1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:22,520 Speaker 1: at Bloomberg dot com. Well, Tesla reporter results last night. 8 00:00:22,560 --> 00:00:25,279 Speaker 1: I think they're probably best characterized as a mixed bag, 9 00:00:25,440 --> 00:00:27,560 Speaker 1: but there was drama on the conference call, as are 10 00:00:27,600 --> 00:00:29,840 Speaker 1: typically as with Tesla when it was announced that the 11 00:00:29,880 --> 00:00:33,760 Speaker 1: CFO surprisingly is going to depart. The company of stockers 12 00:00:33,760 --> 00:00:36,800 Speaker 1: down about one percent this morning and trading joining us 13 00:00:36,800 --> 00:00:38,519 Speaker 1: a kind of dig through what's going on with Tesla 14 00:00:38,600 --> 00:00:42,400 Speaker 1: is Gordon Johnson. Gordon is a managing director research channels 15 00:00:42,440 --> 00:00:46,040 Speaker 1: covering alternative energy, metals and mining and equipment from Vertical Group. 16 00:00:46,400 --> 00:00:49,000 Speaker 1: He joins us in our Bloomberg Interactive Broker Studios here 17 00:00:49,080 --> 00:00:51,600 Speaker 1: in New York. Gordon, thanks for joining us. Let me 18 00:00:51,640 --> 00:00:54,240 Speaker 1: just start with the c f O news. It just 19 00:00:54,280 --> 00:00:57,400 Speaker 1: seems like I just remember him coming back for a 20 00:00:57,480 --> 00:01:00,800 Speaker 1: second stint. The CFO and now he's leaving. What's going on? Right? 21 00:01:00,880 --> 00:01:03,760 Speaker 1: So I think that when you combine with the CFO leaving, 22 00:01:03,760 --> 00:01:07,440 Speaker 1: which was unexpected um, you've had four vice presidents of 23 00:01:07,480 --> 00:01:11,600 Speaker 1: finance leave since seventeen. You have the chief accounting officer 24 00:01:11,760 --> 00:01:14,920 Speaker 1: at Tessa leave um with just a month on the 25 00:01:15,000 --> 00:01:18,119 Speaker 1: job unexpectedly um. And now you have the CFO leaving 26 00:01:18,440 --> 00:01:22,479 Speaker 1: and effectively the new CFO was just promoted to vice 27 00:01:22,520 --> 00:01:26,560 Speaker 1: president in December and has no specific accounting experience. I 28 00:01:26,560 --> 00:01:30,200 Speaker 1: think this is a huge loss of institutional knowledge UM 29 00:01:30,240 --> 00:01:34,119 Speaker 1: and a concern again given the finance departures we've seen 30 00:01:34,120 --> 00:01:37,399 Speaker 1: at Tesla more recently. So Gordon, you're you're a longtime 31 00:01:37,400 --> 00:01:41,000 Speaker 1: Tesla beer right and you are you maintain a seventy 32 00:01:41,040 --> 00:01:44,000 Speaker 1: two dollar pre share price target, which is a huge 33 00:01:44,040 --> 00:01:46,440 Speaker 1: decline from where we are today, and you said you 34 00:01:46,440 --> 00:01:50,040 Speaker 1: would be aggressively adding to any Tesla short positions here. Correct, 35 00:01:50,320 --> 00:01:52,400 Speaker 1: bondom markets don't agree with you because the bonds are 36 00:01:52,400 --> 00:01:55,040 Speaker 1: actually going up and usually the bottom markets is a 37 00:01:55,080 --> 00:01:57,600 Speaker 1: smart money. Why are they wrong? Right? So? I think 38 00:01:57,600 --> 00:02:00,280 Speaker 1: the reason they're wrong is because Tesla reported a hash 39 00:02:00,280 --> 00:02:03,440 Speaker 1: balance of three point seven billion. However, if you look 40 00:02:03,440 --> 00:02:06,000 Speaker 1: at their interest income in the quarter, and divided by 41 00:02:06,040 --> 00:02:09,320 Speaker 1: that cash balance, you get an annualized return of roughly 42 00:02:09,480 --> 00:02:12,720 Speaker 1: eight or point eight percent, whereas in the in the 43 00:02:12,760 --> 00:02:15,960 Speaker 1: fourth quarter, the three year Treasury bill returned two point 44 00:02:16,040 --> 00:02:19,560 Speaker 1: six percent. So, either they're the most inefficient managers of 45 00:02:19,560 --> 00:02:21,880 Speaker 1: cash we've ever seen, which I think is highly unlikely. 46 00:02:22,080 --> 00:02:25,240 Speaker 1: Are their cash balance is significantly less than what they're reporting. 47 00:02:25,440 --> 00:02:27,720 Speaker 1: So I think that's why the bond investors are reacting 48 00:02:28,080 --> 00:02:31,160 Speaker 1: um uh positively, but we're still quite concerned they're not 49 00:02:31,200 --> 00:02:33,440 Speaker 1: going to be able to pay off that that convertible 50 00:02:33,600 --> 00:02:35,639 Speaker 1: uh in March. Okay, hold on a second. So you're 51 00:02:35,680 --> 00:02:38,240 Speaker 1: saying that they're they're massaging the numbers. Is that the idea. 52 00:02:38,480 --> 00:02:40,280 Speaker 1: I don't want to say they're pressaging the numbers, but 53 00:02:40,320 --> 00:02:43,359 Speaker 1: I think what they do is they delay paying their 54 00:02:43,400 --> 00:02:46,640 Speaker 1: suppliers until days after the quarter to allow them to 55 00:02:46,800 --> 00:02:49,359 Speaker 1: report a cash balance UM at the end of the 56 00:02:49,400 --> 00:02:52,000 Speaker 1: quarter that is much higher than the average cash balance. 57 00:02:52,080 --> 00:02:54,760 Speaker 1: And you can see this in Q three, Q two, 58 00:02:54,840 --> 00:02:58,160 Speaker 1: Q one UM and and it hasn't always been the case. 59 00:02:58,200 --> 00:03:01,240 Speaker 1: So um Again, Either they're the worst managers of cash, 60 00:03:01,320 --> 00:03:04,040 Speaker 1: worse than you know, a retail investor who could just 61 00:03:04,080 --> 00:03:06,280 Speaker 1: park their money in three month treasury bills or their 62 00:03:06,280 --> 00:03:08,680 Speaker 1: cash balance is significantly less than what they're reporting. We 63 00:03:08,680 --> 00:03:10,560 Speaker 1: think it's the latter that sounds a little bit like 64 00:03:10,600 --> 00:03:13,320 Speaker 1: massaging in the numbers to me, UM, I think, let's 65 00:03:13,400 --> 00:03:16,880 Speaker 1: let's move. So how about the underlying fundamentals? Um, is 66 00:03:17,200 --> 00:03:19,880 Speaker 1: you know what did you see in the quarter last night? Uh? 67 00:03:20,080 --> 00:03:22,560 Speaker 1: To give you a sense that you know, they are 68 00:03:22,720 --> 00:03:25,080 Speaker 1: remain challenged to meet some of their either the product 69 00:03:25,360 --> 00:03:28,600 Speaker 1: production goals and or profit goals. Right, So keep in mind, 70 00:03:28,639 --> 00:03:31,520 Speaker 1: we just updated our bottom up model and we projected 71 00:03:31,520 --> 00:03:34,320 Speaker 1: a gap EPs number of seventy nine. Since they came 72 00:03:34,360 --> 00:03:36,200 Speaker 1: in at seventy eight, the street was out of over 73 00:03:36,240 --> 00:03:39,720 Speaker 1: a dollar. Think about this. Tesla built three years of 74 00:03:39,840 --> 00:03:43,400 Speaker 1: backlog via the Model three, and like the Sports Illustrated 75 00:03:43,440 --> 00:03:45,480 Speaker 1: article said today, it was a bait and switch strategy. 