China-U.S. Tensions Flare in Volatile Trading Day & Why Big Bank Profits Spooked the Market

Ed Elson is joined by Alice Han, China economist at Greenmantle and co-host of China Decode, to discuss another volatile day between the U. S. and China. Then, Telis Demos, writer and co-host of the Wall Street Journal’s “Take on the Week” podcast, joins the show to help break down earnings from JP Morgan, Goldman, Citi, and Wells Fargo. Check out our latest Prof G Markets newsletter Order "The Algebra of Wealth" out now Subscribe to No Mercy / No Malice Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:29Ed Elson?

  Today's number? 12. That is the percentage of American children aged five to seven who own a smartphone. Yes, that is more than one in 10 kindergarteners. Or, as Sam Altman calls them, early adopters.

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• 1:59Ed Elson?

  Welcome to Proffty Markets. I'm Ed Elson. It is October 15th. Let's check in on yesterday's market vitals. The major indices fell on resurgent tensions with China. The Dow managed to recover its losses and end the day higher after Fed Chair Powell indicated that rate cuts are on the way. Meanwhile, the yield on two-year Treasuries hit their lowest level since 2022. And finally, AMD shares rose as much as 3% after the company announced a chip deal with Oracle. Oracle said it will purchase 50,000 GPUs from AMD, and its shares fell more than 3%. Okay, what's happening? New developments in the ongoing US-China trade war spooked the markets yesterday, just

• 2:44Ed Elson?

  a day after they had rebounded from Trump's initial tariff threats and then his softening of his stance. First, the US imposed new port fees for Chinese vessels. These levies were originally proposed shortly after Liberation Day, but they only formally took effect yesterday. Then China fired back. They imposed similar port fees of their own, and they also announced sanctions on certain American shipbuilders. The S&P and Dow fell as much as 1.5% on these fears of escalating tensions once again. By noon, a US trade representative said that President Trump and President Xi are still on track to meet, and the indices rebounded. But just before the closing bell, Trump accused China of committing a "economically

• 3:28Ed Elson?

  hostile act" by halting American soybean purchases. In retaliation, he said on Truth Social that the administration is considering a "cooking oil embargo." The post triggered another sell-off and dragged the S&P back into the red in the final minutes of the trading day. So, a lot of crazy tariff developments, a lot of confusing drama once again. So, to unpack these developments, to explain what on earth is going on here, we are speaking with Alice Hahn, China economist at Greenmantle and host of the China Decode podcast.

• 4:05Ed Elson?

  Alice, thank you for joining us on Profitey Markets.

• 4:08Alice Han?

  Thanks, Ed. What a difference a day makes, I have to say.

• 4:12Ed Elson?

  Exactly. We were just talking about this yesterday. We thought we had a handle on what was going on with China. Indeed, we're maybe seeing the trade wars back on. I mean, help us make sense of what has happened here. I mean, we had the tariff threats from Trump last week, then over the weekend, he softens the stance. Then the markets appeared to be happy about that. Markets go back up. And then all of this stuff happens today, and I'm looking at Trump back on Truth Social. He's calling China economically hostile. What actually has happened over the last couple of days here?

• 4:47Alice Han?

  I think ultimately, both sides were caught off guard by each other's policies and reactions. On the first side, I would say China certainly miscalculated its policy. It thought it could, to borrow a soccer term, slip one past the goalie by basically expanding this framework of export controls for critical minerals, these five additional rare earths elements. And I didn't expect the Trump administration, I think, in hindsight, to act quite so aggressively. And certainly, if you think about the minutia of the export controls for these rare assets, it is pretty significant. Now, China did try to walk it back, MoFCOM over the weekend, saying that it ultimately wasn't tantamount to a ban.

• 5:31Alice Han?

