Speaker 1: Welcome to the Bloomberg pien L Podcast on past when you,
Speaker 1: along with my co host Lisa Brahma, wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Simmon's Energy America's team leader for
Speaker 1: Bloomberg News, he joined us on our Bloomberg Interactive Brooker Studio. So,
Speaker 1: first of all, Simon, are you surprised that Chevron walked
Speaker 1: away today? No, we're not surprised as as as my work,
Speaker 1: and you just heard him earlier that he's very keen.
Speaker 1: We can't stress enough capital discipline, his commitment to returning
Speaker 1: as much cash as possible to investors, not getting carried away,
Speaker 1: and making bold and over ambitious deals here. So although
Speaker 1: this was this would have been the biggest deal of
Speaker 1: his career, it would have been I think possibly Chevron's
Speaker 1: biggest acquisition today. The money that the offer was there
Speaker 1: on the table, and they were pretty clear they were
Speaker 1: they weren't going to go any higher, and a lot
Speaker 1: of people saw them just staying with this, and when
Speaker 1: Occidental came back improved their offer, it was it was
Speaker 1: questionable whether Chevron had the willingness to go above that.
Speaker 1: And certainly shareholders today are rewarding Chevron for that discipline,
Speaker 1: they are not rewarding Occidental. Shares down six point two
Speaker 1: in the week of Chevron's decision to walk away. How
Speaker 1: negative is this for Accidental? To give you some idea,
Speaker 1: Occidental's market caout the last time I looked with something
Speaker 1: like a fifth of what Chevon's. It's Chevron is an
Speaker 1: enormous company by any measure. It's got the balance sheet,
Speaker 1: it's got the financial flexibility to buy a company of
Speaker 1: Anadarko size fairly easily. For Occidental, this is a huge stretch,
Speaker 1: and as we we know, they've been flying or literally
Speaker 1: flying around the last couple of weeks trying to trying
Speaker 1: to engineer this deal and make sure it works for them.
Speaker 1: They've gone to Warren buffet it. They've got ten billion
Speaker 1: dollars of cash, a commitment from him. They've gone total
Speaker 1: in France Total, have agreed to take some assets post deal,
Speaker 1: which should ease some concerns there Nevertheless, there is a
Speaker 1: real anxiety that how is Occidental going to pay for
Speaker 1: this and manage its balance sheet and not get too leveraged.
Speaker 1: And this is this is the oil industry, of course,
Speaker 1: this is a cyclical industry. Where the price has done
Speaker 1: a bit better this year, there's no guarantee oil prices
Speaker 1: will stay around where they are at the moment. They
Speaker 1: won't go down back down to fifty dollars a barrel
Speaker 1: or even lower next year. Who knows, so Simon, you
Speaker 1: just you mentioned the great balance sheet that Chevron has.
Speaker 1: What do you think Chevron's next step is, given that
Speaker 1: they're now passing on in a darker I I think
Speaker 1: any CEO, especially in the oil industry and the way
Speaker 1: it is at the moment, with what's going on in
Speaker 1: the Permian, myke Worth has got to be looking at
Speaker 1: other other opportunities. Again, we heard him there. He wouldn't
Speaker 1: be drawn into sort of naming names or really committing
Speaker 1: himself to doing another deal. He's he's playing it as
Speaker 1: you would expect him at this moment to be. It's
Speaker 1: playing it safe, stressing the increase that announced this morning,
Speaker 1: the share buy backs, and that's what she helds want
Speaker 1: to see in the near term. But look what's going
Speaker 1: on in the Permian right now. This is huge explosive
Speaker 1: growth there. Exon and Chevron, the two big giants of
Speaker 1: the industry here have for years have kind of sat
Speaker 1: on the sidelines a bit. They've been involved, but they
Speaker 1: it's only this year that they got really they made
Speaker 1: really strong commitments to invest billions and billions over the
Speaker 1: next few years and really make the Permian a centerpiece
Speaker 1: of their growth plans. Uh. And there's a there's a
Speaker 1: huge opportunity here in the Permian for these companies and
Speaker 1: others to come in and consolidate. There's a very fragmented
Speaker 1: ownership in that region. There are a lot of independent players,
Speaker 1: mid sized companies, some of them have you know, operational challenges.
