WEBVTT - CalSTRS Likes Real Estate and PE, Cautious On Equities 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL Podcast. I'm Paul Swinge you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits, 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 --> 0:00:31.800 at Bloomberg dot com. This is the song that we 0:00:31.960 --> 0:00:35.720 have for the one, the only, the Chris Almen, chief 0:00:35.760 --> 0:00:40.479 investment officer at Holster's Investments, which is the second biggest 0:00:41.120 --> 0:00:44.960 public pension in the United States. I love the little 0:00:45.280 --> 0:00:47.640 bicycle bell at the end. Of course, we use that 0:00:47.720 --> 0:00:50.160 song because you ride your bike to work every day, 0:00:50.640 --> 0:00:52.879 uh and listen to the show while you do that, 0:00:52.920 --> 0:00:55.360 which I absolutely love you still riding your bike. It's 0:00:55.400 --> 0:00:57.560 been a bit too cold and way too rainy, so 0:00:58.080 --> 0:00:59.880 but yes, I ride it at lunch as often as 0:00:59.920 --> 0:01:02.080 I can, and I still listen to the show regularly. 0:01:02.280 --> 0:01:06.800 All right, So talking about investments, because you do oversee 0:01:07.360 --> 0:01:10.120 more than two or billion dollars of assets for a 0:01:10.200 --> 0:01:14.000 number of different pensions, a number of different retired groups 0:01:14.040 --> 0:01:17.680 in California. Where are we right now. I mean, it 0:01:17.760 --> 0:01:20.520 seems like people are getting really pessimistic if you look 0:01:20.520 --> 0:01:22.480 at the bond market, But if you look at stocks, 0:01:22.959 --> 0:01:25.720 we just had an incredible first quarter. What do you 0:01:25.760 --> 0:01:28.120 make of this? Well, and I've been very clear, I 0:01:28.160 --> 0:01:30.160 think people need to start taking their clue from the 0:01:30.160 --> 0:01:32.600 bond market. I don't think it should be as overly 0:01:32.640 --> 0:01:36.320 pessimistic as it is. And your listeners are educated, they 0:01:36.360 --> 0:01:39.400 get it. The yield curve is not inverted. Let's look 0:01:39.440 --> 0:01:42.520 at twos to thirties. Don't bother me with twos to tens. 0:01:43.160 --> 0:01:45.000 The fact that the curve has a slump in the 0:01:45.040 --> 0:01:47.039 middle of it, that's too bad. But if the whole 0:01:47.080 --> 0:01:49.800 curve got inverted, then I would be worried. I think 0:01:50.120 --> 0:01:52.840 interest rates need to be more focused on. The economy 0:01:52.960 --> 0:01:55.840 is okay. We just came off a very very cold winter. 0:01:55.960 --> 0:01:59.920 People forget the the cyclone bomb and all the craziest 0:02:00.000 --> 0:02:03.200 off that went on this last January and February. So 0:02:03.280 --> 0:02:05.120 the economy should be a little bit slow in the 0:02:05.160 --> 0:02:08.040 first quarter, as it has been for the last three years. Well, 0:02:08.040 --> 0:02:10.560 the market seems to be discounting that the Fed's next 0:02:10.600 --> 0:02:13.360 move will be a rate cut, but if you're saying 0:02:13.400 --> 0:02:16.040 that you're you think the economy is generally in good shape, 0:02:16.320 --> 0:02:19.160 you don't see that. I think the Fed should be 0:02:19.280 --> 0:02:23.160 and should constantly say they are data dependent, not a headline. 0:02:23.160 --> 0:02:26.480 They have been for decades. But Jerome Powell's got to 0:02:26.560 --> 0:02:28.920 learn his own voice and the power of that he's 0:02:28.960 --> 0:02:31.520 had and moving that market, and he needs to be 0:02:31.600 --> 0:02:34.320 much more cautious and need to be data dependent. The 0:02:34.360 --> 0:02:37.280 bomb market is kind of anticipating in ease, which I 0:02:37.280 --> 0:02:39.440 think is a little over extending. I think they're getting 0:02:39.639 --> 0:02:42.519 too far ahead of themselves. They're over the handlebars and 0:02:42.639 --> 0:02:45.560 bike terms. So they need to really back up and 0:02:45.560 --> 0:02:47.840 and look at the data. Look at data, Look at 0:02:47.840 --> 0:02:50.359 where we are in the first quarter. The Fed may 0:02:50.400 --> 0:02:53.079 well end up tightening at the latter half of the year, 0:02:53.080 --> 0:02:54.920 but that's a long time from now, all right, So 0:02:55.000 --> 0:02:57.800 let's talk about how that feeds into your investment thesis 0:02:57.840 --> 0:03:02.840 going forward. Calister's the California State Teacher's retirement system. I 0:03:02.880 --> 0:03:06.920 believe broke even for the fiscal year nineteen. Is that correct? 