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 thats 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 defensivelydriven equity market with utilities and staples outperforming. This is all the sign of a global slowdown that is continuing and we think has another 69 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 im really focused on on the back half is watching the labor market data. Weve 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. Thats where we are today. Were beginning to see some signs of weakness in the labor market. Workers, thats starting to show signs more broad hi in all employment data. We havent seen unemployment claims rise yet. Thats something im watching closely if it does start to happen, itll certainly get the fed to more aggressively cut rates. Its really Earnings Growth that is going to make or break the market for the next 69 months, and we still see weakness further maria so the earnings story is getting hit with a twopunch because youve got tariffs that are going to be an issue and have been for capex because people are uncertain about where this goes. Now weve 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 didnt weaken much because the Global Economy was weakening faster than the u. S. So theres Interest Rate differentials, but theres 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. Its not enough for the fed to cut thats 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 im glad you mentioned that, but because ive 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 dont 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 19802006 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 its 4 or 5 and slowing, and weve seen the savings rate rise despite lower Interest Rates. So youre 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. Theres a reason for that, its because the Global Economy is losing momentum. Youre 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 were 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 well 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 1015 correction is something much worse is, again, that labor market data. We havent seen unemployment claims rise in this entire 10, 11year 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 were 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 well 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 2025 . Maria michael, its great to have you on the program. Thank you so much for your assessment and predictions. Well be watching. Michael from cornerstone macro. Dont 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. Marias one on one with peter thiel is up next. vo the hamsters, run hopelessly in their cage. Content on their endless quest, to nowhere. But perhaps this year, a more exhilarating endeavor awaits. Defy the laws of human nature,at the summer of audi sales event. Get exceptional offers now. [ scoffs ] if you say so. Im sorry . What teach here isnt telling you is that snapshot rewards safe drivers with discounts on Car Insurance. What . Or maybe he didnt know. [ chuckles ] im done with this class. Youre not even enrolled in this class. I know. Im supposed to be in ceramics. Do you know room 303. Oh. Thank you. Yeah. Good luck, everybody. Maria welcome back. While most are focused on our trade with china, technology icon peter thiel has concerns about something else; namely, googles decision to share its cuttingedge Artificial Intelligence software with the chinese government. The venture captain list and the founder of paypal recently wrote an oped on the relationship between google and china and questions where googles loyalties lie. He explained it all to me in this exclusive interview. The crux of the argument is that the crown jewels of googles 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 its been a Major Research a. I. Lab in china each though its 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 civilmilitary 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 were 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 civilmilitary 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. Its a communist, oneparty state, and so things are sort of fused. Its 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 dont always coordinate or work together. In china these things are still tightly coordinated across the board. Maria theres a. I. , and then theres a. G. I. , artificial general with intelligence. Give me the difference between the two, and how is a. I. Enabling the Chinese Military . Well, theyre both sort of catchall 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 its this abstract thing thats going to be very different that may or may not happen decades, centuries from now. Whats actually happening is machine learning, Artificial Intelligence, and that is much more mundane, much more prosaic, and its things like helping process satellite images, helping with, you know, cyber warfare, things like that. And thats, you know, its a social credit scoring system in china where you use computers to track people and control the society more so its a police state version, theres 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. Its sort of the most advanced computer r d that were doing. Maria but right now computers cant reason the way humans can, they cant necessarily show emotion, but a. G. I. They will be able to. They will be, but its about whats actually happening today which is a. I. Where they cant reason, but they could maybe see that, you know, youre 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 theyre rounding up muslims, the uighurs, and theyre putting them in concentration camps basically. Theyre calling them reeducation camps, but theyre guarded by men and guns. Does google not understand this . I mean, for a long time bag gooe had the saying dont 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 whats actually going on inside google. I think googles selfimage would be that its globalist, its, you know, postnational somehow, cosmopolitan. I think the reality is more that its incredibly insular, its, 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 aspergers or autism where people are just oblivious to all this stuff. Thats the most innocent version. Less innocent versions are where its hyperideological 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. Were not ahead by that much. And it doesnt matter that much if it gets, if all our discoveries get transferred to china in very short order. Maria and so, you know, i dont think its yeah, so its sort of like we were ahead with the Nuclear Program and then at some point we werent. Maria dont 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. 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I want to ask you about whats going on in Silicon Valley in terms of espionage, in terms of whats happening can with chinese nationals working within our companies. There are confucius institutes in Silicon Valley right by stanford university. Whats your take on all of that . Well, this gets very speculative. It certainly would be odd if there wasnt 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 heres 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 thats why ive 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, its 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 dont 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, its the u. S. du