WEBVTT - U.S. Should Follow The EU's Footsteps To Tackle Google (Podcast) 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.880 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Joining 0:00:32.960 --> 0:00:35.840 us now, we are very pleased to say, is Jim Anderson. 0:00:35.960 --> 0:00:39.240 He is chief executive officer of Social Flow in New York. 0:00:39.880 --> 0:00:43.800 Just to be fully transparent. Social Flow is a platform 0:00:43.920 --> 0:00:47.440 used by Bloomberg for social media purposes. Jim, thank you 0:00:47.479 --> 0:00:50.440 so much for being here. You've already read the prepared 0:00:50.520 --> 0:00:55.600 statement which Stars has just delivered. From your perspective, one, 0:00:55.600 --> 0:00:59.320 are the most important things that he should address when 0:00:59.560 --> 0:01:02.720 he does get these questions from representatives. Well, I think 0:01:02.760 --> 0:01:05.000 first and foremost, he did exactly what you said. He 0:01:05.000 --> 0:01:06.920 waived the big American flag. He did what you want 0:01:06.920 --> 0:01:09.120 to do. You talk about the possibility and the optimism 0:01:09.120 --> 0:01:11.520 of technology. You know, the story about not having to 0:01:11.600 --> 0:01:13.600 ride a bus for two hours to find out your 0:01:13.600 --> 0:01:15.760 blood results. I mean those are true and authentic stories 0:01:15.800 --> 0:01:18.280 and it's certainly to his interest to try to emphasize 0:01:18.280 --> 0:01:19.920 that and make sure that people don't lose sight of 0:01:19.920 --> 0:01:22.760 the good. That being said, we're about to get the 0:01:22.760 --> 0:01:24.840 rest of the story, right, and they've got a lot 0:01:24.880 --> 0:01:27.080 of things to worry about, whether it be privacy, whether 0:01:27.080 --> 0:01:29.679 it be the alleged bias against conservatives, whether it be 0:01:30.080 --> 0:01:33.399 sort of the EU issues, and just data in general. 0:01:33.800 --> 0:01:35.400 You know, there's a lot of things that I'm sure 0:01:35.400 --> 0:01:37.280 we're about to to hear a lot of fairly pointed 0:01:37.360 --> 0:01:40.959 questions about. But Jim, the whole purpose of the hearing 0:01:41.200 --> 0:01:43.760 isn't excuse me, is not the point of the good 0:01:44.120 --> 0:01:47.160 right right? I mean, the idea is to figure out 0:01:47.840 --> 0:01:52.880 where the data goes. Well, that is absolutely one very 0:01:52.880 --> 0:01:55.560 important thing, and I think ultimately that that data and 0:01:55.600 --> 0:01:58.040 privacy issue is one of the most foundational ones. I'm 0:01:58.040 --> 0:01:59.760 not sure that's going to be the biggest issue. I 0:01:59.760 --> 0:02:01.800 think you're gonna hear a lot about the alleged bias 0:02:01.800 --> 0:02:04.200 against conservatives, and we've talked about that before. This idea 0:02:04.240 --> 0:02:07.240 of shadow banning. If I type in social into Google, 0:02:07.240 --> 0:02:09.200 because I'm the CEO of social Flow, I wanted to 0:02:09.240 --> 0:02:12.800 autocomplete social flow. It's more likely though, to autocomplete social 0:02:12.840 --> 0:02:15.400 security because that's a more common search than Social Flow, 0:02:15.440 --> 0:02:17.440 and so you get these annexies. You believe there's a 0:02:17.480 --> 0:02:20.400 bias when it comes to search results. I don't, actually, 0:02:20.400 --> 0:02:22.720 I truly. First off, you can't prove a negative. I 0:02:22.720 --> 0:02:25.240 can't prove that there's no bias. And again there's billions 0:02:25.240 --> 0:02:28.240 and billions of search results and what really constitutes bias? 0:02:28.360 --> 0:02:31.399 But Google could prove it. I'm not sure Google could 0:02:31.400 --> 0:02:33.720 prove and real, right, because think about your search and 0:02:33.760 --> 0:02:36.240 my search are different, right, it's unless we're using an 0:02:36.240 --> 0:02:40.280 anonymous browser and incognito mode. Google knows a lot about you. 0:02:40.360 --> 0:02:42.160 Google knows a lot about me. So actually, when I 0:02:42.160 --> 0:02:45.280 searched for social it may actually autocomplete Social flow because 0:02:45.320 --> 0:02:47.400 Google knows that I search for Social flow a lot. 0:02:47.639 --> 0:02:50.119 I don't think Google could demonstrably prove that they never 0:02:50.200 --> 0:02:53.560 discriminate against anyone. What do you think is the main issue? 