Speaker 1: And what's what's happened in the last few weeks were
Speaker 1: with Anadarka coming into play. It's really ignited a lot
Speaker 1: of speculation about future m and A maybe involving Chevron,
Speaker 1: but also maybe involving other majors, even x On Shell. Uh,
Speaker 1: maybe some consolidation between some of those mid sized players
Speaker 1: and really kind of rationalizing what's going on there. You know,
Speaker 1: as you mentioned, Simon this is a cyclical business, and
Speaker 1: I think about some of the pain that we've seen
Speaker 1: in the Pachelle patch, particularly from the debt market side.
Speaker 1: We certainly saw that in two thousand and fifteen, two
Speaker 1: thousand and sixteen. I'm wondering whether this acquisition by Accidental
Speaker 1: is setting up that company for a similar pain later on.
Speaker 1: I mean, is are they going to end up paying
Speaker 1: for this largely with dead And I am looking right
Speaker 1: now at Occidental bonds that are selling off sharply, uh
Speaker 1: in the our investment grade currently, but definitely investors are
Speaker 1: showing some scottishness there. Yeah, it's a big question. I mean,
Speaker 1: you look at I can't keep going back to the buffet,
Speaker 1: the buffet deal and Buffet's got he's got, he's got
Speaker 1: preferred stock. The paying I mean, this is really expensive
Speaker 1: to get this deal done for them, and they ostensibly
Speaker 1: did this to avoid a shareholder votes, but in the end,
Speaker 1: you know, even if they push this through, it's going
Speaker 1: to turn around and buy them. I definitely watched the
Speaker 1: bonds um. There's a there's a huge continuing anxiety among investors,
Speaker 1: bond holders, shareholders about what has happened in this sector
Speaker 1: over the last three or four years. I mean, the
Speaker 1: oil price sold off steeply back in and it's only
Speaker 1: just started to recover. If you if you look over
Speaker 1: us at the last five years or so, you know,
Speaker 1: it used to be at a hundred dollars a barrel.
Speaker 1: Where is it at the moment. It's like arrow depending
Speaker 1: on which price you're looking at. Um. So we're not
Speaker 1: out of the woods yet. And the last few years
Speaker 1: the mantra has been in the oil industry capital discipline,
Speaker 1: spending discipline. Uh, you know, and there are the industry
Speaker 1: has hasn't yet recovered to the damage, hasn't really pair
Speaker 1: the damage to its reputation. And you know, looking at
Speaker 1: the commentary, speaking to investors, speaking to analysts over the
Speaker 1: last couple of weeks, as I said, it's a real
Speaker 1: worry that does this take over battles signal and an
Speaker 1: end to this period of discipline and austerity. So Chevron
Speaker 1: stepping backs given its investors a bit of a relief, um,
Speaker 1: But for occidental shareholders, the anxiety is very real at
Speaker 1: the moment, and it must be. There must be a
Speaker 1: worry for investors in other share other companies right now.
Speaker 1: Are they going to take a leap. Is this going
Speaker 1: to be We're going to see more deals? Could we
Speaker 1: see another takeover battle? I mean that would be kind
Speaker 1: of negative for some of them. Sam and Casey, thank
Speaker 1: you so much. I wonder I wonder where actually where
Speaker 1: where is the jet right now? Real quickly, the last time,
Speaker 1: for the last time I looked, it was still in
Speaker 1: the in the Hague. And what that mean? What does
Speaker 1: that mean? Very good? We don't even look to be clear.
