WEBVTT - Tesla Will Burn Through Cash By First Half Of 2019: Levington 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:31.960 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Ouch. 0:00:32.000 --> 0:00:36.520 I am looking right now at Tesla bonds. They are plummeting. 0:00:36.600 --> 0:00:39.640 I want to bring in our own Joel Lovington, senior 0:00:39.680 --> 0:00:44.000 credit analyst for Bloomberg Intelligence, who's been tracking this. Wow, 0:00:44.200 --> 0:00:47.760 this has been a big swoon, not entirely unexpected considering 0:00:47.760 --> 0:00:50.760 that these bonds were among the short most shorted they 0:00:50.760 --> 0:00:54.240 could possibly be. What's going on today? Well, last night 0:00:54.320 --> 0:00:57.760 Moody's downgraded then very much into the conversation that we 0:00:57.760 --> 0:01:01.000 had last week. So very props to you, yeah for 0:01:01.160 --> 0:01:04.440 for doing this for Bloomberg. UM and uh and the 0:01:04.480 --> 0:01:06.880 bonds have lost about three three and a half points 0:01:07.200 --> 0:01:09.680 UM or about sixty six five basis points at least 0:01:09.680 --> 0:01:12.320 that's the last quote that I saw, So it looks 0:01:12.360 --> 0:01:15.240 like we're in the about the eighties six dollar range. YEP, YEP, 0:01:15.280 --> 0:01:17.920 we're still there's that means a yields maturity of about 0:01:18.360 --> 0:01:22.399 UH seven point six six percent, give or take um. 0:01:22.640 --> 0:01:24.760 Let's talk the broader picture here. Let's just sort of 0:01:24.800 --> 0:01:27.720 paint a scene for this company. They have the controversy 0:01:27.800 --> 0:01:31.720 going on that has certainly plummeted or sort of punctured 0:01:31.760 --> 0:01:35.280 their stocks with a car crash that ended up with 0:01:35.319 --> 0:01:39.800 the death of the driver of the car. Meanwhile, this 0:01:39.880 --> 0:01:43.160 is a business model that really hinges on the company's 0:01:43.200 --> 0:01:46.880 ability to access credit markets. How much does the downgrade 0:01:46.880 --> 0:01:51.120 and subsequent plunge in bond prices affect Testla's ability to 0:01:51.280 --> 0:01:55.160 finance it's penchant for burning through cash. That's a great question, Lisa, 0:01:55.280 --> 0:01:58.480 and it really it's two ways. At one, there are 0:01:58.520 --> 0:02:01.440 certain funds that can't buy ariple see paper uh and 0:02:01.480 --> 0:02:04.800 so now you have a triple C B minus issue, 0:02:04.840 --> 0:02:07.920 which makes it tougher in terms of financing. The second 0:02:07.960 --> 0:02:10.200 thing is with a bond at eight six and UH 0:02:10.360 --> 0:02:14.880 and yields in the upper sevens, issuing unsecured debt straight 0:02:14.960 --> 0:02:18.560 unsecured debt, like what they did with the issue is 0:02:18.680 --> 0:02:21.600 really not an option. It's too it's too costly. So 0:02:21.600 --> 0:02:23.760 then they have to start thinking about what is the 0:02:23.840 --> 0:02:26.240 right approach because everybody knows that they do have a 0:02:26.240 --> 0:02:29.280 liquidity event in front of them. Will it be through 0:02:29.360 --> 0:02:32.680 a structured issue or will it be through UH issuing 0:02:32.760 --> 0:02:35.520 straight equity or some sort of convertible. Okay, so when 0:02:35.520 --> 0:02:38.440 we spoke last time, you said that the leveraged loan 0:02:38.560 --> 0:02:42.280 market might be most attractive for Tesla, and we did 0:02:42.360 --> 0:02:47.079 see Uber managed to successfully upsize their loan offering. I'm 0:02:47.080 --> 0:02:50.200 wondering at this point is even the loan market off 0:02:50.240 --> 0:02:52.880 limits or is there enough of a bid coming from 0:02:52.960 --> 0:02:56.480 the collateralized loan obligations these funds that have to buy 0:02:56.520 --> 0:02:58.640 loans that it raised a lot of money that that 0:02:58.680 --> 0:03:01.120 anyone can tell anything. Well, you know, I think that 0:03:01.240 --> 0:03:03.320 I think the Uber deal is actually a pretty interesting 0:03:03.360 --> 0:03:04.960 one because I think it went in live war plus 0:03:04.960 --> 0:03:06.799 