Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
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Speaker 1: the question of where is Mark Zuckerberg, Lisa Axios reporting
Speaker 1: this morning that he might break his silence within the
Speaker 1: next twenty four hours, and my question is whether it's
Speaker 1: a fluffy webcast about making a world a better place
Speaker 1: in his commitment to do that, or whether he will
Speaker 1: actually sit in front of the reporter and take some
Speaker 1: serious questions in a way that he hasn't done it
Speaker 1: for a long time, or whether he will pledge to
Speaker 1: go to Washington, d C. And testify in front of Congress,
Speaker 1: which could end up being a tipping point. The other
Speaker 1: thing I'm looking at to see whether it is a
Speaker 1: tipping point is whether we have reached the level at
Speaker 1: which any additional FED rate hikes actually lead to a
Speaker 1: tightening of financial conditions, because John, as you were pointing
Speaker 1: out before, wisely, so far rate hikes have actually led
Speaker 1: to a loosening of financial conditions joining us now, John Sylvia,
Speaker 1: he is joining us from a snowy Boston and he
Speaker 1: is very proud to be here. Thank you so much,
Speaker 1: Chief economist at Wells Fargo. UM. So let's talk about that.
Speaker 1: Have we reached the tipping point? Now? If you look
Speaker 1: at the Bloomberg Financial Conditions Index, you'll see that the
Speaker 1: improvement over the last six months to a year in
Speaker 1: the equity market, as well as the weaker dollar has
Speaker 1: really meant that the financial conditions index is easier today
Speaker 1: than it was six months ago. So if the Fed
Speaker 1: would raise rates in March and June, I don't think
Speaker 1: we're reaching that tipping point now. Clearly, you know, given
Speaker 1: that your dad was a mathematician, Lisa Um, he'll explain
Speaker 1: to you that these linear projections oftentimes don't work out
Speaker 1: in a non linear world. And so we see in
Speaker 1: and again two thousand five, two thousand seven. Yes, the
Speaker 1: Fed can continue to project raising interest rate twenty five
Speaker 1: basis points every other meeting, but at some point there
Speaker 1: will be a challenge in the marketplace. Are we anywhere
Speaker 1: near to that? No? I think at this point in time. Now,
Speaker 1: this this year, you got two and a half to
Speaker 1: three percent growth in the economy and maybe, uh, maybe, Jonathan,
Speaker 1: when the Treasury continues to increase its financing of the deficit,
Speaker 1: that you may see some additional pressure on the economy.
Speaker 1: We're trying to understand the relationship between unemployment and inflation
Speaker 1: and trying to get some insight from Chairman Powell on
Speaker 1: his thoughts of that. The the estimated equilibrium for unemployment
Speaker 1: seems to be marked a market at the Federal Reserve
Speaker 1: just drifts lower because unemployment is just drifting lower. Did
Speaker 1: they have a clue, John, No, I think the markets
Speaker 1: themselves don't have a clue. It's been quite a surprise
Speaker 1: that the wage numbers have not increased in line with
Speaker 1: the decline the unemployment for the last year or so.
Speaker 1: We see total labor compensation rising. But no, I mean
Speaker 1: a lot of discussion about the flat, the flat Phillips
Speaker 1: curve um, the very very you know, slight slope to it.
Speaker 1: It's just totally up in the air. We don't know
Speaker 1: what the equilibrium interest rate is in terms of the
Speaker 1: Federal fund, right, And you're right, there's this problem in
Speaker 1: economics that the latest data dictates the equilibrium. All right,
Speaker 1: I want to push back a little bit, because you're
Speaker 1: saying we haven't reached that point where you're gonna get
Speaker 1: tightening financial conditions in response to rate hikes, and that
Speaker 1: we're nowhere near that, And yet libor is the big
Speaker 1: story tightening, rising rapidly to the highest level since two
Speaker 1: thousand and eight, and it's the factor are tightening of
Speaker 1: financial conditions? What do you make of that? Well? It
Speaker 1: is I think when you're looking at the short interest rate,
Speaker 1: you are seeing a tightening and financial conditions. But surprisingly,
Speaker 1: when you broaden that out to again look at the
Speaker 1: Bloomberg financial conditions in deck, and you look at the
Speaker 1: dollar and equity markets and the ability of corporations to
Speaker 1: finance or slee bonds, it's still pretty easy, all right.