Speaker 1: We all we know is that the Occidental jet is
Speaker 1: in the Netherlands. We don't know who's on board or
Speaker 1: while they're there. One of my okay understood, Simon Casey,
Speaker 1: Energy team leader Bloomberg News joining us on our Bloomberg
Speaker 1: Interactive Broker studio. I believe Royal Dutch Shell might be
Speaker 1: somewhere in that part of the world. But the Occidental
Speaker 1: now owns this asset. They now own a big, big
Speaker 1: piece of the Permian basin. UH. They've arranged for financing
Speaker 1: with Warren Buffett in terms of ten billion dollars preferred stock. UH.
Speaker 1: They've met with the folks and have an agreement a
Speaker 1: total for some divestitures. So they're certainly putting their best
Speaker 1: foot forward here. And what is a very big deal
Speaker 1: for the occidental petroleum folks in terms of assets, in
Speaker 1: terms of purchase price. Uh So, now the hard work begins. Now,
Speaker 1: let's head to UH Nathan Hagar for World at national headlines, Nathan,
Speaker 1: globally are getting more concerned today about the prospects of
Speaker 1: no trade deal with between the US and China. Both
Speaker 1: sides appear to be hardening their stance, and Nastac leading
Speaker 1: the declines in the US, but down by one and
Speaker 1: a half percent. Really though, one of the biggest moves
Speaker 1: that can be seen in currency markets. I'm looking right
Speaker 1: now at the ms c I Emerging Markets uh Currency Index,
Speaker 1: which is poised for its biggest one day loss right
Speaker 1: now since October eighteen, had fallen the most since August
Speaker 1: of last year at one point, and has retraced all
Speaker 1: of its gains for joining US now to talk about
Speaker 1: this from the emerging markets angle and and just currencies
Speaker 1: in general. Al Hasseani He is senior interest rates and
Speaker 1: currencies analysts for Columbia thread Needle Investments, helping to oversee
Speaker 1: four hundred and thirty billion dollars from Minneapolis, Minnesota. Thank
Speaker 1: you so much for being with us ed. I just
Speaker 1: want to start with the big move that we're seeing
Speaker 1: in the ms I Emerging Markets Currency Index. I'm just wondering,
Speaker 1: is this the beginning of something that could be a
Speaker 1: real protracted sell off among emerging markets, particularly in South
Speaker 1: in Asia should the deal breakdown completely? Sure, I mean
Speaker 1: I think if the deal does break down, we probably
Speaker 1: see a little bit more downside uh two currencies. If
Speaker 1: you look at what happened, let's say, in the course
Speaker 1: of the past six months in the e M space,
Speaker 1: is we've seen uh the real rate question versus the
Speaker 1: US shrink quite considerably. The M as a class of
Speaker 1: the whole has done, has done quite well until I'd
Speaker 1: say about two months ago, and it's flatline since. And
Speaker 1: now we're starting to see some of that volatility and
Speaker 1: risk assets spill over into e M UM and and
Speaker 1: and generally that tends to be a very toxic combination
Speaker 1: for for M currencies. So I talk about some of
Speaker 1: the European currencies, thinking about the Euro obviously, the European
Speaker 1: region very sensitive to you know, the health and growth
Speaker 1: and situation in China. What is your thoughts about the
Speaker 1: euro right here? Yeah, we we have liked being short
Speaker 1: the euro for more than a year now, it's been
Speaker 1: it's been a good trend. That trend is flat line,
Speaker 1: I would say a little bit more recently, UM, A
Speaker 1: couple of things have played into this flattening trend. And
Speaker 1: instead of the decline and volatility in euro dollar one,
Speaker 1: European data at this point seems to have a little
Speaker 1: bit less downside than it did even three months ago.
Speaker 1: We've bottomed out in a lot of the industrial in
Speaker 1: the seas, We're starting to see some recovery in in
Speaker 1: export data, some recovering sentiment data, and that's playing against
Speaker 1: what we're seeing on on the trade front and again
Speaker 1: greater uncertainly coming in terms of US China trade relations.