  It was just going to limit based on a licensure regime where necessary. But I don't think that that has assuaged or allayed any of the fears from Washington. Even although you've got Besant, the Treasury Secretary, coming out saying that a deal can still be made, that Trump and Xi will likely still meet in Korea at the end of the month. Fundamentally, I think that it's created more hostility amongst the hawks in Washington, who have already been in the camp that China is this long-term strategic adversary. I think what has been interesting in the first year of Trump's presidency is that he has very clearly taken a more dovish position towards China. But I think what we've seen in the last few days is that how quickly, just as in Trump 1.0,

• 6:16Alice Han?

  that can shift again to a more hawkish bent. And certainly, I think Trump and his team are unhappy with the way in which China has weaponized red earths. And I think that we will continue to see volatility on both sides, ultimately trending towards continuing conversation and wanting a deal. But this again shows how a deal is extremely difficult for both sides. We've gone past tariffs. We have added an impasse or a detente of sorts on the tariffs at 30%. But when it comes to these other aspects, whether it's port fees or it's export controls or purchases of soybeans, these other nitty gritty matters are still very, very hard to iron out.

• 7:00Alice Han?

  And both sides believe that the other side is weaker than the other side believes. China believes that the US is in a position of weakness when it comes to certainly tariffs and when it comes to red earths. And America, again, per Besen's comments the other day, believes that China's economy is extremely weak because it is so trade dependent. I think both sides are fundamentally misreading each other, which is what is casting us back into a period of volatility.

• 7:26Ed Elson?

  Yeah, I was interested to see Besen's comments that he made to the Financial Times. I was surprised that he would go to a newspaper and say these comments right when we thought that the tensions had eased, right when we thought that, okay, maybe, maybe things are going to be fine. And then Besen goes to the Financial Times, he says that these restrictions are a sign of how weak their economy is, how weak China's economy is. He says they want to pull everybody else down with them. And these are very aggressive statements to make, and especially aggressive to go to a news outlet who you know are going to report on it. So I'd love for you to just break down, why is Scott Besen saying that right now, right

• 8:08Ed Elson?

  at the moment where we thought that maybe things were okay?

• 8:12Alice Han?

  I think ultimately, the US side wants to remain firm on this issue, on China basically weaponizing rare earth elements. So what they are trying to do is shift the narrative to show that China is the adversary, not just to the US, but to the Europeans, the Japanese, to other countries that are actually quite fearful of the way in which China is weaponizing its core technologies, including critical minerals. So I think that there's been a PR campaign by Washington over the last few days to try to turn this into a narrative in which China is the adversary. China is willing to use its largesse in critical minerals

• 8:57Alice Han?

  to strategically control and manipulate supply chains. I think that is clearly playing to an international audience. It's clearly playing to Brussels, to Tokyo, to some of these other would be allies in the Western developed world. Remains to be seen if this is effective, but I think that ultimately Besen is walking two sides of the same street, which is on the one hand, he wants to continue to talk to Ha Li Feng, for instance, this week at the IMF meetings in Washington, but at the same time, he wants to be seen to be tough on China. I certainly think that this is probably the first innings of an administration that may take a more hawkish bent coming into 2026.

• 9:38Alice Han?

  I think it's not a coincidence that we have the midterms. There will be, I think, a legislative push in 2026 in advance of the November midterms for the Trump administration to take a more hawkish position on China, not just on trade and national security, but also technology. So I think that we're starting to see the tides shift again. And again, if you recall, Trade War One, we saw a first innings in the trade war and then a follow up in a tech war that was more explosive and volatile and prolonged. I think we're seeing similar patterns in Trump two one.

• 10:17Ed Elson?

  One implication of this that came to mind was what this may do to the TikTok deal. I mean, the TikTok deal is. I would assume largely dependent on some cooperation between the US and China. We now have this rare earth metal blow up, which is causing the Trump administration to get very upset and it appears to be re-implementing this trade war. Do you think this could have implications on this TikTok deal? Do you think this could affect the outcome of having a TikTok US?

• 10:51Alice Han?

  I would put TikTok US in a different category. I think fundamentally because that deal, as it currently stands, is still very advantageous to China. China didn't really have to sell or divest TikTok USA, the subsidiary. It effectively kept the status quo ex ante. It did concede on licensing the algorithm to the subsidiary in the US, but ultimately it didn't have to concede very much. So I think, given that China didn't make huge concessions, given Trump really wants TikTok to continue to exist for domestic political reasons, I think that that deal probably stays in its current form.

