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GE's Danaher Deal Doesn't Solve Its Problem With Growth · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money, whether at the grocery store or
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  Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
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  Speaker 1: Podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, it is merger Monday, General Electric.
• 0:23
  Speaker 1: The stock is up nine percent after bereing to sell
• 0:25
  Speaker 1: It's a bio farma business to Donna Her Donna. He
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  Speaker 1: is actually up a percent for total consideration of twenty
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  Speaker 1: one point four billion dollars, providing a major boost for
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  Speaker 1: the trouble conglomerates. Turnaround. To help us kind of dig
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  Speaker 1: into the details of this transaction motivations on both sides
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  Speaker 1: is Brook Sutherland. Brook is a deals and industrial columnist
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  Speaker 1: for Bloomberg Opinion. She joined us here in our Bloomberg
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  Speaker 1: Interactive Brooker Studio. So, Brooke, is this just part of
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  Speaker 1: g s plan to just trim down and focus on
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  Speaker 1: that balance sheet? It really is. I mean, this deal
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  Speaker 1: is all about the balance sheet. I mean, I think
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  Speaker 1: Larry Cole. The first sentence of his quote, and the
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  Speaker 1: statement was about, you know how this would allow the
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  Speaker 1: company to reduce leverage, uh twenty, you know, one billion
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  Speaker 1: dollars coming in the door in cash and then about
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  Speaker 1: four hundred million of pensions being transferred with this asset,
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  Speaker 1: which is a big deal given g has a very
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  Speaker 1: significant unfunded pension balance. Um. You know. But what I
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  Speaker 1: think is interesting about this is sort of the counter
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  Speaker 1: balance was what John Flannery promised to do when he
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  Speaker 1: was running the company. So his plan for the healthcare
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  Speaker 1: business was to spin off to shareholders and sell via
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  Speaker 1: an I p O. And the reason why he did
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  Speaker 1: that and why he did a lot of the things
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  Speaker 1: that he did, is he was trying to balance the
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  Speaker 1: need to pay down debt with you know, a desire
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  Speaker 1: to sort of give something to equity holders, give them
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  Speaker 1: a chance to participate in the upside opportunities for some
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  Speaker 1: of these ge businesses. And I think what you've seen
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  Speaker 1: Larry Colp do time and time again is say, forget
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  Speaker 1: all of that. We need all the cash we can get,
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  Speaker 1: and we're going to structure these deals in a way
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  Speaker 1: that optimizes the amount of cash coming in the door.
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  Speaker 1: The incredible irony of that is that the shares are
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  Speaker 1: rallying the most is two thousand nine, So shareholders are
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  Speaker 1: liking what they see, regardless of any longer term better
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  Speaker 1: potential from keeping the business on hit right. Well, so
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  Speaker 1: I think that, um, for the time being, the interests
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  Speaker 1: of bond holders and shareholders are aligned because obviously the
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  Speaker 1: balance sheet is the biggest overhang on the stock right now,
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  Speaker 1: it's the biggest factor driving the stock, and so to
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  Speaker 1: be able to mitigate that, and this Life Sciences deal
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  Speaker 1: goes a very long way to doing that, is a
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  Speaker 1: huge step forward. But I would point out the shares
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  Speaker 1: are rallying, but they're back to about where they were
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  Speaker 1: in October. So, yes, your interests are aligned at a
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  Speaker 1: certain point, but that only lasts for so long and
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  Speaker 1: as you start thinking about what does the g E
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  Speaker 1: of the future look like. So they're keeping the core
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  Speaker 1: healthcare business in the fold right now, they say, you know,
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  Speaker 1: they're going to look at other options for that. They're
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  Speaker 1: not going to do the I p O right away. UM.
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  Speaker 1: I think part of that is the fact that they
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  Speaker 1: need the cash flow from that healthcare business to set
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  Speaker 1: the challenges that they have in the power unit in
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  Speaker 1: G Capital. Healthcare is one of the best cash generating
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  Speaker 1: assets that G has, and especially as you look at
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  Speaker 1: the possibility of a recession in one that's going to
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  Speaker 1: hit the aviation business really hard. So I think just
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  Speaker 1: given all of those factors, it makes sense to keep
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  Speaker 1: Healthcare in the fold. But eventually, you know, all signs
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  Speaker 1: are pointing to that eventually being separate. And clearly this
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  Speaker 1: is a company with a lot of challenges, and I
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  Speaker 1: just you know, as you sort of take a step
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  Speaker 1: back and say where do we go from here? Once
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  Speaker 1: you play this card and you bring the cash in
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  Speaker 1: the door, that sort of solves your balance sheet issues
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  Speaker 1: in the near tour, but you still have to figure out,
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  Speaker 1: you know, how does this company grow? How do we
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  Speaker 1: deal with all of the problems that we have. So
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  Speaker 1: for Donna her the stock is up eight or nine
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  Speaker 1: percent today, which is unusual for an acquirer, particular cash acquirer.
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  Speaker 1: So what's going on here? Did they get a great
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  Speaker 1: deal or there's a huge synergies what's driving the upside
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  Speaker 1: for Donner? Right? I mean, this is a great deal
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  Speaker 1: for Dannahr. I think you know, this is a business
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  Speaker 1: that they know well they've been increasingly pivoting into life sciences.
