WEBVTT - Time for Kelly to Wrap It Up, Adm. Stavridis Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.199 Bloomberg dot Com, and of course on the Bloomberg. This 0:00:34.360 --> 0:00:37.360 is our interview of the day. It usually would always 0:00:37.360 --> 0:00:40.160 be that case, but really none more than this day. 0:00:40.720 --> 0:00:44.760 After what we saw in Brussels at NATO. It checkers 0:00:44.800 --> 0:00:48.879 with Prime Minister May and in Helsinki as well. We 0:00:49.000 --> 0:00:52.120 do this with a gentleman who did a tour of 0:00:52.240 --> 0:00:57.920 duty on one platform in Haiti, Bosnia and a Persian 0:00:57.920 --> 0:01:01.400 golf out in the real trenches of a projection of 0:01:01.440 --> 0:01:04.520 her U S Navy and Admiral Strevidis at the Fletcher School, 0:01:04.920 --> 0:01:09.080 Toughs University. Admiral your Twitter feed I featured this morning. 0:01:09.160 --> 0:01:12.559 It is the most scathing feed I have ever ever 0:01:12.600 --> 0:01:16.240 seen in the history of what Twitter wrought. I like 0:01:16.319 --> 0:01:19.760 in respect Ambassador Dan Coates. I am not sure how 0:01:19.800 --> 0:01:23.160 he goes to work tomorrow. President Trump has lost his 0:01:23.240 --> 0:01:26.400 grip on reality and by the way, Mr Putin offering 0:01:26.440 --> 0:01:29.120 to help find the culprits in our election is like 0:01:29.280 --> 0:01:32.280 Edward Snowden, et cetera. And then you finish up on 0:01:32.319 --> 0:01:35.880 a classy Strevida's note by saying that the president's decision 0:01:36.040 --> 0:01:38.960 not to throw out the first pitch at tonight's Baseball 0:01:39.000 --> 0:01:43.040 All Star Game in d C now seems brilliant. Admiral, 0:01:43.160 --> 0:01:46.839 this is the number one question I've gotten on this trip. 0:01:47.560 --> 0:01:51.840 When do people start resigning and why don't they resign? 0:01:52.120 --> 0:01:56.800 Discuss I'll start with Dan Coates, as I said in 0:01:56.840 --> 0:01:59.840 my tweet. I like Dan Coates. I respect him for 0:02:00.000 --> 0:02:04.000 were ambassador to Germany, former senator, just a terrific person 0:02:04.160 --> 0:02:07.720 by every regard um. He ought to resign and he 0:02:07.760 --> 0:02:10.440 ought to kind of lead the charge on resignations. I 0:02:10.800 --> 0:02:14.200 just think that to watch your boss, your immediate boss, 0:02:14.240 --> 0:02:16.519 and he goes into the White House almost every day 0:02:16.520 --> 0:02:20.519 to brief the president on intelligence. To watch your boss 0:02:20.560 --> 0:02:25.600 stand next to the president of Russian avowed bitter hater 0:02:25.880 --> 0:02:29.640 of the United States of America, and UH through the 0:02:29.760 --> 0:02:34.360 entire intelligence community under the bus, UH screams for a resignation. 0:02:34.440 --> 0:02:36.760 So I think I think it's kind of got to 0:02:36.840 --> 0:02:39.040 start there, because I don't think the Congress can really 0:02:39.120 --> 0:02:43.560 do much. Tom, you are very close, particularly with General Madison, 0:02:43.720 --> 0:02:46.280 your wonderful book on leadership, which was the year a 0:02:46.320 --> 0:02:50.800 few years ago, Admiral stevinus our General Madison. General Kelly 0:02:50.840 --> 0:02:54.480 held to a different standard of resignation. Can they not 0:02:54.639 --> 0:02:58.640 resign because they serve the nation in the military. I 0:02:58.680 --> 0:03:01.520 think two different cases, tom Um. First of all, they 0:03:01.560 --> 0:03:04.720 can resign, but I think both of them have a 0:03:04.800 --> 0:03:09.720 lifetime of standing up in the fire and continuing on, 0:03:09.800 --> 0:03:12.799 and I think both of them, probably part of them 0:03:12.840 --> 0:03:15.320 wants to do that. I think for General Kelly in 0:03:15.400 --> 0:03:18.280 the White House, it's probably about time for my good 0:03:18.320 --> 0:03:21.160 friend John Kelly to wrap it up. Uh. In terms 0:03:21.200 --> 0:03:23.520 of General Maddis, I hope he stays, and I think 0:03:23.520 --> 0:03:26.720 he should stay. He's in a different category. He's not 