WEBVTT - Facebook and Google Aren't Free, Windsor Says 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.760 Bloomberg dot com, and of course on the Bloomberg You know, John, 0:00:33.920 --> 0:00:36.760 I'm looking at Uber today, Uh, in part because they're 0:00:36.880 --> 0:00:39.440 raising more money because they're burning through cash very quickly, 0:00:39.479 --> 0:00:43.199 and of course, uh, mainly because they announced that they 0:00:43.200 --> 0:00:48.080 are going to halt their self driving test after a fatality. 0:00:48.120 --> 0:00:50.400 And here to talk with us about that and some 0:00:50.440 --> 0:00:54.840 of the implications is Richard Windsor Radio Free Mobile founder. 0:00:55.480 --> 0:00:59.720 So Richard tell us why there was a fat fatality? Uh, 0:01:00.080 --> 0:01:04.720 when autonomous driving was supposed to be safer. Now, yeah, 0:01:04.760 --> 0:01:07.600 I mean, let's let's get I mean, the the important 0:01:07.600 --> 0:01:09.200 stuff out of the way. Is I mean, the first 0:01:09.240 --> 0:01:11.080 thing I think to bear in mind is that the 0:01:11.160 --> 0:01:15.600 circumstance of this incident were so it was that if 0:01:15.640 --> 0:01:19.560 that had just been a regular driver exactly the same circumstances, 0:01:19.600 --> 0:01:22.559 there is almost no doubt whatsoever that the pedestrian probably 0:01:22.560 --> 0:01:25.959 would have also have been killed. So it doesn't look 0:01:26.000 --> 0:01:30.760 like it was a fault of the autonomous driving system. 0:01:30.800 --> 0:01:32.440 But the main point I think the bear in mind 0:01:32.560 --> 0:01:36.720 here is that you know, with four over forty deaths 0:01:36.720 --> 0:01:39.640 on US roads every year, one of the major aims 0:01:39.800 --> 0:01:43.560 of autonomous driving is to make it much safer. So arguably, 0:01:43.560 --> 0:01:45.760 in this case than she needs to be much better 0:01:45.800 --> 0:01:50.120 than the human. I love that self driving cars they're 0:01:50.160 --> 0:01:53.280 just like us. So what's the road ahead? I mean, honestly, 0:01:53.440 --> 0:01:55.840 this has been a very controversial path and a lot 0:01:55.880 --> 0:01:58.400 of people were sort of counting on this experiment to 0:01:58.480 --> 0:02:00.880 save Uber. Meanwhile, it is leading through cash and is 0:02:00.960 --> 0:02:03.720 raising one and a half billion dollars in the loan 0:02:03.800 --> 0:02:07.160 market right now. Um, is this a huge setback for them? 0:02:07.320 --> 0:02:09.200 Or is it just a little bit of bad PR 0:02:09.919 --> 0:02:12.840 among a stream of bad PR that just seems never 0:02:13.000 --> 0:02:16.360 ending for Uber? Okay? I think, firstly, again to be 0:02:16.400 --> 0:02:18.240 fair to Uber, I think if this had been a 0:02:18.240 --> 0:02:20.200 way Moo vehicle, I think the outcome would have been 0:02:20.240 --> 0:02:23.120 exactly the same. Um, you know, Weymo being you know, 0:02:23.240 --> 0:02:26.080 the best company at autonomous driving. When it comes to 0:02:26.160 --> 0:02:29.359 Uber itself, you need to separate it into long term 0:02:29.400 --> 0:02:31.840 and short term. The long term, yeah, this is this 0:02:31.919 --> 0:02:36.160 is a major problem because in the long term, Uber's 0:02:36.200 --> 0:02:39.040 future is probably going to be dominated by autonomous driving, 0:02:39.040 --> 0:02:41.080 which means the company needs to be very good at 0:02:41.120 --> 0:02:43.400 it to survive. At the moment, they're not. This is 0:02:43.440 --> 0:02:46.480 another setback that's a problem. The short term is something 0:02:46.480 --> 0:02:51.600 completely different, which is that what Uber represents today as 0:02:51.639 --> 0:02:54.200 a marketplace where people come to buy and sell things 0:02:54.440 --> 0:02:57.680 e g. Drivers selling their services and passengers buying the 0:02:57.720 --> 0:03:00.920 services of the drives. It's a marketplace, and the marketplaces 0:03:01.040 --> 0:03:04.120 dominance is incredibly important for profitability. And this is the 0:03:04.240 --> 0:03:06.880 key problem that Uber had last year. It lost a 0:03:06.880 --> 0:03:09.639 lot of market share to lift last year, and it's 0:03:09.800 --> 0:03:12.280 right at the point where it may lose its dominance 0:03:12.320 --> 0:03:16.320 position in the United States, which would have substantial implications 0:03:16.320 --> 0:03:20.079 for its ability to generate cash. Richard, speaking of dominant positions, 0:03:20.120 --> 0:03:26.120 let's talk about Facebook. Where's Mark Zuckerberg? You got me? 0:03:26.200 --> 0:03:29.480 I'm afraid I have no idea? Apologies, what is it? 0:03:29.600 --> 0:03:33.519 Day four? Day four, and we haven't heard executives at Facebook. 