WEBVTT - Legal System Not Capable Of Regulating Tech: Gibney 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.439 at Bloomberg dot com. He invested in PayPal when his 0:00:24.680 --> 0:00:28.600 roommate It's Stanford, co founded it. He's been involved with 0:00:28.800 --> 0:00:33.000 Peter till. He has so much with respect to the 0:00:33.080 --> 0:00:36.160 tech world, and yet he just wrote a book about 0:00:36.200 --> 0:00:38.320 the American legal system and what's wrong with it. Bruce 0:00:38.360 --> 0:00:41.280 Giveney joining us here author and venture capitalist, normally based 0:00:41.280 --> 0:00:43.519 in San Francisco, but he is currently joining us here 0:00:43.520 --> 0:00:46.320 in our Bloombergetter Active Brokers Studios. The author of a 0:00:46.360 --> 0:00:49.640 new book, The Nonsense Factory, The Making and Breaking of 0:00:49.680 --> 0:00:53.840 the American Legal Law. So why why did you write 0:00:53.840 --> 0:00:57.160 this book? Well, I had I had been a lawyer, 0:00:57.200 --> 0:00:59.560 which was the most miserable thirteen months of my life. 0:01:00.000 --> 0:01:02.880 And uh boy, we've heard that before. Haply, Yeah, but 0:01:02.960 --> 0:01:06.720 I got out thanks to PayPal. Um and then I 0:01:06.760 --> 0:01:08.320 became a client and sort of one of the things 0:01:08.400 --> 0:01:10.760 I've been trained to sort of understand as a lawyer 0:01:10.800 --> 0:01:13.200 is that you know, the law makes sense, and it's 0:01:13.360 --> 0:01:15.520 you know, it's as all this cohesive hall and presided 0:01:15.720 --> 0:01:18.320 by this higher authority and you know, this mechanical universe 0:01:18.400 --> 0:01:20.480 god operating out of the constitution, everything is just going 0:01:20.480 --> 0:01:22.760 to be fine. And then as a client, I realized 0:01:22.760 --> 0:01:25.280 I couldn't get a straight answer to any question worth asking, 0:01:25.280 --> 0:01:28.640 and that drove me insane so um over the years, 0:01:28.680 --> 0:01:32.080 I just collected sort of stories and problems and anecdotes 0:01:32.880 --> 0:01:36.440 about the legal systems failings. Every time you go to 0:01:36.480 --> 0:01:39.160 a lawyer, you'll bounce around twelve two different departments, you'll 0:01:39.200 --> 0:01:42.160 get a bill, and the result is always it depends 0:01:42.480 --> 0:01:44.360 and you're not even sure what it depends on half 0:01:44.360 --> 0:01:46.720 the time. And I found this as a client to 0:01:46.760 --> 0:01:50.320 be somewhat unsatisfying. So I wondered, why is that? And 0:01:50.520 --> 0:01:52.840 I decided to write a book about the legal system 0:01:52.880 --> 0:01:55.120 as a result. And I think that I'm in a 0:01:55.120 --> 0:01:57.120 good position to do this, having been on both sides 0:01:57.640 --> 0:02:00.760 of the legal divide, and also because I'm not captive 0:02:00.840 --> 0:02:03.080 to the legal system you know, sort of Unlike professors, 0:02:03.120 --> 0:02:05.400 I don't have to defend law schools, Unlike judges, I 0:02:05.400 --> 0:02:08.400 don't have to pretend that courts always make rational decisions. 0:02:08.440 --> 0:02:10.840 Unlike Congressman, I don't have to pretend that our legislature 0:02:10.840 --> 0:02:13.160 has any idea what it's doing, because he invested in 0:02:13.800 --> 0:02:16.000 early on, and he made a lot of really really 0:02:16.080 --> 0:02:20.600 lucrative bets exactly, So it's not just about bed billing. 0:02:20.720 --> 0:02:23.280 I mean, you argue in your book that the entire 0:02:23.400 --> 0:02:26.760 legal factory, would you call it, from law schools to judges, 0:02:26.840 --> 0:02:29.960 to bureaucracies, to the police to maybe even the presidency 0:02:30.200 --> 0:02:34.000 is completely falling apart. So what's your basic thesis about 0:02:34.240 --> 0:02:37.720 what's going on? Sure, so laws of cooperative endeavor, just 0:02:37.800 --> 0:02:39.919 like making a car on an assembly line is a 0:02:39.960 --> 0:02:43.480 cooperative endeavor. But for that to work, each part of 0:02:43.520 --> 0:02:45.880 the legal system has to understand each other. So