Latest / Bloomberg Intelligence / Global Payments Gets Needed Scale With TSS: CEO Sloan (Podcast)

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Global Payments Gets Needed Scale With TSS: CEO Sloan (Podcast) · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: Podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. There is another deal in the
• 0:22
  Speaker 1: payments industry. Global Payments today agreed to buy Total System
• 0:25
  Speaker 1: Services in a deal valued at twenty one point five
• 0:28
  Speaker 1: billion dollar, the payment industries third mega merger. Of the deal,
• 0:32
  Speaker 1: we can get the details from the person himself, Jeff Sloan,
• 0:35
  Speaker 1: CEO of Global Payments. He joints is here in our
• 0:37
  Speaker 1: Bloomberg Interactive Broker studio. Jeff, thanks so much for joining us.
• 0:40
  Speaker 1: I know it's a busy, exciting day for you guys
• 0:43
  Speaker 1: at your company. I know you and t ss I've
• 0:46
  Speaker 1: been looking at each other for a while. Why do
• 0:48
  Speaker 1: the deal now? Well, I think the rate of innovation
• 0:52
  Speaker 1: and payments is only accelerated if you look. For example,
• 0:55
  Speaker 1: here in New York as well as the United States.
• 0:58
  Speaker 1: Contact lists. The announcement you've seen from He's in JP.
• 1:00
  Speaker 1: Morgan coming to the subways in Manhattan, UH in the
• 1:03
  Speaker 1: next month or two is just one example of the
• 1:06
  Speaker 1: rate of continued innovation and acceleration of change and payments. Therefore,
• 1:10
  Speaker 1: it's important that you have scale. It's hard to make
• 1:12
  Speaker 1: those investments and all the new products and services that
• 1:15
  Speaker 1: are the most attractive to our merchant base without having
• 1:17
  Speaker 1: enough scale to fund those in the first place. So
• 1:19
  Speaker 1: it's pretty clear over the last few months that the
• 1:22
  Speaker 1: bar for scale is ever higher. So is scale with
• 1:25
  Speaker 1: respect to which business Because it's interesting that there is
• 1:29
  Speaker 1: overlap with you in Total System Services TSS when it
• 1:32
  Speaker 1: comes to catering to smaller businesses. They do, though, have
• 1:36
  Speaker 1: a business processing payments for larger financial firms. How do
• 1:42
  Speaker 1: you get scale with that versus just diversification At that point,
• 1:46
  Speaker 1: the servers don't know the difference. It's kind of the
• 1:48
  Speaker 1: answer at the end of the day. So we're gonna
• 1:49
  Speaker 1: be making the same kind of investments capital wise as
• 1:52
  Speaker 1: a technology matter, into the same kind of environments, whether
• 1:55
  Speaker 1: it's on the cardish who are side or the merchant side.
• 1:57
  Speaker 1: Global Payments does this already today, so there's a lot
• 2:00
  Speaker 1: of similarities between our two business. For example, we have
• 2:03
  Speaker 1: about five fies financial institutions that are customers of Global
• 2:06
  Speaker 1: Payments to stay globally, TEASES has about nine hundred, So
• 2:10
  Speaker 1: there's a lot of overlap in terms of the products
• 2:12
  Speaker 1: and services that we provide those large complicated financial institutions
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  Speaker 1: that TEASES does as well. Number one. Number two, there's
• 2:19
  Speaker 1: obvious overlap between the issuer business that you're asking about
• 2:22
  Speaker 1: at t S two and what we do a global payments. So,
• 2:24
  Speaker 1: for example, the same folks, the same financial institutions who
• 2:27
  Speaker 1: are buying the issuing business are also providing referrals to
• 2:31
  Speaker 1: the merchant business. The same types of technologies that we
• 2:33
  Speaker 1: deploy the merchant business are also being deployed in the
• 2:36
  Speaker 1: issuing business. That's particularly true overseas, but increasingly if you
• 2:39
  Speaker 1: look at these other deals, also true in the United States.
• 2:42
  Speaker 1: Why five Serve and why Fidelity, but Debbi Gateways is
• 2:45
  Speaker 1: part of what they do is to emulate what we'll
• 2:48
  Speaker 1: be able to do on the issuing side, combining issuer
• 2:51
  Speaker 1: processing with acquire processing, so that means if you use
• 2:54
  Speaker 1: your credit card or merchant I know it's you from
• 2:56
  Speaker 1: the issue are side, and then I know where you're
• 2:58
  Speaker 1: spending it from the acquire ring side. That's what those
• 3:00
  Speaker 1: debic gateways do and that's what a combined global payments
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  Speaker 1: and tiesis will do. So if I'm a fintech M
• 3:06
  Speaker 1: and a banker, this is a great year for me.
• 3:08
  Speaker 1: Three three deals so far give our Just give us
• 3:11
  Speaker 1: a sense of how the structure of your industry, how
• 3:14
  Speaker 1: fragment is it still? Do you envision more consolidation? Is
• 3:17
  Speaker 1: this a global consolidation play? Just give us a sense
• 3:20
  Speaker 1: of how the industry structured. So the nice thing about
• 3:22
  Speaker 1: the industry is it consistently reinvents itself. So it's a
• 3:25
  Speaker 1: scale business. So there's always going to be more consolidation.
• 3:27
  Speaker 1: But part of what striving change. To go back to
• 3:29
  Speaker 1: your first question is the rate of techno technological innovation.
• 3:33
  Speaker 1: So think about it. Apple was not out there with
• 3:35
  Speaker 1: Apple Pay five years ago. Square didn't exist, ten years ago.
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  Speaker 1: Google didn't have Android Pay, Samsung didn't have Samsung Pay.
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  Speaker 1: So think about the folks who have come into the business.
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  Speaker 1: So today, for example, you have Stripe for startups and
• 3:46
  Speaker 1: small merchants. You have Square, which is a public company
• 3:50
  Speaker 1: as well. You've got plenty of examples adding in which
• 3:52
  Speaker 1: is a public company in a coom in Ireland, but
• 3:54
  Speaker 1: it's worldwide in scope. You have plenty of examples of
• 3:57
  Speaker 1: companies say that either didn't exist five or ten years
• 4:00
  Speaker 1: ago or didn't remotely look like what they look today.
• 4:03
  Speaker 1: So the future is very bright for the industry. There's
• 4:05
  Speaker 1: going to be continued consolidation because of scale functions that
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  Speaker 1: we've been describing, but there's always gonna be continued new entrants.
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  Speaker 1: I think at the end of the day, the ability
• 4:12
  Speaker 1: to provide banking like services through open API s, the
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  Speaker 1: scale you get in cloud based and SAS computing, which
• 4:19
  Speaker 1: we're very focused on at Global Payments and Teasis, that's
• 4:22
  Speaker 1: what's driving the rate of innovation you're seeing today. So
• 4:24
  Speaker 1: do you expect to eventually expand out into banking like
• 4:28
  Speaker 1: services for some of your clients, lending to some of
• 4:30
  Speaker 1: your smaller merchants. Now, where we draw a line, and
• 4:33
  Speaker 1: some people like Square actually don't draw this line. But
• 4:35
  Speaker 1: where we draw the line is we're independent. We're not
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  Speaker 1: a bank by ourselves um at Global Payments, and neither
• 4:40
  Speaker 1: is TASiS. In fact, we don't want to compete with
• 4:42
  Speaker 1: our customer base, so it's very important for us to
• 4:44
  Speaker 1: stay out of functions in banking. That's not true for
• 4:47
  Speaker 1: some of our competitors, like a Square, which provides direct
• 4:49
  Speaker 1: lending in conjunction with their parties. We actually provide referrals
• 4:53
  Speaker 1: of merchants who are looking for loans out to f
• 4:56
  Speaker 1: eyes our partners. That's our job, rather than provide that
• 4:59
  Speaker 1: are directly ourselves. So then how do you respond to
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  Speaker 1: people who say, right now, smaller midsized merchants, they just
• 5:04
  Speaker 1: want to simplify what they do. They don't want to
• 5:07
  Speaker 1: have to figure out uh sort of bespoke of financial
• 5:11
  Speaker 1: payments processing system and then figuring out their relationship with
• 5:14
  Speaker 1: a banker. And so we'll just go to square. What
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  Speaker 1: do you say to people who are who are wondering
• 5:18
  Speaker 1: about that. So we have the same complete ecosystem that
• 5:20
  Speaker 1: Square has. The difference with us is we have it
• 5:22
  Speaker 1: from the small guy to the big guy, and we
• 5:23
  Speaker 1: have it in a hundred countries where squares predominantly as
• 5:26
  Speaker 1: a pure revenue matter, proviently in the United States. So
• 5:29
  Speaker 1: we have all that. So today a Heartland, which is
• 5:31
  Speaker 1: one of our businesses sales representative can walk into a
• 5:33
  Speaker 1: small merchant here in Manhattan and on your phone, on
• 5:37
  Speaker 1: that person's phone, can underwrite that merchant, get that merchant
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  Speaker 1: up and running, provide a loan, provide payroll, you name it,
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  Speaker 1: we have it. So we have the ecosystem that they have.
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  Speaker 1: The difference with us is we're more multinational in scope.
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  Speaker 1: We can go from the really small guy we call
• 5:51
  Speaker 1: it the taco truck up to Taco Bell, which is
• 5:53
  Speaker 1: one of our customers. So we can do at the
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  Speaker 1: small level as well as the enterprise level, really in
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  Speaker 1: a hundred countries. Jeff Slan, CEO of Global Payments, joining
• 6:01
  Speaker 1: us in a Bloomberg in Actor broker studio talking about
• 6:03
  Speaker 1: his a big deal today. So, Jeff, you know, twenty
• 6:06
  Speaker 1: one and a half billion dollar all stock deal. Your
• 6:08
  Speaker 1: stock is kind of hanging in there, only down to
• 6:10
  Speaker 1: two percent today, So that's a pretty good sign that
• 6:12
  Speaker 1: the market likes what they're hearing. What kind of synergies
• 6:16
  Speaker 1: did you promise the market revenue and cost synergies, because
• 6:19
  Speaker 1: I'm assuming you've got to deliver some creative EPs. Yeah,
• 6:22
  Speaker 1: so it is a creative at the boxer, right, we
• 6:24
  Speaker 1: said it's mid single digits a creative to the combined
• 6:26
  Speaker 1: company in and double digits a creative thereafter. So we
• 6:30
  Speaker 1: think it's a very attractive financial profile, very similar to
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  Speaker 1: what we announced in Heartland. Actually when we did that
• 6:35
  Speaker 1: deal in two thousand and fifteen, what we said on
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  Speaker 1: our call this morning was at least three hundred million
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  Speaker 1: of expense synergies and at least a hundred million of
• 6:42
  Speaker 1: revenue synergies within three years, and we really do plan
• 6:45
  Speaker 1: to get most of the expense integration done in the
• 6:48
  Speaker 1: first eighteen months, so we do expect a pretty good
• 6:50
  Speaker 1: ramp on the synergy expectation. And to give you a sense,
• 6:54
  Speaker 1: when we did the Hartland transaction, UM, we talked about
• 6:57
  Speaker 1: a hundred twenty five million in synergies and we ended
• 6:59
  Speaker 1: up producing foreign x US of that. So a very
• 7:00
  Speaker 1: good track record, UH in delivering those energies. Thank you
• 7:04
  Speaker 1: so much for being here in congratulations on the deal.
• 7:07
  Speaker 1: Jeff Sloan is chief executive Officer of Global Payments, joining
• 7:10
  Speaker 1: us here in our Blue Reactor Interactive broker's studios. His
• 7:15
  Speaker 1: company agreed to buy Total System Services in a deal
• 7:18
  Speaker 1: valued at twenty one and a half billion dollars looking
• 7:23
  Speaker 1: at the ten year up ten thirty seconds today, pushing
• 7:26
  Speaker 1: that yield down to two point to eight percent. How
• 7:29
  Speaker 1: much lower can yields go? We go to our next guest,
• 7:32
  Speaker 1: Eric Stein. Eric is a portfolio manager and co director
• 7:35
  Speaker 1: of Global fixed income at Eaton Vance et Van says
• 7:37
  Speaker 1: about four D sixty billion dollars under management. They're located
• 7:40
  Speaker 1: in Boston. Eric, thanks so much for joining us. How
• 7:44
  Speaker 1: much you know what's also you know been in the
• 7:47
  Speaker 1: front pages over the last several weeks have been the
• 7:49
  Speaker 1: escalating trade tensions with China. How much of the action
• 7:52
  Speaker 1: we're seeing in the treasury market is kind of reflecting
• 7:55
  Speaker 1: that uncertainty. Well, first off, thanks for having me on.
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  Speaker 1: I mean, I think if you look at all of
• 7:59
  Speaker 1: two I was in nineteen, which also includes you know,
• 8:02
  Speaker 1: the first quarter where risk markets were doing well and
• 8:04
  Speaker 1: people thought were going to have at least a decent
• 8:06
  Speaker 1: settlement with the China trade war in the short term,
• 8:09
  Speaker 1: treasure yields continued that this grind lower. So certainly, you
• 8:12
  Speaker 1: know some of the action we've seen with yields continuing
• 8:15
  Speaker 1: to decline over the past couple of weeks, I would
• 8:17
  Speaker 1: say there are fears of global growth as well as
• 8:19
  Speaker 1: the re escalation of the US China trade warm But
• 8:22
  Speaker 1: for all of two thousand nineteen. You know, we have
• 8:25
  Speaker 1: seen this very significant rally in the U S Treasury market.
• 8:28
  Speaker 1: So we were just talking earlier about the inversion of
• 8:31
  Speaker 1: the yield curve. The fact that the gap between tenure
• 8:34
  Speaker 1: and three month treasury yields is now inverted by the
• 8:37
  Speaker 1: most since two thousand and seven, exceeding the lows reached
• 8:40
  Speaker 1: back in March. Does this send a barish signal to you?
• 8:45
  Speaker 1: So you know, look, it's something that you know, we
• 8:47
  Speaker 1: and Vans have a big debate on, you know, does
• 8:48
  Speaker 1: the yield curve matter or not. I certainly put myself
• 8:51
  Speaker 1: in the camp that the yield curve does matter. I
• 8:54
  Speaker 1: think it's a market signal. I think people that dismiss
• 8:57
  Speaker 1: it kind of do so at their own peril, uh know.
• 9:00
  Speaker 1: That being said, I think sometimes there's an obsession about,
• 9:03
  Speaker 1: you know, particular parts of the front end of the
• 9:04
  Speaker 1: yield curve. So I'd look more at kind of you know,
• 9:06
  Speaker 1: twos tens, twos thirties, things like that. At least the
• 9:10
  Speaker 1: two thirties hasn't continued to invert, which to me is
• 9:13
  Speaker 1: a is a good sign. Uh It's still relatively flat,
• 9:16
  Speaker 1: but it hasn't kind of continued on the flattening that
• 9:18
  Speaker 1: we saw last year. But certainly, as you mentioned at
• 9:20
  Speaker 1: the front end, you do see some inversion. So I think,
• 9:23
  Speaker 1: you know, it's like any market signal, I would not
• 9:25
  Speaker 1: ignore it. If I were the Fed, if I were
• 9:27
  Speaker 1: someone looking at the economy, I would certainly, you know,
• 9:30
  Speaker 1: take it seriously. So Eric, given where we are with
• 9:33
  Speaker 1: these historically low rates, what are you doing with your
• 9:36
  Speaker 1: portfolio right here? Yes? So, Look, I think first off,
• 9:39
  Speaker 1: from a you know, a treasury perspective, look to me
• 9:43
  Speaker 1: that you know, the value in the treasury market is
• 9:44
  Speaker 1: if you think that things are going to get worse
• 9:46
  Speaker 1: from here, And I said, the treasure markets pricing in
• 9:48
  Speaker 1: a pretty bad outcome. Maybe things do get worse, so
• 9:51
  Speaker 1: maybe there's some safety value. But to me, the the
• 9:53
  Speaker 1: only really sector of the treasure market I really like
• 9:56
  Speaker 1: would be tips on a kind of nominal treasury edge basis.
• 10:00
  Speaker 1: I think there's a lot of policies by the Fed
• 10:03
  Speaker 1: as well as the trade war, a lot of policies
• 10:05
  Speaker 1: that should lead to somewhat higher inflation, so I think
• 10:07
  Speaker 1: duration hedge tips could be attractive. Look, I also think
• 10:10
  Speaker 1: parts of the emerging market bond complex look attractive as
• 10:13
  Speaker 1: yields are so low, not only in the US, but
• 10:16
  Speaker 1: but in you know, Germany, UK, Japan, really all the
• 10:19
  Speaker 1: whole developed market world. Uh. It makes places like emerging
• 10:23
  Speaker 1: markets that, yes, there's volatility, but if you look at,
• 10:26
  Speaker 1: you know, what yields you're getting on emerging market assets
• 10:28
  Speaker 1: versus treasuries or their developed market bond markets, I think
• 10:32
  Speaker 1: those are attractive. And I think if we're back, you know,
• 10:34
  Speaker 1: if we're still in this goldilocks not too hot, not
• 10:37
  Speaker 1: too cold world, it's actually a pretty good environment for
• 10:40
  Speaker 1: carrying and some of the riskier parts of the fixed
• 10:42
  Speaker 1: income markets. So Eric, how much is this thesis predicated
• 10:46
  Speaker 1: on the idea that the Federals will cut rates again
• 10:49
  Speaker 1: in the near term. So I don't think you need
• 10:52
  Speaker 1: to cut for emerging markets assets to do well. I
• 10:56
  Speaker 1: certainly think if the Fed ward had turned, you know,
• 10:57
  Speaker 1: very hawkish and and people are talking about rate high,
• 11:00
  Speaker 1: that would be that that would be negative for sure.
• 11:03
  Speaker 1: But I think if if rates just kind of stay
• 11:05
  Speaker 1: where they are, uh in in the U S that's
• 11:08
  Speaker 1: you know, whether it's front end um you know, or
• 11:11
  Speaker 1: back into the curve, kind of stay where they are,
• 11:13
  Speaker 1: I think a lot of these assets and emerging markets.
• 11:16
  Speaker 1: You know, investors will once again be searching for yield,
• 11:20
  Speaker 1: and they'll need to invest in, you know, somewhere else
• 11:22
  Speaker 1: other than U S. Treasuries. I guess another way to
• 11:24
  Speaker 1: ask this is, you know, if the Federal, if the
• 11:26
  Speaker 1: vessors are does cut rates as the market expects it
• 11:29
  Speaker 1: to do within the next nine months, do you think
• 11:31
  Speaker 1: that will be an additional support to risk assets or
• 11:35
  Speaker 1: that it will harm them because it will send a
• 11:37
  Speaker 1: message that is somewhat barish on the U S economy.
• 11:41
  Speaker 1: Very good question. Look, I've you know, I've never been
• 11:43
  Speaker 1: in the school thought, and I used to work at
• 11:45
  Speaker 1: the New York FED that the Fed knows something that
• 11:47
  Speaker 1: let's say, the markets don't, and so, you know, sometimes
• 11:50
  Speaker 1: I think there could be confusion in policy statements, which
• 11:52
  Speaker 1: which can lead to markets, you know, not behaving as
• 11:55
  Speaker 1: you would expect them to. I you know, US rates
• 11:58
  Speaker 1: going down, a risk assets not doing well. Maybe market
• 12:00
  Speaker 1: was expecting more. Maybe the statement, um, you know, it
• 12:03
  Speaker 1: wasn't as as devilish as people were expecting. So you know,
• 12:06
  Speaker 1: I can see that I'm not you know, as I said,
• 12:08
  Speaker 1: of the view that the FED really knows more than
• 12:10
  Speaker 1: than other than you know, other market participants. UM, you know,
• 12:13
  Speaker 1: I do think that. UM, you know, if there are
• 12:16
  Speaker 1: lower rates, you know, certainly that helps. I also think
• 12:18
  Speaker 1: something else is going to start to get talked about,
• 12:19
  Speaker 1: as the US dollar. I've actually been surprised with with
• 12:23
  Speaker 1: the strength of the US dollar that we started to
• 12:24
  Speaker 1: see some weakness last week. Uh you know, we've seen
• 12:27
  Speaker 1: lots of tweets from President Trump about the Fed. I've
• 12:29
  Speaker 1: actually been surprised we haven't seen more tweets about the
• 12:32
  Speaker 1: US dollar. And so if the Fed gets more debblished,
• 12:35
  Speaker 1: that would be another uh you know, reason for the
• 12:37
  Speaker 1: US dollar to start the weekend, which should help emerging
• 12:40
  Speaker 1: market assets. Eric Stein, thank you so much for being
• 12:43
  Speaker 1: with us. Eric Stein's portfolio manager and co director of
• 12:45
  Speaker 1: Global Fixed Income and EAT Advanced. For a few days now,
• 12:52
  Speaker 1: a growing number of Wall Street analysts are coming out
• 12:54
  Speaker 1: with predictions for how much profits could drop at some
• 12:58
  Speaker 1: of the big U S. Tech companies in the case
• 13:00
  Speaker 1: of an escalation in the U. S. China trade war.
• 13:03
  Speaker 1: Joining US now to talk about how realistic this is,
• 13:06
  Speaker 1: how significant the losses could be. David Garretty, chief market
• 13:09
  Speaker 1: strategist for leid Long Co, also a partner at bt block.
• 13:14
  Speaker 1: So first, let's just start with are we entering a
• 13:16
  Speaker 1: tech war, and if so, what does that mean. No,
• 13:19
  Speaker 1: certainly we're rendering into widening an era of widening tariffs,
• 13:24
  Speaker 1: and certainly they're not just widening, but they're also growing greater.
• 13:27
  Speaker 1: And while tariffs are paid by the US consumers here
• 13:32
  Speaker 1: relative to Chinese goods, the fact of the matter is
• 13:35
  Speaker 1: that you are most likely are going to see US
• 13:38
  Speaker 1: products that are available in China think Apple iPhones as
• 13:42
  Speaker 1: being potentially priced out of the market. But also at
• 13:45
  Speaker 1: the same time, we're already operating in an environment between
• 13:49
  Speaker 1: the US and China where China announced back in two
• 13:52
  Speaker 1: thousand and fifteen a ten year plan. Communist countries like
• 13:57
  Speaker 1: to do these things ten year plans, but there's was
• 14:00
  Speaker 1: made in China, and in that they laid out goals
• 14:04
  Speaker 1: to be leaders in ten tech categories all the way
• 14:08
  Speaker 1: from artificial intelligence through aviation. How they were going to
• 14:12
  Speaker 1: get there obviously has been unfolding over time. These tariffs
• 14:16
  Speaker 1: that we're seeing right now in some respects as a
• 14:18
  Speaker 1: reaction to that. But tariffs or no, I would still
• 14:22
  Speaker 1: say that we're in a tech cold war between the
• 14:25
  Speaker 1: United States and China, or more broadly, between China and
• 14:29
  Speaker 1: the US and its allies. So in terms of a
• 14:32
  Speaker 1: tech cold war, I think it really ratcheted up for
• 14:35
  Speaker 1: a lot of investors when the US government puts, you know,
• 14:38
  Speaker 1: announce some sanctions on the Huahwei and you think about
• 14:41
  Speaker 1: the global supply chain and what that means for Huahwei
• 14:43
  Speaker 1: and what that means for US tech industries. The implications
• 14:45
  Speaker 1: are just extremely broad. What is the risk you think
• 14:48
  Speaker 1: if if these sanctions do go through on Huahwei, that
• 14:51
  Speaker 1: China will retaliate, say on an Apple, and do something
• 14:55
  Speaker 1: similar there. Well, I mean, China, certainly, just to save face,
• 14:59
  Speaker 1: is going to have to taliate. And and certainly you
• 15:01
  Speaker 1: know that they've been beating the drums in this regard
• 15:05
  Speaker 1: directly and indirectly. Um. But if China were to go
• 15:08
  Speaker 1: through and actually you know, take extreme action against you know,
• 15:12
  Speaker 1: a household brand name like Apple, um, you know, the
• 15:14
  Speaker 1: fact remains is that China is still very, very heavily
• 15:17
  Speaker 1: dependent upon US suppliers of semiconductors, and for the time being,
• 15:21
  Speaker 1: semiconductors are a fundamental or foundation technology as far as
• 15:26
  Speaker 1: technology is concerned across a wide range of applications. So
• 15:30
  Speaker 1: China would do this obviously to their own detriment. But nevertheless,
• 15:34
  Speaker 1: I fully expect that because of the kabuki theater that
• 15:38
  Speaker 1: gets involved in terms of tariffs UH and the need
• 15:41
  Speaker 1: to save face. UM. Not to say that Trump doesn't
• 15:44
  Speaker 1: engage in face saving moves himself, but I think very
• 15:47
  Speaker 1: much so that we're likely to see some sort of
• 15:49
  Speaker 1: major response and reaction. Clearly, we've seen in terms of
• 15:52
  Speaker 1: technology stocks after they came out with first quarter results
• 15:55
  Speaker 1: back in April, you know, they pretty much kind of
• 15:57
  Speaker 1: rolled over, and we've already seen a pullback UH in
• 16:00
  Speaker 1: terms of the Chinese tech names as well. So the
• 16:03
  Speaker 1: prospect of a non global market or a bifurcated market
• 16:07
  Speaker 1: certainly is working to the detriment of the valuation of
• 16:10
  Speaker 1: both US as well as Chinese technology stocks. Who is
• 16:14
  Speaker 1: going to suffer more, the US or Chinese tech companies? UM.
• 16:19
  Speaker 1: I would make the argument that, you know, at the
• 16:21
  Speaker 1: end of the day, it's likely to be China to
• 16:23
  Speaker 1: the extent that they're not going to have a larger
• 16:26
  Speaker 1: end market available to them. Granted, you know, one point
• 16:29
  Speaker 1: three billion people in China are a fair number of
• 16:31
  Speaker 1: people to sell to. In the first place. But clearly,
• 16:34
  Speaker 1: if you're trying to make the investments necessary to scale up,
• 16:37
  Speaker 1: far better if you had an integrated global market of
• 16:41
  Speaker 1: you know, seven trillion of seven you know, seven trillion consumers,
• 16:44
  Speaker 1: seven billion consumers to sell into UH than than a
• 16:48
  Speaker 1: smaller Chinese market. So, David, one of the big big
• 16:51
  Speaker 1: global growth areas and technology is five G UM. And
• 16:55
  Speaker 1: I think when this Huahwei news came out and trade
• 16:58
  Speaker 1: tech wars started getting discuss us, the concern is any
• 17:02
  Speaker 1: trade tech war could really impact the global development of
• 17:05
  Speaker 1: five G. Do you think that's a valid concern? Now,
• 17:08
  Speaker 1: it's very much of a valid concern. And when we
• 17:10
  Speaker 1: look at five G, you know, we're we're looking at
• 17:12
  Speaker 1: a platform technology. I mean, certainly the US and US
• 17:17
  Speaker 1: technology companies were very successful in the four G environment.
• 17:20
  Speaker 1: Witnessed the rise of Apple UH in terms of the
• 17:22
  Speaker 1: services they offer. Now five G prominence is a twenty
• 17:26
  Speaker 1: times speed increase over four G. And now what this
• 17:29
  Speaker 1: is going to enable is a wide range of possibilities.
• 17:32
  Speaker 1: Huawei has been already deemed by the Defense Innovation Board
• 17:37
  Speaker 1: and an advisory council to the US Department of Defense
• 17:40
  Speaker 1: to potentially have a first mover advantage in five G.
• 17:44
  Speaker 1: Five G sets the rules by which the game is
• 17:47
  Speaker 1: going to be played going forward. So what's happening with
• 17:50
  Speaker 1: five G is critical to the prospects not just of
• 17:54
  Speaker 1: the U S economy, of the U S technology companies,
• 17:57
  Speaker 1: but the global economy. And from that stay and point,
• 18:00
  Speaker 1: you're already seeing, you know, concessions being made by American
• 18:03
  Speaker 1: intelligence officials and telecoms executives saying that they think in
• 18:07
  Speaker 1: the future, forty of networks over which businesses, diplomat, spies,
• 18:13
  Speaker 1: and citizens do business are going to be Chinese five G.
• 18:18
  Speaker 1: They're deeming these to be dirty networks, to the extent
• 18:21
  Speaker 1: that in China it's a state controlled economy and businesses
• 18:25
  Speaker 1: do what the state wants. Just real quick here twenty seconds.
• 18:29
  Speaker 1: Are there any U S tech companies immune to the
• 18:31
  Speaker 1: ongoing or more immune to the ongoing trade tensions? I think,
• 18:35
  Speaker 1: you know, in terms of companies who are developing cybersecurity initiatives,
• 18:39
  Speaker 1: I mean, certainly that's an evergreen business, always has been.
• 18:42
  Speaker 1: But I think the case for owning cybersecurity names only
• 18:46
  Speaker 1: gets stronger in this type of an environment. UH names
• 18:50
  Speaker 1: that have been competing directly albeit they're not US technology names,
• 18:54
  Speaker 1: but if you look at Ericson and Nokia, they traditionally
• 18:56
  Speaker 1: had been very strong telecommunications infrastructure equip suppliers. They two
• 19:01
  Speaker 1: are gonna be playing in five GEO would expect them
• 19:03
  Speaker 1: to see a benefit from this interesting trade. Tech wars
• 19:06
  Speaker 1: will certainly keep our eyes on that that is not
• 19:08
  Speaker 1: anybody's best interest. David Garretty, chief market strategist from Laidlaw
• 19:11
  Speaker 1: and Company, also a partner at bt Block. There were
• 19:16
  Speaker 1: elections in the European Union and if you read three
• 19:19
  Speaker 1: different publications about what the outcome was, you will get
• 19:22
  Speaker 1: three different stories. Either the Centrists held steady, there was
• 19:26
  Speaker 1: there were gains made by the populists, or it is
• 19:30
  Speaker 1: just a muddle. That is par for the course. Right now,
• 19:34
  Speaker 1: let's bring in Clive Crook to sort of pass through
• 19:36
  Speaker 1: all of this and give us a sense of what
• 19:37
  Speaker 1: the big takeaway is. He is an editor for Bloomberg Opinion. Clive,
• 19:41
  Speaker 1: so come on in here. What's your big takeaway? Which
• 19:43
  Speaker 1: narrative is right when you know you're right? Is a muddle,
• 19:48
  Speaker 1: and I think it's because the outcome is pretty complicated.
• 19:50
  Speaker 1: You know, on the one hand, people are relieved that
• 19:55
  Speaker 1: you know, the far right euroskeptic parties didn't do better
• 19:59
  Speaker 1: than they did. I mean, ahead of the elections, there
• 20:02
  Speaker 1: was a lot of anxiety that those groups would see
• 20:05
  Speaker 1: a real breakthrough and that didn't happen. They did actually
• 20:09
  Speaker 1: did it quite well. I mean, they gained representation in
• 20:13
  Speaker 1: the European Parliament, but it wasn't the sort of overthrow
• 20:16
  Speaker 1: of the center that some people were fearing. So that
• 20:20
  Speaker 1: was the good news, and that's it were one headline.
• 20:23
  Speaker 1: But the other thing is that the thing that prevented
• 20:27
  Speaker 1: the far right eurosceptic parties from doing better than they
• 20:31
  Speaker 1: did was a very strong showing from as it were, centrists,
• 20:36
  Speaker 1: insurgents and talking about liberals and Greens. They did very
• 20:40
  Speaker 1: well at the expense of the traditional center left and
• 20:47
  Speaker 1: center right group things. So the way I would sum
• 20:50
  Speaker 1: that up is to say, what you've seen is a
• 20:52
  Speaker 1: sort of surprising sort of fragmentation of the center. It
• 20:56
  Speaker 1: isn't that the center has been defeated by the far right,
• 21:00
  Speaker 1: which is what I think a lot of people were
• 21:02
  Speaker 1: worried about. The far right has made limited progress and
• 21:06
  Speaker 1: the center has divided. And I think this matters because
• 21:10
  Speaker 1: you know, when you look at what's going to happen
• 21:12
  Speaker 1: in the European Parliament now when you have all the
• 21:15
  Speaker 1: jocking for position for top jobs in the commission Um,
• 21:19
  Speaker 1: the old rules about who's in charge aren't going to apply,
• 21:23
  Speaker 1: And I think you're going to see this fragmented center
• 21:26
  Speaker 1: with these new guys, you know, lots of new Liberals,
• 21:29
  Speaker 1: lots of gleans. That process of getting to a new
• 21:35
  Speaker 1: leadership structure in Brussels is going to be very difficult.
• 21:39
  Speaker 1: So my take on the whole thing is that this
• 21:42
  Speaker 1: is not such a great result for the European project.
• 21:46
  Speaker 1: Even though the euroskeptics didn't try it, this fragmentation of
• 21:50
  Speaker 1: the center is bad news. I think for people who want,
• 21:54
  Speaker 1: you know, Europe to recognize problems, set priorities and start
• 21:58
  Speaker 1: working on solutions, I think that's to be harder now
• 22:00
  Speaker 1: than it was before. So Cloud, let's take a look
• 22:03
  Speaker 1: at the UK. It looks like the Brexit Party had
• 22:06
  Speaker 1: strong performance. What are some of the takeaways as from
• 22:09
  Speaker 1: what we saw in the UK elections? Maybe what that
• 22:11
  Speaker 1: means for the Brexit process overall? Well, you're not kidding,
• 22:15
  Speaker 1: I mean, the Brexit Party didn't sensationally well in these elections. Now, obviously.
• 22:21
  Speaker 1: You know, Britain is is a special case because Britain
• 22:24
  Speaker 1: is in the throes of this Brexit process. I mean,
• 22:27
  Speaker 1: in many ways it shouldn't have even been voting in
• 22:30
  Speaker 1: these elections. So what that result means for Europe is
• 22:33
  Speaker 1: a sort of second order question. I think the main
• 22:37
  Speaker 1: thing is what the main question is what does a
• 22:39
  Speaker 1: triumph for the Brexit Party means for British politics? And
• 22:43
  Speaker 1: it really was a triumph. I mean, labor was killed
• 22:47
  Speaker 1: in these elections and the Tories were just annihilated. This
• 22:50
  Speaker 1: was the worst national election result the Tory Party has suffered,
• 22:55
  Speaker 1: I believe in its history. I mean it was as
• 22:57
  Speaker 1: bad as that they came fifth in this in these elections.
• 23:01
  Speaker 1: This is the ruling party. Um, this shed no like
• 23:06
  Speaker 1: what you know on how the Brexit met is going
• 23:09
  Speaker 1: to be resolved. I mean, terrace, the mas or Essential's resigning.
• 23:13
  Speaker 1: The leadership contest the Tories is now underway, but nothing
• 23:18
  Speaker 1: has changed. You know, there's no majority in the British
• 23:21
  Speaker 1: Parliament to do anything. Um, the sort of steady majorities
• 23:25
  Speaker 1: against everything. So that kind of paralysis is not going
• 23:30
  Speaker 1: to be resolved one way or the other by this
• 23:33
  Speaker 1: Brexit Party. Performance in the European elections. I mean that
• 23:37
  Speaker 1: has in effect no direct implications for what's going on
• 23:41
  Speaker 1: in the House of Commons. I think the situation in
• 23:44
  Speaker 1: Britain is still as unpredictable as it was before. I mean,
• 23:48
  Speaker 1: I can you know, you could make a case that
• 23:50
  Speaker 1: any any outcome, you know, Brexit is tenseled, a hard
• 23:56
  Speaker 1: Brexit with no deal and everything in between, all the
• 24:00
  Speaker 1: things still on the table, I believe. Yeah, so the
• 24:02
  Speaker 1: model continues in but I feel like there's a takeaway
• 24:05
  Speaker 1: you can actually unify European Union elections more broadly as
• 24:09
  Speaker 1: well as the Brexit specific results to sort of go
• 24:11
  Speaker 1: back to exactly what you were saying, Clive, which is
• 24:14
  Speaker 1: fragmentation within the middle and a hardening on the more
• 24:19
  Speaker 1: extreme ends of it. And I'm just wondering how much
• 24:22
  Speaker 1: that's going to push the center toward a more extreme view.
• 24:25
  Speaker 1: I mean, we're sort of seeing that with respect to
• 24:27
  Speaker 1: Brexit discussions as well, where there seems to be growing
• 24:30
  Speaker 1: momentum for a second referendum or hard Brexit. It's sort
• 24:33
  Speaker 1: of the two polar opposite kind of gaining steam. And
• 24:37
  Speaker 1: I'm just wondering what you're seeing with that type of
• 24:40
  Speaker 1: attitude within the European Union. More broadly, well, you know,
• 24:44
  Speaker 1: I don't really look at it that way. I mean,
• 24:45
  Speaker 1: I don't really look at it in terms of this
• 24:49
  Speaker 1: grouping um in the European Parliament. Is it were this
• 24:53
  Speaker 1: broad center that includes you know, the traditional center left
• 24:57
  Speaker 1: and the traditional center right that's got hammered and elections
• 25:00
  Speaker 1: and the new as it were, these insurgents, these new
• 25:03
  Speaker 1: parties like you know, Macron's movement, that they will be
• 25:07
  Speaker 1: part of the liberal grouping um, and the Greens of
• 25:10
  Speaker 1: course they did very well also, But I don't see
• 25:13
  Speaker 1: that that points you towards a single coherent ideology which
• 25:19
  Speaker 1: is either more or less extremes. The theme I neither
• 25:22
  Speaker 1: takeaway is that there isn't going to be a single
• 25:27
  Speaker 1: theme or uh, you know, coherent set of policy. But
• 25:32
  Speaker 1: this is something the European parliaments has always struggled to
• 25:36
  Speaker 1: come up with, you know, a coherent argument of the
• 25:41
  Speaker 1: kind that you see in typical national elections. You know,
• 25:45
  Speaker 1: there's a ruling party arguing acts and a principal opposition
• 25:50
  Speaker 1: party arguing why, and the elections organized themselves around those
• 25:54
  Speaker 1: d dates. Well, you aren't going to see that in Europe.
• 25:58
  Speaker 1: You haven't seen it before, and now now it's going
• 26:00
  Speaker 1: to be even harder to imagine because of this fragmentation.
• 26:05
  Speaker 1: So I think, you know what European voters are going
• 26:08
  Speaker 1: to see when they look at what's going on in
• 26:10
  Speaker 1: the European Parliament is you know, a mess, you know,
• 26:14
  Speaker 1: an inconclusive mess. And the competition over who gets which
• 26:20
  Speaker 1: job is going to really demonstrate that, I mean, really
• 26:24
  Speaker 1: underlined this problem that there is no coherent political character
• 26:30
  Speaker 1: in this in this assembly. Uh this you know, the
• 26:33
  Speaker 1: the old coalition between the center LA and the center
• 26:36
  Speaker 1: right try to provide that kind of you know, organizing theme.
• 26:41
  Speaker 1: That's going to be harder now than it was before.
• 26:43
  Speaker 1: So I think the so I think the takeaway Clive
• 26:45
  Speaker 1: is for me at least a mess. That's what we
• 26:47
  Speaker 1: got from these elections. So anyway, Yeah, Clive Crook, thank
• 26:51
  Speaker 1: you so much, Editor Bloomberg Opinion based in Washington, d C.
• 26:55
  Speaker 1: Thanks for listening to the Bloomberg p m L podcast.
• 26:57
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• 27:01
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• 27:05
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• 27:08
  Speaker 1: Lisa Abramo wits one before the podcast. You can always
• 27:11
  Speaker 1: catch us worldwide on Bloomberg Radio