four hundred. So you're looking at a little over six 0:03:06.840 --> 0:03:10.600 percent coupon on that UH and that is without a 0:03:10.600 --> 0:03:13.040 credit rating on it. And so if you have a 0:03:13.080 --> 0:03:16.400 public company that still has a forty plus billion dollar 0:03:16.440 --> 0:03:19.519 market cap on it, one might say that they should 0:03:19.520 --> 0:03:22.360 be able to do as well, if not better than 0:03:22.400 --> 0:03:24.760 what Uber god And and maybe that kind of puts 0:03:24.760 --> 0:03:29.040 into a framework what a unsecured deal versus a secure 0:03:29.080 --> 0:03:32.400 deal might look like. Um, so, I guess maybe that 0:03:32.480 --> 0:03:34.800 kind of paints the picture as is, if they went 0:03:34.840 --> 0:03:40.600 down the road of issuing dead the unsecured market and 0:03:40.640 --> 0:03:43.800 not being able to handle it, a secure deal maybe 0:03:43.880 --> 0:03:46.680 in the six percent range might be a better option 0:03:46.720 --> 0:03:48.800 if you're the treasurer. Right, let's sum out a little bit, 0:03:48.840 --> 0:03:51.640 because there are sort of this existential question with Tesla 0:03:51.760 --> 0:03:55.280 right now, which is, you know, as money gets increasingly 0:03:55.320 --> 0:03:59.000 expensive for them, as they fail to prove that they 0:03:59.080 --> 0:04:02.600 can come through on their promises, when do they run 0:04:02.680 --> 0:04:05.040 out of leeway? So when do they run out of 0:04:05.040 --> 0:04:10.320 liquidity and face some serious issue if financing markets close 0:04:10.400 --> 0:04:13.760 up or at least become really onerously expensive. Sure, I 0:04:13.760 --> 0:04:17.320 mean without doing any new issuance, I would say sometime 0:04:17.360 --> 0:04:21.200 in the first half of they're gonna burn out of cash. 0:04:21.240 --> 0:04:23.320 Our model last week we were talking about about a 0:04:23.360 --> 0:04:26.440 two point three billion dollar cash usage this year. They 0:04:26.440 --> 0:04:29.159 have a billion two of debt maturities into the first 0:04:29.240 --> 0:04:33.200 quarter of so that's about equal to what the cash 0:04:33.360 --> 0:04:36.680 was at at the end of the year. So they 0:04:36.720 --> 0:04:39.960 need to raise more money by the first part of 0:04:40.200 --> 0:04:42.719 next year or else they're out of business, right And 0:04:42.760 --> 0:04:45.200 I would say for all stakeholders, they're probably better off 0:04:45.240 --> 0:04:47.880 doing it sooner than later, and probably more than what 0:04:47.960 --> 0:04:53.360 they need today to get the liquidity issue away from 0:04:53.400 --> 0:04:56.160 you know, both the equity and the dead So let's 0:04:56.200 --> 0:05:00.080 talk financing price. So if we end up with a 0:05:00.160 --> 0:05:03.040 yield of say seven point seven and that is the 0:05:03.120 --> 0:05:06.800 going yield for Tesla to borrow money, is that sustainable 0:05:06.839 --> 0:05:10.720 for them? No? So okay, But this is this is 0:05:10.760 --> 0:05:12.800 a really important point in other words, because if you're 0:05:12.800 --> 0:05:15.280 seeing a seven point seven percent yield, which is effectively 0:05:15.400 --> 0:05:18.440 what is being implied this is the bond that comes 0:05:18.480 --> 0:05:22.600 due in less than ten years, that's not a viable 0:05:22.600 --> 0:05:25.320 financing costs for them. No. I mean, when you're burning 0:05:25.320 --> 0:05:29.039 through cash to create more liabilities that are have a 0:05:29.120 --> 0:05:32.600 high coup a cash coupon on, it does only makes 0:05:32.640 --> 0:05:36.279 the issue worse, which means that a best case scenario 0:05:36.320 --> 0:05:38.440 would be that you issue a block of equity or 0:05:38.480 --> 0:05:42.039 maybe equity with a secured debt package behind it to 0:05:42.279 --> 0:05:46.080 reduce the cash costs as opposed to the coupon. Would 0:05:46.120 --> 0:05:48.840 you say the time's running out here? I would say 0:05:48.880 --> 0:05:51.960 that they need to do something. Uh, and again I 0:05:52.000 --> 0:05:54.479 would if I was in the Treasury seed at TESLA, 0:05:54.520 --> 0:05:56.720 I would be doing it sooner than later to get 0:05:56.720 --> 0:05:59.200 this issue off the table, at least for as kicking 0:05:59.279 --> 0:06:00.640 the can down the road, or as long as I could. 