1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Waits. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:21,200 Speaker 1: at Bloomberg dot com. So, Lisa, one of the names 8 00:00:21,239 --> 00:00:23,439 Speaker 1: that's been under a little bit of pressure that was 9 00:00:23,520 --> 00:00:26,720 Speaker 1: once a darling is Facebook. The stock is off about 10 00:00:26,760 --> 00:00:30,160 Speaker 1: ten percent over the last twelve months. It's well off. 11 00:00:30,200 --> 00:00:33,920 Speaker 1: It's high dollars to share now uh trading at about 12 00:00:33,920 --> 00:00:35,680 Speaker 1: a hundred sixty dollars to share. And I think one 13 00:00:35,720 --> 00:00:39,200 Speaker 1: of the major issues has been the regulatory risk associated 14 00:00:39,240 --> 00:00:41,479 Speaker 1: with this name. I think, you know, the company has 15 00:00:41,479 --> 00:00:45,160 Speaker 1: really face pressure from users and from regulators concerned about 16 00:00:45,200 --> 00:00:47,960 Speaker 1: data privacy and data integrity, and it really has been 17 00:00:47,960 --> 00:00:49,839 Speaker 1: weighing on the stock. One thing that I think is 18 00:00:49,880 --> 00:00:53,720 Speaker 1: interesting is is the pressure on the stock really the 19 00:00:53,760 --> 00:00:57,080 Speaker 1: fact of data privacy and concerns by consumers or is 20 00:00:57,120 --> 00:00:59,640 Speaker 1: it really a public relations disaster And the fact that 21 00:00:59,680 --> 00:01:02,600 Speaker 1: Mark's Uckerberg and Cheryl Sandberg have not addressed some of 22 00:01:02,600 --> 00:01:05,680 Speaker 1: the concerns head on, been transparent with what they planned 23 00:01:05,720 --> 00:01:09,880 Speaker 1: to do and push forward with a concrete plan. I mean, honestly, 24 00:01:10,080 --> 00:01:13,640 Speaker 1: Congress isn't exactly about to regulate these companies, but certainly 25 00:01:13,680 --> 00:01:16,000 Speaker 1: there has been a lack of response that has certainly 26 00:01:16,440 --> 00:01:18,920 Speaker 1: not been to the pleasure of shareholders. Yeah, I think 27 00:01:18,959 --> 00:01:21,840 Speaker 1: you're absolutely right. I think they have been losing and 28 00:01:21,880 --> 00:01:25,040 Speaker 1: are losing the public relations fight. They were certainly late 29 00:01:25,200 --> 00:01:28,320 Speaker 1: to respond to some of these issues, uh and then 30 00:01:28,440 --> 00:01:31,800 Speaker 1: arguably their response uh on once they made one wasn't 31 00:01:31,840 --> 00:01:36,120 Speaker 1: forceful enough, And there's certainly concerns they're about any regulatory risk, 32 00:01:36,240 --> 00:01:38,600 Speaker 1: not just for Facebook, but for social media in general. 33 00:01:38,760 --> 00:01:42,640 Speaker 1: The lasting tech investors want is uh US regulatory oversight 34 00:01:42,640 --> 00:01:44,840 Speaker 1: on their business. You know. Honestly, though, I have to 35 00:01:44,880 --> 00:01:48,160 Speaker 1: wonder what kind of pressure there is to regulate these companies, 36 00:01:48,200 --> 00:01:50,680 Speaker 1: because there's sort of a trade off with a lot 37 00:01:50,680 --> 00:01:53,400 Speaker 1: of people being happy to get the free services of 38 00:01:53,440 --> 00:01:56,240 Speaker 1: a Facebook or an Instagram uh in order to give 39 00:01:56,320 --> 00:01:58,720 Speaker 1: up their privacy. Someone who has delved a lot into 40 00:01:58,720 --> 00:02:02,000 Speaker 1: this is Roger mcnameee. He's co founder of Elevation Partners, 41 00:02:02,120 --> 00:02:05,320 Speaker 1: in Menlo Park, California. He also performs in a band 42 00:02:05,560 --> 00:02:08,080 Speaker 1: Moon Alice, where he plays the bass and the guitar. 43 00:02:08,120 --> 00:02:10,080 Speaker 1: He just wrote a new book, Zucked, Waking Up to 44 00:02:10,080 --> 00:02:13,400 Speaker 1: the Facebook Catastrophe, and Roger, We're so happy to have 45 00:02:13,520 --> 00:02:18,320 Speaker 1: you here. You mentored Mark Zuckerberg, you were part of 46 00:02:18,400 --> 00:02:21,920 Speaker 1: the inception of Facebook, and now you're speaking out against 47 00:02:21,919 --> 00:02:26,720 Speaker 1: this company. Why so, Lisa, It's really simple. I met 48 00:02:26,760 --> 00:02:29,200 Speaker 1: Mark when he was twenty two years old and Facebook 49 00:02:29,240 --> 00:02:31,840 Speaker 1: was two years old, back in two thousand six. I 50 00:02:31,880 --> 00:02:35,080 Speaker 1: helped him solve a problem. For three years thereafter, I 51 00:02:35,160 --> 00:02:37,800 Speaker 1: was one of his advisors. I helped to bring in 52 00:02:37,919 --> 00:02:41,040 Speaker 1: Cheryl Sandberg as the chief operating officer. You could not 53 00:02:41,240 --> 00:02:45,840 Speaker 1: find a bigger cheerleader Facebook than me, and candidly, I 54 00:02:45,960 --> 00:02:48,280 Speaker 1: missed a few things that in retrospect I really wish 55 00:02:48,360 --> 00:02:51,800 Speaker 1: I had understood better at the time. But in I 56 00:02:51,840 --> 00:02:54,480 Speaker 1: started well to be clear and twenty let me tell 57 00:02:54,480 --> 00:02:56,960 Speaker 1: you what I saw, because there were earlier examples of this, 58 00:02:57,000 --> 00:03:00,160 Speaker 1: But in ten I started to see cases where the 59 00:03:00,680 --> 00:03:04,760 Speaker 1: where bad people, bad actors were using the advertising tools, 60 00:03:05,200 --> 00:03:09,200 Speaker 1: the business model, and the algorithms of Facebook to harm 61 00:03:09,240 --> 00:03:11,280 Speaker 1: innocent people, and they were doing it in civil rights. 62 00:03:11,360 --> 00:03:14,320 Speaker 1: For example, there was a company that was scraping. They 63 00:03:14,360 --> 00:03:17,280 Speaker 1: were using the ad tools to gather data about people 64 00:03:17,280 --> 00:03:20,400 Speaker 1: who expressed an interest in Black Lives Matter, and they 65 00:03:20,400 --> 00:03:23,680 Speaker 1: were selling that data to police departments for profit, in 66 00:03:23,800 --> 00:03:28,520 Speaker 1: clear violation of the Fourth Amendment, and Facebook expelled the company, 67 00:03:28,520 --> 00:03:30,520 Speaker 1: but not until the harm had been done. Then, in 68 00:03:30,520 --> 00:03:34,080 Speaker 1: the Brexit referendum in the United Kingdom, it was very 69 00:03:34,120 --> 00:03:39,240 Speaker 1: clear that Facebook advertising tools had given a huge advantage 70 00:03:39,240 --> 00:03:44,160 Speaker 1: to the Leave campaign because the incendiary message that the 71 00:03:44,240 --> 00:03:47,760 Speaker 1: Leave campaign was using, which was really xenophobic, blaming every 72 00:03:47,800 --> 00:03:51,720 Speaker 1: problem in the United Kingdom, both real and imagine, on immigrants, 73 00:03:52,320 --> 00:03:55,920 Speaker 1: and that that message spreads so much faster, so much 74 00:03:56,040 --> 00:03:59,960 