WEBVTT - Apple's Low-Cost iPhone Rollout At Risk From Virus 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma. With 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 Penil 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 --> 0:00:21.480 at Bloomberg dot com. Well, the economists and strategists are 0:00:21.520 --> 0:00:25.200 trying to really calculate the impact the economic impact that 0:00:25.280 --> 0:00:28.720 the coronavirus will have on global GDP going forward, but 0:00:28.760 --> 0:00:30.800 certainly one of the industries that is most at risk 0:00:30.880 --> 0:00:33.960 is the global technology space. We heard Doug, Greg, Jared, 0:00:34.040 --> 0:00:36.959 you're talking about Apple and Fox Console. Let's start there. 0:00:37.000 --> 0:00:41.120 John Butler, Senior Telecom Service and Equipment Animals for Bloomberg Intelligence. 0:00:41.120 --> 0:00:43.640 He joins us here on our Bloomberg Interactive Broker Studio. 0:00:43.680 --> 0:00:45.800 So John, let's start with Apple, because that's kind of 0:00:45.800 --> 0:00:48.400 always the poster child I think if you will for 0:00:49.000 --> 0:00:53.280 dependence upon China and supply chain and you know kind 0:00:53.280 --> 0:00:55.920 of it sells into China, sources out of China. Give 0:00:55.960 --> 0:00:57.680 us a sense of what's going on with Apple with 0:00:57.800 --> 0:00:59.560 fox Con and kind of how you think this is 0:00:59.600 --> 0:01:04.280 going to play out. So I think the I think 0:01:04.360 --> 0:01:06.680 Apple is in a little bit of trouble for the 0:01:06.760 --> 0:01:10.600 current quarter. So fox Com, which is the main manufacturer 0:01:10.720 --> 0:01:16.119 the iPhone um, has had its factories closed up until now. 0:01:16.480 --> 0:01:20.080 Apparently this morning ten of the workforce is back at 0:01:20.160 --> 0:01:23.560 one of two factories. But we've had a delay in 0:01:23.600 --> 0:01:26.400 the opening after the Lunar New Year, and I think 0:01:26.400 --> 0:01:30.399 those delays are going to continue as Beijing continues to 0:01:30.520 --> 0:01:34.200 really try to try and lock down this virus by 0:01:34.440 --> 0:01:39.600 limiting people's travel and in instituting quarantines before people can 0:01:39.600 --> 0:01:42.680 get back to work and so forth. There's a difference 0:01:42.720 --> 0:01:46.720 between a short term disruption where the demand for the 0:01:46.760 --> 0:01:49.480 iPhone picks up right away as soon as people can 0:01:49.520 --> 0:01:51.200 go back to the stores and as soon as production 0:01:51.280 --> 0:01:55.520 ramps up, and a longer term disruption that actually has 0:01:55.560 --> 0:01:59.440 a more material effect on the business overall. What's that 0:01:59.520 --> 0:02:03.640 tipping point here for Apple? Well, I think Apple and 0:02:03.720 --> 0:02:07.240 fox Con have both been sort of talking about moving 0:02:07.280 --> 0:02:11.320 beyond China. There are lower cost regions in terms of 0:02:11.960 --> 0:02:16.799 cost of production. China is getting relatively more expensive, and 0:02:16.880 --> 0:02:20.280 I think Apple's lack of diversification in terms of where 0:02:20.280 --> 0:02:24.240 it makes the iPhone. UH is really biting them here, 0:02:24.280 --> 0:02:28.400 and it's a reminder that they need to diversify geographically 0:02:28.520 --> 0:02:32.240 perhaps in terms of where they make the iPhone. So 0:02:32.360 --> 0:02:35.360 what has Apple said, What have they said publicly about 0:02:35.400 --> 0:02:37.400 the financial impact here? Again they get I don't know 0:02:37.680 --> 0:02:41.400 their sales are in China. They make make most of 0:02:41.400 --> 0:02:43.639 their stuff in China that they sell around the world. 