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  Speaker 1: I think it's, you know, a more attractive multiple than
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  Speaker 1: what they've paid for some of their past deals, which
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  Speaker 1: have been on the price yeer side. Obviously in the
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  Speaker 1: healthcare spaces, they sort of transition away from their industrial past. Um. Yeah,
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  Speaker 1: I mean, I just think this is a really slam
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  Speaker 1: dunk deal for Dana Her. And what the company is
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  Speaker 1: really known for is buying businesses, bringing them in and
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  Speaker 1: then applying the Dana Her business system to those businesses
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  Speaker 1: and really improving their profitability. I think clearly what we've
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  Speaker 1: discovered through this whole ge process is that some of
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  Speaker 1: these assets are not always managed to their greatest potential.
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  Speaker 1: And you have to wonder, you know, some of these
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  Speaker 1: life sciences business at a time when you have so
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  Speaker 1: many cash calls at the company where they investing to
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  Speaker 1: the extent that they needed to. Uh. I think there's
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  Speaker 1: just a lot of opportunity for Dana Her to do
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  Speaker 1: more with this business. Brook Sutherland are ge correspondent joining
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  Speaker 1: us here in our eleven three or studios. Brook Sutherland
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  Speaker 1: is really a Blomberg opinion columnist UH, and she covers
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  Speaker 1: industrial companies, among many other things here at Bloomberg. We
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  Speaker 1: thank you for being with us. Really interesting day for
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  Speaker 1: General Electric. Well. Today President Donald Trump raised the prospect
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  Speaker 1: that he could sign a new trade deal with the
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  Speaker 1: Chinese counterpart, gene Ping, as both sides express optimism that
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  Speaker 1: substantial progress is being made towards ending the trade war
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  Speaker 1: between the world's two biggest economies. To help us dig
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  Speaker 1: into that, we bring on Leland. Melvin Leland is CEO
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  Speaker 1: of the China based book Internaction. I'm sorry, Leland, Millard,
• 5:39
  Speaker 1: he's with us in our Bloomberg Interactive Broker studio here
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  Speaker 1: in New York. So Leland, thanks for being with us. Um,
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  Speaker 1: what is your sense as to what will actually get
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  Speaker 1: done between China and the US? Will it be anything material?
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  Speaker 1: In your opinion? Now, I think that we were set
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  Speaker 1: up from the very beginning to have a very limited deal.
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  Speaker 1: It was very clear that the President wanted movement on
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  Speaker 1: the trade deficit. He wanted to announce a lot of
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  Speaker 1: big imports, maybe some long term contracts, so it's sounded
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  Speaker 1: good to the farming base. Uh And and he wanted
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  Speaker 1: to push on intellectual property uh so, theft and coercion.
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  Speaker 1: Uh And I think that we'll get we'll get stuff
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  Speaker 1: on that, We'll get a little bit of stuff on
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  Speaker 1: market access. In general, this is not something that is
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  Speaker 1: a broad deal. It's not what they originally sold it
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  Speaker 1: to be, and it's there's gonna be no structural reform whatsoever.
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  Speaker 1: Is China in a better negotiating position right now, given
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  Speaker 1: the fact that they're allowing leverage to creep back up
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  Speaker 1: UH and potentially juice their economy? You know, I think
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  Speaker 1: the problem is that people haven't been able to get
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  Speaker 1: a good UH reading on the Chinese economy for a
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  Speaker 1: few months. The Chinese economy is not not not in
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  Speaker 1: great shape right now, So I don't think that they've
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  Speaker 1: materially improved in the last month or two in terms
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  Speaker 1: of just letting the credit flow um. Now, overall, they
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  Speaker 1: want to get this trade stuff out of the way
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  Speaker 1: so they can batten down the hatches and really focus
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  Speaker 1: on improving their domestic economy. I don't think that the
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  Speaker 1: pushed out of the way so that they can get
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  Speaker 1: down to business domestically. So, Lena, why is it so
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  Speaker 1: hard to really get some of these big issues on
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  Speaker 1: the table and to start knocking them off one by one?
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  Speaker 1: Maybe seems not just the Trump administration, but we've seen
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  Speaker 1: through history. What is what what are really the tough
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  Speaker 1: things and why is China playing so uh such such hardball?
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  Speaker 1: Because these are not preferences. So we talk about structural reform,
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  Speaker 1: we're not talking about preferences that the leadership has. We're
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  Speaker 1: talking about the absolute foundation of the way the Chinese
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  Speaker 1: economy runs. So when you're talking about favoring state companies
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  Speaker 1: which stayed on enterprises, when you're talking about subsidies and
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  Speaker 1: and repressing households in order to boost the state, and
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  Speaker 1: you're talking about non tariff bearriers, this is the way
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  Speaker 1: that the Chinese economy is able to run. It's a
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  Speaker 1: very different than the market economy. It's not a commercial
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  Speaker 1: financial system. This is the way the Chinese economy is
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  Speaker 1: run and one of the ways that the Chinese Communist
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  Speaker 1: Party is able to maintain control of the country. So
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  Speaker 1: the idea that they're simply going to say, okay, well,
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  Speaker 1: you know, it's it's about time that we got with
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  Speaker 1: the program and became a market economy, and we we
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  Speaker 1: we ran our economy the same way the US. That
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  Speaker 1: was never going to happen, and it certainly was never
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  Speaker 1: going to happen after a ninety negotiation where very little
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  Speaker 1: pain was threatened. All right, just taking a step back,
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  Speaker 1: you nailed it when you just said back last year.
