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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along

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Speaker 1: with Jonathan Ferrell and Lisa A. Bramowitz Jailey, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, sun Cloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg terminal.

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Speaker 1: The stuff tailing a couple of themes here right now

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Speaker 1: on tech earnings, my essay of the Year Ian Bremer

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Speaker 1: in Foreign Affairs Magazine, and the power in the strength

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Speaker 1: of all these big tech companies, just a fabulous look

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Speaker 1: at where we're heading. And then John fulled that into

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Speaker 1: the power and the strength of Cooper Tino to say no,

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Speaker 1: we make the rules for our users, particularly of iPhones.

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Speaker 1: And then you go to the power and strength and

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Speaker 1: shock of Snap. John. We witnessed that last week very

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Speaker 1: clearly her at spend at Snap to what degree I

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Speaker 1: don't know, that stock absolutely created and then we start

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Speaker 1: to think about what it would mean for Facebook too.

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Speaker 1: Let's have that conversation now with Michael Nathanson, the founding

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Speaker 1: partner and senior research analyst at Moffatt Nathanson. Michael, let's

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Speaker 1: start there. I've talked a lot over the last week

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Speaker 1: about the supply chain disruptions, the fact that people might

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Speaker 1: not want to spend because they can't meet the additional

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Speaker 1: demand that spending might deliver. Let's talk about the change

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Speaker 1: of Apple, how much it's surprised the c suite is Snap,

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Speaker 1: and what it might mean later this week for some

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Speaker 1: of the big tap players. Yeah, good morning, Jonathan. I

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Speaker 1: think that was the story at Snap last week. You know,

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Speaker 1: it was nice to blame supply chains, but I think

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Speaker 1: they didn't They didn't see the risk coming from those

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Speaker 1: Apple changes on privacy protection. They were saying up until

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Speaker 1: the last quarter, things are fine, we have this to

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Speaker 1: not worry, whereas Facebook was warning everyone. So supply chains

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Speaker 1: definitely hurt autos and iPhone sales and technology sales. But

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Speaker 1: I think that was a convenient excuse for while was

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Speaker 1: probably misunderstanding the risks that Apple or we're bringing to

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Speaker 1: or business. That's the power of it all. Michael is

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Speaker 1: Netflix part of this group. I found it interesting that

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Speaker 1: Dr Bremer left it out of the essay. After Netflix

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Speaker 1: the subscribers. The mystery of streaming, which you cover better

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Speaker 1: than anyone, is net. Does Netflix have power. Netflix has

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Speaker 1: power because they spend eighteen million dollars a year in

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Speaker 1: content and their strategy is to basically just wifeless shot

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Speaker 1: every new content every day, and it's hard to compete

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Speaker 1: with that. But their business, you know, we've argued the past,

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Speaker 1: doesn't have the same mode as Microsoft, Apple, Facebook, Google, Amazon, Right,

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Speaker 1: they're a different beast, you know, the fang that fang

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Speaker 1: acronym has being created. They're in it, but I don't

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Speaker 1: think they're in the same business and the same type

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Speaker 1: of mode protection that the other big five have. Um

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Speaker 1: So it's in the conversation, but such a different business

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Speaker 1: model than the other companies. We've got eighteen questions. It's

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Speaker 1: very quickly here Michael Nathans, and before the others jump in,

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Speaker 1: what's your single best buy now out an institutional short

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Speaker 1: term of three years, Which of these myriad of names

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Speaker 1: is the one that gets you excited? This will surprise you,

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Speaker 1: I'd say Facebook, which is you know, printing results tonight,

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Speaker 1: We're expecting a very tough quarter in terms of forward

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Speaker 1: guide into the Apple effects supplied. Shandon comments is Jonathan

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Speaker 1: was referencing, but the sluck training out of markup multiple

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Speaker 1: next year's numbers, and it seems to us that they're

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Speaker 1: so well positioned even with all those headwinds. Uh, you know,

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Speaker 1: for years and years of double digit top line growth.

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Speaker 1: So it's Facebook, which I know is counted to a

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Speaker 1: current consensus. This I really think we need to dig

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Speaker 1: into a little bit more. You've got a price target

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Speaker 1: of four hundred and twenty dollars on the Facebook shares,

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Speaker 1: a really significant gain from where we are right now.

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Speaker 1: And this comes despite some of the disclosures that we're

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Speaker 1: seeing dribbled out from the whistleblower that's been testifying in Washington,

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Speaker 1: d C. What we'll get it to four hundred and

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Speaker 1: twenty dollars share made all of this blowback amid the

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Speaker 1: Apple privacy rules at a time when the shares are

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Speaker 1: simply okay. So, Lisa, I've covered the stock for a while.

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Speaker 1: There are times when you go through these uh intense

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Speaker 1: spotlights and regulatory and business model pressures. I just think

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Speaker 1: it's going to be quarters and quarters of good top

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Speaker 1: line growth and it's meaning expectations. And I tell you

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Speaker 1: there's been times in the past where we've seen the

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Speaker 1: spotlight from d C and regulators, never whistle blowers before

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Speaker 1: and the stock has powers through because they've got a

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Speaker 1: great business model even with the changes the Apple changes.

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Speaker 1: If you want to reach people for digital advertising, Facebook

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Speaker 1: is one of two or three places to go, and

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Speaker 1: that's where the growth is coming from. So you know,

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Speaker 1: I know it's not it's not comfortable to recommend Facebook

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Speaker 1: here given all we've learned about the company, but the

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Speaker 1: business model is really really well well protected giving the

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Speaker 1: long term headwinds started. Tell when is that the industry saying, Michael,

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Speaker 1: you're making a really important point here that last week

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Speaker 1: everyone took us look at what Snap had to say

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Speaker 1: and they said, oh my goodness, any company that relies

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Speaker 1: in advertising digital advertising is going to get sunk by

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Speaker 1: supply chain disruptions. Are you saying that narrative is completely wrong,

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Speaker 1: that those advertisers will keep advertising and that those companies

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Speaker 1: that have adequately protected against the Apple privacy rules will

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Speaker 1: be the ones that succeed. Yes, I'm not saying that

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Speaker 1: the supply chain risks are not real. I'm not saying

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Speaker 1: that the I d f A Apple changes are not real.

