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Get Paid, But Only For Beating Benchmarks: Peter Kraus · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Peter
• 0:30
  Speaker 1: Krauss led Alliance Bernstein through the heart of the financial crisis.
• 0:35
  Speaker 1: He was chairman and CEO of the big asset management
• 0:38
  Speaker 1: firm from two thousand and eight through last year, and
• 0:41
  Speaker 1: now he is starting his own firm. We are broadcasting
• 0:45
  Speaker 1: live from Bloomberg Directive Broger Studios, and Peter Krause joins
• 0:48
  Speaker 1: us right here. Peter, thank you so much for being here.
• 0:51
  Speaker 1: Thanks you at least for having me. All right, So
• 0:53
  Speaker 1: you are founding a new firm, and why good question.
• 0:58
  Speaker 1: It is a new firm, Uh what? The main reason
• 1:01
  Speaker 1: that I think the new firm is exciting is that
• 1:04
  Speaker 1: we're trying to align the revenue model of the firm
• 1:07
  Speaker 1: with the clients objectives. And what I found in time
• 1:11
  Speaker 1: in my experience in the industry is that although we
• 1:14
  Speaker 1: all are here to serve clients. Almost all firms revenue
• 1:19
  Speaker 1: models are fixed fees, so the client pays whether or
• 1:22
  Speaker 1: not the manager performs. An aperture is distinctly different. In
• 1:26
  Speaker 1: that sense, the client only pays more than the passive
• 1:30
  Speaker 1: fee if we perform. What is the hurdle rate? The
• 1:36
  Speaker 1: hurdle rates are different for different products, so it would
• 1:39
  Speaker 1: depend upon the investment services that we have. But let's
• 1:43
  Speaker 1: just take an example in a simple equity fund. Let's
• 1:47
  Speaker 1: say it's US large cap equities. The hurdle rate would
• 1:49
  Speaker 1: be the standard and Poor's index, easily identifiable, recognizable by all. Okay,
• 1:54
  Speaker 1: so let's say that this does gain steam. Would fees
• 1:59
  Speaker 1: be a lot larger once you hit that threshold? Well, actually,
• 2:03
  Speaker 1: you have to earn the S and P return in
• 2:06
  Speaker 1: order to be paid any fee at all. So in
• 2:09
  Speaker 1: other words, let's just say the markets up ten percent,
• 2:11
  Speaker 1: that's the SMP. If the managers performance is ten percent,
• 2:15
  Speaker 1: they're paid exactly no performance fee and only their base fee.
• 2:19
  Speaker 1: So here's what I'm wondering. When you talk about our performance,
• 2:21
  Speaker 1: it depends what index you're looking at. It also depends
• 2:24
  Speaker 1: what time frame you're looking at. So what is the
• 2:27
  Speaker 1: correct time frame to really judge this. So remember that
• 2:31
  Speaker 1: almost all managers have benchmarks in the in the fixed
• 2:34
  Speaker 1: fee space for sure, uh And so it's true that
• 2:37
  Speaker 1: each manager has a different benchmark, and benchmarks can be complex.
• 2:42
  Speaker 1: We're attempting to make those benchmarks simple, easy and recognizable.
• 2:46
  Speaker 1: The time period over which you pay fees is one year.
• 2:50
  Speaker 1: The reason why it's not longer is it's complicated for
• 2:53
  Speaker 1: people to understand fees over more than a year. We
• 2:56
  Speaker 1: actually charge the fee every day, but at the end
• 2:58
  Speaker 1: of the day, we only elect the fee if we
• 3:01
  Speaker 1: actually create performance in the twelve month period in which
• 3:04
  Speaker 1: the client is invested the new company aperture. Is it
• 3:11
  Speaker 1: going to compete against more storied names like Goldman Sachs
• 3:16
  Speaker 1: Or is this designed to go and try to peel
• 3:20
  Speaker 1: away money from other let's say, hedge funds or specific
• 3:26
  Speaker 1: investment strategies. We actually think that we're attempting to disrupt
• 3:31
  Speaker 1: all of those, not just Goldman Sacks, not just a
• 3:34
  Speaker 1: hedge fund, not just tro Price, not just Fidelity, but
• 3:39
  Speaker 1: all the above, because what we're trying to bring to
• 3:42
  Speaker 1: the client is outstanding returns, returns over a benchmark at
• 3:46
  Speaker 1: the end of the day, clients can buy beta or
• 3:49
  Speaker 1: the market exposure for cheap prices. We know that, and
• 3:52
  Speaker 1: we think that they should go and do that. What
• 3:54
  Speaker 1: clients can't get is return in excess of the market.