0:03:26.800 --> 0:03:30.360 part of the intelligence community per se. Uh in his 0:03:30.520 --> 0:03:33.080 role is just so vital that I hope he stays, 0:03:33.080 --> 0:03:35.640 and I think General Kelly has got to be pondering 0:03:35.720 --> 0:03:39.600 his options today. Admiral Stavrida's I'm wondering if you could 0:03:39.680 --> 0:03:43.400 comment on the notion that perhaps Donald Trump sees something 0:03:43.440 --> 0:03:47.040 that other people don't see, and that his negotiating style 0:03:47.680 --> 0:03:52.080 will yield results that we have yet to expect. I 0:03:52.120 --> 0:03:56.120 think we have to examine that possibility. But here's how 0:03:56.160 --> 0:04:00.160 I would approach Russia. We should confront them where we must, 0:04:00.320 --> 0:04:03.200 and that is on things like intrusions in our elections, 0:04:03.240 --> 0:04:07.280 support for war criminal like Assad invading Ukraine and annex 0:04:07.280 --> 0:04:10.040 and crimea. We have to confront Russia on that. But 0:04:10.680 --> 0:04:13.280 we should cooperate where we can. Can we work together 0:04:13.320 --> 0:04:18.880 on counter narcotics, on counter piracy, on counter cyber on 0:04:19.040 --> 0:04:21.680 cooperation in the Arctic, on arms control. I think there 0:04:21.680 --> 0:04:25.960 are zones of cooperation. But to approach Vladimir Putin as 0:04:25.960 --> 0:04:31.000 the President did yesterday essentially as a supplicant um undoes 0:04:31.320 --> 0:04:34.240 any ability to confront him on the vital issues. So 0:04:34.279 --> 0:04:37.200 I think we need both. And I don't think that 0:04:37.240 --> 0:04:42.560 the negotiating style being displayed with Vladimir Putin gets us anywhere, 0:04:42.640 --> 0:04:45.200 because Putin will take everything you put on the table, 0:04:45.240 --> 0:04:47.240 put it in his pocket, and then ask for more. 0:04:47.520 --> 0:04:50.600 But at the same time, the United States is outspending 0:04:50.960 --> 0:04:54.520 every country in the world on its defense budget, and 0:04:54.680 --> 0:04:58.919 President Trump has been vociferous in his support of the 0:04:58.960 --> 0:05:03.640 defense established, pushing for more spending. I think that he 0:05:03.839 --> 0:05:07.680 is in the right place, President Trump, uh in looking 0:05:07.720 --> 0:05:10.960 for modest increases in the defense budget. We don't need 0:05:11.040 --> 0:05:14.480 to uh double our defense budget or increased by even 0:05:14.480 --> 0:05:18.839 ten percent. But he's looked for modest increases in single digits, 0:05:18.839 --> 0:05:21.960 low single digits that I think are appropriate to address readiness. 0:05:22.160 --> 0:05:27.400 The United States has an enormous global uh sense of 0:05:27.440 --> 0:05:29.200 what it needs to do in the world, and that 0:05:29.240 --> 0:05:32.320 requires a pretty big defense budget. But this gets us 0:05:32.320 --> 0:05:35.520 to another fallacy and the Trump approach, which is throwing 0:05:35.560 --> 0:05:38.880 the Europeans under the bus right before he throws the 0:05:38.880 --> 0:05:42.560 intelligence community under the bus. Europeans have the second largest 0:05:42.600 --> 0:05:45.000 defense budget in the world. If we want relief on 0:05:45.040 --> 0:05:49.520 our defense budget, we're to be encouraging them, not rejecting them, 0:05:49.560 --> 0:05:53.160 as I see the President doing. Let's continue with that mostravitas, 0:05:53.160 --> 0:05:56.040 of course, with tough university in the Fletcher school. I 0:05:56.080 --> 0:05:58.840 can't say enough, folks about the briefings that you can 0:05:58.880 --> 0:06:02.400 get from the work of j. Stravitz. His book See Power, 0:06:02.480 --> 0:06:06.000 The History and geopolitics of the world's Oceans, will make 0:06:06.040 --> 0:06:10.080 you far smarter about the seas. Things we take for 0:06:10.120 --> 0:06:13.200 granted that he has lived as well. In my Book 0:06:13.240 --> 0:06:15.680 of the Year a few years ago, the Leader's bookshelf 0:06:16.240 --> 0:06:21.359 is a set of writings by military officers, for the 0:06:21.400 --> 0:06:24.920 most part, uh their favorite books. And these are people reading, 0:06:24.960 --> 0:06:27.920 including General Maddis I believe in the book, and General 0:06:28.000 --> 0:06:31.680 Kelly as well. I can't say enough about the Leader's bookshelf. 