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Speaker 1: But Facebook has spent you know, fifteen months warning us

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Speaker 1: investing in solutions. They have great first party data there

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Speaker 1: are different business and Snap. Where the weakness was seen

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Speaker 1: at Snap was on app downloads and mobile games. Facebook

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Speaker 1: has ten million advertisers, right, so there's no no doubt

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Speaker 1: in the near term the pressures will be there from

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Speaker 1: Apple changes and supply chain disruptions, however big they are.

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Speaker 1: But Tom's in a three year view. I have a

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Speaker 1: stock training out of mar Multiple that's growing well on

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Speaker 1: nexis of the market. Seems to me that that's the

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Speaker 1: place you want to invest in, right, So that's the

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Speaker 1: leaves of your concerns and things you've raised or there.

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Speaker 1: I think Facebook has thought about this for a long

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Speaker 1: time now, and they've done things to try to mitigate

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Speaker 1: the damage from from Apple's changes. Michael, let's just finish

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Speaker 1: on this just quickly. What would it take do you

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Speaker 1: think for advertisers on Facebook to go somewhere else and

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Speaker 1: pull back and say, you know what, this just feels

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Speaker 1: really toxic and that's not a platform I want my

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Speaker 1: company to be a part of anymore. What would it take? Okay? So, Jonathan,

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Speaker 1: there are two types of advertisers their brand advertisers who

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Speaker 1: are there to amplify their their message and their brand

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Speaker 1: and to be around content that they like. I see

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Speaker 1: that as a big risk. You know that Facebook averages

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Speaker 1: or brand advertisers will leave, but that's a small portion

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Speaker 1: of their ad base. The other the core portions performance

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Speaker 1: advertisers who are putting out messages where they want a response,

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Speaker 1: an app, download a site to visit, or purchase checkout. Um.

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Speaker 1: Until the r o I in turn investment starts to

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Speaker 1: really wane, they will keep spending. They're not there for

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Speaker 1: the branding elements of Facebook. They're there to push a

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Speaker 1: commerce activity. So John, until that weekends, really weekends, they're

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Speaker 1: gonna spend, right, It's it's supply demand. The problem is

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Speaker 1: there there are not a lot of places to go

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Speaker 1: outside of Facebook to reach that many. And it's more

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Speaker 1: than the Facebook, its Instagram as well. Right, So there's

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Speaker 1: a broad, broad patch up consumers out there who have

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Speaker 1: historically clicked to buy, click to download, click to rent

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Speaker 1: something thanks to Facebook. Right. So until that really weakens,

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Speaker 1: they have them. That final point is so important, Michael,

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Speaker 1: He's trying to catch up as always, sir, Thank you,

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Speaker 1: Michael Nathanson. There of Moffatt Nathanson, John prea miser, spends

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Speaker 1: eight hours a day on Facebook, right. She joins us

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Speaker 1: now on rights and not on Facebook and head of

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Speaker 1: race strategy at TV Securities Prayer. You can skype this one.

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Speaker 1: It's the Fed black oup areod. The chairman had the

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Speaker 1: last word, the final word. What do we learn from

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Speaker 1: Chairman poal Prayer? So I think he's managing expectations here

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Speaker 1: that inflation even though they haven't really pulled back from

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Speaker 1: the talk of transitory noticed that he didn't bring it

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Speaker 1: up at all. I think they're telling us that inflation

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Speaker 1: supply chain issues are gonna last for a while. He

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Speaker 1: didn't talk about hiking sooner though, so I think if

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Speaker 1: the market has repriced the hiking cycles significantly, And what

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Speaker 1: we heard from chair Paul, we also heard that from

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Speaker 1: Secretary Yellin over the weekend, was that inflation supply chain

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Speaker 1: issues are likely to last well into two twenty two.

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Speaker 1: So I think they're trying to tell us, look, this

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Speaker 1: is going to be with us for a while, but

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Speaker 1: and and the fair is going to taper very soon.

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Speaker 1: So so we expect an announcement next week, but that

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Speaker 1: the hikes are still you know, further out, and the

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Speaker 1: market is absolutely calling the Fed's bluff. I would say

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Speaker 1: global interest rates are calling the central bank bluff and

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Speaker 1: saying that they will be forced in to start hiking

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Speaker 1: much sooner. I actually think that you know, inflation will

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Speaker 1: at some point decelerate next year, at some points apply

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Speaker 1: to you, in issues will go away. We think there's

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Speaker 1: a lot of labor market slack. So we're actually uh

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Speaker 1: pushing back against this move in front and rates decelerate

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Speaker 1: though to what And this is really the issue as

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Speaker 1: you look at tenure break evens bumping up against the

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Speaker 1: highest since two thousand and five, this idea that people,

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Speaker 1: yes are seeing a lower inflation rate than we are

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Speaker 1: seeing now, but still north of two and a half percent.

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Speaker 1: At what point does the FEDS start to pay attention

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Speaker 1: to that and actually treat that as the right way

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Speaker 1: to view longer term inflation. Sure, so I think, you know,

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Speaker 1: we've been used to the last twenty years of much

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Speaker 1: lower inflation. Maybe the next decade is going to be

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Speaker 1: a two percent type inflation here, Maybe we're going to

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Speaker 1: be in a two to three percent range. I think

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Speaker 1: what the Fed's going to watch four is these long

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Speaker 1: term inflation expectations, five year five year break events, are

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Speaker 1: they looking unanchored? I think that's an extremely important aspect,

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Speaker 1: and the other ones got to be wage inflation. You know.

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Speaker 1: I think the big question is has the labor market

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Speaker 1: structurally changed as this great resignation. Is that going to

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Speaker 1: remain or people going to come back? We feel very

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Speaker 1: strongly that people who have left the labor force are

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Speaker 1: going to a lot of them are going to come back.

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Speaker 1: I mean people who have retired, maybe not, but others

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Speaker 1: are going to come back. At some point, those savings

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Speaker 1: are going to run out. So if we just um,

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Speaker 1: you know, start to stabilize, start to head lower at

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Speaker 1: least uh the rate of wage inflation, I think that

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Speaker 1: could give the FED confidence that there is labor markets

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Speaker 1: lack and you know, raising interest rates to try and

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Speaker 1: solve a supply chain issue is not the solution. Raising

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Speaker 1: rates to solve the labor market being tight. I think absolutely,

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Speaker 1: um you know that will be the response. I think

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Speaker 1: it's going to actually come down to the labor market

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Speaker 1: slack or their perception exactly. It's right where I wanted

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Speaker 1: to go before you came on air. I was looking

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Speaker 1: at the e C I, the blended folks wage and

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Speaker 1: benefits dynamic, and it really hasn't broken out when you

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Speaker 1: fold in your interest rate work with TV securities economists work.