Speaker 1: further than the very neutral message of the Remain campaign, 75 00:04:00,600 --> 00:04:03,560 Speaker 1: that it was undermining democracy. And then later in the 76 00:04:03,640 --> 00:04:08,280 Speaker 1: year of the Department of Housing Nervan Development cited Facebook 77 00:04:08,360 --> 00:04:12,480 Speaker 1: for advertising tools that allowed discrimination based on race in 78 00:04:12,520 --> 00:04:15,560 Speaker 1: the housing market. And that's when I reached out to 79 00:04:15,640 --> 00:04:20,479 Speaker 1: Mark Zuckerberg and Cheryl Sandbrand said, guys, there's something wrong here. 80 00:04:21,080 --> 00:04:26,479 Speaker 1: The business model, the algorithms are letting bad people harm 81 00:04:26,520 --> 00:04:31,080 Speaker 1: innocent people. And I spent three months pleading with them. 82 00:04:31,120 --> 00:04:33,799 Speaker 1: You know, beginning nine days before the election and continuing 83 00:04:33,880 --> 00:04:37,080 Speaker 1: for three months after. So, Roger, I mean to that issue, 84 00:04:37,320 --> 00:04:39,640 Speaker 1: do you think Mark Zuckerberg is a bad guy or 85 00:04:39,680 --> 00:04:41,480 Speaker 1: is he just toned deaf to this? I don't think 86 00:04:41,480 --> 00:04:43,640 Speaker 1: any of them are bad people. Okay, And here's the 87 00:04:43,680 --> 00:04:47,400 Speaker 1: problem is, it's not just Facebook. The issue is success 88 00:04:47,640 --> 00:04:52,000 Speaker 1: has blinded them in some really important ways. You know, 89 00:04:52,160 --> 00:04:54,720 Speaker 1: when these companies started, they were you know, they had 90 00:04:54,760 --> 00:04:58,640 Speaker 1: a hacker mentality, you know, move fast and break things. 91 00:04:58,680 --> 00:05:01,840 Speaker 1: That was Facebook's mone and that was cute when they 92 00:05:01,839 --> 00:05:06,240 Speaker 1: were little. But when you're at global scale and your algorithms, 93 00:05:06,279 --> 00:05:09,120 Speaker 1: your code has more influence on people's lives than the 94 00:05:09,279 --> 00:05:13,680 Speaker 1: law does, when your product has more influence on politics 95 00:05:14,120 --> 00:05:17,920 Speaker 1: anybody else. At that point, you have really serious responsibilities 96 00:05:17,920 --> 00:05:20,320 Speaker 1: and if you refuse to take those on, then there's 97 00:05:20,360 --> 00:05:22,960 Speaker 1: something really really wrong. And it's not because these are 98 00:05:22,960 --> 00:05:25,479 Speaker 1: bad people, but it is because they're blind and it's 99 00:05:25,520 --> 00:05:30,880 Speaker 1: not just Facebook. So the critical thing here is is 100 00:05:31,720 --> 00:05:33,680 Speaker 1: I don't think they can fix it anymore. We have 101 00:05:34,120 --> 00:05:37,080 Speaker 1: given them two years to stand up and take responsibility. 102 00:05:37,400 --> 00:05:39,839 Speaker 1: They have to change the business model, we have to 103 00:05:39,920 --> 00:05:44,560 Speaker 1: change the incentives. We have to basically ask questions that 104 00:05:44,600 --> 00:05:47,280 Speaker 1: we didn't have to ask for fifty years when technology 105 00:05:47,360 --> 00:05:50,480 Speaker 1: was completely trustworthy and always made our lives better. Now 106 00:05:50,480 --> 00:05:53,760 Speaker 1: we have to be skeptical. We have to recognize that 107 00:05:53,800 --> 00:05:57,080 Speaker 1: these are potentially dangerous tools, and just like a dangerous 108 00:05:57,120 --> 00:06:00,800 Speaker 1: tool and a factory, just like you know, like the 109 00:06:00,800 --> 00:06:03,440 Speaker 1: the instruments a doctor would use for surgery, These are 110 00:06:03,480 --> 00:06:06,600 Speaker 1: not playthings. You have to be really careful. We have 111 00:06:06,720 --> 00:06:09,240 Speaker 1: to ask questions we haven't asked before. So, Roger, why 112 00:06:09,360 --> 00:06:12,039 Speaker 1: is it Why is it legal to sell people personal 113 00:06:12,080 --> 00:06:14,720 Speaker 1: financial data? Right? I mean that kind of stuff, that 114 00:06:14,800 --> 00:06:17,640 Speaker 1: kind of invasion of privacy is standard now, and we 115 00:06:17,680 --> 00:06:20,080 Speaker 1: don't benefit from that, we're actually harmed by it. Hold 116 00:06:20,080 --> 00:06:21,960 Speaker 1: on a second. This is actually really relevant because we're 117 00:06:21,960 --> 00:06:24,960 Speaker 1: gonna be speaking later about how Google and UH or 118 00:06:25,040 --> 00:06:28,000 Speaker 1: actually excuse me, Apple and Goldman Sacks are teaming up 119 00:06:28,040 --> 00:06:31,039 Speaker 1: to create a new credit card that has UH some 120 00:06:31,120 --> 00:06:34,200 Speaker 1: kind of seamless connection to the iPhone, and I'm wondering, 121 00:06:34,240 --> 00:06:36,960 Speaker 1: does that raise concerns to you about privacy and what 122 00:06:37,040 --> 00:06:40,800 Speaker 1: people are basically jeopardizing. Well, actually, Apple has been one 123 00:06:40,839 --> 00:06:43,040 Speaker 1: of the good guys on this issue. So their Apple 124 00:06:43,120 --> 00:06:47,880 Speaker 1: Pay product sends literally the bare minimum of data, so 125 00:06:48,000 --> 00:06:51,400 Speaker 1: nothing goes to the vendor and the credit card processor 126 00:06:51,480 --> 00:06:54,520 Speaker 1: only gets the minimum information for credit card processing. The 127 00:06:54,600 --> 00:06:57,279 Speaker 1: problem is that the credit card processors this will becomes 128 00:06:57,320 --> 00:07:02,800 Speaker 1: like Experience and Transit ins Union, um, those guys. They 129 00:07:02,839 --> 00:07:05,120 Speaker 1: then sell that data to anybody who wants to buy it, 130 00:07:05,680 --> 00:07:07,760 Speaker 1: and that's where the problem occurs. So I think, what 131 00:07:07,880 --> 00:07:10,080 Speaker 1: relative to the Apple thing. I think Apple is not 132 00:07:10,120 --> 00:07:13,280 Speaker 1: a perfect company, but on these issues they really are 133 00:07:13,320 --> 00:07:15,440 Speaker 1: on the side of the angels and they really are 134 00:07:15,480 --> 00:07:17,960 Speaker 1: trying to help us. And I think if Apple has 135 00:07:18,000 --> 00:07:21,560 Speaker 1: such a huge advantage over the Android world, which is 136 00:07:21,600 --> 00:07:25,520 Speaker 1: Samsung and all the other vendors, that it really is 137 00:07:25,920 --> 00:07:28,840 Speaker 1: better to own an iPhone because they really are protecting 138 00:07:28,880 --> 00:07:31,400 Speaker 1: you more. But the thing for everybody remembers we have 139 00:07:31,480 --> 00:07:34,040 Speaker 1: a lot of power here. This is not inevitable, it's 140 00:07:34,080 --> 00:07:36,800 Speaker 1: not hopeless. This is going to be a big issue 141 00:07:36,840 --> 00:07:39,720 Speaker 1: in and it's going to be a right versus wrong issue, 142 00:07:39,760 --> 00:07:43,040 Speaker 