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

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Speaker 1: Fox along with my co host Lisa Bramowitz. Each day

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

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

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

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: Over the weekend, we heard from a number of top

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Speaker 1: US officials trying to dispel some of the tension around

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Speaker 1: North Korea, saying we are not near a nuclear conflict

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Speaker 1: with Korea. There's still with North Korea where there's still

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Speaker 1: a lot of lovers that we can pull. Uh. You

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Speaker 1: had the US is top general reassuring South Korean UH

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Speaker 1: President that we are going to try to reach some

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Speaker 1: kind of peaceful agreement To get us a better sense

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Speaker 1: of where we are in all of this. I want

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Speaker 1: to bring in Jack Divine, founding partner and president of

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Speaker 1: the ark And Group. He also was a former Acting

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Speaker 1: director of the CIA and founding partner of this security group.

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Speaker 1: So Jack, I'd love to get your sense how close

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Speaker 1: are we to a nuclear conflict with North Korea. I

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Speaker 1: don't want to be alarming, But it's been a long

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Speaker 1: long time since I thought we were in a situation

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Speaker 1: where it's conceivable that we could have a military confrontation

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Speaker 1: that could end up in and some sort of nuclear incident. Um.

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Speaker 1: I think back to the Cuban missile crisis. Were not there,

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Speaker 1: but you know, in Cuba they didn't have missiles on

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Speaker 1: the I mean they did, that's not that's an accurate

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Speaker 1: we didn't learn about them until a few years later.

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Speaker 1: So I think this is a very serious and threatening situation.

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Speaker 1: I'm hopeful that we'll be able to walk the dog back,

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Speaker 1: but I think it's um. I wouldn't minimize this at all.

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Speaker 1: I could do that in all candor. So how do

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Speaker 1: we walk the dog back? Well, I think, first of all, uh,

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Speaker 1: any rational person would not want to get into any

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Speaker 1: sort of military engagement which could then lead to a

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Speaker 1: nuclear incident. I mean, there's no way. I mean, we

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Speaker 1: have the finest military in the world, finest intelligence people.

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Speaker 1: But I've been the business long enough that even with

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Speaker 1: all your preparation and the best equipment, things go wrong.

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Speaker 1: I mean, even if the very successful been ladding one

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Speaker 1: of the helicopters you know, crashed. I mean we had

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Speaker 1: an operation to try and get our hostages out of

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Speaker 1: Iran and three of them crashed into the desert. So

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Speaker 1: there's no way you can have a military operation where

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Speaker 1: general can say, I give you a security here that

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Speaker 1: we're going to take out all their their missiles. So

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Speaker 1: I don't see how the military confrontation can end up

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Speaker 1: with anything but a catastrophe. So I think one way

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Speaker 1: or the other, we have to go back to the table.

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Speaker 1: And as you know, I I've been putting forth the

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Speaker 1: idea they try and go back to the Six party talks.

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Speaker 1: But one way or the other, if we're not going

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Speaker 1: to have a confrontation, we have to get back to

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Speaker 1: the table. And while things may be taking place in

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Speaker 1: back rooms, and I'm sure they are, I haven't seen

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Speaker 1: it other than uh the South Korea proposing direct talks

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Speaker 1: with North Korea. So I think we have to get

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Speaker 1: back to the table. I think we need to be

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Speaker 1: strong demonstrating with our b twos in our military positioning,

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Speaker 1: and I think Trump is right to speak tough to them.

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Speaker 1: But I think all that aside, there's no way this

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Speaker 1: ends without negotiations. So let's talk about who we're negotiating with.

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Speaker 1: I mean, China has been pinpointed as the main sort

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Speaker 1: of negotiator in this whole business just because they could

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Speaker 1: potentially cut off all global economic ties with North Korea.