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Speaker 1: Do you suggest a breakout the true nominal and even

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Speaker 1: positive real wage inflation or can you not say that? Yeah, actually,

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Speaker 1: I'm glad you bring up e C I. We prefer

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Speaker 1: the e c I over the average early learnings because

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Speaker 1: average earl learnings picking up. You know, when people move jobs,

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Speaker 1: they should uh earn a higher rate. E C I

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Speaker 1: is actually looking at if I've had the same job

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Speaker 1: over the last year, has my wage? Have my wages

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Speaker 1: gone up? So I think this whole idea of how

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Speaker 1: the labor market is structurally changing. I think e CI

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Speaker 1: does a much better job. We think that people are

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Speaker 1: going to return. It just would take a while people

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Speaker 1: have moved. There are frictions in the labor market at

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Speaker 1: some point when people come back. That e c I is,

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Speaker 1: I would say about a much more comprehensive measure. We

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Speaker 1: don't see wage inflation picking up at all for for

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Speaker 1: a while, which is why we have the first Federate

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Speaker 1: hike only late two thousand twenty three. So I think

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Speaker 1: front end of off the rate market globally, but the

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Speaker 1: particular in the US. I think it's very attractive. I

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Speaker 1: think people should move not take duration risk the Fed's

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Speaker 1: about to paper, but move out from buying tents into

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Speaker 1: fives threes. I think the FED is a long way

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Speaker 1: here um from hiking interest Do you think we've priced

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Speaker 1: too much into the belly of the curve, right? I?

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Speaker 1: I think so yes. I think we've priced a lot

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Speaker 1: in the front end. That end point of the hiking

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Speaker 1: cycle is not moving higher. I think the market is

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Speaker 1: really confused that the FED might have to start hiking,

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Speaker 1: but can the economy withstand much higher interest rates? Which

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Speaker 1: is why what is surprising to me is the end

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Speaker 1: point of the hiking cycles only one point six one

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Speaker 1: and a half. I mean, what the FED want to

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Speaker 1: start raising rates? If all they can do is rise

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Speaker 1: you raise it to one and a half, that's what

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Speaker 1: looks odd. So I think the belly may have a

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Speaker 1: little bit more room to rise. That very front end,

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Speaker 1: which is much more about the start of the hiking cycle.

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Speaker 1: I think that is the most miss priced. Pray, thank you,

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Speaker 1: pray Mira Dailey Securities. I guess on the rights market

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Speaker 1: pushing back against the right heights h I mean. Silverman

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Speaker 1: is equity derivative strategist at RBC Capital Markets. All you

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Speaker 1: need to know is your research notes are really sophisticated

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Speaker 1: and have loads of Greek letters. She looks at the

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Speaker 1: cross moments, skew, crotosis and the rest of it and

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Speaker 1: distills it down to shut up and hold, or shut

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Speaker 1: up and buy or maybe go to cash. She joins,

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Speaker 1: this morning, Amy Wull on rated change and on delta,

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Speaker 1: not the convexity, not the second derivative. You are all

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Speaker 1: first derivative. This earnings week. Why look, you know this

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Speaker 1: is really the week the market reports, right, so you

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Speaker 1: know you basically have the big megacaptech fan names, and

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Speaker 1: and those five names really make up of the SMP.

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Speaker 1: So the folks who are using options right now, uh Tom,

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Speaker 1: particularly for this Friday's weekly expiration, what are they playing there?

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Speaker 1: Either trying to hedge you know, this movement in touch

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Speaker 1: which could result in a movement in the market. Um

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Speaker 1: where they're doing it individually, But these make acap names

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Speaker 1: are really driving the market overall because of their size.

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Speaker 1: I want to give our audiences on radio and television, Amy,

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Speaker 1: will the idea here of what is in your research notes.

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Speaker 1: Let's take Apple, we could take any other name, folks,

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Speaker 1: And I want to talk about the delta, the rate

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Speaker 1: of change, and also what you see in the cross moments.

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Speaker 1: Take Apple now and if somebody wants to go long

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Speaker 1: or somebody wants to hedge their long, how rich is

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Speaker 1: the derivatives market of Apple and folks, Just to be clear,

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Speaker 1: delta is not an airline. Well, it is an airline,

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Speaker 1: but in the context of options, it's also the sensitivity

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Speaker 1: of option price. Uh, two changes in the soft price,

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Speaker 1: and obviously that's what we're looking for, especially when there's

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Speaker 1: an event tom Surprisingly, you know, Apple options are not

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Speaker 1: that expensive. We compare it to all its comps that

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Speaker 1: are reporting, we compared to the market, we compare it

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Speaker 1: to its own realized utility over time, and heading into

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Speaker 1: those earnings, Apple options are fairly inexpensive. And the other

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Speaker 1: thing is the amount of demand for hedges is actually declining,

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Speaker 1: which we think is interesting, you know, given that it

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Speaker 1: was kind of at the center of the storm around

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Speaker 1: the privacy issues that obviously led into Snap and into

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Speaker 1: other tech names that we saw last week. So amy

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Speaker 1: taking a step back, does that mean that people are

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Speaker 1: pretty optimistic heading into these tech earnings that basically, uh,

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Speaker 1: they think that a lot of the bad news and

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Speaker 1: the potential discrepancies that have stemming from some of the

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Speaker 1: supply chain disruptions have all been priced in. Yeah, you

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Speaker 1: know when we look to the options market. That was

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Speaker 1: one of my takeaways intoitigular after last week. I'll give

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Speaker 1: you one example. Snap obviously down, you know, on earnings,

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Speaker 1: but if you actually look to the derivatives market has

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Speaker 1: now gone into skewing version. Just to translate that, that

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Speaker 1: means that demand for calls is now outweighing the demand

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Speaker 1: for puts. That's a fairly abnormal event that isn't always

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Speaker 1: happened in options, and it's signaling kind of an extreme

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Speaker 1: level of bullishness. We're also seeing that in Facebook as well.