76 00:03:45,480 --> 00:03:46,880 Speaker 1: They said it was gonna be twenty seven and a 77 00:03:46,920 --> 00:03:50,000 Speaker 1: half thousand dollars be fully autonomous. I mean you could 78 00:03:50,000 --> 00:03:51,760 Speaker 1: literally crawl on the back, sleep and drive coast to 79 00:03:51,800 --> 00:03:54,240 Speaker 1: coast and you're gonna have free supercharging. None of that's true. 80 00:03:54,240 --> 00:03:57,400 Speaker 1: The car costs fifty five thousand dollars out the gate um. Clearly, 81 00:03:57,400 --> 00:03:59,600 Speaker 1: I don't think anybody in their right mind is going 82 00:03:59,680 --> 00:04:03,040 Speaker 1: to allow Tesla to drive them around without paying attention. 83 00:04:03,200 --> 00:04:06,120 Speaker 1: There's been fifty two deaths reported either associated indirectly or 84 00:04:06,160 --> 00:04:09,320 Speaker 1: directly with Tesla, and clearly the supercharging costs money. So 85 00:04:09,360 --> 00:04:11,080 Speaker 1: what they did in Q three is they took that 86 00:04:11,360 --> 00:04:14,480 Speaker 1: huge mode of backlog and basically in Q three and 87 00:04:14,520 --> 00:04:18,280 Speaker 1: four sold cars to the best part of that backlog, 88 00:04:18,320 --> 00:04:20,120 Speaker 1: i e. The guys who are willing to pay the most. 89 00:04:20,560 --> 00:04:23,039 Speaker 1: So if you look to what they're guiding for next year, 90 00:04:23,080 --> 00:04:25,320 Speaker 1: for this year rather twenty nineteen, they're saying three hundred 91 00:04:25,320 --> 00:04:28,560 Speaker 1: and sixty to four hundred thousand cars sold. If you 92 00:04:28,560 --> 00:04:31,760 Speaker 1: look at their Q four deliveries, multiply that by four 93 00:04:32,160 --> 00:04:34,120 Speaker 1: and use the low end of that guidance, they're actually 94 00:04:34,120 --> 00:04:38,200 Speaker 1: guiding cells unit cells down in twenty nineteen, despite the 95 00:04:38,200 --> 00:04:39,960 Speaker 1: fact that on Q four numbers they're trading out a 96 00:04:40,040 --> 00:04:43,160 Speaker 1: ninety times forward e PE multiple when other car companies 97 00:04:43,160 --> 00:04:45,600 Speaker 1: traded six to five six, five to six times. We 98 00:04:45,839 --> 00:04:49,120 Speaker 1: think there's big risk in the in in the stock. Certainly, 99 00:04:49,160 --> 00:04:51,040 Speaker 1: I think most would agree with you that there's big 100 00:04:51,120 --> 00:04:52,760 Speaker 1: risk in the stock, just based on how much. It's 101 00:04:52,760 --> 00:04:55,679 Speaker 1: been swinging around. But Gordon, I'm wondering, let's say Tesla 102 00:04:55,880 --> 00:04:59,720 Speaker 1: is able to pay off its convertible bond. Uh is 103 00:04:59,760 --> 00:05:01,960 Speaker 1: your pieces wrong? I mean, is that is that going 104 00:05:02,040 --> 00:05:05,599 Speaker 1: to be enough of prolonging any sort of liquidity event 105 00:05:05,920 --> 00:05:09,000 Speaker 1: that Tesla can keep on going trying to make it work. No, 106 00:05:09,080 --> 00:05:11,200 Speaker 1: I mean everybody says if they're able to raise debt, 107 00:05:11,279 --> 00:05:13,360 Speaker 1: you know that's gonna be great for the stock. Look, 108 00:05:13,440 --> 00:05:16,919 Speaker 1: they burn a lot of money. Um keep in mind 109 00:05:17,440 --> 00:05:20,400 Speaker 1: in in in the fourth quarter they had huge demand 110 00:05:20,400 --> 00:05:22,640 Speaker 1: pool in the United States because their tax credit got 111 00:05:22,680 --> 00:05:26,360 Speaker 1: cut in half one one nineteen in in in the Netherlands, right, 112 00:05:26,520 --> 00:05:29,240 Speaker 1: European cells of Tesla and ten were up six percent 113 00:05:29,640 --> 00:05:31,960 Speaker 1: if you assume that that's because Netherlands cells were up 114 00:05:32,000 --> 00:05:34,640 Speaker 1: a hundred and fifty eight percent. Germany was down forty, 115 00:05:34,760 --> 00:05:37,640 Speaker 1: Spain was down like roughly twenty, the UK was down 116 00:05:37,760 --> 00:05:40,279 Speaker 1: roughly thirty. The point is the Netherlands had a big 117 00:05:40,400 --> 00:05:43,560 Speaker 1: tax in centive for for Tesla cars that got cut 118 00:05:43,920 --> 00:05:46,280 Speaker 1: January one. We think Netherlands cells are gonna be down 119 00:05:46,360 --> 00:05:49,360 Speaker 1: eight percent in Q one. So the point is they've 120 00:05:49,400 --> 00:05:52,440 Speaker 1: had a big benefit in Q four that benefit is 121 00:05:52,480 --> 00:05:55,120 Speaker 1: over UM. I think they're guiding to huge decline. We 122 00:05:55,160 --> 00:05:57,320 Speaker 1: think the street numbers for Q one on revenue are 123 00:05:57,400 --> 00:05:59,920 Speaker 1: roughly one point five billion too high given Tesla's guide 124 00:05:59,920 --> 00:06:02,440 Speaker 1: and UM and you have real competition coming in in 125 00:06:02,480 --> 00:06:04,640 Speaker 1: the back half this year. So I think they go 126 00:06:04,680 --> 00:06:07,000 Speaker 1: back into losing money in Q one. I think basically 127 00:06:07,080 --> 00:06:09,880 Speaker 1: that's there, that's effectively their guidance. I think they lose 128 00:06:09,960 --> 00:06:11,560 Speaker 1: more money in Q two and more money in Q 129 00:06:11,680 --> 00:06:14,400 Speaker 1: three and four. UM. So if you give a company 130 00:06:14,440 --> 00:06:17,320 Speaker 1: money who just perpetually burns cash, is that a good thing? 131 00:06:17,360 --> 00:06:19,440 Speaker 1: I don't think so. So. I I just think their 132 00:06:19,440 --> 00:06:22,000 Speaker 1: business model was floor I think Elon Musk's tried to 133 00:06:22,400 --> 00:06:24,800 Speaker 1: change the way you manufacture cars from the car companies 134 00:06:24,800 --> 00:06:27,000 Speaker 1: that have done it before. It hasn't worked, and I 135 00:06:27,040 --> 00:06:28,520 Speaker 1: think the costs are too high. I think they're gonna 136 00:06:28,560 --> 00:06:30,720 Speaker 1: burn a lot of money this year. Gordon Johnson, thank 137 00:06:30,720 --> 00:06:33,320 Speaker 1: you so much for being with us. Gordon Johnson, Managing 138 00:06:33,320 --> 00:06:37,279 Speaker 1: director focused on Alternative Energy, Metals and Mining and Equipment 139 00:06:37,600 --> 00:06:40,599 Speaker 1: UH spaces for the Vertical Group in New York, joining 140 00:06:40,640 --> 00:06:57,000 Speaker 1: us here in our eleven three oh studios. Well, we 141 00:06:57,040 --> 00:06:59,080 Speaker 1: are right in the midst of tech earnings. We had 142 00:06:59,120 --> 00:07:01,599 Speaker 1: Facebook last night, the blowout quarter, that stock is up, 143 00:07:02,760 --> 00:07:05,960 Speaker 1: Microsoft that generally inline quarter stocks off a little bit today, 144 00:07:06,000 --> 00:07:08,520 Speaker 1: and of course after the close tonight, we have Amazon. 