• 3:58
  Speaker 1: We're actually trying to provide the Okay, so what do
• 4:01
  Speaker 1: you think happens to all the big asset managers if
• 4:03
  Speaker 1: they don't adopt a fee structure structures like this. I
• 4:06
  Speaker 1: think this is a This is an industry that plays
• 4:09
  Speaker 1: out over a long period of time. People don't move
• 4:11
  Speaker 1: their money around, you know, haphazardly, but over long periods,
• 4:16
  Speaker 1: you know, ten to fifteen years. I believe that the
• 4:18
  Speaker 1: amount of money that will be followed by this performance
• 4:21
  Speaker 1: link structure will be very significant in the trillions. And
• 4:24
  Speaker 1: you would look at me and say, well, how could
• 4:26
  Speaker 1: that possibly be? But if you go back to when
• 4:29
  Speaker 1: et F started, if I had said to you twenty
• 4:31
  Speaker 1: plus years later, E t F are going to account
• 4:33
  Speaker 1: for almost fifty of the marketplace, you would have thought
• 4:36
  Speaker 1: it was crazy. I'm just struck by the infrastructure of
• 4:40
  Speaker 1: an asset management, of an asset management for I mean,
• 4:42
  Speaker 1: this is not inexpensive. How do you maintain that with
• 4:45
  Speaker 1: the structure when it's really hard to outperform unless you
• 4:47
  Speaker 1: are investing in less liquid assets. I mean, if you're
• 4:49
  Speaker 1: tied to broader markets, it's chance. Yeah, it's hard to
• 4:53
  Speaker 1: outperform whether you're invested in liquid markets or illiquid or
• 4:56
  Speaker 1: illiquid assets. Don't don't make don't make the mistake that
• 4:58
  Speaker 1: ill liquid assets are easy to create performance from two.
• 5:02
  Speaker 1: Look at the end of the day, we're running a
• 5:05
  Speaker 1: a asset management firm. It's disrupting on three different levels.
• 5:08
  Speaker 1: It's disrupting on the revenue level, it's disrupting on the
• 5:12
  Speaker 1: distribution level, and it's disrupting on the cost structure. We've
• 5:15
  Speaker 1: built a cost structure that essentially outsources virtually all the
• 5:19
  Speaker 1: things that most firms would do internally. Most firms do
• 5:22
  Speaker 1: them internally because it's their legacy. We have the benefit
• 5:26
  Speaker 1: of building a firm today, and given the cloud structure
• 5:29
  Speaker 1: in the world and the available technology, we can replicate
• 5:32
  Speaker 1: what most firms do for millions and millions of dollars
• 5:34
  Speaker 1: for far far less. So our cost structure is structurally
• 5:39
  Speaker 1: competitive relative to anybody else. We actually have a structural
• 5:42
  Speaker 1: benefit that others can't take advantage of. What are your
• 5:45
  Speaker 1: thoughts about starting aperture investors at the time when if
• 5:49
  Speaker 1: you look at the SMP five hundred were four. We've
• 5:52
  Speaker 1: got a record for the DAO at three. You're looking
• 5:57
  Speaker 1: at performance that's pretty good, and a lot of people
• 5:59
  Speaker 1: are starting to think maybe this is the time to
• 6:02
  Speaker 1: lighten up on stocks some sixty six. I started thinking
• 6:06
  Speaker 1: about investing, believe it or not, when I was maybe
• 6:09
  Speaker 1: twelve or thirteen years old. Over that time period, doesn't
• 6:13
  Speaker 1: take anybody, you know, smart to realize that equies are
• 6:16
  Speaker 1: going up over time. People are investing for their lives,
• 6:19
  Speaker 1: they're investing for their savings. Market timing is interesting to
• 6:23
  Speaker 1: talk about, but not interesting as an investment thesis. So
• 6:27
  Speaker 1: Aperture is here for the long run. We expect to
• 6:30
  Speaker 1: be in business for many, many years, tens of years,
• 6:33
  Speaker 1: and our job is to produce alpha, whether the market
• 6:35
  Speaker 1: is going down or the market's going up. Is it
• 6:37
  Speaker 1: hard for you to recruit potential investment managers with a
• 6:41
  Speaker 1: fee structure like this, especially since their compensation is so
• 6:44
  Speaker 1: closely tied to our performance. It's a great question. It's
• 6:49
  Speaker 1: really the key question. Actually, So I've interviewed over almost
• 6:52
  Speaker 1: a hundred people. Can't keep counting. Somewhere over seventy five,
• 6:56
  Speaker 1: and I think it's up to a hundred UM. And
• 6:58
  Speaker 1: I think the people fall into two categories. There are
• 7:01
  Speaker 1: those portfolio managers who grew up in a fixed fee
• 7:05
  Speaker 1: world who look at this and go, well, why would
• 7:08
  Speaker 1: I go to a performance based world when I get
• 7:11
  Speaker 1: paid whether or not I perform? And my view of
• 7:14
  Speaker 1: that is I don't even want to want to hire them,
• 7:16
  Speaker 1: because that's just not the person I want. The person
• 7:19
  Speaker 1: I want is somebody that believes they can perform, has
• 7:21
  Speaker 1: a history of performing, understands how to take risk, and
• 7:25
  Speaker 1: is willing to be paid on the basis of that performance.