0:03:33.560 --> 0:03:37.000 It is remarkable how how bad they are at addressing 0:03:37.040 --> 0:03:41.920 this situation. Yeah, it is a problem, and don't don't forget, 0:03:42.040 --> 0:03:44.440 you know, think about you know, think about how they 0:03:44.480 --> 0:03:47.480 grew up. Think about how Silicon Valley operates. They are 0:03:48.400 --> 0:03:50.800 you know, they've always had this mindset of move very 0:03:50.880 --> 0:03:54.040 quickly and allow things to break. Unfortunately, every now and again, 0:03:54.080 --> 0:03:56.320 when you break something, it's far worse than you could 0:03:56.360 --> 0:03:58.880 have anticipated. And I think, to be honest with you, 0:03:59.240 --> 0:04:02.280 the bigger question is is where is Cheryl Sandberg? Because 0:04:02.560 --> 0:04:06.600 Cheryl is much more the operation level head person inside 0:04:06.600 --> 0:04:11.560 this organization. So I would have expected, you know, Cheryl, 0:04:11.600 --> 0:04:13.640 who have started to move to contain this problem, and 0:04:13.720 --> 0:04:18.279 they make him matters worse At the moment, Richard Um, 0:04:18.520 --> 0:04:21.600 may I think a little bit, yes, Um, But at 0:04:21.600 --> 0:04:23.360 the end of the day, I think it. I think 0:04:23.600 --> 0:04:27.360 this highlights a much wire problem. And this problem is 0:04:27.920 --> 0:04:31.240 that in general, consumers seem to have the impression that 0:04:31.320 --> 0:04:34.599 the likes of Google and Facebook are free, and actually 0:04:34.640 --> 0:04:36.720 they're not, and they never have been. The issue is, 0:04:37.200 --> 0:04:40.120 when it comes down to it, in reality, the consumer 0:04:40.240 --> 0:04:43.479 either pays for Facebook and Google services with personal data 0:04:43.640 --> 0:04:47.000 or you pay with cash. That is the way it is, 0:04:47.400 --> 0:04:49.480 and so I think when it comes to privacy, there 0:04:49.560 --> 0:04:51.560 is going to come a point when these companies to 0:04:51.600 --> 0:04:54.840 have to turn around to their consumers and say be clear, 0:04:55.440 --> 0:04:57.479 is you're paying for this service with personal data, you 0:04:57.560 --> 0:04:59.840 need to allow us to track you or we're gonna 0:04:59.839 --> 0:05:02.160 have to charge you a certain amount of money per month. Yeah, 0:05:02.200 --> 0:05:04.000 but Richard, is that going to be in a half 0:05:04.080 --> 0:05:10.920 moment that causes Facebook and other tech companies to lose clients? Um? 0:05:11.040 --> 0:05:13.159 Well yeah, Again, the question is is that you know 0:05:13.200 --> 0:05:16.320 again the real question who are the clients of these companies, 0:05:16.320 --> 0:05:18.200 because it certainly isn't the users. The way I think 0:05:18.240 --> 0:05:21.720 about it is sadly the users, you and me with 0:05:21.839 --> 0:05:25.400 a product that customers are the advertisers because these are 0:05:25.400 --> 0:05:28.320 the guys who generate the money. Now I think my 0:05:28.920 --> 0:05:30.800 I think this is going to work is particularly I 0:05:30.839 --> 0:05:33.640 think gdp R in Europe is a good catalyst for this. 0:05:34.160 --> 0:05:37.680 Is it increased his massive increasing regulatory pressure will put 0:05:37.720 --> 0:05:39.719 them put these companies in the position where they have 0:05:40.000 --> 0:05:43.200 up front about something they've kept quite quiet for a 0:05:43.240 --> 0:05:46.200 long time, which is, look, if you want this service 0:05:46.240 --> 0:05:47.960 to be free, we need to have access to your 0:05:47.960 --> 0:05:50.840 personal data. If you don't like that, yeah, fine, but 0:05:50.920 --> 0:05:53.599 you need to pay us and why you Professor Scott Galloway. 