145 00:07:08,640 --> 00:07:11,360 Speaker 1: So to help us kind of way through all things tech, 146 00:07:11,440 --> 00:07:14,400 Speaker 1: we have David Garrity joining us. David's the chief market 147 00:07:14,440 --> 00:07:16,520 Speaker 1: strategist at laid Law and Company. He joins us in 148 00:07:16,520 --> 00:07:18,960 Speaker 1: our Bloomberg eleven three oh studios. David, thank you for 149 00:07:19,080 --> 00:07:22,920 Speaker 1: joining us. Let's start with Facebook. Wow, what a quarter, 150 00:07:23,000 --> 00:07:26,000 Speaker 1: I think. Uh, I guess it's just people saying, I 151 00:07:26,040 --> 00:07:27,960 Speaker 1: guess this thing is not going to be rolled over 152 00:07:27,960 --> 00:07:30,200 Speaker 1: by the regulators. Well, one would argue that there are 153 00:07:30,200 --> 00:07:32,760 Speaker 1: signs of life in terms of Facebook, and one has 154 00:07:32,800 --> 00:07:34,880 Speaker 1: to bear in mind also looking at the fourth quarter, 155 00:07:35,480 --> 00:07:38,360 Speaker 1: like other online internet companies, there is a bump in 156 00:07:38,480 --> 00:07:41,400 Speaker 1: the calendar year end um, and certainly they saw that, 157 00:07:41,520 --> 00:07:44,120 Speaker 1: but clearly against the negative news slow scene over the 158 00:07:44,160 --> 00:07:47,040 Speaker 1: course of two thousand and eighteen. Um, you know, there 159 00:07:47,040 --> 00:07:49,400 Speaker 1: are signs that people now think that there's alive and 160 00:07:49,440 --> 00:07:52,480 Speaker 1: well and all clear can be found on Facebook. But 161 00:07:52,520 --> 00:07:55,320 Speaker 1: one has to consider the news that came out just 162 00:07:55,520 --> 00:07:58,520 Speaker 1: recently within the last day or so that Apple had 163 00:07:58,560 --> 00:08:02,760 Speaker 1: decided to basically remove Facebook from the Apple App Store, 164 00:08:03,080 --> 00:08:05,920 Speaker 1: which brings up the basic point that while people may 165 00:08:05,920 --> 00:08:09,440 Speaker 1: be concerned about public sector regulators, when it comes down 166 00:08:09,480 --> 00:08:12,679 Speaker 1: to looking at the structure of the technology industry where 167 00:08:12,680 --> 00:08:16,360 Speaker 1: you have companies like Facebook who depend upon others operating 168 00:08:16,400 --> 00:08:19,960 Speaker 1: system platforms, whether it's Android from Google or whether it's 169 00:08:20,000 --> 00:08:23,280 Speaker 1: iOS from Apple, Facebook really is in a world that 170 00:08:23,360 --> 00:08:28,480 Speaker 1: other people ship set the conditions for and from that standpoint, Facebook, 171 00:08:28,480 --> 00:08:30,080 Speaker 1: for lack of a better term, has to depend on 172 00:08:30,120 --> 00:08:32,520 Speaker 1: the kindness of strangers. Okay, can you just give us 173 00:08:32,520 --> 00:08:34,880 Speaker 1: a sense of how important this really is. I mean, 174 00:08:34,920 --> 00:08:37,720 Speaker 1: if Apple removes Facebook from its app store, can people 175 00:08:37,800 --> 00:08:43,160 Speaker 1: not buy or not download the Facebook app on their iPhones? 176 00:08:43,600 --> 00:08:45,200 Speaker 1: Is that what this is basically saying. Or they just 177 00:08:45,200 --> 00:08:46,959 Speaker 1: have to work a little harder to do so. People 178 00:08:47,000 --> 00:08:48,920 Speaker 1: can still work a little bit harder go through their 179 00:08:48,960 --> 00:08:51,720 Speaker 1: web browsers. But the issue is if there are things 180 00:08:51,760 --> 00:08:55,080 Speaker 1: that are made more difficult for consumers over time, it 181 00:08:55,160 --> 00:08:58,920 Speaker 1: certainly serves to dampen adoption in that regard, and I 182 00:08:58,920 --> 00:09:01,080 Speaker 1: would argue that if we start looking at what Apple 183 00:09:01,080 --> 00:09:04,320 Speaker 1: has been saying in terms of the company's policy towards 184 00:09:04,400 --> 00:09:08,199 Speaker 1: upholding individuals rights to data privacy is that the reason 185 00:09:08,200 --> 00:09:10,960 Speaker 1: why they did this, certainly because what was happening in 186 00:09:11,000 --> 00:09:15,160 Speaker 1: the case of Facebook is that they were essentially misusing 187 00:09:15,280 --> 00:09:18,440 Speaker 1: the app store platform to go out and to pay 188 00:09:19,000 --> 00:09:23,439 Speaker 1: um Facebook subscribers or Facebook users, uh, you know, twenty 189 00:09:23,480 --> 00:09:26,240 Speaker 1: dollars to basically take down all of their data. And 190 00:09:26,240 --> 00:09:28,440 Speaker 1: this was not something that Apple had been made aware 191 00:09:28,480 --> 00:09:31,240 Speaker 1: of when this was being put up on the Apple 192 00:09:31,320 --> 00:09:33,640 Speaker 1: App Store. And again I would just go back and 193 00:09:33,679 --> 00:09:36,440 Speaker 1: say that, you know, Tim cook out of the technology 194 00:09:36,480 --> 00:09:39,920 Speaker 1: sector c e O S has been fairly straightforward and 195 00:09:39,920 --> 00:09:43,439 Speaker 1: and an upright in regarding data privacy as being an 196 00:09:43,440 --> 00:09:47,240 Speaker 1: individual right. And certainly the company in its actions Apple 197 00:09:47,640 --> 00:09:49,880 Speaker 1: is showing that they're going to be taking Facebook on 198 00:09:50,240 --> 00:09:53,160 Speaker 1: in because you know, Jeff Zuckerberg on the earnings call 199 00:09:53,240 --> 00:09:55,760 Speaker 1: last night seemed to suggest that after a year of 200 00:09:55,800 --> 00:09:58,360 Speaker 1: hard work at the company and investment in personnel to 201 00:09:58,640 --> 00:10:02,040 Speaker 1: monitor content and privacy see and investments in technology, that 202 00:10:02,120 --> 00:10:04,600 Speaker 1: the company had in his mind, kind of turned the 203 00:10:04,720 --> 00:10:07,440 Speaker 1: corner on what was a very difficult time for the 204 00:10:07,480 --> 00:10:10,440 Speaker 1: company um and that they've gotten to handle on it 205 00:10:10,559 --> 00:10:12,640 Speaker 1: and they're ready to move forward and go back to 206 00:10:12,679 --> 00:10:14,920 Speaker 1: being the innovative and focus on the business. Do you 207 00:10:14,960 --> 00:10:18,319 Speaker 1: think the company has turned the corner from that regulatory 208 00:10:18,360 --> 00:10:21,200 Speaker 1: overhang type of perspective. Well, I mean, those are wonderful 209 00:10:21,240 --> 00:10:24,720 Speaker 1: comments that go into an earnings conference called script But 210 00:10:24,920 --> 00:10:28,000 Speaker 1: when we start coming up against factors and it's here 211 00:10:28,080 --> 00:10:30,040 Speaker 1: really more in the case of Apple. Not to sort 212 00:10:30,080 --> 00:10:32,320 Speaker 1: of focus in too hard on this, but dealing with 213 00:10:32,360 --> 00:10:36,000 Speaker 1: public sector regulators is one thing. Obviously it takes time 214 00:10:36,000 --> 00:10:38,040 Speaker 1: for them to act. That can be slow. But when 215 00:10:38,080 --> 00:10:40,480 Speaker 1: you have a private sector partner, and I don't know 216 00:10:40,520 --> 00:10:42,280 Speaker 1: to what extent you can really can say Apple is 217 00:10:42,320 --> 00:10:44,800 Speaker 1: a partner, it just happens to be that Facebook is 218 00:10:44,880 --> 00:10:48,199 Speaker 1: operating off of an iOS platform in part to get 219 00:10:48,240 --> 00:10:50,880 Speaker 1: to the subscriber base that Apple has. If a private 220 00:10:50,880 --> 00:10:54,840 Speaker 1: sector company decides to act and clearly act quickly, this 221 00:10:54,880 --> 00:10:57,040 Speaker 1: can be something that I think has far more negative 222 00:10:57,280 --> 00:11:00,520 Speaker 1: impact potentially going down the road the necessar early something 223 00:11:00,520 --> 00:11:02,440 Speaker 1: that might come out of the public sector. But don't 224 00:11:02,440 --> 00:11:04,959 Speaker 1: diminish the fact that the public sector itself may be 225 00:11:05,080 --> 00:11:09,600 Speaker 1: poised from the regulatory standpoint to impose significant finds relative 226 00:11:09,600 --> 00:11:12,719 Speaker 1: to Facebook. All right, so, David, it sounds like you 227 00:11:12,960 --> 00:11:16,000 Speaker 1: have a lot of barishness around the edges about Facebook, 228 00:11:16,000 --> 00:11:18,240 Speaker 1: and yet this is not reflected at all in the 229 00:11:18,240 --> 00:11:21,559 Speaker 1: shares today. Shares of Facebook are up, they're surging, They're 230 00:11:21,640 --> 00:11:27,360 Speaker 1: up at the biggest one day gains in January. So 231 00:11:27,679 --> 00:11:30,280 Speaker 1: do you think that the shares should be much lower 232 00:11:30,320 --> 00:11:32,959 Speaker 1: than where they are today or do you think that 233 00:11:33,160 --> 00:11:35,839 Speaker 1: these are all just potential headwinds that investors need to 234 00:11:35,880 --> 00:11:38,960 Speaker 1: be thinking about, even as UH they go full speed 235 00:11:39,000 --> 00:11:41,320 Speaker 1: into Facebook shares. And clearly, if you look back over 236 00:11:41,360 --> 00:11:43,440 Speaker 1: the last two months, with the market having sold off 237 00:11:43,480 --> 00:11:47,240 Speaker 1: going into Christmas, Facebook down a dollars was probably a 238 00:11:47,280 --> 00:11:49,600 Speaker 1: bye going into the earnings, I would say that what 239 00:11:49,640 --> 00:11:52,439 Speaker 1: we're seeing here with Facebook as a relief rally, if 240 00:11:52,440 --> 00:11:53,800 Speaker 1: we go back and look at the high on the 241 00:11:53,800 --> 00:11:56,520 Speaker 1: stock up of over to twenty back in July, UM, 242 00:11:56,559 --> 00:11:58,400 Speaker 1: I would say that that's probably a level we're still 243 00:11:58,440 --> 00:12:00,880 Speaker 1: not going to get back to. You know, clearly this 244 00:12:00,960 --> 00:12:03,800 Speaker 1: is a trade UH. And from that standpoint, I see 245 00:12:03,920 --> 00:12:06,560 Speaker 1: Facebook is still being in a situation where they don't 246 00:12:06,559 --> 00:12:09,800 Speaker 1: really control their own destiny given the operations and how 247 00:12:09,800 --> 00:12:13,520 Speaker 1: they're structured depending upon these other technology platforms. I mean, 248 00:12:13,600 --> 00:12:16,120 Speaker 1: just to raise an issue and segue over towards Amazon. 249 00:12:16,520 --> 00:12:20,079 Speaker 1: If we start looking at Amazon having gone through and 250 00:12:20,120 --> 00:12:23,440 Speaker 1: looked at various sectors to go into to basically take 251 00:12:23,480 --> 00:12:27,720 Speaker 1: on advertising, advertising revenues for Amazon is a growth area. 252 00:12:28,040 --> 00:12:32,280 Speaker 1: And if Amazon has far better access to an insight 253 00:12:32,400 --> 00:12:36,319 Speaker 1: into what consumers are actually doing, Amazon can sort of say, look, 254 00:12:36,800 --> 00:12:40,360 Speaker 1: we respect people's privacy in terms of their data. We're 255 00:12:40,400 --> 00:12:43,680 Speaker 1: not out basically stepping on all sorts of people's toes 256 00:12:43,760 --> 00:12:46,040 Speaker 1: to get to that data. We can get through it 257 00:12:46,080 --> 00:12:49,040 Speaker 1: with far less complication. They can go in and say, 258 00:12:49,160 --> 00:12:52,520 Speaker 1: will provide you with the targeting that Facebook provides. I 259 00:12:52,600 --> 00:12:55,000 Speaker 1: guess what, We'll do it at a better price. So 260 00:12:55,080 --> 00:12:58,040 Speaker 1: you I'm glad you brought up Amazon. Of course, they 261 00:12:58,080 --> 00:13:01,320 Speaker 1: report earnings after the close tonight. One of the issues 262 00:13:01,320 --> 00:13:03,679 Speaker 1: in the digital advertising space, one of the concerns I 263 00:13:03,720 --> 00:13:06,200 Speaker 1: think for Madison Avenue and from big advertisers is that 264 00:13:06,320 --> 00:13:10,360 Speaker 1: it's effectively a Dwopoli between Google and Facebook, and they've 265 00:13:10,360 --> 00:13:12,960 Speaker 1: been dying for a third party, whether it's Snapchat or 266 00:13:13,200 --> 00:13:16,640 Speaker 1: Twitter or whatever. And but now it appears that Amazon 267 00:13:16,920 --> 00:13:19,640 Speaker 1: is really starting to focus on the advertising side of 268 00:13:19,679 --> 00:13:22,520 Speaker 1: the business um and they're actually putting up a huge 269 00:13:22,520 --> 00:13:25,360 Speaker 1: growth rates and ad spending. Do you think that Amazon 270 00:13:25,480 --> 00:13:29,280 Speaker 1: can in effect become that third major platform for advertisers 271 00:13:29,280 --> 00:13:32,040 Speaker 1: in the digital space. I would say that Amazon, you know, 272 00:13:32,160 --> 00:13:36,320 Speaker 1: has the potential to displace Facebook in terms of the 273 00:13:36,360 --> 00:13:40,000 Speaker 1: significant role to be played in the online advertising market. 274 00:13:40,240 --> 00:13:42,480 Speaker 1: And if I were a Facebook investor, I would certainly 275 00:13:42,520 --> 00:13:45,760 Speaker 1: be concerned about that. You know, Amazon clearly has a 276 00:13:45,840 --> 00:13:50,720 Speaker 1: number of different channels for growth beyond their traditional retail, 277 00:13:50,720 --> 00:13:52,480 Speaker 1: which clearly is going to benefit from the r end 278 00:13:52,520 --> 00:13:55,679 Speaker 1: holiday shopping season. And certainly, if we look at cloud computing, 279 00:13:55,679 --> 00:13:59,160 Speaker 1: Amazon web services the number one leading platform add on 280 00:13:59,400 --> 00:14:03,640 Speaker 1: advertising relative to this, and certainly the prospects for Amazon 281 00:14:03,679 --> 00:14:06,840 Speaker 1: I would say as an investment certainly superior, I would 282 00:14:06,840 --> 00:14:09,280 Speaker 1: say on a relative basis to likes of a Facebook. 283 00:14:10,120 --> 00:14:12,520 Speaker 1: So just real quick on Amazon, what do you think 284 00:14:12,600 --> 00:14:15,000 Speaker 1: is going to be the biggest surprise today? I think 285 00:14:15,040 --> 00:14:17,280 Speaker 1: the biggest surprise may be very well continue to be 286 00:14:17,400 --> 00:14:19,000 Speaker 1: sort of the growth that we've been seeing in terms 287 00:14:19,000 --> 00:14:21,040 Speaker 1: of cloud services. I think the numbers we had out 288 00:14:21,040 --> 00:14:24,680 Speaker 1: of Microsoft last night were very favorable in that regard, 289 00:14:24,880 --> 00:14:28,360 Speaker 1: and this is certainly a transition that continues on a 290 00:14:28,440 --> 00:14:31,240 Speaker 1: secular basis. You know, granted some of the impact we 291 00:14:31,280 --> 00:14:33,400 Speaker 1: saw with regards to Microsoft, as there might have been 292 00:14:33,400 --> 00:14:35,600 Speaker 1: some slowing in terms of some of the data server 293 00:14:35,960 --> 00:14:39,840 Speaker 1: activities things that had impacted Intel previously. But obviously, you know, 294 00:14:39,880 --> 00:14:43,080 Speaker 1: Amazon is not exposed to that. David