curve that came out of nowhere. In other words, the gap between 2 and 10 year notes that has now flipped in favor of the shorter term instruments over the 10 year. Now, I know that seems a little arcane, but we've only seen five of these inversions since 1978 and usually, in fact, all the times since it's led to a recession.
Now it can vary, from anywhere from 20 months to 25 months, but invariably the last time we saw one back in 2007, you know what happened soon after that, we had the big meltdown. Not saying that it could happen again, but fears that it could weighing on the markets precipitously and that had a lot of big issues down.
Take a look where a 10 year note is right now, under 1.5 96 percent. This thing was at 2.75 percent just a few months ago. And obviously people park their money in that when they get nervous about stocks and the argument is, that that should benefit stocks in general because, well, if the yield is so paltry there, you could get a nice yield or a nice bang for your buck in financial stocks in the market.
But, look what we've been selling off, financial stocks, because obviously if this is showing a weak economy, it's going to be weak loan demand, it's going to be weak for the financial guys and they're suddenly in a world of hurt.
Then take a look at anyone who is economically sensitive as we review the past five Dow sessions. Every single one of the Dow 30 stock is down and down precipitously today. Again, on concerns that even we get a trade deal with China, some numbers out of that country seem to indicate it's going nowhere fast.
It is in a world of hurt of its own, so it might not be able to deliver the goods or buy more of our goods. Then you have the American consumer, signs that he or she might pack up or at least hold back. One of the concerns for Macy's, for example, the big retailer was just that. Trade isn't helping matters any either.
Jackie DeAngelis from the Macys in New York City with more on that. Hey Jackie.
JACKIE DEANGELIS, CORRESPONDENT: Good afternoon to you Neil. That's right, weakness in retail certainly a theme in the stock market today. Investors are worried about a recession. They're worried about the consumer as well. Remember, consumer spending accounts for about 70 percent of U.S. economic activity and that is pretty substantial.
What we're hearing from retailers, well, Macys missed its numbers this morning, its stock getting crushed today. There were some company specific issues, but also pressure from the threat of those new tariffs that would impact more retail items.
Yesterday Treasury said that those would be delayed, or at least some of them until mid-December, but companies like Nike, Best Buy, Nordstrom, they were all lower today as well. Same kinds of concerns as Macys.
Now so far the worry is this pending threat, what if China raises prices to offset tariffs, then U.S. companies either absorb those costs or it hits their bottom-line or they're going to pass them on to the consumer. That could have a chilling effect, of course, on consumer spending.
Here's how some folks that we talked to said they would react if there was a slowdown or how they're prepping for it.
UNIDENTIFIED FEMALE: Cutting back on my spending because I have a child and she's 5-years-old. That's really hard.
UNIDENTIFIED FEMALE: I probably will start cutting back. Maybe not going out to eat as much or buying things more on sale.
UNIDENTIFIED MALE: Just by not shopping, not buying things I don't need.
DEANGELIS: Now the consumer so far has seemed to hold up. Consumer spending was up modestly in June and the Conference Board reported last month that consumer confidence was the highest that it was in November, but of course when people curb spending it has a chilling effect on the economy. That can almost trigger the recession if it happens beforehand, Neil.
CAVUTO: All right, Jackie, excellent reporting. Thank you very, very much. By the way we should (inaudible) with this inverted yield curve. The can be quite a gap between the so-called hits in the yield curve and then when a recession or a slowdown ensues. Like I say, it could be up to 22 or more months later, but it has been an uncanny barometer in the past. We'll see if it holds here.
The there is the added noise I told you about China and the fact that it's reporting some contracting economic data. But Hong Kong a far bigger concern right now, because these protests will not stop. Fox Business Network Susan Li worked for years in Hong Kong, joins us on the scene today. How are things going there now Susan?
SUSAN LI, CORRESPONDENT: I would say that things have calmed down a little bit, but still tonight we have protestors amassing in a rural district, in Kowloon district, so it's pretty much near the end of the subway line in Sham Shui Po and we had hundreds of protesters there amassing. Tear gas, again, being lobbed by Hong Kong police and this is the similar sight to another protest that we saw just on Sunday evening.
Now, it was just tear gas, there weren't any confrontations, but according to reports the tear gas was lobbed after the protestors started directing their laser beams at the Hong Kong police.
Now as for the Hong Kong Airport reopening after two days of being shutdown, and the Hong Kong is pretty important because it's symbolic of Hong Kong's economic dominance and also its efficiency, but yesterday, of course, we saw that chaos and the scuffles that broke out.