0:05:54.160 --> 0:05:56.400 Richard has been very outspoken on all of this and 0:05:56.440 --> 0:05:58.960 he wrote an Esquire earlier this year, and I'm going 0:05:59.000 --> 0:06:01.240 to quote him. If you're a country club with a 0:06:01.279 --> 0:06:03.680 beach or repall, it's more profitable in the short run 0:06:03.760 --> 0:06:06.880 not to have lifeguards. There are risks to that business model, 0:06:07.080 --> 0:06:10.560 as there are to Facebook's dependence on mainly algorithmic moderation. 0:06:10.880 --> 0:06:12.920 But it saves a lot of money, and they've saved 0:06:12.960 --> 0:06:15.520 a lot of money. They've made a lot of money. 0:06:15.520 --> 0:06:17.359 Are we now at an inflection point where they're going 0:06:17.400 --> 0:06:19.400 to have to start spending a whole lot more money 0:06:19.440 --> 0:06:25.960 on people and headcount at Facebook? In fact, we're already there. Um. 0:06:26.680 --> 0:06:29.120 In the research that Radio Free Mobile has done, we 0:06:29.360 --> 0:06:32.200 actually highlighted the fact that Facebook, when it comes to 0:06:32.320 --> 0:06:36.320 artificial intelligence and algorithmic moderation, they are the worst pretty 0:06:36.400 --> 0:06:38.520 much out there today. And this is why they have 0:06:38.640 --> 0:06:43.320 such a significant fake news problem. Um. And they've already 0:06:43.320 --> 0:06:45.280 signaled this, you know, the company said, I think Q 0:06:45.520 --> 0:06:48.960 three last year they were going to recruit ten thousand 0:06:48.960 --> 0:06:51.960 more people, which basically means by the middle of this year, 0:06:52.320 --> 0:06:55.240 Facebook is going to have more moderators than it has 0:06:55.320 --> 0:06:59.359 in revenue generating or product development roles. And this is 0:06:59.400 --> 0:07:02.680 why revenue US might do this year, but operating expansion 0:07:02.720 --> 0:07:05.920 is going to go up fourly, giving a significant impact 0:07:05.920 --> 0:07:09.320 on profitability going forward. This problem has already arrived, Richard. 0:07:09.320 --> 0:07:11.000 From your perspective, do you think that the sell off 0:07:11.040 --> 0:07:13.760 and Facebook shares and sort of the sympathy sell off 0:07:13.760 --> 0:07:18.000 and other tex shares has gone too far? Great question. 0:07:18.200 --> 0:07:20.400 I'm a little bit more cautious on Facebook because of 0:07:20.400 --> 0:07:25.720 this deterioration in um operating performance in you know, this year. 0:07:26.000 --> 0:07:28.960 In general, I have been a little bit more cautious 0:07:29.440 --> 0:07:31.880 on these stocks simply because they have run very far. 0:07:31.960 --> 0:07:35.920 Evaluations are now assuming an awful lot, which is why 0:07:36.040 --> 0:07:39.880 from an investment perspective, you know, I've been preferring perhaps 0:07:39.920 --> 0:07:42.480 those in China, particularly by Do, which is arguably one 0:07:42.480 --> 0:07:46.240 of the cheapest artifice intelligence investments you can make, or 0:07:46.280 --> 0:07:48.720 even ten cent, because in the Chinese market there's still 0:07:48.760 --> 0:07:51.280 some distance to go. Richard, Wins has been greater cash 0:07:51.280 --> 0:07:53.360 out with you are ready a free mobile fander joining 0:07:53.440 --> 0:08:11.520 us on the phone from dubai yea Well. Facebook shares 0:08:11.600 --> 0:08:15.840 are declining in a pre trade activity, and the question 0:08:16.080 --> 0:08:19.200 is our trainer is gonna come in and buy this dip? 0:08:19.240 --> 0:08:23.120 Would you? John? Would I buy the dip. Yeah, the 0:08:23.200 --> 0:08:25.840 like minor, minor, tiny bit like the move. I would 0:08:25.840 --> 0:08:28.800 buy about one. Yeah, it's enough of a dip for you. 0:08:29.160 --> 0:08:32.319 I thought it was interesting that credit held up so well. Yeah, 0:08:32.360 --> 0:08:34.760 well let's let's find out what Brian. Thanks Brian Levitt, 0:08:34.760 --> 0:08:39.199 Oppenheimer Funds Senior investment strategist joining US. Now, Brian, are 0:08:39.240 --> 0:08:41.600 you are you recommending that your clients go in and 0:08:41.640 --> 0:08:44.960 buy the slight or you know, perhaps it'll be a 0:08:44.960 --> 0:08:50.880 massive one hell off yesterday? Yeah, I think that. I 0:08:50.880 --> 0:08:53.600 mean I always advise investors to kind of turn down 0:08:53.640 --> 0:08:56.679 the volume on days, like on days like Thanks Brian. 