0:02:43.720 --> 0:02:45.800 This seems to me like it could be more than 0:02:45.840 --> 0:02:48.000 a one quarter thing because it's gonna take a off 0:02:48.040 --> 0:02:50.520 of these factors to get ramped up again and build 0:02:50.560 --> 0:02:53.160 inventory and distributed and all that kind of stuff. Yeah, 0:02:53.200 --> 0:02:56.040 I mean that's my concern, Paul, as I think this 0:02:56.800 --> 0:03:00.720 illness now is going global. So in terms of the 0:03:00.760 --> 0:03:03.720 impact in China, I think it's sort of confined to 0:03:03.880 --> 0:03:07.119 let's say, the next next month or so. But more 0:03:07.360 --> 0:03:11.600 broadly speaking, you know, for Apple, you know, there's a 0:03:11.639 --> 0:03:15.000 concern that people aren't going out to the retail stores 0:03:15.040 --> 0:03:18.640 as much, so I think they'll be. My opinion is 0:03:18.760 --> 0:03:21.959 we'll see an impact in the second quarter, but if 0:03:22.000 --> 0:03:25.720 it continues to spread globally, I think it potentially could 0:03:25.760 --> 0:03:28.840 spill out over into third quarter. And I need to 0:03:28.880 --> 0:03:32.600 say one thing. The company continues to say that they 0:03:32.720 --> 0:03:37.360 factored this impact into their latest guidance, So coronavirus risk 0:03:37.520 --> 0:03:40.800 was already an issue when they set the guidance for 0:03:40.880 --> 0:03:45.000 the current quarter, but it has since gotten worse. One 0:03:45.000 --> 0:03:47.880 thing that this uh The situation has really highlighted for 0:03:47.920 --> 0:03:50.160 me is just how much of an engine China is 0:03:50.400 --> 0:03:53.320 in terms of production of electronic parts. I mean, it's 0:03:53.360 --> 0:03:57.440 just such a massive source of all of these products. 0:03:57.480 --> 0:04:00.720 Can you give us any kind of size as his scopes, 0:04:00.880 --> 0:04:04.440 any any kind of understanding of just how crucial not 0:04:04.480 --> 0:04:07.200 only China, but in particular Wuhan, which is the hardest 0:04:07.240 --> 0:04:11.040 hit area is for these types of products. It's hard 0:04:11.080 --> 0:04:14.160 to say. Les. You know, the global supply chain is 0:04:14.280 --> 0:04:18.880 so huge, and it's so diverse, and it's been diversifying geographically, 0:04:18.960 --> 0:04:21.400 but I think you hit the nail on the head. 0:04:21.520 --> 0:04:25.800 China is still the world's factory floor. So for Apple, 0:04:25.880 --> 0:04:30.440 even beyond han Hai, there are other manufacturers for them 0:04:30.520 --> 0:04:35.360 in China that are being impacted by coronavirus. In terms 0:04:35.520 --> 0:04:39.840 of pegging an actual number onto what what percent of 0:04:40.000 --> 0:04:45.640 total global electronic manufacturing is in China, it's anyone's gas, 0:04:45.640 --> 0:04:48.599 I'll throw out seventy as a guest in it. But 0:04:48.720 --> 0:04:52.480 I I actually have no idea. I've never really run 0:04:52.520 --> 0:04:55.279 the numbers. So so John, one of the things for Apple, 0:04:55.360 --> 0:04:59.720 the bookcases five G. Is there any risk to this 0:05:00.279 --> 0:05:04.280 manufacturing supply chain issue impacting what could be a this 0:05:04.400 --> 0:05:08.000 five G story building for Apple? Not yet, Paul. You know, 0:05:08.080 --> 0:05:10.839 they typically need a couple of months of lead time 0:05:10.839 --> 0:05:14.440 in terms of building the new devices. That would put 0:05:14.560 --> 0:05:17.680 us in July in terms of the start of production, 0:05:17.839 --> 0:05:22.359 maybe even mid June conservatively, And I think at least 0:05:22.360 --> 0:05:24.919 in China we're going to be clear of this crisis 0:05:25.000 --> 0:05:28.960 by then. The real issue is Apple is reportedly going 0:05:29.040 --> 0:05:32.760 to launch the iPhone nine, a low cost sequel to 0:05:32.839 --> 0:05:36.840 the iPhone se if you remember that one priced at 0:05:36.880 --> 0:05:40.599 three and that was going to have a March launched date, 0:05:40.680 --> 0:05:44.960 according to Bloomberg. And so we'll see what happens there. 0:05:44.960 --> 0:05:47.719 I have a feeling that's almost certainly going to get 0:05:47.760 --> 0:05:50.960 pushed out by this, by this epidemic. You know, I 0:05:51.000 --> 0:05:53.479 could just keep speaking with you, and one thing that 0:05:53.520 --> 0:05:55.159 you said that when you walked in that really was 0:05:55.200 --> 0:05:59.120 compelling to me, John, was about the factory floor, the 0:05:59.160 --> 0:06:01.600 fox con to floor, and how they have to increase 0:06:01.640 --> 0:06:04.799 the ventilation and make it safer for people to come back, 0:06:05.279 --> 0:06:07.560 and what that will take in order to get the 0:06:07.600 --> 0:06:10.640 sign off, And there are all these questions there. There 0:06:10.640 --> 0:06:13.000 are a lot of little things you don't think about. 