WEBVTT - Get Paid, But Only For Beating Benchmarks: Peter Kraus 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:30.280 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Peter 0:00:30.400 --> 0:00:35.199 Krauss led Alliance Bernstein through the heart of the financial crisis. 0:00:35.200 --> 0:00:38.519 He was chairman and CEO of the big asset management 0:00:38.520 --> 0:00:41.519 firm from two thousand and eight through last year, and 0:00:41.600 --> 0:00:45.160 now he is starting his own firm. We are broadcasting 0:00:45.200 --> 0:00:48.600 live from Bloomberg Directive Broger Studios, and Peter Krause joins 0:00:48.680 --> 0:00:51.000 us right here. Peter, thank you so much for being here. 0:00:51.200 --> 0:00:53.000 Thanks you at least for having me. All right, So 0:00:53.240 --> 0:00:58.200 you are founding a new firm, and why good question. 0:00:58.240 --> 0:01:01.200 It is a new firm, Uh what? The main reason 0:01:01.320 --> 0:01:04.040 that I think the new firm is exciting is that 0:01:04.080 --> 0:01:07.520 we're trying to align the revenue model of the firm 0:01:07.640 --> 0:01:10.679 with the clients objectives. And what I found in time 0:01:11.200 --> 0:01:14.679 in my experience in the industry is that although we 0:01:14.760 --> 0:01:19.000 all are here to serve clients. Almost all firms revenue 0:01:19.040 --> 0:01:22.920 models are fixed fees, so the client pays whether or 0:01:22.959 --> 0:01:26.480 not the manager performs. An aperture is distinctly different. In 0:01:26.520 --> 0:01:30.360 that sense, the client only pays more than the passive 0:01:30.440 --> 0:01:36.200 fee if we perform. What is the hurdle rate? The 0:01:36.280 --> 0:01:39.920 hurdle rates are different for different products, so it would 0:01:39.959 --> 0:01:43.119 depend upon the investment services that we have. But let's 0:01:43.120 --> 0:01:47.039 just take an example in a simple equity fund. Let's 0:01:47.040 --> 0:01:49.440 say it's US large cap equities. The hurdle rate would 0:01:49.440 --> 0:01:54.800 be the standard and Poor's index, easily identifiable, recognizable by all. Okay, 0:01:54.880 --> 0:01:59.040 so let's say that this does gain steam. Would fees 0:01:59.120 --> 0:02:03.600 be a lot larger once you hit that threshold? Well, actually, 0:02:03.720 --> 0:02:06.640 you have to earn the S and P return in 0:02:06.760 --> 0:02:09.520 order to be paid any fee at all. So in 0:02:09.560 --> 0:02:11.840 other words, let's just say the markets up ten percent, 0:02:11.960 --> 0:02:15.160 that's the SMP. If the managers performance is ten percent, 0:02:15.280 --> 0:02:18.720 they're paid exactly no performance fee and only their base fee. 0:02:19.000 --> 0:02:21.760 So here's what I'm wondering. When you talk about our performance, 0:02:21.800 --> 0:02:24.680 it depends what index you're looking at. It also depends 0:02:24.720 --> 0:02:26.960 what time frame you're looking at. So what is the 0:02:27.080 --> 0:02:31.520 correct time frame to really judge this. So remember that 0:02:31.639 --> 0:02:34.640 almost all managers have benchmarks in the in the fixed 0:02:34.639 --> 0:02:37.800 fee space for sure, uh And so it's true that 0:02:37.840 --> 0:02:41.960 each manager has a different benchmark, and benchmarks can be complex. 0:02:42.240 --> 0:02:45.720 We're attempting to make those benchmarks simple, easy and recognizable. 0:02:46.680 --> 0:02:49.440 The time period over which you pay fees is one year. 0:02:50.520 --> 0:02:53.320 The reason why it's not longer is it's complicated for 0:02:53.360 --> 0:02:56.000 people to understand fees over more than a year. We 0:02:56.280 --> 0:02:58.800 actually charge the fee every day, but at the end 0:02:58.840 --> 0:03:01.440 of the day, we only elect the fee if we 0:03:01.520 --> 0:03:04.919 actually create performance in the twelve month period in which 0:03:04.960 --> 0:03:11.440 the client is invested the new company aperture. Is it 0:03:11.880 --> 0:03:16.080 going to compete against more storied names like Goldman Sachs 0:03:16.520 --> 0:03:20.520 Or is this designed to go and try to peel 0:03:20.520 --> 0:03:25.320 