0:08:59.400 --> 0:09:06.240 Brian Levit joining US Investment Strategy. There's there's um, you know, 0:09:06.320 --> 0:09:09.200 there's a conference of factors weighing on the market right now. 0:09:09.240 --> 0:09:10.839 I don't think that this is the end of this 0:09:10.880 --> 0:09:13.840 long term bull market. It's uh, you know, we're dealing 0:09:13.840 --> 0:09:17.920 with uncertainty around trade, uncertainty with regulation and the technology sector, 0:09:18.160 --> 0:09:21.040 uncertainty with around monetary policy, and we haven't had that 0:09:21.080 --> 0:09:24.600 in a while. So was a pretty benign year, and 0:09:24.760 --> 0:09:27.680 a correction was to be expected, and you know, typically 0:09:27.679 --> 0:09:31.319 these corrections calm. We had one in February they test bottoms. 0:09:31.320 --> 0:09:34.480 It takes some time to clear. This wasn't a correction, right, 0:09:34.520 --> 0:09:37.520 what's that This doesn't count as a correction? Still right? Well, 0:09:37.559 --> 0:09:39.400 not this one, but I think the one in February 0:09:39.400 --> 0:09:43.400 count as a correction. And UM and so for long 0:09:43.480 --> 0:09:46.680 term investors, UM, I suspect this cycle has room to run. 0:09:46.760 --> 0:09:50.080 For the traders, I'll let them decide whether they're you know, 0:09:50.160 --> 0:09:52.920 buying these bottoms. You know this one point eight percent 0:09:53.000 --> 0:09:55.880 to client. But the long term investors should be more 0:09:55.960 --> 0:10:00.320 cautious once the yield curve inverts and credit spreads out. 0:10:00.400 --> 0:10:04.280 And we're not seeing that a lot of conversations about 0:10:04.320 --> 0:10:07.200 the lack of volatility at the index level, but below 0:10:07.240 --> 0:10:10.640 the index, Brian, we saw this continued rotation from value 0:10:10.640 --> 0:10:13.360 to growth, from growth to value. If we continue to 0:10:13.400 --> 0:10:16.640 see tech come under pressure in the United States with 0:10:16.880 --> 0:10:20.480 calls for regulation and calls for new taxes, where do 0:10:20.520 --> 0:10:23.280 you see the leadership coming from in this market. Well, 0:10:23.320 --> 0:10:25.080 I still think it's going to be an environment where 0:10:25.120 --> 0:10:28.640 you want to own the sectors that are exposed to 0:10:28.679 --> 0:10:31.320 global growth, and you know technology is going to be 0:10:31.360 --> 0:10:34.480 a part of that. UM. Although I agree regulation could 0:10:34.520 --> 0:10:36.720 weigh on part of the part of the sector. I 0:10:36.720 --> 0:10:41.040 think it's an industrials. I think it's UM materials, it's 0:10:41.040 --> 0:10:43.440 it's the type of names that are going to benefit 0:10:43.480 --> 0:10:47.360 from a decent growth environment around the world. UM some 0:10:47.440 --> 0:10:53.000 pressure on the US dollar and UM, but A I 0:10:53.040 --> 0:10:55.600 don't think that we're heading to an environment where the 0:10:55.760 --> 0:10:59.240 true value oriented names become the big out performers. I 0:10:59.240 --> 0:11:02.000 think you would need US significant catalyst for that. I 0:11:02.040 --> 0:11:04.439 think some suspected that the tax bill could be that, 0:11:04.600 --> 0:11:07.680 but we realize that the stimulus on the fiscal side 0:11:07.720 --> 0:11:10.959 is somewhat being offset or is being offset by monetary tightening. 0:11:11.240 --> 0:11:13.280 And if we just think about the G twenty communicate 0:11:13.360 --> 0:11:15.840 that comes out letter this week is a PR statement 0:11:15.880 --> 0:11:19.200 for global stability. The PR for global stability is not 0:11:19.240 --> 0:11:21.360 too great at the moment. Reports here in the United 0:11:21.400 --> 0:11:24.000 States that the President is said to be planning terrorists 0:11:24.040 --> 0:11:28.440 of up to sixty billion dollars fresh terrorists on Chinese imports. 