0:06:13.160 --> 0:06:19.039 So when you're manufacturing the iPhone, you need really superior 0:06:19.160 --> 0:06:23.159 ventilation to limit dust the risk of dust getting into 0:06:23.200 --> 0:06:27.680 the devices. But that also that kind of system promotes 0:06:27.839 --> 0:06:30.640 the spread of a virus, and so somehow they're going 0:06:30.680 --> 0:06:33.320 to have to work out a solution to that, and 0:06:33.360 --> 0:06:36.120 that I think is one of many small items that 0:06:36.800 --> 0:06:39.839 we don't always think about. John Butler, thank you so much. 0:06:39.920 --> 0:06:43.120 Always illuminating. John Butler, Senior Telecom Services and Equipment Analyst 0:06:43.200 --> 0:06:58.200 for Bloomberg Intelligence, joining us here in our interactive broker studios. Well, 0:06:58.200 --> 0:07:00.680 it's great, Jared said, you just can't keep a good 0:07:00.720 --> 0:07:04.359 market down. We have the it's up a hundred and 0:07:04.360 --> 0:07:06.600 twelve points, and it's you know, it's kind of shrugging 0:07:06.600 --> 0:07:09.440 off the coronavirus. It appears, uh to help us get 0:07:09.440 --> 0:07:11.160 a sense of what is going on at their Scott 0:07:11.200 --> 0:07:15.320 Clemen's Chief Investment Strategies for Brown Brothers Harriman uh based 0:07:15.320 --> 0:07:18.040 in Pittsburgh and actually in here in Bloomberg Inactor Broker Studio. 0:07:18.160 --> 0:07:20.280 You're based in New York though York. Yeah, that's right, Yeah, 0:07:20.320 --> 0:07:23.280 absolutely so, Scott, thanks for being on our studio again. 0:07:23.400 --> 0:07:25.680 You know, at least night, earlier in the morning, we 0:07:25.680 --> 0:07:27.960 were looking at commodities, and commodities are all down, the 0:07:28.040 --> 0:07:32.760 medals are down and kind of reflecting presumably uncertain global 0:07:32.800 --> 0:07:37.280 GDP growth exacerbated by the concerns of the coronavirus. No 0:07:37.480 --> 0:07:40.080 such issue really with the equity markets. What do you 0:07:40.120 --> 0:07:42.520 make of that? At the risk of dating myself, I'm 0:07:42.560 --> 0:07:44.920 I've referred to this as the time x market. Remember 0:07:44.920 --> 0:07:47.400 those old commercials that takes a licking and keeps on ticking. 0:07:47.600 --> 0:07:49.960 Think about what this market has been confronted by just 0:07:50.000 --> 0:07:53.280 in the past couple of months, between escalation of tensions 0:07:53.280 --> 0:07:55.240 in the Middle East around your end, of course, the 0:07:55.280 --> 0:07:58.760 presidential impeachment and trial, and now the coronavirus. I think 0:07:58.760 --> 0:08:01.200 that investors are looking through all of this noise to 0:08:01.240 --> 0:08:05.800 the underlying fundamental driver that is personal consumption. Sixty eight 0:08:06.160 --> 0:08:08.800 of GDP is personal spending. As long as the labor 0:08:08.800 --> 0:08:11.360 market is healthy, as long as the housing market is healthy, 0:08:11.400 --> 0:08:14.400 that engine of economic activity and therefore earnings and therefore 0:08:14.440 --> 0:08:16.760 the market is okay. I thought you were gonna say, 0:08:16.800 --> 0:08:19.760 they're all looking at the under underlying driver, which is 0:08:19.920 --> 0:08:22.480 the Federal Reserve helps, doesn't it? Well? I mean, but 0:08:22.640 --> 0:08:24.760 how much is that? That sort of what's driving that? Well, 0:08:24.760 --> 0:08:27.080 it's meaningful. I think of that as an insurance policy 0:08:27.120 --> 0:08:30.680 of sorts. Not only the feds willingness to lower interest 0:08:30.800 --> 0:08:33.400 rates last year and send the signal that they intend 0:08:33.440 --> 0:08:35.960 to keep them so this year, but the balance sheet 0:08:36.000 --> 0:08:39.200 operations as well. So you've got a fundamental backdrop of 0:08:39.200 --> 0:08:43.000 a decent economic environment, not great, but durable, stable economic 0:08:43.080 --> 0:08:46.320 environment with the insurance policy of easy monetary policy. That's 0:08:46.320 --> 0:08:50.080 a pretty powerful combination. Alright. So again, we've, you know, 0:08:50.200 --> 0:08:53.520 had such a great twenty nineteen, uh, even with some headwinds, 0:08:54.200 --> 0:08:58.520 twenties a pretty solid start as well. What sectors should 0:08:58.520 --> 0:09:01.240 we be looking at here, given that we're eleven years 0:09:01.320 --> 0:09:04.040 or so into this economic cycle? Is it defensive? Do 0:09:04.200 --> 0:09:05.959 I go back out on the risk curve? What am 0:09:05.960 --> 0:09:09.040 I do? On the equity side? We like those equity 0:09:09.080 --> 0:09:13.400 sectors in plays that depend on this underlying fundamental strength 0:09:13.520 --> 0:09:17.800 in in the consumer, so consumer discretionary consumer staples. They're 0:09:17.840 --> 0:09:19.560 sort of old fashioned what we used to call the 0:09:19.559 --> 0:09:22.680 blue chips. They pay dividends. They're not terribly exciting or sexy. 0:09:22.720 --> 0:09:25.440 They're not Tesla going up and down ten or fiftent 0:09:25.480 --> 0:09:28.280 a day. But for investors who are interested in preservation 0:09:28.320 --> 0:09:31.360 of wealth and long term accumulation of wealth, potentially with 0:09:31.480 --> 0:09:34.760 some income needs on the side that healthy dividend yields 0:09:34.840 --> 0:09:37.200 can meet, that's the sectors of the market where we 0:09:37.240 --> 0:09:39.400 find the best value in the best long term place. 0:09:39.800 --> 0:09:41.680 What about the Russell tooth Hausand I'm gonna throw this 0:09:41.720 --> 0:09:44.240 at you because I harp on this every same day 0:09:44.360 --> 0:09:47.439 I'm looking at it. It's the small cap small MidCap 0:09:47.520 --> 0:09:50.480 shares that have underperformed down on the year, even as 0:09:50.520 --> 0:09:52.880 you see new records on the sp and as yet, 0:09:53.000 --> 0:09:54.760 and that's not a new thing. If you look at 0:09:54.760 --> 0:09:57.840 the performance of large cap versus small cap domestic stocks 0:09:57.840 --> 0:10:00.520 going about three years, five years, seven years, end years, 0:10:00.600 --> 0:10:03.840 even the large caps have outpaced the small and medium 0:10:03.840 --> 0:10:07.319 caps and and it surprises me. But what's the message 0:10:07.440 --> 0:10:09.960 you Well, you would think in an environment in which 0:10:09.960 --> 0:10:14.120 there are concerns about global trade well predating the coronavirus outbreak. 0:10:14.120 --> 0:10:16.319 I mean, think of just the ongoing China U S 0:10:16.360 --> 0:10:20.120 trade dispute. Domestic companies ought to be doing better than 0:10:20.200 --> 0:10:23.680 than than companies with a big multinational exposure. So we 0:10:23.679 --> 0:10:26.560 we have in our portfolios actually dialed up that smaller 0:10:26.600 --> 0:10:29.880 MidCap exposure. We've also dialed up the non dollar exposure 0:10:29.920 --> 0:10:33.679 as well, because non dollar assets, both emerging and international, 0:10:33.760 --> 0:10:37.000 have vastly lagged the good old fashioned SNP five. So 0:10:37.040 --> 0:10:39.839 we think increasingly that's where the value plays are. That's 0:10:39.840 --> 0:10:41.960 not a barish call on the markets. It's just an 0:10:42.000 --> 0:10:44.760 observation of where the bigger opportunities live. I'm glad you 0:10:44.800 --> 0:10:47.200 mentioned emerging markets because we've been talking about that as 0:10:47.240 --> 0:10:49.040 well this morning, and I'm looking to bring up the 0:10:49.080 --> 0:10:51.679 five year chart of the MSCI Emerging Markets Index versus 0:10:52.000 --> 0:10:55.920 the SMP five and clear underperformance and then underperformance even 0:10:56.120 --> 0:11:02.000 widened out a little bit in what's the catalyst for 0:11:02.280 --> 0:11:05.360 Can an emerging markets call work in a world where 0:11:05.360 --> 0:11:09.040 we have trade tensions phase one, deal or notwithstanding, and 0:11:09.120 --> 0:11:11.280 you know, maybe some kind of threat the global growth 0:11:11.320 --> 0:11:14.800 from this exogenous factor I called the coronavirus it's