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Angela Merkel Pre-Empts Power Vacuum With Exit Strategy · 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 A. Bramowitz. Each day
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  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:26
  Speaker 1: Angela miracles reign as the head of Germany appears to
• 0:30
  Speaker 1: be coming to an end. This is the news uh
• 0:34
  Speaker 1: this morning, we are broadcasting live from the Bloomberg Interactive
• 0:37
  Speaker 1: Broker's studios. What does this mean for arguably the most
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  Speaker 1: powerful country in the European Union going forward? Joining us now,
• 0:46
  Speaker 1: Irene finnel Hannegman. She's an adgict Professor of International Affairs
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  Speaker 1: at Columbia University. Irene, thank you so much for being
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  Speaker 1: with us. What did you make of this announcement this
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  Speaker 1: morning from Uncle Bob. Well, first of all, this was
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  Speaker 1: clearly talk because both the international markets and certainly in
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  Speaker 1: Germany itself, this was not expected. But I do want
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  Speaker 1: to make one or two points. We have to understand
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  Speaker 1: that Andrea Macil has announced that she is stepping down
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  Speaker 1: from the c E C d U. In other words,
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  Speaker 1: she will no longer be in the leader of her party,
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  Speaker 1: which she has been actually UH since almost thirteen years,
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  Speaker 1: almost twenty years. Excuse me. However, she is not stepping
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  Speaker 1: down from the translorship. This is very important. She is
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  Speaker 1: still in her fourth term as Chancellor and will be
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  Speaker 1: till two thousand twenty one unless for some reason there
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  Speaker 1: is another real crisis and she is forced out. So
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  Speaker 1: at this point, which is the reason why there has
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  Speaker 1: not been as great a shock as they could have been,
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  Speaker 1: she is not stepping down as Chancellor. That is the
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  Speaker 1: first thing. The second point I want to make that
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  Speaker 1: she really at this point did not have a choice,
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  Speaker 1: as there have been severe electoral losses both in Bavarian
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  Speaker 1: and Hesse in the last two weeks, and her party
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  Speaker 1: would choose toff close to has now some been somewhere
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  Speaker 1: in the twenties, so it was clear that this has
• 2:07
  Speaker 1: become more disruptive to have her in charge of that. However,
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  Speaker 1: I think we never need to underestimate Angel America. In
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  Speaker 1: many ways, we have to remember she's been underestimated to
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  Speaker 1: she first came into politics in the ninety nineties under
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  Speaker 1: Trancellor Cold she was called the Matron, the young lady.
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  Speaker 1: She then became Muttie, the protective mother figure for Germany, cautious,
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  Speaker 1: protective and in a sense always pragmatic. So the question
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  Speaker 1: is is this in fact a very very smart preemptive
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  Speaker 1: move which instead of risking total disruption and intra factional fights,
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  Speaker 1: is she now stepping aside before being forced out, but
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  Speaker 1: actually doing this very much on her own terms. So
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  Speaker 1: I think that this is still a story in progress.
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  Speaker 1: This is not a definitive story. The other issue is
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  Speaker 1: who now takes over as head of the c DU.
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  Speaker 1: Her chosen successor would be any great Kranenbauer, who was
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  Speaker 1: the second in command of the c d U and
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  Speaker 1: who could ideally be able to lead thought a much
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  Speaker 1: stronger c DU Green coalition, as the Green Party has
• 3:19
  Speaker 1: shown very unexpected strength in the last two regional elections.
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  Speaker 1: So we are still right now in the wait and see.
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  Speaker 1: Angelmack led Europe through the financial basically all of the
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  Speaker 1: financial crisis, including the sovereign death crisis. As key player
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  Speaker 1: before that, she was the one who led Europe into
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  Speaker 1: a full Eurozone and the European Monetary Union. She has
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  Speaker 1: in a sense always had to play a tough role,
• 3:47
  Speaker 1: often a good cop bad cop versus other European leaders.
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  Speaker 1: But right now is Europe is again at the cusp
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  Speaker 1: of two major crises, Brexit and potentially Italy. It's very
• 4:00
  Speaker 1: important that are America is down. She's not necessarily out,
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  Speaker 1: so this I think is essential right now. This is
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  Speaker 1: say sentiment. I was listening to the German press and
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  Speaker 1: media this morning. There's a sense of shock across Germany.