0:11:28.440 --> 0:11:33.400 How is the PR around this global synchronized growth story. Well, 0:11:33.440 --> 0:11:36.080 I think it's I think that we need to watch 0:11:36.160 --> 0:11:40.559 and see, UM what could disrupt it? UM. The these 0:11:41.240 --> 0:11:43.840 we've been saying for some time. The only thing that 0:11:43.920 --> 0:11:47.240 will curtail this cycle is a policy mistake somewhere in 0:11:47.280 --> 0:11:50.920 the world, whether that's on the monetary side in the US, Europe, 0:11:50.960 --> 0:11:55.000 or China, or whether that's through some sort of beginning 0:11:55.120 --> 0:11:58.240 of a trade battle around the world. I think that 0:11:58.440 --> 0:12:03.000 could change a calculus on this. So UM, you know 0:12:03.160 --> 0:12:05.960 we're we're longer in this cycle. I don't believe it 0:12:06.240 --> 0:12:09.920 ends UM barring a major mistake. If we see something 0:12:09.960 --> 0:12:12.880 that's too forceful on the monetary side or the trade side, 0:12:13.120 --> 0:12:16.520 then we need to adjust our expectations. So, Brian, given that, 0:12:16.920 --> 0:12:19.559 what are you recommending that clients do with their money, 0:12:19.640 --> 0:12:23.880 in other words, how much allocation stocks, bunds. Well, we've 0:12:23.960 --> 0:12:26.400 we've continued to believe that equities are the asset class 0:12:26.440 --> 0:12:30.520 of choice. I I will like equities in this environment 0:12:30.600 --> 0:12:33.400 until I see a significantly flat or yield curve not 0:12:33.400 --> 0:12:38.160 not seventy five basis points significantly flat or um and 0:12:38.400 --> 0:12:42.280 I see either an incredibly weak dollar which brings forward 0:12:42.320 --> 0:12:45.079 the said or an incredibly strong dollar, which signals the 0:12:45.120 --> 0:12:48.480 flight to quality. I don't believe we're there yet. So 0:12:48.800 --> 0:12:52.200 for investors looking for growth UM to grow their assets, 0:12:52.200 --> 0:12:54.720 we continue to think equities of the asset class of choice. 0:12:55.040 --> 0:12:58.079 We favor the US cyclical names that are benefiting from 0:12:58.120 --> 0:13:01.839 improving growth around the world. We favor the emerging markets. UM. 0:13:02.280 --> 0:13:05.840 The backdrop for the emerging markets, barring too tight or 0:13:05.840 --> 0:13:10.960 too significant of a trade battle, UM is quite good. 0:13:11.559 --> 0:13:14.800 On the bond side, it's harder, although you know, yields 0:13:14.800 --> 0:13:18.319 on investment grade are are UM. At least on treasuries 0:13:18.320 --> 0:13:21.280 are better than they've been, which still like floating rate. 0:13:21.360 --> 0:13:23.360 And I would say look to the emerging markets to 0:13:23.640 --> 0:13:27.280 sovereign and corporate bonds. Real yields look quite attractive. Brian Lovitt, 0:13:27.280 --> 0:13:28.679 thank you so much for joining us. Brian Levitt of 0:13:28.679 --> 0:13:43.319 Oppenheimer Funds, the senior investment strategist. They're sounding very sanguine. 0:13:45.679 --> 0:13:47.600 The White House is said to be planning to impose 0:13:47.679 --> 0:13:50.319 tarists worth as much as sixty billion dollars on Chinese 0:13:50.320 --> 0:13:53.679 products as an outcome one outcome of an investigation by 0:13:53.720 --> 0:13:57.760 the US Trade Representative Robert Lightheiser. Those tarroists could come 0:13:57.840 --> 0:14:00.760 as soon as this week. I want to bring in 0:14:00.800 --> 0:14:04.800 Dinah Labor. She is a nod Economics chief economist. Diana 0:14:04.880 --> 0:14:06.520 is great to have you with us on the program. 0:14:06.559 --> 0:14:08.719 Sixty billion dollars worth of haterrorist Does that move the 0:14:08.800 --> 0:14:11.040 dial and does that move us any closer to the 0:14:11.120 --> 0:14:15.600 risk that things could get a bit ugly for international trade? Yes, 0:14:15.840 --> 0:14:19.080 it does. And even though over the course of this 0:14:19.240 --> 0:14:24.080 year China will try to mitigate the damage and will 0:14:24.120 --> 0:14:28.160 engage in damage control, certainly before the November elections in 0:14:28.240 --> 0:14:31.800 the US, further down the line, we are looking at 0:14:31.840 --> 0:14:35.600 a full blown trade war. Really, how do we get there? 