• 11:33Alice Han?

  I think separately, what is more problematic is what is going to happen in terms of other technologies, in terms of chips. Might there be more restrictions on chips and chip equipment from the US and from other countries going into China? I think that's very, very conceivable. Similarly, there are other aspects like biotech, where China is still reliant on US equipment. I think there could be a ramp up there as well. And then the last thing that I will say is that ultimately, the Trump administration, I think, will start to bring in more escalatory measures. It's already talking about stopping purchases of cooking oil. I think that a lot of other issues when it comes to trade and technology will come

• 12:18Alice Han?

  to the fore in the next few days because ultimately both sides are trying to gain leverage in advance of the talks, if they do happen, in South Korea and the end of October. So I think in the next week or so, we're in a sort of a very volatile period in which both sides, I think, have an incentive to escalate in order to de-escalate.

• 12:38Ed Elson?

  Yeah. The cooking oil embargo kind of made me laugh. It does feel as if he's grasping at straws here, trying to insult them. Okay, Alice Han is China economist at Greenmantle, host of the China Decode podcast, which you should go check out. Alice, we really appreciate your time.

• 12:56Alice Han?

  Thanks so much, Ed. Talk to you soon.

• 12:59Ed Elson?

  After the break, the banks kickoff earnings season. If you're enjoying the show, give Prof G Markets a follow.

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• 14:45Ed Elson?

  We're back with Profitu Markets. Earnings season kicked off strong with JP Morgan, Goldman Sachs, Wells Fargo and Citigroup all largely beating expectations boosted by a surge in trading and deal making. JP Morgan and Goldman Sachs posted massive profits with Goldman logging its best third quarter revenue ever. However, both stocks fell slightly following those reports. Meanwhile, Wells Fargo and Citi also posted very strong profits with Wells Fargo raising its profitability target. Both of their stocks popped after the earnings. So some mixed reactions from Wall Street, but overall, an incredible quarter for all of the banks.

• 15:25Ed Elson?

  JP Morgan's profits rose 12%, Citi's rose 15%, Goldman's rose 37%. Overall, amazing quarter, especially when it comes to investment banking as we expected. Lots more M and A activity last quarter, so investment banking revenue was way up. And that is partially why we saw such a good quarter for Goldman, which is more of a pure play investment bank out of these companies. But still, we have this slightly strange market reaction where JP Morgan and Goldman actually fell. So to help us make sense of this, we are speaking with Telis Demos. He is the writer and co-host of the Wall Street Journal's Take on the Week podcast. Telis, thank you very much for joining us on Profitu Markets.

• 16:07Speaker 12

  Thanks for having me.

• 16:09Ed Elson?

  So we've seen all these bank earnings this week, pretty good across the board. We'll just start with what were your initial takeaways? What did we see in these bank earnings?

• 16:18Speaker 12

  The big headline is the same it's been the last few quarters, which is that it's a good time to be a very big bank. They have a diversified business model. That means that when things are busy on Wall Street, they do well. When there are deals being made in corporate boardrooms, when there's a lot of trading activity in the markets, they have a business that benefits from that. On their consumer business, their consumers tend to be relatively more affluent, people who have a lot of banking relationships. They might have a mortgage, a bunch of credit cards, money in the checking account, wealth management. We know that people who have more money are doing well these days. Their stock portfolios are up. They're not overborrowed. So those people are doing well. Wall Street is doing well. The big banks are doing well.

• 17:03Ed Elson?

  So we saw JP Morgan's profits were up. Citigroup's profits were up. Goldman's profits were up, especially up 37%. It appears that this is largely, I mean, it's both things. As you say, you see the consumer units that are doing pretty well. But it seems like the big trend, at least that we're seeing, is deal making is up. M and A and therefore investment banking. And that may explain Goldman's relative outperformance. Is that what we're seeing? That we're seeing like this explosion in investment banking?