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  Speaker 1: Whether people liked her or hated her, agreed or disagreed.
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  Speaker 1: The terms that we're hearing is dignified how she presented
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  Speaker 1: Germany to the world, and extraordinary, brilliant and pragmatic politician
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  Speaker 1: and very much still the sense of seeing what role
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  Speaker 1: does she play now the tragedy with are America, and
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  Speaker 1: it should have been in a way her greatest moral
• 4:38
  Speaker 1: victory was the refugee crisis in two thousands fifteen. Uh,
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  Speaker 1: this was a moral decision, it was not a political decision,
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  Speaker 1: perhaps for the first time in her life, that she
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  Speaker 1: stood outside of politics, as brilliant politicians she is. And
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  Speaker 1: unfortunately the assimilation did not occur she had hoped. It's
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  Speaker 1: been an unmitigated failure there was never a plan being
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  Speaker 1: Eastern and Central Europe immediately closed borders and closed their doors.
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  Speaker 1: And the great tragedy historically is that this actually led
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  Speaker 1: to the extreme right wing form a neo Nazi party,
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  Speaker 1: the a f D Atma Tifol Deutschland, coming into the
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  Speaker 1: German Parliament when Marker won her fourth UH chancellorship and
• 5:21
  Speaker 1: at this point is still a major problem for them
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  Speaker 1: to deal with just quickly. I read can can you
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  Speaker 1: describe in your experience what do you believe the disposition
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  Speaker 1: of the German government will be like without Angela Merkel? Well,
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  Speaker 1: I think the problem is can she maintain still enough
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  Speaker 1: strength and leadership as chancellor versus what she always wanted
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  Speaker 1: to do is to be both head of the party
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  Speaker 1: and chancellor. There is a precedent. Schroeder tried this when
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  Speaker 1: he was forced out of his party in two thousand
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  Speaker 1: four and remains still transferred to the end of his
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  Speaker 1: term in two thousand five. Hard to know. In my opinion,
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  Speaker 1: I think Marcus can probably do this. It'll be interesting
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  Speaker 1: to see whether the shop of Andrea Marcos stepping down
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  Speaker 1: in a way wakes up some of these groups within
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  Speaker 1: her own party and brings about in fact more rather
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  Speaker 1: than less cohesion. Uh, this is still very unclear at
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  Speaker 1: this point. As I said, the feeling I had this
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  Speaker 1: morning was that everyone is genuinely in shock right now
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  Speaker 1: and trying to figure out how to pick up the pieces.
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  Speaker 1: Irene vanel Hanagan, thank you very much, Adjunct Professor, International Affairs,
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  Speaker 1: Columbia University. You're listening to Bloomberg Markets. We're broadcasting from
• 6:42
  Speaker 1: the Bloomberg Interactive broker's studios. Our topic now is Tesla
• 6:47
  Speaker 1: and joining us as Robert Hockett, Professor of laud Cornell University,
• 6:51
  Speaker 1: also a consultant for the New York Federal Reserve and
• 6:54
  Speaker 1: for the International Monetary Fund. And you think having a
• 6:58
  Speaker 1: professor of law comment Tesla not going to talk about
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  Speaker 1: zero to sixty. We're going to talk about the Federal
• 7:04
  Speaker 1: Bureau of Investigation and potential misstatements related to production of
• 7:10
  Speaker 1: Model three Sedans. Bob Hockett, what can you tell us
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  Speaker 1: about this investigation and have you seen anything similar in
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  Speaker 1: the past? Well, in many ways, um, actually thanks for
• 7:21
  Speaker 1: having me on you guys. Um, in many ways this
• 7:23
  Speaker 1: is quite reminiscent of the investigation late in the summer
• 7:27
  Speaker 1: about mr Or in connection with Mr Musk's tweets right
• 7:31
  Speaker 1: about the funding being secured for UH take private transaction,
• 7:36
  Speaker 1: it looks as though it's the same sort of thing effectively, UM.
