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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. China

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Speaker 1: and the US have been engaged in a trade skirmish

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Speaker 1: for quite a while now, although there is a sign

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Speaker 1: that perhaps these tensions are easing. Joining us now as

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Speaker 1: Bill Rhodes, President and chief executive officer of William R.

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Speaker 1: Rhodes Global Advisors, author of Banker to the World, Leadership

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Speaker 1: Lessons from the front Lines of Global Finance, helped broker

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Speaker 1: some of the biggest deals both at a sovereign and

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Speaker 1: corporate level, over the past decades in which he's been active.

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Speaker 1: He's shoining us here in our interactive Broker Studios. So, Bill,

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Speaker 1: you just got back from China. Do you get the

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Speaker 1: feeling that there is a thawing in the tensions between

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Speaker 1: the US and China from the Chinese perspective? Well, first

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Speaker 1: of all, at least I want to thank you and

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Speaker 1: Tim for inviting me. Is my favorite program, So anyway,

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Speaker 1: it was. It was a very interesting week I spent there,

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Speaker 1: and particularly with the trade tensions. UH. There's no doubt

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Speaker 1: that China wants to come to an agreement because the

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Speaker 1: Chinese economy is slowing down. They have this mountain of

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Speaker 1: debt of over three percent of gross of GDP gross

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Speaker 1: national product, and they have a lot of stresses there

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Speaker 1: on manufacturing is down and sold. No matter what they

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Speaker 1: say in the sense of tough talk, they want to

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Speaker 1: do a deal. It's not going to be in ninety days.

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Speaker 1: But I think we'll see some progress. We already saw

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Speaker 1: the oobile tariffs UH, and I think we're going to

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Speaker 1: see other things going forward. But it's not gonna be

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Speaker 1: solved overnight. The basic problem between the United States and

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Speaker 1: China will not be trade going forward, because I think

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Speaker 1: something can be worked out. I think it's going to

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Speaker 1: be intellectual property. That's going to be a tough one.

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Speaker 1: And I've said this on on your program before. As

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Speaker 1: far as the Chinese economy is going itself, they'll make

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Speaker 1: their six and a half projection for this year, but

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Speaker 1: next year is going to be a tough year. For

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Speaker 1: them because they need to continue financial reform, which means

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Speaker 1: reigning in the bank's bad loans. Uh. You know, the

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Speaker 1: municipality bad loans and the provinces bad loans, and they

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Speaker 1: have to shut down some of these small regional banks

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Speaker 1: in northeast China, which basically a zombie institution. So there's

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Speaker 1: gonna be a lot of pressure on the Chinese economy

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Speaker 1: next year. Uh. They hope they can get six percent,

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Speaker 1: but it could fall below six for the first time ever.

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Speaker 1: Bill Rhodes, you have negotiated during your career with dictators

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Speaker 1: strong men, as well as corporate executives and government officials

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Speaker 1: and central bank regulators. Who are the key people in

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Speaker 1: China right now? Well, obviously, uh, you start off with

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Speaker 1: the president and leader uh Shi Jinping. His vice president

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Speaker 1: is very strong because he is an expert on economics

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Speaker 1: one Shi Shan. He's also was a trouble shooter for

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Speaker 1: previous governments. He's the one who cleaned up stars in Beijing.

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Speaker 1: He's the one who cleaned up the problems in Guangdong Province.

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Speaker 1: He's a disciple mentory of of Joranji, the great Premier

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Speaker 1: of China, who cleaned up their Economy and got him

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Speaker 1: into the w t OH. But also the head of

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Speaker 1: the People's Bank of China is very important. We have

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Speaker 1: a technician in there, and I was privileged enough to

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Speaker 1: to spend an hour and a half alone with him

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Speaker 1: at lunch. Ye Gang his name is. He actually taught

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Speaker 1: at the University Indiana for uh eight years, so his

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Speaker 1: English is as good as ours. And the previous Governor

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Speaker 1: of the People's Bank of China, Joshiah Schwan, who's a

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Speaker 1: leading reformer who's still although he does not have the

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Speaker 1: official position in the People's Bank of China, he has

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Speaker 1: the title uh, you know, President emeritus there and he's

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Speaker 1: advising UH both the President Si Jinping and uh Want

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Speaker 1: Hi Sean. And then there's one other person who has

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Speaker 1: the title Vice Premier of the Economy, and that's uh

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Speaker 1: someone named who's new that in the sense that we

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Speaker 1: didn't see him before, and that's his name is Lee Who,

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Speaker 1: And he's the one who's talking with Manuchin on the telephone.