Now concerningly, there have been a lot of reports that have been circulating that shows possibly a military buildup just across the way outside Hong Kong borders in Chinese districts of Chin Jin. We have also State Department satellite imagery showing us that a soccer field might be holding more tanks and more weaponry as well.
We have President Trump tweeting that according to U.S. Intelligence sources, China might be amassing troops at Hong Kong's border, but we also heard from Cory Gardner, who is a Republican Senator and he's the head of the Subcommittee for East Asia, a warning to China, he says that the Administration must make it clear to Beijing that any crackdown in Hong Kong will have profound consequences for China including imposition of U.S. sanctions. But for tonight it looks like we have simmered down. Things are calm, but as you know, they don't remain calm for too long in this city after 10 weeks of protest. Neil?
CAVUTO: Thank you Susan. Susan Li in Hong Kong. And just to put this global nature, this in perspective, we saw what happens in Hong Kong, what's been going on in China. This is a world spread development right now.
One of things we're watching is that Germany had a negative GDP of report here, one more quarter like that it would be officially deemed a recession. The EuroZone, the growth there is barely growth at all, about 0.2 percent a quarter-over-quarter and there is a fear here that it could slip into negative territory next go around. Now can we escape that? That's the key here.
We have been -- of course, the president's pointed this out, others have pointed this out as sort of like a haven for a lot of nervous world investors and we remain that certainly in our bond market and our currency, but again, it did little to help today.
That 800 point fall, if you see, is only about 3 percent, I'm not minimizing that, but to put it in perspective, the big (inaudible) crash we had back in October in 1987, we fell about 528 points. That represented, at the time, about a quarter of the Dows value. This 800 point today, about 3 percent as Shep was pointing out in the prior hour.
So, what does all of this mean for us, for you? Market watchers Hugh Johnson here, Lenore Hawkins as well. Let me get your sense, Lenore, about how bad this gets. I mean, I always find it worrisome when we end the day at our lows of the day. What do you think?
LENORE HAWKINS, TEMATICA CHIEF MACRO STRATEGIST: Yes, it really accelerated down into the close, which is never a good thing to be seeing. What has me actually really worried is looking at what is going on in the bond markets.
For example, what we saw with the 30 year treasury, as it hit an all-time low of interest rate and that happened at a time where we're not getting some sort of terrifying headline and it's also happening at a time where the foreign purchases of treasury bonds is going down, and when the Federal Government is spending so much money that we need roughly an additional $1 trillion a year just to cover the deficit.
So, there's more borrowing by the U.S. Government. There's fear of people buying from -- buying those bonds, and yet the interest rate is going down and we see that happen, the interest rate goes down when prices go up. So, there's more and more buying at a time that really doesn't make sense. That's telling me that there is some serious disruption.
The other thing that I've been watching that has me very concerned is what's been going on with negative yielding corporate debt. The total negative yielding corporate debt was $50 billion at the -- about mid- January. Today it's over a $1 trillion. So, $50 billion to over $1 trillion, and that trillion, it was half of that just a month ago. That's telling you that people are very concerned with what's going for growth prospects.
CAVUTO: You know, one of the things I look at as well, Hugh, is this particular inverted curve got a lot of attention without getting gobbledy- gookish about it. We've had other examples of curve inverting, whether it's a three month bill, whether it's a 10-year note of the Federal funds, and overnight (inaudible) a 10-year note.
But really got their goat today seemed to be what happened between the 2 and the 10-year, that that adds some seminal significance, even though Janet Yellen, the former Federal Reserve Chairwoman was saying that investors may be getting a false recession signal here, that this could be different this go around. What do you think?
HAWKINS: I think that's highly unlikely, and --
CAVUTO: No, could I have -- Hugh, if he can hear me. I'm sorry Lenore, hang onto that. Hugh, can you hear me?
HUGH JOHNSON, CIO OF HUGH JOHNSON ADVISORS: Yes, I can -- I can hear you great Neil.
CAVUTO: On that, what do you think?
JOHNSON: You raise a great -- well, a great point. I've looked at the yield curve pretty carefully and the yield curve has inverted the one we're talking about eight times since 1965. It's given a false signal once. So, Janet Yellen could indeed be right. But it's given an accurate signal as you pointed out before seven times.
That is -- it told us about oncoming recession and it was accurate. The other thing you mentioned which is really important is that the yield curve tends -- the inversion of the yield curve tends to lead the actual recession by a great period of time. You mentioned 22 months. If you look further back it comes out to about a year.
So, we're talking about a recession starting but in June of 2020. And a great deal can happen. I'm not sure we're going to avid a recession. I don't think we're going to avoid a recession but a great deal can happen in the financial markets between now and then.