1: not right versus left. Both political parties are going to 143 00:07:43,080 --> 00:07:46,600 Speaker 1: be engaged in this because it's it's literally a tiny 144 00:07:46,680 --> 00:07:50,520 Speaker 1: number of people benefiting against nine percent of the country 145 00:07:50,600 --> 00:07:54,400 Speaker 1: being harmed. And and as a consequence, I think there's 146 00:07:54,400 --> 00:07:56,840 Speaker 1: going to be a lot of really constructive worked up, 147 00:07:56,880 --> 00:08:02,080 Speaker 1: particularly after the election too. You know rain In the 148 00:08:02,160 --> 00:08:05,360 Speaker 1: sale of data to rain In. You know, you know 149 00:08:05,440 --> 00:08:08,640 Speaker 1: all the medical information that you see online is filled 150 00:08:08,680 --> 00:08:11,640 Speaker 1: with errors, right. You know, You've got things like YouTube 151 00:08:11,680 --> 00:08:16,000 Speaker 1: promoting conspiracy theories like like flat Earth kids coming home 152 00:08:16,000 --> 00:08:17,920 Speaker 1: from school and saying World War two never happened. I 153 00:08:17,920 --> 00:08:20,000 Speaker 1: know this is definitely going to be an ongoing concerned 154 00:08:20,080 --> 00:08:22,239 Speaker 1: Rocher Macnimy. I wish we had more time. I'm sorry, 155 00:08:22,240 --> 00:08:24,360 Speaker 1: we have to leave it there. Rocher Macnimy a noted 156 00:08:24,560 --> 00:08:27,679 Speaker 1: tech venture capitalist, co founder of Elevation Partners, and author 157 00:08:27,720 --> 00:08:48,200 Speaker 1: of zuckt Waking Up to the Facebook Catastrophe. So we're 158 00:08:48,240 --> 00:08:52,319 Speaker 1: hearing more talk about trade discussions between the US and China. No, 159 00:08:52,480 --> 00:08:57,480 Speaker 1: this is not, but here we are, and it sounds 160 00:08:57,520 --> 00:09:01,319 Speaker 1: like there have been some, uh some measures taken to 161 00:09:01,440 --> 00:09:03,800 Speaker 1: move forward, at least when it comes to agricultural joining 162 00:09:03,880 --> 00:09:06,640 Speaker 1: us here in our Bloomberg Interactive Broker Studios. Andy Brown, 163 00:09:06,760 --> 00:09:11,560 Speaker 1: editorial director for the Bloomberg New Economy Forum. Uh, and Andy, 164 00:09:11,880 --> 00:09:14,800 Speaker 1: so glad to have you here. Just give us the latest. 165 00:09:15,160 --> 00:09:18,280 Speaker 1: What do you think is the most meaningful progress made 166 00:09:18,600 --> 00:09:22,080 Speaker 1: on trade talks, if any that we've heard. So we've 167 00:09:22,080 --> 00:09:25,240 Speaker 1: got a plethora of m o U s on the 168 00:09:25,400 --> 00:09:28,360 Speaker 1: negotiation right now, and it looks like we're going to 169 00:09:28,440 --> 00:09:31,240 Speaker 1: get some kind of an agreement. The head of the 170 00:09:31,280 --> 00:09:35,000 Speaker 1: Chinese delegation, Leo hu, is supposed to be meeting President 171 00:09:35,040 --> 00:09:40,079 Speaker 1: Trump on Friday. The big question, as always is whether 172 00:09:40,200 --> 00:09:42,199 Speaker 1: or not we're going to get a deal that alters 173 00:09:42,360 --> 00:09:47,040 Speaker 1: the balance of trade without fundamentally addressing issues around the 174 00:09:47,160 --> 00:09:52,640 Speaker 1: terms and conditions of trade soybeans versus antellectual property exactly right. So, 175 00:09:52,640 --> 00:09:54,880 Speaker 1: so initially, I mean, I think that there's a deal 176 00:09:54,920 --> 00:09:57,120 Speaker 1: on the table for thirty billion dollars a year of 177 00:09:57,240 --> 00:10:01,559 Speaker 1: Chinese buying US agricultural products and soybeans and corn. A 178 00:10:01,640 --> 00:10:03,920 Speaker 1: couple of questions, is thirty billion? Is that a big, 179 00:10:03,920 --> 00:10:05,959 Speaker 1: big number? It sounds like a big number. Yeah, Well 180 00:10:06,400 --> 00:10:08,400 Speaker 1: is it a big number? I mean, all numbers for 181 00:10:08,520 --> 00:10:11,319 Speaker 1: China are big, right. It's a huge economy, is is it? Well, 182 00:10:11,440 --> 00:10:16,080 Speaker 1: second largest economy. Look, the trade staff is the easy stuff. 183 00:10:16,080 --> 00:10:19,560 Speaker 1: This is the low hanging fruit. Okay. Actually, China on 184 00:10:19,600 --> 00:10:23,600 Speaker 1: the trade front is relatively well behaved. It doesn't manipulate 185 00:10:23,640 --> 00:10:28,600 Speaker 1: its currency really anymore. It roughly, it runs a trade balance. 186 00:10:28,679 --> 00:10:30,440 Speaker 1: It's more or less trade and balance for the rest 187 00:10:30,480 --> 00:10:33,800 Speaker 1: of the world. It understands it can't borrow growth from 188 00:10:33,800 --> 00:10:35,400 Speaker 1: the rest of the world because it's too big to 189 00:10:35,400 --> 00:10:39,319 Speaker 1: grow by exports, and so it is developing domestic consumption 190 00:10:39,400 --> 00:10:42,200 Speaker 1: as a main driver of growth. So, you know, you 191 00:10:42,240 --> 00:10:45,200 Speaker 1: could say that in this area is in China's interest 192 00:10:45,320 --> 00:10:48,080 Speaker 1: to you know, be nudged along if you like, by 193 00:10:48,080 --> 00:10:51,080 Speaker 1: Trump and his negotiating team. So we're likely to see 194 00:10:51,120 --> 00:10:53,959 Speaker 1: more of that. Sure, that's the easy stuff China will buy. 195 00:10:54,160 --> 00:10:56,679 Speaker 1: The question actually is whether it's going to buy additionally, 196 00:10:56,920 --> 00:10:59,400 Speaker 1: whether it's just going to buy more from the US 197 00:10:59,640 --> 00:11:01,400 Speaker 1: and let from the from the rest of the world 198 00:11:01,440 --> 00:11:04,720 Speaker 1: and leave the overall balance unchanged. The other big question 199 00:11:05,040 --> 00:11:08,600 Speaker 1: is how China is using trade as a negotiating tactic 200 00:11:08,679 --> 00:11:11,440 Speaker 1: with US allies. Overnight, there was a report out of 201 00:11:11,440 --> 00:11:16,520 Speaker 1: Reuters that China was restricting coal imports from Australia as 202 00:11:16,559 --> 00:11:20,800 Speaker 1: a result of perhaps and this is speculation, the fact 203 00:11:20,840 --> 00:11:24,079 Speaker 1: that Australia was reluctant to use Huahwei and their products 204 00:11:24,280 --> 00:11:27,679 Speaker 1: in their five G outgrowth. I'm just wondering, is this 205 00:11:27,760 --> 00:11:31,480 Speaker 1: a concerted effort by China to go after US allies 206 00:11:31,800 --> 00:11:35,240 Speaker 1: or anyone who does not embrace Huawei and its technologies. Yeah, 207 00:11:35,320 --> 00:11:37,600 Speaker 1: you know, this is this is really difficult to divine. 