when 0:02:45.960 --> 0:02:48.280 Congress makes a law, it has to understand the sort 0:02:48.280 --> 0:02:51.359 of industries it's attempting to regulate, and how the bureaucracies 0:02:51.360 --> 0:02:53.919 will interpret those regulations or will interpret the law to 0:02:53.960 --> 0:02:57.480 make regulations. Courts have to understand how Congress works in 0:02:57.560 --> 0:03:00.560 order to interpret those laws and you know, and so 0:03:00.600 --> 0:03:03.840 on down the line. Um, you know, law firms have 0:03:03.880 --> 0:03:06.120 to understand what their clients actually want that they don't. 0:03:06.280 --> 0:03:09.560 But so as each part of the legal process, you know, 0:03:09.720 --> 0:03:12.400 sort of as the product moves through the assembly line, 0:03:12.480 --> 0:03:14.919 you start to see defects compounding because no one sort 0:03:14.919 --> 0:03:18.280 of takes a holistic view, right, because laws is specialist occupations, like, well, 0:03:18.320 --> 0:03:20.959 I'm just working on my arbitration provision in this contract. 0:03:21.200 --> 0:03:23.840 The tax provision is someone else's problem, and so all 0:03:23.880 --> 0:03:27.200 these things actually do interact and clients businesses know this. 0:03:27.800 --> 0:03:31.440 Lawyers don't. It's always someone else's problem. Quite literally, legally, 0:03:31.840 --> 0:03:34.480 it is someone else's problem, and that person, that other 0:03:34.560 --> 0:03:38.640 person is the client, and that is not acceptable. I've 0:03:38.640 --> 0:03:42.560 got to say what you're saying definitely, uh seems true 0:03:42.680 --> 0:03:44.880 on every level. I mean, we've definitely talked to a 0:03:44.920 --> 0:03:46.520 lot of people about this. I want to shift gears 0:03:46.520 --> 0:03:49.080 a little bit because you are still an investor in 0:03:49.560 --> 0:03:52.800 many of the technology companies that we all hear about 0:03:52.880 --> 0:03:55.240 and talk about every day, and I'm just wondering from 0:03:55.280 --> 0:03:58.840 your perspective what you make of this latest I P 0:03:59.000 --> 0:04:02.760 O wave and sort of the state of the tech world, Right, 0:04:02.800 --> 0:04:05.840 now as people talk about breaking up Facebook and breaking 0:04:05.920 --> 0:04:09.720 up some of the monopolies. Right. So, the predominant legal 0:04:09.720 --> 0:04:12.160 strategy when I was coming up in Silicon Valley, which 0:04:12.160 --> 0:04:15.120 was fifteen years ago, i e. Forever in technology terms, 0:04:15.400 --> 0:04:17.880 was that you could ignore Washington because it was filled 0:04:17.920 --> 0:04:20.279 with dinosaurs and some mammal would come out now compete them, 0:04:20.279 --> 0:04:21.919 and they would go away. And that turns out to 0:04:21.960 --> 0:04:25.120 be wrong. The dinosaurs are actually quite powerful. They don't 0:04:25.120 --> 0:04:27.160 know what they're doing all the time, but they can 0:04:27.200 --> 0:04:30.640 still well I'm not sure that we have mamially, yet 0:04:30.680 --> 0:04:33.559 we have like a fish with legs um. So that's 0:04:33.640 --> 0:04:37.960 that's sort of where we are. Uh. Technology has started 0:04:37.960 --> 0:04:40.520 to invest over the past six or seven years in 0:04:40.640 --> 0:04:43.240 lobbying and trying to understand Washington, what have you. I 0:04:43.279 --> 0:04:46.480 think it is actually almost too late. The great difficulty 0:04:46.640 --> 0:04:49.400 is now that public sentiment has shifted, or at least 0:04:49.400 --> 0:04:52.560 political sentiment is shifted, there will be a huge push 0:04:52.640 --> 0:04:56.480 for regulation of all aspects of technology, things that were 0:04:56.600 --> 0:04:59.800 left alone for you know, the first fifteen years of 0:04:59.800 --> 0:05:01.960 the of the presence sort of you know, dot com 0:05:02.000 --> 0:05:05.000 technology resurgence, and I think the regulations are going to 0:05:05.080 --> 0:05:07.880 be clunky, ill advised, and I don't think they're going 0:05:07.920 --> 0:05:09.599 to work. I think they're going to be self defeating. 