1 00:00:00,520 --> 00:00:03,040 Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm 2 00:00:03,120 --> 00:00:05,560 Speaker 1: Jason Kelly. We're here every day bringing you the latest 3 00:00:05,600 --> 00:00:09,880 Speaker 1: news from the world of business and finance, plus technology, politics, economics, 4 00:00:09,920 --> 00:00:13,520 Speaker 1: all harnessing the power of Bloomberg Business Week reporters and editors, 5 00:00:13,560 --> 00:00:16,600 Speaker 1: not to mention our hundred journalists and analysts and more 6 00:00:16,640 --> 00:00:19,040 Speaker 1: than a hundred and twenty countries. You can download Bloomberg 7 00:00:19,079 --> 00:00:22,119 Speaker 1: Business Week on iTunes, SoundCloud, or Bloomberg dot com. You 8 00:00:22,120 --> 00:00:24,320 Speaker 1: can also listen to our radio show weekdays at two 9 00:00:24,320 --> 00:00:32,080 Speaker 1: pm Eastern only on Bloomberg Radio around the world. We're 10 00:00:32,080 --> 00:00:34,680 Speaker 1: gonna go around the world right now, look for opportunities, 11 00:00:34,840 --> 00:00:37,519 Speaker 1: value plays, if you will. And let me just put 12 00:00:37,520 --> 00:00:39,640 Speaker 1: this out there. The Evermore Global value from beating just 13 00:00:39,680 --> 00:00:41,600 Speaker 1: about all of its peers over the past one year, 14 00:00:41,600 --> 00:00:44,200 Speaker 1: it's in the eighty percent dial over the past five years, 15 00:00:44,520 --> 00:00:47,440 Speaker 1: returning on average, according to Bloomberg Data, nearly four percent 16 00:00:47,960 --> 00:00:50,479 Speaker 1: a year in that time frame. David Marcus is co 17 00:00:50,600 --> 00:00:53,440 Speaker 1: founder CEO over at Evermore Global. They've got about a 18 00:00:53,479 --> 00:00:56,360 Speaker 1: billion dollars in assets under manager based in Summit, New Jersey. 19 00:00:56,600 --> 00:00:59,000 Speaker 1: In our Bloomberg Interactive Broker Studio New York. Are you 20 00:00:59,040 --> 00:01:03,080 Speaker 1: glad is over? Yes? It was not easy to be 21 00:01:03,080 --> 00:01:05,640 Speaker 1: a value person. No, it was not. But at the 22 00:01:05,680 --> 00:01:08,400 Speaker 1: same time, the fourth quarter, while it was a horrendous 23 00:01:08,480 --> 00:01:12,280 Speaker 1: period of time, it just knocked down stocks and valuations 24 00:01:12,319 --> 00:01:16,240 Speaker 1: so much. We were in there almost every bad day, 25 00:01:16,680 --> 00:01:19,800 Speaker 1: just adding to our positions. You want to buy things 26 00:01:19,800 --> 00:01:21,880 Speaker 1: when they're on sale. They were on sale, and so 27 00:01:21,959 --> 00:01:24,760 Speaker 1: in a situation like that, are their names that you 28 00:01:24,840 --> 00:01:28,240 Speaker 1: have identified and you're just waiting for them to hit 29 00:01:28,280 --> 00:01:31,240 Speaker 1: a certain level and then you're in or are you 30 00:01:31,319 --> 00:01:35,559 Speaker 1: taking a whole fresh look amid that newly introduced volatility. 31 00:01:35,680 --> 00:01:38,320 Speaker 1: It's both. So we added to So we have about 32 00:01:38,360 --> 00:01:41,760 Speaker 1: forty positions in our portfolio. We added to seventeen of 33 00:01:41,800 --> 00:01:45,720 Speaker 1: them during the fourth quarter, almost half almost half. And 34 00:01:46,400 --> 00:01:49,160 Speaker 1: I would say we also reduced some to buy others. 35 00:01:49,160 --> 00:01:51,400 Speaker 1: So I would say we we sold some things that 36 00:01:51,480 --> 00:01:54,120 Speaker 1: we liked to buy things that we loved because they 37 00:01:54,160 --> 00:01:57,160 Speaker 1: came down even more. We think the opportunity is just 38 00:01:57,240 --> 00:01:59,840 Speaker 1: as good as as it was before, but the this 39 00:02:00,080 --> 00:02:02,400 Speaker 1: count was now bigger. So tell us what you love. 40 00:02:03,120 --> 00:02:07,160 Speaker 1: We love names, okay, um, we love the Vendi. So 41 00:02:07,320 --> 00:02:11,480 Speaker 1: Vivendi is a French conglomerate. It's I think it's our 42 00:02:11,720 --> 00:02:14,840 Speaker 1: top it's in our top three. It kind of moves around. 43 00:02:14,840 --> 00:02:17,360 Speaker 1: But but the bottom line is this is a This 44 00:02:17,440 --> 00:02:20,919 Speaker 1: is a media conglomerate. They own Universal Music, which is 45 00:02:20,960 --> 00:02:24,040 Speaker 1: the biggest music company in the world. So everybody that 46 00:02:24,040 --> 00:02:26,960 Speaker 1: goes from free music to paying for it is a 47 00:02:27,000 --> 00:02:31,160 Speaker 1: customer ultimately. Um, they've announced their advantage of it because 48 00:02:31,160 --> 00:02:33,000 Speaker 1: there's so much streaming of music and I feel like 49 00:02:33,040 --> 00:02:35,120 Speaker 1: everybody's you know, fighting for a piece of the pies 50 00:02:35,200 --> 00:02:37,160 Speaker 1: because they own the music, they own it, they own 51 00:02:37,160 --> 00:02:42,200 Speaker 1: the catalog. They for example, you somebody subscribes to Spotify. 52 00:02:42,440 --> 00:02:45,919 Speaker 1: Spotify actually loses money because they're paying Universal Music for 53 00:02:45,960 --> 00:02:48,120 Speaker 1: the music. So you want to be the guy getting 54 00:02:48,120 --> 00:02:50,200 Speaker 1: It's gotten a little bit better, right, I mean, like 55 00:02:50,240 --> 00:02:53,799 Speaker 1: they've managed to like essentially sort of bring Spotify. I mean, 56 00:02:53,919 --> 00:02:57,400 Speaker 1: the the it's a little more balanced. I mean, the 57 00:02:57,480 --> 00:03:00,160 Speaker 1: artists are always gonna want more. But the fact is 58 00:03:00,360 --> 00:03:02,880 Speaker 1: Universal has done some amazing deals lately, like with the 59 00:03:02,960 --> 00:03:07,480 Speaker 1: Rolling Stones, where they're taking over managing not just their catalog, 60 00:03:08,720 --> 00:03:10,840 Speaker 1: but they're also going to help them with merchandising and 61 00:03:10,840 --> 00:03:14,119 Speaker 1: everything else. So they because there's different revenue streams. Yeah, 62 00:03:14,160 --> 00:03:16,440 Speaker 1: they want to manage the whole thing because if they don't, 63 00:03:16,560 --> 00:03:18,680 Speaker 1: the Spotify's and these other guys are going to try 64 00:03:18,720 --> 00:03:21,000 Speaker 1: to take over those artists over time and cut the 65 00:03:21,080 --> 00:03:23,560 Speaker 1: music company out. I want to talk about KKR. This 66 00:03:23,639 --> 00:03:25,400 Speaker 1: is something near and dear to Jason. He knows the 67 00:03:25,400 --> 00:03:28,400 Speaker 1: private equity world really really well. Kk are of course 68 00:03:28,400 --> 00:03:30,960 Speaker 1: in the news this week because of a deal. Tell 69 00:03:31,000 --> 00:03:32,840 Speaker 1: us about kk ARE. You've been adding to that position, 70 00:03:33,120 --> 00:03:36,000 Speaker 1: so it's a reasonably new position position for us. It's 71 00:03:36,120 --> 00:03:37,840 Speaker 1: um I never thought, we don't know. We stay away 72 00:03:37,840 --> 00:03:41,160 Speaker 1: from these publicly traded private equity companies. But what's unique 73 00:03:41,200 --> 00:03:43,840 Speaker 1: here is they switched from a partnership to a s corps, 74 00:03:44,200 --> 00:03:47,640 Speaker 1: which simply means that they will become a taxpayer. But 75 00:03:47,720 --> 00:03:49,960 Speaker 1: more than that, they can be added to indexes, which 76 00:03:49,960 --> 00:03:52,760 Speaker 1: they could not be before. A lot of asset managers 77 00:03:52,800 --> 00:03:55,320 Speaker 1: would not buy companies that are partnerships. But here's the 78 00:03:55,360 --> 00:03:57,680 Speaker 1: bottom line. The stocks about twenty two dollars a share. 79 00:03:58,040 --> 00:04:00,560 Speaker 1: They have about eleven dollars a share and net cash 80 00:04:00,600 --> 00:04:05,400 Speaker 1: and investments. It's it's a very robust uh balance sheet. 