away money from other let's say, hedge funds or specific 0:03:26.080 --> 0:03:30.840 investment strategies. We actually think that we're attempting to disrupt 0:03:31.400 --> 0:03:34.280 all of those, not just Goldman Sacks, not just a 0:03:34.320 --> 0:03:38.680 hedge fund, not just tro Price, not just Fidelity, but 0:03:39.600 --> 0:03:42.160 all the above, because what we're trying to bring to 0:03:42.240 --> 0:03:46.960 the client is outstanding returns, returns over a benchmark at 0:03:46.960 --> 0:03:49.760 the end of the day, clients can buy beta or 0:03:49.800 --> 0:03:52.720 the market exposure for cheap prices. We know that, and 0:03:52.760 --> 0:03:54.560 we think that they should go and do that. What 0:03:54.680 --> 0:03:58.120 clients can't get is return in excess of the market. 0:03:58.400 --> 0:04:01.000 We're actually trying to provide the Okay, so what do 0:04:01.040 --> 0:04:03.080 you think happens to all the big asset managers if 0:04:03.080 --> 0:04:06.480 they don't adopt a fee structure structures like this. I 0:04:06.520 --> 0:04:09.480 think this is a This is an industry that plays 0:04:09.520 --> 0:04:11.680 out over a long period of time. People don't move 0:04:11.720 --> 0:04:16.000 their money around, you know, haphazardly, but over long periods, 0:04:16.040 --> 0:04:18.479 you know, ten to fifteen years. I believe that the 0:04:18.520 --> 0:04:20.960 amount of money that will be followed by this performance 0:04:21.000 --> 0:04:24.920 link structure will be very significant in the trillions. And 0:04:24.960 --> 0:04:26.160 you would look at me and say, well, how could 0:04:26.160 --> 0:04:29.000 that possibly be? But if you go back to when 0:04:29.000 --> 0:04:31.600 et F started, if I had said to you twenty 0:04:31.600 --> 0:04:33.960 plus years later, E t F are going to account 0:04:33.960 --> 0:04:36.400 for almost fifty of the marketplace, you would have thought 0:04:36.400 --> 0:04:40.120 it was crazy. I'm just struck by the infrastructure of 0:04:40.120 --> 0:04:42.240 an asset management, of an asset management for I mean, 0:04:42.320 --> 0:04:45.000 this is not inexpensive. How do you maintain that with 0:04:45.080 --> 0:04:47.599 the structure when it's really hard to outperform unless you 0:04:47.640 --> 0:04:49.720 are investing in less liquid assets. I mean, if you're 0:04:49.720 --> 0:04:53.440 tied to broader markets, it's chance. Yeah, it's hard to 0:04:53.440 --> 0:04:56.320 outperform whether you're invested in liquid markets or illiquid or 0:04:56.360 --> 0:04:58.840 illiquid assets. Don't don't make don't make the mistake that 0:04:58.880 --> 0:05:01.960 ill liquid assets are easy to create performance from two. 0:05:02.400 --> 0:05:05.520 Look at the end of the day, we're running a 0:05:05.520 --> 0:05:08.560 a asset management firm. It's disrupting on three different levels. 0:05:08.839 --> 0:05:12.000 It's disrupting on the revenue level, it's disrupting on the 0:05:12.080 --> 0:05:15.640 distribution level, and it's disrupting on the cost structure. We've 0:05:15.640 --> 0:05:19.039 built a cost structure that essentially outsources virtually all the 0:05:19.120 --> 0:05:22.920 things that most firms would do internally. Most firms do 0:05:22.960 --> 0:05:26.000 them internally because it's their legacy. We have the benefit 0:05:26.240 --> 0:05:29.320 of building a firm today, and given the cloud structure 0:05:29.320 --> 0:05:32.200 in the world and the available technology, we can replicate 0:05:32.200 --> 0:05:34.599 what most firms do for millions and millions of dollars 0:05:34.920 --> 0:05:38.320 for far far less. So our cost structure is structurally 0:05:39.120 --> 0:05:42.400 competitive relative to anybody else. We actually have a structural 0:05:42.440 --> 0:05:45.560 benefit that others can't take advantage of. What are your 0:05:45.560 --> 0:05:49.080 thoughts about starting aperture investors at the time when if 0:05:49.080 --> 0:05:52.840 you look at the SMP five hundred were four. We've 0:05:52.880 --> 0:05:57.080 got a record for the DAO at three. You're looking 0:05:57.120 --> 0:05:59.799 at performance