WEBVTT - U.S. Is More Vulnerable Than Headline Numbers Suggest 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.119 at Bloomberg dot com. Right now, they let us move 0:00:22.239 --> 0:00:24.880 to the big story of the day, which is China 0:00:25.040 --> 0:00:28.520 US trade relations and the apparent breakdown of talks at 0:00:28.560 --> 0:00:33.400 the last minute that basically prompted President Trump to increase 0:00:33.640 --> 0:00:37.199 tariffs on Chinese goods. Joining us now in our Bloomberg 0:00:37.200 --> 0:00:39.560 eleven three oh studio is Patrick Shavannick. He is managing 0:00:39.600 --> 0:00:43.519 director and chief strategist at Silver Crest Asset Management. So, Patrick, 0:00:43.600 --> 0:00:45.600 I want to start with what happened here because it 0:00:45.640 --> 0:00:47.879 seemed like markets were pricing in a deal would get 0:00:47.920 --> 0:00:50.159 done in the near term. All of a sudden, everything 0:00:50.320 --> 0:00:52.479 seemed to fall apart and it seemed kind of rapid. 0:00:52.680 --> 0:00:55.320 Is that a correct read on the situation? Yes, markets 0:00:55.320 --> 0:00:57.680 were pricing in that there would be a deal. Um 0:00:57.760 --> 0:01:01.200 and uh. Starting on Sunday, when President Trump tweeted that 0:01:01.520 --> 0:01:05.479 tariffs were on the table for Friday, UM things start, 0:01:05.560 --> 0:01:09.320 you know, very different pictures started to get priced in UM. 0:01:09.680 --> 0:01:12.840 The The word for the administration is that the Chinese 0:01:13.160 --> 0:01:16.480 stepped back from a number of UM a number of 0:01:16.480 --> 0:01:19.280 commitments that they made. The word from China is that 0:01:19.280 --> 0:01:22.319 that was done by Chie Jim ping UM what kind 0:01:22.319 --> 0:01:24.320 of leverage they felt they had. I mean, I think 0:01:24.319 --> 0:01:27.560 both sides feel that they have the upper hand. UM. 0:01:27.720 --> 0:01:29.959 The US. You know, it's just coming off of three 0:01:30.680 --> 0:01:33.200 GDP growth in the first quarter. I think some of 0:01:33.240 --> 0:01:36.160 the Trump administration feel that the US is fairly impervious 0:01:36.200 --> 0:01:38.720 to the damage that terrorists would do. And I think 0:01:38.800 --> 0:01:41.520 the Chinese feel that they're they've kind of got their 0:01:41.520 --> 0:01:46.560 economy back under control and UM with stimulus, and that, 0:01:47.160 --> 0:01:48.880 you know, they have the upper hand. So you've got 0:01:48.960 --> 0:01:50.920 two sides that feel that they have the upper hand 0:01:50.920 --> 0:01:52.560 and neither wants to give and they're going to test 0:01:52.600 --> 0:01:55.080 out their assumptions. So Patrick, just looking at it from 0:01:55.120 --> 0:01:58.280 the perspective of corporate America, it seems that corporate America 0:01:58.440 --> 0:02:01.240 was could deal with tempers and tariffs on a limited 0:02:01.440 --> 0:02:04.160 number of goods but now we're talking much higher tariffs 0:02:04.160 --> 0:02:06.640 on more goods. How do you think Corporate America is 0:02:06.680 --> 0:02:09.720 going to deal with these higher tariffs? Yes, well, the 0:02:09.800 --> 0:02:12.280 first thing, I mean, we saw that in the fourth 0:02:12.360 --> 0:02:16.399 quarter UM, where uh, you know a number of companies 0:02:16.400 --> 0:02:20.000 and their earnings projections said precisely that that ten percent 0:02:20.120 --> 0:02:23.520 was something that could handle and avoid was much more 0:02:23.560 --> 0:02:27.720 difficult UM, and it weighed down on their earnings projections, 0:02:27.760 --> 0:02:30.640 and that in turn is what helped contribute to the 0:02:30.680 --> 0:02:34.200 sell off in the fourth quarter UM. And it wasn't 0:02:34.200 --> 0:02:36.640 really driven by trade headlines per se. It was driven 0:02:36.680 --> 0:02:40.200 by earnings calls that said, this is looking not very encouraging, 0:02:40.240 --> 0:02:43.160 and I think we're back to that UM, and that 0:02:43.200 --> 0:02:45.600 will be the mechanism through which you know, will feel 0:02:45.639 --> 0:02:49.560 the first tangible impact because these tariffs