WEBVTT - Surveillance: Trade Dispute Creating Uncertainty, Kaplan Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.000 Bloomberg dot Com, and of course, on the Bloomberg Front 0:00:28.040 --> 0:00:30.880 and Center. The main story this morning talks in Washington, 0:00:31.040 --> 0:00:34.040 high level between the Chinese and the United States, and 0:00:34.080 --> 0:00:37.200 a conversation, according to our team down in Washington about 0:00:37.200 --> 0:00:39.440 a currency pack to Ibrahim rack Barry joining us here 0:00:39.440 --> 0:00:42.160 in New York City's global head of f X analysis, 0:00:42.320 --> 0:00:44.560 a currency packed. We talked about this earlier in the year. 0:00:44.800 --> 0:00:46.600 We have no detail on what it would entail, no 0:00:46.680 --> 0:00:48.840 detail on whether both sides would agree, and no detail 0:00:48.920 --> 0:00:52.080 whatsoever and what the enforcement mechanism might be. Abraham, I'm 0:00:52.120 --> 0:00:54.480 sure you've given this thought before today, because it's been 0:00:54.480 --> 0:00:56.720 a story through much of the last twelve months. What 0:00:56.760 --> 0:00:59.440 are your thoughts on it now? So, I think that 0:00:59.520 --> 0:01:01.760 the prince able things to keep in mind is that 0:01:02.120 --> 0:01:04.720 the currency issues are actually pretty easy to resolve between 0:01:04.720 --> 0:01:06.839 the U S and China because their interests are fairly 0:01:07.040 --> 0:01:09.840 fairly aligned. The US doesn't want a stronger dollar, The 0:01:10.040 --> 0:01:12.360 Chinese don't want a weaker and men b at at 0:01:12.400 --> 0:01:15.959 this time. They don't want to encourage even more capital outlaws. 0:01:16.160 --> 0:01:18.119 So overall, I think this issue will be dealt with. 0:01:18.880 --> 0:01:20.800 It won't be very far reaching. I think we have 0:01:20.920 --> 0:01:23.600 the template. The template is what the US agreed with Korea. 0:01:23.720 --> 0:01:26.319 What's part of the U s m C A agreement 0:01:26.400 --> 0:01:30.840 in in essence, which is effectively more transparency around FS 0:01:30.880 --> 0:01:35.680 interventions and some commitment not to quote unquote manipulate X. 0:01:36.080 --> 0:01:38.240 So I don't think it's a big deal. It's relatively 0:01:38.280 --> 0:01:41.680 easy to resolve. The timing is just the Chinese are 0:01:41.800 --> 0:01:43.920 expecting to get something out of it, and I'm not 0:01:44.000 --> 0:01:46.160 quite sure we're there this week. The agreement in and 0:01:46.160 --> 0:01:48.360 of itself feels very superficial if this is what they 0:01:48.400 --> 0:01:50.480 agree on. Ultimately, the good news that I think for 0:01:50.520 --> 0:01:52.720 investors is that, according to our reporting, if we can 0:01:52.720 --> 0:01:55.080 secure some kind of packed around this, it would be 0:01:55.080 --> 0:01:57.880 phase one on the road to perhaps phase two and three, 0:01:58.120 --> 0:02:00.440 which is securing a deal around the tougher things and 0:02:00.440 --> 0:02:04.639 avoiding the terrified of next week. Abraham, We've been here before. 0:02:04.720 --> 0:02:07.400 We've been here so many times. This market is being 0:02:07.400 --> 0:02:10.959 whip sword by headline after headline, what is your advice 0:02:11.000 --> 0:02:14.200 to your clients right now? So we we think overall 0:02:14.320 --> 0:02:16.560 this is still a This is still a pretty cautious 0:02:16.600 --> 0:02:19.440 and challenging global environment. We're right at the cusp of 0:02:19.440 --> 0:02:22.320 what's consistent data wise with the soft landing, but it 0:02:22.360 --> 0:02:25.600 doesn't take much to steep us into the hard landing scenario. 0:02:25.680 --> 0:02:29.480 So you're definitely better off having exposure to hard lending hedges. 