81 00:04:05,640 --> 00:04:08,000 Speaker 1: They used some of that money to seed the funds 82 00:04:08,040 --> 00:04:10,160 Speaker 1: to invest in the different investments they have going on. 83 00:04:10,840 --> 00:04:12,760 Speaker 1: I think investors don't realize this is a company that 84 00:04:12,800 --> 00:04:15,960 Speaker 1: has almost two hundred billion dollars of assets under management, 85 00:04:16,240 --> 00:04:19,880 Speaker 1: so they're an asset manager. Their private equity business. Uh, 86 00:04:19,880 --> 00:04:22,360 Speaker 1: it's very cheap. It's the cheapest one we think of 87 00:04:22,400 --> 00:04:25,680 Speaker 1: all the publicly traded Uh, private equity, you don't get 88 00:04:25,720 --> 00:04:27,880 Speaker 1: worried about a downturn er. So that might make it 89 00:04:27,920 --> 00:04:29,760 Speaker 1: a little bit more problematic for these guys. I mean, 90 00:04:29,800 --> 00:04:31,800 Speaker 1: I mean that's where they fund investment opportunities, right, but 91 00:04:31,839 --> 00:04:34,000 Speaker 1: that's also where they have to maybe hold onto assets 92 00:04:34,040 --> 00:04:36,200 Speaker 1: can't turn them out. Yeah, I mean, look this week 93 00:04:36,279 --> 00:04:39,040 Speaker 1: it was announced that First Data did it to Now 94 00:04:39,080 --> 00:04:41,200 Speaker 1: that was a stock or a company that they took 95 00:04:41,200 --> 00:04:44,159 Speaker 1: control of quite some time ago and investment. Yeah, and 96 00:04:44,200 --> 00:04:46,599 Speaker 1: investors were like, oh, this is this is a dog. 97 00:04:46,680 --> 00:04:48,920 Speaker 1: It's not gonna work. It was written way down over 98 00:04:48,920 --> 00:04:51,080 Speaker 1: the course of that to ten eleven years, right, and 99 00:04:51,120 --> 00:04:55,360 Speaker 1: so it ultimately they probably probably overpaid, but ultimately it's 100 00:04:55,360 --> 00:04:58,680 Speaker 1: a good deal. The loan a piece of the new company. Um. Yes, 101 00:04:59,000 --> 00:05:01,120 Speaker 1: as the economy slowly down, as we're in a different 102 00:05:01,120 --> 00:05:04,080 Speaker 1: part of the cycle, it's a little more difficult to 103 00:05:04,120 --> 00:05:07,120 Speaker 1: get great opportunities of good prices. But we are an 104 00:05:07,200 --> 00:05:11,839 Speaker 1: environment where big conglomerates are breaking up, spinning off, selling 105 00:05:11,880 --> 00:05:16,720 Speaker 1: non core assets. Uh. And these guys are positioned well 106 00:05:17,040 --> 00:05:19,640 Speaker 1: and they recycle their cast. Well. I'm glad you said that, 107 00:05:19,640 --> 00:05:21,520 Speaker 1: because that was something that really jumped out in the 108 00:05:21,560 --> 00:05:23,919 Speaker 1: research that I was reading that that you had, which is, 109 00:05:24,400 --> 00:05:27,640 Speaker 1: these guys, more so than the black Stones and the 110 00:05:27,640 --> 00:05:30,840 Speaker 1: Carlisles the world, tend to essentially keep some of that 111 00:05:30,960 --> 00:05:35,040 Speaker 1: cash and reinvest it in their own funds rather than distributing. Right. 112 00:05:35,080 --> 00:05:38,039 Speaker 1: So they pay the lowest dividend yield of all the 113 00:05:38,040 --> 00:05:40,520 Speaker 1: other public ones because their view is we can do 114 00:05:40,600 --> 00:05:44,279 Speaker 1: better for our shareholders if we reinvest that money into 115 00:05:44,360 --> 00:05:48,000 Speaker 1: other compelling deals. These guys have gotten burned over the 116 00:05:48,080 --> 00:05:51,520 Speaker 1: years in bad deals. They've learned a lot. They're much 117 00:05:51,560 --> 00:05:54,120 Speaker 1: smarter than they were in the old days, and I 118 00:05:54,200 --> 00:05:56,880 Speaker 1: think that they take advantage of it. They're making much 119 00:05:56,920 --> 00:06:00,719 Speaker 1: more money from management fee than performance fee. We're virtually 120 00:06:00,760 --> 00:06:04,080 Speaker 1: every other private equity company that's public is the opposite 121 00:06:04,080 --> 00:06:06,760 Speaker 1: for making more from performance ry, which means they have 122 00:06:06,880 --> 00:06:11,360 Speaker 1: to have exits. Kker can wait till it's the right time. Well, 123 00:06:11,360 --> 00:06:12,960 Speaker 1: that's what's interesting that the five st If you think 124 00:06:12,960 --> 00:06:14,800 Speaker 1: about how long that went on, they could kind of 125 00:06:14,880 --> 00:06:18,400 Speaker 1: wait until it paid off for them. I mean it 126 00:06:18,440 --> 00:06:20,839 Speaker 1: was a long time. And that's the ultimate case that equity. 127 00:06:20,839 --> 00:06:22,839 Speaker 1: I mean, Blackstone would say the same thing about Hilton, right, 128 00:06:22,839 --> 00:06:25,479 Speaker 1: I mean, Hilton came very close to bankruptcy a number 129 00:06:25,520 --> 00:06:28,080 Speaker 1: of times and yet ends up being the most profitable 130 00:06:28,120 --> 00:06:30,160 Speaker 1: private equity deal of all time. They have fourteen billion 131 00:06:30,160 --> 00:06:32,720 Speaker 1: dollars four billion dollars or so. I think KKR may 132 00:06:32,800 --> 00:06:35,000 Speaker 1: end up making depending on when they sell out for 133 00:06:35,040 --> 00:06:37,200 Speaker 1: the for the first day to deal. And the other 134 00:06:37,279 --> 00:06:41,880 Speaker 1: thing is the insiders own about the company. They're aligned 135 00:06:41,920 --> 00:06:45,360 Speaker 1: with us as shareholders, which is critical. And they invest 136 00:06:45,440 --> 00:06:48,159 Speaker 1: off their balance sheet. I believe more aggressively that they 137 00:06:48,279 --> 00:06:50,080 Speaker 1: use their balance sheet more aggressively With some of the 138 00:06:50,080 --> 00:06:53,040 Speaker 1: other names as well. They do. And and look, as 139 00:06:53,080 --> 00:06:54,520 Speaker 1: I said, you know, we're at the front end of 140 00:06:54,680 --> 00:06:57,480 Speaker 1: so much change. I never thought we don't a company 141 00:06:57,520 --> 00:07:01,360 Speaker 1: like Dow DuPont, you know, which is hundred twenty billion, Marhea, 142 00:07:01,760 --> 00:07:04,560 Speaker 1: it's breaking up only into three companies. We think it 143 00:07:04,560 --> 00:07:07,919 Speaker 1: could be five or six, and so you have spinoffs, 144 00:07:07,960 --> 00:07:10,920 Speaker 1: breakups where structure is going on. It's just early in 145 00:07:10,920 --> 00:07:14,600 Speaker 1: the process for us. We gotta run. Always fun to 146 00:07:14,600 --> 00:07:16,840 Speaker 1: talk names with you. Happy New Year. By the way, 147 00:07:17,160 --> 00:07:20,480 Speaker 1: David Marcus over at Evermore Global Advisors of a billion 148 00:07:20,480 --> 00:07:22,720 Speaker 1: in assets under management, based in some New Jersey in 149 00:07:22,720 --> 00:07:26,360 Speaker 1: our Bloomberg Interactive Broker studio. You are listening to Bloomberg Radio. 150 00:07:27,080 --> 00:07:30,720 Speaker 1: This is Bloomberg Business Week with Carol Masser and Jason 151 00:07:30,800 --> 00:07:35,200 Speaker 1: Kelly on Bloomberg Radio with the Perfect Guest with us Way. 152 00:07:35,280 --> 00:07:37,840 Speaker 1: Jean Sean is chairman and CEO of the Hung Hong 153 00:07:37,880 --> 00:07:40,920 Speaker 1: based private equity firm P A. G Or Do you 154 00:07:40,960 --> 00:07:44,320 Speaker 1: say Pad No? Okay, good? I want to make sure 155 00:07:44,440 --> 00:07:46,480 Speaker 1: it right. He's also got a book out. It's called 156 00:07:46,520 --> 00:07:48,920 Speaker 1: Out of the Gobi, My Story of China and America. 