1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa Brahma Waits. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,680 Speaker 1: at Bloomberg dot com. It is the question Paul facing 8 00:00:23,720 --> 00:00:26,920 Speaker 1: the bond market today, which is how much does the 9 00:00:26,920 --> 00:00:31,040 Speaker 1: FEDS balance sheet roll off really affect markets? And frankly, 10 00:00:31,080 --> 00:00:33,360 Speaker 1: there are people lined up on all sides of the issue, 11 00:00:33,840 --> 00:00:37,080 Speaker 1: debating fiercely and away. In here is David Kotalk. I'm 12 00:00:37,159 --> 00:00:39,720 Speaker 1: very pleased to say, joining us at ourteractive broker Studios, 13 00:00:39,880 --> 00:00:44,080 Speaker 1: Chairman and chief investment officer of Cumberland Advisers. David, you 14 00:00:44,400 --> 00:00:47,680 Speaker 1: spared yourself beautiful weather in Sarah Soda to come here 15 00:00:47,680 --> 00:00:50,120 Speaker 1: in frigid at New York City. Thank you for joining 16 00:00:50,200 --> 00:00:52,760 Speaker 1: us here. So what's your take on this? How important 17 00:00:52,880 --> 00:00:56,080 Speaker 1: has the Fed's balance sheet rolloff been so far? Well, 18 00:00:56,640 --> 00:00:59,640 Speaker 1: very important. Pleasure to be with you. I'm leaving tomorrow 19 00:00:59,680 --> 00:01:02,600 Speaker 1: morning and going back from the five degree in New 20 00:01:02,680 --> 00:01:08,280 Speaker 1: York weather as fast as I can. So this is 21 00:01:08,360 --> 00:01:13,520 Speaker 1: the perhaps the most profound debate monetary policy. Never before 22 00:01:13,520 --> 00:01:17,200 Speaker 1: have we seen a major central bank change an interest 23 00:01:17,280 --> 00:01:21,600 Speaker 1: rate and shrink its balance sheet simultaneously. So we're in 24 00:01:21,640 --> 00:01:25,399 Speaker 1: an experiment. Nobody's been here before, and we're doing it 25 00:01:25,480 --> 00:01:28,120 Speaker 1: in very large sums. So you've got to look at 26 00:01:28,120 --> 00:01:29,680 Speaker 1: the balance sheet. And as you know, you've got two 27 00:01:29,680 --> 00:01:32,800 Speaker 1: sides of a balance sheet. Have the asset side in 28 00:01:32,800 --> 00:01:36,520 Speaker 1: this case, it's now got long term and intermediate term 29 00:01:36,680 --> 00:01:41,080 Speaker 1: and mortgages all federal credit. But that's the asset side, 30 00:01:41,280 --> 00:01:43,959 Speaker 1: and the asset side of this balance sheet for fifty 31 00:01:44,040 --> 00:01:47,880 Speaker 1: years never looked like this until the financial crisis. It's 32 00:01:47,920 --> 00:01:52,200 Speaker 1: the liability side where the debate needs to be held. 33 00:01:52,720 --> 00:01:56,960 Speaker 1: And the liability side of that balance sheet bank reserves 34 00:01:57,480 --> 00:02:02,600 Speaker 1: excess bank reserves four five hundred billion to operate the 35 00:02:02,680 --> 00:02:07,960 Speaker 1: Treasury of the United States a few small items. Currency 36 00:02:08,080 --> 00:02:11,880 Speaker 1: in circulation will be two trillion by the end of 37 00:02:12,040 --> 00:02:16,799 Speaker 1: next year. And what do you do about the alternative 38 00:02:16,880 --> 00:02:21,680 Speaker 1: to bank reserves REPO? And that is a debate. So 39 00:02:21,760 --> 00:02:25,680 Speaker 1: the bottom line of that complex to is you can 40 00:02:25,720 --> 00:02:28,120 Speaker 1: get a range of three and a half trillion high 41 00:02:28,200 --> 00:02:30,920 Speaker 1: to two and a half trillion low as to the 42 00:02:31,000 --> 00:02:35,040 Speaker 1: proper size of the balance sheet, and debate all sides 43 00:02:35,080 --> 00:02:38,280 Speaker 1: of it. How do you think the FED has done 44 00:02:38,320 --> 00:02:41,200 Speaker 1: in terms of managing the wind down of the balance sheet? 45 00:02:41,280 --> 00:02:43,720 Speaker 1: And then if you have an opinion, where do you 46 00:02:43,840 --> 00:02:48,280 Speaker 1: think they should go? Well, showed is always a difficult word. 47 00:02:48,760 --> 00:02:52,679 Speaker 1: How have they done? They attempted to communicate what they're 48 00:02:52,720 --> 00:02:56,800 Speaker 1: gonna do. They published the schedule and and said, here's 49 00:02:56,840 --> 00:02:59,840 Speaker 1: how we're gonna do it. Here's the amount, here's the 50 00:03:00,000 --> 00:03:03,040 Speaker 1: time table. We're going to scale it up slowly. So 51 00:03:03,720 --> 00:03:08,200 Speaker 1: the FED tried to communicate that. What they didn't communicate 52 00:03:08,280 --> 00:03:13,120 Speaker 1: and haven't clearly is here's the end game, here's what 53 00:03:13,320 --> 00:03:16,560 Speaker 1: it has to look like when we're done, and here 54 00:03:16,600 --> 00:03:20,880 Speaker 1: are the metrics which will cause us to change. So 55 00:03:21,040 --> 00:03:26,160 Speaker 1: you have this divided opinion within the FED communicated therefore 56 00:03:26,639 --> 00:03:30,600 Speaker 1: in a confusing way. And I think that's what's needed. 57 00:03:30,639 --> 00:03:34,600 Speaker 1: I hope Pal tomorrow is questioned and question and question 58 00:03:35,200 --> 00:03:39,280 Speaker 1: on these metrics so he explains them, and he may 59 00:03:39,320 --> 00:03:42,840 Speaker 1: have a divided house which will make it very difficult 60 00:03:42,880 --> 00:03:45,720 Speaker 1: for So David, I'm looking right now by the numbers 61 00:03:46,080 --> 00:03:49,280 Speaker 1: the fed's balance sheet had a high of four point 62 00:03:49,280 --> 00:03:53,560 Speaker 1: five trillion dollars nearly that in April. It's currently a 63 00:03:53,600 --> 00:03:55,600 Speaker 1: little bit more than four trillion dollars, so a little 64 00:03:55,600 --> 00:03:58,120 Speaker 1: bit less than five billion dollar reduction in the balance 65 00:03:58,200 --> 00:04:02,480 Speaker 1: sheet over those early two years. Now, you make a 66 00:04:02,520 --> 00:04:05,600 Speaker 1: really important point that the balance sheet kind of cannot 67 00:04:05,600 --> 00:04:08,040 Speaker 1: shrink below two and a half trillion dollars based on 68 00:04:08,160 --> 00:04:10,720 Speaker 1: just the currency that we have out standing in circulation 69 00:04:10,840 --> 00:04:13,080 Speaker 1: right now, as well as some of these other obligations. 70 00:04:14,680 --> 00:04:16,760 Speaker 1: How much of an effect would it be if the 71 00:04:16,800 --> 00:04:18,640 Speaker 1: FED stopted at three and a half or two and 72 00:04:18,640 --> 00:04:21,120 Speaker 1: a half trillion? Is that sort of a seismic difference? 73 00:04:22,000 --> 00:04:26,240 Speaker 1: I think so? So I think one the FED doesn't 74 00:04:26,360 --> 00:04:29,719 Speaker 1: know how the market expectation is changing because of the 75 00:04:29,800 --> 00:04:34,960 Speaker 1: size of the balance sheets. Guessing too, what's the hurry. 