• 7:28
  Speaker 1: Because there are two important things to that. One is
• 7:31
  Speaker 1: their risk takers and at the end of the day,
• 7:33
  Speaker 1: you want to invest with the risk here. You can't
• 7:35
  Speaker 1: make money if the person doesn't take risk. And two
• 7:37
  Speaker 1: is they're willing to cap their capacity because capacity is
• 7:41
  Speaker 1: the main issue in the camp in the industry. Any
• 7:44
  Speaker 1: names you can share who have joined the team, no,
• 7:48
  Speaker 1: I mean it'll be public over time. But I think
• 7:51
  Speaker 1: we're a team. I'm sorry rhymes like like Magan, but
• 7:57
  Speaker 1: we're a team and we're going to be a team,
• 7:59
  Speaker 1: all right. We're gonna leave with there Thanks very much
• 8:01
  Speaker 1: for coming in. Peter Krauss is the founder and financial
• 8:04
  Speaker 1: partner for Aperture Investors. They're looking to reshape the fee
• 8:09
  Speaker 1: structure for money managers. Thanks very much for coming in
• 8:12
  Speaker 1: and sharing your thoughts with us. Joining us now as
• 8:24
  Speaker 1: Lenan Union. She's an FX reporter for Bloomberg News Land.
• 8:27
  Speaker 1: Thank you so much for being with us. You know,
• 8:30
  Speaker 1: I have to think it is strange that the dollar
• 8:33
  Speaker 1: is weakening at a time when treasury yields are grinding higher.
• 8:37
  Speaker 1: Doesn't this go against the trend that we've seen recently.
• 8:40
  Speaker 1: It certainly does, Lisa, And that's the really interesting thing
• 8:43
  Speaker 1: we've seen. Positioning in the FX market is max bullish
• 8:47
  Speaker 1: right now. People are piling into long positions. It's the
• 8:50
  Speaker 1: third most crowded trade according to Bank of America's Fund
• 8:52
  Speaker 1: Manager Survey. And yet I'm hearing a lot of people
• 8:55
  Speaker 1: talking about the dollar being a cell um. You know.
• 8:59
  Speaker 1: We we talked to Ben P. Perry Boat Asset Management.
• 9:01
  Speaker 1: They think the dollar could plunge ten percent in the
• 9:03
  Speaker 1: next six to nine months. So what we're looking at
• 9:06
  Speaker 1: is the market saying Feds over We're over it. We
• 9:09
  Speaker 1: know what's happening there. The U S economy is doing well.
• 9:12
  Speaker 1: What's next. We'll just taking a look at the performance
• 9:14
  Speaker 1: of the dollar today one thirty two eighty against the
• 9:18
  Speaker 1: pounds sterling. Perhaps that's in response to the comments from
• 9:21
  Speaker 1: Donald Tusk of the European Union about ongoing negotiations, and
• 9:25
  Speaker 1: also taking a look at the dollar versus the Canadian
• 9:28
  Speaker 1: looney one twenty eight the dollar is weakening. Yeah, And
• 9:31
  Speaker 1: I think with those two stories, particularly with Canada and
• 9:35
  Speaker 1: the pound, we have a lot of videosyncratic political risk
• 9:37
  Speaker 1: and trade risk when it comes to NAFTA. So the
• 9:39
  Speaker 1: dollar has definitely gotten a bid in the last few
• 9:41
  Speaker 1: weeks months because of trade problems. But I think a
• 9:44
  Speaker 1: lot of the being people that I'm looking at on
• 9:47
  Speaker 1: the by side, who are longer term thinkers, think Okay,
• 9:50
  Speaker 1: the trade stuff is just noise. It will eventually be resolved.
• 9:52
  Speaker 1: And what's really important is the fundamental drivers, which is
• 9:55
  Speaker 1: US central bank is already moving, which next, Which central
• 9:58
  Speaker 1: banks are next, and who is going to catch up
• 10:01
  Speaker 1: to the US in terms of that monetary policy convergence.