0:06:31.880 --> 0:06:33.919 You go in, you pick out one to three or 0:06:33.920 --> 0:06:37.000 four books. Mark Twain is in there, among others, but 0:06:37.160 --> 0:06:40.839 just a very valuable book to give you perspective in 0:06:40.880 --> 0:06:44.360 this time of economics, finance, politics, and of course our 0:06:44.440 --> 0:07:01.560 most interesting international relations. Right now, Ian Whittaker joins us 0:07:01.560 --> 0:07:05.320 some libering in London as we look at the end 0:07:05.360 --> 0:07:07.880 of Netflix. As we know and Ian, I just did 0:07:07.920 --> 0:07:12.720 a two standard deviation chart. Netflix is such a juggernaut. 0:07:13.240 --> 0:07:17.800 It's not even down to resistance. It's amazing. It's pulled 0:07:17.800 --> 0:07:22.400 back this morning and it's still within trend. Has the 0:07:22.480 --> 0:07:26.120 back been broken of Netflix? Is unreal ball market? Is 0:07:26.120 --> 0:07:28.680 it just a quick blip along the road or is 0:07:28.680 --> 0:07:32.280 there something different this time? I think what we'll have 0:07:32.400 --> 0:07:34.840 to see is what are the results that come out 0:07:34.840 --> 0:07:37.400 from the following quarters. I mean, it's always dangerous taking 0:07:37.440 --> 0:07:42.360 warm quarters results and then extract lating across. Having said that, 0:07:43.000 --> 0:07:45.440 I think there will be some particular points of concern 0:07:45.600 --> 0:07:48.000 for people in terms of longer term story. Very mind, 0:07:48.000 --> 0:07:51.400 giving the market camp this stock, which is still after 0:07:51.520 --> 0:07:54.960 they for over a hundred and fifty billion dollars, you 0:07:55.040 --> 0:07:58.000 really need some funchy assumptions both in terms subscribe to 0:07:58.040 --> 0:08:00.920 growth and also as well are pro growth moving forwards 0:08:01.120 --> 0:08:04.320 to justify that valuation. Now, what I think people will 0:08:04.360 --> 0:08:07.480 be particularly concerned about there's the court to subscribeer missed, 0:08:08.000 --> 0:08:12.040 which is not great. Then the Q three subscriber prediction 0:08:12.120 --> 0:08:15.280 doesn't look particularly fantastic either. But going back to this 0:08:15.320 --> 0:08:18.680 point before, it's that the the argument that Netflix has 0:08:18.680 --> 0:08:21.080 been impacted by the fact of a lack of news shows. 0:08:21.960 --> 0:08:24.680 What's particularly worrying about that is it suggests that they 0:08:24.720 --> 0:08:29.560 have to continually invest in very expensive, very glassy drama, 0:08:30.000 --> 0:08:32.240 which quite frankly, nobody knows whether it will be a 0:08:32.240 --> 0:08:35.520 success until it's shown in order to keep that subscriber 0:08:35.559 --> 0:08:40.040 momentum growing. The rest of the package just doesn't seem 0:08:40.080 --> 0:08:43.840 good enough to actually get to subscribe momentum that the 0:08:43.880 --> 0:08:47.040 analysts are expecting out there on the street. So, as 0:08:47.040 --> 0:08:50.160 I said, I think one quarters numbers, let's not put 0:08:50.160 --> 0:08:51.959 it into a trend. If this was a critique for 0:08:52.120 --> 0:08:55.080 next sort of two quarters or so, I think people 0:08:55.080 --> 0:08:56.960 would be very worried. So let's talk about a couple 0:08:57.000 --> 0:08:58.600 of things. And the first point you've made is the 0:08:58.760 --> 0:09:00.960 is the quarterly miss, and I want to talk about 0:09:00.960 --> 0:09:04.080 the communication there ian. We didn't just miss, we missed 0:09:04.120 --> 0:09:08.200 by a million subscribers. When you missed that big, typically 0:09:08.200 --> 0:09:12.360 something's gone wrong with communication, both from the company towards 0:09:12.400 --> 0:09:15.640 the street and just the general visibility internally. How have 0:09:15.679 --> 0:09:20.240 