0:03:07.040 --> 0:03:10.560 We had a small lost down three percent um on 0:03:10.600 --> 0:03:13.560 a calendar year. But I'm looking at fiscal years and 0:03:13.600 --> 0:03:15.720 I'm looking at a thirty year time period, so we're 0:03:15.760 --> 0:03:19.320 doing okay over thirty years. So are you adjusting though 0:03:19.440 --> 0:03:25.000 anything in terms of allocations for We've been very defensive 0:03:25.080 --> 0:03:28.320 at the start of even a year ago. In in July, 0:03:28.480 --> 0:03:31.400 we started to get too defensive, and obviously the markets 0:03:31.480 --> 0:03:34.840 rallied in in August, but then we were positioned correctly 0:03:34.880 --> 0:03:37.200 when you look at December. Such is life as a 0:03:37.240 --> 0:03:39.520 long term investor in the markets. It's a roller coaster 0:03:39.720 --> 0:03:42.560 and you never know your exact position. But right now 0:03:42.600 --> 0:03:46.400 we're pretty neutral. So I'm not extending long in many areas, 0:03:46.480 --> 0:03:49.440 and I'm also not being underweight in many areas. I'm 0:03:49.480 --> 0:03:52.680 a little cautious on equities. So we're right at the 0:03:52.680 --> 0:03:56.720 benchmark and a smidge under and we're long long maturity 0:03:56.720 --> 0:04:00.760 assets like real estate private equity. So it's sort of 0:04:00.760 --> 0:04:02.000 interesting that you said that that's where I was going 0:04:02.080 --> 0:04:04.960 to go. There was a JP Morgan survey recently talking 0:04:05.000 --> 0:04:08.840 about how you know. They basically surveyed a bunch of 0:04:08.840 --> 0:04:11.240 institutional investors. One third of them is that they plan 0:04:11.360 --> 0:04:14.520 to increase their allocations to hedge funds up from a 0:04:14.600 --> 0:04:17.960 minuscule amount the prior year. Are you in that camp. 0:04:18.000 --> 0:04:21.320 Are you increasing allocations to hedge funds. No, UM, we 0:04:21.360 --> 0:04:24.640 don't consider hedge funds and asset class. We look at 0:04:24.680 --> 0:04:27.640 them as as they are there twenty two very disparate 0:04:27.960 --> 0:04:31.239 investment strategies. Keep in mind, to me, a hedge fund 0:04:31.279 --> 0:04:35.280 is a legal contract, a structure, the vehicle underneath it is. 0:04:35.320 --> 0:04:37.680 What you care about is what is their underlying strategy. 0:04:37.720 --> 0:04:40.400 And I think what they're saying is it's tough to 0:04:40.440 --> 0:04:42.960 be long and asset class right now, so they want 0:04:42.960 --> 0:04:45.080 to be in a trading type of vehicle. They can 0:04:45.080 --> 0:04:47.240 be a bit more nimble and a bit more reactive 0:04:47.240 --> 0:04:51.000 to the world. Between Breggsit, what's going on here in Washington, 0:04:51.080 --> 0:04:55.159 d C. Fast and slow economic numbers out of China, 0:04:55.240 --> 0:04:58.719 it's tough to figure out where there should be in stocks, bonds, currencies, 0:04:59.120 --> 0:05:01.840 and where I should be the world. It's interesting that 0:05:02.120 --> 0:05:04.120 you talked about that this you know, the volatility we've 0:05:04.120 --> 0:05:05.880 seen over the last you know, six months. I mean, 0:05:06.080 --> 0:05:08.000 so if you're an equity investor looking at the sp 0:05:08.400 --> 0:05:12.040 up this this year, you could say, well, I'm done, Okay, 0:05:12.040 --> 0:05:14.480 I've had my performance. I'm gonna go away. However, if 0:05:14.480 --> 0:05:17.000 you kind of look at it relatives to what happened 0:05:17.040 --> 0:05:19.480 in December. We're just kind of getting back to almost 0:05:19.520 --> 0:05:22.360 where we were. So there's cases for the bulls and bears, 0:05:22.360 --> 0:05:23.719 but it sounds like you're a little bit more on 0:05:23.760 --> 0:05:26.680 