0:05:09.600 --> 0:05:11.680 And again, this all goes back to the fact that 0:05:11.800 --> 0:05:16.080 legal system has no idea collectively what it's doing. So 0:05:16.120 --> 0:05:20.440 it's sort of you know, retail sanity wholesale madness as 0:05:20.480 --> 0:05:23.320 my as my old friend Peter used to say. And 0:05:23.320 --> 0:05:25.400 and I think it's going to be a disaster for 0:05:25.440 --> 0:05:26.840 tech and I think actually it's going to be a 0:05:26.880 --> 0:05:29.680 disaster for consumers as well. You can't just step in 0:05:29.720 --> 0:05:31.359 and say we're going to break things up just for 0:05:31.360 --> 0:05:33.200 the sake of breaking things up. And we actually have 0:05:33.279 --> 0:05:35.719 already seen some of this because some of the rules 0:05:35.720 --> 0:05:38.080 have been put in place in Europe have actually had 0:05:38.120 --> 0:05:41.000 the exact opposite effect, where smaller tech companies don't have 0:05:41.040 --> 0:05:43.520 the capacity to comply with them, and so they actually 0:05:43.560 --> 0:05:46.920 give more market share to the big companies. That that's 0:05:46.960 --> 0:05:49.440 exactly right, right, So again you know, this is sort 0:05:49.480 --> 0:05:51.040 of self defeeding. It's like, well, we're going to solve 0:05:51.080 --> 0:05:53.760 this problem, and then you know they don't sort of 0:05:53.760 --> 0:05:57.240 fully appreciate that they might engender other problems. Um, you know, 0:05:57.320 --> 0:05:59.799 for examply Apple case, which just came down today, although 0:05:59.800 --> 0:06:02.279 it's you know, I'm sorry on Monday. It's a technically 0:06:02.320 --> 0:06:05.360 a terror narrow legal issue right about who is standing 0:06:05.400 --> 0:06:08.320 to sue? And by the way, this statute was passed 0:06:08.320 --> 0:06:09.800 a hundred and thirty years ago. How did we not 0:06:09.880 --> 0:06:14.600 figure this out until today? Um, you know there's another 0:06:14.600 --> 0:06:17.839 case about tender offers. We're just figuring out fifty years 0:06:17.880 --> 0:06:19.680 after the fact, you know, who can sue on that. 0:06:19.760 --> 0:06:22.080 So the legal system is not a vision of lightning action. 0:06:22.839 --> 0:06:26.919 But um, you know, again with these unintended consequences the application. 0:06:26.920 --> 0:06:28.200 You know, one of the things that people really like 0:06:28.320 --> 0:06:30.560 about Apple is you don't have to think about anything, 0:06:30.560 --> 0:06:32.479 and everything is pretty high quality within its sort of 0:06:32.520 --> 0:06:35.159 you know walled garden, right, and so as you sort 0:06:35.160 --> 0:06:38.440 of say, well, listen, we're going to tear down those walls, right, 0:06:38.720 --> 0:06:41.440 and we're going to you know, impose all units of 0:06:41.480 --> 0:06:44.000 these you know, pro competitive things from the class action 0:06:44.040 --> 0:06:46.960 planeiffs go wild and you know, just let's all have 0:06:47.040 --> 0:06:49.000 at it and let's see how it works out. I 0:06:49.080 --> 0:06:50.719 don't think it's going to be great for the average 0:06:50.760 --> 0:06:53.440 Apple consumer. The average Apple consumer really just wants to 0:06:53.440 --> 0:06:55.640 click on a button and just not think about it. 0:06:55.680 --> 0:06:57.599 I mean, I'm an Apple consumer, and that's what I 0:06:57.600 --> 0:06:59.400 want to do. I don't want to think about antivirus 0:06:59.480 --> 0:07:01.920 software or you know which app story I have to 0:07:01.960 --> 0:07:03.680 go to the download stuff and what have you. So 0:07:03.920 --> 0:07:06.680 whatever the sort of you know, narrow anti competitive merits 0:07:06.720 --> 0:07:09.880 are of of the issue, whatever the narrow legal issues are, 0:07:10.360 --> 0:07:12.560 it's probably actually not going to work out that well 0:07:12.840 --> 0:07:15.160 for the average Apple consumer, because I gotta tell you 0:07:15.160 --> 0:07:16.640 the truth. And it's not just because they did well 0:07:16.640 --> 0:07:21.320 off people. I really don't care about the last All right, 0:07:21.320 --> 0:07:23.320 we'll tell us. I'm gonna give you twenty seconds for 0:07:23.360 --> 0:07:29.160 this one. What should the regulators do with techs? Okay, 0:07:30.520 --> 0:07:35.239 they should hire people who understand the industry. They should 0:07:35.280 --> 0:07:37.840 ask Congress for the budget to hire people who can 0:07:37.920 --> 0:07:40.800 understand the industry, and then they should think about things 0:07:40.840 --> 0:07:45.679 seriously before promulgating regulations. Very good, are you volunteering yourself? 