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  Speaker 1: There's going to be a deal. President Trump wants a deal.
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  Speaker 1: It's going to be a narrowly crafted deal. This is
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  Speaker 1: not going to deal with the thorn near issues. Both
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  Speaker 1: sides can declare some sort of victory and move on.
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  Speaker 1: Nothing really will change. Lightheiser, however, wants something different, and
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  Speaker 1: he and President Trump are increasingly, at least appeared to
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  Speaker 1: be increasingly pitted against each other. How will that tension
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  Speaker 1: factor into these negotiations. Well, I think the first and foremost,
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  Speaker 1: Robert Leightheiser is a is a good soldier, So he
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  Speaker 1: is he knows he's not the president. He's doing what
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  Speaker 1: the president wants. At the same time, he entered this
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  Speaker 1: administration to get something done, and that was he saw
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  Speaker 1: an inequity in the relationship and he wanted to be
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  Speaker 1: one of the guys who helped make it right. And
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  Speaker 1: I think this is very frustrating for him and quite frankly,
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  Speaker 1: a lot of people in this administration who thought that
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  Speaker 1: they were on the verge of summoning up leverage that
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  Speaker 1: no one had been willing to do for many, many
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  Speaker 1: years ever, truly uh, and and to push something on
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  Speaker 1: China that would really make a difference to to to
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  Speaker 1: change the basically the ground floor of the relationship. And
• 9:14
  Speaker 1: then as we get to a deadline, everyone sort of
• 9:16
  Speaker 1: loses their nerves. So this has to be extremely frustrating
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  Speaker 1: for Lightheiser. So I'm just trying to understand this because
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  Speaker 1: if if they were thinking that there was more on
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  Speaker 1: the table then say, uh, something having to do the
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  Speaker 1: trade deficit, then was President Trump ever trying to do that?
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  Speaker 1: I mean, is is that could that be back on
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  Speaker 1: the table? I don't think it was ever on the
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  Speaker 1: table when we when we spoke to two administration officials
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  Speaker 1: of this, it was very clear that there were there
• 9:38
  Speaker 1: were priorities, most of them were political priorities involving the
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  Speaker 1: trade deficit. Intellectual property, to their credit, was a major
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  Speaker 1: issue that they wanted to to make progress on theft
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  Speaker 1: and coercion of intellectual properties a major issue, and I
• 9:51
  Speaker 1: think that we will see UH some some major announcements
• 9:54
  Speaker 1: on that now. The key, of course, is not whether
• 9:56
  Speaker 1: the Chinese make announcements on on IP theft and then
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  Speaker 1: create a regimed protect intellectual property. It's whether they're actually
• 10:02
  Speaker 1: enforce it. And this is something that light Higher himself
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  Speaker 1: has been saying over and over. If the Chinese can
• 10:07
  Speaker 1: simply flip a switch the next time that there's a
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  Speaker 1: problem in the relationship and all this beautiful enforcement, all
• 10:13
  Speaker 1: this these i P laws and i P courts and
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  Speaker 1: everything else that they've promised to do just suddenly go away,
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  Speaker 1: then what has this entire process been. And that's why
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  Speaker 1: there has been so much of a push by some
• 10:23
  Speaker 1: people for structural reform, because the opposite of structural reform
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  Speaker 1: is transitory transitory reform, which will just go away as
• 10:30
  Speaker 1: soon as the relationship changes. And I think that's what
• 10:32
  Speaker 1: people are fearing we're walking into. So is that fear
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  Speaker 1: crystallized in the sense that maybe we just have one
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  Speaker 1: bite at the apple here and we've if we lose
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  Speaker 1: this opportunity now, or if we do pass on the
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  Speaker 1: big structural issues, that we may not be able to
• 10:44
  Speaker 1: revisit them for some period of time. Yeah, I mean
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  Speaker 1: that's the fear. So, so we don't know how many
• 10:48
  Speaker 1: bites the apple will get, but we do know that
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  Speaker 1: an enormous amount of leverage was summoned in order to
• 10:55
  Speaker 1: push the Chinese into this negotiation, And is that that
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  Speaker 1: leverage the tariffs per se? It was the tariffs, It
• 11:00
  Speaker 1: was threatening some other things, but yeah, principally the tariffs.