the conservative side from an equities perspective. Yeah, Paul, we're 0:05:27.600 --> 0:05:30.640 number one. We're investors, not traders. So I wish I 0:05:30.720 --> 0:05:32.359 could say I could get out of the market, but 0:05:32.440 --> 0:05:34.359 that is just never gonna happen. We're going to be 0:05:34.400 --> 0:05:37.240 invested in stocks as long as they're public school teachers 0:05:37.240 --> 0:05:39.880 in California. That I try and say that to your people, 0:05:39.920 --> 0:05:42.839 it's we're talking generations that will be along the US 0:05:42.920 --> 0:05:46.719 equity market. So from our perspective, um, it really has 0:05:46.720 --> 0:05:49.159 been a sideways market, and it's been a choppy one. 0:05:49.240 --> 0:05:52.320 So it's tough for even the momentum strategies to make 0:05:52.360 --> 0:05:54.360 money in this kind of a market, since you're swinging 0:05:54.440 --> 0:05:56.880 up and down eight percent sometimes in just a two 0:05:56.880 --> 0:05:59.880 month period. We're gonna be fairly flat to the US 0:06:00.000 --> 0:06:02.840 equity market right on our benchmark. We're a little bit 0:06:02.920 --> 0:06:06.080 underweight global equity because we're so worried about Brexit and 0:06:06.160 --> 0:06:09.480 questioning Japan, and then we're gonna be looking around the world. 0:06:09.760 --> 0:06:13.040 Emerging markets is where the value is, but it's been 0:06:13.160 --> 0:06:14.960 so tough to go in, and it really is a 0:06:15.040 --> 0:06:18.200 question about your confidence in China and their economy. It 0:06:18.240 --> 0:06:20.800 looks like it's dialing back up and starting to grow, 0:06:20.880 --> 0:06:23.000 which is a good sign for the emerging markets. But 0:06:23.040 --> 0:06:25.839 even for a fund our size, it's tough to be long, 0:06:26.520 --> 0:06:29.000 very far in the emerging markets. You said earlier that 0:06:29.040 --> 0:06:33.039 you like real estate and private equity. Where in particular 0:06:33.040 --> 0:06:35.880 are you seeing opportunities in real estate? Well, I like 0:06:36.000 --> 0:06:39.159 real estate because I think it's gonna hold its values. UM. 0:06:39.200 --> 0:06:42.599 I like occupied buildings that have solid lease and solid 0:06:42.600 --> 0:06:46.839 tenants because it gives us were good cash flow. Um. 0:06:47.360 --> 0:06:51.000 We have owned some buildings where we work actually exists. Um. 0:06:51.000 --> 0:06:54.120 But you want diversified tenant base. That's the key, and 0:06:54.320 --> 0:06:58.600 you look at it. Manhattan, the Gateway cities, San Francisco, 0:06:58.720 --> 0:07:02.839 Los Angeles, Chicago, Goo, even Denver, Washington, d C have 0:07:03.160 --> 0:07:05.520 held in there and their value. And then obviously the 0:07:05.560 --> 0:07:11.760 bills people love to talk about Nashville. UM, talk to 0:07:11.800 --> 0:07:14.480 the real estate people. They've got acronyms for everything. I'm sure, 0:07:14.560 --> 0:07:17.480 but but even Austin, those kind of markets are holding 0:07:17.560 --> 0:07:20.160 in there, and I'm not looking for a lot of 0:07:20.200 --> 0:07:23.280 capital appreciation. But what I'm looking for is steady cash flow. 0:07:23.440 --> 0:07:25.160 That's what we really get out of our real estate. 0:07:25.240 --> 0:07:28.120 So I think about high yielding dividends stocks and there's 0:07:28.120 --> 0:07:30.880 the value. And also real estate's very static. It doesn't 0:07:30.880 --> 0:07:33.960 move in price every day like equities. Interesting, So what 0:07:34.440 --> 0:07:36.320 is there any part of the equity market that you're 0:07:36.320 --> 0:07:39.600 just no interest in? I just that you're really underweight 0:07:39.640 --> 0:07:42.760 that's noticeable for you, or you've just given your size, 0:07:42.800 --> 0:07:46.240 you're just kind of equal weight throughout the index. Paul, 0:07:46.320 --> 0:07:49.800 We own the entire market as a solid source. Largest 0:07:49.840 --> 0:07:52.840 the smallest um the one place that I don't have 0:07:52.880 --> 0:07:54.480 a lot of interest, and it's not that it's a 0:07:54.480 --> 0:07:58.240 bad segment, but it would be