Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg p m
Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.
Speaker 1: Over the weekend, we heard from a number of top
Speaker 1: US officials trying to dispel some of the tension around
Speaker 1: North Korea, saying we are not near a nuclear conflict
Speaker 1: with Korea. There's still with North Korea where there's still
Speaker 1: a lot of lovers that we can pull. Uh. You
Speaker 1: had the US is top general reassuring South Korean UH
Speaker 1: President that we are going to try to reach some
Speaker 1: kind of peaceful agreement To get us a better sense
Speaker 1: of where we are in all of this. I want
Speaker 1: to bring in Jack Divine, founding partner and president of
Speaker 1: the ark And Group. He also was a former Acting
Speaker 1: director of the CIA and founding partner of this security group.
Speaker 1: So Jack, I'd love to get your sense how close
Speaker 1: are we to a nuclear conflict with North Korea. I
Speaker 1: don't want to be alarming, But it's been a long
Speaker 1: long time since I thought we were in a situation
Speaker 1: where it's conceivable that we could have a military confrontation
Speaker 1: that could end up in and some sort of nuclear incident. Um.
Speaker 1: I think back to the Cuban missile crisis. Were not there,
Speaker 1: but you know, in Cuba they didn't have missiles on
Speaker 1: the I mean they did, that's not that's an accurate
Speaker 1: we didn't learn about them until a few years later.
Speaker 1: So I think this is a very serious and threatening situation.
Speaker 1: I'm hopeful that we'll be able to walk the dog back,
Speaker 1: but I think it's um. I wouldn't minimize this at all.
Speaker 1: I could do that in all candor. So how do
Speaker 1: we walk the dog back? Well, I think, first of all, uh,
Speaker 1: any rational person would not want to get into any
Speaker 1: sort of military engagement which could then lead to a
Speaker 1: nuclear incident. I mean, there's no way. I mean, we
Speaker 1: have the finest military in the world, finest intelligence people.
Speaker 1: But I've been the business long enough that even with
Speaker 1: all your preparation and the best equipment, things go wrong.
Speaker 1: I mean, even if the very successful been ladding one
Speaker 1: of the helicopters you know, crashed. I mean we had
Speaker 1: an operation to try and get our hostages out of
Speaker 1: Iran and three of them crashed into the desert. So
Speaker 1: there's no way you can have a military operation where
Speaker 1: general can say, I give you a security here that
Speaker 1: we're going to take out all their their missiles. So
Speaker 1: I don't see how the military confrontation can end up
Speaker 1: with anything but a catastrophe. So I think one way
Speaker 1: or the other, we have to go back to the table.
Speaker 1: And as you know, I I've been putting forth the
Speaker 1: idea they try and go back to the Six party talks.
Speaker 1: But one way or the other, if we're not going
Speaker 1: to have a confrontation, we have to get back to
Speaker 1: the table. And while things may be taking place in
Speaker 1: back rooms, and I'm sure they are, I haven't seen
Speaker 1: it other than uh the South Korea proposing direct talks
Speaker 1: with North Korea. So I think we have to get
Speaker 1: back to the table. I think we need to be
Speaker 1: strong demonstrating with our b twos in our military positioning,
Speaker 1: and I think Trump is right to speak tough to them.
Speaker 1: But I think all that aside, there's no way this
Speaker 1: ends without negotiations. So let's talk about who we're negotiating with.
Speaker 1: I mean, China has been pinpointed as the main sort
Speaker 1: of negotiator in this whole business just because they could
Speaker 1: potentially cut off all global economic ties with North Korea.
Speaker 1: They seem to be unwilling to do that. And then
Speaker 1: there's a question which I want to pose to you
Speaker 1: of how effective would that act really be? I mean,
Speaker 1: quit China conceivably, uh stop Kim Jong's efforts to build
Speaker 1: a nuclear arsenal. Remember, our our interests are not directly
Speaker 1: lined up with the Chinese. I mean, there's clearly some overlap.
Speaker 1: Neither of us want to see a nuclear confrontation, certainly
Speaker 1: don't want to see one in their area, but they
Speaker 1: don't want to see United career either. They don't want
Speaker 1: to destabilized career. You have to guarantee after whatever confrontation
Speaker 1: you have that you know what's going to happen the
Speaker 1: next day. So the Chinese are not and sync with
Speaker 1: our interest On the other hand, they have a lot
Speaker 1: of equities with us, and we with them. Historically, I
Speaker 1: think they've under underinvested in trying to be helpful here.
Speaker 1: I think too many people over the past several years,
Speaker 1: and many of the articles that are written today talk
Speaker 1: about how key China is, but they don't talk about
Speaker 1: how you get the Chinese to do something that they're
Speaker 1: not convinced as in their interests. So there has to
Speaker 1: be a great deal pressure put on the Chinese. And
Speaker 1: it's one of the reasons again I think it would
Speaker 1: be important to get a group of people at the table.
Speaker 1: Is easier, it's easier to make concessions when you're in
Speaker 1: a group than one on one in my view. And
Speaker 1: you have to have the world sort of with you.
Speaker 1: If you have the six major countries and for those
Speaker 1: that don't follow to be Russia, South Korea, United States,
Speaker 1: and North Korea South Korea, so you have, you know,
Speaker 1: the world sort of trying to resolve this problem. And uh,
Speaker 1: it's it's harder for everyone just to fold their hands.
Speaker 1: I do think now that the North Koreans have tested
Speaker 1: and they've gone a long way, they may be because
Speaker 1: of the economic pressures on them, might be more willing
Speaker 1: to They're not going to bend in the program. Anyone
Speaker 1: that's hoping for that good luck. Um. I think what
Speaker 1: we could hope for is that we freeze it about
Speaker 1: where it is. And you know, you can't take the
Speaker 1: word for it. You have to have a verifying system
Speaker 1: and you have to have an independent intelligence look at
Speaker 1: to make sure that the sticking with it. They made
Speaker 1: some progress in the last time, in fact, some substantial
Speaker 1: progress of the Six party talks, but the North Koreans violin,
Speaker 1: and that's why I fell apart. They may be in
Speaker 1: a different position there because they now have a much
Speaker 1: more um powerful nuclear capability now than they did when
Speaker 1: they walked away from the table. There may be some
Speaker 1: room here for smart negotiations, but I think we need
Speaker 1: everybody in the game. Well, talking about that, Jack, I
Speaker 1: want to get a sense of Russia, because I don't
Speaker 1: have a clear sense of where they come down on this.
Speaker 1: Would they be willing and eager to negotiate with the
Speaker 1: other five major parties. I think there's a couple of
Speaker 1: aspects of it, little bit like the Chinese. It's not
Speaker 1: a nearer interest to see a um, you know, an
Speaker 1: improvement of relations between North Korea, South Korean and the
Speaker 1: United States, because if it improves enough, I can actually
Speaker 1: find if there was ever unification to be unification in
Speaker 1: favor of the South. So and the fact that they're
Speaker 1: able that the North Koreans quosed so much commotion it
Speaker 1: keeps US distracted, tied up or military forces. So it's
Speaker 1: not immediately in their interest. However, they are part of
Speaker 1: the human race and nobody can afford to think casually
Speaker 1: about having a nuclear um, a nuclear event anywhere. So
Speaker 1: and they want to be a player. I mean, they
Speaker 1: are a they wouldn't like to hear this, but they're
Speaker 1: not a major economy force in the world. They're not
Speaker 1: even they're not on the ground the force that they
Speaker 1: were years ago. So um, but they want to be
Speaker 1: taken with with more respect at the table, so through
Speaker 1: at the table. If everyone else goes to the the table
Speaker 1: and they don't, I think they'll shrink a little bit
Speaker 1: so that you may get them to the table. Yeah, Jack,
Speaker 1: real quick, how much confidence do you have in the
Speaker 1: current team, the current US team that's negotiating this. Well,
Speaker 1: I think we haven't as well. Again, let me come back.
Speaker 1: I'm not sure what's going on. I mean, I think
Speaker 1: we have very competent diplomats and intelligence people. I just
Speaker 1: haven't seen much discussion about the negotiation aspect of it.
Speaker 1: I haven't seen anybody putting forth, let's meet here, let's
Speaker 1: do this now. Maybe it's going on in the back rooms.
Speaker 1: I'm hoping that it is um, but UM. The emphas
Speaker 1: seems to be more how do you bring the military
Speaker 1: presence and how do you threaten each side and then
Speaker 1: leaning on people. I don't see a format being constructed
Speaker 1: for for discussion, and I said, I'm willing to admit
Speaker 1: there may be something going on, but as sure as
Speaker 1: ILL isn't grabbing headlines. Chack Devine, thank you so much
Speaker 1: for joining us. Jack Devine is former acting director of
Speaker 1: the c i A and founding partner and president of
Speaker 1: the security firm the arcan It Group. Talking about why
Speaker 1: we need to start negotiating with other major powers right now.
Speaker 1: I want to talk about angry birds and just how
Speaker 1: valuable they are. I want to bring in Leonel Laurent.
Speaker 1: He's a calumnist for a Bloomberg gad flag covering finance
Speaker 1: and markets. And Leonel, Uh, do you think that angry
Speaker 1: birds are worth two billion dollars? I saw this today
Speaker 1: and the Angry Birds franchise owner Rovio Entertainment UH planning
Speaker 1: in I p O probably next month two billion dollars.
Speaker 1: They rely entirely on angry birds. What's up with this
Speaker 1: two billion dollars, which would be about ten times revenue,
Speaker 1: which would be substantially above where one of its rivals,
Speaker 1: Zinger trades. Um we shall see. I would just note
Speaker 1: that two billion was what the company reportedly rebuffed about
Speaker 1: five years ago when it was offered that for for
Speaker 1: an acquisition, So it wouldn't exactly be a be a
Speaker 1: huge victory, but it would still be a pretty toppy
Speaker 1: multiple for a company that's you know, they've they've proven
Speaker 1: people wrong. I think they've really milked a lot more
Speaker 1: money out of Angry Birds than anybody thought possible. Well
Speaker 1: this is but have they milked money out of anything else?
Speaker 1: Or is it all angry and all birds? It's it's
Speaker 1: I mean they've they've tried, and they have some of
Speaker 1: the games, but but nothing to match it. And I
Speaker 1: think that you could and they will probably make the
Speaker 1: case that this I p O if it happens, would
Speaker 1: help them fund other things. Right. I mean, they've they've
Speaker 1: had some tough, tough couple of years. The markets change
Speaker 1: a lot. They've adapted to that. They had to cut
Speaker 1: a lot of staff, so they had to sort of
Speaker 1: stand on their own two feet. Hold on a second,
Speaker 1: The markets changed a lot for Angry Birds or for
Speaker 1: entertainment or you know, where are they trying to branch out?
Speaker 1: So so I think mobile games, that's that's what's really
Speaker 1: changed these This is almost a decade old, right, so
Speaker 1: you have to put yourself back to what it was
Speaker 1: like when it first burst onto the scene. You sold
Speaker 1: your app for a price and that was it. Quickly
Speaker 1: with with other big hit it's like Handy crushed. The
Speaker 1: whole market moved towards micro transactions, free to play, the
Speaker 1: kind of situation where your kid grabs your credit card
Speaker 1: and essentially spends your your hard land salary on on
Speaker 1: on a little game. These these became billion dollar companies
Speaker 1: in dollar games, billion dollar companies, and Rothio never got
Speaker 1: to that stage. And it's it's definitely adapted and it survived,
Speaker 1: but I just wonder what it can show that's new
Speaker 1: in terms of the future outlook. So do you play
Speaker 1: Angry Birds? I used to? You know, I did. It
Speaker 1: came out. My whole vision of view is changed, really
Speaker 1: thousand and nine, two tho nine. I mean, you know,
Speaker 1: you can't read Proust all day long, right, You've got
Speaker 1: to unwind, I guess. So, I mean, do they have
Speaker 1: other games in the works or are they just basically
Speaker 1: trying to make more Birds that are that are varying
Speaker 1: stages of anger. They have other games. They put out
Speaker 1: a new game I think called Battle Bay earlier this year,
Speaker 1: and they have a new studio in London whose whole
Speaker 1: mission is to make new title that are not Angry Birds.
Speaker 1: But they're not expected to produce a new game till
Speaker 1: which is the year, as I'm sure you know that
Speaker 1: the new Angry Birds movie comes out Angry Birds too.
Speaker 1: We are still on this weird limbo where we are
Speaker 1: still waiting for this kind of new Rovio two to hatch, right,
Speaker 1: and it hasn't happened two billion dollars and the timing
Speaker 1: is sort of odd to me. So I'm wondering, you know,
Speaker 1: would this I p O be derailed if we see
Speaker 1: the weakness that we saw last week or the people
Speaker 1: you're talking to, I mean, is it is there are
Speaker 1: sense they're going to go ahead with this? They need
Speaker 1: to do something. I don't know. I think that that
Speaker 1: there there have been reports right of everything from ten
Speaker 1: Cent potentially buying the company to the company floating a
Speaker 1: small part of itself. You know, I think as usual
Speaker 1: with this kind of industry. I mean, people aren't dumb.
Speaker 1: They can look at the market and see that the
Speaker 1: stock prices of mobile game companies have underperformed post i
Speaker 1: p O. This is a volatile, tough hit of an industry.
Speaker 1: On the other hand, as we've seen from tech i
Speaker 1: p o s, that just seems to be demand even
Speaker 1: for crazy evaluations right like like Snap um and even
Speaker 1: with blue Aprons troubles. Who knows, there might just be
Speaker 1: enough happit site for this. There just might be. Of course,
Speaker 1: Snap is bouncing back after the earlier plunge, talking about
Speaker 1: uh Snap and one hit wonders. It seems like this
Speaker 1: one hit wonder is going to continue for longer, and
Speaker 1: now it shares her up more than seven percent. My god.
Speaker 1: They were down almost five percent earlier today after it
Speaker 1: was revealed that Tamasak of Singapore had offloaded it's holdings
Speaker 1: of this particular company. Leone Lauron, thank you so much
Speaker 1: for joining us, truly, I guess you know. Look Angry Birds,
Speaker 1: it is an appealing franchise. My kids loved Angry Birds,
Speaker 1: but still two billion dollars. Leone Laurent Columnists covering finance
Speaker 1: and markets for Bloomberg gad fly coming to us from London. Well,
Speaker 1: it isn't a day in up markets if there isn't
Speaker 1: a fear about a bubble in exchange traded funds. And
Speaker 1: I want to bring in Eric Beltunez, who spent his
Speaker 1: life basically at least for the past few years, defending
Speaker 1: e t f s against the bubble fears. Eric Valtunez
Speaker 1: is a senior e t F analyst for Bloomberg Intelligence
Speaker 1: and he joins us. Now, Eric, yet again we get
Speaker 1: another story about record e t F inflows fueling price
Speaker 1: bubble fears. That headline was published in the Financial Times
Speaker 1: and it stemmed from a statistic that investors have already
Speaker 1: funneled three hundred and nine billion dollars into e t
Speaker 1: f s in the first seven ones of already eclipsing
Speaker 1: the full year record that was set last year. So, Eric,
Speaker 1: does this acceleration of inflows suggest to you that perhaps
Speaker 1: people are getting over their skis and putting too much
Speaker 1: faith in these vehicles? Uh? Well, no, I mean, and
Speaker 1: when you say definite ets, I don't necessarily like to
Speaker 1: be the apologist, but there's definitely more people taking shots
Speaker 1: and just throwing out these things without using much context.
Speaker 1: I thought two better headlines for that FT article would
Speaker 1: have been investors demanding stocks fuels fears of a of
Speaker 1: a stock market bubble, or e t F record inflows
Speaker 1: fuels fears of asset managers lost revenues. I think those
Speaker 1: are two better headlines than what they did. They kind
Speaker 1: of take, Okay, all this money is going into e
Speaker 1: t s, But all this money is going into the
Speaker 1: market anyway, like if ets didn't exist, it would buy
Speaker 1: index funds, or it would buy active mutual funds, and
Speaker 1: ultimately you would own the same stocks. So I think
Speaker 1: that's what I get getting gets annoying with me is
Speaker 1: that sometimes there's some laziness and some conflating of just
Speaker 1: because money is going into e t s means that, oh,
Speaker 1: there's a bubble. I think all you're seeing is that
Speaker 1: money is basically transferring from closet indexing to actual indexing.
Speaker 1: So but it's ultimately owning the same stocks. But the
Speaker 1: investors deciding to buy equities and faith in Trump and
Speaker 1: all in the FED in the past, that's ultimately what
Speaker 1: is driving out valuations. Well, I guess that one fear
Speaker 1: is that right now and you have so much money
Speaker 1: going into the stock market through index funds, and you
Speaker 1: talked about closet indexing, in other words, active managers who
Speaker 1: essentially just followed the indexes, so are essentially we're indexers
Speaker 1: but charging larger fees. And that's been a fear and
Speaker 1: an accusation for a long time. But there's a concern
Speaker 1: that with so much money going into funds that all
Speaker 1: track the same indexes, that companies that are unworthy of
Speaker 1: their money will get them regardless of what their financial
Speaker 1: health is, but just by virtue of their being big
Speaker 1: and in the index right now. And then we've got
Speaker 1: to use context on the fact that if you go
Speaker 1: back and you look at, uh, the amount of money
Speaker 1: or the amount of ownership of the stock market made
Speaker 1: up by mutual funds, it's about half a little less
Speaker 1: than half. So there's still again plenty of people picking
Speaker 1: stocks based on valuations. UM. I also think that, look,
Speaker 1: active managers are now out saying that like e t
Speaker 1: s and index funds are bad for capitalism. UM. And
Speaker 1: you know, look, I mean there's some case who made
Speaker 1: that an active manager can evaluate a stock better. UM.
Speaker 1: And if that's the case, an investor should pick an
Speaker 1: active manager. I think part of the problem with this
Speaker 1: whole thing is that investors are just voting with their feet.
Speaker 1: I mean, I think what really has caused a lot
Speaker 1: of the movement is low cost one but to disappointment
Speaker 1: in two thousand and eight. I think a lot of
Speaker 1: people thought that their active fund would have saved them
Speaker 1: some of that uh thirty five percent loss, but it didn't.
Speaker 1: In fact, two thirds of active managers underperformed in two
Speaker 1: thousand and eight, and I think that's partially the investor's fault.
Speaker 1: Active managers know that investors can't tolerate a lot of
Speaker 1: tracking error and they have to buy these stocks, so
Speaker 1: ultimately their hands are tied. In the end, investors really
Speaker 1: want the index anyway, um, and so they're driving all
Speaker 1: of this. So you put out research recently looking at
Speaker 1: where these flows have been going, and you showed how
Speaker 1: they're going to Van Garden black Rock overwhelmingly. And does
Speaker 1: this mean that you expect to see some of the
Speaker 1: smaller et F providers close up shop or get absorbed
Speaker 1: by the bigger by the bigger players, Yeah, you know,
Speaker 1: I have this thing I use where, like you know,
Speaker 1: the old news is active passes the new news is
Speaker 1: um high cost to low cost. The future news is
Speaker 1: three companies manage the assets UM. So yes, you're going
Speaker 1: to see a massive consolidation. We just saw power Shares
Speaker 1: is on the verge of buying Guggenheim, which took a good,
Speaker 1: juicy smart data issue off the table for active shops
Speaker 1: who need a passive game. By the way, but ultimately, yes,
Speaker 1: you're gonna see a ton of consolidation. I think what's
Speaker 1: going to happen is the next sell off. There's gonna
Speaker 1: be a whole Uh. This is where a lot of
Speaker 1: this is going to come to light and a lot
Speaker 1: of managers are can be forced to team up in
Speaker 1: order to compete with the vanguarden black rocks of the world.
Speaker 1: And with those low fees you need scale. Eric BLUs,
Speaker 1: thank you so much. And you know, honestly, when I
Speaker 1: say an E T F defender, I find that a
Speaker 1: lot of our conversations end up being Eric, you calling
Speaker 1: me and saying, you know, actually, let's reframe this. Let's
Speaker 1: look at what the where the money is actually going.
Speaker 1: This is just a vehicle, uh, that people can sort
Speaker 1: of invest in the underlying assets. So it's always enlightening
Speaker 1: to speak with you and you're looking at the technical
Speaker 1: is not just blindly defending Eric beltunas, senior et F
Speaker 1: analyst for Bloomberg Intelligence. Uh. And again, those bubble fears
Speaker 1: will be ongoing, I'm sure, especially if we do not
Speaker 1: get another major downturn, you'll have people saying, well, they're untested.
Speaker 1: With all of the news that's coming out of North
Speaker 1: Korea and Virginia, there has been less talked about one
Speaker 1: of the most important things that will happen probably this month,
Speaker 1: which is the beginning of the renegotiation of the North
Speaker 1: American Free Trade Agreement known as NAFTA. And here to
Speaker 1: give us a sense of exactly what's at stake, and
Speaker 1: it potentially is quite a bit, is Mike McDonough. He
Speaker 1: is a global director of Economic Research and chief economist
Speaker 1: for Bloomberg Intelligence, and he joins us in our eleven
Speaker 1: three oh studios. Mike, just can you lay out what
Speaker 1: the main issues will be because we've heard a lot
Speaker 1: about agriculture, We've heard a lot about dairy. Yeah, you know, well,
Speaker 1: it depends on who you ask. I think a little
Speaker 1: bit right if you if you look at the trade representative,
Speaker 1: they actually put out a kind of preliminary report a
Speaker 1: month or two ago on what their expectations were, and
Speaker 1: the key things were that they expected to maintain the
Speaker 1: trade free terrorists for agricultural and industrial goods. Uh and
Speaker 1: instead focusing on things like I T financial sector integration,
Speaker 1: things like this, which which all makes sense, it would
Speaker 1: be a good thing to add to the deal. But
Speaker 1: when you listen to the Trump administration's rhetoric, it has
Speaker 1: mostly been trade deficit, trade deficit, trade deficit, be it
Speaker 1: with China, be it with Mexico, Germany, whoever. Uh. And
Speaker 1: what's interesting when you actually look at Mexico and you say, well, where,
Speaker 1: how why are we running this trade deficit with Mexico.
Speaker 1: If you actually break it down by product and you
Speaker 1: look at transportation equipment, the deficit in transportation equipment between
Speaker 1: the US and Mexico is actually larger than the entire
Speaker 1: US trade deficit, So meaning if you strip that component
Speaker 1: out there, we would actually be running a trade surplus
Speaker 1: of Mexican. So is this basically the flip side of
Speaker 1: Ford and GM manufacturing their cars in Mexico or car parts?
Speaker 1: It's two things. It's uh, exactly what you just said.
Speaker 1: Car companies building their cars in Mexico and bringing them back.
Speaker 1: And it's also all the parts being produced in Mexico
Speaker 1: that are being used in cars that are assembled in
Speaker 1: the US. When you when you break it out by state,
Speaker 1: the two largest states with the deficits that are Michigan
Speaker 1: and obviously cars in California, which is cars is number one,
Speaker 1: but then computer parts is number two. But why why
Speaker 1: I went into all this is if your President Trump
Speaker 1: and your biggest concern is the trade deficit, and you're
Speaker 1: renegotiating renegotiating NAFTA with that in mind, it's hard to
Speaker 1: see how you're going to ignore this sector. But that's
Speaker 1: kind of what was indicated by the to me at
Speaker 1: least when I read the summary that the trade representatives
Speaker 1: had put out. So I'm just trying to wrap my
Speaker 1: head around this, because we were talking before the segment
Speaker 1: that these negotiations have a pretty accelerated time frame, that
Speaker 1: there is some expectation of a renegotiated deal by the
Speaker 1: end of the year, which seems actually pretty ambitious given
Speaker 1: the fact that there are so many moving parts and
Speaker 1: there is so much political capital that President Trump has
Speaker 1: tied up in this. Can you give us a sense
Speaker 1: of what the competing factions will be, whether you know
Speaker 1: how many people are going to be involved with this,
Speaker 1: where these negotiations are going to be held, well, I
Speaker 1: think I think there's a round being held in each country,
Speaker 1: but I think they have this end of year deadline.
Speaker 1: But I think even Lightheiser himself has said he's not
Speaker 1: holding any commitments to necessarily meeting that deadline. So I think,
Speaker 1: you know the baseline what most people think is this
Speaker 1: is going to be some very minimal changes that actually
Speaker 1: occurred in AFT. And if you look at how strongly
Speaker 1: the Mexican pesos rallied, it's had been the strongest performing
Speaker 1: currency year to day. It may still be, and this
Speaker 1: is because a lot of the fears that people had
Speaker 1: have alleviated a bit. Well. But this idea of the
Speaker 1: auto sector and the auto parts sector, though, raises the
Speaker 1: specter of some more damage to Mexico's economy because you
Speaker 1: were saying that this accounts for what three they're total
Speaker 1: GDP long term pending. How this if if if they
Speaker 1: were to go after that sector, you could have the
Speaker 1: Mexico's long term growth potential could come down a bit.
Speaker 1: Given how the magnetus out of this to Mexico's GDP,
Speaker 1: and it's been growing every year. It's becoming a more
Speaker 1: important part of Mexico's economy. It just surprises me that
Speaker 1: there isn't more of an outcry from GM and Ford
Speaker 1: because you know, in in back office rooms are saying, look,
Speaker 1: we want to provide cheaper cars, we provide labor to Mexico.
Speaker 1: Mexico's economy grows, it helps us because then we could
Speaker 1: sell our cars. If we make everything in the US,
Speaker 1: it would cost us a lot more. So far, so far,
Speaker 1: there's no reason to be necessarily right. All signs are
Speaker 1: pointing to that that there's going to be relatively minor
Speaker 1: changes to this agreement. I think the trade representatives had
Speaker 1: gone in and said the process is going to be
Speaker 1: do no harm. Uh. So you know, President Trump hasn't
Speaker 1: been that outspoken about and after renegotiations recently, so I
Speaker 1: don't He's been more centered around China. So I think
Speaker 1: that that's why you haven't heard as much about this.
Speaker 1: The baseline view is right now that this is going
Speaker 1: to go over relatively minimal changes again and pains free,
Speaker 1: pain free talking about China. Last night, I saw the
Speaker 1: headlines have about China underperforming in July with respect expectations
Speaker 1: about how much their economy grew and how much their
Speaker 1: industrial output grew. People seem to not care at all today. Yeah,
Speaker 1: and I think that's the right thing. Actually wrote about
Speaker 1: this in my my macro musings today. And the fact
Speaker 1: is China had a much better than expected first half
Speaker 1: of the year, uh and ending that they had a
Speaker 1: much much much better than expected June. So you saw
Speaker 1: a little bit that you saw the data come back
Speaker 1: a little bit in July. When you look at what
Speaker 1: happened in June and what happened in July, what it
Speaker 1: really is pointing to is a bit of a return
Speaker 1: to normalcy or or a moderate slowdown in growth. So
Speaker 1: you know, everyone expects China's GDP growth is going to
Speaker 1: decelerate for the remainder of the year. The thing is
Speaker 1: it hadn't actually done that yet, So now it's finally
Speaker 1: showing signs that it will start to decelerate a bit.
Speaker 1: Although you had the Statistic Statistics Bureau coming out and
Speaker 1: saying they're hidden risks and their problems out there. So
Speaker 1: so the Statistical Bureau basically said what we've been talking
Speaker 1: about on the show for I don't know how many
Speaker 1: years everybody everybody, everybody knows there's hidden risks, right, you
Speaker 1: have you do have a You're you're gonna have a
Speaker 1: moderate slowdown in economic growth in China. And another important
Speaker 1: thing to keep in mind is you have twice a
Speaker 1: decade leadership transition occurring later this year. They're going to
Speaker 1: do whatever they need to do to maintain stability around that.
Speaker 1: They're going to let growth decelerate a bit, because that's
Speaker 1: what everyone expects. It's still even above the six and
Speaker 1: a half percent target, but there if it looks like
Speaker 1: it's going a bit slower than that, then you know,
Speaker 1: you could see reverse reversal of some tightening that had
Speaker 1: taken place earlier this year. Who doesn't know about the
Speaker 1: hidden risks? Mike mcduonda, thank you so much for joining us.
Speaker 1: A pleasure as always. Mike mcdonna is Global director of
Speaker 1: Economic Research and Chief Economist for Bloomberg Intelligence based in
Speaker 1: New York. Thanks for listening to the Bloomberg P and
Speaker 1: L podcast. You can subscribe and listen to interviews at
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
Speaker 1: Pim Fox. I'm on Twitter at Pam Fox. I'm on
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
Speaker 1: can always catch us worldwide on Bloomberg Radio