0:02:29.520 --> 0:02:31.800 So in fect space that will certainly be two more 0:02:31.919 --> 0:02:34.600 yen upside. For instance, down the line, the dollar is 0:02:34.639 --> 0:02:37.000 not a bad place to be either, but it is 0:02:37.000 --> 0:02:38.880 still a pretty diffuse environment, so you don't want to 0:02:39.080 --> 0:02:41.160 fully commit to a hard lending environment. I want to 0:02:41.160 --> 0:02:44.880 translate the currency chat yen upside means stronger yen stronger 0:02:44.960 --> 0:02:47.320 yet yes, stronger, yeah, I mean, I mean Japan pay 0:02:47.320 --> 0:02:50.480 is a huge pivot point here, frankly, like Turkey does 0:02:50.520 --> 0:02:54.080 in the Middle East, but Japan, in the Eastern Asia, 0:02:54.200 --> 0:02:57.679 in the Pacific Rim do they want a strong yend. 0:02:58.280 --> 0:03:00.800 No they don't. And in fact, I should be very clear, 0:03:00.960 --> 0:03:03.320 we are at at a pretty pivotal moment this month. 0:03:03.400 --> 0:03:05.520 We have a BOJ meeting coming up later this month 0:03:05.560 --> 0:03:08.280 where they're likely to at least have some action, and 0:03:08.320 --> 0:03:11.640 we have an important five yearly review from the government 0:03:11.639 --> 0:03:14.360 pension fund which again will probably try and stem the 0:03:14.400 --> 0:03:18.440 appreciation pressure. But my point here is in the general 0:03:18.440 --> 0:03:21.400 context we're in, that's probably not enough to to put 0:03:21.680 --> 0:03:23.960 to put a cap on on the n in particularly 0:03:23.960 --> 0:03:25.800 if things get worse. I think that's going to be 0:03:26.040 --> 0:03:28.119 just because the time and you and I meant talked 0:03:28.200 --> 0:03:32.079 earlier about how quiet the market's pen the eurostasis now 0:03:32.120 --> 0:03:36.240 seems critical. What is the news flow that will make 0:03:36.560 --> 0:03:39.880 euro move a demonstrable set of figures where I can 0:03:39.920 --> 0:03:42.839 make money? Is it le Guard or is it something else? 0:03:42.880 --> 0:03:45.080 I don't see how there. I think it should be 0:03:45.120 --> 0:03:48.080 something else. Now, we we have argued that you were 0:03:48.120 --> 0:03:50.520 actually able to make money on euro because it kept 0:03:50.560 --> 0:03:52.920 on drifting lower over the last twelve months, and particularly 0:03:52.920 --> 0:03:55.720 euro dollar has been quite inefficiently. But now what yes, 0:03:55.800 --> 0:03:58.920 and and now we think what would be the big 0:03:59.000 --> 0:04:01.720 driver isn't act that we see real recession risk in 0:04:01.720 --> 0:04:03.960 Germany and if that spreads to the rest of Europe, 0:04:04.080 --> 0:04:07.240 that I think would be a serious potential further downside 0:04:07.680 --> 0:04:09.640 for for Europe. But for what we actually think we 0:04:09.640 --> 0:04:12.480 will see the continued drift rather than an acceleration of 0:04:12.480 --> 0:04:15.200 the trend. Well, Abraham, let's explore your baseline, your base case. 0:04:15.480 --> 0:04:17.880 You believe we can engineer a soft landing. Care is 0:04:17.880 --> 0:04:20.400 that still your base case? It is, but only only 0:04:20.440 --> 0:04:23.680 really just this is a low conviction call, exactly. We 0:04:23.680 --> 0:04:26.719 we we are in very mixed circumstances. So we we 0:04:26.839 --> 0:04:29.480 weighed up both of those scenarios, and right now we're 0:04:29.520 --> 0:04:31.880 you know, we're really in the middle of the road 0:04:32.200 --> 0:04:35.239 between the two. We think that there's a soft landing 0:04:35.240 --> 0:04:37.480 because we're actually still seeing some positive signs out of 0:04:37.520 --> 0:04:40.200 China in terms of the data, credit markets, which historically 0:04:40.200 --> 0:04:42.599 have been a good indicated also still looking quite okay, 0:04:42.640 --> 0:04:45.120 and in fact, the US still has some positive signs. 