0:07:46.960 --> 0:07:51.640 I would rather die. And that was conviction, ladies and 0:07:51.640 --> 0:07:54.480 gentlemen on the face of Bruce Gibney. Bruce Giveney author 0:07:54.680 --> 0:07:57.640 venture capitalists and not a d C inside or not 0:07:57.760 --> 0:07:59.960 a regulator. He's based in San Francisco, but he joined 0:08:00.040 --> 0:08:02.560 is here in our Bloomberg Interactor Broker Studio. He is 0:08:02.640 --> 0:08:05.760 also the author of a new book, The Nonsense Factory, 0:08:05.800 --> 0:08:09.600 The Making and Breaking of the American legal System. He 0:08:09.680 --> 0:08:12.840 has insights from, as he would say, both sides of 0:08:12.880 --> 0:08:16.640 the aisle as an attorney, relatively short one certainly, but 0:08:16.800 --> 0:08:21.920 certainly as a client. And then he was rescued. I 0:08:22.000 --> 0:08:40.560 think that was the key takeaway here. Thirteen months president 0:08:40.559 --> 0:08:43.959 Trump speaks, The market responds, we are getting word that 0:08:44.040 --> 0:08:46.400 President Trump, while he was departing the White House en 0:08:46.480 --> 0:08:49.400 route to Joint Base Andrews in the South Lawn of 0:08:49.880 --> 0:08:53.600 uh in Washington, d C, said that his relationship with 0:08:53.679 --> 0:08:57.360 China's j Ping is extraordinary. He referred to the US 0:08:57.520 --> 0:09:00.760 China trade dispute as a little squabble, and he said 0:09:00.760 --> 0:09:03.800 that trade talks with China have not collapsed. In response, 0:09:03.960 --> 0:09:05.920 we are looking currently at a NASDAC that is up 0:09:05.960 --> 0:09:09.160 at one point three percent, doubling the gains in percentage 0:09:09.280 --> 0:09:12.280 terms from earlier today. We will bring you those comments 0:09:12.720 --> 0:09:14.840 when we get them. Right now, we want to bring 0:09:14.840 --> 0:09:17.640 in our own Mike mcdonnoh to understand what the latest 0:09:17.920 --> 0:09:21.280 is with respect to the trade negotiations between the US 0:09:21.360 --> 0:09:23.920 and China. Mike mcdonnah, chief economist for financial Products at 0:09:23.920 --> 0:09:27.160 Bloomberg LP, joining us here in our interactive broker studios. 0:09:27.240 --> 0:09:31.160 So how likely is it that President Trump simply having 0:09:31.200 --> 0:09:35.720 a more positive, constructive tone is actually going to get 0:09:35.760 --> 0:09:38.480 a fast resolution to what it seems to be an 0:09:38.559 --> 0:09:41.760 escalating trade dispute, given given the issues we have, I 0:09:41.760 --> 0:09:44.400 don't see how you have a fast resolution. I think 0:09:44.880 --> 0:09:47.880 some of President Trump's comments maybe a function of what 0:09:48.000 --> 0:09:51.040 he's seeing in the markets. Right, I think that the 0:09:51.040 --> 0:09:53.560 the bar for as we've we've discussed this many times, right, 0:09:53.600 --> 0:09:56.320 so the bar first discussed it again. The bar, the 0:09:56.320 --> 0:09:58.440 bar for trade deal is somewhat a function of how 0:09:58.440 --> 0:10:01.320 the US economy is doing and how markets are doing. Uh, 0:10:01.600 --> 0:10:04.199 you know in Q four things look pretty bad, you 0:10:04.200 --> 0:10:06.319 remember around Christmas time, So I think the bar had 0:10:06.320 --> 0:10:09.720 gone down. Subsequently things picked back up a bit, Sentiments 0:10:09.720 --> 0:10:11.560 picked up a bit, markets were doing well. So I 0:10:11.559 --> 0:10:13.280 think that bar might have gone back up a little 0:10:13.280 --> 0:10:17.199 bit more. But I think this is even deeper than that. Um. Right, 0:10:17.240 --> 0:10:19.959 if if what we read is true and there are 0:10:20.000 --> 0:10:23.160 now these structural differences, or China had promised X, Y 0:10:23.160 --> 0:10:25.120 and Z and they're now pulling those back. A lot 0:10:25.160 --> 0:10:28.000 of it had to do. It's it's said, with changing walls. 