Speaker 1: So how far does the Fed have to hike before
Speaker 1: it reaches that to big point? Mean, what's the what's
Speaker 1: the number? Um? I think, again, when you're looking at
Speaker 1: March and June, that's a layup. But I would say
Speaker 1: to September and December moves are much more challenging because
Speaker 1: at that point in time you do have the FED
Speaker 1: shrinking its balance sheet and the Treasury increasing its financing.
Speaker 1: That to me is a very very challenging purer. So
Speaker 1: the second half of this year could be challenging in
Speaker 1: some financial mark and the extra led to that as well.
Speaker 1: John is to to some extent, maybe even a greater extent,
Speaker 1: the c B has provided cover for them over the
Speaker 1: last couple of years. It's one of the reasons financial
Speaker 1: conditions of East Well again, one of the challenge just
Speaker 1: you know, Lisa and Jonathan, is the the e c
Speaker 1: B buys corporate debt, and so when you think about
Speaker 1: corporate bond issuance in the United States, it's a lot
Speaker 1: easier when you've got a central bank buying in Europe.
Speaker 1: John Sylvia, thank you so much for joining us. It's
Speaker 1: really a pleasure of having you. We'll be checking back
Speaker 1: with you to see whether you've changed that tipping point
Speaker 1: as soon. John Sylvia, Wells Fargo chief Economists joining us
Speaker 1: here in our Bloomberg eleven three oh studios. What does
Speaker 1: Facebook have to do to keep traders from continuing to sell?
Speaker 1: Answering that question, Eileen Bourbage, partner at Passionate Capital also
Speaker 1: known as tech City UK. She is a chair there.
Speaker 1: Uh and Eileen joins us now, thank you so much
Speaker 1: for being with us. Eileen So what does Facebook have
Speaker 1: to do to adequately respond to this crisis and uh
Speaker 1: prompt traders to buy again. Yeah, I think first and
Speaker 1: foremost they're going to have to write it out a
Speaker 1: little bit. But what will help is if they start
Speaker 1: to get in front of the messaging and in front
Speaker 1: of the information disclosure. And that's that's I think been
Speaker 1: a real problem. Their response to what's been happening now
Speaker 1: for the last few days has been largely one of
Speaker 1: silence or of just saying playing the victim and not
Speaker 1: coming from you know, Mark Zuckerberg himself or even Sheryl Sandburg,
Speaker 1: and I think that's what's worrying investors a bit. Um.
Speaker 1: I would assume that they want to hear from those
Speaker 1: two directly, and they also want to being slightly reassured
Speaker 1: that this isn't going to bring about um over the
Speaker 1: top regulation now as a consequence, and I would guess
Speaker 1: that those two things need to be addressed. Sp Eileen,
Speaker 1: We forget, actually how young Mark Zuckerberg still is. You've
Speaker 1: worked with so many young tech leaders, tech CEOs. He's
Speaker 1: shown a phenomenal ability to orientate this company to areas
Speaker 1: of growth. What he did with mobile a number of
Speaker 1: years ago was very, very impressive. But this is his
Speaker 1: first real crisis that he's had to deal with as
Speaker 1: the CEO of Facebook in terms of the pr around
Speaker 1: the company. Eilan, are we seeing some immaturity from Mark
Speaker 1: Zuckerberg at this point? I don't necessarily think that's the case.
Speaker 1: I mean, I think obviously he's got to continue to develop.
Speaker 1: But I recall years ago when you know, he used
Speaker 1: to get criticized for wearing his hoodies on stage, and
Speaker 1: and that's when the market sort of thought, really is
Speaker 1: this guy going to be able to take the company public?
Speaker 1: And how's he going to development? I think he's He's
Speaker 1: demonstrated a really really great wisdom and being very judicious
Speaker 1: and surrounding himself with really strong advisors or people such
Speaker 1: as Cheryl Sandberg or others who can compliment him really well.