0:04:45.160 --> 0:04:48.760 How dependent is that low conviction baseline call of yours 0:04:48.800 --> 0:04:51.480 to engineer a soft landing? How dependent is that call 0:04:51.880 --> 0:04:54.560 on what happens between the Chinese and the United States 0:04:54.560 --> 0:04:56.760 over the next couple of months. Quite quite dependent. So 0:04:56.880 --> 0:04:59.480 within that is an expectation that we will not see 0:04:59.760 --> 0:05:02.640 my further escalation from here. We should all be clear 0:05:03.000 --> 0:05:05.320 ahead of the U S election, the US is extremely 0:05:05.400 --> 0:05:07.960 unlikely to roll back tariffs so we don't think we'll 0:05:07.960 --> 0:05:10.200 see a deal that resolves a lot of the issues, 0:05:10.680 --> 0:05:12.320 but we are at a point where we think there's 0:05:12.320 --> 0:05:15.919 only really tactical changes to the US China dynamic for 0:05:15.960 --> 0:05:17.640 the next few months, So that gives you a fighting 0:05:17.720 --> 0:05:19.640 chance to keep the software. We wanna get a final 0:05:19.680 --> 0:05:21.320 question to you, because no doubt, through much of this 0:05:21.360 --> 0:05:23.680 program will be dedicating it to what's happening with the 0:05:23.680 --> 0:05:26.120 trade talks down in Washington, d C. That will no 0:05:26.160 --> 0:05:28.200 doubt be the number one story for many people through 0:05:28.200 --> 0:05:30.680 the training week as well. Yeah, Abraham, a thing we 0:05:30.720 --> 0:05:32.560 go back to on this program is that typically for 0:05:32.640 --> 0:05:35.560 investors were always overly focused on the shark closest to 0:05:35.600 --> 0:05:37.360 the boat, and we need to be thinking about what's 0:05:37.360 --> 0:05:41.279 happening out swhere. Do you think we are underestimating events 0:05:41.520 --> 0:05:44.279 around the periphery of the main story at the moment 0:05:44.279 --> 0:05:46.279 that perhaps needs a little bit more attention, And if so, 0:05:47.040 --> 0:05:50.159 where is that attention where should it be? So we 0:05:50.240 --> 0:05:52.320 think there are a couple of other important storys around. 0:05:52.320 --> 0:05:55.039 We already touched on Japan, including ahead of those g 0:05:55.160 --> 0:05:57.320 P i F reviews later this month. The big story 0:05:57.320 --> 0:05:59.159 in G ten of X for US is also the 0:05:59.279 --> 0:06:03.119 candies where we see a lot of sensitivity to weaker 0:06:03.120 --> 0:06:05.160 global environment, but also central banks that seemed to be 0:06:05.200 --> 0:06:08.600 a little bit behind the curve. So exactly so weaker, 0:06:08.720 --> 0:06:12.039 weaker Swedish crona and at least no further upside on 0:06:12.080 --> 0:06:14.039 the on the Norwegian side as well. And then of 0:06:14.040 --> 0:06:16.200 course the other big topic, including an f X land 0:06:16.320 --> 0:06:19.720 is Brexit. Abraham, thanks so much. It has just been 0:06:19.760 --> 0:06:39.080 a crazy day. Thank you, thank you so much. We're 0:06:39.160 --> 0:06:41.800 focused on trade, We're focused on the markets. We welcome 0:06:41.880 --> 0:06:44.839 all of you coast to coast and worldwide. But right 0:06:44.880 --> 0:06:48.000 now the interview of my day on Turkey. This is 0:06:48.000 --> 0:06:52.240 Stephen Cook, his book faced on absolutely extraordinary on the 0:06:52.320 --> 0:06:55.160 Path from the Arab Spring. He joins us now with 0:06:55.200 --> 0:06:58.360 the Counseil on Foreign Relations from our studios. And while 0:06:58.400 --> 0:07:01.800 she did, Steve Stephen good more warning, um I I 0:07:01.880 --> 0:07:04.040 look at the events and let's bring it forward from 0:07:04.200 --> 0:07:08.600 new questions coming off of Mr Aradjan's lengthy speech uh 0:07:08.640 --> 0:07:12.080 in Anchora, what is next for Mr ra to Wan? 0:07:12.440 --> 0:07:16.760 Who does he have to sell the message to next? Well, really, 0:07:16.760 --> 0:07:18.720 the only people that he has to sell the message 0:07:18.760 --> 0:07:21.680 to is the Turkish public. Uh and the real risk 0:07:21.760 --> 0:07:25.120 for aer to one is that this incursion ends up 0:07:25.200 --> 0:07:31.280 being a more serious and protracted military conflict. UH. The 0:07:31.320 --> 0:07:34.760 Turks have now entered an area that had been controlled 0:07:34.760 --> 0:07:37.240 by this Syrian Kurdish fighting force known as the People's 0:07:37.280 --> 0:07:41.760 Protection Units. There's fighters aren't likely to take on Turkey directly, 0:07:41.800 --> 0:07:44.440 but engaged in more of a guerilla warfare. So for 0:07:44.720 --> 0:07:47.560 the moment, are One is riding high. He gave a 0:07:47.640 --> 0:07:51.119 very tough speech UH in Anchora not long ago. But 