microcap. At my size, 0:07:58.320 --> 0:08:02.240 it is impractical to try invest anything material in microcap 0:08:02.280 --> 0:08:05.200 that would it matter to my fund and then also 0:08:05.320 --> 0:08:08.320 make enough money. It's too problematic. The area that I'm 0:08:08.320 --> 0:08:11.160 worried about in the equity markets is how extended the 0:08:11.160 --> 0:08:15.040 tech stocks are. Um, there's a thing that I kind 0:08:15.040 --> 0:08:17.600 of believe in called earnings. I'm not sure people have 0:08:17.680 --> 0:08:22.640 heard of that, but earnings, net income not the lift 0:08:22.680 --> 0:08:26.000 investors obviously. Well, but we're back to that view is 0:08:26.440 --> 0:08:28.520 it's all about the growth. Will pay whatever we have 0:08:28.560 --> 0:08:30.600 to to get the growth. I mean, I've been complaining 0:08:30.640 --> 0:08:35.280 about Amazon for Okay, how's that worked out? All right? 0:08:35.840 --> 0:08:40.280 Chris Chris al'man Chief investment officer California State Teachers Retirement System. 0:08:40.480 --> 0:08:44.679 Two six billion dollars invested for the long term. We learned, 0:09:03.760 --> 0:09:07.600 we did learns of information about Saudi Aramco, which is 0:09:07.880 --> 0:09:11.120 marketing dollar bonds for the first time to purchase to 0:09:11.280 --> 0:09:14.240 finance its purchase of Sabik. We talked. We learned that 0:09:14.320 --> 0:09:18.840 it was the most profitable company by certain measures in 0:09:18.920 --> 0:09:23.320 the world, earning a hundred and eleven billion dollars in 0:09:23.440 --> 0:09:27.240 one year, dwarfing the amount of money brought in by 0:09:27.280 --> 0:09:29.400 Apple joining us. Now, I'm very pleased to say. Dr 0:09:29.440 --> 0:09:33.360 ellen Wald, president of Transversal Consulting, also a non resident 0:09:33.400 --> 0:09:36.280 Senior Fellow at the Atlantic Council's Global Energy Center, a 0:09:36.280 --> 0:09:40.720 contributor to Bloomberg Opinion, and a very wonderful guest on 0:09:40.760 --> 0:09:43.520 this show. Dr Wall, thank you for being with us. 0:09:43.679 --> 0:09:47.160 What stood out most to you about the financial disclosures 0:09:47.440 --> 0:09:51.520 from Saudi Aramco? Hi, it's good to be here. What 0:09:51.520 --> 0:09:55.520 what stood out most most significantly to me was the 0:09:55.640 --> 0:09:58.760 number that a Ramco is paying in dividends to the 0:09:58.800 --> 0:10:02.280 Saudi government. And we all knew that around COO was 0:10:02.400 --> 0:10:06.200 a very profitable company, we didn't know quite how profitable. 0:10:06.360 --> 0:10:08.720 But the fact that it is the most profitable company 0:10:08.720 --> 0:10:12.240 in the world isn't really a surprise. But what's more 0:10:12.320 --> 0:10:16.160 interesting is that we've learned that since the government lowered 0:10:16.160 --> 0:10:20.600 a Ramco's income tax rate to fifty UM, they had 0:10:20.640 --> 0:10:24.120 to be making up that money somehow, that that deficit 0:10:24.200 --> 0:10:28.040 in money somehow, And I've always suspected that they were 0:10:28.040 --> 0:10:31.440 getting it in dividends, but this information gives us a 0:10:31.480 --> 0:10:34.600 sense of just how much the government is getting in dividends. 0:10:34.679 --> 0:10:38.240 It's up fifty eight point to billion dollars in in 0:10:38.679 --> 0:10:42.559 two thousand and eighteen, and that's a very significant number. 0:10:42.840 --> 0:10:45.080 Uh and and has a lot to say. I think 0:10:45.120 --> 0:10:49.080 about a ram Coosh financial future should it ever pursue 0:10:49.160 --> 0:10:53.080 an I p O on international markets. Um, it's really 0:10:53.440 --> 0:10:55.360 it's showing the government is still ending up with a 0:10:55.400 --> 0:10:59.640 lot of money. And um, even though it's switched, it's 0:10:59.679 --> 0:11:03.880 it's a come tax rate and could potentially impact an 0:11:03.920 --> 0:11:08.040 IPO in the future, particularly if it UM perhaps does 0:11:08.200 --> 0:11:11.240 offer this kind of dividend rate to other shareholders. Right now, 0:11:11.280 --> 0:11:13.800 the government is the sole shareholder, But if