it's hard, Paul, 0:11:14.840 --> 0:11:19.080 because those are substantial obstacles to sentiment at least. But 0:11:19.120 --> 0:11:21.200 if you look back even and and I don't have 0:11:21.240 --> 0:11:22.760 it in front of me, but in a mind's eye, 0:11:22.760 --> 0:11:26.400 over a ten year trailing period, the SP five large 0:11:26.400 --> 0:11:29.360 cap us is outpaced emerging markets in dollars like for 0:11:29.400 --> 0:11:33.800 like comparison by a thousand basis points annualized. That's an 0:11:33.800 --> 0:11:38.360 extraordinary rate of performance differential. It doesn't necessarily mean their 0:11:38.440 --> 0:11:41.440 valuation opportunities in the emerging world, but it's strongly hints 0:11:41.480 --> 0:11:43.880 at it. The problem, of course, with a value based 0:11:43.960 --> 0:11:46.280 investing approaches. As good as it is, and it's what 0:11:46.320 --> 0:11:48.199 we do, it's our bread and butter, it's a horrible 0:11:48.240 --> 0:11:51.200 timing tool because cheap things can get cheaper, and that's 0:11:51.240 --> 0:11:54.200 been the story and emerging markets. But the valuation gap 0:11:54.240 --> 0:11:56.960 between the developed world and the emerging world is wider 0:11:57.000 --> 0:12:00.240 than it's been since the summer of and you have 0:12:00.280 --> 0:12:02.640 to cast your memory back. But that was the sort 0:12:02.679 --> 0:12:04.679 of getting close to the peak of the dot com 0:12:04.720 --> 0:12:07.319 bubble here in the States, but rolling crises throughout the 0:12:07.400 --> 0:12:09.959 rest of the world. Venezuelan debt crisis. Tai Bak crisis, 0:12:10.160 --> 0:12:13.439 Russian debt pretty hard, horrible time for emerging echoties. We're 0:12:13.480 --> 0:12:16.320 back to that level of gap between valuations of the 0:12:16.320 --> 0:12:20.440 two markets. When does the coronavirus and more importantly, the 0:12:20.520 --> 0:12:24.840 ripple effects from it economically becomes something more than noise 0:12:25.000 --> 0:12:28.720 and potentially even change your thesis. It's a good question, 0:12:28.800 --> 0:12:32.240 and the difficulty with that is as unpredictable as the 0:12:32.320 --> 0:12:35.840 virus itself is. People's reaction to it is even more unpredictable. 0:12:35.880 --> 0:12:39.360 Institutional reaction to it is more unpredictable. So not to 0:12:39.480 --> 0:12:43.319 diminish the human tragedy of it, the decisions by various 0:12:43.360 --> 0:12:46.280 governments to quarantine whole cities, to shut down air roots, 0:12:46.280 --> 0:12:48.720 to shut down trade kind of the right thing to do. 0:12:48.800 --> 0:12:51.040 You want to limit the susceptible part of the population 0:12:51.080 --> 0:12:53.360 to the virus spread. But it will certainly punch a 0:12:53.360 --> 0:12:56.000 hole in first quarter GDP. I think we'll get an 0:12:56.040 --> 0:12:59.000 early indication of that from some Bell Weather companies. Mean 0:12:59.040 --> 0:13:02.400 listen to not only earnings report, but interim reports from 0:13:02.480 --> 0:13:06.960 fed X or UPS or inn Boeing on airport airplane orders, 0:13:07.000 --> 0:13:09.520 certainly airlines themselves. We won't get the GDP numbers to 0:13:09.640 --> 0:13:13.480 late April distant distant future from now. So we're listening 0:13:13.520 --> 0:13:17.680 to the anecdotal information coming out of companies. So far, 0:13:17.840 --> 0:13:19.560 we think it's sort of a tenth of a percent 0:13:19.640 --> 0:13:22.600 two tenths of a percent hit to GDP domestic GDP 0:13:22.840 --> 0:13:25.320 in the first quarter, but there's no question that if 0:13:25.320 --> 0:13:28.719 the response to it exacerbates as exacerbated, the hit could 0:13:28.760 --> 0:13:32.840 be bigger. It's an election year. Do we care historically 0:13:33.720 --> 0:13:37.680 as equity investors? Historically no, But there's nothing about this 0:13:37.760 --> 0:13:41.360 election that's historically normal. Um and and and part of 0:13:41.360 --> 0:13:44.319 the challenge, Paul, is that the Democratic field in particular 0:13:44.440 --> 0:13:47.840 is still so wide that we haven't really honed in 0:13:48.040 --> 0:13:51.680 on what