0:07:51.480 --> 0:07:55.400 if this operation unfolds and UH and and keeps Turkey 0:07:55.440 --> 0:07:57.960 in in Syria for a long period of time, he 0:07:58.000 --> 0:08:00.600 may run into some political problems. Stated. Can you explore 0:08:00.640 --> 0:08:02.480 where the EU stands on all of this? There was 0:08:02.480 --> 0:08:05.320 a threat from the Turkish president today to open the 0:08:05.360 --> 0:08:09.280 doors to the three point six million Syrian refugees. Who 0:08:09.320 --> 0:08:12.800 speaks for the EU at the moment, who's dealing with this? Well, 0:08:12.840 --> 0:08:15.280 this is a very important issue, and the and the 0:08:15.360 --> 0:08:18.200 presence of so many refugees in Turkey for which the 0:08:18.280 --> 0:08:21.040 European Union has been paying Turkey to keep them. There 0:08:21.400 --> 0:08:25.440 has been a point of leverage with President Air Juan 0:08:25.520 --> 0:08:28.720 every time the European Union or individual European states have 0:08:28.800 --> 0:08:32.880 grown critical of Airduan's domestic behavior. Uh, and he certainly 0:08:32.880 --> 0:08:36.000 has proven himself to be an authoritarian like many others 0:08:36.000 --> 0:08:39.920 in the region. Uh. He has threatened to open the doors. 0:08:40.200 --> 0:08:42.720 So uh, there's going to be a UN Security Council 0:08:42.720 --> 0:08:45.440 meeting today. THEU is going to meet and discuss this. 0:08:46.000 --> 0:08:48.160 He is warning them not to take a strong stance 0:08:48.160 --> 0:08:51.720 against Stephen Cooking. I'm so glad to bring this up. 0:08:51.800 --> 0:08:54.839 But John, Yes, exactly the right question. I, as the 0:08:55.080 --> 0:09:00.480 ignorant American, was close about the unique Germanic Turkish access. 0:09:00.600 --> 0:09:03.680 I began with sabelt Ka Kelly, the actress in Game 0:09:03.720 --> 0:09:06.480 of Thrones and her charity work in her Germany for 0:09:06.520 --> 0:09:09.960 the Turkish community. Let's go right there. How does Chancellor 0:09:10.120 --> 0:09:15.400 Miracle adapt and adjust to what President Trump has wrought? Well, 0:09:15.440 --> 0:09:18.080 this is something that the Europeans have been trying to 0:09:18.080 --> 0:09:20.559 deal with since the beginning of the Trump presidency. The 0:09:20.679 --> 0:09:24.280 decision to stand aside as the Turks rolled into Syria 0:09:24.679 --> 0:09:27.240 is one of those impulsive decisions that I think no 0:09:27.280 --> 0:09:30.480 one has really quite gotten used to. And the problem 0:09:30.600 --> 0:09:33.560 that is that it presents to the Europeans is that 0:09:33.640 --> 0:09:39.480 the resulting instability has an impact on European politics. UH 0:09:39.800 --> 0:09:43.040 Syrian refugees have been a flashpoint in European politics. There 0:09:43.080 --> 0:09:47.520 were Neo Nazis in Europe well before the conflict in 0:09:47.559 --> 0:09:50.200 Syria began in March two thousand eleven, but the presence 0:09:50.240 --> 0:09:53.840 of so many Syrian refugees who have traveled through Turkey 0:09:53.880 --> 0:09:56.800 on the way to Europe, particularly in Germany, has UH 0:09:57.640 --> 0:10:01.480 encouraged and provided fuel for the extreme right in Europe 0:10:01.480 --> 0:10:04.040 to make political gains. Stephen, there are so many different 0:10:04.080 --> 0:10:06.720 angles to explore around this story, the response from Europe, 0:10:06.720 --> 0:10:08.520 but also the response here in the United States. A 0:10:08.559 --> 0:10:12.240 real divide in the Republican Party now between the executive 0:10:12.280 --> 0:10:15.679 branch and senators, including Senator Lindsay Graham, an ally of 0:10:15.760 --> 0:10:18.960 the President, close out of the President introducing a bipartisan 0:10:18.960 --> 0:10:21.800 bill to sanction Turkey. Stephen, how do you see the 0:10:21.880 --> 0:10:26.480 US response evolving in the coming months and the separation, 0:10:26.559 --> 0:10:30.720 the division between the White House and Congress. It really 0:10:30.760 --> 0:10:33.559 is rather extraordinary that it has taken a Turkish and 0:10:33.600 --> 0:10:36.760 cruision and to