Speaker 1: And I think this is going to be a team effort.
Speaker 1: It's not just him, but he's you know, he needs
Speaker 1: to be advised, he is to be fully briefed. He
Speaker 1: needs to own and and understand that he's as accountable
Speaker 1: or more accountable than anybody else for this, and to
Speaker 1: be able to sort of communicate that in a really
Speaker 1: passionate and efective way. Well, I mean strategically, yes, I
Speaker 1: mean he showed himself to be phenomenal. I was one
Speaker 1: of those individuals that also questioned what this gentleman was
Speaker 1: doing in a hoodie on a road show to take
Speaker 1: a company public. And he's proved everybody wrong. He's proved
Speaker 1: everyone wrong with his m and A strategy as well.
Speaker 1: But on this particular instance, he's been completely tone deaf
Speaker 1: to what's been happening over the last twelve months, hasn't he. Uh,
Speaker 1: it does seem that that he took it for granted actually,
Speaker 1: or he didn't realize or appreciate how big it was
Speaker 1: going to get. Yes, I think that's the case. And
Speaker 1: I think that's because, you know, the company position is
Speaker 1: probably one that right at the time that this happened,
Speaker 1: we had teas and teas that allowed this, but look
Speaker 1: we changed those subsequently. Um, it wasn't necessarily a leak
Speaker 1: as such or a breach as such, as you know,
Speaker 1: one person making use of our APIs sharing information which
Speaker 1: I shouldn't have done with another party, and so they
Speaker 1: kind of had a defensive approach or response as in
Speaker 1: sort of very technically, you know, we don't think we
Speaker 1: did anything wrong, and I think that from your right
Speaker 1: that is tone deak. You need to come out in
Speaker 1: front now, this whole team needs to come out and
Speaker 1: sort of acknowledge that whether it was technically you know,
Speaker 1: against their rules or not, or in any violation or anythink,
Speaker 1: it's not what people want the social network to be
Speaker 1: used for. You know, Eileen, yesterday we were talking about
Speaker 1: regulation and this was sinking a number of tech shares,
Speaker 1: in particular Twitter with shares following more than ten But
Speaker 1: today it looks like an increasingly Facebook specific story because
Speaker 1: Facebook shares are continuing to decline what Twitter is popping
Speaker 1: in pre market trade almost two percent. So what does
Speaker 1: that say to you about sort of the delineation here
Speaker 1: between the companies that are responding to these things well
Speaker 1: and those that don't and uh and sort of independent
Speaker 1: really of even regulatory action here. Yeah, I do think
Speaker 1: it does demonstrate that investors and customers more more to
Speaker 1: the point, really want to hear about the company ethos.
Speaker 1: They want to understand what the mindset is behind the company.
Speaker 1: They want to hear about their values, and they want
Speaker 1: to understand that executives are mindful of their sort of
Speaker 1: consumers point of view, and I think Twitter has handled
Speaker 1: that well. Of course they had less to sort of
Speaker 1: fall or to sort of stay off. But Facebook really
Speaker 1: hasn't done anything, and that is a massive problem. Yeah, Eileen.