that's pretty good, and a lot of people 0:05:59.800 --> 0:06:02.440 are starting to think maybe this is the time to 0:06:02.640 --> 0:06:06.839 lighten up on stocks some sixty six. I started thinking 0:06:06.839 --> 0:06:09.159 about investing, believe it or not, when I was maybe 0:06:09.160 --> 0:06:13.040 twelve or thirteen years old. Over that time period, doesn't 0:06:13.080 --> 0:06:16.320 take anybody, you know, smart to realize that equies are 0:06:16.320 --> 0:06:19.720 going up over time. People are investing for their lives, 0:06:19.760 --> 0:06:23.800 they're investing for their savings. Market timing is interesting to 0:06:23.800 --> 0:06:27.280 talk about, but not interesting as an investment thesis. So 0:06:27.360 --> 0:06:30.000 Aperture is here for the long run. We expect to 0:06:30.000 --> 0:06:32.719 be in business for many, many years, tens of years, 0:06:33.200 --> 0:06:35.400 and our job is to produce alpha, whether the market 0:06:35.480 --> 0:06:37.880 is going down or the market's going up. Is it 0:06:37.920 --> 0:06:41.840 hard for you to recruit potential investment managers with a 0:06:41.880 --> 0:06:44.520 fee structure like this, especially since their compensation is so 0:06:44.600 --> 0:06:48.960 closely tied to our performance. It's a great question. It's 0:06:49.000 --> 0:06:52.720 really the key question. Actually, So I've interviewed over almost 0:06:52.720 --> 0:06:56.000 a hundred people. Can't keep counting. Somewhere over seventy five, 0:06:56.000 --> 0:06:58.560 and I think it's up to a hundred UM. And 0:06:58.600 --> 0:07:01.159 I think the people fall into two categories. There are 0:07:01.720 --> 0:07:05.080 those portfolio managers who grew up in a fixed fee 0:07:05.120 --> 0:07:08.400 world who look at this and go, well, why would 0:07:08.440 --> 0:07:11.360 I go to a performance based world when I get 0:07:11.360 --> 0:07:14.200 paid whether or not I perform? And my view of 0:07:14.200 --> 0:07:16.480 that is I don't even want to want to hire them, 0:07:16.520 --> 0:07:19.800 because that's just not the person I want. The person 0:07:19.880 --> 0:07:21.920 I want is somebody that believes they can perform, has 0:07:21.960 --> 0:07:25.000 a history of performing, understands how to take risk, and 0:07:25.120 --> 0:07:28.640 is willing to be paid on the basis of that performance. 0:07:28.680 --> 0:07:31.080 Because there are two important things to that. One is 0:07:31.320 --> 0:07:33.560 their risk takers and at the end of the day, 0:07:33.600 --> 0:07:35.400 you want to invest with the risk here. You can't 0:07:35.400 --> 0:07:37.680 make money if the person doesn't take risk. And two 0:07:37.760 --> 0:07:41.480 is they're willing to cap their capacity because capacity is 0:07:41.520 --> 0:07:44.320 the main issue in the camp in the industry. Any 0:07:44.400 --> 0:07:47.920 names you can share who have joined the team, no, 0:07:48.040 --> 0:07:51.440 I mean it'll be public over time. But I think 0:07:51.440 --> 0:07:57.080 we're a team. I'm sorry rhymes like like Magan, but 0:07:57.320 --> 0:07:58.880 we're a team and we're going to be a team, 0:07:59.080 --> 0:08:01.120 all right. We're gonna leave with there Thanks very much 0:08:01.160 --> 0:08:04.440 for coming in. Peter Krauss is the founder and financial 0:08:04.480 --> 0:08:09.320 partner for Aperture Investors. They're looking to reshape the fee 0:08:09.320 --> 0:08:12.320 structure for money managers. Thanks very much for coming in 0:08:12.360 --> 0:08:24.280 and sharing your thoughts with us. Joining us now as 0:08:24.360 --> 0:08:27.880 Lenan Union. She's an FX reporter for Bloomberg News Land. 0:08:27.920 --> 0:08:30.280 Thank you so much for being with us. You know, 0:08:30.640 --> 0:08:33.560 I have to think it is strange that the dollar 0:08:33.720 --> 0:08:37.440 is weakening at a time when treasury yields are grinding higher. 0:08:37.760 --> 0:08:40.160 Doesn't this go against the trend that we've seen recently. 