• 10:04
  Speaker 1: So Dave come on in here. If BNP PRIVA analysts
• 10:07
  Speaker 1: are correct and others that the greenback could decline could
• 10:11
  Speaker 1: appreciate about ten percent in the upcoming year. What does
• 10:15
  Speaker 1: that mean for US equities? And that's kind of almost
• 10:17
  Speaker 1: a tailwind. Now, yeah, I mean you've sort of seeing
• 10:20
  Speaker 1: the dollar pop up and a lot of companies results
• 10:24
  Speaker 1: as something to be concerned about. I mean, let's face it,
• 10:27
  Speaker 1: you know, if you've got a higher dollar than all
• 10:30
  Speaker 1: those overseas earnings just don't count so much when you
• 10:33
  Speaker 1: bring them back home, if only for the sake of
• 10:36
  Speaker 1: the financial statements. And you know, to the extent that
• 10:39
  Speaker 1: the companies are trying to sell overseas, I mean, it
• 10:42
  Speaker 1: becomes an issue as well, so it has the potential
• 10:45
  Speaker 1: to be that. I mean, then again, I'm looking at
• 10:47
  Speaker 1: the Bloomberg Dollar Index and it's sort of sitting in
• 10:49
  Speaker 1: the range. It's been the last few months at the
• 10:51
  Speaker 1: bottom of the range, but it's not like we've had
• 10:54
  Speaker 1: the kind of really substantial move lower that would suggest that,
• 10:58
  Speaker 1: at least for the moment, that things are changing in
• 11:00
  Speaker 1: a meaningful way for US companies. And just to your
• 11:03
  Speaker 1: point at Lisa, I mean, a company like Coca Cola,
• 11:05
  Speaker 1: which derives more than half of its revenue from outside
• 11:08
  Speaker 1: the United States, they would be affected by any of
• 11:11
  Speaker 1: those big moves in US dollar, right, yes, exactly, and
• 11:14
  Speaker 1: so maybe this becomes, you know, a boon if the
• 11:18
  Speaker 1: dollar does start to weaken. We saw that when the
• 11:20
  Speaker 1: FED was tightening rates that um, you know, everyone was
• 11:23
  Speaker 1: really worried about this tightening and financial conditions. The dollar
• 11:26
  Speaker 1: was doing a lot of the tightening for the FED.
• 11:28
  Speaker 1: So maybe we're going in re versus un confused because
• 11:31
  Speaker 1: with treasure yields now at ten year yields climbing above
• 11:34
  Speaker 1: three percent, you're getting real return on everything from three
• 11:37
  Speaker 1: months t bills out through the thirty year treasury. I'm
• 11:40
  Speaker 1: just trying to understand why are we not seeing more
• 11:42
  Speaker 1: foreign investor flood back into the US giving more of
• 11:45
  Speaker 1: a bid to the dollar. I mean, I understand about
• 11:47
  Speaker 1: the FED, but what about the actual yields. I think
• 11:50
  Speaker 1: it's again we're we're looking at the two thousand seventeen
• 11:53
  Speaker 1: story again, which is that people just uh, in the
• 11:57
  Speaker 1: FX market don't see the US as that appealing anymore
• 12:01
  Speaker 1: because we've maxed out, and I think the two markets
• 12:03
  Speaker 1: are definitely dislocated for sure, um and in for an exchange,
• 12:07
  Speaker 1: people say this is as good as it gets in
• 12:09
  Speaker 1: the US. What's next as good as it gets. That
• 12:13
  Speaker 1: seems to be not resonating at all with stock traders
• 12:16
  Speaker 1: today as we hit a new highs, so people seem
• 12:19
  Speaker 1: to think that there's a lot more good head in equities,
• 12:22
  Speaker 1: although currencies can sometimes sometimes have a little bit more
• 12:26
  Speaker 1: of a finger on the pulse, a different pulse perhaps. Davilson,
• 12:28
  Speaker 1: Blomberg Sox editor, columnist and blogger, and m live go
• 12:31
  Speaker 1: on the Bloomberg and Lennian who covers FX for us
• 12:34
  Speaker 1: here at Bloomberg News, and I gotta say, I'm having
• 12:38
  Speaker 1: trouble reconciling higher yields with a weaker dollar. It's something
• 12:41
  Speaker 1: that is not logical you're trying to make sense of. Well, no,
• 12:46
  Speaker 1: it's just it goes against some recent trends that we've seen,
• 12:49
  Speaker 1: and it just it's an interesting dynamic. It'll be interesting
• 12:52
  Speaker 1: to see whether it holds. Right now. We want to
• 13:06
  Speaker 1: shove the focus to China overnight. There are reports that
• 13:09
  Speaker 1: China is considering cutting tariffs on incoming goods as seeming
• 13:14
  Speaker 1: I don't know, olive branch to the rest of the
• 13:16
  Speaker 1: world saying that we're going to lower our high tariff
• 13:18
  Speaker 1: rates a little bit in order to be a leader
• 13:21
  Speaker 1: in trade joining US now Tom or like chief economist
• 13:24
  Speaker 1: for Bloomberg Economics coming to US from Washington, D C. Tom.
• 13:28
  Speaker 1: This seems to go against what we had been seeing.
• 13:31
  Speaker 1: It does seem to break the vibe between the US
• 13:33
  Speaker 1: and China where it was sort of an escalating tariff off.