genuine policy proposals might be. So I could 0:13:51.679 --> 0:13:55.319 certainly spend some time analyzing the most recent tax proposal 0:13:55.440 --> 0:13:58.040 or trade proposal from any number of Democratic camps, but 0:13:58.080 --> 0:14:01.040 at this point candidates are still lying for lanes. They're 0:14:01.040 --> 0:14:03.960 still throwing more ideas out than there are actual policies, 0:14:04.240 --> 0:14:05.880 so it's hard to tell. I think once we get 0:14:05.920 --> 0:14:09.520 past probably not until Super Tuesday, will that field begin 0:14:09.600 --> 0:14:12.040 to narrow to a point where we can actually analyze 0:14:12.080 --> 0:14:15.400 what the likely implications are of a smaller handful of 0:14:15.400 --> 0:14:18.840 potential democratic outcomes. There's no question in my mind, though, 0:14:18.840 --> 0:14:22.240 that political developments this year could be the cause, or 0:14:22.240 --> 0:14:25.000 at least the blame for a market correction the likes 0:14:25.000 --> 0:14:26.920 of which we haven't seen since August of last year. 0:14:26.960 --> 0:14:29.280 We'll sort of overdo one the blame for it. I 0:14:29.320 --> 0:14:32.040 like the way you catch that. Scott Clemens, Uh, well 0:14:32.120 --> 0:14:35.760 well crafted. Scott Clement's chief investment strategist at Brown Brothers Harriman, 0:14:36.160 --> 0:14:39.200 overseeing about forty billion dollars, and he joins us here 0:14:39.280 --> 0:14:53.480 in our interactive progress studios. One of the fallouts are 0:14:53.600 --> 0:14:56.720 from the Senate acquittal of President Trump. As President Trump 0:14:56.760 --> 0:15:00.480 has kind of, you know, seeking retribution on on those 0:15:00.520 --> 0:15:04.360 that he feels were against him during the impeachment process. 0:15:04.360 --> 0:15:08.200 We saw, uh on Friday, um, you know, two days 0:15:08.480 --> 0:15:11.160 after being acquitted, Gordon Sunlin and announced that he had 0:15:11.200 --> 0:15:13.960 been at outside as the US ambassador of the European Union. 0:15:14.360 --> 0:15:17.480 Army Lieutenant Colonel Vidmann from the National Security Council also 0:15:17.640 --> 0:15:20.040 let go. So lots of issues going on here as 0:15:20.080 --> 0:15:23.920 it relates to kind of the fallout from the impeachment process. 0:15:24.000 --> 0:15:27.119 To get some color, we welcome Clint Watts Clints, Distinguished 0:15:27.200 --> 0:15:29.960 Research fell for the Farm Policy Research Institute, is also 0:15:30.000 --> 0:15:32.360 a Senior Fellow at the Center for Cyber and Homeland 0:15:32.400 --> 0:15:35.920 Security George Washington University. Clint, so lots going on here. 0:15:36.000 --> 0:15:38.080 We also had some New York being part of a 0:15:38.120 --> 0:15:41.880 global entry program being revoked by the president. So the 0:15:42.000 --> 0:15:45.560 question is how much does all of this impact kind 0:15:45.600 --> 0:15:49.560 of our national security, our security apparatus. What are some 0:15:49.600 --> 0:15:52.920 of the fallouts do you think if any? I think 0:15:52.960 --> 0:15:57.000 the big thing is that people will become reflexive and withhold, 0:15:57.680 --> 0:16:00.720 Meaning if I were in government right now, I think 0:16:00.760 --> 0:16:04.400 you'd always try and engauge, Uh, do you deliver the 0:16:04.480 --> 0:16:06.600 president something he doesn't want to hear? And what are 0:16:06.640 --> 0:16:09.680 the consequences of that? And I think it's pretty consistent 0:16:09.960 --> 0:16:13.360 over the president's term here that you see him being 0:16:13.680 --> 0:16:17.200 retaliatory if he doesn't necessarily get what he wants or 0:16:17.240 --> 0:16:20.880 here already wants. And he also sees the US government 0:16:20.920 --> 0:16:25.600 officials longtime public servants as loyalists or not loyalists, which 0:16:25.600 --> 0:16:27.480 means you have to pick a side, and so that 0:16:27.560 --> 0:16:31.000 can be troubling both in terms of executing national security 0:16:31.040 --> 0:16:34.720 and formed policy. For sure, I thought Gordon silence testimony 0:16:34.880 --> 0:16:38.640 was quite remarkable when when he went to UH Congress, 0:16:38.720 --> 0:16:41.280 because he basically said everybody was in on this and 0:16:41.760 --> 0:16:43.360 I was in on it. I thought it was fine, 0:16:43.920 --> 0:16:46.320 and this is what actually happened. And so when you 0:16:46.400 --> 0:16:48.440 look at kind of how this is played out now, 0:16:49.080 --> 0:16:51.360 UH over the last couple of months, now he suddenly 0:16:51.840 --> 0:16:55.000 on the on the stick end instead of the carrot. 