Speaker 1: So those two forces are are playing off against each
Speaker 1: other at the moment. And I would add the other
Speaker 1: factor is in terms of positioning spect positioning. Speculative positioning
Speaker 1: right now is quite heavily short the euro, and so
Speaker 1: I think that that plays against UM dollar strength as well.
Speaker 1: More broadly, I would say dollars trend has more room
Speaker 1: to run, but versus the euro, I think, UM, we're
Speaker 1: seeing less and less room for for the euro tow
Speaker 1: to weaken. And you know, I have to wonder the
Speaker 1: big story today really is the trade tensions appear to
Speaker 1: be ratcheting up between the US and China. I'm trying
Speaker 1: to figure out how much of a game changer a
Speaker 1: breakdown in discussions would be four currency markets. How much
Speaker 1: would no deal between the US and China alter your
Speaker 1: current views on currencies and in sort of where you're positioning, Yeah,
Speaker 1: I would say I would say it probably as a
Speaker 1: first order issue, we would strengthen my conviction that the
Speaker 1: dollar will move higher UH, particularly against two baskets of currencies. First,
Speaker 1: high beta EM currencies like South Africa, Mexico and Brazil
Speaker 1: that have performed quite well on a year to date
Speaker 1: basis um and and have a lot of room to
Speaker 1: sell off UM and Second, developed market currencies of small,
Speaker 1: open economies. And I would say there's sort of I
Speaker 1: look at a basket of five, but the Australian dollar,
Speaker 1: the New Zealand dollar, UH, Swedish Corona, Korean Land, and
Speaker 1: the Canadian dollar. I think that basket is where we've
Speaker 1: seen a combination of things. First, weakening growth into this environment,
Speaker 1: the biggest exposure to trade, and therefore this this global
Speaker 1: or this location between the U S and China, and
Speaker 1: then central banks having to step in and now ease policy.
Speaker 1: And we've seen New Zealand take a step in that direction.
Speaker 1: We've seen easing signs from Australia, Korea, um And and Sweden.
Speaker 1: And so all of these five currencies are now sort
Speaker 1: of the front line of of of weakness versus a
Speaker 1: are so ed you mentioned some of the areas and
Speaker 1: emerging markets where you rightly have concerns, particularly in the
Speaker 1: backdrop of a you know, a trade potential, trade escalating
Speaker 1: conflict between the U S and China. Are there areas
Speaker 1: in emerging markets where you still feel comfortable, uh, putting
Speaker 1: capital to work. Sure, I would say in in local
Speaker 1: rates markets, we've seen a couple of places where you're
Speaker 1: pretty well compensated. Real rates are high central banks of
Speaker 1: starting easing cycles. Um. I would say if you look
Speaker 1: around Asia the moment um, Indonesia and the Philodines standout
Speaker 1: as as pretty good places to put money to work
Speaker 1: on a currency hatched basis um in in in in
Speaker 1: the local rates markets, in in Latin America less so
Speaker 1: just because you know, some of the core markets have
Speaker 1: done quite well, uh, you know, particularly Brazil UM and
Speaker 1: then when I look around for stress cases, I would
Speaker 1: say again, so the two issues from last year in
Speaker 1: Argentina and Turkey again float to the top of the
Speaker 1: of the risk list and and and have performed quite poorly.
Speaker 1: You today, Ed al Husseini, thanks so much for being
Speaker 1: with us it as a senior Interest Rates and currency
Speaker 1: as a Columnia thread Needle Investments joining us on the
Speaker 1: phone from Minneappolis. Well, as usual, there is a lot
Speaker 1: going on in the media industry as traditional media companies
Speaker 1: look at their businesses to see if they can even
Speaker 1: compete with big tech giants such as Amazon, Netflix, and Apple.