• 13:37
  Speaker 1: How big of a deal is this? I think we
• 13:40
  Speaker 1: need to wait for the details. UM. If it's a
• 13:42
  Speaker 1: very significant cut in tariff um, then clearly this is
• 13:46
  Speaker 1: going to be big news. UM. If we're just talking
• 13:49
  Speaker 1: about a fraction of a percent or a couple of
• 13:51
  Speaker 1: percents of tariff I think is not going to really
• 13:53
  Speaker 1: move the dial um. It seems to be an indication
• 13:59
  Speaker 1: that China wants to d escalate this situation UM. The US,
• 14:03
  Speaker 1: when with two hundred tariffs on two billion dollars in goods,
• 14:06
  Speaker 1: China responded with tariffs on just sixty billion. The US
• 14:10
  Speaker 1: set tariffs at ten percent and said they were going
• 14:12
  Speaker 1: to China came in at a lower level. And now
• 14:16
  Speaker 1: this move to offer a general concession on tariff's um
• 14:20
  Speaker 1: worldwide UM seems to me an indication that China is
• 14:23
  Speaker 1: trying to de escalate. What about the import tax that
• 14:28
  Speaker 1: China might impose more generally, what would that do to
• 14:32
  Speaker 1: the Chinese economy. So the way that China will present
• 14:37
  Speaker 1: this is part of a longer term reform and opening strategy.
• 14:42
  Speaker 1: Of course, Donald Trump has his prestige in China, Chi
• 14:46
  Speaker 1: Jinping has his prestige. The last thing that China's government
• 14:50
  Speaker 1: wants to do is to be perceived as making concessions
• 14:54
  Speaker 1: um to the US. So this will be presented as
• 14:57
  Speaker 1: part of a longer term reform and opening strate to Gum,
• 15:01
  Speaker 1: and it will have, to your question, pim Um that
• 15:04
  Speaker 1: positive impact in terms of raising consumption, in terms of
• 15:09
  Speaker 1: dealing with some of China's economic imbalances, and so the
• 15:13
  Speaker 1: hope in Beijing will be at the same time as
• 15:16
  Speaker 1: taking some of the heat out of the trade trade dispute,
• 15:19
  Speaker 1: it's also a longer term positive for China's development. So, Tom,
• 15:23
  Speaker 1: this was my big question when I read the news
• 15:25
  Speaker 1: this morning, I was wondering it will China lower tariffs
• 15:29
  Speaker 1: on US goods alongside others that they import, especially considering
• 15:34
  Speaker 1: the fact that they've got no plans to dial back
• 15:37
  Speaker 1: their retaliatory tariffs that they said are going to go
• 15:40
  Speaker 1: into effect on September twenty in tandem with the additional
• 15:43
  Speaker 1: US tariffs and Chinese goods. Right. Um, that's an important question.
• 15:48
  Speaker 1: I don't think we have perfect clarity on it yet.
• 15:51
  Speaker 1: We don't have the details from the Chinese side. UM.
• 15:54
  Speaker 1: My initial take though, is that this reduction in tariffs
• 15:58
  Speaker 1: will be worldwide. It will fly to the U S,
• 16:00
  Speaker 1: it will apply to Europe, it will apply to everybody. UM.
• 16:04
  Speaker 1: So the Chinese are making their domestic market more attractive
• 16:08
  Speaker 1: to foreign firms. At the same time, those punitive tariffs
• 16:12
  Speaker 1: on U S firms um, which the Chinese have said
• 16:16
  Speaker 1: they will impose in retaliation for US tariffs on Chinese firms,
• 16:20
  Speaker 1: will be in place, So the whole market will look
• 16:23
  Speaker 1: more attractive to foreign firms but Chinese, but US terms
• 16:26
  Speaker 1: will face this additional punitive tariff. UM. I think the
• 16:30
  Speaker 1: the logic of that for Beijing is that they hope
• 16:34
  Speaker 1: to turn US corporates into lobbyists on their behalf, because
• 16:39
  Speaker 1: the US corporates will see, oh, the Europeans, the Canadians,
• 16:42
  Speaker 1: the Japanese, they're all going into the Chinese market on
• 16:45
  Speaker 1: these new favorable terms. We can't get in because we're
• 16:48
  Speaker 1: faced with these punitive additional tariffs. Let's go to d C.
• 16:52
  Speaker 1: Let's encourage the Trump administration to call a truce, maybe
• 16:57
  Speaker 1: walk back some of the some of the terrists they've introduced. Tom,
• 17:02
  Speaker 1: just quickly here, if this is all going to happen,
• 17:05
  Speaker 1: what happens to the Chinese currency? I mean it hasn't
• 17:07
  Speaker 1: it been falling in value? And doesn't that make them
• 17:10
  Speaker 1: Chinese products, you know, more competitive? So China has allowed
• 17:15
  Speaker 1: the UNSW to de appreciate somewhat over the course of
• 17:17
  Speaker 1: two thousand and eighteen. There certainly hasn't been an extreme
• 17:21
  Speaker 1: drop in the currency. The fear for China if we
• 17:23
  Speaker 1: saw a big drop would be we'd be back to
• 17:25
  Speaker 1: the world of capital light flows and concerns about financial stability. Um.