• 17:36Speaker 12

  Absolutely. Goldman is a juggernaut in M and A dealings, right? Like, they advise tons of deals. They make huge fees on those things. So when the deal making environment is good, they're doing well. And that extends both to like companies buying each other. It also is when private equities firms are, you know, buying public companies in leveraged buyouts. It also includes IPOs. It includes debt offerings. They're highly leveraged, as they say, to the deal making environment. And while we haven't hit the 2021 heights so far and still to this point, I don't think

• 18:17Speaker 12

  that the deal boom that some were predicting when Trump took office has quite landed. Goldman talked about how its pipeline of potential deals is really strong. So they just see a lot of activity there. And that's very good for their business. It's a high return, really good business.

• 18:36Ed Elson?

  One thing that kind of surprised us, however, is that despite these great quarters that we saw at Goldman and that we saw at JP Morgan, record quarters by a lot of measurements. Despite that, the stock dropped. The stock for JP Morgan was down and Goldman was down. Do you have any thoughts on why the market reacted the way it did?

• 18:56Speaker 12

  Yeah, I think there's a couple of things on the market's mind, if I may attempt to read it, which, as we know, is sometimes, sometimes folly. But one thing that could disrupt that deal making boom is if

• 19:10Speaker 12

  Corporate decision makers, if private equity decision makers suddenly feel a great sense of unease and uncertainty and, you know, what has, you know, the recent sort of back and forth on China and tariffs done other than inject a lot more uncertainty into the environment? So maybe markets didn't hear quite enough happy talk from investment bankers about that and their confidence. I also think that there's a bubbling of concern, and you heard this more on JPMorgan's call than you did at other banks, but it's a similar concern for across the banks, is that things are too good. And how long can these good times really last this long?

• 19:53Speaker 12

  Things are too active on the deal side, there's too much credit extension happening, and, you know, what goes up must come down. And so I think the market might be starting to wonder, could it really get even better from here? And as we know, you know, markets are often about the future, not the past. So that might be something that was on people's minds.

• 20:13Ed Elson?

  Yeah, two of the larger concerns that were raised, one was this potential of a bubble, an AI bubble. Jamie Dimon said that many assets, quote, "look like they are entering bubble territory." So he just flat out said the word bubble. David Solomon spoke about investor exuberance. And then there was this other concern that you mentioned there, which is these credit market concerns. JPMorgan, they took this several, I mean, $170 million hit because they made a loan to this company called Tricolor, which turned out to be fraudulent, it collapsed. And then Jamie Dimon spoke a little bit about these credit market concerns. Could you elaborate on what those concerns are?

• 20:56Ed Elson?

  One, in terms of the potential of the bubble and what that would mean for the banks, and also this, this credit market froth that Jamie Dimon talks about?

• 21:05Speaker 12

  Yeah, when we talk about bubbles, we often immediately think of the stock market, right? You know, how can Nvidia continue to go up as much as it has? But bubbles come in many forms and you can look at what's going in the credit markets and you can argue that that is a bubble. And you might measure that by looking at the spread, which is how much more you earn owning corporate credits than you do owning treasuries, right? Which are risk-free, corporate credits have some risk. That extra return is really small, like historically small. It has not really been smaller at any time since, you know, by some measures, kind of the peak of the pre-2008 credit bubble that we had then, maybe even since the 1990s by some measures.

• 21:50Speaker 12

  So there's potentially a bubble on that side of the market as well. And so that raises the question of whether or not, we're always talking about credit risk from the consumer point of view, right? Are people going to pay back their auto loans or credit card loans, et cetera? We talk about that all the time. We have a lot less visibility and conversation and in some ways data about what's happening with corporate, with companies. And what we wrote about happening with some of the recent bankruptcies, you mentioned Tricolour, there've been a couple of other sort of standout corporate bankruptcies recently that have roiled the credit markets a little bit. Those are companies that are exposed to what's going on in the economy, right?