0:02:53.600 --> 0:02:56.320 Is it privacy? I do think it's it's privacy and data. 0:02:56.400 --> 0:02:58.480 And I think we can get look to the EU 0:02:58.560 --> 0:03:01.640 as to what's going on. Different gular Corey Tory construct 0:03:01.680 --> 0:03:04.760 different sort of cultural expectations. But I think that is 0:03:04.880 --> 0:03:06.960 the vanguard of what you're gonna see in the rest 0:03:07.040 --> 0:03:10.440 of the world too, and not just privacy but also antitrust. 0:03:10.639 --> 0:03:12.840 And think about it. So Google is being accused of 0:03:12.880 --> 0:03:17.200 effectively bundling, right, the Android operating system and Google Maps. 0:03:17.240 --> 0:03:21.080 You're you're sort of inappropriately bundling those together. Does anybody 0:03:21.080 --> 0:03:23.560 other than me think that's exactly what happened to Microsoft 0:03:23.600 --> 0:03:26.400 two decades ago? Right? It was Windows operating System and 0:03:26.480 --> 0:03:29.079 Internet Explore. The Department of Justice in the US said 0:03:29.080 --> 0:03:32.440 you're inappropriately bundling those. It took twenty years for Microsoft 0:03:32.440 --> 0:03:34.760 to effectively recover from that, and they've done so quite nicely, 0:03:34.800 --> 0:03:37.240 but in a very different way with cloud computing, etcetera. 0:03:37.280 --> 0:03:39.760 So I think that's that, in some combination of the 0:03:39.760 --> 0:03:42.000 privacy and data are really where you're going to see 0:03:42.000 --> 0:03:44.440 the big focus for Google. I'm not sure though today 0:03:44.480 --> 0:03:46.640 in the testimony that's going to be the big area focus. 0:03:46.920 --> 0:03:51.040 Is there also a necessary focus on the dominance that 0:03:51.240 --> 0:03:54.560 Google has in search? Absolutely? I mean, and I think 0:03:54.560 --> 0:03:57.240 any of those anti trust points is predicated on a 0:03:57.280 --> 0:03:59.800 dominant position. Right that the reason the Microsoft issue was 0:03:59.840 --> 0:04:02.000 so big was they were so dominant. I think that's 0:04:02.000 --> 0:04:04.880 exactly right. Google is incredibly dominant in regard. So the 0:04:04.920 --> 0:04:08.200 implication here in the Microsoft analogy is that there is 0:04:08.240 --> 0:04:11.480 going to be a big effort to break up Google 0:04:11.960 --> 0:04:16.680 for its dominance. Ah, we don't see where political pressure 0:04:16.720 --> 0:04:19.120 comes from. That's a remedy. I'm not I'm not jumping 0:04:19.120 --> 0:04:20.640 all the way to remedy. I think first you have 0:04:20.720 --> 0:04:22.560 to prove that there's an issue, and I think that's 0:04:22.560 --> 0:04:24.680 going to start and continue in the EU. I think 0:04:24.680 --> 0:04:26.640 you're exactly right. I don't see the political pressure in 0:04:26.680 --> 0:04:28.719 the U S building for any kind of breakup anytime 0:04:28.720 --> 0:04:31.080 in the near future. I think that's not in the cards. 0:04:31.080 --> 0:04:32.520 But it's a big world out there. Google is a 0:04:32.520 --> 0:04:35.800 global company, global company, so I think what happens in 0:04:35.839 --> 0:04:39.159 the EU could very well propagate elsewhere, first, you know, 0:04:39.200 --> 0:04:41.600 beyond the US, and then ultimately maybe in a little 0:04:41.600 --> 0:04:43.640 bit of a different political climate back here to the States. 0:04:43.960 --> 0:04:46.240 Is it worth noting that this does not just take 0:04:46.360 --> 0:04:50.000 place on your mobile device, but also on whatever devices 0:04:50.080 --> 0:04:53.520 you use at home, whether they are television monitors or 0:04:53.800 --> 0:04:57.160 PCs or some kind of computer. I think that's exactly right. 