Speaker 1: Our next guest is part of the top notch media
Speaker 1: reporting team. We have a Bloomberg News, Lucashaw's entertainment reporter
Speaker 1: for Bloomberg News, usually based on our Los Angeles bureau,
Speaker 1: but joining us live here on our Bloomberg Interactive Brookers
Speaker 1: studio here in New York. So, Lucas, thanks so much
Speaker 1: for being with us. First of all, you know we
Speaker 1: had Disney this week with earnings. They're making a big
Speaker 1: pivot to try to be a streaming company. What did
Speaker 1: you take out of some of Bob Ogger's comments. You
Speaker 1: know he has very effectively changed the conversation around Disney
Speaker 1: over the past couple of years. For a while, it was,
Speaker 1: you know, the movie studio is doing so well because
Speaker 1: of the Marvel movies and Pixar and Star Wars. But ESPN,
Speaker 1: which had been the profit driver for so long, with
Speaker 1: struggling because people were cutting the cord, canceling pay TV,
Speaker 1: And he has shifted the focus to these new streaming
Speaker 1: services ESPN Plus, Disney Plus and Hulu, in which Disney
Speaker 1: owns a majority stake, and for the most part in
Speaker 1: investors are going along with it. You know, Disney says
Speaker 1: that profits they're down a little bit, but they're not
Speaker 1: down as much as people think. Uh and and people
Speaker 1: are cool with that. For the longest time, the the
Speaker 1: you know, the important metric at Disney has been profitability
Speaker 1: and it's not anymore. Is this a sort of a
Speaker 1: recognition by investors that really the future of media is
Speaker 1: streaming and that it's going to be expensive and this
Speaker 1: is going to be a difficult time, But it's all
Speaker 1: about how you position for the future, and profitability is
Speaker 1: that much less important than the near term for the
Speaker 1: short term. I think that's exactly right. You know, Netflix
Speaker 1: has built this kind of colossus and earned evaluation north
Speaker 1: of a hundred fifty billion dollars without making a cent
Speaker 1: of profit. I mean they report one with their free
Speaker 1: cash flow is really negative. Uh. You know, Disney obviously
Speaker 1: can't get away with that, but they are going to
Speaker 1: have a couple of years I think where they can
Speaker 1: report profits that are flat or down a little bit,
Speaker 1: provided that they show growth in streaming lucas. You know,
Speaker 1: one of the things that I think drove the Disney
Speaker 1: Century Fox deal was the belief that, gee, if you're
Speaker 1: bob Byger and Disney, over the next five or ten years,
Speaker 1: your competition is not so much Warner Brothers or Viacom.
Speaker 1: It's maybe more like an Apple or Amazon. Do you
Speaker 1: think those tech companies are going to at any point
Speaker 1: really dive into the deep end of the pool in
Speaker 1: terms of media and content. I would say that Amazon
Speaker 1: at least is already there in terms of spending. I mean,
Speaker 1: they're spending five six seven billion dollars on programming in
Speaker 1: a year now. I don't know that they've had success
Speaker 1: with their shows on the scale that that Netflix or
Speaker 1: even Hulu has had. Most TV studio executives that I
Speaker 1: talked to feel like the Amazon's perception in the market
Speaker 1: is is vastly overstated. Um, Apple is a is a
Speaker 1: big question mark. I'm really not sure how committed they are.
Speaker 1: They had this big event a couple of months ago.
Speaker 1: They tried out j j Abrams and Oprah and Reese
Speaker 1: Witherspoon and Jennifer Aniston. You know, I was talking with
Speaker 1: somebody yesterday who joked that it was like Apple just
Speaker 1: staged its own Vanity fair cover. But we haven't seen
Speaker 1: a second of any footage, and we don't know how
Speaker 1: serious they are about selling the services. I think for
Speaker 1: for Disney, it's at least now it's all about Netflix
Speaker 1: and with the Fox steal, buying enough intellectual property, having
Speaker 1: enough shows and movies that they're going to have a
Speaker 1: robust service that has thousands of titles that you will
Speaker 1: have to subscribe to. Do we have a better sense
Speaker 1: of pricing for Apple or for Disney Disney Disney said
Speaker 1: that it's going to be I think it's six, but
Speaker 1: it's not going to include a lot of the other things, right,
Speaker 1: I mean, it's not going to include absolutely everything. It
Speaker 1: will have what you think of as kids or family
Speaker 1: friendly programming, so the kind of everything animated Pixar and
Speaker 1: you know, the record Ralph movies. All that will be there,
Speaker 1: most of the Marvel movies, Star Wars movies, some original series.