Speaker 1: At the center of this is this business model for
Speaker 1: Facebook where essentially you get to use the platform for free,
Speaker 1: but the currency that they charge is your personal data,
Speaker 1: and they use that personal data to generate ad revenue. Ultimately,
Speaker 1: that's the core of the business model, Eileen. Is that
Speaker 1: business model being challenged? Is there an existential threat or
Speaker 1: is it too early to say that? I think I
Speaker 1: think it's too early to say that. I think it's
Speaker 1: an age old business model and I don't think it's
Speaker 1: going to go away. However, will the companies start to
Speaker 1: rely on or become stronger because of alternative business models, Yes,
Speaker 1: I think so. You know, it starts to make money
Speaker 1: off of other things that are not just advertising based,
Speaker 1: whether they're transactional related or even financial services like and
Speaker 1: I think that's going to continue to be more and
Speaker 1: more important. But I do think advertising is good here
Speaker 1: to stay. Then, I think the point about the regulatory
Speaker 1: situation is that we're in a new kind of operating dynamic,
Speaker 1: and there's there's got to be new rules around how
Speaker 1: aggressive or how deeply one can go, you know, Eileen,
Speaker 1: I just want to take a little bit of a
Speaker 1: broader look at sort of whether this marks in some
Speaker 1: ways the peak of the massive run up in tech
Speaker 1: shares and the incredible rally there just because at this
Speaker 1: point they're being treated like real companies, not just unicorns
Speaker 1: or uh you know, all growth, all potential and uh
Speaker 1: nothing to stop them. I mean, are we are we
Speaker 1: seeing sort of a tipping point here? I mean, I
Speaker 1: think it's a good sort of reset. It's a good
Speaker 1: time to take stock and to sort of understand more
Speaker 1: so for the executive teams of these companies that they
Speaker 1: have a great responsibility right to the customers that they service,
Speaker 1: and they have a huge responsibilit the uh as to
Speaker 1: how they impact maybe even geopolitical events, and whether they're
Speaker 1: they're acting transparently enough um and being upfront enough about
Speaker 1: what their business models are. How that might be you know,
Speaker 1: used by malicious characters or other people that you know,
Speaker 1: they're not there to service, but who could take advantage
Speaker 1: of what they offer. I think that's absolutely true. Well,
Speaker 1: and I say this in light of a number of
Speaker 1: initial public offerings from the tech companies. Were finally seeing
Speaker 1: these companies go public. And there is a question that
Speaker 1: one guest on radio yesterday was raising, which is does
Speaker 1: this mark sort of the peak where some of these
Speaker 1: founders want to cash in and get out UM? And
Speaker 1: I'm wondering, you know, from from an advisory standpoint, is
Speaker 1: that the mindset of some of these founders. I wouldn't
Speaker 1: have thought so. I mean, perhaps I'm too much of
Speaker 1: an idealist, But then again, I am an investor, so
Speaker 1: I'm going to be an optimist. But I don't think
Speaker 1: UM founders start businesses, first of all, to to necessarily help,
Speaker 1: you know, enable the various sort of actors. They don't
Speaker 1: start companies or platforms to try and help other people
Speaker 1: manipulate them. And so there I think these take them
Speaker 1: by surprise, and that is part of why there's such
Speaker 1: a backlash and a reaction now against Zuckerberger, against the
Speaker 1: company Facebook. It's sort of like, really, did you not,
Speaker 1: you know, expect that this might happen, or did you
Speaker 1: not consider your responsibility and trying to manage this kind
Speaker 1: of situation. UM. But then even when it doesn't happen.
Speaker 1: I don't think, um, you know, the strong entrepreneurs are
Speaker 1: looking to get out then I think, you know, if anything,
Speaker 1: there might be a sort of a battening down the hatches,
Speaker 1: you know, to remind people know the reason I said
Speaker 1: about doing this, or that we as a team wanted
Speaker 1: to do this because of all the positive you know,
Speaker 1: benefits that we can bring, whether they're commercial or otherwise.
Speaker 1: And I don't think they look to get out. Eileen,
Speaker 1: it's great to catch up with you. It's been way
Speaker 1: too long. Thank you very much for joining us on
Speaker 1: Bloomberg Radio. Eileen Bourberg, who haven't been able to speak
Speaker 1: to for a long long time, but it's such an
Speaker 1: insightful voice in the world of technology. Partner of Passion Capital,
Speaker 1: also the Text City you k cha hm Tresy. I
Speaker 1: want to just pick up on the weaker dollar versus
Speaker 1: it's peers today. I'm sure that comes as sweet satisfaction
Speaker 1: to a lot of people out there who are bearish
Speaker 1: on the dollar going forward, But what happens if they
Speaker 1: end up being wrong? Elsa Limnos joins us now. She's
Speaker 1: RBC Global head of FX Strategy. Also, thank you so
Speaker 1: much for being with us. Arguably, the bet that the
Speaker 1: dollar will continue to weaken is the most crowded trade
Speaker 1: out there right now, at least according to some analysts.