• 22:32Speaker 12

  Things are happening in the, with tariff policy, right? One of the companies that went bankrupt first brands was an auto parts supplier. We know that tariffs are a big part of what goes into cars and auto parts. Now, that's not the only reason that those companies might have failed. JP Morgan on the call talked about how, you know, these things sometimes expose risks that companies are taking, right? Like big policy changes mean that there might be something. Companies that are highly leveraged or that are, you know, barely kind of making their payments, or God forbid, in some cases allegedly doing fraudulent things, that can get exposed

• 23:15Speaker 12

  by these bubbly markets. You know, things are priced to perfection. These companies aren't perfect. So I think that that's maybe what's in the back of the market's mind and what people are thinking about in these credit markets is like, what are we going to learn has been going on under the hood when we thought everything was great, when in fact, all the things that we talk about tariffs, immigration policy, you know, other kind of economic changes, what's going on in the labor market, like those things were affecting companies, but just not in a way we could see until all of a sudden some loss pops up. And I think that's, that's what maybe investors are worried about is, is that the things that they can't see, or that they aren't hearing about day to day, are going to be the ones that that end up hurting them.

• 23:55Ed Elson?

  Yeah, it certainly seemed to be front of mind for Jamie Dimon, despite the fact they had this record quarter. These bank earnings, you know, we learn about the big banks whenever they report, and it's nice that they all kind of report at the same time. We get a general picture of how Wall Street is doing. And in this case, the picture is pretty good. They're all doing pretty well. It can also be kind of a bellwether moment for what is happening at large in the economy. I mean, Jamie Dimon, David Solomon, these are people who have very, very good oversight over what is actually happening in the economy. They get a lot of great data. Their job is to kind of figure out what's going on in America

• 24:40Ed Elson?

  and react to that. Did we learn anything in these bank earnings about what is happening in the real economy in America right now? Did we get any insight as to what things may look like over the next few months?

• 24:52Speaker 12

  Well, like you said, these companies are run by people with access to enormous amounts of data and insight, you know, about what's going on in the economy. And so to the extent that they continue to run their businesses. With the expectation that things are going well, they're going to, they expect more deals to happen, they are making loans that they think will get repaid. That speaks to their confidence that the economy will weather whatever storms come. But it also says something about their own businesses, right? JP Morgan Chase is an enormous company with incredible resources. Even if there was an economic downturn, JP Morgan might not feel it the way a lot of

• 25:37Speaker 12

  other companies do because they have such enormous resources. So I don't think that we can take what the banks say or do, or their results, as a direct read on the economy. I think we can infer a lot of things, but I don't think that it's a one-for-one relationship. Because the fact is that banks are more leveraged to the financial economy. When, here's something that's, I think, underappreciated about banks. When the markets are good, things are good for them. They make more money managing a larger amount of assets because prices are high. They might be lending larger balances. They might be getting more deposits because people are selling investments and depositing that money.

• 26:19Speaker 12

  So, a rising market is good for the banks. And so, in that way, they're more a receiver of what's going on than they are necessarily a driver of it. So, I think that we can pick and choose different indicators. We can maybe draw comfort from things banks say about the conversations they're having with their clients. Those are good indicators. But I don't think that as the banks go, the economy goes, is necessarily the lesson to draw from big banks. I mean, the US economy is so vast that even banks as big as we have are not spanning the entire thing. Nor are a lot of companies, like, as they say, financialized in a way that they touch the banks.

• 27:01Speaker 12

  I mean, maybe a small business has a credit card at a bank, but it's not like they're getting giant lines of credit and, you know, getting these services necessarily from the country's biggest bank. In fact, I've argued that if you really want economic indicators, you should really look at smaller and middle market. Banks. Yes. Those banks are much more touching a lot of the companies that are at risk. Right. Because big banks customers are also often the biggest companies. And those giant multinational corporations, whatever's going on in tariffs, whatever's going on in the economy, they have a lot of levers to pull. They're diversified, they're operating in other markets, et cetera. You know, if you're just a domestic kind of mono line company, you do one thing and that one thing is being, you know, challenged or disrupted in some way.

• 27:48Speaker 12

  That might be it for you. And, and so it might be a, a smaller bank that has a overall kind of larger relationship with you. And so you, you should really look at, at, you know, kind of the banks you've never heard of, you should be looking at their results just as much as you are at, at the JP Morgans and Bank of Americas and Goldman Sachs of the world.