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Speaker 1: They seem to be unwilling to do that. And then

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Speaker 1: there's a question which I want to pose to you

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Speaker 1: of how effective would that act really be? I mean,

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Speaker 1: quit China conceivably, uh stop Kim Jong's efforts to build

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Speaker 1: a nuclear arsenal. Remember, our our interests are not directly

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Speaker 1: lined up with the Chinese. I mean, there's clearly some overlap.

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Speaker 1: Neither of us want to see a nuclear confrontation, certainly

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Speaker 1: don't want to see one in their area, but they

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Speaker 1: don't want to see United career either. They don't want

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Speaker 1: to destabilized career. You have to guarantee after whatever confrontation

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Speaker 1: you have that you know what's going to happen the

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Speaker 1: next day. So the Chinese are not and sync with

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Speaker 1: our interest On the other hand, they have a lot

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Speaker 1: of equities with us, and we with them. Historically, I

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Speaker 1: think they've under underinvested in trying to be helpful here.

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Speaker 1: I think too many people over the past several years,

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Speaker 1: and many of the articles that are written today talk

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Speaker 1: about how key China is, but they don't talk about

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Speaker 1: how you get the Chinese to do something that they're

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Speaker 1: not convinced as in their interests. So there has to

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Speaker 1: be a great deal pressure put on the Chinese. And

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Speaker 1: it's one of the reasons again I think it would

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Speaker 1: be important to get a group of people at the table.

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Speaker 1: Is easier, it's easier to make concessions when you're in

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Speaker 1: a group than one on one in my view. And

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Speaker 1: you have to have the world sort of with you.

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Speaker 1: If you have the six major countries and for those

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Speaker 1: that don't follow to be Russia, South Korea, United States,

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Speaker 1: and North Korea South Korea, so you have, you know,

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Speaker 1: the world sort of trying to resolve this problem. And uh,

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Speaker 1: it's it's harder for everyone just to fold their hands.

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Speaker 1: I do think now that the North Koreans have tested

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Speaker 1: and they've gone a long way, they may be because

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Speaker 1: of the economic pressures on them, might be more willing

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Speaker 1: to They're not going to bend in the program. Anyone

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Speaker 1: that's hoping for that good luck. Um. I think what

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Speaker 1: we could hope for is that we freeze it about

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Speaker 1: where it is. And you know, you can't take the

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Speaker 1: word for it. You have to have a verifying system

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Speaker 1: and you have to have an independent intelligence look at

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Speaker 1: to make sure that the sticking with it. They made

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Speaker 1: some progress in the last time, in fact, some substantial

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Speaker 1: progress of the Six party talks, but the North Koreans violin,

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Speaker 1: and that's why I fell apart. They may be in

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Speaker 1: a different position there because they now have a much

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Speaker 1: more um powerful nuclear capability now than they did when

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Speaker 1: they walked away from the table. There may be some

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Speaker 1: room here for smart negotiations, but I think we need

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Speaker 1: everybody in the game. Well, talking about that, Jack, I

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Speaker 1: want to get a sense of Russia, because I don't

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Speaker 1: have a clear sense of where they come down on this.

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Speaker 1: Would they be willing and eager to negotiate with the

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Speaker 1: other five major parties. I think there's a couple of

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Speaker 1: aspects of it, little bit like the Chinese. It's not

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Speaker 1: a nearer interest to see a um, you know, an

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Speaker 1: improvement of relations between North Korea, South Korean and the

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Speaker 1: United States, because if it improves enough, I can actually

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Speaker 1: find if there was ever unification to be unification in

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Speaker 1: favor of the South. So and the fact that they're

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Speaker 1: able that the North Koreans quosed so much commotion it

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Speaker 1: keeps US distracted, tied up or military forces. So it's

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Speaker 1: not immediately in their interest. However, they are part of

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Speaker 1: the human race and nobody can afford to think casually

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Speaker 1: about having a nuclear um, a nuclear event anywhere. So

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Speaker 1: and they want to be a player. I mean, they