Speaker 1: What it won't have is some of that Edgy or
Speaker 1: Fox programming that they just acquired that. I think the
Speaker 1: average show that's on the FX network, for example, will
Speaker 1: probably live elsewhere. But one thing that is going to
Speaker 1: be on the app that surprised me a little bit
Speaker 1: was The Simpsons, which you could see being a natural fit,
Speaker 1: say for Hulu, which has done a lot in what
Speaker 1: you quote unquote adult animation. Uh, and instead it's gonna
Speaker 1: be on on Disney Plus. It's interesting that this streaming
Speaker 1: business is getting kind of crowded. One could argue, we've
Speaker 1: had announcements from you know, NBC that they're going to
Speaker 1: launch a streaming service, Um, you know, a T and
Speaker 1: T and so on and so forth. Is there a
Speaker 1: sense out there about how much the market can really bear?
Speaker 1: Is it just kind of too early to figure that out.
Speaker 1: It's a little early to figure that out. We've seen
Speaker 1: people some firms are starting to do research on consumer willingness.
Speaker 1: I think most people figure that there's a people will
Speaker 1: subscribe to three to five, maybe six. There'll be a
Speaker 1: lot more than them. And there are a lot of
Speaker 1: already dozens, if not hundreds, of niche services that have
Speaker 1: four hundred thousand subscribers, two hundred thousand subscribers. I really
Speaker 1: don't know what happens to them in the long term,
Speaker 1: and we could end up with, you know, a bundle
Speaker 1: that is not that different from the PayTV bundle you
Speaker 1: see today, where you pay fifty bucks a month or
Speaker 1: a hundred bucks a month and you get seven or
Speaker 1: eight of these. The question is will people participate? You know,
Speaker 1: Apple try to do that. Instead of focusing on building
Speaker 1: its own shows, it wanted to package together different subscription
Speaker 1: services with its TV app, which it has on the
Speaker 1: Apple TV set top block right now. The problem is
Speaker 1: is that Netflix has been unwilling to participate, and if
Speaker 1: you don't have the number one player, it's really hard
Speaker 1: to drive customers. They're talking about how crowded is. Walmart's
Speaker 1: getting into with a platform called Voodoo, not Hulu Voodoo,
Speaker 1: but it is going to offer free programs just with commercials.
Speaker 1: I'm wondering, who do you think would be the bundler.
Speaker 1: Bundler for the different services, probably one of the big
Speaker 1: tech companies, Apple, And because Apple and Amazon already offer
Speaker 1: a version of this, Amazon as this program called Channels
Speaker 1: where if you are a subscriber to Prime, which is,
Speaker 1: you know, to free day delivery, you can add on
Speaker 1: other services. Lucas Shaw, thank you so much, as always
Speaker 1: for being with us. Lucas Shaw, Great, see you in person.
Speaker 1: Entertainment reporter for Bloomberg News normally in Los Angeles, but
Speaker 1: here with us in New York in a Bloomberg Interactive
Speaker 1: broker's studios. But let's switch back to the China deal.
Speaker 1: We're you know, this is the two days that really matter.
Speaker 1: The US delegation and the Chinese delegation are meeting in Washington,
Speaker 1: d C. Tensions are very high on both sides. To
Speaker 1: get the latest of what we might expect, we welcome
Speaker 1: Andy Brown and he's the editorial director for Bloomberg New Economy.