And the message of the markets generally and the message of important economic variables such as leading indicators says that we might have still further to go on the bull market or we might have positive markets between now and the time that recession starts.
CAVUTO: Lenore, the old adage and I'll extend it to the bull markets and recoveries that they don't die of their own accord, often times they're murdered. And by outside developments or unexpected government actions, I mean what do you expect happening here?
We haven't ruled out slowdowns and corrections in the economy and our markets. That's a natural healthy phenomenon. This could be a different case. What do you think?
HAWKINS: I think so. I think what we're looking at is potentially -- because like you said, they don't die of old age, there's something that pushes them over and it could very well be these trade wars. The problem with the trade wars is that it makes companies very uncertain about the future. It really messes up with their supply chain.
Where do I source things? Where do I make things? How do I out together the products and services that I sell when the rules of the game keep changing. When you have things like oh, we threatened to put a tariff on - - wait, no, now we're not going to. Wait, it's going to be postponed.
It makes companies have to pullback and just that in itself when you're already starting to get an economy that's a little wobbly, the more that companies pullback, the more things slow, the more things slow, the more that companies pullback. It can become a bit o f a self-fulfilling prophecy.
But keep in mind we are seeing an awful lot of signs of slowing. If you look at Long Beach, their total volume of shipments, that's gone -- the port of Long Beach, that's gone down significantly.
Intermodal rail traffic, foreign shipments of goods into the United States, all of these things are decreasing significantly year-over-year which is telling me that things are really slowing.
CAVUTO: Hugh, real quickly, what are telling your clients today?
JOHNSON: Well, we're telling our clients as look, it's rational. Look, this is a 125 month mark of this bull market, the longest in history. So if you're asking the question are you getting a little nervous, can you sleep at night and you can't, then cutting back your allocation equities is certain a sensible thing to do.
The other thing we're telling them to do is that within the equity part of the portfolio, build up a little bit of defense. And what that really means is add a little bit consumer staples, add some utilities, add some of the healthcare stocks.
In other words, add stocks that tend to do a little bit better, they all go down but do a little bit better in a bear market. Build some defense into your portfolio if you can't sleep at night.
CAVUTO: All right, guys. Thank you both for that. We all needed that. Money generally goes somewhere when everyone's panicking in stocks. Of course it went into bonds today. But it also went into gold. People are feeling I got to have the (inaudible) somewhere.
A market legend named Byron Wien and the head of the CME knows a thing or two about what happens on the commodity front on why that's happening right now and how long it could keep happening, after this.
I wouldn't say it's a rule of thumb but when people get nervous about stocks they like to park their money in something they consider a safe bet when things are volatile. Gold is a beneficiary of that. You certainly saw it in the treasury market and bonds and treasury notes and that sort of thing. But gold has been picking up considerable steam of late.
The more volatile the world seems to get, the more popular gold seems to be. The CEO of the CME will trade on this and a host of other commodities much more than that, Terry Duffy with us right now. Terry, you've been on -- sure we're seeing a pickup in volume activity around a lot of this. What do you make of this?
TERRENCE DUFFY, CEO OF CME GROUP: Well, Neil, it's very interesting you bring up gold because a lot of people have not talked much about gold even in some of the recent downturns that we have seen in the marketplace. Even in the last couple years, as you know, we've had some pretty hard downs even though the market's come back.
And gold hasn't really been talked about. This time it's becoming more front page news which I find quite interesting. So when you look at our gold trade here at CME, we average about 500 to 600,000 contracts a day in August.
And now we're seeing a spike in that volume along with the price so were actually seeing people now pay much closer attention to gold than they ever have before which I find interesting because that was not the case on some of the hard downs that we've seen over the last 12 to 14 months.
CAVUTO: And typically the attention to gold often times, not all the time but often times it's built on the expectation of inflation or the economy, is the world heating up and that -- it's far from the case now.
So, I always get nervous saying it's different this time as you do. But is there something unique about what' going on right now, the record low interest rates, fears of deflation more than inflation. What do you think?
DUFFY: Well, I think you're spot on with all of those points, Neil. And I think when you look at what's going on today, it could be a little bit of a perfect storm which is really getting the attention for gold. When you look what Germany came out with a contraction of their economy for the first time in a while.
So the European economies our contracting on their growth, we have the issues with trades. We have issues here in the United States. Our agricultural farmers are having a lot of concerns right now, issues going on in Asia. So it could be a little bit of the perfect storm.
And if you start to get some contraction in the economy, I've been saying for quite a while that deflation would surprise me one bit. And we haven't seen it but maybe it's finally starting to show itself.