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Speaker 1: The big problem among others that the Chinese have with us,

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Speaker 1: they don't know who's on first, second, and third in negotiation.

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Speaker 1: It's like tinkers to have is a chance one in

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Speaker 1: his lightheiser the next minutes in Manuchin. Uh, they're confused, well,

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Speaker 1: they're they're confused about who's on first. But also, you know,

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Speaker 1: sort of the distinction between the trade tensions and intellectual

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Speaker 1: property is confusing to me because I don't totally understand

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Speaker 1: how intertwined those are. Well, I think for the United

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Speaker 1: States is very important because the Chinese announced their program

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Speaker 1: of two thousand twenty five, which was their goal to

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Speaker 1: be the leading UH innovators in technology in the world,

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Speaker 1: and of course that gets into five G and all

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Speaker 1: of these things, and the United States Silicon Valley forever,

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Speaker 1: we've been the leaders in technology, and so the feeling

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Speaker 1: is that there's a real challenge to us. Also, UH,

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Speaker 1: there's also a feeling here in the United States and

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Speaker 1: in Europe that the Chinese have gone out of their

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Speaker 1: way to gain technology through several different ways. One when

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Speaker 1: in American the European company wants to operates up in

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Speaker 1: China on a joint venture, they make them turn over

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Speaker 1: their intellectual property. The other thing is many people in

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Speaker 1: the US and Europe feel the Chinese have been stealing

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Speaker 1: technology from us. So this question of intellectual property is

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Speaker 1: going to be tougher to solve than the trade issue,

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Speaker 1: because let's say the economy slowing down in China, the

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Speaker 1: economy is slowing down here, and so I think it's

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Speaker 1: on both, you know, both governments. I think want to

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Speaker 1: come to a deal, all right, Bill Rhodes. He is

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Speaker 1: the author of Banker to the World Leadership Lessons from

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Speaker 1: the front Lines of Global Finance. Oil definitely having a

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Speaker 1: trickle down effect on broader markets over the past week

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Speaker 1: or so. Uh, the three days ended yesterday, it comprised

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Speaker 1: comprised the biggest drop in the in the oil index,

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Speaker 1: in the oil prices. Joining us now to understand what's

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Speaker 1: been driving the big moves we've been seeing there, John Kilduff,

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Speaker 1: founding partner of Again Capital. So John, let's just start there.

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Speaker 1: What is the main driver behind the declines that we've

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Speaker 1: seen in the price of crude? Well, a relative over

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Speaker 1: supply to the market, partly because sanctions that we're supposed

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Speaker 1: to go on Iran didn't really come to pass, and

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Speaker 1: so they're still producing, and Saudias and Russians rushed production

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Speaker 1: onto the market to make up for what was supposed

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Speaker 1: to be lost barrels. And then now the economic slowing

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Speaker 1: that we're seeing, particularly in China in Asia has weakened

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Speaker 1: the demand side of the equation. So it's sort of

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Speaker 1: been a one to punch here. Uh for the oil

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Speaker 1: commodity John, who are the sellers and are they forced sellers? Well,

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Speaker 1: I'll tell you him. A big speculative long position did

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Speaker 1: get built up into this market, um, right around the

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Speaker 1: highs in October there when we were up around over

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Speaker 1: seventy dollars a barrel for w t I based upon

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Speaker 1: the CFTC data that we get to see every Friday. Uh,

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Speaker 1: they've been washed out. And yes, there's been rumors of

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Speaker 1: forced hedge fund liquidation UM and and a growing a

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Speaker 1: barrish fishooning in this market, and that there's a net

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Speaker 1: short sellers in here now too. So sentiment has really

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Speaker 1: turned quite negative at this point, UM, and it remains so.