0:14:37.040 --> 0:14:41.920 Look over the last twenty years, ever since China entered 0:14:42.000 --> 0:14:45.720 the World Trade Organization in two thousand one, the globalized 0:14:46.120 --> 0:14:49.680 economy as we have it has been all about incorporating China. 0:14:50.240 --> 0:14:53.640 But it was on the premise that the Chinese were 0:14:53.800 --> 0:14:58.320 converging to the Western liberal free market model. Maybe not 0:14:58.400 --> 0:15:02.880 the politics, but certainly they can mix. And they have 0:15:03.000 --> 0:15:06.720 now stated very clearly that they have no intention to 0:15:06.800 --> 0:15:11.560 do so. They are going to pursue their own model 0:15:12.000 --> 0:15:16.560 capitalism with Chinese characteristics. And as it is, this clash 0:15:16.640 --> 0:15:20.920 between these two very different systems is not working out. 0:15:21.240 --> 0:15:24.280 The global financial crisis was a result of that. The 0:15:24.440 --> 0:15:27.760 years of week growth since nearly ten years now have 0:15:27.920 --> 0:15:30.880 been a result of that. So there's no way unless 0:15:30.960 --> 0:15:34.960 one or the other system converges that we can live 0:15:35.000 --> 0:15:37.400 in the world of today. So, Diana, how much does 0:15:37.440 --> 0:15:44.040 that reduce global growth for which time period are you 0:15:44.120 --> 0:15:46.680 asking me? Are we talking about the next ten years 0:15:46.760 --> 0:15:49.280 or are we look when what happened this year? When? When? 0:15:49.320 --> 0:15:52.120 When does it start to matter? It will start to 0:15:52.240 --> 0:15:57.000 matter already because trade war is one of the key 0:15:57.080 --> 0:16:02.560 risks for financial markets this year. But in terms of growth, 0:16:03.120 --> 0:16:06.760 actually two thousand and eighteen could well turn out to 0:16:06.800 --> 0:16:11.520 be an okay year. China itself is likely to surprise 0:16:11.560 --> 0:16:13.480 on the upside in the first half of the year 0:16:13.600 --> 0:16:18.440 because outside of if you'd like, the headwinds from the 0:16:18.480 --> 0:16:23.360 external side, they have been doing a remarkable job on 0:16:24.280 --> 0:16:29.000 getting consumer spending going there. So there's been a genuine 0:16:29.040 --> 0:16:32.360 rebalancing in the economy that has some way to go. 0:16:33.960 --> 0:16:37.080 We can talk about the rebalancing of the Chinese economy shortly. 0:16:37.320 --> 0:16:39.120 I want to find out whether there is an approach 0:16:39.600 --> 0:16:41.720 from the rest of the world that could force China's 0:16:41.760 --> 0:16:44.440 hand to open up at a speed that they would 0:16:44.480 --> 0:16:47.160 not be comfortable with. Is there anything the United States, 0:16:47.400 --> 0:16:49.360 Europe and much of the developed world can do and 0:16:49.440 --> 0:16:51.240 he leave us they can pull to really ramp up 0:16:51.280 --> 0:16:56.200 the pressure on China. Well, actually, what Trump is doing 0:16:56.240 --> 0:17:00.280 now is ramping up the pressure on China. But the 0:17:00.400 --> 0:17:03.040 thing is that if you actually talk to the Chinese, 0:17:03.160 --> 0:17:06.600 and if you think to Leo her speech Davos, he 0:17:06.840 --> 0:17:10.560 argued that the world will be surprised by China's opening 0:17:10.680 --> 0:17:13.879 up this year. So what they have in mind, and 0:17:13.920 --> 0:17:17.440 they will be drumming or beating the drum really loudly 0:17:17.440 --> 0:17:21.560 on this one, is opening up with respect to getting 0:17:21.720 --> 0:17:28.199 foreign money in and allowing greater access with presumably fewer 0:17:28.280 --> 0:17:32.160 restrictions on foreign investment. That's kay. So they want money 0:17:32.200 --> 0:17:33.560 to come in, and they wanted to come into their 0:17:33.560 --> 0:17:37.679 banking sector and everywhere else. How much do you expect 0:17:37.680 --> 0:17:40.600 them to really follow through with this protection of intellectual 0:17:40.640 --> 0:17:44.520 