Garritty, always wonderful 295 00:14:43,080 --> 00:14:44,680 Speaker 1: having you. Thank you so much for being with us. 296 00:14:44,800 --> 00:14:48,040 Speaker 1: Thank you, David Garretty, of course, joining us here in 297 00:14:48,120 --> 00:14:51,000 Speaker 1: our Bloomberg eleven three oh studio's chief market strategist for 298 00:14:51,080 --> 00:14:55,680 Speaker 1: laid Law and Company in New York. Facebook shares up 299 00:14:56,040 --> 00:14:59,520 Speaker 1: thirteen percent on the heels of that revenue beat and 300 00:14:59,600 --> 00:15:02,960 Speaker 1: frank earnings per share beat all around, giving people a 301 00:15:03,040 --> 00:15:22,880 Speaker 1: sense of relief. As David said, there is a big 302 00:15:23,000 --> 00:15:25,600 Speaker 1: question mark when it comes to Venezuela, and it's a 303 00:15:25,800 --> 00:15:29,320 Speaker 1: huge oil reserves. When will it actually start to begin 304 00:15:29,440 --> 00:15:33,160 Speaker 1: pumping those reserves out and putting them into circulation. Joining 305 00:15:33,200 --> 00:15:34,960 Speaker 1: us down to talk about this and its effect on 306 00:15:35,000 --> 00:15:39,720 Speaker 1: global oil prices is Dr ellen Wald, President of Transversal Consulting, 307 00:15:40,000 --> 00:15:42,880 Speaker 1: also a nonresident Senior Fellow at the Atlantic Council's Global 308 00:15:43,000 --> 00:15:47,600 Speaker 1: Energy Center and contributor to Bloomberg Opinion. Uh. Dr ellen Wall, 309 00:15:47,680 --> 00:15:49,800 Speaker 1: thank you so much for being with us. So let's 310 00:15:49,800 --> 00:15:54,240 Speaker 1: start with the effect that so far the political turmoil 311 00:15:54,240 --> 00:15:56,560 Speaker 1: in Venezuela has had an oil markets. It's sent the 312 00:15:56,640 --> 00:16:00,120 Speaker 1: price up. Does this make sense to you? It does 313 00:16:00,240 --> 00:16:03,560 Speaker 1: make sense to me, because Venezuela's oil, even though right 314 00:16:03,600 --> 00:16:06,800 Speaker 1: now Venezuela actually isn't producing all that much. I think 315 00:16:07,000 --> 00:16:09,720 Speaker 1: it's numbers in December where something like one point one 316 00:16:09,800 --> 00:16:13,120 Speaker 1: seven million barrels per day, which is very low for 317 00:16:13,200 --> 00:16:17,160 Speaker 1: a country like Venezuela. But Venezuela produces a heavy sour 318 00:16:17,280 --> 00:16:20,560 Speaker 1: crude type of crude oil that's very much in demand 319 00:16:20,800 --> 00:16:24,000 Speaker 1: and is not really being produced as much. Right now, 320 00:16:24,040 --> 00:16:26,680 Speaker 1: we get a lot of light crude coming from the 321 00:16:26,720 --> 00:16:29,960 Speaker 1: United States, and the refineries are really looking for the 322 00:16:30,000 --> 00:16:33,840 Speaker 1: type of oil Venezuela produces, and that's probably why we're 323 00:16:33,840 --> 00:16:39,200 Speaker 1: seeing oil prices rise just somewhat right now. Well, Dr Wald, 324 00:16:39,400 --> 00:16:42,960 Speaker 1: Venezuela has one of the largest reserves on the planet, 325 00:16:43,000 --> 00:16:46,720 Speaker 1: within roughly three billion barrels. Can they even get it 326 00:16:46,720 --> 00:16:49,480 Speaker 1: out of the ground, Well, that is the big question. 327 00:16:49,600 --> 00:16:53,680 Speaker 1: And Venezuela's oil is actually much more difficult to extract 328 00:16:53,680 --> 00:16:56,800 Speaker 1: than say, Saudi Arabia's oil. So even though Saudi Arabia 329 00:16:57,000 --> 00:17:00,080 Speaker 1: doesn't have as quite as much oil as Venezuela. It 330 00:17:00,120 --> 00:17:03,360 Speaker 1: produces a lot more. Their infrastructure is much better and 331 00:17:03,400 --> 00:17:07,840 Speaker 1: it's much easier to extract. But Venezuela could be producing 332 00:17:07,920 --> 00:17:10,680 Speaker 1: a lot more than it is. In fact, it's produced 333 00:17:10,720 --> 00:17:13,359 Speaker 1: as much as over three million barrels per day, so 334 00:17:13,480 --> 00:17:16,280 Speaker 1: it's really not living up to its potential. Now. The 335 00:17:16,400 --> 00:17:19,840 Speaker 1: question is, right now, they're facing a lot of problems 336 00:17:19,840 --> 00:17:23,080 Speaker 1: with their infrastructure. Uh. There, people are are starving and 337 00:17:23,160 --> 00:17:27,840 Speaker 1: unable to work, and the company is essentially failing. So say, uh, 338 00:17:28,000 --> 00:17:30,480 Speaker 1: we got rid of all the political trouble and they 339 00:17:30,560 --> 00:17:33,760 Speaker 1: got a new government that was really willing to support 340 00:17:33,800 --> 00:17:36,320 Speaker 1: the company in what it needs. Just how fast could 341 00:17:36,320 --> 00:17:39,439 Speaker 1: they ramp up production? And that is the question. I 342 00:17:39,480 --> 00:17:42,480 Speaker 1: think that they actually could do a lot to get 343 00:17:42,480 --> 00:17:46,200 Speaker 1: that oil flowing very quickly. Perhaps not as much as 344 00:17:46,320 --> 00:17:48,960 Speaker 1: as three million barrels a day, but they certainly could 345 00:17:49,040 --> 00:17:52,440 Speaker 1: increase possibly almost to two and that would really help 346 00:17:52,480 --> 00:17:55,480 Speaker 1: their economy get out of the terrible state it's in. 347 00:17:55,880 --> 00:17:58,840 Speaker 1: So let's say there is resume change in the next 348 00:17:59,000 --> 00:18:02,360 Speaker 1: couple of months. Let's say Huang Guido does take over 349 00:18:02,480 --> 00:18:06,119 Speaker 1: Nicholas Maduro's force out of power. This is a huge conjecture. Obviously, 350 00:18:06,960 --> 00:18:11,480 Speaker 1: let's just say that that happens. If Venezuela could get 351 00:18:11,520 --> 00:18:14,760 Speaker 1: their oil production back online, how much would that flood 352 00:18:14,760 --> 00:18:16,680 Speaker 1: the market? What would that do to the price of oil? 353 00:18:17,560 --> 00:18:20,639 Speaker 1: I think it would definitely push prices down. Um, you know, 354 00:18:20,680 --> 00:18:23,280 Speaker 1: there's still part of OPEC, there's still as far as 355 00:18:23,359 --> 00:18:25,000 Speaker 1: we know, you know, OPEC doesn't seem to have any 356 00:18:25,000 --> 00:18:29,640 Speaker 1: intention to get rid of its production uh cuts right now. 357 00:18:29,680 --> 00:18:32,840 Speaker 1: But Venezuela is allowed to produce under that up to 358 00:18:33,080 --> 00:18:35,720 Speaker 1: I think one point nine seven million barrels a day, 359 00:18:35,920 --> 00:18:39,360 Speaker 1: and they really would do well to push themselves up 360 00:18:39,400 --> 00:18:42,680 Speaker 1: to that limit if they can, as quickly as they can. 361 00:18:43,119 --> 00:18:45,720 Speaker 1: So we definitely could see if if they did get 362 00:18:45,760 --> 00:18:48,520 Speaker 1: that oil in the market, it would push prices down. So, 363 00:18:48,640 --> 00:18:52,240 Speaker 1: Dr Wald, what role if any, do you think Russia 364 00:18:52,280 --> 00:18:56,560 Speaker 1: and China are playing or can play in Venezuela. Um, 365 00:18:56,640 --> 00:18:59,280 Speaker 1: whether it's on the political side or more about you know, 366 00:18:59,840 --> 00:19:03,280 Speaker 1: they are interest in the oil reserves in Venezuela. What 367 00:19:03,359 --> 00:19:05,040 Speaker 1: role do you think they are playing and maybe could 368 00:19:05,040 --> 00:19:08,240 Speaker 1: play going forward? Well, this this is a big question, 369 00:19:08,320 --> 00:19:12,440 Speaker 1: and particularly with regards to Russia, because Russia's loaned them, 370 00:19:13,040 --> 00:19:16,000 Speaker 1: loan them money, and in fact, Ross snaffed the run 371 00:19:16,000 --> 00:19:19,679 Speaker 1: of the Russian oil companies actually has a lean on 372 00:19:19,960 --> 00:19:23,480 Speaker 1: SITCO for its loan. So basically, if if PDVSAY does 373 00:19:23,520 --> 00:19:26,520 Speaker 1: not pay the interest on its loans to Russia, then 374 00:19:26,600 --> 00:19:29,960 Speaker 1: Russia can actually take control of forty nine nine percent 375 00:19:30,480 --> 00:19:34,840 Speaker 1: of the Citgo Refining Company in the United States. According 376 00:19:34,840 --> 00:19:37,119 Speaker 1: to they hold that as collateral. Now, of course the 377 00:19:37,200 --> 00:19:40,080 Speaker 1: question would be will the United States permit that. They 378 00:19:40,080 --> 00:19:43,040 Speaker 1: do have measures they can take to say no, We're 379 00:19:43,040 --> 00:19:45,119 Speaker 1: not going to allow that on national security grounds. But 380 00:19:45,200 --> 00:19:49,159 Speaker 1: it really could uh bring this crisis almost into a 381 00:19:49,280 --> 00:19:54,000 Speaker 1: US Russia issue as opposed to just of Venezuela Russia 382 00:19:54,080 --> 00:19:56,680 Speaker 1: China issue. Now, China and Russia are definitely going to 383 00:19:56,760 --> 00:19:59,800 Speaker 1: do all they can to support Venezuela. Uh, first, they 384 00:20:00,080 --> 00:20:03,679 Speaker 1: their money. They've loaned Venezuela money. They want Venezuela to 385 00:20:03,680 --> 00:20:06,600 Speaker 1: pay that interest. If a new government comes into power, 386 00:20:06,640 --> 00:20:09,960 Speaker 1: that government could say, you know what, those loans were 387 00:20:09,960 --> 00:20:12,879 Speaker 1: made under the Madurou government and that government was illegitimate 388 00:20:12,920 --> 00:20:14,800 Speaker 1: and so we're not going to pay you. So they 389 00:20:14,840 --> 00:20:17,840 Speaker 1: definitely have a vested interest in keeping the Madurou government 390 00:20:18,160 --> 00:20:21,080 Speaker 1: in power. Okay, just real quick here. I'm glad that 391 00:20:21,160 --> 00:20:22,600 Speaker 1: you went there because that was going to be my 392 00:20:22,640 --> 00:20:25,040 Speaker 1: next question. Given the fact that China and Rush would 393 00:20:25,080 --> 00:20:28,800 Speaker 1: like to see Nicholas Maduro remain in charge, how much 394 00:20:28,880 --> 00:20:31,040 Speaker 1: does that make it unlikely that we do see a 395 00:20:31,119 --> 00:20:34,439 Speaker 1: regime change. Well, I really think right now things are 396 00:20:34,520 --> 00:20:37,320 Speaker 1: up in the air. It does seem unlikely given the 397 00:20:37,359 --> 00:20:39,920 Speaker 1: fact that there have been attempts in the past and 398 00:20:40,000 --> 00:20:42,879 Speaker 1: Maduro has uh you know, has rebuffed them. He does 399 00:20:42,920 --> 00:20:45,280 Speaker 1: seem to have control over the army. And really, when 400 00:20:45,280 --> 00:20:48,320 Speaker 1: it comes to regime change, when it comes to revolution 401 00:20:48,440 --> 00:20:51,879 Speaker 1: like this, it does seem that control over the army 402 00:20:52,359 --> 00:20:55,800 Speaker 1: is can be a deciding factor. That being said, it's 403 00:20:56,000 --> 00:20:58,840 Speaker 1: very difficult to predict revolution. Um, we did a very 404 00:20:58,840 --> 00:21:01,359 Speaker 1: bad job of it in it with regard to Iran 405 00:21:01,480 --> 00:21:05,640 Speaker 1: in so I don't want to say that it's not possible. 406 00:21:06,920 --> 00:21:10,640 Speaker 1: Dr Ellen Wall, President Transversal Consulting, Thank you so much 407 00:21:10,880 --> 00:21:13,040 Speaker 1: for joining us. She is a nonresident fellow at the 408 00:21:13,040 --> 00:21:16,520 Speaker 1: Atlantic Council's Global Energy Center and a contributor to Bloombergh Opinion. 409 00:21:16,520 --> 00:21:19,000 Speaker 1: Thank you so much for joining us to discuss what 410 00:21:19,160 --> 00:21:21,520 Speaker 1: is going on in Venezuela, and uh, you know the 411 00:21:21,560 --> 00:21:23,800 Speaker 1: instability there on the political side, and what it means 412 00:21:23,840 --> 00:21:27,760 Speaker 1: for their vast energy reserves. Again, over three million barrels 413 00:21:27,880 --> 00:21:30,919 Speaker 1: in the ground in Venezuela, the largest reserve on the planet. 414 00:21:31,119 --> 00:21:35,879 Speaker 1: Clearly a significant driver of global oil prices from a 415 00:21:35,960 --> 00:21:39,480 Speaker 1: supplied demand perspective. How is this going to play out politically? 416 00:21:39,480 --> 00:21:41,600 Speaker 1: How is this going to play out? We will keep 417 00:21:41,640 --> 00:21:59,679 Speaker 1: our watch. The official manufacturing data that came out of 418 00:21:59,720 --> 00:22:03,119 Speaker 1: China overnight showed a bit of stabilization, but the numbers 419 00:22:03,119 --> 00:22:06,399 Speaker 1: that we're getting out of Chinese companies are pretty bleak. 420 00:22:06,520 --> 00:22:08,440 Speaker 1: Just to give you a picture of the more than 421 00:22:08,480 --> 00:22:11,720 Speaker 1: twenty four hundred mainland listed firms that have announced preliminary 422 00:22:11,760 --> 00:22:14,800 Speaker 1: figures for their earnings were issued guidance this season, uh 423 00:22:14,920 --> 00:22:18,080 Speaker 1: nearly four hundred of them said they'll post a loss. 424 00:22:18,320 --> 00:22:21,000 Speaker 1: There has been disappointment after disappointment. Joining us now to 425 00:22:21,000 --> 00:22:23,560 Speaker 1: talk about the Chinese economy and what we're learning about 426 00:22:23,600 --> 00:22:27,480 Speaker 1: it is Leland Miller, chief executive of China Beige Book International, 427 00:22:27,560 --> 00:22:30,439 Speaker 1: joining us here in our Blue brig Interactive Broker Studios. Leland, 428 00:22:30,760 --> 00:22:33,320 Speaker 1: I am so glad to have you here. What is 429 00:22:33,359 --> 00:22:36,520 Speaker 1: The big takeaway for you as you passed through some 430 00:22:36,560 --> 00:22:39,399 Speaker 1: of these numbers that we see from corporations, well, the 431 00:22:39,440 --> 00:22:42,320 Speaker 1: big takeaway is that the numbers that markets are looking 432 00:22:42,320 --> 00:22:45,560 Speaker 1: at buy and large for macro, the g d P numbers, 433 00:22:45,560 --> 00:22:48,440 Speaker 1: some of the manufacturing p m I numbers look weak, 434 00:22:48,480 --> 00:22:50,280 Speaker 1: but they don't look very weak and as a result, 435 00:22:50,359 --> 00:22:53,439 Speaker 1: they're not reflective of what's actually happening across the Chinese 436 00:22:53,480 --> 00:22:55,840 Speaker 1: economy right now. There is not mild weakness. There's not 437 00:22:55,880 --> 00:22:58,920 Speaker 1: the same weakness that you saw earlier in eighteen, which 438 00:22:58,920 --> 00:23:01,480 Speaker 1: I think was relative be mode weakness. You have much 439 00:23:01,520 --> 00:23:04,320 Speaker 1: more substantial weakness right now. And it's it's a problem 440 00:23:04,400 --> 00:23:07,879 Speaker 1: because it's not being uh, it's not being understood by investors. 