CAVUTO: You know a lot of people in the agricultural community that they can kind of gage the reception for their products every day in your market. And we've heard about corn futures and soy beans and (inaudible) and all this other stuff that's been under pressure because the Chinese aren't buyers.
But there could be bigger things going on, just fears of a global slowdown generally that could take a tough situation and make it tougher, right?
DUFFY: No question about it, Neil. And right now I don't think the consumer in the United States has felt much of the tariffs. It doesn't mean that they won't ultimately feel them, so that continues.
So there's a lot of uncertainty. And I think when there's uncertainty, I think some of your earlier guests made -- mentioned this that the markets don't like that. So they start to pull back a little bit, and they can track them. I think we're starting to see a little bit of that, so we need to get some clarity on some of these outstanding issues. You're always going to have issues out there, Neil. There's no question about it, and I think, you know, it's really hard to blame the administration and it's hard to credit them. I mean, we don't know exactly what's going on behind closed doors. It's a very powerful country and we have people running it, but I think we have to take a strong look at some of these signals that have not shown up in such a long time as I said earlier.
CAVUTO: All right, we'll watch it closely. Terry Duffy, thank you very much. The chairman, the guy who runs the CME, a very popular alternative. A lot of investors, especially these days given what's been going on with stocks.
Meanwhile, these worries about a recessions and whether they'll pan out and the timing of that, especially of the Rust Belt where it seems more pronounced. The political fallout after this.
This is what we call stock market fallout. For those of you who might maybe just listening on the radio right now, we had Boeing and Caterpillar and 3M with huge exposure abroad, particularly in China, taken on the chin today. A lot of these issues and a lot of the so-called manufacturing- related ETFs that have to deal with them, they're already in bare market territory. A lot of them, not all of them. That's a decline of 20 percent or more.
All the major market averages are still shy - correction, territory - by a couple of percent, but it worries folks when the underpinnings like this are exposed to a China they think is slipping away here. So even if we get a trade deal, the concern is it might be too little too late for U.S. manufacturers and maybe the Rust Belt so politically important to this president and to the Democrats who want to succeed him or beat him.
Republican pollster, Lee Carter, here on that, Democratic Strategist, David Bernstein, and last but not least Fox News Contributor, Deneen Borelli. You know, Deneen, I always hasten to add on the upside and the downside don't focus on one particular day. Look at the trends. And the trend certainly has been favorable for the markets, certainly for the economy.
But you know, everything has its potential turn. Too soon to indicate whether this is, but whatever is going on is a global phenomenon that manufactures already feeling. Would and should that be a worry for the president?
DENEEN BORELLI, CONTRIBUTOR: I don't think so. First of all with any industry you're going to have ups and downs, but under President Trump we are witnessing a booming economy, and that is his strong message point that he can carry -
CAVUTO: What if it isn't as booming -
BORELLI: I'm sorry?
CAVUTO: - when he's up for election if it's not booming as much?
BORELLI: Well, think about the previous administration did when it came to fossil fuels for example. Think about if we had a Hillary Clinton presidency that she wanted to do away with the poll industry jobs and the business itself, so -
CAVUTO: But I really want to talk about - I mean, if it's - if things slow from this level -
CAVUTO: - should the president worry?
BORELLI: I don't think it's going to be an issue -
CAVUTO: Got it.
BORELLI: - because of what we are seeing with this booming economy. He is in it for the economy, the forgotten men and women, and he's done everything he can by rolling back taxes or rolling back regulations for a pro-growth economic environment.
CAVUTO: OK. Lee, that environment could change a little bit. And by the way, with these inverted yield curves and all, there's a lot of lag time between the impact and how it's felt. What do you think (ph)?
LEE CARTER, GOP POLLSTER: Yes. I mean, the lag time is what the president's going to have to bank on right now because if we are going to go into a recession now, it's going to be awhile until people feel it in their pocketbooks, and I think that's what the president has to worry about.
So we've got 14, 15 months until the election. That's a long time. So right now consumer confidence is at an all-time high, so people are feeling pretty good. People are employed, they're stock prices are doing pretty well, everybody feels good. If this down the road 14 months people are starting to feel badly, they're seeing that there's joblessness, they're seeing that things aren't as good as they thought they were, then they're going to start turning their attention.
Right now, most people don't feel this, and once they do, then things are going to start to shift. The question is when is that going to happen.
BORELLI: But to piggyback on that, Neil, and not to cut you off, but if it's a Democrat president, they are pushing socialist policies. These would be long-term policies that would be very harmful for our country. So when we have a pro-growth economic environment today, voters are able to see what's going on today versus what could be down the road.