157 00:07:49,320 --> 00:07:52,400 Speaker 1: He is in our Bloomberg Interactive Broker studio in New York, 158 00:07:52,520 --> 00:07:54,600 Speaker 1: and you guys have about thirty billion dollars in assets 159 00:07:54,720 --> 00:07:58,840 Speaker 1: under management. Your book is a very personal story of 160 00:07:58,920 --> 00:08:03,120 Speaker 1: really someone who over him obstacles. But you also, I 161 00:08:03,160 --> 00:08:07,760 Speaker 1: think can provide some incredible insight into US China relations 162 00:08:07,800 --> 00:08:10,880 Speaker 1: and maybe helping the United States and just understand China 163 00:08:11,000 --> 00:08:13,000 Speaker 1: right now, UM, tell me a little bit though. Let's 164 00:08:13,040 --> 00:08:15,640 Speaker 1: start with that headline, and as you've been watching these 165 00:08:15,720 --> 00:08:18,320 Speaker 1: U S China negotiations, what do we have right? What 166 00:08:18,360 --> 00:08:20,280 Speaker 1: do we have wrong? What don't we understand? Here as 167 00:08:20,280 --> 00:08:24,560 Speaker 1: observers of this first of all, and welcome, Thank you 168 00:08:24,680 --> 00:08:27,600 Speaker 1: very much. It's a great pleasure to be here. UM. 169 00:08:27,640 --> 00:08:29,880 Speaker 1: My book on the go be my story of China 170 00:08:29,920 --> 00:08:34,959 Speaker 1: and America I consider to be a recoon of history, 171 00:08:35,080 --> 00:08:40,040 Speaker 1: in fact, most horrific part of the Chinese history, told 172 00:08:41,400 --> 00:08:45,960 Speaker 1: through my personal experiences. From the perspective my personal experiences, 173 00:08:46,080 --> 00:08:50,560 Speaker 1: my stories are unique and yet quite representative of the 174 00:08:50,600 --> 00:08:56,079 Speaker 1: people of my generation. But that period of time when 175 00:08:56,120 --> 00:08:59,199 Speaker 1: I spend time in the go VI came to an 176 00:08:59,320 --> 00:09:06,520 Speaker 1: end when China and America established a relationship, and when 177 00:09:06,600 --> 00:09:09,160 Speaker 1: China opened up and I had a chance to come 178 00:09:09,240 --> 00:09:13,400 Speaker 1: to the United States to study a right to do so. 179 00:09:13,720 --> 00:09:19,520 Speaker 1: I think so because the diplomatic relationship was established in 180 00:09:19,640 --> 00:09:22,720 Speaker 1: nine seventy nine, and this month, in fact, it's the 181 00:09:22,760 --> 00:09:27,760 Speaker 1: fourtieenth anniversary of that relationship. It was after that some 182 00:09:27,840 --> 00:09:30,800 Speaker 1: of the Chinese students went out to come to America 183 00:09:30,920 --> 00:09:34,040 Speaker 1: to study. So I was among the first one, and 184 00:09:34,160 --> 00:09:39,560 Speaker 1: I got three graduate degrees in the American educational system. 185 00:09:39,640 --> 00:09:44,200 Speaker 1: Eventually I became a professor at Warton School. So I 186 00:09:44,320 --> 00:09:49,040 Speaker 1: witnessed the development of the relationship between China and the 187 00:09:49,120 --> 00:09:53,320 Speaker 1: United States, and I would characterize that relationship to be 188 00:09:53,960 --> 00:09:57,480 Speaker 1: mutually beneficial by and large. And there are conflicts, and 189 00:09:57,520 --> 00:10:00,439 Speaker 1: there were disputes, there are differences, but I think by 190 00:10:00,480 --> 00:10:03,319 Speaker 1: and large it has to be a mutually beneficial relationship. 191 00:10:03,920 --> 00:10:06,200 Speaker 1: Is it? Is it a mutual beneficial or did you 192 00:10:06,240 --> 00:10:09,239 Speaker 1: say it has to be a mutual beneficial beneficial relationship? 193 00:10:09,559 --> 00:10:12,560 Speaker 1: Is it one? I think it has to be. It 194 00:10:12,600 --> 00:10:17,280 Speaker 1: has usually beneficial by and large. And so where are 195 00:10:17,320 --> 00:10:19,800 Speaker 1: we today because there's a lot of rhetoric on on 196 00:10:19,920 --> 00:10:24,720 Speaker 1: both sides, and obviously the rhetoric has a tendency to 197 00:10:24,800 --> 00:10:28,640 Speaker 1: move markets pretty dramatically, Like we've just seen. What needs 198 00:10:28,679 --> 00:10:32,280 Speaker 1: to happen next to ensure that either we get back 199 00:10:32,320 --> 00:10:36,800 Speaker 1: to or that we maintain this mutually beneficial relationship. Well, 200 00:10:36,920 --> 00:10:40,360 Speaker 1: I think people will have to recognize that the two 201 00:10:40,440 --> 00:10:46,040 Speaker 1: economy is at this particular point are quite integrated, joined 202 00:10:46,040 --> 00:10:50,280 Speaker 1: at the hips, so to speak, such extent that China 203 00:10:50,600 --> 00:10:52,920 Speaker 1: is the largest trading partner of the United States and 204 00:10:53,040 --> 00:10:58,120 Speaker 1: vice versa to a tune of five US honors. And 205 00:10:58,559 --> 00:11:00,800 Speaker 1: you know, from the point of view, if the economist, 206 00:11:01,400 --> 00:11:05,320 Speaker 1: trade is better than no trade, more trade is better 207 00:11:05,360 --> 00:11:09,880 Speaker 1: than less trade, and trade war harmsavery. One who brings 208 00:11:09,920 --> 00:11:13,160 Speaker 1: pain to everyone, So in the market likes it when 209 00:11:13,160 --> 00:11:16,120 Speaker 1: they see a resolution to the trade these fewds, and 210 00:11:16,160 --> 00:11:19,160 Speaker 1: that's what we see today. But I am curious and 211 00:11:19,280 --> 00:11:22,040 Speaker 1: a little conspiracy theorist here, But I think I do 212 00:11:22,160 --> 00:11:25,800 Speaker 1: wonder if folks are wondering whether you know, China is 213 00:11:25,840 --> 00:11:29,280 Speaker 1: definitely a long term planner, right, and we have often 214 00:11:29,360 --> 00:11:34,240 Speaker 1: many stories about you know, spending and putting a lot 215 00:11:34,240 --> 00:11:37,520 Speaker 1: of effort into expanding their domestic industries and much more 216 00:11:37,600 --> 00:11:40,959 Speaker 1: high high tech arena. I mean, what's the what's the plan? 217 00:11:41,400 --> 00:11:43,800 Speaker 1: Is it to shut itself from the rest of the 218 00:11:43,800 --> 00:11:45,800 Speaker 1: world and be able to sell domestically as well as 219 00:11:46,040 --> 00:11:49,440 Speaker 1: you know, kind of dominate many industries going forward. Is 220 00:11:49,480 --> 00:11:51,760 Speaker 1: that the correct perception or do we have it wrong? 221 00:11:52,840 --> 00:11:58,280 Speaker 1: I think the notion that China has a long term 222 00:11:58,320 --> 00:12:02,920 Speaker 1: plan for this and that is kind of overreaching China's 223 00:12:03,080 --> 00:12:06,880 Speaker 1: ability to do so. If you look at the paths 224 00:12:06,880 --> 00:12:10,240 Speaker 1: of the Chinese economic growth in the past forty years, 225 00:12:11,000 --> 00:12:14,840 Speaker 1: it was not due to central planning. In my book 226 00:12:14,880 --> 00:12:18,480 Speaker 1: Out of the Gob, I talked about our experiences working 227 00:12:18,559 --> 00:12:22,040 Speaker 1: as hard labor in the Gobi Desert more than forty 228 00:12:22,160 --> 00:12:26,640 Speaker 1: years ago. At that time, all economic activities were controlled 229 00:12:27,000 --> 00:12:30,960 Speaker 1: by the government, by the state. Where was China at 230 00:12:30,960 --> 00:12:35,360 Speaker 1: that time? It was entire poverty. We could hardly we 231 00:12:35,360 --> 00:12:39,280 Speaker 1: could hardly support ourselves economically, and I was starting all 232 00:12:39,280 --> 00:12:44,880 Speaker 1: the time. China has grown in the past, in fact 233 00:12:44,960 --> 00:12:48,959 Speaker 1: twenty some years thirty times in terms of economic size, 234 00:12:49,640 --> 00:12:53,560 Speaker 1: not by central planning, but by moving in the direction 235 00:12:53,679 --> 00:12:57,080 Speaker 1: of the market. I think that is really the secret 236 00:12:57,720 --> 00:13:02,800 Speaker 1: of Chinese economic success. Us. So today the privacy sector, 237 00:13:03,120 --> 00:13:07,760 Speaker 1: the market is much more dominant than the remnants of 238 00:13:07,800 --> 00:13:10,440 Speaker 1: the state owned sector, which I believe it is still 239 00:13:10,480 --> 00:13:13,959 Speaker 1: too big and still needs to be shrunk. Even further, 240 00:13:14,320 --> 00:13:16,439 Speaker 1: I want to ask you about one specific name which 241 00:13:16,440 --> 00:13:19,000 Speaker 1: you're intimately familiar with, and that's ten Cent. Your firm 242 00:13:19,120 --> 00:13:22,440 Speaker 1: is is a huge investor, the second largest, I believe. Um, 243 00:13:22,480 --> 00:13:25,680 Speaker 1: what does that tell us about the state of business 244 00:13:25,720 --> 00:13:28,440 Speaker 1: and maybe the state of the consumer in China right now? Well, 245 00:13:28,480 --> 00:13:32,400 Speaker 1: my firm PG is not investor in tenseent but we're 246 00:13:32,520 --> 00:13:37,280 Speaker 1: investor in the company called Tencent Music Entertainment, which is 247 00:13:37,360 --> 00:13:40,440 Speaker 1: now I think New York Stock Change instal company with 248 00:13:40,480 --> 00:13:43,920 Speaker 1: the market capital twenty billion dollars. Five years ago, we 249 00:13:44,040 --> 00:13:47,599 Speaker 1: invested in that company which was called China Music Corporation, 250 00:13:48,280 --> 00:13:51,320 Speaker 1: which does the same thing as Spotified US, and we 251 00:13:51,400 --> 00:13:53,800 Speaker 1: put in sixty million dollars, so we became a majority 252 00:13:53,880 --> 00:13:58,480 Speaker 1: shareholder and the company hardly had any business at that time. 253 00:13:58,960 --> 00:14:03,199 Speaker 1: Today in a US eight hundred million unique monthly users 254 00:14:03,880 --> 00:14:07,040 Speaker 1: and we're making hundreds of millions for dollars in that profit. 