208 00:11:37,640 --> 00:11:40,559 Speaker 1: I mean, you know, is this a random act by 209 00:11:40,559 --> 00:11:43,480 Speaker 1: a Chinese poet or is it a concerted effort to 210 00:11:43,920 --> 00:11:48,560 Speaker 1: you know, reduce imports of Australian cult. What we have seen, 211 00:11:48,720 --> 00:11:53,640 Speaker 1: of course, is China lashing out at US allies, particularly Canada, 212 00:11:54,520 --> 00:11:56,480 Speaker 1: because it's not it doesn't want to take on the 213 00:11:56,559 --> 00:11:58,800 Speaker 1: US and muddy the muddy the water does will make 214 00:11:58,840 --> 00:12:01,240 Speaker 1: the trade talks even more acrimonious. And they are so 215 00:12:01,280 --> 00:12:03,560 Speaker 1: He's they're going after the allies. So basically they're going 216 00:12:03,600 --> 00:12:07,160 Speaker 1: to become Canada becomes the whipping boy because the US 217 00:12:07,400 --> 00:12:12,400 Speaker 1: is too big to abuse pretty much. Yeah, where Canada? Andy? 218 00:12:12,400 --> 00:12:15,160 Speaker 1: How about some of the real heart issues out there, 219 00:12:15,200 --> 00:12:17,840 Speaker 1: aside from agricultural products, you know, when it's you know, 220 00:12:17,960 --> 00:12:21,280 Speaker 1: data theft, data privacy, the technology theft and all those 221 00:12:21,320 --> 00:12:24,520 Speaker 1: touch types of things that really key issues intellectual property, 222 00:12:24,679 --> 00:12:26,640 Speaker 1: Are those even on the table, do you think? Yeah? 223 00:12:26,679 --> 00:12:29,240 Speaker 1: I mean China. Look, let's be fair, China has made 224 00:12:29,320 --> 00:12:34,640 Speaker 1: pretty pretty good progress, I think on protecting intellectual property. 225 00:12:35,440 --> 00:12:37,920 Speaker 1: The main reason it's made progress in that area because 226 00:12:37,920 --> 00:12:41,600 Speaker 1: it's good for China. Okay, Uh, it's Chinese private entrepreneurs 227 00:12:41,600 --> 00:12:43,640 Speaker 1: that complain about this as much as the foreigners do, 228 00:12:43,720 --> 00:12:45,520 Speaker 1: so it's in their interests and so we are seeing 229 00:12:45,520 --> 00:12:49,840 Speaker 1: progress on that front. We do, however, have to be 230 00:12:49,960 --> 00:12:53,760 Speaker 1: we have to moderate our expectations about what the Chinese 231 00:12:53,800 --> 00:12:57,360 Speaker 1: are able to deliver in terms of changes to their 232 00:12:57,440 --> 00:13:01,880 Speaker 1: state run economy. Okay, this problem access to the Chinese 233 00:13:01,920 --> 00:13:07,479 Speaker 1: market privileged. Uh, your privileges for Chinese state owned enterprises. 234 00:13:07,840 --> 00:13:10,320 Speaker 1: This isn't going to be fixed with one trade deal. 235 00:13:10,400 --> 00:13:14,240 Speaker 1: This is part of a long, protracted, painful process. Andy, 236 00:13:14,440 --> 00:13:16,640 Speaker 1: I want to go a little bit broader here because 237 00:13:16,679 --> 00:13:19,600 Speaker 1: I've read a number of essays talking about how the 238 00:13:19,640 --> 00:13:22,560 Speaker 1: tit for tat that we're seeing is just basically the 239 00:13:22,559 --> 00:13:24,400 Speaker 1: tip of the iceberg when it comes to the deep 240 00:13:24,440 --> 00:13:27,480 Speaker 1: conflict between the US and China, which is the battle 241 00:13:27,520 --> 00:13:31,320 Speaker 1: for supremacy over the global economy, and that it is 242 00:13:31,600 --> 00:13:34,640 Speaker 1: right now on a path to end up with even 243 00:13:34,679 --> 00:13:38,319 Speaker 1: more tensions, and people have hinted it military altercations, etcetera. 244 00:13:38,840 --> 00:13:41,000 Speaker 1: Do you think that that is accurate, that what we're 245 00:13:41,000 --> 00:13:43,720 Speaker 1: seeing right now is a manifestation of tensions that have 246 00:13:43,800 --> 00:13:47,280 Speaker 1: been building, uh, and that really cannot get resolved in 247 00:13:47,320 --> 00:13:49,520 Speaker 1: any kind of easy way. Yeah, I think I think 248 00:13:49,559 --> 00:13:53,720 Speaker 1: that pretty much answers your own question. I mean, um, uh, 249 00:13:53,760 --> 00:13:59,600 Speaker 1: these these deeper issues of US China competition for technological supremacy, 250 00:14:00,280 --> 00:14:04,600 Speaker 1: the industries of the future, artificial intelligence, electric vehicles, that's 251 00:14:04,720 --> 00:14:08,240 Speaker 1: really the deeper dispute behind what we're seeing now and 252 00:14:08,240 --> 00:14:10,720 Speaker 1: and and it's all playing out we talked about We 253 00:14:10,760 --> 00:14:13,400 Speaker 1: started this conversation by talking about Huawei, and that's where 254 00:14:13,400 --> 00:14:16,040 Speaker 1: the real battle now is playing out. Okay, So, given 255 00:14:16,080 --> 00:14:19,600 Speaker 1: your decades in China, do you think that China right 256 00:14:19,640 --> 00:14:23,960 Speaker 1: now is equipped with the governance and the economy to 257 00:14:24,040 --> 00:14:28,520 Speaker 1: gain the lead in this battle? Not not Not only 258 00:14:28,560 --> 00:14:32,680 Speaker 1: has China equipped, it is already in some areas gaining 259 00:14:32,720 --> 00:14:34,760 Speaker 1: the lead. I mean it's almost there. When it comes 260 00:14:34,760 --> 00:14:38,720 Speaker 1: to artificial intelligence on you know, gene editing, it may 261 00:14:38,760 --> 00:14:41,680 Speaker 1: well be more advanced in the United States. I mean 262 00:14:41,720 --> 00:14:45,080 Speaker 1: an area after area China is getting close is getting 263 00:14:45,120 --> 00:14:48,760 Speaker 1: close to or you know, is right up there, and 264 00:14:49,120 --> 00:14:53,160 Speaker 1: you know, at the frontiers of tech of technology, and 265 00:14:53,200 --> 00:14:55,240 Speaker 1: that's what's that's what has right in the US and 266 00:14:55,440 --> 00:14:58,320 Speaker 1: that is what the Huawei battle is all about. Who 267 00:14:59,000 --> 00:15:01,720 Speaker 1: was more incentive, in your opinion, to really come to 268 00:15:01,800 --> 00:15:05,880 Speaker 1: the table and negotiate the very difficult issues. You see 269 00:15:05,880 --> 00:15:08,160 Speaker 1: the Chinese economy slowing, maybe it's slowing even more than 270 00:15:08,200 --> 00:15:11,320 Speaker 1: we think, but of course we have incentives. Yeah, China. 271 00:15:11,480 --> 00:15:14,920 Speaker 1: Of course, the slowing economy puts A. J Ping under pressure. 272 00:15:14,960 --> 00:15:18,240 Speaker 1: But look, four decades of development tells China that it's 273 00:15:18,280 --> 00:15:23,000 Speaker 1: state owned, its state run. State capitalism works for China, 274 00:15:23,200 --> 00:15:26,920 Speaker 1: all right. The system has delivered rapid growth for decades. 