herd them Syria to get the Democrats 0:10:36.760 --> 0:10:39.760 and the Republicans together, which I think demonstrates the depth 0:10:39.880 --> 0:10:46.040 of anger on Capitol Hill towards Turkey, once well regarded 0:10:46.080 --> 0:10:49.240 by almost everyone on Capitol Hill is a strategic partner 0:10:49.280 --> 0:10:53.520 of the United States, but this action has fueled concerns 0:10:53.679 --> 0:10:56.880 that UM, it will take the pressure off the Islamic State, 0:10:56.920 --> 0:10:59.880 which is regrouping and rebuilding, and will once again threaten 0:10:59.920 --> 0:11:03.199 the region in American interests in perhaps the United States. Uh. 0:11:03.480 --> 0:11:06.840 All that said, UH, it doesn't strike me that there's 0:11:07.000 --> 0:11:10.360 much that the Congress can view to prevent UH further 0:11:10.400 --> 0:11:14.559 Turkish action or the American or the Trump administration's tacit 0:11:14.640 --> 0:11:17.199 support for what the Turks are doing. Stephen Cooke too 0:11:17.240 --> 0:11:22.200 quickly here from your book False Dawn, Chapter two, Bread Freedom, 0:11:22.559 --> 0:11:26.480 Social Justice, Where will be the bread for the disrupted 0:11:27.040 --> 0:11:31.280 on the Turkish Syrian border? Where will that come from? Well, 0:11:31.320 --> 0:11:36.360 that is an extremely important question, and already aid groups 0:11:36.720 --> 0:11:40.400 have pointed out that much of this population is dependent 0:11:40.559 --> 0:11:45.000 upon international non governmental organizations and their work is being 0:11:45.040 --> 0:11:49.040 disrupted by UH this Turkish incursion. So people who are 0:11:49.080 --> 0:11:52.959 already quite vulnerable and once again finding themselves in an 0:11:52.960 --> 0:11:56.160 even more difficult situation. Stephen, we appreciate its on this morning, 0:11:56.200 --> 0:11:59.000 Stephen Cook of the Council and farm Relations. Cinia Fellow 0:11:59.000 --> 0:12:02.280 for Middle East and Africa Studies. Tell me a really original, 0:12:02.400 --> 0:12:18.280 unique situation that could end really quite badly. Now I'll 0:12:18.280 --> 0:12:20.800 get lots of talk about on trade with an esteemed 0:12:20.800 --> 0:12:23.719 equity guest, the mechanical engineer from Pennsylvania knows how to 0:12:23.800 --> 0:12:26.200 use a slide rule. David Pearl where this was epic 0:12:26.679 --> 0:12:28.560 Partner's David, I want to go to the ramcode deal 0:12:28.679 --> 0:12:30.520 just out what did they say, John, They're gonna now 0:12:30.640 --> 0:12:34.800 they're gonna announce a perspectus to give the green light 0:12:34.840 --> 0:12:39.000 for the world's biggest But we're only green lighting. It's 0:12:39.000 --> 0:12:43.440 not an I p O. It's a stub diliquefy am 0:12:43.440 --> 0:12:47.400 I right, David defined price. Ah right, It's just a 0:12:47.400 --> 0:12:50.760 way to monetize their holding because they're really not selling 0:12:50.840 --> 0:12:54.240 much the public. You're not any real ownership. But then 0:12:54.280 --> 0:12:57.439 you just described Silicon Valley. I mean Silicon Valley will 0:12:57.440 --> 0:13:01.920 put out what six eight of an equity A Ramco 0:13:02.000 --> 0:13:05.920 is putting out one to whatever within all you've seen 0:13:05.920 --> 0:13:09.640 in the last ninety days is a Silicon Valley Unicorn parade. 0:13:10.280 --> 0:13:13.199 Is it over? I do think it is over right 0:13:13.240 --> 0:13:18.640 now because the market is seeing a concern about companies 0:13:18.679 --> 0:13:23.000 continually losing money. These are companies that bleed free cash flow. 0:13:23.600 --> 0:13:26.880 They have to continue they have exactly, they have to 0:13:26.920 --> 0:13:30.080 go to market continually to stay in business. And the 0:13:30.120 --> 0:13:32.360 markets are getting a little leery of this. You're seeing 0:13:32.400 --> 0:13:35.600 that in numerous recent I p o s and bond offers. 0:13:35.760 --> 0:13:37.240 So we've got a bit of detail here, Tom, so 0:13:37.320 --> 0:13:39.880 let's go through it. The people involved in the deal. It's, 0:13:39.880 --> 0:13:43.320 according to our reporting here at Bloomberg, looking to sell 0:13:43.480 --> 0:13:46.960 two p of a RAM, which could raise forty billion. 