they got it this wrong? Gain well, I think they 0:09:20.320 --> 0:09:23.800 they probably if you're a company doing your forecast, what 0:09:23.840 --> 0:09:25.640 you'll obviously look you look at the trends that have 0:09:25.720 --> 0:09:28.040 been going on, both in terms of Q on q 0:09:28.240 --> 0:09:29.960 and then year on year, and you'll take a view 0:09:29.960 --> 0:09:32.960 on that. You'll say you've advanced into more markets than 0:09:33.000 --> 0:09:35.520 you were in previously. That essentially you've become a lot 0:09:35.520 --> 0:09:37.679 more they've got a lot more more products than therefore 0:09:37.679 --> 0:09:40.920 that should drive growth as well. I think therefore, of 0:09:42.080 --> 0:09:45.040 a couple of things that would extrapolate from that one. 0:09:45.360 --> 0:09:48.160 Either the growth from their new markets hasn't been as 0:09:48.160 --> 0:09:51.000 good as they expected, or they've seen more of rappid 0:09:51.000 --> 0:09:54.320 the slowdown coming through in the way existing markets both 0:09:54.320 --> 0:09:57.439 of which is obviously sort of a Boying trend. They 0:09:57.559 --> 0:09:59.760 might argue that the World Cover has had an effect 0:10:00.000 --> 0:10:02.880 in the sense that the World Cup probably was a 0:10:03.000 --> 0:10:06.400 much better receive competition than many would have expected at 0:10:06.400 --> 0:10:08.160 the start of the tournament. And I think that will 0:10:08.240 --> 0:10:11.439 probably be their main line of defense here. Having said that, 0:10:11.840 --> 0:10:15.839 so they should have actually, as he said, to get 0:10:15.880 --> 0:10:18.920 a million subscriber miss. Yeah it's okay. Let's say it 0:10:18.920 --> 0:10:21.120 was two hundred, three hundred thousand. You can probably explain 0:10:21.160 --> 0:10:23.560 it away by the effect of the World Cup missing 0:10:23.600 --> 0:10:27.520 by so much, because yeah, that's something like a sixteen 0:10:27.559 --> 0:10:32.080 seventeen miss against their estimates. I mean, that does feel 0:10:32.120 --> 0:10:35.040 as though something a bit more drastic has gone wrong. 0:10:35.120 --> 0:10:36.840 You're trying to blame the World Cup for a couple 0:10:36.880 --> 0:10:39.520 of weeks in June, for a three month quarter, for 0:10:39.600 --> 0:10:41.839 a one million submiss seems like a stretch to me. 0:10:42.280 --> 0:10:46.080 Oh no, it doesn't. And I love you and I 0:10:46.080 --> 0:10:48.800 love bringing this up because John wants to be World 0:10:48.840 --> 0:10:51.720 Cup free and I just will keep it going with 0:10:52.040 --> 0:10:54.160 This is just slowly going to drain out the program 0:10:54.160 --> 0:10:55.679 in the next couple of days. And I want to 0:10:55.720 --> 0:10:57.600 pick up on a point that the CFO David Wells 0:10:57.640 --> 0:11:02.000 made yesterday taking on Dennis most effective capital source. How 0:11:02.040 --> 0:11:04.440 much debt does this company's need to take on now 0:11:04.640 --> 0:11:09.000 to fund this growth in the future to fund that content. Well, 0:11:09.400 --> 0:11:11.960 it's very interesting if you if you look in terms 0:11:11.960 --> 0:11:14.400 of the numbers serve in terms of the cash burn 0:11:14.640 --> 0:11:18.680 on Netflix, the consensus cash burning is around three billion 0:11:18.720 --> 0:11:23.000 dollars over three billion dollars for this year, and it 0:11:23.160 --> 0:11:25.800 rapidly comes down. But you're still looking at a company 0:11:25.800 --> 0:11:29.920 where it doesn't our most analysts forecast it doesn't get 0:11:30.040 --> 0:11:34.600 cash flow positive until one. I think it all boils 0:11:34.640 --> 0:11:37.679 down to the point that maybe four. If their subscriber 0:11:37.720 --> 0:11:41.760 growth is predicated on having to get a consistent stream 0:11:42.080 --> 0:11:46.360 of high margin show of high sort of cost shows 0:11:46.720 --> 0:11:51.040 to keep those subscribers in, your cash flow is probably 0:11:51.080 --> 0:11:54.280 going to be. People expects, well, they just have the generals, 0:11:54.360 --> 0:11:57.360 the