275 00:15:27,040 --> 00:15:30,200 Speaker 1: It's lifted hundreds of millions of people out of poverty, 276 00:15:30,400 --> 00:15:34,240 Speaker 1: It's given China great a great deal of innovation, and 277 00:15:34,320 --> 00:15:38,240 Speaker 1: it's not about to abandon all that to Trump. Although 278 00:15:38,360 --> 00:15:40,160 Speaker 1: I will say there are a lot of people who 279 00:15:40,160 --> 00:15:42,240 Speaker 1: think that President jij and Ping has actually taken the 280 00:15:42,240 --> 00:15:47,080 Speaker 1: country backward. That's that that that is that is certainly 281 00:15:47,600 --> 00:15:51,400 Speaker 1: a widely shed a widely held view. And the rest 282 00:15:51,440 --> 00:15:54,880 Speaker 1: of what particularly his emphasis on the state uh and 283 00:15:54,920 --> 00:15:58,560 Speaker 1: the discrimination now that private enterprise in China feel that 284 00:15:58,640 --> 00:16:04,200 Speaker 1: they're operating under but not necessarily locally sure and absolutely 285 00:16:04,200 --> 00:16:07,000 Speaker 1: in China. Yeah, so you know, on the technology side, 286 00:16:07,040 --> 00:16:09,160 Speaker 1: is this just investment. Does US just have to step 287 00:16:09,240 --> 00:16:12,040 Speaker 1: up for investment, And because it seems like China with 288 00:16:12,080 --> 00:16:17,040 Speaker 1: the state sponsored really competitive on a technology front, China 289 00:16:17,120 --> 00:16:21,840 Speaker 1: is China is. China is super competitive in technology now, 290 00:16:21,960 --> 00:16:24,840 Speaker 1: particularly in these areas that it's identified as being key 291 00:16:24,880 --> 00:16:27,080 Speaker 1: to the future in the in the twenty one century. 292 00:16:27,080 --> 00:16:29,800 Speaker 1: And many people argue that actually the smartest move that 293 00:16:29,840 --> 00:16:31,840 Speaker 1: the Americans could make right now is to focus on 294 00:16:31,880 --> 00:16:34,760 Speaker 1: their own science, focus on technology, focus on getting the 295 00:16:34,760 --> 00:16:38,000 Speaker 1: economy here straightened out, building the infrastructure, you know, building 296 00:16:38,000 --> 00:16:42,000 Speaker 1: the foundations for success and growth in over the next years. 297 00:16:42,400 --> 00:16:44,280 Speaker 1: We'll leave it there, Andy Brown, thank you so much 298 00:16:44,480 --> 00:16:46,400 Speaker 1: bringing us up to date on what's going on with 299 00:16:46,440 --> 00:16:50,479 Speaker 1: all things China and easy editorial director Bloomberg New Economy 300 00:16:50,520 --> 00:17:14,440 Speaker 1: form Well after that December meltdown across the markets has 301 00:17:14,440 --> 00:17:17,040 Speaker 1: been a significant turnaround for the equity markets, with the 302 00:17:17,119 --> 00:17:19,760 Speaker 1: SMP up a little over eleven percent year to date. 303 00:17:20,160 --> 00:17:21,879 Speaker 1: To help us get a sense of how much is 304 00:17:21,960 --> 00:17:24,040 Speaker 1: left in the equity markets, if any, we bring in 305 00:17:24,240 --> 00:17:27,040 Speaker 1: Randy Frederick. Randy is a vice president of Trading and 306 00:17:27,040 --> 00:17:32,160 Speaker 1: Derivatives at the Schwab Center for Financial Research based in Austin, Texas. 307 00:17:32,600 --> 00:17:35,120 Speaker 1: But joining us in our Bloomberg eleven three oh studios 308 00:17:35,160 --> 00:17:38,160 Speaker 1: here today, Randy, thanks for joining us. So we've had 309 00:17:38,240 --> 00:17:42,119 Speaker 1: this big turnaround in the equity markets this year. Uh 310 00:17:42,240 --> 00:17:44,200 Speaker 1: is it played out? I just head to the beachers. 311 00:17:44,200 --> 00:17:46,160 Speaker 1: There's still more work to do this year. Well, what's 312 00:17:46,200 --> 00:17:48,560 Speaker 1: fascinating I think about the turnaround is you think about 313 00:17:48,600 --> 00:17:51,320 Speaker 1: what's different now versus what was going on in Q 314 00:17:51,480 --> 00:17:52,959 Speaker 1: four And really when you if you boil it all 315 00:17:53,000 --> 00:17:55,399 Speaker 1: down to its simplest form, there's really only one big difference, 316 00:17:55,400 --> 00:17:58,200 Speaker 1: and that is the Fed. Basically, the Fed was seemed 317 00:17:58,320 --> 00:18:00,960 Speaker 1: very committed to continuing to raise interest trace to continue 318 00:18:01,000 --> 00:18:04,800 Speaker 1: to shrink its botel sheet in Q four, and they've 319 00:18:04,880 --> 00:18:07,520 Speaker 1: changed their mind there. Now. I look at the world 320 00:18:07,520 --> 00:18:10,480 Speaker 1: in strang probabilities screen on Bloomberg every morning. I was 321 00:18:10,520 --> 00:18:12,480 Speaker 1: looking at yesterday. The odds of a rate hike this 322 00:18:12,560 --> 00:18:15,159 Speaker 1: year are now zero percent, according to the market. And 323 00:18:15,160 --> 00:18:16,879 Speaker 1: the Fed isn't always in line with the markets. The 324 00:18:16,880 --> 00:18:18,359 Speaker 1: markets tend to be ahead of the Fed. But the 325 00:18:18,359 --> 00:18:20,840 Speaker 1: Fed seems to have caught up and is now going, yeah, 326 00:18:20,920 --> 00:18:22,600 Speaker 1: you know, maybe we might not in fact that the 327 00:18:22,600 --> 00:18:24,800 Speaker 1: odds of a cut are higher than that. So that's 328 00:18:24,840 --> 00:18:27,160 Speaker 1: the big difference, and so as a result, people don't 329 00:18:27,200 --> 00:18:30,200 Speaker 1: have to worry about interest rates anymore, and retail investors 330 00:18:30,240 --> 00:18:32,880 Speaker 1: are still a little cautious, but his tutional investors are 331 00:18:32,960 --> 00:18:35,280 Speaker 1: back on back in the market right now, Paul, to 332 00:18:35,320 --> 00:18:37,960 Speaker 1: answer the question, yes, both you and I should head 333 00:18:37,960 --> 00:18:40,399 Speaker 1: to the beach and enjoy yourself the year. So just 334 00:18:40,480 --> 00:18:43,000 Speaker 1: to answer that question and follow through at the thought, Randy, 335 00:18:43,000 --> 00:18:44,760 Speaker 1: I would love to get your sense there. There's been 336 00:18:44,760 --> 00:18:46,800 Speaker 1: a lot of talk about a dissonance between the stock 337 00:18:46,840 --> 00:18:49,240 Speaker 1: market and the bond market, with stocks rallying and doing 338 00:18:49,240 --> 00:18:52,200 Speaker 1: well and earnings being strong and bond yields still being 339 00:18:52,240 --> 00:18:55,480 Speaker 1: incredibly low, especially given the fact that the US is 340 00:18:55,520 --> 00:18:58,399 Speaker 1: selling a lot of debt deficit is deepening. Do you 341 00:18:58,440 --> 00:19:00,480 Speaker 1: think there is a disconnect here? Do you think that 342 00:19:00,520 --> 00:19:04,679 Speaker 1: it's a complete logical progression from the federal reserves Dovish stance. Well, 343 00:19:04,680 --> 00:19:06,199 Speaker 1: there are a lot of factors that play into this, 344 00:19:06,240 --> 00:19:07,680 Speaker 1: of course, but I think one of the key ones 345 00:19:07,720 --> 00:19:09,040 Speaker 1: that a lot of people don't think about is the 346 00:19:09,080 --> 