0:13:47.000 --> 0:13:48.640 Now you can do the math on that. I'm just 0:13:48.679 --> 0:13:50.840 wondering how ambitious it is to sell two per at 0:13:50.880 --> 0:13:54.880 forty billion dollars, David. They've they've continually trying to value 0:13:54.880 --> 0:13:57.240 this company at two trillion, and I'm not sure the 0:13:57.280 --> 0:13:59.840 market wants to deal with that valuation. That that that 0:14:00.000 --> 0:14:03.040 it's the entire issue. So the smaller amount that they sell, 0:14:03.120 --> 0:14:07.240 the more likely they can keep the price higher because 0:14:07.280 --> 0:14:09.040 there isn't that much of a market looking at the 0:14:09.080 --> 0:14:12.360 rest of the energy stocks around COOS, that's such a 0:14:12.400 --> 0:14:14.440 premium if you do this, do you get the sense 0:14:14.480 --> 0:14:17.200 that this is a very original IPO and there could 0:14:17.200 --> 0:14:20.280 be some favors coult In here to support the valuation 0:14:20.600 --> 0:14:23.400 of this issue. Well, again, the the beauty of UM 0:14:23.680 --> 0:14:26.080 doing a traditional i p O is the placement and 0:14:26.160 --> 0:14:29.840 so finding some strong buyers and keeping the share size 0:14:29.840 --> 0:14:32.160 as small as you can will help. Can we back 0:14:32.240 --> 0:14:35.200 up and long ago and far away? In my ute, 0:14:36.640 --> 0:14:39.240 an i p O was what David eight percent of 0:14:39.280 --> 0:14:44.520 a company? Secent of a company. Maybe there's a little 0:14:44.560 --> 0:14:47.680 private stub off. I mean, John, we flipped this on 0:14:47.760 --> 0:14:50.360 its head. What you just said there I would have 0:14:50.440 --> 0:14:53.680 told you twenty years ago was impossible. Well, in fact, 0:14:53.720 --> 0:14:56.200 the usually the reason you would go public is because 0:14:56.240 --> 0:14:59.760 you're raising capital to grow. That's not the case in 0:14:59.840 --> 0:15:03.200 the one at all. This is about monetization of you know, 0:15:03.240 --> 0:15:05.480 the owners. And that's that's why I struggle with the 0:15:05.960 --> 0:15:08.640 valuation of this company because you know what the intent 0:15:08.720 --> 0:15:11.840 and the objective is of the Kingdom. They quite clearly 0:15:11.840 --> 0:15:14.120 see a top for this business if they want to 0:15:14.160 --> 0:15:16.480 sell it down. And if you're an investor looking at 0:15:16.480 --> 0:15:20.040 it knowing that that's what the Kingdom sees, why would 0:15:20.040 --> 0:15:22.760 you be a buyer of that story? Well, all I 0:15:22.800 --> 0:15:25.320 can say is it is a well run company. On 0:15:25.360 --> 0:15:28.680 the positive side, it is. It is for dividend for income. 0:15:29.040 --> 0:15:31.960 It will generate cash. But but again the valuation I 0:15:32.000 --> 0:15:34.760 can't really speak to because right now the comparables are 0:15:34.840 --> 0:15:38.560 much much lower that That is Ambre Horden's really smart 0:15:38.640 --> 0:15:42.200 interview yesterday Rochelle Oil John. She started with the dividend 0:15:43.080 --> 0:15:45.840 Shell has basically done nothing. I mean X on mobile 0:15:45.880 --> 0:15:49.440 tenures trailing three point one percent per year, you get 0:15:49.440 --> 0:15:52.200 a big US dividends? Shall you get John? Is six 0:15:52.240 --> 0:15:54.840 percent dividend? I mean shall should be on the real 0:15:54.920 --> 0:15:57.360 you and change almost six and a half percent? Is 0:15:57.400 --> 0:15:59.400 your is your dividend? Are we going to get the 0:15:59.480 --> 0:16:01.680 dividend for Mariam Coo? Would you suggest? I know, not 0:16:01.920 --> 0:16:04.200 there like yeah, I really doubt it's going to be 0:16:04.240 --> 0:16:06.400 that high. But the dividend is definitely one of the 0:16:06.440 --> 0:16:09.800 ways that they will be paying investors and themselves, So 0:16:10.280 --> 0:16:12.360 it makes sense to have a dividend, but it's not 0:16:12.440 --> 0:16:15.400 going to be as high as David. I want to 0:16:15.400 --> 0:16:17.080 talk about what's happening with the trade story as well, 0:16:17.320 --> 0:16:19.600 and on a single name issue, because I think this 0:16:19.600 --> 0:16:21.760 this week has really taken it from a global macro 0:16:21.960 --> 0:16:24.720 story from top down to a single name story with 0:16:24.800 --> 0:16:27.760 the likes of Activision, Blizzard, the likes of the NBA 0:16:27.800 --> 0:16:31.280 as well. These names the Walt Disney Company because of 0:16:31.520 --> 0:16:35.880 ESPN getting caught up in two completely different value systems. 