you do 0:11:13.800 --> 0:11:16.240 do an I p O, you've got other shareholders. Will 0:11:16.280 --> 0:11:20.680 they offer such lucrative dividends to other shareholders? If so, 0:11:20.960 --> 0:11:24.800 that could make a Ramco a very valuable investment. On 0:11:24.840 --> 0:11:27.560 the other hand, they may choose to not offer that 0:11:27.640 --> 0:11:30.360 in their share classes, which might make a Ramco not 0:11:30.559 --> 0:11:34.160 quite as valuable in investment if they do I p O. 0:11:34.520 --> 0:11:36.640 So so, dr Wall, do you anticipate or is it 0:11:36.679 --> 0:11:40.400 you're thinking that maybe this dollar bond offering that they're 0:11:40.440 --> 0:11:42.600 coming to the market with might be a precursor for 0:11:42.640 --> 0:11:45.680 an IPO. I do think it's definitely a way to 0:11:45.760 --> 0:11:50.600 test the waters to see what people how people respond 0:11:50.640 --> 0:11:53.199 to this, what people make of their financial data. One 0:11:53.240 --> 0:11:56.800 of the things that we've seen throughout kind of Ramco's 0:11:56.880 --> 0:11:59.280 history is that it has been a very secretive company. 0:11:59.600 --> 0:12:02.280 Um Really, it's had no reason to ever share any 0:12:02.320 --> 0:12:05.480 financial data, which is why it's seen a secretive. But 0:12:05.559 --> 0:12:08.880 people have taken that to believe that something nefarious was 0:12:08.920 --> 0:12:11.240 going on. Perhaps the Ramco was bleeding money to the 0:12:11.280 --> 0:12:15.880 government in uh social projects or uh you know, palaces 0:12:15.960 --> 0:12:18.120 for the kings, And what we learned from this is 0:12:18.120 --> 0:12:20.960 that that's not actually the case at all. Uh And 0:12:21.000 --> 0:12:23.560 so Aramco maybe using this as a way to test 0:12:23.600 --> 0:12:27.080 the water to see what the responses to to this 0:12:27.200 --> 0:12:30.560 financial data ahead of you know, doing this this I 0:12:30.640 --> 0:12:33.840 p O perhaps in a few years and releasing more 0:12:33.960 --> 0:12:37.240 financial data. Well. The interesting thing is Bloomberg Oil correspondent 0:12:37.320 --> 0:12:39.200 Javier Blast put out a piece where he said that 0:12:39.240 --> 0:12:42.480 looking at this financial data means that the valuation of 0:12:42.520 --> 0:12:45.160 Saudi Aramco is probably closer to one point two trillion 0:12:45.200 --> 0:12:47.959 dollars rather than two trillion dollars. Would you agree with that. 0:12:49.280 --> 0:12:51.680 I'm not sure i'd agree with one point too, but 0:12:51.840 --> 0:12:55.319 I definitely think that based on this data, um the 0:12:55.360 --> 0:12:58.760 evaluation has to be at least one trillion, because if 0:12:58.760 --> 0:13:01.640 you're going to evaluate our bull Microsoft at about a 0:13:01.679 --> 0:13:05.640 trillion dollars, then this company is significantly, as you said, 0:13:05.640 --> 0:13:08.040 more profitable. So they've got to be above one trillion. 0:13:08.240 --> 0:13:11.240 So just where they are in between one and two 0:13:11.320 --> 0:13:15.720 trillion is questionable. And I do think that there's a 0:13:15.760 --> 0:13:19.280 significant liability that a Ramco faces in terms of evaluation 0:13:19.720 --> 0:13:23.440 due to their connection to the Saudi government. Well, that 0:13:23.480 --> 0:13:24.920 was what I was going to say. I mean, how 0:13:25.000 --> 0:13:29.240 does a company go public and be beholden to public 0:13:29.280 --> 0:13:33.360 investors when ultimately it's still is very beholden to a 0:13:33.480 --> 0:13:37.520 government that can wields authority over it and demand higher 0:13:37.640 --> 0:13:39.240 you know, and tax it more, do what it needs 0:13:39.240 --> 0:13:42.560 to do depending on its revenue streams. Yeah, and that's 0:13:42.600 --> 0:13:46.000 and that's a significant question. Historically, a Ramco has always 0:13:46.040 --> 0:13:50.280 had kind of a set tax rate, although at times 0:13:50.280 --> 0:13:52.600 it was actually an industrible tax rate to make sure 0:13:52.640 --> 0:13:54.760 that the government had enough money. So there's always a 0:13:54.800 --> 0:13:58.040 possibility that that could happen again. There's also this issue. 