0:04:57.200 --> 0:05:00.200 So you know, the Amazon Echo obviously different, come any 0:05:00.200 --> 0:05:02.720 different competitor, and it is worth bringing up. By the way, 0:05:02.760 --> 0:05:05.640 I think one of Google's big risks here is actually 0:05:05.640 --> 0:05:08.839 not necessarily just the government and regulation, but Amazon. So 0:05:08.920 --> 0:05:11.279 Google knows what you search for, Amazon knows what you buy. 0:05:11.640 --> 0:05:13.720 So there aren't a lot of companies that the Google 0:05:13.760 --> 0:05:15.839 is afraid of giving their size and scale. But I'm 0:05:15.880 --> 0:05:17.760 sure they're paying a lot of attention to what Amazon 0:05:17.880 --> 0:05:20.200 is doing. And but but your core point about the devices, 0:05:20.240 --> 0:05:22.040 you know, the connected home everything. It's not just a 0:05:22.080 --> 0:05:24.080 mobile device, it's not just a computer, it's everything that's 0:05:24.080 --> 0:05:26.760 connected to the internet. All right, So you said that 0:05:27.240 --> 0:05:29.520 it's very difficult to prove a negative that there is 0:05:29.560 --> 0:05:34.520 not bias. Can Google prove that it is doing everything 0:05:34.560 --> 0:05:37.919 that it can prevent foreign actors from interfering in elections? 0:05:38.200 --> 0:05:39.760 And that's a tough one as well. I mean, these 0:05:39.800 --> 0:05:41.560 are two sides of the same coin. Right. At the 0:05:41.600 --> 0:05:45.880 same time Google is being criticized for alleged bias against conservatives, 0:05:46.120 --> 0:05:48.800 it's also being accused of not doing enough to protect 0:05:48.880 --> 0:05:51.839 against hate speech. Right And by the way, they're advertisers, 0:05:51.839 --> 0:05:53.279 which is how they make all their money. Are the 0:05:53.279 --> 0:05:55.360 ones who are principally concerned with that who wants they're 0:05:55.360 --> 0:05:59.160 advertising associated with hate speech or potentially offensive videos. Well, 0:05:59.400 --> 0:06:01.800 you know, the the the implication there is that Google 0:06:01.839 --> 0:06:04.680 needs to play a heavier hand and be more controlling 0:06:04.760 --> 0:06:07.520 about the type of speech that's allowed on his platform. 0:06:07.560 --> 0:06:10.280 But when you talk about alleged bias against conservatives, well, 0:06:10.320 --> 0:06:12.200 now you're you're putting your heavy hand to work in 0:06:12.240 --> 0:06:14.320 a in a biased way. And these are issues, I mean, 0:06:14.320 --> 0:06:17.000 they're not technology issues. Their policy issues right, and their 0:06:17.080 --> 0:06:20.559 values issues. So again you can't their First Amendment issues. 0:06:20.600 --> 0:06:23.200 They really are free speech versus you know, hate speech. Right, 0:06:23.520 --> 0:06:28.200 where's the one beginning the other end. As far as 0:06:28.320 --> 0:06:31.320 the hearing is concerned, do you believe that this is 0:06:31.400 --> 0:06:35.160 more of a show for the people asking the questions 0:06:35.480 --> 0:06:39.480 or is this something that Google can really come away 0:06:39.520 --> 0:06:42.360 with with a gold star? Well, I would say it's 0:06:42.400 --> 0:06:44.000 gonna be very tough for them to come away with 0:06:44.080 --> 0:06:46.599 a gold star. I think all political hearings like this 0:06:46.720 --> 0:06:49.080 or congressional hearings to have an element of show, because 0:06:49.080 --> 0:06:52.599 politics is showmanship or show personship. Um, So you know, 0:06:52.720 --> 0:06:55.960 if he can just not avoid making a serious misstep, 0:06:55.960 --> 0:06:58.560 that's probably a win. I do think his prepared remarks 0:06:58.560 --> 0:07:01.320 were sort of merciful short. I mean, so it doesn't 0:07:01.320 --> 0:07:03.400 appear that he's trying to run run out the clock 0:07:03.440 --> 0:07:05.680 strategy to just keep talking until the time is up. 0:07:05.839 --> 0:07:08.280 We'll see whether the question is an answer. You sort 0:07:08.320 --> 0:07:10.320 of follow that, But I thought it was really interesting 0:07:10.320 --> 0:07:12.239 that it was such a short set of prepared remarks. 0:07:12.560 --> 0:07:15.360 What's the one question you'd ask him? I would focus 0:07:15.360 --> 0:07:17.880 on the data and say, well, what are your values? 