00:19:10,879 Speaker 1: fact that we are a global economy, and if you 347 00:19:10,920 --> 00:19:12,800 Speaker 1: look at what's going on with bond yields in Europe, 348 00:19:12,880 --> 00:19:14,280 Speaker 1: I mean how do you have the interest rates in 349 00:19:14,280 --> 00:19:17,960 Speaker 1: the US be significantly higher than another stable country like 350 00:19:18,000 --> 00:19:21,440 Speaker 1: say Germany for example, which are basically zero. So there's 351 00:19:21,440 --> 00:19:23,479 Speaker 1: only so far that those two can separate. And as 352 00:19:23,520 --> 00:19:26,359 Speaker 1: long as yields stay low in Europe and obviously with 353 00:19:26,400 --> 00:19:29,640 Speaker 1: the Brexit issue out there floating, uh, there's concerns about 354 00:19:29,680 --> 00:19:32,520 Speaker 1: a potential recession in the UK which easily could spill 355 00:19:32,600 --> 00:19:35,399 Speaker 1: over into the entire European Union. So those rates just 356 00:19:35,440 --> 00:19:37,480 Speaker 1: simply aren't going to go up that much, and that's 357 00:19:37,480 --> 00:19:39,160 Speaker 1: going to keep a tether, if you will, on US 358 00:19:39,280 --> 00:19:42,640 Speaker 1: rates to some extent you mentioned Randy, you mentioned Brexit 359 00:19:42,680 --> 00:19:46,200 Speaker 1: and European growth and so on. How much the geopolitical issues, 360 00:19:46,240 --> 00:19:49,399 Speaker 1: whether it's you know, China trade negotiations which are ongoing 361 00:19:49,480 --> 00:19:52,359 Speaker 1: today with some more news today Brexit, the uncertainly created 362 00:19:52,359 --> 00:19:54,600 Speaker 1: by Brexit, how much is that way in or factor 363 00:19:54,640 --> 00:19:57,520 Speaker 1: into your analysis about kind of what you're telling your 364 00:19:57,520 --> 00:20:00,440 Speaker 1: clients to do efforts. So for retail investor, I don't 365 00:20:00,480 --> 00:20:03,480 Speaker 1: think they're that informed or really that clear on exactly 366 00:20:03,560 --> 00:20:05,680 Speaker 1: the whole Brexit issue and how it all plays out 367 00:20:05,760 --> 00:20:07,600 Speaker 1: or what it might mean. I think the China issue 368 00:20:07,640 --> 00:20:09,120 Speaker 1: is one they hear about all the time, and it's 369 00:20:09,119 --> 00:20:12,080 Speaker 1: mostly because everybody in this country that buys things, they 370 00:20:12,080 --> 00:20:13,879 Speaker 1: can turn it over and they can see made in China, 371 00:20:14,000 --> 00:20:16,640 Speaker 1: so they know what that means. They know manufacturing jobs 372 00:20:16,640 --> 00:20:18,960 Speaker 1: have left for the last several decades they've gone to China. 373 00:20:19,359 --> 00:20:21,840 Speaker 1: They know that their tariffs and that things are potentially 374 00:20:21,840 --> 00:20:24,360 Speaker 1: more expensive now and it could potentially get more expensive. 375 00:20:24,720 --> 00:20:26,560 Speaker 1: I've been saying for several months since this whole thing 376 00:20:26,560 --> 00:20:29,720 Speaker 1: started seven eight, nine months ago, that the biggest sort 377 00:20:29,760 --> 00:20:32,320 Speaker 1: of overhang, if you will, the dark cloud over these markets, 378 00:20:32,359 --> 00:20:34,560 Speaker 1: has been the China issue, and that the markets would 379 00:20:34,560 --> 00:20:38,520 Speaker 1: likely rally sharply if we got some sort of resolution. 380 00:20:38,600 --> 00:20:41,240 Speaker 1: We hear hints every day and tweets and everything else 381 00:20:41,280 --> 00:20:44,359 Speaker 1: that we are making progress. Trump has seemed very willing 382 00:20:44,600 --> 00:20:47,360 Speaker 1: um just recently to say that hey, I might extend 383 00:20:47,400 --> 00:20:49,960 Speaker 1: that deadline March first out further as long as we're 384 00:20:49,960 --> 00:20:53,280 Speaker 1: making progress, and even maybe the grand deal at the 385 00:20:53,359 --> 00:20:55,320 Speaker 1: end isn't as great as everyone thinks ultimately if it, 386 00:20:55,520 --> 00:20:56,720 Speaker 1: if it gets off the table, I do think the 387 00:20:56,720 --> 00:20:59,479 Speaker 1: markets can continue to rally. Now. That said, we've had 388 00:20:59,480 --> 00:21:01,760 Speaker 1: a pretty stantial rebound in Q one of this year, 389 00:21:02,040 --> 00:21:04,400 Speaker 1: so I think some of the optimism about a potential 390 00:21:04,440 --> 00:21:07,000 Speaker 1: resolution is already built into the market, so the upside 391 00:21:07,040 --> 00:21:09,119 Speaker 1: is probably not as great. But when you look at 392 00:21:09,119 --> 00:21:11,080 Speaker 1: how close we are now to where we were at 393 00:21:11,080 --> 00:21:13,320 Speaker 1: the all time highs in September of last year, I 394 00:21:13,359 --> 00:21:15,960 Speaker 1: frankly think the market still has at least that much 395 00:21:16,000 --> 00:21:18,720 Speaker 1: space to rally. If this issue gets resolved sometime over 396 00:21:18,760 --> 00:21:20,960 Speaker 1: the next couple of months, that's a pretty big call. 397 00:21:21,320 --> 00:21:23,639 Speaker 1: Let's take all of these macro concerns, bought them up, 398 00:21:23,640 --> 00:21:25,800 Speaker 1: and talk about making money. I'm looking at the SMP 399 00:21:25,880 --> 00:21:28,640 Speaker 1: five hundred up nearly eleven so far this year. Are 400 00:21:28,680 --> 00:21:31,399 Speaker 1: you saying that it could go up to hey or 401 00:21:31,480 --> 00:21:34,399 Speaker 1: more in total return for twenty nineteen if there is 402 00:21:34,440 --> 00:21:38,680 Speaker 1: some resolution to trade. My original thought earlier late last 403 00:21:38,760 --> 00:21:41,360 Speaker 1: year was that we could see high single digit returns 404 00:21:41,440 --> 00:21:44,879 Speaker 1: this year, but since we had a substantial correction nearly 405 00:21:44,880 --> 00:21:46,720 Speaker 1: a bear market in Q four of last year, we 406 00:21:46,760 --> 00:21:49,200 Speaker 1: started out at a much lower level. So to see 407 00:21:49,240 --> 00:21:51,400 Speaker 1: double digit returns this year, frankly, like you just said, 408 00:21:51,440 --> 00:21:53,800 Speaker 1: we're already there. Uh, could we get back to all 409 00:21:53,840 --> 00:21:57,359 Speaker 1: time highs? My expectation is we could sometime maybe by 410 00:21:57,400 --> 00:21:59,040 Speaker 1: Q three, Q four of this year. I think that's 411 00:21:59,119 --> 00:22:05,399 Speaker 1: very possible. So possible see year today return for the spire. 