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  Speaker 1: And you can agree or not, but but this summon leverage,
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  Speaker 1: it's very hard to summon, and the Chinese aren't going
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  Speaker 1: to be as open to doing this a year from
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  Speaker 1: now or three years from now. So maybe this is
• 11:11
  Speaker 1: the last by the apple. But either way, every year
• 11:13
  Speaker 1: that goes by, the Chinese getting crementally stronger and more
• 11:16
  Speaker 1: able to to push back on this and are now
• 11:18
  Speaker 1: more knowledgeable. I'm more in recognition of the fact that
• 11:22
  Speaker 1: this unequal trade relationship has caused the US to have
• 11:25
  Speaker 1: more leverage, and so they're doing things to alter the
• 11:28
  Speaker 1: relationship as well. Meanwhile, a lot of people are wagering
• 11:31
  Speaker 1: that China will succeed in keeping up its economy and
• 11:36
  Speaker 1: keeping its growth great high by engaging and more stimulus,
• 11:40
  Speaker 1: which has already begun to do. Do you think that
• 11:43
  Speaker 1: the market is mistaken with their optimism around that? Uh?
• 11:46
  Speaker 1: In terms of medium and long term I think they are.
• 11:48
  Speaker 1: And and there's there's you know, we we have flash
• 11:50
  Speaker 1: data coming out this week, so we're gonna have a
• 11:52
  Speaker 1: new reading of the economy later this week and the
• 11:55
  Speaker 1: first one in twenty nineteen that actually shows what's happening.
• 11:57
  Speaker 1: But I think if you look at the ryh is
• 12:00
  Speaker 1: in line, then there's something that people aren't paying enough
• 12:02
  Speaker 1: attention to, and that is the Chinese economy is going
• 12:06
  Speaker 1: to slow no matter what happens. Best case scenario, worst
• 12:10
  Speaker 1: case scenario, the Chinese economy, because of slowing returns on
• 12:14
  Speaker 1: investment and debt accumulation, is going to slow quite dramatically
• 12:16
  Speaker 1: over the coming years. So the Chinese have to build
• 12:20
  Speaker 1: this into their narrative. Why is their economy slowing down? Well,
• 12:23
  Speaker 1: they just have a beautiful excuse. Now, Donald Trump launched
• 12:26
  Speaker 1: a trade war, the world is being mean. So President
• 12:29
  Speaker 1: she and and and and the rulers in Beijing are
• 12:32
  Speaker 1: able to look at this and say, you know, we
• 12:34
  Speaker 1: have an excuse now for why our economy slowing. They
• 12:38
  Speaker 1: might run with this, So you may be looking at
• 12:39
  Speaker 1: a different paradigm then you've looked in different years. They
• 12:42
  Speaker 1: may be willing to accept slower growth because they can
• 12:44
  Speaker 1: blame it on somebody else. At this point, that's fascinating.
• 12:46
  Speaker 1: From a political standpoint, China may allow its economy to
• 12:50
  Speaker 1: slow even more, especially if President Trump continues to ramp
• 12:54
  Speaker 1: up pressure. Leland Miller, thank you so much for being
• 12:56
  Speaker 1: with us. Leland Miller is chief executive officer of China
• 12:58
  Speaker 1: Beije Book International in New York, joining us here in
• 13:01
  Speaker 1: our Bloomberger Active Proper Studios. Right now we are looking
• 13:20
  Speaker 1: at oil prices that are sharply lower. So they're taking
• 13:23
  Speaker 1: a queue from President Trump's twitter feed with the biggest
• 13:26
  Speaker 1: decline in w t I that is traded on the
• 13:29
  Speaker 1: nimax in a number of months. Joining us down to
• 13:32
  Speaker 1: talk about this, uh is John killed off? Actually I'll
• 13:35
  Speaker 1: give you exact date since December. Joining us now, John
• 13:39
  Speaker 1: killed a founding partner at again at Capital John. I
• 13:42
  Speaker 1: was actually really surprised that the oil markets responded so
• 13:45
  Speaker 1: much to President Trump's tweet, because honestly, hasn't OPEC lost
• 13:49
  Speaker 1: a lot of the control over this. Well, if everybody
• 13:53
  Speaker 1: heard the way you read the tweet just now would
• 13:55
  Speaker 1: be I think we beat you off more. Lisa, Just
• 13:57
  Speaker 1: just for the record, thank you. I think the emotion
• 14:02
  Speaker 1: you brought to that, the emotion you brought to that
• 14:04
  Speaker 1: was terrific. Um. No, the uh, I mean the the
• 14:08
  Speaker 1: initial reaction to it was actually fairly muted, but it
• 14:11
  Speaker 1: really started to pick up steam. Um. I think when
• 14:14
  Speaker 1: when you sort of thought it threw from a market
• 14:17
  Speaker 1: perspective in that a, the Saudis have a track record
• 14:21
  Speaker 1: of placating President Trump and responding to him when he
• 14:25
  Speaker 1: makes these demands. That's what got the market into trouble
• 14:27
  Speaker 1: at the latter part of last year to the downside
• 14:30