history. Well, yeah, we gotta leave it. We gotta 0:11:57.400 --> 0:11:58.840 leave it there. What I would say is it just 0:11:58.840 --> 0:12:00.600 seemed more of the Queen, I mean, clar fo, he's 0:12:00.640 --> 0:12:16.320 just got to get to work to well. Well. President 0:12:16.360 --> 0:12:19.880 Trump's proposed new tariffs on two billion dollars worth of 0:12:19.920 --> 0:12:24.160 imported goods from China. They escalate the US China trade 0:12:24.320 --> 0:12:28.080 conflict and intensify the debate about the economic and political 0:12:28.120 --> 0:12:33.199 implications of trade negotiations, but do they obscure the investment 0:12:33.320 --> 0:12:36.719 opportunities and reality. Here to tell us more is our 0:12:36.720 --> 0:12:40.800 own Matt Winkler, Bloomberg Editor in Chief emeritus. Matt, always 0:12:40.800 --> 0:12:43.200 a pleasure, Thanks for being here. I want you to 0:12:43.280 --> 0:12:45.880 just describe a little bit about what you were trying 0:12:45.920 --> 0:12:48.920 to do in your latest column, to kind of peel 0:12:49.080 --> 0:12:53.280 back the rhetoric and explore exactly what is going on 0:12:53.360 --> 0:12:55.920 in the world economy. It is in a way much 0:12:55.960 --> 0:13:01.160 more domestic, particularly when it comes to a place like China. Yes, Pim, 0:13:01.200 --> 0:13:05.079 thank you for that introduction. Always good to be with you. 0:13:05.800 --> 0:13:10.120 We're besieged. If you will buy headlines like Trump tariff 0:13:10.280 --> 0:13:13.560 barrage pushes China few to point of no return, that's 0:13:13.559 --> 0:13:16.439 a good one. China vows retaliation with you know, two 0:13:16.520 --> 0:13:21.240 hundred billion dollars of trade threat. The reality is if 0:13:21.520 --> 0:13:23.800 we do something we like to do with Bloomberg, which 0:13:23.840 --> 0:13:28.760 has followed the money is what emerging market funds are 0:13:28.840 --> 0:13:33.000 doing best, and if emerging markets are in peril, which 0:13:33.559 --> 0:13:37.439 everybody from black Rock to Carmen Reinhardt at Harvard has 0:13:37.440 --> 0:13:41.160 been saying, they are what are these emerging market funds 0:13:41.200 --> 0:13:44.280 doing it? In fact, the best of them are investing 0:13:44.320 --> 0:13:47.080 in China. They're increasing their holdings in China. And the 0:13:47.120 --> 0:13:51.080 reason for that is that the Chinese economy, which is 0:13:51.120 --> 0:13:54.000 now the second largest in the world after the US, 0:13:54.600 --> 0:13:56.520 is looking more and more like the US in the 0:13:56.600 --> 0:14:02.680 sense that it's domestic demand that's driving performance of corporate China, 0:14:02.760 --> 0:14:06.520 and corporate China that is driven by domestic demand as 0:14:06.559 --> 0:14:09.080 doing very well. And some of these funds, for example, 0:14:09.160 --> 0:14:14.040 have doubled their holdings in the past three years, going 0:14:14.120 --> 0:14:18.160 from say sixteen percent China to almost thirty percent. And 0:14:18.800 --> 0:14:22.960 on top of that, they've been reaping fiferent annual returns 0:14:23.200 --> 0:14:25.400 the best of them. So that's all pretty good in 0:14:25.440 --> 0:14:30.720 the face of all the sound bites and um the 0:14:30.800 --> 0:14:33.640 rhetoric of trade wars. Let me just push you a 0:14:33.640 --> 0:14:35.680 little bit because one of the funds that you talk 0:14:35.800 --> 0:14:39.480 about in the piece is the American Century Emerging Markets Fund. 0:14:40.080 --> 0:14:43.400 It is down about seven and a quarter percent so 0:14:43.520 --> 0:14:48.560 far this year. Does that underscore that this is a 0:14:48.600 --> 0:14:51.720 long term view or is there something else at work? 0:14:51.960 --> 0:14:54.360 It absolutely does underscore that's a long term view. And 0:14:54.400 --> 0:14:57.720 if you were to speak with as we did to 0:14:58.040 --> 0:15:02.360 Patricia Riberio, who is the UH woman who manages the 0:15:02.400 --> 0:15:06.760 American Century Emerging Markets Fund, she will tell you that, um, 0:15:06.800 --> 0:15:11.080 you know, she