• 7:40
  Speaker 1: The worry is that there might have been a bit
• 7:41
  Speaker 1: of an overstatement, in other words, a bit of an
• 7:43
  Speaker 1: over optimistic statement UM, concerning how ready Tesla was to
• 7:48
  Speaker 1: meet its production targets. UH. And the question is whether
• 7:51
  Speaker 1: that that overstatement was intentional or reckless, or you know,
• 7:56
  Speaker 1: designed to get the shareholders and perspect active shareholders to
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  Speaker 1: be themselves over optimistic about testless prospects. You know. I
• 8:05
  Speaker 1: have to wonder, in this new era of social media
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  Speaker 1: and a lot of CEO is taking to Twitter, how
• 8:12
  Speaker 1: that changes the scenario from a legal perspective. In other words,
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  Speaker 1: Elon Musk is known as UH an extraordinary human being
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  Speaker 1: who it can be a bit bombastic, and so does
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  Speaker 1: that sort of make him less credible and thus less
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  Speaker 1: liable for misstatements. I think that's a great question, Lisa.
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  Speaker 1: In theory it could, and I think even in theory
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  Speaker 1: it should, in the sense that in general, what we
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  Speaker 1: ask when we're asking whether somebody is misleading investors or
• 8:41
  Speaker 1: attempting to mislead investors or acting in a manner that
• 8:44
  Speaker 1: is likely to mislead investors. A central inquiry at the
• 8:48
  Speaker 1: core of that particular inquiry is what would a reasonable
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  Speaker 1: investor believe or what would a reasonable investor take the
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  Speaker 1: speaker to be meaning right? Or how much credence or
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  Speaker 1: how much reliance would a reasonable investor sort of vest
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  Speaker 1: in the statements of the um, the the spokesperson, right, uh,
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  Speaker 1: And as you say, um, the fact that Mr Musk
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  Speaker 1: is kind of known as a kind of overly optimistic
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  Speaker 1: prognosticator sometimes, and the fact that social media is a
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  Speaker 1: very common menu for people to sort of over a
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  Speaker 1: common venue at which people make sort of overly optimistic
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  Speaker 1: statements of predictions, might make you think that the reasonable
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  Speaker 1: investor would take anything that they find by or come
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  Speaker 1: sort of here over social media with the proverbial grain
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  Speaker 1: of salt. Well, why do why have this investigation in
• 9:37
  Speaker 1: the first place. It doesn't even seem as if the
• 9:39
  Speaker 1: SECS investigation has curtailed Elon Musk's use of Twitter. Yeah,
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  Speaker 1: well so, I think a couple of things, right. It
• 9:48
  Speaker 1: looks as though the d o J and the SEC
• 9:50
  Speaker 1: alike are wanting to see to it that social media
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  Speaker 1: does not become a sort of gigantic loophole uh in
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  Speaker 1: the rules that were in early governed communications that firms
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  Speaker 1: make to the general public or that individual insiders within
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  Speaker 1: the firms do. So there's sort of, um, you know,
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  Speaker 1: they're basically trying to set the standard uh of reasonable illness,
• 10:12
  Speaker 1: you might say, rather than to simply to react to
• 10:16
  Speaker 1: a sort of antecedently given standard a reasonable nous um
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  Speaker 1: in those particular metaphora. UM. As for why Mr Musk
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  Speaker 1: has not stopped or why he kind of continues to
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  Speaker 1: speak optimistically, I think there are two reasons. One is,
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  Speaker 1: I think it's just in his nature um. And I
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  Speaker 1: actually don't fault him for that exactly. It It seems
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  Speaker 1: to come with the sort of entrepreneurial personality that leads
• 10:37
  Speaker 1: somebody to innovate in many ways. In the way that
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  Speaker 1: he does, UH to be UM sort of overly optimistic
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  Speaker 1: sometimes or a kind of a booster. I mean, I
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  Speaker 1: think he believes his own overly optimistic uh claims, and
• 10:49
  Speaker 1: you know, God love him for it in a sense. Right.
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  Speaker 1: The other reason I think that he continues is that,
• 10:54
  Speaker 1: you know, the fines thus far have been fairly minimal. Right,
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  Speaker 1: as you guys know, he tweeted this weekend that um
• 11:00
  Speaker 1: it was total forty million, that it was quote unquote
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  Speaker 1: worth it. Yeah, it's sort of maybe being viewed by
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  Speaker 1: him and others at the moment as sort of just
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  Speaker 1: one of the costs of doing business, as it were.