0:08:40.480 --> 0:08:43.280 It certainly does, Lisa, And that's the really interesting thing 0:08:43.480 --> 0:08:47.000 we've seen. Positioning in the FX market is max bullish 0:08:47.120 --> 0:08:50.360 right now. People are piling into long positions. It's the 0:08:50.400 --> 0:08:52.920 third most crowded trade according to Bank of America's Fund 0:08:52.960 --> 0:08:55.439 Manager Survey. And yet I'm hearing a lot of people 0:08:55.480 --> 0:08:59.000 talking about the dollar being a cell um. You know. 0:08:59.080 --> 0:09:01.400 We we talked to Ben P. Perry Boat Asset Management. 0:09:01.440 --> 0:09:03.640 They think the dollar could plunge ten percent in the 0:09:03.679 --> 0:09:06.320 next six to nine months. So what we're looking at 0:09:06.440 --> 0:09:09.840 is the market saying Feds over We're over it. We 0:09:09.880 --> 0:09:12.160 know what's happening there. The U S economy is doing well. 0:09:12.240 --> 0:09:14.880 What's next. We'll just taking a look at the performance 0:09:14.920 --> 0:09:17.960 of the dollar today one thirty two eighty against the 0:09:18.000 --> 0:09:21.520 pounds sterling. Perhaps that's in response to the comments from 0:09:21.559 --> 0:09:25.679 Donald Tusk of the European Union about ongoing negotiations, and 0:09:25.760 --> 0:09:28.120 also taking a look at the dollar versus the Canadian 0:09:28.200 --> 0:09:31.600 looney one twenty eight the dollar is weakening. Yeah, And 0:09:31.640 --> 0:09:34.840 I think with those two stories, particularly with Canada and 0:09:35.000 --> 0:09:37.520 the pound, we have a lot of videosyncratic political risk 0:09:37.559 --> 0:09:39.480 and trade risk when it comes to NAFTA. So the 0:09:39.480 --> 0:09:41.800 dollar has definitely gotten a bid in the last few 0:09:41.800 --> 0:09:44.800 weeks months because of trade problems. But I think a 0:09:44.800 --> 0:09:47.360 lot of the being people that I'm looking at on 0:09:47.400 --> 0:09:50.000 the by side, who are longer term thinkers, think Okay, 0:09:50.040 --> 0:09:52.680 the trade stuff is just noise. It will eventually be resolved. 0:09:52.679 --> 0:09:55.360 And what's really important is the fundamental drivers, which is 0:09:55.640 --> 0:09:58.720 US central bank is already moving, which next, Which central 0:09:58.720 --> 0:10:01.080 banks are next, and who is going to catch up 0:10:01.080 --> 0:10:04.000 to the US in terms of that monetary policy convergence. 0:10:04.280 --> 0:10:07.920 So Dave come on in here. If BNP PRIVA analysts 0:10:07.920 --> 0:10:11.439 are correct and others that the greenback could decline could 0:10:11.480 --> 0:10:15.040 appreciate about ten percent in the upcoming year. What does 0:10:15.080 --> 0:10:17.000 that mean for US equities? And that's kind of almost 0:10:17.000 --> 0:10:20.319 a tailwind. Now, yeah, I mean you've sort of seeing 0:10:20.400 --> 0:10:24.439 the dollar pop up and a lot of companies results 0:10:24.240 --> 0:10:26.920 as something to be concerned about. I mean, let's face it, 0:10:27.360 --> 0:10:30.320 you know, if you've got a higher dollar than all 0:10:30.360 --> 0:10:33.480 those overseas earnings just don't count so much when you 0:10:33.520 --> 0:10:36.480 bring them back home, if only for the sake of 0:10:36.480 --> 0:10:39.760 the financial statements. And you know, to the extent that 0:10:39.800 --> 0:10:41.959 the companies are trying to sell overseas, I mean, it 0:10:42.200 --> 0:10:45.280 becomes an issue as well, so it has the potential 0:10:45.320 --> 0:10:47.360 to be that. I mean, then again, I'm looking at 0:10:47.360 --> 0:10:49.600 the Bloomberg Dollar Index and it's sort of sitting in 0:10:49.600 --> 0:10:51.400 the range. It's been the last few months at the 0:10:51.440 --> 0:10:54.600 bottom of the range, but it's not like we've had 0:10:54.679 --> 0:10:58.000 the kind of really substantial move lower that would suggest that, 0:10:58.080 --> 0:11:00.360 at least for the moment, that things are changing in 0:11:00.360 --> 0:11:03.480 a meaningful way for US companies. And just to your 0:11:03.520 --> 0:11:05.800 point at Lisa, I mean, a company like Coca Cola, 0:11:05.840 --> 0:11:08.760 which derives more than half of its revenue from outside 0:11:08.760 --> 0:11:11.439 the United States, they would be affected