actually don't go 0:02:49.880 --> 0:02:52.040 into effect on goods and transit, so it will be 0:02:52.080 --> 0:02:54.840 about a month before we actually start to feel an 0:02:54.880 --> 0:02:57.360 economic impact from them. One thing that I find really 0:02:57.400 --> 0:03:00.840 interesting is the more people who I speak who manage money, 0:03:01.320 --> 0:03:04.760 the more diverse views I get in terms of what's 0:03:04.800 --> 0:03:07.920 priced into the current market, with some people saying that 0:03:08.000 --> 0:03:10.720 the downside risk is limited because really the markets have 0:03:10.800 --> 0:03:12.959 rallied in response to the FED being on hold and 0:03:13.000 --> 0:03:16.000 other people saying that the markets could tank if some 0:03:16.080 --> 0:03:18.120 sort of trade agreement is not reached in these terrorists 0:03:18.120 --> 0:03:19.800 were being in place, and I'm just wondering, where do 0:03:19.840 --> 0:03:21.480 you stand on that? So I think it's useful to 0:03:21.560 --> 0:03:24.440 stand step back a little bit from just the exclusive 0:03:24.480 --> 0:03:28.000 issue of US China trade tensions. UM, you know, where 0:03:28.080 --> 0:03:31.800 is the US economy? So, like I said, three growth 0:03:31.800 --> 0:03:35.120 in in the first quarter, UM, decent earning season, but 0:03:35.200 --> 0:03:37.880 I think that masked a number of vulnerabilities. You know, 0:03:37.960 --> 0:03:40.560 the the actual domestic drivers of the U s economy 0:03:40.640 --> 0:03:42.960 slowed to one point five percent in the first quarter. 0:03:43.360 --> 0:03:47.160 A lot of the additional growth came from inventory build 0:03:47.240 --> 0:03:51.400 up and came from UH slow down in imports, UH 0:03:51.480 --> 0:03:54.600 in in corporate earnings. UM, yes, they're up two percent 0:03:54.720 --> 0:03:57.200 year on year, but in fact, and they rebounded a 0:03:57.240 --> 0:04:01.320 bit from a dismal fourth quarter, but that was led 0:04:01.320 --> 0:04:06.000 primarily by finance and healthcare. And UH eight out of 0:04:06.160 --> 0:04:08.960 eleven sectors in the SMP five hundred are actually we're 0:04:09.000 --> 0:04:14.520 actually declined further UM in Q one and UH eight 0:04:14.560 --> 0:04:17.320 out on different eight out of the eleven are down 0:04:17.440 --> 0:04:19.960 year on year in terms of quarterly yearning. So there's 0:04:20.000 --> 0:04:23.880 some softness there, Um that I think that the market 0:04:23.920 --> 0:04:27.960 has focused on the headlines. Um, I'm not saying procession imminent. 0:04:28.080 --> 0:04:30.880 I'm not saying I'm saying that the slowdown and some 0:04:30.920 --> 0:04:36.080 of the vulnerabilities are um more serious than maybe some 0:04:36.120 --> 0:04:38.880 of the headline numbers suggest. So, Patrick, we earlier in 0:04:38.920 --> 0:04:42.679 the show here we had Michael McKee, Bloomberg's economics editor 0:04:42.720 --> 0:04:45.200 on and he kind of explained that, you know, tariffs 0:04:45.240 --> 0:04:49.640 are effectively a tax on consumers to some degree. What 0:04:49.800 --> 0:04:52.479 is your view of the consumer in this scenario, in 0:04:52.520 --> 0:04:55.200 this environment that may be developing for the remainder of 0:04:55.200 --> 0:04:58.880 the year. So we are in a low inflation environment. Um. 0:04:58.920 --> 0:05:01.760 You know inflay Shan really went to a crawl in 0:05:01.800 --> 0:05:04.599 the first quarter. Um, but it started to tick up again. 0:05:05.080 --> 0:05:07.600 I think that's one of the immediate concerns of any 0:05:07.640 --> 0:05:12.400 tariff is the pass along cost. Uh. You know, so 0:05:12.480 --> 0:05:16.560 it's a fairly friendly environment for that. But um, but yes, 0:05:16.600 --> 0:05:19.480 they are attacks on consumers. I mean the question from 0:05:19.480 --> 0:05:21.839 a strategic point of view is, you know, is it 0:05:21.880 --> 0:05:24.719 worth taking some pain now to get some gain? And 0:05:24.720 --> 0:05:26.800 and that gets them into the question of is this 0:05:26.880 --> 0:05:30.360 an effective is this effective leverage against China? I think 0:05:31.040 --> 0:05:36.200 multinational coordinated multinational UH pressure on China would be much 0:05:36.240 --> 0:05:39.480 more effective and much harder for China to retaliate effectively 0:05:39.520 --> 0:05:43.680 against than the go it alone bilateral tariffs that were imposing. 