Speaker 1: I'm wondering, do you think that the likelihood of a
Speaker 1: reversal of some sort of strengthening actually is getting more realistic. Yeah,
Speaker 1: it's definitely one of the most crowded trades out there, um,
Speaker 1: and the most popular amongst the majors. And it's interesting
Speaker 1: because the dollar, having started the year very badly in January,
Speaker 1: hasn't actually been going anywhere through February and March. Um.
Speaker 1: And I think the longer you see this position stoll Um,
Speaker 1: the more likely there's people start questioning that very varish consensus.
Speaker 1: What's the story that backs up the dollar weakness? And
Speaker 1: we're looking at capital flows because rate differentials, certainly out
Speaker 1: for the last year or so, don't really explain the move.
Speaker 1: So there's a number of reasons that people are pointed to,
Speaker 1: none of them particularly well founded. Um. There's been a
Speaker 1: lot of talk around you know, when front end rate
Speaker 1: differentials didn't work, people looked at the long end, and
Speaker 1: then that stopped working, so people started scrambling around for
Speaker 1: other relationships at the moment, there's a lot of focus
Speaker 1: on the two fives part of the curve, the relationship
Speaker 1: with eurodollar, even that now seems to be breaking down. UM.
Speaker 1: So that's one thing, you know, people are kind of
Speaker 1: constantly looking for new rate relationships that may explain it. Um.
Speaker 1: The second one that gets a lot of traction with
Speaker 1: some people is this idea that the US budget deficit
Speaker 1: blowing out, we're going to go back into a twin
Speaker 1: deficit world like in the early two thousands, and that
Speaker 1: means dollar weakness across the board. And of course there
Speaker 1: are some key differences between now and then, um, namely
Speaker 1: the fact that the private sector is not in depth
Speaker 1: sit as it was back then. And so you can
Speaker 1: go through these reasons one by one and it's not
Speaker 1: really questioning whether or not they're really going to hold
Speaker 1: in practice. You know. Also, one thing that I'm struck
Speaker 1: by is that the economic data in Europe, which many
Speaker 1: people have had really high hopes for, has been disappointing
Speaker 1: again and again with each additional reading. And I wonder
Speaker 1: at what point this really becomes Europe versus US story.
Speaker 1: If those disappointments continue, could we just see a de
Speaker 1: facto strengthening in the dollar that could potentially be disruptive
Speaker 1: in response. So that's right. You know, you tend to
Speaker 1: see that with economic expectations and surprises, that they build
Speaker 1: up as economists have underestimated the ranks of the recovery,
Speaker 1: and you get all these positive surprises cumulating, and then
Speaker 1: expectations catch up to the reality and usually over shoot
Speaker 1: UM and then you start getting the negative surprises. That's
Speaker 1: certainly what we're seeing at the moment. In Europe. You know,
Speaker 1: we had a very long run of positive economic surprises
Speaker 1: on our indicators UM around thirty three out of thirty
Speaker 1: four weeks were positive, and that really came to an
Speaker 1: end a few weeks ago, and since then, um, we've
Speaker 1: seen Pierre mis this pointing we're going to get another
Speaker 1: batch of Pierre Mice tomorrow. The hard data are pointing
Speaker 1: to maybe a bit of softening momentum as well, And
Speaker 1: I think it really cools into question this thesis that
Speaker 1: you know, the US is slowing down and the rest
Speaker 1: of the world is still picking up at the same time.
Speaker 1: I just don't think that's validated by the data. Yeah,
Speaker 1: one thing I want to broaden out and talk about
Speaker 1: inherent leverage in this system tied to this bet on
Speaker 1: a weaker dollar. We see this with the emerging markets
Speaker 1: and how popular they've become investors going in unhedged, even
Speaker 1: though it really is a currency bet. UM. Has the
Speaker 1: market ever been this levered to the bet that the
Speaker 1: dollar will continue to weaken um. It's certainly been a
Speaker 1: while since consensus was this strong against the dollar. UM.