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Speaker 1: We're seeing that in Apple. So you know, look, people

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Speaker 1: can be wrong in the options market just as they

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Speaker 1: are in the stock market, but the sentiment is certainly

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Speaker 1: shifting more bullish ahead of this week. Amy, one of

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Speaker 1: the wonderful things that you do is you track the

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Speaker 1: correlations and try to understand what the triggers are. And

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Speaker 1: here we are heading into tech earnings at a time

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Speaker 1: when there's increasing bearishness around bonds right about around duration,

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Speaker 1: and typically tech has been viewed as the most duration

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Speaker 1: heavy area. How do you view the correlation with people's

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Speaker 1: view on the rates market with tech sentiment at a

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Speaker 1: time when they've been posting blockbuster earnings. Yeah, it's a

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Speaker 1: great question, and obviously kind of also the Tenok view

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Speaker 1: related to that is that tech is kind of at

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Speaker 1: the center of this growth versus value trade, just as

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Speaker 1: it is compared to bonds as well. I'll say one

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Speaker 1: thing right now, you know, correlations will tend to break

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Speaker 1: down a little simply because we're going into earnings, which

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Speaker 1: tends to be an extremely id using cradic event. So

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Speaker 1: if there was any time for that dispersion to appear

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Speaker 1: in the market, it would be now. But I do

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Speaker 1: think that as we head back into year end that

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Speaker 1: becomes something that people watch very closely. Just where tech

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Speaker 1: is compared to the bond related e T s like

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Speaker 1: a T L T H y G and LQUB, can

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Speaker 1: you do them a derivative analysis of the moon shot

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Speaker 1: up we went above eight hundred, down, we went on Tesla,

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Speaker 1: and now up through ninety one. This morning on the

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Speaker 1: shat Scar article, I should notice Mr Jonas at Morgan

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Speaker 1: Stanley raising his price target as well. Can you Amy,

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Speaker 1: who's Silverman do a Greek letter analysis of something as

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Speaker 1: original as Tesla. I love Tesla from an options respective,

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Speaker 1: and the reason is it's just become its own special animal.

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Speaker 1: You know, we have we have five hundreds with thousand

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Speaker 1: stocks that we watched all the time, Tom and occasionally

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Speaker 1: we just have to put Tesla in its own special bucket.

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Speaker 1: One thing I'll tell you on Tesla right now, it's

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Speaker 1: equist you one of your favorite words like demand for

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Speaker 1: put protection had been really really high. It dropped a

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Speaker 1: little bit after earnings. But what I think is interesting

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Speaker 1: is it's still pretty high and earnings are over right,

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Speaker 1: So so what what is the market kind of concerned

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Speaker 1: about on Tesla? Just just before I started this call

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Speaker 1: with you, you know, we saw the Hurts announcement on Tesla,

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Speaker 1: so maybe that changes today. Thank you Eric Shatzker for

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Speaker 1: that reporting. And I mean, well, what's so important here?

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Speaker 1: And folks, I don't want to get to in the

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Speaker 1: weeds here, but if you have a continued hedge value

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Speaker 1: to Tesla, at some point up they have to cover.

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Speaker 1: Is there a convexity opportunity in Tesla where we see

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Speaker 1: an acceleration higher is busted? Trades are covered yep. So

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Speaker 1: so you know you're you're referring to kind of what

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Speaker 1: people referred to both the gamma hammer or the gamma squeets,

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Speaker 1: where you know, a lot of the times when you

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Speaker 1: see that um inversion in skew right, that call demand

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Speaker 1: again outweighing that put demand its forces dealers who are

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Speaker 1: doing delta hedges on the other side, because dealers are

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Speaker 1: trying to not take directional bets right there, trying to

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Speaker 1: not take bets on delta. They're simply trying to facilitate

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Speaker 1: people on both sides that there's extreme call buying. You

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Speaker 1: can essentially see more stock up situations because of that

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Speaker 1: that Greek letter gamma, that gamma squeeze that's happening in Tesla.

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Speaker 1: Before we let you go, Amy, i'd love to get

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Speaker 1: a gauge of just how active traders have been going

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Speaker 1: into the earning season. The idea that we've gotten so

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Speaker 1: many of the gains that the year is almost over,

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Speaker 1: especially as people recalibrate their expectations for FED policy. How

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Speaker 1: much is activity increasing. Is there's this idea that this

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Speaker 1: is the last hurrah, this week of earnings before people

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Speaker 1: basically pack up their bags and go on vacation. Yeah,

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Speaker 1: we've seen a lot of institutional activity. We've seen a

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Speaker 1: lot of hedging in q q ques ahead of this week.

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Speaker 1: I think a lot of that related just simply how

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Speaker 1: large a market cap is recording in this week alone.

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Speaker 1: Obviously we see the traditional year and hedging, but you know,

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Speaker 1: we have seen a drop off LISA in retail demand. So,

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Speaker 1: you know, retail which was busy trading call options to

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Speaker 1: kind of insane degrees last year during the pandemic, that's

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Speaker 1: dropped off a lot. You know, I think they're busy

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Speaker 1: trading cryptocurrencies now, but you know that activity has lessened

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Speaker 1: much more than it was at this point last year. Ammy,

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Speaker 1: thank you as O wise Emmy with Silverman. That the

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Speaker 1: wonderful Emmy with Silverman ILLBC Capital Markets on a big

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Speaker 1: wag for big tech. This is really important, folks. Two

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Speaker 1: pages and for the first time in ages, I'm gonna

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Speaker 1: say it's a cover to cover read Foreign Affairs magazine.