0:05:43.760 --> 0:05:47.000 But you know, we'll find out. So whose economy stands 0:05:47.040 --> 0:05:49.400 to suffer more from the imposition of these tariffs, the 0:05:49.440 --> 0:05:52.560 US or China. So I think the US is more 0:05:52.640 --> 0:05:56.120 vulnerable than like I said, the headline numbers would suggest 0:05:56.440 --> 0:05:59.200 um and and I think we saw that in the 0:05:59.240 --> 0:06:02.279 market response now but also in the fourth quarter to 0:06:02.400 --> 0:06:05.080 some of those ranks projections and the hit that would 0:06:05.480 --> 0:06:10.240 that companies would take from tariffs China. China has economic problems. 0:06:10.320 --> 0:06:14.160 I don't think that they stem primarily from trade pressure 0:06:14.200 --> 0:06:16.520 from the United States. I think they would exist with 0:06:16.720 --> 0:06:18.599 or without a trade war from the United States, and 0:06:18.680 --> 0:06:21.200 actually even if there was an agreement, they'd still have 0:06:21.520 --> 0:06:24.159 big problems to deal with. I do think that the 0:06:24.200 --> 0:06:28.520 trade war and trade tensions have focused attention on some 0:06:28.600 --> 0:06:31.279 of those vulnerabilities in a way that maybe the Chinese 0:06:31.320 --> 0:06:33.840 would like to avoid. So, just given the backdrop that 0:06:33.880 --> 0:06:36.400 we have over the last few days about these rising 0:06:36.560 --> 0:06:39.200 trade tensions. What is your view of the equity markets 0:06:39.279 --> 0:06:41.200 right here? We've pulled back I guess about three percent 0:06:41.360 --> 0:06:44.760 this week roughly on this news. What are you thinking 0:06:44.760 --> 0:06:47.480 going forward here? Given this backdrop that seems to be developing. 0:06:47.880 --> 0:06:50.200 So we've seen a solid rebound this year from the 0:06:50.240 --> 0:06:53.840 sell off. UM. One of those issues, one of those issues, 0:06:53.880 --> 0:06:55.880 which was the FED raising rates, is now off the 0:06:55.920 --> 0:06:58.760 table that drove that. UM. The other, which was the 0:06:58.920 --> 0:07:01.360 prospect of a trade war, UM, is sort of back 0:07:01.400 --> 0:07:04.720 on the table. UM. So you know, I think I 0:07:04.760 --> 0:07:08.680 think that given the vulnerabilities that I mentioned, given the 0:07:08.720 --> 0:07:11.560 fact that the economy was slowing and the corporate earnings 0:07:11.600 --> 0:07:14.200 were soft, there was, you know, the prospect and I 0:07:14.200 --> 0:07:16.239 wrote about it at the beginning of the week, UM 0:07:16.240 --> 0:07:20.520 in my monthly note of a correction in the market. UM. 0:07:20.560 --> 0:07:23.640 I don't see a recession. I I look at the 0:07:23.640 --> 0:07:28.760 recession leading indicators. Some of them maybe are yellow, UM, 0:07:28.800 --> 0:07:30.800 but most of them are green. Okay, So you got 0:07:31.160 --> 0:07:34.360 so I'm gonna keep my eye on. Very good. Patrick Shravannic, 0:07:34.400 --> 0:07:37.040 Thank you very much. Patrick's managing director and chief strategist 0:07:37.080 --> 0:07:39.880 at Silver Crest asset management management joinings live here in 0:07:39.880 --> 0:07:55.480 our Bloomberg eleven three oh studios. We Lisa, all this 0:07:55.600 --> 0:07:58.920 talk about terrorists reminds me that despite all my years 0:07:58.960 --> 0:08:02.480 of business education, I need a refresher on actually how 0:08:02.640 --> 0:08:05.880 tariffs work. Who pays them, who gets the money? Uh? 0:08:06.000 --> 0:08:09.120 Fortunately for us, Michael McKee is with us. Michael's international 0:08:09.200 --> 0:08:12.360 economics and policy correspondent for Bloomberg News. He joins us 0:08:12.360 --> 0:08:17.440 here in a Bloomberg Interactive broker studio. So when tariffs 0:08:17.480 --> 0:08:20.040 go on a ga jillion dollars worth of goods coming 0:08:20.040 --> 0:08:23.040 in from China, where does that money go? Michael? Do 0:08:23.120 --> 0:08:25.840 we does a treasury just all of a sudden get richer. 