Speaker 1: You know, when you look at emerging markets, and typically
Speaker 1: m vets will always be on hedge because of course
Speaker 1: the cost of hedging is so high UM, but it's
Speaker 1: unusual for people to be unhedged in d m UM
Speaker 1: as well. So you know, when you're actually paid to
Speaker 1: hedge European exposure, Japanese exposure. At the moment, as a
Speaker 1: US investor, to take the decision to be on hedged,
Speaker 1: it means that you're actually giving up a bit of
Speaker 1: carry that you could pick up. And so that's where
Speaker 1: I would look for the first signs of the dollar
Speaker 1: bearish consensus cracking. It's really against the developed markets where
Speaker 1: you may see that fallings first. That's a really really
Speaker 1: interesting point. Else So I do want to pivot towards
Speaker 1: the federal reserve a little bit later today. What are
Speaker 1: you looking for from Chairman Pale and what would you
Speaker 1: like the first question to be for him? Nah? Um,
Speaker 1: you know, the testament, it may not be that different
Speaker 1: um to what we heard in his semi annual testament.
Speaker 1: You know, the press conference may not be that different. UM.
Speaker 1: There's a lot of focus clearly on what the median
Speaker 1: dots are going to show UM, although the hurdle for
Speaker 1: the median shifting from three to four dots is probably
Speaker 1: fairly high. UM. I think there'll be quite a bit
Speaker 1: of focused on the language around the statement. You know,
Speaker 1: what will they say about the balance of risks. A
Speaker 1: lot of people have been focusing on the brain Ard
Speaker 1: speech from a few weeks ago, and the fact that
Speaker 1: growth is expected to be high this year and next
Speaker 1: UM with the tax cards coming through UM, and so
Speaker 1: there will be a lot of attention on the language
Speaker 1: around the decision. So are those forecasts for growth to
Speaker 1: pick up this year and next anchored in hope more
Speaker 1: than anything else, because I don't see a pick up
Speaker 1: in the first quarter here in the United States, you know,
Speaker 1: for better or for worse, think most central bankers still
Speaker 1: rely heavily on their traditional economic models. UM. And typically
Speaker 1: when you see fiscal stimulus of the size that we've seen, UM,
Speaker 1: you'd expect that to lead to to high short term growth. UM.
Speaker 1: It's it remains to be seen how long that will
Speaker 1: take to feed through. It sometimes takes a little bit
Speaker 1: longer than expected. I mean, we've certainly seen that in
Speaker 1: other countries. Canada, for example, voted through quite a large
Speaker 1: UM fiscal use in package a few years back, and
Speaker 1: it took a while for that to come through in
Speaker 1: the data. But it does tend to come through eventually.
Speaker 1: Just that real quick, I'd love to get your sense
Speaker 1: on the just going back to the dollar weakness, and
Speaker 1: I wonder if how much the FED is sort of
Speaker 1: watching this is something that's easing financial conditions. I wondered
Speaker 1: to what degree that reflects political risk and what degree
Speaker 1: that reflects the deficit that you're talking about earlier. That's
Speaker 1: a good point because I think if you look at
Speaker 1: traditional explanatory factors for effects, whether that's great so capital
Speaker 1: flows or anything else, UM, it's hard to fully explain
Speaker 1: dollar weakness on those alone. And so some people have
Speaker 1: pointed to this unexplained gap and and said it reflects
Speaker 1: some kind of negative political risk premium UM rightly or
Speaker 1: wrongly UM. The problem with calling it that is that
Speaker 1: it's very difficult to identify whether it should grow or reduce,
Speaker 1: and what the mechanism is behind it. UM. I think
Speaker 1: the safest thing to say is that, you know, we
Speaker 1: are certainly seeing much more conventional policy from this administration. UM.
Speaker 1: But whether it's tariffs and the response from China, or
Speaker 1: whether it's UM the approach to tax cuts or anything else,
Speaker 1: the economic transmission mechanisms should actually be the same as
Speaker 1: always been. An easy episical policy means tighter monetary and
Speaker 1: SELENOS has been grebably catch up with your joining us
Speaker 1: from the City of London, the RBC Global head of
Speaker 1: f A strategies him there was a headline that crossed
Speaker 1: this morning that I found really interesting. It's not just Facebook.