  Speaker 1: in a big way. And too um. There has been
• 14:33
  Speaker 1: some speculation about what the state of affairs will be
• 14:36
  Speaker 1: surrounding the waivers that had been granted to various countries
• 14:39
  Speaker 1: and companies to continue to buy Iranian oil. Um, you
• 14:43
  Speaker 1: know late last year as well, which is also part
• 14:45
  Speaker 1: of that that sell off, that dynamic. Um. You have
• 14:47
  Speaker 1: to believe that those waivers are probably going to get
• 14:50
  Speaker 1: renewed to a great degree, given President Trump's concern about
• 14:54
  Speaker 1: where oil prices are presently. So um, as you sort
• 14:58
  Speaker 1: of got over the uh, the shock value of him
• 15:01
  Speaker 1: weighing in yet again on the oil market. Um Uh,
• 15:05
  Speaker 1: it was you know, a pretty bearish tweet, so so John,
• 15:10
  Speaker 1: prior to today's market action that you know, oil had
• 15:12
  Speaker 1: been grinding higher every day up about off it's December
• 15:16
  Speaker 1: low and WEXT test West Texas intermediate crude. What was
• 15:19
  Speaker 1: the bull case for driving oil higher? Well, a couple
• 15:24
  Speaker 1: of things. I mean, there's obviously a lot of irritants
• 15:27
  Speaker 1: in the market. I mean that the Venice, the tragic
• 15:29
  Speaker 1: men as well in situation. We had elections over the
• 15:31
  Speaker 1: weekend in Nigeria that could have could have devolved again
• 15:34
  Speaker 1: and not some of their oil offline. That still may happen,
• 15:38
  Speaker 1: and we're watching it Libya too. But really the Saudis
• 15:42
  Speaker 1: have really put their shoulder to the wheel in terms
• 15:44
  Speaker 1: of cutting their output, cutting their exports. Uh. And they
• 15:48
  Speaker 1: also had a problem with one of their large offshore
• 15:51
  Speaker 1: fields of power cable got cut somehow and um that
• 15:55
  Speaker 1: had knocked a good deal of their production offline. So
• 15:57
  Speaker 1: a lot of things were adding up here to tighten
• 15:59
  Speaker 1: the market, um you know, particularly as it relates to
• 16:02
  Speaker 1: the type of crude oil at that Venezuela has pretty
• 16:05
  Speaker 1: much ceased putting on the market um so. And and
• 16:08
  Speaker 1: and really the the renewed prospects for for for the
• 16:13
  Speaker 1: for the U S. China trade talks that have you know,
• 16:15
  Speaker 1: got the stock market to where it is also fed
• 16:18
  Speaker 1: into the to the oil story. So right now I'm
• 16:20
  Speaker 1: looking at w t I fifty five dollars and thirty
• 16:23
  Speaker 1: six cents a barrel, looking at Brent UH sixty four
• 16:27
  Speaker 1: dollars and ninety cents. What's the sweet spot for US
• 16:31
  Speaker 1: shell producers to continue to produce, be profitable, UH, and
• 16:35
  Speaker 1: yet still have demand where it is right now, closer
• 16:40
  Speaker 1: to closer to sixty dollars a barrel plus is really
• 16:43
  Speaker 1: ideal with w t I or with Brent. Oh yes,
• 16:46
  Speaker 1: I'm sorry for w t I. UH. That would be
• 16:48
  Speaker 1: a Brent price of about seventy dollars. I mean, President
• 16:51
  Speaker 1: Trump cur only did the US oil industry no favors
• 16:54
  Speaker 1: this morning with that tweet. And you know it's kind
• 16:56
  Speaker 1: of curious because I know he wants us to be
• 16:58
  Speaker 1: energy dominant. Um, this doesn't help that. And you know
• 17:02
  Speaker 1: we've spoken before. You know, these oil prices w t
• 17:05
  Speaker 1: I O prices fifty and below. You can talk about
• 17:09
  Speaker 1: how they've worked. The shall players have worked break evens
• 17:12
  Speaker 1: down to thirty a barrel, but the aill in costs
• 17:16
  Speaker 1: UH below fifty bucks for w t I. They are
• 17:19
  Speaker 1: feeling it. And we did see um recounts come down.
• 17:23
  Speaker 1: We did see drilling activity come down in response to
• 17:25
  Speaker 1: the sell off again late last year. That culminated in
• 17:28
  Speaker 1: the in the December low um and they're only starting
• 17:31
  Speaker 1: to come back now. So uh, we're starting to get
• 17:34
  Speaker 1: into the red zone. Are ready for them with prices
• 17:36
  Speaker 1: even here at fifty five. So, John, whenever we have
• 17:39
  Speaker 1: you on we're talking global oil, I can't help but
• 17:41
  Speaker 1: always raise a question of Russia. What is Russia doing
• 17:44
  Speaker 1: in the market place in terms of supply right now?
• 17:46
  Speaker 1: How disruptive are they VVSA, the OPEC. Well, you know
• 17:51
  Speaker 1: they leadership talks a good game. You know, President putin
• 17:54
  Speaker 1: their energy minister Novak. You know that they they'll sit there,
• 17:57
  Speaker 1: it'll sign everything and and and you know, hug this
• 18:00
  Speaker 1: Autias and say we're with you. And then the numbers
• 18:02
  Speaker 1: just don't pan out in terms of production because their
• 18:04
  Speaker 1: companies don't want to be part of these production cutbacks.