Speaker 1: He joins us live here in our Bloomberg Interactive Brooker studio. So, Andy,
Speaker 1: tensions are high on both sides. Just in the last
Speaker 1: twenty four forty eight hours. Do you think we get
Speaker 1: a deal here? Uh? Look, I I think the omens
Speaker 1: are not looking good at all. I think it's it's
Speaker 1: very notable that the chief Chinese negotiate, Leoha, is arriving
Speaker 1: this time not as an emissary of President Si Jimping
Speaker 1: as he did before, even though of course they're very close.
Speaker 1: They've been friends since school days, which indicates it in
Speaker 1: Chinese bureaucratic terms, they are in a sense lowering them
Speaker 1: you know, position of this, of this delegation. It's smaller
Speaker 1: than it was supposed to be. And there it seems
Speaker 1: as though the lowering expectations as well. I mean, at
Speaker 1: the very least, he's not arriving as a grand planet
Speaker 1: opoury of presidents. He to wrap up a great trade
Speaker 1: deal with the White House. You don't get that feeling
Speaker 1: at all. So what happened? Look, I think a couple
Speaker 1: of things. First of all, the economic context has changed.
Speaker 1: Um that when they began the talks, the Chinese economy
Speaker 1: was looking pretty fragile. They've since short it up with
Speaker 1: a mix of all kinds of stimulus. Um. They've got
Speaker 1: the private sector firing again. Um. And you know, on
Speaker 1: the other hand, the Chinese may calculate that the United
Speaker 1: States has become more fragile. But I think there's another
Speaker 1: issue here that you know, regardless of how sincerely or
Speaker 1: her may have been in making concessions, he's now coming
Speaker 1: up against the reality that he's got to sell this
Speaker 1: to an unyielding bureaucracy. You know, in Chinese leaders, despite
Speaker 1: what people think, are not omnipotent. So you know, this
Speaker 1: d to get it into law, which is apparently what
Speaker 1: Robert Lightheiser wants. This is not a simple matter, you know.
Speaker 1: To do that, it's going to require a concerted push
Speaker 1: by President Ji Jimping, And frankly, it is not clear
Speaker 1: to me why he would want to do that. Why
Speaker 1: we Why would he want to expand that much political
Speaker 1: capital and take personal responsibility for dismantling portions of the
Speaker 1: Chinese state owned economy, which the Chinese themselves have identified
Speaker 1: as being key to supporting the Chinese Communist Party and frankly,
Speaker 1: a better modeled for competing successfully against the United States
Speaker 1: and areas of high technology and industries of the future.
Speaker 1: What's interesting, I think when we started this whole process,
Speaker 1: maybe two assumptions might have been A, both sides needed deal,
Speaker 1: and B it doesn't happen to be the end all,
Speaker 1: be all deal. We just need to take this risk
Speaker 1: off the table. Is there an argument to be made
Speaker 1: that one side or the other maybe overplay their hand here? Yeah,
Speaker 1: the clear clearly, Um, you know, this has been a
Speaker 1: This has been a game of chicken, right between two
Speaker 1: two leaders, um, and you know, each calculating that they
Speaker 1: have more leverage. What is interesting, however, I mean, even
Speaker 1: though the markets have been expecting a deal, I mean
Speaker 1: this was always frankly naive. I mean, you know that
Speaker 1: for the Chinese the deal is it is never a deal,
Speaker 1: It's the start of a negotiation. This was never going
Speaker 1: to be a deal to end everything. This was you know,
Speaker 1: in in in Chinese terms, Um, you know this this
Speaker 1: this was this was going to be a truce. I
Speaker 1: mean the most we could expect a fragile piece, um,
Speaker 1: you know, to be followed by much more fundamental structural
Speaker 1: conflict between the United States and China. I guess I'm
Speaker 1: just still struggling to understand then, how there was so
Speaker 1: much hope baked into what was going to happen this week,
Speaker 1: and the fact that people thought there would be something signed,
Speaker 1: given the fact that the U should have been aware
Speaker 1: of some of these structural challenges to getting through what