441 00:23:07,920 --> 00:23:10,239 Speaker 1: They're just seeing the same trends continue. But but these 442 00:23:10,280 --> 00:23:13,120 Speaker 1: are not the same trends there So Leland, I think 443 00:23:13,119 --> 00:23:16,359 Speaker 1: the market feels. I think the market probably would say 444 00:23:16,720 --> 00:23:20,879 Speaker 1: it's probably discounting in certainly a slowing Chinese economy, and 445 00:23:20,920 --> 00:23:22,280 Speaker 1: if they were to put a number on it in 446 00:23:22,400 --> 00:23:24,280 Speaker 1: terms of GDP, it might be six or six and 447 00:23:24,280 --> 00:23:26,679 Speaker 1: a half percent. Yes, that's down from ten. We recognize 448 00:23:26,680 --> 00:23:29,159 Speaker 1: that we're trying to price that into our models. What 449 00:23:29,240 --> 00:23:31,440 Speaker 1: do you think the real underlying growth of the Chinese 450 00:23:31,480 --> 00:23:34,360 Speaker 1: economy is right now for the fourth quarter. I think 451 00:23:34,400 --> 00:23:37,399 Speaker 1: it's it's less than half that it's probably around two. Uh. 452 00:23:37,440 --> 00:23:40,360 Speaker 1: You know, we we try and annualized, so so we 453 00:23:40,520 --> 00:23:44,400 Speaker 1: so what we what we try to um. We try 454 00:23:44,440 --> 00:23:46,600 Speaker 1: not to harp too much on the GDP number because GDP, 455 00:23:46,720 --> 00:23:49,560 Speaker 1: of course doesn't tell most of the story. If you 456 00:23:49,920 --> 00:23:51,440 Speaker 1: build a bridge, we tell the story at the time. 457 00:23:51,480 --> 00:23:53,360 Speaker 1: If you build a bridge and then you tear it down, 458 00:23:53,400 --> 00:23:54,800 Speaker 1: and you build a bridge again, you tear it down, 459 00:23:54,800 --> 00:23:56,359 Speaker 1: you build a bridge tearer, you can get to whatever 460 00:23:56,400 --> 00:23:59,040 Speaker 1: GDP number you want. So it doesn't reflect restructuring and 461 00:23:59,080 --> 00:24:01,560 Speaker 1: reform and other important parts of what the Chinese are doing. 462 00:24:01,800 --> 00:24:04,240 Speaker 1: But the growth right now compared to what we saw 463 00:24:04,560 --> 00:24:09,360 Speaker 1: earlier in seventeen substantially weaker. Uh. And so it's it's 464 00:24:09,359 --> 00:24:11,440 Speaker 1: it's just it's the idea that it's just down a 465 00:24:11,520 --> 00:24:13,439 Speaker 1: tick from six seven and down to six four. It's 466 00:24:13,440 --> 00:24:15,119 Speaker 1: just it's it's it's a it's a lunacy. So is 467 00:24:15,160 --> 00:24:18,480 Speaker 1: this analogous you Well, we've been seeing a lot of parallels. 468 00:24:19,240 --> 00:24:20,800 Speaker 1: So one of the things that we alerted clients to 469 00:24:20,920 --> 00:24:23,000 Speaker 1: back in the fall was that the run up to 470 00:24:23,840 --> 00:24:26,199 Speaker 1: en was looking a lot like the run up to Steen. 471 00:24:26,280 --> 00:24:28,520 Speaker 1: We were seeing a lot of the same problems. Uh, 472 00:24:28,640 --> 00:24:31,080 Speaker 1: there was earlier in the year there was an official 473 00:24:31,160 --> 00:24:34,320 Speaker 1: data that suggested that maybe things were weaker and they weren't, 474 00:24:34,359 --> 00:24:36,040 Speaker 1: and people got a little bit more comfortable with the 475 00:24:36,080 --> 00:24:38,680 Speaker 1: fact that that, uh, you know, our data earlier in 476 00:24:38,800 --> 00:24:41,600 Speaker 1: ten actually showed that some of this official data which 477 00:24:41,600 --> 00:24:44,119 Speaker 1: had you know, twenty year lows in retail or twenty 478 00:24:44,200 --> 00:24:46,480 Speaker 1: year lows and investment whatever it was, Uh it was, 479 00:24:46,560 --> 00:24:48,280 Speaker 1: it was not as it's not as bad, and so 480 00:24:49,040 --> 00:24:51,680 Speaker 1: earlier in the year, you you had a slowdown, but 481 00:24:51,720 --> 00:24:53,239 Speaker 1: I'm not a substantial one, and I think it's been 482 00:24:53,240 --> 00:24:56,520 Speaker 1: building up to that and the problems we're seeing right now. 483 00:24:56,720 --> 00:24:58,920 Speaker 1: The last time we saw ch China Beige Book data 484 00:24:58,960 --> 00:25:02,440 Speaker 1: this week was first quarter, So I think there's there's 485 00:25:02,440 --> 00:25:04,680 Speaker 1: just a lot of parallels from from three years ago. 486 00:25:04,800 --> 00:25:06,840 Speaker 1: So leveland as you talk to your clients and you 487 00:25:06,840 --> 00:25:08,760 Speaker 1: you suggest that they don't focus too much on that 488 00:25:08,840 --> 00:25:10,760 Speaker 1: g d P number because it can in fact be 489 00:25:10,880 --> 00:25:13,639 Speaker 1: manipulated by the government to a certain extent. What data 490 00:25:13,760 --> 00:25:15,920 Speaker 1: is the best data to really look at to get 491 00:25:15,920 --> 00:25:18,119 Speaker 1: a sense of what's going on in China and what 492 00:25:18,240 --> 00:25:21,720 Speaker 1: influences your estimation of a two or two and a 493 00:25:21,720 --> 00:25:25,560 Speaker 1: half GDP growth. So what we're working looking at very 494 00:25:25,560 --> 00:25:28,600 Speaker 1: closely right now our credit data. Uh there's a belief 495 00:25:28,680 --> 00:25:30,760 Speaker 1: now and this is it's well founded because this is 496 00:25:30,760 --> 00:25:33,280 Speaker 1: the way China's works in the past, that they have downturns, 497 00:25:33,440 --> 00:25:36,439 Speaker 1: but then they stimulate the economy, things get better, you know, 498 00:25:36,760 --> 00:25:39,000 Speaker 1: rinse and repeat. Well, the problem right now is that 499 00:25:39,320 --> 00:25:44,920 Speaker 1: China has not been undergoing this credit starvation, this leveraging, 500 00:25:45,240 --> 00:25:48,439 Speaker 1: this intense to leveraging for for as long as as 501 00:25:48,480 --> 00:25:50,239 Speaker 1: people think. So what we've seen in the last three 502 00:25:50,320 --> 00:25:54,360 Speaker 1: quarters is actually very heavy levels of borrowing from corporates. 503 00:25:54,359 --> 00:25:56,359 Speaker 1: Now they have had a shut of finance crackdown, but 504 00:25:56,440 --> 00:25:58,280 Speaker 1: you have seen some heavy levels of borrowing and that's 505 00:25:58,320 --> 00:26:00,880 Speaker 1: not being understood. So you don't just have monetary stimulus 506 00:26:00,880 --> 00:26:03,600 Speaker 1: button you could turn on in early. They're already borrowing, 507 00:26:03,600 --> 00:26:06,399 Speaker 1: but it's not leading to more investment, it's not helping growth. 