255 00:14:07,800 --> 00:14:10,600 Speaker 1: And we have a market cap today of twenty billion 256 00:14:10,640 --> 00:14:14,640 Speaker 1: dollars only after five years and we merged with tens 257 00:14:14,679 --> 00:14:17,000 Speaker 1: and Music, and that's one name is changed to tens 258 00:14:17,080 --> 00:14:20,400 Speaker 1: and Music Entertainment. But the growth has been tremendous. That 259 00:14:20,480 --> 00:14:23,680 Speaker 1: must say something about the consumer opportunity I would imagine 260 00:14:24,160 --> 00:14:28,840 Speaker 1: in China, because the Chinese market has become very large, 261 00:14:29,400 --> 00:14:32,760 Speaker 1: and if you have business model that's successful, you can 262 00:14:32,880 --> 00:14:36,400 Speaker 1: replicate it very quickly in this very large country at 263 00:14:36,440 --> 00:14:40,280 Speaker 1: one point four million people. Which is why whether you're 264 00:14:40,280 --> 00:14:44,560 Speaker 1: an American company or European company, you know, what have 265 00:14:44,760 --> 00:14:47,920 Speaker 1: you? You You know? You look so closely at that Chinese 266 00:14:47,960 --> 00:14:49,760 Speaker 1: market because that's how you scale up and stuff in 267 00:14:49,880 --> 00:14:52,800 Speaker 1: China is a very big market today and the notion 268 00:14:52,920 --> 00:14:55,680 Speaker 1: that China is a factory in the world is outdated. 269 00:14:56,000 --> 00:14:58,080 Speaker 1: We have to run, but do come back because we 270 00:14:58,080 --> 00:15:01,320 Speaker 1: would love to continue. Wijan Sean, he's chairman and CEO 271 00:15:01,600 --> 00:15:03,160 Speaker 1: at P A. G. In his book Out of the 272 00:15:03,160 --> 00:15:13,800 Speaker 1: Gobie this is Blue Bark. There are thousands of workers 273 00:15:14,320 --> 00:15:16,840 Speaker 1: out of work thanks to Day seven of the partial 274 00:15:17,000 --> 00:15:20,080 Speaker 1: US government shutdown. Lots of headlines even today, State Department 275 00:15:20,160 --> 00:15:23,040 Speaker 1: ordering staff to return to work saying it expects to 276 00:15:23,360 --> 00:15:25,240 Speaker 1: be able to fund most of those salaries. You've got 277 00:15:25,240 --> 00:15:27,800 Speaker 1: New York Cities mayor weighing in saying New Yorkers are 278 00:15:27,800 --> 00:15:30,120 Speaker 1: set to lose food stamp benefits on March first. There's 279 00:15:30,160 --> 00:15:32,920 Speaker 1: a lot of things going on. Chris Leu, though, knows 280 00:15:32,960 --> 00:15:36,360 Speaker 1: about this firsthand, his former Deputy Secretary of Labor under 281 00:15:36,400 --> 00:15:39,960 Speaker 1: President Obama, currently senior fellow at the University of Virginia 282 00:15:40,000 --> 00:15:42,080 Speaker 1: Miller Center. With us on the phone from Virginia, a 283 00:15:42,160 --> 00:15:45,360 Speaker 1: friend of our broadcast. Hey, Chris, nice to have you 284 00:15:45,440 --> 00:15:47,480 Speaker 1: here with us. I have to say, what are the 285 00:15:47,480 --> 00:15:49,560 Speaker 1: headlines that had me. Scratch in my head is like, well, 286 00:15:49,600 --> 00:15:52,800 Speaker 1: how can they you know, pull people back to do things, 287 00:15:53,160 --> 00:15:55,120 Speaker 1: How can they find money to pay them? How does 288 00:15:55,120 --> 00:15:58,560 Speaker 1: this work within the government. So this whole thing is 289 00:15:58,600 --> 00:16:00,480 Speaker 1: a little bit of a gimmick, and I sort of 290 00:16:00,520 --> 00:16:02,840 Speaker 1: get what the Trump administration is doing, and I sort 291 00:16:02,840 --> 00:16:07,200 Speaker 1: of get why Democrats aren't complaining. You know, generally, UM, 292 00:16:07,840 --> 00:16:10,600 Speaker 1: we don't call it essential work anymore. It's accepted work. 293 00:16:10,920 --> 00:16:14,240 Speaker 1: It's supposed to need to protect health and safety. Uh. 294 00:16:14,240 --> 00:16:17,880 Speaker 1: And that's the way most administrations have interpreted it unless 295 00:16:17,920 --> 00:16:21,120 Speaker 1: there's another source of funding or you can sort of 296 00:16:21,200 --> 00:16:23,000 Speaker 1: you know, I'm not gonna say bend the rules, but 297 00:16:23,080 --> 00:16:24,960 Speaker 1: you know, there's a lot of gray areas in the rules. 298 00:16:25,000 --> 00:16:28,120 Speaker 1: And so what the Trump administration is doing in order 299 00:16:28,160 --> 00:16:31,440 Speaker 1: to minimize the impact of the shutdown is coming up with, 300 00:16:31,640 --> 00:16:34,760 Speaker 1: i would say, creative legal interpretations to get more people 301 00:16:34,800 --> 00:16:39,600 Speaker 1: coming back, whether it's some UM Agriculture Department employeesho are 302 00:16:39,640 --> 00:16:41,880 Speaker 1: working on farm loans, whether it's I R S workers 303 00:16:41,920 --> 00:16:43,720 Speaker 1: who are going to help refunds get out the door. 304 00:16:44,360 --> 00:16:47,400 Speaker 1: And and it's frankly not in the Democrats interest to 305 00:16:47,440 --> 00:16:51,840 Speaker 1: complain because these are essential services. The the the irony 306 00:16:51,880 --> 00:16:54,680 Speaker 1: of doing this in order to minimize the impact on 307 00:16:54,760 --> 00:16:59,000 Speaker 1: American people. In some ways, it's actually increasing the likelihood 308 00:16:59,000 --> 00:17:01,480 Speaker 1: that the shutdown goes on longer because a lot of 309 00:17:01,480 --> 00:17:05,320 Speaker 1: the really detrimental impacts of the shutdown are then muted, right. 310 00:17:05,400 --> 00:17:07,920 Speaker 1: And that's a really good point, because I feel like 311 00:17:08,080 --> 00:17:10,760 Speaker 1: what everyone seems to be saying on both sides of 312 00:17:10,800 --> 00:17:14,280 Speaker 1: this is it's going to take something pretty dramatic and 313 00:17:14,560 --> 00:17:18,719 Speaker 1: something pretty public in order to really move either side 314 00:17:19,200 --> 00:17:22,960 Speaker 1: off of their position. And this does diminish that even 315 00:17:23,160 --> 00:17:25,280 Speaker 1: from a t s a perspective. You know, earlier in 316 00:17:25,280 --> 00:17:28,440 Speaker 1: the week we had much more dire headlines, and by 317 00:17:28,520 --> 00:17:31,160 Speaker 1: this time in the week, people are saying, well, it's 318 00:17:31,160 --> 00:17:34,640 Speaker 1: a little worse, but you know, nothing super crazy to 319 00:17:34,640 --> 00:17:38,560 Speaker 1: to worry about. So given your experience and looking at this, 320 00:17:38,720 --> 00:17:42,159 Speaker 1: what could move it? Yeah, I don't know. I mean 321 00:17:42,160 --> 00:17:44,160 Speaker 1: it's an interesting case. I mean, you know, over the years, 322 00:17:44,240 --> 00:17:50,560 Speaker 1: we've increasingly called more activities essential or expected. So imagine, 323 00:17:50,560 --> 00:17:53,320 Speaker 1: for instance, that we said, you know what, KFA employees 324 00:17:53,520 --> 00:17:55,760 Speaker 1: don't go to work. Well, if that were actually the case, 325 00:17:55,840 --> 00:17:58,120 Speaker 1: we would really never have a shutdown. If you said 326 00:17:58,160 --> 00:18:01,480 Speaker 1: social Security checks don't clout the door or Venteran's hospitals 327 00:18:01,480 --> 00:18:04,639 Speaker 1: don't open. So really, the people were ultimately going to 328 00:18:04,680 --> 00:18:07,639 Speaker 1: impact are people who UM need to take advantage of 329 00:18:07,640 --> 00:18:10,439 Speaker 1: sort of the second tier federal services like going to 330 00:18:10,480 --> 00:18:13,840 Speaker 1: a national park, or federal employees and contractors, the people 331 00:18:13,840 --> 00:18:16,680 Speaker 1: who