Speaker 1: Big tech revolt has begun this according to Namur currency
Speaker 1: strategist Bilal half Fees. I want to bring in Stephanie Miller,
Speaker 1: Hit Capital Markets senior analyst, joining us from our studios
Speaker 1: in Washington, d C. Stephanie, thank you so much for
Speaker 1: being with us. Do you agree do you think that
Speaker 1: there is some big revolution against technology companies as we
Speaker 1: know them? Now that is just in its infancy. Well,
Speaker 1: thanks for having me, And I love that question because
Speaker 1: it reminds me of something I read about a month
Speaker 1: ago an interview with Bill Gates when he basically said
Speaker 1: that that very thing was probably coming and and he
Speaker 1: if anyone would know what it means to be a
Speaker 1: technology company that's targeted by regulators, and he basically, uh
Speaker 1: intimated that the way that current big technology is, certainly
Speaker 1: social media companies specifically we're are acting and the way
Speaker 1: that consumer data is or isn't protected with sort of
Speaker 1: begging for a regulatory intervention. Stephanie, do you think that
Speaker 1: there's a conversation or a meeting going on at Facebook
Speaker 1: where someone is asking, Okay, how much is this going
Speaker 1: to cost us? And when this is going to go away? Absolutely,
Speaker 1: but I think it probably goes even further because it's
Speaker 1: cost them quite a bit already in the market. I
Speaker 1: think it's a maybe close to fifty billion now in
Speaker 1: market value loss, the amount of Tesla's market capitalization right
Speaker 1: in two days, exactly in two days. And so the
Speaker 1: question is has to be beyond what regulators will make
Speaker 1: Facebook do or make some of these other big tech
Speaker 1: companies like Twitter, uh do, but more what they should
Speaker 1: be doing themselves to self regulate. And I work at
Speaker 1: a brokerage firm. We are a member of FINNRA. We
Speaker 1: have our own self regulator. It is not uncommon to
Speaker 1: have an industry regulate itself. So whether it is a
Speaker 1: industry wide regulation or a company internal best practices, I
Speaker 1: think they have to be very seriously thinking about what
Speaker 1: this means for them going forward. So definitely, as we talk,
Speaker 1: Facebook shares down nearly two percent, another day of deepening declines.
Speaker 1: I want to go back to what you were saying
Speaker 1: with respect to what Bill Gates noted that he expected
Speaker 1: a backlash, And I'm wondering what is going to be
Speaker 1: the shape of this right, I mean, are we going
Speaker 1: to see just outlawses across the board for tech companies
Speaker 1: that we're going to see uh, some kind of forced
Speaker 1: self regulatory agency. What do you think are the steps
Speaker 1: in the next few months. I think the immediate steps
Speaker 1: that are going to be most visible to the public
Speaker 1: will be hearings in Congress. I think it's unlikely Congress
Speaker 1: it's going to be in a position this year to
Speaker 1: actually legislate. UH. There are a lot of reasons compelling
Speaker 1: reasons for members from both sides of the aisle to
Speaker 1: be tough on Facebook. But also, once you actually start
Speaker 1: limiting Facebook's ability to do business, you start impacting companies
Speaker 1: and all jurisdictions, all congressional jurisdictions who rely on Facebook
Speaker 1: themselves for their own bottom line. So it gets really
Speaker 1: complicate aided really fast. So I think the easiest path
Speaker 1: forward for Congress right now are really tough hearings on
Speaker 1: the On the regulatory side, the FTC, the Federal Trade
Speaker 1: Commission is already announced or they didn't announce that, I
Speaker 1: should say, but someone UM told the press that they
Speaker 1: are undergoing an investigation themselves, which could come with a
Speaker 1: fine on Facebook. It was just not the only companies
Speaker 1: that are affected by this right, I mean, you have
Speaker 1: data breaches that affect not only areas of the US
Speaker 1: government but also companies such as Equifax. What has been
Speaker 1: the response there, It's a great question. And Equifax, the
Speaker 1: type of data that was was breached in that instance
Speaker 1: was social security numbers and and things that result in
Speaker 1: in UM identity theft UM, and so far there has
Speaker 1: been no legislative reaction to Equifax by members of Congress.
Speaker 1: Other than hearing and from the FTC. The FTC is
Speaker 1: in doing its own investigation, which could result in a fine.