CAVUTO: You agree with that, right David?
DAVID BERNSTEIN, DEMOCRATIC STRATEGIST: Well, look. Here's the thing, Neil, is that the economy, of course, we know is strong and at some point we've known this for the last 10 years as the economy's been booming we're going to go into a recession. That's just what happens. And it may not be the fault of the person who is in the chair when that happens, but it will happen and it will affect them.
But I think the thing to really look at is I would actually disagree with Lee that people are feeling good. Yes, the consumer confidence index is good, but if you look at the broader indicators of how people feel, people see their way of life disappearing. People - we've got the opioid epidemic, we've got stress, anxiety -
CARTER: I'm talking about the economy.
BERNSTEIN: - but look, but this affects how people feel because of the - they're looking at a screen that says, "yes, everything's good," but people don't actually feel that.
CAVUTO: A record number of them have jobs. Virtually every key Democrat from minorities, African Americans, Hispanics, Women, they're all at the lowest unemployment levels in some cases in history.
BERNSTEIN: But it's - but then we shouldn't have record levels of stress, anxiety, and suppression if people are - if that's -
CAVUTO: We don't have record levels of suppression. What are you talking about?
BERNSTEIN: Yes, we do.
CARTER: I blame that on social media. I don't blame that on this president.
BERNSTEIN: I think it's more complicated.
CAVUTO: Maybe it's just your generation. Everyone's whiney.
BERNSTEIN: I think it's more complicated that because one of the things we've seen with the president is that these fundamentals, these numbers, they don't necessarily translate into the kind of happiness that everybody's seeing, right? Look at how angry people are. We see this, right? We've seen this over the last couple of weeks and we look at these - this violence and the way we're divided.
CAVUTO: So when the unemployment numbers were higher under Barack Obama and we didn't have nearly the improvement we saw into these key groups, were you saying that then?
BERNSTEIN: Well, it was less so. I mean, it's gotten worse, right, because we're not addressing the root cause.
CAVUTO: Do you read the same economic data I do?
BERNSTEIN: Yes, yes, but there's some more - there's just something more fundamental here which is how people actually are living their lives which is about more than whether or not they're employed.
CAVUTO: You know what I need is more fundamental (ph) and I have great respect for you and all. I just think what's going on with the globe because that's what's different here. Clearly Germany's had it if not already in a recession.
CAVUTO: China is stumbling badly. I never trust any of the numbers I get out of China, but they are slowing from even there maybe lied about numbers. That's a worrisome development. This is something that's got global interest rates heading down at zero in some places, negative in others, quickly getting to zero in this country. That's a bigger issue, isn't it?
CARTER: I think it is, and I think part of the things that we're looking at today is not - you know, we're not having a sell off just because of the curve, the yield curve. What we're also seeing is (inaudible) Germany, we're seeing other things. Absolutely.
CAVUTO: I think that was an excuse to --
BERNSTEIN: Absolutely. Absolutely.
CAVUTO: I think that was - it's a technical definition a lot of people seized on it because this curve existed, you know?
CARTER: We knew it was happening. It totally existed. We've been talking about it for months on, you know, on air. We've talked about it, so I don't think that this is necessarily the big news. I think that there's -
CAVUTO: We devoted chose (ph) on Fox Business which if you don't get -
CARTER: Absolutely we have.
CAVUTO: - explaining that phenomenon.
CARTER: Exactly we have and I think we do have a lot of global uncertainty and I think that is the biggest issue that we're facing right now.
BURSTEIN: I'll also just add quickly on that is that people I think in their minds also when they hear recession they think about the last recession we had. I think it's important for people to note that a recession doesn't have to be nearly as bad as the last recession that we had. So it could be something that comes and goes and has much less of a geo political effect than people think it might.
CAVUTO: We'll see. We don't know, right, so we can conject? Can you conject?
BORELLI: Why not? Do it.
BURSTEIN: That's what we're doing.
CAVUTO: All right, meanwhile back to stocks and what's going on there. A market legend who has been through recessions and booms alike, who always has argued and this is one safe argument he's made to calm people down on the upside or the down side; long-term the market is your friend. So I want you all to think of a friend. Think of how important they are in your life and whether this applies to this market right now. Byron Wien is next.
CAVUTO: All right with today's 800-point hit - about a 3 percent hit as we were reporting earlier, the major market averages from their highs are still well under what they call correction territory. You have to be off 10 percent or more to enter a correction; 20 percent or more to be in a bear market. As I am showing you there, the Dow about 7 percent from highs reached about the middle of last month. The S&P 500, something similar. The NASDAQ, again, in that neck of the woods so not even in correction territory.