• 17:30
  Speaker 1: I think if we see this cut in tarrits and
• 17:33
  Speaker 1: that reduces the tensions in the trade war, then that's
• 17:36
  Speaker 1: going to reduce the need for you and depreciation as
• 17:39
  Speaker 1: a kind of competitiveness offset. I do you want to
• 17:42
  Speaker 1: just remind you we are awaiting law enforcement comments on
• 17:45
  Speaker 1: multiple victims having been shot in Maryland. We will bring
• 17:49
  Speaker 1: you those when we get them. Tom. You know you're
• 17:52
  Speaker 1: talking about how China wants to turn US corporations into
• 17:56
  Speaker 1: lobbyists to get the Trump administration to back away from
• 18:00
  Speaker 1: this trade escalation. But so far they have been lobbyists
• 18:04
  Speaker 1: and they have failed. What makes China confident that perhaps
• 18:08
  Speaker 1: the Trump administration would listen to corporate pushback when it
• 18:11
  Speaker 1: really hasn't worked so far. Yeah, I think that's a
• 18:15
  Speaker 1: that's a key point. And my expectation at the start
• 18:18
  Speaker 1: of the year was that we were going to have
• 18:19
  Speaker 1: much more vigorous corporate pushback from the US business lobby
• 18:23
  Speaker 1: and that was going to be a more significant factor
• 18:26
  Speaker 1: in changing the changing the view on the Trump administration. Clearly,
• 18:31
  Speaker 1: that hasn't happened so far. We'll see what the extent
• 18:35
  Speaker 1: of the tariff cut that China is offering is um.
• 18:39
  Speaker 1: But clearly, if it's a very significant tariff cut, if
• 18:41
  Speaker 1: it's significantly increases the appeal um of doing business in China,
• 18:46
  Speaker 1: and then you would expect those business lobby voices in
• 18:49
  Speaker 1: the US to get that little bit louder um. And
• 18:53
  Speaker 1: of course they don't have a crystal ball into Beijing.
• 18:55
  Speaker 1: I don't know what the government's internal thinking is, um,
• 18:59
  Speaker 1: but the hope I think would be the alloweder voice
• 19:02
  Speaker 1: from the US business lobby would make it more difficult
• 19:05
  Speaker 1: for the Trump administration to proceed with aggressive tariffs. Does
• 19:10
  Speaker 1: this also have an impact on other countries in Asia
• 19:15
  Speaker 1: that maybe have assumed some of the manufacturing work that
• 19:19
  Speaker 1: has been too expensive to do in China, Right, So
• 19:24
  Speaker 1: I think countries like Vietnam, countries like the Philippines, countries
• 19:29
  Speaker 1: like Bangladesh, And we were already seeing a lot of
• 19:32
  Speaker 1: export business, low value added export business moving from China
• 19:36
  Speaker 1: to those countries because they are cheaper now. Um, And
• 19:40
  Speaker 1: this US China trade war, I mean, it could only
• 19:42
  Speaker 1: accelerate that process. Right. If China is getting more expensive
• 19:46
  Speaker 1: in terms of labor, in terms of exchange rate, in
• 19:48
  Speaker 1: terms of all the cost of production, and then you
• 19:50
  Speaker 1: have tariffs on top of that, then all the corporations
• 19:53
  Speaker 1: are going to think, Okay, my next factory is going
• 19:56
  Speaker 1: to be in Southeast Asia. Now. If China reduces his
• 19:59
  Speaker 1: tariffs and dials playing the tension in the trade war, um,
• 20:02
  Speaker 1: clearly that the pressure for that exodus of manufacturing activity
• 20:06
  Speaker 1: will be that bit less. So one thing that I'm
• 20:08
  Speaker 1: struck by is we were speaking with Leland Miller of
• 20:10
  Speaker 1: China beige Book International earlier in the week, and he
• 20:14
  Speaker 1: was saying that on the ground, it seems like manufacturing
• 20:18
  Speaker 1: is slowing in China despite some of the data that
• 20:20
  Speaker 1: we're getting from official sources there. And I'm just I'm wondering,
• 20:24
  Speaker 1: if you do sort of reduce the barrier to imports
• 20:28
  Speaker 1: in China at a time when you're already seeing a
• 20:31
  Speaker 1: slowdown and manufacturing, how much could this actually hurt China's economy.