0:07:17.920 --> 0:07:21.480 What are your policies about data and privacy? And I 0:07:21.560 --> 0:07:23.360 might just stop right there and let let him give 0:07:23.360 --> 0:07:25.360 it as an expansive and answer as he's willing to. 0:07:25.720 --> 0:07:27.960 Thanks very much for being with us. Jim Anderson is 0:07:28.000 --> 0:07:31.840 the chief executive of a social flow and in full disclosure. 0:07:31.960 --> 0:07:35.000 Social Flow is a platform that is used by Bloomberg 0:07:35.120 --> 0:07:52.640 for social media purposes. The price of oil moves higher today. 0:07:52.760 --> 0:07:55.960 It is up more than two percent right now fifty 0:07:55.960 --> 0:07:58.320 two dollars for a barrel of oil on the NYMEX 0:07:58.520 --> 0:08:00.800 natural Gas, though going the other wright down more than 0:08:00.880 --> 0:08:03.400 three and a quarter percent. Here to tell us all 0:08:03.400 --> 0:08:06.920 about the energy complex. Neil Dingman. He is Managing director 0:08:07.000 --> 0:08:10.680 for Energy for sun Trust. Robinson Humphrey also joining us 0:08:10.680 --> 0:08:13.200 here in our Bloomberg Interactor Broker Studios as well as 0:08:13.320 --> 0:08:17.680 Fitzpatrick also managing director as well as and he covers 0:08:17.760 --> 0:08:22.240 exploration and production research for sun Trust Robinson Humphrey. They're 0:08:22.280 --> 0:08:25.000 both from Houston, and we're glad to have them here, 0:08:25.080 --> 0:08:27.240 all right, So you're great to have you, all right, 0:08:27.280 --> 0:08:30.000 So let's just dive right into it. Um fifty two 0:08:30.000 --> 0:08:34.000 dollars a barrel for West Texas, sixty dollars a barrel 0:08:34.120 --> 0:08:37.200 for Brent and you've got that gas you know, under 0:08:37.200 --> 0:08:39.200 four and a half dollars per million b to you, 0:08:39.840 --> 0:08:42.360 what are those prices due to the companies you cover? 0:08:42.840 --> 0:08:45.440 I think for most of us they might say their 0:08:45.480 --> 0:08:48.400 break even. They'll suggest the break even is in the forties. 0:08:48.679 --> 0:08:50.480 But from what we're hearing, when the new budgets come 0:08:50.520 --> 0:08:53.720 out for nineteen, you're gonna see cuts. Um, you've already 0:08:53.720 --> 0:08:56.079 saw who was it earlier this week, just a day 0:08:56.120 --> 0:08:58.000 or two ago. Konico one of the very largest that 0:08:58.000 --> 0:09:02.040 we don't follow, but talk about um single digit growth 0:09:02.080 --> 0:09:06.360 and returning share shareholder valued, and again I think that's 0:09:06.360 --> 0:09:09.120 going to be a common trend, even with our smaller companies. 0:09:09.200 --> 0:09:10.880 I think overall him you're going to see a lot 0:09:10.880 --> 0:09:13.640 more cuts um as long as oil is anything under 0:09:13.679 --> 0:09:17.040 sixty dollars wells, what's the pain point at which E 0:09:17.160 --> 0:09:20.199 m P companies have to start going out of business again? Yeah, 0:09:20.360 --> 0:09:22.720 going out of businesses is tough. You really have had 0:09:22.760 --> 0:09:25.480 the balance sheets improved dramatically since we saw the last 0:09:25.520 --> 0:09:28.280 slug of those rolls through. But I think Neil's right. 0:09:28.360 --> 0:09:31.400 I mean to that point, you had tin oil rigs 0:09:31.480 --> 0:09:34.120 drop out last week. That's the biggest one week dropped 0:09:34.120 --> 0:09:37.400 since we've had in sixteen. So these these year over 0:09:37.480 --> 0:09:40.240 year estimates going into nineteen for US oil growth are 0:09:40.320 --> 0:09:44.439 are almost surely overstated, and probably largely so. Combine that 0:09:44.480 --> 0:09:46.640 with the OPEC plus cuts and a little bit more 0:09:46.679 --> 0:09:48.679 from Iran and Canada, and all of a sudden you're 0:09:48.720 --> 0:09:52.480 in a pretty decent position. So you know, what characterizes 0:09:52.520 --> 0:09:54.520 a company that you want to be buying stock in. 0:09:55.320 --> 0:09:57.960 I think one that has a very low break even 0:09:57.960 --> 0:09:59.680 phim in one that you know, we look at a 0:09:59.679 --> 0:10:02.679 couple like a Magnolia and the Eagle Ford. It's a 0:10:02.760 --> 0:10:05.800 run by the former head of Oxy or Continental or 0:10:05.800 --> 0:10:07.960 