either aren't getting paid and sitting at home or 332 00:18:16,720 --> 00:18:18,919 Speaker 1: going to work and still not getting paid. And so 333 00:18:19,160 --> 00:18:21,359 Speaker 1: given the dynamic right now, it's hard to see what 334 00:18:21,400 --> 00:18:24,200 Speaker 1: the end game is because in my view, I always 335 00:18:24,200 --> 00:18:26,000 Speaker 1: thought the American people would have to feel a fair 336 00:18:26,040 --> 00:18:29,040 Speaker 1: amount of pain for them to communicate to their leaders 337 00:18:29,119 --> 00:18:31,400 Speaker 1: in order for the shutdown to end. If they don't 338 00:18:31,400 --> 00:18:33,680 Speaker 1: feel the pain, then members will continue off in this 339 00:18:33,800 --> 00:18:37,399 Speaker 1: impast right now, So politically, I mean, how do you 340 00:18:37,480 --> 00:18:39,880 Speaker 1: see it? Uh? You know, we've talked about in terms 341 00:18:39,920 --> 00:18:42,119 Speaker 1: of some of the polls that right now it seems 342 00:18:42,119 --> 00:18:46,119 Speaker 1: like Americans are pointing the finger mostly at President Trump 343 00:18:46,240 --> 00:18:49,879 Speaker 1: and the Republicans um this. But politically, I don't know 344 00:18:49,920 --> 00:18:52,920 Speaker 1: if you were on the inside, you know, you gotta 345 00:18:53,200 --> 00:18:55,240 Speaker 1: both sides have got to be worried. The longer that 346 00:18:55,520 --> 00:18:58,560 Speaker 1: this goes on, Oh agreed, And you know we're going 347 00:18:58,640 --> 00:19:00,880 Speaker 1: to start to see an economic game act even if 348 00:19:00,880 --> 00:19:05,160 Speaker 1: you don't have services like um um food stamps being 349 00:19:05,160 --> 00:19:08,240 Speaker 1: cut off, it's still eight hundred thousand people federal employees 350 00:19:08,280 --> 00:19:11,920 Speaker 1: who aren't getting a paycheck, who aren't spending money. In addition, 351 00:19:12,440 --> 00:19:15,600 Speaker 1: UM thousands, tens of thousands of federal contractors who will 352 00:19:15,600 --> 00:19:18,240 Speaker 1: never get packed paying along in that, that's a lot 353 00:19:18,280 --> 00:19:20,840 Speaker 1: of spending that isn't happening right now. And it'll be 354 00:19:20,920 --> 00:19:22,640 Speaker 1: interesting to see what happens when we start to get 355 00:19:22,640 --> 00:19:25,080 Speaker 1: some of this economic data. Now, what's interesting is that 356 00:19:25,119 --> 00:19:26,719 Speaker 1: some of the data that comes out of the Commerce 357 00:19:26,720 --> 00:19:30,240 Speaker 1: Department we're not going to get because they're furloughed. But 358 00:19:30,280 --> 00:19:32,199 Speaker 1: when we see the jobs data, when you know, the 359 00:19:32,240 --> 00:19:34,359 Speaker 1: three of us talk in a couple of weeks, it'll 360 00:19:34,359 --> 00:19:36,879 Speaker 1: be interesting to see what that impact is. I suspect 361 00:19:36,960 --> 00:19:40,560 Speaker 1: it will be pretty significant, right, And how do you 362 00:19:40,640 --> 00:19:43,560 Speaker 1: gain something like that? And how does the market? You know, 363 00:19:43,640 --> 00:19:46,159 Speaker 1: if and and I know you're not an investor, you 364 00:19:46,560 --> 00:19:48,800 Speaker 1: much more accomplished a lot of other things, Chris. But 365 00:19:49,119 --> 00:19:51,960 Speaker 1: as an investor, that's gotta be worrisome for a lot 366 00:19:51,960 --> 00:19:55,040 Speaker 1: of our listeners and viewers who are thinking, well, if 367 00:19:55,200 --> 00:19:58,760 Speaker 1: if I can't fully trust it, may not trust the data. 368 00:19:58,840 --> 00:20:02,320 Speaker 1: But if the data are incomplete or something like that, 369 00:20:02,320 --> 00:20:05,040 Speaker 1: that's a that's a real issue, right right, And you're 370 00:20:05,080 --> 00:20:08,840 Speaker 1: gonna have one month where again, assuming the shutdown ends, 371 00:20:08,880 --> 00:20:11,840 Speaker 1: you know shortly you'll have one month where the data 372 00:20:11,880 --> 00:20:15,040 Speaker 1: is wildly off, and you know that once those Settle 373 00:20:15,119 --> 00:20:18,240 Speaker 1: workers get paid, a lot of the spending they weren't doing, 374 00:20:18,280 --> 00:20:21,320 Speaker 1: although they will then make But then there there is 375 00:20:21,400 --> 00:20:23,600 Speaker 1: I suspect a lot of other spending that never will 376 00:20:23,600 --> 00:20:26,720 Speaker 1: have happened, a lot of small businesses who can't get 377 00:20:26,720 --> 00:20:29,159 Speaker 1: a home, who can't get alone to expand, or farms 378 00:20:29,200 --> 00:20:31,280 Speaker 1: that can't get alone. UM that there's going to be 379 00:20:31,400 --> 00:20:36,080 Speaker 1: kind of this continued ripple impact throughout the economy. What 380 00:20:36,119 --> 00:20:38,920 Speaker 1: I'm concerned about is that I don't see um a 381 00:20:39,000 --> 00:20:40,480 Speaker 1: light at the end of the tunnel. So I think 382 00:20:40,520 --> 00:20:43,480 Speaker 1: if this goes on for several more weeks, several more months, 383 00:20:43,720 --> 00:20:46,240 Speaker 1: we could be in a much more serious situation on 384 00:20:46,400 --> 00:20:48,520 Speaker 1: in an economy that I think a lot of people 385 00:20:48,640 --> 00:20:51,800 Speaker 1: thought was going to slow down in twenty nineteen already. Yeah, 386 00:20:51,800 --> 00:20:53,399 Speaker 1: I think I saw something from I think it was 387 00:20:53,480 --> 00:20:57,320 Speaker 1: I s I U saying that there's like now chance 388 00:20:57,320 --> 00:20:59,560 Speaker 1: that this goes on into February or something like that. 389 00:20:59,600 --> 00:21:02,400 Speaker 1: So it's certainly picking up team Chris lew always appreciate 390 00:21:02,400 --> 00:21:05,320 Speaker 1: your time, Senior fellow at the University of Virginia. Miller 391 00:21:05,400 --> 00:21:08,320 Speaker 1: sent are former Deputy Secretary of Labor under President Obama 392 00:21:08,640 --> 00:21:11,159 Speaker 1: and Chris joining us on the phone from Virginia, and 393 00:21:11,200 --> 00:21:12,600 Speaker 1: he makes a good point. We've heard it from our 394 00:21:12,640 --> 00:21:16,000 Speaker 1: team as well, that that monthly jobs report, Jason becomes 395 00:21:16,040 --> 00:21:19,240 Speaker 1: even more important because that will be, you know, one 396 00:21:19,240 --> 00:21:21,520 Speaker 1: of the fewer checks that we have on the US economy. 397 00:21:21,880 --> 00:21:24,359 Speaker 1: You are listening to Bloomberg Business Week, and this is 398 00:21:24,400 --> 00:21:34,240 Speaker 1: Bloomberg Radio Star. Well, someone who has very much burst 399 00:21:34,520 --> 00:21:40,280 Speaker 1: on the scene is Alexandria Occassio Cortez, Representative district just 400 00:21:40,400 --> 00:21:45,520 Speaker 1: up the way from us here in Manhattan. Peterky talks 401 00:21:45,560 --> 00:21:50,200 Speaker 1: about AOC in this week's cover story of Bloomberg Business Week, 402 00:21:50,800 --> 00:21:53,520 Speaker 1: and zeroes in. Peter, you and I had a chance 403 00:21:53,560 --> 00:21:55,960 Speaker 1: to come back from a luncheon yesterday over the Economics 404 00:21:56,000 --> 00:21:57,400 Speaker 1: Club of New York, and we were talking a little 405 00:21:57,400 --> 00:22:01,720 Speaker 1: bit about this story because it's not a profile per se. 406 00:22:02,080 --> 00:22:05,000 Speaker 1: It's actually something I think a little more interesting because 407 00:22:05,040 --> 00:22:08,119 Speaker 1: it talks about what AOC is talking about as it 408 00:22:08,119 --> 00:22:11,159 Speaker 1: relates to taxes, right, we decided to focus in on 409 00:22:11,240 --> 00:22:15,440 Speaker 1: taxes because that's kind of maybe the most single outstanding 410 00:22:15,480 --> 00:22:17,720 Speaker 1: things she's been saying. They just got people's attention. She 411 00:22:17,800 --> 00:22:20,639 Speaker 1: was on sixty minutes and she said, uh, you know, 412 00:22:20,680 --> 00:22:23,359 Speaker 1: the taxes in the past have been six to seventy 413 00:22:23,800 --> 00:22:27,040 Speaker 1: top rates, which actually was understating things the tax rate 414 00:22:27,040 --> 00:22:30,679 Speaker 1: has actually been about. But the real point