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China Sell-Off Is Buying Opportunity: KraneShares CIO · 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. Well, Chinese markets are open for
• 0:22
  Speaker 1: trading once against Shanghai, which hadn't traded since the holidays
• 0:25
  Speaker 1: began in January, UH tumbled seven point seven percent, the
• 0:29
  Speaker 1: most since two thousand and fifteen, as the economy virtually
• 0:34
  Speaker 1: is shut down because of the coronavirus. To give us
• 0:36
  Speaker 1: a sense of kind of how to navigate UH those waters,
• 0:39
  Speaker 1: we welcome Brendan A. Hearn, chief investment officer for Crane
• 0:42
  Speaker 1: Scharity's based in New York City. Brandan, thanks so much
• 0:44
  Speaker 1: for joining us. What do you tell clients here as
• 0:47
  Speaker 1: it relates to China to Asia in terms of allocating
• 0:51
  Speaker 1: capital there? We saw again a virus, a violent turned
• 0:54
  Speaker 1: down in the Asian markets today, certainly for long term investors,
• 1:00
  Speaker 1: we believe obviously the coronavirus is having a very tragic
• 1:03
  Speaker 1: toll from our human on claiming lives. Um. It's going
• 1:07
  Speaker 1: to have a economic impact. UM. That could be in
• 1:10
  Speaker 1: the know over the next quarter or so. But but
• 1:14
  Speaker 1: we believe it is an opportunity UM that for long
• 1:17
  Speaker 1: term investors, there is an opportunity today. I think they
• 1:20
  Speaker 1: need to be a little careful and where they allocate
• 1:22
  Speaker 1: those investments. But again I think it is an opportunity
• 1:25
  Speaker 1: for those long run investors. All right, So it's an
• 1:27
  Speaker 1: opportunity for long run investors. Is this a bed on
• 1:31
  Speaker 1: central bank stimulus by the PBOC? No, I mean, I
• 1:35
  Speaker 1: mean certainly the you know, like as we saw during
• 1:38
  Speaker 1: the trade war, Uh, China policymakers are going to do
• 1:41
  Speaker 1: whatever they can to support the economy. Increasingly, China's economy
• 1:45
  Speaker 1: is a um, a consumer driven economy. So I think,
• 1:49
  Speaker 1: as we saw last year around the trade war, we're
• 1:52
  Speaker 1: going to see a lot of stimulus to help that
• 1:54
  Speaker 1: that side of the economy during this this kind of
• 1:57
  Speaker 1: economic shutdown due to the coronavirus so Brendan, we had
• 2:01
  Speaker 1: some news today on that front. Chinese officials are hoping
• 2:05
  Speaker 1: that the US will agree to some flexibility on pledges
• 2:08
  Speaker 1: in their Phase one trade deal. Does that suggest to
• 2:10
  Speaker 1: you that the virus may be worse than maybe currently
• 2:15
  Speaker 1: being discussed by the government. I think you know, certainly, UM,
• 2:20
  Speaker 1: the the virus, I mean, I mean people are scared.
• 2:22
  Speaker 1: I mean from talking to brokers and and even colleagues
• 2:26
  Speaker 1: in both China and Hong Kong, people are are very scared,
• 2:29
  Speaker 1: UM and and so there there there is going to
• 2:32
  Speaker 1: be an impact. You're just going to limit you know,
• 2:35
  Speaker 1: say you know, we saw it, you know leading up
• 2:36
  Speaker 1: to the Chinese New Year around tourism. You know that
• 2:39
  Speaker 1: big big sites or even movie theaters, you know, if
• 2:42
  Speaker 1: it's Disneyland in Shanghai, you know, people don't want to
• 2:46
  Speaker 1: congregate in big groups. And and that that is going
• 2:49
  Speaker 1: to have a downstream effects because of the China's role
• 2:54
  Speaker 1: in in in the global supply chain. Brendan I asked
• 2:59
  Speaker 1: this question of Damian Sasaur earlier. There is suspicion that
• 3:03
  Speaker 1: the UH, the the government of China basically encouraged national
• 3:08
  Speaker 1: investors UH, particularly those that are beholden to their wishes
• 3:13
  Speaker 1: UM to go in and buy stocks to perhaps save
• 3:16
  Speaker 1: some of the declines that we saw on the initial
• 3:18
  Speaker 1: day of trading. After reopening, uh, in the wake of
• 3:20
  Speaker 1: a closure due to the coronavirus? Is that true? How
• 3:24
  Speaker 1: much state sponsored encouraged buying was there? It's difficult to know,
• 3:29
  Speaker 1: you know, you know, the the Chinese regulator takes almost
• 3:32
  Speaker 1: a paternalistic role in the mainland market due to the
• 3:36
  Speaker 1: high participation rate from individual investors. UM. I do think
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  Speaker 1: there was activity uh from the quote unquote national team.
• 3:45
  Speaker 1: These are you know, big social security pension plans. The
• 3:50
  Speaker 1: end reality is when the last time we saw the
• 3:53
  Speaker 1: national field basically come come into the market was in
• 3:57
  Speaker 1: the summer of when when everything everyone was selling, they
• 4:02
  Speaker 1: bought and that ended up being a very profitable trade.
• 4:05
  Speaker 1: And I think, you know, I don't know. I don't
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  Speaker 1: think it's gonna happen tomorrow or in a week, but
• 4:10
  Speaker 1: in the it could be in the next month or
• 4:12
  Speaker 1: the next quarter. I think those purchases done today and
• 4:15
  Speaker 1: we'll probably see it again tomorrow. I think there's a
• 4:18
  Speaker 1: very profitable trade. This is you know, bylow cell high
• 4:22
  Speaker 1: so Brendan what you know, what do you think the
• 4:25
  Speaker 1: impact the coronavirus will be on GDP for China this
• 4:30
  Speaker 1: year and maybe even into next How does this how
• 4:32
  Speaker 1: do you think this will play out. So Hobey providence
• 4:36
  Speaker 1: plays a very minor role. Uh but but China is
• 4:40
  Speaker 1: is taking a very very serious approach. So so it
• 4:44
  Speaker 1: is going to affect it. You know, the cell side
• 4:46
  Speaker 1: analysts are going to start dialing down expectations. It's it's
• 4:50
  Speaker 1: even hard for them because we don't know when the
• 4:52
  Speaker 1: coronavirus will take it, when things will start to peter out.
• 4:56
  Speaker 1: You know. You know, the markets tended to come back
• 4:58
  Speaker 1: during stars uh once once the number of people infected stopped. Um,
• 5:05
  Speaker 1: And we're not there yet, so so it's hard to know.
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  Speaker 1: You know, I think things stay in a lockdown mode
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  Speaker 1: until we see the virus contain and as that becomes
• 5:14
  Speaker 1: stays become potentially weeks, the feasibility of that being months.
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  Speaker 1: It's going to have an economic impact, without question, Brendan,
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  Speaker 1: Does it worry you at all that we're seeing the
• 5:24
  Speaker 1: U N lose value versus the dollar now exceeding seven
• 5:28
  Speaker 1: u N per dollar? No? Not not. I mean, you know,
• 5:32
  Speaker 1: the U one you know, post trade deal came down
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  Speaker 1: from six twenty down into the six eighties. So um,
• 5:39
  Speaker 1: you know, I think you know, certainly to me, I
• 5:42
  Speaker 1: personally believe uh interest rate differentials as well as economic
• 5:46
  Speaker 1: conditions determined effects rates. Um. You know, certainly Chinese bond market,
• 5:51
  Speaker 1: what a rally yet that had overnight, I mean mass
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  Speaker 1: effensive as much as equities were down huge rally in
• 5:58
  Speaker 1: the onshore bond market. And then then combine that with
• 6:01
  Speaker 1: we're gonna have a weakening in the short run in
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  Speaker 1: China's common That explains the weaker you on. Thank you
• 6:07
  Speaker 1: so much being with us Brendan and her and chief
• 6:08
  Speaker 1: investment officer of Crane Shares in New York. Well, there
• 6:21
  Speaker 1: is increasing focus on Amazon dot Com as the dominant
• 6:24
  Speaker 1: commerce site, and there's a question about their crackdown or
• 6:28
  Speaker 1: lack thereof on counterfeit items. Joining us now, as Ronnie
• 6:32
  Speaker 1: I said Home, managing partner at sat Home Law Group
• 6:35
  Speaker 1: in our Interactive Broker Studios, Ronnie, let's just talk first
• 6:38
  Speaker 1: about why you decided to look at this in particular,
• 6:41
  Speaker 1: how big of a problem is it for counterfeit goods
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  Speaker 1: to be sold on the Amazon dot com platform. First
• 6:47
  Speaker 1: of all, thank you for having me here. I'm looking
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  Speaker 1: at it because it's an endemic issue on Amazon dot
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  Speaker 1: Com and it's sometimes it's quite subtle because the the
• 6:57
  Speaker 1: dollar amount that you're paying for this counterfeit merchandise is
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  Speaker 1: similar by maybe five to what you would pay for
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  Speaker 1: the genuine merchandise. Other times it's not so subtle, but
• 7:09
  Speaker 1: either way, most people are being duped. So is this
• 7:13
  Speaker 1: all products on online market places or is it primarily
• 7:16
  Speaker 1: luxury the high price luxury items. What kind of products
• 7:19
  Speaker 1: are typically susceptible to counterfeiting? Well, I'm very sorry to
• 7:23
  Speaker 1: have to announce this on the radio, but it's all
• 7:25
  Speaker 1: products at all price points, from toothpaste to rames items.