does not really pay much attention or 0:15:11.160 --> 0:15:15.200 make decisions based on day to day UM events. What 0:15:15.320 --> 0:15:18.080 she does is follow the performance of the companies there, 0:15:18.440 --> 0:15:23.000 and it's increasingly difficult because finding the signal and all 0:15:23.080 --> 0:15:28.600 this noise is probably more rigorous than than it otherwise 0:15:28.600 --> 0:15:30.800 would be because there's so much noise. But she would 0:15:30.840 --> 0:15:33.520 tell you that the worst thing to do is to 0:15:33.560 --> 0:15:40.640 pay attention to the noise. No But yeah, I look 0:15:40.680 --> 0:15:44.680 at this, and what's the advantage your folks, is that 0:15:44.760 --> 0:15:47.400 mett wor cler works shouldn't pay and they really go 0:15:47.520 --> 0:15:50.760 through the data on this. Are these Is this em 0:15:50.800 --> 0:15:55.160 fund out performance because they make more money when things 0:15:55.320 --> 0:15:58.640 are good? Or is that they lose less money when 0:15:58.720 --> 0:16:02.520 things are bad. So I'm not sure it's it's I'm 0:16:02.560 --> 0:16:04.680 not sure it's either of those things. Tom. It's more 0:16:04.720 --> 0:16:10.520 about UH companies that are poised for growth in China 0:16:10.680 --> 0:16:15.400 because the economy is so income, so dynamic, and because 0:16:15.520 --> 0:16:19.080 domestic consumption is such a bigger driver than it was 0:16:19.200 --> 0:16:22.520 ten years ago. We you know, we live at a 0:16:22.560 --> 0:16:27.040 time where a lot of politicians, one in particular, who 0:16:27.040 --> 0:16:32.000 thinks that the equation is all about manufacturing and exports 0:16:32.760 --> 0:16:36.520 from low cost labor, when in fact, if you look 0:16:36.560 --> 0:16:40.560 at China, the biggest UH and longest term UH and 0:16:40.680 --> 0:16:45.520 most dynamic development is that companies there are catering increasingly 0:16:45.560 --> 0:16:48.640 to domestic demand, which has nothing to do with you know, 0:16:48.680 --> 0:16:51.640 who can make the most goods at the lowest cost 0:16:53.120 --> 0:16:57.040 with within emerging markets. As you say, it's highly ideostocratic. 0:16:57.120 --> 0:16:59.960 And back to stock selection. What did you learn about 0:17:00.480 --> 0:17:03.520 active funds versus passive funds, Well, here is an example 0:17:03.600 --> 0:17:10.040 where UH, the active actually is um perhaps much more 0:17:10.119 --> 0:17:15.280 thoughtful than the most advanced algorithm UH in the case 0:17:15.320 --> 0:17:19.480 of a passive fund, because the active manager is specifically 0:17:19.520 --> 0:17:24.919 looking at how the economy is changing in China and 0:17:24.960 --> 0:17:29.199 how China is becoming much more like the US, at 0:17:29.280 --> 0:17:32.560 least in this context of the stock market, and so 0:17:33.359 --> 0:17:40.880 that thinking is probably ahead of where the passive investor is. Well, Matt, 0:17:41.119 --> 0:17:43.040 if you just look at the actions that the Chinese 0:17:43.040 --> 0:17:47.120 government has taken, they're trying to boost consumer confidence right, absolutely, 0:17:47.160 --> 0:17:51.479 And you know that's a very important point. And uh, 0:17:51.520 --> 0:17:55.680 she would uh in American century be the first to say, look, um, 0:17:55.760 --> 0:17:59.320 you have to pay attention to what the Chinese government does, 0:17:59.640 --> 0:18:03.560 and it's focused on because if you do, you are 0:18:03.640 --> 0:18:07.480 going to benefit because they are, without a doubt, the 0:18:07.560 --> 0:18:11.560 invisible hand. Uh. You know, this is a different kind 0:18:11.600 --> 0:18:14.480 of economy. It's not capitalism as we know it in 0:18:14.520 --> 0:18:18.639 the US of A. There there is clearly a force, 0:18:18.800 --> 0:18:21.719 and that is the government. And so these managers are 0:18:21.760 --> 0:18:26.040 paying very much attention to uh, the government as it 0:18:26.200 --> 0:18:29.879 attempts to pick winners along the way. Is it possible 0:18:30.000 --> 0:18:33.800 that all of this confrontation