0:10:28.240 --> 0:10:30.480 I don't see how we have an easy fix to this, 0:10:30.800 --> 0:10:33.040 and you know we're talking about what's next. There was 0:10:33.120 --> 0:10:39.040 this um uh image that was going around Chinese social 0:10:39.080 --> 0:10:44.200 media that said negotiate sure, war, we're game bullying, no way. 0:10:44.920 --> 0:10:49.120 So I mean that's the scenarios they're looking at right there. Uh. 0:10:49.240 --> 0:10:50.960 It was. It was quite popular and we chat so 0:10:51.559 --> 0:10:53.040 it's hard to say what direction it goes in. But 0:10:53.080 --> 0:10:54.920 I don't see how. And last time I was on 0:10:55.000 --> 0:10:57.480 I said this again, you know, based on the volatility 0:10:57.520 --> 0:10:59.520 we're seeing now and how close everyone thought we were 0:10:59.559 --> 0:11:02.040 to a deal based on rhetoric, we need more than rhetoric, 0:11:02.080 --> 0:11:05.800 I think for people to really feel confident we're getting somewhere. Yeah, 0:11:05.800 --> 0:11:08.000 because I'm looking at markets that are setting their games, 0:11:08.040 --> 0:11:09.720 so Paul, I don't know. It seems like the markets 0:11:09.760 --> 0:11:13.199 actually saying okay, thanks for the rhetoric. So Mike, what 0:11:13.480 --> 0:11:16.200 I mean is this going to take presidency and President 0:11:16.240 --> 0:11:19.199 Trump getting together in June of the G twenty to 0:11:19.679 --> 0:11:22.560 hammer something out? Is that the only way the thing 0:11:22.600 --> 0:11:24.920 gets done? Interestingly, it was that was it was It 0:11:24.960 --> 0:11:27.840 was when they met last year in Argentina where things 0:11:27.920 --> 0:11:30.520 kind of got smoothed over when the idea markets. That's 0:11:30.559 --> 0:11:33.240 when markets and investors got the idea that this was 0:11:33.280 --> 0:11:35.840 going to go away because there was threats of tariffs. 0:11:35.840 --> 0:11:38.360 They were going to go up in UM the start 0:11:38.400 --> 0:11:40.040 of the year. But then they decided, we're going to 0:11:40.160 --> 0:11:42.560 have these talks. It's not going to happen. The talks 0:11:42.600 --> 0:11:46.200 continued UM thirteen. Two weeks ago. We were hearing that 0:11:46.280 --> 0:11:48.880 they were, you know, the sentiment was they were nearing completion, 0:11:48.920 --> 0:11:51.120 and then all of a sudden we had that Sunday 0:11:51.160 --> 0:11:54.760 tweet that indicated the exact opposite. We are looking at 0:11:54.800 --> 0:11:57.959 equity markets broadly higher NAZDAC leading the charge up one 0:11:57.960 --> 0:12:01.440 point four percent, SMP and down both one point two percent. 0:12:02.000 --> 0:12:04.880 Still with us here in our Bloomberger Interactive Broker Studios 0:12:04.920 --> 0:12:09.040 is Mike McDonough, chief economist for Financial Products with Bloomberg, 0:12:09.040 --> 0:12:12.160 and I'm trying to understand what he's saying with respect 0:12:12.200 --> 0:12:16.080 to China breaking this off. Was there some from what 0:12:16.160 --> 0:12:17.640 you gather, I know you do speak with a lot 0:12:17.720 --> 0:12:21.120 of people. From what you gather, did China suddenly do 0:12:21.160 --> 0:12:24.240 it about face here. The sense I got is yes, 0:12:25.200 --> 0:12:27.480 I mean, I I don't I don't know anything for sure, 0:12:27.520 --> 0:12:29.480 but just that you know, if you look at the concessans, 0:12:29.520 --> 0:12:31.280 what has read No one's really taken the other side 0:12:31.360 --> 0:12:34.480 that they haven't. There seems to be agreement that there 0:12:34.640 --> 0:12:36.600 was some things that had been agreed upon that, at 0:12:36.679 --> 0:12:40.000 least from the US perception, had changed over the past 0:12:40.040 --> 0:12:43.800 couple of months. So I do think that is what caused, 0:12:43.840 --> 0:12:46.520 you know, obviously the spat. I think that going back 0:12:46.559 --> 0:12:49.560 to the bar, maybe the Chinese perceived that the bar 0:12:49.679 --> 0:12:52.880 had gone lower than it actually had, and maybe they 0:12:52.920 --> 0:12:54.920 thought that meant that they could reneeg on some of 0:12:54.960 --> 0:12:56.719 the things that they had agreed upon. I mean, I 0:12:56.800 --> 0:13:00.440 don't know, but that certainly would justify this sort of action. 