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Speaker 1: Dan Kurtz Phelan joined us right now. It's on his

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Speaker 1: wheelhouse China, and it is absolutely spectacular. Let's get to it. Dan, congratulations,

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Speaker 1: So let me start with my essay of the Year

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Speaker 1: by Dr Bremer of Eurasia Group. He sits there and

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Speaker 1: folds in the technology companies into your international relations, explain

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Speaker 1: the international relations of Amazon. That's right, so so Ian

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Speaker 1: Bremer's contribution here is not just to point out what

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Speaker 1: we all know, which is that tech companies are hugely important,

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Speaker 1: that they are major actors in shaping the world, but

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Speaker 1: they've really risen to the point where they are like

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Speaker 1: states themselves. And what this means is that when you

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Speaker 1: look at the big players, not just Amazon and Alphabet

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Speaker 1: and Facebook and the American players, but also the big

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Speaker 1: Chinese tech companies and big tech companies elsewhere, which model

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Speaker 1: of tech company wins out in shaping cyberspace is really

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Speaker 1: going to determine the geopolitical future, not just the future

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Speaker 1: of technology. So it's become a very different game. You

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Speaker 1: went for sales, you put Meerscheimer in the book, and

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Speaker 1: they're always going to move more copies of foreign affairs

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Speaker 1: a gentleman or one after NATO and one after Continental Europe.

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Speaker 1: Is they they faced Russia a decade ago. He's scathing

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Speaker 1: here on the US approach to client to China and

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Speaker 1: says the United States is ignoring realist logic. How realist

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Speaker 1: is a Biden administration. John Muir Scheimer loves to go

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Speaker 1: after what he sees as the big mistakes of American

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Speaker 1: strategy in American foreign policy over time. What's really remarkable

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Speaker 1: in this essay where he looks back at US China

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Speaker 1: strategy over the past several decades, he calls this the

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Speaker 1: biggest strategic mistake we've made in the history of America's

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Speaker 1: time is a great power. What he sees is this

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Speaker 1: mistake of thinking that China would become more liberal, more

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Speaker 1: more acquiescent, more like the United States. Instead, as we

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Speaker 1: all know now, the opposite has happens to become more assertive.

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Speaker 1: It's politicalst and is not liberalized, and She Jimping has

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Speaker 1: proved to be of the most kind of assertive Chinese

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Speaker 1: leader since now. The Biden administration, as we can see

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Speaker 1: and Richard Hassa's essay makes this point, has really kind

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Speaker 1: of into the recognition that started probably lad Obama and

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Speaker 1: really under President Trump, the the idea of China as

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Speaker 1: our main competitor and in some ways the kind of

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Speaker 1: focal point of American foreign policy. The Biden administration's China

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Speaker 1: policy has been very tough, very assertive, very auction some ways.

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Speaker 1: And that's been a change in American FORGM policy that

430
00:23:21,280 --> 00:23:23,560
Speaker 1: really goes across both parties. We talk about, you know,

431
00:23:23,640 --> 00:23:27,080
Speaker 1: partisanship in Washington, but this is probably the most bipartisan

432
00:23:27,119 --> 00:23:29,719
Speaker 1: policy we have today. What's the goal then, Dan, if

433
00:23:29,760 --> 00:23:32,480
Speaker 1: this is a new approach for a longer period of time,

434
00:23:32,600 --> 00:23:35,520
Speaker 1: especially at a time when the trade deficit continues to

435
00:23:35,640 --> 00:23:39,119
Speaker 1: deepen between the US and China, So you're asking the

436
00:23:39,200 --> 00:23:42,359
Speaker 1: million dollar question. We've decided that we need to be tougher.

437
00:23:42,440 --> 00:23:45,240
Speaker 1: We've decided that this is the central challenge for American

438
00:23:45,320 --> 00:23:48,240
Speaker 1: foreign policy. But both parties have really struggled to figure

439
00:23:48,240 --> 00:23:49,760
Speaker 1: out where we go from here. So if we think

440
00:23:49,760 --> 00:23:53,159
Speaker 1: about what an end state is with China, the Chinese

441
00:23:53,160 --> 00:23:55,240
Speaker 1: Communist Party is probably not going to go away. Hi

442
00:23:55,320 --> 00:23:57,399
Speaker 1: Jumping is probably going to be in power for some

443
00:23:57,560 --> 00:23:59,600
Speaker 1: time to come. We're still going to have to cooperate

444
00:23:59,680 --> 00:24:02,160
Speaker 1: with on an issues like climate change or of course

445
00:24:02,200 --> 00:24:06,200
Speaker 1: approaching this massive You and Climate Change conference in in

446
00:24:06,400 --> 00:24:09,199
Speaker 1: Glasgow in a in a few days. So we need

447
00:24:09,280 --> 00:24:12,520
Speaker 1: to find a way to coexist in this world. Even

448
00:24:12,600 --> 00:24:15,960
Speaker 1: while from the perspective of US foreign policy, you're able

449
00:24:16,000 --> 00:24:19,000
Speaker 1: to push back on some of these very worrying things

450
00:24:19,040 --> 00:24:21,600
Speaker 1: that you see from China's own region, within its own

451
00:24:21,640 --> 00:24:26,119
Speaker 1: borders and globally. So there's this ongoing quest to figure

452
00:24:26,160 --> 00:24:28,720
Speaker 1: out where this all goes, What what what goal we

453
00:24:28,800 --> 00:24:31,119
Speaker 1: are aiming for? And I would say that you know,

454
00:24:31,280 --> 00:24:33,239
Speaker 1: that's that's a question we'll be trying to figure out

455
00:24:33,280 --> 00:24:35,639
Speaker 1: on our pages over time. It's also a question that

456
00:24:35,720 --> 00:24:38,840
Speaker 1: policy makers in US government and the FIND administration and

457
00:24:38,960 --> 00:24:41,320
Speaker 1: beyond they're gonna be are gonna be really grappling with. Well,

458
00:24:41,359 --> 00:24:44,080
Speaker 1: the goal for the Facebook state and the state of

459
00:24:44,160 --> 00:24:46,600
Speaker 1: Amazon is quite clear. It's to make money. And we

460
00:24:46,720 --> 00:24:49,879
Speaker 1: do see this increasing shift into China despite some of

461
00:24:49,960 --> 00:24:52,199
Speaker 1: the hardened policy from the United States. As you were

462
00:24:52,240 --> 00:24:55,200
Speaker 1: talking about earlier, How does the US or how should

463
00:24:55,240 --> 00:24:59,960
Speaker 1: the US respond in terms of regulating the US busy

464
00:25:00,080 --> 00:25:04,560
Speaker 1: this interest over in the China mainland. So this is

465
00:25:04,600 --> 00:25:06,960
Speaker 1: one of the most interesting elements of that Ian Bremer essay.