Whiting both in the baking. And the type that we 0:10:08.040 --> 0:10:10.560 like is even in the low fifties. We think all 0:10:10.600 --> 0:10:13.240 three can generate free cash flow. To me, it's really 0:10:13.240 --> 0:10:16.480 interesting because as both of you speak, I'm thinking, all right, 0:10:16.720 --> 0:10:20.719 so if OPEC plus is going to be cutting production, 0:10:20.960 --> 0:10:24.800 and then you have riggs already coming off and probably 0:10:25.000 --> 0:10:29.520 cuts to production further in January from US companies, you 0:10:29.520 --> 0:10:32.520 guys both are expecting much higher oil prices. Is that correct? Wells, 0:10:33.600 --> 0:10:35.559 I think I think there's upside from here. I think 0:10:35.600 --> 0:10:38.679 your rally. I mean, look, those those rigs will probably 0:10:38.679 --> 0:10:41.360 go back to work if you cross the sixty threshold again. 0:10:41.480 --> 0:10:43.960 The other thing that you have going on is the 0:10:44.000 --> 0:10:46.080 Midland differential is going to be coming in, So the 0:10:46.120 --> 0:10:48.440 prices that these guys are getting is going to be 0:10:48.520 --> 0:10:52.000 much higher in later and nineteen, even with a flat 0:10:52.120 --> 0:10:55.240 w T I price. So uh, I think that the 0:10:55.280 --> 0:10:58.240 fundamentals are improving for all of these guys. I think 0:10:58.280 --> 0:11:01.320 that the real zations are going to improve for all 0:11:01.360 --> 0:11:03.480 of them. But but to your point, I think you're right, 0:11:03.559 --> 0:11:06.760 you do have more levers that are pressing oil up 0:11:06.800 --> 0:11:09.720 than down. I would agree as well. I think the 0:11:09.720 --> 0:11:11.319 only thing I'm nervous about is if you get a 0:11:11.360 --> 0:11:14.400 snap back and it and it goes up too quickly. Again, 0:11:14.400 --> 0:11:16.920 we've seen that happen. I mean again, we're down almost 0:11:17.880 --> 0:11:20.200 since the first of October. Could we go up as 0:11:20.280 --> 0:11:23.720 quick Probably not, but we certainly could go up very quickly. Well, 0:11:23.960 --> 0:11:27.000 talk about cash flow. If you can free cash flow 0:11:27.000 --> 0:11:29.160 at some of these companies, which ones have it and 0:11:29.200 --> 0:11:32.160 which ones don't, and why would they would? Why would 0:11:32.200 --> 0:11:34.640 that change your decision on what to invest in? Yeah, 0:11:34.720 --> 0:11:37.920 there's there. There's a huge discrepancy across the MP. And 0:11:37.960 --> 0:11:41.440 it's interesting because in this recent pullback, everything's been hit 0:11:41.679 --> 0:11:45.480 relatively universally, and so you have companies like a Highlight 0:11:46.040 --> 0:11:49.640 PDC or or NBL Noble, both of them have double 0:11:49.679 --> 0:11:52.960 digit free cash flow yields in both of them are 0:11:52.960 --> 0:11:55.559 training out less than four times. These are high quality 0:11:55.600 --> 0:11:58.240 companies with little to no debt and a lot of 0:11:58.280 --> 0:12:00.520 free cash flow. Now on the other side, you have 0:12:00.559 --> 0:12:02.480 some small caps and microcaps that are gonna be a 0:12:02.520 --> 0:12:06.000 little bit tighter, but you certainly have enough companies that 0:12:06.000 --> 0:12:08.160 that that fit that mold. They're growing under their own 0:12:08.160 --> 0:12:11.000 power with great assets. So it just I'm curious from 0:12:11.000 --> 0:12:13.800 your perspective, Neil, I'm looking right now at the SMP 0:12:13.920 --> 0:12:22.320 five Energy subsector. It's down a lot. Um. I have 0:12:22.400 --> 0:12:24.640 a feeling you are talking and trying to comfort a 0:12:24.640 --> 0:12:27.520 lot of your clients, to soothe their their tears drive 0:12:27.559 --> 0:12:31.040 them up. Um. What makes you confident that we're going 0:12:31.080 --> 0:12:34.160 to see some stability from here? I think just the 0:12:34.200 --> 0:12:36.880 comments from some OPEC plus I mean, I'm gonna mentioned 0:12:36.880 --> 0:12:39.920 that earlier, and I think by them more than willing 0:12:39.960 --> 0:12:41.640 to come in, and you know, I would call that 0:12:41.720 --> 0:12:45.600 sort of the stabilization you didn't have that prior to sixteen. 