0:13:00.720 --> 0:13:05.040 So Michael, what do you think China realistically once or 0:13:05.120 --> 0:13:10.760 expects at this stage. That's that's a good question. I mean, uh, 0:13:11.320 --> 0:13:15.160 I think they would like to get this uncertainty removed 0:13:15.240 --> 0:13:16.800 from the market. But I think the thing that they 0:13:16.840 --> 0:13:18.640 would like most that they may not be able to 0:13:18.679 --> 0:13:22.000 get is some certainty that this isn't going to come back. 0:13:22.360 --> 0:13:25.679 As we get closer to the elections. You can imagine 0:13:25.679 --> 0:13:28.200 you have some enforcement mechanisms in place. They could be 0:13:28.320 --> 0:13:30.160 used as a pivot point to say, hey, you're not 0:13:30.280 --> 0:13:33.960 meeting this criteria, or something entirely new could come up 0:13:34.440 --> 0:13:36.160 and they could say, well, yeah, we had that a deal, 0:13:36.320 --> 0:13:38.679 that deal for trade, but these tariffs are because you're 0:13:38.720 --> 0:13:40.640 doing X, which wasn't a part of that. So I 0:13:40.679 --> 0:13:42.320 think they're concerned, and I don't think they know how 0:13:42.360 --> 0:13:44.440 to mitigate it. Is how do we make sure that 0:13:44.480 --> 0:13:46.960 in lead up to this elections this doesn't come back. 0:13:47.080 --> 0:13:50.160 I think that's a big concern. So President Trump has 0:13:50.160 --> 0:13:53.360 talked a lot about his relationship with Ji Jimpang, saying 0:13:53.440 --> 0:13:56.920 it's excellent. One question that has arisen over the past 0:13:57.080 --> 0:13:59.960 few weeks is how much does that matter? How much 0:14:00.040 --> 0:14:04.719 pressure is Jim ping under uh internally in China to 0:14:05.200 --> 0:14:08.640 perhaps retrace some of the things he's given up in 0:14:08.679 --> 0:14:12.120 his conversations with President Trump. Well, you know, I certainly 0:14:12.840 --> 0:14:14.880 you know, in the past when there have been issues 0:14:14.920 --> 0:14:17.240 with Apple, there's been signs that maybe there's been a 0:14:17.360 --> 0:14:21.160 kind of nationalistic sort of boycott on Apple products within China. 0:14:21.240 --> 0:14:23.400 So I do think that this is going to stir 0:14:23.560 --> 0:14:27.640 some nationalism with China, because back to that um image 0:14:27.680 --> 0:14:29.760 I was talking about where we're not going to be bullied. 0:14:29.760 --> 0:14:32.400 I think that that they, the Chinese do feel that way, right. 0:14:32.440 --> 0:14:34.960 They they definitely want some stability, they want to maintain growth, 0:14:35.000 --> 0:14:37.680 they want to maintain good relationships with the US, but 0:14:37.800 --> 0:14:40.000 they want to come out looking like they're both winners. 0:14:40.080 --> 0:14:42.800 I think that there's this perception that the you, the 0:14:42.880 --> 0:14:44.960 deal the US is angling for, the u S comes 0:14:45.000 --> 0:14:47.480 out of this, they look like a winner, China looks 0:14:47.520 --> 0:14:49.760 like a loser. I think China wants a deal that 0:14:49.800 --> 0:14:52.440 they could both say we've both won uh, and the 0:14:52.520 --> 0:14:56.560 US isn't necessarily taking that agreeing with that. So it 0:14:56.600 --> 0:14:58.040 sounds like, I mean, you know, at one point we 0:14:58.040 --> 0:14:59.760 were talking about g the Marco would be happy just 0:14:59.800 --> 0:15:03.240 with they know, a headline type of deal, nothing doesn't 0:15:03.280 --> 0:15:05.520 really have to be substantive. It sounds like maybe that 0:15:05.800 --> 0:15:07.600 is kind of back on the table because it sounds 0:15:07.640 --> 0:15:09.440 like from what you're saying, what others are saying, there 0:15:09.480 --> 0:15:13.560 really are some fundamental challenges, here's some fundamental differences. There 0:15:13.560 --> 0:15:17.320 are fundamental and and a good deal would benefit both countries. 