• 20:37
  Speaker 1: I mean, that's an interesting question. UM. Clearly, if you
• 20:40
  Speaker 1: import more manufactured good things, you have less need to
• 20:43
  Speaker 1: imput the actually less need to produce manufactured goods at
• 20:47
  Speaker 1: home at the same time. UM, Tariffs and not the
• 20:51
  Speaker 1: only factor determining where manufacturing activity takes place. UM, the
• 20:57
  Speaker 1: supply chains are in China. The emphas structure is in China.
• 21:02
  Speaker 1: These things do not move quickly or move overnight. UM.
• 21:05
  Speaker 1: I think the idea that the Chinese government has is
• 21:08
  Speaker 1: probably not so much. Oh, we're going to get more
• 21:11
  Speaker 1: important manufacturing goods, and that's going to be bad for
• 21:14
  Speaker 1: our factories at home. But rather we've got lots of consumers.
• 21:18
  Speaker 1: They've got a demand for goods that have produced globally. UM,
• 21:21
  Speaker 1: we're going to ramp up consumption by reducing import barriers
• 21:26
  Speaker 1: and opening the door to more US cars, more Japanese cars,
• 21:31
  Speaker 1: more of those kind of high end goods that Chinese
• 21:33
  Speaker 1: consumers now want but are not being produced at home.
• 21:36
  Speaker 1: Want to thank you very much for spending time with us.
• 21:39
  Speaker 1: Tom Orlick is Chief economist for a Bloomberg Economics, talking
• 21:43
  Speaker 1: about the effects of the drawn out US China trade
• 21:46
  Speaker 1: war and what that means not only for consumers in
• 21:49
  Speaker 1: the United States, but also for the Chinese economy. So
• 22:03
  Speaker 1: Amazon wants to run our world in every which way,
• 22:07
  Speaker 1: whether it's in our homes, whether it's in our stores,
• 22:10
  Speaker 1: whether it's the music we listen to or the movies
• 22:13
  Speaker 1: we watch. The latest they are planning to open three
• 22:17
  Speaker 1: thousand ghost stores. By Shara over Day, Bloomberg Opinion calumnists
• 22:21
  Speaker 1: covering all things tech. What does an Amazon convenience store
• 22:26
  Speaker 1: look like? Well, what they look like now. Amazon has
• 22:31
  Speaker 1: a handful of these cashier less more or less convenience
• 22:34
  Speaker 1: stores um that they started a couple of years ago
• 22:37
  Speaker 1: in their hometown of Seattle, and they look like a
• 22:40
  Speaker 1: conventional convenience store with prepared foods and a handful of
• 22:43
  Speaker 1: select um packaged food items, except there are no cashiers.
• 22:48
  Speaker 1: You kind of walk in with your smartphone that has
• 22:51
  Speaker 1: a special app on it. You pluck whatever you want
• 22:54
  Speaker 1: off the shelves, and you walk out and your app
• 22:57
  Speaker 1: is automatically figures out what you bought and charges you
• 23:01
  Speaker 1: for it. Now, I don't know, you know, our colleague
• 23:04
  Speaker 1: Spenser Sopa reported this story yesterday about the planned open
• 23:07
  Speaker 1: as many as three thousand of these cashier less stores.
• 23:10
  Speaker 1: In addition to the number which is quite stunning, the
• 23:14
  Speaker 1: other surprising thing was maybe they won't be convenience stores.
• 23:18
  Speaker 1: Maybe they will be more like cashier less. Uh, you
• 23:21
  Speaker 1: know these kind of sandwich joints that we see all
• 23:23
  Speaker 1: over our neighborhood here in Manhattan, more like places where
• 23:26
  Speaker 1: you go to pick up a sandwich or a salad
• 23:29
  Speaker 1: or some other prepared food. So it feels almost like
• 23:32
  Speaker 1: it's in competition with you know, Preda Mager or Chipotle,
• 23:35
  Speaker 1: er these other kind of lunch joints that we see
• 23:39
  Speaker 1: in lots of cities. Do we have any idea about
• 23:42
  Speaker 1: the back the back end of all this, the kitchen preparation.