0:08:26.400 --> 0:08:30.000 The treasury does get richer. It's a question who pays it? Uh. 0:08:30.040 --> 0:08:33.959 In general, the tariffs are applied when goods arrive in aport. 0:08:34.160 --> 0:08:37.520 Define that however you want airport or or seaport. And 0:08:37.559 --> 0:08:42.360 then uh, most of them are purchased by middlemen, by importers, 0:08:42.520 --> 0:08:47.199 which who handle the paperwork and deal with the transaction. 0:08:47.240 --> 0:08:49.960 And then it goes on to the end user and 0:08:50.000 --> 0:08:55.200 the importers UH pay the tariff. Then they either raise 0:08:55.280 --> 0:08:59.160 their prices to the final user or they absorb it 0:08:59.200 --> 0:09:02.360 in their margins. The big question for all companies now 0:09:02.480 --> 0:09:05.040 is you know, how much more can you keeping your 0:09:05.040 --> 0:09:08.800 margins and what do you have to pass along? And 0:09:08.840 --> 0:09:12.439 then that money is collected by the Customs Agency Customers Bureau, 0:09:12.520 --> 0:09:15.240 and then it goes into the General Treasury revenues and 0:09:15.280 --> 0:09:19.960 you can see in the figures big spikes since we 0:09:20.040 --> 0:09:22.080 started this whole round of tear. You go back to 0:09:22.080 --> 0:09:26.200 the washing machines in February and last year. So so 0:09:26.320 --> 0:09:28.440 this is how it works technically. And then we have 0:09:28.840 --> 0:09:32.400 the discussion of who is benefiting from this because President 0:09:32.440 --> 0:09:35.480 Trump tweeting today that it will be money that goes 0:09:35.520 --> 0:09:38.120 into the coffers of the United States that can support farmers. 0:09:38.200 --> 0:09:40.080 Can you walk us through how that actually would work. 0:09:41.000 --> 0:09:42.920 That's two different things. It goes into the coffers of 0:09:42.960 --> 0:09:45.280 the United States. Yes, it was a question who pays 0:09:45.320 --> 0:09:49.480 for It's basically attacks on somebody along the way. It 0:09:49.559 --> 0:09:52.760 could be the middleman who imported this stuff, it could 0:09:52.760 --> 0:09:54.640 be the company, or the company can pass that along 0:09:54.640 --> 0:09:57.080 to American consumers, and as tarffs go up and up, 0:09:57.440 --> 0:10:00.319 it ends up in the consumer one on the number, 0:10:00.320 --> 0:10:02.400 one way or another. So we've paid that tax into 0:10:02.400 --> 0:10:05.800 the treasury. They have more money now we have a 0:10:05.960 --> 0:10:09.800 much bigger deficit. So is there really extra money we've 0:10:09.800 --> 0:10:12.560 got to fill this whole UH that has been created. 0:10:12.800 --> 0:10:15.120 But even if you have it, can they spend it 0:10:15.160 --> 0:10:19.680 on farmers? That's a really open question because the President proposes, 0:10:19.720 --> 0:10:22.720 but Congress disposes as the saying goes, and they have 0:10:22.880 --> 0:10:26.600 to approve the spending. They have to appropriate the money, 0:10:26.600 --> 0:10:29.720 so the president can't just spend it as he wishes. 0:10:30.240 --> 0:10:33.120 UM to go on from there and give you probably 0:10:33.160 --> 0:10:35.680 more information than you want to know there is. There 0:10:35.679 --> 0:10:39.120 are problems with the U. S Food aid UH situation 0:10:39.200 --> 0:10:41.520 that have been there for years, and this has been 0:10:41.520 --> 0:10:47.559 a controversy for years. First, our foreign UH money foreign 0:10:47.640 --> 0:10:51.760 aid in food. The law requires it be US grown 0:10:51.840 --> 0:10:55.120 and processed food that is then shipped overseas, and Foreign 0:10:55.160 --> 0:10:57.880 Aid Relief Agency says that doesn't help because it takes 0:10:57.920 --> 0:11:01.040 a very long time, bureaucracy, read tape, add to the cost. 0:11:01.200 --> 0:11:03.000 They'd rather we just give them cash so they can 0:11:03.040 --> 0:11:06.360 go to someplace close to Yemen and by the food 0:11:06.440 --> 0:11:08.600 that is necessary. And the other is the