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Speaker 1: One thing that I'm struggling with is Saudi Arabia just

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Speaker 1: came out with their budget for next year, and I'm

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Speaker 1: struggling with the idea that they are assuming eighty dollars

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Speaker 1: a barrel for the price of crew next year in

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Speaker 1: order to make their budget work, and they would need

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Speaker 1: a price upwards of ninety dollars a barrel in order

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Speaker 1: to balance their budget. Does that concern you, um? If anything,

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Speaker 1: it's um. You know. It shows me that they have

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Speaker 1: a real incentive to follow through on the the old

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Speaker 1: peck Russia, a chord that was struck a couple of

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Speaker 1: weeks ago. I think they're feeling a little flushed with

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Speaker 1: success because of what they they were able to achieve

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Speaker 1: in the aftermath of the November deal. This whole thing

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Speaker 1: just fell apart over the summer again because of the

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Speaker 1: real almost trick that was put on the market with

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Speaker 1: the Iran sanctions. So I guess they believe they can

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Speaker 1: do it again. I also think they have barring capacity,

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Speaker 1: so they're not going to worry about it. But they

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Speaker 1: also have home fires to tamp down. Here is there's

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Speaker 1: some unrest in the kingdom. No better way to play

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Speaker 1: kate that than to uh, you know, give away some money,

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Speaker 1: which is which is what this budget does in a big,

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Speaker 1: big way, lots of extra money to government workers and

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Speaker 1: others that should help keep the you know, waters calm

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Speaker 1: or calm there as as we move forward here almost

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Speaker 1: on que by the way, the facility. The Saudi Oil

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Speaker 1: Minister this morning was all over the wires trying to

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Speaker 1: talk up the price, committing to a big cutback and

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Speaker 1: extending this deal next April when they all meet again. So, Um,

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Speaker 1: they're trying to do everything they can to support this price,

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Speaker 1: for sure, John speak if you can about us shail producers,

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Speaker 1: At what price do share producers stop making money? You're

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Speaker 1: getting into that zone now, Pam. You know, particularly when

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Speaker 1: you've sort of had an all the cost not just

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Speaker 1: the pure stage drilling and extraction methodologies. It's gonna start

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Speaker 1: to get tough for them right now. But they have

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Speaker 1: been successful, many of them, particularly in the in the

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Speaker 1: Permian basin, where they've driven break even course down two

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Speaker 1: round thirty five to forty dollars a barrel. Now, some

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Speaker 1: of those numbers are all over the place, so they're

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Speaker 1: gonna try to hang in there. Um. And I know

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Speaker 1: there's a lot of concern too about the indebtedness of

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Speaker 1: the group. I'll tell you when the last generation of

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Speaker 1: this price is crashing back in two era. Um, what

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Speaker 1: the banks basically did was extend the loans, recapitalized the loans,

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Speaker 1: and repackaged a loans. So I'm not as worried about

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Speaker 1: the group falling apart this time, unless we were to

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Speaker 1: get another sort of extended sell off down into the

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Speaker 1: same mid to low thirties. But it's hard to see

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Speaker 1: that happening. John. Every time you've been on, you've been

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Speaker 1: incredibly accurate, and I've been impressed by some of your forecasts.

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Speaker 1: So what's your sense of where oil heads. I don't

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Speaker 1: know throughout next year, it's at the say it's it's

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Speaker 1: a tough call right now. I've been trying to shake

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Speaker 1: up the magic eight ball vigorously um these days. But

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Speaker 1: uh my, my inclination is too as the guys in

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Speaker 1: the bun or guys and gals in the bond markets say,

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Speaker 1: don't fight the Fed, I'm inclined not to bite Saudi Arabia.

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Speaker 1: So if they do come through with the extensive cuts

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Speaker 1: that they're talking about, prices should head back higher. And

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Speaker 1: because also because sentiment has just gotten so negative in

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Speaker 1: this market that there's a tendency to overshoot here in

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Speaker 1: commodities especially, and we should swing back. So I would

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Speaker 1: expect this to be back into the you know, at

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Speaker 1: least low sixties, say by by midyear next year. All right,

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Speaker 1: Thanks very much, John Kilduff, founding partner again Capital speaking

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Speaker 1: about the world of oil. The topic now is the

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Speaker 1: housing market. Sales are previously owned US homes rose for

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Speaker 1: a second consecutive month and exceeded forecasts in November. It

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Speaker 1: suggests that consumer demand is picking up as price gains moderate.

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Speaker 1: Here to tell us more, Darryl Fairweather, chief economist for

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Speaker 1: Redfinn Corp. Joining us from Seattle. Darryl, thank you very

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Speaker 1: much for being with us. Do you believe that the

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Speaker 1: sales of previously owned US homes that this rise will continue?