0:06:00.839 --> 0:06:03.520 You would also be investing in some kind of anti 0:06:03.680 --> 0:06:06.360 sweat measure because it seems like a pretty hot seat 0:06:06.400 --> 0:06:08.200 to be on right now. Joel Levington, thank you so 0:06:08.279 --> 0:06:10.120 much for being with us. And you did nail it. 0:06:10.240 --> 0:06:11.800 Last time we spoke. You said that this is going 0:06:11.839 --> 0:06:15.560 to likely be a company that is downgraded. It was downgraded, 0:06:15.680 --> 0:06:19.200 and now the bonds are plunging. Joel Levington, Senior credit 0:06:19.200 --> 0:06:24.120 analyst for Bloomberg Intelligence. Always insightful, always interesting. Thank you 0:06:24.160 --> 0:06:40.960 for being with us. People on both sides of the 0:06:41.040 --> 0:06:45.040 aisle agree that the US has some unfair trade relationships, 0:06:45.080 --> 0:06:48.160 certainly with China, but also with the rest of the 0:06:48.200 --> 0:06:51.599 world joining us now. Robert Lawrence Professor of International Trade 0:06:51.640 --> 0:06:54.799 and Investment at the John F. Kennedy School of Government 0:06:54.800 --> 0:06:58.200 at Harvard University. He's also a Senior Fellow at the 0:06:58.240 --> 0:07:02.599 Peterson Institute for International Economics. Also former economic advisor to 0:07:02.920 --> 0:07:06.440 President Bill Clinton. Robert Lawrence, Thank you so much for 0:07:06.480 --> 0:07:10.360 being with us, A really important time to hear from you. So, 0:07:10.720 --> 0:07:13.800 you know, since there is this sort of widely accepted 0:07:13.920 --> 0:07:17.040 unfair trade relationship that the US has certainly with China, 0:07:17.520 --> 0:07:20.200 what measure should we be looking at as a gauge 0:07:20.240 --> 0:07:26.760 of whether things are becoming more fair? Well, ultimately, UM, 0:07:26.880 --> 0:07:28.680 I think, by the way, it's a pleasure to be 0:07:28.760 --> 0:07:31.680 with you this morning. UM. Ultimately, I think we just 0:07:32.080 --> 0:07:35.200 we have to look at what kind of access our 0:07:35.320 --> 0:07:39.120 firms have to their market, um, and what kind of 0:07:39.120 --> 0:07:41.720 access their firms have two hours, and we have to 0:07:41.760 --> 0:07:45.440 compare that. And I think there's no question that the 0:07:45.520 --> 0:07:49.320 Chinese have been using their market as a way to 0:07:49.560 --> 0:07:53.840 enforce a U S firms and other foreign firms to 0:07:54.000 --> 0:07:59.680 transfer technology. They've also not been respecting intellectual property rights, 0:08:00.040 --> 0:08:05.160 which are part of the rules of the World Trade Organization. So, 0:08:05.640 --> 0:08:08.880 Professor Lawrence, since you advised former President Bill Clinton, I 0:08:08.960 --> 0:08:12.360 assume you line up more on that side of the aisle, 0:08:12.640 --> 0:08:15.760 although I could be wrong, and I'm wondering whether coming 0:08:15.880 --> 0:08:19.760 from that vantage point, you can view anything that President 0:08:19.800 --> 0:08:25.760 Trump has done as being positive on this on this count. Well, 0:08:25.800 --> 0:08:30.960 I think, UM. Focusing on the question of our trade 0:08:31.000 --> 0:08:34.560 relationship with China and trying to improve some of the 0:08:34.640 --> 0:08:38.240 violations or deal with some of the violations, I think 0:08:38.320 --> 0:08:42.520 is well worth well worth doing. I think at times 0:08:42.920 --> 0:08:46.839 what the measures that they've actually taken are are pretty 0:08:46.920 --> 0:08:51.440 high handed, and um, some of them actually contravene rules 0:08:51.480 --> 0:08:54.720 that we've agreed to. So I think that's the part 0:08:54.760 --> 0:08:57.360 of it where I would take take difference with him. 0:08:57.640 --> 0:08:59.800 What do you mean that they contravene with rules that 0:08:59.800 --> 0:09:03.480 we've agreed Well, Uh, you know, as a member of 0:09:03.520 --> 0:09:07.240 the World Trade Organization, you're not allowed to simply raise 0:09:07.320 --> 0:09:12.479 your tariffs against the products coming from other countries. Uh. 0:09:12.520 --> 0:09:15.480 What you have to do is to go to that 0:09:15.559 --> 0:09:18.920 body to prove that the other country is violating the 0:09:18.960 --> 0:09:24.120 agreement and then get permission to take retaliatory measures. But 0:09:24.200 --> 0:09:27.480 what President Trump did the other day was to simply 0:09:27.679 --> 0:09:31.600 unilaterally announce that the United States is going to put 0:09:31.679 --> 0:09:37.360 tariffs on up to sixty billion dollars worth of Chinese exports. 0:09:37.559 --> 0:09:41.000 That clearly violates the rules of the World Trade Organization. 0:09:41.520 --> 0:09:43.920 So if we want to have the moral high ground 0:09:44.640 --> 0:09:49.120 and be persuasive in a sense that we're being wronged, 0:09:49.520 --> 0:09:51.600 it seems to me we ought to be adhering to 0:09:51.640 --> 0:09:55.480 the rules. Who who stands to lose more, the US 0:09:55.679 --> 0:10:02.160 or China if the trade tensions do escalate, Well, I 0:10:02.200 --> 0:10:05.920 I think we both lose a lot um and and 0:10:06.440 --> 0:10:08.960 it's hard to say who loses more, but but the 0:10:09.040 --> 0:10:12.680 point is it's damaging to both of us. You've seen 0:10:12.720 --> 0:10:15.240 what the markets have done in the last two weeks, 0:10:15.400 --> 0:10:22.280 and clearly that's in response partly to these aggressive trade actions. 0:10:23.120 --> 0:10:26.320 A huge number of American firms are now integrated with 0:10:26.320 --> 0:10:29.280 with Chinese firms. A lot of the parts we buy 0:10:30.000 --> 0:10:34.760 come from China, and those supply chains are now being threatened, 0:10:35.320 --> 0:10:39.200 and we're seeing the reflection of these threats uh in 0:10:39.800 --> 0:10:44.200 in the stock evaluations of a lot of our firms. So, yes, 0:10:44.559 --> 0:10:49.400 the Chinese will also lose by if we put tariffs 0:10:49.440 --> 0:10:53.199 against their products, but our firms are also going to lose, 0:10:53.760 --> 0:10:56.720 and I think it goes a threatened jobs of people 0:10:56.760 --> 0:10:59.600 who work for those firms in the United States. So 0:11:00.000 --> 0:11:03.520 to learn's you've been on the inside of these negotiations. 0:11:03.559 --> 0:11:06.240 I'm sure you've dealt with China in particular, and I'm 0:11:06.240 --> 0:11:09.800 sure that this issue was apparent to you back when 0:11:09.800 --> 0:11:13.440 you are advising former President Bill Clinton. I'm wondering, is 0:11:13.440 --> 0:11:18.080 there something about China's approach, what they would like, what 0:11:18.200 --> 0:11:22.240 their priorities are with respect to trade, that is getting 0:11:22.280 --> 0:11:27.120 lost in some of the some of the big talk. Well, 0:11:27.160 --> 0:11:32.640 I think it's you know, China is has two features. First, 0:11:32.679 --> 0:11:36.079 it's a very large and important economy, and that means 0:11:36.080 --> 0:11:39.319 we have to take it seriously. But the Chinese a 0:11:39.360 --> 0:11:43.920 s poor economy and they're only at about twenty five 0:11:44.559 --> 0:11:49.439 level of American living standards, and poor countries typically use 0:11:49.520 --> 0:11:52.960 their government to a much greater degree to enhance their 0:11:53.000 --> 0:11:58.480 economic development. So uh so, there's basically attention in China. 0:11:58.960 --> 0:12:01.320 It needs the risk of the world. It wants to 0:12:01.360 --> 0:12:03.640 sell to the rest of the world and to export, 0:12:04.240 --> 0:12:06.360 but at the same time it also wants to nurture 0:12:06.440 --> 0:12:10.600 its own domestic economy and sometimes in a way that 0:12:10.640 --> 0:12:16.680 discriminates against foreign firms. So China has a very complicated problem. 0:12:17.720 --> 0:12:21.040 How does it engage with the world. On the one hand, 0:12:22.040 --> 0:12:25.120 that means it ought to be more open, and on 0:12:25.160 --> 0:12:27.800 the other hand, how does it develop its own economy? 0:12:27.880 --> 0:12:32.319 And that leads it to want to encourage domestic development 0:12:32.360 --> 0:12:36.120 of technology and foreign firms to bring their latest technology 0:12:36.200 --> 0:12:40.440 to China. Professor Lawrence, there's a lot of focus on 0:12:40.600 --> 0:12:44.679 which American companies stand to lose the most in a 0:12:44.840 --> 0:12:48.280 possible trade war. People focus in on Boeing, for example, 0:12:48.400 --> 0:12:52.000 or Caterpillar. Perhaps we ought to be asking the flip question, 0:12:52.040 --> 0:12:55.240 which is which American companies stand to gain the most? 0:12:55.720 --> 0:12:59.840 Should trade practices between the U S and China benefit 0:12:59.880 --> 0:13:05.000 the most? Wait? Which companies will benefit the most from 0:13:05.000 --> 0:13:11.720 fairer trade? Well, well, clearly our companies that produce intellectual property. 0:13:11.760 --> 0:13:14.160 So if we took our I T firms, if you 0:13:14.240 --> 0:13:19.800 took Microsoft as an example, Uh, their products are being 0:13:19.840 --> 0:13:24.800 copied without the royalties being paid. So I would say 0:13:25.080 --> 0:13:29.920 heavily U I T companies and and companies that that 0:13:30.080 --> 0:13:34.120 have done a lot of research and development and basically 0:13:34.120 --> 0:13:38.199 are being copied or ripped off by the Chinese. So 0:13:38.280 --> 0:13:40.560 if we can level the playing field, if we can 0:13:40.640 --> 0:13:45.000 ensure that they enforce intellectual property protection, it's those kinds 0:13:45.000 --> 0:13:50.280 of companies that are going to benefit, not necessarily industrial companies. No. 0:13:50.640 --> 0:13:55.000 In fact, that's what's interesting because the whole focus here 0:13:55.280 --> 0:13:58.840 is of the policy has been very, very focused on 0:13:59.480 --> 0:14:02.080 um or a heavy element of it has been on 0:14:02.160 --> 0:14:06.920 intellectual property, but there could be some industrial companies, say 0:14:06.960 --> 0:14:10.760 in the steel industry, for an aluminum, who are going 0:14:10.760 --> 0:14:15.840 to get more protection and so uh those companies will gain. 0:14:16.520 --> 0:14:21.480 There are solar panel uh producing companies who are now 0:14:21.520 --> 0:14:27.600 getting more protection. So so so it's it's a complicated mix. Yes, 0:14:27.720 --> 0:14:30.520 the steel industries are going to gain, but all of 0:14:30.520 --> 0:14:34.920 the users of steel companies like Caterpillar and others could 0:14:34.920 --> 0:14:38.000 well lose from those tariffs. Robert Lawrence, thank you so 0:14:38.120 --> 0:14:40.960 much for being with us. Robert Lawrence, Professor of International 0:14:41.000 --> 0:14:44.080 Trade and Investment at the John F. Kennedy School of 0:14:44.240 --> 0:14:48.600 Government at Harvard University, also former economic advisor to the 0:14:48.720 --> 0:14:51.960 former President Bill Clinton, and Senior Fellow at the Peterson 0:14:52.080 --> 0:15:11.720 Institute for International Economics. Yesterday, as news emerged that Facebook 0:15:11.760 --> 0:15:15.320 chief executive Mark Zuckerberg plan to head to Washington, d C. 0:15:15.560 --> 0:15:18.760 To testify in front of Congress on April twelve, people 0:15:18.800 --> 0:15:22.760 started talking about how he tends to sweat when he's nervous. 0:15:22.840 --> 0:15:24.880 So with that image in mind, I want to bring 0:15:24.880 --> 0:15:28.120 a Max Chafkin technology reporter from Bloomberg Business Week. Clearly 0:15:28.200 --> 0:15:30.920 he's been sweating a lot over the past few weeks 0:15:31.000 --> 0:15:34.960 and today they announced some measures that boosted their stock 0:15:35.720 --> 0:15:38.680 a quarter of a percent. What are these measures? Yeah, 0:15:38.720 --> 0:15:41.480 I I wouldn't get too excited about any of this, um, 0:15:41.520 --> 0:15:44.880 but they said that they were redesigning the sort of 0:15:45.040 --> 0:15:48.840 screen inside of the app where users can, um, you know, 0:15:48.920 --> 0:15:51.560 update their privacy setting. So the idea is to make 0:15:51.600 --> 0:15:54.920 it easier for people to say, you know, cut off 0:15:54.920 --> 0:15:57.600 some of face weeks data access. Now, this is something 0:15:57.640 --> 0:15:59.920 that Facebook. This is kind of Facebook's go to move 0:16:00.000 --> 0:16:03.200 of sorry, I didn't I want to interrupt you, just 0:16:03.240 --> 0:16:05.720 there for one second before you get on to sort 0:16:05.720 --> 0:16:09.600 of the larger issue specifically, is this cutting off Facebook's 0:16:09.640 --> 0:16:13.480 ability to sort of see what you do on other platforms, 0:16:13.480 --> 0:16:15.360 in other words like Google or your you know, your 0:16:15.360 --> 0:16:18.160 Google searches or your all the cookies that you incur. 0:16:18.280 --> 0:16:20.000 Is this what we're talking about here? No, no, no, no, 0:16:20.280 --> 0:16:23.400 This is just making it easier for you to sort 0:16:23.400 --> 0:16:25.600 of toggle like whether or not you know you're sharing 0:16:25.600 --> 0:16:27.960 your phone number with your Facebook friends or or things 0:16:28.000 --> 0:16:32.560 like that. This is a very much an incremental step, UM, 0:16:32.840 --> 0:16:35.640 and it kind of kind of continues what the position 0:16:35.640 --> 0:16:38.800 that Facebook has historically taken, which is if you're upset 0:16:38.880 --> 0:16:41.680 about the amount of data that's out there about you 0:16:41.720 --> 0:16:44.000 on the internet, you know it's your job to sort 0:16:44.000 --> 0:16:46.120 of fix it. And I think that is the sort 0:16:46.120 --> 0:16:49.800 of philosophical debate that's been happening for a while in Europe, 0:16:49.840 --> 0:16:52.000 and that is starting to move here. The question is 0:16:52.120 --> 0:16:57.320 should Facebook proactively be doing more to keep users data safe? 0:16:57.440 --> 0:16:59.920 And and right now, even with this um sort of 0:17:00.040 --> 0:17:02.120 modest tweak that they've made, that's that sent the stock 0:17:02.160 --> 0:17:05.600 price up just a tiny bit. Uh, It's like I said, 0:17:05.640 --> 0:17:08.040 it's it's still saying you know, you still have to 0:17:08.080 --> 0:17:11.960 do this. There's a difference between a lot of people 0:17:12.000 --> 0:17:16.040 seeing information that you voluntarily put out there for a 0:17:16.080 --> 0:17:19.400 pretty big network of people, right. I mean, on one hand, 0:17:19.440 --> 0:17:22.000 you could say buy or beware. You agreed to let 0:17:22.000 --> 0:17:24.160 people see it when you posted it there for everybody 0:17:24.160 --> 0:17:26.840 to see. I mean, it's sort of tautology. There's a 0:17:26.920 --> 0:17:30.480 difference with selling the data of all of your clicks 0:17:30.560 --> 0:17:33.160 on that platform, of what links you click on, of 0:17:33.440 --> 0:17:36.240 you know, who you follow, of you know the cookies 0:17:36.240 --> 0:17:39.560 that you incur from other websites that allow advertisers to 0:17:39.680 --> 0:17:45.080 target messages to you. Have they addressed that aspect they're 0:17:45.080 --> 0:17:48.720 starting to UM. Last week, uh, sort of amid this 0:17:48.920 --> 0:17:52.600 fear of the around Cambridge Analytica, this um, you know, 0:17:52.680 --> 0:17:57.760 British consultancy that had basically improperly acquired some user user data, 0:17:57.920 --> 0:18:00.440 Facebook sort of said they're gonna they're gonna do try 0:18:00.480 --> 0:18:03.480 to do a better job cutting these third party apps 0:18:03.560 --> 0:18:06.160 off if they're not using your data, and making it 0:18:06.240 --> 0:18:09.280 easier for you to tell which apps have access to 0:18:09.320 --> 0:18:11.480 your data. They've also sort of said they're going to 0:18:11.600 --> 0:18:15.879 do audits of basically anyone who had access to this 0:18:15.960 --> 0:18:18.639 kind of data to make sure that a sort of 0:18:18.680 --> 0:18:23.520 Cambridge Analytica situation didn't happen someplace else. But the problem 0:18:24.040 --> 0:18:26.880 is there's just so much of this sort of washing 0:18:26.880 --> 0:18:29.520 around out there. It's it's also not clear like how 0:18:29.640 --> 0:18:32.240 the audits would work or how they would um be 0:18:32.320 --> 0:18:35.240 able to really know um from what we know of 0:18:35.320 --> 0:18:38.080 this Cambridge Analytical situation. Facebook was aware of this for 0:18:38.119 --> 0:18:41.560 a long time. Cambridge Analytica had said they had deleted 0:18:41.600 --> 0:18:44.399 the data UM, and then it came out through the 0:18:44.440 --> 0:18:48.040 New York Times is reporting that through whistleblower that they 0:18:48.080 --> 0:18:50.719 in fact hadn't. So, so it's this kind of thing 0:18:50.720 --> 0:18:52.640 where it's it's it's pretty hard to see how Facebook 0:18:52.640 --> 0:18:55.600 addresses this in an easy way, and that's why, you 0:18:55.640 --> 0:18:58.480 know the stock price is so depressed, uh over the 0:18:58.520 --> 0:19:01.040 past two weeks. I'm just wondering, you know, how many 0:19:01.080 --> 0:19:03.880 band aids could Facebook really throw on this or does 0:19:03.960 --> 0:19:10.200 this problem really puncture something fundamentally about Facebook's business model. 0:19:11.960 --> 0:19:14.560 We don't know yet, and but I do think there's 0:19:14.680 --> 0:19:17.320 a chance and a non zero chance that this could 0:19:17.359 --> 0:19:21.360 seriously impact Facebook's business model. The there is this sort, 0:19:21.480 --> 0:19:23.959 like I said, there's this sort of philosophical question, do 0:19:24.040 --> 0:19:26.040 you do you have to opt out or do you 0:19:26.080 --> 0:19:29.240 have to opt in? You could imagine, uh, the FTC 0:19:29.359 --> 0:19:32.560 is looking into Facebook once again. European regulators have been 0:19:32.600 --> 0:19:35.600 pushing in this direction. Uh. You could imagine a rule 0:19:35.680 --> 0:19:38.640 that sort of says that users have to check a box, 0:19:38.720 --> 0:19:40.720 or check a bunch of boxes, or go through a 0:19:40.720 --> 0:19:44.639 bunch of different screens to allow Facebook to use the 0:19:44.720 --> 0:19:47.480 kind of data that they're using now in advertising. And 0:19:47.520 --> 0:19:49.600 if users have to go through a bunch of steps, 0:19:49.640 --> 0:19:52.520 that could cause many many of them to stop doing that, 0:19:52.600 --> 0:19:56.760 which could in essence break Facebook's amazing business model right 0:19:56.760 --> 0:19:59.520 now now I think, on the other hand, I think 0:19:59.680 --> 0:20:02.440 that is probably not the most likely outcome. I think 0:20:02.440 --> 0:20:05.600 the most likely outcome is Facebook makes some small fixes 0:20:05.760 --> 0:20:08.399 and and we all get outraged for a while, and 0:20:08.600 --> 0:20:12.240 people probably go back to to using this exceedingly popular app. 0:20:12.440 --> 0:20:17.320 What about April twelve, what are you expecting to hear Zuckerberg? 0:20:17.320 --> 0:20:21.000 Has you mentioned the sweating he has, Well, that's such 0:20:21.040 --> 0:20:24.600 a visceral image. I mean, he's gotten better. Um. I 0:20:24.600 --> 0:20:27.280 think people who sweat with with Yeah, sure, with his 0:20:27.280 --> 0:20:31.879 temperature control and also with his with his poise. I 0:20:31.920 --> 0:20:35.480 think if if you watch the CNN UM interview that 0:20:35.480 --> 0:20:38.280 that that happened last week, I would say it was 0:20:38.400 --> 0:20:42.359 maybe above average for him, probably below average for you know, 0:20:42.440 --> 0:20:47.040 your average chief executive, but definitely definitely an improvement. I 0:20:47.080 --> 0:20:51.399 think that where Facebook has struggled is that this is 0:20:51.440 --> 0:20:56.320 a company that is super cerebral, and Zuckerberg has sort 0:20:56.320 --> 0:20:59.960 of not been willing to engage on a kind of 0:21:00.080 --> 0:21:04.800 normal emotional level. He hasn't really apologized, um, and I 0:21:04.840 --> 0:21:08.240 think you know, he would do well to to just 0:21:08.560 --> 0:21:11.600 to stop with the pretense of of trying to sort of, 0:21:12.200 --> 0:21:14.600 you know, come up with like a zillion technical reasons 0:21:14.600 --> 0:21:17.800 why Facebook did nothing