0:12:45.640 --> 0:12:48.040 Sixteen was the first time that you saw them in 0:12:48.040 --> 0:12:50.440 a material way come in, and now they're continuing to 0:12:50.480 --> 0:12:54.400 say that both Russia, both Zaudi, etcetera, etcetera. So again, 0:12:54.440 --> 0:12:56.440 I think it's very unlikely if we do go under 0:12:56.440 --> 0:12:59.480 fifty we stay there long. Wells, if you loved energy 0:12:59.520 --> 0:13:03.400 stocks seventy five, sixty five, and fifty five, don't you 0:13:03.520 --> 0:13:05.920 have to really fall in love with them at fifty two. 0:13:06.880 --> 0:13:09.040 I think that's right. And the other thing that that 0:13:09.040 --> 0:13:10.920 that I've note is that you are at multi year 0:13:11.000 --> 0:13:14.560 lows on on multiples, like we've talked about, you have 0:13:14.600 --> 0:13:17.480 a constructive set up in the commodity, both gas and oil. 0:13:18.120 --> 0:13:19.880 So I think I think now is the time to 0:13:19.920 --> 0:13:22.800 be buying. And I think when people sharpen their pencils 0:13:22.840 --> 0:13:25.960 going into January and start building books, you could see 0:13:26.000 --> 0:13:28.880 reversal in these names. When you guys talk to clients 0:13:29.160 --> 0:13:33.560 generally right now, Neil, any optimism whatsoever, very very little. Still, 0:13:33.720 --> 0:13:36.360 they're they're doing the work, but they're they're certainly not there. 0:13:36.360 --> 0:13:38.600 And this is both the big long only mutual funds 0:13:38.600 --> 0:13:41.080 here in town and the hedge funds, and both what 0:13:41.120 --> 0:13:43.719 the mutual funds says, why be an energy if it's 0:13:43.720 --> 0:13:46.120 this volatile and you see tech or retail go up 0:13:46.120 --> 0:13:49.880 every other day, well maybe not go up every other day? 0:13:49.880 --> 0:13:53.720 Thank you so much. Be careful about those sharpened pencils. Yeah, 0:13:53.720 --> 0:13:56.520 the sharpen pencils can be can be daggers, Neil Dingman, 0:13:56.840 --> 0:13:58.959 thank you so much. Wells Flitzpatrick, both of you really 0:13:58.960 --> 0:14:01.480 appreciate you coming in Managing directors in the energy space 0:14:01.559 --> 0:14:04.480 for sun Trust. Robinson Humphrey based in Houston, Texas, but 0:14:04.559 --> 0:14:07.520 coming here to our frigid New York City and our 0:14:07.559 --> 0:14:10.480 eleven three oh studios here joining me and my co 0:14:10.640 --> 0:14:30.320 host and colleague him Fox. The topic now China, the 0:14:30.360 --> 0:14:34.360 Trump administration preparing a series of actions to call out 0:14:34.440 --> 0:14:37.720 Beijing for what it says our China's continued efforts to 0:14:37.840 --> 0:14:44.200 steal America's trade secrets and advanced technologies and compromise sensitive 0:14:44.480 --> 0:14:49.000 government and corporate computers. It's all according to US officials. 0:14:49.320 --> 0:14:51.840 Here to tell us more about the relationship between the 0:14:51.920 --> 0:14:55.880 United States and China is Michael Smart, Managing Director, Rock 0:14:56.080 --> 0:15:00.840 Creek Global Advisors, and previously Mr Art was the Director 0:15:00.880 --> 0:15:03.680 for International Trade and Investment on the staff of the 0:15:03.760 --> 0:15:07.040 National Security Council at the White House, and he's previously 0:15:07.120 --> 0:15:11.280 served as International Trade Counsel on the Democratic Staff of 0:15:11.320 --> 0:15:14.960 the US Senate Committee on Finance. Thank you very much 0:15:14.960 --> 0:15:17.400 for being with us, Michael Smart, What can you tell 0:15:17.480 --> 0:15:23.240 us about the ongoing confrontation and challenges that the relationship 0:15:23.280 --> 0:15:26.240 between the United States and China face? Yeah, well, first, 0:15:26.280 --> 0:15:29.800 I would say it is undoubtedly positive that the two leaders, 0:15:29.920 --> 0:15:33.640 Donald Trump and Chi Jinping agreed uh to avoid further 0:15:33.840 --> 0:15:37.600 escalation for now and agree to have discussions. That's the 0:15:37.600 --> 0:15:40.440 good news. The not so good news is I'm not 0:15:40.560 --> 0:15:43.840 optimistic that they can actually tackle the agenda that the 0:15:43.920 --> 0:15:46.960 US has in mind over the ninety day period they 0:15:47.000 --> 0:15:51.200 set out for themselves. It involves some very difficult issue uh, 0:15:51.280 --> 0:15:55.560 preferential treatment of Chinese data and enterprises. You mentioned, violation 0:15:55.640 --> 0:16:00.680 of intellectual property rights, restriction on foreign ownership of Chinese enterprises. 