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Speaker 1: The market right now is much different than it was

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Speaker 1: earlier this year. Earlier this year we had really fast

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Speaker 1: price growth, especially in coastal markets like San Francisco and Seattle.

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Speaker 1: Prices were growing in the double digits every year, and

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Speaker 1: that has moderated since earlier this year. Now price growth

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Speaker 1: is more around four percent. And it's actually taken a

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Speaker 1: while for sellers to get the news that buyer demand

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Speaker 1: isn't what it used to be, so we've seen fewer

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Speaker 1: bidding wars, more price drops. But I think finally sellers

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Speaker 1: and that's why we've seen sales pick up this month.

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Speaker 1: So Daryl, do you can you just give us a

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Speaker 1: sense of why there has been a slowdown in the

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Speaker 1: US housing market. Is it an interest rate story, is

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Speaker 1: it just a demand story, or is it a supply story.

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Speaker 1: I think the story here is affordability. So prices were growing,

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Speaker 1: and they were growing very quickly, and recently interest rates

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Speaker 1: one up at the same time, and buyers has finally

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Speaker 1: had enough. They couldn't keep raising their prices and keep

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Speaker 1: paying these high prices getting the same homes. So we've

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Speaker 1: seen buyers back off, and as a result, sellers are

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Speaker 1: starting to drop their prices and meet buyers at their

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Speaker 1: at their price reservation. Do you expect mortgage rates to

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Speaker 1: continue to decline? It's interesting. So mortgage rates follow both

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Speaker 1: supply and demands. So on the supply side, the cost

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Speaker 1: of borrowing is higher, and if the FED rates interest

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Speaker 1: rate rates today, the cost of borrowing will continue to

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Speaker 1: rise for the people who are supplying these mortgages. But

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Speaker 1: at the same time, we've seen mortgage rate demand fall

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Speaker 1: because people are buying fewer homes now than they were

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Speaker 1: last year. It'll be interesting to see which of these

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Speaker 1: forces uh end up dominating. So we could see and

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Speaker 1: a rise in interest rates and on mortgage interest rates.

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Speaker 1: But it buyers back off, then maybe that will be mitigated.

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Speaker 1: So which areas of the market do you think are

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Speaker 1: still poised for significant price increases? I mean are their

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Speaker 1: regions or their sectors of the housing market that still

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Speaker 1: have upside that are significant. Yeah, so places like Nashville, UM, Atlanta, Austin,

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Speaker 1: some of these inland markets. That's where we'll see more

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Speaker 1: buyer demand grow. And that's because people are moving towards

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Speaker 1: more affordable places. We have this migration data redfin where

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Speaker 1: we can see where people are searching for homes based

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Speaker 1: on their IP address, and we see increasing number of

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Speaker 1: people searching for homes and are affordable places, especially in

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Speaker 1: really expensive places like San Francisco or Seattle or Washington,

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Speaker 1: d C. They're looking to move inland. What do you

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Speaker 1: believe institutional owners of real estate will face in I

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Speaker 1: think that so there do you mean by institutional owners

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Speaker 1: companies or do you mean like a typical investor? No, no,

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Speaker 1: A companies. You know the institutional part of the market, right, right,

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Speaker 1: So we have redfind now and there are other institutional

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Speaker 1: owners um like open door and Delo has their own

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Speaker 1: institutional owners UM, they are going to have to change

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Speaker 1: their strategy. Buyers. Previously, they may have seen an offer

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Speaker 1: from an institutional owner and thought this was a really

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Speaker 1: good price. But institutional owners may have to lower their price,

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Speaker 1: and sellers may not want to accept those prices, thinking

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Speaker 1: that the market hasn't changed as much as these institutional

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Speaker 1: owners think the market has changed. So, Daryl, where do

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Speaker 1: you see prices declining the most regionally or in a

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Speaker 1: specific sector? So the places that really saw the most

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Speaker 1: price growth, we're going to see that price growth slow.

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Speaker 1: I don't think that price growth will necessarily go negative. UM,

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Speaker 1: but in places like Seattle and San Francisco, that price

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Speaker 1: growth is not going to be what it was earlier

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Speaker 1: this year or in We're going to see price growth slow.