0:16:36.240 --> 0:16:38.200 If you want to operate in the United States and 0:16:38.200 --> 0:16:41.080 you want to operate in China, to satisfy the consumers 0:16:41.080 --> 0:16:44.600 in the United States and simultaneously satisfy the state in 0:16:44.720 --> 0:16:48.640 China is becoming increasingly difficult. As a stock selector, a 0:16:48.760 --> 0:16:51.640 stock picker. How are you thinking about that at the moment, David? 0:16:52.320 --> 0:16:54.840 This is this is an incredibly complex area. We could 0:16:54.880 --> 0:16:56.480 talk about this for a while and I will tell 0:16:56.520 --> 0:16:59.760 you the question is if you run a company, who 0:17:00.040 --> 0:17:03.760 are you responsible to if it's creating value for your 0:17:03.920 --> 0:17:08.560 shareholders and owners or is it the stakeholders, including society 0:17:08.600 --> 0:17:12.600 at large, the customers. It's almost undoable right now because 0:17:12.680 --> 0:17:14.920 of the issues you just said that there's no way 0:17:14.960 --> 0:17:18.680 for a company to satisfy all their stakeholders. But as 0:17:18.680 --> 0:17:23.200 an investor, their duty is to create value for shareholders, 0:17:23.520 --> 0:17:26.960 and so they have to make an economic decision that's 0:17:27.000 --> 0:17:29.239 best for the company, no matter what the politics, and 0:17:29.280 --> 0:17:32.280 that is going to be very difficult in this environment 0:17:32.280 --> 0:17:34.199 and many of these companies flick the switch on that 0:17:34.240 --> 0:17:35.960 in the last couple of months and said that the 0:17:36.320 --> 0:17:39.879 shareholders no longer the number one priority. That was some 0:17:39.920 --> 0:17:42.080 news that came out led by the likes of JP 0:17:42.119 --> 0:17:44.520 Mork and I believe David, Do you believe that in 0:17:44.560 --> 0:17:46.400 the first place? And if that is to be true, 0:17:46.440 --> 0:17:49.440 if we're meant to take account of all the stakeholders 0:17:49.600 --> 0:17:52.560 in our business now as a business leader, how complex 0:17:52.600 --> 0:17:55.680 will it be to navigate two completely different markets the 0:17:55.720 --> 0:17:58.359 United States and China. Oh, it's going to be a 0:17:58.440 --> 0:18:00.800 much harder world to invest stint and to run a 0:18:00.840 --> 0:18:03.040 company in. I mean as a as a as a 0:18:03.040 --> 0:18:06.480 shareholder and investor. I'm going to make an economic decision 0:18:06.520 --> 0:18:08.680 on whether the company is doing the right thing for 0:18:08.800 --> 0:18:12.120 us as owners. But that does include to some degree 0:18:12.240 --> 0:18:16.520 these um, you know, stakeholder issues and you know, ethical 0:18:16.560 --> 0:18:22.360 political issues, epic partners, foundational sharp ratio, risk free rate. 0:18:22.640 --> 0:18:26.800 Where's the risk free rate right now? To three decimal points? 0:18:27.680 --> 0:18:30.440 It's pretty low. And actually this is this has been 0:18:30.480 --> 0:18:33.399 one of the scary things that has happened since QUEI 0:18:33.640 --> 0:18:38.920 started in and has almost restarted this year, that many 0:18:39.000 --> 0:18:43.320 companies back to the unicorns who probably shouldn't exist, can 0:18:43.359 --> 0:18:47.200 still raise money. And you know this is still concerning 0:18:47.240 --> 0:18:49.960 as a free cash flow investor because the law of 0:18:50.000 --> 0:18:53.960 economics is the competitor who is more profitable eventually wins. 0:18:54.000 --> 0:18:56.359 But now the person who can lose the most money 0:18:56.720 --> 0:19:00.640 can disrupt the profitable companies. Quickly walk through an example. 