Now there are a lot of components, financial and related issues that are well into bear market territory themselves. Some say that presses problems down the road. Hard to say but I have a feeling this next fellow has a pretty good idea and some pretty good advice for us to deal with this. I'm talking about the Blackstone Private Wealth Solutions vice chairman, Byron Wien, a Wall Street legend and I do mean that because his prescience has been uncanny over the many decades I've had the pleasure of knowing him. Very good of you to take the time to join us again. Are you worried right now about what happened today?
BYRON WIEN, VICE CHAIRMAN OF BLACKSTONE PRIVATE WEALTH SOLUTIONS: Well, I'm not worried about what happened today but I'm worried about what made it happen. What made it happen today is we've got weak economic figures around the world, particularly in Europe but also in China. The worry is that we're going to have a recession in 2020. Neil, you know, I've been on this program saying the next recession is 2021 or later and now these weak economic numbers introduce the idea that maybe it could be next year.
CAVUTO: Do you think that if you change your own.
WIEN: I haven't changed any opinion yet but I'm paying attention. If the figures continue to weaken, I am worried. But there are things that can be done, probably not by the Federal Reserve. I mean, they'll probably reduce rates more but rates are already low. If you're going to borrow to do anything, you already have low interest rates to do it.
CAVUTO: So when the president blamed the federal reserve for this, by responding too late, hiking too soon, you know that. What do you know?
WIEN: What we need is fiscal stimulus. You know what we really need is something to get the economy growing at better than 2 percent.
CAVUTO: Like you want some more tax cuts?
WIEN: Well we could have infrastructure spending, we could do something like that but you know.
CAVUTO: But there would be a delay from the impact of that though.
WIEN: Exactly. You know whatever the president proposes, he can do some things by executive order.
WIEN: . but the other - but, you know he's got to go through Congress and it's a question whether Congress will approve it. I mean you've got a Democratic Congress. They don't want to make the president look good. I also think that .
CAVUTO: A lot of these (inaudible) have stimulus plans of their own, going on other spending beyond infrastructure. Would that make a difference?
WIEN: Well, you know, we've got - we've got to make sure that the economy is growing at 2 percent or more. If the economy isn't, if the economy is in a recession, Donald Trump is in trouble for re-election and he knows that. He knows that if an incumbent president is running for re-election in a weak economy, he's in trouble and he's in trouble anyway because of some other issues. So he's going to -- he wants to do everything to make sure that we're growing next year wither he has the tools to provide that really depends on how bad the economic situation gets.
CAVUTO: So you think that whether it's the Federal Reserve, all of the central banks have forcing rates to zero -- negative territory. That's not going to make a difference is it?
WIEN: No. First of all, the economy up till now hasn't been weak. It's starting to weaken. Whether it will weaken enough to produce a recession, two negative GDP quarters back to back? I don't know. I'm not willing to say that's going to happen yet. You remember back in the fourth quarter of last year, everything looked bleak until Christmas Eve.
WIEN: .and then it turned around. It can still turn around; if he has a deal with China that could be important. If Hong Kong riots or protests stop, that could be important. If the economic figures improve, that could change attitudes. So there's some things out there that could happen that could shift the mood of the market back to positive but right now looks bleak. I wouldn't be at all surprised if the 6 percent down figures that you flash on the screen end up being 10 percent before this is over.
CAVUTO: So a correction is just a small jump away.
CAVUTO: I talk about the internals of the market, Byron as you know far better than I that have not looked very constructive. More than half of the S&P 500 stocks are well into correction territory.
CAVUTO: I think it's about a third that are now in bear market territory, (melting) and all. Does that worry you, in other words, as they go it spreads elsewhere?
WEIN: Yes, I mean the -- the tone of the market, the advance, decline, line rolling over. That's a negative sign.
WEIN: You know, you have to have to something. In market it's very responsive to a possibility of a deal with China.
CAVUTO: So a deal with China, we -- we -- we could pick it apart all we want, if it comes to pass. If China's hurting to the degree it appears to be.
CAVUTO: .it will too little too late, wouldn't it?
WEIN: No. If -- if there's a deal with China, we represent five percent of China's GDP. If we, you know, Trump has already pulled back from his September first terror (inaudible) increases.
WEIN: If we do a deal with China, I think that would have a positive effect on the Chinese economy almost immediately and it would have an important psychological effect on the U.S. market.
CAVUTO: Interesting. We know he looks at the markets and we know he looks at it closely, that's sort of a badge of honor for him. These days maybe not as much. What do you think of his attachment to them and using that as a proxy? Because they're still up a lot, since he got elected.