0:16:01.040 --> 0:16:04.480 This is difficult stuff and I don't think ninety days 0:16:04.560 --> 0:16:08.520 is nearly enough to tackle that. And tweets about auto 0:16:08.520 --> 0:16:11.720 tariffs are really kind of a distraction from the core 0:16:11.840 --> 0:16:16.320 issue of structural reform. That's that's the first point. Well, Michael, 0:16:16.360 --> 0:16:18.800 I actually want to follow up on that. What is 0:16:18.920 --> 0:16:21.080 the primary agenda of the U S mean, is this 0:16:21.120 --> 0:16:25.040 a national security issue? Is this a trade deficit issue? 0:16:25.400 --> 0:16:28.200 You know, what sort of the primary driver here. It's 0:16:28.200 --> 0:16:32.520 a really good question. So the structural reforms are those 0:16:32.560 --> 0:16:35.560 that I mentioned, Those are the ones that U S, 0:16:35.600 --> 0:16:39.880 tr Lightheiser and Leuha will be focused on in their negotiation. 0:16:40.360 --> 0:16:43.520 But I have a real question about whether China has 0:16:43.720 --> 0:16:48.320 enough incentive to make those reforms if the only thing 0:16:48.440 --> 0:16:52.480 on offer is the reduction of US terroiffs. And the 0:16:52.600 --> 0:16:56.520 reason is because they've seen this dispute spread into the 0:16:56.600 --> 0:17:00.200 areas Lisa you just mentioned, which is national security, and 0:17:00.240 --> 0:17:03.200 in these areas they see the potential for even more 0:17:03.320 --> 0:17:06.960 harm UH than UH than comes from the U S tariffs, 0:17:06.960 --> 0:17:10.520 and here I'm talking about export controls, So basically the 0:17:10.560 --> 0:17:16.159 denial of US technologies to Chinese companies, tight restrictions on 0:17:16.320 --> 0:17:21.880 inbound Chinese investment into the United States. UH, the the 0:17:21.880 --> 0:17:25.000 the u S efforts around the world to encourage other 0:17:25.119 --> 0:17:30.560 company countries to keep Chinese telecommunications equip equipment out of 0:17:30.600 --> 0:17:34.480 their infrastructure. These and other efforts are are undertaken by 0:17:34.560 --> 0:17:38.800 national security officials and I think are of concern to 0:17:38.880 --> 0:17:41.720 the Chinese and will and will make the trade negotiation 0:17:42.119 --> 0:17:45.760 more difficult. Michael Smart, if there were to be Justice 0:17:45.800 --> 0:17:49.879 Department moves to announce indictments of hackers suspected of working 0:17:49.920 --> 0:17:55.760 for Chinese intelligence services and participating in espionage campaigns targeting 0:17:55.880 --> 0:17:58.720 US networks, what would that do to the talks? Well, 0:17:58.920 --> 0:18:03.879 certainly it would make them more challenging. But those efforts 0:18:04.119 --> 0:18:07.359 must continue and they must be on a a separate track. 0:18:07.440 --> 0:18:12.920 In the same way the detention and potential extradition of 0:18:12.920 --> 0:18:18.080 of Mrs Mung the cfo UM of Huawei UH. These 0:18:18.119 --> 0:18:24.160 are criminal law enforcement matters, national security matters, UH and UH. 0:18:24.280 --> 0:18:28.480 The timing certainly complicates the early stages of this discussion, 0:18:29.119 --> 0:18:31.600 but I don't expect them to be traded off at 0:18:31.600 --> 0:18:34.320 the negotiating table. You know, Michael Smart, since you did 0:18:34.600 --> 0:18:37.679 serve as international trade counsel and the credit staff of 0:18:37.760 --> 0:18:41.000 the of the U. S. Senate Committee on Finance, I'm 0:18:41.040 --> 0:18:45.640 curious from a partisan perspective your take on what sides 0:18:46.080 --> 0:18:50.960 are are for what trade negotiations, because interestingly, Democratic senators 0:18:51.000 --> 0:18:53.919 have come