0:19:00.640 --> 0:19:02.280 You don't even have to mention the name of a 0:19:02.320 --> 0:19:04.880 company you got wrong. Where you looked at the free 0:19:04.920 --> 0:19:08.440 cashow it looked legitimate, and three or five years later 0:19:08.480 --> 0:19:11.639 you guys said, man, we mess that up. How do 0:19:11.680 --> 0:19:15.720 you get there? Yeah, it's usually because of some change 0:19:15.720 --> 0:19:19.000 in the market or competition. Um, we're pretty good about 0:19:19.080 --> 0:19:22.600 the profitability of the company's note issue. No, But as 0:19:22.600 --> 0:19:25.159 a disruptor, let's put it this way. Walt Disney was 0:19:25.160 --> 0:19:27.959 one of the most profitable companies, has been a great stock. 0:19:28.600 --> 0:19:32.440 Netflix disrupted the industry. It can lose. It's losing three 0:19:32.440 --> 0:19:34.440 and a half billion dollars this year and we'll lose 0:19:34.480 --> 0:19:37.440 more next year. Keeps reading your mind and has spent 0:19:37.560 --> 0:19:41.600 more money on content than even Disney had. Uh, and 0:19:41.680 --> 0:19:44.880 yet will never make money. But it is affecting Disney, 0:19:44.880 --> 0:19:47.200 and Disney now will have to invest a lot of money, 0:19:47.240 --> 0:19:51.760 basically hurt shareholder value to compete and they will, uh, 0:19:51.800 --> 0:19:53.960 they'll probably be successful as a matter of fact in 0:19:53.960 --> 0:19:56.720 the long term, but they've hurt shareholder value in the 0:19:56.720 --> 0:19:58.880 short Does ample change if they've got to get into 0:19:58.960 --> 0:20:02.440 content Paul Sweeney suggest that won't be nearly as profitable 0:20:02.440 --> 0:20:06.119 as the Apple combine. Oh, yeah, absolutely. I think Apple. 0:20:06.280 --> 0:20:11.600 Apple does want to transition to recurring revenue services, including content, 0:20:11.800 --> 0:20:15.280 but this is an area they don't have any competitive advantage, 0:20:15.280 --> 0:20:17.040 and to begin with, they're going to spend a lot 0:20:17.080 --> 0:20:20.639 of money, and once again, it does hurt shareholder value. 0:20:20.680 --> 0:20:22.960 In fact, that was one of the issues we had 0:20:23.320 --> 0:20:25.680 with Apple as a long term hold. Just to clear 0:20:25.720 --> 0:20:27.119 hit David, just to clean this up, because I think 0:20:27.119 --> 0:20:29.520 it's really really important if we do describe this era 0:20:29.760 --> 0:20:31.560 as the era of easy money, and some people might 0:20:31.560 --> 0:20:33.640 push aggressively back on that, but if this era came 0:20:33.680 --> 0:20:37.080 to a close and this very unique era of exceptionally 0:20:37.119 --> 0:20:39.120 easy money, and did you saying that some of these 0:20:39.119 --> 0:20:41.200 business models that have been established to the likes of 0:20:41.200 --> 0:20:43.760 the Walt Disney Company and others are getting involved in 0:20:44.000 --> 0:20:47.679 are ultimately unsustainable at this price level. That unsustainable business 0:20:47.680 --> 0:20:50.800 models well, for Walt Disney, they have the capital to 0:20:50.920 --> 0:20:54.080 survive this. It's just hurting near term profits and mid 0:20:54.200 --> 0:20:57.159 term profit Netflix. But for the disrupts like Netflix, this 0:20:57.200 --> 0:21:00.320 would be a disaster. Uh. They literally have to go 0:21:00.359 --> 0:21:03.320 to market at least once to twice a year to 0:21:03.400 --> 0:21:06.480 stay in business, and they have successfully done that, but 0:21:06.760 --> 0:21:09.560 that could come to an end. We're out of time 0:21:09.600 --> 0:21:12.640 doing the interesting stuff, Thank you, partners are in particularly 0:21:12.720 --> 0:21:16.120 untrade and the ramifications of China. It's the story. John 0:21:16.119 --> 0:21:33.160 and I are watching. What a session it was overnight, 0:21:33.200 --> 0:21:35.560 the market dropping on a report from the South China 0:21:35.640 --> 0:21:38.960 Morning Post suggesting that deputy level talks had gone poorly. 0:21:39.280 --> 0:21:42.200