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Speaker 1: are a they wouldn't like to hear this, but they're

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Speaker 1: not a major economy force in the world. They're not

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Speaker 1: even they're not on the ground the force that they

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Speaker 1: were years ago. So um, but they want to be

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Speaker 1: taken with with more respect at the table, so through

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Speaker 1: at the table. If everyone else goes to the the table

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Speaker 1: and they don't, I think they'll shrink a little bit

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Speaker 1: so that you may get them to the table. Yeah, Jack,

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Speaker 1: real quick, how much confidence do you have in the

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Speaker 1: current team, the current US team that's negotiating this. Well,

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Speaker 1: I think we haven't as well. Again, let me come back.

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Speaker 1: I'm not sure what's going on. I mean, I think

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Speaker 1: we have very competent diplomats and intelligence people. I just

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Speaker 1: haven't seen much discussion about the negotiation aspect of it.

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Speaker 1: I haven't seen anybody putting forth, let's meet here, let's

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Speaker 1: do this now. Maybe it's going on in the back rooms.

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Speaker 1: I'm hoping that it is um, but UM. The emphas

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Speaker 1: seems to be more how do you bring the military

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Speaker 1: presence and how do you threaten each side and then

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Speaker 1: leaning on people. I don't see a format being constructed

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Speaker 1: for for discussion, and I said, I'm willing to admit

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Speaker 1: there may be something going on, but as sure as

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Speaker 1: ILL isn't grabbing headlines. Chack Devine, thank you so much

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Speaker 1: for joining us. Jack Devine is former acting director of

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Speaker 1: the c i A and founding partner and president of

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Speaker 1: the security firm the arcan It Group. Talking about why

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Speaker 1: we need to start negotiating with other major powers right now.

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Speaker 1: I want to talk about angry birds and just how

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Speaker 1: valuable they are. I want to bring in Leonel Laurent.

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Speaker 1: He's a calumnist for a Bloomberg gad flag covering finance

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Speaker 1: and markets. And Leonel, Uh, do you think that angry

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Speaker 1: birds are worth two billion dollars? I saw this today

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Speaker 1: and the Angry Birds franchise owner Rovio Entertainment UH planning

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Speaker 1: in I p O probably next month two billion dollars.

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Speaker 1: They rely entirely on angry birds. What's up with this

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Speaker 1: two billion dollars, which would be about ten times revenue,

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Speaker 1: which would be substantially above where one of its rivals,

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Speaker 1: Zinger trades. Um we shall see. I would just note

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Speaker 1: that two billion was what the company reportedly rebuffed about

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Speaker 1: five years ago when it was offered that for for

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Speaker 1: an acquisition, So it wouldn't exactly be a be a

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Speaker 1: huge victory, but it would still be a pretty toppy

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Speaker 1: multiple for a company that's you know, they've they've proven

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Speaker 1: people wrong. I think they've really milked a lot more

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Speaker 1: money out of Angry Birds than anybody thought possible. Well

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Speaker 1: this is but have they milked money out of anything else?

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Speaker 1: Or is it all angry and all birds? It's it's

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Speaker 1: I mean they've they've tried, and they have some of

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Speaker 1: the games, but but nothing to match it. And I

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Speaker 1: think that you could and they will probably make the

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Speaker 1: case that this I p O if it happens, would

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Speaker 1: help them fund other things. Right. I mean, they've they've

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Speaker 1: had some tough, tough couple of years. The markets change

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Speaker 1: a lot. They've adapted to that. They had to cut

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Speaker 1: a lot of staff, so they had to sort of

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Speaker 1: stand on their own two feet. Hold on a second,

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Speaker 1: The markets changed a lot for Angry Birds or for

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Speaker 1: entertainment or you know, where are they trying to branch out?