was that 415 00:22:30,760 --> 00:22:34,120 Speaker 1: this sort of shifted the debate because in t sixt 416 00:22:34,440 --> 00:22:37,960 Speaker 1: Hillary Clinton ran for president and did not propose any 417 00:22:38,520 --> 00:22:42,159 Speaker 1: increase in the top marginal tax rate. Bernie Sanders that 418 00:22:42,400 --> 00:22:45,000 Speaker 1: flaming socialists in Vermont came out with a number of 419 00:22:45,040 --> 00:22:49,080 Speaker 1: fifty two percent, So talking sixty to seventies just a 420 00:22:49,119 --> 00:22:52,280 Speaker 1: whole different realm. And what I argue in the article 421 00:22:52,800 --> 00:22:53,959 Speaker 1: is that there are a lot of people are going 422 00:22:54,000 --> 00:22:56,159 Speaker 1: to disagree with her, a lot of people agree, But 423 00:22:56,240 --> 00:22:58,280 Speaker 1: the point is that she has shifted the so called 424 00:22:58,320 --> 00:23:01,800 Speaker 1: Overton window, which is the realm of ideas that are 425 00:23:01,800 --> 00:23:06,320 Speaker 1: considered acceptable for even discourse, even for debate at any 426 00:23:06,320 --> 00:23:09,960 Speaker 1: given time. How is it that the newbie did that. 427 00:23:10,240 --> 00:23:12,720 Speaker 1: I think it's because she's a newbie. I think if 428 00:23:12,720 --> 00:23:15,879 Speaker 1: you've been around Washington for a while, you just started 429 00:23:15,920 --> 00:23:18,520 Speaker 1: get hemmed in after a while. It's like being in 430 00:23:18,560 --> 00:23:20,280 Speaker 1: a club. You want to be clubable, you want to 431 00:23:20,280 --> 00:23:22,640 Speaker 1: be sort of in the mix, and you don't want 432 00:23:22,640 --> 00:23:25,720 Speaker 1: to be And we we have this in journalism sometimes too. 433 00:23:25,800 --> 00:23:28,520 Speaker 1: You'll picture story and say, well, that will never happen. 434 00:23:28,600 --> 00:23:32,440 Speaker 1: And sometimes you have to think, well, it's maybe it won't, 435 00:23:32,560 --> 00:23:35,520 Speaker 1: but does it really hurt to be discussing it? And 436 00:23:35,560 --> 00:23:37,440 Speaker 1: I think, again, I don't want to sound like I'm 437 00:23:37,600 --> 00:23:40,040 Speaker 1: in favor of this idea, but I think it's a 438 00:23:40,040 --> 00:23:42,840 Speaker 1: healthy thing when people start talking, well, what is actually 439 00:23:42,840 --> 00:23:45,639 Speaker 1: a good top marginal rate for an income? Well and 440 00:23:45,640 --> 00:23:51,439 Speaker 1: and broadly it speaks to the megaphone that Alexandria Cassio 441 00:23:51,560 --> 00:23:54,920 Speaker 1: Cortez has at this moment, certainly a megaphone that we 442 00:23:55,080 --> 00:23:59,760 Speaker 1: rarely see with a freshman member of Congress. She is 443 00:23:59,800 --> 00:24:02,760 Speaker 1: a amazing on social media. She is a total master 444 00:24:02,840 --> 00:24:07,600 Speaker 1: of that Snapchat and Twitter and on and on. She 445 00:24:07,600 --> 00:24:11,840 Speaker 1: she uh has a number two point four million on 446 00:24:11,880 --> 00:24:15,400 Speaker 1: Twitter twin and uh, I just added so now it's 447 00:24:15,440 --> 00:24:19,440 Speaker 1: two point four four seven eighth four now right, So 448 00:24:19,520 --> 00:24:25,959 Speaker 1: the ideas that she doesn't just rely on press releases 449 00:24:26,080 --> 00:24:30,560 Speaker 1: and standing in front of the Congress talking to some reporter. 450 00:24:30,720 --> 00:24:34,600 Speaker 1: She she has a which is similar to another character 451 00:24:34,640 --> 00:24:38,159 Speaker 1: we know named Donald Trump. She reaches over the head 452 00:24:38,520 --> 00:24:40,919 Speaker 1: of the media and all the inter media is all 453 00:24:40,960 --> 00:24:44,159 Speaker 1: of us who have sort of been trying to interpret 454 00:24:44,920 --> 00:24:49,240 Speaker 1: and says, no, here's my message. And it works. You 455 00:24:49,280 --> 00:24:53,080 Speaker 1: get it out there enough right in different ways, and 456 00:24:53,080 --> 00:24:55,240 Speaker 1: and social media, as we know, can be very effective 457 00:24:55,520 --> 00:24:58,760 Speaker 1: that you do either start a conversation or move it along. 458 00:24:59,000 --> 00:25:01,439 Speaker 1: I think that, yeah, that's the overton window idea that 459 00:25:01,520 --> 00:25:06,160 Speaker 1: you that you can shift. Okay, the first step towards 460 00:25:06,160 --> 00:25:10,560 Speaker 1: getting an idea adopted is getting it talked about. Uh. 461 00:25:10,560 --> 00:25:14,920 Speaker 1: And even the people who oppose it are inadvertently helping 462 00:25:14,920 --> 00:25:18,360 Speaker 1: her just by their hairs on fire, and they talk 463 00:25:18,440 --> 00:25:21,879 Speaker 1: about it and it becomes something they're talking about. Because 464 00:25:21,880 --> 00:25:23,840 Speaker 1: you did talk to one of the great characters of 465 00:25:23,840 --> 00:25:26,000 Speaker 1: our time, especially when it comes to taxes, Grover nor 466 00:25:26,119 --> 00:25:29,639 Speaker 1: quest Um. And he's obviously on the other side of this. 467 00:25:29,720 --> 00:25:31,879 Speaker 1: Anybody who knows anything about taxes, no, he is very 468 00:25:31,920 --> 00:25:35,480 Speaker 1: much on the other side. He famously made many many 469 00:25:35,480 --> 00:25:39,160 Speaker 1: people pledge never to raise taxes. So with all that 470 00:25:39,200 --> 00:25:43,679 Speaker 1: in mind seconds left, Where does this go from here? Okay, 471 00:25:43,720 --> 00:25:47,960 Speaker 1: so the Democrats are controlling one house, but they don't 472 00:25:47,960 --> 00:25:50,439 Speaker 1: control the Senate, don't control the White House. So for 473 00:25:50,520 --> 00:25:53,600 Speaker 1: two years, I think it goes kind of nowhere, except 474 00:25:54,000 --> 00:25:58,440 Speaker 1: that it gains attraction maybe in the general public. We'll 475 00:25:58,480 --> 00:26:01,840 Speaker 1: see what happens if a Democrat wins the White House's 476 00:26:01,880 --> 00:26:04,560 Speaker 1: a liberal Democrat. If for some reason, nevercrast somehow I'm 477 00:26:04,560 --> 00:26:06,720 Speaker 1: in the Senate, things could actually change. It could have 478 00:26:06,800 --> 00:26:09,080 Speaker 1: been quite interesting. And you also think about if it 479 00:26:09,800 --> 00:26:12,520 Speaker 1: in contrast to SI, as you mentioned, if it ends 480 00:26:12,600 --> 00:26:16,480 Speaker 1: up in the Democratic nominees platform this time around, which 481 00:26:17,160 --> 00:26:20,520 Speaker 1: you know Elizabeth Warren hasn't quite endorsed the idea, but 482 00:26:20,560 --> 00:26:23,040 Speaker 1: you can see her edging that direction, and so on. 483 00:26:23,119 --> 00:26:24,800 Speaker 1: You I'm just gonna say, we just spent another six 484 00:26:24,800 --> 00:26:26,800 Speaker 1: seven minutes talking about it, and we've talked about it 485 00:26:26,840 --> 00:26:29,560 Speaker 1: earlier in the week, so the conversation continues. We are 486 00:26:29,640 --> 00:26:32,280 Speaker 1: in the Overton window, all three of us. Peter Ky 487 00:26:32,840 --> 00:26:35,600 Speaker 1: always a pleasure. You can catch more of our conversation 488 00:26:35,640 --> 00:26:38,400 Speaker 1: with Peter on this weekend's Business Week show on Bloomberg 489 00:26:38,480 --> 00:26:40,679 Speaker 1: Radio and TV, and also check out the story. It's 490 00:26:40,720 --> 00:26:43,040 Speaker 1: available now at the Bloomberg on the Bloomberg and Bloomberg 491 00:26:43,080 --> 00:26:50,800 Speaker 1: dot Com. Come roam Journal. But you let me drive? No, 492 00:26:50,800 --> 00:27:04,919 Speaker 1: no, no no, no please, I want to drive destrib question 493 00:27:13,040 --> 00:27:18,600 Speaker 1: the Drive to the Globe. Thanks Dawn on Bloomberg Radio. 