is verbal confrontation and rhetoric 0:18:33.880 --> 0:18:38.359 overtrade actually will embolden the Chinese government to keep things 0:18:38.400 --> 0:18:42.199 like the domestic interest rates low, uh, keep money and 0:18:42.240 --> 0:18:47.040 credit flowing, also a spur that domestic demand, which they 0:18:47.040 --> 0:18:49.720 were already looking to do in the first place. So, 0:18:50.080 --> 0:18:53.320 first of all, I'm totally unqualified to answer that question, 0:18:53.440 --> 0:18:59.160 so I'm not going to UM. I can say that, UM, 0:18:59.200 --> 0:19:03.320 you know where things have benefited the economy, which is 0:19:03.359 --> 0:19:08.120 consumer discretionary. There's no question that the government will do 0:19:08.200 --> 0:19:10.439 everything it can to increase it up to the point 0:19:10.520 --> 0:19:17.479 where it is um treacherous for economic policy obviously. Uh, 0:19:17.640 --> 0:19:20.000 it doesn't want to see lending gets so out of 0:19:20.040 --> 0:19:26.120 control that bubbles are created and it leads to other 0:19:26.200 --> 0:19:30.320 worst things. So um yeah, I mean I think that 0:19:30.480 --> 0:19:33.239 with trade wars are bad. And there's no question that 0:19:34.160 --> 0:19:38.440 the Chinese government and and uh just about every other 0:19:38.480 --> 0:19:41.439 government right now except maybe the US thinks this is 0:19:41.440 --> 0:19:43.840 not a good thing for the world and the global economy. 0:19:43.960 --> 0:19:47.080 That much we do know. Thank you very much, Matt Winkler. 0:19:47.119 --> 0:19:51.080 He is Bloomberg Editor in Chief emeritus. Uh. The column 0:19:51.320 --> 0:19:55.360 on Bloomberg Opinion definitely worth checking out. The entitled these 0:19:55.400 --> 0:20:00.400 investors aren't spooked by trade wars. Emerging markets funds keep 0:20:00.480 --> 0:20:15.679 increasing their exposure to China and they're doing just fine. 0:20:20.000 --> 0:20:22.640 Paul Man of Forts in Jail. Stephanie Baker is not. 0:20:22.880 --> 0:20:25.760 She's with us right now on our set in London. 0:20:25.880 --> 0:20:27.919 Let's go to which is one of the forty seven 0:20:27.960 --> 0:20:31.960 fallouts that we've seen here in the last twenty four hours. 0:20:32.000 --> 0:20:34.679 Off as I watched Air Force one takeoff last night 0:20:34.720 --> 0:20:38.480 from Helsinki tarmac, it's amazing. I mean, what Donald Trump 0:20:38.520 --> 0:20:40.720 was going back to let's look at the heat this 0:20:40.880 --> 0:20:43.800 obtain the Millbay Fair and Balance in the Washington Post. 0:20:44.040 --> 0:20:47.320 Mr Milbank really goes after the president as you would 0:20:47.320 --> 0:20:50.800 expect as well. President Trump has repeatedly informed us that 0:20:50.840 --> 0:20:54.760 we are quote a stupid country. He is a quote 0:20:54.960 --> 0:20:58.000 very stable genius. Among the many stupid things, Trump is 0:20:58.040 --> 0:21:01.080 identified to White House staffers, the f e I National 0:21:01.119 --> 0:21:06.120 Football League, democrats of Filipbuster and journalistic step Stephenie Baker stupid, stupid, 0:21:06.160 --> 0:21:09.320 stupid as a wise man. One said, stupid is as 0:21:09.359 --> 0:21:14.040 stupid as meal Bank, among others fired up as well. 0:21:14.440 --> 0:21:18.439 What will be the ramifications? Is it even feasible we 0:21:18.440 --> 0:21:22.200 could get Senate centure? You know? Uh? I was a 0:21:22.359 --> 0:21:25.640 somewhat heartened to see some Republicans come out and criticize him, 0:21:25.680 --> 0:21:28.919 but by and large the criticism was quite measured. I 0:21:28.920 --> 0:21:31.880 thought the most notable critique came from new gain Rich 0:21:31.920 --> 0:21:36.120 who said, you know, Trump trump defender, former Geoky Leader 0:21:36.160 --> 0:21:39.280 of the House said it's the most mysterious, most serious 0:21:39.320 --> 0:21:41.919 mistake of his presidency and he must immediately correct it. 0:21:42.200 --> 0:21:45.040 Two hours later, he tweets out, but Trump has been 0:21:45.040 --> 0:21:48.600 cutting regulations to help US business, so that kind of 0:21:49.280 --> 0:21:54.240 capsulates the dilemma and the attitude of Republicans in Congress. 