property and just sort of other measures that would make 0:17:45.040 --> 0:17:50.320 it palatable for foreign investment. On paper, they will probably 0:17:50.440 --> 0:17:55.719 go quite far. In practice and reality, I remain a 0:17:55.760 --> 0:17:58.560 bit more skeptical because when I look at everything else 0:17:58.560 --> 0:18:01.879 that's going on in the corn me in particular, let's say, 0:18:02.000 --> 0:18:05.520 at the build up of this great Internet firewall and 0:18:05.560 --> 0:18:08.040 the requirements for service to be located in China and 0:18:08.119 --> 0:18:11.440 all of that, doesn't you know, certainly leave me with 0:18:11.600 --> 0:18:15.720 a particular sense of comfort. So what's interesting is that, yes, 0:18:15.760 --> 0:18:19.919 they will sort of open up on paper more, but 0:18:20.080 --> 0:18:23.040 will foreign money go in. What they certainly won't be 0:18:23.080 --> 0:18:28.560 doing is relaxing the controls on outflows. Danna, you frame 0:18:28.640 --> 0:18:31.720 this as almost an economic battle of civilizations, But I 0:18:31.800 --> 0:18:34.359 just wonder whether we'll see a financial crisis in China 0:18:34.880 --> 0:18:38.359 before we actually see a massive trade war and the 0:18:38.400 --> 0:18:41.280 clash that you're kind of describing. Isn't it more likely 0:18:41.320 --> 0:18:44.080 that China has a significant economic downturn at some point 0:18:44.080 --> 0:18:46.680 in the next decade where they themselves have to take 0:18:46.720 --> 0:18:49.919 a look at their own system and question the longevity 0:18:50.000 --> 0:18:55.120 of it. There has already actually been a very substantial 0:18:55.160 --> 0:18:57.800 growth slow down in China. If we look at the 0:18:57.880 --> 0:19:01.040 raised China was growing before the fine anential crisis, it's 0:19:01.040 --> 0:19:04.680 now half of those rates, even on their official numbers, 0:19:04.720 --> 0:19:08.560 on the numbers that I've calculated, since two thousand five, 0:19:09.600 --> 0:19:13.280 growth has certainly more than half. So they're definitely dealing 0:19:13.440 --> 0:19:17.640 with having to find a new model. And I'd say 0:19:17.640 --> 0:19:19.959 the next couple of years that make or break, and 0:19:20.000 --> 0:19:25.560 I would put probability on make and on break. But 0:19:25.640 --> 0:19:27.800 what has happened in the last couple of years, give 0:19:27.880 --> 0:19:30.600 them gives them a little bit more leeway than, let's say, 0:19:30.640 --> 0:19:33.479 I thought they would have if you had talked to 0:19:33.520 --> 0:19:37.440 me as your colleagues did, let's say a year ago. Well, Diana, 0:19:37.480 --> 0:19:39.760 I want to talk about what you said with respect 0:19:39.800 --> 0:19:43.680 to this big a big financial markets risk. Talk about 0:19:43.680 --> 0:19:47.639 the transmission mechanism. When do you markets start to care 0:19:47.840 --> 0:19:51.040 and reflect this And are the specific sectors that we're 0:19:51.080 --> 0:19:53.480 going to see fall out a bed as trade war 0:19:53.520 --> 0:19:57.960 talks continue. Well, actually, if we are looking at a 0:19:58.000 --> 0:20:00.480 type of event that is going to become answer to 0:20:00.520 --> 0:20:03.680 what happened during the global financial crisis, I it's something 0:20:03.680 --> 0:20:06.960 which undermines the structure of the global economy. No, we're 0:20:06.960 --> 0:20:09.920 not talking just about the twenty centfol in equity prices, 0:20:09.960 --> 0:20:12.680 which you know is negative but doesn't have the same 0:20:12.720 --> 0:20:15.960 profound impact. What we need to look at is geo 0:20:16.080 --> 0:20:19.399 political risk over the next three to five years. I 0:20:19.400 --> 0:20:22.880 would say that will be the source Noline cares. We've 0:20:22.880 --> 0:20:26.040 had plenty of geopolitical risk. What you probably Italian election, 0:20:26.160 --> 0:20:29.399 what's going on in Washington? They were they might not 0:20:29.640 --> 0:20:34.160 care until they'll have to. So there isn't China's financial 0:20:34.160 --> 0:20:39.080 system implosion that's unlikely to be a source of global 0:20:39.080 --> 0:20:43.159 financial risk in the next two to three years. By implosion, 0:20:43.240 --> 0:20:46.560 I mean you know that the system unraveling. If I 0:20:46.600 --> 0:20:48.359 have to look at what could be the source of 0:20:48.359 --> 0:20:53.440 a real shakeout that undermines the structure, it is geopolitical 0:20:53.560 --> 0:20:57.520 risk and it is very much related to what China 0:20:57.720 --> 0:21:00.639 has in mind. So where's the flash point where in 0:21:00.680 --> 0:21:05.800 the world Asia? Look, say, so what happens paid the picture? 