Speaker 1: they wanted to get through from the Chinese, and China
Speaker 1: knew exactly what President Trump wanted at least you know,
Speaker 1: from the negotiations. I'm just struggling to understand what this
Speaker 1: means about the ongoing negotiations. It seems like there's a
Speaker 1: huge communication breach here. If not something well, I think
Speaker 1: we should be taking our cues from businesses on the
Speaker 1: ground in China. And what they're telling us is they're
Speaker 1: they're expecting tariffs, they're already planning for them tariffs and
Speaker 1: two billion dollars of Chinese exports. They're already uh stockpiling
Speaker 1: some companies that are importing Chinese made goods, and they're
Speaker 1: ripping supply chains out of China just as quickly as
Speaker 1: they can. The process, of course, has been well underway
Speaker 1: for the past year, and it's exhilarating now. And if
Speaker 1: you know what what you hear is when businesses complaining
Speaker 1: to the White House about you know, the damage that
Speaker 1: this is doing to their operations, the response is, what
Speaker 1: you've known about this for a long You've had a
Speaker 1: year to get your supply chains out of China. What
Speaker 1: are you doing? So how do you think, let's say,
Speaker 1: let's fast forward, you know, maybe you know, a day
Speaker 1: and a half from here. In Friday evening, the two
Speaker 1: sides break and typically there's some release or some press
Speaker 1: conference or some communic a what do you expect to
Speaker 1: come from each side? I think it would be pretty
Speaker 1: surprising if what we got at the end of it
Speaker 1: was a complete breakdown of the tot. I don't think
Speaker 1: either side want that. I think it's more likely to
Speaker 1: be packaged as a we have serious issues to resolve,
Speaker 1: We're going to go away, think about it, and come
Speaker 1: back to the table at some point. But there's no
Speaker 1: way for for for the US not to implement tariffs
Speaker 1: at you know, one minute after midnight tonight, because that's
Speaker 1: what President Trump has promised. I think it's highly likely
Speaker 1: that we're that we're going to see US tarrets and
Speaker 1: then we're going to see retaliator reaction from China. And
Speaker 1: even if they do continue to have a conversation and
Speaker 1: eventually come out with something constructive saying that they're going
Speaker 1: to continue talking, we're still getting tariffs, the additional tariffs
Speaker 1: going up. I would have feel that's the most likely outcome,
Speaker 1: and let's be clear, it's it appears that the tariffs
Speaker 1: on the Chinese economy has had an effect. I mean
Speaker 1: they are ownerous, are they not? They are, But you know,
Speaker 1: China's head has many ways of cushioning the impact. I mean,
Speaker 1: so you know, through the currency for instance, UM and
Speaker 1: through stimulus measures. I mean, they've been pumping up the
Speaker 1: economy through a mix of fiscal monetary policy. As I
Speaker 1: said earlier, they've been supporting the private sector. UM. They've
Speaker 1: righted the ship. There were the The Chinese economy is
Speaker 1: in much better shape now than it was six months ago.
Speaker 1: Of course, some of that did ride on this idea
Speaker 1: that there would be a trade deal. If there is
Speaker 1: a full breakdown in talks, how much of the improvement
Speaker 1: will get reversed in China? Well, yeah, that's a good question.
Speaker 1: Another question is how much more stimulus will they apply
Speaker 1: and how much can they and how much can they?
Speaker 1: All very good questions which we will not be able
Speaker 1: to answer. But Andy Brown, we will have you back
Speaker 1: and we will attempt once more. Andy Brown, we really
Speaker 1: appreciate your insights, truly truly illuminating. Andy Brown's editorial director
Speaker 1: for the Bloomberg New Economy Forum. Thanks for listening. To
Speaker 1: the Bloomberg pen L podcast. You can subscribe and listen
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Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm
Speaker 1: Lisa A. Bram Woyds. I'm on Twitter at Lisa A.
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Speaker 1: us worldwide. I'm Bloomberg Radio