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Speaker 1: So so I think mobile games, that's that's what's really

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Speaker 1: changed these This is almost a decade old, right, so

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Speaker 1: you have to put yourself back to what it was

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Speaker 1: like when it first burst onto the scene. You sold

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Speaker 1: your app for a price and that was it. Quickly

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Speaker 1: with with other big hit it's like Handy crushed. The

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Speaker 1: whole market moved towards micro transactions, free to play, the

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Speaker 1: kind of situation where your kid grabs your credit card

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Speaker 1: and essentially spends your your hard land salary on on

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Speaker 1: on a little game. These these became billion dollar companies

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Speaker 1: in dollar games, billion dollar companies, and Rothio never got

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Speaker 1: to that stage. And it's it's definitely adapted and it survived,

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Speaker 1: but I just wonder what it can show that's new

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Speaker 1: in terms of the future outlook. So do you play

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Speaker 1: Angry Birds? I used to? You know, I did. It

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Speaker 1: came out. My whole vision of view is changed, really

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Speaker 1: thousand and nine, two tho nine. I mean, you know,

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Speaker 1: you can't read Proust all day long, right, You've got

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Speaker 1: to unwind, I guess. So, I mean, do they have

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Speaker 1: other games in the works or are they just basically

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Speaker 1: trying to make more Birds that are that are varying

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Speaker 1: stages of anger. They have other games. They put out

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Speaker 1: a new game I think called Battle Bay earlier this year,

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Speaker 1: and they have a new studio in London whose whole

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Speaker 1: mission is to make new title that are not Angry Birds.

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Speaker 1: But they're not expected to produce a new game till

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Speaker 1: which is the year, as I'm sure you know that

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Speaker 1: the new Angry Birds movie comes out Angry Birds too.

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Speaker 1: We are still on this weird limbo where we are

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Speaker 1: still waiting for this kind of new Rovio two to hatch, right,

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Speaker 1: and it hasn't happened two billion dollars and the timing

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Speaker 1: is sort of odd to me. So I'm wondering, you know,

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Speaker 1: would this I p O be derailed if we see

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Speaker 1: the weakness that we saw last week or the people

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Speaker 1: you're talking to, I mean, is it is there are

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Speaker 1: sense they're going to go ahead with this? They need

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Speaker 1: to do something. I don't know. I think that that

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Speaker 1: there there have been reports right of everything from ten

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Speaker 1: Cent potentially buying the company to the company floating a

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Speaker 1: small part of itself. You know, I think as usual

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Speaker 1: with this kind of industry. I mean, people aren't dumb.

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Speaker 1: They can look at the market and see that the

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Speaker 1: stock prices of mobile game companies have underperformed post i

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Speaker 1: p O. This is a volatile, tough hit of an industry.

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Speaker 1: On the other hand, as we've seen from tech i

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Speaker 1: p o s, that just seems to be demand even

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Speaker 1: for crazy evaluations right like like Snap um and even

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Speaker 1: with blue Aprons troubles. Who knows, there might just be

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Speaker 1: enough happit site for this. There just might be. Of course,

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Speaker 1: Snap is bouncing back after the earlier plunge, talking about

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Speaker 1: uh Snap and one hit wonders. It seems like this

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Speaker 1: one hit wonder is going to continue for longer, and

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Speaker 1: now it shares her up more than seven percent. My god.

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Speaker 1: They were down almost five percent earlier today after it

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Speaker 1: was revealed that Tamasak of Singapore had offloaded it's holdings

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Speaker 1: of this particular company. Leone Lauron, thank you so much

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Speaker 1: for joining us, truly, I guess you know. Look Angry Birds,

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Speaker 1: it is an appealing franchise. My kids loved Angry Birds,

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Speaker 1: but still two billion dollars. Leone Laurent Columnists covering finance

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Speaker 1: and markets for Bloomberg gad fly coming to us from London. Well,

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Speaker 1: it isn't a day in up markets if there isn't

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Speaker 1: a fear about a bubble in exchange traded funds. And

