In the humility humanitarian stuck in theople city. I am jessica summers. This is bloomberg. Julia live from bloomberg World Headquarters in new york. Im julia chatterley. Scarlet im scarlet fu. Joe im joe weisenthal. Julia we are 30 minutes away from the close of trading, as another atlantic hurricane threatens to make landfall. Joe the question is, whatd you miss . One Million Immigrants in limbo, as President Trump announces the end of an obama era immigration program. And a state of emergency in florida. Hurricane irmas potentially when isins are luxury cruiseg stocks. For perspective on how investors are likely to be positioned for the rest of the year, lets ruchirn Morgan Stanleys sharma. Ruchir, we have u. S. Stocks falling, the dow off by as much as 270 points, the dow the dollar declining, and treasury rally. Our People Holding off on doing anything . The markets are really 2 off their alltime high, so it is very hard to read much into one days moves. There is extremely low volatility. Thatnk it is quite obvious the markets are this expensive. It doesnt take much to knock markets up a bit. The year isstory of just how resilient the markets are, despite all the negative headlines out of washington. Joe what do you attribute that to . I think this has much more to do with the Global Economy. Time since first 2010 that we have seen rises in every part of the economy, from japan to brazil to russia, we have seen an upside to Global Growth. Is noe United States longer the life of the party, as it was the last five or six years. It is the rest of the world. And i think that is what really is helping. Market, the stock snp, it is much more of a global animal that a local creature. Joe scarlet referenced in the entry, the synchronous Global Growth that we have not seen a long time. What would it take for some other headline to change that markets to suddenly get concerned about politics, or geopolitics, or something to take Investors OfficeGlobal Growth story . Ruchir geopolitics has been in the focus. Markets have a very bad history of pricing in geopolitics. The markets are totally blind sided by it. If something were to happen in north korea, the markets would be taken by complete surprise. But until something bad happens out there, unfortunately, i dont think the markets are going to care much about it. We will see these declined to take place, but they are very shallow declines. I dont think deal will suddenly take the markets off. What could take the markets down are basically two things. Remember the last five to six years, we have seen Global Growth oscillate within range. And we are at the high end of that range. It would seem to me that possibly a downward surprise could come in the next six months. The strain of the last few months. But the single biggest risk to the Global Economy now is, i think that now, the tail wags the dogs. Thate used to thinking markets will face economic reality. With the size of Financial Assets in the world so big, it could work the other way around. In perspective, in the 1980s, the size of the financial economy, the value of stocks and bonds, and the Global Economy, were about the same. Today, the size of the financial economy, which is stocks and more thanally, is three times the size of the underlying economy. So, it is quite possible that something happens there, that would have a knock on effect on the economy, rather than the other way around, as we are conditioned to thinking. If the Financial Sector has enough of an impact on the economy, what is the achilles heel . Where in the Financial Market is the real achilles heel . There are two things there. One has to do with interest ines, because this explosion Financial Assets has been underpinned by a massive decline in yields across the world. So, i think that is one. Julia we have to check the box on that one. Some are fearful of the markets. Their look at some of statements by central bankers. Youre getting concern that they need to pay more attention to financial stability, rather than just inflation. Is that,ing now because inflation is so low, we easy inue to run an from time to time. Years,t three to four beingial stability is begi featured as a financial risk. And the second one has to do with china. I think china comes back into focus next month, when they have the Party Congress. So far, the consensus is they will not allow anything to go wrong before the Party Congress gets underway. To their credit, they have been able to achieve that. But we are still seeing a big explosion in chinese debt. Once the Party Congress is out of the way, i think you could see much more tightening out of china, which could be a big risk for the Global Economy. To pick up ond your first point, which is interest rates. When it comes to centralbank policy, some people see that as a threat, as a potential worry point for investors. Seems to be a lot of complacency about the reduction of the feds Balance Sheet. Wellidea that, it is so choreographed and telegraphed to the market, that it will be fine. What is the reason for people thinking that, qe is positive on the way up, but that reversing qe wont have any negative effects . Ruchir there are more risks for the downside. It is just a fact that a lot of inflation keeps pricing on the downside. The big story of this year has been that, the last five or six months, inflation has systematically disappointed on the downside, even as Economic Growth has held up. That is something that the markets were not expecting. Ked