by any of 0:11:11.480 --> 0:11:14.800 those big moves in US dollar, right, yes, exactly, and 0:11:14.840 --> 0:11:18.160 so maybe this becomes, you know, a boon if the 0:11:18.200 --> 0:11:20.920 dollar does start to weaken. We saw that when the 0:11:20.960 --> 0:11:23.719 FED was tightening rates that um, you know, everyone was 0:11:23.760 --> 0:11:26.480 really worried about this tightening and financial conditions. The dollar 0:11:26.600 --> 0:11:28.240 was doing a lot of the tightening for the FED. 0:11:28.360 --> 0:11:31.120 So maybe we're going in re versus un confused because 0:11:31.200 --> 0:11:34.079 with treasure yields now at ten year yields climbing above 0:11:34.120 --> 0:11:37.520 three percent, you're getting real return on everything from three 0:11:37.520 --> 0:11:40.120 months t bills out through the thirty year treasury. I'm 0:11:40.160 --> 0:11:42.080 just trying to understand why are we not seeing more 0:11:42.120 --> 0:11:45.400 foreign investor flood back into the US giving more of 0:11:45.440 --> 0:11:47.120 a bid to the dollar. I mean, I understand about 0:11:47.120 --> 0:11:50.040 the FED, but what about the actual yields. I think 0:11:50.080 --> 0:11:53.479 it's again we're we're looking at the two thousand seventeen 0:11:53.559 --> 0:11:57.560 story again, which is that people just uh, in the 0:11:57.679 --> 0:12:01.080 FX market don't see the US as that appealing anymore 0:12:01.120 --> 0:12:03.920 because we've maxed out, and I think the two markets 0:12:03.960 --> 0:12:07.760 are definitely dislocated for sure, um and in for an exchange, 0:12:07.800 --> 0:12:09.760 people say this is as good as it gets in 0:12:09.800 --> 0:12:12.959 the US. What's next as good as it gets. That 0:12:13.080 --> 0:12:16.160 seems to be not resonating at all with stock traders 0:12:16.160 --> 0:12:19.000 today as we hit a new highs, so people seem 0:12:19.040 --> 0:12:22.160 to think that there's a lot more good head in equities, 0:12:22.200 --> 0:12:26.200 although currencies can sometimes sometimes have a little bit more 0:12:26.200 --> 0:12:28.520 of a finger on the pulse, a different pulse perhaps. Davilson, 0:12:28.679 --> 0:12:31.440 Blomberg Sox editor, columnist and blogger, and m live go 0:12:31.640 --> 0:12:34.679 on the Bloomberg and Lennian who covers FX for us 0:12:34.720 --> 0:12:38.480 here at Bloomberg News, and I gotta say, I'm having 0:12:38.480 --> 0:12:41.560 trouble reconciling higher yields with a weaker dollar. It's something 0:12:41.600 --> 0:12:46.040 that is not logical you're trying to make sense of. Well, no, 0:12:46.200 --> 0:12:49.559 it's just it goes against some recent trends that we've seen, 0:12:49.640 --> 0:12:52.360 and it just it's an interesting dynamic. It'll be interesting 0:12:52.400 --> 0:13:06.679 to see whether it holds. Right now. We want to 0:13:06.679 --> 0:13:09.480 shove the focus to China overnight. There are reports that 0:13:09.600 --> 0:13:14.440 China is considering cutting tariffs on incoming goods as seeming 0:13:14.800 --> 0:13:16.720 I don't know, olive branch to the rest of the 0:13:16.720 --> 0:13:18.880 world saying that we're going to lower our high tariff 0:13:18.960 --> 0:13:21.440 rates a little bit in order to be a leader 0:13:21.640 --> 0:13:24.640 in trade joining US now Tom or like chief economist 0:13:24.679 --> 0:13:28.280 for Bloomberg Economics coming to US from Washington, D C. Tom. 0:13:28.440 --> 0:13:31.280 This seems to go against what we had been seeing. 0:13:31.280 --> 0:13:33.640 It does seem to break the vibe between the US 0:13:33.720 --> 0:13:36.840 and China where it was sort of an escalating tariff off. 0:13:37.160 --> 0:13:40.120 How big of a deal is this? I think we 0:13:40.160 --> 0:13:42.800 need to wait for the details. UM. If it's a 0:13:42.880 --> 0:13:46.520 very significant cut in tariff um, then clearly this is 0:13:46.559 --> 0:13:49.160 going to be big news. UM. If we're just talking 0:13:49.200 --> 0:13:51.240 about a fraction of a percent or a couple of 0:13:51.240 --> 0:13:53.920 percents of tariff I think is not going to really 0:13:53.960 --> 0:13:58.960 move