• 18:08
  Speaker 1: You know, they see shale as a threat. They want
• 18:10
  Speaker 1: markets here. They actually operate in a much more commercially
• 18:14
  Speaker 1: appropriate way than sort of cartel ish, so they don't
• 18:17
  Speaker 1: particularly care for these these antics and see themselves being
• 18:20
  Speaker 1: set up ultimately for failure. As the US production now
• 18:23
  Speaker 1: goes over twelve million barrels a day. They're seeing this
• 18:26
  Speaker 1: so um, they're not actually being as that helpful to
• 18:29
  Speaker 1: the Satties, and the Saddies have remarked about this. So
• 18:32
  Speaker 1: I'm not sure how much longer the little coalition they've
• 18:34
  Speaker 1: strung together holes and that's going to be another negative
• 18:37
  Speaker 1: for prices, I think ultimately, John this the tweet from
• 18:41
  Speaker 1: President Trump raises a question what price of oil does
• 18:45
  Speaker 1: he want? Because we're still way below where we saw
• 18:48
  Speaker 1: it at its peak back in two thousand fourteen. What's
• 18:52
  Speaker 1: he looking for? If I had a guess, he wants
• 18:54
  Speaker 1: to see w T I below fifty dollars of barrel,
• 18:57
  Speaker 1: down around forty five, which would translate into about two
• 19:00
  Speaker 1: dollars a gallon or so at the pump of the
• 19:02
  Speaker 1: gas a lead pump. I think he's very uh A
• 19:05
  Speaker 1: sensitive to that if he could deliver I think on
• 19:08
  Speaker 1: that um and and he's right too, because when prices
• 19:11
  Speaker 1: get north much north to stay to fifty or start
• 19:14
  Speaker 1: to reproach that three dollar a gallon, will you start
• 19:15
  Speaker 1: to see hits to consumer confidence uh and other um,
• 19:19
  Speaker 1: you know, measures of of just confidence in the economy generally.
• 19:23
  Speaker 1: Uh so we're obviously on re election watching a big way,
• 19:26
  Speaker 1: and I think he wants to see a four handle.
• 19:28
  Speaker 1: So John, if you take a look at the global
• 19:30
  Speaker 1: supply demand out there, is there a model out there
• 19:33
  Speaker 1: that gets you to that fore handle? Yeah? Pretty easy,
• 19:36
  Speaker 1: Pretty easily. Actually, I was very distrustful of this, of
• 19:40
  Speaker 1: this reality. Now, I didn't see President Trump's tweet coming
• 19:42
  Speaker 1: into to be a factor. But um, you know, as
• 19:45
  Speaker 1: we start to get into the latter part of the
• 19:48
  Speaker 1: winter early spring, there's a lot of refinery maintenance that
• 19:51
  Speaker 1: gets done that's going to cause a big dent in
• 19:53
  Speaker 1: crude to all demand at least for a while. Um.
• 19:56
  Speaker 1: The situation in China, their economy is really hurting, and
• 20:00
  Speaker 1: I guess partly from the trade war, but I think
• 20:02
  Speaker 1: it goes beyond that. Um, certain measures of their economic
• 20:06
  Speaker 1: manufacturing activities, factory orders, everything that goes to their sort
• 20:09
  Speaker 1: of energy intensity usage is has turned over, has rolled over,
• 20:14
  Speaker 1: and that's a big part of the de band equation here.
• 20:17
  Speaker 1: And I think that, coupled with just a lack of
• 20:19
  Speaker 1: will by everyone else except Saddy, we're able to curtail supplies. Max.
• 20:24
  Speaker 1: The argument for lower prices. You know, it's so interesting Paul,
• 20:27
  Speaker 1: because as John talks mid forties, uh for oil, I
• 20:30
  Speaker 1: wonder how many shell producers go out of business with that. Yeah,
• 20:33
  Speaker 1: exactly along your line of thinking, exactly right. I think
• 20:35
  Speaker 1: they'd like it at that to sixty plus kind of range.
• 20:38
  Speaker 1: John killed off, founding partner again Capital on All Things Energy,
• 20:43
  Speaker 1: joining us on the phone from New York. The Oracle
• 20:59
  Speaker 1: of Omaha is looking for an elephant sized acquisition. One
• 21:03
  Speaker 1: of the takeaways from this weekend's investor meeting with of
• 21:07
  Speaker 1: course Berkshire Hathaways that founder we're talking, of course, Warren
• 21:11
  Speaker 1: Buffett catch Glinsky joining us here in our Bloomberg Interactive
• 21:14
  Speaker 1: Broker studios. She covers finance for us at Bloomberg News. So, Kat,
• 21:19
  Speaker 1: what about this big acquisition? I feel like Warren Buffett
• 21:22
  Speaker 1: has been holding this out for a long time, given
• 21:25
  Speaker 1: his hundred and twelve billion dollar cash pile. Is this
• 21:28
  Speaker 1: year different? No, And he quite and I mean he
• 21:34
  Speaker 1: said in his letter, he was like, you know, they
• 21:37
  Speaker 1: didn't find a big deal, and that might not change
• 21:39
  Speaker 1: in twenty nineteen. It might be another year in which
• 21:41
  Speaker 1: she just actually spends a lot more money on common stocks.