0:15:17.360 --> 0:15:20.160 There's no doubt about that. Right. There are some Chinese 0:15:20.160 --> 0:15:24.000 companies do have some unfair advantages versus foreign companies, especially 0:15:24.000 --> 0:15:27.200 those operating within China UM. And you know that that 0:15:27.320 --> 0:15:29.200 is a pretty obvious place to start. So I think 0:15:29.240 --> 0:15:31.600 both sides give a little bit up, Like you're not 0:15:31.680 --> 0:15:34.840 going through the trade balance with China is not going 0:15:34.880 --> 0:15:36.920 to go to neutral, It's not going to go to zero, 0:15:37.080 --> 0:15:39.040 right So I think the US needs to realize that 0:15:39.320 --> 0:15:42.520 we will certainly have a deficit with China UM. You know. 0:15:42.600 --> 0:15:45.560 But I think that, you know, if it were easier 0:15:45.560 --> 0:15:48.600 for US companies to operate within China, some of that 0:15:48.640 --> 0:15:51.160 would be forgiven, I think within the Trump administration. But 0:15:51.200 --> 0:15:53.480 I guess they're feeling they're not giving enough up right now. 0:15:53.880 --> 0:15:56.480 Mike mcdonnah, thanks so much for joining and staying with this. 0:15:56.520 --> 0:15:59.840 Mike mcdonnah, chief economists for Financial Products for Bloomberg, joining 0:15:59.880 --> 0:16:03.040 us here in a Bloomberg even three Oh studios talking 0:16:03.080 --> 0:16:25.680 off things trade. Uber an exercise in pain and exercise 0:16:25.760 --> 0:16:29.840 in suffering, at least since it went public, although today 0:16:29.920 --> 0:16:33.600 it's shares are actually gating up almost one percent, joining 0:16:33.640 --> 0:16:36.080 us here to talk about the debacle that was the 0:16:36.160 --> 0:16:38.040 Uber I p O at least so far as Shanelli 0:16:38.080 --> 0:16:41.280 Bossi the investment banking reporter for Bloomberg. So you know, 0:16:41.320 --> 0:16:44.200 there's a question what happened here. Is it just terrible 0:16:44.240 --> 0:16:48.560 timing in terms of coming to market when everything was 0:16:48.640 --> 0:16:51.080 falling out of bed on trade concerns, or was there 0:16:51.160 --> 0:16:55.640 some mispricing miscalculation on the part of the main underwriter. 0:16:56.080 --> 0:16:59.080 So that's the big question looming on Wall Street right now, 0:16:59.120 --> 0:17:02.160 and certainly Uber and certainly Morgan Stanley, the lead underwriter, 0:17:02.240 --> 0:17:03.760 want to blame it on the market, and they all 0:17:03.800 --> 0:17:05.919 do blame it on the market. Um. But when you 0:17:06.000 --> 0:17:08.000 have investors that are more than ten dollars in the 0:17:08.040 --> 0:17:10.639 run right now, or you know, as some are more 0:17:10.640 --> 0:17:13.400 than ten based on the two sixteen pre i P evaluation, 0:17:14.359 --> 0:17:16.480 they're looking around and say, why did you price this 0:17:16.600 --> 0:17:19.160 i P O so high? You knew that the trade 0:17:19.160 --> 0:17:20.679 talks were coming, you knew that there could be some 0:17:20.920 --> 0:17:24.000 market actility. Why couldn't you do more to support the stock. 0:17:24.320 --> 0:17:27.800 So certainly, what we haven't seen really is the company 0:17:27.880 --> 0:17:32.320 blame their investment banker. Um. Is that surprising? The reason 0:17:32.400 --> 0:17:34.879 it's not surprising is because at forty five dollars to 0:17:34.920 --> 0:17:36.920 share in the ip O price um and of course 0:17:36.960 --> 0:17:38.880 since then, it's plunged at forty five dollars a share, 0:17:38.880 --> 0:17:42.040 they still raised billions of dollars by that point. They 0:17:42.040 --> 0:17:44.600 have the money, right, and so really, what now is 0:17:44.680 --> 0:17:46.560 a bunch of investors that are sitting on stock that's 0:17:46.600 --> 0:17:49.399 falling um. Uber of course doesn't like the