WEIN: He's -- he -- the market is a daily scorecard and the market is giving him a bad grade and he knows it. And he knows -- what he's worried about.
CAVUTO: A bad grade this week.
WEIN: Yes. What he's worried about is what I talked about before. What he's worried is that the - the (inverted yield) curve and action of the stock market is telling him that we could have a recession next year and that he'd be running for a second term during a recession. And he doesn't want that.
So I can assure you he's calling his advisors in to say how can I be sure the economy is growing at two percent or better next year.
CAVUTO: Real quickly, for investors who are in this market, do you tell them to get out of this market if they're putting in a little bit every single month, adding to it, you know, dollar cost averaging as it's called? Would you tell them to keep to that, not do that, what?
WEIN: Yes, I -- I -- I would tell them not to panic here. I think the market may be down 10 percent, so that's another four percent from here, but I -- I -- I still believe we're going to avoid a recession and next year will be a better year.
CAVUTO: Byron, always a pleasure my friend, thank you very much.
To put Byron's sentiment in some perspective here, when we had the internet boom going on, I can remember talking to this guy and he reminded me, Neil, you know, earnings do matter. (The turnoff) he was right then. And -- and right in the middle of the meltdown he said, stocks will come back. It's a good perspective we should all have.
A little more after this.
CAVUTO: All right, I want to go to Art Laffer right now. Tax cuts, Bengali, Ronald Regan's point man when it came to big tax cuts.
Art, you probably heard Byron Wein saying we're going to see things.
ART LAFFER: I did.
CAVUTO: .slowing down, and the President and the timing of that, it -- it -- it could be tough. What do you think?
LAFFER: Well I think Byron Wein was the best interview you've - I've seen you on in a long, long time, Neil. He was dead on. He said the stock market is the President's indicator of whether he's successful or not. It's giving him a bad grade for what's been going on.
I think what he also said is this is not - he doesn't see any reason for this being a big problem and I don't either. I think he's completely right. My fear is, Neil and we had this conversation in 2007 and 2008 a number of times, my fear is if government panics and they do something they'll screw it up really big time.
The President, I think, really needs to get down and understand that the trade problems are serious and they're affecting the markets quite substantially and that he needs to do something that's very positive and upbeat and good for the country and good for China and good for everyone.
CAVUTO: What would that -- what would that -- what would that be, that he hinted, he telegraphed by making some allowances on some of these tariffs that were to go into effect on September one, pushing them back to December. What else can he do, besides make an outright deal right now in China?
LAFFER: Well, number one, he can do it, he can remove all the tariffs for six months or a year. And that would be an enormously positive thing for him to do. It would send the market skyrocketing and would end all of this discussion of a recession and downturn. I think that would be spectacular. I think what the President sought yesterday.
CAVUTO: What you're acknowledging there -- you're acknowledging there, that the tact he's taking, that maybe the trade war itself, the way he's handled China has been a mistake.
LAFFER: Well I don't know if it's a mistake in the long run, I really don't. I think the guys an amazing negotiator. I think there are very serious problems with China, but right now I think he should be focusing on the election next year rather than on whether China (inaudible) gets intellectual property or not this week.
I don't think that's where his focus should be, I think as time goes closer and closer towards November of 2020, his attention should be more and more on the election and less and less on rectifying immediately the problems of trade with China.
CAVUTO: All right. Stimulus, the kind that Byron Weim was talking about, either tax cuts, infrastructure, spending, it's still stimulus to him. What do you think?
LAFFER: I think tax cuts (and I think) infrastructure spending is OK. It's far better than what we did in 2008, 2007. If you'll remember the conversations, you and I were the only two that didn't go for the stimulus packages. Either Bush's or Obama's. I mean, even Jack Kemp even went for them, all these other.
CAVUTO: Yes I remember that, yes.
LAFFER: .conversation. And I think that they were the things that caused the great recession. I think monetary policy quantitative (inaudible), which is going on right now, is deadly for the markets, it's not good. And I think also the idea of stimulus spending, you know like Obama did and like George W. Bush did, is deadly for the economy too.
Remember Neil, whenever politicians -- whenever someone's panicked or drunk the consequences of their actions are rarely attractive. And, you know, we just need to hold tight, get a good free trade deal with China, do it right now, make it temporary for a year or whatever you want to do. And then come back and revisit after Trump is elected in a landslide, which he will be.
CAVUTO: All right.
LAFFER: He should be.
CAVUTO: I'll play this tape.
LAFFER: That's me.
CAVUTO: we'll see what happens. But no seriously Art, thank you very, very much.
LAFFER: Thank you, let's do it.