Speaker 1: But my colleague follows this closely doesn't ex back that
Speaker 1: to occur until this summer at the absolute soonest, So
Speaker 1: why would this breach at Facebook be considered more serious
Speaker 1: than the acquisition of people's social security numbers and in
Speaker 1: many cases credit card information, credit history, as well as
Speaker 1: financial data. Why would the personal data that you enter
Speaker 1: that was used supposedly to create the psychographic profiles, why
Speaker 1: would that be more egregious, let's say, than than sort
Speaker 1: of having access or or giving access and not protecting
Speaker 1: people's personal financial records. I think this is a question
Speaker 1: that's rooted in politics, and at the end of the day,
Speaker 1: it will be more egregious if if people tell members
Speaker 1: of Congress that it's more egregious. I think the thing
Speaker 1: that would make you, know, you and me and and
Speaker 1: our our friends and family really concerned here is if
Speaker 1: we feel that democracy is being threatened, that tends to
Speaker 1: rise to sort of a five alarm level. Uh, just
Speaker 1: as bad as identity theft. But when it comes to
Speaker 1: just this type of data that it was leaked by
Speaker 1: this third party who wasn't even Facebook. Um, it's not
Speaker 1: the type of data that I think people in and
Speaker 1: of itself really care about. I think we've known that
Speaker 1: that social media companies use this data and share this
Speaker 1: data with marketers, and we are all still participating in
Speaker 1: social media, you know, Stephanie, I want to pick up
Speaker 1: on what you said about the political aspect of this
Speaker 1: Facebook stories. You have Facebook, which has been reticent to
Speaker 1: anger either the left or the right too much, the
Speaker 1: right in particular at a time when Republicans are in
Speaker 1: Congress and could potentially crack down on them in retaliation
Speaker 1: as a majority. Uh. And then you know, you have
Speaker 1: potential allegations that people saying that this fast Facebook data
Speaker 1: breaches a threat to democracy are trying to politicize on
Speaker 1: the other side by making it a bigger issue than
Speaker 1: it was. Where do you stand on that? I think
Speaker 1: again the question is going to be, is does that
Speaker 1: rise to the occasion where those one or both of
Speaker 1: those issues becomes something that members of Congress are not
Speaker 1: allowed to ignore, especially ahead of this November election. Um,
Speaker 1: And right now, I'm not convinced that I see it
Speaker 1: trending that way. If Facebook takes some proactive steps to
Speaker 1: demonstrate that it is taking this seriously. And I think
Speaker 1: Facebook really faces much more of a reckoning with Wall
Speaker 1: Street than it does with Washington in this instance. Um,
Speaker 1: and I'm not sure that anything Washington could do uh
Speaker 1: could compete with what's already happened in the markets just quickly.
Speaker 1: Does this also apply to organizations like LinkedIn where people
Speaker 1: put a lot of their personal information online and they
Speaker 1: think that they are being viewed by legitimate companies for
Speaker 1: legitimate positions or indeed making legitimate connections. Yes, LinkedIn, I
Speaker 1: would say Twitter also, and even Google. I think this
Speaker 1: is where it start begins to argue for the industry
Speaker 1: to come together and self regulate. That is a really
Speaker 1: long process I would have to imagine. But you know
Speaker 1: another good analog we talked about Equifax. The tobacco industry
Speaker 1: was dragged in front of Congress for their first hearing
Speaker 1: in if you remember that photo on the front page
Speaker 1: of the New York Times with them all giving testimony
Speaker 1: saying that cigarettes don't kill you. And it took fifteen
Speaker 1: years for the federal government to have give itself the
Speaker 1: authority to even regulate the tobacco industry. So fe Miller.
Speaker 1: Thank you so much for that perspective. It may take
Speaker 1: a very long time before Congress takes material steps. Stephanie Miller,
Speaker 1: Hight Capital Markets Senior Analyst, Thank you for that. Thanks
Speaker 1: for listening to the Bloomberg Saveillance podcast. Subscribe and listen
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Speaker 1: you prefer. I'm on Twitter at I'm Keen. Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio