Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the Bloomberg You know, John,
Speaker 1: I'm looking at Uber today, Uh, in part because they're
Speaker 1: raising more money because they're burning through cash very quickly,
Speaker 1: and of course, uh, mainly because they announced that they
Speaker 1: are going to halt their self driving test after a fatality.
Speaker 1: And here to talk with us about that and some
Speaker 1: of the implications is Richard Windsor Radio Free Mobile founder.
Speaker 1: So Richard tell us why there was a fat fatality? Uh,
Speaker 1: when autonomous driving was supposed to be safer. Now, yeah,
Speaker 1: I mean, let's let's get I mean, the the important
Speaker 1: stuff out of the way. Is I mean, the first
Speaker 1: thing I think to bear in mind is that the
Speaker 1: circumstance of this incident were so it was that if
Speaker 1: that had just been a regular driver exactly the same circumstances,
Speaker 1: there is almost no doubt whatsoever that the pedestrian probably
Speaker 1: would have also have been killed. So it doesn't look
Speaker 1: like it was a fault of the autonomous driving system.
Speaker 1: But the main point I think the bear in mind
Speaker 1: here is that you know, with four over forty deaths
Speaker 1: on US roads every year, one of the major aims
Speaker 1: of autonomous driving is to make it much safer. So arguably,
Speaker 1: in this case than she needs to be much better
Speaker 1: than the human. I love that self driving cars they're
Speaker 1: just like us. So what's the road ahead? I mean, honestly,
Speaker 1: this has been a very controversial path and a lot
Speaker 1: of people were sort of counting on this experiment to
Speaker 1: save Uber. Meanwhile, it is leading through cash and is
Speaker 1: raising one and a half billion dollars in the loan
Speaker 1: market right now. Um, is this a huge setback for them?
Speaker 1: Or is it just a little bit of bad PR
Speaker 1: among a stream of bad PR that just seems never
Speaker 1: ending for Uber? Okay? I think, firstly, again to be
Speaker 1: fair to Uber, I think if this had been a
Speaker 1: way Moo vehicle, I think the outcome would have been
Speaker 1: exactly the same. Um, you know, Weymo being you know,
Speaker 1: the best company at autonomous driving. When it comes to
Speaker 1: Uber itself, you need to separate it into long term
Speaker 1: and short term. The long term, yeah, this is this
Speaker 1: is a major problem because in the long term, Uber's
Speaker 1: future is probably going to be dominated by autonomous driving,
Speaker 1: which means the company needs to be very good at
Speaker 1: it to survive. At the moment, they're not. This is
Speaker 1: another setback that's a problem. The short term is something
Speaker 1: completely different, which is that what Uber represents today as
Speaker 1: a marketplace where people come to buy and sell things
Speaker 1: e g. Drivers selling their services and passengers buying the
Speaker 1: services of the drives. It's a marketplace, and the marketplaces
Speaker 1: dominance is incredibly important for profitability. And this is the
Speaker 1: key problem that Uber had last year. It lost a
Speaker 1: lot of market share to lift last year, and it's
Speaker 1: right at the point where it may lose its dominance
Speaker 1: position in the United States, which would have substantial implications
Speaker 1: for its ability to generate cash. Richard, speaking of dominant positions,
Speaker 1: let's talk about Facebook. Where's Mark Zuckerberg? You got me?
Speaker 1: I'm afraid I have no idea? Apologies, what is it?
Speaker 1: Day four? Day four, and we haven't heard executives at Facebook.
Speaker 1: It is remarkable how how bad they are at addressing
Speaker 1: this situation. Yeah, it is a problem, and don't don't forget,
Speaker 1: you know, think about you know, think about how they
Speaker 1: grew up. Think about how Silicon Valley operates. They are
Speaker 1: you know, they've always had this mindset of move very
Speaker 1: quickly and allow things to break. Unfortunately, every now and again,
Speaker 1: when you break something, it's far worse than you could
Speaker 1: have anticipated. And I think, to be honest with you,
Speaker 1: the bigger question is is where is Cheryl Sandberg? Because
Speaker 1: Cheryl is much more the operation level head person inside
Speaker 1: this organization. So I would have expected, you know, Cheryl,
Speaker 1: who have started to move to contain this problem, and
Speaker 1: they make him matters worse At the moment, Richard Um,
Speaker 1: may I think a little bit, yes, Um, But at
Speaker 1: the end of the day, I think it. I think
Speaker 1: this highlights a much wire problem. And this problem is
Speaker 1: that in general, consumers seem to have the impression that
Speaker 1: the likes of Google and Facebook are free, and actually
Speaker 1: they're not, and they never have been. The issue is,
Speaker 1: when it comes down to it, in reality, the consumer
Speaker 1: either pays for Facebook and Google services with personal data
Speaker 1: or you pay with cash. That is the way it is,
Speaker 1: and so I think when it comes to privacy, there
Speaker 1: is going to come a point when these companies to
Speaker 1: have to turn around to their consumers and say be clear,
Speaker 1: is you're paying for this service with personal data, you
Speaker 1: need to allow us to track you or we're gonna
Speaker 1: have to charge you a certain amount of money per month. Yeah,
Speaker 1: but Richard, is that going to be in a half
Speaker 1: moment that causes Facebook and other tech companies to lose clients? Um?
Speaker 1: Well yeah, Again, the question is is that you know
Speaker 1: again the real question who are the clients of these companies,
Speaker 1: because it certainly isn't the users. The way I think
Speaker 1: about it is sadly the users, you and me with
Speaker 1: a product that customers are the advertisers because these are
Speaker 1: the guys who generate the money. Now I think my
Speaker 1: I think this is going to work is particularly I
Speaker 1: think gdp R in Europe is a good catalyst for this.
Speaker 1: Is it increased his massive increasing regulatory pressure will put
Speaker 1: them put these companies in the position where they have
Speaker 1: up front about something they've kept quite quiet for a
Speaker 1: long time, which is, look, if you want this service
Speaker 1: to be free, we need to have access to your
Speaker 1: personal data. If you don't like that, yeah, fine, but
Speaker 1: you need to pay us and why you Professor Scott Galloway.
Speaker 1: Richard has been very outspoken on all of this and
Speaker 1: he wrote an Esquire earlier this year, and I'm going
Speaker 1: to quote him. If you're a country club with a
Speaker 1: beach or repall, it's more profitable in the short run
Speaker 1: not to have lifeguards. There are risks to that business model,
Speaker 1: as there are to Facebook's dependence on mainly algorithmic moderation.
Speaker 1: But it saves a lot of money, and they've saved
Speaker 1: a lot of money. They've made a lot of money.
Speaker 1: Are we now at an inflection point where they're going
Speaker 1: to have to start spending a whole lot more money
Speaker 1: on people and headcount at Facebook? In fact, we're already there. Um.
Speaker 1: In the research that Radio Free Mobile has done, we
Speaker 1: actually highlighted the fact that Facebook, when it comes to
Speaker 1: artificial intelligence and algorithmic moderation, they are the worst pretty
Speaker 1: much out there today. And this is why they have
Speaker 1: such a significant fake news problem. Um. And they've already
Speaker 1: signaled this, you know, the company said, I think Q
Speaker 1: three last year they were going to recruit ten thousand
Speaker 1: more people, which basically means by the middle of this year,
Speaker 1: Facebook is going to have more moderators than it has
Speaker 1: in revenue generating or product development roles. And this is
Speaker 1: why revenue US might do this year, but operating expansion
Speaker 1: is going to go up fourly, giving a significant impact
Speaker 1: on profitability going forward. This problem has already arrived, Richard.
Speaker 1: From your perspective, do you think that the sell off
Speaker 1: and Facebook shares and sort of the sympathy sell off
Speaker 1: and other tex shares has gone too far? Great question.
Speaker 1: I'm a little bit more cautious on Facebook because of
Speaker 1: this deterioration in um operating performance in you know, this year.
Speaker 1: In general, I have been a little bit more cautious
Speaker 1: on these stocks simply because they have run very far.