• 28:06Ed Elson?

  All right. Tell us, Demos is the writer and co host of the Wall Street Journal's Take on the Week podcast. Tell us, we appreciate your time.

• 28:13Speaker 12

  Thanks for your time. Really appreciate you having me on.

• 28:19Ed Elson?

  So a record quarter and a record year in many ways for all of these banks. Goldman had its best quarter since 2021. Investment banking business is on track for its strongest year ever. JP Morgan also had a great quarter, $9 billion in trading revenue. That was the best ever quarter for JP Morgan and their trading business. Citigroup also crushed. Total revenue up 9%, best Q3 ever. And then you just look at the stocks of these companies. Goldman stock is up 47% year to date. City stock is up 51% year to date. So yes, maybe there was a slight pullback for JP Morgan and for Goldman, but ultimately these companies are crushing.

• 29:01Ed Elson?

  You compare it to the S and P, which is up 13% year to date. So these companies are massively outperforming. It is a great time to be a bank, specifically a big Wall Street bank, perhaps even the best time to be a big Wall Street bank. These investment banking fees, they're surging, the trading revenues are rising, every big player on Wall Street posting record numbers.

• 29:26Ed Elson?

  Which is interesting because you might also remember just a few months ago when the administration was telling us that basically the opposite was going to happen, that the big banks and the Wall Street banks, they had already had their day in the sun. And they were telling us that 2025 was going to be Main Streets year, not Wall Street's year, Main Streets year.

• 29:49Speaker 13

  For too long, financial policy has served large financial institutions at the expense of smaller ones. No more.

• 29:57Speaker 14

  I'm proud to be the president for the workers, not the outsources. The president who stands up for Main Street, not Wall Street, who protects the middle class, not the political class.

• 30:08Speaker 13

  For the last four decades, basically since I began my career in Wall Street, Wall Street has grown wealthier than ever before, and it can continue to grow and do well. But for the next four years, the Trump agenda is focused on Main Street. It's Main Street's turn. It's Main Street's turn to hire workers. It's Main Street's turn to drive investment. And it's Main Street's turn to restore the American dream. And who's going to lead this revival? The men and women in this room.

• 30:40Ed Elson?

  And yet, here we are in September, Wall Street's having its best year ever. Investment banker bonuses are up almost 30% this year. And at the same time, while Wall Street is having one of its best years, Main Street is struggling. Consumer sentiment is down 22% from a year ago. Job growth between May and August, down 75% from a year ago. Small business sentiment is also in decline. 64% of small businesses saying they're struggling with these supply chain disruptions. 31% saying they have to raise prices. Bankruptcy filings are up 12% compared to last year. So not only has this Main Street over Wall Street

• 31:23Ed Elson?

  agenda not been delivered, actually, the opposite has happened. It's a great year for Wall Street, the best year for Wall Street, and a bad year for Main Street. And the most ironic part of all of this is that this is actually only going to continue. Because as we speak, the administration is working on a deregulation plan, which is going to eliminate many of the rules that were put in place after 2008. It's going to reduce the capital requirements for these big, large scale lending projects, i.e. these data center projects. And according to many estimates, because of these deregulations that the administration is pursuing, average earnings for banks will go up by roughly 35%.

• 32:08Ed Elson?

  Now, this isn't to say that it is a bad thing that banks are doing well, but it is to say that the economic story that the administration told us for many months, that story was a lie. They said, go long Main Street, go short Wall Street. They said it is blue collar over white collar, small companies over big companies, the poor are going to outperform the rich. False, false, false on all counts. There is no better time to be big and rich in America than today, whether you are a bank, or whether you are a tech company, or if you're just a person. The more money you have in 2025, the more

• 32:51Ed Elson?

  money you will receive. And these bank earnings, record bank earnings, are just another example.

• 33:02Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson, and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalan, Isabella Kinsel, Kristin O'Donoghue, and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

• 33:29Speaker 15

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• 34:00Speaker 16

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• 34:28Speaker 02

  1-800-CONTACTS.

• 34:30Speaker 17

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