out in favor of the Huahwei prosecutions. Not 0:18:54.000 --> 0:18:56.480 that it's there say anyway, it's the federal court in 0:18:56.520 --> 0:18:59.879 the Eastern District in Brooklyn, But I'm just wondering, you know, 0:19:00.520 --> 0:19:04.760 what's the common ground here between Republicans and Democrats as 0:19:04.800 --> 0:19:08.680 to how the US China trade relationship has to change. Yeah, 0:19:08.760 --> 0:19:12.520 I think there's a lot of common ground. Um that 0:19:12.640 --> 0:19:16.080 the US can't follow the same policy that it's followed 0:19:16.080 --> 0:19:20.480 in the past of bilateral dialogues and discussions that did 0:19:20.520 --> 0:19:24.480 not produce adequate results, and so I think when they 0:19:24.520 --> 0:19:27.600 see this opportunity, uh, they're going to look for the 0:19:27.680 --> 0:19:30.840 same kinds of results, whether you're a Democrat are Republican, 0:19:30.880 --> 0:19:34.639 getting at structural issues that will improve US access to 0:19:34.680 --> 0:19:37.919 the China market, both in terms of exports, and investment 0:19:38.640 --> 0:19:41.639 for the long term. And I think there is a 0:19:41.880 --> 0:19:45.879 reluctance for the U s simply to be satisfied, you know, 0:19:45.920 --> 0:19:50.200 with a series of Chinese purchases of US goods to 0:19:50.280 --> 0:19:53.520 maybe make a temporary reduction in the trade deficits. They're 0:19:53.520 --> 0:19:56.600 looking for a more substantive deal. Michael, who dropped the 0:19:56.640 --> 0:20:00.960 ball then in not dealing with this earlier? Oh gosh, 0:20:01.000 --> 0:20:03.640 I mean, I think you have to go back twenty years. 0:20:03.680 --> 0:20:07.679 I mean, uh, certainly, when China acceded to the w 0:20:07.840 --> 0:20:10.199 t OH, there was an expectation that they were on 0:20:10.280 --> 0:20:15.399 the trajectory of economic reform. Uh. That changed in the 0:20:15.480 --> 0:20:19.119 late two thousands and became much more state centric. And 0:20:19.280 --> 0:20:22.120 this year will be the first year that the private 0:20:22.160 --> 0:20:25.960 sector has actually contracted as a share of the Chinese economy. 0:20:26.240 --> 0:20:28.520 So lots of people got it wrong and trying to 0:20:28.560 --> 0:20:31.720 see where the Chinese economy was headed. And now we're 0:20:31.720 --> 0:20:33.919 trying to go back and do the reforms that are 0:20:33.960 --> 0:20:37.159 necessary for China to be really part of the international 0:20:37.200 --> 0:20:42.560 trading system. If a if an executive of an American company, 0:20:42.800 --> 0:20:47.960 a chief financial officer, for example, called Michael Smart for 0:20:48.119 --> 0:20:51.639 advice on whether he or she should go on a 0:20:51.680 --> 0:20:56.240 trip to China for business. What would you say? I 0:20:56.240 --> 0:20:59.560 would say, can you postpone that trip to the second quarter. 0:20:59.760 --> 0:21:04.640 I'm mean, it's seriously, I really would I mean, I 0:21:04.680 --> 0:21:09.280 hope that the evidence UH and the case that they 0:21:09.320 --> 0:21:13.119 have against Mrs Mung becomes clear. From the early reports, 0:21:13.200 --> 0:21:17.800 it does appear that she has some individual responsibility for 0:21:17.840 --> 0:21:22.920 the alleged sanctions violations that occurred. If that's true, then 0:21:23.560 --> 0:21:26.520 then the course that the US is taking will be 0:21:26.600 --> 0:21:31.320 seen as justified and and just one off retaliation by 0:21:31.320 --> 0:21:34.800 the Chinese. That will be much harder for them to undertake. 0:21:35.160 --> 0:21:37.520 But we don't know that yet, and so for the 0:21:37.600 --> 0:21:39.920 time being, I would let the waters calm and see 0:21:39.920 --> 0:21:41.720 if you can take care of that business a couple 0:21:41.720 --> 0:21:43.919 of months down the road. And that's certainly the advice 0:21:43.960 --> 0:21:45.920 that a number of big companies are telling their top 0:21:45.920 --> 0:21:48.439 executives right now. Michael Smart, thank you so much for 0:21:48.480 --> 0:21:51.000 being with us. I love your perspective. Michael Smart managing 0:21:51.040 --> 0:21:54.520