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Speaker 1: I want to bring in Eric Beltunez, who spent his

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Speaker 1: life basically at least for the past few years, defending

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Speaker 1: e t f s against the bubble fears. Eric Valtunez

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Speaker 1: is a senior e t F analyst for Bloomberg Intelligence

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Speaker 1: and he joins us. Now, Eric, yet again we get

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Speaker 1: another story about record e t F inflows fueling price

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Speaker 1: bubble fears. That headline was published in the Financial Times

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Speaker 1: and it stemmed from a statistic that investors have already

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Speaker 1: funneled three hundred and nine billion dollars into e t

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Speaker 1: f s in the first seven ones of already eclipsing

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Speaker 1: the full year record that was set last year. So, Eric,

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Speaker 1: does this acceleration of inflows suggest to you that perhaps

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Speaker 1: people are getting over their skis and putting too much

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Speaker 1: faith in these vehicles? Uh? Well, no, I mean, and

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Speaker 1: when you say definite ets, I don't necessarily like to

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Speaker 1: be the apologist, but there's definitely more people taking shots

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Speaker 1: and just throwing out these things without using much context.

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Speaker 1: I thought two better headlines for that FT article would

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Speaker 1: have been investors demanding stocks fuels fears of a of

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Speaker 1: a stock market bubble, or e t F record inflows

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Speaker 1: fuels fears of asset managers lost revenues. I think those

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Speaker 1: are two better headlines than what they did. They kind

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Speaker 1: of take, Okay, all this money is going into e

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Speaker 1: t s, But all this money is going into the

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Speaker 1: market anyway, like if ets didn't exist, it would buy

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Speaker 1: index funds, or it would buy active mutual funds, and

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Speaker 1: ultimately you would own the same stocks. So I think

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Speaker 1: that's what I get getting gets annoying with me is

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Speaker 1: that sometimes there's some laziness and some conflating of just

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Speaker 1: because money is going into e t s means that, oh,

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Speaker 1: there's a bubble. I think all you're seeing is that

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Speaker 1: money is basically transferring from closet indexing to actual indexing.

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Speaker 1: So but it's ultimately owning the same stocks. But the

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Speaker 1: investors deciding to buy equities and faith in Trump and

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Speaker 1: all in the FED in the past, that's ultimately what

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Speaker 1: is driving out valuations. Well, I guess that one fear

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Speaker 1: is that right now and you have so much money

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Speaker 1: going into the stock market through index funds, and you

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Speaker 1: talked about closet indexing, in other words, active managers who

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Speaker 1: essentially just followed the indexes, so are essentially we're indexers

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Speaker 1: but charging larger fees. And that's been a fear and

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Speaker 1: an accusation for a long time. But there's a concern

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Speaker 1: that with so much money going into funds that all

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Speaker 1: track the same indexes, that companies that are unworthy of

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Speaker 1: their money will get them regardless of what their financial

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Speaker 1: health is, but just by virtue of their being big

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Speaker 1: and in the index right now. And then we've got

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Speaker 1: to use context on the fact that if you go

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Speaker 1: back and you look at, uh, the amount of money

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Speaker 1: or the amount of ownership of the stock market made

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Speaker 1: up by mutual funds, it's about half a little less

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Speaker 1: than half. So there's still again plenty of people picking

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Speaker 1: stocks based on valuations. UM. I also think that, look,

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Speaker 1: active managers are now out saying that like e t

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Speaker 1: s and index funds are bad for capitalism. UM. And

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Speaker 1: you know, look, I mean there's some case who made

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Speaker 1: that an active manager can evaluate a stock better. UM.

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Speaker 1: And if that's the case, an investor should pick an

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Speaker 1: active manager. I think part of the problem with this

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Speaker 1: whole thing is that investors are just voting with their feet.