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  Speaker 1: What's Amazon dot COM's role in policing this, because ultimately,
• 7:36
  Speaker 1: is it their responsibility? Is it the perpetrators responsibility On
• 7:40
  Speaker 1: the other side, I think that's a great, great question.
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  Speaker 1: If you buy something that ends up being counterfeit from Sacks,
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  Speaker 1: Fifth Avenue or CBS, you can go back into that
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  Speaker 1: store and return it and have a conversation with someone
• 7:53
  Speaker 1: who may be able to assess the product um when
• 7:56
  Speaker 1: you return it and give you a refund. Here, no
• 8:00
  Speaker 1: one is really there to help you, and some sellers
• 8:03
  Speaker 1: do not allow you to return items. But in fairness,
• 8:06
  Speaker 1: Amazon dot Com is not trying to be a curator
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  Speaker 1: of retail items. They're trying to be or they aspire.
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  Speaker 1: The sense that I get is they aspire to be
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  Speaker 1: UH an online marketplace for many different retailers and sort
• 8:19
  Speaker 1: of a common h a common area. So does that
• 8:24
  Speaker 1: change their role? Kind of? Does it make it not
• 8:27
  Speaker 1: a good analogy necessarily to say sex with having no
• 8:31
  Speaker 1: I don't think it really changes my position because if
• 8:33
  Speaker 1: you're in a mall, we have them all right, we
• 8:35
  Speaker 1: have them all on Hudson Yards, we have them on
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  Speaker 1: Manhattan Mall's great and New Jersey too. There are malls everywhere.
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  Speaker 1: But by analogy, when you want to rent space to
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  Speaker 1: sell your merchandise, there's some kind of vetting process. Provide
• 8:51
  Speaker 1: me with your p n L. Let me see if
• 8:52
  Speaker 1: you're incorporated. Someone is caring about who that merchant is.
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  Speaker 1: Online it's very anonymous. I have no idea who you are.
• 9:01
  Speaker 1: Sometimes I can't tell where things are being shipped from
• 9:04
  Speaker 1: where they're being manufactured. And Amazon is extremely convenient. You
• 9:09
  Speaker 1: just sit or stand, press a button, and voila. Your
• 9:13
  Speaker 1: item is here within a day, sometimes even less. Okay,
• 9:17
  Speaker 1: so I'm a consumer. I realized that the package that
• 9:20
  Speaker 1: was just delivered to me is a counterfeit. What are
• 9:22
  Speaker 1: my legal rights. Amazon doesn't have a program that allows
• 9:26
  Speaker 1: you to return merchandise, but sometimes those refunds don't come
• 9:32
  Speaker 1: for a very long time. Sometimes people get lazy. I mean,
• 9:36
  Speaker 1: if you're buying lipstick for twelve dollars, you may not,
• 9:40
  Speaker 1: you know, make an attempt to return it. You'll say, oh,
• 9:42
  Speaker 1: it's not worth it. And that happens all the time.
• 9:45
  Speaker 1: So Amazon, though, they will if you say it's a
• 9:48
  Speaker 1: counterfeit and they agree with you, they will refund your money, right.
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  Speaker 1: I mean, it's not like Amazon's out there to to
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  Speaker 1: screw their users, are they. I mean, I can't speak
• 9:56
  Speaker 1: for Jeff Bezos. However, I can tell you that their
• 9:59
  Speaker 1: algorithm that uses Amazon's Choice does lead consumers to buy
• 10:04
  Speaker 1: counterfeit goods. Try it at home today, type in I
• 10:09
  Speaker 1: don't know, uh luxury iPhone case and see what pops up.
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  Speaker 1: There's a sort of a bigger question underlying a lot
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  Speaker 1: of what you're saying, which is what is the role
• 10:20
  Speaker 1: of Amazon dot Com and are they absconding it in
• 10:23
  Speaker 1: terms of being responsible stewards of the modern marketplace? And
• 10:28
  Speaker 1: this has been an issue with respect to how they
• 10:30
  Speaker 1: do their own product placement versus others their algorithm that way,
• 10:34
  Speaker 1: it's been an issue in terms of how they have
• 10:37
  Speaker 1: pushed some competitors out of the market. How does this
• 10:40
  Speaker 1: piece fit into that larger debate. I think it's all
• 10:44
  Speaker 1: part and parcel, uh the same. Amazon is trying to
• 10:48
  Speaker 1: maximize its profits. No one can blame them for that.
• 10:51
  Speaker 1: That's the purpose of a for profit company. However, there
• 10:55
  Speaker 1: are many ways you can do so, and one way
• 10:58
  Speaker 1: is educating the consumer. There is consumer loyalty. People may
• 11:01
  Speaker 1: think it's disappeared, but it's there. Amazon is a great,
• 11:06
  Speaker 1: you know, example of that. I want to go shopping.
• 11:09
  Speaker 1: I think of Amazon consumer loyalty. Get more of it.
• 11:12
  Speaker 1: Educate your consumers. Tell them this is the usual m
• 11:15
  Speaker 1: s r P of your item. So if you're paying,
• 11:17
  Speaker 1: we'll just go back to you know, cosmetics. If you
• 11:20
  Speaker 1: know that that Armani lipstick is supposed to be thirty
• 11:22
  Speaker 1: eight dollars, don't buy it for twenty dollars here it
• 11:26
  Speaker 1: may not be real. If you want to buy it,
• 11:28
  Speaker 1: then you may, but you should at least know what
• 11:31
  Speaker 1: you're getting into when you're purchasing the product. Also tell
• 11:34
  Speaker 1: us has this color been discontinued? Perhaps that's why it's
• 11:38
  Speaker 1: on sale. I don't know if it would get to twenty.
• 11:41
  Speaker 1: It might actually go up to However, educate consumers. Not
• 11:46
  Speaker 1: everybody knows how much every single item is supposed to cost.
• 11:50
  Speaker 1: Ronnie has set Home, Thanks so much for joining us.
• 11:52
  Speaker 1: We really appreciate your thoughts there. Ronnie is a managing
• 11:55
  Speaker 1: partner set Home Law Group, joining us here in our
• 11:57
  Speaker 1: Bloomberg Interactive Broker studio giving us something. It's about buying onlines,
• 12:02
  Speaker 1: not just Amazon dot Com buying a line in general.
• 12:14
  Speaker 1: Time to check in with Bloomberg Opinion. We're joined by
• 12:16
  Speaker 1: opinion columnist Noah Feldman was a professor of law at
• 12:20
  Speaker 1: Harvard University and also a Bloomberg Opinion columnists based in Boston.
• 12:24
  Speaker 1: No thanks so much for joining us. You know, it
• 12:27
  Speaker 1: looks like again, as Lisa was suggesting earlier, that this thing,
• 12:30
  Speaker 1: this impeaching trial, is pretty much done and dusted. Here,
• 12:32
  Speaker 1: let's take the step back and take a thirty thousand
• 12:35
  Speaker 1: foot view. What do you think are some of the
• 12:37
  Speaker 1: bigger picture takeaways from this whole process. There's a kind
• 12:43
  Speaker 1: of glass half full, glass half empty, set of ways
• 12:46
  Speaker 1: of looking at it. You know, the glass half full
• 12:48
  Speaker 1: side is that the president engaged in conduct that's certainly
• 12:51
  Speaker 1: the majority of Democrats in the House of Representatives thought
• 12:55
  Speaker 1: rose to the the level of impeachment, and they did what
• 12:57
  Speaker 1: they were supposed to do. They exercised their constitutional already,
• 13:00
  Speaker 1: they impeached him. So that's the good news. The system
• 13:03
  Speaker 1: worked in that in that way. The glass have full side, though,
• 13:07
  Speaker 1: is a little bit outweighed at the moment by the
• 13:09
  Speaker 1: glass half empty perception, which is that many Republicans in
• 13:12
  Speaker 1: the Senate seemed to be taking the view that even
• 13:15
  Speaker 1: if Trump did these things, it nevertheless doesn't count as
• 13:19
  Speaker 1: impeachable under the Constitution. And you know, it's hard to
• 13:22
  Speaker 1: say if they really believe that or if they're just
• 13:24
  Speaker 1: saying that to cover up their desire to, you know,
• 13:26
  Speaker 1: not to do anything politically bad to Trump. But either way,
• 13:29
  Speaker 1: it's not a great thing for them to be saying,
• 13:31
  Speaker 1: because it implies that this kind of conduct, you know,
• 13:33
  Speaker 1: cheating in an election, is just okay under our constitutional system,
• 13:37
  Speaker 1: and that's not going to bode well for the future.
• 13:39
  Speaker 1: Professor Veldman, given your work at Harvard when you are
• 13:42
  Speaker 1: clerking for a Supreme Court Justice David's suitor, and beyond
• 13:47
  Speaker 1: how much of a precedent, does this said for future
• 13:50
  Speaker 1: proceedings in terms of what is or in this case
• 13:54
  Speaker 1: is not a truly impeachable offense. There's two kinds of president.
• 13:58
  Speaker 1: When you talk about impeachment. There's not a court that
• 14:01
  Speaker 1: can be bound by an earlier decision. So when we
• 14:03
  Speaker 1: talk about president, we're talking about two things. One, we're
• 14:05
  Speaker 1: talking about the kinds of legal arguments that will be
• 14:08
  Speaker 1: made in any future impeachment proceeding. And for sure, if
• 14:12
  Speaker 1: Trump is cleared, whoever's defending a president in future impeachment
• 14:15
  Speaker 1: proceedings will say, look, the Trump impeachment stands for the
• 14:18
  Speaker 1: idea that you can't impeach someone unless there's some kind
• 14:22
  Speaker 1: of an actual statutory crime. And then other people who
• 14:25
  Speaker 1: will be able to say, well, says you, but that's
• 14:27
  Speaker 1: not really what happened. The other kind of president is
• 14:30
  Speaker 1: will any future House of Representatives even bother to impeach
• 14:34
  Speaker 1: a president who's done something that really breaks the constitutional
• 14:37
  Speaker 1: system but doesn't count as a statutory crime. That's the
• 14:40
  Speaker 1: kind of real world political calculus type of precedent. And
• 14:43
  Speaker 1: there it's you know, it's too soon to say, but
• 14:45
  Speaker 1: I certainly think that any future House of representatives is
• 14:48
  Speaker 1: going to be very, very very cautious about entering into
• 14:51
  Speaker 1: an impeachment under those conditions unless they're prepared to lose,
• 14:55
  Speaker 1: which I suppose the Democrats were in this case. So
• 14:58
  Speaker 1: were you surprised at all of that at the Republicans
• 15:01
  Speaker 1: stood so uniformally behind the president or it was this
• 15:05
  Speaker 1: like many people were concerned, kind of preordained. I'm sorry
• 15:10
  Speaker 1: to say that I'm not surprised by it. Um that said,
• 15:13
  Speaker 1: I am surprised to see senators saying that this conduct
• 15:17
  Speaker 1: just doesn't rise to the the level of impeachment. That seems
• 15:19
  Speaker 1: to me to be one of the more doubtful things
• 15:22
  Speaker 1: that they're saying. I actually expected them to say, well,
• 15:25
  Speaker 1: on the evidence, you know, maybe we just can't prove this,
• 15:28
  Speaker 1: and anyway, the president denies that. I expected a more
• 15:31
  Speaker 1: fact based defense. Even even again, even if it was hypocritical,
• 15:35
  Speaker 1: that just sounded more plausible to me than saying, well,
• 15:38
  Speaker 1: it doesn't rise the level of impeachment. And it also,
• 15:41
  Speaker 1: you know, the saying that it doesn't rise to the
• 15:42
  Speaker 1: level of impeachment has a much worse effect in the
• 15:45
  Speaker 1: long run, because it implies that they think this kind
• 15:47
  Speaker 1: of conduct is fine. Can you de grade Justice roberts
• 15:50
  Speaker 1: performance in this I think he did excellently. Um. You know,
• 15:54
  Speaker 1: his predecessor, Chief Justice Rank Whist, who actually, interestingly Roberts
• 15:59
  Speaker 1: also was a law clerk for many years ago, famously
• 16:01
  Speaker 1: said after the Continent impeachment trial, I did nothing in particular,
• 16:05
  Speaker 1: and I did it very well. And I think that's
• 16:07
  Speaker 1: what Roberts was aiming for. And I would give him
• 16:09
  Speaker 1: an a for doing nothing in particular and doing it
• 16:12
  Speaker 1: very well. So very well. Um. So the Constitution as
• 16:17
  Speaker 1: it relates to impeachment, has that been kind of neutered
• 16:21
  Speaker 1: it to some extent? I would say yes, you know,
• 16:24
  Speaker 1: I mean I think if the vote goes the way
• 16:26
  Speaker 1: we expected to, that really weakens the idea that the
• 16:30
  Speaker 1: impeachment is there to help protect us against the president
• 16:35
  Speaker 1: who does things to cheat in an election that don't
• 16:37
  Speaker 1: necessarily count a statutory crimes. And I would expect that
• 16:41
  Speaker 1: future presidents are likely to be willing to take that risk.
• 16:43
  Speaker 1: I mean, I hope it's not that way. I hope
• 16:45
  Speaker 1: future presidents say, well, you know, look, I mean Donald
• 16:48
  Speaker 1: Trump got impeached and that goes on his historical record,
• 16:50
  Speaker 1: and it looked bad and a lot of that, to
• 16:52
  Speaker 1: be blunt, is going to depend on what happens in
• 16:54
  Speaker 1: the next election. If Trump is re elected, people I
• 16:57
  Speaker 1: think will feel very few qualms in the future about
• 17:00
  Speaker 1: and what he did. If he's not re elected, there
• 17:02
  Speaker 1: might be some second thoughts. Professor Feldman, thank you so
• 17:05
  Speaker 1: much for being with us. Noah Feldman, Professor of Law
• 17:07
  Speaker 1: at Harvard University, also a Bloomberg Opinion columnist. Uh tons
• 17:11
  Speaker 1: of experience both in the legal and beyond worlds, having
• 17:15
  Speaker 1: clerked for Justice suitor joining us from Boston, Massachusetts. Well
• 17:30
  Speaker 1: coming into if you can rewind all the way back
• 17:33
  Speaker 1: to January nine, it was going to be the year
• 17:35
  Speaker 1: of the Big Unicorn I p O lift Uber we
• 17:39
  Speaker 1: work it didn't quite turn out that successfully for public
• 17:44
  Speaker 1: equity investors. To get a sense of kind of what
• 17:45
  Speaker 1: we should be learning from some of those lessons, we
• 17:47
  Speaker 1: welcome Vincent w R. He has a global macro strategist
• 17:51
  Speaker 1: for I N T l F C Stone based in
• 17:54
  Speaker 1: San Francisco, but joining us here on a Bloomberg and
• 17:56
  Speaker 1: Director Brooker Studio. So Vincent, thanks so much for joining
• 17:58
  Speaker 1: us again. As we think back, put our rear view mirror,
• 18:01
  Speaker 1: take look at the rear view mirror. We see uber,
• 18:03
  Speaker 1: we see lift, we see smile direct. A lot of
• 18:06
  Speaker 1: these companies raised a lot of money at a certain valuation.
• 18:09
  Speaker 1: They come to the public markets, they don't get that valuation.
• 18:13
  Speaker 1: What are some of the takeaways that that that you've
• 18:15
  Speaker 1: seen in your work? Well, I mean it's almost a
• 18:20
  Speaker 1: mirror opposite of what happened in two thousand when you
• 18:23
  Speaker 1: know you had these exuberant public markets. Today it seems
• 18:27
  Speaker 1: to me that the the exuberances on the private markets
• 18:30
  Speaker 1: and the public markets are bringing some form of discipline.
• 18:34
  Speaker 1: I mean, I was reading about Gasper trying to ip
• 18:36
  Speaker 1: you and a lot of these companies cannot get the
• 18:39
  Speaker 1: valuations that they got in in private markets. And the
• 18:43
  Speaker 1: effect that this has had is that, um, there's no exit. Um.
• 18:49
  Speaker 1: So now you you have this backlog of unicorns that
• 18:52
  Speaker 1: are burning gachet of the high rates, and the big exit,
• 18:56
  Speaker 1: whether it's you know, a big stuff bank cash infusion
• 19:01
  Speaker 1: or a big I p O is is no longer
• 19:03
  Speaker 1: going going to happen. So you have this idea that
• 19:07
  Speaker 1: actually the bust of these unicorns, the myth of the unicorns,
• 19:12
  Speaker 1: is going to be reflationary. Can you explain the connection there,
• 19:16
  Speaker 1: especially on a day what I should just know, we
• 19:19
  Speaker 1: just gotta headline on the w t I prices fell
• 19:21
  Speaker 1: below fifty barrel UH for the first time in more
• 19:26
  Speaker 1: than a year, so we have that kind of pressure
• 19:28
  Speaker 1: as well, right, Um, So I think first we need
• 19:32
  Speaker 1: to understand how it was deflationary in the first place.
• 19:37
  Speaker 1: I mean, following the away crisis you had, this UH
• 19:40
  Speaker 1: two thousand was a genuinely deflationary shock yelks flattened rates
• 19:46
  Speaker 1: when negative or the world. And what it did is
• 19:48
  Speaker 1: that it directed a flood of money into venture capital
• 19:51
  Speaker 1: and private equity, which certainly became seen as a silver
• 19:54
  Speaker 1: bullet that would allow endowment institutions to achieve the return targets.
• 19:59
  Speaker 1: And it was a very small asset class with not
• 20:02
  Speaker 1: that many great ideas, but the money got invested with
• 20:05
  Speaker 1: the mandate to achieve growth at any cost, kind of
• 20:08
  Speaker 1: the Amazon model. Right. Amazon never turned the profit in
• 20:10
  Speaker 1: the first nine years of its existence. So the way
• 20:13
  Speaker 1: most of these many of these companies did that was
• 20:15
  Speaker 1: by by sending your dollar for ninety cents um and
• 20:19
  Speaker 1: a lot of the consumer oriented unicorns were built on
• 20:22
  Speaker 1: that model. Let me achieve scale and then I'll worry
• 20:26
  Speaker 1: about profits later. So effectively, all these companies were subsidizing customers.
• 20:31
  Speaker 1: That's the example, of course, is we work lift uber
• 20:34
  Speaker 1: and UM. The more they grew, the more money they lost.
• 20:38
  Speaker 1: UM and as long as the money kept going in
• 20:41
  Speaker 1: the loop would keep going. But without this constant in
• 20:45
  Speaker 1: flats of money, I mean, you will have to raise prices.
• 20:47
  Speaker 1: I don't know if you've taken an uber lately, but
• 20:48
  Speaker 1: you'll notice that the prices have gone up significantly from
• 20:52
  Speaker 1: last year. And you've seen certainly a lot of a
• 20:54
  Speaker 1: lot of these unicorns come back and say, well it
• 20:56
  Speaker 1: will be profitable at will be profitable, while how A
• 21:00
  Speaker 1: You're going to achieve that by raising prices. So the
• 21:03
  Speaker 1: reflation trade, which is one of the trades we certainly
• 21:06
  Speaker 1: heard about when people strategies are talking about opportunities and
• 21:09
  Speaker 1: emerging markets, reflation trade small caps, we're obviously we're not
• 21:12
  Speaker 1: saying Lisa mentioned you know you've got oil uh w
• 21:15
  Speaker 1: t I dip below fifty dollars or barrel just a
• 21:17
  Speaker 1: few minutes ago. First time in a year, we've got
• 21:19
  Speaker 1: an inverted yield curve. What do you think are the
• 21:21
  Speaker 1: conditions that need to develop for that reflation trade to
• 21:24
  Speaker 1: really start to develop. What I think it was trying
• 21:28
  Speaker 1: to happen between you know, November December, you had a
• 21:32
  Speaker 1: good strength and copper prices you so value do well
• 21:35
  Speaker 1: emerging markets. It was all the trade, he hoped. I
• 21:37
  Speaker 1: think we had this perfect setup for it, and then
• 21:39
  Speaker 1: of course the coronavirus has thrown a big wrench into it.
• 21:42
  Speaker 1: But again, obviously I'm not a I can't really talking
• 21:46
  Speaker 1: too intently about the coronavirus. But maybe let's let's step
• 21:49
  Speaker 1: back a little bit and think of what it means.
• 21:51
  Speaker 1: I mean, either if it's really I think if if
• 21:54
  Speaker 1: it turns off, we'll go back to where we were before,
• 21:57
  Speaker 1: where you know, kind of global synchronized, we cover trade peace.
• 22:01
  Speaker 1: And if it's bad, I mean, you end up basically,
• 22:04
  Speaker 1: you know, shutting down the factory of the world. I mean,
• 22:06
  Speaker 1: to me down the line, that will be an inflationary event. Uh.
• 22:11
  Speaker 1: And and the last part I would say that people
• 22:13
  Speaker 1: probably should think about is how is that going to
• 22:16
  Speaker 1: change a policy response in China. In part of the
• 22:19
  Speaker 1: issue with the reflasion trade was a lack of Chinese stimulus.
• 22:21
  Speaker 1: Well maybe that is in a weird way that that
• 22:24
  Speaker 1: would be the trigger for that. You know, there there's
• 22:27
  Speaker 1: a question is it going to be reflationary in a
• 22:30
  Speaker 1: positive sense where you end up with more growth that
• 22:33
  Speaker 1: defend has been trying for and failing to get. Or
• 22:36
  Speaker 1: is it going to be stagflationary with prices being raised
• 22:39
  Speaker 1: at the time when higher bond prices might mean a
• 22:42
  Speaker 1: collapse in the stock market, etcetera, etcetera. Play out your
• 22:46
  Speaker 1: worst case scenario. So which is it could be more likely? Well,
• 22:49
  Speaker 1: I think I think at the beginning of the market
• 22:51
  Speaker 1: would obviously welcome some inflation, especially in the regions like
• 22:54
  Speaker 1: Europe in Japan, But eventually my thesis was a lot
• 23:00
  Speaker 1: of the things that we treated we mistook, and uh,
• 23:06
  Speaker 1: there is no productivity improvement in the uniquorn segment of
• 23:09
  Speaker 1: the world. So that would be more actually inflation story
• 23:13
  Speaker 1: stack flation ry than it would be a positive shock
• 23:16
  Speaker 1: over the long term. One of the interesting things just
• 23:19
  Speaker 1: coming out of Davos was the I don't know, listen,
• 23:22
  Speaker 1: who was the person that the boom bust cycle is over?
• 23:25
  Speaker 1: Bob Princes, Yeah, Bridge Water, I know you brought up
• 23:27
  Speaker 1: many times. It's interesting do you think that has values?
• 23:30
  Speaker 1: Has the FED taken that dynamic out of the marketplace.
• 23:33
  Speaker 1: Do you think again, as long as you don't have
• 23:37
  Speaker 1: inflation and the bab Princes comment makes sense, right. I
• 23:41
  Speaker 1: mean if the FED is, if central banks are freed
• 23:44
  Speaker 1: from their price stability mandate, they can pursue other mandates
• 23:47
  Speaker 1: like you know, rising asset prices or the ripple market
• 23:51
  Speaker 1: that suddenly their hands become free to do anything, any
• 23:53
  Speaker 1: anything that they want. If you get inflasion back, which
• 23:57
  Speaker 1: is my case, then know the boom bust cycle. It's
• 24:00
  Speaker 1: not over, it's just been postponed. Vincent Louire, thank you
• 24:04
  Speaker 1: so much for being with us, global macro strategist of
• 24:06
  Speaker 1: I N T L F C Stone based in San Francisco,
• 24:09
  Speaker 1: but joining us here in our interactive broker studios. We
• 24:11
  Speaker 1: really appreciate you being with us. Thanks for listening to
• 24:14
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 24:16
  Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
• 24:20
  Speaker 1: you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney.
• 24:23
  Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa abramo
• 24:25
  Speaker 1: wits one. Before the podcast, you can always catch us worldwide.
• 24:29
  Speaker 1: I'm Bloomberg Radio,