466
00:25:07,480 --> 00:25:12,160
Speaker 1: This this notion that these tech companies are both critical

467
00:25:12,320 --> 00:25:15,000
Speaker 1: to national power. Right if you look at US China competition,

468
00:25:15,440 --> 00:25:17,840
Speaker 1: one huge piece of that is who's gonna have the

469
00:25:17,880 --> 00:25:22,600
Speaker 1: technological edge when it comes to everything from AI uh

470
00:25:22,760 --> 00:25:27,399
Speaker 1: to um uh, to quantum computing, to cyber tools, and

471
00:25:27,600 --> 00:25:30,080
Speaker 1: as we all know, the private sector actors are really

472
00:25:30,160 --> 00:25:33,120
Speaker 1: really central on that. So even at this moment when

473
00:25:33,680 --> 00:25:36,399
Speaker 1: these private companies, the ones you mentioned as well as

474
00:25:36,440 --> 00:25:40,040
Speaker 1: many Chinese companies that have become really really major global

475
00:25:40,119 --> 00:25:44,000
Speaker 1: presences and various tech sectors, even as they become these

476
00:25:44,080 --> 00:25:47,800
Speaker 1: huge private sector players, when we talk about US China competition,

477
00:25:47,840 --> 00:25:50,200
Speaker 1: when we talked about US power, a lot of that

478
00:25:50,359 --> 00:25:54,280
Speaker 1: comes down to who's developing technology faster, who's developing AI

479
00:25:54,400 --> 00:25:57,359
Speaker 1: and quantum computing and everything else. Then I'd be unfair

480
00:25:57,400 --> 00:26:00,440
Speaker 1: if I didn't ask you of your knowledge back to

481
00:26:00,520 --> 00:26:04,240
Speaker 1: George Marshall and China of another time and place, give

482
00:26:04,320 --> 00:26:09,040
Speaker 1: us the Kurts failing once over on Taiwan as it

483
00:26:09,200 --> 00:26:13,200
Speaker 1: stands now, how should the United States project a modern

484
00:26:13,320 --> 00:26:18,320
Speaker 1: George Marshall to Taiwan into mainland China. Well, that thank you,

485
00:26:18,400 --> 00:26:20,520
Speaker 1: Tom for bringing up George Marshall, which is a topic

486
00:26:20,600 --> 00:26:23,000
Speaker 1: I spent meant many years of my life working on.

487
00:26:23,560 --> 00:26:26,280
Speaker 1: When you look at Marshall's approach of China was all

488
00:26:26,280 --> 00:26:28,920
Speaker 1: about bound so you needed to be um in some

489
00:26:29,080 --> 00:26:32,080
Speaker 1: ways tough and clear and strong, but also needed to

490
00:26:32,119 --> 00:26:35,280
Speaker 1: be really aware of risks and limits and and balance

491
00:26:35,359 --> 00:26:37,560
Speaker 1: those two things. And that's exactly what the US is

492
00:26:37,560 --> 00:26:39,840
Speaker 1: trying to do. In Taiwan's day. We can see that

493
00:26:40,880 --> 00:26:44,359
Speaker 1: China has become much more aggressive at least than its

494
00:26:44,440 --> 00:26:46,560
Speaker 1: rhetoric when it comes to Taiwan, when it comes to

495
00:26:47,320 --> 00:26:50,040
Speaker 1: reunification with Taiwan, and the US is trying to on

496
00:26:50,119 --> 00:26:54,040
Speaker 1: the one hand, project project strength and project a certain commitment,

497
00:26:54,080 --> 00:26:57,760
Speaker 1: but without going so far as to uh increase tensions

498
00:26:57,800 --> 00:27:01,400
Speaker 1: even more or encourage risky behavior others. So it really

499
00:27:01,560 --> 00:27:05,200
Speaker 1: is this really fine balance, and it's a very dangerous situation.

500
00:27:05,320 --> 00:27:08,639
Speaker 1: And you can see you have Chinese Chinese planes in

501
00:27:08,680 --> 00:27:11,200
Speaker 1: the Taiwan straight you have all these commitments. It could

502
00:27:11,320 --> 00:27:14,720
Speaker 1: escalate it really really quickly. You are advantaged by Elizabeth

503
00:27:14,840 --> 00:27:19,000
Speaker 1: Economy at the Council on Foreign Relations. She was shockingly

504
00:27:19,119 --> 00:27:21,879
Speaker 1: pression a number of years ago of the domestic challenges

505
00:27:21,960 --> 00:27:25,600
Speaker 1: to President ge Why has she not left home? From

506
00:27:25,640 --> 00:27:29,120
Speaker 1: where you sit and with all your context his president

507
00:27:29,320 --> 00:27:34,280
Speaker 1: she threatened by domestic affairs. Well, I'm I'm happy to

508
00:27:34,600 --> 00:27:36,640
Speaker 1: tell you Tom that will have an essay from Liz

509
00:27:36,720 --> 00:27:38,560
Speaker 1: Economy and our next issue, which we'll get at some

510
00:27:38,600 --> 00:27:40,919
Speaker 1: of these problems. Get us out front now, Pharaoh's already

511
00:27:40,960 --> 00:27:43,639
Speaker 1: I will get will I will give you a preview

512
00:27:44,000 --> 00:27:47,080
Speaker 1: that we from from outside. It's easy to see jimping

513
00:27:47,160 --> 00:27:50,960
Speaker 1: as this just incredibly powerful leader who has this hold

514
00:27:51,040 --> 00:27:54,000
Speaker 1: on Chinese power, on Chinese government in a way that

515
00:27:54,080 --> 00:27:56,240
Speaker 1: we haven't seen in a very long time. But when

516
00:27:56,280 --> 00:27:58,960
Speaker 1: you look at the just array of threats to his power,

517
00:27:59,119 --> 00:28:02,640
Speaker 1: whether it's demographics, it's environmental stuff, some of the threats

518
00:28:02,720 --> 00:28:05,720
Speaker 1: the Chinese economy, I mean, you would uh know some

519
00:28:05,840 --> 00:28:08,159
Speaker 1: of those dimensions better than I. He's got a lot

520
00:28:08,200 --> 00:28:10,960
Speaker 1: of reason to worry. So he's going into his own

521
00:28:11,720 --> 00:28:14,440
Speaker 1: party congress next year, trying to secure his own power

522
00:28:14,560 --> 00:28:17,040
Speaker 1: for another five year term. But he's got a lot

523
00:28:17,119 --> 00:28:19,760
Speaker 1: to deal with at home. And you can imagine why

524
00:28:19,840 --> 00:28:22,560
Speaker 1: if you're sitting in his position, you'd feel a lot

525
00:28:22,600 --> 00:28:24,520
Speaker 1: of insecurity as you try to reckon with some of

526
00:28:24,560 --> 00:28:27,440
Speaker 1: those threats. Got to catch hump and pulled on topic

527
00:28:27,480 --> 00:28:29,159
Speaker 1: of the end that too, don cuts fade in that

528
00:28:29,640 --> 00:28:38,240
Speaker 1: phone affairs. Ellen Wald has been kind enough to join

529
00:28:38,400 --> 00:28:41,960
Speaker 1: us many times with the Atlantic Council a senior fellow.