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Speaker 1: But that's interesting to me. You don't see it actually

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Speaker 1: going negative. Well, So with that, a lot of people

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Speaker 1: actually UM prices have fallen from earlier this year. Some

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Speaker 1: of that is seasonality. The prices have dropped more than

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Speaker 1: just a seasonal effect in places like Seattle in San Francisco.

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Speaker 1: But come spring, prices maybe exactly where they were last spring,

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Speaker 1: maybe a little bit higher. Uh, there's a possibility that

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Speaker 1: may be lower than they were last spring. But I

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Speaker 1: think that's a small a small possibility. Since you're coming

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Speaker 1: to us from Seattle, can't avoid asking the question having

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Speaker 1: to do with Amazon dot Com and new headquarters. What

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Speaker 1: does this mean for those areas? We think prices might

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Speaker 1: go up, but what does it also mean for housing

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Speaker 1: prices in Seattle? Yes, so I actually used to work

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Speaker 1: for Amazon before I came to Redfin, and I had

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Speaker 1: co workers who were tracking where the h Q two

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Speaker 1: is going to go and thinking that they were going

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Speaker 1: to move back home. We're to be close to family

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Speaker 1: depending on where it went. I actually have one friend

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Speaker 1: who whose mom was calling her the day that they

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Speaker 1: announced in Washington, d C. Asking her if she was

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Speaker 1: going to move back home. So I think we'll see, um,

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Speaker 1: some Amazon workers in Seattle put their homes up for

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Speaker 1: sale to move to these new locations because there are

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Speaker 1: all these new jobs and the transfer is pretty easy.

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Speaker 1: In the actual places where the head cars are going home,

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Speaker 1: prices will be affected. Um. It will kind of depend

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Speaker 1: on the transportation that is around those areas. So in

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Speaker 1: a place like Crystal City that's slightly outside the study center,

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Speaker 1: we will probably see housing demand grow the most in

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Speaker 1: the suburbs that are far away from d C but

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Speaker 1: relatively close to Crystal City. So if your commute is

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Speaker 1: going from an hour commute to a half hour commute,

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Speaker 1: that's where we'll see demand go up. Darryl Fairweather, thank

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Speaker 1: you so much for being with us. Daryl Fairweather is

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Speaker 1: chief economist for Redfinn. Interesting to be getting more signs

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Speaker 1: of stability in the US housing market and a more

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Speaker 1: sanguine view of what's to come in the meantime. I

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Speaker 1: want to turn our attention to the information that big

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Speaker 1: tech reveals about its users to uh other companies and

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Speaker 1: profit from it. And joining us now is Mark Douglas,

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Speaker 1: chief executive of Steelhouse. Mark, thank you so much for

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Speaker 1: being with us. The New York Times put out a

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Speaker 1: story that was really eye opening of how Facebook collected

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Speaker 1: data from its users and shared them with other big

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Speaker 1: companies such as Amazon, profiting from it without necessarily disclosing this.

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Speaker 1: So what did you make of that article? Um, well,

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Speaker 1: it's not good, that's that's for sure. I think it's

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Speaker 1: clearly part of a pattern that Facebook's definition of personal

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Speaker 1: information and the common consumer, and certainly government, you know,

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Speaker 1: kind of your euro government, and now US government definition

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Speaker 1: of personal information are very different. And Facebook view that information,

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Speaker 1: like you just said, is something that could they could

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Speaker 1: sell and they could profit ford and they can provide

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Speaker 1: the partners, and you know, it's it's just not a

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Speaker 1: great pattern that they've established. And now is even more

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Speaker 1: is coming light with the story Mark Douglas, do you

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Speaker 1: believe this to be an intentional effort on the part

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Speaker 1: of Facebook to obscure what actually happened? Or is this

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Speaker 1: something that, as they describe many times, the technological wherewithal

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Speaker 1: in order to follow all this may not be available. Well,

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Speaker 1: I think essentially the this is based on the reporting

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Speaker 1: from the New York Times, this was intentional. This wasn't

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Speaker 1: a data breach, This was an accidental. Facebook provided information

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Speaker 1: to partners in order to benefit those partners businesses and

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Speaker 1: for Facebook to benefit ultimately. The reason they're doing it

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Speaker 1: is because they don't think there would be a backlash

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Speaker 1: from the users, and quite frankly, there hasn't been much

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Speaker 1: of a backlash from the users. Although Facebook usages down,

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Speaker 1: Instagram usages is continuing to expand rapidly, and at the

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Speaker 1: end of the day, you know, these stories come out

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Speaker 1: and people just keep using these platforms and and somewhat

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Speaker 1: yawned about them. And so as long as that's the

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Speaker 1: case Facebook, I think now it's such a spotlight on

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Speaker 1: them that they have to restrict those actions. But they

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Speaker 1: didn't have that spotlight when this was occurring, and so

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Speaker 1: so they had no incentive not to do it. You know.