Speaker 1: Evaluations are now assuming an awful lot, which is why
Speaker 1: from an investment perspective, you know, I've been preferring perhaps
Speaker 1: those in China, particularly by Do, which is arguably one
Speaker 1: of the cheapest artifice intelligence investments you can make, or
Speaker 1: even ten cent, because in the Chinese market there's still
Speaker 1: some distance to go. Richard, Wins has been greater cash
Speaker 1: out with you are ready a free mobile fander joining
Speaker 1: us on the phone from dubai yea Well. Facebook shares
Speaker 1: are declining in a pre trade activity, and the question
Speaker 1: is our trainer is gonna come in and buy this dip?
Speaker 1: Would you? John? Would I buy the dip. Yeah, the
Speaker 1: like minor, minor, tiny bit like the move. I would
Speaker 1: buy about one. Yeah, it's enough of a dip for you.
Speaker 1: I thought it was interesting that credit held up so well. Yeah,
Speaker 1: well let's let's find out what Brian. Thanks Brian Levitt,
Speaker 1: Oppenheimer Funds Senior investment strategist joining US. Now, Brian, are
Speaker 1: you are you recommending that your clients go in and
Speaker 1: buy the slight or you know, perhaps it'll be a
Speaker 1: massive one hell off yesterday? Yeah, I think that. I
Speaker 1: mean I always advise investors to kind of turn down
Speaker 1: the volume on days, like on days like Thanks Brian.
Speaker 1: Brian Levit joining US Investment Strategy. There's there's um, you know,
Speaker 1: there's a conference of factors weighing on the market right now.
Speaker 1: I don't think that this is the end of this
Speaker 1: long term bull market. It's uh, you know, we're dealing
Speaker 1: with uncertainty around trade, uncertainty with regulation and the technology sector,
Speaker 1: uncertainty with around monetary policy, and we haven't had that
Speaker 1: in a while. So was a pretty benign year, and
Speaker 1: a correction was to be expected, and you know, typically
Speaker 1: these corrections calm. We had one in February they test bottoms.
Speaker 1: It takes some time to clear. This wasn't a correction, right,
Speaker 1: what's that This doesn't count as a correction? Still right? Well,
Speaker 1: not this one, but I think the one in February
Speaker 1: count as a correction. And UM and so for long
Speaker 1: term investors, UM, I suspect this cycle has room to run.
Speaker 1: For the traders, I'll let them decide whether they're you know,
Speaker 1: buying these bottoms. You know this one point eight percent
Speaker 1: to client. But the long term investors should be more
Speaker 1: cautious once the yield curve inverts and credit spreads out.
Speaker 1: And we're not seeing that a lot of conversations about
Speaker 1: the lack of volatility at the index level, but below
Speaker 1: the index, Brian, we saw this continued rotation from value
Speaker 1: to growth, from growth to value. If we continue to
Speaker 1: see tech come under pressure in the United States with
Speaker 1: calls for regulation and calls for new taxes, where do
Speaker 1: you see the leadership coming from in this market. Well,
Speaker 1: I still think it's going to be an environment where
Speaker 1: you want to own the sectors that are exposed to
Speaker 1: global growth, and you know technology is going to be
Speaker 1: a part of that. UM. Although I agree regulation could
Speaker 1: weigh on part of the part of the sector. I
Speaker 1: think it's an industrials. I think it's UM materials, it's
Speaker 1: it's the type of names that are going to benefit
Speaker 1: from a decent growth environment around the world. UM some
Speaker 1: pressure on the US dollar and UM, but A I
Speaker 1: don't think that we're heading to an environment where the
Speaker 1: true value oriented names become the big out performers. I
Speaker 1: think you would need US significant catalyst for that. I
Speaker 1: think some suspected that the tax bill could be that,
Speaker 1: but we realize that the stimulus on the fiscal side
Speaker 1: is somewhat being offset or is being offset by monetary tightening.
Speaker 1: And if we just think about the G twenty communicate
Speaker 1: that comes out letter this week is a PR statement
Speaker 1: for global stability. The PR for global stability is not
Speaker 1: too great at the moment. Reports here in the United
Speaker 1: States that the President is said to be planning terrorists
Speaker 1: of up to sixty billion dollars fresh terrorists on Chinese imports.
Speaker 1: How is the PR around this global synchronized growth story. Well,
Speaker 1: I think it's I think that we need to watch
Speaker 1: and see, UM what could disrupt it? UM. The these
Speaker 1: we've been saying for some time. The only thing that
Speaker 1: will curtail this cycle is a policy mistake somewhere in
Speaker 1: the world, whether that's on the monetary side in the US, Europe,
Speaker 1: or China, or whether that's through some sort of beginning
Speaker 1: of a trade battle around the world. I think that
Speaker 1: could change a calculus on this. So UM, you know
Speaker 1: we're we're longer in this cycle. I don't believe it
Speaker 1: ends UM barring a major mistake. If we see something
Speaker 1: that's too forceful on the monetary side or the trade side,
Speaker 1: then we need to adjust our expectations. So, Brian, given that,
Speaker 1: what are you recommending that clients do with their money,
Speaker 1: in other words, how much allocation stocks, bunds. Well, we've
Speaker 1: we've continued to believe that equities are the asset class
Speaker 1: of choice. I I will like equities in this environment
Speaker 1: until I see a significantly flat or yield curve not
Speaker 1: not seventy five basis points significantly flat or um and
Speaker 1: I see either an incredibly weak dollar which brings forward
Speaker 1: the said or an incredibly strong dollar, which signals the
Speaker 1: flight to quality. I don't believe we're there yet. So
Speaker 1: for investors looking for growth UM to grow their assets,
Speaker 1: we continue to think equities of the asset class of choice.
Speaker 1: We favor the US cyclical names that are benefiting from
Speaker 1: improving growth around the world. We favor the emerging markets. UM.
Speaker 1: The backdrop for the emerging markets, barring too tight or
Speaker 1: too significant of a trade battle, UM is quite good.
Speaker 1: On the bond side, it's harder, although you know, yields
Speaker 1: on investment grade are are UM. At least on treasuries
Speaker 1: are better than they've been, which still like floating rate.
Speaker 1: And I would say look to the emerging markets to
Speaker 1: sovereign and corporate bonds. Real yields look quite attractive. Brian Lovitt,
Speaker 1: thank you so much for joining us. Brian Levitt of
Speaker 1: Oppenheimer Funds, the senior investment strategist. They're sounding very sanguine.
Speaker 1: The White House is said to be planning to impose
Speaker 1: tarists worth as much as sixty billion dollars on Chinese
Speaker 1: products as an outcome one outcome of an investigation by
Speaker 1: the US Trade Representative Robert Lightheiser. Those tarroists could come
Speaker 1: as soon as this week. I want to bring in
Speaker 1: Dinah Labor. She is a nod Economics chief economist. Diana
Speaker 1: is great to have you with us on the program.
Speaker 1: Sixty billion dollars worth of haterrorist Does that move the
Speaker 1: dial and does that move us any closer to the
Speaker 1: risk that things could get a bit ugly for international trade? Yes,
Speaker 1: it does. And even though over the course of this
Speaker 1: year China will try to mitigate the damage and will
Speaker 1: engage in damage control, certainly before the November elections in
Speaker 1: the US, further down the line, we are looking at
Speaker 1: a full blown trade war. Really, how do we get there?
Speaker 1: Look over the last twenty years, ever since China entered
Speaker 1: the World Trade Organization in two thousand one, the globalized
Speaker 1: economy as we have it has been all about incorporating China.
Speaker 1: But it was on the premise that the Chinese were
Speaker 1: converging to the Western liberal free market model. Maybe not
Speaker 1: the politics, but certainly they can mix. And they have
Speaker 1: now stated very clearly that they have no intention to
Speaker 1: do so. They are going to pursue their own model
Speaker 1: capitalism with Chinese characteristics. And as it is, this clash
Speaker 1: between these two very different systems is not working out.
Speaker 1: The global financial crisis was a result of that. The
Speaker 1: years of week growth since nearly ten years now have
Speaker 1: been a result of that. So there's no way unless
Speaker 1: one or the other system converges that we can live
Speaker 1: in the world of today. So, Diana, how much does
Speaker 1: that reduce global growth for which time period are you
Speaker 1: asking me? Are we talking about the next ten years
Speaker 1: or are we look when what happened this year? When? When?