0:16:55.120 --> 0:16:57.960 So I think it can be troublesome over time. It's 0:16:58.040 --> 0:17:00.440 very hard to run a government that way. There's a 0:17:00.560 --> 0:17:03.920 question about the morale among national security professionals. Then there's 0:17:03.920 --> 0:17:06.800 a question about national security itself with some of the measures, 0:17:06.880 --> 0:17:10.240 and when we talk about the Global Entry issues, basically 0:17:10.520 --> 0:17:14.280 President Trump proposing to bar New Yorkers from enrolling in 0:17:14.359 --> 0:17:17.560 it or or applying for it newly, there's a question 0:17:17.840 --> 0:17:21.600 of how much of a national security threat our programs 0:17:21.760 --> 0:17:26.480 like Global Reentry and things where people have expedited access 0:17:26.600 --> 0:17:30.600 through through security lines. I mean, is there some true 0:17:30.680 --> 0:17:34.640 threat that has emerged as a result of them. Yeah, 0:17:34.680 --> 0:17:36.880 I don't think there's been a true threat. I think 0:17:37.280 --> 0:17:39.159 you know, by and large, what you find is that 0:17:39.240 --> 0:17:42.000 if you give more data the data and information the government, 0:17:42.080 --> 0:17:45.680 you give up more privacy of your information. Then you 0:17:45.760 --> 0:17:49.960 can get accelerated through these processes. I think what's interesting 0:17:50.000 --> 0:17:52.280 about it is is a really place of the access 0:17:52.320 --> 0:17:55.280 to the wealthy, meaning that if you have money, you 0:17:55.359 --> 0:17:57.840 can buy these things. It's not a cheap service. I 0:17:57.920 --> 0:18:00.159 think it's a couple hundred dollars that you have to do. 0:18:00.280 --> 0:18:02.960 You have to spend additional time to go after the 0:18:02.960 --> 0:18:05.879 airport and gets screen and so if you're someone of 0:18:05.920 --> 0:18:07.760 lower means, you're obviously not going to be able to 0:18:07.800 --> 0:18:11.440 do that. Um, So it's kind of an access program. 0:18:12.040 --> 0:18:14.919 It does beg the question though, of like who uh 0:18:15.240 --> 0:18:17.600 can get that access and you know, what are the 0:18:17.680 --> 0:18:21.320 requirements for it? Or does it give people extra value 0:18:21.520 --> 0:18:24.560 like if your foreign adversary, can you work your way 0:18:24.640 --> 0:18:28.440 into those systems. It's unlikely, it's probably a low probability event, 0:18:28.640 --> 0:18:31.360 but it just shows that there's not a universal acceptance 0:18:31.359 --> 0:18:34.680 of what security is, that there are different standards for 0:18:34.760 --> 0:18:37.560 different kinds of people. So Clint, as it relates to 0:18:38.040 --> 0:18:40.879 some of these whistleblowers and the retribution, I'm thinking about 0:18:40.920 --> 0:18:45.359 the again the Army Lieutenant Colonel Alexander Vinman being pushed 0:18:45.359 --> 0:18:49.480 out of his position, is that is that in the prerogative. 0:18:49.640 --> 0:18:52.080 To what extent is that in the prerogative of President Trump? 0:18:52.119 --> 0:18:54.720 How common is that type of thing or is this 0:18:54.840 --> 0:18:57.480 kind of out of the bounds it is in the 0:18:57.520 --> 0:19:01.000 prerogative of the president to do that. It's just quite uncommon. 0:19:01.480 --> 0:19:02.800 You know. I just saw a report I think a 0:19:02.880 --> 0:19:06.280 couple of hours ago that Ben Man was already asking 0:19:06.480 --> 0:19:08.560 or you know, sort of requesting to be moved from 0:19:08.640 --> 0:19:12.040 his position when his natural time was to come through. 