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  Speaker 1: So in other words, going back to your point about
• 11:12
  Speaker 1: how regulators have been trying to close this loophole created
• 11:16
  Speaker 1: by social media, are they failing? Um, well, I mean
• 11:21
  Speaker 1: they're not. Let's say they're not succeeding yet, because it's
• 11:25
  Speaker 1: there's a sense in which has only just begune right,
• 11:27
  Speaker 1: and it's still kind of I think it's a bit
• 11:29
  Speaker 1: of a toss up um where we're ultimately ultimately going
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  Speaker 1: to end up when it comes to communications over social media.
• 11:36
  Speaker 1: I could imagine the law gradually developing in such a
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  Speaker 1: way as to recognize at least a sort of partial
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  Speaker 1: loophole in the sense that they say, well, social media
• 11:45
  Speaker 1: is a little bit different from say formal communications or
• 11:49
  Speaker 1: communications you know in shareholder meetings or you know, in
• 11:53
  Speaker 1: the road shows or the like. Uh, and so we'll
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  Speaker 1: sort of make the standard a little bit more lenient there.
• 11:58
  Speaker 1: I can still imagine that turning out to be, uh,
• 12:02
  Speaker 1: the ultimate standard. I could also, of course imagine them saying, well,
• 12:05
  Speaker 1: there's really nothing different about social media, and the very
• 12:08
  Speaker 1: same standards will apply. And because we're just at the
• 12:10
  Speaker 1: beginning of the process of determining that, and again the
• 12:14
  Speaker 1: regulators will be the determinators ultimately. UM, it's kind of
• 12:17
  Speaker 1: hard to say whether they're failing yet or not because
• 12:20
  Speaker 1: we're just so still so early in that process. Bob Hockett,
• 12:23
  Speaker 1: thank you so much for being with us. Really fascinating.
• 12:26
  Speaker 1: Bob hocket is professor of law Cornell University, coming to
• 12:29
  Speaker 1: us from Ithaca, New York. He's also a consultant for
• 12:32
  Speaker 1: the New York Fed and the International Monetary Fund and Pam,
• 12:35
  Speaker 1: you know, this is going to be an ongoing big question,
• 12:37
  Speaker 1: especially as we have the cult of personality leading companies
• 12:41
  Speaker 1: and leading also the advertising of those companies on social media.
• 12:45
  Speaker 1: I mean, this is basically the facto advertising. What is
• 12:49
  Speaker 1: sort of the loophole or what are the provisions? What
• 12:51
  Speaker 1: can they can they cannot say on social media that
• 12:54
  Speaker 1: might end up moving their shares A really interesting question. Well,
• 13:01
  Speaker 1: Cure Leaf Holdings, this is a US cannabis producer. It
• 13:05
  Speaker 1: began trading on the Canadian Securities Exchange with a valuation
• 13:09
  Speaker 1: of about nine rather six billion dollars. It completed a
• 13:13
  Speaker 1: reverse takeover of Canada's Lead Ventures. The company is based
• 13:17
  Speaker 1: in Wakefield, Massachusetts. Joe Lusardi, the president of cure Leaf,
• 13:22
  Speaker 1: joins us here in our Bloomberg Interactive Broker's studio. Joe,
• 13:26
  Speaker 1: thank you very much for being here. Congratulations on your
• 13:29
  Speaker 1: initial public offering. Thank you. Why did you decide to
• 13:31
  Speaker 1: do it as a reverse takeover of lead Ventures rather
• 13:36
  Speaker 1: than a pure I p O to be Canadida. That
• 13:38
  Speaker 1: was the fastest way to the equity markets, and no
• 13:41
  Speaker 1: US company has successfully done an IPO yet in the
• 13:44
  Speaker 1: Canadian exchanges. But our offering was I p O like
• 13:46
  Speaker 1: in its quality, so we did a full disclosure statement.
• 13:49
  Speaker 1: We did a three week international road show and attracted
• 13:52
  Speaker 1: investments from over a hundred institutions across the world. So
• 13:55
  Speaker 1: we were excited about it. What are curra Leaf's biggest
• 13:58
  Speaker 1: competitors and what exactly is curre Leaves business? So Curely
• 14:02
  Speaker 1: is a vertical marijuana company. So we cultivate, manufacturing, dispense cannabis.
• 14:06
  Speaker 1: We operate twenty eight dispensaries where the largest dispensary network
• 14:10
  Speaker 1: under one brand in the US right now, and so
• 14:12
  Speaker 1: we are the fastest growing largest US company. So is
• 14:15
  Speaker 1: this uh for recreational or medical or both of our
• 14:19
  Speaker 1: sales are medical. We service thirty three thousand unique patients
• 14:23
  Speaker 1: last month. That's something I'm extremely proud of. And so
• 14:25
  Speaker 1: we're primarily a medical business today. But many markets were
• 14:28
  Speaker 1: in including Massachusetts, are liberalizing and they're converting from medical
• 14:31
  Speaker 1: to adult use. So we can expect that we'll address
• 14:33
  Speaker 1: that market in two thousand nineteen as well. Tell us
• 14:36
  Speaker 1: a little bit about the process that a company has
• 14:39
  Speaker 1: to go through in order to get a license to
• 14:43
  Speaker 1: operate a dispensary, because there are so many different state
• 14:47
  Speaker 1: rules and regulations, and then there's also the divergence between
• 14:50
  Speaker 1: recreational use and medical use medicinal use. Correct. I mean,
• 14:54
  Speaker 1: it's a really rigorous process. I think that you have
• 14:57
  Speaker 1: to understand that each state is unique and they all
• 14:59
  Speaker 1: have different regulatory requirements. But our business is primarily on
• 15:03
  Speaker 1: the East Coast and those are some of the most
• 15:04
  Speaker 1: regulated markets in the country. For example, in New Jersey,
• 15:08
  Speaker 1: we had to be background checked by the New Jersey
• 15:10
  Speaker 1: Gaming Commission as well as the state regulators. So, um,
• 15:13
  Speaker 1: we are probably the most vetted, background checked individuals in
• 15:16
  Speaker 1: the in the country. I would say at this point
• 15:18
  Speaker 1: were we operate in ten states and so we've been
• 15:20
  Speaker 1: through this, uh, you know, ten times already. So Joe,
• 15:23
  Speaker 1: can you can you talk a little bit about what
• 15:25
  Speaker 1: it's been like from your perspective watching the up and
• 15:28
  Speaker 1: down in pot stocks that we've been experiencing and the
• 15:31
  Speaker 1: comparisons between bitcoin and pot stocks. How has that sort
• 15:35
  Speaker 1: of influenced your decision and when to go public and
• 15:37
  Speaker 1: how Yeah, yeah, I mean, I mean, certainly the markets
• 15:40
  Speaker 1: are volatile, no doubt, But I mean the reality is
• 15:42
  Speaker 1: this is our first day of trading, not our last,
• 15:44
  Speaker 1: and my job is to create long term shareholder value
• 15:46
  Speaker 1: and I intend to do that. I don't think it's
• 15:48
  Speaker 1: a good analogy to compare us to bitcoin. We're a
• 15:50
  Speaker 1: real company with earnings and revenue, and I think that
• 15:53
  Speaker 1: as we post quarterly returns, I think investors will recognize that, Um,
• 15:57
  Speaker 1: you know, we're going to generate a lot of value
• 15:58
  Speaker 1: for shareholders. I was I was going to ask about
• 16:01
  Speaker 1: some of the medicinal research that's going on, because you know,
• 16:05
  Speaker 1: it's understandable that t HC, which is the psychoactive UH
• 16:12
  Speaker 1: portion of the cannabis plant, gets a lot of attention.
• 16:15
  Speaker 1: But there's c B D, CBC, c b G. I mean,
• 16:18
  Speaker 1: there are a lot of acronyms here. Can you just
• 16:21
  Speaker 1: pull out a couple of them and explain to people
• 16:24
  Speaker 1: what kind of research is going on? Absolutely, I mean
• 16:26
  Speaker 1: there are over a hundred compounds and the cannabis plants,
• 16:29
  Speaker 1: some of which we don't really understand yet. There's a
• 16:32
  Speaker 1: lot of research happening internationally, and the reality is that
• 16:35
  Speaker 1: we need that research to happen in the US, and
• 16:37
  Speaker 1: so we're working very hard with our representatives and in Washington,
• 16:41
  Speaker 1: d C. To get a bill pass so we can
• 16:42
  Speaker 1: study cannabis in the US. UM. It's a shame that
• 16:45
  Speaker 1: most of the research is happening UM internationally at the moment,
• 16:48
  Speaker 1: but we have tremendous amount of anecdotal evidence that cannabis
• 16:51
  Speaker 1: is effective. We have millions of people in the United
• 16:53
  Speaker 1: States using cannabis to UM, you know, treat some very
• 16:56
  Speaker 1: very serious diseases, and so there's no doubt in my
• 16:58
  Speaker 1: mind that over time and we'll be able to do
• 17:00
  Speaker 1: profound research and demonstrate that all that cannabinoids in the
• 17:04
  Speaker 1: cannabis plant can have medicinal qualities. How much of your
• 17:07
  Speaker 1: future business Planet hinges on the idea of marijuana being
• 17:11
  Speaker 1: legalized for recreational use in the US well, as I said,
• 17:14
  Speaker 1: right now, we're mostly medical, but certainly as the markets liberalized,
• 17:17
  Speaker 1: we will address that market. If you think about the
• 17:20
  Speaker 1: cannabis today in the US, by any estimate, it's about
• 17:22
  Speaker 1: a seventy five billion dollar industry and only eleven billion
• 17:26
  Speaker 1: of that is regulated at the moment, So there's a
• 17:28
  Speaker 1: huge amount of growth we think ahead of us in
• 17:30
  Speaker 1: this industry, both in medical formats and and recreational. There
• 17:33
  Speaker 1: are only eight states that have adult use programs at
• 17:35
  Speaker 1: the moment, so um, you know, we think there's a
• 17:37
  Speaker 1: lot of growth to come and we'll be part of that.
• 17:39
  Speaker 1: Thank you so much for being with us, My pleasure.
• 17:41
  Speaker 1: Thank you. Joe Lisard loose Hardy is president of cure Leaf,
• 17:45
  Speaker 1: which is based in Wakefield and is one of the
• 17:47
  Speaker 1: largest cannabis retailers in the United States. Deciding UH an
• 17:52
  Speaker 1: interesting way to list in Canada since in the US
• 17:56
  Speaker 1: it is not broadly legalized, even on the medical side.
• 18:00
  Speaker 1: PIM and the state. Uh, well, the individual provinces rather
• 18:05
  Speaker 1: of Canada are going to be the ones that they're
• 18:07
  Speaker 1: the ones that offer the products. The topic now is
• 18:13
  Speaker 1: China considering a tax cut in order to revive and
• 18:18
  Speaker 1: help their automotive industry. Brendan to Hearn is the chief
• 18:22
  Speaker 1: investment officer for Crane Shares. They are experts when it
• 18:25
  Speaker 1: comes to investing in China. Brendan joins us here in
• 18:28
  Speaker 1: our eleven three oh studios. Thanks very much for being here. Brendon,
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  Speaker 1: Let's talk or have you talk about how bad is
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  Speaker 1: the automotive industry in China? Why do they need this
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  Speaker 1: tax cut? Well, China is still the global leader in
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  Speaker 1: terms of auto sales that you have, almost twenty four
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  Speaker 1: million cars were sold in China last year. GM alone
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  Speaker 1: sold more four million cars in China three million cars
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  Speaker 1: here in the US. But we've seen the UH rate
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  Speaker 1: of sales come down a bit. So in order to
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  Speaker 1: help push this con assumption, h autos is a big
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  Speaker 1: part of that, we're seeing a potential tax cut when
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  Speaker 1: it comes to car car purchases. How big are the taxes?
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  Speaker 1: And with this tax cut applied to global companies that
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  Speaker 1: don't that aren't based in China that are also rallying
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  Speaker 1: on this news. So the foreign autos that are imported,
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  Speaker 1: there is a there is a pretty meaningful tariff that's
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  Speaker 1: actually gone up due to this trade war. But a
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  Speaker 1: lot of the foreign automakers Volkswagen, GM Ford actually manufacture
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  Speaker 1: their vehicles within China and therefore avoid the tariff. So
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  Speaker 1: the ones that have the local manufacturing capacity would would
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  Speaker 1: actually benefit from that. And how big is the tax
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  Speaker 1: just in general, even for local cars, So the China
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  Speaker 1: has a vat tax which runs around twelve percent. Uh
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  Speaker 1: so it's it's you know, any sort of tax cut
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  Speaker 1: is gonna have a pretty meaningful impact the automotive industry
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  Speaker 1: in China, as you said, has an effect on companies
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  Speaker 1: outside of China. Is the economy in China doing well?
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  Speaker 1: So China it's a it's a big country geographically and
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  Speaker 1: likewise the economy is very big. So parts of China's
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  Speaker 1: economy are definitively slowing a lot of those traditional economic sectors.
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  Speaker 1: At the same time, parts of China are doing very
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  Speaker 1: very well. The more domestically oriented domestic consumption names are
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  Speaker 1: performing quite well. So as investors, we want to be
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  Speaker 1: very specific and where we're kind of placing our chips
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  Speaker 1: in order to really overweight the parts of China that
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  Speaker 1: are doing well, where lessening our exposure to some of
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  Speaker 1: those slowing parts of China. So Howard Marks, one of
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  Speaker 1: the co founders of Oak Trade, the world's biggest distress
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  Speaker 1: debt investors, said that he was actually interested in starting
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  Speaker 1: to buy distressed debt and equities in China. Um, what
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  Speaker 1: do you make of that? Well, certainly Mr Marks is
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  Speaker 1: you know, a very well regarded, well followed investors, so
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  Speaker 1: certainly his words carry a lot of gravitas um. And
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  Speaker 1: certainly I think it's very encouraging that at these two
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  Speaker 1: price levels in terms of equities Shanghai Composite, the pe
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  Speaker 1: is now under eleven four looking pees those are the
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  Speaker 1: ten uh. You get these discount sales um not very
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  Speaker 1: often as investors, so we do think it's a great
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  Speaker 1: entry point. You talked about specific areas of investment in China,
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  Speaker 1: So what are those specific areas? So we we Domestic consumption, healthcare,
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  Speaker 1: clean energy are three of our as well as the
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  Speaker 1: Belton Road related infrastructure names. UH. Domestic consumption is area
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  Speaker 1: that has come down a lot of the US list
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  Speaker 1: of Chinese internet and e commerce companies are off very dramatically.
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  Speaker 1: For instance, Tal Education Great Online Education It's it's stock
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  Speaker 1: is off over fifty percent from its June highs. They
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  Speaker 1: just reported earnings on Friday. They grew revenue fifty year
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  Speaker 1: over year. So I think that's where the sediment and
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  Speaker 1: the fundamentals have potentially diverged very greatly. I think that
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  Speaker 1: one challenge for investors with respect to China, and something
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  Speaker 1: that sort of clouds my understanding of what's going on
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  Speaker 1: there is the government intervention and the huge leverage pile
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  Speaker 1: that is sort of supported and fueled economy. You just
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  Speaker 1: have to wonder at what point will the government be
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  Speaker 1: unable to step in and support markets the way that
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  Speaker 1: they have continued to do so year after year to
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  Speaker 1: keep this growth going. So yeah, I mean, I would
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  Speaker 1: agree that the China's economy has one it has been slowing.
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  Speaker 1: They've been fighting an anti pollution campaign. They've been very
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  Speaker 1: aware of debt to GDP growth, so they're trying to
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  Speaker 1: de leverage uh debt in China. It's not the government,
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  Speaker 1: it's not the household, it's not the private companies, it's
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  Speaker 1: the big s O ees. So there's a big focus
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  Speaker 1: on basically making credit more difficult for these s o
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  Speaker 1: s make it more expensive at s, and they don't
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  Speaker 1: want to shut off so they don't want to shut
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  Speaker 1: off credit to private companies. So so they have to
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  Speaker 1: play a little bit of a balancing act here. The
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  Speaker 1: market in China is, as you mentioned, huge, right, It's
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  Speaker 1: very difficult to figure out, you know, what is going
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  Speaker 1: to win, what's not going to win. What about high
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  Speaker 1: end luxury goods companies that are outside of China but
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  Speaker 1: derive huge business from Chinese markets. I'm thinking of LVMH
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  Speaker 1: for example. Well just just recently, um I believe was
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  Speaker 1: a Gucci just came out and said that there they
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  Speaker 1: actually had a great quarter in China, in China, And
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  Speaker 1: who would have thunk it? Right that that you know, China,
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  Speaker 1: you've got this China pocalypse. It's it's just where sometimes
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  Speaker 1: these uh perceptions that don't meet with reality. And I
• 23:29
  Speaker 1: thought gucciese earnings and people say, oh, how can we
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  Speaker 1: trust these numbers? It's this isn't that talent. But I mean,
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  Speaker 1: do you do you buy into that? Do you think
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  Speaker 1: that those are the kinds of companies that are continued
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  Speaker 1: to do well. I I do believe anything domestically oriented that.
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  Speaker 1: If anything, this current trade war, which I think well
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  Speaker 1: get resolved, shows why China needs to continue to raise
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  Speaker 1: domestic consumption less than any dependency on export driven manufacturing, uh,
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  Speaker 1: just in order to insulate themselves and in the years
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  Speaker 1: to come. There's a cliche that there's a rolling all
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  Speaker 1: of money in China that goes from one asset class
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  Speaker 1: to another as investors start to stampede away from one
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  Speaker 1: area into another. The stampede has been going into bonds,
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  Speaker 1: and you've seen yields drop in China, lowering borrowing costs,
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  Speaker 1: which again leads to sort of releveraging and an incentive
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  Speaker 1: to do that. I mean, do you think that that
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  Speaker 1: can last? I think one of China's issues this very
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  Speaker 1: high savings rate, where you are very much responsible for
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  Speaker 1: your healthcare, your retirement. These banks have a lot of deposits.
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  Speaker 1: Would do banks do with deposits? They lend, so so
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  Speaker 1: that's part of I think there's been this malinvestment of
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  Speaker 1: where that lending has gone, and they need to reorientate
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  Speaker 1: it away from the big state owned enterprises. UM I
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  Speaker 1: eat no default risk to the private companies that where
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  Speaker 1: there is default risk, So the bankers have been a
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  Speaker 1: part of this issue. Is there really no default risk
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  Speaker 1: in risk in the s o s at this point?
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  Speaker 1: Now there is? You know, I think that's one aspect
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  Speaker 1: of China is very much aware that, uh, there's potentially
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  Speaker 1: that first domino within their economy and within their financial systems.
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  Speaker 1: So they're trying to identify those players that could act
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  Speaker 1: as a first commino, which means if you're big enough,
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  Speaker 1: you get saved, but if you're not big enough, guess what,
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  Speaker 1: You're gone. Very Darwinistic and we're seeing the faults actually
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  Speaker 1: pick up. We think that's actually a good thing, a
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  Speaker 1: healthy thing that the martin you know, the invisible hand
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  Speaker 1: of the market is at work here, the invisible hand
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  Speaker 1: making itself felt. You know, honestly, China's intervention, it's still
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  Speaker 1: my head hurts a little bit to understand where they're intervening,
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  Speaker 1: where they're willing to, where they want to leverage, why
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  Speaker 1: they're incentivized to do so. A lot of questions, Brendon
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  Speaker 1: to Herne are really outlined a lot of really important issues.
• 25:39
  Speaker 1: Thank you so much for being with us. Brendan Hern,
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  Speaker 1: Chief Investment Officer, at Crane Shares based in New York
• 25:44
  Speaker 1: and PAM. A lot of people are focusing on China
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  Speaker 1: as sort of the lynchpin in the future of global markets,
• 25:50
  Speaker 1: certainly for emerging markets, but also in particular in Europe
• 25:54
  Speaker 1: given the important expert export lines of transmission. Lisa Abramo
• 26:00
  Speaker 1: wits along with my co host Pim Fox, and this
• 26:02
  Speaker 1: is Bloomberg Markets. Thanks for listening to the Bloomberg P
• 26:06
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 26:09
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• 26:14
  Speaker 1: I'm Pim Fox, I'm on Twitter at pim Fox. I'm
• 26:17
  Speaker 1: on Twitter at Lisa abramowits one before the podcast. You
• 26:21
  Speaker 1: can always catch us worldwide on Bloomberg Radio