stock price, 0:17:49.560 --> 0:17:52.879 but they don't blame the bankers for a botched IPO 0:17:52.920 --> 0:17:56.520 by any means. Why isn't there more sort of blame 0:17:56.720 --> 0:18:04.200 about Lift. Oh, there's a lot of blame on Lift alright, Okay, 0:18:04.280 --> 0:18:06.360 there's plenty of them on Lifting. There are plenty of lawsuits, 0:18:06.400 --> 0:18:09.760 they're already and emerged for Lift. Um. So now we're 0:18:09.800 --> 0:18:13.679 just focusing on Uber. But couldn't you say that since 0:18:13.880 --> 0:18:16.560 all of the underwriters got it so wrong, if there 0:18:16.600 --> 0:18:20.480 was just a more broad based miscalculation on the part 0:18:20.600 --> 0:18:25.040 of the markets UH and and bankers more broadly on 0:18:25.160 --> 0:18:28.240 what ride sharing services really are worth. That's a really 0:18:28.280 --> 0:18:30.560 important thing because it's not like every I p O 0:18:30.680 --> 0:18:33.000 that went out this year is doing poorly. Pinterest is 0:18:33.040 --> 0:18:35.800 doing okay, right, So it is these rides sharing firms 0:18:35.800 --> 0:18:38.480 that are plunging, And there's that's the question. Is this 0:18:38.720 --> 0:18:42.680 these companies that's a problem or you know, there's a 0:18:42.720 --> 0:18:44.240 worry about whether the I p o s are a 0:18:44.240 --> 0:18:46.320 problem at all. Well, and then and also the bankers 0:18:46.440 --> 0:18:48.120 roll in it, right, I mean, how much should they 0:18:48.119 --> 0:18:50.760 have known if you did have all these investors and 0:18:50.800 --> 0:18:52.720 not just the ones that they told to invest in 0:18:52.760 --> 0:18:55.760 these companies, who did value these companies at a much 0:18:55.840 --> 0:18:58.560 higher level, especially without a profit right. And so the 0:18:58.560 --> 0:19:01.320 thing that the question moving forward is we've seen Morgan Stanley. 0:19:01.880 --> 0:19:04.439 We reported on Friday, some of them internally called this 0:19:04.600 --> 0:19:08.119 the new Fang stock. Uh So, clearly they're still holding 0:19:08.119 --> 0:19:10.720 onto this dream of Uber becoming one day this huge 0:19:10.760 --> 0:19:15.640 technology company, but right now it's hard to see that Futureationally, 0:19:15.680 --> 0:19:18.920 do we have any knowledge of what extent or if 0:19:19.240 --> 0:19:21.960 Morgan Staley is still in the market as the stabilizing 0:19:21.960 --> 0:19:23.920 agent trying to support the stock, or is this stock 0:19:24.000 --> 0:19:26.840 just free trading here. So what we've reported, um at 0:19:26.880 --> 0:19:29.080 least overnight, is that they've started to stabilize the stock 0:19:29.119 --> 0:19:31.159 a little bit. So as an underwriter, it's kind of 0:19:31.200 --> 0:19:33.800 difficult because you don't want to use that entire overall 0:19:33.800 --> 0:19:37.720 otment immediately because there's another you know, there's thirty days 0:19:37.720 --> 0:19:39.720 in full, there's something else that could happen next week. 0:19:40.119 --> 0:19:42.080 So you know, we don't know what to expect about 0:19:42.080 --> 0:19:44.119 where the stock goes in the short term, but the 0:19:44.119 --> 0:19:47.760 short term does give investor's confidence to either hold on 0:19:47.840 --> 0:19:50.400 for the longer term or sell. And of course we're 0:19:50.400 --> 0:19:52.399 seeing a lot of selling right now. So the shares 0:19:52.440 --> 0:19:55.600 down at sixteen point four per cent since going public, 0:19:55.640 --> 0:19:58.760 and actually on May eighth, the I p O is 0:19:58.760 --> 0:20:02.600 conducted after hours then started treating on the New York 0:20:02.600 --> 0:20:05.879 Stock Exchange on May nine. I'm just wondering what the 0:20:05.880 --> 0:20:09.120 potential liability is from Morgan Stanley at this point, well, 0:20:09.240 --> 0:20:12.920 right now, not much. Right well, the question is moving 0:20:12.960 --> 0:20:16.000 forward is how does this keep going. We had mentioned 0:20:16.000 --> 0:20:18.760 that this is kind of a reputational moment for Morgan Stanley. 0:20:18.760 --> 0:20:21.160