• 21:44
  Speaker 1: So what about was there anything in the letter? I
• 21:47
  Speaker 1: know you've you've read these letters before. Was there anything
• 21:49
  Speaker 1: in this letter that was new or different or interesting
• 21:51
  Speaker 1: or what were some of your key takeaways? Well, one
• 21:53
  Speaker 1: key takeaways kind of a won key Berkshire thing, but
• 21:55
  Speaker 1: they removed the use of book value as kind of
• 21:58
  Speaker 1: a measuring of intrinsic value. And it's a it's a
• 22:01
  Speaker 1: really wonky type of kind of Berkshire nugget. But but
• 22:05
  Speaker 1: but it's good because it really shows how Buffet has
• 22:07
  Speaker 1: taken this company from you know, an investment that was
• 22:10
  Speaker 1: normally just mostly full of common stocks to a company
• 22:13
  Speaker 1: that now spans like BNSF, Dairy, Queen Geico. It's kind
• 22:17
  Speaker 1: of all over the range, and that's crucially important. Well,
• 22:20
  Speaker 1: is this why they posted billion dollar loss? That was
• 22:24
  Speaker 1: because of the stock investments. That's kind of still still
• 22:26
  Speaker 1: an important as he mentioned in the Berkshire Force, it's
• 22:29
  Speaker 1: still an important grove for them. Um. They post posted
• 22:32
  Speaker 1: that partially because of Kraft Hinns and partially because of
• 22:35
  Speaker 1: this accounting change that requires them to post unrealized gains
• 22:38
  Speaker 1: and losses in there um net income. He says, to
• 22:41
  Speaker 1: look through that a bit because he's a long term investor,
• 22:43
  Speaker 1: he'll stick with the stocks for a while, So even
• 22:45
  Speaker 1: if it's a quarter they're down a lot, he's probably
• 22:47
  Speaker 1: going to hold on until it's a little more positive. Well,
• 22:50
  Speaker 1: how about Apple Stock that's the largest shareholding holding up
• 22:53
  Speaker 1: Berkshire Hathaway, that the Apple stock is up ten percent
• 22:56
  Speaker 1: this year, any sense of what he wants to do
• 22:58
  Speaker 1: with that position. He's still favorable with it. So they
• 23:00
  Speaker 1: trimmed it a bit in the fourth quarter. But he
• 23:02
  Speaker 1: clarified today that was not him, that was an investing deputy.
• 23:05
  Speaker 1: He didn't name which one, And I think that's really
• 23:07
  Speaker 1: important to give a sort of sign of faith that
• 23:10
  Speaker 1: that he still likes the company. He said he would
• 23:12
  Speaker 1: buy more of it, but frankly, it's a little too
• 23:14
  Speaker 1: expensive right now. I thought it was interesting some of
• 23:16
  Speaker 1: his comments this morning on CNBC about Kraft HIGs, basically
• 23:20
  Speaker 1: saying that he's not selling yeah, considering he's a very
• 23:24
  Speaker 1: big investor, but basically that the craft was overvalued purchase uh,
• 23:31
  Speaker 1: and that he wouldn't buy any shares if he didn't
• 23:35
  Speaker 1: have such a big holding. Not great shares of Craft
• 23:37
  Speaker 1: HIGs down nine tents of one percent, Yeah, I don't
• 23:40
  Speaker 1: think it was a positive take on the company. I
• 23:42
  Speaker 1: mean he did, to be fair, he did say, you know,
• 23:45
  Speaker 1: they're still value in the brands they you know, wouldn't
• 23:49
  Speaker 1: he wh owns so much of it. He does have
• 23:51
  Speaker 1: to be positive to an extent, of course. Um, But
• 23:54
  Speaker 1: I do think it took a bit of a negative turn.
• 23:55
  Speaker 1: I mean the fact that he won't consider buying the
• 23:58
  Speaker 1: rest of the company even though their stock hit a
• 24:01
  Speaker 1: record low Friday. I think sort of says a sign that, like,
• 24:05
  Speaker 1: it's really hard to beat on these consumer companies when
• 24:07
  Speaker 1: the coodsumer preferences are changing just as fast as they
• 24:10
  Speaker 1: are these days. So cat um, I think Warren Buffets
• 24:13
  Speaker 1: eighty eight? Is that right? Correct? Okay? So in the letter,
• 24:15
  Speaker 1: was there anything about success or potentially so if you're
• 24:18
  Speaker 1: looking for explicit sort of directives. No, he did praise
• 24:21
  Speaker 1: greg Able, and he praised Jane. But the important parts
• 24:24
  Speaker 1: I think that he touched on with a succession are
• 24:27
  Speaker 1: he spent a chunk of the letter describing Berkshire as
• 24:30
  Speaker 1: a forest and the different groves that make up it.