the dial um. It seems to be an indication 0:13:59.000 --> 0:14:03.240 that China wants to d escalate this situation UM. The US, 0:14:03.360 --> 0:14:06.240 when with two hundred tariffs on two billion dollars in goods, 0:14:06.559 --> 0:14:10.040 China responded with tariffs on just sixty billion. The US 0:14:10.080 --> 0:14:12.160 set tariffs at ten percent and said they were going 0:14:12.200 --> 0:14:16.000 to China came in at a lower level. And now 0:14:16.040 --> 0:14:19.840 this move to offer a general concession on tariff's um 0:14:20.280 --> 0:14:23.840 worldwide UM seems to me an indication that China is 0:14:23.880 --> 0:14:27.920 trying to de escalate. What about the import tax that 0:14:28.520 --> 0:14:32.720 China might impose more generally, what would that do to 0:14:32.760 --> 0:14:37.400 the Chinese economy. So the way that China will present 0:14:37.520 --> 0:14:41.800 this is part of a longer term reform and opening strategy. 0:14:42.400 --> 0:14:46.240 Of course, Donald Trump has his prestige in China, Chi 0:14:46.320 --> 0:14:50.640 Jinping has his prestige. The last thing that China's government 0:14:50.640 --> 0:14:54.280 wants to do is to be perceived as making concessions 0:14:54.720 --> 0:14:57.800 um to the US. So this will be presented as 0:14:57.840 --> 0:15:01.080 part of a longer term reform and opening strate to Gum, 0:15:01.120 --> 0:15:04.560 and it will have, to your question, pim Um that 0:15:04.720 --> 0:15:09.440 positive impact in terms of raising consumption, in terms of 0:15:09.480 --> 0:15:13.720 dealing with some of China's economic imbalances, and so the 0:15:13.760 --> 0:15:16.240 hope in Beijing will be at the same time as 0:15:16.240 --> 0:15:19.280 taking some of the heat out of the trade trade dispute, 0:15:19.440 --> 0:15:23.360 it's also a longer term positive for China's development. So, Tom, 0:15:23.400 --> 0:15:25.080 this was my big question when I read the news 0:15:25.080 --> 0:15:29.240 this morning, I was wondering it will China lower tariffs 0:15:29.320 --> 0:15:34.120 on US goods alongside others that they import, especially considering 0:15:34.160 --> 0:15:37.240 the fact that they've got no plans to dial back 0:15:37.440 --> 0:15:40.360 their retaliatory tariffs that they said are going to go 0:15:40.440 --> 0:15:43.800 into effect on September twenty in tandem with the additional 0:15:43.880 --> 0:15:48.080 US tariffs and Chinese goods. Right. Um, that's an important question. 0:15:48.160 --> 0:15:51.000 I don't think we have perfect clarity on it yet. 0:15:51.040 --> 0:15:54.560 We don't have the details from the Chinese side. UM. 0:15:54.600 --> 0:15:58.320 My initial take though, is that this reduction in tariffs 0:15:58.360 --> 0:16:00.840 will be worldwide. It will fly to the U S, 0:16:00.880 --> 0:16:04.160 it will apply to Europe, it will apply to everybody. UM. 0:16:04.360 --> 0:16:07.640 So the Chinese are making their domestic market more attractive 0:16:08.160 --> 0:16:12.360 to foreign firms. At the same time, those punitive tariffs 0:16:12.360 --> 0:16:16.360 on U S firms um, which the Chinese have said 0:16:16.360 --> 0:16:20.600 they will impose in retaliation for US tariffs on Chinese firms, 0:16:20.680 --> 0:16:23.160 will be in place, So the whole market will look 0:16:23.160 --> 0:16:26.520 more attractive to foreign firms but Chinese, but US terms 0:16:26.520 --> 0:16:31.040 will face this additional punitive tariff. UM. I think the 0:16:30.360 --> 0:16:34.040 the logic of that for Beijing is that they hope 0:16:34.080 --> 0:16:39.080 to turn US corporates into lobbyists on their behalf, because 0:16:39.080 --> 0:16:42.920 the US corporates will see, oh, the Europeans, the Canadians, 0:16:42.960 --> 0:16:45.640 the Japanese, they're all going into the Chinese market on 0:16:45.680 --> 0:16:48.680 these new favorable terms. We can't get in because we're 0:16:48.680 --> 0:16:51.840 faced with these punitive additional tariffs. Let's go to d C. 0:16:52.400 --> 0:16:57.560 Let's encourage the Trump administration to call a truce, maybe 0:16:57.840 --> 0:17:01.800 walk back some of the some of