Jones Act. 0:11:08.600 --> 0:11:11.640 You heard about that in connection with Puerto Rico. All 0:11:11.720 --> 0:11:13.559 food aid from the United States has to be carried 0:11:13.559 --> 0:11:16.160 on U S flag chips, which A raises the cost 0:11:16.240 --> 0:11:19.400 about thirty and b U there aren't always enough ships 0:11:19.400 --> 0:11:23.000 available and so it slows the whole process down. So 0:11:23.040 --> 0:11:26.560 there are bureaucratic impediments to making it work, even if 0:11:26.640 --> 0:11:29.320 Congress agreed to spend the money. And we should note 0:11:29.480 --> 0:11:33.439 that the president's fiscal year twenty budget cut food aid 0:11:33.480 --> 0:11:37.199 assistance in half, so I'm not sure where why he 0:11:37.440 --> 0:11:39.400 We're not sure how the tweets kind of agree with 0:11:39.520 --> 0:11:43.480 actual with actual, So generally speaking, just stepping back, you know, 0:11:43.559 --> 0:11:47.800 putting your economics hat on, are the tariffs? What's generally 0:11:47.920 --> 0:11:52.520 the overall impact of tariffs in general? There's a short 0:11:52.600 --> 0:11:56.439 term boost to the industries that are protected by tariffs, 0:11:56.600 --> 0:11:59.080 and we saw that with the metals tariffs. Is steel tariffs. 0:11:59.120 --> 0:12:02.680 As steel industry has has done well, uh, users down 0:12:02.679 --> 0:12:05.760 the line, especially small shops that have to pay more 0:12:05.840 --> 0:12:09.720 for their steel, have been suffering. We're also seeing now 0:12:09.800 --> 0:12:12.319 the jobs. There were jobs added in the steel industry, 0:12:12.320 --> 0:12:14.000 but that's starting to roll over and some of them 0:12:14.000 --> 0:12:17.920 are starting to to cut workers. So there isn't necessarily 0:12:17.960 --> 0:12:21.559 a long term benefit there, and there is a problem 0:12:21.920 --> 0:12:24.760 with the secondary user, the user down the line. It 0:12:24.800 --> 0:12:27.960 also increases inflation. The New York Fed did a study 0:12:28.000 --> 0:12:30.920 of the tariffs in two thousand eighteen and found it 0:12:31.000 --> 0:12:34.960 increased the CPI by about three tenths of a percentage point. 0:12:35.320 --> 0:12:39.440 So we are seeing some inflation aspects that's really interested. 0:12:39.600 --> 0:12:43.160 Probably wants that at this point, although they might call 0:12:43.200 --> 0:12:46.960 it transitory. Well, although it could mask underlying weakness, right, 0:12:47.000 --> 0:12:49.400 I mean that that basically wouldn't be necessarily the contin 0:12:49.400 --> 0:12:51.640 inflation that they would want to see, and that would 0:12:51.640 --> 0:12:54.800 increase consumers powers. Sort of interesting to me, And just 0:12:54.920 --> 0:12:57.000 real quick, we were speaking with Senator Rick Scotten on 0:12:57.000 --> 0:12:59.520 Bloomber Television earlier this morning, and he was saying that 0:12:59.760 --> 0:13:01.640 he would like to see the money that the Treasury 0:13:01.679 --> 0:13:06.000 Department collects from tariffs funneled back out in the term 0:13:06.400 --> 0:13:09.400 basically the form of subsidies for farmers. Is this a 0:13:09.440 --> 0:13:13.320 popular line here? Well, the President has a subsidy program 0:13:13.320 --> 0:13:15.560 which they put into place last year, twelve billion dollars. 0:13:15.600 --> 0:13:19.040 They're trying to do. Ye. Uh, they haven't gotten it 0:13:19.080 --> 0:13:22.360 through yet, but they're they're working on it. And uh, 0:13:22.720 --> 0:13:25.160 you know, I suppose you could say it gets funneled 0:13:25.160 --> 0:13:28.000 back into it. But money is fungible. It's just more 0:13:28.080 --> 0:13:30.520 money into the treasury. As I said, we have a 0:13:30.520 --> 0:13:33.320 big deficit. They got to fund it somehow. Yeah, maybe 0:13:33.360 --> 0:13:35.720 this is this is how it's gonna gonna happen. Mike McKee, 0:13:35.800 --> 0:13:38.960 international economics and policy correspondent for Bloomberg, Thank you so 0:13:39.040 --> 0:13:58.080 much for being with us. Boos stands to lose the 0:13:58.160 --> 0:14:01.360 most from the escalating trade ten