0:21:05.920 --> 0:21:10.880 It was a dark and stormy night. What happens? Um? 0:21:10.960 --> 0:21:13.800 That's one area where I have made it a rule 0:21:14.440 --> 0:21:21.600 not to not to not to be on record. Unfortunately, 0:21:22.000 --> 0:21:24.560 you're concerned about the flash point between North Korea? Are 0:21:24.600 --> 0:21:27.240 You're concerned about the economic dominance in China in the 0:21:27.280 --> 0:21:29.840 region and the testing of that dominance by America. I'm 0:21:29.920 --> 0:21:33.480 concerned as to what China has in mind in terms 0:21:33.520 --> 0:21:38.600 of establishing its leading role in Asia. Yes, economically, But 0:21:38.640 --> 0:21:42.359 I also just say, I was born in Bulgarian and 0:21:42.440 --> 0:21:47.280 I lived under communism, So um, yes, I probably have 0:21:47.400 --> 0:21:53.400 outdated fears and worries. Actually maybe not. So just moving on, 0:21:53.880 --> 0:21:56.760 is the noise in Washington, d C. Just that is 0:21:56.760 --> 0:21:59.880 that sort of absolutely irrelevant when it comes to sort 0:21:59.880 --> 0:22:02.439 of moving the needle at of geopolitical risks. No, not 0:22:02.600 --> 0:22:07.000 at all. I mean, Washington is really keen on and 0:22:07.040 --> 0:22:10.280 we're likely to see aggressive action because the only thing 0:22:10.359 --> 0:22:13.800 that stopped Trump last year was the expectation that the 0:22:13.880 --> 0:22:17.719 Chinese might help with North Korea. But since then Trump 0:22:17.800 --> 0:22:22.080 realized that even if they wanted to, actually China can't 0:22:22.080 --> 0:22:25.679 do much at this stage. And in fact, this is 0:22:25.680 --> 0:22:29.160 one geopolitical risk that I expect to receive North Korea, 0:22:29.480 --> 0:22:32.320 in particular after the meeting, which both sides have an 0:22:32.320 --> 0:22:36.639 incentive to present a positive outcome from Tonatu Lever. She 0:22:36.760 --> 0:22:39.080 is an ODO Economics chief economist, and she joins us 0:22:39.080 --> 0:22:57.000 here in New York. Danna, thank you very much. This 0:22:57.080 --> 0:23:00.400 is Bloomberg Surveillance. I'm pim Fox along with my Holligan 0:23:00.520 --> 0:23:03.840 co host Lisa Abramwitz. Shares of Facebook. Right now, they 0:23:03.840 --> 0:23:06.040 are down a little bit more than two dollars and 0:23:06.160 --> 0:23:08.439 eight cents, down a little bit more than one and 0:23:08.480 --> 0:23:11.280 a half percent. Here to tell us about the company, 0:23:11.280 --> 0:23:15.760 about the stock, and about the controversy surrounding personal information 0:23:15.920 --> 0:23:18.800 is James chalk Mark. He is an equity analyst for 0:23:19.040 --> 0:23:21.840 Monas Crespy and Heart and Company. He joins us here 0:23:21.840 --> 0:23:26.199 in our eleven three oh Studios. James, let's look at 0:23:26.200 --> 0:23:29.240 the investment thesis first. The other headlines we know the 0:23:29.240 --> 0:23:32.880 Federal Trade Commission investigating the use of and the access 0:23:32.920 --> 0:23:38.480 to personal data. What's the investment thesis from a stock perspective, right? 0:23:39.280 --> 0:23:41.280 I think you have to look at this both short 0:23:41.400 --> 0:23:43.480 term and long term. In the short term, it's going 0:23:43.520 --> 0:23:46.120 to be painful and it's going to be choppy. I mean, 0:23:46.160 --> 0:23:49.320 there's no if sans robuts about it, because the company 0:23:49.600 --> 0:23:52.560 is going to be the skategoat of regulators as they 0:23:52.960 --> 0:23:55.240 cracked down on it and to make an example of 0:23:55.280 --> 0:23:58.800