494 00:27:18,960 --> 00:27:21,000 Speaker 1: It is time for the Drive to the closest. About 495 00:27:21,000 --> 00:27:24,359 Speaker 1: twelve minutes left in today's trading session. Back with us, 496 00:27:24,400 --> 00:27:27,280 Speaker 1: as Jim done. He's CEO at Verture Capital with us 497 00:27:27,320 --> 00:27:30,600 Speaker 1: from Winston Salem, North Carolina, and also with us Bloomberg 498 00:27:30,640 --> 00:27:34,040 Speaker 1: News Endowments reporter Janet Lauren. She's in our Bloomberg Indirective 499 00:27:34,080 --> 00:27:37,160 Speaker 1: broker studio in New York. Jim, by the way, overseeing 500 00:27:37,160 --> 00:27:40,440 Speaker 1: about one point five billion for nonprofits that includes Wake 501 00:27:40,480 --> 00:27:43,480 Speaker 1: Forest University's endowment. So great to have both of you 502 00:27:44,000 --> 00:27:47,200 Speaker 1: back with us. Jim, this is an interesting market environment. 503 00:27:47,280 --> 00:27:50,320 Speaker 1: It moves really quickly on headlines and news. We've had 504 00:27:50,400 --> 00:27:52,240 Speaker 1: quite a bounce from that, at least on the equity 505 00:27:52,280 --> 00:27:55,679 Speaker 1: side of things, from that December sell off. How do 506 00:27:55,720 --> 00:27:58,240 Speaker 1: you see the market environment? What kind of a market 507 00:27:58,320 --> 00:28:01,640 Speaker 1: environment is and how would you describe it? I think 508 00:28:01,640 --> 00:28:04,639 Speaker 1: it's one of the bipolar here. It's um it's clearly 509 00:28:04,680 --> 00:28:07,280 Speaker 1: moving on things that in a near term shouldn't move 510 00:28:07,359 --> 00:28:09,760 Speaker 1: the market at all. And uh, you know, uh a 511 00:28:09,840 --> 00:28:11,880 Speaker 1: rumor about China should not move the market a hunter 512 00:28:11,960 --> 00:28:14,600 Speaker 1: based basis points today. So I think you've got to 513 00:28:14,600 --> 00:28:17,240 Speaker 1: think about it, avoid the noise. But you're looking at 514 00:28:17,280 --> 00:28:19,840 Speaker 1: a lower return environment, so you really can't make mistakes 515 00:28:19,840 --> 00:28:22,439 Speaker 1: in this environment. And so you know, and one of 516 00:28:22,480 --> 00:28:24,480 Speaker 1: the questions, Jim, we've been asking a lot of people 517 00:28:24,520 --> 00:28:27,720 Speaker 1: we had a sort of deep value investor on earlier 518 00:28:27,800 --> 00:28:31,639 Speaker 1: in the show, is their value in this sort of market, 519 00:28:31,720 --> 00:28:34,560 Speaker 1: especially given the run up we've seen after uh that 520 00:28:34,680 --> 00:28:38,160 Speaker 1: little low. Where where are we in terms of rotation? 521 00:28:38,280 --> 00:28:40,280 Speaker 1: Where are we in terms of you know, kind of 522 00:28:40,320 --> 00:28:43,479 Speaker 1: this balance that we look for in the market. Well, 523 00:28:43,520 --> 00:28:45,800 Speaker 1: I think there's always opportunity, and you think about things 524 00:28:45,920 --> 00:28:48,960 Speaker 1: like UM e M right now for example, which hasn't 525 00:28:48,960 --> 00:28:51,200 Speaker 1: had the big bounce back yet. But I think the 526 00:28:51,920 --> 00:28:53,520 Speaker 1: story that we always tell folks is that, you know, 527 00:28:53,560 --> 00:28:55,200 Speaker 1: it's kind of like getting a beach body, right. You 528 00:28:55,240 --> 00:28:57,200 Speaker 1: can't get a beach body in start in June. You've 529 00:28:57,240 --> 00:29:00,040 Speaker 1: got to start in December. So there's definitely opportunity to 530 00:29:00,040 --> 00:29:03,840 Speaker 1: take advantage of of UM pockets of opportunity, but it 531 00:29:03,880 --> 00:29:05,760 Speaker 1: may not be in your normal portfolio, it may not 532 00:29:05,840 --> 00:29:07,680 Speaker 1: be in u S docks, it may be somewhere else. 533 00:29:07,680 --> 00:29:10,080 Speaker 1: And I think that's where people have to start looking 534 00:29:10,120 --> 00:29:14,320 Speaker 1: today and sort of picked their spots and have a list. Well, 535 00:29:14,440 --> 00:29:17,200 Speaker 1: endowments haven't seen this kind of volatility in a while. 536 00:29:17,280 --> 00:29:19,160 Speaker 1: What does that mean for returns and what does that 537 00:29:19,240 --> 00:29:22,920 Speaker 1: mean for funding scholarships and things like that. Yeah, I 538 00:29:22,920 --> 00:29:25,920 Speaker 1: think it's a challenging environment. I think universities. There was 539 00:29:25,960 --> 00:29:28,480 Speaker 1: a recent survey by cap Trust in North Carolina about 540 00:29:28,840 --> 00:29:32,240 Speaker 1: most schools have expectations between five and eight percent and 541 00:29:32,520 --> 00:29:34,560 Speaker 1: last year and I think the calendar year they were 542 00:29:34,840 --> 00:29:37,479 Speaker 1: most of them were down three or four. So it's 543 00:29:37,520 --> 00:29:40,320 Speaker 1: gonna affect financial eight it's going to affect how they 544 00:29:40,320 --> 00:29:43,040 Speaker 1: build budgets and um, I think a lot of schools 545 00:29:43,040 --> 00:29:45,280 Speaker 1: are not prepared. And most of these schools also can't 546 00:29:45,280 --> 00:29:48,400 Speaker 1: take more than ten percent loss, so their portfolios are 547 00:29:48,400 --> 00:29:51,120 Speaker 1: not well constructed for that kind of environment. So job 548 00:29:51,120 --> 00:29:52,960 Speaker 1: go back to something that I wanted to press you 549 00:29:52,960 --> 00:29:54,720 Speaker 1: a little bit on something you said just a minute ago, 550 00:29:54,760 --> 00:29:58,000 Speaker 1: which is you sort of have to look beyond the obvious. 551 00:29:58,040 --> 00:30:02,080 Speaker 1: Are those different instrument answer is that different geographies, is that, 552 00:30:02,280 --> 00:30:05,960 Speaker 1: different durations, different liquidity, all of the above. Where where 553 00:30:05,960 --> 00:30:07,680 Speaker 1: do you go in a place like this if you're 554 00:30:07,880 --> 00:30:10,560 Speaker 1: if you have to think more creatively. I think it's 555 00:30:10,600 --> 00:30:11,840 Speaker 1: all the above. I think if you look at kind 556 00:30:11,840 --> 00:30:13,960 Speaker 1: of what we've done recently, you know, looking at things 557 00:30:14,000 --> 00:30:18,080 Speaker 1: like investing in Africa, in the Nordic countries and having 558 00:30:18,360 --> 00:30:21,560 Speaker 1: a short only manager in our portfolio, looking at you know, 559 00:30:21,640 --> 00:30:24,720 Speaker 1: really thinking a hard look at hedge funds after eighteen 560 00:30:24,760 --> 00:30:26,239 Speaker 1: months or two and a half years or where they 561 00:30:26,240 --> 00:30:29,440 Speaker 1: were not very helpful to your portfolio, and in December 562 00:30:29,440 --> 00:30:31,960 Speaker 1: they were very helpful. So I think you've got to 563 00:30:31,960 --> 00:30:34,120 Speaker 1: have that your portfolio now. You can't wait and to 564 00:30:34,200 --> 00:30:36,240 Speaker 1: decide when volatility picks up, you're not going to add 565 00:30:36,240 --> 00:30:37,600 Speaker 1: this to your portfolio. You have to have it in 566 00:30:37,600 --> 00:30:39,760 Speaker 1: the portfolio now and be prepared for it. Yeah. I 567 00:30:39,800 --> 00:30:41,720 Speaker 1: just think about the story that was in the magazine right, 568 00:30:41,840 --> 00:30:44,360 Speaker 1: just you know, watching investors maybe not so comfortable with 569 00:30:44,440 --> 00:30:46,960 Speaker 1: volatility and some of their exposure and maybe needing to 570 00:30:47,160 --> 00:30:50,000 Speaker 1: you know, kind of rethink so that with these big 571 00:30:50,040 --> 00:30:53,040 Speaker 1: market swings, how do you adjust your portfolio so that 572 00:30:53,320 --> 00:30:54,720 Speaker 1: you can kind of deal with it and take some 573 00:30:54,800 --> 00:30:57,560 Speaker 1: of that volatility you know out of your portfolio gym. 574 00:30:57,560 --> 00:30:58,960 Speaker 1: Do you guys have to do that when it comes 575 00:30:59,000 --> 00:31:01,400 Speaker 1: to endowments as well? I guess you do, right. I 576 00:31:01,400 --> 00:31:02,920 Speaker 1: think it's two folk care. I think first of all, 577 00:31:02,920 --> 00:31:04,719 Speaker 1: you have to have the committees to be prepared for us. 578 00:31:04,720 --> 00:31:06,680 Speaker 1: They have to be ready to say how much can 579 00:31:06,720 --> 00:31:08,400 Speaker 1: we lose? What are we willing to lose? And build 580 00:31:08,400 --> 00:31:11,440 Speaker 1: a portfolio with that in mind. You can only trill 581 00:31:11,480 --> 00:31:14,280 Speaker 1: control two things, risk and fees. You can't control return. 