530
00:28:42,040 --> 00:28:48,480
Speaker 1: Her book Saudi inc Is absolutely absolutely definitive UM in

531
00:28:48,720 --> 00:28:53,200
Speaker 1: riod ellen right now? What are the new els dissides?

532
00:28:53,280 --> 00:28:58,000
Speaker 1: There are lessons learned along the way, and then there's

533
00:28:58,040 --> 00:29:00,880
Speaker 1: the changing or the percent Shane inge of the change

534
00:29:01,360 --> 00:29:05,200
Speaker 1: that they can do, particularly in supply. How close are

535
00:29:05,240 --> 00:29:09,960
Speaker 1: we to a supply adjustment? I think that right now

536
00:29:10,320 --> 00:29:15,000
Speaker 1: RIAD is very confident that they are progressing along the

537
00:29:15,160 --> 00:29:19,040
Speaker 1: right path. UM definitely for them. I think that they

538
00:29:19,320 --> 00:29:23,320
Speaker 1: see um the fact that there is definitely tightness in

539
00:29:23,560 --> 00:29:27,600
Speaker 1: terms of supply and demand as a positive thing right now.

540
00:29:27,960 --> 00:29:32,240
Speaker 1: They were very shell shocked by what happened in, which

541
00:29:32,400 --> 00:29:35,080
Speaker 1: was we saw Brent hit eighty five dollars a barrel

542
00:29:35,400 --> 00:29:38,360
Speaker 1: and then under pressure from the US and others, OPEC

543
00:29:38,400 --> 00:29:40,920
Speaker 1: plus open the taps and the next thing they knew

544
00:29:41,240 --> 00:29:44,560
Speaker 1: it was December and prices were at fifty dollars a barrel.

545
00:29:45,000 --> 00:29:49,240
Speaker 1: So they're very much reacting to what happened in and

546
00:29:49,360 --> 00:29:51,600
Speaker 1: do not want to see a repeat. And that's really

547
00:29:51,640 --> 00:29:54,160
Speaker 1: the question, Lisa, what do they react to if it

548
00:29:54,320 --> 00:29:58,680
Speaker 1: isn't the single point price of eighty six dollars barrel?

549
00:29:58,760 --> 00:30:00,320
Speaker 1: And what are they looking at in terms of the

550
00:30:00,360 --> 00:30:03,560
Speaker 1: swing producers? Because ultimately the shale patch had been the

551
00:30:03,600 --> 00:30:06,600
Speaker 1: swing producer, and now that's being called into question a

552
00:30:06,680 --> 00:30:08,960
Speaker 1: little bit more. Ellen, how much is that part of

553
00:30:09,040 --> 00:30:13,080
Speaker 1: the issue that frankly gives Saudi Arabia confidence that they

554
00:30:13,120 --> 00:30:17,280
Speaker 1: can wait a little longer and not cannibalized demand exactly,

555
00:30:17,360 --> 00:30:20,120
Speaker 1: I think. And we have to understand that they are

556
00:30:20,360 --> 00:30:23,240
Speaker 1: are in close contact. I mean, they maybe not quite

557
00:30:23,280 --> 00:30:25,760
Speaker 1: as close as the contact between Russia and Saudi Arabia,

558
00:30:25,880 --> 00:30:29,840
Speaker 1: but they they know, you know, what's going on in

559
00:30:30,320 --> 00:30:33,920
Speaker 1: the shell patch. They know these CEOs, they understand what

560
00:30:34,080 --> 00:30:39,080
Speaker 1: their considerations are, and so they have a good sense that, um, yes,

561
00:30:39,160 --> 00:30:41,720
Speaker 1: we're gonna see some growth in the shell patch, but

562
00:30:41,800 --> 00:30:44,040
Speaker 1: it's not going to be anything like the kind of

563
00:30:44,160 --> 00:30:47,440
Speaker 1: explosive growth that we saw in years prior. So I

564
00:30:47,480 --> 00:30:50,400
Speaker 1: think they're they're fairly confident about that. One of the

565
00:30:50,520 --> 00:30:53,960
Speaker 1: things I think they're also looking at is um they

566
00:30:54,160 --> 00:30:56,640
Speaker 1: are very concerned about the fact that a lot of

567
00:30:56,720 --> 00:31:01,120
Speaker 1: this climate rhetoric has been hurting investment in fossil fuels,

568
00:31:01,600 --> 00:31:04,880
Speaker 1: and so having these higher prices right now kind of

569
00:31:05,000 --> 00:31:07,880
Speaker 1: brings home their point that, yeah, fossil fuels are still

570
00:31:07,920 --> 00:31:11,160
Speaker 1: a really important part of the energy ecosystem, and I

571
00:31:11,240 --> 00:31:14,200
Speaker 1: do think they would like to see some of that

572
00:31:14,400 --> 00:31:17,360
Speaker 1: pressure and that rhetoric abate a bit, especially when it

573
00:31:17,440 --> 00:31:19,959
Speaker 1: comes to them despite the fact that they're going all

574
00:31:20,000 --> 00:31:23,240
Speaker 1: out and making these net zero pledges. At the same time, Ellen,

575
00:31:23,320 --> 00:31:25,200
Speaker 1: this is really important, and I'd love for you just

576
00:31:25,360 --> 00:31:28,040
Speaker 1: to basically put a bow on this, the idea that

577
00:31:28,160 --> 00:31:31,080
Speaker 1: maybe they like the higher price, because frankly, it sends

578
00:31:31,080 --> 00:31:35,560
Speaker 1: a message to the the energy is sort of efficiency debate,

579
00:31:35,680 --> 00:31:39,080
Speaker 1: the green energy debate, the idea here that if you

580
00:31:39,200 --> 00:31:41,720
Speaker 1: want it, you'll have to pay for it. In the meantime,

581
00:31:42,040 --> 00:31:45,760
Speaker 1: you're gonna see our oil prices continue to go up, exactly.

582
00:31:45,800 --> 00:31:48,880
Speaker 1: I don't think it's quite uh an idea of retribution,

583
00:31:49,000 --> 00:31:52,440
Speaker 1: but I do think that they have been battling with

584
00:31:52,640 --> 00:31:56,920
Speaker 1: this this climate messaging of saying, yeah, we care about this,

585
00:31:57,120 --> 00:31:59,520
Speaker 1: Yeah this is a big issue, but at the same time,

586
00:32:00,240 --> 00:32:03,479
Speaker 1: the alternatives to fossil fuels aren't there. You still need us,

587
00:32:03,520 --> 00:32:07,520
Speaker 1: so stop treating us like we're disposable. And so this

588
00:32:07,680 --> 00:32:10,960
Speaker 1: is an opportunity for them to say, look, now, you

589
00:32:11,080 --> 00:32:14,120
Speaker 1: know we're not disposable and you need these fossil fuels,

590
00:32:14,200 --> 00:32:18,280
Speaker 1: so let's, you know, tone down some of the very

591
00:32:18,400 --> 00:32:22,040
Speaker 1: anti fossil fuel rhetoric, and we saw that with these

592
00:32:22,480 --> 00:32:25,480
Speaker 1: documents that were released that showed that Saudi Arabia and

593
00:32:25,720 --> 00:32:28,600
Speaker 1: some other oil producers have been lobbying the UN to

594
00:32:28,800 --> 00:32:32,400
Speaker 1: try to tone down some of that anti fossil fuel language.

595
00:32:32,520 --> 00:32:37,560
Speaker 1: In a new climate report Ellen A Longer Going Far Away,

596
00:32:37,680 --> 00:32:41,800
Speaker 1: Lisa Bramo was paid for the Offsprings education by picking

597
00:32:41,920 --> 00:32:46,040
Speaker 1: up West Texas intermediate futures at a large negative statistic.

598
00:32:46,120 --> 00:32:48,840
Speaker 1: I believe this was April of a year ago. Brent

599
00:32:48,960 --> 00:32:52,440
Speaker 1: crude maybe never got there, but Brent crude was dirt cheap.

600
00:32:53,160 --> 00:32:58,680
Speaker 1: How rich or richer or richest is Saudi Arabia in

601
00:32:58,760 --> 00:33:02,560
Speaker 1: the last year and al f they've made a lot

602
00:33:02,640 --> 00:33:06,680
Speaker 1: of money and um as they continue to put slightly

603
00:33:06,760 --> 00:33:09,560
Speaker 1: more barrels on the market each month, they're going to

604
00:33:09,680 --> 00:33:12,640
Speaker 1: continue to make more money. And I think that they

605
00:33:12,920 --> 00:33:15,760
Speaker 1: see in some respects, and they might not voice this

606
00:33:15,920 --> 00:33:18,960
Speaker 1: out loud, but you know, amongst themselves, I'm sure that

607
00:33:19,120 --> 00:33:21,120
Speaker 1: they see that this is this is almost in a sense,

608
00:33:21,200 --> 00:33:24,800
Speaker 1: they're they're right because they have suffered through very low

609
00:33:24,880 --> 00:33:28,600
Speaker 1: oil prices. They've done actually quite well throughout a period

610
00:33:28,680 --> 00:33:32,280
Speaker 1: of very low oil prices, and they undoubtedly want to

611
00:33:32,320 --> 00:33:36,120
Speaker 1: take advantage of these high prices as they can now

612
00:33:36,520 --> 00:33:38,920
Speaker 1: with the understanding I think that that they understand it

613
00:33:39,000 --> 00:33:43,080
Speaker 1: can change very quickly, and especially with these developments in

614
00:33:43,440 --> 00:33:47,080
Speaker 1: China in terms of another coronavirus outbreak, they're keeping a

615
00:33:47,280 --> 00:33:49,320
Speaker 1: very close eye on that. Dr Wild, I want you

616
00:33:49,400 --> 00:33:52,239
Speaker 1: to pretend you're a market economist or oil expert now

617
00:33:52,280 --> 00:33:55,160
Speaker 1: at a big Wall Street firm. What is the price

618
00:33:55,240 --> 00:33:59,840
Speaker 1: statistic for Saudi Arabia of Brent crude and the car

619
00:34:00,040 --> 00:34:04,360
Speaker 1: are around that where they're satisfied with that as a price.

620
00:34:05,520 --> 00:34:09,440
Speaker 1: I think they're pretty satisfied with anything between uh, you know,

621
00:34:09,560 --> 00:34:13,000
Speaker 1: they're they're very happy with over seventy. I think by

622
00:34:13,040 --> 00:34:16,480
Speaker 1: the time we hit ninety or or triple digits, they

623
00:34:16,800 --> 00:34:20,239
Speaker 1: may be be getting a bit nervous about some demand destruction.

624
00:34:20,400 --> 00:34:23,279
Speaker 1: So we're definitely still in the range that they're quite

625
00:34:23,320 --> 00:34:28,560
Speaker 1: comfortable with. This has been wonderful, Ellen, Thank you so much.

626
00:34:29,000 --> 00:34:32,880
Speaker 1: Thank you appreciate it well Atlantic Council and Senior fellow

627
00:34:32,920 --> 00:34:37,520
Speaker 1: as well. This is the Bloomberg Surveillance Podcast. Thanks for listening.

628
00:34:37,960 --> 00:34:41,240
Speaker 1: Join us live weekdays from seven to ten am Eastern

629
00:34:41,560 --> 00:34:45,520
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

630
00:34:45,640 --> 00:34:50,880
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

631
00:34:51,040 --> 00:34:56,040
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

632
00:34:56,160 --> 00:35:00,040
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

633
00:35:00,120 --> 00:35:11,359
Speaker 1: the terminal. I'm Tom keene In. This is Bloomerm