Chin. Some investors, including 0:14:01.440 --> 0:14:05.400 Vanguard Asset Management, are pinpointing the emerging markets complex and 0:14:05.480 --> 0:14:08.920 here joining us in our BLOOMBERGINGNA actor broker Studios dr 0:14:08.960 --> 0:14:11.840 Andy Cooper. He is founder and chief executive officer of 0:14:11.960 --> 0:14:14.840 leap Frog Investments. He has based on an airplane. Luckily 0:14:14.840 --> 0:14:18.000 we actually have him on land today. Uh so, Andy, 0:14:18.000 --> 0:14:19.920 I'd love to get your sense of whether you would 0:14:19.960 --> 0:14:24.160 agree with this idea that escalating trade tensions will disproportionately 0:14:24.200 --> 0:14:29.360 hit emerging markets debt. So we think that it's possible 0:14:29.480 --> 0:14:32.480 that there will be short term ructions, but the fundamental 0:14:32.640 --> 0:14:37.120 secular story is that these emerging markets are growing rapidly 0:14:37.200 --> 0:14:40.240 based on four billion people rising out of low income 0:14:40.280 --> 0:14:44.560 into the middle class. They've got new technologies like mobile uh, 0:14:44.600 --> 0:14:48.720 and are constantly accessing things they couldn't access before, like 0:14:48.800 --> 0:14:51.960 healthcare or financial tools for a hundreds of the cost 0:14:52.560 --> 0:14:55.920 that they once could. So the opportunity for these folks 0:14:55.960 --> 0:14:59.320 to access what they need to really rise is huge. 0:14:59.600 --> 0:15:01.480 And busines this is that are serving them are going 0:15:01.480 --> 0:15:04.320 to do incredibly well. So in the next ten years 0:15:04.760 --> 0:15:07.000 there will be ups and downs for the markets, but 0:15:07.160 --> 0:15:10.400 fundamentally that opportunity set is going to be incredibly strong. 0:15:10.720 --> 0:15:13.480 So anyway I know it, leap rog you guys focus 0:15:13.560 --> 0:15:18.160 on impact investing kind of describe what that is. So 0:15:18.240 --> 0:15:20.840 impact investing is where you invest to generate both a 0:15:20.880 --> 0:15:25.840 strong commercial return and a positive social outcome, so lower 0:15:25.880 --> 0:15:29.400 income people, for example, getting healthcare or getting financial tools 0:15:29.400 --> 0:15:34.080 like insurance or savings or pensions. The basic proposition is 0:15:34.120 --> 0:15:36.920 that you can have profit with purpose. You can make 0:15:36.960 --> 0:15:39.280 money and you can do good at the same time. 0:15:39.640 --> 0:15:42.840 And that's because you focus on areas where customers are 0:15:42.880 --> 0:15:46.160 served incredibly well and helped to rise. I'm going to 0:15:46.240 --> 0:15:49.800 get existential here. What does it mean to do good? Huh? 0:15:50.280 --> 0:15:53.000 I think since I trained in philosophy, I could give 0:15:53.000 --> 0:15:59.239 you a very long answer. To that answer is that essentially, 0:16:00.360 --> 0:16:04.240 our simple view is that people who are low income 0:16:04.600 --> 0:16:07.520 have just as much agency, just as much capacity to 0:16:07.640 --> 0:16:10.200 rise over time as anyone else, as long as they 0:16:10.200 --> 0:16:13.680 get the essential services they need. And we believe that 0:16:13.920 --> 0:16:17.960 when people get quality health care which is measurable, get 0:16:18.080 --> 0:16:22.040 quality insurance which is measurable by hard ratios like claims ratios, 0:16:22.720 --> 0:16:26.480 they are able to rise and then you're doing good. Okay. 0:16:26.480 --> 0:16:30.000 So this is more from a sort of economic and 0:16:30.080 --> 0:16:33.680 sort of income level point of view that you focus 0:16:33.720 --> 0:16:38.200 on more than say environmental or corporate governance. Yes, although 0:16:38.240 --> 0:16:41.080 we also take a very strong view on E s 0:16:41.120 --> 0:16:45.040 G and governance we think is a key element in 0:16:45.400 --> 0:16:48.480 getting alpha in these markets. So we've found that well 0:16:48.520 --> 0:16:51.760 governed companies are actually able to extract a premium on exit. 0:16:52.040 --> 0:16:54.560 And as a result, when we've sold companies at leap 0:16:54.600 --> 0:16:58.120 Frog to the likes of Swissery or Prudential PLC, or 0:16:58.200 --> 0:17:01.880 Standard Charted or Fidelity, we believe those companies have been 0:17:01.880 --> 0:17:05.280 willing to pay a premium for well governed, high growth companies. 