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Speaker 1: But Mark, I mean to push back a little bit

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Speaker 1: exactly the point that you're making that users don't care.

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Speaker 1: That they're willing to go along with this contract of

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Speaker 1: getting free access to platforms that connect them with their

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Speaker 1: friends and give them access to news or in return

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Speaker 1: for giving up some of their privacy. So where does

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Speaker 1: the problem come in, Well, the problem comes in in

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Speaker 1: that the governments are not agreeing with the consumers using

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Speaker 1: the platforms, you know, the the EU, the European Union

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Speaker 1: clearly doesn't agree with all the laws they've been passing,

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Speaker 1: and the U s Government seems to be somewhere in

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Speaker 1: the middle. We have hearings, but then there's no legislation,

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Speaker 1: and so the and and again the reason that's probably

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Speaker 1: occurring is because the senators and congressmen are not are

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Speaker 1: not getting you know, kind of a huge consumer backlash

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Speaker 1: on this. And I think consumers. You know, they think

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Speaker 1: of this like, Okay, so my friend list was shared

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Speaker 1: with Spotify and I got better music Again what you

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Speaker 1: just said. They think it's a quid pro quo and um,

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Speaker 1: but think ultimately this church Facebook. I think the big,

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Speaker 1: big problem Facebook is going to have, it's going to

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Speaker 1: be I think it's going to be very hard for

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Speaker 1: them to make acquisitions. Um. Everything they do is going

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Speaker 1: to be scrutinized going forward. And I think this is

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Speaker 1: starting to put it over the top. This is a

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Speaker 1: just clear disclosure of information without the slosing it to

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Speaker 1: the consumers that that provided the information. Mark Douglas. This

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Speaker 1: comes at a time when the government has received investigations

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Speaker 1: and reports about the use of platforms such as Facebook, Twitter,

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Speaker 1: and Instagram, which is owned by Facebook, as part of

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Speaker 1: an effort on the part of the Russian Internet Research

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Speaker 1: Agency to manipulate what people see an access online. Is

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Speaker 1: that in any way connected based on the culture that

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Speaker 1: you know about Facebook, No, I don't think that's in

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Speaker 1: any way connected. At think that what that proves is

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Speaker 1: that Facebook's ultimate business as they are an advertising platform

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Speaker 1: to reach the consume. The two point two billion users

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Speaker 1: reaching Facebook, the over billion users using Instagram, over billion

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Speaker 1: users using What'sapp, and it's a very effective advertising platform.

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Speaker 1: And essentially the Russian government figured out that they could

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Speaker 1: you can sway elections. You can you cannot only use

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Speaker 1: it to sell clothes, you could use it to sell

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Speaker 1: presidents and they and they did that. I can't say

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Speaker 1: that the Russian government led to the current president's elections,

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Speaker 1: but clearly there was a lot of that spending going

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Speaker 1: on to to try and influence it. And so this

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Speaker 1: is the quandary that that we're in. The platforms are

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Speaker 1: very fun and useful Facebook, Instagram, they're super effective advertising platforms,

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Speaker 1: and there's not a lot of controls on either one

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Speaker 1: of those. And you know, Facebook is imposing controls on themselves,

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Speaker 1: but they're doing it because of the scrutiny that they're on,

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Speaker 1: not because of what appears to be kind of any

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Speaker 1: clear standard that they had in place at the time.

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Speaker 1: Thanks very much for being with us. Mark Douglas is

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Speaker 1: the chief executive of Steelhouse, based in Los Angeles. Thanks

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Speaker 1: for listening to the Bloomberg P and L podcast. You

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Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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Speaker 1: or whatever podcast platform you prefer I'm pim Fox. I'm

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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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Speaker 1: worldwide on Bloomberg Radio