the terrists they've introduced. Tom, 0:17:02.360 --> 0:17:05.200 just quickly here, if this is all going to happen, 0:17:05.200 --> 0:17:07.879 what happens to the Chinese currency? I mean it hasn't 0:17:07.880 --> 0:17:10.280 it been falling in value? And doesn't that make them 0:17:10.400 --> 0:17:14.960 Chinese products, you know, more competitive? So China has allowed 0:17:15.000 --> 0:17:17.679 the UNSW to de appreciate somewhat over the course of 0:17:17.760 --> 0:17:21.080 two thousand and eighteen. There certainly hasn't been an extreme 0:17:21.200 --> 0:17:23.760 drop in the currency. The fear for China if we 0:17:23.800 --> 0:17:25.879 saw a big drop would be we'd be back to 0:17:25.920 --> 0:17:30.640 the world of capital light flows and concerns about financial stability. Um. 0:17:30.960 --> 0:17:32.960 I think if we see this cut in tarrits and 0:17:33.040 --> 0:17:36.240 that reduces the tensions in the trade war, then that's 0:17:36.240 --> 0:17:39.800 going to reduce the need for you and depreciation as 0:17:39.840 --> 0:17:42.639 a kind of competitiveness offset. I do you want to 0:17:42.640 --> 0:17:45.560 just remind you we are awaiting law enforcement comments on 0:17:45.720 --> 0:17:49.720 multiple victims having been shot in Maryland. We will bring 0:17:49.720 --> 0:17:52.360 you those when we get them. Tom. You know you're 0:17:52.400 --> 0:17:56.560 talking about how China wants to turn US corporations into 0:17:56.720 --> 0:18:00.280 lobbyists to get the Trump administration to back away from 0:18:00.320 --> 0:18:04.640 this trade escalation. But so far they have been lobbyists 0:18:04.680 --> 0:18:08.280 and they have failed. What makes China confident that perhaps 0:18:08.520 --> 0:18:11.919 the Trump administration would listen to corporate pushback when it 0:18:11.960 --> 0:18:15.280 really hasn't worked so far. Yeah, I think that's a 0:18:15.400 --> 0:18:18.160 that's a key point. And my expectation at the start 0:18:18.160 --> 0:18:19.760 of the year was that we were going to have 0:18:19.920 --> 0:18:23.679 much more vigorous corporate pushback from the US business lobby 0:18:23.920 --> 0:18:26.200 and that was going to be a more significant factor 0:18:26.680 --> 0:18:31.600 in changing the changing the view on the Trump administration. Clearly, 0:18:31.640 --> 0:18:35.800 that hasn't happened so far. We'll see what the extent 0:18:35.880 --> 0:18:39.040 of the tariff cut that China is offering is um. 0:18:39.080 --> 0:18:41.840 But clearly, if it's a very significant tariff cut, if 0:18:41.880 --> 0:18:46.399 it's significantly increases the appeal um of doing business in China, 0:18:46.680 --> 0:18:49.439 and then you would expect those business lobby voices in 0:18:49.440 --> 0:18:52.920 the US to get that little bit louder um. And 0:18:53.080 --> 0:18:55.320 of course they don't have a crystal ball into Beijing. 0:18:55.480 --> 0:18:59.359 I don't know what the government's internal thinking is, um, 0:18:59.400 --> 0:19:02.120 but the hope I think would be the alloweder voice 0:19:02.160 --> 0:19:05.160 from the US business lobby would make it more difficult 0:19:05.280 --> 0:19:10.680 for the Trump administration to proceed with aggressive tariffs. Does 0:19:10.720 --> 0:19:15.200 this also have an impact on other countries in Asia 0:19:15.320 --> 0:19:19.800 that maybe have assumed some of the manufacturing work that 0:19:19.920 --> 0:19:24.640 has been too expensive to do in China, Right, So 0:19:24.680 --> 0:19:29.040 I think countries like Vietnam, countries like the Philippines, countries 0:19:29.080 --> 0:19:32.320 like Bangladesh, And we were already seeing a lot of 0:19:32.480 --> 0:19:36.359 export business, low value added export business moving from China 0:19:36.440 --> 0:19:39.920 to those countries because they are cheaper now. Um, And 0:19:40.040 --> 0:19:42.600 this US China trade war, I mean, it could only 0:19:42.640 --> 0:19:46.280 accelerate that process. Right. If China is getting more expensive 0:19:46.320 --> 0:19:48.639 in terms of labor, in terms of exchange rate, in 0:19:48.720 --> 0:19:50.760 terms of all the