Speaker 1: When does it start to matter? It will start to
Speaker 1: matter already because trade war is one of the key
Speaker 1: risks for financial markets this year. But in terms of growth,
Speaker 1: actually two thousand and eighteen could well turn out to
Speaker 1: be an okay year. China itself is likely to surprise
Speaker 1: on the upside in the first half of the year
Speaker 1: because outside of if you'd like, the headwinds from the
Speaker 1: external side, they have been doing a remarkable job on
Speaker 1: getting consumer spending going there. So there's been a genuine
Speaker 1: rebalancing in the economy that has some way to go.
Speaker 1: We can talk about the rebalancing of the Chinese economy shortly.
Speaker 1: I want to find out whether there is an approach
Speaker 1: from the rest of the world that could force China's
Speaker 1: hand to open up at a speed that they would
Speaker 1: not be comfortable with. Is there anything the United States,
Speaker 1: Europe and much of the developed world can do and
Speaker 1: he leave us they can pull to really ramp up
Speaker 1: the pressure on China. Well, actually, what Trump is doing
Speaker 1: now is ramping up the pressure on China. But the
Speaker 1: thing is that if you actually talk to the Chinese,
Speaker 1: and if you think to Leo her speech Davos, he
Speaker 1: argued that the world will be surprised by China's opening
Speaker 1: up this year. So what they have in mind, and
Speaker 1: they will be drumming or beating the drum really loudly
Speaker 1: on this one, is opening up with respect to getting
Speaker 1: foreign money in and allowing greater access with presumably fewer
Speaker 1: restrictions on foreign investment. That's kay. So they want money
Speaker 1: to come in, and they wanted to come into their
Speaker 1: banking sector and everywhere else. How much do you expect
Speaker 1: them to really follow through with this protection of intellectual
Speaker 1: property and just sort of other measures that would make
Speaker 1: it palatable for foreign investment. On paper, they will probably
Speaker 1: go quite far. In practice and reality, I remain a
Speaker 1: bit more skeptical because when I look at everything else
Speaker 1: that's going on in the corn me in particular, let's say,
Speaker 1: at the build up of this great Internet firewall and
Speaker 1: the requirements for service to be located in China and
Speaker 1: all of that, doesn't you know, certainly leave me with
Speaker 1: a particular sense of comfort. So what's interesting is that, yes,
Speaker 1: they will sort of open up on paper more, but
Speaker 1: will foreign money go in. What they certainly won't be
Speaker 1: doing is relaxing the controls on outflows. Danna, you frame
Speaker 1: this as almost an economic battle of civilizations, But I
Speaker 1: just wonder whether we'll see a financial crisis in China
Speaker 1: before we actually see a massive trade war and the
Speaker 1: clash that you're kind of describing. Isn't it more likely
Speaker 1: that China has a significant economic downturn at some point
Speaker 1: in the next decade where they themselves have to take
Speaker 1: a look at their own system and question the longevity
Speaker 1: of it. There has already actually been a very substantial
Speaker 1: growth slow down in China. If we look at the
Speaker 1: raised China was growing before the fine anential crisis, it's
Speaker 1: now half of those rates, even on their official numbers,
Speaker 1: on the numbers that I've calculated, since two thousand five,
Speaker 1: growth has certainly more than half. So they're definitely dealing
Speaker 1: with having to find a new model. And I'd say
Speaker 1: the next couple of years that make or break, and
Speaker 1: I would put probability on make and on break. But
Speaker 1: what has happened in the last couple of years, give
Speaker 1: them gives them a little bit more leeway than, let's say,
Speaker 1: I thought they would have if you had talked to
Speaker 1: me as your colleagues did, let's say a year ago. Well, Diana,
Speaker 1: I want to talk about what you said with respect
Speaker 1: to this big a big financial markets risk. Talk about
Speaker 1: the transmission mechanism. When do you markets start to care
Speaker 1: and reflect this And are the specific sectors that we're
Speaker 1: going to see fall out a bed as trade war
Speaker 1: talks continue. Well, actually, if we are looking at a
Speaker 1: type of event that is going to become answer to
Speaker 1: what happened during the global financial crisis, I it's something
Speaker 1: which undermines the structure of the global economy. No, we're
Speaker 1: not talking just about the twenty centfol in equity prices,
Speaker 1: which you know is negative but doesn't have the same
Speaker 1: profound impact. What we need to look at is geo
Speaker 1: political risk over the next three to five years. I
Speaker 1: would say that will be the source Noline cares. We've
Speaker 1: had plenty of geopolitical risk. What you probably Italian election,
Speaker 1: what's going on in Washington? They were they might not
Speaker 1: care until they'll have to. So there isn't China's financial
Speaker 1: system implosion that's unlikely to be a source of global
Speaker 1: financial risk in the next two to three years. By implosion,
Speaker 1: I mean you know that the system unraveling. If I
Speaker 1: have to look at what could be the source of
Speaker 1: a real shakeout that undermines the structure, it is geopolitical
Speaker 1: risk and it is very much related to what China
Speaker 1: has in mind. So where's the flash point where in
Speaker 1: the world Asia? Look, say, so what happens paid the picture?
Speaker 1: It was a dark and stormy night. What happens? Um?
Speaker 1: That's one area where I have made it a rule
Speaker 1: not to not to not to be on record. Unfortunately,
Speaker 1: you're concerned about the flash point between North Korea? Are
Speaker 1: You're concerned about the economic dominance in China in the
Speaker 1: region and the testing of that dominance by America. I'm
Speaker 1: concerned as to what China has in mind in terms
Speaker 1: of establishing its leading role in Asia. Yes, economically, But
Speaker 1: I also just say, I was born in Bulgarian and
Speaker 1: I lived under communism, So um, yes, I probably have
Speaker 1: outdated fears and worries. Actually maybe not. So just moving on,
Speaker 1: is the noise in Washington, d C. Just that is
Speaker 1: that sort of absolutely irrelevant when it comes to sort
Speaker 1: of moving the needle at of geopolitical risks. No, not
Speaker 1: at all. I mean, Washington is really keen on and
Speaker 1: we're likely to see aggressive action because the only thing
Speaker 1: that stopped Trump last year was the expectation that the
Speaker 1: Chinese might help with North Korea. But since then Trump
Speaker 1: realized that even if they wanted to, actually China can't
Speaker 1: do much at this stage. And in fact, this is
Speaker 1: one geopolitical risk that I expect to receive North Korea,
Speaker 1: in particular after the meeting, which both sides have an
Speaker 1: incentive to present a positive outcome from Tonatu Lever. She
Speaker 1: is an ODO Economics chief economist, and she joins us
Speaker 1: here in New York. Danna, thank you very much. This
Speaker 1: is Bloomberg Surveillance. I'm pim Fox along with my Holligan
Speaker 1: co host Lisa Abramwitz. Shares of Facebook. Right now, they
Speaker 1: are down a little bit more than two dollars and
Speaker 1: eight cents, down a little bit more than one and
Speaker 1: a half percent. Here to tell us about the company,
Speaker 1: about the stock, and about the controversy surrounding personal information
Speaker 1: is James chalk Mark. He is an equity analyst for
Speaker 1: Monas Crespy and Heart and Company. He joins us here
Speaker 1: in our eleven three oh Studios. James, let's look at
Speaker 1: the investment thesis first. The other headlines we know the
Speaker 1: Federal Trade Commission investigating the use of and the access
Speaker 1: to personal data. What's the investment thesis from a stock perspective, right?
Speaker 1: I think you have to look at this both short
Speaker 1: term and long term. In the short term, it's going
Speaker 1: to be painful and it's going to be choppy. I mean,
Speaker 1: there's no if sans robuts about it, because the company
Speaker 1: is going to be the skategoat of regulators as they
Speaker 1: cracked down on it and to make an example of
Speaker 1: not just the Facebook but of big cap tech. But
Speaker 1: as you look at the long grew term, I think
Speaker 1: that's where you do see a continued silver lining here
Speaker 1: where they're able to really have unmatched scale with the
Speaker 1: exception of Google. UH. And when you look at the
Speaker 1: new regulations on privacy taking place overseas, it actually helps
Speaker 1: them by threatening UH or limiting new entrance to the
Speaker 1: market and making the incumbents increasingly the establishment. So longer term,
Speaker 1: I think that they're going to be just fine, but
Speaker 1: in the short term it's definitely choppy waters. All right.
Speaker 1: So long term, you've got a company that's doing over
Speaker 1: forty billion in sales and puts nearly twenty billion of
Speaker 1: that to the bottom line. Correct, Okay. Does it matter
Speaker 1: how Facebook responds to this controversy in order to keep
Speaker 1: the advertisers who are filling their coffers with that forty
Speaker 1: billion dollars worth of money. Absolutely, I mean it matters
Speaker 1: in the sense that what is the pace of dollars
Speaker 1: flowing to Facebook. It's not going to change if dollars
Speaker 1: flow to Facebook, because there's really no choice because you
Speaker 1: only have Google and Facebook that have uh the kind
Speaker 1: of scale to reach a worldwide audience. You know, there's
Speaker 1: there's no exceptions there. But the pace is certainly in
Speaker 1: question because if there is any curtailment in engagement, any
Speaker 1: fears around it, uh, you know, privacy concerns that cause
Speaker 1: uh dips in content uh kind of generation on the platform,
Speaker 1: uh and consumption of third party content, and that will
Speaker 1: sway the pace of ad dollars moving towards the company.
Speaker 1: Does it bring into question the current management skills at Facebook,
Speaker 1: whether it is Cheryl Sandberg or Mark Zuckerber. Yeah, I
Speaker 1: don't really see it as a skills in uh um,
Speaker 1: you know, in the in the traditional sense. It's more, um,
Speaker 1: how do they respond in a way that appeases at
Speaker 1: least some factions of the company, of the of the
Speaker 1: constituencies that are scrutinizing the company. And unfortunately, I think
Speaker 1: that they face a catch twenty two right now, which
Speaker 1: is why they've been so slow and responding responding, because
Speaker 1: they have, uh, in a in a very uncanny way,
Speaker 1: managed uh to uh receive scrutiny from not only both
Speaker 1: sides of the political spectrum, but both sides of the
Speaker 1: Atlantic Uh. So there's really little that they can do
Speaker 1: or say I think that can remedy the current kind
Speaker 1: of concerns around the business. All right, let me just
Speaker 1: push back a second here, because I specifically referencing Alex Stamos,
Speaker 1: he's the chief information security officer for Facebook. In an
Speaker 1: article in The New York Times, he is described as
Speaker 1: the person that urged more disclosure over Russian activity on Facebook.
Speaker 1: According to the story, he got a lot of pushback
Speaker 1: from those that are described as being more interested in
Speaker 1: how much money is made than whether privacy is protected.
Speaker 1: He scheduled to leave the company in August. That can't
Speaker 1: be a good management image. Yeah, I mean, look, the
Speaker 1: the the issue is around perceptions. There's a there's an
Speaker 1: issue of perception around the lack of candor uh from Facebook.
Speaker 1: There's an issue of perception around uh their willingness or
Speaker 1: proactively uh not sharing information. And then there's uh perception
Speaker 1: issues around uh them arguing semantics where they're you know,
Speaker 1: arguing the traditional definition of data breach. You know, it's
Speaker 1: like arguing what the definition of is is? You know
Speaker 1: what I mean? So I think transparency is their friend
Speaker 1: and over transparency is their best friend right now? Uh
Speaker 1: this you mentioned Google as the other, as one or
Speaker 1: the other, because of course there's Twitter, there are other
Speaker 1: social media platforms. Uh. There's a report that Google's head
Speaker 1: of their YouTube operation is looking to farm out oversight
Speaker 1: two Wikipedia for the veracity and the truthfulness of the
Speaker 1: videos that are posted on YouTube. Do you have any
Speaker 1: thoughts about that? Yeah? I think that's a smart move
Speaker 1: because Wikipedia naturally comes with the checks and balances. Uh.