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Speaker 1: I mean, I think what really has caused a lot

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Speaker 1: of the movement is low cost one but to disappointment

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Speaker 1: in two thousand and eight. I think a lot of

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Speaker 1: people thought that their active fund would have saved them

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Speaker 1: some of that uh thirty five percent loss, but it didn't.

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Speaker 1: In fact, two thirds of active managers underperformed in two

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Speaker 1: thousand and eight, and I think that's partially the investor's fault.

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Speaker 1: Active managers know that investors can't tolerate a lot of

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Speaker 1: tracking error and they have to buy these stocks, so

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Speaker 1: ultimately their hands are tied. In the end, investors really

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Speaker 1: want the index anyway, um, and so they're driving all

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Speaker 1: of this. So you put out research recently looking at

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Speaker 1: where these flows have been going, and you showed how

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Speaker 1: they're going to Van Garden black Rock overwhelmingly. And does

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Speaker 1: this mean that you expect to see some of the

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Speaker 1: smaller et F providers close up shop or get absorbed

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Speaker 1: by the bigger by the bigger players, Yeah, you know,

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Speaker 1: I have this thing I use where, like you know,

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Speaker 1: the old news is active passes the new news is

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Speaker 1: um high cost to low cost. The future news is

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Speaker 1: three companies manage the assets UM. So yes, you're going

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Speaker 1: to see a massive consolidation. We just saw power Shares

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Speaker 1: is on the verge of buying Guggenheim, which took a good,

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Speaker 1: juicy smart data issue off the table for active shops

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Speaker 1: who need a passive game. By the way, but ultimately, yes,

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Speaker 1: you're gonna see a ton of consolidation. I think what's

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Speaker 1: going to happen is the next sell off. There's gonna

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Speaker 1: be a whole Uh. This is where a lot of

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Speaker 1: this is going to come to light and a lot

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Speaker 1: of managers are can be forced to team up in

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Speaker 1: order to compete with the vanguarden black rocks of the world.

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Speaker 1: And with those low fees you need scale. Eric BLUs,

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Speaker 1: thank you so much. And you know, honestly, when I

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Speaker 1: say an E T F defender, I find that a

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Speaker 1: lot of our conversations end up being Eric, you calling

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Speaker 1: me and saying, you know, actually, let's reframe this. Let's

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Speaker 1: look at what the where the money is actually going.

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Speaker 1: This is just a vehicle, uh, that people can sort

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Speaker 1: of invest in the underlying assets. So it's always enlightening

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Speaker 1: to speak with you and you're looking at the technical

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Speaker 1: is not just blindly defending Eric beltunas, senior et F

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Speaker 1: analyst for Bloomberg Intelligence. Uh. And again, those bubble fears

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Speaker 1: will be ongoing, I'm sure, especially if we do not

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Speaker 1: get another major downturn, you'll have people saying, well, they're untested.

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Speaker 1: With all of the news that's coming out of North

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Speaker 1: Korea and Virginia, there has been less talked about one

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Speaker 1: of the most important things that will happen probably this month,

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Speaker 1: which is the beginning of the renegotiation of the North

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Speaker 1: American Free Trade Agreement known as NAFTA. And here to

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Speaker 1: give us a sense of exactly what's at stake, and

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Speaker 1: it potentially is quite a bit, is Mike McDonough. He

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Speaker 1: is a global director of Economic Research and chief economist

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Speaker 1: for Bloomberg Intelligence, and he joins us in our eleven

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Speaker 1: three oh studios. Mike, just can you lay out what

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Speaker 1: the main issues will be because we've heard a lot

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Speaker 1: about agriculture, We've heard a lot about dairy. Yeah, you know, well,

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Speaker 1: it depends on who you ask. I think a little

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Speaker 1: bit right if you if you look at the trade representative,

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Speaker 1: they actually put out a kind of preliminary report a

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Speaker 1: month or two ago on what their expectations were, and

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Speaker 1: the key things were that they expected to maintain the

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Speaker 1: trade free terrorists for agricultural and industrial goods. Uh and

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Speaker 1: instead focusing on things like I T financial sector integration,

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Speaker 1: things like this, which which all makes sense, it would

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Speaker 1: be a good thing to add to the deal. But

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Speaker 1: when you listen to the Trump administration's rhetoric, it has

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Speaker 1: mostly been trade deficit, trade deficit, trade deficit, be it

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Speaker 1: with China, be it with Mexico, Germany, whoever. Uh. And

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Speaker 1: what's interesting when you actually look at Mexico and you say, well, where,

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Speaker 1: how why are we running this trade deficit with Mexico.

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Speaker 1: If you actually break it down by product and you

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Speaker 1: look at transportation equipment, the deficit in transportation equipment between

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Speaker 1: the US and Mexico is actually larger than the entire

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Speaker 1: US trade deficit, So meaning if you strip that component

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Speaker 1: out there, we would actually be running a trade surplus

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Speaker 1: of Mexican. So is this basically the flip side of

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Speaker 1: Ford and GM manufacturing their cars in Mexico or car parts?

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Speaker 1: It's two things. It's uh, exactly what you just said.

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Speaker 1: Car companies building their cars in Mexico and bringing them back.

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Speaker 1: And it's also all the parts being produced in Mexico

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Speaker 1: that are being used in cars that are assembled in

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Speaker 1: the US. When you when you break it out by state,

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Speaker 1: the two largest states with the deficits that are Michigan

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Speaker 1: and obviously cars in California, which is cars is number one,

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Speaker 1: but then computer parts is number two. But why why

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Speaker 1: I went into all this is if your President Trump

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Speaker 1: and your biggest concern is the trade deficit, and you're

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Speaker 1: renegotiating renegotiating NAFTA with that in mind, it's hard to

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Speaker 1: see how you're going to ignore this sector. But that's

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Speaker 1: kind of what was indicated by the to me at

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Speaker 1: least when I read the summary that the trade representatives

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Speaker 1: had put out. So I'm just trying to wrap my

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Speaker 1: head around this, because we were talking before the segment

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Speaker 1: that these negotiations have a pretty accelerated time frame, that

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Speaker 1: there is some expectation of a renegotiated deal by the

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Speaker 1: end of the year, which seems actually pretty ambitious given

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Speaker 1: the fact that there are so many moving parts and

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Speaker 1: there is so much political capital that President Trump has

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Speaker 1: tied up in this. Can you give us a sense

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Speaker 1: of what the competing factions will be, whether you know

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Speaker 1: how many people are going to be involved with this,

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Speaker 1: where these negotiations are going to be held, well, I

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Speaker 1: think I think there's a round being held in each country,

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Speaker 1: but I think they have this end of year deadline.

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Speaker 1: But I think even Lightheiser himself has said he's not

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Speaker 1: holding any commitments to necessarily meeting that deadline. So I think,

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Speaker 1: you know the baseline what most people think is this

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Speaker 1: is going to be some very minimal changes that actually

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Speaker 1: occurred in AFT. And if you look at how strongly

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Speaker 1: the Mexican pesos rallied, it's had been the strongest performing

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Speaker 1: currency year to day. It may still be, and this

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Speaker 1: is because a lot of the fears that people had

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Speaker 1: have alleviated a bit. Well. But this idea of the

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Speaker 1: auto sector and the auto parts sector, though, raises the

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Speaker 1: specter of some more damage to Mexico's economy because you

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Speaker 1: were saying that this accounts for what three they're total

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Speaker 1: GDP long term pending. How this if if if they

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Speaker 1: were to go after that sector, you could have the

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Speaker 1: Mexico's long term growth potential could come down a bit.

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Speaker 1: Given how the magnetus out of this to Mexico's GDP,

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Speaker 1: and it's been growing every year. It's becoming a more

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Speaker 1: important part of Mexico's economy. It just surprises me that

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Speaker 1: there isn't more of an outcry from GM and Ford

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Speaker 1: because you know, in in back office rooms are saying, look,

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Speaker 1: we want to provide cheaper cars, we provide labor to Mexico.

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Speaker 1: Mexico's economy grows, it helps us because then we could

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Speaker 1: sell our cars. If we make everything in the US,

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Speaker 1: it would cost us a lot more. So far, so far,

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Speaker 1: there's no reason to be necessarily right. All signs are

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Speaker 1: pointing to that that there's going to be relatively minor

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Speaker 1: changes to this agreement. I think the trade representatives had

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Speaker 1: gone in and said the process is going to be

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Speaker 1: do no harm. Uh. So you know, President Trump hasn't

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Speaker 1: been that outspoken about and after renegotiations recently, so I

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Speaker 1: don't He's been more centered around China. So I think

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Speaker 1: that that's why you haven't heard as much about this.

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Speaker 1: The baseline view is right now that this is going

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Speaker 1: to go over relatively minimal changes again and pains free,

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Speaker 1: pain free talking about China. Last night, I saw the

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Speaker 1: headlines have about China underperforming in July with respect expectations

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Speaker 1: about how much their economy grew and how much their

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Speaker 1: industrial output grew. People seem to not care at all today. Yeah,

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Speaker 1: and I think that's the right thing. Actually wrote about

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Speaker 1: this in my my macro musings today. And the fact

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Speaker 1: is China had a much better than expected first half

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Speaker 1: of the year, uh and ending that they had a

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Speaker 1: much much much better than expected June. So you saw

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Speaker 1: a little bit that you saw the data come back

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Speaker 1: a little bit in July. When you look at what

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Speaker 1: happened in June and what happened in July, what it

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Speaker 1: really is pointing to is a bit of a return

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Speaker 1: to normalcy or or a moderate slowdown in growth. So

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Speaker 1: you know, everyone expects China's GDP growth is going to

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Speaker 1: decelerate for the remainder of the year. The thing is

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Speaker 1: it hadn't actually done that yet, So now it's finally

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Speaker 1: showing signs that it will start to decelerate a bit.

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Speaker 1: Although you had the Statistic Statistics Bureau coming out and

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Speaker 1: saying they're hidden risks and their problems out there. So

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Speaker 1: so the Statistical Bureau basically said what we've been talking

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Speaker 1: about on the show for I don't know how many

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Speaker 1: years everybody everybody, everybody knows there's hidden risks, right, you

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Speaker 1: have you do have a You're you're gonna have a

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Speaker 1: moderate slowdown in economic growth in China. And another important

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Speaker 1: thing to keep in mind is you have twice a

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Speaker 1: decade leadership transition occurring later this year. They're going to

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Speaker 1: do whatever they need to do to maintain stability around that.

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Speaker 1: They're going to let growth decelerate a bit, because that's

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Speaker 1: what everyone expects. It's still even above the six and

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Speaker 1: a half percent target, but there if it looks like

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Speaker 1: it's going a bit slower than that, then you know,

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Speaker 1: you could see reverse reversal of some tightening that had

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Speaker 1: taken place earlier this year. Who doesn't know about the

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Speaker 1: hidden risks? Mike mcduonda, thank you so much for joining us.

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Speaker 1: A pleasure as always. Mike mcdonna is Global director of

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Speaker 1: Economic Research and Chief Economist for Bloomberg Intelligence based in

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Speaker 1: New York. Thanks for listening to the Bloomberg P and

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Speaker 1: L podcast. You can subscribe and listen to interviews at

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00:26:53,440 --> 00:26:57,880
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

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00:26:57,920 --> 00:27:01,359
Speaker 1: Pim Fox. I'm on Twitter at Pam Fox. I'm on

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00:27:01,400 --> 00:27:04,680
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

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Speaker 1: can always catch us worldwide on Bloomberg Radio