0:13:58.160 --> 0:13:59.800 I would have said, if you'd ask me that question 0:14:00.040 --> 0:14:02.720 five years ago, I would have said, a Ramco is 0:14:02.720 --> 0:14:05.360 a very independent company. The king really has a sense 0:14:05.400 --> 0:14:08.240 of this, this company should be independent. They let it 0:14:08.320 --> 0:14:11.000 run itself, and you know, they take what they can 0:14:11.040 --> 0:14:13.440 get what they get from the company. But that's not 0:14:13.480 --> 0:14:16.280 the case anymore. We're seeing a king and also a 0:14:16.280 --> 0:14:19.760 crown Prince who are much more involved in the various 0:14:19.760 --> 0:14:22.480 power centers of the kingdom, and that includes a Ramco. 0:14:22.640 --> 0:14:25.400 And so I do think when you're looking at at 0:14:25.400 --> 0:14:28.240 a future for a Ramco. There's really no telling what 0:14:28.400 --> 0:14:31.200 kind of demands the Royal family may make on the 0:14:31.240 --> 0:14:34.520 company and what the future could hold. So far, none 0:14:34.560 --> 0:14:37.720 of this is really damaging to the core profitability of 0:14:37.720 --> 0:14:40.720 the company. The Savag acquisition is not a significant add 0:14:40.760 --> 0:14:43.640 a significant liability. In fact, may be more profitable for 0:14:43.680 --> 0:14:46.680 the company in the long run, but we just don't know, 0:14:46.880 --> 0:14:50.400 and that is a significant risk. Dr ellen Wald, thank 0:14:50.400 --> 0:14:53.800 you so much. Dr Wald, as president of Transversal Consulting. 0:14:54.080 --> 0:14:57.000 She's also a nonresident Senior Fellow at the Atlantic Council's 0:14:57.000 --> 0:15:16.880 Global Energy Center and a contributor to Bloomberg Opinion. Well, 0:15:16.920 --> 0:15:19.480 it looks like progress is being made between the U 0:15:19.560 --> 0:15:23.040 S and China on trade negotiations UH. Chinese Vice Premier 0:15:23.200 --> 0:15:25.920 Leo Hey is due to return to d C this week, 0:15:26.560 --> 0:15:30.240 suggesting that the both sides are getting nearer to the 0:15:30.280 --> 0:15:33.480 final deal. To help us break this down and all 0:15:33.560 --> 0:15:36.880 things geopolitics, we welcome our friend Dr Sam Natapoff. He 0:15:36.960 --> 0:15:39.880 as president of Empire Global Ventures. He joins us here 0:15:39.880 --> 0:15:43.080 in our Bloomberg Interactive Brokers studio. Sam, thanks for joining 0:15:43.120 --> 0:15:45.680 us once again. Let's start with China. We'll get the 0:15:45.720 --> 0:15:49.280 Brexit later, but with China it appears like we are 0:15:49.400 --> 0:15:51.720 moving towards a deal. Do you think anything is going 0:15:51.760 --> 0:15:55.880 to get done? And when, um, some things are getting done, 0:15:55.960 --> 0:15:58.880 these are generally at the tactical level. So last Friday, 0:15:58.960 --> 0:16:01.480 JP Morgan, for the first time in ten years, was 0:16:01.520 --> 0:16:04.840 given permission to own a majority stake in their own 0:16:04.920 --> 0:16:08.840 financial concern inside China. It was both Nomura Securities and 0:16:08.920 --> 0:16:11.840 JP Morgan, and that hadn't happened for a decade. So 0:16:12.240 --> 0:16:15.240 things are moving at the tactical level because the Chinese 0:16:15.240 --> 0:16:18.360 government wishes to show that they are being flexible with 0:16:18.440 --> 0:16:21.600 the pressure that the U. S Government is bringing on it. Unfortunately, 0:16:21.680 --> 0:16:25.960 at the strategic level, the important issues of intellectual property protection, UH, 0:16:26.040 --> 0:16:29.840 some issues of majority ownership and tech transfer, those are 0:16:29.920 --> 0:16:34.600 intractable because there's domestic political pressures on both sides. Um Um. 0:16:34.680 --> 0:16:37.120 The president of China can't look like he's caving into 0:16:37.120 --> 0:16:40.840 the Americans, and President Trump, as always, is looking for 0:16:40.920 --> 0:16:44.880 a clear, definitive public win. So if you could give 0:16:44.920 --> 0:16:47.120 the odds here, what do you think the chances are 0:16:47.200 --> 0:16:49.840 