Speaker 1: You know there's a corek instituent group of people that um,
Speaker 1: you know that that police Wikipedia. Obviously there are discrepancies
Speaker 1: here and there. But I think that that self policing
Speaker 1: from Wikipedia is really second to none. But how do
Speaker 1: you know who the people are behind those self policing activities?
Speaker 1: And indeed, according to the people at Wikipedia, they only
Speaker 1: found out about this effort on the part of Google
Speaker 1: and YouTube because of a discussion at south By Southwest
Speaker 1: by the CEO who runs YouTube. Right. Well, I mean,
Speaker 1: I mean, I guess what I'm getting at here is
Speaker 1: the quality of the management and the experience of the management.
Speaker 1: If you were talking about this in companies such as
Speaker 1: the oil industry, or the airline industry or the chemical
Speaker 1: you know what, wouldn't you get a lot more consternation
Speaker 1: on the part of investors that say, wait a minute,
Speaker 1: this is not the this is not top notch management.
Speaker 1: Or maybe it is. I think it's it's it's not
Speaker 1: the talent of the management as much as it is
Speaker 1: um kind of the uncharted territory, you know, for all
Speaker 1: of them. Uh, And I think that they're uh, you know,
Speaker 1: era on the side of being defensive and reactive rather
Speaker 1: than proactive, uh in in trying to stay in front
Speaker 1: of the story. Because in every case that we've seen,
Speaker 1: you know, the the questionable content on YouTube and now
Speaker 1: all the Facebook's issues. It's been completely reactive in the
Speaker 1: in the companies quite frankly, are not um recognizing the
Speaker 1: concer earns and debate that's happening in the public sphere.
Speaker 1: And I think, uh, you know, what I was just
Speaker 1: talking about before, uh you know, I was on with
Speaker 1: you was the fact that a lot of these management
Speaker 1: teams and CEOs haven't uh you know, been uh you know,
Speaker 1: candid with uh real interviews and trying to answer the
Speaker 1: tough questions and and trying to uh you know, stay
Speaker 1: or or engage in uh discussions that are off script,
Speaker 1: and unfortunately that may come in the form of uh
Speaker 1: Senate hearings. Well, well that's where our next question is
Speaker 1: gonna be. Because the invitation on the part of the
Speaker 1: U S Election Commission to testify being made public for
Speaker 1: the heads of Twitter, Google as well as a Facebook. Uh,
Speaker 1: that becomes a public airing of grievance. And as you
Speaker 1: just described, it as about perception rather than a bad fact,
Speaker 1: particularly uh when you're being asked questions by people who
Speaker 1: may or may not have a spe cific agenda, right exactly.
Speaker 1: And I think actually it could be a blessing in disguise,
Speaker 1: because if they are forthright uh, in in that public sphere,
Speaker 1: I think that they can win a lot of uh,
Speaker 1: you know, points from the public and as well as
Speaker 1: regulators in in in the based off of the degree
Speaker 1: of candor that they exhibit. Uh. So you know, we'll
Speaker 1: kind of see what happens here. I mean a lot
Speaker 1: of I talk about perceptions because what Facebook is facing
Speaker 1: right now, uh is nothing new. Companies have used Facebook
Speaker 1: in in this way, in the way that you know
Speaker 1: we're seeing with Cambridge Analytica, Right, But those are companies
Speaker 1: versus foreign powers, right, I mean, I mean there is
Speaker 1: it worth Maybe it's not worth making the distinction, but
Speaker 1: don't you think it's a distinction between whether it's the
Speaker 1: Russian government or Russian state actors versus companies trying to
Speaker 1: get you to buy a product. Yeah, But at the
Speaker 1: end that that they boils down to privacy though, uh
Speaker 1: and and and and and who and how uh Uh
Speaker 1: companies or foreign agents are able to utilize uh profiles
Speaker 1: in a way to develop psychological profiles of people. And
Speaker 1: obviously businesses want to influence as well as I mean
Speaker 1: you if if you want to you know change behavior. Um,
Speaker 1: you know Facebook's the best way to do it. Thanks.
Speaker 1: We gotta we gotta run, but I want to thank
Speaker 1: you very much. James chalk Mark equity analyst at Amas
Speaker 1: Crespy and Heart. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Rady up.