412 00:22:05,680 --> 00:22:08,080 Speaker 1: Which of the three major U S industries do you 413 00:22:08,119 --> 00:22:12,200 Speaker 1: expect to outperform well. Obviously, technologies and as a big 414 00:22:12,240 --> 00:22:14,439 Speaker 1: part of the NASDAC, and we've seen a pretty big 415 00:22:14,480 --> 00:22:18,520 Speaker 1: rebound in the NASDAC because of technology and technology course 416 00:22:18,640 --> 00:22:21,280 Speaker 1: is an issue. Especially big tech is an industry that 417 00:22:21,320 --> 00:22:23,000 Speaker 1: has a lot of business with China, and then it 418 00:22:23,119 --> 00:22:25,480 Speaker 1: goes both ways. A lot of big tech companies in 419 00:22:25,520 --> 00:22:28,520 Speaker 1: the US have invested in Chinese tech companies. A lot 420 00:22:28,520 --> 00:22:30,840 Speaker 1: of big tech companies in the US get investment from 421 00:22:30,960 --> 00:22:34,440 Speaker 1: China and also supplies and parts and labor from from China, 422 00:22:34,520 --> 00:22:37,720 Speaker 1: so it flows both ways. As those issues get as 423 00:22:37,720 --> 00:22:40,840 Speaker 1: we work towards a resolution with China, tech companies are 424 00:22:40,840 --> 00:22:43,080 Speaker 1: going to benefit. That obviously will help the will help 425 00:22:43,080 --> 00:22:46,120 Speaker 1: the NASTACK to some extent. Industrials are another area that's 426 00:22:46,200 --> 00:22:48,840 Speaker 1: obviously part of the DAW big piece of that. Uh. 427 00:22:49,080 --> 00:22:52,480 Speaker 1: They are many of the big giant industrial companies do 428 00:22:52,560 --> 00:22:55,919 Speaker 1: a lot of foreign business, so they also will benefit. 429 00:22:56,000 --> 00:22:57,520 Speaker 1: And in fact that's what you've seen. If you look 430 00:22:57,520 --> 00:23:00,000 Speaker 1: at some of the outperforming sectors we saw in Q four, 431 00:23:00,160 --> 00:23:02,399 Speaker 1: it was the defensive areas. It was utilities, it was 432 00:23:02,440 --> 00:23:05,000 Speaker 1: real estate, it was healthcare, it was places where people 433 00:23:05,000 --> 00:23:07,960 Speaker 1: go to hide consumer stables. This year, so far, it's 434 00:23:08,000 --> 00:23:10,960 Speaker 1: been the exact opposite. The bottom performers of Q four 435 00:23:11,000 --> 00:23:13,560 Speaker 1: are on the top now and vice versa. All right, 436 00:23:13,760 --> 00:23:15,639 Speaker 1: thank you so much for being with us. Randy Frederick 437 00:23:15,760 --> 00:23:18,720 Speaker 1: ten seconds. Where should we go to have barbecue in Austin. Well, 438 00:23:18,800 --> 00:23:21,080 Speaker 1: everyone hears a lot about Franklin and Salt Lick, but 439 00:23:21,160 --> 00:23:22,919 Speaker 1: my personal favorite is a very easy one to get 440 00:23:22,960 --> 00:23:24,199 Speaker 1: to and you don't have to stand in line for 441 00:23:24,240 --> 00:23:28,440 Speaker 1: three hours. It's Rudy's. Rudy's for the barbecue that you love. 442 00:23:28,520 --> 00:23:31,399 Speaker 1: Randy Frederick, vice president of Trading in Derivatives at Schwab, 443 00:23:31,520 --> 00:23:47,520 Speaker 1: joining us here in our Bloomberg Interactive Broker Studios. Interesting 444 00:23:47,520 --> 00:23:50,320 Speaker 1: news out this morning, Apple and Goldman Sachs UH will 445 00:23:50,359 --> 00:23:53,360 Speaker 1: begin testing a jointly developed credit card with their employees 446 00:23:53,359 --> 00:23:55,640 Speaker 1: in the next few weeks. UH the car. The card 447 00:23:55,680 --> 00:23:58,240 Speaker 1: will be paired with new iPhone software features that will 448 00:23:58,240 --> 00:24:01,080 Speaker 1: help users manage their finny ANSWS to help us kind 449 00:24:01,080 --> 00:24:03,119 Speaker 1: of dig through this story and all things kind of 450 00:24:03,160 --> 00:24:06,520 Speaker 1: e payments is David Ritter, Payments especially finance analyst at 451 00:24:06,520 --> 00:24:09,080 Speaker 1: Bloomberg Intelligence. He's based in Princeton, New Jersey, but luckily 452 00:24:09,119 --> 00:24:11,600 Speaker 1: for us, he joins us in our Bloomberg Interactive Broker 453 00:24:11,640 --> 00:24:13,840 Speaker 1: studio here in New York today. So Dave, thanks for 454 00:24:13,880 --> 00:24:16,879 Speaker 1: being here. So what are Goldman and Apple trying to 455 00:24:16,920 --> 00:24:19,639 Speaker 1: do here? What's behind this this new card? Well, look, 456 00:24:19,680 --> 00:24:22,920 Speaker 1: I think they're trying to reach a millennial customer. What's 457 00:24:22,960 --> 00:24:26,000 Speaker 1: interesting about it is this is Goldman's very first credit card. 458 00:24:26,280 --> 00:24:28,879 Speaker 1: And what's also interesting is it looks like they're going 459 00:24:28,920 --> 00:24:31,240 Speaker 1: to try to do it themselves. So they're coming into 460 00:24:31,240 --> 00:24:34,240 Speaker 1: a business that is dominated by four or five companies, 461 00:24:34,280 --> 00:24:37,920 Speaker 1: you know, City, Jase, ba A, MX, that's it. They 462 00:24:37,920 --> 00:24:41,040 Speaker 1: control the whole business and here comes here comes Goldman. 463 00:24:41,640 --> 00:24:45,600 Speaker 1: So um, they must offer really sweet terms to Apple. 464 00:24:45,760 --> 00:24:47,920 Speaker 1: But on the other hand, Goldman has been really active 465 00:24:47,960 --> 00:24:51,639 Speaker 1: as a fintech investor. Uh. They bought a company about 466 00:24:51,640 --> 00:24:55,360 Speaker 1: a year ago called Clarity Money, which helps folks manage 467 00:24:55,400 --> 00:24:57,639 Speaker 1: their money, and so it kind of fits with it. 468 00:24:57,680 --> 00:24:59,960 Speaker 1: Sounds like what they're trying to integrate into the new 469 00:25:00,040 --> 00:25:03,400 Speaker 1: Why um, the new iPhone features. So here's what I'm 470 00:25:03,440 --> 00:25:07,199 Speaker 1: struck by Lisa Ellis of Moffatt. Nathanson said that it 471 00:25:07,320 --> 00:25:11,520 Speaker 1: is surprising that Apple chose Goldman Sacks and not Synchrony Financial, 472 00:25:11,560 --> 00:25:14,520 Speaker 1: which is more accustomed to arrangements like this. Do we 473 00:25:14,560 --> 00:25:17,679 Speaker 1: have any sense of what kinds of sweeteners Goldman Sacks 474 00:25:17,760 --> 00:25:20,920 Speaker 1: offered to Apple to sort of solidify this agreement. Well, 475 00:25:20,960 --> 00:25:22,200 Speaker 1: you know, at the end of the day, I think 476 00:25:22,240 --> 00:25:24,280 Speaker 1: if they're trying to make their entry into the credit 477 00:25:24,280 --> 00:25:26,080 Speaker 1: card business, this is the way to do with a 478 00:25:26,119 --> 00:25:29,720 Speaker 1: real high profile name. But how do you compete? I mean, 479 00:25:29,760 --> 00:25:32,199 Speaker 1: they can compete with the big guys on funding costs, right, 480 00:25:32,240 --> 00:25:35,160 Speaker 1: they have a huge deposit base that they're growing rapidly, 481 00:25:35,359 --> 00:25:39,080 Speaker 1: but how do they do it on expenses? They're gonna 482 00:25:39,119 --> 00:25:41,399 Speaker 1: have to invest up to two million dollars even to 483 00:25:41,400 --> 00:25:45,040 Speaker 1: get off the ground. So um, you