582 00:31:14,520 --> 00:31:16,840 Speaker 1: So if you want a percent return, that's great. What 583 00:31:16,840 --> 00:31:18,840 Speaker 1: happens when you lose ten percent? And I think that 584 00:31:18,960 --> 00:31:21,600 Speaker 1: applies to not only in downlets, but it's all of 585 00:31:21,800 --> 00:31:24,680 Speaker 1: nonprofit foundations because a lot of their operating budget comes 586 00:31:24,720 --> 00:31:27,440 Speaker 1: from these pools of capital. So what do you think. 587 00:31:27,440 --> 00:31:29,640 Speaker 1: I'm glad you brought up fees because I think it's 588 00:31:29,640 --> 00:31:31,840 Speaker 1: been on all of our minds today. I think with 589 00:31:32,080 --> 00:31:36,160 Speaker 1: candidly with the passing of Jack Bogel, who really revolutionized 590 00:31:36,360 --> 00:31:39,480 Speaker 1: how retail investors at least think about what they pay 591 00:31:39,560 --> 00:31:43,080 Speaker 1: for investments, I have to imagine giving given the money 592 00:31:43,120 --> 00:31:46,280 Speaker 1: that you invest and the people you invest for, fees 593 00:31:46,320 --> 00:31:49,240 Speaker 1: are top of mind in sort of a different way. 594 00:31:49,720 --> 00:31:53,240 Speaker 1: You mentioned hedge funds, which obviously charge very high fees. 595 00:31:53,760 --> 00:31:57,520 Speaker 1: What's the sentiment generally around what you're willing to pay 596 00:31:57,840 --> 00:32:01,360 Speaker 1: right now? Yeah, I think there's definitely a more of 597 00:32:01,400 --> 00:32:03,600 Speaker 1: a mixed that and passive and active. Even in our 598 00:32:03,640 --> 00:32:07,160 Speaker 1: billion to our portfolios, you're seeing folks not pay up 599 00:32:07,160 --> 00:32:10,320 Speaker 1: for beta or try to understand where the fees are 600 00:32:10,360 --> 00:32:12,960 Speaker 1: being used. Even in private equity, I mean there's a 601 00:32:12,960 --> 00:32:15,040 Speaker 1: lot of pressure on private equity firms to think about 602 00:32:15,120 --> 00:32:17,280 Speaker 1: kind of what kind of fees you charging investors, but 603 00:32:17,320 --> 00:32:19,920 Speaker 1: also what are you paying for companies? And this environment 604 00:32:19,920 --> 00:32:22,600 Speaker 1: where things have bit bit up so much, it's really 605 00:32:22,600 --> 00:32:24,680 Speaker 1: a challenge. I think, can you really make a ten 606 00:32:24,760 --> 00:32:27,520 Speaker 1: percent investment if you're paying two x what you paid 607 00:32:27,520 --> 00:32:32,320 Speaker 1: four years ago? So are you considering your allocation to 608 00:32:32,360 --> 00:32:35,640 Speaker 1: private equity we are in this environment? I think, you know, 609 00:32:35,680 --> 00:32:37,000 Speaker 1: this is one area where I think a lot of 610 00:32:37,000 --> 00:32:39,480 Speaker 1: schools have really spent a lot of time in the 611 00:32:39,640 --> 00:32:42,400 Speaker 1: in the years prior to think about private equity. In 612 00:32:42,400 --> 00:32:45,160 Speaker 1: this environment, we're sort of staying away from the megabuyouts. 613 00:32:45,200 --> 00:32:48,080 Speaker 1: We're staying away from some areas where we think valuations 614 00:32:48,120 --> 00:32:50,400 Speaker 1: there's just too high and private equity managers, while they 615 00:32:50,440 --> 00:32:53,160 Speaker 1: have lots of capital slashing around, they're over paying for 616 00:32:53,160 --> 00:32:55,080 Speaker 1: these companies because they've got to put the money to work. 617 00:32:55,240 --> 00:32:58,240 Speaker 1: So where are you going instead? I think, you know, 618 00:32:58,240 --> 00:33:00,400 Speaker 1: we're looking at again I mentioned Africa one area. I 619 00:33:00,400 --> 00:33:02,720 Speaker 1: think we're looking at energy after being you know, really 620 00:33:02,720 --> 00:33:04,920 Speaker 1: beat up UM the last couple of months and the 621 00:33:04,960 --> 00:33:08,760 Speaker 1: last couple of quarters. Um, we're looking at the Nordic countries. UM, 622 00:33:08,880 --> 00:33:13,640 Speaker 1: We're looking at um even thinking about more allocations distressed. 623 00:33:13,880 --> 00:33:16,680 Speaker 1: While right now it hasn't been the greatest cycle for distressed. 624 00:33:17,120 --> 00:33:19,000 Speaker 1: Look at what's happening in brexfast, Look what's happening in 625 00:33:19,040 --> 00:33:22,200 Speaker 1: the US. Look at happening a high yield UM PG 626 00:33:22,360 --> 00:33:24,240 Speaker 1: and is a good example. There's gonna be some opportunities 627 00:33:24,240 --> 00:33:26,880 Speaker 1: for some distressed investments, both public and private, coming up 628 00:33:26,880 --> 00:33:30,320 Speaker 1: fairly shortly. So, you know, Joe wanted to ask you 629 00:33:30,360 --> 00:33:34,480 Speaker 1: about China. You alluded to what the volatility is it 630 00:33:34,560 --> 00:33:37,280 Speaker 1: where that we saw just in the market today. How 631 00:33:37,320 --> 00:33:39,800 Speaker 1: do you think, especially since you're a long term investor, 632 00:33:40,160 --> 00:33:44,240 Speaker 1: about this ongoing trade war as it heats up between 633 00:33:44,360 --> 00:33:46,960 Speaker 1: China the US, but also the effect of trade more 634 00:33:47,040 --> 00:33:53,160 Speaker 1: broadly on a portfolio that's not just clearly equities. Yeah, 635 00:33:53,200 --> 00:33:56,400 Speaker 1: there's always opportunity. And again we as an endownment we 636 00:33:56,400 --> 00:33:58,080 Speaker 1: have to think about you can not only go long, 637 00:33:58,120 --> 00:33:59,560 Speaker 1: but you can also go short. Right, So there's a 638 00:33:59,560 --> 00:34:02,160 Speaker 1: opportunity used to take advantage of this, whether it's in 639 00:34:02,160 --> 00:34:04,920 Speaker 1: in shipping, in agriculture and soybeans. So we can take 640 00:34:04,920 --> 00:34:07,960 Speaker 1: a look at China a bigger framework. But I think, well, 641 00:34:08,000 --> 00:34:10,000 Speaker 1: we really worry about for China is sort of the 642 00:34:10,080 --> 00:34:13,240 Speaker 1: underlying pinnings of their economy, which has been fueled by debt, 643 00:34:13,400 --> 00:34:16,680 Speaker 1: and this growth is slowing. We really worry about that. 644 00:34:16,760 --> 00:34:20,400 Speaker 1: Do I remember you do not invest in China? In 645 00:34:20,480 --> 00:34:23,800 Speaker 1: our first first investment this year in a venture capital 646 00:34:23,800 --> 00:34:26,959 Speaker 1: fund in China? What made you change your mind? Looking 647 00:34:26,960 --> 00:34:28,880 Speaker 1: at the amount of I p O s um and 648 00:34:28,920 --> 00:34:30,440 Speaker 1: think about the I p O s of sort of 649 00:34:30,520 --> 00:34:34,719 Speaker 1: unicorns going on in China was dramatically more valuable than 650 00:34:34,840 --> 00:34:37,560 Speaker 1: what's going on in the US. And we're all waiting 651 00:34:37,600 --> 00:34:40,200 Speaker 1: for Uber and all and left to go to go public, 652 00:34:40,239 --> 00:34:42,919 Speaker 1: but you know, China's having eight, nine, ten of these 653 00:34:43,040 --> 00:34:45,640 Speaker 1: companies go public a month, and you're starting to see 654 00:34:45,640 --> 00:34:48,520 Speaker 1: a shift from innovation happening in the US and now 655 00:34:48,560 --> 00:34:50,759 Speaker 1: it's happening in China, and you're seeing exits as well. 656 00:34:50,880 --> 00:34:53,440 Speaker 1: This is something we've been certainly confirming in many of 657 00:34:53,520 --> 00:34:56,600 Speaker 1: the stories in the magazine when it comes to Chinese tech. 658 00:34:56,680 --> 00:34:59,120 Speaker 1: Jim Done, thanks so much of a Virtual Capital Management. 659 00:34:59,120 --> 00:35:02,840 Speaker 1: He's the CEO on the phone from Winston Salem, Salem. 660 00:35:02,920 --> 00:35:05,920 Speaker 1: John Lauren, of course, our endowment's reporter here at Bloomberg News. 661 00:35:05,960 --> 00:35:08,640 Speaker 1: Thanks for listening to Bloomberg Business Week. You can subscribe 662 00:35:08,680 --> 00:35:11,560 Speaker 1: to the podcast on iTunes, SoundCloud, or Bloomberg dot com. 663 00:35:11,760 --> 00:35:14,160 Speaker 1: You can also listen to our radio show every weekday 664 00:35:14,200 --> 00:35:16,640 Speaker 1: at two pm Eastern only on Bloomberg Radio