cost of production, and then you 0:19:50.800 --> 0:19:53.959 have tariffs on top of that, then all the corporations 0:19:53.960 --> 0:19:55.960 are going to think, Okay, my next factory is going 0:19:56.000 --> 0:19:59.280 to be in Southeast Asia. Now. If China reduces his 0:19:59.400 --> 0:20:02.640 tariffs and dials playing the tension in the trade war, um, 0:20:02.640 --> 0:20:06.120 clearly that the pressure for that exodus of manufacturing activity 0:20:06.119 --> 0:20:08.320 will be that bit less. So one thing that I'm 0:20:08.359 --> 0:20:10.800 struck by is we were speaking with Leland Miller of 0:20:10.880 --> 0:20:14.280 China beige Book International earlier in the week, and he 0:20:14.440 --> 0:20:18.080 was saying that on the ground, it seems like manufacturing 0:20:18.240 --> 0:20:20.760 is slowing in China despite some of the data that 0:20:20.760 --> 0:20:24.359 we're getting from official sources there. And I'm just I'm wondering, 0:20:24.480 --> 0:20:28.440 if you do sort of reduce the barrier to imports 0:20:28.440 --> 0:20:30.960 in China at a time when you're already seeing a 0:20:31.040 --> 0:20:36.560 slowdown and manufacturing, how much could this actually hurt China's economy. 0:20:37.280 --> 0:20:40.679 I mean, that's an interesting question. UM. Clearly, if you 0:20:40.760 --> 0:20:43.600 import more manufactured good things, you have less need to 0:20:43.640 --> 0:20:47.359 imput the actually less need to produce manufactured goods at 0:20:47.440 --> 0:20:51.439 home at the same time. UM, Tariffs and not the 0:20:51.480 --> 0:20:57.520 only factor determining where manufacturing activity takes place. UM, the 0:20:57.560 --> 0:21:01.639 supply chains are in China. The emphas structure is in China. 0:21:02.040 --> 0:21:05.639 These things do not move quickly or move overnight. UM. 0:21:05.680 --> 0:21:08.199 I think the idea that the Chinese government has is 0:21:08.200 --> 0:21:11.360 probably not so much. Oh, we're going to get more 0:21:11.400 --> 0:21:14.000 important manufacturing goods, and that's going to be bad for 0:21:14.040 --> 0:21:18.000 our factories at home. But rather we've got lots of consumers. 0:21:18.440 --> 0:21:21.520 They've got a demand for goods that have produced globally. UM, 0:21:21.720 --> 0:21:26.280 we're going to ramp up consumption by reducing import barriers 0:21:26.520 --> 0:21:31.080 and opening the door to more US cars, more Japanese cars, 0:21:31.520 --> 0:21:33.879 more of those kind of high end goods that Chinese 0:21:33.880 --> 0:21:36.720 consumers now want but are not being produced at home. 0:21:36.880 --> 0:21:38.960 Want to thank you very much for spending time with us. 0:21:39.000 --> 0:21:43.359 Tom Orlick is Chief economist for a Bloomberg Economics, talking 0:21:43.400 --> 0:21:46.640 about the effects of the drawn out US China trade 0:21:46.760 --> 0:21:49.320 war and what that means not only for consumers in 0:21:49.320 --> 0:22:03.480 the United States, but also for the Chinese economy. So 0:22:03.560 --> 0:22:07.600 Amazon wants to run our world in every which way, 0:22:07.640 --> 0:22:10.240 whether it's in our homes, whether it's in our stores, 0:22:10.960 --> 0:22:13.400 whether it's the music we listen to or the movies 0:22:13.600 --> 0:22:16.800 we watch. The latest they are planning to open three 0:22:17.040 --> 0:22:21.960 thousand ghost stores. By Shara over Day, Bloomberg Opinion calumnists 0:22:21.960 --> 0:22:26.200 covering all things tech. What does an Amazon convenience store 0:22:26.280 --> 0:22:31.000 look like? Well, what they look like now. Amazon has 0:22:31.040 --> 0:22:34.359 a handful of these cashier less more or less convenience 0:22:34.400 --> 0:22:37.040 stores um that they started a couple of years ago 0:22:37.040 --> 0:22:40.040 in their hometown of Seattle, and they look like a 0:22:40.119 --> 0:22:43.800 conventional convenience store with prepared foods and a handful of 0:22:43.840 --> 0:22:48.919 select um packaged food items, except there are no cashiers. 0:22:48.960 --> 0:22:51.840 You kind of walk in with your smartphone that has 0:22:51.880 --> 0:22:54.800