76 00:04:35,120 --> 00:04:37,320 Speaker 1: Why are you in such a rush to take the 77 00:04:37,360 --> 00:04:41,120 Speaker 1: balance sheet down only to have to start to take 78 00:04:41,160 --> 00:04:45,039 Speaker 1: it out up in the future. As Bernanke pointed out, 79 00:04:45,320 --> 00:04:48,800 Speaker 1: it naturally will grow at the rate of two billion 80 00:04:48,839 --> 00:04:50,960 Speaker 1: a year. So if we go down, we're gonna be 81 00:04:50,960 --> 00:04:54,159 Speaker 1: going up soon. What's the big deal? Slow it down, 82 00:04:54,279 --> 00:04:58,480 Speaker 1: take your time. You're in an experiment, and you're playing 83 00:04:58,520 --> 00:05:01,920 Speaker 1: with fire because you're playing with the credit markets to 84 00:05:01,960 --> 00:05:05,600 Speaker 1: the world in the US economy. What's your hurry. How 85 00:05:05,680 --> 00:05:07,920 Speaker 1: much do you think that the FED right now is 86 00:05:07,920 --> 00:05:11,599 Speaker 1: is focusing on our weighing the geopolitical issues in China 87 00:05:11,680 --> 00:05:15,720 Speaker 1: and Europe and Brexit and how that impacts their policy, 88 00:05:15,800 --> 00:05:19,839 Speaker 1: or they really just focused on more more internal data. Well, 89 00:05:20,080 --> 00:05:22,279 Speaker 1: they always have to put the US economy first, But 90 00:05:22,400 --> 00:05:27,440 Speaker 1: how do you possibly set policy in this list that 91 00:05:27,480 --> 00:05:32,080 Speaker 1: you just articulated. It's so difficult to do. Imagine that 92 00:05:32,240 --> 00:05:36,039 Speaker 1: meeting when you're gonna go round that table twice. The 93 00:05:36,080 --> 00:05:40,040 Speaker 1: first round is going to report on all the influences 94 00:05:40,080 --> 00:05:43,680 Speaker 1: of the world. You're gonna see them in Beijing book reports, 95 00:05:43,720 --> 00:05:46,359 Speaker 1: you're gonna see them in data. You're going to be 96 00:05:46,400 --> 00:05:50,680 Speaker 1: in the midst of shutdown issues, trade ward tissues issues, 97 00:05:50,800 --> 00:05:53,640 Speaker 1: tariffs all at once, and you've got to go around 98 00:05:53,680 --> 00:05:56,800 Speaker 1: the room twice, and you've got two three four minutes 99 00:05:56,839 --> 00:06:00,400 Speaker 1: each for people sitting around the table who then have 100 00:06:00,480 --> 00:06:03,720 Speaker 1: to conclude a policy statement, and in between they've been 101 00:06:03,720 --> 00:06:07,760 Speaker 1: negotiating in between meetings to get to it. It's incredible. 102 00:06:07,839 --> 00:06:10,840 Speaker 1: And now they all bring in a hundred staffers from 103 00:06:10,920 --> 00:06:13,720 Speaker 1: twelve reserve banks plus the board of Governors, and they 104 00:06:13,760 --> 00:06:16,800 Speaker 1: have diverse models and opinions, and none of them work. 105 00:06:17,279 --> 00:06:19,719 Speaker 1: That's where we are. That's where we are. None of 106 00:06:19,720 --> 00:06:23,320 Speaker 1: them work. David Kotak David's chairman, chief investment officer from 107 00:06:23,320 --> 00:06:27,040 Speaker 1: Cumberland Advisors based in Sarasota, Florida, where he is very 108 00:06:27,080 --> 00:06:29,440 Speaker 1: much looking forward to returning to tomorrow as we look 109 00:06:29,520 --> 00:06:33,560 Speaker 1: to enter in to the polar vortex here in New York. Up. So, David, 110 00:06:33,560 --> 00:06:36,800 Speaker 1: we're about maybe a third a halfway through earnings. Is 111 00:06:36,920 --> 00:06:38,840 Speaker 1: what are some of the themes that you've taken out 112 00:06:38,839 --> 00:06:41,240 Speaker 1: of here as you think about your portfolio, any themes 113 00:06:41,240 --> 00:06:43,800 Speaker 1: that have been kind of causing you maybe to rethink 114 00:06:43,839 --> 00:06:46,680 Speaker 1: a little bit where your positioned. Well, we're we're an 115 00:06:46,680 --> 00:06:50,080 Speaker 1: ETF shop, not a single stock shop, but we look 116 00:06:50,080 --> 00:06:53,600 Speaker 1: at weights within the E t F space. For example, 117 00:06:53,720 --> 00:06:59,240 Speaker 1: this week xl E has the largest percentage component reporting 118 00:06:59,600 --> 00:07:01,479 Speaker 1: the n G sector. So you look at it the 119 00:07:01,640 --> 00:07:07,320 Speaker 1: d S because you look at the contents earnings cross currents. 120 00:07:08,120 --> 00:07:13,160 Speaker 1: Shutdown anticipation is shutdown tariff. You saw it with Harley. 121 00:07:13,280 --> 00:07:18,760 Speaker 1: You see this constant flow of this crazy narrative world. 122 00:07:18,800 --> 00:07:24,120 Speaker 1: We live in, impacting with surprises in all directions, and 123 00:07:24,160 --> 00:07:27,280 Speaker 1: you say, what is normal? Where is a trend? How 124 00:07:27,320 --> 00:07:29,840 Speaker 1: do we stabilize the earnings? I think if we can 125 00:07:29,880 --> 00:07:32,480 Speaker 1: get to the second quarter of this year and we 126 00:07:32,560 --> 00:07:35,720 Speaker 1: don't have another shutdown, and we make a trade deal 127 00:07:35,840 --> 00:07:40,480 Speaker 1: of some type or the trade truce continues, we will 128 00:07:40,560 --> 00:07:45,280 Speaker 1: begin again to see the earnings power of American companies 129 00:07:45,360 --> 00:07:49,600 Speaker 1: in a more stable environment. And without that, we're guessing. 130 00:07:50,160 --> 00:07:53,120 Speaker 1: So I'm not surprised by the volatility of the reporting. 131 00:07:53,120 --> 00:07:55,440 Speaker 1: I'll give you our numbers. We see about a hundred 132 00:07:55,480 --> 00:07:59,840 Speaker 1: and seventy or so for this year for the SMP index, 133 00:08:00,040 --> 00:08:02,880 Speaker 1: but there's a band around that and we see a 134 00:08:02,960 --> 00:08:06,800 Speaker 1: higher number. We don't see a recession, and that's how 135 00:08:06,800 --> 00:08:10,880 Speaker 1: we're basing a market overviews level. So I guess that. 136 00:08:11,040 --> 00:08:14,720 Speaker 1: Then I was gonna ask you or stock investors too 137 00:08:14,800 --> 00:08:19,120 Speaker 1: optimistic or too pessimistic right now about the US economy? Yes, yes, right, 138 00:08:19,160 --> 00:08:20,760 Speaker 1: I mean I think that you answered it with a 139 00:08:20,800 --> 00:08:24,560 Speaker 1: sense of we're just guessing. So then why shouldn't investors 140 00:08:24,560 --> 00:08:28,680 Speaker 1: just sit on their hands? If you think interest rates 141 00:08:28,680 --> 00:08:33,000 Speaker 1: are going to go substantially higher from here, then you 142 00:08:33,120 --> 00:08:35,480 Speaker 1: might say, wait a minute, my cash is going to 143 00:08:35,600 --> 00:08:40,160 Speaker 1: earn more. I'm worried about valuation mechanics. I'm going to 144 00:08:40,280 --> 00:08:43,320 Speaker 1: have to value against a four percent treasury instead of 145 00:08:43,320 --> 00:08:47,360 Speaker 1: a three percent treasury or whatever. I don't see it, 146 00:08:48,320 --> 00:08:52,160 Speaker 1: and I don't see the forces that make that happen. 147 00:08:53,720 --> 00:08:55,800 Speaker 1: They may make it happen five years from now. We 148 00:08:55,840 --> 00:08:58,360 Speaker 1: have a large deficit that's going to compound, but for 149 00:08:58,360 --> 00:09:00,640 Speaker 1: the next two or three or four years, it's not 150 00:09:00,720 --> 00:09:03,400 Speaker 1: a shock. So without a shock, you say, what are 151 00:09:03,440 --> 00:09:07,040 Speaker 1: the shocks? Trade ward is the biggest shock. The two 152 00:09:07,080 --> 00:09:10,160 Speaker 1: giant economies of the world, China in the US are 153 00:09:10,200 --> 00:09:13,880 Speaker 1: embroiled in a breujaha. Let's get it over. Let's have 154 00:09:14,040 --> 00:09:17,280 Speaker 1: the truth's extend. Both sides want to make that happen. 