wrong. Uh, and just say hey, 0:21:17.880 --> 0:21:20.760 you know, we're sorry, We're trying to fix this. UM. 0:21:20.800 --> 0:21:22.440 I think I think if we get something like that 0:21:22.440 --> 0:21:24.760 that that will probably move things in a positive direction 0:21:24.800 --> 0:21:27.320 for the company. So he has about two weeks to 0:21:27.400 --> 0:21:29.440 learn how to eat crow. Max Chaffin, thank you so 0:21:29.520 --> 0:21:33.000 much for joining me. Always love speaking with you. Max Chaffin, 0:21:33.080 --> 0:21:37.240 Technology reporter for Bloomberg Business Week. It has been a 0:21:37.280 --> 0:21:42.159 really difficult week for Max between Facebook, Uber and the like. 0:21:42.280 --> 0:21:44.320 We'll be talking more with him, I'm sure in the 0:21:44.400 --> 0:22:02.880 upcoming weeks. We talk about alternative assets. Sometimes, I want 0:22:02.920 --> 0:22:05.600 to talk about an asset that has a happens to 0:22:05.640 --> 0:22:07.879 have an additional benefit of being able to make you 0:22:07.920 --> 0:22:11.160 feel pretty good and actually tastes good too. I'm talking 0:22:11.160 --> 0:22:14.000 about wine, and we're talking with Steven Ronically, if he 0:22:14.040 --> 0:22:17.520 has global beverage strategist at Robbo Bank International, he did 0:22:17.560 --> 0:22:20.600 not bring a bottle of wine with him. Apologies, well, 0:22:20.720 --> 0:22:23.640 but we'll let that slide. Steven, I want to talk 0:22:23.680 --> 0:22:27.240 with you about wine in the context of what we've 0:22:27.280 --> 0:22:30.479 seen in high end art markets over the past few years. 0:22:30.760 --> 0:22:35.439 We've seen huge auctions, record prices being paid as a 0:22:35.480 --> 0:22:39.200 lot of very wealthy families and individuals seek some kind 0:22:39.320 --> 0:22:43.000 of uncorrelated asset. To what degree are you seeing the 0:22:43.080 --> 0:22:47.080 same type of activity in high end wine markets? Yeah, 0:22:47.080 --> 0:22:50.080 it's certainly become a very interesting asset class. People looking 0:22:50.119 --> 0:22:53.200 at wine as an alternative investment, and and it does 0:22:53.280 --> 0:22:56.680 perform well overall. I think the returns it's not something 0:22:56.680 --> 0:22:58.240 that I that I kind of track on a day 0:22:58.240 --> 0:23:00.240 to day basis, but the returns that I've seen have 0:23:00.280 --> 0:23:03.360 been have been very, very attractive. It's it's it's been 0:23:03.400 --> 0:23:06.800 something that people have looked at as an alternative investment, 0:23:06.800 --> 0:23:09.879 and as you say, worst case scenario, you can drown 0:23:09.920 --> 0:23:13.720 your sorrows if things go bad. I guess the reason 0:23:13.720 --> 0:23:16.159 why I start there is I'm trying to understand to 0:23:16.320 --> 0:23:19.000 what degree the wine market I'm talking to high end 0:23:19.000 --> 0:23:24.080 wine market is uh composed of connoisseurs, and to what 0:23:24.200 --> 0:23:28.040 degree is it does it include a lot of speculators? Uh, 0:23:28.440 --> 0:23:31.960 there's certainly a mix. I think investors are certainly getting 0:23:32.000 --> 0:23:34.359 into it looking at it as you know, kind of 0:23:34.400 --> 0:23:39.720 looking and seeing the the uh, the improvement of value 0:23:39.720 --> 0:23:42.720 that you've seen in wine as an asset class. It's 0:23:42.720 --> 0:23:46.280 performed very well. But then there's also a whole different 0:23:46.320 --> 0:23:48.920 set of folks that that kind of get into collecting 0:23:48.960 --> 0:23:51.879 one because they're passionate about it and and try to 0:23:51.920 --> 0:23:55.560 find unique vintages and you know, building up their wine 0:23:55.560 --> 0:23:58.800 cellar and having something to entertain and so forth. How 0:23:58.880 --> 0:24:02.920 much have some end prices increased? You know, it's really 0:24:02.960 --> 0:24:06.000 interesting when when you look at wine prices, it's it's 0:24:06.560 --> 0:24:10.359 it's been um at the retail level. It's been the 0:24:10.440 --> 0:24:12.040 high end and the very low end that have been 0:24:12.080 --> 0:24:14.440