of a deal between the US and China within the 0:16:49.880 --> 0:16:55.640 next two months? That's that's that's not what the market 0:16:55.680 --> 0:16:58.720 is predicting. That is out of consensus. The reason I 0:16:58.760 --> 0:17:01.160 say that is that there will be trivial things that 0:17:01.200 --> 0:17:03.920 will be going across and the president of China will 0:17:03.920 --> 0:17:06.000 sign a deal that says will buy a hundred and 0:17:06.000 --> 0:17:09.639 fifty billion dollars more of US goods, particularly soybeans and 0:17:09.760 --> 0:17:12.359 US agricultural goods to make it look good on the 0:17:12.359 --> 0:17:14.600 front pages of the Wall Street Journal. But the things 0:17:14.640 --> 0:17:17.760 that matter I can't compromise on because I'm in a 0:17:17.840 --> 0:17:22.040 sensitive position politically. That's why they remember March first was 0:17:22.080 --> 0:17:24.320 when they when Donald Trump was supposed to raise tariffs 0:17:24.359 --> 0:17:26.800 again from ten to twenty five. He kicked the can 0:17:26.840 --> 0:17:28.960 down the road a couple of months, and they're gonna 0:17:29.000 --> 0:17:31.840 they're desperately negotiating to try and make it look good enough, 0:17:32.040 --> 0:17:34.040 but they won't get there on the big things. The 0:17:34.119 --> 0:17:38.040 little things will be fine. It's very specific. That is 0:17:38.359 --> 0:17:40.560 he's been thinking about that that question first. Love it 0:17:40.800 --> 0:17:43.960 so again. Just remind us, um Sam kind of what 0:17:44.000 --> 0:17:48.840 are really the constraints in China to agreeing to more 0:17:48.960 --> 0:17:54.320 substantive issues. Uh, there's a great sense of a national 0:17:54.359 --> 0:17:57.399 pride inside China. And at the rise of China as 0:17:57.400 --> 0:18:01.720 an economic and political and geopolitical power. The obvious counterpoint 0:18:01.760 --> 0:18:04.600 to the rise of Chinese influences US influence, and this 0:18:04.680 --> 0:18:10.080 contest which is in both trade, economics, science, military culture. 0:18:10.760 --> 0:18:15.679 These are areas of enormous sensitivity inside China, and Jijinping 0:18:15.840 --> 0:18:19.439 cannot be shown to be taking a back a step 0:18:19.440 --> 0:18:23.399 back against pressure from the Americans, with whom he's had 0:18:23.440 --> 0:18:28.879 a complicated relationship. Furthermore, domestically, Uh Jijinping is under enormous 0:18:28.880 --> 0:18:32.920 pressure because the Chinese economy is slowing and and internal 0:18:32.960 --> 0:18:36.760 and domestic views of him and his government are beginning 0:18:36.800 --> 0:18:40.320 to sway because people aren't getting wealthier, jobs aren't being 0:18:40.320 --> 0:18:44.520 created at the same level. And at the People's Congress 0:18:44.560 --> 0:18:47.240 two years ago he was able to pass a constitutional 0:18:47.280 --> 0:18:50.320 resolution saying he could have another term, but that that 0:18:50.560 --> 0:18:52.840 someone could have more than two terms in a row. 0:18:52.840 --> 0:18:55.960 It wasn't specifically him. The moment he says I would 0:18:56.040 --> 0:19:00.680 like another term, his political opponents in China, and there 0:19:00.680 --> 0:19:03.920 are those powerful political opponents will turn and say, well, 0:19:04.000 --> 0:19:06.640 let's look at your record, and it hasn't been terribly 0:19:06.760 --> 0:19:11.040 distinguished to date, so let's shift let's move from China 0:19:11.240 --> 0:19:14.560 to the United Kingdom where there is another vote on Brexit, 0:19:14.680 --> 0:19:17.359 because it seems like every day there is another vote 0:19:17.680 --> 0:19:21.600 on Brexit. And what I'm struggling to understand is that 0:19:21.680 --> 0:19:25.560 there is a hard deadline of April twelve. It doesn't 0:19:25.720 --> 0:19:29.040 feel like Parliament is all that much closer to some 0:19:29.119 --> 0:19:32.440 sort of resolution here. Well, the thing to remember is 0:19:32.480 --> 0:19:35.480 what Mark Twain said about today, which is today is 0:19:35.520 --> 0:19:37.720 the day we remember what we are the other three 0:19:37.760 --> 0:19:40.840 hundred and sixty four days of the year, and this 0:19:40.920 --> 0:19:44.159 is the moment when Parliament is walking in again, and 0:19:44.240 --> 0:19:47.920 Parliament has taken away control of the Brexit process from 0:19:47.920 --> 0:19:51.080 the executive branch, from Prime Minister Theresa May, and now 0:19:51.240 --> 0:19:53.880 they are desperately looking for some kind of a solution. 