in this sort of, goldilocks euphoria. Theproblem is that, financial economy just keeps getting bigger, until it doesnt. Joe do you have a favorite theory all right everyone keeps getting inflation wrong . Ruchir there are many reasons but i think the two buzzwords and are globalization amazonization. The fact that you have the bystant pressure on prices somebody like amazon. I think those are the two big buzzwords as to why inflation has been systematically low. This is where the thinking has to change. We are used to thinking that Consumer Price inflation, that high Consumer Prices are bad for the Global Economy. But, is quite likely that asset Price Inflation is as big a risk to the Global Economy is Consumer Price inflation. Asset prices keep inflating away is a something that i think Central Banks have to incorporate and their frameworks, sooner, rather than later. It will possibly be after the next crisis, unfortunately. Crisis,have the next which is led by a Financial Market meltdown again, then the Central Banks will say hey, we more timeend much looking at asset Price Inflation rather than just Consumer Price inflation. Sharma, thankr you. We are going to discuss china and emerging markets, more after this. From new york, this is bloomberg. Scarlet im scarlet fu. Whatd you miss . Funds, speculators are increasing their positions in copper. Here is the bloomberg, and we aroundpper is trading at 83 year high in london. Large speculators have increased their positions, to the most on record. This is according to data going back to 2006. Copper prices are up about 25 this year, and have breached technical levels, indicating a pullback is due. We are here with Morgan Stanley chief global strategist ruchir sharma. I am wary of drawing too many conclusions, because this is a really catchup trade. Copper and other commodities have lagged over the last several years. And there are some supply issues with copper, in particular. So i think this is a big catchup trade that is going on. There is optimism about chinese growth, but chinese growth seems to have peaked in july and we are seeing a level off, and it. It is not falling off of a cliff, or anything, but it is leveling off. I think chinese growth explains some of the optimism, but there is a bigger story here. It is as much of a catchup story, after such a long. Of underperformance. Joe a lot of people are using the word goldilocks to describe e. M. Right now. Growth looks good. Monetary policy positions are not especially tight. Nothing is causing major Central Banks to tighten. And we had that huge e. M. Rally this year. Is the rainy thing you can see that would derail that come in the shortterm . Ruchir no. A lot of this is explained by two factors. One, is a weak dollar. Every time you get a weak dollar, you tend to get em outperformance. In the second thing i think, has to do with china. Has become so linked to what happens in china. As the situation stabilized in china last from worry, when they seemed to be on the brink of a crisis, i think it is about outperformance. The risk to e. M. , if chinese Economic Growth starts to fall and the growth that we had in 2015 and 2016, that comes back into play, but until then, i think e. M. Continues to go higher. Weia you said earlier that see priced in geoPolitical Risk. But we see the United States considering whether to walk away from their nuclear deal with iran. We have tensions between north korea and south korea. Donald trump talked about ending a bilateral trade pact. You kind of worry that there are so many countries, involved with this problem. It could be a emerging markets. But my point is, markets are not really good at pricing and events until the events really happened. For some reason, over the last 20 or 30 years, whenever tensions have escalated, things have died down. The most remarkable thing for me in terms of the korean tensions, is how well the south korean market has done this year. , south korea is right at the doorstep of what is going on, and but look at the south korean market and the south korean wan. That is telling you about the fact that, it in south korea they are seeing these signs of like, it is hard for global. Arkets no scarlet you can only focus on one thing, at a time. Perhaps the biggest Political Risk though, maybe President Trump. Joe julia mentioned trade. It feels like a turn away from global trade, is one of those things people warned about for a long time. There is a lot of fear about that, postbrexit and post trump. Trump tweeted over the weekend, and plausibly, that the u. S. Could just cut off trade with any country doing business with north korea. But what if we do something meaningful on the trade front, out of this administration. What if nafta collapses, what if some of this stuff becomes more than just tweets . What is that due for the outlook . Julia sanctions on the chinese . Ruchir i totally agree with this point. A narrow im deglobalization. I dont think that is going away. So, broadly speaking, i do think that the explosion in global trade that we saw in the last three to four decades, that has come to a screeching halt. We are likely to see a reversal of that. What pattern that reversal takes is hard to chart out. But i think we are entering an era of deglobalization. And for emerging markets, this is a problem. The underbelly of the emerging markets, from brazil to russia, the big risk they face in the next five to 10 years, is that the basic model that they were relying