• 23:45
  Speaker 1: Who's going to do all that work? And is that
• 23:48
  Speaker 1: coming from Whole Foods? For example? I mean, look, the
• 23:50
  Speaker 1: irony of any cashier less store is that it requires
• 23:54
  Speaker 1: an enormous amount of manpower behind the scenes. Right, So,
• 23:58
  Speaker 1: in addition to the people who have to prepare the food,
• 24:01
  Speaker 1: you have people who stuck the shelves. You have people
• 24:03
  Speaker 1: who have to drive food from a centralized kitchen um
• 24:07
  Speaker 1: or or warehouse to the store. Uh, you gotta restocked shelves,
• 24:12
  Speaker 1: you gotta have securities and people and are shoplifting things. Essentially,
• 24:17
  Speaker 1: there are people required, even for something that is billed
• 24:20
  Speaker 1: as cashierless. You know, Spencer's story yesterday reported quite an
• 24:23
  Speaker 1: interesting figure that the original ghost store in Seattle required
• 24:27
  Speaker 1: a million dollars just for the technology hardware, and that
• 24:30
  Speaker 1: doesn't account for all the other costs to set up
• 24:33
  Speaker 1: and operate that store. So obviously a million dollars plus
• 24:37
  Speaker 1: per store does not scale if you're talking about something
• 24:40
  Speaker 1: on the order of three thousand stores. Jeff Bezos is
• 24:43
  Speaker 1: no dope. What's his plan here, what's the what's the
• 24:45
  Speaker 1: big kitting? Okay, so the look, the big prize here
• 24:49
  Speaker 1: is Americans and people around the world, they spend huge
• 24:52
  Speaker 1: chunks of their household budget every month on groceries, on
• 24:57
  Speaker 1: convenience stores, and on eating out and if Amazon can
• 25:00
  Speaker 1: pluck you know, good share of each of those pools
• 25:04
  Speaker 1: of household spending, that's an enormous market for Amazon, particularly
• 25:09
  Speaker 1: in grocery, but not exclusively. So that is really the
• 25:12
  Speaker 1: big prize here, is accessing a huge pool of consumer spending.
• 25:18
  Speaker 1: Do you know that Amazon offers something called Amazon Cloud
• 25:21
  Speaker 1: Cam for the Alexa smart home. It's a security camera
• 25:25
  Speaker 1: that has two way audio, night vision and HD resolution. Indeed, yes,
• 25:32
  Speaker 1: it's one of many of their Alexa power devices. Yes, well,
• 25:35
  Speaker 1: that was where I was going with this, because I
• 25:37
  Speaker 1: believe you said to be an announcement having to do
• 25:40
  Speaker 1: with devices, and I don't know whether it's going to
• 25:43
  Speaker 1: be the Echo Look, the Echo Show, the Echo Spot,
• 25:46
  Speaker 1: the Alexa, the Fire TV. My goodness, Yes, it's so.
• 25:51
  Speaker 1: As you said, in a couple of hours, Amazon is
• 25:53
  Speaker 1: hosting this event in Seattle where they're going to apparently
• 25:56
  Speaker 1: talk about the next wave of the devices they put
• 26:00
  Speaker 1: out with this Alexa kind of smart brain baked in UM.
• 26:05
  Speaker 1: As you point out, they do have a pretty big
• 26:08
  Speaker 1: range of these Alexa powered Amazon devices already, and I
• 26:12
  Speaker 1: think although there are no hard sales figures, it feels
• 26:16
  Speaker 1: like some of those Alexa powered devices have been successful,
• 26:20
  Speaker 1: like the Echo Dots, which is the kind of small
• 26:23
  Speaker 1: form version of the original Echo voice powered speaker, and
• 26:26
  Speaker 1: some of the Alexa powered devices that Amazon is released,
• 26:29
  Speaker 1: um haven't been a successful So I think it's fair
• 26:32
  Speaker 1: to think that Amazon is kind of throwing spaghetti at
• 26:34
  Speaker 1: the wall to see what sticks when it comes to
• 26:36
  Speaker 1: their device strategy. And maybe that's not a bad idea,
• 26:39
  Speaker 1: right if you're a company of Amazon size, let's do essentially,
• 26:43
  Speaker 1: you know, experiments in the real world instead of you know,
• 26:46
  Speaker 1: in a laboratory. But there's no cashier when you buy
• 26:49
  Speaker 1: that spaghetti before you throw it at the wall. Interesting, Well, um,
• 26:53
  Speaker 1: I suppose yeah, you can buy those Amazon devices on Amazon,
• 26:57
  Speaker 1: no people required. Also at whole food stores where there
• 27:00
  Speaker 1: are cashiers. It just gets better and better, doesn't it.
• 27:04
  Speaker 1: I will say, I go to Whole Foods, I full
• 27:07
  Speaker 1: disclosure on an Amazon Dot Prime customer, but I haven't
• 27:10
  Speaker 1: signed on for the benefit Whole Foods because it just
• 27:14
  Speaker 1: seems onerous and yet another password. I don't know. I
• 27:17
  Speaker 1: just am not seeing the crossover so much. You get
• 27:19
  Speaker 1: a discount, I know, yeah, it actually costs less, I know,
• 27:23
  Speaker 1: but then it's time. Time is money anyway, sure over
• 27:26
  Speaker 1: day of Bloomberg Opinion columnist. Thank you so much for
• 27:28
  Speaker 1: being with us. Thanks for listening to the Bloomberg P
• 27:33
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 27:36
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 27:41
  Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
• 27:44
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 27:48
  Speaker 1: You can always catch us worldwide on Bloomberg Radio