CAVUTO: All right, Art Laffer.
LAFFER: My pleasure Neil.
CAVUTO: Thank you very, very much my friend. What was that Ronald Regan said when government tries to fix things, we're in bigger fix, something like that?
All right and consumers might be hunkering down at just the wrong time. After this.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Cutting down on spending?
UNIDENTIFIED MALE: You've got to ask my wife that question.
UNIDENTIFIED FEMALE: Watch what I buy that I consider like a luxury item.
UNIDENTIFIED FEMALE: Not go out as much. Like spend less on food, home and cook.
UNIDENTIFIED MALE: Walking is better. Mass transit costs money.
UNIDENTIFIED MALE: Look at our finances instead of just blowing money. Like, maybe we should save some for the future.
(END VIDEO CLIP)
CAVUTO: All right, consumers, they're going to be all important here, not just investors. Charles Payne follows them very closely. They're the linchpin, right?
CHARLES PAYNE, CONTRIBUTOR: They are the linchpin; it's what's keeping our economy going. It's, in a way, right, what's keeping the world economy going, because people send us this stuff and we buy it also. So, what's really interesting about consumers though is that they have changed, Neil, since the Great Recession.
And I know people making like, OK, mortgage rates are back to where they were, but compared to the value of homes and the ability to --
CAVUTO: They're not rushing into real estate.
PAYNE: They're not. And our ability to service our debt is at a place it hasn't been in a very, very long time. The last time the reports came out we were at 8.1 percent savings rate. To put that in context, right on the eve of the Great Recession we were around 3 percent, so.
CAVUTO: Is that right?
PAYNE: Yes, we're a much more disciplined consumer.
CAVUTO: But that can be a bad thing too.
PAYNE: It can be. It can be, and to -- but it feels like people spend in spurts and some of that has to do with the headlines, some of that has to do with anxieties that keep and going down and an overall new cycle, but I think that the consumer is just -- we've got a consumer, not unlike the consumers after the Great Depression, that they're a little bit more guarded. We heard some of them just there, with those individuals on the street.
CAVUTO: But they can feed on it so. You always remind me of the year (ph), fear breeds fear, breads frozen, right? Where are we now in that?
PAYNE: Well, December is a classic example. I think December is a case study for anyone who wants to understand psychology, because here's the thing, in December our incomes went up 1.1 percent.
I know to folks listening it doesn't sound like a lot, it's impressive, it's mindboggling impressive, right, 1.1 point, but spending plunged. And speaking of savings, our savings rate had one of the biggest month-over- month gains I had ever seen from November to December.
CAVUTO: And that was an awful month for stocks.
PAYNE: It was an awful month for stocks, there was a lot of anxiety. The Fed was still hiking rates, so that was another thing pressuring the markets. Remember December 19, we've still got a interest rate hike.
CAVUTO: That's right.
PAYNE: But the idea that we were getting this huge amount of money in our pockets, incomes were soaring, and yet that wasn't enough to move the needle. We were anxious. We have this anxiety and we reacted to it. And again, we were this close I think in December into lurching into recessing.
CAVUTO: What about now?
PAYNE: We're not there yet but obviously theses kind markets, people look at their smart phone. They're not going to ask a lot of questions. They're going say down 800. I remember a couple days ago we were down 400 points. I had one of the engineers in the hallway ask me if he should close out his 401K today. So --
CAVUTO: No, that was me, all right.
PAYNE: They were worried. People getting a little worried.
CAVUTO: Thank you my friend, Charles Payne. Words to live by. We'll have more after this.
CAVUTO: If things are going to slow down a lot of big businesses, auto makers among them already doing just that to prepare. FBN's Grady Trimble has more on this in Chicago. Hey, Grady.
GRADY TRIMBLE, FBN ANCHOR: Hey, Neil. Well, the U.S. automakers by no means immune to the possibility of a recession. In fact, the top ones in the U.S are preparing for that possibility. Ford and General Motors in particular. Their CFO's spoke at a conference yesterday and both companies say they're stashing away a lot of cash in the event of a downturn. Ford putting away, you see there $20 billion. GM with an $18 billion buffer. GM CFO said, "It's something that we continually keep watching and updating to make sure that we're all set for the downturn does come." Notice she says when it comes, when that will be still the big question though. Sales for both car makers have already been slipping. We'll see if a recession actually happens. But it's been the talk of the day. You see their sales down in the second quarter compared to last year around this time. And there stocks slipping as well today compared to yesterday.
CAVUTO: Yes, with a lot of other companies doing the same. Grady, thank you very, very much. We will be to continuing to explore this. Right now here comes the Five.
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