on, which was exporting your way to prosperity, that model is worn. Typically, export growth is very robust and that has caused some of these countries to climb the development ladder. It now, that model is shot. You can see a case in point is india. That countrys struggling to climb up the export latter. Trade is a big risk for the Global Economy. I think deglobalization is here to stay. The biggest risk from the Trump Administration, i completely agree with trade. But that is one area that the administration can act a lot more on its own, then in concert with the congress. Scarlet you have written about how a countrys Economic Performance to tens to deteriorate when those at the to powerolitics cling for too long. What happens when it is the opposite . We have an administration now that is doing everything it can to reverse what the Previous Administration put in . What does that due to the economy . Ruchir i wrote a piece for the back in may, and i wrote the good thing about the the United States is the strength of its institutions. Despite so many negative headlines out of washington, you have not seen much impact on the markets. I think the strength of u. S. Institutions is so much, that it is quite difficult for the administration to do that much for lack the economy, of a better expression. I think the big story in the United States is that. But yes, in emerging markets, if the same headline was seen in an emerging market, trust me, the reaction would be much more negative. Negative headlines from there, regarding the impeachment, the scandal, you had a big knock on the brazilian markets. But the u. S. Markets have been much more resilient. I think we should just step back for a while at least, and complement the resilience of u. S. Institutions, in the way they are able to deal with these issues, rather than just keep thinking this is just a negative, downward spiral. Julia italy has had 64 governments and the last 70 years. Shir, thank you for joining us. What are the biggest one of the biggest drags on the dow today is the insurance firm, travelers. We will discuss. From new york, this is bloomberg. Scarlet it is time now for the stock of the hour. Just days after Hurricane Harvey hit texas, Hurrican Irma is expected to hit florida this week. Somedouble whammy has insurers on pace for their worst day of the year, including travelers, the worst one of the worst drags on the dow, now down more than 3 . Heres a bloombergs abigail doolittle. Abigail Bloomberg Intelligence analyst was saying, investors are just a bit more cautious on the outlook. It is more of a psychological factor, knowing that it will eat until the bottom line, because we wont know about that until weeks after these storms, in terms of how these storms into capital losses. But we do know that sellers are in control. If we hop into the bloomberg and take a look at this chart here, it is a longerterm chart for travelers over the last year. In yellow is the 200 Day Moving Average, and it is moving higher. But, the stock over the last years down, and really, on these storm related causes. Over the last two weeks we have shares of travelers trading lower, not just on harvey, but slicing into that 200 Day Moving Average on irma, telling us that sellers have really stampeded in. Houston,eems that, in not many houses had flood insurance. So there was a big get between total economic losses and insured losses. E,florida, a lot more robert they are on the hook for than in texas. Abigail i dont know the answer to that question. I think you are probably right about that, that more homeowners would be prepared for it. The travelers has a lot of exposure to florida, so i think that is one reason why the stock is down. But 1. 2 he made. A lot of these stocks bounce back after a storm. If we take a look at travelers and hurricane sandy, we see travelers put in a high, and then around the time of the storm really get down, but then, closing down the year higher, by about 25 . And when the actual losses came out, they were less than what investors were looking for and the stock popped four dollars or five dollars. There was a bit of a recovery there. Abigail, thank you. The market closes next with the major indexes down. But if you look at the intraday chart of the s p, the dow and the nasdaq, they have come well off their lows of the session. The dow might be off by 200 points, but at one point it was up in more than 187 points. From new york, this is bloomberg. Julia whatd you miss . The dow falling as much as 278 points, as tensions with north korea mount and Hurricane Irma becomes another potentially catastrophic storm, heading toward florida. Im julia chatterley. Scarlet and scarlet fu. Im joe weisenthal. We want to welcome you to our closing bell coverage. Scarlet we begin with our market minute. Stocks, tumbling today, relatively speaking, off by more than 1 in the case of the doubt. At one time, all three indices were down by more than 1 but they have come off their lows. Itss p is up about 30 from 20 Day Moving Average. So, the return of everyone from Labor Day Weekend in Summer Vacation means a pickup and trading. And as you point out, not massive losses, but big by recent standards. And a sign that the recent headlines are perhaps, starting to have an impact. Equities,n terms of it is monday because of the holiday. We are also seeing banks among the biggest decliners here. As a group, financials were the leading losers in todays than 2 . Up by more there are jpmorgan and bank