know, I think 484 00:25:45,040 --> 00:25:47,400 Speaker 1: that they've decided this as a loss leader and it's 485 00:25:47,400 --> 00:25:49,719 Speaker 1: a big name, and we'll see where it takes us 486 00:25:49,720 --> 00:25:52,359 Speaker 1: into different directions. So, Davin, know, you spent a lot 487 00:25:52,359 --> 00:25:55,840 Speaker 1: of time on the growing ePayments business. How are consumers 488 00:25:55,880 --> 00:25:59,880 Speaker 1: generally thinking about the privacy issues here? Every time you 489 00:26:00,080 --> 00:26:04,040 Speaker 1: enter credit card number somewhere or you know, that's an issue, 490 00:26:04,040 --> 00:26:05,960 Speaker 1: but it doesn't seem to be slowing the e payments 491 00:26:06,000 --> 00:26:08,760 Speaker 1: business at all. Well, you know, the company that really 492 00:26:08,800 --> 00:26:12,320 Speaker 1: stands out among all others is PayPal, and it's interesting 493 00:26:12,320 --> 00:26:14,560 Speaker 1: because they have a long track record. You know, it 494 00:26:14,640 --> 00:26:16,679 Speaker 1: sounds crazy to say a company that's only you know, 495 00:26:16,720 --> 00:26:18,800 Speaker 1: fifteen years old has a long track record, But there 496 00:26:18,920 --> 00:26:22,040 Speaker 1: is a trust factor there that you see. The newer 497 00:26:22,240 --> 00:26:24,760 Speaker 1: ones that have come along like Apple Pay and Samsung 498 00:26:24,800 --> 00:26:27,560 Speaker 1: Pay and all these pays that haven't caught on just 499 00:26:27,640 --> 00:26:30,360 Speaker 1: don't have that trust. So people will use it. They'll 500 00:26:30,440 --> 00:26:32,880 Speaker 1: use it online, they'll use it on their phone. They 501 00:26:32,920 --> 00:26:35,600 Speaker 1: just have that trustell on that. So I'm just trying 502 00:26:35,600 --> 00:26:38,600 Speaker 1: to figure out why would people choose this credit card 503 00:26:39,000 --> 00:26:43,240 Speaker 1: over any others. It's a good question because typically the hook, 504 00:26:43,280 --> 00:26:45,879 Speaker 1: even for the millennials, the rewards you get. Right. So 505 00:26:46,080 --> 00:26:49,280 Speaker 1: Chase's Sapphire Car was a huge hit with millennials when 506 00:26:49,280 --> 00:26:52,000 Speaker 1: it launched a few years ago, but it turns out 507 00:26:52,040 --> 00:26:55,280 Speaker 1: that big upfront bonus wasn't sustainable six months in they 508 00:26:55,760 --> 00:26:58,560 Speaker 1: canned it, right, And so this is supposedly going to 509 00:26:58,640 --> 00:27:01,760 Speaker 1: pay a two percent cash a reward too. What's different 510 00:27:01,800 --> 00:27:04,960 Speaker 1: about that? You can get that anywhere. You can use 511 00:27:05,040 --> 00:27:08,040 Speaker 1: your Mint app or your any number of apps to 512 00:27:08,119 --> 00:27:11,320 Speaker 1: manage your finances. Is it neat that it's integrated with 513 00:27:11,440 --> 00:27:15,440 Speaker 1: the iPhone? I guess for real iPhone fans they like that, 514 00:27:15,440 --> 00:27:17,600 Speaker 1: But it's just as easy to open up something separate. 515 00:27:17,680 --> 00:27:19,280 Speaker 1: Can you imagine if all of a sudden there's a 516 00:27:19,280 --> 00:27:22,560 Speaker 1: little voice that's actually recording of your mother saying do 517 00:27:22,600 --> 00:27:24,280 Speaker 1: you really need? Do you really need? Do you really 518 00:27:24,280 --> 00:27:27,080 Speaker 1: want to buy that? Yeah? Crazy, that's what they're That's 519 00:27:27,080 --> 00:27:29,479 Speaker 1: what it sounds like they're going for. So, Dave, are 520 00:27:29,480 --> 00:27:31,840 Speaker 1: we going to a cash list society? I mean, there's 521 00:27:31,840 --> 00:27:34,040 Speaker 1: a little restaurant fast food place down the street from 522 00:27:34,040 --> 00:27:37,640 Speaker 1: the Bloomberg headquarters here that just opened. They don't take cash, so, 523 00:27:37,960 --> 00:27:41,000 Speaker 1: and I know a lot of young folks literally do 524 00:27:41,119 --> 00:27:44,439 Speaker 1: not carry cash. I don't use cash myself anymore, but 525 00:27:44,520 --> 00:27:46,800 Speaker 1: that's just because I'm a payment's dork. And you know, 526 00:27:48,440 --> 00:27:52,280 Speaker 1: I use my my City double cash card so I 527 00:27:52,320 --> 00:27:55,520 Speaker 1: get two percent on everything, So I use that anywhere 528 00:27:55,560 --> 00:27:57,840 Speaker 1: I can go, But I don't use the fancy payment apps. 529 00:27:57,840 --> 00:28:00,600 Speaker 1: Occasionally I'll use an Apple pay, but that what I use. 530 00:28:00,760 --> 00:28:05,160 Speaker 1: But that's kind of where things are. But well, there's 531 00:28:05,200 --> 00:28:08,720 Speaker 1: a pushback though on that. So a lot of interest 532 00:28:08,800 --> 00:28:13,600 Speaker 1: groups have said, hey, you're excluding tens of millions of 533 00:28:13,760 --> 00:28:15,840 Speaker 1: US folks that are on bank that have no bank 534 00:28:15,880 --> 00:28:17,800 Speaker 1: account because you know, half of folks in the US 535 00:28:17,880 --> 00:28:22,240 Speaker 1: have less than four dollars to their name. Sad but true. Um, 536 00:28:22,440 --> 00:28:25,879 Speaker 1: they have to use cash. So I don't think cashless 537 00:28:25,920 --> 00:28:28,439 Speaker 1: society is coming anytime soon. And my dad told me 538 00:28:28,520 --> 00:28:31,000 Speaker 1: stories like that, Dave. When I started with IBM in 539 00:28:31,080 --> 00:28:34,800 Speaker 1: nifty we're having meetings talking about cash was going away 540 00:28:34,840 --> 00:28:38,520 Speaker 1: in ten years. Here we are. Yeah, Well, thank you 541 00:28:38,560 --> 00:28:40,480 Speaker 1: so much for being with us. David Ridder, Payments and 542 00:28:40,520 --> 00:28:45,080 Speaker 1: Specialty Finance analyst for Bloomberg Intelligence. A fascinating story. Interesting 543 00:28:45,120 --> 00:28:47,760 Speaker 1: to know what exactly Goldman Sachs promised Apple to get 544 00:28:47,800 --> 00:28:50,520 Speaker 1: this marquee name and how they plan to sustain this 545 00:28:50,640 --> 00:28:53,200 Speaker 1: over the long run without some kind of key incentive 546 00:28:53,480 --> 00:28:55,720 Speaker 1: to bring in new customers. Thanks for listening to the 547 00:28:55,760 --> 00:28:58,360 Speaker 1: Bloomberg P and L podcast. You can subscribe and listen 548 00:28:58,360 --> 00:29:01,760 Speaker 1: to interviews at Apple Podcast or whatever podcast platform you prefer. 549 00:29:01,960 --> 00:29:04,600 Speaker 1: I'm Paul Sweeney, I'm on Twitter at pt Sweeney. I'm 550 00:29:04,640 --> 00:29:07,400 Speaker 1: Lisa Abram Woits. I'm on Twitter at Lisa Abram Woits 551 00:29:07,400 --> 00:29:10,240 Speaker 1: one before the podcast, you can always catch us worldwide. 552 00:29:10,240 --> 00:29:11,240 Speaker 1: I'm Bloomberg Radio