508 00:26:06,840 --> 00:26:10,399 Speaker 1: Given that, given the fact that we've seen this uh 509 00:26:10,760 --> 00:26:15,800 Speaker 1: substantial weakness, as you've been saying, amid an elevated level 510 00:26:15,880 --> 00:26:19,960 Speaker 1: of borrowing. How much more ammunition does China have to 511 00:26:20,119 --> 00:26:22,960 Speaker 1: juice growth, well beyond what you think is a two 512 00:26:23,000 --> 00:26:25,760 Speaker 1: percent annualized growth rate, well much less than I think 513 00:26:25,760 --> 00:26:27,880 Speaker 1: people think. And what we keep hearing over and over 514 00:26:27,960 --> 00:26:29,960 Speaker 1: is that will they have fiscal stimulus, and you know 515 00:26:29,960 --> 00:26:31,959 Speaker 1: they're about to do a tax cut that will make 516 00:26:31,960 --> 00:26:35,760 Speaker 1: Donald Trump blush. And the reality of fiscal stimulus is 517 00:26:35,800 --> 00:26:38,119 Speaker 1: that fiscal stimulus in China doesn't really mean fiscal stimuls. 518 00:26:38,200 --> 00:26:41,480 Speaker 1: They have never tried large scale fiscal stimulus. What happened 519 00:26:41,440 --> 00:26:44,840 Speaker 1: in two thousand TED was hybrid monetary policy because what 520 00:26:44,960 --> 00:26:47,560 Speaker 1: was happening was it was infrastructure bills and it was 521 00:26:47,800 --> 00:26:51,240 Speaker 1: other things lending that came out through the state banks. 522 00:26:51,280 --> 00:26:53,760 Speaker 1: It wasn't reflected in a higher budget deficit, was reflected 523 00:26:53,760 --> 00:26:56,320 Speaker 1: in a higher monetary base. So you always have a 524 00:26:56,320 --> 00:27:01,080 Speaker 1: monetary element to all everything they call fiscal. Now, corporations 525 00:27:01,160 --> 00:27:03,720 Speaker 1: don't pay most of their taxes. S s don't pay 526 00:27:03,760 --> 00:27:05,520 Speaker 1: hardly any of their taxes. So the idea they could 527 00:27:05,520 --> 00:27:07,919 Speaker 1: just cut taxes and have this massive stimulus. They can 528 00:27:07,920 --> 00:27:09,560 Speaker 1: get a little bump for a quarter or two, but 529 00:27:09,920 --> 00:27:13,639 Speaker 1: it's not the big it's not the big gun that 530 00:27:13,720 --> 00:27:15,879 Speaker 1: they claim they have in the background. So what fiscal 531 00:27:15,920 --> 00:27:18,080 Speaker 1: stimulus means, it's not really tax cuts, it means more 532 00:27:18,080 --> 00:27:20,639 Speaker 1: fiscal spending. And then you get back to the monetary problem. 533 00:27:20,760 --> 00:27:23,639 Speaker 1: So they're in a little bit of a difficult situation 534 00:27:23,720 --> 00:27:25,880 Speaker 1: right now. They don't want to increase the monetary base. 535 00:27:25,920 --> 00:27:28,080 Speaker 1: But that's how that's the only way they know how 536 00:27:28,200 --> 00:27:30,240 Speaker 1: is to is to is to expand credit and to 537 00:27:30,280 --> 00:27:32,800 Speaker 1: build up infrastructure. Uh, and they're they're not getting much 538 00:27:32,840 --> 00:27:35,360 Speaker 1: of return on it anymore. Okay, so this weaker than 539 00:27:35,440 --> 00:27:38,919 Speaker 1: even maybe the market's discounting economic picture in China. How 540 00:27:39,000 --> 00:27:43,399 Speaker 1: much is that influencing how you think China's approaching trade talks, 541 00:27:43,440 --> 00:27:45,400 Speaker 1: not just the two days we're seeing here in Washington, 542 00:27:45,440 --> 00:27:48,960 Speaker 1: but just in general. Do you really believe that's pushing 543 00:27:48,960 --> 00:27:52,080 Speaker 1: them and sending them to make a deal a real deal? 544 00:27:52,240 --> 00:27:54,680 Speaker 1: Oh yeah, massively. It's well not a real deal. They're 545 00:27:54,680 --> 00:27:56,120 Speaker 1: not gonna make a real deal because they're not being 546 00:27:56,119 --> 00:27:58,240 Speaker 1: asked to make a real deal. So what they will 547 00:27:58,359 --> 00:28:01,080 Speaker 1: They want to have a trade truth so they can 548 00:28:01,280 --> 00:28:04,679 Speaker 1: focus inward and fix some of the problems that are 549 00:28:04,680 --> 00:28:08,000 Speaker 1: happening in the economy. Now, what what would really set 550 00:28:08,040 --> 00:28:11,399 Speaker 1: things off is if these trade talks breakdown and you 551 00:28:11,440 --> 00:28:13,639 Speaker 1: don't have a deal and Trump walks away from the table, 552 00:28:13,880 --> 00:28:16,240 Speaker 1: and you have this layered on top of the current weakness, 553 00:28:16,440 --> 00:28:19,520 Speaker 1: you will absolutely see a crisis in China. So just 554 00:28:19,720 --> 00:28:22,560 Speaker 1: real quick, here a crisis in China. If that two 555 00:28:22,600 --> 00:28:25,679 Speaker 1: percent growth rate is sustained in China, what does that 556 00:28:25,720 --> 00:28:30,000 Speaker 1: mean for global markets? Not good things? I mean it's 557 00:28:30,440 --> 00:28:32,760 Speaker 1: all the obviously. So so basically, if you're looking at 558 00:28:33,000 --> 00:28:35,239 Speaker 1: at demand from China being much much less and you're 559 00:28:35,240 --> 00:28:37,760 Speaker 1: saying a trade war hit it overhead, um, you know 560 00:28:37,840 --> 00:28:40,240 Speaker 1: this is China has been able to counteract the tariffs 561 00:28:40,240 --> 00:28:42,000 Speaker 1: that have been put on it so far. You know, 562 00:28:42,040 --> 00:28:45,480 Speaker 1: they've they've depreciated the currency until very recently, they've done 563 00:28:45,960 --> 00:28:49,480 Speaker 1: subsidies to corporations that they're very good at this type 564 00:28:49,480 --> 00:28:52,440 Speaker 1: of work. They can't counteract another tronche of two or 565 00:28:52,520 --> 00:28:56,960 Speaker 1: sixty seven billion of tariffs. They can't counteract tariff rates 566 00:28:57,000 --> 00:29:00,680 Speaker 1: going up to on either this this has troncho the 567 00:29:00,720 --> 00:29:04,920 Speaker 1: next one. So they would be uh in very very 568 00:29:04,960 --> 00:29:07,600 Speaker 1: problematic situation if they were forced to try to deal 569 00:29:07,640 --> 00:29:10,600 Speaker 1: with that on top of the already very low level 570 00:29:10,640 --> 00:29:13,120 Speaker 1: of growth on top of the fact that the monetary 571 00:29:13,120 --> 00:29:15,720 Speaker 1: stimulus isn't being kept in reserve the way they say 572 00:29:15,720 --> 00:29:19,040 Speaker 1: it is. It's already being proven not very effective. Leland Miller, 573 00:29:19,080 --> 00:29:20,920 Speaker 1: wonderful having you here. Thank you so much for being 574 00:29:20,920 --> 00:29:24,680 Speaker 1: with us. Leland Miller is chief executive officer of China 575 00:29:24,760 --> 00:29:28,360 Speaker 1: Beige Book International, which does get an on the ground 576 00:29:28,440 --> 00:29:31,880 Speaker 1: read of the Chinese economy. Thanks for listening to the 577 00:29:31,880 --> 00:29:34,480 Speaker 1: Bloomberg P and L podcast. You can subscribe and listen 578 00:29:34,520 --> 00:29:37,880 Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer. 579 00:29:38,280 --> 00:29:41,040 Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa 580 00:29:41,040 --> 00:29:43,480 Speaker 1: abram Woy. It's I'm on Twitter at Lisa A. Bramwoit's 581 00:29:43,520 --> 00:29:46,360 Speaker 1: one before the podcast. You can always catch us worldwide 582 00:29:46,400 --> 00:29:47,360 Speaker 1: on Bloomberg Radio.