0:17:05.480 --> 0:17:07.280 So any what are some of the markets in which 0:17:07.600 --> 0:17:11.760 leap Frog has made investments recently. So we're very strong 0:17:11.840 --> 0:17:18.160 on India, Kenya, Nigeria, Indonesia, Thailand, Vietnam. We think all 0:17:18.160 --> 0:17:21.440 of these markets are growing exceptionally rapidly, driven by these 0:17:21.440 --> 0:17:25.040 secular trends. Also, financial services and health care is are 0:17:25.080 --> 0:17:27.840 often growing at double the rate of the economy. So 0:17:27.880 --> 0:17:31.000 if you, as a private equity player, find a really 0:17:31.040 --> 0:17:35.440 good company that's just growing slightly above average, you can 0:17:35.480 --> 0:17:38.439 be getting to twenty or thirty percent growth rates in 0:17:38.480 --> 0:17:41.639 your revenue per year. When we started talking, you were 0:17:41.680 --> 0:17:43.639 talking long term, and you were saying, you see the 0:17:43.640 --> 0:17:46.200 opportunity long term, there might be bumps along the way, 0:17:46.520 --> 0:17:49.159 and I have to wonder, you know how that plays 0:17:49.320 --> 0:17:53.159 into your role as a private equity investor versus public 0:17:53.160 --> 0:17:55.919 equity or public debt where a lot of money has 0:17:55.960 --> 0:17:59.040 flowed into emerging markets. How do you view that. One 0:17:59.080 --> 0:18:01.880 of the exciting things about being a private equity investor 0:18:02.119 --> 0:18:04.320 is that you can hold assets for different lengths of time, 0:18:04.440 --> 0:18:06.879 and so when people are down on emerging markets, you 0:18:06.920 --> 0:18:08.800 can buy at lower prices, and when people are up 0:18:08.880 --> 0:18:12.120 on emerging on emerging markets, you can sell at higher prices. 0:18:12.200 --> 0:18:16.159 So private equity gives you a distinct competitive advantage in 0:18:16.200 --> 0:18:19.000 these markets and also allows you to form a really 0:18:19.119 --> 0:18:23.240 deep relationship with the companies and their leadership so that 0:18:23.280 --> 0:18:25.760 you can understand the dynamics in the market. And one 0:18:25.760 --> 0:18:28.760 of the things we found has been crucial in generating 0:18:28.760 --> 0:18:33.480 alpha is actually having great local and specialist talent, people 0:18:33.480 --> 0:18:37.000 who are m d, pH d s or actuaries focused 0:18:37.000 --> 0:18:40.520 on healthcare or insurance that are able to rarely see 0:18:40.880 --> 0:18:44.919 what these companies need and engage very intensively with them, 0:18:45.040 --> 0:18:48.200 real quickly, ten ten seconds. How are the returns? Well, 0:18:48.240 --> 0:18:52.200 we think profit with purpose generates outside returns. We think 0:18:52.240 --> 0:18:53.879 we have a lot of evidence for that, and we 0:18:53.920 --> 0:18:57.399 think that we announced a seven hundred million dollar new 0:18:57.440 --> 0:19:02.399 fund for emerging markets today that had forty institutional investors 0:19:02.400 --> 0:19:05.159 in Italy, and the fact that that was achieved and 0:19:05.160 --> 0:19:08.439 that so many folks diligence the ten year history of 0:19:08.520 --> 0:19:12.240 leap Frog rarely shows that you can generate outsize returns, 0:19:12.840 --> 0:19:15.159 and we think the evidence is in that the markets 0:19:15.200 --> 0:19:16.919 are going to shift. Larry Thinks has been saying this 0:19:17.000 --> 0:19:20.240 recently about purpose and profit, and we think the time 0:19:20.240 --> 0:19:23.000 of profit with purpose has really come. Dr Andy Cooper, 0:19:23.040 --> 0:19:25.440 thank you so much, Founder and CEO of leap Frog Investments, 0:19:25.440 --> 0:19:29.000 talking to us about impact investments investing on from a 0:19:29.080 --> 0:19:48.840 private equity perspective. Bloomberg Markets has brought to you by 0:19:49.000 --> 0:19:51.760 common Wealth Financial Network the r I, a broker dealer 