• 24:32
  Speaker 1: And he said, you know, Berkshire is better together rather
• 24:35
  Speaker 1: than some of its parts. And I think that was
• 24:37
  Speaker 1: actually really crucial because he's you know, there's probably gonna
• 24:41
  Speaker 1: be calls to break up Berkshire once he leaves, because
• 24:43
  Speaker 1: it's kind of a weird mix of businesses. But in
• 24:46
  Speaker 1: it in essence, him saying don't break it up makes
• 24:49
  Speaker 1: it easier for successor to say, hey, look, Buffett himself
• 24:52
  Speaker 1: said it's better together. Cat is the Oracle of Omaha
• 24:57
  Speaker 1: kind of out of new ideas and tired out. The
• 25:00
  Speaker 1: reason why I asked is because I was looking at
• 25:03
  Speaker 1: the list of high points from everything that was said
• 25:06
  Speaker 1: yesterday or just over the weekend in general on Saturday. Um,
• 25:10
  Speaker 1: it was the same stuff said last year. The cash
• 25:12
  Speaker 1: position is about the same relative to book. What's your take?
• 25:16
  Speaker 1: I think he's struggling and uh, and he sort of
• 25:19
  Speaker 1: clarifies this too. Right. So one of the most more
• 25:22
  Speaker 1: interesting things he said this morning was he got into
• 25:24
  Speaker 1: oracle in the third quarter and then he completely got
• 25:27
  Speaker 1: out of it in the fourth quarter. And that's just
• 25:29
  Speaker 1: very odd for Berkshire to do. They like to hold
• 25:31
  Speaker 1: it for a long time for so for him to
• 25:33
  Speaker 1: get out and get in and get out is um
• 25:36
  Speaker 1: is strange. And he he clarified it was because he
• 25:38
  Speaker 1: thought he knew more about the business, but he realized
• 25:41
  Speaker 1: he didn't actually understand it. And I think that's sort
• 25:43
  Speaker 1: of the problem these days, is that, you know, he's
• 25:46
  Speaker 1: really trying to sort of adjust to the whether it's
• 25:49
  Speaker 1: the new consumer environment or the new investing landscape, but
• 25:53
  Speaker 1: it's changing a lot. And I think that's why he's
• 25:55
  Speaker 1: relying on like his investing deputies, Todd Combs and Ted
• 25:58
  Speaker 1: Wessler as well. And I think why he's you know,
• 26:00
  Speaker 1: Jane and Greg Able are running some of the operating businesses.
• 26:03
  Speaker 1: I think it's just sort of build up sort of
• 26:05
  Speaker 1: this breadth of people who can also look at different ideas.
• 26:08
  Speaker 1: And he mentioned Todd Combs and Ted Wesler help him
• 26:11
  Speaker 1: with acquisitions, which I think is also incredibly important, you know,
• 26:14
  Speaker 1: in this kind of dearth of emine. So if if
• 26:18
  Speaker 1: new ideas, exciting ideas you know that that hit his
• 26:21
  Speaker 1: screen are a fewer and farther between. Is pressure building
• 26:24
  Speaker 1: from shareholders to redeploy that hundred billion dollars. Okay, I
• 26:27
  Speaker 1: should start by back stock. I think it's it's nuance
• 26:30
  Speaker 1: because you know, you so he bought back one point
• 26:33
  Speaker 1: three billion dollars in shares last year, and that was
• 26:35
  Speaker 1: a change. I mean, he normally sort of doesn't favor
• 26:38
  Speaker 1: capital return. He'd rather buy businesses, he rather spend it
• 26:41
  Speaker 1: on common stocks. Um, so I think there is sort
• 26:44
  Speaker 1: of a change, and I do agree that I think
• 26:46
  Speaker 1: a lot of investors would love to see him buy
• 26:48
  Speaker 1: back more stock. But then again, you know, as many
• 26:51
  Speaker 1: investors point out to me, Buffett made his money and
• 26:53
  Speaker 1: made his name and times of market turmoil, so some
• 26:57
  Speaker 1: people are saying, hey, buddy, a hundred twelve billion, not
• 26:59
  Speaker 1: too bad to sit on it, wait on it when
• 27:01
  Speaker 1: the market turns, then swooping. Interesting. So the company repeat
• 27:07
  Speaker 1: reported earnings this weekend, very disappointing numbers. The annual letter
• 27:10
  Speaker 1: came out, really not a lot of new stuff in
• 27:12
  Speaker 1: the annual letter. And the shares are up, and the
• 27:14
  Speaker 1: shares are up, that's right. So it's uh, I think,
• 27:18
  Speaker 1: you know, I think the market is still according Warren
• 27:21
  Speaker 1: Buffett and Berkshire Hathway the benefit of the doubt here,
• 27:23
  Speaker 1: it seems like, uh, you know, whether it's you know,
• 27:26
  Speaker 1: returning cash or looking for the next big whale, or
• 27:29
  Speaker 1: just adding or trading around existing positions, I think the
• 27:32
  Speaker 1: market seems to be giving Warren Buffet a pass here,
• 27:37
  Speaker 1: so in fairness, given his track record of returns, I
• 27:41
  Speaker 1: kind of understand it, and operating earnings were up to
• 27:44
  Speaker 1: be fair exactly right, Thanks so much, could J Lynkski,
• 27:49
  Speaker 1: us financial reporter from Bloomberg News. Thank you. Thanks for
• 27:51
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 27:54
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 27:57
  Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
• 28:00
  Speaker 1: pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at
• 28:02
  Speaker 1: Lisa Abram Wohits. One before the podcast. You can always
• 28:05
  Speaker 1: catch us worldwide on Bloomberg Radio