155 00:09:17,559 --> 00:09:23,600 Speaker 1: If that happens, business gets better, sentiment improves, we all 156 00:09:23,720 --> 00:09:26,920 Speaker 1: will like it, and stock market will go higher and 157 00:09:27,000 --> 00:09:28,960 Speaker 1: reflect it. So what do you think I mean if 158 00:09:28,960 --> 00:09:32,320 Speaker 1: you just put December versus January, and you know just 159 00:09:32,360 --> 00:09:35,520 Speaker 1: the volatility of December in particular on the downside, and 160 00:09:35,559 --> 00:09:38,640 Speaker 1: I know you your experience, you've experienced volatile markets before. 161 00:09:39,840 --> 00:09:42,040 Speaker 1: Do you think the market just overshot itself on the 162 00:09:42,080 --> 00:09:44,679 Speaker 1: downside in December, and you know, the five or six 163 00:09:44,760 --> 00:09:46,800 Speaker 1: percent increase we're seen in the SMP this year is 164 00:09:46,840 --> 00:09:48,760 Speaker 1: just trying to get us back to a new normal, 165 00:09:48,840 --> 00:09:51,880 Speaker 1: because if you think about that, the late November December period, 166 00:09:51,880 --> 00:09:54,920 Speaker 1: it was the volatility was just breathtaking, I would think. So, 167 00:09:55,520 --> 00:09:59,360 Speaker 1: you know, the Christmas Eve massacre was the bottom? Was 168 00:09:59,400 --> 00:10:04,120 Speaker 1: it the bottom? It certainly was a climactic bottom, and 169 00:10:04,200 --> 00:10:07,760 Speaker 1: we have recovered from it more or less. So now 170 00:10:07,800 --> 00:10:10,200 Speaker 1: we're back, and you take the v out of the 171 00:10:10,240 --> 00:10:14,040 Speaker 1: bottom and say, let's look at where we are. We 172 00:10:14,200 --> 00:10:17,240 Speaker 1: look like we're on trend for around a hundred and 173 00:10:17,240 --> 00:10:20,760 Speaker 1: seventy dollar earnings. That's a guestimate, but a close one 174 00:10:21,120 --> 00:10:24,200 Speaker 1: that seems to be on track. How would you value 175 00:10:24,240 --> 00:10:27,560 Speaker 1: the SMP five index if it's got a hundred and 176 00:10:27,559 --> 00:10:32,520 Speaker 1: seventy bucks is earnings, that's cheap, it's not expensive. So 177 00:10:33,080 --> 00:10:37,040 Speaker 1: the idea of US equities rallying is that predicated on 178 00:10:37,080 --> 00:10:39,680 Speaker 1: the idea that US bond yields stay low and stay 179 00:10:39,679 --> 00:10:42,400 Speaker 1: around where they are right now, stay close to where 180 00:10:42,400 --> 00:10:47,000 Speaker 1: they are right now. If you think that the the 181 00:10:47,040 --> 00:10:49,440 Speaker 1: thirty year Treasury bund is going to be four and 182 00:10:49,440 --> 00:10:52,040 Speaker 1: a half instead of three. You don't want to own 183 00:10:52,040 --> 00:10:54,599 Speaker 1: the stock market. If you think cash is going to 184 00:10:54,720 --> 00:10:57,240 Speaker 1: earn three or three and a half, you don't want 185 00:10:57,280 --> 00:10:59,280 Speaker 1: to own the stock market. What's the threshold? Was the 186 00:10:59,280 --> 00:11:01,480 Speaker 1: tipping point? Well, I don't know. Three is sort of 187 00:11:01,480 --> 00:11:04,240 Speaker 1: a magic kind of number that everybody kicks around and 188 00:11:04,280 --> 00:11:06,240 Speaker 1: we kick it around to When we get there, we'll 189 00:11:06,280 --> 00:11:08,760 Speaker 1: find out. Do you think the FED has Do you 190 00:11:08,760 --> 00:11:11,560 Speaker 1: think the FED has the capability to kind of engineer 191 00:11:12,559 --> 00:11:14,640 Speaker 1: soft ish landing in a two and a half percent 192 00:11:14,800 --> 00:11:17,920 Speaker 1: range which will support a lot of the forecasts and 193 00:11:18,240 --> 00:11:20,840 Speaker 1: earnings estimates that that are out there. Oh my gosh, 194 00:11:21,080 --> 00:11:25,440 Speaker 1: everybody's that's the question. Can they do it? The record 195 00:11:25,480 --> 00:11:29,839 Speaker 1: of the FED is mixed at best poor under certain circumstances. 196 00:11:30,200 --> 00:11:32,600 Speaker 1: And when they try to do two things at once, 197 00:11:32,920 --> 00:11:36,560 Speaker 1: which is what they've been doing, balance shrink, raise interest 198 00:11:36,640 --> 00:11:40,640 Speaker 1: rates simultaneously. They're trying to do two things. They can't 199 00:11:40,640 --> 00:11:43,640 Speaker 1: get one right, let alone too. If the FED stops 200 00:11:43,720 --> 00:11:47,640 Speaker 1: raising rates, and if the trade war is sort of eased, 201 00:11:48,240 --> 00:11:50,520 Speaker 1: how much longer does this credit cycle have before? We 202 00:11:50,600 --> 00:11:53,800 Speaker 1: could have years. We could have years at least we 203 00:11:53,880 --> 00:11:58,839 Speaker 1: don't have high inflation upward pressures. As long as we 204 00:11:58,920 --> 00:12:02,559 Speaker 1: have low end for AH and low rate gradual recovery 205 00:12:02,840 --> 00:12:07,360 Speaker 1: two hundred thousand kind of job number, unemployment rate low 206 00:12:07,640 --> 00:12:11,080 Speaker 1: below what we used to think about. These kinds of 207 00:12:11,120 --> 00:12:15,080 Speaker 1: this cycle could go on for years. It would be 208 00:12:15,120 --> 00:12:20,439 Speaker 1: the Fed overshoot that could kill it, or ratcheting up 209 00:12:20,480 --> 00:12:24,600 Speaker 1: tariffs and full blown trade war could kill it. Those 210 00:12:24,600 --> 00:12:27,760 Speaker 1: are the two killers in my view. David ko talk, 211 00:12:28,240 --> 00:12:30,560 Speaker 1: wonderful having you on. Thank you so much for being here, 212 00:12:30,800 --> 00:12:34,080 Speaker 1: Thank you for warming up my day. Good luck getting 213 00:12:34,120 --> 00:12:39,880 Speaker 1: back to the warm haven of of of sunshine in Sarasota, Florida, 214 00:12:39,960 --> 00:12:43,080 Speaker 1: which is very appealing to me right now considering what 215 00:12:43,240 --> 00:12:46,360 Speaker 1: the temperature is in New York City. David Kotalk, Chairman 216 00:12:46,360 --> 00:12:49,080 Speaker 1: and Chief Investment Officer of Cumberland Advisors. And certainly the 217 00:12:49,080 --> 00:12:52,559 Speaker 1: optimism it's being felt in up markets today. A sort 218 00:12:52,600 --> 00:12:55,640 Speaker 1: of risk on day for sure, at least in the 219 00:12:55,760 --> 00:12:58,360 Speaker 1: down not so much the NASDAC ahead of those earnings 220 00:12:58,400 --> 00:13:01,440 Speaker 1: down four tenths of one per cent, So again all 221 00:13:01,440 --> 00:13:15,440 Speaker 1: eyes on Apple and on the big tech giants. Another day, 222 00:13:15,559 --> 00:13:18,920 Speaker 1: another most important vote ever for Brexit joining US now 223 00:13:19,120 --> 00:13:21,640 Speaker 1: raise at Raphael. I am very glad to say, Bloomberg 224 00:13:21,640 --> 00:13:25,840 Speaker 1: Opinion editor, coming to us from London. Raise, there is 225 00:13:25,920 --> 00:13:29,920 Speaker 1: a vote in Parliament today and you had some scathing 226 00:13:30,120 --> 00:13:33,600 Speaker 1: words for it in your recent column that was titled 227 00:13:33,679 --> 00:13:36,680 Speaker 1: had enough of Brexit? How about ten more years? So Raise, 228 00:13:37,040 --> 00:13:40,240 Speaker 1: what are you expecting? What's at sake today? And how 229 00:13:40,320 --> 00:13:42,559 Speaker 1: much should we pay attention to this vote? Well, yet 230 00:13:42,600 --> 00:13:44,920 Speaker 1: again we're all sort of at the edges of our 231 00:13:45,000 --> 00:13:48,680 Speaker 1: seat waiting to see what Parliament decides to do. And 232 00:13:48,800 --> 00:13:52,040 Speaker 1: yet again, what comes out of this vote doesn't tell 233 00:13:52,160 --> 00:13:55,160 Speaker 1: us very much about what kind of Brexit we're going 234 00:13:55,200 --> 00:13:57,960 Speaker 1: to get, when we're going to get Brexit, or very 235 00:13:58,040 --> 00:14:01,400 Speaker 1: much of anything else. So basically, the primary sister has 236 00:14:01,480 --> 00:14:05,280 Speaker 1: now thrown her weight behind one of the seven amendments 237 00:14:05,320 --> 00:14:09,559 Speaker 1: that Parliament would be voting on, and uh she has 238 00:14:09,559 --> 00:14:12,719 Speaker 1: she has indicated that she would like parliament support to 239 00:14:12,760 --> 00:14:15,480 Speaker 1: go back to Brussels and reopen the deal that she's 240 00:14:15,520 --> 00:14:19,040 Speaker 1: previously said cannot be reopened and that took nearly two 241 00:14:19,120 --> 00:14:23,400 Speaker 1: years to negotiate. So what's really happening here? Um, this 242 00:14:23,480 --> 00:14:26,720 Speaker 1: is the government trying to reduce the size of the 243 00:14:26,800 --> 00:14:30,320 Speaker 1: division within its own party and within Parliament in an 244 00:14:30,360 --> 00:14:32,720 Speaker 1: attempt to go back to Brussels and say, okay, right, 245 00:14:32,720 --> 00:14:35,480 Speaker 1: you've been asking us what do we really really want, 246 00:14:35,600 --> 00:14:37,760 Speaker 1: and now we're telling you. What we really really want 247 00:14:37,840 --> 00:14:41,320 Speaker 1: is a change to this Irish backstop, this provision that 248 00:14:41,400 --> 00:14:44,640 Speaker 1: keeps the border open but ties the UK into a 249 00:14:44,760 --> 00:14:48,800 Speaker 1: long term custom junion, potentially with the EU. And so 250 00:14:48,960 --> 00:14:53,720 Speaker 1: Teresa May, having you know, been roundly defeated in her deal, 251 00:14:53,880 --> 00:14:57,240 Speaker 1: is now trying to get some kind of um unity, 252 00:14:57,440 --> 00:15:00,640 Speaker 1: or at least to reduce the size of disunity in 253 00:15:00,640 --> 00:15:03,000 Speaker 1: Parliament so she can try to put more pressure on 254 00:15:03,080 --> 00:15:05,400 Speaker 1: the EU. But we're what we're not going to get 255 00:15:05,440 --> 00:15:09,920 Speaker 1: from tonight's vote is a clear sign of what Parliament wants. 256 00:15:09,920 --> 00:15:11,880 Speaker 1: We may see none of these amendments passed, and I 257 00:15:11,880 --> 00:15:14,320 Speaker 1: don't think we're going to get anywhere close to a 258 00:15:14,360 --> 00:15:16,920 Speaker 1: sort of conclusion to this brexit Sanga. We're going to 259 00:15:17,000 --> 00:15:19,880 Speaker 1: have to come much closer to the March twenty nine 260 00:15:20,000 --> 00:15:23,720 Speaker 1: exit date before we get any more clarity. So Terres, 261 00:15:24,280 --> 00:15:27,280 Speaker 1: you know, it's I keep thinking about the European Union 262 00:15:27,320 --> 00:15:29,920 Speaker 1: and I'm not sure if it's rhetoric or negotiating tactic 263 00:15:30,000 --> 00:15:33,000 Speaker 1: or whether they're really serious, but they have been adamant 264 00:15:33,040 --> 00:15:36,240 Speaker 1: that they are not going to renegotiate this deal. How 265 00:15:36,240 --> 00:15:38,280 Speaker 1: do you view their rhetoric? Is that in fact should 266 00:15:38,280 --> 00:15:39,800 Speaker 1: we take that at face value? Or do you think 267 00:15:39,800 --> 00:15:41,880 Speaker 1: that is more of a negotiating tactic. Well, you know, 268 00:15:42,200 --> 00:15:45,400 Speaker 1: I think the it's it's serious on a number of levels. 269 00:15:45,760 --> 00:15:49,400 Speaker 1: The Irish border issue is one that the EU takes 270 00:15:49,440 --> 00:15:53,000 Speaker 1: extremely seriously, and it's one that Ireland takes extremely seriously. 271 00:15:53,360 --> 00:15:57,440 Speaker 1: And for all the argument that you get from the UK, 272 00:15:57,560 --> 00:15:59,680 Speaker 1: particularly from brexitters, to say, look, this is really a 273 00:15:59,760 --> 00:16:01,760 Speaker 1: non issue. If they really want to, they can just 274 00:16:02,080 --> 00:16:04,960 Speaker 1: you know, they can scratch it out, put it in 275 00:16:05,000 --> 00:16:08,160 Speaker 1: the future political declaration, you do not hear that in 276 00:16:08,160 --> 00:16:10,080 Speaker 1: the EU. You do not hear that in Ireland. Today 277 00:16:10,120 --> 00:16:13,320 Speaker 1: I was speaking to the CEO of Enterprise Ireland, which 278 00:16:13,320 --> 00:16:16,880 Speaker 1: looks after Irish exporters, and you know, I asked her, well, look, 279 00:16:16,880 --> 00:16:20,200 Speaker 1: if push comes to slot to shove, won't these won't 280 00:16:20,240 --> 00:16:23,160 Speaker 1: the CEOs of these exporting companies say please please get 281 00:16:23,240 --> 00:16:25,480 Speaker 1: rid of that backstop so that we can get a deal. 282 00:16:25,520 --> 00:16:27,400 Speaker 1: And she said that she had not heard from a 283 00:16:27,480 --> 00:16:29,920 Speaker 1: single one of them anything close to that, that they 284 00:16:29,960 --> 00:16:33,720 Speaker 1: all understand the backstops important that ended. Uh that that 285 00:16:33,720 --> 00:16:36,080 Speaker 1: that is there to support the Good Friday Agreement, which 286 00:16:36,120 --> 00:16:41,680 Speaker 1: was agreement that ended a quarter century of of violence 287 00:16:41,720 --> 00:16:46,240 Speaker 1: and conflict in Northern Ireland. And nobody wants to experiment 288 00:16:46,280 --> 00:16:49,720 Speaker 1: with what happens if you start putting border infrastructure back. 289 00:16:50,080 --> 00:16:53,800 Speaker 1: So I think the EU has room to maneuver. I'm 290 00:16:53,840 --> 00:16:55,960 Speaker 1: not saying that there's nothing that the EU can give, 291 00:16:56,240 --> 00:16:59,600 Speaker 1: but it's not going to be a wholesale plucking out 292 00:16:59,600 --> 00:17:02,920 Speaker 1: of that that controversial Backstop putting it in the trash 293 00:17:03,000 --> 00:17:05,879 Speaker 1: can and saying, okay, guys, you know, we understand this 294 00:17:05,920 --> 00:17:07,359 Speaker 1: is hard for you. We'll give you what you wanted. 295 00:17:07,520 --> 00:17:09,359 Speaker 1: It's not going to go that far. Tores. I think 296 00:17:09,359 --> 00:17:11,560 Speaker 1: a lot of investors and analysts would agree with you 297 00:17:11,800 --> 00:17:14,159 Speaker 1: that one thing is certain with Brexit, and that is 298 00:17:14,200 --> 00:17:16,560 Speaker 1: that it will be a big muddle for a long 299 00:17:16,600 --> 00:17:19,440 Speaker 1: time and that we're not going to get resolution anytime soon. 300 00:17:19,960 --> 00:17:24,560 Speaker 1: What does that do to any leader Theresa May, Theresa May, uh, 301 00:17:24,600 --> 00:17:27,600 Speaker 1: you know, her successor, etcetera, trying to sort of herd 302 00:17:27,680 --> 00:17:30,960 Speaker 1: cats here get some sort of agreement. What does that 303 00:17:31,040 --> 00:17:33,760 Speaker 1: do to their negotiating power with the European Union. Given 304 00:17:33,800 --> 00:17:35,399 Speaker 1: the fact that everybody knows it's just going to be 305 00:17:35,440 --> 00:17:38,080 Speaker 1: an ongoing muddle for a long time. Yeah. I mean 306 00:17:38,280 --> 00:17:40,240 Speaker 1: think that that's the key question here. That's what we 307 00:17:40,280 --> 00:17:42,280 Speaker 1: all miss when we get caught up in the sort 308 00:17:42,280 --> 00:17:45,520 Speaker 1: of drama of you know, the vote. It does two things. 309 00:17:45,520 --> 00:17:48,320 Speaker 1: First of all, the the the European Union knows that 310 00:17:48,359 --> 00:17:51,200 Speaker 1: this is not the last negotiation. It knows that it's 311 00:17:51,240 --> 00:17:54,680 Speaker 1: going to be entering into a series of negotiations over 312 00:17:54,720 --> 00:18:02,000 Speaker 1: everything from you know, financial services to UH certification, non barriers, goods, 313 00:18:02,880 --> 00:18:07,120 Speaker 1: you name it. The whole panoply of of trade relations, UH, 314 00:18:07,160 --> 00:18:09,760 Speaker 1: security relations, all of that is going to be negotiated 315 00:18:09,800 --> 00:18:11,960 Speaker 1: for years to come. The EU is not going to 316 00:18:12,040 --> 00:18:14,720 Speaker 1: want to just roll over on a key red line 317 00:18:14,800 --> 00:18:17,639 Speaker 1: right now, knowing that that could set a precedent. UH. 318 00:18:17,760 --> 00:18:22,360 Speaker 1: The other thing that this UH signals is that Britain 319 00:18:22,480 --> 00:18:24,880 Speaker 1: is is you know, the whole world knows right now 320 00:18:25,400 --> 00:18:28,800 Speaker 1: is incredibly divided on this issue. The two main parties 321 00:18:28,800 --> 00:18:31,280 Speaker 1: are divided on this issue. And because we're going to 322 00:18:31,400 --> 00:18:35,520 Speaker 1: now have negotiation after negotiation after negotiation, no matter what 323 00:18:35,680 --> 00:18:39,520 Speaker 1: Brexit outcome we get, UH, this signals that that that 324 00:18:39,600 --> 00:18:41,040 Speaker 1: a lot of this is going to play out in 325 00:18:41,080 --> 00:18:43,000 Speaker 1: the public. It's going to play out in the very 326 00:18:43,080 --> 00:18:47,320 Speaker 1: robust British media and that is going to most likely 327 00:18:47,800 --> 00:18:50,760 Speaker 1: weaken the hand of any leader who's going to get 328 00:18:50,760 --> 00:18:54,439 Speaker 1: criticism from all sides. So the EU understands that it 329 00:18:54,480 --> 00:18:56,959 Speaker 1: will want to try to ease the path here so 330 00:18:57,000 --> 00:19:00,960 Speaker 1: it's not blamed. At the same time, uh, it needs 331 00:19:01,040 --> 00:19:04,399 Speaker 1: it needs to uh to stand firm because there are 332 00:19:04,440 --> 00:19:07,679 Speaker 1: more negotiations to come. So to what I'm not hearing 333 00:19:07,720 --> 00:19:09,880 Speaker 1: in the rhetoric over the past a couple of days, 334 00:19:09,880 --> 00:19:11,200 Speaker 1: and I didn't hear it in some of the opening 335 00:19:11,240 --> 00:19:15,479 Speaker 1: statements today in Parliament is the second referendum that seems 336 00:19:15,480 --> 00:19:17,879 Speaker 1: to have lost a lot of momentum. Where do you 337 00:19:17,920 --> 00:19:21,440 Speaker 1: think that is as an option? Yeah, well observed. So 338 00:19:21,600 --> 00:19:24,600 Speaker 1: the second referendum was all the rage a few weeks ago. 339 00:19:25,119 --> 00:19:28,960 Speaker 1: It has really died down as something people are talking 340 00:19:29,000 --> 00:19:32,080 Speaker 1: about and talking up. I don't think it's gone away. 341 00:19:32,160 --> 00:19:35,960 Speaker 1: I think if, uh, if, if other pathways fail, that 342 00:19:36,119 --> 00:19:39,720 Speaker 1: it's still there. The one of the amendments sponsored by 343 00:19:39,800 --> 00:19:44,879 Speaker 1: Evett Cooper seeks to force Parliament to extend Article fifty 344 00:19:44,920 --> 00:19:47,520 Speaker 1: with a view to putting it to a people's vote 345 00:19:47,640 --> 00:19:50,520 Speaker 1: as as proponents of a second referenum call it. I think, 346 00:19:50,560 --> 00:19:52,639 Speaker 1: you know, the Prime Minister really doesn't want that, the 347 00:19:52,720 --> 00:19:55,600 Speaker 1: Labor Party leader really doesn't want that, and it's very 348 00:19:55,640 --> 00:19:58,240 Speaker 1: hard to see it happening when the heads of the 349 00:19:58,240 --> 00:20:00,960 Speaker 1: two major parties you know, quite clearly don't want it 350 00:20:01,040 --> 00:20:03,360 Speaker 1: to happen. Y is just real quick here, how much 351 00:20:03,359 --> 00:20:07,560 Speaker 1: more time does Prime Minister Theresa may have? Probably till 352 00:20:07,600 --> 00:20:11,639 Speaker 1: mid February. That's I think that's the uh sort of 353 00:20:11,880 --> 00:20:15,320 Speaker 1: end of what the hard line in her own party 354 00:20:15,320 --> 00:20:17,680 Speaker 1: will give her. And then she's got to come back 355 00:20:17,880 --> 00:20:19,640 Speaker 1: and say what she wants to do, and then we'll 356 00:20:19,640 --> 00:20:21,960 Speaker 1: start to see some some votes that will probably matter 357 00:20:21,960 --> 00:20:25,040 Speaker 1: a lot more than tonight's. And just quickly trays the 358 00:20:25,160 --> 00:20:27,560 Speaker 1: note no brexit that does seem to be off the 359 00:20:27,600 --> 00:20:31,000 Speaker 1: tables that you read as well, Uh, no brexit at 360 00:20:31,040 --> 00:20:34,960 Speaker 1: all is not off the table yet, neither was no deal. 361 00:20:35,359 --> 00:20:38,000 Speaker 1: You know, sorry to disappoint, but all options are still there. 362 00:20:38,160 --> 00:20:40,399 Speaker 1: If it goes to a second referendum, which we've as 363 00:20:40,400 --> 00:20:43,560 Speaker 1: we've just said it might people could vote to remain. 364 00:20:44,400 --> 00:20:48,600 Speaker 1: Very good Tres Rafael Bloomberg, opinion editor covering European politics 365 00:20:48,600 --> 00:20:51,440 Speaker 1: and economics. For Bloomber calling in from the London bureau 366 00:20:51,480 --> 00:20:53,880 Speaker 1: giving us some great color on what is a very 367 00:20:54,920 --> 00:20:58,960 Speaker 1: you know, fluid story. It's a long playing story. It's 368 00:20:58,960 --> 00:21:01,400 Speaker 1: a mess. Thank you. Just looking at our monitor here 369 00:21:01,400 --> 00:21:03,480 Speaker 1: of our members of parliament kind of going back and 370 00:21:03,520 --> 00:21:06,560 Speaker 1: forth and how long they've been uh doing that, and 371 00:21:06,600 --> 00:21:09,760 Speaker 1: it just you know, Tres says, it's you know, even 372 00:21:09,800 --> 00:21:13,879 Speaker 1: if you get something, you got another ten years or 373 00:21:14,119 --> 00:21:17,320 Speaker 1: of just kind of negotiating all types of side deals here. 374 00:21:17,400 --> 00:21:19,320 Speaker 1: So you know, we'll stay on top of it as 375 00:21:19,320 --> 00:21:32,640 Speaker 1: we always do. Also focused in Washington, d C. We're 376 00:21:32,640 --> 00:21:35,679 Speaker 1: expecting trade talks at this point at some point between 377 00:21:35,680 --> 00:21:39,960 Speaker 1: the US and China, but a US court has gone 378 00:21:40,000 --> 00:21:45,080 Speaker 1: after Huawei to accuse them criminally of some of their actions. 379 00:21:45,119 --> 00:21:47,639 Speaker 1: Joining us down to talk about this is and Stevenson Yang, 380 00:21:47,680 --> 00:21:50,840 Speaker 1: co founder and research director at Jay Capital Research, also 381 00:21:51,000 --> 00:21:53,720 Speaker 1: a Bloomberg opinion contributor, and thank you so much for 382 00:21:53,760 --> 00:21:57,040 Speaker 1: being with us. This seems like a very big deal 383 00:21:57,119 --> 00:22:00,199 Speaker 1: because it seems like the US is going after on 384 00:22:00,240 --> 00:22:04,280 Speaker 1: a criminal level the biggest or one of the biggest 385 00:22:04,400 --> 00:22:07,560 Speaker 1: China technology companies. Can you give us a sense of 386 00:22:07,600 --> 00:22:10,840 Speaker 1: what the charges are and whether they are politically motivated, 387 00:22:13,480 --> 00:22:16,520 Speaker 1: you know, they're they're two different. Um, there there are 388 00:22:16,520 --> 00:22:19,520 Speaker 1: two different sets of charges. One has to do with 389 00:22:20,040 --> 00:22:24,800 Speaker 1: Huawei's evasion of US sanctions on Iran and other countries, 390 00:22:24,880 --> 00:22:28,359 Speaker 1: and the other one is an indictment in Washington State 391 00:22:28,520 --> 00:22:32,040 Speaker 1: for Huawei's attempts to steal technology from T Mobile. And 392 00:22:32,080 --> 00:22:35,280 Speaker 1: I would say that the latter, which has gotten less attention, 393 00:22:35,440 --> 00:22:38,720 Speaker 1: is kind of more and is not related to the 394 00:22:38,760 --> 00:22:41,720 Speaker 1: case of of Mong One Joe, who is being held 395 00:22:41,760 --> 00:22:45,840 Speaker 1: in Canada. UM I would say that one is more interesting. 396 00:22:45,880 --> 00:22:48,760 Speaker 1: And if you read the indictment, it's really damning. I mean, 397 00:22:49,200 --> 00:22:53,760 Speaker 1: you know, Huawei actually giving bonuses to employees to incentivize 398 00:22:53,800 --> 00:22:59,440 Speaker 1: them to steal technology from American companies, Huawei guaranteeing employees 399 00:23:00,040 --> 00:23:02,439 Speaker 1: in writing that they wouldn't be punished if they if 400 00:23:02,480 --> 00:23:06,399 Speaker 1: they broke US laws. I mean, it's pretty it's pretty damning. 401 00:23:06,480 --> 00:23:09,560 Speaker 1: So is it politically motivated? I mean you do have 402 00:23:09,640 --> 00:23:12,879 Speaker 1: to say that there's been a sea change in h 403 00:23:13,320 --> 00:23:17,760 Speaker 1: in the political view of China and in companies like 404 00:23:17,840 --> 00:23:22,199 Speaker 1: Huawei in Washington and probably in other capitals as well. 405 00:23:22,280 --> 00:23:25,880 Speaker 1: But you know, is this are these indictments justified by 406 00:23:25,880 --> 00:23:29,320 Speaker 1: the law absolutely, so they're justified by the law. But 407 00:23:29,400 --> 00:23:31,960 Speaker 1: from the Chinese perspective, I mean, what is your sense 408 00:23:32,040 --> 00:23:35,879 Speaker 1: as to how this particular issue, the Huawei issue, and 409 00:23:35,920 --> 00:23:38,639 Speaker 1: the press that that's receiving, to what extent do you 410 00:23:38,680 --> 00:23:41,520 Speaker 1: think that will in fact impact the trade talks between 411 00:23:41,560 --> 00:23:45,520 Speaker 1: the U S and China. Well, one of the interesting 412 00:23:45,560 --> 00:23:48,320 Speaker 1: things about all of this is how how China has 413 00:23:48,359 --> 00:23:52,639 Speaker 1: gone absolutely ballistic on this UM and how they've um, 414 00:23:53,400 --> 00:23:58,399 Speaker 1: you know, detained three Canadians because Canada, you know, trying 415 00:23:58,400 --> 00:24:01,400 Speaker 1: to pressure Canada not to act stradite mung Wan Joe, 416 00:24:01,400 --> 00:24:06,480 Speaker 1: who is the of a CFO of of Huawei and 417 00:24:06,520 --> 00:24:10,639 Speaker 1: the daughter of the Hawawi founder UM and uh, you know, 418 00:24:10,720 --> 00:24:13,040 Speaker 1: including it in the trade talks, and how all that 419 00:24:13,320 --> 00:24:16,919 Speaker 1: the Chinese public commentary is all like, oh, the U 420 00:24:17,000 --> 00:24:20,520 Speaker 1: S and Canada are just trying to crush China and 421 00:24:20,560 --> 00:24:23,560 Speaker 1: put us down. So any pretenses of having this be 422 00:24:23,720 --> 00:24:26,920 Speaker 1: a be called a private company have just been dropped. 423 00:24:27,280 --> 00:24:29,679 Speaker 1: So what does that say about just sort of the 424 00:24:29,720 --> 00:24:34,159 Speaker 1: broader fight for tech dominance between the US and China. 425 00:24:34,520 --> 00:24:36,520 Speaker 1: You know, what does it say that China seems to 426 00:24:36,520 --> 00:24:40,119 Speaker 1: be doubling down on its support of Huawei and making 427 00:24:40,160 --> 00:24:44,120 Speaker 1: this more political while not really necessarily addressing the main complaints. 428 00:24:44,400 --> 00:24:46,520 Speaker 1: And what does it say about the US that they're 429 00:24:46,520 --> 00:24:49,000 Speaker 1: continuing to go after this even while they try to 430 00:24:49,000 --> 00:24:53,320 Speaker 1: come to some kind of trade resolution. Well, you know, 431 00:24:53,440 --> 00:24:57,000 Speaker 1: I think that that's actually the appropriate path for the U. 432 00:24:57,080 --> 00:25:00,000 Speaker 1: S UM. I think what's not appropriate is this big 433 00:25:00,119 --> 00:25:04,440 Speaker 1: focus on the trade deficit UM, which actually, you know, ironically, 434 00:25:04,520 --> 00:25:08,119 Speaker 1: during all of this UH discussion and these trade talks 435 00:25:08,160 --> 00:25:12,800 Speaker 1: has been rising sharply, And the biggest trade deficit for 436 00:25:12,800 --> 00:25:16,720 Speaker 1: for the US with China in history was last year. UM. 437 00:25:16,920 --> 00:25:21,080 Speaker 1: So I think that part is misguided. But the focus 438 00:25:21,119 --> 00:25:24,960 Speaker 1: on technology and evading US law I think is really 439 00:25:25,280 --> 00:25:31,000 Speaker 1: quite overdue. Um As for technology competition, you know, I've 440 00:25:31,080 --> 00:25:35,359 Speaker 1: never really seen that argument. The problem with with Chinese 441 00:25:35,840 --> 00:25:39,440 Speaker 1: tech companies is is precisely the problem that that is 442 00:25:39,560 --> 00:25:43,240 Speaker 1: kind of um evinced by by this UH, this this 443 00:25:43,359 --> 00:25:47,359 Speaker 1: Huawei indictment UH over the Team Mobile case, which is 444 00:25:47,400 --> 00:25:50,840 Speaker 1: that if you put all of your energy and focus 445 00:25:50,880 --> 00:25:54,159 Speaker 1: into stealing technology, you don't develop new stuff yourself. And 446 00:25:54,240 --> 00:25:56,919 Speaker 1: you know, Huawei has some of the most talented engineers 447 00:25:56,920 --> 00:26:00,280 Speaker 1: in the country. They have a culture of really really 448 00:26:00,320 --> 00:26:04,560 Speaker 1: hard work, they get really highly educated people, they incentivize them, 449 00:26:04,600 --> 00:26:08,960 Speaker 1: and then they just like steel technology. And Stevenson Yang, 450 00:26:09,040 --> 00:26:10,679 Speaker 1: thank you so much for that insight on what is 451 00:26:10,680 --> 00:26:14,159 Speaker 1: a you know, a very complex issue, UH made even 452 00:26:14,200 --> 00:26:16,439 Speaker 1: more complex with some of the legal issues that Hahwei 453 00:26:16,600 --> 00:26:19,200 Speaker 1: is facing here in the US. That was and Stevenson 454 00:26:19,280 --> 00:26:23,480 Speaker 1: Yang co founder, research director J Capital Research and is 455 00:26:23,520 --> 00:26:27,200 Speaker 1: also a Bloomberg Opinion contributor UH and and it's based 456 00:26:27,200 --> 00:26:30,040 Speaker 1: in Washington, D C. And Hong Kong. So we'll have 457 00:26:30,119 --> 00:26:32,000 Speaker 1: to see. UM. I think what we're gonna find is 458 00:26:32,040 --> 00:26:34,680 Speaker 1: that these negotiations are going to, UH I think be 459 00:26:34,960 --> 00:26:37,000 Speaker 1: very very difficult. I think there is in fact going 460 00:26:37,040 --> 00:26:40,280 Speaker 1: to be a political uh tinge to them. That's kind 461 00:26:40,320 --> 00:26:41,760 Speaker 1: of at least what we're seeing in some of these 462 00:26:41,960 --> 00:26:56,880 Speaker 1: recent events. Well, Apple reports earnings after the Clothes eagerly awaited, 463 00:26:56,960 --> 00:26:59,399 Speaker 1: but let's face it, the text earning season has not 464 00:26:59,480 --> 00:27:04,159 Speaker 1: started off very well. Both Intel and Nvidio reported disappointing results. 465 00:27:04,160 --> 00:27:06,480 Speaker 1: A more importantly, their outlook was not much better. So 466 00:27:06,680 --> 00:27:08,239 Speaker 1: let's let's kind of dive into it a little bit. 467 00:27:08,280 --> 00:27:10,280 Speaker 1: We're fortunate to have once again our good friends Shire 468 00:27:10,440 --> 00:27:14,840 Speaker 1: over Day UH Technology columnists for Bloomberg Opinion here with Lisa, 469 00:27:14,920 --> 00:27:18,679 Speaker 1: myself and a Bloomberg Interactive Broker studio. So shure this 470 00:27:18,760 --> 00:27:21,479 Speaker 1: is as it is every quarter of Apples earnings. You know, 471 00:27:21,640 --> 00:27:24,120 Speaker 1: I think very much anticipated, in large part because people 472 00:27:24,119 --> 00:27:26,520 Speaker 1: are trying to get a sense of boy, where is 473 00:27:26,640 --> 00:27:29,360 Speaker 1: what's that next step? For Apple? They pre announced earnings 474 00:27:29,640 --> 00:27:32,240 Speaker 1: weak earnings for the first time and forever, Uh, what 475 00:27:32,280 --> 00:27:34,400 Speaker 1: do you expect to hear from the company this afternoon? 476 00:27:34,480 --> 00:27:36,800 Speaker 1: So I think there there are two things that I'm 477 00:27:36,800 --> 00:27:40,760 Speaker 1: going to pay attention to. One is the forecast. Apple 478 00:27:40,880 --> 00:27:43,040 Speaker 1: doesn't forecast for the full year, but they'll give a 479 00:27:43,080 --> 00:27:46,040 Speaker 1: forecast for the March quarter. And I think that's really 480 00:27:46,040 --> 00:27:48,720 Speaker 1: going to set the tone not only for Apple this year, 481 00:27:48,760 --> 00:27:51,560 Speaker 1: but for the rest of the technology industry, because the 482 00:27:51,600 --> 00:27:54,440 Speaker 1: forecast will give us a little bit of insight into 483 00:27:54,800 --> 00:27:58,000 Speaker 1: what is really happening. Is is there, as I believe, 484 00:27:58,480 --> 00:28:03,200 Speaker 1: a kind of secure alert change in the smartphone market 485 00:28:03,240 --> 00:28:05,480 Speaker 1: where all the growth is gone and Apple is just 486 00:28:05,520 --> 00:28:08,240 Speaker 1: going to have to contend with you know, two thirds 487 00:28:08,240 --> 00:28:11,560 Speaker 1: of their revenue is coming from a secularly declining industry, 488 00:28:11,720 --> 00:28:14,040 Speaker 1: or is there something else that Apple thinks is going on? 489 00:28:14,160 --> 00:28:17,440 Speaker 1: Temporary weakness in China or other places. And the other 490 00:28:17,480 --> 00:28:21,520 Speaker 1: thing is will Apple say anything substantive about what they're 491 00:28:21,560 --> 00:28:24,800 Speaker 1: doing to offset some of these revenue weaknesses in iPhones? 492 00:28:24,920 --> 00:28:27,359 Speaker 1: So I guess one one question that I have is 493 00:28:27,440 --> 00:28:32,560 Speaker 1: how much is Apple representative of the broader smartphone industry 494 00:28:32,600 --> 00:28:35,720 Speaker 1: of big tech? And how much is Apple really an 495 00:28:35,720 --> 00:28:38,880 Speaker 1: idiosyncratic story that has to do with where they price 496 00:28:38,960 --> 00:28:41,960 Speaker 1: their iPhone ten, that has to do with their appeal 497 00:28:42,000 --> 00:28:45,840 Speaker 1: for luxury consumers and kind of their their missteps in China. 498 00:28:46,960 --> 00:28:50,200 Speaker 1: I'm gonna cheat and say that Apple is both. They 499 00:28:50,280 --> 00:28:54,840 Speaker 1: are representative. I'm sorry, they are representative of the smartphone 500 00:28:54,840 --> 00:28:58,760 Speaker 1: industry again, because you have this phenomenon where a majority 501 00:28:58,760 --> 00:29:00,720 Speaker 1: of people in the world now have a smartphone, and 502 00:29:00,760 --> 00:29:03,280 Speaker 1: they're replacing them less often, and so that affects new 503 00:29:03,320 --> 00:29:06,479 Speaker 1: device sales. And that's happening not only for Apple, but 504 00:29:06,680 --> 00:29:10,640 Speaker 1: for every other smartphone manufacturer out there, particularly those like 505 00:29:10,760 --> 00:29:14,960 Speaker 1: Apple that are focused on, you know, relatively affluent consumers 506 00:29:15,000 --> 00:29:19,680 Speaker 1: in the developed world. So um, So there is both 507 00:29:19,720 --> 00:29:22,680 Speaker 1: a kind of smartphone industry read on Apple as well 508 00:29:22,720 --> 00:29:25,120 Speaker 1: as a kind of Apples specific given the corner of 509 00:29:25,160 --> 00:29:28,040 Speaker 1: the market where they concentrate. So one question that people 510 00:29:28,080 --> 00:29:30,320 Speaker 1: have started to ask them is doesn't make sense for 511 00:29:30,360 --> 00:29:33,800 Speaker 1: Apple to do something unusual for the company, and that's 512 00:29:33,840 --> 00:29:37,280 Speaker 1: starts to lower their prices in order to get into 513 00:29:37,320 --> 00:29:39,880 Speaker 1: markets like India, for example, which has been a high 514 00:29:39,960 --> 00:29:42,880 Speaker 1: growth smartphone market, one of the few pockets of growth 515 00:29:43,320 --> 00:29:47,680 Speaker 1: in the smartphone industry. But their Apple's iPhones are not 516 00:29:47,760 --> 00:29:51,720 Speaker 1: competitively priced in India, and the same is true in China. 517 00:29:51,880 --> 00:29:54,920 Speaker 1: And so will Apple be more aggressive with prices and 518 00:29:54,960 --> 00:29:58,000 Speaker 1: they really haven't shown that in the past a willingness 519 00:29:58,000 --> 00:29:59,880 Speaker 1: at all like China is probably a great example. So 520 00:30:00,600 --> 00:30:03,200 Speaker 1: in terms of we but if you think about the 521 00:30:03,200 --> 00:30:06,400 Speaker 1: Indian market, where they are essentially nowhere, have they ever 522 00:30:06,480 --> 00:30:09,160 Speaker 1: talked about all right, we are going to strategically make 523 00:30:09,160 --> 00:30:12,560 Speaker 1: a change and bring in a mid priced or low 524 00:30:12,600 --> 00:30:16,040 Speaker 1: priced phone. Not really. I mean, if you recall a 525 00:30:16,040 --> 00:30:18,440 Speaker 1: couple of years ago, a few years ago, Apple released 526 00:30:18,480 --> 00:30:21,120 Speaker 1: the iPhone SC, which was more of a mid market 527 00:30:21,360 --> 00:30:23,840 Speaker 1: price phone, and that has been a device that they've 528 00:30:23,880 --> 00:30:27,040 Speaker 1: pushed in places like India, although even the iPhone SC 529 00:30:27,240 --> 00:30:30,880 Speaker 1: is still too expensive for India. And and look, I 530 00:30:30,960 --> 00:30:34,280 Speaker 1: will say that I think it's debatable whether Apple needs 531 00:30:34,280 --> 00:30:37,440 Speaker 1: to compete on price. They have done some select price 532 00:30:37,480 --> 00:30:41,360 Speaker 1: cuts kind of under the covers in in China, for example. Um, 533 00:30:41,400 --> 00:30:44,360 Speaker 1: but Apple has never been a company that has tried 534 00:30:44,400 --> 00:30:46,280 Speaker 1: to get all the market share in the world. Right. 535 00:30:46,280 --> 00:30:51,360 Speaker 1: They've been content selling a relatively relatively small fraction of 536 00:30:51,760 --> 00:30:55,600 Speaker 1: the world's personal computers, for example. But they still have 537 00:30:55,680 --> 00:30:58,720 Speaker 1: a majority of the share of revenue in the personal 538 00:30:58,760 --> 00:31:03,520 Speaker 1: computer industry because the max they sell our high prices. 539 00:31:03,600 --> 00:31:06,720 Speaker 1: So if Apple is content to do that in smartphones, 540 00:31:06,960 --> 00:31:09,840 Speaker 1: maybe it should set that out as a strategy instead 541 00:31:09,840 --> 00:31:12,240 Speaker 1: of letting people guess what the heck Apple is trying 542 00:31:12,280 --> 00:31:14,160 Speaker 1: to do. All Right, so we have Apple sort of 543 00:31:14,200 --> 00:31:18,880 Speaker 1: setting the tone for the media intensive tech side big tech. 544 00:31:19,400 --> 00:31:22,920 Speaker 1: Later today, we have already gotten the data from Intel 545 00:31:23,400 --> 00:31:26,480 Speaker 1: and Nvidia, and I'm wondering, what's your big takeaway other 546 00:31:26,520 --> 00:31:32,200 Speaker 1: than bad? I think bad is my big takeaway? UM, 547 00:31:33,160 --> 00:31:36,360 Speaker 1: I think I think it remains to be seen. You 548 00:31:36,440 --> 00:31:38,160 Speaker 1: pointed out that Apple is a little bit of an 549 00:31:38,160 --> 00:31:41,040 Speaker 1: idiostocratic company at least as we think about the rest 550 00:31:41,080 --> 00:31:46,520 Speaker 1: of big tech. Right, So my question for UM that 551 00:31:46,680 --> 00:31:50,280 Speaker 1: came from Intel and Nvidia is one reason that those 552 00:31:50,320 --> 00:31:54,880 Speaker 1: companies gave for relatively weak financial results was their biggest 553 00:31:54,920 --> 00:31:58,600 Speaker 1: customers um for computer server chips, which are you know, 554 00:31:58,680 --> 00:32:02,080 Speaker 1: the kind of high end um superpowered computers that are 555 00:32:02,160 --> 00:32:04,600 Speaker 1: used by the big Internet companies like Google and Amazon 556 00:32:04,640 --> 00:32:08,040 Speaker 1: and so on, those come those customers are taking a 557 00:32:08,040 --> 00:32:11,479 Speaker 1: bit of a pause in buying chips for their data centers. 558 00:32:11,640 --> 00:32:15,040 Speaker 1: And the question is is that a temporary pause because 559 00:32:15,080 --> 00:32:17,920 Speaker 1: they pre bought a whole bunch of computer chips and 560 00:32:17,960 --> 00:32:20,400 Speaker 1: are now kind of working through that, or do those 561 00:32:20,440 --> 00:32:24,000 Speaker 1: companies see there's some growth hiccups on the horizon, maybe 562 00:32:24,040 --> 00:32:27,440 Speaker 1: we should pair back our supplies or purchases of the 563 00:32:27,520 --> 00:32:31,200 Speaker 1: raw materials for our internetwork networks. And so that's something 564 00:32:31,200 --> 00:32:34,000 Speaker 1: that I'm going to be listening for from Amazon and 565 00:32:34,040 --> 00:32:36,680 Speaker 1: Google and Facebook for the rest of this year, is 566 00:32:36,880 --> 00:32:40,680 Speaker 1: are they seeing signs of weakness in their growth and 567 00:32:40,720 --> 00:32:43,520 Speaker 1: that's being reflected in their orders to companies like in 568 00:32:43,680 --> 00:32:46,160 Speaker 1: Video and Intel. Yeah, that's I I think that's a 569 00:32:46,200 --> 00:32:49,320 Speaker 1: critical issue that you share. Wrote an article a column 570 00:32:49,360 --> 00:32:51,440 Speaker 1: two days ago about you know, the Canary and coal 571 00:32:51,440 --> 00:32:53,280 Speaker 1: mind these these chip makers and what does that mean 572 00:32:53,280 --> 00:32:55,200 Speaker 1: for the big text story? You know, I think my 573 00:32:55,320 --> 00:32:57,520 Speaker 1: question is, you know, and when we think about the 574 00:32:57,640 --> 00:33:00,360 Speaker 1: Some of the biggest growth areas uh in heck, over 575 00:33:00,360 --> 00:33:02,760 Speaker 1: the last five six years has been the cloud. And 576 00:33:02,800 --> 00:33:05,040 Speaker 1: the question that I'm wondering is if have we seen 577 00:33:05,280 --> 00:33:08,920 Speaker 1: peak cloud um or or is again is it is 578 00:33:08,960 --> 00:33:11,280 Speaker 1: that something structural or is it something that's just temperate. 579 00:33:11,280 --> 00:33:13,720 Speaker 1: And I'll tell you if if it is structural, that 580 00:33:13,880 --> 00:33:16,760 Speaker 1: is a seismic shift for the entire tech ecosystem. Are 581 00:33:16,760 --> 00:33:18,800 Speaker 1: you are you hearing any of that or seeing any event? 582 00:33:19,000 --> 00:33:21,720 Speaker 1: I'm not. I'm not. I think from all that we've 583 00:33:21,760 --> 00:33:26,680 Speaker 1: seen there there's an imperative for companies to continue to 584 00:33:27,080 --> 00:33:32,680 Speaker 1: spend on um on pushing more of their digital information 585 00:33:32,720 --> 00:33:36,480 Speaker 1: into these cloud computing services. I still wonder what happens 586 00:33:36,480 --> 00:33:40,040 Speaker 1: if we get um a global recession or a recession 587 00:33:40,040 --> 00:33:42,640 Speaker 1: in in some parts of the world. UM. I think 588 00:33:42,640 --> 00:33:44,640 Speaker 1: there's a belief that the cloud is not going to 589 00:33:44,720 --> 00:33:47,600 Speaker 1: be affected by that because there are financial imperatives, some 590 00:33:47,640 --> 00:33:50,360 Speaker 1: financial savings removing to things to the cloud. I just 591 00:33:50,440 --> 00:33:52,760 Speaker 1: don't know if companies are gonna be willing to do 592 00:33:53,000 --> 00:33:56,520 Speaker 1: those kinds of information technology projects if we do see 593 00:33:56,560 --> 00:34:00,520 Speaker 1: signs of economic hiccups, and so I think that is 594 00:34:00,560 --> 00:34:03,080 Speaker 1: a big question of the peak cloud question. And there's 595 00:34:03,080 --> 00:34:06,400 Speaker 1: also of course the question of carmakers, right will they 596 00:34:06,480 --> 00:34:09,640 Speaker 1: simply cut costs by not investing as much in the 597 00:34:09,680 --> 00:34:12,520 Speaker 1: sort of tech side of the chips and buying as 598 00:34:12,600 --> 00:34:15,920 Speaker 1: much of those types of issues. So really, um, a 599 00:34:15,960 --> 00:34:18,280 Speaker 1: lot of in an intersection of a lot of different 600 00:34:18,360 --> 00:34:21,279 Speaker 1: industries kind of coming together that we're going to find out, uh, 601 00:34:21,320 --> 00:34:24,840 Speaker 1: some insight into after the bell today, tomorrow and in 602 00:34:25,040 --> 00:34:27,279 Speaker 1: the upcoming days. Shara Overday, thank you so much for 603 00:34:27,320 --> 00:34:30,000 Speaker 1: being with us. As always, Shara Oviday is a Bloomberg 604 00:34:30,000 --> 00:34:35,200 Speaker 1: opinion columnist covering all things tech. Thanks for listening to 605 00:34:35,239 --> 00:34:37,640 Speaker 1: the Bloomberg P and L podcast. You can subscribe and 606 00:34:37,680 --> 00:34:40,840 Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform 607 00:34:40,880 --> 00:34:43,960 Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. 608 00:34:44,000 --> 00:34:46,239 Speaker 1: I'm Lisa Abram Woids I'm on Twitter at Lisa A. 609 00:34:46,280 --> 00:34:48,919 Speaker 1: Bram Woyds one. Before the podcast, you can always catch 610 00:34:49,000 --> 00:34:50,800 Speaker 1: us worldwide on Bloomberg Radio.