0:19:12.160 --> 0:19:14.639 Usually these are one, two or three year assignments, you know, 0:19:14.760 --> 0:19:17.040 for the military folks to go over to the White 0:19:17.080 --> 0:19:20.080 House on these details. And but why not let that 0:19:20.200 --> 0:19:22.240 just naturally come to pass? Why do you have to 0:19:22.320 --> 0:19:25.679 force the issue? Um, I don't see anything Vinman did 0:19:25.760 --> 0:19:28.040 as being out of line. He was asked to go 0:19:28.160 --> 0:19:31.960 testify the Congress, which has oversight function. He did when 0:19:32.040 --> 0:19:34.520 he had concerns inside the government. He went through an 0:19:34.560 --> 0:19:40.000 approved and uh not a wide open public process. So 0:19:40.720 --> 0:19:43.359 that sort of begs the question, what do we expect 0:19:43.440 --> 0:19:46.680 these people in the government to do when called to Congress? 0:19:46.760 --> 0:19:50.159 And it really also shows just how weak, uh, the 0:19:50.320 --> 0:19:53.640 legislative branch and oversight of Congress has become in comparison 0:19:53.680 --> 0:19:57.080 to the executive branch. President Trump has pushed the limits 0:19:57.119 --> 0:20:00.520 on all of these things, and it so just begs 0:20:00.560 --> 0:20:03.040 the question, why do this if he might have cycled 0:20:03.080 --> 0:20:07.000 out in the next few weeks or months, why go 0:20:07.359 --> 0:20:09.159 this extra step and really pushing him out of the 0:20:09.240 --> 0:20:12.720 White House, other than to make a public spectacle of it. Yeah, clean, 0:20:12.960 --> 0:20:15.560 I do want to just h if I were Tom Keane, 0:20:15.640 --> 0:20:18.480 rip up the script um just a little bit, because 0:20:18.520 --> 0:20:20.920 I know your most recent book, Messing with the Enemy, 0:20:20.960 --> 0:20:24.120 Surviving in a social media world of hackers, terrorists, Russians 0:20:24.160 --> 0:20:27.520 and fake news that while all of this uh political 0:20:28.680 --> 0:20:32.080 drama is going on. We got the announcement from Attorney 0:20:32.119 --> 0:20:36.200 General Bill bar today about the Equifax Equifax hack back 0:20:36.280 --> 0:20:39.560 in two thousand and seventeen, basically charging China's People's Liberation 0:20:39.720 --> 0:20:43.520 Army for hacking into Equifax and stealing the information of 0:20:44.320 --> 0:20:47.760 millions and millions of customers. I'm wondering, do you feel, 0:20:47.880 --> 0:20:50.720 on the balance, like we've gotten safer or less safe 0:20:50.760 --> 0:20:53.280 when it comes to our ability to counter and detect 0:20:53.400 --> 0:20:56.560 some of these potential hacks. I think we've gotten a 0:20:56.640 --> 0:20:58.919 lot better. What I would point out, I was thrilled 0:20:58.960 --> 0:21:01.480 at the Justice Department did that today. What I point 0:21:01.520 --> 0:21:04.520 out though, is that actually occurred in two thousand and seventeen. 0:21:04.760 --> 0:21:07.879 So there's some some things to think about. One, what 0:21:08.160 --> 0:21:11.240 China was doing and has done and continues to do, 0:21:11.359 --> 0:21:14.040 is build up big data from around the world, and 0:21:15.040 --> 0:21:18.240 big data powers artificial intelligence. It is the fuel for 0:21:18.320 --> 0:21:20.240 that machine. The more data you have, the more you 0:21:20.280 --> 0:21:21.760 can learn, The more you can learn, the more you 0:21:21.800 --> 0:21:24.440 can power your economy. And this comes out of time. 0:21:24.440 --> 0:21:26.320 We're here in the United States, we're talking about data 0:21:26.400 --> 0:21:28.920 privacy and beating kind of beating up on big tech 0:21:29.000 --> 0:21:32.159 in our own country. China is running wild in the space, 0:21:32.320 --> 0:21:34.359 and so they have fuel from their own country and 0:21:34.520 --> 0:21:37.080 from the West now. And so when we look at 0:21:37.119 --> 0:21:39.840 how we retaliate on this, we're talking about four hackers. 0:21:39.960 --> 0:21:42.359 I think that they came out in the indictment. They 0:21:42.520 --> 0:21:45.600 probably hacked thousands more times in the last two years 0:21:45.640 --> 0:21:48.080 to and half years since that happened, And it really 0:21:48.119 --> 0:21:50.679 shows how long it takes to do one of these 0:21:50.720 --> 0:21:54.880