0:21:54.880 --> 0:21:56.800 Is this going to be more of a Charlotte's Film 0:21:56.840 --> 0:22:00.159 moment where people are outraged and that outrage pass is 0:22:00.240 --> 0:22:04.159 quickly and we get back to status quo? Or do 0:22:04.280 --> 0:22:06.720 they actually take action. I'm not seeing any indication that 0:22:06.760 --> 0:22:09.359 any real action will be taking. What is fascinating about this? 0:22:09.400 --> 0:22:11.800 And I've seen this every moment on my trip. People 0:22:11.840 --> 0:22:15.320 come up to me and they say what other Republicans doing, 0:22:15.440 --> 0:22:17.639 And yet I remember wanting Gate, they really didn't do 0:22:17.800 --> 0:22:19.760 much right up until the end of the moment. Is 0:22:19.760 --> 0:22:23.040 that what you expect is this will just dragon and dragon? 0:22:23.320 --> 0:22:25.560 I mean, if this can do it, what what can 0:22:26.119 --> 0:22:29.720 change this dialogue for Trump and non Trump supporters? Yeah, 0:22:29.760 --> 0:22:33.159 I mean I think that you've seen calls for members 0:22:33.200 --> 0:22:37.239 of his administration to step down and protest um, you know, 0:22:37.359 --> 0:22:39.439 but it remains to be saying what do you do 0:22:39.480 --> 0:22:43.080 in this situation? I think many people have felt reassured 0:22:43.080 --> 0:22:46.560 by the presence of people like gematics perhaps being a 0:22:46.560 --> 0:22:50.600 moderating force, but those those people aren't actually pulling him 0:22:50.680 --> 0:22:53.720 back and restraining him. And you do have to ask 0:22:53.720 --> 0:22:56.040 the question, why didn't they make sure that there was 0:22:56.080 --> 0:22:58.639 someone else in the room during that two hour meeting 0:22:59.240 --> 0:23:02.000 with Trump and Putin. We will never know what really 0:23:02.040 --> 0:23:04.840 happened during those two hours. Yeah, And I mean the 0:23:04.920 --> 0:23:07.600 question is would it have even made any difference? But 0:23:07.680 --> 0:23:11.400 what could actually happen to the president himself beyond how 0:23:11.440 --> 0:23:15.440 he's impacted in the mid terms from this, if at all. Well, 0:23:15.480 --> 0:23:18.359 I think his attempts to change the conversation with the 0:23:18.400 --> 0:23:22.800 Russia investigation, this has dealt a serious setback to that effort. 0:23:23.480 --> 0:23:26.919 And um, I think his resistance to sitting down for 0:23:26.920 --> 0:23:30.160 an interview with Robert Mueller, I think that has been 0:23:30.240 --> 0:23:34.199 undermined by this. And I think any attempts by Trump 0:23:34.240 --> 0:23:37.280 to shut down the Muller investigation I think will be 0:23:37.359 --> 0:23:39.440 challenged by COT to ask you with your expertise. So, 0:23:39.600 --> 0:23:42.880 Mr Manaford, he's in jail, which is a shocking thing 0:23:42.960 --> 0:23:47.400 in itself. Does that change him that he's sitting in jail. Well, 0:23:47.400 --> 0:23:52.080 we had reports overnight that his trial in Virginia had 0:23:52.119 --> 0:23:55.919 been delayed for a week, which is unusual. Um, and 0:23:55.960 --> 0:23:59.400 there has been some speculation that he may be negotiating 0:23:59.400 --> 0:24:01.080 a plea deal. We don't know if that's the case, 0:24:01.200 --> 0:24:03.560 but that might be that might be one of the 0:24:03.600 --> 0:24:06.280 reasons for it. We don't know. Okay, Stephanie, Thank you 0:24:06.320 --> 0:24:09.560 so much, Stephanie Baker. Where this, of course Bloomberg senior 0:24:10.000 --> 0:24:13.879 writer with really expertise on Cyprus and banking here in 0:24:13.960 --> 0:24:24.600 your where of the money flows. Thanks for listening to 0:24:24.640 --> 0:24:29.159 the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 0:24:29.240 --> 0:24:35.080 Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 0:24:35.080 --> 0:24:38.400 on Twitter at Tom Keane before the podcast. You can 0:24:38.440 --> 0:24:41.639 always catch us worldwide. I'm Bloomberg Radio.