0:19:51.800 --> 0:19:54.480 that's one the JD Power Award for Highest and Independent 0:19:54.520 --> 0:19:58.720 Advisor satisfaction among financial investment firms five times in a row. 0:19:59.000 --> 0:20:02.840 Visit Commonwealth dot com. But we are still awaiting the 0:20:02.880 --> 0:20:05.919 opening of UBERT. I certainly expected this thing to be 0:20:06.000 --> 0:20:09.879 trading indications here at three versus the i p O 0:20:09.920 --> 0:20:13.280 price of forty five, So not a good indicated opening 0:20:13.359 --> 0:20:16.399 for this highly anticipated IPO. To get more details, we 0:20:16.400 --> 0:20:20.120 welcome our good friends Shire Overday, technology calumnist for Bloomberg 0:20:20.160 --> 0:20:23.400 Opinion Sheet, joins us here in our Bloomberg Interactive Broker studio. 0:20:24.080 --> 0:20:26.000 So sure, what do you make of this? Yeah, it's 0:20:26.080 --> 0:20:30.080 obviously not good to break below the i p O price. Obviously. 0:20:30.160 --> 0:20:34.040 The thing that I wonder is if it's trades below 0:20:34.080 --> 0:20:37.760 the I p O price, does that mean something about 0:20:37.960 --> 0:20:40.720 doubts about Uber specifically or is it today as a 0:20:40.800 --> 0:20:43.600 down market? Right? People are really anxious about this China 0:20:44.560 --> 0:20:49.040 renewed China trade uh kerfuffle and is that the thing 0:20:49.119 --> 0:20:51.360 that's really driving down Uber shares. There are a lot 0:20:51.359 --> 0:20:53.560 of questions here, right, which is, you know, how much 0:20:53.680 --> 0:20:56.840 is this market story? How much is this a ride 0:20:56.840 --> 0:21:00.119 sharing services story? Right because we have other IPO as 0:21:00.160 --> 0:21:03.600 it did better. How much is this a money losing story? 0:21:03.680 --> 0:21:07.040 Because Uber really is a pretty late stage company to 0:21:07.119 --> 0:21:10.280 be going public and they're burning through cash faster at 0:21:10.320 --> 0:21:12.840 least in the past twelve months than any other I 0:21:13.000 --> 0:21:16.960 p O ever in history, according to at least Renaissance 0:21:17.040 --> 0:21:20.440 Capital research company. So I'm just wondering from your perspective, 0:21:20.480 --> 0:21:23.800 what do you think? Yes, so Uber is this weird? 0:21:24.320 --> 0:21:28.480 It is basically emblematic of technology companies that started in 0:21:28.560 --> 0:21:31.119 the last ten years that it is now going public, 0:21:31.280 --> 0:21:34.880 so debuting on the stock market, but it's already very 0:21:35.000 --> 0:21:38.440 large and mature fifty billion dollars and kind of transaction 0:21:38.560 --> 0:21:41.879 value on Uber's platform in the last year, and also 0:21:42.600 --> 0:21:46.159 highly unprofitable three billion dollars of operating losses, which is 0:21:46.280 --> 0:21:50.480 a staggering number, and it's it's core business. Has just 0:21:50.600 --> 0:21:54.560 open it change here forty two and change wow. That 0:21:54.720 --> 0:21:57.600 is compared to an I p O price of forty 0:21:57.640 --> 0:21:59.600 five dollars, which has on the low range, which has 0:21:59.600 --> 0:22:01.720 tried to, which was trying to be a concession to 0:22:01.920 --> 0:22:04.520 investors to say, hey, guys, we're gonna throw you a bone. 0:22:04.520 --> 0:22:06.399 Well they did not get thrown a bone. Yeah, and 0:22:06.520 --> 0:22:11.359 let me just point out that, um, basically everyone, every 0:22:11.440 --> 0:22:15.400 new investor who bought Uber stock in the last since 0:22:15.480 --> 0:22:21.120 December apart from soft bank, is now underwater on their investment. 0:22:21.200 --> 0:22:25.680 Every single new shareholder, including people who bought in the IP. Yeah, 0:22:25.720 --> 0:22:27.120 it's interesting. I was just gonna go to that point. 0:22:27.160 --> 0:22:29.880 I think, you know, as people try to think about longer, 0:22:30.000 --> 0:22:32.159 what does this mean for the tech market, for the 0:22:32.200 --> 0:22:33.800 I P O market, I think one of the things 0:22:33.880 --> 0:22:36.840 we can take away is that clearly, certainly for these 0:22:36.880 --> 0:22:39.480