0:19:54.080 --> 0:19:58.000 There are three outcomes in general order of likelihood. It's 0:19:58.040 --> 0:20:01.960 a permanent customs union with the European Union. It's after 0:20:02.040 --> 0:20:06.240 that a second referendum, and third it's a no deal brexit. Generally, 0:20:06.280 --> 0:20:09.120 people want to avoid a no deal Brexit, except for 0:20:09.160 --> 0:20:12.120 a hundred and seventy Conservative MPs who signed a letter 0:20:12.200 --> 0:20:14.760 to that effect that they wanted it last week. But 0:20:15.119 --> 0:20:19.400 thank goodness, it's not up to them, we'll probably Parliament 0:20:19.440 --> 0:20:22.359 now understands that in eleven days Britain is looking at 0:20:22.359 --> 0:20:26.600 an economic catastrophe and they can't um. The Government of 0:20:26.600 --> 0:20:29.480 Britain and Goldman Sacks have done similar analyses saying this 0:20:29.560 --> 0:20:33.480 has cost Britain a billion dollars a week since June. 0:20:33.760 --> 0:20:36.159 It's cost about two point four percent of their GDP 0:20:36.680 --> 0:20:38.680 since the referendum to say they want to leave. They 0:20:38.680 --> 0:20:41.280 need to fix their economy. This is a real problem 0:20:41.480 --> 0:20:44.520 and today they're going to be more indicative votes. But 0:20:44.640 --> 0:20:47.000 they have to come to a solution. Either it's a 0:20:47.119 --> 0:20:50.119 customs unions plus or minus, or it's a referendum, and 0:20:50.119 --> 0:20:52.679 with the referendum comes a general election. I like the 0:20:52.680 --> 0:20:54.840 referendum and choice myself. I've been calling for that since 0:20:54.920 --> 0:20:56.640 day one. Let's let's just do it. Do over here. 0:20:57.160 --> 0:21:03.159 So what are the chances of cost we referendum? What 0:21:03.240 --> 0:21:05.560 are the chances of this referendum? And then is there 0:21:05.600 --> 0:21:07.679 what's the polling saying that that the polling was accurate 0:21:07.720 --> 0:21:09.680 the first time? Well, what is the polling saying about 0:21:09.720 --> 0:21:13.440 an outcome up of a second referendum? Uh, It's enormously 0:21:13.440 --> 0:21:16.000 difficult to know because polling is all over the place, 0:21:16.080 --> 0:21:18.840 and it's still very difficult to tell because Britain is 0:21:18.920 --> 0:21:22.359 very split on this topic. And the terrible irony is 0:21:22.400 --> 0:21:25.760 that this is an entirely politically created crisis. It was 0:21:25.800 --> 0:21:29.880 created by the Conservative Party and Benjamin Disraeli, the Prime 0:21:29.920 --> 0:21:32.879 Minister of Great Britain in eighteen seventy four, noted novelists 0:21:32.880 --> 0:21:34.840 said in one of his novels, there was a great 0:21:34.880 --> 0:21:39.080 deal of shouting about Conservative principles, but the awkward question 0:21:39.160 --> 0:21:43.320 did arise, what will you conserve? And Teresa May is 0:21:43.400 --> 0:21:46.680 faced with the problem. She can either conserve Britain as 0:21:46.720 --> 0:21:49.879 a functioning modern economy as part of the EU, or 0:21:49.920 --> 0:21:53.359 she can conserve the Conservative Party. She will have to 0:21:53.440 --> 0:21:55.640 choose between the two of them. And in the next 0:21:55.680 --> 0:22:00.359 week Dr Sam natapaf in ten seconds, what is the 0:22:00.440 --> 0:22:04.200 chance of a herd Brexit right now versus where we 0:22:04.200 --> 0:22:12.679 were two months ago? Right? What about two months ago? Alright, 0:22:12.720 --> 0:22:16.240 so we're moving closer to some sort of resolution. Maybe 0:22:16.240 --> 0:22:20.600 perhaps Well Tom Tom Keane is over in London, he's 0:22:20.640 --> 0:22:23.080 on the Westminster Green. Maybe he can help get some 0:22:23.080 --> 0:22:26.720